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 $2.8 million and $2.7 million at June 30, 2014 and December 31, 2013, respectively.


	June 30,		December 31,
*(unaudited, in thousands)*	2014		2013
Commercial real estate:
Land and construction	$	255,499	$	263,117
Improved property		1,685,373		1,649,802

Total commercial real estate		1,940,872		1,912,919

Commercial and industrial		578,665		556,249
Residential real estate		898,357		890,804
Home equity		295,127		284,687
Consumer		233,097		250,258

Total portfolio loans		3,946,118		3,894,917

Loans held for sale		10,641		5,855

Total loans	$	3,956,759	$	3,900,772

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, 2014 and 2013
*(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, 2013:
Allowance for loan losses	$	6,056		$	18,157		$	9,925		$	5,673		$	2,017		$	5,020		$	520		$	47,368
Allowance for loan commitments		301			62			130			5			85			19			—			602

Total beginning allowance for credit losses		6,357			18,219			10,055			5,678			2,102			5,039			520			47,970

Provision for credit losses:
Provision for loan losses		(405	)		(511	)		1,870			575			392			642			551			3,114
Provision for loan commitments		(20	)		(52	)		1			—			5			—			—			(66	)

Total provision for credit losses		(425	)		(563	)		1,871			575			397			642			551			3,048

Charge-offs		—			(728	)		(2,384	)		(1,207	)		(348	)		(1,610	)		(362	)		(6,639	)
Recoveries		—			390			543			248			71			512			134			1,898

Net charge-offs		—			(338	)		(1,841	)		(959	)		(277	)		(1,098	)		(228	)		(4,741	)

Balance at June 30, 2014:
Allowance for loan losses		5,651			17,308			9,954			5,289			2,132			4,564			843			45,741
Allowance for loan commitments		281			10			131			5			90			19			—			536

Total ending allowance for credit losses	$	5,932		$	17,318		$	10,085		$	5,294		$	2,222		$	4,583		$	843		$	46,277


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		559			1,855			(208	)		87			(32	)		836			50			3,147
Provision for loan commitments		11			(2	)		(77	)		—			44			—			—			(24	)

Total provision for credit losses		570			1,853			(285	)		87			12			836			50			3,123

Charge-offs		(373	)		(1,395	)		(919	)		(1,573	)		(346	)		(2,043	)		(414	)		(7,063	)
Recoveries		10			420			273			113			43			607			132			1,598

Net charge-offs		(363	)		(975	)		(646	)		(1,460	)		(303	)		(1,436	)		(282	)		(5,465	)


Balance at June 30, 2013:
Allowance for loan losses		3,937			24,494			8,472			5,809			2,123			4,957			589			50,381
Allowance for loan commitments		38			23			138			6			93			19			—			317

Total ending allowance for credit losses	$	3,975		$	24,517		$	8,610		$	5,815		$	2,216		$	4,976		$	589		$	50,698

The following tables present the allowance for credit losses and recorded investment 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, 2014
Allowance for credit losses:
Allowance for loans individually evaluated for impairment	$	—	$	39	$	1,029	$	—	$	—	$	—	$	—	$	1,068
Allowance for loans collectively evaluated for impairment		5,651		17,269		8,925		5,289		2,132		4,564		843		44,673
Allowance for loan commitments		281		10		131		5		90		19		—		536

Total allowance for credit losses	$	5,932	$	17,318	$	10,085	$	5,294	$	2,222	$	4,583	$	843	$	46,277


Portfolio loans:
Individually evaluated for impairment ⁽¹⁾	$	—	$	4,264	$	3,084	$	—	$	—	$	—	$	—	$	7,348
Collectively evaluated for impairment		255,499		1,681,109		575,581		898,357		295,127		233,097		—		3,938,770

Total portfolio loans	$	255,499	$	1,685,373	$	578,665	$	898,357	$	295,127	$	233,097	$	—	$	3,946,118


December 31, 2013
Allowance for credit losses:
Allowance for loans individually evaluated for impairment	$	—	$	51	$	681	$	—	$	—	$	—	$	—	$	732
Allowance for loans collectively evaluated for impairment		6,056		18,106		9,244		5,673		2,017		5,020		520		46,636
Allowance for loan commitments		301		62		130		5		85		19		—		602

Total allowance for credit losses	$	6,357	$	18,219	$	10,055	$	5,678	$	2,102	$	5,039	$	520	$	47,970


Portfolio loans:
Individually evaluated for impairment ⁽¹⁾	$	—	$	4,321	$	1,754	$	—	$	—	$	—	$	—	$	6,075
Collectively evaluated for impairment		263,117		1,645,481		554,495		890,804		284,687		250,258		—		3,888,842

Total portfolio loans	$	263,117	$	1,649,802	$	556,249	$	890,804	$	284,687	$	250,258	$	—	$	3,894,917

⁽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 June 30, 2014
Excellent - minimal risk	$	—	$	352	$	72,161	$	72,513
Good - desirable risk		23,884		707,407		201,844		933,135
Fair - acceptable risk		222,915		885,735		283,772		1,392,422
Criticized - marginal		6,282		50,934		11,491		68,707
Classified - substandard		2,418		40,945		9,397		52,760
Classified - doubtful		—		—		—		—

Total	$	255,499	$	1,685,373	$	578,665	$	2,519,537


As of December 31, 2013
Excellent - minimal risk	$	—	$	360	$	73,389	$	73,749
Good - desirable risk		39,409		710,137		197,269		946,815
Fair - acceptable risk		213,822		838,283		260,915		1,313,020
Criticized - marginal		6,498		57,983		10,768		75,249
Classified - substandard		3,388		43,039		13,908		60,335
Classified - doubtful		—		—		—		—

Total	$	263,117	$	1,649,802	$	556,249	$	2,469,168

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 $14.7 million at June 30, 2014 and $14.4 million at December 31, 2013, of which $2.7 and $2.0 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 tables summarize 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, 2014
Commercial real estate:
Land and construction	$	253,610	$	290	$	1	$	1,598	$	1,889	$	255,499	$	248
Improved property		1,669,880		456		967		14,070		15,493		1,685,373		—

Total commercial real estate		1,923,490		746		968		15,668		17,382		1,940,872		248

Commercial and industrial		574,121		1,594		229		2,721		4,544		578,665		6
Residential real estate		884,456		1,554		2,692		9,655		13,901		898,357		1,843
Home equity		291,075		2,004		666		1,382		4,052		295,127		628
Consumer		229,714		2,492		529		362		3,383		233,097		222

Total portfolio loans		3,902,856		8,390		5,084		29,788		43,262		3,946,118		2,947
Loans held for sale		10,641		—		—		—		—		10,641		—

Total loans	$	3,913,497	$	8,390	$	5,084	$	29,788	$	43,262	$	3,956,759	$	2,947


Impaired loans included above are as follows:
Non-accrual loans	$	6,636	$	1,694	$	1,060	$	26,728	$	29,482	$	36,118
TDRs accruing interest ⁽¹⁾		12,818		167		415		113		695		13,513

Total impaired	$	19,454	$	1,861	$	1,475	$	26,841	$	30,177	$	49,631


As of December 31, 2013
Commercial real estate:
Land and construction	$	261,165	$	2	$	—	$	1,950	$	1,952	$	263,117	$	248
Improved property		1,632,973		2,482		2,346		12,001		16,829		1,649,802		318

Total commercial real estate		1,894,138		2,484		2,346		13,951		18,781		1,912,919		566

Commercial and industrial		552,414		1,112		977		1,746		3,835		556,249		—
Residential real estate		875,192		1,641		4,710		9,261		15,612		890,804		1,289
Home equity		281,004		1,581		470		1,632		3,683		284,687		411
Consumer		245,876		3,223		649		510		4,382		250,258		325

Total portfolio loans		3,848,624		10,041		9,152		27,100		46,293		3,894,917		2,591
Loans held for sale		5,855		—		—		—		—		5,855		—

Total loans	$	3,854,479	$	10,041	$	9,152	$	27,100	$	46,293	$	3,900,772	$	2,591


Impaired loans included above are as follows:
Non-accrual loans	$	9,028	$	588	$	2,722	$	24,295	$	27,605	$	36,633
TDRs accruing interest ⁽¹⁾		13,595		171		881		214		1,266		14,861

Total impaired	$	22,623	$	759	$	3,603	$	24,509	$	28,871	$	51,494

⁽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.

Loans are generally placed on non-accrual when they are 90 days past due unless the loan is 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 were past due but subsequently brought current.

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, 2014						December 31, 2013
*(unaudited, in thousands)*	Unpaid Principal Balance (1)		Recorded Investment		Related Allowance		Unpaid Principal Balance (1)		Recorded Investment		Related Allowance
With no related specific allowance recorded:
Commercial real estate:
Land and construction	$	2,050	$	1,950	$	—	$	2,663	$	2,564	$	—
Improved property		19,719		18,455		—		21,421		19,628		—
Commercial and industrial		4,970		4,428		—		3,773		3,249		—
Residential real estate		20,726		18,891		—		22,006		20,090		—
Home equity		2,355		2,118		—		2,675		2,506		—
Consumer		1,317		1,103		—		1,402		1,182		—

Total impaired loans without a specific allowance		51,137		46,945		—		53,940		49,219		—

With a specific allowance recorded:
Commercial real estate:
Improved property		725		725		39		729		729		51
Commercial and industrial		1,961		1,961		1,029		1,546		1,546		681

Total impaired loans with a specific allowance		2,686		2,686		1,068		2,275		2,275		732

Total impaired loans	$	53,823	$	49,631	$	1,068	$	56,215	$	51,494	$	732

⁽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, 2014				June 30, 2013				June 30, 2014				June 30, 2013
*(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 specific allowance recorded:
Commercial real estate:
Land and construction	$	2,143	$	13	$	5,704	$	37	$	2,283	$	15	$	5,661	$	97
Improved Property		18,572		133		24,428		185		18,924		153		24,437		316
Commercial and industrial		4,122		57		3,974		28		3,831		89		3,989		61
Residential real estate		18,864		209		19,462		171		19,272		391		19,731		365
Home equity		2,173		16		2,034		15		2,284		35		2,092		30
Consumer		1,135		18		1,433		22		1,150		46		1,461		49

Total impaired loans without a specific allowance		47,009		446		57,035		458		47,744		729		57,371		918

With a specific allowance recorded:
Commercial real estate:
Land and construction		—		—		1,540		9		—		—		1,569		22
Improved Property		727		3		4,168		17		727		4		4,106		32
Commercial and industrial		2,537		29		—		—		2,206		41		—		—

Total impaired loans with a specific allowance		3,264		32		5,708		26		2,933		45		5,675		54

Total impaired loans	$	50,273	$	478	$	62,743	$	484	$	50,677	$	774	$	63,046	$	972

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


	Non-accrual Loans ⁽¹⁾
*(unaudited, in thousands)*	June 30, 2014		December 31, 2013
Commercial real estate:
Land and construction	$	1,950	$	2,564
Improved property		15,946		17,305

Total commercial real estate		17,896		19,869

Commercial and industrial		6,167		4,380
Residential real estate		10,137		10,240
Home equity		1,283		1,604
Consumer		635		540

Total	$	36,118	$	36,633

⁽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, 2014						December 31, 2013
*(unaudited, in thousands)*	Accruing		Non- Accrual		Total		Accruing		Non- Accrual		Total
Commercial real estate:
Land and construction	$	—	$	1,008	$	1,008	$	—	$	1,601	$	1,601
Improved property		3,234		1,944		5,178		3,052		3,658		6,710

Total commercial real estate		3,234		2,952		6,186		3,052		5,259		8,311

Commercial and industrial		222		403		625		415		579		994
Residential real estate		8,754		2,414		11,168		9,850		2,991		12,841
Home equity		835		217		1,052		902		289		1,191
Consumer		468		295		763		642		206		848

Total	$	13,513	$	6,281	$	19,794	$	14,861	$	9,324	$	24,185

As of June 30, 2014, there were no TDRs greater than $1.0 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 tables present details related to loans identified as TDRs during the three and six months ended June 30, 2014 and June 30, 2013, respectively:


	New TDRs ⁽¹⁾ For the Three Months Ended
	June 30, 2014						June 30, 2013
*(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		—	$	—	$	—		—	$	—	$	—
Improved Property		1		112		112		3		120		120

Total commercial real estate		1		112		112		3		120		120

Commercial and industrial		—		—		—		—		—		—
Residential real estate		2		70		70		9		673		672
Home equity		—		—		—		1		13		13
Consumer		9		100		93		3		36		35

Total		12	$	282	$	275		16	$	842	$	840

⁽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.


	New TDRs ⁽¹⁾
	For the Six Months Ended
	June 30, 2014						June 30, 2013
*(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	$	295
Improved Property		2		203		201		8		1,011		836

Total commercial real estate		2		203		201		9		1,310		1,131

Commercial and industrial		—		—		—		6		161		161
Residential real estate		5		189		185		16		1,883		1,819
Home equity		—		—		—		1		14		13
Consumer		11		138		123		8		73		67

Total		18	$	530	$	509		40	$	3,441	$	3,191

⁽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 tables summarize TDRs which defaulted (defined as past due 90 days or more) during the three and six months ended June 30, 2014 and 2013 that were restructured within the last twelve months prior to June 30, 2014 and 2013:


	Defaulted TDRs ⁽¹⁾
	For the Three Months Ended
	June 30, 2014				June 30, 2013
*(unaudited, dollars in thousands)*	Number of Defaults		Recorded Investment		Number of Defaults		Recorded Investment
Commercial real estate:
Land and construction		—	$	—		—	$	—
Improved property		—		—		—		—

Total commercial real estate		—		—		—		—

Commercial and industrial		—		—		—		—
Residential real estate		—		—		5		312
Home equity		—		—		1		21
Consumer		—		—		—		—

Total		—	$	—		6	$	333

⁽¹⁾	Excludes loans that were either charged-off or cured by period end. The recorded investment is as of June 30, 2014 and 2013.


	Defaulted TDRs ⁽¹⁾
	For the Six Months Ended
	June 30, 2014				June 30, 2013
*(unaudited, dollars in thousands)*	Number of Defaults		Recorded Investment		Number of Defaults		Recorded Investment
Commercial real estate:
Land and construction		—	$	—		—	$	—
Improved property		—		—		2		645

Total commercial real estate		—		—		2		645

Commercial and industrial		—		—		3		313
Residential real estate		4		236		19		1,634
Home equity		—		—		6		124
Consumer		—		—		1		32

Total		4	$	236		31	$	2,748

⁽¹⁾	Excludes loans that were either charged-off or cured by period end. The recorded investment is as of June 30, 2014 and 2013.

TDRs that defaulted during the six month period that were restructured within the last twelve months represented 1.2% of the total TDR balance at June 30, 2014. These loans are placed on non-accrual status unless they are both well-secured and in the process of collection. At June 30, 2014, 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, 2014		December 31, 2013
Other real estate owned	$	4,923	$	4,689
Repossessed assets		183		171

Total other real estate owned and repossessed assets	$	5,106	$	4,860