WESBANCO INC - Quarter Report: 2022 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-39442

WESBANCO, INC.

(Exact name of Registrant as specified in its charter)


West Virginia		55-0571723
(State of incorporation)		(IRS Employer Identification No.)

1 Bank Plaza, Wheeling, WV		26003
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: 304-234-9000

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock $2.0833 Par Value	WSBC	NASDAQ Global Select Market
Depositary Shares (each representing 1/40th interest in a share of 6.75% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A)	WSBCP	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of July 27, 2022, there were 59,704,495 shares of Wesbanco, Inc. common stock, $2.0833 par value, outstanding.

WESBANCO, INC.

TABLE OF CONTENTS


Item No.	ITEM	Page No.

	PART I - FINANCIAL INFORMATION
1	Financial Statements	2
	Consolidated Balance Sheets at June 30, 2022 (unaudited) and December 31, 2021	2
	Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2022 and 2021 (unaudited)	3
	Consolidated Statements of Changes in Shareholders' Equity for the three and six months ended June 30, 2022 and 2021 (unaudited)	4
	Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	7

2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

3	Quantitative and Qualitative Disclosures About Market Risk	52

4	Controls and Procedures	54

	PART II – OTHER INFORMATION
1	Legal Proceedings	55

2	Unregistered Sales of Equity Securities and Use of Proceeds	55

6	Exhibits	56

	Signatures	57

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WESBANCO, INC. CONSOLIDATED BALANCE SHEETS


	June 30,			December 31,
(unaudited, in thousands, except shares)	2022			2021
ASSETS
Cash and due from banks, including interest bearing amounts of $263,475 and $1,094,312, respectively	$	450,009		$	1,251,358
Securities:
Equity securities, at fair value		11,413			13,466
Available-for-sale debt securities, at fair value		2,884,651			3,013,462
Held-to-maturity debt securities (fair values of $1,153,594 and $1,028,452, respectively)		1,281,295			1,004,823
Allowance for credit losses, held-to-maturity debt securities		(265	)		(268	)
Net held-to-maturity debt securities		1,281,030			1,004,555
Total securities		4,177,094			4,031,483
Loans held for sale		17,560			25,277
Portfolio loans, net of unearned income		10,208,689			9,733,478
Allowance for credit losses - loans		(117,403	)		(121,622	)
Net portfolio loans		10,091,286			9,611,856
Premises and equipment, net		216,293			229,016
Accrued interest receivable		61,918			60,844
Goodwill and other intangible assets, net		1,146,456			1,151,634
Bank-owned life insurance		348,807			350,359
Other assets		290,201			215,298
Total Assets	$	16,799,624		$	16,927,125
LIABILITIES
Deposits:
Non-interest bearing demand	$	4,738,830		$	4,590,895
Interest bearing demand		3,258,871			3,380,056
Money market		1,770,859			1,739,750
Savings deposits		2,695,437			2,562,510
Certificates of deposit		1,105,305			1,292,652
Total deposits		13,569,302			13,565,863
Federal Home Loan Bank borrowings		122,650			183,920
Other short-term borrowings		147,964			141,893
Subordinated debt and junior subordinated debt		280,910			132,860
Total borrowings		551,524			458,673
Accrued interest payable		2,815			1,901
Other liabilities		208,032			207,522
Total Liabilities		14,331,673			14,233,959
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 1,000,000 shares authorized; 150,000 shares 6.75% non-cumulative perpetual preferred stock, Series A, liquidation preference $150,000,000, issued and outstanding at June 30, 2022 and December 31, 2021, respectively		144,484			144,484
Common stock, $2.0833 par value; 100,000,000 shares authorized; 68,081,306 shares issued; 59,698,788 and 62,307,245 shares outstanding at June 30, 2022 and December 31, 2021, respectively		141,834			141,834
Capital surplus		1,632,617			1,635,642
Retained earnings		1,018,209			977,765
Treasury stock (8,382,518 and 5,774,061 shares - at cost, respectively)		(291,337	)		(199,759	)
Accumulated other comprehensive loss		(176,061	)		(5,120	)
Deferred benefits for directors		(1,795	)		(1,680	)
Total Shareholders' Equity		2,467,951			2,693,166
Total Liabilities and Shareholders' Equity	$	16,799,624		$	16,927,125

See Notes to Consolidated Financial Statements.

WESBANCO, INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(unaudited, in thousands, except shares and per share amounts)	2022			2021			2022			2021
INTEREST AND DIVIDEND INCOME
Loans, including fees	$	96,412		$	105,968		$	189,532		$	215,327
Interest and dividends on securities:
Taxable		15,825			12,900			29,937			24,027
Tax-exempt		4,706			3,952			9,049			7,862
Total interest and dividends on securities		20,531			16,852			38,986			31,889
Other interest income		1,504			507			2,103			1,166
Total interest and dividend income		118,447			123,327			230,621			248,382
INTEREST EXPENSE
Interest bearing demand deposits		1,153			1,009			1,965			2,052
Money market deposits		383			551			704			1,130
Savings deposits		330			261			595			525
Certificates of deposit		1,116			2,026			2,389			4,396
Total interest expense on deposits		2,982			3,847			5,653			8,103
Federal Home Loan Bank borrowings		411			1,781			986			4,195
Other short-term borrowings		48			40			96			159
Subordinated debt and junior subordinated debt		2,778			1,804			3,948			3,593
Total interest expense		6,219			7,472			10,683			16,050
NET INTEREST INCOME		112,228			115,855			219,938			232,332
Provision for credit losses		(812	)		(21,025	)		(4,250	)		(48,984	)
Net interest income after provision for credit losses		113,040			136,880			224,188			281,316
NON-INTEREST INCOME
Trust fees		6,527			7,148			14,362			14,780
Service charges on deposits		6,487			4,876			12,577			9,770
Electronic banking fees		5,154			5,060			10,499			9,426
Net securities brokerage revenue		2,258			1,829			4,478			3,352
Bank-owned life insurance		2,384			1,707			6,264			3,416
Mortgage banking income		1,328			7,830			3,251			12,094
Net securities (losses) gains		(1,183	)		477			(1,832	)		756
Net (loss) gain on other real estate owned and other assets		(1,302	)		4,014			(2,108	)		4,189
Other income		5,330			3,171			9,874			11,537
Total non-interest income		26,983			36,112			57,365			69,320
NON-INTEREST EXPENSE
Salaries and wages		41,213			37,435			80,150			74,324
Employee benefits		8,722			9,268			17,880			19,534
Net occupancy		6,119			6,427			13,354			13,605
Equipment and software		7,702			7,281			15,713			14,045
Marketing		2,749			1,802			5,170			4,185
FDIC insurance		1,937			181			3,459			1,462
Amortization of intangible assets		2,579			2,873			5,178			5,769
Restructuring and merger-related expense		52			1,222			1,646			2,074
Other operating expenses		15,946			17,323			32,019			35,141
Total non-interest expense		87,019			83,812			174,569			170,139
Income before provision for income taxes		53,004			89,180			106,984			180,497
Provision for income taxes		10,256			18,592			20,114			36,793
Net income		42,748			70,588			86,870			143,704
Preferred stock dividends		2,531			2,531			5,063			5,063
Net income available to common shareholders	$	40,217		$	68,057		$	81,807		$	138,641
EARNINGS PER COMMON SHARE
Basic	$	0.67		$	1.02		$	1.35		$	2.07
Diluted	$	0.67		$	1.01		$	1.34		$	2.06
AVERAGE COMMON SHARES OUTSTANDING
Basic		60,036,103			66,894,398			60,736,858			67,078,036
Diluted		60,185,207			67,066,592			60,899,270			67,239,548
DIVIDENDS DECLARED PER COMMON SHARE	$	0.34		$	0.33		$	0.68		$	0.66

COMPREHENSIVE (LOSS) INCOME	$	(22,001	)	$	73,371		$	(84,071	)	$	124,931

See Notes to Consolidated Financial Statements.

WESBANCO, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


	For the Three Months Ended June 30, 2022 and 2021
																	Accumulated
	Preferred		Common Stock														Other			Deferred
(unaudited, in thousands, except	Stock		Shares					Capital			Retained			Treasury			Comprehensive			Benefits for
shares and per share amounts)	Amount		Outstanding			Amount		Surplus			Earnings			Stock			Income (Loss)			Directors			Total
March 31, 2022	$	144,484		60,613,414		$	141,834	$	1,636,705		$	998,315		$	(261,012	)	$	(111,312	)	$	(1,698	)	$	2,547,316
Net income		—		—			—		—			42,748			—			—			—			42,748
Other comprehensive loss		—		—			—		—			—			—			(64,749	)		—			(64,749	)
Comprehensive loss		—		—			—		—			—			—			—			—			(22,001	)
Common dividends declared ($0.34 per share)		—		—			—		—			(20,191	)		—			—			—			(20,191	)
Preferred dividends declared ($16.875 per share)		—		—			—		—			(2,531	)		—			—			—			(2,531	)
Stock issued for dividend reinvestment		—		4,115			—		—			(132	)		132			—			—			—
Treasury shares acquired		—		(1,116,472	)		—		—			—			(37,096	)		—			—			(37,096	)
Stock options exercised		—		33,525			—		(114	)		—			1,118			—			—			1,004
Restricted stock granted		—		164,206			—		(5,521	)		—			5,521			—			—			—
Stock compensation expense		—		—			—		1,551			—			—			—			—			1,551
Deferred benefits for directors- net		—		—			—		(4	)		—			—			—			(97	)		(101	)
June 30, 2022	$	144,484		59,698,788		$	141,834	$	1,632,617		$	1,018,209		$	(291,337	)	$	(176,061	)	$	(1,795	)	$	2,467,951

March 31, 2021	$	144,484		67,282,134		$	141,834	$	1,636,103		$	879,786		$	(24,989	)	$	9,803		$	(1,499	)	$	2,785,522
Net income		—	—			—		—				70,588		—			—			—				70,588
Other comprehensive income		—	—			—		—			—			—				2,783		—				2,783
Comprehensive income		—	—			—		—				—		—			—			—				73,371
Common dividends declared ($0.33 per share)		—	—			—		—				(21,866	)	—			—			—				(21,866	)
Preferred dividends declared ($16.875 per share)		—		—			—		—			(2,531	)		—			—			—			(2,531	)
Treasury shares acquired		—		(1,505,441	)	—			7		—				(56,668	)	—			—				(56,661	)
Stock options exercised		—		70,800			—		(674	)		—			2,389			—			—			1,715
Restricted stock granted		—		122,656		—			(4,272	)	—				4,272		—			—				—
Stock compensation expense		—	—			—			1,292		—			—			—			—				1,292
Deferred benefits for directors- net		—	—			—			4		—			—			—				(10	)		(6	)
June 30, 2021	$	144,484		65,970,149		$	141,834	$	1,632,460		$	925,977		$	(74,996	)	$	12,586		$	(1,509	)	$	2,780,836


	For the Six Months Ended June 30, 2022 and 2021
																	Accumulated
	Preferred		Common Stock														Other			Deferred
(unaudited, in thousands, except	Stock		Shares					Capital			Retained			Treasury			Comprehensive			Benefits for
shares and per share amounts)	Amount		Outstanding			Amount		Surplus			Earnings			Stock			Income (Loss)			Directors			Total
December 31, 2021	$	144,484		62,307,245		$	141,834	$	1,635,642		$	977,765		$	(199,759	)	$	(5,120	)	$	(1,680	)	$	2,693,166
Net income		—		—			—		—			86,870			—			—			—			86,870
Other comprehensive loss		—		—			—		—			—			—			(170,941	)		—			(170,941	)
Comprehensive loss		—		—			—		—			—			—			—			—			(84,071	)
Common dividends declared ($0.68 per share)		—		—			—		—			(40,726	)		—			—			—			(40,726	)
Preferred dividends declared ($16.875 per share)		—		—			—		—			(5,063	)		—			—			—			(5,063	)
Stock issued for dividend reinvestment		—		18,646			—		—			(637	)		637			—			—			—
Treasury shares acquired		—		(2,841,043	)		—		—			—			(99,420	)		—			—			(99,420	)
Stock options exercised		—		49,734			—		(306	)		—			1,684			—			—			1,378
Restricted stock granted		—		164,206			—		(5,521	)		—			5,521			—			—			—
Stock compensation expense		—		—			—		2,792			—			—			—			—			2,792
Deferred benefits for directors- net		—		—			—		10			—			—			—			(115	)		(105	)
June 30, 2022	$	144,484		59,698,788		$	141,834	$	1,632,617		$	1,018,209		$	(291,337	)	$	(176,061	)	$	(1,795	)	$	2,467,951

December 31, 2020	$	144,484		67,254,706		$	141,834	$	1,634,815		$	831,688		$	(25,949	)	$	31,359		$	(1,494	)	$	2,756,737
Net income		—		—			—		—			143,704			—			—			—			143,704
Other comprehensive loss		—		—			—		—			—			—			(18,773	)		—			(18,773	)
Comprehensive income		—		—			—		—			—			—			—			—			124,931
Common dividends declared ($0.66 per share)		—		—			—		—			(43,961	)		—			—			—			(43,961	)
Preferred dividends declared ($16.875 per share)		—		—			—		—			(5,063	)		—			—			—			(5,063	)
Stock issued for dividend reinvestment		—		11,720			—		—			(391	)		391			—			—			—
Treasury shares acquired		—		(1,510,576	)		—		191			—			(56,851	)		—			—			(56,660	)
Stock options exercised		—		91,643			—		(858	)		—			3,141			—			—			2,283
Restricted stock granted		—		122,656			—		(4,272	)		—			4,272			—			—			—
Stock compensation expense		—		—			—		2,580			—			—			—			—			2,580
Deferred benefits for directors- net		—		—			—		4			—			—			—			(15	)		(11	)
June 30, 2021	$	144,484	$	65,970,149		$	141,834	$	1,632,460		$	925,977		$	(74,996	)	$	12,586		$	(1,509	)	$	2,780,836

See Notes to Consolidated Financial Statements.

WESBANCO, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS


	For the Six Months Ended June 30,
(unaudited, in thousands)	2022			2021
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	85,795		$	229,342
INVESTING ACTIVITIES
Net (increase) decrease in loans held for investment		(465,440	)		460,772
Available-for-sale debt securities:
Proceeds from maturities, prepayments and calls		344,948			439,101
Purchases of securities		(446,268	)		(1,457,566	)
Held-to-maturity debt securities:
Proceeds from maturities, prepayments and calls		50,295			55,952
Purchases of securities		(328,238	)		(228,307	)
Proceeds from bank owned life insurance		7,816			—
Purchases of premises and equipment – net		(2,807	)		(4,603	)
Net cash used in investing activities		(839,694	)		(734,651	)
FINANCING ACTIVITIES
Increase in deposits		4,596			891,121
Repayment of Federal Home Loan Bank borrowings		(61,318	)		(235,105	)
Increase (decrease) in other short-term borrowings		6,071			(106,683	)
Principal repayments of finance lease obligations		(214	)		(219	)
Issuance of subordinated debt, net of issuance costs		147,655			—
Dividends paid to common shareholders		(41,135	)		(43,509	)
Dividends paid to preferred shareholders		(5,063	)		(5,063	)
Treasury shares purchased - net		(98,042	)		(54,376	)
Net cash (used in) provided by financing activities		(47,450	)		446,166
Net decrease in cash, cash equivalents and restricted cash		(801,349	)		(59,143	)
Cash, cash equivalents and restricted cash at beginning of the period		1,251,358			905,447
Cash, cash equivalents and restricted cash at end of the period	$	450,009		$	846,304
SUPPLEMENTAL DISCLOSURES
Interest paid on deposits and other borrowings	$	10,484		$	18,917
Income taxes paid		15,190			22,055
Transfers of loans to other real estate owned		87			466

See Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation — The accompanying unaudited interim financial statements of Wesbanco, Inc. and its consolidated subsidiaries (“Wesbanco”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021.

Wesbanco’s interim financial statements have been prepared following the significant accounting policies disclosed in Note 1 of the Notes to the Consolidated Financial Statements of its 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of management, the accompanying interim financial information reflects all adjustments, including normal recurring adjustments, necessary to present fairly Wesbanco’s financial position and results of operations for each of the interim periods presented. Certain prior period amounts have been reclassified to conform to the current period presentation. Such reclassifications had no impact on Wesbanco’s net income and shareholders’ equity. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year.

Recent accounting pronouncements—The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) as noted below.

ASU 2022-03 Fair Value Measurement (Topic 820)

In June 2022, the FASB issued ASU 2022-03, "Fair Value Measurement (Topic 820).” The amendments in this ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security, and therefore, is not considered in measuring fair value. Furthermore, the amendments to this ASU clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The update to this ASU requires the following disclosures for equity securities: (1) The fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet; (2) The nature and remaining duration of the restriction(s) and; (3) The circumstances that could cause a lapse in the restriction(s). The amendments in this Update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Wesbanco is currently assessing the impact of ASU 2022-03 on its Consolidated Financial Statements.

ASU 2022-02 Financial Instruments - Credit Losses (Topic 326)

In March 2022, the FASB issued ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326)". The amendments in this ASU eliminate the accounting guidance for Troubled Debt Restructurings ("TDRs") by creditors in Subtopic 310-40, "Receivables - Troubled Debt Restructurings by Creditors," while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan. In addition, for public business entities, the amendments in this Update require that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, "Financial Instruments - Credit Losses - Measured at Amortized Cost." The amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Wesbanco is currently assessing the impact of ASU 2022-02 on its Consolidated Financial Statements.

ASU 2022-01 Derivatives and Hedging (Topic 815)

In March 2022, the FASB issued ASU 2022-01, "Derivatives and Hedging (Topic 815)". The amendments in this ASU address several topics within ASU 2017-12, which was issued in August 2017 to improve the hedge accounting model. ASU 2022-01 expands the current last-of-layer method to allow multiple hedged layers of a single closed portfolio and renames the last-of-layer method as the portfolio layer method. Among other things, the ASU expands the scope of the portfolio layer method to include nonprepayable financial assets, provides additional guidance on the accounting for and disclosure of hedge basis adjustments that are applicable to the portfolio layer method whether a single hedged layer or multiple hedge layers are designated and specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The adoption of this pronouncement is not expected to have a material impact on Wesbanco's Consolidated Financial Statements.

ASU 2021-08 Business Combinations (Topic 805)

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805)." The amendments in this Update require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, "Revenue Recognition." The amendments also apply to contract assets and contract liabilities from other contracts to which the provisions of Topic 606 apply, such as contract liabilities from the sale of nonfinancial assets within the scope of Subtopic 610-20, "Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets." For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of this pronouncement is not expected to have a material impact on Wesbanco's Consolidated Financial Statements.

ASU 2020-04 and ASU 2021-01 Reference Rate Reform (Topic 848)

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”. This ASU provided temporary, optional guidance to ease the potential burden in accounting for, or recognizing the effects of, the transition away from the London Interbank Offered Rate ("LIBOR") or other reference rate expected to be discontinued on financial reporting. The ASU also provides optional expedients for contract modifications that replace a reference rate affected by reference rate reform. The guidance is effective as of March 12, 2020 through December 31, 2022, and can be adopted at any time during this period. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope”. This ASU refines the scope of Topic 848 and addresses questions about whether Topic 848 can be applied to derivative instruments that do not reference a rate that is expected to be discontinued, but that use an interest rate for margining, discounting or contract price alignment that is expected to be modified as a result of reference rate reform. ASU 2021-01 is effective upon issuance through December 31, 2024, and can be adopted at any time during this period. Wesbanco has not offered LIBOR for any new contracts after December 31, 2021. Wesbanco has chosen the One Month Term Secured Overnight Financing Rate ("1M Term SOFR") as its alternative replacement rate for LIBOR on both back-to-back swaps and on one-month variable loans. A transition plan was implemented in 2021 to identify and modify Wesbanco's loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR, and Wesbanco continues to assess the impact of adopting the new guidance on the consolidated financial statements on an ongoing basis, with no material impacts expected at this time.

NOTE 2. EARNINGS PER COMMON SHARE

Earnings per common share are calculated as follows:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(unaudited, in thousands, except shares and per share amounts)	2022		2021		2022		2021
Numerator for both basic and diluted earnings per common share:
Net income available to common shareholders	$	40,217	$	68,057	$	81,807	$	138,641
Denominator:
Total average basic common shares outstanding		60,036,103		66,894,398		60,736,858		67,078,036
Effect of dilutive stock options and other stock compensation		149,104		172,194		162,412		161,512
Total diluted average common shares outstanding		60,185,207		67,066,592		60,899,270		67,239,548
Earnings per common share - basic	$	0.67	$	1.02	$	1.35	$	2.07
Earnings per common share - diluted	$	0.67	$	1.01	$	1.34	$	2.06

As of June 30, 2022 and 2021, respectively, 524,211 and 501,441 options to purchase shares were not included in the diluted share computation for the three months ended June 30, 2022 and 2021, respectively, because the exercise price was greater than the average market price of a common share, and, therefore, the effect would be antidilutive. As of June 30, 2022 and 2021, respectively, 524,211 and 540,661 options to purchase shares were not included in the diluted share computation for the six months ended June 30, 2022 and 2021, respectively, because the exercise price was greater than the average market price of a common share, and, therefore, the effect would be antidilutive.

As of June 30, 2022, 34,656 contingently issuable shares were estimated to be awarded under the 2022 and 2021 total shareholder return ("TSR") plans, as stock performance targets had been met as of such date and therefore those shares were included in the diluted calculation. As of June 30, 2022, the shares related to the 2020 TSR plan were not included in the calculation because they had not met performance measures and the effect would be antidilutive. As of June 30, 2021, 14,640 shares related to the 2021 TSR plan were included in the calculation, but no shares related to the 2020 and 2019 TSR plans were included in the calculation because the effect would be antidilutive.

In addition, performance-based restricted stock ("PBRS") compensation totaling 62,314 and 61,267 shares were estimated to be awarded as of June 30, 2022 and June 30, 2021, respectively, and are included in the diluted calculation.

NOTE 3. SECURITIES

The following table presents the fair value and amortized cost of available-for-sale and held-to-maturity debt securities:


	June 30, 2022									December 31, 2021
(unaudited, in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale debt securities
U.S. Government sponsored entities and agencies	$	271,157	$	72	$	(22,300	)	$	248,929	$	236,096	$	3,922	$	(3,040	)	$	236,978
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		2,290,292		107		(201,112	)		2,089,287		2,301,170		16,489		(32,446	)		2,285,213
Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		437,571		222		(5,965	)		431,828		364,486		4,252		(1,245	)		367,493
Obligations of states and political subdivisions		101,592		548		(2,830	)		99,310		101,003		5,372		(35	)		106,340
Corporate debt securities		15,445		24		(172	)		15,297		16,940		507		(9	)		17,438
Total available-for-sale debt securities	$	3,116,057	$	973	$	(232,379	)	$	2,884,651	$	3,019,695	$	30,542	$	(36,775	)	$	3,013,462
Held-to-maturity debt securities
U.S. Government sponsored entities and agencies	$	5,004	$	—	$	(293	)	$	4,711	$	5,944	$	72	$	(8	)	$	6,008
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		50,587		49		(2,075	)		48,561		58,147		1,409		(16	)		59,540
Obligations of states and political subdivisions		1,200,398		1,890		(127,136	)		1,075,152		907,649		23,854		(3,500	)		928,003
Corporate debt securities		25,306		18		(154	)		25,170		33,083		1,818		—			34,901
Total held-to-maturity debt securities (1)	$	1,281,295	$	1,957	$	(129,658	)	$	1,153,594	$	1,004,823	$	27,153	$	(3,524	)	$	1,028,452
Total debt securities	$	4,397,352	$	2,930	$	(362,037	)	$	4,038,245	$	4,024,518	$	57,695	$	(40,299	)	$	4,041,914

(1)

Total held-to-maturity debt securities are presented on the balance sheet net of their allowance for credit losses totaling $0.3 million at June 30, 2022 and December 31, 2021, respectively.

At June 30, 2022 and December 31, 2021, there were no holdings of any one issuer, other than U.S. government sponsored entities and its agencies, in an amount greater than 10% of Wesbanco’s shareholders’ equity. Equity securities, of which $8.8 million consist of investments in various mutual funds held in grantor trusts formed in connection with the Company’s deferred compensation plan, are recorded at fair value, and totaled $11.4 million and $13.5 million at June 30, 2022 and December 31, 2021, respectively.

The following table presents the amortized cost and fair value of available-for-sale and held-to-maturity debt securities by contractual maturity date at June 30, 2022. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay debt obligations with or without prepayment penalties. Mortgage-backed securities and collateralized mortgage obligations are classified in the table below based on their contractual maturity date; however, regular principal payments and prepayments of principal are received on a monthly basis.


(unaudited, in thousands)	Amortized Cost		Fair Value
Available-for-sale debt securities
Less than one year	$	22,490	$	22,433
1-5 years		189,081		187,159
5-10 years		482,267		469,762
Over 10 years		2,422,219		2,205,297
Total available-for-sale debt securities	$	3,116,057	$	2,884,651
Held-to-maturity debt securities
Less than one year	$	30,679	$	30,794
1-5 years		101,576		101,882
5-10 years		314,256		304,810
Over 10 years		834,784		716,108
Total held-to-maturity debt securities	$	1,281,295	$	1,153,594
Total debt securities	$	4,397,352	$	4,038,245

Securities with an aggregate fair value of $2.0 billion and $2.1 billion at June 30, 2022 and December 31, 2021, respectively, were pledged as security for public and trust funds, and securities sold under agreements to repurchase. There were no proceeds from the sale of available-for-sale securities for the six months ended June 30, 2022 and 2021. Net unrealized losses on available-for-sale securities included in accumulated other comprehensive income, net of tax, as of June 30, 2022 and December 31, 2021 were $175.8 million and $4.7 million, respectively.

The following table presents the gross realized gains and losses on sales and calls of available-for-sale and held-to-maturity debt securities, as well as gains and losses on equity securities from both sales and market adjustments, for the three and six months ended June 30, 2022 and 2021, respectively. All gains and losses presented in the table below are included in the net securities (losses) gains line item of the income statement. For those equity securities relating to the key officer and director deferred compensation plan, the corresponding change in the obligation to the participant is recognized in employee benefits expense.


	For the Three Months Ended June 30,					For the Six Months Ended June 30,
(unaudited, in thousands)	2022			2021		2022			2021
Debt securities:
Gross realized gains	$	107		$	60	$	138		$	200
Gross realized losses		(9	)		—		(11	)		(39	)
Net gains on debt securities		98			60		127			161
Equity securities:
Net unrealized (losses) gains recognized on securities still held		(1,281	)		417		(1,959	)		595
Net securities (losses) gains	$	(1,183	)	$	477	$	(1,832	)	$	756

The corporate and municipal bonds in Wesbanco’s held-to-maturity debt portfolio are analyzed quarterly to determine if an allowance for current expected credit losses is warranted. Wesbanco uses a database of historical financials of all corporate and municipal issuers and actual historic default and recovery rates on rated and non-rated transactions to estimate expected credit losses on an individual security basis. The expected credit losses are adjusted quarterly and are recorded in an allowance for expected credit losses on the balance sheet, which is deducted from the amortized cost basis of the held-to-maturity portfolio as a contra asset. The losses are recorded on the income statement in the provision for credit losses. Accrued interest receivable on held-to-maturity securities, which was $9.3 million and $7.0 million as of June 30, 2022 and December 31, 2021, respectively, is excluded from the estimate of credit losses. Held-to-maturity investments in U.S. Government sponsored entities and agencies as well as mortgage-backed securities and collateralized mortgage obligations, which are all either issued by a direct governmental entity or a government-sponsored entity, have no historical evidence supporting expected credit losses; therefore, Wesbanco has estimated these losses at zero, and will monitor this assumption in the future for any economic or governmental policies that could affect this assumption.

The following table provides a roll-forward of the allowance for credit losses on held-to-maturity securities for the six months ended June 30, 2022 and 2021:


	Allowance for Credit Losses By Category
	For the Six Months Ended June 30, 2022 and 2021
			Residential mortgage
			-backed
			securities and
			collateralized
			mortgage obligations		Obligations of
	U.S. Government		of government		state and			Corporate
	sponsored		sponsored entities		political			debt
(unaudited, in thousands)	entities and agencies		and agencies		subdivisions			Securities			Total
Balance at December 31, 2021	$	—	$	—	$	174		$	94		$	268
Current period provision		—		—		8			(11	)		(3	)
Write-offs		—		—		—			—			—
Recoveries		—		—		—			—			—
Balance at June 30, 2022	$	—	$	—	$	182		$	83		$	265
.
Balance at December 31, 2020	$	—	$	—	$	130		$	196		$	326
Current period provision		—		—		(13	)		(86	)		(99	)
Write-offs		—		—		—			—			—
Recoveries		—		—		—			—			—
Balance at June 30, 2021	$	—	$	—	$	117		$	110		$	227

The following tables provide information on unrealized losses on available-for-sale debt securities that have been in an unrealized loss position for less than twelve months and twelve months or more, for which an allowance for credit losses has not been recorded, as of June 30, 2022 and December 31, 2021, respectively:


	June 30, 2022
	Less than 12 months							12 months or more							Total
(unaudited, dollars in thousands)	Fair Value		Unrealized Losses			# of Securities		Fair Value		Unrealized Losses			# of Securities		Fair Value		Unrealized Losses			# of Securities
U.S. Government sponsored entities and agencies	$	188,621	$	(13,338	)		36	$	49,739	$	(8,962	)		6	$	238,360	$	(22,300	)		42
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		1,575,495		(131,223	)		415		482,704		(69,889	)		60		2,058,199		(201,112	)		475
Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		306,173		(4,152	)		47		86,832		(1,813	)		20		393,005		(5,965	)		67
Obligations of state and political subdivisions		51,167		(2,830	)		81		—		—			—		51,167		(2,830	)		81
Corporate debt and other securities		10,328		(172	)		7		—		—			—		10,328		(172	)		7
Total	$	2,131,784	$	(151,715	)		586	$	619,275	$	(80,664	)		86	$	2,751,059	$	(232,379	)		672


	December 31, 2021
	Less than 12 months							12 months or more							Total
(dollars in thousands)	Fair Value		Unrealized Losses			# of Securities		Fair Value		Unrealized Losses			# of Securities		Fair Value		Unrealized Losses			# of Securities
U.S. Government sponsored entities and agencies	$	114,486	$	(1,865	)		12	$	32,688	$	(1,175	)		4	$	147,174	$	(3,040	)		16
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		1,568,138		(29,060	)		143		141,681		(3,386	)		23		1,709,819		(32,446	)		166
Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		131,970		(579	)		25		78,356		(666	)		8		210,326		(1,245	)		33
Obligations of states and political subdivisions		4,307		(35	)		2		—		—			—		4,307		(35	)		2
Corporate debt securities		6,990		(9	)		5		—		—			—		6,990		(9	)		5
Total	$	1,825,891	$	(31,548	)		187	$	252,725	$	(5,227	)		35	$	2,078,616	$	(36,775	)		222

Unrealized losses on debt securities in the table above represent temporary fluctuations resulting from changes in market rates in relation to fixed yields. Unrealized losses in the available-for-sale portfolio are accounted for as an adjustment, net of taxes, to other comprehensive income in shareholders’ equity. Wesbanco does not believe the securities presented above are impaired due to reasons of credit quality, as substantially all debt securities are rated above investment grade and all are paying principal and interest according to their contractual terms. Wesbanco does not intend to sell, nor is it more likely than not that it will be required to sell, loss position securities prior to recovery of their cost; therefore, management believes the unrealized losses detailed above do not require an allowance for credit losses relating to these securities to be recognized. Securities that do not have readily determinable fair values and for which Wesbanco does not exercise significant influence are carried at cost. Cost method investments consist primarily of Federal Home Loan Bank (“FHLB”) of Pittsburgh stock totaling $12.8 million and $15.9 million at June 30, 2022 and December 31, 2021, respectively, and are included in other assets in the Consolidated Balance Sheets. Cost method investments are evaluated for impairment whenever events or circumstances suggest that their carrying value may not be recoverable.

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. Net deferred loan fee costs were $8.9 million and $3.3 million at June 30, 2022 and December 31, 2021, respectively. At June 30, 2022 and December 31, 2021, respectively, the balance also included $1.1 million and $6.1 million of net deferred fee income from SBA Payroll Protection Program (“PPP”) loans. The un-accreted discount on purchased loans from acquisitions was $21.5 million at June 30, 2022 and $25.9 million at December 31, 2021.


	June 30,		December 31,
(unaudited, in thousands)	2022		2021
Commercial real estate:
Land and construction	$	919,416	$	833,880
Improved property		4,933,148		4,705,088
Total commercial real estate		5,852,564		5,538,968
Commercial and industrial		1,523,046		1,427,645
Commercial and industrial - PPP		26,722		162,675
Residential real estate		1,907,875		1,721,378
Home equity		597,845		605,682
Consumer		300,637		277,130
Total portfolio loans		10,208,689		9,733,478
Loans held for sale		17,560		25,277
Total loans	$	10,226,249	$	9,758,755

The allowance for credit losses under the current expected credit losses methodology (“CECL”) is calculated utilizing the probability of default (“PD”) / loss given default (“LGD”), which is then discounted to net present value. PD is the probability the asset will default within a given time frame and LGD is the percentage of the asset not expected to be collected due to default. The primary macroeconomic drivers of the quantitative model include forecasts of national unemployment and interest rates, as well as modeling adjustments for changes in prepayment speeds, loan risk grades, portfolio mix, concentrations and loan growth. For the calculation as of June 30, 2022, the one-year forecast was based upon a blended rate from three nationally-recognized published economic forecasts through June 30, 2022, and is primarily driven by the national unemployment and interest rate spread forecasts. Wesbanco’s blended forecast of national unemployment, at quarter end, was projected at 4.0% in the first quarter of the one-year forecast period, with subsequent increases to an average of 4.4% over the remainder of the forecast period. The calculation utilized an immediate reversion back to the Company’s historical loss rate by loan classification. Included in the qualitative factors were COVID-19 pandemic factors related to the transient credit risk not covered by the traditional allowance process, adjusted to Wesbanco’s regional footprint, deferred interest on modified loans, and hospitality industry concentration. As of June 30, 2022, accrued interest receivable for loans was $45.3 million. Wesbanco made an accounting policy election to exclude accrued interest from the measurement of the allowance for credit losses because the Company has a robust policy in place of the onto reverse or write-off accrued interest when loans are placed on non-accrual. However, Wesbanco does have a $0.1 million reserve on the accrued interest related to loan modifications allowed under the CARES Act due to the timing and nature of these modifications. As of June 30, 2022, accrued interest related to COVID-19 loan modifications as permitted under the CARES Act was $19.6 million.

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, 2022 and 2021
(unaudited, in thousands)	Commercial Real Estate - Land and Construction			Commercial Real Estate- Improved Property			Commercial & Industrial			Residential Real Estate			Home Equity			Consumer			Deposit Overdrafts			Total
Balance at December 31, 2021
Allowance for credit losses - loans	$	7,310		$	65,355		$	26,875		$	15,401		$	724		$	3,737		$	2,220		$	121,622
Allowance for credit losses - loan commitments		4,180			201			1,497			1,576			49			272			—			7,775
Total beginning allowance for credit losses - loans and loan commitments		11,490			65,556			28,372			16,977			773			4,009			2,220			129,397
Provision for credit losses:
Provision for loan losses		845			(6,401	)		1,097			(491	)		38			780			(58	)		(4,190	)
Provision for loan commitments		696			(201	)		(1,288	)		582			14			140			—			(57	)
Total provision for credit losses - loans and loan commitments		1,541			(6,602	)		(191	)		91			52			920			(58	)		(4,247	)
Charge-offs		(73	)		(137	)		(355	)		(243	)		(178	)		(1,690	)		(776	)		(3,452	)
Recoveries		25			740			551			264			193			1,477			173			3,423
Net (charge-offs) recoveries		(48	)		603			196			21			15			(213	)		(603	)		(29	)
Balance at June 30, 2022
Allowance for credit losses - loans		8,107			59,557			28,168			14,931			777			4,304			1,559			117,403
Allowance for credit losses - loan commitments		4,876			—			209			2,158			63			412			—			7,718
Total ending allowance for credit losses - loans and loan commitments	$	12,983		$	59,557		$	28,377		$	17,089		$	840		$	4,716		$	1,559		$	125,121

Balance at December 31, 2020
Allowance for credit losses - loans	$	10,841		$	110,652		$	37,850		$	17,851		$	1,487		$	6,507		$	639		$	185,827
Allowance for credit losses - loan commitments		6,508			712			1,275			955			45			19			—			9,514
Total beginning allowance for credit losses - loans and loan commitments		17,349			111,364			39,125			18,806			1,532			6,526			639			195,341
Provision for credit losses:
Provision for loan losses		(4,740	)		(25,672	)		(8,090	)		(4,535	)		(719	)		(1,964	)		582			(45,138	)
Provision for loan commitments		(2,929	)		(618	)		(334	)		111			5			17			—			(3,748	)
Total provision for credit losses - loans and loan commitments		(7,669	)		(26,290	)		(8,424	)		(4,424	)		(714	)		(1,947	)		582			(48,886	)
Charge-offs		(22	)		(235	)		(814	)		(441	)		(274	)		(1,406	)		(365	)		(3,557	)
Recoveries		110			646			518			742			340			1,042			200			3,598
Net (charge-offs) recoveries		88			411			(296	)		301			66			(364	)		(165	)		41
Balance at June 30, 2021
Allowance for credit losses - loans		6,189			85,391			29,464			13,617			834			4,179			1,056			140,730
Allowance for credit losses - loan commitments		3,579			94			941			1,066			50			36			—			5,766
Total ending allowance for credit losses - loans and loan commitments	$	9,768		$	85,485		$	30,405		$	14,683		$	884		$	4,215		$	1,056		$	146,496

The following tables present the allowance for credit losses and recorded investments in loans by category, as of each period-end:


	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- drafts		Total
June 30, 2022
Allowance for credit losses:
Loans individually-evaluated	$	302	$	9,131	$	238	$	—	$	—	$	—	$	—	$	9,671
Loans collectively-evaluated		7,805		50,426		27,930		14,931		777		4,304		1,559		107,732
Loan commitments		4,876		—		209		2,158		63		412		—		7,718
Total allowance for credit losses - loans and commitments	$	12,983	$	59,557	$	28,377	$	17,089	$	840	$	4,716	$	1,559	$	125,121

Portfolio loans:
Individually-evaluated for credit losses	$	1,160	$	53,008	$	472	$	—	$	—	$	—	$	—	$	54,640
Collectively-evaluated for credit losses		918,256		4,880,140		1,549,296		1,907,875		597,845		300,637		—		10,154,049
Total portfolio loans	$	919,416	$	4,933,148	$	1,549,768	$	1,907,875	$	597,845	$	300,637	$	—	$	10,208,689

December 31, 2021
Allowance for credit losses:
Loans individually-evaluated	$	381	$	8,560	$	333	$	—	$	—	$	—	$	—	$	9,274
Loans collectively-evaluated		6,929		56,795		26,542		15,401		724		3,737		2,220		112,348
Loan commitments		4,180		201		1,497		1,576		49		272		—		7,775
Total allowance for credit losses - loans and commitments	$	11,490	$	65,556	$	28,372	$	16,977	$	773	$	4,009	$	2,220	$	129,397

Portfolio loans:
Individually-evaluated for credit losses	$	1,248	$	66,635	$	576	$	—	$	—	$	—	$	—	$	68,459
Collectively-evaluated for credit losses		832,632		4,638,453		1,589,744		1,721,378		605,682		277,130		—		9,665,019
Total portfolio loans	$	833,880	$	4,705,088	$	1,590,320	$	1,721,378	$	605,682	$	277,130	$	—	$	9,733,478

Commercial loan risk grades are determined based on an evaluation of the relevant characteristics of each loan, assigned at inception 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 sufficiency, reliability and sustainability of the primary source of repayment and overall financial strength of the borrower. The rating system more heavily weights the debt service coverage, leverage and loan to value factors to derive the risk grade. Other factors that are considered at a lesser weighting include management, industry or property type risks, payment history, collateral or guarantees.

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 the net operating income generated by the property to service the debt (“debt service coverage”), the loan to appraised value, the type, quality, industry and mix of tenants, and the terms of leases. The risk grade assigned to owner-occupied commercial real estate is based primarily on global debt service coverage and the leverage of the business, but may also consider the industry in which the business operates, the business’ specific competitive advantages or disadvantages, collateral margins and the quality and experience of management.

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 million. Primary factors that are considered in risk rating C&I loans include debt service coverage and leverage. Other factors including operating trends, collateral coverage along with management experience are also considered.

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, including guarantees.

Criticized loans, considered as compromised, have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the bank's credit position at some future date. Criticized loans are not adversely classified by the banking regulators and do not expose the bank to sufficient risk to warrant adverse classification.

Classified loans, considered as substandard and doubtful, are equivalent to the classifications used by banking regulators. Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected. These loans may or may not be reported as non-accrual. Doubtful loans have all the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. These loans are reported as non-accrual.

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, 2022
Pass	$	886,518	$	4,691,731	$	1,503,955	$	7,082,204
Criticized - compromised		25,706		155,102		13,063		193,871
Classified - substandard		7,192		86,315		32,750		126,257
Classified - doubtful		—		—		—		—
Total	$	919,416	$	4,933,148	$	1,549,768	$	7,402,332

As of December 31, 2021
Pass	$	823,316	$	4,400,872	$	1,540,569	$	6,764,757
Criticized - compromised		7,955		222,830		17,733		248,518
Classified - substandard		2,609		81,386		32,018		116,013
Classified - doubtful		—		—		—		—
Total	$	833,880	$	4,705,088	$	1,590,320	$	7,129,288

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 $25.3 million at June 30, 2022 and $30.2 million at December 31, 2021, of which $4.9 million and $7.4 million were accruing, for each period, respectively. These loans are not included in the tables above. In addition, $25.3 million and $21.7 million of unfunded commercial loan commitments are also not included in the tables above at June 30, 2022 and December 31, 2021, respectively.

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, 2022
Commercial real estate:
Land and construction	$	918,713	$	703	$	—	$	—	$	703	$	919,416	$	—
Improved property		4,901,240		8,349		10,084		13,475		31,908		4,933,148		7,223
Total commercial real estate		5,819,953		9,052		10,084		13,475		32,611		5,852,564		7,223
Commercial and industrial		1,542,663		3,574		730		2,801		7,105		1,549,768		452
Residential real estate		1,896,553		820		3,169		7,333		11,322		1,907,875		1,175
Home equity		592,060		2,089		547		3,149		5,785		597,845		391
Consumer		297,129		2,420		651		437		3,508		300,637		319
Total portfolio loans		10,148,358		17,955		15,181		27,195		60,331		10,208,689		9,560
Loans held for sale		17,560		—		—		—		—		17,560		—
Total loans	$	10,165,918	$	17,955	$	15,181	$	27,195	$	60,331	$	10,226,249	$	9,560

Nonperforming loans included above are as follows:
Non-accrual loans	$	12,751	$	457	$	1,113	$	17,393	$	18,963	$	31,714
TDRs accruing interest		3,159		8		170		242		420		3,579
Total nonperforming loans	$	15,910	$	465	$	1,283	$	17,635	$	19,383	$	35,293

As of December 31, 2021
Commercial real estate:
Land and construction	$	833,755	$	—	$	—	$	125	$	125	$	833,880	$	51
Improved property		4,681,028		6,377		7,728		9,955		24,060		4,705,088		3,042
Total commercial real estate		5,514,783		6,377		7,728		10,080		24,185		5,538,968		3,093
Commercial and industrial		1,583,347		2,275		1,213		3,485		6,973		1,590,320		559
Residential real estate		1,702,587		2,331		3,254		13,206		18,791		1,721,378		2,840
Home equity		599,189		2,240		602		3,651		6,493		605,682		685
Consumer		273,577		1,532		1,208		813		3,553		277,130		627
Total portfolio loans		9,673,483		14,755		14,005		31,235		59,995		9,733,478		7,804
Loans held for sale		25,277		—		—		—		—		25,277		—
Total loans	$	9,698,760	$	14,755	$	14,005	$	31,235	$	59,995	$	9,758,755	$	7,804

Nonperforming loans included above are as follows:
Non-accrual loans	$	11,174	$	914	$	564	$	23,090	$	24,568	$	35,742
TDRs accruing interest		3,275		3		127		341		471		3,746
Total nonperforming loans	$	14,449	$	917	$	691	$	23,431	$	25,039	$	39,488

(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 nonperforming loans:


	Nonperforming Loans
	June 30, 2022						December 31, 2021
	Unpaid						Unpaid
	Principal		Recorded		Related		Principal		Recorded		Related
(unaudited, in thousands)	Balance (1)		Investment		Allowance		Balance (1)		Investment		Allowance
With no related specific allowance recorded:
Commercial real estate:
Land and construction	$	53	$	53	$	—	$	74	$	73	$	—
Improved property		9,034		7,404		—		9,846		8,089		—
Commercial and industrial		5,675		4,458		—		6,528		5,256		—
Residential real estate		23,018		17,809		—		25,492		20,065		—
Home equity		6,683		5,163		—		6,985		5,440		—
Consumer		709		406		—		869		565		—
Total nonperforming loans without a specific allowance		45,172		35,293		—		49,794		39,488		—
Total nonperforming loans with a specific allowance		—		—		—		—		—		—
Total nonperforming loans	$	45,172	$	35,293	$	—	$	49,794	$	39,488	$	—

(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 nonperforming loans.


	Nonperforming Loans
	For the Three Months Ended								For the Six Months Ended
	June 30, 2022				June 30, 2021				June 30, 2022				June 30, 2021
	Average		Interest		Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income		Recorded		Income
(unaudited, in thousands)	Investment		Recognized		Investment		Recognized		Investment		Recognized		Investment		Recognized
With no related specific allowance recorded:
Commercial real estate:
Land and construction	$	105	$	1	$	97	$	—	$	94	$	2	$	221	$	—
Improved property		7,595		6		7,011		8		7,750		14		7,359		17
Commercial and industrial		4,631		—		3,172		2		4,831		3		3,252		3
Residential real estate		18,149		36		21,717		101		18,728		72		21,379		140
Home equity		5,411		3		5,668		3		5,396		6		5,681		9
Consumer		464		1		327		1		496		2		339		1
Total nonperforming loans without a specific allowance		36,354		47		37,992		115		37,295		99		38,231		170
With a specific allowance recorded:
Commercial real estate:
Land and construction		—		—		—		—		—		—		—		—
Improved property		—		—		2,084		—		—		—		2,087		—
Total nonperforming loans with a specific allowance		—		—		2,084		—		—		—		2,087		—
Total nonperforming loans	$	36,354	$	47	$	40,076	$	115	$	37,295	$	99	$	40,318	$	170

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


	Non-accrual Loans (1)
	June 30,		December 31,
(unaudited, in thousands)	2022		2021
Commercial real estate:
Land and construction	$	—	$	73
Improved property		7,043		7,715
Total commercial real estate		7,043		7,788
Commercial and industrial		4,275		5,064
Residential real estate		15,111		17,190
Home equity		4,909		5,163
Consumer		376		537
Total	$	31,714	$	35,742

(1)

At June 30, 2022, there were three borrowers with a loan balance greater than $1.0 million totaling $3.8 million, as compared to three borrowers with a loan balance greater than $1.0 million totaling $4.1 million at December 31, 2021. Total non-accrual loans include loans that are also TDRs. Such loans are also set forth in the following table as non-accrual TDRs.


	TDRs
	June 30, 2022						December 31, 2021
(unaudited, in thousands)	Accruing		Non-Accrual		Total		Accruing		Non-Accrual		Total
Commercial real estate:
Land and construction	$	53	$	—	$	53	$	—	$	—	$	—
Improved property		361		213		574		374		133		507
Total commercial real estate		414		213		627		374		133		507
Commercial and industrial		183		—		183		192		—		192
Residential real estate		2,698		1,674		4,372		2,875		1,156		4,031
Home equity		254		233		487		277		258		535
Consumer		30		—		30		28		—		28
Total	$	3,579	$	2,120	$	5,699	$	3,746	$	1,547	$	5,293

As of June 30, 2022 and December 31, 2021, 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 six months. Wesbanco had unfunded commitments to debtors whose loans were classified as nonperforming of $0.3 million and $0.1 million as of June 30, 2022 and December 31, 2021, respectively.

The following table presents details related to loans identified as TDRs during the three and six months ended June 30, 2022 and 2021, respectively:


	New TDRs (1)
	For the Three Months Ended
	June 30, 2022						June 30, 2021
			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		1		186		184		—		—		—
Total commercial real estate		1		186		184		—		—		—
Commercial and industrial		—		—		—		—		—		—
Residential real estate		—		—		—		2		2,041		2,057
Home equity		—		—		—		1		56		56
Consumer		—		—		—		—		—		—
Total		1	$	186	$	184		3	$	2,097	$	2,113

	New TDRs (1)
	For the Six Months Ended
	June 30, 2022						June 30, 2021
			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		1	$	84	$	54		—	$	—	$	—
Improved property		1		189		184		—		—		—
Total commercial real estate		2		273		238		—		—		—
Commercial and industrial		—		—		—		—		—		—
Residential real estate		—		—		—		2		2,064		2,057
Home equity		—		—		—		1		56		56
Consumer		—		—		—		—		—		—
Total		2	$	273	$	238		3	$	2,120	$	2,113

(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.

There have been no TDRs which defaulted (defined as past due 90 days) during the six months ended June 30, 2022 and 2021, respectively, that were restructured within the last twelve months prior to June 30, 2022 and 2021, respectively. TDRs that default are placed on non-accrual status unless they are both well-secured and in the process of collection.

Section 4013 of the CARES Act allows financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time during the COVID-19 pandemic. These customers must meet certain criteria, such as they were in good standing and not more than 30 days past due either as of December 31, 2019, or as of the implementation of the modification program under the Interagency Statement, as well as other requirements noted in the regulatory agencies’ revised statement. Based on this guidance, Wesbanco does not classify the COVID-19 loan modifications as TDRs, nor are the customers considered past due with regard to their delayed payments. Upon exiting the loan modification

deferral program, the measurement of loan delinquency will resume where it left off upon entry into the program. Under the CARES Act, Wesbanco has modified approximately 3,553 loans totaling $2.2 billion, of which $31.2 million remain in their deferral period as of June 30, 2022. Wesbanco originally offered three to six months of deferred payments to commercial and retail customers impacted by the COVID-19 pandemic depending on the type of loan and the industry for commercial loans. In the fourth quarter of 2020, Wesbanco offered up to an additional twelve months of deferred payments to certain commercial loan customers, predominantly in the hospitality industry, based on specific criteria related to the borrower, the underlying property and the potential for guarantors or co-borrowers. On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (“Economic Aid Act”) was signed into law and among other things, extended the relief granted by the CARES Act for TDRs, initially slated to end on December 31, 2020, by one year to December 31, 2021.

The following tables summarize amortized cost basis loan balances by year of origination and credit quality indicator:


	Loans As of June 30, 2022
	Amortized Cost Basis by Origination Year
(unaudited, in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Commercial real estate: land and construction
Risk rating:
Pass	$	74,974	$	134,155	$	193,937	$	179,538	$	97,159	$	54,683	$	77,675	$	74,397	$	886,518
Criticized - compromised		—		266		—		—		24,451		883		—		106		25,706
Classified - substandard		—		53		5,958		—		—		1,181		—		—		7,192
Classified - doubtful		—		—		—		—		—		—		—		—		—
Total	$	74,974	$	134,474	$	199,895	$	179,538	$	121,610	$	56,747	$	77,675	$	74,503	$	919,416

Commercial real estate: improved property
Risk rating:
Pass	$	634,489	$	666,798	$	633,834	$	536,681	$	371,491	$	1,748,737	$	69,703	$	29,998	$	4,691,731
Criticized - compromised		138		518		14,026		13,821		12,674		111,044		1,014		1,867		155,102
Classified - substandard		—		—		89		25,885		10,372		49,935		34		—		86,315
Classified - doubtful		—		—		—		—		—		—		—		—		—
Total	$	634,627	$	667,316	$	647,949	$	576,387	$	394,537	$	1,909,716	$	70,751	$	31,865	$	4,933,148

Commercial and industrial
Risk rating:
Pass	$	150,276	$	227,377	$	134,259	$	86,115	$	125,150	$	279,330	$	486,532	$	14,916	$	1,503,955
Criticized - compromised		308		1,028		447		591		375		2,701		5,029		2,584		13,063
Classified - substandard		—		3,282		1,423		11,470		389		3,032		5,089		8,065		32,750
Classified - doubtful		—		—		—		—		—		—		—		—		—
Total	$	150,584	$	231,687	$	136,129	$	98,176	$	125,914	$	285,063	$	496,650	$	25,565	$	1,549,768

Residential real estate
Loan delinquency:
Current	$	272,007	$	602,878	$	236,407	$	103,075	$	56,052	$	525,043	$	—	$	101,091	$	1,896,553
30-59 days past due		—		—		—		—		68		752		—		—		820
60-89 days past due		—		—		—		282		102		2,785		—		—		3,169
90 days or more past due		—		—		—		135		158		6,993		—		47		7,333
Total	$	272,007	$	602,878	$	236,407	$	103,492	$	56,380	$	535,573	$	—	$	101,138	$	1,907,875

Home equity
Loan delinquency:
Current	$	11,272	$	654	$	579	$	734	$	720	$	17,958	$	559,208	$	935	$	592,060
30-59 days past due		—		—		—		—		21		601		1,316		151		2,089
60-89 days past due		—		—		19		83		136		237		—		72		547
90 days or more past due		—		—		20		59		199		2,481		—		390		3,149
Total	$	11,272	$	654	$	618	$	876	$	1,076	$	21,277	$	560,524	$	1,548	$	597,845

Consumer
Loan delinquency:
Current	$	50,807	$	46,478	$	33,249	$	36,428	$	13,303	$	33,082	$	83,610	$	172	$	297,129
30-59 days past due		552		845		384		146		76		372		45		—		2,420
60-89 days past due		39		152		117		143		39		161		—		—		651
90 days or more past due		34		14		118		52		35		184		-		—		437
Total	$	51,432	$	47,489	$	33,868	$	36,769	$	13,453	$	33,799	$	83,655	$	172	$	300,637


	Loans As of December 31, 2021
	Amortized Cost Basis by Origination Year
(unaudited, in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Commercial real estate: land and construction
Risk rating:
Pass	$	135,179	$	217,389	$	198,974	$	117,157	$	27,186	$	29,696	$	35,059	$	62,676	$	823,316
Criticized - compromised		85		6,236		—		33		—		219		856		526		7,955
Classified - substandard		—		73		—		—		—		1,280		—		1,256		2,609
Classified - doubtful		—		—		—		—		—		—		—		—		—
Total	$	135,264	$	223,698	$	198,974	$	117,190	$	27,186	$	31,195	$	35,915	$	64,458	$	833,880

Commercial real estate: improved property
Risk rating:
Pass	$	713,697	$	660,856	$	589,674	$	405,689	$	404,241	$	1,539,275	$	58,933	$	28,507	$	4,400,872
Criticized - compromised		7,755		15,195		52,859		17,697		14,490		99,687		1,414		13,733		222,830
Classified - substandard		9,355		2,686		4,855		3,730		11,010		49,667		34		49		81,386
Classified - doubtful		—		—		—		—		—		—		—		—		—
Total	$	730,807	$	678,737	$	647,388	$	427,116	$	429,741	$	1,688,629	$	60,381	$	42,289	$	4,705,088

Commercial and industrial
Risk rating:
Pass	$	406,495	$	159,878	$	99,472	$	136,146	$	89,049	$	223,514	$	409,789	$	16,226	$	1,540,569
Criticized - compromised		590		551		693		2,558		1,645		1,278		5,389		5,029		17,733
Classified - substandard		134		236		18,465		766		2,139		1,419		3,723		5,136		32,018
Classified - doubtful		—		—		—		—		—		—		—		—		—
Total	$	407,219	$	160,665	$	118,630	$	139,470	$	92,833	$	226,211	$	418,901	$	26,391	$	1,590,320

Residential real estate
Loan delinquency:
Current	$	599,244	$	292,653	$	116,147	$	71,253	$	56,917	$	536,444	$	—	$	29,929	$	1,702,587
30-59 days past due		1,127		—		—		69		105		1,030		—		—		2,331
60-89 days past due		563		91		—		271		43		2,286		—		—		3,254
90 days or more past due		1,933		673		895		88		762		8,802		—		53		13,206
Total	$	602,867	$	293,417	$	117,042	$	71,681	$	57,827	$	548,562	$	—	$	29,982	$	1,721,378

Home equity
Loan delinquency:
Current	$	10,076	$	835	$	649	$	379	$	566	$	18,064	$	567,478	$	1,142	$	599,189
30-59 days past due		—		84		45		128		50		628		1,247		58		2,240
60-89 days past due		—		—		132		15		188		267		—		—		602
90 days or more past due		187		88		119		112		234		2,550		—		361		3,651
Total	$	10,263	$	1,007	$	945	$	634	$	1,038	$	21,509	$	568,725	$	1,561	$	605,682

Consumer
Loan delinquency:
Current	$	60,907	$	43,871	$	50,317	$	19,289	$	11,084	$	32,343	$	55,739	$	27	$	273,577
30-59 days past due		435		370		214		136		85		241		51		—		1,532
60-89 days past due		413		375		82		19		33		286		—		—		1,208
90 days or more past due		115		141		222		65		1		265		4		—		813
Total	$	61,870	$	44,757	$	50,835	$	19,509	$	11,203	$	33,135	$	55,794	$	27	$	277,130

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


	June 30,		December 31,
(unaudited, in thousands)	2022		2021
Other real estate owned	$	—	$	—
Repossessed assets		31		—
Total other real estate owned and repossessed assets	$	31	$	—

At June 30, 2022 and December 31, 2021, formal foreclosure proceedings were in process on residential real estate loans totaling $4.1 million and $4.0 million, respectively. Previously, as a result of provisions of the CARES Act, certain residential real estate loans were temporarily suspended from entering foreclosure proceedings, which included $0.8 million of loans as of December 31, 2021. Since this moratorium had substantially ended during the first quarter of 2022, there are currently no loans suspended from entering foreclosure proceedings.

NOTE 5. DERIVATIVES AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

Wesbanco is exposed to certain risks arising from both its business operations and economic conditions. Wesbanco principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. Wesbanco manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities. Wesbanco’s existing interest rate derivatives result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in Wesbanco’s assets or liabilities. Wesbanco manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions. A matched book is when the Bank's assets and liabilities are equally distributed but also have similar maturities.

Loan Swaps

Wesbanco executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that Wesbanco executes with a third party, such that Wesbanco minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements of ASC 815, changes in the fair value of both the customer swaps and the offsetting third-party swaps are recognized directly in earnings. As of June 30, 2022 and December 31, 2021, Wesbanco had 140 and 135 customer interest rate swaps with an aggregate notional amount of $751.7 million and $730.6 million, respectively, related to this program. Wesbanco recognized income for the related swap fees of $0.9 million and $1.0 million for the three months ended June 30, 2022 and 2021, respectively, and $1.0 million and $2.9 million for the six months ended June 30, 2022 and 2021, respectively.

Risk participation agreements are entered into as financial guarantees of performance on interest rate swap derivatives. The purchased asset or sold liability allows Wesbanco to participate-in (fee received) or participate-out (fee paid) the risk associated with certain derivative positions executed by the borrower of the lead bank in a loan syndication. As of June 30, 2022 and December 31, 2021, Wesbanco had 12 and 13 risk participation-in agreements with an aggregate notional amount of $118.6 million and $128.2 million, respectively. As of June 30, 2022 and December 31, 2021, Wesbanco had one risk participation-out agreement with an aggregate notional amount of $9.7 million and $9.8 million, respectively.

Mortgage Loans Held for Sale and Loan Commitments

Certain residential mortgage loans are originated for sale in the secondary mortgage loan market. These loans are classified as held for sale and carried at fair value as Wesbanco has elected the fair value option. Fair value is determined based on rates obtained from the secondary market for loans with similar characteristics. Wesbanco sells loans to the secondary market on either a mandatory or best efforts basis. The loans sold on a mandatory basis are not committed to an investor until the loan is closed with the borrower. Wesbanco enters into forward to be announced (“TBA”) contracts to manage the interest rate risk between the loan commitment and the closing of the loan. The total balance of forward TBA contracts entered into was $38.0 million and $48.5 million at June 30, 2022 and December 31, 2021, respectively. The loans sold on a best efforts basis are committed to an investor simultaneous to the interest rate commitment with the borrower, and as a result, the Company does not enter into a separate forward TBA contract to offset the fair value risk as the investor accepts such risk in exchange for paying a lower premium on sale.

Fair Values of Derivative Instruments on the Balance Sheet

All derivatives are carried on the consolidated balance sheet at fair value. Derivative assets are classified in the consolidated balance sheet under other assets, and derivative liabilities are classified in the consolidated balance sheet under other liabilities. Changes in fair value are recognized in earnings. None of Wesbanco’s derivatives are designated in a qualifying hedging relationship under ASC 815.

The table below presents the fair value of Wesbanco’s derivative financial instruments as well as their classification on the Balance Sheet as of June 30, 2022 and December 31, 2021:


	June 30, 2022						December 31, 2021
(unaudited, in thousands)	Notional or Contractual Amount		Asset Derivatives		Liability Derivatives		Notional or Contractual Amount		Asset Derivatives		Liability Derivatives
Derivatives
Loan Swaps:
Interest rate swaps	$	751,704	$	46,815	$	45,734	$	730,552	$	24,867	$	26,388
Other contracts:
Interest rate loan commitments		21,616		53		—		28,994		9		—
Forward TBA contracts		38,000		45		—		48,500	—			21
Total derivatives			$	46,913	$	45,734			$	24,876	$	26,409

Effect of Derivative Instruments on the Income Statement

The table below presents the change in the fair value of the Company’s derivative financial instruments reflected within non-interest income on the consolidated income statement for the three and six months ended June 30, 2022 and 2021, respectively.


		For the Three Months Ended June 30,					For the Six Months Ended June 30,
(unaudited, in thousands)	Location of Gain/(Loss)	2022		2021			2022		2021
Interest rate swaps	Other income	$	1,142	$	(1,033	)	$	2,603	$	1,728
Interest rate loan commitments	Mortgage banking income		362		564			44		(452	)
Forward TBA contracts	Mortgage banking income		605		(1,619	)		2,048		2,899
Total		$	2,109	$	(2,088	)	$	4,695	$	4,175

Credit-risk-related Contingent Features

Wesbanco has agreements with its derivative counterparties that contain a provision, which provides that if Wesbanco defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then Wesbanco could also be declared in default on its derivative obligations.

Wesbanco also has agreements with certain of its derivative counterparties that contain a provision where if Wesbanco fails to maintain its status as either a “well” or “adequately-capitalized” institution, then the counterparty could terminate the derivative positions and Wesbanco would be required to settle its obligations under the agreements.

Dependent upon the net present value of the underlying swaps, Wesbanco has minimum collateral posting thresholds with certain of its derivative counterparties. If Wesbanco had breached any of these provisions at June 30, 2022, it could have been required to settle its obligations under the agreements at the termination value and would have been required to pay any additional amounts due in excess of amounts previously posted as collateral with the respective counterparties. In certain market situations, Wesbanco can also request collateral from the derivative counterparties. Due to the current rise in interest rates, as of June 30, 2022, Wesbanco is holding collateral from various derivative counterparties with a market value of $22.1 million.

NOTE 6. BENEFIT PLANS

The following table presents the net periodic pension income for Wesbanco’s Defined Benefit Pension Plan (the “Plan”) and the related components:


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(unaudited, in thousands)	2022			2021			2022			2021
Service cost – benefits earned during year	$	546		$	623		$	1,086		$	1,239
Interest cost on projected benefit obligation		1,026			852			2,039			1,694
Expected return on plan assets		(2,885	)		(2,794	)		(5,738	)		(5,557	)
Amortization of prior service cost		(9	)		(9	)		(17	)		(17	)
Amortization of net loss		126			682			251			1,357
Net periodic pension income	$	(1,196	)	$	(646	)	$	(2,379	)	$	(1,284	)

The service cost of $1.1 million and $1.2 million for the six months ended June 30, 2022 and 2021, respectively, is included in salaries and wages, and periodic pension income of $3.5 million and $2.5 million for the six months ended June 30, 2022 and 2021, respectively, is included in employee benefits.

The Plan covers all employees of Wesbanco and its subsidiaries who were hired on or before August 1, 2007 who satisfy minimum age and length of service requirements, and is not available to employees hired after such date.

A minimum required contribution is not required for 2022, and Wesbanco currently does not expect to make a voluntary contribution to the Plan in 2022.

NOTE 7. FAIR VALUE MEASUREMENT

Fair value estimates are based on quoted market prices, if available, quoted market prices of similar assets or liabilities, or the present value of expected future cash flows and other valuation techniques. These valuations are significantly affected by discount rates, cash flow assumptions, and risk assumptions used. Therefore, fair value estimates may not be substantiated by comparison to independent markets and are not intended to reflect the proceeds that may be realizable in an immediate settlement of the instruments.

Fair value is determined at one point in time and is not representative of future value. These amounts do not reflect the total value of a going concern organization. Management does not have the intention to dispose of a significant portion of its assets and liabilities, and therefore the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows.

The following is a discussion of assets and liabilities measured at fair value on a recurring basis and valuation techniques applied:

Investment securities: The fair value of investment securities which are measured on a recurring basis are determined primarily by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other similar securities. These securities are classified within level 1 or 2 in the fair value hierarchy. Positions that are not traded in active markets for which valuations are generated using assumptions not observable in the market or management’s best estimate are classified within level 3 of the fair value hierarchy. This includes certain specific municipal debt issues for which the credit quality and discount rate must be estimated.

Loans held for sale: Loans held for sale are carried, in aggregate, at fair value as Wesbanco previously elected the fair value option. The use of a valuation model using quoted prices of similar instruments are significant inputs in arriving at the fair value and therefore loans held for sale are classified within level 2 of the fair value hierarchy.

Derivatives: Wesbanco enters into interest rate swap agreements with qualifying commercial customers to meet their financing, interest rate and other risk management needs. These agreements provide the customer the ability to convert from variable to fixed interest rates. The credit risk associated with derivatives executed with customers is essentially the same as that involved in extending loans and is subject to normal credit policies and monitoring. Those interest rate swaps are economically hedged by offsetting interest rate swaps that Wesbanco executes with derivative counterparties in order to offset its exposure on the fixed components of the customer interest rate swap agreements. The interest rate swap agreement with the loan customer and with the counterparty is reported at fair value in other assets and other liabilities on the consolidated balance sheet with any resulting gain or loss recorded in current period earnings as other income and other expense.

Wesbanco enters into forward TBA contracts to manage the interest rate risk between the loan commitments to the customer and the closing of the loan for loans that will be sold on a mandatory basis to secondary market investors. The forward TBA contract is reported at fair value in other assets and other liabilities on the consolidated balance sheet with any resulting gain or loss recorded in current period’s earnings as mortgage banking income.

Wesbanco determines the fair value for derivatives using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. Wesbanco incorporates credit valuation adjustments to appropriately reflect both its own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements.

We may be required from time to time to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market accounting or write-downs of individual assets and liabilities.

Collateral dependent loans: Collateral dependent loans are carried at the amortized cost basis less the specific allowance calculated under CECL. Collateral dependent loans are calculated using a cost basis approach or collateral value approach.

Other real estate owned and repossessed assets: Other real estate owned and repossessed assets are carried at the lower of the investment in the assets or the fair value of the assets less estimated selling costs. The use of independent appraisals and management’s best judgment are significant inputs in arriving at the fair value measure of the underlying collateral, and therefore other real estate owned and repossessed assets are classified within level 3 of the fair value hierarchy.

The fair value amounts presented in the table below are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. The following tables set forth Wesbanco’s financial assets and liabilities that were accounted for at fair value on a recurring and nonrecurring basis by level within the fair value hierarchy as of June 30, 2022 and December 31, 2021:


			June 30, 2022
			Fair Value Measurements Using:
	June 30,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(unaudited, in thousands)	2022		(level 1)		(level 2)		(level 3)
Recurring fair value measurements
Equity securities	$	11,413	$	11,413	$	—	$	—
Available-for-sale debt securities
U.S. Government sponsored entities and agencies		248,929		—		248,929		—
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		2,089,287		—		2,089,287		—
Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		431,828		—		431,828		—
Obligations of states and political subdivisions		99,310		—		98,084		1,226
Corporate debt securities		15,297		—		15,297		—
Total available-for-sale debt securities	$	2,884,651	$	—	$	2,883,425	$	1,226
Loans held for sale		17,560		—		17,560		—
Other assets - interest rate swaps		46,815		—		46,815		—
Total assets recurring fair value measurements	$	2,960,439	$	11,413	$	2,947,800	$	1,226
Other liabilities - interest rate swaps	$	45,734	$	—	$	45,734	$	—
Total liabilities recurring fair value measurements	$	45,734	$	—	$	45,734	$	—
Nonrecurring fair value measurements
Collateral dependent loans	$	23,725	$	—	$	—	$	23,725
Other real estate owned and repossessed assets		31		—		—		31
Total nonrecurring fair value measurements	$	23,756	$	—	$	—	$	23,756


			December 31, 2021
			Fair Value Measurements Using:
	December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	2021		(level 1)		(level 2)		(level 3)
Recurring fair value measurements
Equity securities	$	13,466	$	13,466	$	—	$	—
Available-for-sale debt securities
U.S. Government sponsored entities and agencies		236,978		—		236,978		—
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		2,285,213		—		2,285,213		—
Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		367,493		—		367,493		—
Obligations of states and political subdivisions		106,340		—		104,847		1,493
Corporate debt securities		17,438		—		17,438		—
Total available-for-sale debt securities	$	3,013,462	$	—	$	3,011,969	$	1,493
Loans held for sale		25,277		—		25,277		—
Other assets - interest rate swaps		24,867		—		24,867		—
Total assets recurring fair value measurements	$	3,077,072	$	13,466	$	3,062,113	$	1,493
Other liabilities - interest rate swaps	$	26,388	$	—	$	26,388	$	—
Total liabilities recurring fair value measurements	$	26,388	$	—	$	26,388	$	—
Nonrecurring fair value measurements
Collateral dependent loans	$	13,558	$	—	$	—	$	13,558
Other real estate owned and repossessed assets		—		—		—		—
Total nonrecurring fair value measurements	$	13,558	$	—	$	—	$	13,558

Wesbanco’s policy is to recognize transfers between levels as of the actual date of the event or change in circumstances that caused the transfer. There were no significant transfers between level 1, 2 or 3 for the three and six months ended June 30, 2022 or for the year ended December 31, 2021.

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Wesbanco has utilized level 3 inputs to determine fair value:


	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value		Valuation	Unobservable	Range (Weighted
(unaudited, in thousands)	Estimate		Techniques	Input	Average)
June 30, 2022
Collateral dependent loans	$	23,725	Appraisal of collateral (1)	Appraisal adjustments (2)	(30.0%)/(30.0%)
				Liquidation expenses (2)	(5.6%) to (8.0%)/(6.7%)
Other real estate owned and repossessed assets	$	31	Appraisal of collateral (1), (3)
December 31, 2021
Collateral dependent loans	$	13,558	Appraisal of collateral (1)	Appraisal adjustments (2)	(0.0%)/(0.0%)
				Liquidation expenses (2)	(8.0%)/(8.0%)

(1)

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs, which are not identifiable.

(2)

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of appraisal adjustments and liquidation expense are presented as a percent of the appraisal.

(3)

Includes estimated liquidation expenses and numerous dissimilar qualitative adjustments by management, which are not identifiable.

The estimated fair values of Wesbanco’s financial instruments are summarized below:


					Fair Value Measurements at
					June 30, 2022
	Carrying		Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(unaudited, in thousands)	Amount		Estimate		(level 1)		(level 2)		(level 3)
Financial Assets
Cash and due from banks	$	450,009	$	450,009	$	450,009	$	—	$	—
Equity securities		11,413		11,413		11,413		—		—
Available-for-sale debt securities		2,884,651		2,884,651		—		2,883,425		1,226
Net held-to-maturity debt securities		1,281,030		1,153,594		—		1,153,244		350
Net loans		10,091,286		9,236,728		—		—		9,236,728
Loans held for sale		17,560		17,560		—		17,560		—
Other assets - interest rate swaps		46,815		46,815		—		46,815		—
Accrued interest receivable		61,918		61,918		61,918		—		—

Financial Liabilities
Deposits		13,569,302		13,575,715		12,463,997		1,111,718		—
Federal Home Loan Bank borrowings		122,650		121,881		—		121,881		—
Other borrowings		147,964		132,138		132,138		—		—
Subordinated debt and junior subordinated debt		280,910		273,599		—		273,599		—
Other liabilities - interest rate swaps		45,734		45,734		—		45,734		—
Accrued interest payable		2,815		2,815		2,815		—		—


					Fair Value Measurements at
					December 31, 2021
	Carrying		Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Amount		Estimate		(level 1)		(level 2)		(level 3)
Financial Assets
Cash and due from banks	$	1,251,358	$	1,251,358	$	1,251,358	$	—	$	—
Equity securities		13,466		13,466		13,466		—		—
Available-for-sale debt securities		3,013,462		3,013,462		—		3,011,969		1,493
Net held-to-maturity debt securities		1,004,555		1,028,452		—		1,028,047		405
Net loans		9,611,856		9,385,917		—		—		9,385,917
Loans held for sale		25,277		25,277		—		25,277		—
Other assets - interest rate swaps		24,867		24,867		—		24,867		—
Accrued interest receivable		60,844		60,844		60,844		—		—

Financial Liabilities
Deposits		13,565,863		13,575,477		12,273,211		1,302,266		—
Federal Home Loan Bank borrowings		183,920		185,684		—		185,684		—
Other borrowings		141,893		134,288		134,288		—		—
Subordinated debt and junior subordinated debt		132,860		109,186		—		109,186		—
Other liabilities - interest rate swaps		26,388		26,388		—		26,388		—
Accrued interest payable		1,901		1,901		1,901		—		—

The following methods and assumptions were used to measure the fair value of financial instruments recorded at cost on Wesbanco’s consolidated balance sheets:

Cash and due from banks: The carrying amount for cash and due from banks is a reasonable estimate of fair value.

Held-to-maturity debt securities: Fair values for debt securities held-to-maturity are determined in the same manner as investment securities, which are described above.

Net loans: Fair values for loans are estimated using a discounted cash flow methodology. The discount rates take into account interest rates currently being offered to customers for loans with similar terms, the credit risk associated with the loan and other market factors, including liquidity. Wesbanco believes the discount rates are consistent with transactions occurring in the marketplace for both performing and distressed loan types. The carrying value is net of the allowance for loan losses and other associated premiums and discounts. Due to the significant judgment involved in evaluating credit quality, loans are classified within level 3 of the fair value hierarchy.

Accrued interest receivable: The carrying amount of accrued interest receivable approximates its fair value.

Deposits: The carrying amount is considered a reasonable estimate of fair value for demand, savings and other variable rate deposit accounts. The fair value of fixed maturity certificates of deposit is estimated by a discounted cash flow method using rates currently offered for deposits of similar remaining maturities.

Federal Home Loan Bank borrowings: The fair value of FHLB borrowings is based on rates currently available to Wesbanco for borrowings with similar terms and remaining maturities.

Other borrowings: The carrying amount of federal funds purchased and overnight sweep accounts generally approximate fair value. Other repurchase agreements are based on quoted market prices if available. If market prices are not available, for certain fixed and adjustable rate repurchase agreements, then quoted market prices of similar instruments are used.

Subordinated debt and junior subordinated debt: The fair value of subordinated debt is determined primarily by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other similar securities. These securities are classified within level 2 in the fair value hierarchy. Due to the pooled nature of junior subordinated debt owed to unconsolidated subsidiary trusts, which are not actively traded, estimated fair value is determined by using comparable corporate bond indices and swap rates from the financial services sector and factoring in the applicable credit spreads and optional early redemption provisions.

Accrued interest payable: The carrying amount of accrued interest payable approximates its fair value.

Off-balance sheet financial instruments: Off-balance sheet financial instruments consist of commitments to extend credit, including letters of credit. Fair values for commitments to extend credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit standing of the counterparties. The estimated fair value of the commitments to extend credit and letters of credit are insignificant and therefore are not presented in the above tables.

NOTE 8. REVENUE RECOGNITION

Interest income, net securities gains (losses) and bank-owned life insurance are not in scope of ASC 606, Revenue from Contracts with Customers. For the revenue streams in scope of ASC 606 - trust fees, service charges on deposits, net securities brokerage revenue, debit card sponsorship income, payment processing fees, electronic banking fees, mortgage banking income and net gain or loss on sale of other real estate owned and other assets – there are no significant judgements related to the amount and timing of revenue recognition.

Trust fees: Fees are earned over a period of time between monthly and annually, per the related fee schedule. The fees are earned ratably over the period for investment, safekeeping and other services performed by Wesbanco. The fees are accrued when earned based on the daily asset value on the last day of the quarter. In most cases, the fees are directly debited from the customer account. WesMark fees consist of investment advisory fees and shareholder service fees and are paid to Wesbanco by the WesMark mutual funds on a monthly basis for Wesbanco’s involvement with the management of the funds.

Service charges on deposits: There are monthly service charges for both commercial and personal banking customers, which are earned over the month per the related fee schedule based on the customers’ deposits. There are also transaction-based fees, which are earned based on specific transactions or customer activity within the customers’ deposit accounts. These are earned at the time the transaction or customer activity occurs. The fees are debited from the customer account.

Net securities brokerage revenue: Commission income is earned based on customer transactions and management of investments. The commission income from customers’ transactions is recognized when the transaction is complete and approved. Annuity commissions are earned based upon the carrier’s commission rate for the annuity product chosen by the investing customer. The commission income from the management of investments over time is earned continuously over a quarterly period.

Debit card sponsorship income: The activity in this revenue stream concluded on March 31, 2021, with the sale of this program to another bank. Debit card sponsorship income was earned from Wesbanco’s sponsorship of its customers, which included independent service organizations, processors and other banks into different debit networks. For providing this service, the customers paid the bank a per transaction fee for each transaction processed through the network. In some cases, customers were also charged annual sponsorship fees and non-compliance fees as applicable. The fees were earned at the time the transaction or customer activity occurred. The fees were either directly debited from the customers' deposit accounts or were billed to the customer.

Payment processing fees: Payment processing fees are earned from the bill payment and electronic funds transfer (“EFT”) services provided under the name FirstNet. The fees are derived from both the individual consumer banking transactions and from businesses or service providers through monthly billing for total transactions occurring. These fees are earned at the time the transaction or customer activity occurs. The fees are debited from the customers’ deposit accounts or charged directly to the business or service provider.

Electronic banking fees: Interchange and ATM fees are earned based on customer and ATM transactions. Revenue is recognized when the transaction is settled.

Mortgage banking income: Income is earned when Wesbanco-originated loans are sold to an investor on the secondary market. The investor bids on the loans. If the price is accepted, Wesbanco delivers the loan documents to the investor. Once received and approved by the investor, revenue is recognized and the loans are derecognized from the Consolidated Balance Sheet. Prior to the loans being sold, they are classified as loans held for sale. Additionally, the changes in the fair value of the loans held for sale, loan commitments and related derivatives are included in mortgage banking income and are slightly offset by any deferred direct origination costs, such as mortgage loan officer commissions.

Net gain or loss on sale of other real estate owned and other assets: Net gain or loss on other real estate owned is recorded when the property is sold to a third party and the Bank collects substantially all of the consideration to which it is entitled in exchange for the transfer of the property. Net gain or loss on other assets can include, among other things, the sale of fixed assets, the change in fair value of the underlying investments funded by Wesbanco’s Community Development Corporation (“Wesbanco CDC”) and residual income earned from the sale of Wesbanco’s debit card sponsorship program. Gains or losses are recognized upon receipt of consideration and subsequent transfer of the property for fixed asset sales. The change in fair value of Wesbanco CDC investments occurs upon the change in the underlying investments as these are accounted for utilizing the equity method, and as such, are not within the scope of ASC 606. Residual income from the sale of the debit card sponsorship program is recognized over time per the signed agreement between Wesbanco and the buyer.

The following table summarizes the point of revenue recognition and the income recognized for each of the revenue streams for the three and six months ended June 30, 2022 and 2021, respectively:


	Point of Revenue	For the Three Months Ended June 30,					For the Six Months Ended June 30,
(unaudited, in thousands)	Recognition	2022			2021		2022			2021
Revenue Streams
Trust fees
Trust account fees	Over time	$	4,416		$	4,710	$	9,958		$	10,024
WesMark fees	Over time		2,111			2,438		4,404			4,756
Total trust fees			6,527			7,148		14,362			14,780
Service charges on deposits
Commercial banking fees	Over time		602			601		1,170			1,165
Personal service charges	At a point in time and over time		5,885			4,275		11,407			8,605
Total service charges on deposits			6,487			4,876		12,577			9,770
Net securities brokerage revenue
Annuity commissions	At a point in time		1,679			1,151		3,261			2,067
Equity and debt security trades	At a point in time		8			57		65			133
Managed money	Over time		327			291		654			574
Trail commissions	Over time		244			330		498			578
Total net securities brokerage revenue			2,258			1,829		4,478			3,352

Debit card sponsorship income (1)	At a point in time and over time		—			—		—			646
Payment processing fees (1)	At a point in time and over time		877			748		1,618			1,461
Electronic banking fees	At a point in time		5,154			5,060		10,499			9,426
Mortgage banking income	At a point in time		1,328			7,830		3,251			12,094
Net (loss) gain on other real estate owned and other assets (2)	At a point in time and over time		(1,302	)		4,014		(2,108	)		4,189

(1)

Debit card sponsorship income and payment processing fees are included in other non-interest income.

(2)

The portion of this line item relating to the change in the fair value of the underlying investments funded by Wesbanco CDC is not within the scope of ASC 606, and totaled (losses) gains of ($1.4) million and $3.7 million for the three months ended June 30, 2022 and 2021, respectively, and ($2.6) million and $3.8 million for the six months ended June 30, 2022 and 2021, respectively.

NOTE 9. COMPREHENSIVE INCOME/(LOSS)

The activity in accumulated other comprehensive income for the six months ended June 30, 2022 and 2021 is as follows:


	Accumulated Other Comprehensive Income/(Loss) (1)
(unaudited, in thousands)	Defined Benefit Plans			Unrealized Gains (Losses) on Debt Securities Available-for-Sale			Total
Balance at December 31, 2021	$	(398	)	$	(4,722	)	$	(5,120	)
Other comprehensive loss before reclassifications		—			(171,058	)		(171,058	)
Amounts reclassified from accumulated other comprehensive loss		109			8			117
Period change		109			(171,050	)		(170,941	)
Balance at June 30, 2022	$	(289	)	$	(175,772	)	$	(176,061	)

Balance at December 31, 2020	$	(15,502	)	$	46,861		$	31,359
Other comprehensive loss before reclassifications		—			(19,696	)		(19,696	)
Amounts reclassified from accumulated other comprehensive loss		949			(26	)		923
Period change		949			(19,722	)		(18,773	)
Balance at June 30, 2021	$	(14,553	)	$	27,139		$	12,586

(1)

All amounts are net of tax. Related income tax expense or benefit is calculated using a combined Federal and State income tax rate approximating 24% in both periods presented.

The following table provides details about amounts reclassified from accumulated other comprehensive income for the three and six months ended June 30, 2022 and 2021:


Details about Accumulated Other Comprehensive Income/(Loss) Components	For the Three Months Ended June 30,						For the Six Months Ended June 30,						Affected Line Item in the Statement of Comprehensive Income
(unaudited, in thousands)	2022			2021			2022			2021
Debt securities available-for-sale (1):
Net securities gains reclassified into earnings	$	9		$	(31	)	$	10		$	(34	)	Net securities gains (Non-interest income)
Related income tax expense ⁽²⁾		(2	)		7			(2	)		8		Provision for income taxes
Net effect on accumulated other comprehensive income for the period		7			(24	)		8			(26	)

Defined benefit plans (3):
Amortization of net loss and prior service costs		73			628			144			1,250		Employee benefits (Non-interest expense)
Related income tax benefit ⁽²⁾		(18	)		(151	)		(35	)		(301	)	Provision for income taxes
Net effect on accumulated other comprehensive income for the period		55			477			109			949
Total reclassifications for the period	$	62		$	453		$	117		$	923

(1)

For additional detail related to unrealized gains on securities and related amounts reclassified from accumulated other comprehensive income, see Note 3, “Securities.”

(2)

Income tax expense or benefit is calculated using a combined Federal and State income tax rate approximating 24% in both periods presented.

(3)

Included in the computation of net periodic pension cost. See Note 6, “Benefit Plans” for additional detail.

NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES

Commitments — In the normal course of business, Wesbanco offers off-balance sheet credit arrangements to enable its customers to meet their financing objectives. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. Wesbanco’s exposure to credit losses in the event of non-performance by the other parties to the financial instruments for commitments to extend credit and standby letters of credit is limited to the contractual amount of those instruments. Wesbanco uses the same credit policies in making commitments and conditional obligations as for all other lending. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The allowance for credit losses associated with commitments was $7.7 million and $7.8 million at June 30, 2022 and December 31, 2021, respectively, and is included in other liabilities on the Consolidated Balance Sheets.

Letters of credit are conditional commitments issued by banks to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including normal business activities, bond financing and similar transactions. Letters of credit are considered guarantees. The liability associated with letters of credit was $0.2 million as of June 30, 2022 and December 31, 2021, respectively.

Contingent obligations to purchase loans funded by other entities include credit card guarantees, loans sold with recourse as well as obligations to the FHLB. Credit card guarantees are credit card balances not owned by Wesbanco, whereby the Bank guarantees the performance of the cardholder.

The following table presents total commitments to extend credit, guarantees and various letters of credit outstanding:


	June 30,		December 31,
(unaudited, in thousands)	2022		2021
Lines of credit	$	3,341,054	$	2,954,147
Loans approved but not closed		728,869		472,810
Overdraft limits		380,581		370,439
Letters of credit		29,351		29,017
Contingent obligations and other guarantees		29,611		68,235

Contingent Liabilities — Wesbanco is a party to various legal and administrative proceedings and claims. While any litigation contains an element of uncertainty, management does not believe that a material loss related to such proceedings or claims pending or known to be threatened is reasonably possible.

NOTE 11. BUSINESS SEGMENTS

Wesbanco operates two reportable segments: community banking and trust and investment services. Wesbanco’s community banking segment offers services traditionally offered by full-service commercial banks, including commercial demand, individual demand and time deposit accounts, as well as commercial, mortgage and individual installment loans, and certain non-traditional offerings, such as insurance and securities brokerage services. The trust and investment services segment offers trust services as well as various alternative investment products including mutual funds. The market value of assets managed or held in custody by the trust and investment services segment was approximately $4.8 billion and $5.5 billion at June 30, 2022 and 2021, respectively. These assets are held by Wesbanco in fiduciary or agency capacities for their customers and therefore are not included as assets on Wesbanco’s Consolidated Balance Sheets.

Condensed financial information by business segment is presented below:


				Trust and
	Community			Investment
(unaudited, in thousands)	Banking			Services		Consolidated
For The Three Months Ended June 30, 2022
Interest and dividend income	$	118,447		$	—	$	118,447
Interest expense		6,219			—		6,219
Net interest income		112,228			—		112,228
Provision for credit losses		(812	)		—		(812	)
Net interest income after provision for credit losses		113,040			—		113,040
Non-interest income		20,456			6,527		26,983
Non-interest expense		83,112			3,907		87,019
Income before provision for income taxes		50,384			2,620		53,004
Provision for income taxes		9,706			550		10,256
Net income		40,678			2,070		42,748
Preferred stock dividends		2,531			—		2,531
Net income available to common shareholders	$	38,147		$	2,070	$	40,217

For The Three Months Ended June 30, 2021
Interest and dividend income	$	123,327		$	—	$	123,327
Interest expense		7,472			—		7,472
Net interest income		115,855			—		115,855
Provision for credit losses		(21,025	)		—		(21,025	)
Net interest income after provision for credit losses		136,880			—		136,880
Non-interest income		28,963			7,149		36,112
Non-interest expense		79,818			3,994		83,812
Income before provision for income taxes		86,025			3,155		89,180
Provision for income taxes		17,929			663		18,592
Net income		68,096			2,492		70,588
Preferred stock dividends		2,531			—		2,531
Net income available to common shareholders	$	65,565		$	2,492	$	68,057

For the Six Months Ended June 30, 2022
Interest and dividend income	$	230,621		$	—	$	230,621
Interest expense		10,683			—		10,683
Net interest income		219,938			—		219,938
Provision for credit losses		(4,250	)		—		(4,250	)
Net interest income after provision for credit losses		224,188			—		224,188
Non-interest income		43,003			14,362		57,365
Non-interest expense		166,339			8,230		174,569
Income before provision for income taxes		100,852			6,132		106,984
Provision for income taxes		18,826			1,288		20,114
Net income		82,026			4,844		86,870
Preferred stock dividends		5,063			—		5,063
Net income available to common shareholders	$	76,963		$	4,844	$	81,807

For the Six Months Ended June 30, 2021
Interest and dividend income	$	248,382		$	—	$	248,382
Interest expense		16,050			—		16,050
Net interest income		232,332			—		232,332
Provision for credit losses		(48,984	)		—		(48,984	)
Net interest income after provision for credit losses		281,316			—		281,316
Non-interest income		54,540			14,780		69,320
Non-interest expense		161,829			8,310		170,139
Income before provision for income taxes		174,027			6,470		180,497
Provision for income taxes		35,434			1,359		36,793
Net income		138,593			5,111		143,704
Preferred stock dividends		5,063			—		5,063
Net income available to common shareholders	$	133,530		$	5,111	$	138,641

Total non-fiduciary assets of the trust and investment services segment were $3.7 million (including $1.3 million of trust customer intangibles) and $3.8 million (including $1.6 million of trust customer intangibles) at June 30, 2022 and 2021, respectively. All other assets, including goodwill and the remainder of other intangible assets, were allocated to the Community Banking segment.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Wesbanco for the three and six months ended June 30, 2022. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto.

FORWARD-LOOKING STATEMENTS

Forward-looking statements in this report relating to Wesbanco’s plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The information contained in this report should be read in conjunction with Wesbanco’s Form 10-K for the year ended December 31, 2021 and documents subsequently filed by Wesbanco with the Securities and Exchange Commission (“SEC”), including Wesbanco's Form 10-Q for the quarter ended March 31, 2022, which are available at the SEC’s website, www.sec.gov or at Wesbanco’s website, www.Wesbanco.com. Investors are cautioned that forward-looking statements, which are not historical fact, involve risks and uncertainties, including those detailed in Wesbanco’s most recent Annual Report on Form 10-K filed with the SEC under “Risk Factors” in Part I, Item 1A. Such statements are subject to important factors that could cause actual results to differ materially from those contemplated by such statements, including, without limitation, the effects of changing regional and national economic conditions including the effects of the COVID-19 pandemic; changes in interest rates, spreads on earning assets and interest-bearing liabilities, and associated interest rate sensitivity; sources of liquidity available to Wesbanco and its related subsidiary operations; potential future credit losses and the credit risk of commercial, real estate, and consumer loan customers and their borrowing activities; actions of the Federal Reserve Board, the Federal Deposit Insurance Corporation, the SEC, the Financial Institution Regulatory Authority, the Municipal Securities Rulemaking Board, the Securities Investors Protection Corporation, the Consumer Financial Protection Bureau and other regulatory bodies; potential legislative and federal and state regulatory actions and reform, including, without limitation, the impact of the implementation of the Dodd-Frank Act; adverse decisions of federal and state courts; fraud, scams and schemes of third parties; cyber-security breaches; competitive conditions in the financial services industry; rapidly changing technology affecting financial services; marketability of debt instruments and corresponding impact on fair value adjustments; and/or other external developments materially impacting Wesbanco’s operational and financial performance. Wesbanco does not assume any duty to update forward-looking statements.

OVERVIEW

Wesbanco is a multi-state bank holding company operating through 193 branches and 190 ATM machines in West Virginia, Ohio, western Pennsylvania, Kentucky, southern Indiana and Maryland, offering retail banking, corporate banking, personal and corporate trust services, brokerage services, mortgage banking and insurance. Wesbanco’s businesses are significantly impacted by economic factors such as market interest rates, federal monetary and regulatory policies, local and regional economic conditions and the competitive environment’s effect upon Wesbanco’s business volumes. Wesbanco’s deposit levels are affected by numerous factors including personal savings rates, personal income, and competitive rates on alternative investments, as well as competition from other financial institutions within the markets we serve and liquidity needs of Wesbanco. Loan levels are also subject to various factors including construction demand, business financing needs, consumer spending and interest rates, as well as loan terms offered by competing lenders.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Wesbanco’s critical accounting policies involving the significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of June 30, 2022 have remained unchanged from the disclosures presented in Wesbanco’s Annual Report on Form 10-K for the year ended December 31, 2021 within the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

RESULTS OF OPERATIONS

EARNINGS SUMMARY

Net income available to common shareholders for the second quarter of 2022 was $40.2 million, with diluted earnings per share of $0.67, compared to $68.1 million and $1.01 per diluted share, respectively, for the second quarter of 2021, which included a release of provision for credit losses of $21.0 million, or $16.6 million net of tax, due to improved economic forecasts in the prior year period. For the six months ended June 30, 2022, net income was $81.8 million, or $1.34 per diluted share, compared to $138.6 million, or $2.06 per diluted share, for the 2021 period, which included a release of provision for credit losses of $49.0 million, or $39.0 million net of tax. Net income available to common shareholders, excluding after-tax restructuring and merger-related expenses, for the three months ended June 30, 2022, was $40.3 million, or $0.67 per diluted share, as compared to $69.0 million and $1.03 per diluted share, respectively, in the prior year quarter (non-GAAP measures). On the same basis, net income for the six months ended June 30, 2022 was $83.1 million, or $1.36 per diluted share, as compared to $140.3 million, or $2.09 per diluted share, in the prior year period (non-GAAP measures).


	For the Three Months Ended June 30,											For the Six Months Ended June 30,
	2022					2021						2022						2021
(unaudited, dollars in thousands, except per share amounts)	Net Income			Diluted Earnings Per Share		Net Income			Diluted Earnings Per Share			Net Income			Diluted Earnings Per Share			Net Income			Diluted Earnings Per Share
Net income available to common shareholders (Non-GAAP)(1)	$	40,258		$	0.67	$	69,022		$	1.03		$	83,107		$	1.36		$	140,279		$	2.09
Less: After-tax restructuring and merger-related expenses		(41	)		0.00		(965	)		(0.02	)		(1,300	)		(0.02	)		(1,638	)		(0.03	)
Net income available to common shareholders (GAAP)	$	40,217		$	0.67	$	68,057		$	1.01		$	81,807		$	1.34		$	138,641		$	2.06

(1)

Non-GAAP net income excludes after-tax restructuring and merger-related expenses. The above non-GAAP financial measures used by Wesbanco provide information useful to investors in understanding Wesbanco’s operating performance and trends, and facilitate comparisons with the performance of Wesbanco’s peers.

Net interest income decreased $3.6 million or 3.1% in the second quarter of 2022 compared to the same quarter of 2021, reflecting lower average loan yields, due to repricing of existing loans and new lower rates offered in the current market environment, lower purchase accounting related accretion and lower SBA Payroll Protection Program (“PPP”) interest and accretion related income, partially offset by lower interest on deposits and borrowings. As a result of the lower rates and a higher mix of securities versus loans to total assets, the net interest margin decreased by 9 basis points to 3.03% in the second quarter of 2022 as compared to the second quarter of 2021. Over the same time period, the yield on earning assets decreased by a total of 12 basis points and the cost of interest bearing liabilities decreased 5 basis points. Average loan balances decreased by 6.7% from the second quarter of 2021, mainly attributable to forgiveness of PPP loans and higher levels of commercial real estate loan payoffs, while average securities increased by 18.8% over the same time period due to excess liquidity on the balance sheet from increased customer deposits. Average deposits, excluding certificates of deposit, increased 6.4% over the same time period, due mostly to increased personal savings. Accretion from acquisitions benefited the second quarter 2022 net interest margin by 6 basis points, as compared to 12 basis points in the prior year period. Lastly, the accretion on both existing and forgiven PPP loans positively impacted the second quarter 2022 net interest margin by a net 4 basis points as compared to 5 basis points for the second quarter of 2021.

Improved macroeconomic forecasts in the hospitality sector utilized in the CECL calculation resulted in a negative provision of $0.8 million in the second quarter of 2022, as compared to a negative provision of $21.0 million in the second quarter of 2021. Annualized net loan charge-offs (recoveries), as a percentage of average portfolio loans, were 0% and (0.03)% for the second quarter of 2022 and 2021, respectively.

For the second quarter of 2022, non-interest income decreased $9.1 million or 25.3% compared to the second quarter of 2021, driven primarily by lower mortgage banking income, which decreased $6.5 million or 83.0% from the second quarter of 2021 and by a net loss on other assets which totaled $1.3 million in the second quarter of 2022, compared to a net gain of $4.0 million in the second quarter of 2021. While mortgage loan originations remained strong during the second quarter of 2022, the amount retained on the balance sheet increased to approximately 80% as compared to 52% in the second quarter of 2021, due to a continued effort to keep more 1-to-4 family residential mortgages on the balance sheet. The net loss on other assets reflects the change in the fair value of underlying equity investments held by Wesbanco Community Development Corporation (“Wesbanco CDC”) primarily driven by the decline in the equity market, as compared to a net gain for the same investment in the prior year period. Offsetting the decreases somewhat, service charges on deposits increased $1.6 million or 33.0% over the same time period, due to increased consumer spending associated with the improving economy, and other income increased by $2.2 million or 68.1% due to positive fair value adjustments on the existing loan swap portfolio in the second quarter of 2022 as compared to the second quarter of 2021.

Non-interest expense, excluding restructuring and merger-related expenses in both periods, increased in the second quarter of 2022 by $4.4 million or 5.3%, to $87.0 million, compared to the second quarter of 2021. Salaries and wages increased $3.8 million or 10.1% from the second quarter of 2021 to the second quarter of 2022 due to higher salary expense related to normal merit increases and the hourly wage increase that was implemented in the third quarter of 2021, lower deferred loan origination costs and higher bonus and stock option accruals. Equipment and software expense for the second quarter of 2022 increased $0.4 million or 5.8% year-over-year, due primarily to the movement of online banking costs from other operating expenses. FDIC insurance expense increased $1.8 million from the second quarter of 2022 due to certain prior period reporting adjustments resulting in a $1.0 million refund in the second quarter of 2021. Offsetting these increases somewhat was a decrease in employee benefits expense, which included a $1.2 million credit in the second quarter of 2022 relating to the market adjustment on the deferred compensation plan and a decrease in other operating expenses of $1.4 million or 7.9% due mostly to the aforementioned move of online banking costs as well as a reduction in ACH and ATM processing charges related to a change in providers, in conjunction with our core banking software system conversion last year.

During the second quarter of 2022, the effective tax rate was 19.4% as compared to 20.9% in last year’s second quarter, and the provision for income taxes decreased by $8.3 million over the same time period. Both of these decreases were primarily due to lower pre-tax income, heavily influenced by a reduced negative provision for credit losses in the second quarter of 2022 as compared to the second quarter of 2021.

NET INTEREST INCOME

TABLE 1. NET INTEREST INCOME


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(unaudited, dollars in thousands)	2022			2021			2022			2021
Net interest income	$	112,228		$	115,855		$	219,938		$	232,332
Taxable equivalent adjustment to net interest income		1,251			1,051			2,405			2,091
Net interest income, fully taxable equivalent	$	113,479		$	116,906		$	222,343		$	234,423
Net interest spread, non-taxable equivalent		2.91	%		2.98	%		2.88	%		3.04	%
Benefit of net non-interest bearing liabilities		0.09	%		0.11	%		0.08	%		0.12	%
Net interest margin		3.00	%		3.09	%		2.96	%		3.16	%
Taxable equivalent adjustment		0.03	%		0.03	%		0.03	%		0.03	%
Net interest margin, fully taxable equivalent		3.03	%		3.12	%		2.99	%		3.19	%

Net interest income, which is Wesbanco’s largest source of revenue, is the difference between interest income on earning assets, primarily loans and securities, and interest expense on liabilities, primarily deposits and short and long-term borrowings. Net interest income is affected by the general level of, and changes in interest rates, the steepness and shape of the yield curve, changes in the amount and composition of interest earning assets and interest bearing liabilities, as well as the frequency of repricing of existing assets and liabilities. Net interest income decreased $3.6 million or 3.1% in the second quarter of 2022 compared to the second quarter of 2021, due to a 9 basis point decrease in the net interest margin to 3.03% resulting from the lower yield environment, as the yield on earning assets decreased at a faster rate than the rate on interest bearing liabilities, lower purchase accounting accretion and lower PPP loan income. Also reducing the margin, investment securities became a greater percentage of total assets. Net interest income decreased $12.4 million or 5.3% in the first half of 2022, compared to the first half of 2021 for the same reasons. In addition, interest and fee accretion income on PPP loans decreased $5.8 million in the second quarter of 2022 from a total of $7.8 million in the second quarter of 2021. This PPP loan income positively impacted the second quarter 2022 net interest margin by a net 4 basis points as compared to 5 basis points in the second quarter of 2021. Excluding PPP loans, portfolio loans increased by 3.8% from June 30, 2021, due to higher new loan demand and internal initiatives to improve lending efficiencies. In addition, total purchase accounting accretion decreased by $2.4 million in the second quarter of 2022 as compared to the second quarter of 2021, and approximately 6 basis points of accretion from prior acquisitions was included in the second quarter 2022 net interest margin as compared to 12 basis points in the 2021 second quarter net interest margin. Total average deposits, excluding CDs, increased in the second quarter of 2022 by $752.1 million or 6.4% compared to the second quarter of 2021, due to higher personal savings balances. The cost of interest bearing deposits decreased by 4 basis points and total liabilities decreased by 5 basis points from the second quarter of 2021 to the second quarter of 2022. The decrease in the cost is primarily due to rate decreases for money market accounts and certificates of deposit in response to the general decrease in overall borrowing rates in the marketplace resulting from lower rates across the yield curve, although such rates began rising toward the end of the second quarter of 2022. In addition, the average balance of FHLB borrowings decreased by $266.5 million or 68.3% from the second quarter of 2021, as excess liquidity was used to pay off these borrowings as they matured.

Interest income decreased $4.9 million or 4.0% in the second quarter of 2022 and $17.8 million or 7.2% in the first six months of 2022 compared to the same periods of 2021 due to lower yields in several of the major earning asset categories. Earning asset yields continued to be influenced negatively due to the continuation of the low rate environment through the first quarter of 2022 before rates started to increase in the second quarter of 2022. Average loan balances decreased $709.2 million or 6.7% in the second quarter of 2022 compared to the second quarter of 2021, due mostly to forgiveness of PPP loans that were originated in 2020 and 2021. Loan yields decreased by 10 basis points during this same period to 3.89% due to the previously mentioned lower rate environment and its effect on the repricing of portfolio loans, as well as lower offered rates on new loans. Loans provide the greatest impact on interest income and the yield on earning assets as they have the largest balance and the highest yield within major earning asset categories. In the second quarter of 2022, average loans represented 66.1% of average earning assets, a decrease from 70.9% in the second quarter of 2021. As liquidity from higher deposit balances was invested, average total securities balances increased $683.5 million or 18.8% from the second quarter of 2021, and represented 28.8% of total earning assets in the second quarter of 2022. Taxable securities yields increased by 10 basis points in the second quarter of 2022 from the second quarter of 2021 due to increased purchases of this security type during the quarter as rates began to rise. Tax-exempt securities yields, which are the highest yields within total securities, decreased by 33 basis points from the second quarter of 2021 to the second quarter of 2022. This decrease is due to calls and maturities of legacy higher-rate securities. The average balance of tax-exempt securities increased to 18.3% of total average securities in the second quarter of 2022 from 16.5% of total average securities in the first quarter of 2022.

Commercial loans with floors currently average 3.98% on approximately $2.9 billion or 40% of total commercial loans at June 30, 2022, as compared to $2.6 billion averaging 3.83% or 36% of commercial loans at December 31, 2021. Approximately 36% or $1.1 billion of these loans are currently priced at their floor, as compared to 63% or $1.6 billion at December 31, 2021. These loans typically do not adjust as rapidly from their current floor level as compared to loans without floors, due to the amount of the rate change as compared to the floor rate or next repricing date.

Interest expense decreased $1.3 million or 16.8% in the second quarter of 2022 and $5.4 million or 33.4% in the first half of 2022 as compared to the same periods in 2021, due to decreases in the cost of several significant interest bearing liability categories, as management reduced certain deposit rates, and due to a decrease in the balance of outstanding FHLB borrowings. The cost of interest bearing liabilities decreased by 5 basis points from the second quarter of 2021 to 0.26% in the second quarter 2022. Average interest bearing deposits increased $157.2 million or 1.8% from the second quarter of 2021, due mostly to customers’ increased personal savings and deposit balances. The rate on interest bearing deposits decreased 4 basis points to 0.13% from the second quarter of 2021, primarily from decreases in rates on interest bearing public funds and certificates of deposit, which are currently near their floors. Average non-interest bearing demand deposit balances increased from the second quarter of 2021 to the second quarter of 2022 by $237.7 million or 5.3%, and were 34.3% of total average deposits at June 30, 2022, compared to 33.6% at June 30, 2021, reflecting the previously mentioned higher personal savings balances and ongoing checking account marketing strategies. The average balance of FHLB borrowings decreased $266.5 million from the second quarter of 2021 to 2022 due to the maturity of legacy higher-rate FHLB borrowings throughout the past twelve months being redeemed with excess liquidity. These maturities benefited the average rate paid, as it decreased by 49 basis points to 1.34% from the second quarter of 2021. Average repurchase agreements combined with subordinated debt and junior subordinated debt balances increased $104.4 million or 32.4% from the second quarter of 2021 to 2022, due primarily to the subordinated debt issuance late in the first quarter of 2022. In addition, their average rates paid increased by 1 and 21 basis points, respectively, over this same time period, due primarily to increases in LIBOR, the index upon which this variable-rate type of borrowing is priced.

The increasing rate environment, which began in the second half of the first quarter and continued more rapidly through the second quarter, is expected to result in the core net interest margin increasing in the remainder of 2022, and assuming further anticipated federal funds rate increases in 2022, the margin will likely continue to increase into 2023. Securities purchased in the second quarter and variable rate securities will further positively impact the margin. Higher anticipated earning asset yields caused by loans repricing to higher rates, rates on new loan production being higher than existing loans and security cash flows being reinvested at higher rates will be slightly offset by decreasing purchase accounting accretion, price increases to deposit rates and higher wholesale funding costs. In addition, as the remaining balance of outstanding PPP loans continues to be forgiven, the positive impact on the margin will lessen as lower net deferred fees are accreted into income at the date of loan payoff. At June 30, 2022, there were $1.1 million of remaining net deferred fees from PPP loans that will accrete into interest income as loans pay down or are forgiven by the SBA.

TABLE 2. AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS


	For The Three Months Ended June 30,										For the Six Months Ended June 30,
	2022					2021					2022					2021
	Average		Average			Average		Average			Average		Average			Average		Average
(unaudited, dollars in thousands)	Balance		Rate			Balance		Rate			Balance		Rate			Balance		Rate
ASSETS
Due from banks - interest bearing	$	744,261		0.74	%	$	696,967		0.09	%	$	951,588		0.39	%	$	736,387		0.09	%
Loans, net of unearned income (1)		9,932,744		3.89	%		10,641,970		3.99	%		9,823,024		3.89	%		10,765,483		4.03	%
Securities: (2)
Taxable		3,532,624		1.80	%		3,042,009		1.70	%		3,433,551		1.76	%		2,676,198		1.81	%
Tax-exempt (3)		792,878		3.01	%		599,980		3.34	%		761,304		3.03	%		590,144		3.40	%
Total securities		4,325,502		2.02	%		3,641,989		1.97	%		4,194,855		1.99	%		3,266,342		2.10	%
Other earning assets		13,296		3.82	%		28,702		4.95	%		14,365		3.81	%		30,958		5.45	%
Total earning assets (3)		15,015,803		3.20	%		15,009,628		3.32	%		14,983,832		3.14	%		14,799,170		3.41	%
Other assets		1,955,649					2,032,519					1,998,126					2,041,154
Total Assets	$	16,971,452				$	17,042,147				$	16,981,958				$	16,840,324

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing demand deposits	$	3,380,684		0.14	%	$	3,147,915		0.13	%	$	3,392,029		0.12	%	$	3,059,830		0.14	%
Money market accounts		1,770,342		0.09	%		1,774,556		0.12	%		1,788,430		0.08	%		1,750,194		0.13	%
Savings deposits		2,700,642		0.05	%		2,414,824		0.04	%		2,664,005		0.05	%		2,353,083		0.04	%
Certificates of deposit		1,162,392		0.39	%		1,519,590		0.53	%		1,208,243		0.40	%		1,551,692		0.57	%
Total interest bearing deposits		9,014,060		0.13	%		8,856,885		0.17	%		9,052,707		0.13	%		8,714,799		0.19	%
Federal Home Loan Bank borrowings		123,474		1.34	%		390,020		1.83	%		151,593		1.31	%		438,932		1.93	%
Repurchase agreements		146,119		0.13	%		130,171		0.12	%		151,115		0.13	%		160,753		0.20	%
Subordinated debt and junior subordinated debt		280,962		3.97	%		192,483		3.76	%		214,704		3.71	%		192,412		3.77	%
Total interest bearing liabilities (4)		9,564,615		0.26	%		9,569,559		0.31	%		9,570,119		0.23	%		9,506,896		0.34	%
Non-interest bearing demand deposits		4,712,466					4,474,784					4,644,982					4,338,546
Other liabilities		184,932					196,349					184,600					208,861
Shareholders’ equity		2,509,439					2,801,455					2,582,257					2,786,021
Total Liabilities and Shareholders’ Equity	$	16,971,452				$	17,042,147				$	16,981,958				$	16,840,324
Taxable equivalent net interest spread				2.94	%				3.01	%				2.91	%				3.07	%
Taxable equivalent net interest margin				3.03	%				3.12	%				2.99	%				3.19	%

(1)

Gross of allowance for credit losses and net of unearned income. Includes non-accrual and loans held for sale. Loan fees included in interest income on loans were $2.5 million and $6.5 million for the three months ended June 30, 2022 and 2021, respectively, and were $6.6 million and $14.7 million for the six months ended June 30, 2022 and 2021, respectively PPP loan fees, which are included as part of total loan fees, were $1.9 million and $6.0 million for the three months ended June 30, 2022 and 2021, respectively, and $5.1 million and $13.9 million for the six months ended June 30, 2022 and 2021, respectively. Additionally, loan accretion included in interest income on loans acquired from prior acquisitions was $1.9 million and $3.8 million for the three months ended June 30, 2022 and 2021, respectively, and $4.5 million and $7.3 million for the six months ended June 30, 2022 and 2021, respectively.

(2)

Average yields on available-for-sale debt securities are calculated based on amortized cost.

(3)

Taxable equivalent basis is calculated on tax-exempt securities using a federal statutory rate of 21% for each period presented.

(4)

Accretion on interest bearing liabilities acquired from prior acquisitions was $0.3 million and $0.8 million for the three months ended June 30, 2022 and 2021, respectively, and $0.8 million and $1.9 million for the six months ended June 30, 2022 and 2021, respectively.

TABLE 3. RATE/VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE


	For the Three Months Ended June 30, 2022									For the Six Months Ended June 30, 2022
	Compared to June 30, 2021									Compared to June 30, 2021
(unaudited, in thousands)	Volume			Rate			Net Increase (Decrease)			Volume			Rate			Net Increase (Decrease)
Increase (decrease) in interest income:
Due from banks - interest bearing	$	11		$	1,214		$	1,225		$	122		$	1,380		$	1,502
Loans, net of unearned income		(6,933	)		(2,623	)		(9,556	)		(18,376	)		(7,419	)		(25,795	)
Taxable securities		2,167			758			2,925			6,621			(711	)		5,910
Tax-exempt securities (1)		1,487			(533	)		954			2,658			(1,157	)		1,501
Other earning assets		(159	)		(69	)		(228	)		(362	)		(203	)		(565	)
Total interest income change (1)		(3,427	)		(1,253	)		(4,680	)		(9,337	)		(8,110	)		(17,447	)
Increase (decrease) in interest expense:
Interest bearing demand deposits		77			67			144			209			(296	)		(87	)
Money market accounts		(1	)		(167	)		(168	)		24			(450	)		(426	)
Savings deposits		33			36			69			69			1			70
Certificates of deposit		(415	)		(495	)		(910	)		(849	)		(1,158	)		(2,007	)
Federal Home Loan Bank borrowings		(981	)		(389	)		(1,370	)		(2,157	)		(1,052	)		(3,209	)
Repurchase agreements		5			3			8			(9	)		(54	)		(63	)
Subordinated debt and junior subordinated debt		870			104			974			411			(56	)		355
Total interest expense change		(412	)		(841	)		(1,253	)		(2,302	)		(3,065	)		(5,367	)
Net interest income decrease (1)	$	(3,015	)	$	(412	)	$	(3,427	)	$	(7,035	)	$	(5,045	)	$	(12,080	)

(1)

Taxable equivalent basis is calculated on tax-exempt securities using a federal statutory tax rate of 21%.

PROVISION FOR CREDIT LOSSES – LOANS AND LOAN COMMITMENTS

The provision for credit losses – loans is the amount to be added to the allowance for credit losses – loans after net (charge-offs) recoveries have been (deducted) added to bring the allowance to a level considered appropriate to absorb lifetime expected losses for all portfolio loans. The provision for credit losses – loan commitments is the amount to be added to the allowance for credit losses for loan commitments to bring that allowance to a level considered appropriate to absorb lifetime expected losses on unfunded loan commitments. The negative provision for credit losses - loans and loan commitments decreased to ($0.8) million in the second quarter of 2022 compared to a negative provision of ($21.0) million in the second quarter of 2021. While the negative provision decreased year-over-year, the ($0.8) million provision in the second quarter of 2022 was a result of continued improvement in COVID qualitative factors. Non-performing loans were 0.35% of total loans as of June 30, 2022, decreasing from 0.41% of total loans at the end of the second quarter of 2021. Criticized and classified loans were 3.14% of total loans as of June 30, 2022, decreasing from 4.41% as of June 30, 2021, primarily due to improvements within the Company’s hospitality loan portfolio. Past due loans at June 30, 2022 were 0.40% of total loans, compared to 0.29% at June 30, 2021. Annualized net loan charge-offs increased to 0% for the three months ended June 30, 2022 compared to net loan recoveries of (0.03%) for the three months ended June 30, 2021. (Please see the Allowance for Credit Losses – Loans and Loan Commitments section of this MD&A for additional discussion).

NON-INTEREST INCOME

TABLE 4. NON-INTEREST INCOME


	For The Three Months Ended June 30,												For the Six Months Ended June 30,
(unaudited, dollars in thousands)	2022			2021			$ Change			% Change			2022			2021		$ Change			% Change
Trust fees	$	6,527		$	7,148		$	(621	)		(8.7	)	$	14,362		$	14,780	$	(418	)		(2.8	)
Service charges on deposits		6,487			4,876			1,611			33.0			12,577			9,770		2,807			28.7
Electronic banking fees		5,154			5,060			94			1.9			10,499			9,426		1,073			11.4
Net securities brokerage revenue		2,258			1,829			429			23.5			4,478			3,352		1,126			33.6
Bank-owned life insurance		2,384			1,707			677			39.7			6,264			3,416		2,848			83.4
Net securities (losses) gains		(1,183	)		477			(1,660	)		(348.0	)		(1,832	)		756		(2,588	)		(342.3	)
Mortgage banking income		1,328			7,830			(6,502	)		(83.0	)		3,251			12,094		(8,843	)		(73.1	)
Net insurance services revenue		925			1,045			(120	)		(11.5	)		1,951			2,135		(184	)		(8.6	)
Debit card sponsorship income		—			—			—			—			—			646		(646	)		(100.0	)
Payment processing fees		877			748			129			17.2			1,618			1,461		157			10.7
Net (loss) gain on other real estate owned and other assets		(1,302	)		4,014			(5,316	)		(132.4	)		(2,108	)		4,189		(6,297	)		(150.3	)
Net swap fee and valuation income		2,007			(40	)		2,047		NM				3,624			4,610		(986	)		(21.4	)
Other		1,521			1,418			103			7.3			2,681			2,685		(4	)		(0.1	)
Total non-interest income	$	26,983		$	36,112		$	(9,129	)		(25.3	)	$	57,365		$	69,320	$	(11,955	)		(17.2	)

NM = not meaningful

Non-interest income is a significant source of revenue and an important part of Wesbanco’s results of operations, as it represents 19.4% of total revenue for the three months ended June 30, 2022. Wesbanco offers its customers a wide range of retail, commercial, investment and electronic banking services, which are viewed as a vital component of Wesbanco’s ability to attract and maintain customers, as well as providing additional fee income beyond normal spread-related income to Wesbanco. For the second quarter of 2022, non-interest income decreased $9.1 million or 25.3% compared to the second quarter of 2021, primarily due to a $6.5 million decrease in mortgage banking income, a $5.3 million decrease in net (loss) gain on other real estate owned and other assets and a $1.7 million decrease in net securities (losses) gains. The decreases were somewhat offset by a $2.0 million increase in net swap fee and valuation income, a $1.6 million increase in service charges on deposits and a $0.7 million increase in bank-owned life insurance.

Trust fees decreased $0.6 million or 8.7% compared to the second quarter of 2021, due to market value depreciation. Total trust assets were $4.8 billion at June 30, 2022 as compared to $5.5 billion at June 30, 2021. As of June 30, 2022, trust assets include managed assets of $3.9 billion and non-managed (custodial) assets of $0.9 billion. Assets managed for the WesMark Funds, a proprietary group of mutual funds that is advised by Wesbanco Trust and Investment Services, were $0.9 billion and $1.1 billion as of June 30, 2022 and June 30, 2021, respectively, and are included in managed assets. Trust fees decreased $0.4 million or 2.8% in the first six months of 2022 as compared to the first six months of 2021.

Service charges on deposits increased $1.6 million or 33.0% to $6.5 million in the second quarter of 2022 as compared to the same period in 2021, as a result of increased general consumer spending over the prior period, due to higher customer demand for goods and services as business conditions improved from the pandemic, resulting in more eligible fee-generating transactions. In addition, electronic banking fees, which include debit card interchange fees, increased $0.1 million or 1.9% compared to the first quarter of 2021, also due to increased general consumer spending. For the six months ended June 30, 2022, service charges on deposits increased $2.8 million or 28.7% and electronic banking fees increased $1.1 million or 11.4% from the first six months of 2021.

Bank-owned life insurance increased $0.7 million or 39.7% compared to the second quarter of 2021 due to an increase in mortality-related benefits received in the current period, as well as an increase in the cash surrender value from the purchase of an additional $40 million of bank-owned life insurance in the third quarter of 2021. Bank-owned life insurance increased $2.8 million or 83.4% in the first six months of 2022 as compared to the first six months of 2021.

Net securities (losses) gains include both gains and losses on investment security transactions as well as market value adjustments on the Company's deferred compensation plan. For the three months ended June 30, 2022, net securities (losses) gains decreased $1.7 million or 348.0% compared to the same period of 2021, due to a $1.6 million decrease in market adjustments on the deferred compensation plan. These market adjustments had an offsetting effect in employee benefits expense. No investment security sales occurred in either period. Net securities (losses) gains decreased by $2.6 million or 342.3% in the first six months of 2022 as compared to the first six months of 2021.

Mortgage banking income decreased $6.5 million or 83.0% in the second quarter of 2022 compared to the second quarter of 2021, as Wesbanco retained more 1-to-4 family mortgages on the balance sheet. For the second quarter of 2022, mortgage production was $327.9 million, which was roughly flat from the comparable 2021 period. For the three months ended June 30, 2022, $61.1 million in mortgages were sold into the secondary market at a net margin of 2.2% as compared to $266.8 million at a net margin of 2.9% in the comparable 2021 period. Included in mortgage banking income and the calculation of net margin noted above are gains of $1.2 million and $2.3 million from the fair value adjustments on mortgage loan commitments and related derivatives for the three months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022, mortgage banking income decreased $8.8 million or 73.1% from the first six months of 2021 for the same reasons as mentioned above.

Net (loss) gain on other real estate owned and other assets decreased $5.3 million or 132.4% in the three months ended June 30, 2022 as compared to the same period in 2021, mostly due to the market value decline on an investment made by Wesbanco’s CDC in a start-up firm more than ten years ago that was acquired by a public company in 2021, which had a market value increase in the second quarter of 2021. For the six months ended June 30, 2022, net (loss) gain on other real estate owned and other assets decreased $6.3 million or 150.3% from the first six months of 2021.

Net swap fee and valuation income, which includes fair value adjustments, increased $2.0 million in the second quarter of 2022 compared to the second quarter of 2021, due to positive fair value adjustments on the swap portfolio in 2022 as compared to negative fair value adjustments in 2021. For the three months ended June 30, 2022, new swaps executed totaled $35.8 million in notional principal, resulting in $0.9 million of fee income, compared to new swaps executed of $41.5 million in notional principal resulting in $1.0 million of fee income for the three months ended June 30, 2021. Fair value adjustments on existing swaps for the three months ended June 30, 2022 were $1.1 million as compared to ($1.0) million for the three months ended June 30, 2021. For the six months ended June 30, 2022, net swap fee and valuation income decreased by $1.0 million or 21.4% from the first six months of 2021 due to a decreased volume of new swaps originated, resulting in lower fee income, which was partially offset by positive fair value adjustments in the current year.

NON-INTEREST EXPENSE

TABLE 5. NON-INTEREST EXPENSE


	For The Three Months Ended June 30,										For the Six Months Ended June 30,
(unaudited, dollars in thousands)	2022		2021		$ Change			% Change			2022		2021		$ Change			% Change
Salaries and wages	$	41,213	$	37,435	$	3,778			10.1		$	80,150	$	74,324	$	5,826			7.8
Employee benefits		8,722		9,268		(546	)		(5.9	)		17,880		19,534		(1,654	)		(8.5	)
Net occupancy		6,119		6,427		(308	)		(4.8	)		13,354		13,605		(251	)		(1.8	)
Equipment and software		7,702		7,281		421			5.8			15,713		14,045		1,668			11.9
Marketing		2,749		1,802		947			52.6			5,170		4,185		985			23.5
FDIC insurance		1,937		181		1,756			970.2			3,459		1,462		1,997			136.6
Amortization of intangible assets		2,579		2,873		(294	)		(10.2	)		5,178		5,769		(591	)		(10.2	)
Restructuring and merger-related expenses		52		1,222		(1,170	)		(95.7	)		1,646		2,074		(428	)		(20.6	)
Franchise and other miscellaneous taxes		2,951		2,095		856			40.9			5,945		5,093		852			16.7
Consulting, regulatory, accounting and advisory fees		3,524		2,583		941			36.4			7,211		5,962		1,249			20.9
ATM and electronic banking interchange expenses		1,532		2,483		(951	)		(38.3	)		2,950		4,686		(1,736	)		(37.0	)
Postage and courier expenses		1,256		1,316		(60	)		(4.6	)		2,478		2,584		(106	)		(4.1	)
Legal fees		736		934		(198	)		(21.2	)		1,671		1,796		(125	)		(7.0	)
Communications		1,149		1,109		40			3.6			2,215		2,021		194			9.6
Supplies		1,015		857		158			18.4			1,881		1,876		5			0.3
Other real estate owned and foreclosure expenses		249		143		106			74.1			507		31		476		NM
Other		3,534		5,803		(2,269	)		(39.1	)		7,161		11,092		(3,931	)		(35.4	)
Total non-interest expense	$	87,019	$	83,812	$	3,207			3.8		$	174,569	$	170,139	$	4,430			2.6

NM = not meaningful

Non-interest expense in the second quarter of 2022 increased $3.2 million or 3.8% as compared to the same quarter in 2021, principally from a $3.8 million increase in salaries and wages, a $1.8 million increase in FDIC insurance and $0.9 million increases in marketing, franchise and other miscellaneous taxes and consulting, regulatory, accounting and advisory fees. These increases were slightly offset by a $2.3 million decrease in other operating expenses, a $1.2 million decrease in restructuring and merger related expenses and a $1.0 million decrease in ATM and electronic banking interchange expenses. Excluding restructuring and merger-related expenses, non-interest expense increased $4.4 million or 5.3% from the second quarter of 2021 to the second quarter of 2022.

Salaries and wages increased $3.8 million or 10.1% in the second quarter of 2022 as compared to the second quarter of 2021 due to higher salary expense related to the normal merit increases and the hourly wage increase that occurred mid-year 2021 as well as higher bonus and stock option accruals and lower deferred loan contra origination costs. Average full time equivalent employees increased by 2.0% from the second quarter of 2021 to the second quarter of 2022 due to targeted hiring of loan officers. Salaries and wages increased by $5.8 million or 7.8% in the first six months of 2022 as compared to the first six months of 2021.

Employee benefits expense decreased $0.5 million or 5.9% in the second quarter of 2022 as compared to the second quarter of 2021 due specifically to a $1.6 million decrease in deferred compensation plan expense, which relates to the decline in the market value of the underlying investments. These decreases were slightly offset by increased recruiting expense and higher health insurance expense. Employee benefits expense decreased $1.7 million or 8.5% in the first six months of 2022 as compared to the first six months of 2021.

Equipment and software costs increased $0.4 million or 5.8% in the second quarter of 2022 as compared to the second quarter of 2021, due primarily to the movement of online banking costs following the core conversion in the third quarter of 2021 from other operating expenses. Equipment and software costs increased $1.7 million or 11.9% in the first six months of 2022 as compared to the first six months of 2021.

FDIC insurance expense increased $1.8 million or 970.2% in the second quarter of 2022 as compared to the second quarter of 2021 due primarily to certain prior period reporting adjustments resulting in a $1.0 million refund that was received in the second quarter of 2021 as well as an increase in the assessment rate.

Restructuring and merger-related expenses in the second quarter of 2022 totaled $0.1 million, a decrease of $1.2 million as compared to the second quarter of 2021. The expenses in the second quarter of 2022 consisted of fixed asset writedowns and lease termination expenses associated with the closure of eleven branches in the second quarter of 2022 as a result of the continued execution of the branch optimization strategy. The restructuring and merger-related expenses in the second quarter of 2021 totaling $1.2 million were comprised of $0.6 million in core conversion-related expenses and $0.6 million in accrued branch closure and severance expenses associated with the closure of six branches in the third quarter of 2021.

ATM and electronic banking interchange expenses decreased by $1.0 million or 38.3% in the second quarter of 2022 as compared to the second quarter of 2021 due to a reduction in ACH and ATM processing charges related to a change in providers that occurred in conjunction with our core banking software system conversion in the third quarter of 2021.

Other operating expenses decreased by $2.3 million or 39.1% in the second quarter of 2022 as compared to the second quarter of 2021 due mostly to lower legal costs associated with the resolution of a lawsuit in the second quarter of 2021. Also contributing to the decrease is the previously mentioned movement of online banking costs, following the core conversion in 2021, into equipment and software costs. Other operating expenses decreased $3.9 million or 35.4% in the first six months of 2022 as compared to the first six months of 2021.

INCOME TAXES

The provision for income taxes was $10.2 million for the three months ended June 30, 2022, which is an $8.3 million decrease compared to $18.6 million for the three months ended June 30, 2021. The decrease in the provision for income taxes is due to a $36.2 million decrease in pre-tax income from the second quarter of 2021 and an accompanying decrease in the effective tax rate to 19.4% in the second quarter of 2022 compared to 20.9% in the second quarter of 2021. This lower pre-tax income was primarily due to a $21.0 million negative provision for credit losses recorded in the second quarter of 2021, as compared to a $0.8 million negative provision in the second quarter of 2022.

FINANCIAL CONDITION

Total assets and shareholders’ equity decreased 0.8% and 8.4%, respectively, while deposits remained virtually unchanged compared to December 31, 2021. Total securities increased $145.6 million or 3.6% from December 31, 2021 to June 30, 2022, primarily driven by the purchase of mortgage-backed securities and municipal obligations. The securities’ increase was partially offset by a $225.2 million increase in unrealized losses in the available-for-sale portfolio. Total portfolio loans, excluding PPP loans, increased $611.2 million or 6.4% as new originations outpaced pay downs. Forgiveness related to the 2020 and 2021 PPP loan programs totaled $136.0 million through the first six months of 2022. Deposits were virtually unchanged from year-end, as increases of 5.2%, 1.8%, and 0.3% in savings deposits, money market deposits, and demand deposits, respectively, were mostly offset by a 14.5% decrease in certificates of deposit. The growth in transaction-based accounts is primarily attributable to increased personal savings, focused retail and business strategies to obtain more account relationships and customers’ preferences for shorter-term maturities. Deposits were also somewhat impacted by bonus and royalty payments for Marcellus and Utica shale gas payments from energy companies in Wesbanco’s southwestern Pennsylvania, eastern Ohio, and northern West Virginia markets. The decrease in certificates of deposit is a result of lower overall rates and management periodically offering lower-than-median competitive rates for maturing certificates of deposit as well as customer preferences for other deposit types. Total borrowings increased 20.2% or $92.9 million during the first six months of 2022 primarily as the result of a $150.0 million issuance of subordinated debentures at the parent company as qualifying Tier 2 risk-based capital and a $6.1 million increase in other short-term borrowings, which were partially offset by the $61.3 million pay down of maturing FHLB advances. Total shareholders’ equity decreased approximately $225.2 million or 8.4%, compared to December 31, 2021, primarily due to a $170.9 million decrease in other comprehensive income and the repurchase of common shares totaling $99.4 million, which were partially offset by net income exceeding dividends for the period by $41.1 million.

SECURITIES

TABLE 6. COMPOSITION OF SECURITIES (1)


	June 30,			December 31,
(unaudited, dollars in thousands)	2022			2021			Change ($)			Change (%)
Equity securities (at fair value)	$	11,413		$	13,466		$	(2,053	)		(15.2	)
Available-for-sale debt securities (at fair value)
U.S. Government sponsored entities and agencies		248,929			236,978			11,951			5.0
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		2,089,287			2,285,213			(195,926	)		(8.6	)
Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		431,828			367,493			64,335			17.5
Obligations of states and political subdivisions		99,310			106,340			(7,030	)		(6.6	)
Corporate debt securities		15,297			17,438			(2,141	)		(12.3	)
Total available-for-sale debt securities	$	2,884,651		$	3,013,462		$	(128,811	)		(4.3	)
Held-to-maturity debt securities (at amortized cost)
U.S. Government sponsored entities and agencies	$	5,004		$	5,944		$	(940	)		(15.8	)
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		50,587			58,147			(7,560	)		(13.0	)
Obligations of states and political subdivisions		1,200,398			907,649			292,749			32.3
Corporate debt securities		25,306			33,083			(7,777	)		(23.5	)
Total held-to-maturity debt securities		1,281,295			1,004,823			276,472			27.5
Total securities	$	4,177,359		$	4,031,751		$	145,608			3.6
Available-for-sale and equity securities:
Weighted average yield at the respective period end (2)		1.85	%		1.55	%
As a % of total securities		69.3	%		75.1	%
Weighted average life (in years)		6.0			5.0
Held-to-maturity securities:
Weighted average yield at the respective period end (2)		2.96	%		2.92	%
As a % of total securities		30.7	%		24.9	%
Weighted average life (in years)		9.3			5.6
Total securities:
Weighted average yield at the respective period end (2)		2.17	%		1.89	%
As a % of total securities		100.0	%		100.0	%
Weighted average life (in years)		7.0			5.2

(1)

(2)

Weighted average yields have been calculated on a taxable-equivalent basis using the federal statutory tax rate of 21%.

Total investment securities, which are a source of liquidity for Wesbanco as well as a contributor to interest income, increased by $145.6 million or 3.6% from December 31, 2021 to June 30, 2022. Through the first six months of the year, the available-for-sale portfolio decreased by $128.8 million or 4.3%, primarily due to the decrease in market prices as rates began to rise, particularly in the second half of the first quarter and continuing through the second quarter. The held-to-maturity portfolio increased by $276.5 million or 27.5% due to $330.7 million in purchases of municipal bonds. The weighted average yield of the portfolio increased 28 basis points from 1.89% at December 31, 2021 to 2.17% at June 30, 2022, primarily due to decreased prepayment speeds on mortgage-backed securities as a result of the market rate increase, increased purchases of higher yielding municipal bonds and increases in the indices tied to variable rate securities.

Total gross unrealized securities losses increased $321.7 million from $40.3 million at December 31, 2021 to $362.0 million at June 30, 2022. The increase in unrealized losses from December 31, 2021 was due to the increase in market rates in 2022 to date, causing market prices to decrease on most securities purchased or acquired during the lower-yielding environment of the prior two years. Wesbanco did not allocate any allowance for credit losses to the unrealized losses on available-for-sale debt securities at June 30, 2022. Please refer to Note 4, “Securities,” of the Consolidated Financial Statements for additional information. Wesbanco does not have any investments in private mortgage-backed securities or those that are collateralized by sub-prime mortgages, nor does Wesbanco have any exposure to collateralized debt obligations or government-sponsored enterprise preferred stocks.

Net unrealized losses on available-for-sale securities included in accumulated other comprehensive income, net of tax, as of June 30, 2022 and December 31, 2021 were $175.8 million and $4.7 million, respectively. These net unrealized pre-tax losses represent temporary fluctuations resulting from changes in market rates in relation to fixed yields in the available-for-sale portfolio, and on an after-tax basis are accounted for as an adjustment to other comprehensive income in shareholders’ equity. Net unrealized pre-tax (losses) gains in the held-to-maturity portfolio, which are not accounted for in other comprehensive income, were ($127.7) million at June 30, 2022, compared to $23.6 million at December 31, 2021. With approximately 31% of the investment portfolio in the held-to-maturity category, the recent volatility in interest rates does not have as much impact on other comprehensive income as if the entire portfolio were included in the available-for-sale category.

Equity securities, of which a portion consists of investments in various mutual funds held in grantor trusts formed in connection with a key officer and director deferred compensation plan, are recorded at fair value. Gains and losses due to fair value fluctuations on equity securities are included in net securities gains or losses. For those equity securities relating to the key officer and director deferred compensation plan, the corresponding change in the obligation to the employee is recognized in employee benefits expense.

The corporate and municipal bonds in Wesbanco’s held-to-maturity debt portfolio are analyzed quarterly to determine if an allowance for current expected credit losses is warranted. Wesbanco uses a database of historical financials of all corporate and municipal issuers and actual historic default and recovery rates on rated and non-rated transactions to estimate expected credit losses on an individual security basis. The expected credit losses are adjusted quarterly and are recorded in an allowance for expected credit losses on the balance sheet, which is deducted from the amortized cost basis of the held-to-maturity portfolio as a contra asset. The losses are recorded on the income statement in the provision for credit losses. Accrued interest receivable on held-to-maturity securities, which was $9.3 million and $7.0 million as of June 30, 2022 and December 31, 2021, respectively, is excluded from the estimate of credit losses. Held-to-maturity investments in U.S. Government sponsored entities and agencies as well as mortgage-backed securities and collateralized mortgage obligations, which are all either issued by a direct governmental entity or a government-sponsored entity, have no historical evidence supporting expected credit losses; therefore, Wesbanco has estimated these losses at zero, and will monitor this assumption in the future for any economical or governmental policies that could affect this assumption.

Wesbanco uses prices from independent pricing services and, to a lesser extent, indicative (non-binding) quotes from independent brokers, to measure the fair value of its securities. Wesbanco validates prices received from pricing services or brokers using a variety of methods, including, but not limited to, comparison to secondary pricing services, corroboration of pricing by reference to other independent market data such as secondary broker quotes and relevant benchmark indices, review of pricing by personnel familiar with market liquidity and other market-related conditions, review of pricing service methodologies, review of independent auditor reports received from the pricing service regarding its internal controls, and through review of inputs and assumptions used in pricing certain securities thinly traded or with limited observable data points. The procedures in place provide management with a sufficient understanding of the valuation models, assumptions, inputs and pricing to reasonably measure the fair value of Wesbanco’s securities. For additional disclosure relating to fair value measurements, refer to Note 7, “Fair Value Measurement” in the Consolidated Financial Statements.

LOANS AND CREDIT RISK

Loans represent Wesbanco’s single largest balance sheet asset classification and the largest source of interest income. Business purpose loans consist of CRE loans and other C&I loans that are not secured by real estate. CRE loans are further segmented into land and construction loans, and loans for improved property. Consumer purpose loans consist of residential real estate loans, home equity lines of credit and other consumer loans. Loans held for sale generally consist of residential real estate loans originated for sale in the secondary market, but at times may also include other types of loans. The outstanding balance of each major category of the loan portfolio is summarized in Table 10.

The risk that borrowers will be unable or unwilling to repay their obligations and default on loans is inherent in all lending activities. Credit risk arises from many sources including general economic conditions, external events that impact businesses or industries, isolated events that impact a major employer, individual loss of employment or other personal hardships, as well as changes in interest rates or the value of collateral. Credit risk is also impacted by a concentration of exposure within a geographic market or to one or more borrowers, industries or collateral types. The primary goal in managing credit risk is to minimize the impact of default by an individual borrower or group of borrowers. Credit risk is managed through the initial underwriting process as well as through ongoing monitoring and administration of the portfolio that varies by the type of loan. The Bank’s credit policies establish standard underwriting guidelines for each type of loan and require an appropriate evaluation of the credit characteristics of each borrower. This evaluation includes the borrower’s primary source of repayment capacity; the adequacy of collateral, if any, to secure the loan; the potential value of personal guarantees as secondary sources of repayment; and other factors unique to each loan that may increase or mitigate its risk. Credit bureau scores are also considered when evaluating consumer purpose loans as well as guarantors of business purpose loans. However, the Bank does not periodically update credit bureau scores subsequent to when loans are made to determine changes in credit history.

Credit risk is mitigated for all types of loans by continuously monitoring delinquency levels and pursuing collection efforts at the earliest stage of delinquency. The Bank also monitors general economic conditions, including employment, housing activity and real estate values in its market. The Bank also periodically evaluates and changes its underwriting standards when warranted based on market conditions, the historical performance of a category of the portfolio, or other external factors. Credit risk is also regularly evaluated for the impact of adverse economic and other events, such as the current COVID-19 pandemic crisis, that increase the risk of default and the potential loss in the event of default, to understand the impact on the Bank’s earnings and capital.

Commercial loan risk grades are determined based on an evaluation of the relevant characteristics of each loan, assigned at inception 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 sufficiency, reliability and sustainability of the primary source of repayment and overall financial strength of the borrower. The rating system more heavily weights the debt service coverage, leverage and loan-to-value factors to derive the risk grade. Other factors that are considered at a lesser weighting include management, industry or property-type risks, payment history, collateral and personal guarantees.

TABLE 10. COMPOSITION OF LOANS (1)


	June 30, 2022				December 31, 2021
(unaudited, dollars in thousands)	Amount		% of Loans		Amount		% of Loans
Commercial real estate:
Land and construction	$	919,416		9.0	$	833,880		8.5
Improved property		4,933,148		48.2		4,705,088		48.2
Total commercial real estate		5,852,564		57.2		5,538,968		56.7
Commercial and industrial		1,523,046		14.9		1,427,645		14.7
Commercial and industrial - PPP		26,722		0.3		162,675		1.7
Residential real estate		1,907,875		18.7		1,721,378		17.6
Home equity		597,845		5.8		605,682		6.2
Consumer		300,637		2.9		277,130		2.8
Total portfolio loans		10,208,689		99.8		9,733,478		99.7
Loans held for sale		17,560		0.2		25,277		0.3
Total loans	$	10,226,249		100.0	$	9,758,755		100.0

(1)

Loans are presented gross of the allowance for loan credit losses – loans and net of unearned income, credit valuation adjustments, and unamortized net deferred loan fee income and loan origination costs.

Total portfolio loans increased $475.2 million from December 31, 2021, while they decreased $148.5 million or 1.4% over the last twelve months. The year-over-year decrease was due to the forgiveness of $532.2 million in PPP loans over the last twelve months, of which $26.7 million remain in the portfolio as of June 30, 2022. Excluding PPP loans, total portfolio loans increased over the last twelve months by 3.8%, driven by a 56.3% growth in land and construction loans due to increased originations and 17.4% higher residential real estate balances, which stems from continued efforts to sell fewer loans into the secondary market. Increased originations also provided 8.9% growth in consumer loans over the 12 month period. Partial offsets were created by continued low commercial line of credit utilization and the higher than anticipated payoffs of commercial real estate loans, which are down 3.6%, and commercial and industrial loans, which are down 3.3%. Low utilization and increased payoffs have also affected HELOCs, which are down 5.3%. The first quarter of 2022 provided a promising start to the year, which has continued into the second quarter as both commercial and retail loans have shown significant growth year-to-date. Excluding PPP loans, total portfolio loans increased 12.7% on an annualized basis from December 31, 2021.

Total loan commitments of $4.5 billion, including loans approved but not closed, increased $653.4 million or 17.1% from December 31, 2021 due primarily to increases in loans approved but not closed and availabilities under lines of credit. The average line utilization percentage for the commercial portfolio was 37.2% for the three months ended June 30, 2022 compared to 35.1% for the three months ended December 31, 2021.

The commercial portfolio is monitored for potential concentrations of credit risk by market, type of lending, CRE property type, C&I and owner-occupied CRE by industry, investment CRE dependence on common tenants and industries or property types that are similarly impacted by external factors.

Loans held for sale at both June 30, 2022 and December 31, 2021 are originated residential mortgages that are committed to be sold into the secondary market. Loans held for sale decreased by $7.7 million or 30.5% from December 31, 2021 due to continued efforts to keep more originations in the loan portfolio as well as lower originations in general.

Wesbanco has participated in the PPP loan program as originally established by the CARES Act. As of June 30, 2022 the Company has funded nearly 11,300 loans totaling $1.2 billion to qualifying small businesses, non-profits and organizations throughout our six-state footprint. The loans carry an interest rate of 1%, are generally for a two-year or five-year maturity, and were originated with a percentage fee paid by the SBA directly to the Bank depending on the size of the loan originated. At June 30, 2022, remaining unaccreted fees, net of deferred origination costs, were $1.1 million, substantially all of which is attributable to 2021 originated PPP loans. The loans are subject to forgiveness by the SBA under certain defined circumstances; a high percentage of such loans have met such requirements (as revised) in previous quarters, and most remaining PPP loans are anticipated to meet these requirements as well. $851.7 million, or 99.9%, of 2020-originated PPP loans and $347.8 million, or 93.1%, of 2021-originated PPP loans have been forgiven as of June 30, 2022.

Wesbanco met the needs of the communities it serves by providing appropriate relief tailored to the individual needs of the customer, ranging from three months of interest-only for those minimally impacted, up to and including full principal and interest deferral for six months for those significantly impacted, while also providing additional tailored relief to the hospitality industry where appropriate. The relief was provided in as many as three phases depending on the circumstances. Under the CARES Act, Wesbanco modified approximately 3,553 loans totaling $2.2 billion, of which a total of $31.2 million, representing 0.3% of total portfolio loans, remain in deferral as of June 30, 2022. As of June 30, 2022, an additional $91.7 million of commercial loans had various payment terms modified in exchange for enhancements beneficial to the Bank which were permanent improvements to the credit facility. Changes include an increase in floor rates, increase in guarantors and duration of guarantees and a change in covenants. None of the aforementioned loans were considered delinquent as of June 30, 2022, while two loans totaling $0.3 million were on non-accrual status.

NON-PERFORMING ASSETS AND LOANS PAST DUE 90 DAYS OR MORE

Non-performing assets consist of non-accrual loans and TDRs, other real estate acquired through or in lieu of foreclosure, bank premises held for sale, and repossessed automobiles acquired to satisfy defaulted consumer loans.

TABLE 11. NON-PERFORMING ASSETS


(unaudited, dollars in thousands)	June 30, 2022			December 31, 2021
Non-accrual loans:
Commercial real estate - land and construction	$	—		$	73
Commercial real estate - improved property		7,043			7,715
Commercial and industrial		4,275			5,064
Residential real estate		15,111			17,190
Home equity		4,909			5,163
Consumer		376			537
Total non-accrual loans (1)		31,714			35,742
TDRs accruing interest:
Commercial real estate - land and construction		53			—
Commercial real estate - improved property		361			374
Commercial and industrial		183			192
Residential real estate		2,698			2,875
Home equity		254			277
Consumer		30			28
Total TDRs accruing interest (1)		3,579			3,746
Total non-performing loans	$	35,293		$	39,488
Other real estate owned and repossessed assets		31			—
Total non-performing assets	$	35,324		$	39,488
Non-performing loans/total portfolio loans		0.35	%		0.41	%
Non-accrual loans/total portfolio loans		0.31	%		0.37	%
Non-performing assets/total assets		0.21	%		0.23	%
Non-performing assets/total portfolio loans, other real estate and repossessed assets		0.35	%		0.41	%

(1)

TDRs on non-accrual of $2.1 million as of June 30, 2022 and $1.5 million as of December 31, 2021, respectively, are included in total non-accrual loans.

Non-performing loans, which consist of non-accrual loans and TDRs, decreased $4.2 million or 10.6%, from December 31, 2021. $4.0 million of the decrease is attributable to non-accrual loans, while the other $0.2 million is due to TDRs. (Please see the Notes to the Consolidated Financial Statements for additional discussion.)

Section 4013 of the CARES Act allows financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time during the COVID-19 pandemic. These customers must meet certain criteria, such as they were in good standing and not more than 30 days past due as of December 31, 2019, as well as other requirements. Based on this guidance, Wesbanco did not classify the COVID-19 loan modifications as TDRs, nor are the customers considered past due with regards to their delayed payments. Upon exiting the loan modification deferral program, the measurement of loan delinquency will resume where it left off upon entry into the program. Wesbanco has offered various deferred payment schedules to commercial and retail customers impacted by the COVID-19 pandemic, depending on the type of loan and the industry-type for commercial loans. Such deferrals primarily took place in 2020, with a few in late 2021. It is exceedingly rare for a new loan deferral to occur in 2022.

The following table presents past due and accruing loans excluding non-accrual and TDRs:

TABLE 12. PAST DUE AND ACCRUING LOANS EXCLUDING NON-ACCRUAL AND TDRs


(unaudited, dollars in thousands)	June 30, 2022			December 31, 2021
Loans past due 90 days or more:
Commercial real estate - land and construction	$	—		$	51
Commercial real estate - improved property		7,223			3,042
Commercial and industrial		452			559
Residential real estate		1,175			2,840
Home equity		391			685
Consumer		319			627
Total loans past due 90 days or more		9,560			7,804
Loans past due 30 to 89 days:
Commercial real estate - land and construction		703			—
Commercial real estate - improved property		18,228			14,001
Commercial and industrial		4,248			3,442
Residential real estate		2,792			4,513
Home equity		2,412			2,528
Consumer		3,005			2,668
Total loans past due 30 to 89 days		31,388			27,152
Total loans 30 days or more past due	$	40,948		$	34,956
Loans past due 90 days or more and accruing to total portfolio loans		0.09	%		0.08	%
Loans past due 30-89 days and accruing to total portfolio loans		0.31	%		0.28	%

Loans past due 30 days or more and accruing interest, excluding non-accruals and TDRs, increased $6.0 million or 17.1% from December 31, 2021. These loans continue to accrue interest because they are both well-secured and in the process of collection. Loans 90 days or more past due increased $1.8 million and represented 0.09% and 0.08% of total portfolio loans at June 30, 2022 and December 31, 2021, respectively. The 30 – 89 days past due category represented 0.31% of total portfolio loans at June 30, 2022 and 0.28% at December 31, 2021. Loans currently modified as permitted by the regulatory authorities and the CARES Act are not included in Tables 13 or 14, as they are not considered past due.

ALLOWANCE FOR CREDIT LOSSES - LOANS AND LOAN COMMITMENTS

As of June 30, 2022, the total allowance for credit losses – loans and commitments was $125.1 million, of which $117.4 million related to loans and $7.7 million related to loan commitments. The allowance for credit losses – loans was 1.15% of total portfolio loans as of June 30, 2022, compared to 1.25% as of December 31, 2021. Excluding PPP loans, the allowance for credit losses – loans was 1.15% of total portfolio loans as of June 30, 2022, as compared to 1.27% of total portfolio loans at December 31, 2021. There is no calculated allowance on PPP loans due to their government guarantees by the SBA.

The allowance for credit losses - loans individually-evaluated increased $0.4 million from December 31, 2021 to June 30, 2022. The population of individually-evaluated loans consisted primarily of eight hotel loans, with a total outstanding loan balance of $40.2 million. The allowance for loans collectively-evaluated decreased from December 31, 2021 to June 30, 2022 by $4.6 million.

The allowance for credit losses - loan commitments was $7.7 million at June 30, 2022 as compared to $7.8 million as of December 31, 2021, and is included in other liabilities on the Consolidated Balance Sheets.

The allowance for credit losses by loan category, presented in Note 4, “Loans and the Allowance for Credit Losses” of the Consolidated Financial Statements, summarizes the impact of changes in various factors that affect the allowance for loan losses in each segment of the portfolio. The allowance for credit losses under CECL is calculated utilizing the PD/LGD, which is then discounted to net present value. PD is the probability the asset will default within a given time frame and LGD is the percentage of the asset not expected to be collected due to default. The primary macroeconomic drivers of the quantitative model include forecasts of national unemployment and interest rates, as well as modeling adjustments for changes in prepayment speeds, loan risk grades, portfolio mix, concentrations and loan growth. For the calculation as of June 30, 2022, the forecast was based upon a probability weighted approach which is designed to incorporate loss projections from a baseline, upside and downside economy. Due to the nonlinearity of credit losses to the economy, the asymmetry is best captured by evaluating multiple economic scenarios through a probability weighted approach. At quarter-end, national unemployment was projected to be 4.0%, and subsequently increase to 4.4% over the remainder of the forecast period. The improvement in the COVID qualitative factors, including those specifically for the hospitality portfolio, caused the allowance to decrease from December 31, 2021 to June 30, 2022, by $4.3 million.

If forecasted projections of national unemployment remain consistent with the forecast utilized by Wesbanco as of June 30, 2022 throughout the rest of the year, this may result in future quarterly increases in the allowance for credit losses, depending upon other model variables such as qualitative factors specifically for hotels and the COVID-19 pandemic.

Criticized and classified loans were 3.14% of total portfolio loans at June 30, 2022, decreasing from 3.75% at December 31, 2021. Criticized and classified loans decreased from $364.5 million at December 31, 2021 to $320.1 million at June 30, 2022. The $44.4 million decline is primarily due to upgrades on certain hospitality loans. See Footnote 4, “Loans and the Allowance for Credit Losses” for more information.

Table 13 summarizes the allocation of the allowance for credit losses to each category of the loan portfolio.

TABLE 13. ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES – LOANS AND LOAN COMMITMENTS


(unaudited, dollars in thousands)	June 30, 2022		Percent of Total		December 31, 2021		Percent of Total
Allowance for credit losses - loans:
Commercial real estate - land and construction	$	8,107		6.5	$	7,310		5.6
Commercial real estate - improved property		59,557		47.7		65,355		50.5
Commercial and industrial		28,168		22.5		26,875		20.8
Residential real estate		14,931		11.9		15,401		11.9
Home equity		777		0.6		724		0.6
Consumer		4,304		3.4		3,737		2.9
Deposit account overdrafts		1,559		1.2		2,220		1.7
Total allowance for credit losses - loans	$	117,403		93.8	$	121,622		94.0
Allowance for credit losses - loan commitments:
Commercial real estate - land and construction	$	4,876		3.9	$	4,180		3.2
Commercial real estate - improved property		—		0.0		201		0.2
Commercial and industrial		209		0.2		1,497		1.2
Residential real estate		2,158		1.7		1,576		1.2
Home equity		63		0.1		49		0.0
Consumer		412		0.3		272		0.2
Total allowance for credit losses - loan commitments		7,718		6.2		7,775		6.0
Total allowance for credit losses - loans and loan commitments	$	125,121		100.0	$	129,397		100.0

Although the allowance for credit losses is allocated as described in Table 13, the total allowance is available to absorb actual losses in any category of the loan portfolio. However, differences between management’s estimation of probable losses and actual net charge-offs in subsequent periods for any category may necessitate future adjustments to the allowance for credit losses applicable to the category. Management believes the allowance for credit losses is appropriate to absorb expected losses at June 30, 2022.

DEPOSITS

TABLE 14. DEPOSITS


(unaudited, dollars in thousands)	June 30, 2022		December 31, 2021		$ Change			% Change
Deposits
Non-interest bearing demand	$	4,738,830	$	4,590,895	$	147,935			3.2
Interest bearing demand		3,258,871		3,380,056		(121,185	)		(3.6	)
Money market		1,770,859		1,739,750		31,109			1.8
Savings deposits		2,695,437		2,562,510		132,927			5.2
Certificates of deposit		1,105,305		1,292,652		(187,347	)		(14.5	)
Total deposits	$	13,569,302	$	13,565,863	$	3,439			0.0

Deposits, which represent Wesbanco’s primary source of funds, are offered in various account forms at various rates through Wesbanco’s 193 financial centers. The FDIC insures deposits up to $250,000 per account owner.

Total deposits were virtually unchanged during the first six months of 2022. Savings deposits, money market deposit accounts, and demand deposits increased 5.2%, 1.8%, and 0.3%, respectively. The growth in transaction-based accounts is primarily attributable to increased personal savings and focused retail and business strategies to obtain more account relationships as well as customers’ overall preferences for shorter-term maturities. Deposit balances were also impacted by bonus and royalty payments for Marcellus and Utica shale gas payments from energy companies in Wesbanco’s southwestern Pennsylvania, eastern Ohio and northern West Virginia markets. Money market deposits were influenced through Wesbanco’s participation in the Insured Cash Sweep (ICS®) money market deposit program. ICS® reciprocal balances totaled $623.9 million at June 30, 2022 compared to $641.1 million at December 31, 2021.

Certificates of deposit decreased $187.3 million from December 31, 2021 to June 30, 2022 due primarily to the effects of an overall corporate strategy designed to increase and remix retail deposit relationships and reduce single-service customers with a focus on overall products that can be offered at a lower cost to Wesbanco. Wesbanco does not generally solicit brokered or other deposits out-of-market or over the internet, but does participate in the Certificate of Deposit Account Registry Services (CDARS®) program. CDARS® balances totaled $37.7 million in outstanding balances at June 30, 2022, compared to $45.9 million in total outstanding balances at December 31, 2021. Certificates of deposit greater than $250,000 were approximately $222.0 million at June 30, 2022 compared to $313.2 million at December 31, 2021. Certificates of deposit of $100,000 or more were approximately $531.7 million at June 30, 2022 compared to $666.2 million at December 31, 2021. Certificates of deposit totaling approximately $719.4 million at June 30, 2022 with a cost of 0.39% are scheduled to mature within the next 12 months. Wesbanco intends to continue to focus on its core deposit strategies and improving its overall mix of transaction accounts to total deposits. From time to time, the Bank may offer special promotions or match competitor rates on certain certificates of deposit maturities and savings products based on competition, sales strategies, liquidity needs and wholesale borrowing costs.

BORROWINGS

TABLE 15. BORROWINGS


(unaudited, dollars in thousands)	June 30, 2022		December 31, 2021		$ Change			% Change
Federal Home Loan Bank Borrowings	$	122,650	$	183,920	$	(61,270	)		(33.3	)
Other short-term borrowings		147,964		141,893		6,071			4.3
Subordinated debt and junior subordinated debt		280,910		132,860		148,050			111.4
Total	$	551,524	$	458,673	$	92,851			20.2

While borrowings are a significant source of funding for Wesbanco, they are less significant as compared to total deposits. During the first six months of 2022, $61.3 million in available liquidity was used for FHLB borrowings maturities and other principal pay-downs with an average cost of 1.20%. There were no new FHLB advances during the period.

Other short-term borrowings, which may consist of federal funds purchased, callable repurchase agreements, overnight sweep checking accounts, and borrowings on a revolving line of credit, were $148.0 million at June 30, 2022 compared to $141.9 million at December 31, 2021. There were no outstanding federal funds purchased at either June 30, 2022 or December 31, 2021.

Subordinated debt and junior subordinated debt balances increased by $148.1 million from December 31, 2021. The increase is due to the issuance of $150.0 million in aggregate principal amount of subordinated debentures by Wesbanco, Inc. on March 23, 2022. The subordinated debentures have a fixed rate of 3.75% for the first five years and a floating rate for the next five years at Three Month Term Secured Overnight Financing Rate plus 1.787%. The subordinated debentures are callable after five years, mature on April 1, 2032 and count towards Tier 2 capital.

Wesbanco renewed a revolving line of credit in August 2021, which is a senior obligation of the parent company, with another financial institution. This line of credit, which accrues interest at an adjusted LIBOR rate, provides for aggregate unsecured borrowings of up to $30.0 million. There were no outstanding balances at either June 30, 2022 or December 31, 2021.

CAPITAL RESOURCES

Shareholders' equity decreased $225.2 million or 8.4% at June 30, 2022 from $2.7 billion at December 31, 2021. The decrease resulted from the repurchase of common shares totaling $99.4 million, the declaration of common and preferred shareholder dividends totaling $40.7 million and $5.1 million, respectively, and a $170.9 million other comprehensive loss for the six months ended June 30, 2022 exceeding net income during the current six-month period of $86.9 million. Wesbanco also increased its quarterly dividend rate $0.01 per quarter to $0.34 per share in February, representing a 3.0% increase over the prior quarterly rate and a cumulative 143% increase since 2010.

Wesbanco purchased 2,841,043 shares of its common stock on the open market at a total cost of $99.4 million or $34.99 per share during the six-month period ended June 30, 2022 under current share repurchase authorizations. The Board of Directors approved an additional stock repurchase plan on February 24, 2022 for the purchase of up to 3.2 million shares, which was in addition to prior plans that were utilized during the quarter. At June 30, 2022, the remaining shares authorized to be purchased under the last approved repurchase plan totaled 1,750,574 shares.

Regulatory guidelines require bank holding companies and commercial banks to maintain certain minimum capital ratios and define companies as “well capitalized” that sufficiently exceed the minimum ratios. At June 30, 2022, regulatory capital levels for both the Bank and Wesbanco were substantially greater than the minimum amounts needed to be considered “well capitalized” under the regulations. There are various legal limitations under federal and state laws that limit the payment of dividends from the Bank to Wesbanco. As of June 30, 2022, under FDIC regulations, Wesbanco could receive, without prior regulatory approval, a dividend of approximately $98.3 million from the Bank.

On March 26, 2020, regulators issued interim financial rule (“IFR”) “Regulatory Capital Rule: Revised Transition of the Current Expected Losses Methodology for Allowances” in response to the disrupted economic activity from the spread of COVID-19. The IFR provides financial institutions that adopt CECL during 2020 with the option to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided by the initial two-year delay (“five-year transition”). Wesbanco adopted CECL effective January 1, 2020 and elected to implement the five-year transition. Regulatory capital levels without the capital benefit at June 30, 2022 for both the Bank and Wesbanco would have continued to be greater than the amounts needed to be considered “well capitalized”, as the capital benefit approximated 17 to 25 basis points for three of the four regulatory ratios, while total risk-based capital would have been slightly higher without the transition.

The following table summarizes risk-based capital amounts and ratios for Wesbanco and the Bank for the periods indicated:


							June 30, 2022							December 31, 2021
	Minimum			Well-								Minimum							Minimum
(unaudited, dollars in thousands)	Value(1)			Capitalized(2)			Amount		Ratio			Amount(1)		Amount		Ratio			Amount(1)
Wesbanco, Inc.
Tier 1 leverage		4.00	%		5.00	%	$	1,525,940		9.51	%	$	641,836	$	1,586,165		10.02	%	$	633,089
Common equity Tier 1		4.50	%		6.50	%		1,381,455		11.31	%		549,568		1,441,681		12.77	%		507,893
Tier 1 capital to risk-weighted assets		6.00	%		8.00	%		1,525,940		12.49	%		732,757		1,586,165		14.05	%		677,190
Total capital to risk-weighted assets		8.00	%		10.00	%		1,881,179		15.40	%		977,009		1,795,661		15.91	%		902,920
Wesbanco Bank, Inc.
Tier 1 leverage		4.00	%		5.00	%	$	1,534,455		9.58	%	$	640,775	$	1,529,227		9.68	%	$	631,920
Common equity Tier 1		4.50	%		6.50	%		1,534,455		12.61	%		547,676		1,529,227		13.60	%		505,967
Tier 1 capital to risk-weighted assets		6.00	%		8.00	%		1,534,455		12.61	%		730,235		1,529,227		13.60	%		674,622
Total capital to risk-weighted assets		8.00	%		10.00	%		1,609,695		13.23	%		973,647		1,608,723		14.31	%		899,496

(1)

Minimum requirements to remain adequately capitalized.

(2)

Well-capitalized under prompt corrective action regulations.

LIQUIDITY RISK

Liquidity is defined as a financial institution’s capacity to meet its cash and collateral obligations at a reasonable cost. Liquidity risk is the risk that an institution’s financial condition or overall safety and soundness is adversely affected by an inability, or perceived inability, to meet its obligations. An institution’s obligations, and the funding sources to meet them, depend significantly on its business mix, balance sheet structure, and the cash flows of its on- and off-balance sheet obligations. Institutions confront various internal and external situations that can give rise to increased liquidity risk including funding mismatches, market constraints on funding sources, contingent liquidity events, changes in economic conditions, and exposure to credit, market, operation, legal and reputation risk. Wesbanco actively manages liquidity risk through its ability to provide adequate funds to meet changes in loan demand, unexpected outflows in deposits and other borrowings as well as to take advantage of market opportunities and meet operating cash needs. This is accomplished by maintaining liquid assets in the form of securities, sufficient borrowing capacity and a stable core deposit base. Liquidity is centrally monitored by Wesbanco’s Asset/Liability Committee (“ALCO”).

Wesbanco determines the degree of required liquidity by the relationship of total holdings of liquid assets to the possible need for funds to meet unexpected deposit losses and/or loan demands. The ability to quickly convert assets to cash at a minimal loss is a primary function of Wesbanco’s investment portfolio management. Wesbanco believes its cash flow from the loan portfolio, the investment portfolio, and other sources, adequately meet its liquidity requirements. Wesbanco’s net loans to assets ratio was 60.1% at June 30, 2022 and deposit balances funded 80.8% of assets.

The following table lists the sources of liquidity from assets at June 30, 2022 expected within the next year:


(unaudited, in thousands)
Cash and cash equivalents	$	450,009
Securities with a maturity date within the next year and callable securities		233,444
Projected payments and prepayments on mortgage-backed securities and collateralized mortgage obligations (1)		551,762
Loans held for sale		17,560
Accruing loans scheduled to mature		1,059,831
Normal loan repayments		1,515,476
Total sources of liquidity expected within the next year	$	3,828,082

(1) Projected prepayments are based on current prepayment speeds.

Deposit flows are another principal factor affecting overall Wesbanco liquidity. Deposits totaled $13.6 billion at June 30, 2022. Deposit flows are impacted by current interest rates, products and rates offered by Wesbanco versus various forms of competition, as well as customer behavior. Certificates of deposit scheduled to mature within one year totaled $719.4 million at June 30, 2022, with a weighted average cost of 0.39%, which includes jumbo regular certificates of deposit totaling $341.6 million with a weighted-average cost of 0.49%, and jumbo CDARS® deposits of $29.5 million with a weighted-average cost of 0.47%.

Wesbanco maintains a line of credit with the FHLB as an additional funding source. Available credit with the FHLB approximated $4.1 billion and $3.8 billion at June 30, 2022 and December 31, 2021, respectively. The FHLB requires securities to be specifically pledged to the FHLB and maintained in a FHLB-approved custodial arrangement if the member wishes to include such securities in the maximum borrowing capacity calculation. Wesbanco has elected not to specifically pledge to the FHLB otherwise unpledged securities. At June 30, 2022, the Bank had unpledged available-for-sale securities with an amortized cost of $912.4 million, or 29.9% of the total available-for-sale portfolio. A portion of these securities could be sold for additional liquidity, or such securities could be pledged to secure additional FHLB borrowings. A significant portion of the portfolio is pledged to public deposit customers, as public deposit balances have increased significantly through the several acquisitions made since 2015, to a total of $1.5 billion at June 30, 2022. Wesbanco’s held-to-maturity portfolio currently contains $1.2 billion of unpledged securities. Most of these securities are tax-exempt municipal securities, which can only be pledged in limited circumstances. Generally, these securities cannot be sold without tainting the remainder of the held-to-maturity portfolio. If tainting occurs, all remaining securities with the held-to-maturity designation would be required to be reclassified as available-for-sale, and the held-to-maturity designation would not be available to Wesbanco for a period of time.

Wesbanco participates in the Federal Reserve Bank’s Borrower-in-Custody Program (“BIC”) whereby Wesbanco pledges certain consumer loans as collateral for borrowings. Wesbanco did not have any BIC borrowings outstanding at June 30, 2022. Alternative funding sources may include the utilization of existing overnight lines of credit with third party banks totaling $235.0 million, none of which was outstanding at June 30, 2022, along with seeking other lines of credit, borrowings under repurchase agreement lines, increasing deposit rates to attract additional funds, accessing brokered deposits, or selling securities available-for-sale or certain types of loans.

Other short-term borrowings of $148.0 million at June 30, 2022 consisted of callable repurchase agreements and overnight sweep checking accounts for large commercial customers. Other short-term borrowings may also include federal funds purchased. The overnight sweep checking accounts require U.S. Government securities to be pledged equal to or greater than the average deposit balance in the related customer accounts.

The principal sources of parent company liquidity are dividends from the Bank, $246.2 million in cash on hand, and a $30.0 million revolving line of credit with another bank, which did not have an outstanding balance at June 30, 2022. Wesbanco is in compliance with all applicable loan covenants. There are various legal limitations under federal and state laws that limit the payment of dividends from the Bank to the parent company. As of June 30, 2022, under FDIC and State of West Virginia regulations, Wesbanco could receive, without prior regulatory approval, dividends of approximately $98.3 million from the Bank. Management believes these are appropriate levels of cash for the parent company given the current environment. Management continuously monitors the adequacy of parent company cash levels and sources of liquidity through the use of metrics that relate current cash levels to historical and forecasted cash inflows and outflows.

Wesbanco had outstanding commitments to extend credit in the ordinary course of business approximating $4.5 billion and $3.8 billion at June 30, 2022 and December 31, 2021, respectively. On a historical basis, only a portion of these commitments will result in an outflow of funds. Please refer to Note 10, “Commitments and Contingent Liabilities” of the Consolidated Financial Statements and the “Loans and Credit Risk” section of this MD&A for additional information.

Federal financial regulatory agencies have previously issued guidance to provide for sound practices for managing funding and liquidity risk and strengthening liquidity risk management practices. Wesbanco maintains a comprehensive management process for identifying, measuring, monitoring, and controlling liquidity risk, which is fully integrated into its risk management process. Management believes Wesbanco has sufficient current liquidity to meet current obligations to borrowers, depositors and others and that Wesbanco’s current liquidity risk management policies and procedures, as periodically reviewed and adjusted, adequately address this guidance.

LIBOR TRANSITION

LIBOR is a widely used short-term reference interest rate benchmark for variable rate loans and securities, borrowings, and interest rate hedge/swap transactions. In July of 2017, the U.K. Financial Conduct Authority (“FCA”) announced the discontinuation of LIBOR after certain banks provided purported interest rate figures which did not truly reflect the rate at which they could borrow. In addition to FCA, as early as 2014, financial institution regulators and the Federal Financial Institutions Examination Council (“FFIEC”) began to work to develop a uniform approach to the phase-out of LIBOR because the continued reliance on LIBOR could present systematic risk to financial institutions. The Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee (“AARC”) to identify alternative reference rates to LIBOR. The AARC released consultations on contractual fallback language to prepare for the transition away for LIBOR and on June 22, 2017, identified SOFR as the recommended alternative to LIBOR.

On July 1, 2020, the FFIEC issued a Joint Statement on Managing the LIBOR Transition to further explain that new financial contracts should either utilize a reference rate other than LIBOR or have robust fallback language that defines an alternative reference rate after LIBOR’s discontinuation. The FFIEC statement encouraged supervised financial institutions to continue their efforts to prepare for the change and address the risks associated with the LIBOR transition.

On November 6, 2020, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (collectively, the “Agencies”) issued a statement providing that a financial institution may use any reference rate for its loans that the financial institution determines to be appropriate for its funding model and customer needs.

Thereafter, on November 30, 2020, the Agencies issued an additional joint statement encouraging financial institutions to continue to transition away from LIBOR as soon as practicable, but no later than December 31, 2021. Given the risks associated with the use of LIBOR, the Agencies stated that entering into new contracts that use LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks.

On March 5, 2021, the U.K. FCA and Intercontinental Exchange (“ICE”) Benchmark Administration announced that the publication of the overnight, as well as, the one, three, six, and twelve month LIBOR rates will continue through June 30, 2023, which will provide additional time to wind down or renegotiate existing contracts that reference LIBOR.

On October 20, 2021, the Agencies with the Consumer Financial Protection Bureau, National Credit Union Administration, and State Bank and Credit Union Regulators, issued an additional Joint Statement on Managing the LIBOR Transition to once again emphasize the expectation that supervised institutions with LIBOR exposure continue to progress toward an orderly transition away from LIBOR. The statement confirmed that entering into new contracts, including derivatives that use LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks, including litigation, operational, and consumer protection risks.

On March 15, 2022, President Biden signed the Adjustable Interest Rate (LIBOR) Act into law (the “LIBOR Act”). The LIBOR Act provides a clear and uniform federal solution for transitioning legacy contracts that either lack or contain insufficient contractual provisions addressing the permanent cessation of LIBOR by providing for the transition from LIBOR to a replacement rate and avoiding related litigation.

As early as 2018, in anticipation of the potential discontinuance of LIBOR, Wesbanco established a LIBOR transition committee to effectively manage the Company’s transition away from LIBOR in two phases. The first phase included adding additional fallback language to loan documents to allow Wesbanco to replace LIBOR with an equivalent rate index plus the margin to ensure the resulting interest rate is the same as it previously was using LIBOR. Also, as part of the first phase, Wesbanco began quoting to the Treasury Rate published by the Federal Reserve Board instead of the ICE LIBOR Swap Index (which is tied to LIBOR) when repricing certain term loans and originating new loans. The second phase consists of working to continue to transition existing adjustable-rate loans that fluctuate monthly or periodically that are tied to LIBOR or the ICE LIBOR Swap Index. Wesbanco is tracking the dollar amount and number of loans tied to LIBOR or the ICE LIBOR Swap Index, monitoring current industry trends, and working with legal counsel to ensure the smooth transition away from LIBOR. As of June 30, 2022, Wesbanco had a total of $1.6 billion in loans tied to either LIBOR or the ICE LIBOR Swap index, of which $1.3 billion have a maturity date after June 30, 2023. As referenced above, the U.K. FCA and ICE Benchmark Administration has extended the date of publication of certain tenors of LIBOR through June 30, 2023, giving existing LIBOR based contracts time to mature. However, in compliance with and based upon the Agencies Joint Statements referenced above, Wesbanco has not offered LIBOR for new contracts after December 31, 2021. Accordingly, Wesbanco has initially chosen the 1M Term SOFR, which is published by the Chicago Mercantile Exchange, as an alternative replacement rate for LIBOR. Wesbanco may also continue to utilize the Wall Street Journal Prime Rate, the Treasury Rates, and other indexes as part of its lending program. At a date in the future, prior to the cessation of the publication of the one month LIBOR, Wesbanco will transition all remaining LIBOR based loans to the replacement index after notification to the impacted borrowers. This transition will be aided by the passage of the LIBOR Act. With respect to its back-to-back swap program, Wesbanco worked with its swap counterparty customers to institute and accept the International Swaps and Derivatives Association 2020 Interbank Offered Rate Fallbacks Protocol to address LIBOR cessation in swap transactions. Moreover, Wesbanco chose 1M Term SOFR as its replacement index for new loans in the bank’s back-to-back swap program, beginning on January 1, 2022.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The disclosures set forth in this item are qualified by the section captioned “Forward-Looking Statements” included in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report.

MARKET RISK

The primary objective of the ALCO is to maximize net interest income within established policy parameters. This objective is accomplished through the management of balance sheet composition, market risk exposures arising from changing economic conditions and liquidity risk.

Market risk is defined as the risk of loss due to adverse changes in the fair value of financial instruments resulting from fluctuations in interest rates and bond prices. Management considers interest rate risk to be Wesbanco’s most significant market risk. Interest rate risk is the exposure to adverse changes in net interest income due to changes in interest rates. The consistency of Wesbanco’s net interest income is largely dependent on effective management of interest rate risk. As interest rates change in the market, rates earned on interest rate-sensitive assets and rates paid on interest rate-sensitive liabilities do not necessarily move concurrently. Differing rate sensitivities may arise because fixed rate assets and liabilities may not have the same maturities, or because variable rate assets and liabilities differ in the timing and/or the percentage of rate changes.

Wesbanco’s ALCO is an executive management committee with Board representation, responsible for monitoring and managing interest rate risk within approved policy limits, utilizing earnings sensitivity simulation and economic value-at-risk models. These models are highly dependent on various assumptions, which change regularly as the balance sheet and market interest rates change. The key assumptions and strategies employed are analyzed, reviewed and documented at least quarterly by the ALCO.

The earnings sensitivity simulation model projects changes in net interest income resulting from the effects of changes in interest rates. Forecasting changes in net interest income requires management to make certain assumptions regarding loan and security prepayment rates, call dates, changes to deposit product betas and non-maturity deposit decay rates, which may not necessarily reflect the manner in which actual cash flows, yields, and costs respond to changes in market interest rates. Assumptions are based on historical experience, current market rates and economic forecasts, and are internally back-tested and periodically reviewed by a third-party consultant. The net interest income sensitivity results presented in Table 1, “Net Interest Income Sensitivity,” assumes that the balance sheet composition of interest sensitive assets and liabilities existing at the end of the period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve, regardless of the duration of the maturity or re-pricing of specific assets and liabilities. Since the assumptions used in the model relative to changes in interest rates are uncertain, the simulation analysis may not be indicative of actual results. In addition, this analysis does not consider actions that management might employ in response to changes in interest rates, as well as changes in earning asset and costing liability balances.

Interest rate risk policy limits are determined by measuring the anticipated change in net interest income over a twelve-month period, assuming immediate and sustained market interest rate increases and decreases of 100 - 300 basis points across the entire yield curve, as compared to a stable rate environment or base model. Wesbanco’s current policy limits this exposure for the noted interest rate changes to a reduction of between 7.5% - 15%, or less, of net interest income from the stable rate base model over a twelve-month period. The table below indicates Wesbanco’s interest rate sensitivity at June 30, 2022 and December 31, 2021, assuming the above-noted interest rate increases, as compared to a base model. In the current interest rate environment, particularly for short-term rates, the 200 – 300 basis points decreasing changes for June 30, 2022 and the 100 – 300 basis points decreasing changes for December 31, 2021 are not shown due to the unrealistic and/or negative yield nature of the results.

TABLE 1. NET INTEREST INCOME SENSITIVITY


Immediate Change in	Percentage Change in
Interest Rates	Net Interest Income from Base over One Year		ALCO
(basis points)	June 30, 2022	December 31, 2021	Guidelines
+300	11.0%	17.5%	(15.0%)
+200	7.2%	11.7%	(10.0%)
+100	3.6%	6.0%	(7.5%)
-100	(7.3%)	N/A	(7.5%)

Adjustments to relative sensitivities are due to the impact of the current lower rate and yield curve environment on base case net interest income and the related calculation of parallel rate shock changes in rising and falling rate scenarios. Additional differences typically result from changes in the various earning assets and costing liabilities mix and growth rates, as well as adjustments for various modeling assumptions. Generally, deposit betas utilized in modeling are estimated at more conservative percentages for various rate scenarios than has been the Bank’s historical experience, as a result of both competitive factors in our markets and as public funds and institutional contract terms are renewed. Deposit betas, decay rates and loan prepayment speeds are adjusted periodically in our models for non-maturity deposits and loans. Indicated model asset sensitivity in rising rate scenarios may be less than anticipated due to slower prepayment speeds, rate floors, below forecast new loan yields, spread compression between new asset yields and funding costs, mortgage-related extension risk and other factors. In a decreasing rate environment, asset sensitivity may have greater impact on the margin than currently modeled as prepayment speeds increase, customers refinance or request rate reductions on existing loans, estimated deposit betas do not perform as modeled, or for other reasons.

In addition to the aforementioned parallel rate shock earnings sensitivity simulation model, the ALCO also reviews a “dynamic” forecast scenario to project net interest income over a rolling two-year time period. This forecast is updated at least quarterly, incorporating revisions and updated assumptions into the model for estimated loan and deposit growth, expected balance sheet re-mixing strategies, changes in forecasted rates for various maturities, competitive market spreads for various products and other assumptions. Such modeling is directionally consistent with typical parallel rate shock scenarios, and it assists in predicting changes in forecasted outcomes as well as suggesting potential adjustments to management plans to assist in achieving earnings goals.

Wesbanco also periodically measures the economic value of equity (“EVE”), which is defined as the market value of tangible equity in various rate scenarios. Generally, changes in the economic value of equity relate to changes in various assets and liabilities, changes in the yield curve, as well as changes in loan prepayment speeds and deposit decay rates. The following table presents these results and Wesbanco’s policy limits as of June 30, 2022 and December 31, 2021. Changes in EVE sensitivity since year-end 2021 relate to the increase in market interest rates and their impact upon the fair values of earning assets and costing liabilities.


Immediate Change in	Percentage Change in
Interest Rates	Economic Value of Equity from Base over One Year		ALCO
(basis points)	June 30, 2022	December 31, 2021	Guidelines
+300	(0.3%)	3.7%	(30.0%)
+200	(0.7%)	1.6%	(20.0%)
+100	(0.5%)	1.8%	(10.0%)
-100	(3.1%)	N/A	(10.0%)

The Bank has significant additional borrowing capacity with the FHLB of Pittsburgh, the Federal Reserve Bank of Cleveland and various correspondent banks, and may utilize these funding sources or interest rate swap strategies as necessary to lengthen liabilities, offset mismatches in various asset maturities and manage liquidity. CDARS® and ICS® deposits also may be utilized for similar purposes for certain customers seeking higher-yielding instruments or maintaining deposit levels below FDIC insurance limits. Significant balance sheet strategies to assist in managing the net interest margin in the current interest rate environment include:

•

increasing total loans, particularly commercial and home equity loans that have variable or adjustable features;

•

selling a percentage of longer-term residential mortgage loan production into the secondary market;

•

growing demand deposit account types to increase the relative portion of these account types to total deposits;

•

employing back-to-back loan swaps for certain commercial loan customers desiring a term fixed-rate loan equivalent, with the Bank receiving a variable rate;

•

adjusting terms for FHLB short-term maturing borrowings to balance asset/liability mismatches; or paying them off with excess liquidity;

•

using CDARS® and ICS® deposit programs to manage funding needs and overall liability mix; and

•

adjusting the size, mix or duration of the investment portfolio as part of liquidity and balance sheet management strategies.

Management is aware of the significant effect that inflation or deflation has upon interest rates and ultimately upon financial performance. Wesbanco’s ability to cope with inflation or deflation is best determined by analyzing its capability to respond to changing market interest rates, as well as its ability to manage the various elements of non-interest income and expense during periods of increasing or decreasing inflation or deflation. Wesbanco monitors the level and mix of interest-rate sensitive assets and liabilities through ALCO in order to reduce the impact of inflation or deflation on net interest income. Management also controls the effects of inflation or deflation by conducting periodic reviews of the prices, costs and terms of its various products and services, as well as competitive factors, by approving new products and services or adjusting the terms and availability of existing products and services for both Wesbanco as well as its business loan customers. Over the last few quarters, inflation has been trending higher and has impacted the cost of labor and purchased goods and services. Wesbanco is also monitoring the potential impact that inflation is having on single family home construction and multifamily properties as proposed rental rate caps and controls are put in place in areas across Wesbanco’s footprint.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES— Wesbanco’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have concluded that Wesbanco’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), based on their evaluation of these controls and procedures as of the end of the period covered by this Form 10-Q, are effective to ensure that information required to be disclosed by Wesbanco in the reports it files under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to Wesbanco’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS— Wesbanco’s management, including the CEO and CFO, does not expect that Wesbanco’s disclosure controls and internal controls will prevent all errors and all fraud. While Wesbanco’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objective, no control system, no matter how well conceived and operated, can provide absolute assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.

CHANGES IN INTERNAL CONTROLS— There were no changes in Wesbanco's internal control over financial reporting that occurred during our fiscal quarter ended June 30, 2022 as required to be reported by paragraph (d) of Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Wesbanco is involved in various lawsuits, claims, investigations and proceedings, which arise in the ordinary course of business. While any litigation contains an element of uncertainty, Wesbanco does not believe that a material loss related to such proceedings or claims pending or known to be threatened is reasonably possible.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

As of June 30, 2022, Wesbanco had one active stock repurchase plan. It was approved by the Board of Directors on February 24, 2022 for 3.2 million shares and provides for shares to be repurchased for general corporate purposes, which may include a subsequent resource for potential acquisitions, shareholder dividend reinvestment and employee benefit plans. The timing, price and quantity of purchases are at the discretion of Wesbanco, and the plan may be discontinued or suspended at any time.

Other repurchases in the second quarter included those for Wesbanco's Employee Stock Ownership and 401(k) Plan and dividend reinvestment plans.

The following table presents the monthly share purchase activity during the quarter ended June 30, 2022:


Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans (2)		Maximum Number of Shares that May Yet Be Purchased Under the Plans
Balance at March 31, 2022								2,867,046

April 1, 2022 to April 30, 2022		419,416	$	34.00		392,000		2,475,046
May 1, 2022 to May 31, 2022		569,350	$	32.53		563,729		1,911,317
June 1, 2022 to June 30, 2022		162,635	$	33.88		160,743		1,750,574
Total		1,151,401	$	33.26		1,116,472		1,750,574

(1)

Total shares purchased consist of open market purchases transacted for employee benefit and dividend reinvestment plans, shares purchased from employees for the payment of withholding taxes to facilitate a stock compensation transaction and open market purchases for general corporate purposes.

(2)

Represents only open market repurchases for general corporate purpose and shares purchased from employees for the payment of withholding taxes to facilitate a stock compensation transaction.

ITEM 6. EXHIBITS


10.1		Employment Agreement, dated July 5, 2022, by and among Wesbanco, Inc., Wesbanco Bank, Inc. and Jeffrey H. Jackson (incorporated by reference to Exhibit 10.1 of Form 8-K filed by the Registrant with the Securities and Exchange Commission on July 5, 2022)

10.2		Change in Control Agreement, dated July 5, 2022, by and among Wesbanco, Inc., Wesbanco Bank, Inc. and Jeffrey H. Jackson (incorporated by reference to Exhibit 10.2 of Form 8-K filed by the Registrant with the Securities and Exchange Commission on July 5, 2022)

31.1		Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-15(e) or Rule 15d-15(e).

31.2		Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-15(e) or Rule 15d-15(e).

32.1		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	WESBANCO, INC.

Date: August 4, 2022	/s/ Todd F. Clossin
	Todd F. Clossin
	President and Chief Executive Officer (Principal Executive Officer)

Date: August 4, 2022	/s/ Daniel K. Weiss, Jr.
	Daniel K. Weiss, Jr.
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)