10-Q 1 0001.txt WESBANCO 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ------ AND EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ------ EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File Number 0-8467 WESBANCO, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) West Virginia 55-0571723 ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1 Bank Plaza, Wheeling, WV 26003 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) 304-234-9000 ---------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or, for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. WesBanco had 18,866,546 shares outstanding at July 31, 2000. 2 PART 1 - FINANCIAL INFORMATION ------------------------------ Consolidated Balance Sheets at June 30, 2000 and December 31, 1999, and Consolidated Statements of Income for the three and six-month periods ended June 30, 2000 and 1999, and Consolidated Statements of Changes in Shareholders' Equity and Consolidated Statements of Cash Flows for the six-months ended June 30, 2000 and 1999 are set forth on the following pages. In the opinion of management of the Registrant, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial information referred to above for such periods, have been made. The results of operations for the six-months ended June 30, 2000 are not necessarily indicative of what results may be attained for the entire year. For further information, refer to the 1999 Annual Report to Shareholders, which includes consolidated financial statements and footnotes thereto and WesBanco, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1999. 3 WESBANCO, INC. CONSOLIDATED BALANCE SHEET ------------------------------------------------------------------------------ (Unaudited, dollars in thousands, except per share amounts) June 30, December 31, 2000 1999 ----------- ----------- ASSETS Cash and due from banks $ 67,147 $ 67,166 Due from banks - interest bearing 527 4,653 Federal funds sold 21,600 9,535 Securities: Held to maturity (fair values of $201,264 and $211,009, respectively) 203,313 213,253 Available for sale, carried at fair value 337,405 354,675 ---------- ---------- Total securities 540,718 567,928 ---------- ---------- Loans, net of unearned income 1,570,799 1,523,446 Allowance for loan losses (20,209) (19,752) ---------- ---------- Net loans 1,550,590 1,503,694 ---------- ---------- Premises and equipment 55,619 56,201 Accrued interest receivable 14,805 15,661 Other assets 56,401 44,888 ---------- ---------- Total Assets $2,307,407 $2,269,726 ========== ========== LIABILITIES Deposits: Non-interest bearing demand $ 222,581 $ 216,574 Interest bearing demand 578,067 585,483 Savings deposits 267,509 274,052 Certificates of deposit 784,717 737,892 ---------- ---------- Total deposits 1,852,874 1,814,001 ---------- ---------- Other borrowings 175,087 173,453 Accrued interest payable 8,955 6,165 Other liabilities 13,370 6,443 ---------- ---------- Total Liabilities 2,050,286 2,000,062 ---------- ---------- SHAREHOLDERS' EQUITY Preferred stock, no par value, 1,000,000 shares authorized; none outstanding --- --- - Common stock, $2.0833 par value; 50,000,000 shares authorized; 20,996,531 shares issued 43,742 43,742 Capital surplus 59,857 60,133 Retained earnings 213,626 208,508 Treasury stock (1,941,322 and 1,206,606 shares, respectively, at cost) (51,012) (34,311) Accumulated other comprehensive loss (fair value adjustments) (8,108) (7,456) Deferred benefits for directors and employees (984) (952) ---------- ---------- Total Shareholders' Equity 257,121 269,664 ---------- ---------- Total Liabilities and Shareholders' Equity $2,307,407 $2,269,726 ========== ========== See Notes to Consolidated Financial Statements. 4 WESBANCO, INC. CONSOLIDATED STATEMENT OF INCOME ------------------------------------------------------------------------------ (Unaudited, dollars in thousands, except per share amounts) For the three months ended For the six months ended June 30, June 30, -------------------------- ------------------------ 2000 1999 2000 1999 ----------- ------------ ----------- ----------- INTEREST INCOME Loans, including fees $ 31,774 $ 28,713 $ 62,454 $ 57,085 Securities: Taxable 6,032 7,240 12,003 14,450 Tax-exempt 2,390 2,578 4,858 5,055 ----------- ----------- ---------- ----------- Total interest on securities 8,422 9,818 16,861 19,505 ----------- ----------- ---------- ----------- Federal funds sold 165 220 372 568 ----------- ----------- ---------- ----------- Total interest income 40,361 38,751 79,687 77,158 ----------- ----------- ---------- ----------- INTEREST EXPENSE Interest bearing demand deposits 5,276 4,361 10,329 8,505 Savings deposits 1,336 1,511 2,689 3,011 Certificates of deposit 10,679 9,624 20,776 19,467 ----------- ----------- ---------- ----------- Total interest on deposits 17,291 15,496 33,794 30,983 Other borrowings 2,025 1,554 3,991 2,949 ----------- ----------- ---------- ----------- Total interest expense 19,316 17,050 37,785 33,932 ----------- ----------- ---------- ----------- Net interest income 21,045 21,701 41,902 43,226 Provision for loan losses 880 1,290 1,447 2,696 ----------- ----------- ---------- ----------- Net interest income after provision for loan losses 20,165 20,411 40,455 40,530 ----------- ----------- ---------- ----------- NON-INTEREST INCOME Trust fees 2,848 2,586 5,967 5,353 Service charges on deposits 2,153 1,610 3,894 3,128 Other income 515 1,099 1,206 2,037 Net securities gains 221 124 217 239 Non-recurring income --- 3,479 --- 3,479 ----------- ----------- ---------- ----------- Total non-interest income 5,737 8,898 11,284 14,236 ----------- ----------- ---------- ----------- NON-INTEREST EXPENSE Salaries and wages 7,078 7,020 13,770 13,873 Employee benefits 1,121 1,809 2,635 3,641 Net occupancy 948 830 1,888 1,725 Equipment 1,534 1,511 3,137 3,142 Other operating 5,314 5,784 10,507 10,816 ----------- ----------- ---------- ----------- Total non-interest expense 15,995 16,954 31,937 33,197 ----------- ----------- ---------- ----------- Income before provision for income taxes 9,907 12,355 19,802 21,569 Provision for income taxes 3,226 4,335 6,191 6,732 ----------- ----------- ---------- ----------- Net Income $ 6,681 $ 8,020 $ 13,611 $ 14,837 =========== =========== ========== =========== Earnings per share $ 0.35 $ 0.40 $ 0.70 $ 0.73 Average shares outstanding 19,215,808 20,324,700 19,431,770 20,439,741 Dividends per share $ .225 $ .22 $ .445 $ .44
See Notes to Consolidated Financial Statements. 5 WESBANCO, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY ------------------------------------------------------------------------------ (Unaudited, dollars in thousands, except per share amounts) Accumulated Deferred Common Stock Other Benefits for ---------------------- Capital Retained Treasury Comprehensive Directors & Shares Amount Surplus Earnings Stock Income/(Loss) Employees Total ---------------------------------------------------------------------------------------------------------------------------------- December 31, 1998 20,660,235 $ 43,742 $ 60,283 $ 198,782 $ (9,421) $ 3,610 $ (513) $ 296,483 ---------------------------------------------------------------------------------------------------------------------------------- Net Income 14,837 14,837 Net fair value adjustment on securities available for sale - net of tax effect (7,484) (7,484) --------- Comprehensive income 7,353 Cash dividends ($.44 per share) (9,024) (9,024) Treasury shares purchased - net (766,561) 95 (22,507) (22,412) Stock issued for acquisition 422,916 (182) 12,153 11,971 KSOP borrowing (1,000) (1,000) Deferred benefits for directors - net (48) (48) ---------------------------------------------------------------------------------------------------------------------------------- June 30, 1999 20,316,590 $ 43,742 $ 60,196 $ 204,595 $ (19,775) $ (3,874) $ (1,561) $ 283,323 ================================================================================================================================== ---------------------------------------------------------------------------------------------------------------------------------- December 31, 1999 19,789,925 $ 43,742 $ 60,133 $ 208,508 $ (34,311) $ (7,456) $ (952) $ 269,664 ---------------------------------------------------------------------------------------------------------------------------------- Net Income 13,611 13,611 Net fair value adjustment on securities available for sale - net of tax effect (652) (652) ---------- Comprehensive income 12,959 Cash dividends ($.445 per share) (8,493) (8,493) Treasury shares purchased - net (734,716) (276) (16,701) (16,977) Deferred benefits for directors - net (32) (32) ---------------------------------------------------------------------------------------------------------------------------------- June 30, 2000 19,055,209 $ 43,742 $ 59,857 $ 213,626 $ (51,012) $ (8,108) $ (984) $ 257,121 ================================================================================================================================== Comprehensive income for the three-month periods ended June 30, 2000 and 1999 was $7,023 and $2,695, respectively.
See Notes to Consolidated Financial Statements. 6 WESBANCO, INC. CONSOLIDATED STATEMENT OF CASH FLOWS ----------------------------------------------------------------------------- (Unaudited, in thousands) Increase (Decrease) in Cash and Cash Equivalents For the six months ended June 30, ------------------------ 2000 1999 ----------- ---------- Cash Flows From Operating Activities: Net Income $ 13,611 $ 14,837 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,447 2,757 Net amortization and accretion 291 800 Provision for loan losses 1,447 2,696 Gain on sale of credit card portfolio --- (3,479) Gains on sales of securities - net (217) (239) Deferred income taxes (304) (429) Other - net (102) --- Net change in assets and liabilities: Interest receivable 856 37 Other assets and other liabilities 673 2,569 Interest payable 2,789 (739) ----------- ---------- Net cash provided by operating activities 21,491 18,810 ----------- ---------- Cash Flows From Investing Activities: Securities held to maturity: Proceeds from maturities and calls 10,327 32,164 Payments for purchases (488) (37,445) Securities available for sale: Proceeds from sales 9,273 28,394 Proceeds from maturities and calls 29,905 94,605 Payment for purchases (22,958) (76,696) Proceeds from the sale of credit cards --- 18,400 Purchase of subsidiary net of cash acquired --- 2,809 Net increase in loans (48,343) (63,008) Purchases of premises and equipment-net (1,764) (4,575) Purchases of bank-owned life insurance (4,400) --- ----------- ---------- Net cash used by investing activities (28,448) (5,352) ----------- ---------- Cash Flows From Financing Activities: Net increase in deposits 38,873 88 Increase in other borrowings 1,634 6,669 Dividends paid (8,653) (8,874) Purchases of treasury shares-net (16,977) (22,412) ----------- ---------- Net cash provided (used) by financing activities 14,877 (24,529) ----------- ---------- Net increase (decrease) in cash and cash equivalents 7,920 (11,071) Cash and cash equivalents at beginning of period 81,354 106,218 ----------- ---------- Cash and cash equivalents at end of period $ 89,274 $ 95,147 =========== ========== Supplemental Disclosures: Interest paid on deposits and other borrowings $ 34,996 $ 34,676 Income taxes paid 6,315 6,470 See Notes to Consolidated Financial Statements 7 WESBANCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------------------------------------------ Note 1 - Accounting policies ---------------------------- Basis of presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated financial statements include the accounts of WesBanco, Inc. ("the Corporation") and its wholly-owned subsidiaries. Significant intercompany transactions have been eliminated in consolidation. Business combinations: Business combinations, which have been accounted for under the purchase method of accounting, include the results of operations of the acquired business from the date of acquisition. Net assets of the companies acquired were recorded at their estimated fair value as of the date of acquisition. Cash and cash equivalents: For the purpose of reporting cash flows, cash and cash equivalents include cash and due from banks, due from banks - interest bearing and federal funds sold. Generally, federal funds are sold for one-day periods. Earnings per share: Basic earnings per share are calculated by dividing net income by the weighted average number of shares of common stock outstanding during each period. For diluted earnings per share, the weighted average number of shares for each period assumes the exercise of stock options. There was no dilutive effect from the stock options and accordingly, basic and diluted earnings per share are the same. 8 WESBANCO, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------------------------------------ The following discussion and analysis presents in further detail the financial condition and results of operations of WesBanco, Inc. and its subsidiaries. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes presented in this report. Certain information in Management's Discussion and other statements contained in this report, constitute forward-looking statements with respect to WesBanco and its subsidiaries. Such forward-looking statements involve known and unknown risks, uncertainties and other factors. Such statements are subject to factors that could cause actual results to differ materially from those contemplated by such statements including, without limitation, the effect of changing regional and national economic conditions; changes in interest rates; credit risks of business, real estate, and consumer lending activities; changes in federal and state regulations; the presence in the Corporation's market area of competitors; or other unanticipated external developments materially impacting the Corporation's operational and financial performance. Earnings Summary ---------------- Comparison of the six-months ended June 30, 2000 and 1999 --------------------------------------------------------- Net income for the six-months ended June 30, 2000 was $13.6 million or $.70 per share compared to $14.8 million or $.73 per share for the six-months ended June 30, 1999. Net income for the second quarter of 1999 included a gain of $3.5 million from the sale of WesBanco's credit card portfolio. This non-recurring gain (after-tax) contributed $.11 to net income per share for the six-months ended June 30, 1999. WesBanco's core earnings, which excludes amortization of goodwill, net securities gains and non-recurring items, for the six-months ended June 30, 2000 increased 8.4 % to $14.2 million compared to $13.1 million for the six-months ended June 30, 1999. Core earnings per share increased 14.1% to $.73 compared to $.64 for the same comparative period. Core earnings performance yielded an annualized return on average assets of 1.3% and a return on average equity of 10.9% for the six-months ended June 30, 2000 compared to a return on average assets of 1.2% and a return on average equity of 9.2% for the same period in 1999. Increases in trust revenue and deposit activity charges along with decreases in loan losses and non-interest expense for the same comparative period contributed to WesBanco's improved core earnings. These positive factors were partially offset by a decline in net interest income, reflecting continued competitive pricing pressure for both loans and deposits. 9 TABLE 1 AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS Three months ended June 30, Six months ended June 30, ----------------------------------------- --------------------------------------- 2000 1999 2000 1999 ------------------- ------------------- ------------------- ------------------ (dollars in thousands) Average Average Average Average Average Average Average Average Volume Rate Volume Rate Volume Rate Volume Rate -------------------- ------------------- ------------------- ------------------ ASSETS Loans, net of unearned income $1,550,229 8.24% $1,416,263 8.13% $1,539,213 8.16% $1,400,650 8.22% Securities: Taxable 370,583 6.51% 449,912 6.44% 373,198 6.43% 461,695 6.26% Tax-exempt 192,212 7.65% 204,925 7.74% 195,638 7.64% 202,416 7.68% -------------------- ------------------- ------------------- ------------------ Total securities 562,795 6.90% 654,837 6.85% 568,836 6.85% 664,111 6.69% Federal funds sold 10,787 6.15% 17,779 4.96% 12,475 6.00% 23,362 4.90% -------------------- ------------------- ------------------- ------------------ Total earning assets 2,123,811 7.89% 2,088,879 7.71% 2,120,524 7.81% 2,088,123 7.71% -------------------- ------------------- ------------------- ------------------ Other assets 156,784 157,239 151,103 150,072 ---------- ---------- ---------- ---------- Total Assets $2,280,595 $2,246,118 $2,271,627 $2,238,195 ========== ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing demand deposits $ 599,780 3.54% $ 533,521 3.28% $ 600,474 3.46% $ 526,235 3.26% Savings deposits 271,613 1.98% 304,027 1.99% 272,967 1.98% 304,738 1.99% Certificates of deposit 774,439 5.55% 726,128 5.32% 764,137 5.47% 730,290 5.38% -------------------- ------------------- ------------------- ------------------ Total interest bearing deposits 1,645,832 4.23% 1,563,676 3.97% 1,637,578 4.15% 1,561,263 4.00% Other borrowings 140,703 5.79% 140,669 4.43% 142,088 5.65% 138,907 4.28% -------------------- ------------------- ------------------- ------------------ Total interest bearing liabilities 1,786,535 4.35% 1,704,345 4.01% 1,779,666 4.27% 1,700,170 4.02% -------------------- ------------------- ------------------- ------------------ Other Liabilities and Equity 494,060 541,773 491,961 538,025 ---------- ---------- ---------- ---------- Total Liabilities and Shareholders' Equity $2,280,595 $2,246,118 $2,271,627 $2,238,195 ========== ========== ========== ========== Taxable equivalent net yield on earning assets 4.23% 4.45% 4.22% 4.44% ======== ======= ======= =======
Total loans are gross of allowance for loan losses, net of unearned income, and include loans held for sale. Nonaccrual loans were included in the average volume for the entire period. Loan fees included in interest on loans are not material. Average yields on securities available for sale have been calculated based on amortized cost. Taxable equivalent basis is calculated on tax-exempt securities using a tax rate of 35% for each year presented. TABLE 2 RATE/VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE Three months ended June 30, Six months ended June 30, 2000 compared to 1999 2000 compared to 1999 ----------------------------------- --------------------------------- (in thousands) Net Increase Net Increase Volume Rate (Decrease) Volume Rate (Decrease) ----------------------------------- ---------------------------------- Increase (decrease) in interest income: Loans, net of unearned income $ 2,673 $ 388 $ 3,061 $ 5,773 $ (404) $ 5,369 Taxable securities (1,356) 148 (1,208) (2,837) 390 (2,447) Tax-exempt securities (244) (46) (290) (259) (44) (303) Federal funds sold (100) 45 (55) (304) 108 (196) ----------------------------------- ---------------------------------- Total interest income change 973 535 1,508 2,373 50 2,423 ----------------------------------- ---------------------------------- Increase (decrease) in interest expense: Interest bearing demand deposits 559 356 915 1,271 553 1,824 Savings deposits (163) (12) (175) (305) (17) (322) Certificates of deposit 639 416 1,055 956 353 1,309 Other borrowings --- 471 471 70 972 1,042 ----------------------------------- ---------------------------------- Total interest expense change 1,035 1,231 2,266 1,992 1,861 3,853 ----------------------------------- ---------------------------------- Taxable equivalent net interest income increase (decrease) $ (62) $ (696) $ (758) $ 381 $ (1,811) $ (1,430) =================================== ================================== Decrease in taxable equivalent adjustment (101) (106) --------- --------- Net interest income decrease $ (657) $ (1,324) ========= =========
Changes to rate/volume are allocated to both rate and volume on a proportionate dollar basis. 10 Net Interest Income ------------------- As shown in Table 2, net interest income, on a taxable equivalent basis ("TE"), for the six-months ended June 30, 2000 declined $1.4 million or 3.2% compared to the same period in 1999. The decrease in net interest income was due to the declining net (TE) yield on average earning assets to 4.2% from 4.4% during the comparative period. Average interest bearing liabilities increased 4.7%, which was due to the growth of certificates of deposits and the competitively priced Prime Rate Money Market product between the comparable periods. Other factors affecting the average balance sheet between six-months ended June 30, 2000 and 1999 included the purchase acquisition of the Heritage Bank on April 30, 1999, which added earning assets of $29.2 million and interest bearing liabilities of $25.7 million and the sale of $15.2 million in credit card receivables on June 7, 1999. Market interest rates in general, are at higher levels during the current year compared to 1999. Similar to industry trends, the net yield on earning assets continued to decline due to competitive pricing pressure to adjust rates on loan and deposit products and a continued shifting of deposits into higher yielding products. Interest income (TE) increased $2.4 million or 3.0% between the six-months ended June 30, 2000 and 1999. As shown in Table 2, the majority of the increase in interest income (TE) for the comparative six-months ended June 30, 2000 and 1999 was due to increases in average loan volume. Average loan growth of $138.6 million or 9.9% was partially funded by decreases of $95.3 million and $10.9 million in securities and federal funds sold, respectively. This shifting of balances into higher yielding loan products contributed to the increase in the yield (TE) on average earning assets to 7.8% from 7.7%. The decrease in the average loan yield for the six-month comparable periods resulted from the sale of the credit card portfolio in June 1999. Interest expense increased $3.8 million or 11.4% between the six-months ended June 30, 2000 and 1999, resulting from an increase in the rates paid on average interest bearing liabilities to 4.3% from 4.0%. During this period of rising interest rates, average interest bearing liabilities grew 4.7% between comparative periods. Customers shifted savings balances into the competitively priced Prime Rate Money Market product and certificates of deposit. Average savings deposits decreased $31.8 million or 10.4% while average interest bearing demand deposits, which includes the Prime Rate Money Market product, increased $74.2 million or 14.1% and average certificates of deposit increased $33.8 million or 4.6%. As noted in Table 2, interest expense on other borrowings increased $1.0 million primarily due to an average rate increase to 5.7% from 4.3% during the comparative period. 11 Non-interest Income ------------------- Excluding non-recurring income, non-interest income for the six-months ended June 30, 2000 increased $1.4 million or 14.0% compared to the same period in 1999, resulting primarily from increases in trust fees and deposit activity charges. The continued strong growth in trust fees was attributed to increases in the number of accounts under administration; increases in investment advisory fees and an increase in the market value of trust assets. Activity charges on deposits increased $0.8 million while other income, consisting primarily of other banking fees and non-banking income, decreased $0.8 million. The decrease in other income was due to the reduction in credit card activity fees of approximately $0.7 million during the comparative period. The reduction was partially offset by an increase in non-bank subsidiary brokerage trading revenue of $0.3 million for the comparable periods. Non-interest Expense -------------------- Non-interest expense for the six-months ended June 30, 2000 decreased $1.3 million or 3.8% compared to the same period of 1999. The majority of the decrease occurred in employee benefits, which declined $1.0 million or 27.6% during the comparative period. This reduction resulted primarily from a decrease in post-retirement expenses and partially from the consolidation of WesBanco's four banking affiliates and mortgage company affiliate into a single bank. Average full-time equivalent employees decreased to 1,066 at June 30, 2000 from 1,107 at June 30, 1999. Net occupancy and equipment expense remained relatively stable during the comparative period, while other operating expenses decreased $0.3 million or 2.9%. The decrease in other operating expenses was primarily due to the reduction of credit card processing costs and the elimination of Year 2000 readiness costs that were incurred in 1999. 12 TABLE 3 Reconciliation of Income Tax Rates For the six months ended June 30, ------------------------ 2000 1999 ----------- ---------- Federal statutory tax rate 35% 35% Tax-exempt interest income from securities of states and political subdivisions (7) (7) State income tax - net of federal tax effect 4 4 All other - net (1) (1) ----------- ---------- Effective tax rate 31% 31% =========== ========== WesBanco's federal income tax returns for 1997 and 1996 were subject to an Internal Revenue Service ("IRS") examination during the first quarter of 1999. In the final report, the IRS disallowed certain tax deductions for acquisition-related expenses and disagrees with the timing of certain loan origination costs taken in those years. WesBanco relied in part on the rational of a Tax Court Case styled PNC Bancorp, Inc. v. Commissioner, 110 T.C. 349 (1998). This case was recently reversed on appeal by the taxpayer by the Court of Appeals (2000 U.S. App. Lexis 11084). WesBanco is waiting for the IRS to determine its position in light of the reversal of the decision. If the IRS's position is ultimately upheld, the projected impact on the results of operations is approximately $0.1 million. Financial Condition ------------------- Total assets of WesBanco were $2.3 billion as of June 30, 2000, which approximated total assets as of December 31, 1999. Total loans grew $47.4 million or 3.1% due primarily to competitive pricing of WesBanco's commercial, residential mortgages, home equity products and consumer loans during this six-month period. WesBanco experienced deposit growth of $38.9 million or 2.1%, during this six-month period, led by the growth in certificates of deposit and Prime Rate Money Market accounts. 13 TABLE 4 Composition of Securities June 30, December 31, (in thousands) 2000 1999 --------- ------------ Securities held to maturity (at amortized cost): ------------------------------------------------ U.S. Treasury and federal agency securities $ 10,350 $ 13,346 Obligations of states and political subdivisions 175,004 182,005 Other debt securities 17,959 17,902 ---------- ---------- Total securities held to maturity (fair value of $201,264 and $211,009, respectively) 203,313 213,253 ---------- ---------- Securities available for sale (at fair value): ---------------------------------------------- U.S. Treasury and federal agency securities 186,997 189,593 Obligations of states and political subdivisions 14,455 18,298 Corporate securities 3,040 3,068 Mortgage-backed and other debt securities 132,913 143,716 ---------- ---------- Total securities available for sale 337,405 354,675 ---------- ---------- Total securities $ 540,718 $ 567,928 ========== ========== Proceeds from the sale or maturity of securities represent a source of liquidity for WesBanco. During the six-months ended June 30, 2000, moderate deposit growth and proceeds from the sale and maturity of securities served as an additional source of funds for loan growth. Reflecting an increase in market interest rates, the fair value adjustment, before tax effect, in the available for sale securities portfolio reflected an unrealized net loss of $13.3 million as of June 30, 2000 compared to an unrealized net loss of $12.3 million as of December 31, 1999. These adjustments represent temporary market value fluctuations caused by general changes in market rates and the length of time to respective maturity dates. If these securities were held until their respective maturity date, no fair value adjustment would be realized. 14 TABLE 5 Composition of Loans June 30, December 31, (in thousands) 2000 1999 ----------- ----------- Commercial $ 530,954 $ 521,450 Real estate - construction 31,331 31,742 Real estate 657,263 630,939 Personal, net of unearned income 348,702 329,562 Loans held for sale 2,549 9,753 ----------- ----------- Loans, net of unearned income $ 1,570,799 $ 1,523,446 =========== =========== Loans, net of unearned income increased $47.4 million or 3.1% between June 30, 2000 and December 31, 1999. Loan growth, which occurred primarily in the commercial, real estate and personal loan categories, were partially offset by a decrease of $7.2 million in loans held for sale. Real estate loans increased steadily during the first half of 2000, led by WesBanco's home equity products and residential mortgage loan products. Personal loan growth, which occurred in indirect auto loans, was due to attractive pricing. TABLE 6 Non-performing, Classified and Loans Past Due 90 Days or More June 30, December 31, (in thousands) 2000 1999 ---------- ------------ Nonaccrual loans $ 4,706 $ 4,158 Renegotiated loans --- 813 Other classified loans (1) 8,159 8,706 ---------- --------- Total non-performing and classified loans 12,865 13,677 Other real estate owned 4,024 3,512 ---------- --------- Total non-performing and classified assets $ 16,889 $ 17,189 ========== ========= Loans past due 90 days or more $ 4,078 $ 6,032 ========== ========= (1) Includes loans internally classified as doubtful and substandard that meet the definition of impaired loans. 15 WesBanco's continued improvement in the level and trend of non-performing and classified assets, which decreased $0.3 million in comparison to December 31, 1999. Non-performing and classified assets as a percentage of total loans and other real estate owned reflects this improvement, reducing to 1.07% as of June 30, 2000 from 1.13% as of December 31, 1999. The improving trend between June 30, 2000 and December 31, 1999 resulted primarily from the reclassification of two commercial loans totaling $0.8 million from renegotiated to a performing loan status. This trend was partially offset by the reclassification of three real estate loans totaling $0.5 million from a performing loan status to other real estate owned due to foreclosures during the second quarter of 2000. WesBanco monitors the overall quality of its loan portfolio through various methods. Underwriting policies and guidelines have been established for all types of credits and management continually monitors the portfolio for adverse trends in delinquent and non-performing loans. Loans are considered impaired when it is determined that WesBanco may not be able to collect all principal and interest due according to the contractual terms of the loans. All loans considered impaired are included in non-performing loans. Specific allowances for loan losses are allocated for impaired loans based on the present value of expected future cash flows, or a fair value of the collateral for loans that are collateral dependent. Lending by WesBanco is guided by written lending policies, which allow for various types of lending. Normal lending practices do not include the acquisition of high yield non-investment grade loans or "highly leveraged transactions" ("HLT") from outside the primary market. TABLE 7 Allowance for Loan Losses For the six months ended June 30, (in thousands) ------------------------ 2000 1999 ----------- ---------- Balance, at beginning of period $ 19,752 $ 19,098 Allowance for loan losses of acquired bank --- 193 Allowance for loan losses allocated to credit cards --- (450) Charge-offs (1,667) (3,025) Recoveries 677 730 ----------- --------- Net charge-offs (990) (2,295) Provision for loan losses 1,447 2,696 ----------- --------- Balance, at end of period $ 20,209 $ 19,242 =========== ========= 16 The allowance for loan losses is maintained at a level considered adequate by management. Amounts allocated to the allowance for loan losses are based upon management's evaluation of the credit risk in the loan portfolio. While management has allocated the allowance for loan losses to each loan category, the allowance is general in nature and available for the loan portfolio in its entirety. The allowance for loan losses as a percentage of total loans remained at 1.3% as of June 30, 2000 compared to June 30, 1999. The decline in the level of net charge-offs for the comparative six-month periods was due to the sale of WesBanco's credit card portfolio in June 1999 and loans charged-off from an acquired financial institution during the first six months of 1999. WesBanco decreased the allowance for loan losses by $0.45 million, representing a portion of the allowance allocated to the credit card portfolio. The provision for loan losses is based on periodic management evaluation of the loan portfolio as well as prevailing economic conditions, net loans charged off, past loan loss experience, current delinquency factors, changes in the character of the loan portfolio, specific problem loans and other factors. Deposits and Other Borrowings ----------------------------- Deposits increased $38.9 million or 2.1% between June 30, 2000 and December 31, 1999, reflecting growth in certificates of deposits and Prime Rate Money Market accounts. This growth was partially offset by reductions in savings and NOW account balances. This shifting of funds reflects our customer's preference for a variety of competitively priced deposit alternatives in this period of rising interest rates. Other borrowings, which include repurchase agreements, Federal funds purchased and Federal Home Loan Bank borrowings, representing a source of funds during this year-to-date period, increased $1.6 million or 0.9%. Repurchase agreements increased $13.7 million while Federal funds purchased decreased $22.0 million and Federal Home Bank borrowings increased $9.9 million, respectively, for the six-months ended June 30, 2000. WesBanco's increased reliance on Federal Home Loan Bank borrowings was due to a combination of loan growth in excess of deposit growth and stock repurchase funding for the six-month period. 17 Liquidity and Capital Resources ------------------------------- WesBanco manages its liquidity position to meet its funding needs, including potential deposit outflows and loan principal disbursements, and to meet its asset and liability management objectives. In addition to funds provided from operations, WesBanco's primary sources of funds are deposits, principal repayments on loans and matured or called securities. Scheduled loan repayments and maturing securities are relatively predictable sources of funds. However, deposit flows and prepayments on loans can be significantly influenced by changes in market interest rates, economic conditions, and competition. WesBanco strives to manage the pricing of its deposits to maintain a balance of cash flows commensurate with loan commitments and other funding needs. Shareholders' equity decreased $12.5 million between June 30, 2000 and December 31, 1999, resulting from the acquisition of treasury stock and the after-tax fair value adjustment on securities available for sale. As of July 31, 2000, 439,399 shares of WesBanco common stock have been repurchased under the stock repurchase program, which began on May 1, 2000. Up to one million shares of WesBanco common stock may be purchased under the program. The timing, price and quantity of purchases are at the discretion of the Corporation and the program may be discontinued or suspended at anytime. TABLE 8 Capital Adequacy Ratios June 30, December 31, 2000 1999 -------- ----------- Tier I capital 14.7% 15.7% Total risk-based capital 16.0% 17.0% Leverage 10.8% 11.3% WesBanco is subject to risk-based capital guidelines that measure capital relative to risk-adjusted assets and off-balance sheet financial instruments. As shown in Table 8, the Corporation's Tier I, total risk-based capital and leverage ratios are well above the required minimum levels of 4%, 8% and 4%, respectively. At June 30, 2000 and December 31, 1999, WesBanco's affiliate bank, WesBanco Bank, Inc., also exceeded the minimum regulatory levels. 18 Earnings Summary ---------------- Comparison of the three-months ended June 30, 2000 and 1999 ----------------------------------------------------------- Net income for the three-months ended June 30, 2000 was $6.7 million or $.35 per share compared to $8.0 million or $.40 per share for the three-months ended June 30, 1999. Net income for the second quarter of 1999 included a gain of $3.5 million from the sale of WesBanco's credit card portfolio. This non-recurring gain (after-tax) contributed $.11 to net income per share for the three-months ended June 30, 1999. WesBanco's core earnings, which excludes amortization of goodwill, net securities gains and non-recurring items, for the three-months ended June 30, 2000 increased 15.4% to $7.0 million compared to $6.0 million for the three- months ended June 30, 1999. Core earnings per share increased 20.0% to $.36 compared to $.30 for the same comparative period. Core earnings performance yielded an annualized return on average assets of 1.3% and a return on average equity of 10.9% for the three-months ended June 30, 2000 compared to a return on average assets of 1.2% and a return on average equity of 8.5% for the same period in 1999. Increases in trust fees along with deposit activity charges and decreases in loan losses and non-interest expense for the same comparative period contributed to WesBanco's improved core earnings. These positive factors were partially offset by a decline in net interest income, reflecting continued competitive pricing pressure for both loans and deposits. Net Interest Income ------------------- As shown in Table 2, net interest income, on a taxable equivalent basis ("TE"), for the three-months ended June 30, 2000 decreased $0.8 million or 3.3% compared to the same period in 1999. The decrease in net interest income was due to the declining net (TE) yield on average earning assets to 4.2% from 4.5% during the comparative period. Competitive pricing pressure for loan and deposit products and a continued shifting of deposits into higher yielding products has resulted in a narrowing spread. Interest income (TE) increased $1.5 million or 3.8% between the three-months ended June 30, 2000 and 1999, reflecting an increase in the yield (TE) on average earning assets to 7.9% from 7.7%. As shown in Table 2, average volume increases of $1.0 million or 1.7% and average rate increases of $0.5 million or 2.3% favorably impacted interest income (TE) during the comparative period. Other factors affecting the average balance sheet for the comparative period included the purchase acquisition of the Heritage Bank in April 1999 and the sale of the credit card receivables in June 1999. Interest expense increased $2.3 million or 13.3% between the three-months ended June 30, 2000 and 1999, resulted primarily from an increase in the rates paid on average interest bearing liabilities to 19 4.4% from 4.0%. As presented in Table 2, a combination of average volume and average rate caused interest expense to increase for the comparative period. Competitive pressure to increase rates on deposit products coupled with the continued shifting of deposits into higher yielding products has resulted in a higher cost of funds during this period of rising interest rates. Non-interest Income ------------------- Excluding non-recurring income, non-interest income for the three-months ended June 30, 2000 increased $0.2 million or 4.2% compared the same period in 1999, resulting primarily from increases in trust fees and deposit activity charges. Trust fees increased $0.3 million or 10.1% while deposit activity charges increased $0.5 million or 33.7% for the three-months ended June 30, 2000 compared to the same period in 1999. The decrease in other income was due to the reduction in credit card activity fees of approximately $0.4 million between the comparative periods. The reduction was partially offset by an increase in brokerage trading revenue of $0.2 million between the comparable periods. Non-interest Expense -------------------- Non-interest expense for the three-months ended June 30, 2000 decreased $1.0 million or 6.0% compared to the same period of 1999. The majority of the decrease occurred in employee benefits, which declined $0.7 million or 38.0% during the comparative period. This reduction resulted primarily from a decrease in post-retirement expenses and partially from the consolidation of WesBanco's four banking affiliates and mortgage company affiliate into a single bank. Net occupancy and equipment expense increased $0.2 million or 6.0% while other operating expenses decreased $0.5 million or 8.1% between the comparable periods. The decrease in other operating expenses was primarily due to the reduction of credit card processing costs and the elimination of Year 2000 readiness costs that were incurred in 1999. Forward-Looking Statements -------------------------- Balance sheet: -------------- During the remainder of 2000, management expects moderate loan and deposit growth. Recent increases in interest rates by the Federal Reserve are expected to result in a softening of real estate, commercial and personal loan growth. Deposit growth and increases in other borrowings should fund new loan demand. The shift in the composition of deposits is expected to continue, reflecting our customer's preference for competitively priced certificates of deposits and Prime Rate Money Market accounts. 20 Statement of income: -------------------- Net interest income: During the remainder of 2000 the positive effects of this growth on net interest income could be mitigated by changing interest rates and competitive pressure to make interest rate adjustments on loans and deposits. If interest rates continue to rise, net interest income may be negatively affected. Non-interest income and expense: For the remainder of 2000, management expects trust fees and non-banking income to exceed prior year levels. Growth in trust fees should reflect increases in the number of accounts under administration; increases in investment advisory fees and an increase in the market value of trust assets. Non-banking income will be positively impacted by an increase in brokerage fees associated with WesBanco Securities, Inc. The growth in these non-interest income categories will be partially offset by a decrease in loan origination fees from mortgage lending activities. For the remainder of 2000, management expects non-interest expense to decrease compared to prior year levels. The expected reduction in non-interest expense, will result from the consolidation of WesBanco's four banking affiliates and mortgage company affiliate into a single bank and the elimination of Year 2000 readiness costs incurred in 1999. These factors will be partially offset by the cost of technology-related projects such as a check imaging system, an on-line teller system and Internet banking. Quantitative and Qualitative Disclosures about Market Risk ---------------------------------------------------------- Through June 30, 2000, there have been no material changes to the information on this topic as presented in the 1999 Annual Report. 21 Part II - OTHER INFORMATION --------------------------- Item 1 - Legal Proceedings -------------------------- Wesbanco Bank, Inc. is a Defendant in a case styled Travelers v. Wesbanco Bank Wheeling and Coopers & Lybrand, under Civil Action No. 98-C-225, presently pending in the Circuit Court of Ohio County, West Virginia. In this action, Travelers, as subrogee of Wheeling-Nisshin, seeks to recover certain losses incurred by it over the embezzlement of funds by a former financial officer of Wheeling-Nisshin. The losses were generated through forged checks. Travelers has sued the Bank alleging a violation of the properly payable rule of the Uniform Commercial Code, even though the officer involved was a designated financial officer of Wheeling-Nisshin, reconciled checking accounts and had access to facsimile signatures used by Wheeling-Nisshin. The bank believes that it has a substantial defense to the claims of Travelers and is vigorously defending the case. The claimed losses are equivalent to the amount of the loss incurred by Travelers, $750,000.00, plus interest. The bank filed a Motion to Dismiss the case which was granted by the Court on June 7, 2000, dismissing the Bank. Travelers has filed a Motion asking the Court to reconsider the ruling which is now pending before the Court. A Declaratory Judgment suit was filed on behalf of Wesbanco Bank Parkersburg in the United States District Court for the Southern District of West Virginia, under Civil Action No. 6:98-097, seeking to determine the benefits payable to certain former employees under an executive supplemental income plan maintained by several former affiliate banks of Commercial BancShares, Incorporated acquired by Wesbanco on March 31, 1998. The Complaint seeks a determination of the rights of the participants under this supplemental benefit plan. The Bank believes that it has correctly interpreted and applied the benefit plan in accordance with the terms of the plan and has relied upon the recommendations of its third party administrator in making such determinations. Certain named former employees who are participants in the plan have filed a counterclaim asserting a different interpretation of the plan. The proposed interpretation by the former employees would increase the benefit cost significantly. Discovery is now complete and the case has been submitted to the Court on Summary Judgement Motions. A decision should be rendered by the tax Court in the near future. Item 3, 5 - Not Applicable -------------------------- Item 6(a) - Exhibits -------------------- 27 - Financial Data Schedule required by Article 9 of Regulation S-X. Item 6(b) - Reports on Form 8-K ------------------------------- The Registrant filed no current reports on Form 8-K during the quarter ended June 30, 2000. 22 SIGNATURES ---------- Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WESBANCO, INC. -------------- /s/ Edward M. George Date: August 11, 2000 ----------------------------------- ------------------ Edward M. George President and Chief Executive Officer /s/ Paul M. Limbert Date: August 11, 2000 ----------------------------------- ------------------ Paul M. Limbert Executive Vice President and Chief Financial Officer