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, 2002
------------------
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-8467
------
WESBANCO, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
West Virginia 55-0571723
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer 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 20,755,732
shares outstanding at October 31, 2002
WESBANCO, INC.
TABLE OF CONTENTS
-----------------
ITEM # ITEM PAGE NO.
- ------ ---- --------
PART I - FINANCIAL INFORMATION
------------------------------
1 Financial Statements and Accompanying Notes 3 - 11
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 24
3 Quantitative and Qualitative Disclosures About
Market Risk 24 - 25
4 Controls and Procedures 25
PART II - OTHER INFORMATION
---------------------------
1 Legal Proceedings 25 - 26
2 Changes in Securities and Use of Proceeds 26
3 Defaults Upon Senior Securities 26
4 Submission of Matters to a Vote of Security Holders 26
5 Other Information 27
6 (a) Exhibits 27
6 (b) Reports on Form 8-K 27
Signatures and Certifications 28 - 30
Exhibits E-1 - E-11
2
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. - Financial Statements
- ------------------------------
Consolidated Balance Sheets at September 30, 2002 and December 31, 2001,
and Consolidated Statements of Income for the three months and nine months
ended September 30, 2002 and September 30, 2001, and Consolidated Statements
of Changes in Shareholders' Equity and Consolidated Statements of Cash Flows
for the nine months ended September 30, 2002 and 2001 are set forth on the
following pages.
On March 1, 2002, WesBanco, Inc. ("WesBanco") completed the acquisition
of American Bancorporation ("American") and the merger of American's
affiliate, Wheeling National Bank, with and into WesBanco's affiliate,
WesBanco Bank, Inc. As of the date of the acquisition, American had total
assets of approximately $679 million that represented 28% of WesBanco's
pre-acquisition total assets.
In the opinion of the management of WesBanco, all adjustments,
consisting of normal recurring accruals necessary for a fair presentation of
the financial information referred to above for such periods, have been made.
The results of operations for the three months and nine months ended
September 30, 2002 are not necessarily indicative of what results may be
attained for the entire year.
For further information, refer to the 2001 Annual Report to Shareholders,
which includes consolidated financial statements and footnotes thereto and
WesBanco's Annual Report on Form 10-K for the year ended December 31, 2001.
3
WESBANCO, INC.
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
(Unaudited, dollars in thousands)
September 30, December 31,
2002 2001
------------- ------------
ASSETS
Cash and due from banks $ 86,612 $ 81,563
Due from banks - interest bearing 913 712
Federal funds sold 1,900 ---
Securities:
Held to maturity (fair values of $502,830
and $242,558, respectively) 483,353 240,953
Available for sale, carried at fair value 677,556 517,517
--------- ---------
Total securities 1,160,909 758,470
--------- ---------
Loans:
Commercial 729,230 569,193
Real estate 761,205 657,784
Consumer 330,507 312,718
--------- ---------
Total loans 1,820,942 1,539,695
Allowance for loan losses (24,893) (20,786)
--------- ---------
Net loans 1,796,049 1,518,909
--------- ---------
Premises and equipment 56,473 50,252
Accrued interest receivable 19,997 16,290
Goodwill 46,940 19,898
Core deposit intangible 14,868 ---
Other assets 48,100 28,360
--------- ---------
Total Assets $3,232,761 $2,474,454
========= =========
LIABILITIES
Deposits:
Non-interest bearing demand $ 291,479 $ 244,422
Interest bearing demand 271,912 245,447
Money market accounts 486,367 406,727
Savings deposits 365,614 252,438
Certificates of deposit 974,447 764,424
--------- ---------
Total deposits 2,389,819 1,913,458
--------- ---------
Federal Home Loan Bank borrowings 295,396 106,889
Other borrowings 151,651 172,242
Accrued interest payable 8,169 7,313
Other liabilities 43,849 16,351
Company obligated mandatorily redeemable
capital securities of subsidiary trust 12,650 ---
--------- ---------
Total Liabilities 2,901,534 2,216,253
--------- ---------
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 1,000,000
shares authorized; none outstanding --- ---
Common stock, $2.0833 par value; 50,000,000
shares authorized; 21,319,348 and 20,996,531
shares issued, respectively 44,415 43,742
Capital surplus 52,860 58,663
Retained earnings 241,861 230,924
Treasury stock (508,268 and 3,142,034
shares, respectively, at cost) (12,092) (76,183)
Accumulated other comprehensive income
(fair value adjustments) 6,748 3,560
Deferred benefits for directors and employees (2,565) (2,505)
--------- ---------
Total Shareholders' Equity 331,227 258,201
--------- ---------
Total Liabilities and Shareholders' Equity $3,232,761 $2,474,454
========= =========
See Notes to Consolidated Financial Statements.
4
WESBANCO, INC.
CONSOLIDATED STATEMENTS OF INCOME
- ------------------------------------------------------------------------------
(Unaudited, dollars in thousands, except per share amounts)
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------
2002 2001 2002 2001
---- ---- ---- ----
INTEREST INCOME
Loans, including fees $31,571 $31,606 $94,141 $96,075
Securities:
Taxable 9,014 6,787 25,294 18,655
Tax-exempt 4,233 2,693 11,506 7,531
------- ------- ------- -------
Total interest on securities 13,247 9,480 36,800 26,186
------- ------- ------- -------
Federal funds sold 168 477 480 1,547
------- ------- ------- -------
Total interest income 44,986 41,563 131,421 123,808
------- ------- ------- -------
INTEREST EXPENSE
Interest bearing demand deposits 395 916 1,342 3,279
Money market accounts 3,446 3,456 9,871 10,880
Savings deposits 1,063 1,256 3,020 3,724
Certificates of deposit 9,741 11,088 29,167 33,428
------- ------- ------- -------
Total interest on deposits 14,645 16,716 43,400 51,311
Federal Home Loan Bank borrowings 3,185 1,316 8,197 3,085
Other borrowings 968 1,487 2,733 4,734
------- ------- ------- -------
Total interest expense 18,798 19,519 54,330 59,130
------- ------- ------- -------
Net interest income 26,188 22,044 77,091 64,678
Provision for loan losses 2,757 2,327 6,757 4,350
------- ------- ------- -------
Net interest income after
provision for loan losses 23,431 19,717 70,334 60,328
------- ------- ------- -------
NON-INTEREST INCOME
Trust fees 2,496 2,607 8,346 8,560
Service charges on deposits 2,832 2,307 7,929 6,793
Other income 1,635 653 2,763 1,887
Net securities gains(losses) (322) 583 1,361 967
------- ------- ------- -------
Total non-interest income 6,641 6,150 20,399 18,207
------- ------- ------- -------
NON-INTEREST EXPENSE
Salaries and wages 7,928 7,172 23,324 20,652
Employee benefits 2,467 1,560 6,056 4,263
Net occupancy 1,351 984 3,710 3,037
Equipment 1,811 1,386 5,102 4,414
Other operating 5,431 4,833 16,674 14,804
Non-recurring merger expenses 342 325 2,123 325
------- ------- ------- -------
Total non-interest expense 19,330 16,260 56,989 47,495
------- ------- ------- -------
Income before provision for
income taxes 10,742 9,607 33,744 31,040
Provision for income taxes 1,782 2,601 8,038 9,329
------- ------- ------- -------
Net Income $ 8,960 $ 7,006 $25,706 $21,711
======= ======= ======= =======
Earnings per share $ 0.43 $ 0.39 $ 1.26 $ 1.19
Average shares outstanding 20,941,398 17,983,793 20,397,493 18,194,491
Dividends per share $ 0.235 $ 0.23 $ 0.70 $ 0.69
See Notes to Consolidated Financial Statements.
5
WESBANCO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------
(Unaudited, dollars in thousands, except per share amounts)
Accumulated Deferred
Common Stock Other Benefits for
-------------------- Capital Retained Treasury Comprehensive Directors &
Shares Amount Surplus Earnings Stock Income/(Loss) Employees Total
- ---------------------------------------------------------------------------------------------------------------------------
December 31, 2000 18,567,940 $43,742 $59,464 $218,539 $(62,009) $ (365) $ (865) $ 258,506
- ---------------------------------------------------------------------------------------------------------------------------
Net income 21,711 21,711
Net fair value adjustment
on securities available
for sale-net of tax effect 8,591 8,591
Net securities gains (losses)
reclassified into earnings -
net of tax effect (565) (565)
Cumulative effect of accounting
change for derivative financial
instruments - net of tax effect 558 558
Net fair value adjustment on
derivatives - net of tax effect (2,070) (2,070)
Net derivative gains (losses)
reclassified into earnings,
net of tax effect (112) (112)
----------
Comprehensive income 28,113
Cash dividends:
Common ($.69 per share) (12,498) (12,498)
Treasury shares purchased -
net of sales (624,405) (580) (12,684) (13,264)
Borrowing on ESOP debt (2,000) (2,000)
Deferred benefits
for directors - net (47) (47)
- ----------------------------------------------------------------------------------------------------------------------------
September 30, 2001 17,943,535 $43,742 $58,884 $227,752 $(74,693) $6,037 $ (2,912) $258,810
============================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 2001 17,854,497 $43,742 $58,663 $230,924 $(76,183) $3,560 $ (2,505) $258,201
- ----------------------------------------------------------------------------------------------------------------------------
Net income 25,706 25,706
Net fair value adjustment
on securities available
for sale-net of tax effect 6,290 6,290
Net securities gains (losses)
reclassified into earnings -
net of tax effect (765) (765)
Net fair value adjustment on
derivatives-net of tax effect (2,237) (2,237)
Net derivative gains (losses)
reclassified into earnings,
net of tax effect (100) (100)
----------
Comprehensive income 28,894
Cash dividends:
Common ($.70 per share) (14,769) (14,769)
Treasury shares purchased -
net of sales (485,305) (165) (11,397) (11,562)
Stock issued for acquisition 3,441,888 673 (5,638) 75,488 70,523
Deferred benefits for
directors - net (60) (60)
- ----------------------------------------------------------------------------------------------------------------------------
September 30, 2002 20,811,080 $44,415 $52,860 $241,861 $(12,092) $6,748 $(2,565) $331,227
============================================================================================================================
Note: Comprehensive income for the three-month periods ended September 30, 2002
and 2001 was $10,489 and $12,562, respectively.
See Notes to Consolidated Financial Statements.
6
WESBANCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
(Unaudited, dollars in thousands)
For the nine months ended
Increase in Cash and Cash Equivalents September 30
-------------------------
2002 2001
---------- ----------
Cash Flows From Operating Activities:
Net income $ 25,706 $ 21,711
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 4,195 3,741
Net accretion (798) (407)
Provision for loan losses 6,757 4,350
Net gains on sales of securities (1,361) (967)
Deferred income taxes (304) (63)
Other - net (15) (1,825)
Net change in:
Interest receivable 728 (135)
Other assets and other liabilities 2,169 3,516
Interest payable (1,738) 267
---------- ----------
Net cash provided by operating activities 35,339 30,188
---------- ----------
Cash Flows From Investing Activities:
Securities held to maturity:
Proceeds from maturities and calls 87,001 19,129
Payments for purchases (220,993) (69,026)
Securities available for sale:
Proceeds from sales 217,104 58,884
Proceeds from maturities and calls 88,703 141,297
Payments for purchases (273,209) (299,555)
Net cash received in acquisition 24,464 ---
Decrease in loans 61,997 21,545
Purchases of premises and equipment - net (3,270) (1,484)
---------- ----------
Net cash used by investing activities (18,203) (129,210)
---------- ----------
Cash Flows From Financing Activities:
Increase in deposits 7,766 32,959
Increase in Federal Home Loan Bank borrowings 29,484 78,282
Increase (decrease) in other borrowings (21,680) 34,664
Dividends paid (13,976) (12,605)
Treasury shares purchased - net of sales (11,562) (13,264)
Other (18) ---
---------- ----------
Net cash provided (used) by financing activities (9,986) 120,036
---------- ----------
Net increase in cash and cash equivalents 7,150 21,014
Cash and cash equivalents at beginning of period 82,275 73,416
---------- ----------
Cash and cash equivalents at end of period $ 89,425 $ 94,430
========== ==========
Supplemental Disclosures:
Interest paid on deposits and other borrowings $ 56,068 $ 60,061
Income taxes paid 7,825 7,256
See Notes to Consolidated Financial Statements.
7
WESBANCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Note 1 - Accounting Policies
- ----------------------------
Basis of presentation: The accompanying unaudited consolidated interim
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the
United States for complete financial statements. The consolidated
financial statements include the accounts of WesBanco and its wholly-owned
subsidiaries. Significant intercompany transactions have been eliminated
in consolidation. The accounting and reporting policies followed in the
presentation of these financial statements are consistent with those
applied in the preparation of the 2001 Annual Report of WesBanco, Inc. on
Form 10-K. In the opinion of management, adjustments necessary for a fair
presentation of financial position and results of operations for the
interim periods have been made. Such adjustments are of a normal and
recurring nature.
Reclassification: Certain prior year financial information has been
reclassified to conform to the presentation at September 30, 2002. The
reclassifications had no effect on net income.
Cash and cash equivalents: For the purpose of reporting cash flows, cash
and cash equivalents include cash and due from banks and federal funds
sold. Generally, federal funds are sold for one-day periods.
Earnings per share: Basic earnings per share are calculated by dividing net
income by the weighted average number of shares of common stock outstanding
during each period. For diluted earnings per share, the weighted average
number of shares for each period assumes the exercise of stock options.
There was no dilutive effect from the stock options and accordingly, basic
and diluted earnings per share are the same.
Note 2 - Completed Business Combination
- ---------------------------------------
On March 1, 2002, WesBanco completed the acquisition of American
Bancorporation ("American") and the merger of American's affiliate,
Wheeling National Bank, Wheeling, West Virginia, with and into WesBanco's
affiliate, WesBanco Bank, Inc. WesBanco and American entered into a
definitive Agreement and Plan of Merger on February 22, 2001. Under the
terms of the definitive Agreement and Plan of Merger, WesBanco exchanged
1.1 shares of WesBanco common stock for each share of American common
stock. A total of 3,441,888 shares of WesBanco common stock valued at
$70.5 million were issued to fund the transaction. The transaction was
accounted for using the purchase method of accounting. As of the
acquisition date, American had total assets of approximately $679 million,
deposits of $466 million and stockholders' equity of $44 million. In
connection with the acquisition on March 1, 2002, WesBanco recorded
goodwill of approximately $27 million and a core deposit intangible of $16
million on its Consolidated Balance Sheet.
8
The following table presents pro forma combined results of operations
of WesBanco and American as if the business combination had been completed
as of the beginning of each respective period:
(Unaudited, dollars in thousands, except per share amounts)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2002 2001 2002 2001
--------- ---------- ---------- ----------
Net Interest Income $ 26,188 $ 26,934 $ 80,584 $ 79,568
Net Income 8,960 8,301 25,709 25,555
Earnings Per Share 0.43 0.39 1.22 1.18
Note 3 - Company Obligated Manditorily Redeemable Capital Securities of
- -----------------------------------------------------------------------
Subsidiary Trust
----------------
On March 1, 2002, WesBanco assumed $12.65 million of 8.5% Company
Obligated Manditorily Redeemable Capital Securities of Subsidiary Trust
("Trust Preferred Securities") from American. In April 1998, American
created a statutory business trust under Delaware law for the purpose of
issuing the Trust Preferred Securities. The proceeds from the sale of the
Trust Preferred Securities, as well as proceeds from the issuance of
common securities to American, were utilized by the trust to invest in
$13.04 million of 8.5% Junior Subordinated Debentures ("the Debentures") of
American. The Debentures represent the sole assets of the trust.
The Trust Preferred Securities, which have a stated value and
liquidation preference of $10 per share, are registered on The NASDAQ Stock
Market under the symbol WSBCP (formerly AMBCP). Interest on the Trust
Preferred Securities is cumulative and payable quarterly in arrears.
WesBanco has the right to optionally redeem the Debentures on or after
April 30, 2003. The Debentures mature on April 1, 2028.
The Trust Preferred Securities are presented as a separate category of
long-term debt on the Consolidated Balance Sheet. For regulatory purposes,
the Trust Preferred Securities are included in Tier I Capital in accordance
with regulatory reporting requirements.
Note 4 - Business Segments
- --------------------------
WesBanco operates two reportable segments: community banking and trust
and investment services. WesBanco's community banking segment offers
services traditionally offered by full-service commercial banks, including
commercial demand, individual demand and time deposit accounts, as well as
commercial, mortgage and individual installment loans. The trust and
investment services segment offers trust services as well as various
alternative investment products including mutual funds. The market value
of assets under management of the trust and investment services segment was
approximately $2.2 billion at September 30, 2002 and $2.7 billion at
September 30, 2001. These assets are held by WesBanco's affiliate,
WesBanco Bank, Inc. in fiduciary or agency capacities for their customers
and therefore are not included as assets on WesBanco's Consolidated Balance
Sheet.
9
The following table provides selected financial information for the
segments of WesBanco:
(Unaudited, dollars in thousands)
Trust &
Community Investment
Banking Services Consolidated
For the three months ended --------- ---------- ------------
September 30, 2002:
Net interest income $ 26,188 --- $ 26,188
Provision for loan losses 2,757 --- 2,757
Non-interest income 4,145 $ 2,496 6,641
Non-interest expense 17,657 1,673 19,330
Provision for income taxes 1,452 330 1,782
Net income 8,467 493 8,960
For the three months ended
September 30, 2001:
Net interest income $ 22,044 --- $ 22,044
Provision for loan losses 2,327 --- 2,327
Non-interest income 3,543 $ 2,607 6,150
Non-interest expense 14,642 1,618 16,260
Provision for income taxes 2,206 395 2,601
Net income 6,412 594 7,006
(Unaudited, dollars in thousands)
Trust &
Community Investment
Banking Services Consolidated
For the nine months ended --------- ----------- ------------
September 30, 2002:
Net interest income $ 77,091 --- $ 77,091
Provision for loan losses 6,757 --- 6,757
Non-interest income 12,053 $ 8,346 20,399
Non-interest expense 51,944 5,045 56,989
Provision for income taxes 6,717 1,321 8,038
Net income 23,726 1,980 25,706
For the nine months ended
September 30, 2001:
Net interest income $ 64,678 --- $ 64,678
Provision for loan losses 4,350 --- 4,350
Non-interest income 9,647 $ 8,560 18,207
Non-interest expense 42,558 4,937 47,495
Provision for income taxes 7,880 1,449 9,329
Net income 19,537 2,174 21,711
Note 5 - Goodwill and Core Deposit Intangible
- ---------------------------------------------
On January 1, 2002, WesBanco adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets", which changed the accounting for goodwill from an
amortization method to an evaluation of possible impairment approach. The
amortization of goodwill, including goodwill recognized relating to past
business combinations, ceased upon adoption of the new standard.
Impairment testing for goodwill at a reporting unit level is required on at
least an annual basis.
SFAS No. 142, as part of its adoption provisions, required a
transitional impairment test to be applied to all goodwill and other
indefinite-lived intangible assets. Any resulting impairment loss would be
reported as a change in
10
accounting principle. Within the first half of 2002, WesBanco completed
this impairment testing and determined that goodwill was not impaired.
WesBanco will perform the required annual impairment test in the fourth
quarter of 2002.
The following table presents reported net income and earnings per
share data for the three and nine months ended September 30, 2002 and 2001,
respectively, as well as pro forma adjustments as if SFAS No. 142 had been
adopted on January 1, 2001.
(Unaudited, dollars in thousands, except per share amounts)
For the three For the nine
months ended months ended
September 30, September 30,
------------------ -------------------
2002 2001 2002 2001
-------- -------- -------- --------
Reported net income $ 8,960 $ 7,006 $ 25,706 $ 21,711
Add back: Non-tax deductible
goodwill amortization --- 341 --- 972
-------- -------- -------- --------
Adjusted net income $ 8,960 $ 7,347 $ 25,706 $ 22,683
======== ======== ======== ========
Earnings Per Share:
Reported net income $ 0.43 $ 0.39 $ 1.26 $ 1.19
Add back: Non-tax deductible
goodwill amortization --- 0.02 --- 0.05
-------- -------- -------- --------
Adjusted net income $ 0.43 $ 0.41 $ 1.26 $ 1.24
======== ======== ======== ========
WesBanco's Consolidated Balanced Sheet reflected total
goodwill assets of $47 million as of September 30, 2002 and $20 million at
December 31, 2001. In addition, WesBanco recorded a core deposit
intangible of $16 million in connection with the March 1, 2002 acquisition
of American. The core deposit intangible is being amortized using a
declining balance method over an estimated life of approximately 11 years.
Amortization expense was $0.6 million for the third quarter of 2002 and
$1.3 million for the nine months ended September 30, 2002. Core deposit
intangible amortization for each of the next five years is as follows:
(in thousands)
Year Amount
----------------- ------
Remainder of 2002 $ 537
2003 2,112
2004 1,960
2005 1,762
2006 1,278
11
Item 2. - Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------
Results of Operations
----------------------
The following discussion and analysis presents in further detail the
financial condition and results of operations of WesBanco and its
subsidiaries. This discussion and analysis should be read in conjunction
with the consolidated financial statements and notes presented in this
report.
Forward-looking statements in this report relating to WesBanco's
plans, strategies, objectives, expectations, intentions and adequacy of
resources, are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that
such forward-looking statements, which are not historical fact, involve
risks and uncertainties. Such statements are subject to important factors
that could cause actual results to differ materially from those
contemplated by such statements, including without limitation, the effect
of changing regional and national economic conditions; changes in interest
rates; credit risks of commercial, real estate, and consumer loan customers
and their lending activities; actions of the Federal Reserve Board and
Federal Deposit Insurance Corporation, legislative, and federal and state
regulatory actions or reforms; or other unanticipated developments
materially impacting WesBanco's operational and financial performance.
WesBanco does not assume any duty to update forward-looking statements.
12
Earnings Summary
----------------
Comparison of the quarters and nine months ended September 30, 2002 and 2001
- ----------------------------------------------------------------------------
WesBanco's net income for the third quarter of 2002 increased
27.9% to $9.0 million compared to $7.0 million for the third quarter of
2001. Earnings per share increased 10.3% to $0.43 compared to $0.39 for
the corresponding period last year. For the nine months ended September
30, 2002, net income increased 18.4% to $25.7 million compared to $21.7
million for the nine months ended September 30, 2001. Earnings per share
increased 5.9% to $1.26 from $1.19 for the nine months ended September 30,
2001.
The financial results include the March 1, 2002 acquisition of
American Bancorporation ("American") and its subsidiary bank, Wheeling
National Bank. As of the acquisition date, American reported total assets
of approximately $679 million, which represented 28% of WesBanco's pre-
acquisition total assets. A total of 3,441,888 shares, or 19% of pre-
acquisition shares outstanding, of WesBanco common stock were issued to
fund the transaction.
Core earnings increased 17.6% to $26.3 million for the nine
months ended September 30, 2002 compared to $22.4 million for the same
period last year. Core earnings is calculated by excluding amortization of
goodwill in 2001 and, on an after-tax basis, nonrecurring expenses
associated with the American acquisition, and net securities gains
(losses). Core earnings per share increased to $0.45 per share for the
third quarter of 2002 compared to $0.40 for the third quarter of 2001, and
increased to $1.29 for the nine months ended September 30, 2002 from $1.23
for the nine months ended September 30, 2001.
WesBanco's return on average assets measured 1.11% for the third
quarter of 2002 and 1.14% for the nine months ended September 30, 2002,
compared to 1.14% and 1.22% for the corresponding periods in 2001. Return
on average equity decreased to 10.71% for the third quarter of 2002 and
10.92% for the nine months ended September 30, 2002, compared to returns of
10.95% and 11.33% for the third quarter and nine months ended September 30,
2001, respectively.
13
TABLE 1: AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
Three months ended September 30, Nine months ended September 30,
-------------------------------------- -------------------------------------
2002 2001 2002 2001
------------------ ----------------- ----------------- -----------------
(Dollars in thousands) Average Average Average Average Average Average Average Average
Volume Rate Volume Rate Volume Rate Volume Rate
------------------ ----------------- ----------------- -----------------
ASSETS
Loans, net of unearned income (1) $1,830,656 6.84% $1,555,644 8.06% $1,778,678 7.08% $1,562,982 8.22%
Securities: (2)
Taxable 727,666 4.96% 448,988 6.05% 667,078 5.06% 401,652 6.19%
Tax-exempt (3) 346,541 7.52% 218,012 7.60% 313,377 7.53% 204,797 7.54%
------------------ ----------------- ----------------- -----------------
Total securities 1,074,207 5.78% 667,000 6.55% 980,455 5.85% 606,449 6.65%
Federal funds sold 35,997 1.85% 53,518 3.54% 37,027 1.73% 48,436 4.26%
------------------ ----------------- ----------------- -----------------
Total earning assets (3) 2,940,860 6.39% 2,276,162 7.51% 2,796,160 6.57% 2,217,867 7.70%
------------------ ----------------- ----------------- -----------------
Other assets 252,722 167,700 230,386 163,713
---------- ---------- ---------- ----------
Total Assets $3,193,582 $2,443,862 $3,026,546 $2,381,580
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing demand deposits $ 271,269 0.58% $ 243,799 1.49% $ 264,595 0.68% $ 247,597 1.77%
Money market accounts 482,814 2.83% 373,399 3.67% 456,591 2.89% 367,749 3.96%
Savings deposits 370,089 1.14% 252,788 1.97% 349,859 1.15% 252,583 1.97%
Certificates of deposit 976,464 3.96% 787,700 5.58% 939,622 4.15% 776,320 5.76%
------------------ ----------------- ----------------- -----------------
Total interest bearing deposits 2,100,636 2.77% 1,657,686 4.00% 2,010,667 2.89% 1,644,249 4.17%
Other borrowings 442,375 3.72% 278,540 3.99% 396,958 3.68% 234,363 4.46%
------------------ ----------------- ----------------- -----------------
Total interest
bearing liabilities 2,543,011 2.93% 1,936,226 4.00% 2,407,625 3.02% 1,878,612 4.21%
------------------ ----------------- ----------------- -----------------
Non-interest bearing
demand deposits 286,385 232,421 275,160 225,817
Other liabilities 32,298 21,408 29,110 21,130
Shareholders' Equity 331,888 253,807 314,651 256,021
---------- ---------- ---------- ----------
Total Liabilities and
Shareholders'Equity $3,193,582 $2,443,862 $3,026,546 $2,381,580
========== ========== ========== ==========
Taxable equivalent net yield
on average earning assets 3.86% 4.11% 3.98% 4.14%
====== ====== ====== ======
(1) Gross of allowance for loan losses and net of unearned income.
Includes non-accrual and loans held for sale. Loan fees included in
interest income on loans are not material.
(2) Average yields on securities available for sale have been calculated
based on amortized cost.
(3) Taxable equivalent basis is calculated on tax-exempt securities using
the federal statutory tax rate of 35% for each period presented.
TABLE 2: RATE/VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST
EXPENSE
Three months ended September 30, Nine months ended September 30,
2002 compared to 2001 2002 compared to 2001
(Dollars in thousands) ------------------------------ --------------------------------
Net Increase Net Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------------------------------- --------------------------------
Increase (decrease) in interest income:
Loans, net of unearned income $ 5,132 $ (5,167) $ (35) $12,360 $(14,294) $ (1,934)
Taxable securities 3,623 (1,396) 2,227 10,557 (3,918) 6,639
Tax-exempt securities (1) 2,413 (45) 2,368 6,133 (17) 6,116
Federal funds sold (126) (183) (309) (303) (764) (1,067)
------------------------------ --------------------------------
Total interest income change (1) 11,042 (6,791) 4,251 28,747 (18,993) 9,754
------------------------------ --------------------------------
Increase (decrease) in interest expense:
Interest bearing demand deposits 93 (614) (521) 211 (2,148) (1,937)
Money market accounts 883 (893) (10) 2,294 (3,303) (1,009)
Savings deposits 454 (647) (193) 1,477 (2,181) (704)
Certificates of deposit 2,308 (3,655) (1,347) 6,188 (10,449) (4,261)
Other borrowings 1,464 (114) 1,350 4,461 (1,350) 3,111
------------------------------ --------------------------------
Total interest expense change 5,202 (5,923) (721) 14,631 (19,431) (4,800)
------------------------------ --------------------------------
Taxable equivalent net interest
income increase (decrease) (1) $ 5,840 $ (868) $ 4,972 $14,116 $ 438 $ 14,554
------------------------------ --------------------------------
Increase in taxable
equivalent adjustment 828 2,141
--------- --------
Net interest income increase $ 4,144 $ 12,413
========= ========
(1) Taxable equivalent basis is calculated on tax-exempt securities using
the federal statutory tax rate of 35% for each period presented.
14
Net Interest Income
-------------------
Taxable equivalent net interest income, which is WesBanco's largest
revenue source, is the difference between interest income on earning assets
(loans, securities and federal funds sold) and interest expense paid on
liabilities (deposits and borrowings). Taxable equivalent net interest
income is affected by the general level of interest rates, changes in
interest rates, and changes in the amount and composition of interest
earning assets and interest bearing liabilities.
Taxable equivalent net interest income increased $5.0 million
or 21.1% for the third quarter of 2002 and $14.6 million or 21.2% for the
nine months ended September 30, 2002 compared to the corresponding periods
in 2001. The increases resulted primarily from earning asset growth
related to the acquisition of American. For the third quarter of 2002,
average earning assets increased $664.7 million or 29.2% compared to the
same period last year. For the nine months ended September 30, 2002,
average earning assets increased $578.3 million or 26.1% compared to the
same period last year. The increase in net interest income due to earning
asset growth was partially offset by a decrease in the net interest margin
in 2002. For the third quarter and the nine months ended September 30,
2002, the net interest margin decreased 25 basis points to 3.86% and 16
basis points to 3.98%, respectively, compared to the corresponding periods
in 2001. The decrease in the net interest margin resulted from a
combination of factors including the acquired net assets of American, which
had a net interest margin approximating 3.1% prior to acquisition. Other
factors affecting the net interest margin included rate compression between
loan and deposit products resulting from commercial and residential
mortgage refinancings, planned reductions in higher-yielding but less
profitable indirect automobile lending, reduced loan demand and the
acquisition of lower yielding securities.
Taxable equivalent interest income increased $4.3 million or 9.9% for
the third quarter of 2002 and $9.8 million or 7.6% for the nine months
ended September 30, 2002, compared to the corresponding periods in 2001. As
shown in Tables 1 and 2, taxable equivalent interest income increased due
to volume increases in average earning assets that were partially offset by
a decline in the average taxable equivalent yield. The volume increases
were primarily the result of American and the decrease in average yields
resulted from a general reduction in interest rates combined with a shift
in volume from higher yielding loans into securities with lower yields.
Interest expense decreased $0.7 million or 3.7% for the third quarter
of 2002 and $4.8 million or 8.1% for the nine months ended September 30,
2002, compared to the corresponding periods in 2001. As shown in Tables 1
and 2, the average rate paid on interest bearing liabilities for the third
quarter of 2002 decreased 107 basis points to 2.93% and 119 basis points to
3.02% for the nine months ended September 30, 2002 compared to the
corresponding periods in 2001. The interest bearing liabilities rate
decrease was partially offset by volume increases in average liabilities
due to the American acquisition.
15
Non-interest Income
-------------------
Non-interest income, excluding net securities gains (losses),
increased $1.4 million or 25.1% for the third quarter of 2002 and $1.8
million or 10.4% for the nine months ended September 30, 2002 compared to
the corresponding periods last year. The increases related to growth in
deposit activity fees due primarily to the addition of deposit accounts
from the American transaction as well as increases in ATM fees and debit
card interchange fees. The increase was also attributable to other income
of $0.5 million for life insurance proceeds on bank owned life insurance in
the third quarter of 2002, as well as an increase in income on the cash
surrender values of bank owned life insurance. These increases were
partially offset by a decrease in trust fees of 4.3% to $2.5 million for
the third quarter of 2002 and 2.5% to $8.3 million for the nine months
ended September 30, 2002, as compared to the same periods in 2001. The
market value of trust assets under management decreased 15.9% to $2.2
billion at September 30, 2002 compared to $2.7 billion at September 30,
2001 reflecting the general decline in the equity markets.
An increase in net securities gains for the nine months ended
September 30, 2002, as compared to the same periods in 2001, resulted
primarily from the sale of U.S. Agency securities to improve liquidity and
restructure the securities portfolio of American. Gross securities losses
during the third quarter and the nine months ended September 30, 2002
included $0.4 million and $0.6 million, respectively, in impairment losses
on certain publicly traded equity and corporate bond investments classified
as other than temporary.
Non-interest Expense
--------------------
Non-interest expense, excluding non-recurring expenses related
to the American acquisition, increased $3.1 million or 19.2% and $7.7
million or 16.3% compared to the third quarter and nine months ended
September 30, 2001, respectively. The increases resulted primarily from the
expansion of internal operations and new banking offices acquired in the
American transaction. WesBanco also experienced an increase in personnel
expenses due to additional staffing from American, normal salary
adjustments and an increase in post retirement costs. Average full time
equivalent employees for the third quarter ended September 30, 2002 were
1,107 compared to 990 at September 30, 2001, an increase of 11.8%.
Non-recurring expenses of $0.3 million and $2.1 million, recorded in
the third quarter and for the nine months ended September 30, 2002,
respectively, related to the American acquisition and consisted mainly of
post-merger severance payments and data system conversion costs. Non-
recurring expenses related to the acquisition are projected to total $3.1
million. Approximately $2.5 million of these expenses are expected to be
recorded in 2002 with the remainder to be recorded in 2003.
For the nine months ended September 30, 2002, WesBanco's
efficiency ratio, which excludes amortization of goodwill, non-recurring
items and net securities gains (losses), remained consistent with the
corresponding period of 2001 at 53.5%.
16
Income Taxes
------------
TABLE 3: Reconciliation of Income Tax Rates
For the three For the nine
months ended months ended
September 30, September 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Federal statutory tax rate 35% 35% 35% 35%
Tax-exempt interest income (14) (8) (12) (7)
State income tax- net of
federal tax effect (1) 3 2 3
All other - net (3) (3) (1) (1)
---- ---- ---- ----
Effective tax rate 17% 27% 24% 30%
==== ==== ==== ====
WesBanco's federal and state income tax expense decreased to $8.0
million for the nine months ended September 30, 2002 compared to $9.3
million for the nine months ended September 30, 2001. WesBanco's effective
tax rate for the third quarter of 2002 decreased to 17% from 27% for the
third quarter of 2001 and decreased to 24% for the nine months ended
September 30, 2002 from 30% for the nine months ended September 30, 2001.
The decline in the effective tax rate resulted primarily from increases of
$1.5 million or 57.2% and $4.0 million or 52.8% in tax-exempt
investment income for the third quarter of 2002 and the nine months ended
September 30, 2002, respectively. Average tax-exempt investment securities
increased $128.5 million or 59.0% and $108.5 million or 53.0% for the third
quarter of 2002 and the nine months ended September 30, 2002 as compared to
the corresponding periods in 2001. During the third quarter of 2002,
WesBanco settled a prior year's state tax examination audit recognizing a
$0.4 million tax benefit, net of federal income tax.
Financial Condition
-------------------
Total assets of WesBanco were $3.2 billion as of September 30, 2002,
an increase of $758.3 million or 30.6% compared to total assets as of
December 31, 2001. Total liabilities of WesBanco were $2.9 billion as of
September 30, 2002, an increase of $685.3 million or 30.9% compared to
total liabilities of $2.2 billion as of December 31, 2001.
17
TABLE 4: Composition of Securities
September 30, December 31,
2002 2001
(Dollars in thousands) ------------ ------------
Securities held to maturity (at amortized cost):
- ------------------------------------------------
U.S. Treasury and Federal Agency securities $ 89,471 $ 1,001
Obligations of states and political subdivisions 369,492 221,866
Other securities 24,390 18,086
---------- ---------
Total securities held to maturity (fair
value of $502,830 and $242,558, respectively) 483,353 240,953
---------- ---------
Securities available for sale (at fair value):
- ----------------------------------------------
U. S. Treasury and Federal Agency securities 335,528 307,250
Obligations of states and political subdivisions 8,608 12,076
Corporate securities 20,879 14,017
Mortgage-backed and other securities 312,541 184,174
---------- ---------
Total securities available for sale
(amortized cost of $661,011
and $510,104, respectively) 677,556 517,517
---------- ---------
Total securities $1,160,909 $ 758,470
========== =========
Total securities increased $402.4 million or 53.1% from
December 31, 2001 to September 30, 2002. At September 30, 2002, the average
taxable equivalent yield of the available for sale portfolio was 5.14% with
an average life of 2.5 years compared to 5.75% and 2.7 years, respectively,
at December 31, 2001. At September 30, 2002, the average taxable
equivalent yield of the held to maturity portfolio was 6.36% with an
average life of 4.8 years compared to 6.94% and 6.6 years, respectively, at
December 31, 2001. The lower average life at September 30, 2002 was due to
increased prepayments on mortgage-backed securities, anticipated near term
call dates on callable agency securities and a restructuring of the
portfolio for an anticipated increased rate environment at the end of the
first quarter of 2002, which was not realized, resulting in the sale of
certain longer-term mortgage backed securities and callable agencies. For
the nine months ended September 30, 2002, WesBanco purchased U.S. Agency
securities to improve liquidity and shorten average maturity. During this
same period, WesBanco also increased the purchases of obligations of states
and political subdivisions in order to increase the after tax yield of the
investment portfolio and to reduce the effective tax rate.
Unrealized pre-tax gains/losses on available for sale securities (fair
value adjustments) reflected a $16.5 million market gain as of September
30, 2002 compared to a $7.4 million market gain as of December 31, 2001.
These fair value adjustments represent temporary fluctuations resulting
from changes in market rates in relation to average yields in the available
for sale portfolio. WesBanco can impact the magnitude of the fair value
adjustment by managing both the volume and average maturities of securities
classified as available for sale. If these securities were held to their
respective maturity dates, no fair value gain or loss would be realized.
18
TABLE 5: Composition of Loans
(Dollars in thousands)
Percent Percent
September 30, of December 31, of
2002 Total 2001 Total
---------- ------ ----------- -------
Commercial $ 729,230 40.0% $ 569,193 37.0%
Real estate - construction 46,028 2.5% 37,676 2.4%
Real estate - residential 715,177 39.3% 620,108 40.3%
Consumer, net of unearned income 330,507 18.2% 312,718 20.3%
-------------------- -------------------
Loans, net of unearned income $1,820,942 100.0% $1,539,695 100.0%
==================== ===================
Loans, net of unearned income, increased $281.2 million or 18.3% from
December 31, 2001 to September 30, 2002. The American acquisition
increased loans approximately $ 345 million as of the acquisition date.
Excluding the impact of the American acquisition, loans decreased in the
third quarter of 2002. Competition from alternative financing sources
contributed to reductions in both consumer and real estate loans. WesBanco
also continued tightening its credit standards for indirect automobile
lending, which further contributed to the decline in consumer loans. Real
estate loan refinancing due to historically low interest rates has
continued to cause a decline in the mortgage portfolio. WesBanco
originates and sells in the secondary market fixed rate mortgage loans that
have terms of repayment in excess of 15 years. Economic conditions,
reduced commercial construction activity, and a general lack of new capital
expenditures by businesses in WesBanco's market areas continued to be the
trend in the third quarter of 2002, which resulted in weaker than
anticipated commercial loan demand.
Off-balance sheet loan commitments consist of available balances under
lines of credit and standby letters of credit. These commitments to extend
credit were $313.1 million at September 30, 2002 compared to $269.7 million
at December 31, 2001. Commercial lines of credit and standby letters of
credit are generally renewable or may be cancelled annually. Loan
commitments that are available beyond one year consist of home equity and
other personal lines of credit, certain real estate construction loans, and
other commercial lines of credit. Loan commitments, regardless of the
duration of availability, are cancelable by WesBanco under certain
circumstances.
19
TABLE 6: Non-performing Assets and Loans Past Due 90 Days or More
September 30, December 31,
(Dollars in thousands) 2002 2001
------------- ------------
Non-accrual loans $ 8,181 $ 4,030
Renegotiated loans 2,654 3,756
---------- ----------
Total non-performing loans 10,835 7,786
Other real estate owned 2,764 3,215
---------- ----------
Total non-performing assets $ 13,599 $ 11,001
========== ==========
Loans past due 90 days or more $ 11,095 $ 10,496
========== ==========
Non-performing loans as a percentage of
total loans 0.60% 0.51%
Non-performing assets as a percentage of
total assets 0.42% 0.44%
Non-performing loans and loans 90 days or more
past due as a percentage of total loans 1.20% 1.19%
Non-performing assets increased $2.6 million from December 31, 2001 to
September 30, 2002. This increase was attributable to the American
acquisition and two large commercial loans being placed on non-accrual, net
of a write down to fair value of a commercial real estate loan. Total loans
past due 90 days or more increased $0.6 million from December 31, 2001 to
September 30, 2002.
WesBanco also categorizes certain other commercial loans as impaired
under SFAS 114. Such impaired loans at September 30, 2002 were $12.4
million compared to $6.4 million at December 31, 2001. This increase was
attributable to the American acquisition and commercial loans to six
borrowers that were determined to be impaired in 2002.
WesBanco monitors the overall quality of its loan portfolio and off-
balance sheet commitments through various methods. Subsequent to loan
origination, the process used to measure and monitor credit risk depends on
the type of loan. Monitoring the level and trend of delinquent loans is a
basic practice for all loan types. Credit risk in the personal loan and
residential real estate portfolios is also managed by monitoring market
conditions that may impact groups of borrowers or collateral values.
Credit risk in the commercial loan portfolio is also managed by monitoring
the portfolio for potential concentrations of credit and monitoring each
borrower's compliance with applicable loan covenants. Credit risk is also
monitored by an independent loan review function which performs among other
procedures, reviews of large commercial loans within 90 days of
origination, periodic reviews of commercial loan relationships and periodic
reviews of consumer loan credit quality trends, charge-offs and compliance
with underwriting guidelines. Underwriting standards are changed when
appropriate.
20
TABLE 7: Allowance for Loan Losses
For the nine months ended
September 30,
(Dollars in thousands) -------------------------
2002 2001
--------- ---------
Balance, at beginning of period $ 20,786 $ 20,030
Allowance for loan losses of acquired bank 3,903 ---
Charge-offs (7,119) (4,245)
Recoveries 566 471
--------- ---------
Net loan charge-offs (6,553) (3,774)
Provision for loan losses 6,757 4,350
--------- ---------
Balance, at end of period $ 24,893 $ 20,606
========= =========
Annualized net loan charge-offs to average
loans outstanding 0.49% 0.32%
Allowance for loan losses to total loans 1.37% 1.32%
Allowance for loan losses to total
non-performing loans 2.30X 2.53X
Allowance for loan losses to total
non-performing loans and loans past
due 90 days or more 1.14X 1.26X
The provision for loan losses increased $0.4 million or 18.5% for the
third quarter of 2002 and $2.4 million or 55.3% for the nine months ended
September 30, 2002 compared to the corresponding periods last year. The
allowance for loan losses as a percentage of total loans was 1.37% at
September 30, 2002 compared to 1.35% at December 31, 2001. The factors
causing the increased provision include net consumer and commercial charge-
offs, increasing loan delinquency percentages, internal evaluation of
general economic conditions in market areas and further analysis of loans
acquired from American. Net loan charge-offs increased $0.5 million or
26.6% for the third quarter of 2002 and $2.8 million or 73.6% for the nine
months ended September 30, 2002 compared to the corresponding periods in
2001. The increase in net charge-offs resulted from write downs to fair
value of certain commercial real estate loans, small business loans,
particularly in the third quarter of 2002 and a general increase in both
automobile repossessions and consumer loan charge-offs.
The allowance for loan losses is available to absorb losses in the
loan portfolio. The allowance is reduced by losses, net of recoveries, and
increased by charging a provision to operations to maintain the allowance
at a level determined appropriate by management. There can be no assurance
that WesBanco will not sustain credit losses in future periods, which could
be substantial in relation to the size of the allowance.
The adequacy of the allowance for loan losses is evaluated
quarterly, which includes testing certain loans for impairment. Larger
commercial loans that exhibit potential or observed credit weaknesses are
subject to individual review. Reserves are allocated to individual loans
based on management's estimate of the borrower's ability to repay the loan
given the availability of collateral, other sources of cash flow, and legal
options available to WesBanco.
21
Management also evaluates factors such as economic conditions, changes
in underwriting standards or practices, delinquency and other trends in
the portfolio, specific industry conditions, loan concentrations, the
results of recent internal loan reviews or regulatory examinations, and
other relevant factors that may impact the loan portfolio. Management
relies on certain types of observable data, such as employment statistics,
trends in bankruptcy filings, and external events that impact particular
industries, to determine whether loss attributes exist at the balance
sheet date that will lead to higher than historical losses in any segment
of the portfolio.
Deposits
--------
Total deposits increased $476.4 million or 24.9% during the nine
months ended September 30, 2002, mostly from American. Excluding American,
deposit growth consists primarily of steady increases in money market
deposit accounts and interest bearing demand deposits, while certificates
of deposits reflect a declining trend. Customers shifted balances out of
term certificates of deposit and savings products in favor of the more
competitively priced and short-term prime rate money market product.
Borrowings
----------
Federal Home Loan Bank ("FHLB") borrowings increased $188.5 million to
$295.4 million for the nine months ended September 30, 2002 compared to
December 31, 2001, primarily due to $150.0 million in FHLB borrowings from
American. At September 30, 2002, the FHLB borrowings had a weighted average
interest rate of 4.32% and maturities ranging from the years 2003 to 2021.
The FHLB borrowings are generally secured by a blanket lien by the FHLB on
certain residential mortgage loans or securities with a market value at
least equal to the outstanding balances. WesBanco uses FHLB borrowings to
lengthen the maturities of shorter-term interest bearing liabilities in the
current low interest rate environment. Other borrowings, which include
repurchase agreements and federal funds purchased, decreased $20.6 million
or 12.0% to $151.7 million for the nine months ended September 30, 2002,
primarily due to a decrease in federal funds purchased.
TABLE 8: FHLB Maturities: (in thousands)
2003 $ 85,394
2004 44,900
2005 30,419
2006 10,013
2007 and thereafter 124,670
---------
Total $ 295,396
=========
Capital Resources
-----------------
WesBanco's shareholders' equity remained strong at September
30, 2002, highlighted by a Tier I leverage ratio of 8.79% and ratios of
13.24% and 14.44% for Tier I and total risk-based capital, respectively.
Trust Preferred Securities of $12.7 million acquired in conjunction with
the American acquisition were included in the calculation of these capital
22
ratios. Book value increased to $15.92 per share at September 30, 2002
from $14.42 per share at September 30, 2001. Tangible book value decreased
to $12.95 per share at September 30, 2002 from $13.35 per share at
September 30, 2001 due primarily to additional goodwill of approximately
$27 million and a core deposit intangible of approximately $16 million,
recorded as a result of the American acquisition.
On June 20, 2002, WesBanco announced the approval of a new
stock repurchase plan to begin repurchasing up to an additional one million
shares of WesBanco common stock representing approximately 4.7% of
outstanding shares on the open market. The timing, price and quantity of
purchases will be at the discretion of WesBanco and the program may be
discontinued or suspended at any time. Shares previously purchased through
the stock repurchase plan approved by WesBanco's Board on March 21, 2001
were used primarily in conjunction with the recent acquisition of American.
As of September 30, 2002, a total of 863,064 shares were available to be
repurchased under the current plan.
TABLE 9: Capital Adequacy Ratios
September 30, December 31,
2002 2001
------------- ------------
Tier I leverage capital 8.79% 9.62%
Tier I risk-based capital 13.24% 14.09%
Total risk-based capital 14.44% 15.34%
WesBanco is subject to risk-based capital guidelines that measure
capital relative to risk-adjusted assets and off-balance sheet financial
instruments. As shown in Table 9, WesBanco's Tier I leverage, Tier I risk-
based and total risk-based capital ratios are well above the required
minimum levels of 4%, 4%, and 8%, respectively. At September 30, 2002 and
December 31, 2001, WesBanco's affiliate bank, WesBanco Bank, Inc., also
exceeded the minimum regulatory levels and is considered "well-capitalized"
under FDICIA using the guidelines of 5%, 6%, and 10%, respectively. There
are no conditions or events that have occurred since September 30, 2002
that management believes may have changed WesBanco Bank's "well-
capitalized" categorization.
23
Liquidity Risk
--------------
Liquidity is defined as the degree of readiness to convert assets into
cash with minimal loss. Liquidity risk is managed through WesBanco's
ability to provide adequate funds to meet changes in loan demand,
unexpected outflows in deposits and other borrowings as well as to take
advantage of market opportunities and meet operating cash needs. This is
accomplished by maintaining liquid assets in the form of securities,
sufficient borrowing capacity and a stable core deposit base. WesBanco's
Asset/Liability Management Committee ("ALCO") monitors liquidity monthly
and senior management reviews liquidity weekly.
The principal source of liquidity is WesBanco's deposit base and other
borrowings. At September 30, 2002, WesBanco's banking subsidiary had a
maximum borrowing capacity at the Federal Home Loan Bank of approximately
$923 million, of which $636 million was unused.
The securities portfolio, federal funds sold, and cash and due from
banks serve as additional sources of liquidity. Securities totaled $1.2
billion as of September 30, 2002, of which $661.0 million was classified as
available for sale. Securities with a stated maturity of one year or less
from both the available for sale and held to maturity portfolios totaled
$34.3 million at September 30, 2002. Due to the current interest rate
enviroment, additional cash flows may be anticipated from approximately
$290.6 million in callable bonds, which have call dates within the next year.
Payments on mortgage-backed securities are also expected to provide additional
cash flows over the next twelve-month period. Securities of $396.2 million
were pledged at September 30, 2002. Additional liquidity was provided by
federal funds sold of $1.9 million and cash and due from banks of $87.5
million at September 30, 2002.
Management believes, based on factors known as of September 30, 2002,
that WesBanco has sufficient liquidity to meet current obligations to
borrowers, depositors and others.
Item 3. - Quantitative and Qualitative Disclosures about Market Risk
--------------------------------------------------------------------
Market risk is defined as the risk of loss due to adverse changes in
the fair value of financial instruments due to fluctuations in interest
rates and equity prices. Management considers interest rate risk
WesBanco's most significant market risk. Interest rate risk is the
exposure to adverse changes in net interest income due to changes in
interest rates. Consistency of WesBanco's net interest income is largely
dependent on effective management of interest rate risk and overall net
asset mix. As interest rates change in the market, rates earned on
interest rate sensitive assets and rates paid on interest rate sensitive
liabilities do not necessarily move concurrently. Differing rate
sensitivities may arise because fixed rate assets and liabilities may not
have the same maturities or because variable rate assets and liabilities
differ in the timing and/or the percentage of rate changes.
Management uses an earnings simulation model to analyze net interest
income sensitivity to changing interest rates. The model takes into
consideration numerous assumptions regarding cash flow, repricing
characteristics, prepayment factors and callable bond forecasts at varying
levels of interest rates. Since these assumptions are uncertain, the
simulation analysis should not be relied upon as being indicative of actual
results. The analysis may not consider all actions that WesBanco could
employ in response to changes in interest rates. WesBanco's ALCO monitors
loan,
24
investment and liability portfolios to ensure comprehensive
management of interest rate risk within Board approved
policy guidelines. The current interest rate risk policy guidelines
prescribe a maximum impact on net interest income of +/- 5% for a 200
basis point immediate change in interest rates over twelve months.
At September 30, 2002, an immediate 200 basis point rise in interest
rates may increase net interest income by approximately 1.6% compared to
0.4% at December 31, 2001. Conversely, a 200 basis point reduction in
interest rates, at September 30, 2002, may decrease net interest income by
approximately 6.4% compared to 5.4% at December 31, 2001. In the current
low interest rate environment, with the federal funds rate at 1.75%,
management believes simulation analysis of a decreased immediate shock 200
basis point interest rate environment creates significant distortion to the
projection of net interest income as absolute and artificial rate floors to
certain products occur. Management believes that an alternative 100 basis
point declining rate scenario is more appropriate for current simulation
purposes. A 100 basis point immediate shock decrease in interest rates, as
of September 30, 2002, may result in a net interest income reduction of
approximately 2.1%. WesBanco's Board has approved a waiver to the current
200 basis point policy limit noted above.
In order to reduce the exposure of interest rate fluctuations,
WesBanco utilizes interest rate swap agreements. These agreements
generally involve the exchange of fixed and floating rate interest payments
without the exchange of the underlying notional amount on which interest
payments are calculated. These agreements are entered into as part of
WesBanco's interest rate risk management strategy primarily to alter the
interest rate sensitivity of deposit liabilities. The notional value of
interest rate swap agreements outstanding was approximately $113.7 million
at September 30, 2002 compared to $122.2 million at December 31, 2001.
Related market losses of $3.2 million, net of tax, at September 30, 2002
and $1.3 million, net of tax, at December 31, 2001, are recorded in other
comprehensive income.
Item 4. - Controls and Procedures
- ---------------------------------
As of September 30, 2002, an evaluation was performed under the
supervision and with the participation of WesBanco's management, including
the CEO and CFO, of the effectiveness of the design and operation of
WesBanco's disclosure controls and procedures. Based on that evaluation,
WesBanco's management, including the CEO and CFO, concluded that WesBanco's
disclosure controls and procedures were effective as of September 30, 2002.
There have been no significant changes in WesBanco's internal controls or
in other factors that could significantly affect internal controls
subsequent to September 30, 2002.
PART II - OTHER INFORMATION
- ---------------------------
Item 1. - Legal Proceedings
- ---------------------------
On March 1, 2002, WesBanco consummated its acquisition of American
Bancorporation through a series of corporate mergers. At the time of the
consummation of this transaction, American Bancorporation was a defendant
in a suit styled Martin, et al. v. The American Bancorporation Retirement
Plan, et al., under Civil Action No. 5:2000-CV-168 (Broadwater), presently
pending in the United States District Court for the Northern District of
West Virginia. WesBanco has essentially become substituted as the
principal defendant in this suit by reason of the merger. This case
25
involves a class action suit against American Bancorporation by certain
beneficiaries of the American Bancorporation Defined Benefit Retirement
Plan (the "Plan") seeking to challenge benefit calculations and
methodologies used by the outside Plan Administrator in determining
benefits under the Plan which was frozen by American Bancorporation, as to
benefit accruals, some years ago. The Plan had been the subject of a
previous suit in a case styled American Bancorporation Retirement Plan, et
al. v. McKain, Civil Action No. 5:93-CV-110, which was also litigated in
the United States District Court for the Northern District of West
Virginia. The McKain case resulted in an Order entered by the District
Court on September 22, 1995, which directed American Bancorporation to
follow a specific method for determining retirement benefits under the
Plan. American Bancorporation has asserted that they have calculated the
benefits in accordance with the requirements of the 1995 District Court
Order. The purported class of plaintiffs now assert that they are not
bound by the 1995 District Court Order since they were not parties to that
proceeding and are seeking a separate benefit determination. The District
Court in the current case has substantially limited the class of plaintiffs
to a group of approximately 37 individuals and has granted partial summary
judgment to significantly reduce the scope and extent of the underlying
case. It is not believed that the case presents any material risk of
exposure to WesBanco though, as with any litigation matter, there are
uncertainties in the outcome of the proceeding which cannot be determined
with any degree of certainty.
On August 1, 2002, the Corporation was named in a lawsuit filed by a
former loan customer of the Corporation's banking subsidiary over a failed
purchase of an ambulance service enterprise operated by a local hospital.
The Corporation's banking subsidiary was subsequently substituted as the
named defendant in the case now styled Matesic v. Wesbanco Bank, Inc, et
al., Civil Action No. 02-C-293(M), pending in the Circuit Court of Ohio
County, West Virginia. The suit alleges numerous counts and claims against
multiple defendants over the purchase and subsequent failure of the
ambulance service. The Corporation's banking subsidiary did make a loan to
the plaintiff's company which became delinquent and the bank did recover a
portion of the loan through liquidation of pledged collateral. Allegations
of fraudulent conduct and tortuous interference are alleged against the
Corporation's banking subsidiary. Minimal discovery has been undertaken in
the case and the broad and sweeping nature of the alleged conduct makes it
difficult to assess the substance of the Complaint. The bank intends to
vigorously defend the suit.
WesBanco is also involved in other lawsuits, claims, investigations
and proceedings which arise in the ordinary course of business. There are
no such other matters pending that WesBanco expects to be material in
relation to its business, financial condition or results of operations.
Item 2. - Changes in Securities and Use of Proceeds
- ---------------------------------------------------
Not Applicable
Item 3. - Defaults Upon Senior Securities
- -----------------------------------------
Not Applicable
Item 4. - Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
Not Applicable
26
Item 5. - Other Information
- ---------------------------
Not Applicable
Item 6(a). - Exhibits
- ---------------------
3.1 Amendment to the Bylaws of WesBanco, Inc.
99.1 Statement Pursuant to Title 18 United States Code
Section 1350
99.2 Statement Pursuant to Title 18 United States Code
Section 1350
Item 6(b). - Reports on Form 8-K
- --------------------------------
On July 23, 2002, WesBanco, Inc. furnished a Form 8-K, in accordance
with general instruction B.2. of Form 8-K. The information was furnished
and shall not be deemed filed for the purposes of Section 18 of the
Securities Exchange Act of 1934. Representatives of the Registrant conducted
a presentation to a group of analysts and investors at the Community Bank
Investor Conference in New York City sponsored by Keefe, Bruyette, & Woods,
Inc.("KBW").
27
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: November 14, 2002 /s/ Paul M. Limbert
----------------- ---------------------------
Paul M. Limbert
President and Chief Executive Officer
Date: November 14, 2002 /s/ Robert H. Young
----------------- ---------------------------
Robert H. Young
Executive Vice President and Chief
Financial Officer
28
CERTIFICATION
I, Paul M. Limbert, certify that:
1. I have reviewed this quarterly report on Form 10-Q of WesBanco, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Paul M. Limbert
----------------- -----------------------------
Paul M. Limbert
President and Chief Executive Officer
29
CERTIFICATION
I, Robert H. Young, certify that:
1. I have reviewed this quarterly report on Form 10-Q of WesBanco, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Robert H. Young
----------------- ----------------------------
Robert H. Young
Executive Vice President and Chief
Financial Officer
30