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, 1998
-------------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - ------- EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-8467
--------
WESBANCO, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
West Virginia 55-0571723
- - ------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1 Bank Plaza, Wheeling, WV 26003
- - --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
304-234-9000
--------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
--------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or, for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. WesBanco had 20,913,455
shares outstanding at October 31, 1998.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
- - ------------------------------
Consolidated Balance Sheets at September 30, 1998 and December 31, 1997, and
Consolidated Statements of Income, Consolidated Statements of Changes in
Shareholders' Equity and Consolidated Statements of Cash Flows for the nine
months ended September 30, 1998 and 1997 are set forth on the following pages.
On March 31, 1998, WesBanco consummated its business combination with
Commercial BancShares, Incorporated, Parkersburg, West Virginia. All
previously presented financial information has been restated to include
Commercial BancShares.
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, 1998
are not necessarily indicative of what results may be attained for the entire
year.
For further information, refer to the 1997 Annual Report to Shareholder
which includes consolidated financial statements and footnotes thereto and
WesBanco, Inc.'s Annual Report on Form 10-K for the year ended December 31,
1997.
<PAGE> 3
WESBANCO, INC.
CONSOLIDATED BALANCE SHEET
- - -----------------------------------------------------------------------------
(Unaudited, dollars in thousands, except per share amounts)
September 30, December 31,
1998 1997
------------- ------------
ASSETS
Cash and due from banks $ 56,253 $ 73,412
Due from banks - interest bearing 5,201 1,515
Federal funds sold 34,921 86,363
Securities:
Available for sale, carried at market value 420,118 383,010
Held to maturity (market value of $277,135
and $249,165, respectively) 270,731 246,208
------------ ------------
Total securities 690,849 629,218
------------ ------------
Loans (net of unearned income of $676
and $1,495, respectively) 1,351,681 1,341,901
Allowance for loan losses (19,415) (20,261)
------------ ------------
Net loans 1,332,266 1,321,640
------------ ------------
Bank premises and equipment - net 47,594 45,068
Accrued interest receivable 18,130 15,579
Other assets 39,110 38,748
------------ ------------
Total Assets $ 2,224,324 $ 2,211,543
============ ============
LIABILITIES
Deposits:
Non-interest bearing demand $ 203,344 $ 205,399
Interest bearing demand 509,673 432,050
Savings 316,014 366,572
Certificates of deposit 749,609 775,846
------------ ------------
Total deposits 1,778,640 1,779,867
------------ ------------
Federal funds purchased and
repurchase agreements 103,038 93,342
Other short-term borrowings 12,864 26,927
Accrued interest payable 7,223 7,224
Other liabilities 18,663 16,188
------------ ------------
Total Liabilities 1,920,428 1,923,548
------------ ------------
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 and
20,666,185 shares issued, respectively 43,742 43,055
Capital surplus 60,309 57,997
Retained earnings 197,082 187,424
Treasury stock at cost (83,075 and
56,381 shares, respectively) (2,287) (1,675)
Other comprehensive income (market value
adjustment) 5,669 1,783
Deferred benefits for employees and directors (619) (589)
------------ ------------
Total Shareholders' Equity 303,896 287,995
------------ ------------
Total Liabilities and Shareholders' Equity $ 2,224,324 $ 2,211,543
============ ============
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
<PAGE> 4
<TABLE>
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,
-------------------------- -------------------------
1998 1997 1998 1997
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 29,685 $ 29,991 $ 89,310 $ 88,288
Interest on investment securities:
Taxable 7,820 6,817 23,677 19,919
Tax-exempt 2,475 2,334 7,222 6,864
----------- ----------- ----------- -----------
Total investment income 10,295 9,151 30,899 26,783
Other interest income 768 924 2,577 2,045
----------- ----------- ----------- -----------
Total interest income 40,748 40,066 122,786 117,116
----------- ----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits 17,011 16,592 51,508 47,909
Interest on other borrowings 1,661 1,286 4,797 3,603
---------- ---------- ----------- -----------
Total interest expense 18,672 17,878 56,305 51,512
Net interest income 22,076 22,188 66,481 65,604
Provision for loan losses 503 1,020 2,905 3,236
---------- ---------- ----------- -----------
Net interest income after
provision for loan losses 21,573 21,168 63,576 62,368
---------- ---------- ----------- -----------
OTHER INCOME
Trust fees 2,166 1,904 6,830 5,608
Service charges and other income 2,591 2,524 12,217 6,868
Net securities gains 502 74 810 160
---------- ---------- ----------- -----------
Total other income 5,259 4,502 19,857 12,636
OTHER EXPENSE
Salaries, wages and employee benefits 8,333 8,540 25,975 25,097
Premises and equipment - net 2,306 2,301 7,155 6,806
Other operating expense 5,165 5,056 17,464 14,429
---------- ---------- ----------- -----------
Total other expense 15,804 15,897 50,594 46,332
---------- ---------- ----------- -----------
Income before provision for income taxes 11,028 9,773 32,839 28,672
Provision for income taxes 3,602 2,647 10,582 7,972
---------- ---------- ----------- -----------
Net Income $ 7,426 $ 7,126 $ 22,257 $ 20,700
========== ========== =========== ===========
Earnings per share $0.36 $0.34 $1.07 $1.01
Average shares outstanding 20,908,784 20,662,932 20,895,579 20,404,099
Dividends per share $0.21 $0.20 $0.63 $0.59
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
<PAGE> 5
<TABLE>
WESBANCO, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- - ------------------------------------------------------------------------------
(Unaudited, dollars in thousands, except per share amounts)
Deferred
Other Benefits for
Comprehensive Common Capital Retained Treasury Comprehensive Directors &
Income Stock Surplus Earnings Stock Income Employees Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------------------------------
December 31, 1997 $43,055 $57,997 $187,424 ($1,675) $1,783 ($589) $287,995
- - -------------------------------------------------------------------------------------------------------------------------
Net income $22,257 22,257 22,257
Cash dividends:
Common ($.63 per share) (12,114) (12,114)
Common-by pooled bank
prior to acquisition (485) (485)
Stock issued for acquisition 687 2,394 1,883 4,964
Net treasury shares purchased (82) (2,495) (2,577)
Deferred benefits for directors (30) (30)
Market value adjustment on
investments available for sale-
net of tax effect 3,886 3,886 3,886
---------
Comprehensive income $26,143
=========
- - -------------------------------------------------------------------------------------------------------------------------
September 30, 1998 $43,742 $60,309 $197,082 ($2,287) $5,669 ($619) $303,896
- - -------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------
December 31, 1996 $31,545 $50,512 $187,777 ($544) $46 ($855) $268,481
- - -------------------------------------------------------------------------------------------------------------------------
Net income $20,700 20,700 20,700
Cash dividends:
Common ($.586 per share) (9,263) (9,263)
Common-by pooled bank
prior to acquisition (1,428) (1,428)
Stock issued for acquisition 366 7,519 4,901 12,786
Retirement of pooled bank stock
held by WesBanco (18) (107) (125)
Stock issued for a 3 for 2 stock
split effected in the form of a
50% stock dividend 11,161 (11,161)
Net treasury shares purchased 61 (4,565) (4,504)
Deferred benefits for directors (28) (28)
ESOP borrowing (134) (134)
Market value adjustment on
investments available for sale-
net of tax effect 3,126 3,126 3,126
--------
Comprehensive income $23,826
========
- - -------------------------------------------------------------------------------------------------------------------------
September 30, 1997 $43,054 $57,985 $186,625 ($208) $3,172 ($1,017) $289,611
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Comprehensive income for the three month periods ended September 30, 1998
and 1997 was $10,203 and $9,306, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
<PAGE> 6
WESBANCO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
- - ------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents (unaudited, in thousands)
For the nine months ended
September 30,
-------------------------
1998 1997
----------- ----------
Cash flows from operating activities:
Net Income $ 22,257 $ 20,700
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,332 4,658
Provision for loan losses 2,905 3,236
Gains on sales of securities-net (810) (160)
Deferred income taxes 173 153
Gain on sale of subsidiary (4,604) -
Other -- net 46 (116)
Net change in assets and liabilities:
Interest receivable (2,833) (1,489)
Other assets (500) 1,394
Interest payable 85 40
Other liabilities (1,470) 1,464
---------- ----------
Net cash provided by operating activities 19,581 29,880
---------- ----------
Cash flows from investing activities:
Securities held to maturity:
Proceeds from maturities and calls 57,158 79,350
Payments for purchases (94,042) (42,476)
Securities available for sale:
Proceeds from sales 37,213 26,278
Proceeds from maturities and calls 168,336 40,671
Payments for purchases (234,559) (114,743)
Sale of subsidiary, net of cash sold (2,726) -
Purchase of subsidiaries, net of cash acquired 4,989 6,635
Net increase in loans (35,944) (9,640)
Purchases of premises and equipment-net (7,229) (5,988)
---------- ----------
Net cash used in investing activities (106,804) (19,913)
---------- ----------
Cash flows from financing activities:
Net increase in deposits 38,185 27,650
Increase in federal funds purchased
and repurchase agreements 9,694 6,316
Increase (decrease) in short-term borrowings (11,584) 8,417
Dividends paid (11,420) (10,332)
Other 10 120
Purchases of treasury shares-net (2,577) (4,504)
---------- ----------
Net cash provided by financing activities 22,308 27,667
---------- ----------
Net increase (decrease) in cash and cash equivalents (64,915) 37,634
Cash and cash equivalents at beginning of period 161,290 94,069
---------- ----------
Cash and cash equivalents at end of period $ 96,375 $ 131,703
========== ==========
For the nine months ended September 30, 1998 and 1997, WesBanco paid $56,219
and $50,833 in interest on deposits and other borrowings, and $9,879 and
$7,653 for income taxes, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
<PAGE> 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. Previously presented financial information has
been restated to include Commercial BancShares, Incorporated ("Commercial").
The business combination of WesBanco and Commercial, which was consummated on
March 31, 1998, was accounted for under the pooling-of-interests method of
accounting. On June 18, 1998, WesBanco completed the acquisition of Hunter
Insurance Agency, issuing 62,500 shares of common stock held in Treasury in
a transaction accounted for under the purchase method of accounting.
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.
<PAGE> 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. Previously presented financial information has been restated to
include Commercial. For comparative purposes, consideration should be given
to the effects of the purchase acquisition of Shawnee Bank on June 30, 1997
and the sale of the Union Bank of Tyler County on June 30, 1998. WesBanco's
results of operations and financial position have not been restated to reflect
the purchase of Shawnee prior to its acquisition date. Where significant,
the effect of Shawnee and Union on the Balance Sheet and Statement of Income
comparisons will be discussed.
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, 1998 and 1997
---------------------------------------------------------------
Net income for the nine months ended September 30, 1998 was $22.3 million,
an 8% increase over the same period in 1997. Earnings per share of common
stock for the nine months ended September 30, 1998 and 1997 were $1.07 and
$1.01, respectively. The results of operations for the comparative periods
were impacted by two non-recurring items, a $4.6 million gain on the sale of
Union Bank of Tyler County, which occurred June 30, 1998, and $1.6 million in
special charges associated with WesBanco's business combination with Commercial
on March 31, 1998. On the Statement of Income, the gain on sale is reflected
in the service charges and other income category. Special charges are
classified in the respective other expense categories. Annualized return on
average assets was 1.3% for the nine months ended September 30, 1998 and 1997.
Annualized return on average equity was 10.0% for the nine months
ended September 30, 1998 and 1997.
<PAGE> 9
Net Interest Income
-------------------
During a period of declining market rates, net interest income before the
provision for loan losses, for the nine-month period ended September 30, 1998
increased $0.9 million or 1.3% over the same period for 1997. The increase in
net interest income resulted from growth in average earning assets of $131.5
million or 6.7% and interest bearing liabilities of $108.9 million or 6.7%.
The impact of this growth on net interest income was partially offset by a
reduction in the net tax equivalent yield on average earning assets to 4.5%
for the nine-month period ended September 30, 1998 from 4.7% for the same
period in 1997.
Growth in average earning assets was comprised primarily of an increase
in taxable securities of $88.8 million or 21.4% and loans of $18.6 million or
1.4%. Approximately $7.0 million of the increase in average loans related to
the purchase acquisition of Shawnee, however, the increase was offset by a
$7.6 million reduction due to the sale of Union. Average rates earned on
taxable investments decreased 16 basis points between the nine-month periods
ended September 30, 1998 and 1997 while average rates earned on loans
approximated 1997 levels. Fully taxable equivalent yields on average earning
assets decreased slightly to 8.0% from 8.2% between the comparative periods,
reflecting a shift in balances from higher-yielding loans to investments.
Growth in average interest bearing liabilities consisted primarily of an
increase in average interest bearing deposits of $77.1 million or 5.1%.
Within the deposit category, an increase in average interest bearing demand of
$103.6 million or 26.8% and average certificates of deposit of $5.8 million or
0.8%, was partially offset by reductions in average savings balances of $32.4
million or 8.9%. The majority of the growth in interest bearing demand
occurred during the fourth quarter 1997 and first quarter 1998 through the
competitively priced Prime Rate Money Market Accounts. Certificates of
deposit, which increased early in 1998, have decreased during the third
quarter, reflecting the competition for high-yielding funds in the current
interest rate environment. Approximately $19.3 million of the increase in
average interest bearing liabilities related to the purchase acquisition of
Shawnee, partially offset by a $12.1 million decrease resulting from the
sale of Union. The average rate on interest bearing liabilities increased
approximately 10 basis points to 4.4% from 4.3% between the comparative
periods. This increase in the cost of funds reflects the customers preference
for higher-yielding investment alternatives as the composition of deposits
continues to shift from traditional savings accounts to higher-yielding money
market accounts.
Other Income
------------
Excluding the $4.6 million gain on the sale of Union and net securities
gains, other income increased $2.0 million or 15.8%. Trust fees increased
$1.2 million or 21.8%, reflecting increases in the number of accounts under
administration, the market value of trust assets, and investment fees
associated
<PAGE> 10
with the WesMark mutual fund products which were introduced in early 1997.
The market value of trust assets approximated $2.4 billion as of September 30,
1998, an increase of $342.8 million or 16.5% over September 30, 1997.
Service charges and other income, excluding the gain on the sale of Union,
increased $.8 million or 10.8% between the nine-month periods ended September
30, 1998 and 1997 reflecting an increase in activity charges on deposit
accounts.
Other Expense
-------------
Excluding special charges associated with Commercial of $1.6 million,
other expense increased $2.7 million or 5.8%, reflecting technology
enhancements, the purchase acquisition of Shawnee, and the expansion of
WesBanco's mortgage banking affiliate. Technology enhancement projects,
including upgrades to the Corporation's Wide Area Network and conversion of
the Trust Department's operating system, affected the other expense categories
through increased overtime, equipment, consulting and training costs. These
factors were partially offset by reductions in other expense resulting from
the sale of Union on June 30, 1998. Through the six-month period ended June
30, 1998, Union had generated other expenses of $0.6 million.
During the six months ended June 30, 1998, WesBanco incurred
approximately $1.6 million in expenses related to the business combination
with Commercial. These special charges consisted of $0.8 million in salary
and employee benefit costs and $0.8 million in conversion, integration and
professional expenses. Conversion and integration costs included the
conversion of Commercial's mainframe computer systems into the WesBanco
systems during the second quarter of 1998.
In July 1998, WesBanco completed the internal merger of its Barnesville
banking affiliate into WesBanco Bank Wheeling. The internal merger of
Barnesville as well as the conversion and integration of Commercial has
enabled WesBanco to consolidate resources and standardize operating
procedures in an effort to improve operating efficiencies in future periods.
Income Taxes
------------
A reconciliation of the average federal statutory tax rate to the
reported effective tax rate attributable to income from operations follows:
For the nine months
ended September 30,
--------------------
1998 1997
--------- ---------
Federal statutory tax rate 35% 35%
Tax-exempt interest income from securities
of states and political subdivisions (7) (8)
State income tax - net of federal tax effect 4 3
Alternative minimum tax credit
Carryforward recognized - (2)
--------- ---------
Effective tax rate 32% 28%
========= =========
<PAGE> 11
The increase in the effective tax rate resulted from the utilization of
approximately $0.7 million in credits for prior years' minimum taxes during
the nine months ended September 30, 1997. These tax credits were fully
utilized as of December 31, 1997.
Financial Condition
-------------------
Total assets of WesBanco were $2.2 billion, as of September 30, 1998,
which approximated total assets as of December 31, 1997. Following a period
of seasonal declines in the first quarter of 1998, WesBanco experienced an
increase in loan volume, particularly in business lending, during the second
and third quarters. Given the current low-level of interest rates and
WesBanco's competitive pricing of loan products, modest growth in loans is
expected to continue. During the same time period, deposits moved opposite
to loan trends, increasing significantly in the first quarter of 1998, then
moderating through September 30, 1998, reflecting intense competition for
funds among banks and non-banks in a low interest rate environment. This
moderating trend is expected to continue during the fourth quarter of 1998.
Investment Securities
---------------------
The following table shows the composition of the investment securities
portfolio:
September 30, December 31,
1998 1997
(in thousands) --------------------------
Securities Available for Sale (at market):
- - ------------------------------------------
U. S. Treasury and federal agency securities $277,055 $247,042
Obligations of states and political subdivisions 24,986 20,638
Corporate securities 8,068 8,540
Mortgage-backed securities 104,822 100,931
Other debt and equity securities 5,187 5,859
---------- ---------
Total available for sale 420,118 383,010
---------- ---------
Securities Held to Maturity (at cost):
U.S. Treasury and federal agency securities 93,388 79,220
Obligations of states and political subdivisions 174,048 164,684
Other debt securities 3,295 2,304
---------- ---------
Total held to maturity (market value of
$277,135 and $249,165, respectively) 270,731 246,208
---------- ---------
Total securities $690,849 $629,218
========== =========
The market value adjustment, before tax effect, in the available for sale
securities portfolio reflected unrealized net gains of $9.4 million as of
September 30, 1998 compared to unrealized net gains of $2.9 million as of
December 31, 1997. These adjustments represent temporary market value
fluctuations caused by general changes in market rates and the length of time
to respective maturity
<PAGE> 12
dates. If these securities are held until their respective maturity date,
no market value adjustment would be realized.
Loans
-----
Loans, net of unearned income increased $9.8 million or 0.7% between
September 30, 1998 and December 31, 1997. Loan growth, which occurred
primarily in the business loan category, was partially offset by a decrease
of $22.4 million resulting from the sale of Union. As of the June 30, 1998
sale date, Union reported business loans of $8.0 million, real estate loans
of $8.3 million, and personal loans of $6.1 million.
The following table shows the composition of the loan portfolio:
September 30, December 31,
1998 1997
(in thousands) ------------ ------------
Loans:
Business $ 262,828 $ 243,458
Real Estate - Construction 46,919 37,743
Real Estate - Mortgage 711,150 715,819
Personal, net of unearned income 316,571 333,176
Loans held for sale 14,213 11,705
----------- -----------
Loans, net of unearned income $ 1,351,681 $ 1,341,901
=========== ===========
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. Impaired loans, including all non-performing loans, are as
follows:
September 30, December 31,
1998 1997
(in thousands) ------------- ------------
Nonperforming loans:
Nonaccrual $ 10,519 $ 8,413
Renegotiated 708 2,423
Other classified loans 7,848 6,292
---------- ----------
Total impaired loans $ 19,075 $ 17,128
========== ==========
The average balance of impaired loans during the nine months ended September
30, 1998 and year ended December 31, 1997, was approximately $17,008 and
$17,514, respectively.
Specific allowances for loan losses are allocated for impaired loans
based on the present value of expected future cash flows, or the fair value
of the collateral for loans that are collateral dependent.
<PAGE> 13
Related allowances for loan losses on impaired loans were $3.8 million and
$2.6 million as of September 30, 1998 and December 31, 1997, respectively.
Loans past due 90 days or more increased to $3.8 million or 0.3% of total
loans as of September 30, 1998 compared to $3.3 million or 0.2% of total loans
as of December 31, 1997.
Other real estate owned totaled $5.4 million as of September 30, 1998
compared to $5.6 million as of December 31, 1997. On October 15, 1998
WesBanco sold McLure Hotel, Inc., a subsidiary of WesBanco Bank Wheeling,
which represented $3.4 million or 63% of the Other Real Estate Owned category.
The sale of this non-earning asset, which will be reflected in the fourth
quarter financial information, did not have a material effect on the results
of operations.
Lending by WesBanco banks 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.
Allowance for Loan Losses
-------------------------
Activity in the allowance for loan losses is summarized as follows:
For the nine months
ended September 30,
-------------------
1998 1997
(in thousands) -------- --------
Balance, at beginning of period $ 20,261 $ 19,102
Allowance for loan losses of acquired/sold banks-net (37) 269
Charge-offs (4,569) (4,105)
Recoveries 855 848
-------- -------
Net charge-offs (3,714) (3,257)
Provision for loan losses 2,905 3,236
-------- --------
Balance, at end of period $ 19,415 $ 19,350
======== ========
The allowance for loan losses as a percentage of total loans was 1.44%
as of September 30, 1998 and 1.43% as of September 30, 1997. Amounts
allocated to the allowance for loan losses are based upon management's
evaluation of the credit risk in the loan portfolio. The increase in loan
charge-offs between the nine months ended September 30, 1998 and 1997 related
to the write-down of a large business loan in the second quarter of 1998.
Management believes that the allowance for loan losses as of September 30,
1998 is adequate to provide for potential losses in the portfolio.
Deposits
--------
Total deposits decreased $1.2 million or 0.07% between September 30, 1998
and December 31, 1997, as growth of approximately $38 million was offset by a
decrease in deposits of $39.3 million resulting from the sale of Union. During
this nine-month period, WesBanco experienced growth early in
<PAGE> 14
the year in its Good Neighbor Banking and the Prime Rate Money Market products.
However, growth in these products has moderated through September 30, 1998.
Excluding the effect on deposit balances from the sale of Union, this
nine-month period also reflected a shift in deposits, as Prime Rate Money
Market accounts increased steadily, traditional savings balances declined and
certificates of deposit increased early in the year then declined through the
third quarter of 1998. As of the June 30, 1998 sale date, Union reported
non-interest bearing demand deposits of $4.8 million, interest bearing demand
deposits of $11.2 million, savings of $10.1 million, and certificates of
deposit of $13.2 million.
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
are 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.
On October 15, 1998, WesBanco's Board approved a plan, effective
immediately, to repurchase up to one million shares of WesBanco common stock
on the open market. The timing, price, and quantity of purchases will be at
the discretion of the corporation and the program may be discontinued or
suspended at any time.
WesBanco is subject to risk-based capital guidelines that measure capital
relative to risk-adjusted assets and off-balance sheet financial instruments.
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, 1998 and December 31, 1997, all of WesBanco's affiliate banks
exceeded the minimum regulatory levels. Capital adequacy ratios are
summarized as follows:
September 30, December 31,
1998 1997
-----------------------------
Tier I capital 19.0% 18.7%
Total risk-based capital 20.3% 20.0%
Leverage 12.8% 12.5%
<PAGE> 15
Earnings Summary
----------------
Comparison of the three months ended September 30, 1998 and 1997
----------------------------------------------------------------
Net income for the three months ended September 30, 1998 was $7.4
million, a 4.2% increase over the same period in 1997. Earnings per share
of common stock for the three-month periods ended September 30, 1998 and 1997
were $.36 and $.34, respectively. Annualized return on average assets was
1.3% for the three-month periods ended September 30, 1998 and 1997.
Annualized return on average equity was 9.8% for the three-month periods
ended September 30, 1998 and 1997.
Net Interest Income
-------------------
During a period of declining market rates, net interest income before the
provision for loan losses, for the three-month period ended September 30, 1998
remained consistent with the same period for 1997. The net tax equivalent
yield on average earning assets decreased slightly to 4.5% for the three-
month period ended September 30, 1998 from 4.6% for the same period in 1997.
The impact of a reduction in the net yield percentage on net interest income
was offset by growth in quarterly average earning assets of $59.9 million or
3.0% and quarterly average interest bearing liabilities of $50.9 million or
3.1%.
Growth in quarterly average earning assets was comprised primarily of an
increase in taxable securities of $61.8 million or 14.2%. Yields on taxable
securities increased 3 basis points between the three-month periods ended
September 30, 1998 and 1997. Loan growth was offset by a reduction in loan
balances resulting from the sale of Union. The tax equivalent yield on
average earning assets decreased to 8.1% from 8.2% between the comparative
periods reflecting a shift in balances from higher-yielding loans to
investments.
Growth in quarterly average interest bearing liabilities consisted
primarily of an increase in interest bearing deposits of $29.1 million or
1.9%. Within the deposit category, growth in the Prime Rate Money Market
product, was partially offset by reductions in savings balances and
certificates of deposit as well as a decrease in deposit balances due to the
sale of Union. The average rate on interest bearing deposits remained stable
between the comparative periods.
Other Income
------------
Other income, excluding net securities gains, for the third quarter of
1998 increased $0.3 million or 7.4% compared to the third quarter of 1997.
Trust fee income increased $0.3 million or 13.8%, reflecting growth in the
number of accounts under administration, the market value of trust assets,
and investment fees associated with the WesMark mutual fund products which
were introduced in early 1997. Service charges and other income were
consistent with the third quarter of 1997.
The increase in net securities gains for the comparative periods
resulted from sales of callable agency and mortgage-backed securities during
the third quarter of 1998. During this period of declining
<PAGE> 16
interest rates, the Corporation was able to realize gains while minimizing
the risk of reinvestment at lower yields.
Other Expense
-------------
Other expense for the third quarter of 1998 approximated the third
quarter of 1997 levels. Although other expense was consistent between
comparative periods certain increasing and decreasing factors occurred.
Increasing factors included several technology enhancement projects and
the expansion of the Corporation's mortgage banking affiliate. Decreasing
factors included improved operating efficiencies resulting from the
integration of Commercial and a general reduction in the other expense
categories resulting from the sale of Union.
Year 2000 Readiness Disclosure
------------------------------
The Year 2000 issue primarily results from computer software or hardware
that is date-sensitive and may recognize "00" as the Year 1900 instead of the
Year 2000 which may cause system failure, miscalculations and other temporary
disruptions of operations.
WesBanco's Year 2000 Task Force, which includes independent consultants
and an outside Board member, has completed the Awareness, Assessment and
Remediation phases of this project. The term "Mission Critical" identifies
the software applications that must be continuously operable to support
WesBanco's customer processing requirements.
Mission Critical vendor supplied and maintained application software
includes accounting for Deposits, Loans, General Ledger, Shareholder
Accounting, Charge Cards and ATM/Debit Cards. The Loans, Deposits and
General Ledger Systems have been certified as Year 2000 compliant by an
independent third party. Vendors of the other systems, noted above, have
represented applicable Year 2000 testing has been performed and determined
their systems to be Year 2000 compliant. Testing of other Mission Critical
software applications is 20% complete with the expectation that validation
and implementation will be substantially complete by December 31, 1998.
Approximately 95% of the "Non-Mission Critical" software applications are
also vendor supplied and maintained and WesBanco has been receiving the "Year
2000 Compliant" software releases and upgrades on an acceptable schedule
delivered or promised by our vendors.
All mainframe computers as well as computer equipment attached to
WesBanco's "Wide Area Network" have been successfully tested as Year 2000
Compliant. The Task Force is now in the process of testing all equipment
not related to information technology, such as vault doors, calculators,
heating and air conditioning systems, telephone and communication lines and
other issues that need validated.
<PAGE> 17
During the validation "Testing" of our Mission Critical systems, an
individualized contingency plan is being developed for Mission Critical
software systems and suppliers. These individual plans will provide guidance
and/or alternate solutions if a failure should occur. Contingency planning
is continually being updated based upon information obtained from internal
testing and communication with vendors.
WesBanco's large commercial customers and non-technology vendors such as
utilities, governments, etc., have been assessed for their capability to
resolve the Year 2000 issues and attain compliance. Risk ratings have been
assigned to customers and non-technology vendors, with high risk accounts
being revisited on a periodic basis. Year 2000 issues and readiness are
considered and evaluated for all new large customers and non-technology
vendors.
The Trust operations department of WesBanco is concentrating their
resources between two separate Year 2000 issues. An independent consultant
has been hired to direct the validation of their main operating software, a
vendor supplied and maintained program, in an effort to appropriately process
the critical Year 2000 dates with a scheduled completion date in early 1999.
The second effort focuses on the development of a plan to evaluate and/or
assess Trust account holdings. The objective is to locate account holdings
that may contain significant Year 2000 risks to customers and/or WesBanco.
This monitoring, account assessment and validation will continue throughout
most of 1999.
Management of WesBanco believes it is taking the appropriate steps to
identify and resolve the Year 2000 issues in a timely manner. As noted above,
WesBanco has not yet completed all necessary phases of its Year 2000 program.
In the event that WesBanco does not receive Year 2000 ready software from its
third party vendors, certain customer transactions may not be processed in a
timely manner. WesBanco anticipates modifications to third party systems and
applicable testing will be resolved by the end of the first quarter 1999.
WesBanco has no means of ensuring that third parties (suppliers and major
commercial customers) with whom it interacts will be Year 2000 ready. The
inability of those parties to complete their Year 2000 process could impact
WesBanco as well.
Plans to complete Year 2000 compliance are based upon management's best
estimates, which are derived utilizing numerous assumptions of future events,
including availability of certain internal and external resources, the ability
of WesBanco's larger commercial customers to become Year 2000 compliant and
the readiness of strategic third party vendors. There can be no guarantee
that these estimates will be achieved and actual results could differ
materially from these plans due to unforeseen circumstances. Costs of
becoming Year 2000 ready will not have a material impact on WesBanco's
results of operations or financial condition.
<PAGE> 18
All previous communications in prior Securities and Exchange Commission
filings concerning WesBanco's Year 2000 program are hereby retroactively
designated as "Year 2000 Readiness Disclosures" pursuant to the provisions of
the Year 2000 Information and Readiness Disclosure Act.
Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
Through September 30, 1998, there have been no material changes to the
information on this topic as presented in the 1997 Annual Report.
Part II - OTHER INFORMATION
- - ---------------------------
Item 1-5 - 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 Corporation filed no current reports on Form 8-K during the quarter
ended September 30, 1998.
<PAGE> 19
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.
November 13, 1998 /s/ Edward M. George
-------------------------------------
Edward M. George
President and Chief Executive Officer
November 13, 1998 /s/ Paul M. Limbert
------------------------------------
Paul M. Limbert
Executive Vice President and Chief
Financial Officer
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