Attached files

file filename
EX-32.1 - CEO AND CFO CERTIFICATION - WESBANCO INCex321.htm
EX-31.1 - CEO CERTIFICATION - WESBANCO INCex311.htm
EX-31.2 - CFO CERTIFICATION - WESBANCO INCex312.htm



 
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 September 30, 2009
   
¨
     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 000-08467

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act

Larger accelerated filer ¨                                                                                                                                                                                           Accelerated filer þ
Non-accelerated filer ¨  (Do not check if a smaller reporting company)                                                                                                            Smaller reporting company  ¨
 

 
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 October 31, 2009, there were 26,567,653 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 September 30, 2009 (unaudited) and December 31, 2008
3
 
Consolidated Statements of Income for the three and nine months ended September 30, 2009 and 2008 (unaudited)
4
 
Consolidated Statements of Changes in Shareholders' Equity for the nine months ended September 30, 2009 and 2008 (unaudited)
5
 
Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008 (unaudited)
6
 
Notes to Consolidated Financial Statements
7
     
2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
19
     
3
Quantitative and Qualitative Disclosures About Market Risk
35
     
4
Controls and Procedures
37
     
 
PART II – OTHER INFORMATION
 
1
Legal Proceedings
38
     
2
Unregistered Sales of Equity Securities and  Use of Proceeds
38
     
6
Exhibits
39
     
 
Signatures
40


2
 


 
PART I - FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS

 
WESBANCO, INC. CONSOLIDATED BALANCE SHEETS
   
 
September 30,
December 31,
(unaudited, dollars in thousands, except per share amounts)
2009
2008
 
(unaudited)
 
ASSETS
   
Cash and due from banks, including interest bearing amounts of  $11,999 and $65,145, respectively
 $            87,256
 $           141,170
Securities:
   
     Available-for-sale, at fair value
          1,417,687
              934,138
     Held-to-maturity (fair values of $1,372 and $1,214, respectively)
                 1,450
                  1,450
              Total securities
          1,419,137
              935,588
Loans held for sale
                 6,860
                  3,874
Portfolio loans:
   
    Commercial
             463,948
              510,902
    Commercial real estate
          1,764,791
           1,699,023
    Residential real estate
             739,151
              856,999
    Home equity
             235,427
              217,436
    Consumer
             298,305
              319,949
Total portfolio loans, net of unearned income
          3,501,622
           3,604,309
Allowance for loan losses
              (60,755)
               (49,803)
              Net portfolio loans
          3,440,867
           3,554,506
Premises and equipment, net
               91,411
                93,693
Accrued interest receivable
               22,091
                19,966
Goodwill and other intangible assets, net
             289,087
              267,883
Bank-owned life insurance
             102,670
              101,229
Other assets
             101,712
              104,132
Total Assets
 $       5,561,091
 $        5,222,041
     
LIABILITIES
   
Deposits:
   
     Non-interest bearing demand
 $          514,726
 $           486,752
     Interest bearing demand
             467,085
              429,414
     Money market
             678,099
              479,256
     Savings deposits
             479,342
              423,830
     Certificates of deposit
          1,866,256
           1,684,664
              Total deposits
          4,005,508
           3,503,916
Federal Home Loan Bank borrowings
             567,939
              596,890
Other short-term borrowings
             236,884
              297,805
Junior subordinated debt owed to unconsolidated subsidiary trusts
             111,175
              111,110
              Total borrowings
             915,998
           1,005,805
Accrued interest payable
               10,664
                10,492
Other liabilities
               36,586
                42,457
Total Liabilities
          4,968,756
           4,562,670
     
SHAREHOLDERS' EQUITY
   
Fixed Rate Cumulative Perpetual Preferred Stock, Series A, no par value; 1,000,000 shares
   
   authorized;  0 shares and 75,000 shares issued and outstanding in 2009 and 2008, respectively
                       -
                72,332
Common stock, $2.0833 par value; 50,000,000 shares authorized; 26,633,848 shares issued;
   
   26,567,653 shares and 26,560,889 shares outstanding in 2009 and 2008, respectively
               55,487
                55,487
Capital surplus
             193,211
              193,221
Retained earnings
             337,211
              344,403
Treasury stock (66,195 and 72,959 shares - at cost for 2009 and 2008, respectively)
                (1,498)
                 (1,661)
Accumulated other comprehensive income
                 9,195
                 (3,182)
Deferred benefits for directors
                (1,271)
                 (1,229)
Total Shareholders' Equity
             592,335
              659,371
Total Liabilities and Shareholders' Equity
 $       5,561,091
 $        5,222,041
 
 
See Notes to Consolidated Financial Statements.
 

3
 

 

WESBANCO, INC. CONSOLIDATED STATEMENTS OF INCOME
           
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
(unaudited, dollars in thousands, except per share amounts)
2009
 
2008
 
2009
 
2008
INTEREST AND DIVIDEND INCOME
             
   Loans, including fees
 $       50,970
 
 $      57,842
 
 $      154,513
 
 $        180,602
   Interest and dividends on securities:
             
       Taxable
          10,563
 
           6,870
 
           28,872
 
             21,188
       Tax-exempt
            3,595
 
           3,589
 
           10,806
 
             10,913
           Total interest and dividends on securities
          14,158
 
         10,459
 
           39,678
 
             32,101
   Other interest income
                 84
 
              374
 
                302
 
               1,340
           Total interest and dividend income
          65,212
 
         68,675
 
         194,493
 
           214,043
INTEREST EXPENSE
             
     Interest bearing demand deposits
               787
 
              894
 
             2,163
 
               4,070
     Money market deposits
            1,758
 
           2,167
 
             4,853
 
               6,699
     Savings deposits
               606
 
              726
 
             1,784
 
               2,457
     Certificates of deposit
          13,062
 
         15,288
 
           41,221
 
             54,237
              Total interest expense on deposits
          16,213
 
         19,075
 
           50,021
 
             67,463
     Federal Home Loan Bank borrowings
            5,568
 
           5,521
 
           16,814
 
             14,730
     Other short-term borrowings
            1,780
 
           2,096
 
             5,619
 
               6,850
     Junior subordinated debt owed to unconsolidated subsidiary trusts
            1,222
 
           1,696
 
             4,232
 
               5,310
              Total interest expense
          24,783
 
         28,388
 
           76,686
 
             94,353
NET INTEREST INCOME
          40,429
 
         40,287
 
         117,807
 
           119,690
     Provision for credit losses
          16,200
 
           6,457
 
           36,019
 
             17,605
Net interest income after provision for credit losses
          24,229
 
         33,830
 
           81,788
 
           102,085
NON-INTEREST INCOME
       
 
 
 
     Trust fees
            3,508
 
           3,639
 
           10,149
 
             11,702
     Service charges on deposits
            6,648
 
           6,280
 
           17,941
 
             17,903
     Bank-owned life insurance
            1,873
 
              934
 
             3,661
 
               2,696
     Net securities gains
            1,329
 
              276
 
             3,933
 
               1,182
     Net gains on sales of mortgage loans
               820
 
              595
 
             1,606
 
               1,059
     Other income
            4,377
 
           3,246
 
           10,011
 
             10,314
              Total non-interest income
          18,555
 
         14,970
 
           47,301
 
             44,856
NON-INTEREST EXPENSE
             
     Salaries and wages
          13,920
 
         14,185
 
           41,085
 
             42,423
     Employee benefits
            5,240
 
           3,857
 
           15,008
 
             12,409
     Net occupancy
            2,572
 
           2,511
 
             7,676
 
               8,034
     Equipment
            2,888
 
           2,739
 
             8,117
 
               8,185
     Marketing
            1,486
 
           2,078
 
             3,961
 
               4,458
     FDIC insurance
            1,528
 
              310
 
             7,104
 
                  574
     Amortization of intangible assets
               806
 
              950
 
             2,315
 
               2,872
     Restructuring and merger-related expenses
                   2
 
              539
 
                623
 
               3,244
     Other operating expenses
            9,263
 
           8,996
 
           26,174
 
             26,696
              Total non-interest expense
          37,705
 
         36,165
 
         112,063
 
           108,895
Income before provision for income taxes
            5,079
 
         12,635
 
           17,026
 
             38,046
     Provision for income taxes
             (363)
 
           1,126
 
                390
 
               5,750
NET INCOME
 $         5,442
 
 $      11,509
 
 $        16,636
 
 $          32,296
Preferred dividends and expense associated with unamortized discount and issuance costs
            3,121
 
                 -
 
             5,233
 
                     -
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
 $         2,321
 
 $      11,509
 
 $        11,403
 
 $          32,296
EARNINGS PER COMMON SHARE
             
Basic
 $           0.09
 
 $          0.43
 
 $            0.43
 
 $              1.22
Diluted
 $           0.09
 
 $          0.43
 
 $            0.43
 
 $              1.22
AVERAGE SHARES OUTSTANDING
         
 
 
Basic
   26,567,653
 
  26,550,318
 
    26,565,621
 
      26,548,304
Diluted
   26,568,081
 
  26,561,874
 
    26,567,174
 
      26,558,421
DIVIDENDS DECLARED PER COMMON SHARE
 $           0.14
 
 $          0.28
 
 $            0.70
 
 $              0.84

See Notes to Consolidated Financial Statements.


4


 
WESBANCO, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
                     
For the Nine Months Ended September 30, 2009 and 2008
     
 
       
Accumulated
   
               
Other
Deferred
 
(unaudited, dollars in thousands,
Preferred Stock
Common Stock
Capital
Retained
Treasury
Comprehensive
Benefits for
 
 except per share amounts)
Shares
Amount
Shares
Amount
Surplus
Earnings
Stock
Income (Loss)
Directors
Total
January 1, 2009
75,000
 $       72,332
      26,560,889
 $       55,487
 $        193,221
 $      344,403
 $        (1,661)
 $               (3,182)
 $            (1,229)
 $       659,371
Net income
         
      16,636
     
     16,636
Other comprehensive income (loss)
             
          12,377
 
      12,377
      Total comprehensive income
                 
     29,013
Preferred dividends and
       amortization of discount
     2,668
     
      (5,233)
     
     (2,565)
Common dividends
                   
       declared ($0.70 per share)
         
     (18,595)
     
    (18,595)
Treasury shares sold
   
         6,764
 
          (52)
 
        163
   
           111
Redemption of Preferred Stock
  (75,000)
  (75,000)
             
   (75,000)
Deferred benefits for directors- net
       
            42
     
            (42)
            -
September 30, 2009
      -
 $        -
26,567,653
 $ 55,487
 $  193,211
 $  337,211
 $ (1,498)
 $         9,195
 $      (1,271)
 $592,335
                     
                     
                     
January 1, 2008
                  -
 $                -
       26,547,073
 $       55,487
 $       190,222
 $        336,317
 $       (1,983)
 $                  1,450
 $              (1,174)
 $       580,319
Net income
         
            32,296
     
           32,296
Other comprehensive income (loss)
             
                  (5,459)
 
            (5,459)
      Total comprehensive income
                 
           26,837
Common dividends
                   
     declared ($0.84 per share)
         
          (22,300)
     
         (22,300)
Treasury shares sold
   
                13,816
 
                     17
 
              322
   
                 339
Stock option expense
       
                   191
       
                   191
Deferred benefits for directors – net
       
                     41
     
                     (41)
                     -
September 30, 2008
                  -
 $                -
      26,560,889
 $       55,487
 $        190,471
 $       346,313
 $        (1,661)
 $              (4,009)
 $              (1,215)
 $      585,386

See Notes to Consolidated Financial Statements.
 
 
5
 


 
WESBANCO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
   
 
For the Nine Months Ended
 
September 30,
(unaudited, in thousands)
2009
2008
OPERATING ACTIVITIES:
   
Net income
 $         16,636
 $         32,296
Adjustments to reconcile net income to net cash provided by operating activities:
   
     Depreciation
              5,840
              5,533
     Net amortization (accretion)
              1,476
               (386)
     Provision for credit losses
            36,019
            17,605
     Net securities gains
            (3,933)
            (1,182)
     Net gains on sales of mortgage loans
            (1,606)
            (1,059)
     Increase in deferred income taxes
            (8,335)
            (2,325)
     Increase in cash surrender value of bank-owned life insurance
            (1,441)
            (2,643)
     Loans originated for sale
        (124,273)
          (88,195)
     Proceeds from the sale of loans originated for sale
          122,870
            88,331
     Net change in: other assets and accrued interest receivable
              9,067
              7,225
     Net change in: other liabilities and accrued interest payable
            (5,411)
            (9,573)
     Other – net
              1,063
              1,754
Net cash provided by operating activities
            47,972
            47,381
INVESTING ACTIVITIES:
   
Securities available-for-sale and other short-term investments:
   
     Proceeds from sales
          418,869
            29,474
     Proceeds from maturities, prepayments and calls
          280,427
          170,332
     Purchases of securities
     (1,164,469)
        (137,706)
Net cash received from acquisitions
          578,573
                    -
Net decrease in loans
            70,879
          111,083
Sale of branches
                    -
          (25,838)
Purchases of premises and equipment – net
            (2,605)
            (6,454)
Net cash provided by investing activities
          181,674
          140,891
FINANCING ACTIVITIES:
   
Decrease in deposits
          (95,878)
        (321,084)
Proceeds from Federal Home Loan Bank borrowings
                    -
          250,000
Repayment of Federal Home Loan Bank borrowings
          (27,014)
          (40,583)
Decrease in other short-term borrowings
          (28,603)
            (6,431)
Decrease in federal funds purchased
          (32,000)
          (52,000)
Repayment of preferred stock
          (75,000)
                    -
Dividends paid to common and preferred shareholders
          (25,176)
          (22,180)
Treasury shares sold – net
                 111
                 339
Net cash used in financing activities
        (283,560)
        (191,939)
Net decrease in cash and cash equivalents
          (53,914)
            (3,667)
Cash and cash equivalents at beginning of the period
          141,170
          130,495
Cash and cash equivalents at end of the period
 $         87,256
 $       126,828
SUPPLEMENTAL DISCLOSURES:
   
Interest paid on deposits and other borrowings
 $         76,514
 $         94,582
Income taxes paid
              4,975
              4,400
Transfers of loans to other real estate owned
              7,535
              1,158
Summary of business acquistion:
   
Fair value of tangible assets acquired (including cash of $599,266)
          600,257
                    -
Fair value of liabilities assumed
        (603,086)
                    -
Cash paid in the acquisition
          (20,693)
                    -
Goodwill and other intangibles recognized
 $       (23,522)
 $                 -

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 (“GAAP”) 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. GAAP for complete financial statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2008.
 
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 2008 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.  WesBanco has evaluated subsequent events through November 5, 2009, the date that these financial statements were filed with the Securities and Exchange Commission.
 
RECENT ACCOUNTING PRONOUNCEMENTS— In June 2009, the Financial Accounting Standards Board (“FASB”) issued an accounting pronouncement which establishes the FASB Accounting Standards Codification™ (“the Codification” or “ASC”) as the source of accounting principles and the framework for selecting the principles used in the preparation of financial statements by nongovernmental entities.  All guidance contained in the Codification will carry an equal level of authority.  However, in addition to the Codification rules, all interpretive releases of the SEC under federal securities laws are also sources of authoritative GAAP.  Following the Codification, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts.  Instead, it will issue Accounting Standards Updates (“ASU”) which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification.  The Codification is effective for interim reporting periods ending after September 15, 2009.  The adoption of this pronouncement did not have a material impact on WesBanco’s consolidated financial statements.
 
In June 2009, the FASB issued an accounting pronouncement regarding accounting for transfers of financial assets which removes the concept of a qualifying special-purpose entity and removes the exception from applying consolidation guidance to these entities.  This pronouncement also requires that a transferor recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer of financial assets accounted for as a sale.  This pronouncement must be applied as of the beginning of the first interim and annual period that begins after November 15, 2009.  WesBanco is currently evaluating the impact of adopting this pronouncement on its consolidated financial statements.
 
In June 2009, the FASB issued a pronouncement regarding consolidation accounting which requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity.  The pronouncement also requires ongoing reassessments of whether an enterprise is the primary beneficiary; eliminates the quantitative approach previously required for determining the primary beneficiary, and requires enhanced disclosures to provide more transparent information about an enterprise’s involvement in a variable interest entity.  This pronouncement must be applied as of the beginning of the first interim and annual period that begins after November 15, 2009.  WesBanco is currently evaluating the impact of adopting this pronouncement on its consolidated financial statements.
 
In May 2009, the FASB issued an accounting pronouncement which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  This pronouncement also requires entities to disclose the date through which subsequent events have been evaluated.  It is effective for interim reporting periods ending after June 15, 2009.  The adoption of this pronouncement did not have a material impact on WesBanco’s consolidated financial statements.
 
In April 2009, the FASB issued an accounting pronouncement which requires disclosures on the fair value of financial instruments in interim financial statements as well as in annual financial statements.  The disclosures are effective for interim reporting periods ending after June 15, 2009 and did not have a material impact on WesBanco’s consolidated financial statements.
 
In April 2009, the FASB issued an accounting pronouncement to provide additional guidance on estimating fair value when the volume and level of activity for an asset or liability have significantly decreased in relation to normal market activity for the asset or liability.  The pronouncement also provides additional guidance on circumstances that may indicate that a transaction is not orderly.  It is effective for interim and annual periods ending after June 15, 2009, and is being applied prospectively.  The adoption of this pronouncement did not have a material impact on WesBanco’s consolidated financial statements.
 
In April 2009, the FASB issued an accounting pronouncement which provides new guidance on the recognition and presentation of an other-than-temporary impairment of debt securities classified as available-for-sale and held-to-maturity, and provides some new disclosure requirements.  To avoid considering an impairment to be other-than-temporary management must assert that it does not have the intent to sell the security and it is more likely than not that it will not have to sell the security before recovery of its cost.  This pronouncement also changes the total amount recognized in earnings when other-than-temporary impairment exists to require the estimated credit loss to be recorded in earnings and the noncredit portion of the loss to be recorded in other comprehensive income.  It is effective for interim and annual periods ending after June 15, 2009, and is being applied prospectively.  The adoption of this pronouncement did not have a material impact on WesBanco’s consolidated financial statements.
 
 
7
 
 
 
 
NOTE 2. EARNINGS PER COMMON SHARE
 
Earnings per common share are calculated as follows:

 
For the Three Months Ended
For the Nine Months Ended
 
September 30,
September 30,
(unaudited, in thousands, except shares and per share amounts)
2009
 
2008
2009
 
2008
Numerator for both basic and diluted earnings per share:
           
Net Income
 $          5,442
 
 $       11,509
 $        16,636
 
 $       32,296
Less:  Preferred dividends and expense associated with unamortized discount and issuance costs
 $       (3,121)
 
 $                -
 $        (5,233)
 
$                 -
Net Income Available to Common Shareholders
 $          2,321
 
 $       11,509
 $        11,403
 
 $       32,296
             
Denominator:
           
Total average basic common shares outstanding
    26,567,653
 
   26,550,318
    26,565,621
 
   26,548,304
Effect of dilutive stock options
                428
 
          11,556
             1,553
 
          10,117
Total diluted average common shares outstanding
    26,568,081
 
   26,561,874
    26,567,174
 
   26,558,421
             
Earnings per share - basic
 $            0.09
 
 $           0.43
 $            0.43
 
 $           1.22
Earnings per share - diluted
 $            0.09
 
 $           0.43
 $            0.43
 
 $           1.22
 
In 2008, WesBanco issued a warrant to purchase 439,282 shares of the Company’s common stock to the U.S. Department of the Treasury (the “Treasury”).  The warrant is considered in the calculation of diluted earnings per share, but due to its anti-dilutive impact at September 30, 2009, it had no effect on earnings per share.
 
NOTE 3. REPURCHASE OF PREFERRED STOCK

On September 9, 2009 WesBanco repurchased from the U.S. Department of the Treasury 75,000 shares of the Company's Fixed Rate Cumulative Perpetual Preferred Stock, Series A, issued under the Troubled Asset Relief Program (“TARP”), at a purchase price of $75 million plus a final accrued dividend of $250,000.  The repurchase of the preferred stock resulted in WesBanco recording a $2.3 million charge in the third quarter representing the remaining unamortized discount on the preferred stock on the repurchase date, as well as certain unamortized issuance costs.  These charges, along with $0.8 million of discount amortization and dividends are reflected on the income statement in the third quarter after net income.  WesBanco also issued a warrant to the Treasury Department with the preferred stock in December 2008 and is currently negotiating terms for the repurchase of this warrant.  WesBanco’s consolidated and bank subsidiary capital ratios continue to be in excess of the “well capitalized” benchmarks for regulatory purposes at September 30, 2009 after repurchase of the preferred stock.

NOTE 4. BUSINESS COMBINATION

On March 27, 2009, WesBanco completed the purchase of all five of AmTrust Bank’s Columbus, Ohio branches.  As part of the agreement, WesBanco assumed all of the deposit liabilities of $599.4 million and purchased, or assumed the leases of, the related fixed assets of the branches.  WesBanco did not acquire loans as part of the transaction, and is now operating the acquired branches under the WesBanco Bank, Inc., (the “Bank”) name.  The acquisition was intended to improve WesBanco’s competitive position in the Columbus, Ohio market, with a larger market share and broader retail distribution and improve the liquidity of the corporation.  WesBanco’s Consolidated Statements of Income include the results of operations of the AmTrust branches from the closing date of the acquisition.  The aggregate purchase price for the five AmTrust branches was $21.2 million, net of cash and other assets received.

Following is a reconciliation of the preliminary purchase price allocation:

 
(unaudited, in thousands)
Fair Value of
Tangible Net Assets
 Acquired
Cash
 $                  599,265
Other tangible assets
                            991
Goodwill and other intangibles
                       23,522
Deposits
                    (599,353)
Other liabilities
                        (3,273)
    Total purchase price
 $                    21,152
 
Goodwill and other intangible assets were allocated to WesBanco’s community banking segment. The AmTrust core deposit intangible was valued at $2.8 million and has a weighted-average useful life of approximately 10 years.


8

 

 
NOTE 5. SECURITIES
 
The following table presents the fair value and amortized cost of available-for-sale and held-to-maturity securities:

 
     
September 30, 2009
 
December 31, 2008
       
Gross
Gross
Estimated
   
Gross
Gross
Estimated
     
Amortized
Unrealized
Unrealized
Fair
 
Amortized
Unrealized
Unrealized
Fair
(unaudited, in thousands)
Cost
Gains
Losses
Value
 
Cost
Gains
Losses
Value
Available-for-sale
                 
 
Other government agencies
 $   219,161
 $      1,368
 $      (207)
 $   220,322
 
 $  39,241
 $       768
 $          -
 $  40,009
 
Corporate debt securities
        23,663
            471
              -
        24,134
 
       3,019
          130
             -
       3,149
 
Residential mortgage-backed securities and
collateralized mortgage obligations of
government agencies
      785,661
       19,274
           (96)
      804,839
 
   513,942
     10,130
        (175)
   523,897
 
Other residential collateralized mortgage obligations
          3,477
              28
              -
          3,505
 
       4,242
            19
        (111)
       4,150
 
Obligations of state and political subdivisions
      346,296
       14,962
         (149)
      361,109
 
   352,995
       7,834
     (1,404)
   359,425
Total debt securities
   1,378,258
       36,103
         (452)
   1,413,909
 
   913,439
     18,881
     (1,690)
   930,630
 
Equity securities
          3,453
            326
             (1)
          3,778
 
       3,143
          394
          (29)
       3,508
Total available-for-sale securities
 $1,381,711
 $    36,429
 $      (453)
 $1,417,687
 
 $916,582
 $  19,275
 $  (1,719)
 $934,138
Held-to-maturity
                 
 
Corporate debt securities
          1,450
              -
           (78)
          1,372
 
       1,450
             -
        (236)
       1,214
Total securities
 $1,383,161
 $    36,429
 $      (531)
 $1,419,059
 
 $918,032
 $  19,275
 $  (1,955)
 $935,352
 
At September 30, 2009, and December 31, 2008, there were no holdings of any one issuer in an amount greater than 10% of WesBanco’s shareholders’ equity, other than the U.S. government and its agencies.
 
Securities with aggregate par values of $570.6 million and $551.1 million and aggregate carrying values of $576.3 million and $552.8 million at September 30, 2009 and December 31, 2008, respectively, were pledged as security for public and trust funds, and securities sold under agreements to repurchase.  Proceeds from the sale of available-for-sale securities and other short-term investments were $135.4 million and $418.9 million for the three and nine months ended September 30, 2009, respectively, compared to $0.5 million and $29.5 million for the same periods in 2008.
 
For the nine months ended September 30, 2009, realized gains on available-for-sale securities were $4.1 million and realized losses were $211,000.  For the nine months ended September 30, 2008, realized gains on available-for-sale securities were $1.2 million with no realized losses.
 
The following table presents the maturity distribution of available-for-sale and held-to-maturity securities at fair value:
 

 
September 30, 2009
 
 
 
After One But
 
After Five But
 
 
 
Within One Year
   Within Five Years  Within Ten Years
After Ten Years
(unaudited in thousands)
Amount
 
Amount
 
Amount
 
Amount
Available-for-sale
             
  Other government agencies
 $                 146,400
 
 $                 63,093
 
 $                 10,830
 
 $                            -
  Corporate debt securities
                        3,892
 
                    20,241
 
                            -
 
                           -
  Residential mortgage-backed securities and
                      53,714
 
                  588,842
 
                  139,857
 
                    22,426
  collateralized mortgage obligations of
             
  government agencies (1)
             
  Other residential collateralized mortgage obligations
                              -
 
                      3,462
 
                            -
 
                           43
  Obligations of states and political subdivisions
                      84,780
 
                  151,419
 
                    98,896
 
                    26,014
  Equity securities
                              -
 
                           -
 
                            -
 
                      3,778
           Total available-for-sale securities
 $                 288,786
 
 $               827,057
 
 $               249,583
 
 $                 52,261
Held-to-maturity
             
  Corporate debt securities (2)
                              -
 
                           -
 
                            -
 
                      1,372
Total securities
 $                 288,786
 
 $               827,057
 
 $               249,583
 
 $                 53,633
(1) Mortgage-backed and collateralized mortgage securities, which have prepayment provisions, are assigned to maturity categories based on estimated average
   lives or repricing information.
(2) The held-to-maturity corporate debt securities are carried at amortized cost of $1.5 million.

 
9

 
 
 
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 September 30, 2009 and December 31, 2008:

 
 September 30, 2009
 
 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
 $  33,938
 $    (207)
            4
 $         -
 $        -
          -
 $  33,938
 $    (207)
            4
Residential mortgage-backed securities and collateralized mortgage obligations of government agencies
     60,263
         (86)
            8
         598
          (10)
            1
      60,861
          (96)
            9
Other residential collateralized mortgage obligations
             -
           -
          -
            -
           -
          -
             -
            -
           -
Obligations of states and political subdivisions
        3,107
         (92)
            4
       3,168
         (57)
            6
       6,275
        (149)
           10
Corporate debt securities
             -
           -
          -
       1,372
         (78)
            1
        1,372
          (78)
             1
Equity securities
              3
            (1)
            1
            -
           -
          -
              3
            (1)
             1
          Total temporarily impaired securities
 $   97,311
 $    (386)
          17
 $    5,138
 $    (145)
            8
 $102,449
 $     (531)
          25
                   
 
 December 31, 2008
 
 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
Residential mortgage-backed securities and collateralized mortgage obligations of government agencies
 $           2,956
 $               (6)
                  12
 $         16,321
 $           (169)
                  10
 $         19,277
 $            (175)
                  22
Other residential collateralized mortgage obligations
                      -
                    -
                  -
             4,095
                 (111)
                   5
              4,095
                  (111)
                    5
Obligations of states and political subdivisions
            42,034
             (1,171)
                 72
            12,502
              (233)
                 24
            54,536
            (1,404)
                  96
Corporate debt securities
                 1,214
              (236)
                    1
                     -
                    -
                  -
                1,214
               (236)
                     1
Equity securities
                1,289
                (29)
                   2
                     -
                    -
                  -
               1,289
                 (29)
                    2
          Total temporarily impaired securities
 $        47,493
 $       (1,442)
                 87
 $        32,918
 $           (513)
                 39
 $          80,411
 $        (1,955)
                126
 
 Unrealized losses in the table represent temporary fluctuations resulting from changes in market rates in relation to fixed yields. Losses in the available-for-sale portfolio 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.

WesBanco does not believe any of the securities presented above are impaired due to reasons of credit quality, as debt securities are of investment grade quality and are paying principal and interest according to their contractual terms. The unrealized losses are primarily attributable to changes in broad interest rate indices.  WesBanco does not intend to sell, and it is more likely than not that it will not be required to sell loss position securities prior to recovery of their cost.  Accordingly, as of September 30, 2009, management believes the unrealized losses detailed above are temporary and no impairment loss relating to these securities has been recognized in the Consolidated Statements of Income.
 
 
10
 

 
 
NOTE 6. LOANS AND THE ALLOWANCE FOR LOAN LOSSES
 
Loans are presented in the Consolidated Balance Sheets net of deferred loan fees and costs of $3.3 million at September 30, 2009 and $3.3 million at December 31, 2008.
 
The following table presents the changes in the allowance for loan losses and loans classified as impaired:

 
For the Nine Months Ended
 
September 30,
(unaudited, in thousands)
2009
2008
Balance at beginning of period
 $           49,803
 $          38,543
Provision for loan losses
              36,150
             17,530
Charge-offs
            (26,540)
            (15,179)
Recoveries
                1,342
               2,586
        Net charge-offs
            (25,198)
            (12,593)
Balance at end of period
 $           60,755
 $          43,480
     
The following tables summarize loans classified as impaired:
   
 
September 30,
December 31,
(unaudited, in thousands)
2009
2008
Balance of impaired loans with no allocated allowance for loan losses
 $           61,205
 $          25,296
Balance of impaired loans with an allocated allowance for loan losses
              32,250
             22,202
Total impaired loans
 $           93,455
 $          47,498
     
Allowance for loan losses allocated to impaired loans
 $             9,719
 $            5,113
 
At September 30, 2009, WesBanco had unfunded commitments to debtors whose loans were classified as impaired or renegotiated of $0.1 million.  At December 31, 2008, WesBanco had no material commitments to lend additional funds to debtors whose loans were classified as impaired or renegotiated.
 
NOTE 7. FEDERAL HOME LOAN BANK BORROWINGS
 
WesBanco is a member of the Federal Home Loan Bank (“FHLB”) System.  WesBanco’s FHLB borrowings are secured by a blanket lien by the FHLB on certain residential mortgage and other loan types and a specific lien on certain securities if pledged directly with the FHLB with a market value in excess of the outstanding balances of the borrowings.  At September 30, 2009 and December 31, 2008, WesBanco had FHLB borrowings of $567.9 million and $596.9 million, respectively, with a weighted-average interest rate of 3.90%.  The terms of the security agreement with the FHLB include a specific assignment of collateral that requires the maintenance of qualifying mortgage and other types of loans as pledged collateral with unpaid principal amounts in excess of the FHLB advances, when discounted at certain pre-established percentages of the loans’ unpaid principal balances. FHLB stock owned by WesBanco totaling $31.0 million at September 30, 2009 and $32.1 million at December 31, 2008 is also pledged as collateral on these advances. The remaining maximum borrowing capacity by WesBanco with the FHLB at September 30, 2009 and December 31, 2008 was estimated to be approximately $528.4 million and $848.8 million, respectively.
 
In December 2008, the FHLB of Pittsburgh announced that it would suspend dividends and the repurchase of excess capital stock from its member banks.  The FHLB of Pittsburgh stock owned by WesBanco totaled $26.4 million at September 30, 2009 and December 31, 2008, and is held primarily to serve as collateral on FHLB borrowings.  Dividend income recognized on FHLB of Pittsburgh stock totaled $0.4 million for 2008.  Additionally, WesBanco owned $4.6 million and $5.7 million of FHLB of Cincinnati stock at September 30, 2009 and December 31, 2008, respectively, which paid a cash dividend at an annualized rate of approximately 4.75% over the last four quarters.
 
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 $567.9 million outstanding at September 30, 2009, $264.9 million in FHLB convertible advances are subject to call or conversion to a variable rate advance by the FHLB.
 
 
11
 

 
 
The following table presents the aggregate annual maturities and weighted-average interest rates of FHLB borrowings at September 30, 2009 based on their contractual maturity dates and effective interest rates:
 
(unaudited, dollars in thousands)
Scheduled
Weighted
Year
Maturity
Average Rate
2009
 $      70,654
4.31%
2010
       261,270
3.84%
2011
         84,889
3.76%
2012
         56,687
4.45%
2013
         50,976
3.28%
2014 and thereafter
         43,463
3.86%
Total
 $    567,939
3.90%
 
NOTE 8. OTHER SHORT-TERM BORROWINGS
 
Other short-term borrowings are comprised of the following:

 
 
September 30,
December 31,
(unaudited, in thousands)
2009
2008
Federal funds purchased
 $          20,000
 $          52,000
Securities sold under agreements to repurchase
           214,130
           245,165
Treasury tax and loan notes and other
               2,754
                  640
Total
 $        236,884
 $        297,805
 
NOTE 9. 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
 
For the Nine Months Ended
 
September 30,
 
September 30,
(unaudited, in thousands)
2009
 
2008
 
2009
 
2008
Service cost – benefits earned during year
 $            599
 
 $            577
 
 $         1,798
 
 $         1,730
Interest cost on projected benefit obligation
               837
 
               792
 
            2,511
 
            2,376
Expected return on plan assets
             (945)
 
          (1,138)
 
          (2,834)
 
          (3,413)
Amortization of prior service cost
               (29)
 
               (29)
 
               (88)
 
               (88)
Amortization of net loss
               476
 
               129
 
            1,428
 
               387
Net periodic pension cost
 $            938
 
 $            331
 
 $         2,815
 
 $            992
 
The plan covers all employees of WesBanco and its subsidiaries who were hired on or before August 1, 2007 who satisfy minimum age and length of service requirements, and is not available to employees hired after such date.
 
There is no minimum contribution due for 2009, and no decision has been made as of September 30, 2009 relative to the level of contribution that will be made to the plan, if any.
 

12
 

 
 

NOTE 10. FAIR VALUE MEASUREMENTS

The following tables set forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis  by level within the fair value hierarchy as defined by fair value accounting guidance within the Codification:
 

   
September 30, 2009
   
Fair Value Measurements Using:
 
Asset at Fair
Value
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant
Unobservable Inputs
(unaudited, in thousands)
 
(Level 1)
(Level 2)
(Level 3)
Securities - available for sale
       
   Other government agencies
 $            220,322
 $            220,322
 $                      -
 $                      -
   Corporate debt securities
                 24,134
                         -
                 24,134
                         -
   Residential mortgage-backed securities and
   collateralized  mortgage obligations of government
   agencies
               804,840
                         -
               804,840
                         -
   Other residential collateralized mortgage obligations
                   3,505
                         -
                   3,463
                        42
   Obligations of state and political subdivisions
               361,108
                         -
               359,670
                   1,438
   Equity securities
                   3,778
                   2,093
                   1,443
                      242

   
December 31, 2008
   
Fair Value Measurements Using:
 
Asset at Fair
Value
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Unobservable Inputs
(unaudited, in thousands)
 
(Level 1)
(Level 2)
(Level 3)
Securities - available for sale
       
   Other government agencies
 $              40,009
 $              40,009
 $                      -
 $                      -
   Corporate debt securities
                   3,149
                         -
                   3,149
                         -
   Residential mortgage-backed securities and
   collateralized mortgage obligations of government
   agencies
               523,897
                         -
               523,897
                         -
   Other residential collateralized mortgage obligations
                   4,150
                         -
                   4,095
                        55
   Obligations of state and political subdivisions
               359,425
                         -
               357,979
                   1,446
   Equity securities
                   3,508
                   1,809
                   1,432
                      267
 
The following table presents additional information about assets measured at fair value on a recurring basis and for which WesBanco has utilized Level 3 inputs to determine fair value:
 
       
For the Three Months Ended
For the Nine Months Ended
       
September 30,
September 30,
(unaudited - in thousands)
 
2009
2008
2009
2008
Balance at beginning of period
 
 $           1,736
 $         5,438
 $         1,768
 $         5,994
 
Total gains (losses) - (realized/unrealized):
       
   
Included in earnings
                   -
                  -
                  -
                  -
   
Included in other comprehensive income
                   51
               492
                 45
               (64)
 
Purchases, issuances, and settlements
                   -
                (90)
                  -
               (90)
 
Transfers in or (out) of Level 3
                 (65)
           (3,919)
               (91)
          (3,919)
Balance at end of period
   
 $           1,722
 $         1,921
 $         1,722
 $         1,921


13

 
 
We may be required from time to time to measure certain assets at fair value on a nonrecurring basis in accordance with generally accepted accounting principles.  These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets.  For assets measured at fair value on a nonrecurring basis, the following table provides the level of valuation assumptions used to determine each adjustment in the carrying value of the related individual assets or portfolios at quarter end:



   
Fair Value Measurements Using:
 
Assets at Fair
Value
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Unobservable Inputs
(unaudited, in thousands)
 
(Level 1)
(Level 2)
(Level 3)
September 30, 2009
       
Impaired loans (1)
 $              22,531
 $                      -
 $                      -
 $              22,531
Other real estate owned and repossessed assets (2)
                   8,665
                         -
                         -
                   8,665
Mortgage servicing rights (3)
                   2,465
                         -
                         -
                   2,465
December 31, 2008
       
Impaired loans (1)
 $              17,089
 $                      -
 $                      -
 $              17,089
Other real estate owned and repossessed assets (2)
                   2,554
                         -
                         -
                   2,554
 
(1)
Represents the carrying value of loans for which adjustments are based on the appraised value of the collateral.
 
(2)
Other real estate owned and repossessed assets are carried at the lower of the investment in the assets or the fair value of the assets less estimated selling costs.
 
(3)
Represents the carrying value of mortgage servicing rights whose value has been impaired and therefore written down to their fair value as determined from independent valuations.

NOTE 11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates of financial instruments are based on the present value of expected future cash flows, quoted market prices of similar financial instruments, if available, and other valuation techniques. These valuations are significantly affected by discount rates, cash flow assumptions, and risk assumptions used. Therefore, fair value estimates may not be substantiated by comparison to independent markets and are not intended to reflect the proceeds that may be realizable in an immediate settlement of the instruments.

The aggregate fair value of amounts presented does not represent the underlying value of WesBanco. Management does not have the intention to dispose of a significant portion of its financial instruments and, therefore, the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows.

The following table represents the estimates of fair value of financial instruments:

             
September 30,
 
December 31,
             
2009
 
2008
             
Carrying
Fair
 
Carrying
Fair
(unaudited, in thousands)
Amount
Value
 
Amount
Value
Financial assets:
         
   
Cash and due from banks
 $        87,256
 $        87,256
 
 $      141,170
 $      141,170
   
Securities held-to-maturity
             1,450
             1,372
 
             1,450
             1,214
   
Securities available-for-sale
      1,417,687
      1,417,687
 
         934,138
         934,138
   
Net loans
      3,440,867
      3,493,343
 
      3,554,506
      3,626,774
   
Loans held for sale
             6,860
             6,860
 
             3,874
             3,874
   
Accrued interest receivable
           22,091
           22,091
 
           19,966
           19,966
   
Bank owned life insurance
         102,670
         102,670
 
         101,229
         101,229
Financial liabilities:
         
   
Deposits
      4,005,508
      4,021,278
 
      3,503,916
      3,508,233
   
Federal Home Loan Bank borrowings
         567,939
         575,782
 
         596,890
         617,518
   
Other borrowings
         236,884
         230,474
 
         297,805
         297,741
   
Junior subordinated debt
         111,175
           65,950
 
         111,110
           53,178
   
Accrued interest payable
           10,664
           10,664
 
           10,492
           10,492
 
The following methods and assumptions were used to estimate the fair value of financial instruments:

Cash and due from banks — The carrying amount for cash and due from banks is a reasonable estimate of fair value.

Securities — Fair values for securities are based on quoted market prices, if available. If market prices are not available, then quoted market prices of similar instruments are used.  The fair value of securities accounted for using the cost method is only estimated if events or changes in circumstances that may have a significant adverse effect on their fair value have been identified.  Other short-term investments consist of money market funds.

 
14
 
 
 
 
Net Loans —Fair values of commercial real estate, construction, residential mortgage and personal loans are based on a discounted value of the estimated future cash flows expected to be received.  The current interest rates applied in the discounted cash flow method reflect rates used to price new loans of similar type, adjusted for relative risk and remaining maturity.  Non-performing loans and loans past due 90 days or more and accruing interest are recorded at carrying amount.  The fair value, as well as the carrying amount of total loans is net of the allowance for loan losses.

Loans Held for Sale — The carrying amount of loans held for sale approximates its fair value.

Accrued interest receivable — The carrying amount of accrued interest receivable approximates its fair value.

Bank-Owned Life Insurance — The carrying value of bank-owned life insurance represents the net cash surrender value of the underlying insurance policies, should these policies be terminated.  Management believes that the carrying value approximates fair value.

Deposits — The carrying amount is considered a reasonable estimate of fair value for demand, savings and other variable rate deposit accounts. The fair value of fixed maturity certificates of deposit is estimated by a discounted cash flow method using the rates currently offered for deposits of similar remaining maturities.

Federal Home Loan Bank Borrowings — For FHLB borrowings, fair value is based on rates currently available to WesBanco for borrowings with similar terms and remaining maturities.

Other Borrowings — Fair values for federal funds purchased and repurchase agreements are based on quoted market prices, if available. If market prices are not available, then quoted market prices of similar instruments are used.
 
 
Junior Subordinated Debt Owed to Unconsolidated Subsidiary Trusts — Due to the pooled nature of these instruments, which are not actively traded on an equity market, estimated fair value is based on broker prices from recent similar issuances.

Accrued Interest Payable — The carrying amount of accrued interest payable approximates its fair value.

Off-Balance Sheet Financial Instruments — Off-balance sheet financial instruments consist of commitments to extend credit including letters of credit. Fair values for commitments to extend credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit standing of the counterparties. The estimated fair value of the commitments to extend credit and letters of credit are insignificant and therefore not presented in the above table.
 

15


 
 
NOTE 12. COMPREHENSIVE INCOME
 
The components of other comprehensive income are as follows:

 
 
For the Three Months Ended
For the Nine Months Ended
 
September 30,
September 30,
(unaudited, in thousands)
2009
 
2008
2009
 
2008
Net Income
 $       5,442
 
 $        11,509
 $      16,636
 
 $    32,296
Securities available-for-sale:
           
  Net change in unrealized gains (losses) on securities available-for-sale
         20,949
 
             (4,131)
        22,352
 
           (8,161)
          Related income tax (expense) benefit (1)
         (7,824)
 
              1,635
         (8,348)
 
           3,200
  Net securities (gains) losses reclassified into earnings
          (1,329)
 
              (276)
         (3,933)
 
           (1,182)
          Related income tax expense (benefit) (1)
              496
 
                 109
           1,469
 
              467
               Net effect on other comprehensive income for the period
         12,292
 
           (2,663)
          11,540
 
         (5,676)
             
Cash flow hedge derivatives:
           
  Net change in unrealized gains (losses) on derivatives
                -
 
                      1
                -
 
                 59
          Related income tax (expense) benefit (1)
                -
 
                    -
                -
 
               (23)
               Net effect on other comprehensive income for the period
                -
 
                      1
                -
 
                 36
             
Defined benefit pension plan
           
   Amortization of prior service costs
              (30)
 
                 (29)
              (88)
 
               (88)
          Related income tax expense (benefit) (1)
                 11
 
                    12
               33
 
                 36
   Amortization of unrealized loss
              480
 
                 129
           1,424
 
              386
          Related income tax expense (benefit) (1)
             (179)
 
                  (51)
            (532)
 
             (153)
               Net effect on other comprehensive income for the period
              282
 
                    61
             837
 
                181
Other comprehensive income
         12,574
 
            (2,601)
         12,377
 
         (5,459)
Total comprehensive income
 $       18,016
 
 $         8,908
 $      29,013
 
 $    26,837
(1) Related income tax expense or benefit calculated using a combined Federal and State income tax rate of approximately 40%.
 
The activity in accumulated other comprehensive income (loss) for the nine months ended September 30, 2009 and 2008 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, 2009
 $      (14,132)
 
 $             10,950
 
 $                           -
 
 $           (3,182)
Period change, net of tax
               837
 
                11,540
 
                               -
 
            12,377
Balance at September 30, 2009
 $      (13,295)
 
 $             22,490
 
 $                           -
 
 $             9,195
               
Balance at January 1, 2008
 $          (3,893)
 
 $                 5,379
 
 $                      (36)
 
 $             1,450
Period change, net of tax
               181
 
                 (5,676)
 
                              36
 
             (5,459)
Balance at September 30, 2008
 $          (3,712)
 
 $                 (297)
 
 $                           -
 
 $           (4,009)

16
 
 
 
 
NOTE 13. 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, standby letters of credit and other guarantees 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.  The allowance for credit losses associated with loan commitments was $0.2 million and $0.4 million as of September 30, 2009 and December 31, 2008, respectively.
 
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 $0.1 million and $0.1 million as of September 30, 2009 and December 31, 2008, respectively, and is included in other liabilities on the Consolidated Balance Sheets.
 
Affordable housing plan guarantees are performance guarantees for various building project loans.  The guarantee amortizes down as the loan balances decrease.
 
       The following table presents total commitments, guarantees and various letters of credit outstanding:

 
 
September 30,
December 31,
(unaudited, in thousands)
2009
2008
Commitments to extend credit
 $        660,428
 $        728,994
Standby letters of credit
             33,300
             34,209
Affordable housing plan guarantees
               4,393
               4,472
Commercial letters of credit
                  171
               2,585
 
CONTINGENT LIABILITIES—WesBanco and its subsidiaries are parties to various legal and administrative proceedings and claims. While any claim 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 14. 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, 0.2 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 service 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.
 
The following table presents stock option activity for the nine months ended September 30, 2009:

 
                 
Weighted
               
Weighted
Average
               
Average
Remaining
               
Exercise Price
Contractual
(unaudited)
Shares
 Per Share
Life in Years
Outstanding at January 1, 2009
           393,127
 $          23.91
 
Granted
   
                     -
                   -
 
Exercised
 
              (6,764)
             14.97
 
Forfeited or expired
            (14,144)
             25.75
 
Outstanding at September 30, 2009
           372,219
 $          24.00
             3.73
Vested and exercisable at September 30, 2009
           372,219
 $          24.00
             3.73
 
        The aggregate intrinsic value of the outstanding options and the options exercisable at quarter end was $15,000.  There were no options awarded during the nine months ended September 30, 2009.
 

17
 
 
 
 
NOTE 15. 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, and certain non-traditional offerings, such as insurance and securities brokerage services.  The trust and investment services segment offers trust services as well as various alternative investment products including mutual funds.  The market value of assets of the trust and investment services segment was approximately $2.6 billion and $2.7 billion at September 30, 2009 and 2008, respectively.  These assets are held by WesBanco 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 September 30, 2009:
     
Interest income
 $         65,212
 $             -
 $           65,212
Interest expense
            24,783
                -
              24,783
Net interest income
            40,429
                -
              40,429
Provision for credit losses
            16,200
                -
              16,200
Net interest income after provision for credit losses
            24,229
                -
              24,229
Non-interest income
            15,047
          3,508
              18,555
Non-interest expense
            35,400
          2,305
              37,705
Income before provision for income taxes
              3,876
          1,203
                5,079
Provision for income taxes
                (844)
             481
                 (363)
Net income
 $           4,720
 $          722
 $             5,442
       
For the Three Months ended September 30, 2008:
     
Interest income
 $         68,675
 $             -
 $           68,675
Interest expense
            28,388
                -
              28,388
Net interest income
            40,287
                -
              40,287
Provision for credit losses
              6,457
                -
                6,457
Net interest income after provision for credit losses
            33,830
                -
              33,830
Non-interest income
            11,331
          3,639
              14,970
Non-interest expense
            33,858
          2,307
              36,165
Income before provision for income taxes
            11,303
          1,332
              12,635
Provision for income taxes
                 593
             533
                1,126
Net income
 $         10,710
 $          799
 $           11,509
       
For the Nine Months ended September 30, 2009:
     
Interest income
 $       194,493
 $             -
 $         194,493
Interest expense
            76,686
                -
              76,686
Net interest income
          117,807
                -
            117,807
Provision for credit losses
            36,019
                -
              36,019
Net interest income after provision for credit losses
            81,788
                -
              81,788
Non-interest income
            37,152
        10,149
              47,301
Non-interest expense
          105,080
          6,983
            112,063
Income before provision for income taxes
            13,860
          3,166
              17,026
Provision for income taxes
                (876)
          1,266
                   390
Net income
 $         14,736
 $       1,900
 $           16,636
       
For the Nine Months ended September 30, 2008:
     
Interest income
 $       214,043
 $             -
 $         214,043
Interest expense
            94,353
                -
              94,353
Net interest income
          119,690
                -
            119,690
Provision for credit losses
            17,605
                -
              17,605
Net interest income after provision for credit losses
          102,085
                -
            102,085
Non-interest income
            33,154
        11,702
              44,856
Non-interest expense
          101,582
          7,313
            108,895
Income before provision for income taxes
            33,657
          4,389
              38,046
Provision for income taxes
              3,994
          1,756
                5,750
Net income
 $         29,663
 $       2,633
 $           32,296
 
  Total non-fiduciary assets of the trust and investment services segment were $18.8 million and $16.8 million at September 30, 2009 and 2008, respectively.  All goodwill and other intangible assets were allocated to the community banking segment.
 
 
18
 

 
 
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, 2008 and documents subsequently filed by WesBanco with the Securities and Exchange Commission (“SEC”), including WesBanco’s Forms 10-Q for the quarters ended March 31 and June 30, 2009, which are 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 Financial Institution Regulatory Authority 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, greater than expected outflows on recent branch acquisition deposits; marketability of debt instruments and corresponding impact on fair value adjustments; 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 September 30, 2009 have remained unchanged from the disclosures presented in WesBanco’s Annual Report on Form 10-K for the year ended December 31, 2008 under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
Goodwill - The carrying value of goodwill is tested at least annually for impairment or when indicators of potential impairment are present.  The evaluation for impairment involves comparing the estimated current fair value of each reporting unit to its carrying value, including goodwill.  If the estimated current fair value of a reporting unit exceeds its carrying value, no additional testing is required and an impairment loss is not recorded.  Otherwise, additional testing is performed and to the extent such additional testing results in a conclusion that the carrying value of goodwill exceeds its implied fair value, an impairment loss is recognized.  WesBanco uses market capitalization, multiples of tangible book value, and discounted cash flow methods to determine the estimated current fair value of its reporting units.  Given the declines in WesBanco’s market capitalization during 2009, management performed an impairment test of goodwill related to the community banking reporting unit.  As of September 30, 2009, there was $274.1 million of goodwill recorded at the community banking reporting unit level.  Management estimated the fair value of the community banking reporting unit at September 30, 2009 using a market approach and an income approach.  Based on this analysis, the estimated fair value of the community banking reporting unit could decline by approximately 9% before further analysis of goodwill impairment would be required.
 
In the event WesBanco determined that its goodwill was impaired, recognition of an impairment charge could have a significant adverse impact on its financial position or results of operations in the period in which the impairment occurred.
 
OVERVIEW
 
WesBanco is a multi-state bank holding company operating through 114 branches and 138 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 and regulatory 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.
 
As noted in the first quarter of 2009, WesBanco completed the purchase of all five of AmTrust Bank’s Columbus, Ohio branches on March 27, 2009.  WesBanco assumed all of the deposit liabilities of $599.4 million for a total purchase price of $21.2 million and is now operating the acquired branches under the WesBanco Bank name.

On September 9, 2009 WesBanco repurchased from the U.S. Department of the Treasury 75,000 shares of the Company's Fixed Rate Cumulative Perpetual Preferred Stock, Series A, originally issued on December 5, 2008 under the Troubled Asset Relief Program (“TARP”), at a purchase price of $75 million plus a final accrued dividend of $250,000.  The funds used to redeem the preferred stock were derived from security sales and other internal sources, including a special dividend from the Bank paid during the quarter that was previously approved by the Bank’s regulators. The repurchase of the preferred stock resulted in WesBanco recording a $2.3 million charge in the third quarter representing the remaining unamortized discount on the preferred stock on the repurchase date, as well as certain unamortized issuance costs.  These charges, along with $0.8 million of discount amortization and dividends are reflected on the income statement in the third quarter after net income.  WesBanco also issued a warrant to the Treasury Department with the preferred stock in December 2008 and is currently
 
 
19
 
 
 
 
negotiating terms for the repurchase of this warrant.  WesBanco’s consolidated and bank subsidiary capital ratios continue to be in excess of the “well capitalized” benchmarks for regulatory purposes at September 30, 2009 after repurchase of the preferred stock.
 
On August 27, 2009 the Board of Directors of WesBanco declared a third quarter common stock dividend of $0.14 per share, a 50% reduction in the quarterly dividend rate as compared to the prior quarterly rate.  The reduction was taken to address the impact of the recession on earnings and to increase capital internally by reducing the payout ratio.  The dividend reduction will better match dividends to current earnings opportunities.

 
 
RESULTS OF OPERATIONS
 
EARNINGS SUMMARY
 
For the quarter ended September 30, 2009

WesBanco’s net income available to common shareholders for the quarter ended September 30, 2009 was $2.3 million while diluted earnings per common share were $0.09, as compared to $11.5 million or $0.43 per common share for the third quarter of 2008, and $4.7 million or $0.18 per share in the prior quarter ended June 30, 2009.  Earnings per common share in the third quarter included a charge of $0.09 per common share for the unamortized discount on the repurchase of the TARP preferred stock and an additional $0.03 per share for preferred stock dividends paid in the third quarter.  For the nine month period ended September 30, 2009, net income available to common shareholders was $11.4 million or $0.43 per common share, while for the same period in 2008, net income was $32.3 million or $1.22 per common share. Net income before preferred stock dividends and the accounting adjustment for the TARP repurchase was $16.6 million year to date.

Net income decreased by $6.1 million during the third quarter of 2009, as compared to the third quarter of 2008, primarily due to a $9.7 million increase in the provision for loan losses, which reflects loan charge-offs of $14.0 million as compared to loan charge-offs of $4.9 million in the 2008 quarter.  During the quarter WesBanco charged-down two commercial loans by $8.5 million, with $2.0 million of this charge reserved for in the second quarter. One of the charge-offs was caused by a fraudulent equipment leasing scheme which impacted a borrower’s equipment leasing activities, and the other loss was on a hotel which was previously identified as impaired.  Higher provision expense also reflects the general deterioration of credit quality across all segments of the loan portfolio due to the prolonged recession, which has caused increases in net charge-offs and non-performing assets.  The allowance for loan losses increased to 1.74% of total loans at September 30, 2009 as compared to 1.21% at September 30, 2008, and 1.65% at the end of the second quarter.  In addition, FDIC insurance increased by $1.2 million from industry wide higher assessments and employee benefits increased $1.3 million due to higher pension and health care costs.  Partially offsetting these increases were net securities gains of $1.0 million, a bank owned life insurance claim of $1.0 million and a $1.5 million decrease in the tax provision due to lower pre-tax income and a lower effective tax rate during the 2009 quarter.

Net interest income increased slightly in the third quarter of 2009 as compared to the third quarter of 2008, but increased 3.0% versus the second quarter of 2009 and 6.0% over the first quarter of 2009 as a result of increased earning assets from the branch acquisition.  Also contributing to improved net interest income were lower rates on interest bearing liabilities, particularly for deposits, as a result of decreasing market interest rates, certificate of deposit maturities and WesBanco’s focus on improving the net interest margin by reducing higher cost funding sources.

For the year-to-date period ended September 30, 2009

For the 2009 nine month period, the decrease in net income was primarily due to an $18.4 million increase in the provision for credit losses, a $6.5 million increase in FDIC insurance, and a $2.6 million increase in employee benefits, partially offset by decreased merger and acquisition costs of $2.6 million, a $2.8 million increase in net security gains and a $5.4 million decrease in the provision for income taxes.  The effective tax rate in the 2009 period was 2.3% as compared to 15.1% in the nine month period of 2008.  In addition, non-interest expenses, excluding FDIC insurance, merger-related expenses and employee benefits declined $3.3 million which reflects ongoing efficiency improvements throughout WesBanco and in many expense categories.  Salaries and wages, net occupancy and equipment, consulting fees, marketing, amortization of intangibles and miscellaneous taxes were the principal categories where expense reductions were achieved.  These improvements were mitigated somewhat by the branch acquisition, which added 30 full time equivalent employees and five new branch facilities at the end of the first quarter.
 
 
20
 
 
 
 
NON-GAAP MEASURES
 
The following non-GAAP financial measures used by WesBanco provide information that WesBanco believes is useful to investors in understanding WesBanco’s operating performance and trends, and facilitates comparisons with the performance of WesBanco’s peers. The following tables summarize the non-GAAP financial measures derived from amounts reported in WesBanco’s financial statements.
 
TABLE 1. NON-GAAP MEASURES
 
   
September 30,
 
December 31,
(unaudited, dollars in thousands)
2009
 
2008
Tangible equity to tangible assets:
     
Total shareholders' equity
 $         592,335
 
 $        659,371
Less:  goodwill and other intangible assets
          (289,087)
 
         (267,883)
Tangible equity
            303,248
 
           391,488
         
Total assets
         5,561,091
 
        5,222,041
Less:  goodwill and other intangible assets
          (289,087)
 
         (267,883)
Tangible assets
         5,272,004
 
        4,954,158
         
Tangible equity to tangible assets
5.75%
 
7.90%
         
Tangible common equity to tangible assets:
     
Total shareholders' equity
 $         592,335
 
 $        659,371
Less:  goodwill and other intangible assets
          (289,087)
 
         (267,883)
Less:  preferred shareholders' equity
                      -
 
           (72,332)
Tangible common equity
            303,248
 
           319,156
         
Total assets
         5,561,091
 
        5,222,041
Less:  goodwill and other intangible assets
          (289,087)
 
         (267,883)
Tangible assets
         5,272,004
 
        4,954,158
         
Tangible common equity to tangible assets
5.75%
 
6.44%
 
  The decline in the equity ratios was primarily caused by the acquisition of AmTrust deposits of $599.4 million.
 
NET INTEREST INCOME
 
TABLE 2. NET INTEREST INCOME

 
             
For the Three Months Ended
 
For the Nine Months Ended
             
September 30,