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 September 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 18,715,335 shares outstanding at October 31, 2000. 2 PART 1 - FINANCIAL INFORMATION ------------------------------ Consolidated Balance Sheets at September 30, 2000 and December 31, 1999, and Consolidated Statements of Income for the three and nine-month periods ended September 30, 2000 and 1999, and Consolidated Statements of Changes in Shareholders' Equity and Consolidated Statements of Cash Flows for the nine-months ended September 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 nine-months ended September 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) September 30, December 31, 2000 1999 ------------- ------------ ASSETS Cash and due from banks $ 67,672 $ 67,166 Due from banks - interest bearing 413 4,653 Federal funds sold 5,000 9,535 Securities: Held to maturity (fair values of $196,923 and $211,009, respectively) 197,569 213,253 Available for sale, carried at fair value 336,528 354,675 ------------ ------------ Total securities 534,097 567,928 ------------ ------------ Loans, net of unearned income 1,581,037 1,523,446 Allowance for loan losses (20,142) (19,752) ------------ ------------ Net loans 1,560,895 1,503,694 ------------ ------------ Premises and equipment 54,454 56,201 Accrued interest receivable 15,796 15,661 Other assets 54,658 44,888 ------------ ------------ Total Assets $ 2,292,985 $ 2,269,726 ============ ============ LIABILITIES Deposits: Non-interest bearing demand $ 213,502 $ 216,574 Interest bearing demand 591,417 585,483 Savings deposits 258,715 274,052 Certificates of deposit 792,783 737,892 ------------ ------------ Total deposits 1,856,417 1,814,001 ------------ ------------ Other borrowings 158,467 173,453 Accrued interest payable 10,365 6,165 Other liabilities 12,958 6,443 ------------ ------------ Total Liabilities 2,038,207 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 59,761 60,133 Retained earnings 215,845 208,508 Treasury stock (2,269,413 and 1,206,606 shares, respectively, at cost) (58,699) (34,311) Accumulated other comprehensive loss (fair value adjustments) (4,879) (7,456) Deferred benefits for directors and employees (992) (952) ------------ ------------ Total Shareholders' Equity 254,778 269,664 ------------ ------------ Total Liabilities and Shareholders' Equity $ 2,292,985 $ 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 nine months ended September 30, September 30, -------------------------- ------------------------- 2000 1999 2000 1999 ----------- ------------ ------------ ----------- INTEREST INCOME Loans, including fees $ 32,793 $ 29,672 $ 95,247 $ 86,757 Securities: Taxable 5,925 6,617 17,928 21,067 Tax-exempt 2,366 2,594 7,224 7,649 --------- --------- --------- --------- Total interest on securities 8,291 9,211 25,152 28,716 --------- --------- --------- --------- Federal funds sold 489 180 861 748 --------- --------- --------- --------- Total interest income 41,573 39,063 121,260 116,221 --------- --------- --------- --------- INTEREST EXPENSE Interest bearing demand deposits 5,456 4,606 15,785 13,111 Savings deposits 1,314 1,496 4,003 4,507 Certificates of deposit 11,437 9,524 32,213 28,991 --------- --------- --------- --------- Total interest on deposits 18,207 15,626 52,001 46,609 Other borrowings 2,686 1,716 6,677 4,665 --------- --------- --------- --------- Total interest expense 20,893 17,342 58,678 51,274 --------- --------- --------- --------- Net interest income 20,680 21,721 62,582 64,947 Provision for loan losses 732 679 2,179 3,375 --------- --------- --------- --------- Net interest income after provision for loan losses 19,948 21,042 60,403 61,572 --------- --------- --------- --------- NON-INTEREST INCOME Trust fees 2,698 2,334 8,665 7,687 Service charges on deposits 2,095 1,814 5,989 4,942 Other income 606 583 1,812 2,620 Net securities gains 25 77 242 316 Non-recurring income --- 82 --- 3,561 --------- --------- --------- --------- Total non-interest income 5,424 4,890 16,708 19,126 --------- --------- --------- --------- NON-INTEREST EXPENSE Salaries and wages 7,024 7,419 20,794 21,292 Employee benefits 1,419 1,766 4,054 5,407 Net occupancy 933 865 2,821 2,590 Equipment 1,725 1,493 4,862 4,635 Other operating 5,159 5,531 15,666 16,347 --------- --------- --------- --------- Total non-interest expense 16,260 17,074 48,197 50,271 --------- --------- --------- --------- Income before provision for income taxes 9,112 8,858 28,914 30,427 Provision for income taxes 2,724 2,706 8,915 9,438 --------- --------- --------- --------- Net Income $ 6,388 $ 6,152 $ 19,999 $ 20,989 ========= ========= ========= ========= Earnings per share $ 0.34 $ 0.30 $ 1.04 $ 1.03 Average shares outstanding 18,846,117 20,143,848 19,235,127 20,340,026 Dividends per share $ .225 $ .22 $ .67 $ .66
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) $296,483 ------------------------------------------------------------------------------------------------------------------------ Net Income 20,989 20,989 Net fair value adjustment on securities available for sale-net of tax effect (8,718) (8,718) --------- Comprehensive income 12,271 Cash dividends ($.66 per share) (13,533) (13,533) Treasury shares purchased-net (1,089,297) 116 (31,792) (31,676) Stock issued for acquisition 422,916 (182) 12,153 11,971 KSOP (1,000) (1,000) Deferred benefits for directors-net (71) (71) ------------------------------------------------------------------------------------------------------------------------ September 30, 1999 19,993,854 $43,742 $60,217 $206,238 $(29,060) $(5,108) $(1,584) $274,445 ======================================================================================================================== ------------------------------------------------------------------------------------------------------------------------ December 31, 1999 19,789,925 $43,742 $60,133 $208,508 $(34,311) $(7,456) $ (952) $269,664 ------------------------------------------------------------------------------------------------------------------------ Net Income 19,999 19,999 Net fair value adjustment on securities available for sale-net of tax effect 2,577 2,577 --------- Comprehensive Income 22,576 Cash dividends ($.67 per share) (12,662) (12,662) Treasury shares purchased-net (1,062,807) (372) (24,388) (24,760) Deferred benefits for directors-net (40) (40) ------------------------------------------------------------------------------------------------------------------------ September 30, 2000 18,727,118 $43,742 $59,761 $215,845 $(58,699) $(4,879) $ (992) $254,778 ========================================================================================================================
Comprehensive income for the three-month periods ended September 30, 2000 and 1999 was $9,617 and $4,918, respectively. See Notes to Consolidated Financial Statements. 6 WESBANCO, INC. CONSOLIDATED STATEMENT OF CASH FLOWS ----------------------------------------------------------------------------- (Unaudited, in thousands) For the nine months ended Increase (Decrease) in Cash and Cash Equivalents September 30, ------------------------- 2000 1999 ------------ ----------- Cash Flows From Operating Activities: Net Income $ 19,999 $ 20,989 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,703 4,155 Net amortization and accretion 354 1,117 Provision for loan losses 2,179 3,375 Gain on sale of credit card portfolio --- (3,561) Gains on sales of securities-net (242) (316) Deferred income taxes (218) (854) Other-net (107) (3) Net change in: Interest receivable (135) (804) Other assets and other liabilities (79) 988 Interest payable 4,200 (815) ----------- ----------- Net cash provided by operating activities 28,654 24,271 ----------- ----------- Cash Flows From Investing Activities: Securities held to maturity: Proceeds from maturities and calls 16,011 34,841 Payments for purchases (475) (45,623) Securities available for sale: Proceeds from sales 17,243 44,103 Proceeds from maturities and calls 40,915 111,447 Payment for purchases (35,715) (83,344) Proceeds from the sale of credit cards --- 18,789 Purchase of subsidiary net of cash acquired --- 2,809 Net increase in loans (59,380) (107,197) Purchases of premises and equipment-net (848) (7,031) Purchase of bank-owned life insurance (4,400) --- ----------- ----------- Net cash used by investing activities (26,649) (31,206) ----------- ----------- Cash Flows From Financing Activities: Net increase (decrease) in deposits 42,416 (1,002) Increase (decrease) in other borrowings (14,986) 33,720 Dividends paid (12,944) (13,379) Purchases of treasury shares-net (24,760) (31,676) ----------- ----------- Net cash used by financing activities (10,274) (12,337) ----------- ----------- Net decrease in cash and cash equivalents (8,269) (19,272) Cash and cash equivalents at beginning of period 81,354 106,218 ----------- ----------- Cash and cash equivalents at end of period $ 73,085 $ 86,946 =========== =========== Supplemental Disclosures: Interest paid on deposits and other borrowings $ 54,478 $ 51,974 Income taxes paid 9,335 9,235 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 nine-months ended September 30, 2000 and 1999 --------------------------------------------------------------- Net income for the nine-months ended September 30, 2000 was $20.0 million or $1.04 per share compared to $21.0 million or $1.03 per share for the nine-months ended September 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 contributed $.11 to net income per share for the nine-months ended September 30, 1999. WesBanco's core earnings, which excludes amortization of goodwill, net securities gains and non-recurring items, for the nine-months ended September 30, 2000 were $20.9 million or $1.09 per share compared to $19.5 million or $.96 per share for the nine-months ended September 30, 1999, a 13.5% increase in core earnings per share. Core earnings performance reflected a return on average assets of 1.2% and a return on average equity of 10.8% for the nine-months ended September 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. WesBanco's improved core earnings were primarily due to decreases in non-interest expense and loan loss provision and increases in trust revenue and deposit activity charges. 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 September 30, Nine months ended September 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 $1,570,826 8.31% $1,457,175 8.10% $1,549,828 8.21% $1,419,698 8.17% Securities: Taxable 362,645 6.53% 413,804 6.40% 369,648 6.47% 450,688 6.23% Tax-exempt 187,511 7.77% 208,960 7.64% 192,910 7.68% 204,621 7.67% ------------------- ------------------- ------------------- ------------------- Total securities 550,156 6.95% 622,764 6.81% 562,558 6.88% 655,309 6.68% Federal funds sold 28,804 6.76% 13,949 5.13% 17,958 6.40% 20,189 4.95% ------------------- ------------------- ------------------- ------------------- Total earning assets 2,149,786 7.94% 2,093,888 7.67% 2,130,344 7.84% 2,095,196 7.68% ------------------- ------------------- ------------------- ------------------- Other assets 160,106 163,704 154,328 149,104 ----------- ----------- ----------- ----------- Total Assets $2,309,892 $2,257,592 $2,284,672 $2,244,300 =========== =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing demand deposits $ 591,161 3.67% $ 578,876 3.17% $ 597,347 3.53% $ 563,175 3.11% Savings deposits 264,272 1.98% 297,082 2.00% 270,047 1.98% 302,158 1.99% Certificates of deposit 792,802 5.74% 720,595 5.26% 773,761 5.56% 727,023 5.33% ------------------- ------------------- ------------------- ------------------- Total interest bearing deposits 1,648,235 4.39% 1,596,553 3.89% 1,641,155 4.23% 1,592,356 3.91% Other borrowings 173,179 6.17% 138,936 4.91% 152,527 5.85% 139,043 4.49% ------------------- ------------------- ------------------- ------------------- Total interest bearing liabilities 1,821,414 4.56% 1,735,489 3.96% 1,793,682 4.37% 1,731,399 3.96% ------------------- ------------------- ------------------- ------------------- Non-interest bearing demand deposits 212,006 227,870 213,825 210,028 Other liabilities 22,186 17,065 18,062 19,188 Shareholders' Equity 254,286 277,168 259,103 283,685 ----------- ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $2,309,892 $2,257,592 $2,284,672 $2,244,300 =========== =========== =========== =========== Taxable equivalent net yield on earning assets 4.07% 4.38% 4.16% 4.41% ======= ======= ======= =======
Total loans are gross of allowance for loan losses, net of unearned income, and include loans held for sale. Non-accrual loans were included in the average volume for the entire period. Loan fees included in interest 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 September 30, Nine months ended September 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 $ 2,358 $ 763 $ 3,121 $ 8,071 $ 419 $ 8,490 Taxable securities (833) 141 (692) (3,906) 767 (3,139) Tax-exempt securities (417) 66 (351) (674) 20 (654) Federal funds sold 238 71 309 (89) 202 113 --------------------------------- ---------------------------------- Total interest income change 1,346 1,041 2,387 3,402 1,408 4,810 --------------------------------- ---------------------------------- Increase (decrease) in interest expense: Interest bearing demand deposits 100 750 850 833 1,841 2,674 Savings deposits (163) (19) (182) (472) (32) (504) Certificates of deposit 1,000 913 1,913 1,930 1,292 3,222 Other borrowings 476 494 970 487 1,525 2,012 --------------------------------- ---------------------------------- Total interest expense change 1,413 2,138 3,551 2,778 4,626 7,404 --------------------------------- ---------------------------------- Taxable equivalent net interest income increase (decrease) $ (67) $(1,097) $ (1,164) $ 624 $(3,218) $ (2,594) ================================= ================================== Decrease in taxable equivalent adjustment (123) (229) --------- ---------- Net interest income decrease $ (1,041) $ (2,365) ========= ==========
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 nine-months ended September 30, 2000 declined $2.6 million or 3.8% compared to the same period in 1999. The net (TE) yield on average earning assets was 4.2% compared to 4.4%. 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 the effects of rising interest rates early this year, competitive pricing pressure to adjust rates on loan and deposit products and a continued shifting of deposits into higher yielding products. Factors affecting the average balance sheet between nine-months ended September 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. Interest income (TE) increased $4.8 million or 4.0% between the nine-months ended September 30, 2000 and 1999. As shown in Table 2, the majority of the increase in interest income (TE) was due to increases in average loan volume and average loan rates. Average loan growth of $130.1 million or 9.2% was partially funded by decreases of $92.8 million and $2.2 million in average securities and federal funds sold, respectively. Rising interest rates combined with the shifting of securities and federal fund sold balances into higher yielding loan products and an increase in average earning assets of 1.7% contributed to the increase in the yield (TE) on average earning assets to 7.8% from 7.7%. Interest expense increased $7.4 million or 14.4% between the nine-months ended September 30, 2000 and 1999, resulting from an increase in rates paid on average interest bearing liabilities to 4.4% from 4.0%. Customers shifted savings and NOW balances into the competitively priced Prime Rate Money Market product and certificates of deposit. Average savings deposits decreased $32.1 million or 10.6% while average interest bearing demand deposits, which includes the Prime Rate Money Market product, increased $34.2 million or 6.1%. Average certificates of deposit increased $46.7 million or 6.4%, and average other borrowings increased $13.5 million or 9.7%. As noted in Table 2, interest expense on other borrowings increased $2.0 million primarily due to an average rate increase to 5.8% from 4.5%. Non-interest Income ------------------- Non-interest income, excluding net securities gains and non-recurring, increased 7.4% to $16.5 million for the nine-months ended September 30, 2000 compared to $15.2 million for the nine-months ended September 30, 1999. Trust revenue increased 12.7% while deposit activity charges increased 21.2%. Growth in trust revenue reflected increases in the number of accounts under 11 administration, increases in investment advisory fees and an increase in the market value of trust assets. Deposit activity charges increased due to increases in the fees charged. Other income decreased $.8 million due to the reduction in credit card activity fees. Non-interest Expense -------------------- Non-interest expense for the nine-months ended September 30, 2000 decreased 4.1% to $48.2 million compared to $50.3 million for the nine-months ended September 30, 1999. The majority of the decrease occurred in wages and benefits, which declined 6.9% or $1.9 million. This reduction resulted from the consolidation of WesBanco's four banking affiliates and mortgage company affiliate into a single bank and decreases in health care costs and post-retirement expense. Average full-time equivalent employees decreased to 1,023 at September 30, 2000 from 1,099 at September 30, 1999. Other operating expense decreased 4.2% or $.7 million primarily due to the reduction in credit card processing costs and the elimination of Year 2000 readiness costs that were incurred in 1999. Net occupancy and equipment expense increased 6.3% or $.5 million primarily due to technology-related projects. TABLE 3 Reconciliation of Income Tax Rates For the nine months ended September 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) (0) ---- ---- Effective tax rate 31% 32% ==== ==== WesBanco's federal income tax returns for 1997 and 1996 were subject to an Internal Revenue Service ("IRS") examination during the first quarter of 1999. In the final report, the IRS disallowed certain tax deductions for acquisition-related expenses and disagreed with the timing of certain loan origination costs taken in those years. The IRS 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 Third Circuit in PNC Bancorp, Inc. v. Commissioner, 212 F. 3rd 822 (3rd Cir. 2000). WesBanco is waiting for the IRS to determine its position in light of the reversal of the decision. If the 12 IRS's position is ultimately upheld, the projected impact on the results of operations is approximately $.1 million. Financial Condition ------------------- Total assets of WesBanco were $2.3 billion as of September 30, 2000, which approximated total assets as of December 31, 1999. Total loans grew $57.6 million or 3.8% due primarily to competitive pricing of WesBanco's commercial, home equity products and consumer loans during this nine-month period. WesBanco experienced deposit growth of $42.4 million or 2.3%, led by the growth in certificates of deposit and Prime Rate Money Market accounts. TABLE 4 Composition of Securities September 30, December 31, (in thousands) 2000 1999 ------------- ------------ Securities held to maturity (at amortized cost): ------------------------------------------------ U.S. Treasury and federal agency securities $ 8,355 $ 13,346 Obligations of states and political subdivisions 171,255 182,005 Other debt securities 17,959 17,902 --------- --------- Total securities held to maturity (fair value of $196,923 and $211,009, respectively) 197,569 213,253 --------- --------- Securities available for sale (at fair value): ---------------------------------------------- U. S. Treasury and federal agency securities 190,554 189,593 Obligations of states and political subdivisions 13,640 18,298 Corporate securities 3,044 3,068 Mortgage-backed and other debt securities 129,290 143,716 --------- --------- Total securities available for sale 336,528 354,675 --------- --------- Total securities $ 534,097 $ 567,928 ========= ========= Proceeds from the sale or maturity of securities represent a source of liquidity for WesBanco. During the nine-months ended September 30, 2000, moderate deposit growth and proceeds from the sale and maturity of securities served as an additional source of funds for loan growth. The fair value adjustment in the available for sale securities portfolio reflected an unrealized net loss of $8.0 million as of September 30, 2000 compared to an unrealized net loss of $12.3 million as of December 31, 1999. This adjustment represents 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. 13 TABLE 5 Composition of Loans September 30, December 31, (in thousands) 2000 1999 ------------- ------------ Commercial $ 536,530 $ 521,450 Real estate - construction 31,185 31,742 Real estate 656,667 630,939 Personal, net of unearned income 354,588 329,562 Loans held for sale 2,067 9,753 ---------- ---------- Loans, net of unearned income $1,581,037 $1,523,446 ========== ========== Loans, net of unearned income increased $57.6 million or 3.8% between September 30, 2000 and December 31, 1999. Commercial loans grew 2.9% or $15.1 million, real estate loans grew 2.6% or $17.5 million, due to WesBanco's home equity products, and personal loans grew 7.6% or $25.0 million due to attractive pricing of indirect auto loans. The composition of loans as a percentage of total loans consist of commercial at 34%, real estate at 44% and personal loans at 22% as of September 30, 2000. TABLE 6 Non-performing, Classified and Loans Past Due 90 Days or More September 30, December 31, (in thousands) 2000 1999 ------------- ------------ Non-accrual loans $ 5,281 $ 4,158 Renegotiated loans --- 813 Other classified loans (1) 9,746 8,706 -------- -------- Total non-performing and classified loans 15,027 13,677 Other real estate owned 3,547 3,512 -------- -------- Total non-performing and classified assets $ 18,574 $ 17,189 ======== ======== Loans past due 90 days or more $ 5,515 $ 6,032 ======== ======== (1) Includes loans internally classified as doubtful and substandard that meet the definition of impaired loans. WesBanco's level of non-performing and classified assets increased $1.4 million in comparison to December 31, 1999. Non-performing and classified assets as a percentage of total loans and other real estate owned increased to 1.17% as of September 30, 2000 from 1.13% as of December 31, 1999. This 14 increase resulted primarily from the reclassification of three commercial loans totaling $2.2 million from a performing loan status to a non-accrual status and one commercial loan totaling $1.2 million from a performing status to a classified status. The increase in non-performing and classified loans were partially offset by the reclassification of two commercial loans totaling $0.8 million from renegotiated to a performing loan status. 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 non-performing loans are considered impaired. 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 nine months ended September 30, (in thousands) ------------------------- 2000 1999 ------------ ---------- Balance, at beginning of period $ 19,752 $ 19,098 Allowance for loan losses of acquired bank --- 192 Allowance for loan losses allocated to credit cards --- (450) Charge-offs (2,710) (3,874) Recoveries 921 1,058 --------- --------- Net charge-offs (1,789) (2,816) Provision for loan losses 2,179 3,375 --------- --------- Balance, at end of period $ 20,142 $ 19,399 ========= ========= 15 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 September 30, 2000 compared to September 30, 1999. Net loan charge-offs decreased $1.0 million or 36.5%. This reduction was partially due to the sale of WesBanco's credit card portfolio in June 1999 and loans charged-off from an acquired financial institution during the second quarter of 1999. WesBanco decreased the allowance for loan losses by $.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 $42.4 million or 2.3% between September 30, 2000 and December 31, 1999, reflecting growth in certificates of deposit and Prime Rate Money Market accounts. The growth in these categories was partially offset by reductions in savings and NOW account balances. This shifting of funds reflects our customers' 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 decreased $15.0 million or 8.6%, represented a use of funds during this year-to-date period. Repurchase agreements increased $10.2 million, while Federal funds purchased decreased $24.4 million and Federal Home Bank borrowings decreased $.8 million. WesBanco's decreased reliance on other borrowings was due to a combination of moderate deposit growth and proceeds from the sale and maturity of securities serving as alternative sources of funds. 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. 16 In addition to funds provided from operations, WesBanco's primary sources of funds are deposits, principal repayments on loans and matured or called securities. WesBanco's Federal Home Loan Bank Borrowing credit line of $536.8 million, of which $488.1 million remains unused, provides an additional source of funds and liquidity. 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 $14.9 million between September 30, 2000 and December 31, 1999. Shareholders' equity increased $7.3 million due to net income after dividends and $2.6 million due to the fair value adjustment, after tax effect, in the available for sale securities portfolio. WesBanco's corporate stock repurchase program reduced shareholders' equity for the three-months and nine-months ended September 30, 2000 by $8.3 million and $21.2 million, respectively, and added treasury shares of 351,310 and 911,212, respectively. As of September 30, 2000, 566,727 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 September 30, December 31, 2000 1999 ------------- ------------ Tier I capital 14.3% 15.7% Total risk-based capital 15.6% 17.0% Leverage 10.4% 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 September 30, 2000 and December 31, 1999, WesBanco's affiliate bank, WesBanco Bank, Inc., also exceeded the minimum regulatory levels. 17 Earnings Summary ---------------- Comparison of the three-months ended September 30, 2000 and 1999 ---------------------------------------------------------------- Net income for the three-months ended September 30, 2000 was $6.4 million or $.34 per share compared to $6.2 million or $.30 per share for the three-months ended September 30, 1999, a 13.3% increase in net income per share. WesBanco's core earnings, which excludes amortization of goodwill, net securities gains and non-recurring items, for the three-months ended September 30, 2000 increased 4.7% to $6.8 million compared to $6.4 million for the three-months ended September 30, 1999. Core earnings per share increased 12.5% to $.36 compared to $.32. Core earnings performance yielded an annualized return on average assets of 1.2% and a return on average equity of 10.6% for the three-months ended September 30, 2000 compared to a return on average assets of 1.1% and a return on average equity of 9.2% for the same period in 1999. Increases in trust fees along with deposit activity charges and decreases in non-interest expense 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 September 30, 2000 decreased $1.2 million or 5.0% compared to the same period in 1999. The net (TE) yield on average earning assets was 4.1% compared to 4.4%. The effects of rising interest rates early this year, competitive pricing pressure for loan and deposit products and a continued shifting of deposits into higher yielding products has resulted in a narrowing spread. Factors affecting the average balance sheet between three-months ended September 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. Interest income (TE) increased $2.4 million or 5.9% between the three-months ended September 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 $1.3 million or 3.3% and average rate increases of $1.0 million or 2.6% favorably impacted interest income (TE). Interest expense increased $3.6 million or 20.5% between the three-months ended September 30, 2000 and 1999, to 4.6% from 4.0%. As presented in Table 2, a combination of increases in average 18 volume and average rate caused interest expense to increase. 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 ------------------- Non-interest income, excluding net securities gains and non-recurring income, for the three-months ended September 30, 2000 increased $.7 million or 14.1% compared to the same period in 1999, resulting primarily from increases in trust fees and deposit activity charges. Trust fees increased $.4 million or 15.6% while deposit activity charges increased $.3 million or 15.5%. Non-interest Expense -------------------- Non-interest expense for the three-months ended September 30, 2000 decreased $.8 million or 4.8% compared to the same period of 1999. The majority of the decrease occurred in wages and benefits, which declined $.7 million or 8.1%. This reduction resulted from the consolidation of WesBanco's four banking affiliates and mortgage company affiliate into a single bank and decreases in health care costs and post-retirement expense. Other operating expense decreased $.4 million or 6.7% primarily due to the reduction in credit card processing costs and the elimination of Year 2000 readiness costs that were incurred in 1999. Net occupancy and equipment expense increased $.3 million or 12.7% primarily due to technology-related projects. Forward-Looking Statements -------------------------- Balance Sheet: -------------- Over the next twelve months, management expects moderate loan and deposit growth in a range of 1.0% to 4.0%. Loan composition and asset quality ratios should be consistent with the levels experienced through three-quarters of 2000. Management anticipates a softening of commercial and personal loan growth if market interest rates remain at current levels. Estimated loan growth will be funded by deposit growth, proceeds from maturities of securities and increases in other borrowings. Management expects the shift in the composition of deposits to continue, reflecting our customers' preference for competitively priced certificates of deposit and Prime Rate Money Market accounts. Management expects the level and trend of shareholders' equity to remain strong with a primary capital to asset ratio above 11.0%. Shareholders' equity and average common shares outstanding may be impacted due to the continuation of our Corporate stock repurchase program. 19 Statement of Income: -------------------- Net Interest Income: Management expects net interest income to compare favorably to general industry trends during the next twelve months. Changing interest rates and competitive pressure to make interest rate adjustments on loans and deposits could mitigate the positive effects of balance sheet growth on net interest income. Non-interest Income and Expense: For the next twelve months, management expects trust revenue to increase between 3.0% to 8.0% and deposit activity charges and non-banking income to improve modestly. Growth in trust revenue may reflect increases in the number of accounts under administration, increases in investment advisory fees and an increase in the market value of trust assets. The growth in these non-interest income categories could be offset by decreases in loan origination fees from mortgage lending activities if market interest rates continue to rise and the modest growth in revenue expected from non-banking subsidiaries. For the remainder of 2000, management expects continued cost reductions resulting from the unit bank consolidation. Non-interest expense should remain at the present levels for the year 2001. The level of non-interest expense may be impacted by the cost of technology-related projects and normal personnel expense increases during 2001. Quantitative and Qualitative Disclosures about Market Risk ---------------------------------------------------------- Through September 30, 2000, there have been no material changes to the information on this topic as presented in the 1999 Annual Report. 20 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 filed a Motion asking the Court to reconsider the ruling and the Court denied Travelers' Motion by Order entered September 27, 2000. It is uncertain whether Travelers will appeal this decision. 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, styled Wesbanco Bank Parkersburg, Inc. v. First Southern Trust Company, et al., 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 ------------------------------- On September 11, 2000, WesBanco filed a current report on Form 8-K announcing presentation on financial information presented at the Friedman, Billings, Ramsey & Co., Inc. Seventh Annual Investors Conference, held in Washington, D.C. on September 11-12, 2000. 21 SIGNATURES ---------- Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WESBANCO, INC. -------------- /s/ Edward M. George Date: November 13, 2000 ------------------------------------ Edward M. George President and Chief Executive Officer /s/ Paul M. Limbert Date: November 13, 2000 ------------------------------------ Paul M. Limbert Executive Vice President and Chief Financial Officer