10-Q 3-31-07
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, 2007
|
|
|
¨
|
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 30, 2007, there were 20,899,540 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 March 31, 2007 (unaudited) and December 31,
2006
|
3
|
|
Consolidated
Statements of Income for the three months ended March 31, 2007
and 2006
(unaudited)
|
4
|
|
Consolidated
Statements of Changes in Shareholders' Equity for the three months
ended
March 31, 2007 and 2006 (unaudited)
|
5
|
|
Consolidated
Statements of Cash Flows for the three months ended March 31,
2007 and
2006 (unaudited)
|
6
|
|
Notes
to Consolidated Financial Statements
|
7
|
|
|
|
2
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
14
|
|
|
|
3
|
Quantitative
and Qualitative Disclosures About Market Risk
|
26
|
|
|
|
4
|
Controls
and Procedures
|
27
|
|
|
|
|
PART
II – OTHER INFORMATION
|
|
1
|
Legal
Proceedings
|
28
|
|
|
|
2
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
28
|
|
|
|
4
|
Submission
of Matters to a Vote of Security Holders.
|
28
|
|
|
|
6
|
Exhibits
|
29
|
|
|
|
|
Signatures
|
30
|
2
PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
WESBANCO,
INC. CONSOLIDATED BALANCE SHEETS
|
|
|
|
March
31,
|
December
31,
|
(in
thousands, except per share amounts)
|
2007
|
2006
|
|
(unaudited)
|
|
ASSETS
|
|
|
Cash
and due from banks, including interest bearing amounts of $1,109
and $1,217, respectively
|
$
77,233
|
$
96,605
|
Federal
funds sold
|
40,000
|
-
|
Securities:
|
|
|
Available-for-sale, at fair value
|
748,884
|
395,520
|
Held-to-maturity (fair values of $0
and $347,391, respectively)
|
-
|
341,187
|
Total securities
|
748,884
|
736,707
|
Loans
held for sale
|
4,746
|
3,170
|
Portfolio
loans:
|
|
|
Commercial
|
390,228
|
409,347
|
Commercial real estate
|
1,153,327
|
1,165,823
|
Residential real estate
|
870,544
|
896,533
|
Home equity
|
156,784
|
161,602
|
Consumer
|
267,593
|
274,908
|
Total
portfolio loans, net of unearned income
|
2,838,476
|
2,908,213
|
Allowance
for loan losses
|
(31,757)
|
(31,979)
|
Net portfolio loans
|
2,806,719
|
2,876,234
|
Premises
and equipment, net
|
67,507
|
67,404
|
Accrued
interest receivable
|
19,036
|
19,180
|
Goodwill
and other intangible assets, net
|
144,552
|
145,147
|
Bank-owned
life insurance
|
83,226
|
82,473
|
Other
assets
|
68,631
|
71,223
|
Total
Assets
|
$
4,060,534
|
$
4,098,143
|
|
|
|
LIABILITIES
|
|
|
Deposits:
|
|
|
Non-interest bearing demand
|
$
387,877
|
$
401,909
|
Interest bearing demand
|
351,532
|
356,088
|
Money market
|
367,205
|
354,082
|
Savings deposits
|
439,264
|
441,226
|
Certificates of deposit
|
1,450,416
|
1,442,242
|
Total deposits
|
2,996,294
|
2,995,547
|
Federal
Home Loan Bank borrowings
|
363,958
|
358,907
|
Other
short-term borrowings
|
162,072
|
202,561
|
Junior
subordinated debt owed to unconsolidated subsidiary trusts
|
87,638
|
87,638
|
Total borrowings
|
613,668
|
649,106
|
Accrued
interest payable
|
10,335
|
10,174
|
Other
liabilities
|
30,538
|
26,441
|
Total
Liabilities
|
3,650,835
|
3,681,268
|
|
|
|
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: 20,948,040
shares in 2007 and 21,496,793 shares in 2006
|
49,200
|
49,200
|
Capital
surplus
|
123,202
|
123,170
|
Retained
earnings
|
322,307
|
316,457
|
Treasury
stock (2,667,819
and 2,119, 066 shares, respectively, at cost)
|
(79,244)
|
(61,855)
|
Accumulated
other comprehensive loss
|
(4,585)
|
(8,863)
|
Deferred
benefits for directors and employees
|
(1,181)
|
(1,234)
|
Total
Shareholders' Equity
|
409,699
|
416,875
|
Total
Liabilities and Shareholders' Equity
|
$
4,060,534
|
$
4,098,143
|
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)
|
|
|
|
|
2007
|
|
2006
|
INTEREST
AND DIVIDEND INCOME
|
|
|
|
|
|
|
|
Loans, including fees
|
|
|
|
|
$
48,269
|
|
$
45,732
|
Interest and dividends on securities:
|
|
|
|
|
|
|
|
Taxable
|
|
|
|
|
4,778
|
|
5,959
|
Tax-exempt
|
|
|
|
|
3,737
|
|
4,308
|
Total interest and dividends on
securities
|
|
|
|
|
8,515
|
|
10,267
|
Federal funds sold
|
|
|
|
|
108
|
|
-
|
Other interest income
|
|
|
|
|
301
|
|
448
|
Total interest and dividend
income
|
|
|
|
|
57,193
|
|
56,447
|
INTEREST
EXPENSE
|
|
|
|
|
|
|
|
Interest bearing demand deposits
|
|
|
|
|
1,021
|
|
546
|
Money market deposits
|
|
|
|
|
2,190
|
|
2,195
|
Savings deposits
|
|
|
|
|
1,500
|
|
1,276
|
Certificates of deposit
|
|
|
|
|
15,679
|
|
12,493
|
Total interest expense on
deposits
|
|
|
|
|
20,390
|
|
16,510
|
Federal Home Loan Bank borrowings
|
|
|
|
|
3,310
|
|
5,358
|
Other short-term borrowings
|
|
|
|
|
2,092
|
|
2,242
|
Junior subordinated debt owed to unconsolidated subsidiary
trusts
|
|
|
|
|
1,408
|
|
1,354
|
Total interest expense
|
|
|
|
|
27,200
|
|
25,464
|
NET
INTEREST INCOME
|
|
|
|
|
29,993
|
|
30,983
|
Provision for loan losses
|
|
|
|
|
1,460
|
|
2,640
|
Net
interest income after provision for loan losses
|
|
|
|
|
28,533
|
|
28,343
|
NON-INTEREST
INCOME
|
|
|
|
|
|
|
|
Trust fees
|
|
|
|
|
4,338
|
|
4,058
|
Service charges on deposits
|
|
|
|
|
3,883
|
|
3,797
|
Bank-owned life insurance
|
|
|
|
|
748
|
|
729
|
Net securities gains (losses)
|
|
|
|
|
678
|
|
(7,942)
|
Net gains on sales of loans
|
|
|
|
|
336
|
|
43
|
Other income
|
|
|
|
|
3,253
|
|
4,729
|
Total non-interest income
|
|
|
|
|
13,236
|
|
5,414
|
NON-INTEREST
EXPENSE
|
|
|
|
|
|
|
|
Salaries and wages
|
|
|
|
|
10,182
|
|
9,904
|
Employee benefits
|
|
|
|
|
3,696
|
|
3,512
|
Net occupancy
|
|
|
|
|
2,003
|
|
2,013
|
Equipment
|
|
|
|
|
1,902
|
|
2,030
|
Marketing
|
|
|
|
|
622
|
|
1,073
|
Amortization of intangible assets
|
|
|
|
|
596
|
|
633
|
Restructuring expenses
|
|
|
|
|
-
|
|
540
|
Other operating expenses
|
|
|
|
|
7,384
|
|
7,107
|
Total non-interest expense
|
|
|
|
|
26,385
|
|
26,812
|
Income
before provision for income taxes
|
|
|
|
|
15,384
|
|
6,945
|
Provision for income taxes
|
|
|
|
|
3,437
|
|
1,361
|
NET
INCOME
|
|
|
|
|
$
11,947
|
|
$
5,584
|
EARNINGS
PER SHARE
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
$
0.56
|
|
$
0.25
|
Diluted
|
|
|
|
|
$
0.56
|
|
$
0.25
|
AVERAGE
SHARES OUTSTANDING
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
21,271,328
|
|
21,937,948
|
Diluted
|
|
|
|
|
21,325,166
|
|
21,998,750
|
DIVIDENDS
DECLARED PER COMMON SHARE
|
|
|
|
|
$
0.275
|
|
$
0.265
|
See
Notes
to Consolidated Financial Statements.
4
WESBANCO,
INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended March 31, 2007 and 2006
|
|
|
|
|
|
|
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
|
Balance,
December 31, 2005
|
21,955,359
|
$
49,200
|
$
122,345
|
$
300,452
|
$
(47,769)
|
$
(7,875)
|
$
(1,123)
|
$
415,230
|
Net
income
|
|
|
|
5,584
|
|
|
|
5,584
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
21,496,793
|
$
49,200
|
$
123,170
|
$
316,457
|
$
(61,855)
|
$
(8,863)
|
$
(1,234)
|
$
416,875
|
Net
income
|
|
|
|
11,947
|
|
|
|
11,947
|
Other
comprehensive income
|
|
|
|
|
|
4,278
|
|
4,278
|
Comprehensive
income
|
|
|
|
|
|
|
|
16,225
|
Common
dividends
|
|
|
|
|
|
|
|
|
declared
($0.275 per share)
|
|
|
|
(5,799)
|
|
|
|
(5,799)
|
Treasury
shares purchased
|
(560,253)
|
|
|
|
(17,675)
|
|
|
(17,675)
|
Treasury
shares sold
|
11,500
|
|
-
|
|
286
|
|
|
286
|
Cumulative
effect of change in accounting
|
|
|
|
|
|
|
|
|
for
uncertainties in income taxes
|
|
|
|
(298)
|
|
|
|
(298)
|
Tax
benefit from employee benefit plans
|
|
|
34
|
|
|
|
|
34
|
Recognition
of stock compensation
|
|
|
51
|
|
|
|
|
51
|
Deferred
benefits for directors – net
|
|
|
(53)
|
|
|
|
53
|
-
|
March
31, 2007
|
20,948,040
|
$49,200
|
$
123,202
|
$
322,307
|
$(79,244)
|
$
(4,585)
|
$
(1,181)
|
$
409,699
|
|
|
|
|
|
|
|
|
|
There
was no activity in Preferred Stock during the three months ended
March 31,
2007 and 2006.
|
See
Notes
to Consolidated Financial Statements.
5
WESBANCO,
INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
For
the Three Months Ended
|
|
|
March
31,
|
(Unaudited,
in thousands)
|
|
2007
|
2006
|
OPERATING
ACTIVITIES:
|
|
|
|
Net
income
|
|
$
11,947
|
$
5,584
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
Depreciation
|
|
1,398
|
1,382
|
Net accretion
|
|
(251)
|
(1,014)
|
Provision for loan losses
|
|
1,460
|
2,640
|
Net securities (gains) losses
|
|
(678)
|
7,942
|
Net gains on sales of loans
|
|
(336)
|
(43)
|
Excess tax benefits from stock-based compensation
arrangements
|
|
(34)
|
(49)
|
Deferred income taxes
|
|
263
|
(758)
|
Increase in cash surrender value of bank-owned life
insurance
|
|
(753)
|
(729)
|
Loans originated for sale
|
|
(24,101)
|
(14,190)
|
Proceeds from the sale of loans originated for sale
|
|
22,860
|
10,310
|
Change in: other assets and accrued interest receivable
|
|
(132)
|
(579)
|
Change in: other liabilities and accrued interest payable
|
|
3,482
|
5,745
|
Other – net
|
|
(537)
|
(2,271)
|
Net
cash provided by operating activities
|
|
14,588
|
13,970
|
INVESTING
ACTIVITIES:
|
|
|
|
Securities
available-for-sale:
|
|
|
|
Proceeds from sales
|
|
1,213
|
8,935
|
Proceeds from maturities, prepayments and calls
|
|
59,542
|
32,259
|
Purchases of securities
|
|
(71,630)
|
(1,043)
|
Securities
held-to-maturity:
|
|
|
|
Proceeds from maturities, prepayments and calls
|
|
6,754
|
12,157
|
Purchases of securities
|
|
(200)
|
(532)
|
Sale
of branches, net of cash
|
|
-
|
(16,741)
|
Net
decrease (increase) in loans
|
|
68,089
|
(11,177)
|
(Sales)
purchases of premises and equipment – net
|
|
(532)
|
772
|
Net
cash provided by investing activities
|
|
63,236
|
24,630
|
FINANCING
ACTIVITIES:
|
|
|
|
Increase
in deposits
|
|
734
|
2,005
|
Increase
(decrease) in Federal Home Loan Bank borrowings
|
|
5,610
|
(37,302)
|
Increase
(decrease) in other short-term borrowings
|
|
9,512
|
(51,864)
|
(Decrease)
increase in federal funds purchased
|
|
(50,000)
|
45,000
|
Excess
tax benefits from stock-based compensation arrangements
|
|
34
|
49
|
Dividends
paid
|
|
(5,696)
|
(5,737)
|
Treasury
shares purchased – net
|
|
(17,390)
|
(1,063)
|
Net
cash used in financing activities
|
|
(57,196)
|
(48,912)
|
Net
increase (decrease) in cash and cash equivalents
|
|
20,628
|
(10,312)
|
Cash
and cash equivalents at beginning of the period
|
|
96,605
|
110,608
|
Cash
and cash equivalents at end of the period
|
|
$
117,233
|
$
100,296
|
SUPPLEMENTAL
DISCLOSURES:
|
|
|
|
Interest
paid on deposits and other borrowings
|
|
$
27,039
|
$
25,439
|
Income
taxes paid
|
|
-
|
750
|
Transfers
of loans to other real estate owned
|
|
315
|
1,347
|
Transfers
of held to maturity securities to available for sale
securities
|
|
340,767
|
-
|
|
|
|
|
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, 2006.
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 2006 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.
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 under certain
specified circumstances, 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 was
effective for WesBanco as of January 1, 2007 and did not 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 assets.
This statement was effective for WesBanco as of January 1, 2007 and did not
have
a significant impact on WesBanco’s financial position or results of operations,
as WesBanco retained the amortized cost method as its method of accounting
for
servicing-related assets.
In
July
2006, the FASB issued Interpretation No. 48 (“FIN 48”), Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.”
FIN 48 clarifies the application of SFAS No. 109 to the accounting for
income taxes by prescribing the minimum threshold a tax position must meet
before being recognized in the financial statements. Under FIN 48, the financial
statement effects of a tax position are initially recognized when it is more
likely than not (likelihood of occurrence is greater than 50 percent), based
on
its technical merits, the position will be sustained upon examination. A
tax
position that meets the more likely than not recognition threshold is initially
and subsequently measured as the largest amount of benefit, determined on
a
cumulative probability basis, that is more likely than not to be realized
upon
ultimate settlement with the taxing authority. This interpretation was effective
for WesBanco as of January 1, 2007 and did not have a significant impact
on
WesBanco’s financial position or results of operations. For further
information, see Note 8, Income Taxes.
RECENT
ACCOUNTING PRONOUNCEMENTS—In September, 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements,” which defines, and provides guidance as
to the measurement of, fair value. This statement creates a hierarchy of
measurement and indicates that, when possible, fair value is the price that
would be received to sell an asset or paid to transfer a liability in an
orderly
transaction between market participants. SFAS No. 157 applies when assets
or liabilities in the financial statements are to be measured at fair value,
but
does not require additional use of fair value beyond the requirements in
other
accounting principles. The statement is effective for fiscal years beginning
after November 15, 2007 and is not expected to have a significant impact on
WesBanco’s financial position or results of operations.
In
February, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities,” which permits companies to report
certain financial assets and financial liabilities at fair value. SFAS 159
is effective for fiscal years beginning after November 15, 2007.
WesBanco can elect to apply the standard prospectively and measure certain
financial instruments at fair value beginning January 1, 2008. WesBanco is
currently evaluating the guidance contained in SFAS 159, and has yet to
determine which assets or liabilities (if any) will be selected. At
adoption, the difference between the carrying amount and the fair value of
existing eligible assets and liabilities selected (if any) would be recognized
via a cumulative adjustment to beginning retained earnings on January 1,
2008.
7
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)
|
|
|
|
|
2007
|
|
2006
|
Numerator
for both basic and diluted earnings per share:
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
$
11,947
|
|
$
5,584
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Total
average basic common shares outstanding
|
|
|
|
|
21,271,328
|
|
21,937,948
|
Effect
of dilutive stock options
|
|
|
|
|
53,838
|
|
60,802
|
Total
diluted average common shares outstanding
|
|
|
|
|
21,325,166
|
|
21,998,750
|
|
|
|
|
|
|
|
|
Earnings
per share - basic
|
|
|
|
|
$
0.56
|
|
$
0.25
|
Earnings
per share - diluted
|
|
|
|
|
$
0.56
|
|
$
0.25
|
NOTE
3. SECURITIES
Effective March 31, 2007 all held-to-maturity securities were
transferred to available-for-sale. The securities were transferred to
increase the level of securities available to pledge as collateral
to support
municipal deposits and other deposits and borrowings that may require
pledged
collateral. The securities transferred were obligations of states and
political subdivisions which have only limited use as pledged collateral
due to
regulatory and other restrictions. Some securities transferred had a cost
basis in excess of fair value. Management has the intent and ability to
hold the securities until recovery of their cost. Upon recovery,
management may sell securities and purchase securities that can be
better
utilized as pledged collateral. The amortized cost of the transferred
securities, at the date of transfer, was $334.9 million; and the pre-tax
gain
recognized in other comprehensive income relating to the transfer was
$5.8
million. WesBanco does not intend to use the held-to-maturity security
classification in the foreseeable future for purchased 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)
|
2007
|
|
2006
|
Securities
available-for-sale (at fair value):
|
|
|
|
Other
government agencies and corporations
|
$
103,201
|
|
$
117,066
|
Mortgage-backed
securities
|
282,110
|
|
254,703
|
Obligations
of states and political subdivisions
|
358,376
|
|
17,586
|
Corporate
equity securities
|
5,197
|
|
6,165
|
Total
securities available-for-sale
|
748,884
|
|
395,520
|
Securities
held-to-maturity (at amortized cost):
|
|
|
|
Obligations
of states and political subdivisions
|
-
|
|
341,187
|
Total
securities
|
$
748,884
|
|
$
736,707
|
At
March
31, 2007 and December 31, 2006, 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 $302.2 million and $329.6 million and aggregate
carrying values of $302.0 million and $329.7 million at March 31, 2007 and
December 31, 2006, respectively, were pledged to secure public and trust
funds.
Proceeds from the sale of available-for-sale securities were $1.2 million
and
$8.9 million for the three months ended March 31, 2007 and 2006,
respectively.
For
the
three months ended March 31, 2007 realized gains on available-for-sale
securities were $678 thousand and realized losses were zero. 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
of
$8.0 million recognized in the first quarter, realized losses on
available-for-sale securities were zero.
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, 2007 and December 31, 2006:
|
March
31, 2007
|
|
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
|
Other
government agencies and corporations
|
$
-
|
$ -
|
-
|
$
71,201
|
$ (941)
|
13
|
$
71,201
|
$
(941)
|
13
|
Mortgage-backed
securities
|
57,104
|
(275)
|
6
|
156,548
|
(4,310)
|
69
|
213,652
|
(4,585)
|
75
|
Obligations
of states and political subdivisions
|
1,801
|
(2)
|
6
|
65,831
|
(1,003)
|
157
|
67,632
|
(1,005)
|
163
|
Total
temporarily impaired securities
|
$
58,905
|
$
(277)
|
12
|
$
293,580
|
$
(6,254)
|
239
|
$
352,485
|
$
(6,531)
|
251
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
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
|
Other
government agencies and corporations
|
$
-
|
$ -
|
-
|
$ 102,066
|
$ (1,108)
|
18
|
$ 102,066
|
$ (1,108)
|
18
|
Mortgage-backed
securities
|
80,305
|
(651)
|
10
|
162,053
|
(5,291)
|
69
|
242,358
|
(5,942)
|
79
|
Obligations
of states and political subdivisions
|
4,478
|
(12)
|
8
|
67,772
|
(1,084)
|
166
|
72,250
|
(1,096)
|
174
|
Total
temporarily impaired securities
|
$ 84,783
|
$ (663)
|
18
|
$ 331,891
|
$ (7,483)
|
253
|
$ 416,674
|
$ (8,146)
|
271
|
Total
unrealized pre-tax gains and losses on available-for-sale securities (fair
value
adjustments) reflected a $1.8 million market gain as of March 31, 2007, which
includes the gain of $5.8 million from the securities transferred from
held-to-maturity, compared to a $5.1 million market loss as of December 31,
2006. 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. 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 broad interest
indices. WesBanco has the ability and intent to hold the noted loss
position securities for a period of time sufficient for a recovery of
cost. Accordingly, WesBanco believes the unrealized losses in its
available-for-sale securities portfolio at March 31, 2007 are temporary and
no
other-than-temporary impairment losses have been recognized in the Consolidated
Statements of Income for the first quarter of 2007.
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 $4.4 million at March 31, 2007 and $4.5 million at December 31, 2006.
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)
|
2007
|
2006
|
Balance,
at beginning of period
|
$
31,979
|
$
30,957
|
Provision
for loan losses
|
1,460
|
2,640
|
Charge-offs
|
(2,225)
|
(1,844)
|
Recoveries
|
543
|
538
|
Balance,
at end of period
|
$
31,757
|
$
32,291
|
|
|
|
|
March
31,
|
December
31,
|
(Unaudited,
in thousands)
|
2007
|
2006
|
Non-accrual
loans
|
$
12,126
|
$
16,154
|
Other
impaired loans
|
1,817
|
2,992
|
Total
impaired loans
|
$
13,943
|
$
19,146
|
|
|
|
|
March
31,
|
December
31,
|
(Unaudited,
in thousands)
|
2007
|
2006
|
Balance
of impaired loans with no allocated allowance for loan
losses
|
$
9,382
|
$
10,629
|
Balance
of impaired loans with an allocated allowance for loan
losses
|
4,561
|
8,517
|
Total
impaired loans
|
$
13,943
|
$
19,146
|
|
|
|
Allowance
for loan losses allocated to impaired loans
|
$
985
|
$
1,274
|
9
At
March
31, 2007 and December 31, 2006, WesBanco had no material commitments to lend
additional funds to debtors whose loans were classified as
impaired.
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, 2007 and December 31, 2006
WesBanco had FHLB borrowings of $364.0 million and $358.9 million, respectively,
with a weighted-average interest rate of 3.96% and 3.77%, respectively.
Included in FHLB borrowings at March 31, 2007 are $107.1 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 $21.2 million at March 31, 2007 and $21.6 million at December 31,
2006 is also pledged as collateral on these advances. The remaining maximum
borrowing capacity with the FHLB at March 31, 2007 and December 31, 2006
was $1,055.3 million and $1,048.5 million, respectively.
Certain
FHLB advances contain call features, which allow the FHLB to call the
outstanding balance or 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 will be called depends primarily on the level of related
interest rates during the call period. Of the $364.0 million outstanding
at March 31, 2007, $206.0 million in FHLB convertible advances are subject
to
call or conversion to a variable rate advance by the FHLB. Approximately
$62.6 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 not
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, 2007 based on their contractual
maturity dates and effective interest rates:
Year
(unaudited,
in thousands)
|
Maturity
|
Average
Rate
|
2007
|
$
112,140
|
3.39%
|
2008
|
43,769
|
3.32%
|
2009
|
80,887
|
4.21%
|
2010
|
99,348
|
4.67%
|
2011
|
10,550
|
3.50%
|
2012
and thereafter
|
17,264
|
5.85%
|
Total
|
$
363,958
|
3.96%
|
NOTE
6. OTHER SHORT-TERM BORROWINGS
Other
short-term borrowings are comprised of the following:
|
March
31,
|
December
31,
|
(Unaudited,
in thousands)
|
2007
|
2006
|
Federal
funds purchased
|
$
-
|
$
50,000
|
Securities
sold under agreements to repurchase
|
135,838
|
142,591
|
Treasury
tax and loan notes and other
|
234
|
1,933
|
Revolving
line of credit
|
26,000
|
8,037
|
Total
|
$
162,072
|
$
202,561
|
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)
|
|
|
|
|
2007
|
|
2006
|
Service
cost – benefits earned during year
|
|
|
|
|
$
603
|
|
$
620
|
Interest
cost on projected benefit obligation
|
|
|
|
|
745
|
|
708
|
Expected
return on plan assets
|
|
|
|
|
(1,066)
|
|
(929)
|
Amortization
of prior service cost
|
|
|
|
|
(29)
|
|
(36)
|
Amortization
of net loss
|
|
|
|
|
190
|
|
292
|
Net
periodic pension cost
|
|
|
|
|
$
443
|
|
$
655
|
10
There
is
no minimum contribution due for 2007, however as a result of the passage
of the
Pension Protection Act of 2006, WesBanco is evaluating its practice prior
to
2006 of contributing the maximum tax deductible contribution and will not
make a
funding decision until December, 2007 or later.
NOTE
8. INCOME TAXES
WesBanco
adopted the provisions of Financial Accounting Standards Board Interpretation
No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”) on January 1,
2007. As a result of the implementation of FIN 48, a cumulative-effect
adjustment of $0.3 million was recorded, reducing the January 1, 2007 balance
of
retained earnings while increasing the net liability for unrecognized tax
benefits and interest. WesBanco does not expect that the amounts of unrecognized
tax benefits will change significantly within the next 12 months.
At
the
adoption date of January 1, 2007, there was approximately $1.8 million
of
unrecognized tax benefits and interest. Of that amount, $0.9 million would
affect the effective tax rate if recognized. There was no change in the
unrecognized tax benefits or interest during the three months ended March
31,
2007.
As
of
March 31, 2007, the amount of accrued interest related to uncertain tax
positions was $0.3 million. WesBanco accounts for interest and penalties
related
to uncertain tax positions as part of its provision for federal and state
income
taxes.
The
tax
years 2003-2006 remain open to examination by the major taxing jurisdictions
to
which we are subject.
NOTE
9. COMPREHENSIVE INCOME
The components of other comprehensive income are as follows:
|
|
|
|
|
For
the Three Months
|
|
|
|
|
|
Ended
March 31,
|
(Unaudited,
in thousands)
|
|
|
|
|
2007
|
|
2006
|
Net
Income
|
|
|
|
|
$
11,947
|
|
$
5,584
|
Securities
available-for-sale:
|
|
|
|
|
|
|
|
Unrealized gains from transfer of securities from held-to-maturity
to
available for sale
|
|
|
|
|
5,817
|
|
-
|
Related
income tax (expense) benefit (1)
|
|
|
|
|
(2,298)
|
|
-
|
Net change in unrealized gains (losses) on securities
available-for-sale
|
|
|
|
|
1,770
|
|
(4,701)
|
Related income tax (expense) benefit (1)
|
|
|
|
|
(699)
|
|
1,857
|
Net securities (gains) losses reclassified into earnings
|
|
|
|
|
(678)
|
|
7,942
|
Related income tax expense (benefit) (1)
|
|
|
|
|
268
|
|
(3,137)
|
Net effect on other comprehensive income for the period
|
|
|
|
|
4,180
|
|
1,961
|
|
|
|
|
|
|
|
|
Cash
flow hedge derivatives:
|
|
|
|
|
|
|
|
Net
change in unrealized gains (losses) on derivatives
|
|
|
|
|
10
|
|
368
|
Related income tax (expense) benefit
(1)
|
|
|
|
|
(4)
|
|
(146)
|
Net derivative (gains) losses reclassified into earnings
|
|
|
|
|
-
|
|
(3)
|
Related income tax expense (benefit) (1)
|
|
|
|
|
-
|
|
1
|
Net effect on other comprehensive income for the period
|
|
|
|
|
6
|
|
220
|
|
|
|
|
|
|
|
|
Defined
benefit pension plan
|
|
|
|
|
|
|
|
Amortization of prior service costs
|
|
|
|
|
(29)
|
|
-
|
Related income tax expense (benefit) (1)
|
|
|
|
|
11
|
|
-
|
Amortization of unrealized loss
|
|
|
|
|
181
|
|
-
|
Related
income tax expense (benefit) (1)
|
|
|
|
|
(71)
|
|
-
|
Net effect on other comprehensive income for the period
|
|
|
|
|
92
|
|
-
|
Total
other comprehensive income
|
|
|
|
|
4,278
|
|
2,181
|
Comprehensive
income
|
|
|
|
|
$
16,225
|
|
$
7,765
|
(1)
Related income tax expense (benefit) calculated using a combined Federal
and
State income tax rate of approximately 40%.
11
The
activity in accumulated other comprehensive income for the three months
ended
March 31, 2007 and 2006 is as follows:
|
|
|
|
|
Net
Unrealized Gains
|
|
|
|
|
|
Unrealized
|
|
(Losses)
on Derivative
|
|
|
|
Defined
|
|
Gains
(Losses)
|
|
Instruments
Used in
|
|
|
|
Benefit
|
|
on
Securities
|
|
Cash
Flow Hedging
|
|
|
(Unaudited,
in thousands)
|
Pension
Plan
|
|
Available-for-Sale
|
|
Relationships
|
|
Total
|
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)
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2007
|
$ (5,686)
|
|
$
(3,118)
|
|
$
(59)
|
|
$
(8,863)
|
Period
change, net of tax
|
92
|
|
4,180
|
|
6
|
|
4,278
|
Balance
at March 31, 2007
|
$ (5,594)
|
|
$
1,062
|
|
$
(53)
|
|
$
(4,585)
|
Unrealized
gains on securities transferred from the held-to-maturity portfolio into
the
available-for-sale portfolio increased comprehensive income by $3.5 million
after tax in the first quarter of 2007. See Note 3. Securities, for additional
information on this transfer.
NOTE
10. 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 similar 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, 2007 and December 31,
2006.
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. The liability associated with standby
letters
of credit is recorded at its estimated fair value of $0.2 million as of
March
31, 2007 and December 31, 2006 and is included in other liabilities on
the
Consolidated Balance Sheets.
The following table presents total commitments and standby letters of credit
outstanding:
|
March
31,
|
December
31,
|
(Unaudited,
in thousands)
|
2007
|
2006
|
Commitments
to extend credit
|
$
558,829
|
$
528,888
|
Standby
letters of credit
|
44,478
|
44,168
|
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
11. STOCK-BASED COMPENSATION
WesBanco
sponsors a Key Executive Incentive Bonus and Option Plan (the “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. Under
the
terms of the Plan, 0.3 million shares remain available for issuance. Stock
options are granted by, and at the discretion of the Compensation Committee
of
the Board of Directors and may be either time or 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.
12
The
following table presents stock option activity for the three months ended
March
31, 2007:
|
|
|
|
|
|
|
|
|
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, 2007
|
403,253
|
$
24.75
|
|
|
Granted
|
-
|
-
|
|
|
Exercised
|
(11,500)
|
24.88
|
|
|
Expired
|
-
|
-
|
|
|
Forfeited
|
-
|
-
|
|
|
Outstanding
at March 31, 2007
|
391,753
|
$
24.74
|
6.07
|
$
2,401
|
Vested
and exercisable at March 31, 2007
|
294,205
|
$
23.13
|
5.22
|
$
2,277
|
There were no options awarded in the first quarter of 2007.
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 $3.0 billion and $2.9 billion at March 31, 2007
and
2006, 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
|
|
|
|
|
Income
Statement Data
|
|
|
|
For
the Three Months ended March 31, 2007:
|
|
|
|
Interest
income
|
$
57,193
|
$
-
|
$
57,193
|
Interest
expense
|
27,200
|
-
|
27,200
|
Net
interest income
|
29,993
|
-
|
29,993
|
Provision
for loan losses
|
1,460
|
-
|
1,460
|
Net
interest income after provision for loan losses
|
28,533
|
-
|
28,533
|
Non-interest
income
|
8,898
|
4,338
|
13,236
|
Non-interest
expense
|
23,964
|
2,421
|
26,385
|
Income
before provision for income taxes
|
13,467
|
1,917
|
15,384
|
Provision
for income taxes
|
2,670
|
767
|
3,437
|
Net
income
|
$
10,797
|
$
1,150
|
$
11,947
|
|
|
|
|
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
|
Total
assets of the trust and investment services segment were $6.6 million and
$5.5
million at March 31, 2007 and 2006, respectively. All goodwill and other
intangible assets, mortgage servicing rights and net deferred tax assets
were
allocated to the community banking segment.
13
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. 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, 2006 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 Part I, Item
1A. 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; fraud, scams and schemes
of third
parties; internet hacking; 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,
2007 have remained unchanged from the disclosures presented in WesBanco’s Annual
Report on Form 10-K for the year ended December 31, 2006 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 78 banking offices,
one
loan production office and 111 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 affected 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, 2007 increased 114.0% to $11.9
million or $0.56 per diluted share compared to $5.6 million or $0.25 per
diluted
share for the first quarter of 2006.
The
first
quarter results reflected improvements primarily as a result of increases
in
non-interest income (with 2006 significantly impacted by an impairment
loss on
securities totaling $8.0 million and a $2.5 million branch sale gain) and
a
reduced loan loss provision. In addition, improvement in the net interest
margin
from the 2006 balance sheet repositioning limited the first quarter overall
reduction in net interest income. The margin increased to 3.56% from 3.40%
in
the first quarter of 2006.
Increases
in trust fee income, realized gains on sales of securities, gains on sale
of
loans originated for sale and recognition of a deferred gain on the sale
of a
branch facility provided improvements in non-interest income. The reduction
in
the provision for loan losses reflects a decrease in non-performing loans
in the
first quarter from paydowns and credit improvements relating to loans previously
classified as non-performing. These improvements more then offset a 3.2%
decline
in net interest income.
On
a
diluted per share basis, core operating earnings (See “Non-GAAP measures”) were
$0.53 per share for the quarter, a 26.2% increase over $0.42 per share
in 2006.
Net income for the first quarter of 2007 included a $0.6 million after-tax
gain
from the recognition of a deferred gain on the sale of a branch facility
in
2004, and for 2006 included a $4.8 million after-tax loss arising in connection
with the balance sheet repositioning, a $1.5 million net after-tax gain
from the
sale of four branches and $0.3 million net after-tax expense from the
restructuring of certain mortgage operations. These items are excluded
from core
earnings.
Return
on
average assets and equity improved in the first quarter due to improved
results.
Annualized return on average assets was 1.20% for the three months ended
March
31, 2007 compared to 0.52% for the corresponding quarter in 2006. Return
on
average equity was 11.77% for the first quarter of 2007 compared to 5.45%
for
the first quarter of 2006.
14
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 restructuring
expenses, other-than-temporary impairment losses and gain on sales of
branch
offices 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,
|
|
|
|
|
2007
|
2006
|
Net
income
|
|
|
|
$
11,947
|
$
5,584
|
Add:
restructuring expenses, net of tax (1)
|
|
|
|
-
|
324
|
Add:
other-than-temporary impairment losses, net of tax
(1)
|
|
|
|
-
|
4,829
|
Subtract:
gains on sales of branch offices, net of tax
(4)
|
|
|
|
(588)
|
(1,479)
|
Core operating earnings
|
|
|
|
$
11,359
|
$
9,258
|
|
|
|
|
|
|
Net
income per common share
(3)
|
|
|
|
$
0.56
|
$
0.25
|
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 gains on sales of branch offices, net of tax
(1),(4)
|
|
|
|
(0.03)
|
(0.07)
|
Core operating earnings per common share
(3)
|
|
|
|
$
0.53
|
$
0.42
|
|
|
|
|
|
|
Return
on average assets
|
|
|
|
1.20
%
|
0.52
%
|
Effects
of restructuring expenses, net of tax
(1)
|
|
|
|
0.00
%
|
0.03
%
|
Effects
of other-than-temporary impairment losses, net of tax
(1)
|
|
|
|
0.00
%
|
0.45
%
|
Effects
of gains on sales of branch offices, net of tax
(1)(4)
|
|
|
|
(0.06%)
|
(0.14%)
|
Core operating return on average assets
|
|
|
|
1.14
%
|
0.86
%
|
|
|
|
|
|
|
Return
on average equity
|
|
|
|
11.77
%
|
5.45
%
|
Effects
of restructuring expenses, net of tax
(1)
|
|
|
|
0.00
%
|
0.32
%
|
Effects
of other-than-temporary impairment losses, net of tax
(1)
|
|
|
|
0.00
%
|
4.71
%
|
Effects
of gains on sales of branch offices, net of tax
(1)(4)
|
|
|
|
(0.58%)
|
(1.44%)
|
Core operating return on average equity
|
|
|
|
11.19
%
|
9.04
%
|
|
|
|
|
|
|
Efficiency
ratio
(2)
|
|
|
|
58.32
%
|
69.25
%
|
Effects
of restructuring expenses, net of tax
(1)
|
|
|
|
0.00
%
|
(1.61%)
|
Effects
of other-than-temporary impairment losses, net of tax
(1)
|
|
|
|
0.00
%
|
(13.79%)
|
Effects
of gains on sales of branch offices, net of tax
(1)(4)
|
|
|
|
1.29
%
|
5.45
%
|
Core efficiency ratio
(2)
|
|
|
|
59.61
%
|
59.30
%
|
(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.
(4)
March
2007 includes a gain on sale of a branch facility which was replaced
with a new
facility whereas March 2006 includes a gain on sale of four Ritchie
County, WV
branches and associated operations.
15
NET
INTEREST INCOME
TABLE
1. NET INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
(unaudited,
in thousands)
|
|
2007
|
2006
|
Net
interest income
|
|
$
29,993
|
$
30,983
|
Taxable
equivalent adjustments to net interest income
|
|
2,012
|
2,320
|
Net
interest income, fully taxable equivalent
|
|
$
32,005
|
$
33,303
|
Net
interest spread, non-taxable equivalent
|
|
2.91%
|
2.84%
|
Benefit
of net non-interest bearing liabilities
|
|
0.43%
|
0.32%
|
Net
interest margin
|
|
3.34%
|
3.16%
|
Taxable
equivalent adjustment
|
0.22%
|
0.24%
|
Net
interest margin, fully taxable equivalent
|
3.56%
|
3.40%
|
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 2007
decreased 3.2%
compared to the first quarter of 2006. The decrease in net interest
income in
the first quarter was due to an 8.1% decrease in average earning
assets,
partially offset by an increase in the net interest margin to 3.56%
from 3.40%.
This improvement in the net interest margin is due to WesBanco’s balance sheet
restructuring completed in the second quarter of 2006 and continuing
efforts to
invest in earning assets with higher returns while reducing exposure
to higher
rate interest bearing liabilities. WesBanco has successfully focused
on
maintaining margins in an environment that includes an inverted
yield curve,
higher interest rates and continued significant competition for
loans and
deposits.
Interest
income increased by 1.3% in the first quarter as compared to the
2006 first
quarter. The increase in interest income was due to an increase
in the average
yield on earning assets of 58 basis points, which was somewhat
offset by the
decrease in average earning assets. The increase in the average
rate was
primarily due to increases in the rate earned on loans and on securities
through
repricing of these assets in the higher interest rate environment
and sales of
lower yielding securities. The reductions in average earning assets
were
primarily due to reductions in investments in securities. Throughout
2006,
WesBanco used cash flow from sales and maturities of securities
to reduce higher
cost interest bearing liabilities. The sale of approximately $200
million of
taxable securities completed in the second quarter of 2006 was
part of
WesBanco’s restructuring of the balance sheet.
Average
loan balances were down approximately $62 million in the first
quarter of 2007
compared to the prior year due to a number of factors. A construction
loan of
$17 million was paid down in January 2007, and other line of credit
usage was
seasonably lower. Home equity lines of credit also saw reduced
demand. Some
potential loan customers have preferred 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 retain 30
year fixed rate
residential mortgages for its balance sheet. A greater portion
of residential
mortgage production is being sold into the secondary market (70.7%
for the first
three months of 2007 versus 36.7% for the first quarter of 2006).
Also somewhat
limiting growth has been WesBanco’s desire to reduce interest rate sensitivity
and credit risk by selling $6.7 million in certain underperforming
loans in
early 2006, and other risk reduction strategies for certain non-performing
and
watch list loans. In addition, a total of $19.3 million in loans
were sold in
connection with the Ritchie County branch sale in the first quarter
of 2006.
WesBanco also focuses loan production efforts on opportunities
that offer more
profitable rates, consistent with the overall balance sheet strategy.
Finally,
contributing to overall slower loan growth has been lower overall
market demand,
affecting all loan categories.
Interest
expense increased 6.8% for the three months ended March 31, 2007
compared to the
first quarter of 2006 due to increases in the average rate paid
on interest
bearing liabilities, partially offset by reductions in the average
balances. As
shown in Table 2, the average rate paid on interest bearing liabilities
for the
first quarter of 2007 increased by 53 basis points 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,
beginning in the first quarter of 2007, money market accounts.
In addition,
wholesale borrowing rates increased as a result of repricing in
a period of
higher interest rates. These increases have impacted other borrowings,
which are
primarily short-term in nature, and to a lesser extent, FHLB borrowings.
Average
interest bearing liabilities decreased by 9.5% from the first quarter
of 2006 to
the first quarter of 2007 due to WesBanco’s 2006 balance sheet restructuring,
general efforts to reduce higher rate liabilities, the sale of
the Ritchie
County branches in March, 2006, and decreases in money market and
savings
deposits. Funds applied from the balance sheet restructuring and
normal cash
flows from maturing securities reduced FHLB borrowings and other
short term
borrowings resulting in a 35.8% decrease in the total average balances
for these
items. Targeted marketing programs and management of WesBanco’s response to
increases in interest rates in the marketplace have provided increases
in
average balances for interest bearing and non-interest bearing
demand deposits
and certificates of deposits of $63.9 million in the first quarter
of 2007 as
compared to the first quarter of 2006 partially offsetting the
decreases in
borrowings, money market accounts and savings deposits. Measured
in basis
points, the increase in rates paid on interest bearing deposits
and borrowings
rose at a slower pace than rates earned on earning assets, increasing
the net
interest spread in the first quarter by 5 basis points to 3.13%.
This increase
combined with a 3.6% increase in average net non-interest bearing
liabilities
provided an increase in the net interest margin to 3.56% from 3.40%
in the 2006
first quarter.
16
TABLE
2. AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN
ANALYSIS
|
|
|
|
|
|
For
the Three Months Ended March 31,
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
Average
|
Average
|
|
Average
|
Average
|
(unaudited,
in thousands)
|
|
|
|
|
|
Balance
|
Rate
|
|
Balance
|
Rate
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Due
from banks - interest bearing
|
|
|
|
|
|
$
1,309
|
2.44%
|
|
$
1,806
|
2.44%
|
Loans,
net
(1)
|
|
|
|
|
|
2,865,159
|
6.83%
|
|
2,927,528
|
6.34%
|
Securities:
(2)
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
|
|
|
391,820
|
4.88%
|
|
582,779
|
4.08%
|
Tax-exempt
(3)
|
|
|
|
|
|
342,591
|
6.71%
|
|
398,180
|
6.66%
|
Total securities
|
|
|
|
|
|
734,411
|
5.73%
|
|
980,959
|
5.13%
|
Federal
funds sold
|
|
|
|
|
|
9,133
|
4.73%
|
|
-
|
-
|
Other
earning assets
|
|
|
|
|
|
22,736
|
5.30%
|
|
43,444
|
4.12%
|
Total earning assets
(3)
|
|
|
|
|
|
3,632,748
|
6.59%
|
|
3,953,737
|
6.01%
|
Other
assets
|
|
|
|
|
|
391,627
|
|
|
396,807
|
|
Total
Assets
|
|
|
|
|
|
$
4,024,375
|
|
|
$
4,350,544
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing demand deposits
|
|
|
|
|
|
$
343,337
|
1.21%
|
|
$
320,452
|
0.69%
|
Money
market accounts
|
|
|
|
|
|
355,857
|
2.50%
|
|
425,387
|
2.09%
|
Savings
deposits
|
|
|
|
|
|
439,533
|
1.38%
|
|
465,307
|
1.11%
|
Certificates
of deposit
|
|
|
|
|
|
1,438,883
|
4.42%
|
|
1,409,658
|
3.59%
|
Total interest bearing deposits
|
|
|
|
|
|
2,577,610
|
3.21%
|
|
2,620,804
|
2.55%
|
Federal
Home Loan Bank borrowings
|
|
|
|
|
|
350,233
|
3.83%
|
|
602,733
|
3.61%
|
Other
borrowings
|
|
|
|
|
|
174,426
|
4.86%
|
|
215,088
|
4.23%
|
Junior
subordinated debt
|
|
|
|
|
|
87,638
|
6.52%
|
|
87,638
|
6.27%
|
Total interest bearing liabilities
|
|
|
|
|
|
3,189,907
|
3.46%
|
|
3,526,263
|
2.93%
|
Non-interest
bearing
|
|
|
|
|
|
|
|
|
|
|
demand deposits
|
|
|
|
|
|
384,839
|
|
|
373,061
|
|
Other
liabilities
|
|
|
|
|
|
37,932
|
|
|
35,566
|
|
Shareholders'
Equity
|
|
|
|
|
|
411,697
|
|
|
415,654
|
|
Total
Liabilities and
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
$
4,024,375
|
|
|
$
4,350,544
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest spread
|
|
|
|
|
|
|
3.13%
|
|
|
3.08%
|
Taxable
equivalent net interest margin
(3)
|
|
|
|
|
|
|
3.56%
|
|
|
3.40%
|
(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 $0.8 million and $0.9 million
for the three months
ended March 31, 2007 and 2006,
respectively.
|
(2) |
Average
yields on available-for-sale securities are 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.
|
17
TABLE
3. RATE/VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
(1)
|
|
|
|
|
Three
Months Ended March 31, 2007
|
|
|
|
|
|
|
Compared
to March 31, 2006
|
|
|
|
|
|
|
|
|
|
Net
Increase
|
(in
thousands)
|
|
|
|
|
|
Volume
|
Rate
|
|
(Decrease)
|
Increase
(decrease) in interest income:
|
|
|
|
|
|
|
|
|
|
Due from banks - interest bearing
|
|
|
|
|
|
$
(3)
|
$
-
|
|
$
(3)
|
Loans, net of unearned income
|
|
|
|
|
|
(991)
|
3,528
|
|
2,537
|
Taxable securities
|
|
|
|
|
|
(2,191)
|
1,013
|
|
(1,178)
|
Tax-exempt securities
(2)
|
|
|
|
|
|
(932)
|
54
|
|
(878)
|
Federal funds sold
|
|
|
|
|
|
108
|
-
|
|
108
|
Other interest income
|
|
|
|
|
|
(252)
|
105
|
|
(147)
|
Total interest income change
(2)
|
|
|
|
|
|
(4,261)
|
4,700
|
|
439
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in interest expense:
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits
|
|
|
|
|
|
42
|
433
|
|
475
|
Money market accounts
|
|
|
|
|
|
(390)
|
385
|
|
(5)
|
Savings deposits
|
|
|
|
|
|
(74)
|
298
|
|
224
|
Certificates of deposit
|
|
|
|
|
|
264
|
2,922
|
|
3,186
|
Federal Home Loan Bank borrowings
|
|
|
|
|
|
(2,368)
|
320
|
|
(2,048)
|
Other borrowings
|
|
|
|
|
|
(459)
|
309
|
|
(150)
|
Junior subordinated debt owed to
|
|
|
|
|
|
|
|
|
|
unconsolidated subsidiary trusts
|
|
|
|
|
|
-
|
54
|
|
54
|
Total interest expense change
|
|
|
|
|
|
(2,985)
|
4,721
|
|
1,736
|
|
|
|
|
|
|
|
|
|
|
Net
interest income decrease (2)
|
|
|
|
|
|
$
(1,276)
|
$
(21)
|
|
$
(1,297)
|
(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
required 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
$1.5
million for the first quarter of 2007 as compared to $2.6 million for the
first
quarter of 2006. Decreased
provision expense was primarily due to lower levels of non-performing loans
which decreased by 24.9% from December 31, 2006 and 14.2% from March 31,
2006.
Payoffs and improvements
in loan quality were the primary reasons for the decrease in non-performing
loans in the first quarter. The first quarter 2006 also included an additional
provision on a single
commercial loan participation that was placed on non-accrual in the first
quarter of 2006. Although provision expense has decreased, the allowance
for
loan losses as a percentage of
total
loans has increased to 1.12% at March 31, 2007 from 1.10% at March 31,
2006 as a
result of a decrease in total loans of 3.1% over the same period. 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)
|
|
|
|
|
|
|
2007
|
|
2006
|
$
Change
|
%
Change
|
Trust
fees
|
|
|
|
|
|
|
$
4,338
|
|
$
4,058
|
$
280
|
6.9%
|
Service
charges on deposits
|
|
|
|
|
|
|
3,883
|
|
3,797
|
86
|
2.3%
|
Bank-owned
life insurance
|
|
|
|
|
|
|
748
|
|
729
|
19
|
2.6%
|
Net
securities gains (losses)
|
|
|
|
|
|
|
678
|
|
(7,942)
|
8,620
|
(108.5%)
|
Net
gains on sales of loans
|
|
|
|
|
|
|
336
|
|
43
|
293
|
681.4%
|
Gains
on sales of branch offices
|
|
|
|
|
|
|
980
|
|
2,465
|
(1,485)
|
(60.2%)
|
Other
income
|
|
|
|
|
|
|
2,273
|
|
2,264
|
9
|
0.4%
|
Total
non-interest income
|
|
|
|
|
|
|
$
13,236
|
|
$
5,414
|
$
7,822
|
144.5%
|
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. For the
quarter ended March 31, 2007, WesBanco’s non-interest income increased $7.8
million partially due to a number of non-core transactions in the first quarter
of 2007 and 2006. Other income in the first quarter of 2007 included a gain
on
sale of a former branch facility of $1.0 million. The first quarter of 2006
included $8.0 million in other-than-temporary impairment losses, included
in net
security losses, recognized in connection with a planned sale of securities,
and
a $2.5 million gain on the sale of the Ritchie County banking offices. Excluding
these non-
18
core
items, non-interest income increased $1.3 million or 11.4% in the first quarter
of 2007 and comprised 29.0% of total net revenues compared to 26.2% for the
2006
period.
Trust
fees increased 6.9% in the first quarter of 2007 as compared to the first
quarter of 2006 due to an increase in the market value of assets under
management as well as new business and increased investment management
fees. The
market value of assets under management at March 31, 2007 was $3.0 billion
as
compared to $2.9 billion at March 31, 2006.
In
the
first quarter of 2007, WesBanco sold $23.3 million in mortgage loans to
the
secondary market compared to $10.3 million in the same period in 2006 resulting
in an increase in related net gains of $0.3 million. Also improved in the
quarter was WesBanco Securities income, which increased by $0.3 million,
offset
somewhat by reduced ATM fees.
NON-INTEREST
EXPENSE
TABLE
5. NON-INTEREST EXPENSE
|
|
|
|
|
|
|
For
the Three Months
|
|
|
|
|
|
|
|
|
|
Ended
March 31,
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
2007
|
|
2006
|
$
Change
|
%
Change
|
Salaries
and wages
|
|
|
|
|
|
|
$
10,182
|
|
$
9,904
|
$
278
|
2.8%
|
Employee
benefits
|
|
|
|
|
|
|
3,696
|
|
3,512
|
184
|
5.2%
|
Net
occupancy
|
|
|
|
|
|
|
2,003
|
|
2,013
|
(10)
|
(0.5%)
|
Equipment
|
|
|
|
|
|
|
1,902
|
|
2,030
|
(128)
|
(6.3%)
|
Marketing
|
|
|
|
|
|
|
622
|
|
1,073
|
(451)
|
(42.0%)
|
Amortization
of intangible assets
|
|
|
|
|
|
|
596
|
|
633
|
(37)
|
(5.8%)
|
Restructuring
expenses
|
|
|
|
|
|
|
-
|
|
540
|
(540)
|
(100.0%)
|
Other
operating expenses
|
|
|
|
|
|
|
7,384
|
|
7,107
|
277
|
3.9%
|
Total
non-interest expense
|
|
|
|
|
|
|
$
26,385
|
|
$
26,812
|
$
(427)
|
(1.6%)
|
Non-interest
expense decreased $0.4 million or 1.6% during the first quarter of 2007
as
compared to the first quarter of 2006 primarily due to decreases in
restructuring and marketing expenses, partially offset by normal increases
in
employee salaries and wages and related benefit costs.
Salaries
and wages increased by $0.3 million or 2.8% for the first quarter of
2007 as
compared to the first quarter of 2006, primarily due to regular increases
in
employee compensation. The number of full-time equivalent (“FTE”) employees of
1,168 was approximately the same at March 31, 2007 as compared to March
31,
2006.
Employee
benefit costs increased $0.2 million or 5.2% for the first quarter of
2007 as
compared to the first quarter of 2006, primarily due to an increase in
health
insurance costs, somewhat offset by lower pension expense.
In
the
first quarter of 2006, the Company incurred restructuring expenses of
$0.5
million which represented severance payments and lease termination costs
incurred in connection with the restructuring of WesBanco’s mortgage business
unit and the combination of its Cincinnati and Charleston mortgage loan
offices.
No restructuring expenses were incurred during the first quarter of
2007.
Marketing
expenses decreased $0.5 million or 42.0% for the first quarter of 2007
as
compared to the first quarter of 2006. The decrease in marketing expenses
was
due to campaigns in 2006, which increased total checking and savings
accounts
and related service charge and overdraft fee income.
Other
operating expenses increased $0.3 million or 3.9% for the first quarter
of 2007
as compared to the first quarter of 2006. This increase is primarily
a result of
an increase in professional fees associated with the Company’s initiative to
enhance its revenue performance and control operating expense, partially
offset
by a decrease in communications expenses through the implementation in
2006 of a
new internet based network and reduced expenses associated with WesBanco’s ATM
network.
INCOME
TAXES
The
provision for income taxes for the first quarter of 2007 increased $2.1
million
or 152.5% compared to the first quarter of 2006 due to an increase in
pre-tax
income and an increase in the effective tax rate. For the first quarter
of 2007,
the effective tax rate was 22.3% compared to 19.6% for the first quarter
of
2006. The increase in the effective tax rate was due primarily to a lower
percentage of tax-exempt income to total income.
19
FINANCIAL
CONDITION
TABLE
6. COMPOSITION OF SECURITIES (1)
|
March
31,
|
|
December
31,
|
|
|
(dollars
in thousands)
|
2007
|
|
2006
|
$
Change
|
%
Change
|
Securities
available-for-sale (at fair value):
|
|
|
|
|
|
Other government agencies and corporations
|
$
103,201
|
|
$
117,066
|
$
(13,865)
|
(11.8%)
|
Mortgage-backed securities
|
282,110
|
|
254,703
|
27,407
|
10.8%
|
Obligations of states and political subdivisions
|
358,376
|
|
17,586
|
340,790
|
1937.8%
|
Corporate equity securities
|
5,197
|
|
6,165
|
(968)
|
(15.7%)
|
Total securities available-for-sale
|
748,884
|
|
395,520
|
353,364
|
89.3%
|
Securities
held-to-maturity (at amortized cost):
|
|
|
|
|
|
Obligations of states and political subdivisions
|
-
|
|
341,187
|
(341,187)
|
(100.0%)
|
Total
securities
|
$
748,884
|
|
$
736,707
|
$
12,177
|
1.7%
|
Available-for-sale
securities:
|
|
|
|
|
|
Weighted
average yield at the respective period end
|
5.71%
|
|
4.70%
|
|
|
As
a % of total securities
|
100.0%
|
|
53.7%
|
|
|
Weighted
average life (in years)
|
3.7
|
|
3.4
|
|
|
Held-to-maturity
securities:
|
|
|
|
|
|
Weighted
average yield at the respective period end
|
-
|
|
6.79%
|
|
|
As
a % of total securities
|
-
|
|
46.3%
|
|
|
Weighted
average life (in years)
|
-
|
|
4.1
|
|
|
Total
investment securities, which are a source of liquidity for WesBanco as
well as a
contributor to interest income, increased by 1.7% from December 31, 2006
to
March 31, 2007. The increase is attributable to the investment of a portion
of
the proceeds from loans to mortgage-backed securities, which increased
10.8% and
the recognition in the investment in obligations of state and political
subdivisions of a $5.8 million gain on the transfer of securities from
held-to-maturity to available-for-sale. Sales and maturities of other
types of
securities were also reinvested in mortgage backed securities.
Effective
March 31, 2007, all held-to-maturity securities were transferred to
available-for-sale. The securities were transferred to increase the level
of
securities available to pledge as collateral to support municipal deposits
and
other deposits and borrowings that may require pledged collateral. The
securities transferred were obligations of states and political subdivisions
which have only limited use as pledged collateral due to regulatory and
other
restrictions. Some securities transferred had a cost basis in excess
of fair
value. Management has the intent and ability to hold the securities until
recovery of their cost. Upon recovery, management may sell securities
and
purchase securities that can be better utilized as pledged collateral.
The
amortized cost of the transferred securities, at the date of transfer,
was
$334.9 million; and the net after tax gain relating to the transfer of
$3.5
million was recognized in other comprehensive income. WesBanco does not
intend
to use the held-to-maturity security classification in the foreseeable
future
for purchased securities.
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 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 construction, 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. WesBanco does not have any exposure to sub-prime residential
real
estate loans.
20
TABLE
7. COMPOSITION OF LOANS
|
March
31, 2007
|
|
December
31, 2006
|
(unaudited,
in thousands)
|
Amount
|
%
of Loans
|
|
Amount
|
%
of Loans
|
Loans:
(1)
|
|
|
|
|
|
Commercial
|
$
390,228
|
13.7%
|
|
$
409,347
|
14.1%
|
Commercial
real estate
|
1,153,327
|
40.6%
|
|
1,165,823
|
40.0%
|
Residential
real estate
|
870,544
|
30.6%
|
|
896,533
|
30.8%
|
Home
equity
|
156,784
|
5.5%
|
|
161,602
|
5.6%
|
Consumer
|
267,593
|
9.4%
|
|
274,908
|
9.4%
|
Total
portfolio loans
|
2,838,476
|
99.8%
|
|
2,908,213
|
99.9%
|
Loans
held for sale
|
4,746
|
0.2%
|
|
3,170
|
0.1%
|
Total
Loans
|
$
2,843,222
|
100.0%
|
|
$
2,911,383
|
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 2.3% between March 31, 2007 and December 31, 2006. Commercial
loans decreased 4.7% due to scheduled paydowns as WesBanco has focused
on
maintaining margins in a highly competitive environment. This has resulted
in
lower levels of new loan activity. Commercial real estate loans decreased
due to
several anticipated paydowns including $17 million on a single construction
loan. Residential real estate loans decreased due to a slow down in both
home
sales and refinance activity in the current higher interest rate environment,
maturities of fixed interest rate mortgages and decreased retention of
fixed
rate residential real estate loans in the portfolio as compared to sales
to the
secondary market. Home equity lines of credit and consumer loans have
also
declined due to scheduled paydowns and reduced consumer demand. The Bank
also
continues to focus on obtaining appropriate interest rate spreads on
new loans
and maintaining prudent underwriting standards in all segments of the
portfolio.
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.
WesBanco has no loans categorized as renegotiated.
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.
TABLE
8. NON-PERFORMING ASSETS
|
March
31,
|
|
December
31,
|
(unaudited,
in thousands)
|
2007
|
|
2006
|
Non-accrual:
|
|
|
|
Commercial
|
$
3,779
|
|
$
4,122
|
Commercial real estate
|
8,317
|
|
11,910
|
Residential real estate
|
3
|
|
102
|
Home equity
|
-
|
|
-
|
Consumer
|
27
|
|
20
|
Loans held for sale
|
-
|
|
-
|
Total non-performing loans
|
12,126
|
|
16,154
|
Other
real estate owned and repossessed assets
|
3,369
|
|
4,052
|
Total
non-performing assets
|
$
15,495
|
|
$
20,206
|
Non-performing
loans, which are defined as non-accrual and renegotiated loans, decreased
$4.0
million between December 31, 2006 and March 31, 2007. The decrease is primarily
attributable to $3.0 million of payoffs relating to three commercial real
estate
loans and the improvement in credit of a $1.4 million commercial real estate
loan. These decreases in non-accrual loans were partially offset by smaller
loans placed on non-accrual in the first quarter.
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 $1.8 million and
21
$3.0
million at March 31, 2007 and December 31, 2006, respectively. The decrease
is
due to one commercial loan that is no longer considered impaired as a
result of
reductions in the outstanding balance.
TABLE
9. LOANS ACCRUING INTEREST PAST DUE 90 DAYS OR MORE
|
March
31,
|
|
December
31,
|
(unaudited,
in thousands)
|
2007
|
|
2006
|
Commercial
and industrial
|
$
267
|
|
$
693
|
Commercial
real estate
|
2,251
|
|
2,697
|
Residential
real estate
|
2,659
|
|
1,951
|
Home
equity
|
541
|
|
579
|
Consumer
|
476
|
|
568
|
Total
portfolio loans past due 90 days or more
|
6,194
|
|
6,488
|
Loans
held for sale
|
-
|
|
-
|
Total
loans past due 90 days or more
|
$ 6,194
|
|
$
6,488
|
Loans
past due 90 days or more and still accruing interest decreased from December
31,
2006 to March 31, 2007 due to paydowns and credit improvements, primarily
in
commercial real estate. The increase in 90 day past due loans in residential
real estate is due to the effect of higher interest rates and a slower
economy.
ALLOWANCE
FOR LOAN LOSSES
The
allowance for loan losses at March 31, 2007 decreased $0.2 million from
December
31, 2006 due to decreases in the allowance for commercial real estate
loans,
which were partially offset by smaller increases in the other allowance
categories. Although the allowance dropped slightly, decreases in total
loans
resulted in an increase in the ratio of allowance for loan losses to
total loans
to 1.12% at March 31, 2007 from 1.10% at December 31, and March 31, 2006.
The
ratio of the allowance for loan losses to total non-performing loans
also
increased to 2.62x at March 31, 2007 from 2.29x at March 31, 2006. The
decrease
in the allowance for commercial real estate loans is attributable to
decreases
in outstanding balances as well as lower non-performing and 90 day past
due
loans in that category as discussed above. The increased allowances in
other
categories of loans reflect current trends in charge offs and recoveries,
the
impact of a weak regional economy on commercial and industrial loans,
and the
risks associated with higher interest rates on the residential real estate
and
home equity portfolios.
Net
charge-offs in the three months ended March 31, 2007 increased $0.4 million
or
28.7% from the same period in 2006 primarily due to increases in net
charge offs
on commercial, home equity and consumer loans. The increase in commercial
loan
net charge offs relates to a group of small loans and is not considered
unusual
compared to previous quarters. The increase in consumer loan charge-offs
in the
first quarter of 2007 is reflective of consumer losses for the same period
in
2006 being at unusually low levels following a significant increase in
losses
during the fourth quarter of 2005, which were the result of a spike in
bankruptcies in anticipation of changes in bankruptcy laws that occurred
in
October 2005.
22
TABLE
10. ALLOWANCE FOR LOAN LOSSES
|
For
the Three Months Ended
|
|
March
31,
|
|
March
31,
|
(dollars
in thousands)
|
2007
|
|
2006
|
Beginning
balance of allowance for loan losses
|
$
31,979
|
|
$
30,957
|
Provision
for loan losses
|
1,460
|
|
2,640
|
Charge-offs:
|
|
|
|
Commercial and industrial
|
535
|
|
117
|
Commercial real estate
|
197
|
|
385
|
Residential real estate
|
7
|
|
109
|
Home equity
|
154
|
|
29
|
Consumer
|
1,129
|
|
1,018
|
Total
loan charge-offs
|
2,022
|
|
1,658
|
Deposit account overdrafts
|
203
|
|
186
|
Total
loan and deposit account overdraft charge-offs
|
2,225
|
|
1,844
|
|
|
|
|
Recoveries:
|
|
|
|
Commercial and industrial
|
30
|
|
85
|
Commercial real estate
|
39
|
|
16
|
Residential real estate
|
26
|
|
21
|
Home equity
|
-
|
|
-
|
Consumer
|
375
|
|
403
|
Total
loan recoveries
|
470
|
|
525
|
Deposit account overdrafts
|
73
|
|
13
|
Total
loan and deposit account overdraft recoveries
|
543
|
|
538
|
Net
loan and deposit account overdraft charge-offs
|
1,682
|
|
1,306
|
|
|
|
|
Ending
balance of allowance for loan losses
|
$
31,757
|
|
$
32,291
|
|
|
|
|
Net
charge-offs as a percentage of average total loans:
|
|
|
|
Commercial and industrial
|
0.50%
|
|
0.03%
|
Commercial real estate
|
0.05%
|
|
0.13%
|
Residential real estate
|
(0.01%)
|
|
0.04%
|
Home equity
|
0.39%
|
|
0.07%
|
Consumer
|
1.11%
|
|
0.93%
|
Total
loan charge-offs
|
0.22%
|
|
0.18%
|
|
|
|
|
Allowance
for loan losses as a percentage of total loans
|
1.12%
|
|
1.10%
|
Allowance
for loan losses to total non-performing loans
|
2.62x
|
|
2.29x
|
Allowance
for loan losses to total non-performing loans and
|
|
|
|
loans past due 90 days or more
|
1.73x
|
|
1.56x
|
TABLE
11. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
|
March
31,
|
Percent
of
|
|
December
31,
|
Percent
of
|
(unaudited,
in thousands)
|
2007
|
Total
|
|
2006
|
Total
|
Commercial
and industrial
|
$
12,059
|
38.0%
|
|
$
11,728
|
36.7%
|
Commercial
real estate
|
12,433
|
39.2%
|
|
13,915
|
43.5%
|
Residential
real estate
|
1,571
|
4.9%
|
|
1,258
|
3.9%
|
Home
equity
|
604
|
1.9%
|
|
400
|
1.3%
|
Consumer
|
4,071
|
12.8%
|
|
3,773
|
11.8%
|
Deposit
account overdrafts
|
1,019
|
3.2%
|
|
904
|
2.8%
|
Total
allowance for loan losses
|
$
31,757
|
100.0%
|
|
$
31,978
|
100.0%
|
|
|
|
|
|
|
Components
of the allowance for loan losses:
|
|
|
|
|
|
General reserves pursuant to SFAS No. 5
|
$
30,772
|
|
|
$
30,704
|
|
Specific reserves pursuant to SFAS No. 114
|
985
|
|
|
1,274
|
|
Total
allowance for loan losses
|
$
31,757
|
|
|
$
31,978
|
|
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 along with deposit account overdraft losses.. Management believes
the
allowance for loan losses is appropriate to absorb probable credit losses
associated with the loan portfolio and deposit overdrafts at March 31,
2007. In
the event that management’s estimation
23
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)
|
2007
|
|
2006
|
$
Change
|
%
Change
|
Non-interest
bearing demand
|
$
387,877
|
|
$
401,909
|
$
(14,032)
|
(3.5%)
|
Interest
bearing demand
|
351,532
|
|
356,088
|
(4,556)
|
(1.3%)
|
Money
market
|
367,205
|
|
354,082
|
13,123
|
3.7%
|
Savings
deposits
|
439,264
|
|
441,226
|
(1,962)
|
(0.4%)
|
Certificates
of deposit
|
1,450,416
|
|
1,442,242
|
8,174
|
0.6%
|
Total
deposits
|
$
2,996,294
|
|
$
2,995,547
|
$
747
|
0.0%
|
Deposits,
which represent WesBanco’s primary source of funds, are offered in various
account forms at various rates through WesBanco’s 78 branches in West Virginia,
Ohio and Western Pennsylvania. Total deposits remained relatively
unchanged between December 31, 2006 and March 31, 2007.
Money
market deposits increased 3.7% in the first quarter of 2007 due to
the
introduction in the fourth quarter of 2006 of a new higher rate money
market
product structured to improve WesBanco’s competitive position for customers
focused on higher short term rates. The increase in money market deposits
and increases in certificates of deposits more than offset decreases in
non-interest bearing and interest bearing demand deposits and in savings
deposits.
Increases
in certificates of deposit are due to growth in retail and in the Certificate
of
Deposit Account Registry Service (CDARS®) product, introduced in the
second quarter of 2006 and marketed as an alternative to certain customer
repurchase agreements or to replace other wholesale borrowings when
conditions
warranted. Total CDARS® deposits were $36.7 million at March
31, 2007 compared to $34.6 million at December 31, 2006. Certificates of
deposit totaling approximately $1.1 billion are scheduled to mature
within the
next year. WesBanco may experience an overall higher cost associated with
certificates of deposits as they mature and may need to continue to
increase 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. Customer preferences in the current interest rate environment have
been primarily focused on short-term certificates of deposit and higher
rate
money market accounts.
BORROWINGS
TABLE
13. BORROWINGS
|
March
31,
|
|
December
31,
|
|
|
(in
thousands)
|
2007
|
|
2006
|
$
Change
|
%
Change
|
Federal
Home Loan Bank borrowings
|
$
363,958
|
|
$
358,907
|
$
5,051
|
1.4%
|
Other
short-term borrowings
|
162,072
|
|
202,561
|
(40,489)
|
(20.0%)
|
Junior
subordinated debt owed to unconsolidated subsidiary trusts
|
87,638
|
|
87,638
|
-
|
-
|
Total
borrowings
|
$
613,668
|
|
$
649,106
|
$
(35,438)
|
(5.5%)
|
Borrowings
are a significant source of funding for WesBanco, however, in the current
inverted yield curve environment, borrowings are often more expensive than
other
available funding sources. As a result, in the first quarter of 2007,
WesBanco continued to reduce borrowings through reductions in other short term
borrowings, utilizing proceeds from paydowns on the loan portfolio.
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, 2007 were $162.1 million compared to $202.6 million
at
December 31, 2006. The decrease was primarily due to the reduction in
federal funds purchased, offset in part by an increase in the revolving line
of
credit. The revolving line of credit is a senior obligation of the parent
company that provides for maximum borrowings of up to $35.0 million with
interest accruing at the one month LIBOR plus 90 basis points, matures in July
2008, and is being utilized to fund WesBanco’s share repurchase plan. It
had an outstanding balance of $26.0 million at March 31, 2007 and $8.0 million
at December 31, 2006. The line contains a financial covenant that WesBanco
was
in compliance with at period end.
CAPITAL
RESOURCES
Shareholders' equity was $409.7 million at March 31, 2007 compared to $416.9
million at December 31, 2006. Total equity was increased for current three
month
earnings of $11.9 and a $4.3 million change in other comprehensive income,
which
was offset by the payment of dividends of $5.8 million and the repurchase of
shares totaling $17.7 million. As of March 31, 2007, WesBanco had
repurchased 560,253 shares on a one million share repurchase plan approved
by
the Board of Directors in January 2006, leaving 69,745 shares to be repurchased
under this 2006 authorization. In March 2007 WesBanco’s Board of
Directors authorized a new one million share repurchase plan that is in addition
to the existing plan. In February 2007 WesBanco’s Board of Directors authorized
the increase of its dividend from $0.265 per share to $0.275 per share, a 3.8%
increase. This dividend increase represented the twenty-second consecutive
year
of dividend increases at WesBanco.
24
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, 2007, WesBanco could receive, without prior regulatory approval, a dividend
of up to $9.3 million from the Bank.
The
following table summarizes risk-based capital amounts and ratios for WesBanco
and the Bank, which have generally increased as a percentage of total assets
over the last nine months due to the decrease in total assets:
|
Minimum
|
Well
|
March
31, 2007
|
December
31, 2006
|
(Unaudited,
dollars in thousands)
|
Value
(1)
|
Capitalized
(2)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
WesBanco,
Inc.
|
|
|
|
|
|
|
Tier 1 Leverage
|
4.00%(3)
|
N/A
|
$
354,732
|
9.14%
|
$
365,591
|
9.27%
|
Tier 1 Capital to Risk-Weighted Assets
|
4.00%
|
6.00%
|
354,732
|
12.20%
|
365,591
|
12.35%
|
Total Capital to Risk-Weighted Assets
|
8.00%
|
10.00%
|
386,664
|
13.30%
|
397,741
|
13.44%
|
|
|
|
|
|
|
|
WesBanco
Bank, Inc.
|
|
|
|
|
|
|
Tier 1 Leverage
|
4.00%
|
5.00%
|
367,486
|
9.50%
|
363,647
|
9.24%
|
Tier 1 Capital to Risk-Weighted Assets
|
4.00%
|
6.00%
|
367,486
|
12.70%
|
363,647
|
12.35%
|
Total Capital to Risk-Weighted Assets
|
8.00%
|
10.00%
|
399,418
|
13.81%
|
395,796
|
13.44%
|
(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 flow from the
loan portfolio and the remaining sectors of the investment portfolio, and other
sources, adequately meet the liquidity requirements of WesBanco.
Securities
are the principal source of liquidity in total assets. Securities totaled $748.9
million at March 31, 2007, all of which were classified as available-for-sale.
At March 31, 2007, WesBanco has approximately $89.4 million in securities
scheduled to mature within one year. Additional cash flows may be
anticipated from approximately $103.8 million in callable bonds, which have
call
dates within the next year and from loans scheduled to mature within the next
year of $345.9 million, At March 31, 2007, WesBanco had $117.2 million of
cash and cash equivalents, a portion of which may also serve as an additional
source of liquidity.
Deposit
flows are another principal factor affecting overall bank liquidity. Deposits
totaled $3.0 billion at March 31, 2007. 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 $1.1 billion at March 31, 2007. In addition to the
relatively stable core deposit base, the Bank maintains a line of credit with
the FHLB as an additional funding source. Available lines of credit with the
FHLB at March 31, 2007 approximated $1,055.3 million. At March 31, 2007,
WesBanco had unpledged available-for-sale securities with a book value of $446.9
million that could be used for collateral or sold, excluding FHLB blanket liens
on WesBanco’s mortgage-related assets. 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 as well as selling certain investment securities categorized as
available-for-sale in order to maintain adequate levels of
liquidity.
The
principal sources of the parent company liquidity are dividends from the Bank,
cash and investments on hand, and 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, 2007,
WesBanco could receive without prior regulatory approval a dividend of up to
$9.3 million from the Bank. Additional liquidity is provided by the parent
company’s security portfolio of $5.9 million, and an available line of credit
with an independent commercial bank of $35.0 million of which $26.0 million
was
outstanding at March 31, 2007.
At
March
31, 2007, WesBanco had outstanding commitments to extend credit in the ordinary
course of business approximating $558.8 million compared to $528.9 million
at
December 31, 2006. On a historical basis, only a small portion of these
commitments will result in an outflow of funds.
Management
believes WesBanco has sufficient current liquidity to meet current obligations
to borrowers, depositors and others.
25
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 ALCO is to maximize net interest income within
established policy parameters. This objective is accomplished through the
management of balance sheet composition, market risk exposures arising from
changing economic conditions and liquidity risk.
Market
risk 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 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 we
believe such assumptions to be 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 repricing of specific assets and liabilities. 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 twelve 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 twelve month
period. Table 1, “Net Interest Income Sensitivity,” shows WesBanco’s interest
rate sensitivity at March 31, 2007 and December 31, 2006 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
31,2007
|
December
31, 2006
|
Guidelines
|
+200
|
(5.0%)
|
(6.7%)
|
+/-
10.0%
|
+100
|
(2.4%)
|
(3.3%)
|
N/A
|
-100
|
2.6%
|
2.8%
|
N/A
|
-200
|
2.6%
|
2.5%
|
+/-
10.0%
|
With
the
federal funds rate holding at 5.25% since June 30, 2006, management believes
interest rates are directionally flat, the interest rate curve is expected
to
remain slightly inverted over the near term and an increase or decrease 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 if interest rates were to rise immediately by 100 and 200 basis points,
respectively, and increase if rates declined by 100 and 200 basis points.
The decrease in liability sensitivity between December 31, 2006 and March 31,
2007 is a result of changes in balance sheet composition and a continued
reduction in the size of the balance sheet. The ALCO believes that it is
more probable that interest rates will fall later in 2007 which, the analysis
suggests, would provide an improvement in interest income. 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 1.53% over the next
twelve months, compared to a 1.23% decrease at December 31, 2006.
WesBanco’s
ALCO evaluates various strategies to reduce the exposure to interest rate
fluctuations. These strategies for much of 2006 emphasized reducing liability
sensitivity in anticipation of continued rising interest rates, but over the
last two quarters have focused on the potential for falling interest rates
by
late 2007. Among the strategies that are evaluated from time to time are the
possible reduction of certain FHLB borrowings, managing the level of WesBanco’s
fixed rate residential real estate loans maintained in the loan portfolio versus
selling them in the secondary market, purchasing or originating adjustable
rate
loans, remixing of the loan portfolio as residential mortgages
26
paydown
into shorter-lived, higher-yielding commercial loans, offering special maturity,
competitively priced short-term certificates of deposit to offset runoff in
other deposit accounts, and in certain markets, regionally pricing certain
deposit types to increase sales volume. Other strategies include emphasizing
marketing programs to grow lower cost transaction accounts, and using the
CDARS® program and structured repurchase agreements as alternative
wholesale borrowing sources versus federal funds purchased and FHLB borrowings.
WesBanco allowed a portion of loan paydowns to reduce borrowings and to improve
overall liquidity and interest rate sensitivity to rising rates by investing
in
federal funds sold and short-term agency securities in the first quarter. The
potential use of interest rate swap agreements to match fund certain long-term
commercial loans or as a fair value or cash flow hedge against certain asset
and
liability types, and using investment security cash flows to fund realized
loan
growth or to pay down short-term borrowings are also evaluated as potential
strategies by ALCO.
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.
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, 2007 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.
27
PART
II – OTHER
INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
The
Bank
has 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 sought to extend the applicable
statute through a continuing tort analysis and the question was certified to
the
West Virginia Supreme Court for resolution. The Court upheld that
application of the three year statute of limitations. The case has been
remanded to the Circuit Court for further proceedings.
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 prior to her employment
by the plaintiff, 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.
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, 2007, WesBanco had two active one million share stock repurchase
plans, with the first having been approved by the Board of Directors on January
19, 2006 and the second, which is incremental to the first, having been approved
on March 21, 2007. 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.
The
following table presents the monthly share repurchase
activity during the quarter ended March
31, 2007:
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, 2006
|
|
|
|
629,998
|
January
1, 2007 to January 31, 2007
|
57,000
|
31.84
|
57,000
|
572,998
|
February
1, 2007 to February 28, 2007
|
276,729
|
$
32.11
|
276,729
|
296,269
|
March
1, 2007 to March 31, 2007 (1)
|
226,524
|
30.80
|
226,524
|
1,069,745
|
Total
|
560,253
|
$
31.55
|
560,253
|
1,069,745
|
(1)
Includes impact of additional 1.0 million shares approved on March 21,
2007.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On
April
18, 2007, 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
2010:
|
For
|
|
Withheld
|
James
E. Altmeyer
|
16,300,203
|
|
505,137
|
Robert
M. D'Alessandri
|
16,344,151
|
|
461,189
|
Robert
E. Kirkbride
|
16,355,619
|
|
449,720
|
James
C. Gardill
|
16,014,967
|
|
790,373
|
Christopher
V. Criss
|
16,226,492
|
|
578,847
|
Vaughn
L. Kiger
|
16,345,241
|
|
460,099
|
Henry
L. Schulhoff
|
16,352,302
|
|
453,037
|
28
The
following director was elected to the Board of Directors for a term of two
years
expiring at the Annual Stockholders meeting in 2009:
|
For
|
|
Withheld
|
John
W. Fisher II
|
16,346,347
|
|
458,993
|
The
following director was elected to the Board of Directors for a term of one
year
expiring at the Annual Stockholders meeting in 2008:
|
For
|
|
Withheld
|
F.
Eric Nelson Jr.
|
16,382,682
|
|
422,658
|
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
|
1,915,579
|
11,838,128
|
226,066
|
|
2,825,567
|
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.
|
29
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 9, 2007
|
|
/s/
Paul M. Limbert |
|
|
Paul
M. Limbert
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
|
Date:
May 9, 2007
|
|
/s/
Robert H. Young |
|
|
Robert
H. Young
|
|
|
Executive
Vice President and Chief Financial
Officer
|
30