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Operator
Good morning, and welcome to WesbanCo's Conference Call. My name is Mike, and I'll be your conference facilitator today. Today's call will cover WesbanCo's discussion of results of operations for the quarter ended September 30th, 2011. (Operator Instructions)
Forward-looking statements in this presentation relating to WesbanCo's plans, strategies, objectives, expectations, intensions and adequacy of resources are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The information contained herein should be read in conjunction with WesbanCo's 2010 Annual Report on Form 10-K and documents subsequently filed by WesbanCo with the Securities and Exchange Commission, including WesbanCo's Form 10-Q for the quarters ended March 31st and June 30th, 2011, which are available on 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 2010 Annual Report on Form 10-K filed with the SEC under the section Risk Factors in Part 1, Item 1A. Such statements are subject to important factors that could cause actual results to differ materially from those contemplated by such statements. WesbanCo does not assume any duty to update any forward-looking statements.
WesbanCo's Third Quarter 2011 Earnings Release was issued yesterday afternoon and is available at www.wesbanco.com.
This call will include about 15 to 20 minutes of prepared commentary, followed by a question-and-answer period which I will facilitate. An archived webcast of this call will be available at wesbanco.com.
WesbanCo's participants in today's call will be Paul Limbert, President and Chief Executive Officer; Jim Gardill, Chairman of the Board; and Robert Young, Executive Vice President and Chief Financial Officer. And all will be available for questions following opening statements.
Mr. Limbert, you may begin your Conference Call, sir.
Paul Limbert - President and CEO
Thank you, Mike. Good morning, everyone. Thank you for participating in WesbanCo's quarterly Conference Call. We are pleased to be able to provide this information to all interested parties. I would like to make some opening comments. Bob Young will provide financial highlights of the third quarter 2011, and then Jim Gardill will moderate the question-and-answer period.
A press release detailing the results of the third quarter was issued last evening. A copy of the entire press release is available on our website. We will assume that all participants know about WesbanCo, and therefore we will just move to the financial highlights for the quarter.
WesbanCo reported third quarter earnings of $11 million or $0.41 per share, as compared to $9.2 million or $0.34 per share for the third quarter of 2010. Year-to-date earnings per share increased to $1.25 per share, a 32% increase over the first nine months of 2010. Our return on average assets for the nine-month period was 82 basis points. Our return on average tangible equity for the nine-month period was 13.7%.
We are pleased with the financial performance of WesbanCo as compared to the prior year, given the headwinds caused by a slowly improving economy and the regulatory environment. The growth in net income was achieved by improving net interest income, improving credit quality metrics, improving revenues from wealth management and customer activity fees, lower losses on disposal of other real estate, and a concerted effort to control costs without affecting either the quality of our operations or our revenue-generating capability.
Noninterest income was 25% of total revenue for the third quarter. Our efficiency ratio improved to 57% in the third quarter. Our pretax pre-provision return on average assets improved to 1.86% for the third quarter. All of those indicate continued strong operating results.
During the current quarter, we did sell approximately $17.2 million of nonperforming loans. The net charge-off not previously recognized through charge downs to the allowance was $10.3 million. The remaining loss as recognized was one of the factors causing WesbanCo to increase the provision for loan losses to $10.8 million for the quarter. This provision, which was an increase from the previous linked quarter, was a small decrease from the third quarter in the prior year.
You might remember that WesbanCo sold approximately $15.7 million in loans during 2010. On that sale, we recognized a loss of about $11.7 million.
Credit issues remain in some of our market areas. Our quarterly loan loss provision, while declining from previous years' levels, remains at an unacceptably high level. [Starjops] are declining but have been stubbornly consistent at these historically high levels.
As a result of the loan sale and our loan collection efforts, nonperforming assets declined during the most recent quarter. The total nonperforming assets are $89 million or 2.8% of total loans, down from the previous quarter and down from the previous year.
We are continuing to work with our borrowers, assisting them in working through this recession. Our historical community bank philosophy has been to work with and assist borrowers to make it through difficult economic times. We have shared the challenges of this recession with our customers but believe that when economic times improve, these customers will emerge stronger and help drive economic growth in our communities. We are confident that as the economy recovers, our impaired loans will continue to decline.
Total assets increased during the quarter due to an increase in customer deposits. Deposits grew by 3%. Management used that liquidity to pay down the current maturities of our Federal Home Loan Bank borrowings. While loan originations were strong and greater than the prior year, outstanding loan balances fell during the quarter due to our loan sale, loan payoffs, and our continued collection efforts.
WesbanCo had one of the strongest quarters for loan originations in the past couple of years. During the quarter, excess cash flows were reinvested in the investment portfolio. Given the current and near-term interest-rate projection of very low interest rates for short-term liquidity, we are trying to stay fully invested.
Growth in the loan portfolio has been limited by a lack of qualified borrowers and borrowers who have paid down their lines of credit and have not found appropriate business opportunities to borrow additional funds. In addition, competition in pricing and terms for all lending opportunities is significant. Our success in originating loans this quarter and this year is primarily due to an increased number of loan officers, existing customer relationships, and our ability to move loans from application to the closing stage faster than some of our competitors.
An economic update on our market areas indicates that they have not changed significantly from the second quarter. Economic conditions in many of our markets are continuing to improve. We see the West Virginia market as being very consistent, with the North Central region strong, with a lower unemployment rate than the national average. Our market areas of West Virginia did not see a significant real estate bubble, and therefore real estate values have not fallen as far as other markets. We are seeing increased activity levels in gas drilling in the Marcellus and Utica Shale regions.
The central Ohio markets are showing signs of recovery, with several new real estate projects by well-established developers beginning construction. Our Western Ohio markets, while continuing to be slow, are beginning to show small signs of recovery.
We are pleased with our current capital position. Our capital ratios have improved in each of the last seven quarters. Tier 1 leverage is 8.7%, well in excess of the regulators' well-capitalized level. Our capital growth is due primarily to our strong earnings and our low dividend payout ratio of 37%.
As of September 30, 2011, our tangible equity ratio has grown to 6.7% due to earnings. We've had earnings consistently through the recession. Because of our strong capital levels and a proven ability to increase equity, we believe WesbanCo is well positioned for the current economic climate and future growth. Our strong earnings have allowed us to increase dividends for the second time this year. We have raised our quarterly dividend during 2011 from $0.14 a quarter to $0.16 a quarter.
We are pleased to report that our stock price compared favorably with our peer groups during the third quarter. The announcement of a dividend increase in August -- that's the second dividend increase of the year in August -- was received favorably by the markets. Our stock price appreciation year-to-date -- that is as of October 26th -- was 4.3%, as compared to a Midwest group of banks which actually had price depreciation of approximately 14.2%. Our dividend yield based upon our current stock price is approximately 3.3%.
I would like Bob Young, our CFO, to discuss with you in more detail the financial results of the third quarter.
Robert Young - EVP and CFO
Thank you, Paul. Good morning, all.
Third quarter improvements in net income over the same period last year were primarily the result of a 2.2% increase in net interest income due to a 6-basis point improvement in margin on a slightly higher earning assets total and an 8% reduction in the provision for credit loss. We also saw growth in key noninterest income areas such as electronic banking, while REO losses were substantially reduced.
Expenses were substantially lower as well, by 5.8% or $2.1 million, as employee benefit costs, FDIC insurance costs and other operating expenses were lower. On a year-to-date basis, improvements in net income were primarily a result of a 3% increase in net interest income, again due to an increasing margin of 11 basis points; and a 27% reduction in the loan loss provision, along with a smaller decrease in total expenses.
Net interest income increased $900,000 or 2.2% for the third quarter, and $3.7 million or 3% for the nine-month period as compared to 2010, due primarily to increases in the margin through disciplined pricing of loans and deposits and a cost of funds reduction influenced by a shift in mix from higher-cost CDs and borrowings to lower-cost transaction accounts.
Interest income from the investment portfolio was increased by 2.3% in the first nine months of 2011 due to an increase in average outstanding balances, partially offset by a decrease in the average rates earned. In addition, significant improvements in the funding mix continued to reduce the overall cost of funds. The net interest margin improved to 3.67% in the third quarter and to 3.69% for the first nine months, an increase of 6 and 11 basis points respectively, as compared to 2010.
The average rate on interest-bearing liabilities decreased by 28 basis points for the quarter and 38 basis points on a year-to-date basis; while the rate on earning assets declined at a slower pace of 20 and 25 basis points respectively for the same periods. Lower offered rates on maturing higher-rate certificates of deposit and an increase in lower-cost products, including checking, money market and savings accounts, all contributed to the improvement in cost of funds.
Total deposits were up 4.4% at 9/30 as compared to last year at this time. In addition, the average balance for Federal Home Loan Bank borrowings, currently costing 3.42%, decreased by $83 million or 32% at the end of the third quarter from September of 2010, representing just 3.2% of total assets at this point.
Improvements in the mix of deposit accounts also contributed to the improved cost of funds, with CDs decreasing to 37.1% of total period-end deposits, down from last year's 41.8%; while all other account types have increased to 62.9%. Average non-interest-bearing deposit balances increased 20.3% at the end of the third quarter from last year, now comprising 15.5% of total deposits as a result of retail marketing campaigns and customer incentives, as well as increased balances for the Bank's business customers. In addition, timing differences in governmental deposits received at quarter end and higher trust deposits influenced these balances.
Overall, we have successfully managed net interest income in the current low-interest rate environment through control of loan pricing spreads, improved non-interest-bearing checking account totals, the repayment of higher-cost borrowings, and reductions in rates paid on deposit accounts. As Paul mentioned, we would also note that in our Northern West Virginia branches we are seeing deposit increases from customer receipts of Marcellus Shale gas royalties and lease payments.
In the third quarter, noninterest income decreased $400,000 or 2.5% as compared to the third quarter of 2010, and $500,000 or 1.1% as compared to last year-to-date. Trust fees, electronic banking income and other income sources continued their growth over prior periods, while losses on disposal of REO decreased. Reductions in security gains and mortgage banking income due to greater retention of originated mortgage volumes, in the case of mortgage banking, partially caused the overall decrease for both periods.
Additionally, on a year-to-date basis, service charges on deposits have decreased 12% as a result of the 2010 regulatory changes governing automated overdraft programs, which led to fewer customer overdraft transactions. However, for the quarter, service charges were flat with last year's third quarter as well as with the second quarter of this year, indicating stabilization of these fees as last year's implementation of the regulations is now beyond a year old.
Noninterest expense decreased $2.1 million or 5.8% in the third quarter, and $800,000 or 0.8% for the nine-month period, as compared to last year. Employee benefits cost dropped 21.6% for the quarter and 5.2% for the year due to lower healthcare and pension costs, while equipment expenses were also lower for both periods due to lower contract and various other seasonal maintenance expenses.
FDIC insurance has been reduced some 37.3% for the third quarter and 25.2% year-to-date due to the second quarter implementation of a new calculation of such expenses that benefits those Community Banks with lower wholesale borrowings and overall balance sheet leverage.
For the quarter, other operating expenses were significantly lower, by 11.5%, as a result of a continued focus on reducing these miscellaneous expense categories. Plus we were able to reverse a second quarter accrual for a customer fraud that was fully recovered before the end of September totaling $671,000.
Somewhat offsetting these expense reductions were higher salaries and wages in both periods due to normal annual increases, although it is noteworthy that the full-time equivalent staff count was the same as last year. Also higher were occupancy expenses for the quarter and year-to-date and marketing expenses for current free checking and consumer loan campaigns for the year-to-date period.
Turning to the balance sheet -- total assets were up 2.5% from last year, as increased investment securities were funded by net loan pay-downs and deposit increases, while Federal Home Loan Bank borrowings continued to decrease. WesbanCo's $1.6 billion securities portfolio at quarter end, as compared to $1.4 billion last year, remains a source of income and liquidity for the Bank, yielding 3.73% for the quarter on a tax-equivalent basis. Overall, the portfolio had unrealized pretax net security gains of approximately $44.5 million, or 3% of the total securities balance at quarter end; $18.2 million of which was accounted for on a pretax basis in other comprehensive income, which is up substantially from last year's $7.8 million at year end.
The municipal portion of the portfolio had an approximate $25.7 million gain at quarter end versus a loss of $2 million at year end. Modified duration of the portfolio was 4%, and the weighted average life was five and a half years, with 54% of the portfolio currently unpledged. Given the low-interest rate environment we expect to see at least through mid-2013, we have purposely extended duration opportunistically in the portfolio, primarily in the held-to-maturities segment with primarily tax-exempt bonds.
Deposits were up 4.4% in the third quarter as compared to last year, as all deposit categories other than CDs were up. Excluding CDs, other transaction accounts in total were up $310 million, or 12.7%, as compared to last September. We continue to permit higher-cost single-service CDs to run off as we focus on improving overall customer relationships and a greater mix of transaction accounts.
We also continue to see growth in treasury management and business-related deposits in 2011 due to an expansion of customer offerings, more focused customer calling efforts and incentive programs, and a greater number of calling officers. At quarter end, WesbanCo's loan-to-deposit ratio was 77%, and the Company's current liquidity permits loan growth to be easily funded as it occurs, or we will instead paid down more expensive borrowings.
Total loans were down 2.3% over the last year primarily due to the sale of $17.2 million in impaired loans in the third quarter and other exit strategies developed for certain classified or criticized credits, particularly in our Western Ohio markets. Several larger loan payoffs and a continued focus on conservative underwriting due to the uncertain economic environment have also somewhat muted loan outstandings, particularly in investor-owned commercial real estate and certain consumer loan categories.
However, we have experienced higher commercial and residential loan origination volumes in our markets in 2011 as compared to last year, resulting in a lower rate of runoff. Residential mortgage loans have benefited from higher refinancings and a decision to keep more production on-balance sheet.
Some of the higher commercial volumes are attributable to new lenders hired in the Western portion of our Ohio markets in late 2010 and internal management restructuring, as well as repositioning existing lenders to new production from a prior primary focus on improving credit quality in those markets. Indeed, commercial and industrial loan balances were up over year end by 3.3%, which is a goal for WesbanCo; and construction and development loans are up 26%, all of which are commercial-related.
Also of note, total loan commitments are up 15.1% at the end of the third quarter as compared to year end. And other than balances related to the loan sale, total loan outstandings were relatively flat from the end of the second quarter.
The higher second quarter commercial pipeline resulted in improved commercial closings in the third quarter. And while pipelines have remained relatively flat over the summer, we are relatively optimistic that loan production will finish the year strong.
The West Virginia economy continues to improve. And we believe one of the reasons for this underlying strength in local economy is as a result of economic activity and resulting reduced unemployment surrounding Marcellus Shale gas extraction in Northern West Virginia and Eastern Ohio. The Bank has booked both primarily and secondarily related Marcellus loan relationships over the past few months.
Paul mentioned the reduction in unemployment. It is noteworthy that West Virginia's unemployment is improved to 7.9% in September, well below the current 9.1% national average.
The loan sale contributed to continued loan quality improvement this quarter, as total nonperforming loans in classified and criticized loans both decreased. Total nonperforming loans, including troubled debt restructurings, dropped 12.5% from the year-end total of $96.3 million to the current level of $84.2 million, representing 2.6% of total loans; while NPAs dropped to 2.7% of total loans and REO, down from the year-end level of 3.17%.
Contributing to this improvement is an REO balance that has decreased from $8.1 million to $4.7 million since year end, primarily due to asset sales and reduced new foreclosure activity. Total 30-day-or-more past-due loans were down from 99 basis points at year end to 93 basis points at September 30th, although this is up slightly from June 30th's level of 79 basis points.
The overall reduction in nonperforming loans was primarily due to the sale of 24 impaired and classified loans comprising of 14 borrowers with an aggregate book value of $17.2 million, net of reserves of [$4.0] million, with the two largest nonperforming loans representing $9.9 million. Total proceeds from the sale were $6.9 million, resulting in $10.3 million in charge-offs in the third quarter of 2011.
Nonaccrual loans increased $8 million or 16.4% from year end, despite the sale of $6.8 million of commercial loans on nonaccrual in the third quarter. The increase in nonaccrual loans is primarily attributed to the migration in 2011 of other previously classified commercial real estate and C&I loans to nonaccrual status, including certain loans previously reported as TDRs accruing interest in prior periods. As a result, TDRs accruing interest decreased $20.1 million or 42.3%, with $9.9 million related to the sale of two CRE loans in the third quarter with specific reserves of $3.4 million.
Total classified and criticized loans decreased 15.5% or $49.5 million as compared to year end, mostly due to the loan sale, general improvement in credit quality, and normal principal reductions or other exit strategies. Third quarter 2011 net charge-offs decreased slightly from the third quarter of 2010, and overall decreased $4.3 million for the first nine months as compared to 2010. Third quarter 2011 charge-offs include the aforementioned $10.3 million related to the loan sale, while the third quarter of 2010 also included a loan sale resulting in $10.5 million in charge-offs in that period.
Net annualized loan charge-offs to average loans were 1.33% for the nine months ended September 30th, compared to 1.44% for the same period last year. Net charge-offs for the first nine months of 2011 also include $4.4 million attributable to two land development loans taken in prior quarters. Both of these loans were classified previously reserved, and one of those loans was also reported as a TDR in previous quarters.
Overall, the provision for credit losses decreased $9.3 million or 26.5%, as compared to last year's nine-month period, and it also decreased $900,000 in comparison with the third quarter of 2010. The year-to-date provision net of charge-offs decreased the allowance to 1.70% of total loans at September 30th, as compared to 1.86% at December 31st, with the loan sale in the third quarter primarily responsible for the decrease, as loans sold carried specific reserves previously accounted for in prior periods' provisions.
As Paul mentioned, WesbanCo remains in a strong regulatory capital position. Total risk-based capital closed the quarter at 13.74% versus 13.2% at year end. Tier 1 leverage capital was 8.69% as compared to 8.35% at 12/31. Our tangible equity ratio also continues to grow, ending the period at 6.72%, which is an increase of 39 basis points from year end. Higher earnings and a lower dividend payout ratio have contributed to the increase in shareholder's equity and capital ratios in general, as well as an increase in other comprehensive income which contributed 12 basis points of the increase since year end.
As an overall summary of the quarter -- management is pleased with the operating results. Our return on average assets pretax pre-provision was 1.86% as compared to 1.67% the third quarter of 2010. We'll continue to work on improving credit quality by focusing on workout strategies or selected sales from time to time, which, combined with our prior internal staffing changes and policy improvements, should result in improving nonperforming and net charge-off ratios as the economy continues to improve.
We have been pleased to see a pickup in loan demand and improvements in our wealth management and treasury management businesses this summer, and we are well prepared for the future implementation of new regulatory capital standards as Basel III guidelines are imposed. Our liquidity and capital strength positions WesbanCo to move beyond the recent recession and be able to participate in the recovery as it occurs.
This concludes our prepared commentary. We'll now open the call for questions. Jim Gardill, our Chairman of the Board, will moderate the Q&A session. We'll turn this call back over to the facilitator now to take those questions.
Operator
(Operator Instructions) Catherine Mealor, Keefe, Bruyette & Woods.
Catherine Mealor - Analyst
Can you give just a little bit more color on the composition of the loans in the $17 million loans sold this quarter? And I think you mentioned, Bob, that it was about four relationships. But can you talk about what type of loans they were, and a little bit more color on those relationships? Thanks.
Jim Gardill - Chairman of the Board
Catherine, I'll let Bob respond to that. And we'll go through some of the detail that we have in the material here.
Robert Young - EVP and CFO
Catherine, there were 14 total relationships, but four of the relationships totaled some $10 million. So there were a total of 24 currently either classified as substandard or otherwise impaired loans, nonaccrual and TDRs, that were sold. These were all commercial real estate loans, with one exception. I believe that there was one C&I credit, and there was also one construction and land development credit. And all the credits were in the Western part of our franchise, Columbus and Cincinnati, some of them having been picked up in our last acquisition.
Catherine Mealor - Analyst
Okay. And was $17.2 million the unpaid principal balance?
Robert Young - EVP and CFO
That is correct, yes.
Catherine Mealor - Analyst
Thanks.
And on the employee benefit decline -- can you talk a little bit about where you see that going forward? Is this more of a one-time item, or is this really a reduction in that run rate?
Jim Gardill - Chairman of the Board
Well, it's hard to predict. I'll let Paul talk about that a little bit. But in this particular quarter, healthcare costs year-over-year showed some reduction, which was beneficial. And those are hard to forecast.
Paul, additional detail?
Paul Limbert - President and CEO
Yes, I would also agree it's going to be very hard to forecast. But what we have done, Catherine, is instituted a number of different wellness programs for our employees over the past couple years, and have really encouraged our employees to participate in those wellness programs. I think that is beginning to have some impact on our healthcare costs moving forward. And we are really continuing to urge our employees to change some of their lifestyles. And we are also adding additional wellness programs to our employee benefit suite of products, so that our employees can continue to monitor their health. And we do anticipate it will keep our health insurance premiums down in the future.
Robert Young - EVP and CFO
Pension costs have also been lower, Catherine, due to the higher market over the last couple of years as compared to '08 and '09. I would directionally suggest that pension might be a little bit higher next year, just simply because discount rates are lower, which is one of the factors that influences that expense.
Catherine Mealor - Analyst
Thanks.
My last question is just on the funding cost. You've done a really nice job in lowering your CD and wholesale funding cost. What's your outlook on how much further you can reduce CD costs going forward -- maybe where are CDs re-pricing to right now, and also further opportunities to lower FHLB borrowings?
Jim Gardill - Chairman of the Board
Again, we're not really in a position to forecast, Catherine. But we do have an opportunity to look at additional reductions in funding costs. And maybe I can let Paul speak to those in particular.
Paul Limbert - President and CEO
Yes, Catherine, I think we do have some opportunities to reduce funding costs into the future. For example, our Federal Home Loan Bank borrowings -- we do have continued maturities coming over the next year or so, year and a half. Those maturities we will certainly analyze, and we would anticipate paying them off with the liquidity that we have inside our organization. I do anticipate continuing deleveraging our balance sheet through maturities of the Federal Home Loan Bank.
We also have, I think, some opportunities in our core deposit area to continue to reduce interest rates. We are monitoring that very closely. We are monitoring our competitors' interest rates on the core deposit areas. And we think we will have some ability to adjust rates as we move forward in the current interest rate environment.
Catherine Mealor - Analyst
Thank you very much.
Operator
Frank Barkocy, Mendon Capital.
Frank Barkocy - Analyst
Just as a follow-up to the last question -- if we do get some opportunity on the funding side to reduce those costs a bit further, will that be enough to offset the pressure on the asset yields to enable you to show some further improvement in the net interest margin this quarter and the next quarters as well?
Jim Gardill - Chairman of the Board
Frank, that's again hard to forecast. Competitive pricing in loans has gotten more significant this year than the prior year. So you're going to continue to have pricing pressure on that side. We have remixed deposits very nicely, and we've grown non-interest-bearing deposits, which has helped reduce our funding costs.
And Paul or Bob, additional color on that?
Robert Young - EVP and CFO
Well, you know that the balance sheet is up. And the balance sheet size has been shrinking over the last two or three years, as we strategically took the opportunity to take additional cash and pay down borrowings during a period where we didn't have as much loan demand.
So the increased size of the balance sheet, which has been primarily laid off in investment securities, will drive that margin a little bit lower, just because of the remix that we're naturally seeing. We think that's better than having it sit around in cash, however. And as Paul mentioned, we do have some additional opportunities in the cost of funds side.
So while we're not providing guidance, I think it's reasonable. You'll see this in the Q, you saw it in the second quarter Q, that we would expect to see some slight compression in the current flat-interest rate environment, since we are slightly asset-sensitive.
Frank Barkocy - Analyst
Secondly, could you talk to what you might be doing different than other banks in the area to take advantage of the Marcellus and Utica Shale developments?
Jim Gardill - Chairman of the Board
Well, I think that first and foremost is our position in the market. We have a dominant market position in what we would consider to be a sweet spot of the combination of the Utica and the Marcellus. With our market share here, we think we will take advantage of those growth in deposits that we're seeing and continue to gather deposits.
I also think it comes back to Paul's comments about our community banking model. It's the full relationship that we have with our customers. So we're trying to do both wealth management and cash management, treasury management services, as well as simply providing deposit products. So as we have expanded the product suite, grown the Internet services that we can provide, we can provide greater services to a larger group of customers within the market.
And we have our wealth management group targeting this area for growth. We're providing seminars and outreach to those customers. We have workshops that we do regionally within those deposit-gathering areas. We meet with these customers. We meet with these groups that have formed within the negotiating position with these oil and gas companies. And we have been working with those groups to provide product information, and also details on the services that we provide.
So I think that outreach, that interaction, combination of the market share, the suite of products that we have in the community banking model, where we want to grow the relationship with the customer, have all contributed to that.
Frank Barkocy - Analyst
Are you lending to the vendors that are supplying the draws?
Jim Gardill - Chairman of the Board
We are. It's interesting -- when this first started, it seemed to be a one-off kind of thing. You had some drillers come in from Texas and Oklahoma and start drilling. What's being manifested, though, is a broad impact where local service providers, trucking companies, aggregate providers, all of the material suppliers -- pipes -- in addition to workers now -- the infrastructure build-out -- is fairly impressive in how broad it reaches our market, from hotels, motels, to suppliers. Trucking is -- all of those things have seen a resurgence. So it's a broad base.
So when we say we're lending into it, we're not lending money to major suppliers like Exxon and Texaco, or [consol]. But all of the intermediaries we are, even though we are working with some direct on pipeline transportation and transmission companies.
So it's the breadth of it that has had a huge impact. And a lot of those were already our customers, given the market share we've had here. And so we've been able to realize the benefit of that additional growth.
Frank Barkocy - Analyst
And do you expect to see you continuing to pick up momentum as you go forward?
Jim Gardill - Chairman of the Board
It is picking up momentum. I think what's interesting is the Utica play seems to be much more substantial than even the Marcellus. And the Marcellus has grown very nicely. What we're seeing now is the theoretical combination of both the Utica and the Marcellus in the same wells, which could dramatically increase the production capabilities of these companies. And the major players that have moved in have rapidly expanded the build-out of both the drilling process and the infrastructure.
Frank Barkocy - Analyst
Thank you.
Operator
(Operator Instructions) Carter Bundy, Stifel Nicolaus.
Carter Bundy - Analyst
Could you all first start with addressing the credit front? Obviously some pretty significant charge-offs this quarter. But it did come with improved credit trends. Is this something -- now that we've seen a couple different material loan sales over the last year, is this a strategy that may persist when the opportunities present themselves to unload bad assets going forward?
Jim Gardill - Chairman of the Board
Carter, I'll let Paul speak to this in some detail. But just as way of an introduction -- it's part of the management process. And I guess the judgment is assessing the depth of the recession and the recovery. Working with borrowers, as Paul said -- it's our community bank philosophy, where we try to work with borrowers.
We do reach points, however, in each cycle where we've got to make judgments and decisions on credit. And where we feel that we have exhausted the opportunities with a credit, we're trying to be proactive in addressing that credit. In this particular case, we've felt that we've maximized the ability of these entities to recover given the current growth that we're seeing in the economy or, better said, the lack of growth in the economy. So we tend to maximize.
We're trying to be proactive in dealing with credit issues throughout this cycle. We think this loan sale is simply a manifestation of that process that is ongoing and continual. We move credits out, as we've said in our material -- both Bob and Paul commented on that. We also -- when we reach a point that we think we've maximized a credit, we also look at the loan sale as a way of improving our overall credit quality.
Paul Limbert - President and CEO
I might just add one quick comment to that. I think, Carter, it's always a balancing act as to how much administrative and personnel time we want to spend on some of these credits. And they get to a point where we really think that it's in the best interest of WesbanCo to basically cut our losses short and not spend hours and hours of our internal resource time, and cost associated with managing those particular credits, as we move into the future.
So we really are looking at this as an opportunistic way of not only getting rid of some of our criticized and classified loans, but to hold expenses down in the future. And I think that's the interesting balancing act that we go through as we analyze whether or not to do a loan sale.
Carter Bundy - Analyst
That's very helpful.
If we sort of think about it on a roll-forward basis, I completely understand the strategy. But do you see certain other credits that are sitting there in substandard or special mention that you may -- you sort of see on the horizon, where there might be a bid that becomes acceptable that wasn't before?
Jim Gardill - Chairman of the Board
Well, so much of this is outside our control, Carter. Because a lot of it depends on the economy. It depends on how these businesses restore their own credit quality. Based on the judgment that we made as of this quarter, this is where we feel we are. We believe that we have addressed the credit issues that we needed to address in this quarter.
It's a continuing process, though. It's very dynamic. We help customers refinance elsewhere. We work on exit strategies with customers. We work on alternative structurings for them to restructure their credit, to give them the opportunity to work out of the issues that they find themselves in. And then, ultimately, we address the credit if we have to write it off or move on or sell it. So those are all part of the real dynamic process.
And I think you remember, in maybe our first or second call, we talked about the process that we've initiated back in October of '09, where we have been aggressively addressing and reviewing commercial credits throughout our footprint, and significantly in our Western markets where we saw a deeper recession, and working on strategies to deal with those credit issues. And so this has been an ongoing dynamic process for the last couple of years.
Carter Bundy - Analyst
Okay.
Robert Young - EVP and CFO
It will be ongoing into the future.
Jim Gardill - Chairman of the Board
Yes.
Carter Bundy - Analyst
Okay.
Jim Gardill - Chairman of the Board
If all those unemployment rates stay high, we're going to continue to be active at this.
Carter Bundy - Analyst
Moving on to a second item -- from a wealth management perspective, are you continuing to see your group benefit from Marcellus activity and Utica activity? And how should we sort of think about that run rate going forward?
Jim Gardill - Chairman of the Board
First of all, in answer to your question -- yes, we are continuing to see growth. And Bob may be able to give us some statistics quarter-over-quarter, as we mentioned in the material. We've shown increases, and year-over-year we've shown increases. And you do have in that, of course, market fluctuations which will impact total asset numbers. But the number of customers and the number of accounts and the number of relationships, we continue to work on.
It's part of our core strategy in building that wealth management piece. That provides a continuing fee income source for us. So we do work at that very hard. And we think we're going to continue to show growth in that area. That is one of the focuses that we have in our business models in the coming year.
Paul Limbert - President and CEO
I just may add to the fact -- and it answers the previous question also -- we do have a team put together within our organization that is focused on developing new business from the Marcellus and Utica Shale areas. The wealth management function and the securities functions are certainly part of that team that we've put together to focus on the new development.
Carter Bundy - Analyst
That's very helpful.
Final question -- the deposit trends have been very, very strong. I know you've been running marketing campaigns. Is that a function of just sort of a very conducive environment for deposit inflows? Or are you actually starting to see -- and I guess this is sort of a two-pronged question -- are you starting to see benefits from customers being frustrated with large-cap banks and moving deposits to WesbanCo?
Jim Gardill - Chairman of the Board
Well, let me say first of all, Carter -- and I'll let Bob speak to this -- it is a conscious strategy. It has been a focus of our marketing and retail group. We have worked at that. But it's also been a collaboration. As Paul said, it's a team effort. We've also brought our commercial folks into this. We've developed lower-cost commercial deposits to replace higher-cost CDs. So it's part of the core funding strategy, which has been effective and beneficial in reducing our overall cost of funds. But it also increases our core deposit base.
So Bob, maybe some stat?
Robert Young - EVP and CFO
Yes. I think it's just interesting that it seems to me that we've picked up the pace a little bit over the summer, with demand deposits growing at a pace of almost $15 million a month during the last three months, and interest-bearing demand growing at a pace of $25 million.
If you take a look at what's underlying that -- there's a lot of strength in the business deposit portfolio. We have, as I said during my comments, more treasury management calling officers. They're working more closely with their business banker and large corporate banker compatriots. And we're doing a lot more work with those customers to garner additional relationships from them.
So I do think some of this would be coming from the larger banks. But I think it's just a better job that we are doing in mining our own customer base, particularly on the business side. And as you mentioned, and as we mentioned in our prepared remarks, certainly the customer incentive campaigns on the demand side -- [our] marketing, which is reflected in higher marketing costs the last six months -- that has certainly shown growth on the retail side as well.
And while service charges on deposit accounts are down over the last couple years because of Reg G, you'll note that they were flat quarter-over-quarter. And so we're starting to see some benefit from those additional retail deposits, both in service charges -- and, more importantly, despite the implementation of the Durbin Amendment for larger banks -- we're certainly seeing growth on the debit card side.
Unidentified Company Representative
I think we hit our marketing campaign just at a great point in time. Because our current marketing campaign is focused on retail checking accounts. It really couldn't have hit at a better time based upon some of the problems -- the media problems that the larger banks are having. So yes, I'm sure we are benefitting somewhat from the media campaign against the larger banks.
Carter Bundy - Analyst
Okay. Thank you all very much for the questions.
Operator
Kenneth James, Sterne, Agee.
Kenneth James - Analyst
You touched a little bit on emphasizing cost control. I'm curious -- you [obviously] have done a pretty good job cutting expenses. This quarter was, I guess, kind of a multiyear low total for noninterest expense. Is there anything unusual there? I mean, is that kind of a sustainable run rate going forward? And do you think you can improve on that, even, sometime next year?
Jim Gardill - Chairman of the Board
I'll really let Paul speak to this. I think this has been a primary focus. In an economic recession that we've gone through, cost control and expense controls are important.
Paul?
Paul Limbert - President and CEO
Yes. We did have an unusual recovery of a previous expense. In the second quarter, we had an extraordinary expense for a fraud loss. In the third quarter, we had a recovery, a 100% recovery, of that fraud loss that we had previously charged off. And Bob, I think, mentioned a number of $670,000 or so. So that was an unusual expense offset that occurred in the third quarter. For the year-to-date, it doesn't have really any impact, because it's $0 for the nine months. But you do have that particular fluctuation between the second and the third quarter.
Other than that, I think the couple wildcards that are out there -- and one of the wildcards is the FDIC insurance -- we'll see where FDIC insurance goes. It is heading in the right path now, it's heading down, in the right direction for community banks like us. So I think that is particularly helpful. And I think we are continuing to work on our maintenance both in the IP area and the building area to try to control those costs moving forward. So while it's very difficult to predict some of the wildcards, we have definite plans and strategies in place to maintain our run rates for expenses.
Robert Young - EVP and CFO
I would just finish that comment, Ken, by saying that if you take out the $700,000, it would be about 58.4% for the quarter in terms of efficiency ratio. So if you want to look at that as the run rate, that is lower than the year-to-date ratio of 59.4%. So we continue to show improvements across the board.
And certainly one of the things that affects the efficiency ratio is a growing base of revenues. And despite our fee income sources being relatively flat over the year, we've seen growth in net interest income courtesy of the margin, a slight growth in the balance sheet. And that has helped as well to improve both pretax pre-provision earnings and the efficiency ratio. You may recall a couple years ago the efficiency ratio was about 67% in the middle of 2009. And so we have really focused on that over the last couple of years.
Kenneth James - Analyst
Then, jumping to the fee income side, looking at deposit service charges -- they're flat linked quarter, they leveled out relative to the first half of the year, from a year-over-year perspective flat at as well. Any indication that will -- firm stabilization here, or do you see anything else coming down the pike from customer behavior changes, or regulators or anything else, that kind of keeps that line under pressure for you or the industry as a whole?
Jim Gardill - Chairman of the Board
Well, just as an overview -- with the regulatory changes you've seen impact on overdraft fee income and overdraft charges, what we've done -- and I think they've done very well here within our retail group -- is to grow our transactional fee income off of our debit card interchange. And we've incented our customers on our pricing and also on behaviors and through marketing, as well as employee incentives, to focus our customers on a more efficient delivery system that gives us the ability to generate fee income. And so that's part of that core strategy that I think has been manifested in the stability in that fee income revenue line item. And as we continue to grow customers and increase debit card in this new, competitive marketplace -- with some large banks imposing fees on those, which we don't do -- we would hope to continue to grow that.
Kenneth James - Analyst
Okay.
And I was wondering if I could just get a little color on the interest-bearing liabilities. Can you share, or do you have handy, a duration on your CD portfolio -- average life, or anything like that?
Robert Young - EVP and CFO
The duration is about 1.2 years.
Kenneth James - Analyst
Thanks a lot, guys.
Operator
It appears that we have no further questions at this time. At this time, I'll go ahead and hand the Conference back over to management for any closing remarks.
Jim Gardill - Chairman of the Board
I appreciate the participation of everyone today, and we certainly appreciate the questions. Busy quarter, as we saw. We're addressing credit quality. The loan sale, we think, was a strategic move for us to improve our overall mix, and also to position the Company going forward. I think it also is a manifestation of the economy. It is what it is; we have no control over that.
I would focus your attention, however, on the core strengths of the Company, and that's the pretax pre-provision growth in income. I think that's the strategy. Those are the things over which our management has control and over which they can manage effectively. As with any financial institution -- the economy is what it is, and the interest rate environment is what it is -- we have to manage within those guidelines and confines, as you will.
And I think looking at our core funding cost, core earnings, and the growth in fee income -- I think you see steady improvement over the last several quarters. And as Paul and Bob both commented, controlling expenses is a key part, but also growing revenues is a key part of that long-term strategy. And those numbers look very positive.
We appreciate your participation. We're very pleased to participate in the call. And thanks, everyone, for participating today.
Operator
We thank you, gentlemen, for your time.
The Conference Call is now concluded. We do thank you all for attending today's presentation. At this time, you may disconnect your lines. Thank you.