WEST VIRGINIA | | | 55-0571723 | 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
Registrant's telephone number, including area code:304-234-9000304-234-9000 NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: Title of each class | Trading Symbol | Name of each exchange on which registered | Common Stock $2.0833 Par Value | WSBC | NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-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 Rule12b-2 of the Exchange Act. | | | | | | | Large accelerated filer | ☑ | ☑ | | Accelerated filer | | ☐ | Non-accelerated filer | ☐ | | | Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ | | | | | | | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined by Rule12b-2 of the Exchange Act). Yes ☐ No ☑ As of October 22, 2018,July 24, 2019, there were 54,598,18654,697,199 shares of WesBanco, Inc. common stock, $2.0833 par value, outstanding.
WESBANCO, INC. TABLE OF CONTENTS | Item No. | | ITEM | | Page No. | | ITEM | Page No. | | | | | | | | PART I – FINANCIAL INFORMATION | | | PART I - FINANCIAL INFORMATION | | 1 | | Financial Statements | | | Financial Statements | 2 | | | Consolidated Balance Sheets at September 30, 2018 (unaudited) and December 31, 2017 | | | 3 | | Consolidated Balance Sheets at June 30, 2019 (unaudited) and December 31, 2018 | 2 | | | Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017 (unaudited) | | | 4 | | Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018 (unaudited) | 3 | | | Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2018 and 2017 (unaudited) | | | 5 | | Consolidated Statements of Changes in Shareholders' Equity for the three and six months ended June 30, 2019 and 2018 (unaudited) | 4 | | | Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (unaudited) | | | 6 | | Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited) | 5 | | | Notes to Consolidated Financial Statements (unaudited) | | | 7 | | Notes to Consolidated Financial Statements (unaudited) | 6 | | | | | | 2 | | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | | 35 | | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30 | | | | | | 3 | | Quantitative and Qualitative Disclosures About Market Risk | | | 55 | | Quantitative and Qualitative Disclosures About Market Risk | 45 | | | | | | 4 | | Controls and Procedures | | | 58 | | Controls and Procedures | 47 | | | | | | | | PART II – OTHER INFORMATION | | | PART II – OTHER INFORMATION | | 1 | | Legal Proceedings | | | 59 | | Legal Proceedings | 48 | | | | | | 2 | | Unregistered Sales of Equity Securities and Use of Proceeds | | | 59 | | Unregistered Sales of Equity Securities and Use of Proceeds | 48 | | | | | | 6 | | Exhibits | | | 60 | | Exhibits | 49 | | | | | | | | Signatures | | | 61 | | Signatures | 50 |
1
PART I—I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WESBANCO, INC. CONSOLIDATED BALANCE SHEETS | | | | | | June 30, | | | December 31, | | (unaudited, in thousands, except shares) | | September 30, 2018 | | December 31, 2017 | | | 2019 | | | 2018 | | ASSETS | | | | | | | | | | | | | Cash and due from banks, including interest bearing amounts of$88,854 and $19,826, respectively | | $ | 273,680 | | | $ | 117,572 | | | Cash and due from banks, including interest bearing amounts of $36,390 and $44,536, respectively | | | $ | 194,355 | | | $ | 169,186 | | Securities: | | | | | | | | | | | | | Equity securities, at fair value | | | 12,784 | | | 13,457 | | | | 11,817 | | | | 11,737 | | Available-for-sale debt securities, at fair value | | | 2,008,232 | | | 1,261,865 | | | | 2,129,284 | | | | 2,114,129 | | Held-to-maturity debt securities (fair values of $1,014,361and $1,023,784, respectively) | | | 1,025,538 | | | 1,009,500 | | | | | | | | | | | Held-to-maturity debt securities (fair values of $921,534 and $1,020,743, respectively) | | | | 900,605 | | | | 1,020,934 | | Total securities | | | 3,046,554 | | | 2,284,822 | | | | 3,041,706 | | | | 3,146,800 | | | | | | | | | | Loans held for sale | | | 55,913 | | | 20,320 | | | | 18,649 | | | | 8,994 | | | | | | | | | | Portfolio loans, net of unearned income | | | 7,726,423 | | | 6,341,441 | | | | 7,737,854 | | | | 7,656,281 | | Allowance for loan losses | | | (48,902 | ) | | (45,284 | ) | | | (50,859 | ) | | | (48,948 | ) | | | | | | | | | Net portfolio loans | | | 7,677,521 | | | 6,296,157 | | | | 7,686,995 | | | | 7,607,333 | | | | | | | | | | Premises and equipment, net | | | 159,284 | | | 130,722 | | | | 179,866 | | | | 166,925 | | Accrued interest receivable | | | 39,465 | | | 29,728 | | | | 38,450 | | | | 38,853 | | Goodwill and other intangible assets, net | | | 928,083 | | | 589,264 | | | | 914,678 | | | | 918,850 | | Bank-owned life insurance | | | 223,995 | | | 192,589 | | | | 227,976 | | | | 225,317 | | Other assets | | | 194,984 | | | 155,004 | | | | 191,978 | | | | 176,374 | | | | | | | | | | Total Assets | | $ | 12,599,479 | | | $ | 9,816,178 | | | $ | 12,494,653 | | | $ | 12,458,632 | | | | | | | | | | LIABILITIES | | | | | | | | | | | | | Deposits: | | | | | | | | | | | | | Non-interest bearing demand | | $ | 2,411,862 | | | $ | 1,846,748 | | | $ | 2,481,065 | | | $ | 2,441,041 | | Interest bearing demand | | | 2,187,662 | | | 1,625,015 | | | | 2,079,795 | | | | 2,146,508 | | Money market | | | 1,178,950 | | | 1,024,856 | | | | 1,098,917 | | | | 1,142,925 | | Savings deposits | | | 1,649,684 | | | 1,269,912 | | | | 1,670,035 | | | | 1,645,549 | | Certificates of deposit | | | 1,513,600 | | | 1,277,057 | | | | 1,365,116 | | | | 1,455,610 | | | | | | | | | | Total deposits | | | 8,941,758 | | | 7,043,588 | | | | 8,694,928 | | | | 8,831,633 | | | | | | | | | | Federal Home Loan Bank borrowings | | | 1,131,253 | | | 948,203 | | | | 1,121,283 | | | | 1,054,174 | | Other short-term borrowings | | | 294,281 | | | 184,805 | | | | 296,148 | | | | 290,522 | | Subordinated debt and junior subordinated debt | | | 189,745 | | | 164,327 | | | | 156,534 | | | | 189,842 | | | | | | | | | | Total borrowings | | | 1,615,279 | | | 1,297,335 | | | | 1,573,965 | | | | 1,534,538 | | | | | | | | | | Accrued interest payable | | | 6,623 | | | 3,178 | | | | 6,559 | | | | 4,627 | | Other liabilities | | | 108,550 | | | 76,756 | | | | 145,085 | | | | 109,007 | | | | | | | | | | Total Liabilities | | | 10,672,210 | | | 8,420,857 | | | | 10,420,537 | | | | 10,479,805 | | | | | | | | | | SHAREHOLDERS’ EQUITY | | | | | | SHAREHOLDERS' EQUITY | | | | | | | | | | Preferred stock, no par value; 1,000,000 shares authorized; none outstanding | | | — | | | | — | | | | — | | | | — | | Common stock, $2.0833 par value;100,000,000shares authorized in 2018 and 2017, respectively;54,604,294and 44,043,244 shares issued, respectively; 54,603,967and 44,043,244 shares outstanding, respectively | | | 113,758 | | | 91,756 | | | Common stock, $2.0833 par value; 100,000,000 shares authorized in 2019 and 2018, respectively; 54,697,251 and 54,604,294 shares issued, respectively; 54,697,199 and 54,598,134 shares outstanding, respectively | | | | 113,952 | | | | 113,758 | | Capital surplus | | | 1,165,006 | | | 684,730 | | | | 1,168,212 | | | | 1,166,701 | | Retained earnings | | | 709,477 | | | 651,357 | | | | 788,900 | | | | 737,581 | | Treasury stock (327and 0shares—at cost, respectively) | | | (15 | ) | | | — | | | Accumulated other comprehensive loss | | | (59,873 | ) | | (31,495 | ) | | Treasury stock (52 and 6,160 shares - at cost, respectively) | | | | (2 | ) | | | (274 | ) | Accumulated other comprehensive income (loss) | | | | 4,113 | | | | (37,871 | ) | Deferred benefits for directors | | | (1,084 | ) | | (1,027 | ) | | | (1,059 | ) | | | (1,068 | ) | | | | | | | | | Total Shareholders’ Equity | | | 1,927,269 | | | 1,395,321 | | | | | | | | | | | Total Liabilities and Shareholders’ Equity | | $ | 12,599,479 | | | $ | 9,816,178 | | | | | | | | | | | Total Shareholders' Equity | | | | 2,074,116 | | | | 1,978,827 | | Total Liabilities and Shareholders' Equity | | | $ | 12,494,653 | | | $ | 12,458,632 | |
See Notes to Consolidated Financial Statements. 2
WESBANCO, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | | | For the Three Months Ended | | For the Nine Months Ended | | | | | September 30, | | September 30, | | | For the Three Months Ended June 30, | | | For the Six Months Ended June 30, | | (unaudited, in thousands, except shares and per share amounts) | | 2018 | | | 2017 | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | INTEREST AND DIVIDEND INCOME | | | | | | | | | | | | | | | | | | | | | | | | | Loans, including fees | | $ | 86,605 | | | $ | 70,342 | | | $ | 234,276 | | | $ | 202,600 | | | $ | 96,415 | | | $ | 78,538 | | | $ | 191,917 | | | $ | 147,671 | | Interest and dividends on securities: | | | | | | | | | | | | | | | | | | | | | | | | | Taxable | | | 14,964 | | | | 9,711 | | | | 40,702 | | | | 28,682 | | | | 16,444 | | | | 14,194 | | | | 33,175 | | | | 25,738 | | Tax-exempt | | | 5,326 | | | | 4,862 | | | | 15,216 | | | | 14,617 | | | | 5,142 | | | | 5,055 | | | | 10,684 | | | | 9,890 | | | | | | | | | | | | | | | | Total interest and dividends on securities | | | 20,290 | | | | 14,573 | | | | 55,918 | | | | 43,299 | | | | 21,586 | | | | 19,249 | | | | 43,859 | | | | 35,628 | | | | | | | | | | | | | | | | Other interest income | | | 1,498 | | | | 574 | | | | 3,402 | | | | 1,674 | | | | 1,542 | | | | 1,101 | | | | 2,820 | | | | 1,904 | | | | | | | | | | | | | | | | Total interest and dividend income | | | 108,393 | | | | 85,489 | | | | 293,596 | | | | 247,573 | | | | 119,543 | | | | 98,888 | | | | 238,596 | | | | 185,203 | | | | | | | | | | | | | | | | INTEREST EXPENSE | | | | | | | | | | | | | | | | | | | | | | | | | Interest bearing demand deposits | | | 3,501 | | | | 1,814 | | | | 9,174 | | | | 4,413 | | | | 4,314 | | | | 3,150 | | | | 8,259 | | | | 5,673 | | Money market deposits | | | 1,360 | | | | 751 | | | | 3,332 | | | | 1,970 | | | | 2,009 | | | | 1,093 | | | | 3,908 | | | | 1,972 | | Savings deposits | | | 352 | | | | 189 | | | | 768 | | | | 555 | | | | 678 | | | | 227 | | | | 1,200 | | | | 416 | | Certificates of deposit | | | 3,276 | | | | 2,610 | | | | 8,789 | | | | 7,512 | | | | 4,098 | | | | 2,977 | | | | 8,001 | | | | 5,513 | | | | | | | | | | | | | | | | Total interest expense on deposits | | | 8,489 | | | | 5,364 | | | | 22,063 | | | | 14,450 | | | | 11,099 | | | | 7,447 | | | | 21,368 | | | | 13,574 | | | | | | | | | | | | | | | | Federal Home Loan Bank borrowings | | | 6,691 | | | | 3,628 | | | | 17,142 | | | | 9,608 | | | | 6,287 | | | | 5,953 | | | | 12,624 | | | | 10,451 | | Other short-term borrowings | | | 965 | | | | 394 | | | | 2,497 | | | | 954 | | | | 1,483 | | | | 973 | | | | 3,039 | | | | 1,532 | | Subordinated debt and junior subordinated debt | | | 2,315 | | | | 1,849 | | | | 6,425 | | | | 5,449 | | | | 2,214 | | | | 2,168 | | | | 4,743 | | | | 4,110 | | | | | | | | | | | | | | | | Total interest expense | | | 18,460 | | | | 11,235 | | | | 48,127 | | | | 30,461 | | | | 21,083 | | | | 16,541 | | | | 41,774 | | | | 29,667 | | | | | | | | | | | | | | | | NET INTEREST INCOME | | | 89,933 | | | | 74,254 | | | | 245,469 | | | | 217,112 | | | | 98,460 | | | | 82,347 | | | | 196,822 | | | | 155,536 | | Provision for credit losses | | | 1,035 | | | | 2,516 | | | | 4,911 | | | | 7,610 | | | | 2,747 | | | | 1,708 | | | | 5,254 | | | | 3,876 | | | | | | | | | | | | | | | | Net interest income after provision for credit losses | | | 88,898 | | | | 71,738 | | | | 240,558 | | | | 209,502 | | | | 95,713 | | | | 80,639 | | | | 191,568 | | | | 151,660 | | | | | | | | | | | | | | | | NON-INTEREST INCOME | | | | | | | | | | | | | | | | | | | | | | | | | Trust fees | | | 6,265 | | | | 5,358 | | | | 18,520 | | | | 17,073 | | | | 6,339 | | | | 5,752 | | | | 13,454 | | | | 12,255 | | Service charges on deposits | | | 6,313 | | | | 5,320 | | | | 16,282 | | | | 15,254 | | | | 6,197 | | | | 5,146 | | | | 12,747 | | | | 9,969 | | Electronic banking fees | | | 6,139 | | | | 4,883 | | | | 16,697 | | | | 14,395 | | | | 7,154 | | | | 5,728 | | | | 13,046 | | | | 10,558 | | Net securities brokerage revenue | | | 1,836 | | | | 1,721 | | | | 5,315 | | | | 5,164 | | | | 1,973 | | | | 1,809 | | | | 3,833 | | | | 3,479 | | Bank-owned life insurance | | | 1,232 | | | | 1,164 | | | | 5,116 | | | | 3,671 | | | | 1,340 | | | | 1,128 | | | | 2,659 | | | | 3,884 | | Mortgage banking income | | | 1,521 | | | | 1,103 | | | | 4,297 | | | | 3,511 | | | | 1,618 | | | | 1,670 | | | | 2,674 | | | | 2,776 | | Net securities gains | | | 84 | | | | 6 | | | | 403 | | | | 511 | | | | 2,909 | | | | 358 | | | | 3,566 | | | | 319 | | Net gain/(loss) on other real estate owned and other assets | | | 150 | | | | (298 | ) | | | 641 | | | | 9 | | | Net gain on other real estate owned and other assets | | | | 376 | | | | 229 | | | | 512 | | | | 491 | | Other income | | | 2,684 | | | | 1,642 | | | | 6,444 | | | | 6,318 | | | | 3,250 | | | | 1,588 | | | | 6,438 | | | | 3,760 | | | | | | | | | | | | | | | | Totalnon-interest income | | | 26,224 | | | | 20,899 | | | | 73,715 | | | | 65,906 | | | | 31,156 | | | | 23,408 | | | | 58,929 | | | | 47,491 | | | | | | | | | | | | | | | | NON-INTEREST EXPENSE | | | | | | | | | | | | | | | | | | | | | | | | | Salaries and wages | | | 30,335 | | | | 24,957 | | | | 82,213 | | | | 71,575 | | | | 31,646 | | | | 26,872 | | | | 62,585 | | | | 51,878 | | Employee benefits | | | 7,905 | | | | 7,728 | | | | 22,782 | | | | 23,670 | | | | 9,705 | | | | 7,965 | | | | 19,694 | | | | 14,877 | | Net occupancy | | | 4,957 | | | | 4,132 | | | | 13,715 | | | | 12,969 | | | | 5,385 | | | | 4,103 | | | | 10,951 | | | | 8,759 | | Equipment | | | 4,488 | | | | 3,905 | | | | 12,532 | | | | 12,043 | | | | 4,818 | | | | 4,095 | | | | 9,651 | | | | 8,044 | | Marketing | | | 1,446 | | | | 1,599 | | | | 3,967 | | | | 4,482 | | | | 1,254 | | | | 1,405 | | | | 2,497 | | | | 2,521 | | FDIC insurance | | | 789 | | | | 945 | | | | 2,315 | | | | 2,677 | | | | 1,155 | | | | 868 | | | | 2,508 | | | | 1,526 | | Amortization of intangible assets | | | 1,821 | | | | 1,223 | | | | 4,218 | | | | 3,736 | | | | 2,465 | | | | 1,312 | | | | 4,978 | | | | 2,397 | | Restructuring and merger-related expense | | | 10,811 | | | | — | | | | 16,468 | | | | 491 | | | | 81 | | | | 5,412 | | | | 3,188 | | | | 5,657 | | Other operating expenses | | | 13,568 | | | | 11,265 | | | | 36,024 | | | | 34,380 | | | | 15,443 | | | | 11,511 | | | | 30,333 | | | | 22,455 | | | | | | | | | | | | | | | | Totalnon-interest expense | | | 76,120 | | | | 55,754 | | | | 194,234 | | | | 166,023 | | | | 71,952 | | | | 63,543 | | | | 146,385 | | | | 118,114 | | | | | | | | | | | | | | | | Income before provision for income taxes | | | 39,002 | | | | 36,883 | | | | 120,039 | | | | 109,385 | | | | 54,917 | | | | 40,504 | | | | 104,112 | | | | 81,037 | | Provision for income taxes | | | 6,516 | | | | 10,527 | | | | 20,855 | | | | 30,801 | | | | 10,103 | | | | 7,335 | | | | 18,961 | | | | 14,339 | | | | | | | | | | | | | | | | NET INCOME | | $ | 32,486 | | | $ | 26,356 | | | $ | 99,184 | | | $ | 78,584 | | | $ | 44,814 | | | $ | 33,169 | | | $ | 85,151 | | | $ | 66,698 | | | | | | | | | | | | | | | | EARNINGS PER COMMON SHARE | | | | | | | | | | | | | | | | | | | | | | | | | Basic | | $ | 0.65 | | | $ | 0.60 | | | $ | 2.11 | | | $ | 1.79 | | | $ | 0.82 | | | $ | 0.71 | | | $ | 1.56 | | | $ | 1.47 | | Diluted | | $ | 0.64 | | | $ | 0.60 | | | $ | 2.11 | | | $ | 1.78 | | | $ | 0.82 | | | $ | 0.71 | | | $ | 1.56 | | | $ | 1.47 | | | | | | | | | | | | | | | | AVERAGE COMMON SHARES OUTSTANDING | | | | | | | | | | | | | | | | | | | | | | | | | Basic | | | 50,277,847 | | | | 44,031,813 | | | | 46,965,095 | | | | 43,992,017 | | | | 54,628,029 | | | | 46,498,305 | | | | 54,613,346 | | | | 45,281,264 | | Diluted | | | 50,432,112 | | | | 44,086,881 | | | | 47,107,829 | | | | 44,059,469 | | | | 54,733,521 | | | | 46,639,780 | | | | 54,724,209 | | | | 45,417,010 | | | | | | | | | | | | | | | | DIVIDENDS DECLARED PER COMMON SHARE | | $ | 0.29 | | | $ | 0.26 | | | $ | 0.87 | | | $ | 0.78 | | | $ | 0.31 | | | $ | 0.29 | | | $ | 0.62 | | | $ | 0.58 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | COMPREHENSIVE INCOME | | $ | 25,965 | | | $ | 27,637 | | | $ | 71,869 | | | $ | 84,873 | | | $ | 67,025 | | | $ | 26,893 | | | $ | 127,135 | | | $ | 45,904 | | | | | | | | | | | | | | | |
See Notes to Consolidated Financial Statements. 3
WESBANCO, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY For the Nine Months Ended September 30, 2018 and 2017
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | Common Stock | | | | | | | | | | | | Other | | | Deferred | | | | | (unaudited, in thousands, except shares and per share amounts) | | Shares | | | | | | Capital | | | Retained | | | Treasury | | | Comprehensive | | | Benefits for | | | | | | Outstanding | | | Amount | | | Surplus | | | Earnings | | | Stock | | | (Loss) Income | | | Directors | | | Total | | December 31, 2017 | | | 44,043,244 | | | $ | 91,756 | | | $ | 684,730 | | | $ | 651,357 | | | $ | — | | | $ | (31,495 | ) | | $ | (1,027 | ) | | $ | 1,395,321 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | — | | | | — | | | | — | | | | 99,184 | | | | — | | | | — | | | | — | | | | 99,184 | | Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | (27,315 | ) | | | — | | | | (27,315 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 71,869 | | Common dividends declared ($0.87 per share) | | | — | | | | — | | | | — | | | | (42,127 | ) | | | — | | | | — | | | | — | | | | (42,127 | ) | Adoption of accounting standard ASU2016-01 | | | — | | | | — | | | | — | | | | 1,063 | | | | — | | | | (1,063 | ) | | | — | | | | — | | Shares issued for FTSB acquisition | | | 2,498,761 | | | | 5,206 | | | | 102,141 | | | | — | | | | — | | | | — | | | | — | | | | 107,347 | | Shares issued for FFKT acquisition | | | 7,920,387 | | | | 16,487 | | | | 374,464 | | | | — | | | | 316 | | | | — | | | | — | | | | 391,267 | | Treasury shares acquired | | | (15,489 | ) | | | — | | | | 34 | | | | — | | | | (730 | ) | | | — | | | | — | | | | (696 | ) | Stock options exercised | | | 58,763 | | | | 104 | | | | 1,346 | | | | — | | | | 399 | | | | — | | | | — | | | | 1,849 | | Restricted stock granted | | | 98,301 | | | | 205 | | | | (205 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | Stock compensation expense | | | — | | | | — | | | | 2,933 | | | | — | | | | — | | | | — | | | | — | | | | 2,933 | | Deferred benefits for directors- net | | | — | | | | — | | | | (437 | ) | | | — | | | | — | | | | — | | | | (57 | ) | | | (494 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2018 | | | 54,603,967 | | | $ | 113,758 | | | $ | 1,165,006 | | | $ | 709,477 | | | $ | (15 | ) | | $ | (59,873 | ) | | $ | (1,084 | ) | | $ | 1,927,269 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2016 | | | 43,931,715 | | | $ | 91,524 | | | $ | 680,507 | | | $ | 597,071 | | | $ | — | | | $ | (27,126 | ) | | $ | (568) | | | $ | 1,341,408 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | — | | | | — | | | | — | | | | 78,584 | | | | — | | | | — | | | | — | | | | 78,584 | | Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 6,289 | | | | — | | | | 6,289 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 84,873 | | Common dividends declared ($0.78 per share) | | | — | | | | — | | | | — | | | | (34,326 | ) | | | — | | | | — | | | | — | | | | (34,326 | ) | Treasury shares acquired | | | (12,987 | ) | | | — | | | | — | | | | — | | | | (488 | ) | | | — | | | | — | | | | (488 | ) | Stock options exercised | | | 40,834 | | | | 75 | | | | 858 | | | | — | | | | 188 | | | | — | | | | — | | | | 1,121 | | Restricted stock granted | | | 74,023 | | | | 154 | | | | (154 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | Stock compensation expense | | | — | | | | — | | | | 1,970 | | | | — | | | | — | | | | — | | | | — | | | | 1,970 | | Deferred benefits for directors- net | | | — | | | | — | | | | 167 | | | | — | | | | — | | | | — | | | | (167 | ) | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2017 | | | 44,033,585 | | | $ | 91,753 | | | $ | 683,348 | | | $ | 641,329 | | | $ | (300 | ) | | $ | (20,837 | ) | | $ | (735) | | | $ | 1,394,558 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, 2019 and 2018 | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | Common Stock | | | | | | | | | | | | | | | Other | | | Deferred | | | | | | (unaudited, in thousands, except | | Shares | | | | | | | Capital | | | Retained | | | Treasury | | | Comprehensive | | | Benefits for | | | | | | shares and per share amounts) | | Outstanding | | | Amount | | | Surplus | | | Earnings | | | Stock | | | Income (Loss) | | | Directors | | | Total | | March 31, 2019 | | | 54,599,127 | | | $ | 113,758 | | | $ | 1,167,761 | | | $ | 761,002 | | | $ | (229 | ) | | $ | (18,098 | ) | | $ | (1,055 | ) | | $ | 2,023,139 | | Net income | | | — | | | | — | | | | — | | | | 44,814 | | | | — | | | | — | | | | — | | | | 44,814 | | Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 22,211 | | | | — | | | | 22,211 | | Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 67,025 | | Common dividends declared ($0.31 per share) | | | — | | | | — | | | | — | | | | (16,916 | ) | | | — | | | | — | | | | — | | | | (16,916 | ) | Treasury shares acquired | | | (19,378 | ) | | | — | | | | 128 | | | | — | | | | (717 | ) | | | — | | | | — | | | | (589 | ) | Stock options exercised | | | 5,000 | | | | 8 | | | | 37 | | | | — | | | | 56 | | | | — | | | | — | | | | 101 | | Restricted stock granted | | | 112,450 | | | | 186 | | | | (1,074 | ) | | | — | | | | 888 | | | | — | | | | — | | | | — | | Stock compensation expense | | | — | | | | — | | | | 1,364 | | | | — | | | | — | | | | — | | | | — | | | | 1,364 | | Deferred benefits for directors- net | | | — | | | | — | | | | (4 | ) | | | — | | | | — | | | | — | | | | (4 | ) | | | (8 | ) | June 30, 2019 | | | 54,697,199 | | | $ | 113,952 | | | $ | 1,168,212 | | | $ | 788,900 | | | $ | (2 | ) | | $ | 4,113 | | | $ | (1,059 | ) | | $ | 2,074,116 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2018 | | | 44,060,957 | | | $ | 91,793 | | | $ | 686,169 | | | $ | 673,174 | | | $ | — | | | $ | (47,076 | ) | | $ | (1,034 | ) | | $ | 1,403,026 | | Net income | | | — | | | | — | | | | — | | | | 33,169 | | | | — | | | | — | | | | — | | | | 33,169 | | Other comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (6,276 | ) | | | — | | | | (6,276 | ) | Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 26,893 | | Common dividends declared ($0.29 per share) | | | — | | | | — | | | | — | | | | (13,523 | ) | | | — | | | | — | | | | — | | | | (13,523 | ) | Shares issued for acquisition | | | 2,498,761 | | | | 5,206 | | | | 102,141 | | | | — | | | | — | | | | — | | | | — | | | | 107,347 | | Treasury shares acquired | | | (15,159 | ) | | | — | | | | 34 | | | | — | | | | (714 | ) | | | — | | | | — | | | | (680 | ) | Stock options exercised | | | 19,075 | | | | 32 | | | | 392 | | | | — | | | | 159 | | | | — | | | | — | | | | 583 | | Restricted stock granted | | | 79,616 | | | | 166 | | | | (166 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | Stock compensation expense | | | — | | | | — | | | | 929 | | | | — | | | | — | | | | — | | | | — | | | | 929 | | Deferred benefits for directors- net | | | — | | | | — | | | | (461 | ) | | | — | | | | — | | | | — | | | | (8 | ) | | | (469 | ) | June 30, 2018 | | | 46,643,250 | | | $ | 97,197 | | | $ | 789,038 | | | $ | 692,820 | | | $ | (555 | ) | | $ | (53,352 | ) | | $ | (1,042 | ) | | $ | 1,524,106 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Six Months Ended June 30, 2019 and 2018 | | December 31, 2018 | | | 54,598,134 | | | $ | 113,758 | | | $ | 1,166,701 | | | $ | 737,581 | | | $ | (274 | ) | | $ | (37,871 | ) | | $ | (1,068 | ) | | $ | 1,978,827 | | Net income | | | — | | | | — | | | | — | | | | 85,151 | | | | — | | | | — | | | | — | | | | 85,151 | | Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 41,984 | | | | — | | | | 41,984 | | Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 127,135 | | Common dividends declared ($0.62 per share) | | | — | | | | — | | | | — | | | | (33,832 | ) | | | — | | | | — | | | | — | | | | (33,832 | ) | Treasury shares acquired | | | (19,385 | ) | | | — | | | | 128 | | | | — | | | | (717 | ) | | | — | | | | — | | | | (589 | ) | Stock options exercised | | | 6,000 | | | | 8 | | | | 12 | | | | — | | | | 101 | | | | — | | | | — | | | | 121 | | Restricted stock granted | | | 112,450 | | | | 186 | | | | (1,074 | ) | | | — | | | | 888 | | | | — | | | | — | | | | — | | Stock compensation expense | | | — | | | | — | | | | 2,439 | | | | — | | | | — | | | | — | | | | — | | | | 2,439 | | Deferred benefits for directors- net | | | — | | | | — | | | | 6 | | | | — | | | | — | | | | — | | | | 9 | | | | 15 | | June 30, 2019 | | | 54,697,199 | | | $ | 113,952 | | | $ | 1,168,212 | | | $ | 788,900 | | | $ | (2 | ) | | $ | 4,113 | | | $ | (1,059 | ) | | $ | 2,074,116 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2017 | | | 44,043,244 | | | $ | 91,756 | | | $ | 684,730 | | | $ | 651,357 | | | $ | — | | | $ | (31,495 | ) | | $ | (1,027 | ) | | $ | 1,395,321 | | Net income | | | — | | | | — | | | | — | | | | 66,698 | | | | — | | | | — | | | | — | | | | 66,698 | | Other comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (20,794 | ) | | | — | | | | (20,794 | ) | Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 45,904 | | Common dividends declared ($0.58 per share) | | | — | | | | — | | | | — | | | | (26,298 | ) | | | — | | | | — | | | | — | | | | (26,298 | ) | Adoption of accounting standard ASU 2016-01 | | | — | | | | — | | | | — | | | | 1,063 | | | | — | | | | (1,063 | ) | | | — | | | | — | | Shares issued for acquisition | | | 2,498,761 | | | | 5,206 | | | | 102,141 | | | | — | | | | — | | | | — | | | | — | | | | 107,347 | | Treasury shares acquired | | | (15,159 | ) | | | — | | | | 34 | | | | — | | | | (714 | ) | | | — | | | | — | | | | (680 | ) | Stock options exercised | | | 36,788 | | | | 69 | | | | 915 | | | | — | | | | 159 | | | | — | | | | — | | | | 1,143 | | Restricted stock granted | | | 79,616 | | | | 166 | | | | (166 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | Stock compensation expense | | | — | | | | — | | | | 1,838 | | | | — | | | | — | | | | — | | | | — | | | | 1,838 | | Deferred benefits for directors- net | | | — | | | | — | | | | (454 | ) | | | — | | | | — | | | | — | | | | (15 | ) | | | (469 | ) | June 30, 2018 | | | 46,643,250 | | | $ | 97,197 | | | $ | 789,038 | | | $ | 692,820 | | | $ | (555 | ) | | $ | (53,352 | ) | | $ | (1,042 | ) | | $ | 1,524,106 | |
See Notes to Consolidated Financial Statements. 4
WESBANCO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS | | | For the Nine Months Ended | | | | | September 30, | | | For the Six Months Ended June 30, | | (unaudited, in thousands) | | 2018 | | 2017 | | | 2019 | | | 2018 | | NET CASH PROVIDED BY OPERATING ACTIVITIES | | $ | 122,444 | | | $ | 93,506 | | | $ | 76,370 | | | $ | 66,575 | | | | | | | | | | INVESTING ACTIVITIES | | | | | | | | | | | | | Net decrease (increase) in loans held for investment | | | 52,411 | | | (122,332 | ) | | Debt securitiesavailable-for-sale: | | | | | | Net increase in loans held for investment | | | | (71,557 | ) | | | (11,819 | ) | Available-for-sale debt securities: | | | | | | | | | | Proceeds from sales | | | 82,134 | | | 7,760 | | | | 66,095 | | | | 81,521 | | Proceeds from maturities, prepayments and calls | | | 188,020 | | | 156,944 | | | | 174,676 | | | | 114,206 | | Purchases of securities | | | (688,020 | ) | | (225,404 | ) | | | (138,310 | ) | | | (625,395 | ) | Debt securitiesheld-to-maturity: | | | | | | Held-to-maturity debt securities: | | | | | | | | | | Proceeds from maturities, prepayments and calls | | | 51,973 | | | 90,457 | | | | 57,383 | | | | 37,842 | | Purchases of securities | | | (66,058 | ) | | (53,251 | ) | | | (6,961 | ) | | | (44,656 | ) | Equity securities: | | | | | | | | | | | | | Proceeds from sales | | | 1,511 | | | | — | | | | 3,567 | | | | 827 | | Purchases of securities | | | (431 | ) | | | — | | | Proceeds from bank-owned life insurance | | | 4,772 | | | 349 | | | | — | | | | 4,772 | | Purchases of premises and equipment – net | | | (2,400 | ) | | (6,223 | ) | | | (6,064 | ) | | | (845 | ) | Net cash received from acquisitions | | | 278,654 | | | | — | | | Sale of portfolio loans—net | | | 12,996 | | | | — | | | | | | | | | | | Net cash used in investing activities | | | (84,438 | ) | | (151,700 | ) | | | | | | | | | | Net cash received from acquisition | | | | — | | | | 86,149 | | Sale of portfolio loans- net | | | | — | | | | 12,996 | | Net cash provided by (used in) investing activities | | | | 78,829 | | | | (344,402 | ) | FINANCING ACTIVITIES | | | | | | | | | | | | | (Decrease) increase in deposits | | | (20,443 | ) | | 61,389 | | | | (135,689 | ) | | | 36,045 | | Proceeds from Federal Home Loan Bank borrowings | | | 575,000 | | | 560,000 | | | | 285,000 | | | | 575,000 | | Repayment of Federal Home Loan Bank borrowings | | | (447,381 | ) | | (513,911 | ) | | | (218,052 | ) | | | (327,142 | ) | Increase in other short-term borrowings | | | 90,043 | | | 20,200 | | | | 5,626 | | | | 67,103 | | Principal repayments of finance lease obligations | | | | (199 | ) | | | (189 | ) | Decrease in federal funds purchased | | | (25,000 | ) | | (54,000 | ) | | | — | | | | (3,000 | ) | Repayment of junior subordinated debt | | | (17,519 | ) | | | — | | | | (33,506 | ) | | | (8,240 | ) | Dividends paid to common shareholders | | | (37,751 | ) | | (33,416 | ) | | | (32,742 | ) | | | (24,226 | ) | Issuance of common stock | | | 1,578 | | | 991 | | | | 71 | | | | 1,035 | | Treasury shares purchased—net | | | (425 | ) | | (358 | ) | | | | | | | | | | Net cash provided by financing activities | | | 118,102 | | | 40,895 | | | | | | | | | | | Net increase (decrease) in cash and cash equivalents | | | 156,108 | | | (17,299 | ) | | Treasury shares sold - net | | | | (539 | ) | | | (572 | ) | Net cash (used in) provided by financing activities | | | | (130,030 | ) | | | 315,814 | | Net increase in cash and cash equivalents | | | | 25,169 | | | | 37,987 | | Cash and cash equivalents at beginning of the period | | | 117,572 | | | 128,170 | | | | 169,186 | | | | 117,572 | | | | | | | | | | Cash and cash equivalents at end of the period | | $ | 273,680 | | | $ | 110,871 | | | $ | 194,355 | | | $ | 155,559 | | | | | | | | | | SUPPLEMENTAL DISCLOSURES | | | | | | | | | | | | | Interest paid on deposits and other borrowings | | $ | 46,524 | | | $ | 29,857 | | | $ | 40,501 | | | $ | 29,791 | | Income taxes paid | | | 13,050 | | | 20,825 | | | | 17,650 | | | | 10,000 | | Transfers of loans to other real estate owned | | | 393 | | | 506 | | | | 637 | | | | 229 | | Transfers of loans to held for sale | | | 12,996 | | | | — | | | | — | | | | 12,996 | | Non-cash transactions related to FTSB acquisition | | | 107,347 | | | | — | | | | — | | | | 107,347 | | Non-cash transactions related to FFKT acquisition | | | 391,267 | | | | — | | | Transfer of held-to-maturity debt securities to available-for-sale debt securities | | | | 67,393 | | | | — | | Right of use assets obtained in exchange for lease obligations | | | | 19,827 | | | | — | |
See Notes to Consolidated Financial Statements. 5
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 Form10-Q and Article 10 of RegulationS-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 Form10-K for the year ended December 31, 2017.2018. 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 20172018 Annual Report on Form10-K filed with the Securities and Exchange Commission. In the opinion of management, the accompanying interim financial information reflects all adjustments, including normal recurring adjustments, necessary to present fairly WesBanco’s financial position and results of operations for each of the interim periods presented. Certain prior period amounts have been reclassified to conform to the current period presentation. Such reclassifications had no impact on WesBanco’s net income and stockholders’ equity. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year. Recent accounting pronouncements —In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2018-15, “Intangibles— “Intangibles - Goodwill andOther— Other - Internal-Use Software (Subtopic350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” This ASU specifically aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtaininternal-use software and hosting arrangements that include aninternal-use software license. The ASU does not affect the accounting for the service element of a hosting arrangement that is a service contract. The guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. WesBanco is currently assessing the impact of ASU2018-15 on WesBanco’s Consolidated Financial Statements. In August 2018, the FASB issued ASU2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” This ASU modifies ASC715-20 to improve disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. WesBanco is currently assessing the impact of ASU2018-14 on WesBanco’s Consolidated Financial Statements. In August 2018, the FASB issued ASU2018-13, “Fair Value Measurement – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU modifies the disclosure objective paragraphs of ASC 820 to eliminate (1) “at a minimum” from the phrase “an entity shall disclose at a minimum” and (2) other similar “open ended” disclosure requirements to promote the appropriate exercise of discretion of entities. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. WesBanco is currently assessing the impact of ASU2018-13 on WesBanco’s Consolidated Financial Statements. In August 2017, the FASB issued ASU2017-12, “Targeted Improvements to Accounting for Hedging Activities.” The new guidance will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. WesBanco is currently assessing the impact of ASU2017-12 on WesBanco’s Consolidated Financial Statements.
In March 2017, the FASB issued ASU2017-07 that changes how an employer presents the net periodic benefit cost in the income statement for an employer-sponsored defined benefit pension and/or other postretirement benefit plans. Employers will present the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Only the service cost component will be eligible for capitalization in assets. Employers will present the other components of the net periodic benefit cost separately from the line items that includes the service cost outside of any subtotal of operating income, if one is presented. These components will not be eligible for capitalization in assets. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual period (i.e., only in the first interim period). For WesBanco, this update was effective for the fiscal year beginning January 1, 2018. Upon adoption, WesBanco reclassified the service cost component from employee benefits to salaries and wages, which are both components ofnon-interest expense. The service cost component for the three and nine months ended September 30, 2018 was $0.7 and $2.1 million, respectively.
In January 2017, the FASB issued ASU2017-01, 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. ASU2017-01 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, which for WesBanco was effective for the fiscal year beginning January 1, 2018. The adoption of this pronouncement did not have a material impact on WesBanco’s Consolidated Financial Statements.
In October 2016, the FASB issued ASU2016-16 that provides the recognition of income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Current guidance prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This prohibition on recognition is an exception to the principle of comprehensive recognition of current and deferred income taxes in generally accepted accounting principles. The exception has led to diversity in practice and is a source of complexity in financial reporting. FASB decided that an entity should recognize the income tax consequences of an intra-entity transfer of an asset
other than inventory when the transfer occurs. Consequently, the amendments in this update eliminate the exception for an intra-entity transfer of an asset other than inventory. The amendments in this update do not include new disclosure requirements; however, existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, which for WesBanco was effective for the fiscal year beginning January 1, 2018. The amendments in this update were to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of this pronouncement did not have a material impact on WesBanco’s Consolidated Financial Statements.
In August 2016, the FASB issued ASU2016-15 that provides guidance for the classification of cash flows related to (1) debt prepayment or extinguishment costs, (2) settlement ofzero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate on the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies, (6) distributions received from equity method investees, (7) beneficial interests in securitization transactions and (8) separately identifiable cash flows and application of the predominance principle. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, which for WesBanco was effective for the fiscal year beginning January 1, 2018. The adoption of this pronouncement did not have a material impact on WesBanco’s Consolidated Financial Statements.
In September 2016, the FASB issued ASU2016-13, that “Financial Instruments – Credit Losses (Topic 326)”, which 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. Foravailable-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 formed a cross-functional team to oversee the implementation of this ASU, and has completed an initial data gap assessment, is currently finalizingfinalized the loan segmentation procedures, and is currently evaluating the various forecasting and modeling assumptions, including qualitative factors, that will be used to estimate the initial current expected credit loss allowance. Substantial progress has been made on the identification and staging of data, development of models, refinement of economic forecasting processes, and documentation of accounting policy decisions. In conjunction with this implementation, WesBanco is reviewing business processes and evaluating potential changes to the control environment. Acquired loans or pools of loans that have experienced more-than-insignificant credit deterioration are deemed to be purchased credit deteriorated (“PCD”) loans, and are grossed-up on day 1 by the initial credit estimate through goodwill as opposed to the provision for credit losses. Acquired loans deemed not to be PCD loans will be adjusted to fair value through goodwill, with an allowance and corresponding provision for credit losses recorded in the first reporting period after acquisition through current period earnings, while the loan mark will accrete through interest income over the life of such loans. At acquisition, WesBanco will consider several factors as indicators that an acquired loan or pool of loans has experienced more-than-insignificant credit deterioration. These factors may include loans 30 days or more past due, loans with an internal risk grade of below average or lower, loans classified as non-accrual by the acquired institution, materiality of the credit and loans that have been previously modified in a troubled debt restructuring. Upon adoption of this standard, acquired loans from prior acquisitions that meet the guidelines under ASC 310-30 will be classified as PCD loans. The accretable portion of the loan mark as of adoption date will continue to accrete into interest income. However, the non-accretable portion of the loan mark will be added to the allowance upon adoption; while any reversals of such mark will flow through the allowance in future periods. The loan mark on ASC 310-20 loans (“the good book”) from acquisitions will continue to accrete through interest income over the life of such loans. WesBanco will perform parallel runs of the new methodology throughout the remainder of 2019 prior to adoption of the ASU. WesBanco currently anticipates that an increase to the allowance for credit losses may be recognized upon adoption to provide for expected credit losses over the estimated life of loan and investment receivables. The magnitude of the increase will depend on economic conditions and trends in the loan and securities portfolios at the time of adoption. 6
In February 2016, the FASB issued ASU2016-02, that will require “Leases (Topic 842)”, which requires 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.For WesBanco, this update was effective for the fiscal year beginning January 1, 2019. In January 2018, the FASB issued ASU2018-01, which allows entities the option to apply the provisions of the new lease guidance at the effective date without adjusting the comparative periods presented. In July 2018, the FASB issued ASU2018-10, which provides narrow-scope improvements to the lease standard. While we are currently assessingstandard and ASU 2018-11, which allows entities to choose an additional transition method, under which an entity initially applies the impact ofnew lease standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of this pronouncement, we expect the primary impact to our consolidated financial position upon adoption will be the recognition, on a discounted basis, of our minimum commitments undernon-cancellable operating leases on our Consolidated Balance Sheets resultingretained earnings in the recordingperiod of rightadoption. Under this transitional method, the entity shall recognize and measure the leases that exist at the adoption date and the prior comparative periods are not adjusted. WesBanco adopted this ASU as of useJanuary 1, 2019 using the transitional method. In addition, WesBanco utilized certain practical expedients including the following - retained the classifications of existing leases, no re-assessment to determine if existing leases have initial direct costs and utilized hindsight when determining the lease term and assessment of impairment in existing leases. WesBanco capitalized $20 million for right-of-use assets and lease obligations, which are expected to total approximately $15 million to $20 million. The estimate could change based on new leases entered into or amended before January 1, 2019.liabilities, net of existing straight-line lease liabilities and unfavorable acquired lease liabilities. See additional disclosures in Note 6, “Leases”. In January 2016,August 2017, the FASB issued ASU2016-01 that will require entities 2017-12, “Targeted Improvements to measure equity investments that do not result in consolidationAccounting for Hedging Activities.” The new guidance makes more financial and are not accountednonfinancial hedging strategies eligible for underhedge accounting. It also amended the equity method at fair valuepresentation and recognize any changes in fair value in net income unlessdisclosure requirements and changed how companies assess effectiveness. It was intended to more closely align hedge accounting with companies’ risk management strategies, simplify the investments qualifyapplication of hedge accounting, and increase transparency as to the scope and results of hedging programs. The guidance was effective for the new practicability exception. The standard does not change the guidance for classifyingfiscal years, 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 forinterim periods within those fiscal years, beginning after December 15, 2017, including interim periods within those2018. For WesBanco, this update was effective for the fiscal years. year beginning January 1, 2019. Upon adoption, WesBanco reclassified $67.3 million of callable held-to-maturity municipal debt securities to available-for-sale debt securities. In FebruaryOctober 2018, the FASB issued ASU2018-03, which clarifies certain aspects 2018-16, “Derivatives and Hedging (Topic 815): Inclusion of the guidance issued inSecured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.” This ASU2016-01. WesBanco adopted these pronouncements as modifies ASC 815 for eligible benchmark interest rates. Due to concerns about the sustainability of January 1, 2018 and recognized a $1.1 million adjustmentthe London Interbank Offered Rate (LIBOR), the Federal Reserve initiated an effort to retained earnings upon adoption of this pronouncement. In addition, WesBanco reclassified investment securities on the Consolidated Financial Statements into the following – equity securities,available-for-sale debt securities andheld-to-maturity debt securities. In May 2014, the FASB issued ASU2014-09 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 atintroduce 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 obligationsalternative reference rate 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 obligationUnited States. The Overnight Index Swap (OIS) rate, which is satisfied. On July 9, 2015, the FASB approvedbased on SOFR is permitted as aone-year deferral of the effective date of the update. U.S. benchmark interest rate for hedge accounting purposes. The updateguidance is effective for fiscal years, and interim and annual reporting periods inwithin those fiscal years, beginning after December 15, 2017. In March 2016,2018. For WesBanco, this update was effective for the FASB issued ASU2016-08, which amends the principle versus agent guidance in the revenue standard. In April 2016, the FASB issued ASU2016-10, which clarifies when promised goods or services are separately identifiable in the revenue standard. In May 2016, FASB issued ASU2016-12, which provides narrow-scope improvements and practical expedients to the revenue standard. WesBanco adopted these pronouncements as offiscal year beginning January 1, 2018 using the modified retrospective approach. WesBanco noted no material change to the timing2019. The adoption of revenue recognition and there was nothis pronouncement did not have a material impact on WesBanco’s Consolidated Financial Statements. See Note 9, “Revenue Recognition” for further discussion on revenue within the scope of ASC 606.
NOTE 2. MERGERS AND ACQUISITIONS First Sentry Bancshares, Inc. (“FTSB”)
On April 5, 2018, WesBanco completed its acquisition of FTSB, a bank holding company headquartered in Huntington, WV. On the acquisition date, FTSB had approximately $705.6 million in assets, excluding goodwill, which included approximately $448.1 million in loans and $142.9 million in securities. The FTSB acquisition was valued at $108.3 million, based on WesBanco’s closing stock price on April 5, 2018, of $42.96, and resulted in WesBanco issuing 2,498,761 shares of its common stock and $1.0 million in cash in exchange for all of the outstanding shares of FTSB common stock including stock options. The assets and liabilities of FTSB were recorded on WesBanco’s Balance Sheet at their preliminary estimated fair values as of April 5, 2018, the acquisition date, and FTSB’s results of operations have been included in WesBanco’s Consolidated Statements of Income since that date. The fair values for certain assets and liabilities acquired from FTSB on April 5, 2018 represent preliminary estimates. Based on a preliminary purchase price allocation, WesBanco recorded $66.8 million in goodwill and $8.1 million in core deposit intangibles in its Community Banking segment. None of the goodwill is deductible for income tax purposes, as the acquisition is accounted for as atax-free exchange for tax purposes. As a result of the full integration of the operations of FTSB, it is not practicable to determine revenue or net income included in WesBanco’s operating results relating to FTSB since the date of acquisition, as FTSB’s results cannot be separately identified.
For the nine months ended September 30, 2018, WesBanco recorded merger-related expenses of $5.5 million associated with the FTSB acquisition.
The preliminary purchase price of the FTSB acquisition and resulting goodwill is summarized as follows:
| | | | | (unaudited, in thousands) | | April 5, 2018 | | Purchase Price: | | | | | Fair value of WesBanco shares issued | | $ | 107,347 | | Cash consideration for outstanding FTSB shares | | | 975 | | | | | | | Total purchase price | | $ | 108,322 | | Fair value of: | | | | | Tangible assets acquired | | $ | 610,443 | | Core deposit and other intangible assets acquired | | | 8,078 | | Liabilities assumed | | | (664,172 | ) | Net cash received in the acquisition | | | 87,124 | | | | | | | Fair value of net assets acquired | | | 41,473 | | | | | | | Goodwill recognized | | $ | 66,849 | | | | | | |
The following table presents the preliminary allocation of the purchase price of the assets acquired and the liabilities assumed at the date of acquisition, as WesBanco intends to finalize its accounting for the acquisition of FTSB within one year from the date of acquisition:
| | | | | (unaudited, in thousands) | | April 5, 2018 | | Assets acquired | | | | | Cash and due from banks | | $ | 87,124 | | Securities | | | 142,903 | | Loans | | | 448,075 | | Goodwill and other intangible assets | | | 74,927 | | Accrued income and other assets | | | 19,465 | | | | | | | Total assets acquired | | $ | 772,494 | | | | | | | Liabilities assumed | | | | | Deposits | | $ | 590,065 | | Borrowings | | | 70,710 | | Accrued expenses and other liabilities | | | 3,397 | | | | | | | Total liabilities assumed | | $ | 664,172 | | | | | | | Net assets acquired | | $ | 108,322 | | | | | | |
The following table presents the changes in the allocation of the purchase price of the assets acquired and the liabilities assumed at the date of the acquisition previously reported as of June 30, 2018:
| | | | | (unaudited, in thousands) | | April 5, 2018 | | Goodwill recognized as of June 30, 2018 | | $ | 66,219 | | Change in fair value of net assets acquired: | | | | | Assets | | | | | Loans | | | (264 | ) | Other intangible assets | | | (159 | ) | Accrued income and other assets | | | (6 | ) | Liabilities | | | | | Deposits | | | (47 | ) | Accrued expenses and other liabilities | | | (154 | ) | | | | | | Fair value of net assets acquired | | $ | (630 | ) | | | | | | Increase in goodwill recognized | | | 630 | | | | | | | Goodwill recognized as of September 30, 2018 | | $ | 66,849 | | | | | | |
The fair value estimates for loans, deferred taxes and other liabilities have continued to fluctuate as the final valuations and/or appraisals are completed. The Company expects to finalize the purchase price accounts of FTSB within one year of the date of acquisition.
Farmers Capital Bank Corporation (“FFKT”)
On August 20, 2018, WesBanco completed its acquisition of FFKT,Farmers Capital Bank Corp. (“FFKT”), a bank holding company headquartered in Frankfort, KY. On the acquisition date, FFKT had approximately $1.6 billion in assets, excluding goodwill, which included approximately $1.0 billion in loans and $239.3 million in securities. The FFKT acquisition was valued at $428.9 million, based on WesBanco’s closing stock price on August 20, 2018, of $49.40, and resulted in WesBanco issuing 7,920,387 shares of its common stock and $37.6 million in cash in exchange for all of the outstanding shares of FFKT common stock. The assets and liabilities of FFKT were recorded on WesBanco’s Balance Sheet at their preliminary estimated fair values as of August 20, 2018, the acquisition date, and FFKT’s results of operations have been included in WesBanco’s Consolidated Statements of Income since that date. Due to the timing of the acquisition relative to the end of the reporting period, theThe fair values for certain assets and liabilities acquired from FFKT on August 20, 2018 representrepresented preliminary estimates.Based on a preliminary purchase price allocation, WesBanco recorded $225.1$220.9 million in goodwill and $39.7$37.4 million in core deposit intangibles in its community banking segment and $2.9$2.6 million in trust customer relationship intangibles in its trust and investment services segment. None of the goodwill is deductible for income tax purposes, as the acquisition is accounted for as atax-free exchange for tax purposes. As a result of the full integration of the operations of FFKT, it is not practicable to determine revenue or net income included in WesBanco’s operating results relating to FFKT since the date of acquisition, as FFKT’s results cannot be separately identified. For the ninesix months ended SeptemberJune 30, 2018,2019, WesBanco recorded merger-related expenses of $11.0$3.2 million associated with the FFKT acquisition. The preliminary purchase price of the FFKT acquisition and resulting goodwill is summarized as follows: | (unaudited, in thousands) | | August 20, 2018 | | | August 20, 2018 | | Purchase Price: | | | | Purchase price: | | | | | | Fair value of WesBanco shares issued | | $ | 391,267 | | | $ | 391,267 | | Cash consideration for outstanding FFKT shares | | | 37,634 | | | | 37,634 | | | | | | | Total purchase price | | $ | 428,901 | | | $ | 428,901 | | Fair value of: | | | | | | | Tangible assets acquired | | $ | 1,360,951 | | | $ | 1,369,536 | | Core deposit and other intangible assets acquired | | | 42,593 | | | | 39,992 | | Liabilities assumed | | | (1,429,874 | ) | | | (1,431,663 | ) | Net cash received in the acquisition | | | 230,139 | | | | 230,139 | | | | | | | Fair value of net assets acquired | | | 203,809 | | | | 208,004 | | | | | | | Goodwill recognized | | $ | 225,092 | | | $ | 220,897 | | | | | | |
7
The following table presents the preliminary allocation of the purchase price of the assets acquired and the liabilities assumed at the date of acquisition, as WesBanco intends to finalize its accounting for the acquisition of FFKT within one year from the date of acquisition: | (unaudited, in thousands) | | August 20, 2018 | | | August 20, 2018 | | Assets acquired | | | | | | | Cash and due from banks | | $ | 230,139 | | | $ | 230,139 | | Securities | | | 239,321 | | | | 239,321 | | Loans | | | 1,028,120 | | | | 1,025,800 | | Goodwill and other intangible assets | | | 267,685 | | | | 260,889 | | Accrued income and other assets | | | 93,510 | | | | 104,415 | | | | | | | Total assets acquired | | $ | 1,858,775 | | | $ | 1,860,564 | | | | | | | Liabilities assumed | | | | | | | Deposits | | $ | 1,330,328 | | | $ | 1,330,328 | | Borrowings | | | 71,780 | | | | 71,780 | | Accrued expenses and other liabilities | | | 27,766 | | | | 29,555 | | | | | | | Total liabilities assumed | | $ | 1,429,874 | | | $ | 1,431,663 | | | | | | | Net assets acquired | | $ | 428,901 | | | $ | 428,901 | | | | | | |
The following table presents the changes in the allocation of the purchase price of the assets acquired and the liabilities assumed at the date of the acquisition previously reported as of March 31, 2019: (unaudited, in thousands) | | August 20, 2018 | | Goodwill recognized as of March 31, 2019 | | $ | 219,418 | | Change in fair value of net assets acquired: | | | | | Assets | | | | | Other real estate owned | | | (80 | ) | Accrued income and other assets | | | 430 | | Liabilities | | | | | Accrued expenses and other liabilities | | | (1,829 | ) | Fair value of net assets acquired | | $ | (1,479 | ) | Increase in goodwill recognized | | | 1,479 | | Goodwill recognized as of June 30, 2019 | | $ | 220,897 | |
The fair value estimates for other assets and other liabilities have continued to fluctuate as the final valuations are completed. The Company expects to finalize purchase price accounting of FFKT within one year of date of acquisition. NOTE 3. EARNINGS PER COMMON SHARE Earnings per common share are calculated as follows: | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | | For the Three Months Ended June 30, | | | For the Six Months Ended June 30, | | (unaudited, in thousands, except shares and per share amounts) | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Numerator for both basic and diluted earnings per common share: | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | $ | 32,486 | | | $ | 26,356 | | | $ | 99,184 | | | $ | 78,584 | | | $ | 44,814 | | | $ | 33,169 | | | $ | 85,151 | | | $ | 66,698 | | | | | | | | | | | | | | | | Denominator: | | | | | | | | | | | | | | | | | | | | | | | | | Total average basic common shares outstanding | | | 50,277,847 | | | | 44,031,813 | | | | 46,965,095 | | | | 43,992,017 | | | | 54,628,029 | | | | 46,498,305 | | | | 54,613,346 | | | | 45,281,264 | | Effect of dilutive stock options and other stock compensation | | | 154,265 | | | | 55,068 | | | | 142,734 | | | | 67,452 | | | | 105,492 | | | | 141,475 | | | | 110,863 | | | | 135,746 | | | | | | | | | | | | | | | | Total diluted average common shares outstanding | | | 50,432,112 | | | | 44,086,881 | | | | 47,107,829 | | | | 44,059,469 | | | | 54,733,521 | | | | 46,639,780 | | | | 54,724,209 | | | | 45,417,010 | | | | | | | | | | | | | | | | Earnings per common share—basic | | $ | 0.65 | | | $ | 0.60 | | | $ | 2.11 | | | $ | 1.79 | | | Earnings per common share—diluted | | $ | 0.64 | | | $ | 0.60 | | | $ | 2.11 | | | $ | 1.78 | | | | | | | | | | | | | | | | | Earnings per common share - basic | | | $ | 0.82 | | | $ | 0.71 | | | $ | 1.56 | | | $ | 1.47 | | Earnings per common share - diluted | | | $ | 0.82 | | | $ | 0.71 | | | $ | 1.56 | | | $ | 1.47 | |
All options
Options to purchase 353,829 and 117,600 shares were included in the computation of net income per diluted share for the three months ended Septemberat June 30, 2019 and 2018, while 117,550 sharesrespectively, were not included in the computation of net income per diluted share for the three months ended SeptemberJune 30, 20172019 and 2018, respectively, because the exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. Options to purchase 117,600 shares at Septemberboth June 30, 2019 and 2018 were not included in the computation of net income per diluted shareshares for the ninesix months ended SeptemberJune 30, 2019 and 2018, because the exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. All stock options were included in the computation of net income per diluted share for the nine months ended September 30, 2017. 8
As of SeptemberJune 30, 2018,2019, 40,608 contingently issuable shares totaling 45,840, were estimated to be awarded under the 2018 and 2017 total shareholder return plans as stock performance targets have beenwere met to date and are therefore included in the diluted calculation. As of SeptemberJune 30, 2018,2019, the shares related to the 20162019 total shareholder return plan were not included in the calculation because the effect would be antidilutive. Performance-basedPerformance based restricted stock compensation totaling 30,137 shares were estimated to be awarded as of June 30, 2019 and are included in the diluted calculation. As of June 30, 2018, 42,912 contingently issuable shares were estimated to be awarded under the 2018 and 2017 total shareholder return plans as stock performance targets were met and are included in the diluted calculation. Performance based restricted stock compensation totaling 17,081 shares were estimated to be awarded as of SeptemberJune 30, 2018 and are included in the diluted calculation for both the three months and nine months ended September 30, 2018. As of September 30, 2017, the shares related to the 2017 and 2016 total shareholder return plan were not included in the calculation because the effect would be antidilutive. Performance-based restricted stock compensation totaling 4,502 shares were estimated to be awarded as of September 30, 2017, and are included in the diluted calculation for both the three months and nine months ended September 30, 2017.calculation. On April 5, 2018, WesBanco issued 2,498,761 shares of common stock to complete its acquisition of FTSB and granted 9,465 shares of restricted stock to certain FTSB employees. These shares are included in average shares outstanding beginning on that date. For additional information relating to the FTSB acquisition, refer to Note 2, “Mergers and Acquisitions.”
On August 20, 2018, WesBanco issued 7,920,387 shares of common stock, 6,690 of which were treasury stock, to complete its acquisition of FFKT and granted 18,685 shares of restricted stock to certain FFKT employees. These shares are included in average shares outstanding beginning on that date. For additional information relating to the FFKT acquisition, refer to Note 2, “Mergers and Acquisitions.”
NOTE 4. SECURITIES The following table presents the fair value and amortized cost ofavailable-for-sale andheld-to-maturity debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2018 | | | December 31, 2017 | | (unaudited, in thousands) | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Estimated Fair Value | | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Estimated Fair Value | | Available-for-sale debt securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Treasury | | $ | 9,952 | | | $ | — | | | $ | (15 | ) | | $ | 9,937 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | U.S. Government sponsored entities and agencies | | | 154,054 | | | | 17 | | | | (4,122 | ) | | | 149,949 | | | | 72,425 | | | | 24 | | | | (606 | ) | | | 71,843 | | Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 1,500,563 | | | | 44 | | | | (50,853 | ) | | | 1,449,754 | | | | 954,115 | | | | 214 | | | | (19,407 | ) | | | 934,922 | | Commerical mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 174,331 | | | | 15 | | | | (5,585 | ) | | | 168,761 | | | | 116,448 | | | | 4 | | | | (1,585 | ) | | | 114,867 | | Obligations of states and political subdivisions | | | 187,501 | | | | 1,445 | | | | (2,295 | ) | | | 186,651 | | | | 102,363 | | | | 2,927 | | | | (460 | ) | | | 104,830 | | Corporate debt securities | | | 43,259 | | | | 160 | | | | (239 | ) | | | 43,180 | | | | 35,234 | | | | 228 | | | | (59 | ) | | | 35,403 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Totalavailable-for-sale debt securities | | $ | 2,069,660 | | | $ | 1,681 | | | $ | (63,109 | ) | | $ | 2,008,232 | | | $ | 1,280,585 | | | $ | 3,397 | | | $ | (22,117 | ) | | $ | 1,261,865 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Held-to-maturity debt securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Government sponsored entities and agencies | | $ | 11,699 | | | $ | — | | | $ | (615 | ) | | $ | 11,084 | | | $ | 11,465 | | | $ | — | | | $ | (325 | ) | | $ | 11,140 | | Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 154,018 | | | | 103 | | | | (6,788 | ) | | | 147,333 | | | | 170,025 | | | | 544 | | | | (2,609 | ) | | | 167,960 | | Obligations of states and political subdivisions | | | 826,514 | | | | 6,434 | | | | (9,743 | ) | | | 823,205 | | | | 794,655 | | | | 17,364 | | | | (1,609 | ) | | | 810,410 | | Corporate debt securities | | | 33,307 | | | | 5 | | | | (573 | ) | | | 32,739 | | | | 33,355 | | | | 919 | | | | — | | | | 34,274 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Totalheld-to-maturity debt securities | | $ | 1,025,538 | | | $ | 6,542 | | | $ | (17,719 | ) | | $ | 1,014,361 | | | $ | 1,009,500 | | | $ | 18,827 | | | $ | (4,543 | ) | | $ | 1,023,784 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total debt securities | | $ | 3,095,198 | | | $ | 8,223 | | | $ | (80,828 | ) | | $ | 3,022,593 | | | $ | 2,290,085 | | | $ | 22,224 | | | $ | (26,660 | ) | | $ | 2,285,649 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | | December 31, 2018 | | (unaudited, in thousands) | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Estimated Fair Value | | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Estimated Fair Value | | Available-for-sale debt securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Treasury | | $ | 29,705 | | | $ | 76 | | | $ | — | | | $ | 29,781 | | | $ | 19,882 | | | $ | 3 | | | $ | (7 | ) | | $ | 19,878 | | U.S. Government sponsored entities and agencies | | | 130,578 | | | | 4,147 | | | | (138 | ) | | | 134,587 | | | | 142,852 | | | | 556 | | | | (1,756 | ) | | | 141,652 | | Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 1,550,885 | | | | 17,598 | | | | (5,441 | ) | | | 1,563,042 | | | | 1,585,864 | | | | 2,912 | | | | (27,521 | ) | | | 1,561,255 | | Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 175,355 | | | | 3,417 | | | | (116 | ) | | | 178,656 | | | | 171,671 | | | | 264 | | | | (2,963 | ) | | | 168,972 | | Obligations of states and political subdivisions | | | 177,888 | | | | 5,305 | | | | (15 | ) | | | 183,178 | | | | 184,057 | | | | 2,039 | | | | (982 | ) | | | 185,114 | | Corporate debt securities | | | 39,695 | | | | 499 | | | | (154 | ) | | | 40,040 | | | | 37,730 | | | | 87 | | | | (559 | ) | | | 37,258 | | Total available-for-sale debt securities | | $ | 2,104,106 | | | $ | 31,042 | | | $ | (5,864 | ) | | $ | 2,129,284 | | | $ | 2,142,056 | | | $ | 5,861 | | | $ | (33,788 | ) | | $ | 2,114,129 | | Held-to-maturity debt securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Government sponsored entities and agencies | | $ | 10,020 | | | $ | 36 | | | $ | (104 | ) | | $ | 9,952 | | | $ | 10,823 | | | $ | 6 | | | $ | (329 | ) | | $ | 10,500 | | Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 136,929 | | | | 834 | | | | (642 | ) | | | 137,121 | | | | 148,300 | | | | 204 | | | | (4,170 | ) | | | 144,334 | | Obligations of states and political subdivisions | | | 720,399 | | | | 19,566 | | | | (216 | ) | | | 739,749 | | | | 828,520 | | | | 8,771 | | | | (4,012 | ) | | | 833,279 | | Corporate debt securities | | | 33,257 | | | | 1,455 | | | | — | | | | 34,712 | | | | 33,291 | | | | 12 | | | | (673 | ) | | | 32,630 | | Total held-to-maturity debt securities | | $ | 900,605 | | | $ | 21,891 | | | $ | (962 | ) | | $ | 921,534 | | | $ | 1,020,934 | | | $ | 8,993 | | | $ | (9,184 | ) | | $ | 1,020,743 | | Total debt securities | | $ | 3,004,711 | | | $ | 52,933 | | | $ | (6,826 | ) | | $ | 3,050,818 | | | $ | 3,162,990 | | | $ | 14,854 | | | $ | (42,972 | ) | | $ | 3,134,872 | |
At SeptemberJune 30, 2018,2019 and December 31, 2017,2018, there were no holdings of any one issuer, other than U.S. government sponsored entities and its agencies, in an amount greater than 10% of WesBanco’s shareholders’ equity. Equity securities, of which $8.5$8.7 million consist of investments in various mutual funds held in grantor trusts formed in connection with the Company’s deferred compensation plan, are recorded at fair value and totaled $12.8$11.8 million and $13.5$11.7 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. 9
The following table presents the fair value ofavailable-for-sale andheld-to-maturity debt securities by contractual maturity at SeptemberJune 30, 2018.2019. In some instances, the issuers may have the right to call or prepay obligations without penalty prior to the contractual maturity date. | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2018 | | (unaudited, in thousands) | | One Year or less | | | One to Five Years | | | Five to Ten Years | | | After Ten Years | | | Mortgage-backed securities | | | Total | | Available-for-sale debt securities | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Treasury | | $ | 9,937 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 9,937 | | U.S. Government sponsored entities and agencies | | | 10,479 | | | | 6,260 | | | | 17,881 | | | | 15,298 | | | | 100,031 | | | | 149,949 | | Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies (1) | | | — | | | | — | | | | — | | | | — | | | | 1,449,754 | | | | 1,449,754 | | Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies (1) | | | — | | | | — | | | | — | | | | — | | | | 168,761 | | | | 168,761 | | Obligations of states and political subdivisions | | | 9,288 | | | | 48,959 | | | | 76,972 | | | | 51,432 | | | | — | | | | 186,651 | | Corporate debt securities | | | 8,014 | | | | 33,251 | | | | 1,915 | | | | — | | | | — | | | | 43,180 | | | | | | | | | | | | | | | | | | | | | | | | | | | Totalavailable-for-sale debt securities | | $ | 37,718 | | | $ | 88,470 | | | $ | 96,768 | | | $ | 66,730 | | | $ | 1,718,546 | | | $ | 2,008,232 | | | | | | | | | | | | | | | | | | | | | | | | | | | Held-to-maturity debt securities (2) | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Government sponsored entities and agencies | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 11,084 | | | $ | 11,084 | | Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies (1) | | | — | | | | — | | | | — | | | | — | | | | 147,333 | | | | 147,333 | | Obligations of states and political subdivisions | | | 6,149 | | | | 138,709 | | | | 387,775 | | | | 290,572 | | | | — | | | | 823,205 | | Corporate debt securities | | | — | | | | 7,449 | | | | 25,290 | | | | — | | | | — | | | | 32,739 | | | | | | | | | | | | | | | | | | | | | | | | | | | Totalheld-to-maturity debt securities | | $ | 6,149 | | | $ | 146,158 | | | $ | 413,065 | | | $ | 290,572 | | | $ | 158,417 | | | $ | 1,014,361 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total debt securities | | $ | 43,867 | | | $ | 234,628 | | | $ | 509,833 | | | $ | 357,302 | | | $ | 1,876,963 | | | $ | 3,022,593 | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | | | June 30, 2019 | | (unaudited, in thousands) | | One Year or less | | | One to Five Years | | | Five to Ten Years | | | After Ten Years | | | Mortgage- backed securities | | | Total | | Available-for-sale debt securities | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Treasury | | $ | 29,781 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 29,781 | | U.S. Government sponsored entities and agencies | | | 498 | | | | 6,048 | | | | 18,472 | | | | 9,363 | | | | 100,206 | | | | 134,587 | | Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies (1) | | | — | | | | — | | | | — | | | | — | | | | 1,563,042 | | | | 1,563,042 | | Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies (1) | | | — | | | | — | | | | — | | | | — | | | | 178,656 | | | | 178,656 | | Obligations of states and political subdivisions | | | 8,108 | | | | 53,422 | | | | 76,671 | | | | 44,977 | | | | — | | | | 183,178 | | Corporate debt securities | | | 627 | | | | 32,216 | | | | 7,197 | | | | — | | | | — | | | | 40,040 | | Total available-for-sale debt securities | | $ | 39,014 | | | $ | 91,686 | | | $ | 102,340 | | | $ | 54,340 | | | $ | 1,841,904 | | | $ | 2,129,284 | | Held-to-maturity debt securities (2) | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Government sponsored entities and agencies | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 9,952 | | | $ | 9,952 | | Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies (1) | | | — | | | | — | | | | — | | | | — | | | | 137,121 | | | | 137,121 | | Obligations of states and political subdivisions | | | 15,652 | | | | 115,724 | | | | 334,357 | | | | 274,016 | | | | — | | | | 739,749 | | Corporate debt securities | | | — | | | | 10,913 | | | | 23,799 | | | | — | | | | — | | | | 34,712 | | Total held-to-maturity debt securities | | $ | 15,652 | | | $ | 126,637 | | | $ | 358,156 | | | $ | 274,016 | | | $ | 147,073 | | | $ | 921,534 | | Total debt securities | | $ | 54,666 | | | $ | 218,323 | | | $ | 460,496 | | | $ | 328,356 | | | $ | 1,988,977 | | | $ | 3,050,818 | |
(1)Mortgage-backed and collateralized mortgage securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds. (2) The held-to-maturity debt securities portfolio is carried at an amortized cost of $900.6 million. |
(2) | Theheld-to-maturity debt securities portfolio is carried at an amortized cost of $1.0 billion.
|
Securities with aggregate fair values of $1.9 billion and $1.4$2.0 billion at SeptemberJune 30, 20182019 and December 31, 2017, respectively,2018 were pledged as security for public and trust funds, and securities sold under agreements to repurchase. Proceeds from the sale ofavailable-for-sale securities were $82.1$66.1 million and $7.8$81.5 million for the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. Net unrealized lossesgains (losses) onavailable-for-sale securities included in accumulated other comprehensive income net of tax, as of SeptemberJune 30, 20182019 and December 31, 20172018 were $47.3$19.4 million and $13.3($21.5) million, respectively. The following table presents the gross realized gains and losses on sales and calls ofavailable-for-sale andheld-to-maturity debt securities, as well as gains and losses on equity securities from both sales and market adjustments from the adoption of ASU 2016-01 effective January 1, 2018 for the three and ninesix months ended SeptemberJune 30, 2019 and 2018, and 2017, respectively. | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | | For the Three Months Ended June 30, | | | For the Six Months Ended June 30, | | (unaudited, in thousands) | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | Gross realized gains | | $ | 88 | | | $ | 29 | | | $ | 100 | | | $ | 603 | | | $ | 106 | | | $ | 5 | | | $ | 348 | | | $ | 12 | | Gross realized losses | | | (13 | ) | | | (23 | ) | | | (31 | ) | | | (92 | ) | | | (18 | ) | | | — | | | | (209 | ) | | | (18 | ) | | | | | | | | | | | | | | | Net gains on debt securities | | $ | 75 | | | $ | 6 | | | $ | 69 | | | $ | 511 | | | | | | | | | | | | | | | | | Net gains (losses) on debt securities | | | $ | 88 | | | $ | 5 | | | $ | 139 | | | $ | (6 | ) | Equity securities: | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized gains recognized on securities still held | | $ | 11 | | | $ | — | | | $ | 330 | | | $ | — | | | Net realized (losses) gains recognized on securities sold | | | (2 | ) | | | — | | | | 4 | | | | — | | | | | | | | | | | | | | | | | Net unrealized gains recognized on securities still held | | | $ | 265 | | | $ | 347 | | | $ | 868 | | | $ | 319 | | Net realized gains recognized on securities sold | | | | 2,556 | | | | 6 | | | | 2,559 | | | | 6 | | Net gains on equity securities | | $ | 9 | | | $ | — | | | $ | 334 | | | $ | — | | | $ | 2,821 | | | $ | 353 | | | $ | 3,427 | | | $ | 325 | | | | | | | | | | | | | | | | Net securities gains | | $ | 84 | | | $ | 6 | | | $ | 403 | | | $ | 511 | | | $ | 2,909 | | | $ | 358 | | | $ | 3,566 | | | $ | 319 | | | | | | | | | | | | | | | |
10
The following tables provide information on unrealized losses on debt securities that have been in an unrealized loss position for less than twelve months and twelve months or more as of SeptemberJune 30, 20182019 and December 31, 2017:2018, respectively: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2018 | | | | Less than 12 months | | | 12 months or more | | | Total | | (unaudited, dollars in thousands) | | Fair Value | | | Unrealized Losses | | | # of Securities | | | Fair Value | | | Unrealized Losses | | | # of Securities | | | Fair Value | | | Unrealized Losses | | | # of Securities | | U.S. Treasury | | $ | 9,937 | | | $ | (15 | ) | | | 1 | | | $ | — | | | $ | — | | | | — | | | $ | 9,937 | | | $ | (15 | ) | | | 1 | | U.S. Government sponsored entities and agencies | | | 93,881 | | | | (2,264 | ) | | | 38 | | | | 60,410 | | | | (2,473 | ) | | | 11 | | | | 154,291 | | | | (4,737 | ) | | | 49 | | Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 759,415 | | | | (13,670 | ) | | | 188 | | | | 822,774 | | | | (43,971 | ) | | | 260 | | | | 1,582,189 | | | | (57,641 | ) | | | 448 | | Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 79,056 | | | | (1,239 | ) | | | 15 | | | | 86,703 | | | | (4,346 | ) | | | 11 | | | | 165,759 | | | | (5,585 | ) | | | 26 | | Obligations of states and political subdivisions | | | 493,252 | | | | (7,866 | ) | | | 855 | | | | 120,843 | | | | (4,172 | ) | | | 236 | | | | 614,095 | | | | (12,038 | ) | | | 1091 | | Corporate debt securities | | | 42,816 | | | | (738 | ) | | | 17 | | | | 1,915 | | | | (74 | ) | | | 1 | | | | 44,731 | | | | (812 | ) | | | 18 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total temporarily impaired securities | | $ | 1,478,357 | | | $ | (25,792 | ) | | | 1,114 | | | $ | 1,092,645 | | | $ | (55,036 | ) | | | 519 | | | $ | 2,571,002 | | | $ | (80,828 | ) | | | 1,633 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2017 | | | | Less than 12 months | | | 12 months or more | | | Total | | (unaudited, dollars in thousands) | | Fair Value | | | Unrealized Losses | | | # of Securities | | | Fair Value | | | Unrealized Losses | | | # of Securities | | | Fair Value | | | Unrealized Losses | | | # of Securities | | U.S. Government sponsored entities and agencies | | $ | 24,776 | | | $ | (160 | ) | | | 4 | | | $ | 42,248 | | | $ | (771 | ) | | | 8 | | | $ | 67,024 | | | $ | (931 | ) | | | 12 | | Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 423,794 | | | | (5,039 | ) | | | 87 | | | | 637,461 | | | | (16,977 | ) | | | 193 | | | | 1,061,255 | | | | (22,016 | ) | | | 280 | | Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 79,061 | | | | (1,089 | ) | | | 10 | | | | 27,852 | | | | (496 | ) | | | 6 | | | | 106,913 | | | | (1,585 | ) | | | 16 | | Obligations of states and political subdivisions | | | 132,831 | | | | (852 | ) | | | 210 | | | | 77,554 | | | | (1,217 | ) | | | 160 | | | | 210,385 | | | | (2,069 | ) | | | 370 | | Corporate debt securities | | | 4,015 | | | | (19 | ) | | | 1 | | | | 1,948 | | | | (40 | ) | | | 1 | | | | 5,963 | | | | (59 | ) | | | 2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total temporarily impaired securities | | $ | 664,477 | | | $ | (7,159 | ) | | | 312 | | | $ | 787,063 | | | $ | (19,501 | ) | | | 368 | | | $ | 1,451,540 | | | $ | (26,660 | ) | | | 680 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | | | 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 | | $ | — | | | $ | — | | | | — | | | $ | 28,542 | | | $ | (242 | ) | | | 7 | | | $ | 28,542 | | | $ | (242 | ) | | | 7 | | Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 30,301 | | | | (95 | ) | | | 4 | | | | 564,036 | | | | (5,988 | ) | | | 211 | | | | 594,337 | | | | (6,083 | ) | | | 215 | | Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 3,783 | | | | (26 | ) | | | 4 | | | | 26,655 | | | | (90 | ) | | | 12 | | | | 30,438 | | | | (116 | ) | | | 16 | | Obligations of states and political subdivisions | | | 609 | | | | (1 | ) | | | 2 | | | | 38,999 | | | | (230 | ) | | | 76 | | | | 39,608 | | | | (231 | ) | | | 78 | | Corporate debt securities | | | 7,920 | | | | (111 | ) | | | 3 | | | | 1,947 | | | | (43 | ) | | | 1 | | | | 9,867 | | | | (154 | ) | | | 4 | | Total temporarily impaired securities | | $ | 42,613 | | | $ | (233 | ) | | | 13 | | | $ | 660,179 | | | $ | (6,593 | ) | | | 307 | | | $ | 702,792 | | | $ | (6,826 | ) | | | 320 | |
| | December 31, 2018 | | | | Less than 12 months | | | 12 months or more | | | Total | | (unaudited, dollars in thousands) | | Fair Value | | | Unrealized Losses | | | # of Securities | | | Fair Value | | | Unrealized Losses | | | # of Securities | | | Fair Value | | | Unrealized Losses | | | # of Securities | | U.S. Treasury | | $ | 9,972 | | | $ | (7 | ) | | | 1 | | | $ | — | | | $ | — | | | | — | | | $ | 9,972 | | | $ | (7 | ) | | | 1 | | U.S. Government sponsored entities and agencies | | | 18,926 | | | | (148 | ) | | | 8 | | | | 76,385 | | | | (1,937 | ) | | | 14 | | | | 95,311 | | | | (2,085 | ) | | | 22 | | Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 285,534 | | | | (1,862 | ) | | | 44 | | | | 922,698 | | | | (29,829 | ) | | | 291 | | | | 1,208,232 | | | | (31,691 | ) | | | 335 | | Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 9,186 | | | | (18 | ) | | | 6 | | | | 111,068 | | | | (2,945 | ) | | | 14 | | | | 120,254 | | | | (2,963 | ) | | | 20 | | Obligations of states and political subdivisions | | | 104,469 | | | | (439 | ) | | | 207 | | | | 303,681 | | | | (4,555 | ) | | | 513 | | | | 408,150 | | | | (4,994 | ) | | | 720 | | Corporate debt securities | | | 38,791 | | | | (898 | ) | | | 18 | | | | 11,452 | | | | (334 | ) | | | 5 | | | | 50,243 | | | | (1,232 | ) | | | 23 | | Total temporarily impaired securities | | $ | 466,878 | | | $ | (3,372 | ) | | | 284 | | | $ | 1,425,284 | | | $ | (39,600 | ) | | | 837 | | | $ | 1,892,162 | | | $ | (42,972 | ) | | | 1,121 | |
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 theavailable-for-sale portfolio are accounted for as an adjustment, net of taxes, to other comprehensive income in shareholders’ equity. WesBanco does not believe the securities presented above are impaired due to reasons of credit quality, as substantially all debt securities are rated above investment grade and all are paying principal and interest according to their contractual terms. WesBanco does not intend to sell, nor is it more likely than not that it will be required to sell, loss position securities prior to recovery of their cost, and therefore, management believes the unrealized losses detailed above are temporary and no impairment loss relating to these securities has been recognized. Securities that do not have readily determinable fair values and for which WesBanco does not exercise significant influence are carried at cost. Cost method investments consist primarily of FHLB of Pittsburgh, Cincinnati and Indianapolis stock totaling $53.8$54.7 million and $45.9$50.8 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, 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. 11
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 netNet deferred loan costs were $2.8$4.2 million and $1.6$3.2 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. The unamortized discount on purchased portfolio loans from acquisitions was $54.3$40.1 million at June 30, 2019, including $6.7 million related to FTSB and $25.9$19.0 million related to FFKT, and $21.9$49.3 million at September 30, 2018 and December 31, 2017, respectively.2018. | | | | | | June 30, | | | December 31, | | (unaudited, in thousands) | | September 30, 2018 | | | December 31, 2017 | | | 2019 | | | 2018 | | Commercial real estate: | | | | | | | | | | | | | Land and construction | | $ | 538,922 | | | $ | 392,597 | | | $ | 483,046 | | | $ | 528,072 | | Improved property | | | 3,367,299 | | | | 2,601,851 | | | | 3,394,587 | | | | 3,325,623 | | | | | | | | | | Total commercial real estate | | | 3,906,221 | | | | 2,994,448 | | | | 3,877,633 | | | | 3,853,695 | | | | | | | | | | Commercial and industrial | | | 1,292,073 | | | | 1,125,327 | | | | 1,300,577 | | | | 1,265,460 | | Residential real estate | | | 1,598,477 | | | | 1,353,301 | | | | 1,633,613 | | | | 1,611,607 | | Home equity | | | 604,106 | | | | 529,196 | | | | 590,303 | | | | 599,331 | | Consumer | | | 325,546 | | | | 339,169 | | | | 335,728 | | | | 326,188 | | | | | | | | | | Total portfolio loans | | | 7,726,423 | | | | 6,341,441 | | | | 7,737,854 | | | | 7,656,281 | | | | | | | | | | Loans held for sale | | | 55,913 | | | | 20,320 | | | | 18,649 | | | | 8,994 | | | | | | | | | | Total loans | | $ | 7,782,336 | | | $ | 6,361,761 | | | $ | 7,756,503 | | | $ | 7,665,275 | | | | | | | | | |
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 | | | Allowance for Credit Losses By Category | | | | For the Nine Months Ended September 30, 2018 and 2017 | | | For the Six Months Ended June 30, 2019 and 2018 | | (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 | | | Commercial Real Estate - Land and Construction | | | Commercial Real Estate -Improved Property | | | Commercial & Industrial | | | Residential Real Estate | | | Home Equity | | | Consumer | | | Deposit Overdraft | | | Total | | Balance at December 31, 2017: | | | | | | | | | | | | | | | | | | Balance at December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for loan losses | | $ | 3,117 | | | $ | 21,166 | | | $ | 9,414 | | | $ | 3,206 | | | $ | 4,497 | | | $ | 3,063 | | | $ | 821 | | | $ | 45,284 | | | $ | 4,039 | | | $ | 20,848 | | | $ | 12,114 | | | $ | 3,822 | | | $ | 4,356 | | | $ | 2,797 | | | $ | 972 | | | $ | 48,948 | | Allowance for loan commitments | | | 119 | | | | 26 | | | | 173 | | | | 7 | | | | 212 | | | | 37 | | | | — | | | | 574 | | | | 169 | | | | 33 | | | | 262 | | | | 12 | | | | 226 | | | | 39 | | | | — | | | | 741 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total beginning allowance for credit losses | | | 3,236 | | | | 21,192 | | | | 9,587 | | | | 3,213 | | | | 4,709 | | | | 3,100 | | | | 821 | | | | 45,858 | | | | 4,208 | | | | 20,881 | | | | 12,376 | | | | 3,834 | | | | 4,582 | | | | 2,836 | | | | 972 | | | | 49,689 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Provision for credit losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Provision for loan losses | | | 789 | | | | (721 | ) | | | 2,538 | | | | 1,106 | | | | (292 | ) | | | 541 | | | | 840 | | | | 4,801 | | | | (538 | ) | | | 1,459 | | | | 1,309 | | | | 124 | | | | 423 | | | | 333 | | | | 1,119 | | | | 4,229 | | Provision for loan commitments | | | 67 | | | | (3 | ) | | | 32 | | | | 2 | | | | 9 | | | | 3 | | | | — | | | | 110 | | | | 18 | | | | (9 | ) | | | 995 | | | | 1 | | | | 23 | | | | (3 | ) | | | — | | | | 1,025 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total provision for credit losses | | | 856 | | | | (724 | ) | | | 2,570 | | | | 1,108 | | | | (283 | ) | | | 544 | | | | 840 | | | | 4,911 | | | | (520 | ) | | | 1,450 | | | | 2,304 | | | | 125 | | | | 446 | | | | 330 | | | | 1,119 | | | | 5,254 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Charge-offs | | | (137 | ) | | | (719 | ) | | | (871 | ) | | | (873 | ) | | | (745 | ) | | | (2,465 | ) | | | (941 | ) | | | (6,751 | ) | | | — | | | | (285 | ) | | | (1,025 | ) | | | (679 | ) | | | (673 | ) | | | (1,344 | ) | | | (860 | ) | | | (4,866 | ) | Recoveries | | | 400 | | | | 1,098 | | | | 970 | | | | 336 | | | | 830 | | | | 1,657 | | | | 277 | | | | 5,568 | | | | 200 | | | | 345 | | | | 489 | | | | 188 | | | | 215 | | | | 896 | | | | 215 | | | | 2,548 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net charge-offs | | | 263 | | | | 379 | | | | 99 | | | | (537 | ) | | | 85 | | | | (808 | ) | | | (664 | ) | | | (1,183 | ) | | | 200 | | | | 60 | | | | (536 | ) | | | (491 | ) | | | (458 | ) | | | (448 | ) | | | (645 | ) | | | (2,318 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at September 30, 2018: | | | | | | | | | | | | | | | | | | Balance at June 30, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for loan losses | | | 4,169 | | | | 20,824 | | | | 12,051 | | | | 3,775 | | | | 4,290 | | | | 2,796 | | | | 997 | | | | 48,902 | | | | 3,701 | | | | 22,367 | | | | 12,887 | | | | 3,455 | | | | 4,321 | | | | 2,682 | | | | 1,446 | | | | 50,859 | | Allowance for loan commitments | | | 186 | | | | 23 | | | | 205 | | | | 9 | | | | 221 | | | | 40 | | | | — | | | | 684 | | | | 187 | | | | 24 | | | | 1,257 | | | | 13 | | | | 249 | | | | 36 | | | | — | | | | 1,766 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total ending allowance for credit losses | | $ | 4,355 | | | $ | 20,847 | | | $ | 12,256 | | | $ | 3,784 | | | $ | 4,511 | | | $ | 2,836 | | | $ | 997 | | | $ | 49,586 | | | $ | 3,888 | | | $ | 22,391 | | | $ | 14,144 | | | $ | 3,468 | | | $ | 4,570 | | | $ | 2,718 | | | $ | 1,446 | | | $ | 52,625 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2016: | | | | | | | | | | | | | | | | | | Balance at December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for loan losses | | $ | 4,348 | | | $ | 18,628 | | | $ | 8,412 | | | $ | 4,106 | | | $ | 3,422 | | | $ | 3,998 | | | $ | 760 | | | $ | 43,674 | | | $ | 3,117 | | | $ | 21,166 | | | $ | 9,414 | | | $ | 3,206 | | | $ | 4,497 | | | $ | 3,063 | | | $ | 821 | | | $ | 45,284 | | Allowance for loan commitments | | | 151 | | | 17 | | | 188 | | | 9 | | | 162 | | | 44 | | | | — | | | 571 | | | | 119 | | | | 26 | | | | 173 | | | | 7 | | | | 212 | | | | 37 | | | | — | | | | 574 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total beginning allowance for credit losses | | | 4,499 | | | 18,645 | | | 8,600 | | | 4,115 | | | 3,584 | | | 4,042 | | | 760 | | | 44,245 | | | | 3,236 | | | | 21,192 | | | | 9,587 | | | | 3,213 | | | | 4,709 | | | | 3,100 | | | | 821 | | | | 45,858 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Provision for credit losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Provision for loan losses | | | 415 | | | 1,619 | | | 2,842 | | | (203 | ) | | 1,259 | | | 922 | | | 680 | | | 7,534 | | | | 1,465 | | | | (1,774 | ) | | | 2,100 | | | | 944 | | | | 54 | | | | 615 | | | | 439 | | | | 3,843 | | Provision for loan commitments | | | (18 | ) | | 4 | | | 45 | | | | — | | | 49 | | | (4 | ) | | | — | | | 76 | | | | 44 | | | | (8 | ) | | | 2 | | | | 2 | | | | (7 | ) | | | — | | | | — | | | | 33 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total provision for credit losses | | | 397 | | | 1,623 | | | 2,887 | | | (203 | ) | | 1,308 | | | 918 | | | 680 | | | 7,610 | | | | 1,509 | | | | (1,782 | ) | | | 2,102 | | | | 946 | | | | 47 | | | | 615 | | | | 439 | | | | 3,876 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Charge-offs | | | — | | | (1,752 | ) | | (2,255 | ) | | (797 | ) | | (372 | ) | | (2,877 | ) | | (947 | ) | | (9,000 | ) | | | (136 | ) | | | (692 | ) | | | (616 | ) | | | (509 | ) | | | (672 | ) | | | (1,793 | ) | | | (541 | ) | | | (4,959 | ) | Recoveries | | | 89 | | | 492 | | | 649 | | | 266 | | | 180 | | | 1,336 | | | 267 | | | 3,279 | | | | 264 | | | | 776 | | | | 636 | | | | 252 | | | | 279 | | | | 1,066 | | | | 197 | | | | 3,470 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net charge-offs | | | 89 | | | (1,260 | ) | | (1,606 | ) | | (531 | ) | | (192 | ) | | (1,541 | ) | | (680 | ) | | (5,721 | ) | | | 128 | | | | 84 | | | | 20 | | | | (257 | ) | | | (393 | ) | | | (727 | ) | | | (344 | ) | | | (1,489 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at September 30, 2017: | | | | | | | | | | | | | | | | | | Balance at June 30, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for loan losses | | | 4,852 | | | 18,987 | | | 9,648 | | | 3,372 | | | 4,489 | | | 3,379 | | | 760 | | | 45,487 | | | | 4,710 | | | | 19,476 | | | | 11,534 | | | | 3,893 | | | | 4,158 | | | | 2,951 | | | | 916 | | | | 47,638 | | Allowance for loan commitments | | | 133 | | | 21 | | | 233 | | | 9 | | | 211 | | | 40 | | | | — | | | 647 | | | | 163 | | | | 18 | | | | 175 | | | | 9 | | | | 205 | | | | 37 | | | | — | | | | 607 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total ending allowance for credit losses | | $ | 4,985 | | | $ | 19,008 | | | $ | 9,881 | | | $ | 3,381 | | | $ | 4,700 | | | $ | 3,419 | | | $ | 760 | | | $ | 46,134 | | | $ | 4,873 | | | $ | 19,494 | | | $ | 11,709 | | | $ | 3,902 | | | $ | 4,363 | | | $ | 2,988 | | | $ | 916 | | | $ | 48,245 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
12
The following tables present the allowance for credit losses and recorded investments in loans by category: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for Credit Losses and Recorded Investment in Loans | | (unaudited, in thousands) | | Commercial Real Estate- Land and Construction | | | Commercial Real Estate- Improved Property | | | Commercial and Industrial | | | Residential Real Estate | | | Home Equity | | | Consumer | | | Deposit Over- draft | | | Total | | September 30, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for loans individually evaluated for impairment | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Allowance for loans collectively evaluated for impairment | | | 4,169 | | | | 20,824 | | | | 12,051 | | | | 3,775 | | | | 4,290 | | | | 2,796 | | | | 997 | | | | 48,902 | | Allowance for loan commitments | | | 186 | | | | 23 | | | | 205 | | | | 9 | | | | 221 | | | | 40 | | | | — | | | | 684 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total allowance for credit losses | | $ | 4,355 | | | $ | 20,847 | | | $ | 12,256 | | | $ | 3,784 | | | $ | 4,511 | | | $ | 2,836 | | | $ | 997 | | | $ | 49,586 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Portfolio loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Individually evaluated for impairment (1) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Collectively evaluated for impairment | | | 537,699 | | | | 3,361,315 | | | | 1,291,296 | | | | 1,595,547 | | | | 604,106 | | | | 325,419 | | | | — | | | | 7,715,382 | | Acquired with deteriorated credit quality | | | 1,223 | | | | 5,984 | | | | 777 | | | | 2,930 | | | | — | | | | 127 | | | | — | | | | 11,041 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total portfolio loans | | $ | 538,922 | | | $ | 3,367,299 | | | $ | 1,292,073 | | | $ | 1,598,477 | | | $ | 604,106 | | | $ | 325,546 | | | $ | — | | | $ | 7,726,423 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for loans individually evaluated for impairment | | $ | — | | | $ | 388 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 388 | | Allowance for loans collectively evaluated for impairment | | | 3,117 | | | | 20,778 | | | | 9,414 | | | | 3,206 | | | | 4,497 | | | | 3,063 | | | | 821 | | | | 44,896 | | Allowance for loan commitments | | | 119 | | | | 26 | | | | 173 | | | | 7 | | | | 212 | | | | 37 | | | | — | | | | 574 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total allowance for credit losses | | $ | 3,236 | | | $ | 21,192 | | | $ | 9,587 | | | $ | 3,213 | | | $ | 4,709 | | | $ | 3,100 | | | $ | 821 | | | $ | 45,858 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Portfolio loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Individually evaluated for impairment (1) | | $ | — | | | $ | 3,344 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 3,344 | | Collectively evaluated for impairment | | | 391,140 | | | | 2,593,393 | | | | 1,124,544 | | | | 1,352,587 | | | | 529,196 | | | | 339,163 | | | | — | | | | 6,330,023 | | Acquired with deteriorated credit quality | | | 1,457 | | | | 5,114 | | | | 783 | | | | 714 | | | | — | | | | 6 | | | | — | | | | 8,074 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total portfolio loans | | $ | 392,597 | | | $ | 2,601,851 | | | $ | 1,125,327 | | | $ | 1,353,301 | | | $ | 529,196 | | | $ | 339,169 | | | $ | — | | | $ | 6,341,441 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | June 30, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for loans individually evaluated for impairment | | $ | — | | | $ | 1,479 | | | $ | 11 | | | $ | 12 | | | $ | 8 | | | $ | 1 | | | $ | — | | | $ | 1,511 | | Allowance for loans collectively evaluated for impairment | | | 3,701 | | | | 20,888 | | | | 12,876 | | | | 3,443 | | | | 4,313 | | | | 2,681 | | | | 1,446 | | | | 49,348 | | Allowance for loan commitments | | | 187 | | | | 24 | | | | 1,257 | | | | 13 | | | | 249 | | | | 36 | | | | — | | | | 1,766 | | Total allowance for credit losses | | $ | 3,888 | | | $ | 22,391 | | | $ | 14,144 | | | $ | 3,468 | | | $ | 4,570 | | | $ | 2,718 | | | $ | 1,446 | | | $ | 52,625 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Portfolio loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Individually evaluated for impairment (1) | | $ | — | | | $ | 5,157 | | | $ | 192 | | | $ | 4,922 | | | $ | 922 | | | $ | 74 | | | $ | — | | | $ | 11,267 | | Collectively evaluated for impairment | | | 482,804 | | | | 3,381,541 | | | | 1,299,528 | | | | 1,627,047 | | | | 589,381 | | | | 335,654 | | | | — | | | | 7,715,955 | | Acquired with deteriorated credit quality | | | 242 | | | | 7,889 | | | | 857 | | | | 1,644 | | | | — | | | | — | | | | — | | | | 10,632 | | Total portfolio loans | | $ | 483,046 | | | $ | 3,394,587 | | | $ | 1,300,577 | | | $ | 1,633,613 | | | $ | 590,303 | | | $ | 335,728 | | | $ | — | | | $ | 7,737,854 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for loans individually evaluated for impairment | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Allowance for loans collectively evaluated for impairment | | | 4,039 | | | | 20,848 | | | | 12,114 | | | | 3,822 | | | | 4,356 | | | | 2,797 | | | | 972 | | | | 48,948 | | Allowance for loan commitments | | | 169 | | | | 33 | | | | 262 | | | | 12 | | | | 226 | | | | 39 | | | | — | | | | 741 | | Total allowance for credit losses | | $ | 4,208 | | | $ | 20,881 | | | $ | 12,376 | | | $ | 3,834 | | | $ | 4,582 | | | $ | 2,836 | | | $ | 972 | | | $ | 49,689 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Portfolio loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Individually evaluated for impairment (1) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Collectively evaluated for impairment | | | 527,737 | | | | 3,319,672 | | | | 1,264,560 | | | | 1,609,177 | | | | 599,331 | | | | 326,063 | | | | — | | | | 7,646,540 | | Acquired with deteriorated credit quality | | | 335 | | | | 5,951 | | | | 900 | | | | 2,430 | | | | — | | | | 125 | | | | — | | | | 9,741 | | Total portfolio loans | | $ | 528,072 | | | $ | 3,325,623 | | | $ | 1,265,460 | | | $ | 1,611,607 | | | $ | 599,331 | | | $ | 326,188 | | | $ | — | | | $ | 7,656,281 | |
(1) | Commercial loans greater than $1 million that are reported as(1) Commercial loans greater than $1 million that are reported as non-accrual or as a TDR are individually evaluated for impairment.
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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 ofpre-sales for residential housing construction orpre-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. The type, age, condition, location and any environmental risks associated with a property are also considered for all types of commercial real estate. 13
Commercial and industrial (“C&I”) loans consist of revolving lines of credit to finance accounts receivable, inventory and other general business purposes; term loans to finance fixed assets other than real estate, and letters of credit to support trade, insurance or governmental requirements for a variety of businesses. Most C&I borrowers are privately-held companies with annual sales up to $100 million. Factors that are considered for commercial and industrialC&I loans include the type, quality and marketability ofnon-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 asnon-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.values, and are considered non-accrual. However, recognition of loss may be deferred if there are reasonably specific pending factors that will reduce the risk if they occur. The following tables summarize commercial loans by their assigned risk grade: | | | | | | | | | | | | | | | | | | | Commercial Loans by Internally Assigned Risk Grade | | (unaudited, in thousands) | | Commercial Real Estate- Land and Construction | | | Commercial Real Estate- Improved Property | | | Commercial & Industrial | | | Total Commercial Loans | | As of September 30, 2018 | | | | | | | | | | | | | | | | | Pass | | $ | 533,982 | | | $ | 3,314,324 | | | $ | 1,272,181 | | | $ | 5,120,487 | | Criticized—compromised | | | 2,909 | | | | 31,399 | | | | 12,062 | | | | 46,370 | | Classified—substandard | | | 2,031 | | | | 21,576 | | | | 7,830 | | | | 31,437 | | Classified—doubtful | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | Total | | $ | 538,922 | | | $ | 3,367,299 | | | $ | 1,292,073 | | | $ | 5,198,294 | | | | | | | | | | | | | | | | | | | As of December 31, 2017 | | | | | | | | | | | | | | | | | Pass | | $ | 386,753 | | | $ | 2,548,805 | | | $ | 1,110,267 | | | $ | 4,045,825 | | Criticized—compromised | | | 2,984 | | | | 25,673 | | | | 7,435 | | | | 36,092 | | Classified—substandard | | | 2,860 | | | | 27,373 | | | | 7,625 | | | | 37,858 | | Classified—doubtful | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | Total | | $ | 392,597 | | | $ | 2,601,851 | | | $ | 1,125,327 | | | $ | 4,119,775 | | | | | | | | | | | | | | | | | | |
| | Commercial Loans by Internally Assigned Risk Grade | | (unaudited, in thousands) | | Commercial Real Estate- Land and Construction | | | Commercial Real Estate- Improved Property | | | Commercial & Industrial | | | Total Commercial Loans | | As of June 30, 2019 | | | | | | | | | | | | | | | | | Pass | | $ | 476,109 | | | $ | 3,319,270 | | | $ | 1,268,591 | | | $ | 5,063,970 | | Criticized - compromised | | | 5,794 | | | | 52,657 | | | | 14,785 | | | | 73,236 | | Classified - substandard | | | 1,143 | | | | 22,660 | | | | 17,201 | | | | 41,004 | | Classified - doubtful | | | — | | | | — | | | | — | | | | — | | Total | | $ | 483,046 | | | $ | 3,394,587 | | | $ | 1,300,577 | | | $ | 5,178,210 | | | | | | | | | | | | | | | | | | | As of December 31, 2018 | | | | | | | | | | | | | | | | | Pass | | $ | 523,707 | | | $ | 3,267,304 | | | $ | 1,245,190 | | | $ | 5,036,201 | | Criticized - compromised | | | 2,297 | | | | 35,566 | | | | 13,847 | | | | 51,710 | | Classified - substandard | | | 2,068 | | | | 22,753 | | | | 6,423 | | | | 31,244 | | Classified - doubtful | | | — | | | | — | | | | — | | | | — | | Total | | $ | 528,072 | | | $ | 3,325,623 | | | $ | 1,265,460 | | | $ | 5,119,155 | |
Residential real estate, home equity and consumer loans are not assigned internal risk grades other than as required by regulatory guidelines that are based primarily on the age of past due loans. WesBanco primarily evaluates the credit quality of residential real estate, home equity and consumer loans based on repayment performance and historical loss rates. The aggregate amount of residential real estate, home equity and consumer loans classified as substandard in accordance with regulatory guidelines was $20.6$20.0 million at SeptemberJune 30, 20182019 and $22.8$22.9 million at December 31, 2017,2018, of which $2.2 million$2.0 and $2.5$3.9 million were accruing, for each period, respectively. The aggregate amount of residential real estate, home equity and consumer loans classified as substandard are not included in the tables above. Acquired FFKT Loans – In conjunction with the FFKT acquisition, WesBanco acquired loans with a book value of $1,064.8 million as of August 20, 2018. These loans were recorded at the preliminary fair value of $1,028.1$1,025.8 million, with $1,016.9$988.3 million categorized as ASC310-20 loans. The fair market value adjustment on these loans of $26.4$26.0 million at the acquisition date is expected to be recognized into interest income on a level yield basis over the remaining expected life of the loans. Loans acquired with deteriorated credit quality with a book value of $2.7$5.3 million were recorded at the preliminary fair value of $2.4$4.6 million, of which all were accounted for under the cost recovery method in accordance with ASC310-30 as cash flows cannot be reasonably estimated, and categorized asnon-accrual. The carrying amount of loans acquired with deteriorated credit quality at September 30, 2018 was $2.1 million, while the outstanding customer balance was $2.4 million. At September 30, 2018 no allowance for loan losses has been recognized related to the acquired impaired loans.
Certain acquired underperforming loans with a book value of $45.2 million were transferred to loans held for sale prior to September 30, 2018 at the preliminary fair value of $35.2 million.
Acquired FTSB Loans – In conjunction with the FTSB acquisition, WesBanco acquired loans with a book value of $465.9 million as of April 5, 2018. These loans were recorded at the preliminary fair value of $448.1 million, with $440.1 million categorized as ASC310-20 loans. The fair market value adjustment on these loans of $9.7 million at acquisition date is expected to be recognized into interest income on a level yield basis over the remaining expected life of the loans.
Loans acquired with deteriorated credit quality with a book value of $4.1 million were recorded at the preliminary fair value of $2.0 million, of which $0.7 million were accounted for under the cost recovery method in accordance with ASC310-30 as cash flows cannot be reasonably estimated, and categorized asnon-accrual.
The carrying amount of loans acquired with deteriorated credit quality at SeptemberJune 30, 20182019 was $1.7$3.1 million, while the outstanding customer balance was $3.8$3.6 million. At SeptemberJune 30, 2018,2019, no allowance for loan losses has been recognized related to the acquiredFFKT-acquired impaired loans. Certain acquired underperforming loans with aan acquired book value of $4.0 million were transferred to loans held for sale prior to September 30, 2018 at the preliminary fair value of $2.8 million. Certain acquired underperforming loans with a book value of $17.7$45.2 million were sold induring the secondfourth quarter of 2018 for $12.9$32.9 million. The acquisition date fair value of the acquired loans was adjusted to the sale price resulting in no recognized gain or loss.
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The following table provides changes in accretable yield for loans acquired with deteriorated credit quality: | | | | | | For the Six Months Ended | | | | For the Nine Months Ended | | | June 30, | | | June 30, | | (unaudited, in thousands) | | September 30, 2018 | | | September 30, 2017 | | | 2019 | | | 2018 | | Balance at beginning of period | | $ | 1,724 | | | $ | 1,717 | | | $ | 6,203 | | | $ | 1,724 | | Acquisitions | | | 695 | | | | — | | | | 1,300 | | | | — | | Reduction due to change in projected cash flows | | | (86 | ) | | | — | | | | (960 | ) | | | (86 | ) | Reclass from non-accretable difference | | | 6,287 | | | | 1,490 | | | | 839 | | | | 5,877 | | Transfers out | | | — | | | | (216 | ) | | | — | | | | — | | Accretion | | | (902 | ) | | | (1,384 | ) | | | (2,240 | ) | | | (440 | ) | | | | | | | | | Balance at end of period | | $ | 7,718 | | | $ | 1,607 | | | $ | 5,142 | | | $ | 7,075 | | | | | | | | | |
The following tables summarize the age analysis of all categories of loans: | | | Age Analysis 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) | | | Current | | | 30-59 Days Past Due | | | 60-89 Days Past Due | | | 90 Days or More Past Due | | | Total Past Due | | | Total Loans | | | 90 Days or More Past Due and Accruing (1) | | As of September 30, 2018 | | | | | | | | | | | | | | | | As of June 30, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Land and construction | | $ | 538,181 | | | $ | 643 | | | $ | 98 | | | $ | — | | | $ | 741 | | | $ | 538,922 | | | $ | — | | | $ | 482,016 | | | $ | 965 | | | $ | 45 | | | $ | 20 | | | $ | 1,030 | | | $ | 483,046 | | | $ | — | | Improved property | | | 3,357,883 | | | | 1,657 | | | | 352 | | | | 7,407 | | | | 9,416 | | | | 3,367,299 | | | | 88 | | | | 3,382,311 | | | | 2,297 | | | | 1,486 | | | | 8,493 | | | | 12,276 | | | | 3,394,587 | | | | 587 | | | | | | | | | | | | | | | | | | | | | | | | | Total commercial real estate | | | 3,896,064 | | | | 2,300 | | | | 450 | | | | 7,407 | | | | 10,157 | | | | 3,906,221 | | | | 88 | | | | 3,864,327 | | | | 3,262 | | | | 1,531 | | | | 8,513 | | | | 13,306 | | | | 3,877,633 | | | | 587 | | Commercial and industrial | | | 1,287,693 | | | | 776 | | | | 462 | | | | 3,142 | | | | 4,380 | | | | 1,292,073 | | | | 114 | | | | 1,296,878 | | | | 922 | | | | 142 | | | | 2,635 | | | | 3,699 | | | | 1,300,577 | | | | 97 | | Residential real estate | | | 1,579,164 | | | | 8,100 | | | | 2,708 | | | | 8,505 | | | | 19,313 | | | | 1,598,477 | | | | 1,225 | | | | 1,617,430 | | | | 5,962 | | | | 2,449 | | | | 7,772 | | | | 16,183 | | | | 1,633,613 | | | | 1,173 | | Home equity | | | 596,477 | | | | 2,871 | | | | 1,002 | | | | 3,756 | | | | 7,629 | | | | 604,106 | | | | 646 | | | | 584,058 | | | | 2,073 | | | | 412 | | | | 3,760 | | | | 6,245 | | | | 590,303 | | | | 533 | | Consumer | | | 322,093 | | | | 2,291 | | | | 605 | | | | 557 | | | | 3,453 | | | | 325,546 | | | | 378 | | | | 333,279 | | | | 1,682 | | | | 506 | | | | 261 | | | | 2,449 | | | | 335,728 | | | | 244 | | | | | | | | | | | | | | | | | | | | | | | | | Total portfolio loans | | | 7,681,491 | | | | 16,338 | | | | 5,227 | | | | 23,367 | | | | 44,932 | | | | 7,726,423 | | | | 2,451 | | | | 7,695,972 | | | | 13,901 | | | | 5,040 | | | | 22,941 | | | | 41,882 | | | | 7,737,854 | | | | 2,634 | | Loans held for sale | | | 55,913 | | | | — | | | | — | | | | — | | | | — | | | | 55,913 | | | | — | | | | 18,649 | | | | — | | | | — | | | | — | | | | — | | | | 18,649 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | Total loans | | $ | 7,737,404 | | | $ | 16,338 | | | $ | 5,227 | | | $ | 23,367 | | | $ | 44,932 | | | $ | 7,782,336 | | | $ | 2,451 | | | $ | 7,714,621 | | | $ | 13,901 | | | $ | 5,040 | | | $ | 22,941 | | | $ | 41,882 | | | $ | 7,756,503 | | | $ | 2,634 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired loans included above are as follows: | Impaired loans included above are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-accrual loans | | $ | 7,480 | | | $ | 1,653 | | | $ | 1,225 | | | $ | 20,916 | | | $ | 23,794 | | | $ | 31,274 | | | | | $ | 9,310 | | | $ | 1,170 | | | $ | 2,169 | | | $ | 20,249 | | | | 23,588 | | | $ | 32,898 | | | | | | TDRs accruing interest(1) | | | 5,667 | | | | 314 | | | | 357 | | | | — | | | | 671 | | | | 6,338 | | | | | | 5,273 | | | | 10 | | | | 146 | | | | 58 | | | | 214 | | | | 5,487 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total impaired | | $ | 13,147 | | | $ | 1,967 | | | $ | 1,582 | | | $ | 20,916 | | | $ | 24,465 | | | $ | 37,612 | | | | | $ | 14,583 | | | $ | 1,180 | | | $ | 2,315 | | | $ | 20,307 | | | $ | 23,802 | | | $ | 38,385 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2017 | | | | | | | | | | | | | | | | As of December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Land and construction | | $ | 392,189 | | | $ | — | | | $ | 172 | | | $ | 236 | | | $ | 408 | | | $ | 392,597 | | | $ | — | | | $ | 526,660 | | | $ | 62 | | | $ | 1,350 | | | $ | — | | | $ | 1,412 | | | $ | 528,072 | | | $ | — | | Improved property | | | 2,589,704 | | | | 374 | | | | 1,200 | | | | 10,573 | | | | 12,147 | | | | 2,601,851 | | | | 243 | | | | 3,314,765 | | | | 2,266 | | | | 2,250 | | | | 6,342 | | | | 10,858 | | | | 3,325,623 | | | | 175 | | | | | | | | | | | | | | | | | | | | | | | | | Total commercial real estate | | | 2,981,893 | | | | 374 | | | | 1,372 | | | | 10,809 | | | | 12,555 | | | | 2,994,448 | | | | 243 | | | | 3,841,425 | | | | 2,328 | | | | 3,600 | | | | 6,342 | | | | 12,270 | | | | 3,853,695 | | | | 175 | | Commercial and industrial | | | 1,121,957 | | | | 572 | | | | 196 | | | | 2,602 | | | | 3,370 | | | | 1,125,327 | | | | 20 | | | | 1,261,536 | | | | 323 | | | | 594 | | | | 3,007 | | | | 3,924 | | | | 1,265,460 | | | | 13 | | Residential real estate | | | 1,338,240 | | | | 4,487 | | | | 2,376 | | | | 8,198 | | | | 15,061 | | | | 1,353,301 | | | | 1,113 | | | | 1,593,519 | | | | 2,717 | | | | 5,001 | | | | 10,370 | | | | 18,088 | | | | 1,611,607 | | | | 2,820 | | Home equity | | | 522,584 | | | | 2,135 | | | | 683 | | | | 3,794 | | | | 6,612 | | | | 529,196 | | | | 742 | | | | 591,623 | | | | 2,500 | | | | 1,273 | | | | 3,935 | | | | 7,708 | | | | 599,331 | | | | 705 | | Consumer | | | 334,723 | | | | 2,466 | | | | 842 | | | | 1,138 | | | | 4,446 | | | | 339,169 | | | | 608 | | | | 322,584 | | | | 2,084 | | | | 1,007 | | | | 513 | | | | 3,604 | | | | 326,188 | | | | 364 | | | | | | | | | | | | | | | | | | | | | | | | | Total portfolio loans | | | 6,299,397 | | | | 10,034 | | | | 5,469 | | | | 26,541 | | | | 42,044 | | | | 6,341,441 | | | | 2,726 | | | | 7,610,687 | | | | 9,952 | | | | 11,475 | | | | 24,167 | | | | 45,594 | | | | 7,656,281 | | | | 4,077 | | Loans held for sale | | | 20,320 | | | | — | | | | — | | | | — | | | | — | | | | 20,320 | | | | — | | | | 8,994 | | | | — | | | | — | | | | — | | | | — | | | | 8,994 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | Total loans | | $ | 6,319,717 | | | $ | 10,034 | | | $ | 5,469 | | | $ | 26,541 | | | $ | 42,044 | | | $ | 6,361,761 | | | $ | 2,726 | | | $ | 7,619,681 | | | $ | 9,952 | | | $ | 11,475 | | | $ | 24,167 | | | $ | 45,594 | | | $ | 7,665,275 | | | $ | 4,077 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired loans included above are as follows: | Impaired loans included above are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-accrual loans | | $ | 9,195 | | | $ | 1,782 | | | $ | 2,033 | | | $ | 23,815 | | | $ | 27,630 | | | $ | 36,825 | | | | | $ | 8,910 | | | $ | 337 | | | $ | 1,370 | | | $ | 20,083 | | | | 21,790 | | | $ | 30,700 | | | | | | TDRs accruing interest(1) | | | 6,055 | | | | 348 | | | | 168 | | | | — | | | | 516 | | | | 6,571 | | | | | | 5,586 | | | | 59 | | | | 92 | | | | 7 | | | | 158 | | | | 5,744 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total impaired | | $ | 15,250 | | | $ | 2,130 | | | $ | 2,201 | | | $ | 23,815 | | | $ | 28,146 | | | $ | 43,396 | | | | | $ | 14,496 | | | $ | 396 | | | $ | 1,462 | | | $ | 20,090 | | | $ | 21,948 | | | $ | 36,444 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Loans 90 days or more past due and accruing interest exclude TDRs 90 days or more past due and accruing interest. |
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The following tables summarize impaired loans: | | | Impaired Loans | | | | | | | | | | | | | | | | June 30, 2019 | | | December 31, 2018 | | | | Impaired Loans | | | Unpaid | | | | | | | | | | | Unpaid | | | | | | | | | | | | September 30, 2018 | | | December 31, 2017 | | | Principal | | | Recorded | | | Related | | | Principal | | | Recorded | | | Related | | (unaudited, in thousands) | | Unpaid Principal Balance (1) | | | Recorded Investment | | | Related Allowance | | | Unpaid Principal Balance (1) | | | Recorded Investment | | | Related Allowance | | | Balance (1) | | | Investment | | | Allowance | | | Balance (1) | | | Investment | | | Allowance | | With no related specific allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Land and construction | | $ | — | | | $ | — | | | $ | — | | | $ | 412 | | | $ | 239 | | | $ | — | | | $ | 347 | | | $ | 295 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Improved property | | | 14,639 | | | | 9,928 | | | | — | | | | 18,229 | | | | 12,863 | | | | — | | | | 13,499 | | | | 7,312 | | | | — | | | | 14,038 | | | | 9,293 | | | | — | | Commercial and industrial | | | 3,886 | | | | 3,327 | | | | — | | | | 3,745 | | | | 3,086 | | | | — | | | | 4,086 | | | | 2,854 | | | | — | | | | 4,610 | | | | 3,428 | | | | — | | Residential real estate | | | 21,226 | | | | 18,944 | | | | — | | | | 20,821 | | | | 18,982 | | | | — | | | | 13,572 | | | | 11,896 | | | | — | | | | 20,270 | | | | 18,016 | | | | — | | Home equity | | | 5,550 | | | | 4,728 | | | | — | | | | 5,833 | | | | 5,169 | | | | — | | | | 5,247 | | | | 4,450 | | | | — | | | | 5,924 | | | | 5,036 | | | | — | | Consumer | | | 857 | | | | 685 | | | | — | | | | 1,084 | | | | 952 | | | | — | | | | 416 | | | | 311 | | | | — | | | | 846 | | | | 671 | | | | — | | | | | | | | | | | | | | | | | | | | | | Total impaired loans without a specific allowance | | | 46,158 | | | | 37,612 | | | | — | | | | 50,124 | | | | 41,291 | | | | — | | | | 37,167 | | | | 27,118 | | | | — | | | | 45,688 | | | | 36,444 | | | | — | | | | | | | | | | | | | | | | | | | | | | With a specific allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Land and construction | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Improved property | | | — | | | | — | | | | — | | | | 2,105 | | | | 2,105 | | | | 388 | | | | 5,211 | | | | 5,157 | | | | 1,479 | | | | — | | | | — | | | | — | | Commercial and industrial | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 194 | | | | 192 | | | | 11 | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | Residential real estate | | | | 5,358 | | | | 4,922 | | | | 12 | | | | — | | | | — | | | | — | | Home equity | | | | 990 | | | | 922 | | | | 8 | | | | — | | | | — | | | | — | | Consumer | | | | 113 | | | | 74 | | | | 1 | | | | — | | | | — | | | | — | | Total impaired loans with a specific allowance | | | — | | | | — | | | | — | | | | 2,105 | | | | 2,105 | | | | 388 | | | | 11,866 | | | | 11,267 | | | | 1,511 | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | Total impaired loans | | $ | 46,158 | | | $ | 37,612 | | | $ | — | | | $ | 52,229 | | | $ | 43,396 | | | $ | 388 | | | $ | 49,033 | | | $ | 38,385 | | | $ | 1,511 | | | $ | 45,688 | | | $ | 36,444 | | | $ | — | | | | | | | | | | | | | | | | | | | | | |
(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. (1) | The difference between the unpaid principal balance and the recorded investment generally reflects amounts that have been previouslycharged-off and fair market value adjustments on acquired impaired loans.
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| | Impaired Loans | | | | For the Three Months Ended | | | For the Six Months Ended | | | | June 30, 2019 | | | June 30, 2018 | | | June 30, 2019 | | | June 30, 2018 | | | | Average | | | Interest | | | Average | | | Interest | | | Average | | | Interest | | | Average | | | Interest | | | | Recorded | | | Income | | | Recorded | | | Income | | | Recorded | | | Income | | | Recorded | | | Income | | (unaudited, in thousands) | | Investment | | | Recognized | | | Investment | | | Recognized | | | Investment | | | Recognized | | | Investment | | | Recognized | | With no related specific allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Land and construction | | $ | 290 | | | $ | — | | | $ | 400 | | | $ | — | | | $ | 193 | | | $ | — | | | $ | 346 | | | $ | — | | Improved property | | | 7,287 | | | | — | | | | 10,604 | | | | 23 | | | | 7,955 | | | | — | | | | 11,357 | | | | 368 | | Commercial and industrial | | | 2,961 | | | | — | | | | 3,036 | | | | 2 | | | | 3,116 | | | | — | | | | 3,008 | | | | 4 | | Residential real estate | | | 11,845 | | | | — | | | | 18,264 | | | | 61 | | | | 13,902 | | | | — | | | | 18,434 | | | | 127 | | Home equity | | | 4,487 | | | | — | | | | 5,068 | | | | 6 | | | | 4,670 | | | | — | | | | 5,098 | | | | 11 | | Consumer | | | 337 | | | | — | | | | 758 | | | | 2 | | | | 448 | | | | — | | | | 823 | | | | 5 | | Total impaired loans without a specific allowance | | | 27,207 | | | | — | | | | 38,130 | | | | 94 | | | | 30,284 | | | | — | | | | 39,066 | | | | 515 | | With a specific allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Land and construction | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Improved property | | | 3,645 | | | | 14 | | | | 1,052 | | | | — | | | | 2,430 | | | | 28 | | | | 1,403 | | | | — | | Commercial and industrial | | | 250 | | | | 4 | | | | — | | | | — | | | | 166 | | | | 7 | | | | — | | | | — | | Residential real estate | | | 5,000 | | | | 60 | | | | — | | | | — | | | | 3,333 | | | | 118 | | | | — | | | | — | | Home equity | | | 859 | | | | 7 | | | | — | | | | — | | | | 573 | | | | 15 | | | | — | | | | — | | Consumer | | | 89 | | | | 1 | | | | — | | | | — | | | | 59 | | | | 2 | | | | — | | | | — | | Total impaired loans with a specific allowance | | | 9,843 | | | | 86 | | | | 1,052 | | | | — | | | | 6,561 | | | | 170 | | | | 1,403 | | | | — | | Total impaired loans | | $ | 37,050 | | | $ | 86 | | | $ | 39,182 | | | $ | 94 | | | $ | 36,845 | | | $ | 170 | | | $ | 40,469 | | | $ | 515 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired Loans | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | September 30, 2018 | | | September 30, 2017 | | | September 30, 2018 | | | September 30, 2017 | | (unaudited, in thousands) | | Average Recorded Investment | | | Interest Income Recognized | | | Average Recorded Investment | | | Interest Income Recognized | | | Average Recorded Investment | | | Interest Income Recognized | | | Average Recorded Investment | | | Interest Income Recognized | | With no related specific allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Land and construction | | $ | — | | | $ | — | | | $ | 444 | | | $ | — | | | $ | 260 | | | $ | — | | | $ | 516 | | | $ | — | | Improved Property | | | 10,409 | | | | 15 | | | | 10,923 | | | | 31 | | | | 11,000 | | | | 383 | | | | 10,271 | | | | 400 | | Commercial and industrial | | | 3,181 | | | | 5 | | | | 3,588 | | | | 2 | | | | 2,985 | | | | 9 | | | | 3,700 | | | | 6 | | Residential real estate | | | 18,336 | | | | 68 | | | | 17,039 | | | | 57 | | | | 18,207 | | | | 195 | | | | 17,743 | | | | 192 | | Home equity | | | 4,924 | | | | 8 | | | | 4,727 | | | | 4 | | | | 4,997 | | | | 19 | | | | 4,456 | | | | 14 | | Consumer | | | 692 | | | | 3 | | | | 731 | | | | 2 | | | | 776 | | | | 8 | | | | 746 | | | | 5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total impaired loans without a specific allowance | | | 37,542 | | | | 99 | | | | 37,452 | | | | 96 | | | | 38,225 | | | | 614 | | | | 37,432 | | | | 617 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | With a specific allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Land and construction | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Improved Property | | | — | | | | — | | | | 5,137 | | | | — | | | | 1,052 | | | | — | | | | 5,032 | | | | — | | Commercial and industrial | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 318 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total impaired loans with a specific allowance | | | — | | | | — | | | | 5,137 | | | | — | | | | 1,052 | | | | — | | | | 5,350 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total impaired loans | | $ | 37,542 | | | $ | 99 | | | $ | 42,589 | | | $ | 96 | | | $ | 39,277 | | | $ | 614 | | | $ | 42,782 | | | $ | 617 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
16
The following tables present the recorded investment innon-accrual loans and TDRs: | | | | | | Non-accrual Loans (1) | | | | Non-accrual Loans (1) | | | June 30, | | | December 31, | | (unaudited, in thousands) | | September 30, 2018 | | | December 31, 2017 | | | 2019 | | | 2018 | | Commercial real estate: | | | | | | | | | | | | | Land and construction | | $ | — | | | $ | 239 | | | $ | 295 | | | $ | — | | Improved property | | | 8,757 | | | | 13,318 | | | | 11,726 | | | | 8,413 | | | | | | | | | | Total commercial real estate | | | 8,757 | | | | 13,557 | | | | 12,021 | | | | 8,413 | | | | | | | | | | Commercial and industrial | | | 3,165 | | | | 2,958 | | | | 2,854 | | | | 3,260 | | Residential real estate | | | 14,475 | | | | 14,661 | | | | 12,813 | | | | 13,831 | | Home equity | | | 4,283 | | | | 4,762 | | | | 4,886 | | | | 4,610 | | Consumer | | | 594 | | | | 887 | | | | 324 | | | | 586 | | | | | | | | | | Total | | $ | 31,274 | | | $ | 36,825 | | | $ | 32,898 | | | $ | 30,700 | | | | | | | | | |
(1) At June 30, 2019, there were three borrowers with loans greater than $1.0 million totaling $8.2 million, as compared to one borrower with a loan greater than $1.0 million totaling $3.4 million at December 31, 2018. Total non-accrual loans include loans that are also restructured. Such loans are also set forth in the following table as non-accrual TDRs. (1) | At September 30, 2018, there was one borrower with a loan greater than $1.0 million totaling $3.4 million, as compared to three borrowers with loans greater than $1.0 million totaling $6.8 million at December 31, 2017. Totalnon-accrual loans include loans that are also restructured. Such loans are also set forth in the following table asnon-accrual TDRs.
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| | TDRs | | | | June 30, 2019 | | | December 31, 2018 | | (unaudited, in thousands) | | Accruing | | | Non-Accrual | | | Total | | | Accruing | | | Non-Accrual | | | Total | | Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | Land and construction | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Improved property | | | 743 | | | | 558 | | | | 1,301 | | | | 880 | | | | 1,529 | | | | 2,409 | | Total commercial real estate | | | 743 | | | | 558 | | | | 1,301 | | | | 880 | | | | 1,529 | | | | 2,409 | | Commercial and industrial | | | 192 | | | | — | | | | 192 | | | | 168 | | | | 169 | | | | 337 | | Residential real estate | | | 4,005 | | | | 917 | | | | 4,922 | | | | 4,185 | | | | 921 | | | | 5,106 | | Home equity | | | 486 | | | | 436 | | | | 922 | | | | 426 | | | | 198 | | | | 624 | | Consumer | | | 61 | | | | 13 | | | | 74 | | | | 85 | | | | 38 | | | | 123 | | Total | | $ | 5,487 | | | $ | 1,924 | | | $ | 7,411 | | | $ | 5,744 | | | $ | 2,855 | | | $ | 8,599 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | TDRs | | | | September 30, 2018 | | | December 31, 2017 | | (unaudited, in thousands) | | Accruing | | | Non-Accrual | | | Total | | | Accruing | | | Non-Accrual | | | Total | | Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | Land and construction | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 3 | | | $ | 3 | | Improved property | | | 1,171 | | | | 640 | | | | 1,811 | | | | 1,650 | | | | 428 | | | | 2,078 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total commercial real estate | | | 1,171 | | | | 640 | | | | 1,811 | | | | 1,650 | | | | 431 | | | | 2,081 | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | | 162 | | | | — | | | | 162 | | | | 128 | | | | 97 | | | | 225 | | Residential real estate | | | 4,469 | | | | 1,182 | | | | 5,651 | | | | 4,321 | | | | 1,880 | | | | 6,201 | | Home equity | | | 445 | | | | 167 | | | | 612 | | | | 407 | | | | 337 | | | | 744 | | Consumer | | | 91 | | | | 47 | | | | 138 | | | | 65 | | | | 120 | | | | 185 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 6,338 | | | $ | 2,036 | | | $ | 8,374 | | | $ | 6,571 | | | $ | 2,865 | | | $ | 9,436 | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of SeptemberJune 30, 20182019 and December 31, 2017,2018, there were no TDRs greater than $1.0 million. The concessions granted in the majority of loans reported as accruing andnon-accrual TDRs are extensions of the maturity date or the amortization period, reductions in the interest rate below the prevailing market rate for loans with comparable characteristics, and/or permitting interest-only payments for longer than three months. WesBanco had unfunded commitments to debtors whose loans were classified as impaired of $0.2 million and $0.1 million as of SeptemberJune 30, 20182019 and December 31, 2017, respectively.2018. The following tables present details related to loans identified as TDRs during the three and ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively: | | | New TDRs (1) | | | | | For the Three Months Ended | | | | | June 30, 2019 | | | June 30, 2018 | | | | | | | | | | | | | | | | | | | | Pre- | | | Post- | | | | | | | Pre- | | | Post- | | | | New TDRs (1) | | | | | | | Modification | | | Modification | | | | | | | Modification | | | Modification | | | | For the Three Months Ended | | | | | | | Outstanding | | | Outstanding | | | | | | | Outstanding | | | Outstanding | | | | September 30, 2018 | | | September 30, 2017 | | | Number of | | | Recorded | | | Recorded | | | Number of | | | Recorded | | | Recorded | | (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 | | | Modifications | | | Investment | | | Investment | | | Modifications | | | Investment | | | Investment | | Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Land and construction | | | — | | | $ | — | | | $ | — | | | | — | | | $ | — | | | $ | — | | | | — | | | $ | — | | | $ | — | | | | — | | | $ | — | | | $ | — | | Improved Property | | | — | | | | — | | | | — | | | | 1 | | | | 190 | | | | 185 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | Total commercial real estate | | | — | | | | — | | | | — | | | | 1 | | | | 190 | | | | 185 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1 | | | | 44 | | | | 40 | | | | 1 | | | | 9 | | | | 9 | | Residential real estate | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Home equity | | | — | | | | — | | | | — | | | | 2 | | | | 94 | | | | 88 | | | | 1 | | | | 199 | | | | 156 | | | | 1 | | | | 20 | | | | 20 | | Consumer | | | 1 | | | | 19 | | | | 18 | | | | 1 | | | | 7 | | | | 6 | | | | — | | | | — | | | | — | | | | 2 | | | | 39 | | | | 36 | | | | | | | | | | | | | | | | | | | | | | Total | | | 1 | | | $ | 19 | | | $ | 18 | | | | 4 | | | $ | 291 | | | $ | 279 | | | | 2 | | | $ | 243 | | | $ | 196 | | | | 4 | | | $ | 68 | | | $ | 65 | | | | | | | | | | | | | | | | | | | | | |
(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. (1) | Excludes loans that were either paid off orcharged-off by period end. The
| | New TDRs (1) | | | | For the Six Months Ended | | | | June 30, 2019 | | | June 30, 2018 | | | | | | | | Pre- | | | Post- | | | | | | | Pre- | | | Post- | | | | | | | | Modification | | | Modification | | | | | | | Modification | | | Modification | | | | | | | | Outstanding | | | Outstanding | | | | | | | Outstanding | | | Outstanding | | | | Number of | | | Recorded | | | Recorded | | | Number of | | | Recorded | | | Recorded | | (unaudited, dollars in thousands) | | Modifications | | | Investment | | | Investment | | | Modifications | | | Investment | | | Investment | | Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | Land and construction | | | — | | | $ | — | | | $ | — | | | | — | | | $ | — | | | $ | — | | Improved Property | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Total commercial real estate | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Commercial and industrial | | | 1 | | | | 44 | | | | 40 | | | | 1 | | | | 10 | | | | 9 | | Residential real estate | | | 4 | | | | 194 | | | | 188 | | | | 5 | | | | 203 | | | | 185 | | Home equity | | | 3 | | | | 386 | | | | 340 | | | | 1 | | | | 20 | | | | 20 | | Consumer | | | 1 | | | | 15 | | | | 13 | | | | 4 | | | | 45 | | | | 38 | | Total | | | 9 | | | $ | 639 | | | $ | 581 | | | | 11 | | | $ | 278 | | | $ | 252 | |
(1) Excludes loans that were either paid off or charged-off by period end. The pre-modification balance represents the balance outstanding at the beginning of the period. The post-modification balance represents the outstanding balance at period end.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | New TDRs (1) | | | | For the Nine Months Ended | | | | September 30, 2018 | | | September 30, 2017 | | (unaudited, dollars in thousands) | | Number of Modifications | | | Pre- Modification Outstanding Recorded Investment | | | Post- Modification Outstanding Recorded Investment | | | Number of Modifications | | | Pre- Modification Outstanding Recorded Investment | | | Post- Modification Outstanding Recorded Investment | | Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | Land and construction | | | — | | | $ | — | | | $ | — | | | | — | | | $ | — | | | $ | — | | Improved Property | | | — | | | | — | | | | — | | | | 1 | | | | 190 | | | | 185 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total commercial real estate | | | — | | | | — | | | | — | | | | 1 | | | | 190 | | | | 185 | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | | 1 | | | | 10 | | | | 8 | | | | 1 | | | | 64 | | | | 59 | | Residential real estate | | | 5 | | | | 203 | | | | 176 | | | | 2 | | | | 22 | | | | 17 | | Home equity | | | 1 | | | | 20 | | | | 19 | | | | 3 | | | | 141 | | | | 132 | | Consumer | | | 4 | | | | 65 | | | | 52 | | | | 4 | | | | 42 | | | | 33 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 11 | | | $ | 298 | | | $ | 255 | | | | 11 | | | $ | 459 | | | $ | 426 | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Excludes loans that were either paid off orcharged-off by period end. Thepre-modification balance represents the balance outstanding at the beginning of the period. The post-modification balance represents the outstanding balance at period end.
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The following table summarizes TDRs which defaulted (defined as past due 90 days) during the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively, that were restructured within the last twelve months prior to September,June 30, 2019 and 2018, and 2017, respectively: | | | | | | | | | | Defaulted TDRs (1) | | | | Defaulted TDRs(1) | | | For the Six Months Ended | | | | For the Nine Months Ended | | | June 30, 2019 | | | June 30, 2018 | | | | September 30, 2018 | | | September 30, 2017 | | | Number of | | | Recorded | | | Number of | | | Recorded | | (unaudited, dollars in thousands) | | Number of Defaults | | | Recorded Investment | | | Number of Defaults | | | Recorded Investment | | | Defaults | | | Investment | | | Defaults | | | Investment | | Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | Land and construction | | | — | | | $ | — | | | | — | | | $ | — | | | | — | | | $ | — | | | | — | | | $ | — | | Improved property | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1 | | | | 145 | | | | | | | | | | | | | | | | Total commercial real estate | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1 | | | | 145 | | | | | | | | | | | | | | | | Commercial and industrial | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Residential real estate | | | 2 | | | | 172 | | | | 1 | | | | 7 | | | | 1 | | | | 97 | | | | 1 | | | | 121 | | Home equity | | | 1 | | | | 6 | | | | — | | | | — | | | | — | | | | — | | | | 1 | | | | 7 | | Consumer | | | — | | | | — | | | | 1 | | | | 7 | | | | 1 | | | | 13 | | | | — | | | | — | | | | | | | | | | | | | | | | Total | | | 3 | | | $ | 178 | | | | 2 | | | $ | 14 | | | | 2 | | | $ | 110 | | | | 3 | | | $ | 273 | | | | | | | | | | | | | | | |
(1) | Excludes loans that were eithercharged-off or cured by period end. The recorded investment is as of September(1) Excludes loans that were either charged-off or cured by period end. The recorded investment is as of June 30, 2019 and 2018, and 2017, respectively.
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TDRs that default are placed onnon-accrual status unless they are both well-secured and in the process of collection. The loans in the table above were not accruing interest. The following table summarizes other real estate owned and repossessed assets included in other assets: | | | September 30, 2018 | | | December 31, 2017 | | | June 30, | | | December 31, | | (unaudited, in thousands) | | 2019 | | | 2018 | | Other real estate owned | | $ | 6,836 | | | $ | 5,195 | | | $ | 4,891 | | | $ | 7,173 | | Repossessed assets | | | 41 | | | | 102 | | | | 82 | | | | 92 | | | | | | | | | | Total other real estate owned and repossessed assets | | $ | 6,877 | | | $ | 5,297 | | | $ | 4,973 | | | $ | 7,265 | | | | | | | | | |
Residential real estate included in other real estate owned at SeptemberJune 30, 20182019 and December 31, 20172018 was $0.7$1.2 million and $1.5$1.3 million, respectively. At SeptemberJune 30, 20182019 and December 31, 2017,2018, formal foreclosure proceedings were in process on residential real estate loans totaling $5.8 million and $6.0 million, respectively. 18
NOTE 6. LEASES Operating leases are recorded as a right of use (“ROU”) asset and $3.5operating lease liability, included in premises and equipment, net and other liabilities, respectively, on the consolidated balance sheet beginning January 1, 2019 when WesBanco adopted ASU 2016-02 prospectively. Operating lease ROU assets represent the right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate at the lease commencement date. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded primarily in net occupancy expense in the consolidated statements of comprehensive income. Operating leases relate primarily to bank branches, office space and license agreements with remaining lease terms of generally 1 to 21 years, which include options for multiple five- and ten- year extensions, with a weighted-average lease term of 9 years. As of June 30, 2019, operating lease ROU assets and liabilities were $18.2 million and $21.2 million, respectively. The lease expense for operating leases was $0.7 million and $1.3 million for the three and six months ended June 30, 2019, respectively. The weighted average discount rate was 3.29% as of June 30, 2019.Future minimum lease payments under non-cancellable leases with initial or remaining lease terms in excess of one year at June 30, 2019 are as follows (unaudited, in thousands):Year | | Amount | | 2020 | | $ | 755 | | 2021 | | | 2,444 | | 2022 | | | 1,713 | | 2023 | | | 2,227 | | 2024 and thereafter | | | 17,686 | | Total lease payments | | $ | 24,825 | | Less: Interest | | | (3,621 | ) | Present value of lease liabilities | | $ | 21,204 | |
NOTE 6.7. DERIVATIVES AND HEDGING ACTIVITIES Risk Management Objective of Using Derivatives WesBanco is exposed to certain risks arising from both its business operations and economic conditions. WesBanco principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. WesBanco manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities. WesBanco’s existing interest rate derivatives result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in WesBanco’s assets or liabilities. WesBanco manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions. A matched book is when the Bank’s assets and liabilities are equally distributed but also have similar maturities. Loan Swaps WesBanco executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously economically hedged by offsetting interest rate swaps that WesBanco executes with a third party, suchso that WesBanco minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements of FASB ASC 815, changes in the fair value of both the customer swaps and the offsetting third-party swaps are recognized directly in earnings. As of SeptemberJune 30, 20182019 and December 31, 2017,2018, WesBanco had 4253 and 39,43, respectively, interest rate swaps with an aggregate notional amount of $234.4$320.1 million and $298.2$229.8 million respectively, related to this program. During the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, WesBanco recognized net losses of $0.1$1.1 million and $0.3net gains of $0.2 million, respectively, related to the changes in fair value of these swaps. Additionally, WesBanco recognized $1.4$1.9 million and $1.2$0.5 million of income for the related swap fees for the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. Mortgage Loans Held for Sale and Loan Commitments Certain residential mortgage loans are originated for sale in the secondary mortgage loan market. These loans are classified as held for sale and carried at fair value as WesBanco has elected the fair value option. Fair value is determined based on rates obtained from the secondary market for loans with similar characteristics. WesBanco sells loans to the secondary market on a mandatory or best efforts basis. The loans sold on a mandatory basis are not committed to an investor until the loan is closed with the borrower. WesBanco enters into forward TBA contracts to manage the interest rate risk between the loan commitment and the closing of the loan. The loans sold on a best efforts basis are committed to an investor simultaneous to the interest rate commitment with the borrower. Fair Values of Derivative Instruments on the Balance Sheet All derivatives are carried on the consolidated balance sheet at fair value. Derivative assets are classified in the consolidated balance sheet under other assets, and derivative liabilities are classified in the consolidated balance sheet under other liabilities. Changes in fair value are recognized in earnings. None of WesBanco’s derivatives areis designated in a qualifying hedging relationshipsrelationship under ASC 815. 19
The table below presents the fair value of WesBanco’s derivative financial instruments as well as their classification on the Balance Sheet as of SeptemberJune 30, 20182019 and December 31, 2017:2018: | | | September 30, 2018 | | | December 31, 2017 | | | June 30, 2019 | | | December 31, 2018 | | (unaudited, in thousands) | | Notional or Contractual Amount | | | Asset Derivatives | | | Liability Derivatives | | | Notional or Contractual Amount | | | Asset Derivatives | | | Liability Derivatives | | | Notional or Contractual Amount | | | Asset Derivatives | | | Liability Derivatives | | | Notional or Contractual Amount | | | Asset Derivatives | | | Liability Derivatives | | Derivatives | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loan Swaps: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate swaps | | $ | 234,363 | | | $ | 6,451 | | | $ | 6,527 | | | $ | 298,223 | | | $ | 7,351 | | | $ | 7,345 | | | $ | 320,134 | | | $ | 13,281 | | | $ | 14,774 | | | $ | 229,778 | | | $ | 4,650 | | | $ | 5,081 | | Other contracts: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate loan commitments | | | 27,795 | | | | 32 | | | | — | | | | 20,319 | | | | 49 | | | | — | | | | 44,062 | | | | 58 | | | | — | | | | 16,113 | | | | 125 | | | | — | | Forward TBA contracts | | | 32,000 | | | | 148 | | | | — | | | | 31,750 | | | | — | | | | 23 | | | | 61,000 | | | | — | | | | 166 | | | | 20,000 | | | | — | | | | 234 | | | | | | | | | | | | | | | | | | | | Total derivatives | | | | $ | 6,631 | | | $ | 6,527 | | | | | $ | 7,400 | | | $ | 7,368 | | | | | | | $ | 13,339 | | | $ | 14,940 | | | | | | | $ | 4,775 | | | $ | 5,315 | | | | | | | | | | | | | | | | | | | |
Effect of Derivative Instruments on the Income Statement The table below presents the change in the fair value of the Company’s derivative financial instruments reflected within the othernon-interest income line item of the consolidated income statement for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. | | | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | | For the Three Months Ended June 30, | | | For the Six Months Ended June 30, | | (unaudited, in thousands) | | Location of Gain/(Loss) | | 2018 | | 2017 | | 2018 | | 2017 | | Location of Gain/(Loss) | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Interest rate swaps | | Other income | | $ | (293 | ) | | $ | (32 | ) | | $ | (82 | ) | | $ | (335 | ) | Other income | | $ | (751 | ) | | $ | 44 | | | $ | (1,063 | ) | | $ | 211 | | Interest rate loan commitments | | Mortgage banking income | | | (111 | ) | | | — | | | | 32 | | | 123 | | Mortgage banking income | | | (97 | ) | | | 7 | | | | (67 | ) | | | 143 | | Forward TBA contracts | | Mortgage banking income | | | 131 | | | | — | | | | 530 | | | | — | | Mortgage banking income | | | (518 | ) | | | (11 | ) | | | (852 | ) | | | 399 | | | | | | | | | | | | | | | | | | Total | | | | $ | (273 | ) | | $ | (32 | ) | | $ | 480 | | | $ | (212 | ) | | | $ | (1,366 | ) | | $ | 40 | | | $ | (1,982 | ) | | $ | 753 | | | | | | | | | | | | | | | | | |
Credit-risk-related Contingent Features WesBanco has agreements with its derivative counterparties that contain a provision, wherewhich provides that if WesBanco defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then WesBanco could also be declared in default on its derivative obligations. WesBanco also has agreements with certain of its derivative counterparties that contain a provision where if WesBanco fails to maintain its status as either a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and WesBanco would be required to settle its obligations under the agreements. WesBanco has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral with a market value of $3.7$21.3 million as of SeptemberJune 30, 2018.2019. If WesBanco had breached any of these provisions at SeptemberJune 30, 2018,2019, it could have been required to settle its obligations under the agreements at the termination value and would have been required to pay any additional amounts due in excess of amounts previously posted as collateral with the respective counterparty. NOTE 7.8. PENSION PLAN& POSTRETIREMENT MEDICAL BENEFIT PLANS The following table presents the net periodic pension cost for WesBanco’s Defined Benefit Pension Plan (the “Plan”) and the related components: | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | | For the Three Months Ended June 30, | | | For the Six Months Ended June 30, | | (unaudited, in thousands) | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Service cost – benefits earned during year | | $ | 715 | | | $ | 650 | | | $ | 2,121 | | | $ | 1,929 | | | $ | 560 | | | $ | 707 | | | $ | 1,114 | | | $ | 1,406 | | Interest cost on projected benefit obligation | | | 1,242 | | | | 1,107 | | | | 3,684 | | | | 3,287 | | | | 1,313 | | | | 1,228 | | | | 2,611 | | | | 2,442 | | Expected return on plan assets | | | (2,416 | ) | | | (1,928 | ) | | | (7,169 | ) | | | (5,721 | ) | | | (2,211 | ) | | | (2,390 | ) | | | (4,398 | ) | | | (4,753 | ) | Amortization of prior service cost | | | 6 | | | | 7 | | | | 19 | | | | 19 | | | | 6 | | | | 7 | | | | 13 | | | | 13 | | Amortization of net loss | | | 766 | | | | 812 | | | | 2,274 | | | | 2,409 | | | | 808 | | | | 758 | | | | 1,607 | | | | 1,508 | | | | | | | | | | | | | | | | Net periodic pension cost | | $ | 313 | | | $ | 648 | | | $ | 929 | | | $ | 1,923 | | | $ | 476 | | | $ | 310 | | | $ | 947 | | | $ | 616 | | | | | | | | | | | | | | | |
The Plan covers all employees of WesBanco and its subsidiaries who were hired on or before August 1, 2007 who satisfy minimum age and length of service requirements, and is not available to employees hired after such date. A minimum required contribution of $5.1$4.8 million is due for 2018,2019, which could be alloffset in whole or partially offsetin part by the Plan’s $56.9$52.5 million available credit balance. WesBanco made a voluntary contribution of $2.5$3.0 million to the Plan in June 2018.2019. 20
WesBanco assumed YCB’s obligation for a predecessor bank’s participation in a definedFFKT’s postretirement medical benefit plan.plan, which covers FFKT employees who meet the service requirements. Benefits provided under this plan are unfunded, and payments to the plan participants are made by WesBanco. The net periodic pension incomecost for thisthe postretirement medical benefit plan totaled $59 thousand and $117 thousand for the three and ninesix months ended SeptemberJune 30, 2018 was $0.1 million2019, respectively. The net periodic cost consisted of $115 thousand and $0.2 million, respectively, which was comprised of a $0.2 million and a $0.5 million expected return on plan assets and net actuarial gain, partially offset by a $0.1 million and a $0.3 million$228 thousand in interest cost on projected benefit obligation for the three and ninesix months ended SeptemberJune 30, 2018, respectively. No minimum contribution is due for this plan for fiscal year 2018; however, WesBanco made a voluntary contribution of $0.2 million to this plan in June 2018.
WesBanco assumed FFKT’s postretirement medical benefit plan, which had a liability totaling $15.0 million at the acquisition date. The plan covers FFKT employees who were hired before January 1, 2016 and meet certain age and length of full-time service requirements. The plan was modified in August 2018, which reduced the number of eligible employees. The modification resulted in a $5.5 million unrealized gain,2019, respectively, which was recorded in Accumulated Other Comprehensive Income netpartially offset by a $56 thousand and a $111 thousand benefit of taxprior service cost amortization for the three and will be recognized over the life of the plan participants estimated to be approximately 17 years. The modification reduced the plan liability to $9.5 million as of Septembersix months ended June 30, 2018.2019, respectively.
NOTE 8.9. FAIR VALUE MEASUREMENT Fair value estimates are based on quoted market prices, if available, quoted market prices of similar assets or liabilities, or the present value of expected future cash flows and other valuation techniques. These valuations are significantly affected by discount rates, cash flow assumptions, and risk assumptions used. Therefore, fair value estimates may not be substantiated by comparison to independent markets and are not intended to reflect the proceeds that may be realizable in an immediate settlement of the instruments. Fair value is determined at one point in time and is not representative of future value. These amounts do not reflect the total value of a going concern organization. Management does not have the intention to dispose of a significant portion of its assets and liabilities, and therefore the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows. The following is a discussion of assets and liabilities measured at fair value on a recurring basis and valuation techniques applied: Investment securities:The fair value of investment securities which are measured on a recurring basis are determined primarily by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other similar securities. These securities are classified within level 1 or 2 in the fair value hierarchy. Positions that are not traded in active markets for which valuations are generated using assumptions not observable in the market or management’s best estimate are classified within level 3 of the fair value hierarchy. This includes certain specific municipal debt issues for which the credit quality and discount rate must be estimated. Loans held for sale: Loans held for sale are carried, in aggregate, at fair value as WesBanco has elected the fair value option as of October 1, 2017. The use of a valuation model using quoted prices of similar instruments are significant inputs in arriving at the fair value and therefore loans held for sale are classified within level 2 of the fair value hierarchy. Derivatives: WesBanco enters into interest rate swap agreements with qualifying commercial customers to meet their financing, interest rate and other risk management needs. These agreements provide the customer the ability to convert from variable to fixed interest rates. The credit risk associated with derivatives executed with customers is essentially the same as that involved in extending loans and is subject to normal credit policies and monitoring. Those interest rate swaps are economically hedged by offsetting interest rate swaps that WesBanco executes with derivative counterparties in order to offset its exposure on the fixed components of the customer interest rate swap agreements. The interest rate swap agreement with the loan customer and with the counterparty is reported at fair value in other assets and other liabilities on the consolidated balance sheet with any resulting gain or loss recorded in current period earnings as other income and other expense. WesBanco enters into forward TBA contracts to manage the interest rate risk between the loan commitments to the customer and the closing of the loan for loans that will be sold on a mandatory basis to secondary market investors. The forward TBA contract is reported at fair value in other assets and other liabilities on the consolidated balance sheet with any resulting gain or loss recorded in current period’s earnings as mortgage banking income. WesBanco determines the fair value for derivatives using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. WesBanco incorporates credit valuation adjustments to appropriately reflect both its ownnon-performance risk and the respective counterparty’snon-performance risk in the fair value measurements. We may be required from time to time to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market accounting or write-downs of individual assets and liabilities. Impaired loans: Impaired loans are carried at the lower of cost or the fair value of the collateral for collateral-dependent loans. Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable. The use of independent appraisals, discounted cash flow models and management’s best judgment are significant inputs in arriving at the fair value measure of the underlying collateral and impaired loans are therefore classified within level 3 of the fair value hierarchy.
Other real estate owned and repossessed assets: Other real estate owned and repossessed assets are carried at the lower of the investment in the assets or the fair value of the assets less estimated selling costs. The use of independent appraisals and management’s best judgment are significant inputs in arriving at the fair value measure of the underlying collateral, and therefore other real estate owned and repossessed assets are classified within level 3 of the fair value hierarchy. Loans held for sale: Loans held for sale are carried, in aggregate, at fair value as WesBanco has elected the fair value option as of October 1, 2017. The use of a valuation model using quoted prices of similar instruments are significant inputs in arriving at the fair value and therefore loans held for sale are classified within level 2 of the fair value hierarchy.21
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 SeptemberJune 30, 20182019 and December 31, 2017:2018:
| | | | | | | | | | | | | | | | June 30, 2019 | | | | | | | September 30, 2018 | | | | | | | Fair Value Measurements Using: | | | | | | | Fair Value Measurements Using: | | | June 30, | | | Quoted Prices in Active Markets for Identical Assets | | | Significant Other Observable Inputs | | | Significant Unobservable Inputs | | (unaudited, in thousands) | | September 30, 2018 | | | Quoted Prices in Active Markets for Identical Assets (level 1) | | | Significant Other Observable Inputs (level 2) | | | Significant Unobservable Inputs (level 3) | | | Investments Measured at Net Asset Value | | | 2019 | | | (level 1) | | | (level 2) | | | (level 3) | | Recurring fair value measurements | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity securities | | $ | 12,784 | | | $ | 12,784 | | | $ | — | | | $ | — | | | $ | — | | | $ | 11,817 | | | $ | 11,817 | | | $ | — | | | $ | — | | Debtsecurities—available-for-sale | | | | | | | | | | | | Available-for-sale debt securities | | | | | | | | | | | | | | | | | | U.S. Treasury | | | 9,937 | | | | — | | | | 9,937 | | | | — | | | | — | | | | 29,781 | | | | — | | | | 29,781 | | | | — | | U.S. Government sponsored entities and agencies | | | 149,949 | | | | — | | | | 149,949 | | | | — | | | | — | | | | 134,587 | | | | — | | | | 134,587 | | | | — | | Residential mortgage-backed securities and collateralized mortgage obligations of government agencies | | | 1,449,754 | | | | — | | | | 1,449,754 | | | | — | | | | — | | | | 1,563,042 | | | | — | | | | 1,563,042 | | | | — | | Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 168,761 | | | | — | | | | 168,761 | | | | — | | | | — | | | | 178,656 | | | | — | | | | 178,656 | | | | — | | Obligations of state and political subdivisions | | | 186,651 | | | | — | | | | 185,125 | | | | 1,526 | | | | — | | | | 183,178 | | | | — | | | | 181,576 | | | | 1,602 | | Corporate debt securities | | | 43,180 | | | | — | | | | 43,180 | | | | — | | | | — | | | | 40,040 | | | | — | | | | 40,040 | | | | — | | | | | | | | | | | | | | | | | | | Total debtsecurities—available-for-sale | | $ | 2,008,232 | | | $ | — | | | $ | 2,006,706 | | | $ | 1,526 | | | $ | — | | | Total available-for-sale debt securities | | | $ | 2,129,284 | | | $ | — | | | $ | 2,127,682 | | | $ | 1,602 | | Loans held for sale | | | 55,913 | | | | — | | | | 55,913 | | | | — | | | | — | | | | 18,649 | | | | — | | | | 18,649 | | | | — | | Other assets—interest rate derivatives agreements | | | 6,451 | | | | — | | | | 6,451 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | Other assets - interest rate derivatives agreements | | | | 13,281 | | | | — | | | | 13,281 | | | | — | | Total assets recurring fair value measurements | | $ | 2,083,380 | | | $ | 12,784 | | | $ | 2,069,070 | | | $ | 1,526 | | | $ | — | | | $ | 2,173,031 | | | $ | 11,817 | | | $ | 2,159,612 | | | $ | 1,602 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other liabilities—interest rate derivatives agreements | | $ | 6,527 | | | $ | — | | | $ | 6,527 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | Other liabilities - interest rate derivatives agreements | | | $ | 14,774 | | | $ | — | | | $ | 14,774 | | | $ | — | | Total liabilities recurring fair value measurements | | $ | 6,527 | | | $ | — | | | $ | 6,527 | | | $ | — | | | $ | — | | | $ | 14,774 | | | $ | — | | | $ | 14,774 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nonrecurring fair value measurements | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired loans | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | Impaired Loans | | | $ | 2,434 | | | | — | | | | — | | | $ | 2,434 | | Other real estate owned and repossessed assets | | | 6,877 | | | | — | | | | — | | | | 6,877 | | | | — | | | | 4,973 | | | | — | | | | — | | | | 4,973 | | | | | | | | | | | | | | | | | | | Total nonrecurring fair value measurements | | $ | 6,877 | | | $ | — | | | $ | — | | | $ | 6,877 | | | $ | — | | | $ | 7,407 | | | $ | — | | | $ | — | | | $ | 7,407 | | | | | | | | | | | | | | | | | | |
22
| | | | | | | | | | | | | | | | December 31, 2018 | | | | | | | December 31, 2017 | | | | | | | Fair Value Measurements Using: | | | | | | | Fair Value Measurements Using: | | | December 31, | | | Quoted Prices in Active Markets for Identical Assets | | | Significant Other Observable Inputs | | | Significant Unobservable Inputs | | (unaudited, in thousands) | | December 31, 2017 | | | Quoted Prices in Active Markets for Identical Assets (level 1) | | | Significant Other Observable Inputs (level 2) | | | Significant Unobservable Inputs (level 3) | | | Investments Measured at Net Asset Value | | | (in thousands) | | | 2018 | | | (level 1) | | | (level 2) | | | (level 3) | | Recurring fair value measurements | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity securities | | $ | 13,457 | | | $ | 11,391 | | | $ | — | | | $ | — | | | $ | 2,066 | | | $ | 11,737 | | | $ | 11,737 | | | $ | — | | | $ | — | | Debtsecurities—available-for-sale | | | | | | | | | | | | Available-for-sale debt securities | | | | | | | | | | | | | | | | | | U.S. Treasury | | | | 19,878 | | | | — | | | | 19,878 | | | | — | | U.S. Government sponsored entities and agencies | | | 71,843 | | | | — | | | | 71,843 | | | | — | | | | — | | | | 141,652 | | | | — | | | | 141,652 | | | | — | | Residential mortgage-backed securities and collateralized mortgage obligations of government agencies | | | 934,922 | | | | — | | | | 934,922 | | | | — | | | | — | | | | 1,561,255 | | | | — | | | | 1,561,255 | | | | — | | Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 114,867 | | | | — | | | | 114,867 | | | | — | | | | — | | | | 168,972 | | | | — | | | | 168,972 | | | | — | | Obligations of state and political subdivisions | | | 104,830 | | | | — | | | | 104,830 | | | | — | | | | — | | | | 185,114 | | | | — | | | | 183,611 | | | | 1,503 | | Corporate debt securities | | | 35,403 | | | | — | | | | 35,403 | | | | — | | | | — | | | | 37,258 | | | | — | | | | 37,258 | | | | — | | | | | | | | | | | | | | | | | | | Total debtsecurities—available-for-sale | | $ | 1,261,865 | | | $ | — | | | $ | 1,261,865 | | | $ | — | | | $ | — | | | Total available-for-sale debt securities | | | $ | 2,114,129 | | | $ | — | | | $ | 2,112,626 | | | $ | 1,503 | | Loans held for sale | | | 20,320 | | | | — | | | | 20,320 | | | | — | | | | — | | | | 8,994 | | | | — | | | | 8,994 | | | | — | | Other assets—interest rate derivatives agreements | | | 7,351 | | | | — | | | | 7,351 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | Other assets - interest rate derivatives agreements | | | | 4,650 | | | | — | | | | 4,650 | | | | — | | Total assets recurring fair value measurements | | $ | 1,302,993 | | | $ | 11,391 | | | $ | 1,289,536 | | | $ | — | | | $ | 2,066 | | | $ | 2,139,510 | | | $ | 11,737 | | | $ | 2,126,270 | | | $ | 1,503 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other liabilities—interest rate derivatives agreements | | $ | 7,345 | | | $ | — | | | $ | 7,345 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | Other liabilities - interest rate derivatives agreements | | | $ | 5,081 | | | $ | — | | | $ | 5,081 | | | $ | — | | Total liabilities recurring fair value measurements | | $ | 7,345 | | | $ | — | | | $ | 7,345 | | | $ | — | | | $ | — | | | $ | 5,081 | | | $ | — | | | $ | 5,081 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nonrecurring fair value measurements | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired loans | | $ | 1,717 | | | $ | — | | | $ | — | | | $ | 1,717 | | | $ | — | | | Other real estate owned and repossessed assets | | | 5,297 | | | | — | | | | — | | | | 5,297 | | | | — | | | | 7,265 | | | | — | | | | — | | | | 7,265 | | | | | | | | | | | | | | | | | | | Total nonrecurring fair value measurements | | $ | 7,014 | | | $ | — | | | $ | — | | | $ | 7,014 | | | $ | — | | | $ | 7,265 | | | $ | — | | | $ | — | | | $ | 7,265 | | | | | | | | | | | | | | | | | | |
WesBanco’s policy is to recognize transfers between levels as of the actual date of the event or change in circumstances that caused the transfer. There were no significant transfers between level 1, 2 or 3 for the three and ninesix months ended SeptemberJune 30, 20182019 or for the year ended December 31, 2017.2018. 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 | | | Quantitative Information about Level 3 Fair Value Measurements | | | Fair Value | | | Valuation | | Unobservable | | Range (Weighted | (unaudited, in thousands) | | Fair Value Estimate | | | Valuation Techniques | | Unobservable Input | | Range (Weighted Average) | | | Estimate | | | Techniques | | Input | | Average) | September 30, 2018 | | | | | | | | | | June 30, 2019 | | | | | | | | | | | | Impaired loans | | $ | — | | | | Appraisal of collateral | (1) | | Appraisal adjustments | (2) | | | — | | | $ | 2,434 | | | Appraisal of collateral (1) | | Appraisal adjustments (2) | | (30.5%)/((30.5%) | | | | | | | Liquidation expenses | (2) | | | — | | | | | | | | | Liquidation expenses (2) | | (5.1%)/((5.1%) | Other real estate owned and repossessed assets | | | 6,877 | | | | Appraisal of collateral | (1), (3) | | | | | | $ | 4,973 | | | Appraisal of collateral (1), (3) | | | | | December 31, 2017: | | | | | | | | | | Impaired loans | | $ | 1,717 | | | | Appraisal of collateral | (1) | | Appraisal adjustments | (2) | | (4.8%) / (4.8 | %) | | | | | | | | Liquidation expenses | (2) | | (7.6%) / (7.6 | %) | | December 31, 2018 | | | | | | | | | | | | Other real estate owned and repossessed assets | | | 5,297 | | | | Appraisal of collateral | (1), (3) | | | | | | $ | 7,265 | | | 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 expensesexpense are presented as a percent of the appraisal. |
| (3) | Includes estimated liquidation expensesexpense and numerous dissimilar qualitative adjustments by management, which are not identifiable. |
23
The estimated fair values of WesBanco’s financial instruments are summarized below: | | | | | | | | | | | | | | | | | | | | | | Fair Value Measurements at | | | | | | | | | | Fair Value Measurements at | | | | | | | | | | | June 30, 2019 | | | | | | | | | | September 30, 2018 | | | Carrying | | | Fair Value | | | Quoted Prices in Active Markets for Identical Assets | | | Significant Other Observable Inputs | | | Significant Unobservable Inputs | | (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 | | | Amount | | | Estimate | | | (level 1) | | | (level 2) | | | (level 3) | | Financial Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and due from banks | | $ | 273,680 | | | $ | 273,680 | | | $ | 273,680 | | | $ | — | | | $ | — | | | $ | — | | | $ | 194,355 | | | $ | 194,355 | | | $ | 194,355 | | | $ | — | | | $ | — | | Equity securities | | | 12,784 | | | | 12,784 | | | | 12,784 | | | | — | | | | — | | | | — | | | | 11,817 | | | | 11,817 | | | | 11,817 | | | | — | | | | — | | Debt securitiesavailable-for-sale | | �� | 2,008,232 | | | | 2,008,232 | | | | — | | | | 2,006,706 | | | | 1,526 | | | | — | | | Debt securitiesheld-to-maturity | | | 1,025,538 | | | | 1,014,361 | | | | — | | | | 1,013,788 | | | | 573 | | | | — | | | Available-for-sale debt securities | | | | 2,129,284 | | | | 2,129,284 | | | | — | | | | 2,127,682 | | | | 1,602 | | Held-to-maturity debt securities | | | | 900,605 | | | | 921,534 | | | | — | | | | 920,989 | | | | 545 | | Net loans | | | 7,677,521 | | | | 7,517,958 | | | | — | | | | — | | | | 7,517,958 | | | | — | | | | 7,686,995 | | | | 7,674,887 | | | | — | | | | — | | | | 7,674,887 | | Loans held for sale | | | 55,913 | | | | 55,913 | | | | — | | | | 55,913 | | | | — | | | | — | | | | 18,649 | | | | 18,649 | | | | — | | | | 18,649 | | | | — | | Other assets—interest rate derivatives | | | 6,451 | | | | 6,451 | | | | — | | | | 6,451 | | | | — | | | | — | | | Other assets - interest rate derivatives | | | | 13,281 | | | | 13,281 | | | | — | | | | 13,281 | | | | — | | Accrued interest receivable | | | 39,465 | | | | 39,465 | | | | 39,465 | | | | — | | | | — | | | | — | | | | 38,450 | | | | 38,450 | | | | 38,450 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | Financial Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deposits | | | 8,941,758 | | | | 8,960,221 | | | | 7,428,158 | | | | 1,532,063 | | | | — | | | | — | | | | 8,694,928 | | | | 8,695,779 | | | | 7,329,812 | | | | 1,365,967 | | | | — | | Federal Home Loan Bank borrowings | | | 1,131,253 | | | | 1,123,441 | | | | — | | | | 1,123,441 | | | | — | | | | — | | | | 1,121,283 | | | | 1,127,210 | | | | — | | | | 1,127,210 | | | | — | | Other borrowings | | | 294,281 | | | | 294,285 | | | | 292,290 | | | | 1,995 | | | | — | | | | — | | | | 296,148 | | | | 296,574 | | | | 293,205 | | | | 3,369 | | | | — | | Subordinated debt and junior subordinated debt | | | 189,745 | | | | 179,497 | | | | — | | | | 179,497 | | | | — | | | | — | | | | 156,534 | | | | 144,410 | | | | — | | | | 144,410 | | | | — | | Other liabilities—interest rate derivatives | | | 6,527 | | | | 6,527 | | | | — | | | | 6,527 | | | | — | | | | — | | | Other liabilities - interest rate derivatives | | | | 14,774 | | | | 14,774 | | | | — | | | | 14,774 | | | | — | | Accrued interest payable | | | 6,623 | | | | 6,623 | | | | 6,623 | | | | — | | | | — | | | | — | | | | 6,559 | | | | 6,559 | | | | 6,559 | | | | — | | | | — | | | | | | | | | | | Fair Value Measurements at | | | | | | | | | | | December 31, 2017 | | | (unaudited, in thousands) | | Carrying Amount | | | Fair Value Estimate | | | Quoted Prices in Active Markets for Identical Assets (level 1) | | | Significant Other Observable Inputs (level 2) | | | Significant Unobservable Inputs (level 3) | | | Investments Measured at Net Asset Value | | | Financial Assets | | | | | | | | | | | | | | Cash and due from banks | | $ | 117,572 | | | $ | 117,572 | | | $ | 117,572 | | | $ | — | | | $ | — | | | $ | — | | | Equity securities | | | 13,457 | | | | 13,457 | | | | 11,391 | | | | — | | | | — | | | | 2,066 | | | Debt securitiesavailable-for-sale | | | 1,261,865 | | | | 1,261,865 | | | | — | | | | 1,261,865 | | | | — | | | | — | | | Debt securitiesheld-to-maturity | | | 1,009,500 | | | | 1,023,784 | | | | — | | | | 1,023,191 | | | | 593 | | | | — | | | Net loans | | | 6,296,157 | | | | 6,212,823 | | | | — | | | | — | | | | 6,212,823 | | | | — | | | Loans held for sale | | | 20,320 | | | | 20,320 | | | | — | | | | 20,320 | | | | — | | | | — | | | Other assets—interest rate derivatives | | | 7,351 | | | | 7,351 | | | | — | | | | 7,351 | | | | — | | | | — | | | Accrued interest receivable | | | 29,728 | | | | 29,728 | | | | 29,728 | | | | — | | | | — | | | | — | | | Financial Liabilities | | | | | | | | | | | | | | Deposits | | | 7,043,588 | | | | 7,053,536 | | | | 5,766,531 | | | | 1,287,005 | | | | — | | | | — | | | Federal Home Loan Bank borrowings | | | 948,203 | | | | 944,706 | | | | — | | | | 944,706 | | | | — | | | | — | | | Other borrowings | | | 184,805 | | | | 184,814 | | | | 182,785 | | | | 2,029 | | | | — | | | | — | | | Subordinated debt and junior subordinated debt | | | 164,327 | | | | 146,484 | | | | — | | | | 146,484 | | | | — | | | | — | | | Other liabilities—interest rate derivatives | | | 7,345 | | | | 7,345 | | | | — | | | | 7,345 | | | | — | | | | — | | | Accrued interest payable | | | 3,178 | | | | 3,178 | | | | 3,178 | | | | — | | | | — | | | | — | | |
| | | | | | | | | | Fair Value Measurements at | | | | | | | | | | | | December 31, 2018 | | | | Carrying | | | Fair Value | | | Quoted Prices in Active Markets for Identical Assets | | | Significant Other Observable Inputs | | | Significant Unobservable Inputs | | (in thousands) | | Amount | | | Estimate | | | (level 1) | | | (level 2) | | | (level 3) | | Financial Assets | | | | | | | | | | | | | | | | | | | | | Cash and due from banks | | $ | 169,186 | | | $ | 169,186 | | | $ | 169,186 | | | $ | — | | | $ | — | | Equity securities | | | 11,737 | | | | 11,737 | | | | 11,737 | | | | — | | | | — | | Available-for-sale debt securities | | | 2,114,129 | | | | 2,114,129 | | | | — | | | | 2,112,626 | | | | 1,503 | | Held-to-maturity debt securities | | | 1,020,934 | | | | 1,020,743 | | | | — | | | | 1,020,195 | | | | 548 | | Net loans | | | 7,607,333 | | | | 7,422,825 | | | | — | | | | — | | | | 7,422,825 | | Loans held for sale | | | 8,994 | | | | 8,994 | | | | — | | | | 8,994 | | | | — | | Other assets - interest rate derivatives | | | 4,650 | | | | 4,650 | | | | — | | | | 4,650 | | | | — | | Accrued interest receivable | | | 38,853 | | | | 38,853 | | | | 38,853 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | Financial Liabilities | | | | | | | | | | | | | | | | | | | | | Deposits | | | 8,831,633 | | | | 8,836,390 | | | | 7,376,023 | | | | 1,460,367 | | | | — | | Federal Home Loan Bank borrowings | | | 1,054,174 | | | | 1,051,401 | | | | — | | | | 1,051,401 | | | | — | | Other borrowings | | | 290,522 | | | | 290,854 | | | | 288,918 | | | | 1,936 | | | | — | | Subordinated debt and junior subordinated debt | | | 189,842 | | | | 174,448 | | | | — | | | | 174,448 | | | | — | | Other liabilities - interest rate derivatives | | | 5,081 | | | | 5,081 | | | | — | | | | 5,081 | | | | — | | Accrued interest payable | | | 4,627 | | | | 4,627 | | | | 4,627 | | | | — | | | | — | |
The following methods and assumptions were used to measure the fair value of financial instruments recorded at cost on WesBanco’s consolidated balance sheets: Cash and due from banks:The carrying amount for cash and due from banks is a reasonable estimate of fair value. Debt securitiesheld-to-maturity:Held-to-maturity debt securities:Fair values for debt securitiesheld-to-maturity are determined in the same manner as the investment securities, which are described above.
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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.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 9.10. REVENUE RECOGNITION WesBanco adopted ASU2014-09 as of January 1, 2018 under the modified retrospective approach and there was no material impact on WesBanco’s Consolidated Financial statements. Interest income, net securities gains (losses) gains and bank-owned life insurance are not in scope of ASC 606.606, Revenue from Contracts with Customers. For the revenue streams in scope of ASC 606 including- trust fees, service charges on deposits, electronic banking fees, allotment fees, net securities brokerage revenue, payment processing fees, electronic banking fees, mortgage banking income and net gain or loss on sale of other real estate owned – there are no significant judgements related to the amount and timing of revenue recognition. Trust fees: Fees are earned over a period of time between monthly and annually, per the related fee schedule. The fees are earned ratably over the period for investment, safekeeping and other services performed by WesBanco. The fees are accrued when earned based on the daily asset value on the last day of the quarter. In most cases, the fees are directly debited from the customer account. Service charges on deposits: There are monthly service charges for both commercial and personal banking customers, which are earned over the month per the related fee schedule based on the customers’ deposits. There are also transaction-based fees, which are earned based on specific transactions or customer activity within the customers’ deposit accounts. These are earned at the time the transaction or customer activity occurs. The fees are debited from the customer account. AllotmentNet securities brokerage revenue: Commission income is earned based on customer transactions and management of investments. The commission income from customers’ transactions is recognized when the transaction is complete. The commission income from the management of investments is earned continuously over a quarterly period.
Payment processing fees:AllotmentPayment processing fees are processing fees earned from the bill payment and electronic funds transfer (“EFT”) services provided under the name FirstNet. The fees are derived from both the individual consumer banking transactions and from businesses or service providers through monthly billing for total transactions occurring. These fees are earned at the time the transaction or customer activity occurs. The fees are debited from the customers’ anddeposit accounts or charged directly to the business’s deposit accounts.business or service provider. Electronic banking fees: Interchange and ATM fees are earned based on customer and ATM transactions. Revenue is recognized when the transaction is settled. Net securities brokerage revenue: Commission income is earned based on customer transactions and management of investments. The commission income from customers’ transactions is recognized when the transaction is complete. The commission income from the management of investments is earned continuously over a quarterly period.
Mortgage banking income: Income is earned when WesBanco-originated loans are sold to an investor on the secondary market. The investor bids on the loans. If the price is accepted, WesBanco delivers the loan documents to the investor. Once received and approved by the investor, revenue is recognized and the loans are derecognized from the Consolidated Balance Sheet. Prior to the loans being sold, they are classified as loans held for sale. Additionally, the changes in the fair value of the loans held for sale, loan commitments and related derivatives are included in mortgage banking income. Net gain or loss on sale of other real estate owned: Net gain or loss is recorded when other real estate is sold to a third party and the Bank collects substantially all of the consideration to which WesBanco is entitled in exchange for the transfer of the property. 25
The following table summarizes the point of revenue recognition and the income recognized for each of the revenue streams for the three and ninesix months ended SeptemberJune 30, 2018:2019 and 2018, respectively: | | | | | | | | | | | | | | | | | | Point of Revenue | | For the Three Months Ended June 30, | | | For the Six Months Ended June 30, | | (unaudited, in thousands) | | Point of Revenue Recognition | | For the Three Months Ended September 30, 2018 | | | For the Nine Months Ended September 30, 2018 | | | Recognition | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Revenue Streams | | | | | | | | | | | | | | | | | | | | | | | | | Trust fees | | | | | | | | | | | | | | | | | | | | | | | | | Trust account fees | | Over time | | $ | 4,006 | | | $ | 11,856 | | | Over time | | $ | 4,208 | | | $ | 3,558 | | | $ | 9,263 | | | $ | 7,850 | | WesMark fees | | Over time | | | 2,259 | | | | 6,664 | | | Over time | | | 2,131 | | | | 2,194 | | | | 4,191 | | | | 4,405 | | | | | | | | | | | | Total trust fees | | | | | 6,265 | | | | 18,520 | | | | | | 6,339 | | | | 5,752 | | | | 13,454 | | | | 12,255 | | Service charges on deposits | | | | | | | | | | | | | | | | | | | | | | | | | Commercial banking fees | | Over time | | | 563 | | | | 1,406 | | | Over time | | | 499 | | | | 462 | | | | 967 | | | | 869 | | Personal service charges | | At a point in time & over time | | | 5,750 | | | | 14,876 | | | At a point in time & over time | | | 5,698 | | | | 4,684 | | | | 11,780 | | | | 9,100 | | | | | | | | | | | | Total service charges on deposits | | | | | 6,313 | | | | 16,282 | | | | | | 6,197 | | | | 5,146 | | | | 12,747 | | | | 9,969 | | Net securities brokerage revenue | | | | | | | | | | | | | | | | | | | | | | | | | Annuity commissions | | At a point in time | | | 1,326 | | | | 3,836 | | | At a point in time | | | 1,454 | | | | 1,310 | | | | 2,815 | | | | 2,510 | | Equity and debt security trades | | At a point in time | | | 116 | | | | 304 | | | At a point in time | | | 103 | | | | 87 | | | | 206 | | | | 189 | | Managed money | | Over time | | | 173 | | | | 477 | | | Over time | | | 174 | | | | 163 | | | | 331 | | | | 304 | | Trail commissions | | Over time | | | 221 | | | | 698 | | | Over time | | | 242 | | | | 249 | | | | 481 | | | | 476 | | Total net securities brokerage revenue | | | | | | 1,973 | | | | 1,809 | | | | 3,833 | | | | 3,479 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total net securities brokerage revenue | | | | | 1,836 | | | | 5,315 | | | Allotment fees (1) | | At a point in time & over time | | | 311 | | | | 311 | | | Payment processing fees (1) | | | At a point in time & over time | | | 785 | | | | — | | | | 1,433 | | | | — | | Electronic banking fees | | At a point in time | | | 6,139 | | | | 16,697 | | | At a point in time | | | 7,154 | | | | 5,728 | | | | 13,046 | | | | 10,558 | | Mortgage banking income | | At a point in time | | | 1,521 | | | | 4,297 | | | At a point in time | | | 1,618 | | | | 1,670 | | | | 2,674 | | | | 2,776 | | Net gain or loss on sale of other real estate owned | | At a point in time | | | 150 | | | | 641 | | | Net gain on other real estate owned and other assets | | | At a point in time | | | 376 | | | | 229 | | | | 512 | | | | 491 | |
(1) Payment processing fees are included in other non-interest income. (1) | Allotment fees are included in othernon-interest income.
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NOTE 10.11. COMPREHENSIVE INCOME/(LOSS) The activity in accumulated other comprehensive income for the ninesix months ended SeptemberJune 30, 20182019 and 20172018 is as follows: | | | | | | | | | | | | | | | | | | | Accumulated Other Comprehensive Income/(Loss) (1) | | (unaudited, in thousands) | | Defined Benefit Plans | | | Unrealized Gains (Losses) on Debt Securities Available-for-Sale | | | Unrealized Gains on Debt Securities Transferred from Available-for-Sale to Held-to-Maturity | | | Total | | Balance at December 31, 2017 | | $ | (18,626 | ) | | $ | (13,250 | ) | | $ | 381 | | | $ | (31,495 | ) | | | | | | | | | | | | | | | | | | Other comprehensive income before reclassifications | | | — | | | | (33,013 | ) | | | — | | | | (33,013 | ) | Acquired FFKT Medical benefit plan | | | 4,235 | | | | — | | | | — | | | | 4,235 | | Amounts reclassified from accumulated other comprehensive income | | | 1,621 | | | | (9 | ) | | | (149 | ) | | | 1,463 | | | | | | | | | | | | | | | | | | | Period change | | | 5,856 | | | | (33,022 | ) | | | (149 | ) | | | (27,315 | ) | Adoption of Accounting Standard ASU2016-01(2) | | | — | | | | (1,063 | ) | | | — | | | | (1,063 | ) | | | | | | | | | | | | | | | | | | Balance at September 30, 2018 | | $ | (12,770 | ) | | $ | (47,335 | ) | | $ | 232 | | | $ | (59,873 | ) | | | | | | | | | | | | | | | | | | Balance at December 31, 2016 | | $ | (17,758 | ) | | $ | (9,890 | ) | | $ | 522 | | | $ | (27,126 | ) | | | | | | | | | | | | | | | | | | Other comprehensive income before reclassifications | | | — | | | | 4,740 | | | | — | | | | 4,740 | | Amounts reclassified from accumulated other comprehensive income | | | 1,679 | | | | 35 | | | | (165 | ) | | | 1,549 | | | | | | | | | | | | | | | | | | | Period change | | | 1,679 | | | | 4,775 | | | | (165 | ) | | | 6,289 | | | | | | | | | | | | | | | | | | | Balance at September 30, 2017 | | $ | (16,079 | ) | | $ | (5,115 | ) | | $ | 357 | | | $ | (20,837 | ) | | | | | | | | | | | | | | | | | |
| | Accumulated Other Comprehensive Income/(Loss) (1) | | (unaudited, in thousands) | | Defined Benefit Plans | | | Unrealized Gains (Losses) on Debt Securities Available-for-Sale | | | Unrealized Gains on Debt Securities Transferred from Available-for-Sale to Held-to-Maturity | | | Total | | Balance at December 31, 2018 | | $ | (16,542 | ) | | $ | (21,522 | ) | | $ | 193 | | | $ | (37,871 | ) | Other comprehensive income before reclassifications | | | — | | | | 40,996 | | | | — | | | | 40,996 | | Amounts reclassified from accumulated other comprehensive income | | | 1,129 | | | | (30 | ) | | | (111 | ) | | | 988 | | Period change | | | 1,129 | | | | 40,966 | | | | (111 | ) | | | 41,984 | | Balance at June 30, 2019 | | $ | (15,413 | ) | | $ | 19,444 | | | $ | 82 | | | $ | 4,113 | | | | | | | | | | | | | | | | | | | Balance at December 31, 2017 | | $ | (18,626 | ) | | $ | (13,250 | ) | | $ | 381 | | | $ | (31,495 | ) | Other comprehensive income before reclassifications | | | — | | | | (21,720 | ) | | | — | | | | (21,720 | ) | Amounts reclassified from accumulated other comprehensive income | | | 1,026 | | | | — | | | | (100 | ) | | | 926 | | Period change | | | 1,026 | | | | (21,720 | ) | | | (100 | ) | | | (20,794 | ) | Adoption of Accounting Standard ASU 2016-01 | | | — | | | | (1,063 | ) | | | — | | | | (1,063 | ) | Balance at June 30, 2018 | | $ | (17,600 | ) | | $ | (36,033 | ) | | $ | 281 | | | $ | (53,352 | ) |
(1) All amounts are net of tax. Related income tax expense or benefit is calculated using a combined Federal and State income tax rate approximating 23%. (1) | All amounts are net of tax. Related income tax expense or benefit is calculated using a combined Federal and State income tax rate approximating 23% in 2018 and 37% in all prior periods.
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(2) | See Note 1, Summary of Significant Accounting Policies for additional information about WesBanco’s adoption of ASU2016-01.
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The following table provides details about amounts reclassified from accumulated other comprehensive income for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively: | Details about Accumulated Other Comprehensive Income Components (unaudited, in thousands) | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | Affected Line Item in the Statement of Net Income | | | 2018 | | 2017 | | 2018 | | 2017 | | | Securitiesavailable-for-sale(1): | | | | | | | | | | | | Net securities gains/losses reclassified into earnings | | $ | (11 | ) | | $ | — | | | $ | (11 | ) | | $ | 55 | | | Net securities gains(Non-interest income) | | Related income tax benefit | | | 2 | | | | — | | | | 2 | | | (20 | ) | | Provision for income taxes | | | | | | | | | | | | | | | | | | Details about Accumulated Other Comprehensive Income/(Loss) Components | | | For the Three Months Ended June 30, | | | For the Six Months Ended June 30, | | | | Affected Line Item in the Statement of Net Income | (unaudited, in thousands) | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | | | Debt securities available-for-sale (1): | | | | | | | | | | | | | | | | | | | | | Net securities losses (gains) reclassified into earnings | | | $ | 4 | | | $ | — | | | $ | (38 | ) | | $ | — | | | | Net securities gains (Non-interest income) | Related income tax (benefit) expense | | | | (1 | ) | | | — | | | | 8 | | | | — | | | | Provision for income taxes | Net effect on accumulated other comprehensive income for the period | | | (9 | ) | | | — | | | | (9 | ) | | 35 | | | | | | 3 | | | | — | | | | (30 | ) | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Securitiesheld-to-maturity(1): | | | | | | | | | | | | Debt securities held-to-maturity (1): | | | | | | | | | | | | | | | | | | | | | Amortization of unrealized gain transferred fromavailable-for-sale | | | (64 | ) | | (66 | ) | | | (195 | ) | | (256 | ) | | Interest and dividends on securities (Interest and dividend income) | | | (94 | ) | | | (66 | ) | | | (149 | ) | | | (131 | ) | | | Interest and dividends on securities (Interest and dividend income) | Related income tax expense | | | 15 | | | 24 | | | | 46 | | | 91 | | | Provision for income taxes | | | 21 | | | | 15 | | | | 38 | | | | 31 | | | | Provision for income taxes | | | | | | | | | | | | | | | | | Net effect on accumulated other comprehensive income for the period | | | (49 | ) | | (42 | ) | | | (149 | ) | | (165 | ) | | | | | (73 | ) | | | (51 | ) | | | (111 | ) | | | (100 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Defined benefit plans(2): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortization of net loss and prior service costs | | | 772 | | | 816 | | | | 2,293 | | | 2,429 | | | Employee benefits(Non-interest expense) | | | 758 | | | | 764 | | | | 1,509 | | | | 1,520 | | | | Employee benefits (Non-interest expense) | Related income tax benefit | | | (177 | ) | | (303 | ) | | | (672 | ) | | (750 | ) | | Provision for income taxes | | | (173 | ) | | | (175 | ) | | | (380 | ) | | | (494 | ) | | | Provision for income taxes | | | | | | | | | | | | | | | | | Net effect on accumulated other comprehensive income for the period | | | 595 | | | 513 | | | | 1,621 | | | 1,679 | | | | | | 585 | | | | 589 | | | | 1,129 | | | | 1,026 | | | | | | | | | | | | | | | | | | | | | Total reclassifications for the period | | $ | 537 | | | $ | 471 | | | $ | 1,463 | | | $ | 1,549 | | | | | $ | 515 | | | $ | 538 | | | $ | 988 | | | $ | 926 | | | | | | | | | | | | | | | | | | | | |
(1) For additional detail related to unrealized gains on securities and related amounts reclassified from accumulated other comprehensive income, see Note 4, “Securities.” (1) | For additional detail related to unrealized gains on securities and related amounts reclassified from accumulated other comprehensive income, see Note 4, “Securities.”
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(2) | Included in the computation of net periodic pension cost. See Note 7, “Pension and Other Post Retirement Benefits”
(2) Included in the computation of net periodic pension cost. See Note 8, “Pension & Postretirement Medical Benefit Plans” for additional detail. |
NOTE 11.12. COMMITMENTS AND CONTINGENT LIABILITIES Commitments —In the normal course of business, WesBanco offersoff-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 ofnon-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 $0.7$1.8 million and $0.6$0.7 million as of SeptemberJune 30, 20182019 and December 31, 2017,2018, 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 SeptemberJune 30, 20182019 and December 31, 2017.2018. Contingent obligations andto purchase loans funded by other guaranteesentities include affordable housing plan guarantees, credit card guarantees, andloans sold with recourse as well as obligations underto the FHLB’s loan purchasing program.FHLB. Affordable housing plan guarantees are performance guarantees for various building project loans. The guarantee amortizes as the loan balances decrease. Credit card guarantees are credit card balances not owned by WesBanco, whereby the Bank guarantees the performance of the cardholder. The mortgages sold to FHLB obligate WesBanco to reimburse the FHLB for a portion of any loan balances that default. The following table presents total commitments to extend credit, guarantees and various letters of credit outstanding: | | | | | | June 30, | | | December 31, | | (unaudited, in thousands) | | September 30, 2018 | | | December 31, 2017 | | | 2019 | | | 2018 | | Lines of credit | | $ | 1,855,388 | | | $ | 1,452,697 | | | $ | 1,909,282 | | | $ | 1,894,030 | | Loans approved but not closed | | | 349,173 | | | | 245,644 | | | | 299,081 | | | | 258,778 | | Overdraft limits | | | 154,221 | | | | 126,671 | | | | 152,207 | | | | 153,572 | | Letters of credit | | | 41,515 | | | | 31,951 | | | | 45,960 | | | | 42,841 | | Contingent obligations and other guarantees | | | 5,725 | | | | 6,700 | | | | 48,654 | | | | 61,509 | |
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 12.13. 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 certainnon-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 $4.7$4.5 billion and $3.9$4.0 billion at SeptemberJune 30, 20182019 and 2017,2018, 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) | | Community Banking | | | Trust and Investment Services | | | Consolidated | | | Banking | | | Services | | | Consolidated | | For the Three Months ended September 30, 2018: | | | | | | | | Interest income | | $ | 108,393 | | | $ | — | | | $ | 108,393 | | | For The Three Months Ended June 30, 2019 | | | | | | | | | | | | | | Interest and dividend income | | | $ | 119,543 | | | $ | — | | | $ | 119,543 | | Interest expense | | | 18,460 | | | | — | | | | 18,460 | | | | 21,083 | | | | — | | | | 21,083 | | | | | | | | | | | | | Net interest income | | | 89,933 | | | | — | | | | 89,933 | | | | 98,460 | | | | — | | | | 98,460 | | Provision for credit losses | | | 1,035 | | | | — | | | | 1,035 | | | | 2,747 | | | | — | | | | 2,747 | | | | | | | | | | | | | Net interest income after provision for credit losses | | | 88,898 | | | | — | | | | 88,898 | | | | 95,713 | | | | — | | | | 95,713 | | Non-interest income | | | 19,959 | | | | 6,265 | | | | 26,224 | | | | 24,817 | | | | 6,339 | | | | 31,156 | | Non-interest expense | | | 72,378 | | | | 3,742 | | | | 76,120 | | | | 67,957 | | | | 3,995 | | | | 71,952 | | | | | | | | | | | | | Income before provision for income taxes | | | 36,479 | | | | 2,523 | | | | 39,002 | | | | 52,573 | | | | 2,344 | | | | 54,917 | | Provision for income taxes | | | 5,986 | | | | 530 | | | | 6,516 | | | | 9,611 | | | | 492 | | | | 10,103 | | | | | | | | | | | | | Net income | | $ | 30,493 | | | $ | 1,993 | | | $ | 32,486 | | | $ | 42,962 | | | $ | 1,852 | | | $ | 44,814 | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months ended September 30, 2017: | | | | | | | | Interest income | | $ | 85,489 | | | $ | — | | | $ | 85,489 | | | For The Three Months Ended June 30, 2018 | | | | | | | | | | | | | | Interest and dividend income | | | $ | 98,888 | | | $ | — | | | $ | 98,888 | | Interest expense | | | 11,235 | | | | — | | | | 11,235 | | | | 16,541 | | | | — | | | | 16,541 | | | | | | | | | | | | | Net interest income | | | 74,254 | | | | — | | | | 74,254 | | | | 82,347 | | | | — | | | | 82,347 | | Provision for credit losses | | | 2,516 | | | | — | | | | 2,516 | | | | 1,708 | | | | — | | | | 1,708 | | | | | | | | | | | | | Net interest income after provision for credit losses | | | 71,738 | | | | — | | | | 71,738 | | | | 80,639 | | | | — | | | | 80,639 | | Non-interest income | | | 15,541 | | | | 5,358 | | | | 20,899 | | | | 17,656 | | | | 5,752 | | | | 23,408 | | Non-interest expense | | | 52,355 | | | | 3,399 | | | | 55,754 | | | | 60,026 | | | | 3,517 | | | | 63,543 | | | | | | | | | | | | | Income before provision for income taxes | | | 34,924 | | | | 1,959 | | | | 36,883 | | | | 38,269 | | | | 2,235 | | | | 40,504 | | Provision for income taxes | | | 9,744 | | | | 783 | | | | 10,527 | | | | 6,865 | | | | 470 | | | | 7,335 | | | | | | | | | | | | | Net income | | $ | 25,180 | | | $ | 1,176 | | | $ | 26,356 | | | $ | 31,404 | | | $ | 1,765 | | | $ | 33,169 | | | | | | | | | | | | | | | | | | | | | | | | For the Nine Months ended September 30, 2018: | | | | | | | | Interest income | | $ | 293,596 | | | $ | — | | | $ | 293,596 | | | For the Six Months Ended June 30, 2019 | | | | | | | | | | | | | | Interest and dividend income | | | $ | 238,596 | | | $ | — | | | $ | 238,596 | | Interest expense | | | 48,127 | | | | — | | | | 48,127 | | | | 41,774 | | | | — | | | | 41,774 | | | | | | | | | | | | | Net interest income | | | 245,469 | | | | — | | | | 245,469 | | | | 196,822 | | | | — | | | | 196,822 | | Provision for credit losses | | | 4,911 | | | | — | | | | 4,911 | | | | 5,254 | | | | — | | | | 5,254 | | | | | | | | | | | | | Net interest income after provision for credit losses | | | 240,558 | | | | — | | | | 240,558 | | | | 191,568 | | | | — | | | | 191,568 | | Non-interest income | | | 55,195 | | | | 18,520 | | | | 73,715 | | | | 45,475 | | | | 13,454 | | | | 58,929 | | Non-interest expense | | | 183,298 | | | | 10,936 | | | | 194,234 | | | | 138,233 | | | | 8,152 | | | | 146,385 | | | | | | | | | | | | | Income before provision for income taxes | | | 112,455 | | | | 7,584 | | | | 120,039 | | | | 98,810 | | | | 5,302 | | | | 104,112 | | Provision for income taxes | | | 19,262 | | | | 1,593 | | | | 20,855 | | | | 17,848 | | | | 1,113 | | | | 18,961 | | | | | | | | | | | | | Net income | | $ | 93,193 | | | $ | 5,991 | | | $ | 99,184 | | | $ | 80,962 | | | $ | 4,189 | | | $ | 85,151 | | | | | | | | | | | | | | | | | | | | | | | | For the Nine Months ended September 30, 2017: | | | | | | | | Interest income | | $ | 247,573 | | | $ | — | | | $ | 247,573 | | | For the Six Months Ended June 30, 2018 | | | | | | | | | | | | | | Interest and dividend income | | | $ | 185,203 | | | $ | — | | | $ | 185,203 | | Interest expense | | | 30,461 | | | | — | | | | 30,461 | | | | 29,667 | | | | — | | | | 29,667 | | | | | | | | | | | | | Net interest income | | | 217,112 | | | | — | | | | 217,112 | | | | 155,536 | | | | — | | | | 155,536 | | Provision for credit losses | | | 7,610 | | | | — | | | | 7,610 | | | | 3,876 | | | | — | | | | 3,876 | | | | | | | | | | | | | Net interest income after provision for credit losses | | | 209,502 | | | | — | | | | 209,502 | | | | 151,660 | | | | — | | | | 151,660 | | Non-interest income | | | 48,833 | | | | 17,073 | | | | 65,906 | | | | 35,236 | | | | 12,255 | | | | 47,491 | | Non-interest expense | | | 156,102 | | | | 9,921 | | | | 166,023 | | | | 110,920 | | | | 7,194 | | | | 118,114 | | | | | | | | | | | | | Income before provision for income taxes | | | 102,233 | | | | 7,152 | | | | 109,385 | | | | 75,976 | | | | 5,061 | | | | 81,037 | | Provision for income taxes | | | 27,940 | | | | 2,861 | | | | 30,801 | | | | 13,276 | | | | 1,063 | | | | 14,339 | | | | | | | | | | | | | Net income | | $ | 74,293 | | | $ | 4,291 | | | $ | 78,584 | | | $ | 62,700 | | | $ | 3,998 | | | $ | 66,698 | | | | | | | | | | | | |
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Totalnon-fiduciary assets of the trust and investment services segment were $5.1$3.9 million (including $2.6 million of trust customer intangibles) and $1.7 million at SeptemberJune 30, 20182019 and 2017,2018, respectively. All other assets, including goodwill and the remainder of other intangible assets, were allocated to the communityCommunity Banking segment. NOTE 14 SUBSEQUENT EVENTS On July 23, 2019, WesBanco and Old Line Bancshares, Inc. (“Old Line”), a bank holding company headquartered in Bowie, MD with approximately $3.1 billion in assets, $2.4 billion in loans, $2.4 billion deposits, $0.4 billion in stockholders’ equity and 37 branches, jointly announced that a definitive Agreement and Plan of Merger was executed providing for the merger of Old Line with and into WesBanco. On the date of the announcement, the transaction was valued at approximately $500.1 million. Under the terms of the Agreement and Plan of Merger (“Agreement”), which has been approved by that board of directors of both companies, WesBanco will exchange its common stock for Old Line common stock at closing, subject to customary conditions. Old Line options will be exchanged for WesBanco shares, as adjusted as to exercise price and number of options to take into account the fixed exchange ratio stated in the Agreement. Old Line stockholders will be entitled to receive 0.7844 shares of WesBanco common stock per each share of Old Line common stock for a total value of $29.22 per share, as of the date of the announcement. The receipt by Old Line stockholders of shares of WesBanco common stock in exchange for their shares of Old Line common stock is anticipated to qualify as a tax-free exchange. The acquisition is subject to the approvals of the appropriate banking segment. regulatory authorities and the stockholders of Old Line and WesBanco. It is expected that the transaction will be completed in the fourth quarter of 2019 or first quarter of 2020.29
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of WesBanco for the three and ninesix months ended SeptemberJune 30, 2018.2019. 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 Form10-K for the year ended December 31, 20172018 and documents subsequently filed by WesBanco with the Securities and Exchange Commission (“SEC”), including WesBanco’s Form10-Q for the quartersquarter ended March 31, and June 30, 2018,2019, 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 Form10-K filed with the SEC under “Risk Factors” in Part I, Item 1A.1A of WesBanco’s Annual Report on Form 10-K. Such statements are subject to important factors that could cause actual results to differ materially from those contemplated by such statements, including, without limitation, that the businesses of WesBanco and FFKTOld Line may not be integrated successfully or such integration may take longer to accomplish than expected;excepted; the expected cost savings and any revenue synergies from the merger of WesBanco and FFKTOld Line may not be fully realized within the expected timeframes; disruption from the merger of WesBanco and FFKTOld Line may make it more difficult to maintain relationships with clients, associates, or suppliers; 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;cyber security breaches; 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 209199 branches and 202194 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 April 5, 2018, WesBanco completed its acquisition of FTSB, a bank holding company headquartered in Huntington, WV with approximately $705.6 million in assets, excluding goodwill, $590.1 million in deposits and $448.1 million in loans. FTSB’s results were included in WesBanco’s results from the date of the merger consummation.
On August 20, 2018, WesBanco completed its acquisition of FFKT, a bank holding company headquartered in Frankfort, KY with approximately $1,633.7 million in assets, excluding goodwill, $1,330.3 million in deposits and $1,028.1 million in loans. FFKT’s results were included in WesBanco’s results from the date of the 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 SeptemberJune 30, 20182019 have remained unchanged from the disclosures presented in WesBanco’s Annual Report on Form10-K for the year ended December 31, 20172018 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 SeptemberJune 30, 20182019 was $32.4$44.8 million, with diluted earnings per share of $0.64,$0.82, compared to $26.4$33.2 million and $0.60$0.71 per diluted share, respectively, for the thirdsecond quarter of 2017. For2018. Net income for the ninesix months ended SeptemberJune 30, 2018, net income2019 was $99.2$85.2 million, or $2.11with diluted earnings per share of $1.56, compared to $66.7 million and $1.47 per diluted share, comparedrespectively for the six months ended June 30, 2018. Excluding after-tax merger-related expenses (non-GAAP measure) in both periods, net income and diluted earnings per share would have increased 19.9% to $78.6$44.9 million, or $1.78 per diluted share, for the 2017 period. Net Income excludingafter-tax merger-related expenses for the three months ended September 30, 2018, increased 55.6% to $41.0 million, or $0.81 per diluted share as compared to $0.60$0.82 per diluted share for the three months ended SeptemberJune 30, 2017(non-GAAP measures). On2019, as compared to the same basis,prior year quarter; and net income for the ninesix months ended SeptemberJune 30, 20182019 increased 42.2%23.2% year-over-year to $112.2$87.7 million, or $2.38$1.60 per diluted share versus $1.79$1.57 per diluted share forin the nine months ended September 30, 2017(non-GAAP measures).prior year period. | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | | For The Three Months Ended June 30, | | | For the Six Months Ended June 30, | | | | 2018 | | 2017 | | | 2018 | | 2017 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | (unaudited, dollars in thousands, except per share amounts) | | Net Income | | Diluted Earnings Per Share | | Net Income | | | Diluted Earnings Per Share | | | Net Income | | Diluted Earnings Per Share | | Net Income | | Diluted Earnings Per Share | | | Net Income | | | Diluted Earnings Per Share | | | Net Income | | | Diluted Earnings Per Share | | | Net Income | | | Diluted Earnings Per Share | | | Net Income | | | Diluted Earnings Per Share | | Net income(Non-GAAP)(1) | | $ | 41,027 | | | $ | 0.81 | | | $ | 26,356 | | | $ | 0.60 | | | $ | 112,194 | | | $ | 2.38 | | | $ | 78,903 | | | $ | 1.79 | | | $ | 44,878 | | | $ | 0.82 | | | $ | 37,445 | | | $ | 0.80 | | | $ | 87,670 | | | $ | 1.60 | | | $ | 71,167 | | | $ | 1.57 | | Less: After tax merger-related expenses | | | (8,541 | ) | | | (0.17 | ) | | | — | | | | — | | | | (13,010 | ) | | | (0.27 | ) | | (319 | ) | | (0.01 | ) | | | (64 | ) | | | — | | | | (4,276 | ) | | | (0.09 | ) | | | (2,519 | ) | | | (0.04 | ) | | | (4,469 | ) | | | (0.10 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income (GAAP) | | $ | 32,486 | | | $ | 0.64 | | | $ | 26,356 | | | $ | 0.60 | | | $ | 99,184 | | | $ | 2.11 | | | $ | 78,584 | | | $ | 1.78 | | | $ | 44,814 | | | $ | 0.82 | | | $ | 33,169 | | | $ | 0.71 | | | $ | 85,151 | | | $ | 1.56 | | | $ | 66,698 | | | $ | 1.47 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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. (1) | Non-GAAP net income excludesafter-tax merger-related expenses. The abovenon-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.
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Net interest income increased $15.7$16.1 million or 21.1% during19.6% in the thirdsecond quarter of 2018 as2019 compared to the same quarter of 20172018 due to an 18.1%11.5% increase in average totalearning assets. In addition, the yield on earning assets primarily drivenhas increased a total of 34 basis points since the second quarter of 2018 while there was somewhat of an offset by a 17 basis points increase in the acquisitionscost of FTSB and FFKTinterest bearing liabilities, producing an increase in the net spread on earning assets of 17 basis points year-over-year. The net interest margin increased by 24 basis points to 3.67% in the second quarter of 2019 compared to 3.43% in the second quarter of 2018. The net interest margin benefited from increases in the Federal Reserve Board’s target federal funds rate during 2018 as well as an increase in non-interest bearing demand deposits. The increase in the related accretion from purchase accounting. For the nine months ended September 30, 2018, netcost of interest income increased $28.4 million or 13.1%bearing liabilities is primarily due to higher average total earning assetsrates for interest bearing public funds, higher certificates of deposit costs and certain Federal Home Loan Bank and other borrowings. Accretion from a larger investment portfolio and the earning assets acquired from FTSB and FFKT. Accretion fromprior acquisitions benefited the thirdsecond quarter of 2018 net interest margin by approximately 1118 basis points, as compared to 12 basis points forin the same quarter of 2017.prior year period. The provision for credit losses decreasedincreased to $1.0$2.7 million in the thirdsecond quarter of 2018,2019, compared to $2.5$1.7 million in the thirdsecond quarter of 2017,2018. The increased provision is due primarily to continued strengtha $40.8 million increase in criticized and classified loans as of June 30, 2019 as compared to June 30, 2018, reflecting our normal loan grade review process post-acquisition of FFKT, as well as two larger downgraded relationships in the credit quality of thelegacy loan portfolio. Annualized net loanportfolio, as reported last quarter. Net charge-offs, (recoveries), as a percentage of average portfolio loans decreasedwas 0.05% and 0.03% for second quarter of 2019 and 2018, respectively. For the second quarter of 2019, non-interest income increased $7.7 million or 33.1% compared to the second quarter of 2018 driven by net securities gains, electronic banking fees, service charges on deposit and payment processing fees. Net securities gains increased $2.6 million due to the sale of WesBanco’s Visa Class B shares. Electronic banking fees increased $1.4 million or 24.9%, service charges on deposits increased $1.1 million or 20.4%, payment processing fees increased $0.8 million or 100% and trust fees increased $0.6 million or 10.2% for the second quarter of 2019 compared to the second quarter of 2018. Payment processing fees are from 0.12%a business acquired from FFKT, which provides bill payment and electronic funds transfer services for its customers. Non-interest income increased $11.4 million or 24.1% for the six months ended June 30, 2019 as of September 30, 2017compared to net recoveries of (0.02)% as of Septemberthe six months ended June 30, 2018. ForNon-interest expense in the thirdsecond quarter of 2018,non-interest income2019 increased $5.3by $8.4 million or 25.5%13.2%, compared to the third quarter of 2017 due to the acquisitions of FTSB on April 5, 2018 and FFKT on August 20, 2018. The increase is driven by a $1.3 million increase in electronic banking fees, a $1.0 million increase in services charges on deposits, a $0.9 million increase in trust fees and a $1.0 million increase in other income compared to the third quarter of 2017. For the nine months ended September 30, 2018,non-interest income increased $7.8 million or 11.8% compared to the nine months ended September 30, 2017, again driven by the acquisitions of FTSB and FFKT.
Non-interest expense in the thirdsecond quarter of 2018, increased by $20.4 million or 36.5% compared to the same quarter in 2017which is primarily due to the FTSB and FFKT acquisitions. For the third quarter, restructuring and merger-related expenses increased $10.8 million and salariesSalaries and wages increased $5.4$4.8 million coupled with increasesor 17.8% and employee benefit expense increased $1.7 million or 21.8% compared to last year’s second quarter as full-time equivalent personnel increased 15.3% due in various other expense categories.part to the FTSB and FFKT acquisitions as well as additions to key revenue-producing positions throughout the markets. For the nine months ended September 30, 2018, restructuring andsecond quarter of 2019, merger-related expenses increased $16.0were $0.1 million and salaries and wages increased $10.6 million, which were partially offset by a $0.9 million decrease in employee benefits. Excluding merger-related expenses,non-interest expense increased $9.6 million or 17.1% forrelated to the three months ended September 30, 2018FFKT merger as compared to the same period in 2017 and increased $12.2$5.4 million or 7.4% for the nine months ended September 30, 2018 as compared to the same period in 2017.
The effective income tax rate and associated provision for income taxes for the thirdsecond quarter of 2018 are reflective ofrelated to the recently enacted “Tax CutsFTSB and Jobs Act”, which lowered the statutory Federal income tax rate for corporations to 21%. FFKT mergers.
During the thirdsecond quarter, the effective tax rate was 16.71%18.40% as compared to 28.54%18.11% last year, while the provision for income taxes decreased $4.0increased $2.8 million to $6.5$10.1 million despitedue to higher year-over-yearpre-tax income. NET INTEREST INCOME TABLE 1. NET INTEREST INCOME | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | For the Three Months Ended June 30, | | | For the Six Months Ended June 30, | | (unaudited, dollars in thousands) | | 2018 | | 2017 | | 2018 | | 2017 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Net interest income | | $ | 89,933 | | | $ | 74,254 | | | $ | 245,469 | | | $ | 217,112 | | | $ | 98,460 | | | $ | 82,347 | | | $ | 196,822 | | | $ | 155,536 | | Taxable equivalent adjustments to net interest income | | | 1,415 | | | 2,618 | | | | 4,045 | | | 7,871 | | | | | | | | | | | | | | | | | Taxable equivalent adjustment to net interest income | | | | 1,367 | | | | 1,344 | | | | 2,840 | | | | 2,629 | | Net interest income, fully taxable equivalent | | $ | 91,348 | | | $ | 76,872 | | | $ | 249,514 | | | $ | 224,983 | | | $ | 99,827 | | | $ | 83,691 | | | $ | 199,662 | | | $ | 158,165 | | | | | | | | | | | | | | | | Net interest spread,non-taxable equivalent | | | 3.21 | % | | 3.20 | % | | | 3.16 | % | | 3.18 | % | | | 3.32 | % | | | 3.15 | % | | | 3.33 | % | | | 3.13 | % | Benefit of netnon-interest bearing liabilities | | | 0.24 | % | | 0.16 | % | | | 0.22 | % | | 0.15 | % | | | 0.30 | % | | | 0.23 | % | | | 0.30 | % | | | 0.22 | % | | | | | | | | | | | | | | | Net interest margin | | | 3.45 | % | | 3.36 | % | | | 3.38 | % | | 3.33 | % | | | 3.62 | % | | | 3.38 | % | | | 3.63 | % | | | 3.35 | % | Taxable equivalent adjustment | | | 0.05 | % | | 0.12 | % | | | 0.06 | % | | 0.12 | % | | | 0.05 | % | | | 0.05 | % | | | 0.05 | % | | | 0.06 | % | | | | | | | | | | | | | | | Net interest margin, fully taxable equivalent | | | 3.50 | % | | 3.48 | % | | | 3.44 | % | | 3.45 | % | | | 3.67 | % | | | 3.43 | % | | | 3.68 | % | | | 3.41 | % | | | | | | | | | | | | | | |
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, (depositsprimarily deposits and short and long-term borrowings).borrowings. Net interest income is affected by the general level of, 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 $15.7$16.1 million or 21.1%19.6% in the thirdsecond quarter of 2019 compared to the second quarter of 2018, compared to 2017, due to an 18.1%11.5% increase in average earning asset balances, primarily driven by the acquisitionsacquisition of FTSB and FFKT and related net asset accretion from purchase accounting. For the first ninesix months of 2018,2019, net interest income increased $28.4$41.3 million or 13.1% over the same 2017 period26.5% for the same reasons along with higher securities balances.the acquisition of FTSB. Average loan balances increased by 13.0%13.5% in the thirdsecond quarter of 20182019 from the acquisitionsacquisition of FTSB and FFKT compared to the thirdsecond quarter of 2017, as organic2018. Organic loan growth was slightly downdecreased 1.1% from continued targeted reductions in the consumer portfoliolast year due to reduce its risk profile,lower home equity loan balances due to lower demand as a result of higher interest rates and tax changes, elevated levels of commercial real estate loans moving to an aggressivethe secondary financing market and continued deleveraging by commercial customers reflective of the current operating environment.environment and higher cash levels from tax reform. Total average deposits increased in the thirdsecond quarter of 2019 by $1.1 billion or 14.5% compared to the second quarter of 2018, by $1.2 billion or 16.7% compareddue specifically to the thirddeposits acquired from FFKT. The net interest margin increased by 24 basis points to 3.67% in the second quarter of 2017, while certificates of deposit, which have the highest overall interest cost among deposits, increased by only $72.1 million or 5.3% over2019 from the same time period.quarter of 2018. The effect of multiplemargin benefited from increases in the Federal Reserve’s target federal funds rate over the past yearduring 2018 and higher margins on the acquired FFKT assets, partially offset by higher funding costs and FTSB assets ona flattening of the net interest margin were mitigated by lower tax equivalent yields ontax-exempt securities resulting from the decreaseyield curve in the corporate tax rate to 21% for 2018. Due to this adjustment intax-equivalency, the net interest margin increased by only 2 basis points to 3.50% for the third quarter of 2018 compared to 3.48% in the third quarter of 2017.2019. Yields increased for all earning asset categories in 2018 except fortax-exempt securities.2019. The cost of interest bearing liabilities increased by 2817 basis points from the thirdsecond quarter of 20172018 to the thirdsecond quarter of 2018.2019. The increase in the cost is primarily due to rate increases for larger balance customers in interest bearing demand deposits, which include public funds, and higher rates for certaincertificates of deposit, customer repurchase agreements, short to medium-term Federal Home Loan Bank borrowings.borrowings and junior subordinated debentures. Approximately 1118 basis points of accretion from the FFKT FTSB and other prior acquisitions was included in the 2018 thirdsecond quarter 2019 net interest margin compared to 12 basis points in the 2017 third2018 second quarter net interest margin. 31
Interest income increased $22.9$20.7 million or 26.8%20.9% in the thirdsecond quarter of 20182019 and $46.0$53.4 million or 18.6%28.8% in the first nine monthshalf of 20182019 compared to the same periods of 20172018 due to higher overall earning assets, particularly from the FFKTFTSB and FTSBFFKT acquisitions, and higher yields in almost every earning asset category. Earning asset yields were influenced positively in the thirdsecond quarter of 2019 compared to the second quarter of 2018 compared to the third quarter of 2017 due to four federal funds rate increases occurring duringthrough the past twelve months.second half of 2018. Average loan balances increased by $831.0$914.8 million or 13.0%13.5% in the thirdsecond quarter of 2019 compared to the second quarter of 2018, compared to the same period of 2017, due to the acquisitionsacquisition of FFKT and FTSB.FFKT. Loan yields increased by 3938 basis points during this same period to 4.75%5.02% from the previously mentioned federal funds rate increases.increases and accretion from purchase accounting from the FFKT acquisition. Loans provide the greatest impact on interest income and the yield on earning assets as they have the largest balance and the highest yield within major earning asset categories. In the thirdsecond quarter of 2018,2019, average loans represented 69.7%70.6% of average earning assets, a decreasean increase from 72.9%69.4% in the thirdsecond quarter of 2017, primarily due to purchases of taxable securities in 2018 exceeding average loan growth.2018. Average taxable securities balances increased by $599.4$207.7 million or 37.6%9.8% from the third quarter of 2017, consistent with management’s strategy of growing total assets above $10 billion, which occurred during the firstsecond quarter of 2018, primarily due to improve profitability. Totalthe securities acquired in the FFKT acquisition. Taxable securities yields decreasedincreased by 615 basis points and tax-exempt securities yields increased by 10 basis points in the thirdsecond quarter of 2019 from the second quarter of 2018 from the third quarter of 2017 due to the lowertax-equivalency benefit ontax-exempt securities, resulting from the “Tax Cuts and Jobs Act”, which decreased the corporate tax rate from 35% to 21%. This lower benefit was offset somewhat by higher market rates on all securities acquired and purchased in 2018.Tax-exempt securities yields decreased 72 basis points inover the third quarter of 2018 from the third quarter of 2017 from the lowertax-equivalency benefit; however, this yield decrease only affected the net interest margin and not net interest income, as the tax effect is included in the provision for income taxes.last four quarters. The average balance oftax-exempt securities, which have the highest yields within securities, also decreased to 26.4%24.1% of total average securities in 2018the second quarter of 2019 compared to 31.1%26.1% in the third quarter of 2017. Taxable securities yields increased by 30 basis points in the thirdsecond quarter of 2018, as compared to the third quarter of 2017mostly due to the previously mentioned purchases at higher current rates.sale of lower-yielding tax-exempt municipal securities late in the first quarter of 2019. Total portfolio loans increased $1.4 billion$945.0 million or 21.2%13.9% over the last twelve months, while total commercial loans increased $1.1 billion$694.4 million or 25.6%15.5%. Loan growth was achieved through $2.1$2.5 billion in total loan originations, led by $1.3$1.6 billion in business loan originations for the past twelve months. Loan growth was driven by the acquisitionsacquisition of FTSB and FFKT, expanded market areas and additional commercial personnel in our core markets, partially offset by significant loan paydowns or payoffs as some loans moved into the secondary lending market by customers who refinanced their mortgages, and targeted reductions of the consumer portfolio to reduce the risk profile of the loan portfolio.commercial real estate mortgages. Interest expense increased $7.2$4.5 million or 64.3%27.5% in the thirdsecond quarter of 20182019 and $17.7$12.1 million or 58.0%year-to-date40.8% for the six months ended June 30, 2019 as compared to the same periods of 2017,in 2018, due primarily to increases in the balances of interest bearing liabilities from the acquisitions of FFKTFTSB and FTSBFFKT and increases in the rates paid on all interest bearing liability categories. The cost of interest bearing liabilities increased by 2817 basis points from the thirdsecond quarter of 20172018 to 0.95%1.08% in the third quarter of 2018.2019. Average interest bearing deposits increased by $789.3$662.1 million or 15.0%11.7% from the thirdsecond quarter of 2017,2018, due primarily to the acquisitionsacquisition of FFKT and FTSB as well as organic deposit growth, which offset a $272.6 million or 19.9% decrease in certificates of deposit, excluding those acquired from FFKT and FTSB.FFKT. The rate on interest bearing deposits increased by 1617 basis points from the thirdsecond quarter of 2017,2018, primarily from increases in rates on interest bearing public funds.funds and for certain larger balance customers. Averagenon-interest bearing demand depositsdeposit balances increased from the third quarter of 2017 to the thirdsecond quarter of 2018 to the second quarter of 2019 by $391.5$456.1 million or 21.5%22.5% and are were 26.8%28.2% of total average deposits at SeptemberJune 30, 2019, compared to 26.4% at June 30, 2018, compared to 25.7% at September 30, 2017, reflecting the acquisitions’acquired FFKT non-interest bearing demand deposits and ongoing checking account marketing strategies. Organic averagenon-interest bearing demand deposits increased $109.5by $104.0 million or 6.0%5.1% during this same time period. The increase innon-interest bearing deposits reflectreflects positively inon the net interest margin, as the benefit ofnon-interest bearing liabilities increased by 8seven basis points from the thirdsecond quarter of 20172018 to 2019. The average balance of FHLB borrowings decreased by $172.9 million from the thirdsecond quarter of 2018.2018 to 2019; however, the average rate paid increased by 48 basis points to 2.50% over this same time period due to higher interest rates on new borrowings and the maturity of some legacy lower-rate borrowings in the first half of 2019. Average other borrowings and junior subordinated debt balances increased by $100.1$39.2 million or 28.7%8.8% from the thirdsecond quarter of 2017,2018 to 2019 due to the acquisitionsacquisition of FFKT, and FTSB, and their average rates paid increased by 5743 and 6338 basis points, respectively, over this same time period due to increases in LIBOR, the index upon which most of this variable-rate type of borrowing is priced. TheHowever, the increase was partially offset by a decrease in junior subordinated debt securities average balance due to a payoff of FHLB borrowings increased by $189.8$9.2 million fromin the third quarter of 2017, and their average rate paid increased by 79 basis points to 2.22% over this same time period due to higher interest rates and the replacement of some maturing shorter-term borrowings with those of a medium-term length throughout 2017 and the first nine months of 2018 to improve asset sensitivity and liquidity measures.2018. 32
TABLE 2. AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | For The Three Months Ended June 30, | | | For the Six Months Ended June 30, | | | | 2018 | | 2017 | | 2018 | | 2017 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | | Average | | | Average | | Average | | | Average | | Average | | | Average | | Average | | | Average | | | Average | | | Average | | | Average | | | Average | | | Average | | | Average | | | Average | | | Average | | (unaudited, dollars in thousands) | | Balance | | | Rate | | Balance | | | Rate | | Balance | | | Rate | | Balance | | | Rate | | | Balance | | | Rate | | | Balance | | | Rate | | | Balance | | | Rate | | | Balance | | | Rate | | ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Due from banks—interest bearing | | $ | 94,337 | | | | 2.29 | % | | $ | 9,841 | | | | 1.26 | % | | $ | 50,686 | | | | 2.28 | % | | $ | 12,199 | | | | 0.80 | % | | Due from banks - interest bearing | | | $ | 72,563 | | | | 3.46 | % | | $ | 53,896 | | | | 2.09 | % | | $ | 74,774 | | | | 2.55 | % | | $ | 31,436 | | | | 2.08 | % | Loans, net of unearned income (1) | | | 7,227,835 | | | | 4.75 | % | | 6,396,897 | | | | 4.36 | % | | | 6,787,565 | | | | 4.61 | % | | 6,347,626 | | | | 4.27 | % | | | 7,700,355 | | | | 5.02 | % | | | 6,785,550 | | | | 4.64 | % | | | 7,680,062 | | | | 5.04 | % | | | 6,563,782 | | | | 4.54 | % | Securities: (2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Taxable | | | 2,194,708 | | | | 2.73 | % | | 1,595,263 | | | | 2.43 | % | | | 2,038,978 | | | | 2.66 | % | | 1,582,875 | | | | 2.42 | % | | | 2,336,099 | | | | 2.82 | % | | | 2,128,446 | | | | 2.67 | % | | | 2,344,929 | | | | 2.83 | % | | | 1,959,828 | | | | 2.63 | % | Tax-exempt (3) | | | 785,699 | | | | 3.43 | % | | 721,343 | | | | 4.15 | % | | | 751,403 | | | | 3.42 | % | | 722,834 | | | | 4.15 | % | | | 741,371 | | | | 3.51 | % | | | 750,138 | | | | 3.41 | % | | | 775,845 | | | | 3.49 | % | | | 733,970 | | | | 3.41 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Total securities | | | 2,980,407 | | | | 2.91 | % | | 2,316,606 | | | | 2.97 | % | | | 2,790,381 | | | | 2.87 | % | | 2,305,709 | | | | 2.96 | % | | | 3,077,470 | | | | 2.98 | % | | | 2,878,584 | | | | 3.05 | % | | | 3,120,774 | | | | 2.99 | % | | | 2,693,798 | | | | 2.84 | % | Other earning assets | | | 60,783 | | | | 6.26 | % | | 48,961 | | | | 4.44 | % | | | 56,182 | | | | 6.02 | % | | 47,511 | | | | 4.49 | % | | | 50,555 | | | | 7.26 | % | | | 57,259 | | | | 5.72 | % | | | 51,330 | | | | 7.28 | % | | | 53,843 | | | | 5.86 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Total earning assets (3) | | | 10,363,362 | | | | 4.21 | % | | 8,772,305 | | | | 3.99 | % | | | 9,684,814 | | | | 4.11 | % | | 8,713,045 | | | | 3.92 | % | | | 10,900,943 | | | | 4.45 | % | | | 9,775,289 | | | | 4.11 | % | | | 10,926,940 | | | | 4.45 | % | | | 9,342,859 | | | | 4.05 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Other assets | | | 1,375,434 | | | | | 1,125,182 | | | | | | 1,238,728 | | | | | 1,123,193 | | | | | | 1,588,720 | | | | | | | | 1,143,442 | | | | | | | | 1,572,988 | | | | | | | | 1,115,743 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Assets | | $ | 11,738,796 | | | | | $ | 9,897,487 | | | | | $ | 10,923,542 | | | | | $ | 9,836,238 | | | | | $ | 12,489,663 | | | | | | | $ | 10,918,731 | | | | | | | $ | 12,499,928 | | | | | | | $ | 10,458,602 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest bearing demand deposits | | $ | 1,983,340 | | | | 0.70 | % | | $ | 1,635,956 | | | | 0.44 | % | | $ | 1,844,423 | | | | 0.67 | % | | $ | 1,602,546 | | | | 0.37 | % | | $ | 2,139,372 | | | | 0.81 | % | | $ | 1,849,035 | | | | 0.68 | % | | $ | 2,134,514 | | | | 0.78 | % | | $ | 1,773,813 | | | | 0.64 | % | Money market accounts | | | 1,111,341 | | | | 0.49 | % | | 994,772 | | | | 0.30 | % | | | 1,051,104 | | | | 0.42 | % | | 1,015,852 | | | | 0.26 | % | | | 1,116,124 | | | | 0.72 | % | | | 1,035,567 | | | | 0.42 | % | | | 1,135,237 | | | | 0.69 | % | | | 1,020,486 | | | | 0.39 | % | Savings deposits | | | 1,511,075 | | | | 0.09 | % | | 1,257,785 | | | | 0.06 | % | | | 1,389,613 | | | | 0.07 | % | | 1,246,252 | | | | 0.06 | % | | | 1,676,477 | | | | 0.16 | % | | | 1,367,193 | | | | 0.07 | % | | | 1,668,160 | | | | 0.15 | % | | | 1,327,875 | | | | 0.06 | % | Certificates of deposit | | | 1,439,658 | | | | 0.90 | % | | 1,367,581 | | | | 0.76 | % | | | 1,366,109 | | | | 0.86 | % | | 1,408,231 | | | | 0.71 | % | | | 1,397,167 | | | | 1.18 | % | | | 1,415,259 | | | | 0.84 | % | | | 1,417,703 | | | | 1.14 | % | | | 1,328,724 | | | | 0.84 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Total interest bearing deposits | | | 6,045,414 | | | | 0.56 | % | | 5,256,094 | | | | 0.40 | % | | | 5,651,249 | | | | 0.52 | % | | 5,272,881 | | | | 0.37 | % | | | 6,329,140 | | | | 0.70 | % | | | 5,667,054 | | | | 0.53 | % | | | 6,355,614 | | | | 0.68 | % | | | 5,450,898 | | | | 0.50 | % | Federal Home Loan Bank borrowings | | | 1,194,940 | | | | 2.22 | % | | 1,005,106 | | | | 1.43 | % | | | 1,138,350 | | | | 2.01 | % | | 967,356 | | | | 1.33 | % | | | 1,008,027 | | | | 2.50 | % | | | 1,180,939 | | | | 2.02 | % | | | 1,030,396 | | | | 2.47 | % | | | 1,109,586 | | | | 1.90 | % | Other borrowings | | | 269,342 | | | | 1.42 | % | | 185,051 | | | | 0.85 | % | | | 249,030 | | | | 1.34 | % | | 178,613 | | | | 0.71 | % | | | 320,269 | | | | 1.86 | % | | | 272,208 | | | | 1.43 | % | | | 324,033 | | | | 1.89 | % | | | 238,707 | | | | 1.29 | % | Subordinated debt and junior subordinated debt | | | 180,074 | | | | 5.10 | % | | 164,236 | | | | 4.47 | % | | | 172,518 | | | | 4.98 | % | | 164,112 | | | | 4.44 | % | | | 164,108 | | | | 5.41 | % | | | 172,972 | | | | 5.03 | % | | | 176,746 | | | | 5.41 | % | | | 168,677 | | | | 4.91 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Total interest bearing liabilities(1) | | | 7,689,770 | | | | 0.95 | % | | 6,610,487 | | | | 0.67 | % | | | 7,211,147 | | | | 0.89 | % | | 6,582,962 | | | | 0.62 | % | | | 7,821,544 | | | | 1.08 | % | | | 7,293,173 | | | | 0.91 | % | | | 7,886,789 | | | | 1.07 | % | | | 6,967,868 | | | | 0.86 | % | Non-interest bearing demand deposits | | | 2,209,235 | | | | | 1,817,781 | | | | | | 2,040,292 | | | | | 1,801,945 | | | | | | 2,486,710 | | | | | | | | 2,030,649 | | | | | | | | 2,453,770 | | | | | | | | 1,950,581 | | | | | | Other liabilities | | | 120,302 | | | | | 75,254 | | | | | | 127,699 | | | | | 74,920 | | | | | | 131,219 | | | | | | | | 77,873 | | | | | | | | 132,657 | | | | | | | | 80,681 | | | | | | Shareholders’ equity | | | 1,719,489 | | | | | 1,393,965 | | | | | | 1,544,404 | | | | | 1,376,411 | | | | | | 2,050,190 | | | | | | | | 1,517,036 | | | | | | | | 2,026,712 | | | | | | | | 1,459,472 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Liabilities and | | | | | | | | | | | | | | | | | | Shareholders’ Equity | | $ | 11,738,796 | | | | | $ | 9,897,487 | | | | | $ | 10,923,542 | | | | | $ | 9,836,238 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Liabilities and Shareholders’ Equity | | | $ | 12,489,663 | | | | | | | $ | 10,918,731 | | | | | | | $ | 12,499,928 | | | | | | | $ | 10,458,602 | | | | | | Taxable equivalent net interest spread | | | | | 3.26 | % | | | | | 3.32 | % | | | | | 3.22 | % | | | | | 3.30 | % | | | | | | | 3.37 | % | | | | | | | 3.20 | % | | | | | | | 3.38 | % | | | | | | | 3.19 | % | Taxable equivalent net interest margin | | | | | 3.50 | % | | | | | 3.48 | % | | | | | 3.44 | % | | | | | 3.45 | % | | | | | | | 3.67 | % | | | | | | | 3.43 | % | | | | | | | 3.68 | % | | | | | | | 3.41 | % | | | | | | | | | | | | | | | | | | | | | | |
(1) | (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 $0.4 million and $0.7 million for the three months ended June 30, 2019 and 2018, respectively and $0.9 million and $1.3 million for the six months ended June 30, 2019 and 2018, respectively. Additionally, loan accretion included in net interest income on loans acquired from acquisitions was $4.7 million and $2.2 million for the three months ended June 30, 2019 and 2018, respectively, and $9.6 million and $3.4 million for the six months ended June 30, 2019 and 2018, respectively. Accretion on interest bearing liabilities from acquisitions was $0.3 million and $0.7 million for the three months ended June 30, 2019 and 2018, respectively and $0.7 million and $0.9 million for the six months ended June 30, 2019 and net of unearned income. Includesnon-accrual and loans held for sale. Loan fees included in interest income on loans totaled $0.9 million and $0.8 million for the three months ended September 30, 2018, and 2017, respectively, and $2.3 million and $2.4 million for the nine months ended September 30, 2018 and 2017, respectively. Additionally, loan accretion included in net interest income on loans acquired from prior acquisitions was $2.4 million for both the three months ended September 30, 2018 and 2017, and $5.9 million and $4.9 million for the nine months ended September 30, 2018 and 2017, respectively. Accretion on interest bearing liabilities from prior acquisitions was $0.6 million and $0.3 million for the three months ended September 30, 2018 and 2017, respectively, and $1.5 million and $1.1 million for the nine months ended September 30, 2018 and 2017, respectively. |
(2) | Average yields onavailable-for-sale debt securities are calculated based on amortized cost.
|
(3) | Taxable equivalent basis is calculated ontax-exempt securities using a rate of 21% for 2018 and 35% for 2017.
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(2) Average yields on available-for-sale debt securities are calculated based on amortized cost.(3) Taxable equivalent basis is calculated on tax-exempt securities using a rate of 21% for each period presented. 33
TABLE 3. RATE/VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE | | | | | | | | | | | | | | For The Three Months Ended June 30, 2019 | | | For the Six Months Ended June 30, 2019 | | | | Three Months Ended September 30, 2018 Compared to September 30, 2017 | | Nine Months Ended September 30, 2018 Compared to September 30, 2017 | | | Compared to June 30, 2018 | | | Compared to June 30, 2018 | | (unaudited, in thousands) | | Volume | | | Rate | | Net Increase (Decrease) | | Volume | | Rate | | Net Increase (Decrease) | | | Volume | | | Rate | | | Net Increase (Decrease) | | | Volume | | | Rate | | | Net Increase (Decrease) | | Increase (decrease) in interest income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Due from banks—interest bearing | | $ | 449 | | | $ | 42 | | | $ | 491 | | | $ | 489 | | | $ | 286 | | | $ | 775 | | | Due from banks - interest bearing | | | $ | 120 | | | $ | 224 | | | $ | 344 | | | $ | 537 | | | $ | 88 | | | $ | 625 | | Loans, net of unearned income | | | 9,622 | | | | 6,641 | | | | 16,263 | | | | 14,567 | | | | 17,109 | | | | 31,676 | | | | 11,127 | | | | 6,750 | | | | 17,877 | | | | 26,798 | | | | 17,448 | | | | 44,246 | | Taxable securities | | | 3,981 | | | | 1,272 | | | | 5,253 | | | | 8,886 | | | | 3,134 | | | | 12,020 | | | | 1,434 | | | | 816 | | | | 2,250 | | | | 5,338 | | | | 2,099 | | | | 7,437 | | Tax-exempt securities (1) | | | 628 | | | | (1,367 | ) | | | (739 | ) | | | 860 | | | | (4,087 | ) | | | (3,227 | ) | | | (73 | ) | | | 183 | | | | 110 | | | | 726 | | | | 279 | | | | 1,005 | | Other earning assets | | | 161 | | | | 272 | | | | 433 | | | | 333 | | | | 620 | | | | 953 | | | | (76 | ) | | | 173 | | | | 97 | | | | (69 | ) | | | 360 | | | | 291 | | | | | | | | | | | | | | | | | | | | | | Total interest income change (1) | | | 14,841 | | | | 6,860 | | | | 21,701 | | | | 25,135 | | | | 17,062 | | | | 42,197 | | | | 12,532 | | | | 8,146 | | | | 20,678 | | | | 33,330 | | | | 20,274 | | | | 53,604 | | | | | | | | | | | | | | | | | | | | | | Increase (decrease) in interest expense: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest bearing demand deposits | | | 447 | | | | 1,240 | | | | 1,687 | | | | 751 | | | | 4,010 | | | | 4,761 | | | | 536 | | | | 628 | | | | 1,164 | | | | 1,273 | | | | 1,313 | | | | 2,586 | | Money market accounts | | | 97 | | | | 512 | | | | 609 | | | | 71 | | | | 1,291 | | | | 1,362 | | | | 91 | | | | 825 | | | | 916 | | | | 244 | | | | 1,692 | | | | 1,936 | | Savings deposits | | | 43 | | | | 120 | | | | 163 | | | | 69 | | | | 144 | | | | 213 | | | | 61 | | | | 390 | | | | 451 | | | | 129 | | | | 655 | | | | 784 | | Certificates of deposit | | | 144 | | | | 522 | | | | 666 | | | | (230 | ) | | | 1,507 | | | | 1,277 | | | | (38 | ) | | | 1,159 | | | | 1,121 | | | | 390 | | | | 2,098 | | | | 2,488 | | Federal Home Loan Bank borrowings | | | 781 | | | | 2,282 | | | | 3,063 | | | | 1,922 | | | | 5,612 | | | | 7,534 | | | | (538 | ) | | | 872 | | | | 334 | | | | (676 | ) | | | 2,849 | | | | 2,173 | | Other borrowings | | | 229 | | | | 342 | | | | 571 | | | | 478 | | | | 1,065 | | | | 1,543 | | | | 191 | | | | 319 | | | | 510 | | | | 658 | | | | 849 | | | | 1,507 | | Subordinated debt and junior | | | | | | | | | | | | | | subordinated debt | | | 189 | | | | 277 | | | | 466 | | | | 289 | | | | 687 | | | | 976 | | | | | | | | | | | | | | | | | | | | | | | Subordinated debt and junior subordinated debt | | | | (94 | ) | | | 140 | | | | 46 | | | | 203 | | | | 430 | | | | 633 | | Total interest expense change | | | 1,930 | | | | 5,295 | | | | 7,225 | | | | 3,350 | | | | 14,316 | | | | 17,666 | | | | 209 | | | | 4,333 | | | | 4,542 | | | | 2,221 | | | | 9,886 | | | | 12,107 | | | | | | | | | | | | | | | | | | | | | | Net interest income increase (decrease)(1) | | $ | 12,911 | | | $ | 1,565 | | | $ | 14,476 | | | $ | 21,785 | | | $ | 2,746 | | | $ | 24,531 | | | $ | 12,323 | | | $ | 3,813 | | | $ | 16,136 | | | $ | 31,109 | | | $ | 10,388 | | | $ | 41,497 | | | | | | | | | | | | | | | | | | | | | |
(1) Taxable equivalent basis is calculated on tax-exempt securities using a tax rate of 21%. (1) | Taxable equivalent basis is calculated ontax-exempt securities using a tax rate of 21% for 2018 and 35% for 2017.
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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 inincurred within 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 incurred on unfunded commitments. The provision for credit losses decreasedincreased to $1.0$2.7 million in the thirdsecond quarter of 20182019 compared to $2.5$1.7 million in the thirdsecond quarter of 20172018 due primarily to the current high quality ofincrease in the loan portfolio and lower net charge-offs. Overall, most credit ratios continued to improve on a percentage basis, year-over-year.provision for Commercial Real Estate – Improved Property. Non-performing loans (including TDRs), and criticized and classified loansnon-performing assets both improved as a percentage of total portfolio loans from SeptemberJune 30, 2017. Totalnon-performing2018. Non-performing loans were 0.49%0.50% of total loans at Septemberas of June 30, 2018,2019, decreasing from 0.66%0.57% of total loans at the end of the thirdsecond quarter of 2017.2018. Non-performing assets were 0.56% of total loans and other real estate and repossessed assets as of June 30, 2019, decreasing from 0.63% at the end of the second quarter of 2018. Criticized and classified loans were 1.01%1.48% of total loans, improvingincreasing from 1.24% at September1.08% as of June 30, 2017.2018. Past due loans at SeptemberJune 30, 2019 and 2018 were 0.26%0.23% of total loans, compared to 0.35% at September 30, 2017.loans. Annualized net loan charge-offs also decreased from 0.12% at Septemberincreased slightly to 0.05% as of June 30, 20172019 compared to net recoveries0.03% as of (0.02)% at SeptemberJune 30, 2018. (Please see the Allowance for Credit Losses section of this MD&A for additional discussion). NON-INTEREST INCOME NON-INTEREST INCOME
TABLE 4.NON-INTEREST INCOME | | | For the Three Months Ended September 30, | | | | | | | For the Nine Months Ended September 30, | | | | | | | | For The Three Months Ended June 30, | | | | | | | | | | | For the Six Months Ended June 30, | | | | | | | | | | (unaudited, dollars in thousands) | | 2018 | | | 2017 | | $ Change | | | % Change | | 2018 | | | 2017 | | | $ Change | | % Change | | | 2019 | | | 2018 | | | $ Change | | | % Change | | | 2019 | | | 2018 | | | $ Change | | | % Change | | Trust fees | | $ | 6,265 | | | $ | 5,358 | | | $ | 907 | | | | 16.9 | % | | $ | 18,520 | | | $ | 17,073 | | | $ | 1,447 | | | 8.5 | % | | $ | 6,339 | | | $ | 5,752 | | | $ | 587 | | | | 10.2 | | | $ | 13,454 | | | $ | 12,255 | | | $ | 1,199 | | | | 9.8 | | Service charges on deposits | | | 6,313 | | | | 5,320 | | | 993 | | | | 18.7 | % | | | 16,282 | | | | 15,254 | | | | 1,028 | | | 6.7 | % | | | 6,197 | | | | 5,146 | | | | 1,051 | | | | 20.4 | | | | 12,747 | | | | 9,969 | | | | 2,778 | | | | 27.9 | | Electronic banking fees | | | 6,139 | | | | 4,883 | | | 1,256 | | | | 25.7 | % | | | 16,697 | | | | 14,395 | | | | 2,302 | | | 16.0 | % | | | 7,154 | | | | 5,728 | | | | 1,426 | | | | 24.9 | | | | 13,046 | | | | 10,558 | | | | 2,488 | | | | 23.6 | | Net securities brokerage revenue | | | 1,836 | | | | 1,721 | | | 115 | | | | 6.7 | % | | | 5,315 | | | | 5,164 | | | | 151 | | | 2.9 | % | | | 1,973 | | | | 1,809 | | | | 164 | | | | 9.1 | | | | 3,833 | | | | 3,479 | | | | 354 | | | | 10.2 | | Bank-owned life insurance | | | 1,232 | | | | 1,164 | | | 68 | | | | 5.8 | % | | | 5,116 | | | | 3,671 | | | | 1,445 | | | 39.4 | % | | | 1,340 | | | | 1,128 | | | | 212 | | | | 18.8 | | | | 2,659 | | | | 3,884 | | | | (1,225 | ) | | | (31.5 | ) | Mortgage banking income | | | 1,521 | | | | 1,103 | | | 418 | | | | 37.9 | % | | | 4,297 | | | | 3,511 | | | | 786 | | | 22.4 | % | | | 1,618 | | | | 1,670 | | | | (52 | ) | | | (3.1 | ) | | | 2,674 | | | | 2,776 | | | | (102 | ) | | | (3.7 | ) | Net securities gains | | | 84 | | | | 6 | | | 78 | | | | 1300.0 | % | | | 403 | | | | 511 | | | | (108 | ) | | (21.1 | %) | | Net gain/(loss) on other real estate owned and other assets | | | 150 | | | | (298 | ) | | 448 | | | | 150.3 | % | | | 641 | | | | 9 | | | | 632 | | | 7022.2 | % | | Payment processing fees | | | | 785 | | | | — | | | | 785 | | | | 100.0 | | | | 1,433 | | | | — | | | | 1,433 | | | | 100.0 | | Net securities gains (losses) | | | | 2,909 | | | | 358 | | | | 2,551 | | | | 712.6 | | | | 3,566 | | | | 319 | | | | 3,247 | | | | 1,017.9 | | Net gain on other real estate owned and other assets | | | | 376 | | | | 229 | | | | 147 | | | | 64.2 | | | | 512 | | | | 491 | | | | 21 | | | | 4.3 | | Net insurance services revenue | | | 806 | | | | 661 | | | 145 | | | | 21.9 | % | | | 2,409 | | | | 2,313 | | | | 96 | | | 4.2 | % | | | 786 | | | | 711 | | | | 75 | | | | 10.5 | | | | 1,695 | | | | 1,602 | | | | 93 | | | | 5.8 | | Swap fee and valuation income | | | 627 | | | | 60 | | | 567 | | | | 945.0 | % | | | 1,322 | | | | 882 | | | | 440 | | | 49.9 | % | | | 511 | | | | 178 | | | | 333 | | | | 187.1 | | | | 880 | | | | 695 | | | | 185 | | | | 26.6 | | Allotment fees | | | 311 | | | | — | | | 311 | | | | 100.0 | % | | | 311 | | | | — | | | | 311 | | | 100.0 | % | | Other | | | 940 | | | | 921 | | | 19 | | | | 2.1 | % | | | 2,402 | | | | 3,123 | | | | (721 | ) | | (23.1 | %) | | | 1,168 | | | | 699 | | | | 469 | | | | 67.1 | | | | 2,430 | | | | 1,463 | | | | 967 | | | | 66.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Totalnon-interest income | | $ | 26,224 | | | $ | 20,899 | | | $ | 5,325 | | | | 25.5 | % | | $ | 73,715 | | | $ | 65,906 | | | $ | 7,809 | | | 11.8 | % | | $ | 31,156 | | | $ | 23,408 | | | $ | 7,748 | | | | 33.1 | | | $ | 58,929 | | | $ | 47,491 | | | $ | 11,438 | | | | 24.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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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 thirdsecond quarter of 2018,2019, non-interest income increased $5.3$7.7 million or 25.5%33.1% compared to the thirdsecond quarter of 20172018 primarily due to the acquisitionsacquisition of FTSB on April 5, 2018FFKT and FFKT on August 20, 2018.securities gains. The increase is driven by a $1.3$2.6 million increase in net securities gains, a $1.4 million increase in electronic banking fees, a $1.0$1.1 million increase on servicesin service charges on deposits, and a $0.9$0.8 million increase in trust fees and $0.6 million in swap fee and valuation income compared to the third quarter of 2017.payment processing fees. For the ninesix months ended SeptemberJune 30, 2018,2019, non-interest income increased $7.8$11.4 million or 11.8% compared to24.1% from the ninefirst six months ended September 30, 2017.of 2018 for similar reasons for the three months ended. Trust fees increased $0.9$0.6 million or 16.9%10.2% compared to the thirdsecond quarter of 20172019 due to the acquisition of FFKT as well as market improvements and organic growth ofnon-acquired trust assets, along with higher market valuations.customer and revenue development initiatives. Total trust assets have increased $0.8$0.5 billion to $4.7from $4.0 billion as of Septemberat June 30, 2018 compared to $3.9$4.5 billion as of Septemberat June 30, 2017. WesBanco acquired trust assets of $0.6 billion from FFKT as of August 20, 2018. For the nine months ended September2019. At June 30, 2018, trust fees increased $1.4 million or 8.5% as compared to September 30, 2017. At September 30, 2018,2019, trust assets include managed assets of $3.7$3.6 billion andnon-managed (custodial) assets of $1.0$0.9 billion. Assets managed for the WesMark Funds, a proprietary group of mutual funds that is advised by WesBanco Trust and Investment Services, were $963.7$922.9 million as of SeptemberJune 30, 20182019 and $948.3$934.9 million at SeptemberJune 30, 20172018 and are included in trust-managedmanaged assets. Service charges on deposits increased $1.0$1.1 million or 18.7%20.4% for the second quarter of 2019 compared to the third quarterprior year period primarily because of 2017 due primarily to the increased customer base from the FTSB and FFKT acquisition. For the nine months ended SeptemberDeposits increased $1.0 billion to $8.7 billion as of June 30, 2018,2019 as compared to $7.7 billion as of June 30, 2018. Included in service charges on deposits increased $1.0for the three months ended June 30, 2019 is a $0.6 million or 6.7%. Deposits increased $1.8 billionnegative adjustment for dormancy fees that will be remitted to $8.9 billion asthe State of September 30, 2018 compared to $7.1 billion as of September 30, 2017.Kentucky for accounts that should have been escheated in prior periods. Electronic banking fees, which include debit card interchange fees, increased $1.3continued to grow, increasing $1.4 million or 25.7%24.9% compared to the thirdsecond quarter of 20172018 due to an increasedthe higher customer base from the FTSB and FFKT acquisitions, a higheracquisition as well as an increased volume of debit card transactions from WesBanco’s legacy customers and an ATM fee increase for non-WesBanco customers. The volume increase in legacy customers is due to a higher percentage of customers using these products as well as marketing initiatives. Beginning on July 1, 2019, WesBanco will experience a reduction of approximately 50% of debit card interchange revenuefees will decrease by less than $2 million in the third quarter of 2019 and between an estimated $2.5 - $3.0 million per quarter beginning in the fourth quarter of 2019 due to the applicabilityimpact of the Durbin Amendmentamendment from the 2010 passage of the Dodd-Frank Act. This reduction is currently estimated to be $2.5 million per quarter.Act on banks with total assets of $10 billion or greater. Bank-owned life insurance income increased $0.1$0.2 million or 5.8%18.8% compared to the thirdsecond quarter of 2017. For the nine months ended September 30, 2018 bank-owned life insurance increased $1.4 million or 39.4% compared to the nine months ended September 30, 2017 due to death benefits receivedan increase in first quarter of 2018. Thethe total cash surrender value, ofattributable to the WesBanco legacy bank-owned life insurance increased $32.5policies as well as the acquired FFKT bank-owned life insurance policies. For the six months ended June 30, 2019, bank-owned life insurance decreased by $1.2 million or 31.5% compared to $224.0 million as of Septemberthe six months ended June 30, 2018 compared to September 30, 2017 due to higher mortality proceeds in the acquisitions of FTSB and FFKT.prior period. Mortgage banking income increased $0.4remained flat decreasing $0.1 million or 37.9%in both the second quarter of 2019 compared to the third quarter of 2017 partially due to increased mortgage production in Kentucky as a result of recent acquisitions, as well as higher organic production from a higher number of employed mortgage originators. Mortgage banking income has also increased due to higher gains on sales of mortgages inprior year period and the secondary market, as WesBanco is selling these loans primarily on a mandatory basis as compared to previously selling these loans on a best efforts basis. For the ninesix months ended SeptemberJune 30, 2018, mortgage banking income increased $0.8 million or 22.4%2019 compared to the nine months ended September 30, 2017. Mortgageprior year period. For the first half of 2019, mortgage production was $133.4$257.4 million, which increased 26.4%was an increase of 19.8% from the comparable 2017 quarter. Mortgages2018 period. For the six months ended June 30, 2019, $106.4 million mortgages were sold into the secondary market represented $56.5at a net margin of 2.8% as compared to $108.1 million or 42.3%at a net margin of overall mortgage loan production2.7% in the thirdcomparable 2018 period. Included in the mortgage banking income and the calculation of net margin noted above is a $0.8 million loss and a $0.6 million gain from the fair value adjustments on loans held for sale, loan commitments and related derivatives for the six months ended June 30, 2019 and 2018, respectively. Payment processing fees are earned from the bill payment and electronic funds transfer (“EFT”) services provided under the name FirstNet, which was acquired from FFKT. Payment processing fee income was $0.8 million for the quarter ended June 30, 2019. There was no prior period income. Net securities gains increased $2.6 million compared to the second quarter of 2018, compareddue to $60.3a gain of $2.6 million or 57.1%on the sale of WesBanco’s Visa Class B stock in the thirdsecond quarter, which was held at a zero cost basis. WesBanco holds no additional shares of 2017. Swap fee and valuation income increased $0.6 million or 945.0% compared to the third quarter of 2017.Visa Class B stock. For the ninesix months ended SeptemberJune 30, 2018, swap fee and valuation income2019, net securities gains increased $0.4$3.2 million or 49.9% compared tofrom the ninesix months ended SeptemberJune 30, 2017. The increase is due to fees earned when commercial loan customers enter into swap agreements related to the commercial loans.
2018. 35
NON-INTEREST EXPENSE TABLE 5.NON-INTEREST EXPENSE | | | Ended September 30, | | | | | | | Ended September 30, | | | | | | | | For The Three Months Ended June 30, | | | | | | | | | | | For the Six Months Ended June 30, | | | | | | | | | | (unaudited, dollars in thousands) | | 2018 | | | 2017 | | | $ Change | | % Change | | 2018 | | | 2017 | | | $ Change | | % Change | | | 2019 | | | 2018 | | | $ Change | | | % Change | | | 2019 | | | 2018 | | | $ Change | | | % Change | | Salaries and wages | | $ | 30,335 | | | $ | 24,957 | | | $ | 5,378 | | | 21.5 | % | | $ | 82,213 | | | $ | 71,575 | | | $ | 10,638 | | | 14.9 | % | | $ | 31,646 | | | $ | 26,872 | | | $ | 4,774 | | | | 17.8 | | | $ | 62,585 | | | $ | 51,878 | | | $ | 10,707 | | | | 20.6 | | Employee benefits | | | 7,905 | | | | 7,728 | | | | 177 | | | 2.3 | % | | | 22,782 | | | | 23,670 | | | | (888 | ) | | (3.8 | %) | | | 9,705 | | | | 7,965 | | | | 1,740 | | | | 21.8 | | | | 19,694 | | | | 14,877 | | | | 4,817 | | | | 32.4 | | Net occupancy | | | 4,957 | | | | 4,132 | | | | 825 | | | 20.0 | % | | | 13,715 | | | | 12,969 | | | | 746 | | | 5.8 | % | | | 5,385 | | | | 4,103 | | | | 1,282 | | | | 31.2 | | | | 10,951 | | | | 8,759 | | | | 2,192 | | | | 25.0 | | Equipment | | | 4,488 | | | | 3,905 | | | | 583 | | | 14.9 | % | | | 12,532 | | | | 12,043 | | | | 489 | | | 4.1 | % | | | 4,818 | | | | 4,095 | | | | 723 | | | | 17.7 | | | | 9,651 | | | | 8,044 | | | | 1,607 | | | | 20.0 | | Marketing | | | 1,446 | | | | 1,599 | | | | (153 | ) | | (9.6 | %) | | | 3,967 | | | | 4,482 | | | | (515 | ) | | (11.5 | %) | | | 1,254 | | | | 1,405 | | | | (151 | ) | | | (10.7 | ) | | | 2,497 | | | | 2,521 | | | | (24 | ) | | | (1.0 | ) | FDIC insurance | | | 789 | | | | 945 | | | | (156 | ) | | (16.5 | %) | | | 2,315 | | | | 2,677 | | | | (362 | ) | | (13.5 | %) | | | 1,155 | | | | 868 | | | | 287 | | | | 33.1 | | | | 2,508 | | | | 1,526 | | | | 982 | | | | 64.4 | | Amortization of intangible assets | | | 1,821 | | | | 1,223 | | | | 598 | | | 48.9 | % | | | 4,218 | | | | 3,736 | | | | 482 | | | 12.9 | % | | | 2,465 | | | | 1,312 | | | | 1,153 | | | | 87.9 | | | | 4,978 | | | | 2,397 | | | | 2,581 | | | | 107.7 | | Restructuring and merger-related expenses | | | 10,811 | | | | — | | | | 10,811 | | | 100.0 | % | | | 16,468 | | | | 491 | | | | 15,977 | | | 3254.0 | % | | | 81 | | | | 5,412 | | | | (5,331 | ) | | | (98.5 | ) | | | 3,188 | | | | 5,657 | | | | (2,469 | ) | | | (43.6 | ) | Franchise and other miscellaneous taxes | | | 2,928 | | | | 2,095 | | | | 833 | | | 39.8 | % | | | 7,246 | | | | 6,223 | | | | 1,023 | | | 16.4 | % | | | 3,176 | | | | 2,083 | | | | 1,093 | | | | 52.5 | | | | 6,202 | | | | 4,318 | | | | 1,884 | | | | 43.6 | | Consulting, regulatory, accounting and advisory fees | | | | 2,269 | | | | 1,747 | | | | 522 | | | | 29.9 | | | | 4,085 | | | | 3,278 | | | | 807 | | | | 24.6 | | ATM and electronic banking interchange expenses | | | | 1,712 | | | | 1,299 | | | | 413 | | | | 31.8 | | | | 3,434 | | | | 2,515 | | | | 919 | | | | 36.5 | | Postage and courier expenses | | | 1,138 | | | | 935 | | | | 203 | | | 21.7 | % | | | 3,083 | | | | 2,925 | | | | 158 | | | 5.4 | % | | | 1,198 | | | | 985 | | | | 213 | | | | 21.6 | | | | 2,747 | | | | 1,945 | | | | 802 | | | | 41.2 | | Consulting, regulatory, accounting and advisory fees | | | 1,664 | | | | 1,755 | | | | (91 | ) | | (5.2 | %) | | | 4,942 | | | | 5,082 | | | | (140 | ) | | (2.8 | %) | | Other real estate owned and foreclosure expenses | | | 151 | | | | 251 | | | | (100 | ) | | (39.8 | %) | | | 600 | | | | 906 | | | | (306 | ) | | (33.8 | %) | | Legal fees | | | 696 | | | | 675 | | | | 21 | | | 3.1 | % | | | 2,053 | | | | 2,086 | | | | (33 | ) | | (1.6 | %) | | | 936 | | | | 644 | | | | 292 | | | | 45.3 | | | | 1,615 | | | | 1,357 | | | | 258 | | | | 19.0 | | Communications | | | 679 | | | | 602 | | | | 77 | | | 12.8 | % | | | 1,733 | | | | 1,982 | | | | (249 | ) | | (12.6 | %) | | | 895 | | | | 565 | | | | 330 | | | | 58.4 | | | | 1,825 | | | | 1,054 | | | | 771 | | | | 73.1 | | ATM and electronic banking interchange expenses | | | 1,544 | | | | 1,202 | | | | 342 | | | 28.5 | % | | | 4,060 | | | | 3,493 | | | | 567 | | | 16.2 | % | | Supplies | | | 828 | | | | 631 | | | | 197 | | | 31.2 | % | | | 2,293 | | | | 2,360 | | | | (67 | ) | | (2.8 | %) | | | 1,106 | | | | 778 | | | | 328 | | | | 42.2 | | | | 2,246 | | | | 1,465 | | | | 781 | | | | 53.3 | | Other real estate owned and foreclosure expenses | | | | 152 | | | | 251 | | | | (99 | ) | | | (39.4 | ) | | | 163 | | | | 449 | | | | (286 | ) | | | (63.7 | ) | Other | | | 3,940 | | | | 3,119 | | | | 821 | | | 26.3 | % | | | 10,014 | | | | 9,323 | | | | 691 | | | 7.4 | % | | | 3,999 | | | | 3,159 | | | | 840 | | | | 26.6 | | | | 8,016 | | | | 6,074 | | | | 1,942 | | | | 32.0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Totalnon-interest expense | | $ | 76,120 | | | $ | 55,754 | | | $ | 20,366 | | | 36.5 | % | | $ | 194,234 | | | $ | 166,023 | | | $ | 28,211 | | | 17.0 | % | | $ | 71,952 | | | $ | 63,543 | | | $ | 8,409 | | | | 13.2 | | | $ | 146,385 | | | $ | 118,114 | | | $ | 28,271 | | | | 23.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-interest expense in the thirdsecond quarter of 20182019 increased by $20.4$8.4 million or 36.5%13.2% compared to the same quarter in 2017 primarily due to2018, principally from the FTSB and FFKT acquisition, which closed on April 5, 2018 and August 20, 2018, respectively.in the third quarter of 2018. Excluding merger-related expenses,non-interest expense increased $9.6$13.7 million or 17.1%23.6%. For the thirdsecond quarter, restructuring and merger-related expenses increased $10.8 million and salaries and wages increased $5.4$4.8 million, coupled with increases in various other expense categories. For the nine months ended September 30, 2018, salaries and wagesemployee benefits increased $10.6$1.7 million, net occupancy increased $1.3 million, amortization of intangible assets increased $1.2 million and restructuringfranchise and merger-related expensesother miscellaneous taxes increased $16.0by $1.1 million, which were partially offset by a $0.9decrease of $5.3 million decrease in employee benefits, due to a reduction in pensionmerger-related expenses. For the six months ended June 30, 2019, non-interest expense as well as decreases in various othernon-interest expense categories due to cost savings initiativesincreased by $28.3 million or 23.9% from the YCB and FTSB acquisitions as well as WesBanco’s initiative to control discretionary costs.first six months of 2018 for similar reasons for the three months ended. Salaries and wages increased $5.4$4.8 million or 21.5%17.8% from the thirdsecond quarter of 20172018 due to increased compensation expense related to a 23.7%15.3% increase in full-time equivalent (“FTE”) employees primarily related tofrom the FTSBFFKT acquisition and FFKT acquisitions. In addition, due tofrom annual merit increases in the adoption of a new accounting standard (ASU 2017-07), salaries and wages included $0.7 million related to pension service expense for the thirdsecond quarter of 2018, which was classified within employee benefits for the third quarter of 2017. The remaining increase is due to routine annual compensation adjustments and stock-based compensation increases.2019. Employee benefits expense increased $0.2$1.7 million or 2.3% compared to the thirdsecond quarter of 2017 due to2018, primarily from a $0.6$0.8 million increase in health care costs and a $0.3 million increase in employer payroll tax expense, offset by a $0.7 million reclassification of pension service cost to salaries and wages as well as $0.3 million decrease in other pension costs comparedtaxes, which is primarily attributable to the third quarterincreased headcount of 2017. For the nine months ended September313 FTE employees since June 30, 2018, salaries and wages increased 14.9% due to similar reasons in the third quarter analysis, while employee benefits decreased 3.8% as the reclassification of pension service costs exceeded increased healthcare costs and employer payroll taxes.2018. Net occupancy costs increased $0.8$1.3 million or 20.0%31.2% compared to the thirdsecond quarter of 2017,2018, primarily due to increased building-related costs from the fiveadditional branches acquired FTSBin the FFKT acquisition including utilities, lease expense, depreciation, repairs and other seasonal maintenance costs. Upon core conversion of FFKT in the first quarter of 2019, WesBanco closed or consolidated six branches in Kentucky to reduce overlapping locations, which allows the Company to operate more cost efficiently and the 34 acquired FFKT branches. For the nine months ended September 30, 2018, net occupancy costs increased $0.7 million or 5.8% compared to the nine months ended September 30, 2017.provide better facilities. Amortization of intangible assets increased $0.6$1.2 million or 48.9%87.9% compared to the thirdsecond quarter of 2017. The FTSB acquisition added approximately $8.1 in core deposit intangibles.2018. The FFKT acquisition added approximately $39.7$37.4 million in core deposit intangibles and $2.9$2.6 million in trust customer relationship intangibles. For the nine months ended September 30, 2018, amortization of intangible assets increased $0.5 million or 12.9% compared to the nine months ended September 30, 2017. Restructuring and merger-relatedMerger-related expenses in 2018 relatethe second quarter of 2019 totaled $0.1 million related to the FTSB acquisition that closed on April 5, 2018 and the FFKT acquisition that closed on August 20, 2018. The restructuring2018, and decreased $5.3 million from the $5.4 million in merger-related expenses that were recorded in 2017 relate to the YCB acquisition that closed on September 9, 2016. Of the $16.5 million in restructuring costssecond quarter of 2018 for the nine months ended September 30, 2018, $5.5 million relate to FTSB and $11.0 million relate to FFKT. The FTSB costs included $2.2 million in contract termination and conversion costs, $0.8 million for investment banking services, $0.7 million forchange-in-control payments and $0.5 million in employee severance costs. The FFKT costs included $7.4 million for contract termination and conversion costs, $2.3 million for investment banking services and $0.5 million in legal costs.acquisitions.
Franchise and real propertyother miscellaneous taxes increased $0.8by $1.1 million or 39.8% compared to52.5% from the thirdsame quarter of 2017. The increase is primarily driven by2018 due to a $0.4$0.6 million increase in the Kentucky corporate franchise tax due tofrom the FFKT acquisition, which was headquartered in Kentucky. For the nine months ended September 30, 2018, franchiseReal and realpersonal property taxes also increased $1.0 million or 16.4% compared to the nine months ended September 30, 2017. ATM and electronic banking interchange expenses increasedby $0.3 million or 28.5% from the third quarter of 2017 due to the increased customer base from the FTSB and FFKT acquisitions and a higher volumeaddition of debit card transactions from WesBanco’s legacy customers. For the nine months ended September 30, 2018, ATM and electronic banking interchange expenses increased $0.6 million or 16.2% compared to the nine months ended September 30, 2017.FFKT’s branches.
INCOME TAXES The provision for income taxes decreased $4.0increased $2.8 million or 38.1%37.7% in the thirdsecond quarter of 2019 compared to the second quarter of 2018, compared to the third quarter of 2017,primarily due to the enacted Federal tax reform legislation that reduced the corporate federal income tax rate from 35% to 21% effective January 1, 2018. Partially offsetting this decreasea $14.4 million or 35.6% increase in income tax expense, third quarter 2018pre-tax income was 5.7% higher. As a result of these changes, the income. The effective tax rate decreasedincreased to 16.7%18.4% compared to 28.5%18.1% in the thirdsecond quarter of 2017.2018. For the ninesix months ended SeptemberJune 30, 2018,2019, the provision for income taxes decreased $9.9increased $4.6 million or 32.3%32.2% as compared to the prior year period. The effective tax rate for the first half of 2019 was 18.2% compared to 17.7% in the prior year period. 36
FINANCIAL CONDITION Total assets and shareholders’ equity increased 0.3% and 4.8%, respectively, while deposits decreased 1.5%, compared to December 31, 2018. Total securities decreased by $105.1 million or 3.3% from December 31, 2018 to June 30, 2019, primarily driven by the first nine monthssale of 2017, due in part tolower yielding municipal securities and the decrease in the federal income tax rate,repayment of mortgage-backed securities, which were partially offset by a 9.7%$53.1 million increase inpre-tax income. The effective tax rate was 17.4% for the nine months ended September 30, 2018. WesBanco Bank Community Development Corporation (“WesBanco CDC”) was awarded multi-state New Markets Tax Credits (“NMTC”) from the U.S. Department of the Treasury’s Community Development Financial Institutions Fund (“CDFI Fund”) totaling $40 million of investments, which would provide a federal tax credit of $15.6 million over seven years, after the Bank makes certain Qualified Equity Investments unrealized gains in the WesBanco CDC. FINANCIAL CONDITION
Total assets increased 28.4%, while deposits and shareholders’ equity increased 26.9% and 38.1%, respectively, compared to December 31, 2017, primarily due to the acquisitions of FTSB and FFKT. Total securities increased by $761.7 million or 33.3% from December 31, 2017 to September 30, 2018, and was driven by management’s strategy to exceed the $10 billion threshold in total assets during the first quarter of 2018 by purchasing taxable securities in anticipation of the scheduled closing of FTSB. These purchases had an average yield of approximately 3.06%. In addition, the FTSB and FFKT acquisitions provided $142.9 million and $239.3 million of additional securities, respectively.available-for-sale portfolio. Total portfolio loans increased $1.4 billion$81.6 million or 21.8% with $448.11.1%. Deposits decreased $136.7 million and $1.0 billion from the FTSB and FFKT acquisitions, respectively. Total organic loans decreased 0.7%year-end resulting from continued targeted reductionsa 6.2%, a 3.9%, and a 0.6% decrease in the consumer loan portfolio and pay downscertificates of commercial loans outpacing growth. Deposits increased $1.9 billion fromyear-end, primarily due to the acquisitions of FTSB and FFKT. Organic deposits decreased 0.3% as increases of 6.1% and 3.1% in demand deposits and savings, respectively, were more than offset by decreases of 5.3% and 16.9% indeposit, money market deposits, and certificates of deposit, respectively.demand deposits, respectively, which were partially offset by a 1.5% increase in savings deposits. The decrease in certificates of deposit is a result of periodically offering lower than median competitive rates for maturing certificates of deposit, primarily for single servicesingle-service customers, and customer preferences for other deposit types, coupled with a $40.4$9.9 million decrease in CDARS®CDARS® balances. The increasedecrease in demand deposits and savingsmoney market deposits werewas primarily attributable to marketing, incentives paid to customers, focused retailinitial customer run-off from the FTSB 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.FFKT acquisitions. Total borrowings increased 24.5%2.6% during the first ninesix months of 20182019 as short-term borrowings increased $109.5 million,FHLB new FHLB borrowings exceeded maturities by $127.6 million, with the FTSB and FFKT acquisitions providing an additional $52.3$67.1 million and $3.0other short-term borrowings increased $5.6 million, in FHLB borrowings, respectively, and junior subordinated debt increased $25.4 million. The FTSB and FFKT acquisitions provided $9.3 million andwhich were partially offset by $33.5 million inof junior subordinated debentures respectively, which was partially offset by the redemption of $17.5 million in junior subordinated debenturesredeemed during the first ninesix months of 2018. Proceeds from borrowings were utilized to purchase investment securities during the nine months ended September 30, 2018.2019. Total shareholders’ equity increased by approximately $531.9$95.3 million or 38.1%4.8%, compared to December 31, 2017,2018, primarily due to $107.3 million and $391.3 million of common stock issued in the FTSB and FFKT acquisitions, respectively, and net income exceeding dividends for the period by $57.1$51.3 million which was partially offset by $28.4and a $42.0 million in additional other comprehensive loss. The other comprehensive loss resulted from a $34.2 million unrealized loss in the securities portfolio, which was partially offset by a $5.9 million unrealized gain in the defined benefit pension plan and other postretirement benefits during the period. The tangible equity to tangible assets ratio(non-GAAP measure) decreased from 8.79% at December 31, 2017 to 8.66% at September 30, 2018 as tangible assets increased at a faster pace than shareholders’ equity, primarily as a result of the FTSB and FFKT acquisitions.income gain.
TABLE 6. COMPOSITION OF SECURITIES (1) | | | | | | | | | | June 30, | | | December 31, | | | | | (unaudited, dollars in thousands) | | September 30, 2018 | | December 31, 2017 | | $ Change | | % Change | | | 2019 | | | 2018 | | | $ Change | | | % Change | | Equity securities (at fair value) | | $ | 12,784 | | | $ | 13,457 | | | $ | (673 | ) | | (5.0 | ) | | $ | 11,817 | | | $ | 11,737 | | | $ | 80 | | | | 0.7 | | Available-for-sale debt securities (at fair value) | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Treasury | | | 9,937 | | | | — | | | 9,937 | | | 100.0 | | | | 29,781 | | | | 19,878 | | | | 9,903 | | | | 49.8 | | U.S. Government sponsored entities and agencies | | | 149,949 | | | 71,843 | | | 78,106 | | | 108.7 | | | | 134,587 | | | | 141,652 | | | | (7,065 | ) | | | (5.0 | ) | Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 1,449,754 | | | 934,922 | | | 514,832 | | | 55.1 | | | | 1,563,042 | | | | 1,561,255 | | | | 1,787 | | | | 0.1 | | Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 168,761 | | | 114,867 | | | 53,894 | | | 46.9 | | | | 178,656 | | | | 168,972 | | | | 9,684 | | | | 5.7 | | Obligations of states and political subdivisions | | | 186,651 | | | 104,830 | | | 81,821 | | | 78.1 | | | | 183,178 | | | | 185,114 | | | | (1,936 | ) | | | (1.0 | ) | Corporate debt securities | | | 43,180 | | | 35,403 | | | 7,777 | | | 22.0 | | | | 40,040 | | | | 37,258 | | | | 2,782 | | | | 7.5 | | | | | | | | | | | | | | | | Totalavailable-for-sale debt securities | | $ | 2,008,232 | | | $ | 1,261,865 | | | $ | 746,367 | | | 59.1 | | | $ | 2,129,284 | | | $ | 2,114,129 | | | $ | 15,155 | | | | 0.7 | | | | | | | | | | | | | | | | Held-to-maturity debt securities (at amortized cost) | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Government sponsored entities and agencies | | $ | 11,699 | | | $ | 11,465 | | | $ | 234 | | | 2.0 | | | $ | 10,020 | | | $ | 10,823 | | | $ | (803 | ) | | | (7.4 | ) | Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies | | | 154,018 | | | 170,025 | | | (16,007 | ) | | (9.4 | ) | | | 136,929 | | | | 148,300 | | | | (11,371 | ) | | | (7.7 | ) | Obligations of states and political subdivisions | | | 826,514 | | | 794,655 | | | 31,859 | | | 4.0 | | | | 720,399 | | | | 828,520 | | | | (108,121 | ) | | | (13.0 | ) | Corporate debt securities | | | 33,307 | | | 33,355 | | | (48 | ) | | (0.1 | ) | | | 33,257 | | | | 33,291 | | | | (34 | ) | | | (0.1 | ) | | | | | | | | | | | | | | | Totalheld-to-maturity debt securities | | | 1,025,538 | | | 1,009,500 | | | 16,038 | | | 1.6 | | | | 900,605 | | | | 1,020,934 | | | | (120,329 | ) | | | (11.8 | ) | | | | | | | | | | | | | | | Total securities | | $ | 3,046,554 | | | $ | 2,284,822 | | | $ | 761,732 | | | 33.3 | | | $ | 3,041,706 | | | $ | 3,146,800 | | | $ | (105,094 | ) | | | (3.3 | ) | | | | | | | | | | | | | | | Available-for-sale and equity securities: | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average yield at the respective period end(2) | | | 2.70 | % | | 2.35 | % | | | | | | | 2.76 | % | | | 2.78 | % | | | | | | | | | As a % of total securities | | | 66.3 | % | | 55.8 | % | | | | | | | 70.4 | % | | | 67.6 | % | | | | | | | | | Weighted average life (in years) | | | 4.8 | | | 4.2 | | | | | | | | 4.4 | | | | 5.0 | | | | | | | | | | | | | | | | | | | | | | Held-to-maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average yield at the respective period end(2) | | | 3.46 | % | | 3.85 | % | | | | | | | 3.53 | % | | | 3.47 | % | | | | | | | | | As a % of total securities | | | 33.7 | % | | 44.2 | % | | | | | | | 29.6 | % | | | 32.4 | % | | | | | | | | | Weighted average life (in years) | | | 5.2 | | | 4.2 | | | | | | | | 3.7 | | | | 4.6 | | | | | | | | | | | | | | | | | | | | | | Total securities: | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average yield at the respective period end(2) | | | 2.95 | % | | 3.01 | % | | | | | | | 2.99 | % | | | 3.00 | % | | | | | | | | | As a % of total securities | | | 100.0 | % | | 100.0 | % | | | | | | | 100.0 | % | | | 100.0 | % | | | | | | | | | Weighted average life (in years) | | | 5.1 | | | 4.2 | | | | | | | | 4.1 | | | | 4.2 | | | | | | | | | | | | | | | | | | | | | |
(1) At June 30, 2019 and December 31, 2018, 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. (1) | At September 30, 2018 and December 31, 2017, there were no holdings of any one issuer, other than U.S. government sponsored entities and its agencies, in an amount greater than 10% of WesBanco’s shareholders’ equity.
(2) Weighted average yields have been calculated on a taxable-equivalent basis using the federal statutory tax rate of 21%. |
(2) | Weighted average yields have been calculated on a taxable-equivalent basis using the federal statutory tax rate of 21% in 2018 and 35% in 2017.
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Total investment securities, which are a source of liquidity for WesBanco as well as a contributor to interest income, increaseddecreased by $761.7$105.1 million or 33.3%3.3% from December 31, 20172018 to SeptemberJune 30, 2018.2019. Through the first ninesix months of 2018,2019, theavailable-for-sale portfolio increased by $746.4$15.2 million or 59.1%0.7%, while theheld-to-maturity portfolio increaseddecreased by $16.0$120.3 million or 1.6%. The increase11.8% due to $67.4 million of held-to-maturity callable municipal securities being transferred to available-for-sale, with the adoption of ASU 2017-12. WesBanco elected to use the one-time transition election to transfer these securities as they were some of the lower yielding securities in the overallmunicipal portfolio, from December 31, 2017 was driven partially by the acquisitionsand subsequently sold $66.1 million of FTSB and FFKT, and more significantly by management’s strategy to exceed the $10 billion threshold in total assets during the first quarter of 2018 by purchasing mortgage-backedthese securities and collateralized mortgage obligations, with an average yield of approximately 3.06%.at a $51 thousand net gain. The weighted average yield of the portfolio decreased by 6one basis pointspoint from 3.01%3.00% at December 31, 20172018 to 2.95%2.99% at SeptemberJune 30, 2018. Though2019, primarily due to increased prepayment speeds on mortgage-backed securities as market rates increaseddeclined in the first nine monthssecond quarter. During the second quarter of 2018 on all securities purchased, the decrease in the corporate federal tax rate from 35% to 21% reduced thetax-equivalent yield by approximately 67 basis points on thetax-exempt municipal bond portfolio, as the tax benefit was reduced. This decrease in thetax-equivalent yield ontax-exempt municipals more than offset the general market rate increases, astax-exempt municipals comprise approximately 33% of WesBanco’s investment portfolio. The higher-yielding 2018 purchases helped to mitigate the impact of thetax-equivalent yield reduction2019, WesBanco recorded a $2.6 million gain on the municipal bonds. sale of its Visa class B stock, which was held at zero cost basis. WesBanco holds no additional shares of Visa class B stock.37
Net unrealized lossesgains (losses) onavailable-for-sale securities included in accumulated other comprehensive income, net of tax, as of SeptemberJune 30, 20182019 and December 31, 20172018 were $47.3$19.4 million and $13.3($21.5) million, respectively. With approximately 34%30% of the investment portfolio in theheld-to- maturity held-to-maturity category, the recent increasevolatility in interest rates does not have as much impact on other comprehensive income as if the entire portfolio were included in the categoryavailable-for-sale. Equity securities, of which a portion consist of investments in various mutual funds held in grantor trusts formed in connection with a key officer and director deferred compensation plan, are recorded at fair value. Gains and losses due to fair value fluctuations on equity securities are included in net securities gains or losses. For those equity securities relating to the key officer and director deferred compensation plan, the corresponding change in the obligation to the employee is recognized in employee benefits expense. WesBanco’s municipal portfolio comprises 33.3%29.7% of the overall securities portfolio as of SeptemberJune 30, 2018, which is down from 39.4%2019 compared to 32.2% as of December 31, 2017 due to the first quarter mortgage-backed2018, and CMO purchases. Municipal bonds carryit 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 | | | | | | | | | | | | | | | | | | | September 30, 2018 | | | December 31, 2017 | | (unaudited, dollars in thousands) | | Amount | | | % of Total | | | Amount | | | % of Total | | Municipal bonds (at fair value) (1): | | | | | | | | | | | | | | | | | Moody’s: Aaa / S&P: AAA | | $ | 120,898 | | | | 12.0 | | | $ | 96,253 | | | | 10.5 | | Moody’s: Aa1 ; Aa2 ; Aa3 / S&P: AA+ ; AA ; AA- | | | 725,572 | | | | 71.8 | | | | 685,446 | | | | 74.9 | | Moody’s: A1 ; A2 ; A3 / S&P: A+ ; A ; A- | | | 141,221 | | | | 14.0 | | | | 125,032 | | | | 13.7 | | Moody’s: Baa1 ; Baa2 ; Baa3 / S&P: BBB+ ; BBB ;BBB- (2) | | | 5,458 | | | | 0.5 | | | | 745 | | | | 0.1 | | Not rated by either agency (3) | | | 16,707 | | | | 1.7 | | | | 7,764 | | | | 0.8 | | | | | | | | | | | | | | | | | | | Total municipal bond portfolio | | $ | 1,009,856 | | | | 100.0 | | | $ | 915,240 | | | | 100.0 | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | | December 31, 2018 | | (unaudited, dollars in thousands) | | Amount | | | % of Total | | | Amount | | | % of Total | | Municipal bonds (at fair value) (1): | | | | | | | | | | | | | | | | | Moody's: Aaa / S&P: AAA | | $ | 98,021 | | | | 10.6 | | | $ | 101,557 | | | | 10.0 | | Moody's: Aa1 ; Aa2 ; Aa3 / S&P: AA+ ; AA ; AA- | | | 592,215 | | | | 64.2 | | | | 654,787 | | | | 64.3 | | Moody's: A1 ; A2 ; A3 / S&P: A+ ; A ; A- | | | 212,664 | | | | 23.0 | | | | 237,847 | | | | 23.4 | | Moody's: Baa1 ; Baa2 ; Baa3 / S&P: BBB+ ; BBB ; BBB- (2) | | | 7,657 | | | | 0.8 | | | | 7,607 | | | | 0.7 | | Not rated by either agency | | | 12,370 | | | | 1.4 | | | | 16,595 | | | | 1.6 | | Total municipal bond portfolio | | $ | 922,927 | | | | 100.0 | | | $ | 1,018,393 | | | | 100.0 | |
(1) The lowest available rating was used when placing the bond into a category in the table. (1) | The highest available rating was used when placing the bond into a category in the table.
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(2) | As of September
(2) As of June 30, 2019 and December 31, 2018, and December 31, 2017, there are no securities in the municipal portfolio rated below investment grade. |
(3) | Non-rated municipal balances increased from December 31, 2017 due tonon-rated West Virginia municipal bonds in the acquired FTSB investment portfolio.
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WesBanco’s municipal bond portfolio at SeptemberJune 30, 2018,2019 consists of $201.2$182.8 million of taxable (primarily Build America)America Bonds) and $808.7$740.1 million oftax-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 | | | September 30, 2018 | | | December 31, 2017 | | | June 30, 2019 | | | December 31, 2018 | | (unaudited, dollars in thousands) | | Amount | | | % of Total | | | Amount | | | % of Total | | | Amount | | | % of Total | | | Amount | | | % of Total | | Municipal bond type: | | | | | | | | | | | | | | | | | | | | | | | | | General Obligation | | $ | 680,961 | | | | 67.4 | | | $ | 630,824 | | | | 68.9 | | | $ | 625,476 | | | | 67.8 | | | $ | 690,463 | | | | 67.8 | | Revenue | | | 328,895 | | | | 32.6 | | | | 284,416 | | | | 31.1 | | | | 297,451 | | | | 32.2 | | | | 327,930 | | | | 32.2 | | | | | | | | | | | | | | | | Total municipal bond portfolio | | $ | 1,009,856 | | | | 100.0 | | | $ | 915,240 | | | | 100.0 | | | $ | 922,927 | | | | 100.0 | | | $ | 1,018,393 | | | | 100.0 | | | | | | | | | | | | | | | | Municipal bond issuer: | | | | | | | | | | | | | | | | | | | | | | | | | State Issued | | $ | 97,765 | | | | 9.7 | | | $ | 95,160 | | | | 10.4 | | | $ | 83,841 | | | | 9.1 | | | $ | 98,468 | | | | 9.7 | | Local Issued | | | 912,091 | | | | 90.3 | | | | 820,080 | | | | 89.6 | | | | 839,086 | | | | 90.9 | | | | 919,925 | | | | 90.3 | | | | | | | | | | | | | | | | Total municipal bond portfolio | | $ | 1,009,856 | | | | 100.0 | | | $ | 915,240 | | | | 100.0 | | | $ | 922,927 | | | | 100.0 | | | $ | 1,018,393 | | | | 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 SeptemberJune 30, 2018:2019: TABLE 9. CONCENTRATION OF MUNICIPAL SECURITIES | | | | | | | | | | | September 30, 2018 | | (unaudited, dollars in thousands) | | Fair Value | | | % of Total | | Pennsylvania | | $ | 194,010 | | | | 19.2 | | Texas | | | 111,871 | | | | 11.1 | | Ohio | | | 106,006 | | | | 10.5 | | Kentucky | | | 60,025 | | | | 5.9 | | Illinois | | | 52,533 | | | | 5.2 | | All other states (1) | | | 485,141 | | | | 48.1 | | | | | | | | | | | Total municipal bond portfolio | | $ | 1,009,586 | | | | 100.0 | | | | | | | | | | |
(1) | WesBanco’s municipal bond portfolio contains obligations in the state of West Virginia totaling $40.4 million or 4.0% of the total municipal portfolio.
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| | June 30, 2019 | | (unaudited, dollars in thousands) | | Fair Value | | | % of Total | | Pennsylvania | | $ | 179,483 | | | | 19.4 | | Ohio | | | 100,090 | | | | 10.8 | | Texas | | | 98,586 | | | | 10.7 | | Kentucky | | | 55,466 | | | | 6.0 | | Illinois | | | 42,990 | | | | 4.7 | | All other states (1) | | | 446,312 | | | | 48.4 | | Total municipal bond portfolio | | $ | 922,927 | | | | 100.0 | |
(1) WesBanco’s municipal bond portfolio contains obligations in the State of West Virginia totaling $39.6 million or 4.3% of the total municipal portfolio. 38
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 securities 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 8,9, “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, including indirect and direct auto and truck 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 currently 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 adjustschanges 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 inherent loss in the event of default to understand their impact on the Bank’s earnings and capital. TABLE 10. COMPOSITION OF LOANS (1) | | | September 30, 2018 | | | December 31, 2017 | | | June 30, 2019 | | | December 31, 2018 | | (unaudited, dollars in thousands) | | Amount | | | % of Loans | | | Amount | | | % of Loans | | | Amount | | | % of Loans | | | Amount | | | % of Loans | | Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | Land and construction | | $ | 538,922 | | | | 6.9 | | | $ | 392,597 | | | | 6.2 | | | $ | 483,046 | | | | 6.2 | | | $ | 528,072 | | | | 6.9 | | Improved property | | | 3,367,299 | | | | 43.3 | | | | 2,601,851 | | | | 40.9 | | | | 3,394,587 | | | | 43.8 | | | $ | 3,325,623 | | | | 43.4 | | | | | | | | | | | | | | | | Total commercial real estate | | | 3,906,221 | | | | 50.2 | | | | 2,994,448 | | | | 47.1 | | | | 3,877,633 | | | | 50.0 | | | | 3,853,695 | | | | 50.3 | | Commercial and industrial | | | 1,292,073 | | | | 16.6 | | | | 1,125,327 | | | | 17.7 | | | | 1,300,577 | | | | 16.8 | | | | 1,265,460 | | | | 16.5 | | Residential real estate | | | 1,598,477 | | | | 20.5 | | | | 1,353,301 | | | | 21.3 | | | | 1,633,613 | | | | 21.1 | | | | 1,611,607 | | | | 21.0 | | Home equity | | | 604,106 | | | | 7.8 | | | | 529,196 | | | | 8.3 | | | | 590,303 | | | | 7.6 | | | | 599,331 | | | | 7.8 | | Consumer | | | 325,546 | | | | 4.2 | | | | 339,169 | | | | 5.3 | | | | 335,728 | | | | 4.3 | | | | 326,188 | | | | 4.3 | | | | | | | | | | | | | | | | Total portfolio loans | | | 7,726,423 | | | | 99.3 | | | | 6,341,441 | | | | 99.7 | | | | 7,737,854 | | | | 99.8 | | | | 7,656,281 | | | | 99.9 | | Loans held for sale | | | 55,913 | | | | 0.7 | | | | 20,320 | | | | 0.3 | | | | 18,649 | | | | 0.2 | | | | 8,994 | | | | 0.1 | | | | | | | | | | | | | | | | Total loans | | $ | 7,782,336 | | | | 100.0 | | | $ | 6,361,761 | | | | 100.0 | | | $ | 7,756,503 | | | | 100.0 | | | $ | 7,665,275 | | | | 100.0 | | | | | | | | | | | | | | | |
(1) | (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 $1.42 billion$91.2 million or 1.2% from December 31, 2017 with $1.03 billion from the FFKT acquisition and $448.1 million from the FTSB acquisition2018 while organic portfolio loans decreased $43.1increased $945.0 million or 0.68%. Approximately $12.9 million in underperforming commercial loans from FTSB were sold during13.9% over the second quarter. During the third quarter of 2018, approximately $107 million of acquired loans were reclassified from the commercial and industrial category to the commercial real estate category due to the classification of the underlying collateral. CRE land and construction provided the most significant organic growth, increasing 3.7% for theyear-to-date period.last twelve months. Total organic loan growth over the last twelve months was driven by 10.2% growth in CRE improved property and 2.03% growth in residential real estate. Secondary market loan sales of residential mortgages decreased; however, higher premiums resulted in an increase in the gain on sale of mortgages. In addition, the consumer portfolio declinedprimarily due to targeted reductionsthe acquisition of FFKT. Total organic loans were down 1.1% year-over-year, resulting from lower home equity loan balances due to reduce its overall credit risk, which included certain pricing adjustments for indirect installment loans.lower demand as a result of higher interest rates and tax changes, elevated levels of commercial real estate loans that moved to the secondary financing market, and continued deleveraging by commercial customers reflective of the current operational environment and higher cash levels from tax reform. Total loan commitments of $2.4$2.5 billion, including loans approved but not closed, increased $542.4$42.5 million or 29.1%1.8% from December 31, 20172018 due primarily to unused lines of credit from the two acquisitions as well as organic commitments.loans approved but not closed. The line utilization percentage for the commercial portfolio was slightly lower46.9% at 46.1% as of SeptemberJune 30, 20182019 and it was 48.0% as of47.6% at December 31, 2017.2018. 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. 39
NON-PERFORMING ASSETS, IMPAIRED LOANS AND LOANS PAST DUE 90 DAYS OR MORE Non-performing assets consist ofnon-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) | | September 30, 2018 | | December 31, 2017 | | | June 30, 2019 | | | December 31, 2018 | | Non-accrual loans: | | | | | | | | | | | | | Commercial real estate—land and construction | | $ | — | | | $ | 239 | | | Commercial real estate—improved property | | | 8,757 | | | 13,318 | | | Commercial real estate - land and construction | | | $ | 295 | | | $ | — | | Commercial real estate - improved property | | | | 11,726 | | | | 8,413 | | Commercial and industrial | | | 3,165 | | | 2,958 | | | | 2,854 | | | | 3,260 | | Residential real estate | | | 14,475 | | | 14,661 | | | | 12,813 | | | | 13,831 | | Home equity | | | 4,283 | | | 4,762 | | | | 4,886 | | | | 4,610 | | Consumer | | | 594 | | | 887 | | | | 324 | | | | 586 | | | | | | | | | | Totalnon-accrual loans (1) | | | 31,274 | | | 36,825 | | | | 32,898 | | | | 30,700 | | | | | | | | | | TDRs accruing interest: | | | | | | | | | | | | | Commercial real estate—land and construction | | | — | | | | — | | | Commercial real estate—improved property | | | 1,171 | | | 1,650 | | | Commercial real estate - land and construction | | | | — | | | | — | | Commercial real estate - improved property | | | | 743 | | | | 880 | | Commercial and industrial | | | 162 | | | 128 | | | | 192 | | | | 168 | | Residential real estate | | | 4,469 | | | 4,321 | | | | 4,005 | | | | 4,185 | | Home equity | | | 445 | | | 407 | | | | 486 | | | | 426 | | Consumer | | | 91 | | | 65 | | | | 61 | | | | 85 | | | | | | | | | | Total TDRs accruing interest (1) | | | 6,338 | | | 6,571 | | | | 5,487 | | | | 5,744 | | | | | | | | | | Totalnon-performing loans | | $ | 37,612 | | | $ | 43,396 | | | $ | 38,385 | | | $ | 36,444 | | | | | | | | | | Other real estate owned and repossessed assets | | | 6,877 | | | 5,297 | | | | 4,973 | | | | 7,265 | | | | | | | | | | Totalnon-performing assets | | $ | 44,489 | | | $ | 48,693 | | | $ | 43,358 | | | $ | 43,709 | | | | | | | | | | Non-performing loans/total portfolio loans | | | 0.49 | % | | 0.68 | % | | | 0.50 | % | | | 0.48 | % | Non-performing assets/total assets | | | 0.35 | % | | 0.50 | % | | | 0.35 | % | | | 0.35 | % | Non-performing assets/total portfolio loans, other real estate and repossessed assets | | | 0.58 | % | | 0.77 | % | | | 0.56 | % | | | 0.57 | % | | | | | | | | |
(1) TDRs on nonaccrual of $1.9 million and $2.9 million at June 30, 2019 and December 31, 2018, respectively, are included in total nonaccrual loans. (1) | TDRs on nonaccrual of $2.0 million and $2.9 million at September 30, 2018 and December 31, 2017, respectively, are included in total nonaccrual loans.
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Non-performing loans, which consist ofnon-accrual loans and TDRs, decreased $5.8increased $1.9 million or 13.3%5.3%, from December 31, 2017, despite a $0.4 million and $2.1 million increase from FTSB and FFKT, respectively, as cash flows could not be reasonably estimated for a small population of FTSB and FFKT loans acquired with deteriorated credit quality and therefore were accounted for under the cost recovery method. Certain other such loans from FTSB identified in due diligence as underperforming were sold after the acquisition was completed in the second quarter.Non-accrual loans decreased2018, primarily due to the paydown of one large CREWesBanco’s normal loan grade review process post-acquisition in conjunction with two downgraded relationships in our legacy portfolio, as reported in the first quarter. TDRs decreased slightly by $0.2$0.3 million due to normal repayments being slightly higher than additions to the category. (Please see the Note 5, “Loans andNotes to the AllowanceConsolidated Financial Statements for Credit Losses”.additional discussion.) Other real estate owned and repossessed assets increased $1.6decreased $2.3 million from December 31, 20172018 primarily due to FTSBcontinued efforts to liquidate properties and write-downs on FFKT acquisitions adding $0.5 million and $2.7 million, respectively, to the September 30, 2018acquired other real estate and repossessed asset totals.owned. The following table presents past due and accruing loans excludingnon-accrual and TDRs: 40
TABLE 12. PAST DUE AND ACCRUING LOANS EXCLUDINGNON-ACCRUAL AND TDRs | (unaudited, dollars in thousands) | | September 30, 2018 | | December 31, 2017 | | | June 30, 2019 | | | December 31, 2018 | | Loans past due 90 days or more: | | | | | | | | | | | | | Commercial real estate—land and construction | | $ | — | | | $ | — | | | Commercial real estate—improved property | | | 88 | | | 243 | | | Commercial real estate - land and construction | | | $ | — | | | $ | — | | Commercial real estate - improved property | | | | 587 | | | | 175 | | Commercial and industrial | | | 114 | | | 20 | | | | 97 | | | | 13 | | Residential real estate | | | 1,225 | | | 1,113 | | | | 1,173 | | | | 2,820 | | Home equity | | | 646 | | | 742 | | | | 533 | | | | 705 | | Consumer | | | 378 | | | 608 | | | | 244 | | | | 364 | | | | | | | | | | Total loans past due 90 days or more | | | 2,451 | | | 2,726 | | | | 2,634 | | | | 4,077 | | | | | | | | | | Loans past due 30 to 89 days: | | | | | | | | | | | | | Commercial real estate—land and construction | | | 741 | | | 172 | | | Commercial real estate—improved property | | | 1,714 | | | 316 | | | Commercial real estate - land and construction | | | | 1,010 | | | | 1,412 | | Commercial real estate - improved property | | | | 2,437 | | | | 4,439 | | Commercial and industrial | | | 1,166 | | | 721 | | | | 1,064 | | | | 878 | | Residential real estate | | | 8,058 | | | 4,392 | | | | 6,779 | | | | 6,542 | | Home equity | | | 3,446 | | | 2,281 | | | | 2,016 | | | | 3,344 | | Consumer | | | 2,891 | | | 3,290 | | | | 2,140 | | | | 2,954 | | | | | | | | | | Total loans past due 30 to 89 days | | | 18,016 | | | 11,172 | | | | 15,446 | | | | 19,569 | | | | | | | | | | Total 30 days or more | | $ | 20,467 | | | $ | 13,898 | | | $ | 18,080 | | | $ | 23,646 | | | | | | | | | | Loans past due 90 days or more and accruing to total portfolio loans | | | 0.03 | % | | 0.04 | % | | | 0.03 | % | | | 0.05 | % | Loans past due30-89 days and accruing to total portfolio loans | | | 0.23 | % | | 0.18 | % | | | 0.20 | % | | | 0.26 | % | | | | | | | | |
Loans past due 30 days or more and accruing interest excludingnon-accruals and TDRs increased $6.6decreased $5.6 million or 47.3%23.5% from December 31, 2017, primarily due to the FTSB and FFKT acquisitions which added $4.8 million and $2.0 million, respectively.2018. These loans continue to accrue interest because they are both well-secured and in the process of collection. The increasedecrease in the 30 to 89 days past due status was primarily due to a $3.7$2.0 million increasedecrease in the residentialcommercial real estate – improved property category and represented 0.23%0.03% of total portfolio loans at SeptemberJune 30, 20182019 and 0.18%0.06% at December 31, 2017.2018. Loans past due 90 days or more decreased $0.3$1.4 million compared to December 31, 20172018 and represented 0.03% of total loans at SeptemberJune 30, 2018,2019 compared to 0.04%0.05% at December 31, 2017. These2018. 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 of $48.9$50.9 million represented 0.63%0.66% of total portfolio loans at SeptemberJune 30, 20182019 compared to 0.71%0.64% as of December 31, 20172018 and September0.70% as of June 30, 2017.2018. Included in the ratio are acquired FTSB and FFKT loans (recorded at fair value at the date of acquisition of $448.1 million$1.0 billion) and $1,028.1 million, respectively). Nothe related allowance has been recorded on FTSB and FFKT acquired loans as of September$8 thousand at June 30, 2018.2019 recorded since acquisition. The allowance for loans individually-evaluated decreasedincreased $1.5 million from December 31, 20172018 to SeptemberJune 30, 2018 primarily due to a partialcharge-off on one individually-evaluated commercial credit of $0.4 million.2019. The allowance for loans collectively-evaluated increased from December 31, 20172018 to SeptemberJune 30, 20182019 by $4.0$0.4 million. The allowance for loan commitments of $0.7was $1.8 million at SeptemberJune 30, 20182019 as compared to $0.6$0.7 million at December 31, 2017,2018, and is included in other liabilities on the Consolidated Balance Sheets. The increase in the allowance for loan commitments is due to one unfunded commitment with a credit relationship that was downgraded to classified status in the first quarter. The allowance for credit losses by loan category, presented in Note 5, “Loans and the Allowance for Credit Losses” toof 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 and delinquencies.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 loan categories,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 asnon-performing is not as significant a factor as the loss migration rate by risk grade or the segment loss history, although certainnon-performing loans that carry specific reserves are also typically considered classified under the internal risk grading system. Criticized and classified loans at September 30, 2018 were 1.01% of total portfolio loans, improving from 1.24% at September 30, 2017. Criticized and classified loans as a percent1.48% of total loans, decreased, as overall credit quality continued to improve, enabling certain loans to be upgraded while others have paid down or paid off.increasing from 1.08% at December 31, 2018. Criticized and classified loans increased $3.9$31.3 million from December 31, 20172018 to $77.8$114.2 million at SeptemberJune 30, 20182019 primarily due to $7.5 millionthe post-acquisition loan grade review process and two larger downgraded relationships in acquired FFKT criticized and classified loans offset somewhat by the paydown and/or upgrade of several large CRE loans.legacy loan portfolio in the first quarter. Table 13 summarizes the allocation of the allowance for credit losses to each category of the loan portfolio. The increase in theoverall allowance for loans was relatively unchanged. The allowance for commercial loans from December 31, 2017 is primarilyand industrial loan commitments increased due to certain judgmental factors leading tothe downgrade of a longer look-back periodcommercial and interest rate variables, while the overall allowance for retailindustrial loan categories was relatively unchanged.with a remaining undrawn commitment balance. 41
TABLE 13. ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES | (unaudited, dollars in thousands) | | September 30, 2018 | | | Percent of Total | | | December 31, 2017 | | | Percent of Total | | | June 30, 2019 | | | Percent of Total | | | December 31, 2018 | | | Percent of Total | | Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate—land and construction | | $ | 4,169 | | | | 8.4 | | | $ | 3,117 | | | | 6.8 | | | Commercial real estate—improved property | | | 20,824 | | | | 42.0 | | | | 21,166 | | | | 46.2 | | | Commercial real estate - land and construction | | | $ | 3,701 | | | | 7.0 | | | $ | 4,039 | | | | 8.1 | | Commercial real estate - improved property | | | | 22,367 | | | | 42.5 | | | | 20,848 | | | | 42.0 | | Commercial and industrial | | | 12,051 | | | | 24.3 | | | | 9,414 | | | | 20.5 | | | | 12,887 | | | | 24.5 | | | | 12,114 | | | | 24.4 | | Residential real estate | | | 3,775 | | | | 7.6 | | | | 3,206 | | | | 7.0 | | | | 3,455 | | | | 6.6 | | | | 3,822 | | | | 7.7 | | Home equity | | | 4,290 | | | | 8.7 | | | | 4,497 | | | | 9.8 | | | | 4,321 | | | | 8.2 | | | | 4,356 | | | | 8.8 | | Consumer | | | 2,796 | | | | 5.6 | | | | 3,063 | | | | 6.7 | | | | 2,682 | | | | 5.1 | | | | 2,797 | | | | 5.6 | | Deposit account overdrafts | | | 997 | | | | 2.0 | | | | 821 | | | | 1.6 | | | | 1,446 | | | | 2.7 | | | | 972 | | | | 1.8 | | | | | | | | | | | | | | | | Total allowance for loan losses | | $ | 48,902 | | | | 98.6 | | | $ | 45,284 | | | | 98.6 | | | $ | 50,859 | | | | 96.6 | | | $ | 48,948 | | | | 98.4 | | | | | | | | | | | | | | | | Allowance for loan commitments: | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate—land and construction | | $ | 186 | | | | 0.4 | | | $ | 119 | | | | 0.3 | | | Commercial real estate—improved property | | | 23 | | | | 0.0 | | | | 26 | | | | 0.1 | | | Commercial real estate - land and construction | | | $ | 187 | | | | 0.4 | | | $ | 169 | | | | 0.4 | | Commercial real estate - improved property | | | | 24 | | | | 0.0 | | | | 33 | | | | 0.1 | | Commercial and industrial | | | 205 | | | | 0.4 | | | | 173 | | | | 0.4 | | | | 1,257 | | | | 2.4 | | | | 262 | | | | 0.5 | | Residential real estate | | | 9 | | | | 0.0 | | | | 7 | | | | 0.0 | | | | 13 | | | | 0.0 | | | | 12 | | | | 0.0 | | Home equity | | | 221 | | | | 0.5 | | | | 212 | | | | 0.5 | | | | 249 | | | | 0.5 | | | | 226 | | | | 0.5 | | Consumer | | | 40 | | | | 0.1 | | | | 37 | | | | 0.1 | | | | 36 | | | | 0.1 | | | | 39 | | | | 0.1 | | | | | | | | | | | | | | | | Total allowance for loan commitments | | | 684 | | | | 1.4 | | | | 574 | | | | 1.4 | | | | 1,766 | | | | 3.4 | | | | 741 | | | | 1.6 | | | | | | | | | | | | | | | | Total allowance for credit losses | | $ | 49,586 | | | | 100.0 | | | $ | 45,858 | | | | 100.0 | | | $ | 52,625 | | | | 100.0 | | | $ | 49,689 | | | | 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 SeptemberJune 30, 2018.2019. DEPOSITS TABLE 14. DEPOSITS | (unaudited, dollars in thousands) | | September 30, 2018 | | | December 31, 2017 | | | $ Change | | | % Change | | | June 30, 2019 | | | December 31, 2018 | | | $ Change | | | % Change | | Deposits | | | | | | | | | | | | | | | | | | | | | | | | | Non-interest bearing demand | | $ | 2,411,862 | | | $ | 1,846,748 | | | $ | 565,114 | | | | 30.6 | | | $ | 2,481,065 | | | $ | 2,441,041 | | | $ | 40,024 | | | | 1.6 | | Interest bearing demand | | | 2,187,662 | | | | 1,625,015 | | | | 562,647 | | | | 34.6 | | | | 2,079,795 | | | | 2,146,508 | | | | (66,713 | ) | | | (3.1 | ) | Money market | | | 1,178,950 | | | | 1,024,856 | | | | 154,094 | | | | 15.0 | | | | 1,098,917 | | | | 1,142,925 | | | | (44,008 | ) | | | (3.9 | ) | Savings deposits | | | 1,649,684 | | | | 1,269,912 | | | | 379,772 | | | | 29.9 | | | | 1,670,035 | | | | 1,645,549 | | | | 24,486 | | | | 1.5 | | Certificates of deposit | | | 1,513,600 | | | | 1,277,057 | | | | 236,543 | | | | 18.5 | | | | 1,365,116 | | | | 1,455,610 | | | | (90,494 | ) | | | (6.2 | ) | | | | | | | | | | | | | | | Total deposits | | $ | 8,941,758 | | | $ | 7,043,588 | | | $ | 1,898,170 | | | | 26.9 | | | $ | 8,694,928 | | | $ | 8,831,633 | | | $ | (136,705 | ) | | | (1.5 | ) | | | | | | | | | | | | | | |
Deposits, which represent WesBanco’s primary source of funds, are offered in various account forms at various rates through WesBanco’s 209199 financial centers. The FDIC insures deposits up to $250,000 per account. Total deposits increaseddecreased by $1.9 billion$136.7 million or 26.9%1.5% during the first ninesix months of 2018 primarily due to the FTSB2019. Money market deposits and FFKT acquisitions, which provided $1.9 billion of additional deposits, while organic deposits decreased $21.9 million or 0.3% from December 31, 2017. Interest bearing demand andnon-interestinterest bearing demand deposits increased 34.6%decreased 3.9% and 30.6%3.1%, respectively, whilewhich were partially offset by non-interest bearing demand and savings deposits increasing by 1.6% and money market1.5%, respectively. The growth in non-interest bearing demand deposits increased 29.9% and 15.0%, respectively, duesavings deposits is primarily attributable to the FTSB and FFKT acquisitions. Organic growth of $197.4 million for categories of deposits excluding certificates of deposit were the result of marketing, customer and employee incentives, focused retail and business strategies to obtain more account relationships and customercustomers’ preferences for shorter-term maturities, coupled with deposits frommaturities. Deposit balances were also impacted by 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. Money market deposits were influenced through WesBanco’s participation in the Insured Cash Sweep (ICS®(ICS®) money market deposit program. ICS®ICS® reciprocal balances totaled $60.0$57.3 million at SeptemberJune 30, 20182019 compared to $65.9$61.4 million at December 31, 2017.2018. Certificates of deposit increased $236.5decreased $90.5 million due primarily due to the FTSB and FFKT acquisitions, which provided $455.8 million in additional certificateseffects of deposit, while organic deposits decreased by 17.2%. The organic deposits decrease was affected by an overall corporate strategy designed to increase and remix retail deposit relationships and reducing single servicereduce single-service customers with a focus on overall products that can be offered at a lower cost to WesBanco. The decline was also impacted by lower than competitor offered rates on certain maturing certificates of deposit in a rising rate environmentcustomer run-off from the FTSB and customer preferences for othernon-maturity deposit types.FFKT acquisitions. WesBanco does not generally solicit brokered or other depositsout-of-market or over the internet, but does participate in the Certificate of Deposit Account Registry Services (CDARS®(CDARS®) program. CDARS®CDARS® balances totaled $64.6$39.5 million in outstanding balances at SeptemberJune 30, 2018,2019, of which $33.7$16.9 million representedone-way buys, compared to $105.0$49.4 million in total outstanding balances at December 31, 2017,2018, of which $72.7$22.0 million representedone-way buys. Certificates of deposit greater than $250,000 were approximately $343.5$305.5 million at SeptemberJune 30, 20182019 compared to $216.4$323.2 million at December 31, 2017.2018. Certificates of deposit of $100,000 or more were approximately $726.6$640.3 million at SeptemberJune 30, 20182019 compared to $581.6$684.6 million at December 31, 2017. Both categories were influenced by jumbo certificates of deposit inherited from the two acquisitions.2018. Certificates of deposit totaling approximately $885.1$815.7 million at SeptemberJune 30, 20182019 with a cost of 0.94%1.23% 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. 42
BORROWINGS TABLE 15. BORROWINGS | (unaudited, dollars in thousands) | | September 30, 2018 | | | December 31, 2017 | | | $ Change | | | % Change | | | June 30, 2019 | | | December 31, 2018 | | | $ Change | | | % Change | | Federal Home Loan Bank Borrowings | | $ | 1,131,253 | | | $ | 948,203 | | | $ | 183,050 | | | | 19.3 | | | $ | 1,121,283 | | | $ | 1,054,174 | | | $ | 67,109 | | | | 6.4 | | Other short-term borrowings | | | 294,281 | | �� | | 184,805 | | | | 109,476 | | | | 59.2 | | | | 296,148 | | | | 290,522 | | | | 5,626 | | | | 1.9 | | Subordinated debt and junior subordinated debt | | | 189,745 | | | | 164,327 | | | | 25,418 | | | | 15.5 | | | | 156,534 | | | | 189,842 | | | | (33,308 | ) | | | (17.5 | ) | | | | | | | | | | | | | | | Total | | $ | 1,615,279 | | | $ | 1,297,335 | | | $ | 317,944 | | | | 24.5 | | | $ | 1,573,965 | | | $ | 1,534,538 | | | $ | 39,427 | | | | 2.6 | | | | | | | | | | | | | | | |
While borrowings are a significant source of funding for WesBanco, they are less significant as compared to total deposits. During the first ninesix months of 2018,2019, FHLB borrowings increased $183.1$67.1 million, as $575.0$285.0 million in new advances coupled with $52.3offset $217.9 million and $3.0 million in advances from the FTSB and FFKT acquisitions, respectively, offset $447.4 million in maturities, and other principal pay downs. In addition,paydowns and purchase accounting amortization. WesBanco extended the maturities of approximately $320.0$285.0 million of maturing FHLB borrowings in the first ninesix months of 2018 with an average maturinga prior cost of 1.35%approximately 1.96%, at a current average rate of 2.62% and an average term of 2.2 years. Rates have generally increased over the past year on all borrowing types due to four federal funds rate increases of 25 basis points each and associated LIBOR rate increases.short-term FHLB rates approximating 2.05% - 2.32%. Other short-term borrowings, which may consist of securities sold under agreements to repurchase at September 30, 2018, but may also include federal funds purchased, callable repurchase agreements, overnight sweep checking accounts, and notes payable,borrowings on a revolving line of credit, were $294.3$296.1 million at SeptemberJune 30, 20182019 compared to $184.8$290.5 million at December 31, 2017.2018. The increase is primarily due to a $134.5$0.3 million increase in securities sold undercallable repurchase agreements, to repurchase, including $9.2coupled with a $5.3 million and $35.3 million acquired from FTSB and FFKT, respectively, which was partially offset by the repayments of $25.0 millionincrease in overnight sweep checking accounts. At June 30, 2019, there were no outstanding federal funds purchased outstanding at December 31, 2017.purchased. Subordinated debt and junior subordinated debt were $189.7$156.5 million at SeptemberJune 30, 20182019 compared to $164.3$189.8 million at December 31, 2017.2018. The increasedecrease is primarily due to $9.3 million and $33.5 million in junior subordinated debt acquired from the FTSB and FFKT acquisitions, respectively, which was partially offset bya result of the redemption of $17.5$33.5 million in junior subordinated debt during the first ninesix months of 2018 from2019, which were assumed in the YCB and FTSB acquisitions.FFKT acquisition. WesBanco renewedhas a revolving line of credit, in September 2018, 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 waswere no outstanding balancebalances at Septembereither June 30, 20182019 or December 31, 2017. 2018. OFF-BALANCE SHEET ARRANGEMENTS WesBanco enters into financial instruments withoff-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 11,12, “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’Shareholders' equity increased $531.9$95.3 million or 38.1%4.8% from $1.4$2.0 billion at December 31, 2017.2018. The increase was dueresulted primarily to $107.3 million and $391.3 million of common stock issued in the FTSB and FFKT acquisitions, respectively, coupled withfrom net income during the current nine-monthsix-month period of $99.2$85.2 million and a $42.0 million other comprehensive income gain, which was partially offset by the declaration of common shareholder dividends totaling $42.1$33.8 million and $28.4 million in additional other comprehensive loss for the ninesix months ended SeptemberJune 30, 2018. The other comprehensive loss was due primarily to an unrealized loss in the securities portfolio, which was partially offset by an unrealized gain in the defined benefit pension plan and other postretirement benefits.2019. WesBanco also increased its quarterly dividend rate to $0.29$0.31 per share in February, representing an 11.5%a 6.9% increase over the prior quarterly rate and a cumulative 107%121% increase since 2010.
WesBanco purchased 14,74115,755 shares during the nine-monthsix-month period ended SeptemberJune 30, 20182019 under the current share repurchase plans. The shares were repurchased from employees for the payment of withholding taxes to facilitate stock compensation transactions. At SeptemberJune 30, 2018,2019, the remaining shares authorized to be purchased under the current repurchase plans totaled 1,092,5561,076,780 shares. On February 22, 2018,27, 2019, WesBanco granted 12,000 Total Shareholder Return Plan (“TSR”) shares for the performance period beginning January 1, 20182019 and ending December 31, 20202021 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 50th 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 75th percentile of the TSR of the peer group. Upon achieving the market-based metric, shares determined to be earned by the participant become time-based and vest in three equal annual installments. On May 16, 2018,15, 2019, WesBanco granted 117,600129,850 stock options to selected officers at an exercise price of $45.65.$38.93. These options are service-based and vest 50% at December 31, 20182019 and 50% at December 31, 2019.2020. On the same date, WesBanco also issued 70,151105,545 shares of time-based restricted stock to selected officers and 8,08116,056 shares of performance-based restricted stock to selected officers. In addition on April 5, 2018, WesBanco issued 9,465 shares of time-based restricted stock to certain former officers of FTSB who became officers of WesBanco upon the FTSB acquisition closing. The time-based restricted shares are service-based and cliff-vest 36 months from the date of grant. On August 20, 2018, WesBanco issued 18,685 shares of time-based restricted stock to certain former officers of FFKT who became officers of WesBanco upon the FFKT acquisition closing. The time-based restricted shares are service-based and cliff-vest 24 months from the date of grant. The performance-based restricted shares have a three-year performance period, beginning January 1, 2019,2020, based on WesBanco’s return on average assets and return on average tangible common equity measured for each year, compared to a national peer group of peer financial institutions with total assets between approximately $9$11 billion and $15$25 billion. Earned performance-based restricted shares are also subject to additional service-based vesting with 50% vesting on May 16, 202215, 2023 after the completion of the three-year performance period and the final 50% vesting on May 16, 2023.15, 2024. 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 SeptemberJune 30, 2018,2019, 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 SeptemberJune 30, 2018,2019, under FDIC regulations, WesBanco could receive, without prior regulatory approval, a dividend of approximately $82.5$137.4 million from the Bank. WesBanco intendsexpects to continue to improve its consolidated and Bank capital ratios as necessary over time, to fund organic growth and acquisitions, primarily from retaining a majority of its increasing earnings. 43
The following table summarizes risk-based capital amounts and ratios for WesBanco and the Bank for the periods indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | June 30, 2019 | | | December 31, 2018 | | | | | | | | September 30, 2018 | | | December 31, 2017 | | | Minimum | | | Well | | | | | | | | | | | Minimum | | | | | | | | | | | Minimum | | (unaudited, dollars in thousands) | | Minimum Value (1) | | Well Capitalized (2) | | Amount | | | Ratio | | Minimum Amount (1) | | | Amount | | | Ratio | | Minimum Amount(1) | | | Value (1) | | | Capitalized (2) | | | Amount | | | Ratio | | | Amount (1) | | | Amount | | | Ratio | | | Amount (1) | | WesBanco, Inc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tier 1 leverage | | | 4.00 | % | | 5.00 | % | | $ | 1,219,143 | | | | 11.22 | % | | $ | 434,706 | | | $ | 970,425 | | | | 10.39 | % | | $ | 373,566 | | | | 4.00 | % | | | 5.00 | % | | $ | 1,284,065 | | | | 11.09 | % | | $ | 463,324 | | | $ | 1,258,605 | | | | 10.74 | % | | $ | 468,824 | | Common equity Tier 1 | | | 4.50 | % | | 6.50 | % | | | 1,056,643 | | | | 12.41 | % | | | 382,980 | | | | 834,554 | | | | 12.14 | % | | 309,298 | | | | 4.50 | % | | | 6.50 | % | | | 1,154,065 | | | | 13.83 | % | | | 375,533 | | | | 1,096,105 | | | | 13.14 | % | | | 375,254 | | Tier 1 capital to risk-weighted assets | | | 6.00 | % | | 8.00 | % | | | 1,219,143 | | | | 14.32 | % | | | 510,639 | | | | 970,425 | | | | 14.12 | % | | 412,397 | | | | 6.00 | % | | | 8.00 | % | | | 1,284,065 | | | | 15.39 | % | | | 500,711 | | | | 1,258,605 | | | | 15.09 | % | | | 500,338 | | Total capital to risk-weighted assets | | | 8.00 | % | | 10.00 | % | | | 1,293,940 | | | | 15.20 | % | | | 680,852 | | | | 1,042,124 | | | | 15.16 | % | | 549,863 | | | | 8.00 | % | | | 10.00 | % | | | 1,361,925 | | | | 16.32 | % | | | 667,615 | | | | 1,333,503 | | | | 15.99 | % | | | 667,118 | | WesBanco Bank, Inc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tier 1 leverage | | | 4.00 | % | | 5.00 | % | | $ | 1,075,825 | | | | 10.09 | % | | $ | 426,372 | | | $ | 869,227 | | | | 9.32 | % | | $ | 372,900 | | | | 4.00 | % | | | 5.00 | % | | $ | 1,152,551 | | | | 9.96 | % | �� | $ | 462,642 | | | $ | 1,108,600 | | | | 9.48 | % | | $ | 467,939 | | Common equity Tier 1 | | | 4.50 | % | | 6.50 | % | | | 1,075,825 | | | | 12.65 | % | | | 382,682 | | | | 869,227 | | | | 12.66 | % | | 308,900 | | | | 4.50 | % | | | 6.50 | % | | | 1,152,551 | | | | 13.73 | % | | | 377,799 | | | | 1,108,600 | | | | 13.30 | % | | | 375,117 | | Tier 1 capital to risk-weighted assets | | | 6.00 | % | | 8.00 | % | | | 1,075,825 | | | | 12.65 | % | | | 510,242 | | | | 869,227 | | | | 12.66 | % | | 411,866 | | | | 6.00 | % | | | 8.00 | % | | | 1,152,551 | | | | 13.73 | % | | | 503,732 | | | | 1,108,600 | | | | 13.30 | % | | | 500,156 | | Total capital to risk-weighted assets | | | 8.00 | % | | 10.00 | % | | | 1,150,622 | | | | 13.53 | % | | | 680,323 | | | | 940,303 | | | | 13.70 | % | | 549,155 | | | | 8.00 | % | | | 10.00 | % | | | 1,230,411 | | | | 14.66 | % | | | 671,643 | | | | 1,183,498 | | | | 14.20 | % | | | 666,874 | |
(1) Minimum requirements to remain adequately capitalized. (1) | Minimum requirements to remain adequately capitalized.
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(2) | (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 itson- andoff-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 60.9%61.5% at SeptemberJune 30, 20182019 and deposit balances funded 71.0%69.6% of assets. The following table lists the sources of liquidity from assets at SeptemberJune 30, 20182019 expected within the next year: | (unaudited, in thousands) | | | | | | | | Cash and cash equivalents | | $ | 273,680 | | | $ | 194,355 | | Securities with a maturity date within the next year and callable securities | | | 279,399 | | | | 331,709 | | Projected payments and prepayments on mortgage-backed securities and collateralized mortgage obligations (1) | | | 254,631 | | | | 287,816 | | Loans held for sale | | | 55,913 | | | | 18,649 | | Accruing loans scheduled to mature | | | 993,203 | | | | 1,029,536 | | Normal loan repayments | | | 1,529,933 | | | | 2,004,119 | | | | | | | Total sources of liquidity expected within the next year | | $ | 3,386,759 | | | $ | 3,866,184 | | | | | | |
(1) | (1)Projected prepayments are based on current prepayment speeds. |
Deposit flows are another principal factor affecting overall WesBanco liquidity. Deposits totaled $8.9$8.7 billion at SeptemberJune 30, 2018.2019. 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 $885.1$815.7 million at SeptemberJune 30, 2018,2019, which includes jumbo regular certificates of deposit totaling $408.7$381.7 million with a weighted-average cost of 1.38%1.73%, and jumbo CDARS® deposits of $39.2$24.3 million with a weighted-average cost of 1.32%1.63%. WesBanco maintains a line of credit with the FHLB as an additional funding source. Available credit with the FHLB approximated $2.3 billion at SeptemberJune 30, 20182019 and December 31, 2017 approximated $2.3 billion and $1.8 billion, respectively.2018. 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 SeptemberJune 30, 2018,2019, the Bank had unpledgedavailable-for-sale securities with an amortized cost of $413.9 million, representing 20.5%$398.2 million. A portion of that portfolio. Thesethese 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, to those that are designated as only approximately 19.4% of the available-for-sale and are 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, YCB, FTSB and YCB acquisitions in the past three years.FFKT acquisitions. WesBanco’sheld-to-maturity portfolio currently contains $683.0$603.9 million of unpledged securities. However, mostMost of the balance representsthese securities are tax-exempt municipal bonds,securities, which can only be pledged in limited circumstances. Unless in compliance withExcept for certain criteria,limited, special circumstances, these securities cannot be sold without tainting the remainder of theheld-to-maturity portfolio. If tainting occurs, all remaining securities with theheld-to-maturity designation would be required to move tobe reclassified as available-for-sale, and theheld-to-maturity designation would notno longer be available to WesBanco for some time. 44
WesBanco participates in the Federal Reserve Bank’sBorrower-in-Custody Program (“BIC”) whereby WesBanco pledges certain consumer loans as collateral for borrowings. At SeptemberJune 30, 2018,2019, WesBanco had a BIC line of credit totaling $164.5$185.0 million, none of which was outstanding. Alternative funding sources may include the utilization of existing overnight lines of credit with third party banks totaling $275.0 million, none of which was outstanding at SeptemberJune 30, 2018,2019, along with seeking other lines of credit, borrowings under repurchase agreement lines, increasing deposit rates to attract additional funds, accessing brokered deposits, or selling securitiesavailable-for-sale or certain types of loans. Other short-term borrowings of $294.3$296.1 million at SeptemberJune 30, 20182019 consisted of callable repurchase agreements and overnight sweep checking accounts for large commercial customers. There has not been an increase of $65.9 milliona significant fluctuation in the average deposit balances of the overnight sweep checking accounts during 2018 from commercial customers seeking higher rates upon cash management balances along with balances from the two acquisitions.first six months of 2019. 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, $115.9$106.6 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 SeptemberJune 30, 2018.2019. 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 SeptemberJune 30, 2018,2019, under FDIC and State of West Virginia regulations, WesBanco could receive, without prior regulatory approval, dividends of approximately $82.5$137.4 million from the Bank. Management believes these are appropriate levels of cash for WesBanco given current needs forthe parent company liquidity.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 $2.4 billion and $1.8$2.5 billion at SeptemberJune 30, 20182019 and December 31, 2017, respectively.2018. On a historical basis, only a small portion of these commitments will result in an outflow of funds. Please refer to Note 11,12, “Commitments and Contingent Liabilities,” of the Consolidated Financial Statements and the “Loans and Loan Commitments”Credit Risk” section of this MD&A for additional information. Federal financial regulatory agencies previously have issued guidance in 2009 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 September 30, 2018 and thatWesBanco’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 ALCOWesBanco��s Asset/Liability Committee (“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 equitybond 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 sensitiverate-sensitive assets and rates paid on interest rate sensitiverate-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 a Board-level committee with both Board and executive management representation, including the Chief Executive Officer, Chief Financial Officer, Chief Risk Management Officer and Senior Treasury Officer.representation. It is responsible for monitoring and managing interest rate risk within Board-approved policy limits. Interest rate risk is monitored through the use of anlimits, utilizing earnings sensitivity simulation model and anshareholders’ equity economicvalue-at-risk model, measuring the fair value of net equity. models. 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, reviewed and revieweddocumented at least quarterly by the ALCO, while appropriate documentation is maintained.ALCO. The earnings sensitivity 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, security call dates, changes to deposit product betas andnon-maturity deposit decay rates, which may not necessarily reflect the manner in which actual cash flows, yields, and costs respond to changes in market interest rates. Assumptions are based on historical experience, current market rates and economic forecasts and are periodicallyinternally back-tested and periodically reviewed by a third-party consultant. The net interest income sensitivity results 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 orre-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, this analysis does not consider actions that management might employ in response to changes in interest rates, as well as changes in earning asset and costing liability balances. Management is aware of the significant effect that 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 ofnon-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, costs 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,competitive factors by introducingapproving new products and services or reducingadjusting the availability of existing products and services, and by controlling overhead expenses.services. 45
Interest rate risk policy limits are determined by measuring the anticipated change in net interest income over a twelve-month period, assuming immediate and sustained market interest rate increases and decreases of 100 - 400 basis points across the entire yield curve, compared to a stable rate environment or base model. WesBanco’s current policy limits this exposure for the noted interest rate changes to a reduction of between 10% - 20% or less of net interest income from the stable rate base model over a twelve-month period. The table below shows WesBanco’s interest rate sensitivity at SeptemberJune 30, 20182019 and December 31, 2017,2018, assuming the above-noted interest rate increases as compared to a base model. In the current lower interest rate environment, particularly for short-term rates, the 300 - 400 basis point decreasing changes for both years are not shown due to the unrealistic nature of results associated with short-term negative rates. 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 | | | September 30, 2018 | | December 31, 2017 | | Immediate Change in | | | Percentage Change in | | | | | | Interest Rates | | | Net Interest Income from Base over One Year | | | ALCO | | (basis points) | | | June 30, 2019 | | | December 31, 2018 | | | Guidelines | | +400 | | 5.1% | | 8.3% | | (20.0%) | | 11.5% | | | 7.6% | | | (20.0%) | | +300 | | 4.0% | | 6.2% | | (15.0%) | | 8.9% | | | 6.4% | | | (15.0%) | | +200 | | 2.9% | | 4.0% | | (12.5%) | | 6.1% | | | 3.9% | | | (12.5%) | | +100 | | 1.7% | | 2.4% | | (10.0%) | | 3.2% | | | 2.1% | | | (10.0%) | | -100 | | (2.0%) | | (3.0%) | | (10.0%) | | (2.5%) | | | (2.1%) | | | (10.0%) | | -200 | | (5.6%) | | (8.3%) | | (12.5%) | | (8.2%) | | | (5.8%) | | | (12.5%) | |
As per the table above, the earnings sensitivity simulation model at SeptemberJune 30, 20182019 currently projects that net interest income for the next twelve-month period would decrease by 2.0%2.5% - 5.6%8.2% if interest rates were to fall immediately by 100 - 200 basis points, compared to decreasesa decrease of 3.0%2.1% - 8.3% for the same scenarios5.8% as of December 31, 2017. 2018. For rising rate scenarios, net interest income would increase by between 1.7%3.2% - 5.1%11.5% if rates were to increase by between 100 - 400 basis points as of SeptemberJune 30, 2018,2019, compared to increases of between 2.4%2.1% - 8.3% in a 100 - 400 basis point increasing rate environment7.6% as of December 31, 2017.2018. The higher asset sensitivity is due to the impact of the lower rate and yield curve environment on base case net interest income and the related calculation of parallel rate shock changes in rising and falling rate scenarios. In addition to the aforementioned parallel rate shock scenarios, managementearnings sensitivity simulation model, ALCO also utilizesreviews a “Most Likely”“dynamic” forecast scenario to project net interest income over a rollingtwo-year time period. This forecast is updated and reviewed at least quarterly, incorporating revisions and updated assumptions into the model for estimated loan and deposit growth, expected balance sheetre-mixing strategies, changes in forecasted rates for various maturities, competitive market spreads for various products and other assumptions. Such modeling helps to predictassists in predicting changes in forecasted outcomes and necessarypotential adjustments to the plan to achieve management’sassist in achieving earnings goals. The balance sheet shows somewhat lowerhigher asset sensitivity as of SeptemberJune 30, 2018,2019, as compared to December 31, 2017,2018, with differences resulting from changes in the mix of, and growth in, various earning assets and costing liabilities, as well as adjustments for various modeling assumptions such as deposit beta rates, decay rates fornon-maturity deposits and loan prepayment speeds. Generally, deposit betas utilized in the modelparallel rate shock and “dynamic” models are currentlyestimated at a higher percentage for potential rate increase scenarios than has been the Bank’s experience to date thru eightthrough nine federal funds rate increases since December, 2015,over the past three and a half years for competitive factors in our market areas and as management seeks to controlpublic funds and institutional contract terms are renewed. The total deposit beta for interest-bearing transaction accounts, other than certificates of deposit, was 34% or 17 basis points for the overall rate of increase in deposit costs to improve the net interest margin over time.trailing twelve months. Deposit decay rates and loan prepayment speeds have also beenare adjusted to reflect more recent experience with the various loanperiodically for loans andnon-maturity deposit products. Management believes that overall assetAsset sensitivity innon-parallel rising rate scenarios may be somewhat neutralizedless than anticipated due to slower prepayment speeds, rate floors, lower than forecasted increases tobelow forecast loan yields, spread compression between new asset yields and funding costs, mortgage-related extension risk associated with residential mortgages and mortgage-related securities, and other earning asset and costing liability differences.factors. Commercial loans with floors currently average 4.27%4.26% on approximately $1.5 billion or 29%28% of total commercial loans at SeptemberJune 30, 2018,2019, as compared to $1.2$1.5 billion averaging 4.27% or 30%29% of commercial loans at December 31, 2017.2018. Approximately 41%36% or $627.5$517.5 million of these loans are currently priced at their floor, as compared to 45%38% or $552.6$570.5 million at December 31, 2017. In a less than 100 basis point rising rate environment, these2018. These loans maytypically do not adjust as rapidly from their current floor level as compared to loans without floors.floors, due to the amount of the rate change as compared to the floor rate, or for reasons related to next repricing dates. WesBanco also periodically measures the economic value of equity (“EVE”), which is defined as the market value of tangible equity in various rate scenarios. Generally, changes in the economic value of equity relate to changes in various assets and liabilities, changes in the yield curve, as well as changes in loan prepayment speeds and deposit decay rates. The following table presents these results and WesBanco’s policy limits as of June 30, 2019 and December 31, 2018, with the change since year-end related to significant changes in interest rates and their impact upon the fair values of earning assets and costing liabilities: Immediate Change in | | Percentage Change in | | | | | | Interest Rates | | Economic Value of Equity from Base over One Year | | | ALCO | | (basis points) | | June 30, 2019 | | | December 31, 2018 | | | Guidelines | | +400 | | (4.9%) | | | (17.2%) | | | (40.0%) | | +300 | | (3.2%) | | | (12.6%) | | | (30.0%) | | +200 | | (1.5%) | | | (10.8%) | | | (20.0%) | | +100 | | 0.3% | | | (4.8%) | | | (10.0%) | | -100 | | (1.9%) | | | 2.7% | | | (10.0%) | | -200 | | (6.8%) | | | 2.3% | | | (20.0%) | |
46
The net interest margin increased seven27 basis points from the second quarter, and two basis points from the third quarter of last year, while it is down one basis point for the nine month periodfirst six months of 2019 to 3.68% as compared to the same period last year. Thetax-exempt securities portfoliotax-equivalent rate adjustment from 35%year and 24 basis points for the second quarter to 21% caused a reduction in3.67% compared to last year, while it was one basis point below the overallfirst quarter’s net interest margin by six basis points, but withof 3.68%. The increase from last year’s first half and second quarter was primarily due to increased short termshort-term rates, highernon-interest bearing deposits, and lowlower than projected deposit betas the margin has increased almost back to the same level as last year for the nine month period, and has rebounded for the quarterly comparisons for the same reasons along with the contribution from theFFKT’s higher margin assets post-acquisition, plus higher purchase accounting from FFKT. Netboth 2018 acquisitions. The core net interest margin, expansionnet of purchase accounting-related accretion, was 3.49% for both the three and six month periods as compared to 3.31% last year. It was also consistent with the first quarter’s 3.49%. Currently, the federal funds market is anticipating that the Federal Reserve Board may decrease short-term rates by 25 basis points at least two times prior to year-end, which if such interest rate scenario occurs, would result in lower net interest income and margin, as the Company remains asset sensitive, suggesting that earning assets repricing downward may occur at a faster pace than reductions in deposit or borrowing rates. The current flat-to-inverted yield curve environment has reduced our base case assumption about net interest income and margin for the balance of the year as compared to expectations at year-end, which anticipated a continuing rising rate environment and a higher core margin. It is currently expected that the core net interest margin will slightly decline by a few basis points over the remainder of the year, excluding purchase accounting. On a total basis including purchase accounting accretion, the margin may decline slightly more as such accretion diminishes over the back half of the year by an additional one to two basis points per quarter from its current mid-teens basis points level. Management’s modeling currently includes two 25 basis point decreases in the short run may occur due to a full quarterfederal funds rate over the remainder of the higher margin assets received from FFKT plus higher accretion, particularly for acquired loans, and in the medium term from potential additional federal funds increases, a widening of theyear, which is relatively consistent with consensus economist expectations. The shape of the yield curve, and controlled deposit betas, in addition to continued execution of our business strategy to grow certain loan categories and remixing higher cost liabilities into lower cost transaction accounts. Net purchase accounting accretion, which was 11 b.p. in the third quarter and 10 b.p.year-to-date, was influenced positively by the two acquisitions in April and August of FTSB and FFKT, and should increase somewhat for the fourth quarter due to the full quarter’s impact of the FFKT accretion, which should positively impact the margin next year as well. Management currently anticipates that one more federal funds rate increase may occur by the end of 2018, consistent with Federal Reserve and consensus economist expectations, with two to three increases of 25 b.p. each expected for 2019. Delays in implementing further rate increases, increaseschanges to deposit betas or rates beyond our current modeling assumptions as well as an inability to lower deposit rates in a declining rate scenario, or adjustments to the mix of earning assets and costing liabilities, may have a negative impact on management’s estimates of the future direction and level of the net interest margin. While many Bank customers over the past few years have moved their maturing certificates of deposit balances to lower-costing transaction accounts as well as intonon-deposit products, as rates continue to rise, a portion of these lower-cost transaction account balances may migrate to higher-costing certificates of deposit, short-term repos or higher-priced tiers of money market accounts. The continuing runoff of certificate of deposit balances, both organically and from prior acquisitions, including reducing single-service deposit customers through an emphasis on relationship pricing, has been replaced with FHLB and other short-term borrowings. Certificates of deposit totaling approximately $885.1$815.7 million mature within the next year at an average cost of 0.94%1.23%; replacement borrowings are currently more expensive than the average runoff rate of these CDs.certificates of deposit. Also, maturing borrowings’ replacement rates are generally higher than the cost of the maturing borrowings’ average rate, and management may elect to lengthen the maturing borrowings’ terms at a higher cost for liquidity and asset asset/liability management purposes. Transaction account growth helps to control such factors and limit overall deposit costs.
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 swap strategies as necessary to lengthen liabilities, offset mismatches in various asset maturities and manage liquidity. CDARS®CDARS® and ICS®ICS® deposits also may be usedutilized for similar purposes for certain customers seeking higher-yielding instruments or maintaining deposit levels below FDIC insurance limits. Significant balance sheet strategies to assist in managing the net interest margin in the current interest rate environment include: increasing total loans, particularly commercial and home equity loans that have variable or adjustable features;
selling a majority of residential mortgage loan production into the secondary market;
growing demand deposit account types to increase the relative portion of these account types to total deposits;
employingback-to-back loan swaps for certain commercial loan customers desiring a term fixed rate loan equivalent with the Bank receiving a variable rate;
extending FHLB short-term maturing borrowings to balance asset/liability mismatches;
| • | increasing total loans, particularly commercial and home equity loans that have variable or adjustable features; |
| • | | • | selling a percentage of longer-term residential mortgage loan production into the secondary market; |
| • | growing demand deposit account types to increase the relative portion of these account types to total deposits; |
| • | employing back-to-back loan swaps for certain commercial loan customers desiring a term fixed rate loan equivalent with the Bank receiving a variable rate; |
| • | adjusting FHLB short-term maturing borrowings to balance asset/liability mismatches; |
| • | using the CDARS®and ICS® deposit programs to manage funding needs and overall liability mix, and |
managing the size of the investment portfolio as part of liquidity and balance sheet management strategies.
| • | adjusting the size, mix or duration of the investment portfolio as part of liquidity and balance sheet management strategies. |
WesBanco also periodically measures the economic value of equity, which is defined as the market value of tangible equity in various rate scenarios. At September 30, 2018, the market value of tangible equity as a percent of base in a 200 basis point rising rate environment indicates a decrease of 8.4%, compared to a decrease of 1.8% at December 31, 2017. In a 200 basis point falling rate environment at September 30, 2018, the model indicates an increase of 3.7%, compared to a decrease of 9.9% as of December 31, 2017. WesBanco’s policy is to limit such change to minus 10% increments for each 100 basis point change in interest rates. Generally, changes in the economic value of equity relate to changes in various assets and liabilities, as well as changes in loan prepayment speeds and deposit decay rates.
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 Rules13a-15(e) and15d-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 Form10-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 SeptemberJune 30, 20182019 as required to be reported by paragraph (d) of Rules13a-15 and15d-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. 47
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 SeptemberJune 30, 2018,2019, 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 SeptemberJune 30, 2018:2019: Period | | | Total Number of Shares Purchased | | | Average Price Paid per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Plans | | | Maximum Number of Shares that May Yet Be Purchased Under the Plans | | Balance at March 31, 2019 | | | | | | | | | | | | | | | | 1,092,535 | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 June 30, 2018 | | | | | | | | | 1,092,883 | | | July 1, 2018 to July 31, 2018 | | | | | | | | | | April 1, 2019 to April 30, 2019 | | | | | | | | | | | | | | | | | | Open market repurchases | | | — | | | $ | — | | | | — | | | | 1,092,883 | | | | — | | | | — | | | | — | | | | 1,092,535 | | Other transactions (1) | | | 16,288 | | | | 46.32 | | | | N/A | | | | N/A | | | | 20,455 | | | $ | 41.08 | | | N/A | | | N/A | | August 1, 2018 to August 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | May 1, 2019 to May 31, 2019 | | | | | | | | | | | | | | | | | | Open market repurchases | | | — | | | $ | — | | | | — | | | | 1,092,883 | | | | — | | | | — | | | | — | | | | 1,092,535 | | Other transactions (1) | | | 1,749 | | | | 49.38 | | | | N/A | | | | N/A | | | | 1,559 | | | $ | 39.15 | | | N/A | | | N/A | | September 1, 2018 to September 30, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | June 1, 2019 to June 30, 2019 | | | | | | | | | | | | | | | | | | Open market repurchases | | | — | | | $ | — | | | | — | | | | 1,092,883 | | | | — | | | | — | | | | — | | | | 1,092,535 | | Other repurchases (2) | | | 327 | | | | 46.13 | | | | 327 | | | | 1,092,556 | | | | 15,755 | | | $ | 37.42 | | | | 15,755 | | | | 1,076,780 | | Other transactions (1) | | | 1,521 | | | | 46.16 | | | | N/A | | | | N/A | | | | 4,336 | | | | 36.82 | | | N/A | | | N/A | | | | | | | | | | | | | | | | Third Quarter 2018 | | | | | | | | | | Second Quarter 2019 | | | | | | | | | | | | | | | | | | Open market repurchases | | | — | | | $ | — | | | | — | | | | 1,092,883 | | | | — | | | | — | | | | — | | | | 1,092,535 | | Other repurchases (2) | | | 327 | | | | 46.13 | | | | 327 | | | | 1,092,556 | | | | 15,755 | | | $ | 37.42 | | | | 15,755 | | | | 1,076,780 | | Other transactions (1) | | | 19,558 | | | | 46.58 | | | | N/A | | | | N/A | | | | 26,350 | | | | 40.27 | | | N/A | | | N/A | | | | | | | | | | | | | | | | Total | | | 19,885 | | | $ | 46.57 | | | | 327 | | | | 1,092,556 | | | | 42,105 | | | $ | 39.20 | | | | 15,755 | | | | 1,076,780 | | | | | | | | | | | | | | | |
(1) | Consists of open market purchases transacted for employee benefit and dividend reinvestment plans. |
| (2) | Consists of shares purchased from employees for the payment of withholding taxes to facilitate a vested restricted stock compensation transaction. |
N/A – Not applicable 48
ITEM 6. EXHIBITS 2.1 | | Agreement and Plan of Merger, dated as of July 23, 2019, by and between WesBanco, Inc., WesBanco Bank, Inc., Old Line Bancshares, Inc. and Old Line Bank, Inc. (incorporated by reference to Exhibit 2.1 to the Form 8-K filed by the registrant with the Securities and Exchange Commission on July 23, 2019). | | | | 31.1 | | Certification of Chief Executive Officer of Periodic Report Pursuant to Rule13a-15(e) or Rule15d-15(e). | | | | 31.2 | | Certification of Chief Financial Officer of Periodic Report Pursuant to Rule13a-15(e) or Rule15d-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 Form10-Q for the quarter ended SeptemberJune 30, 2018,2019, formatted in XBRL (ExtensibleiXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at SeptemberJune 30, 20182019 and December 31, 2017,2018, (ii) the Consolidated Statements of Comprehensive Income for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, (iii) the Consolidated Statements of Changes in Stockholders’ Equity for the ninethree and six months ended SeptemberJune 30, 20182019 and 2017,2018, (iv) the Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, and (v) the Notes to Consolidated Financial Statements. |
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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | | | | WESBANCO, INC. | | | | | WESBANCO, INC. | Date: July 31, 2019 | | | | Date: November 2, 2018 | | | | | | /s/ Todd F. Clossin | | | | | | | Todd F. Clossin | | | | | | | President and Chief Executive Officer | | | | | | | (Principal Executive Officer) | | | | | Date: November 2, 2018July 31, 2019 | | | | | | /s/ Robert H. Young | | | | | | | Robert H. Young | | | | | | | Executive Vice President and Chief Financial Officer | | | | | | | (Principal Financial and Accounting Officer) |
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