WSBC 10-Q Quarter ended Sept. 30, 2018

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2018

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

For the transition period from ____________ to ____________

Commission File Number 000-08467

WESBANCO, INC.

(Exact name of Registrant as specified in its charter)

WEST VIRGINIA		55-0571723
(State of incorporation)		(IRS Employer Identification No.)
1 Bank Plaza, Wheeling, WV		26003
(Address of principal executive offices)		(Zip Code)

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

NOT APPLICABLE

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☑    No  ☐

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

Large accelerated filer		☑		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 Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☑

As of October 22, 2018, there were 54,598,186 shares of WesBanco, Inc. common stock, $2.0833 par value, outstanding.

WESBANCO, INC.

TABLE OF CONTENTS

Item No.		ITEM		Page No.
		PART I – FINANCIAL INFORMATION
1		Financial Statements
		Consolidated Balance Sheets at September 30, 2018 (unaudited) and December 31, 2017			3
		Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017 (unaudited)			4
		Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2018 and 2017 (unaudited)			5
		Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (unaudited)			6
		Notes to Consolidated Financial Statements (unaudited)			7
2		Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
3		Quantitative and Qualitative Disclosures About Market Risk			55
4		Controls and Procedures			58
		PART II – OTHER INFORMATION
1		Legal Proceedings			59
2		Unregistered Sales of Equity Securities and Use of Proceeds			59
6		Exhibits			60
		Signatures			61

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PART I—FINANCIAL INFORMATION

ITEM  1. FINANCIAL STATEMENTS

WESBANCO, INC. CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except shares)		September 30, 2018				December 31, 2017
ASSETS
Cash and due from banks, including interest bearing amounts of $88,854 and $19,826, respectively		$	273,680			$	117,572
Securities:
Equity securities, at fair value			12,784				13,457
Available-for-sale debt securities, at fair value			2,008,232				1,261,865
Held-to-maturity debt securities (fair values of $1,014,361 and $1,023,784, respectively)			1,025,538				1,009,500
Total securities			3,046,554				2,284,822
Loans held for sale			55,913				20,320
Portfolio loans, net of unearned income			7,726,423				6,341,441
Allowance for loan losses			(48,902	)			(45,284	)
Net portfolio loans			7,677,521				6,296,157
Premises and equipment, net			159,284				130,722
Accrued interest receivable			39,465				29,728
Goodwill and other intangible assets, net			928,083				589,264
Bank-owned life insurance			223,995				192,589
Other assets			194,984				155,004
Total Assets		$	12,599,479			$	9,816,178
LIABILITIES
Deposits:
Non-interest bearing demand		$	2,411,862			$	1,846,748
Interest bearing demand			2,187,662				1,625,015
Money market			1,178,950				1,024,856
Savings deposits			1,649,684				1,269,912
Certificates of deposit			1,513,600				1,277,057
Total deposits			8,941,758				7,043,588
Federal Home Loan Bank borrowings			1,131,253				948,203
Other short-term borrowings			294,281				184,805
Subordinated debt and junior subordinated debt			189,745				164,327
Total borrowings			1,615,279				1,297,335
Accrued interest payable			6,623				3,178
Other liabilities			108,550				76,756
Total Liabilities			10,672,210				8,420,857
SHAREHOLDERS’ EQUITY
Preferred stock, no par value; 1,000,000 shares authorized; none outstanding			—				—
Common stock, $2.0833 par value; 100,000,000 shares authorized in 2018 and 2017, respectively; 54,604,294 and 44,043,244 shares issued, respectively; 54,603,967 and 44,043,244 shares outstanding, respectively			113,758				91,756
Capital surplus			1,165,006				684,730
Retained earnings			709,477				651,357
Treasury stock ( 327 and 0 shares—at cost, respectively)			(15	)			—
Accumulated other comprehensive loss			(59,873	)			(31,495	)
Deferred benefits for directors			(1,084	)			(1,027	)
Total Shareholders’ Equity			1,927,269				1,395,321
Total Liabilities and Shareholders’ Equity		$	12,599,479			$	9,816,178

See Notes to Consolidated Financial Statements.

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WESBANCO, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
(unaudited, in thousands, except shares and per share amounts)		2018				2017				2018				2017
INTEREST AND DIVIDEND INCOME
Loans, including fees		$	86,605			$	70,342			$	234,276			$	202,600
Interest and dividends on securities:
Taxable			14,964				9,711				40,702				28,682
Tax-exempt			5,326				4,862				15,216				14,617
Total interest and dividends on securities			20,290				14,573				55,918				43,299
Other interest income			1,498				574				3,402				1,674
Total interest and dividend income			108,393				85,489				293,596				247,573
INTEREST EXPENSE
Interest bearing demand deposits			3,501				1,814				9,174				4,413
Money market deposits			1,360				751				3,332				1,970
Savings deposits			352				189				768				555
Certificates of deposit			3,276				2,610				8,789				7,512
Total interest expense on deposits			8,489				5,364				22,063				14,450
Federal Home Loan Bank borrowings			6,691				3,628				17,142				9,608
Other short-term borrowings			965				394				2,497				954
Subordinated debt and junior subordinated debt			2,315				1,849				6,425				5,449
Total interest expense			18,460				11,235				48,127				30,461
NET INTEREST INCOME			89,933				74,254				245,469				217,112
Provision for credit losses			1,035				2,516				4,911				7,610
Net interest income after provision for credit losses			88,898				71,738				240,558				209,502
NON-INTEREST INCOME
Trust fees			6,265				5,358				18,520				17,073
Service charges on deposits			6,313				5,320				16,282				15,254
Electronic banking fees			6,139				4,883				16,697				14,395
Net securities brokerage revenue			1,836				1,721				5,315				5,164
Bank-owned life insurance			1,232				1,164				5,116				3,671
Mortgage banking income			1,521				1,103				4,297				3,511
Net securities gains			84				6				403				511
Net gain/(loss) on other real estate owned and other assets			150				(298	)			641				9
Other income			2,684				1,642				6,444				6,318
Total non-interest income			26,224				20,899				73,715				65,906
NON-INTEREST EXPENSE
Salaries and wages			30,335				24,957				82,213				71,575
Employee benefits			7,905				7,728				22,782				23,670
Net occupancy			4,957				4,132				13,715				12,969
Equipment			4,488				3,905				12,532				12,043
Marketing			1,446				1,599				3,967				4,482
FDIC insurance			789				945				2,315				2,677
Amortization of intangible assets			1,821				1,223				4,218				3,736
Restructuring and merger-related expense			10,811				—				16,468				491
Other operating expenses			13,568				11,265				36,024				34,380
Total non-interest expense			76,120				55,754				194,234				166,023
Income before provision for income taxes			39,002				36,883				120,039				109,385
Provision for income taxes			6,516				10,527				20,855				30,801
NET INCOME		$	32,486			$	26,356			$	99,184			$	78,584
EARNINGS PER COMMON SHARE
Basic		$	0.65			$	0.60			$	2.11			$	1.79
Diluted		$	0.64			$	0.60			$	2.11			$	1.78
AVERAGE COMMON SHARES OUTSTANDING
Basic			50,277,847				44,031,813				46,965,095				43,992,017
Diluted			50,432,112				44,086,881				47,107,829				44,059,469
DIVIDENDS DECLARED PER COMMON SHARE		$	0.29			$	0.26			$	0.87			$	0.78
COMPREHENSIVE INCOME		$	25,965			$	27,637			$	71,869			$	84,873

See Notes to Consolidated Financial Statements.

4

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 ASU 2016-01			—				—				—				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

See Notes to Consolidated Financial Statements.

5

WESBANCO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

		For the Nine Months Ended
		September 30,
(unaudited, in thousands)		2018				2017
NET CASH PROVIDED BY OPERATING ACTIVITIES		$	122,444			$	93,506
INVESTING ACTIVITIES
Net decrease (increase) in loans held for investment			52,411				(122,332	)
Debt securities available-for-sale:
Proceeds from sales			82,134				7,760
Proceeds from maturities, prepayments and calls			188,020				156,944
Purchases of securities			(688,020	)			(225,404	)
Debt securities held-to-maturity:
Proceeds from maturities, prepayments and calls			51,973				90,457
Purchases of securities			(66,058	)			(53,251	)
Equity securities:
Proceeds from sales			1,511				—
Purchases of securities			(431	)			—
Proceeds from bank-owned life insurance			4,772				349
Purchases of premises and equipment – net			(2,400	)			(6,223	)
Net cash received from acquisitions			278,654				—
Sale of portfolio loans—net			12,996				—
Net cash used in investing activities			(84,438	)			(151,700	)
FINANCING ACTIVITIES
(Decrease) increase in deposits			(20,443	)			61,389
Proceeds from Federal Home Loan Bank borrowings			575,000				560,000
Repayment of Federal Home Loan Bank borrowings			(447,381	)			(513,911	)
Increase in other short-term borrowings			90,043				20,200
Decrease in federal funds purchased			(25,000	)			(54,000	)
Repayment of junior subordinated debt			(17,519	)			—
Dividends paid to common shareholders			(37,751	)			(33,416	)
Issuance of common stock			1,578				991
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	)
Cash and cash equivalents at beginning of the period			117,572				128,170
Cash and cash equivalents at end of the period		$	273,680			$	110,871
SUPPLEMENTAL DISCLOSURES
Interest paid on deposits and other borrowings		$	46,524			$	29,857
Income taxes paid			13,050				20,825
Transfers of loans to other real estate owned			393				506
Transfers of loans to held for sale			12,996				—
Non-cash transactions related to FTSB acquisition			107,347				—
Non-cash transactions related to FFKT acquisition			391,267				—

See Notes to Consolidated Financial Statements.

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation — The accompanying unaudited interim financial statements of WesBanco, Inc. and its consolidated subsidiaries (“WesBanco”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017.

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 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of management, the accompanying interim financial information reflects all adjustments, including normal recurring adjustments, necessary to present fairly WesBanco’s financial position and results of operations for each of the interim periods presented. 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—Goodwill and Other—Internal-Use Software (Subtopic 350-40): 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 obtain internal-use software and hosting arrangements that include an internal-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 ASU 2018-15 on WesBanco’s Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” This ASU modifies ASC 715-20 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 ASU 2018-14 on WesBanco’s Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, “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 ASU 2018-13 on WesBanco’s Consolidated Financial Statements.

In August 2017, the FASB issued ASU 2017-12, “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 ASU 2017-12 on WesBanco’s Consolidated Financial Statements.

In March 2017, the FASB issued ASU 2017-07 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 of non-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 ASU 2017-01, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, which for WesBanco 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 ASU 2016-16 that provides the recognition of income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Current guidance prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This prohibition on recognition is an exception to the principle of comprehensive recognition of current and deferred income taxes in generally accepted accounting principles. The exception has led to diversity in practice and is a source of complexity in financial reporting. FASB decided that an entity should recognize the income tax consequences of an intra-entity transfer of an asset

7

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 ASU 2016-15 that provides guidance for the classification of cash flows related to (1) debt prepayment or extinguishment costs, (2) settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate on the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies, (6) distributions received from equity method investees, (7) beneficial interests in securitization transactions and (8) separately identifiable cash flows and application of the predominance principle. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, which for WesBanco 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 ASU 2016-13 that will require entities to use a new forward-looking “expected loss” model on trade and other receivables, held-to-maturity debt securities, loans and other instruments that generally will result in the earlier recognition of allowances for credit losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. Entities will have to disclose significantly more information, including information they use to track credit quality by year of origination for most financing receivables. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which for WesBanco will be effective for the fiscal year beginning January 1, 2020. Early adoption is permitted for fiscal years beginning after December 15, 2018. WesBanco has completed an initial data gap assessment, is currently finalizing the loan segmentation procedures and evaluating the various forecasting and modeling assumptions that will be used to estimate the initial current expected credit loss allowance.

In February 2016, the FASB issued ASU 2016-02 that will require entities to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. The principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases were not previously recognized in the balance sheet. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. In January 2018, the FASB issued ASU 2018-01, 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 ASU 2018-10, which provides narrow-scope improvements to the lease standard. While we are currently assessing the impact of the adoption 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 under non-cancellable operating leases on our Consolidated Balance Sheets resulting in the recording of 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.

In January 2016, the FASB issued ASU 2016-01 that will require entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. The standard does not change the guidance for classifying and measuring investments in debt securities and loans. Entities will have to record changes in instrument-specific credit risk for financial liabilities measured under the fair value option in other comprehensive income. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. In February 2018, the FASB issued ASU 2018-03, which clarifies certain aspects of the guidance issued in ASU 2016-01. WesBanco adopted these pronouncements as of January 1, 2018 and recognized a $1.1 million adjustment 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 and held-to-maturity debt securities.

In May 2014, the FASB issued ASU 2014-09 related to the recognition of revenue from contracts with customers. The new revenue pronouncement creates a single source of revenue guidance for all companies in all industries and is more principles-based than current revenue guidance. The pronouncement provides a five-step model for a company to recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. The five steps are, (1) identify the contract with the customer, (2) identify the separate performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and (5) recognize revenue when each performance obligation is satisfied. On July 9, 2015, the FASB approved a one-year deferral of the effective date of the update. The update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-08, which amends the principle versus agent guidance in the revenue standard. In April 2016, the FASB issued ASU 2016-10, which clarifies when promised goods or services are separately identifiable in the revenue standard. In May 2016, FASB issued ASU 2016-12, which provides narrow-scope improvements and practical expedients to the revenue standard. WesBanco adopted these pronouncements as of January 1, 2018 using the modified retrospective approach. WesBanco noted no material change to the timing of revenue recognition and there was no material impact on WesBanco’s Consolidated Financial Statements. See Note 9, “Revenue Recognition” for further discussion on revenue within the scope of ASC 606.

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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 a tax-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

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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, 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, the fair values for certain assets and liabilities acquired from FFKT on August 20, 2018 represent preliminary estimates. Based on a preliminary purchase price allocation, WesBanco recorded $225.1 million in goodwill and $39.7 million in core deposit intangibles in its community banking segment and $2.9 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 a tax-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 nine months ended September 30, 2018, WesBanco recorded merger-related expenses of $11.0 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
Purchase Price:
Fair value of WesBanco shares issued		$	391,267
Cash consideration for outstanding FFKT shares			37,634
Total purchase price		$	428,901
Fair value of:
Tangible assets acquired		$	1,360,951
Core deposit and other intangible assets acquired			42,593
Liabilities assumed			(1,429,874	)
Net cash received in the acquisition			230,139
Fair value of net assets acquired			203,809
Goodwill recognized		$	225,092

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The following table presents the preliminary allocation of the purchase price of the assets acquired and the liabilities assumed at the date of acquisition, as WesBanco intends to finalize its accounting for the acquisition of FFKT within one year from the date of acquisition:

(unaudited, in thousands)		August 20, 2018
Assets acquired
Cash and due from banks		$	230,139
Securities			239,321
Loans			1,028,120
Goodwill and other intangible assets			267,685
Accrued income and other assets			93,510
Total assets acquired		$	1,858,775
Liabilities assumed
Deposits		$	1,330,328
Borrowings			71,780
Accrued expenses and other liabilities			27,766
Total liabilities assumed		$	1,429,874
Net assets acquired		$	428,901

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,
(unaudited, in thousands, except shares and per share amounts)		2018				2017				2018				2017
Numerator for both basic and diluted earnings per common share:
Net income		$	32,486			$	26,356			$	99,184			$	78,584
Denominator:
Total average basic common shares outstanding			50,277,847				44,031,813				46,965,095				43,992,017
Effect of dilutive stock options and other stock compensation			154,265				55,068				142,734				67,452
Total diluted average common shares outstanding			50,432,112				44,086,881				47,107,829				44,059,469
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

All options to purchase shares were included in the computation of net income per diluted share for the three months ended September 30, 2018 while 117,550 shares were not included in the computation of net income per diluted share for the three months ended September 30, 2017 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 September 30, 2018 were not included in the computation of net income per diluted share for the nine months ended September 30, 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.

As of September 30, 2018, 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 been met to date and are included in the diluted calculation. As of September 30, 2018, the shares related to the 2016 total shareholder return plan were not included in the calculation because the effect would be antidilutive. Performance-based restricted stock compensation totaling 17,081 shares were estimated to be awarded as of September 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.

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.”

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NOTE 4. SECURITIES

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

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.

Equity securities, of which $8.5 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 million and $13.5 million at September 30, 2018 and December 31, 2017, respectively.

The following table presents the fair value of available-for-sale and held-to-maturity debt securities by contractual maturity at September 30, 2018. In some instances, the issuers may have the right to call or prepay obligations without penalty prior to the contractual maturity date.

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