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 March 31, 2021  

☐ 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 000-08467

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 April 28, 2021, there were 67,315,896 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 March 31, 2021 (unaudited) and December 31, 2020	2
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020 (unaudited)	3
	Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2021 and 2020 (unaudited)	4
	Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
3	Quantitative and Qualitative Disclosures About Market Risk	51
4	Controls and Procedures	53
	PART II – OTHER INFORMATION
1	Legal Proceedings	54
2	Unregistered Sales of Equity Securities and Use of Proceeds	54
5	Other Information	54
6	Exhibits	55
	Signatures	56

1

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WESBANCO, INC. CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
(unaudited, in thousands, except shares)	2021			2020
ASSETS
Cash and due from banks, including interest bearing amounts of $550,008 and $721,086, respectively	$	759,048		$	905,447
Securities:
Equity securities, at fair value		13,123			13,047
Available-for-sale debt securities, at fair value		2,775,212			1,978,136
Held-to-maturity debt securities (fair values of $839,872  and $768,183, respectively)		813,740			731,212
Allowance for credit losses, held-to-maturity debt securities		(290	)		(326	)
Net held-to-maturity debt securities		813,450			730,886
Total securities		3,601,785			2,722,069
Loans held for sale		153,520			168,378
Portfolio loans, net of unearned income		10,703,312			10,789,233
Allowance for credit losses - loans		(160,040	)		(185,827	)
Net portfolio loans		10,543,272			10,603,406
Premises and equipment, net		239,863			249,421
Accrued interest receivable		68,896			66,790
Goodwill and other intangible assets, net		1,160,195			1,163,091
Bank-owned life insurance		307,747			306,038
Other assets		223,462			240,970
Total Assets	$	17,057,788		$	16,425,610
LIABILITIES
Deposits:
Non-interest bearing demand	$	4,460,049		$	4,070,835
Interest bearing demand		3,126,186			2,839,536
Money market		1,771,703			1,685,927
Savings deposits		2,373,987			2,214,565
Certificates of deposit		1,555,074			1,618,510
Total deposits		13,286,999			12,429,373
Federal Home Loan Bank borrowings		433,984			549,003
Other short-term borrowings		137,218			241,950
Subordinated debt and junior subordinated debt		192,430			192,291
Total borrowings		763,632			983,244
Accrued interest payable		3,224			4,314
Other liabilities		218,411			251,942
Total Liabilities		14,272,266			13,668,873
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 March 31, 2021 and December 31, 2020, respectively		144,484			144,484
Common stock, $2.0833 par value; 100,000,000 shares authorized; 68,081,306 shares issued; 67,282,134 and 67,254,706 shares outstanding at March 31, 2021 and December 31, 2020, respectively		141,834			141,834
Capital surplus		1,636,103			1,634,815
Retained earnings		879,786			831,688
Treasury stock (799,172 and 826,600 shares  - at cost, respectively)		(24,989	)		(25,949	)
Accumulated other comprehensive income		9,803			31,359
Deferred benefits for directors		(1,499	)		(1,494	)
Total Shareholders' Equity		2,785,522			2,756,737
Total Liabilities and Shareholders' Equity	$	17,057,788		$	16,425,610

See Notes to Consolidated Financial Statements.

2

WESBANCO, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	For the Three Months Ended March 31,
(unaudited, in thousands, except shares and per share amounts)	2021			2020
INTEREST AND DIVIDEND INCOME
Loans, including fees	$	109,358			119,503
Interest and dividends on securities:
Taxable		11,127			16,986
Tax-exempt		3,910			4,456
Total interest and dividends on securities		15,037			21,442
Other interest income		659			1,503
Total interest and dividend income		125,054			142,448
INTEREST EXPENSE
Interest bearing demand deposits		1,043			3,394
Money market deposits		578			2,352
Savings deposits		264			923
Certificates of deposit		2,370			4,054
Total interest expense on deposits		4,255			10,723
Federal Home Loan Bank borrowings		2,414			8,232
Other short-term borrowings		118			870
Subordinated debt and junior subordinated debt		1,789			2,461
Total interest expense		8,576			22,286
NET INTEREST INCOME		116,478			120,162
Provision for credit losses		(27,958	)		29,821
Net interest income after provision for credit losses		144,436			90,341
NON-INTEREST INCOME
Trust fees		7,631			6,952
Service charges on deposits		4,894			6,617
Electronic banking fees		4,365			4,254
Net securities brokerage revenue		1,524			1,679
Bank-owned life insurance		1,709			1,769
Mortgage banking income		4,264			1,276
Net securities gains		279			1,491
Net gain on other real estate owned and other assets		175			169
Other income		8,367			3,802
Total non-interest income		33,208			28,009
NON-INTEREST EXPENSE
Salaries and wages		36,890			38,910
Employee benefits		10,266			10,373
Net occupancy		7,177			7,084
Equipment and software		6,765			6,039
Marketing		2,384			1,138
FDIC insurance		1,282			2,113
Amortization of intangible assets		2,896			3,374
Restructuring and merger-related expense		851			5,164
Other operating expenses		17,816			17,138
Total non-interest expense		86,327			91,333
Income before provision for income taxes		91,317			27,017
Provision for income taxes		18,202			3,621
Net income		73,115			23,396
Preferred stock dividends		2,531			—
Net income available to common shareholders	$	70,584		$	23,396
EARNINGS PER COMMON SHARE
Basic	$	1.05		$	0.35
Diluted	$	1.05		$	0.35
AVERAGE COMMON SHARES OUTSTANDING
Basic		67,263,714			67,486,550
Diluted		67,355,418			67,587,446
DIVIDENDS DECLARED PER COMMON SHARE	$	0.33		$	0.32
COMPREHENSIVE INCOME	$	51,559		$	63,336

See Notes to Consolidated Financial Statements.

3

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

	For the Three Months Ended March 31, 2021 and 2020
																	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, 2020	$	144,484		67,254,706		$	141,834	$	1,634,815		$	831,688		$	(25,949	)	$	31,359		$	(1,494	)	$	2,756,737
Net income		—		—			—		—			73,115			—			—			—			73,115
Other comprehensive loss		—		—			—		—			—			—			(21,556	)		—			(21,556	)
Comprehensive income		—		—			—		—			—			—			—			—			51,559
Common dividends declared ($0.33 per share)		—		—			—		—			(22,095	)		—			—			—			(22,095	)
Preferred dividends declared ($16.875 per share)		—		—			—		—			(2,531	)		—			—			—			(2,531	)
Stock issued for dividend reinvestment		—		11,720			—		—			(391	)		391			—			—			—
Treasury shares acquired		—		(5,135	)		—		183			—			(183	)		—			—			—
Stock options exercised		—		20,843			—		(183	)		—			752			—			—			569
Stock compensation expense		—		—			—		1,288			—			—			—			—			1,288
Deferred benefits for directors- net		—		—			—		—			—			—			—			(5	)		(5	)
March 31, 2021	$	144,484		67,282,134		$	141,834	$	1,636,103		$	879,786		$	(24,989	)	$	9,803		$	(1,499	)	$	2,785,522
December 31, 2019	$	—		67,824,428		$	141,827	$	1,636,966		$	824,694		$	(9,463	)	$	1,201		$	(1,304	)	$	2,593,921
Net income		—		—			—		—			23,396			—			—			—			23,396
Other comprehensive income		—		—			—		—			—			—			39,940			—			39,940
Comprehensive income		—		—			—		—			—			—			—			—			63,336
Common dividends declared ($0.32 per share)		—		—			—		—			(21,435	)		—			—			—			(21,435	)
Adoption of ASU 2016-13		—		—			—		—			(26,591	)		—			—			—			(26,591	)
Treasury shares acquired		—		(786,012	)		—		—			—			(24,972	)		—			—			(24,972	)
Stock options exercised		—		19,739			—		(276	)		—			721			—			—			445
Stock compensation expense		—		—			—		1,370			—			—			—			—			1,370
Deferred benefits for directors- net		—		—			—		62			—			—			—			(76	)		(14	)
March 31, 2020	$	—		67,058,155		$	141,827	$	1,638,122		$	800,064		$	(33,714	)	$	41,141		$	(1,380	)	$	2,586,060

See Notes to Consolidated Financial Statements.

4

WESBANCO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Three Months Ended March 31,
(unaudited, in thousands)	2021			2020
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	52,004		$	32,884
INVESTING ACTIVITIES
Net decrease (increase) in loans held for investment		100,799			(131,110	)
Available-for-sale debt securities:
Proceeds from sales		—			222,668
Proceeds from maturities, prepayments and calls		239,259			157,954
Purchases of securities		(1,068,526	)		(197,153	)
Held-to-maturity debt securities:
Proceeds from maturities, prepayments and calls		27,147			48,093
Purchases of securities		(110,298	)		(11,734	)
Equity securities:
Proceeds from sales		—			50
Proceeds from bank owned life insurance		—			10
Purchases of premises and equipment – net		(2,362	)		(2,925	)
Sale of portfolio loans		—			28,262
Net cash (used in) provided by investing activities		(813,981	)		114,115
FINANCING ACTIVITIES
Increase in deposits		858,853			42,892
Proceeds from Federal Home Loan Bank borrowings		—			475,000
Repayment of Federal Home Loan Bank borrowings		(115,053	)		(305,070	)
(Decrease) increase in other short-term borrowings		(104,732	)		59,104
Principal repayments of finance lease obligations		(109	)		(104	)
Decrease in federal funds purchased		—			(7,500	)
Repayment of junior subordinated debt		—			(6,702	)
Dividends paid to common shareholders		(21,419	)		(21,016	)
Dividends paid to preferred shareholders		(2,531	)		—
Treasury shares sold (purchased) - net		569			(24,527	)
Net cash provided by financing activities		615,578			212,077
Net (decrease) increase in cash, cash equivalents and restricted cash		(146,399	)		359,076
Cash, cash equivalents and restricted cash at beginning of the period		905,447			234,796
Cash, cash equivalents and restricted cash at end of the period	$	759,048		$	593,872
SUPPLEMENTAL DISCLOSURES
Interest paid on deposits and other borrowings	$	10,719		$	26,074
Income taxes paid		—			—
Transfers of loans to other real estate owned		—			28
Transfers of portfolio loans to loans held for sale		—			37,195

See Notes to Consolidated Financial Statements.

5

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, 2020.

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 2020 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 stockholders’ 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 2020-04 Reference Rate Reform (Topic 848)

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”. Due to the potential discontinuance of the London Interbank Offered Rate (LIBOR), regulators have undertaken reference rate initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. 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. Wesbanco is assessing 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 March 31,
(unaudited, in thousands, except shares and per share amounts)	2021		2020
Numerator for both basic and diluted earnings per common share:
Net income available to common shareholders	$	70,584	$	23,396
Denominator:
Total average basic common shares outstanding		67,263,714		67,486,550
Effect of dilutive stock options and other stock compensation		91,704		100,896
Total diluted average common shares outstanding		67,355,418		67,587,446
Earnings per common share - basic	$	1.05	$	0.35
Earnings per common share - diluted	$	1.05	$	0.35

As of March 31, 2021 and 2020, respectively, 393,961 and 510,186 options to purchase shares were not included in the computation of net income per diluted share for the three months ended March 31, 2021 and 2020 because the exercise price was greater than the average market price of a common share, therefore, the effect would be antidilutive.

As of March 31, 2021 and 2020, shares related to the 2020 and 2019 total shareholder return plans were not included in the calculation because the effect would be antidilutive.

In addition, no performance-based restricted stock was estimated to be awarded as of March 31, 2021 and therefore, was not included in the diluted calculation. As of March 31, 2020, 25,618 shares were estimated to be awarded and those shares were included in the diluted calculation for the three months ended March 31, 2020.

6

NOTE 3. SECURITIES

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

	March 31, 2021									December 31, 2020
(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. Treasury	$	29,986	$	11	$	—		$	29,997	$	39,975	$	7	$	—		$	39,982
U.S. Government sponsored entities and agencies		174,472		4,564		(2,706	)		176,330		204,109		7,715		(142	)		211,682
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		2,123,853		30,901		(13,961	)		2,140,793		1,230,106		35,979		(1,348	)		1,264,737
Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		284,440		7,962		(721	)		291,681		308,903		11,464		(269	)		320,098
Obligations of states and political subdivisions		105,778		6,056		(36	)		111,798		108,602		7,160		—			115,762
Corporate debt securities		23,953		660		—			24,613		24,963		912		—			25,875
Total available-for-sale debt securities	$	2,742,482	$	50,154	$	(17,424	)	$	2,775,212	$	1,916,658	$	63,237	$	(1,759	)	$	1,978,136
Held-to-maturity debt securities
U.S. Government sponsored entities and agencies	$	7,611	$	106	$	—		$	7,717	$	7,779	$	265	$	—		$	8,044
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		80,376		2,738		(5	)		83,109		89,151		3,251		—			92,402
Obligations of states and political subdivisions		692,616		24,501		(3,811	)		713,306		601,128		30,173		(59	)		631,242
Corporate debt securities		33,137		2,603		—			35,740		33,154		3,341		—			36,495
Total held-to-maturity debt securities	$	813,740	$	29,948	$	(3,816	)	$	839,872	$	731,212	$	37,030	$	(59	)	$	768,183
Total debt securities	$	3,556,222	$	80,102	$	(21,240	)	$	3,615,084	$	2,647,870	$	100,267	$	(1,818	)	$	2,746,319

(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 March 31, 2021 and December 31, 2020.

At March 31, 2021 and December 31, 2020, 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 $10.1 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 $13.1 million and $13.0 million at March 31, 2021 and December 31, 2020, 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 March 31, 2021.  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	$	47,465	$	47,583
1-5 years		145,739		152,800
5-10 years		358,854		366,119
Over 10 years		2,190,424		2,208,710
Total available-for-sale debt securities	$	2,742,482	$	2,775,212
Held-to-maturity debt securities
Less than one year	$	11,759	$	11,872
1-5 years		133,053		140,315
5-10 years		228,148		237,907
Over 10 years		440,780		449,778
Total held-to-maturity debt securities	$	813,740	$	839,872
Total debt securities	$	3,556,222	$	3,615,084

7

Securities with an aggregate fair value of $1.8 billion at March 31, 2021 and December 31, 2020, respectively, were pledged as security for public and trust funds, and securities sold under agreements to repurchase. Proceeds from the sale of available-for-sale securities were $0 million and $222.7 million for the three months ended March 31, 2021 and 2020, respectively.  Net unrealized gains on available-for-sale securities included in accumulated other comprehensive income, net of tax, as of March 31, 2021 and December 31, 2020 were $24.8 million and $46.9 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 months ended March 31, 2021 and 2020, respectively.  All gains and losses presented in the table below are included in the net securities gains (losses) 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 March 31,
(unaudited, in thousands)	2021			2020
Debt securities:
Gross realized gains	$	140		$	3,335
Gross realized losses		(39	)		(1,031	)
Net gains on debt securities	$	101		$	2,304
Equity securities:
Net unrealized gains (losses) recognized on securities still held	$	178		$	(805	)
Net realized losses recognized on securities sold		—			(8	)
Net gains (losses) on equity securities	$	178		$	(813	)
Net securities gains	$	279		$	1,491

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 $6.3 million and $5.3 million as of March 31, 2021 and December 31, 2020, 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.  

The following table provides a roll-forward of the allowance for credit losses on held-to-maturity securities for the three months ended March 31, 2021 and March 31, 2020, respectively:

	Allowance for Credit Losses By Category
	For the Three Months Ended March 31, 2021 and 2020
			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, 2020	$	—	$	—	$	130		$	196		$	326
Current period provision		—		—		(12	)		(24	)		(36	)
Write-offs		—		—		—			—			—
Recoveries		—		—		—			—			—
Balance at March 31, 2021	$	—	$	—	$	118		$	172		$	290
.
Balance at December 31, 2019	$	—	$	—	$	—		$	—		$	—
Impact of adopting ASC 326		—		—		96			133			229
Current period provision		—		—		2			5			7
Write-offs		—		—		—			—			—
Recoveries		—		—		—			—			—
Balance at March 31, 2020	$	—	$	—	$	98		$	138		$	236

8

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 March 31, 2021 and December 31, 2020, respectively:

	March 31, 2021
	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	$	56,270	$	(2,706	)		6	$	—	$	—			—	$	56,270	$	(2,706	)		6
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		973,961		(13,879	)		98		3,531		(82	)		4		977,492		(13,961	)		102
Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		94,186		(721	)		9		—		—			—		94,186		(721	)		9
Obligations of state and political subdivisions		3,767		(36	)		1		—		—			—		3,767		(36	)		1
Total	$	1,128,184	$	(17,342	)		114	$	3,531	$	(82	)		4	$	1,131,715	$	(17,424	)	$	118

	December 31, 2020
	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	$	18,308	$	(142	)		2	$	—	$	—			—	$	18,308	$	(142	)		2
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		224,448		(1,227	)		41		4,136		(121	)		3		228,584		(1,348	)		44
Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		97,266		(269	)		10		—		—			—		97,266		(269	)		10
Obligations of states and political subdivisions		—		—			—		—		—			—		—		—			—
Total	$	340,022	$	(1,638	)		53	$	4,136	$	(121	)		3	$	344,158	$	(1,759	)		56

Unrealized losses on debt securities in the table above represents 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 and Indianapolis stock totaling $29.3 million and $34.0 million at March 31, 2021 and December 31, 2020, 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.

9

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 income was $13.3 million and $6.2 million at March 31, 2021 and December 31, 2020, respectively.  At March 31, 2021 and December 31, 2020, respectively, the balance included $21.4 and $13.8 million of net deferred income from PPP loans. The un-accreted discount on purchased loans from acquisitions was $35.9 million at March 31, 2021 and $39.4 million at December 31, 2020.

	March 31,		December 31,
(unaudited, in thousands)	2021		2020
Commercial real estate:
Land and construction	$	642,017	$	668,277
Improved property		5,070,725		5,037,115
Total commercial real estate		5,712,742		5,705,392
Commercial and industrial		1,598,921		1,681,182
Commercial and industrial - PPP		823,814		726,256
Residential real estate		1,644,422		1,720,961
Home equity		634,018		646,387
Consumer		289,395		309,055
Total portfolio loans		10,703,312		10,789,233
Loans held for sale		153,520		168,378
Total loans	$	10,856,832	$	10,957,611

The allowance for credit losses under the current expected credit losses methodology (“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 March 31, 2021, the one-year forecast was based upon a blended rate from two nationally-recognized published economic forecasts through March 31, 2021, 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 to peak at 5.8% in the second quarter, and subsequently decrease to an average of 4.8% over the remainder of the forecast period. The calculation utilized a one-year reversion period 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. 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 to reverse or write-off accrued interest when loans are placed on non-accrual. However, Wesbanco does have a $0.2 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 March 31, 2021, accrued interest receivable for loans was $53.5 million, including $24.9 million related to COVID-19 loan modifications as permitted under the CARES Act.

10

The following tables summarize changes in the allowance for credit losses applicable to each category of the loan portfolio:

	Allowance for Credit Losses By Category
	For the Three Months Ended March 31, 2021 and 2020
(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, 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		(3,538	)		(11,420	)		(4,256	)		(4,177	)		(394	)		(1,510	)		156			(25,139	)
Provision for loan commitments		(2,508	)		(504	)		308			(86	)		5			2			—			(2,783	)
Total provision for credit    losses - loans and loan    commitments		(6,046	)		(11,924	)		(3,948	)		(4,263	)		(389	)		(1,508	)		156			(27,922	)
Charge-offs		(18	)		(19	)		(750	)		(371	)		(174	)		(927	)		(201	)		(2,460	)
Recoveries		55			528			440			135			79			462			113			1,812
Net charge-offs		37			509			(310	)		(236	)		(95	)		(465	)		(88	)		(648	)
Balance at March 31, 2021
Allowance for credit    losses - loans		7,340			99,741			33,284			13,438			998			4,532			707			160,040
Allowance for credit    losses - loan commitments		4,000			208			1,583			869			50			21			—			6,731
Total ending allowance for credit    losses - loans and loan    commitments	$	11,340		$	99,949		$	34,867		$	14,307		$	1,048		$	4,553		$	707		$	166,771
Balance at December 31, 2019
Allowance for credit    losses - loans	$	4,949		$	20,293		$	14,116		$	4,311		$	4,422		$	2,951		$	1,387		$	52,429
Allowance for credit    losses - loan commitments		235			22			311			15			250			41			—			874
Total beginning allowance for credit    losses - loans and loan    commitments		5,184			20,315			14,427			4,326			4,672			2,992			1,387			53,303
Impact of adopting ASC 326		1,524			13,078			22,357			5,630			(3,936	)		2,576			213			41,442
Provision for credit losses:
Provision for loan losses		2,564			20,585			5,632			237			646			(1,241	)		(351	)		28,072
Provision for loan commitments		2,274			—			(582	)		49			2			—			—			1,743
Total provision for credit    losses - loans and loan    commitments		4,838			20,585			5,050			286			648			(1,241	)		(351	)		29,815
Charge-offs		(1	)		(1,398	)		(2,714	)		(386	)		(443	)		(856	)		(328	)		(6,126	)
Recoveries		8			293			107			272			172			415			143			1,410
Net charge-offs		7			(1,105	)		(2,607	)		(114	)		(271	)		(441	)		(185	)		(4,716	)
Balance at March 31, 2020
Allowance for credit    losses - loans		6,442			52,873			39,227			9,684			1,096			3,886			1,064			114,272
Allowance for credit    losses - loan commitments		5,111			—			—			444			17			—			—			5,572
Total ending allowance for credit    losses - loans and loan    commitments	$	11,553		$	52,873		$	39,227		$	10,128		$	1,113		$	3,886		$	1,064		$	119,844

11

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
March 31, 2021
Allowance for credit losses:
Loans individually-evaluated	$	503	$	4,035	$	1,501	$	—	$	—	$	—	$	—	$	6,039
Loans collectively-evaluated		6,837		95,706		31,783		13,438		998		4,532		707		154,001
Loan commitments		4,000		208		1,583		869		50		21		—		6,731
Total allowance for credit    losses - loans and commitments	$	11,340	$	99,949	$	34,867	$	14,307	$	1,048	$	4,553	$	707	$	166,771
Portfolio loans:
Individually-evaluated for credit    losses(1)	$	1,125	$	40,158	$	1,838	$	—	$	—	$	—	$	—	$	43,121
Collectively-evaluated for credit    losses		640,892		5,030,567		2,420,897		1,644,422		634,018		289,395		—		10,660,191
Total portfolio loans	$	642,017	$	5,070,725	$	2,422,735	$	1,644,422	$	634,018	$	289,395	$	—	$	10,703,312
December 31, 2020
Allowance for credit losses:
Loans individually-evaluated	$	602	$	4,196	$	1,484	$	—	$	—	$	—	$	—	$	6,282
Loans collectively-evaluated		10,239		106,456		36,366		17,851		1,487		6,507		639		179,545
Loan commitments		6,508		712		1,275		955		45		19		—		9,514
Total allowance for credit    losses - loans and commitments	$	17,349	$	111,364	$	39,125	$	18,806	$	1,532	$	6,526	$	639	$	195,341
Portfolio loans:
Individually-evaluated for credit    losses(1)	$	1,455	$	40,372	$	2,863	$	—	$	—	$	—	$	—	$	44,690
Collectively-evaluated for credit    losses		666,822		4,996,743		2,404,575		1,720,961		646,387		309,055		—		10,744,543
Total portfolio loans	$	668,277	$	5,037,115	$	2,407,438	$	1,720,961	$	646,387	$	309,055	$	—	$	10,789,233

⁽¹⁾ Commercial loans greater than $1 million that are reported as non-accrual or as a TDR are individually evaluated for credit loss.

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.

12

Pass loans are those that exhibit a history of positive financial results that are at least comparable to the average for their industry or type of real estate.  The primary source of repayment is acceptable and these loans are expected to perform satisfactorily during most economic cycles.  Pass loans typically have no significant external factors that are expected to adversely affect these borrowers more than others in the same industry or property type.  Any minor unfavorable characteristics of these loans are outweighed or mitigated by other positive factors including but not limited to adequate secondary or tertiary sources of repayment.

Criticized 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 March 31, 2021
Pass	$	634,835	$	4,679,257	$	2,365,558	$	7,679,650
Criticized - compromised		5,360		297,801		37,782		340,943
Classified - substandard		1,822		93,667		19,395		114,884
Classified - doubtful		—		—		—		—
Total	$	642,017	$	5,070,725	$	2,422,735	$	8,135,477
As of December 31, 2020
Pass	$	657,435	$	4,609,726	$	2,350,724	$	7,617,885
Criticized - compromised		7,397		320,301		34,597		362,295
Classified - substandard		3,445		107,088		22,117		132,650
Classified - doubtful		—		—		—		—
Total	$	668,277	$	5,037,115	$	2,407,438	$	8,112,830

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 $29.4 million at March 31, 2021 and $27.7 million at December 31, 2020, of which $5.5 million and $4.1 million were accruing, for each period, respectively. The aggregate amount of residential real estate, home equity and consumer loans classified as substandard, as well as $28.3 million and $28.7 million of unfunded commercial loan commitments are not included in the tables above at March 31, 2021 and December 31, 2020, respectively.

13

The following tables summarize the age analysis of all categories of loans:

	Age Analysis of Loans
(unaudited, in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Total Loans		90 Days or More Past Due and Accruing (1)
As of March 31, 2021
Commercial real estate:
Land and construction	$	639,378	$	1,120	$	759	$	760	$	2,639	$	642,017	$	641
Improved property		5,055,419		4,041		1,984		9,281		15,306		5,070,725		1,955
Total commercial real estate		5,694,797		5,161		2,743		10,041		17,945		5,712,742		2,596
Commercial and industrial		2,408,663		4,823		2,657		6,592		14,072		2,422,735		5,314
Residential real estate		1,625,328		2,713		1,589		14,792		19,094		1,644,422		4,007
Home equity		628,773		1,213		197		3,835		5,245		634,018		784
Consumer		287,395		1,428		340		232		2,000		289,395		123
Total portfolio loans		10,644,956		15,338		7,526		35,492		58,356		10,703,312		12,824
Loans held for sale		153,520		—		—		—		—		153,520		—
Total loans	$	10,798,476	$	15,338	$	7,526	$	35,492	$	58,356	$	10,856,832	$	12,824
Nonperforming loans included above are as follows:
Non-accrual loans	$	9,960	$	940	$	1,100	$	22,575	$	24,615	$	34,575
TDRs accruing interest (1)		3,248		63		159		93		315		3,563
Total nonperforming loans	$	13,208	$	1,003	$	1,259	$	22,668	$	24,930	$	38,138
As of December 31, 2020
Commercial real estate:
Land and construction	$	664,990	$	582	$	2,276	$	429	$	3,287	$	668,277	$	288
Improved property		5,016,812		4,876		4,118		11,309		20,303		5,037,115		2,713
Total commercial real estate		5,681,802		5,458		6,394		11,738		23,590		5,705,392		3,001
Commercial and industrial		2,395,844		4,372		2,197		5,025		11,594		2,407,438		1,899
Residential real estate		1,698,636		2,614		5,654		14,057		22,325		1,720,961		2,863
Home equity		639,319		2,414		775		3,879		7,068		646,387		706
Consumer		305,483		1,998		1,031		543		3,572		309,055		377
Total portfolio loans		10,721,084		16,856		16,051		35,242		68,149		10,789,233		8,846
Loans held for sale		168,378		—		—		—		—		168,378		—
Total loans	$	10,889,462	$	16,856	$	16,051	$	35,242	$	68,149	$	10,957,611	$	8,846
Nonperforming loans included above are as follows:
Non-accrual loans	$	9,560	$	630	$	466	$	26,224	$	27,320	$	36,880
TDRs accruing interest (1)		3,540		63		152		172		387		3,927
Total nonperforming loans	$	13,100	$	693	$	618	$	26,396	$	27,707	$	40,807

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

14

The following tables summarize nonperforming loans:

	Nonperforming Loans
	March 31, 2021						December 31, 2020
	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	$	138	$	120	$	—	$	469	$	469	$	—
Improved property		8,719		7,349		—		9,597		8,055	—
Commercial and industrial		1,860		1,675		—		4,401		3,413	—
Residential real estate		23,605		20,990		—		23,055		20,704	—
Home equity		6,518		5,569		—		6,635		5,708	—
Consumer		593		351		—		602		364	—
Total nonperforming loans without a specific allowance		41,433		36,054		—		44,759		38,713		—
With a specific allowance recorded:
Commercial real estate:
Land and construction		—		—		—	—		—		—
Improved property		2,094		2,084		175		2,094		2,094		136
Commercial and industrial		—		—		—	—		—		—
Residential real estate		—		—		—	—		—		—
Home equity		—		—		—	—		—		—
Consumer		—		—		—	—		—		—
Total nonperforming loans with a specific allowance		2,094		2,084		175		2,094		2,094		136
Total nonperforming loans	$	43,527	$	38,138	$	175	$	46,853	$	40,807	$	136

⁽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
	March 31, 2021				March 31, 2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(unaudited, in thousands)	Investment		Recognized		Investment		Recognized
With no related specific allowance recorded:
Commercial real estate:
Land and construction	$	295	$	—	$	393	$	—
Improved property		7,702		9		5,501		20
Commercial and industrial		2,544		1		8,570		3
Residential real estate		20,847		39		18,470		55
Home equity		5,639		6		5,811		6
Consumer		358		—		390		1
Total nonperforming loans without a specific allowance		37,385		55		39,135		85
With a specific allowance recorded:
Commercial real estate:
Land and construction		—		—		—		—
Improved property		2,089		—		3,270		—
Commercial and industrial		—		—		96		—
Residential real estate		—		—		2,196		—
Home equity		—		—		352		—
Consumer		—		—		27		—
Total nonperforming loans with a specific allowance		2,089		—		5,941		—
Total nonperforming loans	$	39,474	$	55	$	45,076	$	85

15

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

	Non-accrual Loans (1)
	March 31,		December 31,
(unaudited, in thousands)	2021		2020
Commercial real estate:
Land and construction	$	120	$	469
Improved property		9,007		9,494
Total commercial real estate		9,127		9,963
Commercial and industrial		1,571		3,302
Residential real estate		18,358		17,925
Home equity		5,181		5,345
Consumer		338		345
Total	$	34,575	$	36,880

⁽¹⁾ At March 31, 2021 and December 31, 2020, there was one borrower with a loan balance greater than $1.0 million totaling $2.1 million.  Total non-accrual loans include loans that are also restructured.  Such loans are also set forth in the following table as non-accrual TDRs.

	TDRs
	March 31, 2021						December 31, 2020
(unaudited, in thousands)	Accruing		Non-Accrual		Total		Accruing		Non-Accrual		Total
Commercial real estate:
Land and construction	$	—	$	—	$	—	$	—	$	—	$	—
Improved property		426		157		583		655		165		820
Total commercial real estate		426		157		583		655		165		820
Commercial and industrial		104		—		104		111		—		111
Residential real estate		2,632		1,353		3,985		2,779		1,354		4,133
Home equity		388		253		641		363		300		663
Consumer		13		5		18		19		9		28
Total	$	3,563	$	1,768	$	5,331	$	3,927	$	1,828	$	5,755

As of March 31, 2021 and December 31, 2020, 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 $0.9 million as of March 31, 2021 and December 31, 2020.

The following tables present details related to loans identified as TDRs during the three months ended March 31, 2021 and 2020, respectively:

	New TDRs (1)
	For the Three Months Ended
	March 31, 2021						March 31, 2020
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number of		Recorded		Recorded		Number of		Recorded		Recorded
(unaudited, dollars in thousands)	Modifications		Investment		Investment		Modifications		Investment		Investment
Commercial real estate:
Land and construction		—	$	—	$	—		—	$	—	$	—
Improved Property		—		—		—		—		—		—
Total commercial real estate		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—
Residential real estate		—		—		—		2		332		330
Home equity		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total		—	$	—	$	—		2	$	332	$	330

(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.

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The following table summarizes TDRs which defaulted (defined as past due 90 days) during the three months ended March 31, 2021 and 2020, respectively, that were restructured within the last twelve months prior to March 31, 2021 and 2020, respectively:

	Defaulted TDRs (1)
	For the Three Months Ended
	March 31, 2021				March 31, 2020
	Number of		Recorded		Number of		Recorded
(unaudited, dollars in thousands)	Defaults		Investment		Defaults		Investment
Commercial real estate:
Land and construction		—	$	—		—	$	—
Improved property		—		—		—		—
Total commercial real estate		—		—		—		—
Commercial and industrial		—		—		1		13
Residential real estate		—		—		1		155
Home equity		—		—		—		—
Consumer		—		—		—		—
Total		—	$	—		2	$	168

⁽¹⁾ Excludes loans that were either charged-off or cured by period end.  The recorded investment is as of March 31, 2021 and 2020, respectively.

TDRs that default are placed on non-accrual status unless they are both well-secured and in the process of collection.  The loans in the table above were not accruing interest.

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 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 $0.2 billion remain in their deferral period as of March 31, 2021.  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 / 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.

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

	Loans As of March 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	$	30,840	$	164,939	$	296,600	$	49,749	$	27,064	$	43,143	$	22,500	$	—	$	634,835
Criticized - compromised		—		875		—		39		228		3,618		600		—		5,360
Classified - substandard		—		—		—		74		40		1,708		—		—		1,822
Classified - doubtful		—		—		—		—		—		—		—		—		—
Total	$	30,840	$	165,814	$	296,600	$	49,862	$	27,332	$	48,469	$	23,100	$	—	$	642,017
Commercial real estate: improved property
Risk rating:
Pass	$	156,789	$	787,296	$	690,398	$	639,915	$	472,801	$	1,864,909	$	67,149	$	—	$	4,679,257
Criticized - compromised		—		1,892		53,807		17,473		53,576		150,704		20,349		—		297,801
Classified - substandard		—		222		28,603		1,860		7,171		55,811		—		—		93,667
Classified - doubtful		—		—		—		—		—		—		—		—		—
Total	$	156,789	$	789,410	$	772,808	$	659,248	$	533,548	$	2,071,424	$	87,498	$	—	$	5,070,725
Commercial and industrial
Risk rating:
Pass	$	401,323	$	685,632	$	232,322	$	185,484	$	135,856	$	320,788	$	404,023	$	130	$	2,365,558
Criticized - compromised		26		3,290		2,746		4,236		2,651		10,841		13,992		—		37,782
Classified - substandard		985		—		2,518		1,668		3,567		5,179		5,478		—		19,395
Classified - doubtful		—		—		—		—		—		—		—		—		—
Total	$	402,334	$	688,922	$	237,586	$	191,388	$	142,074	$	336,808	$	423,493	$	130	$	2,422,735
Residential real estate
Loan delinquency:
Current	$	66,997	$	392,577	$	209,234	$	130,435	$	94,237	$	731,848	$	—	$	—	$	1,625,328
30-59 days past due		—		—		—		79		—		2,634		—		—		2,713
60-89 days past due		—		—		—		272		113		1,204		—		—		1,589
90 days or more past due		—		—		379		784		761		12,868		—		—		14,792
Total	$	66,997	$	392,577	$	209,613	$	131,570	$	95,111	$	748,554	$	—	$	—	$	1,644,422
Home equity
Loan delinquency:
Current	$	4,724	$	15,055	$	3,290	$	2,959	$	857	$	16,995	$	573,653	$	11,240	$	628,773
30-59 days past due		—		—		—		—		—		400		783		30		1,213
60-89 days past due		—		—		—		—		—		121		76		—		197
90 days or more past due		—		—		—		19		150		1,565		1,355		746		3,835
Total	$	4,724	$	15,055	$	3,290	$	2,978	$	1,007	$	19,081	$	575,867	$	12,016	$	634,018
Consumer
Loan delinquency:
Current	$	18,121	$	65,802	$	79,045	$	33,586	$	18,773	$	51,313	$	20,589	$	166	$	287,395
30-59 days past due		37		444		413		68		114		352		—		—		1,428
60-89 days past due		—		45		50		31		64		148		2		—		340
90 days or more past due		—		8		—		54		29		125		16		—		232
Total	$	18,158	$	66,299	$	79,508	$	33,739	$	18,980	$	51,938	$	20,607	$	166	$	289,395

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	Loans As of December 31, 2020
	Amortized Cost Basis by Origination Year
(unaudited, in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Commercial real estate: land and construction
Risk rating:
Pass	$	133,720	$	314,614	$	109,232	$	27,483	$	16,404	$	29,685	$	26,297	$	—	$	657,435
Criticized - compromised		459		—		1,532		233		79		3,778		1,316		—		7,397
Classified - substandard		—		—		403		58		291		2,693		—		—		3,445
Classified - doubtful		—		—		—		—		—		—		—		—		—
Total	$	134,179	$	314,614	$	111,167	$	27,774	$	16,774	$	36,156	$	27,613	$	—	$	668,277
Commercial real estate: improved property
Risk rating:
Pass	$	809,516	$	670,554	$	646,629	$	474,622	$	572,733	$	1,346,552	$	89,120	$	—	$	4,609,726
Criticized - compromised		2,693		67,261		16,793		59,251		42,284		130,247		1,772		—		320,301
Classified - substandard		102		16,366		4,946		11,647		18,460		55,567		—		—		107,088
Classified - doubtful		—		—		—		—		—		—		—		—		—
Total	$	812,311	$	754,181	$	668,368	$	545,520	$	633,477	$	1,532,366	$	90,892	$	—	$	5,037,115
Commercial and industrial
Risk rating:
Pass	$	977,085	$	240,262	$	193,712	$	160,924	$	85,379	$	265,890	$	427,336	$	136	$	2,350,724
Criticized - compromised		453		2,726		4,206		2,795		324		11,640		12,453		—		34,597
Classified - substandard		—		3,817		1,947		3,771		1,603		5,073		5,906		—		22,117
Classified - doubtful		—		—		—		—		—		—		—		—		—
Total	$	977,538	$	246,805	$	199,865	$	167,490	$	87,306	$	282,603	$	445,695	$	136	$	2,407,438
Residential real estate
Loan delinquency:
Current	$	385,541	$	242,770	$	149,603	$	108,090	$	170,967	$	641,665	$	—	$	—	$	1,698,636
30-59 days past due		—		—		320		533		—		1,761		—		—		2,614
60-89 days past due		—		—		823		—		185		4,646		—		—		5,654
90 days or more past due		—		483		166		761		819		11,828		—		—		14,057
Total	$	385,541	$	243,253	$	150,912	$	109,384	$	171,971	$	659,900	$	—	$	—	$	1,720,961
Home equity
Loan delinquency:
Current	$	18,191	$	3,611	$	3,334	$	975	$	1,110	$	16,477	$	583,486	$	12,135	$	639,319
30-59 days past due		124		—		34		—		—		882		1,247		127		2,414
60-89 days past due		—		—		—		—		—		14		749		12		775
90 days or more past due		—		—		8		156		88		1,786		1,075		766		3,879
Total	$	18,315	$	3,611	$	3,376	$	1,131	$	1,198	$	19,159	$	586,557	$	13,040	$	646,387
Consumer
Loan delinquency:
Current	$	72,847	$	89,637	$	39,584	$	22,118	$	13,144	$	45,735	$	22,253	$	165	$	305,483
30-59 days past due		481		408		210		311		194		379		15		—		1,998
60-89 days past due		273		147		84		100		163		253		11		—		1,031
90 days or more past due		113		72		73		31		12		242		—		—		543
Total	$	73,714	$	90,264	$	39,951	$	22,560	$	13,513	$	46,609	$	22,279	$	165	$	309,055

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

	March 31,		December 31,
(unaudited, in thousands)	2021		2020
Other real estate owned	$	375	$	504
Repossessed assets		18		45
Total other real estate owned and repossessed assets	$	393	$	549

Residential real estate included in other real estate owned was $0.1 million at March 31, 2021 and December 31, 2020.  At March 31, 2021 and December 31, 2020, formal foreclosure proceedings were in process on residential real estate loans totaling $4.3 million and $4.1 million, respectively.

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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 Wesbanco Bank, Inc.’s (the “Bank”) 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 March 31, 2021 and December 31, 2020, Wesbanco had 122 and 112, respectively, customer interest rate swaps with an aggregate notional amount of $711.0 million and $649.9 million, respectively, related to this program.  During the three months ended March 31, 2021 and 2020, Wesbanco recognized net gains (losses) of $2.8 million and $(2.8) million, respectively, related to the changes in fair value of these swaps. Additionally, Wesbanco recognized $1.9 million and $2.6 million of income for the related swap fees for the three months ended March 31, 2021 and 2020, 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 by the lead bank in a loan syndication.  As of March 31, 2021 and December 31, 2020, Wesbanco had 13 and 12, respectively, risk participation-in agreements with an aggregate notional amount of $119.2 million and $101.1 million, respectively.  As of March 31, 2021 and December 31, 2020, Wesbanco had one risk participation-out agreement with an aggregate notional amount of $10.0 million.

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 $197.0 million and $183.5 million at March 31, 2021 and December 31, 2020, respectively.  Additionally, Wesbanco recognized gains (losses) of $4.5 million and $(2.7) million, respectively, for the three months ended March 31, 2021 and 2020 related to the changes in fair value of these contracts.  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 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 March 31, 2021 and December 31, 2020:

	March 31, 2021						December 31, 2020
(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	$	710,986	$	31,732	$	32,470	$	649,857	$	46,418	$	49,917
Other contracts:
Interest rate loan commitments		85,435		—		314		112,119		702		—
Forward TBA contracts		197,000		1,515		—		183,500	—			1,161
Total derivatives			$	33,247	$	32,784			$	47,120	$	51,078

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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 months ended March 31, 2021 and 2020, respectively.

		For the Three Months Ended March 31,
(unaudited, in thousands)	Location of Gain/(Loss)	2021			2020
Interest rate swaps	Other income	$	2,761		$	(2,751	)
Interest rate loan commitments	Mortgage banking income		(1,016	)		(145	)
Forward TBA contracts	Mortgage banking income		4,518			(2,657	)
Total		$	6,263		$	(5,553	)

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.

Wesbanco had minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral with a market value of $54.2 million as of March 31, 2021.  If Wesbanco had breached any of these provisions at March 31, 2021, 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 counterparty.

NOTE 6. BENEFIT PLANS

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

	For the Three Months Ended March 31,
(unaudited, in thousands)	2021			2020
Service cost – benefits earned during year	$	616		$	568
Interest cost on projected benefit obligation		842			1,121
Expected return on plan assets		(2,763	)		(2,594	)
Amortization of prior service cost		(8	)		(9	)
Amortization of net loss		675			793
Net periodic pension income	$	(638	)	$	(121	)

The service cost of $0.6 million for both the three months ended March 31, 2021 and 2020 is included in salaries and wages, and the periodic pension income of $1.3 million and $0.7 million for the three months ended March 31, 2021 and 2020, 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 of $5.2 million is due for 2021, which can be offset in whole or in part by the Plan’s $64.2 million available credit balance. Wesbanco currently does not expect to make a voluntary contribution to the Plan in 2021.

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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.

Individually-evaluated nonperforming loans: Individually-evaluated non-performing loans are carried at the amortized cost basis less the specific allowance calculated with the CECL. Since these loans are nonperforming, cash flows could not be estimated and thus 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.

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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 March 31, 2021 and December 31, 2020:

			March 31, 2021
			Fair Value Measurements Using:
	March 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(unaudited, in thousands)	2021		(level 1)		(level 2)		(level 3)
Recurring fair value measurements
Equity securities	$	13,123	$	13,123	$	—	$	—
Available-for-sale debt securities
U.S. Treasury		29,997		—		29,997		—
U.S. Government sponsored entities and agencies		176,330		—		176,330		—
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		2,140,793		—		2,140,793		—
Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		291,681		—		291,681		—
Obligations of states and political subdivisions		111,798		—		110,287		1,511
Corporate debt securities		24,613		—		24,613		—
Total available-for-sale debt securities	$	2,775,212	$	—	$	2,773,701	$	1,511
Loans held for sale		153,520		—		153,520		—
Other assets - interest rate derivatives agreements		31,732		—		31,732		—
Total assets recurring fair value measurements	$	2,973,587	$	13,123	$	2,958,953	$	1,511
Other liabilities - interest rate derivatives agreements	$	32,470	$	—	$	32,470	$	—
Total liabilities recurring fair value measurements	$	32,470	$	—	$	32,470	$	—
Nonrecurring fair value measurements
Individually-evaluated nonperforming loans	$	1,909	$	—	$	—	$	1,909
Other real estate owned and repossessed assets		393		—		—		393
Total nonrecurring fair value measurements	$	2,302	$	—	$	—	$	2,302

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			December 31, 2020
			Fair Value Measurements Using:
	December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	2020		(level 1)		(level 2)		(level 3)
Recurring fair value measurements
Equity securities	$	13,047	$	13,047	$	—	$	—
Available-for-sale debt securities
U.S. Treasury		39,982		—		39,982		—
U.S. Government sponsored entities and agencies		211,682		—		211,682		—
Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		1,264,737		—		1,264,737		—
Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		320,098		—		320,098		—
Obligations of states and political subdivisions		115,762		—		114,227		1,535
Corporate debt securities		25,875		—		25,875		—
Total available-for-sale debt securities	$	1,978,136	$	—	$	1,976,601	$	1,535
Loans held for sale		168,378		—		168,378		—
Other assets - interest rate derivatives agreements		46,418		—		46,418		—
Total assets recurring fair value measurements	$	2,205,979	$	13,047	$	2,191,397	$	1,535
Other liabilities - interest rate derivatives agreements	$	49,917	$	—	$	49,917	$	—
Total liabilities recurring fair value measurements	$	49,917	$	—	$	49,917	$	—
Nonrecurring fair value measurements
Individually-evaluated nonperforming loans	$	1,958	$	—	$	—	$	1,958
Other real estate owned and repossessed assets		549		—		—		549
Total nonrecurring fair value measurements	$	2,507	$	—	$	—	$	2,507

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 months ended March 31, 2021 or for the year ended December 31, 2020.  

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)
March 31, 2021
Individually-evaluated nonperforming loans	$	1,909	Appraisal of collateral (1)	Appraisal adjustments (2)	(30.0%)/(30.0%)
				Liquidation expenses (2)	(5.6%)/(5.6%)
Other real estate owned and repossessed assets	$	393	Appraisal of collateral (1), (3)
December 31, 2020
Individually-evaluated nonperforming loans	$	1,958	Appraisal of collateral (1)	Appraisal adjustments (2)	(30.0%)/(30.0%)
				Liquidation expenses (2)	(5.6%)/(5.6%)
Other real estate owned and repossessed assets	$	549	Appraisal of collateral (1), (3)

⁽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.

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

					Fair Value Measurements at
					March 31, 2021
	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	$	759,048	$	759,048	$	759,048	$	—	$	—
Equity securities		13,123		13,123		13,123		—		—
Available-for-sale debt securities		2,775,212		2,775,212		—		2,773,701		1,511
Held-to-maturity debt securities		813,450		839,872		—		839,411		461
Net loans		10,543,272		10,540,445		—		—		10,540,445
Loans held for sale		153,520		153,520		—		153,520		—
Other assets - interest rate derivatives		31,732		31,732		—		31,732		—
Accrued interest receivable		68,896		68,896		68,896		—		—
Financial Liabilities
Deposits		13,286,999		13,300,728		11,731,925		1,568,803		—
Federal Home Loan Bank borrowings		433,984		438,211		—		438,211		—
Other borrowings		137,218		125,925		125,925		—		—
Subordinated debt and junior subordinated debt		192,430		172,142		—		105,371		66,771
Other liabilities - interest rate derivatives		32,470		32,470		—		32,470		—
Accrued interest payable		3,224		3,224		3,224		—		—

					Fair Value Measurements at
					December 31, 2020
	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	$	905,447	$	905,447	$	905,447	$	—	$	—
Equity securities		13,047		13,047		13,047		—		—
Available-for-sale debt securities		1,978,136		1,978,136		—		1,976,601		1,535
Held-to-maturity debt securities		730,886		768,183		—		767,720		463
Net loans		10,603,406		10,802,883		—		—		10,802,883
Loans held for sale		168,378		168,378		—		168,378		—
Other assets - interest rate derivatives		46,418		46,418		—		46,418		—
Accrued interest receivable		66,790		66,790		66,790		—		—
Financial Liabilities
Deposits		12,429,373		12,439,981		10,810,863		1,629,118		—
Federal Home Loan Bank borrowings		549,003		555,375		—		555,375		—
Other borrowings		241,950		235,796		235,796		—		—
Subordinated debt and junior subordinated debt		192,291		174,452		—		105,768		68,684
Other liabilities - interest rate derivatives		49,917		49,917		—		49,917		—
Accrued interest payable		4,314		4,314		4,314		—		—

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.

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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 estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements. Due to the pooled nature of junior subordinated debt owed to unconsolidated subsidiary trusts, which are not actively traded, estimated fair value is based on recent similar transactions of single-issuer trust preferred securities.

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 – 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:  Debit card sponsorship income is earned from Wesbanco’s sponsorship of its customers, which include independent service organizations, processors and other banks into different debit networks.  For providing this service, the customers pay the bank a per transaction fee for each transaction processed through the network.  In some cases, customers are also charged annual sponsorship fees and non-compliance fees as applicable.  The fees are earned at the time the transaction or customer activity occurs.  The fees are either directly debited from the customers' deposit accounts or are 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.

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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: Net gain or loss is recorded when other real estate is sold to a third party and the Bank collects substantially all of the consideration to which Wesbanco is entitled in exchange for the transfer of the property.

The following table summarizes the point of revenue recognition and the income recognized for each of the revenue streams for the three months ended March 31, 2021 and 2020, respectively:

	Point of Revenue	For the Three Months Ended March 31,
(unaudited, in thousands)	Recognition	2021		2020
Revenue Streams
Trust fees
Trust account fees	Over time	$	5,313	$	4,857
WesMark fees	Over time		2,318		2,095
Total trust fees			7,631		6,952
Service charges on deposits
Commercial banking fees	Over time		564		585
Personal service charges	At a point in time and over time		4,330		6,032
Total service charges on deposits			4,894		6,617
Net securities brokerage revenue
Annuity commissions	At a point in time		917		1,038
Equity and debt security trades	At a point in time		76		159
Managed money	Over time		283		235
Trail commissions	Over time		248		247
Total net securities brokerage revenue			1,524		1,679
Debit card sponsorship income (1)	At a point in time and over time		646		708
Payment processing fees (1)	At a point in time and over time		713		680
Electronic banking fees	At a point in time		4,365		4,254
Mortgage banking income	At a point in time		4,264		1,276
Net gain on other real estate owned and other assets	At a point in time		175		169

⁽¹⁾ Debit card sponsorship income and payment processing fees are included in other non-interest income.

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NOTE 9. COMPREHENSIVE INCOME/(LOSS)

The activity in accumulated other comprehensive income for the three months ended March 31, 2021 and 2020 is as follows:

	Accumulated Other Comprehensive Income/(Loss) (1)
(unaudited, in thousands)	Defined Benefit Plans			Unrealized Gains (Losses) on Debt Securities Available-for-Sale			Unrealized Gains on Debt Securities Transferred from Available-for-Sale to Held-to-Maturity			Total
Balance at December 31, 2020	$	(15,502	)	$	46,861		$	—		$	31,359
Other comprehensive income/(loss) before reclassifications		—			(22,026	)		—			(22,026	)
Amounts reclassified from accumulated other comprehensive    income/(loss)		472			(2	)		—			470
Period change		472			(22,028	)		—			(21,556	)
Balance at March 31, 2021	$	(15,030	)	$	24,833		$	—		$	9,803
Balance at December 31, 2019	$	(17,468	)	$	18,644		$	25		$	1,201
Other comprehensive income/(loss) before reclassifications	—				41,116		—				41,116
Amounts reclassified from accumulated other comprehensive    income/(loss)		569			(1,743	)		(2	)		(1,176	)
Period change		569			39,373			(2	)		39,940
Balance at March 31, 2020	$	(16,899	)	$	58,017		$	23		$	41,141

⁽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 months ended March 31, 2021 and 2020:

Details about Accumulated Other Comprehensive Income/(Loss) Components	For the Three Months Ended March 31,						Affected Line Item in the Statement of Comprehensive Income
(unaudited, in thousands)	2021			2020
Debt securities available-for-sale (1):
Net securities gains reclassified into earnings	$	(3	)	$	(2,287	)	Net securities gains (Non-interest income)
Related income tax expense ⁽²⁾		1			544		Provision for income taxes
Net effect on accumulated other comprehensive    income for the period		(2	)		(1,743	)
Debt securities held-to-maturity (1):
Amortization of unrealized gain transferred from    available-for-sale		—			(3	)	Interest and dividends on securities (Interest and dividend income)
Related income tax expense ⁽²⁾		—			1		Provision for income taxes
Net effect on accumulated other comprehensive    income for the period		—			(2	)
Defined benefit plans (3):
Amortization of net loss and prior service costs		622			746		Employee benefits (Non-interest expense)
Related income tax benefit ⁽²⁾		(150	)		(177	)	Provision for income taxes
Net effect on accumulated other comprehensive    income for the period		472			569
Total reclassifications for the period	$	470		$	(1,176	)

⁽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.

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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 $6.7 million and $9.5 million at March 31, 2021 and December 31, 2020, 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 $0.1 million and $0.2 million as of March 31, 2021 and December 31, 2020, respectively.

Contingent obligations to purchase loans funded by other entities include affordable housing plan guarantees, credit card guarantees, loans sold with recourse as well as obligations to the FHLB.  Affordable housing plan guarantees are performance guarantees for various building project loans.  The guarantee amortizes as the loan balances decrease.  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:

	March 31,		December 31,
(unaudited, in thousands)	2021		2020
Lines of credit	$	2,497,734	$	2,510,011
Loans approved but not closed		470,736		381,180
Overdraft limits		153,374		154,322
Letters of credit		53,136		53,788
Contingent obligations and other guarantees		199,066		126,984

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.

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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 $5.2 billion and $4.1 billion at March 31, 2021 and 2020, 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 March 31, 2021
Interest and dividend income	$	125,054		$	—	$	125,054
Interest expense		8,576			—		8,576
Net interest income		116,478			—		116,478
Provision for credit losses		(27,958	)		—		(27,958	)
Net interest income after provision for credit losses		144,436			—		144,436
Non-interest income		25,577			7,631		33,208
Non-interest expense		82,011			4,316		86,327
Income before provision for income taxes		88,002			3,315		91,317
Provision for income taxes		17,506			696		18,202
Net income		70,496			2,619		73,115
Preferred stock dividends		2,531			—		2,531
Net income available to common shareholders	$	67,965		$	2,619	$	70,584
For The Three Months Ended March 31, 2020
Interest and dividend income	$	142,448		$	—	$	142,448
Interest expense		22,286			—		22,286
Net interest income		120,162		—			120,162
Provision for credit losses		29,821			—		29,821
Net interest income after provision for credit losses		90,341			—		90,341
Non-interest income		21,057			6,952		28,009
Non-interest expense		86,918			4,415		91,333
Income before provision for income taxes		24,480			2,537		27,017
Provision for income taxes		3,088			533		3,621
Net income available to common shareholders	$	21,392		$	2,004	$	23,396

Total non-fiduciary assets of the trust and investment services segment were $3.9 million (including $1.7 million of trust customer intangibles) and $3.8 million (including $2.2 million of trust customer intangibles) at March 31, 2021 and 2020, respectively.  All other assets, including goodwill and the remainder of other intangible assets, were allocated to the Community Banking segment.

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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 months ended March 31, 2021. 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, 2020 and documents subsequently filed by Wesbanco with the Securities and Exchange Commission (“SEC”), 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, 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 212 branches and 207 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 March 31, 2021 have remained unchanged from the disclosures presented in Wesbanco’s Annual Report on Form 10-K for the year ended December 31, 2020 within the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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RESULTS OF OPERATIONS

EARNINGS SUMMARY

Net income available to common shareholders for the three months ended March 31, 2021 was $70.6 million, with diluted earnings per share of $1.05, compared to $23.4 million or $0.35 per diluted share, respectively, for the first quarter of 2020.  Excluding after-tax restructuring and merger-related expenses (non-GAAP measure) in both periods, for the three months ended March 31, 2021, net income available to common shareholders was $71.3 million, or $1.06 per diluted share, as compared to $27.5 million or $0.41 per diluted share, respectively, in the prior year quarter.

	For The Three Months Ended March 31,
	2021						2020
(unaudited, dollars in thousands, except per share amounts)	Net Income			Diluted Earnings Per Share			Net Income			Diluted Earnings Per Share
Net income available to common shareholders (Non-GAAP)(1)	$	71,256		$	1.06		$	27,476		$	0.41
Less: After-tax restructuring and merger-related expenses		(672	)		(0.01	)		(4,080	)		(0.06	)
Net income available to common shareholders (GAAP)	$	70,584		$	1.05		$	23,396		$	0.35

(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 $3.7 million or 3.1% in the first quarter of 2021 compared to the same quarter of 2020, reflecting lower 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 rates on investment securities, partially offset by lower interest on deposits and borrowings.  As a result of the lower rates, the net interest margin decreased by 27 basis points to 3.27% in the first quarter of 2021 as compared to the first quarter of 2020.  Over the same time period, the yield on earning assets decreased a total of 68 basis points and the cost of interest bearing liabilities decreased 54 basis points.  Average loan balances increased by 5.0% from the first quarter of 2020, mainly attributable to participation in the PPP loan program, while average deposits, excluding certificates of deposit, increased 24.6% over the same time period, due mostly to stimulus deposits and increased personal savings.   Accretion from acquisitions benefited the first quarter 2021 net interest margin by 13 basis points, as compared to 22 basis points in the prior year period.  Lastly, the forgiveness of existing and the funding of new PPP loans positively impacted the first quarter 2021 net interest margin by a net 11 basis points.

Improved macroeconomic factors, which include lower unemployment projections, utilized in the CECL calculation drove a net benefit of provision for credit losses and resulted in a negative provision of $28.0 million in the first quarter of 2021 as compared to a provision of $29.8 million in the first quarter of 2020.  Annualized net charge-offs, as a percentage of average portfolio loans, were 0.02% and 0.18% for the first quarter of 2021 and 2020, respectively.

For the first quarter of 2021, non-interest income increased $5.2 million or 18.6% compared to the first quarter of 2020, driven by mortgage banking income and higher commercial customer loan swap-related income.  Reflecting the low interest rate environment and organic growth, mortgage banking income increased $3.0 million or 234.2% in the first quarter of 2021 compared to the prior year period, net of fair value adjustments, as residential mortgage origination dollar volume increased approximately 50% over the prior year’s first quarter, with roughly 60% of those originations sold into the secondary market.  Loan swap-related income was $4.7 million in the first quarter of 2021, an increase of $4.8 million over the first quarter of 2020, primarily the result of $2.8 million in positive fair value adjustments in the current period as compared to a negative $2.8 million in fair value adjustments in last year’s first quarter.  Offsetting these increases somewhat, service charges on deposits were 26.0% lower in the first quarter of 2021 as compared to the first quarter of 2020, due to higher customer deposits associated with three rounds of stimulus payments to-date and lower general consumer spending, resulting in fewer eligible account fees.

Non-interest expense, excluding restructuring and merger-related expenses in both periods, decreased in the first quarter of 2021 by $0.7 million or 0.8%, to $85.5 million, compared to the first quarter of 2020.   This year-over-year decrease is primarily due to a 5.2% decrease in salaries and wages from the first quarter of 2020 to the first quarter of 2021 due to the recent financial center closures and the management of open positions, as well as continuing cost controls over certain discretionary expenses.  FDIC insurance expense was down 39.3% from last year’s first quarter.  Offsetting these decreases somewhat was an increase of $1.2 million or 109.5% in marketing expense for the first quarter of 2021 from the first quarter of 2020 due to increased product advertising and brand awareness campaigns that were delayed in 2020 due to the pandemic, and equipment and software costs increased due to higher software costs resulting from the company’s increased size.

During the first quarter of 2021, the effective tax rate was 19.9% as compared to 13.4% in last year’s first quarter, and the provision for income taxes increased $14.6 million to $18.2 million, primarily due to higher pre-tax income heavily influenced by the negative provision in the first quarter of 2021.

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NET INTEREST INCOME

TABLE 1. NET INTEREST INCOME

	For the Three Months Ended March 31,
(unaudited, dollars in thousands)	2021			2020
Net interest income	$	116,478		$	120,162
Taxable equivalent adjustment to net interest income		1,039			1,184
Net interest income, fully taxable equivalent	$	117,517		$	121,346
Net interest spread, non-taxable equivalent		3.11	%		3.25	%
Benefit of net non-interest bearing liabilities		0.13	%		0.26	%
Net interest margin		3.24	%		3.51	%
Taxable equivalent adjustment		0.03	%		0.03	%
Net interest margin, fully taxable equivalent		3.27	%		3.54	%

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 $3.7 million or 3.1% in the first quarter of 2021 compared to the first quarter of 2020, due to a 27 basis point decrease in the net interest margin to 3.27% resulting from the lower yield environment, as the yield on earning assets decreased at a faster rate than the rate on interest bearing liabilities. The net interest margin decrease was slightly mitigated by a 5.7% increase in average earning asset balances, primarily driven by Wesbanco’s participation in the PPP lending program. PPP loans contributed a total of $9.9 million in interest and fee accretion income in the first quarter of 2021. Excluding PPP loans, portfolio loans decreased by 4.5% from March 31, 2020, due to lower new loan demand, other than residential lending, most of which was sold in the secondary market.  Total average deposits increased in the first quarter of 2021 by $1.8 billion or 16.5% compared to the first quarter of 2020, due to an influx of deposits from the three rounds of stimulus, PPP loan proceeds deposited into customer accounts, higher personal savings rates and lower general consumer spending.  The margin’s decline was due to the continued lower rate environment and its effect on the repricing of existing loans and offered rates on loans and investment securities.  In addition, purchase accounting accretion decreased in the first quarter of 2021 as approximately 13 basis points of accretion from prior acquisitions was included in the first quarter 2021 net interest margin as compared to 22 basis points in the 2020 first quarter net interest margin.  The forgiveness of existing PPP loans and the funding of new PPP loans positively impacted the first quarter 2021 net interest margin by a net 11 basis points, mitigating the margin decrease somewhat. The cost of interest bearing deposits decreased by 35 basis points and total liabilities decreased by 54 basis points from the first quarter of 2020 to the first quarter of 2021. The decrease in the cost is primarily due to aggressive rate decreases for interest bearing demand deposits, which include public funds, and lower rates for certificates of deposit, customer repurchase agreements, short to medium-term Federal Home Loan Bank borrowings and junior subordinated debentures in response to the general decrease in overall borrowing rates in the marketplace resulting from lower rates across the yield curve.  In addition, the average balance of FHLB borrowings decreased by $1.0 billion or 66.8% from the first quarter of 2020, as excess liquidity was used to pay off these borrowings as they matured.  

Interest income decreased $17.4 million or 12.2% in the first quarter of 2021 compared to the same period of 2020 due to lower yields in every earning asset category.  Earning asset yields were influenced negatively in the first quarter of 2021 compared to the first quarter of 2020 due primarily to decreases in the Federal Reserve’s federal funds rate by 150 basis points in March 2020 and the continuation of the low rate environment through the current period.  Helping to slightly mitigate the interest income decrease, average loan balances increased $515.2 million or 5.0% in the first quarter of 2021 compared to the first quarter of 2020, due to originations of PPP loans. Loan yields decreased by 56 basis points during this same period to 4.07% from 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 first quarter of 2021, average loans represented 74.7% of average earning assets, a slight decrease from 75.2% in the first quarter of 2020.  Average taxable securities balances decreased $270.3 million or 10.5% from the first quarter of 2020, due to higher levels of calls and mortgage security-related paydowns. Taxable securities yields decreased by 69 basis points and tax-exempt securities yields decreased by five basis points in the first quarter of 2021 from the first quarter of 2020. The continuing lower rate environment has resulted in the yield decrease for all securities, as calls, prepayments and maturities of legacy higher-rate securities have been replaced with purchases at lower overall market yields.  Increased prepayments on mortgage-backed securities in the lower rate environment also reduced the taxable securities yields due to higher amortization. The average balance of tax-exempt securities, which have the highest yields within securities, have stayed consistent at approximately 20.1% of total average securities in both the first quarter of 2021 and 2020.  The average securities balance for the first quarter of 2021 was somewhat impacted by a net securities portfolio increase of $0.9 billion, which occurred mostly late in March from the use of excess liquidity to fund securities purchases.

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Total portfolio loans increased $353.7 million or 3.4% over the last twelve months, while total commercial loans increased $729.3 million or 9.8%.  Loan growth was achieved through $4.8 billion in total loan originations, led by $2.9 billion in business loan originations for the past twelve months.  Loan growth was driven by PPP loans, but was partially offset by significant loan paydowns or payoffs as some loans were refinanced in the secondary lending market, some with other banks and some financed projects were sold by their developers.

Commercial loans with floors currently average 4.10% on approximately $2.4 billion or 30% of total commercial loans at March 31, 2021, as compared to $2.3 billion averaging 4.22% or 29% of commercial loans at December 31, 2020. Approximately 68% or $1.7 billion of these loans are currently priced at their floor, as compared to 69% or $1.6 billion at December 31, 2020. 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. In addition, in a declining rate environment, some customers may request rates below existing contractual floors, which we may grant for competitive or other reasons.

Interest expense decreased $13.7 million or 61.5% in the first quarter of 2021 as compared to the same period in 2020, due to decreases in the cost of all interest bearing liability categories, as market rates have dropped and, in turn, management reduced certain deposit rates. The cost of interest bearing liabilities decreased by 54 basis points from the first quarter of 2020 to 0.37% in 2021.  Interest bearing deposits increased $742.0 million or 9.5% from the first quarter of 2020, due mostly to the three rounds of stimulus payments.  The rate on interest bearing deposits decreased 35 basis points to 20 basis points from the first quarter of 2020, primarily from aggressive decreases in rates on interest bearing public funds and certificates of deposit in response to the lower market rates. Average non-interest bearing demand deposit balances increased from the first quarter of 2020 to the first quarter of 2021 by $1.1 billion or 33.9% and were 32.9% of total average deposits at March 31, 2021, compared to 28.6% at March 31, 2020, reflecting the previously mentioned stimulus deposits, PPP loan deposits, higher personal savings and ongoing checking account marketing strategies. The average balance of FHLB borrowings decreased $1.0 billion from the first quarter of 2020 to 2021 due to the maturity of legacy higher-rate FHLB borrowings throughout the past twelve months being redeemed with excess liquidity.  These maturities benefitted the average rate paid, as it decreased by 25 basis points to 2.00% from the first quarter of 2020.  Average other borrowings, subordinated debt and junior subordinated debt balances decreased $150.5 million or 28.2% from the first quarter of 2020 to 2021, and their average rates paid decreased by 79 and 122 basis points, respectively, over this same time period, due primarily to decreases in LIBOR, the index upon which this variable-rate type of borrowing is priced, other than fixed rates on $35.1 million of subordinated debt.

The continuing low rate environment is expected to result in the core net interest margin declining several basis points over the remainder of the year, as securities purchased toward the end of the first quarter will negatively impact the margin. Lower anticipated earning asset yields caused by loans repricing to lower rates, new loan production being lower than existing loans, security cash flows being reinvested at lower rates and decreasing purchase accounting accretion should be slightly mitigated by price reductions to deposit rates and lower wholesale funding costs. In addition, Wesbanco’s participation in the PPP loan program is expected to positively contribute to net interest income and further mitigate the decreases to the net interest margin in 2021 as SBA loan forgiveness occurs for qualifying customers and net deferred fees are accreted into income at the date of loan payoff.

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TABLE 2. AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS

	For The Three Months Ended March 31,
	2021					2020
	Average		Average			Average		Average
(unaudited, dollars in thousands)	Balance		Rate			Balance		Rate
ASSETS
Due from banks - interest bearing	$	776,245		0.09	%	$	133,532		1.21	%
Loans, net of unearned income (1)		10,890,370		4.07	%		10,375,187		4.63	%
Securities: (2)
Taxable		2,306,320		1.96	%		2,576,668		2.65	%
Tax-exempt (3)		580,199		3.46	%		646,587		3.51	%
Total securities		2,886,519		2.26	%		3,223,255		2.82	%
Other earning assets		33,240		5.89	%		69,581		6.37	%
Total earning assets (3)		14,586,374		3.51	%		13,801,555		4.19	%
Other assets		2,049,884					1,983,384
Total Assets	$	16,636,258				$	15,784,939
LIABILITIES AND SHAREHOLDERS'    EQUITY
Interest bearing demand deposits	$	2,970,766		0.14	%	$	2,342,441		0.58	%
Money market accounts		1,725,561		0.14	%		1,543,763		0.61	%
Savings deposits		2,290,657		0.05	%		1,953,487		0.19	%
Certificates of deposit		1,584,152		0.61	%		1,989,450		0.82	%
Total interest bearing deposits		8,571,136		0.20	%		7,829,141		0.55	%
Federal Home Loan Bank borrowings		488,388		2.00	%		1,471,175		2.25	%
Other borrowings		191,676		0.25	%		336,042		1.04	%
Subordinated debt and junior subordinated debt		192,341		3.77	%		198,494		4.99	%
Total interest bearing liabilities (4)		9,443,541		0.37	%		9,834,852		0.91	%
Non-interest bearing demand deposits		4,200,793					3,137,279
Other liabilities		221,508					218,739
Shareholders’ equity		2,770,416					2,594,069
Total Liabilities and Shareholders’ Equity	$	16,636,258				$	15,784,939
Taxable equivalent net interest spread				3.14	%				3.28	%
Taxable equivalent net interest margin				3.27	%				3.54	%

⁽¹⁾ Gross of allowance for loan losses and net of unearned income. Includes non-accrual and loans held for sale. Loan fees included in interest income on loans were $8.2 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively.  PPP loan fees, which are included as part of total loan fees, were $7.9 million for the three months ended March 31, 2021. Additionally, loan accretion included in interest income on loans acquired from prior acquisitions was $3.5 million and $4.1 million for the three months ended March 31, 2021 and 2020, 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 $1.1 million and $3.4 million for the three months ended March 31, 2021 and 2020, respectively.

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

	For The Three Months Ended March 31, 2021
	Compared to March 31, 2020
(unaudited, in thousands)	Volume			Rate			Net Increase (Decrease)
Increase (decrease) in interest income:
Due from banks - interest bearing	$	433		$	(658	)	$	(225	)
Loans, net of unearned income		5,790			(15,935	)		(10,145	)
Taxable securities		(1,648	)		(4,211	)		(5,859	)
Tax-exempt securities (1)		(568	)		(123	)		(691	)
Other earning assets		(535	)		(84	)		(619	)
Total interest income change (1)		3,472			(21,011	)		(17,539	)
Increase (decrease) in interest expense:
Interest bearing demand deposits		730			(3,081	)		(2,351	)
Money market accounts		249			(2,023	)		(1,774	)
Savings deposits		137			(796	)		(659	)
Certificates of deposit		(731	)		(953	)		(1,684	)
Federal Home Loan Bank borrowings		(4,953	)		(865	)		(5,818	)
Other borrowings		(271	)		(481	)		(752	)
Subordinated debt and junior subordinated debt		(74	)		(598	)		(672	)
Total interest expense change		(4,913	)		(8,797	)		(13,710	)
Net interest income increase (decrease) (1)	$	8,385		$	(12,214	)	$	(3,829	)

⁽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 have been deducted 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 provision for credit losses - loans and loan commitments decreased by ($27.9) million in the first quarter of 2021 compared to $29.8 million of provision expense in the first quarter of 2020 as a result of changes in the macroeconomic forecast.  As of March 31, 2021, the macroeconomic forecast estimated significantly lower unemployment over the reasonable and supportable forecast period of one year as compared to the forecast utilized during the first quarter of 2020, resulting in a decrease in the allowance for loan losses and allowance for loan commitments.  Non-performing loans were 0.36% of total loans as of March 31, 2021, decreasing from 0.38% of total loans at the end of the first quarter of 2020. Non-performing assets were 0.36% of total loans and other real estate and repossessed assets as of March 31, 2021, decreasing from 0.39% at the end of the first quarter of 2020.  Criticized and classified loans were 4.26% of total loans as of March 31, 2021, increasing from 2.09% as of March 31, 2020, primarily due to recent adjustments to the internal loan classification system, which impacted risk grades, and downgrades in the Company’s hospitality loan portfolio. Past due loans at March 31, 2021 were 0.31% of total loans, compared to 0.46% at March 31, 2020. Annualized net loan charge-offs decreased to 0.02% as of March 31, 2021 compared to 0.18% as of March 31, 2020.  (Please see the Allowance for Credit Losses – Loans and Loan Commitments section of this MD&A for additional discussion).

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NON-INTEREST INCOME

TABLE 4. NON-INTEREST INCOME

	For The Three Months Ended March 31,
(unaudited, dollars in thousands)	2021		2020			$ Change			% Change
Trust fees	$	7,631	$	6,952		$	679			9.8
Service charges on deposits		4,894		6,617			(1,723	)		(26.0	)
Electronic banking fees		4,365		4,254			111			2.6
Net securities brokerage revenue		1,524		1,679			(155	)		(9.2	)
Bank-owned life insurance		1,709		1,769			(60	)		(3.4	)
Net securities gains		279		1,491			(1,212	)		(81.3	)
Mortgage banking income		4,264		1,276			2,988			234.2
Net insurance services revenue		1,090		845			245			29.0
Debit card sponsorship income		646		708			(62	)		(8.8	)
Payment processing fees		713		680			33			4.9
Net gain on other real estate owned and other    assets		175		169			6			3.6
Swap fee and valuation income		4,650		(102	)		4,752			4,658.8
Other		1,268		1,671			(403	)		(24.1	)
Total non-interest income	$	33,208	$	28,009		$	5,199			18.6

Non-interest income is a significant source of revenue and an important part of Wesbanco’s results of operations, as it represents 22.2% of total revenue for the three months ended March 31, 2021. 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 first quarter of 2021, non-interest income increased $5.2 million or 18.6% compared to the first quarter of 2020, primarily due to a $3.0 million or 234.2% increase in mortgage banking income and a $4.8 million increase in swap fee and valuation income.  The increases were slightly offset by the pandemic’s impact on service charges on deposits, which had a $1.7 million or 26.0% decrease from the first quarter of 2020.  Net securities gains also decreased $1.2 million or 81.3% from the first quarter of 2020.

Trust fees increased $0.7 million or 9.8% compared to the first quarter of 2020, due to a record market value of trust assets in the first quarter of 2021.  Total trust assets were $5.2 billion at March 31, 2021 as compared to $4.1 billion at March 31, 2020. As of March 31, 2021, trust assets include managed assets of $4.2 billion and non-managed (custodial) assets of $1.0 billion.  Assets managed for the WesMark Funds, a proprietary group of mutual funds that is advised by Wesbanco Trust and Investment Services, were $1.0 billion as of March 31, 2021 and $816.2 million as of March 31, 2020, and are included in managed assets.

Service charges on deposits decreased $1.7 million or 26.0% to $4.9 million in the first quarter of 2021 as compared to the same period in 2020 due to higher consumer deposit balances throughout the quarter associated with three rounds of stimulus payments to date and lower general consumer spending, resulting in fewer eligible fee-generating transactions.

Net securities gains decreased $1.2 million or 81.3% in the first quarter of 2021 compared to the same period of 2020, due to reduced securities sales, as approximately $218 million of mortgage-backed securities were sold in the first quarter of 2020 at a net gain of $2.1 million to take advantage of market opportunities and to increase liquidity at the time.  No securities were sold in the first quarter of 2021.  Included in net securities gains were $0.2 million and ($1.3) million of market adjustments on the deferred compensation plan for the three months ended March 31, 2021 and 2020, respectively, which had an offsetting effect in employee benefits expense.

Mortgage banking income increased $3.0 million or 234.2% in the first quarter of 2021 compared to the first quarter of 2020.  For the first quarter of 2021, mortgage production was $317.3 million, which was an increase of 47.2% from the comparable 2020 period. For the three months ended March 31, 2021, $214.6 million in mortgages were sold into the secondary market at a net margin of 2.0% as compared to $102.1 million at a net margin of 1.3% in the comparable 2020 period. Included in mortgage banking income and the calculation of net margin noted above are losses of $1.4 million and $2.6 million from the fair value adjustments on mortgage loan commitments and related derivatives for the three months ended March 31, 2021 and 2020, respectively.  

Debit card sponsorship income, a non-essential revenue stream for Wesbanco that was acquired in the Old Line Bancshares, Inc. (“OLBK”) acquisition and generated $0.6 million of gross revenue in the first quarter of 2021, has been sold as of March 31, 2021 to another bank.  The all-cash purchase price, which will be paid out on a monthly basis over a two-year period up to a maximum of $2.8 million, is based on a 50%-50% split of the monthly gross revenue earned by the purchasing bank.  

Swap fee and valuation income increased $4.8 million in the first quarter of 2021 compared to the first quarter of 2020 due to an increase in the fair value of existing swaps.  For the three months ended March 31, 2021, new swaps executed totaled $65.1 million in notional principal resulting in $1.9 million of fee income, compared to new swaps executed of $135.6 million in notional principal resulting in $2.6 million of fee income for the three months ended March 31, 2020.  Fair value adjustments on existing swaps for the three months ended March 31, 2021 and 2020 were $2.8 million and ($2.8) million, respectively.  

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NON-INTEREST EXPENSE

TABLE 5. NON-INTEREST EXPENSE

	For The Three Months Ended March 31,
(unaudited, dollars in thousands)	2021		2020			$ Change			% Change
Salaries and wages	$	36,890	$	38,910		$	(2,020	)		(5.2	)
Employee benefits		10,266		10,373			(107	)		(1.0	)
Net occupancy		7,177		7,084			93			1.3
Equipment		6,765		6,039			726			12.0
Marketing		2,384		1,138			1,246			109.5
FDIC insurance		1,282		2,113			(831	)		(39.3	)
Amortization of intangible assets		2,896		3,374			(478	)		(14.2	)
Restructuring and merger-related expenses		851		5,164			(4,313	)		(83.5	)
Franchise and other miscellaneous taxes		2,997		3,742			(745	)		(19.9	)
Consulting, regulatory, accounting and advisory fees		3,378		2,841			537			18.9
ATM and electronic banking interchange expenses		2,202		1,789			413			23.1
Postage and courier expenses		1,268		1,257			11			0.9
Legal fees		862		815			47			5.8
Communications		912		1,024			(112	)		(10.9	)
Supplies		1,019		1,217			(198	)		(16.3	)
Other real estate owned and foreclosure expenses		112		(65	)		177			272.3
Other		5,066		4,518			548			12.1
Total non-interest expense	$	86,327	$	91,333		$	(5,006	)		(5.5	)

Non-interest expense in the first quarter of 2021 decreased $5.0 million or 5.5% compared to the same quarter in 2020, principally due to a $2.0 million reduction in salaries and wages as well as a $4.3 million decrease in restructuring and merger-related expenses.  In the first quarter of 2021, there were $0.9 million of restructuring expenses related to the branch optimization strategy and upcoming core conversion as compared to $5.2 million of merger-related expenses related to the OLBK acquisition in the first quarter of 2020.  Excluding restructuring and merger-related expenses, non-interest expense decreased $0.7 million or 0.8% from the first quarter of 2020 to the first quarter of 2021.

Salaries and wages decreased $2.0 million or 5.2% in the first quarter of 2021 from the first quarter of 2020 due to a 7.9% reduction in full time equivalent (“FTE”) employees resulting from cost savings realized from the OLBK acquisition and the closure of branches early in the first quarter of 2021, as the branch optimization strategy was executed.  Employee benefits expense remained relatively flat over the same time period.

Equipment costs increased $0.7 million or 12.0% compared to the first quarter of 2020, due to continuous improvements in technology and communication infrastructure, software costs as well as loan and deposit origination and customer support platforms.  Specifically, service agreements and data processing expenses increased $1.0 million or 30.6% from the first quarter of 2020 to the first quarter of 2021 due to the Company’s continued growth.

Marketing expenses increased $1.2 million or 109.5% compared to the first quarter of 2020 due to increased advertising and brand awareness campaigns.  Some marketing-related activities were delayed from 2020 due to the COVID-19 pandemic.

FDIC insurance decreased $0.8 million or 39.3% compared to the first quarter of 2020, as continued efforts to update credit score information on acquired loan customers has favorably affected the assessment rate in the first quarter of 2021, as well as a higher capital base and other accrual adjustments in the prior year.

Restructuring and merger-related expenses in the first quarter of 2021 totaled $0.9 million, a decrease of $4.3 million from the first quarter of 2020. The $0.9 million of expenses in the first quarter of 2021 consisted of $0.7 million in expenses related to the upcoming core conversion, including termination fees of existing contracts, and $0.2 million in branch closure and severance expenses associated with the closure of branches early in the quarter as a result of the execution of the branch optimization strategy.  The restructuring and merger-related expenses in the first quarter of 2020 totaling $5.2 million related to the OLBK acquisition.

Franchise and miscellaneous taxes decreased $0.7 million or 19.9% from the first quarter of 2020 due to the elimination of Kentucky bank franchise taxes effective on January 1, 2021.  Wesbanco is now subject to Kentucky state income taxes which are reflected within the provision for income taxes on the income statement, and is part of the Company’s effective tax rate calculation.

Consulting, regulatory, accounting and advisory fees increased $0.5 million or 18.9% from the first quarter of 2020 due to increased underwriting and processing fees from a higher volume of mortgage originations in the current period.  

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INCOME TAXES

The provision for income taxes was $18.2 million for the three months ended March 31, 2021, which is a $14.6 million increase compared to $3.6 million for the three months ended March 31, 2020. The increase in the provision for income taxes is due to an increase in the effective tax rate to 19.9% in the first quarter of 2021 compared to 13.4% in the first quarter of 2020, resulting from higher pre-tax income primarily due to the negative provision for credit losses recorded in the first quarter of 2021.

FINANCIAL CONDITION

Total assets and deposits increased 3.8% and 6.9%, respectively, while shareholders’ equity increased 1.0%, compared to December 31, 2020. Total securities increased $909.3 million or 33.4% from December 31, 2020 to March 31, 2021, primarily driven by the purchase of mortgage-backed securities and municipal obligations with additional liquidity provided by CARES Act individual and family payments, as well as, deposits from small businesses obtaining loans from the PPP program. The securities’ increase was partially offset by a $28.8 million decrease in unrealized gains in the available-for-sale portfolio. Total portfolio loans decreased $85.9 million or 0.8% as residential real estate, home equity and consumer loan pay downs outpaced new originations and commercial line usage decreased to 32.3% from 33.9% at year-end, which were partially offset by new PPP-related commercial originations outpacing loan forgiveness related to the 2020 PPP loan program. Deposits increased $857.6 million from year-end resulting from increases of 9.8%, 7.2%, and 5.1% in demand deposits, savings deposits, and money market deposits, respectively, which were partially offset by a 3.9% decrease in certificates of deposit. The growth in transaction-based accounts is primarily attributable to CARES Act stimulus funds received, increased personal savings and reduced customer spending, focused retail and business strategies to obtain more account relationships and customers’ preferences for shorter-term maturities. The transaction accounts also increased from business customers obtaining loans from the PPP loan program and depositing proceeds in their checking accounts.

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 and customer preferences for other deposit types, which was partially offset by a $2.3 million increase in CDARS® balances. Total borrowings decreased 22.3% or $219.6 million during the first three months of 2021 as additional liquidity permitted the pay down of maturing FHLB advances by $115.0 million, coupled with a $104.7 million decrease in other short-term borrowings.

Total shareholders’ equity increased approximately $28.8 million or 1.0%, compared to December 31, 2020, primarily due to net income exceeding dividends for the period by $48.1 million, which was partially offset by a $21.6 million decrease in other comprehensive income.  The Board of Directors also approved an additional stock repurchase plan for the purchase of up to an additional 1.7 million shares on April 22, 2021, bringing total shares available for repurchase to approximately 5% of outstanding shares.

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SECURITIES

TABLE 6. COMPOSITION OF SECURITIES (1)

	March 31,			December 31,
(unaudited, dollars in thousands)	2021			2020			Change ($)			Change (%)
Equity securities (at fair value)	$	13,123		$	13,047		$	76			0.6
Available-for-sale debt securities (at fair value)
U.S. Treasury		29,997			39,982			(9,985	)		(25.0	)
U.S. Government sponsored entities and agencies		176,330			211,682			(35,352	)		(16.7	)
Residential mortgage-backed securities and    collateralized mortgage obligations of    government sponsored entities and agencies		2,140,793			1,264,737			876,056			69.3
Commercial mortgage-backed securities and    collateralized mortgage obligations of    government sponsored entities and agencies		291,681			320,098			(28,417	)		(8.9	)
Obligations of states and political subdivisions		111,798			115,762			(3,964	)		(3.4	)
Corporate debt securities		24,613			25,875			(1,262	)		(4.9	)
Total available-for-sale debt securities	$	2,775,212		$	1,978,136		$	797,076			40.3
Held-to-maturity debt securities (at amortized cost)
U.S. Government sponsored entities and agencies	$	7,611		$	7,779		$	(168	)		(2.2	)
Residential mortgage-backed securities and    collateralized mortgage obligations of    government sponsored entities and agencies		80,376			89,151			(8,775	)		(9.8	)
Obligations of states and political subdivisions		692,616			601,128			91,488			15.2
Corporate debt securities		33,137			33,154			(17	)		(0.1	)
Total held-to-maturity debt securities		813,740			731,212			82,528			11.3
Total securities	$	3,602,075		$	2,722,395		$	879,680			32.3
Available-for-sale and equity securities:
Weighted average yield at the respective period end (2)		1.78	%		2.09	%
As a % of total securities		77.4	%		73.1	%
Weighted average life (in years)		4.6			3.4
Held-to-maturity securities:
Weighted average yield at the respective period end (2)		3.19	%		3.35	%
As a % of total securities		22.6	%		26.9	%
Weighted average life (in years)		5.1			3.8
Total securities:
Weighted average yield at the respective period end (2)		2.10	%		2.43	%
As a % of total securities		100.0	%		100.0	%
Weighted average life (in years)		4.7			3.5

⁽¹⁾ At March 31, 2021 and December 31, 2020, 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.

⁽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 $879.7 million or 32.3% from December 31, 2020 to March 31, 2021, and represented 21.1% of total assets at period-end as compared to 16.6% at December 31, 2020.  Through the first three months of 2021, the available-for-sale portfolio increased $797.1 million or 40.3%, primarily due to excess liquidity from stimulus deposits and increased calls of agency and municipal securities funding $1.1 billion in purchases of residential mortgage-backed securities and collateralized mortgage obligations, while the held-to-maturity portfolio increased $82.5 million or 11.3% due to $110.3 million in purchases of municipal bonds.  The weighted average yield of the portfolio decreased by 33 basis points from 2.43% at December 31, 2020 to 2.10% at March 31, 2021, due to calls of legacy higher rate agency and municipal securities and the previously mentioned purchases at lower current market rates.    

Net unrealized gains on available-for-sale securities included in accumulated other comprehensive income, net of tax, as of March 31, 2021 and December 31, 2020 were $24.8 million and $46.9 million, respectively.  The net unrealized pre-tax gains 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 gains in the held-to-maturity portfolio, which are not accounted for in other comprehensive income, were $26.1 million at March 31, 2021, compared to $37.0 million at December 31, 2020.  With approximately 23% 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. The decrease in unrealized gains from year-end are due to an increase in market rates towards the end of the quarter.

Equity securities, of which a portion consist 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.

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Wesbanco’s municipal portfolio represented 22.3% of the overall securities portfolio as of March 31, 2021 compared to 26.3% as of December 31, 2020, and it carries different risks that are not as prevalent in other security types contained in the portfolio. The following table presents the allocation of the individual bonds in the municipal bond portfolio based on the combined ratings of two major bond credit rating agencies (at fair value):  

TABLE 7. MUNICIPAL BOND RATINGS

	March 31, 2021				December 31, 2020
(unaudited, dollars in thousands)	Amount		% of Total		Amount		% of Total
Municipal bonds (at fair value) (1):
Investment Grade - Prime	$	89,255		10.8	$	72,861		9.8
Investment Grade - High		577,740		70.1		511,013		68.4
Investment Grade - Upper Medium		150,539		18.2		152,704		20.4
Investment Grade - Lower Medium		3,040		0.4		3,072		0.4
Non-Investment Grade - Speculative		—		—		—		—
Not rated by either agency		4,530		0.5		7,354		1.0
Total municipal bond portfolio	$	825,104		100.0	$	747,004		100.0

⁽¹⁾ The lowest available rating was used when placing the bond into a category in the table.

Wesbanco’s municipal bond portfolio at March 31, 2021 consists of $215.2 million of taxable and $609.9 million of tax-exempt general obligation and revenue bonds.  The following table presents additional information regarding the municipal bond type and issuer (at fair value):

TABLE 8. COMPOSITION OF MUNICIPAL SECURITIES

	March 31, 2021				December 31, 2020
(unaudited, dollars in thousands)	Amount		% of Total		Amount		% of Total
Municipal bond type:
General Obligation	$	569,910		69.1	$	518,274		69.4
Revenue		255,194		30.9		228,730		30.6
Total municipal bond portfolio	$	825,104		100.0	$	747,004		100.0
Municipal bond issuer:
State Issued	$	47,718		5.8	$	46,843		6.3
Local Issued		777,386		94.2		700,161		93.7
Total municipal bond portfolio	$	825,104		100.0	$	747,004		100.0

Wesbanco’s municipal bond portfolio is broadly spread across the United States.  The following table presents the top five states of municipal bond concentration based on total fair value at March 31, 2021:

TABLE 9. CONCENTRATION OF MUNICIPAL SECURITIES

	March 31, 2021
(unaudited, dollars in thousands)	Fair Value		% of Total
Pennsylvania	$	166,551		20.2
Ohio		94,072		11.4
California		82,247		10.0
Texas		72,075		8.7
Kentucky		40,435		4.9
All other states		369,724		44.8
Total municipal bond portfolio	$	825,104		100.0

⁽¹⁾ Wesbanco’s municipal bond portfolio contains obligations in the State of West Virginia totaling $36.2 million or 4.4% of the total municipal portfolio.

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.

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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 guarantees.

TABLE 10. COMPOSITION OF LOANS (1)

	March 31, 2021				December 31, 2020
(unaudited, dollars in thousands)	Amount		% of Loans		Amount		% of Loans
Commercial real estate:
Land and construction	$	642,017		5.9	$	668,277		6.1
Improved property		5,070,725		46.7		5,037,115		46.0
Total commercial real estate		5,712,742		52.6		5,705,392		52.1
Commercial and industrial		1,598,921		14.7		1,681,182		15.4
Commercial and industrial - PPP		823,814		7.6		726,256		6.6
Residential real estate		1,644,422		15.2		1,720,961		15.7
Home equity		634,018		5.8		646,387		5.9
Consumer		289,395		2.7		309,055		2.8
Total portfolio loans		10,703,312		98.6		10,789,233		98.5
Loans held for sale		153,520		1.4		168,378		1.5
Total loans	$	10,856,832		100.0	$	10,957,611		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 loans decreased $100.8 million or 0.9% from December 31, 2020, while they increased $353.7 million or 3.4% over the last twelve months.  Most of the loan growth was due to the origination of $1.2 billion of PPP loans during the last twelve months, of which $823.8 million remain in the portfolio as of March 31, 2021.  Excluding PPP loans, total loans decreased over the last twelve months by 3.5% as commercial line usage decreased and a higher percentage of new residential loans originated were sold into the secondary market as opposed to holding them in the residential loan portfolio. Consumer loan demand also decreased as a result of the pandemic reducing consumer spending.  Slightly offsetting the total decrease was 1.9% of growth in commercial real estate.  Commercial and industrial loans decreased 11.3%, due primarily to the lower line usage mentioned above and lower overall demand. Residential real estate loans decreased 14.8% over the last twelve months, due to a greater portion of new originations sold into the secondary market and a greater portion of existing loans refinanced with other banks, while home equity loans were also refinanced into first mortgages due to customer preferences for fixed rate loans.  

42

Total loan commitments of $3.4 billion, including loans approved but not closed, increased $147.8 million or 4.6% from December 31, 2020 due primarily to increases in loans approved but not closed and contingent obligations.  The line utilization percentage for the commercial portfolio was 32.3% at March 31, 2021 compared to 33.9% as of December 31, 2020.

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 March 31, 2021 and December 31, 2020 are originated residential mortgages that are committed to be sold into the secondary market.      

Wesbanco has participated in the PPP loan program as originally established by the CARES Act. As of March 31, 2021, the Company has funded nearly 10,500 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 March 31, 2021, remaining unaccreted fees, net of deferred origination costs, were $21.4 million.  This total is comprised of $14.8 million remaining on the 2021 originated PPP loans and $6.6 million remaining on the 2020 originated PPP loans. The loans are subject to forgiveness by the SBA under certain defined circumstances, and it is anticipated a high percentage of such loans will meet such requirements (as revised) over the next few quarters, with $0.4 billion of 2020 originated PPP loans having been forgiven as of March 31, 2021.

TABLE 11. COMMERCIAL EXPOSURE BY INDUSTRY

	March 31, 2021
	Land and Construction				Improved Property				Commercial and Industrial				PPP
(unaudited, dollars in thousands)	Balance		Commitment		Balance		Commitment		Balance		Commitment		Loan Balance		Total Loan Balance		Total Exposure		% of Capital (1)
Agriculture and farming	$	16,103	$	2,118	$	2,956	$	883	$	7,464	$	5,430	$	4,273	$	30,796	$	39,227		2.3
Energy		4,945		1,716		41,008		1,097		73,969		58,236		8,898		128,820		189,869		11.1
Construction		92,940		65,819		139,810		29,331		155,049		187,173		161,838		549,637		831,960		48.7
Manufacturing		378		1,753		92,544		12,523		154,854		118,303		81,921		329,697		462,276		27.1
Wholesale and distribution		190		10		45,431		2,984		115,923		74,829		26,802		188,346		266,169		15.6
Retail		4,499		4,226		272,063		19,289		91,701		82,374		40,641		408,904		514,793		30.2
Transportation and warehousing		17,272		1,491		81,094		2,053		39,610		13,844		24,660		162,636		180,024		10.5
Information and communications		1,485		115		10,335		121		7,610		8,281		3,294		22,724		31,241		1.8
Finance and insurance		557		108		13,229		2,410		79,907		135,295		7,567		101,260		239,073		14.0
Equipment leasing		—		—		21,366		498		37,917		35,712		11,954		71,237		107,447		6.3
Real estate - 1-4 family		26,639		8,398		286,645		10,488		48,925		3,764		—		362,209		384,859		22.5
Real estate - multi-family		224,196		172,055		520,366		9,043		12,113		1		—		756,675		937,774		54.9
Real estate - other retail		1,216		1,364		231,445		3,767		5,356		—		—		238,017		243,148		14.2
Real estate - shopping center		11,383		1,156		301,017		9,205		—		—		—		312,400		322,761		18.9
Real estate - office building		12,836		3,501		514,092		18,879		14,569		2,802		—		541,497		566,679		33.2
Real estate - commercial/manufacturing		5,090		463		352,702		10,253		10,992		13		—		368,784		379,513		22.2
Real estate - residential buildings		42,273		92,604		129,156		40,851		25,662		16,560		7,107		204,198		354,213		20.7
Real estate - other		51,619		18,568		432,182		90,209		49,664		33,450		7,836		541,301		683,528		40.0
Services		5,736		6,639		200,117		5,121		160,939		109,359		139,532		506,324		627,443		36.8
Schools and education services		23,667		380		33,712		604		99,832		15,720		17,867		175,078		191,782		11.2
Healthcare		45,464		41,207		358,387		8,960		125,079		67,010		103,898		632,828		750,005		43.9
Entertainment and recreation		1,305		119		48,351		1,657		13,397		3,838		12,675		75,728		81,342		4.8
Hotels		9,674		8,980		711,117		13,728		6,478		1,032		22,963		750,232		773,972		45.3
Other accommodations		1,052		6,193		32,238		319		4,034		383		765		38,089		44,984		2.6
Restaurants		3,699		5,399		98,784		1,877		58,816		24,617		64,094		225,393		257,286		15.1
Religious organizations		4,006		537		74,896		2,516		37,172		22,165		7,667		123,741		148,959		8.7
Government		33,332		4,327		18,327		1,657		132,444		31,544		6,260		190,363		227,891		13.3
Unclassified		461		2,907		7,355		29,816		29,445		60,838		61,302		98,563		192,124		11.3
Total commercial loans	$	642,017	$	452,153	$	5,070,725	$	330,139	$	1,598,921	$	1,112,573	$	823,814	$	8,135,477	$	10,030,342		587.5

⁽¹⁾ Represents Bank’s total risk-based capital.

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TABLE 12. COMMERCIAL LOANS MODIFIED UNDER CARES ACT BY INDUSTRY

	March 31, 2021
	Land and Construction				Improved Property				Commercial and Industrial								Percent Modified
(unaudited, dollars in thousands)	Balance		Commitment		Balance		Commitment		Balance		Commitment		Total Loan Balance		Total Exposure		Balance	Exposure
Manufacturing	$	—	$	—	$	—	$	—	$	835	$	—	$	835	$	835	0.3%	0.2%
Hotels		—		—		152,045		216		—		—		152,045		152,261	20.3%	19.7%
Total modified commercial loans	$	—	$	—	$	152,045	$	216	$	835	$	—	$	152,880	$	153,096	1.9%	1.5%

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 has modified approximately 3,550 loans totaling $2.2 billion in 2020, of which a total of $155.3 million, representing 1.5% of total portfolio loans are currently in their deferral period as of March 31, 2021.  The deferrals as of March 31, 2021 consisted of $152.9 million of commercial loans, representing 1.9% of the commercial loan portfolio, with a majority of the other deferrals occurring in the residential real estate portfolio.  An additional $98.8 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 delinquent as of March 31, 2021.  

All of the real estate sectors combined represent the largest industry exposure at $3.9 billion, of which multi-family, office buildings and 1-4 families are the largest categories within real estate. Multi-family makes up $937.8 million or 54.9% of total risk-based capital, office buildings are $566.7 million or 33.2% of total risk-based capital and 1-4 families are $384.9 million or 22.5% of total risk-based capital.

The construction sectors combined represent the second largest industry exposure at $832.0 million or 48.7% of risk-based capital.

The hotel sector represents the third largest industry exposure at $774.0 million or 45.3% of risk-based capital. For loan modifications allowed under the CARES Act, there were $152.0 million or 8.9% of total risk-based capital of hotel loans in deferral as of March 31, 2021. The majority of these loans were deferred for up to twelve months based on specific criteria related to the borrower.  

Healthcare represents the fourth largest industry exposure at $750.0 million or 43.9% of total risk-based capital.

TABLE 13. COMMERCIAL LOANS MODIFIED UNDER CARES ACT BY MODIFICATION TYPE

	March 31, 2021
	Three Months Principal & Interest Plus Three Months Principal Only Deferral		Phase Three Deferral
(unaudited, in thousands)	Loan Balance		Loan Balance		Total Loan Balance
Manufacturing	$	835	$	—	$	835
Entertainment and recreation		—		152,045		152,045
Total modified commercial loans	$	835	$	152,045	$	152,880

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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 14. NON-PERFORMING ASSETS

(unaudited, dollars in thousands)	March 31, 2021			December 31, 2020
Non-accrual loans:
Commercial real estate - land and construction	$	120		$	469
Commercial real estate - improved property		9,007			9,494
Commercial and industrial		1,571			3,302
Residential real estate		18,358			17,925
Home equity		5,181			5,345
Consumer		338			345
Total non-accrual loans (1)		34,575			36,880
TDRs accruing interest:
Commercial real estate - land and construction		—			—
Commercial real estate - improved property		426			655
Commercial and industrial		104			111
Residential real estate		2,632			2,779
Home equity		388			363
Consumer		13			19
Total TDRs accruing interest (1)		3,563			3,927
Total non-performing loans	$	38,138		$	40,807
Other real estate owned and repossessed assets		393			549
Total non-performing assets	$	38,531		$	41,356
Non-performing loans/total portfolio loans		0.36	%		0.38	%
Non-performing assets/total assets		0.23	%		0.25	%
Non-performing assets/total portfolio loans, other real estate and repossessed assets		0.36	%		0.38	%

⁽¹⁾ TDRs on non-accrual of $1.8 million as of March 31, 2021 and December 31, 2020, respectively, are included in total non-accrual loans.

Non-performing loans, which consist of non-accrual loans and TDRs, decreased $2.7 million or 6.5%, from December 31, 2020, due to various non-accrual relationships that were paid off in the first quarter of 2021.  TDRs balances have decreased $0.4 million from December 31, 2020 to March 31, 2021.  (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 does 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. As of March 31, 2021, Wesbanco has offered deferred payments to commercial and retail customers impacted by the COVID-19 pandemic, depending on the type of loan and the industry-type for commercial loans.  

Other real estate owned and repossessed assets decreased $0.2 million from December 31, 2020 primarily due a continued efforts to liquidate residential properties.

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

TABLE 15. PAST DUE AND ACCRUING LOANS EXCLUDING NON-ACCRUAL AND TDRs

(unaudited, dollars in thousands)	March 31, 2021			December 31, 2020
Loans past due 90 days or more:
Commercial real estate - land and construction	$	641		$	288
Commercial real estate - improved property		1,955			2,713
Commercial and industrial		5,314			1,899
Residential real estate		4,007			2,863
Home equity		784			706
Consumer		123			377
Total loans past due 90 days or more		12,824			8,846
Loans past due 30 to 89 days:
Commercial real estate - land and construction		1,879			2,858
Commercial real estate - improved property		5,047			8,948
Commercial and industrial		7,345			6,540
Residential real estate		3,263			7,490
Home equity		1,307			2,754
Consumer		1,761			3,006
Total loans past due 30 to 89 days		20,602			31,596
Total loans 30 days or more past due	$	33,426		$	40,442
Loans past due 90 days or more and accruing to total portfolio loans		0.12	%		0.08	%
Loans past due 30-89 days and accruing to total portfolio loans		0.19	%		0.29	%

Loans past due 30 days or more and accruing interest excluding non-accruals and TDRs decreased $7.0 million or 17.3% from December 31, 2020.  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 $4.0 million and represented 0.12% of total loans at March 31, 2021 compared to 0.08% at December 31, 2020. While past due loans decreased overall, loans 90 days past due increased in the commercial and industrial and residential real estate loan categories.  The decrease in the 30 to 89 days past due status was primarily due to the renewals of certain OLBK-acquired commercial lines of credit that are being adjusted to Wesbanco’s underwriting standards. The 30 – 89 days past due category represented 0.19% of total loans at March 31, 2021 and 0.29% at December 31, 2020.  Loans currently modified as permitted by the regulatory authorities and the CARES Act are not included in Tables 14 or 15, as they are not considered non-performing or past due.

ALLOWANCE FOR CREDIT LOSSES - LOANS AND LOAN COMMITMENTS

As of March 31, 2021, the total allowance for credit losses – loans and commitments was $166.8 million of which $160.1 million relates to loans and $6.7 million relates to loan commitments. The allowance for credit losses – loans is 1.50% of total portfolio loans as of March 31, 2021, compared to 1.72% as of December 31, 2020. Excluding PPP loans of $823.8 million, the allowance for credit losses – loans is 1.62% of total portfolio loans. As per regulatory guidance, there is no allowance on PPP loans due to their government guarantees by the SBA.

The allowance for credit losses - loans individually-evaluated decreased $0.2 million from December 31, 2020 to March 31, 2021.  The allowance for loans collectively-evaluated decreased from December 31, 2020 to March 31, 2021 by $25.5 million.  

The allowance for credit losses - loan commitments was $6.7 million at March 31, 2021 as compared to $9.5 million as of December 31, 2020, 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. 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 to net present value. 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 March 31, 2021, the forecast was based upon a blend of two nationally-recognized published economic forecasts through March 31, 2021, and is primarily driven by national unemployment and interest rate spread forecasts. At quarter-end, national unemployment was projected to peak at 5.8%, and subsequently decrease to an average of 4.8% over the remainder of the forecast period. The improvement in the macroeconomic factors caused the allowance to decrease from December 31, 2020 to March 31, 2021, by $28.6 million.

If forecasted projections of national unemployment remain consistent with the forecast utilized by Wesbanco as of March 31, 2021 throughout the rest of the year, this may result in less significant future quarterly decreases 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 4.3% of total portfolio loans, decreasing from 4.6% at December 31, 2020. Criticized and classified loans decreased $39.1 million from December 31, 2020 to $455.8 million at March 31, 2021, primarily due to upgrades on certain hospitality loans during the first quarter of 2021.  

Table 16 summarizes the allocation of the allowance for credit losses to each category of the loan portfolio.  The overall allowance for loans decreased due to improvements in forecasted economic factors.

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TABLE 16. ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES – LOANS AND LOAN COMMITMENTS

(unaudited, dollars in thousands)	March 31, 2021		Percent of Total		December 31, 2020		Percent of Total
Allowance for credit losses - loans:
Commercial real estate - land and construction	$	7,340		4.4	$	10,841		5.6
Commercial real estate - improved property		99,741		59.8		110,652		56.6
Commercial and industrial		33,284		20.0		37,850		19.4
Residential real estate		13,438		8.1		17,851		9.1
Home equity		998		0.6		1,487		0.8
Consumer		4,532		2.7		6,507		3.3
Deposit account overdrafts		707		0.4		639		0.3
Total allowance for credit losses - loans	$	160,040		96.0	$	185,827		95.1
Allowance for credit losses - loan commitments:
Commercial real estate - land and construction	$	4,000		2.4	$	6,508		3.3
Commercial real estate - improved property		208		0.1		712		0.4
Commercial and industrial		1,583		1.0		1,275		0.7
Residential real estate		869		0.5		955		0.5
Home equity		50		0.0		45		0.0
Consumer		21		0.0		19		0.0
Total allowance for credit losses - loan commitments		6,731		4.0		9,514		4.9
Total allowance for credit losses - loans and loan commitments	$	166,771		100.0	$	195,341		100.0

Although the allowance for credit losses is allocated as described in Table 16, 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 chargeoffs 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 March 31, 2021.

DEPOSITS

TABLE 17. DEPOSITS

(unaudited, dollars in thousands)	March 31, 2021		December 31, 2020		$ Change			% Change
Deposits
Non-interest bearing demand	$	4,460,049	$	4,070,835	$	389,214			9.6
Interest bearing demand		3,126,186		2,839,536		286,650			10.1
Money market		1,771,703		1,685,927		85,776			5.1
Savings deposits		2,373,987		2,214,565		159,422			7.2
Certificates of deposit		1,555,074		1,618,510		(63,436	)		(3.9	)
Total deposits	$	13,286,999	$	12,429,373	$	857,626			6.9

Deposits, which represent Wesbanco’s primary source of funds, are offered in various account forms at various rates through Wesbanco’s 212 financial centers. The FDIC insures deposits up to $250,000 per account.

Total deposits increased by $857.6 million or 6.9% during the first three months of 2021.  Interest bearing demand deposits, non-interest bearing demand deposits, savings deposits, and money market deposits increased 10.1%, 9.6%, 7.2%, and 5.1%, respectively. The growth in transaction-based accounts is primarily attributable to individual and family stimulus payments, as well as deposits from small businesses obtaining loans from the PPP program, focused retail and business strategies to obtain more account relationships and customers’ overall preference for shorter-term maturities. Deposit balances 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. Money market deposits were influenced through Wesbanco’s participation in the Insured Cash Sweep (ICS®) money market deposit program. ICS® reciprocal balances totaled $649.9 million at March 31, 2021 compared to $513.9 million at December 31, 2020, as certain sweep repurchase agreements previously in short-term borrowings were moved to this product.

Certificates of deposit decreased $63.4 million 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.  The decline was also impacted by customer run-off of higher cost certificates of deposit from the OLBK acquisition. 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 $44.9 million in outstanding balances at March 31, 2021, compared to $42.6 million in total outstanding balances at December 31, 2020.  Certificates of deposit greater than $250,000 were approximately $376.9 million at March 31, 2021 compared to $381.7 million at December 31, 2020. Certificates of deposit of $100,000 or more were approximately $808.2 million at March 31, 2021 compared to $843.2 million at December 31, 2020.  Certificates of deposit totaling approximately $952.4 million at March 31, 2021 with a cost of 0.52% 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.

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BORROWINGS

TABLE 18. BORROWINGS

(unaudited, dollars in thousands)	March 31, 2021		December 31, 2020		$ Change			% Change
Federal Home Loan Bank Borrowings	$	433,984	$	549,003	$	(115,019	)		(21.0	)
Other short-term borrowings		137,218		241,950		(104,732	)		(43.3	)
Subordinated debt and junior subordinated debt		192,430		192,291		139			0.1
Total	$	763,632	$	983,244	$	(219,612	)		(22.3	)

While borrowings are a significant source of funding for Wesbanco, they are less significant as compared to total deposits. During the first three months of 2021, $115.0 million in available liquidity was used for FHLB borrowings maturities and other principal pay-downs with an average cost of 2.60%. 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 $137.2 million at March 31, 2021 compared to $242.0 million at December 31, 2020.  The decrease in these borrowings is primarily due to a $120.0 million decrease in callable repurchase agreements due to moving certain customer relationships to interest-bearing demand deposits, which was partially offset by a $15.3 million increase in overnight sweep checking accounts. There were no outstanding federal funds purchased at either March 31, 2021 or December 31, 2020.

Wesbanco renewed a revolving line of credit in August 2020, 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 March 31, 2021 or December 31, 2020.  

OFF-BALANCE SHEET ARRANGEMENTS

Wesbanco enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, letters of credit, loans approved but not closed, overdraft limits and contingent obligations to purchase loans funded by other entities. Since many of these commitments expire unused or partially used, these commitments may not reflect future cash requirements.  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.

The allowance for credit losses includes an allowance for unfunded loan commitments.  The allowance for credit losses represents the lifetime expected losses for all loans and unfunded loan commitments at the initial recognition date. The allowance incorporates forward-looking information and applies a reversion methodology beyond the reasonable and supportable forecast. The allowance is increased by a provision charged to operating expense and reduced by charge-offs, net of recoveries, which also includes any necessary adjustments to the reserve for unfunded loan commitments, and such reserve is accounted for in other liabilities. Management evaluates the appropriateness of the allowance at least quarterly.  This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change from period to period. 

During the first quarter of 2020, Wesbanco extended its contract with its existing core service provider for an additional seven years, which includes upgraded and enhanced technological services. The new contract also includes additional products and services, which were previously obtained from various other third-party service providers. It is currently anticipated that such core services will be converted in the third quarter of 2021, and that one-time charges from various contract terminations will be accounted for as of the date of the termination of any such associated contract. In addition to upgrading and enhancing technology, reflecting the current operating environment and increased utilization of digital services, Wesbanco announced, on August 27, 2020, a plan to accelerate its financial center optimization strategy.  The plan consolidated a total of 24 locations and converted two others to drive-up only locations across Indiana, Kentucky, Ohio, Pennsylvania, and West Virginia.  Three locations closed in 2020, and the remainder closed in January 2021.  Gross cost savings of approximately $6.0 to $6.5 million are expected to be phased-in during the first half of 2021, with approximately half of the gross cost savings reinvested in enhanced customer-facing technologies and digital services.  Staff at the locations that were consolidated were permitted to fill certain open positions at other nearby financial centers, somewhat reducing expected cost savings.  Wesbanco incurred $0.2 million in restructuring charges in the first quarter of 2021 associated with the closures.  The Company continues to review other branch locations for potential closure in the second half of 2021.

CAPITAL RESOURCES

Shareholders' equity increased $28.8 million or 1.0% from $2.8 billion at December 31, 2020.  The increase resulted primarily from net income during the current three-month period of $73.1 million, which were partially offset by a $21.6 million other comprehensive income loss and the declaration of common and preferred shareholder dividends totaling $22.5 million and $2.5 million, respectively, for the three months ended March 31, 2021.  Wesbanco also increased its quarterly dividend rate $0.01 per quarter to $0.33 per share in February, representing a 3.1% increase over the prior quarterly rate and a cumulative 136% increase since 2010.

Wesbanco did not purchase any shares of its common stock during the three-month period ended March 31, 2021 under the current share repurchase plans. At March 31, 2021, the remaining shares authorized to be purchased under the current repurchase plans totaled 1,704,457 shares.  The Board of Directors also approved an additional stock repurchase plan for the purchase of up to an additional 1.7 million shares on April 22, 2021.  This plan is in addition to the two active stock repurchase plans as of March 31, 2021, resulting in a total of approximately 3.4 million shares available for repurchase, as the prior plans will continue to be utilized until such authorizations are complete.

In February 2021, Wesbanco granted 12,000 Total Shareholder Return Plan (“TSR”) shares for the performance period beginning January 1, 2021 and ending December 31, 2023 to certain executives. The award is determined at the end of the three-year period if the TSR of Wesbanco

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common stock is equal to or greater than the 50^th percentile of the TSR of the peer group. The number of shares to be earned by the participant shall be 200% of the grant-date award if the TSR of Wesbanco common stock is equal to or greater than the 75^th percentile of the TSR of the peer group.  Upon achieving the market-based metric, shares determined to be earned by the participant become time-based and vest in three equal annual installments.

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 March 31, 2021, 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 March 31, 2021, under FDIC regulations, Wesbanco could receive, without prior regulatory approval, a dividend of approximately $252.3 million from the Bank.  Wesbanco expects to continue to improve its consolidated and Bank capital ratios as necessary over time, to fund organic growth and acquisitions, primarily from retaining a majority of its earnings.

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 March 31, 2021 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 30 to 45 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:

							March 31, 2021							December 31, 2020
	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	%	$	1,663,801		10.74	%	$	619,628	$	1,617,413		10.51	%	$	510,306
Common equity Tier 1		4.50	%		6.50	%		1,519,316		13.65	%		500,740		1,472,929		13.40	%		494,529
Tier 1 capital to risk-weighted assets		6.00	%		8.00	%		1,663,801		14.95	%		677,653		1,617,413		14.72	%		659,372
Total capital to risk-weighted assets		8.00	%		10.00	%		1,956,337		17.58	%		890,204		1,931,414		17.58	%		879,162
Wesbanco Bank, Inc.
Tier 1 leverage		4.00	%		5.00	%	$	1,579,625		10.21	%	$	618,636	$	1,536,609		10.00	%	$	614,792
Common equity Tier 1		4.50	%		6.50	%		1,579,625		14.24	%		499,228		1,536,609		14.04	%		492,549
Tier 1 capital to risk-weighted assets		6.00	%		8.00	%		1,579,625		14.24	%		665,637		1,536,609		14.04	%		656,732
Total capital to risk-weighted assets		8.00	%		10.00	%		1,707,161		15.39	%		887,516		1,685,610		15.40	%		875,643

⁽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 61.8% at March 31, 2021 and deposit balances funded 77.9% of assets.  

The following table lists the sources of liquidity from assets at March 31, 2021 expected within the next year:

(unaudited, in thousands)
Cash and cash equivalents	$	759,048
Securities with a maturity date within the next year and callable securities		250,523
Projected payments and prepayments on mortgage-backed securities and collateralized mortgage obligations (1)		758,938
Loans held for sale		153,520
Accruing loans scheduled to mature		1,210,062
Normal loan repayments		2,492,910
Total sources of liquidity expected within the next year	$	5,625,001

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

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Deposit flows are another principal factor affecting overall Wesbanco liquidity. Deposits totaled $13.3 billion at March 31, 2021. 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 $952.4 million at March 31, 2021, which includes jumbo regular certificates of deposit totaling $505.3 million with a weighted-average cost of 0.80%, and jumbo CDARS^® deposits of $35.8 million with a weighted-average cost of 0.55%.  

Wesbanco maintains a line of credit with the FHLB as an additional funding source. Available credit with the FHLB approximated $4.1 billion and $3.6 billion at March 31, 2021 and December 31, 2020, 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 March 31, 2021, the Bank had unpledged available-for-sale securities with an amortized cost of $1.1 billion, or 40.1% 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 $1.4 billion at March 31, 2021.  Wesbanco’s held-to-maturity portfolio currently contains $641.3 million 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. At March 31, 2021, Wesbanco had a BIC line of credit totaling $173.4 million, none of which was outstanding.  Alternative funding sources may include the utilization of existing overnight lines of credit with third party banks totaling $275.0 million, none of which was outstanding at March 31, 2021, 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 $137.2 million at March 31, 2021 consisted of callable repurchase agreements and overnight sweep checking accounts for large commercial customers. Other short-term borrowings may also include federal funds purchased.  There has been a decrease of $45.4 million in the average deposit balances of overnight sweep checking accounts during the first three months of 2021, primarily from the movement of overnight sweep checking accounts to deposits.  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, $225.3 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 March 31, 2021.  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 March 31, 2021, under FDIC and State of West Virginia regulations, Wesbanco could receive, without prior regulatory approval, dividends of approximately $252.3 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 $3.1 billion and $3.0 billion at March 31, 2021 and December 31, 2020, 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.  

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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 Wesbanco’s Asset/Liability Committee (“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 March 31, 2021 and December 31, 2020, 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 100 – 300 basis points decreasing changes for March 31, 2021 and December 31, 2020 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)	March 31, 2021	December 31, 2020	Guidelines
+300	12.5%	15.3%	(15.0%)
+200	8.4%	10.3%	(10.0%)
+100	4.5%	5.5%	(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 both up and down 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 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.  

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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 and 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 March 31, 2021 and December 31, 2020. Changes in EVE sensitivity since year-end 2020 relate to the increase in market interest rates, particularly in the latter half of the first quarter of 2021, 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)	March 31, 2021	December 31, 2020	Guidelines
+300	6.1%	13.4%	(30.0%)
+200	4.5%	10.6%	(20.0%)
+100	4.0%	7.1%	(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.

In anticipation of the potential discontinuance of the London Interbank Offered Rate (LIBOR), which was initially slated to occur at the end of 2021, Wesbanco has created a LIBOR transition committee, which has broken the Company’s transition efforts into two phases. The first phase included adding additional language to new loans that allows Wesbanco to replace LIBOR with an equivalent rate index and adjust the margin to ensure the resulting interest rate is the same as it previously was using LIBOR. Also included in the first phase was Wesbanco transitioning from the LIBOR swap curve to treasury rates when repricing certain term loans and originating new loans. The second phase is transitioning current variable loans tied to LIBOR or on a LIBOR swap curve. Wesbanco is tracking the dollar amount and number of loans tied to LIBOR or the LIBOR swap curve, monitoring current industry trends, and engaging its legal counsel to ensure the smooth transition away from LIBOR. The date for the discontinuation of LIBOR has been extended for certain tenors and currencies by its administrator to June 30, 2023, giving existing LIBOR-based contracts time to mature.  Although the cessation date has been extended, a joint agency statement on November 30, 2020 indicated that, even in the event of an extension, the agencies would consider the use of LIBOR as a reference rate for new loans after December 31, 2021 as creating safety and soundness risks. As such, Wesbanco is continuing to develop its transition plan to price new loans to a suitable replacement index by the end of 2021.

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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 March 31, 2021 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, Wesbanco’s internal control over financial reporting.

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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 March 31, 2021, Wesbanco had two active stock repurchase plans. The first active plan was approved by the Board of Directors on October 22, 2015 for 1.0 million shares, and the second active plan was approved by the Board of Directors on December 19, 2019 for 1.7 million shares. Each 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.

The Board of Directors also approved an additional stock repurchase plan for the purchase of up to an additional 1.7 million shares on April 22, 2021.  This plan is in addition to the two active stock repurchase plans as of March 31, 2021, and the prior plans will continue to be utilized until such authorizations are complete.

Repurchases in the first quarter included those for the KSOP and dividend reinvestment plans.

The following table presents the monthly share purchase activity during the quarter ended March 31, 2021:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Number of Shares that May Yet Be Purchased Under the Plans
Balance at December 31, 2020							1,704,457
January 1, 2021 to January 31, 2021
Other transactions (1)		29,801	$	30.76	N/A	N/A
February 1, 2021 to February 28, 2021
Other transactions (1)		1,581		31.25	N/A	N/A
March 1, 2021 to March 31, 2021
Other transactions (1)		3,374		35.39	N/A	N/A
First Quarter 2021
Other transactions (1)		34,756		31.23	N/A	N/A
Total		34,756	$	31.23	N/A		1,704,457

⁽¹⁾ Consists of open market purchases transacted for employee benefit and dividend reinvestment plans.

N/A – Not applicable

ITEM 5. OTHER INFORMATION

On May 4, 2021, the Board of Directors of Wesbanco adopted a change to Article V, Section 1 of Wesbanco’s Amended and Restated By-laws (“Bylaws”), effective as of May 4, 2021, to harmonize with the Bank’s bylaws the positions Wesbanco and the Bank treat as officers and executive officers.  The Bylaws were not amended in any other manner.  The description of this Bylaw clarification is subject to and qualified in its entirety by the full text of the Bylaws filed with this Quarterly Report as Exhibit 3.1.

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ITEM 6. EXHIBITS

3.1	Bylaws of Wesbanco, Inc. (As Amended and Restated May 4, 2021).
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).

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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: May 6, 2021	/s/ Todd F. Clossin
	Todd F. Clossin
	President and Chief Executive Officer (Principal Executive Officer)
Date: May 6, 2021	/s/ Robert H. Young
	Robert H. Young
	Senior Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

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