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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 March 31, 2018

 

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

For the transition period from                      to                     

Commission File Number 000-08467

WESBANCO, INC.

(Exact name of Registrant as specified in its charter)

 

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

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

NOT APPLICABLE

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

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

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

    Yes   ☑     No   ☐

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

 

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

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

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

    Yes   ☐     No   ☑

As of April 23, 2018, there were 46,568,911 shares of WesBanco, Inc. common stock, $2.0833 par value, outstanding.

 

 

 


Table of Contents

WESBANCO, INC.

TABLE OF CONTENTS

 

Item

No.

 

ITEM

  

Page

No.

 
  PART I – FINANCIAL INFORMATION   

1

 

Financial Statements

  
 

Consolidated Balance Sheets at March 31, 2018 (unaudited) and December 31, 2017

     3  
 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017 (unaudited)

     4  
 

Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2018 and 2017 (unaudited)

     5  
 

Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (unaudited)

     6  
 

Notes to Consolidated Financial Statements (unaudited)

     7  

2

 

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

     29  

3

 

Quantitative and Qualitative Disclosures About Market Risk

     48  

4

 

Controls and Procedures

     51  
  PART II – OTHER INFORMATION   

1

 

Legal Proceedings

     52  

2

 

Unregistered Sales of Equity Securities and Use of Proceeds

     52  

6

 

Exhibits

     53  
 

Signatures

     54  


Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WESBANCO, INC. CONSOLIDATED BALANCE SHEETS

 

 

 

(unaudited, in thousands, except shares)

   March 31,
2018
    December 31,
2017
 

ASSETS

    

Cash and due from banks, including interest bearing amounts of $9,484 and $19,826, respectively

   $ 100,845     $ 117,572  

Securities:

    

Equity securities, at fair value

     13,986       13,457  

Available-for-sale debt securities, at fair value

     1,728,377       1,261,865  

Held-to-maturity debt securities (fair values of $1,005,502 and $1,023,784, respectively)

     1,006,042       1,009,500  
  

 

 

   

 

 

 

Total securities

     2,748,405       2,284,822  
  

 

 

   

 

 

 

Loans held for sale

     12,962       20,320  
  

 

 

   

 

 

 

Portfolio loans, net of unearned income

     6,322,538       6,341,441  

Allowance for loan losses

     (46,334     (45,284
  

 

 

   

 

 

 

Net portfolio loans

     6,276,204       6,296,157  
  

 

 

   

 

 

 

Premises and equipment, net

     128,583       130,722  

Accrued interest receivable

     31,963       29,728  

Goodwill and other intangible assets, net

     588,339       589,264  

Bank-owned life insurance

     191,839       192,589  

Other assets

     166,279       155,004  
  

 

 

   

 

 

 

Total Assets

   $ 10,245,419     $ 9,816,178  
  

 

 

   

 

 

 

LIABILITIES

    

Deposits:

    

Non-interest bearing demand

   $ 1,950,619     $ 1,846,748  

Interest bearing demand

     1,768,977       1,625,015  

Money market

     984,429       1,024,856  

Savings deposits

     1,314,632       1,269,912  

Certificates of deposit

     1,207,669       1,277,057  
  

 

 

   

 

 

 

Total deposits

     7,226,326       7,043,588  
  

 

 

   

 

 

 

Federal Home Loan Bank borrowings

     1,166,939       948,203  

Other short-term borrowings

     207,653       184,805  

Subordinated debt and junior subordinated debt

     164,379       164,327  
  

 

 

   

 

 

 

Total borrowings

     1,538,971       1,297,335  
  

 

 

   

 

 

 

Accrued interest payable

     4,033       3,178  

Other liabilities

     73,063       76,756  
  

 

 

   

 

 

 

Total Liabilities

     8,842,393       8,420,857  
  

 

 

   

 

 

 

SHAREHOLDERS’ EQUITY

    

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

     —         —    

Common stock, $2.0833 par value; 100,000,000 shares authorized in 2018 and 2017, respectively; 44,060,957 and 44,043,244 shares issued, respectively; 44,060,957 and 44,043,244 shares outstanding, respectively

     91,793       91,756  

Capital surplus

     686,169       684,730  

Retained earnings

     673,174       651,357  

Treasury stock (0 shares in 2018 and 2017, respectively, at cost)

     —         —    

Accumulated other comprehensive loss

     (47,076     (31,495

Deferred benefits for directors

     (1,034     (1,027
  

 

 

   

 

 

 

Total Shareholders’ Equity

     1,403,026       1,395,321  
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 10,245,419     $ 9,816,178  
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

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Table of Contents

WESBANCO, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

     For the Three Months
Ended March 31,
 

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

   2018     2017  

INTEREST AND DIVIDEND INCOME

    

Loans, including fees

   $ 69,237     $ 64,898  

Interest and dividends on securities:

    

Taxable

     11,543       9,596  

Tax-exempt

     4,834       4,891  
  

 

 

   

 

 

 

Total interest and dividends on securities

     16,377       14,487  
  

 

 

   

 

 

 

Other interest income

     803       539  
  

 

 

   

 

 

 

Total interest and dividend income

     86,417       79,924  
  

 

 

   

 

 

 

INTEREST EXPENSE

    

Interest bearing demand deposits

     2,524       1,093  

Money market deposits

     878       574  

Savings deposits

     189       181  

Certificates of deposit

     2,536       2,411  
  

 

 

   

 

 

 

Total interest expense on deposits

     6,127       4,259  
  

 

 

   

 

 

 

Federal Home Loan Bank borrowings

     4,498       2,836  

Other short-term borrowings

     558       297  

Subordinated debt and junior subordinated debt

     1,942       1,813  
  

 

 

   

 

 

 

Total interest expense

     13,125       9,205  
  

 

 

   

 

 

 

NET INTEREST INCOME

     73,292       70,719  

Provision for credit losses

     2,168       2,711  
  

 

 

   

 

 

 

Net interest income after provision for credit losses

     71,124       68,008  
  

 

 

   

 

 

 

NON-INTEREST INCOME

    

Trust fees

     6,503       6,143  

Service charges on deposits

     4,822       4,853  

Electronic banking fees

     4,829       4,528  

Net securities brokerage revenue

     1,670       1,762  

Bank-owned life insurance

     2,756       1,140  

Mortgage banking income

     1,004       1,440  

Net securities (losses) gains

     (39     12  

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

     262       (76

Other income

     2,173       3,082  
  

 

 

   

 

 

 

Total non-interest income

     23,980       22,884  
  

 

 

   

 

 

 

NON-INTEREST EXPENSE

    

Salaries and wages

     25,006       23,002  

Employee benefits

     6,912       8,210  

Net occupancy

     4,656       4,327  

Equipment

     3,949       4,042  

Marketing

     1,116       824  

FDIC insurance

     658       827  

Amortization of intangible assets

     1,086       1,273  

Restructuring and merger-related expense

     245       491  

Other operating expenses

     10,943       11,388  
  

 

 

   

 

 

 

Total non-interest expense

     54,571       54,384  
  

 

 

   

 

 

 

Income before provision for income taxes

     40,533       36,508  

Provision for income taxes

     7,004       10,622  
  

 

 

   

 

 

 

NET INCOME

   $ 33,529     $ 25,886  
  

 

 

   

 

 

 

EARNINGS PER COMMON SHARE

    

Basic

   $ 0.76     $ 0.59  

Diluted

   $ 0.76     $ 0.59  
  

 

 

   

 

 

 

AVERAGE COMMON SHARES OUTSTANDING

    

Basic

     44,050,701       43,947,563  

Diluted

     44,168,242       44,020,765  
  

 

 

   

 

 

 

DIVIDENDS DECLARED PER COMMON SHARE

   $ 0.29     $ 0.26  
  

 

 

   

 

 

 

COMPREHENSIVE INCOME

   $ 19,011     $ 28,171  
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

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Table of Contents

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

 

For the Three Months Ended March 31, 2018 and 2017

    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, 2017

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    —         —         —         33,529       —         —         —         33,529  

Other comprehensive income

    —         —         —         —         —         (14,518     —         (14,518
               

 

 

 

Comprehensive income

    —         —         —         —         —         —         —         19,011  

Common dividends declared ($0.29 per share)

    —         —         —         (12,775     —         —         —         (12,775

Adoption of accounting standard ASU 2016-01

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

Stock options exercised

    17,713       37       523       —         —         —         —         560  

Stock compensation expense

    —         —         909       —         —         —         —         909  

Deferred benefits for directors- net

    —         —         7       —         —         —         (7     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

March 31, 2018

    44,060,957     $ 91,793     $ 686,169     $ 673,174     $ —       $ (47,076   $ (1,034   $ 1,403,026  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2016

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

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

Other comprehensive income

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

 

 

 

Comprehensive income

    —         —         —         —         —         —         —         28,171  

Common dividends declared ($0.26 per share)

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

Stock options exercised

    17,634       36       490       —         —         —         —         526  

Restricted stock granted

    3,702       8       (8     —         —         —         —         —    

Stock compensation expense

    —         —         477       —         —         —         —         477  

Deferred benefits for directors- net

    —         —         5       —         —         —         (5     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

March 31, 2017

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

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Table of Contents

WESBANCO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

     For the Three Months
Ended March 31,
 

(unaudited, in thousands)

   2018     2017  

NET CASH PROVIDED BY OPERATING ACTIVITIES

   $ 32,371     $ 47,508  
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Net decrease (increase) in loans held for investment

     19,923       (63,701

Debt securities available-for-sale:

    

Proceeds from maturities, prepayments and calls

     53,496       59,043  

Purchases of securities

     (540,624     (41,742

Debt securities held-to-maturity:

    

Proceeds from maturities, prepayments and calls

     17,121       24,367  

Purchases of securities

     (15,343     (16,023

Equity securities:

    

Purchases of securities

     (558     —    

Proceeds from bank-owned life insurance

     3,506       —    

Purchases of premises and equipment – net

     (328     (2,311
  

 

 

   

 

 

 

Net cash used in investing activities

     (462,807     (40,367
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

Increase in deposits

     183,012       105,344  

Proceeds from Federal Home Loan Bank borrowings

     375,000       170,000  

Repayment of Federal Home Loan Bank borrowings

     (156,261     (201,825

Increase (decrease) in other short-term borrowings

     27,848       (25,733

Decrease in federal funds purchased

     (5,000     (58,000

Dividends paid to common shareholders

     (11,450     (10,539

Issuance of common stock

     560       526  
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     413,709       (20,227
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (16,727     (13,086

Cash and cash equivalents at beginning of the period

     117,572       128,170  
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 100,845     $ 115,084  
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES

    

Interest paid on deposits and other borrowings

   $ 12,496     $ 9,441  

Income taxes paid

     —         250  

Transfers of loans to other real estate owned

     —         77  

See Notes to Consolidated Financial Statements.

 

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Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation — The accompanying unaudited interim financial statements of WesBanco, Inc. and its consolidated subsidiaries (“WesBanco”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017.

WesBanco’s interim financial statements have been prepared following the significant accounting policies disclosed in Note 1 of the Notes to the Consolidated Financial Statements of its 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of management, the accompanying interim financial information reflects all adjustments, including normal recurring adjustments, necessary to present fairly WesBanco’s financial position and results of operations for each of the interim periods presented. Certain prior period amounts have been reclassified to conform to the current period presentation. Such reclassifications had no impact on WesBanco’s net income and stockholders’ equity. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year.

Recent accounting pronouncements — In August 2017, the FASB issued ASU No. 2017-12, “Targeted Improvements to Accounting for Hedging Activities.” The new guidance will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. WesBanco is assessing the impact of ASU 2017-12 on WesBanco’s Consolidated Financial Statements.

In March 2017, the FASB issued ASU 2017-07 that changes how an employer presents the net periodic benefit cost in the income statement for an employer-sponsored defined benefit pension and/or other postretirement benefit plans. Employers will present the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Only the service cost component will be eligible for capitalization in assets. Employers will present the other components of the net periodic benefit cost separately from the line items that includes the service cost outside of any subtotal of operating income, if one is presented. These components will not be eligible for capitalization in assets. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual period (i.e., only in the first interim period). For WesBanco, this update was effective for the fiscal year beginning January 1, 2018. Upon adoption, WesBanco reclassified the service cost component from employee benefits to salaries and wages, which are both components of non-interest expense. The service cost component for the three months ended March 31, 2018 was $0.7 million.

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

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

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

 

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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 February 2016, the FASB issued ASU 2016-02 that will require entities to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. The principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases were not previously recognized in the balance sheet. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. In January 2018, the FASB issued ASU 2018-01, which allows entities the option to apply the provisions of the new lease guidance at the effective date without adjusting the comparative periods presented. While we are currently assessing the impact of the adoption of this pronouncement, we expect the primary impact to our consolidated financial position upon adoption will be the recognition, on a discounted basis, of our minimum commitments under non-cancellable operating leases on our consolidated Balance Sheets resulting in the recording of right of use assets and lease obligations.

In January 2016, the FASB issued ASU 2016-01 that will require entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. The standard does not change the guidance for classifying and measuring investments in debt securities and loans. Entities will have to record changes in instrument-specific credit risk for financial liabilities measured under the fair value option in other comprehensive income. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. In February 2018, the FASB issued ASU 2018-03, which clarifies certain aspects of the guidance issued in ASU 2016-01. WesBanco adopted these pronouncements as of January 1, 2018 and recognized a $1.1 million adjustment to retained earnings upon adoption of this pronouncement. In addition, WesBanco reclassified investment securities on the Consolidated Financial Statements into the following – equity securities, available-for-sale debt securities and held-to-maturity debt securities.

In May 2014, the FASB issued ASU 2014-09 related to the recognition of revenue from contracts with customers. The new revenue pronouncement creates a single source of revenue guidance for all companies in all industries and is more principles-based than current revenue guidance. The pronouncement provides a five-step model for a company to recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. The five steps are, (1) identify the contract with the customer, (2) identify the separate performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and (5) recognize revenue when each performance obligation is satisfied. On July 9, 2015, the FASB approved a one-year deferral of the effective date of the update. The update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-08, which amends the principle versus agent guidance in the revenue standard. In April 2016, the FASB issued ASU 2016-10, which clarifies when promised goods or services are separately identifiable in the revenue standard. In May 2016, FASB issued ASU 2016-12, which provides narrow-scope improvements and practical expedients to the revenue standard. WesBanco adopted these pronouncements as of January 1, 2018 using the modified retrospective approach. WesBanco noted no material change to the timing of revenue recognition and there was no material impact on WesBanco’s Consolidated Financial Statements. See Note 8, Revenue Recognition for further discussion on revenue within the scope of ASC 606.

 

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NOTE 2. EARNINGS PER COMMON SHARE

Earnings per common share are calculated as follows:

 

    For the Three Months Ended
March 31,
 

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

  2018     2017  

Numerator for both basic and diluted earnings per common share:

   

Net income

  $ 33,529     $ 25,886  
 

 

 

   

 

 

 

Denominator:

   

Total average basic common shares outstanding

    44,050,701       43,947,563  

Effect of dilutive stock options and other stock compensation

    117,541       73,202  
 

 

 

   

 

 

 

Total diluted average common shares outstanding

    44,168,242       44,020,765  
 

 

 

   

 

 

 

Earnings per common share – basic

  $ 0.76     $ 0.59  

Earnings per common share – diluted

  $ 0.76     $ 0.59  
 

 

 

   

 

 

 

All options to purchase shares were included in the diluted shares computation for the three months ended March 31, 2018 and March 31, 2017.

As of March 31, 2018, contingently issuable shares, totaling 39,216, were estimated to be awarded under the 2018, 2017 and 2016 total shareholder return plans as stock performance targets were met and are included in the diluted calculation. As of March 31, 2017, the shares related to the 2017 and 2016 total shareholder return plans were not included in the calculation because the effect would be antidilutive. Performance based restricted stock compensation totaling 9,000 shares were estimated to be awarded as of March 31, 2018 and are included in the diluted calculation. No performance base restricted stock had been granted as of March 31, 2017.

NOTE 3. SECURITIES

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

 

     March 31, 2018      December 31, 2017  

(unaudited, in thousands)

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair

Value
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair

Value
 

Available-for-sale debt securities

                     

U.S. Treasury

   $ 9,900      $ —        $ (6   $ 9,894      $ —        $ —        $ —       $ —    

U.S. Government sponsored entities and agencies

     98,166        1        (1,709     96,458        72,425        24        (606     71,843  

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

     1,377,904        214        (33,708     1,344,410        954,115        214        (19,407     934,922  

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

     144,568        19        (3,661     140,926        116,448        4        (1,585     114,867  

Obligations of states and political subdivisions

     100,531        2,093        (1,193     101,431        102,363        2,927        (460     104,830  

Corporate debt securities

     35,219        170        (131     35,258        35,234        228        (59     35,403  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total available-for-sale debt securities

   $ 1,766,288      $ 2,497      $ (40,408   $ 1,728,377      $ 1,280,585      $ 3,397      $ (22,117   $ 1,261,865  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Held-to-maturity debt securities

                     

U.S. Government sponsored entities and agencies

   $ 11,263      $ —        $ (373   $ 10,890      $ 11,465      $ —        $ (325   $ 11,140  

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

     162,904        301        (4,987     158,218        170,025        544        (2,609     167,960  

Obligations of states and political subdivisions

     798,536        10,510        (5,838     803,208        794,655        17,364        (1,609     810,410  

Corporate debt securities

     33,339        82        (235     33,186        33,355        919        —         34,274  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total held-to-maturity debt securities

   $ 1,006,042      $ 10,893      $ (11,433   $ 1,005,502      $ 1,009,500      $ 18,827      $ (4,543   $ 1,023,784  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total debt securities

   $ 2,772,330      $ 13,390      $ (51,841   $ 2,733,879      $ 2,290,085      $ 22,224      $ (26,660   $ 2,285,649  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

At March 31, 2018, and December 31, 2017, there were no holdings of any one issuer, other than U.S. government sponsored entities and its agencies, in an amount greater than 10% of WesBanco’s shareholders’ equity.

Equity securities, of which some 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 $14.0 million and $13.5 million, at March 31, 2018 and December 31, 2017, respectively.

 

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The following table presents the fair value of available-for-sale and held-to-maturity debt securities by contractual maturity at March 31, 2018. In some instances, the issuers may have the right to call or prepay obligations without penalty prior to the contractual maturity date.

 

     March 31, 2018  

(unaudited, in thousands)

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

Available-for-sale debt securities

                 

U.S. Treasury

   $ 9,894      $ —        $ —        $ —        $ —        $ 9,894  

U.S. Government sponsored entities and agencies

     9,945        1,961        16,671        6,864        61,017        96,458  

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

     —          —          —          —          1,344,410        1,344,410  

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

     —          —          —          —          140,926        140,926  

Obligations of states and political subdivisions

     3,686        17,368        40,161        40,216        —          101,431  

Corporate debt securities

     3,991        26,299        4,968        —          —          35,258  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale debt securities

   $ 27,516      $ 45,628      $ 61,800      $ 47,080      $ 1,546,353      $ 1,728,377  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held-to-maturity debt securities (2)

                 

U.S. Government sponsored entities and agencies

   $ —        $ —        $ —        $ —        $ 10,890      $ 10,890  

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

        —          —          —          158,218        158,218  

Obligations of states and political subdivisions

     6,872        114,768        398,845        282,723        —          803,208  

Corporate debt securities

     —          7,504        25,682        —          —          33,186  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total held-to-maturity debt securities

   $ 6,872      $ 122,272      $ 424,527      $ 282,723      $ 169,108      $ 1,005,502  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

   $ 34,388      $ 167,900      $ 486,327      $ 329,803      $ 1,715,461      $ 2,733,879  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Mortgage-backed and collateralized mortgage securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds.
(2)  The held-to-maturity debt securities portfolio is carried at an amortized cost of $1.0 billion.

Securities with aggregate fair values of $1.5 billion and $1.4 billion at March 31, 2018 and December 31, 2017, respectively, were pledged as security for public and trust funds, and securities sold under agreements to repurchase. There were no sales of available-for-sale debt securities for the three months ended March 31, 2018 and 2017, respectively. Net unrealized losses on available-for-sale debt securities included in accumulated other comprehensive income net of tax, as of March 31, 2018 and December 31, 2017 were $29.2 million and $13.3 million, respectively.

The following table presents the gross realized gains and losses on sales and calls of available-for-sale and held-to-maturity debt securities, as well as gains and losses on equity securities for the three months ended March 31, 2018 and 2017, respectively.

 

     For the Three
Months Ended
March 31,
 

(unaudited, in thousands)

   2018      2017  

Debt securities:

     

Gross realized gains

   $ 7      $ 12  

Gross realized losses

     (18      —    
  

 

 

    

 

 

 

Net (losses) gains on debt securities

   $ (11    $ 12  
  

 

 

    

 

 

 

Equity securities:

     

Unrealized (losses) gains recognized on securities still held

   $ (28    $ —    

Net realized (losses) gains recognized on securities sold

     —          —    
  

 

 

    

 

 

 

Net (losses) gains on equity securities

   $ (28    $ —    
  

 

 

    

 

 

 

Net securities (losses) gains

   $ (39    $ 12  
  

 

 

    

 

 

 

 

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

 

    March 31, 2018  
    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. Treasury

  $ 9,894     $ (6     1     $ —       $ —         —       $ 9,894     $ (6     1  

U.S. Government sponsored entities and agencies

    59,280       (1,129     8       41,203       (953     8       100,483       (2,082     16  

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

    785,806       (13,021     128       602,202       (25,674     195       1,388,008       (38,695     323  

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

    101,309       (2,780     12       23,376       (881     4       124,685       (3,661     16  

Obligations of states and political subdivisions

    335,762       (4,776     527       72,751       (2,255     152       408,513       (7,031     679  

Corporate debt securities

    35,405       (352     12       1,974       (14     1       37,379       (366     13  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total temporarily impaired securities

  $ 1,327,456     $ (22,064     688     $ 741,506     $ (29,777     360     $ 2,068,962     $ (51,841     1,048  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 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

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

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

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

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

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

Obligations of states and political subdivisions

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

Corporate debt securities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total temporarily impaired securities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

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

Securities that do not have readily determinable fair values and for which WesBanco does not exercise significant influence are carried at cost. Cost method investments consist primarily of FHLB of Pittsburgh, Cincinnati and Indianapolis stock totaling $55.6 million and $45.9 million at March 31, 2018 and December 31, 2017, respectively, and are included in other assets in the Consolidated Balance Sheets. Cost method investments are evaluated for impairment whenever events or circumstances suggest that their carrying value may not be recoverable.

 

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NOTE 4. LOANS AND THE ALLOWANCE FOR CREDIT LOSSES

The recorded investment in loans is presented in the Consolidated Balance Sheets net of deferred loan fees and costs, and discounts on purchased loans. The net deferred loan costs were $1.9 million and $1.6 million at March 31, 2018 and December 31, 2017, respectively. The unamortized discount on purchased loans from acquisitions was $20.8 million, including $10.0 million related to YCB, and $21.9 million at March 31, 2018 and December 31, 2017, respectively.

 

(unaudited, in thousands)

   March 31,
2018
     December 31,
2017
 

Commercial real estate:

     

Land and construction

   $ 440,896      $ 392,597  

Improved property

     2,574,330        2,601,851  
  

 

 

    

 

 

 

Total commercial real estate

     3,015,226        2,994,448  
  

 

 

    

 

 

 

Commercial and industrial

     1,118,333        1,125,327  

Residential real estate

     1,345,993        1,353,301  

Home equity

     523,425        529,196  

Consumer

     319,561        339,169  
  

 

 

    

 

 

 

Total portfolio loans

     6,322,538        6,341,441  
  

 

 

    

 

 

 

Loans held for sale

     12,962        20,320  
  

 

 

    

 

 

 

Total loans

   $ 6,335,500      $ 6,361,761  
  

 

 

    

 

 

 

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

 

     Allowance for Credit Losses By Category  
     For the Three Months Ended March 31, 2018 and 2017  
     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, 2017:

                

Allowance for loan losses

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

Allowance for loan commitments

     119       26       173       7       212       37       —         574  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total beginning allowance for credit losses

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses:

                

Provision for loan losses

     1,090       (895     919       202       262       583       (48     2,113  

Provision for loan commitments

     57       (5     3       —         (4     4       —         55  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for credit losses

     1,147       (900     922       202       258       587       (48     2,168  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     —         (279     (109     (287     (576     (1,125     (267     (2,643

Recoveries

     117       287       270       131       120       546       109       1,580  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     117       8       161       (156     (456     (579     (158     (1,063
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2018:

                

Allowance for loan losses

     4,324       20,279       10,494       3,252       4,303       3,067       615       46,334  

Allowance for loan commitments

     176       21       176       7       208       41       —         629  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance for credit losses

   $ 4,500     $ 20,300     $ 10,670     $ 3,259     $ 4,511     $ 3,108     $ 615     $ 46,963  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2016:

                

Allowance for loan losses

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

Allowance for loan commitments

     151       17       188       9       162       44       —         571  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total beginning allowance for credit losses

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses:

                

Provision for loan losses

     (425     983       832       330       365       583       66       2,734  

Provision for loan commitments

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for credit losses

     (433     983       801       331       382       581       66       2,711  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

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

Recoveries

     52       251       376       78       48       369       98       1,272  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2017:

                

Allowance for loan losses

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

Allowance for loan commitments

     143       17       157       10       179       42       —         548  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance for credit losses

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

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

(unaudited, in thousands)

  Construction     Property     Industrial     Estate     Equity     Consumer     draft     Total  

March 31, 2018

               

Allowance for credit losses:

               

Allowance for loans individually evaluated for impairment

  $ —       $ 387     $ —       $ —       $ —       $ —       $ —       $ 387  

Allowance for loans collectively evaluated for impairment

    4,324       19,892       10,494       3,252       4,303       3,067       615       45,947  

Allowance for loan commitments

    176       21       176       7       208       41       —         629  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

  $ 4,500     $ 20,300     $ 10,670     $ 3,259     $ 4,511     $ 3,108     $ 615     $ 46,963  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Portfolio loans:

               

Individually evaluated for impairment (1)

  $ —       $ 2,104     $ —       $ —       $ —       $ —       $ —       $ 2,104  

Collectively evaluated for impairment

    439,480       2,567,367       1,117,607       1,345,290       523,425       319,561       —         6,312,730  

Acquired with deteriorated credit quality

    1,416       4,859       726       703       —         —         —         7,704  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total portfolio loans

  $ 440,896     $ 2,574,330     $ 1,118,333     $ 1,345,993     $ 523,425     $ 319,561     $ —       $ 6,322,538  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2017

               

Allowance for credit losses:

               

Allowance for loans individually evaluated for impairment

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

Allowance for loans collectively evaluated for impairment

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

Allowance for loan commitments

    119       26       173       7       212       37       —         574  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Portfolio loans:

               

Individually evaluated for impairment (1)

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

Collectively evaluated for impairment

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

Acquired with deteriorated credit quality

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total portfolio loans

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

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

Commercial real estate – land and construction consists of loans to finance investments in vacant land, land development, construction of residential housing, and construction of commercial buildings. Commercial real estate – improved property consists of loans for the purchase or refinance of all types of improved owner-occupied and investment properties. Factors that are considered in assigning the risk grade vary depending on the type of property financed. The risk grade assigned to construction and development loans is based on the overall viability of the project, the experience and financial capacity of the developer or builder to successfully complete the project, project specific and market absorption rates and comparable property values, and the amount of pre-sales for residential housing construction or pre-leases for commercial investment property. The risk grade assigned to commercial investment property loans is based primarily on the adequacy of net rental income generated by the property to service the debt, the type, quality, industry and mix of tenants, and the terms of leases, but also considers the overall financial capacity of the investors and their experience in owning and managing investment property. The risk grade assigned to owner-occupied commercial real estate and commercial and industrial loans is based primarily on historical and projected earnings, the adequacy of operating cash flow to service all of the business’ debt, and the capital resources, liquidity and leverage of the business, but also considers the industry in which the business operates, the business’ specific competitive advantages or disadvantages, the quality and experience of management, and external influences on the business such as economic conditions.

Commercial and industrial loans consist of revolving lines of credit to finance accounts receivable, inventory and other general business purposes; term loans to finance fixed assets other than real estate, and letters of credit to support trade, insurance or governmental requirements for a variety of businesses. Most C&I borrowers are privately-held companies with annual sales up to $100 million. Factors that are considered for commercial and industrial loans include the type, quality and marketability of non-real estate collateral and whether the structure of the loan increases or reduces its risk. The type, age, condition, location and any environmental risks associated with a property are also considered for all types of commercial real estate. The overall financial condition and repayment capacity of any guarantors is also evaluated to determine the extent to which they mitigate other risks of the loan. The following paragraphs provide descriptions of risk grades that are applicable to commercial real estate and commercial and industrial loans.

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

 

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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:

 

     Commerical Loans by Internally Assigned Risk Grade  

(unaudited, in thousands)

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

As of March 31, 2018

           

Pass

   $ 434,665      $ 2,526,334      $ 1,104,209      $ 4,065,208  

Criticized - compromised

     3,384        24,807        5,594        33,785  

Classified - substandard

     2,847        23,189        8,530        34,566  

Classified - doubtful

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 440,896      $ 2,574,330      $ 1,118,333      $ 4,133,559  
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2017

           

Pass

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

Criticized - compromised

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

Classified - substandard

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

Classified - doubtful

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

 

Residential real estate, home equity and consumer loans are not assigned internal risk grades other than as required by regulatory guidelines that are based primarily on the age of past due loans. WesBanco primarily evaluates the credit quality of residential real estate, home equity and consumer loans based on repayment performance and historical loss rates. The aggregate amount of residential real estate, home equity and consumer loans classified as substandard in accordance with regulatory guidelines was $19.4 million at March 31, 2018 and $22.8 million at December 31, 2017, of which $1.0 and $2.5 million were accruing, for each period, respectively. The aggregate amount of residential real estate, home equity and consumer loans classified as substandard are not included in the tables above.

Acquired YCB Loans — The carrying amount of loans acquired from YCB with deteriorated credit quality at March 31, 2018 and December 31, 2017 was $4.2 million and $4.3 million, respectively, of which $0.7 million and $0.8 million, respectively, were accounted for under the cost recovery method in accordance with ASC 310-30 as cash flows cannot be reasonably estimated, and therefore are categorized as non-accrual. At March 31, 2018, the accretable yield was $1.3 million. At March 31, 2018 and December 31, 2017, an allowance for loan loss of $0.2 million and $0, respectively, has been recognized related to the YCB acquired impaired loans, as the estimates for future cash flows on these loans have been negatively impacted.

Acquired ESB Loans — The carrying amount of loans acquired from ESB with deteriorated credit quality at March 31, 2018 and December 31, 2017 was $3.5 million and $3.7 million, respectively, of which $3.5 million for both periods was accounted for under the cost recovery method in accordance with ASC 310-30 as cash flows cannot be reasonably estimated, and therefore were categorized as non-accrual. At March 31, 2018, the accretable yield was $2.9 million. At March 31, 2018 and December 31, 2017 an allowance for loan loss of $2.0 million has been recognized related to the ESB acquired impaired loans, as the estimates for future cash flows on these loans have been negatively impacted.

 

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

 

     For the Three Months Ended  

(unaudited, in thousands)

   March 31,
2018
     March 31,
2017
 

Balance at beginning of period

   $ 1,724      $ 1,717  

Acquisitions

     —          —    

Reduction due to change in projected cash flows

     (86      (200

Reclass from non-accretable difference

     2,841        174  

Transfers out

     —          —    

Accretion

     (268      (151
  

 

 

    

 

 

 

Balance at end of period

   $ 4,211      $ 1,540  
  

 

 

    

 

 

 

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

 

     Age Analysis of Loans  

(unaudited, in thousands)

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

As of March 31, 2018

                    

Commercial real estate:

                    

Land and construction

   $ 439,926      $ —        $ —        $ 970      $ 970      $ 440,896      $ 172  

Improved property

     2,559,491        4,431        528        9,880        14,839        2,574,330        364  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     2,999,417        4,431        528        10,850        15,809        3,015,226        536  

Commercial and industrial

     1,115,453        667        201        2,012        2,880        1,118,333        21  

Residential real estate

     1,333,175        3,860        1,618        7,340        12,818        1,345,993        561  

Home equity

     517,172        2,654        682        2,917        6,253        523,425        251  

Consumer

     316,517        1,950        432        662        3,044        319,561        210  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

     6,281,734        13,562        3,461        23,781        40,804        6,322,538        1,579  

Loans held for sale

     12,962        —          —          —          —          12,962        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 6,294,696      $ 13,562      $ 3,461      $ 23,781      $ 40,804      $ 6,335,500      $ 1,579  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans included above are as follows:

 

              

Non-accrual loans

   $ 8,120      $ 1,310      $ 754      $ 22,202      $ 24,266      $ 32,386     

TDRs accruing interest (1)

     6,435        230        193        —          423        6,858     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total impaired

   $ 14,555      $ 1,540      $ 947      $ 22,202      $ 24,689      $ 39,244     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

As of December 31, 2017

                    

Commercial real estate:

                    

Land and construction

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

Improved property

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

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

Commercial and industrial

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

Residential real estate

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

Home equity

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

Consumer

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

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

Loans held for sale

     20,320        —          —          —          —          20,320        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans included above are as follows:

 

              

Non-accrual loans

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

TDRs accruing interest (1)

     6,055        348        168        —          516        6,571     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total impaired

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

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

 

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Table of Contents

The following tables summarize impaired loans:

 

     Impaired Loans  
     March 31, 2018      December 31, 2017  
    

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

   $ 873      $ 800      $ —        $ 412      $ 239      $ —    

Improved property

     14,554        10,319        —          18,229        12,863        —    

Commercial and industrial

     3,045        2,496        —          3,745        3,086        —    

Residential real estate

     19,601        17,751        —          20,821        18,982        —    

Home equity

     5,771        4,971        —          5,833        5,169        —    

Consumer

     918        803        —          1,084        952        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

     44,762        37,140        —          50,124        41,291        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With a specific allowance recorded:

                 

Commercial real estate:

                 

Land and construction

     —          —          —          —          —          —    

Improved property

     2,104        2,104        387        2,105        2,105        388  

Commercial and industrial

     —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

     2,104        2,104        387        2,105        2,105        388  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 46,866      $ 39,244      $ 387      $ 52,229      $ 43,396      $ 388  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

     Impaired Loans  
     For the Three Months Ended
March 31, 2018
     For the Three Months Ended
March 31, 2017
 
     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

   $ 520      $ —        $ 588      $ —    

Improved property

     11,591        345        9,620        346  

Commercial and industrial

     2,791        2        3,812        2  

Residential real estate

     18,367        66        18,448        69  

Home equity

     5,070        5        4,186        5  

Consumer

     878        3        761        2  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

     39,217        421        37,415        424  
  

 

 

    

 

 

    

 

 

    

 

 

 

With a specific allowance recorded:

           

Commercial real estate:

           

Land and construction

     —          —          —          —    

Improved property

     2,105        —          4,927        —    

Commercial and industrial

     —          —          635        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

     2,105        —          5,562        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 41,322      $ 421      $ 42,977      $ 424  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

     Non-accrual Loans (1)  

(unaudited, in thousands)

   March 31,
2018
     December 31,
2017
 

Commercial real estate:

     

Land and construction

   $ 800      $ 239  

Improved property

     10,821        13,318  
  

 

 

    

 

 

 

Total commercial real estate

     11,621        13,557  
  

 

 

    

 

 

 

Commercial and industrial

     2,373        2,958  

Residential real estate

     13,149        14,661  

Home equity

     4,540        4,762  

Consumer

     703        887  
  

 

 

    

 

 

 

Total

   $ 32,386      $ 36,825  
  

 

 

    

 

 

 

 

(1)  At March 31, 2018, there were 2 borrowers with loans greater than $1.0 million totaling $5.6 million, as compared to three borrowers with loans greater than $1.0 million totaling $6.8 million at December 31, 2017. Total non-accrual loans include loans that are also restructured. Such loans are also set forth in the following table as non-accrual TDRs.

 

     TDRs  
     March 31, 2018      December 31, 2017  

(unaudited, in thousands)

   Accruing      Non-Accrual      Total      Accruing      Non-Accrual      Total  

Commercial real estate:

                 

Land and construction

   $ —        $ 2      $ 2      $ —        $ 3      $ 3  

Improved property

     1,602        490        2,092        1,650        428        2,078  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     1,602        492        2,094        1,650        431        2,081  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     123        94        217        128        97        225  

Residential real estate

     4,602        1,525        6,127        4,321        1,880        6,201  

Home equity

     431        220        651        407        337        744  

Consumer

     100        66        166        65        120        185  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,858      $ 2,397      $ 9,255      $ 6,571      $ 2,865      $ 9,436  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of March 31, 2018 and December 31, 2017 there were no TDRs greater than $1.0 million. The concessions granted in the majority of loans reported as accruing and non-accrual TDRs are extensions of the maturity date or the amortization period, reductions in the interest rate below the prevailing market rate for loans with comparable characteristics, and/or permitting interest-only payments for longer than three months. WesBanco had unfunded commitments to debtors whose loans were classified as impaired of $0.1 million as of March 31, 2018 and December 31, 2017.

The following tables present details related to loans identified as TDRs during the three months ended March 31, 2018 and 2017, respectively:

 

     New TDRs (1)
For the Three Months Ended
 
     March 31, 2018      March 31, 2017  
            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

     —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     —          —          —          2        126        122  

Residential real estate

     5        203        195        1        10        9  

Home equity

     —          —          —          1        44        43  

Consumer

     2        4        3        2        84        21  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     7      $ 207      $ 198        6      $ 264      $ 195  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

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Table of Contents

The following table summarizes TDRs which defaulted (defined as past due 90 days) during the three months ended March 31, 2018 and 2017, respectively, that were restructured within the last twelve months prior to March 31, 2018 and 2017, respectively:

 

     Defaulted TDRs (1)      Defaulted TDRs (1)  
     For the Three Months Ended      For the Three Months Ended  
     March 31, 2018      March 31, 2017  

(unaudited, dollars in thousands)

   Number of
Defaults
     Recorded
Investment
     Number of
Defaults
     Recorded
Investment
 

Commercial real estate:

           

Land and construction

     —        $ —          —        $ —    

Improved property

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     —          —          —          —    

Residential real estate

     1        122        —          —    

Home equity

     1        7        —          —    

Consumer

     —          —          1        9  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     2      $ 129        1      $ 9  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Excludes loans that were either charged-off or cured by period end. The recorded investment is as of March 31, 2018 and 2017, respectively.

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

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

 

(unaudited, in thousands)

   March 31,
2018
     December 31,
2017
 

Other real estate owned

   $ 3,991      $ 5,195  

Repossessed assets

     76        102  
  

 

 

    

 

 

 

Total other real estate owned and repossessed assets

   $ 4,067      $ 5,297  
  

 

 

    

 

 

 

Residential real estate included in other real estate owned at March 31, 2018 and December 31, 2017 was $0.9 million and $1.5 million, respectively. At March 31, 2018 and December 31, 2017, formal foreclosure proceedings were in process on residential real estate loans totaling $4.3 million and $3.5 million, respectively.

NOTE 5. DERIVATIVES AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

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

Loan Swaps

WesBanco executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that WesBanco executes with a third party, such that WesBanco minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements of FASB ASC 815, changes in the fair value of both the customer swaps and the offsetting third-party swaps are recognized directly in earnings. As of March 31, 2018 and December 31, 2017, WesBanco had 43 and 39, respectively, interest rate swaps with an aggregate notional amount of $309.2 million and $298.2 million, respectively, related to this program. During the three months ended March 31, 2018 and 2017, WesBanco recognized net gains (net losses) of $0.2 million and $(0.2) million, respectively, related to the changes in fair value of these swaps. Additionally, WesBanco recognized $0.4 million and $1.0 million of income for the related swap fees for the three months ended March 31, 2018 and 2017, respectively.

Mortgage Loans Held for Sale and Loan Commitments

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

 

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Table of Contents

Fair Values of Derivative Instruments on the Balance Sheet

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

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

 

     March 31, 2018      December 31, 2017  

(unaudited, in thousands)

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

Derivatives

                 

Loan Swaps:

                 

Interest rate swaps

   $ 309,242      $ 9,257      $ 9,083      $ 298,223      $ 7,351      $ 7,345  

Other contracts:

                 

Interest rate loan commitments

     24,730        147        —          20,319        49        —    

Best efforts forward delivery commitments

     3,941        —          11        2,905        —          6  

Forward TBA contracts

     36,500        —          3        31,750        —          23  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives

      $ 9,404      $ 9,097         $ 7,400      $ 7,374  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Effect of Derivative Instruments on the Income Statement

The table below presents the change in the fair value of the Company’s derivative financial instruments reflected within the other non-interest income line item of the consolidated income statement for the three months ended March 31, 2018 and 2017, respectively.

 

          For the Three Months Ended  
    

Location of Gain/(Loss)

   March 31,  

(unaudited, in thousands)

      2018      2017  

Interest rate swaps

   Other income    $ (167    $ 195  

Interest rate loan commitments

   Mortgage banking income      98        —    

Best efforts forward sales contracts

   Mortgage banking income      (5      —    

Forward TBA contracts

   Mortgage banking income      410        —    
     

 

 

    

 

 

 

Total

      $ 336      $ 195  
     

 

 

    

 

 

 

Credit-risk-related Contingent Features

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

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

WesBanco has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral with a market value of $2.9 million as of March 31, 2018. If WesBanco had breached any of these provisions at March 31, 2018, it could have been required to settle its obligations under the agreements at the termination value and would have been required to pay any additional amounts due in excess of amounts previously posted as collateral with the respective counterparty.

 

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NOTE 6. PENSION PLAN

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

 

     For the Three Months Ended
March 31,
 

(unaudited, in thousands)

       2018              2017      

Service cost – benefits earned during year

   $ 699      $ 636  

Interest cost on projected benefit obligation

     1,114        1,084  

Expected return on plan assets

     (2,204      (1,886

Amortization of prior service cost

     6        6  

Amortization of net loss

     753        794  
  

 

 

    

 

 

 

Net periodic pension cost

   $ 368      $ 634  
  

 

 

    

 

 

 

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

A minimum required contribution of $5.1 million is due for 2018, which could be all or partially offset by the Plan’s $56.9 million available credit balance. WesBanco currently expects to make a voluntary contribution of $5.0 million to the Plan in 2018.

WesBanco assumed YCB’s obligation for a predecessor bank’s participation in the Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra Plan”). The participating employer plan has been frozen to new participants since 2002. WesBanco spun off the assets from the Pentegra Plan, contributing approximately $2.8 million to satisfy the estimated final costs to do so. This spin off had no impact on earnings as the liability was included in YCB’s balance sheet as of the acquisition date. The distributed assets from the Pentegra Plan were transferred to a plan providing substantially the same benefits to the participants. The net periodic pension income for this plan for the three months ended March 31, 2018 was $62 thousand, which was comprised of a $0.2 million expected return on plan assets and a $3 thousand recognized net actuarial gain partially offset by a $0.1 million interest cost on projected benefit obligation.

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

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. Positions that are not traded in active markets for which valuations are generated using assumptions not observable in the market or management’s best estimate are classified within level 3 of the fair value hierarchy. This includes certain specific municipal debt issues for which the credit quality and discount rate must be estimated.

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

WesBanco enters into forward TBA contracts to manage the interest rate risk between the loan commitments to the customer and the closing of the loan for loans that will be sold on a mandatory basis to secondary market investors. The forward TBA contract is reported at fair value in other assets and other liabilities on the consolidated balance sheet with any resulting gain or loss recorded in current period’s earnings as mortgage banking income.

WesBanco determines the fair value for derivatives using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects contractual terms of the derivative, including the period to maturity, and uses

 

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Table of Contents

observable market-based inputs, including interest rate curves and implied volatilities. WesBanco incorporates credit valuation adjustments to appropriately reflect both its own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements.

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

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

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

Loans held for sale: Loans held for sale are carried, in aggregate, at fair value as WesBanco has elected the fair value option as of October 1, 2017. The use of a valuation model using quoted prices of similar instruments are significant inputs in arriving at the fair value and therefore loans held for sale are classified within level 2 of the fair value hierarchy.

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

 

            March 31, 2018  
            Fair Value Measurements Using:  
     March 31,
2018
    

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

              

Equity securities

   $ 13,986      $ 11,568      $ —        $ —        $ 2,418  

Debt securities - available-for-sale

              

U.S. Treasury

     9,894        —          9,894        —          —    

U.S. Government sponsored entities and agencies

     96,458        —          96,458        —          —    

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

     1,344,410        —          1,344,410        —          —    

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

     140,926        —          140,926        —          —    

Obligations of state and political subdivisions

     101,431        —          101,431        —          —    

Corporate debt securities

     35,258        —          35,258        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities - available-for-sale

   $ 1,728,377      $ —        $ 1,728,377      $ —        $ —    

Loans held for sale

     12,962        —          12,962        —          —    

Other assets - interest rate derivatives agreements

     9,257        —          9,257        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets recurring fair value measurements

   $ 1,764,582      $ 11,568      $ 1,750,596      $ —        $ 2,418  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other liabilities - interest rate derivatives agreements

   $ 9,083      $ —        $ 9,083      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities recurring fair value measurements

   $ 9,083      $ —        $ 9,083      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonrecurring fair value measurements

              

Impaired loans

   $ 1,717      $ —        $ —        $ 1,717      $ —    

Other real estate owned and repossessed assets

     4,067        —          —          4,067        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring fair value measurements

   $ 5,784      $ —        $ —        $ 5,784      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
            December 31, 2017  
            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)

   2017      (level 1)      (level 2)      (level 3)      Value  

Recurring fair value measurements

              

Equity securities

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

Debt securities - available-for-sale

              

U.S. Government sponsored entities and agencies

     71,843        —          71,843        —          —    

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

     934,922        —          934,922        —          —    

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

     114,867        —          114,867        —          —    

Obligations of state and political subdivisions

     104,830        —          104,830        —          —    

Corporate debt securities

     35,403        —          35,403        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities - available-for-sale

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

Loans held for sale

     20,320        —          20,320        —          —    

Other assets - interest rate derivatives agreements

     7,351        —          7,351        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets recurring fair value measurements

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other liabilities - interest rate derivatives agreements

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities recurring fair value measurements

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonrecurring fair value measurements

              

Impaired loans

   $ 1,717      $ —        $ —        $ 1,717      $ —    

Other real estate owned and repossessed assets

     5,297        —          —          5,297        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring fair value measurements

   $ 7,014      $ —        $ —        $ 7,014      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 significant transfers between level 1, 2 or 3 for the three months ended March 31, 2018 or for the year ended December 31, 2017.

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

 

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

(unaudited, in thousands)

   Estimate      Techniques   Input  

Average)

March 31, 2018

         

Impaired loans

   $ 1,717      Appraisal of collateral (1)   Appraisal adjustments (2)   (4.8%) / (4.8%)
        Liquidation expenses (2)   (7.6%) / (7.6%)

Other real estate owned and repossessed assets

     4,067      Appraisal of collateral (1), (3)    

December 31, 2017:

         

Impaired loans

   $ 1,717      Appraisal of collateral (1)   Appraisal adjustments (2)   (4.8%) / (4.8%)
        Liquidation expenses (2)   (7.6%) / (7.6%)

Other real estate owned and repossessed assets

     5,297      Appraisal of collateral (1), (3)    

 

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

 

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

 

                Fair Value Measurements at
March 31, 2018
 

(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

  $ 100,845     $ 100,845     $ 100,845     $ —       $ —       $ —    

Equity securities

    13,986       13,986       11,568       —         —         2,418  

Debt securities available-for-sale

    1,728,377       1,728,377       —         1,728,377       —         —    

Debt securities held-to-maturity

    1,006,042       1,005,502       —         1,004,912       590       —    

Net loans

    6,276,204       6,158,399       —         —         6,158,399       —    

Loans held for sale

    12,962       12,962       —         12,962       —         —    

Other assets - interest rate derivatives

    9,257       9,257       —         9,257       —         —    

Accrued interest receivable

    31,963       31,963       31,963       —         —         —    

Financial Liabilities

           

Deposits

    7,226,326       7,230,335       6,018,657       1,211,678       —         —    

Federal Home Loan Bank borrowings

    1,166,939       1,161,442       —         1,161,442       —         —    

Other borrowings

    207,653       207,627       205,651       1,976       —         —    

Subordinated debt and junior subordinated debt

    164,379       149,887       —         149,887       —         —    

Other liabilities - interest rate derivatives

    9,083       9,083       —         9,083       —         —    

Accrued interest payable

    4,033       4,033       4,033       —         —         —    

 

                   Fair Value Measurements at
December 31, 2017
 

(unaudited, in thousands)

   Carrying
Amount
     Fair Value
Estimate
     Quoted Prices in
Active Markets
for Identical
Assets
(level 1)
     Significant Other
Observable
Inputs
(level 2)
     Significant
Unobservable
Inputs
(level 3)
     Investments
Measured at Net
Asset Value
 

Financial Assets

                 

Cash and due from banks

   $ 117,572      $ 117,572      $ 117,572      $ —        $ —        $ —    

Equity securities

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

Debt securities available-for-sale

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

Debt securities held-to-maturity

     1,009,500        1,023,784        —          1,023,191        593        —    

Net loans

     6,296,157        6,212,823        —          —          6,212,823        —    

Loans held for sale

     20,320        20,320        —          20,320        —          —    

Other assets - interest rate derivatives

     7,351        7,351        —          7,351        —          —    

Accrued interest receivable

     29,728        29,728        29,728        —          —          —    

Financial Liabilities

                 

Deposits

     7,043,588        7,053,536        5,766,531        1,287,005        —          —    

Federal Home Loan Bank borrowings

     948,203        944,706        —          944,706        —          —    

Other borrowings

     184,805        184,814        182,785        2,029        —          —    

Subordinated debt and junior subordinated debt

     164,327        146,484        —          146,484        —          —    

Other liabilities - interest rate derivatives

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

Accrued interest payable

     3,178        3,178        3,178        —          —          —    

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

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

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

Net loans: Fair values for loans are estimated using a discounted cash flow methodology. The discount rates take into account interest rates currently being offered to customers for loans with similar terms, the credit risk associated with the loan and other market factors, including liquidity.

 

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WesBanco believes the discount rates are consistent with transactions occurring in the marketplace for both performing and distressed loan types. The carrying value is net of the allowance for loan losses and other associated premiums and discounts. Due to the significant judgment involved in evaluating credit quality, loans are classified within level 3 of the fair value hierarchy.

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

Deposits: The carrying amount is considered a reasonable estimate of fair value for demand, savings and other variable rate deposit accounts. The fair value of fixed maturity certificates of deposit is estimated by a discounted cash flow method using rates currently offered for deposits of similar remaining maturities.

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

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

Subordinated debt and junior subordinated debt: The fair value of subordinated debt is estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements. Due to the pooled nature of junior subordinated debt owed to unconsolidated subsidiary trusts, which are not actively traded, estimated fair value is based on recent similar transactions of single-issuer trust preferred securities.

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

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

 

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Table of Contents

NOTE 8. REVENUE RECOGNITION

WesBanco adopted ASU 2014-09 as of January 1, 2018 under the modified retrospective approach and there was no material impact on WesBanco’s Consolidated Financial statements. Interest income, net securities (losses) gains and bank-owned life insurance are not in scope of ASC 606, Revenue from Contracts with Customers. For the revenue streams in scope of ASC 606 - trust fees, service charges on deposits, electronic banking fees, net securities brokerage revenue, mortgage banking income and net gain or loss on sale of other real estate owned – there are no significant judgements related to the amount and timing of revenue recognition.

Trust fees: Fees are earned over a period of time between monthly and annually, per the related fee schedule. The fees are earned ratably over the period for investment, safekeeping and other services performance by WesBanco. The fees are accrued when earned based on the daily asset value on the last day of the quarter. In most cases, the fees are directly debited from the customer account.

Service charges on deposits: There are monthly service charges for both commercial and personal banking customers, which are earned over the month per the related fee schedule based on the customers’ deposits. There are also transaction-based fees, which are earned based on specific transactions or customer activity within the customers’ deposit accounts. These are earned at the time the transaction or customer activity occurs. The fees are debited from the customer account.

Electronic banking fees: Interchange and ATM fees are earned based on customer and ATM transactions. Revenue is recognized when the transaction is settled.

Net securities brokerage revenue: Commission income is earned based on customer transactions and management of investments. The commission income from customers’ transactions is recognized when the transaction is complete. The commission income from the management of investments is earned continuously over a quarterly period.

Mortgage banking income: Income is earned when WesBanco-originated loans are sold to an investor on the secondary market. The investor bids on the loans. If the price is accepted, WesBanco delivers the loan documents to the investor. Once received and approved by the investor, revenue is recognized and the loans are derecognized from the Consolidated Balance Sheet. Prior to the loans being sold, they are classified as loans held for sale. Additionally, the changes in the fair value of the loans held for sale, loan commitments and related derivatives are included in mortgage banking income.

Net gain or loss on sale of other real estate owned: Net gain or loss is recorded when other real estate is sold to a third party and the Bank collects substantially all of the consideration to which WesBanco is entitled in exchange for the transfer of the property.

The following table summarizes the point of revenue recognition and the income recognized for each of the revenue streams for the three months ended March 31, 2018:

 

(unaudited, in thousands)

   Point of Revenue
Recognition
     For the Three
Months Ended
March 31, 2018
 

Revenue Streams

     

Trust Fees

     

Trust account fees

     Over time      $ 4,292  

WesMark fees

     Over time        2,211  
     

 

 

 

Total trust fees

        6,503  

Service charges on deposits

     

Commercial banking fees

     Over time        407  

Personal service charges

     At a point in time & Over time        4,415  
     

 

 

 

Total service charges on deposits

        4,822  

Net securities brokerage revenue

     

Annuity commissions

     At a point in time        1,200  

Equity and debt security trades

     At a point in time        102  

Managed money

     Over time        141  

Trail commissions

     Over time        227  
     

 

 

 

Total net securities brokerage revenue

        1,670  

Electronic banking fees

     At a point in time        4,829  

Mortgage banking income

     At a point in time        1,004  

Gain/loss on sale of OREO/other assets

     At a point in time        262  

 

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Table of Contents

NOTE 9. COMPREHENSIVE INCOME/(LOSS)

The activity in accumulated other comprehensive income for the three months ended March 31, 2018 and 2017 is as follows:

 

     Accumulated Other Comprehensive Income/(Loss) (1)  

(unaudited, in thousands)

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

Balance at December 31, 2017

   $ (18,626   $ (13,250   $ 381     $ (31,495
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income before reclassifications

     —         (14,905     —         (14,905

Amounts reclassified from accumulated other comprehensive income

     437       —         (50     387  
  

 

 

   

 

 

   

 

 

   

 

 

 

Period change

     437       (14,905     (50     (14,518

Adoption of Accounting Standard ASU 2016-01 (2)

     —         (1,063     —         (1,063
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2018

   $ (18,189   $ (29,218   $ 331     $ (47,076
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2016

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

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income before reclassifications

     —         1,680       —         1,680  

Amounts reclassified from accumulated other comprehensive income

     655       —         (50     605  
  

 

 

   

 

 

   

 

 

   

 

 

 

Period change

     655       1,680       (50     2,285  
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2017

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

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  All amounts are net of tax. Related income tax expense or benefit is calculated using a combined Federal and State income tax rate approximating 23% in 2018 and 37% in all prior periods.
(2)  See Note 1, Summary of Significant Accounting Policies for additional information about WesBanco’s adoption of ASU 2016-01.

The following table provides details about amounts reclassified from accumulated other comprehensive income for the three months ended March 31, 2018 and 2017:

 

Details about Accumulated Other Comprehensive Income/(Loss)

Components

   Amounts Reclassified from
Accumulated Other
Comprehensive Income/(Loss)
For the Three Months Ended
March 31,
   

Affected Line Item in the Statement of

Net Income

(unaudited, in thousands)    2018     2017      

Debt securities available-for-sale (1):

      

Net securities gains reclassified into earnings

   $ —       $ —       Net securities gains (Non-interest income)

Related income tax expense

     —         —       Provision for income taxes
  

 

 

   

 

 

   

Net effect on accumulated other comprehensive income for the period

     —         —      
  

 

 

   

 

 

   

Debt securities held-to-maturity (1):

      

Amortization of unrealized gain transferred from available-for-sale

     (66     (72   Interest and dividends on securities (Interest and dividend income)

Related income tax expense

     16       22     Provision for income taxes
  

 

 

   

 

 

   

Net effect on accumulated other comprehensive income for the period

     (50     (50  
  

 

 

   

 

 

   

Defined benefit pension plan (2):

      

Amortization of net loss and prior service costs

     756       801     Employee benefits (Non-interest expense)

Related income tax benefit

     (319     (146   Provision for income taxes
  

 

 

   

 

 

   

Net effect on accumulated other comprehensive income for the period

     437       655    
  

 

 

   

 

 

   

Total reclassifications for the period

   $ 387     $ 605    
  

 

 

   

 

 

   

 

(1) For additional detail related to unrealized gains on securities and related amounts reclassified from accumulated other comprehensive income, see Note 3, “Securities.”
(2) Included in the computation of net periodic pension cost. See Note 6, “Pension Plan” for additional detail.

 

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Table of Contents

NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES

Commitments — In the normal course of business, WesBanco offers off-balance sheet credit arrangements to enable its customers to meet their financing objectives. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. WesBanco’s exposure to credit losses in the event of non-performance by the other parties to the financial instruments for commitments to extend credit and standby letters of credit is limited to the contractual amount of those instruments. WesBanco uses the same credit policies in making commitments and conditional obligations as for all other lending. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The allowance for credit losses associated with commitments was ($0.6) million as of both March 31, 2018 and December 31, 2017, and is included in other liabilities on the Consolidated Balance Sheets.

Letters of credit are conditional commitments issued by banks to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including normal business activities, bond financing and similar transactions. Letters of credit are considered guarantees. The liability associated with letters of credit was $0.2 million as of both March 31, 2018 and December 31, 2017.

Contingent obligations and other guarantees include affordable housing plan guarantees, credit card guarantees and obligations under the FHLB’s loan purchasing program. Affordable housing plan guarantees are performance guarantees for various building project loans. The guarantee amortizes as the loan balances decrease. Credit card guarantees are credit card balances not owned by WesBanco, whereby the Bank guarantees the performance of the cardholder. The mortgages sold to FHLB obligate WesBanco to reimburse the FHLB for a portion of the loan balances that default.

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

 

     March 31,      December 31,  

(unaudited, in thousands)

   2018      2017  

Lines of credit

   $ 1,464,970      $ 1,452,697  

Loans approved but not closed

     358,367        245,644  

Overdraft limits

     124,752        126,671