WABC 10-Q Quarter ended June 30, 2016

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		At June 30, 2016				At December 31, 2015
		(In thousands)
Assets:
Cash and due from banks		$	441,785			$	433,044
Investment securities available for sale			1,531,035				1,570,216
Investment securities held to maturity, with fair values of: $1,507,177 at June 30, 2016 and $1,325,699 at December 31, 2015			1,473,357				1,316,075
Loans			1,429,560				1,533,396
Allowance for loan losses			(28,910	)			(29,771	)
Loans, net of allowance for loan losses			1,400,650				1,503,625
Other real estate owned			4,162				9,264
Premises and equipment, net			37,759				38,693
Identifiable intangibles, net			8,656				10,431
Goodwill			121,673				121,673
Other assets			160,008				165,854
Total Assets		$	5,179,085			$	5,168,875
Liabilities:
Noninterest bearing deposits		$	1,978,947			$	2,026,049
Interest bearing deposits			2,506,367				2,514,610
Total deposits			4,485,314				4,540,659
Short-term borrowed funds			67,852				53,028
Other liabilities			67,592				42,983
Total Liabilities			4,620,758				4,636,670
Shareholders' Equity:
Common stock (no par value), authorized - 150,000 shares Issued and outstanding: 25,632 at June 30, 2016 and 25,528 at December 31, 2015			389,680				378,858
Deferred compensation			1,533				2,578
Accumulated other comprehensive income			11,885				675
Retained earnings			155,229				150,094
Total Shareholders' Equity			558,327				532,205
Total Liabilities and Shareholders' Equity		$	5,179,085			$	5,168,875

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		For the Three Months								For the Six Months
		Ended June 30,
		2016				2015				2016				2015
		(In thousands, except per share data)
Interest and Fee Income:
Loans		$	17,583			$	20,035			$	35,936			$	40,265
Investment securities available for sale			8,091				7,999				16,058				15,468
Investment securities held to maturity			8,053				6,391				15,380				12,609
Total Interest and Fee Income			33,727				34,425				67,374				68,342
Interest Expense:
Deposits			531				601				1,074				1,243
Short-term borrowed funds			10				16				19				32
Federal Home Loan Bank advances			-				-				-				1
Total Interest Expense			541				617				1,093				1,276
Net Interest and Fee Income			33,186				33,808				66,281				67,066
Provision for Loan Losses			-				-				-				-
Net Interest and Fee Income After Provision For Loan Losses			33,186				33,808				66,281				67,066
Noninterest Income:
Service charges on deposit accounts			5,239				5,694				10,487				11,401
Merchant processing services			1,638				1,783				3,167				3,486
Debit card fees			1,621				1,534				3,137				2,990
Trust fees			657				672				1,318				1,378
Other service fees			650				683				1,279				1,348
ATM processing fees			603				627				1,261				1,212
Financial services commissions			137				198				293				351
Other noninterest income			1,157				1,078				2,489				2,403
Total Noninterest Income			11,702				12,269				23,431				24,569
Noninterest Expense:
Salaries and related benefits			12,887				13,696				26,004				27,034
Occupancy			3,400				3,726				6,798				7,453
Outsourced data processing services			2,130				2,111				4,260				4,219
Furniture and equipment			1,187				1,158				2,400				2,277
Amortization of identifiable intangibles			870				955				1,775				1,956
Professional fees			758				582				1,490				1,130
Courier service			462				598				1,007				1,141
Other real estate owned			(392	)			52				(281	)			367
Other noninterest expense			3,927				4,018				7,634				8,046
Total Noninterest Expense			25,229				26,896				51,087				53,623
Income Before Income Taxes			19,659				19,181				38,625				38,012
Provision for income taxes			5,113				4,420				9,853				8,694
Net Income		$	14,546			$	14,761			$	28,772			$	29,318
Average Common Shares Outstanding			25,586				25,514				25,516				25,582
Average Diluted Common Shares Outstanding			25,630				25,536				25,549				25,595
Per Common Share Data:
Basic earnings		$	0.57			$	0.58			$	1.13			$	1.15
Diluted earnings			0.57				0.58				1.13				1.15
Dividends paid			0.39				0.38				0.78				0.76

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		For the Three Months								For the Six Months
		Ended June 30,
		2016				2015				2016				2015
		(In thousands)
Net income		$	14,546			$	14,761			$	28,772			$	29,318
Other comprehensive income:
Increase (decrease) in net unrealized gains on securities available for sale			9,070				(9,698	)			19,311				(2,280	)
Deferred tax (expense) benefit			(3,813	)			4,078				(8,119	)			958
Increase (decrease) in net unrealized gains on securities available for sale, net of tax			5,257				(5,620	)			11,192				(1,322	)
Post-retirement benefit transition obligation amortization			15				15				30				30
Deferred tax expense			(6	)			(6	)			(12	)			(12	)
Post-retirement benefit transition obligation amortization, net of tax			9				9				18				18
Total other comprehensive income (loss)			5,266				(5,611	)			11,210				(1,304	)
Total comprehensive income		$	19,812			$	9,150			$	39,982			$	28,014

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		Common Shares Outstanding				Common Stock				Deferred Compensation				Accumulated Other Comprehensive Income				Retained Earnings				Total
		(In thousands)
Balance, December 31, 2014			25,745			$	378,132			$	2,711			$	5,292			$	140,468			$	526,603
Net income for the period																			29,318				29,318
Other comprehensive loss															(1,304	)							(1,304	)
Exercise of stock options			81				3,602																3,602
Tax benefit decrease upon exercise and expiration of stock options							(1,206	)															(1,206	)
Restricted stock activity			17				741																741
Stock based compensation							672																672
Stock awarded to employees			2				69																69
Retirement of common stock including repurchases			(316	)			(4,671	)											(9,019	)			(13,690	)
Dividends																			(19,467	)			(19,467	)
Balance, June 30, 2015			25,529			$	377,339			$	2,711			$	3,988			$	141,300			$	525,338
Balance, December 31, 2015			25,528			$	378,858			$	2,578			$	675			$	150,094			$	532,205
Net income for the period																			28,772				28,772
Other comprehensive income															11,210								11,210
Exercise of stock options			225				10,060																10,060
Tax benefit increase upon exercise and expiration of stock options							211																211
Restricted stock activity			15				1,798				(1,045	)											753
Stock based compensation							752																752
Stock awarded to employees			1				60																60
Retirement of common stock including repurchases			(137	)			(2,059	)											(3,721	)			(5,780	)
Dividends																			(19,916	)			(19,916	)
Balance, June 30, 2016			25,632			$	389,680			$	1,533			$	11,885			$	155,229			$	558,327

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		For the Six Months Ended June 30,
		2016				2015
		(In thousands)
Operating Activities:
Net income		$	28,772			$	29,318
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			8,618				7,957
Loan loss provision			-				-
Net amortization of deferred loan fees			(157	)			(149	)
Decrease in interest income receivable			171				54
Decrease (increase) in net deferred tax asset			2,066				(166	)
Increase in other assets			(4,337	)			(1,064	)
Stock option compensation expense			752				672
Tax benefit (increase) decrease upon exercise and expiration of stock options			(211	)			1,206
Decrease in income taxes payable			(1,469	)			(640	)
Increase in interest expense payable			46				25
Increase (decrease) in other liabilities			1,849				(2,939	)
Net writedown of/loss on sale of premises and equipment			7				11
Net gain on sale of foreclosed assets			(1,017	)			-
Writedown of foreclosed assets			758				243
Net Cash Provided by Operating Activities			35,848				34,528
Investing Activities:
Net repayments of loans			104,975				66,820
Change in payable to FDIC (1)			98				-
Purchases of investment securities available for sale			(260,587	)			(627,164	)
Proceeds from sale/maturity/calls of securities available for sale			344,393				604,708
Purchases of investment securities held to maturity			(246,956	)			(189,632	)
Proceeds from maturity/calls of securities held to maturity			82,059				72,440
Purchases of premises and equipment			(991	)			(1,833	)
Net change in FRB (2) /FHLB (3) securities			-				940
Proceeds from sale of foreclosed assets			5,848				100
Net Cash Provided by (Used in) Investing Activities			28,839				(73,621	)
Financing Activities:
Net change in deposits			(55,345	)			5,661
Net change in short-term borrowings and FHLB (3) advances			14,824				(27,037	)
Exercise of stock options/issuance of shares			10,060				3,602
Tax benefit increase (decrease) upon exercise and expiration of stock options			211				(1,206	)
Retirement of common stock including repurchases			(5,780	)			(13,690	)
Common stock dividends paid			(19,916	)			(19,467	)
Net Cash Used in Financing Activities			(55,946	)			(52,137	)
Net Change In Cash and Due from Banks			8,741				(91,230	)
Cash and Due from Banks at Beginning of Period			433,044				380,836
Cash and Due from Banks at End of Period		$	441,785			$	289,606
Supplemental Cash Flow Disclosures:
Supplemental disclosure of non cash activities:
Loan collateral transferred to other real estate owned		$	488			$	3,229
Securities purchases pending settlement			26,488				24,952
Supplemental disclosure of cash flow activities:
Interest paid for the period			1,046				1,274
Income tax payments for the period			9,922				9,500

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Note 1: Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission and follow general practices within the banking industry. The results of operations reflect interim adjustments, all of which are of a normal recurring nature and which, in the opinion of Management, are necessary for a fair presentation of the results for the interim periods presented. The interim results for the three and six months ended June 30, 2016 are not necessarily indicative of the results expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes as well as other information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

Note 2: Accounting Policies

The most significant accounting policies followed by the Company are presented in Note 1 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, Management has identified the allowance for loan losses accounting to be the accounting area requiring the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available. A discussion of the factors affecting accounting for the allowance for loan losses and purchased loans is included in the “Loan Portfolio Credit Risk” discussion below.

Application of these principles requires the Company to make certain estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain accounting policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment writedown or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available.

Recently Issued Accounting Standards

FASB Accounting Standards Update (ASU) 2016-01 , Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, was issued January 2016. The ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, the ASU changes the income statement impact of equity investments held by the Company and the requirement for the Company to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

The Company will be required to adopt the ASU provisions on January 1, 2018. Management is evaluating the impact that the ASU will have on the Company’s financial statements.

FASB Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), was issued February 25, 2016. The provisions of the new standard require lessees to recognize most leases on-balance sheet, increasing reported assets and liabilities. Lessor accounting remains substantially similar to current U.S. GAAP.

The Company will be required to adopt the ASU provisions January 1, 2019, utilizing the modified retrospective transition approach. Management is evaluating the impact that the ASU will have on the Company’s financial statements.

FASB ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, was issued March 30, 2016. The provisions of the new standard changes several aspects of the accounting for share-based payment award transactions, including: (1) Accounting and Cash Flow Classification for Excess Tax Benefits, (2) Forfeitures, and (3) Tax Withholding Requirements and Cash Flow Classification.

The Company will be required to adopt the ASU provisions January 1, 2017. Management is evaluating the impact that the ASU will have on the Company’s financial statements.

FASB ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, was issued on June 16, 2016. The ASU significantly changes estimates for credit losses related to financial assets measured at amortized cost and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model with the current expected credit loss (CECL) model, which will accelerate recognition of credit losses. Additionally, credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses under the new standard.

The Company will also be required to provide additional disclosures related to the financial assets within the scope of the new standard.

The Company will be required to adopt the ASU provisions on January 1, 2020. Management is evaluating the impact that the ASU will have on the Company’s financial statements.

Note 3: Investment Securities

An analysis of the amortized cost, gross unrealized gains and losses accumulated in other comprehensive income, and fair value of the available for sale investment securities portfolio follows:

⁽¹⁾ Federal Home Loan Mortgage Corporation

⁽²⁾ Federal National Mortgage Association

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An analysis of the amortized cost, gross unrecognized gains and losses, and fair value of the held to maturity investment securities portfolio follows:

An analysis of the amortized cost, gross unrealized gains and losses accumulated in other comprehensive income, and fair value of the available for sale investment securities portfolio follows:

⁽¹⁾ Federal Home Loan Mortgage Corporation

⁽²⁾ Federal National Mortgage Association

An analysis of the amortized cost, gross unrecognized gains and losses, and fair value of the held to maturity investment securities portfolio follows:

The amortized cost and fair value of investment securities by contractual maturity are shown in the following table s at the dates indicated:

Securities available for sale at June 30, 2016 with maturity dates over one to five years include $128,405  thousand (fair value) of securities of U.S. Government sponsored entities with call options on dates within one year or less.

Expected maturities of mortgage-related securities can differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. In addition, such factors as prepayments and interest rates may affect the yield on the carrying value of mortgage-related securities. At June 30, 2016 and December 31, 2015, the Company had no high-risk collateralized mortgage obligations as defined by regulatory guidelines.

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An analysis of the gross unrealized losses of the available for sale investment securities portfolio follows:

An analysis of gross unrecognized losses of the held to maturity investment securities portfolio follows:

The unrealized losses on the Company’s investment securities were caused by market conditions for these types of investments, particularly changes in risk-free interest rates. The Company evaluates securities on a quarterly basis including changes in security ratings issued by ratings agencies, changes in the financial condition of the issuer, and, for mortgage-backed and asset-backed securities, delinquency and loss information with respect to the underlying collateral, changes in the levels of subordination for the Company’s particular position within the repayment structure and remaining credit enhancement as compared to expected credit losses of the security. Substantially all of these securities continue to be investment grade rated by a major rating agency. In addition to monitoring credit rating agency evaluations, Management performs its own evaluations regarding the credit worthiness of the issuer or the securitized assets underlying asset backed securities.

The Company does not intend to sell any investments and has concluded that it is more likely than not that it will not be required to sell the investments prior to recovery of the amortized cost basis. Therefore, the Company does not consider these investments to be other-than-temporarily impaired as of June 30, 2016.

The fair values of the investment securities could decline in the future if the general economy deteriorates, inflation increases, credit ratings decline, the issuer’s financial condition deteriorates, or the liquidity for securities declines. As a result, other than temporary impairments may occur in the future.

As of June 30, 2016, $744,632  thousand of investment securities were pledged to secure public deposits and short-term borrowed funds. As of December 31, 2015, $738,865  thousand of investment securities were pledged to secure public deposits and short-term borrowed funds.

An analysis of gross unrealized losses of investment securities available for sale follows:

An analysis of gross unrecognized losses of investment securities held to maturity follows:

The following table provides information about the amount of interest income earned on investment securities which is fully taxable and which is exempt from regular federal income tax: