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Table of Contents

 

 

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 June 30, 2015

 

¨ 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  þ    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.

 

Large accelerated filer   þ    Accelerated filer   ¨
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 July 23, 2015, there were 38,527,670 shares of WesBanco, Inc. common stock, $2.0833 par value, outstanding.

 

 

 


Table of Contents

WESBANCO, INC.

TABLE OF CONTENTS

 

Item
No.

 

ITEM

  

Page
No.

 
 

PART I - FINANCIAL INFORMATION

  
1  

Financial Statements

  
 

Consolidated Balance Sheets at June 30, 2015 (unaudited) and December 31, 2014

     3   
 

Consolidated Statements of Comprehensive Income for the three and six months ended June  30, 2015 and 2014 (unaudited)

     4   
 

Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June  30, 2015 and 2014 (unaudited)

     5   
 

Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (unaudited)

     6   
 

Notes to Consolidated Financial Statements (unaudited)

     7   
2  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     29   
3  

Quantitative and Qualitative Disclosures About Market Risk

     49   
4  

Controls and Procedures

     51   
 

PART II - OTHER INFORMATION

  
1  

Legal Proceedings

     52   
2  

Unregistered Sales of Equity Securities and Use of Proceeds

     53   
6  

Exhibits

     54   
 

Signatures

     55   


Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WESBANCO, INC. CONSOLIDATED BALANCE SHEETS

 

 

(unaudited, in thousands, except shares)

   June 30,
2015
    December 31,
2014
 

ASSETS

    

Cash and due from banks, including interest bearing amounts of $20,402 and $8,405, respectively

   $ 108,738      $ 94,002   

Securities:

    

Available-for-sale, at fair value

     1,594,658        917,424   

Held-to-maturity (fair values of $864,226 and $619,617, respectively)

     848,416        593,670   
  

 

 

   

 

 

 

Total securities

     2,443,074        1,511,094   
  

 

 

   

 

 

 

Loans held for sale

     11,160        5,865   
  

 

 

   

 

 

 

Portfolio loans, net of unearned income

     4,933,645        4,086,766   

Allowance for loan losses

     (43,419     (44,654
  

 

 

   

 

 

 

Net portfolio loans

     4,890,226        4,042,112   
  

 

 

   

 

 

 

Premises and equipment, net

     111,692        93,135   

Accrued interest receivable

     24,739        18,481   

Goodwill and other intangible assets, net

     492,997        319,506   

Bank-owned life insurance

     154,980        123,298   

Other assets

     137,813        89,072   
  

 

 

   

 

 

 

Total Assets

   $ 8,375,419      $ 6,296,565   
  

 

 

   

 

 

 

LIABILITIES

    

Deposits:

    

Non-interest bearing demand

   $ 1,257,932      $ 1,061,075   

Interest bearing demand

     1,156,949        885,037   

Money market

     989,888        954,957   

Savings deposits

     1,075,711        842,818   

Certificates of deposit

     1,778,565        1,305,096   
  

 

 

   

 

 

 

Total deposits

     6,259,045        5,048,983   
  

 

 

   

 

 

 

Federal Home Loan Bank borrowings

     781,332        223,126   

Other short-term borrowings

     73,868        80,690   

Junior subordinated debt owed to unconsolidated subsidiary trusts

     106,196        106,176   
  

 

 

   

 

 

 

Total borrowings

     961,396        409,992   
  

 

 

   

 

 

 

Accrued interest payable

     2,542        1,620   

Other liabilities

     57,783        47,780   
  

 

 

   

 

 

 

Total Liabilities

     7,280,766        5,508,375   
  

 

 

   

 

 

 

SHAREHOLDERS’ EQUITY

    

Preferred stock, no par value; 1,000,000 shares authorized; none outstanding

     —          —     

Common stock, $2.0833 par value; 100,000,000 and 50,000,000 shares authorized in 2015 and 2014, respectively; 38,546,042 and 29,367,511 issued in 2015 and 2014, respectively; outstanding: 38,519,170 and 29,298,188 shares in 2015 and 2014, respectively

     80,304        61,182   

Capital surplus

     516,990        244,661   

Retained earnings

     522,388        504,578   

Treasury stock (26,872 and 69,323 shares in 2015 and 2014, respectively, at cost)

     (867     (2,151

Accumulated other comprehensive loss

     (21,702     (18,825

Deferred benefits for directors

     (2,460     (1,255
  

 

 

   

 

 

 

Total Shareholders’ Equity

     1,094,653        788,190   
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 8,375,419      $ 6,296,565   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

3


Table of Contents

WESBANCO, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

     For the Three Months Ended
June 30,
    For the Six Months Ended
June 30,
 

(unaudited, in thousands, except shares and per share amounts)

   2015      2014     2015      2014  

INTEREST AND DIVIDEND INCOME

          

Loans, including fees

   $ 52,316       $ 42,546      $ 100,036       $ 85,291   

Interest and dividends on securities:

          

Taxable

     10,043         7,452        18,542         14,676   

Tax-exempt

     4,052         3,435        7,585         6,821   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest and dividends on securities

     14,095         10,887        26,127         21,497   
  

 

 

    

 

 

   

 

 

    

 

 

 

Other interest income

     318         611        954         713   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest and dividend income

     66,729         54,044        127,117         107,501   
  

 

 

    

 

 

   

 

 

    

 

 

 

INTEREST EXPENSE

          

Interest bearing demand deposits

     485         395        907         768   

Money market deposits

     490         466        945         907   

Savings deposits

     163         133        311         263   

Certificates of deposit

     2,869         3,422        5,741         7,052   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest expense on deposits

     4,007         4,416        7,904         8,990   
  

 

 

    

 

 

   

 

 

    

 

 

 

Federal Home Loan Bank borrowings

     949         175        1,507         386   

Other short-term borrowings

     92         350        165         907   

Junior subordinated debt owed to unconsolidated subsidiary trusts

     888         796        1,784         1,587   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest expense

     5,936         5,737        11,360         11,870   
  

 

 

    

 

 

   

 

 

    

 

 

 

NET INTEREST INCOME

     60,793         48,307        115,757         95,631   

Provision for credit losses

     2,681         849        3,970         3,048   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net interest income after provision for credit losses

     58,112         47,458        111,787         92,583   
  

 

 

    

 

 

   

 

 

    

 

 

 

NON-INTEREST INCOME

          

Trust fees

     5,476         5,210        11,529         10,858   

Service charges on deposits

     4,249         4,078        7,918         7,937   

Electronic banking fees

     3,496         3,267        6,821         6,281   

Net securities brokerage revenue

     1,842         2,003        3,901         3,832   

Bank-owned life insurance

     989         1,821        2,244         2,695   

Net gains on sales of mortgage loans

     407         475        679         628   

Net securities gains

     —           165        22         175   

Net gain / (loss) on other real estate owned and other assets

     152         (165     185         (52

Other income

     1,461         1,387        2,955         2,936   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total non-interest income

     18,072         18,241        36,254         35,290   
  

 

 

    

 

 

   

 

 

    

 

 

 

NON-INTEREST EXPENSE

          

Salaries and wages

     19,300         16,904        37,636         33,370   

Employee benefits

     6,807         5,529        14,123         11,238   

Net occupancy

     3,243         2,857        6,765         6,348   

Equipment

     3,017         2,914        5,958         5,698   

Marketing

     1,715         1,713        2,707         2,716   

FDIC insurance

     1,040         880        1,950         1,757   

Amortization of intangible assets

     944         482        1,510         977   

Restructuring and merger-related expense

     1,115         —          10,848         —     

Other operating expenses

     9,408         9,025        18,550         18,294   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total non-interest expense

     46,589         40,304        100,047         80,398   
  

 

 

    

 

 

   

 

 

    

 

 

 

Income before provision for income taxes

     29,595         25,395        47,994         47,475   

Provision for income taxes

     7,962         6,520        12,482         12,179   
  

 

 

    

 

 

   

 

 

    

 

 

 

NET INCOME

   $ 21,633       $ 18,875      $ 35,512       $ 35,296   
  

 

 

    

 

 

   

 

 

    

 

 

 

EARNINGS PER COMMON SHARE

          

Basic

   $ 0.56       $ 0.65      $ 0.97       $ 1.21   

Diluted

   $ 0.56       $ 0.64      $ 0.97       $ 1.20   
  

 

 

    

 

 

   

 

 

    

 

 

 

AVERAGE COMMON SHARES OUTSTANDING

          

Basic

     38,472,229         29,242,180        36,443,951         29,212,347   

Diluted

     38,531,700         29,321,927        36,504,671         29,293,424   
  

 

 

    

 

 

   

 

 

    

 

 

 

DIVIDENDS DECLARED PER COMMON SHARE

   $ 0.23       $ 0.22      $ 0.46       $ 0.44   
  

 

 

    

 

 

   

 

 

    

 

 

 

COMPREHENSIVE INCOME

   $ 13,547       $ 22,943      $ 32,635       $ 42,637   
  

 

 

    

 

 

   

 

 

    

 

 

 

See Notes to Consolidated Financial Statements.

 

4


Table of Contents

WESBANCO, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

For the Six Months Ended June 30, 2015 and 2014

 

     Common Stock                       

Accumulated

Other

    Deferred        

(unaudited, in thousands, except shares
and per share amounts)

   Shares
Outstanding
    Amount      Capital
Surplus
    Retained
Earnings
    Treasury
Stock
    Comprehensive
Income (Loss)
    Benefits for
Directors
    Total  

December 31, 2014

     29,298,188      $ 61,182       $ 244,661      $ 504,578      $ (2,151   $ (18,825   $ (1,255   $ 788,190   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     —          —           —          35,512        —          —          —          35,512   

Other comprehensive income

     —          —           —          —          —          (2,877     —          (2,877
                 

 

 

 

Comprehensive income

     —          —           —          —          —          —          —          32,635   

Common dividends declared ($0.46 per share)

     —          —           —          (17,702     —          —          —          (17,702

Shares issued for acquisition

     9,178,531        19,122         274,507        —          —          —          —          293,629   

Treasury shares acquired

     (50,224     —           —          —          (1,638     —          —          (1,638

Stock options exercised

     44,125        —           (223     —          1,396        —          —          1,173   

Restricted stock granted

     48,550        —           (1,526     —          1,526        —          —          —     

Repurchase of stock warrant

     —          —           (2,247     —          —          —          —          (2,247

Stock compensation expense

     —          —           613        —          —          —          —          613   

Deferred benefits for directors- net

     —          —           1,205        —          —          —          (1,205     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

June 30, 2015

     38,519,170      $ 80,304       $ 516,990      $ 522,388      $ (867   $ (21,702   $ (2,460   $ 1,094,653   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2013

     29,175,236      $ 61,182       $ 244,974      $ 460,351      $ (5,969   $ (12,734   $ (1,209   $ 746,595   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     —          —           —          35,296        —          —          —          35,296   

Other comprehensive income

     —          —           —          —          —          7,341        —          7,341   
                 

 

 

 

Comprehensive income

     —          —           —          —          —          —          —          42,637   

Common dividends declared ($0.44 per share)

     —          —           —          (12,861     —          —          —          (12,861

Treasury shares acquired

     (2,258     —           49        —          (69     —          —          (20

Stock options exercised

     63,393        —           (311     —          1,969        —          —          1,658   

Restricted stock granted

     42,554        —           (1,321     —          1,321        —          —          —     

Stock compensation expense

     —          —           616        —          —          —          —          616   

Deferred benefits for directors- net

     —          —           22        —          —          —          (22     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

June 30, 2014

     29,278,925      $ 61,182       $ 244,029      $ 482,786      $ (2,748   $ (5,393   $ (1,231   $ 778,625   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

5


Table of Contents

WESBANCO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

     For the Six Months Ended
June 30,
 

(unaudited, in thousands)

   2015     2014  

NET CASH PROVIDED BY OPERATING ACTIVITIES

   $ 34,541      $ 41,380   
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Net increase in loans

     (156,166     (55,683

Securities available-for-sale:

    

Proceeds from sales

     560,736        3,491   

Proceeds from maturities, prepayments and calls

     121,699        117,595   

Purchases of securities

     (430,858     (182,501

Securities held-to-maturity:

    

Proceeds from maturities, prepayments and calls

     26,021        18,982   

Purchases of securities

     (173,754     (29,704

Proceeds from bank-owned life insurance

     1,185        —     

Cash paid to acquire a business, net of cash acquired

     (28,551     —     

Purchases of premises and equipment – net

     (4,835     (2,659
  

 

 

   

 

 

 

Net cash used in investing activities

     (84,523     (130,479
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

(Decrease) increase in deposits

     (35,196     55,248   

Proceeds from Federal Home Loan Bank borrowings

     675,000        115,532   

Repayment of Federal Home Loan Bank borrowings

     (509,029     (16,368

Decrease in other short-term borrowings

     (11,822     (35,609

Decrease in federal funds purchased

     —          (20,000

Repayment of junior subordinated debt

     (36,083     —     

Repurchase of common stock warrant

     (2,247     —     

Dividends paid to common shareholders

     (15,291     (12,256

Treasury shares (purchased) sold - net

     (614     1,489   
  

 

 

   

 

 

 

Net cash provided by financing activities

     64,718        88,036   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     14,736        (1,063

Cash and cash equivalents at beginning of the period

     94,002        95,551   
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 108,738      $ 94,488   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES

    

Interest paid on deposits and other borrowings

   $ 12,288      $ 12,532   

Income taxes paid

     5,070        7,850   

Transfers of loans to other real estate owned

     751        1,610   

Non-cash transactions related to ESB acquisition

     301,933        —     
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

6


Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation — The accompanying unaudited interim financial statements of WesBanco, Inc. and its consolidated subsidiaries (“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 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, 2014.

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 2014 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.

Recent accounting pronouncements — In May 2015, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (“ASU”) (ASU 2015-07) related to disclosures for investments in certain entities that calculate net asset value (NAV) per share (or its equivalent). This update removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient and modifies certain disclosure requirements. The update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2015, and requires retrospective adoption. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on WesBanco’s Consolidated Financial Statements.

In April 2015, the FASB issued ASU 2015-05 that provides guidance on when to account for a cloud computing arrangement as a software license. The guidance applies only to internal-use software that a customer obtains access to in a hosting arrangement if both of the following criteria are met: (1) The customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty, (2) it is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on WesBanco’s Consolidated Financial Statements.

In February 2015, the FASB issued ASU 2015-02 that revised the consolidation model, requiring reporting entities to reevaluate whether they should consolidate certain legal entities under the revised model. The amendments in this update modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, and eliminate the presumption that a general partner should consolidate and affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. The pronouncement also provides for a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on WesBanco’s Consolidated Financial Statements.

In August 2014, the FASB issued ASU 2014-14 related to the classification of certain government-guaranteed mortgage loans upon foreclosure. The amendments in this update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) The loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based upon the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The pronouncement is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014 and may be adopted under either a modified retrospective transition method or a prospective transition method. However, the same method of transition as elected under ASU 2014-04 must be applied. While early adoption was permitted, WesBanco elected to adopt the ASU in the first quarter of 2015, which was the first interim period after December 31, 2014. The adoption of this pronouncement did not have a material impact on WesBanco’s Consolidated Financial Statements.

        In June 2014, the FASB issued ASU 2014-11 related to repurchase-to-maturity transactions, repurchase financing and disclosures. The pronouncement changes the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements. The pronouncement also requires two new disclosures. The first disclosure requires an entity to disclose information on transfers accounted for as sales in transactions that are economically similar to repurchase agreements. The second disclosure provides increased transparency about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The pronouncement is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. While early adoption was not permitted, WesBanco elected to adopt the ASU in the first quarter of 2015, which was the first interim period after December 31, 2014. Early adoption was not permitted. The adoption of this pronouncement did not have a material impact on WesBanco’s Consolidated Financial Statements.

In May 2014, the FASB issued ASU 2014-09 related to the recognition of revenue from contracts with customers. The new revenue pronouncement creates a single source of revenue guidance for all companies in all industries and is more principles-based than current revenue guidance. The pronouncement provides a five-step model for a company to recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. The five steps are, (1) identify the contract with the customer, (2) identify the separate performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and (5) recognize revenue when each performance obligation is satisfied. The

 

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pronouncement was originally effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016 using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. Early adoption is not permitted. On July 9, 2015, the FASB approved a one-year deferral of the effective date of the update. The update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. Early adoption is now permitted as of the original effective date for interim and annual reporting periods in fiscal years beginning after December 15, 2016. WesBanco is currently evaluating the impact of the adoption of this pronouncement on its Consolidated Financial Statements.

NOTE 2. MERGERS AND ACQUISITIONS

On February 10, 2015, WesBanco completed its acquisition of ESB Financial Corporation (“ESB”), and its wholly-owned banking subsidiary, ESB Bank (“ESB Bank”), a Pennsylvania-chartered stock savings bank headquartered in Ellwood City, Pennsylvania. The transaction expanded WesBanco’s franchise in the Pittsburgh region of western Pennsylvania from 16 to 38 offices.

On the acquisition date, ESB had $1.9 billion in assets, excluding goodwill, which included $700.9 million in loans, and $486.9 million in securities. The ESB acquisition was valued at $339.0 million, based on WesBanco’s closing stock price on February 10, 2015 of $32.00, and resulted in WesBanco issuing 9,178,531 shares of its common stock and $45.0 million in cash and other assets in exchange for ESB common stock. The assets and liabilities of ESB were recorded on WesBanco’s balance sheet at their preliminary estimated fair values as of February 10, 2015, the acquisition date, and ESB’s results of operations have been included in WesBanco’s Consolidated Statements of Income since that date. ESB was merged into WesBanco and ESB Bank was merged into WesBanco Bank, Inc. (the “Bank”) on February 10, 2015. Based on a preliminary purchase price allocation, WesBanco recorded $169.3 million in goodwill and $5.3 million in core deposit intangibles in its community banking segment, representing the principal change in goodwill and intangibles from December 31, 2014. The fair values for the assets acquired and liabilities assumed are provisional amounts and are currently under review. Due to the timing of the ESB acquisition, WesBanco is still in the process of completing its fair market valuation, including the valuation of certain tangible and intangible assets as well as deferred income taxes. None of the goodwill is deductible for income tax purposes as the acquisition is accounted for as a tax-free exchange for tax purposes. As a result of the full integration of the operations of ESB, it is not practicable to determine the proforma results or revenue and net income included in WesBanco’s operating results relating to ESB since the date of acquisition because ESB has been fully integrated into WesBanco’s operations, and the operating results of ESB can therefore not be separately identified.

For the six months ended June 30, 2015, WesBanco recorded merger-related expenses of $10.8 million associated with the ESB acquisition. In 2014 WesBanco recognized $1.3 million in merger-related expenses in connection with the ESB acquisition.

The purchase price of the ESB acquisition and resulting goodwill is summarized as follows:

 

(unaudited, in thousands)

   February 10, 2015  

Purchase Price:

  

Fair value of WesBanco shares issued, (net of equity issuance costs of $0.1 million)

   $ 293,933   

Cash consideration for outstanding ESB shares, options and restricted stock

     37,036   

Settlement of pre-existing loan to ESB

     8,000   
  

 

 

 

Total purchase price

   $ 338,969   

Fair value of:

  

Tangible assets acquired

   $ 1,858,360   

Core deposit and other intangible assets acquired

     5,346   

Liabilities assumed

     (1,702,554

Net cash received in the acquisition

     8,485   
  

 

 

 

Fair value of net assets acquired

     169,637   
  

 

 

 

Goodwill recognized

   $ 169,332   
  

 

 

 

 

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The following table presents the preliminary allocation of the purchase price of the assets acquired and the liabilities assumed at the date of acquisition, as WesBanco intends to finalize its accounting for the acquisition of ESB during 2015:

 

(unaudited, in thousands)

   February 10, 2015  

Assets

  

Cash and due from banks

   $ 8,485   

Securities

     486,891   

Loans

     700,933   

Goodwill and other intangible assets

     174,678   

Accrued income and other assets (1)

     670,536   
  

 

 

 

Total Assets

   $ 2,041,523   
  

 

 

 

Liabilities

  

Deposits

   $ 1,246,992   

Borrowings

     433,454   

Accrued expenses and other liabilities

     22,108   
  

 

 

 

Total liabilities

     1,702,554   
  

 

 

 

Purchase price

   $ 338,969   
  

 

 

 

 

(1) 

Includes receivables of $560.7 million from the sale of available-for-sale securities prior to the acquisition date.

NOTE 3. EARNINGS PER COMMON SHARE

Earnings per common share are calculated as follows:

 

     For the Three Months Ended      For the Six Months Ended  
     June 30,      June 30,  

(unaudited, in thousands, except shares and per share amounts)

   2015      2014      2015      2014  

Numerator for both basic and diluted earnings per common share:

           

Net income

   $ 21,633       $ 18,875       $ 35,512       $ 35,296   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

Total average basic common shares outstanding

     38,472,229         29,242,180         36,443,951         29,212,347   

Effect of dilutive stock options and warrant

     59,471         79,747         60,720         81,077   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total diluted average common shares outstanding

     38,531,700         29,321,927         36,504,671         29,293,424   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per common share - basic

   $ 0.56       $ 0.65       $ 0.97       $ 1.21   

Earnings per common share - diluted

   $ 0.56       $ 0.64       $ 0.97       $ 1.20   
  

 

 

    

 

 

    

 

 

    

 

 

 

All stock options outstanding were included in the computation of diluted earnings per share for the three and six months ended June 30, 2015 and 2014, respectively, as all were considered dilutive.

On February 10, 2015, WesBanco issued 9,178,531 shares to complete its acquisition of ESB. These shares are included in average shares outstanding beginning on that date. For additional information relating to the ESB acquisition, refer to Note 2, “Mergers and Acquisitions.”

 

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NOTE 4. SECURITIES

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

 

     June 30, 2015      December 31, 2014  

(unaudited, in thousands)

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair

Value
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair

Value
 

Available-for-sale

                     

Obligations of government agencies

   $ 80,160       $ 1,172       $ (295   $ 81,037       $ 86,964       $ 1,087       $ (315   $ 87,736   

Residential mortgage-backed securities and collateralized mortgage obligations of government agencies

     1,239,616         3,868         (11,062     1,232,422         703,535         4,336         (6,758     701,113   

Obligations of states and political subdivisions

     88,267         4,592         (88     92,771         86,073         5,365         (5     91,433   

Corporate debt securities

     177,395         262         (343     177,314         25,974         141         (119     25,996   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total debt securities

   $ 1,585,438       $ 9,894       $ (11,788   $ 1,583,544       $ 902,546       $ 10,929       $ (7,197   $ 906,278   

Equity securities

     10,533         581         —          11,114         10,304         842         —          11,146   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

   $ 1,595,971       $ 10,475       $ (11,788   $ 1,594,658       $ 912,850       $ 11,771       $ (7,197   $ 917,424   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Held-to-maturity

                     

Residential mortgage-backed securities and collateralized mortgage obligations of government agencies

   $ 120,576       $ 2,501       $ (1,153   $ 121,924       $ 79,004       $ 3,262       $ (246   $ 82,020   

Obligations of states and political subdivisions

     718,230         19,754         (5,270     732,714         507,927         23,917         (1,043     530,801   

Corporate debt securities

     9,610         49         (71     9,588         6,739         106         (49     6,796   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total held-to-maturity securities

   $ 848,416       $ 22,304       $ (6,494   $ 864,226       $ 593,670       $ 27,285       $ (1,338   $ 619,617   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total securities

   $ 2,444,387       $ 32,779       $ (18,282   $ 2,458,884       $ 1,506,520       $ 39,056       $ (8,535   $ 1,537,041   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

At June 30, 2015, and December 31, 2014, there were no holdings of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of WesBanco’s shareholders’ equity.

The following table presents the fair value of available-for-sale and held-to-maturity securities by contractual maturity at June 30, 2015. In some instances, the issuers may have the right to call or prepay obligations without penalty prior to the contractual maturity date.

 

     June 30, 2015  

(unaudited, in thousands)

   One Year
or less
     One to
Five Years
     Five to
Ten Years
     After
Ten Years
     Mortgage-backed
and Equity
     Total  

Available-for-sale

                 

Obligations of government agencies

   $ —         $ 25,230       $ 38,977       $ 16,830       $ —         $ 81,037   

Residential mortgage-backed securities and collateralized mortgage obligations of government agencies (1)

     —           —           —           —           1,232,422         1,232,422   

Obligations of states and political subdivisions

     4,745         31,657         27,147         29,222         —           92,771   

Corporate debt securities

     82,862         56,218         33,344         4,890         —           177,314   

Equity securities (2)

     —           —           —           —           11,114         11,114   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

   $ 87,607       $ 113,105       $ 99,468       $ 50,942       $ 1,243,536       $ 1,594,658   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held-to-maturity (3)

                 

Residential mortgage-backed securities and collateralized mortgage obligations of government agencies (1)

   $ —         $ —         $ —         $ —         $ 121,924       $ 121,924   

Obligations of states and political subdivisions

     1,877         27,296         319,753         383,788         —           732,714   

Corporate debt securities

     —           1,010         8,578         —           —           9,588   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total held-to-maturity securities

   $ 1,877       $ 28,306       $ 328,331       $ 383,788       $ 121,924       $ 864,226   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities

   $ 89,484       $ 141,411       $ 427,799       $ 434,730       $ 1,365,460       $ 2,458,884   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Mortgage-backed and collateralized mortgage securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds.

(2)

Equity securities, which have no stated maturity, are not assigned a maturity category.

(3) 

The held-to-maturity portfolio is carried at an amortized cost of $848.4 million.

 

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Securities with aggregate fair values of $1.1 billion and $706.5 million at June 30, 2015 and December 31, 2014, 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 were $560.7 million, primarily due to the ESB portfolio restructuring, and $3.5 million for the six months ended June 30, 2015 and 2014, respectively. Net unrealized (losses) gains on available-for-sale securities included in accumulated other comprehensive income net of tax, as of June 30, 2015 and December 31, 2014 were ($0.8) million and $2.9 million, respectively.

The following table presents the gross realized gains and losses on sales and calls of securities for the three and six months ended June 30, 2015 and 2014, respectively.

 

     For the Three Months Ended      For the Six Months Ended  
     June 30,      June 30,  

(unaudited, in thousands)

   2015      2014      2015      2014  

Gross realized gains

   $ 2       $ 170       $ 26       $ 365   

Gross realized losses

     (2      (5      (4      (190
  

 

 

    

 

 

    

 

 

    

 

 

 

Net realized gains (losses)

   $ —         $ 165       $ 22       $ 175   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following tables provide 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 June 30, 2015 and December 31, 2014:

 

    June 30, 2015  
    Less than 12 months     12 months or more     Total  

(unaudited, dollars in thousands)

  Fair
Value
    Unrealized
Losses
    # of
Securities
    Fair
Value
    Unrealized
Losses
    # of
Securities
    Fair
Value
    Unrealized
Losses
    # of
Securities
 

Obligations of government agencies

  $ 37,435      $ (295     9      $ —        $ —          —        $ 37,435      $ (295     9   

Residential mortgage-backed securities and collateralized mortgage obligations of government agencies

    755,016        (7,346     138        164,273        (4,869     33        919,289        (12,215     171   

Obligations of states and political subdivisions

    299,339        (4,629     415        21,889        (729     33        321,228        (5,358     448   

Corporate debt securities

    93,533        (318     27        4,890        (96     2        98,423        (414     29   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total temporarily impaired securities

  $ 1,185,323      $ (12,588     589      $ 191,052      $ (5,694     68      $ 1,376,375      $ (18,282     657   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 2014  
    Less than 12 months     12 months or more     Total  

(unaudited, dollars in thousands)

  Fair
Value
    Unrealized
Losses
    # of
Securities
    Fair
Value
    Unrealized
Losses
    # of
Securities
    Fair
Value
    Unrealized
Losses
    # of
Securities
 

Obligations of government agencies

  $ 19,362      $ (77     5      $ 19,757      $ (238     4      $ 39,119      $ (315     9   

Residential mortgage-backed securities and collateralized mortgage obligations of government agencies

    78,786        (386     19        240,055        (6,618     43        318,841        (7,004     62   

Obligations of states and political subdivisions

    12,615        (96     15        61,548        (952     93        74,163        (1,048     108   

Corporate debt securities

    2,969        (31     1        4,573        (137     2        7,542        (168     3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total temporarily impaired securities

  $ 113,732      $ (590     40      $ 325,933      $ (7,945     142      $ 439,665      $ (8,535     182   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized losses on debt securities in the tables represent temporary fluctuations resulting from changes in market rates in relation to fixed yields. Unrealized losses in the available-for-sale portfolio are accounted for as an adjustment, net of taxes, to other comprehensive income in shareholders’ equity.

WesBanco does not believe the securities presented above are impaired due to reasons of credit quality, as there are no debt securities rated below investment grade and all are paying principal and interest according to their contractual terms. WesBanco does not intend to sell, nor is it more likely than not that it will be required to sell, loss position securities prior to recovery of their cost, and therefore, management believes the unrealized losses detailed above are temporary and no impairment loss relating to these securities has been recognized.

Securities that do not have readily determinable fair values and for which WesBanco does not exercise significant influence are carried at cost. Cost method investments consist primarily of FHLB of Pittsburgh and FHLB of Cincinnati stock totaling $35.0 million and $11.6 million at June 30, 2015 and December 31, 2014, respectively, and are included in other assets in the Consolidated Balance Sheets. Cost method investments are evaluated for impairment whenever events or circumstances suggest that their carrying value may not be recoverable.

 

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NOTE 5. LOANS AND THE ALLOWANCE FOR CREDIT LOSSES

The recorded investment in loans is presented in the Consolidated Balance Sheets net of deferred loan fees and costs of $1.7 million and $2.4 million at June 30, 2015 and December 31, 2014, respectively.

 

(unaudited, in thousands)

   June 30,
2015
     December 31,
2014
 

Commercial real estate:

     

Land and construction

   $ 308,885       $ 262,643   

Improved property

     1,885,228         1,682,817   
  

 

 

    

 

 

 

Total commercial real estate

     2,194,113         1,945,460   
  

 

 

    

 

 

 

Commercial and industrial

     733,478         638,410   

Residential real estate

     1,241,470         928,770   

Home equity

     379,740         330,031   

Consumer

     384,844         244,095   
  

 

 

    

 

 

 

Total portfolio loans

     4,933,645         4,086,766   
  

 

 

    

 

 

 

Loans held for sale

     11,160         5,865   
  

 

 

    

 

 

 

Total loans

   $ 4,944,805       $ 4,092,631   
  

 

 

    

 

 

 

The following tables summarize changes in the allowance for credit losses applicable to each category of the loan portfolio:

 

    Allowance for Credit Losses By Category
For the Six Months Ended June 30, 2015 and 2014
 

(unaudited, in thousands)

  Commercial
Real Estate-
Land and
Construction
    Commercial
Real Estate-
Improved
Property
    Commercial
& Industrial
    Residential
Real Estate
    Home
Equity
    Consumer     Deposit
Overdraft
    Total  

Balance at December 31, 2014:

               

Allowance for loan losses

  $ 5,654      $ 17,573      $ 9,063      $ 5,382      $ 2,329      $ 4,078      $ 575      $ 44,654   

Allowance for loan commitments

    194        10        112        9        90        40        —          455   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total beginning allowance for credit losses

    5,848        17,583        9,175        5,391        2,419        4,118        575        45,109   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses:

               

Provision for loan losses

    (551     633        1,448        25        1,254        580        231        3,620   

Provision for loan commitments

    13        10        301        3        23        —          —          350   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for credit losses

    (538     643        1,749        28        1,277        580        231        3,970   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

    —          (1,234     (1,430     (944     (948     (1,414     (381     (6,351

Recoveries

    —          256        110        301        53        658        118        1,496   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

    —          (978     (1,320     (643     (895     (756     (263     (4,855
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2015:

               

Allowance for loan losses

    5,103        17,228        9,191        4,764        2,688        3,902        543        43,419   

Allowance for loan commitments

    207        20        413        12        113        40        —          805   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance for credit losses

  $ 5,310      $ 17,248      $ 9,604      $ 4,776      $ 2,801      $ 3,942      $ 543      $ 44,224   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013:

               

Allowance for loan losses

  $ 6,056      $ 18,157      $ 9,925      $ 5,673      $ 2,017      $ 5,020      $ 520      $ 47,368   

Allowance for loan commitments

    301        62        130        5        85        19        —          602   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total beginning allowance for credit losses

    6,357        18,219        10,055        5,678        2,102        5,039        520        47,970   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses:

               

Provision for loan losses

    (405     (511     1,870        575        392        642        551        3,114   

Provision for loan commitments

    (20     (52     1        —          5        —          —          (66
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for credit losses

    (425     (563     1,871        575        397        642        551        3,048   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

    —          (728     (2,384     (1,207     (348     (1,610     (362     (6,639

Recoveries

    —          390        543        248        71        512        134        1,898   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

    —          (338     (1,841     (959     (277     (1,098     (228     (4,741
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2014:

               

Allowance for loan losses

    5,651        17,308        9,954        5,289        2,132        4,564        843        45,741   

Allowance for loan commitments

    281        10        131        5        90        19        —          536   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance for credit losses

  $ 5,932      $ 17,318      $ 10,085      $ 5,294      $ 2,222      $ 4,583      $ 843      $ 46,277   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

12


Table of Contents

The following tables present the allowance for credit losses and recorded investments in loans by category:

 

     Allowance for Credit Losses and Recorded Investment in Loans  

(unaudited, in thousands)

   Commercial
Real Estate-
Land and
Construction
     Commercial
Real Estate-
Improved
Property
     Commercial
and

Industrial
     Residential
Real Estate
     Home
Equity
     Consumer      Over-draft      Total  

June 30, 2015

                       

Allowance for credit losses:

                       

Allowance for loans individually evaluated for impairment

   $ —         $ 2,891       $ 1,021       $ —         $ —         $ —         $ —         $ 3,912   

Allowance for loans collectively evaluated for impairment

     5,103         14,337         8,170         4,764         2,688         3,902         543         39,507   

Allowance for loan commitments

     207         20         413         12         113         40         —           805   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for credit losses

   $ 5,310       $ 17,248       $ 9,604       $ 4,776       $ 2,801       $ 3,942       $ 543       $ 44,224   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio loans:

                       

Individually evaluated for impairment (1)

   $ 1,040       $ 18,054       $ 5,388       $ —         $ —         $ —         $ —         $ 24,482   

Collectively evaluated for impairment

     307,845         1,867,174         728,090         1,241,470         379,740         384,844         —           4,909,163   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

   $ 308,885       $ 1,885,228       $ 733,478       $ 1,241,470       $ 379,740       $ 384,844       $ —         $ 4,933,645   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2014

                       

Allowance for credit losses:

                       

Allowance for loans individually evaluated for impairment

   $ —         $ 2,765       $ 1,033       $ —         $ —         $ —         $ —         $ 3,798   

Allowance for loans collectively evaluated for impairment

     5,654         14,808         8,030         5,382         2,329         4,078         575         40,856   

Allowance for loan commitments

     194         10         112         9         90         40         —           455   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for credit losses

   $ 5,848       $ 17,583       $ 9,175       $ 5,391       $ 2,419       $ 4,118       $ 575       $ 45,109   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio loans:

                       

Individually evaluated for impairment (1)

   $ —         $ 11,469       $ 2,844       $ —         $ —         $ —         $ —         $ 14,313   

Collectively evaluated for impairment

     262,643         1,671,348         635,566         928,770         330,031         244,095         —           4,072,453   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

   $ 262,643       $ 1,682,817       $ 638,410       $ 928,770       $ 330,031       $ 244,095       $ —         $ 4,086,766   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Commercial loans greater than $1 million that are reported as non-accrual or as troubled debt restructuring (“TDR”), including acquired with deteriorated credit quality, are individually evaluated for impairment.

WesBanco maintains an internal loan grading system to reflect the credit quality of commercial loans. Commercial loan risk grades are determined based on an evaluation of the relevant characteristics of each loan, assigned at the inception of each loan and adjusted thereafter at any time to reflect changes in the risk profile throughout the life of each loan. The primary factors used to determine the risk grade are the reliability and sustainability of the primary source of repayment and overall financial strength of the borrower. This includes an analysis of cash flow available to repay debt, profitability, liquidity, leverage, and overall financial trends. Other factors include management, industry or property type risks, an assessment of secondary sources of repayment such as collateral or guarantees, other terms and conditions of the loan that may increase or reduce its risk, and economic conditions and other external factors that may influence repayment capacity and financial condition.

Commercial real estate – land and construction consists of loans to finance investments in vacant land, land development, construction of residential housing, and construction of commercial buildings. Commercial real estate – improved property consists of loans for the purchase or refinance of all types of improved owner-occupied and investment properties. Factors that are considered in assigning the risk grade vary depending on the type of property financed. The risk grade assigned to construction and development loans is based on the overall viability of the project, the experience and financial capacity of the developer or builder to successfully complete the project, project specific and market absorption rates and comparable property values, and the amount of pre-sales for residential housing construction or pre-leases for commercial investment property. The risk grade assigned to commercial investment property loans is based primarily on the adequacy of net rental income generated by the property to service the debt, the type, quality, industry and mix of tenants, and the terms of leases, but also considers the overall financial capacity of the investors and their experience in owning and managing investment property. The risk grade assigned to owner-occupied commercial real estate and commercial and industrial loans is based primarily on historical and projected earnings, the adequacy of operating cash flow to service all of the business’ debt, and the capital resources, liquidity and leverage of the business, but also considers the industry in which the business operates, the business’ specific competitive advantages or disadvantages, the quality and experience of management, and external influences on the business such as economic conditions. Other factors that are considered for commercial and industrial loans include the type, quality and marketability of non-real estate collateral and whether the structure of the loan increases or reduces its risk. The type, age, condition, location and any environmental risks associated with a property are also considered for all types of commercial real estate. The overall financial condition and repayment capacity of any guarantors is also evaluated to determine the extent to which they mitigate other risks of the loan. The following paragraphs provide descriptions of risk grades that are applicable to commercial real estate and commercial and industrial loans.

Pass loans are those that exhibit a history of positive financial results that are at least comparable to the average for their industry or type of real estate. The primary source of repayment is acceptable and these loans are expected to perform satisfactorily during most economic cycles. Pass loans typically have no significant external factors that are expected to adversely affect these borrowers more than others in the same industry or property type. Any minor unfavorable characteristics of these loans are outweighed or mitigated by other positive factors including but not limited to adequate secondary or tertiary sources of repayment.

Criticized or compromised loans are currently protected but have weaknesses, which, if not corrected, may be inadequately protected at some future date. These loans represent an unwarranted credit risk and would generally not be extended in the normal course of lending. Specific issues which may warrant this grade include declining financial results, increased reliance on secondary sources of repayment or guarantor support and adverse external influences that may negatively impact the business or property.

 

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Table of Contents

Substandard and doubtful loans are equivalent to the classifications used by banking regulators. Substandard loans are inadequately protected by the current repayment capacity and equity of the borrower or collateral pledged, if any. Substandard loans have one or more well-defined weaknesses that jeopardize their repayment or collection in full. These loans may or may not be reported as non-accrual. Doubtful loans have all the weaknesses inherent to a substandard loan with the added characteristic that full repayment is highly questionable or improbable on the basis of currently existing facts, conditions and collateral values. However, recognition of loss may be deferred if there are reasonably specific pending factors that will reduce the risk if they occur.

The following tables summarize commercial loans by their assigned risk grade:

 

     Commerical Loans by Internally Assigned Risk Grade  

(unaudited, in thousands)

   Commercial
Real Estate-
Land and
Construction
     Commercial
Real Estate-
Improved
Property
     Commercial
& Industrial
     Total
Commercial
Loans
 

As of June 30, 2015

           

Pass

   $ 302,514       $ 1,830,655       $ 711,497       $ 2,844,666   

Criticized - compromised

     3,664         13,463         11,153         28,280   

Classified - substandard

     2,707         41,110         10,828         54,645   

Classified - doubtful

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 308,885       $ 1,885,228       $ 733,478       $ 2,927,591   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2014

           

Pass

   $ 257,218       $ 1,627,771       $ 617,742       $ 2,502,731   

Criticized - compromised

     3,645         17,873         12,770         34,288   

Classified - substandard

     1,780         37,173         7,898         46,851   

Classified - doubtful

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 262,643       $ 1,682,817       $ 638,410       $ 2,583,870   
  

 

 

    

 

 

    

 

 

    

 

 

 

Residential real estate, home equity and consumer loans are not assigned internal risk grades other than as required by regulatory guidelines that are based primarily on the age of past due loans. WesBanco primarily evaluates the credit quality of residential real estate, home equity and consumer loans based on repayment performance and historical loss rates. The aggregate amount of residential real estate, home equity and consumer loans classified as substandard in accordance with regulatory guidelines were $15.3 million at June 30, 2015 and $15.2 million at December 31, 2014, of which $2.3 and $2.2 million were accruing, for each period, respectively. The aggregate amount of residential real estate, home equity and consumer loans classified as substandard are not included in the tables above.

 

14


Table of Contents

Acquired Loans - Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value in accordance with ASC 805, Business Combinations, with no carryover of related allowance for credit losses. Determining the fair value of the acquired loans involves estimating the principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considers a number of factors in evaluating the acquisition-date fair value including the remaining life of the acquired loans, delinquency status, estimated prepayments, payment options and other loan features, internal risk grade, estimated value of the underlying collateral and interest rate environment.

Loans acquired with deteriorated credit quality are accounted for in accordance with ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (ASC 310-30), and therefore impaired if, at acquisition, the loans have evidence of credit quality deterioration since origination and it is probable that all contractually required payments will not be collected. At acquisition, WesBanco considers several factors as indicators that an acquired loan has evidence of deterioration in credit quality. These factors include loans 90 days or more past due, loans with an internal risk grade of substandard or below, loans classified as non-accrual by the acquired institution, and loans that have been previously modified as a TDR.

Acquired loans that were not individually determined to be impaired are considered performing and are accounted for in accordance with ASC 310-20, Nonrefundable Fees and Other Costs (ASC 310-20), whereby the premium or discount derived from the fair market value adjustment, on a loan-by-loan or pooled basis, is recognized into interest income on a level yield over the remaining expected life of the loan or pool.

Under the ASC 310-30 model, the excess of cash flows expected to be collected at acquisition over recorded fair value is referred to as the accretable yield and is the interest component of expected cash flow. The accretable yield is recognized into income over the remaining life of the loan if the timing and/or amount of cash flows expected to be collected can be reasonably estimated. If the timing or amount of cash flows expected to be collected cannot be reasonably estimated, the cost recovery method of income recognition is used. The difference between the loan’s total scheduled principal and interest payments over all cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the non-accretable difference. The non-accretable difference represents contractually required principal and interest payments which WesBanco does not expect to collect.

Over the life of the loan, management continues to estimate cash flows expected to be collected. Decreases in expected cash flows are recognized as impairments through a charge to the provision for loan losses resulting in an increase in the allowance for loan losses. Subsequent improvements in cash flows result in first, reversal of existing valuation allowances recognized subsequent to acquisition, if any, and next, an increase in the amount of accretable yield to be subsequently recognized in interest income on a prospective basis over the loan’s remaining life.

In conjunction with the ESB acquisition, WesBanco acquired loans with a book value of $716.2 million. These loans were recorded at their fair value of $700.9 million, with $690.1 million categorized as performing. The fair market value adjustment on performing loans of $10.0 million at acquisition date is expected to be recognized into interest income on a level yield basis over the remaining expected life of the performing loans.

Loans acquired with deteriorated credit quality with a book value of $16.1 million and contractually required payments of $21.7 million were recorded at their estimated fair value of $10.8 million. The accretable yield on the acquired impaired loans was estimated at $1.9 million at the acquisition date with $1.6 million remaining at June 30, 2015. For the six months ended June 30, 2015 accretion recognized in interest income on acquired impaired loans was $0.3 million. The balance of loans acquired with deteriorated credit quality at June 30, 2015, was $10.0 million, of which $8.5 million were categorized as non-accrual and $1.5 million were categorized as accruing TDRs, while the non-accretable difference was $9.0 million. At June 30, 2015 no allowance for loan losses has been recognized related to the acquired impaired loans.

 

15


Table of Contents

The following tables summarize the age analysis of all categories of loans:

 

     Age Analysis of Loans  

(unaudited, in thousands)

   Current      30-59
Days
Past  Due
     60-89
Days
Past  Due
     90 Days
or More
Past Due
     Total
Past Due
     Total Loans      90 Days  or
More

Past Due and
Accruing (1)
 

As of June 30, 2015

                    

Commercial real estate:

                    

Land and construction

   $ 307,522       $ 252       $ —         $ 1,111       $ 1,363       $ 308,885       $ —     

Improved property

     1,870,393         1,304         797         12,734         14,835         1,885,228         180   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     2,177,915         1,556         797         13,845         16,198         2,194,113         180   

Commercial and industrial

     729,815         356         896         2,411         3,663         733,478         3   

Residential real estate

     1,229,198         1,014         3,322         7,936         12,272         1,241,470         1,838   

Home equity

     375,663         1,212         1,010         1,855         4,077         379,740         228   

Consumer

     381,146         2,753         618         327         3,698         384,844         222   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

     4,893,737         6,891         6,643         26,374         39,908         4,933,645         2,471   

Loans held for sale

     11,160         —           —           —           —           11,160         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 4,904,897       $ 6,891       $ 6,643       $ 26,374       $ 39,908       $ 4,944,805       $ 2,471   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans included above are as follows:

                    

Non-accrual loans

   $ 21,964       $ 1,030       $ 1,641       $ 23,569       $ 26,240       $ 48,204      

TDRs accruing interest (1)

     12,081         109         434         334         877         12,958      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total impaired

   $ 34,045       $ 1,139       $ 2,075       $ 23,903       $ 27,117       $ 61,162      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

As of December 31, 2014

                    

Commercial real estate:

                    

Land and construction

   $ 261,356       $ 20       $ —         $ 1,267       $ 1,287       $ 262,643       $ 71   

Improved property

     1,665,363         961         4,772         11,721         17,454         1,682,817         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     1,926,719         981         4,772         12,988         18,741         1,945,460         71   

Commercial and industrial

     634,482         1,834         240         1,854         3,928         638,410         22   

Residential real estate

     915,968         1,237         3,384         8,181         12,802         928,770         1,306   

Home equity

     325,291         1,877         895         1,968         4,740         330,031         570   

Consumer

     240,365         2,571         685         474         3,730         244,095         319   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

     4,042,825         8,500         9,976         25,465         43,941         4,086,766         2,288   

Loans held for sale

     5,865         —           —           —           —           5,865         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 4,048,690       $ 8,500       $ 9,976       $ 25,465       $ 43,941       $ 4,092,631       $ 2,288   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans included above are as follows:

                    

Non-accrual loans

   $ 7,562       $ 2,884       $ 5,552       $ 22,820       $ 31,256       $ 38,818      

TDRs accruing interest (1)

     11,016         151         542         357         1,050         12,066      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total impaired

   $ 18,578       $ 3,035       $ 6,094       $ 23,177       $ 32,306       $ 50,884      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

(1)

Loans 90 days or more past due and accruing interest exclude TDRs 90 days or more past due and accruing interest.

Impaired Loans — A loan is considered impaired, based on current information and events, if it is probable that WesBanco will be unable to collect the payments of principal and interest when due according to the contractual terms of the loan agreement. Impaired loans generally included all non-accrual loans and TDRs.

Loans are generally placed on non-accrual when they are 90 days past due unless the loan is well-secured and in the process of collection. Loans may also be placed on non-accrual when full collection of principal is in doubt even if payments on such loans remain current, or may remain on non-accrual if they were past due but subsequently brought current.

Loans are categorized as TDRs when the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider.

Acquired loans that have experienced a deterioration of credit quality from origination to acquisition for which it is probable that WesBanco will be unable to collect all contractually required payments receivable, including both principal and interest, are considered impaired.

 

16


Table of Contents

The following tables summarize impaired loans:

 

     Impaired Loans  
     June 30, 2015      December 31, 2014  

(unaudited, in thousands)

   Unpaid
Principal
Balance (1)
     Recorded
Investment
     Related
Allowance
     Unpaid
Principal
Balance (1)
     Recorded
Investment
     Related
Allowance
 

With no related specific allowance recorded:

                 

Commercial real estate:

                 

Land and construction

   $ 2,711       $ 2,509       $ —         $ 1,588       $ 1,488       $ —     

Improved property

     28,520         21,001         —           16,480         14,684         —     

Commercial and industrial

     5,926         3,461         —           3,152         2,597         —     

Residential real estate

     19,914         17,967         —           20,077         18,544         —     

Home equity

     3,293         2,995         —           2,890         2,663         —     

Consumer

     1,522         1,189         —           1,287         1,086         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

     61,886         49,122         —           45,474         41,062         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With a specific allowance recorded:

                 

Commercial real estate:

                 

Land and construction

     —           —           —           —           —           —     

Improved property

     7,511         7,511         2,891         7,980         7,980         2,765   

Commercial and industrial

     5,833         4,529         1,021         1,842         1,842         1,033   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

     13,344         12,040         3,912         9,822         9,822         3,798   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 75,230       $ 61,162       $ 3,912       $ 55,296       $ 50,884       $ 3,798   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

The difference between the unpaid principal balance and the recorded investment generally reflects amounts that have been previously charged-off and fair market value adjustments on acquired impaired loans.

 

     Impaired Loans  
     For the Three Months Ended      For the Six Months Ended  
     June 30, 2015      June 30, 2014      June 30, 2015      June 30, 2014  
     Average      Interest      Average      Interest      Average      Interest      Average      Interest  
     Recorded      Income      Recorded      Income      Recorded      Income      Recorded      Income  

(unaudited, in thousands)

   Investment      Recognized      Investment      Recognized      Investment      Recognized      Investment      Recognized  

With no related specific allowance recorded:

                       

Commercial real estate:

                       

Land and construction

   $ 2,493       $ 2       $ 2,143       $ 13       $ 2,158       $ 18       $ 2,283       $ 15   

Improved Property

     21,741         240         18,572         133         19,389         463         18,924         153   

Commercial and industrial

     2,947         49         4,122         57         2,830         62         3,831         89   

Residential real estate

     18,550         235         18,864         209         18,548         465         19,272         391   

Home equity

     2,806         21         2,173         16         2,758         41         2,284         35   

Consumer

     1,261         26         1,135         18         1,202         46         1,150         46   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

     49,798         573         47,009         446         46,885         1,095         47,744         729   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With a specific allowance recorded:

                       

Commercial real estate:

                       

Land and construction

     —           —           —           —           —           —           —           —     

Improved Property

     6,989         56         727         3         7,319         56         727         4   

Commercial and industrial

     3,149         118         2,537         29         2,713         137         2,206         41   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

     10,138         174         3,264         32         10,032         193         2,933         45   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 59,936       $ 747       $ 50,273       $ 478       $ 56,917       $ 1,288       $ 50,677       $ 774   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

17


Table of Contents

The following tables present the recorded investment in non-accrual loans and TDRs:

 

     Non-accrual Loans (1)  

(unaudited, in thousands)

   June 30,
2015
     December 31,
2014
 

Commercial real estate:

     

Land and construction

   $ 1,382       $ 1,488   

Improved property

     26,103         20,227   
  

 

 

    

 

 

 

Total commercial real estate

     27,485         21,715   
  

 

 

    

 

 

 

Commercial and industrial

     7,664         4,110   

Residential real estate

     10,117         10,329   

Home equity

     2,251         1,923   

Consumer

     687         741   
  

 

 

    

 

 

 

Total

   $ 48,204       $ 38,818   
  

 

 

    

 

 

 

 

(1) 

Total non-accrual loans include loans that are also restructured. Such loans are also set forth in the following table as non-accrual TDRs.

 

     TDRs  
     June 30, 2015      December 31, 2014  

(unaudited, in thousands)

   Accruing      Non-
Accrual
     Total      Accruing      Non-
Accrual
     Total  

Commercial real estate:

                 

Land and construction

   $ 1,127       $ 501       $ 1,628       $ —         $ 464       $ 464   

Improved property

     2,409         9,761         12,170         2,437         1,850         4,287   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     3,536         10,262         13,798         2,437         2,314         4,751   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     326         293         619         329         478         807   

Residential real estate

     7,850         2,089         9,939         8,215         2,074         10,289   

Home equity

     744         278         1,022         740         245         985   

Consumer

     502         218         720         345         309         654   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 12,958       $ 13,140       $ 26,098       $ 12,066       $ 5,420       $ 17,486   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2015, there were two TDRs greater than $1.0 million. The concessions granted in the majority of loans reported as accruing and non-accrual TDRs are extensions of the maturity date or the amortization period, reductions in the interest rate below the prevailing market rate for loans with comparable characteristics, and/or permitting interest-only payments for longer than three months.

WesBanco had unfunded commitments to debtors whose loans were classified as impaired of $1.3 million and $0 as of June 30, 2015 and December 31, 2014, respectively.

The following table presents details related to loans identified as TDRs during the three and six months ended June 30, 2015 and 2014, respectively:

 

     New TDRs (1)  
     For the Three Months Ended  
     June 30, 2015      June 30, 2014  
            Pre-      Post-             Pre-      Post-  
            Modification      Modification             Modification      Modification  
            Outstanding      Outstanding             Outstanding      Outstanding  
     Number of      Recorded      Recorded      Number of      Recorded      Recorded  

(unaudited, dollars in thousands)

   Modifications      Investment      Investment      Modifications      Investment      Investment  

Commercial real estate: