WESBANCO INC - FORM 10-Q - April 27, 2017

WESBANCO INC - FORM 10-Q - April 27, 2017

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EX-32.1 - EX-32.1 - WESBANCO INC	d361684dex321.htm
EX-31.2 - EX-31.2 - WESBANCO INC	d361684dex312.htm
EX-31.1 - EX-31.1 - WESBANCO INC	d361684dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2017

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

For the transition period from to

Commission File Number 000-08467

WESBANCO, INC.

(Exact name of Registrant as specified in its charter)


WEST VIRGINIA		55-0571723
(State of incorporation)		(IRS Employer Identification No.)


1 Bank Plaza, Wheeling, WV		26003
(Address of principal executive offices)		(Zip Code)

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

NOT APPLICABLE

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

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

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

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

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

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

As of April 21, 2017, there were 43,953,051 shares of WesBanco, Inc. common stock, $2.0833 par value, outstanding.

WESBANCO, INC.

TABLE OF CONTENTS


Item No.	ITEM	Page No.

	PART I—FINANCIAL INFORMATION
1	Financial Statements
	Consolidated Balance Sheets at March 31, 2017 (unaudited) and December 31, 2016		3
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017 and 2016 (unaudited)		4
	Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2017 and 2016 (unaudited)		5
	Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016 (unaudited)		6
	Notes to Consolidated Financial Statements (unaudited)		7

2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29

3	Quantitative and Qualitative Disclosures About Market Risk		48

4	Controls and Procedures		51

	PART II – OTHER INFORMATION
1	Legal Proceedings		52

2	Unregistered Sales of Equity Securities and Use of Proceeds		52

6	Exhibits		53

	Signatures		54

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WESBANCO, INC. CONSOLIDATED BALANCE SHEETS


*(unaudited, in thousands, except shares)*	March 31, 2017			December 31, 2016
ASSETS
Cash and due from banks, including interest bearing amounts of $13,525 and $21,913, respectively	$	115,084		$	128,170
Securities:
Trading securities, at fair value		7,773			7,071
Available-for-sale, at fair value		1,225,069			1,241,176
Held-to-maturity (fair values of $1,071,009 and $1,076,790, respectively)		1,057,753			1,067,967

Total securities		2,290,595			2,316,214

Loans held for sale		11,480			17,315

Portfolio loans, net of unearned income		6,312,172			6,249,436
Allowance for loan losses		(44,061	)		(43,674	)

Net portfolio loans		6,268,111			6,205,762

Premises and equipment, net		134,949			133,297
Accrued interest receivable		28,923			28,299
Goodwill and other intangible assets, net		591,539			593,187
Bank-owned life insurance		189,286			188,145
Other assets		170,914			180,488

Total Assets	$	9,800,881		$	9,790,877

LIABILITIES
Deposits:
Non-interest bearing demand	$	1,844,003		$	1,789,522
Interest bearing demand		1,599,536			1,546,890
Money market		1,029,440			995,477
Savings deposits		1,253,652			1,213,168
Certificates of deposit		1,419,104			1,495,822

Total deposits		7,145,735			7,040,879

Federal Home Loan Bank borrowings		937,104			968,946
Other short-term borrowings		115,643			199,376
Subordinated debt and junior subordinated debt		164,177			163,598

Total borrowings		1,216,924			1,331,920

Accrued interest payable		2,422			2,204
Other liabilities		76,647			74,466

Total Liabilities		8,441,728			8,449,469

SHAREHOLDERS’ EQUITY
Preferred stock, no par value; 1,000,000 shares authorized; none outstanding		—			—
Common stock, $2.0833 par value; 100,000,000 shares authorized in 2017 and 2016, respectively; 43,953,051 and 43,931,715 shares issued, respectively; 43,953,051 and 43,931,715 shares outstanding, respectively		91,568			91,524
Capital surplus		681,471			680,507
Retained earnings		611,528			597,071
Treasury stock (0 shares in 2017 and 2016, respectively, at cost)		—			—
Accumulated other comprehensive loss		(24,841	)		(27,126	)
Deferred benefits for directors		(573	)		(568	)

Total Shareholders’ Equity		1,359,153			1,341,408

Total Liabilities and Shareholders’ Equity	$	9,800,881		$	9,790,877

See Notes to Consolidated Financial Statements.

WESBANCO, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	For the Three Months Ended March 31,
*(unaudited, in thousands, except shares and per share amounts)*	2017			2016
INTEREST AND DIVIDEND INCOME
Loans, including fees	$	64,898		$	52,338
Interest and dividends on securities:
Taxable		9,596			10,217
Tax-exempt		4,891			4,521

Total interest and dividends on securities		14,487			14,738

Other interest income		539			525

Total interest and dividend income		79,924			67,601

INTEREST EXPENSE
Interest bearing demand deposits		1,093			507
Money market deposits		574			456
Savings deposits		181			165
Certificates of deposit		2,411			2,659

Total interest expense on deposits		4,259			3,787

Federal Home Loan Bank borrowings		2,836			3,068
Other short-term borrowings		297			82
Subordinated debt and junior subordinated debt		1,813			822

Total interest expense		9,205			7,759

NET INTEREST INCOME		70,719			59,842
Provision for credit losses		2,711			2,324

Net interest income after provision for credit losses		68,008			57,518

NON-INTEREST INCOME
Trust fees		6,143			5,711
Service charges on deposits		4,853			3,952
Electronic banking fees		4,528			3,604
Net securities brokerage revenue		1,762			1,896
Bank-owned life insurance		1,140			973
Net gains on sales of mortgage loans		1,440			548
Net securities gains		12			1,111
Net loss on other real estate owned and other assets		(76	)		(18	)
Other income		3,082			1,616

Total non-interest income		22,884			19,393

NON-INTEREST EXPENSE
Salaries and wages		23,002			19,180
Employee benefits		8,210			7,077
Net occupancy		4,327			3,591
Equipment		4,042			3,428
Marketing		824			973
FDIC insurance		827			1,166
Amortization of intangible assets		1,273			730
Restructuring and merger-related expense		491			—
Other operating expenses		11,388			9,198

Total non-interest expense		54,384			45,343

Income before provision for income taxes		36,508			31,568
Provision for income taxes		10,622			8,694

NET INCOME	$	25,886		$	22,874

EARNINGS PER COMMON SHARE
Basic	$	0.59		$	0.60
Diluted	$	0.59		$	0.60

AVERAGE COMMON SHARES OUTSTANDING
Basic		43,947,563			38,386,983
Diluted		44,020,765			38,402,316

DIVIDENDS DECLARED PER COMMON SHARE	$	0.26		$	0.24

COMPREHENSIVE INCOME	$	28,171		$	35,471

See Notes to Consolidated Financial Statements.

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

For the Three Months Ended March 31, 2017 and 2016


	Common Stock					Capital Surplus			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive (Loss) Income			Deferred Benefits for Directors			Total
*(unaudited, in thousands, except shares* *and per share amounts)*	Shares Outstanding			Amount		Capital Surplus			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive (Loss) Income			Deferred Benefits for Directors			Total
December 31, 2016		43,931,715		$	91,524	$	680,507		$	597,071		$	—		$	(27,126	)	$	(568	)	$	1,341,408

Net income		—			—		—			25,886			—			—			—			25,886
Other comprehensive income		—			—		—			—			—			2,285			—			2,285

Comprehensive income		—			—		—			—			—			—			—			28,171
Common dividends declared ($0.26 per share)		—			—		—			(11,429	)		—			—			—			(11,429	)
Stock options exercised		17,634			36		490			—			—			—			—			526
Issuance of restricted stock		3,702			8		(8	)		—			—			—			—			—
Stock compensation expense		—			—		477			—			—			—			—			477
Deferred benefits for directors- net		—			—		5			—			—			—			(5	)		—

March 31, 2017		43,953,051		$	91,568	$	681,471		$	611,528		$	—		$	(24,841	)	$	(573	)	$	1,359,153


December 31, 2015		38,459,635		$	80,304	$	516,294		$	549,921		$	(2,640	)	$	(20,954	)	$	(793	)	$	1,122,132

Net income		—			—		—			22,874			—			—			—			22,874
Other comprehensive income		—			—		—			—			—			12,597			—			12,597

Comprehensive income		—			—		—			—			—			—			—			35,471
Common dividends declared ($0.24 per share)		—			—		—			(9,203	)		—			—			—			(9,203	)
Treasury shares acquired		(117,101	)		—		—			—			(3,317	)		—			—			(3,317	)
Stock options exercised		20,000			—		(146	)		—			622			—			—			476
Stock compensation expense		—			—		351			—			—			—			—			351
Deferred benefits for directors- net		—			—		(239	)		—			—			—			239			—

March 31, 2016		38,362,534		$	80,304	$	516,260		$	563,592		$	(5,335	)	$	(8,357	)	$	(554	)	$	1,145,910

See Notes to Consolidated Financial Statements.

WESBANCO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Three Months Ended March 31,
*(unaudited, in thousands)*	2017			2016
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	47,508		$	40,275

INVESTING ACTIVITIES
Net increase in loans held for investment		(63,701	)		(70,534	)
Securities available-for-sale:
Proceeds from sales		—			15,026
Proceeds from maturities, prepayments and calls		59,043			83,528
Purchases of securities		(41,742	)		(51,020	)
Securities held-to-maturity:
Proceeds from maturities, prepayments and calls		24,367			22,248
Purchases of securities		(16,023	)		(15,848	)
Proceeds from bank-owned life insurance		—			14
Purchases of premises and equipment – net		(2,311	)		(526	)

Net cash used in investing activities		(40,367	)		(17,112	)

FINANCING ACTIVITIES
Increase in deposits		105,344			77,050
Proceeds from Federal Home Loan Bank borrowings		170,000			—
Repayment of Federal Home Loan Bank borrowings		(201,825	)		(2,443	)
Decrease in other short-term borrowings		(25,733	)		(4,726	)
Decrease in federal funds purchased		(58,000	)		—
Dividends paid to common shareholders		(10,539	)		(8,859	)
Issuance of common stock		526			—
Treasury shares purchased – net		—			(2,897	)

Net cash (used in) provided by financing activities		(20,227	)		58,125

Net (decrease) increase in cash and cash equivalents		(13,086	)		81,288
Cash and cash equivalents at beginning of the period		128,170			86,685

Cash and cash equivalents at end of the period	$	115,084		$	167,973

SUPPLEMENTAL DISCLOSURES
Interest paid on deposits and other borrowings	$	9,441		$	7,914
Income taxes paid		250			1,100
Transfers of loans to other real estate owned		77			336

See Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

In March 2017, the FASB issued ASU 2017-07 that changes how employer-sponsored defined benefit pension and/or other postretirement benefit plans present the net periodic benefit cost in the income statement. Employers will present the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Only the service cost component will be eligible for capitalization in assets. Employers will present the other components of the net periodic benefit cost separately from the line items that includes the service cost outside of any subtotal of operating income, if one is presented. These components will not be eligible for capitalization in assets. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual period (i.e., only in the first interim period). For WesBanco, this update will be effective for the fiscal year beginning January 1, 2018. Upon adoption, WesBanco will reclassify the service cost component from employee benefits to salaries and wages, which are both components of non-interest expense. The service cost component for the three months ending March 31, 2017 was $0.6 million.

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

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

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

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

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

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

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

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

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

In May 2014, the FASB issued ASU 2014-09 related to the recognition of revenue from contracts with customers. The new revenue pronouncement creates a single source of revenue guidance for all companies in all industries and is more principles-based than current revenue guidance. The pronouncement provides a five-step model for a company to recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. The five steps are, (1) identify the contract with the customer, (2) identify the separate performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and (5) recognize revenue when each performance obligation is satisfied. On July 9, 2015, the FASB approved a one-year deferral of the effective date of the update. The update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. Early adoption is now permitted as of the original effective date for interim and annual reporting periods in fiscal years beginning after December 15, 2016. In March 2016, the FASB issued ASU 2016-08, which amends the principle versus agent guidance in the revenue standard. In April 2016, the FASB issued ASU 2016-10, which clarifies when promised goods or services are separately identifiable in the revenue standard. In May 2016, FASB issued ASU 2016-12, which provides narrow-scope improvements and practical expedients to the revenue standard. While WesBanco is currently evaluating the impact of this standard on individual customer contracts, management has evaluated the impact of this standard on the broad categories of its customer contracts and revenue streams. WesBanco currently anticipates this standard will not have a material impact on its Consolidated Financial Statements because revenue related to financial instruments, including loans and investment securities are not in scope of these updates. Loan interest income, investment interest income, insurance services revenue and BOLI are accounted for under other U.S. GAAP standards and out of scope of ASC 606 revenue standard. The Company plans to adopt the revenue recognition standard as of January 1, 2018. The Company is currently reviewing all streams of revenue that may be subject to this revised guidance. While WesBanco has not yet identified any material changes to the timing of revenue recognition, the Company’s review is ongoing.

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

NOTE 2. MERGERS AND ACQUISITIONS

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

On the acquisition date, YCB had approximately $1.5 billion in total assets, excluding goodwill, including approximately $1.0 billion in loans and $173.2 million in securities. The YCB acquisition was valued at $220.5 million, based on WesBanco’s closing stock price on September 9, 2016 of $32.62, and resulted in WesBanco issuing 5,423,348 shares of its common stock and $43.3 million in cash in exchange for all of the outstanding shares of YCB common stock. The assets and liabilities of YCB were recorded on WesBanco’s balance sheet at their preliminary estimated fair value as of September 9, 2016, the acquisition date, and YCB’s results of operations have been included in WesBanco’s Consolidated Statements of Income since that date. Due to the timing of the acquisition relative to the end of the reporting period, the fair values for certain assets and liabilities acquired from YCB on September 9, 2016 represented preliminary estimates. Based on the purchase price allocation, WesBanco recorded $92.3 million in goodwill and $12.0 million in core deposit intangibles in its Community Banking segment, representing the principal change in goodwill and intangibles in 2016. None of the goodwill is deductible for income tax purposes as the acquisition is accounted for as a tax-free exchange for tax purposes.

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

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


*(unaudited, in thousands)*	September 9, 2016
Purchase Price:
Fair value of WesBanco shares issued	$	177,149
Cash consideration for outstanding YCB shares		43,349

Total purchase price	$	220,498
Fair value of:
Tangible assets acquired	$	1,398,921
Core deposit and other intangible assets acquired		11,957
Liabilities assumed		(1,330,887	)
Net cash received in the acquisition		48,212

Fair value of net assets acquired		128,203

Goodwill recognized	$	92,295

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


*(unaudited, in thousands)*	September 9, 2016
Assets acquired
Cash and due from banks	$	48,212
Securities		173,223
Loans		1,012,410
Goodwill and other intangible assets		104,252
Accrued income and other assets ⁽¹⁾		213,288

Total assets acquired	$	1,551,385

Liabilities assumed
Deposits	$	1,193,010
Borrowings		123,001
Accrued expenses and other liabilities		14,876

Total liabilities assumed		1,330,887

Net assets acquired	$	220,498

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

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


*(unaudited, in thousands)*	September 9, 2016
Goodwill recognized as of December 31, 2016	$	92,889
Change in fair value of net assets acquired:
Assets
Loans		(1,156	)
Accrued income and other assets		1,481
Liabilities
Borrowings		—
Accrued expenses and other liabilities		269

Fair value of net assets acquired	$	594

Reduction in goodwill recognized		(594	)

Goodwill recognized as of March 31, 2017	$	92,295

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

NOTE 3. EARNINGS PER COMMON SHARE

Earnings per common share are calculated as follows:


	For the Three Months Ended March 31,
*(unaudited, in thousands, except shares and per share amounts)*	2017		2016
Numerator for both basic and diluted earnings per common share:
Net income	$	25,886	$	22,874

Denominator:
Total average basic common shares outstanding		43,947,563		38,386,983
Effect of dilutive stock options and other stock compensation		73,202		15,333

Total diluted average common shares outstanding		44,020,765		38,402,316

Earnings per common share – basic	$	0.59	$	0.60
Earnings per common share – diluted	$	0.59	$	0.60

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

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

NOTE 4. SECURITIES

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


	March 31, 2017									December 31, 2016
*(unaudited, in thousands)*	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale
U.S. Government sponsored entities and agencies	$	44,316	$	—	$	(592	)	$	43,724	$	54,803	$	3	$	(763	)	$	54,043
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		1,044,672		930		(16,688	)		1,028,914		1,052,397		911		(18,209	)		1,035,099
Obligations of states and political subdivisions		109,591		3,244		(1,267	)		111,568		110,208		3,114		(1,659	)		111,663
Corporate debt securities		35,278		215		(98	)		35,395		35,292		117		(108	)		35,301

Total debt securities	$	1,233,857	$	4,389	$	(18,645	)	$	1,219,601	$	1,252,700	$	4,145	$	(20,739	)	$	1,236,106
Equity securities		4,263		1,237		(32	)		5,468		4,062		1,032		(24	)		5,070

Total available-for-sale securities	$	1,238,120	$	5,626	$	(18,677	)	$	1,225,069	$	1,256,762	$	5,177	$	(20,763	)	$	1,241,176

Held-to-maturity
U.S. Government sponsored entities and agencies	$	13,140	$	—	$	(349	)	$	12,791	$	13,394	$	—	$	(414	)	$	12,980
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		205,126		1,195		(2,278	)		204,043		215,141		1,279		(2,563	)		213,857
Obligations of states and political subdivisions		805,088		17,363		(3,130	)		819,321		805,019		15,652		(5,529	)		815,142
Corporate debt securities		34,399		477		(22	)		34,854		34,413		418		(20	)		34,811

Total held-to-maturity securities	$	1,057,753	$	19,035	$	(5,779	)	$	1,071,009	$	1,067,967	$	17,349	$	(8,526	)	$	1,076,790

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

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

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

The following table presents the fair value of available-for-sale and held-to-maturity securities by contractual maturity at March 31, 2017. In some instances, the issuers may have the right to call or prepay obligations without penalty prior to the contractual maturity date.

March 31, 2017

(unaudited, in thousands)

One Year
or less

One to
Five Years

Five to
Ten Years

After
Ten Years

Mortgage-backed
and Equity

Total

Available-for-sale

U.S. Government sponsored entities and agencies

—

11,978

16,786

6,860

8,100

43,724

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

—

1,028,914

Obligations of states and political subdivisions

8,480

20,981

37,437

44,670

—

111,568

Corporate debt securities

—

30,391

3,076

1,928

—

35,395

Equity securities ⁽²⁾

—

5,468

Total available-for-sale securities

8,480

63,350

57,299

53,458

1,042,482

1,225,069

Held-to-maturity ⁽³⁾

U.S. Government sponsored entities and agencies

—

12,791

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

—

204,043

Obligations of states and political subdivisions

730

76,522

407,302

334,767

—

819,321

Corporate debt securities

—

974

33,880

—

34,854

Total held-to-maturity securities

730

77,496

441,182

334,767

216,834

1,071,009

Total

9,210

140,846

498,481

388,225

1,259,316

2,296,078

⁽¹⁾	Mortgage-backed and collateralized mortgage securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds.

⁽²⁾	Equity securities, which have no stated maturity, are not assigned a maturity category.

⁽³⁾	The held-to-maturity portfolio is carried at an amortized cost of $1.1 billion.

Securities with aggregate fair values of $1.2 billion at March 31, 2017 and December 31, 2016, were pledged as security for public and trust funds, and securities sold under agreements to repurchase. Proceeds from the sale of available-for-sale securities were $0 and $15.0 million for the three months ended March 31, 2017 and 2016, respectively. Net unrealized losses on available-for-sale securities included in accumulated other comprehensive income net of tax, as of March 31, 2017 and December 31, 2016 were $8.2 million and $9.9 million, respectively.

The following table presents the gross realized gains and losses on sales and calls of available-for-sale and held-to-maturity securities for the three months ended March 31, 2017 and 2016, respectively. Gains and losses due to fair value fluctuations on trading securities are included in non-interest income under other income, with an offsetting entry in compensation expense.


	For the Three Months Ended
	March 31,
*(unaudited, in thousands)*	2017		2016
Gross realized gains	$	12	$	1,137
Gross realized losses		—		(26	)

Net realized gains	$	12	$	1,111

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


	March 31, 2017
	Less than 12 months							12 months or more							Total
*(unaudited, dollars in thousands)*	Fair Value		Unrealized Losses			# of Securities		Fair Value		Unrealized Losses			# of Securities		Fair Value		Unrealized Losses			# of Securities
U.S. Government sponsored entities and agencies	$	46,533	$	(923	)		10	$	9,982	$	(18	)		1	$	56,515	$	(941	)		11
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		1,012,368		(16,672	)		246		62,784		(2,294	)		17		1,075,152		(18,966	)		263
Obligations of states and political subdivisions		254,893		(4,340	)		433		2,433		(57	)		4		257,326		(4,397	)		437
Corporate debt securities		1,928		(59	)		1		10,013		(61	)		3		11,941		(120	)		4
Equity securities		1,798		(32	)		3		—		—			—		1,798		(32	)		3

Total temporarily impaired securities	$	1,317,520	$	(22,026	)		693	$	85,212	$	(2,430	)		25	$	1,402,732	$	(24,456	)		718


	December 31, 2016
	Less than 12 months							12 months or more							Total
*(unaudited, dollars in thousands)*	Fair Value		Unrealized Losses			# of Securities		Fair Value		Unrealized Losses			# of Securities		Fair Value		Unrealized Losses			# of Securities
U.S. Government sponsored entities and agencies	$	58,108	$	(1,177	)		11	$	—	$	—			—	$	58,108	$	(1,177	)		11
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		1,057,343		(18,558	)		246		59,518		(2,214	)		16		1,116,861		(20,772	)		262
Obligations of states and political subdivisions		364,583		(7,121	)		604		2,047		(67	)		3		366,630		(7,188	)		607
Corporate debt securities		10,011		(78	)		3		5,973		(50	)		2		15,984		(128	)		5
Equity securities		2,938		(24	)		2		—		—			—		2,938		(24	)		2

Total temporarily impaired securities	$	1,492,983	$	(26,958	)		866	$	67,538	$	(2,331	)		21	$	1,560,521	$	(29,289	)		887

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

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

Securities that do not have readily determinable fair values and for which WesBanco does not exercise significant influence are carried at cost. Cost method investments consist primarily of FHLB of Pittsburgh, Cincinnati and Indianapolis stock totaling $45.1 million and $46.4 million at March 31, 2017 and December 31, 2016, respectively, and are included in other assets in the Consolidated Balance Sheets. Cost method investments are evaluated for impairment whenever events or circumstances suggest that their carrying value may not be recoverable.

NOTE 5. LOANS AND THE ALLOWANCE FOR CREDIT LOSSES

The recorded investment in loans is presented in the Consolidated Balance Sheets net of deferred loan fees and costs and discounts on purchased loans. The deferred loan fees and costs were $0.5 million and $0.3 million at March 31, 2017 and December 31, 2016, respectively. The discounts on purchased loans from acquisitions was $26.2 million, including $13.5 million related to YCB, and $24.1 million at March 31, 2017 and December 31, 2016, respectively.


*(unaudited, in thousands)*	March 31, 2017		December 31, 2016
Commercial real estate:
Land and construction	$	552,285	$	496,539
Improved property		2,400,318		2,376,972

Total commercial real estate		2,952,603		2,873,511

Commercial and industrial		1,106,719		1,088,118
Residential real estate		1,367,132		1,383,390
Home equity		508,411		508,359
Consumer		377,307		396,058

Total portfolio loans		6,312,172		6,249,436

Loans held for sale		11,480		17,315

Total loans	$	6,323,652	$	6,266,751

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


	Allowance for Credit Losses By Category For the Three Months Ended March 31, 2017 and 2016
*(unaudited, in thousands)*	Commercial Real Estate- Land and Construction			Commercial Real Estate- Improved Property			Commercial & Industrial			Residential Real Estate			Home Equity			Consumer			Deposit Overdraft			Total
Balance at December 31, 2016:
Allowance for loan losses	$	4,348		$	18,628		$	8,412		$	4,106		$	3,422		$	3,998		$	760		$	43,674
Allowance for loan commitments		151			17			188			9			162			44			—			571

Total beginning allowance for credit losses		4,499			18,645			8,600			4,115			3,584			4,042			760			44,245

Provision for credit losses:
Provision for loan losses		(425	)		983			832			330			365			583			66			2,734
Provision for loan commitments		(8	)		—			(31	)		1			17			(2	)		—			(23	)

Total provision for credit losses		(433	)		983			801			331			382			581			66			2,711

Charge-offs		—			(602	)		(880	)		(404	)		(108	)		(1,287	)		(338	)		(3,619	)
Recoveries		52			251			376			78			48			369			98			1,272

Net charge-offs		52			(351	)		(504	)		(326	)		(60	)		(918	)		(240	)		(2,347	)

Balance at March 31, 2017:
Allowance for loan losses		3,975			19,260			8,740			4,110			3,727			3,663			586			44,061
Allowance for loan commitments		143			17			157			10			179			42			—			548

Total ending allowance for credit losses	$	4,118		$	19,277		$	8,897		$	4,120		$	3,906		$	3,705		$	586		$	44,609

Balance at December 31, 2015:
Allowance for loan losses	$	4,390		$	14,748		$	10,002		$	4,582		$	2,883		$	4,763		$	342		$	41,710
Allowance for loan commitments		157			26			260			7			117			46			—			613

Total beginning allowance for credit losses		4,547			14,774			10,262			4,589			3,000			4,809			342			42,323

Provision for credit losses:
Provision for loan losses		1,387			716			(37	)		(279	)		(154	)		416			298			2,347
Provision for loan commitments		57			(14	)		(64	)		(2	)		1			(1	)		—			(23	)

Total provision for credit losses		1,444			702			(101	)		(281	)		(153	)		415			298			2,324

Charge-offs		—			(878	)		(20	)		(176	)		(72	)		(1,183	)		(169	)		(2,498	)
Recoveries		1			240			35			186			53			375			76			966

Net charge-offs		1			(638	)		15			10			(19	)		(808	)		(93	)		(1,532	)

Balance at March 31, 2016:
Allowance for loan losses		5,778			14,826			9,980			4,313			2,710			4,371			547			42,525
Allowance for loan commitments		214			12			196			5			118			45			—			590

Total ending allowance for credit losses	$	5,992		$	14,838		$	10,176		$	4,318		$	2,828		$	4,416		$	547		$	43,115

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


	Allowance for Credit Losses and Recorded Investment in Loans
*(unaudited, in thousands)*	Commercial Real Estate- Land and Construction		Commercial Real Estate- Improved Property		Commercial and Industrial		Residential Real Estate		Home Equity		Consumer		Deposit Over-draft		Total
March 31, 2017
Allowance for credit losses:
Allowance for loans individually evaluated for impairment	$	—	$	1,612	$	—	$	—	$	—	$	—	$	—	$	1,612
Allowance for loans collectively evaluated for impairment		3,975		17,648		8,740		4,110		3,727		3,663		586		42,449
Allowance for loan commitments		143		17		157		10		179		42		—		548

Total allowance for credit losses	$	4,118	$	19,277	$	8,897	$	4,120	$	3,906	$	3,705	$	586	$	44,609

Portfolio loans:
Individually evaluated for impairment⁽¹⁾	$	—	$	6,841	$	—	$	—	$	—	$	—	$	—	$	6,841
Collectively evaluated for impairment		550,722		2,383,888		1,105,684		1,366,307		508,411		377,298		—		6,292,310
Acquired with deteriorated credit quality		1,563		9,589		1,035		825		—		9		—		13,021

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

December 31, 2016
Allowance for credit losses:
Allowance for loans individually evaluated for impairment	$	—	$	470	$	407	$	—	$	—	$	—	$	—	$	877
Allowance for loans collectively evaluated for impairment		4,348		18,158		8,005		4,106		3,422		3,998		760		42,797
Allowance for loan commitments		151		17		188		9		162		44		—		571

Total allowance for credit losses	$	4,499	$	18,645	$	8,600	$	4,115	$	3,584	$	4,042	$	760	$	44,245

Portfolio loans:
Individually evaluated for impairment⁽¹⁾	$	—	$	3,012	$	1,270	$	—	$	—	$	—	$	—	$	4,282
Collectively evaluated for impairment		494,928		2,364,067		1,086,445		1,382,447		508,359		396,049		—		6,232,295
Acquired with deteriorated credit quality		1,611		9,893		403		943		—		9		—		12,859

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

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

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

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

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

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

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

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


	Commerical Loans by Internally Assigned Risk Grade
*(unaudited, in thousands)*	Commercial Real Estate- Land and Construction		Commercial Real Estate- Improved Property		Commercial & Industrial		Total Commercial Loans
As of March 31, 2017
Pass	$	545,107	$	2,339,269	$	1,089,934	$	3,974,310
Criticized - compromised		4,500		25,414		6,986		36,900
Classified - substandard		2,678		35,635		9,799		48,112
Classified - doubtful		—		—		—		—

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

As of December 31, 2016
Pass	$	489,380	$	2,324,755	$	1,072,751	$	3,886,886
Criticized - compromised		4,405		15,295		5,078		24,778
Classified - substandard		2,754		36,922		10,289		49,965
Classified - doubtful		—		—		—		—

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

Residential real estate, home equity and consumer loans are not assigned internal risk grades other than as required by regulatory guidelines that are based primarily on the age of past due loans. WesBanco primarily evaluates the credit quality of residential real estate, home equity and consumer loans based on repayment performance and historical loss rates. The aggregate amount of residential real estate, home equity and consumer loans classified as substandard in accordance with regulatory guidelines were $20.5 million at March 31, 2017 and $20.6 million at December 31, 2016, of which $2.2 and $3.4 million were accruing, for each period, respectively. The aggregate amount of residential real estate, home equity and consumer loans classified as substandard are not included in the tables above.

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

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

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


	For the Three Months Ended
*(unaudited, in thousands)*	March 31, 2017			March 31, 2016
Balance at beginning of period	$	1,717		$	1,206
Acquisitions		—			—
Reduction due to change in projected cash flows		(200	)		—
Reclass from non-accretable difference		174			1,033
Transfers out		—			(328	)
Accretion		(151	)		(134	)

Balance at end of period	$	1,540		$	1,777

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


	Age Analysis of Loans
*(unaudited, in thousands)*	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Total Loans		90 Days or More Past Due and Accruing ⁽¹⁾
As of March 31, 2017
Commercial real estate:
Land and construction	$	551,994	$	—	$	—	$	291	$	291	$	552,285	$	10
Improved property		2,387,197		1,225		4,172		7,724		13,121		2,400,318		315

Total commercial real estate		2,939,191		1,225		4,172		8,015		13,412		2,952,603		325
Commercial and industrial		1,101,314		587		1,402		3,416		5,405		1,106,719		225
Residential real estate		1,354,217		3,841		1,630		7,444		12,915		1,367,132		400
Home equity		502,141		1,347		861		4,062		6,270		508,411		1,376
Consumer		373,249		2,655		705		698		4,058		377,307		440

Total portfolio loans		6,270,112		9,655		8,770		23,635		42,060		6,312,172		2,766
Loans held for sale		11,480		—		—		—		—		11,480		—

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

Impaired loans included above are as follows:
Non-accrual loans	$	11,976	$	1,030	$	5,467	$	20,854	$	27,351	$	39,327
TDRs accruing interest ⁽¹⁾		6,677		400		102		15		517		7,194

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

As of December 31, 2016
Commercial real estate:
Land and construction	$	496,245	$	—	$	—	$	294	$	294	$	496,539	$	—
Improved property		2,367,790		1,154		363		7,665		9,182		2,376,972		318

Total commercial real estate		2,864,035		1,154		363		7,959		9,476		2,873,511		318
Commercial and industrial		1,082,390		2,508		1,011		2,209		5,728		1,088,118		229
Residential real estate		1,365,956		6,701		1,043		9,690		17,434		1,383,390		1,922
Home equity		502,087		2,358		862		3,052		6,272		508,359		626
Consumer		390,354		3,674		1,149		881		5,704		396,058		644

Total portfolio loans		6,204,822		16,395		4,428		23,791		44,614		6,249,436		3,739
Loans held for sale		17,315		—		—		—		—		17,315		—

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

Impaired loans included above are as follows:
Non-accrual loans	$	7,570	$	3,479	$	923	$	19,812	$	24,214	$	31,784
TDRs accruing interest ⁽¹⁾		7,014		342		50		240		632		7,646

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

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

The following tables summarize impaired loans:


	Impaired Loans
	March 31, 2017						December 31, 2016
*(unaudited, in thousands)*	Unpaid Principal Balance ⁽¹⁾		Recorded Investment		Related Allowance		Unpaid Principal Balance ⁽¹⁾		Recorded Investment		Related Allowance
With no related specific allowance recorded:
Commercial real estate:
Land and construction	$	584	$	409	$	—	$	1,212	$	766	$	—
Improved property		15,633		11,099		—		9,826		8,141		—
Commercial and industrial		9,348		4,443		—		4,456		3,181		—
Residential real estate		20,299		18,590		—		20,152		18,305		—
Home equity		4,920		4,361		—		4,589		4,011		—
Consumer		906		778		—		884		744		—

Total impaired loans without a specific allowance		51,690		39,680		—		41,119		35,148		—

With a specific allowance recorded:
Commercial real estate:
Land and construction		—		—		—		—		—		—
Improved property		6,841		6,841		1,612		3,012		3,012		470
Commercial and industrial		—		—		—		4,875		1,270		407

Total impaired loans with a specific allowance		6,841		6,841		1,612		7,887		4,282		877

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

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


	Impaired Loans
	For the Three Months Ended March 31, 2017				For the Three Months Ended March 31, 2016
*(unaudited, in thousands)*	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related specific allowance recorded:
Commercial real estate:
Land and construction	$	588	$	—	$	1,434	$	6
Improved property		9,620		346		10,446		84
Commercial and industrial		3,812		2		3,374		41
Residential real estate		18,448		69		16,929		239
Home equity		4,186		5		3,157		24
Consumer		761		2		1,096		18

Total impaired loans without a specific allowance		37,415		424		36,436		412

With a specific allowance recorded:
Commercial real estate:
Land and construction		—		—		—		—
Improved property		4,927		—		3,012		—
Commercial and industrial		635		—		4,723		32

Total impaired loans with a specific allowance		5,562		—		7,735		32

Total impaired loans	$	42,977	$	424	$	44,171	$	444

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


	Non-accrual Loans⁽¹⁾
*(unaudited, in thousands)*	March 31, 2017		December 31, 2016
Commercial real estate:
Land and construction	$	409	$	766
Improved property		16,352		9,535

Total commercial real estate		16,761		10,301

Commercial and industrial		4,296		4,299
Residential real estate		13,672		12,994
Home equity		3,902		3,538
Consumer		696		652

Total	$	39,327	$	31,784

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


	TDRs
	March 31, 2017						December 31, 2016
*(unaudited, in thousands)*	Accruing		Non-Accrual		Total		Accruing		Non-Accrual		Total
Commercial real estate:
Land and construction	$	—	$	7	$	7	$	—	$	8	$	8
Improved property		1,588		572		2,160		1,618		688		2,306

Total commercial real estate		1,588		579		2,167		1,618		696		2,314

Commercial and industrial		147		261		408		152		151		303
Residential real estate		4,918		1,940		6,858		5,311		2,212		7,523
Home equity		459		329		788		473		297		770
Consumer		82		164		246		92		190		282

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

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

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


	New TDRs ⁽¹⁾ For the Three Months Ended
	March 31, 2017						March 31, 2016
*(unaudited, dollars in thousands)*	Number of Modifications		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Modifications		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial real estate:
Land and construction		—	$	—	$	—		—	$	—	$	—
Improved Property		—		—		—		—		—		—

Total commercial real estate		—		—		—		—		—		—

Commercial and industrial		2		126		122		—		—		—
Residential real estate		1		10		9		—		—		—
Home equity		1		44		43		—		—		—
Consumer		2		84		21		—		—		—

Total		6	$	264	$	195		—	$	—	$	—

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

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


	Defaulted TDRs ⁽¹⁾				Defaulted TDRs ⁽¹⁾
	For the Three Months Ended				For the Three Months Ended
	March 31, 2017				March 31, 2016
*(unaudited, dollars in thousands)*	Number of Defaults		Recorded Investment		Number of Defaults		Recorded Investment
Commercial real estate:
Land and construction		—	$	—		—	$	—
Improved property		—		—		—		—

Total commercial real estate		—		—		—		—

Commercial and industrial		—		—		—		—
Residential real estate		—		—		—		—
Home equity		—		—		—		—
Consumer		1		9		—		—

Total		1	$	9		—	$	—

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

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

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


*(unaudited, in thousands)*	March 31, 2017		December 31, 2016
Other real estate owned	$	7,910	$	8,206
Repossessed assets		123		140

Total other real estate owned and repossessed assets	$	8,033	$	8,346

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

NOTE 6. PENSION PLAN

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


	For the Three Months Ended March 31,
*(unaudited, in thousands)*	2017			2016
Service cost – benefits earned during year	$	636		$	696
Interest cost on projected benefit obligation		1,084			1,324
Expected return on plan assets		(1,886	)		(1,919	)
Amortization of prior service cost		6			6
Amortization of net loss		794			694

Net periodic pension cost	$	634		$	801

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

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

On September 9, 2016, WesBanco assumed YCB’s obligation for a predecessor bank’s participation in the Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra Plan”). The participating employer plan has been frozen to new participants since 2002. WesBanco is in the process of spinning off the assets from the Pentegra Plan, and has contributed approximately $2.8 million to satisfy the estimated final costs to do so. This estimated spin off will have no impact on earnings as the liability was included in YCB’s balance sheet as of the acquisition date. The distributed assets from the Pentegra Plan will be transferred to a plan, providing substantially the same benefits to the participants prior to its merger into the WesBanco Defined Benefit Pension Plan later in 2017.

NOTE 7. FAIR VALUE MEASUREMENT

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

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

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

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

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

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

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

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

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

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

Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in the table below are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. The following tables set forth WesBanco’s financial assets and liabilities that were accounted for at fair value on a recurring and nonrecurring basis by level within the fair value hierarchy as of March 31, 2017 and December 31, 2016:

March 31, 2017

Fair Value Measurements Using:

March 31,
2017

Quoted Prices in
Active Markets
for Identical
Assets

Significant
Other
Observable
Inputs

Significant
Unobservable
Inputs

Investments
Measured at
Net Asset

(unaudited, in thousands)

(level 1)

(level 2)

(level 3)

Value

Recurring fair value measurements

Trading securities

7,773

6,328

—

1,445

Securities - available-for-sale

U.S. Government sponsored entities and agencies

43,724

—

43,724

—

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

1,028,914

—

1,028,914

—

Obligations of state and political subdivisions

111,568

—

111,568

—

Corporate debt securities

35,395

—

35,395

—

Equity securities

5,468

3,133

2,335

—

Total securities - available-for-sale

1,225,069

3,133

1,221,936

—

Other assets - interest rate derivatives agreements

6,386

—

6,386

—

Total assets recurring fair value measurements

1,239,228

9,461

1,228,322

—

1,445

Other liabilities - interest rate derivatives agreements

6,184

—

6,184

—

Total liabilities recurring fair value measurements

6,184

—

6,184

—

Nonrecurring fair value measurements

Impaired loans

5,229

—

5,229

—

Other real estate owned and repossessed assets

8,033

—

8,033

—

Loans held for sale

11,480

—

11,480

—

Total nonrecurring fair value measurements

24,742

—

11,480

13,262

—


			December 31, 2016
			Fair Value Measurements Using:
	December 31, 2016		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Investments Measured at Net Asset
*(unaudited, in thousands)*	December 31, 2016		(level 1)		(level 2)		(level 3)		Value
Recurring fair value measurements
Trading securities	$	7,071	$	5,633	$	—	$	—	$	1,438
Securities - available-for-sale
U.S. Government sponsored entities and agencies		54,043		—		54,043		—		—
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		1,035,099		—		1,035,099		—		—
Obligations of state and political subdivisions		111,663		—		111,663		—		—
Corporate debt securities		35,301		—		35,301		—		—
Equity securities		5,070		2,938		2,132		—		—

Total securities - available-for-sale	$	1,241,176	$	2,938	$	1,238,238	$	—	$	—

Other assets - interest rate derivatives agreements	$	5,596	$	—	$	5,596	$	—	$	—

Total assets recurring fair value measurements	$	1,253,843	$	8,571	$	1,243,834	$	—	$	1,438


Other liabilities - interest rate derivatives agreements	$	5,199	$	—	$	5,199	$	—	$	—

Total liabilities recurring fair value measurements	$	5,199	$	—	$	5,199	$	—	$	—


Nonrecurring fair value measurements
Impaired loans	$	3,405	$	—	$	—	$	3,405	$	—
Other real estate owned and repossessed assets		8,346		—		—		8,346		—
Loans held for sale		17,315		—		17,315		—		—

Total nonrecurring fair value measurements	$	29,066	$	—	$	17,315	$	11,751	$	—

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

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

Quantitative Information about Level 3 Fair Value Measurements

Fair Value

Valuation

Unobservable

Range (Weighted

(unaudited, in thousands)

Estimate

Techniques

Input

Average)

March 31, 2017

Impaired loans

5,229

Appraisal of collateral ⁽¹⁾

Appraisal adjustments ⁽²⁾

0% to (20.0%) / (6.8%)

Liquidation expenses ⁽²⁾

(6.4%) to (8.0%) / (7.5%)

Other real estate owned and repossessed assets

8,033

Appraisal of collateral ^(1), (3)

December 31, 2016:

Impaired loans

3,405

Appraisal of collateral ⁽¹⁾

Appraisal adjustments⁽²⁾

0% to (70.0%) / (36.6%)

Liquidation expenses ⁽²⁾

(1.5%) to (8.0%) / (4.6%)

Other real estate owned and repossessed assets

8,346

Appraisal of collateral ^(1), (3)

⁽¹⁾	Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.

⁽²⁾	Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of appraisal adjustments and liquidation expenses are presented as a percent of the appraisal.

⁽³⁾	Includes estimated liquidation expenses and numerous dissimilar qualitative adjustments by management which are not identifiable.

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

Fair Value Measurements at
March 31, 2017

(unaudited, in thousands)

Carrying
Amount

Fair Value
Estimate

Quoted Prices in
Active Markets
for Identical
Assets
(level 1)

Significant Other
Observable
Inputs
(level 2)

Significant
Unobservable
Inputs
(level 3)

Investments
Measured at Net
Asset Value

Financial Assets

Cash and due from banks

115,084

—

Trading securities

7,773

6,328

—

1,445

Securities available-for-sale

1,225,069

3,133

1,221,936

—

Securities held-to-maturity

1,057,753

1,071,009

—

1,070,398

611

—

Net loans

6,268,111

6,113,677

—

6,113,677

—

Loans held for sale

11,480

—

11,480

—

Other assets - interest rate derivatives

6,386

—

6,386

Accrued interest receivable

28,923

—

Financial Liabilities

Deposits

7,145,735

7,156,963

5,726,630

1,430,333

—

Federal Home Loan Bank borrowings

937,104

935,548

—

935,548

—

Other borrowings

115,643

115,627

113,497

2,130

—

Subordinated debt and junior subordinated debt

164,177

133,541

—

133,541

—

Other liabilities - interest rate derivatives

6,184

—

6,184

Accrued interest payable

2,422

—


					Fair Value Measurements at December 31, 2016
*(unaudited, in thousands)*	Carrying Amount		Fair Value Estimate		Quoted Prices in Active Markets for Identical Assets (level 1)		Significant Other Observable Inputs (level 2)		Significant Unobservable Inputs (level 3)		Investments Measured at Net Asset Value
Financial Assets
Cash and due from banks	$	128,170	$	128,170	$	128,170	$	—	$	—	$	—
Trading securities		7,071		7,071		5,633		—		—		1,438
Securities available-for-sale		1,241,176		1,241,176		2,938		1,238,238		—		—
Securities held-to-maturity		1,067,967		1,076,790		—		1,076,189		601		—
Net loans		6,205,762		6,073,558		—		—		6,073,558		—
Loans held for sale		17,315		17,315		—		17,315		—		—
Other assets - interest rate derivatives		5,596		5,596		—		5,596		—		—
Accrued interest receivable		28,299		28,299		28,299		—		—		—
Financial Liabilities
Deposits		7,040,879		7,052,501		5,545,057		1,507,444		—		—
Federal Home Loan Bank borrowings		968,946		974,430		—		974,430		—		—
Other borrowings		199,376		199,385		197,164		2,221		—		—
Subordinated debt and junior subordinated debt		163,598		134,859		—		134,859		—		—
Other liabilities - interest rate derivatives		5,199		5,199		—		5,199		—		—
Accrued interest payable		2,204		2,204		2,204		—		—		—

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

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

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

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

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

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

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

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

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

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

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

NOTE 8. COMPREHENSIVE INCOME

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


	Accumulated Other Comprehensive Income/(Loss)⁽¹⁾
*(unaudited, in thousands)*	Defined Benefit Pension Plan			Unrealized Gains (Losses) on Securities Available-for-Sale			Unrealized Gains on Securities Transferred from Available-for-Sale to Held-to-Maturity			Total
Balance at December 31, 2016	$	(17,758	)	$	(9,890	)	$	522		$	(27,126	)

Other comprehensive income before reclassifications		—			1,680			—			1,680
Amounts reclassified from accumulated other comprehensive income		655			—			(50	)		605

Period change		655			1,680			(50	)		2,285

Balance at March 31, 2017	$	(17,103	)	$	(8,210	)	$	472		$	(24,841	)


Balance at December 31, 2015	$	(17,539	)	$	(4,162	)	$	747		$	(20,954	)

Other comprehensive income before reclassifications		—			12,912			—			12,912
Amounts reclassified from accumulated other comprehensive income		404			(669	)		(50	)		(315	)

Period change		404			12,243			(50	)		12,597

Balance at March 31, 2016	$	(17,135	)	$	8,081		$	697		$	(8,357	)

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

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


	Amounts Reclassified from Accumulated Other Comprehensive Income/(Loss)
Details about Accumulated Other Comprehensive Income/ (Loss) Components	For the Three Months Ended March 31,						Affected Line Item in the Statement of Net Income
*(unaudited, in thousands)*	2017			2016
Securities available-for-sale ⁽¹⁾:
Net securities gains reclassified into earnings	$	—		$	(1,054	)	Net securities gains (Non-interest income)
Related income tax expense		—			385		Provision for income taxes

Net effect on accumulated other comprehensive income for the period		—			(669	)

Securities held-to-maturity ⁽¹⁾:
Amortization of unrealized gain transferred from available-for-sale		(72	)		(81	)	Interest and dividends on securities (Interest and dividend income)
Related income tax expense		22			31		Provision for income taxes

Net effect on accumulated other comprehensive income for the period		(50	)		(50	)

Defined benefit pension plan ⁽²⁾:
Amortization of net loss and prior service costs		801			700		Employee benefits (Non-interest expense)
Related income tax benefit		(146	)		(296	)	Provision for income taxes

Net effect on accumulated other comprehensive income for the period		655			404

Total reclassifications for the period	$	605		$	(315	)

⁽¹⁾	For additional detail related to unrealized gains on securities and related amounts reclassified from accumulated other comprehensive income, see Note 4, “Securities.”

⁽²⁾	Included in the computation of net periodic pension cost. See Note 6, “Pension Plan” for additional detail.

NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES

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

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

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

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


	March 31,		December 31,
*(unaudited, in thousands)*	2017		2016
Lines of credit	$	1,504,320	$	1,418,329
Loans approved but not closed		268,123		185,253
Overdraft limits		125,786		126,517
Letters of credit		33,450		32,907
Contingent obligations to purchase loans funded by other entities		10,038		13,036

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

NOTE 10. BUSINESS SEGMENTS

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

Condensed financial information by business segment is presented below:


			Trust and
	Community		Investment
*(unaudited, in thousands)*	Banking		Services		Consolidated
For the Three Months ended March 31, 2017:
Interest and dividend income	$	79,924	$	—	$	79,924
Interest expense		9,205		—		9,205

Net interest income		70,719		—		70,719
Provision for credit losses		2,711		—		2,711

Net interest income after provision for credit losses		68,008		—		68,008
Non-interest income		16,741		6,143		22,884
Non-interest expense		50,992		3,392		54,384

Income before provision for income taxes		33,757		2,751		36,508
Provision for income taxes		9,522		1,100		10,622

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

For the Three Months ended March 31, 2016:
Interest and dividend income	$	67,601	$	—	$	67,601
Interest expense		7,759		—		7,759

Net interest income		59,842		—		59,842
Provision for credit losses		2,324		—		2,324

Net interest income after provision for credit losses		57,518		—		57,518
Non-interest income		13,682		5,711		19,393
Non-interest expense		42,065		3,278		45,343

Income before provision for income taxes		29,135		2,433		31,568
Provision for income taxes		7,721		973		8,694

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

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

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

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

FORWARD-LOOKING STATEMENTS

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

OVERVIEW

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

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

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

RESULTS OF OPERATIONS

EARNINGS SUMMARY

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


	For the Three Months Ended March 31,
	2017						2016
*(unaudited, dollars in thousands,* *except per share amounts)*	Net Income			Diluted Earnings Per Share			Net Income		Diluted Earnings Per Share
Net income (Non-GAAP)⁽¹⁾	$	26,205		$	0.60		$	22,874	$	0.60
Less: After tax merger-related expenses		(319	)		(0.01	)		—		—

Net income (GAAP)	$	25,886		$	0.59		$	22,874	$	0.60

⁽¹⁾	Non-GAAP net income excludes after-tax merger-related expenses. 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 $10.9 million or 18.2% in the first quarter of 2017 compared to the same quarter of 2016 due to a 23.3% increase in average loan balances. In addition, the yield on earning assets has increased in each of the last five quarters, a total of 16 basis points, with 12 basis points of the increase occurring subsequent to the acquisition of YCB’s higher yielding earning assets. As a result, the net interest margin increased by 13 basis points to 3.42% in the first quarter of 2017 compared to 3.29% in the first quarter of 2016. Yields increased on over 90% of earning assets, more than offsetting a 5 basis point increase in the cost of interest bearing liabilities as compared to the first quarter of 2016. The increase in average loan balances in the first quarter of 2017 compared to the first quarter of 2016 was due to a combination of the acquisition and 3.2% organic loan growth highlighted by 6.7% of commercial loan growth. Approximately 8 basis points of accretion from prior acquisitions was included in the first quarter net interest margin compared to 7 basis points in the first quarter of 2016, and 10 basis points in the fourth quarter, when the net interest margin was 3.42%. The 5 basis point increase in the cost of interest bearing liabilities is primarily due to an increase in the percentage of funding from, and increases in rates related to, subordinated debt and other borrowings. Average interest bearing deposits in 2017 increased 9.2%, as all interest bearing deposit types increased other than CDs. Average non-interest bearing deposits increased 36.4% to $1.8 billion in the first quarter of 2017 compared to the same quarter in 2016.

The provision for credit losses increased to $2.7 million in the first quarter of 2017, compared to $2.3 million in the first quarter of 2016 due primarily to loan growth. Net charge-offs, as a percentage of average portfolio loans of 0.15% in the first quarter of 2017 were minimally higher than the 0.12% in the first quarter of 2016.

For the first quarter of 2017, non-interest income increased $3.5 million, or 18.0%, compared to the first quarter of 2016. Trust fees increased $0.4 million, or 7.6%, as equity markets improved and trust assets increased 5.9% since the first quarter of 2016. Service charges on deposits increased $0.9 million, or 22.8%, and electronic banking fees increased $0.9 million or 25.6% through a larger customer deposit base from the addition of YCB. Net gains on sale of mortgage loans increased $0.9 million primarily due to increases in mortgage loans sold into the secondary market as total mortgage loan volume increased by 35.3%. Net securities gains decreased $1.1 million in the first quarter of 2017 compared to the first quarter of 2016, primarily due to calls of agency notes in the 2016 first quarter. Other income increased $1.5 million due to a $0.7 million increase in commercial customer loan swap related income, and improvement in various other income categories, including YCB miscellaneous income.

The following comments on non-interest expense exclude merger-related expenses in both years. Non-interest expense in the first quarter of 2017 grew $8.6 million or 18.9%, compared to the 2016 first quarter, principally due to the acquisition. Salaries and wages increased $3.8 million or 19.9% due to increased compensation expense related to a 19.1% increase in full-time equivalent employees, primarily late in the third quarter of 2016 from the YCB acquisition, and routine annual adjustments to compensation. Employee benefits expense increased $1.1 million, or 16.0%, also primarily from the additional employees which increased health insurance expense and other benefits, and due to seasonally higher payroll taxes. Increases in net occupancy and equipment were also primarily from costs related to the additional branches from the YCB acquisition and typical first quarter seasonal maintenance expenses. Post-conversion cost savings are continuing to be experienced after fourth quarter branch and system conversions were completed. Other operating expenses increased $2.2 million or 23.8% through increases in certain other expenses including miscellaneous taxes, professional fees, postage and communications, also partially due to the acquisition.

The provision for income tax increased $1.9 million or 22.2% in the first quarter of 2017 compared to the first quarter of 2016, due to the adoption of a new accounting standard related to low income housing tax credit investment amortization which, in 2017, moved $0.5 million from other operating expense to the provision for income taxes. In addition, first quarter 2017 pre-tax income was 15.6% higher. As a result, the effective tax rate increased to 29.09% compared to 27.54% in the first quarter of 2016.

NET INTEREST INCOME

TABLE 1. NET INTEREST INCOME


	For the Three Months Ended March 31,
*(unaudited, dollars in thousands)*	2017			2016
Net interest income	$	70,719		$	59,842
Taxable equivalent adjustments to net interest income		2,634			2,434

Net interest income, fully taxable equivalent	$	73,353		$	62,276

Net interest spread, non-taxable equivalent		3.16	%		3.05	%
Benefit of net non-interest bearing liabilities		0.14	%		0.11	%

Net interest margin		3.30	%		3.16	%
Taxable equivalent adjustment		0.12	%		0.13	%

Net interest margin, fully taxable equivalent		3.42	%		3.29	%

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 $10.9 million or 18.2% in the first quarter of 2017 compared to the same quarter of 2016, due to a 23.3% increase in average loan balances and a 13 basis point increase in the net interest margin. Loan balances increased from both the YCB acquisition and from 3.2% in organic loan growth, highlighted by 6.7% of commercial loan growth. Total average deposits increased in the first quarter by $917.5 million or 15.0% compared to the first quarter of 2016, while certificates of deposit, which have the highest interest cost among deposits, decreased by $126.1 million or 8.0%. Excluding the YCB acquisition, average deposits decreased $275.6 million, primarily due to the runoff of $364.8 million of certificates of deposit, reflecting customer preferences toward shorter term deposits including $111.9 million run off of certificates of deposit from the ESB acquisition. The net interest margin increased to 3.42% in the first quarter of 2017 from 3.29% in the same quarter of 2016, due to a 15 basis point increase in the yield on earning assets. Yields increased on over 90% of earning assets, more than offsetting a 5 basis point increase in the cost of interest bearing liabilities. The increase in overall funding costs was due to higher balances and rates on subordinated debt and other borrowings. Approximately 8 basis points of accretion from prior acquisitions was included in the first quarter of 2017 net interest margin compared to 7 basis points in the first quarter of 2016.

Interest income increased in the first quarter of 2017 by $12.3 million or 18.2% compared to the same period in 2016 due to higher average loan balances and higher yields in almost every earning asset category, offset slightly by lower taxable securities balances. Average loan balances increased by $1.2 billion in the first quarter of 2017 compared to the first quarter of 2016, and loan yields increased by 6 basis points during this same period. Loans currently provide the greatest impact on interest income and the yield from earning assets as they have the largest balance and the highest yield within major earning asset categories. In the first quarter of 2017, average loans represented 72.4% of average earning assets, an increase compared to 67.0% in the same quarter of 2016. Loan yields increased to 4.19% in the first quarter of 2017 due to higher loan yields on the acquired YCB loan portfolio. Total securities yields increased by 8 basis points in the first quarter of 2017 from the same period in 2016 due to lower amortization expense from reduced paydowns on mortgage-backed securities, select sales of short-term, lower yielding investment securities in 2016 and a higher percentage of average tax-exempt securities to total securities. The average balance of tax-exempt securities, which provide the highest yield within securities, increased 14.8% or $93.9 million over the last year, and were 31.2% of total average securities in the first quarter of 2017 compared to 26.3% in the first quarter of 2016, which helped to mitigate their 26 basis point decline in yield. While the yield on taxable securities increased by 8 basis points from the first quarter of 2016, taxable securities balances decreased by $167.0 million or 9.4% from the first quarter of 2016 due to maturities, calls, sales and paydowns that were not fully replaced due to management’s focus on maintaining the size of the balance sheet in order to delay the financial impact of crossing $10 billion in assets.

Portfolio loans increased $1.2 billion or 22.9% over the last twelve months with $1.0 billion from the YCB acquisition and $165.3 million, or 3.2% from organic loan growth. Organic loan growth was achieved through $2.1 billion in loan originations in the last twelve months, partially offset by certain large commercial real estate payoffs. Total business loan originations were up approximately 19.4% over the last year. Organic loan growth was driven by expanded market areas and additional commercial personnel in our core markets.

Interest expense increased $1.4 million or 18.6% in the first quarter of 2017 compared to the same period in 2016, due primarily to increases in the balances and rate paid on interest bearing liabilities, other borrowings and subordinated debt. The cost of interest bearing liabilities increased by 5 basis points in the first quarter of 2017 from the same period of 2016. Average other borrowings and subordinated debt balances increased by $168.0 million or 87.0% from the first quarter of 2016 due to debt acquired in the YCB acquisition. Average interest bearing deposits increased by $442.3 million or 9.2% from the first quarter of 2016, also due to the YCB acquisition. Slightly offsetting the previously mentioned increases, the average balance of CDs decreased $126.1 million from the first quarter of 2016, even after acquiring YCB’s CD portfolio. This decrease was accomplished through WesBanco’s planned funding strategy intentionally allowing the runoff of certain higher cost or single service CDs and CDARS^® balances and from customers’ preferences toward demand deposits. CDARS^® balances decreased by $168.1 million or 59.0% from March 31, 2016 to March 31, 2017. The balance of FHLB borrowings decreased by $92.1 million or 8.8% from the first quarter of 2016 due to scheduled maturities of borrowings. Also, non-interest bearing demand deposits increased to 25.3% of total average deposits in the first quarter of 2017 compared to 21.3% in the same period of 2016.

TABLE 2. AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS


	For the Three Months Ended March 31,
	2017					2016
*(unaudited, dollars in thousands)*	Average Balance		Average Rate			Average Balance		Average Rate
ASSETS
Due from banks—interest bearing	$	13,926		0.52	%	$	56,624		0.36	%
Loans, net of unearned income⁽¹⁾		6,278,718		4.19	%		5,093,095		4.13	%
Securities:⁽²⁾
Taxable		1,603,337		2.39	%		1,770,384		2.31	%
Tax-exempt⁽³⁾		726,658		4.14	%		632,800		4.40	%

Total securities		2,329,995		2.94	%		2,403,184		2.86	%
Other earning assets		47,025		4.43	%		45,801		4.14	%

Total earning assets⁽³⁾		8,669,664		3.85	%		7,598,704		3.70	%

Other assets		1,111,813					953,016

Total Assets	$	9,781,477				$	8,551,720

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest bearing demand deposits	$	1,536,282		0.29	%	$	1,189,494		0.17	%
Money market accounts		1,038,584		0.22	%		959,813		0.19	%
Savings deposits		1,227,190		0.06	%		1,084,358		0.06	%
Certificates of deposit		1,454,245		0.67	%		1,580,357		0.68	%

Total interest bearing deposits		5,256,301		0.33	%		4,814,022		0.32	%
Federal Home Loan Bank borrowings		949,001		1.21	%		1,041,115		1.19	%
Other borrowings		197,358		0.61	%		87,031		0.38	%
Subordinated debt and junior subordinated debt		163,913		4.49	%		106,196		3.11	%

Total interest bearing liabilities ⁽¹⁾		6,566,573		0.57	%		6,048,364		0.52	%
Non-interest bearing demand deposits		1,781,513					1,306,270
Other liabilities		75,789					57,572
Shareholders’ equity		1,357,602					1,139,514

Total Liabilities and Shareholders’ Equity	$	9,781,477				$	8,551,720

Taxable equivalent net interest spread				3.28	%				3.18	%
Taxable equivalent net interest margin				3.42	%				3.29	%

(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 $0.6 million and $0.7 million for the three months ended March 31, 2017 and 2016, respectively. Additionally, loan accretion included in net interest income on loans acquired from prior acquisitions was $1.3 million and $0.8 million for the three months ended March 31, 2017 and 2016, respectively, while accretion on interest bearing liabilities from prior acquisitions was $0.5 million for both the three months ended March 31, 2017 and 2016, respectively.

(2)	Average yields on available-for-sale securities are calculated based on amortized cost.

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

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

Three Months Ended March 31, 2017
Compared to March 31, 2016

(unaudited, in thousands)

Volume

Rate

Net
Increase
(Decrease)

Increase (decrease) in interest income:

Due from banks – interest bearing

(50

)

(33

)

Loans, net of unearned income

11,837

723

12,560

Taxable securities

(958

)

337

(621

)

Tax-exempt securities⁽¹⁾

988

(419

)

569

Other earning assets

Total interest income change⁽¹⁾

11,830

692

12,522

Increase (decrease) in interest expense:

Interest bearing demand deposits

175

411

586

Money market accounts

118

Savings deposits

)

Certificates of deposit

(230

)

(18

)

(248

)

Federal Home Loan Bank borrowings

(294

)

(232

)

Other borrowings

145

215

Subordinated debt and junior subordinated debt

547

444

991

Total interest expense change

401

1,045

1,446

Net interest income increase (decrease) ⁽¹⁾

11,429

(353

)

11,076

(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 increased to $2.7 million in the first quarter of 2017 compared to $2.3 million in the first quarter of 2016 due primarily to loan growth. Overall, most credit ratios continued to improve year-over-year, on a percentage basis. Non-performing loans (including TDRs), and criticized and classified loans all improved as a percentage of total portfolio loans from March 31, 2016. Total non-performing loans were 0.74% of total loans at March 31, 2017, decreasing from 0.85% of total loans at the end of the first quarter of 2016. Criticized and classified loans were 1.35% of total loans, improving from 1.65% at March 31, 2016. Past due loans at March 31, 2017 were 0.22% of total loans, compared to 0.31% at March 31, 2016. (Please see the Allowance for Credit Losses section of this MD&A for additional discussion).

NON-INTEREST INCOME

TABLE 4. NON-INTEREST INCOME


	For the Three Months Ended March 31,
*(unaudited, dollars in thousands)*	2017			2016			$ Change			% Change
Trust fees	$	6,143		$	5,711		$	432			7.6
Service charges on deposits		4,853			3,952			901			22.8
Electronic banking fees		4,528			3,604			924			25.6
Net securities brokerage revenue		1,762			1,896			(134	)		(7.1	)
Bank-owned life insurance		1,140			973			167			17.2
Net gains on sales of mortgage loans		1,440			548			892			162.8
Net securities gains		12			1,111			(1,099	)		(98.9	)
Net loss on other real estate owned and other assets		(76	)		(18	)		(58	)		(322.2	)
Net insurance services revenue		916			975			(59	)		(6.1	)
Swap fee and valuation income		757			7			750			10,714.3
Other		1,409			634			775			122.2

Total non-interest income	$	22,884		$	19,393		$	3,491			18.0

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 quarter of 2017, non-interest income increased $3.5 million or 18.0% compared to the first quarter of 2016. The increase is driven by a $0.9 million increase in service charges on deposits, a $0.9 million increase in electronic banking fees, a $0.9 million increase in net gains on sales of mortgage loans, and $0.8 million of commercial loan swap fee income, coupled with increases in various other income categories, while net securities gains decreased $1.1 million compared to the first quarter of 2016.

Trust fees increased $0.4 million or 7.6% compared to the first quarter of 2016 due to market improvements and customer and revenue development initiatives. Total trust assets have increased $0.2 billion from $3.6 billion at March 31, 2016 to $3.8 billion at March 31, 2017. At March 31, 2017, trust assets include managed assets of $3.1 billion and non-managed (custodial) assets of $0.7 billion. Assets managed for the WesMark Funds, a proprietary group of mutual funds that is advised by WesBanco Trust and Investment Services, were $906.2 million as of March 31, 2017 and $893.7 million at March 31, 2016 and are included in trust managed assets.

Service charges on deposits increased $0.9 million or 22.8% compared to the first three months of 2016 due to the larger customer deposit base from the YCB acquisition. Deposits increased $1.0 billion to $7.1 billion as of March 31, 2017 as compared to $6.1 billion as of March 31, 2016.

Electronic banking fees, which include debit card interchange fees, continued to grow, increasing $0.9 million or 25.6% compared to the first three months of 2016, due to a higher volume of debit card transactions from the YCB acquisition and WesBanco’s legacy customers. The volume increase in our legacy markets is due to marketing and process initiatives as well as a higher percentage of customers using these products.

Net securities brokerage revenue decreased $0.1 million from the first three months of 2016 due to deposit retention strategies, broker restructuring and lower Marcellus and Utica gas lease and royalty payments in the region. Additional market coverage in the new YCB markets in Kentucky and southern Indiana is intended to be added, which should provide additional growth opportunities in the future as well.

Net gains on sales of mortgage loans increased $0.9 million or 162.8% compared to the first three months of 2016 due to increased production volumes as well as an increase in the margin earned on loans sold and a $0.5 million favorable market adjustment recognized during the quarter. Total mortgage production was $82.3 million in the first quarter of 2017, up 35.3% from the comparable 2016 quarter, despite lower refinancing volumes. Mortgages sold into the secondary market represented $36.1 million or 43.9% of overall mortgage loan production in the first three months of 2017 compared to $25.2 million or 41.5% in the same 2016 period.

Swap fee and valuation income has increased $0.8 million compared to the first three months of 2016 from new lender incentives implemented in 2016 as well as the desire of customers to lock in longer-term fixed rated financing.

Other income increased $0.8 million primarily due to a $0.4 million gain on the sale of certain real estate-related joint venture assets acquired from ESB combined with a $0.2 million increase in market valuation adjustment on the officer/director deferred compensation trading securities for the three months ended March 31, 2017.

NON-INTEREST EXPENSE

TABLE 5. NON-INTEREST EXPENSE


	For the Three Months Ended March 31,
*(unaudited, dollars in thousands)*	2017		2016		$ Change			% Change
Salaries and wages	$	23,002	$	19,180	$	3,822			19.9
Employee benefits		8,210		7,077		1,133			16.0
Net occupancy		4,327		3,591		736			20.5
Equipment		4,042		3,428		614			17.9
Marketing		824		973		(149	)		(15.3	)
FDIC insurance		827		1,166		(339	)		(29.1	)
Amortization of intangible assets		1,273		730		543			74.4
Restructuring and merger-related expenses		491		—		491			100.0
Franchise and other miscellaneous taxes		2,084		1,617		467			28.9
Consulting, regulatory, accounting and advisory fees		1,673		1,306		367			28.1
ATM and electronic banking interchange expenses		1,088		1,133		(45	)		(4.0	)
Postage and courier expenses		1,021		698		323			46.3
Legal fees		761		582		179			30.8
Communications		747		358		389			108.7
Supplies		828		680		148			21.8
Other real estate owned and foreclosure expenses		328		328		—			—
Other		2,858		2,496		362			14.5

Total non-interest expense	$	54,384	$	45,343	$	9,041			19.9

Non-interest expense in the first quarter of 2017 grew $9.0 million compared to the same quarter in 2016, principally from the YCB acquisition, which also added $0.5 million of merger-related expenses in the quarter. Excluding merger-related expenses, non-interest expense increased $8.5 million or 18.9%. For the first quarter, salaries and wages increased $3.8 million or 19.9% due primarily to increased compensation expense related to routine annual compensation adjustments and an increase in full-time equivalent employees from the acquisition. Employee benefits increased $1.1 million due to the additional employees, which increased health insurance expense and other benefits, and due to seasonally higher payroll taxes. While net occupancy, franchise tax and consulting expenses increased primarily from the acquisition, FDIC insurance decreased $0.3 million due to a new rate calculation for banks under $10 billion and other risk-related factors, which more than offset the increased assets related to the acquisition.

Salaries and wages increased $3.8 million or 19.9% from the first quarter of 2016 due to increased compensation expense related to a 19.1% increase in full-time equivalent employees, primarily from the acquisition, and routine annual adjustments to compensation. Employee benefits expense increased $1.1 million compared to the first quarter of 2016, primarily from the additional employees as well as seasonally higher payroll taxes including social security and medicare taxes, which was partially offset by a decrease in pension costs.

Net occupancy and equipment costs increased $0.7 million and $0.6 million, respectively, compared to the first three months of 2016, primarily due to increased building-related costs including utilities, lease expense, depreciation and other maintenance costs, as well as increases in technology and communications infrastructure costs resulting primarily from the additional YCB offices.

FDIC insurance decreased $0.3 million compared to the first three months of 2016 despite a larger balance sheet from the YCB acquisition. The Deposit Insurance Fund reached 1.15% prior to July 1, 2016, thus allowing the FDIC to institute new favorable assessment rate calculations beginning on that date for banks under $10 billion in size. WesBanco anticipates a further decrease in FDIC insurance expense based on continuing improvement in certain risk factors.

Amortization of intangible assets of $1.3 million in the first quarter included $0.6 million related to the YCB acquisition. The YCB acquisition added approximately $12.0 million in core deposit intangibles and $0.8 million in non-compete agreements with former YCB executives covering a three-year term.

Franchise and other miscellaneous taxes increased $0.5 million compared to the first three months of 2016 due to the YCB acquisition and organic company growth.

Professional fees have increased $0.4 million from the first quarter of 2016 primarily due to professional fees and the increased volume in swap agreements entered into by WesBanco customers. Postage, legal fees and other expenses have increased a total of $0.9 million from the first quarter of 2016 primarily due to normal operating expenses related to the YCB acquisition.

INCOME TAXES

FINANCIAL CONDITION

Total assets remained unchanged during the three months ended March 31, 2017, while deposits and shareholders’ equity increased 1.5% and 1.3%, respectively, compared to December 31, 2016. Total portfolio loans increased $62.7 million or 1.0% as a result of originations outpacing pay-downs, which were a result of expanded market areas and additional commercial and lending personnel in WesBanco’s core markets. Deposits increased $104.9 million from year-end resulting from a 3.4% increase in money market deposits, a 3.3% increase in savings deposits, and a 3.2% increase in demand deposits, which more than offset the 5.1% decrease in certificates of deposit. The decrease in certificates of deposit is a result of lower rate offerings for maturing certificates of deposit and customer preferences for other deposit types, coupled with an $18.5 million decrease in CDARS^® balances and a $30.3 million decrease in the certificates of deposit acquired in the ESB transaction. 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 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 decreased 8.6% during the first three months of 2017 as short-term borrowings were reduced and FHLB borrowings scheduled to mature were paid down utilizing funds provided by lower cost deposits, investment securities runoff, or other available cash flows. Total shareholders’ equity increased by approximately $17.7 million or 1.3%, compared to December 31, 2016, primarily due to net income exceeding dividends for the period by $14.5 million, coupled with a $2.3 million decrease in other comprehensive losses.

TABLE 6. COMPOSITION OF SECURITIES (1)


	March 31,			December 31,
*(unaudited, dollars in thousands)*	2017			2016			$ Change			% Change
Trading securities (at fair value)	$	7,773		$	7,071		$	702			9.9
Available-for-sale (at fair value)
U.S. Government sponsored entities and agencies		43,724			54,043			(10,319	)		(19.1	)
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		1,028,914			1,035,099			(6,185	)		(0.6	)
Obligations of states and political subdivisions		111,568			111,663			(95	)		(0.1	)
Corporate debt securities		35,395			35,301			94			0.3

Total debt securities		1,219,601			1,236,106			(16,505	)		(1.3	)
Equity securities		5,468			5,070			398			7.9

Total available-for-sale securities	$	1,225,069		$	1,241,176		$	(16,107	)		(1.3	)

Held-to-maturity (at amortized cost)
U.S. Government sponsored entities and agencies	$	13,140		$	13,394		$	(254	)		(1.9	)
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		205,126			215,141			(10,015	)		(4.7	)
Obligations of states and political subdivisions		805,088			805,019			69			0.0
Corporate debt securities		34,399			34,413			(14	)		(0.0	)

Total held-to-maturity securities		1,057,753			1,067,967			(10,214	)		(1.0	)

Total securities	$	2,290,595		$	2,316,214		$	(25,619	)		(1.1	)

Available-for-sale and trading securities:
Weighted average yield at the respective period end ⁽²⁾		2.29	%		2.22	%
As a % of total securities		53.8	%		53.6	%
Weighted average life (in years)		4.6			4.3

Held-to-maturity securities:
Weighted average yield at the respective period end ⁽²⁾		3.80	%		3.76	%
As a % of total securities		46.2	%		46.4	%
Weighted average life (in years)		4.8			5.0

Total securities:
Weighted average yield at the respective period end ⁽²⁾		2.99	%		2.93	%
As a % of total securities		100.0	%		100.0	%
Weighted average life (in years)		4.7			4.6

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

(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, decreased by $25.6 million or 1.1% from December 31, 2016 to March 31, 2017. Through the first three months of 2017, the available-for-sale portfolio decreased by $16.1 million or 1.3%, while the held-to-maturity portfolio decreased by $10.2 million or 1.0%. The decrease in the overall portfolio from December 31, 2016 was driven by calls, maturities and paydowns exceeding purchases in the first three months of 2017 as a result of management’s strategy to control the size of the balance sheet through the investment portfolio to delay crossing the $10 billion threshold. The weighted average yield of the portfolio increased by 6 basis points from December 31, 2016 to March 31, 2017. This yield increase was due to a continuing mix shift that resulted in a higher balance of tax-exempt securities to the total portfolio, as well as lower amortization expense on mortgage-backed securities from decreases in principal paydowns in the first quarter. The tax-exempt portion of the investment portfolio provides the highest yields of any security type within the portfolio.

Net unrealized losses on available-for-sale securities included in accumulated other comprehensive income, net of tax, as of March 31, 2017 and December 31, 2016 were $8.2 million and $9.9 million, respectively. With approximately 46% 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.

Trading securities, which consist of investments in various mutual funds held in grantor trusts formed in connection with an officer/director deferred compensation plan, are recorded at fair value. Gains and losses due to fair value fluctuations on trading securities are included in non-interest income under other income, while the corresponding change in the obligation to the employee is recognized in employee benefits expense.

WesBanco’s municipal portfolio comprises 40.0% of the overall securities portfolio as of March 31, 2017 as compared to 39.6% as of December 31, 2016, 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

March 31, 2017

December 31, 2016

(unaudited, dollars in thousands)

Amount

% of Total

Amount

% of Total

Municipal bonds (at fair value) (1):

Moody’s: Aaa / S&P: AAA

92,912

10.0

93,676

10.1

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

711,812

76.4

700,506

75.5

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

115,213

12.4

121,903

13.2

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

738

0.1

729

0.1

Not rated by either agency

10,214

1.1

9,991

1.1

Total municipal bond portfolio

930,889

100.0

926,805

100.0

(1)	The highest available rating was used when placing the bond into a category in the table.

(2)	As of March 31, 2017 and December 31, 2016, 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


	March 31, 2017				December 31, 2016
*(unaudited, dollars in thousands)*	Amount		% of Total		Amount		% of Total
Municipal bond type:
General Obligation	$	639,617		68.7	$	638,868		68.9
Revenue		291,272		31.3		287,937		31.1

Total municipal bond portfolio	$	930,889		100.0	$	926,805		100.0

Municipal bond issuer:
State Issued	$	94,302		10.1	$	92,241		10.0
Local Issued		836,587		89.9		834,564		90.0

Total municipal bond portfolio	$	930,889		100.0	$	926,805		100.0

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 March 31, 2017:

TABLE 9. CONCENTRATION OF MUNICIPAL SECURITIES


	March 31, 2017
*(unaudited, dollars in thousands)*	Fair Value		% of Total
Pennsylvania	$	203,587		21.9
Texas		108,804		11.7
Ohio		107,655		11.6
Illinois		51,099		5.5
West Virginia		33,792		3.6
All other states		425,952		45.7

Total municipal bond portfolio	$	930,889		100.0

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.

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)

March 31, 2017

December 31, 2016

(unaudited, dollars in thousands)

Amount

% of Loans

Amount

% of Loans

Commercial real estate:

Land and construction

552,285

8.7

496,539

7.9

Improved property

2,400,318

38.0

2,376,972

37.9

Total commercial real estate

2,952,603

46.7

2,873,511

45.8

Commercial and industrial

1,106,719

17.5

1,088,118

17.4

Residential real estate

1,367,132

21.6

1,383,390

22.1

Home equity

508,411

8.0

508,359

8.1

Consumer

377,307

6.0

396,058

6.3

Total portfolio loans

6,312,172

99.8

6,249,436

99.7

Loans held for sale

11,480

0.2

17,315

0.3

Total loans

6,323,652

100.0

6,266,751

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 $56.9 million or 0.9% from December 31, 2016 while portfolio loans increased $1.2 billion or 22.9% over the last twelve months with $1.0 billion from the YCB acquisition and $165.3 million, or 3.2% from organic loan growth. Expanded market areas and additional commercial personnel in our core markets provided the organic loan growth, which occurred primarily in commercial real estate, commercial and industrial and home equity lending categories, and was achieved through $2.1 billion in loan originations in the last twelve months, partially offset by certain large commercial real estate payoffs. Total business loan originations were up approximately 19.4% over the last year. Residential real estate loans decreased, despite increased mortgage production, due to an increase in loans sold into the secondary market and payoffs, while consumer loans decreased $18.8 million or 4.7% due to a reduced focus and pricing adjustments for indirect installment loans.

Total loan commitments, including loans approved but not closed, increased $165.7 million or 9.3% from December 31, 2016 due primarily to the larger borrowing base from the YCB acquisition as well as typical seasonal increases in the first quarter particularly in land and construction.

The commercial portfolio is monitored for potential concentrations of credit risk by market, type of lending, CRE property type, C&I and owner-occupied CRE by industry, investment CRE dependence on common tenants and industries or property types that are similarly impacted by external factors.

The global decline in coal, oil and natural gas prices has had both a positive impact on the commercial portfolio by lowering all borrowers’ energy costs, but also resulted in a reduction in coal, oil and gas activity that adversely impacted certain industries or property types. At March 31, 2017 total exposure to core energy industries such as drilling, extraction, pipeline construction, mining equipment, investment real estate with energy-related tenants and other related support activities approximated $52.7 million or 0.66% of the total loan portfolio as compared to $51.1 million or 0.65% of the total loan portfolio at December 31, 2016. Exposure to ancillary industries such as utility distribution and transportation, engineering services, manufacturers and retailers of other heavy equipment used in core energy industries, approximates an additional $62.7 million in exposure or 0.78% of the total loan portfolio as compared to $77.5 million or 0.98% of the total loan portfolio at December 31, 2016. The largest exposure to any one borrower in either core energy or ancillary industries was $20.4 million to a company that operates as a natural gas distribution utility.

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)*	March 31, 2017			December 31, 2016
Non-accrual loans:
Commercial real estate - land and construction	$	409		$	766
Commercial real estate - improved property		16,352			9,535
Commercial and industrial		4,296			4,299
Residential real estate		13,672			12,994
Home equity		3,902			3,538
Consumer		696			652

Total non-accrual loans (1)		39,327			31,784

TDRs accruing interest:
Commercial real estate - land and construction		—			—
Commercial real estate - improved property		1,588			1,618
Commercial and industrial		147			152
Residential real estate		4,918			5,311
Home equity		459			473
Consumer		82			92

Total TDRs accruing interest (1)		7,194			7,646

Total non-performing loans	$	46,521		$	39,430

Other real estate owned and repossessed assets		8,033			8,346

Total non-performing assets	$	54,554		$	47,776

Non-performing loans/total portfolio loans		0.74	%		0.63	%
Non-performing assets/total assets		0.56	%		0.49	%
Non-performing assets/total portfolio loans, other real estate and repossessed assets		0.86	%		0.76	%

(1)	TDRs on nonaccrual of $3.3 million and $3.5 million at March 31, 2017 and December 31, 2016, respectively, are included in total nonaccrual loans.

Non-performing loans, which consist of non-accrual loans and TDRs, increased $7.1 million or 18.0%, from December 31, 2016, primarily due to three CRE loans in three separate markets, including an acquired deteriorated credit quality loan from ESB, placed on nonaccrual in the first quarter. TDRs decreased $0.5 million due to successful exit strategies combined with normal repayments and fewer additions to the category due to overall improvement in economic conditions in our markets. (Please see the Notes to the Consolidated Financial Statements for additional discussion.)

Other real estate owned and repossessed assets decreased slightly by $0.3 million from December 31, 2016 primarily due to continued efforts to liquidate properties acquired from YCB which added $3.0 million on the acquisition date.

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

TABLE 12. PAST DUE AND ACCRUING LOANS EXCLUDING NON-ACCRUAL AND TDRs


*(unaudited, dollars in thousands)*	March 31, 2017			December 31, 2016
Loans past due 90 days or more:
Commercial real estate - land and construction	$	10		$	—
Commercial real estate - improved property		315			318
Commercial and industrial		225			229
Residential real estate		400			1,922
Home equity		1,376			626
Consumer		440			644

Total loans past due 90 days or more		2,766			3,739

Loans past due 30 to 89 days:
Commercial real estate - land and construction		—			—
Commercial real estate - improved property		1,278			747
Commercial and industrial		1,313			1,522
Residential real estate		3,652			6,080
Home equity		1,874			2,949
Consumer		3,309			4,731

Total loans past due 30 to 89 days		11,426			16,029

Total 30 days or more	$	14,192		$	19,768

Loans past due 90 days or more and accruing to total portfolio loans		0.04	%		0.06	%
Loans past due 30-89 days and accruing to total portfolio loans		0.18	%		0.26	%

Loans past due 30 days or more and accruing interest excluding TDRs decreased $5.6 million or 28.2% from December 31, 2016. These loans continue to accrue interest because they are both well-secured and in the process of collection. Decreases in the 30 days past due status were primarily in retail loan categories which collectively decreased $5.9 million or 34.8% from yearend. Loans past due 30-89 days decreased $4.6 million from December 31, 2016, primarily due to successful collection efforts on delinquent YCB acquired loans, and represented 0.18% of total loans at March 31, 2017 compared to 0.26% at December 31, 2016. Loans past due 90 days or more decreased $1.0 million compared to December 31, 2016 also due to successful collection of delinquent YCB loans. The continued low levels of delinquency are the result of management’s continued focus on sound initial underwriting, timely collection of loans at their earliest stage of delinquency, stable unemployment and generally improved economic conditions.

ALLOWANCE FOR CREDIT LOSSES

The allowance for loan losses represented 0.7% of total portfolio loans at March 31, 2017 compared to 0.7% as of December 31, 2016 and 0.83% as of March 31, 2016. If the acquired YCB and ESB loans (recorded at fair value at the date of acquisition of $1,711.9 million) were excluded from the ratio, the allowance would approximate 0.96% of the adjusted loan total at March 31, 2017 compared to 1.09% prior to the 2015 ESB acquisition. The resulting ratio indicates greater coverage over legacy loans and is considered by management to be a better comparison of the adequacy of the allowance. Portfolio mix shifts also affect management’s evaluation of the overall allowance.

The allowance for loans individually-evaluated increased from December 31, 2016 to March 31, 2017 primarily due to the addition of two CRE properties aggregating $3.8 million with specific reserves totaling $1.1 million. The allowance for loans collectively-evaluated was relatively unchanged compared to December 31, 2016.

The allowance for loan commitments of $0.5 million at March 31, 2017 as compared to $0.6 million at December 31, 2016, and is included in other liabilities on the Consolidated Balance Sheets.

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 1.35% of total loans, improving from 1.65% at March 31, 2016. Criticized and classified loans as a percent of total loans improved as credit quality continued to improve, enabling certain loans to be upgraded that were criticized but not classified throughout the economic downturn. Criticized and classified loans increased $10.3 million from December 31, 2016 to $85.0 million at March 31, 2017 as management completed its review of the YCB acquired portfolio in the first quarter of 2017 resulting in downgrades of certain loans, primarily commercial, previously reported as pass as well as one large CRE relationship downgraded during the period.

Table 13 summarizes the allocation of the allowance for credit losses to each category of the loan portfolio. The increase in the allowance for commercial loans from December 31, 2016 is primarily due to organic loan growth in these categories, while the overall allowance for retail loan categories was relatively unchanged.

TABLE 13. ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES


*(unaudited, dollars in thousands)*	March 31, 2017		Percent of Total		December 31, 2016		Percent of Total
Allowance for loan losses:
Commercial real estate - land and construction	$	3,975		8.9	$	4,348		9.8
Commercial real estate - improved property		19,260		43.2		18,628		42.1
Commercial and industrial		8,740		19.6		8,412		19.0
Residential real estate		4,110		9.2		4,106		9.3
Home equity		3,727		8.4		3,422		7.7
Consumer		3,663		8.2		3,998		9.0
Deposit account overdrafts		586		1.3		760		1.8

Total allowance for loan losses	$	44,061		98.8	$	43,674		98.7

Allowance for loan commitments:
Commercial real estate - land and construction	$	143		0.3	$	151		0.4
Commercial real estate - improved property		17		0.0		17		0.0
Commercial and industrial		157		0.4		188		0.4
Residential real estate		10		0.0		9		0.0
Home equity		179		0.4		162		0.4
Consumer		42		0.1		44		0.1

Total allowance for loan commitments		548		1.2		571		1.3

Total allowance for credit losses	$	44,609		100.0	$	44,245		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 March 31, 2017.

DEPOSITS

TABLE 14. DEPOSITS


*(unaudited, dollars in thousands)*	March 31, 2017		December 31, 2016		$ Change			% Change
Deposits
Non-interest bearing demand	$	1,844,003	$	1,789,522	$	54,481			3.0
Interest bearing demand		1,599,536		1,546,890		52,646			3.4
Money market		1,029,440		995,477		33,963			3.4
Savings deposits		1,253,652		1,213,168		40,484			3.3
Certificates of deposit		1,419,104		1,495,822		(76,718	)		(5.1	)

Total deposits	$	7,145,735	$	7,040,879	$	104,856			1.5

Deposits, which represent WesBanco’s primary source of funds, are offered in various account forms at various rates through WesBanco’s 173 financial centers. The FDIC insures deposits up to $250,000 per account.

Total deposits increased by $104.9 million or 1.5% during the first three months of 2017. Interest bearing demand and non-interest bearing demand deposits increased 3.4% and 3.0%, respectively, while money market and savings deposits increased 3.4% and 3.3%, respectively. This growth is primarily attributable to marketing, customer incentives, focused retail and business strategies to obtain more account relationships and customers’ preferences for shorter-term maturities, coupled with 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. In addition, money market deposits were influenced primarily through WesBanco’s participation in the Insured Cash Sweep (ICS^®) money market deposit program. ICS^® reciprocal balances totaled $49.5 million at March 31, 2017 compared to $5.7 million at December 31, 2016.

Certificates of deposit decreased $76.7 million due primarily 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 WesBanco. The decline was also impacted by lower offered rates on maturing certificates of deposit earlier in the period 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 $116.7 million in outstanding balances at March 31, 2017, of which $83.6 million represented one-way buys, compared to $135.2 million in total outstanding balances at December 31, 2016, of which $100.1 million represented one-way buys. Certificates of deposit greater than $250,000 were approximately $214.7 million at March 31, 2017 compared to $219.3 million at December 31, 2016. Certificates of deposit of $100,000 or more were approximately $639.4 million at March 31, 2017 compared to $681.5 million at December 31, 2016. Certificates of deposit totaling approximately $812.2 million at March 31, 2017 with a cost of 0.57% are scheduled to mature within the next 12 months. WesBanco intends to 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 or match competitor rates 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)*	March 31, 2017		December 31, 2016		$ Change			% Change
Federal Home Loan Bank Borrowings	$	937,104	$	968,946	$	(31,842	)		(3.3	)
Other short-term borrowings		115,643		199,376		(83,733	)		(42.0	)
Subordinated debt and junior subordinated debt		164,177		163,598		579			0.4

Total	$	1,216,924	$	1,331,920	$	(114,996	)		(8.6	)

Borrowings are a less significant source of funding for WesBanco compared to total deposits. During the first quarter of 2017, WesBanco reduced other short-term borrowings and paid down FHLB borrowings scheduled to mature utilizing funds provided by lower cost deposits or other available cash flows. In addition, WesBanco extended the maturities of approximately $170.0 million of FHLB borrowings at an average cost of 1.54% versus prior FHLB borrowings with shorter-term maturities at an average cost of 1.00% to 1.10%.

Other short-term borrowings, which consist of securities sold under agreements to repurchase at March 31, 2017, but may also include federal funds purchased and notes payable, were $115.6 million at March 31, 2017 compared to $199.4 million at December 31, 2016. The decrease is primarily due to the repayments of $58.0 million in federal funds purchased outstanding at December 31, 2016. 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 was no outstanding balance at March 31, 2017 or December 31, 2016.

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 $1.4 billion at March 31, 2017 compared to $1.3 billion at December 31, 2016. The increase resulted primarily from net income during the current three-month period of $25.9 million and a $2.3 million decrease in other comprehensive loss, which were partially offset by the declaration of common shareholder dividends totaling $11.4 million for the three months ended March 31, 2017. WesBanco also increased its quarterly dividend rate to $0.26 per share in February, representing an 8.3% increase over the prior quarterly rate and a cumulative 86% increase over the last twenty-six quarters.

WesBanco did not purchase any shares during the three-month period ended March 31, 2017 under the current share repurchase plans. At March 31, 2017, the remaining shares authorized to be purchased under the current repurchase plans totaled 1,120,307 shares.

On February 17, 2017, WesBanco granted 12,000 Total Shareholder Return Plan shares for the performance period beginning January 1, 2017 and ending December 31, 2019 to certain executives. The award is determined at the end of the three-year period if the TSR of WesBanco common stock is equal to or greater than the 50^th percentile of the TSR of the peer group. The number of shares to be earned by the participant shall be 200% of the grant-date award if the TSR of WesBanco common stock is equal to or greater than the 75^th percentile of the TSR of the peer group. Upon achieving the market-based metric, shares determined to be earned by the participant become service-based and vest in three equal annual installments.

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 March 31, 2017, 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 March 31, 2017, under FDIC regulations, WesBanco could receive, without prior regulatory approval, a dividend of approximately $40.8 million from the Bank. WesBanco intends to continue to improve its consolidated and Bank capital ratios 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:


							March 31, 2017							December 31, 2016
*(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	%	$	917,538		9.97	%	$	368,206	$	901,873		9.81	%	$	367,843
Common equity Tier 1		4.50	%		6.50	%		783,753		11.28	%		312,709		773,306		11.28	%		308,462
Tier 1 capital to risk-weighted assets		6.00	%		8.00	%		917,538		13.21	%		416,945		901,873		13.16	%		411,283
Total capital to risk-weighted assets		8.00	%		10.00	%		987,915		14.22	%		555,927		971,762		14.18	%		548,378
WesBanco Bank, Inc.
Tier 1 leverage		4.00	%		5.00	%	$	836,151		9.10	%	$	367,405	$	827,173		9.02	%	$	366,903
Common equity Tier 1		4.50	%		6.50	%		836,151		12.06	%		312,061		827,173		12.10	%		307,728
Tier 1 capital to risk-weighted assets		6.00	%		8.00	%		836,151		12.06	%		416,081		827,173		12.10	%		410,305
Total capital to risk-weighted assets		8.00	%		10.00	%		905,973		13.06	%		554,775		896,598		13.11	%		547,073

(1)	Minimum requirements to remain adequately capitalized.

(2)	Well-capitalized under prompt corrective action regulations.

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 64.0% at March 31, 2017 and deposit balances funded 72.9% of assets.

The following table lists the sources of liquidity from assets at March 31, 2017 expected within the next year:


*(unaudited, in thousands)*
Cash and cash equivalents	$	115,084
Securities with a maturity date within the next year and callable securities		125,750
Projected payments and prepayments on mortgage-backed securities and collateralized mortgage obligations (1)		242,900
Loans held for sale		11,480
Accruing loans scheduled to mature		783,641
Normal loan repayments		1,533,404

Total sources of liquidity expected within the next year	$	2,812,259

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

Deposit flows are another principal factor affecting overall WesBanco liquidity. Deposits totaled $7.1 billion at March 31, 2017. 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 $812.2 million at March 31, 2017, which includes jumbo regular certificates of deposit totaling $310.9 million with a weighted-average cost of 0.68%, and jumbo CDARS^® deposits of $67.9 million with a weighted-average cost of 0.86%.

WesBanco maintains a line of credit with the FHLB as an additional funding source. Available credit with the FHLB at March 31, 2017 and December 31, 2016 approximated $1.7 billion. 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. At March 31, 2017, the Bank had unpledged available-for-sale securities with an amortized cost of $200.7 million. A portion of these securities could be sold for additional liquidity, or such securities could be pledged to secure additional FHLB borrowings. Available liquidity through the sale of investment securities is currently limited as only approximately 17% of the available-for-sale portfolio is unpledged, due to the pledging agreements that WesBanco has with their public deposit customers. Public deposit balances have increased significantly through the ESB and YCB acquisitions of the past two years. WesBanco’s held-to-maturity portfolio currently contains $785.7 million of unpledged securities. However, most of the balance represents municipal bonds, which can only be pledged in limited circumstances. Unless in compliance with certain criteria, these securities cannot be sold without tainting the remainder of the held-to-maturity portfolio. If tainting occurs, all remaining securities with the held-to-maturity designation would be required to go to available-for-sale, and the held-to-maturity designation would not be available to WesBanco for several years.

WesBanco participates in the Federal Reserve Bank’s Borrower-in-Custody Program (“BIC”) whereby WesBanco pledges certain consumer loans as collateral for borrowings. At March 31, 2017, WesBanco had a BIC line of credit totaling $218.7 million, none of which was outstanding. Alternative funding sources may include the utilization of existing overnight lines of credit with third party banks totaling $285.0 million, none of which was outstanding at March 31, 2017, along with seeking other lines of credit, borrowings under repurchase agreement lines, increasing deposit rates to attract additional funds, accessing brokered deposits, or selling securities available-for-sale or certain types of loans.

Other short-term borrowings of $115.6 million at March 31, 2017 consisted of callable repurchase agreements and overnight sweep checking accounts for large commercial customers. There has not been a significant fluctuation in the average deposit balances of the overnight sweep checking accounts during 2017. The overnight sweep checking accounts require U.S. Government 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, $55.9 million in cash and investments on hand, and a $25.0 million revolving line of credit with another bank, which did not have an outstanding balance at March 31, 2017. 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 March 31, 2017, under FDIC and State of West Virginia regulations, WesBanco could receive, without prior regulatory approval, dividends of approximately $40.8 million from the Bank. Management believes these are appropriate levels of cash for WesBanco 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 $1.9 billion and $1.8 billion at March 31, 2017 and December 31, 2016, 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 Loan Commitments” section of this MD&A for additional information.

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 March 31, 2017 and that WesBanco’s current liquidity risk management policies and procedures adequately address this guidance.

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 is considered a Board-level committee with one current board member on the committee, as well as several members of senior management from various functional areas, including the Chief Executive Officer, the Chief Financial Officer, the Chief Risk Management Officer and the Senior Treasury Officer. It 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 and an economic value-at-risk model to measure the fair value of net equity. These models are 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 and reviewed quarterly by the ALCO, while appropriate documentation is maintained in meeting minutes and treasury department files.

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, adjustments to various non-maturity deposit product rates, or “betas”, and decay rates for deposits, 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 both historical experience and current market rates, and are periodically back-tested and reviewed by third-party consultants. 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-maturity deposit product behavior assumptions will approximate actual future results. Moreover, the net interest income sensitivity chart presented in Table 1, “Net Interest Income Sensitivity,” assumes that the balance sheet 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, 300 and 400 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 10%, 12.5%, 15%, and 20% 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 March 31, 2017 and December 31, 2016 assuming the above-noted interest rate increases as compared to a base model. Due to the current lower interest rate environment, particularly for short-term rates, the 200 and 300 basis point decreasing change cannot be calculated due to the unrealistic nature of the results.

TABLE 1. NET INTEREST INCOME SENSITIVITY


Immediate Change in Interest Rates (basis points)	Percentage Change in Net Interest Income from Base over One Year		ALCO Guidelines
	March 31, 2017	December 31, 2016	ALCO Guidelines
+400	11.2%	4.5%	(20.0%)
+300	9.0%	4.7%	(15.0%)
+200	6.1%	4.6%	(12.5%)
+100	3.7%	3.1%	(10.0%)
-100	(3.8%)	(2.3%)	(10.0%)

As per the table above, the earnings simulation model at March 31, 2017 currently projects that net interest income for the next twelve-month period would decrease by 3.8% if interest rates were to fall immediately by 100 basis points, compared to a decrease of 2.3% for the same scenario as of December 31, 2016.

For rising rate scenarios, net interest income would increase by 3.7%, 6.1%, 9.0% and 11.2% if rates were to increase by 100, 200, 300 and 400 basis points, respectively, as of March 31, 2017, compared to increases of 3.1%, 4.6%, 4.7% and 4.5% in a 100, 200, 300 and 400 basis point increasing rate environment as of December 31, 2016.

The balance sheet shows increasing asset sensitivity as of March 31, 2017, as compared to December 31, 2016, with differences resulting from changes in the mix of and growth in various earning assets and costing liabilities, as well as recent adjustments in modeling assumptions such as deposit beta rates, decay rates for non-maturity deposits and loan prepayment speeds. A recent third-party study of the Company’s own historical betas, decay rates and prepayment speeds in various interest rate environments was completed. The results were used to replace general industry data in prior evaluations, resulting in a portion of the increased asset sensitivity this period. While deposit betas have been increased from those used in prior periods, loan prepayment speeds were also significantly increased to reflect our own loan balances’ propensity to prepay over time. The net impact was increased asset sensitivity in combination with the aforementioned balance sheet changes normally experienced period over period. Overall asset sensitivity in non-parallel rising rate scenarios may be somewhat neutralized due to slower prepayment speeds, slower than forecasted increases to loan yields for competitive reasons or due to existing quotes on previously committed loans, extension risk associated with residential mortgages and mortgage-backed securities, as well as other earning asset and costing liability differences versus currently modeled assumptions. In addition, variable rate commercial loans with rate floors averaging 4.11% approximated $1.3 billion at March 31, 2017, which represent approximately 31% of commercial loans, as compared to $1.3 billion or 32% of commercial loans at December 31, 2016. Approximately 50% or $633.6 million of these loans are currently priced at their floor, as compared to 53% or $671.9 million at December 31, 2016. In a less than 100 basis point rising rate environment, these loans may not adjust as rapidly from their current floor level as compared to loans without floors. As a result of the December, 2016 and March, 2017 federal funds rate increases affecting short-term market rates such as one and three month LIBOR (an index used frequently in the setting of commercial loan rates, fixed rate loan spreads, and back-to-back loan swaps for certain commercial loan customers), more commercial loans with floors should experience a rate increase in a rising rate environment of 100 basis points or more.

Given the interest rate environment and flatter yield curve for much of 2016, affecting the repricing of loans and investments, WesBanco previously expected that the base case net interest margin would somewhat decrease without loan growth. However, post-YCB, the net interest margin has grown by 13 b.p. compared to pre-acquisition levels due to higher yielding loans from YCB, loan mix and purchase accounting accretion. Further margin expansion is somewhat dependent on additional federal funds and other market rate increases over the remainder of the year, in addition to continued execution of our business strategy to remix investment securities runoff into loans and higher cost wholesale borrowings and CD’s into lower costing transaction accounts. Net purchase accounting accretion is expected to decrease throughout 2017, offset by loan growth and by the asset sensitivity of the balance sheet in a rising rate scenario. Management currently anticipates that two additional short-term federal funds rate increases may occur during the remainder of 2017, and potentially two more in 2018, relatively consistent with general market and consensus economist expectations. Delays in implementing further rate increases for an asset-sensitive balance sheet typically would have a negative impact on management’s estimates of the future direction and level of the net interest margin.

Maturities and repricing of higher-costing certificates of deposit in prior years has had the beneficial impact of mitigating compression from lower loan spreads in a competitive loan environment, combined with organic loan growth. However, with current CDs costing an average of 0.67%, this factor does not improve the net interest margin as CDs mature and reprice, as new offering rates are generally similar to, or slightly higher than current maturation rates. Customers over the past few years have elected to move maturing CD balances to lower-costing transaction account types as well as certain non-deposit accounts both within the Company or to other competitors, a portion of these lower-cost transaction account balances may move to higher-costing CDs or money market accounts upon a more significant short-term rate increase over a period of time. Certificates of deposit runoff over the last few years, due to customer preferences for other deposit and non-deposit products, from former single service customers at ESB and YCB and due to our own retail focus on customers with multiple relationships versus single service CD customers, has been replaced with FHLB borrowings and other short-term borrowings. Certificates of deposit totaling approximately $812.2 million mature within the next year at an average cost of 0.57%. Approximately $170 million of short-term maturing FHLB borrowings in the first quarter of 2017 were replaced with higher cost, medium-term borrowings, which strategy was intended to improve asset sensitivity and certain short-term liquidity measures. Additional maturing borrowings over the remainder of the year may also be lengthened at a somewhat higher cost, to continue to improve various short-term liquidity ratios that management monitors, and as well in anticipation of further rate increases over the course of the next two years. Also, management is currently controlling the size of the balance sheet after the YCB acquisition in order to remain under $10 billion in total assets for some period of time, currently anticipated through the end of 2017 or into 2018. As a result of last year’s YCB merger, management elected to reduce the size of the investment portfolio by approximately $200 million and pay-down certain borrowings and higher cost wholesale CDs to assist in remaining under $10 billion, and such strategy will be considered throughout 2017 to limit total asset growth without limiting overall loan growth.

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 or interest rate swaps 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/or to maintain their total deposit levels below FDIC insurance limits.

Current balance sheet strategies to manage the net interest margin in the expected rate environment include:

•

increasing total loans; primarily commercial and home equity loans that have variable or adjustable rates;

•

selling an increasing amount of new residential mortgage loan production into the secondary market:

•

increasing certain short-term liquidity measures;

•

continuing marketing programs to increase home equity loans and demand deposit account types;

•

employing back-to-back loan swaps for customers desiring a longer-term fixed rate loan such that the Bank receives a variable rate;

•

re-mixing a portion of investment securities cash flows into loans;

•

extending or renewing FHLB term borrowings as necessary to balance asset/liability mismatches,

•

using the CDARS^®and ICS^® deposit programs as necessary to manage overall liability mix, and

•

managing the overall size of the balance sheet to remain under $10 billion in total assets on an organic basis to avoid certain costs associated with the Dodd-Frank Act.

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 a change of minus 10% in net interest income from the base model for a twelve-month period and also for an extended two year rate ramp of 400 basis points. 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 March 31, 2017 using the 200 basis point increasing rate ramp analysis, projects that net interest income would increase 3.1% over the next twelve months, compared to a 3.2% increase at December 31, 2016. For the first twelve months of a 400 basis point rate ramp over two years, the increase in net interest income would be 3.5% in year one as compared to the base, and 10.2% in year two when compared to year two’s base. In addition, management utilizes a most likely forecast scenario to forecast net interest income over a rolling two year time frame, which is updated and reviewed quarterly, incorporating current budget or re-forecast assumptions into the model such as estimated loan and deposit growth, asset and liability re-mixing, competitive market rates for various products and marketing promotions, and other assumptions. Such model helps to predict changes in forecasted outcomes and necessary adjustments to the plan to achieve management’s budgeted earnings goals.

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 March 31, 2017, the market value of tangible equity as a percent of base in a 200 basis point rising rate environment indicates an increase of 2.0%, compared to an increase of 6.7% at December 31, 2016. In a 100 basis point falling rate environment, the model indicates a decrease of 7.3%, compared to a decrease of 9.8% as of December 31, 2016. WesBanco’s policy is to limit such change to minus 10% for a 100 basis point change in interest rates, minus 20% for a 200 basis point change in interest rates, minus 30% for a 300 basis point rate change in interest rates, and minus 40% for a 400 basis point rate change in interest rates. The prior acquisition of YCB and related changes to various assets and liabilities, as well as certain changes to loan prepayment speeds and decay rates associated with non-maturity deposits, recently updated as noted above, caused the change in market value of tangible equity as compared to December 31, 2016.

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 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 March 31, 2017 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.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

WesBanco is involved in various 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.

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

As of March 31, 2017, WesBanco had two active one million share stock repurchase plans. The first plan was originally approved by the Board of Directors on March 21, 2007 and the second, which is incremental to the first, was approved October 22, 2015. Each 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.

The following table presents the monthly share purchase activity during the quarter ended March 31, 2017:


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 December 31, 2016								1,120,307

January 1, 2017 to January 31, 2017
Open market repurchases		—		—		—		1,120,307
Other transactions (1)		14,301	$	43.49		N/A		N/A

February 1, 2017 to February 28, 2017
Open market repurchases		—		—		—		1,120,307
Other transactions (1)		1,144	$	41.52		N/A		N/A

March 1, 2017 to March 31, 2017
Open market repurchases		—		—		—		1,120,307
Other transactions (1)		6,184	$	42.25		N/A		N/A


First Quarter 2017
Open market repurchases		—		—		—		1,120,307
Other transactions (1)		21,629	$	42.25		N/A		N/A

Total		21,629	$	42.25		—		1,120,307

(1)	Consists of open market purchases transacted for employee benefit and dividend reinvestment plans.

N/A – Not applicable

ITEM 6. EXHIBITS


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 March 31, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at March 31, 2017 and December 31, 2016, (ii) the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017 and 2016, (iii) the Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2017 and 2016, (iv) the Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016, and (v) the Notes to Consolidated Financial Statements.

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: April 27, 2017				/s/ Todd F. Clossin
				Todd F. Clossin
				President and Chief Executive Officer (Principal Executive Officer)

Date: April 27, 2017				/s/ Robert H. Young
				Robert H. Young
				Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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