Loans and the Allowance for Credit Losses | NOTE 5. 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. Net deferred loan costs were $ 4.2 3.2 44.8 21.0 49.3 (unaudited, in thousands) March 31, 2019 December 31, 2018 Commercial real estate: Land and construction $ 505,127 $ 528,072 Improved property 3,337,281 3,325,623 Total commercial real estate 3,842,408 3,853,695 Commercial and industrial 1,274,992 1,265,460 Residential real estate 1,628,067 1,611,607 Home equity 590,462 599,331 Consumer 330,152 326,188 Total portfolio loans 7,666,081 7,656,281 Loans held for sale 8,358 8,994 Total loans $ 7,674,439 $ 7,665,275 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, 2019 and 2018 (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, 2018: Allowance for loan losses $ 4,039 $ 20,848 $ 12,114 $ 3,822 $ 4,356 $ 2,797 $ 972 $ 48,948 Allowance for loan commitments 169 33 262 12 226 39 — 741 Total beginning allowance for credit losses 4,208 20,881 12,376 3,834 4,582 2,836 972 49,689 Provision for credit losses: Provision for loan losses (6 ) (909 ) 1,050 122 223 233 575 1,288 Provision for loan commitments 25 (9 ) 1,181 (1 ) 22 1 — 1,219 Total provision for credit losses 19 (918 ) 2,231 121 245 234 575 2,507 Charge-offs — (222 ) (635 ) (320 ) (357 ) (661 ) (441 ) (2,636 ) Recoveries 12 198 378 121 47 411 99 1,266 Net charge-offs 12 (24 ) (257 ) (199 ) (310 ) (250 ) (342 ) (1,370 ) Balance at March 31, 2019: Allowance for loan losses 4,045 19,915 12,907 3,745 4,269 2,780 1,205 48,866 Allowance for loan commitments 194 24 1,443 11 248 40 — 1,960 Total ending allowance for credit losses $ 4,239 $ 19,939 $ 14,350 $ 3,756 $ 4,517 $ 2,820 $ 1,205 $ 50,826 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 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 Deposit Over- draft Total March 31, 2019 Allowance for credit losses: Allowance for loans individually evaluated for impairment $ — $ 59 $ 12 $ 13 $ 7 $ 1 $ — $ 92 Allowance for loans collectively evaluated for impairment 4,045 19,856 12,895 3,732 4,262 2,779 1,205 48,774 Allowance for loan commitments 194 24 1,443 11 248 40 — 1,960 Total allowance for credit losses $ 4,239 $ 19,939 $ 14,350 $ 3,756 $ 4,517 $ 2,820 $ 1,205 $ 50,826 Portfolio loans: Individually evaluated for impairment (1) $ — $ 2,133 $ 307 $ 5,078 $ 796 $ 103 $ — $ 8,417 Collectively evaluated for impairment 504,885 3,327,142 1,273,810 1,621,169 589,666 330,049 — 7,646,721 Acquired with deteriorated credit quality 242 8,006 875 1,820 — — — 10,943 Total portfolio loans $ 505,127 $ 3,337,281 $ 1,274,992 $ 1,628,067 $ 590,462 $ 330,152 $ — $ 7,666,081 December 31, 2018 Allowance for credit losses: Allowance for loans individually evaluated for impairment $ — $ — $ — $ — $ — $ — $ — $ — Allowance for loans collectively evaluated for impairment 4,039 20,848 12,114 3,822 4,356 2,797 972 48,948 Allowance for loan commitments 169 33 262 12 226 39 — 741 Total allowance for credit losses $ 4,208 $ 20,881 $ 12,376 $ 3,834 $ 4,582 $ 2,836 $ 972 $ 49,689 Portfolio loans: Individually evaluated for impairment (1) $ — $ — $ — $ — $ — $ — $ — $ — Collectively evaluated for impairment 527,737 3,319,672 1,264,560 1,609,177 599,331 326,063 — 7,646,540 Acquired with deteriorated credit quality 335 5,951 900 2,430 — 125 — 9,741 Total portfolio loans $ 528,072 $ 3,325,623 $ 1,265,460 $ 1,611,607 $ 599,331 $ 326,188 $ — $ 7,656,281 (1) Commercial loans greater than $ 1 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. The type, age, condition, location and any environmental risks associated with a property are also considered for all types of commercial real estate. Commercial and industrial (“C&I”) 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 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. 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, and are considered non-accrual. 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 March 31, 2019 Pass $ 497,566 $ 3,269,034 $ 1,241,697 $ 5,008,297 Criticized - compromised 5,599 47,464 16,628 69,691 Classified - substandard 1,962 20,783 16,667 39,412 Classified - doubtful — — — — Total $ 505,127 $ 3,337,281 $ 1,274,992 $ 5,117,400 As of December 31, 2018 Pass $ 523,707 $ 3,267,304 $ 1,245,190 $ 5,036,201 Criticized - compromised 2,297 35,566 13,847 51,710 Classified - substandard 2,068 22,753 6,423 31,244 Classified - doubtful — — — — Total $ 528,072 $ 3,325,623 $ 1,265,460 $ 5,119,155 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 $20.1 million at March 31, 2019 and $22.9 million at December 31, 2018, of which $2.0 and $3.9 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. Acquired FFKT Loans At March , , no allowance for loan losses has been recognized related to the -acquired impaired loans. Certain acquired underperforming loans with an acquired book value of $ million were sold during the fourth quarter of for $ million. The acquisition date fair value of the acquired loans was adjusted to the sale price resulting in no recognized gain or loss. The following table provides changes in accretable yield for loans acquired with deteriorated credit quality: For the Three Months Ended March 31, March 31, (unaudited, in thousands) 2019 2018 Balance at beginning of period $ 6,203 $ 1,724 Acquisitions 1,300 — Reduction due to change in projected cash flows (74 ) (86 ) Reclass from non-accretable difference 831 2,841 Transfers out — — Accretion (968 ) (268 ) Balance at end of period $ 7,292 $ 4,211 The following tables summarize the age analysis of all categories of loans: Age Analysis of Loans (unaudited, in thousands) Current 30-59 Days 60-89 Days 90 Days Total Total Loans 90 Days As of March 31, 2019 Commercial real estate: Land and construction $ 503,148 $ 1,852 $ 127 $ — $ 1,979 $ 505,127 $ — Improved property 3,325,120 5,226 864 6,071 12,161 3,337,281 558 Total commercial real estate 3,828,268 7,078 991 6,071 14,140 3,842,408 558 Commercial and industrial 1,270,957 905 115 3,015 4,035 1,274,992 221 Residential real estate 1,610,652 6,993 2,656 7,766 17,415 1,628,067 1,096 Home equity 583,118 2,970 398 3,976 7,344 590,462 730 Consumer 327,589 1,579 783 201 2,563 330,152 135 Total portfolio loans 7,620,584 19,525 4,943 21,029 45,497 7,666,081 2,740 Loans held for sale 8,358 — — — — 8,358 — Total loans $ 7,628,942 $ 19,525 $ 4,943 $ 21,029 $ 45,497 $ 7,674,439 $ 2,740 Impaired loans included above are as follows: Non-accrual loans $ 9,203 $ 1,234 $ 1,501 $ 18,289 21,024 $ 30,227 TDRs accruing interest (1) 5,181 196 104 — 300 5,481 Total impaired $ 14,384 $ 1,430 $ 1,605 $ 18,289 $ 21,324 $ 35,708 As of December 31, 2018 Commercial real estate: Land and construction $ 526,660 $ 62 $ 1,350 $ — $ 1,412 $ 528,072 $ — Improved property 3,314,765 2,266 2,250 6,342 10,858 3,325,623 175 Total commercial real estate 3,841,425 2,328 3,600 6,342 12,270 3,853,695 175 Commercial and industrial 1,261,536 323 594 3,007 3,924 1,265,460 13 Residential real estate 1,593,519 2,717 5,001 10,370 18,088 1,611,607 2,820 Home equity 591,623 2,500 1,273 3,935 7,708 599,331 705 Consumer 322,584 2,084 1,007 513 3,604 326,188 364 Total portfolio loans 7,610,687 9,952 11,475 24,167 45,594 7,656,281 4,077 Loans held for sale 8,994 — — — — 8,994 — Total loans $ 7,619,681 $ 9,952 $ 11,475 $ 24,167 $ 45,594 $ 7,665,275 $ 4,077 Impaired loans included above are as follows: Non-accrual loans $ 8,910 $ 337 $ 1,370 $ 20,083 21,790 $ 30,700 TDRs accruing interest (1) 5,586 59 92 7 158 5,744 Total impaired $ 14,496 $ 396 $ 1,462 $ 20,090 $ 21,948 $ 36,444 (1) Loans 90 days or more past due and accruing interest exclude TDRs 90 The following tables summarize impaired loans: Impaired Loans March 31, 2019 December 31, 2018 (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 $ 337 $ 285 $ — $ — $ — $ — Improved property 11,521 7,261 — 14,038 9,293 — Commercial and industrial 3,987 3,067 — 4,610 3,428 — Residential real estate 13,460 11,793 — 20,270 18,016 — Home equity 5,337 4,523 — 5,924 5,036 — Consumer 499 362 — 846 671 — Total impaired loans without a specific allowance 35,141 27,291 — 45,688 36,444 — With a specific allowance recorded: Commercial real estate: Land and construction — — — — — — Improved property 2,154 2,133 59 — — — Commercial and industrial 309 307 12 — — — Residential real estate 5,519 5,078 13 — — — Home equity 826 796 7 — — — Consumer 144 103 1 — — — Total impaired loans with a specific allowance 8,952 8,417 92 — — — Total impaired loans $ 44,093 $ 35,708 $ 92 $ 45,688 $ 36,444 $ — (1) The difference between the unpaid principal balance and the recorded investment generally reflects amounts that have been previously charged-off and fair market value adjustments on acquired impaired loans. Impaired Loans For the Three Months Ended March 31, 2019 For the Three Months Ended March 31, 2018 (unaudited, in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related specific allowance recorded: Commercial real estate: Land and construction $ 143 $ — $ 520 $ — Improved property 8,277 — 11,591 345 Commercial and industrial 3,246 — 2,791 2 Residential real estate 13,774 — 18,367 66 Home equity 4,780 — 5,070 5 Consumer 450 — 878 3 Total impaired loans without a specific allowance 30,670 — 39,217 421 With a specific allowance recorded: Commercial real estate: Land and construction — — — — Improved property 1,067 14 2,105 — Commercial and industrial 154 3 — — Residential real estate 2,539 58 — — Home equity 398 8 — — Consumer 52 1 — — Total impaired loans with a specific allowance 4,210 84 2,105 — Total impaired loans $ 34,880 $ 84 $ 41,322 $ 421 The following tables present the recorded investment in non-accrual loans and TDRs: Non-accrual Loans (1) (unaudited, in thousands) March 31, 2019 December 31, 2018 Commercial real estate: Land and construction $ 285 $ — Improved property 8,639 8,413 Total commercial real estate 8,924 8,413 Commercial and industrial 3,212 3,260 Residential real estate 12,871 13,831 Home equity 4,813 4,610 Consumer 407 586 Total $ 30,227 $ 30,700 (1) At March 31, 2019, there was one borrower with a loan greater than $ 1.0 3.3 1.0 3.4 TDRs March 31, 2019 December 31, 2018 (unaudited, in thousands) Accruing Non-Accrual Total Accruing Non-Accrual Total Commercial real estate: Land and construction $ — $ — $ — $ — $ — $ — Improved property 755 1,378 2,133 880 1,529 2,409 Total commercial real estate 755 1,378 2,133 880 1,529 2,409 Commercial and industrial 162 145 307 168 169 337 Residential real estate 4,000 1,078 5,078 4,185 921 5,106 Home equity 506 290 796 426 198 624 Consumer 58 45 103 85 38 123 Total $ 5,481 $ 2,936 $ 8,417 $ 5,744 $ 2,855 $ 8,599 As of March 31, 2019 and December 31, 2018, 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. WesBanco had unfunded commitments to debtors whose loans were classified as impaired of $0.1 million as of March 31, 2019 and December 31, 2018. |