Loans and the Allowance for Credit Losses

3 Months Ended

Mar. 31, 2013

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 following table presents the recorded investment in loans by category net of deferred loan fees and costs of $2.4 million and $2.5 million at March 31, 2013 and December 31, 2012, respectively:

(unaudited, in thousands)	March 31, 2013		December 31, 2012
Commercial real estate:
Land and construction	$	184,802	$	193,004
Improved property		1,646,952		1,665,341
Total commercial real estate		1,831,754		1,858,345
Commercial and industrial		495,748		478,025
Residential real estate		808,528		793,702
Home equity		278,812		277,226
Consumer		268,959		280,464
Total portfolio loans		3,683,801		3,687,762
Loans held for sale		14,299		21,903
Total loans	$	3,698,100	$	3,709,665

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 Three Months Ended March 31, 2013 and 2012
(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, 2012:
Allowance for loan losses	$	3,741		$	23,614		$	9,326		$	7,182		$	2,458		$	5,557		$	821		$	52,699
Allowance for loan commitments		27			25			215			6			49			19			—			341
Total beginning allowance for credit losses		3,768			23,639			9,541			7,188			2,507			5,576			821			53,040
Provision for credit losses:
Provision for loan losses		252			342			606			285			188			464			(140	)		1,997
Provision for loan commitments		5			—			89			3			8			—			—			105
Total provision for credit losses		257			342			695			288			196			464			(140	)		2,102
Charge-offs		(51	)		(995	)		(650	)		(553	)		(176	)		(1,129	)		(190	)		(3,744	)
Recoveries		3			228			107			38			5			269			62			712
Net charge-offs		(48	)		(767	)		(543	)		(515	)		(171	)		(860	)		(128	)		(3,032	)
Balance at March 31, 2013:
Allowance for loan losses		3,945			23,189			9,389			6,952			2,475			5,161			553			51,664
Allowance for loan commitments		32			25			304			9			57			19			—			446
Total ending allowance for credit losses	$	3,977		$	23,214		$	9,693		$	6,961		$	2,532		$	5,180		$	553		$	52,110
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		1,670			1,948			386			835			641			893			(171	)		6,202
Provision for loan commitments		(21	)		(15	)		23			—			11			2			—			—
Total provision for credit losses		1,649			1,933			409			835			652			895			(171	)		6,202
Charge-offs		(2,117	)		(1,885	)		(761	)		(851	)		(335	)		(1,115	)		(180	)		(7,244	)
Recoveries		36			88			92			87			4			226			94			627
Net charge-offs		(2,081	)		(1,797	)		(669	)		(764	)		(331	)		(889	)		(86	)		(6,617	)
Balance at March 31, 2012:
Allowance for loan losses		4,431			24,899			11,131			5,709			2,272			5,414			539			54,395
Allowance for loan commitments		53			6			346			4			44			15			—			468
Total ending allowance for credit losses	$	4,484		$	24,905		$	11,477		$	5,713		$	2,316		$	5,429		$	539		$	54,863

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
March 31, 2013
Allowance for credit losses:
Allowance for loans individually evaluated for impairment	$	850	$	394	$	—	$	—	$	—	$	—	$	—	$	1,244
Allowance for loans collectively evaluated for impairment		3,095		22,795		9,389		6,952		2,475		5,161		553		50,420
Allowance for loans acquired with deteriorated credit quality		—		—		—		—		—		—		—		—
Allowance for loan commitments		32		25		304		9		57		19		—		446
Total allowance for credit losses	$	3,977	$	23,214	$	9,693	$	6,961	$	2,532	$	5,180	$	553	$	52,110
Portfolio loans:
Individually evaluated for impairment (1)	$	2,036	$	4,491	$	—	$	—	$	—	$	—	$	—	$	6,527
Collectively evaluated for impairment		182,268		1,642,421		495,304		806,310		278,721		268,458		—		3,673,482
Loans acquired with deteriorated credit quality		498		40		444		2,218		91		501		—		3,792
Total portfolio loans	$	184,802	$	1,646,952	$	495,748	$	808,528	$	278,812	$	268,959	$	—	$	3,683,801
December 31, 2012
Allowance for credit losses:
Allowance for loans individually evaluated for impairment	$	832	$	911	$	—	$	—	$	—	$	—	$	—	$	1,743
Allowance for loans collectively evaluated for impairment		2,909		22,703		9,326		7,182		2,458		5,557		821		50,956
Allowance for loans acquired with deteriorated credit quality		—		—		—		—		—		—		—		—
Allowance for loan commitments		27		25		215		6		49		19		—		341
Total allowance for credit losses	$	3,768	$	23,639	$	9,541	$	7,188	$	2,507	$	5,576	$	821	$	53,040
Portfolio loans:
Individually evaluated for impairment (1)	$	2,545	$	6,987	$	—	$	—	$	—	$	—	$	—	$	9,532
Collectively evaluated for impairment		189,839		1,658,306		477,594		791,475		277,126		279,980		—		3,674,320
Loans acquired with deteriorated credit quality		620		48		431		2,227		100		484				3,910
Total portfolio loans	$	193,004	$	1,665,341	$	478,025	$	793,702	$	277,226	$	280,464	$	—	$	3,687,762

⁽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:

	Commerical 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 March 31, 2013
Excellent - minimal risk	$	—	$	771	$	66,402	$	67,173
Good - desirable risk		31,402		676,809		151,710		859,921
Fair - acceptable risk		135,898		837,327		259,049		1,232,274
Criticized - marginal		9,357		65,968		8,821		84,146
Classified - substandard		8,145		66,077		9,766		83,988
Classified - doubtful		—		—		—		—
Total	$	184,802	$	1,646,952	$	495,748	$	2,327,502
As of December 31, 2012
Excellent - minimal risk	$	—	$	789	$	64,255	$	65,044
Good - desirable risk		38,292		701,447		152,853		892,592
Fair - acceptable risk		136,643		826,790		242,564		1,205,997
Criticized - marginal		10,573		66,906		9,298		86,777
Classified - substandard		7,496		69,409		9,055		85,960
Classified - doubtful		—		—		—		—
Total	$	193,004	$	1,665,341	$	478,025	$	2,336,370

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 $15.6 million at March 31, 2013 and $17.9 million at December 31, 2012, of which $3.6 and $4.9 million were accruing, for each period, respectively. The aggregate amount of residential real estate, home equity and consumer loans classified as substandard are not included in the tables above.

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 March 31, 2013
Commercial real estate:
Land and construction	$	181,026	$	264	$	—	$	3,512	$	3,776	$	184,802	$	—
Improved property		1,627,755		2,573		4,067		12,557		19,197		1,646,952		625
Total commercial real estate		1,808,781		2,837		4,067		16,069		22,973		1,831,754		625
Commercial and industrial		492,605		864		443		1,836		3,143		495,748		86
Residential real estate		792,086		4,555		2,296		9,591		16,442		808,528		2,666
Home equity		275,812		1,652		209		1,139		3,000		278,812		482
Consumer		264,842		2,887		569		661		4,117		268,959		486
Total portfolio loans		3,634,126		12,795		7,584		29,296		49,675		3,683,801		4,345
Loans held for sale		14,299		—		—		—		—		14,299		—
Total loans	$	3,648,425	$	12,795	$	7,584	$	29,296	$	49,675	$	3,698,100	$	4,345
Non-performing loans included above are as follows:
Non-accrual loans	$	12,949	$	1,160	$	4,180	$	24,437	$	29,777	$	42,726
TDRs accruing interest (1)		19,374		487		45		514		1,046		20,420
As of December 31, 2012
Commercial real estate:
Land and construction	$	189,072	$	1,470	$	—	$	2,462	$	3,932	$	193,004	$	—
Improved property		1,643,833		5,722		2,224		13,562		21,508		1,665,341		338
Total commercial real estate		1,832,905		7,192		2,224		16,024		25,440		1,858,345		338
Commercial and industrial		475,186		283		412		2,144		2,839		478,025		98
Residential real estate		774,006		4,231		4,833		10,632		19,696		793,702		3,199
Home equity		274,235		1,352		197		1,442		2,991		277,226		722
Consumer		273,329		4,655		1,123		1,357		7,135		280,464		937
Total portfolio loans		3,629,661		17,713		8,789		31,599		58,101		3,687,762		5,294
Loans held for sale		21,903		—		—		—		—		21,903		—
Total loans	$	3,651,564	$	17,713	$	8,789	$	31,599	$	58,101	$	3,709,665	$	5,294
Non-performing loans included above are as follows:
Non-accrual loans	$	11,724	$	591	$	1,747	$	25,310	$	27,648	$	39,372
TDRs accruing interest (1)		21,665		794		827		995		2,616		24,281

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

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, including loans acquired with deteriorated credit quality.

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 may remain on non-accrual if they are 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.

Acquired loans that have experienced a deterioration of credit quality from origination to acquisition for which it is probable that WesBanco will be unable to collect all contractually required payments receivable, including both principal and interest, are considered impaired.

WesBanco acquired impaired loans with a book value of $16.6 million in the Fidelity Bancorp, Inc. (“Fidelity”) acquisition. These loans were recorded at their fair value of $11.2 million. Acquired impaired loans with a fair value of $7.3 million were sold in December 2012. The balance of these loans at March 31, 2013 was $3.8 million, of which $1.8 million were non-accrual and $2.0 million were accruing TDRs. The accretion that is expected to be recognized into future earnings upon these impaired loans totaled $0.6 million at March 31, 2013.

The following tables summarize impaired loans:

	Impaired Loans
	March 31, 2013						December 31, 2012
(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	$	9,653	$	6,257	$	—	$	9,278	$	5,577	$	—
Improved property		26,406		23,875		—		27,515		24,455		—
Commercial and industrial		4,839		4,231		—		4,546		4,019		—
Residential real estate		22,210		20,245		—		22,146		20,269		—
Home equity		2,225		2,040		—		2,437		2,207		—
Consumer		1,731		1,462		—		1,757		1,517		—
Total impaired loans without a related allowance		67,064		58,110		—		67,679		58,044		—
With an allowance recorded:
Commercial real estate:
Land and construction		1,544		1,544		850		1,627		1,627		832
Improved property		3,492		3,492		394		4,098		3,982		911
Total impaired loans with an allowance		5,036		5,036		1,244		5,725		5,609		1,743
Total impaired loans	$	72,100	$	63,146	$	1,244	$	73,404	$	63,653	$	1,743

⁽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 March 31, 2013				For the Three Months Ended March 31, 2012
(unaudited, in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate:
Land and construction	$	5,917	$	60	$	11,981	$	92
Improved Property		24,165		131		33,370		120
Commercial and industrial		4,125		33		8,327		18
Residential real estate		20,257		194		16,153		74
Home equity		2,124		15		1,200		2
Consumer		1,490		27		274		—
Total impaired loans without a related allowance		58,078		460		71,305		306
With an allowance recorded:
Commercial real estate:
Land and construction		1,586		13		4,197		—
Improved Property		3,737		15		8,438		109
Commercial and industrial		—		—		—		—
Total impaired loans with an allowance		5,323		28		12,635		109
Total impaired loans	$	63,401	$	488	$	83,940	$	415

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

	Non-accrual Loans (1)
(unaudited, in thousands)	March 31, 2013		December 31, 2012
Commercial real estate:
Land and construction	$	6,123	$	4,668
Improved Property		20,998		18,239
Total commercial real estate		27,121		22,907
Commercial and industrial		3,642		3,387
Residential real estate		10,219		11,247
Home equity		1,090		1,184
Consumer		654		647
Total	$	42,726	$	39,372

⁽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
	March 31, 2013						December 31, 2012
(unaudited, in thousands)	Accruing		Non-Accrual		Total		Accruing		Non-accrual		Total
Commercial real estate:
Land and construction	$	1,679	$	3,877	$	5,556	$	2,537	$	2,935	$	5,472
Improved Property		6,368		8,088		14,456		10,198		6,452		16,650
Total commercial real estate		8,047		11,965		20,012		12,735		9,387		22,122
Commercial and industrial		589		723		1,312		632		728		1,360
Residential real estate		10,026		3,470		13,496		9,022		4,077		13,099
Home equity		950		511		1,461		1,022		519		1,541
Consumer		808		437		1,245		870		290		1,160
Total	$	20,420	$	17,106	$	37,526	$	24,281	$	15,001	$	39,282

As of March 31, 2013, there were three TDRs greater than $1.0 million, all of which were non-accrual, representing $4.8 million or 12.9% of total TDRs, comprised of one commercial real estate land and construction loan and two commercial real estate improved property loans with specific reserves of $1.2 million. The concessions granted in the majority of loans reported as accruing and non-accrual TDRs are extensions of the maturity date or the amortization period, reductions in the interest rate below the prevailing market rate for loans with comparable characteristics, and/or permitting interest-only payments for longer than three months.

The following table presents details related to loans identified as TDRs during the three months ended March 31, 2013 and March 31, 2012, respectively:

	New TDRs (1) For the Three Months Ended March 31, 2013						New TDRs (1) For the Three Months Ended March 31, 2012
(unaudited, dollars in thousands)	Number of Modifications		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Modifications		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial real estate:
Land and construction		1	$	299	$	299		—	$	—	$	—
Improved Property		5		891		721		6		903		909
Total commercial real estate		6		1,190		1,020		6		903		909
Commercial and industrial		6		165		165		—		—		—
Residential real estate		7		1,193		1,155		4		395		403
Home equity		1		2		2		—		—		—
Consumer		6		55		46		—		—		—
Total		26	$	2,605	$	2,388		10	$	1,298	$	1,312

⁽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 months ended March 31, 2013 and 2012 that were restructured within the last twelve months prior to March 31, 2013 and 2012:

	Defaulted TDRs (1) For the Three Months Ended March 31, 2013				Defaulted TDRs (1) For the Three Months Ended March 31, 2012
(unaudited, dollars in thousands)	Number  of Defaults		Recorded Investment		Number  of Defaults		Recorded Investment
Commercial real estate:
Land and construction		—	$	—		1	$	139
Improved property		2		645		10		2,627
Total commercial real estate		2		645		11		2,766
Commercial and industrial		4		410		3		488
Residential real estate		19		1,644		—		—
Home equity		8		191		—		—
Consumer		2		32		—		—
Total		35	$	2,922		14	$	3,254

⁽¹⁾  Excludes loans that were either charged-off or cured by period end. The recorded investment is as of March 31, 2013 and 2012.

TDRs that defaulted during the three month period and that were restructured within the last twelve months represented 7.8% of the total TDR balance at March 31, 2013. These loans are placed on non-accrual status unless they are both well-secured and in the process of collection. The majority of new TDRs and defaults in the tables above for the three months ended March 31, 2013 relate to the implementation of a regulatory requirement in late 2012 which placed $9.4 million of loans discharged in bankruptcy into the TDR category. At March 31, 2013, only one loan in the table above was accruing interest.

WesBanco had unfunded commitments to debtors whose loans were classified as TDRs of $21 thousand and $49 thousand at March 31, 2013 and December 31, 2012, respectively.

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

(unaudited, in thousands)	March  31, 2013		December  31, 2012
Other real estate owned	$	4,928	$	5,741
Repossessed assets		219		247
Total other real estate owned and repossessed assets	$	5,147	$	5,988