1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ------ AND EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 ------------------------------------------------- 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 incorporation or organization) Identification No.) 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. Outstanding at October 31, 1997, 16,059,352 shares.
2 PART 1 - FINANCIAL INFORMATION - ------------------------------- Consolidated Balance Sheets at September 30, 1997 and December 31, 1996, 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, 1997 and 1996 are set forth on the following pages. In the opinion of management of the Registrant, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial information referred to above for such periods, have been made. The results of operations for the nine months ended September 30, 1997 are not necessarily indicative of what results may be attained for the entire year. Average shares and per share information have been restated to reflect a 3 for 2 stock split that was effected in the form of a fifty percent (50%) stock dividend, declared June 19, 1997. For further information, refer to the 1996 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, 1996.
3 WESBANCO, INC. CONSOLIDATED BALANCE SHEET - ------------------------------------------------------------------------------ (Unaudited, dollars in thousands, except per share amounts) September 30, December 31, 1997 1996 ------------- ------------ ASSETS Cash and due from banks $ 55,520 $ 58,828 Due from banks - interest bearing 198 197 Federal funds sold 48,600 10,970 Securities: Available for sale, carried at market value 318,794 276,201 Held to maturity (market value of $236,022 and $250,132, respectively) 233,739 249,108 ----------- ----------- Total securities 552,533 525,309 ----------- ----------- Loans held for sale 13,991 983 Loans (net of unearned income of $1,933 and $4,160, respectively) 1,028,475 1,026,370 Allowance for loan losses (15,522) (15,528) ----------- ----------- Net loans 1,012,953 1,010,842 ----------- ----------- Bank premises and equipment - net 34,480 32,670 Accrued interest receivable 13,259 11,748 Other assets 30,877 26,224 ----------- ----------- Total Assets $1,762,411 $1,677,771 =========== =========== LIABILITIES Deposits: Non-interest bearing demand $ 162,141 $ 159,176 Interest bearing demand 346,718 284,143 Savings 288,807 323,673 Certificates of deposit 594,400 575,828 ----------- ----------- Total deposits 1,392,066 1,342,820 ----------- ----------- Federal funds purchased and repurchase agreements 87,706 81,089 Other short-term borrowings 17,356 11,682 Accrued interest payable 6,130 5,826 Other liabilities 12,575 8,822 ----------- ----------- Total Liabilities 1,515,833 1,450,239 ----------- ----------- SHAREHOLDERS' EQUITY Preferred stock, no par value, 1,000,000 shares authorized; none outstanding - - Common stock, $2.0833 par value; 25,000,000 shares authorized; 16,072,049 and 10,538,993 shares issued, respectively 33,484 21,956 Capital surplus 44,536 36,949 Retained earnings 166,784 170,116 Treasury stock at cost (7,600 and 17,139 shares, respectively) (208) (544) Market value adjustment on securities available for sale - net of tax effect 2,999 (90) Deferred benefits for employees and directors (1,017) (855) ----------- ----------- Total Shareholders' Equity 246,578 227,532 ----------- ----------- Total Liabilities and Shareholders' Equity $1,762,411 $1,677,771 =========== =========== The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
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, -------------------------- ------------------------- 1997 1996 1997 1996 ------------ ----------- ----------- ----------- <S> <C> <C> <C> <C> INTEREST INCOME Interest and fees on loans $ 22,916 $ 20,684 $ 67,411 $ 60,046 Interest on securities 7,993 7,451 23,249 22,305 Interest on short-term investments 839 329 1,648 1,293 --------- --------- --------- --------- Total interest income 31,748 28,464 92,308 83,644 --------- --------- --------- --------- INTEREST EXPENSE Interest on deposits 13,169 11,215 37,728 33,010 Interest on other borrowings 1,176 944 3,244 2,713 ---------- --------- --------- --------- Total interest expense 14,345 12,159 40,972 35,723 ---------- --------- --------- --------- Net interest income 17,403 16,305 51,336 47,921 Provision for loan losses 875 1,298 2,864 2,848 ---------- --------- --------- --------- Net interest income after provision for loan losses 16,528 15,007 48,472 45,073 ---------- --------- --------- --------- OTHER INCOME Trust fees 1,702 1,204 4,985 4,039 Service charges and other income 1,979 1,692 5,264 4,713 Net securities gains(losses) 77 (167) 162 (51) ---------- --------- --------- --------- Total other income 3,758 2,729 10,411 8,701 ---------- --------- --------- --------- OTHER EXPENSES Salaries, wages and employee benefits 6,573 6,076 19,037 17,406 Premises and equipment-net 1,837 1,402 5,315 4,354 Other operating 3,851 3,356 11,280 9,686 ---------- --------- --------- --------- Total other expenses 12,261 10,834 35,632 31,446 ---------- --------- --------- --------- Income before provision for income taxes 8,025 6,902 23,251 22,328 Provision for income taxes 2,087 1,749 6,160 6,255 ---------- --------- --------- --------- Net Income $5,938 $5,153 $17,091 $16,073 ========== ========= ========= ========= Earnings per share of common stock $0.37 $0.34 $1.08 $1.06 ========== ========= ========= ========= Average shares outstanding 16,068,798 15,317,595 15,809,965 15,279,684 ========== ========== ========== ========== Dividends per share $0.200 $0.187 $0.586 $0.533 ========== ========== ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
5 </TABLE> <TABLE> WESBANCO, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------ (Unaudited, in thousands, except for shares) Market Value Deferred Adjustment on Benefits for Shares Common Capital Retained Treasury Investments Directors & Outstanding Stock Surplus Earnings Stock Available for Sale Employees Total - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> December 31, 1995 10,185,972 $21,608 $31,237 $159,483 $(5,038) $ 849 $(1,143) $ 206,996 - ---------------------------------------------------------------------------------------------------------------------------- Net income 21,161 21,161 Cash dividends Common (10,125) (10,125) Common by pooled bank prior to acquisition (403) (403) Stock issued for acquisitions 378,008 348 5,674 5,899 11,921 Net treasury shares purchased (42,126) 38 (1,405) (1,367) Principal payment on ESOP debt 365 365 Deferred benefits for directors (77) (77) Market value adjustment on investments available for sale- net of tax effect (939) (939) - ----------------------------------------------------------------------------------------------------------------------------- December 31, 1996 10,521,854 21,956 36,949 170,116 (544) (90) (855) 227,532 - ----------------------------------------------------------------------------------------------------------------------------- Net income 17,091 17,091 Cash dividends - Common (9,262) (9,262) Stock issued for acquisition 323,172 367 7,518 4,901 12,786 Net treasury shares purchased (137,580) 69 (4,565) (4,496) Stock issued for a 3 for 2 stock split effected in the form of a 50% stock dividend 5,357,003 11,161 (11,161) - Deferred benefits for directors (28) (28) ESOP borrowing (134) (134) Market value adjustment on investments available for sale- net of tax effect 3,089 3,089 - ----------------------------------------------------------------------------------------------------------------------------- September 30, 1997 16,064,449 $33,484 $44,536 $166,784 $(208) $ 2,999 $(1,017) $246,578 - ----------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
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, -------------------------- 1997 1996 ------------ ----------- Cash flows from operating activities: Net Income $17,091 $16,073 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,857 4,282 Provision for loan losses 2,864 2,848 Gains on sales of securities-net (162) 51 Deferred income taxes 315 (329) Net change in assets and liabilities: Loans held for sale (13,009) - Interest receivable (1,347) (35) Other assets 2,074 (1,353) Interest payable 24 18 Other liabilities 1,157 1,861 Other - net (119) (244) ----------- ---------- Net cash provided by operating activities 12,745 23,172 ----------- ---------- Cash flows from investing activities: Securities held to maturity: Payments for purchases (39,582) (38,306) Proceeds from maturities and calls 72,395 81,093 Securities available for sale: Payments for purchases (104,546) (121,848) Proceeds from sales 25,779 70,513 Proceeds from maturities and calls 32,685 26,228 Purchase of subsidiary, net of cash acquired 6,615 - Net (increase) decrease in loans 12,526 (73,525) Purchases of premises and equipment-net (3,697) (3,260) ---------- ---------- Net cash provided by (used in) investing activities 2,175 (59,105) ---------- ---------- Cash flows from financing activities: Net increase in deposits 20,678 16,668 Increase in federal funds purchased and repurchase agreements 6,316 14,194 Increase in short-term borrowings 5,674 11,402 Dividends paid (8,904) (6,937) Purchases of treasury shares-net (4,496) (721) ESOP borrowings 134 - ---------- ---------- Net cash provided by financing activitie 19,402 34,606 ---------- ---------- Net increase (decrease) in cash and cash equivalents 34,322 (1,327) Cash and cash equivalents at beginning of period 69,798 91,694 ---------- ---------- Cash and cash equivalents at end of period $104,120 $90,367 ========== ========== For the nine months ended September 30, 1997 and 1996, WesBanco paid $40,669 and $35,359 in interest on deposits and other borrowings, and $5,720 and $6,220 for income taxes respectively. During the nine months ended September 30, 1997 non-cash activity consisted of common stock issued in connection with the purchase acquisition of Shawnee on June 30, 1997, which totaled $12,786. The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
7 WESBANCO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ----------------------------------------------------------------- Note 1 - 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. and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. Average shares and per share information have been restated to reflect a 3 for 2 stock split that was effected in the form of a fifty percent (50%) stock dividend, declared June 19, 1997 and paid August 1, 1997. Note 2 - New accounting standards to be adopted - ----------------------------------------------- During the nine months ended September 30, 1997, the Financial Accounting Standards Board issued several Statements of Financial Accounting Standards ("SFAS"). SFAS No. 128, "Earnings per Share" is effective for periods ending after December 15, 1997 with retroactive restatement required for all periods presented. Under the provisions of SFAS No. 128, primary and fully diluted earnings per share will be replaced with basic and diluted earnings per share amounts. SFAS No. 129, "Disclosure of Information About Capital Structure," is effective for financial statements for the periods ending after December 15, 1997. This Statement requires disclosure of rights and privileges of various securities outstanding. SFAS No. 130, "Reporting Comprehensive Income," is effective for fiscal years beginning after December 15, 1997. The statement establishes standards for reporting and display of comprehensive income and its components. Comprehensive income includes net income and all other changes in shareholders' equity except those resulting from investments and distributions of owners. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," is effective for financial statements for periods beginning after December 15, 1997. This Statement requires financial
8 Note 2 - New accounting standards to be adopted (continued) - ----------------------------------------------------------- and descriptive information about an entity's operating segments to be included in the annual financial statements. None of these standards when implemented are expected to materially impact the reported financial position or results of operations of the Corporation. Note 3 - Mergers and acquisitions - --------------------------------- On September 30, 1997, WesBanco and Commercial Bancshares, Incorporated jointly announced the signing of a definitive Agreement and Plan of Merger providing for Commercial, a multi- bank holding company headquartered in Parkersburg, West Virginia, to merge with WesBanco affiliated companies. Under the terms of the definitive Agreement and Plan of Merger, WesBanco will exchange 2.85 shares of WesBanco common stock for each share of Commercial common stock outstanding in a tax free exchange. The merger, which is based on a fixed exchange ratio, will be accounted for as a pooling of interests. In addition, Commercial has granted to WesBanco an option, exercisable under certain conditions, to purchase up to 19.9% of Commercial's outstanding common shares. The transaction, which is subject to, among other things, approval by the appropriate regulatory authorities and the stockholders of Commercial and WesBanco, is expected to be completed during the first quarter of 1998. Prior to its agreement with WesBanco, Commercial executed a definitive agreement to acquire Gateway Bancshares, Inc., located in McMechen, West Virginia. On a proforma basis, Commercial, including the acquisition of Gateway, reflected total assets of approximately $456,305,000 and common shares outstanding of 1,732,295 as of September 30, 1997. Note 4 - Completed Merger - ------------------------- On June 30, 1997, WesBanco consummated its acquisition of Shawnee Bank, Inc., into WesBanco Bank Charleston, a wholly-owned subsidiary of WesBanco. In accordance with the terms of the acquisition, WesBanco issued a total of 323,172 shares of common stock, of which 147,274 shares were from its Treasury balance and 175,898 shares were newly issued. The acquisition was accounted for as a purchase transaction with a total purchase price of $12,786,000. The excess of the purchase price over the fair market value of the net assets (goodwill) of Shawnee approximated $7,107,000 and is being amortized over a period of 15 years. As of the acquisition date, Shawnee reported total assets of approximately $34,695,000.
9 WESBANCO, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ---------------------------------------------------------------- (Unaudited, dollars in thousands, except per share amounts) 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. Financial Condition ------------------- Total assets of WesBanco as of September 30, 1997 were $1,762,411 as compared to $1,677,771 as of December 31, 1996, an increase of 5%. Contributing to the increase in assets was the purchase acquisition of Shawnee, which occurred June 30, 1997. As of the acquisition date, Shawnee reported total assets of $34,695, loans of $17,502 and deposits of $28,643. For the comparative period, securities and federal funds sold increased $27,224 and $37,630, respectively. Loans remained unchanged from the same level as December 31, 1996, while deposits increased $49,246. Securities - ---------- The following table shows the composition of WesBanco's securities portfolio: September 30, December 31, 1997 1996 ------------- ------------ Securities Available for Sale (at market): - ------------------------------------------ U.S. Treasury and federal agency securities $215,729 $161,817 Obligations of states and political subdivisions 14,291 14,120 Corporate securities 8,584 5,005 Mortgage-backed securities 78,285 93,750 Other debt and equity securities 1,905 1,509 ---------- --------- Total available for sale 318,794 276,201 ---------- --------- Securities Held to Maturity (at cost): - -------------------------------------- U.S. Treasury and federal agency securities 79,164 99,457 Obligations of states and political subdivisions 152,298 147,643 Other debt securities 2,277 2,008 ---------- --------- Total held to maturity (market value of $236,022 and $250,132, respectively) 233,739 249,108 ---------- --------- Total securities $552,533 $525,309 ========== =========
10 The market value adjustment, before tax effect, in the available for sale securities portfolio reflected unrealized net gains of $4,938 as of September 30, 1997 compared to unrealized net losses of $144 as of December 31, 1996. 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 WesBanco's loan portfolio at September 30, 1997 and December 31, 1996: September 30, 1997 December 31, 1996 ------------------ ----------------- Amount Percent Amount Percent ------ ------- ------ ------- Commercial $ 201,462 19.6% $ 177,136 17.2% Real Estate - Construction 26,294 2.6 21,556 2.0 Real Estate - Mortgage 513,400 49.8 510,778 49.6 Consumer 289,252 28.0 321,060 31.2 --------- ------ --------- ------ Total Loans 1,030,408 100.0% 1,030,530 100.0% Less: Unearned income (1,933) (4,160) Allowance for loan losses (15,522) (15,528) ---------- ---------- Net Loans $1,012,953 $1,010,842 ========== ========== Consumer loans declined during the nine months ended September 30, 1997, reflecting a slowdown in indirect auto financing, while commercial loans increased primarily due to financing a large secured business loan during the third quarter of 1997. The Corporation expects loan growth to remain slow during the fourth quarter of 1997 due to the competitive environment and lack of economic growth in the Upper Ohio Valley. 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 nonperforming 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 nonperforming loans, are as follows: September 30, December 31, 1997 1996 ------------- ------------ Nonperforming loans: Nonaccrual $ 6,596 $ 4,664 Renegotiated 815 2,150 Other classified loans: Doubtful 94 Substandard 3,377 3,377 ---------- ---------- Total impaired loans $ 10,788 $ 10,285 ========== ========== The average balance of impaired loans during the nine months ended September 30, 1997 and year ended December 31, 1996, was approximately $11,940 and $11,541, respectively.
11 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. Related allowances for loan losses on impaired loans were $1,774 and $2,120 as of September 30, 1997 and December 31, 1996, respectively. Other real estate owned totaled $4,629 as of September 30, 1997, compared to $3,555 as of December 31, 1996. Loans past due 90 days or more decreased to $4,022 or .4% of total loans as of September 30, 1997, as compared to $4,105 or .4% of total loans as of December 31, 1996. 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, -------------------- 1997 1996 ---- ---- Balance, at beginning of period $15,528 $13,440 Allowance for loan losses of purchased bank 269 - Charge-offs (3,821) (2,063) Recoveries 682 372 ------- ------- Net charge-offs (3,139) (1,691) Provision for loan losses 2,864 2,848 ------- ------- Balance, at end of period $15,522 $14,597 ======= ======= The increase in net charge-offs during the nine months ended September 30, 1997 resulted from an increase in consumer loan charge-offs and the writedown of a commercial loan. The increase in consumer loan charge-offs was due to the lack of economic growth in the Upper Ohio Valley. The allowance for loan losses as a percentage of total loans was 1.51% as of September 30, 1997 and 1996. Amounts allocated to the allowance for loan losses are based upon management's evaluation of the credit risk in the loan portfolio. Management believes that the allowance for loan losses as of September 30, 1997 is adequate to provide for potential losses in the portfolio. Deposits - -------- Total deposits increased $49,246 between September 30, 1997 and December 31, 1996 due in part to the purchase acquisition of Shawnee Bank, Inc., which accounted for approximately 58% of the growth. In addition, WesBanco experienced growth in both interest bearing demand and certificates of
12 deposit. Customer preference for higher yielding products coupled with competitive pricing through the Good Neighbor Banking program have resulted in steady growth in certificates of deposit. Contributing to the growth in interest bearing demand was the Prime Rate Money Market account, introduced on October 1, 1996. This deposit product, competitively priced at 60% of WesBanco's prime rate, has generated both new deposit growth and a shift in deposit balances from savings and other interest bearing demand products. Liquidity and Capital Resources - ------------------------------- WesBanco manages its liquidity position to meet its funding needs, including 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. 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, 1997 and December 31, 1996, all of WesBanco's affiliate banks exceeded the minimum regulatory levels. Capital adequacy ratios are summarized as follows: September 30, December 31, 1997 1996 ------------- ------------ Tier I capital 19.8% 19.8% Total risk-based capital 21.0 21.0 Leverage 13.2 13.7
13 Earnings Summary ---------------- Comparison of the nine months ended September 30, 1997 and 1996 --------------------------------------------------------------- Net income for the nine months ended September 30, 1997 was $17,091, a 6.3% increase over the same period in 1996. Earnings per share of common stock for the nine months ended September 30, 1997 and 1996 were $1.08 and $1.06, respectively. The purchase acquisitions of Vandalia National Corporation and Shawnee Bank, Inc. were completed subsequent to the nine months ended September 30, 1996. The impact of these acquisitions increased most income and expense classifications during the nine months ended September 30, 1997, as further explained in the Earnings Summary. Return on average assets was 1.3% for the nine months ended September 30, 1997 and 1.4% for the nine months ended September 30, 1996. Return on average equity was 9.8% compared to 10.3% for the nine months ended September 30, 1997 and 1996, respectively. Net Interest Income - ------------------- During a period of stable market rates, net interest income before the provision for loan losses, for the nine months ended September 30, 1997 increased $3,415 or 7.1% over the same period for 1996. While the net tax equivalent yield on average earning assets remained level at 4.6%, the increase in net interest income was primarily the result of growth in average earning assets of $107,584 and interest bearing liabilities of $86,700. Interest Income - --------------- Total interest income increased $8,664 or 10.4% between the nine month periods ended September 30, 1997 and 1996. The average balance on interest earning assets increased $107,584 or 7.2%, while the average yield on average earning assets, on a fully tax equivalent basis increased to 8.1% from 7.8% between the nine month period ended September 30, 1997 and 1996. Interest and fees on loans increased $7,365 or 12.3% primarily due to an increase in the average balance of loans outstanding. Average loan balances increased $103,837 or 11.3%, while average rates earned on loans remained unchanged. Loan growth resulted from the Vandalia and Shawnee purchase acquisitions coupled with growth in indirect auto financing during 1996. Interest on taxable securities, which did not change significantly between the nine month periods ended September 30, 1997 and 1996, reflected a decline in the average outstanding balance of $31,623 offset by an increase in the average rate of approximately .4%. The decrease in the average securities balance was the result of funding loan growth during 1996 with scheduled investment maturities. Interest earned on nontaxable securities increased $1,207 or 23.5%. Increases in the average balance of nontaxable securities approximated $23,531 and the average yield increased .3%. WesBanco emphasized purchases of nontaxable securities, which represented after-tax yield advantages over other securities during the comparative period.
14 Interest Expense - ---------------- Total interest expense increased $5,249 or 14.7% between the nine month periods ended September 30, 1997 and 1996. The average balance of interest bearing liabilities increased $86,700 or 7.2%, while the average cost of funds rate increased .3% to 4.2% from 3.9% between the nine month periods ended September 30, 1997 and 1996. Interest expense on deposits increased $4,718 or 14.3%. During the comparative period, the average rate of interest bearing deposits increased .3% and average interest bearing deposit balances increased by approximately $80,893 or 7.2%. Interest expense on interest bearing demand deposits increased $2,143 or 41.1% primarily due to an increase in the average rate of .6% coupled with an increase in the average balance of $42,795 or 15.7%. An increase of $3,696 or 17.6% in the interest expense on certificates of deposit was primarily due to an average balance increase of $72,969. The increase in average balance and rate for both interest bearing demand and certificates of deposit resulted from the Vandalia and Shawnee purchase acquisitions, the competitively-priced Prime Rate Money Market product and Good Neighbor Banking bonuses offered on various certificates of deposit products. Affected primarily by a shift in balances from savings into money markets and certificates of deposit, interest on savings accounts decreased $1,121 or 16.4%. Average savings balances declined $34,871 and the average rate decreased .2%. Interest on other borrowings, which consists primarily of repurchase agreements, increased $531 or 19.6% due to an increase in average balances outstanding of $5,808. Rates paid on repurchase agreements closely follow the direction of interest rates in the federal funds market. Other Income - ------------ Other income increased $1,710 or 19.7%. Trust fee income increased $946 due to increases in the market value of trust assets and new trust business as well as fees associated with the establishment of a new family of mutual funds, the WesMark funds. The market value of trust assets approximated $1,901,346 as of September 30, 1997, an increase of $401,416 or 26.8% over September 30, 1996. Service charges and other income increased $551 or 11.7% between the nine month periods ended September 30, 1997 and 1996, resulting from an increase in service charges on deposit accounts. Other Expenses - -------------- Total other expenses increased $4,186 or 13.3%. Approximately $2,053 or 49.0% of the increase was associated with the purchase acquisitions which occurred subsequent to the nine months ended September 30, 1996. Salaries and employee benefits increased $1,631 or 9.4% during the comparative period, of which approximately $899 was due to the purchase acquisitions. The remaining portion of the increase resulted from wage increases and an increase in health insurance costs, partially offset by a reduction in the cost of the defined benefit pension plan. Premises and equipment expense increased $961 or 22.1%. While the purchase acquisitions contributed to the increase in this expense category, the
15 majority of the increase was due to depreciation expense on technology enhancements made during 1996, including the installation of a wide area network and a new banking software system. Other operating expenses increased $1,594 or 16.5%. Approximately $929 or 58.3% of the increase was associated with the purchase acquisitions, which included related goodwill amortization of $525. The increase in other expenses was further affected by the construction of a 2,700 square foot branch office of WesBanco Bank Barnesville, an affiliate of WesBanco. The office, located in the Ohio Valley Plaza, St. Clairville, Ohio, began operations early 1997. 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, -------------------- 1997 1996 ---- ---- Federal statutory tax rate 35% 35% Tax-exempt interest income from securities of states and political subdivisions (9) (8) State income tax - net of federal tax effect 3 3 Alternative minimum tax credit carryforward recognized (3) - All other - net 0 (1) ---- ---- Effective tax rate 26% 29% ==== ==== For the nine months ended September 30, 1997, the Corporation has utilized credits for prior years' minimum taxes of $675. As of September 30, 1997, approximately $198 in credits are available for future periods to reduce federal income taxes payable. Comparison of the three months ended September 30, 1997 and 1996 ---------------------------------------------------------------- Interest Income - --------------- Total interest income increased $3,284 or 11.5% between the three month periods ended September 30, 1997 and 1996. Interest and fees on loans increased $2,232 or 10.8% primarily due to an increase in the average balance of loans outstanding. Average loan balances increased by approximately $102,969 or 11.1% as average rates earned on loans decreased approximately .2%. Interest on taxable securities, which did not change significantly between the three month periods ending September 30,
16 1997 and 1996, reflected a decrease in the average outstanding balance of $14,746 offset by an increase in the average rate of approximately .1%. The decrease in average taxable securities was the result of funding loan growth during 1996 with scheduled investment maturities. Interest earned on nontaxable securities increased by $702 or 50%. Increases in the average balance of nontaxable securities approximated $20,730 while the average yield increased 1.2%. WesBanco emphasized purchases in nontaxable securities, which represented after-tax yield advantages over other securities during the comparative period. Interest Expense - ---------------- Total interest expense increased $2,186 or 18% between the three month periods ended September 30, 1997 and 1996. Interest expense on deposits increased $1,954 or 17.4% during the comparative period as the average rate on interest bearing deposits increased .3% and average interest-bearing deposit balances increased by approximately $97,056 or 8.6%. Interest expense on interest bearing demand deposits increased $1,069 or 60.4% primarily due to an increase in the average rate of .7% coupled with an increase in the average balance of $70,562 or 26.3%. The rate and balance increases resulted from growth in the Prime Rate Money Market product. An increase of $1,346 or 18.9% in the interest expense on certificates of deposit was primarily the result of an average balance increase of $67,866. The growth in certificates of deposit was associated primarily with the Good Neighbor Banking Program. Affected primarily by a shift in balances from savings into money markets and certificates of deposit, interest on savings accounts decreased $461 or 19.9%. Average savings balances declined $41,372 and the average rate decreased .3%. Interest on other borrowings, which consist primarily of repurchase agreements, increased $232 or 24.6% . Other Income - ------------ Other income increased $1,029 or 37.7% between the three month periods ended September 30, 1997 and 1996. The increase was due to both trust fee income, which reflected fees associated with the WesMark funds, and increased service charges on deposit accounts. Other Expenses - -------------- Total other expenses increased $1,427 or 13.2%, of which approximately $913 or 64.0% was associated with the purchase acquisitions. Salaries and employee benefits increased $497 or 8.2% during the comparative period. Premises and equipment expense increased $435 or 31% primarily due to depreciation expense on technology enhancements made during 1996. Other operating expenses increased $495 or 14.7%. Approximately $439 of the increase was associated with the purchase acquisitions, which included related goodwill amortization of $257. The increase in other expenses was also affected by the construction of a branch office of WesBanco Barnesville, which began operations early 1997.
17 Other Matters ------------- WesBanco has approximately 58% of its assets located in the Upper Ohio Valley, an area that experienced an extended strike between the United Steel Workers Union and Wheeling-Pittsburgh Steel Corporation. On August 12, 1997, a new contract was ratified between the Union and Wheeling-Pittsburgh Steel. Part II - OTHER INFORMATION - --------------------------- Item 1-5 - Not Applicable - ------------------------- Item 6(a) - Exhibits - -------------------- 2.1 Agreement and Plan of Merger, by and between WesBanco, Inc. and Commercial Bancshares, Incorporated, dated September 30, 1997. 2.2 Stock Option Agreement by and between WesBanco,Inc. and Commercial Bancshares, Incorporated, dated September 12, 1997. 27 Financial Data Schedule required by Article 9 of Regulation S-X. Item 6(b) - Reports on Form 8-K - ------------------------------- (1) On August 5, 1997, the Registrant filed a current report on Form 8-K, dated August 1, 1997, announcing a 3 for 2 stock split that was effected in the form of a fifty percent (50%) stock dividend paid August 1, 1997 to shareholders of record on July 15, 1997. (2) On October 6, 1997, the Registrant filed a current report on Form 8-K, dated September 30, 1997 announcing the signing of a definitive Agreement and Plan of Merger providing for the merger of Commercial Bancshares, Incorporated, located in Parkersburg, West Virginia, into WesBanco, Inc.
18 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 14, 1997 /s/ Edward M. George ------------------------------------ Edward M. George President and Chief Executive Officer November 14, 1997 /s/ Paul M. Limbert ------------------------------------------ Paul M. Limbert Executive Vice President-Credit Administration and Chief Financial Officer </TABLE>