Attached files
file | filename |
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EX-32.1 - CEO AND CFO CERTIFICATION - WESBANCO INC | ex321.htm |
EX-31.1 - CEO CERTIFICATION - WESBANCO INC | ex311.htm |
EX-31.2 - CFO CERTIFICATION - WESBANCO INC | ex312.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
(Mark
One)
|
||
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the quarterly period ended September 30, 2009
|
||
¨
|
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 000-08467
|
WESBANCO,
INC.
|
||
(Exact
name of Registrant as specified in its charter)
|
||
WEST
VIRGINIA
|
55-0571723
|
|
(State
of incorporation)
|
(IRS
Employer Identification No.)
|
|
1
Bank Plaza, Wheeling, WV
|
26003
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
Registrant's
telephone number, including area code: 304-234-9000
|
||
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 þ No ¨
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (section 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act
Larger
accelerated filer ¨ Accelerated
filer þ
Non-accelerated
filer ¨ (Do not
check if a smaller reporting
company) Smaller
reporting company ¨
Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act). Yes ¨ No þ
As of
October 31, 2009, there were 26,567,653 shares of WesBanco, Inc. common stock,
$2.0833 par value, outstanding.
WESBANCO,
INC.
|
||
TABLE
OF CONTENTS
|
||
Item
No.
|
ITEM
|
Page
No.
|
PART
I - FINANCIAL INFORMATION
|
||
1
|
Financial
Statements
|
|
Consolidated
Balance Sheets at September 30, 2009 (unaudited) and December 31,
2008
|
3
|
|
Consolidated
Statements of Income for the three and nine months ended September 30,
2009 and 2008 (unaudited)
|
4
|
|
Consolidated
Statements of Changes in Shareholders' Equity for the nine months ended
September 30, 2009 and 2008 (unaudited)
|
5
|
|
Consolidated
Statements of Cash Flows for the nine months ended September 30, 2009 and
2008 (unaudited)
|
6
|
|
Notes
to Consolidated Financial Statements
|
7
|
|
2
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
19
|
3
|
Quantitative
and Qualitative Disclosures About Market Risk
|
35
|
4
|
Controls
and Procedures
|
37
|
PART
II – OTHER INFORMATION
|
||
1
|
Legal
Proceedings
|
38
|
2
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
38
|
6
|
Exhibits
|
39
|
Signatures
|
40
|
2
PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
WESBANCO,
INC. CONSOLIDATED BALANCE SHEETS
|
||
September
30,
|
December
31,
|
|
(unaudited,
dollars in thousands, except per share amounts)
|
2009
|
2008
|
(unaudited)
|
||
ASSETS
|
||
Cash
and due from banks, including interest bearing amounts of $11,999 and $65,145,
respectively
|
$ 87,256
|
$ 141,170
|
Securities:
|
||
Available-for-sale,
at fair value
|
1,417,687
|
934,138
|
Held-to-maturity
(fair values of $1,372 and $1,214,
respectively)
|
1,450
|
1,450
|
Total
securities
|
1,419,137
|
935,588
|
Loans
held for sale
|
6,860
|
3,874
|
Portfolio
loans:
|
||
Commercial
|
463,948
|
510,902
|
Commercial
real estate
|
1,764,791
|
1,699,023
|
Residential
real estate
|
739,151
|
856,999
|
Home
equity
|
235,427
|
217,436
|
Consumer
|
298,305
|
319,949
|
Total
portfolio loans, net of unearned income
|
3,501,622
|
3,604,309
|
Allowance
for loan losses
|
(60,755)
|
(49,803)
|
Net
portfolio loans
|
3,440,867
|
3,554,506
|
Premises
and equipment, net
|
91,411
|
93,693
|
Accrued
interest receivable
|
22,091
|
19,966
|
Goodwill
and other intangible assets, net
|
289,087
|
267,883
|
Bank-owned
life insurance
|
102,670
|
101,229
|
Other
assets
|
101,712
|
104,132
|
Total
Assets
|
$ 5,561,091
|
$ 5,222,041
|
LIABILITIES
|
||
Deposits:
|
||
Non-interest
bearing demand
|
$ 514,726
|
$ 486,752
|
Interest
bearing demand
|
467,085
|
429,414
|
Money
market
|
678,099
|
479,256
|
Savings
deposits
|
479,342
|
423,830
|
Certificates
of deposit
|
1,866,256
|
1,684,664
|
Total
deposits
|
4,005,508
|
3,503,916
|
Federal
Home Loan Bank borrowings
|
567,939
|
596,890
|
Other
short-term borrowings
|
236,884
|
297,805
|
Junior
subordinated debt owed to unconsolidated subsidiary trusts
|
111,175
|
111,110
|
Total
borrowings
|
915,998
|
1,005,805
|
Accrued
interest payable
|
10,664
|
10,492
|
Other
liabilities
|
36,586
|
42,457
|
Total
Liabilities
|
4,968,756
|
4,562,670
|
SHAREHOLDERS'
EQUITY
|
||
Fixed
Rate Cumulative Perpetual Preferred Stock, Series A, no par value;
1,000,000 shares
|
||
authorized; 0 shares and 75,000
shares issued and outstanding in 2009 and 2008,
respectively
|
-
|
72,332
|
Common
stock, $2.0833 par value; 50,000,000 shares authorized; 26,633,848 shares
issued;
|
||
26,567,653 shares and
26,560,889 shares outstanding in 2009 and 2008,
respectively
|
55,487
|
55,487
|
Capital
surplus
|
193,211
|
193,221
|
Retained
earnings
|
337,211
|
344,403
|
Treasury
stock (66,195 and
72,959 shares - at cost for 2009 and 2008, respectively)
|
(1,498)
|
(1,661)
|
Accumulated
other comprehensive income
|
9,195
|
(3,182)
|
Deferred
benefits for directors
|
(1,271)
|
(1,229)
|
Total
Shareholders' Equity
|
592,335
|
659,371
|
Total
Liabilities and Shareholders' Equity
|
$ 5,561,091
|
$ 5,222,041
|
|
See
Notes to Consolidated Financial
Statements.
|
3
WESBANCO,
INC. CONSOLIDATED STATEMENTS OF INCOME
|
|||||||
For
the Three Months Ended
|
For
the Nine Months Ended
|
||||||
September
30,
|
September
30,
|
||||||
(unaudited,
dollars in thousands, except per share amounts)
|
2009
|
2008
|
2009
|
2008
|
|||
INTEREST
AND DIVIDEND INCOME
|
|||||||
Loans,
including fees
|
$ 50,970
|
$ 57,842
|
$ 154,513
|
$ 180,602
|
|||
Interest
and dividends on securities:
|
|||||||
Taxable
|
10,563
|
6,870
|
28,872
|
21,188
|
|||
Tax-exempt
|
3,595
|
3,589
|
10,806
|
10,913
|
|||
Total
interest and dividends on securities
|
14,158
|
10,459
|
39,678
|
32,101
|
|||
Other
interest income
|
84
|
374
|
302
|
1,340
|
|||
Total
interest and dividend income
|
65,212
|
68,675
|
194,493
|
214,043
|
|||
INTEREST
EXPENSE
|
|||||||
Interest
bearing demand deposits
|
787
|
894
|
2,163
|
4,070
|
|||
Money
market deposits
|
1,758
|
2,167
|
4,853
|
6,699
|
|||
Savings
deposits
|
606
|
726
|
1,784
|
2,457
|
|||
Certificates
of deposit
|
13,062
|
15,288
|
41,221
|
54,237
|
|||
Total
interest expense on deposits
|
16,213
|
19,075
|
50,021
|
67,463
|
|||
Federal
Home Loan Bank borrowings
|
5,568
|
5,521
|
16,814
|
14,730
|
|||
Other
short-term borrowings
|
1,780
|
2,096
|
5,619
|
6,850
|
|||
Junior
subordinated debt owed to unconsolidated subsidiary trusts
|
1,222
|
1,696
|
4,232
|
5,310
|
|||
Total
interest expense
|
24,783
|
28,388
|
76,686
|
|
94,353
|
||
NET
INTEREST INCOME
|
40,429
|
40,287
|
117,807
|
119,690
|
|||
Provision
for credit losses
|
16,200
|
6,457
|
36,019
|
17,605
|
|||
Net
interest income after provision for credit losses
|
24,229
|
33,830
|
81,788
|
102,085
|
|||
NON-INTEREST
INCOME
|
|
|
|
||||
Trust
fees
|
3,508
|
3,639
|
10,149
|
11,702
|
|||
Service
charges on deposits
|
6,648
|
6,280
|
17,941
|
17,903
|
|||
Bank-owned
life insurance
|
1,873
|
934
|
3,661
|
2,696
|
|||
Net
securities gains
|
1,329
|
276
|
3,933
|
1,182
|
|||
Net
gains on sales of mortgage loans
|
820
|
595
|
1,606
|
1,059
|
|||
Other
income
|
4,377
|
3,246
|
10,011
|
10,314
|
|||
Total
non-interest income
|
18,555
|
14,970
|
47,301
|
44,856
|
|||
NON-INTEREST
EXPENSE
|
|||||||
Salaries
and wages
|
13,920
|
14,185
|
41,085
|
42,423
|
|||
Employee
benefits
|
5,240
|
3,857
|
15,008
|
12,409
|
|||
Net
occupancy
|
2,572
|
2,511
|
7,676
|
8,034
|
|||
Equipment
|
2,888
|
2,739
|
8,117
|
8,185
|
|||
Marketing
|
1,486
|
2,078
|
3,961
|
4,458
|
|||
FDIC
insurance
|
1,528
|
310
|
7,104
|
574
|
|||
Amortization
of intangible assets
|
806
|
950
|
2,315
|
2,872
|
|||
Restructuring
and merger-related expenses
|
2
|
539
|
623
|
3,244
|
|||
Other
operating expenses
|
9,263
|
8,996
|
26,174
|
26,696
|
|||
Total
non-interest expense
|
37,705
|
36,165
|
112,063
|
108,895
|
|||
Income
before provision for income taxes
|
5,079
|
12,635
|
17,026
|
38,046
|
|||
Provision
for income taxes
|
(363)
|
1,126
|
390
|
5,750
|
|||
NET
INCOME
|
$ 5,442
|
$ 11,509
|
$ 16,636
|
$ 32,296
|
|||
Preferred
dividends and expense associated with unamortized discount and issuance
costs
|
3,121
|
-
|
5,233
|
-
|
|||
NET
INCOME AVAILABLE TO COMMON SHAREHOLDERS
|
$ 2,321
|
$ 11,509
|
$ 11,403
|
$ 32,296
|
|||
EARNINGS
PER COMMON SHARE
|
|||||||
Basic
|
$ 0.09
|
$ 0.43
|
$ 0.43
|
$ 1.22
|
|||
Diluted
|
$ 0.09
|
$ 0.43
|
$ 0.43
|
|
$ 1.22
|
||
AVERAGE
SHARES OUTSTANDING
|
|
||||||
Basic
|
26,567,653
|
26,550,318
|
26,565,621
|
26,548,304
|
|||
Diluted
|
26,568,081
|
26,561,874
|
26,567,174
|
26,558,421
|
|||
DIVIDENDS
DECLARED PER COMMON SHARE
|
$ 0.14
|
$ 0.28
|
$ 0.70
|
$ 0.84
|
See Notes to Consolidated Financial Statements.
4
WESBANCO,
INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
|
||||||||||
For
the Nine Months Ended September 30, 2009 and 2008
|
||||||||||
|
Accumulated
|
|||||||||
Other
|
Deferred
|
|||||||||
(unaudited,
dollars in thousands,
|
Preferred
Stock
|
Common
Stock
|
Capital
|
Retained
|
Treasury
|
Comprehensive
|
Benefits
for
|
|||
except per share
amounts)
|
Shares
|
Amount
|
Shares
|
Amount
|
Surplus
|
Earnings
|
Stock
|
Income
(Loss)
|
Directors
|
Total
|
January
1, 2009
|
75,000
|
$ 72,332
|
26,560,889
|
$ 55,487
|
$ 193,221
|
$ 344,403
|
$ (1,661)
|
$ (3,182)
|
$ (1,229)
|
$ 659,371
|
Net
income
|
16,636
|
16,636
|
||||||||
Other
comprehensive income (loss)
|
12,377
|
12,377
|
||||||||
Total
comprehensive income
|
29,013
|
|||||||||
Preferred
dividends and
amortization of
discount
|
2,668
|
(5,233)
|
(2,565)
|
|||||||
Common
dividends
|
||||||||||
declared
($0.70 per share)
|
(18,595)
|
(18,595)
|
||||||||
Treasury
shares sold
|
6,764
|
(52)
|
163
|
111
|
||||||
Redemption
of Preferred Stock
|
(75,000)
|
(75,000)
|
(75,000)
|
|||||||
Deferred
benefits for directors- net
|
42
|
(42)
|
-
|
|||||||
September
30, 2009
|
-
|
$ -
|
26,567,653
|
$
55,487
|
$ 193,211
|
$ 337,211
|
$
(1,498)
|
$ 9,195
|
$ (1,271)
|
$592,335
|
January
1, 2008
|
-
|
$ -
|
26,547,073
|
$ 55,487
|
$ 190,222
|
$ 336,317
|
$ (1,983)
|
$ 1,450
|
$ (1,174)
|
$ 580,319
|
Net
income
|
32,296
|
32,296
|
||||||||
Other
comprehensive income (loss)
|
(5,459)
|
(5,459)
|
||||||||
Total
comprehensive income
|
26,837
|
|||||||||
Common
dividends
|
||||||||||
declared
($0.84 per share)
|
(22,300)
|
(22,300)
|
||||||||
Treasury
shares sold
|
13,816
|
17
|
322
|
339
|
||||||
Stock
option expense
|
191
|
191
|
||||||||
Deferred
benefits for directors – net
|
41
|
(41)
|
-
|
|||||||
September
30, 2008
|
-
|
$ -
|
26,560,889
|
$ 55,487
|
$ 190,471
|
$ 346,313
|
$ (1,661)
|
$ (4,009)
|
$ (1,215)
|
$ 585,386
|
See Notes to Consolidated Financial Statements.
5
WESBANCO,
INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||
|
For
the Nine Months Ended
|
|
September
30,
|
||
(unaudited,
in thousands)
|
2009
|
2008
|
OPERATING
ACTIVITIES:
|
||
Net
income
|
$ 16,636
|
$ 32,296
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||
Depreciation
|
5,840
|
5,533
|
Net
amortization (accretion)
|
1,476
|
(386)
|
Provision
for credit losses
|
36,019
|
17,605
|
Net
securities gains
|
(3,933)
|
(1,182)
|
Net
gains on sales of mortgage loans
|
(1,606)
|
(1,059)
|
Increase
in deferred income taxes
|
(8,335)
|
(2,325)
|
Increase
in cash surrender value of bank-owned life insurance
|
(1,441)
|
(2,643)
|
Loans
originated for sale
|
(124,273)
|
(88,195)
|
Proceeds
from the sale of loans originated for sale
|
122,870
|
88,331
|
Net
change in: other assets and accrued interest receivable
|
9,067
|
7,225
|
Net
change in: other liabilities and accrued interest payable
|
(5,411)
|
(9,573)
|
Other
– net
|
1,063
|
1,754
|
Net
cash provided by operating activities
|
47,972
|
47,381
|
INVESTING
ACTIVITIES:
|
||
Securities
available-for-sale and other short-term investments:
|
||
Proceeds
from sales
|
418,869
|
29,474
|
Proceeds
from maturities, prepayments and calls
|
280,427
|
170,332
|
Purchases
of securities
|
(1,164,469)
|
(137,706)
|
Net
cash received from acquisitions
|
578,573
|
-
|
Net
decrease in loans
|
70,879
|
111,083
|
Sale
of branches
|
-
|
(25,838)
|
Purchases
of premises and equipment – net
|
(2,605)
|
(6,454)
|
Net
cash provided by investing activities
|
181,674
|
140,891
|
FINANCING
ACTIVITIES:
|
||
Decrease
in deposits
|
(95,878)
|
(321,084)
|
Proceeds
from Federal Home Loan Bank borrowings
|
-
|
250,000
|
Repayment
of Federal Home Loan Bank borrowings
|
(27,014)
|
(40,583)
|
Decrease
in other short-term borrowings
|
(28,603)
|
(6,431)
|
Decrease
in federal funds purchased
|
(32,000)
|
(52,000)
|
Repayment
of preferred stock
|
(75,000)
|
-
|
Dividends
paid to common and preferred shareholders
|
(25,176)
|
(22,180)
|
Treasury
shares sold – net
|
111
|
339
|
Net
cash used in financing activities
|
(283,560)
|
(191,939)
|
Net
decrease in cash and cash equivalents
|
(53,914)
|
(3,667)
|
Cash
and cash equivalents at beginning of the period
|
141,170
|
130,495
|
Cash
and cash equivalents at end of the period
|
$ 87,256
|
$ 126,828
|
SUPPLEMENTAL
DISCLOSURES:
|
||
Interest
paid on deposits and other borrowings
|
$ 76,514
|
$ 94,582
|
Income
taxes paid
|
4,975
|
4,400
|
Transfers
of loans to other real estate owned
|
7,535
|
1,158
|
Summary
of business acquistion:
|
||
Fair
value of tangible assets acquired (including cash of
$599,266)
|
600,257
|
-
|
Fair
value of liabilities assumed
|
(603,086)
|
-
|
Cash
paid in the acquisition
|
(20,693)
|
-
|
Goodwill
and other intangibles recognized
|
$ (23,522)
|
$ -
|
See Notes to Consolidated Financial Statements.
6
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION—The
accompanying unaudited interim financial statements of WesBanco, Inc.
(“WesBanco”) have been prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”) for interim financial information and 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 U.S. GAAP for complete financial statements and should be
read in conjunction with our Annual Report on Form 10-K for the year ended
December 31, 2008.
WesBanco’s
interim financial statements have been prepared following the significant
accounting policies disclosed in Note 1 of the Notes to the Consolidated
Financial Statements of its 2008 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. In the opinion of management, the
accompanying interim financial information reflects all adjustments, including
normal recurring adjustments, necessary to present fairly WesBanco’s financial
position and results of operations for each of the interim periods
presented. Results of operations for interim periods are not
necessarily indicative of the results of operations that may be expected for a
full year. WesBanco has evaluated subsequent events through November
5, 2009, the date that these financial statements were filed with the Securities
and Exchange Commission.
RECENT ACCOUNTING
PRONOUNCEMENTS— In June 2009, the Financial Accounting Standards Board
(“FASB”) issued an accounting pronouncement which establishes the FASB
Accounting Standards Codification™ (“the Codification” or “ASC”) as the source
of accounting principles and the framework for selecting the principles used in
the preparation of financial statements by nongovernmental
entities. All guidance contained in the Codification will carry an
equal level of authority. However, in addition to the Codification
rules, all interpretive releases of the SEC under federal securities laws are
also sources of authoritative GAAP. Following the Codification, the
FASB will not issue new standards in the form of Statements, FASB Staff
Positions or Emerging Issues Task Force Abstracts. Instead, it will
issue Accounting Standards Updates (“ASU”) which will serve to update the
Codification, provide background information about the guidance and provide the
basis for conclusions on the changes to the Codification. The
Codification is effective for interim reporting periods ending after September
15, 2009. The adoption of this pronouncement did not have a material
impact on WesBanco’s consolidated financial statements.
In June
2009, the FASB issued an accounting pronouncement regarding accounting for
transfers of financial assets which removes the concept of a qualifying
special-purpose entity and removes the exception from applying consolidation
guidance to these entities. This pronouncement also requires that a
transferor recognize and initially measure at fair value all assets obtained and
liabilities incurred as a result of a transfer of financial assets accounted for
as a sale. This pronouncement must be applied as of the beginning of
the first interim and annual period that begins after November 15,
2009. WesBanco is currently evaluating the impact of adopting this
pronouncement on its consolidated financial statements.
In June
2009, the FASB issued a pronouncement regarding consolidation accounting which
requires an enterprise to perform an analysis to determine whether the
enterprise’s variable interest or interests give it a controlling financial
interest in a variable interest entity. The pronouncement also
requires ongoing reassessments of whether an enterprise is the primary
beneficiary; eliminates the quantitative approach previously required for
determining the primary beneficiary, and requires enhanced disclosures to
provide more transparent information about an enterprise’s involvement in a
variable interest entity. This pronouncement must be applied as of
the beginning of the first interim and annual period that begins after November
15, 2009. WesBanco is currently evaluating the impact of adopting
this pronouncement on its consolidated financial statements.
In May
2009, the FASB issued an accounting pronouncement which establishes general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. This pronouncement also requires entities to disclose
the date through which subsequent events have been evaluated. It is
effective for interim reporting periods ending after June 15,
2009. The adoption of this pronouncement did not have a material
impact on WesBanco’s consolidated financial statements.
In April
2009, the FASB issued an accounting pronouncement which requires disclosures on
the fair value of financial instruments in interim financial statements as well
as in annual financial statements. The disclosures are effective for
interim reporting periods ending after June 15, 2009 and did not have a material
impact on WesBanco’s consolidated financial statements.
In April
2009, the FASB issued an accounting pronouncement to provide additional guidance
on estimating fair value when the volume and level of activity for an asset or
liability have significantly decreased in relation to normal market activity for
the asset or liability. The pronouncement also provides additional
guidance on circumstances that may indicate that a transaction is not
orderly. It is effective for interim and annual periods ending after
June 15, 2009, and is being applied prospectively. The adoption of
this pronouncement did not have a material impact on WesBanco’s consolidated
financial statements.
In April
2009, the FASB issued an accounting pronouncement which provides new guidance on
the recognition and presentation of an other-than-temporary impairment of debt
securities classified as available-for-sale and held-to-maturity, and provides
some new disclosure requirements. To avoid considering an impairment
to be other-than-temporary management must assert that it does not have the
intent to sell the security and it is more likely than not that it will not have
to sell the security before recovery of its cost. This pronouncement
also changes the total amount recognized in earnings when other-than-temporary
impairment exists to require the estimated credit loss to be recorded in
earnings and the noncredit portion of the loss to be recorded in other
comprehensive income. It is effective for interim and annual periods
ending after June 15, 2009, and is being applied prospectively. The
adoption of this pronouncement did not have a material impact on WesBanco’s
consolidated financial statements.
7
NOTE
2. EARNINGS PER COMMON SHARE
Earnings
per common share are calculated as follows:
For
the Three Months Ended
|
For
the Nine Months Ended
|
|||||
September
30,
|
September
30,
|
|||||
(unaudited,
in thousands, except shares and per share amounts)
|
2009
|
2008
|
2009
|
2008
|
||
Numerator
for both basic and diluted earnings per share:
|
||||||
Net
Income
|
$ 5,442
|
$ 11,509
|
$ 16,636
|
$ 32,296
|
||
Less: Preferred
dividends and expense associated with unamortized discount and issuance
costs
|
$ (3,121)
|
$
-
|
$ (5,233)
|
$
-
|
||
Net
Income Available to Common Shareholders
|
$ 2,321
|
$ 11,509
|
$ 11,403
|
$ 32,296
|
||
Denominator:
|
||||||
Total
average basic common shares outstanding
|
26,567,653
|
26,550,318
|
26,565,621
|
26,548,304
|
||
Effect
of dilutive stock options
|
428
|
11,556
|
1,553
|
10,117
|
||
Total
diluted average common shares outstanding
|
26,568,081
|
26,561,874
|
26,567,174
|
26,558,421
|
||
Earnings
per share - basic
|
$ 0.09
|
$ 0.43
|
$ 0.43
|
$ 1.22
|
||
Earnings
per share - diluted
|
$ 0.09
|
$ 0.43
|
$ 0.43
|
$ 1.22
|
In 2008,
WesBanco issued a warrant to purchase 439,282 shares of the Company’s common
stock to the U.S. Department of the Treasury (the “Treasury”). The
warrant is considered in the calculation of diluted earnings per share, but due
to its anti-dilutive impact at September 30, 2009, it had no effect on earnings
per share.
NOTE
3. REPURCHASE OF PREFERRED STOCK
On
September 9, 2009 WesBanco repurchased from the U.S. Department of the Treasury
75,000 shares of the Company's Fixed Rate Cumulative Perpetual Preferred Stock,
Series A, issued under the Troubled Asset Relief Program (“TARP”), at a purchase
price of $75 million
plus a final accrued dividend of $250,000. The
repurchase of the preferred stock resulted in WesBanco recording a $2.3 million charge in the
third quarter representing the remaining unamortized discount on the preferred
stock on the repurchase date, as well as certain unamortized issuance
costs. These charges, along with $0.8 million of discount
amortization and dividends are reflected on the income statement in the third
quarter after net income. WesBanco also issued a warrant to the
Treasury Department with the preferred stock in December 2008 and is currently
negotiating terms for the repurchase of this warrant. WesBanco’s
consolidated and bank subsidiary capital ratios continue to be in excess of the
“well capitalized” benchmarks for regulatory purposes at September 30, 2009
after repurchase of the preferred stock.
NOTE
4. BUSINESS COMBINATION
On March
27, 2009, WesBanco completed the purchase of all five of AmTrust Bank’s
Columbus, Ohio branches. As part of the agreement, WesBanco assumed
all of the deposit liabilities of $599.4 million and purchased,
or assumed the leases of, the related fixed assets of the
branches. WesBanco did not acquire loans as part of the transaction,
and is now operating the acquired branches under the WesBanco Bank, Inc., (the
“Bank”) name. The acquisition was intended to improve WesBanco’s
competitive position in the Columbus, Ohio market, with a larger market share
and broader retail distribution and improve the liquidity of the
corporation. WesBanco’s Consolidated Statements of Income include the
results of operations of the AmTrust branches from the closing date of the
acquisition. The aggregate purchase price for the five AmTrust
branches was $21.2
million, net of cash and other assets received.
Following
is a reconciliation of the preliminary purchase price allocation:
(unaudited,
in thousands)
|
Fair
Value of
Tangible
Net Assets
Acquired
|
Cash
|
$ 599,265
|
Other
tangible assets
|
991
|
Goodwill
and other intangibles
|
23,522
|
Deposits
|
(599,353)
|
Other
liabilities
|
(3,273)
|
Total
purchase price
|
$ 21,152
|
Goodwill
and other intangible assets were allocated to WesBanco’s community banking
segment. The AmTrust core deposit intangible was valued at $2.8 million and has a
weighted-average useful life of approximately 10 years.
8
NOTE
5. SECURITIES
The following table presents the fair
value and amortized cost of available-for-sale and held-to-maturity
securities:
September
30, 2009
|
December
31, 2008
|
||||||||||
Gross
|
Gross
|
Estimated
|
Gross
|
Gross
|
Estimated
|
||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
||||
(unaudited,
in thousands)
|
Cost
|
Gains
|
Losses
|
Value
|
Cost
|
Gains
|
Losses
|
Value
|
|||
Available-for-sale
|
|||||||||||
Other
government agencies
|
$ 219,161
|
$ 1,368
|
$ (207)
|
$ 220,322
|
$ 39,241
|
$ 768
|
$ -
|
$ 40,009
|
|||
Corporate
debt securities
|
23,663
|
471
|
-
|
24,134
|
3,019
|
130
|
-
|
3,149
|
|||
Residential
mortgage-backed securities and
collateralized
mortgage obligations of
government
agencies
|
785,661
|
19,274
|
(96)
|
804,839
|
513,942
|
10,130
|
(175)
|
523,897
|
|||
Other
residential collateralized mortgage obligations
|
3,477
|
28
|
-
|
3,505
|
4,242
|
19
|
(111)
|
4,150
|
|||
Obligations
of state and political subdivisions
|
346,296
|
14,962
|
(149)
|
361,109
|
352,995
|
7,834
|
(1,404)
|
359,425
|
|||
Total
debt securities
|
1,378,258
|
36,103
|
(452)
|
1,413,909
|
913,439
|
18,881
|
(1,690)
|
930,630
|
|||
Equity
securities
|
3,453
|
326
|
(1)
|
3,778
|
3,143
|
394
|
(29)
|
3,508
|
|||
Total
available-for-sale securities
|
$1,381,711
|
$ 36,429
|
$ (453)
|
$1,417,687
|
$916,582
|
$ 19,275
|
$ (1,719)
|
$934,138
|
|||
Held-to-maturity
|
|||||||||||
Corporate
debt securities
|
1,450
|
-
|
(78)
|
1,372
|
1,450
|
-
|
(236)
|
1,214
|
|||
Total
securities
|
$1,383,161
|
$ 36,429
|
$ (531)
|
$1,419,059
|
$918,032
|
$ 19,275
|
$ (1,955)
|
$935,352
|
At
September 30, 2009, and December 31, 2008, there were no holdings of any one
issuer in an amount greater than 10% of WesBanco’s shareholders’ equity, other
than the U.S. government and its agencies.
Securities
with aggregate par values of $570.6 million and $551.1
million and aggregate carrying values of $576.3 million and $552.8
million at September 30, 2009 and December 31, 2008, respectively, were pledged
as security for public and trust funds, and securities sold under agreements to
repurchase. Proceeds from the sale of available-for-sale securities
and other short-term investments were $135.4 million and $418.9 million for the three
and nine months ended September 30, 2009, respectively, compared to $0.5 million
and $29.5 million for the same periods in 2008.
For the
nine months ended September 30, 2009, realized gains on available-for-sale
securities were $4.1
million and realized losses were $211,000. For the
nine months ended September 30, 2008, realized gains on available-for-sale
securities were $1.2 million with no realized losses.
The
following table presents the maturity distribution of available-for-sale and
held-to-maturity securities at fair value:
September
30, 2009
|
|||||||
|
After
One But
|
After
Five But
|
|
||||
Within
One Year
|
Within Five Years | Within Ten Years |
After
Ten Years
|
||||
(unaudited
in thousands)
|
Amount
|
Amount
|
Amount
|
Amount
|
|||
Available-for-sale
|
|||||||
Other
government agencies
|
$ 146,400
|
$ 63,093
|
$ 10,830
|
$ -
|
|||
Corporate
debt securities
|
3,892
|
20,241
|
-
|
-
|
|||
Residential
mortgage-backed securities and
|
53,714
|
588,842
|
139,857
|
22,426
|
|||
collateralized
mortgage obligations of
|
|||||||
government
agencies (1)
|
|||||||
Other
residential collateralized mortgage obligations
|
-
|
3,462
|
-
|
43
|
|||
Obligations
of states and political subdivisions
|
84,780
|
151,419
|
98,896
|
26,014
|
|||
Equity
securities
|
-
|
-
|
-
|
3,778
|
|||
Total
available-for-sale securities
|
$ 288,786
|
$ 827,057
|
$ 249,583
|
$ 52,261
|
|||
Held-to-maturity
|
|||||||
Corporate
debt securities (2)
|
-
|
-
|
-
|
1,372
|
|||
Total
securities
|
$ 288,786
|
$ 827,057
|
$ 249,583
|
$ 53,633
|
(1)
Mortgage-backed and collateralized mortgage securities, which have
prepayment provisions, are assigned to maturity categories based on estimated
average
lives
or repricing information.
(2) The held-to-maturity corporate debt
securities are carried at amortized cost of $1.5 million.
The
following table provides information on unrealized losses on investment
securities that have been in an unrealized loss position for less than twelve
months and twelve months or more as of September 30, 2009 and December 31,
2008:
September
30, 2009
|
|||||||||
Less
than 12 months
|
12
months or more
|
Total
|
|||||||
Fair
|
Unrealized
|
#
of
|
Fair
|
Unrealized
|
#
of
|
Fair
|
Unrealized
|
#
of
|
|
(unaudited,
dollars in thousands)
|
Value
|
Losses
|
Securities
|
Value
|
Losses
|
Securities
|
Value
|
Losses
|
Securities
|
Other
government agencies
|
$ 33,938
|
$ (207)
|
4
|
$ -
|
$ -
|
-
|
$ 33,938
|
$ (207)
|
4
|
Residential
mortgage-backed securities and collateralized mortgage obligations of
government agencies
|
60,263
|
(86)
|
8
|
598
|
(10)
|
1
|
60,861
|
(96)
|
9
|
Other
residential collateralized mortgage obligations
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Obligations
of states and political subdivisions
|
3,107
|
(92)
|
4
|
3,168
|
(57)
|
6
|
6,275
|
(149)
|
10
|
Corporate
debt securities
|
-
|
-
|
-
|
1,372
|
(78)
|
1
|
1,372
|
(78)
|
1
|
Equity
securities
|
3
|
(1)
|
1
|
-
|
-
|
-
|
3
|
(1)
|
1
|
Total
temporarily impaired securities
|
$ 97,311
|
$ (386)
|
17
|
$ 5,138
|
$ (145)
|
8
|
$102,449
|
$ (531)
|
25
|
December
31, 2008
|
|||||||||
Less
than 12 months
|
12
months or more
|
Total
|
|||||||
Fair
|
Unrealized
|
#
of
|
Fair
|
Unrealized
|
#
of
|
Fair
|
Unrealized
|
#
of
|
|
(unaudited,
dollars in thousands)
|
Value
|
Losses
|
Securities
|
Value
|
Losses
|
Securities
|
Value
|
Losses
|
Securities
|
Residential
mortgage-backed securities and collateralized mortgage obligations of
government agencies
|
$ 2,956
|
$ (6)
|
12
|
$ 16,321
|
$ (169)
|
10
|
$ 19,277
|
$ (175)
|
22
|
Other
residential collateralized mortgage obligations
|
-
|
-
|
-
|
4,095
|
(111)
|
5
|
4,095
|
(111)
|
5
|
Obligations
of states and political subdivisions
|
42,034
|
(1,171)
|
72
|
12,502
|
(233)
|
24
|
54,536
|
(1,404)
|
96
|
Corporate
debt securities
|
1,214
|
(236)
|
1
|
-
|
-
|
-
|
1,214
|
(236)
|
1
|
Equity
securities
|
1,289
|
(29)
|
2
|
-
|
-
|
-
|
1,289
|
(29)
|
2
|
Total
temporarily impaired securities
|
$ 47,493
|
$ (1,442)
|
87
|
$ 32,918
|
$ (513)
|
39
|
$ 80,411
|
$ (1,955)
|
126
|
Unrealized
losses in the table represent temporary fluctuations resulting from changes in
market rates in relation to fixed yields. Losses in the available-for-sale
portfolio are accounted for as an adjustment to other comprehensive income in
shareholders’ equity. WesBanco may impact the magnitude of the fair
value adjustment by managing both the volume and average maturities of
securities that are classified as available-for-sale.
WesBanco
does not believe any of the securities presented above are impaired due to
reasons of credit quality, as debt securities are of investment grade quality
and are paying principal and interest according to their contractual terms. The
unrealized losses are primarily attributable to changes in broad interest rate
indices. WesBanco does not intend to sell, and it is more likely than
not that it will not be required to sell loss position securities prior to
recovery of their cost. Accordingly, as of September 30, 2009,
management believes the unrealized losses detailed above are temporary and no
impairment loss relating to these securities has been recognized in the
Consolidated Statements of Income.
10
NOTE
6. LOANS AND THE ALLOWANCE FOR LOAN LOSSES
Loans are
presented in the Consolidated Balance Sheets net of deferred loan fees and costs
of $3.3 million at
September 30, 2009 and $3.3 million at December 31, 2008.
The
following table presents the changes in the allowance for loan losses and loans
classified as impaired:
For
the Nine Months Ended
|
||
September
30,
|
||
(unaudited,
in thousands)
|
2009
|
2008
|
Balance
at beginning of period
|
$ 49,803
|
$ 38,543
|
Provision
for loan losses
|
36,150
|
17,530
|
Charge-offs
|
(26,540)
|
(15,179)
|
Recoveries
|
1,342
|
2,586
|
Net
charge-offs
|
(25,198)
|
(12,593)
|
Balance
at end of period
|
$ 60,755
|
$ 43,480
|
The
following tables summarize loans classified as impaired:
|
||
September
30,
|
December
31,
|
|
(unaudited,
in thousands)
|
2009
|
2008
|
Balance
of impaired loans with no allocated allowance for loan
losses
|
$ 61,205
|
$ 25,296
|
Balance
of impaired loans with an allocated allowance for loan
losses
|
32,250
|
22,202
|
Total
impaired loans
|
$ 93,455
|
$ 47,498
|
Allowance
for loan losses allocated to impaired loans
|
$ 9,719
|
$ 5,113
|
At
September 30, 2009, WesBanco had unfunded commitments to debtors whose loans
were classified as impaired or renegotiated of $0.1 million. At
December 31, 2008, WesBanco had no material commitments to lend additional funds
to debtors whose loans were classified as impaired or renegotiated.
NOTE
7. FEDERAL HOME LOAN BANK BORROWINGS
WesBanco
is a member of the Federal Home Loan Bank (“FHLB”) System. WesBanco’s
FHLB borrowings are secured by a blanket lien by the FHLB on certain residential
mortgage and other loan types and a specific lien on certain securities if
pledged directly with the FHLB with a market value in excess of the outstanding
balances of the borrowings. At September 30, 2009 and December 31,
2008, WesBanco had FHLB borrowings of $567.9 million and $596.9
million, respectively, with a weighted-average interest rate of 3.90%. The terms of
the security agreement with the FHLB include a specific assignment of collateral
that requires the maintenance of qualifying mortgage and other types of loans as
pledged collateral with unpaid principal amounts in excess of the FHLB advances,
when discounted at certain pre-established percentages of the loans’ unpaid
principal balances. FHLB stock owned by WesBanco totaling $31.0 million at September 30,
2009 and $32.1 million at December 31, 2008 is also pledged as collateral
on these advances. The remaining maximum borrowing capacity by WesBanco with the
FHLB at September 30, 2009 and December 31, 2008 was estimated to be
approximately $528.4
million and $848.8 million, respectively.
In
December 2008, the FHLB of Pittsburgh announced that it would suspend dividends
and the repurchase of excess capital stock from its member banks. The
FHLB of Pittsburgh stock owned by WesBanco totaled $26.4 million at September 30,
2009 and December 31, 2008, and is held primarily to serve as collateral on FHLB
borrowings. Dividend income recognized on FHLB of Pittsburgh stock
totaled $0.4 million for
2008. Additionally, WesBanco owned $4.6 million and $5.7 million
of FHLB of Cincinnati stock at September 30, 2009 and December 31, 2008,
respectively, which paid a cash dividend at an annualized rate of approximately
4.75% over the last four
quarters.
Certain
FHLB advances contain call features, which allow the FHLB to call the
outstanding balance or convert a fixed rate borrowing to a variable rate advance
if the strike rate goes beyond a certain predetermined rate. The probability
that these advances will be called depends primarily on the level of related
interest rates during the call period. Of the $567.9 million outstanding at
September 30, 2009, $264.9 million in FHLB
convertible advances are subject to call or conversion to a variable rate
advance by the FHLB.
11
The
following table presents the aggregate annual maturities and weighted-average
interest rates of FHLB borrowings at September 30, 2009 based on their
contractual maturity dates and effective interest rates:
(unaudited,
dollars in thousands)
|
Scheduled
|
Weighted
|
Year
|
Maturity
|
Average
Rate
|
2009
|
$ 70,654
|
4.31%
|
2010
|
261,270
|
3.84%
|
2011
|
84,889
|
3.76%
|
2012
|
56,687
|
4.45%
|
2013
|
50,976
|
3.28%
|
2014
and thereafter
|
43,463
|
3.86%
|
Total
|
$ 567,939
|
3.90%
|
NOTE
8. OTHER SHORT-TERM BORROWINGS
Other
short-term borrowings are comprised of the following:
September
30,
|
December
31,
|
|
(unaudited,
in thousands)
|
2009
|
2008
|
Federal
funds purchased
|
$ 20,000
|
$ 52,000
|
Securities
sold under agreements to repurchase
|
214,130
|
245,165
|
Treasury
tax and loan notes and other
|
2,754
|
640
|
Total
|
$ 236,884
|
$ 297,805
|
NOTE
9. PENSION PLAN
The
following table presents the net periodic pension cost for WesBanco’s Defined
Benefit Pension Plan and the related components:
For
the Three Months Ended
|
For
the Nine Months Ended
|
||||||
September
30,
|
September
30,
|
||||||
(unaudited,
in thousands)
|
2009
|
2008
|
2009
|
2008
|
|||
Service
cost – benefits earned during year
|
$ 599
|
$ 577
|
$ 1,798
|
$ 1,730
|
|||
Interest
cost on projected benefit obligation
|
837
|
792
|
2,511
|
2,376
|
|||
Expected
return on plan assets
|
(945)
|
(1,138)
|
(2,834)
|
(3,413)
|
|||
Amortization
of prior service cost
|
(29)
|
(29)
|
(88)
|
(88)
|
|||
Amortization
of net loss
|
476
|
129
|
1,428
|
387
|
|||
Net
periodic pension cost
|
$ 938
|
$ 331
|
$ 2,815
|
$ 992
|
The plan
covers all employees of WesBanco and its subsidiaries who were hired on or
before August 1, 2007 who satisfy minimum age and length of service
requirements, and is not available to employees hired after such
date.
There is
no minimum contribution due for 2009, and no decision has been made as of
September 30, 2009 relative to the level of contribution that will be made to
the plan, if any.
12
NOTE
10. FAIR VALUE MEASUREMENTS
The
following tables set forth the Company’s financial assets and liabilities that
were accounted for at fair value on a recurring basis by level within
the fair value hierarchy as defined by fair value accounting guidance within the
Codification:
September
30, 2009
|
||||
Fair
Value Measurements Using:
|
||||
Asset
at Fair
Value
|
Quoted
Prices in Active Markets for Identical Assets
|
Significant
Other Observable Inputs
|
Significant
Unobservable
Inputs
|
|
(unaudited,
in thousands)
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|
Securities
- available for sale
|
||||
Other
government agencies
|
$ 220,322
|
$ 220,322
|
$ -
|
$ -
|
Corporate
debt securities
|
24,134
|
-
|
24,134
|
-
|
Residential
mortgage-backed securities and
collateralized mortgage
obligations of government
agencies
|
804,840
|
-
|
804,840
|
-
|
Other
residential collateralized mortgage obligations
|
3,505
|
-
|
3,463
|
42
|
Obligations
of state and political subdivisions
|
361,108
|
-
|
359,670
|
1,438
|
Equity
securities
|
3,778
|
2,093
|
1,443
|
242
|
December
31, 2008
|
||||
Fair
Value Measurements Using:
|
||||
Asset
at Fair
Value
|
Quoted
Prices in Active Markets for Identical Assets
|
Significant
Other Observable Inputs
|
Significant
Unobservable Inputs
|
|
(unaudited,
in thousands)
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|
Securities
- available for sale
|
||||
Other
government agencies
|
$ 40,009
|
$ 40,009
|
$ -
|
$ -
|
Corporate
debt securities
|
3,149
|
-
|
3,149
|
-
|
Residential
mortgage-backed securities and
collateralized
mortgage obligations of government
agencies
|
523,897
|
-
|
523,897
|
-
|
Other
residential collateralized mortgage obligations
|
4,150
|
-
|
4,095
|
55
|
Obligations
of state and political subdivisions
|
359,425
|
-
|
357,979
|
1,446
|
Equity
securities
|
3,508
|
1,809
|
1,432
|
267
|
The
following table presents additional information about assets measured at fair
value on a recurring basis and for which WesBanco has utilized Level 3 inputs to
determine fair value:
For
the Three Months Ended
|
For
the Nine Months Ended
|
||||||
September
30,
|
September
30,
|
||||||
(unaudited
- in thousands)
|
2009
|
2008
|
2009
|
2008
|
|||
Balance
at beginning of period
|
$ 1,736
|
$ 5,438
|
$ 1,768
|
$ 5,994
|
|||
Total
gains (losses) - (realized/unrealized):
|
|||||||
Included
in earnings
|
-
|
-
|
-
|
-
|
|||
Included
in other comprehensive income
|
51
|
492
|
45
|
(64)
|
|||
Purchases,
issuances, and settlements
|
-
|
(90)
|
-
|
(90)
|
|||
Transfers
in or (out) of Level 3
|
(65)
|
(3,919)
|
(91)
|
(3,919)
|
|||
Balance
at end of period
|
$ 1,722
|
$ 1,921
|
$ 1,722
|
$ 1,921
|
13
We may be
required from time to time to measure certain assets at fair value on a
nonrecurring basis in accordance with generally accepted accounting
principles. These adjustments to fair value usually result from
application of lower-of-cost-or-market accounting or write-downs of individual
assets. For assets measured at fair value on a nonrecurring basis,
the following table provides the level of valuation assumptions used to
determine each adjustment in the carrying value of the related individual assets
or portfolios at quarter end:
Fair
Value Measurements Using:
|
||||
Assets
at Fair
Value
|
Quoted
Prices in Active Markets for Identical Assets
|
Significant
Other Observable Inputs
|
Significant
Unobservable Inputs
|
|
(unaudited,
in thousands)
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|
September
30, 2009
|
||||
Impaired
loans (1)
|
$ 22,531
|
$ -
|
$ -
|
$ 22,531
|
Other
real estate owned and repossessed assets (2)
|
8,665
|
-
|
-
|
8,665
|
Mortgage
servicing rights (3)
|
2,465
|
-
|
-
|
2,465
|
December
31, 2008
|
||||
Impaired
loans (1)
|
$ 17,089
|
$ -
|
$ -
|
$ 17,089
|
Other
real estate owned and repossessed assets (2)
|
2,554
|
-
|
-
|
2,554
|
|
(1)
|
Represents
the carrying value of loans for which adjustments are based on the
appraised value of the collateral.
|
|
(2)
|
Other
real estate owned and repossessed assets are carried at the lower of the
investment in the assets or the fair value of the assets less estimated
selling costs.
|
|
(3)
|
Represents
the carrying value of mortgage servicing rights whose value has been
impaired and therefore written down to their fair value as determined from
independent valuations.
|
NOTE
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair
value estimates of financial instruments are based on the present value of
expected future cash flows, quoted market prices of similar financial
instruments, if available, and other valuation techniques. These valuations are
significantly affected by discount rates, cash flow assumptions, and risk
assumptions used. Therefore, fair value estimates may not be substantiated by
comparison to independent markets and are not intended to reflect the proceeds
that may be realizable in an immediate settlement of the
instruments.
The
aggregate fair value of amounts presented does not represent the underlying
value of WesBanco. Management does not have the intention to dispose of a
significant portion of its financial instruments and, therefore, the unrealized
gains or losses should not be interpreted as a forecast of future earnings and
cash flows.
The
following table represents the estimates of fair value of financial
instruments:
September
30,
|
December
31,
|
||||||||||
2009
|
2008
|
||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||
(unaudited,
in thousands)
|
Amount
|
Value
|
Amount
|
Value
|
|||||||
Financial
assets:
|
|||||||||||
Cash
and due from banks
|
$ 87,256
|
$ 87,256
|
$ 141,170
|
$ 141,170
|
|||||||
Securities
held-to-maturity
|
1,450
|
1,372
|
1,450
|
1,214
|
|||||||
Securities
available-for-sale
|
1,417,687
|
1,417,687
|
934,138
|
934,138
|
|||||||
Net
loans
|
3,440,867
|
3,493,343
|
3,554,506
|
3,626,774
|
|||||||
Loans
held for sale
|
6,860
|
6,860
|
3,874
|
3,874
|
|||||||
Accrued
interest receivable
|
22,091
|
22,091
|
19,966
|
19,966
|
|||||||
Bank
owned life insurance
|
102,670
|
102,670
|
101,229
|
101,229
|
|||||||
Financial
liabilities:
|
|||||||||||
Deposits
|
4,005,508
|
4,021,278
|
3,503,916
|
3,508,233
|
|||||||
Federal
Home Loan Bank borrowings
|
567,939
|
575,782
|
596,890
|
617,518
|
|||||||
Other
borrowings
|
236,884
|
230,474
|
297,805
|
297,741
|
|||||||
Junior
subordinated debt
|
111,175
|
65,950
|
111,110
|
53,178
|
|||||||
Accrued
interest payable
|
10,664
|
10,664
|
10,492
|
10,492
|
The
following methods and assumptions were used to estimate the fair value of
financial instruments:
Cash and due from banks — The
carrying amount for cash and due from banks is a reasonable estimate of fair
value.
Securities — Fair values for
securities are based on quoted market prices, if available. If market prices are
not available, then quoted market prices of similar instruments are
used. The fair value of securities accounted for using the cost
method is only estimated if events or changes in circumstances that may have a
significant adverse effect on their fair value have been
identified. Other short-term investments consist of money market
funds.
14
Net Loans —Fair values of
commercial real estate, construction, residential mortgage and personal loans
are based on a discounted value of the estimated future cash flows expected to
be received. The current interest rates applied in the discounted
cash flow method reflect rates used to price new loans of similar type, adjusted
for relative risk and remaining maturity. Non-performing loans and
loans past due 90 days or more and accruing interest are recorded at carrying
amount. The fair value, as well as the carrying amount of total loans
is net of the allowance for loan losses.
Loans Held for Sale — The
carrying amount of loans held for sale approximates its fair value.
Accrued interest receivable —
The carrying amount of accrued interest receivable approximates its fair
value.
Bank-Owned Life Insurance —
The carrying value of bank-owned life insurance represents the net cash
surrender value of the underlying insurance policies, should these policies be
terminated. Management believes that the carrying value approximates
fair value.
Deposits — The carrying amount
is considered a reasonable estimate of fair value for demand, savings and other
variable rate deposit accounts. The fair value of fixed maturity certificates of
deposit is estimated by a discounted cash flow method using the rates currently
offered for deposits of similar remaining maturities.
Federal Home Loan Bank Borrowings —
For FHLB borrowings, fair value is based on rates currently available to
WesBanco for borrowings with similar terms and remaining
maturities.
Other Borrowings — Fair values
for federal funds purchased and repurchase agreements are based on quoted market
prices, if available. If market prices are not available, then quoted market
prices of similar instruments are used.
Junior Subordinated Debt Owed to
Unconsolidated Subsidiary Trusts — Due to the pooled nature of these
instruments, which are not actively traded on an equity market, estimated fair
value is based on broker prices from recent similar issuances.
Accrued Interest Payable — The
carrying amount of accrued interest payable approximates its fair
value.
Off-Balance Sheet Financial
Instruments — Off-balance sheet financial instruments consist of
commitments to extend credit including letters of credit. Fair values for
commitments to extend credit are estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present credit standing of the counterparties. The estimated
fair value of the commitments to extend credit and letters of credit are
insignificant and therefore not presented in the above table.
15
NOTE
12. COMPREHENSIVE INCOME
The
components of other comprehensive income are as follows:
For
the Three Months Ended
|
For
the Nine Months Ended
|
|||||
September
30,
|
September
30,
|
|||||
(unaudited,
in thousands)
|
2009
|
2008
|
2009
|
2008
|
||
Net
Income
|
$ 5,442
|
$ 11,509
|
$ 16,636
|
$ 32,296
|
||
Securities
available-for-sale:
|
||||||
Net
change in unrealized gains (losses) on securities
available-for-sale
|
20,949
|
(4,131)
|
22,352
|
(8,161)
|
||
Related
income tax (expense) benefit (1)
|
(7,824)
|
1,635
|
(8,348)
|
3,200
|
||
Net
securities (gains) losses reclassified into earnings
|
(1,329)
|
(276)
|
(3,933)
|
(1,182)
|
||
Related
income tax expense (benefit) (1)
|
496
|
109
|
1,469
|
467
|
||
Net
effect on other comprehensive income for the period
|
12,292
|
(2,663)
|
11,540
|
(5,676)
|
||
Cash
flow hedge derivatives:
|
||||||
Net
change in unrealized gains (losses) on derivatives
|
-
|
1
|
-
|
59
|
||
Related
income tax (expense) benefit
(1)
|
-
|
-
|
-
|
(23)
|
||
Net
effect on other comprehensive income for the period
|
-
|
1
|
-
|
36
|
||
Defined
benefit pension plan
|
||||||
Amortization
of prior service costs
|
(30)
|
(29)
|
(88)
|
(88)
|
||
Related
income tax expense (benefit) (1)
|
11
|
12
|
33
|
36
|
||
Amortization
of unrealized loss
|
480
|
129
|
1,424
|
386
|
||
Related
income tax expense (benefit) (1)
|
(179)
|
(51)
|
(532)
|
(153)
|
||
Net
effect on other comprehensive income for the period
|
282
|
61
|
837
|
181
|
||
Other
comprehensive income
|
12,574
|
(2,601)
|
12,377
|
(5,459)
|
||
Total
comprehensive income
|
$ 18,016
|
$ 8,908
|
$ 29,013
|
$ 26,837
|
(1)
Related income tax expense or benefit calculated using a combined Federal and
State income tax rate of approximately 40%.
The
activity in accumulated other comprehensive income (loss) for the nine months
ended September 30, 2009 and 2008 is as follows:
Net
Unrealized Gains
|
|||||||
Unrealized
|
(Losses)
on Derivative
|
||||||
Defined
|
Gains
(Losses)
|
Instruments
Used in
|
|||||
Benefit
|
on
Securities
|
Cash
Flow Hedging
|
|||||
(unaudited,
in thousands)
|
Pension
Plan
|
Available-for-Sale
|
Relationships
|
Total
|
|||
Balance
at January 1, 2009
|
$ (14,132)
|
$ 10,950
|
$ -
|
$
(3,182)
|
|||
Period
change, net of tax
|
837
|
11,540
|
-
|
12,377
|
|||
Balance
at September 30, 2009
|
$ (13,295)
|
$ 22,490
|
$ -
|
$
9,195
|
|||
Balance
at January 1, 2008
|
$
(3,893)
|
$
5,379
|
$ (36)
|
$
1,450
|
|||
Period
change, net of tax
|
181
|
(5,676)
|
36
|
(5,459)
|
|||
Balance
at September 30, 2008
|
$
(3,712)
|
$ (297)
|
$ -
|
$
(4,009)
|
16
NOTE
13. COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENTS—In the normal
course of business, WesBanco offers off-balance sheet credit arrangements to
enable its customers to meet their financing objectives. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amounts recognized in the financial statements. WesBanco’s exposure to
credit losses in the event of non-performance by the other parties to the
financial instruments for commitments to extend credit, standby letters of
credit and other guarantees is limited to the contractual amount of those
instruments. WesBanco uses the same credit policies in making commitments and
conditional obligations as for all other similar lending. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The allowance for credit losses associated with
loan commitments was $0.2 million and $0.4 million
as of September 30, 2009 and December 31, 2008, respectively.
Letters
of credit are conditional commitments issued by banks to guarantee the
performance of a customer to a third party. These guarantees are primarily
issued to support public and private borrowing arrangements, including normal
business activities, bond financing and similar transactions. Standby letters of
credit are considered guarantees. The liability associated with
standby letters of credit is recorded at its estimated fair value of $0.1 million and $0.1 million
as of September 30, 2009 and December 31, 2008, respectively, and is included in
other liabilities on the Consolidated Balance Sheets.
Affordable
housing plan guarantees are performance guarantees for various building project
loans. The guarantee amortizes down as the loan balances
decrease.
The
following table presents total commitments, guarantees and various letters of
credit outstanding:
September
30,
|
December
31,
|
|
(unaudited,
in thousands)
|
2009
|
2008
|
Commitments
to extend credit
|
$ 660,428
|
$ 728,994
|
Standby
letters of credit
|
33,300
|
34,209
|
Affordable
housing plan guarantees
|
4,393
|
4,472
|
Commercial
letters of credit
|
171
|
2,585
|
CONTINGENT
LIABILITIES—WesBanco and its subsidiaries are parties to various legal
and administrative proceedings and claims. While any claim contains an element
of uncertainty, management believes that the outcome of such proceedings or
claims pending or known to be threatened will not have a material adverse effect
on WesBanco’s consolidated financial position.
NOTE
14. STOCK-BASED COMPENSATION
WesBanco
sponsors a Key Executive Incentive Bonus and Option Plan (the “Plan”) that
includes three components, an Annual Bonus, a Long-Term Incentive Bonus and a
Stock Option component. The three components allow for payments of cash, a
mixture of cash and stock, or the granting of non-qualified stock options,
depending upon the component of the Plan in which the award is
earned. Under the terms of the Plan, 0.2 million shares remain
available for issuance. Stock options are granted by, and at the
discretion of, the Compensation Committee of the Board of Directors and may be
either service or performance based. The maximum term of all options
granted under the Stock Option component of the Plan is ten years from the
original grant date.
The
following table presents stock option activity for the nine months ended
September 30, 2009:
Weighted
|
|||||||||
Weighted
|
Average
|
||||||||
Average
|
Remaining
|
||||||||
Exercise
Price
|
Contractual
|
||||||||
(unaudited)
|
Shares
|
Per
Share
|
Life
in Years
|
||||||
Outstanding
at January 1, 2009
|
393,127
|
$ 23.91
|
|||||||
Granted
|
-
|
-
|
|||||||
Exercised
|
(6,764)
|
14.97
|
|||||||
Forfeited
or expired
|
(14,144)
|
25.75
|
|||||||
Outstanding
at September 30, 2009
|
372,219
|
$ 24.00
|
3.73
|
||||||
Vested
and exercisable at September 30, 2009
|
372,219
|
$ 24.00
|
3.73
|
The
aggregate intrinsic value of the outstanding options and the options exercisable
at quarter end was $15,000. There were
no options awarded during the nine months ended September 30, 2009.
17
NOTE
15. 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, and certain non-traditional offerings, such as
insurance and securities brokerage services. The trust and investment
services segment offers trust services as well as various alternative investment
products including mutual funds. The market value of assets of the
trust and investment services segment was approximately $2.6 billion and $2.7 billion
at September 30, 2009 and 2008, respectively. These assets are held
by WesBanco in fiduciary or agency capacities for their customers and therefore
are not included as assets on WesBanco’s Consolidated Balance
Sheets.
Condensed
financial information by business segment is presented below:
Trust
and
|
|||
Community
|
Investment
|
||
(unaudited,
in thousands)
|
Banking
|
Services
|
Consolidated
|
Income
Statement Data
|
|||
For
the Three Months ended September 30, 2009:
|
|||
Interest
income
|
$ 65,212
|
$ -
|
$ 65,212
|
Interest
expense
|
24,783
|
-
|
24,783
|
Net
interest income
|
40,429
|
-
|
40,429
|
Provision
for credit losses
|
16,200
|
-
|
16,200
|
Net
interest income after provision for credit losses
|
24,229
|
-
|
24,229
|
Non-interest
income
|
15,047
|
3,508
|
18,555
|
Non-interest
expense
|
35,400
|
2,305
|
37,705
|
Income
before provision for income taxes
|
3,876
|
1,203
|
5,079
|
Provision
for income taxes
|
(844)
|
481
|
(363)
|
Net
income
|
$ 4,720
|
$ 722
|
$ 5,442
|
For
the Three Months ended September 30, 2008:
|
|||
Interest
income
|
$ 68,675
|
$ -
|
$ 68,675
|
Interest
expense
|
28,388
|
-
|
28,388
|
Net
interest income
|
40,287
|
-
|
40,287
|
Provision
for credit losses
|
6,457
|
-
|
6,457
|
Net
interest income after provision for credit losses
|
33,830
|
-
|
33,830
|
Non-interest
income
|
11,331
|
3,639
|
14,970
|
Non-interest
expense
|
33,858
|
2,307
|
36,165
|
Income
before provision for income taxes
|
11,303
|
1,332
|
12,635
|
Provision
for income taxes
|
593
|
533
|
1,126
|
Net
income
|
$ 10,710
|
$ 799
|
$ 11,509
|
For
the Nine Months ended September 30, 2009:
|
|||
Interest
income
|
$ 194,493
|
$ -
|
$ 194,493
|
Interest
expense
|
76,686
|
-
|
76,686
|
Net
interest income
|
117,807
|
-
|
117,807
|
Provision
for credit losses
|
36,019
|
-
|
36,019
|
Net
interest income after provision for credit losses
|
81,788
|
-
|
81,788
|
Non-interest
income
|
37,152
|
10,149
|
47,301
|
Non-interest
expense
|
105,080
|
6,983
|
112,063
|
Income
before provision for income taxes
|
13,860
|
3,166
|
17,026
|
Provision
for income taxes
|
(876)
|
1,266
|
390
|
Net
income
|
$ 14,736
|
$ 1,900
|
$ 16,636
|
For
the Nine Months ended September 30, 2008:
|
|||
Interest
income
|
$ 214,043
|
$ -
|
$ 214,043
|
Interest
expense
|
94,353
|
-
|
94,353
|
Net
interest income
|
119,690
|
-
|
119,690
|
Provision
for credit losses
|
17,605
|
-
|
17,605
|
Net
interest income after provision for credit losses
|
102,085
|
-
|
102,085
|
Non-interest
income
|
33,154
|
11,702
|
44,856
|
Non-interest
expense
|
101,582
|
7,313
|
108,895
|
Income
before provision for income taxes
|
33,657
|
4,389
|
38,046
|
Provision
for income taxes
|
3,994
|
1,756
|
5,750
|
Net
income
|
$ 29,663
|
$ 2,633
|
$ 32,296
|
Total non-fiduciary
assets of the trust and investment services segment were $18.8 million and $16.8 million
at September 30, 2009 and 2008, respectively. All goodwill and other
intangible assets were allocated to the community banking segment.
18
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management’s
Discussion and Analysis represents an overview of the results of operations and
financial condition of WesBanco. This discussion and analysis should be read in
conjunction with the Consolidated Financial Statements and Notes
thereto.
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
WesBanco’s Form 10-K for the year ended December 31, 2008 and documents
subsequently filed by WesBanco with the Securities and Exchange Commission
(“SEC”), including WesBanco’s Forms 10-Q for the quarters ended March 31 and
June 30, 2009, which are available at the SEC’s website www.sec.gov or at
WesBanco’s website, www.wesbanco.com. Investors are cautioned that
forward-looking statements, which are not historical fact, involve risks and
uncertainties, including those detailed in WesBanco’s most recent Annual Report
on Form 10-K filed with the SEC under Part I, Item 1A. Risk
Factors. 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 effects 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 WesBanco 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, Federal Deposit Insurance
Corporation, the SEC, the Financial Institution Regulatory Authority and other
regulatory bodies; potential legislative and federal and state regulatory
actions and reform; adverse decisions of federal and state courts; fraud, scams
and schemes of third parties; internet hacking; competitive conditions in the
financial services industry; rapidly changing technology affecting financial
services, greater than expected outflows on recent branch acquisition deposits;
marketability of debt instruments and corresponding impact on fair value
adjustments; and/or other external developments materially impacting WesBanco’s
operational and financial performance. WesBanco does not assume any duty to
update forward-looking statements.
APPLICATION
OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
WesBanco’s
critical accounting policies involving the significant judgments and assumptions
used in the preparation of the Consolidated Financial Statements as of September
30, 2009 have remained unchanged from the disclosures presented in WesBanco’s
Annual Report on Form 10-K for the year ended December 31, 2008 under the
section “Management’s Discussion and Analysis of Financial Condition and Results
of Operations.”
Goodwill - The carrying value
of goodwill is tested at least annually for impairment or when indicators of
potential impairment are present. The evaluation for impairment
involves comparing the estimated current fair value of each reporting unit to
its carrying value, including goodwill. If the estimated current fair
value of a reporting unit exceeds its carrying value, no additional testing is
required and an impairment loss is not recorded. Otherwise,
additional testing is performed and to the extent such additional testing
results in a conclusion that the carrying value of goodwill exceeds its implied
fair value, an impairment loss is recognized. WesBanco uses market
capitalization, multiples of tangible book value, and discounted cash flow
methods to determine the estimated current fair value of its reporting
units. Given the declines in WesBanco’s market capitalization during
2009, management performed an impairment test of goodwill related to the
community banking reporting unit. As of September 30, 2009, there was
$274.1 million of goodwill recorded at the community banking reporting unit
level. Management estimated the fair value of the community banking
reporting unit at September 30, 2009 using a market approach and an income
approach. Based on this analysis, the estimated fair value of the
community banking reporting unit could decline by approximately 9% before
further analysis of goodwill impairment would be required.
In the
event WesBanco determined that its goodwill was impaired, recognition of an
impairment charge could have a significant adverse impact on its financial
position or results of operations in the period in which the impairment
occurred.
OVERVIEW
WesBanco
is a multi-state bank holding company operating through 114 branches and 138 ATM
machines in West Virginia, Ohio and Western Pennsylvania, offering retail
banking, corporate banking, personal and corporate trust services, brokerage
services, mortgage banking and insurance. WesBanco’s businesses are
significantly impacted by economic factors such as market interest rates,
federal monetary and regulatory policies, local and regional economic conditions
and the competitive environment effect upon WesBanco’s business
volumes. WesBanco’s deposit levels are affected by numerous factors
including personal savings rates, personal income, and competitive rates on
alternative investments, as well as competition from other financial
institutions within the markets we serve and liquidity needs of WesBanco. Loan
levels are also subject to various factors including construction demand,
business financing needs, consumer spending and interest rates and loan terms
offered by competing lenders.
As noted
in the first quarter of 2009, WesBanco completed the purchase of all five of
AmTrust Bank’s Columbus, Ohio branches on March 27, 2009. WesBanco assumed
all of the deposit liabilities of $599.4 million for a total purchase price of
$21.2 million and is now operating the acquired branches under the WesBanco Bank
name.
On
September 9, 2009 WesBanco repurchased from the U.S. Department of the Treasury
75,000 shares of the Company's Fixed Rate Cumulative Perpetual Preferred Stock,
Series A, originally issued on December 5, 2008 under the Troubled Asset Relief
Program (“TARP”), at a purchase price of $75 million plus a final accrued
dividend of $250,000. The funds used to redeem the preferred stock
were derived from security sales and other internal sources, including a special
dividend from the Bank paid during the quarter that was previously approved by
the Bank’s regulators. The
repurchase of the preferred stock resulted in WesBanco recording a $2.3 million
charge in the third quarter representing the remaining unamortized discount on
the preferred stock on the repurchase date, as well as certain unamortized
issuance costs. These charges, along with $0.8 million of discount
amortization and dividends are reflected on the income statement in the third
quarter after net income. WesBanco also issued a warrant to the
Treasury Department with the preferred stock in December 2008 and is currently
19
negotiating
terms for the repurchase of this warrant. WesBanco’s consolidated and
bank subsidiary capital ratios continue to be in excess of the “well
capitalized” benchmarks for regulatory purposes at September 30, 2009 after
repurchase of the preferred stock.
On August
27, 2009 the Board of Directors of WesBanco declared a third quarter common
stock dividend of $0.14 per share, a 50% reduction in the quarterly dividend
rate as compared to the prior quarterly rate. The reduction was taken
to address the impact of the recession on earnings and to increase capital
internally by reducing the payout ratio. The dividend reduction will
better match dividends to current earnings opportunities.
RESULTS
OF OPERATIONS
EARNINGS
SUMMARY
For
the quarter ended September 30, 2009
WesBanco’s
net income available to common shareholders for the quarter ended September 30,
2009 was $2.3 million while diluted earnings per common share were $0.09, as
compared to $11.5 million or $0.43 per common share for the third quarter of
2008, and $4.7 million or $0.18 per share in the prior quarter ended June 30,
2009. Earnings per common share in the third quarter included a
charge of $0.09 per common share for the unamortized discount on the repurchase
of the TARP preferred stock and an additional $0.03 per share for preferred
stock dividends paid in the third quarter. For the nine month period
ended September 30, 2009, net income available to common shareholders was $11.4
million or $0.43 per common share, while for the same period in 2008, net income
was $32.3 million or $1.22 per common share. Net income before preferred stock
dividends and the accounting adjustment for the TARP repurchase was $16.6
million year to date.
Net
income decreased by $6.1 million during the third quarter of 2009, as compared
to the third quarter of 2008, primarily due to a $9.7 million increase in the
provision for loan losses, which reflects loan charge-offs of $14.0 million as
compared to loan charge-offs of $4.9 million in the 2008
quarter. During the quarter WesBanco charged-down two commercial
loans by $8.5 million, with $2.0 million of this charge reserved for in the
second quarter. One of the charge-offs was caused by a fraudulent equipment
leasing scheme which impacted a borrower’s equipment leasing activities, and the
other loss was on a hotel which was previously identified as
impaired. Higher provision expense also reflects the general
deterioration of credit quality across all segments of the loan portfolio due to
the prolonged recession, which has caused increases in net charge-offs and
non-performing assets. The allowance for loan losses increased to
1.74% of total loans at September 30, 2009 as compared to 1.21% at September 30,
2008, and 1.65% at the end of the second quarter. In addition, FDIC
insurance increased by $1.2 million from industry wide higher assessments and
employee benefits increased $1.3 million due to higher pension and health care
costs. Partially offsetting these increases were net securities gains
of $1.0 million, a bank owned life insurance claim of $1.0 million and a $1.5
million decrease in the tax provision due to lower pre-tax income and a lower
effective tax rate during the 2009 quarter.
Net
interest income increased slightly in the third quarter of 2009 as compared to
the third quarter of 2008, but increased 3.0% versus the second quarter of 2009
and 6.0% over the first quarter of 2009 as a result of increased earning assets
from the branch acquisition. Also contributing to improved net
interest income were lower rates on interest bearing liabilities, particularly
for deposits, as a result of decreasing market interest rates, certificate of
deposit maturities and WesBanco’s focus on improving the net interest margin by
reducing higher cost funding sources.
For
the year-to-date period ended September 30, 2009
For the
2009 nine month period, the decrease in net income was primarily due to an $18.4
million increase in the provision for credit losses, a $6.5 million increase in
FDIC insurance, and a $2.6 million increase in employee benefits, partially
offset by decreased merger and acquisition costs of $2.6 million, a $2.8 million
increase in net security gains and a $5.4 million decrease in the provision for
income taxes. The effective tax rate in the 2009 period was 2.3% as
compared to 15.1% in the nine month period of 2008. In addition,
non-interest expenses, excluding FDIC insurance, merger-related expenses and
employee benefits declined $3.3 million which reflects ongoing efficiency
improvements throughout WesBanco and in many expense
categories. Salaries and wages, net occupancy and equipment,
consulting fees, marketing, amortization of intangibles and miscellaneous taxes
were the principal categories where expense reductions were
achieved. These improvements were mitigated somewhat by the branch
acquisition, which added 30 full time equivalent employees and five new branch
facilities at the end of the first quarter.
20
NON-GAAP
MEASURES
The
following non-GAAP financial measures used by WesBanco provide information that
WesBanco believes is useful to investors in understanding WesBanco’s operating
performance and trends, and facilitates comparisons with the performance of
WesBanco’s peers. The following tables summarize the non-GAAP financial measures
derived from amounts reported in WesBanco’s financial statements.
TABLE
1. NON-GAAP MEASURES
September
30,
|
December
31,
|
|||
(unaudited,
dollars in thousands)
|
2009
|
2008
|
||
Tangible equity to tangible
assets:
|
||||
Total
shareholders' equity
|
$ 592,335
|
$ 659,371
|
||
Less: goodwill
and other intangible assets
|
(289,087)
|
(267,883)
|
||
Tangible
equity
|
303,248
|
391,488
|
||
Total
assets
|
5,561,091
|
5,222,041
|
||
Less: goodwill
and other intangible assets
|
(289,087)
|
(267,883)
|
||
Tangible
assets
|
5,272,004
|
4,954,158
|
||
Tangible
equity to tangible assets
|
5.75%
|
7.90%
|
||
Tangible common equity to tangible
assets:
|
||||
Total
shareholders' equity
|
$ 592,335
|
$ 659,371
|
||
Less: goodwill
and other intangible assets
|
(289,087)
|
(267,883)
|
||
Less: preferred
shareholders' equity
|
-
|
(72,332)
|
||
Tangible
common equity
|
303,248
|
319,156
|
||
Total
assets
|
5,561,091
|
5,222,041
|
||
Less: goodwill
and other intangible assets
|
(289,087)
|
(267,883)
|
||
Tangible
assets
|
5,272,004
|
4,954,158
|
||
Tangible
common equity to tangible assets
|
5.75%
|
6.44%
|
The decline in the equity
ratios was primarily caused by the acquisition of AmTrust deposits of $599.4
million.
NET
INTEREST INCOME
TABLE
2. NET INTEREST INCOME
For
the Three Months Ended
|
For
the Nine Months Ended
|
||||||||||
September
30,
|
September
30,
|
||||||||||
(unaudited,
dollars in thousands)
|
2009
|
2008
|
2009
|
2008
|
|||||||
Net
interest income
|
$ 40,429
|
$ 40,287
|
$ 117,807
|
$ 119,690
|
|||||||
Taxable
equivalent adjustments to net interest income
|
1,936
|
1,933
|
5,819
|
5,876
|
|||||||
Net
interest income, fully taxable equivalent
|
$ 42,365
|
$ 42,220
|
$ 123,626
|
$ 125,566
|
|||||||
Net
interest spread, non-taxable equivalent
|
2.94%
|
3.21%
|
2.87%
|
3.22%
|
|||||||
Benefit
of net non-interest bearing liabilities
|
0.26%
|
0.32%
|
0.29%
|
0.30%
|
|||||||
Net
interest margin
|
3.20%
|
3.53%
|
3.16%
|
3.52%
|
|||||||
Taxable
equivalent adjustment
|
0.15%
|
0.17%
|
0.16%
|
0.17%
|
|||||||
Net
interest margin, fully taxable equivalent
|
3.35%
|
3.70%
|
3.32%
|
3.69%
|
Net
interest income, which is WesBanco’s largest source of revenue, is the
difference between interest income on earning assets, primarily loans and
securities, and interest expense on liabilities (deposits and short and
long-term borrowings). Net interest income is affected by the general
level of, and changes in interest rates, the steepness of the yield curve,
changes in the amount and composition of interest earning assets and interest
bearing liabilities, as well as the frequency of repricing and turnover of those
assets and liabilities. Net interest income increased 0.4% in the
third quarter and decreased 1.6% in the nine month period of 2009 as compared to
the same periods in 2008. Average earning assets increased $483.4
million or 10.6% for the quarter and $416.1 million or 9.1% for the year-to-date
period; however, the net interest margin decreased by 35 and 37 basis points in
the third quarter and year-to-date periods, respectively, as compared to the
same periods in 2008. The investment of the cash proceeds from the
branch acquisition is the primary reason for the increase in earning assets, but
it also contributed to the decreases in margin as investment opportunities were
lower yielding, and of shorter duration, than the overall portfolio. The
continuation of the low interest environment in 2009 has also impacted the
margin as lower security and loan yields and a reduction of interest income from
the increased nonperforming loans have not been fully offset by decreases in
deposit and borrowing cost of funds. However, the margin has somewhat benefited
from a 5.0% increase in average non-interest bearing deposit balances year to
date, the result of marketing campaigns focused on checking account
products.
21
As
compared to the second quarter of 2009, net interest income for the third
quarter increased $1.2 million or 3.0% due to the acquisition and a higher net
interest margin. The margin increase, totaling 18 basis points,
resulted from a combination of an increase in the yield in earning assets,
reflecting the full benefit of the second quarter investment of the cash
received from the branch acquisition, and a 13 basis point decline in the cost
of interest bearing liabilities resulting from the lower interest rate
environment and re-pricing of higher rate CDs and certain term
borrowings. The benefit of the improved rates was partially offset by
a 3.3% decline in average earning assets used to fund the previously anticipated
third quarter run off of some of AmTrust’s former higher rate, single service
customer CDs.
Interest
income decreased 5.0% in the third quarter and 9.1% in the nine month period as
compared to the same periods in 2008. These decreases were due to a
lower yield on earning assets of 88 basis points to 5.30% in the third quarter
and 107 basis points to 5.39% for the year-to-date period of 2009, and was also
partially offset by increases in both periods in average earning
assets. In addition to the decrease in taxable securities yields from
the investment of cash acquired with the branches and the resulting overall
shorter portfolio average duration, repricing of loans over the last seven
quarters as a result of a lower interest rate environment and the reduction in
interest income related to increases in nonperforming loans caused a decline in
loan yields of 63 basis points in the third quarter and 78 basis points in the
year-to-date period of 2009. The increase in average earning assets
due to the acquisition was partially offset by a decrease in average loan
balances of $87.9 million and $101.3 million respectively. Proceeds
from decreases in residential mortgage loans, which generally have higher yields
than typical investment types, have been reinvested at lower yields, thus
reducing the overall yield of the earning assets.
Average
loan balance decreases are primarily due to continued strategic decreases in
residential real estate loans through the sale of most originations and reduced
commercial line usage, partially offset by increases in commercial real estate
due to origination volumes and reduced prepayments from property refinancing and
sales. Home equity loans also increased through various marketing and
targeted sales efforts in our branches. Consumer loans declined due
to reduced demand for automobile loans, and a strategic reduction in
recreational vehicle product lending.
Interest
expense decreased 12.7% in the third quarter and 18.7% in the nine month period
as compared to the same periods in 2008 primarily due to a decline in the
average rate paid on deposits of 65 basis points to 1.82% for the third quarter
and 86 basis points to 1.95% for the year-to-date period of
2009. These decreases were partially offset by increases in average
interest bearing liabilities of 9.9% in the third quarter and 6.1% in the nine
month period. The rate decline was due to management reducing certain
interest rates on maturing CDs, MMDA and interest bearing demand deposit
accounts in order to realize a lower cost of funds during a period of declining
loan yields, while focusing marketing efforts on non-interest bearing demand
deposits. The cost of CDs, MMDA and interest bearing demand deposit
accounts declined by 117 basis points, 85 basis points and 63 basis points,
respectively, in the nine month period of 2009. Average deposits
increased $474.5 million in the third quarter of 2009 as compared to the third
quarter of 2008 and total deposits increased $501.6 million from December 31,
2008 primarily due to the branch acquisition in the first quarter of
2009. In addition, non-AmTrust branch deposit levels have been
generally stable in the nine month period of 2009 through growth in
competitively priced deposits in certain regions as a result of somewhat reduced
competition as compared to prior periods, overall stock market volatility and an
increase in the national personal savings rate. CD balances decreased
5.8% in the third quarter as compared to the second quarter of 2009 due to the
Bank’s strategy of allowing certain high rate, single service former AmTrust CDs
to mature without renewal due to the current rate environment. The
increase in deposits from the branch acquisition and other sources caused a
reduction in the loan to deposit ratio from approximately 103% at December 31,
2008 to 88% at September 30, 2009. In addition, the increased
liquidity provided by the branch acquisition will permit WesBanco to continue to
reduce higher cost FHLB and certain repurchase agreements as they mature which,
combined with continued repricing of higher cost certificates of deposit, is
expected to continue to improve the net interest margin.
TABLE
3. AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS
For
the Three Months Ended September 30,
|
For
the Nine Months Ended September 30,
|
|||||||
2009
|
2008
|
2009
|
2008
|
|||||
Average
|
Average
|
Average
|
Average
|
Average
|
Average
|
Average
|
Average
|
|
(unaudited,
dollars in thousands)
|
Balance
|
Rate
|
Balance
|
Rate
|
Balance
|
Rate
|
Balance
|
Rate
|
ASSETS
|
||||||||
Due
from banks - interest bearing
|
$ 38,772
|
0.19%
|
$ 18,953
|
1.15%
|
$ 43,606
|
0.19%
|
$ 10,365
|
2.85%
|
Loans,
net of unearned income
(1)
|
3,529,534
|
5.73%
|
3,617,444
|
6.36%
|
3,563,632
|
5.80%
|
3,664,935
|
6.58%
|
Securities:
(2)
|
||||||||
Taxable
|
1,100,345
|
3.84%
|
549,070
|
5.04%
|
991,584
|
3.88%
|
509,108
|
5.61%
|
Tax-exempt
(3)
|
337,130
|
6.56%
|
335,850
|
6.58%
|
336,334
|
6.59%
|
325,841
|
6.87%
|
Total securities
|
1,437,475
|
4.48%
|
884,920
|
5.63%
|
1,327,918
|
4.57%
|
834,949
|
6.10%
|
Federal
funds sold
|
-
|
-
|
598
|
2.01%
|
2,755
|
0.24%
|
13,575
|
2.65%
|
Other
earning assets
|
31,911
|
0.83%
|
32,357
|
3.91%
|
32,055
|
0.97%
|
30,060
|
3.77%
|
Total
earning assets
(3)
|
5,037,692
|
5.30%
|
4,554,272
|
6.18%
|
4,969,966
|
5.39%
|
4,553,884
|
6.46%
|
Other
assets
|
624,389
|
621,838
|
620,730
|
682,845
|
||||
Total
Assets
|
$ 5,662,081
|
$
5,176,110
|
$ 5,590,696
|
$
5,236,729
|
||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
Interest
bearing demand deposits
|
$ 456,939
|
0.68%
|
$ 432,706
|
0.82%
|
$ 452,836
|
0.64%
|
$ 429,623
|
1.27%
|
Money
market accounts
|
680,008
|
1.03%
|
518,629
|
1.66%
|
604,735
|
1.07%
|
466,035
|
1.92%
|
Savings
deposits
|
483,273
|
0.50%
|
438,142
|
0.66%
|
466,819
|
0.51%
|
530,890
|
0.62%
|
Certificates
of deposit
|
1,905,645
|
2.72%
|
1,679,159
|
3.62%
|
1,906,149
|
2.89%
|
1,786,016
|
4.06%
|
Total
interest bearing deposits
|
3,525,865
|
1.82%
|
3,068,636
|
2.47%
|
3,430,539
|
1.95%
|
3,212,564
|
2.81%
|
Federal
Home Loan Bank borrowings
|
574,097
|
3.85%
|
557,365
|
3.94%
|
583,837
|
3.85%
|
491,989
|
4.00%
|
Other
borrowings
|
228,514
|
3.09%
|
302,842
|
2.75%
|
232,982
|
3.22%
|
293,645
|
3.12%
|
Junior
subordinated debt
|
111,164
|
4.36%
|
111,073
|
6.07%
|
111,143
|
5.09%
|
111,051
|
6.39%
|
Total
interest bearing liabilities
|
4,439,640
|
2.21%
|
4,039,916
|
2.80%
|
4,358,501
|
2.35%
|
4,109,249
|
3.07%
|
Non-interest
bearing demand deposits
|
521,477
|
504,232
|
521,157
|
496,537
|
||||
Other
liabilities
|
57,260
|
43,345
|
54,405
|
43,375
|
||||
Shareholders’
Equity
|
643,704
|
588,617
|
656,633
|
587,568
|
||||
Total
Liabilities and Shareholders’ Equity
|
$ 5,662,081 | $ 5,176,110 | $ 5,590,696 | $ 5,236,729 | ||||
Net
Interest Spread
|
3.09%
|
3.38%
|
3.03%
|
3.39%
|
||||
Taxable equivalent net yield on
average earning assets (3)
|
3.35%
|
3.70%
|
3.32%
|
3.69%
|
(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 available-for-sale securities are calculated based on amortized
cost.
|
(3)
|
Taxable
equivalent basis is calculated on tax-exempt securities using a tax rate
of 35% for each year
presented.
|
23
TABLE
4. RATE/VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST
EXPENSE
Three
Months Ended September 30, 2009
|
Nine Months Ended September 30, 2009 | ||||||||
Compared to September 30, 2008 | Compared to September 30, 2008 | ||||||||
Net
Increase
|
Net
Increase
|
||||||||
(unaudited,
in thousands)
|
Volume
|
Rate
|
(Decrease)
|
Volume
|
Rate
|
(Decrease)
|
|||
Increase
(decrease) in interest income:
|
|||||||||
Due
from banks - interest bearing
|
$ 31
|
$ (68)
|
$ (37)
|
$ 197
|
$ (355)
|
$ (158)
|
|||
Loans,
net of unearned income
|
(1,351)
|
(5,520)
|
(6,871)
|
(4,924)
|
(21,165)
|
(26,089)
|
|||
Taxable
securities
|
5,655
|
(1,963)
|
3,692
|
15,753
|
(8,069)
|
7,684
|
|||
Tax-exempt
securities
(1)
|
21
|
(12)
|
9
|
531
|
(696)
|
(165)
|
|||
Federal
funds sold
|
(2)
|
(1)
|
(3)
|
(124)
|
(141)
|
(265)
|
|||
Other
interest income
|
(4)
|
(246)
|
(250)
|
53
|
(668)
|
(615)
|
|||
Total
interest income change
(1)
|
4,350
|
(7,810)
|
(3,460)
|
11,486
|
(31,094)
|
(19,608)
|
|||
Increase
(decrease) in interest expense:
|
|||||||||
Interest
bearing demand deposits
|
49
|
(156)
|
(107)
|
209
|
(2,115)
|
(1,906)
|
|||
Money
market accounts
|
563
|
(972)
|
(409)
|
1,639
|
(3,485)
|
(1,846)
|
|||
Savings
deposits
|
70
|
(190)
|
(120)
|
(275)
|
(398)
|
(673)
|
|||
Certificates
of deposit
|
1,901
|
(4,127)
|
(2,226)
|
3,449
|
(16,465)
|
(13,016)
|
|||
Federal
Home Loan Bank borrowings
|
172
|
(125)
|
47
|
2,663
|
(579)
|
2,084
|
|||
Other
borrowings
|
(554)
|
238
|
(316)
|
(1,456)
|
224
|
(1,232)
|
|||
Junior
subordinated debt
|
1
|
(475)
|
(474)
|
4
|
(1,082)
|
(1,078)
|
|||
Total
interest expense change
|
2,202
|
(5,807)
|
(3,605)
|
6,233
|
(23,900)
|
(17,667)
|
|||
Net
interest income increase (decrease) (1)
|
$ 2,148
|
$ (2,003)
|
$ 145
|
$ 5,253
|
$ (7,194)
|
$ (1,941)
|
(1)
Taxable equivalent basis is calculated on tax-exempt securities using a tax rate
of 35% for each year presented.
PROVISION
FOR LOAN LOSSES
The
provision for loan losses is determined by management as the amount to be added
to the allowance for loan losses after net charge-offs have been deducted to
bring the allowance to a level considered appropriate to absorb probable losses
in the loan portfolio. The provision for loan losses was $16.2
million in the third quarter of 2009, an increase of $9.7 million from the third
quarter of 2008. For the year to date period the provision was $36.2
million, as compared to $17.5 million in the same period of
2008. Higher provision expense for the third quarter reflects a $3.8
million charge-off on a loan secured by a hotel, with $2.0 million of this
charge reserved for in the second quarter. The hotel has been
transferred to other real estate owned. Also in the third quarter, an
impairment of $4.7 million was determined on a commercial loan to an equipment
leasing company, of which $3.6 million was charged off. The
charged-off portion of this loss was incurred mostly as a result of fraudulent
activities by a major customer of the Bank’s borrower. Higher provision expense
also reflects the general deterioration of credit quality across all segments of
the loan portfolio due to the prolonged recession. Net charge-offs
for the third quarter of 2009 increased $7.9 million compared to the second
quarter of 2009 and $9.1 million compared to the third quarter of 2008, with
$7.4 million of these increases from the two previously discussed
loans. Worsening economic conditions and declining property values
have resulted in higher residential and commercial real estate losses while
consumer loan losses have been relatively stable. The provision for loan
losses exceeded net charge-offs by $2.2 million in the third quarter of 2009 and
$11.0 million for the first nine months of 2009, which increased the allowance
for loan losses to 1.74% of total loans at September 30, 2009 compared to 1.65%
at June 30, 2009 and 1.21% at September 30, 2008. Non-performing
loans increased $0.8 million from the second quarter to $82.4 million at
September 30, 2009 or 2.35% as a percent of total loans, and increased $46.1
million from December 31, 2008. The non-performing loan increase from
year-end reflects general deterioration of credit quality which has been most
prevalent in the commercial and residential real estate portfolios, but
migration into non-accrual status and overall new loan delinquencies have slowed
since the first quarter. For additional information relating to the
provision for loan losses, see the “Allowance for Loan Losses” section of “Loans
and Credit Risk” included in this MD&A.
24
NON-INTEREST
INCOME
TABLE
5. NON-INTEREST INCOME
For
the Three Months
|
For
the Nine Months
|
|||||||||||
Ended
September 30,
|
Ended
September 30,
|
|||||||||||
(unaudited,
dollars in thousands)
|
2009
|
2008
|
$
Change
|
%
Change
|
2009
|
2008
|
$
Change
|
%
Change
|
||||
Trust
fees
|
$ 3,508
|
$ 3,639
|
$ (131)
|
(3.6%)
|
$ 10,149
|
$ 11,702
|
$ (1,553)
|
(13.3%)
|
||||
Service
charges on deposits
|
6,648
|
6,280
|
368
|
5.9%
|
17,941
|
17,903
|
38
|
0.2%
|
||||
Bank-owned
life insurance
|
1,873
|
934
|
939
|
100.5%
|
3,661
|
2,696
|
965
|
35.8%
|
||||
Net
securities gains (losses)
|
1,329
|
276
|
1,053
|
381.5%
|
3,933
|
1,182
|
2,751
|
232.7%
|
||||
Net
gains on sales of loans
|
820
|
595
|
225
|
37.8%
|
1,606
|
1,059
|
547
|
51.7%
|
||||
Other
Income
|
||||||||||||
Service
fees on ATM's and debit cards
|
1,953
|
1,769
|
184
|
10.4%
|
5,554
|
5,026
|
528
|
10.5%
|
||||
Net
securities brokerage revenue
|
1,310
|
666
|
644
|
96.7%
|
3,110
|
1,980
|
1,130
|
57.1%
|
||||
Net
insurance services revenue
|
591
|
601
|
(10)
|
(1.7%)
|
1,717
|
2,041
|
(324)
|
(15.9%)
|
||||
Gain
(loss) on sale of other real estate
|
||||||||||||
owned
and repossessed assets
|
82
|
(82)
|
164
|
200.0%
|
(396)
|
(800)
|
404
|
50.5%
|
||||
Other
|
441
|
292
|
149
|
51.0%
|
26
|
2,067
|
(2,041)
|
(98.7%)
|
||||
Total
other income
|
4,377
|
3,246
|
1,131
|
34.8%
|
10,011
|
10,314
|
(303)
|
(2.9%)
|
||||
Total
non-interest income
|
$ 18,555
|
|
$ 14,970
|
$ 3,585
|
23.9%
|
$ 47,301
|
$ 44,856
|
$ 2,445
|
5.5%
|
Non-interest
income is a significant source of revenue and an important part of WesBanco’s
results of operations. WesBanco offers its customers a wide range of
retail, commercial, investment and electronic banking services, which are viewed
as a vital component of WesBanco’s strategy to attract and maintain customers,
as well as providing additional fee income beyond normal spread-related income
to WesBanco. As compared to the third quarter of 2008, non-interest
income increased by $3.6 million, due to increased net securities gains of $1.1
million, a bank owned life insurance claim of $1.0 million, a $0.4 million
increase in service charges on deposits and higher income from sales of mortgage
loans, securities brokerage and ATM fees. For the three and nine
months ending September 30, 2009, total non-interest income comprised 31.5% and
28.7% of total net revenues as compared to 27.1% and 27.3% for the same 2008
periods.
Net
realized gains on the securities portfolio increased $1.1 million and $2.8
million, respectively in the third quarter and year-to-date periods of 2009 as
compared to 2008. This was partially offset by declines in trust fees
of $0.1 million and $1.6 million during the three and nine months ending
September 30, 2009 as compared to the prior year due to decreased managed asset
market values. The market value of total trust assets at September
30, 2009 and 2008, was $2.6 billion and $2.7 billion,
respectively. The decline in trust assets was principally due to the
downturn in the markets in late 2008 and early 2009.
Net
securities brokerage revenue increased $0.6 million and $1.1 million from the
third quarter and first nine months of 2008, due primarily to new customer
representatives in the Columbus, Ohio market. Service fees on ATM’s
and debit cards added $0.2 million and $0.5 million as compared to the third
quarter and first nine months of 2008, due to a higher volume of debit card
transactions during the periods, while gains on the sale of mortgage loans
contributed an additional $0.2 million and $0.5 million compared to the third
quarter and nine months of 2008.
Other
declines in non-interest income in the year-to-date period of 2009 which mostly
occurred in the first half of 2009, included lower mortgage servicing fees of
$0.7 million, a $0.4 million loss due to a market adjustment of the deferred
compensation plan assets for the period, and a $0.3 million decrease in net
insurance revenue. Other income in 2008 included a gain of $0.4
million in the first quarter relating to the mandatory sale of VISA
stock.
25
NON-INTEREST
EXPENSE
TABLE
6. NON-INTEREST EXPENSE
For
the Three Months
|
For
the Nine Months
|
||||||||
|
Ended
September 30,
|
Ended
September 30,
|
|||||||
(unaudited,
dollars in thousands)
|
2009
|
2008
|
$
Change
|
%
Change
|
2009
|
2008
|
$
Change
|
%
Change
|
|
Salaries
and wages
|
$
13,920
|
$
14,185
|
$ (265)
|
(1.9%)
|
$ 41,085
|
$ 42,423
|
$ (1,338)
|
(3.2%)
|
|
Employee
benefits
|
5,240
|
3,857
|
1,383
|
35.9%
|
15,008
|
12,409
|
2,599
|
20.9%
|
|
Net
occupancy
|
2,572
|
2,511
|
61
|
2.4%
|
7,676
|
8,034
|
(358)
|
(4.5%)
|
|
Equipment
|
2,888
|
2,739
|
149
|
5.4%
|
8,117
|
8,185
|
(68)
|
(0.8%)
|
|
Marketing
|
1,486
|
2,078
|
(592)
|
(28.5%)
|
3,961
|
4,458
|
(497)
|
(11.1%)
|
|
FDIC
Insurance
|
1,528
|
310
|
1,218
|
392.9%
|
7,104
|
574
|
6,530
|
1137.6%
|
|
Amortization
of intangible assets
|
806
|
950
|
(144)
|
(15.2%)
|
2,315
|
2,872
|
(557)
|
(19.4%)
|
|
Restructuring
and merger-related expenses
|
2
|
539
|
(537)
|
(99.6%)
|
623
|
3,244
|
(2,621)
|
(80.8%)
|
|
Other operating expenses
|
|||||||||
Miscellaneous
franchise, and other taxes
|
1,487
|
1,894
|
(407)
|
(21.5%)
|
4,416
|
5,730
|
(1,314)
|
(22.9%)
|
|
Consulting,
regulatory, and advisory fees
|
988
|
1,106
|
(118)
|
(10.7%)
|
3,288
|
3,750
|
(462)
|
(12.3%)
|
|
Postage
|
964
|
922
|
42
|
4.6%
|
2,730
|
3,068
|
(338)
|
(11.0%)
|
|
ATM
and interchange expenses
|
857
|
772
|
85
|
11.0%
|
2,543
|
2,041
|
502
|
24.6%
|
|
Communications
|
734
|
827
|
(93)
|
(11.2%)
|
2,215
|
2,240
|
(25)
|
(1.1%)
|
|
Legal
fees
|
690
|
602
|
88
|
14.6%
|
2,049
|
1,513
|
536
|
35.4%
|
|
Supplies
|
593
|
743
|
(150)
|
(20.2%)
|
1,896
|
2,066
|
(170)
|
(8.2%)
|
|
Other
|
2,950
|
2,130
|
820
|
38.5%
|
7,037
|
6,288
|
749
|
11.9%
|
|
Total
other operating expenses
|
9,263
|
8,996
|
267
|
3.0%
|
26,174
|
26,696
|
(522)
|
(2.0%)
|
|
Total
non-interest expense
|
$
37,705
|
$
36,165
|
$ 1,540
|
4.3%
|
$
112,063
|
$
108,895
|
$ 3,168
|
2.9%
|
Non-interest
expense increased $1.5 million or 4.3% for the third quarter 2009 compared to
the third quarter 2008 due to increases in FDIC insurance, employee health care
and pension expenses, partially offset by a decline in merger-related expenses,
marketing and miscellaneous taxes. For the first nine months of 2009
expenses increased $3.2 million or 2.9% compared to 2008, primarily due to the
increase in employee related expenses and FDIC insurance, partially offset by
declines in restructuring and merger-related expenses and miscellaneous
taxes.
FDIC
insurance for the first nine months of 2009 increased $6.5 million compared to
the same period in 2008 due to a $2.6 million special assessment effective June
30, 2009, the reduction in certain prior FDIC credits, an increase in the FDIC
rate from approximately 6 basis points to 13 basis points on insured deposits,
and, to a lesser extent, the increase in deposits derived from the AmTrust
branch acquisition.
Salaries
and wages were down $0.3 million and $1.3 million in the third quarter and nine
month period of 2009 as compared to 2008, due to a decrease in the number of
full time equivalent employees from 1,519 at September 30, 2008 to 1,428 at
September 30, 2009, primarily resulting from planned efficiencies created
through the Oak Hill acquisition in late 2007, and the company’s overall
strategy to manage expenses. However, the reduction in salaries was
offset by increases in employee benefits of $1.4 million and $2.6 million for
the three and nine month periods compared to the prior year, due to higher
defined benefit pension expenses resulting from market declines on pension plan
assets experienced in 2008 and higher employee health insurance
costs.
Marketing
expenses have declined $0.6 million and $0.5 million for the third quarter and
year-to-date periods as compared to 2008. The 2008 marketing expenses
reflected increased marketing costs to establish name identity in the former Oak
Hill banking markets. This decline on a year-to-date basis was
somewhat offset by increased marketing efforts primarily in the Columbus, Ohio
market in the second quarter of 2009 to both welcome our new AmTrust banking
customers and to establish greater name identity in the former AmTrust branch
market area.
Merger-related
expenses declined by $0.5 million and $2.6 million for third quarter and
year-to-date periods compared to the prior year due to Oak Hill acquisition
expenses in 2008. Miscellaneous taxes decreased $0.4 million and $1.3
million for the three and nine months ending September 30, 2009 compared to last
year due to a reduction in certain state franchise taxes from a subsidiary
restructuring. This reduction may be somewhat offset by higher state
income tax levels in the future.
Net
occupancy, equipment, and postage remained relatively flat in the third quarter
of 2009 compared to 2008, however they all experienced decreases in the first
nine months of 2009 mostly related to the full integration of Oak Hill with some
additional impact to net occupancy and equipment due to a reduction in ATMs and
other building lease expenses from the sale of five former Oak Hill
branches. Intangible asset amortization was down due to the end of
certain prior acquisition-related core deposit intangible amortization, offset
somewhat by the new AmTrust-related amortization. These cost
reductions were partially offset by an online customer services contract
termination fee of $0.5 million, as a new internet banking product was placed in
service in October, increased foreclosure expenses, and higher processing fees
to service greater customer activity in electronic transactions.
26
INCOME
TAXES
The
provision for income taxes decreased $5.4 million in the first nine months of
2009 compared to the same period in 2008 due to a decrease in pre-tax income and
a decrease in the effective tax rate. For 2009 the effective tax rate
decreased to 2.3% as compared to 15.1% in the first nine months of 2008, due
primarily to the decrease in pre-tax income as well as a higher percentage of
tax-exempt income to total income.
FINANCIAL
CONDITION
Total
assets increased 6.5% in the first nine months of 2009, while total
shareholders’ equity was down 10.2% as compared to December 31,
2008. Increases in total assets and deposits were primarily the
result of the AmTrust branch acquisition, which represented an increase of
$599.4 million in deposits on March 27, 2009. Total shareholders’
equity decreased by approximately $67.0 million primarily due to the $75 million
repurchase of the TARP preferred stock in the third
quarter. Dividends paid to preferred and common shareholders also
contributed to the decline as the dividends exceeded net income for the
period. This was somewhat offset by unrealized gains in the
available-for-sale securities portfolio, which are included net of tax effect in
accumulated other comprehensive income, effectively increasing shareholders’
equity by $12.4 million from December 31, 2008. Total tangible equity
to tangible assets (non-GAAP measure) decreased from 7.90% at December 31, 2008
to 5.75% at September 30, 2009, primarily as a result of the acquisition and the
TARP repurchase, while total tangible common equity to tangible assets
(non-GAAP measure) declined from 6.44% to 5.75%, for the same periods,
respectively due to the acquisition.
TABLE
7. COMPOSITION OF SECURITIES (1)
September
30,
|
December
31,
|
|
|||
(unaudited,
dollars in thousands)
|
2009
|
2008
|
$
Change
|
%
Change
|
|
Securities
available-for-sale (at fair value):
|
|||||
Other
government agencies
|
$ 220,322
|
$ 40,009
|
$ 180,313
|
450.7%
|
|
Corporate
debt securities
|
24,134
|
3,149
|
20,985
|
666.4%
|
|
Residential
mortgage-backed securities and collateralized
|
804,839
|
523,897
|
280,942
|
53.6%
|
|
mortgage
obligations of government agencies
|
|||||
Other
residential collateralized mortgage obligations
|
3,505
|
4,150
|
(645)
|
(15.5%)
|
|
Obligations
of states and political subdivisions
|
361,109
|
359,425
|
1,684
|
0.5%
|
|
Equity
securities
|
3,778
|
3,508
|
270
|
7.7%
|
|
Total
securities available-for-sale
|
$ 1,417,687
|
$ 934,138
|
$ 483,549
|
51.8%
|
|
Securities
held-to-maturity (at amortized cost):
|
|||||
Corporate
debt securities
|
1,450
|
1,450
|
-
|
0.0%
|
|
Total
securities
|
$ 1,419,137
|
$ 935,588
|
$ 483,549
|
51.7%
|
|
Available-for-sale
securities:
|
|
|
|||
Weighted
average taxable equivalent yield at the respective period
end
|
4.51%
|
5.51%
|
|||
As
a % of total securities
|
99.9%
|
99.8%
|
|||
Weighted
average life (in years)
|
3.5
|
3.6
|
|||
Held-to-maturity
securities:
|
|||||
Weighted
average yield at the respective period end
|
9.71%
|
9.72%
|
|||
As
a % of total securities
|
0.1%
|
0.2%
|
|||
Weighted
average life (in years)
|
20.6
|
21.3
|
(1) At
September 30, 2009 and December 31, 2008, there were no holdings of any one
issuer in an amount greater than 10% of WesBanco’s shareholders’ equity, other
than the U.S. government and its agencies.
Total
investment securities, which are a source of liquidity for WesBanco as well as a
contributor to interest income, increased by 51.7% from December 31, 2008 to
September 30, 2009, while decreasing 5.9% from the previous
quarter. The increase from year end was due primarily to the
investment of cash received in the AmTrust branch acquisition into other
government agencies, corporate securities, mortgage-backed securities, and
municipal securities. These additional investments were partially offset by
sales of $148.6 million, calls of $114.9 million, maturities of $6.0 million,
and mortgage backed principal paydowns during the year. The decline
in investments over the previous quarter was due to sales at net gains that
funded the repurchase of TARP, as well as intentional reductions in CDs and
certain borrowings.
LOANS
AND CREDIT RISK
The loan
portfolio is WesBanco’s single largest balance sheet asset classification and
the largest source of interest income. The risk that borrowers will be unable or
unwilling to repay their obligations and default on loans is inherent in all
lending activities. In addition to the inherent risk of a change in a
borrower’s repayment capacity, economic conditions and other factors beyond
WesBanco’s control can adversely impact credit risk. WesBanco’s
primary goal in managing credit risk is to minimize the impact of default by an
individual borrower or group of borrowers. Credit risk is managed
through the initial underwriting process as well as through ongoing monitoring
and administration of the loan portfolio that varies by loan
category. WesBanco’s credit policies establish standard underwriting
guidelines for each type of loan and require an appropriate evaluation of the
credit characteristics of each borrower. This evaluation includes the
borrower’s repayment capacity; the adequacy of collateral, if any, to secure the
loan; and other factors unique to each loan that may increase or mitigate its
risk.
27
WesBanco’s
loan portfolio consists of the major categories set forth in Table
8. WesBanco makes loans for business and consumer
purposes. Business purpose loans consist of commercial and industrial
loans as well as commercial real estate loans, while consumer purpose loans
consist of residential real estate loans, home equity and other consumer
loans. Loans held for sale generally consist of residential real
estate loans originated for sale in the secondary market and at times may also
include other types of loans. Each category entails certain distinct elements of
risk that impact the manner in which those loans are underwritten, monitored,
and administered.
TABLE
8. COMPOSITION OF LOANS (1)
September
30, 2009
|
December
31, 2008
|
||||
(unaudited,
dollars in thousands)
|
Amount
|
%
of Loans
|
Amount
|
%
of Loans
|
|
Loans: (1)
|
|||||
Commercial
and industrial
|
$ 463,948
|
13.2%
|
$ 510,902
|
14.2%
|
|
Commercial
real estate:
|
|||||
Land
and construction
|
248,021
|
7.1%
|
230,865
|
6.4%
|
|
Other
|
1,516,770
|
43.2%
|
1,468,158
|
40.7%
|
|
Residential
real estate:
|
|||||
Land
and construction
|
9,488
|
0.3%
|
15,896
|
0.4%
|
|
Other
|
729,663
|
20.8%
|
841,103
|
23.3%
|
|
Home
equity
|
235,427
|
6.7%
|
217,436
|
6.0%
|
|
Consumer
|
298,305
|
8.5%
|
319,949
|
8.9%
|
|
Total
portfolio loans
|
3,501,622
|
99.8%
|
3,604,309
|
99.9%
|
|
Loans
held for sale
|
6,860
|
0.2%
|
3,874
|
0.1%
|
|
Total
Loans
|
$ 3,508,482
|
100.0%
|
$ 3,608,183
|
100.0%
|
(1)
Loans are presented gross of the allowance for loan losses, and net of unearned
income on consumer loans, SOP 03-3 credit valuation adjustments, and unamortized
net deferred loan fee income and loan origination costs.
Total
loans decreased $99.7 million or 2.8% between December 31, 2008 and September
30, 2009, primarily due to the intentional reduction of fixed rate residential
real estate loans due to scheduled repayments on these
loans. Commercial and industrial loans declined $47.0 million or 9.2%
due primarily to lower usage of lines of credit and reduced demand in the
current economic environment. Commercial real estate loans have
increased due primarily to new lending opportunities particularly in our Upper
Ohio Valley and Western Pennsylvania markets. Retention of commercial
real estate loans was also aided by a reduction in the frequency of prepayments
from secondary or capital market sources of refinancing of portfolio
loans. Commercial real estate land and construction, which includes
residential development loans increased from December 31, 2008 to September 30,
2009 as a result of advances for completed construction on commercial properties
and multifamily apartments. Although the balances of commercial land
and construction loans increased, total commitments for these loans decreased
approximately $27.7 million or 43% since December 31, 2008 as volumes of new
construction loans have been reduced. The residential development
component of commercial real estate land and construction loans also decreased
approximately $16.3 million or 27% from $60.4 million at December 31, 2008 to
$44.1 million at September 30, 2009. During the same period, commitments
for new residential construction projects also decreased approximately $9.4
million or 37% from $25.2 million to $15.8 million. The $117.9
million decline in residential real estate loans primarily reflects planned
decreases consistent with WesBanco’s strategy of selling most new residential
mortgages into the secondary market. Home equity lines of credit
continued to increase in 2009 by $18.0 million or 8.3% as a result of marketing
campaigns despite a recent tightening of credit standards to control risk, while
consumer loans decreased $21.6 million or 6.8% primarily due to reduced demand
and stricter underwriting standards. WesBanco continues to focus on
improving the overall profitability of the loan portfolio through disciplined
underwriting and pricing practices.
NON-PERFORMING
ASSETS, IMPAIRED LOANS AND LOANS PAST DUE 90 DAYS OR MORE
Non-performing
assets consist of non-accrual and renegotiated loans, other real estate acquired
through or in lieu of foreclosure, bank premises held for sale, and repossessed
automobiles acquired to satisfy defaulted consumer loans. Other
impaired loans include certain loans that are internally classified as
substandard or doubtful.
Loans are
generally placed on non-accrual status when they become past due 90 days or more
unless they are both well secured and in the process of
collection. WesBanco generally only recognizes cash received as
interest income on non-accrual loans if recovery of principal is reasonably
assured.
Loans are
categorized as renegotiated when WesBanco, for economic or legal reasons related
to a borrower’s financial difficulties, grants a concession to the borrower that
it would not otherwise consider. Concessions that may be granted
include a reduction of the interest rate, the amount of accrued interest, or the
principal amount of the loan, as well as an extension of the maturity date or
the amortization schedule. Loans may be removed from renegotiated
status after they have performed according to the renegotiated terms for a
period of time, or they may move to non-accrual if they do not perform in
accordance with the loans’ modified terms.
Other
real estate and repossessed assets consist primarily of real estate acquired
through or in lieu of foreclosure and repossessed automobiles or other personal
property.
28
TABLE
9. NON-PERFORMING ASSETS
September
30,
|
December
31,
|
||
(unaudited,
dollars in thousands)
|
2009
|
2008
|
|
Non-accrual
loans:
|
|||
Commercial
and industrial
|
$ 13,440
|
$ 5,369
|
|
Commercial
real estate
|
41,632
|
25,015
|
|
Residential
real estate
|
11,433
|
1,252
|
|
Home
equity
|
715
|
72
|
|
Consumer
|
135
|
29
|
|
Total
non-accrual loans
|
67,355
|
31,737
|
|
Renegotiated
loans:
|
|||
Commercial
and industrial
|
819
|
4,559
|
|
Commercial
real estate
|
11,226
|
-
|
|
Residential
real estate
|
2,825
|
-
|
|
Consumer
|
143
|
-
|
|
Total
renegotiated loans
|
15,013
|
4,559
|
|
Total
non-performing loans
|
$ 82,368
|
$ 36,296
|
|
Other
real estate owned and repossessed assets
|
8,665
|
2,554
|
|
Total
non-performing assets
|
$ 91,033
|
$ 38,850
|
|
Non-performing
loans/total loans
|
2.35%
|
1.01%
|
|
Non-performing
assets/total loans, other real estate and repossessed
assets
|
2.59%
|
1.08%
|
TABLE
10. NON-PERFORMING AND IMPAIRED ASSET ACTIVITY
(unaudited,
in thousands)
|
Non-accrual
Loans
|
Renegotiated
Loans
|
Other
Impaired
Loans
|
Other
Real
Estate
and Repossessed
Assets
|
|
Beginning
balance
|
$31,737
|
$4,559
|
$11,202
|
$2,554
|
|
Activity
during the year:
|
|||||
Additions
to non-accrual, renegotiated or other impaired loans
|
69,122
|
19,700
|
9,963
|
||
Real
estate foreclosures or deeds in lieu of foreclosure
|
7,535
|
||||
Repossessions
of other collateral
|
5,376
|
||||
Loans
and other real estate charged down or charged off
|
(24,034)
|
(7,751)
|
(344)
|
||
Loans
returned to accruing or no longer renegotiated or impaired
|
(2,099)
|
(7,337)
|
|||
Other
real estate sold
|
(805)
|
||||
Repossessed
assets sold
|
(5,736)
|
||||
Principal
payments and other changes, net
|
(7,371)
|
(1,495)
|
(2,741)
|
85
|
|
Ending
balance
|
$67,355
|
$15,013
|
$11,087
|
$8,665
|
Non-performing
loans, which consist of non-accrual and renegotiated loans, increased $0.8
million from the second quarter to $82.4 million at September 30, 2009 or 2.35%
as a percent of total loans, and increased $46.1 million from December 31,
2008. The increase from December 31, 2008 in non-performing loans
reflects general deterioration of credit quality which has been most prevalent
in the commercial and residential real estate portfolios which have increased
$27.7 million and $13.0 million, respectively during the first nine months of
2009, but migration into non-accrual status and overall new loan delinquencies
have slowed since the first quarter. Commercial real estate and
residential real estate loans represent approximately 64% and 17%, respectively
of non-performing loans at September 30, 2009. Commercial real estate
has been impacted by rising vacancy rates and declining property values across
all classes of property particularly in the metropolitan markets of central and
southwestern Ohio. More residential real estate loans are experiencing
extended delinquency that requires them either to be renegotiated to avoid
foreclosure whenever possible, or placed on non-accrual even if they remain
adequately secured.
Renegotiated
loans at September 30, 2009 increased $10.5 million from December 31, 2008
primarily due to a modification of terms for several smaller commercial real
estate loans aggregating $3.7 million, residential real estate loans aggregating
$3.2 million, and two larger commercial real estate loans approximating $3.0
million. Although categorized as non-performing loans, most
renegotiated loans are accruing as they generally continue to perform in
accordance with their modified terms.
Total
impaired loans increased $46.0 million from December 31, 2008 to $93.5 million
at September 30, 2009. In addition, impaired loans with an allocated
allowance for loan losses increased $10.0 million from December 31, 2008 to
$32.3 million, reflecting the value of the underlying collateral associated with
these loans.
29
TABLE
11. LOANS ACCRUING INTEREST PAST DUE
September
30,
|
December
31,
|
||
(unaudited,
dollars in thousands)
|
2009
|
2008
|
|
Loans
past due 90 days or more:
|
|||
Commercial
and industrial
|
$ 1,196
|
$ 2,951
|
|
Commercial
real estate
|
722
|
2,951
|
|
Residential
real estate
|
4,442
|
10,799
|
|
Home
equity
|
588
|
966
|
|
Consumer
|
821
|
1,143
|
|
Total
loans past due 90 days or more
|
$ 7,769
|
$ 18,810
|
|
Loans
past due 30 to 89 days:
|
|||
Commercial
and industrial
|
$ 3,015
|
$ 3,485
|
|
Commercial
real estate
|
7,630
|
14,592
|
|
Residential
real estate
|
5,758
|
8,457
|
|
Home
equity
|
1,653
|
1,903
|
|
Consumer
|
6,777
|
7,169
|
|
Total
loans past due 30 to 89 days
|
$ 24,833
|
$ 35,606
|
|
Loans
past due 90 days or more and accruing/total loans
|
0.22%
|
0.52%
|
|
Loans
past due 30-89 days/total loans
|
0.71%
|
0.99%
|
The
decrease in loans past due reflected in the foregoing table are the result of
loans migrating to non-performing status as well as the decrease in early stage
delinquencies in recent months. Loans past due 90 days or more and
still accruing interest decreased $11.0 million from December 31, 2008 to
September 30, 2009 as a result of placing a number of residential real estate
loans that are 90 days or more past due on non-accrual even though the current
value of their collateral is generally sufficient to secure the
loans.
ALLOWANCE
FOR LOAN LOSSES
The
allowance for loan losses at September 30, 2009 increased $11.0 million to 1.73%
of total loans as compared to 1.38% at December 31, 2008, due to economic
conditions and other correlated factors that indicate a higher level of probable
but unconfirmed loss in all categories of loans. Net charge-offs
increased $12.7 million for the nine months ended September 30, 2009 compared to
the same period last year, primarily due to a $3.8 million charge-off on a loan
secured by a hotel, which has been transferred to other real estate owned, and a
$3.6 million charge-off on a commercial loan to an equipment leasing
company. See further discussion of net charge-offs within the
“Provision for Loan Losses” section of Management’s Discussion and
Analysis. Net annualized loan charge-offs to average loans were 1.58%
for the quarter ended September 30, 2009 compared to 0.55% for same period last
year, while net annualized loan charge-offs to average loans were 0.94% for the
nine month period ended September 30, 2009 compared to 0.46% for the same period
last year.
30
TABLE
12. ALLOWANCE FOR LOAN LOSSES
For
the Nine Months Ended
|
|||
|
September 30, | September 30, | |
(unaudited,
dollars in thousands)
|
2009
|
2008
|
|
Beginning
balance of allowance for loan losses
|
$ 49,803
|
$ 38,543
|
|
Provision
for loan losses
|
36,150
|
17,530
|
|
Charge-offs:
|
|||
Commercial
and industrial
|
7,588
|
2,774
|
|
Commercial
real estate
|
10,638
|
4,892
|
|
Residential
real estate
|
2,126
|
1,161
|
|
Home
equity
|
856
|
752
|
|
Consumer
|
4,493
|
4,437
|
|
Total
loan charge-offs
|
25,701
|
14,016
|
|
Deposit
account overdrafts
|
838
|
1,163
|
|
Total
loan and deposit account overdraft charge-offs
|
26,539
|
15,179
|
|
Recoveries:
|
|||
Commercial
and industrial
|
116
|
516
|
|
Commercial
real estate
|
147
|
427
|
|
Residential
real estate
|
71
|
54
|
|
Home
equity
|
12
|
43
|
|
Consumer
|
724
|
995
|
|
Total
loan recoveries
|
1,070
|
2,035
|
|
Deposit
account overdrafts
|
271
|
551
|
|
Total
loan and deposit account overdraft recoveries
|
1,341
|
2,586
|
|
Net
loan and deposit account overdraft charge-offs
|
25,198
|
12,593
|
|
Ending
balance of allowance for loan losses
|
$ 60,755
|
$ 43,480
|
|
Net
charge-offs as a percentage of average total loans:
|
|||
Commercial
and industrial
|
2.12%
|
0.62%
|
|
Commercial
real estate
|
0.79%
|
0.35%
|
|
Residential
real estate
|
0.34%
|
0.16%
|
|
Home
equity
|
0.50%
|
0.48%
|
|
Consumer
|
1.64%
|
1.32%
|
|
Total
loan charge-offs
|
0.92%
|
0.43%
|
|
Allowance
for loan losses as a percentage of total loans
|
1.73%
|
1.21%
|
|
Allowance
for loan losses to total non-performing loans
|
0.74x
|
1.26x
|
|
Allowance
for loan losses to total non-performing loans and loans past due 90 days
or more
|
0.67x
|
0.93x | |
Allowance
for loan losses to trailing twelve months' net charge-offs
|
1.80x
|
2.74x
|
The
allowance for loan losses provided coverage of 74% of non-performing loans at
September 30, 2009 compared to coverage of 126% at September 30,
2008. The decrease in this coverage ratio reflects an increase in
non-performing loans from $36.3 million at September 30, 2008 to $82.4 million
at September 30, 2009. Most non-performing loans have significant
amounts of collateral or other resources pledged as security for the loans;
therefore, a lower non-performing coverage ratio is not necessarily an
appropriate measure of the allowance for loan losses coverage but an indication
of the movement to non-performing quicker and not directly as a result of
insufficient collateral. The increase in non-performing loans
resulted in a $5.2 million increase in specific reserves pursuant to SFAS 114
since September 30, 2008. The remaining $12.1 million increase in the
allowance between September 30, 2008 and September 30, 2009 was equally
attributable to the impact of higher historical net charge-off rates and
management’s assessment of economic conditions in establishing the appropriate
allowance. The $60.8 million allowance at September 30, 2009
represented 180% of net charge-offs for the trailing twelve months ended
September 30, 2009 and 108% of annualized third quarter 2009 net
charge-offs.
31
Table 13
summarizes the allowance for loan losses allocated to each major segment of the
loan portfolio.
TABLE
13. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
September
30,
|
Percent
of
|
December
31,
|
Percent
of
|
||
(unaudited,
dollars in thousands)
|
2009
|
Total
|
2008
|
Total
|
|
Commercial
and industrial
|
$ 14,527
|
23.9%
|
$ 13,392
|
26.9%
|
|
Commercial
real estate
|
31,764
|
52.3%
|
24,723
|
49.6%
|
|
Residential
real estate
|
4,630
|
7.6%
|
3,304
|
6.6%
|
|
Home
equity
|
2,123
|
3.5%
|
1,371
|
2.8%
|
|
Consumer
|
6,673
|
11.0%
|
5,863
|
11.8%
|
|
Deposit
account overdrafts
|
1,038
|
1.7%
|
1,150
|
2.3%
|
|
Total
allowance for loan losses
|
$ 60,755
|
100.0%
|
$ 49,803
|
100.0%
|
|
Components
of the allowance for loan losses:
|
|||||
General
reserves
|
$ 51,036
|
$ 44,690
|
|||
Specific
reserves
|
9,719
|
5,113
|
|||
Total
allowance for loan losses
|
$ 60,755
|
$ 49,803
|
The
allowance for all categories of loans except deposit account overdrafts
increased from December 31, 2008 to September 30, 2009. The allowance for
commercial and industrial loans increased primarily due to the addition of a FAS
114 reserve on the balance of a loan to an equipment leasing company that was
not charged off. The allowances for commercial real estate, residential
real estate and home equity loans reflect general market conditions that have
resulted in decreased collateral values, increased non-performing loans and
higher net charge-offs. The allowance for consumer loans reflects recent
increases in unemployment in all markets.
Although
the allowance is allocated as described in Table 13, the total allowance is
available to absorb actual losses in any category of the loan portfolio along
with deposit account overdraft losses. Management believes the
allowance for loan losses is appropriate to absorb probable credit losses
associated with the loan portfolio and deposit overdrafts at September 30,
2009. In the event that management’s estimation of probable losses is
different from actual experience, future adjustments to the allowance may be
necessary to reflect differences between original estimates of loss in previous
periods and actual observed losses in subsequent periods.
DEPOSITS
TABLE
14. DEPOSITS
September
30,
|
December
31,
|
||||
(unaudited,
dollars in thousands)
|
2009
|
2008
|
$
Change
|
%
Change
|
|
Non-interest
bearing demand
|
$ 514,726
|
$ 486,752
|
$ 27,974
|
5.7%
|
|
Interest
bearing demand
|
467,085
|
429,414
|
37,671
|
8.8%
|
|
Money
market
|
678,099
|
479,256
|
198,843
|
41.5%
|
|
Savings
deposits
|
479,342
|
423,830
|
55,512
|
13.1%
|
|
Certificates
of deposit
|
1,866,256
|
1,684,664
|
181,592
|
10.8%
|
|
Total
deposits
|
$ 4,005,508
|
$ 3,503,916
|
$ 501,592
|
14.3%
|
Deposits,
which represent WesBanco’s primary source of funds, are offered in various
account forms at various rates through WesBanco’s 114 branches in West Virginia,
Ohio and Western Pennsylvania. Total deposits increased by $501.6
million or 14.3% during the nine months ended September 30, 2009 primarily due
to the AmTrust branch acquisition which provided $599.4 million of additional
deposits.
Certificates
of deposit and money market deposits increased by 10.8% and 41.5%, respectively,
during the nine months ended September 30, 2009 due primarily to the AmTrust
branch acquisition. Certificates of deposit and money market accounts
acquired through the branch acquisition were $381.7 million and $126.1 million
respectively. Non-interest bearing demand, interest bearing demand
and savings deposits increased by 5.7%, 8.8% and 13.1%, respectively, due to the
branch acquisition and corresponding marketing efforts. Over the last
two quarters an expected runoff of acquired, higher cost CDs has occurred as new
offerings are significantly below the current contractual rate from AmTrust’s
higher rate offerings in prior periods. Some of this runoff has
contributed to a remix into low cost money market and checking account
deposits.
WesBanco
does not typically solicit brokered or other deposits out-of-market or over the
internet, but does participate in the Certificate of Deposit Account Registry
Service (CDARS®) program, which had $127.8 million in total outstanding balances
at September 30, 2009, as compared to $89.1 million at December 31,
2008. Certificates of deposit of $100,000 or more were approximately
$662.6 million, while certificates of deposit totaling approximately $1.4
billion at September 30, 2009 are scheduled to mature within the next
year. WesBanco will continue to focus on its core deposit strategies
and improving its overall mix of transaction accounts to total deposits as well
as offering special promotions on certain certificates of deposit maturities and
savings products based on competition, sales strategies, liquidity needs and
wholesale borrowing costs.
32
BORROWINGS
TABLE
15. BORROWINGS
September
30,
|
December
31,
|
||||
(unaudited,
dollars in thousands)
|
2009
|
2008
|
$
Change
|
%
Change
|
|
Federal
Home Loan Bank borrowings
|
$ 567,939
|
$ 596,890
|
$ (28,951)
|
(4.9%)
|
|
Other
short-term borrowings
|
236,884
|
297,805
|
(60,921)
|
(20.5%)
|
|
Junior
subordinated debt owed to unconsolidated subsidiary trusts
|
111,175
|
111,110
|
65
|
0.1%
|
|
Total
borrowings
|
$ 915,998
|
$ 1,005,805
|
$ (89,807)
|
(8.9%)
|
Borrowings
are a significant source of funding for WesBanco, however, in the current yield
curve environment, certain borrowings may be more expensive than other available
funding sources including deposits. During the nine months ended September 30,
2009, WesBanco reduced Federal Home Loan Bank and other short-term borrowings,
including federal funds purchased, using the liquidity acquired in the AmTrust
transaction.
Other
short-term borrowings, which consist of federal funds purchased, securities sold
under agreements to repurchase and treasury tax and loan notes were $236.9
million at September 30, 2009 as compared to $297.8 million at December 31,
2008. The decrease in these borrowings have occurred primarily as a result of a
$32.0 million decrease in federal funds purchased and a $31.0 million decrease
in securities sold under agreements to repurchase, which was partially offset by
a $2.1 million increase in treasury tax and loan notes. Repayments
totaling $48.0 million were made on a revolving line of credit during the 2008
year. The revolving line of credit is a senior obligation of the
parent company that matured July 31, 2009. On September 16, 2009,
WesBanco renewed a line of credit with a correspondent bank. The
revolving line of credit, which accrues interest at an adjusted LIBOR rate,
provides for aggregated secured borrowings of up to $25.0
million. There were no outstanding balances as of September 30, 2009
or December 31, 2008.
CAPITAL
RESOURCES
On August
27, 2009 the Board of Directors of WesBanco declared a third quarter common
stock dividend of $0.14 per share, a 50% reduction in the quarterly dividend
rate as compared to the prior quarterly rate. The reduction was taken
to address the impact of the recession on earnings and to increase capital
internally by reducing the payout ratio. The dividend reduction will
better match dividends to current earnings opportunities.
Shareholders'
equity was $592.3 million at September 30, 2009 compared to $659.4 million at
December 31, 2008. Total equity decreased for the current nine month period due
to the repurchase from the U.S. Treasury of $75.0 million of preferred stock,
the declaration of common shareholder dividends of $18.6 million and $2.8
million in preferred dividends to the U.S. Treasury excluding the $2.3 million
unamortized discount on the preferred stock which had no effect on shareholders‘
equity. The decline was partially offset by net income during
the nine month period of $16.6 million and a $12.4 million change in other
comprehensive income. No common shares were repurchased during the
year to date period of 2009.
WesBanco
is subject to regulatory promulgated leverage and risk-based capital guidelines
that measure capital relative to risk-weighted assets and off-balance sheet
instruments. The Bank, as well as WesBanco maintain Tier 1, Total Capital and
Leverage ratios well above minimum regulatory levels. There are various legal
limitations under federal and state laws that limit the payment of dividends
from the Bank to WesBanco. As of September 30, 2009, under FDIC regulations,
WesBanco could receive, without prior regulatory approval, a dividend of up to
$12.9 million from the Bank. In May 2009, the Bank requested and
received regulatory approval from the FDIC and the West Virginia Department of
Banking for a dividend of $60 million that was in excess of the net profits
limitation of the Bank, which was paid in July 2009.
The
following table summarizes risk-based capital amounts and ratios for WesBanco
and the Bank for the periods indicated:
Minimum
|
Well
|
September
30, 2009
|
December
31, 2008
|
|||
(unaudited,
dollars in thousands)
|
Value
(1)
|
Capitalized (2)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
WesBanco,
Inc.
|
||||||
Tier
1 Leverage
|
4.00%(3)
|
N/A
|
$ 407,016
|
7.55%
|
$ 507,075
|
10.27%
|
Tier
1 Capital to Risk-Weighted Assets
|
4.00%
|
6.00%
|
407,016
|
10.95%
|
507,075
|
13.21%
|
Total
Capital to Risk-Weighted Assets
|
8.00%
|
10.00%
|
453,649
|
12.21%
|
555,084
|
14.46%
|
WesBanco
Bank, Inc.
|
||||||
Tier
1 Leverage
|
4.00%
|
5.00%
|
$ 382,484
|
7.13%
|
$ 456,882
|
9.28%
|
Tier
1 Capital to Risk-Weighted Assets
|
4.00%
|
6.00%
|
382,484
|
10.35%
|
456,882
|
11.99%
|
Total
Capital to Risk-Weighted Assets
|
8.00%
|
10.00%
|
428,874
|
11.60%
|
504,557
|
13.24%
|
(1)
Minimum requirements to remain adequately capitalized.
(2)
Well capitalized under prompt corrective action regulations.
(3)
Minimum requirement is 3% for certain highly-rated bank holding
companies.
33
LIQUIDITY
RISK
Liquidity
is defined as the degree of readiness to convert assets into cash with minimum
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 centrally monitored by WesBanco’s Asset/Liability 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 a primary function of WesBanco’s investment portfolio
management. Federal funds sold and U.S. Treasury and government agency
securities maturing within three months are classified as secondary reserve
assets. These secondary reserve assets, combined with the cash flow from the
loan portfolio and the remaining sectors of the investment portfolio, and other
sources, adequately meet the liquidity requirements of WesBanco.
Securities
are the principal source of short-term liquidity for WesBanco. The
first quarter branch acquisition provided an additional source of liquidity
through the assumption of $599.4 million in deposits, with the proceeds
currently invested in available-for-sale securities. Securities totaled $1,419.1
million at September 30, 2009, of which $1,417.7 million were classified as
available-for-sale, including unrealized gains of $36.0 million. At
September 30, 2009, WesBanco has approximately $10.6 million in securities
scheduled to mature within one year; however, additional cash flows may be
anticipated from approximately $225.9 million in callable bonds which have call
dates within the next year, from projected prepayments on mortgage-backed
securities and collateralized mortgage obligations, from loans scheduled to
mature within the next year of $617.4 million and normal monthly loan
repayments. At September 30, 2009, WesBanco had $87.3 million of cash
and cash equivalents, much of which serves as both operating cash for the
branches and an additional source of liquidity.
Deposit
flows are another principal factor affecting overall WesBanco liquidity.
Deposits totaled $4.0 billion at September 30, 2009. Deposit flows are impacted
by current interest rates, products and rates offered by WesBanco versus various
forms of competition, as well as customer behavior. Certificates of deposit
scheduled to mature within one year totaled $1.4 billion at September 30,
2009. In addition to the historically relatively stable core
deposit base, WesBanco maintains a line of credit with the FHLB as an additional
funding source. Available lines of credit with the FHLB at September 30, 2009
approximated $528.4 million, which is somewhat reduced from prior periods due to
FHLB of Pittsburgh collateral policy changes affecting the maximum borrowing
capacity calculation for its members. At September 30, 2009, WesBanco
had unpledged available-for-sale securities with a book value of $803.4 million,
a portion of which is an available liquidity source, or could be pledged to
secure additional FHLB borrowings. Alternative funding sources may
include the utilization of existing lines of credit with third party banks
totaling $150 million at September 30, 2009 along with seeking other lines of
credit, borrowings under repurchase agreement lines, increasing deposit rates to
attract additional funds, accessing brokered deposits, or selling securities
available for sale or certain types of loans.
In
July 2009, the FHLB began requiring securities to be specifically pledged to the
FHLB and maintained in a FHLB approved custodial arrangement if the member
wishes to include such securities in the maximum borrowings capacity
calculation. WesBanco has elected not to specifically pledge to the
FHLB otherwise unpledged securities. To increase its remaining
capacity, WesBanco can at any time decide to pledge a portion of its unpledged
securities to the FHLB.
The
principal sources of parent company liquidity are dividends from the Bank, a
total of $15.9 million in cash and investments on hand, and a $25 million
revolving line of credit with another bank, of which none was outstanding at
September 30, 2009. The original line of credit expired at the end of July 2009;
however, the line of credit has been renewed for $25 million from a
correspondent bank. WesBanco is in compliance with all loan
covenants. There are various legal limitations under federal and
state laws that limit the payment of dividends from the Bank to the parent
company. As of September 30, 2009, under FDIC regulations, WesBanco could
receive, without prior regulatory approval, dividends totaling $12.9 million
from the Bank. In May 2009, WesBanco requested and received
regulatory approval for a dividend of $60 million that was in excess of the net
profits limitation of the Bank, which enhanced parent company liquidity in July
and was used to repurchase preferred stock in September.
At
September 30, 2009, WesBanco had outstanding commitments to extend credit in the
ordinary course of business approximating $664.8 million, compared to $729.0
million at December 31, 2008. On a historical basis, only a small portion of
these commitments will result in an outflow of funds.
Management believes WesBanco has
sufficient current liquidity to meet current obligations to borrowers,
depositors and others.
34
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
disclosures set forth in this item are qualified by the section captioned
“Forward-Looking Statements” included in Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations, of this
report.
MARKET
RISK
The
primary objective of WesBanco’s Asset/Liability Committee (“ALCO”) is to
maximize net interest income within established policy parameters. This
objective is accomplished through the management of balance sheet composition,
market risk exposures arising from changing economic conditions and liquidity
risk.
Market
risk is defined as the risk of loss due to adverse changes in the fair value of
financial instruments resulting from 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. The relative 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 from various functional areas, 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
various assumptions, which change regularly as the balance sheet and market
interest rates change. The key assumptions and strategies employed
are analyzed bi-monthly and reviewed and documented by the ALCO.
The
earnings simulation model projects changes in net interest income resulting from
the effect of changes in interest rates. Modeling changes in net
interest income requires making certain assumptions regarding prepayment rates,
callable bonds, and adjustments to non-time deposit interest rates which may or
may not reflect the manner in which actual yields and costs respond to changes
in market interest rates. Prepayment assumptions and adjustments to
non-time deposit rates at varying levels of interest rates are based primarily
on historical experience and current market rates. Security portfolio maturities
and prepayments are assumed to be reinvested in similar instruments and callable
bond forecasts are adjusted at varying levels of interest
rates. While we believe such assumptions to be reasonable, there can
be no assurance that assumed prepayment rates, callable bond forecasts and
non-time deposit rate changes will approximate actual future results. Moreover,
the net interest income sensitivity chart presented in Table 1, “Net Interest
Income Sensitivity,” assumes the composition of interest sensitive assets and
liabilities existing at the beginning of the period remains constant over the
period being measured and also assumes that a particular change in interest
rates is reflected uniformly across the yield curve, regardless of the duration
of the maturity or repricing of specific assets and liabilities. Since the
assumptions used in the model relative to changes in interest rates are
uncertain, the simulation analysis should not be relied upon as being indicative
of projected results. The analysis may not consider all actions that
WesBanco would employ in response to changes in interest rates and various
earning asset and costing liability balances.
Management
is aware of the significant effect inflation/deflation may have upon interest
rates and ultimately upon financial performance. WesBanco’s ability
to cope with inflation/deflation is best determined by analyzing its capability
to respond to changing market interest rates, as well as its ability to manage
the various elements of noninterest income and expense during periods of
increasing or decreasing inflation/deflation. WesBanco monitors the
level and mix of interest-rate sensitive assets and liabilities through ALCO in
order to reduce the impact of inflation/deflation on net interest
income. Management also controls the effects of inflation/deflation
by conducting periodic reviews of the prices and terms of its various products
and services, both in terms of the costs to offer the services as well as
outside market influences upon such pricing, by introducing new products and
services or deleting or reducing the availability of existing products and
services, and by controlling overhead expenses.
Interest
rate risk policy limits are determined by measuring the anticipated change in
net interest income over a twelve month period assuming an immediate and
sustained 100 and 200 basis point increase or decrease in market interest rates
as compared to a stable rate environment or base model. WesBanco’s
current policy limits this exposure to a reduction of 5.0% and 12.5% or less,
respectively, of net interest income from the base model over a twelve month
period. Table 1, “Net Interest Income Sensitivity,” shows WesBanco’s
interest rate sensitivity at September 30, 2009 and December 31, 2008 assuming
both a 100 and 200 basis point interest rate change, compared to a base model,
except that due to current low interest rates, the 200 basis point decreasing
change is shown as not applicable, and instead a 300 basis point rising rate
environment is shown.
TABLE
1. NET INTEREST INCOME SENSITIVITY
Immediate
Change in
|
Percentage
Change in
|
||
Interest
Rates
|
Net
Interest Income from Base over One Year
|
ALCO
|
|
(basis
points)
|
September
30, 2009
|
December
31, 2008
|
Guidelines
|
+300
|
(8.9%)
|
(1.9%)
|
N/A
|
+200
|
(3.9%)
|
(0.5%)
|
-
12.5%
|
+100
|
0.4%
|
0.8%
|
-
5%
|
-100
|
(2.1%)
|
(3.5%)
|
-
5%
|
-200
|
N/A
|
N/A
|
-
12.5%
|
Interest
rates decreased rapidly over the past two years due to the severe economic
recession, but have been relatively flat on the short end for much of 2009, with
a current federal funds rate ranging from 0.0% to 0.25% and a discount rate of
0.50%, as targeted by the Federal Reserve Board’s Open Market Committee. Rates
are expected by most economists to remain substantially at such low levels for
the
35
remainder
of 2009 and for the first part of 2010 due to the current severe global
recession. A widening of the curve between short and longer term
interest rates in 2008, which remains so today, contributed to margin expansion
in 2008 due to the Bank’s liability sensitive balance sheet, as lower overall
funding costs more than offset lower loan and investment
rates. However, due to the continuing low rate environment, deposit
rate floors began to impact WesBanco in the first quarter of 2009 and, combined
with interest accrual reversals relating to increased levels of non-accrual
loans and investment of acquired funds from the AmTrust transaction in
relatively lower yielding securities in the second quarter, resulted in margin
compression in the first half of this year. As the cash received from the
acquisition of branch deposits was initially invested in short term money market
funds at very low starting rates until investments could be purchased throughout
the early part of the second quarter, a portion of the net interest margin
expansion in the third quarter from 3.17% in the second quarter to 3.35% was due
to having the investment strategy fully in place for the third quarter, but in
addition, funding costs dropped more rapidly in the third quarter than asset
yields as CDs continued to mature or re-price downward, favorably impacting the
mix of deposits, and certain borrowings including junior subordinated debt
re-priced at lower rates as well in the third quarter. While the net
interest margin for the nine month period of 2009 remains down as compared to
2008, at 3.32% for 2009 versus 3.69% last year, the more recent quarter over
quarter expansion assisted in providing an increase in net interest income for
the third quarter as compared to second quarter levels. Further borrowing
maturities in the fourth quarter should also assist in some near term margin
improvement.
The
earnings simulation model currently projects that net interest income for the
next twelve month period would decrease by 2.1% if interest rates were to fall
immediately by 100 basis points, compared to a decrease of 3.5%, for the same
scenario as of December 31, 2008. While a 200 basis point falling interest rate
scenario is unrealistic in the present interest rate environment, a decrease of
100 basis points in certain sectors of the interest rate curve is possible and
is shown above despite the historic low levels of U.S. Treasury and other
benchmark interest rates. Given the current rate environment, the Bank may not
have the ability to further lower certain deposit rates and other short term
funding rates. This is primarily due to the natural interest rate floors on
certain deposit types and competition throughout our markets from small and
large banks and thrifts. Also, certain term borrowings do not re-price in the
near future, thus increasing the overall cost of funds while the lower interest
rate environment continues.
Net
interest income would increase by 0.4% and decrease by 3.9% and 8.9% if rates
increased by 100, 200 and 300, basis points respectively, as compared to an
increase of 0.8%, and decreases of 0.5% and 1.9% at December 31, 2008 for the
same categories, reflecting a more significant liability sensitive position
whereby more liabilities are predicted to re-price or mature in the short run at
a faster pace than various asset types. The increase in liability sensitivity
between December 31, 2008 and September 30, 2009 was a result of certain changes
in balance sheet composition primarily due to an increase in securities as a
result of receiving funds from the AmTrust branch deposit purchase, and the run
off since acquisition of certificates of deposit primarily acquired in the
AmTrust purchase, which shortened the average maturity of deposits. The Bank has
significant additional borrowing capacity with the FHLB of Pittsburgh and from
other correspondent banks, and may utilize these funding sources to mitigate the
impact on our balance sheet of various term commercial and residential loans and
to shorten or lengthen liabilities to help offset mismatches in various asset
maturities.
As an
alternative to the immediate rate shock analysis, the ALCO monitors interest
rate risk by ramping or increasing interest rates 200 basis points gradually
over a twelve month period. WesBanco’s current policy limits this exposure to
5.0% of net interest income from the base model for a twelve month
period. Management believes that the ramping analysis reflects a more
realistic movement of interest rates, whereas the immediate rate shock reflects
a less likely scenario. The simulation model at September 30, 2009
using the 200 basis point increasing rate ramp analysis projects that net
interest income would increase 1.1% over the next twelve months, compared to a
0.7% increase at December 31, 2008.
WesBanco
also periodically measures the economic value of equity, which is defined as the
market value of equity in various increasing and decreasing rate
scenarios. At September 30, 2009, the market value of equity as a
percent of base in a 200 basis point rising rate environment would decrease 1.0%
as compared to an increase of 3.7% for the same increasing rate environment as
of December 31, 2008. WesBanco’s policy is to limit such change to a
decrease of 25% for a +/- 200 basis point change in interest rates, with the
decreasing 200 basis point rate environment not currently
applicable.
WesBanco’s
ALCO evaluates various strategies to reduce the exposure to interest rate
fluctuations including the utilization of derivative instruments to protect
against changes in interest rates and their impact on the value of certain
assets and liabilities or upon cash flows, although no such derivatives are
currently outstanding. The Bank also looks to periodically extend borrowing
terms with the FHLB and other parties, as it did in 2008. When reinvestment
rates and/or asset spreads are deemed unfavorable for new investments,
investment proceeds may be applied to maturing borrowings, or to fund available
loan demand. Another strategy is decreasing the level of WesBanco’s
fixed rate residential real estate loans maintained in the loan portfolio, by
allowing existing maturities to run off without replacement and selling most
newly-originated fixed rate loans into the secondary market under rate lock
commitments. From time to time, the ALCO may promote the offering of
special maturity, competitively priced term certificates of deposit to offset
runoff in other certificate categories and/or in money market deposit accounts,
and in certain markets, regionally pricing certain deposit types to increase
sales volume where competition is stronger or our market share is lower. The
Bank also is continuing a strategy of focusing its marketing efforts on the
generation of low-cost and non-interest bearing transaction accounts, and may
from time to time utilize the Certificate of Deposit Account Registry Service
(“CDARS®”) program as a replacement for non-renewed, particularly single service
certificate of deposit customers, or as an alternative to wholesale borrowing
sources. It is also currently anticipated that certain deposit types from the
AmTrust branch purchase will continue to run off due to competitive offerings in
the Columbus, Ohio market and our own desire to improve the overall deposit
profile and number of account relationships per customer in that market. In the
short run, it is likely the Bank will pay down maturing borrowings from
available proceeds from the investment portfolio and other short term funding
sources, continuing some shrinkage of the balance sheet in order to improve the
risk profile and capital position of both WesBanco and its bank
subsidiary.
36
ITEM
4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND
PROCEDURES— WesBanco’s Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”) have concluded that WesBanco’s disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended), based on their evaluation of these controls
and procedures as of the end of the period covered by this Form 10-Q, are
effective at the reasonable assurance level as discussed below to ensure that
information required to be disclosed by WesBanco in the reports it files under
the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission and that such information is
accumulated and communicated to WesBanco’s management, including its principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
LIMITATIONS ON THE EFFECTIVENESS OF
CONTROLS— WesBanco’s management, including the CEO and CFO, does not
expect that WesBanco’s disclosure controls and internal controls will prevent
all errors and all fraud. While WesBanco’s disclosure controls and procedures
are designed to provide reasonable assurance of achieving their objective, no
control system, no matter how well conceived and operated, can provide absolute
assurance that the objectives of the control system are met. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the controls.
CHANGES IN INTERNAL
CONTROLS—There were no changes in WesBanco’s internal control over
financial reporting that occurred during our fiscal quarter ended September 30,
2009 as required by paragraph (d) of Rules 13a-15 and 15d-15 under the
Securities Exchange Act of 1934, that materially affected, or are reasonably
likely to materially affect, WesBanco’s internal control over financial
reporting.
37
PART
II – OTHER INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
WesBanco
is involved in lawsuits, claims, investigations and proceedings which arise in
the ordinary course of business. There are no such matters pending that WesBanco
expects to be material in relation to its business, financial condition or
results of operations.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
As
of September 30, 2009, WesBanco had an active stock repurchase plan
in which up to one million shares can be acquired. The plan was approved by the
Board of Directors on March 21, 2007 and provides for shares to be purchased for
general corporate purposes, which may include potential acquisitions,
shareholder dividend reinvestment and employee benefit plans. The
timing, price and quantity of purchases are at the discretion of WesBanco, and
the plan may be discontinued or suspended at any time. There were no
open market repurchases during the first nine months of 2009.
The
following table presents the monthly share purchase activity
during the quarter ended September 30, 2009:
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of
Shares
Purchased as
Part
of Publicly Announced Plans
|
Maximum
Number of
Shares
that May Yet
Be
Purchased
Under
the Plans
|
Balance
at June 30, 2009
|
584,325
|
|||
July
1, 2009 to July 31, 2009
|
||||
Open
market repurchases
|
-
|
-
|
-
|
584,325
|
Other
transactions (1)
|
51,346
|
$ 15.16
|
N/A
|
N/A
|
August
1, 2009 to August 31, 2009
|
||||
Open
market repurchases
|
-
|
-
|
-
|
584,325
|
Other
transactions (1)
|
3,581
|
$ 16.77
|
N/A
|
N/A
|
September
1, 2009 to September 31, 2009
|
||||
Open
market repurchases
|
-
|
-
|
-
|
584,325
|
Other
transactions (1)
|
2,747
|
$ 15.31
|
N/A
|
N/A
|
Third
Quarter 2009
|
||||
Open
market repurchases
|
-
|
-
|
-
|
584,325
|
Other
transactions (1)
|
57,674
|
$ 15.27
|
N/A
|
N/A
|
Total
|
57,674
|
$ 15.27
|
-
|
584,325
|
(1)
Consists of open market purchases transacted in the KSOP and dividend
reinvestment plans.
38
ITEM
6. EXHIBITS
31.1
|
Chief
Executive Officer’s Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
31.2
|
Chief
Financial Officer’s Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
32.1
|
Chief
Executive Officer’s and 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.
|
39
SIGNATURES
Pursuant
to the requirements 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 5, 2009
|
/s/
Paul M. Limbert
|
|
Paul
M. Limbert
|
||
President
and Chief Executive Officer
(Principal
Executive Officer)
|
||
Date:
November 5, 2009
|
/s/
Robert H. Young
|
|
Robert
H. Young
|
||
Executive
Vice President and Chief Financial Officer
|
||
(Principal
Financial and Accounting Officer)
|
40