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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, 2016

 

¨ 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  x    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  x    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   x    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  x

As of July 22, 2016, there were 38,412,843 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, 2016 (unaudited) and December 31, 2015

     3   
 

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2016 and 2015 (unaudited)

     4   
 

Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2016 and 2015 (unaudited)

     5   
 

Consolidated Statements of Cash Flows for the six months ended June  30, 2016 and 2015 (unaudited)

     6   
 

Notes to Consolidated Financial Statements (unaudited)

     7   
2  

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

     28   
3  

Quantitative and Qualitative Disclosures About Market Risk

     45   
4  

Controls and Procedures

     48   
 

PART II – OTHER INFORMATION

  
1  

Legal Proceedings

     49   
2  

Unregistered Sales of Equity Securities and Use of Proceeds

     49   
6  

Exhibits

     50   
 

Signatures

     51   

 

2


Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WESBANCO, INC. CONSOLIDATED BALANCE SHEETS

 

 

(unaudited, in thousands, except shares)

   June 30,
2016
    December 31,
2015
 

ASSETS

    

Cash and due from banks, including interest bearing amounts of $1,838 and $10,978, respectively

   $ 87,626      $ 86,685   

Securities:

    

Trading securities, at fair value

     6,919        6,451   

Available-for-sale, at fair value

     1,248,016        1,403,069   

Held-to-maturity (fair values of $1,044,644 and $1,038,207, respectively)

     997,354        1,012,930   
  

 

 

   

 

 

 

Total securities

     2,252,289        2,422,450   
  

 

 

   

 

 

 

Loans held for sale

     9,974        7,899   
  

 

 

   

 

 

 

Portfolio loans, net of unearned income

     5,169,832        5,065,842   

Allowance for loan losses

     (43,328     (41,710
  

 

 

   

 

 

 

Net portfolio loans

     5,126,504        5,024,132   
  

 

 

   

 

 

 

Premises and equipment, net

     110,611        112,203   

Accrued interest receivable

     24,588        25,759   

Goodwill and other intangible assets, net

     490,143        490,888   

Bank-owned life insurance

     152,876        150,980   

Other assets

     142,813        149,302   
  

 

 

   

 

 

 

Total Assets

   $ 8,397,424      $ 8,470,298   
  

 

 

   

 

 

 

LIABILITIES

    

Deposits:

    

Non-interest bearing demand

   $ 1,310,981      $ 1,311,455   

Interest bearing demand

     1,208,149        1,152,071   

Money market

     890,584        967,561   

Savings deposits

     1,088,032        1,077,374   

Certificates of deposit

     1,430,353        1,557,838   
  

 

 

   

 

 

 

Total deposits

     5,928,099        6,066,299   
  

 

 

   

 

 

 

Federal Home Loan Bank borrowings

     1,056,970        1,041,750   

Other short-term borrowings

     79,103        81,356   

Junior subordinated debt owed to unconsolidated subsidiary trusts

     106,196        106,196   
  

 

 

   

 

 

 

Total borrowings

     1,242,269        1,229,302   
  

 

 

   

 

 

 

Accrued interest payable

     2,200        1,715   

Other liabilities

     60,436        50,850   
  

 

 

   

 

 

 

Total Liabilities

     7,233,004        7,348,166   
  

 

 

   

 

 

 

SHAREHOLDERS’ EQUITY

    

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

     —          —     

Common stock, $2.0833 par value; 100,000,000 shares authorized in 2016 and 2015, respectively; issued: 38,546,042 shares in 2016 and 2015, respectively; outstanding: 38,411,343 and 38,459,635 shares in 2016 and 2015, respectively

     80,304        80,304   

Capital surplus

     515,156        516,294   

Retained earnings

     576,483        549,921   

Treasury stock (134,699 and 86,407 shares in 2016 and 2015, respectively, at cost)

     (3,868     (2,640

Accumulated other comprehensive loss

     (3,097     (20,954

Deferred benefits for directors

     (558     (793
  

 

 

   

 

 

 

Total Shareholders’ Equity

     1,164,420        1,122,132   
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 8,397,424      $ 8,470,298   
  

 

 

   

 

 

 

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)

   2016      2015      2016      2015  

INTEREST AND DIVIDEND INCOME

           

Loans, including fees

   $ 52,697       $ 52,316       $ 105,035       $ 100,036   

Interest and dividends on securities:

           

Taxable

     9,775         10,043         19,993         18,542   

Tax-exempt

     4,540         4,052         9,061         7,585   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest and dividends on securities

     14,315         14,095         29,054         26,127   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other interest income

     573         318         1,097         954   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest and dividend income

     67,585         66,729         135,186         127,117   
  

 

 

    

 

 

    

 

 

    

 

 

 

INTEREST EXPENSE

           

Interest bearing demand deposits

     643         485         1,150         907   

Money market deposits

     450         490         906         945   

Savings deposits

     165         163         330         311   

Certificates of deposit

     2,583         2,869         5,242         5,741   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest expense on deposits

     3,841         4,007         7,628         7,904   
  

 

 

    

 

 

    

 

 

    

 

 

 

Federal Home Loan Bank borrowings

     3,031         949         6,099         1,507   

Other short-term borrowings

     99         92         181         165   

Junior subordinated debt owed to unconsolidated subsidiary trusts

     840         888         1,663         1,784   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest expense

     7,811         5,936         15,571         11,360   
  

 

 

    

 

 

    

 

 

    

 

 

 

NET INTEREST INCOME

     59,774         60,793         119,615         115,757   

Provision for credit losses

     1,811         2,681         4,135         3,970   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provision for credit losses

     57,963         58,112         115,480         111,787   
  

 

 

    

 

 

    

 

 

    

 

 

 

NON-INTEREST INCOME

           

Trust fees

     5,036         5,476         10,747         11,529   

Service charges on deposits

     4,176         4,249         8,128         7,918   

Electronic banking fees

     3,742         3,496         7,345         6,821   

Net securities brokerage revenue

     1,750         1,842         3,646         3,901   

Bank-owned life insurance

     942         989         1,915         2,244   

Net gains on sales of mortgage loans

     683         407         1,231         679   

Net securities gains

     585         —           1,696         22   

Net gain on other real estate owned and other assets

     214         152         196         185   

Other income

     2,463         1,461         4,080         2,955   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-interest income

     19,591         18,072         38,984         36,254   
  

 

 

    

 

 

    

 

 

    

 

 

 

NON-INTEREST EXPENSE

           

Salaries and wages

     19,731         19,300         38,911         37,636   

Employee benefits

     7,332         6,807         14,409         14,123   

Net occupancy

     3,220         3,243         6,811         6,765   

Equipment

     3,402         3,017         6,830         5,958   

Marketing

     1,608         1,715         2,581         2,707   

FDIC insurance

     1,099         1,040         2,264         1,950   

Amortization of intangible assets

     697         944         1,427         1,510   

Restructuring and merger-related expense

     694         1,115         694         10,848   

Other operating expenses

     9,577         9,408         18,776         18,550   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-interest expense

     47,360         46,589         92,703         100,047   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before provision for income taxes

     30,194         29,595         61,761         47,994   

Provision for income taxes

     8,085         7,962         16,779         12,482   
  

 

 

    

 

 

    

 

 

    

 

 

 

NET INCOME

   $ 22,109       $ 21,633       $ 44,982       $ 35,512   
  

 

 

    

 

 

    

 

 

    

 

 

 

EARNINGS PER COMMON SHARE

           

Basic

   $ 0.58       $ 0.56       $ 1.17       $ 0.97   

Diluted

   $ 0.58       $ 0.56       $ 1.17       $ 0.97   
  

 

 

    

 

 

    

 

 

    

 

 

 

AVERAGE COMMON SHARES OUTSTANDING

           

Basic

     38,373,610         38,472,229         38,380,296         36,443,951   

Diluted

     38,410,393         38,531,700         38,414,922         36,504,671   
  

 

 

    

 

 

    

 

 

    

 

 

 

DIVIDENDS DECLARED PER COMMON SHARE

   $ 0.24       $ 0.23       $ 0.48       $ 0.46   
  

 

 

    

 

 

    

 

 

    

 

 

 

COMPREHENSIVE INCOME

   $ 27,368       $ 13,547       $ 62,839       $ 32,635   
  

 

 

    

 

 

    

 

 

    

 

 

 

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, 2016 and 2015

    Common Stock      Capital
Surplus
    Retained
Earnings
    Treasury
Stock
    Accumulated
Other

Comprehensive
(Loss) Income
    Deferred
Benefits for
Directors
    Total  

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

  Shares
Outstanding
    Amount               

December 31, 2015

    38,459,635      $ 80,304       $ 516,294      $ 549,921      $ (2,640   $ (20,954   $ (793   $ 1,122,132   
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    —          —           —          44,982        —          —          —          44,982   

Other comprehensive income

    —          —           —          —          —          17,857        —          17,857   
                

 

 

 

Comprehensive income

    —          —           —          —          —          —          —          62,839   

Common dividends declared ($0.48 per share)

    —          —           —          (18,420     —          —          —          (18,420

Treasury shares acquired

    (128,317     —           —          —          (3,674     —          —          (3,674

Stock options exercised

    28,375        —           (173     —          882        —          —          709   

Restricted stock granted

    51,650        —           (1,564     —          1,564        —          —          —     

Stock compensation expense

    —          —           834        —          —          —          —          834   

Deferred benefits for directors- net

    —          —           (235     —          —          —          235        —     
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

June 30, 2016

    38,411,343      $ 80,304       $ 515,156      $ 576,483      $ (3,868   $ (3,097   $ (558   $ 1,164,420   
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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   
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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)

   2016     2015  

NET CASH PROVIDED BY OPERATING ACTIVITIES

   $ 59,861      $ 34,541   
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Net increase in loans held for investment

     (103,249     (156,166

Securities available-for-sale:

    

Proceeds from sales

     109,644        560,736   

Proceeds from maturities, prepayments and calls

     154,447        121,699   

Purchases of securities

     (83,783     (430,858

Securities held-to-maturity:

    

Proceeds from maturities, prepayments and calls

     44,077        26,021   

Purchases of securities

     (31,848     (173,754

Proceeds from bank-owned life insurance

     19        1,185   

Cash paid to acquire a business, net of cash acquired

     —          (28,551

Purchases of premises and equipment – net

     (2,804     (4,835
  

 

 

   

 

 

 

Net cash provided by (used in) provided by investing activities

     86,503        (84,523
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

Decrease in deposits

     (137,386     (35,196

Proceeds from Federal Home Loan Bank borrowings

     65,000        675,000   

Repayment of Federal Home Loan Bank borrowings

     (49,685     (509,029

Decrease in other short-term borrowings

     (6,253     (11,822

Increase in federal funds purchased

     4,000        —     

Repayment of junior subordinated debt

     —          (36,083

Repayment of common stock warrant

     —          (2,247

Dividends paid to common shareholders

     (18,060     (15,291

Treasury shares purchased – net

     (3,039     (614
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (145,423     64,718   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     941        14,736   

Cash and cash equivalents at beginning of the period

     86,685        94,002   
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 87,626      $ 108,738   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES

    

Interest paid on deposits and other borrowings

   $ 15,994      $ 12,288   

Income taxes paid

     14,500        5,070   

Transfers of loans to other real estate owned

     546        751   

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, 2015.

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 2015 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 June 2016, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (“ASU”) (ASU 2016-13) that will require entities to use a new forward-looking “expected loss” model on trade and other receivables, held-to-maturity debt securities, loans and other instruments that generally will result in the earlier recognition of allowances for credit losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. Entities will have to disclose significantly more information, including information they use to track credit quality by year of origination for most financing receivables. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. WesBanco is currently evaluating the impact of the adoption of this pronouncement on its Consolidated Financial Statements.

In March 2016, the FASB issued 2016-09 that will require all income tax effects of stock awards to be recognized in the income statement when the awards vest or are settled. It also will allow an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2016, including interim periods within 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 March 2016, the FASB issued ASU 2016-07 that eliminates the requirement to retrospectively apply the equity method in previous periods when an investor initially obtains significant influence over an investee. The update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2016, and requires prospective 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 February 2016, the FASB issued ASU 2016-02 that will require entities to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. The principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases were not previously recognized in the balance sheet. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. WesBanco is currently evaluating the impact of the adoption of this pronouncement on its Consolidated Financial Statements.

In January 2016, the FASB issued ASU 2016-01 that will require entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. The standard does not change the guidance for classifying and measuring investments in debt securities and loans. Entities will have to record changes in instrument-specific credit risk for financial liabilities measured under the fair value option in other comprehensive income. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2017, including interim periods within 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 September 2015, the FASB issued ASU 2015-16 which 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. The adoption of this pronouncement did not 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. The adoption of this pronouncement did not 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

 

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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. The adoption of this pronouncement did not 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. 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 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 was 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. In March 2016, the FASB issued ASU 2016-08 which amends the principal versus agent guidance in the revenue standard. In April 2016, the FASB issued ASU 2016-10 which clarifies when promised goods or services are separately identifiable in the revenue standard. In May 2016, the FASB issued ASU 2016-12 which provided narrow-scope improvements and practical expedients to the revenue standard. WesBanco is currently evaluating the impact of the adoption of this pronouncement on its Consolidated Financial Statements.

NOTE 2. MERGERS AND ACQUISITIONS

On May 3, 2016, WesBanco and Your Community Bankshares, Inc. (“YCB”), a bank holding company headquartered in New Albany, Indiana with approximately $1.6 billion in assets and 33 branches, jointly announced that a definitive Agreement and Plan of Merger was executed providing for the merger of YCB with and into WesBanco. On the date of announcement, the transaction was valued at approximately $221.0 million. Under the terms of the Agreement and Plan of Merger, which has been approved by the board of directors of both companies, WesBanco will exchange a combination of its common stock and cash for YCB common stock. YCB shareholders will be entitled to receive 0.964 of a share of WesBanco common stock and cash in the amount of $7.70 per share for each share of YCB common stock for a total value of approximately $39.05 per share at the date of announcement. The receipt by YCB shareholders of shares of WesBanco common stock in exchange for their shares of YCB common stock is anticipated to qualify as a tax-free exchange. The acquisition is subject to the approvals of the appropriate banking regulatory authorities and the shareholders of YCB. It is expected that the transaction will be completed in the third or fourth quarter of 2016.

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)

  2016     2015     2016     2015  

Numerator for both basic and diluted earnings per common share:

       

Net income

  $ 22,109      $ 21,633      $ 44,982      $ 35,512   
 

 

 

   

 

 

   

 

 

   

 

 

 

Denominator:

       

Total average basic common shares outstanding

    38,373,610        38,472,229        38,380,296        36,443,951   

Effect of dilutive stock options and other stock compensation

    36,783        59,471        34,626        60,720   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total diluted average common shares outstanding

    38,410,393        38,531,700        38,414,922        36,504,671   
 

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share – basic

  $ 0.58      $ 0.56      $ 1.17      $ 0.97   

Earnings per common share – diluted

  $ 0.58      $ 0.56      $ 1.17      $ 0.97   
 

 

 

   

 

 

   

 

 

   

 

 

 

Stock options representing shares of 186,350 were not included in the computation of diluted earnings per share for the three and six months ended June 30, 2016, because to do so would have been anti-dilutive. All stock options were included in the three and six months ended June 30, 2015 computation. Contingently issuable shares of 14,976 estimated to be awarded under the total shareholder return plan were also included in the diluted computation for three and six months ended June 30, 2016.

 

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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, 2016     December 31, 2015  

(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

  $ 56,018      $ 420      $ (2   $ 56,436      $ 82,725      $ 1,183      $ (403   $ 83,505   

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

    1,056,429        14,661        (1,009     1,070,081        1,188,256        1,720        (13,896     1,176,080   

Obligations of states and political subdivisions

    76,143        5,332        —          81,475        76,106        4,205        (46     80,265   

Corporate debt securities

    35,320        227        (61     35,486        58,745        181        (333     58,593   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total debt securities

  $ 1,223,910      $ 20,640      $ (1,072   $ 1,243,478      $ 1,405,832      $ 7,289      $ (14,678   $ 1,398,443   

Equity securities

    3,812        726        —          4,538        3,812        816        (2     4,626   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

  $ 1,227,722      $ 21,366      $ (1,072   $ 1,248,016      $ 1,409,644      $ 8,105      $ (14,680   $ 1,403,069   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Held-to-maturity

               

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

  $ 202,844      $ 4,614      $ (39   $ 207,419      $ 216,419      $ 1,922      $ (2,014   $ 216,327   

Obligations of states and political subdivisions

    760,067        40,687        (52     800,702        762,039        26,121        (726     787,434   

Corporate debt securities

    34,443        2,121        (41     36,523        34,472        237        (263     34,446   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total held-to-maturity securities

  $ 997,354      $ 47,422      $ (132   $ 1,044,644      $ 1,012,930      $ 28,280      $ (3,003   $ 1,038,207   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total securities

  $ 2,225,076      $ 68,788      $ (1,204   $ 2,292,660      $ 2,422,574      $ 36,385      $ (17,683   $ 2,441,276   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Trading securities, which consist of investments in various mutual funds held in grantor trusts formed in connection with a deferred compensation plan, are recorded at fair value and totaled $6.9 million and $6.5 million, at June 30, 2016 and December 31, 2015, respectively.

At June 30, 2016, and December 31, 2015, 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.

 

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The following table presents the fair value of available-for-sale and held-to-maturity securities by contractual maturity at June 30, 2016. In some instances, the issuers may have the right to call or prepay obligations without penalty prior to the contractual maturity date.

 

     June 30, 2016  

(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

   $ 2,004       $ 9,998       $ 27,555       $ 16,879       $ —         $ 56,436   

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

     —           —           —           —           1,070,081         1,070,081   

Obligations of states and political subdivisions

     7,304         21,305         36,994         15,872         —           81,475   

Corporate debt securities

     —           23,076         10,423         1,987         —           35,486   

Equity securities (2)

     —           —           —           —           4,538         4,538   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

   $ 9,308       $ 54,379       $ 74,972       $ 34,738       $ 1,074,619       $ 1,248,016   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held-to-maturity (3)

                 

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

   $ —         $ —         $ —         $ —         $ 207,419       $ 207,419   

Obligations of states and political subdivisions

     355         52,493         380,269         367,585         —           800,702   

Corporate debt securities

     —           955         35,568         —           —           36,523   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total held-to-maturity securities

   $ 355       $ 53,448       $ 415,837       $ 367,585       $ 207,419       $ 1,044,644   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities

   $ 9,663       $ 107,827       $ 490,809       $ 402,323       $ 1,282,038       $ 2,292,660   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 $1.0 billion.

Securities with aggregate fair values of $1.1 billion and $1.0 billion at June 30, 2016 and December 31, 2015, 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 $109.6 million and $560.7 million for the six months ended June 30, 2016 and 2015, respectively. Net unrealized gains (losses) on available-for-sale securities included in accumulated other comprehensive income net of tax, as of June 30, 2016 and December 31, 2015 were $12.9 million and ($4.2) million, respectively.

The following table presents the gross realized gains and losses on sales and calls of available-for-sale and held-to-maturity securities for the three and six months ended June 30, 2016 and 2015, respectively. Gains and losses due to fair value fluctuations on trading securities are included in non-interest income under other income.

 

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

(unaudited, in thousands)

   2016      2015      2016      2015  

Gross realized gains

   $ 778       $ 2       $ 1,916       $ 26   

Gross realized losses

     (193      (2      (220      (4
  

 

 

    

 

 

    

 

 

    

 

 

 

Net realized gains

   $ 585       $ —         $ 1,696       $ 22   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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, 2016 and December 31, 2015:

 

    June 30, 2016  
    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

  $ 9,998      $ (2     1      $ —        $ —          —        $ 9,998      $ (2     1   

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

    17,014        (48     4        72,445        (1,000     17        89,459        (1,048     21   

Obligations of states and political subdivisions

    3,797        (23     5        4,747        (29     7        8,544        (52     12   

Corporate debt securities

    7,991        (69     3        4,996        (33     1        12,987        (102     4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total temporarily impaired securities

  $ 38,800      $ (142     13      $ 82,188      $ (1,062     25      $ 120,988      $ (1,204     38   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 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

  $ 49,826      $ (403     11      $ —        $ —          —        $ 49,826      $ (403     11   

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

    1,003,397        (10,981     187        146,182        (4,929     31        1,149,579        (15,910     218   

Obligations of states and political subdivisions

    58,705        (400     76        23,691        (372     29        82,396        (772     105   

Corporate debt securities

    41,326        (541     12        1,931        (55     1        43,257        (596     13   

Equity securities

    1,378        (2     1        —          —          —          1,378        (2     1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total temporarily impaired securities

  $ 1,154,632      $ (12,327   $ 287      $ 171,804      $ (5,356   $ 61      $ 1,326,436      $ (17,683   $ 348   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 substantially all debt securities are rated above 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 stock totaling $46.1 million and $45.5 million at June 30, 2016 and December 31, 2015, 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 $0.6 million and $1.0 million at June 30, 2016 and December 31, 2015, respectively and discounts on purchased loans from prior transactions of $14.4 million and $15.7 million at June 30, 2016 and December 31, 2015, respectively.

 

(unaudited, in thousands)

   June 30,
2016
     December 31,
2015
 
Commercial real estate:              

Land and construction

   $ 432,663       $ 344,748   

Improved property

     1,850,535         1,911,633   
  

 

 

    

 

 

 

Total commercial real estate

     2,283,198         2,256,381   
  

 

 

    

 

 

 

Commercial and industrial

     814,055         737,878   

Residential real estate

     1,242,015         1,247,800   

Home equity

     435,187         416,889   

Consumer

     395,377         406,894   
  

 

 

    

 

 

 

Total portfolio loans

     5,169,832         5,065,842   
  

 

 

    

 

 

 

Loans held for sale

     9,974         7,899   
  

 

 

    

 

 

 

Total loans

   $ 5,179,806       $ 5,073,741   
  

 

 

    

 

 

 

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, 2016 and 2015
 

(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, 2015:

                

Allowance for loan losses

   $ 4,390      $ 14,748      $ 10,002      $ 4,582      $ 2,883      $ 4,763      $ 342      $ 41,710   

Allowance for loan commitments

     157        26        260        7        117        46        —          613   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total beginning allowance for credit losses

     4,547        14,774        10,262        4,589        3,000        4,809        342        42,323   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses:

                

Provision for loan losses

     1,252        (559     1,999        (172     164        898        581        4,163   

Provision for loan commitments

     (10     (13     (16     1        10        —          —          (28
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for credit losses

     1,242        (572     1,983        (171     174        898        581        4,135   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     —          (1,328     (765     (386     (216     (2,089     (362     (5,146

Recoveries

     3        1,168        139        306        77        790        118        2,601   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     3        (160     (626     (80     (139     (1,299     (244     (2,545
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2016:

                

Allowance for loan losses

     5,645        14,029        11,375        4,330        2,908        4,362        679        43,328   

Allowance for loan commitments

     147        13        244        8        127        46        —          585   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance for credit losses

   $ 5,792      $ 14,042      $ 11,619      $ 4,338      $ 3,035      $ 4,408      $ 679      $ 43,913   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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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  
    Commercial     Commercial                                      
    Real Estate-     Real Estate-     Commercial     Residential                          
    Land and     Improved     and     Real     Home                    

(unaudited, in thousands)

  Construction     Property     Industrial     Estate     Equity     Consumer     Over-draft     Total  

June 30, 2016

               

Allowance for credit losses:

               

Allowance for loans individually evaluated for impairment

  $ —        $ 504      $ 894      $ —        $ —        $ —        $ —        $ 1,398   

Allowance for loans collectively evaluated for impairment

    5,645        13,525        10,481        4,330        2,908        4,362        679        41,930   

Allowance for loan commitments

    147        13        244        8        127        46        —          585   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

  $ 5,792      $ 14,042      $ 11,619      $ 4,338      $ 3,035      $ 4,408      $ 679      $ 43,913   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Portfolio loans:

               

Individually evaluated for impairment (1)

  $ —        $ 3,012      $ 4,049      $ —        $ —        $ —        $ —        $ 7,061   

Collectively evaluated for impairment

    432,663        1,840,005        810,006        1,242,015        435,187        395,377        —          5,155,253   

Acquired with deteriorated credit quality

    —          7,518        —          —          —          —          —          7,518   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total portfolio loans

  $ 432,663      $ 1,850,535      $ 814,055      $ 1,242,015      $ 435,187      $ 395,377      $ —        $ 5,169,832   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2015

               

Allowance for credit losses:

               

Allowance for loans individually evaluated for impairment

  $ —        $ 668      $ 853      $ —        $ —        $ —        $ —        $ 1,521   

Allowance for loans collectively evaluated for impairment

    4,390        14,080        9,149        4,582        2,883        4,763        342        40,189   

Allowance for loan commitments

    157        26        260        7        117        46        —          613   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

  $ 4,547      $ 14,774      $ 10,262      $ 4,589      $ 3,000      $ 4,809      $ 342      $ 42,323   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Portfolio loans:

               

Individually evaluated for impairment (1)

  $ —        $ 4,031      $ 4,872      $ —        $ —        $ —        $ —        $ 8,903   

Collectively evaluated for impairment

    343,832        1,899,738        732,957        1,247,639        416,862        406,622        —          5,047,650   

Acquired with deteriorated credit quality

    916        7,864        49        161        27        272        —          9,289   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total portfolio loans

  $ 344,748      $ 1,911,633      $ 737,878      $ 1,247,800      $ 416,889      $ 406,894      $ —        $ 5,065,842   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Commercial loans greater than $1 million that are reported as non-accrual or as a troubled debt restructuring (“TDR”) 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:

 

     Commercial Loans by Internally Assigned Risk Grade  
     Commercial      Commercial                
     Real Estate-      Real Estate-             Total  
     Land and      Improved      Commercial      Commercial  

(unaudited, in thousands)

   Construction      Property      & Industrial      Loans  

As of June 30, 2016

           

Pass

   $ 425,647       $ 1,805,673       $ 786,601       $ 3,017,921   

Criticized - compromised

     5,007         11,998         9,538         26,543   

Classified - substandard

     2,009         32,864         17,916         52,789   

Classified - doubtful

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 432,663       $ 1,850,535       $ 814,055       $ 3,097,253   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2015

           

Pass

   $ 335,989       $ 1,864,986       $ 713,578       $ 2,914,553   

Criticized - compromised

     5,527         10,911         9,860         26,298   

Classified - substandard

     3,232         35,736         14,440         53,408   

Classified - doubtful

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 344,748       $ 1,911,633       $ 737,878       $ 2,994,259   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 $16.4 million at June 30, 2016 and $15.8 million at December 31, 2015, of which $2.2 and $3.1 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.

Acquired Loans — Carrying amount of loans acquired with deteriorated credit quality at June 30, 2016 and December 31, 2015 were $7.5 million and $9.3 million, respectively, while the outstanding balance was $12.5 million and $15.0 million, respectively. At June 30, 2016 and December 31, 2015 no allowance for loan losses has been recognized related to the acquired impaired loans, as estimates of future cash flows on these loans have not been negatively impacted.

The following table provides changes in accretable yield for loans acquired with deteriorated credit quality:

 

     For the Six Months Ended  
         June 30,              June 30,      

(unaudited, in thousands)

   2016      2015  

Balance at beginning of period

   $ 1,206       $ —     

Acquisitions

     —           1,815   

Reclass from non-accretable difference

     1,064         —     

Transfers

     (328      —     

Accretion

     (266      (267
  

 

 

    

 

 

 

Balance at end of period

   $ 1,676       $ 1,548   
  

 

 

    

 

 

 

 

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Table of Contents

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

 

     Age Analysis of Loans  
                                               90 Days  
                          90 Days                    or More  
            30-59 Days      60-89 Days      or More      Total      Total      Past Due and  

(unaudited, in thousands)

   Current      Past Due      Past Due      Past Due      Past Due      Loans      Accruing (1)  

As of June 30, 2016

                    

Commercial real estate:

                    

Land and construction

   $ 432,241       $ —         $ —         $ 422       $ 422       $ 432,663       $ —     

Improved property

     1,840,665         1,616         592         7,662         9,870         1,850,535         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     2,272,906         1,616         592         8,084         10,292         2,283,198         —     

Commercial and industrial

     811,320         251         743         1,741         2,735         814,055         56   

Residential real estate

     1,229,843         1,153         3,319         7,700         12,172         1,242,015         1,261   

Home equity

     431,147         1,276         373         2,391         4,040         435,187         378   

Consumer

     391,096         2,665         803         813         4,281         395,377         568   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

     5,136,312         6,961         5,830         20,729         33,520         5,169,832         2,263   

Loans held for sale

     9,974         —           —           —           —           9,974         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 5,146,286       $ 6,961       $ 5,830       $ 20,729       $ 33,520       $ 5,179,806       $ 2,263   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans included above are as follows:

                    

Non-accrual loans

   $ 12,374       $ 1,261       $ 763       $ 18,057       $ 20,081       $ 32,455      

TDRs accruing interest (1)

     8,195         204         171         409         784         8,979      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total impaired

   $ 20,569       $ 1,465       $ 934       $ 18,466       $ 20,865       $ 41,434      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

As of December 31, 2015

                    

Commercial real estate:

                    

Land and construction

   $ 344,184       $ —         $ —         $ 564       $ 564       $ 344,748       $ —     

Improved property

     1,901,466         909         1,097         8,161         10,167         1,911,633         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     2,245,650         909         1,097         8,725         10,731         2,256,381         —     

Commercial and industrial

     734,660         298         714         2,206         3,218         737,878         33   

Residential real estate

     1,234,839         1,389         2,871         8,701         12,961         1,247,800         2,159   

Home equity

     412,450         2,252         314         1,873         4,439         416,889         407   

Consumer

     401,242         4,115         764         773         5,652         406,894         527   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

     5,028,841         8,963         5,760         22,278         37,001         5,065,842         3,126   

Loans held for sale

     7,899         —           —           —           —           7,899         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 5,036,740       $ 8,963       $ 5,760       $ 22,278       $ 37,001       $ 5,073,741       $ 3,126   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans included above are as follows:

                    

Non-accrual loans

   $ 11,349       $ 943       $ 2,147       $ 18,942       $ 22,032       $ 33,381      

TDRs accruing interest (1)

     10,710         390         238         210         838         11,548      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total impaired

   $ 22,059       $ 1,333       $ 2,385       $ 19,152       $ 22,870       $ 44,929      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

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

 

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Table of Contents

The following tables summarize impaired loans:

 

    Impaired Loans  
    June 30, 2016     December 31, 2015  

(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

  $ 905      $ 801      $ —        $ 2,126      $ 1,990      $ —     

Improved property

    12,762        9,360        —          14,817        10,559        —     

Commercial and industrial

    6,113        3,339        —          4,263        3,481        —     

Residential real estate

    18,328        16,491        —          18,560        16,688        —     

Home equity

    4,092        3,574        —          3,562        3,033        —     

Consumer

    964        808        —          1,603        1,294        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans without a specific allowance

    43,164        34,373        —          44,931        37,045        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

With a specific allowance recorded:

           

Commercial real estate:

           

Land and construction

    —          —          —          —          —          —     

Improved property

    3,012        3,012        504        3,012        3,012        668   

Commercial and industrial

    5,853        4,049        894        6,176        4,872        853   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans with a specific allowance

    8,865        7,061        1,398        9,188        7,884        1,521   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans

  $ 52,029      $ 41,434      $ 1,398      $ 54,119      $ 44,929      $ 1,521   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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, 2016     June 30, 2015     June 30, 2016     June 30, 2015  

(unaudited, in thousands)

  Average
Recorded
Investment
    Interest
Income
Recognized
    Average
Recorded
Investment
    Interest
Income
Recognized
    Average
Recorded
Investment
    Interest
Income
Recognized
    Average
Recorded
Investment
    Interest
Income
Recognized
 

With no related specific allowance recorded:

               

Commercial real estate:

               

Land and construction

  $ 840      $ 8      $ 2,493      $ 2      $ 1,223      $ 14      $ 2,158      $ 18   

Improved Property

    9,846        96        21,741        240        10,084        180        19,389        463   

Commercial and industrial

    3,303        52        2,947        49        3,362        93        2,830        62   

Residential real estate

    16,830        194        18,550        235        16,783        433        18,548        465   

Home equity

    3,428        28        2,806        21        3,296        52        2,758        41   

Consumer

    853        17        1,261        26        1,000        35        1,202        46   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans without a specific allowance

    35,100        395        49,798        573        35,748        807        46,885        1,095   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

With a specific allowance recorded:

               

Commercial real estate:

               

Land and construction

    —          —          —          —          —          —          —          —     

Improved Property

    3,012        —          6,989        56        3,012        —          7,319        56   

Commercial and industrial

    4,312        26        3,149        118        4,498        58        2,713        137   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans with a specific allowance

    7,324        26        10,138        174        7,510        58        10,032        193   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans

  $ 42,424      $ 421      $ 59,936      $ 747      $ 43,258      $ 865      $ 56,917      $ 1,288   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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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,
2016
     December 31,
2015
 

Commercial real estate:

     

Land and construction

   $ 801       $ 1,023   

Improved property

     10,661         11,507   
  

 

 

    

 

 

 

Total commercial real estate

     11,462         12,530   
  

 

 

    

 

 

 

Commercial and industrial

     7,250         8,148   

Residential real estate

     10,071         9,461   

Home equity

     3,017         2,391   

Consumer

     655         851   
  

 

 

    

 

 

 

Total

   $ 32,455       $ 33,381   
  

 

 

    

 

 

 

 

(1)  At June 30, 2016, there were two borrowers with loans greater than $1.0 million and three at December 31, 2015. 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, 2016      December 31, 2015  

(unaudited, in thousands)

   Accruing      Non-Accrual      Total      Accruing      Non-Accrual      Total  

Commercial real estate:

                 

Land and construction

   $ —         $ 361       $ 361       $ 967       $ 431       $ 1,398   

Improved property

     1,711         952         2,663         2,064         1,442         3,506   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     1,711         1,313         3,024         3,031         1,873         4,904   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     138         245         383         205         282         487   

Residential real estate

     6,420         2,115         8,535         7,227         2,060         9,287   

Home equity

     557         276         833         642         218         860   

Consumer

     153         172         325         443         184         627   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 8,979       $ 4,121       $ 13,100       $ 11,548       $ 4,617       $ 16,165   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2016, there were no 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 no unfunded commitments to debtors whose loans were classified as impaired as of June 30, 2016 and $0.2 million as of December 31, 2015.

The following tables present details related to loans identified as TDRs during the three and six months ended June 30, 2016 and 2015, respectively:

 

     New TDRs (1)  
     For the Three Months Ended  
     June 30, 2016      June 30, 2015  

(unaudited, dollars in thousands)

   Number of
Modifications
     Pre-
Modification
Outstanding
Recorded
Investment
     Post-
Modification
Outstanding
Recorded
Investment
     Number of
Modifications
     Pre-
Modification
Outstanding
Recorded
Investment
     Post-
Modification
Outstanding
Recorded
Investment
 

Commercial real estate:

                 

Land and construction

     —         $ —         $ —           —         $ —         $ —     

Improved Property

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     —           —           —           —           —           —     

Residential real estate

     1         23         22         1         41         39   

Home equity

     1         43         42         —           —           —     

Consumer

     6         38         34         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     8       $ 104       $ 98         1       $ 41       $ 39   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  Excludes loans that were either paid off or charged-off by period end. The pre-modification balance represents the balance outstanding at the beginning of the period. The post-modification balance represents the outstanding balance at period end.

 

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Table of Contents
     New TDRs (1)  
     For the Six Months Ended  
     June 30, 2016      June 30, 2015  
            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

     —         $ —         $ —           2       $ 115       $ 110   

Improved Property

     —           —           —           2         835         581   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —           —           —           4         950         691   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     —           —           —           —           —           —     

Residential real estate

     1         23         22         7         454         443   

Home equity

     1         44         42         1         7         6   

Consumer

     6         41         34         2         19         16   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     8       $ 108       $ 98         14       $ 1,430       $ 1,156   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  Excludes loans that were either paid off or charged-off by period end. The pre-modification balance represents the balance outstanding at the beginning of the period. The post-modification balance represents the outstanding balance at period end.

The following table summarizes TDRs which defaulted (defined as past due 90 days) during the six months ended June 30, 2016 and 2015, respectively, that were restructured within the last twelve months prior to June 30, 2016 and 2015, respectively:

 

     Defaulted TDRs (1)  
     For the Six Months Ended  
     June 30, 2016      June 30, 2015  
     Number of      Recorded      Number of      Recorded  

(unaudited, dollars in thousands)

   Defaults      Investment      Defaults      Investment  

Commercial real estate:

           

Land and construction

     —         $ —           —         $ —     

Improved property

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     1         40         —           —     

Residential real estate

     —           —           —           —     

Home equity

     —           —           1         42   

Consumer

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1       $ 40         1       $ 42   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Excludes loans that were either charged-off or cured by period end. The recorded investment is as of June 30, 2016 and 2015, respectively.

TDRs that default are placed on non-accrual status unless they are both well-secured and in the process of collection. None of the loans in the table above were accruing interest.

The following table summarizes other real estate owned and repossessed assets included in other assets:

 

     June 30,      December 31,  

(unaudited, in thousands)

   2016      2015  

Other real estate owned

   $ 4,361       $ 5,669   

Repossessed assets

     120         156   
  

 

 

    

 

 

 

Total other real estate owned and repossessed assets

   $ 4,481       $ 5,825   
  

 

 

    

 

 

 

Residential real estate included in other real estate owned at June 30, 2016 and December 31, 2015 was $0.8 million and $2.0 million, respectively. At June 30, 2016 and December 31, 2015, formal foreclosure proceedings were in process on residential real estate loans totaling $3.4 million and $4.1 million, respectively.

 

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Table of Contents

NOTE 6. PENSION PLAN

The following table presents the net periodic pension cost for WesBanco’s Defined Benefit Pension Plan (the “Plan”) and the related components:

 

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

(unaudited, in thousands)

   2016      2015      2016      2015  

Service cost – benefits earned during year

   $ 696       $ 836       $ 1,392       $ 1,663   

Interest cost on projected benefit obligation

     1,209         1,214         2,533         2,415   

Expected return on plan assets

     (1,919      (1,928      (3,838      (3,835

Amortization of prior service cost

     6         6         12         12   

Amortization of net loss

     808         793         1,502         1,577   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic pension cost

   $ 800       $ 921       $ 1,601       $ 1,832   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Plan covers all employees of WesBanco and its subsidiaries who were hired on or before August 1, 2007 who satisfy minimum age and length of service requirements, and is not available to employees hired after such date.

A minimum required contribution of $0.6 million is due for 2016 which could be all or partially offset by the Plan’s $39.1 million available credit balance. A voluntary contribution of $3.8 million was made in June 2016.

 

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Table of Contents

NOTE 7. FAIR VALUE MEASUREMENT

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

Fair value is determined at one point in time and is not representative of future value. These amounts do not reflect the total value of a going concern organization. Management does not have the intention to dispose of a significant portion of its assets and liabilities and therefore, the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows.

The following is a discussion of assets and liabilities measured at fair value on a recurring basis and valuation techniques applied:

Investment securities: The fair value of investment securities which are measured on a recurring basis are determined primarily by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other similar securities. These securities are classified within level 1 or 2 in the fair value hierarchy. Certain equity securities that are lightly traded in over-the-counter markets are classified as level 2 in the fair value hierarchy, as quoted market prices may not be available on the fair value measurement date. Positions that are not traded in active markets for which valuations are generated using assumptions not observable in the market or management’s best estimate are classified within level 3 of the fair value hierarchy. This includes certain specific municipal debt issues for which the credit quality and discount rate must be estimated.

We may be required from time to time to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or market accounting or write-downs of individual assets.

Impaired loans: Impaired loans are carried at the lower of cost or the fair value of the collateral for collateral-dependent loans. Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable. The use of independent appraisals, discounted cash flow models and management’s best judgment are significant inputs in arriving at the fair value measure of the underlying collateral and impaired loans are therefore classified within level 3 of the fair value hierarchy.

Other real estate owned and repossessed assets: Other real estate owned and repossessed assets are carried at the lower of the investment in the assets or the fair value of the assets less estimated selling costs. The use of independent appraisals and management’s best judgment are significant inputs in arriving at the fair value measure of the underlying collateral, and therefore other real estate owned and repossessed assets are classified within level 3 of the fair value hierarchy.

Loans held for sale: Loans held for sale are carried, in aggregate, at the lower of cost or fair value. The use of a valuation model using quoted prices of similar instruments are significant inputs in arriving at the fair value and therefore loans held for sale are classified within level 2 of the fair value hierarchy.

 

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Table of Contents

Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in the table below are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. The following tables set forth WesBanco’s financial assets and liabilities that were accounted for at fair value on a recurring and nonrecurring basis by level within the fair value hierarchy as of June 30, 2016 and December 31, 2015:

 

            June 30, 2016  
            Fair Value Measurements Using:  
     June 30,
2016
     Quoted Prices in
Active Markets
for Identical
Assets
     Significant Other
Observable
Inputs
     Significant
Unobservable
Inputs
     Investments
Measured
at Net Asset
 

(unaudited, in thousands)

      (level 1)      (level 2)      (level 3)      Value  

Recurring fair value measurements

              

Trading securities

   $ 6,919       $ 5,774       $ —         $ —         $ 1,145   

Securities - available-for-sale

              

Obligations of government agencies

     56,436         —           56,436         —           —     

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

     1,070,081         —           1,070,081         —           —     

Obligations of state and political subdivisions

     81,475         —           81,475         —           —     

Corporate debt securities

     35,486         —           35,486         —           —     

Equity securities

     4,538         2,781         1,757         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities - available-for-sale

   $ 1,248,016       $ 2,781       $ 1,245,235       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring fair value measurements

   $ 1,254,935       $ 8,555       $ 1,245,235       $ —         $ 1,145   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonrecurring fair value measurements

              

Impaired loans

   $ 5,663       $ —         $ —         $ 5,663       $ —     

Other real estate owned and repossessed assets

     4,481         —           —           4,481         —     

Loans held for sale

     9,974         —           9,974         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring fair value measurements

   $ 20,118       $ —         $ 9,974       $ 10,144       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

            December 31, 2015  
            Fair Value Measurements Using:  
     December 31,
2015
     Quoted Prices in
Active Markets
for Identical
Assets
     Significant Other
Observable
Inputs
     Significant
Unobservable
Inputs
     Investments
Measured
at Net Asset
 

(unaudited, in thousands)

      (level 1)      (level 2)      (level 3)      Value  

Recurring fair value measurements

              

Trading securities

   $ 6,451       $ 5,226       $ —         $ —         $ 1,225   

Securities - available-for-sale

              

Obligations of government agencies

     83,505         —           83,505         —           —     

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

     1,176,080         —           1,176,080         —           —     

Obligations of state and political subdivisions

     80,265         —           80,265         —           —     

Corporate debt securities

     58,593         —           58,593         —           —     

Equity securities

     4,626         2,735         1,891         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities - available-for-sale

   $ 1,403,069       $ 2,735       $ 1,400,334       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring fair value measurements

   $ 1,409,520       $ 7,961       $ 1,400,334       $ —         $ 1,225   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonrecurring fair value measurements

              

Impaired loans

   $ 6,363       $ —         $ —         $ 6,363       $ —     

Other real estate owned and repossessed assets

     5,825         —           —           5,825         —     

Loans held for sale

     7,899         —           7,899         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring fair value measurements

   $ 20,087       $ —         $ 7,899       $ 12,188       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

WesBanco’s policy is to recognize transfers between levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between level 1, 2 or 3 for the six months ended June 30, 2016 or for the year ended December 31, 2015.

 

21


Table of Contents

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which WesBanco has utilized level 3 inputs to determine fair value:

 

     Quantitative Information about Level 3 Fair Value Measurements
     Fair Value      Valuation   Unobservable   Range (Weighted

(unaudited, in thousands)

   Estimate      Techniques   Input  

Average)

June 30, 2016:

         

Impaired loans

   $ 5,663       Appraisal of collateral (1)   Appraisal adjustments (2)   0% to (51.4%) / (36.8%)
        Liquidation expenses (2)   (2.4%) to (8.0%) / (4.0%)

Other real estate owned and repossessed assets

     4,481       Appraisal of collateral (1), (3)    

December 31, 2015:

         

Impaired loans

   $ 6,363       Appraisal of collateral (1)   Appraisal adjustments (2)   0% to (40.6%) / (25.1%)
        Liquidation expenses (2)   (3.0%) to (8.0%) / (6.7%)

Other real estate owned and repossessed assets

     5,825       Appraisal of collateral (1), (3)    

 

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.
(2)  Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of appraisal adjustments and liquidation expenses are presented as a percent of the appraisal.
(3)  Includes estimated liquidation expenses and numerous dissimilar qualitative adjustments by management which are not identifiable.

 

22


Table of Contents

The estimated fair values of WesBanco’s financial instruments are summarized below:

 

                Fair Value Measurements at
June 30, 2016
 

(unaudited, in thousands)

  Carrying
Amount
    Fair Value
Estimate
    Quoted Prices in
Active Markets
for Identical
Assets

(level 1)
    Significant Other
Observable

Inputs
(level 2)
    Significant
Unobservable
Inputs

(level 3)
    Investments
Measured at Net
Asset Value
 

Financial Assets

           

Cash and due from banks

  $ 87,626      $ 87,626      $ 87,626      $ —        $ —        $ —     

Trading securities

    6,919        6,919        5,774        —          —          1,145   

Securities available-for-sale

    1,248,016        1,248,016        2,781        1,245,235        —          —     

Securities held-to-maturity

    997,354        1,044,644        —          1,043,975        669        —     

Net loans

    5,126,504        5,088,401        —          —          5,088,401        —     

Loans held for sale

    9,974        9,974        —          9,974        —          —     

Accrued interest receivable

    24,588        24,588        24,588        —          —          —     

Financial Liabilities

           

Deposits

    5,928,099        5,936,524        4,497,746        1,438,778        —          —     

Federal Home Loan Bank borrowings

    1,056,970        1,059,380        —          1,059,380        —          —     

Other borrowings

    79,103        79,095        76,721        2,374        —          —     

Junior subordinated debt

    106,196        76,712        —          76,712        —          —     

Accrued interest payable

    2,200        2,200        2,200        —          —          —     

 

                Fair Value Measurements at
December 31, 2015
 

(unaudited, in thousands)

  Carrying
Amount
    Fair Value
Estimate
    Quoted Prices in
Active Markets
for Identical
Assets

(level 1)
    Significant
Other
Observable

Inputs
(level 2)
    Significant
Unobservable
Inputs

(level 3)
    Investments
Measured
at Net Asset
Value
 

Financial Assets

           

Cash and due from banks

  $ 86,685      $ 86,685      $ 86,685      $ —        $ —        $ —     

Trading securities

    6,451        6,451        5,226        —          —          1,225   

Securities available-for-sale

    1,403,069        1,403,069        2,735        1,400,334        —          —     

Securities held-to-maturity

    1,012,930        1,038,207        —          1,037,490        717        —     

Net loans

    5,024,132        4,936,236        —          —          4,936,236        —     

Loans held for sale

    7,899        7,899        —          7,899        —          —     

Accrued interest receivable

    25,759        25,759        25,759        —          —          —     

Financial Liabilities

           

Deposits

    6,066,299        6,075,433        4,508,461        1,566,972        —          —     

Federal Home Loan Bank borrowings

    1,041,750        1,041,752        —          1,041,752        —          —     

Other borrowings

    81,356        81,361        78,682        2,679        —          —     

Junior subordinated debt

    106,196        79,681        —          79,681        —          —     

Accrued interest payable

    1,715        1,715        1,715        —          —          —     

The following methods and assumptions were used to measure the fair value of financial instruments recorded at cost on WesBanco’s consolidated balance sheets:

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

Securities held-to-maturity: Fair values for securities held-to-maturity are determined in the same manner as the investment securities which are described above.

Net loans: Fair values for loans are estimated using a discounted cash flow methodology. The discount rates take into account interest rates currently being offered to customers for loans with similar terms, the credit risk associated with the loan and other market factors, including liquidity. WesBanco believes the discount rates are consistent with transactions occurring in the marketplace for both performing and distressed loan types. The carrying value is net of the allowance for loan losses and other associated premiums and discounts. Due to the significant judgment involved in evaluating credit quality, loans are classified within level 3 of the fair value hierarchy.

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

Deposits: The carrying amount is considered a reasonable estimate of fair value for demand, savings and other variable rate deposit accounts.

 

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The fair value of fixed maturity certificates of deposit is estimated by a discounted cash flow method using rates currently offered for deposits of similar remaining maturities.

Federal Home Loan Bank borrowings: The fair value of FHLB borrowings is based on rates currently available to WesBanco for borrowings with similar terms and remaining maturities.

Other borrowings: The carrying amount of federal funds purchased and overnight sweep accounts generally approximate fair value. Other repurchase agreements are based on quoted market prices if available. If market prices are not available, for certain fixed and adjustable rate repurchase agreements, then quoted market prices of similar instruments are used.

Junior subordinated debt owed to unconsolidated subsidiary trusts: Due to the pooled nature of these instruments, which are not actively traded, estimated fair value is based on recent similar transactions of single-issuer trust preferred securities.

Accrued interest payable: The carrying amount of accrued interest payable approximates its fair value.

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

 

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NOTE 8. COMPREHENSIVE INCOME

The activity in accumulated other comprehensive income for the six months ended June 30, 2016 and 2015 is as follows:

 

     Accumulated Other Comprehensive Income/(Loss) (1)  
                 Unrealized Gains        
     Defined     Unrealized     on Securities        
     Benefit     Gains (Losses)     Transferred from        
     Pension     on Securities     Available-for-Sale        

(unaudited, in thousands)

   Plan     Available-for-Sale     to Held-to-Maturity     Total  

Balance at December 31, 2015

   $ (17,539   $ (4,162   $ 747      $ (20,954
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income before reclassifications

     —          18,100        —          18,100   

Amounts reclassified from accumulated other comprehensive income

     921        (1,061     (103     (243
  

 

 

   

 

 

   

 

 

   

 

 

 

Period change

     921        17,039        (103     17,857   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2016

   $ (16,618   $ 12,877      $ 644      $ (3,097
  

 

 

   

 

 

   

 

 

   

 

 

 
        

Balance at December 31, 2014

   $ (22,776   $ 2,892      $ 1,059      $ (18,825
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income before reclassifications

     —          (3,711     —          (3,711

Amounts reclassified from accumulated other comprehensive income

     981        (13     (134     834   
  

 

 

   

 

 

   

 

 

   

 

 

 

Period change

     981        (3,724     (134     (2,877
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2015

   $ (21,795   $ (832   $ 925      $ (21,702
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  All amounts are net of tax. Related income tax expense or benefit is calculated using a combined Federal and State income tax rate approximating 37%.

The following table provides details about amounts reclassified from accumulated other comprehensive income for the three and six months ended June 30, 2016 and 2015:

 

Details about Accumulated Other Comprehensive Income
Components

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

Affected Line Item in the Statement of Net Income

(unaudited, in thousands)    2016     2015     2016     2015      

Securities available-for-sale (1):

          

Net securities gains reclassified into earnings

   $ (618   $ (2   $ (1,672   $ (20   Net securities gains (Non-interest income)

Related income tax expense

     226        1        611        7      Provision for income taxes
  

 

 

   

 

 

   

 

 

   

 

 

   

Net effect on accumulated other comprehensive income for the period

     (392     (1     (1,061     (13  
  

 

 

   

 

 

   

 

 

   

 

 

   

Securities held-to-maturity (1):

          

Amortization of unrealized gain transferred from available-for-sale

     (84     (107     (165     (214   Interest and dividends on securities (Interest and dividend income)

Related income tax expense

     31        39        62        80      Provision for income taxes
  

 

 

   

 

 

   

 

 

   

 

 

   

Net effect on accumulated other comprehensive income for the period

     (53     (68     (103     (134  
  

 

 

   

 

 

   

 

 

   

 

 

   

Defined benefit pension plan (2):

          

Amortization of net loss and prior service costs

     815        799        1,514        1,589      Employee benefits (Non-interest expense)

Related income tax benefit

     (298     (293     (593     (608   Provision for income taxes
  

 

 

   

 

 

   

 

 

   

 

 

   

Net effect on accumulated other comprehensive income for the period

     517        506        921        981     
  

 

 

   

 

 

   

 

 

   

 

 

   

Total reclassifications for the period

   $ 72      $ 437      $ (243   $ 834     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

(1) For additional detail related to unrealized gains on securities and related amounts reclassified from accumulated other comprehensive income see Note 4, “Securities.”
(2) Included in the computation of net periodic pension cost. See Note 6, “Pension Plan” for additional detail.

 

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NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES

Commitments — In the normal course of business, WesBanco offers off-balance sheet credit arrangements to enable its customers to meet their financing objectives. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. WesBanco’s exposure to credit losses in the event of non-performance by the other parties to the financial instruments for commitments to extend credit and standby letters of credit is limited to the contractual amount of those instruments. WesBanco uses the same credit policies in making commitments and conditional obligations as for all other lending. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The allowance for credit losses associated with commitments was $0.6 million as of June 30, 2016 and December 31, 2015, and is included in other liabilities on the Consolidated Balance Sheets.

Letters of credit are conditional commitments issued by banks to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including normal business activities, bond financing and similar transactions. Letters of credit are considered guarantees. The liability associated with letters of credit was $0.2 million as of June 30, 2016 and December 31, 2015.

Contingent obligations to purchase loans funded by other entities include affordable housing plan guarantees, credit card guarantees and mortgages sold into the secondary market with recourse. Affordable housing plan guarantees are performance guarantees for various building project loans. The guarantee amortizes as the loan balances decrease. Credit card guarantees are credit card balances not owned by WesBanco, whereby the Bank guarantees the performance of the cardholder. Certain mortgages sold with recourse obligate WesBanco to repurchase mortgages sold if the borrower exceeds certain delinquency metrics within the first year.

The following table presents total commitments to extend credit, guarantees and various letters of credit outstanding:

 

     June 30,      December 31,  

(unaudited, in thousands)

   2016      2015  

Lines of credit

   $ 1,165,228       $ 1,159,769   

Loans approved but not closed

     208,773         234,599   

Overdraft limits

     105,342         106,252   

Letters of credit

     22,480         27,408   

Contingent obligations to purchase loans funded by other entities

     20,653         18,079   

Contingent Liabilities — WesBanco is a party to various legal and administrative proceedings and claims. While any litigation contains an element of uncertainty, management does not believe that a material loss related to such proceedings or claims pending or known to be threatened is reasonably possible.

 

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NOTE 10. BUSINESS SEGMENTS

WesBanco operates two reportable segments: community banking and trust and investment services. WesBanco’s community banking segment offers services traditionally offered by full-service commercial banks, including commercial demand, individual demand and time deposit accounts, as well as commercial, mortgage and individual installment loans, and certain non-traditional offerings, such as insurance and securities brokerage services. The trust and investment services segment offers trust services as well as various alternative investment products including mutual funds. The market value of assets managed or held in custody by the trust and investment services segment was approximately $3.7 billion and $3.8 billion at June 30, 2016 and 2015, respectively. These assets are held by WesBanco in fiduciary or agency capacities for their customers and therefore are not included as assets on WesBanco’s Consolidated Balance Sheets.

Condensed financial information by business segment is presented below:

 

            Trust and         
     Community      Investment         

(unaudited, in thousands)

   Banking      Services      Consolidated  

For the Three Months ended June 30, 2016:

        

Interest income

   $ 67,585       $ —         $ 67,585   

Interest expense

     7,811         —           7,811   
  

 

 

    

 

 

    

 

 

 

Net interest income

     59,774         —           59,774   

Provision for credit losses

     1,811         —           1,811