10-Q March 31, 2006
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
(Mark
One)
|
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the quarterly period ended March 31, 2006
|
|
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
|
For
the transition period from ____________ to ____________
|
|
Commission
File Number 0-8467
|
WESBANCO,
INC.
|
(Exact
name of Registrant as specified in its charter)
|
|
|
WEST
VIRGINIA
|
55-0571723
|
(State
of incorporation)
|
(IRS
Employer Identification No.)
|
|
|
|
|
1
Bank Plaza, Wheeling, WV
|
26003
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
|
|
|
Registrant's
telephone number, including area code: 304-234-9000
|
|
|
NOT
APPLICABLE
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes þ
No
¨
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer as defined by Rule 12b-2 of the
Exchange Act.
Larger
accelerated filer ¨
|
Accelerated
filer þ
|
Non-accelerated
filer ¨
|
Indicate
by check mark whether the Registrant is a shell company as defined by Rule
12b-2
of the Exchange Act. Yes ¨
No
þ
As
of
April 28, 2006, there were 21,935,266 shares of WesBanco, Inc. common stock
$2.0833 par value, outstanding.
|
WESBANCO,
INC.
|
|
|
TABLE
OF CONTENTS
|
|
|
|
|
Item
No.
|
ITEM
|
Page
No.
|
|
|
|
|
PART
I - FINANCIAL INFORMATION
|
|
1
|
Financial
Statements
|
|
|
Consolidated
Balance Sheets at Mach 31, 2006 (unaudited) and December 31, 2005
|
3
|
|
Consolidated
Statements of Income for the three months ended March 31, 2006
and 2005
(unaudited)
|
4
|
|
Consolidated
Statements of Changes in Shareholders' Equity for the three months
ended
March 31, 2006 and 2005 (unaudited)
|
5
|
|
Consolidated
Statements of Cash Flows for the three months ended March 31, 2006
and
2005 (unaudited)
|
6
|
|
Notes
to Consolidated Financial Statements
|
7
|
|
|
|
2
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
15
|
|
|
|
3
|
Quantitative
and Qualitative Disclosures About Market Risk
|
27
|
|
|
|
4
|
Controls
and Procedures
|
28
|
|
|
|
|
PART
II – OTHER INFORMATION
|
|
1
|
Legal
Proceedings
|
29
|
|
|
|
2
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
30
|
|
|
|
6
|
Exhibits
|
30
|
|
|
|
|
Signatures
|
31
|
2
PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
WESBANCO,
INC. CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
March
31,
|
|
December
31,
|
|
(in
thousands, except per share amounts)
|
|
2006
|
|
2005
|
|
|
|
(unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Cash
and due from banks, including interest bearing amounts of $1,225
and
$2,432, respectively
|
|
$
|
100,296
|
|
$
|
110,608
|
|
Securities:
|
|
|
|
|
|
|
|
Available-for-sale,
at fair value
|
|
|
557,993
|
|
|
603,171
|
|
Held-to-maturity
(fair values of $382,261 and $397,101, respectively)
|
|
378,025
|
|
|
389,393
|
|
Total
securities
|
|
936,018
|
|
|
992,564
|
|
Loans
held for sale
|
|
5,906
|
|
|
28,803
|
|
Portfolio
loans:
|
|
|
|
|
|
|
|
Commercial
|
|
|
437,350
|
|
|
417,161
|
|
Commercial
real estate
|
|
|
1,128,241
|
|
|
1,118,342
|
|
Residential
real estate
|
|
|
921,022
|
|
|
929,823
|
|
Home
equity
|
|
|
173,595
|
|
|
175,651
|
|
Consumer
|
|
|
269,259
|
|
|
271,100
|
|
Total
portfolio loans, net of unearned income
|
|
|
2,929,467
|
|
|
2,912,077
|
|
Allowance
for loan losses
|
|
|
(32,291
|
)
|
|
(30,957
|
)
|
Net
portfolio loans
|
|
|
2,897,176
|
|
|
2,881,120
|
|
Premises
and equipment, net
|
|
|
63,899
|
|
|
64,707
|
|
Accrued
interest receivable
|
|
|
20,326
|
|
|
20,426
|
|
Goodwill
and other intangible assets, net
|
|
|
147,025
|
|
|
147,658
|
|
Bank-owned
life insurance
|
|
|
80,302
|
|
|
79,573
|
|
Other
assets
|
|
96,362
|
|
|
96,656
|
|
Total
Assets
|
|
$
|
4,347,310
|
|
$
|
4,422,115
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
Non-interest
bearing demand
|
|
$
|
398,408
|
|
$
|
392,116
|
|
Interest
bearing demand
|
|
|
324,572
|
|
|
325,582
|
|
Money
market
|
|
|
404,612
|
|
|
444,071
|
|
Savings
deposits
|
|
|
467,968
|
|
|
462,601
|
|
Certificates
of deposit
|
|
|
1,396,463
|
|
|
1,403,954
|
|
Total
deposits
|
|
|
2,992,023
|
|
|
3,028,324
|
|
Federal
Home Loan Bank borrowings
|
|
|
574,745
|
|
|
612,693
|
|
Other
short-term borrowings
|
|
|
237,437
|
|
|
244,301
|
|
Junior
subordinated debt owed to unconsolidated subsidiary trusts
|
|
87,638
|
|
87,638
|
|
Total
borrowings
|
|
|
899,820
|
|
|
944,632
|
|
Accrued
interest payable
|
|
|
8,957
|
|
|
8,932
|
|
Other
liabilities
|
|
30,339
|
|
|
24,997
|
|
Total
Liabilities
|
|
|
3,931,139
|
|
|
4,006,885
|
|
|
|
|
|
|
|
|
|
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; 23,615,859
shares
issued;
|
|
|
|
|
|
outstanding:
21,925,266 shares in 2006 and 21,955,359 shares in 2005
|
|
|
49,200
|
|
|
49,200
|
|
Capital
surplus
|
|
|
122,406
|
|
|
122,345
|
|
Retained
earnings
|
|
|
300,226
|
|
|
300,452
|
|
Treasury
stock (1,690,593 and 1,660,500 shares, respectively, at
cost)
|
|
|
(48,772
|
)
|
|
(47,769
|
)
|
Accumulated
other comprehensive loss
|
|
|
(5,694
|
)
|
|
(7,875
|
)
|
Deferred
benefits for directors and employees
|
|
|
(1,195
|
)
|
|
(1,123
|
)
|
Total
Shareholders' Equity
|
|
|
416,171
|
|
|
415,230
|
|
Total
Liabilities and Shareholders' Equity
|
|
$
|
4,347,310
|
|
$
|
4,422,115
|
|
See
Notes
to Consolidated Financial Statements.
3
WESBANCO,
INC. CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
For
the Three Months
|
|
|
|
|
|
Ended
March 31,
|
(unaudited,
in thousands, except per share amounts)
|
|
|
|
|
2006
|
|
2005
|
INTEREST
AND DIVIDEND INCOME
|
|
|
|
|
|
|
|
Loans,
including fees
|
|
|
|
|
$
45,732
|
|
$
42,846
|
Interest
and dividends on securities:
|
|
|
|
|
|
|
|
Taxable
|
|
|
|
|
5,959
|
|
6,913
|
Tax-exempt
|
|
|
|
|
4,308
|
|
4,686
|
Total
interest and dividends on securities
|
|
|
|
|
10,267
|
|
11,599
|
Federal
funds sold
|
|
|
|
|
-
|
|
22
|
Other
interest income
|
|
|
|
|
448
|
|
417
|
Total
interest and dividend income
|
|
|
|
|
56,447
|
|
54,884
|
INTEREST
EXPENSE
|
|
|
|
|
|
|
|
Interest
bearing demand deposits
|
|
|
|
|
546
|
|
327
|
Money
market deposits
|
|
|
|
|
2,195
|
|
2,662
|
Savings
deposits
|
|
|
|
|
1,276
|
|
556
|
Certificates
of deposit
|
|
|
|
|
12,493
|
|
9,637
|
Total
interest expense on deposits
|
|
|
|
|
16,510
|
|
13,182
|
Federal
Home Loan Bank borrowings
|
|
|
|
|
5,358
|
|
5,943
|
Other
short-term borrowings
|
|
|
|
|
2,242
|
|
1,199
|
Junior
subordinated debt owed to unconsolidated subsidiary trusts
|
|
|
|
1,354
|
|
1,059
|
Total
interest expense
|
|
|
|
|
25,464
|
|
21,383
|
NET
INTEREST INCOME
|
|
|
|
|
30,983
|
|
33,501
|
Provision
for loan losses
|
|
|
|
|
2,640
|
|
1,843
|
Net
interest income after provision for loan losses
|
|
|
|
|
28,343
|
|
31,658
|
NON-INTEREST
INCOME
|
|
|
|
|
|
|
|
Trust
fees
|
|
|
|
|
4,058
|
|
3,714
|
Service
charges on deposits
|
|
|
|
|
3,797
|
|
2,462
|
Bank-owned
life insurance
|
|
|
|
|
729
|
|
683
|
Net
securities (losses) gains
|
|
|
|
|
(7,942)
|
|
753
|
Net
gains on sales of loans
|
|
|
|
|
43
|
|
132
|
Other
income
|
|
|
|
|
4,729
|
|
1,787
|
Total
non-interest income
|
|
|
|
|
5,414
|
|
9,531
|
NON-INTEREST
EXPENSE
|
|
|
|
|
|
|
|
Salaries
and wages
|
|
|
|
|
9,904
|
|
10,571
|
Employee
benefits
|
|
|
|
|
3,512
|
|
3,325
|
Net
occupancy
|
|
|
|
|
2,013
|
|
1,796
|
Equipment
|
|
|
|
|
2,030
|
|
2,204
|
Amortization
of intangible assets
|
|
|
|
|
633
|
|
663
|
Restructuring
and merger-related expenses
|
|
|
|
|
540
|
|
493
|
Other
operating expenses
|
|
|
|
|
8,180
|
|
8,077
|
Total
non-interest expense
|
|
|
|
|
26,812
|
|
27,129
|
Income
before provision for income taxes
|
|
|
|
|
6,945
|
|
14,060
|
Provision
for income taxes
|
|
|
|
|
1,361
|
|
2,980
|
NET
INCOME
|
|
|
|
|
$
5,584
|
|
$
11,080
|
EARNINGS
PER SHARE
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
$
0.25
|
|
$
0.48
|
Diluted
|
|
|
|
|
0.25
|
|
0.48
|
AVERAGE
SHARES OUTSTANDING
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
21,937,948 |
|
22,992,398
|
Diluted
|
|
|
|
|
21,998,750 |
|
23,043,874
|
DIVIDENDS
DECLARED PER COMMON SHARE
|
|
|
|
|
$
0.265
|
|
$
0.26
|
See
Notes
to Consolidated Financial Statements.
4
WESBANCO,
INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended March 31, 2006 and 2005
|
|
|
|
|
|
|
Accumulated
|
Deferred
|
|
|
|
|
|
|
|
Other
|
Benefits
for
|
|
(unaudited,
in thousands, except
|
Common
Stock
|
Capital
|
Retained
|
Treasury
|
Comprehensive
|
Directors
&
|
|
per
share amounts)
|
Shares
|
Amount
|
Surplus
|
Earnings
|
Stock
|
Income
(Loss)
|
Employees
|
Total
|
January
1, 2005
|
20,837,469
|
$
44,415
|
$
61,451
|
$
281,013
|
$
(12,711)
|
$
(2,415)
|
$
(1,572)
|
$
370,181
|
Net
income
|
|
|
|
11,080
|
|
|
|
11,080
|
Change
in accumulated
|
|
|
|
|
|
|
|
|
other
comprehensive income
|
|
|
|
|
|
(4,739)
|
|
(4,739)
|
Comprehensive
income
|
|
|
|
|
|
|
|
6,341
|
Common
dividends
|
|
|
|
|
|
|
|
|
declared
($0.26 per share)
|
|
|
|
(5,953)
|
|
|
|
(5,953)
|
Treasury
shares purchased
|
(493,121)
|
|
|
|
(13,649)
|
|
|
(13,649)
|
Treasury
shares sold
|
128,558
|
|
(1,314)
|
|
3,151
|
|
|
1,837
|
Shares
issued for acquisition
|
2,296,511
|
4,785
|
60,539
|
|
|
|
|
65,324
|
Deferred
benefits for directors – net
|
|
|
|
|
|
|
(35)
|
(35)
|
March
31, 2005
|
22,769,417
|
$
49,200
|
$
120,676
|
$
286,140
|
$
(23,209)
|
$
(7,154)
|
$
(1,607)
|
$
424,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
1, 2006
|
21,955,359
|
$
49,200
|
$
122,345
|
$
300,452
|
$
(47,769)
|
$
(7,875)
|
$
(1,123)
|
$
415,230
|
Net
income
|
|
|
|
5,584
|
|
|
|
5,584
|
Change
in accumulated
|
|
|
|
|
|
|
|
|
other
comprehensive income
|
|
|
|
|
|
2,181
|
|
2,181
|
Comprehensive
income
|
|
|
|
|
|
|
|
7,765
|
Common
dividends
|
|
|
|
|
|
|
|
|
declared
($0.265 per share)
|
|
|
|
(5,810)
|
|
|
|
(5,810)
|
Treasury
shares purchased
|
(39,200)
|
|
|
|
(1,230)
|
|
|
(1,230)
|
Treasury
shares sold
|
9,107
|
|
(60)
|
|
227
|
|
|
167
|
Tax
benefit from employee benefit plans
|
|
|
49
|
|
|
|
|
49
|
Deferred
benefits for directors – net
|
|
|
72
|
|
|
|
(72)
|
-
|
March
31, 2006
|
21,925,266
|
$
49,200 |
$
122,406
|
$
300,226
|
$
(48,772) |
$
(5,694)
|
$
(1,195)
|
$416,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There
was no activity in Preferred Stock during the three months ended
March 31,
2006 and 2005.
|
See
Notes
to Consolidated Financial Statements.
5
WESBANCO,
INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
For
the Three Months
|
|
|
Ended
March 31,
|
(Unaudited,
in thousands)
|
|
2006
|
2005
|
OPERATING
ACTIVITIES:
|
|
|
|
Net
income
|
|
$5,584
|
$
11,080
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
Depreciation
|
|
1,382
|
1,697
|
Net
accretion
|
|
(1,014)
|
(16)
|
Provision
for loan losses
|
|
2,640
|
1,843
|
Net
securities losses (gains)
|
|
7,942
|
(753)
|
Net
gains on sales of loans
|
|
(43)
|
(142)
|
Excess
tax benefits from stock-based compensation arrangements
|
|
(49)
|
-
|
Deferred
income taxes
|
|
(758)
|
(326)
|
Increase
in cash surrender value of bank-owned life insurance
|
|
(729)
|
(624)
|
Loans
originated for sale
|
|
(14,190)
|
(13,162)
|
Proceeds
from the sale of loans originated for sale
|
|
10,310
|
11,331
|
Change
in: other assets and accrued interest receivable
|
|
(579)
|
3,889
|
Change
in: other liabilities and accrued interest payable
|
|
5,745
|
(10,328)
|
Other
– net
|
|
(2,271)
|
305
|
Net
cash provided by operating activities
|
|
13,970
|
4,794
|
INVESTING
ACTIVITIES:
|
|
|
|
Securities
available-for-sale:
|
|
|
|
Proceeds
from sales
|
|
8,935
|
72,695
|
Proceeds
from maturities, prepayments and calls
|
|
32,259
|
76,300
|
Purchases
of securities
|
|
(1,043)
|
(101,690)
|
Securities
held-to-maturity:
|
|
|
|
Proceeds
from maturities, prepayments and calls
|
|
12,157
|
8,198
|
Purchases
of securities
|
|
(532)
|
(33,203)
|
Acquisition,
net of cash paid
|
|
-
|
(37,798)
|
Sale
of branches
|
|
(16,741)
|
-
|
Net
(increase) decrease in loans
|
|
(11,177)
|
5,009
|
Sales
(purchases) of premises and equipment – net
|
|
772
|
(1,968)
|
Net
cash provided by (used in) investing activities
|
|
24,630
|
(12,457)
|
FINANCING
ACTIVITIES:
|
|
|
|
Net
increase (decrease) in deposits
|
|
2,005
|
(15,287)
|
Decrease
in Federal Home Loan Bank borrowings
|
|
(37,302)
|
(23,239)
|
(Decrease)
increase in other short-term borrowings
|
|
(51,864) |
28,481
|
Increase
(decrease) in federal funds purchased
|
|
45,000
|
(3,100)
|
Proceeds
from the issuance of junior subordinated debt owed to
|
|
|
|
unconsolidated
subsidiary trusts
|
|
-
|
15,464
|
Excess
tax benefits from stock-based compensation arrangements
|
|
49
|
-
|
Dividends
paid
|
|
(5,737)
|
(5,208)
|
Treasury
shares purchased – net of issuances for benefit plans
|
|
(1,063)
|
(11,812)
|
Net
cash used in financing activities
|
|
(48,912) |
(14,701)
|
Net
decrease in cash and cash equivalents
|
|
(10,312)
|
(22,364)
|
Cash
and cash equivalents at beginning of the period
|
|
110,608
|
97,057
|
Cash
and cash equivalents at end of the period
|
|
$
100,296
|
$
74,693
|
SUPPLEMENTAL
DISCLOSURES:
|
|
|
|
Interest
paid on deposits and other borrowings
|
|
$
25,439
|
$
20,092
|
Income
taxes paid
|
|
750
|
-
|
Transfers
of loans to other real estate owned
|
|
1,347
|
326
|
Summary
of business acquisition:
|
|
|
|
Fair
value of tangible assets acquired
|
|
$
-
|
$
549,240
|
Fair
value of core deposit intangible acquired
|
|
-
|
2,805
|
Fair
value of liabilities assumed
|
|
-
|
(505,680)
|
Stock
issued for the purchase of acquired company's common stock
|
|
-
|
(65,323)
|
Cash
paid in the acquisition
|
|
-
|
(43,768)
|
Goodwill
recognized
|
|
$
-
|
$
(62,726)
|
See
Notes
to Consolidated Financial Statements.
6
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS
OF PRESENTATION—The
accompanying unaudited interim financial statements of WesBanco, Inc.
(“WesBanco”) have been prepared in accordance with U.S. generally accepted
accounting principles for interim financial information and the instructions
to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all
of the information and footnotes required by U.S. generally accepted accounting
principles for complete financial statements and should be read in conjunction
with our Annual Report on Form 10-K for the year ended December 31,
2005.
WesBanco’s
interim financial statements have been prepared following the significant
accounting policies disclosed in Note 1 of the Notes to the Consolidated
Financial Statements of its 2005 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. In the opinion of management, the
accompanying interim financial information reflects all adjustments, including
normal recurring adjustments, necessary to present fairly WesBanco’s financial
position and results of operations for each of the interim periods presented.
Results of operations for interim periods are not necessarily indicative of
the
results of operations that may be expected for a full year.
Certain
prior period amounts have been reclassified to conform to the current period
presentation. The reclassifications had no effect on net income.
Effective
January 1, 2006, WesBanco adopted Statement of Financial Accounting
Standards (“SFAS”) No. 123(R), “Share-Based Payment,” which requires the
Company to measure the cost of employee services received in exchange for all
equity awards granted, including stock options, based on the fair value of
the
awards as of their grant date. SFAS No. 123R supersedes SFAS No. 123,
“Accounting for Stock-Based Compensation” and Accounting Principles Board
Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees.”
WesBanco adopted SFAS No. 123R using the modified prospective method which
requires that compensation cost related to unvested stock awards outstanding
at
December 31, 2005 be recognized over the remaining service periods of those
awards based on their unamortized grant date fair value with no adjustment
to
prior period financial statements. Awards granted after December 31, 2005
are valued at fair value in accordance with the provisions of SFAS No. 123R
and
compensation cost is recognized on a straight line basis, net of estimated
forfeitures, over the requisite service period of each award. In 2005, WesBanco
issued 116,500 options of which one-third were scheduled to vest in each of
the
three years ending December 31, 2005, 2006 and 2007, respectively, based upon
WesBanco achieving certain earnings per share (“EPS”) targets. Since WesBanco
did not achieve its 2005 EPS target, the 2005 options scheduled to vest were
instead forfeited. WesBanco had no unvested options outstanding subject to
valuation and future expensing at December 31, 2005. There were no options
issued or outstanding in the first quarter of 2006 that are expected to vest,
as
the portion of the 2005 issued options that would vest in 2006 if certain EPS
targets are achieved are not currently anticipated to vest under the current
EPS
assumptions. Since under SFAS No. 123R, compensation expense is only recognized
for those options expected to vest and result in the issuance of shares, the
adoption of this standard did not impact net income in the first quarter of
2006.
Prior
to
the adoption of this standard, WesBanco accounted for stock-based compensation
in accordance with APB No. 25 using the intrinsic value method under which
compensation expense was generally not recognized if the option exercise price
was equal to or exceeded the fair market value of the stock on the grant date
of
the option. WesBanco also provided the pro forma disclosures required under
SFAS
No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure,”
as if the fair value method defined by SFAS No. 123 had been applied to its
stock-based compensation.
In
November 2005, the Financial Accounting Standards Board (“FASB”) issued Staff
Position (“FSP”) No. 115-1, “The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments.” FSP 115-1 provides guidance for
determining when an investment is considered impaired, whether impairment is
other-than-temporary, and measurement of an impairment loss. An investment
is
considered impaired if the fair value of the investment is less than its cost.
If after evaluating all available evidence and the realizable value of an
investment, its impairment is determined to be other-than-temporary, an
impairment loss should be recognized equal to the difference between the
investment’s cost and its fair value. FSP 115-1 nullifies certain provisions of
Emerging Issues Task Force (“EITF”) Issue No. 03-1, “The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments,”
while retaining the disclosure requirements of EITF No. 03-1. The additional
guidance was effective beginning January 1, 2006 and has been considered
concurrent with WesBanco’s strategic decision to reposition its balance sheet,
as discussed further in Note 3, “Securities,” which resulted in the recognition
of other-than-temporary impairment losses totaling $8.0 million in the first
quarter of 2006.
RECENT
ACCOUNTING PRONOUNCEMENTS—In
February 2006, the FASB issued SFAS No. 155, “Accounting for Certain
Hybrid Financial Instruments.” Under current generally accepted accounting
principles an entity that holds a financial instrument with an embedded
derivative must bifurcate the financial instrument, resulting in the host and
the embedded derivative being accounted for separately. SFAS No. 155
permits, but does not require, entities to account for certain financial
instruments with an embedded derivative at fair value thereby eliminating the
need to bifurcate the instrument into its host and the embedded derivative.
This
statement is effective as of the beginning of the first annual reporting period
that begins after September 15, 2006 and is not expected to have a
significant impact on WesBanco’s financial position or results of operations.
In
March
2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
Assets.” This statement amends SFAS No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,” with respect
to the accounting for separately recognized servicing assets and servicing
liabilities. SFAS No. 156 requires companies to recognize a servicing asset
or
servicing liability each time it undertakes an obligation to service a financial
asset by entering into a servicing contract. The statement permits a company
to
choose either the amortized cost method or fair value measurement method for
each class of separately recognized servicing
7
assets.
This statement is effective as of the first fiscal year beginning after
September 15, 2006 and is not expected to have a significant impact on
WesBanco’s financial position or results of operations.
NOTE
2. EARNINGS PER SHARE
Earnings
per share are calculated as follows:
|
|
|
|
|
For
the Three Months
|
|
|
|
|
|
Ended
March 31,
|
(Unaudited,
in thousands, except shares and per share amounts)
|
|
|
|
|
2006
|
|
2005
|
Numerator
for both basic and diluted earnings per share:
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
$
5,584
|
|
$
11,080
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Total
average basic common shares outstanding
|
|
|
|
|
21,937,948
|
|
22,992,398
|
Effect
of dilutive stock options
|
|
|
|
|
60,802
|
|
51,476
|
Total
diluted average common shares outstanding
|
|
|
|
|
21,998,750
|
|
23,043,874
|
|
|
|
|
|
|
|
|
Earnings
per share - basic
|
|
|
|
|
$
0.25
|
|
$
0.48
|
Earnings
per share - diluted
|
|
|
|
|
$
0.25
|
|
$
0.48
|
NOTE
3. SECURITIES
The
following table presents the fair value and amortized cost of available-for-sale
and held-to-maturity securities:
|
March
31,
|
|
December
31,
|
(Unaudited,
in thousands)
|
2006
|
|
2005
|
Securities
available-for-sale (at fair value):
|
|
|
|
U.S.
Treasury securities
|
$
7,158
|
|
$
11,397
|
Other
government agencies and corporations
|
239,309
|
|
248,111
|
Mortgage-backed
securities
|
279,732
|
|
295,822
|
Obligations
of states and political subdivisions
|
20,025
|
|
36,227
|
Corporate
securities
|
11,769
|
|
11,614
|
Total
securities available-for-sale
|
557,993
|
|
603,171
|
Securities
held-to-maturity (at amortized cost):
|
|
|
|
Obligations
of states and political subdivisions
|
378,025
|
|
389,393
|
Total
securities
|
$
936,018
|
|
$
992,564
|
At
March
31, 2006 and December 31, 2005, there were no holdings of any one issuer, other
than the U.S. government and its agencies, in an amount greater than 10% of
WesBanco’s shareholders’ equity.
Securities
with par values aggregating $367.6 million and $443.5 million and aggregate
carrying values of $369.3 and $445.7 at March 31, 2006 and December 31, 2005,
respectively, were pledged to secure public and trust funds. Proceeds from
the
sale of available-for-sale securities were $8.9 million and $72.7 million for
the three months ended March 31, 2006 and 2005 respectively.
For
the
three months ended March 31, 2006, realized gains on available-for-sale
securities were $106 thousand and, excluding the other-than-temporary impairment
losses discussed below, realized losses on available-for-sale securities were
zero. Realized gains and losses for the same periods in 2005 were $780 thousand
and $28 thousand, respectively.
8
The
following table provides information on unrealized losses on investment
securities that have been in an unrealized loss position for less than twelve
months and twelve months or more as of March 31, 2006 and December 31, 2005:
|
March
31, 2006
|
|
Less
than 12 months
|
12
months or more
|
Total
|
|
Fair
|
Unrealized
|
#
of
|
Fair
|
Unrealized
|
#
of
|
Fair
|
Unrealized
|
#
of
|
(Unaudited,
in thousands)
|
Value
|
Losses
|
Securities
|
Value
|
Losses
|
Securities
|
Value
|
Losses
|
Securities
|
U.S.
Treasury securities
|
$
7,158
|
$
(6)
|
2
|
$
-
|
$
-
|
-
|
$
7,158
|
$
(6)
|
2
|
Other
government agencies and corporations
|
41,500
|
(652)
|
6
|
103,734
|
(2,412)
|
20
|
145,234
|
(3,064)
|
26
|
Mortgage-backed
& other debt securities
|
34,863
|
(1,086)
|
25
|
151,105
|
(6,448)
|
52
|
185,968
|
(7,534)
|
77
|
Obligations
of states and political subdivisions
|
64,656
|
(1,068)
|
138
|
46,081
|
(1,587)
|
109
|
110,737
|
(2,655)
|
247
|
Total
temporarily impaired securities
|
$
148,177
|
$
(2,812)
|
171
|
$
300,920
|
$
(10,447)
|
181
|
$
449,097
|
$
(13,259)
|
352
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005
|
|
Less
than 12 months
|
12
months or more
|
Total
|
|
Fair
|
Unrealized
|
#
of
|
Fair
|
Unrealized
|
#
of
|
Fair
|
Unrealized
|
#
of
|
(Unaudited,
dollars in thousands)
|
Value
|
Losses
|
Securities
|
Value
|
Losses
|
Securities
|
Value
|
Losses
|
Securities
|
U.S.
Treasury securities
|
$
7,824
|
$
(3)
|
2
|
$
-
|
$
-
|
-
|
$
7,824
|
$
(3)
|
2
|
Other
government agencies and corporations
|
95,306
|
(992)
|
18
|
152,805
|
(3,334)
|
34
|
248,111
|
(4,326)
|
52
|
Mortgage-backed
& other debt securities
|
58,792
|
(1,138)
|
33
|
235,818
|
(8,285)
|
80
|
294,610
|
(9,423)
|
113
|
Obligations
of states and political subdivisions
|
64,158
|
(699)
|
132
|
38,158
|
(1,050)
|
87
|
102,316
|
(1,749)
|
219
|
Corporate
securities
|
-
|
-
|
-
|
6,006
|
(134)
|
3
|
6,006
|
(134)
|
3
|
Total
temporarily impaired securities
|
$
226,080
|
$
(2,832)
|
185
|
$
432,787
|
$
(12,803)
|
204
|
$
658,867
|
$
(15,635)
|
389
|
On
April
6, 2006, WesBanco announced that it would reposition its balance sheet by
selling approximately $200.0 million of available-for-sale securities that
were
in an unrealized loss position as of March 31, 2006, and for which it previously
had the intent and ability to hold such securities for a period of time
sufficient for the recovery of their fair market value. In accordance with
the
provisions of FSP No. 115-1, since WesBanco no longer intended to hold the
securities, they were deemed to be other-than-temporarily impaired. Accordingly,
WesBanco recorded other-than-temporary impairment losses totaling $8.0 million
in the quarter ended March 31, 2006, which are included in “Net securities
(losses) gains” in the Consolidated Statements of Income, and the securities
have been omitted from the table above for the quarter ended March 31, 2006
since they were no longer in an unrealized loss position.
Unrealized
pre-tax gains and losses on available-for-sale securities (fair value
adjustments) reflected a $9.0 million market loss as of March 31, 2006 compared
to a $12.3 million market loss as of December 31, 2005. These fair value
adjustments represent temporary fluctuations resulting from changes in market
rates in relation to fixed yields in the available-for-sale portfolio and are
accounted for as an adjustment to other comprehensive income in shareholders’
equity. WesBanco may impact the magnitude of the fair value adjustment by
managing both the volume and average maturities of securities that are
classified as available-for-sale as well as the portion of new investments
allocated to this category versus the held-to-maturity portfolio. If these
securities are held to recovery or their respective maturity dates, no fair
value gain or loss will be realized.
WesBanco
does not believe any of the securities presented above are impaired due to
reasons of credit quality as none of them have had credit downgrades and all
are
paying principal and interest according to their contractual terms. The
unrealized losses are primarily attributable to changes in interest rates.
WesBanco also has the ability and intent to hold the securities classified
as
held-to-maturity until they mature, at which time it will receive full value
for
the securities. Subsequent to the sale of securities discussed in the preceding
paragraph, WesBanco also has the ability and intent to hold the balance of
its
available-for-sale securities that are currently in an unrealized loss position
for a period of time sufficient for the recovery of their fair market value.
Accordingly, as of March 31, 2006, WesBanco believes the unrealized losses
related to the balance of its available-for-sale securities portfolio are
temporary and no additional other-than-temporary impairment losses beyond those
discussed above have been recognized in the Consolidated Statements of Income.
9
NOTE
4. LOANS AND THE ALLOWANCE FOR LOAN LOSSES
Loans
are
presented in the Consolidated Balance Sheets net of deferred loan fees and
costs
of $4.5 million and $4.7 million at March 31, 2006 and December 31, 2005,
respectively.
The
following table presents the changes in the allowance for loan losses and loans
classified as impaired:
|
|
|
For
the Three Months
|
|
|
|
|
Ended
March 31,
|
|
(Unaudited,
in thousands)
|
|
2006
|
|
|
2005
|
|
Balance,
at beginning of period
|
|
$
|
30,957
|
|
$
|
29,486
|
|
Allowance
for loan losses of acquired bank
|
|
|
-
|
|
|
1,947
|
|
Provision
for loan losses
|
|
|
2,640
|
|
|
1,843
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(1,844
|
)
|
|
(1,537
|
)
|
Recoveries
|
|
538
|
|
|
486
|
|
Net
loan charge-offs
|
|
(1,306
|
)
|
|
(1,051
|
)
|
|
|
|
|
|
|
|
|
Balance,
at end of period
|
$
|
32,291
|
|
$
|
32,225
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
December
31,
|
(Unaudited,
in thousands)
|
|
2006
|
|
|
2005
|
|
Non-accrual
loans
|
|
$
|
14,129
|
|
$
|
9,920
|
|
Other
impaired loans
|
|
4,559
|
|
|
4,565
|
|
Total
impaired loans
|
$
|
18,688
|
|
$
|
14,485
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
December
31,
|
(Unaudited,
in thousands)
|
|
2006
|
|
|
2005
|
|
Balance
of impaired loans with no allocated allowance for loan
losses
|
|
$
|
7,057
|
|
$
|
7,793
|
|
Balance
of impaired loans with an allocated allowance for loan
losses
|
|
11,631
|
|
|
6,692
|
|
Total
impaired loans
|
$
|
18,688
|
|
$
|
14,485
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses allocated to impaired loans
|
$
|
3,672
|
|
$
|
1,566
|
|
In
the
first quarter of 2006, a $5.0 million commercial loan participation was placed
on non-accrual and is included in non-accrual loans in the table
above.
At
March
31, 2006 and December 31, 2005, WesBanco had no material commitments to lend
additional funds to debtors whose loans were classified as
impaired.
The
following table sets forth the information for a loan accounted for in
accordance with SOP 03-3 as of March 31, 2006:
|
|
|
Cash
Flows
|
|
|
|
Contractually
|
|
Expected
|
Post-
|
|
|
Required
|
Carrying
|
to
be
|
Acquisition
|
Accretable
|
(Unaudited,
in thousands)
|
Payments
|
Amount
|
Collected
|
Allowance
|
Yield
|
Balance
at beginning of year
|
$
928
|
$
574
|
$
583
|
$
-
|
$
9
|
Additions
|
-
|
-
|
-
|
-
|
-
|
Disposals
|
(420)
|
(420)
|
(420)
|
-
|
-
|
Accretion
|
-
|
-
|
-
|
-
|
-
|
Balance
at end of period
|
$
508
|
$
154
|
$
163
|
$
-
|
$
9
|
Due
to
the uncertainty surrounding the timing of the receipt of the cash flows expected
to be collected, the loan was transferred to non-accrual status in the second
quarter of 2005 and income on the loan is no longer being accreted.
10
NOTE
5. FEDERAL HOME LOAN BANK BORROWINGS
WesBanco
is a member of the Federal Home Loan Bank (“FHLB”) of Pittsburgh. WesBanco’s
FHLB borrowings are secured by a blanket lien on certain residential mortgage
loans or securities with a market value in excess of the outstanding balances
of
the borrowings. At March 31, 2006 and December 31, 2005 WesBanco had FHLB
borrowings of $574.7
million
and $612.7 million, respectively, with a weighted-average interest rate of
3.64%
and
3.52%, respectively. Included in FHLB borrowings at March 31, 2006 are
$161.6
million
in FHLB of Cincinnati advances obtained in connection with certain business
combinations. The terms of the security agreement with the FHLB include a
specific assignment of collateral that requires the maintenance of qualifying
first mortgage loans as pledged collateral with unpaid principal amounts in
excess of the FHLB advances, when discounted at 83% of the unpaid principal
balance. FHLB stock totaling $42.3
million
at March 31, 2006 and $41.9 million at December 31, 2005 is also pledged as
collateral on these advances. The remaining maximum borrowing capacity with
the
FHLB at March 31, 2006 and December 31, 2005 was $844.2
million
and $778.4 million, respectively.
Certain
FHLB advances contain call features, which allows the FHLB to convert a fixed
rate borrowing to a variable rate advance if the strike rate goes beyond a
certain predetermined rate. The probability that these advances and repurchase
agreements will be called depends primarily on the level of related interest
rates during the call period. Of the $574.7
million
outstanding at March 31, 2006, $194.7
million
in FHLB convertible advances are subject to call or conversion to a variable
rate advance by the FHLB. Approximately $90.3
million
of such advances are from the FHLB of Cincinnati. Due to the terms of the note
agreements with such bank, these convertible advances are not subject to renewal
or rollover at the variable rate since WesBanco is no longer a member of the
Cincinnati FHLB, and instead WesBanco would be required to pay down such
advances or refinance them with the Pittsburgh FHLB.
The
following table presents the aggregate annual maturities and weighted-average
interest rates of FHLB borrowings at March 31, 2006 based on their contractual
maturity dates and effective interest rates: (in
thousands)
|
Scheduled
|
Weighted
|
Year
|
Maturity
|
Average
Rate
|
2006
|
$
184,549
|
3.50%
|
2007
|
159,445
|
3.29%
|
2008
|
65,836
|
3.21%
|
2009
|
85,284
|
4.19%
|
2010
|
50,009
|
4.79%
|
2011
and thereafter
|
29,622
|
4.11%
|
Total
|
$
574,745
|
3.64%
|
NOTE
6. OTHER SHORT-TERM BORROWINGS
Other
short-term borrowings are comprised of the following:
|
March
31,
|
December
31,
|
(Unaudited,
in thousands)
|
2006
|
2005
|
Federal
funds purchased
|
$
119,000
|
$
74,000
|
Securities
sold under agreements to repurchase
|
110,641
|
153,536
|
Treasury
tax and loan notes and other
|
296
|
4,265
|
Revolving
line of credit
|
7,500
|
12,500
|
Total
|
$
237,437
|
$
244,301
|
NOTE
7. PENSION PLAN
The
following table presents the net periodic pension cost for WesBanco’s Defined
Benefit Pension Plan and the related components:
|
|
|
|
|
For
the Three Months
|
|
|
|
|
|
Ended
March 31,
|
(Unaudited,
in thousands)
|
|
|
|
|
2006
|
|
2005
|
Service
cost – benefits earned during year
|
|
|
|
|
$
620
|
|
$
539
|
Interest
cost on projected benefit obligation
|
|
|
|
|
708
|
|
664
|
Expected
return on plan assets
|
|
|
|
|
(929)
|
|
(830)
|
Amortization
of prior service cost
|
|
|
|
|
292
|
|
230
|
Amortization
of net loss
|
|
|
|
|
(36)
|
|
(36)
|
Net
periodic pension cost
|
|
|
|
|
$
655
|
|
$
567
|
11
NOTE
8. COMPREHENSIVE INCOME
Changes
in accumulated other comprehensive income are as follows:
|
|
|
|
|
For
the Three Months
|
|
|
|
|
|
Ended
March 31,
|
(Unaudited,
in thousands)
|
|
|
|
|
2006
|
|
2005
|
Net
Income
|
|
|
|
|
$
5,584
|
|
$
11,080
|
Securities
available-for-sale:
|
|
|
|
|
|
|
|
Net
change in unrealized gains (losses) on securities
available-for-sale
|
|
(4,701)
|
|
(7,975)
|
Related
income tax (expense) benefit (1)
|
|
|
|
|
1,857
|
|
3,150
|
Net
securities (gains) losses reclassified into earnings
|
|
|
7,942
|
|
(732)
|
Related
income tax expense (benefit) (1)
|
|
|
|
|
(3,137)
|
|
289
|
Net
effect on other comprehensive income for the period
|
|
|
1,961
|
|
(5,268)
|
|
|
|
|
|
|
|
|
Cash
flow hedge derivatives:
|
|
|
|
|
|
|
|
Net
change in unrealized gains (losses) on derivatives
|
|
|
368
|
|
977
|
Related
income tax (expense) benefit
(1)
|
|
|
|
|
(146)
|
|
(386)
|
Net
derivative (gains) losses reclassified into earnings
|
|
|
(3)
|
|
(31)
|
Related
income tax expense (benefit) (1)
|
|
|
|
|
1
|
|
12
|
Net
effect on other comprehensive income for the period
|
|
220
|
|
572
|
|
|
|
|
|
|
|
|
Minimum
pension liability
|
|
|
|
|
|
|
|
Net
change in minimum pension liability
|
|
|
|
|
-
|
|
(71)
|
Related
income tax expense (benefit) (1)
|
|
|
|
|
-
|
|
28
|
Net
effect on other comprehensive income for the period
|
|
-
|
|
(43)
|
Total
change in other comprehensive income (loss)
|
|
|
|
|
2,181
|
|
(4,739)
|
Comprehensive
income
|
|
|
|
|
$
7,765
|
|
$
6,341
|
(1)
Related income tax expense (benefit) calculated using a combined Federal and
State income tax rate of approximately 40%.
The
activity in accumulated other comprehensive income for the three months ended
March 31, 2006 and 2005 is as follows:
|
|
|
|
|
Net
Unrealized Gains
|
|
|
|
|
|
Unrealized
|
|
(Losses)
on Derivative
|
|
|
|
Minimum
|
|
Gains
(Losses)
|
|
Instruments
Used in
|
|
|
|
Pension
|
|
on
Securities
|
|
Cash
Flow Hedging
|
|
|
(Unaudited,
in thousands)
|
Liability
|
|
Available-for-Sale
|
|
Relationships
|
|
Total
|
Balance
at January 1, 2005
|
$ -
|
|
$
(987)
|
|
$
(1,428)
|
|
$
(2,415)
|
Period
change, net of tax
|
(43)
|
|
(5,268)
|
|
572
|
|
(4,739)
|
Balance
at March 31, 2005
|
$ (43)
|
|
$
(6,255)
|
|
$
(856)
|
|
$
(7,154)
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2006
|
$
-
|
|
$
(7,463)
|
|
$
(412)
|
|
$
(7,875)
|
Period
change, net of tax
|
|
|
1,961
|
|
220
|
|
2,181
|
Balance
at March 31, 2006
|
$
-
|
|
$
(5,502)
|
|
$
(192)
|
|
$
(5,694)
|
NOTE
9. 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. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amounts recognized in the financial statements. 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 standby 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.
Expected losses on such commitments are recorded in other liabilities and were
zero as of each of the periods ended March 31, 2006 and December 31,
2005.
Letters
of credit are conditional commitments issued by banks to guarantee the
performance of a customer to a third party. These guarantees are primarily
issued to support public and private borrowing arrangements, including normal
business activities, bond financing and similar transactions. Standby letters
of
credit are considered guarantees. WesBanco has outstanding standby letters
of
credit with an aggregate contractual amount of $27.5 million. The liability
associated with these standby letters of credit is recorded at its estimated
fair value of $0.1 million as of both March 31, 2006 and December 31, 2005
and
is included in other liabilities on the Consolidated Balance
Sheets.
12
The
following table presents total commitments and standby letters of credit
outstanding:
|
March
31,
|
December
31,
|
(Unaudited,
in thousands)
|
2006
|
2005
|
Commitments
to extend credit
|
$
526,671
|
$
529,869
|
Standby
letters of credit
|
44,719
|
41,711
|
|
|
|
CONTINGENT
LIABILITIES—WesBanco
and its subsidiaries 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
10. STOCK-BASED COMPENSATION
WesBanco
sponsors a Key Executive Incentive Bonus and Option 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, a mixture of cash
and stock, or the granting of non-qualified stock options, depending upon the
component of the plan in which the award is earned. Stock options are granted
at
the discretion of the Compensation Committee of the Board of Directors and
may
be performance based. The maximum term of all options granted under the Stock
Option component of the Plan is ten years from the original grant
date.
The
following table presents stock option activity for the three months ended March
31, 2006:
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
Average
|
|
|
|
|
|
Average
|
Remaining
|
Aggregate
|
|
|
|
|
Exercise
Price
|
Contractual
|
Intrinsic
|
(Unaudited,
in thousands, except shares, per share amounts and
term)
|
Shares
|
Per
Share
|
Term
|
Value
|
Outstanding
at January 1, 2006
|
442,052
|
$
24.25
|
|
|
Granted
|
-
|
-
|
|
|
Exercised
|
(9,107)
|
18.38
|
|
|
Expired
|
-
|
-
|
|
|
Forfeited
|
-
|
-
|
|
|
Outstanding
at March 31, 2006
|
432,945
|
$
24.38
|
6.64
|
$
3,650
|
Vested
and exercisable at March 31, 2006
|
356,612
|
$
23.35
|
6.10
|
$
3,374
|
|
|
|
|
|
|
|
The
fair
value of stock options granted is estimated at the date of grant using the
Black-Scholes option-pricing model. This model requires the input of highly
subjective assumptions, changes to which can materially affect the fair value
estimate. Additionally, there may be other factors that might otherwise have
a
significant effect on the value of stock options granted that are not considered
by the model. Accordingly, while WesBanco believes that the Black-Scholes model
provides a reasonable estimate of fair value, it does not necessarily provide
the best single measure of fair value for WesBanco’s stock options.
There
were no options awarded during either quarter ended March 31, 2006 and 2005.
Accordingly, no compensation cost was recognized. The unvested awards
outstanding, which vest if certain EPS targets are achieved in 2006 and 2007,
are not currently expected to vest. Therefore, no compensation cost has been
or
is expected to be recognized in connection with these options. The total
intrinsic value of options exercised during the three months ended March 31,
2006 and 2005 was $0.1 million and $1.9 million, respectively. The cash received
and related tax benefit realized from stock options exercised during the three
months ended March 31, 2006 and 2005 was $0.2 million and $49 thousand and
$1.8
million and $0.6 million, respectively. Shares issued in connection with options
exercised are issued from treasury shares acquired under WesBanco’s share
repurchase plans.
NOTE
11. SALE OF BRANCHES AND BUSINESS UNIT RESTRUCTURING
On
March
16, 2006, WesBanco Bank, Inc. (“Bank”), a wholly-owned subsidiary of WesBanco,
sold four branch offices located in Ritchie County, West Virginia. Under the
terms of the purchase and assumption agreement, the buyer assumed $37.3 million
of deposit liabilities and acquired $19.3 million in loans, as well as certain
other assets. The transaction generated a pre-tax gain of $2.6 million that
included a premium on deposits of $2.5 million and a gain on the sale of
premises and equipment of $0.1 million. The gain is included in WesBanco’s
Consolidated Statement of Income for the first quarter ended March 31, 2006.
Cash of $13.5 million was paid by the Bank to the buyer to settle the net
difference between deposits, loans and certain other assets and
liabilities.
In
February 2006, the Bank restructured its mortgage business unit and consolidated
its Cincinnati and Charleston offices. Severance and lease termination costs
totaling $0.5 million are included in WesBanco’s Consolidated Statement of
Income for the first quarter ended March 31, 2006.
13
NOTE
12. 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. The market value of assets of the trust and investment services
segment was approximately $2.9 billion and $2.6 billion at March 31, 2006 and
2005, respectively. These assets are held by the Bank, in fiduciary or agency
capacities for their customers and therefore are not included as assets on
WesBanco’s Consolidated Balance Sheets.
Condensed
financial information by business segment is presented below:
|
|
Trust
and
|
|
|
Community
|
Investment
|
|
(Unaudited,
in thousands)
|
Banking
|
Services
|
Consolidated
|
For
the Three Months ended March 31, 2006:
|
|
|
|
Interest
income
|
$
56,447
|
$
-
|
$
56,447
|
Interest
expense
|
25,464
|
-
|
25,464
|
Net
interest income
|
30,983
|
-
|
30,983
|
Provision
for loan losses
|
2,640
|
-
|
2,640
|
Net
interest income after provision for loan losses
|
28,343
|
-
|
28,343
|
Non-interest
income
|
1,356
|
4,058
|
5,414
|
Non-interest
expense
|
24,506
|
2,306
|
26,812
|
Income
before provision for income taxes
|
5,193
|
1,752
|
6,945
|
Provision
for income taxes
|
660
|
701
|
1,361
|
Net
income
|
$
4,533
|
$
1,051
|
$
5,584
|
|
|
|
|
Goodwill
and other intangible assets
|
$
147,025
|
$
-
|
$
147,025
|
Depreciation
and amortization expense
|
1,350
|
20
|
1,370
|
Mortgage
servicing rights
|
1,807
|
-
|
1,807
|
Net
deferred tax assets
|
9,881
|
-
|
9,881
|
Total
assets
|
$
4,341,840
|
$
5,470
|
$
4,347,310
|
|
|
|
|
For
the Three Months ended March 31, 2005:
|
|
|
|
Interest
income
|
$
54,884
|
$
-
|
$
54,884
|
Interest
expense
|
21,383
|
-
|
21,383
|
Net
interest income
|
33,501
|
-
|
33,501
|
Provision
for loan losses
|
1,843
|
-
|
1,843
|
Net
interest income after provision for loan losses
|
31,658
|
-
|
31,658
|
Non-interest
income
|
5,817
|
3,714
|
9,531
|
Non-interest
expense
|
24,863
|
2,266
|
27,129
|
Income
before provision for income taxes
|
12,612
|
1,448
|
14,060
|
Provision
for income taxes
|
2,401
|
579
|
2,980
|
Net
income
|
$
10,211
|
$
869
|
$
11,080
|
|
|
|
|
Goodwill
and other intangible assets
|
$
148,923
|
$
-
|
$
148,923
|
Depreciation
and amortization expense
|
1,638
|
18
|
1,656
|
Mortgage
servicing rights
|
1,246
|
-
|
1,246
|
Net
deferred tax assets
|
13,800
|
-
|
13,800
|
Total
assets
|
$
4,554,801
|
$
2,812
|
$
4,557,613
|
|
|
|
|
14
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management’s
Discussion and Analysis represents an overview of the results of operations
and
financial condition of WesBanco, Inc. This discussion and analysis should be
read in conjunction with the Consolidated Financial Statements and Notes
thereto.
FORWARD-LOOKING
STATEMENTS
Forward-looking
statements in this report relating to WesBanco’s plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
The information contained in this report should be read in conjunction with
WesBanco’s Form 10-K for the year ended December 31, 2005, filed with the
Securities and Exchange Commission (“SEC”), which is available at the SEC’s
website www.sec.gov or at WesBanco’s website, www.wesbanco.com. Investors are
cautioned that forward-looking statements, which are not historical fact,
involve risks and uncertainties, including those detailed in WesBanco’s most
recent Annual Report on Form 10-K filed with the SEC under the section “Risk
Factors.” Such statements are subject to important factors that could cause
actual results to differ materially from those contemplated by such statements,
including without limitation; the effects of changing regional and national
economic conditions; changes in interest rates, spreads on earning assets and
interest-bearing liabilities, and associated interest rate sensitivity; sources
of liquidity available to WesBanco and its related subsidiary operations;
potential future credit losses and the credit risk of commercial, real estate,
and consumer loan customers and their borrowing activities; actions of the
Federal Reserve Board, Federal Deposit Insurance Corporation, the SEC, the
National Association of Securities Dealers and other regulatory bodies;
potential legislative and federal and state regulatory actions and reform
adverse decisions of federal and state courts; competitive conditions in the
financial services industry; rapidly changing technology affecting financial
services and/or other external developments materially impacting WesBanco’s
operational and financial performance. WesBanco does not assume any duty to
update forward-looking statements.
APPLICATION
OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
WesBanco’s
critical accounting policies involving the significant judgments and assumptions
used in the preparation of the Consolidated Financial Statements as of March
31,
2006 have remained unchanged from the disclosures presented in WesBanco’s Annual
Report on Form 10-K for the year ended December 31, 2005 under the section
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
OVERVIEW
WesBanco
is a multi-state bank holding company operating through 81 banking offices,
one
loan production office and 124 ATM machines in West Virginia, Ohio and Western
Pennsylvania, offering retail banking, corporate banking, personal and corporate
trust services, brokerage services, mortgage banking and insurance. WesBanco’s
businesses are significantly impacted by economic factors such as market
interest rates, federal monetary policies, local and regional economic
conditions and the competitive environment effect upon WesBanco’s business
volumes. WesBanco’s deposit levels are effected by numerous factors including
personal savings rates, personal income, and competitive rates on alternative
investments, as well as competition from other financial institutions within
the
markets we serve and liquidity needs of WesBanco. Loan levels are also subject
to various factors including construction demand, business financing needs,
consumer spending and interest rates and loan terms offered by competing
lenders.
RESULTS
OF OPERATIONS
EARNINGS
SUMMARY
WesBanco’s
net income for the quarter ended March 31, 2006 was $5.6 million or $0.25 per
diluted share compared to $11.1 million or $0.48 per diluted share for the
first
quarter of 2005. The first quarter of 2006 included a pre-tax charge of $8.0
million related to the planned sale of $200.0 million in available-for-sale
securities that were in a loss position and a pre-tax charge of $0.5 million
in
costs associated with the restructuring of a business unit, which were partially
offset by a pre-tax gain of $2.6 million resulting from the sale of four Ritchie
County, West Virginia branch offices. Core operating earnings (See “Non-GAAP
measures”), excluding the above-noted items, were $9.3 million or $0.42 per
diluted share as compared to $11.4 million or $0.49 per share for the first
quarter of 2005. First quarter 2006 core operating earnings were lower than
first quarter 2005 due primarily to lower net interest income, and to a lesser
degree, a higher provision for possible loan losses. Annualized return on
average assets was 0.52% and return on average equity was 5.45% for the three
months ended March 31, 2006 compared to 0.99% and 10.42% for the corresponding
period in 2005.
During
the first quarter, WesBanco completed the previously announced sale of its
four
Ritchie County, West Virginia branches to another bank, with deposits of $37.3
million, loans of $19.3 million (primarily residential mortgage loans and
consumer loans), fixed assets of $1.2 million and other miscellaneous assets
and
liabilities transferred to the buyer. A pre-tax gain of $2.6 million was
recorded on the sale, which occurred on March 16, 2006. Also in February,
WesBanco restructured its mortgage banking group by consolidating offices and
reducing approximately 12 full-time equivalent employees, resulting in a pre-tax
charge of $540 thousand for severance and the closing of the Cincinnati loan
processing center.
In
late
March, as a result of higher market interest rates and a flatter yield curve
than anticipated during the Bank’s annual planning process, combined with lower
net loan growth and changing customer deposit preferences, WesBanco decided
to
take action to reduce balance sheet risk in a continuing rising rate environment
by committing to dispose of available-for-sale securities with an approximate
book
15
value
of
$200.0 million and recording an other-than-temporary impairment loss totaling
$8.0 million. The securities were subsequently sold early in the second quarter,
with the impaired securities yielding approximately 3.5% at time of sale and
having an approximate weighted-average life of 2.5 years. As a result of the
impairment and subsequent sale, which resulted in a $0.22 per share after-tax
charge in the first quarter, WesBanco expects its net interest margin to improve
approximately 25 basis points, and its annualized earnings per share in the
current interest rate environment to improve by $0.09. Proceeds from the sale
will be used to pay down a combination of short-term maturing FHLB advances,
with no prepayment fees incurred, and other short-term borrowings. Such
borrowings will reprice, or have recently repriced to interest rates between
4.75% and 5.00%.
NON-GAAP
MEASURES
Amounts
reported in this Form 10-Q have been prepared in accordance with U.S. Generally
Accepted Accounting Principles (“GAAP”). However, certain supplemental non-GAAP
measurements have also been included. WesBanco’s management believes these
non-GAAP measurements, which exclude the effects of merger-related expenses,
restructuring expenses, and other-than-temporary impairment losses are essential
to a proper understanding of the operating results of WesBanco’s core business
largely because they allow investors to see clearly the performance of WesBanco
without these charges included in certain key financial ratios. These non-GAAP
measurements are not a substitute for operating results determined in accordance
with GAAP nor do they necessarily conform to non-GAAP performance measures
that
may be presented by other companies. These non-GAAP measures should not be
compared to non-GAAP performance measures of other companies.
NON-GAAP
RECONCILIATION
|
|
|
|
|
|
For
the Three Months
|
|
|
Ended
March 31,
|
|
|
2006
|
2005
|
Net
income
|
|
$
5,584
|
$
11,080
|
Add:
merger-related expenses, net of tax (1)
|
|
-
|
296
|
Add:
restructuring expenses, net of tax (1)
|
|
324
|
-
|
Add:
other-than-temporary impairment losses, net of tax
(1)
|
|
4,829
|
-
|
Subtract:
gain on sale of branches, net of tax
(1)
|
|
(1,479)
|
-
|
Core
operating earnings
|
|
$
9,258
|
$
11,376
|
|
|
|
|
Net
income per common share
(3)
|
|
$
0.25
|
$
0.48
|
Effects
of merger-related expenses, net of tax
(1)
|
|
-
|
0.01
|
Effects
of restructuring expenses, net of tax
(1)
|
|
0.02
|
-
|
Effects
of other-than-temporary impairment losses, net of tax
(1)
|
|
0.22
|
-
|
Effects
of gain on sale of branches, net of tax
(1)
|
|
(0.07)
|
-
|
Core
operating earnings per common share
(3)
|
|
$
0.42
|
$
0.49
|
|
|
|
|
Return
on average assets
|
|
0.52
%
|
0.99
%
|
Effects
of merger-related expenses, net of tax
(1)
|
|
0.00
%
|
0.02
%
|
Effects
of restructuring expenses, net of tax
(1)
|
|
0.03
%
|
0.00
%
|
Effects
of other-than-temporary impairment losses, net of tax
(1)
|
|
0.45
%
|
0.00
%
|
Effects
of gain on sale of branches, net of tax
(1)
|
|
(0.14%)
|
0.00
%
|
Core
return on average assets
|
|
0.86
%
|
1.01
%
|
|
|
|
|
Return
on average equity
|
|
5.45
%
|
10.42
%
|
Effects
of merger-related expenses, net of tax
(1)
|
|
0.00
%
|
0.28
%
|
Effects
of restructuring expenses, net of tax
(1)
|
|
0.32
%
|
0.00
%
|
Effects
of other-than-temporary impairment losses, net of tax
(1)
|
|
4.71
%
|
0.00
%
|
Effects
of gain on sale of branches, net of tax
(1)
|
|
(1.44%)
|
0.00
%
|
Core
return on average equity
|
|
9.04
%
|
10.70
%
|
|
|
|
|
Efficiency
ratio
(2)
|
|
69.25
%
|
59.55
%
|
Effects
of merger-related expenses
|
|
0.00
%
|
(1.08%)
|
Effects
of restructuring expenses
|
|
(1.61%)
|
0.00
%
|
Effects
of other-than-temporary impairment losses
|
|
(13.79%)
|
0.00
%
|
Effects
of gain on sale of branches
|
|
5.45
%
|
0.00
%
|
Core
efficiency ratio
|
|
59.30
%
|
58.47
%
|
(1)
The
related income tax expense is calculated using a combined Federal and State
income tax rate of 40%.
(2)
The
yield on earning assets, net interest margin, net interest spread and efficiency
ratios are presented on a fully taxable-equivalent (FTE) and annualized basis.
The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans
and investments. WesBanco believes this measure to be the preferred industry
measurement of net interest income and provides a relevant comparison between
taxable and non-taxable amounts.
(3)
The
dilutive effect from stock options was immaterial and accordingly, basic and
diluted earnings per share are the same.
16
NET
INTEREST INCOME
TABLE
1. NET INTEREST INCOME
|
|
|
|
For
the Three Months
|
|
|
|
|
Ended
March 31,
|
(unaudited,
in thousands)
|
|
2006
|
2005
|
Net
interest income
|
|
|
$
30,983
|
$
33,501
|
Taxable
equivalent adjustments to net interest income
|
|
|
2,320
|
2,523
|
Net
interest income, fully taxable equivalent
|
|
|
$
33,303
|
$
36,024
|
Net
interest margin
|
|
|
3.16%
|
3.27%
|
Taxable
equivalent adjustment
|
|
|
0.24%
|
0.24%
|
Net
interest margin, fully taxable equivalent
|
|
|
3.40%
|
3.51%
|
|
|
|
|
|
|
Net
interest income, which is WesBanco’s largest source of revenue, is the
difference between interest income on earning assets primarily loans and
securities and interest expense on liabilities (deposits and short and long-term
borrowings). Net interest income is affected by the general level and changes
in
interest rates, the steepness of the yield curve, changes in the amount and
composition of interest earning assets and interest bearing liabilities, as
well
as the frequency of repricing of those assets and liabilities. Net interest
income for the first quarter of 2006 decreased compared to the first quarter
of
2005, primarily due to compression in the net interest margin, which was 3.40%
compared to 3.51% for the first quarter of 2005 and a reduction in net average
earning assets. A flat yield curve, along with rising short-term interest rates
and competition for deposits contributed to the margin compression.
Interest
income decreased for the three months ended March 31, 2006, due to a decrease
in
average earning assets as compared to the same period in 2005, with the decrease
attributable to a $143.5 million decrease in average securities and a $31.8
million decrease in average loans. As shown in Table 2, the yield on average
earning assets for the three months ended March 31, 2006 increased by 41 basis
points compared to the yields for the same period in 2005. The average yield
for
the loan portfolio increased 47 basis points to 6.34% for the three months
ended
March 31, 2006 compared to 5.87% for the same period in 2005.
Loan
customer preferences have been to lock in longer-term fixed-rate offerings
from
other market participants, as WesBanco typically does not offer longer term,
fixed rate commercial loans and does not hold 30 year fixed rate residential
mortgages on its balance sheet, limiting growth opportunities. Also somewhat
limiting growth has been our desire to reduce interest rate sensitivity and
credit risk by selling $67.8 million in 30 year fixed rate residential mortgages
in mid-2005, $6.7 million in certain underperforming loans in early 2006, and
other risk reduction strategies for certain floor plans and watch list loans.
Finally, a greater portion of residential mortgage production is being sold
into
the secondary market (36% for the first quarter of 2006 versus 28% for the
same
period in 2005) to limit sensitivity to rising rates in the portfolio.
Interest
expense increased for the three months ended March 31, 2006 compared to the
first quarter of 2005, primarily due to an increase in the average rate paid
on
interest bearing liabilities. As shown in Table 2, the average rate paid on
interest bearing liabilities for the three months ended March 31, 2006 increased
by 60 basis points to 2.93% compared to 2.33% for the first quarter of 2005.
The
increase in rates paid on interest bearing liabilities was primarily due to
WesBanco continuing to increase rates on deposit products in order to remain
competitive in a rising rate environment and the continued shift by customers
away from lower cost deposit products to higher cost certificates of deposit
and
premium savings accounts. In addition, wholesale borrowing rates increased
as a
result of two 25 basis point federal funds rate increases during the quarter
and
eight such increases totaling 200 basis points over the past year. These
increases have impacted other borrowings, which are primarily short-term in
nature, by 223 basis points year over year, and to a lesser extent, FHLB
borrowings, by 26 basis points as such FHLB borrowings matured and repriced.
Rates paid on interest-bearing liabilities rose faster than earning asset rates
due to a liability sensitive balance sheet, whereby rates paid on
interest-bearing liabilities generally rise faster than rates earned on interest
earning assets in a rising interest rate environment, as has been experienced
in
the past year. In addition, deposit customer preferences have been to move
accounts from lower yielding transaction and money market accounts into higher
paying certificates of deposit of various maturities. Certain non-bank money
market offerings by brokerage firms and mutual funds have also been attracting
bank deposits as rates have increased.
17
TABLE
2. AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS
|
|
|
|
For
the Three Months Ended March 31,
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
Average
|
Average
|
|
Average
|
Average
|
(unaudited,
in thousands)
|
|
|
|
Volume
|
Rate
|
|
Volume
|
Rate
|
ASSETS
|
|
|
|
|
|
|
|
|
Due
from banks - interest bearing
|
|
|
|
$
1,806
|
2.44%
|
|
$
6,736
|
1.20%
|
Loans,
net
(1)
|
|
|
|
2,927,528
|
6.34%
|
|
2,959,371
|
5.87%
|
Securities:
(2)
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
|
582,779
|
4.08%
|
|
713,712
|
3.87%
|
Tax-exempt
(3)
|
|
|
|
398,180
|
6.66%
|
|
410,699
|
7.02%
|
Total
securities
|
|
|
|
980,959
|
5.13%
|
|
1,124,411
|
5.02%
|
Federal
funds sold
|
|
|
|
-
|
-
|
|
3,690
|
2.38%
|
Other
earning assets
|
|
|
|
43,444
|
4.12%
|
|
48,278
|
3.50%
|
Total
earning assets
(3)
|
|
|
|
3,953,737
|
6.01%
|
|
4,142,486
|
5.60%
|
Other
assets
|
|
|
|
396,807
|
|
|
407,192
|
|
Total
Assets
|
|
|
|
$
4,350,544
|
|
|
$
4,549,678
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
Interest
bearing demand deposits
|
|
|
|
$
320,452
|
0.69%
|
|
$
330,477
|
0.40%
|
Money
market accounts
|
|
|
|
425,387
|
2.09%
|
|
588,321
|
1.84%
|
Savings
deposits
|
|
|
|
465,307
|
1.11%
|
|
437,892
|
0.51%
|
Certificates
of deposit
|
|
|
|
1,409,658
|
3.59%
|
|
1,352,283
|
2.89%
|
Total
interest bearing deposits
|
|
|
|
2,620,804
|
2.55%
|
|
2,708,973
|
1.97%
|
Federal
Home Loan Bank borrowings
|
|
|
|
602,733
|
3.61%
|
|
719,746
|
3.35%
|
Other
borrowings
|
|
|
|
215,088
|
4.23%
|
|
221,499
|
2.20%
|
Junior
subordinated debt
|
|
|
|
87,638
|
6.27%
|
|
74,580
|
5.76%
|
Total
interest bearing liabilities
|
|
|
|
3,526,263
|
2.93%
|
|
3,724,798
|
2.33%
|
Non-interest
bearing
|
|
|
|
|
|
|
|
|
demand
deposits
|
|
|
|
373,061
|
|
|
359,619
|
|
Other
liabilities
|
|
|
|
35,566
|
|
|
34,179
|
|
Shareholders'
Equity
|
|
|
|
415,654
|
|
|
431,082
|
|
Total
Liabilities and
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
$
4,350,544
|
|
|
$
4,549,678
|
|
|
|
|
|
|
|
|
|
|
Net
interest spread
|
|
|
|
|
3.08%
|
|
|
3.27%
|
Taxable
equivalent net interest margin
(3)
|
|
|
|
|
3.40%
|
|
|
3.51%
|
(1) |
Total
loans are gross of the allowance for loan losses, net of unearned
income
and include loans held for sale. Non-accrual loans were included
in the
average volume for the entire period. Loan fees included in interest
income on loans totaled $0.9 million for each of the three month
periods
ended March 31, 2006 and 2005,
respectively.
|
(2) |
Average
yields on available-for-sale securities have been calculated based
on
amortized cost.
|
(3) |
The
yield on earning assets and the net interest margin are presented
on a
fully taxable-equivalent (FTE) and annualized basis. The FTE basis
adjusts
for the tax benefit of income on certain tax-exempt loans and investments
using the federal statutory tax rate of 35% for each period presented.
WesBanco believes this measure to be the preferred industry measurement
of
net interest income and provides relevant comparison between taxable
and
non-taxable amounts.
|
18
TABLE
3. RATE/VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
(1)
|
|
|
|
|
|
Three
Months Ended March 31, 2006
|
|
|
|
|
|
|
Compared
to March 31, 2005
|
|
|
|
|
|
|
|
|
|
Net
Increase
|
(in
thousands)
|
|
|
|
|
|
Volume
|
Rate
|
|
(Decrease)
|
Increase
(decrease) in interest income:
|
|
|
|
|
|
|
|
|
Due
from banks - interest bearing
|
|
|
|
|
|
$
(21)
|
$
12
|
|
$
(9)
|
Loans,
net of unearned income
|
|
|
|
|
|
(467)
|
3,353
|
|
2,886
|
Taxable
securities
|
|
|
|
|
|
(1,297)
|
352
|
|
(945)
|
Tax-exempt
securities
(2)
|
|
|
|
|
|
(216)
|
(365)
|
|
(581)
|
Federal
funds sold
|
|
|
|
|
|
(11)
|
(11)
|
|
(22)
|
Other
interest income
|
|
|
|
|
|
(43)
|
74
|
|
31
|
Total
change in interest income
(2)
|
|
|
|
|
(2,055)
|
3,415
|
|
1,360
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in interest expense:
|
|
|
|
|
|
|
|
|
|
Interest
bearing demand deposits
|
|
|
|
|
|
(10)
|
229
|
|
219
|
Money
market accounts
|
|
|
|
|
|
(802)
|
335
|
|
(467)
|
Savings
deposits
|
|
|
|
|
|
36
|
684
|
|
720
|
Certificates
of deposit
|
|
|
|
|
|
424
|
2,432
|
|
2,856
|
Federal
Home Loan Bank borrowings
|
|
|
|
|
(1,015)
|
430
|
|
(585)
|
Other
borrowings
|
|
|
|
|
|
(36)
|
1,079
|
|
1,043
|
Junior
subordinated debt owed to unconsolidated subsidiary trusts
|
196
|
99
|
|
295
|
Total
interest expense change
|
|
|
|
|
|
(1,207)
|
5,288
|
|
4,081
|
|
|
|
|
|
|
|
|
|
|
Net
increased (decrease) in interest income (2)
|
|
|
|
|
$
(848)
|
$
(1,873)
|
|
$
(2,721)
|
(1)
Changes
to rate/volume are allocated to both rate and volume on a proportionate dollar
basis.
(2)
The
yield on earning assets and the net interest margin are presented on a fully
taxable-equivalent (FTE) and annualized basis. The FTE basis adjusts for the
tax
benefit of income on certain tax-exempt loans and investments using the federal
statutory tax rate of 35% for each period presented. WesBanco believes this
measure to be the preferred industry measurement of net interest income and
provides relevant comparison between taxable and non-taxable
amounts.
PROVISION
FOR LOAN LOSSES
The
provision for loan losses is determined by management as the amount to be added
to the allowance for loan losses after net charge-offs have been deducted to
bring the allowance to a level considered appropriate to absorb probable losses
in the loan portfolio. The provision for loan losses was $2.6 million for the
first quarter of 2006 as compared to $1.8 million for the first quarter of
2005
and $2.1 million for the fourth quarter of 2005. The increase in the provision
for loan losses is primarily attributable to an increase in non-performing
loans. For additional information relating to the provision for loan losses,
see
the “Allowance for Loan Losses” section of “Loans and Credit Risk” included in
this MD&A.
NON-INTEREST
INCOME
TABLE
4. NON-INTEREST INCOME
|
|
|
|
|
|
|
For
the Three Months
|
|
|
|
|
|
|
|
|
|
Ended
March 31,
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
2006
|
|
2005
|
$
Change
|
%
Change
|
Trust
fees
|
|
|
|
|
|
|
$
4,058
|
|
$
3,714
|
$
344
|
9.3%
|
Service
charges on deposits
|
|
|
|
|
|
|
3,797
|
|
2,462
|
1,335
|
54.2%
|
Bank-owned
life insurance
|
|
|
|
|
|
|
729
|
|
683
|
46
|
6.7%
|
Net
securities (losses) gains
|
|
|
|
|
|
|
(7,942)
|
|
753
|
(8,695)
|
(1154.7%)
|
Net
gains on sales of loans
|
|
|
|
|
|
|
43
|
|
132
|
(89)
|
(67.4%)
|
Other
income
|
|
|
|
|
|
|
4,729
|
|
1,787
|
2,942
|
164.6%
|
Total
non-interest income
|
|
|
|
|
|
|
$
5,414
|
|
$
9,531
|
$
(4,117)
|
(43.2%)
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income is a significant source of revenue and an important part of WesBanco’s
results of operations. WesBanco offers its customers a wide range of retail,
commercial, investment and electronic banking services, which are viewed as
a
vital component of WesBanco’s strategy of retaining and attracting customers, as
well as providing additional fee income to WesBanco.
Trust
fees increased in the first quarter of 2006 as compared to the first quarter
of
2005 due to an increase in the market value of assets under management as well
as new business. The market value of assets under management at March 31, 2006
was $2.9 billion as compared to $2.6 billion at March 31, 2005.
19
The
increase in service charges on deposits in the first quarter of 2006 as compared
to the first quarter of 2005 was primarily driven by the fees earned from a
new
overdraft program introduced in the fourth quarter of 2005, and to a lesser
extent, an increase in debit card fees and other electronic banking activity.
The
slight increase in bank-owned life insurance income is due to an increase in
yields on the underlying polices and the surrender and replacement of certain
low yield policies from two carriers late in 2005.
In
the
first quarter of 2006, WesBanco recorded $8.0 million of other-than-temporary
impairment losses in connection with the planned sale of approximately $200.0
million of available-for-sale securities that were in an unrealized loss
position. Prior year’s securities sales resulted in net gains of $753 thousand.
In
the
first quarter of 2006, WesBanco sold $10.3 million in mortgage loans to the
secondary market compared to $11.3 million in the same period in 2005. Included
in other income in the first quarter of 2006 were net gains of $43 thousand
on
the sales of these mortgage loans as compared to $142 thousand for the same
period in 2005. Mortgage banking spreads have been compressed due to competitive
factors and the rising rate environment.
Other
income was significantly enhanced by a $2.6 million gain on the sale of its
four
Ritchie County, West Virginia branch offices. Securities and insurance fees
also
produced comparatively higher results for the first quarter of 2006. Such income
totaled $593 thousand versus $408 thousand in the prior year.
NON-INTEREST
EXPENSE
TABLE
5. NON-INTEREST EXPENSE
|
|
|
|
|
|
|
For
the Three Months
|
|
|
|
|
|
|
|
|
|
Ended
March 31,
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
2006
|
|
2005
|
$
Change
|
%
Change
|
Salaries
and wages
|
|
|
|
|
|
|
$
9,904
|
|
$
10,571
|
$
(667)
|
(6.3%)
|
Employee
benefits
|
|
|
|
|
|
|
3,512
|
|
3,325
|
187
|
5.6%
|
Net
occupancy
|
|
|
|
|
|
|
2,013
|
|
1,796
|
217
|
12.1%
|
Equipment
|
|
|
|
|
|
|
2,030
|
|
2,204
|
(174)
|
(7.9%)
|
Core
deposit intangible
|
|
|
|
|
|
|
633
|
|
663
|
(30)
|
(4.5%)
|
Restructuring
and merger-related expenses
|
|
|
|
|
|
540
|
|
493
|
47
|
9.5%
|
Other
operating
|
|
|
|
|
|
|
8,180
|
|
8,077
|
103
|
1.3%
|
Total
non-interest expense
|
|
|
|
|
|
|
$
26,812
|
|
$
27,129
|
$
(317)
|
(1.2%)
|
Salaries
and wages decreased for the first quarter of 2006 as compared to the first
quarter of 2005, due to the number of full-time equivalent (“FTE”) employees
decreasing to 1,165 at March 31, 2006, compared to 1,358 at March 31, 2005.
Post
closing reductions from the Winton Financial closing did not substantially
impact expenses until the second quarter of 2005. Also, FTEs decreased late
in
2005 in connection with a restructuring plan announced in the third quarter,
with additional reductions occurring in the first quarter of 2006 in connection
with the restructuring of WesBanco’s mortgage business unit.
Employee
benefit costs increased for the first quarter of 2006 as compared to the first
quarter of 2005, in spite of the reduction in FTEs as health insurance premiums
and pension costs continue to rise, somewhat offset by lower defined
contribution plan expense.
Net
occupancy expense, which is comprised of utility costs, facilities rental,
repairs and maintenance and depreciation expenses increased to $2.0 million
in
the first quarter of 2006 compared to $1.8 million in 2005 due to increases
in
the cost of service agreements, utilities and facilities rental costs, as well
as demolition costs of $0.1 million associated with two structures owned by
a
subsidiary of WesBanco.
Equipment
expense, which is comprised of equipment rental, repairs and maintenance and
depreciation expenses decreased to $2.0 million in the first quarter of 2006
compared to $2.2 million in 2005 due primarily to a decrease in depreciation
expense on certain equipment.
Merger-related
expenses represent costs incurred in connection with the Winton acquisition
that
was consummated on January 3, 2005 which by their nature did not recur in the
first quarter of 2006.
Restructuring
expenses represent severance payments and lease termination costs incurred
in
the first quarter of 2006 in connection with the restructuring of WesBanco’s
mortgage business unit and the combination of its Cincinnati and Charleston
offices.
INCOME
TAXES
The
provision for income taxes for the first quarter of 2006 decreased $1.6 million
or 54.3% compared to the first quarter of 2005 due to a decrease in pre-tax
income. The decrease in pre-tax income was due to the recognition of $8.0
million in other-than-temporary losses on available-for-sale securities related
to WesBanco’s planned balance sheet repositioning and the recognition of $0.5
million in severance and lease termination costs related to the restructuring
of
WesBanco’s mortgage business unit, which were offset somewhat by the gain of
$2.5 million recognized in connection with the sale of four banking offices.
For
the first quarter of 2006, the effective tax rate was 19.6%
20
compared
to 21.2% for the first quarter of 2005. Under SFAS 109, a portion of the tax
benefit associated with the special items noted in the first quarter will be
recognized over the course of the remainder of the year due to a lower overall
effective tax rate. The effective tax rate for the remainder of the year is
expected to range from 19.5% to 20.0%.
FINANCIAL
CONDITION
TABLE
6. COMPOSITION OF SECURITIES (1)
|
March
31,
|
|
December
31,
|
|
|
(dollars
in thousands)
|
2006
|
|
2005
|
$
Change
|
%
Change
|
Securities
available-for-sale (at fair value):
|
|
|
|
|
|
U.S.
Treasury
|
7,158
|
|
11,397
|
(4,239)
|
(37.2%)
|
Other
government agencies and corporations
|
239,309
|
|
248,111
|
(8,802)
|
(3.5%)
|
Obligations
of states and political subdivisions
|
20,025
|
|
36,227
|
(16,202)
|
(44.7%)
|
Mortgage-backed
securities
|
279,732
|
|
295,822
|
(16,090)
|
(5.4%)
|
Corporate
debt and equity securities
|
11,769
|
|
11,614
|
155
|
1.3%
|
Total
securities-available-for sale
|
557,993
|
|
603,171
|
(45,178)
|
(7.5%)
|
Securities
held-to-maturity (at amortized cost):
|
|
|
|
|
|
Obligations
of states and political subdivisions
|
$
378,025
|
|
$
389,393
|
$
(11,368)
|
(2.9%)
|
Total
securities held-to-maturity
|
378,025
|
|
389,393
|
(11,368)
|
(2.9%)
|
Total
securities
|
$
936,018
|
|
$
992,564
|
$
(56,546)
|
(5.7%)
|
Available-for-sale
securities:
|
|
|
|
|
|
Weighted
average yield at the respective period end
|
3.95%
|
|
3.96%
|
|
|
As
a % of total securities
|
59.6%
|
|
60.8%
|
|
|
Weighted
average life (in years)
|
3.1
|
|
3.1
|
|
|
Held-to-maturity
securities:
|
|
|
|
|
|
Weighted
average yield at the respective period end
|
6.51%
|
|
6.53%
|
|
|
As
a % of total securities
|
40.4%
|
|
39.2%
|
|
|
Weighted
average life (in years)
|
4.8
|
|
4.8
|
|
|
(1)
At
March
31, 2006 and December 31, 2005, there were no holdings of any one issuer, other
than the U.S. government and certain federal or federally-related agencies,
in
an amount greater than 10% of WesBanco’s shareholders’ equity.
Total
investment securities, which are a source of liquidity for WesBanco as well
as a
contributor to interest income, decreased from December 31, 2005 to March 31,
2006. Contributing to this decrease was the reinvestment of a portion of the
cash flows from the investment portfolio into the loan portfolio due to higher
loan yields compared to those currently available in the securities market
and
paying down short-term and FHLB borrowings as rates rose and spreads between
securities and wholesale borrowings decreased in a flat yield curve
environment.
Prepayments
on mortgage-backed securities and callable agencies were significantly lower
in
the first quarter of 2006 as compared to the first quarter of 2005. For the
three months ended March 31, 2006, cash flows from the portfolio due to calls,
maturities and prepayments were $44.4 million compared to $84.5 million for
the
same period in 2005, as rate increases resulted in comparable slow downs in
prepayment speeds on mortgage-related securities and bond calls were
reduced.
At
March
31, 2006, total unamortized premium and discount on the investment portfolio,
as
a percentage of the total investment portfolio, was 0.55% and 1.75%,
respectively, compared to 0.59% and 1.74% at December 31, 2005, respectively.
The premium amortization on the investment portfolio recorded as a reduction
to
interest income for the three months ended March 31, 2006 was $0.5 million,
which was the same as the corresponding period in 2005. Total premium on the
investment portfolio, which relates primarily to collateralized mortgage
obligations and mortgage-backed securities in the available-for-sale portion
of
the portfolio, is subject to increased amortization in times of accelerated
prepayments and decreased amortization as prepayments fall in a rising rate
scenario. The discount accretion on the investment portfolio recorded into
income for the three months ended March 31, 2006 was $0.5 million compared
to
$0.5 million for the same period in 2005. The discount primarily relates to
obligations of states and political subdivisions, which comprised 84.4% of
the
total discount at March 31, 2006.
On
April
6, 2006 WesBanco announced that it would sell $200.0 million of
available-for-sale securities for which its cost exceeded fair market value
at
March 31, 2006. As required under the applicable accounting guidance, WesBanco
wrote these securities down to their fair market value and recognized an
other-than-temporary impairment loss totaling $8.0 million (See Note 3,
“Securities” of the Consolidated Statements of Income). After the sale, which
was consummated in early April, WesBanco’s total available-for-sale securities
and held-to-maturity securities each comprised approximately 50% of the total
portfolio.
LOANS
AND CREDIT RISK
The
loan
portfolio is WesBanco’s single largest balance sheet asset classification and
the largest source of interest income. The risk that borrowers will be unable
or
unwilling to repay their obligations and default on loans is inherent in all
lending activities. In addition to the inherent risk of a change in a borrower’s
repayment capacity, economic conditions and other factors beyond WesBanco’s
control can adversely impact credit risk. WesBanco’s primary goal in managing
credit risk is to minimize the impact of default by an individual
21
borrower
or group of borrowers. Credit risk is managed through the initial underwriting
process as well as through ongoing monitoring and administration of the loan
portfolio that varies by category. WesBanco’s credit policies establish standard
underwriting guidelines for each type of loan and require an appropriate
evaluation of the credit characteristics of each borrower. This evaluation
includes the borrower’s repayment capacity; the adequacy of collateral, if any,
to secure the loan; and other factors unique to each loan that may increase
or
mitigate its risk.
WesBanco’s
loan portfolio consists of the five major categories set forth in Table 7.
WesBanco makes loans for business and consumer purposes. Business purpose loans
consist of commercial and commercial real estate loans, while consumer purpose
loans consist of residential real estate loans, home equity and other consumer
loans. Each category entails certain distinct elements of risk that impact
the
manner in which those loans are underwritten, monitored, and administered.
TABLE
7. COMPOSITION OF LOANS
|
March
31, 2006
|
|
December
31, 2005
|
(unaudited,
in thousands)
|
Amount
|
%
of Loans
|
|
Amount
|
%
of Loans
|
Loans:
(1)
|
|
|
|
|
|
Commercial
|
$
437,350
|
14.9%
|
|
$
417,161
|
14.2%
|
Commercial
real estate
|
1,128,241
|
38.4%
|
|
1,118,342
|
38.0%
|
Residential
real estate
|
921,022
|
31.4%
|
|
929,823
|
31.6%
|
Home
equity
|
173,595
|
5.9%
|
|
175,651
|
6.0%
|
Consumer
|
269,259
|
9.2%
|
|
271,100
|
9.2%
|
Total
portfolio loans
|
2,929,467
|
99.8%
|
|
2,912,077
|
99.0%
|
Loans
held for sale
|
5,906
|
0.2%
|
|
28,803
|
1.0%
|
Total
Loans
|
$
2,935,373
|
100.0%
|
|
$
2,940,880
|
100.0%
|
(1)
Loans
are presented gross of the allowance for loan losses, and net of unearned income
on consumer loans and unamortized net deferred loan fees.
Total
loans decreased 0.19% between December 31, 2005 and March 31, 2006 as continued
growth in commercial real estate loans was offset by the sale of loans
categorized as held for sale at December 31, 2005. Commercial real estate loans
increased 3.56% as a result of repositioning resources to accommodate strong
demand in higher growth markets. Residential real estate loans decreased 0.95%
as WesBanco originated more loans for sale in the secondary market to meet
consumer demand for fixed rate loans while avoiding the interest rate risk
associated with retaining these loans in its portfolio.
Loans
sold during the period included $19.3 million of loans sold in connection with
the sale of the Ritchie County banking offices and $6.0 million of
underperforming loans. Loans held for sale at December 31, 2005 included these
amounts.
NON-PERFORMING
ASSETS, IMPAIRED LOANS AND LOANS PAST DUE 90 DAYS OR MORE
Non-performing
assets consist of non-accrual and renegotiated loans, other real estate acquired
through or in lieu of foreclosure, bank premises held for sale, and repossessed
automobiles acquired to satisfy defaulted consumer loans. Other impaired loans
include certain loans that are internally classified as substandard or
doubtful.
Loans
are
placed on non-accrual status when they become past due 90 days or more unless
they are both well secured and in the process of collection. Except for certain
consumer and residential real estate loans, when a loan is placed on
non-accrual, interest income may not 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 principal
amount of the loan; as well as an extension of the maturity date or the
amortization schedule. Loans may be removed from renegotiated status after
they
have performed according to the renegotiated terms for a period of
time.
Other
real estate and repossessed assets consist primarily of real estate acquired
through or in lieu of foreclosure and repossessed automobiles or other personal
property. This category may also include bank premises held for sale and
residential real estate of relocated employees, which did not arise as a result
of lending activities.
22
TABLE
8. NON-PERFORMING ASSETS
|
March
31,
|
|
December
31,
|
(unaudited,
in thousands)
|
2006
|
|
2005
|
Non-accrual:
|
|
|
|
Commercial
|
$
6,777
|
|
$
2,099
|
Commercial
real estate
|
6,476
|
|
6,229
|
Residential
real estate
|
856
|
|
933
|
Home
equity
|
17
|
|
17
|
Consumer
|
3
|
|
4
|
Loans
held for sale
|
-
|
|
638
|
Total
|
14,129
|
|
9,920
|
Renegotiated:
|
-
|
|
-
|
Total
|
-
|
|
-
|
Total
non-performing loans
|
14,129
|
|
9,920
|
Other
real estate owned and repossessed assets
|
2,692
|
|
1,868
|
Total
non-performing assets
|
16,821
|
|
11,788
|
Non-performing
assets, which are defined as non-accrual and renegotiated loans, and other
real
estate owned increased $5.0 million between December 31, 2005 and March 31,
2006. This increase was primarily the result of a single commercial loan
participation being placed on non-accrual during the period.
Other
impaired loans consists of loans that are internally risk graded as substandard
or doubtful when they are not fully secured by collateral or the observable
market price for a loan is less than its outstanding balance. Other impaired
loans continue to accrue interest, have not been renegotiated, and may not
be
delinquent or have a record of delinquent payments. Other impaired loans totaled
$4.6 million at December 31, 2005 and March 31, 2006.
TABLE
9. LOANS PAST DUE 90 DAYS OR MORE
|
March
31,
|
|
December
31,
|
(unaudited,
in thousands)
|
2006
|
|
2005
|
Commercial
and industrial
|
$
534
|
|
$
488
|
Commercial
real estate
|
3,410
|
|
4,651
|
Residential
real estate
|
1,657
|
|
3,707
|
Home
equity
|
547
|
|
249
|
Consumer
|
380
|
|
833
|
Total
portfolio loans past due 90 days or more
|
6,528
|
|
9,928
|
Loans
held for sale
|
-
|
|
126
|
Total
loans past due 90 days or more
|
$
6,528
|
|
$
10,054
|
|
|
|
|
Loans
past due 90 days or more as a percentage of total loans
|
0.22%
|
|
0.34%
|
Loans
past due 90 days or more and still accruing interest decreased from December
31,
2005 to March 31, 2006 due to increased collection efforts on all categories
of
loans.
ALLOWANCE
FOR LOAN LOSSES
The
allowance for loan losses increased $1.3 million or 4.3% between December 31,
2005 and March 31, 2006 and was relatively unchanged compared to March 31,
2005.
The increase in the allowance during the first quarter is primarily attributable
to the increase in non-performing loans, which also contributed to an increase
in the provision for loan losses for the period.
23
TABLE
10. ALLOWANCE FOR LOAN LOSSES
|
March
31,
|
|
March
31,
|
(dollars
in thousands)
|
2006
|
|
2005
|
Beginning
Balance - Allowance for loan losses
|
$
30,957
|
|
$
29,486
|
Allowance
for loan losses of acquired bank
|
-
|
|
1,947
|
Provision
for loan losses
|
2,640
|
|
1,843
|
Charge-offs:
|
|
|
|
Commercial
|
117
|
|
207
|
Commercial
real estate
|
385
|
|
97
|
Residential
real estate
|
109
|
|
20
|
Home
equity
|
29
|
|
124
|
Consumer
|
1,018
|
|
1,089
|
Overdrafts
|
186
|
|
-
|
Total
charge-offs
|
1,844
|
|
1,537
|
|
|
|
|
Recoveries:
|
|
|
|
Commercial
|
85
|
|
15
|
Commercial
real estate
|
16
|
|
19
|
Residential
real estate
|
21
|
|
82
|
Home
equity
|
-
|
|
-
|
Consumer
|
403
|
|
370
|
Overdrafts
|
13
|
|
-
|
Total
recoveries
|
538
|
|
486
|
Net
loan charge-offs
|
1,306
|
|
1,051
|
|
|
|
|
Ending
Balance - Allowance for loan losses
|
$
32,291
|
|
$
32,225
|
|
|
|
|
Ratio
of net charge-offs to average loan type:
|
|
|
|
Commercial
|
0.03%
|
|
0.18%
|
Commercial
real estate
|
0.13%
|
|
0.03%
|
Residential
real estate
|
0.04%
|
|
-0.03%
|
Home
equity
|
0.07%
|
|
0.29%
|
Consumer
|
0.93%
|
|
1.13%
|
Total
ratio of net charge-offs to average loans
|
0.18%
|
|
0.14%
|
|
|
|
|
Allowance
for loan losses to total loans
|
1.10%
|
|
1.09%
|
Allowance
for loan losses to total non-performing loans
|
2.29x
|
|
3.80x
|
Allowance
for loan losses to total non-performing loans and
|
|
|
|
loans
past due 90 days or more
|
1.56x
|
|
1.95x
|
Provision
for loan losses to net loan charge-offs
|
202.1%
|
|
175.4%
|
Net
charge-offs for the first quarter of 2006 increased slightly compared to the
same quarter in the previous year. However, net charge-offs on a sequential
quarter basis decreased $2.4 as consumer losses returned to more normal levels
following a sharp increase in the fourth quarter of 2005 when individual
bankruptcies reached record levels in advance of changes in bankruptcy laws.
The
fourth quarter of 2005 also included commercial real estate charge-offs
associated with reclassifying certain underperforming loans as held for
sale.
TABLE
11. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
|
March
31,
|
Percent
of
|
|
December
31,
|
Percent
of
|
(unaudited,
in thousands)
|
2006
|
Total
|
|
2005
|
Total
|
Commercial
|
$
13,896
|
43.0%
|
|
$
11,138
|
36.0%
|
Commercial
real estate
|
11,890
|
36.8%
|
|
13,027
|
42.1%
|
Residential
real estate
|
1,298
|
4.0%
|
|
1,227
|
4.0%
|
Home
equity
|
347
|
1.1%
|
|
391
|
1.3%
|
Consumer
|
4,860
|
15.1%
|
|
5,174
|
16.6%
|
Total
allowance for loan losses
|
$
32,291
|
100.0%
|
|
$
30,957
|
100.0%
|
|
|
|
|
|
|
Components
of the allowance for loan losses:
(1)
|
|
|
|
|
|
General
reserves pursuant to SFAS No. 5
|
$
28,619
|
|
|
$
31,096
|
|
Specific
reserves pursuant to SFAS No. 114
|
3,672
|
|
|
1,129
|
|
Total
allowance for loan losses
|
$
32,291
|
|
|
$
32,225
|
|
(1)
Specific
reserves have been adjusted to reclassify amounts disclosed as part of that
component in prior years to be consistent with their current period
classification. These amounts represent allocations for pools of loans that
were
not individually tested for impairment, which are therefore more appropriately
categorized as general reserves.
24
The
allowance for commercial and industrial loans increased primarily due to
specific reserves on the commercial loan participation that was placed on
non-accrual in the first quarter of 2006. The allowance for commercial real
estate loans decreased as a result of continued risk reduction strategies and
improved credit quality in that category of loans.
Although
the allowance is allocated as described in Table 11, the total allowance is
available to absorb actual losses in any category of the loan portfolio.
Management believes the allowance for loan losses is appropriate to absorb
probable credit losses associated with the loan portfolio at March 31, 2006.
In
the event that management’s estimation of probable losses does not materialize,
future adjustments to the allowance may be necessary to reflect differences
between original estimates of loss in previous periods and actual observed
losses in subsequent periods.
DEPOSITS
TABLE
12. DEPOSITS
|
March
31,
|
|
December
31,
|
|
|
(unaudited,
in thousands)
|
2006
|
|
2005
|
$
Change
|
%
Change
|
Non-interest
bearing demand
|
$
398,408
|
|
$
392,116
|
$
6,292
|
1.6%
|
Interest
bearing demand
|
324,572
|
|
325,582
|
(1,010)
|
(0.3%)
|
Money
market
|
404,612
|
|
444,071
|
(39,459)
|
(8.9%)
|
Savings
deposits
|
467,968
|
|
462,601
|
5,367
|
1.2%
|
Certificates
of deposit
|
1,396,463
|
|
1,403,954
|
(7,491)
|
(0.5%)
|
Total
deposits
|
$
2,992,023
|
|
$
3,028,324
|
$
(36,301)
|
(1.2%)
|
Deposits,
which represent WesBanco’s primary source of funds, are offered in various
account forms at various rates through WesBanco’s 81 branches in West Virginia,
Ohio and Western Pennsylvania. Total deposits decreased by $36.3 million or
1.2%
between December 31, 2005 and March 31, 2006, primarily as a result of the
Ritchie County branch sale totaling $37.3 million in deposits.
The
increase in non-interest bearing demand deposits was due to WesBanco continuing
to place increased marketing emphasis on transaction-based accounts, which
are
typically viewed as a lower-cost funding source and may also provide WesBanco
ancillary activity fee income. Included in the money market category is the
WesBanco Prime Rate Money Market Account, which permits limited check writing
and pays interest based on a market index and a tiered structure based on the
customer’s outstanding balance. These accounts decreased as customers moved
their funds into a new tiered premium savings product, into various certificate
of deposit maturities or they pursued competitive offerings from other financial
institutions. WesBanco may adjust its money market deposit account rates paid
from time to time on some or all tiers in order to respond to market
factors.
Certificates
of deposit totaling approximately $851.0 million are scheduled to mature within
the next year. If the current rising rate environment continues, WesBanco may
continue increasing its rates on certificates of deposit in order to remain
competitive. WesBanco will continue to focus on deposit growth and improving
its
overall mix of transaction accounts to total deposits as well as offering
special promotions on certain certificates of deposit maturities and savings
products based on competition, sales strategies, liquidity needs and wholesale
borrowing costs.
BORROWINGS
TABLE
13. BORROWINGS
|
March
31,
|
|
December
31,
|
|
|
(in
thousands)
|
2006
|
|
2005
|
$
Change
|
%
Change
|
Federal
Home Loan Bank Borrowings
|
$
574,745
|
|
$
612,693
|
$
(37,948)
|
(6.2%)
|
Other
short-term borrowings
|
237,437
|
|
244,301
|
(6,864)
|
(2.8%)
|
Junior
subordinated debt owed to unconsolidated subsidiary trusts
|
87,638
|
|
87,638
|
-
|
0.0%
|
Total
borrowings
|
$
899,820
|
|
$
944,632
|
$
(44,812)
|
(4.7%)
|
WesBanco
is a member of the FHLB of Pittsburgh. The FHLB system functions as a borrowing
source for regulated financial institutions that are engaged in residential
real
estate lending. WesBanco uses term FHLB borrowings as a general funding source
and to more appropriately match certain assets, as an alternative to shorter
term wholesale borrowings. FHLB borrowings are secured by a blanket lien on
certain residential mortgage loans or securities with a market value at least
equal to the outstanding balances. The terms of a security agreement with the
FHLB of Pittsburgh include a specific assignment of collateral that requires
the
maintenance of qualifying first mortgage loans as pledged collateral with unpaid
principal amounts at least equal to or greater than the FHLB advances, when
discounted at 83% of the unpaid principal balance. FHLB stock, which is recorded
at a cost of $42.3 million at March 31, 2006, is also pledged as collateral
for
these advances. The remaining maximum borrowing capacity with the FHLB of
Pittsburgh at March 31, 2006, which WesBanco is approved for collateralized
advances, is $844.2 million compared to $778.4 million at December 31,
2005.
At
March 31, 2006, WesBanco had $574.7 million in outstanding FHLB borrowings,
from
both the FHLB of Pittsburgh and Cincinnati, with a weighted-average interest
rate of 3.64%, compared to $612.7 million of FHLB of Pittsburgh and Cincinnati
borrowings at December 31, 2005 with a weighted-average interest rate of
3.52%. FHLB borrowings have maturities ranging from 2006 to 2027.
25
WesBanco
periodically analyzes the maturities of its FHLB borrowings and may or may
not
restructure such borrowings through prepayments, which may cause WesBanco to
incur a prepayment penalty. WesBanco also intends to utilize certain of the
proceeds from the securities sales consummated in April 2006, to pay down
short-term maturing FHLB advances in the second quarter.
Certain
FHLB advances contain call or conversion features, which allow the FHLB to
either call the advance under certain circumstances, or to convert a fixed
rate
borrowing to a variable rate advance if the strike rate goes beyond a certain
predetermined rate. The probability that these advances and repurchase
agreements will be called depends primarily on the level of related interest
rates during the call or conversion period. Of the $574.7 million outstanding
at
March 31, 2006, $194.7 million in FHLB callable/convertible fixed rate advances
are subject to conversion to a variable rate advance or maturity by the
respective FHLB issuer. Approximately $20.0 million of such advances may be
called at current interest rates.
Other
short-term borrowings, which consist of federal funds purchased, securities
sold
under agreements to repurchase, treasury tax and loan notes and a revolving
line
of credit, at March 31, 2006 were $237.4 million compared to $244.3 million
at
December 31, 2005. The decrease was primarily due to the liquidity needs of
WesBanco and customer tendencies. Federal funds purchased and repurchase
agreements are intended to be paid down in the second quarter from the proceeds
from the earlier discussed securities sales. The revolving line of credit is
a
senior obligation of the parent company that provides for maximum borrowings
of
up to $35.0 million. It had an outstanding balance of $7.5 million at March
31,
2006. The line matures in July 2006 and contains a number of financial
covenants. WesBanco was in compliance with all such covenants at period end
except for a covenant relating to minimum return on average assets, which
compliance the lender has formally waived for the quarter ending March 31,
2006.
Such line is currently in the process of being renewed prior to June 30, 2006.
CAPITAL
RESOURCES
Shareholders'
equity was $416.2 million at March 31, 2006 compared to $415.2 million at
December 31, 2005. Total equity was increased for current quarter earnings
of
$5.6 and a $2.2 million change in other comprehensive income, which was offset
by the payment of dividends of $5.8 million and the repurchase of shares
totaling $1.2 million. During the quarter, WesBanco repurchased 39,200 shares
of
its common stock under a one million share repurchase plan approved by the
Board
of Directors on March 17, 2005, leaving 98,961 shares to be repurchased under
this authorization. In January 2006, WesBanco’s Board of Directors authorized a
new one million share repurchase plan that is in addition to the existing plan.
In February 2006, WesBanco’s Board of Directors authorized the increase of its
dividend from $0.26 per share, per quarter to $0.265 per share, a 1.9% increase.
This dividend increase represented the twenty-first consecutive year of dividend
increases at WesBanco.
WesBanco
is subject to risk-based capital guidelines that measure capital relative to
risk-weighted assets and off-balance sheet instruments. WesBanco and the Bank
maintain Tier 1, Total Capital and Leverage ratios well above minimum regulatory
levels. There are various legal limitations under federal and state laws that
limit the payment of dividends from the Bank to the parent company. As of March
31, 2006, WesBanco could receive without prior regulatory approval a dividend
of
up to $7.4 million from the Bank.
The
following table summarizes risk-based capital amounts and ratios for WesBanco
and the Bank:
|
Minimum
|
Well
|
March
31, 2006
|
December
31, 2005
|
(Unaudited,
dollars in thousands)
|
Value
(1)
|
Capitalized
(2)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
WesBanco,
Inc.
|
|
|
|
|
|
|
Tier
1 Leverage
|
4.00%(3)
|
N/A
|
$
359,839
|
8.56%
|
$
360,260
|
8.46%
|
Tier
1 Capital to Risk-Weighted Assets
|
4.00%
|
6.00%
|
359,839
|
11.98%
|
360,260
|
11.94%
|
Total
Capital to Risk-Weighted Assets
|
8.00%
|
10.00%
|
392,262
|
13.06%
|
391,337
|
12.97%
|
|
|
|
|
|
|
|
WesBanco
Bank, Inc.
|
|
|
|
|
|
|
Tier
1 Leverage
|
4.00%
|
5.00%
|
357,729
|
8.53%
|
361,177
|
8.51%
|
Tier
1 Capital to Risk-Weighted Assets
|
4.00%
|
6.00%
|
357,729
|
11.97%
|
361,177
|
12.00%
|
Total
Capital to Risk-Weighted Assets
|
8.00%
|
10.00%
|
390,150
|
13.05%
|
392,251
|
13.03%
|
(1)
Minimum
requirements to remain adequately capitalized.
(2)
Well
capitalized under prompt corrective action regulations.
(3)
Minimum
requirement is 3% for certain highly-rated bank holding companies.
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 Asset/Liability Management
Committee (“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 and U.S. Treasury and government agency
securities maturing within three months are classified as secondary reserve
assets. These secondary reserve assets, combined with the cash flows from the
loan portfolio and the remaining sectors of the investment portfolio, and other
sources, adequately meet the liquidity requirements of WesBanco.
26
Securities
are the principal source of liquidity in total assets. Securities totaled $936.0
million at March 31, 2006, of which $558.0 million were classified as
available-for-sale. Approximately $200.0 million of securities
available-for-sale at book value were sold in April 2006, with an average life
of 2.5 years. At March 31, 2006, WesBanco had approximately $77.9 million in
securities scheduled to mature within one year compared to $12.8 million for
the
same period in 2005. Although additional cash flows may be anticipated from
approximately $103.4 million in callable bonds, which have call dates within
the
next year, at current interest rate levels, it is not anticipated these bonds
would be called, and a portion were included in the securities sale. At March
31, 2006, WesBanco had $100.3 million of cash and cash equivalents, a portion
of
which may also serve as additional sources of liquidity.
Deposit
flows are another principal factor affecting overall bank liquidity. Deposits
totaled $3.0 billion at March 31, 2006. Deposit flows are impacted by current
interest rates, products and rates offered by WesBanco versus its competition,
as well as customer behavior. Certificates of deposit scheduled to mature within
one year totaled $851.0 million at March 31, 2006. In addition to the relatively
stable core deposit base, the Bank maintains a line of credit with the FHLB
as
an additional funding source, which was $844.2 million as of March 31, 2006.
At
March 31, 2006, WesBanco had unpledged securities with a book value of $580.1
million that could be used for collateral or sold, excluding FHLB blanket liens
on WesBanco’s mortgage-related assets. After the securities sale most all of the
securities in the available-for-sale category will be pledged to various
municipalities for deposits and for customer repurchase agreements. Alternative
funding sources may include the issuance of additional junior subordinated
debt
within allowed capital guidelines, utilization of existing lines of credit
with
third party banks along with seeking other lines of credit, borrowings under
repurchase agreement lines, increasing deposit rates to attract additional
funds, accessing brokered deposits and/or selling either a limited portion
of
investment securities categorized as available-for-sale or certain loans, in
order to maintain adequate levels of liquidity.
The
principal sources of the Parent Company’s liquidity are dividends from the Bank,
as well as a revolving line of credit with another bank. There are various
legal
limitations under federal and state laws that limit the payment of dividends
from the Bank to the Parent Company. As of March 31, 2006, WesBanco could
receive without prior regulatory approval a dividend of up to $7.4 million
from
the Bank. Additional liquidity is provided by available lines of credit with
an
independent commercial bank and the Bank totaling $38.5 million, with total
outstanding balances of $10.5 million as of March 31, 2006.
At
March
31, 2006, WesBanco had outstanding commitments to extend credit in the ordinary
course of business approximating $526.7 million compared to $529.9 million
at
the December 31, 2005. On a historical basis, only a small portion of these
commitments will result in an outflow of funds.
Management
believes WesBanco has sufficient liquidity to meet current obligations to
borrowers, depositors and others.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The
disclosures set forth in this item are qualified by the section captioned
“Forward-Looking Statements” included in Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations, of this
report.
MARKET
RISK
The
primary objective of WesBanco’s asset/liability management (“ALM”) function is
to maximize net interest income within established policy risk 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 is defined as the risk of loss due to adverse changes in the fair value
of
financial instruments resulting from fluctuations in interest rates and equity
prices. 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.
WesBanco’s
ALCO, comprised of senior management, monitors and manages interest rate risk
within Board approved policy limits. Interest rate risk is monitored primarily
through the use of an earnings simulation model. The model is highly dependent
on assumptions, which change regularly as adjustments occur in the balance
sheet
and interest rates change. The key assumptions and strategies employed are
analyzed quarterly and reviewed by ALCO.
The
earnings simulation model projects changes in net interest income resulting
from
the effect of changes in interest rates. Certain shortcomings are inherent
in
the methodologies used in the earnings simulation model. Modeling changes in
net
interest income requires making certain assumptions regarding prepayment rates,
callable bonds, and adjustments to non-time deposit interest rates which may
or
may not reflect the manner in which actual yields and costs respond to changes
in market interest rates. Prepayment assumptions and adjustments to non-time
deposit rates at varying levels of interest rates are based primarily on
historical experience and current market rates. Security portfolio maturities
and prepayments are assumed to be reinvested in similar instruments and callable
bond forecasts are adjusted at varying levels of interest rates. While
management believes such assumptions are reasonable, there can be no assurance
that assumed prepayment rates, callable bond forecasts and non-time deposit
rate
changes will approximate actual future results. Moreover, the net interest
income sensitivity chart presented in Table 1, “Net Interest Income
Sensitivity,” assumes the composition of interest sensitive assets and
liabilities existing at the beginning of the period remains constant over the
period being measured and also assumes that a particular change in interest
rates is reflected uniformly across the yield curve regardless of the duration
of the maturity or re-pricing of specific assets and liabilities.
27
Since
the
assumptions used in modeling changes in interest rates 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.
Interest
rate risk policy limits are determined by measuring the anticipated change
in
net interest income over a 12-month period assuming an immediate and sustained
200 basis point increase or decrease in market interest rates compared to a
stable rate or base model. WesBanco’s current policy limits this exposure to +/-
10.0% of net interest income from the base model for a 12-month period. The
table below shows WesBanco’s interest rate sensitivity at March 31, 2006 and
December 31, 2005 assuming both a 200 and 100 basis point interest rate change,
compared to a base model.
TABLE
1. NET INTEREST INCOME SENSITIVITY
Interest
Rates
|
Net
Interest Income from Base over One Year
|
ALCO
|
(basis
points)
|
March
31, 2006
|
December
31, 2005
|
Guidelines
|
+200
|
(3.53%)
|
(3.80%)
|
+/-
10.0%
|
+100
|
(1.35%)
|
(1.42%)
|
N/A
|
-100
|
0.27%
|
(0.37%)
|
N/A
|
-200
|
(1.80%)
|
(2.85%)
|
+/-
10.0%
|
With
the
federal funds rate at 4.75% at March 31, 2006 (versus 2.75% at March 31, 2005
and 4.25% at December 31, 2005) and interest rates directionally increasing,
management believes that a decline of 200 basis points in rates is unlikely
over
the near term. The earnings simulation model projects that net interest income
for the next twelve month period would decrease by approximately 1.35% and
3.53%
if interest rates were to rise immediately by 100 and 200 basis points,
respectively. Net interest income would increase by approximately 0.27% and
decrease by 1.80% if interest rates were to decline by 100 and 200 basis points,
respectively. The decrease in liability sensitivity in a rising rate environment
between December 31, 2005 and March 31, 2006 is a result of changes in balance
sheet composition and a continued reduction in the size of the balance sheet.
These changes also favorably impacted WesBanco’s sensitivity to falling interest
rates. After March 31, 2006, WesBanco believes its exposure to rising interest
rates should improve by its implementation of a reduction in the size of the
balance sheet and paying down certain short-term borrowings.
As
an
alternative to the immediate rate shock analysis, the ALCO monitors interest
rate risk by ramping or increasing interest rates 200 basis points gradually
over a twelve month period. WesBanco’s current policy limits this exposure to
+/- 5.0% of net interest income from the base model for a twelve-month period.
Management believes that the ramping analysis reflects a more realistic movement
of interest rates, whereas the immediate rate shock reflects a worse case
scenario. The simulation model using the 200 basis point ramp analysis projects
that net interest income would decrease 0.90% over the next twelve months,
approximately the same as at December 31, 2005.
WesBanco’s
ALCO evaluates various strategies to reduce the exposure to interest rate
fluctuations. These strategies at March 31, 2006 emphasized reducing liability
sensitivity in anticipation of continued rising interest rates. Among the
strategies that are evaluated from time to time are the utilization of interest
rate swap agreements and the evaluation of the level and possible reduction
of
certain FHLB borrowings. The current interest rate swap agreements employed
by
WesBanco were purchased at various times in 2001 to effectively convert a
portion of prime rate money market deposits to a fixed rate basis. At March
31,
2006, the notional value of the interest rate swap agreements was $75.0 million,
compared to $77.4 million at December 31, 2005. Related market losses of
$0.2
million, net of tax, at March 31, 2006 compared to a market loss of $0.4
million, net of tax, at December 31, 2005, are recorded in other comprehensive
income. These swaps act to protect net interest income from a continued rise
in
money market deposit rates.
Other
strategies that have been evaluated by ALCO include managing the level of
WesBanco’s fixed rate residential real estate loans maintained in the loan
portfolio versus selling them in the secondary market, decreasing the size
of
the securities portfolio and improving overall yield as a result of the
aforementioned portfolio restructuring, emphasizing lower cost transaction-based
accounts, growing certificate of deposit products and using investment security
proceeds from maturities, calls and prepayments to fund loans and pay down
borrowings.
ITEM
4. CONTROLS AND PROCEDURES
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES—WesBanco’s
Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have
concluded that WesBanco’s disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended), based on their evaluation of these controls and procedures as of
the
end of the period covered by this Form 10-Q, are effective at the reasonable
assurance level as discussed below to ensure that information required to be
disclosed by WesBanco in the reports it files under the Securities Exchange
Act
of 1934, as amended, is recorded, processed, summarized and reported within
the
time periods specified in the rules and forms of the Securities and Exchange
Commission and that such information is accumulated and communicated to
WesBanco’s management, including its principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required
disclosure.
LIMITATIONS
ON THE EFFECTIVENESS OF CONTROLS—WesBanco’s
management, including the CEO and CFO, does not expect that WesBanco’s
disclosure controls and internal controls will prevent all errors and all fraud.
A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute assurance that the objectives of the control system
are
met. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
controls.
28
CHANGES
IN INTERNAL CONTROLS—There
were no changes in WesBanco’s internal control over financial reporting that
occurred during our fiscal quarter ended March 31, 2006, as required by
paragraph (d) of Rules 13a-15 and 15d-15 under the Securities Exchange Act
of
1934, that materially affected, or are reasonably likely to materially affect,
WesBanco’s internal control over financial reporting.
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
On
March 1, 2002, WesBanco consummated its acquisition of American
Bancorporation through a series of corporate mergers. At the time of the
consummation of this transaction, American Bancorporation was a defendant in
a
suit styled Martin, et al. v. The American Bancorporation Retirement Plan,
et
al., under Civil Action No. 5:2000-CV-168, pending in the United States
District Court for the Northern District of West Virginia. WesBanco became
the
principal defendant in this suit by reason of the merger. This case involves
a
class action suit against American Bancorporation by certain beneficiaries
of
the American Bancorporation Defined Benefit Retirement Plan (the “Plan”) seeking
to challenge benefit calculations and methodologies used by the Plan
Administrator in determining benefits under the Plan which was frozen by
American Bancorporation, as to benefit accruals, some years ago. The Plan had
been the subject of a prior action in a case styled American Bancorporation
Retirement Plan, et al. v. McKain, Civil Action No. 5:93-CV-110, which was
also litigated in the United States District Court for the Northern District
of
West Virginia. The McKain case resulted in an Order entered by the District
Court on September 22, 1995, which directed American Bancorporation to
follow a specific method for determining retirement benefits under the Plan.
American Bancorporation has asserted that it has calculated the benefits in
accordance with the requirements of the 1995 Order. The purported class of
plaintiffs has asserted that they are not bound by the 1995 Order since they
were not parties to that proceeding and are seeking a separate benefit
determination. The District Court in the current case limited the class of
plaintiffs to a group of approximately 37 individuals and granted partial
summary judgment to significantly reduce the scope and extent of the case.
The
Court subsequently granted summary judgment in favor of WesBanco on the
remaining claims on March 31, 2004, and the plaintiff appealed the decision
to the Fourth Circuit Court of Appeals.
The
Fourth Circuit Court of Appeals issued an opinion dated May 11, 2005, which
reversed the District Court’s earlier grant of summary judgment on behalf of
WesBanco, and remanded the case for further proceedings. The Appellate Court
reversed the District Court’s ruling that res judicata and collateral estoppel
were applicable under the circumstances which precluded the re-litigation of
matters previously decided by the District Court in the earlier 1995 case
involving the same pension plan. The parties subsequently filed renewed Motions
for Summary Judgment on the issues of the benefit calculation and plaintiffs’
claims under § 204(h) of ERISA in the District Court. The Magistrate Judge
assigned to the case issued a report and recommendation dated January 18,
2006, to the Court denying both parties’ Motions for Summary Judgment on the
benefit calculation issues but recommending to the Court a key finding of fact
on a material issue in the case. The key finding recommended would be to sustain
WesBanco’s position that a timely summary plan description was distributed to
plan participants addressing a benefit calculation consistent with the
methodology used by the Plan Administrator. The Court did subsequently deny
both
parties’ motions and declined to make the finding of fact recommended by the
Magistrate. The Court has not yet addressed the § 204(h) notice issue. WesBanco
continues to believe that it has meritorious defenses to the claims asserted
by
the plaintiffs in this proceeding.
On
August 1, 2002, WesBanco was named in a lawsuit filed by a former loan
customer of WesBanco’s banking subsidiary over a failed purchase of an ambulance
service enterprise operated by a local hospital. WesBanco’s banking subsidiary
was subsequently substituted as the named defendant in the case now styled
Matesic v. WesBanco Bank, Inc, et al., Civil Action No. 02-C-293(M),
pending in the Circuit Court of Ohio County, West Virginia. The suit alleges
numerous counts and claims against multiple defendants over the purchase and
subsequent failure of the ambulance service. Wesbanco Bank, Inc. (the “Bank”)
made a loan to the plaintiff’s company which became delinquent, and the Bank
recovered a portion of the loan through liquidation of pledged collateral.
Allegations of fraudulent conduct and tortuous interference are alleged against
the Bank. A second suit involving essentially the same issues was filed by
another party involved in the ambulance service, and this case is styled Ellis
v. OVMC, et al., Civil Action NO. 03-C-578(G). This case has been consolidated
with the Matesic case. Through discovery, the plaintiffs have been unable to
develop any substantiation for the allegations of the complaints and they have
agreed to dismiss the Bank as a party defendant in the consolidated case. It
is
anticipated that the Bank will be dismissed from the case in the near
future.
The
Bank
has also been involved in a case styled Copier Word Processing Supply, Inc.
v.
WesBanco, Inc., et al. under Civil Action No. 03-C-472, filed in the
Circuit Court of Wood County, West Virginia on October 8, 2003. The suit
alleges that a former office manager of the plaintiff converted checks payable
to the plaintiff by forging the endorsement of its President, endorsing the
instruments in her own right, and depositing such checks into her personal
account at the Bank. The Complaint alleges such misconduct over an undetermined
period and for an undetermined amount. The suit alleges negligence and
conversion claims against the Bank over the deposit of the checks. Through
continuing discovery, the Bank has identified a number of checks which were
deposited to the personal accounts of the former office manager over a period
of
approximately 10 years. The Circuit Court has applied a three year statute
of
limitations to the action and the plaintiff is seeking to extend the applicable
statute and the question has been certified to the West Virginia Supreme Court
for resolution.
The
Bank
believes that the accounting controls and practices of the plaintiff were
primarily at fault and substantially contributed to the loss. The plaintiff’s
employee had previously been convicted of criminal fraud and the Bank believes
that the failure of the plaintiff to supervise its employee, especially given
her prior record, substantially contributed to the loss. Under a comparative
fault analysis, the Bank believes that the plaintiff must bear a substantial
portion of the loss. Under West Virginia’s comparative fault procedures, if the
plaintiff is found to be more than 50% at fault, then the plaintiff may not
be
permitted a recovery at all in the case.
29
WesBanco
is also involved in other lawsuits, claims, investigations and proceedings
which
arise in the ordinary course of business. There are no such other matters
pending that WesBanco expects to be material in relation to its business,
financial condition or results of operations.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
As
of
March 31, 2006, WesBanco had two active one million share stock repurchase
plans, with the first having been approved by the Board of Directors on March
17, 2005 and the second, which is incremental to the first, having been approved
on January 19, 2006. The shares are purchased for general corporate purposes,
which may include potential acquisitions, shareholder 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.
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced
Plans
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plans
|
|
Balance
at December 31, 2005
|
|
|
|
138,161
|
|
January
1, 2006 to January 31, 2006 (1)
|
-
|
-
|
-
|
1,138,161
|
|
February
1, 2006 to February 28, 2006
|
39,200
|
$
31.39
|
39,200
|
1,098,961
|
|
March
1, 2006 to March 31, 2006
|
-
|
-
|
-
|
1,098,961
|
|
Total
|
39,200
|
$
31.39
|
39,200
|
1,098,961
|
|
|
|
|
|
|
|
(1)
Includes
impact of additional 1.0 million shares approved on January 19,
2006.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On
April
19, 2006, the Annual Meeting of the Stockholders of WesBanco, Inc. was held
in
Wheeling, WV. The following directors were elected to the Board of Directors
for
a term of three years expiring at the Annual Stockholders meeting in
2009:
|
For
|
|
Withheld
|
Ray
A. Byrd
|
16,316,189
|
|
947,563
|
James
D. Entress
|
16,358,257
|
|
905,495
|
Ernest
S. Fragale
|
15,913,789
|
|
1,349,962
|
Edward
M. George
|
16,388,618
|
|
875,133
|
Carter
W. Strauss
|
14,330,176
|
|
2,933,576
|
Reed
J. Tanner
|
16,366,208
|
|
897,543
|
The
following director was elected to the Board of Directors for a term of two
years
expiring at the Annual Stockholders meeting in 2008:
|
For
|
|
Withheld
|
Paul
M. Limbert
|
16,454,742
|
|
809,009
|
In
addition to voting to elect the aforementioned directors, WesBanco’s
stockholders voted to reject a proposal by Jewelcor Management, Inc. advocating
that the Board of Directors take the necessary steps to achieve a sale or merger
of the company. The results of the vote are as follows:
|
|
|
|
|
Broker
|
|
For
|
Against
|
Abstain
|
|
Non-Votes
|
Shareholder
Proposal
|
1,693,680
|
12,479,838
|
345,004
|
|
2,745,229
|
ITEM
6. EXHIBITS
|
|
31.1
|
Chief
Executive Officer’s Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
31.2
|
Chief
Financial Officer’s Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.1
|
Chief
Executive Officer’s and Chief Financial Officer’s Certification Pursuant
to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the
Sarbanes-Oxley Act of 2002.
|
30
SIGNATURES
Pursuant
to the requirement of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
WESBANCO,
INC.
|
|
|
|
|
|
|
Date:
May 8, 2006
|
|
/s/
Paul M. Limbert |
|
|
Paul
M. Limbert
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
|
Date:
May 8, 2006
|
|
/s/
Robert H. Young |
|
|
Robert
H. Young
|
|
|
Executive
Vice President and Chief Financial Officer
|
|
|
|
31