Loans and the Allowance for Credit Losses

6 Months Ended

Jun. 30, 2012

Loans and the Allowance for Credit Losses [Abstract]

LOANS AND THE ALLOWANCE FOR CREDIT LOSSES

NOTE 4. LOANS AND THE ALLOWANCE FOR CREDIT LOSSES

The recorded investment in loans is presented in the Consolidated Balance Sheets net of deferred loan fees and costs of $2.6 million at June 30, 2012 and $3.1 million at December 31, 2011.

The following table presents the recorded investment in loans by category:

(unaudited, in thousands)	June 30, 2012		December 31, 2011
Commercial real estate:
Land and construction	$	158,413	$	175,867
Improved property		1,536,632		1,509,698
Total commercial real estate		1,695,045		1,685,565
Commercial and industrial		420,689		426,315
Residential real estate		662,556		621,383
Home equity		250,988		251,785
Consumer		246,552		254,320
Total portfolio loans		3,275,830		3,239,368
Loans held for sale		7,305		6,084
Total loans	$	3,283,135	$	3,245,452

The following tables summarize changes in the allowance for credit losses applicable to each category of the loan portfolio:

	Allowance for Credit Losses By Category For the Six Months Ended June 30, 2012 and 2011
(unaudited, in thousands)	Commercial Real Estate - Land and Construction			Commercial Real Estate - Improved Property			Commercial & Industrial			Residential Real Estate			Home Equity			Consumer			Deposit Overdraft			Total
Balance at December 31, 2011:
Allowance for loan losses	$	4,842		$	24,748		$	11,414		$	5,638		$	1,962		$	5,410		$	796		$	54,810
Allowance for loan commitments		74			21			323			4			33			13			—			468
Total beginning allowance for credit losses		4,916			24,769			11,737			5,642			1,995			5,423			796			55,278
Provision for credit losses:
Provision for loan losses		2,969			3,600			740			2,237			1,125			1,413			138			12,222
Provision for loan commitments		(25	)		(11	)		(99	)		1			15			2			—			(117	)
Total provision for credit losses		2,944			3,589			641			2,238			1,140			1,415			138			12,105
Charge-offs		(3,377	)		(4,214	)		(2,342	)		(2,288	)		(655	)		(2,017	)		(389	)		(15,282	)
Recoveries		41			587			256			193			9			613			161			1,860
Net charge-offs		(3,336	)		(3,627	)		(2,086	)		(2,095	)		(646	)		(1,404	)		(228	)		(13,422	)
Balance at June 30, 2012:
Allowance for loan losses		4,475			24,721			10,068			5,780			2,441			5,419			706			53,610
Allowance for loan commitments		49			10			224			5			48			15			—			351
Total ending allowance for credit losses	$	4,524		$	24,731		$	10,292		$	5,785		$	2,489		$	5,434		$	706		$	53,961
Balance at December 31, 2010:
Allowance for loan losses	$	4,701		$	30,836		$	10,793		$	5,950		$	2,073		$	5,641		$	1,057		$	61,051
Allowance for loan commitments		1,037			285			65			1			14			2			—			1,404
Total beginning allowance for credit losses		5,738			31,121			10,858			5,951			2,087			5,643			1,057			62,455
Provision for credit losses:
Provision for loan losses		4,893			3,196			4,138			1,386			421			930			578			15,542
Provision for loan commitments		(696	)		(275	)		235			1			24			12			—			(699	)
Total provision for credit losses		4,197			2,921			4,373			1,387			445			942			578			14,843
Charge-offs		(4,532	)		(4,156	)		(3,937	)		(1,992	)		(448	)		(1,840	)		(420	)		(17,325	)
Recoveries		33			725			330			248			9			635			170			2,150
Net charge-offs		(4,499	)		(3,431	)		(3,607	)		(1,744	)		(439	)		(1,205	)		(250	)		(15,175	)
Balance at June 30, 2011:
Allowance for loan losses		5,095			30,601			11,324			5,592			2,055			5,366			1,385			61,418
Allowance for loan commitments		341			10			300			2			38			14			—			705
Total ending allowance for credit losses	$	5,436		$	30,611		$	11,624		$	5,594		$	2,093		$	5,380		$	1,385		$	62,123

The following tables present the allowance for credit losses and recorded investments in loans by category:

	Allowance for Credit Losses and Recorded Investment in Loans
(unaudited, in thousands)	Commercial Real Estate- Land and Construction		Commercial Real Estate- Improved Property		Commercial and Industrial		Residential Real Estate		Home Equity		Consumer		Over- draft		Total
June 30, 2012
Allowance for credit losses:
Allowance for loans individually evaluated for impairment	$	1,675	$	1,907	$	—	$	—	$	—	$	—	$	—	$	3,582
Allowance for loans collectively evaluated for impairment		2,800		22,814		10,068		5,780		2,441		5,419		706		50,028
Allowance for loan commitments		49		10		224		5		48		15		—		351
Total allowance for credit losses	$	4,524	$	24,731	$	10,292	$	5,785	$	2,489	$	5,434	$	706	$	53,961
Portfolio loans:
Individually evaluated for impairment (1)	$	4,933	$	16,676	$	—	$	—	$	—	$	—	$	—	$	21,609
Collectively evaluated for impairment		153,480		1,519,956		420,689		662,556		250,988		246,552		—		3,254,221
Total portfolio loans	$	158,413	$	1,536,632	$	420,689	$	662,556	$	250,988	$	246,552	$	—	$	3,275,830
December 31, 2011
Allowance for credit losses:
Allowance for loans individually evaluated for impairment	$	1,788	$	1,565	$	—	$	—	$	—	$	—	$	—	$	3,353
Allowance for loans collectively evaluated for impairment		3,054		23,183		11,414		5,638		1,962		5,410		796		51,457
Allowance for loan commitments		74		21		323		4		33		13		—		468
Total allowance for credit losses	$	4,916	$	24,769	$	11,737	$	5,642	$	1,995	$	5,423	$	796	$	55,278
Portfolio loans:
Individually evaluated for impairment (1)	$	10,815	$	18,028	$	—	$	—	$	—	$	—	$	—	$	28,843
Collectively evaluated for impairment		165,052		1,491,670		426,315		621,383		251,785		254,320		—		3,210,525
Total portfolio loans	$	175,867	$	1,509,698	$	426,315	$	621,383	$	251,785	$	254,320	$	—	$	3,239,368

(1) Commercial loans greater than $1 million that are reported as non-accrual or as a troubled debt restructuring (“TDR”) are individually evaluated for impairment.

WesBanco maintains an internal loan grading system to reflect the credit quality of commercial loans. Commercial loan risk grades are determined based on an evaluation of the relevant characteristics of each loan, assigned at the inception of each loan and adjusted thereafter at any time to reflect changes in the risk profile throughout the life of each loan. The primary factors used to determine the risk grade are the reliability and sustainability of the primary source of repayment and overall financial strength of the borrower. This includes an analysis of cash flow available to repay debt, profitability, liquidity, leverage, and overall financial trends. Other factors include management, industry or property type risks, an assessment of secondary sources of repayment such as collateral or guarantees, other terms and conditions of the loan that may increase or reduce its risk, and economic conditions and other external factors that may influence repayment capacity and financial condition.

Commercial real estate — land and construction consists of loans to finance investments in vacant land, land development, construction of residential housing, and construction of commercial buildings. Commercial real estate – improved property consists of loans for the purchase or refinance of all types of improved owner-occupied and investment properties. Factors that are considered in assigning the risk grade vary depending on the type of property financed. The risk grade assigned to construction and development loans is based on the overall viability of the project, the experience and financial capacity of the developer or builder to successfully complete the project, project specific and market absorption rates and comparable property values, and the amount of pre-sales for residential housing construction or pre-leases for commercial investment property. The risk grade assigned to commercial investment property loans is based primarily on the adequacy of net rental income generated by the property to service the debt, the type, quality, industry and mix of tenants, and the terms of leases, but also considers the overall financial capacity of the investors and their experience in owning and managing investment property. The risk grade assigned to owner-occupied commercial real estate and commercial and industrial loans is based primarily on historical and projected earnings, the adequacy of operating cash flow to service all of the business’ debt, and the capital resources, liquidity and leverage of the business, but also considers the industry in which the business operates, the business’ specific competitive advantages or disadvantages, the quality and experience of management, and external influences on the business such as economic conditions. Other factors that are considered for commercial and industrial loans include the type, quality and marketability of non-real estate collateral and whether the structure of the loan increases or reduces its risk. The type, age, condition, location and any environmental risks associated with a property are also considered for all types of commercial real estate. The overall financial condition and repayment capacity of any guarantors is also evaluated to determine the extent to which they mitigate other risks of the loan. The following descriptions of risk grades apply to commercial real estate and commercial and industrial loans.

Excellent or minimal risk loans are fully secured by liquid or readily marketable collateral and therefore have virtually no risk of loss. Good or desirable risk loans are extended in the normal course of business to creditworthy borrowers that exhibit a history of positive financial results that are at least comparable to the average for their industry or type of real estate. These loans are expected to perform satisfactorily during most economic cycles and there are no significant external factors that are expected to adversely affect these borrowers more than others in the same industry. Any minor unfavorable characteristics of these loans are outweighed or mitigated by strong positive factors including but not limited to adequate secondary sources of repayment or guarantees.

Fair or acceptable risk loans have a somewhat higher credit risk profile due to specific weaknesses or uncertainties that could adversely impact repayment capacity. Loans in this category generally warrant additional attention or monitoring, or a more rigid loan structure. These loans represent the maximum level of risk accepted in the normal course of lending. Specific issues that may warrant this grade include financial results that are less favorable than the average for the borrower’s industry or type of real estate, cyclical financial results, loans based on projections that have a reasonable probability of being achieved, start-up businesses, construction projects, and other external factors that indicate a higher level of credit risk. Loans that are underwritten primarily on the basis of the repayment capacity or financial condition of guarantors may also be assigned this grade.

Criticized or marginal loans are currently protected but have weaknesses, which if not corrected, may inadequately protect WesBanco Bank, Inc. (the “Bank”) at some future date. These loans represent an unwarranted credit risk and would generally not be extended in the normal course of lending. Specific issues which may warrant this grade include declining financial results, increased reliance on secondary sources of repayment or guarantor support and adverse external influences that may negatively impact the business or property.

Substandard and doubtful loans are equivalent to the classifications used by banking regulators. Substandard loans are inadequately protected by the current repayment capacity and equity of the borrower or collateral pledged, if any. Substandard loans have one or more well-defined weaknesses that jeopardize their repayment or collection in full. These loans may or may not be reported as non-accrual. Doubtful loans have all the weaknesses inherent to a substandard loan with the added characteristic that full repayment is highly questionable or improbable on the basis of currently existing facts, conditions and collateral values. However, recognition of loss may be deferred if there are reasonably specific pending factors that will reduce the risk if they occur.

The following tables summarize commercial loans by their assigned risk grade:

	Commercial Loans by Internally Assigned Risk Grade
(unaudited, in thousands)	Commercial Real Estate- Land and Construction		Commercial Real Estate- Improved Property		Commercial & Industrial		Total Commercial Loans
As of June 30, 2012
Excellent – minimal risk	$	443	$	382	$	52,847	$	53,672
Good – desirable risk		23,600		631,539		166,524		821,663
Fair – acceptable risk		105,245		740,431		171,433		1,017,109
Criticized – marginal		16,530		89,427		16,897		122,854
Classified – substandard		12,595		74,853		12,988		100,436
Classified – doubtful		—		—		—		—
Total	$	158,413	$	1,536,632	$	420,689	$	2,115,734
As of December 31, 2011
Excellent – minimal risk	$	625	$	448	$	51,923	$	52,996
Good – desirable risk		40,278		593,563		185,745		819,586
Fair – acceptable risk		97,077		727,594		156,459		981,130
Criticized – marginal		19,701		107,433		14,061		141,195
Classified – substandard		18,186		80,660		18,127		116,973
Classified – doubtful		—		—		—		—
Total	$	175,867	$	1,509,698	$	426,315	$	2,111,880

Residential real estate, home equity and consumer loans are not assigned internal risk grades other than as required by regulatory guidelines that are based primarily on the age of past due loans. WesBanco primarily evaluates the credit quality of residential real estate, home equity and consumer loans based on repayment performance and historical loss rates. The aggregate amount of residential real estate, home equity and consumer loans classified as substandard in accordance with regulatory guidelines were $13.8 million at June 30, 2012 and $18.2 million at December 31, 2011, of which $2.9 and $4.2 million were accruing, for each period, respectively.

The following table summarizes the age analysis of all categories of loans.

	Age Analysis of Loans
(unaudited, in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Total Loans		90 Days or More Past Due and Accruing (1)
As of June 30, 2012
Commercial real estate:
Land and construction	$	152,694	$	15	$	353	$	5,351	$	5,719	$	158,413	$	416
Improved property		1,520,114		2,462		1,734		12,322		16,518		1,536,632		98
Total commercial real estate		1,672,808		2,477		2,087		17,673		22,237		1,695,045		514
Commercial and industrial		415,707		630		884		3,468		4,982		420,689		177
Residential real estate		646,326		4,749		1,656		9,825		16,230		662,556		1,752
Home equity		247,634		1,430		304		1,620		3,354		250,988		902
Consumer		242,002		3,410		702		438		4,550		246,552		294
Total portfolio loans		3,224,477		12,696		5,633		33,024		51,353		3,275,830		3,639
Loans held for sale		7,305		—		—		—		—		7,305		—
Total loans	$	3,231,782	$	12,696	$	5,633	$	33,024	$	51,353	$	3,283,135	$	3,639
Non-performing loans included above are as follows:
Non-accrual loans	$	8,698	$	837	$	1,169	$	29,248	$	31,254	$	39,952
TDRs accruing interest (1)		26,822		884		322		137		1,343		28,165
As of December 31, 2011
Commercial real estate:
Land and construction	$	166,322	$	1,391	$	127	$	8,027	$	9,545	$	175,867	$	—
Improved property		1,486,001		4,485		3,446		15,766		23,697		1,509,698		18
Total commercial real estate		1,652,323		5,876		3,573		23,793		33,242		1,685,565		18
Commercial and industrial		417,341		1,624		333		7,017		8,974		426,315		939
Residential real estate		601,541		5,742		1,186		12,914		19,842		621,383		2,881
Home equity		247,771		1,843		447		1,724		4,014		251,785		498
Consumer		247,736		4,469		1,030		1,085		6,584		254,320		799
Total portfolio loans		3,166,712		19,554		6,569		46,533		72,656		3,239,368		5,135
Loans held for sale		6,084		—		—		—		—		6,084		—
Total loans	$	3,172,796	$	19,554	$	6,569	$	46,533	$	72,656	$	3,245,452	$	5,135
Non-performing loans included above are as follows:
Non-accrual loans	$	12,377	$	1,629	$	2,818	$	40,668	$	45,115	$	57,492
TDRs accruing interest (1)		26,893		1,434		354		730		2,518		29,411

(1) Loans 90 days or more past due and accruing interest exclude TDRs.

Impaired Loans — A loan is considered impaired, based on current information and events, if it is probable that WesBanco will be unable to collect the payments of principal and interest when due according to the contractual terms of the loan agreement. Impaired loans generally included all non-accrual loans and TDRs.

Loans are generally placed on non-accrual status when they become past due 90 days or more unless they are both well-secured and in the process of collection. Loans may also be placed on non-accrual when full collection of principal is in doubt even if payments on such loans remain current or remain on non-accrual if they were 90 days or more past due but subsequently brought current and maintained current for at least six consecutive months.

Loans are categorized as TDRs when the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider.

The following tables summarize impaired loans:

	Impaired Loans
	June 30, 2012						December 31, 2011
(unaudited, in thousands)	Unpaid Principal Balance (1)		Recorded Investment		Related Allowance		Unpaid Principal Balance (1)		Recorded Investment		Related Allowance
With no related allowance recorded:
Commercial real estate:
Land and construction	$	10,993	$	9,266	$	—	$	19,733	$	14,731	$	—
Improved property		31,544		27,915		—		38,629		34,352		—
Commercial and industrial		7,940		6,143		—		11,536		9,078		—
Residential real estate		15,128		13,807		—		18,038		16,221		—
Home equity		1,012		908		—		1,465		1,331		—
Consumer		199		175		—		344		289		—
Total impaired loans without a related allowance		66,816		58,214		—		89,745		76,002		—
With an allowance recorded:
Commercial real estate:
Land and construction		8,574		2,795		1,675		2,813		2,813		1,788
Improved property		7,108		7,108		1,907		8,388		8,088		1,565
Total impaired loans with an allowance		15,682		9,903		3,582		11,201		10,901		3,353
Total impaired loans	$	82,498	$	68,117	$	3,582	$	100,946	$	86,903	$	3,353

(1) The difference between the unpaid principal balance and the recorded investment generally reflects amounts that have been previously charged-off.

	Impaired Loans
	For the Three Months Ended								For the Six Months Ended
	June 30, 2012				June 30, 2011				June 30, 2012				June 30, 2011
(unaudited, in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate:
Land and construction	$	9,249	$	80	$	12,307	$	39	$	11,076	$	172	$	10,553	$	117
Improved Property		30,151		162		34,308		179		31,551		282		33,396		328
Commercial and industrial		6,860		41		8,942		88		7,599		59		8,630		97
Residential real estate		14,946		60		14,211		29		15,371		134		14,184		69
Home equity		988		—		1,134		—		1,102		2		1,007		—
Consumer		217		1		209		2		241		1		240		2
Total impaired loans without a related allowance		62,411		344		71,111		337		66,940		650		68,010		613
With an allowance recorded:
Commercial real estate:
Land and construction		4,188		—		2,993		70		3,730		—		4,698		82
Improved Property		7,948		71		21,402		245		7,995		180		23,375		453
Commercial and industrial		—		—		1,840		—		—		—		1,227		—
Total impaired loans with an allowance		12,136		71		26,235		315		11,725		180		29,300		535
Total impaired loans	$	74,547	$	415	$	97,346	$	652	$	78,665	$	830	$	97,310	$	1,148

The following tables present the recorded investment in non-accrual loans and TDRs:

	Non-accrual Loans (1)
(unaudited, in thousands)	June 30, 2012		December 31, 2011
Commercial real estate:
Land and construction	$	5,158	$	10,135
Improved Property		18,643		25,122
Total commercial real estate		23,801		35,257
Commercial and industrial		5,302		8,238
Residential real estate		9,766		12,377
Home equity		908		1,331
Consumer		175		289
Total	$	39,952	$	57,492

(1) Total non-accrual loans include loans that are also restructured. Such loans are also set forth in the following table as non-accrual TDRs.

	TDRs
	June 30, 2012						December 31, 2011
(unaudited, in thousands)	Accruing		Non-Accrual		Total		Accruing		Non-accrual		Total
Commercial real estate:
Land and construction	$	6,903	$	2,689	$	9,592	$	7,410	$	5,662	$	13,072
Improved Property		16,380		6,871		23,251		17,318		8,398		25,716
Total commercial real estate		23,283		9,560		32,843		24,728		14,060		38,788
Commercial and industrial		841		573		1,414		839		2,514		3,353
Residential real estate		4,041		1,026		5,067		3,844		713		4,557
Home equity		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total	$	28,165	$	11,159	$	39,324	$	29,411	$	17,287	$	46,698

As of June 30, 2012, there were ten TDRs greater than $1.0 million representing $18.7 million or 47.7% of total TDRs composed of three commercial real estate land and construction loans and seven commercial real estate improved property loans, with specific reserves of $2.9 million. The concessions granted for the majority of the ten largest TDRs primarily consist of extensions of maturity, reverting from payment of principal and interest to interest only for up to one year, or a reduction in the amount of the principal and interest payment by lengthening the amortization period by not more than five years.

The following table presents details related to loans identified as TDRs during the three and six months ended June 30, 2012:

	New TDRs (1)
	For the Three Months Ended June 30, 2012						For the Six Months Ended June 30, 2012
(unaudited, dollars in thousands)	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial real estate:
Land and construction		2	$	756	$	756		2	$	756	$	756
Improved Property		2		364		363		8		1,268		1,266
Total commercial real estate		4		1,120		1,119		10		2,024		2,022
Commercial and industrial		2		39		38		2		40		38
Residential real estate		2		166		176		6		560		578
Home equity		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total		8	$	1,325	$	1,333		18	$	2,624	$	2,638

(1) Excludes loans that were either paid off or charged-off by period end. The pre-modification balance represents the balance outstanding at the beginning of the period. The post-modification balance represents the outstanding balance at period end.

The following table summarizes TDRs which defaulted (defined as past due 90 days or more) during the three and six months ended June 30, 2012 that were restructured within the last twelve months prior to June 30, 2012:

	Defaulted TDRs (1)
	For the Three Months Ended June 30, 2012				For the Six Months  Ended June 30, 2012
(unaudited, dollars in thousands)	Number of Defaults		Recorded Investment		Number of Defaults		Recorded Investment
Commercial real estate:
Land and construction		—	$	—		—	$	—
Improved property		3		362		9		2,085
Total commercial real estate		3		362		9		2,085
Commercial and industrial		1		166		1		166
Residential real estate		—		—		—		—
Home equity		—		—		—		—
Consumer		—		—		—		—
Total		4	$	528		10	$	2,251

(1) Excludes loans that were either charged-off or cured by period end. The recorded investment is as of June 30, 2012.

TDRs that defaulted during the six month period and that were restructured within the last twelve months represented 5.7% of the balance at June 30, 2012. Generally these loans are placed on non-accrual status unless they are both well-secured and in the process of collection. At June 30, 2012, none of the loans in the table above were accruing interest.

The following table summarizes other real estate owned and repossessed assets included in other assets:

(unaudited, in thousands)	June 30, 2012		December 31, 2011
Other real estate owned	$	3,686	$	2,786
Repossessed assets		232		243
Total other real estate owned and repossessed assets	$	3,918	$	3,029