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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 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 October 28, 2016, there were 43,860,883 shares of WesBanco, Inc. common stock, $2.0833 par value, outstanding.

 

 

 


Table of Contents

WESBANCO, INC.

TABLE OF CONTENTS

 

Item
No.

 

ITEM

  

Page
No.

 
 

PART I—FINANCIAL INFORMATION

  
1  

Financial Statements

  
 

Consolidated Balance Sheets at September  30, 2016 (unaudited) and December 31, 2015

     3   
 

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

     4   
 

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

     5   
 

Consolidated Statements of Cash Flows for the nine months ended September 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

     30   
3  

Quantitative and Qualitative Disclosures About Market Risk

     48   
4  

Controls and Procedures

     51   
 

PART II – OTHER INFORMATION

  
1  

Legal Proceedings

     52   
2  

Unregistered Sales of Equity Securities and Use of Proceeds

     52   
6  

Exhibits

     53   
 

Signatures

     54   


Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WESBANCO, INC. CONSOLIDATED BALANCE SHEETS

 

 

(unaudited, in thousands, except shares)

   September 30,
2016
    December 31,
2015
 

ASSETS

    

Cash and due from banks, including interest bearing amounts of $9,702 and $10,978, respectively

   $ 116,132      $ 86,685   

Securities:

    

Trading securities, at fair value

     7,070        6,451   

Available-for-sale, at fair value

     1,302,029        1,403,069   

Held-to-maturity (fair values of $1,089,227 and $1,038,207, respectively)

     1,049,093        1,012,930   
  

 

 

   

 

 

 

Total securities

     2,358,192        2,422,450   
  

 

 

   

 

 

 

Loans held for sale

     20,231        7,899   
  

 

 

   

 

 

 

Portfolio loans, net of unearned income

     6,236,852        5,065,842   

Allowance for loan losses

     (42,755     (41,710
  

 

 

   

 

 

 

Net portfolio loans

     6,194,097        5,024,132   
  

 

 

   

 

 

 

Premises and equipment, net

     138,731        112,203   

Accrued interest receivable

     29,964        25,759   

Goodwill and other intangible assets, net

     591,866        490,888   

Bank-owned life insurance

     186,993        150,980   

Other assets

     176,178        149,302   
  

 

 

   

 

 

 

Total Assets

   $ 9,812,384      $ 8,470,298   
  

 

 

   

 

 

 

LIABILITIES

    

Deposits:

    

Non-interest bearing demand

   $ 1,697,476      $ 1,311,455   

Interest bearing demand

     1,618,514        1,152,071   

Money market

     1,016,300        967,561   

Savings deposits

     1,228,509        1,077,374   

Certificates of deposit

     1,573,712        1,557,838   
  

 

 

   

 

 

 

Total deposits

     7,134,511        6,066,299   
  

 

 

   

 

 

 

Federal Home Loan Bank borrowings

     950,847        1,041,750   

Other short-term borrowings

     132,497        81,356   

Subordinated debt and junior subordinated debt

     163,364        106,196   
  

 

 

   

 

 

 

Total borrowings

     1,246,708        1,229,302   
  

 

 

   

 

 

 

Accrued interest payable

     2,898        1,715   

Other liabilities

     81,116        50,850   
  

 

 

   

 

 

 

Total Liabilities

     8,465,233        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: 43,860,883 and 38,546,042 shares in 2016 and 2015, respectively; outstanding: 43,860,883 and 38,459,635 shares in 2016 and 2015, respectively

     91,377        80,304   

Capital surplus

     678,007        516,294   

Retained earnings

     583,392        549,921   

Treasury stock (0 and 86,407 shares in 2016 and 2015, respectively, at cost)

     —          (2,640

Accumulated other comprehensive loss

     (5,062     (20,954

Deferred benefits for directors

     (563     (793
  

 

 

   

 

 

 

Total Shareholders’ Equity

     1,347,151        1,122,132   
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 9,812,384      $ 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
September 30,
    For the Nine Months Ended
September 30,
 

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

   2016      2015     2016      2015  

INTEREST AND DIVIDEND INCOME

          

Loans, including fees

   $ 55,822       $ 51,876      $ 160,858       $ 151,913   

Interest and dividends on securities:

          

Taxable

     9,137         10,251        29,129         28,792   

Tax-exempt

     4,559         4,535        13,620         12,120   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest and dividends on securities

     13,696         14,786        42,749         40,912   
  

 

 

    

 

 

   

 

 

    

 

 

 

Other interest income

     574         273        1,671         1,227   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest and dividend income

     70,092         66,935        205,278         194,052   
  

 

 

    

 

 

   

 

 

    

 

 

 

INTEREST EXPENSE

          

Interest bearing demand deposits

     691         517        1,841         1,425   

Money market deposits

     444         485        1,350         1,430   

Savings deposits

     173         165        502         475   

Certificates of deposit

     2,592         2,662        7,835         8,403   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest expense on deposits

     3,900         3,829        11,528         11,733   
  

 

 

    

 

 

   

 

 

    

 

 

 

Federal Home Loan Bank borrowings

     3,005         1,650        9,104         3,157   

Other short-term borrowings

     118         89        299         254   

Subordinated debt and junior subordinated debt

     1,043         758        2,706         2,541   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest expense

     8,066         6,326        23,637         17,685   
  

 

 

    

 

 

   

 

 

    

 

 

 

NET INTEREST INCOME

     62,026         60,609        181,641         176,367   

Provision for credit losses

     2,214         1,798        6,350         5,768   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net interest income after provision for credit losses

     59,812         58,811        175,291         170,599   
  

 

 

    

 

 

   

 

 

    

 

 

 

NON-INTEREST INCOME

          

Trust fees

     5,413         5,127        16,160         16,656   

Service charges on deposits

     4,733         4,425        12,861         12,342   

Electronic banking fees

     3,945         3,849        11,290         10,670   

Net securities brokerage revenue

     1,473         1,996        5,119         5,897   

Bank-owned life insurance

     995         1,021        2,910         3,264   

Net gains on sales of mortgage loans

     814         779        2,045         1,459   

Net securities gains

     598         47        2,293         69   

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

     184         (18     380         167   

Other income

     2,862         960        6,943         3,916   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total non-interest income

     21,017         18,186        60,001         54,440   
  

 

 

    

 

 

   

 

 

    

 

 

 

NON-INTEREST EXPENSE

          

Salaries and wages

     21,225         19,832        60,136         57,468   

Employee benefits

     6,275         6,028        20,684         20,151   

Net occupancy

     3,647         3,533        10,459         10,298   

Equipment

     3,557         3,731        10,387         9,689   

Marketing

     1,295         1,514        3,876         4,221   

FDIC insurance

     961         1,064        3,225         3,014   

Amortization of intangible assets

     837         815        2,263         2,325   

Restructuring and merger-related expense

     9,883         185        10,577         11,033   

Other operating expenses

     9,921         10,279        28,696         28,830   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total non-interest expense

     57,601         46,981        150,303         147,029   
  

 

 

    

 

 

   

 

 

    

 

 

 

Income before provision for income taxes

     23,228         30,016        84,989         78,010   

Provision for income taxes

     5,793         7,768        22,572         20,250   
  

 

 

    

 

 

   

 

 

    

 

 

 

NET INCOME

   $ 17,435       $ 22,248      $ 62,417       $ 57,760   
  

 

 

    

 

 

   

 

 

    

 

 

 

EARNINGS PER COMMON SHARE

          

Basic

   $ 0.44       $ 0.58      $ 1.61       $ 1.55   

Diluted

   $ 0.44       $ 0.58      $ 1.61       $ 1.55   
  

 

 

    

 

 

   

 

 

    

 

 

 

AVERAGE COMMON SHARES OUTSTANDING

          

Basic

     39,715,516         38,523,593        38,828,618         37,144,783   

Diluted

     39,743,291         38,556,995        38,855,453         37,204,114   
  

 

 

    

 

 

   

 

 

    

 

 

 

DIVIDENDS DECLARED PER COMMON SHARE

   $ 0.24       $ 0.23      $ 0.72       $ 0.69   
  

 

 

    

 

 

   

 

 

    

 

 

 

COMPREHENSIVE INCOME

   $ 15,470       $ 29,504      $ 78,309       $ 62,139   
  

 

 

    

 

 

   

 

 

    

 

 

 

See Notes to Consolidated Financial Statements.

 

4


Table of Contents

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

 

For the Nine Months Ended September 30, 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

    —          —          —          62,417        —          —          —          62,417   

Other comprehensive income

    —          —          —          —          —          15,892        —          15,892   
               

 

 

 

Comprehensive income

    —          —          —          —          —          —          —          78,309   

Common dividends declared ($0.72 per share)

    —          —          —          (28,946     —          —          —          (28,946

Shares issued for acquisition

    5,423,348        11,071        162,934        —          3,144        —          —          177,149   

Treasury shares acquired

    (130,041     —          56        —          (3,730     —          —          (3,674

Stock options exercised

    31,541        2        (165     —          955        —          —          792   

Restricted stock granted

    76,400        —          (2,271     —          2,271        —          —          —     

Stock compensation expense

    —          —          1,389        —          —          —          —          1,389   

Deferred benefits for directors- net

    —          —          (230     —          —          —          230        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

September 30, 2016

    43,860,883      $ 91,377      $ 678,007      $ 583,392      $ —        $ (5,062   $ (563   $ 1,347,151   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2014

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

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

Other comprehensive income

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

 

 

 

Comprehensive income

    —          —          —          —          —          —          —          62,139   

Common dividends declared ($0.69 per share)

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

Shares issued for acquisition

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

Treasury shares acquired

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

Stock options exercised

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

Restricted stock granted

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

Repurchase of stock warrant

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

Stock compensation expense

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

Deferred benefits for directors- net

    —          —          (469     —          —          —          469        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

September 30, 2015

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

5


Table of Contents

WESBANCO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

     For the Nine Months Ended
September 30,
 

(unaudited, in thousands)

   2016     2015  

NET CASH PROVIDED BY OPERATING ACTIVITIES

   $ 89,175      $ 58,591   
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Net increase in loans held for investment

     (160,654     (176,375

Securities available-for-sale:

    

Proceeds from sales

     277,225        570,739   

Proceeds from maturities, prepayments and calls

     214,786        233,756   

Purchases of securities

     (171,169     (509,216

Securities held-to-maturity:

    

Proceeds from maturities, prepayments and calls

     72,859        39,492   

Purchases of securities

     (34,530     (297,692

Proceeds from bank-owned life insurance

     19        1,281   

Cash received (paid) to acquire a business, net

     4,863        (28,551

Purchases of premises and equipment – net

     (3,894     (6,936
  

 

 

   

 

 

 

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

     199,505        (173,502
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

Decrease in deposits

     (123,708     (99,569

Proceeds from Federal Home Loan Bank borrowings

     —          791,910   

Repayment of Federal Home Loan Bank borrowings

     (112,116     (514,081

Increase (decrease) in other short-term borrowings

     6,832        (1,103

Repayment of junior subordinated debt

     —          (36,083

Repayment of common stock warrant

     —          (2,247

Dividends paid to common shareholders

     (27,277     (24,148

Issuance of common stock

     2        —     

Treasury shares purchased – net

     (2,966     (795
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (259,233     113,884   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     29,447        (1,027

Cash and cash equivalents at beginning of the period

     86,685        94,002   
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 116,132      $ 92,975   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES

    

Interest paid on deposits and other borrowings

   $ 24,141      $ 19,166   

Income taxes paid

     17,925        9,695   

Transfers of loans to other real estate owned

     3,368        1,029   

Non-cash transactions related to YCB and ESB acquisitions, respectively

     177,149        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 August 2016, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (“ASU”) (ASU 2016-15) that provides guidance for the classification of cash flows related to (1) debt prepayment or extinguishment costs, (2) settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate on the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies, (6) distributions received from equity method investees, (7) beneficial interests in securitization transactions and (8) separately identifiable cash flows and application of the predominance principle. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, which for WesBanco will be effective for the fiscal year beginning January 1, 2018 Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on WesBanco’s Consolidated Financial Statements.

In June 2016, the FASB issued 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, which for WesBanco will be effective for the fiscal year beginning January 1, 2020. 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 ASU 2016-09 that will require all excess income tax benefits or tax deficiencies 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.

 

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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 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 September 9, 2016, WesBanco completed its acquisition of Your Community Bankshares, Inc. (“YCB”), a bank holding company headquartered in New Albany, Indiana. The transaction expanded WesBanco’s franchise into Kentucky and Southern Indiana.

On the acquisition date, YCB had approximately $1.5 billion in assets, excluding goodwill, which included approximately $1.0 billion in loans, and $173.2 million in securities. The YCB acquisition was valued at $220.5 million, based on WesBanco’s closing stock price on September 9, 2016 of $32.62, and resulted in WesBanco issuing 5,423,348 shares of its common stock and $43.3 million in cash in exchange for all of the outstanding shares of YCB common stock. The assets and liabilities of YCB were recorded on WesBanco’s balance sheet at their preliminary estimated fair values as of September 9, 2016, the acquisition date, and YCB’s results of operations have been included in WesBanco’s Consolidated Statements of Income since that date. Due to the timing of the acquisition relative to the end of the reporting period, the fair values for nearly all line items in YCB’s September 9, 2016 balance sheet represent preliminary estimates. Based on a preliminary purchase price allocation, WesBanco recorded $90.6 million in goodwill and $12.0 million in core deposit intangibles in its community banking segment, representing the principal change in goodwill and intangibles from December 31, 2015. None of the goodwill is deductible for income tax purposes as the acquisition is accounted for as a tax-free exchange for tax purposes. As a result of the full integration of the operations of YCB, it is not practicable to determine revenue or net income included in WesBanco’s operating results relating to YCB since the date of acquisition as YCB’s results cannot be separately identified.

For the nine months ended September 30, 2016, WesBanco recorded merger-related expenses of $10.6 million associated with the YCB acquisition.

 

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

 

(unaudited, in thousands)

   September 9, 2016  

Purchase Price:

  

Fair value of WesBanco shares issued

   $ 177,149   

Cash consideration for outstanding YCB shares

     43,349   
  

 

 

 

Total purchase price

   $ 220,498   

Fair value of:

  

Tangible assets acquired

   $ 1,400,070   

Core deposit and other intangible assets acquired

     11,957   

Liabilities assumed

     (1,330,335

Net cash received in the acquisition

     48,212   
  

 

 

 

Fair value of net assets acquired

     129,904   
  

 

 

 

Goodwill recognized

   $ 90,594   
  

 

 

 

The following table presents the preliminary allocation of the purchase price of the assets acquired and the liabilities assumed at the date of acquisition, as WesBanco intends to finalize its accounting for the acquisition of YCB within one year from the date of acquisition:

 

(unaudited, in thousands)

   September 9, 2016  

Assets acquired

  

Cash and due from banks

   $ 48,212   

Securities

     173,223   

Loans

     1,015,071   

Goodwill and other intangible assets

     102,551   

Accrued income and other assets (1)

     211,776   
  

 

 

 

Total assets acquired

   $ 1,550,833   
  

 

 

 

Liabilities assumed

  

Deposits

   $ 1,193,010   

Borrowings

     122,817   

Accrued expenses and other liabilities

     14,508   
  

 

 

 

Total liabilities assumed

     1,330,335   
  

 

 

 

Net assets acquired

   $ 220,498   
  

 

 

 

 

(1) Includes receivables of $105.8 million from the sale of available-for-sale securities prior to the acquisition date.

NOTE 3. EARNINGS PER COMMON SHARE

Earnings per common share are calculated as follows:

 

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

   $ 17,435       $ 22,248       $ 62,417       $ 57,760   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

Total average basic common shares outstanding

     39,715,516         38,523,593         38,828,618         37,144,783   

Effect of dilutive stock options and other stock compensation

     27,775         33,402         26,835         59,331   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total diluted average common shares outstanding

     39,743,291         38,556,995         38,855,453         37,204,114   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per common share – basic

   $ 0.44       $ 0.58       $ 1.61       $ 1.55   

Earnings per common share – diluted

   $ 0.44       $ 0.58       $ 1.61       $ 1.55   
  

 

 

    

 

 

    

 

 

    

 

 

 

        Stock options representing shares of 96,600 and 185,250 were not included in the computation of diluted earnings per share for the three and nine months ended September 30, 2016, respectively, because to do so would have been anti-dilutive. All stock options were included in the three and nine months ended September 30, 2015 computation. No contingently issuable shares were estimated to be awarded under the 2015 total shareholder return plan as the stock performance targets were not met for the three and nine months ended September 30, 2016.

On September 9, 2016, WesBanco issued 5,423,348 shares of common stock (109,257 of which shares were treasury stock) to complete its acquisition of YCB. These shares are included in average shares outstanding beginning on that date. For additional information relating to the YCB acquisition, refer to Note 2, “Mergers and Acquisitions.”

 

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NOTE 4. SECURITIES

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

 

    September 30, 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

               

U.S. Government sponsored entities and agencies

  $ 63,166      $ 267      $ (62   $ 63,371      $ 82,725      $ 1,183      $ (403   $ 83,505   

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

    1,076,309        11,680        (1,073     1,086,916        1,188,256        1,720        (13,896     1,176,080   

Obligations of states and political subdivisions

    106,676        4,673        (84     111,265        76,106        4,205        (46     80,265   

Corporate debt securities

    35,306        318        (101     35,523        58,745        181        (333     58,593   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total debt securities

  $ 1,281,457      $ 16,938      $ (1,320   $ 1,297,075      $ 1,405,832      $ 7,289      $ (14,678   $ 1,398,443   

Equity securities

    4,062        892        —          4,954        3,812        816        (2     4,626   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

  $ 1,285,519      $ 17,830      $ (1,320   $ 1,302,029      $ 1,409,644      $ 8,105      $ (14,680   $ 1,403,069   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Held-to-maturity

               

U.S. Government sponsored entities and agencies

  $ 14,248      $ 59      $ —        $ 14,307      $ —        $ —        $ —        $ —     

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

    195,533        3,771        (73     199,231        216,419        1,922        (2,014     216,327   

Obligations of states and political subdivisions

    804,883        34,377        (137     839,123        762,039        26,121        (726     787,434   

Corporate debt securities

    34,429        2,172        (35     36,566        34,472        237        (263     34,446   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total held-to-maturity securities

  $ 1,049,093      $ 40,379      $ (245   $ 1,089,227      $ 1,012,930      $ 28,280      $ (3,003   $ 1,038,207   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 2,334,612      $ 58,209      $ (1,565   $ 2,391,256      $ 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 $7.1 million and $6.5 million, at September 30, 2016 and December 31, 2015, respectively.

At September 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 September 30, 2016. In some instances, the issuers may have the right to call or prepay obligations without penalty prior to the contractual maturity date.

 

     September 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

                 

U.S. Government sponsored entities and agencies

   $ 2,002       $ 9,975       $ 27,411       $ 23,983       $ —         $ 63,371   

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

     —           —           —           —           1,086,916         1,086,916   

Obligations of states and political subdivisions

     7,034         26,866         38,059         39,306         —           111,265   

Corporate debt securities

     —           26,378         7,211         1,934         —           35,523   

Equity securities (2)

     —           —           —           —           4,954         4,954   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

   $ 9,036       $ 63,219       $ 72,681       $ 65,223       $ 1,091,870       $ 1,302,029   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held-to-maturity (3)

                 

U.S. Government sponsored entities and agencies

   $ —         $ —         $ —         $ 14,307       $ —         $ 14,307   

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

     —           —           —           —           199,231         199,231   

Obligations of states and political subdivisions

     351         58,506         424,331         355,935         —           839,123   

Corporate debt securities

     —           961         35,605         —           —           36,566   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total held-to-maturity securities

   $ 351       $ 59,467       $ 459,936       $ 370,242       $ 199,231       $ 1,089,227   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 9,387       $ 122,686       $ 532,617       $ 435,465       $ 1,291,101       $ 2,391,256   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 $1.3 billion and $1.0 billion at September 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 $277.2 million and $570.7 million for the nine months ended September 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 September 30, 2016 and December 31, 2015 were $10.5 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 nine months ended September 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 Nine
Months Ended
 
     September 30,      September 30,  

(unaudited, in thousands)

   2016      2015      2016      2015  

Gross realized gains

   $ 602       $ 48       $ 2,517       $ 74   

Gross realized losses

     (4      (1      (224      (5
  

 

 

    

 

 

    

 

 

    

 

 

 

Net realized gains

   $ 598       $ 47       $ 2,293       $ 69   
  

 

 

    

 

 

    

 

 

    

 

 

 


Table of Contents

The following tables provide information on unrealized losses on investment securities that have been in an unrealized loss position for less than twelve months and twelve months or more as of September 30, 2016 and December 31, 2015:

 

    September 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
 

U.S. Government sponsored entities and agencies

  $ 27,484      $ (62     4      $ —        $ —          —        $ 27,484      $ (62     4   

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

    116,732        (374     21        64,093        (772     16        180,825        (1,146     37   

Obligations of states and political subdivisions

    62,600        (196     129        2,095        (25     3        64,695        (221     132   

Corporate debt securities

    5,977        (70     2        5,958        (66     2        11,935        (136     4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total temporarily impaired securities

  $ 212,793      $ (702     156      $ 72,146      $ (863     21      $ 284,939      $ (1,565     177   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    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
 

U.S. Government sponsored entities and agencies

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

Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and 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 $46.4 million and $45.5 million at September 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 and discounts on purchased loans. The deferred loan fees and costs were $0.5 million and $1.0 million at September 30, 2016 and December 31, 2015, respectively. The discounts on purchased loans from acquisitions was $25.8 million, including $12.1 million related to YCB, and $15.7 million at September 30, 2016 and December 31, 2015, respectively.

 

(unaudited, in thousands)

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

Land and construction

   $ 494,203       $ 344,748   

Improved property

     2,332,431         1,911,633   
  

 

 

    

 

 

 

Total commercial real estate

     2,826,634         2,256,381   
  

 

 

    

 

 

 

Commercial and industrial

     1,097,788         737,878   

Residential real estate

     1,395,886         1,247,800   

Home equity

     505,369         416,889   

Consumer

     411,175         406,894   
  

 

 

    

 

 

 

Total portfolio loans

     6,236,852         5,065,842   
  

 

 

    

 

 

 

Loans held for sale

     20,231         7,899   
  

 

 

    

 

 

 

Total loans

   $ 6,257,083       $ 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 Nine Months Ended September 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

     498        1,351        2,827        (67     301        918        559        6,387   

Provision for loan commitments

     (5     —          (40     2        8        (2     —          (37
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for credit losses

     493        1,351        2,787        (65     309        916        559        6,350   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     (73     (1,732     (2,883     (529     (345     (2,733     (585     (8,880

Recoveries

     3        1,406        241        351        171        1,199        167        3,538   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     (70     (326     (2,642     (178     (174     (1,534     (418     (5,342
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2016:

                

Allowance for loan losses

     4,818        15,773        10,187        4,337        3,010        4,147        483        42,755   

Allowance for loan commitments

     152        26        220        9        125        44        —          576   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance for credit losses

   $ 4,970      $ 15,799      $ 10,407      $ 4,346      $ 3,135      $ 4,191      $ 483      $ 43,331   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2014:

                

Allowance for loan losses

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

Allowance for loan commitments

     194        10        112        9        90        40        —          455   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total beginning allowance for credit losses

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses:

                

Provision for loan losses

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

Provision for loan commitments

     9        11        137        —          19        (1     —          175   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for credit losses

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

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

Recoveries

     1        661        356        472        161        968        173        2,792   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2015:

                

Allowance for loan losses

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

Allowance for loan commitments

     203        21        249        9        109        39        —          630   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance for credit losses

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

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

 

    Allowance for Credit Losses and Recorded Investment in Loans  
    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  

September 30, 2016

               

Allowance for credit losses:

               

Allowance for loans individually evaluated for impairment

  $ —        $ 504      $ 356      $ —        $ —        $ —        $ —        $ 860   

Allowance for loans collectively evaluated for impairment

    4,818        15,269        9,831        4,337        3,010        4,147        483        41,895   

Allowance for loan commitments

    152        26        220        9        125        44        —          576   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

  $ 4,970      $ 15,799      $ 10,407      $ 4,346      $ 3,135      $ 4,191      $ 483      $ 43,331   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Portfolio loans:

               

Individually evaluated for impairment (1)

  $ —        $ 3,012      $ 1,306      $ —        $ —        $ —        $ —        $ 4,318   

Collectively evaluated for impairment

    492,397        2,318,863        1,096,297        1,394,558        505,342        411,154        —          6,218,611   

Acquired with deteriorated credit quality

    1,806        10,556        185        1,328        27        21        —          13,923   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total portfolio loans

  $ 494,203      $ 2,332,431      $ 1,097,788      $ 1,395,886      $ 505,369      $ 411,175      $ —        $ 6,236,852   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 September 30, 2016

           

Pass

   $ 484,719       $ 2,278,289       $ 1,073,037       $ 3,836,045   

Criticized - compromised

     6,537         18,039         10,892         35,468   

Classified - substandard

     2,947         36,103         13,859         52,909   

Classified - doubtful

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 494,203       $ 2,332,431       $ 1,097,788       $ 3,924,422   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 $19.1 million at September 30, 2016 and $15.8 million at December 31, 2015, of which $2.9 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 YCB Loans — In conjunction with the YCB acquisition, WesBanco acquired loans with a book value of $1,027.2 million. These loans were recorded at their fair value of $1,015.1 million, with $1,008.0 million categorized as ASC 310-20 loans. The fair market value adjustment on these loans of $8.1 million at acquisition date is expected to be recognized into interest income on a level yield basis over the remaining expected life of the loans.

Loans acquired with deteriorated credit quality with a book value of $11.1 million and contractually required payments of $13.3 million were recorded at their estimated fair value of $7.1 million, of which $2.7 million were accounted for under the cost recovery method in accordance with ASC 310-30 as cash flows cannot be reasonably estimated, and categorized as non-accrual. The accretable yield on the acquired impaired loans was estimated at $0.7 million, while the non-accretable difference is estimated at $5.5 million.

The carrying amount of loans acquired with deteriorated credit quality at September 30, 2016 was $6.5 million, while the outstanding customer balance was $10.5 million. At September 30, 2016 no allowance for loan losses has been recognized related to the acquired impaired loans.

Acquired ESB Loans — Carrying amount of loans acquired with deteriorated credit quality at September 30, 2016 and December 31, 2015 were $7.4 million and $9.3 million, respectively. At September 30, 2016, the accretable yield was $1.2 million. At September 30, 2016 an allowance for loan loss of $0.2 million has been recognized related to the acquired impaired loans, as the estimates for future cash flows on these loans have been negatively impacted. At December 31, 2015 no allowance for loan losses has been recognized related to the acquired impaired loans.

 

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Table of Contents

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

 

     For the Nine Months Ended  

(unaudited, in thousands)

   September 30,
2016
     September 30,
2015
 

Balance at beginning of period

   $ 1,206       $ —     

Acquisitions

     669         1,815   

Reduction due to change in projected cash flows

     (324      —     

Reclass from non-accretable difference

     1,065         —     

Transfers out

     (328      —     

Accretion

     (398      (491
  

 

 

    

 

 

 

Balance at end of period

   $ 1,890       $ 1,324   
  

 

 

    

 

 

 

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 September 30, 2016

                    

Commercial real estate:

                    

Land and construction

   $ 493,600       $ 247       $ 145       $ 211       $ 603       $ 494,203       $ —     

Improved property

     2,321,923         3,369         599         6,540         10,508         2,332,431         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     2,815,523         3,616         744         6,751         11,111         2,826,634         —     

Commercial and industrial

     1,093,437         1,071         1,585         1,695         4,351         1,097,788         46   

Residential real estate

     1,379,216         2,224         4,153         10,293         16,670         1,395,886         1,482   

Home equity

     499,983         2,429         467         2,490         5,386         505,369         413   

Consumer

     406,284         3,276         896         719         4,891         411,175         451   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

     6,194,443         12,616         7,845         21,948         42,409         6,236,852         2,392   

Loans held for sale

     20,231         —           —           —           —           20,231         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 6,214,674       $ 12,616       $ 7,845       $ 21,948       $ 42,409       $ 6,257,083       $ 2,392   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans included above are as follows:

                    

Non-accrual loans

   $ 8,781       $ 1,338       $ 1,364       $ 19,173       $ 21,875       $ 30,656      

TDRs accruing interest (1)

     8,032         121         69         383         573         8,605      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total impaired

   $ 16,813       $ 1,459       $ 1,433       $ 19,556       $ 22,448       $ 39,261      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

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  
    September 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

  $ 858      $ 670      $ —        $ 2,126      $ 1,990      $ —     

Improved property

    11,061        7,642        —          14,817        10,559        —     

Commercial and industrial

    4,552        3,368        —          4,263        3,481        —     

Residential real estate

    20,443        18,727        —          18,560        16,688        —     

Home equity

    4,266        3,697        —          3,562        3,033        —     

Consumer

    1,008        839        —          1,603        1,294        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans without a specific allowance

    42,188        34,943        —          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

    4,910        1,306        356        6,176        4,872        853   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans with a specific allowance

    7,922        4,318        860        9,188        7,884        1,521   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans

  $ 50,110      $ 39,261      $ 860      $ 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 Nine Months Ended  
    September 30, 2016     September 30, 2015     September 30, 2016     September 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

  $ 701      $ —        $ 2,414      $ 12      $ 1,062      $ —        $ 2,198      $ 30   

Improved Property

    8,403        28        19,118        245        9,408        86        18,850        708   

Commercial and industrial

    3,172        2        3,193        37        3,246        7        2,854        99   

Residential real estate

    17,013        81        17,508        200        16,882        256        18,173        665   

Home equity

    3,613        4        3,153        34        3,381        16        2,896        75   

Consumer

    814        —          1,142        27        953        6        1,176        73   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans without a specific allowance

    33,716        115        46,528        555        34,932        371        46,147        1,650   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

With a specific allowance recorded:

               

Commercial real estate:

               

Land and construction

    —          —          —          —          —          —          —          —     

Improved Property

    3,012        —          6,011        (56     3,012        —          6,617        —     

Commercial and industrial

    2,678        —          4,707        63        3,700        —          3,256        200   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans with a specific allowance

    5,690        —          10,718        7        6,712        —          9,873        200   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans

  $ 39,406      $ 115      $ 57,246      $ 562      $ 41,644      $ 371      $ 56,020      $ 1,850   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

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

 

     Non-accrual Loans (1)(2)  

(unaudited, in thousands)

   September 30,
2016
     December 31,
2015
 

Commercial real estate:

     

Land and construction

   $ 670       $ 1,023   

Improved property

     8,999         11,507   
  

 

 

    

 

 

 

Total commercial real estate

     9,669         12,530   
  

 

 

    

 

 

 

Commercial and industrial

     4,516         8,148   

Residential real estate

     12,524         9,461   

Home equity

     3,207         2,391   

Consumer

     740         851   
  

 

 

    

 

 

 

Total

   $ 30,656       $ 33,381   
  

 

 

    

 

 

 

 

(1) At September 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.
(2) At September 30, 2016, non-accrual loans include $2.7 million of loans acquired from YCB with deteriorated credit quality.

 

     TDRs  
     September 30, 2016      December 31, 2015  

(unaudited, in thousands)

   Accruing      Non-Accrual      Total      Accruing      Non-Accrual      Total  

Commercial real estate:

                 

Land and construction

   $ —         $ 10       $ 10       $ 967       $ 431       $ 1,398   

Improved property

     1,655         927         2,582         2,064         1,442         3,506   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     1,655         937         2,592         3,031         1,873         4,904   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     158         172         330         205         282         487   

Residential real estate

     6,203         2,136         8,339         7,227         2,060         9,287   

Home equity

     490         319         809         642         218         860   

Consumer

     99         195         294         443         184         627   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 8,605       $ 3,759       $ 12,364       $ 11,548       $ 4,617       $ 16,165   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of September 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 September 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 nine months ended September 30, 2016 and 2015, respectively:

 

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

     —         $ —         $ —           1       $ 13       $ 12   

Improved Property

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —           —           —           1         13         12   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     2         125         122         —           —           —     

Residential real estate

     2         124         122         —           —           —     

Home equity

     —           —           —           —           —           —     

Consumer

     4         26         23         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     8       $ 275       $ 267         1       $ 13       $ 12   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 Nine Months Ended  
     September 30, 2016      September 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       $ 128       $ 119   

Improved Property

     —           —           —           2         835         472   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —           —           —           4         963         591   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     2         125         122         —           —           —     

Residential real estate

     3         150         143         7         454         435   

Home equity

     1         44         41         1         7         6   

Consumer

     10         70         54         2         19         14   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     16       $ 389       $ 360         14       $ 1,443       $ 1,046   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 nine months ended September 30, 2016 and 2015, respectively, that were restructured within the last twelve months prior to September 30, 2016 and 2015, respectively:

 

     Defaulted TDRs (1)  
     For the Nine Months Ended  
     September 30, 2016      September 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

     —           —           1         20   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1       $ 40         2       $ 62   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Excludes loans that were either charged-off or cured by period end. The recorded investment is as of September, 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:

 

     September 30,      December 31,  

(unaudited, in thousands)

   2016      2015  

Other real estate owned

   $ 9,613       $ 5,669   

Repossessed assets

     181         156   
  

 

 

    

 

 

 

Total other real estate owned and repossessed assets

   $ 9,794       $ 5,825   
  

 

 

    

 

 

 

At September 30, 2016, other real estate owned includes $3.0 million from the YCB acquisition. Residential real estate included in other real estate owned at September 30, 2016 and December 31, 2015 was $2.5 million and $2.0 million, respectively. At September 30, 2016 and December 31, 2015, formal foreclosure proceedings were in process on residential real estate loans totaling $5.4 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 Nine Months Ended  
     September 30,      September 30,  

(unaudited, in thousands)

   2016      2015      2016      2015  

Service cost – benefits earned during year

   $ 703       $ 846       $ 2,095       $ 2,509   

Interest cost on projected benefit obligation

     1,280         1,228         3,813         3,643   

Expected return on plan assets

     (1,940      (1,950      (5,778      (5,785

Amortization of prior service cost

     8         7         20         19   

Amortization of net loss

     759         801         2,261         2,378   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic pension cost

   $ 810       $ 932       $ 2,411       $ 2,764   
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

On September 9, 2016, WesBanco assumed YCB’s obligation for a predecessor bank’s participation in the Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra Plan”). The participating employer plan has been frozen to new participants since 2002. WesBanco intends to spin off the assets from the Pentegra Plan during the fourth quarter of 2016, contributing approximately $3.3 million to satisfy the estimated final costs to do so. This estimated spin off will have no impact on earnings as the liability was included in YCB’s balance sheet as of the acquisition date. The distributed assets from the Pentegra Plan will be transferred to a plan providing substantially the same benefits to participants.

WesBanco also assumed YCB’s single employer pension plan that was amended in 1997 such that there could be no new participants or increases to existing participants. The net periodic pension cost was less than $10 thousand as of September 30, 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.

Derivatives: WesBanco enters into interest rate swap agreements with qualifying commercial customers to meet their financing, interest rate and other risk management needs. These agreements provide the customer the ability to convert from variable to fixed interest rates. The credit risk associated with derivative executed with customers is essentially the same as that involved in extending loans and is subject to normal credit policies and monitoring. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that WesBanco executes with derivative counterparties in order to offset its exposure on the fixed components of the customer interest rate swap agreements. The interest rate swap agreement with the loan customer and with the counterparty is reported at fair value in other assets and other liabilities on the consolidated balance sheet with any resulting gain or loss recorded in current period earnings as other income and other expense.

WesBanco determines the fair value for derivatives using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects contractual terms of the derivative, including the period to maturity and uses observable market based inputs, including interest rate curves and implied volatilities. WesBanco incorporates credit valuation adjustments to appropriately reflect both its own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements.

We may be required from time to time to measure certain assets and liabilities 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 and liabilities.

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 September 30, 2016 and December 31, 2015:

 

            September 30, 2016  
            Fair Value Measurements Using:  
     September 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

   $ 7,070       $ 5,966       $ —         $ —         $ 1,104   

Securities - available-for-sale

              

Obligations of government agencies

     63,371         —           63,371         —           —     

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

     1,086,916         —           1,086,916         —           —     

Obligations of state and political subdivisions

     111,265         —           111,265         —           —     

Corporate debt securities

     35,523         —           35,523         —           —     

Equity securities

     4,954         3,023         1,931         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities - available-for-sale

   $ 1,302,029       $ 3,023       $ 1,299,006       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other assets - interest rate derivatives agreements

   $ 7,510       $ —         $ 7,510       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets recurring fair value measurements

   $ 1,316,609       $ 8,989       $ 1,306,516       $ —         $ 1,104   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other liabilities - interest rate derivatives agreements

   $ 7,758       $ —         $ 7,758       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities recurring fair value measurements

   $ 7,758       $ —         $ 7,758       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonrecurring fair value measurements

              

Impaired loans

   $ 3,458       $ —         $ —         $ 3,458       $ —     

Other real estate owned and repossessed assets

     9,794         —           —           9,794         —     

Loans held for sale

     20,231         —           20,231         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring fair value measurements

   $ 33,483       $ —         $ 20,231       $ 13,252       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
            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       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other assets - interest rate derivatives agreements

   $ 1,893       $ —         $ 1,893       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets recurring fair value measurements

   $ 1,411,413       $ 7,961       $ 1,402,227       $ —         $ 1,225   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other liabilities - interest rate derivatives agreements

   $ 1,991       $ —         $ 1,991       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities recurring fair value measurements

   $ 1,991       $ —         $ 1,991       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 nine months ended September 30, 2016 or for the year ended December 31, 2015.

 

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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)

September 30, 2016:

         

Impaired loans

   $ 3,458         Appraisal of collateral (1)        Appraisal adjustments (2)      0% to (80.9%) / (53.1%)
          Liquidation expenses (2)      (1.0%) to (8.0%) / (3.4%)

Other real estate owned and repossessed assets

     9,794         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.

 

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Table of Contents

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

 

                September 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

  $ 116,132      $ 116,132      $ 116,132      $ —        $ —        $ —     

Trading securities

    7,070        7,070        5,966        —          —          1,104   

Securities available-for-sale

    1,302,029        1,302,029        3,023        1,299,006        —          —     

Securities held-to-maturity

    1,049,093        1,089,227        —          1,088,556        671        —     

Net loans

    6,194,097        6,152,078        —          —          6,152,078        —     

Loans held for sale

    20,231        20,231        —          20,231        —          —     

Other assets - interest rate derivatives

    7,510        7,510        —          7,510       

Accrued interest receivable

    29,964        29,964        29,964        —          —          —     

Financial Liabilities

           

Deposits

    7,134,511        7,142,550        5,560,799        1,581,751        —          —     

Federal Home Loan Bank borrowings

    950,847        949,818        —          949,818        —          —     

Other borrowings

    132,497        132,496        77,623        54,873        —          —     

Subordinated debt and junior

           

subordinated debt

    163,364        136,432        —          136,432        —          —     

Other liabilities - interest rate derivatives

    7,758        7,758        —          7,758       

Accrued interest payable

    2,898        2,898        2,898        —          —          —     

 

                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        —          —     

Other assets - interest rate derivatives

    1,893        1,893        —          1,893       

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        —          —     

Other liabilities - interest rate derivatives

    1,991        1,991        —          1,991       

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.

 

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Table of Contents

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. 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.

Subordinated debt and junior subordinated debt: The fair value of subordinated debt is estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements. Due to the pooled nature of junior subordinated debt owed to unconsolidated subsidiary trusts, 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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Table of Contents

NOTE 8. COMPREHENSIVE INCOME

The activity in accumulated other comprehensive income for the nine months ended September 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

     —          16,065        —          16,065   

Amounts reclassified from accumulated other comprehensive income

     1,407        (1,428     (152     (173
  

 

 

   

 

 

   

 

 

   

 

 

 

Period change

     1,407        14,637        (152     15,892   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2016

   $ (16,132   $ 10,475      $ 595      $ (5,062
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2014

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

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income before reclassifications