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 March 31, 2003
---------------------------------------------
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
--- ---
Indicate by check mark whether the Registrant is an accelerated filer as
defined by Rule 12b-2 of the Exchange Act. 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 20,181,516 shares outstanding at April 30, 2003.
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 - 23
3 Quantitative and Qualitative Disclosures About
Market Risk 23 - 24
4 Controls and Procedures 24
PART II - OTHER INFORMATION
---------------------------
1 Legal Proceedings 24 - 25
2 Changes in Securities and Use of Proceeds 25
3 Defaults Upon Senior Securities 25
4 Submission of Matters to a Vote of Security Holders 26
5 Other Information 26
6 (a) Exhibits 26
6 (b) Reports on Form 8-K 26
Signatures 27
Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 28 - 29
Exhibits E-1 - E-2
2
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. - Financial Statements
- ------------------------------
Consolidated Balance Sheets at March 31, 2003 and December
31, 2002, and Consolidated Statements of Income, Consolidated
Statements of Changes in Shareholders' Equity and Consolidated
Statements of Cash Flows for the three months ended March 31,
2003 and 2002 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 $678
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 ended March 31, 2003 are not
necessarily indicative of what results may be attained for the
entire year.
For further information, refer to the 2002 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, 2002.
3
WESBANCO, INC.
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
(dollars in thousands, except par value amount)
March 31, December 31,
2003 2002
----------- ------------
(Unaudited)
ASSETS
Cash and due from banks $ 98,568 $ 80,101
Due from banks - interest bearing 1,138 984
Federal funds sold 20,000 ---
Securities:
Held to maturity (fair values of $490,098 and
$514,735, respectively) 473,326 499,161
Available for sale, carried at fair value 732,653 694,735
---------- ----------
Total securities 1,205,979 1,193,896
---------- ----------
Loans, net of unearned income 1,825,390 1,820,885
Allowance for loan losses (25,516) (25,080)
---------- ----------
Net loans 1,799,874 1,795,805
---------- ----------
Premises and equipment, net 55,475 55,725
Accrued interest receivable 19,724 20,024
Goodwill 49,520 49,520
Core deposit intangible, net 9,017 9,310
Other assets 97,132 91,866
---------- ----------
Total Assets $3,356,427 $3,297,231
========== ==========
LIABILITIES
Deposits:
Non-interest bearing demand $ 304,530 $ 301,262
Interest bearing demand 280,612 276,131
Money market accounts 522,938 508,062
Savings deposits 361,504 357,290
Certificates of deposit 985,956 957,211
---------- ----------
Total deposits 2,455,540 2,399,956
---------- ----------
Federal Home Loan Bank borrowings 342,666 343,324
Other borrowings 170,050 175,634
Accrued interest payable 7,419 7,939
Other liabilities 47,089 32,557
Company obligated mandatory redeemable capital
securities of subsidiary trusts holding solely
debentures of the Corporation 12,650 12,650
---------- ----------
Total Liabilities 3,035,414 2,972,060
---------- ----------
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 shares issued) 44,415 44,415
Capital surplus 52,868 52,855
Retained earnings 250,169 246,148
Treasury stock (1,117,270 and 857,603 shares,
respectively, at cost) (26,679) (20,482)
Accumulated other comprehensive income 2,310 4,305
Deferred benefits for directors and employees (2,070) (2,070)
---------- ----------
Total Shareholders' Equity 321,013 325,171
---------- ----------
Total Liabilities and Shareholders' Equity $3,356,427 $3,297,231
========== ==========
See Notes to Consolidated Financial Statements.
4
WESBANCO, INC.
CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------------------------------
(Unaudited, dollars in thousands, except per share amounts)
For the Three Months Ended
March 31,
-------------------------
2003 2002
INTEREST INCOME ----------- -----------
Loans, including fees $ 28,747 $ 30,016
Securities:
Taxable 8,597 7,575
Tax-exempt 4,464 3,142
---------- ----------
Total interest on securities 13,061 10,717
---------- ----------
Federal funds sold 97 136
---------- ----------
Total interest income 41,905 40,869
---------- ----------
INTEREST EXPENSE
Interest bearing demand deposits 305 466
Money market accounts 2,898 3,097
Savings deposits 694 816
Certificates of deposit 8,716 9,503
---------- ----------
Total interest on deposits 12,613 13,882
Federal Home Loan Bank borrowings 4,073 2,092
Other borrowings 377 644
---------- ----------
Total interest expense 17,063 16,618
---------- ----------
Net interest income 24,842 24,251
Provision for loan losses 1,980 2,239
---------- ----------
Net interest income after provision for loan losses 22,862 22,012
---------- ----------
NON-INTEREST INCOME
Trust fees 2,982 3,115
Service charges on deposits 2,696 2,291
Other income 1,563 524
Net securities gains 1,006 1,174
---------- ----------
Total non-interest income 8,247 7,104
---------- ----------
NON-INTEREST EXPENSE
Salaries and wages 7,960 7,286
Employee benefits 2,481 1,811
Net occupancy 1,491 1,102
Equipment 1,818 1,383
Other operating 6,213 5,129
Merger-related expenses 92 1,066
---------- ----------
Total non-interest expense 20,055 17,777
---------- ----------
Income before provision for income taxes 11,054 11,339
Provision for income taxes 2,165 3,271
---------- ----------
Net Income $ 8,889 $ 8,068
========== ==========
Earnings per share $ 0.44 $ 0.42
Average shares outstanding 20,366,287 19,016,622
Dividends per share $ 0.24 $ 0.23
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, 2001 17,854,497 $43,742 $58,663 $230,924 $ (76,183) $ 3,560 $( 2,505) $ 258,201
- ------------------------------------------------------------------------------------------------------------------------
Net income 8,068 8,068
Change in accumulated
other comprehensive income (4,129) (4,129)
-------
Comprehensive income 3,939
Cash dividends:
Common ($.23 per share) (4,894) (4,894)
Treasury shares purchased -
net of sales (12,879) (226) (108) (334)
Stock issued for acquisition 3,441,888 673 (5,638) 75,488 70,523
Deferred benefits for
directors - net (18) (18)
- ------------------------------------------------------------------------------------------------------------------------
March 31, 2002 21,283,506 $44,415 $52,799 $234,098 $ (803) $ (569) $ (2,523) $ 327,417
========================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------
December 31, 2002 20,461,745 $44,415 $52,855 $246,148 $(20,482) $ 4,305 $ (2,070) $ 325,171
- ------------------------------------------------------------------------------------------------------------------------
Net income 8,889 8,889
Change in accumulated
other comprehensive income (1,995) (1,995)
------
Comprehensive income 6,894
Cash dividends:
Common ($.24 per share) (4,868) (4,868)
Treasury shares purchased -
net of sales (259,667) 13 (6,197) (6,184)
Deferred benefits for
directors - net --- ---
- ------------------------------------------------------------------------------------------------------------------------
March 31, 2003 20,202,078 $44,415 $52,868 $250,169 $(26,679) $ 2,310 $ (2,070) $ 321,013
========================================================================================================================
See Notes to Consolidated Financial Statements.
6
WESBANCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------
(Unaudited, dollars in thousands)
For the Three Months Ended
Increase in Cash and Cash Equivalents March 31,
- -----------------------------------------------------------------------------
2003 2002
--------- ---------
Cash Flows From Operating Activities:
Net income $ 8,889 $ 8,068
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,457 1,225
Net amortization (accretion) 565 (192)
Provision for loan losses 1,980 2,239
Net gains on sales of securities (1,006) (1,174)
Gain on sale of loans-net (150) (178)
Deferred income taxes (106) 122
Earnings on bank-owned life insurance (776) (226)
Loans originated for sale (10,215) (12,426)
Proceeds from the sale of loans originated for sale 10,080 16,653
Other - net 43 158
Net change in:
Interest receivable 300 1,096
Other assets and other liabilities 11,571 6,806
Interest payable (520) (873)
--------- --------
Net cash provided by operating activities 22,112 21,298
--------- --------
Cash Flows From Investing Activities:
Securities held to maturity:
Proceeds from maturities and calls 30,680 7,625
Payments for purchases (4,708) (102,151)
Securities available for sale:
Proceeds from sales 48,786 141,139
Proceeds from maturities and calls 121,038 25,688
Payments for purchases (211,111) (67,315)
Acquisition-net of cash --- 24,464
(Increase) decrease in net loans (6,339) 16,122
Purchases of premises and equipment - net (1,230) (1,488)
--------- --------
Net cash provided by (used in) investing activities (22,884) 44,084
--------- --------
Cash Flows From Financing Activities:
Increase in deposits 56,149 2,038
Increase (decrease) in Federal Home
Loan Bank borrowings (154) 4,495
Decrease in other borrowings (5,584) (37,800)
Dividends paid (4,834) (4,113)
Treasury shares purchased - net of sales (6,184) (334)
Other --- (17)
--------- --------
Net cash provided by (used in) financing activities 39,393 (35,731)
--------- --------
Net increase in cash and cash equivalents 38,621 29,651
Cash and cash equivalents at beginning of period 81,085 82,275
--------- ---------
Cash and cash equivalents at end of period $ 119,706 $ 111,926
========= =========
Supplemental Disclosures:
Interest paid on deposits and other borrowings $ 17,582 $ 17,491
Income taxes paid 200 ---
Summary of business acquisition:
Fair value of assets acquired --- $ 684,389
Stock issued for the purchase of American
Bancorporation common stock --- (70,523)
Fair value of liabilities assumed --- (644,509)
--------- ---------
Goodwill recognized --- $ (30,643)
========= =========
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 2002 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 March 31,
2003. 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.
New accounting standards: In November 2002, the Financial
Accounting Standards Board ("FASB") issued Interpretation ("FIN")
No. 45, "Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees and Indebtedness of
Others." FIN No. 45 requires a guarantor to make additional
disclosures in its interim and annual financial statements about
its obligations under certain guarantees that it has issued. It
also requires that a guarantor recognize, at the inception of a
guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and
measurement provisions of the interpretation are applicable on a
prospective basis to guarantees issued or modified after December
31, 2002, while the provisions of the disclosure requirements are
effective for financial statements of interim or annual periods
ending after December 15, 2002. The adoption of FIN No. 45 did
not have a material impact on the Company's financial condition,
results of operations or cash flows.
In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities", (or VIEs) which
addresses consolidation by business enterprises of variable
interest entities. FIN 46 expands upon and strengthens existing
accounting guidance that addresses when a company should include
in its financial statements the assets, liabilities and
activities of another entity. The Interpretation requires a
variable interest entity to be consolidated by a company if that
company is the "primary beneficiary" of that entity. The primary
beneficiary is subject to a majority of the risk of loss from the
VIE's activities, or is entitled to receive a majority of the
VIE's residual returns, or both. The consolidation requirements
of FIN No. 46 apply immediately to VIEs created after January
31, 2003 and apply to
8
previously established entities in the first interim period
beginning after June 15, 2003. Certain disclosure requirements
apply to all financial statements issued after January 31, 2003,
regardless of when the VIE was established. Management does not
expect that the adoption of FIN No. 46 will have a significant
impact on the Company's financial position or results of operations.
In December 2002, the FASB issued Statement of Financial
Accounting Standard ("SFAS") No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which provides
guidance on how to transition from the intrinsic value method of
accounting for stock-based employee compensation under Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees", to SFAS No. 123, "Accounting for Stock-
Based Compensation" fair value method of accounting, if a company
so elects. This statement is effective for fiscal years ending
after December 15, 2002.
At March 31, 2003, WesBanco has a stock-based option plan.
WesBanco accounted for this plan under the recognition and
measurement principles of APB Opinion No. 25.
The following table illustrates the pro forma net income and
earnings per share if the company had applied the fair value
recognition provisions of SFAS No. 123, to stock-based employee
compensation.
(Unaudited, dollars in thousands, except per share amounts)
For the Three Months Ended
March 31,
--------------------------
2003 2002
----------- ------------
Net income as reported $ 8,889 $ 8,068
Stock based employee compensation expense under
the fair value based method - net of tax (132) (147)
-------- --------
Pro forma net income $ 8,757 $ 7,921
======== ========
Earnings per share as reported $ 0.44 $ 0.42
Pro forma earnings per share $ 0.43 $ 0.42
Note 2 - Completed Business Combination
- ---------------------------------------
On March 1, 2002, WesBanco completed the acquisition of
American and the merger of American's affiliate, Wheeling
National Bank, Wheeling, West Virginia, with and into WesBanco's
affiliate, WesBanco Bank, Inc. Under the terms of the
transaction, 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 $678
million, deposits of $466 million and stockholders' equity of $44
million.
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 2002.
(Unaudited, dollars in thousands, except per share amounts)
For the Three Months Ended
March 31,
--------------------------
2003 2002
----------- -----------
Net interest income $ 24,842 $ 27,744
Net income 8,889 8,071
Earnings per share 0.44 0.38
9
Note 3 - 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 $2.3 billion at March 31, 2003,
compared to $2.8 billion at March 31, 2002 and $2.3 billion at
December 31, 2002. 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.
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 March 31, 2003:
Net interest income $ 24,842 --- $ 24,842
Provision for loan losses 1,980 --- 1,980
Non-interest income 5,265 $ 2,982 8,247
Non-interest expense 18,100 1,955 20,055
Provision for income taxes 1,754 411 2,165
Net income 8,273 616 8,889
For the three months ended March 31, 2002:
Net interest income $ 24,251 --- $ 24,251
Provision for loan losses 2,239 --- 2,239
Non-interest income 3,989 $ 3,115 7,104
Non-interest expense 16,067 1,710 17,777
Provision for income taxes 2,709 562 3,271
Net income 7,225 843 8,068
Note 4 - Goodwill and Core Deposit Intangible
- ---------------------------------------------
On January 1, 2002, WesBanco adopted SFAS No. 142, "Goodwill
and Other Intangible Assets". Under the provisions of SFAS No.
142, goodwill is no longer amortized into the income statement
over an estimated life, but rather is tested at least annually
for impairment. Intangible assets, which have finite lives,
continue to be amortized over their estimated useful lives and
also continue to be subject to impairment testing.
WesBanco's Consolidated Balanced Sheet reflects total
goodwill assets of $49.5 million and $47.0 million as of March
31, 2003 and 2002, respectively. In 2002, WesBanco capitalized
$30.6 million in goodwill and $11.1 million in core deposit
intangibles in connection with the American acquisition. Under
the new accounting standards, SFAS No. 141, "Business
Combinations" and SFAS No. 142, a core deposit intangible is
separated from goodwill and amortized over its remaining useful
life. Amortization of the American core deposit intangible has a
weighted average remaining useful life of 8 years. Amortization
expense of the core deposit intangible was $0.3 million and $0.2
million for the three months ended March 31, 2003 and 2002,
respectively. The remaining goodwill intangible is not subject
to amortization but instead is evaluated annually for possible
impairment.
10
Core deposit intangible amortization for each of the next five years
is as follows:
(unaudited, dollars in thousands)
Year Amount
----------------- -------------
Remainder of 2003 $ 1,007
2004 1,256
2005 1,042
2006 878
2007 742
Note 5 - Other Comprehensive Income
- -----------------------------------
The changes in accumulated other comprehensive income are as follows:
(Unaudited, dollars in thousands)
For the Three Months Ended
March 31,
--------------------------
2003 2002
------------ -----------
Securities available for sale:
Net fair value adjustment on securities
available for sale $ (2,399) $ (6,468)
Net securities gains reclassified into earnings (1,005) (1,138)
----------- -----------
(3,404) (7,606)
----------- -----------
Cash flow hedge derivatives:
Net fair value adjustment on derivatives 154 799
Net derivative gains reclassified into earnings (48) (57)
----------- -----------
106 742
----------- -----------
Net unrealized gain (loss) (3,298) (6,864)
Tax effect 1,303 2,735
----------- -----------
Change in accumulated other
comprehensive income (loss) $ (1,995) $ (4,129)
=========== ===========
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: 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. The information contained in this
report should be read in conjunction with the company's most
recent annual report filed with the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 2002.
Investors are cautioned that 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, spreads on earning assets and interest-bearing
liabilities, and associated interest rate sensitivity; sources of
liquidity available to the parent company and its related
subsidiary operations; potential future credit losses and the
credit risk of commercial, real estate, and consumer loan
customers and their borrowing activities; actions of the Federal
Reserve Board and Federal Deposit Insurance Corporation;
potential legislative and Federal and State regulatory actions
and reform; competitive conditions in the financial services
industry; rapidly changing technology affecting financial
services, and/or other external developments materially impacting
WesBanco's operational and financial performance. WesBanco does
not assume any duty to update forward-looking statements.
Critical accounting policies: WesBanco's critical accounting
policies involving the more significant judgments and assumptions
used in the preparation of the consolidated financial statements
as of March 31, 2003, have remained unchanged from the disclosures
presented in WesBanco's Annual report on Form 10-K for the year ended
December 31, 2002 under the section "Management's Discussion and Analysis
of Financial Conditions and Results of Operations".
Earnings Summary
----------------
Comparison of the Three Months Ended March 31, 2003 and 2002
------------------------------------------------------------
WesBanco's net income for the first quarter of 2003
increased 10.2% to $8.9 million, compared to $8.1 million for the
first quarter in 2002. Earnings per share increased 4.8% to
$0.44, compared to $0.42 for the first quarter of 2002. The
financial results include the March 1, 2002 acquisition of
American. As of the acquisition date, American reported total
assets of approximately $678 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.
WesBanco's return on average assets was 1.09% for the first
quarter ended March 31, 2003, compared to 1.21% in 2002, and
return on average equity was 11.14% and 11.63%, respectively.
12
TABLE 1: AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
Three Months Ended March 31,
-------------------------------------
2003 2002
------------------ -----------------
(Dollars in thousands) Average Average Average Average
Volume Rate Volume Rate
------------------ -----------------
ASSETS
Loans, net of unearned income (1) $1,816,433 6.42% $1,648,221 7.39%
Securities: (2)
Taxable 785,351 4.38 563,830 5.37
Tax-exempt (3) 371,797 7.39 255,405 7.57
----------------- ----------------
Total securities 1,157,148 5.35 819,235 6.06
Federal funds sold 33,180 1.17 34,235 1.61
----------------- ----------------
Total earning assets (3) 3,006,761 5.95% 2,501,691 6.87%
----------------- ----------------
Other assets 286,997 194,152
---------- ----------
Total Assets $3,293,758 $2,695,843
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing demand deposits $ 276,748 0.45% $ 252,191 0.75%
Money market accounts 514,607 2.28 422,517 2.97
Savings deposits 358,244 0.79 300,311 1.10
Certificates of deposit 972,013 3.64 846,988 4.55
----------------- ----------------
Total interest bearing deposits 2,121,612 2.41 1,822,007 3.09
Other borrowings 510,385 3.32 309,648 3.46
Company obligated mandatory redeemable
capital securities of subsidiary
trusts holding solely debentures
of the Corporation 12,650 8.70 4,357 8.56
----------------- ----------------
Total interest bearing liabilities 2,644,647 2.62% 2,136,012 3.16%
----------------- ----------------
Non-interest bearing demand deposits 290,300 252,136
Other liabilities 35,098 26,233
Shareholders' Equity 323,713 281,462
---------- ----------
Total Liabilities and
Shareholders' Equity $3,293,758 $2,695,843
========== ==========
Taxable equivalent net yield on
average earning assets (3) 3.65% 4.18%
======= =======
(1) Total loans are gross of allowance for loan losses, net of
unearned income and include loans held for sale. Non-accrual
loans were included in the average volume for the entire
period. 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 (1)
Three Months Ended March 31,
2003 compared to 2002
(Dollars in thousands) --------------------------------
Net Increase
Volume Rate (Decrease)
-------- --------- -----------
Increase (decrease) in interest income:
Loans, net of unearned income $ 2,497 $ (3,766) $ (1,269)
Taxable securities 2,602 (1,580) 1,022
Tax-exempt securities (1) 2,076 (42) 2,034
Federal funds sold (4) (35) (39)
--------------------------------
Total interest income change (1) 7,171 (5,423) 1,748
--------------------------------
Increase (decrease) in interest expense:
Interest bearing demand deposits 42 (203) (161)
Money market accounts 599 (798) (199)
Savings deposits 139 (261) (122)
Certificates of deposit 1,283 (2,070) (787)
Other borrowings 1,780 (66) 1,714
------------------------------
Total interest expense change 3,843 (3,398) 445
------------------------------
Taxable equivalent net interest
income increase (decrease) (1) $ 3,328 $ (2,025) $ 1,303
==============================
Increase in taxable equivalent adjustment 712
---------
Net interest income increase (1) $ 591
=========
(1) Taxable equivalent basis is calculated on tax-exempt
securities, using the federal statutory tax rate of 35% for each
period presented.
13
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 $1.3
million or 5.0%, compared to the first quarter in 2002. The
increase in net interest income due to earning asset growth was
partially offset by a decrease in the net interest margin to
3.65%, compared to 4.18% for the first quarter in 2002. The
margin decrease resulted from a combination of factors, including
the American acquisition with its lower overall net interest
margin, commercial and mortgage loan refinancing at historically
low interest rates, lower new loan demand, lower yields on
investment security reinvestments and rate floors on deposit
accounts which has caused rate compression between loan and
deposit products. The net interest margin also decreased due to
the purchase of an additional $40.0 million in bank owned life
insurance at the end 2002, which is classified as an other asset
with the related earnings included in other income. With
interest rates at historical lows, WesBanco anticipates continued
loan and security prepayments, which may result in an additional
reduction in the net interest margin for the remainder of the
year. Management actions may reduce the impact of this
anticipated reduction by decreasing certain core deposit rates,
expansion of home equity, residential mortgage and commercial
loan volumes and the purchase of additional intermediate-term
securities.
Taxable equivalent interest income increased $1.7 million or
4.1% for the first quarter in 2003, compared to the first quarter
in 2002. As shown in Tables 1 and 2, the yield on average earning
assets for the first quarter of 2003 decreased 92 basis points to
5.95% from 6.87% in the first quarter of 2002. The decrease in
the rates on average earning assets was partially offset by a
$505.1 million or 20.2% volume increase in average earning assets
for the first quarter in 2003, compared to the first quarter of
2002. The volume increases were primarily the result of the
American acquisition, while the decrease in average yields was
due to a general reduction in interest rates combined with a
shift in asset mix from higher yielding loans into securities
with lower yields.
Interest expense increased $0.4 million or 2.7% for the
first quarter in 2003, compared to the first quarter of 2002. As
shown in Tables 1 and 2, the average rate paid on interest
bearing liabilities for the first quarter in 2003 decreased 54
basis points to 2.62% from 3.16% in the first quarter in 2002.
The interest bearing liabilities rate decrease was partially
offset by a $508.6 million or 23.8% volume increase in average
liabilities for the first quarter in 2003, compared to the first
quarter in 2002. The volume increase was primarily the result of
American, as well as increased marketing efforts to attract new
deposit accounts.
Non-interest Income
-------------------
Non-interest income, excluding net securities gains
(losses), increased $1.3 million or 22.1% for the first quarter
in 2003, compared to the first quarter in 2002. The increase
related to growth in deposit activity fees, ATM and debit card
interchange income and an increase in bank owned life insurance
income as a result of a new investment of $40.0 million at year
end 2002. Trust fees decreased $0.1 million or 4.3%, compared to
the first quarter in 2002, primarily due to the
14
continued decline in the equity markets somewhat offset by new account
relationships. The market value of trust assets under management
was $2.3 billion at March 31, 2003, compared to $2.8 billion at
March 31, 2002 and $2.3 billion at December 31, 2002. Net
securities gains decreased $0.2 million or 14.3%, compared to the
first quarter in 2002. In the first quarter of 2003 WesBanco sold
bonds that were rapidly prepaying in order to reposition the
investment portfolio to take advantage of current market
opportunities.
Non-interest Expense
--------------------
Non-interest expense, excluding merger-related expenses,
increased $3.3 million or 19.5%, compared to the first quarter in
2002. The increase was partially related to an increase in
operational costs associated with the additional banking offices
and related expenses acquired in the American transaction.
WesBanco also experienced a $1.3 million or 14.8% increase in
salary and employee benefit costs due to a $0.7 million or 9.3%
increase in salary expense and a $0.4 million or 208.1% increase
in pension costs. Defined benefit pension expense for all of
2003 is expected to approximate $2.2 million, compared to $0.6
million for 2002. Other factors influencing non-interest expense
for the first quarter of 2003 included a $0.2 million increase in
consulting expenses due to several ongoing technology
initiatives, a $0.2 million increase in marketing expenses as
WesBanco promoted new loan and deposit products and a $0.4
million increase in occupancy expense due to certain branch
renovations and maintenance expenses caused by the severe winter
conditions. During the quarter, three branches were closed
through consolidation with nearby locations, completing the
WesBanco/American branch integration plan.
Merger related expenses of $0.1 million were recorded in
the first quarter of 2003, compared to $1.1 million in 2002, all
of which related to the American acquisition.
The efficiency ratio was 56.50% for the first quarter of 2003,
compared to 53.79% for the first quarter of 2002.
Income Taxes
------------
TABLE 3: Reconciliation of Income Tax Rates
For the Three Months Ended
March 31,
--------------------------
2003 2002
----------- -----------
Federal statutory tax rate 35.0% 35.0%
Tax-exempt interest income, net of
federal tax effect (13.7) (9.2)
State income tax- net of federal tax effect 1.5 3.6
All other - net (3.2) (0.6)
------- -------
Effective tax rate 19.6% 28.8%
======= =======
WesBanco's federal and state income tax expense decreased
$1.1 million or 33.8%, compared to the first quarter in 2002.
The effective tax rate declined to 19.6% in the first quarter of
2003, compared to 28.8% for the first quarter in 2002. The
decline in the effective tax rate resulted primarily from an
increase of $1.3 million or 42.1% in tax-exempt investment income
due to a $116.4 million or 45.6% increase in average tax-exempt
investment securities for the first quarter of 2003, compared to
the first quarter of 2002. The decline in the effective tax rate
for the first quarter of 2003
15
was also due to an increase in tax-exempt income on bank owned
life insurance, as well as the implementation of certain other income
tax strategies.
Financial Condition
-------------------
Total assets of WesBanco were $3.4 billion as of March 31,
2003, an increase of $59.2 million or 1.8%, compared to total
assets as of December 31, 2002. The increases were primarily in
the cash and due from banks, Federal Funds sold and investment
securities areas as well as a slight increase in loans. Total
liabilities of WesBanco were $3.0 billion as of March 31, 2003,
an increase of $63.4 million or 2.1%, compared to December 31,
2002. The increase was primarily due to growth in money market
accounts, savings accounts and certificates of deposit.
Securities
----------
TABLE 4: Composition of Securities
March 31, December 31,
2003 2002
(Dollars in thousands) --------- -----------
Securities held to maturity (at amortized cost):
- -----------------------------------------------
U.S. Treasury and Federal Agency securities $ 69,144 $ 86,144
Obligations of states and political subdivisions 372,616 382,752
Other securities 31,566 30,265
---------- ----------
Total securities held to maturity (fair value
of $490,098 and $514,735, respectively) 473,326 499,161
---------- ----------
Securities available for sale (at fair value):
- ----------------------------------------------
U. S. Treasury and Federal Agency securities 364,913 362,694
Obligations of states and political subdivisions 4,619 8,152
Corporate securities 5,734 19,968
Collateralized mortgage obligations 134,729 43,280
Mortgage-backed and other securities 222,658 260,641
---------- ----------
Total securities available for sale (amortized
cost of $718,912 and $677,590, respectively) 732,653 694,735
---------- ----------
Total securities $1,205,979 $1,193,896
========== ==========
Total investment securities increased $12.1 million or 1.0%
at March 31, 2003, compared to December 31, 2002. The increase in
investment securities was primarily due to increased liquidity as
core deposits grew, coupled with a decrease in mortgage and
consumer loans. At March 31, 2003 the average yield of the
available for sale portfolio was 4.51% with a weighted average
life of 2.0 years, compared to 4.94% and 2.2 years at December
31, 2002. For the same period, the average yield of the held to
maturity portfolio was 6.41% with a weighted average life of 4.8
years, compared to 6.30% and 5.0 years at December 31, 2002. At
March 31, 2003, the total unamortized premium and discount on the
investment portfolio, as a percentage of the total investment
portfolio, were 0.82% and 1.70%, respectively. Total premium on the
investment portfolio, which relates primarily to the
collateralized mortgage obligations and mortgage-backed
securities in the investment portfolio, is subject to increased
amortization in times of accelerated prepayments. Total discount on
the investment portfolio relates primarily to the obligations of
states and political subdivisions and is accreted into income
over the life of the securities. Cash flows from maturities and
calls on the held to maturity and available for sale investment
portfolio totaled $151.7 million for the first quarter of 2003,
compared to $33.3 million for
16
the same period in 2002. WesBanco has primarily replaced the called
and sold securities with lower yielding, intermediate term collateralized
mortgage obligations and mortgage-backed securities with average durations
approximating four to five years and yields approximating 125 to 175 basis
points lower than the assets they replaced. As a result, the
portfolio's yield for the first quarter of 2003 decreased
to a tax equivalent yield of 5.35% from last year's
6.06% and the fourth quarter's 5.51%. Cash flows on the
investment portfolio are projected to be higher throughout 2003
due to the current low interest rates and the shorter duration of
the portfolio as compared to the prior year.
Unrealized pre-tax gains/losses on available for sale
securities (fair value adjustments) reflected a $13.7 million
market gain as of March 31, 2003 compared to a $17.1 million
market gain as of December 31, 2002. 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.
Loans and Credit Risk
---------------------
TABLE 5: Composition of Loans
Percent Percent
March 31, of December 31, of
2003 Total 2002 Total
(Dollars in thousands) --------------------- ---------------------
Commercial $ 312,396 17.1% $ 306,071 16.8%
Commercial real estate 530,721 29.1 504,902 27.7
Residential real estate 568,721 31.1 573,819 31.5
Home equity 116,190 6.4 117,964 6.5
Consumer 297,362 16.3 318,129 17.5
------------------- --------------------
Loans, net of unearned income $ 1,825,390 100.0% $ 1,820,885 100.0%
=================== ====================
Total loans increased $4.5 million or 0.2% at March 31,
2003, compared to December 31, 2002. This increase reflects the
net effect of a $6.3 million or 2.1% increase in commercial loans
and a $25.8 million or 5.1% increase in commercial real estate
loans, which were offset by declines of $20.8 million or 6.5% in
consumer loans, $5.1 million or 0.9% in residential real estate
loans and $1.8 million or 1.5% in home equity lines of credit.
The increase in commercial loans is the result of expanding
customer relationships and improved penetration in certain
WesBanco markets. The increase in commercial real estate loans
reflects continued demand for commercial real estate loans
despite general weakness in the economy. The decrease in consumer
loans resulted from an anticipated reduction in indirect
automobile lending caused by increased competition from
automobile manufacturing finance companies offering low or zero
interest rate loans primarily in the new car segment and
management initiatives with respect to credit risk and
profitability of indirect lending. The decline in residential
real estate loans reflects increased prepayments of both higher
fixed rate and adjustable rate mortgages as customers sought to
lock in lower fixed rates in the current interest rate
environment. The decrease in home equity lines of credit is
largely due to seasonal fluctuations in customers' usage of
available lines.
Off-balance sheet loan commitments consist of available
balances under lines of credit and letters of credit. These
commitments to extend credit were $307.3 million at March 31,
2003 compared to $291.1 million at December 31, 2002. Commercial
lines of credit and standby letters of credit are generally
renewable or may be cancelled annually.
17
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.
TABLE 6: Non-performing Assets and Loans Past Due 90 Days or More
March 31, December 31,
(Dollars in thousands) 2003 2002
----------- -----------
Non-accrual loans $ 10,846 $ 7,480
Renegotiated loans 665 2,646
----------- -----------
Total non-performing loans 11,511 10,126
Other real estate owned and repossessed assets 4,659 4,213
----------- -----------
Total non-performing assets $ 16,170 $ 14,339
=========== ===========
Loans past due 90 days or more $ 8,892 $ 12,105
=========== ===========
Non-performing loans as a percentage of
total loans 0.63% 0.56%
Non-performing assets as a percentage of
total assets 0.48% 0.43%
Non-performing assets as a percentage of
total loans, other real estate
owned and repossessed assets 0.88% 0.79%
Non-performing loans and loans 90 days or
more past due as a percentage of total loans 1.12% 1.22%
Non-performing loans increased $1.4 million or 13.7%,
compared to December 31, 2002, primarily due to economic factors
in WesBanco's regional markets. However, loans past due 90 days
or more decreased $3.2 million or 26.5%, compared to December 31,
2002, as a result of increased collection efforts on loans that
did not migrate to a non-performing status and focused efforts to
reduce past due consumer loans. Non-performing loans as a
percentage of total loans were 0.63% at March 31, 2003, compared
to 0.56% at December 31, 2002.
WesBanco also categorizes certain other commercial loans as
impaired under SFAS 114. Such impaired loans at March 31, 2003
were $11.4 million compared to $11.3 million at December 31,
2002. This amount was relatively unchanged, as the rate at which
loans have exhibited impaired characteristics has slowed compared
to the deterioration of credits experienced throughout 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 consumer loan credit quality trends, charge-offs and
compliance with underwriting guidelines. Underwriting standards
are adjusted when appropriate.
18
TABLE 7: Allowance for Loan Losses
(Dollars in thousands)
For the Three Months Ended
March 31,
--------------------------
2003 2002
------------ -----------
Balance, at beginning of period $ 25,080 $ 20,786
Allowance for loan losses of acquired bank --- 3,903
Charge-offs:
Commercial (344) (1,671)
Real estate (108) (25)
Consumer (1,245) (1,151)
----------- ----------
Total Charge-offs (1,697) (2,847)
----------- ----------
Recoveries:
Commercial 40 65
Real estate 5 1
Consumer 108 72
----------- ----------
Total Recoveries 153 138
----------- ----------
Net loan charge-offs (1,544) (2,709)
Provision for loan losses 1,980 2,239
----------- ----------
Balance, at end of period $ 25,516 $ 24,219
=========== ==========
Annualized net loan charge-offs to average
loans outstanding 0.34% 0.67%
Allowance for loan losses to total loans 1.40% 1.30%
Allowance for loan losses to total non-performing loans 2.22X 2.50X
Allowance for loan losses to total non-performing loans
and loans past due 90 days or more 1.25X 1.12X
The allowance for loan losses represents management's estimate of
probable losses inherent in the loan portfolio. The allowance is reduced
by charge-offs, net of recoveries, and increased by charging a provision to
operations to maintain the allowance at the level determined appropriate by
management.
Management evaluates the adequacy of the allowance at least quarterly,
which includes testing certain individual loans as well as collective pools
of loans for impairment. This evaluation includes an assessment of actual
loss experience within each category of the portfolio, individual
commercial and commercial real estate loans that exhibit credit weakness;
current economic events, including employment statistics, trends in
bankruptcy filings, and other pertinent factors; industry or geographic
concentrations, and regulatory guidance. Allocations of the allowance are
made for loans in each category of the portfolio that are not specifically
reserved based on historical loss rates with appropriate adjustments to
reflect changing economic conditions, delinquency and non-performing loan
trends, and other relevant factors. Allocations based on historical loss
rates for commercial and commercial real estate loans are derived from a
migration analysis, which computes losses sustained on loans according to
their internal risk grade. Specific reserves are established for
individual commercial and commercial real estate loans that are deemed
impaired pursuant to SFAS No. 114. The determination of specific reserves
takes into consideration anticipated future cash flows available to pay the
loan and/or the estimated realizable value of collateral, if any.
Management relies on observable data from internal and
19
external sources to evaluate each of these factors, adjust assumptions
and recognize changing conditions to reduce differences between estimated
and actual observed losses from period to period.
The allowance for loan losses at March 31, 2003 was $25.5 million
representing 1.40% as a percentage of total loans, compared to $24.2
million and 1.30% at March 31, 2002, respectively. The allowance as a
percentage of total loans increased throughout 2002 in response to higher
non-performing loans, an overall reduction in credit quality resulting from
economic conditions, and changes in estimated collateral values used in
determining specific reserves. The provision for loan losses decreased $0.3
million or 11.6%, compared to the first quarter in 2002. The reduction in
the provision reflects lower delinquency rates and an overall decrease in
net charge-offs compared to the first quarter of 2002, as well as
management's evaluation of the adequacy of the allowance for loan losses,
at March 31, 2003. The allowance currently provides coverage of 2.22 times
non-performing loans and 1.25 times non-performing loans plus loans past
due 90 days or more. Net loan charge-offs as a percentage of average total
loans on an annualized basis was 0.34%, compared to 0.67% for the first
quarter in 2002. The decrease in net charge-offs resulted primarily from
a reduction in commercial loan charge-offs, which included a $1.1 million
write-down of a single commercial real estate loan in the first quarter of
2002 and to a lesser extent, consumer loan charge-offs.
TABLE 8: Allocation of the Allowance for Loan Losses
(Dollars in thousands)
For the Three Months Ended
March 31,
--------------------------
2003 2002
--------- --------
Commercial $ 7,275 $ 6,138
Commercial real estate 11,272 9,930
Residential real estate 1,289 1,284
Home equity 313 206
Consumer 5,367 6,661
--------- ---------
Total allowance for loan losses $ 25,516 $ 24,219
========= =========
Changes in the allocation of the allowance for loan losses between
March 31, 2003 and March 31, 2002 reflect overall changes in the
composition and quality of the loan portfolio. The increased allocation
to commercial and commercial real estate loans reflects growth in those
sectors of the portfolio, higher non-performing loans and the weak
economy. The decreased allocation to consumer loans is primarily due
to declines in that sector of the portfolio and, to a lesser extent,
improvement in historical loss rates.
Deposits
--------
Total deposits increased $55.6 million or 2.3% at March 31,
2003, compared to December 31, 2002 as certificates of deposits
increased $28.8 million or 3.0% and money market accounts increased
$14.9 million or 2.9%. Deposit growth, during the first quarter of
2003, resulted primarily from an increase in certificate of deposit
accounts, slight increases in interest and non-interest bearing demand
deposits, savings accounts and WesBanco's highly competitive money market
product.
20
Borrowings
----------
Federal Home Loan Bank ("FHLB") borrowings decreased $0.7
million or 0.2% at March 31, 2003 compared to December 31, 2002.
At March 31, 2003, FHLB borrowings had a weighted average
interest rate of 4.13% and maturities ranging from the years 2003
to 2021. 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, federal funds purchased, treasury
tax and loan notes and a commercial bank line of credit,
decreased $5.6 million or 3.3% to $170.1 million for the quarter
ended March 31, 2003, compared to December 31, 2002, primarily
due to a $19.0 million decrease in federal funds purchased, which
was partially offset by a $9.8 million increase in the commercial
bank line of credit.
TABLE 9: FHLB Maturities: (dollars in thousands)
2003 $ 75,003
2004 44,900
2005 30,244
2006 20,012
2007 48,042
2008 and thereafter 124,465
----------
Total $ 342,666
==========
Capital Resources
-----------------
At March 31, 2003 shareholders' equity totaled $321.0 million
compared to $325.2 million at December 31, 2002. First quarter 2003
activity reflects net income of $8.9 million less dividends paid to
shareholders totaling $4.8 million. Accumulated other comprehensive income
decreased $2.0 million to $2.3 million at March 31, 2003. In addition,
WesBanco repurchased a total of 282,893 shares through its current stock
repurchase plan at an average cost of $23.88 per share. As of March 31,
2003, WesBanco had repurchased a total of 791,492 shares, with an
additional 208,508 shares remaining for repurchase, through the current one
million-share stock repurchase plan approved by the Board on June 20, 2002.
Book value was $15.89 per share at March 31, 2003 and December 31, 2002.
On April 17, 2003, WesBanco announced the adoption of a new stock
repurchase plan, to be implemented after all shares from the previous plan
have been acquired, to begin repurchasing up to an additional one million
shares of WesBanco common stock representing approximately 4.9% of
outstanding shares on the open market. The shares will be available for
general corporate purposes, which may include future acquisitions, the
shareholder dividend reinvestment plan and employee benefit plans. The
timing, price and quantity of purchases under these programs are at the
discretion of WesBanco and may be discontinued or suspended at any time.
WesBanco increased its quarterly cash dividend to $.24 per share from
$.235 per share, effective with the first quarter payment on April 1, 2003.
21
TABLE 10: Capital Adequacy Ratios
Minimum
Regulatory March 31, December 31,
Requirements 2003 2002
------------ --------- ---------
Tier I leverage capital 4.0% 8.43% 8.53%
Tier I risk-based capital 4.0% 12.75% 12.95%
Total risk-based capital 8.0% 13.94% 14.13%
WesBanco is subject to risk-based capital guidelines that
measure capital relative to risk-adjusted assets and off-balance
sheet financial instruments. At March 31, 2003, and December 31,
2002, WesBanco's affiliate bank, WesBanco Bank, Inc., also
exceeded the minimum regulatory levels and is considered "well-
capitalized" under FDICIA. There are no conditions or events that have
occurred since March 31, 2003, that management believes may have
changed WesBanco Bank's "well-capitalized" categorization.
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. Liquidity is
monitored by WesBanco's Asset/Liability Management Committee
("ALCO").
WesBanco determines the degree of required liquidity by
the relationship of total holdings of liquid assets to the
possible need for funds to meet unexpected deposit losses and/or
loan demands. The ability to quickly convert assets to cash at a
minimal loss is an important consideration of WesBanco's
investment portfolio management. Federal funds sold, and all
securities maturing within three months are classified as sources
of liquid assets. These liquid assets, combined with the cash
flow from the loan portfolio and the remaining sectors of the
investment portfolio, deposit growth and other sources,
adequately meet the liquidity requirements of WesBanco.
Securities are the principal source of asset-funded
liquidity. Securities totaled $1.2 billion at March 31, 2003, of
which $732.7 million were classified as available for sale. At
March 31, 2003, WesBanco had approximately $34.9 million in
securities scheduled to mature within one year. Due to the
current low interest rate environment, additional cash flows may
be anticipated from approximately $237.4 million in callable
bonds, which have call dates within the next year. Increased
prepayments on mortgage-backed securities and collateralized
mortgage-backed obligations are also expected to provide
additional cash flows over the next twelve-month period. At March
31, 2003, WesBanco had $792.7 million of unpledged securities,
excluding FHLB blanket liens, which could be used for collateral
or sold. Cash and due from banks of $98.6 million and federal
funds sold of $20.0 million at March 31, 2003, also serve as
additional sources of liquidity.
Deposits are the principal source of liability liquidity.
Deposits totaled $2.5 billion at March 31, 2003. Deposit flows
are impacted by current interest rates, rates and products
offered by WesBanco's competition, as well as customer behavior.
Certificates of deposit schedule to mature within one year
totaled $489.6 million at March 31, 2003. In addition to the core
deposit base, WesBanco's banking subsidiary maintains a line of
credit with the FHLB as an
22
additional liability-funding source. Available lines of credit
at March 31, 2003 and December 31, 2002 approximated $668.3 million
and $589.4 million, respectively.
The principal source of parent company liquidity is
dividends from WesBanco's banking subsidiary. There are various
legal limitations under Federal and State laws regarding the
payment of dividends from WesBanco Bank, Inc., WesBanco's banking
subsidiary, to the parent company. Additional Parent Company
liquidity is provided by the Parent's investment security
portfolio, available lines of credit with an independent
commercial bank and WesBanco Bank, Inc., as well as the issuance
of trust preferred securities.
Management believes 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. 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.
WesBanco's ALCO, comprised of senior management, monitors
and manages interest rate risk within Board approved policy
limits. Interest rate risk is monitored primarily through the
use of an earnings simulation model. The model is highly
dependent on assumptions, which change regularly as the balance
sheet and interest rates change. The key assumptions and
strategies employed are analyzed regularly and reviewed by the
ALCO.
The earnings simulation model projects changes in net
interest income resulting from the effect of changes in interest
rates. The model requires projections from management on how the
balance sheet may change over time given different interest rate
assumptions. Loan and deposit growth assumptions along with
yields and rates on new loans and deposits are derived from
management forecasts and historical analysis. Mortgage loan
prepayment speeds are derived from industry guidelines and
historical prepayment experience. Non-time deposit growth and
rate assumptions are based on historical patterns. Securities
portfolio maturities and prepayments are assumed to be reinvested
in similar instruments and callable bond forecasts are adjusted
at varying levels of interest rates.
TABLE 11: Net Interest Income Sensitivity
Percentage Change in
Change in Net Interest Income
Interest Rates --------------------------------- ALCO
(basis points) March 31, 2003 December 31, 2002 Guidelines
- ---------------------------------------------------------------------------
+200 -0.65% -1.10% +/- 5.0%
-200 N/A N/A +/- 5.0%
+100 +0.38% +0.02% N/A
-100 -0.77% -0.10% N/A
23
Interest rate risk policy limits are determined by measuring
the anticipated change in net interest income over a 12-month
period assuming an immediate and sustained 200 basis point
increase or decrease in market interest rates compared to a
stable rate model. WesBanco's current policy limits this
exposure to +/- 5.0% of net interest income for a 12-month
period. Table 11 shows WesBanco's interest rate sensitivity at
March 31, 2003 and December 31, 2002 assuming both a 200 and 100
basis point interest rate change, compared to a stable-rate
model. Since management believes that a 200 basis point decline
in market interest rates is unlikely, an alternative 100 basis
point change was evaluated by ALCO. The earnings simulation
model projects net interest income for the next 12-month period
would decrease by approximately 0.65% if interest rates were to
rise immediately by 200 basis points. Net interest income would
decline by approximately 0.77% if interest rates were to decline
by 100 basis points. Since the assumptions used in modeling changes
in interest rates 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 evaluates various strategies to reduce the
exposure to interest rate fluctuations. Among these strategies
evaluated is the continued utilization of interest rate swap
agreements. These interest rate swap agreements, purchased at
various times are used to effectively convert a portion of prime
rate money market deposits to a fixed-rate basis. The notional
value of interest rate swap agreements outstanding was
approximately $107.4 million at March 31, 2003 compared to $110.5
million at December 31, 2002. Related market losses of $3.3
million, net of tax, at March 31, 2003 and $5.8 million, net of
tax, at December 31, 2002, are recorded in other comprehensive
income.
Other strategies evaluated by ALCO include managing the
level of its fixed rate residential real estate loans through
sales of 30 year fixed rate real estate loans to the secondary
market, somewhat shortening maturities in the securities
portfolio to maintain asset sensitivity in a rising rate
environment and emphasizing growth in long-term certificate of
deposit products.
Item 4. - Controls and Procedures
- ---------------------------------
As of March 31, 2003, 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 March 31, 2003. There have been
no significant changes in WesBanco's internal controls or in
other factors that could significantly affect internal controls
subsequent to March 31, 2003.
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.
24
WesBanco has essentially become the principal
defendant in this suit by reason of the merger. This case
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 predecessor action
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.
The Trial Court Judge has been called to active duty and there is
some uncertainty as to the timeframe for proceedings in the
matter. 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. The case is currently in its discovery phase. 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 and believes that there is
no merit to the allegations of the Complaint.
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
25
Item 4. - Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
On April 16, 2003, the Annual Meeting of the Stockholders of
WesBanco, Inc. was held in Wheeling, WV. The following directors
were elected to the Board of Directors for a term of three years
expiring at the annual stockholders meeting in 2006:
For Against
------------- --------------
Ray A. Byrd 13,974,407 93,637
James D. Entress 15,920,042 93,637
Ernest S. Fragale 15,925,593 93,637
Edward M. George 15,917,688 93,637
Carter Strauss 13,824,068 93,637
Reed J. Tanner 15,620,672 93,637
Robert K. Tebay 15,856,773 93,637
The following director was also elected to the Board of Directors
for a term of two years expiring at the annual stockholders
meeting in 2005:
For Against
------------- --------------
Jay T. McCamic 15,241,339 143,621
Item 5. - Other Information
- ---------------------------
Not Applicable
Item 6(a). - Exhibits
- ---------------------
99.1 Chief Executive Officer's Certification Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
99.2 Chief Financial Officer's Certification Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
Item 6(b). - Reports on Form 8-K
- --------------------------------
On April 18, 2003, 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. Press Release dated April 16, 2003; containing the
earnings for the first quarter ended March 31, 2003.
On April 21, 2003, 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. Two (2) Press Releases dated April 17, 2003: 1).
Announcing the adoption of a new stock repurchase plan, and 2).
The election results for its Annual Shareholder's Meeting held
April 16, 2003.
26
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/ Paul M. Limbert
Date: May 14, 2003 ----------------------------
------------ Paul M. Limbert
President and Chief Executive Officer
/s/ Robert H. Young
Date: May 14, 2003 ----------------------------
------------ Robert H. Young
Executive Vice President and Chief
Financial Officer
27
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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.
/s/ Paul M. Limbert
Date: May 14, 2003 ----------------------------------
------------ Paul M. Limbert
President and Chief Executive Officer
28
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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.
/s/ Robert H. Young
Date: May 14, 2003 ------------------------------
------------ Robert H. Young
Executive Vice President and Chief
Financial Officer