<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D .C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------- AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
--------------------------------------------
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
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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 20,209,986
shares outstanding at July 31, 1999.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
Consolidated Balance Sheets at June 30, 1999 and December 31, 1998,
Consolidated Statements of Income for the three and six-month periods
ended June 30, 1999 and 1998, and Consolidated Statements of Changes in
Shareholders' Equity and Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and 1998 are set forth on the following pages.
In the opinion of management of the Registrant, all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation
of the financial information referred to above for such periods, have been
made. The results of operations for the six months ended June 30, 1999 are
not necessarily indicative of what results may be attained for the entire year.
For further information, refer to the 1998 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,
1998.
<PAGE> 3
WESBANCO, INC.
CONSOLIDATED BALANCE SHEET
- -----------------------------------------------------------------------------
(Unaudited, dollars in thousands, except per share amounts)
June 30, December 31,
1999 1998
---------- -----------
ASSETS
Cash and due from banks $ 68,165 $ 62,989
Due from banks - interest bearing 4,649 5,174
Federal funds sold 22,333 38,055
Investment securities:
Held to maturity (market value of $219,639
and $220,699, respectively) 219,918 214,845
Available for sale, carried at market value 407,502 465,705
---------- ----------
Total securities 627,420 680,550
---------- ----------
Loans (net of unearned income of $265
and $512, respectively) 1,444,719 1,373,018
Allowance for loan losses (19,242) (19,098)
---------- ----------
Net loans 1,425,477 1,353,920
---------- ----------
Bank premises and equipment 53,276 47,999
Other assets 60,560 54,025
---------- ----------
Total Assets $2,261,880 $2,242,712
========== ==========
LIABILITIES
Deposits:
Non-interest bearing demand $ 253,828 $ 227,349
Interest bearing demand 535,071 510,662
Savings 302,671 308,979
Certificates of deposit 725,652 740,652
---------- ----------
Total deposits 1,817,222 1,787,642
---------- ----------
Federal funds purchased and repurchase agreements 116,507 112,511
Other borrowings 25,867 22,194
Other liabilities 18,961 23,882
---------- ----------
Total Liabilities 1,978,557 1,946,229
---------- ----------
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 60,196 60,283
Retained earnings 204,595 198,782
Treasury stock, at cost (679,941 and 336,296
shares, respectively) (19,775) (9,421)
Other comprehensive income (market value adjustment) (3,874) 3,610
Deferred benefits for directors and employees (1,561) (513)
---------- ----------
Total Shareholders' Equity 283,323 296,483
---------- ----------
Total Liabilities and Shareholders' Equity $2,261,880 $2,242,712
========== ==========
See Notes to Consolidated 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 six months ended
June 30, June 30,
-------------------------- ------------------------
1999 1998 1999 1998
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 28,713 $ 29,975 $ 57,085 $ 59,625
Interest on investment securities:
Taxable 7,240 8,148 14,450 15,857
Tax-exempt 2,578 2,439 5,055 4,747
------------ ----------- ----------- -----------
Total interest on investment securities 9,818 10,587 19,505 20,604
Other interest income 220 786 568 1,809
------------ ----------- ----------- -----------
Total interest income 38,751 41,348 77,158 82,038
------------ ----------- ----------- -----------
INTEREST EXPENSE
Interest bearing demand deposits 4,360 4,254 8,505 8,193
Savings deposits 1,512 2,156 3,011 4,309
Certificates of deposit 9,624 10,898 19,467 21,995
------------ ----------- ----------- -----------
Total interest on deposits 15,496 17,308 30,983 34,497
Other borrowings 1,554 1,730 2,949 3,136
------------ ----------- ----------- -----------
Total interest expense 17,050 19,038 33,932 37,633
------------ ----------- ----------- -----------
Net interest income 21,701 22,310 43,226 44,405
Provision for loan losses 1,290 1,649 2,696 2,402
------------ ----------- ----------- -----------
Net interest income after provision
for loan losses 20,411 20,661 40,530 42,003
------------ ----------- ----------- -----------
OTHER INCOME
Trust fees 2,586 2,240 5,353 4,664
Service charges and other income 6,188 7,190 8,644 9,626
Net securities gains 124 33 239 308
------------ ----------- ----------- -----------
Total other income 8,898 9,463 14,236 14,598
------------ ----------- ----------- -----------
OTHER EXPENSES
Salaries, wages and employee benefits 8,829 9,647 17,514 18,490
Net occupancy expense 830 1,031 1,725 1,901
Equipment expense 1,511 1,524 3,142 2,948
Other operating expense 5,784 6,413 10,816 11,451
------------ ----------- ----------- -----------
Total other expenses 16,954 18,615 33,197 34,790
------------ ----------- ----------- -----------
Income before provision for income taxes 12,355 11,509 21,569 21,811
Provision for income taxes 4,335 3,720 6,732 6,980
------------ ----------- ----------- -----------
Net Income $ 8,020 $ 7,789 $ 14,837 $ 14,831
============ =========== =========== ===========
Earnings per share of common stock $ 0.40 $ 0.37 $ 0.73 $ 0.71
Average shares outstanding 20,324,700 20,876,297 20,439,741 20,888,797
Dividends per share $ 0.22 $ 0.21 $ 0.44 $ 0.42
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 5
<TABLE>
WESBANCO, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------
(Unaudited, in thousands, except for shares)
Market Value Deferred Benefits
Common Stock Adjustment on for
------------------- Capital Retained Treasury Investments Directors and
Shares Amount Surplus Earnings Stock Available for Sale Employees Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 20,609,805 $43,055 $57,997 $187,424 ($1,675) $1,783 ($589) $287,995
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income 14,831 14,831
Net market value adjustment on
securities available for
sale - net of tax effect 1,109 1,109
--------
Comprehensive income 15,940
Cash dividends:
Common ($.42 per share) (7,728) (7,728)
Common-by pooled bank
prior to acquisition (485) (485)
Net treasury shares purchased (47,009) 9 (3,126) (3,117)
Stock issued for acquisition 330,346 687 2,394 1,883 4,964
Deferred benefits for directors (19) (19)
- ----------------------------------------------------------------------------------------------------------------------------------
June 30, 1998 20,893,142 $43,742 $60,400 $194,042 ($2,918) $2,892 ($608) $297,550
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 20,660,235 $43,742 $60,283 $198,782 ($9,421) $3,610 ($513) $296,483
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income 14,837 14,837
Net market value adjustment on
securities available for
sale - net of tax effect (7,484) (7,484)
--------
Comprehensive income 7,353
Cash dividends:
Common ($.44 per share) (9,024) (9,024)
Net treasury shares purchased (766,561) 95 (22,507) (22,412)
Stock issued for acquisition 422,916 (182) 12,153 11,971
KSOP borrowing (1,000) (1,000)
Deferred benefits for directors (48) (48)
- ----------------------------------------------------------------------------------------------------------------------------------
June 30, 1999 20,316,590 $43,742 $60,196 $204,595 ($19,775) ($3,874) ($1,561) $283,323
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Comprehensive income for the three-month periods ended June 30, 1999 and 1998
was $2,695 and $8,275, respectively.
See Notes to Consolidated Financial Statements.
<PAGE> 6
WESBANCO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents (unaudited, in thousands)
For the six months ended
June 30,
------------------------
1999 1998
----------- ----------
Cash flows from operating activities:
Net Income $ 14,837 $ 14,831
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,757 2,754
Net amortization of securities 800 238
Amortization of goodwill 600 493
Provision for loan losses 2,696 2,402
Gain on sale of credit card portfolio (3,489) ---
Gain on sales of securities-net (239) (308)
Gain on sale of bank --- (4,604)
Deferred income taxes (429) (4)
Other -- net --- 47
Net change in assets and liabilities:
Interest receivable 37 (2,718)
Other assets 1,961 1,509
Interest payable (739) 223
Other liabilities 18 (2,458)
----------- ----------
Net cash provided by operating activities 18,810 12,405
----------- ----------
Cash flows from investing activities:
Securities held to maturity:
Proceeds from maturities and calls 32,164 37,488
Payments for purchases (37,445) (48,426)
Securities available for sale:
Proceeds from sales 28,394 21,392
Proceeds from maturities and calls 94,605 96,815
Payments for purchases (76,696) (192,007)
Sale of subsidiary, net of cash sold --- (2,726)
Proceeds from the sale of credit cards 18,400 ---
Purchase of subsidiaries, net of cash acquired 2,809 3,305
Net increase in loans (63,008) (18,426)
Purchases of premises and equipment-net (4,575) (5,180)
----------- ----------
Net cash used in investing activities (5,352) (107,765)
----------- ----------
Cash flows from financing activities:
Net increase in deposits 88 37,957
Increase in federal funds purchased
and repurchase agreements 3,996 19,172
Increase in other borrowings 2,673 6,591
Dividends paid (8,874) (7,043)
Other --- (5)
Purchases of treasury shares-net (22,412) (3,117)
----------- ----------
Net cash provided by (used in) financing activities (24,529) 53,555
----------- ----------
Net decrease in cash and cash equivalents (11,071) (41,805)
Cash and cash equivalents at beginning of period 106,218 161,290
----------- ----------
Cash and cash equivalents at end of period $ 95,147 $ 119,485
=========== ==========
For the six-month periods ended June 30, 1999 and 1998, WesBanco paid $34,676
and $37,410 in interest on deposits and other borrowings, and $6,470 and
$7,754 for income taxes, respectively.
See Notes to Consolidated Financial Statements.
<PAGE> 7
WESBANCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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. The acquisition of Heritage Bank of Harrison
County, which was completed on April 30, 1999, was accounted for under the
purchase method of accounting. WesBanco issued 422,916 shares of common stock
held in Treasury in the transaction.
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.
Reclassification: Certain amounts in the financial statements have been
reclassified to conform to the statement presentation for the current year.
These reclassifications have no effect on the Consolidated Statement of
Income.
Note 2 - Completed Acquisition
- ------------------------------
On April 30, 1999, WesBanco completed the acquisition of Heritage Bank of
Harrison County, Inc.("Heritage") located in Clarksburg, West Virginia,
through a merger with and into WesBanco Bank Fairmont, a WesBanco affiliate.
The purchase price, based on the closing stock price on the transaction date,
totaled approximately $12.1 million. The transaction was accounted for using
the purchase method of accounting. The excess of the purchase price over the
estimated fair market value of the net assets (goodwill) of Heritage at
April 30, 1999 approximated $7.9 million. As of the merger date, Heritage
reported total assets of approximately $33.3 million, deposits of $29.1
million, and shareholders' equity of $4.2 million.
<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.
For comparative purposes, consideration should be given to the effects of the
April 30, 1999 acquisition of Heritage Bank of Harrison County, Inc.
("Heritage"), the June 7, 1999 sale of the credit card receivables and the
June 30, 1998 sale of the Union Bank of Tyler County ("Union"), which was
required by regulatory authorities in conjunction with the acquisition of
Commercial BancShares, Incorporated. WesBanco's results of operations and
financial position have not been restated to reflect these transactions.
Where significant, the effect of these transactions on the Balance Sheet and
Statement of Income 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 six-month periods ended June 30, 1999 and 1998
----------------------------------------------------------------
Net income for the six months ended June 30, 1999 was consistent with the
same period last year at $14.8 million. Earnings per share for the six-month
periods ended June 30, 1999 and 1998 were $0.73 and $0.71, respectively.
Earnings reflected a gain on the sale of credit card receivables, an increase
in trust fees and a reduction in non-interest expenses, all of which were
offset by a decline in net interest income. Annualized return on average
assets was 1.3% for each of the six-month periods ended June 30, 1999 and 1998.
Annualized return on average equity was 10.3% for the six-month period ended
June 30, 1999 and 10.1% for the same period in 1998.
<PAGE> 9
Earnings were impacted by certain non-recurring items recorded during
the six-month periods ended June 30, 1999 and 1998. For the second quarter
of 1999, other income included a gain of $3.5 million on the sale of the
credit card receivables. For the second quarter of 1998, other income
included a $4.6 million gain on the sale of Union Bank of Tyler County and
other expenses included $1.6 million in acquisition related expenses.
Net Interest Income
-------------------
Net interest income, on a taxable equivalent basis (TE), for the
six-month period ended June 30, 1999 declined $1.0 million or 2.2% from the
same period for 1998. Affecting the decline in net interest income were
decreases in average earning assets of $22.4 million or 1.1% and interest
bearing liabilities of $34.5 million or 2.0%, coupled with a decline in the
net yield (TE) on average earning assets to 4.4% from 4.5%. The June 30, 1998
sale of Union, with average earning assets of $40.8 million and average
interest bearing liabilities of $33.9 million, along with other factors
described below, contributed to the decline in the average balance sheet and
net interest income categories. Similar to industry trends, the net yield
on earning assets continued to decline in this period of lower interest rates.
The earning asset yield, while positively impacted by strong loan growth
during the last four quarterly periods, declined due to competitive pressure
to lower rates on loan products. This effect on the earning asset yield
coupled with a continued shifting of deposits into higher yielding instruments,
has resulted in a narrowing spread between loan and deposit products.
Interest income (TE) declined $4.7 million or 5.6% between the six-month
periods ended June 30, 1999 and 1998, reflecting a decline in average earning
assets of $22.4 million or 1.1% as well as a decline in the yield (TE) on
average earning assets to 7.7% from 8.1%. The decline in average earning
assets was comprised of decreases in average securities of $27.0 million or
3.9% and average federal funds sold of $43.0 million or 64.8%. These declining
balances were partially offset by growth in average loans of $47.6 million or
3.5%, which was net of $22.9 million in average loans sold in the Union
divestiture. During the comparative periods, the yield on average securities
remained consistent with last year, while the yield on average federal funds
sold declined 59 basis points. Average loan yields declined 66 basis points,
reflecting the lower interest rate environment between the six-month periods
ended June 30, 1999 and 1998.
Interest expense declined $3.7 million or 9.8% between the six-month
periods ended June 30, 1999 and 1998, resulting from a decline in average
interest bearing liabilities of $34.5 million or 2.0% coupled with a
decline in the rate paid on interest bearing liabilities to 4.0% from
4.4%. The decline in interest bearing liabilities consisted primarily of a
decrease in average interest bearing deposits of $48.7 million or 3.0%, of
which $31.9 million represented interest bearing deposits sold in the Union
divestiture. The decline in interest bearing deposits between the six-month
periods ended June 30, 1999 and 1998 resulted from reductions in both average
savings deposit balances of $36.2 million or 10.6%
<PAGE> 10
and average certificates of deposit of $53.4 million or 6.8%, partially
offset by an increase in average interest bearing demand balances of $40.9
million or 8.4%. The increase in interest bearing demand resulted from
strong growth in the Corporation's money market products. The rate paid on
average interest bearing deposits decreased 32 basis points between the
six-month periods ended June 30, 1999 and 1998, resulting from adjustments to
the money market rate and savings rate as well as lower rates offered on
certificates of deposit.
Other Income
------------
Excluding non-recurring income, other income increased $.8 million or
8.5%. Trust fees increased $.7 million or 14.8%, reflecting increases in the
number of accounts under administration, increases in the market value of
trust assets, and fees associated with the WesMark mutual fund products.
The market value of trust assets grew to $3.0 billion as of June 30, 1999,
an increase of $689.5 million or 29.4% over June 30, 1998.
Non-recurring income for the six months ended June 30, 1999 included
the gain on the sale of the credit card receivables of $3.5 million and net
securities gains of $.2 million. Non-recurring income for the six months
ended June 30, 1998, included a $4.6 million gain on the sale of Union and
$.3 million of net securities gains.
Other Expenses
--------------
Excluding non-recurring expenses of $1.6 million associated with the
business combination with Commercial BancShares in 1998, other expenses
decreased slightly during the first half of 1999 compared to the same period
of 1998. Salaries and employee benefit expenses, along with certain other
operating expense categories, decreased in comparison to the first half of
1998, reflecting WesBanco's continued efforts to improve operating
efficiencies. Last year's conversion of Commercial BancShares operating
systems to WesBanco's core banking systems, coupled with the internal
consolidation of two affiliate banks have contributed to a reduction in other
expenses. Partially offsetting these reductions were increases in
technology-related expenses, including upgrades and expansion of the
Corporation's wide area network, implementation of a new Trust operating
system, consulting services associated with becoming Year 2000 compliant,
and computer training and development classes for employees. Additionally,
the acquisition of Heritage, completed April 30, 1999, had an increasing
effect on other expense categories.
<PAGE> 11
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 six months ended
June 30,
------------------------
1999 1998
----------- ----------
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) ---
----------- ----------
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 disagrees with the timing of certain loan
origination costs taken in those years. WesBanco has appealed the IRS ruling.
If the IRS position is 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 June 30, 1999, an
increase of $19.1 million or 0.9% over total assets as of December 31, 1998.
WesBanco experienced strong loan growth of $71.7 million or 5.2% during the
first half of 1999, driven by growth in fixed rate residential real estate
loans and the acquisition of Heritage. During the same period, deposits grew
$29.6 million or 1.7%, reflecting an increase in money market accounts and
the acquisition of Heritage. Proceeds from maturities and sale of securities
available for sale represented a source of funds for the increased loan volume.
<PAGE> 12
Investment Securities
---------------------
The following table shows the composition of the securities portfolio:
June 30, December 31,
(in thousands) 1999 1998
--------- -----------
Investment Securities Held to Maturity (at cost):
- ------------------------------------------------
U.S. Treasury and federal agency securities $ 19,846 $ 41,961
Obligations of states and political subdivisions 187,148 169,552
Other debt securities 12,924 3,332
--------- ---------
Total held to maturity (market value of $219,639
and $220,699, respectively) 219,918 214,845
--------- ---------
Securities Available for Sale (at market):
- -----------------------------------------
U. S. Treasury and federal agency securities 225,576 276,260
Obligations of states and political subdivisions 21,527 24,712
Corporate securities 7,599 5,262
Mortgage-backed and other debt securities 152,800 159,471
--------- ---------
Total available for sale 407,502 465,705
--------- ---------
Total securities $ 627,420 $ 680,550
========= =========
Proceeds from the sale or maturity of securities represent a source of
liquidity for WesBanco. During the first half of 1999, with only moderate
deposit growth, proceeds from sales and maturities of securities available
for sale have served as a principal source of funds for new loan growth.
Reflecting an increase in market interest rates, the market value
adjustment, before tax effect, in the available for sale securities portfolio
changed to an unrealized net loss of $6.3 million as of June 30, 1999 compared
to an unrealized net gain of $6.0 million as of December 31, 1998. These
adjustments represent temporary market value fluctuations caused by general
changes in market rates and the length of time to respective maturity dates.
If these securities are held until their respective maturity date, no
market value adjustment would be realized.
Loans
-----
The following table shows the composition of the loan portfolio:
June 30, December 31,
(in thousands) 1999 1998
--------------------------
Loans:
- ------
Business $ 497,360 $ 484,269
Real estate - construction 45,790 46,033
Real estate 582,067 520,393
Personal, net of unearned income 307,448 313,043
Loans held for sale 12,054 9,280
----------- -----------
Loans, net of unearned income $ 1,444,719 $ 1,373,018
=========== ===========
<PAGE> 13
The increase in loans between June 30, 1999 and December 31, 1998
reflected strong growth in real estate loans through offering highly
competitive rates on residential real estate and home equity loans.
Additionally, the acquisition of Heritage contributed $24.1 million to loan
balances, while the sale of the credit card receivables reduced the personal
loan portfolio by approximately $15.4 million.
On June 7, 1999, WesBanco sold its credit card receivables of $15.4
million, recording proceeds on the sale of $18.4 million and a pre-tax gain
of $3.5 million. The gain was classified as other income on the Statement of
Income.
Non-performing Assets
---------------------
Non-performing assets are summarized as follows:
June 30, December 31,
(in thousands) 1999 1998
----------------------
Non-performing assets:
- ----------------------
Nonaccrual loans $ 4,736 $ 10,488
Renegotiated loans 940 695
Other classified loans (1) 6,866 5,285
--------- ---------
Total impaired loans 12,542 16,468
Other real estate owned 3,110 3,486
--------- ---------
Total nonperforming assets $ 15,652 $ 19,954
========= =========
(1)Includes loan internally classified as doubtful and substandard (as
defined by banking regulations) that meet the definition of impaired loans.
WesBanco continues to experience improvement in the level of nonperforming
assets, which decreased $4.3 million over December 31, 1998 and $6.8 million
over June 30, 1998. Nonperforming assets as a percentage of loans and other
real estate reflects this improvement, reducing to 1.08% as of June 30, 1999
from 1.45% and 1.67% as of December 31, 1998 and June 30, 1998, respectively.
The declining trend between June 30, 1999 and December 31, 1998 resulted from
the payoff of two large commercial loans totaling $5.2 million which were
previously classified as nonaccrual.
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.
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. Allowances for
loan losses on impaired loans were $2.2 million as of June 30, 1999 and
December 31,
<PAGE> 14
1998, respectively. Losses associated with the payoff of the two large
commercial loans, noted above, were recognized in 1998.
Loans past due 90 days or more decreased to $2.8 million or 0.2% of
total loans as of June 30, 1999 compared to $7.0 million or 0.5% of total
loans as of December 31, 1998.
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 six months ended
June 30,
------------------------
(in thousands) 1999 1998
Allowance for loan losses: ----------- ----------
- --------------------------
Balance, at beginning of period $ 19,098 $ 20,261
Allowance for loan losses of acquired bank 193 329
Allowance for loan losses of sold bank (366)
Allowance for loan losses allocated to
sold credit cards (450)
Charge-offs (3,025) (3,408)
Recoveries 730 688
---------- ---------
Net charge-offs (2,295) (2,720)
Provision for loan losses 2,696 2,402
---------- ---------
Balance, at end of period $ 19,242 $ 19,906
========== =========
Amounts allocated to the allowance for loan losses are based upon
management's evaluation of the credit risk in the loan portfolio.
The allowance for loan losses as a percentage of total loans was 1.33% as
of June 30, 1999 and 1.49% as of June 30, 1998. Contributing to the decline
in the allowance to loans percentage was the June 7, 1999 sale of the credit
card portfolio, which resulted in a $0.45 million reduction to the allowance
for loan losses. This adjustment was based on management's evaluation of the
delinquency factors and net charge-off experience associated with the credit
card receivables. Additionally, the decline in the allowance to loans
percentage reflects improved credit quality, as measured by a reduction in
non-performing assets between June 30, 1999 and 1998.
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 experience, current delinquency factors, changes in
the character of the loan portfolio, specific problem loans and other factors.
<PAGE> 15
Deposits
--------
Total deposits increased $29.6 million or 1.7% between June 30, 1999 and
December 31, 1998, reflecting growth in interest bearing demand deposits,
through Money Market accounts, and from the purchase of Heritage, which added
$29.1 million to deposit balances. These factors were offset by reductions
in savings and certificate of deposit balances. This declining trend reflects
the competition for deposits and a decline in interest rates.
Liquidity and Capital Resources
-------------------------------
WesBanco manages its liquidity position to meet its funding needs,
including potential deposit outflows and loan principal disbursements, and to
meet its asset and liability management objectives.
In addition to funds provided from operations, WesBanco's primary sources
of funds are deposits, principal repayments on loans and matured or called
securities. Scheduled loan repayments and maturing securities are relatively
predictable sources of funds. However, deposit flows and prepayments on loans
can be significantly influenced by changes in market interest rates, economic
conditions, and competition. WesBanco strives to manage the pricing of its
deposits to maintain a balance of cash flows commensurate with loan
commitments and other funding needs.
On June 4, 1999 WesBanco completed the acquisition of one million shares
of stock under a stock repurchase program and approved a new program to
repurchase up to one million additional shares of WesBanco common stock on
the open market. The timing, price, and quantity of purchases under the plan
are at the discretion of the Corporation and the plan may be discontinued or
suspended at any time. As of July 31, 1999, WesBanco had purchased 210,791
shares under the plan.
Capital adequacy ratios are summarized as follows:
June 30, December 31,
1999 1998
Capital adequacy ratios: --------------------------
- ------------------------
Tier I capital 17.0% 18.5%
Total risk-based capital 18.2% 19.8%
Leverage 11.9% 12.5%
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 June 30, 1999 and December 31, 1998, all of WesBanco's
affiliate banks exceeded the minimum regulatory levels.
<PAGE> 16
Earnings Summary
----------------
Comparison of the three-month periods ended June 30, 1999 and 1998
------------------------------------------------------------------
Net income for the three-month period ended June 30, 1999 was $8.0
million, a 3.0% increase from the same period in 1998. Earnings per share
for the three-month periods ended June 30, 1999 and 1998 were $0.40 and $0.37,
respectively. The increase in earnings resulted from a gain on the sale of
the credit card receivables, an increase in trust fees, a reduction in the
provision for loan losses, and reduction in non-interest expenses, all of
which were partially offset with a decline in net interest income. Annualized
return on average assets was 1.4% for each of the three-month periods ended
June 30, 1999 and 1998. Annualized return on average equity was 11.3% for
the three-month period ended June 30, 1999 and 10.6% for the same period in
1998.
Net Interest Income
-------------------
Net interest income, on a taxable equivalent basis (TE), for the
three-month period ended June 30, 1999 declined $.5 million or 2.3% from the
same period for 1998. Affecting the decline in net interest income were
decreases in average earning assets of $27.7 million or 1.3% and interest
bearing liabilities of $43.7 million or 2.5%, coupled with a decline in the
net yield (TE) on average earning assets to 4.4% from 4.5%. The June 30,
1998 sale of Union, with quarterly average earning assets of $41.7 million
and interest bearing liabilities of $35.1 million contributed to the decline
in the average balance sheet and net interest income categories. The net
yield declined due to a lower interest rate environment and competitive
pressure on loan and deposit products.
Interest income (TE) declined $2.5 million or 5.9% between the
three-month periods ended June 30, 1999 and 1998, reflecting a decline in
average earning assets of $27.7 million or 1.3% as well as a decline in the
yield (TE) on average earning assets to 7.7% from 8.1%. The decline in average
earning assets resulted from decreases in average securities of $46.9 million
or 6.7% and average federal funds sold of $41.5 million or 70.0%. These
declining balances were partially offset by growth in average loans of $60.7
million or 4.5%, which was net of $22.6 million in quarterly average loans
sold in the Union divestiture. During the comparative period, yields on
average securities and average federal funds sold declined 7 and 35 basis
points, respectively. Average loan yields declined 73 basis points,
reflecting competitive pressure to lower interest rates between the
three-month periods ended June 30, 1999 and 1998.
Interest expense declined $2.0 million or 10.4% between the three-month
periods ended June 30, 1999 and 1998, the result of a decline in average
interest bearing liabilities of $43.7 million or 2.5% coupled with a 36 basis
point decline in the rate paid on interest bearing liabilities to 4.0% from
4.4%. The decline in interest bearing liabilities consisted primarily of a
decrease in average interest bearing deposits of $53.8 million or 3.3%, of
which $32.9 million of the decrease represented quarterly average
<PAGE> 17
interest bearing deposits sold in the Union divestiture. An increase in
average interest bearing demand deposits of $35.7 million or 7.2% was more
than offset by reductions in average savings deposit balances of $42.4 million
or 12.2% and average certificates of deposit of $47.1 million or 6.1% between
the three-month periods ended June 30, 1999 and 1998. The rate paid on
average interest bearing deposits decreased 32 basis points between the
three-month periods ended June 30, 1999 and 1998, resulting from adjustments
to the money market rate and savings rate as well as lower rates offered on
certificates of deposit.
Other Income
------------
Excluding non-recurring income, other income for the three-month period
ended June 30, 1999 increased $.5 million or 9.5% over the same period of
1998. Trust fees increased $.3 million or 15.4% for the three-month period
ended June 30, 1999 compared to the same period of 1998, reflecting increases
in the number of accounts under administration and increases in the market
value of trust assets. Non-recurring income for the three months ended
June 30, 1999 included the gain on the sale of the credit card receivables
of $3.5 million and net security gains of $.1 million. Non-recurring items
for the three months ended June 30, 1998, included a $4.6 million gain on
the sale of Union and $.03 million of net security gains.
Other Expenses
--------------
Excluding non-recurring expenses related to the business combination
with Commercial BancShares for the three-month period ended June 30, 1998,
other expenses for the three-month period ended June 30, 1999 remained at a
consistent level with the same period of 1998. Certain other expense
categories, including salaries and employee benefits decreased over the
comparative period reflecting WesBanco's continued efforts to improve
operating efficiencies. Partially offsetting the reductions to other
expenses were increases in technology-related expenses and incremental
expenses resulting from the Heritage acquisition.
Forward-Looking Statements
--------------------------
Balance sheet:
- --------------
During the remainder of 1999, assuming a stable interest rate forecast,
balance sheet growth is expected to be concentrated in real estate loans,
through competitive pricing of residential mortgage and home equity loan
products. With only moderate deposit growth expected during the remainder
of the year, funding of new loan demand should be primarily from the
securities portfolio. A shift in the composition of deposits is expected to
continue, as declines in certificates of deposit and savings balances will be
offset by continued growth in the competitively priced money market accounts.
<PAGE> 18
Statement of income:
- --------------------
Net interest income: During the remainder of 1999, the positive effects of
strong loan growth on net interest income will be mitigated by competitive
pressure to make interest rate adjustments on loan and deposit products as
well as maturing securities which will be reinvested at lower rates. Due to
this competitive pressure, net interest income is expected to remain below
prior year levels.
Other income and expense: Through the remainder of the year, management
expects trust fees and non-banking income to exceed 1998 levels. The
Corporation anticipates that trust fees will continue to improve, reflecting
increases in the number of accounts under administration and investment fees
associated with WesMark mutual funds. Non-banking income will be positively
impacted by an increase in insurance fees associated with Hunter Agency, Inc.,
which was acquired in June 1998 and loan fees associated with WesBanco
Mortgage Company.
Recurring operating expenses are expected to reduce during the second
half of the year due to improved operational efficiency as the Corporation
continues its consolidation of affiliate operations. However, partially
offsetting these decreasing factors will be expenses related to the
acquisition of Heritage along with staffing and start-up costs associated
with new branch facilities in Charleston and Moundsville, West Virginia,
which are scheduled to open later in the year. Equipment expenses and certain
other non-interest expense categories will continue to be affected by
increased technology expenses. Late in 1999, WesBanco plans to implement a
check imaging system, which will improve operating efficiencies associated
with the process of preparing and distributing customers' checking
statements.
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 substantially completed the Awareness,
Assessment, Remediation, Validation and Implementation phases of this project.
WesBanco estimates the total external and internal costs of becoming
Year 2000 ready will approximate $660,000. These costs include operating
expenses incurred and paid through June 30, 1999 of $530,000, estimated
future capital expenditures of $20,000 and estimated future operating
expenses of $110,000.
<PAGE> 19
Mission Critical vendor supplied and maintained application software,
which must be continuously operable to support WesBanco's customer processing
requirements, includes accounting systems for: deposits, loans, general
ledger, shareholders, Trust, credit cards and ATM/debit cards. Accounting
systems for loans, deposits, and general ledger have been certified as Year
2000 compliant by an independent third party. Vendors of the other systems,
noted above, have represented to WesBanco that applicable Year 2000 testing
has been performed and the systems are Year 2000 compliant.
WesBanco has elected to perform in-house testing, including future date
testing, on 100% of all software and banking equipment. WesBanco has
successfully completed testing of its mission critical application software
as well as all other application software. As additional testing is determined
to enhance our ability to manage the turn of the century, we will continue
testing our existing application systems. Planned system enhancements during
the third and fourth quarters of 1999 will be tested prior to their
installation.
Information technology ("IT") systems such as, mainframe computers,
network servers and microcomputers, have been successfully tested as Year
2000 compliant. The Year 2000 Task Force has completed a non-IT examination
of WesBanco's business offices, to provide assurance that security systems,
vault doors, calculators, HVAC systems and telephone systems have been
evaluated and exceptions have been resolved.
Large commercial customers and non-IT vendors have been assessed for
their capability to resolve the Year 2000 issues and attain compliance.
Risk ratings have been assigned to customers and non-IT 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-IT vendors. In addition, a program was initiated to visit each
municipality and county government that serves our branch and ATM locations
to complete a survey on provided services. Further contact will occur, based
on survey results, during the third and fourth quarters.
Contingency plans, which set forth procedures for handling potential
disruptions to operations, have been developed and include plans for all main
customer products, services, supplies, and trust fiduciary accounts, and a
liquidity/funding contingency plan to provide adequate cash availability and
the access to cash sources and credit lines. These contingency plans have
multiple phases, including a business impact-analysis phase, a detail plan
development phase and a plan validation phase. The business impact-analysis
and detail contingency plan was completed prior to June 30, 1999; and the
plan validation is scheduled to be completed prior to September 30, 1999.
Validation will include testing our detail contingency plan, and, as
necessary, train our staff on the emergency process.
<PAGE> 20
The Trust/Investments function of WesBanco has validated its main
operating system for Year 2000 compliance, as well as, evaluating investments
held in a fiduciary capacity for significant Year 2000 risks. Trust is
successfully executing a plan to evaluate and/or assess fiduciary investment
holdings with the expectation that the majority of the evaluation will be
complete by September 30, 1999.
WesBanco has substantially completed all phases of the Year 2000 Program
and management believes it has taken the appropriate steps to identify and
resolve Year 2000 issues in a timely manner. WesBanco has no means of
ensuring that third parties (suppliers and major commercial customer) with
whom it interacts will be Year 2000 ready. The inability of those parties to
complete their Year 2000 process could impact the financial results of
WesBanco. Contingency plans will address the uncertainty of third parties
readiness.
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
anticipated 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.
Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
Through June 30, 1999, there have been no material changes to the
information on this topic as presented in the 1998 Annual Report.
<PAGE> 21
Part II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings
- --------------------------
Reference has been made in prior filings to the case styled Tankovits v.
Glessner, et al, Civil Action No. 96-C-59(w) presently pending in the Circuit
Court of Ohio County, West Virginia. A tentative settlement has been reached
by the parties and, subject to approval by the court, the matter should be
dismissed without material impact on the financial statements of the Company.
The procedural aspects of the settlement have yet to be resolved since the
case involves the administration of a trust. These procedural issues, which
involve how the settlement should be approved, could jeopardize the settlement
and reinstate the litigation facet of the case.
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 May 7, 1999, WesBanco filed a current report on Form 8-K dated
April 30, 1999 to report the completion of the acquisition of the Heritage
Bank of Harrison County, Inc.
On June 17, 1999, WesBanco filed a current report on Form 8-K dated
June 4, 1999 to report the approval of the 1,000,000 share stock repurchase
plan and the sale of the credit card receivables.
<PAGE> 22
SIGNATURES
----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESBANCO, INC.
--------------
/s/ Edward M. George
Date: August 13, 1999 -------------------------------
----------------- Edward M. George
President and Chief Executive Officer
/s/ Paul M. Limbert
Date: August 13, 1999 -------------------------------
----------------- Paul M. Limbert
Executive Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 68,165
<INT-BEARING-DEPOSITS> 4,649
<FED-FUNDS-SOLD> 22,333
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 407,502
<INVESTMENTS-CARRYING> 219,918
<INVESTMENTS-MARKET> 219,639
<LOANS> 1,444,719
<ALLOWANCE> 19,242
<TOTAL-ASSETS> 2,261,880
<DEPOSITS> 1,817,222
<SHORT-TERM> 123,352
<LIABILITIES-OTHER> 18,961
<LONG-TERM> 19,022
0
0
<COMMON> 43,742
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<TOTAL-LIABILITIES-AND-EQUITY> 2,261,880
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<INCOME-PRETAX> 21,569
<INCOME-PRE-EXTRAORDINARY> 21,569
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<NET-INCOME> 14,837
<EPS-BASIC> .73
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