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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2017

 

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  ☒    No  ☐

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

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

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of April 21, 2017, there were 43,953,051 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 March  31, 2017 (unaudited) and December 31, 2016

     3  
 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017 and 2016 (unaudited)

     4  
 

Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2017 and 2016 (unaudited)

     5  
 

Consolidated Statements of Cash Flows for the three months ended March  31, 2017 and 2016 (unaudited)

     6  
 

Notes to Consolidated Financial Statements (unaudited)

     7  
2  

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

     29  
3  

Quantitative and Qualitative Disclosures About Market Risk

     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)

   March 31,
2017
    December 31,
2016
 

ASSETS

    

Cash and due from banks, including interest bearing amounts of $13,525 and $21,913, respectively

   $ 115,084     $ 128,170  

Securities:

    

Trading securities, at fair value

     7,773       7,071  

Available-for-sale, at fair value

     1,225,069       1,241,176  

Held-to-maturity (fair values of $1,071,009 and $1,076,790, respectively)

     1,057,753       1,067,967  
  

 

 

   

 

 

 

Total securities

     2,290,595       2,316,214  
  

 

 

   

 

 

 

Loans held for sale

     11,480       17,315  
  

 

 

   

 

 

 

Portfolio loans, net of unearned income

     6,312,172       6,249,436  

Allowance for loan losses

     (44,061     (43,674
  

 

 

   

 

 

 

Net portfolio loans

     6,268,111       6,205,762  
  

 

 

   

 

 

 

Premises and equipment, net

     134,949       133,297  

Accrued interest receivable

     28,923       28,299  

Goodwill and other intangible assets, net

     591,539       593,187  

Bank-owned life insurance

     189,286       188,145  

Other assets

     170,914       180,488  
  

 

 

   

 

 

 

Total Assets

   $ 9,800,881     $ 9,790,877  
  

 

 

   

 

 

 

LIABILITIES

    

Deposits:

    

Non-interest bearing demand

   $ 1,844,003     $ 1,789,522  

Interest bearing demand

     1,599,536       1,546,890  

Money market

     1,029,440       995,477  

Savings deposits

     1,253,652       1,213,168  

Certificates of deposit

     1,419,104       1,495,822  
  

 

 

   

 

 

 

Total deposits

     7,145,735       7,040,879  
  

 

 

   

 

 

 

Federal Home Loan Bank borrowings

     937,104       968,946  

Other short-term borrowings

     115,643       199,376  

Subordinated debt and junior subordinated debt

     164,177       163,598  
  

 

 

   

 

 

 

Total borrowings

     1,216,924       1,331,920  
  

 

 

   

 

 

 

Accrued interest payable

     2,422       2,204  

Other liabilities

     76,647       74,466  
  

 

 

   

 

 

 

Total Liabilities

     8,441,728       8,449,469  
  

 

 

   

 

 

 

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 2017 and 2016, respectively; 43,953,051 and 43,931,715 shares issued, respectively; 43,953,051 and 43,931,715 shares outstanding, respectively

     91,568       91,524  

Capital surplus

     681,471       680,507  

Retained earnings

     611,528       597,071  

Treasury stock (0 shares in 2017 and 2016, respectively, at cost)

     —         —    

Accumulated other comprehensive loss

     (24,841     (27,126

Deferred benefits for directors

     (573     (568
  

 

 

   

 

 

 

Total Shareholders’ Equity

     1,359,153       1,341,408  
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 9,800,881     $ 9,790,877  
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

3


Table of Contents

WESBANCO, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

     For the Three Months Ended
March 31,
 

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

   2017     2016  

INTEREST AND DIVIDEND INCOME

    

Loans, including fees

   $ 64,898     $ 52,338  

Interest and dividends on securities:

    

Taxable

     9,596       10,217  

Tax-exempt

     4,891       4,521  
  

 

 

   

 

 

 

Total interest and dividends on securities

     14,487       14,738  
  

 

 

   

 

 

 

Other interest income

     539       525  
  

 

 

   

 

 

 

Total interest and dividend income

     79,924       67,601  
  

 

 

   

 

 

 

INTEREST EXPENSE

    

Interest bearing demand deposits

     1,093       507  

Money market deposits

     574       456  

Savings deposits

     181       165  

Certificates of deposit

     2,411       2,659  
  

 

 

   

 

 

 

Total interest expense on deposits

     4,259       3,787  
  

 

 

   

 

 

 

Federal Home Loan Bank borrowings

     2,836       3,068  

Other short-term borrowings

     297       82  

Subordinated debt and junior subordinated debt

     1,813       822  
  

 

 

   

 

 

 

Total interest expense

     9,205       7,759  
  

 

 

   

 

 

 

NET INTEREST INCOME

     70,719       59,842  

Provision for credit losses

     2,711       2,324  
  

 

 

   

 

 

 

Net interest income after provision for credit losses

     68,008       57,518  
  

 

 

   

 

 

 

NON-INTEREST INCOME

    

Trust fees

     6,143       5,711  

Service charges on deposits

     4,853       3,952  

Electronic banking fees

     4,528       3,604  

Net securities brokerage revenue

     1,762       1,896  

Bank-owned life insurance

     1,140       973  

Net gains on sales of mortgage loans

     1,440       548  

Net securities gains

     12       1,111  

Net loss on other real estate owned and other assets

     (76     (18

Other income

     3,082       1,616  
  

 

 

   

 

 

 

Total non-interest income

     22,884       19,393  
  

 

 

   

 

 

 

NON-INTEREST EXPENSE

    

Salaries and wages

     23,002       19,180  

Employee benefits

     8,210       7,077  

Net occupancy

     4,327       3,591  

Equipment

     4,042       3,428  

Marketing

     824       973  

FDIC insurance

     827       1,166  

Amortization of intangible assets

     1,273       730  

Restructuring and merger-related expense

     491       —    

Other operating expenses

     11,388       9,198  
  

 

 

   

 

 

 

Total non-interest expense

     54,384       45,343  
  

 

 

   

 

 

 

Income before provision for income taxes

     36,508       31,568  

Provision for income taxes

     10,622       8,694  
  

 

 

   

 

 

 

NET INCOME

   $ 25,886     $ 22,874  
  

 

 

   

 

 

 

EARNINGS PER COMMON SHARE

    

Basic

   $ 0.59     $ 0.60  

Diluted

   $ 0.59     $ 0.60  
  

 

 

   

 

 

 

AVERAGE COMMON SHARES OUTSTANDING

    

Basic

     43,947,563       38,386,983  

Diluted

     44,020,765       38,402,316  
  

 

 

   

 

 

 

DIVIDENDS DECLARED PER COMMON SHARE

   $ 0.26     $ 0.24  
  

 

 

   

 

 

 

COMPREHENSIVE INCOME

   $ 28,171     $ 35,471  
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

4


Table of Contents

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

 

For the Three Months Ended March 31, 2017 and 2016

    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, 2016

    43,931,715     $ 91,524     $ 680,507     $ 597,071     $ —       $ (27,126   $ (568   $ 1,341,408  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    —         —         —         25,886       —         —         —         25,886  

Other comprehensive income

    —         —         —         —         —         2,285       —         2,285  
               

 

 

 

Comprehensive income

    —         —         —         —         —         —         —         28,171  

Common dividends declared ($0.26 per share)

    —         —         —         (11,429     —         —         —         (11,429

Stock options exercised

    17,634       36       490       —         —         —         —         526  

Issuance of restricted stock

    3,702       8       (8     —         —         —         —         —    

Stock compensation expense

    —         —         477       —         —         —         —         477  

Deferred benefits for directors- net

    —         —         5       —         —         —         (5     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

March 31, 2017

    43,953,051     $ 91,568     $ 681,471     $ 611,528     $ —       $ (24,841   $ (573   $ 1,359,153  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2015

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    —         —         —         22,874       —         —         —         22,874  

Other comprehensive income

    —         —         —         —         —         12,597       —         12,597  
               

 

 

 

Comprehensive income

    —         —         —         —         —         —         —         35,471  

Common dividends declared ($0.24 per share)

    —         —         —         (9,203     —         —         —         (9,203

Treasury shares acquired

    (117,101     —         —         —         (3,317     —         —         (3,317

Stock options exercised

    20,000       —         (146     —         622       —         —         476  

Stock compensation expense

    —         —         351       —         —         —         —         351  

Deferred benefits for directors- net

    —         —         (239     —         —         —         239       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

March 31, 2016

    38,362,534     $ 80,304     $ 516,260     $ 563,592     $ (5,335   $ (8,357   $ (554   $ 1,145,910  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

5


Table of Contents

WESBANCO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

     For the Three Months Ended
March 31,
 

(unaudited, in thousands)

   2017     2016  

NET CASH PROVIDED BY OPERATING ACTIVITIES

   $ 47,508     $ 40,275  
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Net increase in loans held for investment

     (63,701     (70,534

Securities available-for-sale:

    

Proceeds from sales

     —         15,026  

Proceeds from maturities, prepayments and calls

     59,043       83,528  

Purchases of securities

     (41,742     (51,020

Securities held-to-maturity:

    

Proceeds from maturities, prepayments and calls

     24,367       22,248  

Purchases of securities

     (16,023     (15,848

Proceeds from bank-owned life insurance

     —         14  

Purchases of premises and equipment – net

     (2,311     (526
  

 

 

   

 

 

 

Net cash used in investing activities

     (40,367     (17,112
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

Increase in deposits

     105,344       77,050  

Proceeds from Federal Home Loan Bank borrowings

     170,000       —    

Repayment of Federal Home Loan Bank borrowings

     (201,825     (2,443

Decrease in other short-term borrowings

     (25,733     (4,726

Decrease in federal funds purchased

     (58,000     —    

Dividends paid to common shareholders

     (10,539     (8,859

Issuance of common stock

     526       —    

Treasury shares purchased – net

     —         (2,897
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (20,227     58,125  
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (13,086     81,288  

Cash and cash equivalents at beginning of the period

     128,170       86,685  
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 115,084     $ 167,973  
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES

    

Interest paid on deposits and other borrowings

   $ 9,441     $ 7,914  

Income taxes paid

     250       1,100  

Transfers of loans to other real estate owned

     77       336  

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, 2016.

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 2016 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 March 2017, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (“ASU”) (ASU 2017-08) that shortens the amortization period of certain callable debt securities held at a premium. The premium is required to be amortized to the earliest call date. Securities held at a discount continue to be amortized to maturity. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, which for WesBanco will be effective for the fiscal year beginning January 1, 2019. 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 2017, the FASB issued ASU 2017-07 that changes how employer-sponsored defined benefit pension and/or other postretirement benefit plans present the net periodic benefit cost in the income statement. Employers will present the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Only the service cost component will be eligible for capitalization in assets. Employers will present the other components of the net periodic benefit cost separately from the line items that includes the service cost outside of any subtotal of operating income, if one is presented. These components will not be eligible for capitalization in assets. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual period (i.e., only in the first interim period). For WesBanco, this update will be effective for the fiscal year beginning January 1, 2018. Upon adoption, WesBanco will reclassify the service cost component from employee benefits to salaries and wages, which are both components of non-interest expense. The service cost component for the three months ending March 31, 2017 was $0.6 million.

In January 2017, the FASB issued ASU 2017-04 that eliminated the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. Public business entities that are a U.S. Securities and Exchange Commission filer should adopt this update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, which for WesBanco will be effective for the fiscal year beginning January 1, 2020. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on WesBanco’s Consolidated Financial Statements.

In January 2017, the FASB issued ASU No. 2017-01, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, which for WesBanco will be effective for the fiscal year beginning January 1, 2018. WesBanco is currently evaluating the potential impact of ASU 2017-01 but it is not expected that the adoption of this new standard will have a material impact on WesBanco’s Consolidated Financial Statements.

In October 2016, the FASB issued ASU 2016-16 that provides the recognition of income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Current guidance prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This prohibition on recognition is an exception to the principle of comprehensive recognition of current and deferred income taxes in generally accepted accounting principles. The exception has led to diversity in practice and is a source of complexity in financial reporting. FASB decided that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendments in this update eliminate the exception for an intra-entity transfer of an asset other than inventory. The amendments in this update do not include new disclosure requirements; however, existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, which for WesBanco will be effective for the fiscal year beginning January 1, 2018. The amendments in this update should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of this pronouncement is not expected to have a material impact on WesBanco’s Consolidated Financial Statements.

In August 2016, the FASB issued 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.

 

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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. The adoption of this pronouncement did not 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 did not 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 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. 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 principle 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, FASB issued ASU 2016-12, which provides narrow-scope improvements and practical expedients to the revenue standard. While WesBanco is currently evaluating the impact of this standard on individual customer contracts, management has evaluated the impact of this standard on the broad categories of its customer contracts and revenue streams. WesBanco currently anticipates this standard will not have a material impact on its Consolidated Financial Statements because revenue related to financial instruments, including loans and investment securities are not in scope of these updates. Loan interest income, investment interest income, insurance services revenue and BOLI are accounted for under other U.S. GAAP standards and out of scope of ASC 606 revenue standard. The Company plans to adopt the revenue recognition standard as of January 1, 2018. The Company is currently reviewing all streams of revenue that may be subject to this revised guidance. While WesBanco has not yet identified any material changes to the timing of revenue recognition, the Company’s review is ongoing.

In January 2014, the FASB issued ASU No. 2014-01, which applies to all reporting entities that invest in qualified affordable housing projects through limited liability entities. The pronouncement permits reporting entities to make an accounting policy election to account for these investments using the proportional amortization method if certain conditions exist. The pronouncement also requires disclosure that enables users of its financial statements to understand the nature of these investments in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The pronouncement is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. WesBanco made an accounting policy election to adopt the ASU in the first quarter of 2017. With the adoption of this pronouncement, WesBanco now classifies the amortization of the investment as a component of income tax expense (benefit). The amount for the three months ending March 31, 2017 was $0.5 million, which is included in income tax expense within WesBanco’s Consolidated Financial Statements.

 

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NOTE 2. MERGERS AND ACQUISITIONS

On September 9, 2016, WesBanco completed its acquisition of Your Community Bankshares, Inc. (“YCB”), and its wholly-owned banking subsidiary, Your Community Bank (“YCB Bank”), an Indiana state-chartered commercial bank 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 total assets, excluding goodwill, including 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 value 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 certain assets and liabilities acquired from YCB on September 9, 2016 represented preliminary estimates. Based on the purchase price allocation, WesBanco recorded $92.3 million in goodwill and $12.0 million in core deposit intangibles in its Community Banking segment, representing the principal change in goodwill and intangibles in 2016. None of the goodwill is deductible for income tax purposes as the acquisition is accounted for as a tax-free exchange for tax purposes.

For the three months ended March 31, 2017 and for the twelve months ended December 31, 2016, WesBanco recorded merger-related expenses of $0.5 million and $13.3 million, respectively, associated with the YCB acquisition.

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

   $ 1,398,921  

Core deposit and other intangible assets acquired

     11,957  

Liabilities assumed

     (1,330,887

Net cash received in the acquisition

     48,212  
  

 

 

 

Fair value of net assets acquired

     128,203  
  

 

 

 

Goodwill recognized

   $ 92,295  
  

 

 

 

The following table presents the preliminary allocation of the purchase price of the assets acquired and the liabilities assumed at the date of acquisition.

 

(unaudited, in thousands)

   September 9, 2016  

Assets acquired

  

Cash and due from banks

   $ 48,212  

Securities

     173,223  

Loans

     1,012,410  

Goodwill and other intangible assets

     104,252  

Accrued income and other assets (1)

     213,288  
  

 

 

 

Total assets acquired

   $ 1,551,385  
  

 

 

 

Liabilities assumed

  

Deposits

   $ 1,193,010  

Borrowings

     123,001  

Accrued expenses and other liabilities

     14,876  
  

 

 

 

Total liabilities assumed

     1,330,887  
  

 

 

 

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.

 

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The following table presents the changes in the preliminary allocation of the purchase price of the assets acquired and the liabilities assumed at the date of the acquisition previously reported as of December 31, 2016:

 

(unaudited, in thousands)

   September 9, 2016  

Goodwill recognized as of December 31, 2016

   $ 92,889  

Change in fair value of net assets acquired:

  

Assets

  

Loans

     (1,156

Accrued income and other assets

     1,481  

Liabilities

  

Borrowings

     —    

Accrued expenses and other liabilities

     269  
  

 

 

 

Fair value of net assets acquired

   $ 594  
  

 

 

 

Reduction in goodwill recognized

     (594
  

 

 

 

Goodwill recognized as of March 31, 2017

   $ 92,295  
  

 

 

 

The Company expects to finalize the purchase accounting of YCB within one year of the date of the acquisition.

NOTE 3. EARNINGS PER COMMON SHARE

Earnings per common share are calculated as follows:

 

     For the Three Months Ended
March 31,
 

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

   2017      2016  

Numerator for both basic and diluted earnings per common share:

     

Net income

   $ 25,886      $ 22,874  
  

 

 

    

 

 

 

Denominator:

     

Total average basic common shares outstanding

     43,947,563        38,386,983  

Effect of dilutive stock options and other stock compensation

     73,202        15,333  
  

 

 

    

 

 

 

Total diluted average common shares outstanding

     44,020,765        38,402,316  
  

 

 

    

 

 

 

Earnings per common share – basic

   $ 0.59      $ 0.60  

Earnings per common share – diluted

   $ 0.59      $ 0.60  
  

 

 

    

 

 

 

All stock options were included in the computation of diluted shares for the three months ended March 31, 2017 while 167,750 shares were not included in the computation of diluted earnings per share for the three months ended March 31, 2016 because to do so would have been anti-dilutive. No contingently issuable shares were estimated to be awarded under the 2016 and 2017 total shareholder return plans as the stock performance targets were not met for the measurement periods ending March 31, 2017.

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:

 

    March 31, 2017     December 31, 2016  

(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

  $ 44,316     $ —       $ (592   $ 43,724     $ 54,803     $ 3     $ (763   $ 54,043  

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

    1,044,672       930       (16,688     1,028,914       1,052,397       911       (18,209     1,035,099  

Obligations of states and political subdivisions

    109,591       3,244       (1,267     111,568       110,208       3,114       (1,659     111,663  

Corporate debt securities

    35,278       215       (98     35,395       35,292       117       (108     35,301  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total debt securities

  $ 1,233,857     $ 4,389     $ (18,645   $ 1,219,601     $ 1,252,700     $ 4,145     $ (20,739   $ 1,236,106  

Equity securities

    4,263       1,237       (32     5,468       4,062       1,032       (24     5,070  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

  $ 1,238,120     $ 5,626     $ (18,677   $ 1,225,069     $ 1,256,762     $ 5,177     $ (20,763   $ 1,241,176  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Held-to-maturity

               

U.S. Government sponsored entities and agencies

  $ 13,140     $ —       $ (349   $ 12,791     $ 13,394     $ —       $ (414   $ 12,980  

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

    205,126       1,195       (2,278     204,043       215,141       1,279       (2,563     213,857  

Obligations of states and political subdivisions

    805,088       17,363       (3,130     819,321       805,019       15,652       (5,529     815,142  

Corporate debt securities

    34,399       477       (22     34,854       34,413       418       (20     34,811  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total held-to-maturity securities

  $ 1,057,753     $ 19,035     $ (5,779   $ 1,071,009     $ 1,067,967     $ 17,349     $ (8,526   $ 1,076,790  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 2,295,873     $ 24,661     $ (24,456   $ 2,296,078     $ 2,324,729     $ 22,526     $ (29,289   $ 2,317,966  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Trading securities, which consist of investments in various mutual funds held in grantor trusts formed in connection with the Company’s deferred compensation plan, are recorded at fair value and totaled $7.8 million and $7.1 million, at March 31, 2017 and December 31, 2016, respectively.

At March 31, 2017, and December 31, 2016, there were no holdings of any one issuer, other than U.S. government sponsored entities 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 March 31, 2017. In some instances, the issuers may have the right to call or prepay obligations without penalty prior to the contractual maturity date.

 

     March 31, 2017  

(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

   $ —        $ 11,978      $ 16,786      $ 6,860      $ 8,100      $ 43,724  

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

     —          —          —          —          1,028,914        1,028,914  

Obligations of states and political subdivisions

     8,480        20,981        37,437        44,670        —          111,568  

Corporate debt securities

     —          30,391        3,076        1,928        —          35,395  

Equity securities (2)

     —          —          —          —          5,468        5,468  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

   $ 8,480      $ 63,350      $ 57,299      $ 53,458      $ 1,042,482      $ 1,225,069  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held-to-maturity (3)

                 

U.S. Government sponsored entities and agencies

   $ —        $ —        $ —        $ —        $ 12,791      $ 12,791  

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

     —          —          —          —          204,043        204,043  

Obligations of states and political subdivisions

     730        76,522        407,302        334,767        —          819,321  

Corporate debt securities

     —          974        33,880        —          —          34,854  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total held-to-maturity securities

   $ 730      $ 77,496      $ 441,182      $ 334,767      $ 216,834      $ 1,071,009  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 9,210      $ 140,846      $ 498,481      $ 388,225      $ 1,259,316      $ 2,296,078  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 $1.1 billion.

Securities with aggregate fair values of $1.2 billion at March 31, 2017 and December 31, 2016, 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 $0 and $15.0 million for the three months ended March 31, 2017 and 2016, respectively. Net unrealized losses on available-for-sale securities included in accumulated other comprehensive income net of tax, as of March 31, 2017 and December 31, 2016 were $8.2 million and $9.9 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 months ended March 31, 2017 and 2016, respectively. Gains and losses due to fair value fluctuations on trading securities are included in non-interest income under other income, with an offsetting entry in compensation expense.

 

     For the Three
Months Ended
 
     March 31,  

(unaudited, in thousands)

   2017      2016  

Gross realized gains

   $ 12      $ 1,137  

Gross realized losses

     —          (26
  

 

 

    

 

 

 

Net realized gains

   $ 12      $ 1,111  
  

 

 

    

 

 

 

 

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The following tables provide information on unrealized losses on investment securities that have been in an unrealized loss position for less than twelve months and twelve months or more as of March 31, 2017 and December 31, 2016:

 

    March 31, 2017  
    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

  $ 46,533     $ (923     10     $ 9,982     $ (18     1     $ 56,515     $ (941     11  

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

    1,012,368       (16,672     246       62,784       (2,294     17       1,075,152       (18,966     263  

Obligations of states and political subdivisions

    254,893       (4,340     433       2,433       (57     4       257,326       (4,397     437  

Corporate debt securities

    1,928       (59     1       10,013       (61     3       11,941       (120     4  

Equity securities

    1,798       (32     3       —         —         —         1,798       (32     3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total temporarily impaired securities

  $ 1,317,520     $ (22,026     693     $ 85,212     $ (2,430     25     $ 1,402,732     $ (24,456     718  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 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

  $ 58,108     $ (1,177     11     $ —       $ —         —       $ 58,108     $ (1,177     11  

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

    1,057,343       (18,558     246       59,518       (2,214     16       1,116,861       (20,772     262  

Obligations of states and political subdivisions

    364,583       (7,121     604       2,047       (67     3       366,630       (7,188     607  

Corporate debt securities

    10,011       (78     3       5,973       (50     2       15,984       (128     5  

Equity securities

    2,938       (24     2       —         —         —         2,938       (24     2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total temporarily impaired securities

  $ 1,492,983     $ (26,958     866     $ 67,538     $ (2,331     21     $ 1,560,521     $ (29,289     887  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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, Cincinnati and Indianapolis stock totaling $45.1 million and $46.4 million at March 31, 2017 and December 31, 2016, 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 $0.3 million at March 31, 2017 and December 31, 2016, respectively. The discounts on purchased loans from acquisitions was $26.2 million, including $13.5 million related to YCB, and $24.1 million at March 31, 2017 and December 31, 2016, respectively.

 

(unaudited, in thousands)

   March 31,
2017
     December 31,
2016
 
Commercial real estate:              

Land and construction

   $ 552,285      $ 496,539  

Improved property

     2,400,318        2,376,972  
  

 

 

    

 

 

 

Total commercial real estate

     2,952,603        2,873,511  
  

 

 

    

 

 

 

Commercial and industrial

     1,106,719        1,088,118  

Residential real estate

     1,367,132        1,383,390  

Home equity

     508,411        508,359  

Consumer

     377,307        396,058  
  

 

 

    

 

 

 

Total portfolio loans

     6,312,172        6,249,436  
  

 

 

    

 

 

 

Loans held for sale

     11,480        17,315  
  

 

 

    

 

 

 

Total loans

   $ 6,323,652      $ 6,266,751  
  

 

 

    

 

 

 

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 Three Months Ended March 31, 2017 and 2016
 

(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, 2016:

                

Allowance for loan losses

   $ 4,348     $ 18,628     $ 8,412     $ 4,106     $ 3,422     $ 3,998     $ 760     $ 43,674  

Allowance for loan commitments

     151       17       188       9       162       44       —         571  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total beginning allowance for credit losses

     4,499       18,645       8,600       4,115       3,584       4,042       760       44,245  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses:

                

Provision for loan losses

     (425     983       832       330       365       583       66       2,734  

Provision for loan commitments

     (8     —         (31     1       17       (2     —         (23
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for credit losses

     (433     983       801       331       382       581       66       2,711  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     —         (602     (880     (404     (108     (1,287     (338     (3,619

Recoveries

     52       251       376       78       48       369       98       1,272  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     52       (351     (504     (326     (60     (918     (240     (2,347
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2017:

                

Allowance for loan losses

     3,975       19,260       8,740       4,110       3,727       3,663       586       44,061  

Allowance for loan commitments

     143       17       157       10       179       42       —         548  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance for credit losses

   $ 4,118     $ 19,277     $ 8,897     $ 4,120     $ 3,906     $ 3,705     $ 586     $ 44,609  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2015:

                

Allowance for loan losses

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

Allowance for loan commitments

     157       26       260       7       117       46       —         613  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total beginning allowance for credit losses

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses:

                

Provision for loan losses

     1,387       716       (37     (279     (154     416       298       2,347  

Provision for loan commitments

     57       (14     (64     (2     1       (1     —         (23
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for credit losses

     1,444       702       (101     (281     (153     415       298       2,324  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     —         (878     (20     (176     (72     (1,183     (169     (2,498

Recoveries

     1       240       35       186       53       375       76       966  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     1       (638     15       10       (19     (808     (93     (1,532
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2016:

                

Allowance for loan losses

     5,778       14,826       9,980       4,313       2,710       4,371       547       42,525  

Allowance for loan commitments

     214       12       196       5       118       45       —         590  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance for credit losses

   $ 5,992     $ 14,838     $ 10,176     $ 4,318     $ 2,828     $ 4,416     $ 547     $ 43,115  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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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  

(unaudited, in thousands)

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

Estate
    Home
Equity
    Consumer     Deposit
Over-draft
    Total  

March 31, 2017

               

Allowance for credit losses:

               

Allowance for loans individually evaluated for impairment

  $ —       $ 1,612     $ —       $ —       $ —       $ —       $ —       $ 1,612  

Allowance for loans collectively evaluated for impairment

    3,975       17,648       8,740       4,110       3,727       3,663       586       42,449  

Allowance for loan commitments

    143       17       157       10       179       42       —         548  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

  $ 4,118     $ 19,277     $ 8,897     $ 4,120     $ 3,906     $ 3,705     $ 586     $ 44,609  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Portfolio loans:

               

Individually evaluated for impairment (1)

  $ —       $ 6,841     $ —       $ —       $ —       $ —       $ —       $ 6,841  

Collectively evaluated for impairment

    550,722       2,383,888       1,105,684       1,366,307       508,411       377,298       —         6,292,310  

Acquired with deteriorated credit quality

    1,563       9,589       1,035       825       —         9       —         13,021  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total portfolio loans

  $ 552,285     $ 2,400,318     $ 1,106,719     $ 1,367,132     $ 508,411     $ 377,307     $ —       $ 6,312,172  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2016

               

Allowance for credit losses:

               

Allowance for loans individually evaluated for impairment

  $ —       $ 470     $ 407     $ —       $ —       $ —       $ —       $ 877  

Allowance for loans collectively evaluated for impairment

    4,348       18,158       8,005       4,106       3,422       3,998       760       42,797  

Allowance for loan commitments

    151       17       188       9       162       44       —         571  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

  $ 4,499     $ 18,645     $ 8,600     $ 4,115     $ 3,584     $ 4,042     $ 760     $ 44,245  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Portfolio loans:

               

Individually evaluated for impairment (1)

  $ —       $ 3,012     $ 1,270     $ —       $ —       $ —       $ —       $ 4,282  

Collectively evaluated for impairment

    494,928       2,364,067       1,086,445       1,382,447       508,359       396,049       —         6,232,295  

Acquired with deteriorated credit quality

    1,611       9,893       403       943       —         9       —         12,859  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total portfolio loans

  $ 496,539     $ 2,376,972     $ 1,088,118     $ 1,383,390     $ 508,359     $ 396,058     $ —       $ 6,249,436  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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:

 

     Commerical Loans by Internally Assigned Risk Grade  

(unaudited, in thousands)

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

As of March 31, 2017

           

Pass

   $ 545,107      $ 2,339,269      $ 1,089,934      $ 3,974,310  

Criticized - compromised

     4,500        25,414        6,986        36,900  

Classified - substandard

     2,678        35,635        9,799        48,112  

Classified - doubtful

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 552,285      $ 2,400,318      $ 1,106,719      $ 4,059,322  
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2016

           

Pass

   $ 489,380      $ 2,324,755      $ 1,072,751      $ 3,886,886  

Criticized - compromised

     4,405        15,295        5,078        24,778  

Classified - substandard

     2,754        36,922        10,289        49,965  

Classified - doubtful

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 496,539      $ 2,376,972      $ 1,088,118      $ 3,961,629  
  

 

 

    

 

 

    

 

 

    

 

 

 

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 $20.5 million at March 31, 2017 and $20.6 million at December 31, 2016, of which $2.2 and $3.4 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 — The carrying amount of loans acquired from YCB with deteriorated credit quality at March 31, 2017 and December 31, 2016 was $6.2 million and $5.7 million, respectively, of which $0.9 million and $1.4 million, respectively, were accounted for under the cost recovery method in accordance with ASC 310-30 as cash flows cannot be reasonably estimated, and therefore are categorized as non-accrual. At March 31, 2017, the accretable yield was $0.9 million. At March 31, 2017 and December 31, 2016, no allowance for loan loss has been recognized related to the acquired impaired loans.

Acquired ESB Loans — The carrying amount of loans acquired from ESB with deteriorated credit quality at March 31, 2017 and December 31, 2016 was $6.9 million and $7.2 million, respectively, of which $3.7 million and $0, respectively, were accounted for under the cost recovery method in accordance with ASC 310-30 as cash flows cannot be reasonably estimated, and therefore are categorized as non-accrual. At March 31, 2017, the accretable yield was $0.6 million. At March 31, 2017 and December 31, 2016 an allowance for loan loss of $2.0 million and $1.8 million, respectively, has been recognized related to the acquired impaired loans, as the estimates for future cash flows on these loans have been negatively impacted.

 

16


Table of Contents

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

 

     For the Three Months Ended  

(unaudited, in thousands)

   March 31,
2017
     March 31,
2016
 

Balance at beginning of period

   $ 1,717      $ 1,206  

Acquisitions

     —          —    

Reduction due to change in projected cash flows

     (200      —    

Reclass from non-accretable difference

     174        1,033  

Transfers out

     —          (328

Accretion

     (151      (134
  

 

 

    

 

 

 

Balance at end of period

   $ 1,540      $ 1,777  
  

 

 

    

 

 

 

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

 

     Age Analysis of Loans  

(unaudited, in thousands)

   Current      30-59 Days
Past Due
     60-89 Days
Past Due
     90 Days
or More
Past Due
     Total
Past Due
     Total
Loans
     90 Days
or More
Past Due and
Accruing (1)
 

As of March 31, 2017

                    

Commercial real estate:

                    

Land and construction

   $ 551,994      $ —        $ —        $ 291      $ 291      $ 552,285      $ 10  

Improved property

     2,387,197        1,225        4,172        7,724        13,121        2,400,318        315  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     2,939,191        1,225        4,172        8,015        13,412        2,952,603        325  

Commercial and industrial

     1,101,314        587        1,402        3,416        5,405        1,106,719        225  

Residential real estate

     1,354,217        3,841        1,630        7,444        12,915        1,367,132        400  

Home equity

     502,141        1,347        861        4,062        6,270        508,411        1,376  

Consumer

     373,249        2,655        705        698        4,058        377,307        440  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

     6,270,112        9,655        8,770        23,635        42,060        6,312,172        2,766  

Loans held for sale

     11,480        —          —          —          —          11,480        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 6,281,592      $ 9,655      $ 8,770      $ 23,635      $ 42,060      $ 6,323,652      $ 2,766  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans included above are as follows:

                    

Non-accrual loans

   $ 11,976      $ 1,030      $ 5,467      $ 20,854      $ 27,351      $ 39,327     

TDRs accruing interest (1)

     6,677        400        102        15        517        7,194     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total impaired

   $ 18,653      $ 1,430      $ 5,569      $ 20,869      $ 27,868      $ 46,521     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

As of December 31, 2016

                    

Commercial real estate:

                    

Land and construction

   $ 496,245      $ —        $ —        $ 294      $ 294      $ 496,539      $ —    

Improved property

     2,367,790        1,154        363        7,665        9,182        2,376,972        318  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     2,864,035        1,154        363        7,959        9,476        2,873,511        318  

Commercial and industrial

     1,082,390        2,508        1,011        2,209        5,728        1,088,118        229  

Residential real estate

     1,365,956        6,701        1,043        9,690        17,434        1,383,390        1,922  

Home equity

     502,087        2,358        862        3,052        6,272        508,359        626  

Consumer

     390,354        3,674        1,149        881        5,704        396,058        644  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

     6,204,822        16,395        4,428        23,791        44,614        6,249,436        3,739  

Loans held for sale

     17,315        —          —          —          —          17,315        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 6,222,137      $ 16,395      $ 4,428      $ 23,791      $ 44,614      $ 6,266,751      $ 3,739  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans included above are as follows:

                    

Non-accrual loans

   $ 7,570      $ 3,479      $ 923      $ 19,812      $ 24,214      $ 31,784     

TDRs accruing interest (1)

     7,014        342        50        240        632        7,646     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total impaired

   $ 14,584      $ 3,821      $ 973      $ 20,052      $ 24,846      $ 39,430     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

(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  
     March 31, 2017      December 31, 2016  

(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

   $ 584      $ 409      $ —        $ 1,212      $ 766      $ —    

Improved property

     15,633        11,099        —          9,826        8,141        —    

Commercial and industrial

     9,348        4,443        —          4,456        3,181        —    

Residential real estate

     20,299        18,590        —          20,152        18,305        —    

Home equity

     4,920        4,361        —          4,589        4,011        —    

Consumer

     906        778        —          884        744        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

     51,690        39,680        —          41,119        35,148        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With a specific allowance recorded:

                 

Commercial real estate:

                 

Land and construction

     —          —          —          —          —          —    

Improved property

     6,841        6,841        1,612        3,012        3,012        470  

Commercial and industrial

     —          —          —          4,875        1,270        407  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

     6,841        6,841        1,612        7,887        4,282        877  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 58,531      $ 46,521      $ 1,612      $ 49,006      $ 39,430      $ 877  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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
March 31, 2017
     For the Three Months Ended
March 31, 2016
 

(unaudited, in thousands)

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

With no related specific allowance recorded:

           

Commercial real estate:

           

Land and construction

   $ 588      $ —        $ 1,434      $ 6  

Improved property

     9,620        346        10,446        84  

Commercial and industrial

     3,812        2        3,374        41  

Residential real estate

     18,448        69        16,929        239  

Home equity

     4,186        5        3,157        24  

Consumer

     761        2        1,096        18  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

     37,415        424        36,436        412  
  

 

 

    

 

 

    

 

 

    

 

 

 

With a specific allowance recorded:

           

Commercial real estate:

           

Land and construction

     —          —          —          —    

Improved property

     4,927        —          3,012        —    

Commercial and industrial

     635        —          4,723        32  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

     5,562        —          7,735        32  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 42,977      $ 424      $ 44,171      $ 444  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

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

 

     Non-accrual Loans (1)  

(unaudited, in thousands)

   March 31,
2017
     December 31,
2016
 

Commercial real estate:

     

Land and construction

   $ 409      $ 766  

Improved property

     16,352        9,535  
  

 

 

    

 

 

 

Total commercial real estate

     16,761        10,301  
  

 

 

    

 

 

 

Commercial and industrial

     4,296        4,299  

Residential real estate

     13,672        12,994  

Home equity

     3,902        3,538  

Consumer

     696        652  
  

 

 

    

 

 

 

Total

   $ 39,327      $ 31,784  
  

 

 

    

 

 

 

 

(1)  At March 31, 2017, there were four borrowers with loans greater than $1.0 million totaling $10.5 million. Total non-accrual loans include loans that are also restructured. Such loans are also set forth in the following table as non-accrual TDRs.

 

     TDRs  
     March 31, 2017      December 31, 2016  

(unaudited, in thousands)

   Accruing      Non-Accrual      Total      Accruing      Non-Accrual      Total  

Commercial real estate:

                 

Land and construction

   $ —        $ 7      $ 7      $ —        $ 8      $ 8  

Improved property

     1,588        572        2,160        1,618        688        2,306  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     1,588        579        2,167        1,618        696        2,314  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     147        261        408        152        151        303  

Residential real estate

     4,918        1,940        6,858        5,311        2,212        7,523  

Home equity

     459        329        788        473        297        770  

Consumer

     82        164        246        92        190        282  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,194      $ 3,273      $ 10,467      $ 7,646      $ 3,546      $ 11,192  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of March 31, 2017, 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 March 31, 2017 or December 31, 2016.

The following tables present details related to loans identified as TDRs during the three months ended March 31, 2017 and 2016, respectively:

 

     New TDRs (1)
For the Three Months Ended
 
     March 31, 2017      March 31, 2016  

(unaudited, dollars in thousands)

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

Commercial real estate:

                 

Land and construction

     —        $ —        $ —          —        $ —        $ —    

Improved Property

     —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     2        126        122        —          —          —    

Residential real estate

     1        10        9        —          —          —    

Home equity

     1        44        43        —          —          —    

Consumer

     2        84        21        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     6      $ 264      $ 195        —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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

The following table summarizes TDRs which defaulted (defined as past due 90 days) during the three months ended March 31, 2017 and 2016, respectively, that were restructured within the last twelve months prior to March 31, 2017 and 2016, respectively:

 

     Defaulted TDRs (1)      Defaulted TDRs (1)  
     For the Three Months Ended      For the Three Months Ended  
     March 31, 2017      March 31, 2016  

(unaudited, dollars in thousands)

   Number of
Defaults
     Recorded
Investment
     Number of
Defaults
     Recorded
Investment
 

Commercial real estate:

           

Land and construction

     —        $ —          —        $ —    

Improved property

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     —          —          —          —    

Residential real estate

     —          —          —          —    

Home equity

     —          —          —          —    

Consumer

     1        9        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1      $ 9        —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Excludes loans that were either charged-off or cured by period end. The recorded investment is as of March 31, 2017 and 2016, respectively.

TDRs that default are placed on non-accrual status unless they are both well-secured and in the process of collection. The loan in the table above was not accruing interest.

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

 

(unaudited, in thousands)

   March 31,
2017
     December 31,
2016
 

Other real estate owned

   $ 7,910      $ 8,206  

Repossessed assets

     123        140  
  

 

 

    

 

 

 

Total other real estate owned and repossessed assets

   $ 8,033      $ 8,346  
  

 

 

    

 

 

 

At March 31, 2017, other real estate owned includes $3.0 million from the YCB acquisition. Residential real estate included in other real estate owned at March 31, 2017 and December 31, 2016 was $2.5 million and $1.6 million, respectively. At March 31, 2017 and December 31, 2016, formal foreclosure proceedings were in process on residential real estate loans totaling $3.1 million and $4.1 million, respectively.

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
March 31,
 

(unaudited, in thousands)

   2017      2016  

Service cost – benefits earned during year

   $ 636      $ 696  

Interest cost on projected benefit obligation

     1,084        1,324  

Expected return on plan assets

     (1,886      (1,919

Amortization of prior service cost

     6        6  

Amortization of net loss

     794        694  
  

 

 

    

 

 

 

Net periodic pension cost

   $ 634      $ 801  
  

 

 

    

 

 

 

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 $2.7 million is due for 2017, which could be all or partially offset by the Plan’s $46.9 million available credit balance. WesBanco currently expects to make a voluntary contribution of approximately $5.0 million to the Plan in 2017.

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 is in the process of spinning off the assets from the Pentegra Plan, and has contributed approximately $2.8 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 the participants prior to its merger into the WesBanco Defined Benefit Pension Plan later in 2017.

 

20


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 derivatives 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 the 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.

 

21


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 March 31, 2017 and December 31, 2016:

 

            March 31, 2017  
            Fair Value Measurements Using:  
     March 31,
2017
     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

   $ 7,773      $ 6,328      $ —        $ —        $ 1,445  

Securities - available-for-sale

              

U.S. Government sponsored entities and agencies

     43,724        —          43,724        —          —    

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

     1,028,914        —          1,028,914        —          —    

Obligations of state and political subdivisions

     111,568        —          111,568        —          —    

Corporate debt securities

     35,395        —          35,395        —          —    

Equity securities

     5,468        3,133        2,335        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities - available-for-sale

   $ 1,225,069      $ 3,133      $ 1,221,936      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other assets - interest rate derivatives agreements

   $ 6,386      $ —        $ 6,386      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets recurring fair value measurements

   $ 1,239,228      $ 9,461      $ 1,228,322      $ —        $ 1,445  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other liabilities - interest rate derivatives agreements

   $ 6,184      $ —        $ 6,184      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities recurring fair value measurements

   $ 6,184      $ —        $ 6,184      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonrecurring fair value measurements

              

Impaired loans

   $ 5,229      $ —        $ —        $ 5,229      $ —    

Other real estate owned and repossessed assets

     8,033        —          —          8,033        —    

Loans held for sale

     11,480        —          11,480        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring fair value measurements

   $ 24,742      $ —        $ 11,480      $ 13,262      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
            December 31, 2016  
            Fair Value Measurements Using:  
     December 31,
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

   $ 7,071      $ 5,633      $ —        $ —        $ 1,438  

Securities - available-for-sale

              

U.S. Government sponsored entities and agencies

     54,043        —          54,043        —          —    

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

     1,035,099        —          1,035,099        —          —    

Obligations of state and political subdivisions

     111,663        —          111,663        —          —    

Corporate debt securities

     35,301        —          35,301        —          —    

Equity securities

     5,070        2,938        2,132        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities - available-for-sale

   $ 1,241,176      $ 2,938      $ 1,238,238      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other assets - interest rate derivatives agreements

   $ 5,596      $ —        $ 5,596      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets recurring fair value measurements

   $ 1,253,843      $ 8,571      $ 1,243,834      $ —        $ 1,438  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other liabilities - interest rate derivatives agreements

   $ 5,199      $ —        $ 5,199      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities recurring fair value measurements

   $ 5,199      $ —        $ 5,199      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonrecurring fair value measurements

              

Impaired loans

   $ 3,405      $ —        $ —        $ 3,405      $ —    

Other real estate owned and repossessed assets

     8,346        —          —          8,346        —    

Loans held for sale

     17,315        —          17,315        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring fair value measurements

   $ 29,066      $ —        $ 17,315      $ 11,751      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 three months ended March 31, 2017 or for the year ended December 31, 2016.

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)

March 31, 2017

         

Impaired loans

   $ 5,229        Appraisal of collateral (1)       Appraisal adjustments (2)     0% to (20.0%) / (6.8%)
          Liquidation expenses (2)     (6.4%) to (8.0%) / (7.5%)

Other real estate owned and repossessed assets

     8,033        Appraisal of collateral (1), (3)      

December 31, 2016:

         

Impaired loans

   $ 3,405        Appraisal of collateral (1)       Appraisal adjustments (2)     0% to (70.0%) / (36.6%)
          Liquidation expenses (2)     (1.5%) to (8.0%) / (4.6%)

Other real estate owned and repossessed assets

     8,346        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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The estimated fair values of WesBanco’s financial instruments are summarized below:

 

                Fair Value Measurements at
March 31, 2017
 

(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

  $ 115,084     $ 115,084     $ 115,084     $ —       $ —       $ —    

Trading securities

    7,773       7,773       6,328       —         —         1,445  

Securities available-for-sale

    1,225,069       1,225,069       3,133       1,221,936       —         —    

Securities held-to-maturity

    1,057,753       1,071,009       —         1,070,398       611       —    

Net loans

    6,268,111       6,113,677       —         —         6,113,677       —    

Loans held for sale

    11,480       11,480       —         11,480       —         —    

Other assets - interest rate derivatives

    6,386       6,386       —         6,386      

Accrued interest receivable

    28,923       28,923       28,923       —         —         —    

Financial Liabilities

           

Deposits

    7,145,735       7,156,963       5,726,630       1,430,333       —         —    

Federal Home Loan Bank borrowings

    937,104       935,548       —         935,548       —         —    

Other borrowings

    115,643       115,627       113,497       2,130       —         —    

Subordinated debt and junior subordinated debt

    164,177       133,541       —         133,541       —         —    

Other liabilities - interest rate derivatives

    6,184       6,184       —         6,184      

Accrued interest payable

    2,422       2,422       2,422       —         —         —    

 

                Fair Value Measurements at
December 31, 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

  $ 128,170     $ 128,170     $ 128,170     $ —       $ —       $ —    

Trading securities

    7,071       7,071       5,633       —         —         1,438  

Securities available-for-sale

    1,241,176       1,241,176       2,938       1,238,238       —         —    

Securities held-to-maturity

    1,067,967       1,076,790       —         1,076,189       601       —    

Net loans

    6,205,762       6,073,558       —         —         6,073,558       —    

Loans held for sale

    17,315       17,315       —         17,315       —         —    

Other assets - interest rate derivatives

    5,596       5,596       —         5,596       —         —    

Accrued interest receivable

    28,299       28,299       28,299       —         —         —    

Financial Liabilities

           

Deposits

    7,040,879       7,052,501       5,545,057       1,507,444       —         —    

Federal Home Loan Bank borrowings

    968,946       974,430       —         974,430       —         —    

Other borrowings

    199,376       199,385       197,164       2,221       —         —    

Subordinated debt and junior subordinated debt

    163,598       134,859       —         134,859       —         —    

Other liabilities - interest rate derivatives

    5,199       5,199       —         5,199       —         —    

Accrued interest payable

    2,204       2,204       2,204       —         —         —    

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.

 

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

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

Deposits: The carrying amount is considered a reasonable estimate of fair value for demand, savings and other variable rate deposit accounts. 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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NOTE 8. COMPREHENSIVE INCOME

The activity in accumulated other comprehensive income for the three months ended March 31, 2017 and 2016 is as follows:

 

     Accumulated Other Comprehensive Income/(Loss) (1)  

(unaudited, in thousands)

   Defined
Benefit
Pension
Plan
    Unrealized
Gains (Losses)
on  Securities
Available-for-Sale
    Unrealized Gains
on Securities
Transferred from
Available-for-Sale
to Held-to-Maturity
    Total  

Balance at December 31, 2016

   $ (17,758   $ (9,890   $ 522     $ (27,126
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income before reclassifications

     —         1,680       —         1,680  

Amounts reclassified from accumulated other comprehensive income

     655       —         (50     605  
  

 

 

   

 

 

   

 

 

   

 

 

 

Period change

     655       1,680       (50     2,285  
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2017

   $ (17,103   $ (8,210   $ 472     $ (24,841
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2015

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

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income before reclassifications

     —         12,912       —         12,912  

Amounts reclassified from accumulated other comprehensive income

     404       (669     (50     (315
  

 

 

   

 

 

   

 

 

   

 

 

 

Period change

     404       12,243       (50     12,597  
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2016

   $ (17,135   $ 8,081     $ 697     $ (8,357
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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

The following table provides details about amounts reclassified from accumulated other comprehensive income for the three months ended March 31, 2017 and 2016:

 

     Amounts Reclassified from
Accumulated Other
Comprehensive Income/(Loss)
     

Details about Accumulated Other Comprehensive Income/
(Loss) Components

   For the Three Months Ended
March 31,
   

Affected Line Item in the Statement of Net Income

(unaudited, in thousands)    2017     2016      

Securities available-for-sale (1):

      

Net securities gains reclassified into earnings

   $ —       $ (1,054   Net securities gains (Non-interest income)

Related income tax expense

     —         385     Provision for income taxes
  

 

 

   

 

 

   

Net effect on accumulated other comprehensive income for the period

     —         (669  
  

 

 

   

 

 

   

Securities held-to-maturity (1):

      

Amortization of unrealized gain transferred from available-for-sale

     (72     (81   Interest and dividends on securities (Interest and dividend income)

Related income tax expense

     22       31     Provision for income taxes
  

 

 

   

 

 

   

Net effect on accumulated other comprehensive income for the period

     (50     (50  
  

 

 

   

 

 

   

Defined benefit pension plan (2):

      

Amortization of net loss and prior service costs

     801       700     Employee benefits (Non-interest expense)

Related income tax benefit

     (146     (296   Provision for income taxes
  

 

 

   

 

 

   

Net effect on accumulated other comprehensive income for the period

     655       404    
  

 

 

   

 

 

   

Total reclassifications for the period

   $ 605     $ (315  
  

 

 

   

 

 

   

 

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

 

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NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES

Commitments — In the normal course of business, WesBanco offers off-balance sheet credit arrangements to enable its customers to meet their financing objectives. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. WesBanco’s exposure to credit losses in the event of non-performance by the other parties to the financial instruments for commitments to extend credit and standby letters of credit is limited to the contractual amount of those instruments. WesBanco uses the same credit policies in making commitments and conditional obligations as for all other lending. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The allowance for credit losses associated with commitments was $0.5 million and $0.6 million as of March 31, 2017 and December 31, 2016, respectively, and is included in other liabilities on the Consolidated Balance Sheets.

Letters of credit are conditional commitments issued by banks to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including normal business activities, bond financing and similar transactions. Letters of credit are considered guarantees. The liability associated with letters of credit was $0.2 million as of both March 31, 2017 and December 31, 2016.

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

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

 

     March 31,      December 31,  

(unaudited, in thousands)

   2017      2016  

Lines of credit

   $ 1,504,320      $ 1,418,329  

Loans approved but not closed

     268,123        185,253  

Overdraft limits

     125,786        126,517  

Letters of credit

     33,450        32,907  

Contingent obligations to purchase loans funded by other entities

     10,038        13,036  

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

 

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Table of Contents

NOTE 10. BUSINESS SEGMENTS

WesBanco operates two reportable segments: community banking and trust and investment services. WesBanco’s community banking segment offers services traditionally offered by full-service commercial banks, including commercial demand, individual demand and time deposit accounts, as well as commercial, mortgage and individual installment loans, and certain non-traditional offerings, such as insurance and securities brokerage services. The trust and investment services segment offers trust services as well as various alternative investment products including mutual funds. The market value of assets managed or held in custody by the trust and investment services segment was approximately $3.8 billion and $3.6 billion at March 31, 2017 and 2016, respectively. These assets are held by WesBanco in fiduciary or agency capacities for their customers and therefore are not included as assets on WesBanco’s Consolidated Balance Sheets.

Condensed financial information by business segment is presented below:

 

            Trust and         
     Community      Investment         

(unaudited, in thousands)

   Banking      Services      Consolidated  

For the Three Months ended March 31, 2017:

        

Interest and dividend income

   $ 79,924      $ —        $ 79,924  

Interest expense

     9,205        —          9,205  
  

 

 

    

 

 

    

 

 

 

Net interest income

     70,719        —          70,719  

Provision for credit losses

     2,711        —          2,711  
  

 

 

    

 

 

    

 

 

 

Net interest income after provision for credit losses

     68,008        —          68,008  

Non-interest income

     16,741        6,143        22,884  

Non-interest expense

     50,992        3,392        54,384  
  

 

 

    

 

 

    

 

 

 

Income before provision for income taxes

     33,757        2,751        36,508  

Provision for income taxes

     9,522        1,100        10,622  
  

 

 

    

 

 

    

 

 

 

Net income

   $ 24,235      $ 1,651      $ 25,886  
  

 

 

    

 

 

    

 

 

 

For the Three Months ended March 31, 2016:

        

Interest and dividend income

   $ 67,601      $ —        $ 67,601  

Interest expense

     7,759        —          7,759  
  

 

 

    

 

 

    

 

 

 

Net interest income

     59,842        —          59,842  

Provision for credit losses

     2,324        —          2,324  
  

 

 

    

 

 

    

 

 

 

Net interest income after provision for credit losses

     57,518        —          57,518  

Non-interest income

     13,682        5,711        19,393  

Non-interest expense

     42,065        3,278        45,343  
  

 

 

    

 

 

    

 

 

 

Income before provision for income taxes

     29,135        2,433        31,568  

Provision for income taxes

     7,721        973        8,694  
  

 

 

    

 

 

    

 

 

 

Net income

   $ 21,414      $ 1,460      $ 22,874  
  

 

 

    

 

 

    

 

 

 

Total non-fiduciary assets of the trust and investment services segment were $3.8 million and $3.3 million at March 31, 2017 and 2016, respectively. All other assets, including goodwill and other intangible assets, were allocated to the community banking segment.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of WesBanco for the three months ended March 31, 2017. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto.

FORWARD-LOOKING STATEMENTS

Forward-looking statements in this report relating to WesBanco’s plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The information contained in this report should be read in conjunction with WesBanco’s Form 10-K for the year ended December 31, 2016 and documents subsequently filed by WesBanco with the Securities and Exchange Commission (“SEC”), which are available at the SEC’s website, www.sec.gov or at WesBanco’s website, www.wesbanco.com. Investors are cautioned that forward-looking statements, which are not historical fact, involve risks and uncertainties, including those detailed in WesBanco’s most recent Annual Report on Form 10-K filed with the SEC under “Risk Factors” in Part I, Item 1A. Such statements are subject to important factors that could cause actual results to differ materially from those contemplated by such statements, including, without limitation, the effects of changing regional and national economic conditions; changes in interest rates, spreads on earning assets and interest-bearing liabilities, and associated interest rate sensitivity; sources of liquidity available to WesBanco and its related subsidiary operations; potential future credit losses and the credit risk of commercial, real estate, and consumer loan customers and their borrowing activities; actions of the Federal Reserve Board, the FDIC, the SEC, FINRA, the Municipal Securities Rulemaking Board, the Securities Investors Protection Corporation, and other regulatory bodies; potential legislative and federal and state regulatory actions and reform, including, without limitation, the impact of the implementation of the Dodd-Frank Act; adverse decisions of federal and state courts; fraud, scams and schemes of third parties; internet hacking; competitive conditions in the financial services industry; rapidly changing technology affecting financial services; marketability of debt instruments and corresponding impact on fair value adjustments; and/or other external developments materially impacting WesBanco’s operational and financial performance. WesBanco does not assume any duty to update forward-looking statements.

OVERVIEW

WesBanco is a multi-state bank holding company operating through 173 branches and 161 ATM machines in West Virginia, Ohio, western Pennsylvania, Kentucky, and southern Indiana, offering retail banking, corporate banking, personal and corporate trust services, brokerage services, mortgage banking and insurance. WesBanco’s businesses are significantly impacted by economic factors such as market interest rates, federal monetary and regulatory policies, local and regional economic conditions and the competitive environment’s effect upon WesBanco’s business volumes. WesBanco’s deposit levels are affected by numerous factors including personal savings rates, personal income, and competitive rates on alternative investments, as well as competition from other financial institutions within the markets we serve and liquidity needs of WesBanco. Loan levels are also subject to various factors including construction demand, business financing needs, consumer spending and interest rates, as well as loan terms offered by competing lenders.

On September 9, 2016, WesBanco completed the acquisition of YCB, a bank holding company headquartered in New Albany, Indiana with approximately $1.5 billion in assets, excluding goodwill, with $1.2 billion in total deposits and $1.0 billion in total loans, and 34 branches in Kentucky and southern Indiana. WesBanco now has approximately $9.8 billion in total assets, $7.1 billion in total deposits, and $6.3 billion in total loans operating in five contiguous states. YCB’s results were included in WesBanco’s results from the date of merger consummation.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

WesBanco’s critical accounting policies involving the significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of March 31, 2017 have remained unchanged from the disclosures presented in WesBanco’s Annual Report on Form 10-K for the year ended December 31, 2016 within the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

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RESULTS OF OPERATIONS

EARNINGS SUMMARY

Net income for the three months ended March 31, 2017 was $25.9 million or $0.59 per diluted share compared to $22.9 million or $0.60 per diluted share for the first quarter of 2016. Excluding after-tax merger-related expenses (non-GAAP measure), net income increased 14.6% to $26.2 million compared to $22.9 million for the first quarter of 2016, while diluted earnings per share totaled $0.60, compared to $0.60 per share for the first quarter of last year.

 

     For the Three Months Ended March 31,  
     2017      2016  

(unaudited, dollars in thousands,

except per share amounts)

   Net
Income
     Diluted
Earnings
Per Share
     Net
Income
     Diluted
Earnings
Per Share
 

Net income (Non-GAAP)(1)

   $ 26,205      $ 0.60      $ 22,874      $ 0.60  

Less: After tax merger-related expenses

     (319      (0.01      —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (GAAP)

   $ 25,886      $ 0.59      $ 22,874      $ 0.60  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Non-GAAP net income excludes after-tax me