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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2015

 

¨ 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  þ    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  þ    No  ¨

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

 

Large accelerated filer   þ    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

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

As of July 23, 2015, there were 38,527,670 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 June 30, 2015 (unaudited) and December 31, 2014

     3   
 

Consolidated Statements of Comprehensive Income for the three and six months ended June  30, 2015 and 2014 (unaudited)

     4   
 

Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June  30, 2015 and 2014 (unaudited)

     5   
 

Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (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

     49   
4  

Controls and Procedures

     51   
 

PART II - OTHER INFORMATION

  
1  

Legal Proceedings

     52   
2  

Unregistered Sales of Equity Securities and Use of Proceeds

     53   
6  

Exhibits

     54   
 

Signatures

     55   


Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WESBANCO, INC. CONSOLIDATED BALANCE SHEETS

 

 

(unaudited, in thousands, except shares)

   June 30,
2015
    December 31,
2014
 

ASSETS

    

Cash and due from banks, including interest bearing amounts of $20,402 and $8,405, respectively

   $ 108,738      $ 94,002   

Securities:

    

Available-for-sale, at fair value

     1,594,658        917,424   

Held-to-maturity (fair values of $864,226 and $619,617, respectively)

     848,416        593,670   
  

 

 

   

 

 

 

Total securities

     2,443,074        1,511,094   
  

 

 

   

 

 

 

Loans held for sale

     11,160        5,865   
  

 

 

   

 

 

 

Portfolio loans, net of unearned income

     4,933,645        4,086,766   

Allowance for loan losses

     (43,419     (44,654
  

 

 

   

 

 

 

Net portfolio loans

     4,890,226        4,042,112   
  

 

 

   

 

 

 

Premises and equipment, net

     111,692        93,135   

Accrued interest receivable

     24,739        18,481   

Goodwill and other intangible assets, net

     492,997        319,506   

Bank-owned life insurance

     154,980        123,298   

Other assets

     137,813        89,072   
  

 

 

   

 

 

 

Total Assets

   $ 8,375,419      $ 6,296,565   
  

 

 

   

 

 

 

LIABILITIES

    

Deposits:

    

Non-interest bearing demand

   $ 1,257,932      $ 1,061,075   

Interest bearing demand

     1,156,949        885,037   

Money market

     989,888        954,957   

Savings deposits

     1,075,711        842,818   

Certificates of deposit

     1,778,565        1,305,096   
  

 

 

   

 

 

 

Total deposits

     6,259,045        5,048,983   
  

 

 

   

 

 

 

Federal Home Loan Bank borrowings

     781,332        223,126   

Other short-term borrowings

     73,868        80,690   

Junior subordinated debt owed to unconsolidated subsidiary trusts

     106,196        106,176   
  

 

 

   

 

 

 

Total borrowings

     961,396        409,992   
  

 

 

   

 

 

 

Accrued interest payable

     2,542        1,620   

Other liabilities

     57,783        47,780   
  

 

 

   

 

 

 

Total Liabilities

     7,280,766        5,508,375   
  

 

 

   

 

 

 

SHAREHOLDERS’ EQUITY

    

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

     —          —     

Common stock, $2.0833 par value; 100,000,000 and 50,000,000 shares authorized in 2015 and 2014, respectively; 38,546,042 and 29,367,511 issued in 2015 and 2014, respectively; outstanding: 38,519,170 and 29,298,188 shares in 2015 and 2014, respectively

     80,304        61,182   

Capital surplus

     516,990        244,661   

Retained earnings

     522,388        504,578   

Treasury stock (26,872 and 69,323 shares in 2015 and 2014, respectively, at cost)

     (867     (2,151

Accumulated other comprehensive loss

     (21,702     (18,825

Deferred benefits for directors

     (2,460     (1,255
  

 

 

   

 

 

 

Total Shareholders’ Equity

     1,094,653        788,190   
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 8,375,419      $ 6,296,565   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

3


Table of Contents

WESBANCO, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

     For the Three Months Ended
June 30,
    For the Six Months Ended
June 30,
 

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

   2015      2014     2015      2014  

INTEREST AND DIVIDEND INCOME

          

Loans, including fees

   $ 52,316       $ 42,546      $ 100,036       $ 85,291   

Interest and dividends on securities:

          

Taxable

     10,043         7,452        18,542         14,676   

Tax-exempt

     4,052         3,435        7,585         6,821   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest and dividends on securities

     14,095         10,887        26,127         21,497   
  

 

 

    

 

 

   

 

 

    

 

 

 

Other interest income

     318         611        954         713   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest and dividend income

     66,729         54,044        127,117         107,501   
  

 

 

    

 

 

   

 

 

    

 

 

 

INTEREST EXPENSE

          

Interest bearing demand deposits

     485         395        907         768   

Money market deposits

     490         466        945         907   

Savings deposits

     163         133        311         263   

Certificates of deposit

     2,869         3,422        5,741         7,052   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest expense on deposits

     4,007         4,416        7,904         8,990   
  

 

 

    

 

 

   

 

 

    

 

 

 

Federal Home Loan Bank borrowings

     949         175        1,507         386   

Other short-term borrowings

     92         350        165         907   

Junior subordinated debt owed to unconsolidated subsidiary trusts

     888         796        1,784         1,587   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest expense

     5,936         5,737        11,360         11,870   
  

 

 

    

 

 

   

 

 

    

 

 

 

NET INTEREST INCOME

     60,793         48,307        115,757         95,631   

Provision for credit losses

     2,681         849        3,970         3,048   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net interest income after provision for credit losses

     58,112         47,458        111,787         92,583   
  

 

 

    

 

 

   

 

 

    

 

 

 

NON-INTEREST INCOME

          

Trust fees

     5,476         5,210        11,529         10,858   

Service charges on deposits

     4,249         4,078        7,918         7,937   

Electronic banking fees

     3,496         3,267        6,821         6,281   

Net securities brokerage revenue

     1,842         2,003        3,901         3,832   

Bank-owned life insurance

     989         1,821        2,244         2,695   

Net gains on sales of mortgage loans

     407         475        679         628   

Net securities gains

     —           165        22         175   

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

     152         (165     185         (52

Other income

     1,461         1,387        2,955         2,936   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total non-interest income

     18,072         18,241        36,254         35,290   
  

 

 

    

 

 

   

 

 

    

 

 

 

NON-INTEREST EXPENSE

          

Salaries and wages

     19,300         16,904        37,636         33,370   

Employee benefits

     6,807         5,529        14,123         11,238   

Net occupancy

     3,243         2,857        6,765         6,348   

Equipment

     3,017         2,914        5,958         5,698   

Marketing

     1,715         1,713        2,707         2,716   

FDIC insurance

     1,040         880        1,950         1,757   

Amortization of intangible assets

     944         482        1,510         977   

Restructuring and merger-related expense

     1,115         —          10,848         —     

Other operating expenses

     9,408         9,025        18,550         18,294   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total non-interest expense

     46,589         40,304        100,047         80,398   
  

 

 

    

 

 

   

 

 

    

 

 

 

Income before provision for income taxes

     29,595         25,395        47,994         47,475   

Provision for income taxes

     7,962         6,520        12,482         12,179   
  

 

 

    

 

 

   

 

 

    

 

 

 

NET INCOME

   $ 21,633       $ 18,875      $ 35,512       $ 35,296   
  

 

 

    

 

 

   

 

 

    

 

 

 

EARNINGS PER COMMON SHARE

          

Basic

   $ 0.56       $ 0.65      $ 0.97       $ 1.21   

Diluted

   $ 0.56       $ 0.64      $ 0.97       $ 1.20   
  

 

 

    

 

 

   

 

 

    

 

 

 

AVERAGE COMMON SHARES OUTSTANDING

          

Basic

     38,472,229         29,242,180        36,443,951         29,212,347   

Diluted

     38,531,700         29,321,927        36,504,671         29,293,424   
  

 

 

    

 

 

   

 

 

    

 

 

 

DIVIDENDS DECLARED PER COMMON SHARE

   $ 0.23       $ 0.22      $ 0.46       $ 0.44   
  

 

 

    

 

 

   

 

 

    

 

 

 

COMPREHENSIVE INCOME

   $ 13,547       $ 22,943      $ 32,635       $ 42,637   
  

 

 

    

 

 

   

 

 

    

 

 

 

See Notes to Consolidated Financial Statements.

 

4


Table of Contents

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

 

For the Six Months Ended June 30, 2015 and 2014

 

     Common Stock                       

Accumulated

Other

    Deferred        

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

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

December 31, 2014

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

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     —          —           —          35,512        —          —          —          35,512   

Other comprehensive income

     —          —           —          —          —          (2,877     —          (2,877
                 

 

 

 

Comprehensive income

     —          —           —          —          —          —          —          32,635   

Common dividends declared ($0.46 per share)

     —          —           —          (17,702     —          —          —          (17,702

Shares issued for acquisition

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

Treasury shares acquired

     (50,224     —           —          —          (1,638     —          —          (1,638

Stock options exercised

     44,125        —           (223     —          1,396        —          —          1,173   

Restricted stock granted

     48,550        —           (1,526     —          1,526        —          —          —     

Repurchase of stock warrant

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

Stock compensation expense

     —          —           613        —          —          —          —          613   

Deferred benefits for directors- net

     —          —           1,205        —          —          —          (1,205     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

June 30, 2015

     38,519,170      $ 80,304       $ 516,990      $ 522,388      $ (867   $ (21,702   $ (2,460   $ 1,094,653   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2013

     29,175,236      $ 61,182       $ 244,974      $ 460,351      $ (5,969   $ (12,734   $ (1,209   $ 746,595   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     —          —           —          35,296        —          —          —          35,296   

Other comprehensive income

     —          —           —          —          —          7,341        —          7,341   
                 

 

 

 

Comprehensive income

     —          —           —          —          —          —          —          42,637   

Common dividends declared ($0.44 per share)

     —          —           —          (12,861     —          —          —          (12,861

Treasury shares acquired

     (2,258     —           49        —          (69     —          —          (20

Stock options exercised

     63,393        —           (311     —          1,969        —          —          1,658   

Restricted stock granted

     42,554        —           (1,321     —          1,321        —          —          —     

Stock compensation expense

     —          —           616        —          —          —          —          616   

Deferred benefits for directors- net

     —          —           22        —          —          —          (22     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

June 30, 2014

     29,278,925      $ 61,182       $ 244,029      $ 482,786      $ (2,748   $ (5,393   $ (1,231   $ 778,625   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

5


Table of Contents

WESBANCO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

     For the Six Months Ended
June 30,
 

(unaudited, in thousands)

   2015     2014  

NET CASH PROVIDED BY OPERATING ACTIVITIES

   $ 34,541      $ 41,380   
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Net increase in loans

     (156,166     (55,683

Securities available-for-sale:

    

Proceeds from sales

     560,736        3,491   

Proceeds from maturities, prepayments and calls

     121,699        117,595   

Purchases of securities

     (430,858     (182,501

Securities held-to-maturity:

    

Proceeds from maturities, prepayments and calls

     26,021        18,982   

Purchases of securities

     (173,754     (29,704

Proceeds from bank-owned life insurance

     1,185        —     

Cash paid to acquire a business, net of cash acquired

     (28,551     —     

Purchases of premises and equipment – net

     (4,835     (2,659
  

 

 

   

 

 

 

Net cash used in investing activities

     (84,523     (130,479
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

(Decrease) increase in deposits

     (35,196     55,248   

Proceeds from Federal Home Loan Bank borrowings

     675,000        115,532   

Repayment of Federal Home Loan Bank borrowings

     (509,029     (16,368

Decrease in other short-term borrowings

     (11,822     (35,609

Decrease in federal funds purchased

     —          (20,000

Repayment of junior subordinated debt

     (36,083     —     

Repurchase of common stock warrant

     (2,247     —     

Dividends paid to common shareholders

     (15,291     (12,256

Treasury shares (purchased) sold - net

     (614     1,489   
  

 

 

   

 

 

 

Net cash provided by financing activities

     64,718        88,036   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     14,736        (1,063

Cash and cash equivalents at beginning of the period

     94,002        95,551   
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 108,738      $ 94,488   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES

    

Interest paid on deposits and other borrowings

   $ 12,288      $ 12,532   

Income taxes paid

     5,070        7,850   

Transfers of loans to other real estate owned

     751        1,610   

Non-cash transactions related to ESB acquisition

     301,933        —     
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

6


Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation — The accompanying unaudited interim financial statements of WesBanco, Inc. and its consolidated subsidiaries (“WesBanco”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2014.

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 2014 Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of management, the accompanying interim financial information reflects all adjustments, including normal recurring adjustments, necessary to present fairly WesBanco’s financial position and results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year.

Recent accounting pronouncements — In May 2015, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (“ASU”) (ASU 2015-07) related to disclosures for investments in certain entities that calculate net asset value (NAV) per share (or its equivalent). This update removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient and modifies certain disclosure requirements. The update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2015, and requires retrospective adoption. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on WesBanco’s Consolidated Financial Statements.

In April 2015, the FASB issued ASU 2015-05 that provides guidance on when to account for a cloud computing arrangement as a software license. The guidance applies only to internal-use software that a customer obtains access to in a hosting arrangement if both of the following criteria are met: (1) The customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty, (2) it is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on WesBanco’s Consolidated Financial Statements.

In February 2015, the FASB issued ASU 2015-02 that revised the consolidation model, requiring reporting entities to reevaluate whether they should consolidate certain legal entities under the revised model. The amendments in this update modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, and eliminate the presumption that a general partner should consolidate and affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. The pronouncement also provides for a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on WesBanco’s Consolidated Financial Statements.

In August 2014, the FASB issued ASU 2014-14 related to the classification of certain government-guaranteed mortgage loans upon foreclosure. The amendments in this update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) The loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based upon the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The pronouncement is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014 and may be adopted under either a modified retrospective transition method or a prospective transition method. However, the same method of transition as elected under ASU 2014-04 must be applied. While early adoption was permitted, WesBanco elected to adopt the ASU in the first quarter of 2015, which was the first interim period after December 31, 2014. The adoption of this pronouncement did not have a material impact on WesBanco’s Consolidated Financial Statements.

        In June 2014, the FASB issued ASU 2014-11 related to repurchase-to-maturity transactions, repurchase financing and disclosures. The pronouncement changes the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements. The pronouncement also requires two new disclosures. The first disclosure requires an entity to disclose information on transfers accounted for as sales in transactions that are economically similar to repurchase agreements. The second disclosure provides increased transparency about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The pronouncement is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. While early adoption was not permitted, WesBanco elected to adopt the ASU in the first quarter of 2015, which was the first interim period after December 31, 2014. Early adoption was not permitted. The adoption of this pronouncement did not have a material impact on WesBanco’s Consolidated Financial Statements.

In May 2014, the FASB issued ASU 2014-09 related to the recognition of revenue from contracts with customers. The new revenue pronouncement creates a single source of revenue guidance for all companies in all industries and is more principles-based than current revenue guidance. The pronouncement provides a five-step model for a company to recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. The five steps are, (1) identify the contract with the customer, (2) identify the separate performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and (5) recognize revenue when each performance obligation is satisfied. The

 

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pronouncement was originally effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016 using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. Early adoption is not permitted. On July 9, 2015, the FASB approved a one-year deferral of the effective date of the update. The update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. Early adoption is now permitted as of the original effective date for interim and annual reporting periods in fiscal years beginning after December 15, 2016. WesBanco is currently evaluating the impact of the adoption of this pronouncement on its Consolidated Financial Statements.

NOTE 2. MERGERS AND ACQUISITIONS

On February 10, 2015, WesBanco completed its acquisition of ESB Financial Corporation (“ESB”), and its wholly-owned banking subsidiary, ESB Bank (“ESB Bank”), a Pennsylvania-chartered stock savings bank headquartered in Ellwood City, Pennsylvania. The transaction expanded WesBanco’s franchise in the Pittsburgh region of western Pennsylvania from 16 to 38 offices.

On the acquisition date, ESB had $1.9 billion in assets, excluding goodwill, which included $700.9 million in loans, and $486.9 million in securities. The ESB acquisition was valued at $339.0 million, based on WesBanco’s closing stock price on February 10, 2015 of $32.00, and resulted in WesBanco issuing 9,178,531 shares of its common stock and $45.0 million in cash and other assets in exchange for ESB common stock. The assets and liabilities of ESB were recorded on WesBanco’s balance sheet at their preliminary estimated fair values as of February 10, 2015, the acquisition date, and ESB’s results of operations have been included in WesBanco’s Consolidated Statements of Income since that date. ESB was merged into WesBanco and ESB Bank was merged into WesBanco Bank, Inc. (the “Bank”) on February 10, 2015. Based on a preliminary purchase price allocation, WesBanco recorded $169.3 million in goodwill and $5.3 million in core deposit intangibles in its community banking segment, representing the principal change in goodwill and intangibles from December 31, 2014. The fair values for the assets acquired and liabilities assumed are provisional amounts and are currently under review. Due to the timing of the ESB acquisition, WesBanco is still in the process of completing its fair market valuation, including the valuation of certain tangible and intangible assets as well as deferred income taxes. None of the goodwill is deductible for income tax purposes as the acquisition is accounted for as a tax-free exchange for tax purposes. As a result of the full integration of the operations of ESB, it is not practicable to determine the proforma results or revenue and net income included in WesBanco’s operating results relating to ESB since the date of acquisition because ESB has been fully integrated into WesBanco’s operations, and the operating results of ESB can therefore not be separately identified.

For the six months ended June 30, 2015, WesBanco recorded merger-related expenses of $10.8 million associated with the ESB acquisition. In 2014 WesBanco recognized $1.3 million in merger-related expenses in connection with the ESB acquisition.

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

 

(unaudited, in thousands)

   February 10, 2015  

Purchase Price:

  

Fair value of WesBanco shares issued, (net of equity issuance costs of $0.1 million)

   $ 293,933   

Cash consideration for outstanding ESB shares, options and restricted stock

     37,036   

Settlement of pre-existing loan to ESB

     8,000   
  

 

 

 

Total purchase price

   $ 338,969   

Fair value of:

  

Tangible assets acquired

   $ 1,858,360   

Core deposit and other intangible assets acquired

     5,346   

Liabilities assumed

     (1,702,554

Net cash received in the acquisition

     8,485   
  

 

 

 

Fair value of net assets acquired

     169,637   
  

 

 

 

Goodwill recognized

   $ 169,332   
  

 

 

 

 

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The following table presents the preliminary allocation of the purchase price of the assets acquired and the liabilities assumed at the date of acquisition, as WesBanco intends to finalize its accounting for the acquisition of ESB during 2015:

 

(unaudited, in thousands)

   February 10, 2015  

Assets

  

Cash and due from banks

   $ 8,485   

Securities

     486,891   

Loans

     700,933   

Goodwill and other intangible assets

     174,678   

Accrued income and other assets (1)

     670,536   
  

 

 

 

Total Assets

   $ 2,041,523   
  

 

 

 

Liabilities

  

Deposits

   $ 1,246,992   

Borrowings

     433,454   

Accrued expenses and other liabilities

     22,108   
  

 

 

 

Total liabilities

     1,702,554   
  

 

 

 

Purchase price

   $ 338,969   
  

 

 

 

 

(1) 

Includes receivables of $560.7 million from the sale of available-for-sale securities prior to the acquisition date.

NOTE 3. EARNINGS PER COMMON SHARE

Earnings per common share are calculated as follows:

 

     For the Three Months Ended      For the Six Months Ended  
     June 30,      June 30,  

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

   2015      2014      2015      2014  

Numerator for both basic and diluted earnings per common share:

           

Net income

   $ 21,633       $ 18,875       $ 35,512       $ 35,296   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

Total average basic common shares outstanding

     38,472,229         29,242,180         36,443,951         29,212,347   

Effect of dilutive stock options and warrant

     59,471         79,747         60,720         81,077   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total diluted average common shares outstanding

     38,531,700         29,321,927         36,504,671         29,293,424   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per common share - basic

   $ 0.56       $ 0.65       $ 0.97       $ 1.21   

Earnings per common share - diluted

   $ 0.56       $ 0.64       $ 0.97       $ 1.20   
  

 

 

    

 

 

    

 

 

    

 

 

 

All stock options outstanding were included in the computation of diluted earnings per share for the three and six months ended June 30, 2015 and 2014, respectively, as all were considered dilutive.

On February 10, 2015, WesBanco issued 9,178,531 shares to complete its acquisition of ESB. These shares are included in average shares outstanding beginning on that date. For additional information relating to the ESB acquisition, refer to Note 2, “Mergers and Acquisitions.”

 

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NOTE 4. SECURITIES

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

 

     June 30, 2015      December 31, 2014  

(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

                     

Obligations of government agencies

   $ 80,160       $ 1,172       $ (295   $ 81,037       $ 86,964       $ 1,087       $ (315   $ 87,736   

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

     1,239,616         3,868         (11,062     1,232,422         703,535         4,336         (6,758     701,113   

Obligations of states and political subdivisions

     88,267         4,592         (88     92,771         86,073         5,365         (5     91,433   

Corporate debt securities

     177,395         262         (343     177,314         25,974         141         (119     25,996   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total debt securities

   $ 1,585,438       $ 9,894       $ (11,788   $ 1,583,544       $ 902,546       $ 10,929       $ (7,197   $ 906,278   

Equity securities

     10,533         581         —          11,114         10,304         842         —          11,146   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

   $ 1,595,971       $ 10,475       $ (11,788   $ 1,594,658       $ 912,850       $ 11,771       $ (7,197   $ 917,424   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Held-to-maturity

                     

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

   $ 120,576       $ 2,501       $ (1,153   $ 121,924       $ 79,004       $ 3,262       $ (246   $ 82,020   

Obligations of states and political subdivisions

     718,230         19,754         (5,270     732,714         507,927         23,917         (1,043     530,801   

Corporate debt securities

     9,610         49         (71     9,588         6,739         106         (49     6,796   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total held-to-maturity securities

   $ 848,416       $ 22,304       $ (6,494   $ 864,226       $ 593,670       $ 27,285       $ (1,338   $ 619,617   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total securities

   $ 2,444,387       $ 32,779       $ (18,282   $ 2,458,884       $ 1,506,520       $ 39,056       $ (8,535   $ 1,537,041   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

At June 30, 2015, and December 31, 2014, there were no holdings of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of WesBanco’s shareholders’ equity.

The following table presents the fair value of available-for-sale and held-to-maturity securities by contractual maturity at June 30, 2015. In some instances, the issuers may have the right to call or prepay obligations without penalty prior to the contractual maturity date.

 

     June 30, 2015  

(unaudited, in thousands)

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

Available-for-sale

                 

Obligations of government agencies

   $ —         $ 25,230       $ 38,977       $ 16,830       $ —         $ 81,037   

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

     —           —           —           —           1,232,422         1,232,422   

Obligations of states and political subdivisions

     4,745         31,657         27,147         29,222         —           92,771   

Corporate debt securities

     82,862         56,218         33,344         4,890         —           177,314   

Equity securities (2)

     —           —           —           —           11,114         11,114   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

   $ 87,607       $ 113,105       $ 99,468       $ 50,942       $ 1,243,536       $ 1,594,658   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held-to-maturity (3)

                 

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

   $ —         $ —         $ —         $ —         $ 121,924       $ 121,924   

Obligations of states and political subdivisions

     1,877         27,296         319,753         383,788         —           732,714   

Corporate debt securities

     —           1,010         8,578         —           —           9,588   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total held-to-maturity securities

   $ 1,877       $ 28,306       $ 328,331       $ 383,788       $ 121,924       $ 864,226   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities

   $ 89,484       $ 141,411       $ 427,799       $ 434,730       $ 1,365,460       $ 2,458,884   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Mortgage-backed and collateralized mortgage securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds.

(2)

Equity securities, which have no stated maturity, are not assigned a maturity category.

(3) 

The held-to-maturity portfolio is carried at an amortized cost of $848.4 million.

 

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Securities with aggregate fair values of $1.1 billion and $706.5 million at June 30, 2015 and December 31, 2014, respectively, were pledged as security for public and trust funds, and securities sold under agreements to repurchase. Proceeds from the sale of available-for-sale securities were $560.7 million, primarily due to the ESB portfolio restructuring, and $3.5 million for the six months ended June 30, 2015 and 2014, respectively. Net unrealized (losses) gains on available-for-sale securities included in accumulated other comprehensive income net of tax, as of June 30, 2015 and December 31, 2014 were ($0.8) million and $2.9 million, respectively.

The following table presents the gross realized gains and losses on sales and calls of securities for the three and six months ended June 30, 2015 and 2014, respectively.

 

     For the Three Months Ended      For the Six Months Ended  
     June 30,      June 30,  

(unaudited, in thousands)

   2015      2014      2015      2014  

Gross realized gains

   $ 2       $ 170       $ 26       $ 365   

Gross realized losses

     (2      (5      (4      (190
  

 

 

    

 

 

    

 

 

    

 

 

 

Net realized gains (losses)

   $ —         $ 165       $ 22       $ 175   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following tables provide information on unrealized losses on investment securities that have been in an unrealized loss position for less than twelve months and twelve months or more as of June 30, 2015 and December 31, 2014:

 

    June 30, 2015  
    Less than 12 months     12 months or more     Total  

(unaudited, dollars in thousands)

  Fair
Value
    Unrealized
Losses
    # of
Securities
    Fair
Value
    Unrealized
Losses
    # of
Securities
    Fair
Value
    Unrealized
Losses
    # of
Securities
 

Obligations of government agencies

  $ 37,435      $ (295     9      $ —        $ —          —        $ 37,435      $ (295     9   

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

    755,016        (7,346     138        164,273        (4,869     33        919,289        (12,215     171   

Obligations of states and political subdivisions

    299,339        (4,629     415        21,889        (729     33        321,228        (5,358     448   

Corporate debt securities

    93,533        (318     27        4,890        (96     2        98,423        (414     29   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total temporarily impaired securities

  $ 1,185,323      $ (12,588     589      $ 191,052      $ (5,694     68      $ 1,376,375      $ (18,282     657   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 2014  
    Less than 12 months     12 months or more     Total  

(unaudited, dollars in thousands)

  Fair
Value
    Unrealized
Losses
    # of
Securities
    Fair
Value
    Unrealized
Losses
    # of
Securities
    Fair
Value
    Unrealized
Losses
    # of
Securities
 

Obligations of government agencies

  $ 19,362      $ (77     5      $ 19,757      $ (238     4      $ 39,119      $ (315     9   

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

    78,786        (386     19        240,055        (6,618     43        318,841        (7,004     62   

Obligations of states and political subdivisions

    12,615        (96     15        61,548        (952     93        74,163        (1,048     108   

Corporate debt securities

    2,969        (31     1        4,573        (137     2        7,542        (168     3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total temporarily impaired securities

  $ 113,732      $ (590     40      $ 325,933      $ (7,945     142      $ 439,665      $ (8,535     182   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 there are no debt securities rated below 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 and FHLB of Cincinnati stock totaling $35.0 million and $11.6 million at June 30, 2015 and December 31, 2014, respectively, and are included in other assets in the Consolidated Balance Sheets. Cost method investments are evaluated for impairment whenever events or circumstances suggest that their carrying value may not be recoverable.

 

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NOTE 5. LOANS AND THE ALLOWANCE FOR CREDIT LOSSES

The recorded investment in loans is presented in the Consolidated Balance Sheets net of deferred loan fees and costs of $1.7 million and $2.4 million at June 30, 2015 and December 31, 2014, respectively.

 

(unaudited, in thousands)

   June 30,
2015
     December 31,
2014
 

Commercial real estate:

     

Land and construction

   $ 308,885       $ 262,643   

Improved property

     1,885,228         1,682,817   
  

 

 

    

 

 

 

Total commercial real estate

     2,194,113         1,945,460   
  

 

 

    

 

 

 

Commercial and industrial

     733,478         638,410   

Residential real estate

     1,241,470         928,770   

Home equity

     379,740         330,031   

Consumer

     384,844         244,095   
  

 

 

    

 

 

 

Total portfolio loans

     4,933,645         4,086,766   
  

 

 

    

 

 

 

Loans held for sale

     11,160         5,865   
  

 

 

    

 

 

 

Total loans

   $ 4,944,805       $ 4,092,631   
  

 

 

    

 

 

 

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 Six Months Ended June 30, 2015 and 2014
 

(unaudited, in thousands)

  Commercial
Real Estate-
Land and
Construction
    Commercial
Real Estate-
Improved
Property
    Commercial
& Industrial
    Residential
Real Estate
    Home
Equity
    Consumer     Deposit
Overdraft
    Total  

Balance at December 31, 2014:

               

Allowance for loan losses

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

Allowance for loan commitments

    194        10        112        9        90        40        —          455   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total beginning allowance for credit losses

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses:

               

Provision for loan losses

    (551     633        1,448        25        1,254        580        231        3,620   

Provision for loan commitments

    13        10        301        3        23        —          —          350   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for credit losses

    (538     643        1,749        28        1,277        580        231        3,970   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

    —          (1,234     (1,430     (944     (948     (1,414     (381     (6,351

Recoveries

    —          256        110        301        53        658        118        1,496   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

    —          (978     (1,320     (643     (895     (756     (263     (4,855
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2015:

               

Allowance for loan losses

    5,103        17,228        9,191        4,764        2,688        3,902        543        43,419   

Allowance for loan commitments

    207        20        413        12        113        40        —          805   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance for credit losses

  $ 5,310      $ 17,248      $ 9,604      $ 4,776      $ 2,801      $ 3,942      $ 543      $ 44,224   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013:

               

Allowance for loan losses

  $ 6,056      $ 18,157      $ 9,925      $ 5,673      $ 2,017      $ 5,020      $ 520      $ 47,368   

Allowance for loan commitments

    301        62        130        5        85        19        —          602   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total beginning allowance for credit losses

    6,357        18,219        10,055        5,678        2,102        5,039        520        47,970   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses:

               

Provision for loan losses

    (405     (511     1,870        575        392        642        551        3,114   

Provision for loan commitments

    (20     (52     1        —          5        —          —          (66
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for credit losses

    (425     (563     1,871        575        397        642        551        3,048   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

    —          (728     (2,384     (1,207     (348     (1,610     (362     (6,639

Recoveries

    —          390        543        248        71        512        134        1,898   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

    —          (338     (1,841     (959     (277     (1,098     (228     (4,741
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2014:

               

Allowance for loan losses

    5,651        17,308        9,954        5,289        2,132        4,564        843        45,741   

Allowance for loan commitments

    281        10        131        5        90        19        —          536   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance for credit losses

  $ 5,932      $ 17,318      $ 10,085      $ 5,294      $ 2,222      $ 4,583      $ 843      $ 46,277   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

12


Table of Contents

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

 

     Allowance for Credit Losses and Recorded Investment in Loans  

(unaudited, in thousands)

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

Industrial
     Residential
Real Estate
     Home
Equity
     Consumer      Over-draft      Total  

June 30, 2015

                       

Allowance for credit losses:

                       

Allowance for loans individually evaluated for impairment

   $ —         $ 2,891       $ 1,021       $ —         $ —         $ —         $ —         $ 3,912   

Allowance for loans collectively evaluated for impairment

     5,103         14,337         8,170         4,764         2,688         3,902         543         39,507   

Allowance for loan commitments

     207         20         413         12         113         40         —           805   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for credit losses

   $ 5,310       $ 17,248       $ 9,604       $ 4,776       $ 2,801       $ 3,942       $ 543       $ 44,224   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio loans:

                       

Individually evaluated for impairment (1)

   $ 1,040       $ 18,054       $ 5,388       $ —         $ —         $ —         $ —         $ 24,482   

Collectively evaluated for impairment

     307,845         1,867,174         728,090         1,241,470         379,740         384,844         —           4,909,163   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

   $ 308,885       $ 1,885,228       $ 733,478       $ 1,241,470       $ 379,740       $ 384,844       $ —         $ 4,933,645   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2014

                       

Allowance for credit losses:

                       

Allowance for loans individually evaluated for impairment

   $ —         $ 2,765       $ 1,033       $ —         $ —         $ —         $ —         $ 3,798   

Allowance for loans collectively evaluated for impairment

     5,654         14,808         8,030         5,382         2,329         4,078         575         40,856   

Allowance for loan commitments

     194         10         112         9         90         40         —           455   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for credit losses

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio loans:

                       

Individually evaluated for impairment (1)

   $ —         $ 11,469       $ 2,844       $ —         $ —         $ —         $ —         $ 14,313   

Collectively evaluated for impairment

     262,643         1,671,348         635,566         928,770         330,031         244,095         —           4,072,453   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

   $ 262,643       $ 1,682,817       $ 638,410       $ 928,770       $ 330,031       $ 244,095       $ —         $ 4,086,766   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Commercial loans greater than $1 million that are reported as non-accrual or as troubled debt restructuring (“TDR”), including acquired with deteriorated credit quality, are individually evaluated for impairment.

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

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

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

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

 

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Table of Contents

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

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

 

     Commerical Loans by Internally Assigned Risk Grade  

(unaudited, in thousands)

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

As of June 30, 2015

           

Pass

   $ 302,514       $ 1,830,655       $ 711,497       $ 2,844,666   

Criticized - compromised

     3,664         13,463         11,153         28,280   

Classified - substandard

     2,707         41,110         10,828         54,645   

Classified - doubtful

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 308,885       $ 1,885,228       $ 733,478       $ 2,927,591   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2014

           

Pass

   $ 257,218       $ 1,627,771       $ 617,742       $ 2,502,731   

Criticized - compromised

     3,645         17,873         12,770         34,288   

Classified - substandard

     1,780         37,173         7,898         46,851   

Classified - doubtful

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 262,643       $ 1,682,817       $ 638,410       $ 2,583,870   
  

 

 

    

 

 

    

 

 

    

 

 

 

Residential real estate, home equity and consumer loans are not assigned internal risk grades other than as required by regulatory guidelines that are based primarily on the age of past due loans. WesBanco primarily evaluates the credit quality of residential real estate, home equity and consumer loans based on repayment performance and historical loss rates. The aggregate amount of residential real estate, home equity and consumer loans classified as substandard in accordance with regulatory guidelines were $15.3 million at June 30, 2015 and $15.2 million at December 31, 2014, of which $2.3 and $2.2 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.

 

14


Table of Contents

Acquired Loans - Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value in accordance with ASC 805, Business Combinations, with no carryover of related allowance for credit losses. Determining the fair value of the acquired loans involves estimating the principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considers a number of factors in evaluating the acquisition-date fair value including the remaining life of the acquired loans, delinquency status, estimated prepayments, payment options and other loan features, internal risk grade, estimated value of the underlying collateral and interest rate environment.

Loans acquired with deteriorated credit quality are accounted for in accordance with ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (ASC 310-30), and therefore impaired if, at acquisition, the loans have evidence of credit quality deterioration since origination and it is probable that all contractually required payments will not be collected. At acquisition, WesBanco considers several factors as indicators that an acquired loan has evidence of deterioration in credit quality. These factors include loans 90 days or more past due, loans with an internal risk grade of substandard or below, loans classified as non-accrual by the acquired institution, and loans that have been previously modified as a TDR.

Acquired loans that were not individually determined to be impaired are considered performing and are accounted for in accordance with ASC 310-20, Nonrefundable Fees and Other Costs (ASC 310-20), whereby the premium or discount derived from the fair market value adjustment, on a loan-by-loan or pooled basis, is recognized into interest income on a level yield over the remaining expected life of the loan or pool.

Under the ASC 310-30 model, the excess of cash flows expected to be collected at acquisition over recorded fair value is referred to as the accretable yield and is the interest component of expected cash flow. The accretable yield is recognized into income over the remaining life of the loan if the timing and/or amount of cash flows expected to be collected can be reasonably estimated. If the timing or amount of cash flows expected to be collected cannot be reasonably estimated, the cost recovery method of income recognition is used. The difference between the loan’s total scheduled principal and interest payments over all cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the non-accretable difference. The non-accretable difference represents contractually required principal and interest payments which WesBanco does not expect to collect.

Over the life of the loan, management continues to estimate cash flows expected to be collected. Decreases in expected cash flows are recognized as impairments through a charge to the provision for loan losses resulting in an increase in the allowance for loan losses. Subsequent improvements in cash flows result in first, reversal of existing valuation allowances recognized subsequent to acquisition, if any, and next, an increase in the amount of accretable yield to be subsequently recognized in interest income on a prospective basis over the loan’s remaining life.

In conjunction with the ESB acquisition, WesBanco acquired loans with a book value of $716.2 million. These loans were recorded at their fair value of $700.9 million, with $690.1 million categorized as performing. The fair market value adjustment on performing loans of $10.0 million at acquisition date is expected to be recognized into interest income on a level yield basis over the remaining expected life of the performing loans.

Loans acquired with deteriorated credit quality with a book value of $16.1 million and contractually required payments of $21.7 million were recorded at their estimated fair value of $10.8 million. The accretable yield on the acquired impaired loans was estimated at $1.9 million at the acquisition date with $1.6 million remaining at June 30, 2015. For the six months ended June 30, 2015 accretion recognized in interest income on acquired impaired loans was $0.3 million. The balance of loans acquired with deteriorated credit quality at June 30, 2015, was $10.0 million, of which $8.5 million were categorized as non-accrual and $1.5 million were categorized as accruing TDRs, while the non-accretable difference was $9.0 million. At June 30, 2015 no allowance for loan losses has been recognized related to the acquired impaired loans.

 

15


Table of Contents

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

 

     Age Analysis of Loans  

(unaudited, in thousands)

   Current      30-59
Days
Past  Due
     60-89
Days
Past  Due
     90 Days
or More
Past Due
     Total
Past Due
     Total Loans      90 Days  or
More

Past Due and
Accruing (1)
 

As of June 30, 2015

                    

Commercial real estate:

                    

Land and construction

   $ 307,522       $ 252       $ —         $ 1,111       $ 1,363       $ 308,885       $ —     

Improved property

     1,870,393         1,304         797         12,734         14,835         1,885,228         180   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     2,177,915         1,556         797         13,845         16,198         2,194,113         180   

Commercial and industrial

     729,815         356         896         2,411         3,663         733,478         3   

Residential real estate

     1,229,198         1,014         3,322         7,936         12,272         1,241,470         1,838   

Home equity

     375,663         1,212         1,010         1,855         4,077         379,740         228   

Consumer

     381,146         2,753         618         327         3,698         384,844         222   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

     4,893,737         6,891         6,643         26,374         39,908         4,933,645         2,471   

Loans held for sale

     11,160         —           —           —           —           11,160         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 4,904,897       $ 6,891       $ 6,643       $ 26,374       $ 39,908       $ 4,944,805       $ 2,471   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans included above are as follows:

                    

Non-accrual loans

   $ 21,964       $ 1,030       $ 1,641       $ 23,569       $ 26,240       $ 48,204      

TDRs accruing interest (1)

     12,081         109         434         334         877         12,958      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total impaired

   $ 34,045       $ 1,139       $ 2,075       $ 23,903       $ 27,117       $ 61,162      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

As of December 31, 2014

                    

Commercial real estate:

                    

Land and construction

   $ 261,356       $ 20       $ —         $ 1,267       $ 1,287       $ 262,643       $ 71   

Improved property

     1,665,363         961         4,772         11,721         17,454         1,682,817         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     1,926,719         981         4,772         12,988         18,741         1,945,460         71   

Commercial and industrial

     634,482         1,834         240         1,854         3,928         638,410         22   

Residential real estate

     915,968         1,237         3,384         8,181         12,802         928,770         1,306   

Home equity

     325,291         1,877         895         1,968         4,740         330,031         570   

Consumer

     240,365         2,571         685         474         3,730         244,095         319   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

     4,042,825         8,500         9,976         25,465         43,941         4,086,766         2,288   

Loans held for sale

     5,865         —           —           —           —           5,865         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 4,048,690       $ 8,500       $ 9,976       $ 25,465       $ 43,941       $ 4,092,631       $ 2,288   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans included above are as follows:

                    

Non-accrual loans

   $ 7,562       $ 2,884       $ 5,552       $ 22,820       $ 31,256       $ 38,818      

TDRs accruing interest (1)

     11,016         151         542         357         1,050         12,066      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total impaired

   $ 18,578       $ 3,035       $ 6,094       $ 23,177       $ 32,306       $ 50,884      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

(1)

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

Impaired Loans — A loan is considered impaired, based on current information and events, if it is probable that WesBanco will be unable to collect the payments of principal and interest when due according to the contractual terms of the loan agreement. Impaired loans generally included all non-accrual loans and TDRs.

Loans are generally placed on non-accrual when they are 90 days past due unless the loan is well-secured and in the process of collection. Loans may also be placed on non-accrual when full collection of principal is in doubt even if payments on such loans remain current, or may remain on non-accrual if they were past due but subsequently brought current.

Loans are categorized as TDRs when the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider.

Acquired loans that have experienced a deterioration of credit quality from origination to acquisition for which it is probable that WesBanco will be unable to collect all contractually required payments receivable, including both principal and interest, are considered impaired.

 

16


Table of Contents

The following tables summarize impaired loans:

 

     Impaired Loans  
     June 30, 2015      December 31, 2014  

(unaudited, in thousands)

   Unpaid
Principal
Balance (1)
     Recorded
Investment
     Related
Allowance
     Unpaid
Principal
Balance (1)
     Recorded
Investment
     Related
Allowance
 

With no related specific allowance recorded:

                 

Commercial real estate:

                 

Land and construction

   $ 2,711       $ 2,509       $ —         $ 1,588       $ 1,488       $ —     

Improved property

     28,520         21,001         —           16,480         14,684         —     

Commercial and industrial

     5,926         3,461         —           3,152         2,597         —     

Residential real estate

     19,914         17,967         —           20,077         18,544         —     

Home equity

     3,293         2,995         —           2,890         2,663         —     

Consumer

     1,522         1,189         —           1,287         1,086         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

     61,886         49,122         —           45,474         41,062         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With a specific allowance recorded:

                 

Commercial real estate:

                 

Land and construction

     —           —           —           —           —           —     

Improved property

     7,511         7,511         2,891         7,980         7,980         2,765   

Commercial and industrial

     5,833         4,529         1,021         1,842         1,842         1,033   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

     13,344         12,040         3,912         9,822         9,822         3,798   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 75,230       $ 61,162       $ 3,912       $ 55,296       $ 50,884       $ 3,798   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

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

 

     Impaired Loans  
     For the Three Months Ended      For the Six Months Ended  
     June 30, 2015      June 30, 2014      June 30, 2015      June 30, 2014  
     Average      Interest      Average      Interest      Average      Interest      Average      Interest  
     Recorded      Income      Recorded      Income      Recorded      Income      Recorded      Income  

(unaudited, in thousands)

   Investment      Recognized      Investment      Recognized      Investment      Recognized      Investment      Recognized  

With no related specific allowance recorded:

                       

Commercial real estate:

                       

Land and construction

   $ 2,493       $ 2       $ 2,143       $ 13       $ 2,158       $ 18       $ 2,283       $ 15   

Improved Property

     21,741         240         18,572         133         19,389         463         18,924         153   

Commercial and industrial

     2,947         49         4,122         57         2,830         62         3,831         89   

Residential real estate

     18,550         235         18,864         209         18,548         465         19,272         391   

Home equity

     2,806         21         2,173         16         2,758         41         2,284         35   

Consumer

     1,261         26         1,135         18         1,202         46         1,150         46   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

     49,798         573         47,009         446         46,885         1,095         47,744         729   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With a specific allowance recorded:

                       

Commercial real estate:

                       

Land and construction

     —           —           —           —           —           —           —           —     

Improved Property

     6,989         56         727         3         7,319         56         727         4   

Commercial and industrial

     3,149         118         2,537         29         2,713         137         2,206         41   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

     10,138         174         3,264         32         10,032         193         2,933         45   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 59,936       $ 747       $ 50,273       $ 478       $ 56,917       $ 1,288       $ 50,677       $ 774   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

17


Table of Contents

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

 

     Non-accrual Loans (1)  

(unaudited, in thousands)

   June 30,
2015
     December 31,
2014
 

Commercial real estate:

     

Land and construction

   $ 1,382       $ 1,488   

Improved property

     26,103         20,227   
  

 

 

    

 

 

 

Total commercial real estate

     27,485         21,715   
  

 

 

    

 

 

 

Commercial and industrial

     7,664         4,110   

Residential real estate

     10,117         10,329   

Home equity

     2,251         1,923   

Consumer

     687         741   
  

 

 

    

 

 

 

Total

   $ 48,204       $ 38,818   
  

 

 

    

 

 

 

 

(1) 

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  
     June 30, 2015      December 31, 2014  

(unaudited, in thousands)

   Accruing      Non-
Accrual
     Total      Accruing      Non-
Accrual
     Total  

Commercial real estate:

                 

Land and construction

   $ 1,127       $ 501       $ 1,628       $ —         $ 464       $ 464   

Improved property

     2,409         9,761         12,170         2,437         1,850         4,287   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     3,536         10,262         13,798         2,437         2,314         4,751   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     326         293         619         329         478         807   

Residential real estate

     7,850         2,089         9,939         8,215         2,074         10,289   

Home equity

     744         278         1,022         740         245         985   

Consumer

     502         218         720         345         309         654   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 12,958       $ 13,140       $ 26,098       $ 12,066       $ 5,420       $ 17,486   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2015, there were two 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 $1.3 million and $0 as of June 30, 2015 and December 31, 2014, respectively.

The following table presents details related to loans identified as TDRs during the three and six months ended June 30, 2015 and 2014, respectively:

 

     New TDRs (1)  
     For the Three Months Ended  
     June 30, 2015      June 30, 2014  
            Pre-      Post-             Pre-      Post-  
            Modification      Modification             Modification      Modification  
            Outstanding      Outstanding             Outstanding      Outstanding  
     Number of      Recorded      Recorded      Number of      Recorded      Recorded  

(unaudited, dollars in thousands)

   Modifications      Investment      Investment      Modifications      Investment      Investment  

Commercial real estate:

                 

Land and construction

     —         $ —         $ —           —         $ —         $ —     

Improved Property

     —           —           —           1         112         112   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —           —           —           1         112         112   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     —           —           —           —           —           —     

Residential real estate

     1         41         39         2         70         70   

Home equity

     —           —           —           —           —           —     

Consumer

     —           —           —           9         100         93   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1       $ 41       $ 39         12       $ 282       $ 275   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

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

 

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Table of Contents
     New TDRs (1)  
     For the Six Months Ended  
     June 30, 2015      June 30, 2014  
            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

     9       $ 1,239       $ 1,160         —         $ —         $ —     

Improved Property

     7         9,336         8,784         2         203         201   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     16         10,575         9,944         2         203         201   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     2         42         53         —           —           —     

Residential real estate

     8         466         455         5         189         185   

Home equity

     1         7         6         —           —           —     

Consumer

     19         279         273         11         138         123   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     46       $ 11,369       $ 10,731         18       $ 530       $ 509   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

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

The following tables summarize TDRs which defaulted (defined as past due 90 days) during the six months ended June 30, 2015 and 2014, respectively, that were restructured within the last twelve months prior to June 30, 2015 and 2014, respectively:

 

     Defaulted TDRs (1)  
     For the Six Months Ended  
     June 30, 2015      June 30, 2014  
     Number of      Recorded      Number of      Recorded  

(unaudited, dollars in thousands)

   Defaults      Investment      Defaults      Investment  

Commercial real estate:

           

Land and construction

     —         $ —           —         $ —     

Improved property

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     —           —           —           —     

Residential real estate

     —           —           4         236   

Home equity

     1         42         —           —     

Consumer

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1       $ 42         4       $ 236   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Excludes loans that were either charged-off or cured by period end. The recorded investment is as of June 30, 2015 and 2014, respectively.

TDRs that defaulted during the six month period that were restructured within the last twelve months represented less than 1.0% of the total TDR balance at June 30, 2015. These loans are placed on non-accrual status unless they are both well-secured and in the process of collection. At June 30, 2015, the loan in the table above was not accruing interest.

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

 

      June 30,      December 31,  

(unaudited, in thousands)

   2015      2014  

Other real estate owned

   $ 5,912       $ 4,920   

Repossessed assets

     256         162   
  

 

 

    

 

 

 

Total other real estate owned and repossessed assets

   $ 6,168       $ 5,082   
  

 

 

    

 

 

 

Residential real estate included in other real estate owned at June 30, 2015 and December 31, 2014 was $1.9 million and $0.6 million, respectively. At June 30, 2015, formal foreclosure proceedings were in process on residential real estate loans totaling $3.6 million.

 

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Table of Contents

NOTE 6. PENSION PLAN

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

 

     For the Three Months Ended      For the Six Months Ended  
     June 30,      June 30,  

(unaudited, in thousands)

   2015      2014      2015      2014  

Service cost - benefits earned during year

   $ 836       $ 725       $ 1,663       $ 1,442   

Interest cost on projected benefit obligation

     1,214         1,183         2,415         2,353   

Expected return on plan assets

     (1,928      (1,802      (3,835      (3,585

Amortization of prior service cost

     6         11         12         22   

Amortization of net loss

     793         367         1,577         730   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic pension cost

   $ 921       $ 484       $ 1,832       $ 962   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 $3.1 million is due for 2015 which could be all or partially offset by the Plan’s $34.9 million available credit balance. A voluntary contribution of $3.5 million was made in June 2015.

 

20


Table of Contents

NOTE 7. FAIR VALUE MEASUREMENT

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

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

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

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

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

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

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

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

 

21


Table of Contents

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 June 30, 2015 and December 31, 2014:

 

            June 30, 2015  
            Fair Value Measurements Using:  

(unaudited, in thousands)

   June 30, 2015      Quoted Prices in
Active Markets
for Identical
Assets (level 1)
     Significant Other
Observable
Inputs
(level 2)
     Significant
Unobservable
Inputs

(level 3)
 

Recurring fair value measurements

           

Securities - available-for-sale

           

Obligations of government agencies

   $ 81,037       $ —         $ 81,037       $ —     

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

     1,232,422         —           1,232,422         —     

Obligations of state and political subdivisions

     92,771         —           92,771         —     

Corporate debt securities

     177,314         —           177,314         —     

Equity securities

     11,114         8,315         2,799         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities - available-for-sale

   $ 1,594,658       $ 8,315       $ 1,586,343       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring fair value measurements

   $ 1,594,658       $ 8,315       $ 1,586,343       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Nonrecurring fair value measurements

           

Impaired loans

   $ 8,128       $ —         $ —         $ 8,128   

Other real estate owned and repossessed assets

     6,168         —           —           6,168   

Loans held for sale

     11,160         —           11,160         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring fair value measurements

   $ 25,456       $ —         $ 11,160       $ 14,296   
  

 

 

    

 

 

    

 

 

    

 

 

 
            December 31, 2014  
            Fair Value Measurements Using:  

(unaudited, in thousands)

   December 31,
2014
     Quoted Prices in
Active Markets
for Identical
Assets (level 1)
     Significant Other
Observable
Inputs
(level 2)
     Significant
Unobservable
Inputs

(level 3)
 

Recurring fair value measurements

           

Securities - available-for-sale

           

Obligations of government agencies

   $ 87,736       $ —         $ 87,736       $ —     

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

     701,113         —           701,113         —     

Obligations of state and political subdivisions

     91,433         —           91,433         —     

Corporate debt securities

     25,996         —           25,996         —     

Equity securities

     11,146         8,440         2,706         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities - available-for-sale

   $ 917,424       $ 8,440       $ 908,984       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring fair value measurements

   $ 917,424       $ 8,440       $ 908,984       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Nonrecurring fair value measurements

           

Impaired loans

   $ 6,024       $ —         $ —         $ 6,024   

Other real estate owned and repossessed assets

     5,082         —           —           5,082   

Loans held for sale

     5,865         —           5,865         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring fair value measurements

   $ 16,971       $ —         $ 5,865       $ 11,106   
  

 

 

    

 

 

    

 

 

    

 

 

 

WesBanco’s policy is to recognize transfers between levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between level 1, 2 or 3 for the six months ended June 30, 2015 or 2014.

 

22


Table of Contents

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

(unaudited, in thousands)

   Fair Value
Estimate
    

Valuation Techniques

  

Unobservable Input

   Range (Weighted Average)

June 30, 2015:

           

Impaired loans

   $ 8,128       Appraisal of collateral (1)    Appraisal adjustments (2)    0% to (42.2%) / (16.6%)
         Liquidation expenses (2)    (2.9%) to (8.0%) / (6.7%)

Other real estate owned and repossessed assets

     6,168       Appraisal of collateral (1), (3)          

December 31, 2014:

           

Impaired loans

   $ 6,024       Appraisal of collateral (1)    Appraisal adjustments (2)    0% to (39.7%) / (6.7%)
         Liquidation expenses (2)    (1.2%) to (8.0%) / (6.7%)

Other real estate owned and repossessed assets

     5,082       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.

 

23


Table of Contents

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

 

                Fair Value Measurements at
June 30, 2015
 

(unaudited, in thousands)

  Carrying
Amount
    Fair Value
Estimate
    Quoted Prices in
Active Markets
for Identical
Assets (level 1)
    Significant Other
Observable
Inputs

(level 2)
    Significant
Unobservable
Inputs

(level 3)
 

Financial Assets

         

Cash and due from banks

  $ 108,738      $ 108,738      $ 108,738      $ —        $ —     

Securities available-for-sale

    1,594,658        1,594,658        8,315        1,586,343        —     

Securities held-to-maturity

    848,416        864,226        —          863,507        719   

Net loans

    4,890,226        4,883,371        —          —          4,883,371   

Loans held for sale

    11,160        11,160        —          11,160        —     

Accrued interest receivable

    24,739        24,739        24,739        —          —     

Bank-owned life insurance

    154,980        154,980        154,980        —          —     

Financial Liabilities

         

Deposits

    6,259,045        6,269,284        4,480,480        1,788,804        —     

Federal Home Loan Bank borrowings

    781,332        783,072        —          783,072        —     

Other borrowings

    73,868        73,866        70,991        2,875        —     

Junior subordinated debt

    106,196        78,628        —          78,628        —     

Accrued interest payable

    2,542        2,542        2,542        —          —     
                Fair Value Measurements at
December 31, 2014
 

(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)
 

Financial Assets

         

Cash and due from banks

  $ 94,002      $ 94,002      $ 94,002      $ —        $ —     

Securities available-for-sale

    917,424        917,424        8,440        908,984        —     

Securities held-to-maturity

    593,670        619,617        —          618,895        722   

Net loans

    4,042,112        4,047,648        —          —          4,047,648   

Loans held for sale

    5,865        5,865        —          5,865        —     

Accrued interest receivable

    18,481        18,481        18,481        —          —     

Bank-owned life insurance

    123,298        123,298        123,298        —          —     

Financial Liabilities

         

Deposits

    5,048,983        5,056,828        3,743,887        1,312,941        —     

Federal Home Loan Bank borrowings

    223,126        225,456        —          225,456        —     

Other borrowings

    80,690        80,696        77,534        3,162        —     

Junior subordinated debt

    106,176        79,212        —          79,212        —     

Accrued interest payable

    1,620        1,620        1,620        —          —     

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

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

Securities held-to-maturity: Fair values for securities held-to-maturity are determined in the same manner as securities available-for-sale which is 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. The valuation of the loan portfolio reflects discounts that WesBanco believes are consistent with transactions occurring in the marketplace for both performing and distressed loan types. The carrying value that fair value is compared to 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.

 

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Bank-owned life insurance: The carrying value of bank-owned life insurance represents the net cash surrender value of the underlying insurance policies, should these policies be terminated. Management believes that the carrying value 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.

Junior subordinated debt owed to unconsolidated subsidiary trusts: Due to the pooled nature of these instruments, which are not actively traded, estimated fair value is based on recent similar transactions of single-issuer trust preferred securities.

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

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

 

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NOTE 8. COMPREHENSIVE INCOME

The activity in accumulated other comprehensive income for the six months ended June 30, 2015 and 2014 is as follows:

 

     Accumulated Other Comprehensive Income (1)  

(unaudited, in thousands)

   Defined
Benefit
Pension
Plan
     Unrealized Gains
(Losses) on
Securities
Available-for-Sale
     Unrealized Gains
on Securities
Transferred

from Available-for-
Sale to
Held-to-Maturity
     Total  

Balance at December 31, 2014

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

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income before reclassifications

     —           (3,711      —           (3,711

Amounts reclassified from accumulated other comprehensive income

     981         (13      (134      834   
  

 

 

    

 

 

    

 

 

    

 

 

 

Period change

     981         (3,724      (134      (2,877
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at June 30, 2015

   $ (21,795    $ (832    $ 925       $ (21,702
  

 

 

    

 

 

    

 

 

    

 

 

 
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at December 31, 2013

   $ (7,966    $ (6,126    $ 1,358       $ (12,734
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income before reclassifications

     —           7,194         —           7,194   

Amounts reclassified from accumulated other comprehensive income

     475         (157      (171      147   
  

 

 

    

 

 

    

 

 

    

 

 

 

Period change

     475         7,037         (171      7,341   
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at June 30, 2014

   $ (7,491    $ 911       $ 1,187       $ (5,393
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

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

The following table provides details about amounts reclassified from accumulated other comprehensive income for the three and six months ended June 30, 2015 and 2014:

 

Details about Accumulated Other Comprehensive Income
Components

   For the Three
Months Ended
June 30,
    For the Six
Months Ended
June 30,
   

Affected Line Item in the
Statement of Net Income

(unaudited, in thousands)

   2015     2014     2015     2014      

Securities available-for-sale (1):

          

Net securities gains reclassified into earnings

   $ (2   $ (170   $ (20   $ (248   Net securities gains (Non-interest income)

Related income tax expense

     1        63        7        91      Provision for income taxes
  

 

 

   

 

 

   

 

 

   

 

 

   

Net effect on accumulated other comprehensive income for the period

     (1     (107     (13     (157  
  

 

 

   

 

 

   

 

 

   

 

 

   

Securities held-to-maturity (1):

          

Amortization of unrealized gain transferred from available-for-sale

     (107     (132     (214     (270   Interest and dividends on securities (Interest and dividend income)

Related income tax expense

     39        48        80        99      Provision for income taxes
  

 

 

   

 

 

   

 

 

   

 

 

   

Net effect on accumulated other comprehensive income for the period

     (68     (84     (134     (171  
  

 

 

   

 

 

   

 

 

   

 

 

   

Defined benefit pension plan (2):

          

Amortization of net loss and prior service costs

     799        378        1,589        752      Employee benefits (Non-interest expense)

Related income tax benefit

     (293     (139     (608     (277   Provision for income taxes
  

 

 

   

 

 

   

 

 

   

 

 

   

Net effect on accumulated other comprehensive income for the period

     506        239        981        475     
  

 

 

   

 

 

   

 

 

   

 

 

   

Total reclassifications for the period

   $ 437      $ 48      $ 834      $ 147     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

(1)

For additional detail related to unrealized gains on securities and related amounts reclassified from accumulated other comprehensive income see Note 4, “Securities.”

(2)

Included in the computation of net periodic pension cost. See Note 6, “Pension Plan” for additional detail.

 

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NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES

Commitments — In the normal course of business, WesBanco offers off-balance sheet credit arrangements to enable its customers to meet their financing objectives. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. WesBanco’s exposure to credit losses in the event of non-performance by the other parties to the financial instruments for commitments to extend credit and standby letters of credit is limited to the contractual amount of those instruments. WesBanco uses the same credit policies in making commitments and conditional obligations as for all other lending. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The allowance for credit losses associated with commitments was $0.8 million and $0.5 million as of June 30, 2015 and December 31, 2014, respectively, and is included in other liabilities on the Consolidated Balance Sheets.

Letters of credit are conditional commitments issued by banks to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including normal business activities, bond financing and similar transactions. Letters of credit are considered guarantees. The liability associated with letters of credit was $0.2 million as of June 30, 2015 and December 31, 2014, respectively.

Contingent obligations to purchase loans funded by other entities include affordable housing plan guarantees and credit card guarantees. 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 following table presents total commitments to extend credit, guarantees and various letters of credit outstanding:

 

      June 30,      December 31,  

(unaudited, in thousands)

   2015      2014  

Lines of credit

   $ 1,111,712       $ 984,352   

Loans approved but not closed

     333,624         116,757   

Overdraft limits

     107,619         95,965   

Letters of credit

     26,295         23,362   

Contingent obligations to purchase loans funded by other entities

     9,324         8,312   

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

 

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NOTE 10. BUSINESS SEGMENTS

WesBanco operates two reportable segments: community banking and trust and investment services. WesBanco’s community banking segment offers services traditionally offered by full-service commercial banks, including commercial demand, individual demand and time deposit accounts, as well as commercial, mortgage and individual installment loans, and certain non-traditional offerings, such as insurance and securities brokerage services. The trust and investment services segment offers trust services as well as various alternative investment products including mutual funds. The market value of assets managed or held in custody by the trust and investment services segment was approximately $3.8 billion at both June 30, 2015 and 2014. These assets are held by WesBanco in fiduciary or agency capacities for their customers and therefore are not included as assets on WesBanco’s Consolidated Balance Sheets.

Condensed financial information by business segment is presented below:

 

(unaudited, in thousands)

   Community
Banking
     Trust and
Investment
Services
     Consolidated  

For the Three Months ended June 30, 2015:

        

Interest income

   $ 66,729       $ —         $ 66,729   

Interest expense

     5,936         —           5,936   
  

 

 

    

 

 

    

 

 

 

Net interest income

     60,793         —           60,793   

Provision for credit losses

     2,681         —           2,681   
  

 

 

    

 

 

    

 

 

 

Net interest income after provision for credit losses

     58,112         —           58,112   

Non-interest income

     12,596         5,476         18,072   

Non-interest expense

     43,568         3,021         46,589   
  

 

 

    

 

 

    

 

 

 

Income before provision for income taxes

     27,140         2,455         29,595   

Provision for income taxes

     6,980         982         7,962   
  

 

 

    

 

 

    

 

 

 

Net income

   $ 20,160       $ 1,473       $ 21,633   
  

 

 

    

 

 

    

 

 

 

For the Three Months ended June 30, 2014:

        

Interest income

   $ 54,044       $ —         $ 54,044   

Interest expense

     5,737         —           5,737   
  

 

 

    

 

 

    

 

 

 

Net interest income

     48,307         —           48,307   

Provision for credit losses

     849         —           849   
  

 

 

    

 

 

    

 

 

 

Net interest income after provision for credit losses

     47,458         —           47,458   

Non-interest income

     13,031         5,210         18,241   

Non-interest expense

     37,367         2,937         40,304   
  

 

 

    

 

 

    

 

 

 

Income before provision for income taxes

     23,122         2,273         25,395   

Provision for income taxes

     5,611         909         6,520   
  

 

 

    

 

 

    

 

 

 

Net income

   $ 17,511       $ 1,364       $ 18,875   
  

 

 

    

 

 

    

 

 

 

For the Six Months ended June 30, 2015:

        

Interest income

   $ 127,117       $ —         $ 127,117   

Interest expense

     11,360         —           11,360   
  

 

 

    

 

 

    

 

 

 

Net interest income

     115,757         —           115,757   

Provision for credit losses

     3,970         —           3,970   
  

 

 

    

 

 

    

 

 

 

Net interest income after provision for credit losses

     111,787         —           111,787   

Non-interest income

     24,725         11,529         36,254   

Non-interest expense

     93,863         6,184         100,047   
  

 

 

    

 

 

    

 

 

 

Income before provision for income taxes

     42,649         5,345         47,994   

Provision for income taxes

     10,344         2,138         12,482   
  

 

 

    

 

 

    

 

 

 

Net income

   $ 32,305       $ 3,207       $ 35,512   
  

 

 

    

 

 

    

 

 

 

For the Six Months ended June 30, 2014:

        

Interest income

   $ 107,501       $ —         $ 107,501   

Interest expense

     11,870         —           11,870   
  

 

 

    

 

 

    

 

 

 

Net interest income

     95,631         —           95,631   

Provision for credit losses

     3,048         —           3,048   
  

 

 

    

 

 

    

 

 

 

Net interest income after provision for credit losses

     92,583         —           92,583   

Non-interest income

     24,432         10,858         35,290   

Non-interest expense

     74,193         6,205         80,398   
  

 

 

    

 

 

    

 

 

 

Income before provision for income taxes

     42,822         4,653         47,475   

Provision for income taxes

     10,318         1,861         12,179   
  

 

 

    

 

 

    

 

 

 

Net income

   $ 32,504       $ 2,792       $ 35,296   
  

 

 

    

 

 

    

 

 

 

Total non-fiduciary assets of the trust and investment services segment were $3.7 million and $3.9 million at June 30, 2015 and 2014, respectively. All other assets, including goodwill and other intangible assets, were allocated to the community banking segment.

 

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Table of Contents

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

Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of WesBanco for the three and six months ended June 30, 2015. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto.

FORWARD-LOOKING STATEMENTS

Forward-looking statements in this report relating to WesBanco’s plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The information contained in this report should be read in conjunction with WesBanco’s Form 10-K for the year ended December 31, 2014 and documents subsequently filed by WesBanco with the Securities and Exchange Commission (“SEC”), including WesBanco’s Form 10-Q for the quarter ended March 31, 2015, which are available at the SEC’s website, www.sec.gov or at WesBanco’s website, www.wesbanco.com. Investors are cautioned that forward-looking statements, which are not historical fact, involve risks and uncertainties, including those detailed in WesBanco’s most recent Annual Report on Form 10-K filed with the SEC under “Risk Factors” in Part I, Item 1A. Such statements are subject to important factors that could cause actual results to differ materially from those contemplated by such statements, including, without limitation, the effects of changing regional and national economic conditions; changes in interest rates, spreads on earning assets and interest-bearing liabilities, and associated interest rate sensitivity; sources of liquidity available to WesBanco and its related subsidiary operations; potential future credit losses and the credit risk of commercial, real estate, and consumer loan customers and their borrowing activities; actions of the Federal Reserve Board, the Federal Deposit Insurance Corporation, the SEC, the Financial Institution Regulatory Authority, the Municipal Securities Rulemaking Board, the Securities Investors Protection Corporation, and other regulatory bodies; potential legislative and federal and state regulatory actions and reform, including, without limitation, the impact of the implementation of the Dodd-Frank Act; adverse decisions of federal and state courts; fraud, scams and schemes of third parties; internet hacking; competitive conditions in the financial services industry; rapidly changing technology affecting financial services; marketability of debt instruments and corresponding impact on fair value adjustments; and/or other external developments materially impacting WesBanco’s operational and financial performance. WesBanco does not assume any duty to update forward-looking statements.

OVERVIEW

WesBanco is a multi-state bank holding company operating through 142 branches, one loan production office and 130 ATM machines in West Virginia, Ohio and western Pennsylvania, offering retail banking, corporate banking, personal and corporate trust services, brokerage services, mortgage banking and insurance. WesBanco’s businesses are significantly impacted by economic factors such as market interest rates, federal monetary and regulatory policies, local and regional economic conditions and the competitive environment’s effect upon WesBanco’s business volumes. WesBanco’s deposit levels are affected by numerous factors including personal savings rates, personal income, and competitive rates on alternative investments, as well as competition from other financial institutions within the markets we serve and liquidity needs of WesBanco. Loan levels are also subject to various factors including construction demand, business financing needs, consumer spending and interest rates, as well as loan terms offered by competing lenders.

On February 10, 2015, WesBanco completed the acquisition of ESB, a Pennsylvania savings bank holding company headquartered in Ellwood City, Lawrence County, northwest of Pittsburgh, PA, with approximately $1.9 billion in assets and 23 offices in four southwestern PA counties, three of which were in the Pittsburgh Metropolitan Statistical Area (“MSA”). WesBanco now has $8.4 billion in total assets; the transaction expanded WesBanco’s franchise in western Pennsylvania from 16 to 38 offices with approximately $1.7 billion in total deposits. ESB’s results were included in WesBanco’s results from the date of the consummation of the merger.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

WesBanco’s critical accounting policies involving the significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of June 30, 2015 have remained unchanged from the disclosures presented in WesBanco’s Annual Report on Form 10-K for the year ended December 31, 2014 within the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

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RESULTS OF OPERATIONS

EARNINGS SUMMARY

Net income for the three months ended June 30, 2015 was $21.6 million, while diluted earnings per share were $0.56, compared to $18.9 million or $0.64 per diluted share for the second quarter of 2014, representing an increase of 14.6%. Net income for the first half of 2015 was $35.5 million or $0.97 per diluted share compared to $35.3 million or $1.20 per diluted share for the same period of 2014, representing an increase of 0.6%. Net income for the three months ended June 30, 2015, excluding after-tax merger-related expenses of $0.7 million, was $22.4 million (non-GAAP measure) compared to $18.9 million for the second quarter of 2014, representing an increase of 18.5%. Diluted earnings per share, excluding after-tax merger-related expenses, were $0.58 (non-GAAP measure), compared to $0.64 per share for the second quarter of 2014. For the six month period ending June 30, 2015, net income excluding after-tax merger-related expenses of $7.1 million, was $42.6 million (non-GAAP measure) compared to $35.3 million for the first half of last year, representing an increase of 20.6%. Diluted earnings per share, excluding after-tax merger-related expenses, totaled $1.17 (non-GAAP measure), compared to $1.20 per share for the first six months of 2014. For the three and six month periods, temporary extra operating costs of $0.3 million and $0.8 million, after tax, were incurred between ESB closing and branch systems conversion.

 

     For the Three Months Ended June 30,      For the Six Months Ended June 30,  
     2015     2014      2015     2014  

(unaudited, dollars in thousands, except per share
amounts)

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

Net income (Non-GAAP)(1)

   $ 22,358      $ 0.58      $ 18,875       $ 0.64       $ 42,563      $ 1.17      $ 35,296       $ 1.20   

Less: After tax merger-related expenses

     (725     (0.02     —           —           (7,051     (0.20     —           —     
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Net income (GAAP)

   $ 21,633      $ 0.56      $ 18,875       $ 0.64       $ 35,512      $ 0.97      $ 35,296       $ 1.20   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

(1) The above non-GAAP financial measures used by WesBanco provide information useful to investors in understanding WesBanco’s operating performance and trends, and facilitate comparisons with the performance of WesBanco’s peers.

Net interest income increased $12.5 million or 25.8% in the second quarter of 2015 compared to the second quarter of 2014 due to a 33.2% increase in average earning assets, primarily from the ESB acquisition, and through a 7.8% increase in average loan balances, exclusive of ESB, somewhat offset by a 20 basis point decrease in the net interest margin. Year-to-date, net interest income increased $20.1 million or 21.0%. The net interest margin decreased to 3.44% in the second quarter compared to 3.64% in the same quarter of 2014. The decrease in the net interest margin is primarily due to a 51 basis point decline in the average rate earned on securities due to lower yields on ESB’s retained securities portfolio and other purchased securities. The lower securities rates were due to the low interest rate environment and were somewhat mitigated by a significantly smaller decrease in rates on loans of only 10 basis points, and a reduction in funding costs of 11 basis points. Funding costs continued to decrease in 2015 as a result of a 33 basis point decrease in the average rate on CDs as higher-rate CDs matured. Overall, average deposits increased by 23.9% in the second quarter of 2015 compared to the same quarter of 2014 with a rate decrease of 12 basis points. Increased average FHLB borrowings in the first half of 2015 were generally short to medium-term maturities resulting in a decrease in the second quarter rate by 203 basis points compared to the second quarter of 2014. In addition, the average rate on other borrowings decreased 98 basis points through the prepayment of a higher-rate $22.0 million repurchase agreement with another bank in the third quarter of 2014, and through maturities. The decline in the net interest margin is also due to asset and liability mix shifts post-ESB, with a greater percentage of lower-yielding investment securities and a greater percentage of CDs versus lower-cost deposit types. Excluding accretion of various purchase accounting adjustments relating to recent acquisitions and the interest recognized on a tax refund in 2014, the net interest margin would have been 3.32% and 3.38% in the second quarter and year-to-date periods of 2015, respectively, compared to 3.57% and 3.58% for the same periods of 2014.

The provision for credit losses was $2.7 million in the second quarter of 2015 compared to $0.8 million in the same quarter of 2014. Year-to-date, the provision was $4.0 million compared to $3.0 million in the first six months of 2014. Net charge-offs for the first half of 2015 were $4.9 million or 0.21% of average portfolio loans compared to $4.7 million or 0.25% in first half of 2014. The increase in both the provision and charge-offs were primarily due to one non-energy industry-related commercial credit placed on nonaccrual and charged-down by $1.3 million. Portfolio growth also impacted the provision. However, other credit quality metrics, including the loans acquired from ESB, continue to improve overall.

For the second quarter of 2015, non-interest income was relatively unchanged compared to the second quarter of 2014 primarily due to a $1.0 million bank-owned life insurance death benefit recorded in the second quarter of 2014. However, excluding such death benefit, non-interest income increased in the second quarter of 2015 by $0.8 million or 4.8%. Trust fees increased $0.3 million or 5.1% for the quarter from higher fees, customer development initiatives and overall market improvements. Total trust assets of $3.8 billion at June 30, 2015 were unchanged from June 30, 2014. Service charges on deposits increased $0.2 million or 4.2% from the addition of ESB and an overall higher fee schedule. Electronic banking fees increased $0.2 million or 7.0%. Net gains on sales of other assets improved by $0.3 million due to gains on sales of other real estate in 2015 and decreased losses on other assets. For the first six months of 2015, non-interest income increased by $1.0 million or 2.7%, reflecting similar trends as in the second quarter, however trust fees and electronic banking fees increased 6.2% and 8.6% respectively, compared to the first half of 2014.

In the second quarter of 2015, net revenue growth of 18.5% outpaced non-interest expense growth of 12.8%, excluding merger-related expenses, compared to the second quarter of 2014. As a result, the efficiency ratio (net of merger-related expenses) improved in the current quarter to 56.1% from 58.9% in the second quarter of 2014. Overall non-interest expense from the combined company increased $6.3 million in the second quarter, principally from the acquisition, and $1.1 million of merger-related expenses. Excluding merger-related expenses, non-interest expense increased $5.2 million or 12.8%. Salaries and wages increased $2.4 million or 14.2%, due to a 17.4% increase in average full-time equivalent employees and routine annual adjustments to compensation, partially offset by increased deferrals of loan costs. Employee benefits expense increased $1.3 million or

 

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23.1%, primarily from increased pension, health insurance, social security contributions and other benefit plan costs. Net occupancy increased $0.4 million principally due to increased building-related costs including utilities and depreciation. Amortization of intangible assets increased $0.5 million or 95.9% from additional ESB intangible assets, primarily related to core deposits. For the first half of 2015, non-interest expense for the combined company increased by $8.8 million or 10.9%, excluding merger-related expenses, compared to the first half of 2014. Increases were also primarily from salaries and wages, employee benefits, occupancy and amortization of intangibles.

The provision for federal and state income taxes was $12.5 million in 2015 compared to $12.2 million in the first half of 2014. The increase in income tax expense was due to an increase in pre-tax income, partially offset by a $0.5 million benefit relating to the completion of an IRS audit which closed the 2011 and 2012 tax years, which resulted in an effective tax rate of 26.0% for 2015 compared to 25.7% for 2014.

NET INTEREST INCOME

TABLE 1. NET INTEREST INCOME

 

     For the Three Months Ended     For the Six Months Ended  
     June 30,     June 30,  

(unaudited, dollars in thousands)

   2015     2014     2015     2014  

Net interest income

   $ 60,793      $ 48,307      $ 115,757      $ 95,631   

Taxable equivalent adjustments to net interest income

     2,182        1,850        4,084        3,673   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income, fully taxable equivalent

   $ 62,975      $ 50,157      $ 119,841      $ 99,304   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest spread, non-taxable equivalent

     3.23     3.41     3.27     3.39

Benefit of net non-interest bearing liabilities

     0.09     0.10     0.09     0.10
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest margin

     3.32     3.51     3.36     3.49

Taxable equivalent adjustment

     0.12     0.13     0.13     0.14
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest margin, fully taxable equivalent

     3.44     3.64     3.49     3.63
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income, which is WesBanco’s largest source of revenue, is the difference between interest income on earning assets, primarily loans and securities, and interest expense on liabilities (deposits and short and long-term borrowings). Net interest income is affected by the general level and changes in interest rates, the steepness and shape of the yield curve, changes in the amount and composition of interest earning assets and interest bearing liabilities, as well as the frequency of repricing of existing assets and liabilities. Net interest income increased $12.5 million or 25.8% in the second quarter of 2015 compared to the second quarter of 2014 due to a 33.2% increase in average earning assets, primarily from the acquisition, and through a 7.8% increase in average loan balances, exclusive of ESB, partially offset by a 20 basis point decrease in the net interest margin. Year-to-date, net interest income increased $20.1 million or 21.0%. Average loan balances increased by $1.0 billion or 25.7% from the second quarter of 2014, of which $293.4 million of the increase was from organic loan growth. Total average deposits increased by $1.2 billion or 23.9% as all major categories within deposits increased. Excluding the ESB acquisition, average certificates of deposit, which have the highest interest cost among interest bearing deposits, decreased by $182.4 million or 12.6%, while all other deposit types increased by $201.6 million or 5.4%. These lower-cost and non-interest bearing deposit increases were the result of marketing campaigns, customer incentives, wealth management and business initiatives as well as deposits from Marcellus and Utica shale gas bonus and royalty payments. The net interest margin decreased to 3.44% in the second quarter of 2015 compared to 3.64% in the same quarter of 2014, primarily due to a 51 basis point decline in the average rate earned on securities due to lower yields on ESB’s retained securities portfolio and other purchased securities. The decrease in the margin is also due to asset and liability mix shifts post-ESB, with a greater percentage of lower-yielding investment securities and a greater percentage of CDs versus lower-cost deposit types. The cost of funds continued to improve, declining 11 basis points from the second quarter of 2014 due primarily to a 33 basis point decrease in the average rate on CDs, increases in the percentage of lower-cost and non-interest bearing deposit balances to total deposits and lower rates on FHLB and other borrowings. Excluding accretion of various purchase accounting adjustments related to recent acquisitions and the interest recognized on a tax refund in 2014, the net interest margin would have been 3.32% and 3.38% in the second quarter and year-to-date periods of 2015, respectively, compared to 3.57% and 3.58% for the same periods of 2014.

Interest income increased in the second quarter of 2015 by $12.7 million or 23.5% and by $19.6 million or 18.2% in the first half of 2015 compared to the same periods in 2014 due to higher average balances of earning assets acquired both in the ESB acquisition and organically, partially offset by lower yields on loans and on the investment portfolio. Rates decreased 10 basis points in the second quarter on average loan balances from reduced rates on acquired, newly-originated and contractually-repricing assets due to the necessity of offering lower rates on quality credits in an increasingly competitive and low interest rate environment. However, the increase in average loan balances helped to mitigate the effect of the lower rates, as rates earned on loans are higher than those on securities. In the second quarter of 2015, average loans represented 66.7% of average earning assets, decreasing from 70.7% in the same quarter of 2014 due to the acquired ESB loan portfolio being smaller than the acquired investment portfolio. Total securities yields decreased by 51 basis points in the second quarter of 2015 from the same period in 2014 due to lower yields on ESB’s retained securities portfolio and other purchased securities at current lower available interest rates. The former ESB securities portfolio was also restructured and not fully invested until June which accounted for approximately $0.8 million in potential interest income. Within the investment portfolio, the average rate declined on taxable and tax-exempt securities by 37 and 60 basis points, respectively, from the second quarter of 2014. The average balance of tax-exempt securities, which provide the highest yield within securities, increased $135.9 million or 33.4% over the last year, but were only 22.6% of total average securities in the second quarter of 2015 compared to 25.7% in the second quarter of 2014, further contributing to the overall lower yield on total securities. Taxable securities balances increased by $684.2 million or 58.1% from the second quarter of 2014 as a significant portion of the acquired securities consisted of 10-15 year residential mortgage pools. Shorter-term mortgage pools reduce the average life of the portfolio, particularly for the portion accounted for as available-for-sale, positioning the Bank for possible future increases in interest rates, while maintaining required levels of pledgeable securities.

 

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Portfolio loans increased $987.5 million in the twelve months ended June 30, 2015 with $700.9 million from the ESB acquisition and $286.6 million from loan growth exclusive of ESB as originations continued to outpace paydowns. Organic loan growth from December 31, 2014, annualized, was 7.2%, primarily due to $825 million in loan originations for the first half of 2015 compared to $625 million for the first half of last year. Loan growth occurred in all major categories with approximately 25.1% of the growth in commercial and industrial loans. Loan growth was driven by increased business activity, additional commercial and residential lending personnel in our urban markets, focused marketing efforts, and continued improvement in loan origination processes.

Interest expense increased $0.2 million or 3.5% in the second quarter of 2015 and, despite the acquisition of ESB’s deposits of $1.2 billion, decreased $0.5 million or 4.3% in the first six months of 2015 compared to the same periods in 2014. The increase in the second quarter was due to an increase in the average balance of FHLB borrowings, generally short to medium term, offset somewhat by a continued reduction in the rate paid on interest bearing liabilities. Total average interest bearing liabilities increased $1.5 billion or 33.2% in the second quarter due to deposits from the ESB acquisition, increased organic deposits and the increased short to medium-term FHLB borrowings. The average rate paid on interest bearing liabilities decreased 11 basis points in the second quarter of 2015 compared to the same period in 2014. Rates paid on overall interest bearing deposits declined by 12 basis points to 0.31% in the second quarter predominantly due to a 33 basis point decline in rates on certificates of deposit, as a result of management reducing offered rates and the repricing, through purchase accounting, of acquired CDs on the acquisition date at lower market rates. The rates paid on other deposit types remained nearly unchanged in the second quarter. Changes in the deposit funding mix somewhat offset the decrease in the rates paid, with average certificates of deposit increasing to 28.9% of total average deposits compared to 27.9% in the second quarter of last year, due exclusively to the acquisition of ESB. WesBanco continues to focus on reducing rate offerings and growing customers with multiple banking relationships, as opposed to single service certificates of deposit customers. The average balance of FHLB and other borrowings increased in the second quarter of 2015 to 10.0% of total interest bearing liabilities from 2.9% in the same period of 2014. Increased average FHLB borrowings at lower borrowing rates reduced the second quarter rate by 203 basis points compared to the second quarter of 2014. In addition, the average rate on other borrowings decreased 98 basis points through the prepayment of a higher-rate $22.0 million repurchase agreement with another bank in the third quarter of 2014, and through maturities.

 

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TABLE 2. AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS

 

     For the Three Months Ended June 30,     For the Six Months Ended June 30,  
     2015     2014     2015     2014  
     Average      Average     Average      Average     Average      Average     Average      Average  

(unaudited, dollars in thousands)

   Balance      Rate     Balance      Rate     Balance      Rate     Balance      Rate  

ASSETS

                    

Due from banks - interest bearing

   $ 17,291         0.16   $ 24,134         0.33   $ 19,959         0.16   $ 37,567         0.22

Loans, net of unearned income (1)

     4,902,309         4.28     3,898,740         4.38     4,725,764         4.27     3,886,334         4.43

Securities: (2)

                    

Taxable

     1,861,123         2.16     1,176,963         2.53     1,641,531         2.26     1,159,072         2.53

Tax-exempt (3)

     542,654         4.60     406,718         5.20     499,102         4.68     403,275         5.20
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total securities

     2,403,777         2.71     1,583,681         3.22     2,140,633         2.82     1,562,347         3.22

Other earning assets (4)

     23,515         5.29     10,853         21.82     19,993         9.38     11,209         11.97
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total earning assets (3)

     7,346,892         3.76     5,517,408         4.06     6,906,349         3.82     5,497,457         4.07
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Other assets

     932,695           702,230           890,051           705,703      
  

 

 

      

 

 

      

 

 

      

 

 

    

Total Assets

   $ 8,279,587         $ 6,219,638         $ 7,796,400         $ 6,203,160      
  

 

 

      

 

 

      

 

 

      

 

 

    

LIABILITIES AND SHAREHOLDERS’ EQUITY

  

Interest bearing demand deposits

   $ 1,175,022         0.17   $ 905,080         0.18   $ 1,094,115         0.17   $ 896,347         0.17

Money market accounts

     1,027,245         0.19     974,731         0.19     1,005,218         0.19     960,153         0.19

Savings deposits

     1,072,988         0.06     824,641         0.06     1,018,449         0.06     816,720         0.06

Certificates of deposit

     1,848,654         0.62     1,444,224         0.95     1,744,271         0.66     1,474,247         0.96
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total interest bearing deposits

     5,123,909         0.31     4,148,676         0.43     4,862,053         0.33     4,147,467         0.44

Federal Home Loan Bank borrowings

     484,505         0.79     24,926         2.82     361,427         0.84     29,949         2.60

Other borrowings

     100,099         0.37     104,109         1.35     106,647         0.31     109,687         1.67

Junior subordinated debt

     129,189         2.76     106,151         3.01     124,128         2.90     106,146         3.02
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total interest bearing liabilities (1)

     5,837,702         0.41     4,383,862         0.52     5,454,255         0.42     4,393,249         0.54

Non-interest bearing demand deposits

     1,282,327           1,022,331           1,233,328           1,002,822      

Other liabilities

     59,256           40,393           107,473           41,104      

Shareholders’ equity

     1,100,302           773,052           1,001,344           765,985      
  

 

 

      

 

 

      

 

 

      

 

 

    

Total Liabilities and Shareholders’ Equity

   $ 8,279,587         $ 6,219,638         $ 7,796,400         $ 6,203,160      
  

 

 

      

 

 

      

 

 

      

 

 

    

Taxable equivalent net interest spread

        3.35        3.54        3.40        3.53

Taxable equivalent net interest margin

        3.44        3.64        3.49        3.63
     

 

 

      

 

 

      

 

 

      

 

 

 

 

(1) Gross of allowance for loan losses and net of unearned income. Includes non-accrual and loans held for sale. Loan fees included in interest income on loans totaled $0.3 million and $0.8 million for the three months ended June 30, 2015 and 2014, respectively, and $0.7 million and $1.7 million for the six months ended June 30, 2015 and 2014, respectively. Additionally, loan accretion included in net interest income on loans acquired from prior acquisitions was $1.1 million and $0.3 million for the three months ended June 30, 2015 and 2014, respectively, and $1.9 million and $0.7 million for the six months ended June 30, 2015 and 2014, respectively, while accretion on interest bearing liabilities from prior acquisitions was $1.7 million and $0.2 million for the three months ended June 30, 2015 and 2014, respectively, and $1.9 million and $0.4 million for the six months ended June 30, 2015 and 2014, respectively.
(2) Average yields on available-for-sale securities are calculated based on amortized cost and include premium amortization and discount accretion from prior acquisitions.
(3) Taxable equivalent basis is calculated on tax-exempt securities using a tax rate of 35% for each year presented.
(4) Interest income on other earning assets includes $0.5 million of interest on a federal income tax refund for the three and six months ended June 30, 2014.

 

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TABLE 3. RATE/VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE

 

     Three Months Ended June 30, 2015
Compared to June 30, 2014
    Six Months Ended June 30, 2015
Compared to June 30, 2014
 

(unaudited, in thousands)

   Volume     Rate     Net Increase
(Decrease)
    Volume     Rate     Net Increase
(Decrease)
 

Increase (decrease) in interest income:

            

Due from banks - interest bearing

   $ (4   $ (9   $ (13   $ (16   $ (10   $ (26

Loans, net of unearned income

     10,729        (959     9,770        16,376        (1,631     14,745   

Taxable securities

     3,821        (1,230     2,591        6,310        (2,444     3,866   

Tax-exempt securities (1)

     1,614        (665     949        2,316        (1,141     1,175   

Other earning assets

     372        (652     (280     436        (169     267   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income change (1)

     16,532        (3,515     13,017        25,422        (5,395     20,027   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in interest expense:

            

Interest bearing demand deposits

     112        (22     90        165        (26     139   

Money market accounts

     25        (1     24        42        (4     38   

Savings deposits

     38        (8     30        62        (14     48   

Certificates of deposit

     810        (1,363     (553     1,143        (2,454     (1,311

Federal Home Loan Bank borrowings

     988        (214     774        1,549        (428     1,121   

Other borrowings

     (13     (245     (258     (24     (718     (742

Junior subordinated debt

     163        (71     92        260        (63     197   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense change

     2,123        (1,924     199        3,197        (3,707     (510
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income increase (decrease) (1)

   $ 14,409      $ (1,591   $ 12,818      $ 22,225      $ (1,688   $ 20,537   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Taxable equivalent basis is calculated on tax-exempt securities using a tax rate of 35% for each year presented.

PROVISION FOR CREDIT LOSSES

The provision for credit losses is the amount to be added to the allowance for credit losses after net charge-offs have been deducted to bring the allowance to a level considered appropriate to absorb probable losses in the loan portfolio. The provision for credit losses also includes the amount to be added to the reserve for loan commitments to bring that reserve to a level considered appropriate to absorb probable losses on unfunded commitments. The provision for credit losses was $2.7 million in the second quarter of 2015 compared to $0.8 million in the same quarter of 2014. Year-to-date, the provision was $4.0 million compared to $3.0 million in the first six months of 2014. Net charge-offs for the first half of 2015 were $4.9 million or 0.21% of average portfolio loans compared to $4.7 million or 0.25% in first half of 2014. The increase in both the provision and charge-offs was primarily due to one non-energy industry-related commercial credit placed on nonaccrual and charged-down by $1.3 million. Portfolio growth also impacted the provision. However, other credit quality metrics, including the loans acquired in the ESB acquisition, continue to improve overall. Non-performing loans, including TDRs, as well as criticized and classified loans and delinquencies, improved as a percentage of total portfolio loans from their pre-acquisition levels in the fourth quarter of 2014 and from the second quarter of 2014. (Please see the Allowance for Credit Losses section of this MD&A for additional discussion).

 

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NON-INTEREST INCOME

TABLE 4. NON-INTEREST INCOME

 

     For the Three Months                 For the Six Months              
     Ended June 30,                 Ended June 30,              

(unaudited, dollars in thousands)

   2015      2014     $ Change     % Change     2015      2014     $ Change     % Change  

Trust fees

   $ 5,476       $ 5,210      $ 266        5.1   $ 11,529       $ 10,858      $ 671        6.2

Service charges on deposits

     4,249         4,078        171        4.2     7,918         7,937        (19     (0.2 %) 

Electronic banking fees

     3,496         3,267        229        7.0     6,821         6,281        540        8.6

Net securities brokerage revenue

     1,842         2,003        (161     (8.0 %)      3,901         3,832        69        1.8

Bank-owned life insurance

     989         1,821        (832     (45.7 %)      2,244         2,695        (451     (16.7 %) 

Net gains on sales of mortgage loans

     407         475        (68     (14.3 %)      679         628        51        8.1

Net securities gains

     —           165        (165     (100.0 %)      22         175        (153     (87.4 %) 

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

     152         (165     317        192.1     185         (52     237        455.8

Net insurance services revenue

     668         662        6        0.9     1,531         1,404        127        9.0

Other

     793         725        68        9.4     1,424         1,532        (108     (7.0 %) 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total non-interest income

   $ 18,072       $ 18,241      $ (169     (0.9 %)    $ 36,254       $ 35,290      $ 964        2.7
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Non-interest income is a significant source of revenue and an important part of WesBanco’s results of operations. WesBanco offers its customers a wide range of retail, commercial, investment and electronic banking services, which are viewed as a vital component of WesBanco’s ability to attract and maintain customers, as well as providing additional fee income beyond normal spread-related income to WesBanco. For the first six months of 2015, non-interest income increased $1.0 million or 2.7% compared to 2014. The increase was primarily due to improved trust fee income and electronic banking fees, while bank owned-life insurance income was down $0.5 million due to decreased death benefits year over year. For the second quarter non-interest income decreased $0.2 million primarily due to decreased bank-owned life insurance death benefits, while trust fees and asset gains increased. Service charges on deposits also increased due to the addition of ESB and an overall higher fee schedule.

Trust fees increased $0.3 million or 5.1% compared to the second quarter of 2014, and $0.7 million or 6.2% compared to the first six months as average assets under management continued to increase from customer development initiatives and overall market improvements. Total trust assets were $3.8 billion at June 30, 2015 and 2014. At June 30, 2015, trust assets include managed assets of $3.2 billion and non-managed (custodial) assets of $0.6 billion. Assets managed for the WesMark Funds, a proprietary group of mutual funds that is advised by WesBanco’s trust and investment services group, were $947.8 million as of June 30, 2015 and $941.3 million at June 30, 2014 and are included in trust managed assets.

Service charges on deposits increased $0.2 million or 4.2% compared to the second quarter of 2014 due to the larger customer deposit base from the recent acquisition and an overall higher fee schedule, somewhat offset by lower customer usage patterns.

Electronic banking fees, which include debit card interchange fees, continued to grow, increasing 8.6% compared to the first half of 2014, due to a higher volume of debit card transactions from the acquisition and WesBanco’s legacy customers. The volume increase is due to marketing and process initiatives and as customers move more towards electronic transactions and a higher percentage of customers using these products.

Net gains on sales of mortgage loans increased 8.1% in the first half of 2015 compared to 2014. Total mortgage production was $153.6 million in the first half of 2015, up 27.7% from the comparable 2014 period. Mortgages sold into the secondary market represented $58.5 million or 38.1% of overall mortgage loan production in the first half of 2015 compared to $45.7 million or 38.0% in the first half of 2014.

Gain /(loss) on other real estate and other assets increased from the second quarter and first half of 2014 primarily due to a $0.2 million write-down of computer equipment in 2014 resulting from the implementation of a company-wide modernization of communication infrastructure in 2014.

 

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NON-INTEREST EXPENSE

TABLE 5. NON-INTEREST EXPENSE

 

     For the Three Months                  For the Six Months               
     Ended June 30,                  Ended June 30,               

(unaudited, dollars in thousands)

   2015     2014      $ Change     % Change     2015      2014      $ Change     % Change  

Salaries and wages

   $ 19,300      $ 16,904       $ 2,396        14.2   $ 37,636       $ 33,370       $ 4,266        12.8

Employee benefits

     6,807        5,529         1,278        23.1     14,123         11,238         2,885        25.7

Net occupancy

     3,243        2,857         386        13.5     6,765         6,348         417        6.6

Equipment

     3,017        2,914         103        3.5     5,958         5,698         260        4.6

Marketing

     1,715        1,713         2        0.1     2,707         2,716         (9     (0.3 %) 

FDIC insurance

     1,040        880         160        18.2     1,950         1,757         193        11.0

Amortization of intangible assets

     944        482         462        95.9     1,510         977         533        54.6

Restructuring and merger-related expenses

     1,115        —           1,115        0.0     10,848         —           10,848        0.0

Miscellaneous, franchise, and other taxes

     1,520        1,612         (92     (5.7 %)      3,081         3,237         (156     (4.8 %) 

Postage

     869        851         18        2.1     1,657         1,692         (35     (2.1 %) 

Consulting, regulatory, accounting and advisory fees

     1,136        874         262        30.0     2,488         2,018         470        23.3

Other real estate owned and foreclosure expenses

     (155     180         (335     (186.1 %)      14         439         (425     (96.8 %) 

Legal fees

     675        711         (36     (5.1 %)      1,216         1,369         (153     (11.2 %) 

Communications

     422        353         69        19.5     768         873         (105     (12.0 %) 

ATM and interchange expenses

     1,069        1,071         (2     (0.2 %)      2,091         2,173         (82     (3.8 %) 

Supplies

     781        601         180        30.0     1,418         1,227         191        15.6

Other

     3,091        2,772         319        11.5     5,817         5,266         551        10.5
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total non-interest expense

   $ 46,589      $ 40,304       $ 6,285        15.6   $ 100,047       $ 80,398       $ 19,649        24.4
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Non-interest expense increased $6.3 million in the second quarter, principally from the acquisition, and $1.1 million of merger-related expenses. Excluding merger-related expenses, non-interest expense increased $5.2 million or 12.8%. Salaries and wages increased $2.4 million or 14.2%, primarily due to a 17.4% increase in average full-time equivalent employees, while employee benefits expense increased $1.3 million or 23.1%, primarily from increased pension, health insurance, social security contributions and other benefit plan costs. Net occupancy increased $0.4 million principally due to increased building-related costs. Amortization of intangible assets increased $0.5 million from additional ESB intangible assets. For the first half of 2015, non-interest expense increased by $8.8 million or 10.9%, excluding merger related expenses, compared to the first half of 2014. Increases in the second quarter and first half of 2015 were primarily in salaries and wages, employee benefits, occupancy and amortization of intangibles from operating the 23 ESB offices. Even with the acquisition, other expenses including franchise tax, postage, legal and ATM expenses were down from last year due to efficiencies applied in several of our vendor contracts and lower REO costs. The merger of ESB’s information systems into WesBanco’s resulted in additional cost savings, beyond those noted above, in the latter part of the second quarter which, along with other identified cost savings, will benefit future earnings.

Salaries and wages increased $2.4 million or 14.2% from the second quarter of 2014 and $4.3 million or 12.8% over the first half of 2014 due to a 17.4% increase in average full-time equivalent employees and routine annual adjustments to compensation, partially offset by increased deferrals of loan costs. Salaries and wages in the first half of 2015 also include $0.8 million related to temporary post-merger personnel costs incurred as a result of the timing of the April 24 weekend systems and branch conversions. Employee benefit expenses increased 25.7% year-to-date, primarily from increased pension, health insurance, social security contributions and other benefit plan costs including the addition of ESB’s personnel.

Net occupancy and equipment expense increased $0.7 million or 5.6% in the first half of 2015 due to increased building-related costs including utilities, depreciation and other maintenance costs resulting primarily from the 23 ESB offices. In addition, new teller cash recycling machines continue to be introduced into our branches, which have improved the speed of customer service, improved cash controls and reduced full-time equivalent employees.

Amortization of intangible assets increased $0.5 million in the first half of 2015 due to the ESB acquisition, which added approximately $5.3 million in core deposit intangibles and $2.2 million in non-compete agreements with former ESB executives with contracts ranging from one to four years.

Restructuring and merger-related expenses of $10.8 million in 2015 related to the ESB acquisition include $7.7 million in executive change-in-control and employee severance expenses, $1.7 million in investment banking services, $0.5 million in audit and valuation services, $0.4 million in marketing expenses, $0.3 million in legal expenses and $0.2 million of various other merger-related expenses.

Other real estate owned and foreclosure expenses decreased $0.4 million in 2015 compared to 2014 due to lower foreclosure and liquidation activity even as related assets increased. Other real estate owned and repossessed assets increased $1.1 million from the second quarter of 2014 to $6.2 million due to the ESB acquisition, which added approximately $1.4 million.

 

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Communications expense decreased 12.0% from the first half of 2014, despite increased costs related to the acquisition, due to the implementation of a company-wide modernization of the communication infrastructure during 2014.

INCOME TAXES

The provision for federal and state income taxes was $12.5 million in 2015 compared to $12.2 million in the first half of 2014. The increase in income tax expense was due to an increase in pre-tax income, partially offset by a $0.5 million benefit relating to the completion of an IRS audit which closed the 2011 and 2012 tax years, which resulted in an effective tax rate of 26.0% for 2015 compared to 25.7% for 2014. The effective tax rate is anticipated to range between 26.5% and 27.5% for the remainder of 2015.

FINANCIAL CONDITION

Total assets increased 33.0% during the first six months of 2015, while deposits and shareholders’ equity increased 24.0% and 38.9%, respectively, compared to December 31, 2014 primarily due to the acquisition of ESB. Total portfolio loans increased $846.9 million or 20.7% with $700.9 million from the ESB acquisition and the remaining $146.0 million from WesBanco’s originations outpacing pay downs, which were a result of increased business activity, additional lending personnel, focused marketing efforts, an expanded presence in larger urban markets, and continued improvement in the loan origination process. Deposits increased $1.2 billion from the ESB acquisition. Organic deposits were virtually unchanged as savings, demand and money market deposits increased 4.6%, 0.3% and 0.1%, respectively, while certificates of deposit decreased 6.9% due to lower rate offerings on maturities. The increase in demand deposits and savings deposits were attributable to marketing, incentives paid to customers, focused retail and business strategies to obtain more account relationships, and customers’ preference for short-term maturities, coupled with initial deposits from bonus and royalty payments for Marcellus and Utica shale gas payments from energy companies in WesBanco’s southwestern Pennsylvania, eastern Ohio and northern West Virginia markets. Total borrowings increased 134.5% during the first six months of 2015. FHLB borrowings increased $558.2 million from December 31, 2014, due primarily to $124.7 million in new borrowings, coupled with $433.5 million in FHLB borrowings provided from the ESB acquisition. New borrowings were utilized to manage WesBanco’s normal liquidity needs, including loan and investment funding, as well as certificates of deposit runoff. Total shareholders’ equity increased by approximately $306.5 million or 38.9%, compared to December 31, 2014, primarily due to $293.6 million of common stock issued in the ESB acquisition and net income exceeding dividends for the period by $17.8 million, which was partially offset by a $2.9 million decrease in accumulated other comprehensive income.

 

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TABLE 6. COMPOSITION OF SECURITIES (1)

 

     June 30,     December 31,        

(unaudited, dollars in thousands)

   2015     2014     $ Change     % Change  

Available-for-sale (at fair value)

        

Obligations of government agencies

   $ 81,037      $ 87,736      $ (6,699     (7.6

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

     1,232,422        701,113        531,309        75.8   

Obligations of states and political subdivisions

     92,771        91,433        1,338        1.5   

Corporate debt securities

     177,314        25,996        151,318        582.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total debt securities

     1,583,544        906,278        677,266        74.7   

Equity securities

     11,114        11,146        (32     (0.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

   $ 1,594,658      $ 917,424      $ 677,234        73.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Held-to-maturity (at amortized cost)

        

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

   $ 120,576      $ 79,004      $ 41,572        52.6   

Obligations of states and political subdivisions

     718,230        507,927        210,303        41.4   

Corporate debt securities

     9,610        6,739        2,871        42.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total held-to-maturity securities

     848,416        593,670        254,746        42.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total securities

   $ 2,443,074      $ 1,511,094      $ 931,980        61.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Available-for-sale securities:

        

Weighted average yield at the respective period end (2)

     2.06     2.34    

As a % of total securities

     65.3     60.7    

Weighted average life (in years)

     4.0        4.0       
  

 

 

   

 

 

     

Held-to-maturity securities:

        

Weighted average yield at the respective period end (2)

     4.17     4.67    

As a % of total securities

     34.7     39.3    

Weighted average life (in years)

     5.8        5.1       
  

 

 

   

 

 

     

Total securities:

        

Weighted average yield at the respective period end (2)

     2.79     3.27    

As a % of total securities

     100.0     100.0    

Weighted average life (in years)

     4.6        4.4       
  

 

 

   

 

 

     

 

(1) At June 30, 2015 and December 31, 2014, there were no holdings of any one issuer, other than the U.S. government and certain federal or federally-related agencies, in an amount greater than 10% of WesBanco’s shareholders’ equity.
(2) Weighted average yields have been calculated on a taxable-equivalent basis using the federal statutory tax rate of 35%.

Total investment securities, which are a source of liquidity for WesBanco as well as a contributor to interest income, increased by $932.0 million or 61.7% from December 31, 2014 to June 30, 2015. This increase is attributable to the ESB acquisition, from both inherited securities of $486.9 million and newly purchased securities in the three to four month period thereafter totaling $604.6 million to replace those securities sold from ESB’s portfolio prior to closing. Partially offsetting the acquired securities and purchases in the first six months of 2015 were maturities, paydowns, and calls that totaled $147.7 million. Through the first six months of 2015, the available-for-sale portfolio increased by $677.2 million or 73.8%, while the held-to-maturity portfolio increased by $254.7 million or 42.9%. The weighted average yield of the portfolio declined from 3.27% at December 31, 2014 to 2.79% at June 30, 2015 due to the lower-yielding ESB acquired portfolio and purchases of securities in the first and second quarters at lower market rates.

Net unrealized (losses) gains on available-for-sale securities included in accumulated other comprehensive income, net of tax, as of June 30, 2015 and December 31, 2014 were ($0.8) million and $2.9 million, respectively. Unrealized gains decreased on available-for-sale securities due to an increase in market rates from December 31, 2014. With approximately 35% of the investment portfolio in the held-to-maturity category, the recent volatility in interest rates does not have as much impact on other comprehensive income as if the entire portfolio were included in the category available-for-sale.

ESB’s total pre-merger investment portfolio of $1.0 billion was restructured through a specific security sale strategy with replacement purchases occurring after the merger to achieve specific overall portfolio characteristics as to weighted average life, duration and tax equivalent yield. The replacement purchases were not completed until June which accounted for approximately $0.8 million in potential interest income.

 

 

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WesBanco’s municipal portfolio comprises 33.2% of the overall securities portfolio as of June 30, 2015 as compared to 39.7% as of December 31, 2014, and it carries different risks that are not as prevalent in other security types contained in the portfolio. The following table presents the allocation of the municipal bond portfolio based on the combined S&P and Moody’s ratings of the individual bonds (at fair value):

TABLE 7. MUNICIPAL BOND RATINGS

 

     June 30, 2015      December 31, 2014  

(unaudited, dollars in thousands)

   Amount      % of Total      Amount      % of Total  

Municipal bonds (at fair value) (1):

           

Moody’s: Aaa / S&P: AAA

   $ 81,044         9.8       $ 50,205         8.1   

Moody’s: Aa1 ; Aa2 ; Aa3 / S&P: AA+ ; AA ; AA-

     606,780         73.5         449,219         72.1   

Moody’s: A1 ; A2 ; A3 / S&P: A+ ; A ; A-

     133,698         16.2         117,398         18.9   

Moody’s: Baa1 ; Baa2 ; Baa3 / S&P: BBB+ ; BBB ; BBB- (2)

     1,796         0.2         1,958         0.3   

Not rated by either agency

     2,167         0.3         3,454         0.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total municipal bond portfolio

   $ 825,485         100.0       $ 622,234         100.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The highest available rating was used when placing the bond into a category in the table.
(2) As of June 30, 2015 and December 31, 2014, there are no securities in the municipal portfolio rated below investment grade.

WesBanco’s municipal bond portfolio consists of both taxable (primarily Build America Bonds) and tax-exempt general obligation and revenue bonds. The following table presents additional information regarding the municipal bond type and issuer (at fair value):

TABLE 8. COMPOSITION OF MUNICIPAL SECURITIES

 

     June 30, 2015      December 31, 2014  

(unaudited, dollars in thousands)

   Amount      % of Total      Amount      % of Total  

Municipal bond type:

           

General Obligation

   $ 582,174         70.5       $ 432,967         69.6   

Revenue

     243,311         29.5         189,267         30.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total municipal bond portfolio

   $ 825,485         100.0       $ 622,234         100.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Municipal bond issuer:

           

State Issued

   $ 77,445         9.4       $ 53,931         8.7   

Local Issued

     748,040         90.6         568,303         91.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total municipal bond portfolio

   $ 825,485         100.0       $ 622,234         100.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

The amortized cost of the municipal bond portfolio at June 30, 2015 and December 31, 2014 was $806.5 million and $594.0 million, respectively.

WesBanco’s municipal bond portfolio is broadly spread across the United States. The following table presents the top five states of municipal bond concentration based on total fair value at June 30, 2015:

TABLE 9. CONCENTRATION OF MUNICIPAL SECURITIES

 

     June 30, 2015  

(unaudited, dollars in thousands)

   Fair Value      % of Total  

Pennsylvania

   $ 191,805         23.2   

Texas

     110,364         13.4   

Ohio

     92,693         11.2   

Illinois

     43,176         5.2   

Kentucky

     28,919         3.5   

All other states (1)

     358,528         43.5   
  

 

 

    

 

 

 

Total municipal bond portfolio

   $ 825,485         100.0   
  

 

 

    

 

 

 

 

(1) WesBanco’s municipal bond portfolio contains obligations in the state of West Virginia totaling $19.2 million or 2.3% of the total municipal portfolio.

WesBanco uses prices from independent pricing services and, to a lesser extent, indicative (non-binding) quotes from independent brokers, to measure the fair value of its securities. WesBanco validates prices received from pricing services or brokers using a variety of methods, including, but not limited to, comparison to secondary pricing services, corroboration of pricing by reference to other independent market data such as secondary broker quotes and relevant benchmark indices, review of pricing by personnel familiar with market liquidity and other market-related conditions, review of pricing service methodologies, review of independent auditor reports received from the pricing service regarding its internal controls, and through review of inputs and assumptions used in pricing certain securities thinly traded or with limited observable data points. The procedures in place provide management with a sufficient understanding of the valuation models, assumptions, inputs and pricing to reasonably measure the fair value of WesBanco’s securities. For additional disclosure relating to fair value measurements, refer to Note 7, “Fair Value Measurement” in the Consolidated Financial Statements.

 

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LOANS AND CREDIT RISK

Loans represent WesBanco’s single largest balance sheet asset classification and the largest source of interest income. Business purpose loans consist of commercial real estate (“CRE”) loans and other commercial and industrial (“C&I”) loans that are not secured by real estate. CRE loans are further segmented into land and construction loans, and loans for improved property. Consumer purpose loans consist of residential real estate loans, home equity lines of credit and other consumer loans. Loans held for sale generally consist of residential real estate loans originated for sale in the secondary market, but at times may also include other types of loans. The outstanding balance of each major category of the loan portfolio is summarized in Table 10.

The risk that borrowers will be unable or unwilling to repay their obligations and default on loans is inherent in all lending activities. Credit risk arises from many sources including general economic conditions, external events that impact businesses or industries, isolated events that impact a major employer, individual loss of employment or other personal hardships as well as changes in interest rates or the value of collateral. Credit risk is also impacted by a concentration of exposure within a geographic market or to one or more borrowers, industries or collateral types. The primary goal in managing credit risk is to minimize the impact of default by an individual borrower or group of borrowers. Credit risk is managed through the initial underwriting process as well as through ongoing monitoring and administration of the portfolio that varies by the type of loan. The Bank’s credit policies establish standard underwriting guidelines for each type of loan and require an appropriate evaluation of the credit characteristics of each borrower. This evaluation includes the borrower’s primary source of repayment capacity; the adequacy of collateral, if any, to secure the loan; the potential value of personal guarantees as secondary sources of repayment; and other factors unique to each loan that may increase or mitigate its risk. Credit bureau scores are also considered when evaluating consumer purpose loans as well as guarantors of business purpose loans. However, the Bank does not periodically update credit bureau scores subsequent to when loans are made to determine changes in credit history.

Credit risk is mitigated for all types of loans by continuously monitoring delinquency levels and pursuing collection efforts at the earliest stage of delinquency. The Bank also monitors general economic conditions, including employment, housing activity and real estate values in its market. The Bank also periodically evaluates and changes its underwriting standards when warranted based on market conditions, the historical performance of a category of the portfolio, or other external factors. Credit risk is also regularly evaluated for the impact of adverse economic and other events that increase the risk of default and the potential loss in the event of default to understand their impact on the Bank’s earnings and capital.

TABLE 10. COMPOSITION OF LOANS (1)

 

     June 30, 2015      December 31, 2014  

(unaudited, dollars in thousands)

   Amount      % of Loans      Amount      % of Loans  

Commercial real estate:

           

Land and construction

   $ 308,885         6.3       $ 262,643         6.4   

Improved property

     1,885,228         38.1         1,682,817         41.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     2,194,113         44.4         1,945,460         47.5   

Commercial and industrial

     733,478         14.8         638,410         15.6   

Residential real estate:

           

Land and construction

     37,662         0.8         19,681         0.5   

Other

     1,203,808         24.3         909,089         22.2   

Home equity

     379,740         7.7         330,031         8.1   

Consumer

     384,844         7.8         244,095         6.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

     4,933,645         99.8         4,086,766         99.9   

Loans held for sale

     11,160         0.2         5,865         0.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 4,944,805         100.0       $ 4,092,631         100.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Loans are presented gross of the allowance for loan losses and net of unearned income, credit valuation adjustments, and unamortized net deferred loan fee income and loan origination costs.

Total loans increased $852.2 million compared to December 31, 2014 with $700.9 million from the ESB acquisition. Organic loan growth from December 31, 2014, annualized, was 7.2%, primarily achieved through $825 million in loan originations for the first half of 2015 compared to $625 million last year. Loan growth, excluding ESB, occurred in all major loan categories, with approximately 25.1% of the growth in commercial and industrial loans. Loan growth was driven by increased business activity, additional commercial and residential lending personnel in our urban markets, focused marketing efforts, an expanded presence in our larger urban markets, a reduction in unscheduled payoffs and a less severe winter that did not stifle certain types of business activity as much as it did the prior year. Excluding the ESB acquisition, CRE and C&I loans provided the most significant organic growth, respectively increasing 2.2% and 5.9% from December 31, 2014, while home equity and consumer loans increased 7.3% and 12.3%, respectively. The increase in CRE loans was driven by an 11.3% increase in CRE land and construction lending. Organic loan growth was achieved without sacrificing profitability, loan structure and credit quality of the loan portfolio despite a highly competitive lending market for high quality borrowers.

Total loan commitments, including loans approved but not closed, increased $359.8 million from December 2014 with $85.3 million from the ESB acquisition and the remainder due primarily to increases in CRE land and construction and home equity lines of credit originations.

 

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NON-PERFORMING ASSETS, IMPAIRED LOANS AND LOANS PAST DUE 90 DAYS OR MORE

Non-performing assets consist of non-accrual loans and TDRs, other real estate acquired through or in lieu of foreclosure, bank premises held for sale, and repossessed automobiles acquired to satisfy defaulted consumer loans.

TABLE 11. NON-PERFORMING ASSETS

 

(unaudited, dollars in thousands)

   June 30,
2015
    December 31,
2014
 

Non-accrual loans:

    

Commercial real estate - land and construction

   $ 1,382      $ 1,488   

Commercial real estate - improved property

     26,103        20,227   

Commercial and industrial

     7,664        4,110   

Residential real estate

     10,117        10,329   

Home equity

     2,251        1,923   

Consumer

     687        741   
  

 

 

   

 

 

 

Total non-accrual loans (1)

     48,204        38,818   
  

 

 

   

 

 

 

TDRs accruing interest:

    

Commercial real estate - land and construction

     1,127        —     

Commercial real estate - improved property

     2,409        2,437   

Commercial and industrial

     326        329   

Residential real estate

     7,850        8,215   

Home equity

     744        740   

Consumer

     502        345   
  

 

 

   

 

 

 

Total TDRs accruing interest (1)

     12,958        12,066   
  

 

 

   

 

 

 

Total non-performing loans

   $ 61,162      $ 50,884   
  

 

 

   

 

 

 

Other real estate owned and repossessed assets

     6,168        5,082   
  

 

 

   

 

 

 

Total non-performing assets

   $ 67,330      $ 55,966   
  

 

 

   

 

 

 

Non-performing loans/total loans

     1.24     1.25

Non-performing assets/total assets

     0.80     0.89

Non-performing assets/total loans, other real estate and repossessed assets

     1.36     1.37
  

 

 

   

 

 

 

 

(1) TDRs on nonaccrual of $13.1 million and $5.4 million at June 30, 2015 and December 31, 2014, respectively, are included in total nonaccrual loans.

Non-performing loans, which consist of non-accrual loans and TDRs, increased $10.3 million, or 20.2% from December 31, 2014 with $10.0 million remaining from the ESB acquisition, while legacy non-performing loans increased $0.3 million or 0.6%. Non-performing loans acquired, recognized at their acquisition date fair value of $10.8 million with an unpaid principal balance of $16.1 million, primarily consist of three commercial relationships with an acquisition date aggregate fair value of $10.0 million. Organic non-performing loans increased primarily from the addition of one large commercial credit added in the second quarter offset by an unscheduled principal payment in the first quarter from one large commercial relationship. (Please see the Notes to the Consolidated Financial Statements for additional discussion.)

Other real estate owned and repossessed assets increased $1.1 million from December 31, 2014 to June 30, 2015, primarily due to the ESB acquisition.

 

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The following table presents past due and accruing loans excluding accruing TDRs:

TABLE 12. PAST DUE AND ACCRUING LOANS EXCLUDING ACCRUING TDRs

 

(unaudited, dollars in thousands)

   June 30,
2015
    December 31,
2014
 

Loans past due 90 days or more:

    

Commercial real estate - land and construction

   $ —        $ 71   

Commercial real estate - improved property

     180        —     

Commercial and industrial

     3        22   

Residential real estate

     1,838        1,306   

Home equity

     228        570   

Consumer

     222        319   
  

 

 

   

 

 

 

Total loans past due 90 days or more

     2,471        2,288   
  

 

 

   

 

 

 

Loans past due 30 to 89 days:

    

Commercial real estate - land and construction

     —          —     

Commercial real estate - improved property

     698        480   

Commercial and industrial

     1,135        216   

Residential real estate

     3,228        3,105   

Home equity

     2,142        2,524   

Consumer

     3,117        3,022   
  

 

 

   

 

 

 

Total loans past due 30 to 89 days

     10,320        9,347   
  

 

 

   

 

 

 

Total 30 days or more

   $ 12,791      $ 11,635   
  

 

 

   

 

 

 

Loans past due 90 days or more and accruing to total portfolio loans

     0.05     0.06

Loans past due 30-89 days and accruing to total portfolio loans

     0.21     0.23
  

 

 

   

 

 

 

Loans past due 30 days or more and accruing interest excluding TDRs increased $1.2 million or 9.9% from December 31, 2014 primarily due to the ESB acquisition, however loan delinquency as a percent of total loans improved. These loans continue to accrue interest because they are both well-secured and in the process of collection. Loans past due 30-89 days to total portfolio loans improved to 0.21% from 0.23% at December 31, 2014 and 0.26% at June 30, 2014, representing a 19.2% decrease from a year ago, while loans past due 90 days or more to total portfolio loans improved to 0.05% from 0.06% at December 31, 2014 and 0.07% one year ago. This improvement in delinquency is the result of management’s focus on controlling early stage delinquency as well as improved economic conditions.

 

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ALLOWANCE FOR CREDIT LOSSES

Continued improvement in the credit quality of the pre-acquisition legacy portfolio resulted in a decrease in the allowance as supported by improvement in most credit quality metrics in the second quarter, despite an increase in net charge-offs and the provision for credit losses, as total delinquencies and non-performing, criticized and classified loans all decreased as a percentage of loans. The allowance was not affected by the acquired ESB loan portfolio, as these loans were recorded at fair value at the date of acquisition.

The allowance for credit losses decreased $1.2 million from December 31, 2014 to June 30, 2015 as a result of a lower provision expense than net charge-offs, representing 0.88% of total loans at June 30, 2015 compared to 1.09% of total loans at December 31, 2014. However, if the acquired ESB loans (which were recorded at fair value at the date of acquisition) were excluded from the ratio, the allowance would approximate 1.03% of the adjusted loan total. The resulting ratio provides greater coverage over total loans and is considered by management to be a better comparison of the adequacy of the allowance from last year. Portfolio mix shifts also affect management’s evaluation of the overall allowance adequacy.

The allowance for loans individually evaluated was relatively unchanged from December 31, 2014 to June 30, 2015, while the allowance for loans collectively evaluated decreased $1.3 million to $39.5 million due to continued improvement in delinquent, non-performing and classified and criticized loans.

The allowance for loan commitments of $0.8 million at June 30, 2015 increased $0.3 million from December 31, 2014 primarily due to the increase in overall commitments from December 31, 2014.

The allowance for credit losses by loan category, presented in Note 5 “Loans and the Allowance for Credit Losses” to the Consolidated Financial Statements, summarizes the impact of changes in various factors that affect the allowance for loan losses in each segment of the portfolio. The allowance for all segments is impacted by changes in loan balances, as well as changes in historical loss rates adjusted for qualitative factors such as economic conditions. The CRE and C&I segments of the portfolio are also impacted by changes in the risk grading distribution of the portfolio as well as the migration of CRE loans from land and construction to improved property upon the completion of construction.

The loss migration rate by internal risk grade is the primary factor for establishing the allowance for all commercial loans, and the portfolio segment loss history is the primary factor for establishing the allowance for residential real estate, home equity and consumer loans. The categorization of loans as non-performing is not as significant a factor as the loss migration rate by risk grade or the segment loss history, although certain non-performing loans that carry specific reserves are also typically considered classified under the internal risk grading system. Criticized and classified loans were $82.9 million or 1.68% of total loans at June 30, 2015, improving from 1.99% of total loans at December 31, 2014 and 3.08% of total loans from a year ago as credit quality continued to improve, enabling certain loans to be upgraded that were criticized but not classified throughout the economic downturn. The ESB acquisition increased criticized and classified loans by $12.1 million at June 30, 2015.

 

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Table 13 summarizes the allocation of the allowance for credit losses to each category of the loan portfolio. The decrease in the allowance for CRE land and construction loans is due primarily to that category of loans consisting of more multi-family apartment and other commercial building construction loans than land and residential development loans, which had higher loss rates during the recession but now represent a much smaller percentage of the category. The increase in the allowance for C&I and home equity loans is primarily attributable to growth in those categories, while the decrease in the allowance for residential real estate and consumer loans reflects lower historical loss rates in each category.

TABLE 13. ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES

 

(unaudited, dollars in thousands)

   June 30,
2015
     Percent of
Total
     December 31,
2014
     Percent of
Total
 

Allowance for loan losses:

           

Commercial real estate - land and construction

   $ 5,103         11.5       $ 5,654         12.5   

Commercial real estate - improved property

     17,228         39.0         17,573         39.0   

Commercial and industrial

     9,191         20.8         9,063         20.1   

Residential real estate

     4,764         10.8         5,382         11.9   

Home equity

     2,688         6.1         2,329         5.2   

Consumer

     3,902         8.8         4,078         9.0   

Deposit account overdrafts

     543         1.2         575         1.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

   $ 43,419         98.2       $ 44,654         99.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Allowance for loan commitments:

           

Commercial real estate - land and construction

   $ 207         0.5       $ 194         0.4   

Commercial real estate - improved property

     20         0.0         10         0.0   

Commercial and industrial

     413         0.9         112         0.3   

Residential real estate

     12         0.0         9         0.0   

Home equity

     113         0.3         90         0.2   

Consumer

     40         0.1         40         0.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for loan commitments

     805         1.8         455         1.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for credit losses

   $ 44,224         100.0       $ 45,109         100.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Although the allowance for credit losses is allocated as described in Table 13, the total allowance is available to absorb actual losses in any category of the loan portfolio. However, differences between management’s estimation of probable losses and actual incurred losses in subsequent periods for any category may necessitate future adjustments to the provision for loan losses applicable to the category. Management believes the allowance for credit losses is appropriate to absorb probable losses at June 30, 2015.

 

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DEPOSITS

TABLE 14. DEPOSITS

 

(unaudited, dollars in thousands)

   June 30,
2015
     December 31,
2014
     $ Change      % Change  

Deposits

           

Non-interest bearing demand

   $ 1,257,932       $ 1,061,075       $ 196,857         18.6   

Interest bearing demand

     1,156,949         885,037         271,912         30.7   

Money market

     989,888         954,957         34,931         3.7   

Savings deposits

     1,075,711         842,818         232,893         27.6   

Certificates of deposit

     1,778,565         1,305,096         473,469         36.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total deposits

   $ 6,259,045       $ 5,048,983       $ 1,210,062         24.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Deposits, which represent WesBanco’s primary source of funds, are offered in various account forms at various rates through WesBanco’s 142 branches. The FDIC insures deposits up to $250,000 per account.

Total deposits increased by $1.2 billion or 24.0% during the first six months of 2015 due to the ESB acquisition which provided $1.2 billion of additional deposits, while organic deposits were relatively unchanged from December 31, 2014. Interest bearing demand and non-interest bearing deposits increased 30.7% and 18.6%, respectively, while savings and money market deposits increased 27.6% and 3.7%, respectively, due to the ESB acquisition and corresponding marketing, incentive compensation paid to customers and employees, focused retail and business strategies to obtain more account relationships and customers’ preferences for shorter-term maturities. The increase was also impacted by initial deposits from bonus and royalty payments for Marcellus and Utica shale gas payments from energy companies in WesBanco’s southwestern Pennsylvania, eastern Ohio and northern West Virginia markets. At June 30, 2015, demand deposits, savings deposits and money market deposits at former ESB branches were $418.4 million, $193.9 million and $26.9 million, respectively.

Certificates of deposit increased $473.5 million due primarily to the ESB acquisition. Certificates of deposit acquired from the ESB acquisition totaled $564.0 million, while organic balances declined 6.9% due to the effects of an overall corporate strategy designed to increase and remix retail deposit relationships with a focus on overall products that can be offered at a lower cost to the Bank. The decline is also impacted by lowered offered rates on maturing certificates of deposit and customer preferences for other non-maturity deposit types. WesBanco does not generally solicit brokered or other deposits out-of-market or over the internet, but does participate in the Certificate of Deposit Account Registry Services (CDARS®) program and the Insured Cash Sweep (ICS®) money market deposit program. CDARS® balances totaled $292.3 million in total outstanding balances at June 30, 2015, of which $208.4 million represented one-way buys, compared to $283.0 million in total outstanding balances at December 31, 2014, of which $172.3 million represented one-way buys. ICS® reciprocal balances totaled $142.6 million at June 30, 2015 compared to $117.1 million at December 31, 2014. Certificates of deposit greater than $250,000 were approximately $291.3 million at June 30, 2015 compared to $174.7 million at December 31, 2014. Certificates of deposit of $100,000 or more were approximately $924.6 million at June 30, 2015 compared to $706.1 million at December 31, 2014. The increase in jumbo certificates of deposit was primarily due to the acquisition. Certificates of deposit totaling approximately $1.1 billion at June 30, 2015 with a cost of 0.64% are scheduled to mature within the next 12 months. WesBanco will continue to focus on its core deposit strategies and improving its overall mix of transaction accounts to total deposits. From time to time the Bank may offer special promotions on certain certificates of deposit maturities and savings products based on competition, sales strategies, liquidity needs and wholesale borrowing costs.

BORROWINGS

TABLE 15. BORROWINGS

 

(unaudited, dollars in thousands)

   June 30,
2015
     December 31,
2014
     $ Change      % Change  

Federal Home Loan Bank Borrowings

   $ 781,332       $ 223,126       $ 558,206         250.2   

Other short-term borrowings

     73,868         80,690         (6,822      (8.5

Junior subordinated debt owed to unconsolidated subsidiary trusts

     106,196         106,176         20         0.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 961,396       $ 409,992       $ 551,404         134.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

While borrowings are a less significant source of funding for WesBanco compared to total deposits, during the first six months of 2015, FHLB borrowings increased $558.2 million. The acquisition of ESB provided $433.5 million in borrowings, and $124.7 million in new borrowings were utilized to manage WesBanco’s normal liquidity needs, including loan and investment funding, as well as CD runoff. A portion of the replacement investment securities were funded by the new FHLB borrowings.

Other short-term borrowings, which consist of securities sold under agreements to repurchase at June 30, 2015, but may also include federal funds purchased and other borrowings, were $73.9 million at June 30, 2015 compared to $80.7 million at December 31, 2014. The ESB acquisition also provided $36.1 million in junior subordinated debentures which were redeemed in May at a redemption price of 100% of the principal plus accrued and unpaid interest. WesBanco has a revolving line of credit, which is a senior obligation of the parent company, with another financial institution. This line of credit, which accrues interest at an adjusted LIBOR rate, provides for aggregate unsecured borrowings of up to $25.0 million. There were no outstanding balances as of June 30, 2015 or December 31, 2014.

 

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OFF-BALANCE SHEET ARRANGEMENTS

WesBanco enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, letters of credit, loans approved but not closed, overdraft limits and contingent obligations to purchase loans funded by other entities. Since many of these commitments expire unused or partially used, these commitments may not reflect future cash requirements. Please refer to Note 9, “Commitments and Contingent Liabilities,” of the Consolidated Financial Statements and the “Loans and Credit Risk” section of this MD&A for additional information.

CAPITAL RESOURCES

Shareholders’ equity was $1.1 billion at June 30, 2015 compared to $788.2 million at December 31, 2014. The increase was due primarily to $293.6 million of common stock issued in the ESB acquisition coupled with net income during the current six month period of $35.5 million, which were partially offset by a $2.9 million decrease in other comprehensive income and the declaration of common shareholder dividends totaling $17.7 million for the six months ended June 30, 2015. WesBanco also increased its quarterly dividend rate to $0.23 per share in February, representing a 4.5% increase over the prior quarterly rate and a cumulative 64% increase over the last seventeen quarters.

On June 2, 2015, WesBanco granted 94,800 stock options to selected officers at an exercise price of $31.58. These options are service-based and vest 50% at December 31, 2015 and 50% at December 31, 2016. On the same date, WesBanco also granted 48,550 shares of restricted stock to selected officers. The restricted shares are service-based and cliff-vest 36 months from the date of grant.

Regulatory guidelines require bank holding companies and commercial banks to maintain certain minimum capital ratios and define companies as “well capitalized” that sufficiently exceed the minimum ratios. At June 30, 2015, regulatory capital levels for both the Bank and WesBanco were substantially greater than the minimum amounts needed to be considered “well capitalized” under the regulations. There are various legal limitations under federal and state laws that limit the payment of dividends from the Bank to WesBanco. As of June 30, 2015, under FDIC regulations, WesBanco could receive, without prior regulatory approval, a dividend of approximately $36.3 million from the Bank. WesBanco intends to continue to improve its consolidated and Bank capital ratios to manage its growth strategies primarily from retaining a majority of its increasing earnings.

The following table summarizes risk-based capital amounts and ratios for WesBanco and the Bank for the periods indicated:

 

                 June 30, 2015      December 31, 2014  

(unaudited, dollars in thousands)

   Minimum
Value (1)
    Well
Capitalized  (2)
    Amount      Ratio     Minimum
Amount (1)
     Amount      Ratio     Minimum
Amount (1)
 

WesBanco, Inc.

                   

Tier 1 leverage

     4.00     5.00   $ 725,305         9.29   $ 312,415       $ 593,031         9.88   $ 240,068   

Common equity tier 1 (3)

     4.50     6.50     630,385         11.71     242,351         N/A         N/A        N/A   

Tier 1 capital to risk-weighted assets

     6.00     8.00     725,305         13.47     323,135         593,031         13.76     172,357   

Total capital to risk-weighted assets

     8.00     10.00     769,964         14.30     430,847         638,064         14.81     344,714   

WesBanco Bank, Inc.

                   

Tier 1 leverage

     4.00     5.00   $ 683,277         8.82   $ 309,861       $ 516,689         8.63   $ 239,533   

Common equity tier 1 (3)

     4.50     6.50     683,277         12.74     241,434         N/A         N/A        N/A   

Tier 1 capital to risk-weighted assets

     6.00     8.00     683,277         12.74     321,912         516,689         12.04     171,612   

Total capital to risk-weighted assets

     8.00     10.00     727,693         13.56     429,216         561,369         13.08     343,225   

 

(1) Minimum to remain adequately capitalized. Minimums prior to January 1, 2015 were 4.00% for Tier 1 leverage and Tier 1 capital and 8.00% for total capital.
(2) Well-capitalized under prompt corrective action regulations.
(3) The Common Equity Tier 1 ratio (known as “CET 1”) is a new regulatory ratio as of March 31, 2015, as the regulatory agencies adopted new guidelines for such ratio as a result of international adoption of the BASEL III regulatory capital accords in 2013.

 

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LIQUIDITY RISK

Liquidity is defined as a financial institution’s capacity to meet its cash and collateral obligations at a reasonable cost. Liquidity risk is the risk that an institution’s financial condition or overall safety and soundness is adversely affected by an inability, or perceived inability, to meet its obligations. An institution’s obligations, and the funding sources to meet them, depend significantly on its business mix, balance sheet structure, and the cash flows of its on- and off-balance sheet obligations. Institutions confront various internal and external situations that can give rise to increased liquidity risk including funding mismatches, market constraints on funding sources, contingent liquidity events, changes in economic conditions, and exposure to credit, market, operation, legal and reputation risk. WesBanco actively manages liquidity risk through its ability to provide adequate funds to meet changes in loan demand, unexpected outflows in deposits and other borrowings as well as to take advantage of market opportunities and meet operating cash needs. This is accomplished by maintaining liquid assets in the form of securities, sufficient borrowing capacity and a stable core deposit base. Liquidity is centrally monitored by WesBanco’s Asset/Liability Committee (“ALCO”).

WesBanco determines the degree of required liquidity by the relationship of total holdings of liquid assets to the possible need for funds to meet unexpected deposit losses and/or loan demands. The ability to quickly convert assets to cash at a minimal loss is a primary function of WesBanco’s investment portfolio management. WesBanco believes its cash flow from the loan portfolio, the investment portfolio, and other sources, adequately meet its liquidity requirements. WesBanco’s net loans to assets ratio was 58.4% at June 30, 2015 and deposit balances funded 74.7% of assets.

The following table lists the sources of liquidity from assets at June 30, 2015 expected within the next year:

 

(unaudited, in thousands)

      

Cash and cash equivalents

   $ 108,738   

Securities with a maturity date within the next year

     88,998   

Projected payments and prepayments on mortgage-backed securities and collateralized mortgage obligations (1)

     232,564   

Callable securities

     122,870   

Loans held for sale

     11,160   

Accruing loans scheduled to mature

     687,100   

Normal loan repayments

     530,425   
  

 

 

 

Total sources of liquidity expected within the next year

   $ 1,781,855   
  

 

 

 

 

(1) Projected prepayments are based on current prepayment speeds.

Deposit flows are another principal factor affecting overall WesBanco liquidity. Deposits totaled $6.3 billion at June 30, 2015. Deposit flows are impacted by current interest rates, products and rates offered by WesBanco versus various forms of competition, as well as customer behavior. Certificates of deposit scheduled to mature within one year totaled $1.1 billion at June 30, 2015, which includes jumbo regular certificates of deposit totaling $408.6 million with a weighted-average cost of 0.69%, and jumbo CDARS® deposits of $193.1 million with a cost of 0.55%.

WesBanco maintains a line of credit with the FHLB as an additional funding source. Available credit with the FHLB was approximately $1.3 billion and $1.5 billion at June 30, 2015 and December 31, 2014, respectively. At June 30, 2015, the Bank had unpledged available-for-sale securities with an amortized cost of $615.1 million, a portion of which is an available liquidity source, or such securities could be pledged to secure additional FHLB borrowings. The FHLB requires securities to be specifically pledged to the FHLB and maintained in a FHLB-approved custodial arrangement if the member wishes to include such securities in the maximum borrowing capacity calculation. WesBanco has elected not to specifically pledge to the FHLB otherwise unpledged securities.

WesBanco participates in the Federal Reserve Bank’s Borrower-in-Custody Program (“BIC”) whereby WesBanco pledges certain consumer loans as collateral for borrowings. At June 30, 2015, WesBanco had a BIC line of credit totaling $198.1 million, none of which was outstanding. Alternative funding sources may include the utilization of existing overnight lines of credit with third party banks totaling $205.0 million, none of which was outstanding at June 30, 2015, along with borrowings under repurchase agreement lines, increasing deposit rates to attract additional funds, accessing brokered deposits, or selling available-for-sale securities or certain types of loans.

Other short-term borrowings of $73.9 million at June 30, 2015 consisted of overnight sweep checking accounts for large commercial customers. There has not been a significant fluctuation in the average deposit balance of the overnight sweep checking accounts during the first six months of 2015. The overnight sweep checking accounts require securities to be pledged equal to or greater than the average deposit balance in the related customer accounts.

The principal sources of parent company liquidity are dividends from the Bank, $22.9 million in cash and investments on hand, and a $25.0 million revolving line of credit with another financial institution, which did not have an outstanding balance at June 30, 2015. WesBanco is in compliance with all loan covenants. There are various legal limitations under federal and state laws that limit the payment of dividends from the Bank to the parent company. As of June 30, 2015, under FDIC and State of West Virginia regulations, WesBanco could receive, without prior regulatory approval, dividends of approximately $36.3 million from the Bank. Management believes these are appropriate levels of cash for the parent company given the current environment. Management continuously monitors the adequacy of parent company cash levels and sources of liquidity through the use of metrics that relate current cash levels to historical and forecasted cash inflows and outflows.

WesBanco had outstanding commitments to extend credit in the ordinary course of business approximating $1.6 billion and $1.2 billion at June 30, 2015 and December 31, 2014, respectively. On a historical basis, only a small portion of these commitments will result in an outflow of funds. Please refer to Note 9, “Commitments and Contingent Liabilities,” of the Consolidated Financial Statements and the “Loans and Credit Risk” section of this MD&A for additional information.

 

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Federal financial regulatory agencies previously have issued guidance to provide for sound practices for managing funding and liquidity risk and strengthening liquidity risk management practices. WesBanco maintains a comprehensive management process for identifying, measuring, monitoring, and controlling liquidity risk which is fully integrated into its risk management process. Management believes WesBanco has sufficient current liquidity to meet current obligations to borrowers, depositors and others as of June 30, 2015 and that WesBanco’s current liquidity risk management policies and procedures adequately address this guidance.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The disclosures set forth in this item are qualified by the section captioned “Forward-Looking Statements” included in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report.

MARKET RISK

The primary objective of WesBanco’s ALCO is to maximize net interest income within established policy parameters. This objective is accomplished through the management of balance sheet composition, market risk exposures arising from changing economic conditions and liquidity risk.

Market risk is defined as the risk of loss due to adverse changes in the fair value of financial instruments resulting from fluctuations in interest rates and equity prices. Management considers interest rate risk to be WesBanco’s most significant market risk. Interest rate risk is the exposure to adverse changes in net interest income due to changes in interest rates. The relative consistency of WesBanco’s net interest income is largely dependent on effective management of interest rate risk. As interest rates change in the market, rates earned on interest rate sensitive assets and rates paid on interest rate sensitive liabilities do not necessarily move concurrently. Differing rate sensitivities may arise because fixed rate assets and liabilities may not have the same maturities, or because variable rate assets and liabilities differ in the timing and/or the percentage of rate changes.

WesBanco’s ALCO, comprised of senior management from various functional areas, monitors and manages interest rate risk within Board approved policy limits. Interest rate risk is monitored primarily through the use of an earnings simulation model. The model is highly dependent on various assumptions, which change regularly as the balance sheet and market interest rates change. The key assumptions and strategies employed are analyzed bi-monthly and reviewed and documented by the ALCO.

The earnings simulation model projects changes in net interest income resulting from the effect of changes in interest rates. Forecasting changes in net interest income requires management to make certain assumptions regarding loan and security prepayment rates, bond call dates, and adjustments to non-maturing deposit rates, which may not necessarily reflect the manner in which actual yields and costs respond to changes in market interest rates. Assumptions used are based primarily on historical experience and current market rates. Security portfolio maturities and prepayments are assumed to be reinvested in similar instruments and callable bond forecasts are adjusted at varying levels of interest rates. While management believes such assumptions to be reasonable, there can be no assurance that assumed prepayment rates, callable bond forecasts and non-maturing deposit rates will approximate actual future results. Moreover, the net interest income sensitivity chart presented in Table 1, “Net Interest Income Sensitivity,” assumes the composition of interest sensitive assets and liabilities existing at the end of the period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve, regardless of the duration of the maturity or re-pricing of specific assets and liabilities. Since the assumptions used in the model relative to changes in interest rates are uncertain, the simulation analysis may not be indicative of actual results. In addition, the analysis may not consider all actions that management could employ in response to changes in interest rates and various earning asset and costing liability balances.

Management is aware of the significant effect inflation or deflation has upon interest rates and ultimately upon financial performance. WesBanco’s ability to cope with inflation or deflation is best determined by analyzing its capability to respond to changing market interest rates, as well as its ability to manage the various elements of non-interest income and expense during periods of increasing or decreasing inflation or deflation. WesBanco monitors the level and mix of interest-rate sensitive assets and liabilities through ALCO in order to reduce the impact of inflation or deflation on net interest income. Management also controls the effects of inflation or deflation by conducting periodic reviews of the prices and terms of its various products and services, both in terms of the costs to offer the services as well as outside market influences upon such pricing, by introducing new products and services or reducing the availability of existing products and services, and by controlling overhead expenses.

Interest rate risk policy limits are determined by measuring the anticipated change in net interest income over a twelve month period assuming an immediate and sustained 100, 200 and 300 basis point increase or decrease in market interest rates compared to a stable rate environment or base model. WesBanco’s current policy limits this exposure to a reduction of 5.0%, 12.5% and 25% or less, respectively, of net interest income from the base model over a twelve month period. The table below shows WesBanco’s interest rate sensitivity at June 30, 2015 and December 31, 2014 assuming a 100, 200 and 300 basis point interest rate increase, compared to a base model. Due to the current low interest rate environment, particularly for short-term rates, the 200 and 300 basis point decreasing change is not calculated.

TABLE 1. NET INTEREST INCOME SENSITIVITY

 

Immediate Change in

Interest Rates

  

Percentage Change in

Net Interest Income from Base over One Year

   ALCO

(basis points)

  

June 30, 2015

  

December 31, 2014

  

Guidelines

+300

   (0.2%)    0.9%    (25.0%)

+200

   1.0%    2.1%    (12.5%)

+100

   1.2%    1.9%    (5.0%)

-100

   (1.6%)    (1.8%)    (5.0%)

 

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As per the table above, the earnings simulation model at June 30, 2015 currently projects that net interest income for the next twelve month period would decrease by 1.6% if interest rates were to fall immediately by 100 basis points, compared to a decrease of 1.8% for the same scenario as of December 31, 2014.

For rising rate scenarios, net interest income would increase by 1.2%, 1.0%, and decrease by 0.2% if rates increased by 100, 200 and 300 basis points, respectively, as of June 30, 2015 compared to increases of 1.9%, 2.1% and 0.9% in a 100, 200 and 300 basis point increasing rate environment as of December 31, 2014.

The balance sheet is asset sensitive as of June 30, 2015, slightly less than at December 31, 2014, based upon changes in the mix of various earning assets and costing liabilities, 2015 loan and transaction deposit account growth, an increase in short-term FHLB borrowings, the ESB transaction and certain changes in modeling assumptions. Should rates rise more rapidly and by a higher amount than currently anticipated in the short to intermediate term, overall asset sensitivity may be somewhat neutralized due to slower anticipated prepayment speeds and extension risk associated with residential mortgages and mortgage-backed securities. In addition, variable rate commercial loans with rate floors averaging 4.21% approximated $1.1 billion at June 30, 2015, which represented approximately 37% of commercial loans. Approximately 58% or $624.8 million of these loans are currently priced at their floor. Therefore, in a 100 basis point rising rate environment, these loans would not as significantly re-price from their current floor level as compared to non-floor loans. Due to lower loan and investment spreads as the yield curve dropped earlier this year, WesBanco expects that the base case net interest margin may contract somewhat from the second quarter due to the continued low interest rate environment, and a full period of the completion of the ESB replacement investment securities strategy, until sometime after rates begin to rise. A short-term rate increase is anticipated by late third quarter by a majority of economists as well as commentary from the Federal Reserve Board which should help the margin eventually improve assuming no earning asset or costing liability changes. Maturities of higher-costing certificates of deposit scheduled over the next year may somewhat mitigate potential compression from lower loan spreads and general loan re-pricing in an increasingly more competitive loan environment, along with anticipated loan growth in most loan categories. Of note, certificates of deposit totaling approximately $1.1 billion mature within the next year at an average cost of 0.64%.

The Bank has significant additional borrowing capacity with the FHLB of Pittsburgh, the Federal Reserve Bank of Cleveland, and various correspondent banks, and may utilize these funding sources as necessary to lengthen liabilities, help offset mismatches in various asset maturities, and manage short-term cash needs. CDARS® and ICS® deposits also continue to be used to lengthen maturities in certificates of deposit, and for customers seeking higher yielding instruments and to maintain deposit balances below insured limits.

Current balance sheet strategies to reduce the potential for margin compression in the current rate environment include:

 

   

increasing total loans; primarily commercial and residential with fixed rate periods of between 3-15 years, or variable to a published index;

 

   

investing available short-term liquidity;

 

   

continuing marketing programs to increase consumer loans and transaction deposits versus certificates of deposit;

 

   

reinvestment of securities cash flows into new loans as demand warrants, or into other investments such as short and intermediate-term CMO pay structures, lower coupon MBS, and mid-term tax-exempt municipal securities;

 

   

extending term borrowings at current lower rates to balance asset/liability mismatches; and

 

   

extending a portion of CD maturities through the CDARS® program.

As an alternative to the immediate rate shock analysis, the ALCO monitors interest rate risk by ramping or increasing interest rates 200 basis points gradually over a twelve month period. WesBanco’s current policy limits this exposure to 5.0% of net interest income from the base model for a twelve month period. Management believes that the ramping analysis reflects a more realistic movement of interest rates, whereas the immediate rate shock reflects a less likely scenario. The simulation model at June 30, 2015, using the 200 basis point increasing rate ramp analysis, projects that net interest income would increase 2.1% over the next twelve months, compared to a 1.9% increase at December 31, 2014.

WesBanco also periodically measures the economic value of equity, which is defined as the market value of tangible equity in various increasing and decreasing rate scenarios. At June 30, 2015, the market value of tangible equity as a percent of base in a 200 basis point rising rate environment indicates an increase of 1.1%, compared to a increase of 6.0% at December 31, 2014. In a 100 basis point falling rate environment, the model indicates a decrease of 6.8%, compared to a decrease of 11.0% as of December 31, 2014. WesBanco’s policy is to limit such change to minus 20% for a 200 basis point change in interest rates, as long as the Tier 1 leverage capital ratio is not forecasted to decrease below 5.0% as a result of the change. Balance sheet changes in loan and securities portfolios, new borrowings, transaction deposits and certificates of deposit, as well as certain other modeling assumptions, resulted in the change in equity market value from 2014.

 

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ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES— WesBanco’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have concluded that WesBanco’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), based on their evaluation of these controls and procedures as of the end of the period covered by this Form 10-Q, are effective at the reasonable assurance level as discussed below to ensure that information required to be disclosed by WesBanco in the reports it files under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to WesBanco’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS— WesBanco’s management, including the CEO and CFO, does not expect that WesBanco’s disclosure controls and internal controls will prevent all errors and all fraud. While WesBanco’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objective, no control system, no matter how well conceived and operated, can provide absolute assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.

CHANGES IN INTERNAL CONTROLS—There were no changes in WesBanco’s internal control over financial reporting that occurred during our fiscal quarter ended June 30, 2015 as required to be reported by paragraph (d) of Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, that materially affected, or are reasonably likely to materially affect, WesBanco’s internal control over financial reporting.

 

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Litigation Related to the ESB Merger

On October 29, 2014, ESB and WesBanco entered into an Agreement and Plan of Merger (the “Merger Agreement”), providing for the merger of ESB with and into WesBanco, with WesBanco as the surviving corporation (the “Merger”). Each of ESB and WesBanco filed a definitive joint proxy statement/prospectus, dated as of December 11, 2014 (the “Joint Proxy Statement/Prospectus”), with the Securities and Exchange Commission in connection with the Merger. The Merger was consummated on February 10, 2015.

As previously reported by each of ESB and WesBanco on Current Reports on Form 8-K, each dated December 15, 2014 and filed on December 19, 2014, two putative class action complaints were filed by purported shareholders of ESB with respect to the Merger. One complaint was filed in the United States District Court for the Western District of Pennsylvania (the “Federal District Court”), and is captioned and numbered James Elliott vs. ESB Financial, Inc., et al., Case No. 2:14-cv-01689-MRH (the “Federal Lawsuit”). The other complaint was filed in the Court of Common Pleas of Lawrence County, Pennsylvania, and is captioned and numbered Randall Kress v. ESB Bank, Case No. 11185/14 CA (the “Lawrence County Lawsuit”). Both complaints alleged generally, among other things, that each member of ESB’s board of directors (the “Director Defendants”) breached their fiduciary duties in approving the Merger Agreement, that ESB and WesBanco aided and abetted such breaches of fiduciary duty and that the disclosure regarding the Merger contained in the Joint Proxy Statement/Prospectus was materially deficient.

On January 15, 2015, solely to avoid the costs, risks and uncertainties inherent in litigation, ESB, ESB Bank, WesBanco and the Director Defendants (ESB, ESB Bank, WesBanco and the Director Defendants, collectively the “Defendants”) entered into a Memorandum of Settlement (the “MOS”) with the respective plaintiffs (collectively, the “Plaintiffs”) regarding the settlement of both the Federal Lawsuit and the Lawrence County Lawsuit. Pursuant to the MOS, ESB and WesBanco agreed to file with the SEC and make publicly available to shareholders of ESB and WesBanco supplemental disclosures provided on Form 8-K and the Plaintiffs agreed to release ESB, ESB Bank, WesBanco and the Director Defendants from all claims related to the Merger Agreement and the Merger, subject to approval of the Federal District Court. If the court approves the settlement contemplated in the MOS, both the Federal Lawsuit and the Lawrence County Lawsuit will be dismissed with prejudice, and all claims that were or could have been brought challenging any aspect of the Merger, the Merger Agreement, and any disclosure made in connection therewith will be released and barred. Under the terms of the MOS, counsel for the Plaintiffs reserved the right to seek an award of attorneys’ fees and expenses. The Defendants have reserved the right to contest the fee and expense petition. The amount of any fees and expense awarded will ultimately be determined and approved by the court, and will not affect the amount of merger consideration paid by WesBanco. ESB or its successor or insurer will pay any fees and expenses awarded by the court. In the MOS, the parties agreed to negotiate in good faith to prepare a stipulation of settlement which was entered into by the parties and filed with the court on April 28, 2015 and other documentation as may be required to effectuate the settlement. By Order dated July 2, 2015, the Federal District Court made preliminary determinations regarding (i) certification of a class of ESB shareholders such that notice could be disseminated to class members relating to, among other things, the Federal Lawsuit, the Lawrence County Lawsuit, the proposed settlement contemplated in the MOS (the “Settlement”), a final hearing to approve the Settlement and the right of class members to participate in such hearing, and (ii) the role of Mr. Elliott and his counsel as Class Representative and Class Counsel, respectively. The Court has set a hearing to approve the Settlement on September 21, 2015. There can be no assurance that the court will approve the Settlement. The Settlement will become void in the event that the court does not approve the Settlement.

The Settlement did not affect the timing of the special meeting of shareholders of ESB held January 22, 2015 in Ellwood City, Pennsylvania to vote upon a proposal to adopt the Merger Agreement. Similarly, the Settlement did not affect the timing of the special meeting of shareholders of WesBanco held January 22, 2015 in Wheeling, West Virginia to vote on a proposal to approve the issuance of shares of WesBanco common stock in connection with the Merger. The shareholders of both corporations approved the Merger. ESB and the other Defendants deny all of the allegations in the lawsuits and believe the disclosures previously included in the Joint Proxy Statement/Prospectus were appropriate under the law. Nevertheless, ESB and the other Defendants have agreed to settle the putative class action lawsuits in order to avoid the costs, disruptions and distraction of further litigation.

ESB and the other Defendants have vigorously denied, and continue to vigorously deny, that they have committed or aided and abetted in the commission of any violation of law or engaged in any of the wrongful acts that were alleged in the lawsuits, and expressly maintain that, to the extent applicable, they diligently and scrupulously complied with their fiduciary and other legal burdens and entered into the MOS solely to eliminate the burden and expense of further litigation and to put the claims that were or could have been asserted to rest. Nothing in the MOS or any stipulation of settlement shall be deemed an admission of the legal necessity or materiality under applicable laws of any of the disclosures set forth therein. WesBanco does not believe that a material loss related to these claims is reasonably possible.

Other Litigation

WesBanco is also involved in lawsuits, claims, investigations and proceedings which arise in the ordinary course of business. While any litigation contains an element of uncertainty, WesBanco does not believe that a material loss related to such proceedings or claims pending or known to be threatened is reasonably possible.

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

As of June 30, 2015, WesBanco had a current stock repurchase plan in which up to one million shares can be acquired. The plan was originally approved by the Board of Directors on March 21, 2007 and provides for shares to be repurchased for general corporate purposes, which may include a subsequent resource for potential acquisitions, shareholder dividend reinvestment and employee benefit plans. The timing, price and quantity of purchases are at the discretion of WesBanco, and the plan may be discontinued or suspended at any time. Repurchases during the second quarter of 2015 included those for the KSOP and dividend reinvestment plans and a repurchase to facilitate the payment of withholding taxes for employees’ vesting of restricted stock.

The following table presents the monthly share purchase activity during the quarter ended June 30, 2015:

 

Period

   Total Number
of Shares
Purchased
     Average Price
Paid per
Share
     Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans
     Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans
 

Balance at March 31, 2015

              340,049   

April 1, 2015 to April 30, 2015

           

Open market repurchases

     —           —           —           340,049   

Other transactions (1)

     16,528       $ 32.67         N/A         N/A   

May 1, 2015 to May 31, 2015

           

Open market repurchases

     —           —           —           340,049   

Other repurchases (2)

     338       $ 32.04         338         339,711   

Other transactions (1)

     2,623       $ 31.64         N/A         N/A   

June 1, 2015 to June 30, 2015

           

Open market repurchases

     —           —           —           339,711   

Other repurchases (2)

     11,649       $ 31.35         11,649         328,062   

Other transactions (1)

     1,181         33.83         N/A         N/A   
  

 

 

    

 

 

    

 

 

    

 

 

 

Second Quarter 2015

           

Open market repurchases

     —           —           —           340,049   

Other repurchases (2)

     11,987       $ 31.36         11,987         328,062   

Other transactions (1)

     20,332         32.61         N/A         N/A   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     32,319       $ 32.15         11,987         328,062   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Consists of open market purchases transacted in the KSOP and dividend reinvestment plans.
(2) Consists of shares purchased from employees for the payment of withholding taxes to facilitate the vesting of restricted stock.

 

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ITEM 6. EXHIBITS

 

    3.1    Articles of Amendment to WesBanco, Inc. Articles of Incorporation, dated April 24, 2015, increasing authorized common shares from 50,000,000 to 100,000,000.
  10.1    Employment Agreement, dated March 1, 2015, by and between WesBanco Bank, Inc., Jayson M. Zatta, and WesBanco, Inc.*
  10.2    Amended and Restated Change in Control Agreement, dated July 25, 2008, by and between WesBanco Bank, Inc., Jayson M. Zatta, and WesBanco, Inc.*
  10.3    Public Warrant repurchase letter, dated May 6, 2015, by and between the U.S. Treasury and WesBanco, Inc. (incorporated by reference to Form 8-K filed by the Registrant with the Securities and Exchange Commission on May 6, 2015).
  31.1    Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-15(e) or Rule 15d-15(e).
  31.2    Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-15(e) or Rule 15d-15(e).
  32.1    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101    The following materials from WesBanco’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at June 30, 2015 and December 31, 2014, (ii) the Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2014, (iii) the Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2015 and 2014, (iv) the Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014, and (v) the Notes to Consolidated Financial Statements.

 

* Indicates management compensatory plan, contract or arrangement.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

     WESBANCO, INC.
Date: July 30, 2015     

/s/ Todd F. Clossin

     Todd F. Clossin
    

President and Chief Executive Officer

(Principal Executive Officer)

Date: July 30, 2015     

/s/ Robert H. Young

     Robert H. Young
     Executive Vice President and Chief Financial Officer
     (Principal Financial and Accounting Officer)

 

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