Attached files

file filename
EX-31.2 - EX-31.2 - WESBANCO INCd619371dex312.htm
EX-32.1 - EX-32.1 - WESBANCO INCd619371dex321.htm
EX-31.1 - EX-31.1 - WESBANCO INCd619371dex311.htm
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 September 30, 2018

 

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 every Interactive Data File required to be submitted 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 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      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 October 22, 2018, there were 54,598,186 shares of WesBanco, Inc. common stock, $2.0833 par value, outstanding.

 

 

 


Table of Contents

WESBANCO, INC.

TABLE OF CONTENTS

 

Item
No.

  

ITEM

   Page
No.
 
   PART I – FINANCIAL INFORMATION   

1

   Financial Statements   
   Consolidated Balance Sheets at September 30, 2018 (unaudited) and December 31, 2017      3  
   Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017 (unaudited)      4  
   Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2018 and 2017 (unaudited)      5  
   Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (unaudited)      6  
   Notes to Consolidated Financial Statements (unaudited)      7  

2

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      35  

3

   Quantitative and Qualitative Disclosures About Market Risk      55  

4

   Controls and Procedures      58  
   PART II – OTHER INFORMATION   

1

   Legal Proceedings      59  

2

   Unregistered Sales of Equity Securities and Use of Proceeds      59  

6

   Exhibits      60  
   Signatures      61  

 

2


Table of Contents

PART I—FINANCIAL INFORMATION

ITEM  1. FINANCIAL STATEMENTS

WESBANCO, INC. CONSOLIDATED BALANCE SHEETS

 

(unaudited, in thousands, except shares)

   September 30,
2018
    December 31,
2017
 

ASSETS

    

Cash and due from banks, including interest bearing amounts of $88,854 and $19,826, respectively

   $ 273,680     $ 117,572  

Securities:

    

Equity securities, at fair value

     12,784       13,457  

Available-for-sale debt securities, at fair value

     2,008,232       1,261,865  

Held-to-maturity debt securities (fair values of $1,014,361 and $1,023,784, respectively)

     1,025,538       1,009,500  
  

 

 

   

 

 

 

Total securities

     3,046,554       2,284,822  
  

 

 

   

 

 

 

Loans held for sale

     55,913       20,320  
  

 

 

   

 

 

 

Portfolio loans, net of unearned income

     7,726,423       6,341,441  

Allowance for loan losses

     (48,902     (45,284
  

 

 

   

 

 

 

Net portfolio loans

     7,677,521       6,296,157  
  

 

 

   

 

 

 

Premises and equipment, net

     159,284       130,722  

Accrued interest receivable

     39,465       29,728  

Goodwill and other intangible assets, net

     928,083       589,264  

Bank-owned life insurance

     223,995       192,589  

Other assets

     194,984       155,004  
  

 

 

   

 

 

 

Total Assets

   $ 12,599,479     $ 9,816,178  
  

 

 

   

 

 

 

LIABILITIES

    

Deposits:

    

Non-interest bearing demand

   $ 2,411,862     $ 1,846,748  

Interest bearing demand

     2,187,662       1,625,015  

Money market

     1,178,950       1,024,856  

Savings deposits

     1,649,684       1,269,912  

Certificates of deposit

     1,513,600       1,277,057  
  

 

 

   

 

 

 

Total deposits

     8,941,758       7,043,588  
  

 

 

   

 

 

 

Federal Home Loan Bank borrowings

     1,131,253       948,203  

Other short-term borrowings

     294,281       184,805  

Subordinated debt and junior subordinated debt

     189,745       164,327  
  

 

 

   

 

 

 

Total borrowings

     1,615,279       1,297,335  
  

 

 

   

 

 

 

Accrued interest payable

     6,623       3,178  

Other liabilities

     108,550       76,756  
  

 

 

   

 

 

 

Total Liabilities

     10,672,210       8,420,857  
  

 

 

   

 

 

 

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 2018 and 2017, respectively; 54,604,294 and 44,043,244 shares issued, respectively; 54,603,967 and 44,043,244 shares outstanding, respectively

     113,758       91,756  

Capital surplus

     1,165,006       684,730  

Retained earnings

     709,477       651,357  

Treasury stock (327 and 0 shares—at cost, respectively)

     (15     —    

Accumulated other comprehensive loss

     (59,873     (31,495

Deferred benefits for directors

     (1,084     (1,027
  

 

 

   

 

 

 

Total Shareholders’ Equity

     1,927,269       1,395,321  
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 12,599,479     $ 9,816,178  
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

3


Table of Contents

WESBANCO, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

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

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

   2018      2017     2018      2017  

INTEREST AND DIVIDEND INCOME

          

Loans, including fees

   $ 86,605      $ 70,342     $ 234,276      $ 202,600  

Interest and dividends on securities:

          

Taxable

     14,964        9,711       40,702        28,682  

Tax-exempt

     5,326        4,862       15,216        14,617  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest and dividends on securities

     20,290        14,573       55,918        43,299  
  

 

 

    

 

 

   

 

 

    

 

 

 

Other interest income

     1,498        574       3,402        1,674  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest and dividend income

     108,393        85,489       293,596        247,573  
  

 

 

    

 

 

   

 

 

    

 

 

 

INTEREST EXPENSE

          

Interest bearing demand deposits

     3,501        1,814       9,174        4,413  

Money market deposits

     1,360        751       3,332        1,970  

Savings deposits

     352        189       768        555  

Certificates of deposit

     3,276        2,610       8,789        7,512  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest expense on deposits

     8,489        5,364       22,063        14,450  
  

 

 

    

 

 

   

 

 

    

 

 

 

Federal Home Loan Bank borrowings

     6,691        3,628       17,142        9,608  

Other short-term borrowings

     965        394       2,497        954  

Subordinated debt and junior subordinated debt

     2,315        1,849       6,425        5,449  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest expense

     18,460        11,235       48,127        30,461  
  

 

 

    

 

 

   

 

 

    

 

 

 

NET INTEREST INCOME

     89,933        74,254       245,469        217,112  

Provision for credit losses

     1,035        2,516       4,911        7,610  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net interest income after provision for credit losses

     88,898        71,738       240,558        209,502  
  

 

 

    

 

 

   

 

 

    

 

 

 

NON-INTEREST INCOME

          

Trust fees

     6,265        5,358       18,520        17,073  

Service charges on deposits

     6,313        5,320       16,282        15,254  

Electronic banking fees

     6,139        4,883       16,697        14,395  

Net securities brokerage revenue

     1,836        1,721       5,315        5,164  

Bank-owned life insurance

     1,232        1,164       5,116        3,671  

Mortgage banking income

     1,521        1,103       4,297        3,511  

Net securities gains

     84        6       403        511  

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

     150        (298     641        9  

Other income

     2,684        1,642       6,444        6,318  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total non-interest income

     26,224        20,899       73,715        65,906  
  

 

 

    

 

 

   

 

 

    

 

 

 

NON-INTEREST EXPENSE

          

Salaries and wages

     30,335        24,957       82,213        71,575  

Employee benefits

     7,905        7,728       22,782        23,670  

Net occupancy

     4,957        4,132       13,715        12,969  

Equipment

     4,488        3,905       12,532        12,043  

Marketing

     1,446        1,599       3,967        4,482  

FDIC insurance

     789        945       2,315        2,677  

Amortization of intangible assets

     1,821        1,223       4,218        3,736  

Restructuring and merger-related expense

     10,811        —         16,468        491  

Other operating expenses

     13,568        11,265       36,024        34,380  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total non-interest expense

     76,120        55,754       194,234        166,023  
  

 

 

    

 

 

   

 

 

    

 

 

 

Income before provision for income taxes

     39,002        36,883       120,039        109,385  

Provision for income taxes

     6,516        10,527       20,855        30,801  
  

 

 

    

 

 

   

 

 

    

 

 

 

NET INCOME

   $ 32,486      $ 26,356     $ 99,184      $ 78,584  
  

 

 

    

 

 

   

 

 

    

 

 

 

EARNINGS PER COMMON SHARE

          

Basic

   $ 0.65      $ 0.60     $ 2.11      $ 1.79  

Diluted

   $ 0.64      $ 0.60     $ 2.11      $ 1.78  
  

 

 

    

 

 

   

 

 

    

 

 

 

AVERAGE COMMON SHARES OUTSTANDING

          

Basic

     50,277,847        44,031,813       46,965,095        43,992,017  

Diluted

     50,432,112        44,086,881       47,107,829        44,059,469  
  

 

 

    

 

 

   

 

 

    

 

 

 

DIVIDENDS DECLARED PER COMMON SHARE

   $ 0.29      $ 0.26     $ 0.87      $ 0.78  
  

 

 

    

 

 

   

 

 

    

 

 

 

COMPREHENSIVE INCOME

   $ 25,965      $ 27,637     $ 71,869      $ 84,873  
  

 

 

    

 

 

   

 

 

    

 

 

 

See Notes to Consolidated Financial Statements.

 

4


Table of Contents

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

For the Nine Months Ended September 30, 2018 and 2017

 

                                    Accumulated              
     Common Stock                        Other     Deferred        

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

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

December 31, 2017

     44,043,244     $ 91,756      $ 684,730     $ 651,357     $ —       $ (31,495   $ (1,027   $ 1,395,321  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     —         —          —         99,184       —         —         —         99,184  

Other comprehensive income

     —         —          —         —         —         (27,315     —         (27,315
                 

 

 

 

Comprehensive income

     —         —          —         —         —         —         —         71,869  

Common dividends declared
($0.87 per share)

     —         —          —         (42,127     —         —         —         (42,127

Adoption of accounting standard ASU 2016-01

     —         —          —         1,063       —         (1,063     —         —    

Shares issued for FTSB acquisition

     2,498,761       5,206        102,141       —         —         —         —         107,347  

Shares issued for FFKT acquisition

     7,920,387       16,487        374,464       —         316       —         —         391,267  

Treasury shares acquired

     (15,489     —          34       —         (730     —         —         (696

Stock options exercised

     58,763       104        1,346       —         399       —         —         1,849  

Restricted stock granted

     98,301       205        (205     —         —         —         —         —    

Stock compensation expense

     —         —          2,933       —         —         —         —         2,933  

Deferred benefits for directors- net

     —         —          (437     —         —         —         (57     (494
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

September 30, 2018

     54,603,967     $ 113,758      $ 1,165,006     $ 709,477     $ (15   $ (59,873   $ (1,084   $ 1,927,269  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2016

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

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     —         —          —         78,584       —         —         —         78,584  

Other comprehensive income

     —         —          —         —         —         6,289       —         6,289  
                 

 

 

 

Comprehensive income

     —         —          —         —         —         —         —         84,873  

Common dividends declared
($0.78 per share)

     —         —          —         (34,326     —         —         —         (34,326

Treasury shares acquired

     (12,987     —          —         —         (488     —         —         (488

Stock options exercised

     40,834       75        858       —         188       —         —         1,121  

Restricted stock granted

     74,023       154        (154     —         —         —         —         —    

Stock compensation expense

     —         —          1,970       —         —         —         —         1,970  

Deferred benefits for directors- net

     —         —          167       —         —         —         (167     —    
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

September 30, 2017

     44,033,585     $ 91,753      $ 683,348     $ 641,329     $ (300   $ (20,837   $ (735)     $ 1,394,558  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

5


Table of Contents

WESBANCO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     For the Nine Months Ended  
     September 30,  

(unaudited, in thousands)

   2018     2017  

NET CASH PROVIDED BY OPERATING ACTIVITIES

   $ 122,444     $ 93,506  
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Net decrease (increase) in loans held for investment

     52,411       (122,332

Debt securities available-for-sale:

    

Proceeds from sales

     82,134       7,760  

Proceeds from maturities, prepayments and calls

     188,020       156,944  

Purchases of securities

     (688,020     (225,404

Debt securities held-to-maturity:

    

Proceeds from maturities, prepayments and calls

     51,973       90,457  

Purchases of securities

     (66,058     (53,251

Equity securities:

    

Proceeds from sales

     1,511       —    

Purchases of securities

     (431     —    

Proceeds from bank-owned life insurance

     4,772       349  

Purchases of premises and equipment – net

     (2,400     (6,223

Net cash received from acquisitions

     278,654       —    

Sale of portfolio loans—net

     12,996       —    
  

 

 

   

 

 

 

Net cash used in investing activities

     (84,438     (151,700
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

(Decrease) increase in deposits

     (20,443     61,389  

Proceeds from Federal Home Loan Bank borrowings

     575,000       560,000  

Repayment of Federal Home Loan Bank borrowings

     (447,381     (513,911

Increase in other short-term borrowings

     90,043       20,200  

Decrease in federal funds purchased

     (25,000     (54,000

Repayment of junior subordinated debt

     (17,519     —    

Dividends paid to common shareholders

     (37,751     (33,416

Issuance of common stock

     1,578       991  

Treasury shares purchased—net

     (425     (358
  

 

 

   

 

 

 

Net cash provided by financing activities

     118,102       40,895  
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     156,108       (17,299

Cash and cash equivalents at beginning of the period

     117,572       128,170  
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 273,680     $ 110,871  
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES

    

Interest paid on deposits and other borrowings

   $ 46,524     $ 29,857  

Income taxes paid

     13,050       20,825  

Transfers of loans to other real estate owned

     393       506  

Transfers of loans to held for sale

     12,996       —    

Non-cash transactions related to FTSB acquisition

     107,347       —    

Non-cash transactions related to FFKT acquisition

     391,267       —    

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, 2017.

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 2017 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. Certain prior period amounts have been reclassified to conform to the current period presentation. Such reclassifications had no impact on WesBanco’s net income and stockholders’ equity. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year.

Recent accounting pronouncements — In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” This ASU specifically aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The ASU does not affect the accounting for the service element of a hosting arrangement that is a service contract. The guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. WesBanco is currently assessing the impact of ASU 2018-15 on WesBanco’s Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” This ASU modifies ASC 715-20 to improve disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. WesBanco is currently assessing the impact of ASU 2018-14 on WesBanco’s Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU modifies the disclosure objective paragraphs of ASC 820 to eliminate (1) “at a minimum” from the phrase “an entity shall disclose at a minimum” and (2) other similar “open ended” disclosure requirements to promote the appropriate exercise of discretion of entities. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. WesBanco is currently assessing the impact of ASU 2018-13 on WesBanco’s Consolidated Financial Statements.

In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities.” The new guidance will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. WesBanco is currently assessing the impact of ASU 2017-12 on WesBanco’s Consolidated Financial Statements.

In March 2017, the FASB issued ASU 2017-07 that changes how an employer presents the net periodic benefit cost in the income statement for an employer-sponsored defined benefit pension and/or other postretirement benefit plans. 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 was effective for the fiscal year beginning January 1, 2018. Upon adoption, WesBanco reclassified 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 and nine months ended September 30, 2018 was $0.7 and $2.1 million, respectively.

In January 2017, the FASB issued ASU 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 was effective for the fiscal year beginning January 1, 2018. The adoption of this pronouncement did not 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

 

7


Table of Contents

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 was effective for the fiscal year beginning January 1, 2018. The amendments in this update were to 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 did not 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 was effective for the fiscal year beginning January 1, 2018. The adoption of this pronouncement did not have a material impact on WesBanco’s Consolidated Financial Statements.

In September 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 has completed an initial data gap assessment, is currently finalizing the loan segmentation procedures and evaluating the various forecasting and modeling assumptions that will be used to estimate the initial current expected credit loss allowance.

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. In January 2018, the FASB issued ASU 2018-01, which allows entities the option to apply the provisions of the new lease guidance at the effective date without adjusting the comparative periods presented. In July 2018, the FASB issued ASU 2018-10, which provides narrow-scope improvements to the lease standard. While we are currently assessing the impact of the adoption of this pronouncement, we expect the primary impact to our consolidated financial position upon adoption will be the recognition, on a discounted basis, of our minimum commitments under non-cancellable operating leases on our Consolidated Balance Sheets resulting in the recording of right of use assets and lease obligations, which are expected to total approximately $15 million to $20 million. The estimate could change based on new leases entered into or amended before January 1, 2019.

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. In February 2018, the FASB issued ASU 2018-03, which clarifies certain aspects of the guidance issued in ASU 2016-01. WesBanco adopted these pronouncements as of January 1, 2018 and recognized a $1.1 million adjustment to retained earnings upon adoption of this pronouncement. In addition, WesBanco reclassified investment securities on the Consolidated Financial Statements into the following – equity securities, available-for-sale debt securities and held-to-maturity debt securities.

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. 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. WesBanco adopted these pronouncements as of January 1, 2018 using the modified retrospective approach. WesBanco noted no material change to the timing of revenue recognition and there was no material impact on WesBanco’s Consolidated Financial Statements. See Note 9, “Revenue Recognition” for further discussion on revenue within the scope of ASC 606.

 

8


Table of Contents

NOTE 2. MERGERS AND ACQUISITIONS

First Sentry Bancshares, Inc. (“FTSB”)

On April 5, 2018, WesBanco completed its acquisition of FTSB, a bank holding company headquartered in Huntington, WV. On the acquisition date, FTSB had approximately $705.6 million in assets, excluding goodwill, which included approximately $448.1 million in loans and $142.9 million in securities. The FTSB acquisition was valued at $108.3 million, based on WesBanco’s closing stock price on April 5, 2018, of $42.96, and resulted in WesBanco issuing 2,498,761 shares of its common stock and $1.0 million in cash in exchange for all of the outstanding shares of FTSB common stock including stock options. The assets and liabilities of FTSB were recorded on WesBanco’s Balance Sheet at their preliminary estimated fair values as of April 5, 2018, the acquisition date, and FTSB’s results of operations have been included in WesBanco’s Consolidated Statements of Income since that date. The fair values for certain assets and liabilities acquired from FTSB on April 5, 2018 represent preliminary estimates. Based on a preliminary purchase price allocation, WesBanco recorded $66.8 million in goodwill and $8.1 million in core deposit intangibles in its Community Banking segment. None of the goodwill is deductible for income tax purposes, as the acquisition is accounted for as a tax-free exchange for tax purposes. As a result of the full integration of the operations of FTSB, it is not practicable to determine revenue or net income included in WesBanco’s operating results relating to FTSB since the date of acquisition, as FTSB’s results cannot be separately identified.

For the nine months ended September 30, 2018, WesBanco recorded merger-related expenses of $5.5 million associated with the FTSB acquisition.

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

 

(unaudited, in thousands)

   April 5, 2018  

Purchase Price:

  

Fair value of WesBanco shares issued

   $ 107,347  

Cash consideration for outstanding FTSB shares

     975  
  

 

 

 

Total purchase price

   $ 108,322  

Fair value of:

  

Tangible assets acquired

   $ 610,443  

Core deposit and other intangible assets acquired

     8,078  

Liabilities assumed

     (664,172

Net cash received in the acquisition

     87,124  
  

 

 

 

Fair value of net assets acquired

     41,473  
  

 

 

 

Goodwill recognized

   $ 66,849  
  

 

 

 

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

 

(unaudited, in thousands)

   April 5, 2018  

Assets acquired

  

Cash and due from banks

   $ 87,124  

Securities

     142,903  

Loans

     448,075  

Goodwill and other intangible assets

     74,927  

Accrued income and other assets

     19,465  
  

 

 

 

Total assets acquired

   $ 772,494  
  

 

 

 

Liabilities assumed

  

Deposits

   $ 590,065  

Borrowings

     70,710  

Accrued expenses and other liabilities

     3,397  
  

 

 

 

Total liabilities assumed

   $ 664,172  
  

 

 

 

Net assets acquired

   $ 108,322  
  

 

 

 

 

9


Table of Contents

The following table presents the changes in the allocation of the purchase price of the assets acquired and the liabilities assumed at the date of the acquisition previously reported as of June 30, 2018:

 

(unaudited, in thousands)

   April 5, 2018  

Goodwill recognized as of June 30, 2018

   $ 66,219  

Change in fair value of net assets acquired:

  

Assets

  

Loans

     (264

Other intangible assets

     (159

Accrued income and other assets

     (6

Liabilities

  

Deposits

     (47

Accrued expenses and other liabilities

     (154
  

 

 

 

Fair value of net assets acquired

   $ (630
  

 

 

 

Increase in goodwill recognized

     630  
  

 

 

 

Goodwill recognized as of September 30, 2018

   $ 66,849  
  

 

 

 

The fair value estimates for loans, deferred taxes and other liabilities have continued to fluctuate as the final valuations and/or appraisals are completed. The Company expects to finalize the purchase price accounts of FTSB within one year of the date of acquisition.

Farmers Capital Bank Corporation (“FFKT”)

On August 20, 2018, WesBanco completed its acquisition of FFKT, a bank holding company headquartered in Frankfort, KY. On the acquisition date, FFKT had approximately $1.6 billion in assets, excluding goodwill, which included approximately $1.0 billion in loans and $239.3 million in securities. The FFKT acquisition was valued at $428.9 million, based on WesBanco’s closing stock price on August 20, 2018, of $49.40, and resulted in WesBanco issuing 7,920,387 shares of its common stock and $37.6 million in cash in exchange for all of the outstanding shares of FFKT common stock. The assets and liabilities of FFKT were recorded on WesBanco’s Balance Sheet at their preliminary estimated fair values as of August 20, 2018, the acquisition date, and FFKT’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 FFKT on August 20, 2018 represent preliminary estimates. Based on a preliminary purchase price allocation, WesBanco recorded $225.1 million in goodwill and $39.7 million in core deposit intangibles in its community banking segment and $2.9 million in trust customer relationship intangibles in its trust and investment services segment. None of the goodwill is deductible for income tax purposes, as the acquisition is accounted for as a tax-free exchange for tax purposes. As a result of the full integration of the operations of FFKT, it is not practicable to determine revenue or net income included in WesBanco’s operating results relating to FFKT since the date of acquisition, as FFKT’s results cannot be separately identified.

For the nine months ended September 30, 2018, WesBanco recorded merger-related expenses of $11.0 million associated with the FFKT acquisition.

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

 

(unaudited, in thousands)

   August 20, 2018  

Purchase Price:

  

Fair value of WesBanco shares issued

   $ 391,267  

Cash consideration for outstanding FFKT shares

     37,634  
  

 

 

 

Total purchase price

   $ 428,901  

Fair value of:

  

Tangible assets acquired

   $ 1,360,951  

Core deposit and other intangible assets acquired

     42,593  

Liabilities assumed

     (1,429,874

Net cash received in the acquisition

     230,139  
  

 

 

 

Fair value of net assets acquired

     203,809  
  

 

 

 

Goodwill recognized

   $ 225,092  
  

 

 

 

 

10


Table of Contents

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

 

(unaudited, in thousands)

   August 20, 2018  

Assets acquired

  

Cash and due from banks

   $ 230,139  

Securities

     239,321  

Loans

     1,028,120  

Goodwill and other intangible assets

     267,685  

Accrued income and other assets

     93,510  
  

 

 

 

Total assets acquired

   $ 1,858,775  
  

 

 

 

Liabilities assumed

  

Deposits

   $ 1,330,328  

Borrowings

     71,780  

Accrued expenses and other liabilities

     27,766  
  

 

 

 

Total liabilities assumed

   $ 1,429,874  
  

 

 

 

Net assets acquired

   $ 428,901  
  

 

 

 

NOTE 3. EARNINGS PER COMMON SHARE

Earnings per common share are calculated as follows:

 

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

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

   2018      2017      2018      2017  

Numerator for both basic and diluted earnings per common share:

           

Net income

   $ 32,486      $ 26,356      $ 99,184      $ 78,584  
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

Total average basic common shares outstanding

     50,277,847        44,031,813        46,965,095        43,992,017  

Effect of dilutive stock options and other stock compensation

     154,265        55,068        142,734        67,452  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total diluted average common shares outstanding

     50,432,112        44,086,881        47,107,829        44,059,469  
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per common share—basic

   $ 0.65      $ 0.60      $ 2.11      $ 1.79  

Earnings per common share—diluted

   $ 0.64      $ 0.60      $ 2.11      $ 1.78  
  

 

 

    

 

 

    

 

 

    

 

 

 

All options to purchase shares were included in the computation of net income per diluted share for the three months ended September 30, 2018 while 117,550 shares were not included in the computation of net income per diluted share for the three months ended September 30, 2017 because the exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. Options to purchase 117,600 shares at September 30, 2018 were not included in the computation of net income per diluted share for the nine months ended September 30, 2018 because the exercise price was greater than the average market price of the common shares, and therefore, the effect would be antidilutive. All stock options were included in the computation of net income per diluted share for the nine months ended September 30, 2017.

As of September 30, 2018, contingently issuable shares totaling 45,840, were estimated to be awarded under the 2018 and 2017 total shareholder return plans as stock performance targets have been met to date and are included in the diluted calculation. As of September 30, 2018, the shares related to the 2016 total shareholder return plan were not included in the calculation because the effect would be antidilutive. Performance-based restricted stock compensation totaling 17,081 shares were estimated to be awarded as of September 30, 2018 and are included in the diluted calculation for both the three months and nine months ended September 30, 2018. As of September 30, 2017, the shares related to the 2017 and 2016 total shareholder return plan were not included in the calculation because the effect would be antidilutive. Performance-based restricted stock compensation totaling 4,502 shares were estimated to be awarded as of September 30, 2017, and are included in the diluted calculation for both the three months and nine months ended September 30, 2017.

On April 5, 2018, WesBanco issued 2,498,761 shares of common stock to complete its acquisition of FTSB and granted 9,465 shares of restricted stock to certain FTSB employees. These shares are included in average shares outstanding beginning on that date. For additional information relating to the FTSB acquisition, refer to Note 2, “Mergers and Acquisitions.”

On August 20, 2018, WesBanco issued 7,920,387 shares of common stock, 6,690 of which were treasury stock, to complete its acquisition of FFKT and granted 18,685 shares of restricted stock to certain FFKT employees. These shares are included in average shares outstanding beginning on that date. For additional information relating to the FFKT acquisition, refer to Note 2, “Mergers and Acquisitions.”

 

11


Table of Contents

NOTE 4. SECURITIES

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

 

     September 30, 2018      December 31, 2017  

(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 debt securities

                     

U.S. Treasury

   $ 9,952      $ —        $ (15   $ 9,937      $ —        $ —        $ —       $ —    

U.S. Government sponsored entities and agencies

     154,054        17        (4,122     149,949        72,425        24        (606     71,843  

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

     1,500,563        44        (50,853     1,449,754        954,115        214        (19,407     934,922  

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

     174,331        15        (5,585     168,761        116,448        4        (1,585     114,867  

Obligations of states and political subdivisions

     187,501        1,445        (2,295     186,651        102,363        2,927        (460     104,830  

Corporate debt securities

     43,259        160        (239     43,180        35,234        228        (59     35,403  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total available-for-sale debt securities

   $ 2,069,660      $ 1,681      $ (63,109   $ 2,008,232      $ 1,280,585      $ 3,397      $ (22,117   $ 1,261,865  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Held-to-maturity debt securities

                     

U.S. Government sponsored entities and agencies

   $ 11,699      $ —        $ (615   $ 11,084      $ 11,465      $ —        $ (325   $ 11,140  

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

     154,018        103        (6,788     147,333        170,025        544        (2,609     167,960  

Obligations of states and political subdivisions

     826,514        6,434        (9,743     823,205        794,655        17,364        (1,609     810,410  

Corporate debt securities

     33,307        5        (573     32,739        33,355        919        —         34,274  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total held-to-maturity debt securities

   $ 1,025,538      $ 6,542      $ (17,719   $ 1,014,361      $ 1,009,500      $ 18,827      $ (4,543   $ 1,023,784  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total debt securities

   $ 3,095,198      $ 8,223      $ (80,828   $ 3,022,593      $ 2,290,085      $ 22,224      $ (26,660   $ 2,285,649  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

At September 30, 2018, and December 31, 2017, 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.

Equity securities, of which $8.5 million 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 $12.8 million and $13.5 million at September 30, 2018 and December 31, 2017, respectively.

The following table presents the fair value of available-for-sale and held-to-maturity debt securities by contractual maturity at September 30, 2018. In some instances, the issuers may have the right to call or prepay obligations without penalty prior to the contractual maturity date.

 

12


Table of Contents
     September 30, 2018  

(unaudited, in thousands)

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

Available-for-sale debt securities

                 

U.S. Treasury

   $ 9,937      $ —        $ —        $ —        $ —        $ 9,937  

U.S. Government sponsored entities and agencies

     10,479        6,260        17,881        15,298        100,031        149,949  

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

     —          —          —          —          1,449,754        1,449,754  

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

     —          —          —          —          168,761        168,761  

Obligations of states and political subdivisions

     9,288        48,959        76,972        51,432        —          186,651  

Corporate debt securities

     8,014        33,251        1,915        —          —          43,180  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale debt securities

   $  37,718      $ 88,470      $ 96,768      $ 66,730      $  1,718,546      $ 2,008,232  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held-to-maturity debt securities (2)

                 

U.S. Government sponsored entities and agencies

   $ —        $ —        $ —        $ —        $ 11,084      $ 11,084  

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

     —          —          —          —          147,333        147,333  

Obligations of states and political subdivisions

     6,149        138,709        387,775        290,572        —          823,205  

Corporate debt securities

     —          7,449        25,290        —          —          32,739  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total held-to-maturity debt securities

   $ 6,149      $ 146,158      $ 413,065      $ 290,572      $ 158,417      $ 1,014,361  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

   $ 43,867      $ 234,628      $ 509,833      $ 357,302      $ 1,876,963      $ 3,022,593  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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) 

The held-to-maturity debt securities portfolio is carried at an amortized cost of $1.0 billion.

Securities with aggregate fair values of $1.9 billion and $1.4 billion at September 30, 2018 and December 31, 2017, respectively, were pledged as security for public and trust funds, and securities sold under agreements to repurchase. Proceeds from the sale of available-for-sale securities were $82.1 million and $7.8 million for the nine months ended September 30, 2018 and 2017, respectively. Net unrealized losses on available-for-sale securities included in accumulated other comprehensive income net of tax, as of September 30, 2018 and December 31, 2017 were $47.3 million and $13.3 million, respectively.

The following table presents the gross realized gains and losses on sales and calls of available-for-sale and held-to-maturity debt securities, as well as gains and losses on equity securities for the three and nine months ended September 30, 2018 and 2017, respectively.

 

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

(unaudited, in thousands)

   2018      2017      2018      2017  

Debt securities:

           

Gross realized gains

   $ 88      $ 29      $ 100      $ 603  

Gross realized losses

     (13      (23      (31      (92
  

 

 

    

 

 

    

 

 

    

 

 

 

Net gains on debt securities

   $ 75      $ 6      $ 69      $ 511  
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities:

           

Unrealized gains recognized on securities still held

   $ 11      $ —        $ 330      $ —    

Net realized (losses) gains recognized on securities sold

     (2      —          4        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net gains on equity securities

   $ 9      $ —        $ 334      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net securities gains

   $ 84      $ 6      $ 403      $ 511  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

13


Table of Contents

The following tables provide information on unrealized losses on debt securities that have been in an unrealized loss position for less than twelve months and twelve months or more as of September 30, 2018 and December 31, 2017:

 

     September 30, 2018  
     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. Treasury

   $ 9,937      $ (15     1      $ —        $ —         —        $ 9,937      $ (15     1  

U.S. Government sponsored entities and agencies

     93,881        (2,264     38        60,410        (2,473     11        154,291        (4,737     49  

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

     759,415        (13,670     188        822,774        (43,971     260        1,582,189        (57,641     448  

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

     79,056        (1,239     15        86,703        (4,346     11        165,759        (5,585     26  

Obligations of states and political subdivisions

     493,252        (7,866     855        120,843        (4,172     236        614,095        (12,038     1091  

Corporate debt securities

     42,816        (738     17        1,915        (74     1        44,731        (812     18  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total temporarily impaired securities

   $ 1,478,357      $ (25,792     1,114      $ 1,092,645      $ (55,036     519      $ 2,571,002      $ (80,828     1,633  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     December 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

   $ 24,776      $ (160     4      $ 42,248      $ (771     8      $ 67,024      $ (931     12  

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

     423,794        (5,039     87        637,461        (16,977     193        1,061,255        (22,016     280  

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

     79,061        (1,089     10        27,852        (496     6        106,913        (1,585     16  

Obligations of states and political subdivisions

     132,831        (852     210        77,554        (1,217     160        210,385        (2,069     370  

Corporate debt securities

     4,015        (19     1        1,948        (40     1        5,963        (59     2  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total temporarily impaired securities

   $ 664,477      $ (7,159     312      $ 787,063      $ (19,501     368      $ 1,451,540      $ (26,660     680  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

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 $53.8 million and $45.9 million at September 30, 2018 and December 31, 2017, 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.

 

14


Table of Contents

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 net deferred loan costs were $2.8 million and $1.6 million at September 30, 2018 and December 31, 2017, respectively. The unamortized discount on purchased portfolio loans from acquisitions was $54.3 million, including $6.7 million related to FTSB and $25.9 million related to FFKT, and $21.9 million at September 30, 2018 and December 31, 2017, respectively.

 

(unaudited, in thousands)

   September 30,
2018
     December 31,
2017
 

Commercial real estate:

     

Land and construction

   $ 538,922      $ 392,597  

Improved property

     3,367,299        2,601,851  
  

 

 

    

 

 

 

Total commercial real estate

     3,906,221        2,994,448  
  

 

 

    

 

 

 

Commercial and industrial

     1,292,073        1,125,327  

Residential real estate

     1,598,477        1,353,301  

Home equity

     604,106        529,196  

Consumer

     325,546        339,169  
  

 

 

    

 

 

 

Total portfolio loans

     7,726,423        6,341,441  
  

 

 

    

 

 

 

Loans held for sale

     55,913        20,320  
  

 

 

    

 

 

 

Total loans

   $ 7,782,336      $ 6,361,761  
  

 

 

    

 

 

 

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

 

     Allowance for Credit Losses By Category  
     For the Nine Months Ended September 30, 2018 and 2017  

(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, 2017:

                

Allowance for loan losses

   $ 3,117     $ 21,166     $ 9,414     $ 3,206     $ 4,497     $ 3,063     $ 821     $ 45,284  

Allowance for loan commitments

     119       26       173       7       212       37       —         574  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total beginning allowance for credit losses

     3,236       21,192       9,587       3,213       4,709       3,100       821       45,858  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses:

                

Provision for loan losses

     789       (721     2,538       1,106       (292     541       840       4,801  

Provision for loan commitments

     67       (3     32       2       9       3       —         110  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for credit losses

     856       (724     2,570       1,108       (283     544       840       4,911  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     (137     (719     (871     (873     (745     (2,465     (941     (6,751

Recoveries

     400       1,098       970       336       830       1,657       277       5,568  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     263       379       99       (537     85       (808     (664     (1,183
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2018:

                

Allowance for loan losses

     4,169       20,824       12,051       3,775       4,290       2,796       997       48,902  

Allowance for loan commitments

     186       23       205       9       221       40       —         684  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance for credit losses

   $ 4,355     $ 20,847     $ 12,256     $ 3,784     $ 4,511     $ 2,836     $ 997     $ 49,586  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     415       1,619       2,842       (203     1,259       922       680       7,534  

Provision for loan commitments

     (18     4       45       —         49       (4     —         76  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for credit losses

     397       1,623       2,887       (203     1,308       918       680       7,610  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     —         (1,752     (2,255     (797     (372     (2,877     (947     (9,000

Recoveries

     89       492       649       266       180       1,336       267       3,279  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     89       (1,260     (1,606     (531     (192     (1,541     (680     (5,721
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2017:

                

Allowance for loan losses

     4,852       18,987       9,648       3,372       4,489       3,379       760       45,487  

Allowance for loan commitments

     133       21       233       9       211       40       —         647  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance for credit losses

   $ 4,985     $ 19,008     $ 9,881     $ 3,381     $ 4,700     $ 3,419     $ 760     $ 46,134  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

15


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  

September 30, 2018

                       

Allowance for credit losses:

                       

Allowance for loans individually evaluated for impairment

   $ —        $ —        $ —        $ —        $ —        $ —        $ —        $ —    

Allowance for loans collectively evaluated for impairment

     4,169        20,824        12,051        3,775        4,290        2,796        997        48,902  

Allowance for loan commitments

     186        23        205        9        221        40        —          684  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for credit losses

   $ 4,355      $ 20,847      $ 12,256      $ 3,784      $ 4,511      $ 2,836      $ 997      $ 49,586  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio loans:

                       

Individually evaluated for impairment (1)

   $ —        $ —        $ —        $ —        $ —        $ —        $ —        $ —    

Collectively evaluated for impairment

     537,699        3,361,315        1,291,296        1,595,547        604,106        325,419        —          7,715,382  

Acquired with deteriorated credit quality

     1,223        5,984        777        2,930        —          127        —          11,041  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

   $ 538,922      $ 3,367,299      $ 1,292,073      $ 1,598,477      $ 604,106      $ 325,546      $ —        $ 7,726,423  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2017

                       

Allowance for credit losses:

                       

Allowance for loans individually evaluated for impairment

   $ —        $ 388      $ —        $ —        $ —        $ —        $ —        $ 388  

Allowance for loans collectively evaluated for impairment

     3,117        20,778        9,414        3,206        4,497        3,063        821        44,896  

Allowance for loan commitments

     119        26        173        7        212        37        —          574  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for credit losses

   $ 3,236      $ 21,192      $ 9,587      $ 3,213      $ 4,709      $ 3,100      $ 821      $ 45,858  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio loans:

                       

Individually evaluated for impairment (1)

   $ —        $ 3,344      $ —        $ —        $ —        $ —        $ —        $ 3,344  

Collectively evaluated for impairment

     391,140        2,593,393        1,124,544        1,352,587        529,196        339,163        —          6,330,023  

Acquired with deteriorated credit quality

     1,457        5,114        783        714        —          6        —          8,074  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

   $ 392,597      $ 2,601,851      $ 1,125,327      $ 1,353,301      $ 529,196      $ 339,169      $ —        $ 6,341,441  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Commercial loans greater than $1 million that are reported as non-accrual or as a 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.

Commercial and industrial loans consist of revolving lines of credit to finance accounts receivable, inventory and other general business purposes; term loans to finance fixed assets other than real estate, and letters of credit to support trade, insurance or governmental requirements for a variety of businesses. Most C&I borrowers are privately-held companies with annual sales up to $100 million. 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.

 

16


Table of Contents

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.

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

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

 

     Commercial Loans by Internally Assigned Risk Grade  

(unaudited, in thousands)

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

As of September 30, 2018

           

Pass

   $ 533,982      $ 3,314,324      $ 1,272,181      $ 5,120,487  

Criticized—compromised

     2,909        31,399        12,062        46,370  

Classified—substandard

     2,031        21,576        7,830        31,437  

Classified—doubtful

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 538,922      $ 3,367,299      $ 1,292,073      $ 5,198,294  
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2017

           

Pass

   $ 386,753      $ 2,548,805      $ 1,110,267      $ 4,045,825  

Criticized—compromised

     2,984        25,673        7,435        36,092  

Classified—substandard

     2,860        27,373        7,625        37,858  

Classified—doubtful

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 392,597      $ 2,601,851      $ 1,125,327      $ 4,119,775  
  

 

 

    

 

 

    

 

 

    

 

 

 

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 was $20.6 million at September 30, 2018 and $22.8 million at December 31, 2017, of which $2.2 million and $2.5 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 FFKT Loans – In conjunction with the FFKT acquisition, WesBanco acquired loans with a book value of $1,064.8 million as of August 20, 2018. These loans were recorded at the preliminary fair value of $1,028.1 million, with $1,016.9 million categorized as ASC 310-20 loans. The fair market value adjustment on these loans of $26.4 million at the acquisition date is expected to be recognized into interest income on a level yield basis over the remaining expected life of the loans.

Loans acquired with deteriorated credit quality with a book value of $2.7 million were recorded at the preliminary fair value of $2.4 million, of which all were accounted for under the cost recovery method in accordance with ASC 310-30 as cash flows cannot be reasonably estimated, and categorized as non-accrual.

The carrying amount of loans acquired with deteriorated credit quality at September 30, 2018 was $2.1 million, while the outstanding customer balance was $2.4 million. At September 30, 2018 no allowance for loan losses has been recognized related to the acquired impaired loans.

Certain acquired underperforming loans with a book value of $45.2 million were transferred to loans held for sale prior to September 30, 2018 at the preliminary fair value of $35.2 million.

Acquired FTSB Loans – In conjunction with the FTSB acquisition, WesBanco acquired loans with a book value of $465.9 million as of April 5, 2018. These loans were recorded at the preliminary fair value of $448.1 million, with $440.1 million categorized as ASC 310-20 loans. The fair market value adjustment on these loans of $9.7 million at acquisition date is expected to be recognized into interest income on a level yield basis over the remaining expected life of the loans.

 

17


Table of Contents

Loans acquired with deteriorated credit quality with a book value of $4.1 million were recorded at the preliminary fair value of $2.0 million, of which $0.7 million were accounted for under the cost recovery method in accordance with ASC 310-30 as cash flows cannot be reasonably estimated, and categorized as non-accrual.

The carrying amount of loans acquired with deteriorated credit quality at September 30, 2018 was $1.7 million, while the outstanding customer balance was $3.8 million. At September 30, 2018, no allowance for loan losses has been recognized related to the acquired impaired loans.

Certain acquired underperforming loans with a book value of $4.0 million were transferred to loans held for sale prior to September 30, 2018 at the preliminary fair value of $2.8 million.

Certain acquired underperforming loans with a book value of $17.7 million were sold in the second quarter of 2018 for $12.9 million. The acquisition date fair value of the acquired loans was adjusted to the sale price resulting in no gain or loss.

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

 

     For the Nine Months Ended  

(unaudited, in thousands)

   September 30,
2018
     September 30,
2017
 

Balance at beginning of period

   $ 1,724      $ 1,717  

Acquisitions

     695        —    

Reduction due to change in projected cash flows

     (86      —    

Reclass from non-accretable difference

     6,287        1,490  

Transfers out

     —          (216

Accretion

     (902      (1,384
  

 

 

    

 

 

 

Balance at end of period

   $ 7,718      $ 1,607  
  

 

 

    

 

 

 

 

18


Table of Contents

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

 

     Age Analysis of Loans  

(unaudited, in thousands)

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

As of September 30, 2018

                    

Commercial real estate:

                    

Land and construction

   $ 538,181      $ 643      $ 98      $ —        $ 741      $ 538,922      $ —    

Improved property

     3,357,883        1,657        352        7,407        9,416        3,367,299        88  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     3,896,064        2,300        450        7,407        10,157        3,906,221        88  

Commercial and industrial

     1,287,693        776        462        3,142        4,380        1,292,073        114  

Residential real estate

     1,579,164        8,100        2,708        8,505        19,313        1,598,477        1,225  

Home equity

     596,477        2,871        1,002        3,756        7,629        604,106        646  

Consumer

     322,093        2,291        605        557        3,453        325,546        378  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

     7,681,491        16,338        5,227        23,367        44,932        7,726,423        2,451  

Loans held for sale

     55,913        —          —          —          —          55,913        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 7,737,404      $ 16,338      $ 5,227      $ 23,367      $ 44,932      $ 7,782,336      $ 2,451  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans included above are as follows:

 

                 

Non-accrual loans

   $ 7,480      $ 1,653      $ 1,225      $ 20,916      $ 23,794      $ 31,274     

TDRs accruing interest (1)

     5,667        314        357        —          671        6,338     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total impaired

   $ 13,147      $ 1,967      $ 1,582      $ 20,916      $ 24,465      $ 37,612     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

As of December 31, 2017

                    

Commercial real estate:

                    

Land and construction

   $ 392,189      $ —        $ 172      $ 236      $ 408      $ 392,597      $ —    

Improved property

     2,589,704        374        1,200        10,573        12,147        2,601,851        243  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     2,981,893        374        1,372        10,809        12,555        2,994,448        243  

Commercial and industrial

     1,121,957        572        196        2,602        3,370        1,125,327        20  

Residential real estate

     1,338,240        4,487        2,376        8,198        15,061        1,353,301        1,113  

Home equity

     522,584        2,135        683        3,794        6,612        529,196        742  

Consumer

     334,723        2,466        842        1,138        4,446        339,169        608  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

     6,299,397        10,034        5,469        26,541        42,044        6,341,441        2,726  

Loans held for sale

     20,320        —          —          —          —          20,320        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 6,319,717      $ 10,034      $ 5,469      $ 26,541      $ 42,044      $ 6,361,761      $ 2,726  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans included above are as follows:

 

                 

Non-accrual loans

   $ 9,195      $ 1,782      $ 2,033      $ 23,815      $ 27,630      $ 36,825     

TDRs accruing interest (1)

     6,055        348        168        —          516        6,571     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total impaired

   $ 15,250      $ 2,130      $ 2,201      $ 23,815      $ 28,146      $ 43,396     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

(1)

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

 

19


Table of Contents

The following tables summarize impaired loans:

 

     Impaired Loans  
     September 30, 2018      December 31, 2017  

(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

   $ —        $ —        $ —        $ 412      $ 239      $ —    

Improved property

     14,639        9,928        —          18,229        12,863        —    

Commercial and industrial

     3,886        3,327        —          3,745        3,086        —    

Residential real estate

     21,226        18,944        —          20,821        18,982        —    

Home equity

     5,550        4,728        —          5,833        5,169        —    

Consumer

     857        685        —          1,084        952        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

     46,158        37,612        —          50,124        41,291        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With a specific allowance recorded:

                 

Commercial real estate:

                 

Land and construction

     —          —          —          —          —          —    

Improved property

     —          —          —          2,105        2,105        388  

Commercial and industrial

     —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

     —          —          —          2,105        2,105        388  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 46,158      $ 37,612      $ —        $ 52,229      $ 43,396      $ 388  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

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

 

     Impaired Loans  
     For the Three Months Ended      For the Nine Months Ended  
     September 30, 2018      September 30, 2017      September 30, 2018      September 30, 2017  

(unaudited, in thousands)

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

With no related specific allowance recorded:

                       

Commercial real estate:

                       

Land and construction

   $ —        $ —        $ 444      $ —        $ 260      $ —        $ 516      $ —    

Improved Property

     10,409        15        10,923        31        11,000        383        10,271        400  

Commercial and industrial

     3,181        5        3,588        2        2,985        9        3,700        6  

Residential real estate

     18,336        68        17,039        57        18,207        195        17,743        192  

Home equity

     4,924        8        4,727        4        4,997        19        4,456        14  

Consumer

     692        3        731        2        776        8        746        5  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

     37,542        99        37,452        96        38,225        614        37,432        617  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With a specific allowance recorded:

                       

Commercial real estate:

                       

Land and construction

     —          —          —          —          —          —          —          —    

Improved Property

     —          —          5,137        —          1,052        —          5,032        —    

Commercial and industrial

     —          —          —          —          —          —          318        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

     —          —          5,137        —          1,052        —          5,350        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 37,542      $ 99      $ 42,589      $ 96      $ 39,277      $ 614      $ 42,782      $ 617  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

20


Table of Contents

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

 

     Non-accrual Loans (1)  

(unaudited, in thousands)

   September 30,
2018
     December 31,
2017
 

Commercial real estate:

     

Land and construction

   $ —        $ 239  

Improved property

     8,757        13,318  
  

 

 

    

 

 

 

Total commercial real estate

     8,757        13,557  
  

 

 

    

 

 

 

Commercial and industrial

     3,165        2,958  

Residential real estate

     14,475        14,661  

Home equity

     4,283        4,762  

Consumer

     594        887  
  

 

 

    

 

 

 

Total

   $ 31,274      $ 36,825  
  

 

 

    

 

 

 

 

(1) 

At September 30, 2018, there was one borrower with a loan greater than $1.0 million totaling $3.4 million, as compared to three borrowers with loans greater than $1.0 million totaling $6.8 million at December 31, 2017. Total non-accrual loans include loans that are also restructured. Such loans are also set forth in the following table as non-accrual TDRs.

 

     TDRs  
     September 30, 2018      December 31, 2017  

(unaudited, in thousands)

   Accruing      Non-Accrual      Total      Accruing      Non-Accrual      Total  

Commercial real estate:

                 

Land and construction

   $ —        $ —        $ —        $ —        $ 3      $ 3  

Improved property

     1,171        640        1,811        1,650        428        2,078  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     1,171        640        1,811        1,650        431        2,081  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     162        —          162        128        97        225  

Residential real estate

     4,469        1,182        5,651        4,321        1,880        6,201  

Home equity

     445        167        612        407        337        744  

Consumer

     91        47        138        65        120        185  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,338      $ 2,036      $ 8,374      $ 6,571      $ 2,865      $ 9,436  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2018 and December 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 unfunded commitments to debtors whose loans were classified as impaired of $0.2 million and $0.1 million as of September 30, 2018 and December 31, 2017, respectively.

The following tables present details related to loans identified as TDRs during the three and nine months ended September 30, 2018 and 2017, respectively:

 

     New TDRs (1)  
     For the Three Months Ended  
     September 30, 2018      September 30, 2017  

(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

     —          —          —          1        190        185  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —          —          —          1        190        185  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     —          —          —          —          —          —    

Residential real estate

     —          —          —          —          —          —    

Home equity

     —          —          —          2        94        88  

Consumer

     1        19        18        1        7        6  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1      $ 19      $ 18        4      $ 291      $ 279  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

 

21


Table of Contents
     New TDRs (1)  
     For the Nine Months Ended  
     September 30, 2018      September 30, 2017  

(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

     —          —          —          1        190        185  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —          —          —          1        190        185  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     1        10        8        1        64        59  

Residential real estate

     5        203        176        2        22        17  

Home equity

     1        20        19        3        141        132  

Consumer

     4        65        52        4        42        33  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     11      $ 298      $ 255        11      $ 459      $ 426  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

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

The following table summarizes TDRs which defaulted (defined as past due 90 days) during the nine months ended September 30, 2018 and 2017, respectively, that were restructured within the last twelve months prior to September, 2018 and 2017, respectively:

 

     Defaulted TDRs (1)  
     For the Nine Months Ended  
     September 30, 2018      September 30, 2017  

(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

     2        172        1        7  

Home equity

     1        6        —          —    

Consumer

     —          —          1        7  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     3      $ 178        2      $ 14  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Excludes loans that were either charged-off or cured by period end. The recorded investment is as of September 30, 2018 and 2017, respectively.

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

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

 

     September 30,
2018
     December 31,
2017
 

(unaudited, in thousands)

Other real estate owned

   $ 6,836      $ 5,195  

Repossessed assets

     41        102  
  

 

 

    

 

 

 

Total other real estate owned and repossessed assets

   $ 6,877      $ 5,297  
  

 

 

    

 

 

 

Residential real estate included in other real estate owned at September 30, 2018 and December 31, 2017 was $0.7 million and $1.5 million, respectively. At September 30, 2018 and December 31, 2017, formal foreclosure proceedings were in process on residential real estate loans totaling $6.0 million and $3.5 million, respectively.

 

22


Table of Contents

NOTE 6. DERIVATIVES AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

WesBanco is exposed to certain risks arising from both its business operations and economic conditions. WesBanco principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. WesBanco manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities. WesBanco’s existing interest rate derivatives result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in WesBanco’s assets or liabilities. WesBanco manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions. A matched book is when the Bank’s assets and liabilities are equally distributed but also have similar maturities.

Loan Swaps

WesBanco executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously economically hedged by offsetting interest rate swaps that WesBanco executes with a third party, such that WesBanco minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements of ASC 815, changes in the fair value of both the customer swaps and the offsetting third-party swaps are recognized directly in earnings. As of September 30, 2018 and December 31, 2017, WesBanco had 42 and 39, respectively, interest rate swaps with an aggregate notional amount of $234.4 million and $298.2 million, respectively, related to this program. During the nine months ended September 30, 2018 and 2017, WesBanco recognized net losses of $0.1 million and $0.3 million, respectively, related to the changes in fair value of these swaps. Additionally, WesBanco recognized $1.4 million and $1.2 million of income for the related swap fees for the nine months ended September 30, 2018 and 2017, respectively.

Mortgage Loans Held for Sale and Loan Commitments

Certain residential mortgage loans are originated for sale in the secondary mortgage loan market. These loans are classified as held for sale and carried at fair value as WesBanco has elected the fair value option. Fair value is determined based on rates obtained from the secondary market for loans with similar characteristics. WesBanco sells loans to the secondary market on a mandatory or best efforts basis. The loans sold on a mandatory basis are not committed to an investor until the loan is closed with the borrower. WesBanco enters into forward TBA contracts to manage the interest rate risk between the loan commitment and the closing of the loan. The loans sold on a best efforts basis are committed to an investor simultaneous to the interest rate commitment with the borrower.

Fair Values of Derivative Instruments on the Balance Sheet

All derivatives are carried on the consolidated balance sheet at fair value. Derivative assets are classified in the consolidated balance sheet under other assets, and derivative liabilities are classified in the consolidated balance sheet under other liabilities. Changes in fair value are recognized in earnings. None of WesBanco’s derivatives are designated in qualifying hedging relationships under ASC 815.

The table below presents the fair value of WesBanco’s derivative financial instruments as well as their classification on the Balance Sheet as of September 30, 2018 and December 31, 2017:

 

     September 30, 2018      December 31, 2017  

(unaudited, in thousands)

   Notional or
Contractual
Amount
     Asset
Derivatives
     Liability
Derivatives
     Notional or
Contractual
Amount
     Asset
Derivatives
     Liability
Derivatives
 

Derivatives

                 

Loan Swaps:

                 

Interest rate swaps

   $ 234,363      $ 6,451      $ 6,527      $ 298,223      $ 7,351      $ 7,345  

Other contracts:

                 

Interest rate loan commitments

     27,795        32        —          20,319        49        —    

Forward TBA contracts

     32,000        148        —          31,750        —          23  
     

 

 

    

 

 

       

 

 

    

 

 

 

Total derivatives

      $ 6,631      $ 6,527         $ 7,400      $ 7,368  
     

 

 

    

 

 

       

 

 

    

 

 

 

 

23


Table of Contents

Effect of Derivative Instruments on the Income Statement

The table below presents the change in the fair value of the Company’s derivative financial instruments reflected within the other non-interest income line item of the consolidated income statement for the three and nine months ended September 30, 2018 and 2017, respectively.

 

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

(unaudited, in thousands)

  

Location of Gain/(Loss)

   2018     2017     2018     2017  

Interest rate swaps

   Other income    $ (293   $ (32   $ (82   $ (335

Interest rate loan commitments

   Mortgage banking income      (111     —         32       123  

Forward TBA contracts

   Mortgage banking income      131       —         530       —    
     

 

 

   

 

 

   

 

 

   

 

 

 

Total

      $ (273   $ (32   $ 480     $ (212
     

 

 

   

 

 

   

 

 

   

 

 

 

Credit-risk-related Contingent Features

WesBanco has agreements with its derivative counterparties that contain a provision where if WesBanco defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then WesBanco could also be declared in default on its derivative obligations.

WesBanco also has agreements with certain of its derivative counterparties that contain a provision where if WesBanco fails to maintain its status as either a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and WesBanco would be required to settle its obligations under the agreements.

WesBanco has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral with a market value of $3.7 million as of September 30, 2018. If WesBanco had breached any of these provisions at September 30, 2018, it could have been required to settle its obligations under the agreements at the termination value and would have been required to pay any additional amounts due in excess of amounts previously posted as collateral with the respective counterparty.

NOTE 7. 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
September 30,
     For the Nine Months Ended
September 30,
 

(unaudited, in thousands)

   2018      2017      2018      2017  

Service cost – benefits earned during year

   $ 715      $ 650      $ 2,121      $ 1,929  

Interest cost on projected benefit obligation

     1,242        1,107        3,684        3,287  

Expected return on plan assets

     (2,416      (1,928      (7,169      (5,721

Amortization of prior service cost

     6        7        19        19  

Amortization of net loss

     766        812        2,274        2,409  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic pension cost

   $ 313      $ 648      $ 929      $ 1,923  
  

 

 

    

 

 

    

 

 

    

 

 

 

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 $5.1 million is due for 2018, which could be all or partially offset by the Plan’s $56.9 million available credit balance. WesBanco made a voluntary contribution of $2.5 million to the Plan in June 2018.

WesBanco assumed YCB’s obligation for a predecessor bank’s participation in a defined benefit plan. The net periodic pension income for this plan for the three and nine months ended September 30, 2018 was $0.1 million and $0.2 million, respectively, which was comprised of a $0.2 million and a $0.5 million expected return on plan assets and net actuarial gain, partially offset by a $0.1 million and a $0.3 million interest cost on projected benefit obligation for the three and nine months ended September 30, 2018, respectively.

No minimum contribution is due for this plan for fiscal year 2018; however, WesBanco made a voluntary contribution of $0.2 million to this plan in June 2018.

WesBanco assumed FFKT’s postretirement medical benefit plan, which had a liability totaling $15.0 million at the acquisition date. The plan covers FFKT employees who were hired before January 1, 2016 and meet certain age and length of full-time service requirements. The plan was modified in August 2018, which reduced the number of eligible employees. The modification resulted in a $5.5 million unrealized gain, which was recorded in Accumulated Other Comprehensive Income net of tax and will be recognized over the life of the plan participants estimated to be approximately 17 years. The modification reduced the plan liability to $9.5 million as of September 30, 2018.

 

24


Table of Contents

NOTE 8. 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. 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 economically 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 enters into forward TBA contracts to manage the interest rate risk between the loan commitments to the customer and the closing of the loan for loans that will be sold on a mandatory basis to secondary market investors. The forward TBA contract 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’s earnings as mortgage banking income.

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 fair value as WesBanco has elected the fair value option as of October 1, 2017. 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.

 

25


Table of Contents

Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in the table below are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. The following tables set forth WesBanco’s financial assets and liabilities that were accounted for at fair value on a recurring and nonrecurring basis by level within the fair value hierarchy as of September 30, 2018 and December 31, 2017:

 

            September 30, 2018  
            Fair Value Measurements Using:  

(unaudited, in thousands)

   September 30,
2018
     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
 

Recurring fair value measurements

              

Equity securities

   $ 12,784      $ 12,784      $ —        $ —        $ —    

Debt securities—available-for-sale

              

U.S. Treasury

     9,937        —          9,937        —          —    

U.S. Government sponsored entities and agencies

     149,949        —          149,949        —          —    

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

     1,449,754        —          1,449,754        —          —    

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

     168,761        —          168,761        —          —    

Obligations of state and political subdivisions

     186,651        —          185,125        1,526        —    

Corporate debt securities

     43,180        —          43,180        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities—available-for-sale

   $ 2,008,232      $ —        $ 2,006,706      $ 1,526      $ —    

Loans held for sale

     55,913        —          55,913        —          —    

Other assets—interest rate derivatives agreements

     6,451        —          6,451        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets recurring fair value measurements

   $ 2,083,380      $ 12,784      $ 2,069,070      $ 1,526      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other liabilities—interest rate derivatives agreements

   $ 6,527      $ —        $ 6,527      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities recurring fair value measurements

   $ 6,527      $ —        $ 6,527      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonrecurring fair value measurements

              

Impaired loans

   $ —        $ —        $ —        $ —        $ —    

Other real estate owned and repossessed assets

     6,877        —          —          6,877        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring fair value measurements

   $ 6,877      $ —        $ —        $ 6,877      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

26


Table of Contents
            December 31, 2017  
            Fair Value Measurements Using:  

(unaudited, in thousands)

   December 31,
2017
     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
 

Recurring fair value measurements

              

Equity securities

   $ 13,457      $ 11,391      $ —        $ —        $ 2,066  

Debt securities—available-for-sale

              

U.S. Government sponsored entities and agencies

     71,843        —          71,843        —          —    

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

     934,922        —          934,922        —          —    

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

     114,867        —          114,867        —          —    

Obligations of state and political subdivisions

     104,830        —          104,830        —          —    

Corporate debt securities

     35,403        —          35,403        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities—available-for-sale

   $ 1,261,865      $ —        $ 1,261,865      $ —        $ —    

Loans held for sale

     20,320        —          20,320        —          —    

Other assets—interest rate derivatives agreements

     7,351        —          7,351        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets recurring fair value measurements

   $ 1,302,993      $ 11,391      $ 1,289,536      $ —        $ 2,066  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other liabilities—interest rate derivatives agreements

   $ 7,345      $ —        $ 7,345      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities recurring fair value measurements

   $ 7,345      $ —        $ 7,345      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonrecurring fair value measurements