WesBanco Inc.'s February 2001 announcement that it was acquiring the $660 million-asset American Bancorp was supposed to signal the start of a major out-of-state expansion for the Wheeling, W.Va., company.
Though American was also based in Wheeling, it had major operations in Ohio, and WesBanco said it intended to use American as a platform for further growth in the neighboring state.
It did not quite work out that way. An unexpected bad grade from WesBanco's regulator over its Community Reinvestment Act obligations delayed that sale's closing until March 2002 and forced WesBanco to terminate another pending deal. Moreover, the American integration took longer than expected, hindering WesBanco's ability to make deals.
But now it is beginning to fulfill the promise it made three years ago. In the last five months it has announced acquisitions of two Ohio banks, and its chief financial officer said in an interview last week that it hopes to continue to make two deals a year for the foreseeable future.
Robert Young said his $3.9 billion-asset company is eyeing banks that are about 10% to 20% of its size and are located in suburban markets in Ohio and southwestern Pennsylvania.
WesBanco is not abandoning West Virginia, but it will not be the focus of its growth, he said. "We have realized that West Virginia is demographically challenged, so from the standpoint of growth we have to go elsewhere."
Last month WesBanco closed its deal for the $410 million-asset Western Ohio Financial Corp. in Springfield and announced a deal for the $554 million-asset Winton Financial Corp. in Cincinnati. The Western deal was WesBanco's first for an Ohio bank since 1992.
When the Winton deal is completed early next year, about 44% of WesBanco's assets and 37% of its deposits would be outside West Virginia. The deal also would move the company into a metropolitan area with twice as many deposits as the entire state of West Virginia.
However, because of its potential in these markets, WesBanco faces stiff competition. In Ohio, merger and acquisition activity is at a record level: 16 deals have been announced there this year, the most since 1998. Acquirers include banks from both in-state and out; the largest newcomer is Citizens Financial Group Inc., the Providence, R.I., unit of Royal Bank of Scotland Group PLC, which recently bought Charter One Financial Inc. in Cleveland.
Mr. Young said that for the last two years WesBanco has been trying to buy banks but has often lost out in the bidding - it came in second place in bids for two banks in southwest Pennsylvania.
WesBanco has been better received in Ohio, according to Mr. Young, because it when the American acquisition closed his company had 20 branches there.
"We have been more successful in the Ohio market," he said. "And to be perfectly honest, I think there is a bias in Pennsylvania toward Pennsylvania institutions acquiring Pennsylvania institutions."
Of the seven deals announced this year for Pennsylvania banks, only one involved an out-of-state buyer, and that buyer was from New York.
Brett Rabatin, an analyst with First Horizon National Corp.'s FTN Midwest Research in Nashville, said that with the handful of large Pennsylvania banks that are active acquirers, WesBanco would have a tough time persuading a seller there to go with a West Virginia company.
However, Mr. Rabatin also said WesBanco could "crack Pennsylvania" by building contacts in the state and making it clear that it wants to be a big player there for the long term.
"They have their work cut out for them, but I think the management can do a good job," he said.
Paul Limbert, WesBanco's president and chief executive officer, has been with the company since 1977; he became the CEO in 2001, after his predecessor, who held the job for eight years, retired. Mr. Young joined WesBanco in 2001 from PNC Bank FSB, where he had been the CFO for two years. Before that he had held the same position at the $2.2 billion-asset First Western Bancorp in New Castle, Pa., which the $12.2 billion-asset Sky Financial Group of Bowling Green, Ohio, bought in 1999.
Mr. Young, who is from southwest Pennsylvania, said that to gain a solid foothold in that market WesBanco may even consider a merger of equals. Companies in that region include the $3 billion asset S&T Bancorp of Indiana, Pa., the $4.6 billion-asset F.N.B. Corp. of Hermitage, and the $6.2 billion-asset First Commonwealth Financial Corp., also in Indiana, Pa.
Besides acquiring, WesBanco also has plans to build branches in Ohio and Pennsylvania. It just opened its second branch in Washington County (and in Pennsylvania), and Mr. Young said it has plans to open four to six in suburban Columbus.
Until recently WesBanco had been fairly acquisitive; from 1996 to 1999 it acquired five banks and two insurance companies.
But in July 2001, soon after it announced the deal for American, the Federal Reserve Bank of Cleveland slapped WesBanco with a "needs improvement" CRA rating for not properly meeting the needs of low-income borrowers. WesBanco appealed the rating, and five months later it was changed to "satisfactory."
However, the CRA problems prompted WesBanco to put the American acquisition on hold and to cancel a deal, announced in November 2000, for the $105 million-asset Freedom Bancshares Inc. of Belington, W.Va.
Robert Hughes, an analyst with Keefe, Bruyette & Woods Inc. in New York, said that part of the reason WesBanco took so long to get back in the M&A game was because it stumbled with the American deal. However, he also said that the problems have prepared WesBanco well for future acquisitions. In fact, it managed to close the Western Ohio deal ahead of schedule. (It had been scheduled to close in the fourth quarter.)
"It took the company a while to get their arms around American and extract the cost savings, but I think with their experience, they are much better equipped today as an acquirer," Mr. Hughes said.
To help fund its expansion, WesBanco raised $70 million in two trust-preferred securities offerings - $30 million last year and $40 million this year.
And Mr. Young said that after the Winton deal is completed, WesBanco would still have enough capital to acquire a bank with $400 million to $500 million of assets in the next year. Eventually, he said, it may look at expanding into Indiana or northern Kentucky and may grow to $10 billion of assets.
"But we are not going to be growing for growth's sake, and will only move into towns and communities that make sense," he said.
