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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 September 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 October 23, 2015, there were 38,512,012 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 September 30, 2015 (unaudited) and December 31, 2014

     3   
 

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

     4   
 

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

     5   
 

Consolidated Statements of Cash Flows for the nine months ended September 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

     52   
6  

Exhibits

     54   
 

Signatures

     55   

 

2


Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WESBANCO, INC. CONSOLIDATED BALANCE SHEETS

 

 

(unaudited, in thousands, except shares)

   September 30,
2015
    December 31,
2014
 

ASSETS

    

Cash and due from banks, including interest bearing amounts of $2,144 and $8,405, respectively

   $ 92,975      $ 94,002   

Securities:

    

Available-for-sale, at fair value

     1,559,718        917,424   

Held-to-maturity (fair values of $983,997 and $619,617, respectively)

     957,352        593,670   
  

 

 

   

 

 

 

Total securities

     2,517,070        1,511,094   
  

 

 

   

 

 

 

Loans held for sale

     10,765        5,865   
  

 

 

   

 

 

 

Portfolio loans, net of unearned income

     4,950,642        4,086,766   

Allowance for loan losses

     (41,624     (44,654
  

 

 

   

 

 

 

Net portfolio loans

     4,909,018        4,042,112   
  

 

 

   

 

 

 

Premises and equipment, net

     111,699        93,135   

Accrued interest receivable

     27,000        18,481   

Goodwill and other intangible assets, net

     492,725        319,506   

Bank-owned life insurance

     155,894        123,298   

Other assets

     135,284        89,072   
  

 

 

   

 

 

 

Total Assets

   $ 8,452,430      $ 6,296,565   
  

 

 

   

 

 

 

LIABILITIES

    

Deposits:

    

Non-interest bearing demand

   $ 1,280,329      $ 1,061,075   

Interest bearing demand

     1,206,837        885,037   

Money market

     1,011,420        954,957   

Savings deposits

     1,064,426        842,818   

Certificates of deposit

     1,630,890        1,305,096   
  

 

 

   

 

 

 

Total deposits

     6,193,902        5,048,983   
  

 

 

   

 

 

 

Federal Home Loan Bank borrowings

     893,117        223,126   

Other short-term borrowings

     84,587        80,690   

Junior subordinated debt owed to unconsolidated subsidiary trusts

     106,196        106,176   
  

 

 

   

 

 

 

Total borrowings

     1,083,900        409,992   
  

 

 

   

 

 

 

Accrued interest payable

     2,832        1,620   

Other liabilities

     56,054        47,780   
  

 

 

   

 

 

 

Total Liabilities

     7,336,688        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: 38,517,542 and 29,298,188 shares in 2015 and 2014, respectively

     80,304        61,182   

Capital surplus

     515,783        244,661   

Retained earnings

     535,777        504,578   

Treasury stock (28,550 and 69,323 shares in 2015 and 2014, respectively, at cost)

     (890     (2,151

Accumulated other comprehensive loss

     (14,446     (18,825

Deferred benefits for directors

     (786     (1,255
  

 

 

   

 

 

 

Total Shareholders’ Equity

     1,115,742        788,190   
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 8,452,430      $ 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
September 30,
    For the Nine Months Ended
September 30,
 

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

   2015     2014     2015      2014  

INTEREST AND DIVIDEND INCOME

         

Loans, including fees

   $ 51,876      $ 43,399      $ 151,913       $ 128,691   

Interest and dividends on securities:

         

Taxable

     10,251        7,375        28,792         22,051   

Tax-exempt

     4,535        3,413        12,120         10,234   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total interest and dividends on securities

     14,786        10,788        40,912         32,285   
  

 

 

   

 

 

   

 

 

    

 

 

 

Other interest income

     273        116        1,227         829   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total interest and dividend income

     66,935        54,303        194,052         161,805   
  

 

 

   

 

 

   

 

 

    

 

 

 

INTEREST EXPENSE

         

Interest bearing demand deposits

     517        399        1,425         1,168   

Money market deposits

     485        487        1,430         1,394   

Savings deposits

     165        135        475         398   

Certificates of deposit

     2,662        3,254        8,403         10,305   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total interest expense on deposits

     3,829        4,275        11,733         13,265   
  

 

 

   

 

 

   

 

 

    

 

 

 

Federal Home Loan Bank borrowings

     1,650        264        3,157         650   

Other short-term borrowings

     89        348        254         1,255   

Junior subordinated debt owed to unconsolidated subsidiary trusts

     758        805        2,541         2,392   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total interest expense

     6,326        5,692        17,685         17,562   
  

 

 

   

 

 

   

 

 

    

 

 

 

NET INTEREST INCOME

     60,609        48,611        176,367         144,243   

Provision for credit losses

     1,798        1,478        5,768         4,526   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net interest income after provision for credit losses

     58,811        47,133        170,599         139,717   
  

 

 

   

 

 

   

 

 

    

 

 

 

NON-INTEREST INCOME

         

Trust fees

     5,127        5,096        16,656         15,954   

Service charges on deposits

     4,425        4,170        12,342         12,107   

Electronic banking fees

     3,849        3,268        10,670         9,549   

Net securities brokerage revenue

     1,996        1,701        5,897         5,533   

Bank-owned life insurance

     1,021        882        3,264         3,577   

Net gains on sales of mortgage loans

     779        550        1,459         1,178   

Net securities gains

     47        581        69         756   

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

     (18     (1,167     167         (1,218

Other income

     960        1,573        3,916         4,508   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total non-interest income

     18,186        16,654        54,440         51,944   
  

 

 

   

 

 

   

 

 

    

 

 

 

NON-INTEREST EXPENSE

         

Salaries and wages

     19,832        17,331        57,468         50,700   

Employee benefits

     6,028        5,051        20,151         16,289   

Net occupancy

     3,533        2,916        10,298         9,265   

Equipment

     3,731        2,837        9,689         8,534   

Marketing

     1,514        1,276        4,221         3,992   

FDIC insurance

     1,064        786        3,014         2,543   

Amortization of intangible assets

     815        477        2,325         1,454   

Restructuring and merger-related expense

     185        —          11,033         —     

Other operating expenses

     10,279        8,589        28,830         26,884   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total non-interest expense

     46,981        39,263        147,029         119,661   
  

 

 

   

 

 

   

 

 

    

 

 

 

Income before provision for income taxes

     30,016        24,524        78,010         72,000   

Provision for income taxes

     7,768        6,358        20,250         18,538   
  

 

 

   

 

 

   

 

 

    

 

 

 

NET INCOME

   $ 22,248      $ 18,166      $ 57,760       $ 53,462   
  

 

 

   

 

 

   

 

 

    

 

 

 

EARNINGS PER COMMON SHARE

         

Basic

   $ 0.58      $ 0.62      $ 1.55       $ 1.83   

Diluted

   $ 0.58      $ 0.62      $ 1.55       $ 1.82   
  

 

 

   

 

 

   

 

 

    

 

 

 

AVERAGE COMMON SHARES OUTSTANDING

         

Basic

     38,523,593        29,280,648        37,144,783         29,235,364   

Diluted

     38,556,995        29,360,880        37,204,114         29,316,914   
  

 

 

   

 

 

   

 

 

    

 

 

 

DIVIDENDS DECLARED PER COMMON SHARE

   $ 0.23      $ 0.22      $ 0.69       $ 0.66   
  

 

 

   

 

 

   

 

 

    

 

 

 

COMPREHENSIVE INCOME

   $ 29,504      $ 16,136      $ 62,139       $ 58,773   
  

 

 

   

 

 

   

 

 

    

 

 

 

See Notes to Consolidated Financial Statements.

 

4


Table of Contents

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

 

For the Nine Months Ended September 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

     —          —           —          57,760        —          —          —          57,760   

Other comprehensive income

     —          —           —          —          —          4,379        —          4,379   
                 

 

 

 

Comprehensive income

     —          —           —          —          —          —          —          62,139   

Common dividends declared ($0.69 per share)

     —          —           —          (26,561     —          —          —          (26,561

Shares issued for acquisition

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

Treasury shares acquired

     (64,102     —           —          —          (2,065     —          —          (2,065

Stock options exercised

     55,375        —           (295     —          1,768        —          —          1,473   

Restricted stock granted

     49,550        —           (1,558     —          1,558        —          —          —     

Repurchase of stock warrant

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

Stock compensation expense

     —          —           1,184        —          —          —          —          1,184   

Deferred benefits for directors- net

     —          —           (469     —          —          —          469        —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

September 30, 2015

     38,517,542      $ 80,304       $ 515,783      $ 535,777      $ (890   $ (14,446   $ (786   $ 1,115,742   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2013

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

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     —          —           —          53,462        —          —          —          53,462   

Other comprehensive income

     —          —           —          —          —          5,311        —          5,311   
                 

 

 

 

Comprehensive income

     —          —           —          —          —          —          —          58,773   

Common dividends declared ($0.66 per share)

     —          —           —          (19,302     —          —          —          (19,302

Treasury shares acquired

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

Stock options exercised

     68,143        —           (342     —          2,116        —          —          1,774   

Restricted stock granted

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

Stock compensation expense

     —          —           964        —          —          —          —          964   

Deferred benefits for directors- net

     —          —           34        —          —          —          (34     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

September 30, 2014

     29,283,675      $ 61,182       $ 244,358      $ 494,511      $ (2,601   $ (7,423   $ (1,243   $ 788,784   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

5


Table of Contents

WESBANCO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

     For the Nine Months Ended
September 30,
 

(unaudited, in thousands)

   2015     2014  

NET CASH PROVIDED BY OPERATING ACTIVITIES

   $ 58,591      $ 70,215   
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Net increase in loans

     (176,375     (142,693

Securities available-for-sale:

    

Proceeds from sales

     570,739        4,819   

Proceeds from maturities, prepayments and calls

     233,756        169,094   

Purchases of securities

     (509,216     (192,340

Securities held-to-maturity:

    

Proceeds from maturities, prepayments and calls

     39,492        34,572   

Purchases of securities

     (297,692     (33,153

Proceeds from bank-owned life insurance

     1,281        2,284   

Cash paid to acquire a business, net of cash acquired

     (28,551     —     

Purchases of premises and equipment – net

     (6,936     (4,409
  

 

 

   

 

 

 

Net cash used in investing activities

     (173,502     (161,826
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

(Decrease) increase in deposits

     (99,569     39,688   

Proceeds from Federal Home Loan Bank borrowings

     791,910        100,532   

Repayment of Federal Home Loan Bank borrowings

     (514,081     (16,559

Decrease in other short-term borrowings

     (1,103     (64,074

Increase in federal funds purchased

     —          30,000   

Repayment of junior subordinated debt

     (36,083     —     

Repurchase of common stock warrant

     (2,247     —     

Dividends paid to common shareholders

     (24,148     (18,695

Treasury shares (purchased) sold - net

     (795     1,587   
  

 

 

   

 

 

 

Net cash provided by financing activities

     113,884        72,479   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (1,027     (19,132

Cash and cash equivalents at beginning of the period

     94,002        95,551   
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 92,975      $ 76,419   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES

    

Interest paid on deposits and other borrowings

   $ 19,166      $ 18,672   

Income taxes paid

     9,695        12,300   

Transfers of loans to other real estate owned

     1,029        1,832   

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 September 2015, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (“ASU”) (ASU 2015-16) that eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, acquirers must recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. The acquirer still must disclose the amounts and reasons for adjustments to the provisional amounts. The acquirer also must disclose, by line item, the amount of the adjustment reflected in the current-period income statement that would have been recognized in previous periods if the adjustment to provisional amounts had been recognized as of the acquisition date. Alternatively, an acquirer may present those amounts separately on the face of the income statement. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2015, including interim periods with those fiscal years. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on WesBanco’s Consolidated Financial Statements.

In May 2015, the FASB issued 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. WesBanco adopted the ASU in the first quarter of 2015. The adoption of this pronouncement did not have a material impact on WesBanco’s Consolidated Financial Statements.

 

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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 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 $701.0 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 $169.7 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. 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 nine months ended September 30, 2015, WesBanco recorded merger-related expenses of $11.0 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

   $ 1,858,014   

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

     169,291   
  

 

 

 

Goodwill recognized

   $ 169,678   
  

 

 

 

 

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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

     700,964   

Goodwill and other intangible assets

     175,023   

Accrued income and other assets (1)

     670,160   
  

 

 

 

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 Nine Months Ended  
     September 30,      September 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

   $ 22,248       $ 18,166       $ 57,760       $ 53,462   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

Total average basic common shares outstanding

     38,523,593         29,280,648         37,144,783         29,235,364   

Effect of dilutive stock options and warrant

     33,402         80,232         59,331         81,550   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total diluted average common shares outstanding

     38,556,995         29,360,880         37,204,114         29,316,914   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per common share - basic

   $ 0.58       $ 0.62       $ 1.55       $ 1.83   

Earnings per common share - diluted

   $ 0.58       $ 0.62       $ 1.55       $ 1.82   
  

 

 

    

 

 

    

 

 

    

 

 

 

All stock options outstanding were included in the computation of diluted earnings per share for the three and nine months ended September 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:

 

     September 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

   $ 79,390       $ 1,433       $ (14   $ 80,809       $ 86,964       $ 1,087       $ (315   $ 87,736   

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

     1,248,057         6,767         (4,376     1,250,448         703,535         4,336         (6,758     701,113   

Obligations of states and political subdivisions

     85,523         4,830         (44     90,309         86,073         5,365         (5     91,433   

Corporate debt securities

     127,201         318         (170     127,349         25,974         141         (119     25,996   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total debt securities

   $ 1,540,171       $ 13,348       $ (4,604   $ 1,548,915       $ 902,546       $ 10,929       $ (7,197   $ 906,278   

Equity securities

     10,106         697         —          10,803         10,304         842         —          11,146   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

   $ 1,550,277       $ 14,045       $ (4,604   $ 1,559,718       $ 912,850       $ 11,771       $ (7,197   $ 917,424   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Held-to-maturity

                     

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

   $ 161,495       $ 2,848       $ (358   $ 163,985       $ 79,004       $ 3,262       $ (246   $ 82,020   

Obligations of states and political subdivisions

     766,423         25,359         (1,336     790,446         507,927         23,917         (1,043     530,801   

Corporate debt securities

     29,434         183         (51     29,566         6,739         106         (49     6,796   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total held-to-maturity securities

   $ 957,352       $ 28,390       $ (1,745   $ 983,997       $ 593,670       $ 27,285       $ (1,338   $ 619,617   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total securities

   $ 2,507,629       $ 42,435       $ (6,349   $ 2,543,715       $ 1,506,520       $ 39,056       $ (8,535   $ 1,537,041   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

At September 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 September 30, 2015. In some instances, the issuers may have the right to call or prepay obligations without penalty prior to the contractual maturity date.

 

     September 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

   $ —         $ 20,000       $ 39,115       $ 21,694       $ —         $ 80,809   

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

     —           —           —           —           1,250,448         1,250,448   

Obligations of states and political subdivisions

     7,286         26,827         33,021         23,175         —           90,309   

Corporate debt securities

     49,777         61,384         14,251         1,937         —           127,349   

Equity securities (2)

     —           —           —           —           10,803         10,803   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

   $ 57,063       $ 108,211       $ 86,387       $ 46,806      $ 1,261,251       $ 1,559,718   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held-to-maturity (3)

                 

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

   $ —         $ —         $ —         $ —         $ 163,985       $ 163,985   

Obligations of states and political subdivisions

     1,863         34,159         342,764         411,660         —           790,446   

Corporate debt securities

     —           1,010         24,616         3,940         —           29,566   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total held-to-maturity securities

   $ 1,863       $ 35,169       $ 367,380       $ 415,600      $ 163,985       $ 983,997   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities

   $ 58,926       $ 143,380       $ 453,767       $ 462,406      $ 1,425,236       $ 2,543,715   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 $957.4 million.

 

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Securities with aggregate fair values of $1.1 billion and $706.5 million at September 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 $570.7 million, primarily due to the ESB portfolio restructuring, and $4.8 million for the nine months ended September 30, 2015 and 2014, respectively. Net unrealized gains on available-for-sale securities included in accumulated other comprehensive income net of tax, as of September 30, 2015 and December 31, 2014 were $6.0 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 nine months ended September 30, 2015 and 2014, respectively.

 

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

(unaudited, in thousands)

   2015      2014      2015      2014  

Gross realized gains

   $ 48       $ 602       $ 74       $ 967   

Gross realized losses

     (1      (21      (5      (211
  

 

 

    

 

 

    

 

 

    

 

 

 

Net realized gains (losses)

   $ 47       $ 581       $ 69       $ 756   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 September 30, 2015 and December 31, 2014:

 

    September 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

  $ 12,986      $ (14     2      $ —        $ —          —        $ 12,986      $ (14     2   

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

    430,580        (1,753     73        145,652        (2,981     31        576,232        (4,734     104   

Obligations of states and political subdivisions

    120,249        (941     166        20,601        (439     30        140,850        (1,380     196   

Corporate debt securities

    71,958        (172     22        1,937        (49     1        73,895        (221     23   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total temporarily impaired securities

  $ 635,773      $ (2,880     263      $ 168,190      $ (3,469     62      $ 803,963      $ (6,349     325   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    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 $39.5 million and $11.6 million at September 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 $1.4 million and $2.4 million at September 30, 2015 and December 31, 2014, respectively.

 

(unaudited, in thousands)

   September 30,
2015
     December 31,
2014
 

Commercial real estate:

     

Land and construction

   $ 326,754       $ 262,643   

Improved property

     1,856,584         1,682,817   
  

 

 

    

 

 

 

Total commercial real estate

     2,183,338         1,945,460   
  

 

 

    

 

 

 

Commercial and industrial

     725,730         638,410   

Residential real estate

     1,243,630         928,770   

Home equity

     403,387         330,031   

Consumer

     394,557         244,095   
  

 

 

    

 

 

 

Total portfolio loans

     4,950,642         4,086,766   
  

 

 

    

 

 

 

Loans held for sale

     10,765         5,865   
  

 

 

    

 

 

 

Total loans

   $ 4,961,407       $ 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 Nine Months Ended September 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

    (826     977        2,434        325        1,320        922        441        5,593   

Provision for loan commitments

    9        11        137        —          19        (1     —          175   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for credit losses

    (817     988        2,571        325        1,339        921        441        5,768   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

    —          (3,964     (2,267     (1,482     (1,124     (1,968     (610     (11,415

Recoveries

    1        661        356        472        161        968        173        2,792   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

    1        (3,303     (1,911     (1,010     (963     (1,000     (437     (8,623
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2015:

               

Allowance for loan losses

    4,829        15,247        9,586        4,697        2,686        4,000        579        41,624   

Allowance for loan commitments

    203        21        249        9        109        39        —          630   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance for credit losses

  $ 5,032      $ 15,268      $ 9,835      $ 4,706      $ 2,795      $ 4,039      $ 579      $ 42,254   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    (812     (403     1,357        1,867        860        1,066        660        4,595   

Provision for loan commitments

    (35     (42     (6     1        12        1        —          (69
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for credit losses

    (847     (445     1,351        1,868        872        1,067        660        4,526   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

    —          (1,696     (2,632     (2,025     (591     (2,326     (577     (9,847

Recoveries

    —          457        1,058        339        94        782        183        2,913   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

    —          (1,239     (1,574     (1,686     (497     (1,544     (394     (6,934
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2014:

               

Allowance for loan losses

    5,244        16,515        9,708        5,854        2,380        4,542        786        45,029   

Allowance for loan commitments

    266        20        124        6        97        20        —          533   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance for credit losses

  $ 5,510      $ 16,535      $ 9,832      $ 5,860      $ 2,477      $ 4,562      $ 786      $ 45,562   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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  

September 30, 2015

                       

Allowance for credit losses:

                       

Allowance for loans individually evaluated for impairment

   $ —         $ 1,152       $ 1,498       $ —         $ —         $ —         $ —         $ 2,650   

Allowance for loans collectively evaluated for impairment

     4,829         14,095         8,088         4,697         2,686         4,000         579         38,974   

Allowance for loan commitments

     203         21         249         9         109         39         —           630   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for credit losses

   $ 5,032       $ 15,268       $ 9,835       $ 4,706       $ 2,795       $ 4,039       $ 579       $ 42,254   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio loans:

                       

Individually evaluated for impairment (1)

   $ 873       $ 12,468       $ 4,884       $ —         $ —         $ —         $ —         $ 18,225   

Collectively evaluated for impairment

     325,881         1,844,116         720,846         1,243,630         403,387         394,557         —           4,932,417   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

   $ 326,754       $ 1,856,584       $ 725,730       $ 1,243,630       $ 403,387       $ 394,557       $ —         $ 4,950,642   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 September 30, 2015

           

Pass

   $ 316,128       $ 1,807,011       $ 704,472       $ 2,827,611   

Criticized - compromised

     8,170         13,895         10,188         32,253   

Classified - substandard

     2,456         35,678         11,070         49,204   

Classified - doubtful

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 326,754       $ 1,856,584       $ 725,730       $ 2,909,068   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 $15.4 million at September 30, 2015 and $15.2 million at December 31, 2014, of which $2.8 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 $701.0 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 $21.8 million were recorded at their estimated fair value of $10.9 million. The accretable yield on the acquired impaired loans was estimated at $1.9 million at the acquisition date with $1.4 million remaining at September 30, 2015. For the nine months ended September 30, 2015 accretion recognized in interest income on acquired impaired loans was $0.5 million. The balance of loans acquired with deteriorated credit quality at September 30, 2015, was $9.6 million, of which $8.3 million were categorized as non-accrual and $1.3 million were categorized as accruing TDRs, while the non-accretable difference was $9.0 million. At September 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 September 30, 2015

                    

Commercial real estate:

                    

Land and construction

   $ 322,921       $ —         $ 14       $ 3,819       $ 3,833       $ 326,754       $ 2,528   

Improved property

     1,844,067         2,066         1,887         8,564         12,517         1,856,584         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     2,166,988         2,066         1,901         12,383         16,350         2,183,338         2,528   

Commercial and industrial

     723,414         79         178         2,059         2,316         725,730         769   

Residential real estate

     1,230,877         1,419         3,031         8,303         12,753         1,243,630         1,888   

Home equity

     398,446         2,154         376         2,411         4,941         403,387         516   

Consumer

     389,776         3,342         971         468         4,781         394,557         378   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

     4,909,501         9,060         6,457         25,624         41,141         4,950,642         6,079   

Loans held for sale

     10,765         —           —           —           —           10,765         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 4,920,266       $ 9,060       $ 6,457       $ 25,624       $ 41,141       $ 4,961,407       $ 6,079   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans included above are as follows:

                    

Non-accrual loans

   $ 19,854       $ 855       $ 1,530       $ 19,055       $ 21,440       $ 41,294      

TDRs accruing interest (1)

     10,830         503         207         490         1,200         12,030      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total impaired

   $ 30,684       $ 1,358       $ 1,737       $ 19,545       $ 22,640       $ 53,324      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

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  
     September 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

   $ 2,485       $ 2,319       $ —         $ 1,588       $ 1,488       $ —     

Improved property

     24,277         17,234         —           16,480         14,684         —     

Commercial and industrial

     3,608         2,924         —           3,152         2,597         —     

Residential real estate

     18,736         17,048         —           20,077         18,544         —     

Home equity

     3,689         3,310         —           2,890         2,663         —     

Consumer

     1,421         1,095         —           1,287         1,086         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

     54,216         43,930         —           45,474         41,062         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With a specific allowance recorded:

                 

Commercial real estate:

                 

Land and construction

     —           —           —           —           —           —     

Improved property

     5,719         4,510         1,152         7,980         7,980         2,765   

Commercial and industrial

     6,188         4,884         1,498         1,842         1,842         1,033   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

     11,907         9,394         2,650         9,822         9,822         3,798   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 66,123       $ 53,324       $ 2,650       $ 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 Nine Months Ended  
     September 30, 2015     September 30, 2014     September 30, 2015      September 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

   $ 2,414       $ 12      $ 1,749       $ 11      $ 2,198       $ 30       $ 2,099       $ 26   

Improved property

     19,118         245        17,672         169        18,850         708         18,415         322   

Commercial and industrial

     3,193         37        4,071         (2     2,854         99         3,802         87   

Residential real estate

     17,508         200        18,337         219        18,173         665         18,900         610   

Home equity

     3,153         34        2,191         13        2,896         75         2,279         48   

Consumer

     1,142         27        1,087         26        1,176         73         1,131         72   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

     46,528         555        45,107         436        46,147         1,650         46,626         1,165   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

With a specific allowance recorded:

                     

Commercial real estate:

                     

Land and construction

     —           —          —           —          —           —           —           —     

Improved property

     6,011         (56     2,269         109        6,617         —           1,499         113   

Commercial and industrial

     4,707         63        1,938         27        3,256         200         2,134         68   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

     10,718         7        4,207         136        9,873         200         3,633         181   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 57,246       $ 562      $ 49,314       $ 572      $ 56,020       $ 1,850       $ 50,259       $ 1,346   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

17


Table of Contents

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

 

     Non-accrual Loans (1)  
     September 30,      December 31,  

(unaudited, in thousands)

   2015      2014  

Commercial real estate:

     

Land and construction

   $ 1,369       $ 1,488   

Improved property

     19,732         20,227   
  

 

 

    

 

 

 

Total commercial real estate

     21,101         21,715   
  

 

 

    

 

 

 

Commercial and industrial

     7,591         4,110   

Residential real estate

     9,331         10,329   

Home equity

     2,643         1,923   

Consumer

     628         741   
  

 

 

    

 

 

 

Total

   $ 41,294       $ 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  
     September 30, 2015      December 31, 2014  

(unaudited, in thousands)

   Accruing      Non-
Accrual
     Total      Accruing      Non-
Accrual
     Total  

Commercial real estate:

                 

Land and construction

   $ 950       $ 509       $ 1,459       $ —         $ 464       $ 464   

Improved property

     2,012         9,615         11,627         2,437         1,850         4,287   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     2,962         10,124         13,086         2,437         2,314         4,751   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     217         242         459         329         478         807   

Residential real estate

     7,717         1,826         9,543         8,215         2,074         10,289   

Home equity

     667         271         938         740         245         985   

Consumer

     467         198         665         345         309         654   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 12,030       $ 12,661       $ 24,691       $ 12,066       $ 5,420       $ 17,486   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of September 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.

Total TDRs at September 30, 2015 include $9.3 million from the ESB acquisition with $1.3 million accruing and $8.0 million on non-accrual.

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

 

     New TDRs (1)  
     For the Three Months Ended  
     September 30, 2015      September 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:

                 

Land and construction

     1       $ 13       $ 12         —         $ —         $ —     

Improved Property

     —           —           —           2