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Section 1: 10-Q (FORM 10-Q)

Form 10-Q
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, 2017

 

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

For the transition period from                      to                     

Commission File Number 000-08467

WESBANCO, INC.

(Exact name of Registrant as specified in its charter)

 

WEST VIRGINIA   55-0571723
(State of incorporation)   (IRS Employer Identification No.)
1 Bank Plaza, Wheeling, WV   26003
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: 304-234-9000

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   ☑     No   ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

    Yes   ☑     No   ☐

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

 

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

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

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).

    Yes   ☐     No   ☑

As of October 23, 2017, there were 44,033,267 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, 2017 (unaudited) and December 31, 2016

     3  
 

Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016 (unaudited)

     4  
 

Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2017 and 2016 (unaudited)

     5  
 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 (unaudited)

     6  
 

Notes to Consolidated Financial Statements (unaudited)

     7  

2

 

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

     34  

3

 

Quantitative and Qualitative Disclosures About Market Risk

     56  

4

 

Controls and Procedures

     59  
  PART II – OTHER INFORMATION   

1

 

Legal Proceedings

     60  

2

 

Unregistered Sales of Equity Securities and Use of Proceeds

     60  

6

 

Exhibits

     61  
 

Signatures

     62  


Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WESBANCO, INC. CONSOLIDATED BALANCE SHEETS

 

 

(unaudited, in thousands, except shares)

   September 30,
2017
    December 31,
2016
 

ASSETS

    

Cash and due from banks, including interest bearing amounts of $14,704 and $21,913, respectively

   $ 110,871     $ 128,170  

Securities:

    

Trading securities, at fair value

     7,929       7,071  

Available-for-sale, at fair value

     1,305,532       1,241,176  

Held-to-maturity (fair values of $1,044,748 and $1,076,790, respectively)

     1,025,688       1,067,967  
  

 

 

   

 

 

 

Total securities

     2,339,149       2,316,214  
  

 

 

   

 

 

 

Loans held for sale

     26,888       17,315  
  

 

 

   

 

 

 

Portfolio loans, net of unearned income

     6,373,049       6,249,436  

Allowance for loan losses

     (45,487     (43,674
  

 

 

   

 

 

 

Net portfolio loans

     6,327,562       6,205,762  
  

 

 

   

 

 

 

Premises and equipment, net

     133,497       133,297  

Accrued interest receivable

     30,152       28,299  

Goodwill and other intangible assets, net

     590,249       593,187  

Bank-owned life insurance

     191,466       188,145  

Other assets

     168,443       180,488  
  

 

 

   

 

 

 

Total Assets

   $ 9,918,277     $ 9,790,877  
  

 

 

   

 

 

 

LIABILITIES

    

Deposits:

    

Non-interest bearing demand

   $ 1,851,167     $ 1,789,522  

Interest bearing demand

     1,666,117       1,546,890  

Money market

     990,788       995,477  

Savings deposits

     1,258,887       1,213,168  

Certificates of deposit

     1,334,066       1,495,822  
  

 

 

   

 

 

 

Total deposits

     7,101,025       7,040,879  
  

 

 

   

 

 

 

Federal Home Loan Bank borrowings

     1,015,011       968,946  

Other short-term borrowings

     165,576       199,376  

Subordinated debt and junior subordinated debt

     164,278       163,598  
  

 

 

   

 

 

 

Total borrowings

     1,344,865       1,331,920  
  

 

 

   

 

 

 

Accrued interest payable

     3,924       2,204  

Other liabilities

     73,905       74,466  
  

 

 

   

 

 

 

Total Liabilities

     8,523,719       8,449,469  
  

 

 

   

 

 

 

SHAREHOLDERS’ EQUITY

    

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

     —         —    

Common stock, $2.0833 par value; 100,000,000 shares authorized in 2017 and 2016, respectively; 44,041,572 and 43,931,715 shares issued, respectively; 44,033,585 and 43,931,715 shares outstanding, respectively

     91,753       91,524  

Capital surplus

     683,348       680,507  

Retained earnings

     641,329       597,071  

Treasury stock (7,987 and 0 shares in 2017 and 2016, respectively, at cost)

     (300     —    

Accumulated other comprehensive loss

     (20,837     (27,126

Deferred benefits for directors

     (735     (568
  

 

 

   

 

 

 

Total Shareholders’ Equity

     1,394,558       1,341,408  
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 9,918,277     $ 9,790,877  
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

3


Table of Contents

WESBANCO, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

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

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

   2017     2016      2017      2016  

INTEREST AND DIVIDEND INCOME

          

Loans, including fees

   $ 70,342     $ 55,822      $ 202,600      $ 160,858  

Interest and dividends on securities:

          

Taxable

     9,711       9,137        28,682        29,129  

Tax-exempt

     4,862       4,559        14,617        13,620  
  

 

 

   

 

 

    

 

 

    

 

 

 

Total interest and dividends on securities

     14,573       13,696        43,299        42,749  
  

 

 

   

 

 

    

 

 

    

 

 

 

Other interest income

     574       574        1,674        1,671  
  

 

 

   

 

 

    

 

 

    

 

 

 

Total interest and dividend income

     85,489       70,092        247,573        205,278  
  

 

 

   

 

 

    

 

 

    

 

 

 

INTEREST EXPENSE

          

Interest bearing demand deposits

     1,814       691        4,413        1,841  

Money market deposits

     751       444        1,970        1,350  

Savings deposits

     189       173        555        502  

Certificates of deposit

     2,610       2,592        7,512        7,835  
  

 

 

   

 

 

    

 

 

    

 

 

 

Total interest expense on deposits

     5,364       3,900        14,450        11,528  
  

 

 

   

 

 

    

 

 

    

 

 

 

Federal Home Loan Bank borrowings

     3,628       3,005        9,608        9,104  

Other short-term borrowings

     394       118        954        299  

Subordinated debt and junior subordinated debt

     1,849       1,043        5,449        2,706  
  

 

 

   

 

 

    

 

 

    

 

 

 

Total interest expense

     11,235       8,066        30,461        23,637  
  

 

 

   

 

 

    

 

 

    

 

 

 

NET INTEREST INCOME

     74,254       62,026        217,112        181,641  

Provision for credit losses

     2,516       2,214        7,610        6,350  
  

 

 

   

 

 

    

 

 

    

 

 

 

Net interest income after provision for credit losses

     71,738       59,812        209,502        175,291  
  

 

 

   

 

 

    

 

 

    

 

 

 

NON-INTEREST INCOME

          

Trust fees

     5,358       5,413        17,073        16,160  

Service charges on deposits

     5,320       4,733        15,254        12,861  

Electronic banking fees

     4,883       3,945        14,395        11,290  

Net securities brokerage revenue

     1,721       1,473        5,164        5,119  

Bank-owned life insurance

     1,164       995        3,671        2,910  

Net gains on sales of mortgage loans

     1,103       814        3,511        2,045  

Net securities gains

     6       598        511        2,293  

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

     (298     184        9        380  

Other income

     1,642       2,862        6,318        6,943  
  

 

 

   

 

 

    

 

 

    

 

 

 

Total non-interest income

     20,899       21,017        65,906        60,001  
  

 

 

   

 

 

    

 

 

    

 

 

 

NON-INTEREST EXPENSE

          

Salaries and wages

     24,957       21,225        71,575        60,136  

Employee benefits

     7,728       6,275        23,670        20,684  

Net occupancy

     4,132       3,647        12,969        10,459  

Equipment

     3,905       3,557        12,043        10,387  

Marketing

     1,599       1,295        4,482        3,876  

FDIC insurance

     945       961        2,677        3,225  

Amortization of intangible assets

     1,223       837        3,736        2,263  

Restructuring and merger-related expense

     —         9,883        491        10,577  

Other operating expenses

     11,265       9,921        34,380        28,696  
  

 

 

   

 

 

    

 

 

    

 

 

 

Total non-interest expense

     55,754       57,601        166,023        150,303  
  

 

 

   

 

 

    

 

 

    

 

 

 

Income before provision for income taxes

     36,883       23,228        109,385        84,989  

Provision for income taxes

     10,527       5,793        30,801        22,572  
  

 

 

   

 

 

    

 

 

    

 

 

 

NET INCOME

   $ 26,356     $ 17,435      $ 78,584      $ 62,417  
  

 

 

   

 

 

    

 

 

    

 

 

 

EARNINGS PER COMMON SHARE

          

Basic

   $ 0.60     $ 0.44      $ 1.79      $ 1.61  

Diluted

   $ 0.60     $ 0.44      $ 1.78      $ 1.61  
  

 

 

   

 

 

    

 

 

    

 

 

 

AVERAGE COMMON SHARES OUTSTANDING

          

Basic

     44,031,813       39,715,516        43,992,017        38,828,618  

Diluted

     44,086,881       39,743,291        44,059,469        38,855,453  
  

 

 

   

 

 

    

 

 

    

 

 

 

DIVIDENDS DECLARED PER COMMON SHARE

   $ 0.26     $ 0.24      $ 0.78      $ 0.72  
  

 

 

   

 

 

    

 

 

    

 

 

 
  

 

 

   

 

 

    

 

 

    

 

 

 

COMPREHENSIVE INCOME

   $ 27,637     $ 15,470      $ 84,873      $ 78,309  
  

 

 

   

 

 

    

 

 

    

 

 

 

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, 2017 and 2016

    Common Stock     Capital
Surplus
    Retained
Earnings
    Treasury
Stock
    Accumulated
Other

Comprehensive
(Loss) Income
    Deferred
Benefits for
Directors
    Total  

(unaudited, in thousands, except shares

and per share amounts)

  Shares
Outstanding
    Amount              
               

December 31, 2016

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    —         —         —         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  

Issuance of restricted stock

    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  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2015

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

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

Other comprehensive income

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

 

 

 

Comprehensive income

    —         —         —         —         —         —         —         78,309  

Common dividends declared ($0.72 per share)

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

Shares issued for acquisition

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

Treasury shares acquired

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

Stock options exercised

    31,541       2       (165     —         955       —         —         792  

Issuance of restricted stock

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

Stock compensation expense

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

Deferred benefits for directors- net

    —         —         (230     —         —         —         230       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

September 30, 2016

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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)

   2017     2016  

NET CASH PROVIDED BY OPERATING ACTIVITIES

   $ 93,506     $ 89,175  
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Net increase in loans held for investment

     (122,332     (160,654

Securities available-for-sale:

    

Proceeds from sales

     7,760       277,225  

Proceeds from maturities, prepayments and calls

     156,944       214,786  

Purchases of securities

     (225,404     (171,169

Securities held-to-maturity:

    

Proceeds from maturities, prepayments and calls

     90,457       72,859  

Purchases of securities

     (53,251     (34,530

Proceeds from bank-owned life insurance

     349       19  

Cash received to acquire a business, net

     —         4,863  

Purchases of premises and equipment – net

     (6,223     (3,894
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     (151,700     199,505  
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

Increase (decrease) in deposits

     61,389       (123,708

Proceeds from Federal Home Loan Bank borrowings

     560,000       —    

Repayment of Federal Home Loan Bank borrowings

     (513,911     (112,116

Increase in other short-term borrowings

     20,200       6,832  

Decrease in federal funds purchased

     (54,000     —    

Dividends paid to common shareholders

     (33,416     (27,277

Issuance of common stock

     991       2  

Treasury shares purchased – net

     (358     (2,966
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     40,895       (259,233
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (17,299     29,447  

Cash and cash equivalents at beginning of the period

     128,170       86,685  
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 110,871     $ 116,132  
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES

    

Interest paid on deposits and other borrowings

   $ 29,857     $ 24,141  

Income taxes paid

     20,825       17,925  

Transfers of loans to other real estate owned

     506       3,368  

Non-cash transactions related to the YCB acquisition

     —         177,149  
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

6


Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation — The accompanying unaudited interim financial statements of WesBanco, Inc. and its consolidated subsidiaries (“WesBanco”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016.

WesBanco’s interim financial statements have been prepared following the significant accounting policies disclosed in Note 1 of the Notes to the Consolidated Financial Statements of its 2016 Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of management, the accompanying interim financial information reflects all adjustments, including normal recurring adjustments, necessary to present fairly WesBanco’s financial position and results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year.

Recent accounting pronouncements — In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-12 “Derivatives and Hedging (Topic 815), 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 assessing the impact of ASU 2017-12 and does not expect it to have a material impact on WesBanco’s Consolidated Financial Statements.

In May 2017, the FASB issued ASU No. 2017-09 that provides guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The amendments should be applied on a prospective basis to an award modified on or after the adoption date. WesBanco is assessing the impact of ASU 2017-09 and does not expect it to have a material impact on WesBanco’s Consolidated Financial Statements.

In March 2017, FASB issued ASU 2017-08 that shortens the amortization period of certain callable debt securities held at a premium. The premium is required to be amortized to the earliest call date. Securities held at a discount continue to be amortized to maturity. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, which for WesBanco will be effective for the fiscal year beginning January 1, 2019. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on WesBanco’s Consolidated Financial Statements.

In March 2017, the FASB issued ASU 2017-07 that changes how 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 will be effective for the fiscal year beginning January 1, 2018. Upon adoption, WesBanco will reclassify the service cost component from employee benefits to salaries and wages, which are both components of non-interest expense. The service cost component for the three and nine months ending September 30, 2017 was $0.7 million and $1.9 million, respectively.

 

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

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

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

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

In June 2016, the FASB issued ASU 2016-13 that will require entities to use a new forward-looking “expected loss” model on trade and other receivables, held-to-maturity debt securities, loans and other instruments that generally will result in the earlier recognition of allowances for credit losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. Entities will have to disclose significantly more information, including information they use to track credit quality by year of origination for most financing receivables. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which for WesBanco will be effective for the fiscal year beginning January 1, 2020. Early adoption is permitted for fiscal years beginning after December 15, 2018. WesBanco is currently evaluating the impact of the adoption of this pronouncement on WesBanco’s Consolidated Financial Statements.

In March 2016, the FASB issued ASU 2016-09 that will require all excess income tax benefits or tax deficiencies of stock awards to be recognized in the income statement when the awards vest or are settled. It also will allow an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The adoption of this pronouncement did not have a material impact on WesBanco’s Consolidated Financial Statements.

 

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In March 2016, the FASB issued ASU 2016-07 that eliminates the requirement to retrospectively apply the equity method in previous periods when an investor initially obtains significant influence over an investee. The update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2016, and requires prospective adoption. Early adoption is permitted. The adoption of this pronouncement did not have a material impact on WesBanco’s Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-02 that will require entities to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. The principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases were not previously recognized in the balance sheet. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. WesBanco is currently evaluating the impact of the adoption of this pronouncement on WesBanco’s Consolidated Financial Statements.

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

In May 2014, the FASB issued ASU 2014-09 related to the recognition of revenue from contracts with customers. The new revenue pronouncement creates a single source of revenue guidance for all companies in all industries and is more principles-based than current revenue guidance. The pronouncement provides a five-step model for a company to recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. The five steps are, (1) identify the contract with the customer, (2) identify the separate performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and (5) recognize revenue when each performance obligation is satisfied. On July 9, 2015, the FASB approved a one-year deferral of the effective date of the update. The update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. Early adoption is now permitted as of the original effective date for interim and annual reporting periods in fiscal years beginning after December 15, 2016. In March 2016, the FASB issued ASU 2016-08, which amends the principle versus agent guidance in the revenue standard. In April 2016, the FASB issued ASU 2016-10, which clarifies when promised goods or services are separately identifiable in the revenue standard. In May 2016, FASB issued ASU 2016-12, which provides narrow-scope improvements and practical expedients to the revenue standard. While WesBanco is currently evaluating the impact of this standard on individual customer contracts, management has evaluated the impact of this standard on the broad categories of its customer contracts and revenue streams. WesBanco currently anticipates this standard will not have a material impact on its Consolidated Financial Statements because revenue related to financial instruments, including loans and investment securities are not in scope of these updates. Loan interest income, investment interest income, insurance services revenue and bank-owned life insurance are accounted for under other U.S. GAAP standards and are therefore, out of scope of the ASC 606 revenue standard. Trust fees, service charges on deposits, electronic banking fees, net securities brokerage revenue, net gains on sales of mortgage loans, and net gain on other real estate owned and other assets are in scope of the ASC 606 revenue standard. Management has substantially completed evaluating revenue contracts, as well as identifying WesBanco’s customers, performance obligations and material revenue streams. For revenue streams evaluated to date, no changes have been identified as to the timing of revenue recognition. The Company plans to adopt the revenue recognition standard under the modified retrospective approach as of January 1, 2018.

In January 2014, the FASB issued ASU No. 2014-01, which applies to all reporting entities that invest in qualified affordable housing projects through limited liability entities. The pronouncement permits reporting entities to make an accounting policy election to account for these investments using the proportional amortization method if certain conditions exist. The pronouncement also requires disclosure that enables users of its financial statements to understand the nature of these investments in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The pronouncement is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. WesBanco made an accounting policy election to adopt the ASU in the first quarter of 2017. With the adoption of this pronouncement, WesBanco now classifies the amortization of the investment as a component of income tax expense (benefit). The amount for the three and nine months ending September 30, 2017 was $0.4 million and $1.2 million, respectively, which is included in income tax expense within WesBanco’s Consolidated Financial Statements.

 

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NOTE 2. MERGERS AND ACQUISITIONS

On September 9, 2016, WesBanco completed its acquisition of Your Community Bankshares, Inc. (“YCB”), and its wholly-owned banking subsidiary, Your Community Bank (“YCB Bank”), an Indiana state-chartered commercial bank headquartered in New Albany, Indiana. The transaction expanded WesBanco’s franchise into Kentucky and southern Indiana.

On the acquisition date, YCB had $1.5 billion in total assets, excluding goodwill, including $1.0 billion in loans and $173.2 million in securities. The YCB acquisition was valued at $220.5 million, based on WesBanco’s closing stock price on September 9, 2016 of $32.62, and resulted in WesBanco issuing 5,423,348 shares of its common stock and $43.3 million in cash in exchange for all of the outstanding shares of YCB common stock. The assets and liabilities of YCB were recorded on WesBanco’s balance sheet at their fair value as of September 9, 2016, the acquisition date, and YCB’s results of operations have been included in WesBanco’s Consolidated Statements of Income since that date. Based on the final purchase price allocation, WesBanco recorded $93.0 million in goodwill and $12.0 million in core deposit intangibles in its Community Banking segment, representing the principal change in goodwill and intangibles in 2016. None of the goodwill is deductible for income tax purposes, as the acquisition is accounted for as a tax-free exchange for tax purposes.

For the nine months ended September 30, 2017 and for the twelve months ended December 31, 2016, WesBanco recorded merger-related expenses of $0.5 million and $13.3 million, respectively, associated with the YCB acquisition.

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

 

(unaudited, in thousands)

   September 9, 2016  

Purchase Price:

  

Fair value of WesBanco shares issued

   $ 177,149  

Cash consideration for outstanding YCB shares

     43,349  
  

 

 

 

Total purchase price

   $ 220,498  

Fair value of:

  

Tangible assets acquired

   $ 1,398,183  

Core deposit and other intangible assets acquired

     11,957  

Liabilities assumed

     (1,330,887

Net cash received in the acquisition

     48,212  
  

 

 

 

Fair value of net assets acquired

   $ 127,465  
  

 

 

 

Goodwill recognized

   $ 93,033  
  

 

 

 

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

 

(unaudited, in thousands)

   September 9, 2016  

Assets acquired

  

Cash and due from banks

   $ 48,212  

Securities

     173,223  

Loans

     1,012,410  

Goodwill and other intangible assets

     104,990  

Accrued income and other assets (1)

     212,550  
  

 

 

 

Total assets acquired

   $ 1,551,385  
  

 

 

 

Liabilities assumed

  

Deposits

   $ 1,193,010  

Borrowings

     123,001  

Accrued expenses and other liabilities

     14,876  
  

 

 

 

Total liabilities assumed

     1,330,887  
  

 

 

 

Net assets acquired

   $ 220,498  
  

 

 

 

 

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

 

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There were no adjustments to the allocation of the purchase price of the assets acquired and the liabilities assumed during the third quarter of 2017. 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 December 31, 2016:

 

(unaudited, in thousands)

   September 9, 2016  

Goodwill recognized as of December 31, 2016

   $ 92,889  

Change in fair value of net assets acquired:

  

Assets

  

Loans

     (1,156

Accrued income and other assets

     743  

Liabilities

  

Borrowings

     —    

Accrued expenses and other liabilities

     269  
  

 

 

 

Fair value of net assets acquired

   $ (144
  

 

 

 

Increase in goodwill recognized

     144  
  

 

 

 

Goodwill recognized as of September 30, 2017

   $ 93,033  
  

 

 

 

NOTE 3. EARNINGS PER COMMON SHARE

Earnings per common share are calculated as follows:

 

(unaudited, in thousands, except shares

and per share amounts)

  For the Three Months Ended
September 30,
    For the Nine Months Ended
September 30,
 
  2017     2016     2017     2016  

Numerator for both basic and diluted earnings per common share:

       

Net income

  $ 26,356     $ 17,435     $ 78,584     $ 62,417  
 

 

 

   

 

 

   

 

 

   

 

 

 

Denominator:

       

Total average basic common shares outstanding

    44,031,813       39,715,516       43,992,017       38,828,618  

Effect of dilutive stock options and other stock compensation

    55,068       27,775       67,452       26,835  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total diluted average common shares outstanding

    44,086,881       39,743,291       44,059,469       38,855,453  
 

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share – basic

  $ 0.60     $ 0.44     $ 1.79     $ 1.61  

Earnings per common share – diluted

  $ 0.60     $ 0.44     $ 1.78     $ 1.61  
 

 

 

   

 

 

   

 

 

   

 

 

 

Options to purchase 117,550 shares and 96,600 shares at September 30, 2017 and 2016, respectively, were not included in the computation of net income per diluted share for the three months ended September 30, 2017 and 2016, respectively, because the exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. All options to purchase shares were included in the nine months ended September 30, 2017 computation of net income per diluted share. Options to purchase 185,250 shares were not included in the computation of net income per diluted share for the nine months ended September 30, 2016 because the exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive.

As of September 30, 2017, 28,502 shares of market and performance-based restricted stock were not included in the computation of net income per diluted share for the three and nine months ended September 30, 2017 because the effect would be antidilutive. There were no antidilutive shares of restricted stock excluded from the computation of net income for the three or nine months ended September 30, 2016.

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

 

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NOTE 4. SECURITIES

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

 

     September 30, 2017      December 31, 2016  

(unaudited, in thousands)

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair

Value
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair

Value
 

Available-for-sale

                     

U.S. Government sponsored entities and agencies

   $ 72,672      $ 88      $ (441   $ 72,319      $ 54,803      $ 3      $ (763   $ 54,043  

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

     974,370        776        (11,672     963,474        953,475        884        (16,070     938,289  

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

     122,908        77        (1,151     121,834        98,922        27        (2,139     96,810  

Obligations of states and political subdivisions

     104,228        3,187        (568     106,847        110,208        3,114        (1,659     111,663  

Corporate debt securities

     35,249        325        (71     35,503        35,292        117        (108     35,301  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total debt securities

   $ 1,309,427      $ 4,453      $ (13,903   $ 1,299,977      $ 1,252,700      $ 4,145      $ (20,739   $ 1,236,106  

Equity securities

     4,238        1,320        (3     5,555        4,062        1,032        (24     5,070  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

   $ 1,313,665      $ 5,773      $ (13,906   $ 1,305,532      $ 1,256,762      $ 5,177      $ (20,763   $ 1,241,176  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Held-to-maturity

                     

U.S. Government sponsored entities and agencies

   $ 12,128      $ —        $ (254   $ 11,874      $ 13,394      $ —        $ (414   $ 12,980  

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

     178,429        763        (1,467     177,725        215,141        1,279        (2,563     213,857  

Obligations of states and political subdivisions

     801,760        20,153        (1,200     820,713        805,019        15,652        (5,529     815,142  

Corporate debt securities

     33,371        1,065        —         34,436        34,413        418        (20     34,811  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total held-to-maturity securities

   $ 1,025,688      $ 21,981      $ (2,921   $ 1,044,748      $ 1,067,967      $ 17,349      $ (8,526   $ 1,076,790  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 2,339,353      $ 27,754      $ (16,827   $ 2,350,280      $ 2,324,729      $ 22,526      $ (29,289   $ 2,317,966  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Trading securities, which consist of investments in various mutual funds held in grantor trusts formed in connection with the Company’s deferred compensation plan, are recorded at fair value and totaled $7.9 million and $7.1 million, at September 30, 2017 and December 31, 2016, respectively.

At September 30, 2017 and December 31, 2016, there were no holdings of any one issuer, other than U.S. government sponsored entities and its agencies, in an amount greater than 10% of WesBanco’s shareholders’ equity.

 

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The following table presents the fair value of available-for-sale and held-to-maturity securities by contractual maturity at September 30, 2017. In some instances, the issuers may have the right to call or prepay obligations without penalty prior to the contractual maturity date.

 

     September 30, 2017  
     One Year      One to      Five to      After      Mortgage-backed         

(unaudited, in thousands)

   or less      Five Years      Ten Years      Ten Years      and Equity      Total  

Available-for-sale

                 

U.S. Government sponsored entities and agencies

   $ —        $ 11,967      $ 16,855      $ 6,908      $ 36,589      $ 72,319  

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

     —          —          —          —          963,474        963,474  

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

     —          —          —          —          121,834        121,834  

Obligations of states and political subdivisions

     7,723        17,886        36,514        44,724        —          106,847  

Corporate debt securities

     —          30,483        5,020        —          —          35,503  

Equity securities (2)

     —          —          —          —          5,555        5,555  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

   $ 7,723      $ 60,336      $ 58,389      $ 51,632      $ 1,127,452      $ 1,305,532  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held-to-maturity (3)

                 

U.S. Government sponsored entities and agencies

   $ —        $ —        $ —        $ —        $ 11,874      $ 11,874  

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

     —          —          —          —          177,725        177,725  

Obligations of states and political subdivisions

     4,703        88,402        412,322        315,286        —          820,713  

Corporate debt securities

     —          2,804        31,632        —          —          34,436  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total held-to-maturity securities

   $ 4,703      $ 91,206      $ 443,954      $ 315,286      $ 189,599      $ 1,044,748  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 12,426      $ 151,542      $ 502,343      $ 366,918      $ 1,317,051      $ 2,350,280  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Mortgage-backed and collateralized mortgage securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds.
(2) Equity securities, which have no stated maturity, are not assigned a maturity category.
(3)  The held-to-maturity portfolio is carried at an amortized cost of $1.0 billion.

Securities with aggregate fair values of $1.4 billion and $1.2 billion at September 30, 2017 and December 31, 2016, 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 $7.8 million and $277.2 million for the nine months ended September 30, 2017 and 2016, respectively. Net unrealized losses on available-for-sale securities included in accumulated other comprehensive income net of tax, as of September 30, 2017 and December 31, 2016, were $5.1 million and $9.9 million, respectively.

The following table presents the gross realized gains and losses on sales and calls of available-for-sale and held-to-maturity securities for the three and nine months ended September 30, 2017 and 2016, respectively. Gains and losses due to fair value fluctuations on trading securities are included in non-interest income under other income, with an offsetting entry in compensation expense.

 

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

(unaudited, in thousands)

   2017      2016      2017      2016  

Gross realized gains

   $ 29      $ 602      $ 603      $ 2,517  

Gross realized losses

     (23      (4      (92      (224
  

 

 

    

 

 

    

 

 

    

 

 

 

Net realized gains

   $ 6      $ 598      $ 511      $ 2,293  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following tables provide information on unrealized losses on investment securities that have been in an unrealized loss position for less than twelve months and twelve months or more as of September 30, 2017 and December 31, 2016:

 

    September 30, 2017  
    Less than 12 months     12 months or more     Total  
    Fair     Unrealized     # of     Fair     Unrealized     # of     Fair     Unrealized     # of  

(unaudited, dollars in thousands)

  Value     Losses     Securities     Value     Losses     Securities     Value     Losses     Securities  

U.S. Government sponsored entities and agencies

  $ 29,875     $ (208     6     $ 36,284     $ (487     5     $ 66,159     $ (695     11  

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

    729,219       (6,426     180       254,554       (6,713     69       983,773       (13,139     249  

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

    93,924       (1,135     13       660       (16     2       94,584       (1,151     15  

Obligations of states and political subdivisions

    96,323       (526     153       73,210       (1,242     156       169,533       (1,768     309  

Corporate debt securities

    4,015       (22     1       6,960       (49     2       10,975       (71     3  

Equity securities

    1,359       (3     1       —         —         —         1,359       (3     1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total temporarily impaired securities

  $ 954,715     $ (8,320     354     $ 371,668     $ (8,507     234     $ 1,326,383     $ (16,827     588  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 2016  
    Less than 12 months     12 months or more     Total  
    Fair     Unrealized     # of     Fair     Unrealized     # of     Fair     Unrealized     # of  

(unaudited, dollars in thousands)

  Value     Losses     Securities     Value     Losses     Securities     Value     Losses     Securities  

U.S. Government sponsored entities and agencies

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

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

    969,174       (16,436     232       58,839       (2,197     14       1,028,013       (18,633     246  

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

    88,169       (2,122     14       679       (17     2       88,848       (2,139     16  

Obligations of states and political subdivisions

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

Corporate debt securities

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

Equity securities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total temporarily impaired securities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized losses on debt securities in the tables represent temporary fluctuations resulting from changes in market rates in relation to fixed yields. Unrealized losses in the available-for-sale portfolio are accounted for as an adjustment, net of taxes, to other comprehensive income in shareholders’ equity.

WesBanco does not believe the securities presented above are impaired due to reasons of credit quality, as substantially all debt securities are rated above investment grade and all are paying principal and interest according to their contractual terms. WesBanco does not intend to sell, nor is it more likely than not that it will be required to sell, loss position securities prior to recovery of their cost, and therefore, management believes the unrealized losses detailed above are temporary and no impairment loss relating to these securities has been recognized.

 

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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 $48.6 million and $46.4 million at September 30, 2017 and December 31, 2016, respectively, and are included in other assets in the Consolidated Balance Sheets. Cost method investments are evaluated for impairment whenever events or circumstances suggest that their carrying value may not be recoverable.

NOTE 5. LOANS AND THE ALLOWANCE FOR CREDIT LOSSES

The recorded investment in loans is presented in the Consolidated Balance Sheets net of deferred loan fees and costs, and discounts on purchased loans. The deferred loan (costs) and fees were $(1.0) million and $0.3 million at September 30, 2017 and December 31, 2016, respectively. The unamortized discount on purchased loans from acquisitions was $23.0 million, including $11.1 million related to YCB, and $24.1 million at September 30, 2017 and December 31, 2016, respectively.

 

(unaudited, in thousands)

   September 30,
2017
     December 31,
2016
 

Commercial real estate:

     

Land and construction

   $ 606,593      $ 496,539  

Improved property

     2,407,819        2,376,972  
  

 

 

    

 

 

 

Total commercial real estate

     3,014,412        2,873,511  
  

 

 

    

 

 

 

Commercial and industrial

     1,125,693        1,088,118  

Residential real estate

     1,356,580        1,383,390  

Home equity

     527,216        508,359  

Consumer

     349,148        396,058  
  

 

 

    

 

 

 

Total portfolio loans

     6,373,049        6,249,436  
  

 

 

    

 

 

 

Loans held for sale

     26,888        17,315  
  

 

 

    

 

 

 

Total loans

   $ 6,399,937      $ 6,266,751  
  

 

 

    

 

 

 

 

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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, 2017 and 2016  
     Commercial     Commercial                                      
     Real Estate-     Real Estate-                                      
     Land and     Improved     Commercial     Residential     Home           Deposit        

(unaudited, in thousands)

   Construction     Property     & Industrial     Real Estate     Equity     Consumer     Overdraft     Total  

Balance at December 31, 2016:

                

Allowance for loan losses

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

Allowance for loan commitments

     151       17       188       9       162       44       —         571  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total beginning allowance for credit losses

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses:

                

Provision for loan losses

     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  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2015:

                

Allowance for loan losses

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

Allowance for loan commitments

     157       26       260       7       117       46       —         613  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total beginning allowance for credit losses

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses:

                

Provision for loan losses

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

Provision for loan commitments

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for credit losses

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

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

Recoveries

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2016:

                

Allowance for loan losses

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

Allowance for loan commitments

     152       26       220       9       125       44       —         576  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance for credit losses

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

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

 

    Allowance for Credit Losses and Recorded Investment in Loans  
    Commercial     Commercial                                      
    Real Estate-     Real Estate-     Commercial     Residential                 Deposit        
    Land and     Improved     and     Real     Home           Over-        

(unaudited, in thousands)

  Construction     Property     Industrial     Estate     Equity     Consumer     draft     Total  

September 30, 2017

               

Allowance for credit losses:

               

Allowance for loans individually evaluated for impairment

  $ —       $ 579     $ —       $ —       $ —       $ —       $ —       $ 579  

Allowance for loans collectively evaluated for impairment

    4,852       18,408       9,648       3,372       4,489       3,379       760       44,908  

Allowance for loan commitments

    133       21       233       9       211       40       —         647  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Portfolio loans:

               

Individually evaluated for impairment (1)

  $ —       $ 5,117     $ —       $ —       $ —       $ —       $ —       $ 5,117  

Collectively evaluated for impairment

    605,100       2,397,278       1,124,824       1,355,829       527,216       349,141       —         6,359,388  

Acquired with deteriorated credit quality

    1,493       5,424       869       751       —         7       —         8,544  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total portfolio loans

  $ 606,593     $ 2,407,819     $ 1,125,693     $ 1,356,580     $ 527,216     $ 349,148     $ —       $ 6,373,049  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2016

               

Allowance for credit losses:

               

Allowance for loans individually evaluated for impairment

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

Allowance for loans collectively evaluated for impairment

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

Allowance for loan commitments

    151       17       188       9       162       44       —         571  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Portfolio loans:

               

Individually evaluated for impairment (1)

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

Collectively evaluated for impairment

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

Acquired with deteriorated credit quality

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total portfolio loans

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

WesBanco maintains an internal loan grading system to reflect the credit quality of commercial loans. Commercial loan risk grades are determined based on an evaluation of the relevant characteristics of each loan, assigned at the inception of each loan and adjusted thereafter at any time to reflect changes in the risk profile throughout the life of each loan. The primary factors used to determine the risk grade are the reliability and sustainability of the primary source of repayment and overall financial strength of the borrower. This includes an analysis of cash flow available to repay debt, profitability, liquidity, leverage, and overall financial trends. Other factors include management, industry or property type risks, an assessment of secondary sources of repayment such as collateral or guarantees, other terms and conditions of the loan that may increase or reduce its risk, and economic conditions and other external factors that may influence repayment capacity and financial condition.

 

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Commercial real estate – land and construction consists of loans to finance investments in vacant land, land development, construction of residential housing, and construction of commercial buildings. Commercial real estate – improved property consists of loans for the purchase or refinance of all types of improved owner-occupied and investment properties. Factors that are considered in assigning the risk grade vary depending on the type of property financed. The risk grade assigned to construction and development loans is based on the overall viability of the project, the experience and financial capacity of the developer or builder to successfully complete the project, project specific and market absorption rates and comparable property values, and the amount of pre-sales for residential housing construction or pre-leases for commercial investment property. The risk grade assigned to commercial investment property loans is based primarily on the adequacy of net rental income generated by the property to service the debt, the type, quality, industry and mix of tenants, and the terms of leases, but also considers the overall financial capacity of the investors and their experience in owning and managing investment property. The risk grade assigned to owner-occupied commercial real estate and commercial and industrial loans is based primarily on historical and projected earnings, the adequacy of operating cash flow to service all of the business’ debt, and the capital resources, liquidity and leverage of the business, but also considers the industry in which the business operates, the business’ specific competitive advantages or disadvantages, the quality and experience of management, and external influences on the business such as economic conditions. Other factors that are considered for commercial and industrial loans include the type, quality and marketability of non-real estate collateral and whether the structure of the loan increases or reduces its risk. The type, age, condition, location and any environmental risks associated with a property are also considered for all types of commercial real estate. The overall financial condition and repayment capacity of any guarantors is also evaluated to determine the extent to which they mitigate other risks of the loan. The following paragraphs provide descriptions of risk grades that are applicable to commercial real estate and commercial and industrial loans.

Pass loans are those that exhibit a history of positive financial results that are at least comparable to the average for their industry or type of real estate. The primary source of repayment is acceptable and these loans are expected to perform satisfactorily during most economic cycles. Pass loans typically have no significant external factors that are expected to adversely affect these borrowers more than others in the same industry or property type. Any minor unfavorable characteristics of these loans are outweighed or mitigated by other positive factors including but not limited to adequate secondary or tertiary sources of repayment.

Criticized or compromised loans are currently protected but have weaknesses, which, if not corrected, may be inadequately protected at some future date. These loans represent an unwarranted credit risk and would generally not be extended in the normal course of lending. Specific issues which may warrant this grade include declining financial results, increased reliance on secondary sources of repayment or guarantor support and adverse external influences that may negatively impact the business or property.

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, 2017

           

Pass

   $ 600,325      $ 2,350,919      $ 1,109,774      $ 4,061,018  

Criticized - compromised

     2,971        24,550        7,263        34,784  

Classified - substandard

     3,297        32,350        8,656        44,303  

Classified - doubtful

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 606,593      $ 2,407,819      $ 1,125,693      $ 4,140,105  
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2016

           

Pass

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

Criticized - compromised

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

Classified - substandard

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

Classified - doubtful

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

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 $22.4 million at September 30, 2017 and $20.6 million at December 31, 2016, of which $4.6 million and $3.4 million were accruing, respectively. The aggregate amount of residential real estate, home equity and consumer loans classified as substandard are not included in the tables above.

Acquired YCB Loans — The carrying amount of loans acquired from YCB with deteriorated credit quality at September 30, 2017 and December 31, 2016 was $4.5 million and $5.7 million, respectively, of which $0.8 million and $1.4 million, respectively, were accounted for under the cost recovery method in accordance with ASC 310-30, as cash flows cannot be reasonably estimated, and therefore are categorized as non-accrual. At September 30, 2017, the accretable yield was $0.5 million. At September 30, 2017 and December 31, 2016, no allowance for loan loss has been recognized related to the YCB acquired impaired loans.

Acquired ESB Loans — The carrying amount of loans acquired from ESB Financial Corporation and ESB Bank (“ESB”), which WesBanco acquired on February 10, 2015, with deteriorated credit quality at September 30, 2017 and December 31, 2016 was $4.0 million and $7.2 million, respectively, of which $3.5 million and $0, respectively, were accounted for under the cost recovery method in accordance with ASC 310-30, as cash flows cannot be reasonably estimated, and therefore are categorized as non-accrual. At September 30, 2017, the accretable yield was $1.1 million. At September 30, 2017 and December 31, 2016 an allowance for loan loss of $2.0 million and $1.8 million, respectively, has been recognized related to the ESB acquired impaired loans, as the estimates for future cash flows on these loans have been negatively impacted.

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,
2017
     September 30,
2016
 

Balance at beginning of period

   $ 1,717      $ 1,206  

Acquisitions

     —          669  

Reduction due to change in projected cash flows

     —          (324

Reclass from non-accretable difference

     1,490        1,065  

Transfers

     (216      (328

Accretion

     (1,384      (398
  

 

 

    

 

 

 

Balance at end of period

   $ 1,607      $ 1,890  
  

 

 

    

 

 

 

 

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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, 2017

                    

Commercial real estate:

                    

Land and construction

   $ 606,122      $ —        $ —        $ 471      $ 471      $ 606,593      $ —    

Improved property

     2,391,693        2,235        617        13,274        16,126        2,407,819        542  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     2,997,815        2,235        617        13,745        16,597        3,014,412        542  

Commercial and industrial

     1,121,307        1,363        497        2,526        4,386        1,125,693        20  

Residential real estate

     1,341,924        4,831        759        9,066        14,656        1,356,580        2,418  

Home equity

     519,110        3,354        808        3,944        8,106        527,216        1,289  

Consumer

     344,241        3,134        901        872        4,907        349,148        587  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

     6,324,397        14,917        3,582        30,153        48,652        6,373,049        4,856  

Loans held for sale

     26,888        —          —          —          —          26,888        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 6,351,285      $ 14,917      $ 3,582      $ 30,153      $ 48,652      $ 6,399,937      $ 4,856  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans included above are as follows:

 

              

Non-accrual loans

   $ 9,360      $ 873      $ 226      $ 24,999      $ 26,098      $ 35,458     

TDRs accruing interest (1)

     6,232        108        —          298        406        6,638     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total impaired

   $ 15,592      $ 981      $ 226      $ 25,297      $ 26,504      $ 42,096     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

As of December 31, 2016

                    

Commercial real estate:

                    

Land and construction

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

Improved property

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

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

Commercial and industrial

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

Residential real estate

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

Home equity

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

Consumer

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

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

Loans held for sale

     17,315        —          —          —          —          17,315        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans included above are as follows:

 

              

Non-accrual loans

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

TDRs accruing interest (1)

     7,014        342        50        240        632        7,646     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total impaired

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

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

 

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The following tables summarize impaired loans:

 

     Impaired Loans  
     September 30, 2017      December 31, 2016  
    

Unpaid

Principal

Balance (1)

    

Recorded

Investment

    

Related

Allowance

    

Unpaid

Principal

Balance (1)

    

Recorded

Investment

    

Related

Allowance

 
                   

(unaudited, in thousands)

                 

With no related specific allowance recorded:

                 

Commercial real estate:

                 

Land and construction

   $ 666      $ 474      $ —        $ 1,212      $ 766      $ —    

Improved property

     15,981        10,709        —          9,826        8,141        —    

Commercial and industrial

     3,884        3,083        —          4,456        3,181        —    

Residential real estate

     18,925        17,094        —          20,152        18,305        —    

Home equity

     5,528        4,845        —          4,589        4,011        —    

Consumer

     934        774        —          884        744        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

     45,918        36,979        —          41,119        35,148        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With a specific allowance recorded:

                 

Commercial real estate:

                 

Land and construction

     —          —          —          —          —          —    

Improved property

     5,117        5,117        579        3,012        3,012        470  

Commercial and industrial

     —          —          —          4,875        1,270        407  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

     5,117        5,117        579        7,887        4,282        877  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 51,035      $ 42,096      $ 579      $ 49,006      $ 39,430      $ 877  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

     Impaired Loans  
     For the Three Months Ended      For the Nine Months Ended  
     September 30, 2017      September 30, 2016      September 30, 2017      September 30, 2016  
     Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
 
                         

(unaudited, in thousands)

                       

With no related specific allowance recorded:

                       

Commercial real estate:

                       

Land and construction

   $ 444      $ —        $ 701      $ —        $ 516      $ —        $ 1,062      $ —    

Improved Property

     10,923        31        8,403        28        10,271        400        9,408        86  

Commercial and industrial

     3,588        2        3,172        2        3,700        6        3,246        7  

Residential real estate

     17,039        57        17,013        81        17,743        192        16,882        256  

Home equity

     4,727        4        3,613        4        4,456        14        3,381        16  

Consumer

     731        2        814        —          746        5        953        6  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

     37,452        96        33,716        115        37,432        617        34,932        371  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With a specific allowance recorded:

                       

Commercial real estate:

                       

Land and construction

     —          —          —          —          —          —          —          —    

Improved Property

     5,137        —          3,012        —          5,032        —          3,012        —    

Commercial and industrial

     —          —          2,678        —          318        —          3,700        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

     5,137        —          5,690        —          5,350        —          6,712        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 42,589      $ 96      $ 39,406      $ 115      $ 42,782      $ 617      $ 41,644      $ 371  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

     Non-accrual Loans (1)  

(unaudited, in thousands)

   September 30,
2017
     December 31,
2016
 
     

Commercial real estate:

     

Land and construction

   $ 474      $ 766  

Improved property

     14,263        9,535  
  

 

 

    

 

 

 

Total commercial real estate

     14,737        10,301  
  

 

 

    

 

 

 

Commercial and industrial

     2,950        4,299  

Residential real estate

     12,641        12,994  

Home equity

     4,426        3,538  

Consumer

     704        652  
  

 

 

    

 

 

 

Total

   $ 35,458      $ 31,784  
  

 

 

    

 

 

 

 

(1)  At September 30, 2017, there were three borrowers with loans greater than $1.0 million totaling $8.6 million, as compared to two borrowers with loans greater than $1.0 million totaling $4.3 million at December 31, 2016. 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, 2017      December 31, 2016  

(unaudited, in thousands)

   Accruing      Non-Accrual      Total      Accruing      Non-Accrual      Total  

Commercial real estate:

                 

Land and construction

   $ —        $ 4      $ 4      $ —        $ 8      $ 8  

Improved property

     1,563        446        2,009        1,618        688        2,306  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     1,563        450        2,013        1,618        696        2,314  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     133        164        297        152        151        303  

Residential real estate

     4,453        1,810        6,263        5,311        2,212        7,523  

Home equity

     419        419        838        473        297        770  

Consumer

     70        139        209        92        190        282  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,638      $ 2,982      $ 9,620      $ 7,646      $ 3,546      $ 11,192  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2017 and December 31, 2016, there were no TDRs greater than $1.0 million. The concessions granted in the majority of loans reported as accruing and non-accrual TDRs are extensions of the maturity date or the amortization period, reductions in the interest rate below the prevailing market rate for loans with comparable characteristics, and/or permitting interest-only payments for longer than three months. WesBanco had unfunded commitments to debtors whose loans were classified as impaired of $0.1 million and $0 as of September 30, 2017 and December 31, 2016, respectively.

 

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The following tables present details related to loans identified as TDRs during the three and nine months ended September 30, 2017 and 2016, respectively:

 

     New TDRs (1)
For the Three Months Ended
 
     September 30, 2017      September 30, 2016  
            Pre-      Post-             Pre-      Post-  
            Modification      Modification             Modification      Modification  
            Outstanding      Outstanding             Outstanding      Outstanding  
     Number of      Recorded      Recorded      Number of      Recorded      Recorded  

(unaudited, dollars in thousands)

   Modifications      Investment      Investment      Modifications      Investment      Investment  

Commercial real estate:

                 

Land and construction

     —        $ —        $ —          —        $ —        $ —    

Improved Property

     1        190        185        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     1        190        185        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     —          —          —          2        125        122  

Residential real estate

     —          —          —          2        124        122  

Home equity

     2        94        88        —          —          —    

Consumer

     1        7        6        4        26        23  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     4      $ 291      $ 279        8      $ 275      $ 267  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

 

     New TDRs (1)  
     For the Nine Months Ended  
     September 30, 2017      September 30, 2016  

(unaudited, dollars in thousands)

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

Commercial real estate:

                 

Land and construction

     —        $ —        $ —          —        $ —        $ —    

Improved Property

     1        190        185        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     1        190        185        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     1        64        59        2        125        122  

Residential real estate

     2        22        17        3        150        143  

Home equity

     3        141        132        1        44        41  

Consumer

     4        42        33        10        70        54  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     11      $ 459      $ 426        16      $ 389      $ 360  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

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The following table summarizes TDRs which defaulted (defined as past due 90 days) during the nine months ended September 30, 2017 and 2016, respectively, that were restructured within the last twelve months prior to September 30, 2017 and 2016, respectively:

 

     Defaulted TDRs (1)  
     For the Nine Months Ended  
     September 30, 2017      September 30, 2016  

(unaudited, dollars in thousands)

   Number of
Defaults
     Recorded
Investment
     Number of
Defaults
     Recorded
Investment
 

Commercial real estate:

           

Land and construction

     —        $ —          —        $ —    

Improved property

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     —          —          1        40  

Residential real estate

     1        7        —          —    

Home equity

     —          —          —          —    

Consumer

     1        7        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     2      $ 14        1      $ 40  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Excludes loans that were either charged-off or cured by period end. The recorded investment is as of September 30, 2017 and 2016, respectively.

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

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

 

(unaudited, in thousands)

   September 30,
2017
     December 31,
2016
 

Other real estate owned

   $ 5,636      $ 8,206  

Repossessed assets

     146        140  
  

 

 

    

 

 

 

Total other real estate owned and repossessed assets

   $ 5,782      $ 8,346  
  

 

 

    

 

 

 

At September 30, 2017, other real estate owned includes $1.1 million from the YCB acquisition and $3.1 million at December 31, 2016. Residential real estate included in other real estate owned at September 30, 2017 and December 31, 2016 was $1.7 million and $1.6 million, respectively. At September 30, 2017 and December 31, 2016, formal foreclosure proceedings were in process on residential real estate loans totaling $3.3 million and $4.1 million, respectively.

NOTE 6. PENSION PLAN

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

 

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

(unaudited, in thousands)

   2017      2016      2017      2016  

Service cost – benefits earned during year

   $ 650      $ 703      $ 1,929      $ 2,095  

Interest cost on projected benefit obligation

     1,107        1,280        3,287        3,813  

Expected return on plan assets

     (1,928      (1,940      (5,721      (5,778

Amortization of prior service cost

     7        8        19        20  

Amortization of net loss

     812        759        2,409        2,261  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic pension cost

   $ 648      $ 810      $ 1,923      $ 2,411  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

A minimum required contribution of $2.7 million is due for 2017, which could be all or partially offset by the Plan’s $46.9 million available credit balance. A voluntary contribution of $2.5 million was made in June 2017.

On September 9, 2016, WesBanco assumed YCB’s obligation for a predecessor bank’s participation in the Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra Plan”). The participating employer plan had been frozen to new participants since 2002. WesBanco spun out the assets from the Pentegra Plan in the second quarter of 2017, and contributed approximately $2.8 million to satisfy the final costs to do so. The spin off had no impact on earnings as the liability was included in YCB’s balance sheet as of the acquisition date. The $8.4 million in distributed assets from the Pentegra Plan were transferred to a new plan providing the same benefits to the participants.

NOTE 7. FAIR VALUE MEASUREMENT

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

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

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

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

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

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

 

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

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

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

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

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, 2017 and December 31, 2016:

 

            September 30, 2017  
            Fair Value Measurements Using:  
     September 30,
2017
     Quoted Prices in
Active Markets
for Identical
Assets
     Significant
Other
Observable
Inputs
     Significant
Unobservable
Inputs
     Investments
Measured at
Net Asset
 

(unaudited, in thousands)

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

Recurring fair value measurements

              

Trading securities

   $ 7,929      $ 6,457      $ —        $ —        $ 1,472  

Securities - available-for-sale

              

U.S. Government sponsored entities and agencies

     72,319        —          72,319        —          —    

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

     963,474        —          963,474        —          —    

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

     121,834        —          121,834        —          —    

Obligations of state and political subdivisions

     106,847        —          106,847        —          —    

Corporate debt securities

     35,503        —          35,503        —          —    

Equity securities

     5,555        5,555        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities - available-for-sale

   $ 1,305,532      $ 5,555      $ 1,299,977      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other assets - interest rate derivatives agreements

   $ 5,506      $ —        $ 5,506      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets recurring fair value measurements

   $ 1,318,967      $ 12,012      $ 1,305,483      $ —        $ 1,472  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other liabilities - interest rate derivatives agreements

   $ 5,443      $ —        $ 5,443      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities recurring fair value measurements

   $ 5,443      $ —        $ 5,443      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonrecurring fair value measurements

              

Impaired loans

   $ 4,538      $ —        $ —        $ 4,538      $ —    

Other real estate owned and repossessed assets

     5,782        —          —          5,782        —    

Loans held for sale

     26,888        —          26,888        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring fair value measurements

   $ 37,208      $ —        $ 26,888      $ 10,320      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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            December 31, 2016  
            Fair Value Measurements Using:  
     December 31,
    

Quoted Prices in

Active Markets

for Identical

Assets

    

Significant

Other

Observable

Inputs

    

Significant

Unobservable

Inputs

    

Investments

Measured at

Net Asset

 

(unaudited, in thousands)

   2016      (level 1)      (level 2)      (level 3)      Value  

Recurring fair value measurements

              

Trading securities

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

Securities - available-for-sale

              

U.S. Government sponsored entities and agencies

     54,043        —          54,043        —          —    

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

     938,289        —          938,289        —          —    

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

     96,810        —          96,810        —          —    

Obligations of state and political subdivisions

     111,663        —          111,663        —          —    

Corporate debt securities

     35,301        —          35,301        —          —    

Equity securities

     5,070        2,938        2,132        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities - available-for-sale

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other assets - interest rate derivatives agreements

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets recurring fair value measurements

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other liabilities - interest rate derivatives agreements

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities recurring fair value measurements

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonrecurring fair value measurements

              

Impaired loans

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

Other real estate owned and repossessed assets

     8,346        —          —          8,346        —    

Loans held for sale

     17,315        —          17,315        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring fair value measurements

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

WesBanco’s policy is to recognize transfers between levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between level 1, 2 or 3 for the three and nine months ended September 30, 2017 or for the year ended December 31, 2016.

 

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

 

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

(unaudited, in thousands)

   Estimate      Techniques   Input  

Average)

September 30, 2017

         

Impaired loans

   $ 4,538      Appraisal of collateral (1)   Appraisal adjustments (2)   0% to (4.8%) /(1.9%)
        Liquidation expenses (2)   (7.6%) to (8.0%) / (7.9%)

Other real estate owned and repossessed assets

     5,782      Appraisal of collateral (1), (3)    

December 31, 2016:

         

Impaired loans

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

Other real estate owned and repossessed assets

     8,346      Appraisal of collateral (1), (3)    

 

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

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

 

                Fair Value Measurements at
September 30, 2017
 

(unaudited, in thousands)

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

(level 1)
    Significant Other
Observable
Inputs

(level 2)
    Significant
Unobservable
Inputs

(level 3)
    Investments
Measured at Net
Asset Value
 

Financial Assets

           

Cash and due from banks

  $ 110,871     $ 110,871     $ 110,871     $ —       $ —       $ —    

Trading securities

    7,929       7,929       6,457       —         —         1,472  

Securities available-for-sale

    1,305,532       1,305,532       5,555       1,299,977       —         —    

Securities held-to-maturity

    1,025,688       1,044,748       —         1,044,135       613       —    

Net loans

    6,327,562       6,241,388       —         —         6,241,388       —    

Loans held for sale

    26,888       26,888       —         26,888       —         —    

Other assets - interest rate derivatives

    5,506       5,506       —         5,506       —         —    

Accrued interest receivable

    30,152       30,152       30,152       —         —         —    

Financial Liabilities

           

Deposits

    7,101,025       7,112,593       5,766,959       1,345,634       —         —