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, and discounts on purchased loans. The net deferred loan costs were $1.9 million and $1.6 million at March 31, 2018 and December 31, 2017, respectively. The unamortized discount on purchased loans from acquisitions was $20.8 million, including $10.0 million related to YCB, and $21.9 million at March 31, 2018 and December 31, 2017, respectively. (unaudited, in thousands) March 31, 2018 December 31, 2017 Commercial real estate: Land and construction $ 440,896 $ 392,597 Improved property 2,574,330 2,601,851 Total commercial real estate 3,015,226 2,994,448 Commercial and industrial 1,118,333 1,125,327 Residential real estate 1,345,993 1,353,301 Home equity 523,425 529,196 Consumer 319,561 339,169 Total portfolio loans 6,322,538 6,341,441 Loans held for sale 12,962 20,320 Total loans $ 6,335,500 $ 6,361,761 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, 2018 and 2017 Commercial Commercial Real Estate- Real Estate- Land and Improved Commercial Residential Home Deposit (unaudited, in thousands) Construction Property & Industrial Real Estate Equity Consumer Overdraft Total Balance at December 31, 2017: Allowance for loan losses $ 3,117 $ 21,166 $ 9,414 $ 3,206 $ 4,497 $ 3,063 $ 821 $ 45,284 Allowance for loan commitments 119 26 173 7 212 37 — 574 Total beginning allowance for credit losses 3,236 21,192 9,587 3,213 4,709 3,100 821 45,858 Provision for credit losses: Provision for loan losses 1,090 (895 ) 919 202 262 583 (48 ) 2,113 Provision for loan commitments 57 (5 ) 3 — (4 ) 4 — 55 Total provision for credit losses 1,147 (900 ) 922 202 258 587 (48 ) 2,168 Charge-offs — (279 ) (109 ) (287 ) (576 ) (1,125 ) (267 ) (2,643 ) Recoveries 117 287 270 131 120 546 109 1,580 Net charge-offs 117 8 161 (156 ) (456 ) (579 ) (158 ) (1,063 ) Balance at March 31, 2018: Allowance for loan losses 4,324 20,279 10,494 3,252 4,303 3,067 615 46,334 Allowance for loan commitments 176 21 176 7 208 41 — 629 Total ending allowance for credit losses $ 4,500 $ 20,300 $ 10,670 $ 3,259 $ 4,511 $ 3,108 $ 615 $ 46,963 Balance at December 31, 2016: Allowance for loan losses $ 4,348 $ 18,628 $ 8,412 $ 4,106 $ 3,422 $ 3,998 $ 760 $ 43,674 Allowance for loan commitments 151 17 188 9 162 44 — 571 Total beginning allowance for credit losses 4,499 18,645 8,600 4,115 3,584 4,042 760 44,245 Provision for credit losses: Provision for loan losses (425 ) 983 832 330 365 583 66 2,734 Provision for loan commitments (8 ) — (31 ) 1 17 (2 ) — (23 ) Total provision for credit losses (433 ) 983 801 331 382 581 66 2,711 Charge-offs — (602 ) (880 ) (404 ) (108 ) (1,287 ) (338 ) (3,619 ) Recoveries 52 251 376 78 48 369 98 1,272 Net charge-offs 52 (351 ) (504 ) (326 ) (60 ) (918 ) (240 ) (2,347 ) Balance at March 31, 2017: Allowance for loan losses 3,975 19,260 8,740 4,110 3,727 3,663 586 44,061 Allowance for loan commitments 143 17 157 10 179 42 — 548 Total ending allowance for credit losses $ 4,118 $ 19,277 $ 8,897 $ 4,120 $ 3,906 $ 3,705 $ 586 $ 44,609 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 Commercial Commercial Real Estate- Real Estate- Commercial Residential Deposit Land and Improved and Real Home Over- (unaudited, in thousands) Construction Property Industrial Estate Equity Consumer draft Total March 31, 2018 Allowance for credit losses: Allowance for loans individually evaluated for impairment $ — $ 387 $ — $ — $ — $ — $ — $ 387 Allowance for loans collectively evaluated for impairment 4,324 19,892 10,494 3,252 4,303 3,067 615 45,947 Allowance for loan commitments 176 21 176 7 208 41 — 629 Total allowance for credit losses $ 4,500 $ 20,300 $ 10,670 $ 3,259 $ 4,511 $ 3,108 $ 615 $ 46,963 Portfolio loans: Individually evaluated for impairment (1) $ — $ 2,104 $ — $ — $ — $ — $ — $ 2,104 Collectively evaluated for impairment 439,480 2,567,367 1,117,607 1,345,290 523,425 319,561 — 6,312,730 Acquired with deteriorated credit quality 1,416 4,859 726 703 — — — 7,704 Total portfolio loans $ 440,896 $ 2,574,330 $ 1,118,333 $ 1,345,993 $ 523,425 $ 319,561 $ — $ 6,322,538 December 31, 2017 Allowance for credit losses: Allowance for loans individually evaluated for impairment $ — $ 388 $ — $ — $ — $ — $ — $ 388 Allowance for loans collectively evaluated for impairment 3,117 20,778 9,414 3,206 4,497 3,063 821 44,896 Allowance for loan commitments 119 26 173 7 212 37 — 574 Total allowance for credit losses $ 3,236 $ 21,192 $ 9,587 $ 3,213 $ 4,709 $ 3,100 $ 821 $ 45,858 Portfolio loans: Individually evaluated for impairment (1) $ — $ 3,344 $ — $ — $ — $ — $ — $ 3,344 Collectively evaluated for impairment 391,140 2,593,393 1,124,544 1,352,587 529,196 339,163 — 6,330,023 Acquired with deteriorated credit quality 1,457 5,114 783 714 — 6 — 8,074 Total portfolio loans $ 392,597 $ 2,601,851 $ 1,125,327 $ 1,353,301 $ 529,196 $ 339,169 $ — $ 6,341,441 (1) Commercial loans greater than $1 million that are reported as non-accrual 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 pre-leases Commercial and industrial loans consist of revolving lines of credit to finance accounts receivable, inventory and other general business purposes; term loans to finance fixed assets other than real estate, and letters of credit to support trade, insurance or governmental requirements for a variety of businesses. Most C&I borrowers are privately-held companies with annual sales up to $100 million. Factors that are considered for commercial and industrial loans include the type, quality and marketability of non-real Pass loans are those that exhibit a history of positive financial results that are at least comparable to the average for their industry or type of real estate. The primary source of repayment is acceptable and these loans are expected to perform satisfactorily during most economic cycles. Pass loans typically have no significant external factors that are expected to adversely affect these borrowers more than others in the same industry or property type. Any minor unfavorable characteristics of these loans are outweighed or mitigated by other positive factors including but not limited to adequate secondary or tertiary sources of repayment. Criticized or compromised loans are currently protected but have weaknesses, which, if not corrected, may be inadequately protected 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. The following tables summarize commercial loans by their assigned risk grade: Commerical Loans by Internally Assigned Risk Grade (unaudited, in thousands) Commercial Commercial Commercial Total As of March 31, 2018 Pass $ 434,665 $ 2,526,334 $ 1,104,209 $ 4,065,208 Criticized - compromised 3,384 24,807 5,594 33,785 Classified - substandard 2,847 23,189 8,530 34,566 Classified - doubtful — — — — Total $ 440,896 $ 2,574,330 $ 1,118,333 $ 4,133,559 As of December 31, 2017 Pass $ 386,753 $ 2,548,805 $ 1,110,267 $ 4,045,825 Criticized - compromised 2,984 25,673 7,435 36,092 Classified - substandard 2,860 27,373 7,625 37,858 Classified - doubtful — — — — Total $ 392,597 $ 2,601,851 $ 1,125,327 $ 4,119,775 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 was $19.4 million at March 31, 2018 and $22.8 million at December 31, 2017, of which $1.0 and $2.5 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. Acquired YCB Loans 310-30 non-accrual. Acquired ESB Loans 310-30 non-accrual. The following table provides changes in accretable yield for loans acquired with deteriorated credit quality: For the Three Months Ended (unaudited, in thousands) March 31, March 31, Balance at beginning of period $ 1,724 $ 1,717 Acquisitions — — Reduction due to change in projected cash flows (86 ) (200 ) Reclass from non-accretable difference 2,841 174 Transfers out — — Accretion (268 ) (151 ) Balance at end of period $ 4,211 $ 1,540 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 March 31, 2018 Commercial real estate: Land and construction $ 439,926 $ — $ — $ 970 $ 970 $ 440,896 $ 172 Improved property 2,559,491 4,431 528 9,880 14,839 2,574,330 364 Total commercial real estate 2,999,417 4,431 528 10,850 15,809 3,015,226 536 Commercial and industrial 1,115,453 667 201 2,012 2,880 1,118,333 21 Residential real estate 1,333,175 3,860 1,618 7,340 12,818 1,345,993 561 Home equity 517,172 2,654 682 2,917 6,253 523,425 251 Consumer 316,517 1,950 432 662 3,044 319,561 210 Total portfolio loans 6,281,734 13,562 3,461 23,781 40,804 6,322,538 1,579 Loans held for sale 12,962 — — — — 12,962 — Total loans $ 6,294,696 $ 13,562 $ 3,461 $ 23,781 $ 40,804 $ 6,335,500 $ 1,579 Impaired loans included above are as follows: Non-accrual $ 8,120 $ 1,310 $ 754 $ 22,202 $ 24,266 $ 32,386 TDRs accruing interest (1) 6,435 230 193 — 423 6,858 Total impaired $ 14,555 $ 1,540 $ 947 $ 22,202 $ 24,689 $ 39,244 As of December 31, 2017 Commercial real estate: Land and construction $ 392,189 $ — $ 172 $ 236 $ 408 $ 392,597 $ — Improved property 2,589,704 374 1,200 10,573 12,147 2,601,851 243 Total commercial real estate 2,981,893 374 1,372 10,809 12,555 2,994,448 243 Commercial and industrial 1,121,957 572 196 2,602 3,370 1,125,327 20 Residential real estate 1,338,240 4,487 2,376 8,198 15,061 1,353,301 1,113 Home equity 522,584 2,135 683 3,794 6,612 529,196 742 Consumer 334,723 2,466 842 1,138 4,446 339,169 608 Total portfolio loans 6,299,397 10,034 5,469 26,541 42,044 6,341,441 2,726 Loans held for sale 20,320 — — — — 20,320 — Total loans $ 6,319,717 $ 10,034 $ 5,469 $ 26,541 $ 42,044 $ 6,361,761 $ 2,726 Impaired loans included above are as follows: Non-accrual $ 9,195 $ 1,782 $ 2,033 $ 23,815 $ 27,630 $ 36,825 TDRs accruing interest (1) 6,055 348 168 — 516 6,571 Total impaired $ 15,250 $ 2,130 $ 2,201 $ 23,815 $ 28,146 $ 43,396 (1) Loans 90 days or more past due and accruing interest exclude TDRs 90 days or more past due and accruing interest. The following tables summarize impaired loans: Impaired Loans March 31, 2018 December 31, 2017 Unpaid Principal Balance (1) Recorded Investment Related Allowance Unpaid Principal Balance (1) Recorded Investment Related Allowance (unaudited, in thousands) With no related specific allowance recorded: Commercial real estate: Land and construction $ 873 $ 800 $ — $ 412 $ 239 $ — Improved property 14,554 10,319 — 18,229 12,863 — Commercial and industrial 3,045 2,496 — 3,745 3,086 — Residential real estate 19,601 17,751 — 20,821 18,982 — Home equity 5,771 4,971 — 5,833 5,169 — Consumer 918 803 — 1,084 952 — Total impaired loans without a specific allowance 44,762 37,140 — 50,124 41,291 — With a specific allowance recorded: Commercial real estate: Land and construction — — — — — — Improved property 2,104 2,104 387 2,105 2,105 388 Commercial and industrial — — — — — — Total impaired loans with a specific allowance 2,104 2,104 387 2,105 2,105 388 Total impaired loans $ 46,866 $ 39,244 $ 387 $ 52,229 $ 43,396 $ 388 (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, 2018 For the Three Months Ended March 31, 2017 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized (unaudited, in thousands) With no related specific allowance recorded: Commercial real estate: Land and construction $ 520 $ — $ 588 $ — Improved property 11,591 345 9,620 346 Commercial and industrial 2,791 2 3,812 2 Residential real estate 18,367 66 18,448 69 Home equity 5,070 5 4,186 5 Consumer 878 3 761 2 Total impaired loans without a specific allowance 39,217 421 37,415 424 With a specific allowance recorded: Commercial real estate: Land and construction — — — — Improved property 2,105 — 4,927 — Commercial and industrial — — 635 — Total impaired loans with a specific allowance 2,105 — 5,562 — Total impaired loans $ 41,322 $ 421 $ 42,977 $ 424 The following tables present the recorded investment in non-accrual Non-accrual (unaudited, in thousands) March 31, December 31, 2017 Commercial real estate: Land and construction $ 800 $ 239 Improved property 10,821 13,318 Total commercial real estate 11,621 13,557 Commercial and industrial 2,373 2,958 Residential real estate 13,149 14,661 Home equity 4,540 4,762 Consumer 703 887 Total $ 32,386 $ 36,825 (1) At March 31, 2018, there were 2 borrowers with loans greater than $1.0 million totaling $5.6 million, as compared to three borrowers with loans greater than $1.0 million totaling $6.8 million at December 31, 2017. Total non-accrual non-accrual TDRs March 31, 2018 December 31, 2017 (unaudited, in thousands) Accruing Non-Accrual Total Accruing Non-Accrual Total Commercial real estate: Land and construction $ — $ 2 $ 2 $ — $ 3 $ 3 Improved property 1,602 490 2,092 1,650 428 2,078 Total commercial real estate 1,602 492 2,094 1,650 431 2,081 Commercial and industrial 123 94 217 128 97 225 Residential real estate 4,602 1,525 6,127 4,321 1,880 6,201 Home equity 431 220 651 407 337 744 Consumer 100 66 166 65 120 185 Total $ 6,858 $ 2,397 $ 9,255 $ 6,571 $ 2,865 $ 9,436 As of March 31, 2018 and December 31, 2017 there were no TDRs greater than $1.0 million. The concessions granted in the majority of loans reported as accruing and non-accrual The following tables present details related to loans identified as TDRs during the three months ended March 31, 2018 and 2017, respectively: New TDRs (1) For the Three Months Ended March 31, 2018 March 31, 2017 Pre- Post- Pre- Post- Modification Modification Modification Modification Outstanding Outstanding Outstanding Outstanding Number of Recorded Recorded Number of Recorded Recorded (unaudited, dollars in thousands) Modifications Investment Investment Modifications Investment Investment Commercial real estate: Land and construction — $ — $ — — $ — $ — Improved Property — — — — — — Total commercial real estate — — — — — — Commercial and industrial — — — 2 126 122 Residential real estate 5 203 195 1 10 9 Home equity — — — 1 44 43 Consumer 2 4 3 2 84 21 Total 7 $ 207 $ 198 6 $ 264 $ 195 (1) Excludes loans that were either paid off or charged-off pre-modification The following table summarizes TDRs which defaulted (defined as past due 90 days) during the three months ended March 31, 2018 and 2017, respectively, that were restructured within the last twelve months prior to March 31, 2018 and 2017, respectively: Defaulted TDRs (1) Defaulted TDRs (1) For the Three Months Ended For the Three Months Ended March 31, 2018 March 31, 2017 (unaudited, dollars in thousands) Number of 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 1 122 — — Home equity 1 7 — — Consumer — — 1 9 Total 2 $ 129 1 $ 9 (1) Excludes loans that were either charged-off TDRs that default are placed on non-accrual The following table summarizes other real estate owned and repossessed assets included in other assets: (unaudited, in thousands) March 31, December 31, Other real estate owned $ 3,991 $ 5,195 Repossessed assets 76 102 Total other real estate owned and repossessed assets $ 4,067 $ 5,297 Residential real estate included in other real estate owned at March 31, 2018 and December 31, 2017 was $0.9 million and $1.5 million, respectively. At March 31, 2018 and December 31, 2017, formal foreclosure proceedings were in process on residential real estate loans totaling $4.3 million and $3.5 million, respectively. |