UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year Ended December 31, 2001
----- 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.
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(Exact name of Registrant as specified in its charter)
WEST VIRGINIA 55-0571723
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1 Bank Plaza, Wheeling, WV 26003
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(Address of principal executive offices) (Zip Code)
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Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each Exchange on which registered
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Common Stock $2.0833 Par Value Nasdaq
Nonredeemable Preferred Stock None
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The aggregate market value of voting stock computed using the average of the bid and ask prices held by non-affiliates of the Registrant on March 1, 2002 was approximately $400,868,000.
As of March 1, 2002, there were 21,230,138 shares of WesBanco, Inc. Common stock $2.0833 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The portions of WesBanco Inc.'s 2001 Annual Report ("Annual Report to Shareholders") for the year ended December 31, 2001 referred to in Parts I, II, III and IV of this Form 10-K are incorporated by reference herein. The portions of the definitive Proxy Statement of WesBanco, Inc. for the Annual Meeting of Shareholders to be held on April 17, 2002 ("Proxy Statement") referred to in Part III of this Form 10-K are incorporated by reference. Except for the parts of the Annual Report to Shareholders expressly incorporated herein by reference, the Annual Report to Shareholders is not to be deemed filed with the Securities and Exchange Commission.
WESBANCO, INC.
TABLE OF CONTENTS
ITEM # ITEM Page No.
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Part I
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1 Business 3
2 Properties 7
3 Legal Proceedings 7
4 Submission of Matters to a Vote of Security Holders 7
Part II
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5 Market for the Registrant's Common Equity and Related
Stockholder Matters 8
6 Selected Financial Data 8
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
7A Quantitative and Qualitative Disclosures about Market Risk 8
8 Financial Statements and Supplementary Data 8
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 8
Part III
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10 Directors and Executive Officers of the Registrant 8
11 Executive Compensation 8
12 Security Ownership of Certain Beneficial Owners and
Management 8
13 Certain Relationships and Related Transactions 8
Part IV
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14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 9
Signatures 10
EXHIBIT INDEX E-1
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PART I
WesBanco's banking subsidiary, WesBanco Bank, Inc., is a West Virginia banking corporation and is member bank of the Federal Reserve System. It is subject to examination and supervision by the Federal Reserve Board and the West Virginia Division of Banking. Its deposits are insured by the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC"). WesBanco's nonbank subsidiaries are also subject to examination and supervision by the Federal Reserve Board and examination by other federal and state agencies, including, in the case of certain securities activities, regulation by the Securities and Exchange Commission. The banking subsidiary maintains one designated financial subsidiary, WesBanco Insurance Services, Inc.
PART II
Quarterly price information, reflecting high and low sales prices as reported by Nasdaq and quarterly dividends per share for 2001 and 2000 are as presented below:
2001 2000
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Dividend Dividend
High Low Declared High Low Declared
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Forth quarter $23.61 $18.10 $.230 $24.25 $21.50 $.225
Third quarter 27.75 19.50 .230 24.63 19.13 .225
Second quarter 26.00 18.31 .230 24.63 20.00 .225
First quarter 24.50 17.00 .230 25.00 19.31 .220
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PART III
PART IV
Page No.
(1) Financial Statements --------
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The following consolidated financial statements and
report of independent auditors of WesBanco of the
Annual Report to Shareholders are incorporated herein
by reference:
Consolidated Balance Sheets as of December 31,
2001 and 2000 E-20
Consolidated Statements of Income for the years
ended December 31, 2001, 2000 and 1999 E-21
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 2001,
2000 and 1999 E-22
Consolidated Statements of Cash Flows for the years
ended December 31, 2001, 2000 and 1999 E-23
Notes to Consolidated Financial Statements E-24 - E-36
Report of Ernst & Young LLP, Independent Auditors E-37
Condensed Quarterly Statement of Income E-38
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Current Report on Form 8-K dated October 24, 2001 and filed October 30, 2001, Items 5 and 7.
Current Report on Form 8-K dated November 7,
2001 and filed November 9, 2001, Items 5 and 7. Current Report on Form 8-K dated March 1, 2002 and filed March 15, 2002, Items 2 and 7.
SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) 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, on March 29, 2002.
WESBANCO, INC.
By: /s/ Paul M. Limbert
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Paul M. Limbert
President and Chief
Executive Officer
By: /s/ Robert H. Young
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Robert H. Young
Executive Vice President and
Chief Financial Officer
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on March 29, 2002.
By: /s/ James C. Gardill ------------------------ James C. Gardill Chairman of the Board |
The Directors of WesBanco (listed below) executed a power of attorney appointing James C. Gardill their attorney-in-fact, empowering him to sign this report on their behalf.
By: /s/ James C. Gardill ------------------------ James C. Gardill Attorney-in-fact |
Ray A. Byrd Frank R. Kerekes John H. Cheffy Jeremy C. McCamic Christopher V. Criss William E. Mildren, Jr. James D. Entress Joan C. Stamp Ernest S. Fragale James W. Swearingen James C. Gardill Reed J. Tanner Edward M. George Robert K. Tebay Roland L. Hobbs William E. Witsche |
EXHIBIT INDEX
Exhibit
Number Document Page No.
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2.1 Agreement and Plan of Merger dated as of
February 22, 2001 among WesBanco, Inc.,
American Bancorporation, AB Corporation and
WesBanco Bank, Inc. (1)
2.2 First Amendment to Agreement and Plan of Merger
dated as of November 5, 2001 among WesBanco, Inc.,
American Bancorporation, AB Corporation and
WesBanco Bank, Inc. (1)
3.1 Articles of Incorporation of WesBanco, Inc. (2)
3.2 Articles of Amendment to the Articles of
Incorporation of WesBanco , Inc. (7)
3.3 Bylaws of WesBanco, Inc. (2)
4.1 Specimen Certificate of WesBanco, Inc. Common Stock(3)
10.1 Directors' Deferred Compensation Plan (2)
10.2 Key Executive Incentive Bonus and Option Plan.(5)
10.3 Employment Agreements (4), (6)
10.4 Employment Continuity Agreement (8)
10.5 First Amendment to Employment Continuity Agreement (10)
10.6 Change in Control Agreements (by and between WesBanco, Inc.,
WesBanco Bank, Inc. and the following executive officers:
Paul M. Limbert, Dennis P. Yaeger, Jerome B. Schmitt,
John W. Moore, Kristine N. Molnar and Robert H. Young) (9)
10.7 Salary Continuation Agreement (by and between WesBanco, Inc.,
WesBanco Bank, Inc., and the following executive officers:
Paul M. Limbert, Jerome B. Schmitt, John W. Moore,
Kristine N. Molnar, Dennis P. Yaeger, Frank R. Kerekes
and Peter W. Jaworski)(10)
10.8 Executive Supplemental Income Agreement (10)
10.9 Second Amended Severance Plan Clarification Agreement
dated February 26, 2002 by and between American
Bancorporation, Jeremy C. McCamic and WesBanco, Inc. * E-3
10.10 Second Amended Consulting Agreement dated February 26,
2002 by and between WesBanco, Inc. and Jeremy C. McCamic * E-6
10.11 Amended Severance Plan Clarification Agreement dated
November 30, 2001 by and among American Bancorporation,
Paul W. Donahie and WesBanco, Inc. (1)
10.12 Consulting Agreement dated February 22, 2001 by and
between WesBanco, Inc. and Paul W. Donahie (1)
10.13 Amended Severance Plan Clarification Agreement dated
November 30, 2001 by and among American Bancorporation,
John E. Wait and WesBanco, Inc. (1)
10.14 Amended Agreement dated November 30, 2001 by and among
WesBanco Bank, Inc., WesBanco, Inc. and John E. Wait (1)
10.15 Amended Severance Plan Clarification Agreement dated
November 30, 2001 by and among American Bancorporation,
Brent E. Richmond and WesBanco, Inc. (1)
10.16 Agreement dated November 30, 2001 by and among WesBanco
Bank, Inc., WesBanco, Inc. and Brent E. Richmond (1)
10.17 Amended Amendment to Employment Agreement dated
November 30, 2001 by and among Wheeling National Bank,
Patrick O'Brien and WesBanco, Inc. (1)
10.18 Amended Engagement Letter Amendment Agreement dated
November 30, 2001 by and among McCamic & McCamic,
American Bancorporation and WesBanco, Inc. (1)
10.19 Employment Agreement by and between WesBanco Bank,
Inc., Robert H. Young and WesBanco, Inc.* E-12
11 Computation of Earnings Per Share (11)
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13 Annual Report to Shareholders (except for those
portions expressly incorporated by
reference herein, this report is not "filed " as part
of this Report on Form 10-K.) * E-20
21 Subsidiaries of the Registrant * E-53
22 Proxy Statement for the Annual Shareholders' Meeting to
be held April 17, 2002 (12)
23.1 Consent of Ernst & Young LLP * E-54
24 Power of Attorney * E-55
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*Filed within
THIS AGREEMENT, made and entered into as of this 26th day of February, 2002, by and between AMERICAN BANCORPORATION, an Ohio corporation with its office and principal place of business located in St. Clairsville, OH (hereinafter referred to as "American"), and JEREMY C. McCAMIC, party of the second part (hereinafter referred to as "Employee"), and WESBANCO, INC., a West Virginia corporation (hereinafter referred to as "Wesbanco").
WHEREAS, the Employee is currently serving as the Chief Executive Officer of American and is a beneficiary of that certain Severance Plan adopted by American pursuant to action of its Board of Directors taken on the 21st day of April, 1998, and
WHEREAS, American and Wesbanco have entered into negotiations concerning the possible acquisition of American and desire to clarify certain provisions of the said Severance Plan in conjunction with the continued employment of Employee, and
WHEREAS, the parties hereto executed earlier versions of this Agreement dated February 22, 2001, and November 30, 2001, and a letter of understanding dated February 20, 2001, which they hereby revoke and substitute the following therefore.
WITNESSETH THAT: In consideration of the mutual promises and undertakings hereinafter set forth, and the parties intending to be legally bound hereby, covenant and agree as follows:
1. Notwithstanding the provisions of said Severance Plan as set forth in the Minutes of the Board of Directors meeting dated April 21, 1998, of American, the parties hereto acknowledge their understanding that they did not intend to trigger Excise Tax under Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and, accordingly, that the
present value of any annuity payment or lump sum that may be paid to the Employee because of a change in control of the company shall be less than 2.99 times the Employee's "Base Amount" as such term is defined in Section 280G(b)(3) of the Code taking into account all other payments under Section 208G(b)(2)(A). The "Base Amount" is the average includable compensation for the past five (5) years (1997-2001) and American has calculated the Base Amount to be Three Hundred Twenty-four Thousand Four Hundred Five Dollars ($324,405.00).
2. The parties hereby acknowledge and agree that the Employee shall be paid a monthly annuity, pre-tax, of a program and company approved by him of Eight Thousand One Hundred Dollars ($8,100.00) per month for life with a minimum term certain of twelve (12) years in full satisfaction of the benefit due Employee under the Severance Plan of American, which annuity shall commence within thirty (30) days of the closing of said merger. Employee shall pay all income tax attributable to receipt of such annuity payments.
3. Employee agrees that the benefits to be provided hereunder shall be in lieu of any other benefit to which Employee might have been entitled under the terms of the Severance Plan adopted by the Board of Directors of American at its meeting of April 21, 1998, under the heading "Severance Plan".
4. The parties agree that they intend by this amendment to avoid the imposition of any excise tax under Section 280G for all payments made to Employee. The parties acknowledge that calculations demonstrating the inapplicability of the excise tax under Section 280G have been performed for Wesbanco by Ernst & Young and the parties have had an opportunity to review such calculations. However, the parties agree that in the event such an excise tax is assessed, after exhaustion of all remedies applicable thereto, Wesbanco will reimburse Employee for any excise tax (including interest, penalties and costs). Employee
acknowledges that the payment of such excise tax will be deemed to be additional compensation to him and taxable as ordinary income and Employee will bear any income tax consequences by reason of the reimbursement of any such excise tax.
WITNESS the following signatures:
AMERICAN BANCORPORATION
By /s/ Brent E. Richmond
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Its President
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/s/ Jeremy C. McCamic
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JEREMY C. McCAMIC
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WESBANCO, INC.
By /s/ Paul M. Limbert
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Its President
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THIS AGREEMENT, made this 26th day of February, 2002, by and between WESBANCO, INC., a West Virginia corporation, party of the first part (hereinafter called "Wesbanco"), and JEREMY C. McCAMIC, of Wheeling, Ohio County, West Virginia, party of the second part (hereinafter called "Consultant").
WHEREAS, the Consultant has heretofore served as the Chief Executive Officer of American Bancorporation ("American") for a significant number of years and in that capacity has established significant contacts and relationships with customers of American and its subsidiaries, as well as with banking institutions in markets served by American and Wesbanco, and
WHEREAS, American and Wesbanco have executed an Agreement and Plan of Merger dated the 22nd day of February, 2001, providing for the acquisition of American by Wesbanco and the merger of American's operating subsidiaries with and into existing entities of Wesbanco, as amended by First Amendment Agreement dated November 5, 2001, and
WHEREAS, Consultant will retire as an executive officer as of the date of such merger but will be appointed to the Board of Directors of Wesbanco and will be appointed to serve on the Executive Committee of Wesbanco to serve until December 31, 2002, and
WHEREAS, Wesbanco desires to retain the services of Consultant after his retirement as an executive officer, as hereinafter set forth, and in connection with the continuing activities of Wesbanco, to be assured of his services on the terms and conditions hereinafter set forth, and
WHEREAS, Consultant is willing to provide such services in accordance with the terms and conditions of this Agreement, and
WHEREAS, the parties hereto executed earlier versions of this Agreement dated February 22, 2001, and November 30, 2001,which they hereby revoke and substitute the following therefore.
NOW, THEREFORE, THIS AGREEMENT WITNESSETH: That for and in consideration of the mutual promises and covenants hereinafter contained, the parties hereto do hereby agree as follows:
1. CONSULTING RELATIONSHIP. Wesbanco hereby retains Consultant to render services (as hereinafter defined) as may be requested from time to time by the Board of Directors, Executive Committee or President of Wesbanco. Consultant hereby agrees to render such services for the compensation herein provided, agrees to be available at such times and in such places as are mutually agreeable and with reasonable notice, and agrees to give his best efforts to such services so long as they shall be required hereunder.
2. COMPENSATION. Subject to the terms of this Agreement,
Consultant shall be paid for services rendered in accordance
with the following schedule:
A. the sum of Eight Thousand Five Hundred
Dollars ($8,500.00) per month beginning April 1,
2002, and continuing each month thereafter
up to and including March 1, 2003;
B. the sum of Eight Thousand Dollars ($8,000.00) per month beginning April 1, 2003, and continuing each month thereafter up to and including March 1, 2004;
C. the sum of Seven Thousand Five Hundred Dollars ($7,500.00) per month beginning April 1, 2004, and continuing each month thereafter up to and including March 1, 2005;
D. the sum of Seven Thousand Dollars ($7,000.00) per month beginning April 1, 2005, and continuing each month thereafter up to and including March 1, 2006;
E. the sum of Six Thousand Five Hundred Dollars ($6,500.00) per month beginning April 1, 2006, and continuing each month thereafter up to and including March 1, 2007; and
F. the sum of Six Thousand Dollars ($6,000.00) per month beginning April 1, 2007, and continuing each month thereafter up to and including March 1, 2008.
payable monthly throughout the term of this Agreement. In addition, Consultant shall be entitled to be reimbursed his reasonable and necessary business expenses incurred in connection with the services to be performed hereunder. Consultant shall also be paid additional attendance fees as a member of the Board of Directors of Wesbanco for meetings attended in accordance with the policies for payment of Directors' fees by such corporation. No quarterly retainer fee shall be paid to Consultant as a member of the Board of Directors.
3. TERM. The term of this Consulting Agreement shall be for the term of six (6) years from and after the date of the merger, and shall terminate on the sixth anniversary thereof. In the event Consultant should die prior to the expiration of the term of this Agreement, Wesbanco shall provide a carve out of the existing American Bancorporation BOLI Plan with Southland Life Insurance Company to provide a lump sum payment equal to the then present value of the balance of the payments provided in Paragraph 2.
4. SERVICES. The services to be provided by Consultant hereunder shall consist of such advice and services as may be requested from time to time by the Board of Directors, Executive Committee or President of Wesbanco in connection with the present and future corporate activities of Wesbanco. It is anticipated that Consultant shall assist Wesbanco and its management in maintaining the key customer relationships Consultant established while serving
as the CEO of American, and that Consultant shall assist Wesbanco in pursuing merger and acquisition candidates for expansion purposes.
5. NONCOMPETITION. Without the prior written consent of Wesbanco, Consultant will not, during the term of this Consulting Agreement, directly or indirectly, (i) engage in, or be employed in an executive capacity by or render executive, consulting or other services to any person, firm, corporation or association engaged in the banking business in the States of West Virginia or Ohio or within a radius of fifty (50) miles of the City of Wheeling, or (ii) render any services or give any advice similar to the services required to be rendered by Consultant to Wesbanco hereunder, or (iii) solicit any current or future employees of Wesbanco by, or on behalf of, a firm or organization described in subsection (i) above.
6. CONFIDENTIAL INFORMATION. Without the prior written consent of Wesbanco, Consultant shall not, directly or indirectly, divulge to any person, or use for his own benefit, any confidential information concerning the business, affairs, customers or acquisition candidates of Wesbanco, acquired by him during his previous employment with American or during the performance of his duties hereunder, it being the intent of Wesbanco and Consultant to restrict Consultant from disseminating or using any information which is unpublished and not readily available to the general public.
7. DELEGATION OF DUTIES, ASSIGNMENT OF RIGHTS, AND AMENDMENT. Consultant may not delegate the performance of any of his obligations or duties except as to such duties as may be performed by employees of the holding company or its affiliate banks in the ordinary course of their duties, nor assign any rights hereunder without the prior written consent of Wesbanco. Any such purported delegation or assignment in the absence
of such written consent shall be void. This Consulting Agreement cannot be altered or otherwise amended except pursuant to an instrument in writing signed by each of the parties hereto.
8. GOVERNING LAW AND ENTIRE AGREEMENT. This Consulting Agreement shall be construed and governed in accordance with the laws of the State of West Virginia, contains the entire agreement between the parties with respect to the services contemplated herein, and supercedes all previous commitments in writing between the parties hereto.
9. INSURANCE. Consultant shall be entitled to such insurance benefits from Wesbanco as are provided to retirees of said corporation in accordance with the personnel policies of Wesbanco. In addition, Wesbanco shall, to the extent such coverage can be provided, maintain health insurance coverage for Consultant upon the same terms and conditions as that currently provided for other retirees of Wesbanco, and as may be amended, from time to time.
10. MEMBERSHIP ON THE BOARD OF DIRECTORS. In connection with the Consultant's continuing service to Wesbanco, Consultant shall be appointed to a position as a member of the Board of Directors of Wesbanco to serve until December 31, 2002. Consultant shall also serve as a member of the Planning and Acquisitions Committee of Wesbanco during his term on the Board of Directors. Upon termination of his term as a director, Consultant shall be elected as an emeritus director and shall continue as an emeritus director for the full term of five (5) years as permitted under the Bylaws of Wesbanco. As such emeritus director, Consultant shall be paid a monthly fee of Five Hundred Dollars ($500.00) per month without an attendance requirement therefore. No attendance fees shall be paid to Consultant while serving as an emeritus director.
11. INDEPENDENT CONTRACTOR. It is the intention of the parties hereto that Consultant shall perform services hereunder as an independent contractor and the consulting arrangement hereunder shall not constitute an employment relationship, nor shall Consultant be considered an employee of Wesbanco for any purpose.
12. TERMINATION. In the event of the death or permanent
disability of Consultant during the term of this Agreement, this
Agreement shall terminate and be of no further force and effect.
Permanent disability shall mean the inability of Consultant to
provide services hereunder for a continuing period of twelve
(12) consecutive months, whereupon this Agreement shall
terminate.
WITNESS the following signatures:
WESBANCO, INC.
By /s/ Paul M. Limbert
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Its President
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/s/ Jeremy C. McCamic
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JEREMY C. McCAMIC
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WHEREAS, Employee is being employed as an executive officer of the Bank as of the date hereof; and
WHEREAS, the Bank wishes to assure itself of the Employee's full time employment and continuing services in an executive capacity.
WITNESSETH THAT: In consideration of the mutual promises and undertakings hereinafter set forth, the parties hereto agree as follows:
1. OFFER OF EMPLOYMENT. The Bank agrees to, and hereby
does, continue the employment of Employee at Bank in an
executive capacity. In that capacity, Employee shall be
answerable to the Board of Directors of the Bank and such other
officers of Wesbanco, the parent company of the Bank, as the
Board of Directors of Wesbanco shall direct. Employee shall
perform such duties, compatible with his employment under the
Agreement, as the Bank, and Wesbanco, from time to time may
assign to him.
2. COMPENSATION. As compensation for the performance of
the services specified in Paragraph (1) and the observance of
all of the provisions of this Agreement, the
Bank agrees to pay Employee, and Employee agrees to accept, the
following amounts and benefits during his term of employment:
(A) Salary at a rate to be determined
by the Board of Directors of the Bank, with notice
to be given to employee in April of each calendar
year, but in no event shall Employee's salary be
less than One Hundred Fifty Thousand Dollars
($150,000.00) per year, plus any increases granted
by the Board of Directors after the date hereof,
and payable in equal biweekly installments; and
(B) Such other miscellaneous benefits and perquisites as the Bank provides to its executive employees generally.
3. ACCEPTANCE OF EMPLOYMENT. Employee accepts the employment provided for herein, at the salary set forth above, and agrees to devote his talents and best efforts to the diligent, faithful, and efficient discharge of the duties of his employment, and in furtherance of the operations and best interests of Bank, and observe and abide by all rules and regulations promulgated by Bank for the guidance and direction of its employees and the conduct of its business, operations, and activities.
4. TERM OF AGREEMENT. The employment term provided for herein shall consist of a revolving period of three years, with the initial term beginning on the 1st day of July, 2001, and ending on the 30th day of June, 2004. The term of this Agreement shall automatically be extended on each anniversary of the beginning date of the term hereof for an additional one year, thereby creating a new three year term, unless written notice of termination hereof is given by either party at least ninety (90) days prior to the anniversary date of the beginning date of this
Agreement. Any such notice of non-renewal shall not affect the continuation of the term of this Agreement existing at the time of such non-renewal.
5. CONFIDENTIALITY. Employee agrees that such information concerning the business, affairs, and records of Bank as he may acquire in the course of, or as incident to, his employment hereunder, shall be regarded and treated as being of a confidential nature, and that he will not disclose any such information to any person, firm, or corporation, for his own benefit or to the detriment of Bank, during the term of his employment under this Agreement or at any time following the termination thereof.
6. MISCELLANEOUS BENEFITS. This Agreement is not intended, and shall not be deemed to be in lieu of any rights, benefits, and privileges to which Employee may be entitled as an Employee of Bank under any retirement, pension, profit sharing, insurance, hospital, bonus, vacation, or other plan or plans which may now be in effect or which may hereafter be adopted by Bank, it being understood that Employee shall have the same rights and privileges to participate in such plans and benefits, as any other employee, during the period of his employment.
7. BINDING EFFECT. This Agreement shall inure to the benefit of and be binding upon Bank's successors and assigns, including, without limitation, any company or corporation which may acquire substantially all of Bank's assets or business, or with, or into which Bank may be merged or otherwise consolidated.
8. TERMINATION. The Employee's employment hereunder shall terminate upon the earliest to occur of any one of the following:
(A) The expiration of the initial term of this Agreement, or any extended term of this Agreement by written notice of termination as provided in Paragraph (4) hereof; or
(B) By the Bank for cause, after thirty (30)
days written notice to Employee. Cause for
purposes of this Agreement shall mean as follows:
(i) An act of dishonesty, willful disloyalty or fraud by the Employee that the Bank determines is detrimental to the best interests of the Bank; or
(ii) The Employee's continuing inattention to, neglect of, or inability to perform, the duties to be performed under this Agreement, or
(iii) Any other breach of the Employee's covenants contained herein or of any of the other terms and provisions of this Agreement, or
(iv) The deliberate and intentional engaging by the Employee in gross misconduct which is materially and demonstrably injurious to the Bank.
(C) Employee shall have the right to terminate this Agreement and his active employment hereunder at any time upon ninety (90) days written notice to the Bank.
(D) Upon the death of Employee, this Agreement shall automatically terminate.
9. EFFECT OF TERMINATION. In the event of a termination of this Agreement, Employee shall be paid the following severance benefits, payable promptly after the date of termination of his employment, in the following manner:
(A) In the event that this Agreement is terminated by the death of Employee, this Agreement shall be deemed to have been terminated as of the date of such death except, however, that Bank shall pay to the surviving spouse of Employee, or in lieu thereof, to Employee's estate, an amount equal to six months of the base salary at his then current base rate, provided, however, that if such death occurs within six months of the normal retirement date as provided by the Bank's defined benefit pension plan, or after such normal retirement date, so that a pension distribution or benefit is payable to the surviving spouse of Employee, such payment shall be reduced to an amount equal to one month of the base salary at his then current base rate.
(B) In the event that this Agreement is terminated by Employee and Bank by mutual agreement, then Bank shall pay such severance benefits, if any, as shall have been agreed upon by Bank and Employee.
(C) In the event that Bank attempts to terminate this Agreement, other than for cause, death of Employee, or by mutual agreement with Employee, in addition to any other rights or remedies which Employee may have, Employee shall receive an amount equal to the greater of (i) six months of base salary at his then current base rate, or (ii) the base salary Employee would have received had he continued to be employed pursuant
to this Agreement throughout the end of the then existing term of employment hereunder.
(D) In the event Bank terminates this Agreement for cause, no severance benefits shall be payable hereunder.
10. ENTIRE UNDERSTANDING; AMENDMENT. This Agreement supersedes all previous agreements between Employee and Bank and contains the entire understanding and agreement between the parties with respect to the subject matter hereof, and cannot be amended, modified, or supplemented in any respect except by a subsequent written agreement executed by both parties.
11. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of West Virginia.
12. CERTAIN OBLIGATIONS OF WESBANCO. While the parties acknowledge that certain provisions of this Agreement may be unenforceable in some respects against the Bank, pursuant to applicable banking law, it is nonetheless the intention of the parties to create pursuant to this Agreement a valid employment for a definite term with specified benefits. As an inducement for Employee and Bank to enter into this Agreement whereby Employee would be employed by Bank for a definite term, Wesbanco hereby undertakes the independent, separate and unconditional obligation to Employee to pay all amounts which are or may become due to Employee under this Agreement as set forth herein, regardless of the status of the direct or indirect enforceability or validity of Bank's obligation to pay any or all such amounts as may be due hereunder to Employee; provided, however, that for purposes of this Paragraph 12, Wesbanco shall be obligated to the Employee for any bonuses or any increases in base salary in excess of the rate of One Hundred Fifty Thousand Dollars ($150,000.00) per annum only to the
extent that it has consented to such bonuses or increases. Wesbanco also acknowledges that it may or may not be entitled to indemnification or contribution from Bank or to be subrogated to the claim of Employee hereunder for any payments Wesbanco may make to Employee; and Wesbanco hereby specifically waives any rights it may otherwise have to indemnification or contribution from Bank or to be subrogated to the claim of Employee hereunder in the event that such payments as are made by Wesbanco would be unenforceable or invalid for any reason against Bank.
13. MISCELLANEOUS. The invalidity or unenforceability of any term or provision of this Agreement as against any one or more parties hereto, shall not impair or effect the other provisions hereof or the enforceability of said term or provision against the other parties hereto, and notwithstanding any such invalidity or unenforceability, each term or provision hereof shall remain in full force and effect to the full extent consistent with law.
IN WITNESS WHEREOF, Bank and Wesbanco have caused these presents to be signed and their corporate seals to be hereto affixed, and Employee has hereto affixed his signature and seal, at Wheeling, West Virginia, as of the day and year first above written.
WESBANCO BANK, INC.
ATTEST:
/s/ Stephen E. Hannig --------------------- Assistant Secretary |
/s/ Robert H. Young(SEAL)
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ROBERT H. YOUNG
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WESBANCO, INC.
By /s/ Edward M. George
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Its President and CEO
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(SEAL)
ATTEST:
/s/ Stephen E. Hannig
---------------------
Assistant Secretary
|
December 31,
-----------------------
2001 2000
-----------------------------------------------------------------------------
Assets
Cash and due from banks $ 81,563 $ 72,796
Due from banks - interest bearing 712 620
Securities:
Held to maturity (fair values of $242,558 and
$198,534, respectively) 240,953 196,102
Available for sale, carried at fair value 517,517 350,287
-----------------------
Total securities 758,470 546,389
-----------------------
Loans, net of unearned income 1,539,695 1,590,702
Allowance for loan losses (20,786) (20,030)
-----------------------
Net loans 1,518,909 1,570,672
-----------------------
Premises and equipment 50,252 53,147
Accrued interest receivable 16,290 15,725
Other assets 48,258 50,788
-----------------------
Total Assets $2,474,454 $2,310,137
=======================
Liabilities
Deposits:
Non-interest bearing demand $ 244,422 $ 234,265
Interest bearing demand 245,447 260,058
Money market 406,727 359,039
Savings 252,438 249,830
Certificates of deposit 764,424 767,169
-----------------------
Total deposits 1,913,458 1,870,361
-----------------------
Other borrowings 279,131 159,317
Accrued interest payable 7,313 8,438
Other liabilities 16,351 13,515
-----------------------
Total Liabilities 2,216,253 2,051,631
-----------------------
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 58,663 59,464
Retained earnings 230,924 218,539
Treasury stock (3,142,034 and 2,428,591 shares,
respectively, at cost) (76,183) (62,009)
Accumulated other comprehensive income (fair
value adjustments) 3,560 (365)
Deferred benefits for directors and employees (2,505) (865)
-----------------------
Total Shareholders' Equity 258,201 258,506
-----------------------
Total Liabilities and Shareholders' Equity $2,474,454 $2,310,137
=============================================================================
|
See Notes to Consolidated Financial Statements.
Consolidated Statement of Income
-----------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
For the years ended December 31,
--------------------------------
2001 2000 1999
-----------------------------------------------------------------------------
Interest Income
Loans, including fees $126,230 $128,591 $117,508
Securities:
Taxable 25,692 24,297 27,269
Tax-exempt 10,330 8,974 10,182
--------------------------------
Total interest on securities 36,022 33,271 37,451
--------------------------------
Federal funds sold 1,687 1,217 902
--------------------------------
Total interest income 163,939 163,079 155,861
--------------------------------
Interest Expense
Interest bearing demand deposits 3,920 5,026 4,418
Money market deposits 14,006 16,462 13,653
Savings deposits 4,671 5,264 5,936
Certificates of deposit 43,632 43,689 38,545
--------------------------------
Total interest on deposits 66,229 70,441 62,552
Other borrowings 10,125 9,111 6,679
--------------------------------
Total interest expense 76,354 79,552 69,231
--------------------------------
Net Interest Income 87,585 83,527 86,630
Provision for loan losses 5,995 3,225 4,295
--------------------------------
Net interest income after provision
for loan losses 81,590 80,302 82,335
--------------------------------
Non-Interest Income
Trust fees 11,504 12,226 10,582
Service charges on deposits 9,182 8,097 6,820
Other income 2,596 2,243 6,800
Net securities gains 1,306 810 379
--------------------------------
Total non-interest income 24,588 23,376 24,581
--------------------------------
Non-Interest Expense
Salaries and wages 27,926 28,217 28,238
Employee benefits 5,915 5,092 7,107
Net occupancy 3,998 3,844 3,478
Equipment 5,913 6,439 6,300
Other operating 21,142 20,891 22,690
--------------------------------
Total non-interest expense 64,894 64,483 67,813
--------------------------------
Income before provision for income taxes 41,284 39,195 39,103
Provision for income taxes 12,282 12,271 11,465
--------------------------------
Net Income $ 29,002 $ 26,924 $ 27,638
================================
Earnings per share $1.60 $1.41 $1.37
Average shares outstanding 18,123,851 19,092,927 20,229,524
=============================================================================
|
See Notes to Consolidated Financial Statements.
Consolidated Statement of Changes in Shareholders' Equity
(dollars in thousands, except per share amounts)
For the years ended December 31, 2001, 2000, and 1999
----------------------------------------------------------------------------------------------
Accumulated Deferred
Common Stock Other Benefits for
-------------------- Capital Retained Treasury Comprehensive Directors &
Shares Amount Surplus Earnings Stock Income Employees Total
---------------------------------------------------------------------------------------------------------------------------------
January 1, 1999 20,660,235 $43,742 $60,283 $198,782 $(9,421) $ 3,610 $ (513) $296,483
---------------------------------------------------------------------------------------------------------------------------------
Net income 27,638 27,638
Net fair value adjustment on
securities available for
sale - net of tax effect (11,066) (11,066)
--------
Comprehensive income 16,572
Cash dividends:
Common ($.88 per share) (17,912) (17,912)
Stock issued for acquisitions 422,916 (182) 12,153 11,971
Treasury shares purchased-net (1,293,226) 32 (37,043) (37,011)
Borrowing on ESOP debt (350) (350)
Deferred benefits for directors-net (89) (89)
---------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 19,789,925 43,742 60,133 208,508 (34,311) (7,456) (952) 269,664
---------------------------------------------------------------------------------------------------------------------------------
Net income 26,924 26,924
Net fair value adjustment on
securities available for
sale - net of tax effect 7,091 7,091
--------
Comprehensive income 34,015
Cash dividends:
Common ($.895 per share) (16,893) (16,893)
Treasury shares purchased-net (1,221,985) (669) (27,698) (28,367)
Payment on ESOP debt 350 350
Deferred benefits for directors-net (263) (263)
---------------------------------------------------------------------------------------------------------------------------------
December 31, 2000 18,567,940 43,742 59,464 218,539 (62,009) (365) (865) 258,506
---------------------------------------------------------------------------------------------------------------------------------
Net income 29,002 29,002
Net fair value adjustment on
securities available for
sale - net of tax effect 5,584 5,584
Net securities gains reclassified
into earnings - net of
tax effect (770) (770)
Cumulative effect of accounting
change for derivative financial
instruments - net of tax effect 558 558
Net fair value adjustment on
derivatives - net of tax effect (1,301) (1,301)
Net derivative gains reclassified into
earnings - net of tax effect (146) (146)
-------
Comprehensive income 32,927
Cash dividends:
Common ($.92 per share) (16,617) (16,617)
Treasury shares purchased - net (713,443) (801) (14,174) (14,975)
Borrowings on ESOP debt - net (1,572) (1,572)
Deferred benefits for directors - net (68) (68)
----------------------------------------------------------------------------------------------------------------------------------
December 31, 2001 17,854,497 $43,742 $58,663 $230,924 $(76,183) $ 3,560 $(2,505) $258,201
==================================================================================================================================
|
There was no activity in Preferred Stock during the years ended December 31, 2001, 2000 and 1999.
See Notes to Consolidated Financial Statements.
For the years ended December 31,
--------------------------------
Increase (Decrease) in Cash and Cash Equivalents 2001 2000 1999
-------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 29,002 $ 26,924 $ 27,638
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,919 5,229 5,488
Net amortization and accretion (472) 371 1,366
Provision for loan losses 5,995 3,225 4,295
Gains on sales of securities - net (1,306) (810) (379)
Gain on sale of credit card portfolio --- --- (3,561)
Deferred income taxes (232) (70) 323
Other - net (1,390) 395 476
Net change in:
Interest receivable / payable (1,690) 2,209 (1,289)
Other assets and other liabilities 1,862 1,021 (2,453)
-----------------------------
Net cash provided by operating activities 36,688 38,494 31,904
-----------------------------
Cash Flows from Investing Activities:
Securities held to maturity:
Proceeds from maturities and calls 29,502 28,408 50,357
Payments for purchases (74,121) (11,436) (49,778)
Securities available for sale:
Proceeds from sales 65,014 65,246 47,772
Proceeds from maturities and calls 170,328 50,598 129,216
Payments for purchases (393,312) (99,115) (83,400)
Acquisitions, net of cash --- --- 2,809
Proceeds from the sale of credit card portfolio --- --- 18,789
Decrease (increase) in loans 45,768 (70,203) (143,142)
Purchases of premises and equipment - net (2,207) (2,220) (10,243)
Purchase of bank-owned life insurance --- (4,400) ---
-----------------------------
Net cash used by investing activities (159,028) (43,122) (37,620)
-----------------------------
Cash Flows from Financing Activities:
Increase (decrease) in deposits 43,097 56,360 (3,133)
Increase (decrease) in other borrowings 119,814 (14,136) 38,748
Dividends paid (16,737) (17,167) (17,752)
Treasury shares purchased - net (14,975) (28,367) (37,011)
-----------------------------
Net cash provided (used) by financing activities 131,199 (3,310) (19,148)
-----------------------------
Net increase (decrease) in cash and cash equivalents 8,859 (7,938) (24,864)
Cash and cash equivalents at beginning of year 73,416 81,354 106,218
-----------------------------
Cash and cash equivalents at end of year $ 82,275 $ 73,416 $ 81,354
=============================
Supplemental Disclosures:
Interest paid on deposits and other borrowings $ 77,479 $ 77,279 $ 69,735
Income taxes paid 12,736 12,410 13,135
=====================================================================================
|
See Notes to Consolidated Financial Statements.
Note 1: Accounting Policies
WesBanco, Inc. ("WesBanco") is a bank holding company offering
a full range of financial services, including trust, mortgage
banking, insurance and brokerage services, through offices located
in West Virginia and Eastern Ohio. WesBanco's only defined business
segments are community banking and trust and investment services.
The significant accounting principles employed in the
preparation of the accompanying consolidated financial statements
are summarized below:
Principles of consolidation: The Consolidated Financial Statements of WesBanco include the accounts of WesBanco and its wholly-owned subsidiaries. Material intercompany transactions and accounts have been eliminated.
Business combinations: Business combinations, accounted for using the purchase method of accounting, include the results of operations of the acquired business from the date of acquisition. Net assets of the companies acquired were recorded at their estimated fair value as of the date of acquisition. Business combinations, accounted for using the pooling of interests method of accounting, require the assets, liabilities and stockholders' equity of the merged entity to be retroactively combined with WesBanco's respective accounts at recorded value.
Reclassification: Certain prior year financial information has been reclassified to conform to the presentation in 2001. The reclassifications had no effect on net income.
Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and cash equivalents: For the purpose of reporting cash flows, cash and cash equivalents include cash and due from banks and federal funds sold. Generally, federal funds are sold for one day periods.
Securities:
Securities Available for Trading: WesBanco did not have a trading
portfolio during the two years ended December 31, 2001.
Securities Held to Maturity: Securities consisting principally of
debt securities, which are purchased with the positive intent and
ability to hold until their maturity, are stated at cost, adjusted
for amortization of premiums and accretion of discounts.
Securities Available for Sale: Debt securities not classified as
trading or held to maturity, and marketable equity securities not
classified as trading, are classified as available for sale. These
securities may be sold at any time based upon management's
assessment of changes in economic or financial market conditions,
interest rate or prepayment risks, liquidity considerations and
other factors. These securities are stated at fair value, with the
fair value adjustment, net of tax, reported as a component of
accumulated other comprehensive income. Other than temporary
declines in value on these securities are recognized in results of
operations.
Gains and Losses: Net realized gains and losses on sales of
securities are included in non-interest income. The cost of these
securities sold is based on the specific identification method. The
gain or loss is determined as of the trade date.
Amortization and Accretion: Amortization of premiums and accretion
of discounts are included in interest on securities on a constant
yield basis.
Loans and loans held for sale: Interest is accrued as earned on
loans except where doubt exists as to collectability, in which case
recognition of income is discontinued. Loans originated and intended
for sale in the secondary market are carried at the lower of cost or
estimated market value in the aggregate.
A loan is considered impaired, based on current information and
events, if it is probable that WesBanco will be unable to collect
the scheduled payments of principal and interest when due according
to the contractual terms of the loan agreement. Impaired loans
include all non-accrual and renegotiated loans, as well as loans
internally classified as substandard or doubtful (as those terms are
defined by banking regulations) that meet the definition of impaired
loans. WesBanco recognizes interest income on non-accrual loans on
the cash basis.
Loan origination fees and certain direct costs are amortized as
an adjustment to the yield over the estimated lives of the related
loans.
Allowance for loan losses: The allowance for loan losses is maintained at a level considered adequate by management. The allowance is increased by provisions charged to operating expense and reduced by loan losses, net of recoveries. Management's determination of the adequacy of the allowance is based on evaluation of the loan portfolio, as well as prevailing economic conditions, past loan loss experience, current delinquency, changes in the character of the loan portfolio, specific problem loans and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change. While management has allocated the allowance to different loan categories, the allowance is general in nature and is available for the loan portfolio in its entirety.
Premises and equipment: Premises and equipment are stated at cost less accumulated depreciation, and depreciated over their estimated useful lives using either the straight-line or an accelerated method. Useful lives are revised when a change in life expectancy becomes apparent. Maintenance and repairs are charged to expense and betterments are capitalized. Gains and losses on premises and equipment retired or otherwise disposed of are charged to expense when incurred.
Other real estate owned: Other real estate owned, which are reported in other assets, consists primarily of properties acquired through, or in lieu of, loan foreclosures. Valuations are performed periodically and the real estate is carried at the lower of cost or appraised value, less estimated costs to sell.
Mortgage servicing rights: Mortgage servicing rights, which are reported in other assets, are amortized in proportion to, and over the period of, the estimated future net servicing income of the underlying mortgage loans. Capitalized mortgage servicing rights are evaluated for impairment based on the fair value of those rights.
Goodwill: The excess of the purchase price over net identifiable tangible and intangible assets acquired in a purchase business combination (goodwill) is included in other assets. Goodwill is amortized on a straight-line basis over varying periods not exceeding 20 years.
Derivatives: Interest rate swap agreements generally involve the exchange of fixed and floating rate interest payments without the exchange of the underlying notional amount, on which interest payments are calculated. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," requires companies to recognize all of their derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge or cash flow hedge. Currently, all of WesBanco's hedges have been designated as cash flow hedges. For derivative instruments that are designated and qualify as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Net interest received or interest paid on the effective portion of the interest rate swaps is reported as a component of interest expense in the Consolidated Statement of Income.
Income taxes: Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities and their tax bases. In addition, such deferred tax asset and liability amounts are adjusted for the effects of enacted changes in tax laws or rates.
Earnings per share: Basic earnings per share is 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 is increased by the number of shares which would be issued assuming the exercise of common stock options. There was no dilutive effect from the stock options and accordingly, basic and diluted earnings per share are the same.
Trust assets: Assets held by the subsidiary bank in fiduciary or agency capacities for their customers are not included as assets in the accompanying Consolidated Balance Sheet. Certain trust assets are held on deposit at the subsidiary bank.
Comprehensive income: Sources of comprehensive income not included in net income are limited to unrealized gains and losses (net fair value adjustments) on securities available for sale and derivatives, net of tax. Material reclassification adjustments between unrealized gains and losses from prior periods and realized gains and losses included in earnings in the current period are reflected in the presentation of comprehensive income.
New accounting standards: SFAS No. 141, "Accounting for Business
Combinations," requires that all business combinations be accounted
for by the purchase method for business combinations initiated after
June 30, 2001. SFAS No. 141 will affect how future business
combinations, if undertaken, are accounted for and disclosed in the
financial statements. The issuance of this statement had no effect
on WesBanco's results of operations, financial position or liquidity
during 2001.
SFAS No. 142, "Goodwill and Other Intangible Assets," requires
that goodwill and indefinite-lived intangible assets will no longer
be amortized but will be subject to impairment tests, at least
annually. Intangible assets determined to have finite lives will
continue to be amortized over their estimated useful lives and also
continue to be subject to impairment testing. WesBanco adopted the
provisions of this standard as of January 1, 2002, its effective
date. Application of the non-
Note 1: Accounting Policies (continued)
amortization provisions of this statement is expected to reduce non- interest expense by approximately $1,300 in 2002 as compared to 2001. SFAS No. 142, as part of its adoption provisions, requires a transitional impairment test to be applied to all goodwill and other indefinite-lived intangible assets within the first half of 2002 and any resulting impairment loss be reported as a change in accounting principle. Management has performed a preliminary transitional impairment test on its goodwill assets and at this time does not expect an impairment loss to be recorded in 2002 as a result of this test. WesBanco currently does not have any other indefinite-lived intangible assets on its balance sheet.
Note 2: Completed Business Combination
On April 30, 1999, WesBanco completed its acquisition of the
Heritage Bank of Harrison County. The acquisition was accounted for
using the purchase method of accounting. WesBanco issued 422,916
shares of common stock valued at $12,621 and recorded $8,206 in
goodwill. Heritage reported total assets of $33,049 as of April 30,
1999.
Note 3: Securities
The following tables summarize amortized cost and fair values of
held to maturity and available for sale securities:
Held to Maturity
--------------------------------------------------------------------------------------------------
December 31, 2001 December 31, 2000
------------------------------------------------- ----------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
------------------------------------------------------------------------------------------------------------------------
U.S. Treasury and
Federal Agency
securities $ 1,001 $ 17 --- $ 1,018 $ 4,357 $ 99 --- $ 4,456
Obligations of
states and political
subdivisions 221,866 2,839 $1,251 223,454 173,771 2,492 $159 176,104
Other securities 18,086 --- --- 18,086 17,974 --- --- 17,974
------------------------------------------------------------------------------------------------
Total $240,953 $ 2,856 $1,251 $ 242,558 $ 196,102 $ 2,591 $159 $198,534
========================================================================================================================
Available for Sale
--------------------------------------------------------------------------------------------------
December 31, 2001 December 31, 2000
------------------------------------------------- ----------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
------------------------------------------------------------------------------------------------------------------------
U.S. Treasury and
Federal Agency
securities $300,948 $ 6,617 $ 315 $ 307,250 $ 205,264 $ 1,803 $ 799 $206,268
Obligations of
states and political
subdivisions 11,905 239 68 12,076 12,871 59 23 12,907
Mortgage-backed &
other securities 191,511 1,820 398 192,933 127,708 126 987 126,847
------------------------------------------------------------------------------------------------
Total debt securities 504,364 8,676 781 512,259 345,843 1,988 1,809 346,022
Equity securities 5,740 499 981 5,258 4,988 325 1,048 4,265
------------------------------------------------------------------------------------------------
Total $510,104 $ 9,175 $1,762 $ 517,517 $ 350,831 $ 2,313 $2,857 $350,287
========================================================================================================================
|
The following table summarizes amortized cost and estimated fair value of securities by maturity:
December 31, 2001
---------------------------------------------
Held to Maturity Available for Sale
----------------------- -------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
------------------------------------------------------------------------------
Within one year $ 18,759 $ 19,003 $ 13,935 $ 14,130
After one year, but within five 44,679 46,009 279,956 282,967
After five years, but within ten 95,454 95,896 205,999 210,724
After ten years 82,061 81,650 10,214 9,696
---------------------------------------------
Total $240,953 $242,558 $510,104 $517,517
==============================================================================
|
Mortgage-backed securities are assigned to maturity categories based on estimated average lives. Available for sale securities in the after 10 year category include securities with no stated maturity. Other securities with prepayment provisions are categorized based on contractual maturity.
Securities with par values aggregating $356,219 at December 31, 2001 and $293,138 at December 31, 2000 were pledged to secure public and trust funds. Gross security gains of $1,331, $849, and $404 and gross security losses of $25, $39 and $25 were realized for the years ended December 31, 2001, 2000 and 1999, respectively.
Note 4: Loans
The following table is a summary of total loans:
December 31,
-------------------------
2001 2000
----------------------------------------------------------------------------
Commercial $ 569,193 $ 546,136
Real estate - construction 37,676 36,007
Real estate - residential 614,586 651,924
Consumer, net of unearned income 312,718 354,244
Loans held for sale 5,522 2,391
-------------------------
Loans, net of unearned income $1,539,695 $1,590,702
============================================================================
|
The following table represents changes in the allowance for loan losses:
For the years ended December 31,
--------------------------------
2001 2000 1999
-----------------------------------------------------------------------------
Balance, beginning of year $20,030 $19,752 $19,098
Allowance for loan losses of acquired banks --- --- 192
Allowance for loan losses allocated to sold
credit cards --- --- (450)
Provision for loan losses 5,995 3,225 4,295
Charge-offs (5,838) (4,095) (4,718)
Recoveries 599 1,148 1,335
-----------------------------
Net charge-offs (5,239) (2,947) (3,383)
-----------------------------
Balance, end of year $20,786 $20,030 $19,752
=============================================================================
|
The following tables summarize loans classified as impaired:
December 31,
-----------------
2001 2000
---------------------------------------------------------------------------
Non-accrual $ 4,030 $ 5,561
Renegotiated 3,756 417
Other classified loans:
Doubtful --- ---
Substandard 6,355 11,513
-----------------
Total impaired loans $14,141 $17,491
=================
Impaired loans with a related allowance for loan losses $12,813 $16,381
Allowance for loan losses allocated to impaired loans 4,878 6,511
===========================================================================
For the years ended December 31,
--------------------------------
2001 2000 1999
-----------------------------------------------------------------------------
Average impaired loans $13,572 $14,466 $17,173
Amount of contractual interest income on
impaired loans 392 306 334
Amount of interest income recognized on a cash basis 339 179 77
=============================================================================
|
Most lending occurs with customers located within West Virginia and Eastern Ohio. No significant concentration of credit risk exists by industry or by individual borrower. WesBanco has no significant exposure to any foreign loans.
Note 5: Premises and Equipment
Premises and equipment include:
December 31,
Estimated -------------------
useful life 2001 2000
---------------------------------------------------------------------------
Land and improvements (3-10 years) $ 12,735 $ 12,828
Buildings and improvements (4-50 years) 53,216 53,696
Furniture and equipment (2-25 years) 42,716 41,149
-------------------
108,667 107,673
Less - accumulated depreciation (58,415) (54,526)
-------------------
Total $ 50,252 $ 53,147
===========================================================================
|
Note 6: Certificates of Deposit
Certificates of deposit in denominations of $100 thousand or
more totaled $161,636, and $136,331 as of December 31, 2001 and
2000, respectively. Related interest expense was $7,485 in 2001 and
$6,335 in 2000.
At December 31, 2001, the scheduled maturities of total
certificates of deposit are as indicated in the table.
2002 $417,625 2003 231,353 2004 91,801 2005 10,286 2006 and thereafter 13,359 ------------------------------- Total $764,424 =============================== |
Note 7: Repurchase Agreements and Other Borrowings
Federal funds purchased and securities sold under agreements to
repurchase represent short-term borrowings which generally mature
within one year from the transaction date. Other borrowings consist
principally of advances with the Federal Home Loan Bank ("FHLB").
These borrowings are collateralized by FHLB stock and a blanket
collateral agreement which assigns a security interest in capital
stock, deposits, mortgage loans and securities.
At December 31, 2001, WesBanco had $106,889 outstanding in FHLB
borrowings with a weighted average yield of 5.1%. The table
summarizes FHLB maturities.
2003 $ 60,000 2004 44,900 2012 1,700 2021 289 ------------------- Total $106,889 =================== |
Information concerning securities sold under agreements to repurchase is summarized as follows:
For the years ended December 31,
--------------------------------
2001 2000 1999
-----------------------------------------------------------------------------
Outstanding balance at year end $142,278 $108,026 $107,795
Average balance during the year 138,728 112,071 113,008
Maximum month end balance during the year 162,926 129,195 123,817
Average interest rate at year end 2.00% 5.79% 4.45%
Average interest rate during the year 3.56 5.68 4.48
-----------------------------------------------------------------------------
|
Note 8: Employee Benefit Plans
Defined Benefit Pension Plan and Other Postretirement Plans: At
December 31, 2001, substantially all employees were participants in
the WesBanco Defined Benefit Pension Plan ("the Plan"). The Plan
covers those employees who satisfy minimum age and length of service
requirements. Benefits of the Plan are generally based on years of
service and employee's compensation during the last five years of
employment. The Plan's funding policy has been to contribute
annually the maximum amount that can be deducted for federal income
tax purposes. Contributions are intended to provide not only for
benefits attributed to service to date, but also for those expected
to be earned in the future.
Retirees and active employees, who were hired prior to March
30, 1998, are provided a postretirement contributory health
insurance and death benefit plan. For reported years 2001 and 2000,
the health insurance benefit was $0.1 per month and the death
benefit was $7.5.
Net periodic pension and other postretirement cost for the Plan includes the following components:
For the years ended December 31,
-------------------------------
2001 2000 1999
-----------------------------------------------------------------------------
Service cost - benefits earned during year $ 1,214 $ 1,064 $ 1,138
Interest cost on projected benefit obligation 2,121 1,956 1,873
Expected return on plan assets (3,204) (2,986) (2,474)
Net amortization and deferral (559) (638) (35)
Prior service costs --- --- ---
-----------------------------------------------------------------------------
Net periodic pension and other postretirement
(earnings) cost $ (428) $ (604) $ 502
=============================================================================
|
The following tables summarize the activity in the projected benefit obligation and Plan assets:
For the years ended
December 31,
--------------------
2001 2000
-----------------------------------------------------------------------------
Projected benefit obligation, at beginning of year $ 26,877 $ 24,002
Service cost 1,214 1,064
Interest cost 2,121 1,956
Benefits paid (1,505) (2,084)
Change in interest rate assumptions 227 371
Actuarial loss 1,389 1,568
-----------------------------------------------------------------------------
Projected benefit obligation, at end of year $ 30,323 $ 26,877
=============================================================================
|
For the years ended
December 31,
-------------------
2001 2000
----------------------------------------------------------------------------
Fair value of plan assets, at beginning of year $ 37,199 $ 34,685
Actual return on assets (3,076) 4,598
Contributions --- ---
Benefits paid (1,505) (2,084)
----------------------------------------------------------------------------
Fair value of plan assets, at end of year $ 32,618 $ 37,199
============================================================================
|
Plan assets consist of debt and equity securities which include U.S. Agency and Treasury issues, corporate bonds and notes, listed common stocks including shares of WesBanco common stock (comprising less than 10% of Plan assets) and short-term cash equivalent instruments.
The following table sets forth the Plan's funded status and the asset reflected in the Consolidated Balance Sheet:
December 31,
-----------------
2001 2000
-------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation $ 2,295 $10,322
Unrecognized prior service cost (1,238) (1,239)
Unrecognized net gain (loss) 1,875 (6,586)
Unrecognized obligation --- 7
--------------------------------------------------------------------------
Net pension asset $ 2,932 $ 2,504
==========================================================================
|
Actuarial assumptions used in the determination of the projected benefit obligation in the Plan are as follows:
For the years ended December 31,
--------------------------------
2001 2000 1999
-----------------------------------------------------------------------------
Weighted average discount rates 7.50% 7.90% 8.25%
Rates of increase in compensation levels 4.00 4.50 4.50
Weighted average expected long-term return on assets 8.75 8.75 8.75
-----------------------------------------------------------------------------
|
KSOP (Employee Stock Ownership and 401(k) Plan): Substantially all
employees are included in the WesBanco KSOP Plan (the "KSOP"). The
KSOP consists of a non-contributory employee stock ownership (ESOP)
and a 401(k) Plan. The 401(k) provision allows WesBanco to make
matching contributions based upon an employee's contribution,
subject to regulatory limitations.
As of December 31, 2001, the KSOP held 831,128 shares of
WesBanco stock, of which 745,394 shares were allocated to specific
employee accounts and 85,734 shares were unallocated. During 2000,
WesBanco's ESOP renewed a revolving line of credit with WesBanco
Bank, Inc. Conditions in the loan agreement provide for a revolving
line of credit in the aggregate amount of $2,000 to facilitate
purchases of WesBanco common stock in the open market. The loan
bears interest at a rate equal to the lender's base rate and
requires annual repayments of principal equal to 20% of the
outstanding balance at January 1 of each year. The loan has a final
maturity date of 5 years from date of inception. The revolving line
of credit had an outstanding balance of $1,572 and $0 at December
31, 2001 and 2000, respectively.
Total contributions to the KSOP for the three years ended
December 31, 2001, 2000 and 1999 were $1,040, $1,052 and $996,
respectively.
Key Executive Incentive Bonus & Option Plan: The Key Executive
Incentive Bonus & Option Plan, which was started in 1998, is a non-
qualified plan that includes three components, an Annual Bonus, a
Long-Term Incentive Bonus and a Stock Option component. The three
components allow for payments of cash, or a mixture of cash and
stock, or granting of stock options, depending upon the component of
the plan in which the award is earned through the attainment of
certain performance goals. Performance goals are established by
WesBanco's Board of Directors.
Compensation expense incurred in 2001, 2000 and 1999 for the
Annual Bonus component of the plan was $504, $436 and $348,
respectively. During 2001, awards for the Long-Term Bonus
component of $43 were made to specific employees. There were no
awards or payments made for the Long-Term Bonus component of the
plan during 2000 and 1999.
The Stock Option component provides for granting of stock
options to eligible employees. During 2001, the Board of Directors
provided for the issuance of 159,924 shares of common stock for this
component of the grant at an option price of $20.74, which
approximated fair market value on the date of the grant. These options
vest over a three-year period and have no performance provisions. During
1998 and again in 2000, 28,000 shares were granted at an option price of
$29.50 and $22.00 per share, respectively, which approximated fair
market value on the date of the grants. Vesting of these options is based
upon achievement of performance goals, which include improvements in
earnings per share.
Note 8: Employee Benefit Plans (continued)
Vested shares totaled 96,860, 34,218 and 15,552 at December 31, 2001,
2000 and 1999, respectively. Employees generally have a ten year period to
exercise the vested options. No options have been exercised. There were no
shares forfeited in 2001 or 2000 and 3,113 shares were forfeited in 1999.
All granted options become immediately vested in the event of a change in
control of WesBanco.
WesBanco accounts for stock options in accordance with APB
Opinion No. 25 "Accounting for Stock Issued to Employees". For the 2001
grant, since the exercise price was equal to the market price, no
compensation expense was recognized under APB No. 25. Using
the expense recognition provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," compensation expense of $546 in 2001 would have
been recognized on the 2001 grant. For the 1998 and the 2000 grants,
compensation expense of $105, $172 and $45 was recognized for the years 2001,
2000 and 1999, respectively.
Fair value per share of $10.25, $11.24 and $7.24 for the 2001, 2000
and 1998 options, respectively, were estimated using the Black-
Scholes option pricing model. Assumptions used in this model for the
2001, 2000 and 1998 options, included a weighted-average expected
life of 10 years, risk free interest rates of 5.49%, 6.22% and
5.49%, respectively, dividend yield of 0%, and volatility factors of
23.4%, 21.6% and 18.1%, respectively.
Note 9: Other Operating Expense
Other operating expense consists of the following:
For the years ended December 31,
--------------------------------
2001 2000 1999
-----------------------------------------------------------------------------
Professional fees $ 3,883 $ 3,568 $ 3,766
Marketing 1,933 2,339 2,315
General administrative 945 1,035 1,194
Supplies 1,790 2,106 1,993
Postage 2,002 1,758 1,804
Communication 1,767 2,229 1,996
Miscellaneous taxes 3,405 3,170 3,323
Goodwill amortization 1,313 1,535 1,389
Other 4,104 3,151 4,910
----------------------------
Total $21,142 $20,891 $22,690
=============================================================================
|
Note 10: Income Taxes
A reconciliation of the federal statutory tax rate to the reported
effective tax rate is as follows:
For the years ended December 31,
--------------------------------
2001 2000 1999
-----------------------------------------------------------------------------
Federal statutory tax rate 35% 35% 35%
Tax-exempt interest income (9) (7) (7)
State income taxes 3 4 4
Other - net 1 (1) (3)
---------------------
Effective tax rate 30% 31% 29%
=============================================================================
|
The provision for income taxes consists of the following:
For the years ended December 31,
--------------------------------
2001 2000 1999
------------------------------------------------------------------------------
Current:
Federal $10,356 $ 9,936 $ 9,612
State 2,158 2,406 2,067
Deferred:
Federal (201) 16 (282)
State (31) (87) 68
-------------------------
Total $12,282 $12,271 $11,465
=========================
Tax expense applicable to net gains on
securities transactions $ 529 $ 332 $ 153
=============================================================================
|
Deferred tax assets and liabilities are comprised of the following:
December 31,
2001 2000 1999
-----------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 8,029 $ 7,538 $ 7,358
Compensation and benefits 418 487 663
Net operating loss carryforward 338 410 337
Tax effect of fair value adjustments on
securities available for sale --- 214 4,844
Other (132) (128) 33
-------------------------
Gross deferred tax assets 8,653 8,521 13,235
-------------------------
Deferred tax liabilities:
Tax effect of fair value adjustments on
securities available for sale and derivatives (2,363) --- ---
Depreciation (1,366) (1,288) (1,628)
Purchase accounting adjustments (431) (452) (472)
Accretion on securities (401) (344) (138)
-------------------------
Gross deferred tax liabilities (4,561) (2,084) (2,238)
-------------------------
Net deferred tax assets $ 4,092 $ 6,437 $10,997
==========================================================================
|
Note 11: Disclosures About Fair Value of Financial Instruments
Fair value estimates of financial instruments are based on the
present value of expected future cash flows, quoted market prices of
similar financial instruments, if available, and other valuation
techniques. These valuations are significantly affected by discount
rates, cash flow assumptions, and risk assumptions used. Therefore,
fair value estimates may not be substantiated by comparison to
independent markets and are not intended to reflect the proceeds
that may be realizable in an immediate settlement of the
instruments.
The aggregate fair value of amounts presented does not
represent the underlying value of WesBanco. Management does not have
the intention to dispose of a significant portion of its financial
instruments and, therefore, the unrealized gains or losses should
not be interpreted as a forecast of future earnings and cash flows.
The following table represents the estimates of fair value of financial instruments:
December 31,
---------------------------------------------
2001 2000
--------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------------------------------------------------------------------------------------
Financial assets:
Cash and short-term investments $ 82,275 $ 82,275 $ 73,416 $ 73,416
Securities held to maturity 240,953 242,558 196,102 198,534
Securities available for sale 517,517 517,517 350,287 350,287
Net loans (including loans held for sale) 1,518,909 1,537,068 1,570,672 1,553,688
Financial liabilities:
Deposits 1,913,458 1,928,572 1,870,361 1,873,083
Other borrowings 279,131 281,957 159,317 158,386
Interest rate swap loss 2,122 2,122 --- ---
============================================================================================
|
The following methods and assumptions are used to estimate the fair value of like kinds of financial instruments:
Cash and short-term investments: The carrying amount for cash and short-term investments is a reasonable estimate of fair value. Short-term investments consist of federal funds sold.
Securities: Fair values for securities are based on quoted market prices, if available. If market prices are not available, then quoted market prices of similar instruments are used.
Net loans: Fair values for loans with interest rates that fluctuate as current rates change are generally valued at carrying amounts. The fair values for residential mortgage loans are based on quoted market prices of securitized financial instruments, adjusted for remaining maturity and differences in loan characteristics. Fair values of commercial real estate, construction and consumer loans are based on a discounted value of the estimated future cash flows expected to be received. The current interest rates applied in the discounted cash flow method reflect rates used to price new loans of similar type, adjusted for relative risk and remaining maturity. For non-accrual loans, fair value is estimated by discounting expected future principal cash flows only.
Note 11: Disclosures About Fair Value of Financial Instruments (continued)
Loans held for sale: The carrying amount for loans held for sale is
a reasonable estimate of fair value.
Deposits: The carrying amount is considered a reasonable estimate of fair value for demand, savings and other variable rate deposit accounts. The fair value of fixed maturity certificates of deposit is estimated by a discounted cash flow method using the rates currently offered for deposits of similar remaining maturities.
Other borrowings: For federal funds purchased and repurchase agreements, which represent short-term borrowings, the carrying amount is a reasonable approximation of fair value. For longer term FHLB advances, fair value is based on rates currently available to WesBanco for borrowings with similar terms and remaining maturities.
Interest Rate Swaps: Fair values for interest rate swaps are estimated by obtaining quotes from brokers. The fair value adjustments, recorded in the other liabilities section of the Consolidated Balance Sheet represent the amount WesBanco would receive or pay to terminate the agreement considering current interest rates.
Off-balance sheet financial instruments: Off-balance sheet financial instruments consist of commitments to extend credit and letters of credit. Fair values for commitments to extend credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit standing of the counterparties. The estimated fair value of the commitments to extend credit and letters of credit are immaterial and therefore not presented in the above table.
Note 12: Commitments and Contingent Liabilities
Commitments: In the normal course of business, WesBanco offers off-
balance sheet credit arrangements to enable its customers to meet
their financing objectives. WesBanco had various commitments
outstanding to extend credit approximating $251,423 and $187,616 and
letters of credit of $18,263 and $7,415 as of December 31, 2001 and
2000, respectively.
WesBanco's exposure to credit losses in the event of non-
performance by the other parties to the financial instruments for
commitments to extend credit and letters of credit is limited to the
contractual amount of those instruments. WesBanco uses the same
credit policies in making commitments and conditional obligations as
for all other lending.
Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements.
Letters of credit are conditional commitments issued by banks
to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private
borrowing arrangements, including normal business activities, bond
financing and similar transactions.
During 2001, WesBanco entered into interest rate swap
agreements that effectively converted $125,000 of its prime rate
based money market deposit accounts to a fixed-rate basis for an
average term of 6.24 years, thus reducing the impact of rising
interest rates on future interest expense. At December 31, 2001, the
notional amount of the swap agreements was $122,230 with WesBanco
receiving a weighted average variable rate of 2.42% and paying a
weighted average fixed rate of 4.37%.
At December 31, 2001, net fair value adjustments on interest
rate swap agreements reflected unrealized pretax net losses of
$2,122, which, based on current market rates, may be reclassified
from accumulated other comprehensive income to earnings during 2002.
Fair value adjustments represent temporary fluctuations resulting
from changes in market rates in relation to the average fixed pay
rate and projected variable receive rate over the remaining term of
the derivative. If derivatives are held to their respective maturity
dates, no fair value gain or loss is realized.
During 2000, all outstanding interest rate swap agreements were
terminated, generating a deferred gain of $1,046 which is reported
as a component of other comprehensive income. The deferred gain is
being amortized, using the interest method, over the remainder of
the original term of the terminated swap agreements ending in
September of 2006. WesBanco realized $244 and $135 of interest rate
swap gains during 2001 and 2000, respectively. WesBanco will realize
$213 of interest rate swap gains during 2002.
The table summarizes the 2001 changes in accumulated other
comprehensive income resulting from derivatives:
----------------------------------------------------------------------------
Balance at December 31, 2000 ---
Cumulative effect of adopting SFAS No. 133 on January 1, 2001 $ 558
Net deferred gains on derivatives reclassified into earnings (146)
Net interest paid on the effective portion of
derivatives reclassified into earnings 627
Net change in fair value on the ineffective portion
of derivatives reclassified into earnings ---
Net change in fair value on the effective portion
of derivatives (1,928)
--------
Balance at December 31, 2001 $ (889)
============================================================================
|
Contingent Liabilities: WesBanco and its affiliates are parties to various legal and administrative proceedings and claims. While any litigation contains an element of uncertainty, management believes that the outcome of such proceedings or claims pending or known to be threatened will not have a material adverse effect on WesBanco's consolidated financial position.
Note 13: Transactions With Related Parties
Some officers and directors (including their affiliates,
families and entities in which they are principal owners) of
WesBanco and its subsidiaries are customers of those subsidiaries
and have had, and are expected to have, transactions with the
subsidiaries in the ordinary course of business. In addition, some
officers and directors are also officers and directors of
corporations, which are customers of the bank and have had, and are
expected to have, transactions with the bank in the ordinary course
of business. In the opinion of management, such transactions are
consistent with prudent banking practices and are within applicable
banking regulations. Indebtedness of related parties aggregated
approximately $62,288, $48,157, and $49,425 as of December 31, 2001,
2000 and 1999, respectively. During 2001, $170,270 in related party
loans were funded and $156,139 were repaid.
Note 14: Regulatory Matters
WesBanco (Parent Company) is a legal entity separate and
distinct from its subsidiaries. There are various legal limitations
on the extent to which WesBanco's banking subsidiary may extend
credit, pay dividends or otherwise supply funds to WesBanco. Certain
restrictions under Federal and State law exist regarding the ability
of a certain subsidiary to pay dividends to WesBanco. Approval is
required if total dividends declared by a bank subsidiary, in any
calendar year, exceeds net profits for that year combined with its
retained net profits for the preceding two years. In determining to
what extent to pay dividends, a bank subsidiary must also consider
the effect of dividend payments on applicable risk-based capital and
leverage ratio requirements. During the first quarter of 2001 and
the second quarter of 2000, Federal and State regulatory agencies
granted approval to declare special dividends to WesBanco for the
purpose of funding share repurchase plans. As of December 31, 2001
and 2000, WesBanco's banking subsidiary could not have declared any
dividends to be paid to WesBanco without prior approval from
regulatory agencies. During the first quarter of 2002, Federal and
State regulatory agencies granted approval to WesBanco's banking
subsidiary to pay a $30,000 special dividend to WesBanco.
Federal Reserve regulations require depository institutions to
maintain cash reserves with the Federal Reserve Bank. The average
amounts of required reserve balances were approximately $29,017 and
$26,951 during 2001 and 2000, respectively.
WesBanco is subject to various regulatory capital requirements
(risk-based capital ratios) administered by Federal banking
agencies. Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a material effect on
WesBanco's financial results.
All banks are required to have core capital (Tier 1) of at
least 4% of risk-weighted assets, total capital of at least 8% of
risk-weighted assets, and a minimum Tier 1 leverage ratio of 3% of
adjusted quarterly average assets. Tier 1 capital con-
sists principally of shareholders' equity, excluding unrealized
gains and losses on securities available for sale and derivatives,
less goodwill and certain other intangibles. Total capital consists
of Tier 1 capital plus the allowance for loan losses subject to
limitation. The regulations also define well-capitalized levels of
Tier 1, total capital, and Tier 1 leverage as 6%, 10%, and 5%,
respectively. WesBanco and its banking subsidiary were categorized
as well-capitalized under the Federal Deposit Insurance Corporation
Improvement Act at December 31, 2001 and 2000. There are no
conditions or events since December 31, 2001 that management
believes have changed WesBanco's well-capitalized category, and the
merger with American Bancorporation (See Note 17 Subsequent Event
(Unaudited) - Acquisition of American Bancorporation) would not
lower rates below such levels.
The following table summarizes risk-based capital amounts and ratios for WesBanco and its bank subsidiary:
December 31,
-----------------------------------
2001 2000
---------------- ----------------
Amount Ratio Amount Ratio
-----------------------------------------------------------------------------
WesBanco, Inc.
Tier 1 Leverage $ 235,726 9.62% $ 238,636 10.46%
Tier 1 Capital to Risk-Weighted Assets 235,726 14.09 238,636 14.36
Total Capital to Risk-Weighted Assets 256,512 15.34 258,666 15.56
WesBanco Bank, Inc.
Tier 1 Leverage $ 226,059 9.28% $ 228,080 10.09%
Tier 1 Capital to Risk-Weighted Assets 226,059 13.57 228,080 13.94
Total Capital to Risk-Weighted Assets 246,826 14.81 248,104 15.14
-----------------------------------------------------------------------------
|
Note 15: Condensed Parent Company Financial Statements
Presented below are the condensed Balance Sheet, Statement of Income
and Statement of Cash Flows for the Parent Company:
Balance Sheet
December 31,
----------------------
2001 2000
-----------------------------------------------------------------------------
Assets
Cash and short-term investments $ 5,746 $ 4,640
Investment in subsidiaries (at equity in net assets) 255,237 255,525
Securities available for sale, carried at fair value 14,974 14,137
Other assets 483 670
----------------------
Total Assets $ 276,440 $ 274,972
======================
Liabilities
Borrowings $ 13,272 $ 11,500
Dividends payable and other liabilities 4,967 4,966
----------------------
Total Liabilities 18,239 16,466
Shareholders' Equity 258,201 258,506
----------------------
Total Liabilities and Shareholders' Equity $ 276,440 $ 274,972
=============================================================================
Statement of Income
For the years ended December 31,
--------------------------------
2001 2000 1999
-----------------------------------------------------------------------------
Dividends from subsidiaries $ 33,550 $ 30,000 $ 21,133
Income from securities 735 838 748
Other income 109 225 618
----------------------------
Total income 34,394 31,063 22,499
----------------------------
Total expense 1,981 1,781 1,474
----------------------------
Income before income tax benefit and undistributed
net income (excess dividends) of subsidiaries 32,413 29,282 21,025
Income tax benefit (631) (476) (404)
----------------------------
Income before undistributed net income of
subsidiaries 33,044 29,758 21,429
Undistributed net income (excess dividends)
of subsidiaries (4,042) (2,834) 6,209
----------------------------
Net Income $ 29,002 $ 26,924 $ 27,638
=============================================================================
Statement of Cash Flows
For the years ended December 31,
--------------------------------
2001 2000 1999
-----------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 29,002 $ 26,924 $ 27,638
Excess dividends (undistributed net income)
of subsidiaries 4,042 2,834 (6,209)
Decrease in other assets 37 2,547 28,133
Other - net (1,667) 148 3,128
----------------------------
Net cash provided by operating activities 31,414 32,453 52,690
----------------------------
Cash flows from investing activities:
Securities available for sale:
Proceeds from sales 405 4,252 ---
Proceeds from maturities and calls 265 1,285 4,778
Payments for purchases (963) (977) (693)
Acquisitions and additional capitalization
of subsidiaries (75) (650) (2,000)
----------------------------
Net cash provided (used) by investing activities (368) 3,910 2,085
----------------------------
Cash flows from financing activities:
Borrowings (payments) on ESOP debt - net 1,572 (350) 350
Increase in borrowings 200 9,500 2,000
Purchases of treasury stock - net (14,975) (28,367) (37,011)
Dividends paid (16,737) (17,167) (17,752)
----------------------------
Net cash used by financing activities (29,940) (36,384) (52,413)
----------------------------
Net increase (decrease) in cash and cash
equivalents 1,106 (21) 2,362
Cash and short-term investments at beginning
of year 4,640 4,661 2,299
----------------------------
Cash and short-term investments at end of year $ 5,746 $ 4,640 $ 4,661
=============================================================================
|
Note 16: Business Segments
WesBanco operates two reportable segments: community banking
and trust and investment services. WesBanco's community banking
segment offers services traditionally offered by full-service
commercial banks, including commercial demand, individual demand
and time deposit accounts, as well as commercial, mortgage and
individual installment loans. The trust and investment services
segment offers trust services as well as various alternative
investment products including mutual funds and annuities. The market
values of assets under management of the trust and investment
services segment were $2,808,862, $3,099,441, and $3,087,610, for
the years ended December 31, 2001, 2000 and 1999, respectively.
These assets are held by WesBanco's affiliate, WesBanco Bank, Inc.
in fiduciary or agency capacities for their customers and therefore
are not included as assets on WesBanco's Consolidated Balance Sheet.
Presented below are the condensed Statements of Income for WesBanco's business segments:
Trust and
Community Investment
Banking Services Consolidated
-----------------------------------------------------------------------------
For the year ended December 31, 2001
Interest income $163,939 --- $163,939
Interest expense 76,354 --- 76,354
----------------------------------
Net interest income 87,585 --- 87,585
Provision for loan losses 5,995 --- 5,995
----------------------------------
Net interest income after provision
for loan losses 81,590 --- 81,590
Non-interest income 13,084 $11,504 24,588
Non-interest expense 58,042 6,852 64,894
----------------------------------
Income before income taxes 36,632 4,652 41,284
Provision for income taxes 10,421 1,861 12,282
----------------------------------
Net income $ 26,211 $ 2,791 $ 29,002
=============================================================================
For the year ended December 31, 2000
Interest income $163,079 --- $163,079
Interest expense 79,552 --- 79,552
----------------------------------
Net interest income 83,527 --- 83,527
Provision for loan losses 3,225 --- 3,225
----------------------------------
Net interest income after provision
for loan losses 80,302 --- 80,302
Non-interest income 11,150 $12,226 23,376
Non-interest expense 57,846 6,637 64,483
----------------------------------
Income before income taxes 33,606 5,589 39,195
Provision for income taxes 10,035 2,236 12,271
----------------------------------
Net income $ 23,571 $ 3,353 $ 26,924
=============================================================================
For the year ended December 31, 1999
Interest income $155,861 --- $155,861
Interest expense 69,231 --- 69,231
----------------------------------
Net interest income 86,630 --- 86,630
Provision for loan losses 4,295 --- 4,295
----------------------------------
Net interest income after provision
for loan losses 82,335 --- 82,335
Non-interest income 13,999 $10,582 24,581
Non-interest expense 61,801 6,012 67,813
----------------------------------
Income before income taxes 34,533 4,570 39,103
Provision for income taxes 9,637 1,828 11,465
----------------------------------
Net income $ 24,896 $ 2,742 $ 27,638
=============================================================================
|
Note 17: Subsequent Event (unaudited) - Acquisition of American
Bancorporation
On March 1, 2002, WesBanco completed the acquisition of
American Bancorporation ("American") and the merger of American's
affiliate, Wheeling National Bank, Wheeling, West Virginia, with and
into WesBanco's affiliate, WesBanco Bank, Inc. WesBanco and American
entered into a definitive Agreement and Plan of Merger on February
22, 2001. Under the terms of the definitive Agreement and Plan of
Merger, WesBanco exchanged 1.1 shares of WesBanco common stock for
each share of American's common stock outstanding based upon a fixed
exchange rate. WesBanco issued 3,442,641 shares of common stock
valued at $70,540, in a transaction accounted for under the purchase
method of accounting. Of the total shares issued in the transaction,
3,119,071 shares were issued from Treasury shares and the remainder
were from authorized, but previously unissued shares.
WesBanco's merger with American creates a single bank holding
company with approximately $3.2 billion in total assets and 75
banking offices. The combination expands WesBanco's market share in
the tri-state area and includes expansion into new markets with an
office in Washington, Pennsylvania, an office in Cambridge, Ohio and
four offices in Columbus, Ohio.
WesBanco is in the process of obtaining valuations of certain
tangible and intangible assets as of the acquisition date.
Accordingly, the allocation of the purchase price is subject to
refinement. Under the new accounting standard, SFAS No. 142,
"Goodwill and Other Intangible Assets," a core deposit intangible is
separated from goodwill and amortized over its remaining useful
life. The core deposit intangible, amortization of which is non-
deductible for tax purposes, approximates $15,000 with an estimated
useful life of ten years. Goodwill approximates $30,000 and is not
subject to amortization, but will be periodically evaluated for
possible impairment. Goodwill and the core deposit intangible,
recognized as a result of this transaction, will be allocated to
WesBanco's community banking segment.
The following is a condensed balance sheet of the acquired entity (American) as of December 31, 2001:
-----------------------------------------------------------------
Assets
Cash and cash equivalents $ 17,667
Available for sale securities 286,152
Net loans 355,778
Other assets 32,270
--------
Total Assets $691,867
========
Liabilities
Deposits $475,584
Other borrowings 155,266
Other liabilities 5,210
Subordinated debentures 12,650
--------
Total Liabilities 648,710
Shareholders' Equity 43,157
--------
Total Liabilities and Shareholders' Equity $691,867
========
|
/s/ Paul M. Limbert /s/ Robert H. Young
Paul M. Limbert Robert H. Young
President and Chief Executive Officer Executive Vice President and
Chief Financial Officer
|
We have audited the accompanying consolidated balance sheets of
WesBanco, Inc. and subsidiaries as of December 31, 2001 and 2000,
and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 2001. These financial statements are
the responsibility of WesBanco, Inc.'s management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of WesBanco, Inc. and subsidiaries at December 31, 2001 and
2000, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December
31, 2001, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
February 1, 2002
Pittsburgh, Pennsylvania
|
Condensed Quarterly Statement of Income
(in thousands, except per share amounts)
2001 Quarter ended
----------------------------------------------------------
Annual
March 31 June 30 September 30 December 31 Total
-------------------------------------------------------------------------------------
Interest income $40,905 $41,340 $41,563 $40,131 $163,939
Interest expense 19,969 19,642 19,519 17,224 76,354
---------------------------------------------------------
Net interest income 20,936 21,698 22,044 22,907 87,585
Provision for loan losses 900 1,123 2,327 1,645 5,995
---------------------------------------------------------
Net interest income after
provision for loan losses 20,036 20,575 19,717 21,262 81,590
Non-interest income 6,000 6,053 6,150 6,385 24,588
Non-interest expense 15,044 16,187 16,260 17,403 64,894
---------------------------------------------------------
Income before income taxes 10,992 10,441 9,607 10,244 41,284
Provision for income taxes 3,587 3,141 2,601 2,953 12,282
---------------------------------------------------------
Net income $ 7,405 $ 7,300 $ 7,006 $ 7,291 $ 29,002
=========================================================
Earnings per share $0.40 $0.40 $0.39 $0.41 $1.60
-------------------------------------------------------------------------------------
2000 Quarter ended
----------------------------------------------------------
Annual
March 31 June 30 September 30 December 31 Total
-------------------------------------------------------------------------------------
Interest income $39,326 $40,361 $41,573 $41,819 $163,079
Interest expense 18,469 19,316 20,893 20,874 79,552
---------------------------------------------------------
Net interest income 20,857 21,045 20,680 20,945 83,527
Provision for loan losses 567 880 732 1,046 3,225
---------------------------------------------------------
Net interest income after
provision for loan losses 20,290 20,165 19,948 19,899 80,302
Non-interest income 5,547 5,737 5,424 6,668 23,376
Non-interest expense 15,942 15,995 16,260 16,286 64,483
---------------------------------------------------------
Income before income taxes 9,895 9,907 9,112 10,281 39,195
Provision for income taxes 2,965 3,226 2,724 3,356 12,271
---------------------------------------------------------
Net income $ 6,930 $ 6,681 $ 6,388 $ 6,925 $ 26,924
=========================================================
Earnings per share $0.35 $0.35 $0.34 $0.37 $1.41
-------------------------------------------------------------------------------------
|
Table 1. Five Year Selected Financial Summary
(dollars in thousands, except per share amounts)
December 31,
-----------------------------------------------------------
2001 2000 1999 1998 1997
----------------------------------------------------------------------------------------------
Per share information:
Dividends $ 0.92 $0.895 $ 0.88 $ 0.84 $0.786
Book value at year end 14.46 13.92 13.63 14.35 13.97
Average common shares outstanding 18,123,851 19,092,927 20,229,524 20,867,193 20,461,742
Selected balance sheet information:
Total securities $ 758,470 $ 546,389 $ 567,928 $ 680,550 $ 629,218
Net loans 1,518,909 1,570,672 1,503,694 1,353,920 1,321,640
Total assets 2,474,454 2,310,137 2,269,726 2,242,712 2,211,543
Total deposits 1,913,458 1,870,361 1,814,001 1,787,642 1,779,867
Total shareholders' equity 258,201 258,506 269,664 296,483 287,995
Selected ratios:
Return on average assets 1.21% 1.18% 1.23% 1.26% 1.18%
Return on average equity 11.28 10.42 9.85 9.55 8.99
Dividend payout 57.50 63.47 64.23 61.76 63.90
Average equity to average assets 10.70 11.30 12.47 13.16 13.15
Trust assets, market value
at year end $2,808,862 $3,099,441 $3,087,610 $2,774,906 $2,099,821
----------------------------------------------------------------------------------------------
For the years ended December 31,
--------------------------------------------------------------
Summary statement of income: 2001 2000 1999 1998 1997
----------------------------------------------------------------------------------------------
Interest income $163,939 $163,079 $155,861 $162,718 $157,790
Interest expense 76,354 79,552 69,231 73,925 70,005
--------------------------------------------------------
Net interest income 87,585 83,527 86,630 88,793 87,785
Provision for loan losses 5,995 3,225 4,295 4,392 5,574
--------------------------------------------------------
Net interest income after
provision for loan losses 81,590 80,302 82,335 84,401 82,211
Non-interest income 24,588 23,376 24,581 25,715 17,701
Non-interest expense 64,894 64,483 67,813 68,308 65,182
--------------------------------------------------------
Income before income taxes 41,284 39,195 39,103 41,808 34,730
Provision for income taxes 12,282 12,271 11,465 13,495 9,519
--------------------------------------------------------
Net income $ 29,002 $ 26,924 $ 27,638 $ 28,313 $ 25,211
========================================================
Earnings per share $1.60 $1.41 $1.37 $1.36 $1.23
========================================================
Core earnings (1) $ 29,742 $ 27,966 $ 26,525 $ 25,468 $ 25,645
Core earnings per share (1) 1.64 1.46 1.32 1.28 1.25
----------------------------------------------------------------------------------------------
|
(1) Excludes goodwill amortization, net securities gains, and non-recurring items.
Earnings Summary
WesBanco's 2001 financial performance was highlighted by
increases in net interest income, deposit activity charges and net
securities gains. These positive factors were partially offset by a
decline in trust revenue and an increase in the loan loss provision.
Earnings for 2001 were $29.0 million or $1.60 per share
compared to $26.9 million or $1.41 per share in 2000.
Core earnings per share for 2001 increased 12.3% to $1.64
compared to $1.46 in 2000. Core earnings, which excludes
amortization of goodwill, net securities gains and non-recurring
items, increased to $29.7 million compared to $28.0 million in the
prior year. Non-recurring items consisted of $0.2 million of
acquisition-related costs for 2001. There were no items classified
as non-recurring in 2000.
WesBanco's key earnings performance ratios also improved in
2001. Earnings performance reflected a return on average assets of
1.21% and a return on average equity of 11.28% for the year ended
December 31, 2001, compared to 1.18% and 10.42%, respectively, for
2000.
Results of Operations
Net Interest Income
Taxable equivalent net interest income, which is WesBanco's
largest revenue source, is the difference between interest income on
earning assets (loans, securities and federal funds sold) and
interest expense paid on liabilities (deposits and borrowings).
Taxable equivalent net interest income is affected by the general
level of interest rates, changes in interest rates, and changes in
the amount and composition of interest earning assets and interest
bearing liabilities.
Taxable equivalent net interest income for 2001 increased $4.8
million or 5.4% in comparison to 2000. As shown in Table 2, the
taxable equivalent net interest margin was 4.17% in 2001 compared to
4.14% in 2000. The Federal Reserve lowered the target federal funds
rate 475 basis points in 2001 compared to an increase of 100 basis
points in 2000. During 2001, WesBanco lowered its base lending rate
to 4.75% from 9.50% in the prior year. The overall decline in
interest rates in 2001 and the short-term interest rate sensitivity
of interest bearing liabilities favorably impacted WesBanco's
taxable equivalent net interest margin. Average earning assets
increased $104.1 million or 4.9%, while average interest bearing
liabilities increased $99.3 million or 5.5%. Table 3 presents the
impact of these changes in volume and rate on the components of
taxable equivalent net interest income.
GRAPH: Net Interest Margin %*
2001 4.17%
2000 4.14%
1999 4.39%
1998 4.46%
1997 4.66%
*Taxable equivalent.
Taxable equivalent interest income increased $1.6 million or 0.9% for 2001 compared to 2000. The increase in taxable equivalent interest income was primarily due to an increase in the volume of average earning assets, which was partially offset by decreases in yields. The taxable equivalent yield on average earning assets decreased to 7.58% in 2001 from 7.88% in 2000. This decline was due to the general reduction in interest rates combined with a shift in volume from higher-yielding loans into securities with lower yields.
GRAPH: Net Interest Income*
(in millions)
2001 $93.1 2000 $88.4 1999 $92.1 1998 $94.0 1997 $92.7 |
*Taxable equivelant.
Interest expense decreased $3.2 million or 4.0% for 2001 compared to 2000. As shown in Table 2, the decrease in interest expense resulted from a decrease in the rate paid on average interest bearing liabilities to 4.03% in 2001 from 4.43% in 2000, which was partially offset by a total volume increase of 5.5%. The decrease in the rate paid on average interest bearing liabilities was attributable to significant interest rate reductions on other borrowings comprised mainly of repurchase agreements and FHLB borrowings and money market accounts comprised primarily of prime rate based products. During 2001, customers shifted out of savings accounts and long-term certificates of deposit and invested in short-term certificates of deposit and money market accounts. Average other borrowings increased $90.2 million or 58.2% reflecting growth primarily in average FHLB borrowings of $57.0 million. The change in the composition of the interest bearing liabilities was the result of the decline in interest rates during 2001.
Table 2. Average Balance Sheet and Net Interest Analysis
For the years ended December 31,
-----------------------------------------------------------------------------------------
2001 2000 1999
------------------------------ --------------------------- --------------------------
Average Average Average Average Average Average
(dollars in thousands) Volume Interest Rate Volume Interest Rate Volume Interest Rate
------------------------------------------------------------------------------------------------------------------------------
Assets
Loans, net of unearned income (1) $1,559,145 $126,230 8.10% $1,556,195 $128,591 8.26% $1,441,172 $117,508 8.15%
Securities(2):
Taxable 425,006 25,692 6.05 374,302 24,297 6.49 436,501 27,269 6.25
Tax-exempt (3) 209,268 15,892 7.59 182,516 13,806 7.56 204,697 15,665 7.65
-----------------------------------------------------------------------------------------
Total securities 634,274 41,584 6.56 556,818 38,103 6.84 641,198 42,934 6.70
Federal funds sold 42,421 1,687 3.98 18,703 1,217 6.51 17,905 902 5.04
-----------------------------------------------------------------------------------------
Total earning assets (3) 2,235,840 $169,501 7.58% 2,131,716 $167,911 7.88% 2,100,275 $161,344 7.68%
Other assets 167,593 156,062 151,053
-----------------------------------------------------------------------------------------
Total assets $2,403,433 $2,287,778 $2,251,328
=========================================================================================
Liabilities and
Shareholders' Equity
Interest bearing demand deposits $ 245,712 $ 3,920 1.60% $ 247,753 $ 5,026 2.03% $ 238,777 $ 4,418 1.85%
Money market deposits 374,100 14,006 3.74 352,084 16,462 4.68 337,643 13,653 4.04
Savings deposits 252,606 4,671 1.85 265,723 5,264 1.98 297,759 5,936 1.99
Certificates of deposit 776,852 43,632 5.62 774,607 43,689 5.64 725,555 38,545 5.31
-----------------------------------------------------------------------------------------
Total interest bearing deposits 1,649,270 66,229 4.02 1,640,167 70,441 4.29 1,599,734 62,552 3.91
Other borrowings 245,390 10,125 4.13 155,149 9,111 5.87 144,774 6,679 4.61
-----------------------------------------------------------------------------------------
Total interest bearing liabilities 1,894,660 $ 76,354 4.03% 1,795,316 $ 79,552 4.43% 1,744,508 $ 69,231 3.97%
Non-interest bearing demand deposits 228,936 215,393 207,520
Other liabilities 22,759 18,645 18,615
Shareholders' equity 257,078 258,424 280,685
-----------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $2,403,433 $2,287,778 $2,251,328
=========================================================================================
Taxable equivalent net
interest margin (3) $ 93,147 4.17% $ 88,359 4.14% $ 92,113 4.39%
==============================================================================================================================
|
(1)Total loans are gross of allowance for loan losses, net of unearned income, and include loans held for sale. Non-accrual loans were included in the average volume for the entire year. Loan fees included in interest on loans are not material.
(2)Average yields on securities available for sale have been calculated based on amortized cost.
(3)Taxable equivalent basis is calculated on tax-exempt securities using a tax rate of 35% for each year presented.
Table 3. Rate Volume Analysis of Changes in Interest Income and Interest Expense (1)
2001 Compared to 2000 2000 Compared to 1999
------------------------------- -----------------------------
Net Increase Net Increase
(in thousands) Volume Rate (Decrease) Volume Rate (Decrease)
--------------------------------------------------------------------------------------------------------
Increase (decrease) in interest income:
Loans, net of unearned income $ 330 $(2,691) $(2,361) $ 9,486 $ 1,597 $11,083
Taxable securities 3,141 (1,746) 1,395 (4,005) 1,033 (2,972)
Tax-exempt securities (2) 2,031 55 2,086 (1,681) (178) (1,859)
Federal funds sold 1,084 (614) 470 42 273 315
---------------------------------------------------------------
Total interest income change 6,586 (4,996) 1,590 3,842 2,725 6,567
---------------------------------------------------------------
Increase (decrease) in interest expense:
Interest bearing demand deposits (41) (1,065) (1,106) 170 438 608
Money market deposits 980 (3,436) (2,456) 600 2,209 2,809
Savings deposits (252) (341) (593) (635) (37) (672)
Certificates of deposit 126 (183) (57) 2,690 2,454 5,144
Other borrowings 4,257 (3,243) 1,014 506 1,926 2,432
---------------------------------------------------------------
Total interest expense change 5,070 (8,268) (3,198) 3,331 6,990 10,321
---------------------------------------------------------------
Net interest income
increase (decrease)(2) $1,516 $ 3,272 $ 4,788 $ 511 $(4,265) $(3,754)
========================================================================================================
|
(1)Changes to rate/volume are allocated to both rate and volume on a
proportionate dollar basis.
(2)Taxable equivalent basis is calculated on tax-exempt securities
using a tax rate of 35% for each year presented.
Results of Operations (continued)
Provision For Loan Losses
The provision for loan losses in 2001 increased to $6.0 million
compared to $3.2 million in 2000. Net charge-offs increased to $5.2
million compared to $2.9 million in 2000. Net charge-offs as a
percentage of average total loans increased to 0.34% in 2001 from
0.19% in 2000. The increases in the provision and net charge-offs
were primarily due to the recessionary economic environment that
existed in the region's economy during 2001. For additional
information on the allowance for loan losses, see the "Allowance for
Loan Losses" section included in this Management's Discussion and
Analysis.
Non-Interest Income
Excluding net securities gains, 2001 non-interest income
increased $0.7 million or 3.2% from 2000. A decrease in trust income
was exceeded by increases in deposit activity revenue and other
income.
Trust fees decreased $0.7 million or 5.9% compared to 2000. The
decline was primarily due to a general reduction in the market value
of trust assets and lower estate settlement income. The market value
of trust assets at December 31, 2001 was $2.8 billion, a decrease of
$291 million from December 31, 2000.
Deposit activity revenue increased approximately $1.1 million
or 13.4% due to increases in fees connected with customer deposit
activities, debit cards and ATMs.
GRAPH: Non-Interest Income* to Average Assets
2001 1.02%
2000 0.99%
1999 0.92%
1998 0.87%
1997 0.81%
*Excludes net securities gains and non-recurring items.
Other income increased by approximately $0.4 million or 15.7%
compared to 2000 as the result of increased income from real estate
loans originated for sale in the secondary market.
Net securities gains increased $0.5 million or 61.2% in 2001
due primarily to gains realized on called U.S Agency securities.
Non-Interest Expense
Non-interest expense increased $0.4 million or 0.6% compared to
2000. This consistency with the prior year reflects the continued
improvement in internal operating efficiencies resulting from the
consolidation of WesBanco's four banking affiliates and mortgage
company affiliate into a single bank charter during 2000 and
management's ongoing efforts to control operating costs. WesBanco's
efficiency ratio improved to 54.3% in 2001 from 56.7% in 2000.
GRAPH: Non-Interest Expense* to Average Assets
2001 2.68% 2000 2.82% 1999 3.01% 1998 2.96% 1997 3.06% |
*Excludes goodwill amortization and non-recurring items.
Employee benefit costs increased $0.8 million or 16.2% compared to 2000, primarily due to a $0.7 million increase in health insurance costs. Salaries and wages declined slightly (approximately 1%) in 2001 as normal salary increases were offset by reduced staffing levels. Full-time equivalent employees, on average, declined to 993 for 2001 compared to 1,055 for 2000. Other non- interest expense categories, in total, approximated the level of the prior year. Decreases in technology and telecommunication costs associated with the administration of WesBanco's wide area network were offset by increases in consulting fees, general maintenance of branch facilities and processing costs associated with increased transaction volume at ATMs.
Income Taxes
Although WesBanco's pretax income increased $2.1 million to
$41.3 million in 2001 from $39.2 million in 2000, the provision for
income taxes remained constant at $12.3 million for both years. This
circumstance was caused by an increase in non-taxable income in 2001
which lowered the effective tax rate to 30% for 2001 from 31% for
2000.
Federal income tax expense increased $0.2 million to $10.2
million in 2001 from $10.0 million in 2000. WesBanco's West Virginia
affiliates are subject to a state corporate net income tax, which is
based upon federal taxable income, with certain modifications. The
statutory West Virginia tax rate was 9.0% for 2001 and 2000. West
Virginia income tax, included in the provision for income taxes, was
$2.1 million for 2001 compared to $2.3 million for 2000.
WesBanco's offices located in Ohio are subject to an Ohio
franchise tax, rather than a corporate income tax. Ohio franchise
taxes are included in other operating expense.
Financial Condition
Securities
Securities increased $212.1 million between December 31, 2000
and December 31, 2001. As shown in Table 4, available for sale
securities, at fair value, representing 68.2% of total securities at
December 31, 2001, increased $167.2 million or 47.7%. Held to
maturity securities, representing the remaining 31.8% of total
securities, increased $44.9 million or 22.9% during 2001. At
December 31, 2001, the average yield of the available for sale
portfolio was 5.75% with an average maturity of 2.7 years. For the
same period, the average taxable equivalent yield of the held to
maturity portfolio was 6.94% with an average maturity of 6.6 years.
During 2001, securities available for sale and held to maturity
increased as purchases significantly exceeded sales, maturities,
paydowns and calls. Throughout the year, WesBanco purchased Federal
Agency, municipal, corporate and mortgage-backed securities to take
advantage of favorable market rate opportunities enhanced by a
relatively steep yield curve.
Unrealized pre-tax gains/losses on available for sale
securities (fair value adjustments) totaled $7.4 million market gain
as of December 31, 2001 compared to a $0.5 million market loss as of
December 31, 2000. These fair value adjustments represent temporary
fluctuations resulting from changes in market rates in relation to
average yields in the available for sale portfolio. WesBanco can
impact the magnitude of the fair value adjustment by managing both
the volume of securities classified as available for sale and
average maturities. If securities are held to their respective
maturity dates, no fair value gain or loss would be realized.
GRAPH: Securities
(in millions)
2001 $762
2000 $546
1999 $568
1998 $681
1997 $629
Securities represent a source of liquidity for WesBanco. During 2001, securities with a total carrying value of $199.8 million either matured or were called. In addition, $65.0 million of available for sale securities were sold during 2001.
Table 4. Composition of Securities
December 31,
------------------------------
(in thousands) 2001 2000 1999
-------------------------------------------------------------------------------------
Securities held to maturity (at amortized cost):
U.S. Treasury and Federal Agency securities $ 1,001 $ 4,357 $ 13,346
Obligations of states and political subdivisions (1) 221,866 173,771 182,005
Other securities 18,086 17,974 17,902
----------------------------
Total securities held to maturity 240,953 196,102 213,253
----------------------------
Securities available for sale (at fair value):
U.S. Treasury and Federal Agency securities 307,250 206,268 189,593
Obligations of states and political subdivisions (1) 12,076 12,907 18,298
Mortgage-backed and other securities (2) 198,191 131,112 146,784
----------------------------
Total securities available for sale 517,517 350,287 354,675
----------------------------
Total securities $758,470 $546,389 $567,928
=====================================================================================
|
(1) There are no individual securities included in obligations of states and political subdivisions or other securities, which individually or in the aggregate exceed ten percent of shareholders' equity.
(2) Other securities, classified as available for sale, include equity interests in business corporations.
Financial Condition (continued)
Table 5. Maturity Distribution and Yield Analysis of Securities
December 31, 2001
-----------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
--------------- ----------------- ---------------- ---------------
(dollars in thousands) Amount Yield* Amount Yield* Amount Yield* Amount Yield*
-------------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Treasury and Federal
Agency securities $ 1,001 6.37% --- --- --- --- --- ---
Obligations of states and
political subdivisions (1) 17,758 7.23 $ 44,679 7.22% $ 95,454 6.89% $ 63,975 7.04%
Other securities (2) --- --- --- --- --- --- 18,086 5.89
-----------------------------------------------------------------------
Total held to maturity 18,759 7.18 44,679 7.22 95,454 6.89 82,061 6.79
-----------------------------------------------------------------------
Securities available for sale (3):
U.S. Treasury and Federal
Agency securities 9,998 5.73 157,804 4.73 133,146 6.53 --- ---
Obligations of states and
political subdivisions (1) 3,384 6.14 5,913 6.32 1,578 7.43 1,030 12.26
Mortgage-backed and
other securities (4) 553 5.56 116,239 5.98 71,275 5.87 9,184 3.72
-----------------------------------------------------------------------
Total available for sale 13,935 5.82 279,956 5.28 205,999 6.31 10,214 4.58
-----------------------------------------------------------------------
Total securities $32,694 6.60% $324,635 5.55% $301,453 6.49% $ 92,275 6.54%
=======================================================================================================
|
* Yields are calculated using a weighted average yield to maturity.
(1)Average yields on obligations of states and political subdivisions have been calculated on a taxable equivalent basis.
(2)Other held to maturity securities include securities with no stated maturity date.
(3)Average yields on securities available for sale have been calculated based on amortized cost.
(4)Mortgage-backed securities, which have prepayment provisions, are assigned to maturity categories based on estimated average lives.
Loans
Accounting policies related to loans and the allowance for loan
losses are deemed to be critical accounting policies. In addition to
the discussion herein, see the significant accounting policies in
Note 1 of the Consolidated Financial Statements.
Loan Portfolio
The loan portfolio, which represents WesBanco's largest asset
classification is a significant source of interest income and fee
income. Elements of the loan portfolio are subject to differing
levels of credit and interest rate risk. Loans decreased $51.1
million or 3.2% between December 31, 2000 and December 31, 2001.
WesBanco experienced growth in commercial loans during 2001,
however, that growth was more than offset by decreases in the
consumer and residential real estate loan portfolios.
Commercial loans increased $23.1 million or 4.2% compared to
the prior year. The commercial loan portfolio includes both secured
and unsecured short-term loans to finance working capital, as well
as longer term loans to finance fixed assets, including commercial
real estate. Commercial loan demand remained strong throughout the
year despite a weakening economy. This demand was fueled in part by
lower interest rates, which resulted in many businesses and
investment property owners proceeding with planned expansions,
acquiring new properties, or refinancing existing debts. Most of the
increase in commercial loans is attributable to new loans secured by
real estate projects or investment properties.
Residential real estate loans decreased $37.3 million or 5.7%
compared to the prior year. Residential real estate loans include
conventional mortgages to purchase or refinance personal residences
and one-to-four family rental properties, as well as home equity
lines of credit that are secured by first or second liens on
residences. WesBanco originates mortgage loans for its own portfolio
as well as loans sold in the secondary market. Lower interest rates
throughout the year resulted in an increase in mortgage refinancing
activity. Conventional mortgage loans decreased $49.0 million or
8.7% compared to the prior year. This decrease was due to scheduled
repayment of loans, but also reflects WesBanco's decision to reduce
exposure to fixed interest rates on new loans originated near the
bottom of the interest rate cycle by selling current originations in
the secondary market. Mortgage loans originated for sale increased
25.9% to $63.6 million in 2001 compared to $50.5 million in 2000.
Decreases in conventional mortgage loans held in the portfolio were
partially offset by growth in home equity lines of credit, which
increased $11.7 million or 13.5% compared to the prior year. Home
equity lending has been a significant source of loan growth as
consumers use the equity in their residences to improve their homes,
consolidate debts and for other purposes.
Table 6. Composition of Loans
December 31,
------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
---------------- ---------------- ---------------- ---------------- ------------------
% of % of % of % of % of
(dollars in thousands) Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
----------------------------------------------------------------------------------------------------------------
Commercial $ 569,193 37% $ 546,136 34% $ 521,450 34% $ 484,269 35% $ 438,055 33%
Real estate -
construction 37,676 2 36,007 2 31,742 2 46,033 3 37,743 2
Real estate-residential 614,586 40 651,924 41 630,939 41 520,393 38 521,222 39
Consumer 312,775 20 354,352 22 329,763 22 313,490 23 334,671 25
Loans held for sale 5,522 1 2,391 1 9,753 1 9,280 1 11,705 1
------------------------------------------------------------------------------------------
Total loans $1,539,752 100% $1,590,810 100% $1,523,647 100% $1,373,465 100% $1,343,396 100%
================================================================================================================
|
Loans are presented gross of allowance for loan losses and unearned income on consumer loans.
Loans held for sale, which consists solely of mortgage loans
originated for sale in the secondary market, increased $3.1 million
compared to the prior year. This increase reflects the increase in
secondary market loan volume which continued through the end of the
year. WesBanco enters into sales commitments at the time these loans
are funded.
Real estate-construction loans, which include both commercial
and residential properties, increased $1.7 million or 4.6% compared
to the prior year. Construction loans are influenced by many
factors, including the number of housing starts and the volume of
new commercial projects. The increase at December 31, 2001 was
primarily due to new residential construction activity.
Consumer loans decreased $41.6 million or 11.7% compared to the
prior year. Consumer loans consist of indirect loans originated
through automobile dealers and other types of secured and unsecured
direct loans to individuals for consumer purposes. The decrease in
consumer loans reflects WesBanco's decision to tighten lending
standards for indirect automobile lending, competition from
automobile manufacturers offering low-interest rate or zero-percent
financing, a slowdown in the regional economy, and the economic
effects associated with the decline of the steel industry in the
Northern Panhandle of West Virginia.
Off-balance sheet commitments consist of available balances
under lines of credit and letters of credit. These commitments to
extend credit increased $74.7 million or 38.3% between December 31,
2000 and December 31, 2001. This increase is attributed to growth in
commercial and home equity lines of credit. Commercial lines of
credit and letters of credit are generally renewable or may be
cancelled annually. Loan commitments that are available beyond one
year consist of home equity and other personal lines of credit,
certain real estate construction loans, and other commercial lines
of credit. Loan commitments, regardless of the duration of
availability, are cancelable by WesBanco under certain
circumstances.
Table 7. Loan Commitments
December 31, 2001
--------------------------------------------
For One One Year to Over
(in thousands) Year or Less Five Years Five Years
------------------------------------------------------------------------
Lines of credit:
Commercial $136,596 $29,096 $ 2,354
Consumer and residential
real estate 3,388 --- 79,989
Letters of credit 18,263 --- ---
--------------------------------------------
Total $158,247 $29,096 $82,343
========================================================================
|
Credit Risk
Inherent Risks: The risk that borrowers will be unable to repay
their obligations and default on loans is inherent in all lending
activities. WesBanco's primary goal in managing credit risk is to
minimize the impact of default by an individual borrower or group of
borrowers. Credit risk is managed both through the initial
underwriting process as well as through ongoing monitoring and
administration of the loan portfolio.
WesBanco's credit policies establish, among other things,
underwriting guidelines for all types of loans; lending authorities;
limitations on credit exposure to individual borrowers or groups of
borrowers, as well as loan type, industry, and geographic
concentrations; and loan portfolio administration procedures.
Exceptions to credit policy require careful evaluation of the
additional risks associated with each exception and the factors that
mitigate those risks.
Underwriting guidelines require an appropriate evaluation of
the repayment capacity and general creditworthiness of each
borrower; requirements for down payments or borrower's equity; the
adequacy of collateral, if any, to secure the loan including current
market appraisals or other valuations of collateral; and other
factors unique to each loan that may increase or mitigate its risks.
Individual lending officers may approve loans up to specified
limits, which vary by type of loan. Loans above individual officers'
limits require approval of the Chief Credit Officer, a loan
committee, or the Board of Directors, depending on the amount of
credit exposure to the particular borrower. These approval
requirements also apply to renewals, extensions and modifications of
loan terms.
Financial Condition (continued)
WesBanco extends credit to individuals for various consumer
purposes, which include installment loans to purchase automobiles,
residential mortgage loans, construction loans, home equity lines of
credit, and other personal loans. WesBanco also extends credit to
businesses of all types to purchase assets, including investment
properties, finance expansion, construct facilities or provide
working capital.
Consumer loans are a homogeneous group of loans, generally
smaller in amount, which are not concentrated in a specific market
area and are spread over a larger number of diverse individual
borrowers. The maximum term for automobile loans and other types of
personal loans generally do not exceed 72 months. Risks in this
segment of the portfolio include the impact of a general economic
downturn, an isolated adverse event that impacts a major employer,
and collateral values that depreciate faster than the repayment of
the loan balance.
Residential real estate loans, while typically larger in amount
compared to personal loans, have many of the same characteristics
and are also affected by economic conditions which may influence
real property values. Conventional mortgage loans that are held in
the loan portfolio have terms ranging from 15 to 30 years depending
on whether the interest rate is fixed or adjustable, with a maximum
of 15 years for fixed rate loans. Borrowers are generally required
to have adequate down payments or equity in the property. Loan
requests that exceed the loan-to-value guidelines set forth by
established credit policies generally must be supported by private
mortgage insurance. Home equity lines of credit are secured by first
or second liens on real estate up to 100% of the value of the
property net of any first lien mortgage.
Commercial loans are often for substantially larger amounts and
the potential for loss on any one loan can be significant.
Commercial loans secured by real estate are generally structured to
fully amortize over terms ranging from 15 to 25 years depending on
the type of property. Loans with amortization periods of more than
20 years will generally also have a maturity of 10 years or less.
This includes loans that are secured by properties used in the
operation of a borrower's business and loans that are secured by
income producing rental properties. Commercial loans that are not
secured by real estate have shorter terms and include revolving
lines of credit that mature within one year or less. Loans secured
by equipment and other types of personal property have terms that
generally do not exceed 10 years.
Real estate-construction loans are generally made only when
WesBanco also commits to the permanent financing of the project or
residence, or has a takeout commitment from another lender for the
permanent loan.
Commercial loans are not concentrated in any single industry
but reflect a broad range of businesses located primarily within
WesBanco's market areas. There are no significant loans made to
customers outside WesBanco's general market areas unless the
borrower also has significant other non-lending relationships with
WesBanco.
The risk of loss with all lending is mitigated by obtaining
collateral to secure loans. Unsecured loans represent less than 5%
of total loans.
WesBanco's exposure to credit losses in the event of non-
performance by the other parties to the financial instruments for
commitments to extend credit and letters of credit is limited to the
contractual amount of those instruments. WesBanco uses the same
credit policies in making commitments and conditional obligations as
for all other lending.
Table 8. Maturity Distribution of Loans
December 31, 2001
-------------------------------------------
After One
In One Year through After
(in thousands) Year or Less Five Years Five Years
--------------------------------------------------------------------------
Commercial $128,765 $ 86,213 $140,843
Commercial real estate 27,817 19,195 166,360
Real estate - construction 7,863 489 29,324
------------------------------------------
Total $164,445 $105,897 $336,527
==========================================
Fixed rates $ 42,669 $ 52,086 $ 76,133
Variable rates 121,776 53,811 260,394
------------------------------------------
Total $164,445 $105,897 $336,527
==========================================================================
|
Excludes consumer, residential mortgage and loans held for sale.
External Risks: In addition to the inherent risks discussed above, economic conditions and other external factors beyond WesBanco's control can adversely impact credit risk. In addition to the general downturn in the economy, the Upper Ohio Valley has been significantly impacted by the difficulties facing the steel industry, which continues to be threatened by foreign imports and other factors. Two of the ten largest integrated steel companies in the United States are headquartered in the Upper Ohio Valley and are major employers in that part of WesBanco's market. One of these companies has been operating under Chapter 11 of the Bankruptcy Act since November 2000 and its employees have taken temporary, but significant, reductions in wages, while the other company significantly reduced its workforce during 2001. As of December 31, 2001, WesBanco had no material direct credit exposure to steel companies. However, WesBanco extends credit to consumers employed in the steel industry and to businesses that provide products or services to the industry. In addition, a number of other businesses not directly associated with the industry could be adversely impacted by a significant loss of employment. Approximately 40% of WesBanco's total loan portfolio is comprised of borrowers located in the Upper Ohio Valley. It is not possible to ascertain the impact that continued difficulties in the steel industry may have on these customers and their ability to repay. On March 5, 2002, President Bush initiated tariffs on most steel imports in an effort to restore the strength and profitability of the steel industry.
Risk Monitoring: Subsequent to loan origination, the process used
to measure and monitor credit risk depends on the type of loan.
Monitoring the level and trend of delinquent loans is a basic
practice for all loan types. Underwriting standards may also be
changed when appropriate. Credit risk in the consumer loan and
residential real estate portfolios is also managed by monitoring
market conditions that may impact groups of borrowers or collateral
values. Credit risk in the commercial loan portfolio is managed by
periodic reviews of large borrowing relationships, monitoring the
portfolio for potential concentrations of credit, and monitoring
each borrower's compliance with applicable loan covenants.
WesBanco maintains a loan grading system that categorizes
commercial loans according to their level of credit risk. These
grades encompass six categories that define each borrower's ability
to repay their loan obligations and other factors that affect the
quality of the loan. All commercial loans are assigned a grade at
their inception, and grades are regularly reviewed and evaluated.
When the risk of a loan increases beyond that which is considered
acceptable in the assigned grade, its grade is adjusted to reflect
the change in risk. The loan grading system provides management with
an effective early warning system of potential problems, assists in
identifying adverse trends and evaluating the overall quality of the
portfolio, and facilitates evaluating the adequacy of the allowance
for loan losses.
Classified loans are those loans that exhibit clear and defined
weaknesses that may jeopardize their repayment in full. Loans are
classified as "substandard" when they are no longer adequately
protected by adequate net worth and paying capacity of the borrower
or value of the collateral. Substandard loans are characterized by
the possibility that WesBanco may sustain some loss. Loans are
classified as "doubtful" when the risk that a loss may occur has
increased, or at least a portion of the loan may require charge-off.
Classified loans include some loans that are delinquent or on non-
accrual status and may also include loans whose terms have been
renegotiated. Classified loans are tested for possible impairment at
least quarterly.
WesBanco also maintains a loan review process, independent of
the loan origination function, to evaluate the quality of the loan
portfolio and the effectiveness of credit administration. The loan
review process also identifies areas that may require additional
management attention, evaluates the adequacy of loan documentation,
provides written reports to management regarding compliance with
lending policies, and validates the reliability of the grading
system. The loan review function reports to the Audit/Loan Committee
of the Board of Directors. The loan review process also identifies
areas that may require additional management attention, evaluates
the adequacy of loan documentation, provides written reports to
management regarding compliance with lending policies, validates the
reliability of the grading system, and reviews management's analysis
of the allowance for loan losses.
Non-performing Assets and Other Impaired Loans: Non-performing
assets consist of non-accrual and renegotiated loans and other real
estate owned acquired through foreclosure. Other impaired loans
include loans that are internally classified as substandard or
doubtful.
Loans are placed on non-accrual status, when in the opinion of
management, doubt exists as to collectability. All banks must
conform to the policies of the Board of Governors of the Federal
Reserve System and the Office of the Comptroller of the Currency
which state that banks may not accrue interest on any loan on which
either the principal or interest is past due 90 days or more unless
the loan is both well secured and in the process of collection. When
a loan is placed on non-accrual, interest income may be recognized
as cash payments are received.
Loans are categorized as renegotiated when WesBanco, for
economic or legal reasons related to a borrower's financial
difficulties, grants a concession to the borrower that it would not
otherwise consider. Concessions that may be granted include a
reduction of the interest rate, the amount of accrued interest, or
the face amount of the loan; as well as an extension of the maturity
date or the amortization schedule.
Non-performing assets and other impaired loans decreased $3.6
million or 17.0% compared to the prior year. This decrease is the
result of a reduction in non-accrual and other impaired loans offset
by an increase in renegotiated loans. Commercial loans in the
amount of $4.6 million that were classified as other impaired loans
at December 31, 2000 were renegotiated during 2001. Renegotiated
commercial loans of $1.1 million were paid off during the year.
Total non-performing loans and other impaired loans as a percentage
of total loans decreased to 0.9% at December 31, 2001 compared to
1.1% at December 31, 2000.
Loans past due 90 days or more increased $3.9 million or 59.5%
compared to the prior year, with the increase primarily due to
higher delinquency in consumer and residential real estate loans.
Financial Condition (continued)
Table 9. Non-performing Assets, Other Impaired Loans and Loans Past
Due 90 Days or More
December 31,
-------------------------------------------------
(dollars in thousands) 2001 2000 1999 1998 1997
------------------------------------------------------------------------------
Non-accrual:
Consumer $ 31 $ 56 $ 36 $ 128 $ 105
Real estate 143 361 2,923 1,673 1,999
Commercial 3,856 5,144 1,199 8,687 6,309
------------------------------------------------
Total 4,030 5,561 4,158 10,488 8,413
------------------------------------------------
Renegotiated:
Consumer 21 36 3 --- 46
Real estate --- --- 27 695 1,070
Commercial 3,735 381 783 --- 1,307
------------------------------------------------
Total 3,756 417 813 695 2,423
------------------------------------------------
Total non-performing loans 7,786 5,978 4,971 11,183 10,836
Other real estate owned 3,215 3,424 3,512 3,486 5,620
------------------------------------------------
Total non-performing assets 11,001 9,402 8,483 14,669 16,456
================================================
Other impaired loans:
Commercial 6,355 11,513 8,706 5,285 3,765
Real estate --- --- --- --- ---
------------------------------------------------
Total other impaired loans 6,355 11,513 8,706 5,285 3,765
------------------------------------------------
Total non-performing assets
and other impaired loans $17,356 $20,915 $17,189 $19,954 $20,221
================================================
Ratio of non-performing
loans to loans outstanding 0.51% 0.38% 0.33% 0.81% 0.81%
Ratio of non-performing
assets to total assets 0.44% 0.41% 0.37% 0.65% 0.74%
Ratio of non-performing loans
and other impaired loans to
loans outstanding 0.92% 1.10% 0.90% 1.20% 1.09%
================================================
Past due 90 days or more:
Consumer $ 4,101 $ 1,891 $ 1,219 $ 1,184 $ 1,611
Real estate 4,206 1,984 1,637 1,453 599
Commercial 2,189 2,706 3,176 4,317 1,121
|
Allowance for Loan Losses: The allowance for loan losses is
available to absorb losses in the loan portfolio. The allowance is
reduced by losses, net of recoveries, and increased by charging a
provision to operations to maintain the allowance at a level
determined appropriate by management. There can be no assurance that
WesBanco will not sustain credit losses in future periods, which
could be substantial in relation to the size of the allowance.
The adequacy of the allowance for loan losses is evaluated
quarterly, which includes testing certain loans for impairment.
Larger commercial loans that exhibit potential or observed credit
weaknesses are subject to individual review. Reserves are allocated
to individual loans based on management's estimate of the borrower's
ability to repay the loan given the availability of collateral,
other sources of cash flow, and legal options available to WesBanco.
Historical loss rates are applied to other commercial loans not
specifically reserved. The loss rates are derived from a migration
analysis, which computes the net charge-off experience sustained on
loans according to their internal risk grade. Residential real
estate and consumer loans are not individually risk graded. Reserves
are established for each pool of these loans based on the expected
net charge-offs. The loss rates are based on the average net charge-
off history by loan category.
Management also evaluates factors such as economic conditions,
changes in underwriting standards or practices, delinquency and
other trends in the portfolio, specific industry conditions, loan
concentrations, the results of recent internal loan reviews or
regulatory examinations, and other relevant factors that may impact
the loan portfolio. Management relies on certain types of observable
data, such as employment statistics, trends in bankruptcy filings,
and external events that impact particular industries, to determine
whether loss attributes exist at the balance sheet date that will
lead to higher than historical losses in any segment of the
portfolio.
Table 10. Allowance for Loan Losses
For the years ended December 31,
--------------------------------------------
(dollars in thousands) 2001 2000 1999 1998 1997
-----------------------------------------------------------------------------
Beginning balance -
Allowance for loan losses $20,030 $19,752 $19,098 $20,261 $19,102
Allowance for loan losses of
acquired (sold) banks-net --- --- 192 (37) 269
Allowance for loan losses
allocated to credit cards --- --- (450) --- ---
Provision for loan losses 5,995 3,225 4,295 4,392 5,574
Charge-offs:
Commercial 2,182 1,474 2,024 1,933 1,016
Real estate 352 137 204 515 254
Consumer 3,304 2,484 2,490 3,952 4,523
--------------------------------------------
Total charge-offs 5,838 4,095 4,718 6,400 5,793
--------------------------------------------
Recoveries:
Commercial 198 348 479 522 314
Real estate 17 29 64 39 90
Consumer 384 771 792 321 705
--------------------------------------------
Total recoveries 599 1,148 1,335 882 1,109
--------------------------------------------
Net charge-offs 5,239 2,947 3,383 5,518 4,684
Ending balance -
Allowance for loan losses $20,786 $20,030 $19,752 $19,098 $20,261
============================================
Ratio of net charge-offs to
average total loans
outstanding for the period 0.34% 0.19% 0.23% 0.41% 0.35%
Ratio of the allowance for loan
losses to total loans
outstanding at the end of
the period 1.35% 1.26% 1.30% 1.39% 1.51%
Ratio of the allowance for loan
losses to non-performing loans 2.67x 3.35x 3.97x 1.71x 1.87x
-----------------------------------------------------------------------------
|
The allowance for loan losses at December 31, 2001 was 1.35% of
total loans compared to 1.26% at December 31, 2000. Net charge-offs
for 2001 increased 77.8% to $5.2 million compared to $2.9 million
for 2000. Net losses increased in 2001 as the result of increased
consumer bankruptcies, increased impairment of certain commercial
loans, and a downturn in the regional economy.
Allocation of the allowance among the various segments of the
loan portfolio is set forth in Table 11. The allocation of the
allowance did not change significantly between December 31, 2000 and
December 31, 2001. While management has allocated the allowance to
different loan categories, the allowance is general in nature and is
available for the loan portfolio in its entirety.
Table 11. Allocation of the Allowance for Loan Losses
December 31,
-----------------------------------------------
(in thousands) 2001 2000 1999 1998 1997
---------------------------------------------------------------------------
Commercial $15,384 $15,855 $15,792 $13,929 $13,740
Real estate - residential 739 885 749 611 634
Consumer 4,663 3,290 3,211 4,558 5,887
-----------------------------------------------
Total $20,786 $20,030 $19,752 $19,098 $20,261
===========================================================================
|
Deposits and Other Borrowings
Deposits, WesBanco's primary source of funds, increased $43.1
million or 2.3% between December 31, 2000 and December 31, 2001.
Non-interest bearing demand deposits increased $10.2 million or 4.3%
and money market accounts increased $47.7 million or 13.3%, while
interest bearing demand deposits decreased by $14.6 million or 5.6%.
The balances in savings deposits and certificates of deposit did not
change significantly between December 31, 2000 and December 31,
2001. As interest rates fell during 2001, customers shifted deposits
into the competitively- priced prime rate money market products and
short-term certificates of deposit.
Table 12. Maturity Distribution of Certificates of Deposit $100,000
or More
December 31,
------------------------
(in thousands) 2001 2000
---------------------------------------------------------------
Maturity:
Under three months $ 34,484 $ 25,060
Three to six months 25,687 14,632
Six to twelve months 33,006 33,729
Over twelve months 68,459 62,910
------------------------
Total $161,636 $136,331
===============================================================
|
Interest expense on certificates of deposit of $100,000 or more was approximately $7,485 in 2001, $6,335 in 2000, and $7,206 in 1999.
Financial Condition (continued)
Other borrowings, which include FHLB borrowings, customer
repurchase agreements and federal funds purchased, increased $119.8
million or 75.2% during 2001. FHLB borrowings increased to $106.9
million, repurchase agreements increased to $142.3 million and
federal funds purchased increased to $29.9 million. WesBanco
utilized the proceeds from the additional other borrowings to
maintain adequate balance sheet liquidity and purchase securities at
favorable market rates.
Capital Resources
Shareholders' equity at December 31, 2001 remained consistent
with the level at December 31, 2000. Dividends and purchases of
treasury stock were offset by 2001 net income and an increase in
accumulated other comprehensive income, resulting primarily from
fair value adjustments.
Treasury stock was purchased in accordance with WesBanco's
stock repurchase plans and totaled 815,317 shares during 2001. As of
December 31, 2001, 418,383 shares of WesBanco common stock remained
authorized to be purchased under the current one million share stock
repurchase plan, which began on March 21, 2001. The shares are
purchased for general corporate purposes, which may include
potential acquisitions, dividend reinvestment and employee benefit
plans. The timing, price and quantity of purchases are at the
discretion of WesBanco and the plan may be discontinued or suspended
at any time.
Strong and consistent earnings coupled with a high level of
capital have enabled WesBanco to continue to increase dividends per
share. Effective with the first quarter of 2001, WesBanco increased
its quarterly dividend per share 2.2% to $0.23 from $0.225. For
2001, dividends increased to $0.92 per share compared to $0.895 per
share in the prior year. This dividend increase represented the
sixteenth consecutive year of dividend increases at WesBanco. The
2001 dividend per share payout ratio was 57.5%.
WesBanco is subject to risk-based capital guidelines that
measure capital relative to risk-weighted assets and off-balance
sheet instruments. WesBanco, and its banking subsidiary, maintain
Tier 1, Total Capital and Leverage ratios well above minimum
regulatory levels. See Note 14 of the Consolidated Financial
Statements for more information on capital amounts, ratios and
minimum regulatory requirements.
Market and Liquidity Risk
The prime objective of WesBanco's asset/liability management
function is to maintain consistent growth in net interest income
within established policy parameters. This objective is accomplished
through the management of balance sheet composition, market risk
exposures arising from changing economic conditions, and liquidity
risk.
Market Risk: Management considers interest rate risk WesBanco's
most significant market risk. Interest rate risk is the exposure to
adverse changes in net interest income due to changes in interest
rates. Consistency of WesBanco's net interest income is largely
dependent on effective management of interest rate risk. As interest
rates change in the market, rates earned on interest rate sensitive
assets and rates paid on interest rate sensitive liabilities do not
necessarily move concurrently. Differing rate sensitivities may
arise because fixed rate assets and liabilities may not have the
same maturities or because variable rate assets and liabilities
differ in the timing and/or the percentage of rate changes.
One method that management utilizes to measure interest rate
risk is an earnings simulation model, which analyzes net interest
income sensitivity to changing interest rates. The model takes into
consideration numerous assumptions regarding cash flow, repricing
characteristics, prepayment factors and callable bond forecasts at
varying levels of interest rates. Since these assumptions are
uncertain, the simulation analysis should not be relied upon as
being indicative of actual results. The analysis may not consider
all actions that WesBanco could employ in response to changes in
interest rates.
WesBanco's Asset/Liability Management Committee ("ALCO"), which
includes senior management and reports to the Board of Directors,
monitors and manages interest rate risk within Board approved policy
guidelines. The current interest rate risk policy guidelines are
determined by measuring (using the earnings simulation model) the
anticipated change in net interest income over a 12-month horizon
assuming an immediate and sustained 200 basis point increase or
decrease in market interest rates. WesBanco's current policy
establishes a guideline for this exposure of +/- 5.0% of net
interest income for a 12-month horizon. Table 13 shows WesBanco's
annual interest rate sensitivity at December 31, 2001 and December
31, 2000, assuming this 200 basis point interest rate change and a
100 basis point interest rate change.
Table 13. Net Interest Income Sensitivity
Percentage Change in
Change in Net Interest Income
Interest Rates ---------------------------------------- ALCO
(basis points) December 31, 2001 December 31, 2000 Guidelines
-----------------------------------------------------------------------------
+200 0.4% - 4.6% +/- 5.0%
- 200 - 5.4% 2.0% +/- 5.0%
+100 1.6% - 1.8% N/A
- 100 - 1.6% 2.2% N/A
-----------------------------------------------------------------------------
|
Another method that WesBanco uses to manage its interest rate risk is a rate sensitivity gap analysis shown in Table 14. Gap analysis measures the maturity and repricing relationships between rate sensitive assets and rate sensitive liabilities at a specific point in time.
Table 14. Interest Rate Sensitivity Analysis - GAP Analysis
December 31, 2001
-------------------------------------------------------------------
Under Three Six Nine Over
Three To Six to Nine Months to One
(in thousands) Months Months Months One Year Year Total
-------------------------------------------------------------------------------------------------------------
Rate Sensitive Assets
Due from banks/interest bearing $ 712 --- --- --- --- $ 712
Securities (1) 17,972 $ 3,853 $ 7,079 $ 3,790 $ 718,363 751,057
Loans 366,186 133,271 134,008 133,405 772,825 1,539,695
--------------------------------------------------------------------
Total rate sensitive assets 384,870 137,124 141,087 137,195 1,491,188 2,291,464
--------------------------------------------------------------------
Rate Sensitive Liabilities
Money market deposit accounts 286,412 3,338 3,268 3,191 110,518 406,727
Savings and NOW accounts 497,885 --- --- --- --- 497,885
Certificates of deposit 152,496 105,561 75,759 83,809 346,799 764,424
Federal funds purchased 30,000 --- --- --- --- 30,000
Other borrowings 138,469 2,562 233 15 107,852 249,131
---------------------------------------------------------------------
Total rate sensitive liabilities 1,105,262 111,461 79,260 87,015 565,169 1,948,167
---------------------------------------------------------------------
Interest rate sensitivity gap $ (720,392) $ 25,663 $ 61,827 $ 50,180 $ 926,019 343,297
=====================================================================
Cumulative interest rate sensitivity gap $ (720,392) $(694,729) $(632,902) $(582,722) $ 343,297 ---
==============================================================================================================
|
(1) Securities are categorized above by expected maturity at amortized cost.
As shown in Table 14, the liability sensitive position in the
under three month horizon is primarily a result of $497.9 million in
savings and NOW account balances. Interest rates on these deposit
instruments are subject to periodic adjustment at management's
discretion. Other factors contributing to the liability sensitive
position include the continued growth in money market deposit
accounts, $100,000 and over certificates of deposit and short-term
borrowings.
In order to reduce the exposure to interest rate fluctuations,
WesBanco utilized interest rate swap agreements during 2001. At
December 31, 2001, the notional value of interest rate swap
agreements outstanding was $122.2 million. WesBanco also manages
the level of its fixed rate residential real estate loan portfolio.
Long-term fixed rate real estate loans are routinely sold to the
secondary market through WesBanco's mortgage banking division.
Liquidity Risk: Liquidity is defined as the degree of readiness to
convert assets into cash with minimum loss. Liquidity risk is
managed through WesBanco's ability to provide adequate funds to meet
changes in loan demand, unexpected outflows in deposits and other
borrowings as well as to take advantage of market opportunities and
meet operating cash needs. This is accomplished by maintaining
liquid assets in the form of securities, sufficient borrowing
capacity and a stable core deposit base. Liquidity is centrally
monitored by WesBanco's ALCO.
WesBanco determines the degree of required liquidity by the
relationship of total holdings of liquid assets to the possible need
for funds to meet unexpected deposit losses and/or loan demands. The
ability to quickly convert assets to cash at a minimal loss is a
primary function of WesBanco's investment portfolio management.
Federal funds sold, commercial paper and U.S. Treasury and Federal
Agency securities maturing within three months, are classified as
secondary reserve assets. These secondary reserve assets, combined
with the cash flow from the loan portfolio and the remaining sectors
of the investment portfolio, and other sources, adequately meet the
liquidity requirements of WesBanco.
Securities are the principal source of asset-funded liquidity.
At December 31, 2001, WesBanco had approximately $32.7 million in
securities scheduled to mature within one year compared to $46.1
million in the prior year. Additional asset-funded liquidity is
provided by the remainder of the available for sale securities
portfolio, cash and cash equivalents.
In addition to the securities portfolio, WesBanco's banking
subsidiary maintains a line of credit with the FHLB as an additional
funding source. Available lines of credit at December 31, 2001 and
December 31, 2000 approximated $551.8 million and $578.2 million,
respectively. At December 31, 2001, WesBanco had $395.4 million of
unpledged securities that could be used for collateral or sold.
The principal source of parent company liquidity is dividends
from WesBanco's banking subsidiary, WesBanco Bank, Inc. There are
legal limitations on the ability of WesBanco Bank, Inc. to pay a
dividend to the parent company. See Note 14 of the Consolidated
Financial Statements for more information on dividend restrictions
between the Parent Company and WesBanco Bank, Inc. Additional Parent
Company liquidity is provided by the Parent's security portfolio as
well as a line of credit with WesBanco Bank, Inc.
Market and Liquidity Risk (continued)
At December 31, 2001, WesBanco had outstanding commitments to
extend credit in the ordinary course of business approximating
$251.4 million compared to $187.6 million at the end of the prior
year. On a historical basis, only a small portion of these
commitments will result in an outflow of funds. WesBanco also has
planned additions to fixed assets of approximately $2.5 million
during 2002.
Management believes WesBanco currently has sufficient liquidity
to meet current obligations to borrowers, depositors and others.
Comparison of 2000 Versus 1999
Net income for 2000 was $26.9 million or $1.41 per share
compared to $27.6 million or $1.37 per share in 1999. For the same
comparative period, core earnings per share, excluding goodwill
amortization, net securities gains and non-recurring items,
increased 10.6% to $1.46 from $1.32.
Non-recurring items recorded in the Statement of Income
included a pretax gain of $3.6 million on the sale of credit card
receivables in 1999.
Taxable equivalent net interest income decreased $3.8 million
or 4.1% from 1999 to 2000 reflecting a trend consistent with the
banking industry during the year. This trend was the direct result
of competitive pricing pressure to adjust rates on loan and deposit
products. As shown in Table 2, the taxable equivalent net interest
margin declined during 2000 in comparison to 1999. The taxable
equivalent net interest margin was 4.14% compared to 4.39% in 1999
while average earning assets increased 1.5% during 2000. Taxable
equivalent interest income increased $6.6 million or 4.1% for 2000
compared to 1999. The increase was due to increases in average loan
volume and yields, partially offset by decreases in average
securities volume. Interest expense increased $10.3 million or 14.9%
from 1999. Table 2 shows that the increase resulted from an increase
in rates paid on average interest bearing liabilities to 4.43% from
3.97% and volume increases in average interest bearing liabilities
of 2.9%.
The provision for loan losses was $3.2 million in 2000 compared
to $4.3 million in 1999. Net charge-offs for 2000 decreased 12.9% to
$2.9 million compared to $3.4 million for 1999.
Non-interest income, excluding net securities gains and the
gain on the sale of the credit card portfolio in 1999, increased
9.3% to $22.6 million for 2000 compared to $20.6 million for 1999.
Trust revenue increased $1.6 million or 15.5%. The growth in trust
revenue was due to increases in the number of accounts under
administration, increases in investment advisory fees and an
increase in the market value of trust assets. Deposit activity
charges increased $1.3 million or 18.7%. Conversely, other income
decreased by $1.0 million in 2000 due to the significant reduction
of credit card activity fees related to the 1999 sale of the credit
card portfolio.
Non-interest expense for 2000 decreased 4.9% to $64.5 million
compared to $67.8 million for 1999. The majority of the decrease
related directly to a reduction in wages and benefits, which
declined 5.8% or $2.0 million. This reduction resulted from the
consolidation of WesBanco's four banking affiliates and mortgage
company into a single bank in January of 2000, and decreases in
post-retirement expense and health insurance costs. Also, other
operating expense declined 7.9% or $1.8 million primarily as the
result of the significant reduction of credit card processing costs.
Subsidiaries State of Incorporation
------------------------- ----------------------
WesBanco, Inc. West Virginia
WesBanco Bank, Inc. West Virginia
WesBanco Insurance Services, Inc. West Virginia
WesBanco Properties, Inc. West Virginia
WesBanco Securities, Inc. Ohio
Hometown Finance Company West Virginia
Vandalia National Corporation (inactive) Delaware
Hometown Insurance Company (inactive) West Virginia
FBI Corporation West Virginia
AB Corporation West Virginia
|
NOTE: All direct subsidiaries of the Registrant are 100% owned.
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form S-3 Nos. 333-06467 and 333-89852) of WesBanco, Inc. and in the related Prospectus of our report dated February 1, 2002, with respect to the consolidated financial statements of WesBanco, Inc. incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 2001.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
March 25, 2002
|
POWER OF ATTORNEY FOR EXECUTION OF FORM 10-K
TO BE FILED WITH THE SECURITIES & EXCHANGE COMMISSION
We, the undersigned Directors of WesBanco, Inc., hereby severally constitute and appoint James C. Gardill and/or Paul M. Limbert, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names and in the capacities indicated below, the Annual Report of WesBanco to the Securities & Exchange Commission on Form 10-K to be filed for the year 2001 and any and all amendments thereto in our names and behalf in our capacities as Directors of WesBanco to enable WesBanco to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities Exchange Act of 1934, as amended, hereby ratifying and conforming our signatures as they may be signed by our attorneys, or either of them, to said Form 10-K and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Power of Attorney for purposes of executing the Form 10-K of WesBanco has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
Director March __, 2002
---------------------
James E. Altmeyer
/s/ Ray A. Byrd Director March 29, 2002
---------------------
Ray A. Byrd
--------------------- Director March __, 2002
R. Peterson Chalfant
/s/ John H. Cheffy Director March 29, 2002
---------------------
John H. Cheffy
/s/ Christopher V. Criss Director March 29, 2002
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Christopher V. Criss
/s/ James D. Entress Director March 29, 2002
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James D. Entress
/s/ Ernest S. Fragale Director March 29, 2002
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Ernest S. Fragale
---------------------- Director March __, 2002
Abigail M. Feinknopf
/s/ James C. Gardill Director March 29, 2002
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James C. Gardill
/s/ Edward M. George Director March 29, 2002
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Edward M. George
|
/s/ Roland L. Hobbs Director March 29, 2002 ---------------------- Roland L. Hobbs ---------------------- Director March __, 2002 John W. Kepner /s/ Frank R. Kerekes Director March 29, 2002 ---------------------- Frank R. Kerekes /s/ Jeremy C. McCamic Director March 29, 2002 ---------------------- Jeremy C. McCamic /s/ William E. Mildren Jr. Director March 29, 2002 -------------------------- William E. Mildren, Jr. /s/ Joan C. Stamp Director March 29, 2002 ----------------------- Joan C. Stamp ----------------------- Director March __, 2002 Carter W. Strauss /s/ James W. Swearingen Director March 29, 2002 ----------------------- James W. Swearingen /s/ Reed J. Tanner Director March 29, 2002 ----------------------- Reed J. Tanner /s/ Robert K. Tebay Director March 29, 2002 ----------------------- Robert K. Tebay /s/ William E. Witschey Director March 29, 2002 ----------------------- William E. Witschey |