WABC 10-Q Quarter ended Sept. 30, 2016

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		At September 30, 2016				At December 31, 2015
		(In thousands)
Assets:
Cash and due from banks		$	471,367			$	433,044
Investment securities available for sale			1,762,408				1,570,216
Investment securities held to maturity, with fair values of: $1,440,119 at September 30, 2016 and $1,325,699 at December 31, 2015			1,411,019				1,316,075
Loans			1,364,329				1,533,396
Allowance for loan losses			(26,359	)			(29,771	)
Loans, net of allowance for loan losses			1,337,970				1,503,625
Other real estate owned			3,032				9,264
Premises and equipment, net			37,059				38,693
Identifiable intangibles, net			7,789				10,431
Goodwill			121,673				121,673
Other assets			154,461				165,854
Total Assets		$	5,306,778			$	5,168,875
Liabilities:
Noninterest bearing deposits		$	2,064,988			$	2,026,049
Interest bearing deposits			2,579,882				2,514,610
Total deposits			4,644,870				4,540,659
Short-term borrowed funds			56,358				53,028
Other liabilities			42,554				42,983
Total Liabilities			4,743,782				4,636,670
Shareholders' Equity:
Common stock (no par value), authorized - 150,000 shares Issued and outstanding: 25,665 at September 30, 2016 and 25,528 at December 31, 2015			391,601				378,858
Deferred compensation			1,533				2,578
Accumulated other comprehensive income			9,001				675
Retained earnings			160,861				150,094
Total Shareholders' Equity			562,996				532,205
Total Liabilities and  Shareholders' Equity		$	5,306,778			$	5,168,875

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		For the Three Months								For the Nine  Months
		Ended September 30,
		2016				2015				2016				2015
		(In thousands, except per share data)
Interest and Fee Income:
Loans		$	16,968			$	19,378			$	52,904			$	59,643
Investment securities available for sale			8,796				7,880				24,855				23,347
Investment securities held to maturity			7,704				7,041				23,083				19,651
Total Interest and Fee Income			33,468				34,299				100,842				102,641
Interest Expense:
Deposits			512				573				1,586				1,816
Short-term borrowed funds			11				12				30				44
Federal Home Loan Bank advances			-				-				-				1
Total Interest Expense			523				585				1,616				1,861
Net Interest Income			32,945				33,714				99,226				100,780
Reversal of Provision for Loan Losses			(3,200	)			-				(3,200	)			-
Net Interest Income After Reversal of Provision For Loan Losses			36,145				33,714				102,426				100,780
Noninterest Income:
Service charges on deposit accounts			5,303				5,581				15,790				16,981
Debit card fees			1,587				1,538				4,724				4,528
Merchant processing services			1,532				1,485				4,699				4,971
Trust fees			686				682				2,004				2,061
Other service fees			671				693				1,951				2,041
ATM processing fees			600				616				1,860				1,828
Financial services commissions			118				177				411				527
Other			1,101				1,221				3,590				3,625
Total Noninterest Income			11,598				11,993				35,029				36,562
Noninterest Expense:
Salaries and related benefits			13,063				12,761				39,067				39,795
Occupancy			3,749				3,746				10,546				11,199
Outsourced data processing services			2,114				2,115				6,375				6,334
Professional fees			1,693				746				3,183				1,876
Furniture and equipment			1,211				1,075				3,611				3,353
Amortization of identifiable intangibles			867				952				2,642				2,908
Courier service			451				604				1,458				1,744
Other real estate owned			(206	)			83				(487	)			451
Other			3,146				4,091				10,780				12,136
Total Noninterest Expense			26,088				26,173				77,175				79,796
Income Before Income Taxes			21,655				19,534				60,280				57,546
Provision for income taxes			6,027				4,677				15,880				13,371
Net Income		$	15,628			$	14,857			$	44,400			$	44,175
Average Common Shares Outstanding			25,641				25,530				25,558				25,565
Diluted Average Common Shares Outstanding			25,687				25,565				25,595				25,585
Per Common Share Data:
Basic earnings		$	0.61			$	0.58			$	1.74			$	1.73
Diluted earnings			0.61				0.58				1.73				1.73
Dividends paid			0.39				0.38				1.17				1.14

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		For the Three Months								For the Nine Months
		Ended September 30,
		2016				2015				2016				2015
		(In thousands)
Net income		$	15,628			$	14,857			$	44,400			$	44,175
Other comprehensive (loss) income:
(Decrease) increase in net unrealized gains on securities available for sale			(4,992	)			5,522				14,319				3,242
Deferred tax benefit (expense)			2,099				(2,321	)			(6,020	)			(1,363	)
(Decrease) increase in net unrealized gains on securities available for sale, net of tax			(2,893	)			3,201				8,299				1,879
Post-retirement benefit transition obligation amortization			15				15				45				45
Deferred tax expense			(6	)			(6	)			(18	)			(18	)
Post-retirement benefit transition obligation amortization, net of tax			9				9				27				27
Total other comprehensive (loss) income			(2,884	)			3,210				8,326				1,906
Total comprehensive income		$	12,744			$	18,067			$	52,726			$	46,081

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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																			44,175				44,175
Other comprehensive income															1,906								1,906
Exercise of stock options			108				4,848																4,848
Tax benefit decrease upon exercise and expiration of stock options							(1,215	)															(1,215	)
Restricted stock activity			17				874				(133	)											741
Stock based compensation							987																987
Stock awarded to employees			2				89																89
Retirement of common stock			(342	)			(5,066	)											(9,962	)			(15,028	)
Dividends																			(29,168	)			(29,168	)
Balance, September 30, 2015			25,530			$	378,649			$	2,578			$	7,198			$	145,513			$	533,938
Balance, December 31, 2015			25,528			$	378,858			$	2,578			$	675			$	150,094			$	532,205
Net income for the period																			44,400				44,400
Other comprehensive income															8,326								8,326
Exercise of stock options			258				11,588																11,588
Tax benefit increase upon exercise and expiration of stock options							199																199
Restricted stock activity			15				1,798				(1,045	)											753
Stock based compensation							1,142																1,142
Stock awarded to employees			1				75																75
Retirement of common stock			(137	)			(2,059	)											(3,721	)			(5,780	)
Dividends																			(29,912	)			(29,912	)
Balance, September 30, 2016			25,665			$	391,601			$	1,533			$	9,001			$	160,861			$	562,996

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		For the Nine Months Ended September 30,
		2016				2015
		(In thousands)
Operating Activities:
Net income		$	44,400			$	44,175
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			14,211				12,379
Reversal of provision for loan losses			(3,200	)			-
Net amortization of deferred loan fees			(281	)			(263	)
Decrease in interest income receivable			475				757
(Increase) decrease in other assets			(753	)			107
Increase (decrease) in income taxes payable			403				(257	)
Decrease in net deferred tax asset			3,258				968
Decrease in interest expense payable			(19	)			(56	)
Decrease in other liabilities			143				(2,571	)
Stock option compensation expense			1,142				987
Tax benefit (increase) decrease upon exercise and expiration of stock options			(199	)			1,215
Net writedown/loss on sale of premises and equipment			21				24
Net gain on sale of foreclosed assets			(1,182	)			(73	)
Writedown of foreclosed assets			759				315
Net Cash Provided by Operating Activities			59,178				57,707
Investing Activities:
Net repayments of loans			171,573				124,615
Change in payable to FDIC (1)			3,180				-
Purchases of investment securities available for sale			(812,697	)			(828,169	)
Proceeds from sale/maturity/calls of securities available for sale			632,795				858,850
Purchases of investment securities held to maturity			(246,956	)			(366,247	)
Proceeds from maturity/calls of securities held to maturity			141,770				117,877
Purchases of premises and equipment			(1,299	)			(4,049	)
Net change in FRB (2) /FHLB (3) securities			-				940
Proceeds from sale of foreclosed assets			7,143				1,774
Net Cash Used in Investing Activities			(104,491	)			(94,409	)
Financing Activities:
Net increase in deposits			104,211				17,737
Net increase (decrease) in short-term borrowings and FHLB (3) advances			3,330				(52,721	)
Exercise of stock options/issuance of shares			11,588				4,848
Tax benefit increase (decrease) upon exercise and expiration of stock options			199				(1,215	)
Retirement of common stock			(5,780	)			(15,028	)
Common stock dividends paid			(29,912	)			(29,168	)
Net Cash Provided by (Used in) Financing Activities			83,636				(75,547	)
Net Change In Cash and Due from Banks			38,323				(112,249	)
Cash and Due from Banks at Beginning of Period			433,044				380,836
Cash and Due from Banks at End of Period		$	471,367			$	268,587
Supplemental Cash Flow Disclosures:
Supplemental disclosure of non cash activities:
Loan collateral transferred to other real estate owned		$	488			$	4,911
Securities purchases pending settlement			171				-
Supplemental disclosure of cash flow activities:
Interest paid for the period			1,635				1,941
Income tax payments for the period			14,032				12,596

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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 nine months ended September 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 does not expect the adoption of the ASU to have a material effect 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 does not expect the adoption of the ASU to have a material effect on the Company’s financial statements. The most notable impact will be the effect of Excess Tax Benefits on the provision for income taxes.

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:

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 September 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 rating 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 September 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 September 30, 2016, $ 755,762 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: