WESBANCO INC 10-Q

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, 2024. 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, 2023 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; changes in interest rates, spreads on earning assets and interest-bearing liabilities, and associated interest rate sensitivity; sources of liquidity available to Wesbanco and its related subsidiary operations; potential future credit losses and the credit risk of commercial, real estate, and consumer loan customers and their borrowing activities; actions of the Federal Reserve Board, the Federal Deposit Insurance Corporation, the SEC, the Financial Institution Regulatory Authority, the Municipal Securities Rulemaking Board, the Securities Investors Protection Corporation, the Consumer Financial Protection Bureau and other regulatory bodies; potential legislative and federal and state regulatory actions and reform, including, without limitation, the impact of the implementation of the Dodd-Frank Act; adverse decisions of federal and state courts; fraud, scams and schemes of third parties; cyber-security breaches; competitive conditions in the financial services industry; rapidly changing technology affecting financial services; marketability of debt instruments and corresponding impact on fair value adjustments; and/or other external developments materially impacting Wesbanco’s operational and financial performance. Wesbanco does not assume any duty to update forward-looking statements. OVERVIEW Wesbanco is a multi-state bank holding company operating through 192 branches and 183 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, 2024 have remained unchanged from the disclosures presented in Wesbanco’s Annual Report on Form 10-K for the year ended December 31, 2023 within the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 34 RESULTS OF OPERATIONS EARNINGS SUMMARY Net income available to common shareholders for the first quarter of 2024 was $33.2 million, with diluted earnings per share of $0.56, compared to $39.8 million or $0.67 per diluted share, for the first quarter of 2023. As noted in the following table, net income available to common shareholders, excluding after-tax restructuring and merger-related expenses, for the three months ended March 31, 2024, was $33.2 million or $0.56 per diluted share, as compared to $42.3 million or $0.71 per diluted share in the prior year's first quarter (non-GAAP measures). For the Three Months Ended March 31, 2024 2023 (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) $ 33,162 $ 0.56 $ 42,301 $ 0.71 Less: After-tax restructuring and merger-related expenses — — (2,491 ) (0.04 ) Net income available to common shareholders (GAAP) $ 33,162 $ 0.56 $ 39,810 $ 0.67 (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 $10.4 million or 8.3% in the first quarter of 2024 compared to the same quarter of 2023, due to increasing deposit costs and the associated remix from non-interest bearing deposits into higher tier money market and certificate of deposit accounts, which, in turn, resulted in a 44 basis point decrease in the net interest margin over the same period. The increase in funding costs has been partially offset by higher yields in all earning asset categories, due to the repricing of existing loans and higher investment rates offered in the current market environment. Over the same time period, the yield on earning assets increased by a total of 66 basis points while the cost of interest bearing liabilities increased by 146 basis points from increasing deposit costs and higher cost wholesale borrowings. Average loan balances increased by 9.4% from the first quarter of 2023, mainly attributable to commercial loan demand, while average securities decreased by 10.1% over the same time period as investment maturities and calls were used to partially fund the loan growth. Average deposits increased 2.9% over the same time period as a result of deposit gathering and retention efforts by the retail and commercial teams. Accretion from prior acquisitions benefited the first quarter 2024 net interest margin by three basis points, as compared to four basis points in the prior year period. Loan growth, adjustments in regional macroeconomic factors and loan concentrations as well as an increase in net charge-offs resulted in a provision for credit losses of $4.0 million in the first quarter of 2024, as compared to a provision of $3.6 million in the first quarter of 2023. Annualized net loan charge-offs, as a percentage of average portfolio loans, were 0.20% and 0.07% for the first quarter of 2024 and 2023, respectively. The net charge-offs in the first quarter of 2024 primarily reflect loans from a single borrower relationship totaling $4.8 million. For the first quarter of 2024, non-interest income increased $3.0 million, or 10.8% compared to the first quarter of 2023, primarily due to increases in net swap fee and valuation income, service charges on deposits and trust fees. The net swap fee and valuation income of $1.6 million in the first quarter of 2024 reflects $0.8 million of new swap fees and net fair value adjustments of $0.8 million, as compared to $1.8 million and negative $1.0 million, respectively, in the prior year first quarter. Service charges on deposits increased $0.6 million from the first quarter of 2023, reflecting fee income from new products and services and increased general consumer spending. Trust fees, which are seasonally higher during the first quarter, increased $0.6 million in the first quarter of 2024 as compared to the first quarter of 2023 due to an 11.4% increase in trust assets, driven by both market value adjustments and organic growth. Non-interest expense, excluding restructuring and merger-related expenses, increased in the first quarter of 2024 by $4.2 million, or 4.5%, to $97.2 million, compared to the first quarter of 2023, reflecting increased salaries and wages, equipment and software expense and other operating expenses. Salaries and wages increased $1.0 million, or 2.5%, from the first quarter of 2023 to the first quarter of 2024 due to higher salary expense relating to new revenue-producing hires, mostly commercial lenders, and annual merit increases, which were offset somewhat by cost savings resulting from a reduction in full-time equivalent employees. Equipment and software expense increased $0.9 million in the first quarter of 2024 compared to the prior year first quarter due to the planned upgrade of our ATM fleet with newer technology and general inflationary cost increases for existing service agreements. Other operating expenses increased $2.2 million in the first quarter of 2024 from the first quarter of 2023 primarily due to higher costs and fees in support of loan growth and higher miscellaneous taxes and expenses. For the first three months of 2024, the effective tax rate was 17.7% as compared to 19.0% for the three months ended March 31, 2023, and the provision for income taxes decreased by $2.2 million over the same time period. Both of these decreases are due to the decrease in pre-tax income over the same period. 35 NET INTEREST INCOME TABLE 1. NET INTEREST INCOME For the Three Months Ended March 31, (unaudited, dollars in thousands) 2024 2023 Net interest income $ 113,966 $ 124,332 Taxable equivalent adjustment to net interest income 1,219 1,273 Net interest income, fully taxable equivalent $ 115,185 $ 125,605 Net interest spread, non-taxable equivalent 1.97 % 2.77 % Benefit of net non-interest bearing liabilities 0.92 % 0.56 % Net interest margin 2.89 % 3.33 % Taxable equivalent adjustment 0.03 % 0.03 % Net interest margin, fully taxable equivalent 2.92 % 3.36 % 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 $10.4 million or 8.3% in the first quarter of 2024 compared to the first quarter of 2023. This decrease was due to a 44 basis point decrease year over year in the net interest margin to 2.92% for the first quarter of 2024. The decrease in margin is due to higher funding costs from increasing deposit costs and associated remix from non-interest bearing deposits into higher tier money market and certificate of deposit accounts. Portfolio loans increased by 9.0% from March 31, 2023, due to strong new loan growth and strategic loan production office and lender hiring initiatives. Total purchase accounting accretion continued to decrease in the first quarter of 2024 as compared to the first quarter of 2023, as approximately three basis points of accretion from prior acquisitions was included in the first quarter 2024 net interest margin as compared to four basis points in the 2023 first quarter net interest margin. Total average deposits, excluding CDs, remained relatively flat compared to the first quarter of 2023. The cost of interest bearing deposits increased by 156 basis points and the cost of total interest bearing liabilities increased by 146 basis points from the first quarter of 2023 to the first quarter of 2024. The increase in the cost is primarily due to rate increases for interest bearing deposits in response to the general increase in overall deposit rates in the marketplace. Interest income increased $34.8 million or 21.7% in the first quarter of 2024 compared to the same period of 2023. Average loan balances increased $1.0 billion or 9.4% in the first quarter of 2024 compared to the first quarter of 2023, while loan yields increased by 68 basis points during this same period to 5.71% due to the previously mentioned rising rate environment and its effect on the repricing of portfolio loans, as well as higher 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 2024, average loans represented 74.0% of average earning assets, an increase from 70.8% in the first quarter of 2023. Average total securities balances decreased $414.2 million or 10.1% from the first quarter of 2023, and represented 23.2% of total earning assets in the first quarter of 2024. Taxable securities yields, which have remained relatively flat, increased by five basis points in the first quarter of 2024 from the first quarter of 2023. Tax-exempt securities yields, which are the highest yields within total securities, remained flat from the first quarter of 2023. Interest expense increased $45.1 million in the first quarter of 2024 as compared to the same period in 2023, due to the timing of the previously mentioned federal funds rate increases and their effect on the costs of deposits and borrowings. The cost of interest bearing liabilities increased by 146 basis points from the first quarter of 2023 to 2.98% in the first quarter of 2024. Average interest bearing deposits increased $1.1 billion or 12.8% from the first quarter of 2023. The rate on interest bearing deposits increased 156 basis points to 2.56% from the first quarter of 2023, primarily from increases in rates on interest bearing public funds, money market funds and savings deposits, and a mix shift from non-interest bearing demand deposits into interest bearing demand deposits and certificates of deposit. Average non-interest bearing demand deposit balances decreased from the first quarter of 2023 to the first quarter of 2024 by $681.2 million or 14.9%, and were 29.4% of total average deposits at March 31, 2024, compared to 35.6% at March 31, 2023, reflecting customers' preferences in the previously mentioned interest rate environment. For the first quarter of 2024, Wesbanco's average loans to average deposits ratio was 88.7%, reflecting additional capacity to lend. The average balance of FHLB borrowings increased $273.4 million from the first quarter of 2023 to the first quarter of 2024, due to increased loan funding demand and for liquidity purposes. Average repurchase agreements decreased $38.6 million or 29.4% from the first quarter of 2023 to the first quarter of 2024, while average subordinated and junior subordinated debt balances decreased $2.4 million or 0.8%. 36 TABLE 2. AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS For the Three Months Ended March 31, 2024 2023 Average Average Average Average (unaudited, dollars in thousands) Balance Rate Balance Rate ASSETS Due from banks - interest bearing $ 375,268 5.70 % $ 279,448 4.29 % Loans, net of unearned income (1) 11,756,875 5.71 % 10,750,132 5.03 % Securities: (2) Taxable 2,928,867 2.39 % 3,302,081 2.34 % Tax-exempt (3) 759,797 3.07 % 800,804 3.07 % Total securities 3,688,664 2.53 % 4,102,885 2.49 % Other earning assets 60,920 6.92 % 45,879 2.82 % Total earning assets (3) 15,881,727 4.98 % 15,178,344 4.32 % Other assets 1,822,538 1,792,210 Total Assets $ 17,704,265 $ 16,970,554 LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing demand deposits $ 3,501,049 2.94 % $ 3,029,944 1.49 % Money market accounts 2,087,036 3.11 % 1,632,738 1.06 % Savings deposits 2,480,710 1.24 % 2,774,741 0.58 % Certificates of deposit 1,291,111 3.19 % 862,703 0.57 % Total interest bearing deposits 9,359,906 2.56 % 8,300,126 1.00 % Federal Home Loan Bank borrowings 1,243,407 5.50 % 970,000 4.72 % Repurchase agreements 92,565 2.93 % 131,186 1.29 % Subordinated debt and junior subordinated debt 279,103 5.87 % 281,483 5.68 % Total interest bearing liabilities (4) 10,974,981 2.98 % 9,682,795 1.52 % Non-interest bearing demand deposits 3,898,990 4,580,164 Other liabilities 284,453 249,528 Shareholders’ equity 2,545,841 2,458,067 Total Liabilities and Shareholders’ Equity $ 17,704,265 $ 16,970,554 Taxable equivalent net interest spread 2.00 % 2.80 % Taxable equivalent net interest margin 2.92 % 3.36 % (1) Gross of allowance for credit losses and net of unearned income. Includes non-accrual and loans held for sale. Loan fees included in interest income on loans were $0.3 million and $0.4 million for the three months ended March 31, 2024 and 2023, respectively. Additionally, loan accretion included in interest income on loans acquired from prior acquisitions was $0.8 million and $1.3 million for the three months ended March 31, 2024 and 2023, 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 tax rate of 21% for each period presented. (4) Accretion on interest bearing liabilities acquired from prior acquisitions was $0.1 million and $0.2 million for the three months ended March 31, 2024 and 2023, respectively. 37 TABLE 3. RATE/VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE For the Three Months Ended March 31, 2024 Compared to March 31, 2023 (unaudited, in thousands) Volume Rate Net Increase (Decrease) Increase (decrease) in interest income: Due from banks - interest bearing $ 1,186 $ 1,180 $ 2,366 Loans, net of unearned income 13,203 20,365 33,568 Taxable securities (2,206 ) 524 (1,682 ) Tax-exempt securities (1) (313 ) 55 (258 ) Other earning assets 132 598 730 Total interest income change (1) 12,002 22,722 34,724 Increase (decrease) in interest expense: Interest bearing demand deposits 1,959 12,525 14,484 Money market accounts 1,471 10,391 11,862 Savings deposits (465 ) 4,132 3,667 Certificates of deposit 866 8,178 9,044 Federal Home Loan Bank borrowings 3,527 2,173 5,700 Repurchase agreements (153 ) 409 256 Subordinated debt and junior subordinated debt (34 ) 165 131 Total interest expense change 7,171 37,973 45,144 Net interest income change (1) $ 4,831 $ (15,251 ) $ (10,420 ) (1) Taxable equivalent basis is calculated on tax-exempt securities using a federal statutory tax rate of 21%. PROVISION FOR CREDIT LOSSES – LOANS AND LOAN COMMITMENTS The provision for credit losses – loans is the amount to be added to the allowance for credit losses – loans after net (charge-offs) recoveries have been (deducted) added to bring the allowance to a level considered appropriate to absorb lifetime expected losses for all portfolio loans. The provision for credit losses – loan commitments is the amount to be added to the allowance for credit losses for loan commitments to bring that allowance to a level considered appropriate to absorb lifetime expected losses on unfunded loan commitments. The provision for credit losses - loans and loan commitments increased to $4.0 million in the first quarter of 2024 compared to a provision of $3.6 million in the first quarter of 2023. While the provision increased year-over-year, the $4.0 million provision in the first quarter of 2024 was a result of continued loan growth and adjustments in regional macroeconomic factors and loan concentrations as well as an increase in net charge-offs. The increase was offset somewhat by changes in the portfolio mix and a reduction in the office portfolio qualitative factor. Non-performing loans were 0.28% of total portfolio loans as of March 31, 2024, decreasing from 0.36% of total portfolio loans at the end of the first quarter of 2023. Criticized and classified loans were 2.30% of total portfolio loans as of March 31, 2024, increasing from 1.60% as of March 31, 2023, due to downgrades within the portfolio. Past due loans at March 31, 2024 were 0.20% of total portfolio loans, compared to 0.16% at March 31, 2023. Annualized net loan charge-offs were 0.20% for the three months ended March 31, 2024, compared to 0.07% for the three months ended March 31, 2023. Please see the Allowance for Credit Losses – Loans and Loan Commitments section of this MD&A for additional discussion. 38 NON-INTEREST INCOME TABLE 4. NON-INTEREST INCOME For the Three Months Ended March 31, (unaudited, dollars in thousands) 2024 2023 $ Change % Change Trust fees $ 8,082 $ 7,494 $ 588 7.8 Service charges on deposits 6,784 6,170 614 10.0 Digital banking income 4,704 4,605 99 2.1 Net swap fee and valuation income 1,563 799 764 95.6 Net securities brokerage revenue 2,548 2,576 (28 ) (1.1 ) Bank-owned life insurance 2,067 1,959 108 5.5 Net securities gains 537 145 392 270.3 Mortgage banking income 693 426 267 62.7 Net insurance services revenue 944 791 153 19.3 Payment processing fees 829 871 (42 ) (4.8 ) Net gain on other real estate owned and other assets 154 232 (78 ) (33.6 ) Other 1,724 1,585 139 8.8 Total non-interest income $ 30,629 $ 27,653 $ 2,976 10.8 Non-interest income is a significant source of revenue and an important part of Wesbanco’s results of operations, as it represents 21.2% of total revenue for the three months ended March 31, 2024. 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 2024, non-interest income increased $3.0 million or 10.8% compared to the first quarter of 2023, primarily due to a $0.8 million increase in net swap fee and valuation income, a $0.6 million increase in service charges on deposits, and a $0.6 million increase in trust fees. Trust fees increased $0.6 million or 7.8% compared to the first quarter of 2023, due to an increase in trust assets driven by market value adjustments and organic growth. Total trust assets were $5.6 billion at March 31, 2024 as compared to $5.0 billion at March 31, 2023. As of March 31, 2024, trust assets include managed assets of $4.5 billion and non-managed (custodial) assets of $1.1 billion. Assets managed for the WesMark Funds, a proprietary group of mutual funds that is advised by Wesbanco Trust and Investment Services, were $0.9 billion and $0.8 billion as of March 31, 2024 and March 31, 2023, respectively, and are included in managed assets. Service charges on deposits increased $0.6 million or 10.0% to $6.8 million in the first quarter of 2024 as compared to the same period in 2023. This was due to fee income from new products and services, an increase in treasury management fees and higher general consumer spending. Net swap fee and valuation income, which includes fair value adjustments, increased $0.8 million in the first quarter of 2024 compared to the first quarter of 2023, due to increased fair value adjustments in the swap portfolio on 2024 as compared to 2023, while swap fee income and new swaps originated were lower compared to the first three months of 2023. For the three months ended March 31, 2024, new swaps executed totaled $36.6 million in notional principal, resulting in $0.8 million of fee income, compared to new swaps executed of $162.6 million in notional principal resulting in $1.8 million of fee income for the three months ended March 31, 2023. Fair value adjustments on existing swaps for the three months ended March 31, 2024 were a positive $0.8 million as compared to a negative $1.0 million for the three months ended March 31, 2023. Net securities gains include both gains and losses on investment security transactions as well as market value adjustments on Wesbanco's deferred compensation plan. For the three months ended March 31, 2024, net securities gains increased $0.4 million compared to the same period of 2023, due primarily to a $0.3 million increase in market adjustments on the deferred compensation plan in the first quarter of 2024 as compared to the first quarter of 2023. These market adjustments had an offsetting effect in employee benefits expense. Mortgage banking income increased $0.3 million or 62.7% in the first quarter of 2024 compared to the first quarter of 2023, due to a slightly higher volume of sold loans and higher margins on sales. For the first quarter of 2024, total mortgage production was $106.3 million, which decreased by 34.3% from the first quarter of 2023. For the three months ended March 31, 2024, $48.4 million in mortgages were sold into the secondary market as compared to $39.9 million in the comparable 2023 period. Included in mortgage banking income above are losses of $0.1 million and gains of $28 thousand from the fair value adjustments on mortgage loan commitments and related derivatives for the three months ended March 31, 2024 and 2023, respectively. 39 NON-INTEREST EXPENSE TABLE 5. NON-INTEREST EXPENSE For the Three Months Ended March 31, (unaudited, dollars in thousands) 2024 2023 $ Change % Change Salaries and wages $ 42,997 $ 41,952 $ 1,045 2.5 Employee benefits 12,184 12,060 124 1.0 Net occupancy 6,623 6,643 (20 ) (0.3 ) Equipment and software 10,008 9,063 945 10.4 Marketing 1,885 2,325 (440 ) (18.9 ) FDIC insurance 3,448 2,884 564 19.6 Amortization of intangible assets 2,092 2,301 (209 ) (9.1 ) Restructuring and merger-related expenses — 3,153 (3,153 ) (100.0 ) Professional fees 5,002 3,169 1,833 57.8 Franchise and other miscellaneous taxes 3,162 2,897 265 9.1 ATM and electronic banking interchange expenses 1,535 1,627 (92 ) (5.7 ) Communications 1,263 1,430 (167 ) (11.7 ) Other real estate owned and foreclosure expenses 146 94 52 55.3 Postage, supplies and other 6,846 6,527 319 4.9 Total non-interest expense $ 97,191 $ 96,125 $ 1,066 1.1 Non-interest expense in the first quarter of 2024 increased $1.1 million or 1.1% as compared to the same quarter in 2023, primarily from a $1.0 million increase in salaries and wages, a $0.9 million increase in equipment and software, a $1.8 million increase in professional fees, and other smaller increases in other expense line items. This is partially offset by a $3.2 million decrease in restructuring and merger-related expenses. Excluding restructuring and merger-related expenses, non-interest expense increased $4.2 million or 4.5% from the first quarter of 2023 to the first quarter of 2024. Salaries and wages increased $1.0 million or 2.5% in the first quarter of 2024 as compared to the first quarter of 2023 due to normal annual merit increases and new revenue-producing hires, mainly commercial lenders, and was partially offset by efficiency improvements in the mortgage and branch staffing models. These improvements led to a decrease in the full time equivalent employee count from the first quarter of 2023. Salaries and wages increases were also slightly offset by a reduction in residential lending commissions and bonus expense in the first quarter of 2024. Equipment and software costs increased $0.9 million or 10.4% in the first quarter of 2024 as compared to the first quarter of 2023, due primarily to general inflationary cost increases for existing service agreements as well as the planned upgrade of Wesbanco's ATM fleet with newer technology. Professional fees increased $1.8 million or 57.8% from the first quarter of 2023 to the first quarter of 2024, due particularly to increases in loan origination fees, audit fees, consulting fees and legal fees. There were no restructuring and merger-related expenses in the first quarter of 2024, as compared to $3.2 million in the first quarter of 2023. These expenses in 2023 consisted of fixed asset writedowns and lease termination expenses associated with the closure of branches and back-office buildings as a result of the continued execution of the branch optimization strategy. 40 INCOME TAXES The provision for income taxes was $7.7 million for the three months ended March 31, 2024, which is a $2.2 million decrease compared to the provision for the three months ended March 31, 2023. The decrease in the provision for income taxes is due to a decrease in pre-tax income from the prior year period resulting in a decrease in the effective tax rate from 19.0% in the first three months of 2023 to 17.7% in the first three months of 2024. FINANCIAL CONDITION Total assets increased 0.3%, while shareholders' equity increased 0.2% at March 31, 2024 as compared to December 31, 2023. Total securities decreased $83.8 million or 2.5% from December 31, 2023 to March 31, 2024, as investment runoff was used to fund loan growth. Total portfolio loans were $11.9 billion, which increased $1.0 billion or 9.0% year over year driven by strong performance from our commercial and residential lending teams. Deposits increased $328.1 million, or 2.5% from December 31, 2023, reflecting the benefit of deposit gathering and retention efforts by our retail and commercial teams. The composition of total deposits continues to have some mix shift, reflecting the impact of the significant increase in the federal funds rate; however, total demand deposits continue to represent 55% of total deposits, with the non-interest bearing component representing 29%, which is consistent with the percentage range prior to the pandemic. The overall decrease in transaction-based accounts is primarily attributable to customers' preferences as deposit rates have risen in the current market environment. 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. Total borrowings decreased $282.9 million or 16.3% during the first three months of 2024, which was primarily due to an increase in deposits providing additional liquidity used to pay off maturing borrowings. Shareholders' equity increased $5.3 million or 0.2% from December 31, 2023 to March 31, 2024 as net income exceeded dividends declared for the period. 41 SECURITIES TABLE 6. COMPOSITION OF SECURITIES (1) March 31, December 31, (unaudited, dollars in thousands) 2024 2023 Change ($) Change (%) Equity securities (at fair value) $ 13,074 $ 12,320 $ 754 6.1 Available-for-sale debt securities (at fair value) U.S. Government sponsored entities and agencies 201,709 208,366 (6,657 ) (3.2 ) Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies 1,572,619 1,629,684 (57,065 ) (3.5 ) Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies 259,847 268,307 (8,460 ) (3.2 ) Obligations of states and political subdivisions 73,287 76,125 (2,838 ) (3.7 ) Corporate debt securities 11,810 11,847 (37 ) (0.3 ) Total available-for-sale debt securities $ 2,119,272 $ 2,194,329 $ (75,057 ) (3.4 ) Held-to-maturity debt securities (at amortized cost) U.S. Government sponsored entities and agencies $ 3,533 $ 3,587 $ (54 ) (1.5 ) Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies 37,408 38,893 (1,485 ) (3.8 ) Obligations of states and political subdivisions 1,128,828 1,136,779 (7,951 ) (0.7 ) Corporate debt securities 20,241 20,268 (27 ) (0.1 ) Total held-to-maturity debt securities 1,190,010 1,199,527 (9,517 ) (0.8 ) Total securities $ 3,322,356 $ 3,406,176 $ (83,820 ) (2.5 ) Available-for-sale and equity securities: Weighted average yield at the respective period end (2) 2.32 % 2.31 % As a % of total securities 64.2 % 64.8 % Weighted average life (in years) 6.8 6.8 Held-to-maturity securities: Weighted average yield at the respective period end (2) 2.96 % 2.97 % As a % of total securities 35.8 % 35.2 % Weighted average life (in years) 8.8 8.7 Total securities: Weighted average yield at the respective period end (2) 2.53 % 2.52 % As a % of total securities 100.0 % 100.0 % Weighted average life (in years) 7.5 7.4 (1) At March 31, 2024 and December 31, 2023, 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, decreased by $83.8 million or 2.5% from December 31, 2023 to March 31, 2024. Through the first three months of the year, the available-for-sale portfolio decreased by $75.1 million or 3.4%, primarily due to $60.3 million in paydowns, $4.0 million in maturities and calls and an increase of $11.6 million in unrealized losses. The held-to-maturity portfolio decreased by $9.5 million or 0.8% due primarily to maturities and calls of municipal securities. The weighted average yield of the portfolio increased 1 basis point from 2.52% at December 31, 2023 to 2.53% at March 31, 2024, primarily due to increases in the indices tied to variable rate securities. Total gross unrealized securities losses increased $18.2 million from $438.3 million at December 31, 2023 to $456.5 million at March 31, 2024. The increase in unrealized losses from December 31, 2023 was due to an increase in market rates in 2024 to date, causing market prices to decrease. Wesbanco believes that none of the unrealized losses on available-for-sale securities at March 31, 2024 require an allowance for credit losses. Please refer to Note 3, “Securities,” of the Consolidated Financial Statements for additional information. Wesbanco does not have any investments in private mortgage-backed securities or those that are collateralized by sub-prime mortgages, nor does Wesbanco have any exposure to collateralized debt obligations or government-sponsored enterprise preferred stocks. Net unrealized losses on available-for-sale securities included in accumulated other comprehensive income, net of tax, as of March 31, 2024 and December 31, 2023 were $241.4 million and $233.2 million, respectively. These net unrealized pre-tax losses represent temporary fluctuations resulting from changes in market rates in relation to fixed yields in the available-for-sale portfolio, and on an after-tax basis are accounted for as an adjustment to other comprehensive income in shareholders’ equity. Net unrealized pre-tax losses in the held-to-maturity portfolio, which are not accounted for in other comprehensive income, were $137.6 million at March 31, 2024, compared to $130.4 million at December 31, 2023. With approximately 35.8% 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. 42 Equity securities, of which a portion consists of investments in various mutual funds held in grantor trusts formed in connection with a key officer and director deferred compensation plan, are recorded at fair value. Gains and losses due to fair value fluctuations on equity securities are included in net securities gains or losses. For those equity securities relating to the key officer and director deferred compensation plan, the corresponding change in the obligation to the employee is recognized in employee benefits expense. The corporate and municipal bonds in Wesbanco’s held-to-maturity debt portfolio are analyzed quarterly to determine if an allowance for current expected credit losses is warranted. Wesbanco uses a database of historical financials of all corporate and municipal issuers and actual historic default and recovery rates on rated and non-rated transactions to estimate expected credit losses on an individual security basis. The expected credit losses are adjusted quarterly and are recorded in an allowance for expected credit losses on the balance sheet, which is deducted from the amortized cost basis of the held-to-maturity portfolio as a contra asset. The losses are recorded on the consolidated income statement in the provision for credit losses. Accrued interest receivable on held-to-maturity securities, which was $8.6 million and $8.8 million as of March 31, 2024 and December 31, 2023, respectively, is excluded from the estimate of credit losses. Held-to-maturity investments in U.S. Government sponsored entities and agencies as well as mortgage-backed securities and collateralized mortgage obligations, which are all either issued by a direct governmental entity or a government-sponsored entity, have no historical evidence supporting expected credit losses; therefore, Wesbanco has estimated these losses at zero, and will monitor this assumption in the future for any economic or governmental policies that could affect this assumption. 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. 43 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 that increase the risk of default and the potential loss in the event of default, to understand the impact on the Bank’s earnings and capital. Commercial loan risk grades are determined based on an evaluation of the relevant characteristics of each loan, assigned at inception and adjusted thereafter at any time to reflect changes in the risk profile throughout the life of each loan. The primary factors used to determine the risk grade are the sufficiency, reliability and sustainability of the primary source of repayment and overall financial strength of the borrower. The rating system more heavily weights the debt service coverage, leverage and loan-to-value factors to derive the risk grade. Other factors that are considered at a lesser weighting include management, industry or property-type risks, payment history, collateral and personal guarantees. TABLE 10. COMPOSITION OF LOANS (1) March 31, 2024 December 31, 2023 (unaudited, dollars in thousands) Amount % of Loans Amount % of Loans Commercial real estate: Land and construction $ 1,087,649 9.2 $ 1,055,865 9.1 Improved property 5,667,284 47.6 5,509,583 47.3 Total commercial real estate 6,754,933 56.8 6,565,448 56.4 Commercial and industrial 1,683,172 14.2 1,670,659 14.3 Residential real estate 2,469,357 20.8 2,438,574 20.9 Home equity 740,973 6.2 734,219 6.3 Consumer 224,732 1.9 229,561 2.0 Total portfolio loans 11,873,167 99.9 11,638,461 99.9 Loans held for sale 12,472 0.1 16,354 0.1 Total loans $ 11,885,639 100.0 $ 11,654,815 100.0 (1) Loans are presented gross of the allowance for loan credit losses – loans and net of unearned income, credit valuation adjustments, and unamortized net deferred loan fee income and loan origination costs. Total portfolio loans increased $234.7 million or 2.0% from December 31, 2023, and have increased $1.0 billion or 9.0% over the past twelve months. The increase over the last twelve months was driven by a 48.8% growth in land and construction loans due to increased originations. Originations have outpaced repayments in several loan categories, leading to increases of 10.7% in commercial and industrial loans, 9.7% in residential real estate, 7.1% in home equity loans, and 3.7% in improved property loans. Consumer loans have decreased slightly at 1.3%. Total loan commitments of $5.0 billion, including loans approved but not closed, increased $256.7 million or 5.4% from December 31, 2023 due primarily to increased loans approved but not closed. The average line utilization percentage for the commercial portfolio was 34.1% for the three months ended March 31, 2024 compared to 31.9% for the three months ended December 31, 2023. 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, 2024 and December 31, 2023 are originated residential mortgages that are committed to be sold into the secondary market. Loans held for sale decreased by $3.9 million or 23.7% from December 31, 2023 due to fewer originations in the first quarter of 2024. 44 NON-PERFORMING ASSETS AND LOANS PAST DUE 90 DAYS OR MORE Non-performing assets consist of non-accrual loans, other real estate acquired through or in lieu of foreclosure, bank premises held for sale, and repossessed automobiles acquired to satisfy defaulted consumer loans. TABLE 11. NON-PERFORMING ASSETS (unaudited, dollars in thousands) March 31, 2024 December 31, 2023 Non-performing loans: Commercial real estate - land and construction $ 210 $ — Commercial real estate - improved property 13,523 9,557 Commercial and industrial 2,765 1,841 Residential real estate 11,679 10,582 Home equity 4,669 4,777 Consumer 73 51 Total non-performing loans $ 32,919 $ 26,808 Other real estate owned and repossessed assets 1,474 1,497 Total non-performing assets $ 34,393 $ 28,305 Non-performing loans/total portfolio loans 0.28 % 0.23 % Non-performing assets/total assets 0.19 % 0.16 % Non-performing assets/total portfolio loans, other real estate and repossessed assets 0.29 % 0.24 % As of the adoption of ASU 2022-02, non-performing loans consist only of non-accrual loans. Non-performing loans increased $6.1 million or 22.8% from December 31, 2023. (Please see the Notes to the Consolidated Financial Statements for additional discussion). The following table presents past due and accruing loans excluding non-accruals: TABLE 12. PAST DUE AND ACCRUING LOANS EXCLUDING NON-ACCRUALS (unaudited, dollars in thousands) March 31, 2024 December 31, 2023 Loans past due 90 days or more: Commercial real estate - land and construction $ — $ — Commercial real estate - improved property 408 1,899 Commercial and industrial 135 3,184 Residential real estate 3,151 2,602 Home equity 1,223 1,407 Consumer 491 546 Total loans past due 90 days or more 5,408 9,638 Loans past due 30 to 89 days: Commercial real estate - land and construction — — Commercial real estate - improved property 4,019 7,476 Commercial and industrial 1,672 1,834 Residential real estate 2,395 3,093 Home equity 6,538 5,461 Consumer 3,891 5,011 Total loans past due 30 to 89 days 18,515 22,875 Total loans 30 days or more past due $ 23,923 $ 32,513 Loans past due 90 days or more and accruing to total portfolio loans 0.05 % 0.08 % Loans past due 30-89 days and accruing to total portfolio loans 0.16 % 0.20 % Loans past due 30 days or more and accruing interest, excluding non-accruals, decreased $8.6 million or 26.4% from December 31, 2023. 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 decreased $4.2 million and represented 0.05% of total portfolio loans at March 31, 2024 and 0.08% at December 31, 2023. Loans 30 to 89 days past due represented 0.16% of total portfolio loans at March 31, 2024 and 0.20% at December 31, 2023. 45 ALLOWANCE FOR CREDIT LOSSES - LOANS AND LOAN COMMITMENTS As of March 31, 2024, the total allowance for credit losses – loans and commitments was $137.4 million, of which $129.2 million related to loans and $8.2 million related to loan commitments. The allowance for credit losses – loans was 1.09% of total portfolio loans as of March 31, 2024, compared to 1.12% as of December 31, 2023. Excluded from the allowance for credit losses and related coverage ratio are fair market value adjustments on previously acquired loans representing 0.11% of total portfolio loans at March 31, 2024. The allowance for credit losses – loans individually-evaluated decreased $0.2 million from December 31, 2023 to March 31, 2024. The population of individually-evaluated loans consisted of seven loans, with a total outstanding loan balance of $37.1 million. The allowance for loans collectively-evaluated decreased from December 31, 2023 to March 31, 2024 by $1.3 million. The allowance for credit losses- loan commitments was $8.2 million at March 31, 2024 as compared to $8.6 million as of December 31, 2023, 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 probability of default (“PD”)/ loss given default (“LGD”), which is then discounted to net present value. PD is the probability the asset will default within a given time frame and LGD is the percentage of the asset not expected to be collected due to default. The primary macroeconomic drivers of the quantitative model include forecasts of national unemployment and interest rates, as well as modeling adjustments for changes in prepayment speeds, loan risk grades, portfolio mix, concentrations and loan growth. For the calculation as of March 31, 2024, the forecast was based upon a probability weighted approach which is designed to incorporate loss projections from a baseline, upside and downside economy. Due to the nonlinearity of credit losses to the economy, the asymmetry is best captured by evaluating multiple economic scenarios through a probability weighted approach. At quarter-end, national unemployment was projected to be 4.3%, and subsequently increase to an average of 4.7% over the remainder of the forecast period. Quarterly changes to the portfolio mix caused the allowance for credit losses - loans to decrease from December 31, 2023 to March 31, 2024 by $1.5 million. Criticized and classified loans were 2.30% of total portfolio loans, or $273.4 million, at March 31, 2024, increasing from 2.22% of total portfolio loans at December 31, 2023. See Note 4, “Loans and the Allowance for Credit Losses” for more information. Table 13 summarizes the allocation of the allowance for credit losses to each category of the loan portfolio. TABLE 13. ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES – LOANS AND LOAN COMMITMENTS (unaudited, dollars in thousands) March 31, 2024 Percent of Total December 31, 2023 Percent of Total Allowance for credit losses - loans: Commercial real estate - land and construction $ 7,168 5.2 $ 7,123 5.1 Commercial real estate - improved property 56,104 40.9 59,351 42.7 Commercial and industrial 38,041 27.7 36,644 26.3 Residential real estate 21,767 15.8 21,218 15.2 Home equity 1,024 0.7 1,017 0.7 Consumer 3,851 2.8 3,956 2.8 Deposit account overdrafts 1,235 0.9 1,366 1.0 Total allowance for credit losses - loans $ 129,190 94.0 $ 130,675 93.8 Allowance for credit losses - loan commitments: Commercial real estate - land and construction $ 6,326 4.7 $ 6,894 5.0 Commercial real estate - improved property — — — — Commercial and industrial 553 0.4 429 0.3 Residential real estate 1,285 0.9 1,276 0.9 Home equity 11 0.0 5 0.0 Consumer — — — — Total allowance for credit losses - loan commitments 8,175 6.0 8,604 6.2 Total allowance for credit losses - loans and loan commitments $ 137,365 100.0 $ 139,279 100.0 Although the allowance for credit losses is allocated as described in Table 13, the total allowance is available to absorb actual losses in any category of the loan portfolio. However, differences between management’s estimation of probable losses and actual net charge-offs in subsequent periods for any category may necessitate future adjustments to the allowance for credit losses applicable to the category. Management believes the allowance for credit losses is appropriate to absorb expected losses at March 31, 2024. 46 DEPOSITS TABLE 14. DEPOSITS (unaudited, dollars in thousands) March 31, 2024 December 31, 2023 $ Change % Change Deposits Non-interest bearing demand $ 3,938,610 $ 3,962,592 $ (23,982 ) (0.6 ) Interest bearing demand 3,529,691 3,463,443 66,248 1.9 Money market 2,189,769 2,017,713 172,056 8.5 Savings deposits 2,499,466 2,493,254 6,212 0.2 Certificates of deposit 1,339,237 1,231,702 107,535 8.7 Total deposits $ 13,496,773 $ 13,168,704 $ 328,069 2.5 Deposits, which represent Wesbanco’s primary source of funds, are offered in various account forms at various rates through Wesbanco’s 192 financial centers. The FDIC insures deposits up to $250,000 per account owner. Total deposits increased $328.1 million or 2.5% during the first three months of 2024. Money market deposit accounts increased 8.5%, while demand deposits and savings deposits increased 0.6% and 0.2%, respectively. The increase in deposits reflects the benefit of deposit gathering and retention efforts by both retail and commercial teams. The composition of total deposits continues to have a shift in the mix, reflecting the impact of the significant increase in the federal funds rate. Deposit balances were also impacted by bonus and royalty payments for Marcellus and Utica shale gas payments from energy companies in Wesbanco’s southwestern Pennsylvania, eastern Ohio and northern West Virginia markets. In addition, Wesbanco also participates in the Insured Cash Sweep (ICS®) deposit program. ICS® reciprocal balances totaled $1.0 billion at both March 31, 2024 and December 31, 2023. In addition, ICS® one-way buys totaled $200.6 million at both March 31, 2024 and December 31, 2023. Certificates of deposit increased 8.7% from December 31, 2023 to March 31, 2024. 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 $51.4 million in outstanding balances at March 31, 2024, none of which represented one-way buys, compared to $48.4 million in total outstanding balances, of which $10.6 million represented one-way buys, at December 31, 2023. Certificates of deposit greater than $250,000 were approximately $252.1 million at March 31, 2024 compared to $223.4 million at December 31, 2023. Certificates of deposit totaling approximately $1.0 billion at March 31, 2024 with a cost of 3.65% are scheduled to mature within the next 12 months. From time to time, the Bank may offer special promotions or match competitor rates on certain certificates of deposit maturities and savings products based on competition, sales strategies, liquidity needs and wholesale borrowing costs. BORROWINGS TABLE 15. BORROWINGS (unaudited, dollars in thousands) March 31, 2024 December 31, 2023 $ Change % Change Federal Home Loan Bank Borrowings $ 1,100,000 $ 1,350,000 $ (250,000 ) (18.5 ) Other short-term borrowings 72,935 105,893 (32,958 ) (31.1 ) Subordinated debt and junior subordinated debt 279,136 279,078 58 0.0 Total $ 1,452,071 $ 1,734,971 $ (282,900 ) (16.3 ) While borrowings are a significant source of funding for Wesbanco, they are less significant as compared to total deposits. FHLB borrowings decreased $250.0 million from December 31, 2023 to March 31, 2024, as $1.1 billion in maturities were partially offset by $0.8 billion in new advances. The average cost of maturing FHLB advances was 5.63% during the first three months of 2024, compared to an average cost of 5.65% for new borrowings during the first three months of 2024. Other short-term borrowings, which may consist of federal funds purchased, repurchase agreements and overnight sweep checking accounts were $72.9 million at March 31, 2024, compared to $105.9 million at December 31, 2023. There were no outstanding federal funds purchased at either March 31, 2024 or December 31, 2023. 47 CAPITAL RESOURCES Shareholders' equity increased $5.3 million or 0.2% from December 31, 2023, to $2.5 billion at March 31, 2024. The increase resulted from net income during the current three-month period of $35.7 million, exceeding the declaration of common and preferred shareholder dividends totaling $21.4 million and $2.5 million, respectively, and was partially offset by an $8.2 million other comprehensive loss for the three months ended March 31, 2024. Wesbanco also increased its quarterly dividend rate $0.01 per quarter to $0.36 per share in November 2023, representing a 2.9% increase over the prior quarterly rate and a cumulative 157% increase since 2010. Wesbanco did not purchase any shares of its common stock on the open market during the three-month period ended March 31, 2024 under the current share repurchase authorization. At March 31, 2024, the remaining shares authorized to be purchased under the last approved repurchase plan totaled 1,019,136 shares. Regulatory guidelines require bank holding companies and commercial banks to maintain certain minimum capital ratios and define companies as “well capitalized” that sufficiently exceed the minimum ratios. At March 31, 2024, 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, 2024, under FDIC regulations, Wesbanco could receive, without prior regulatory approval, a dividend of approximately $138.7 million from the Bank. On March 26, 2020, regulators issued interim financial rule (“IFR”) “Regulatory Capital Rule: Revised Transition of the Current Expected Losses Methodology for Allowances” in response to the disrupted economic activity from the spread of COVID-19. The IFR provides financial institutions that adopt CECL during 2020 with the option to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided by the initial two-year delay (“five-year transition”). Wesbanco adopted CECL effective January 1, 2020 and elected to implement the five-year transition. Regulatory capital levels without the capital benefit at March 31, 2024 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 five to seven 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, 2024 December 31, 2023 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 % $ 1,653,469 9.79 % $ 675,741 $ 1,647,759 9.87 % $ 667,914 Common equity Tier 1 4.50 % 6.50 % 1,508,985 10.84 % 626,613 1,503,275 10.99 % 615,420 Tier 1 capital to risk-weighted assets 6.00 % 8.00 % 1,653,469 11.87 % 835,483 1,647,759 12.05 % 820,560 Total capital to risk-weighted assets 8.00 % 10.00 % 2,055,610 14.76 % 1,113,978 2,039,252 14.91 % 1,094,080 Wesbanco Bank, Inc. Tier 1 leverage 4.00 % 5.00 % $ 1,678,160 9.95 % $ 674,541 $ 1,655,886 9.93 % $ 667,039 Common equity Tier 1 4.50 % 6.50 % 1,678,160 12.08 % 625,244 1,655,886 12.13 % 614,232 Tier 1 capital to risk-weighted assets 6.00 % 8.00 % 1,678,160 12.08 % 833,659 1,655,886 12.13 % 818,976 Total capital to risk-weighted assets 8.00 % 10.00 % 1,803,359 12.98 % 1,111,545 1,770,417 12.97 % 1,091,968 (1) Minimum requirements to remain adequately capitalized. (2) Well-capitalized under prompt corrective action regulations. 48 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”) with direct oversight from the Board of Directors ("BOD"). Wesbanco determines the degree of required liquidity by the relationship of total holdings of liquid assets to potential funding needs 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 managing Wesbanco’s investment portfolio. 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 66.1% at March 31, 2024 and deposit balances funded 75.9% of assets. The following table lists the sources of liquidity from assets at March 31, 2024 expected within the next year: (unaudited, in thousands) Cash and cash equivalents $ 509,669 Securities with a maturity date within the next year and callable securities 295,481 Projected payments and prepayments on mortgage-backed securities and collateralized mortgage obligations (1) 239,705 Loans held for sale 12,472 Accruing loans scheduled to mature 1,364,503 Normal loan repayments 1,394,263 Total sources of liquidity expected within the next year $ 3,816,093 (1) Projected prepayments are based on current prepayment speeds. Deposit cash flows are another principal factor affecting overall Wesbanco liquidity. Deposits totaled $13.5 billion at March 31, 2024. Deposit cash 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 $1.0 billion at March 31, 2024, with a weighted average cost of 3.65%, which includes jumbo regular certificates of deposit totaling $513.1 million with a weighted-average cost of 4.16%, and jumbo CDARS® certificates of deposit of $43.3 million with a weighted-average cost of 3.88%. Wesbanco had no brokered one-way buys at March 31, 2024. Uninsured deposits, as reported for regulatory purposes, totaled $4.2 billion at March 31, 2024, or 31% of total deposits. Uninsured deposits include $1.5 billion of public funds deposits that are over the FDIC-insured limit. Wesbanco secures these public funds deposits by pledging investment securities with a market value at or above the deposit balance. Excluding these public funds, at March 31, 2024, uninsured deposits were $2.6 billion, or 20% of total deposits. Wesbanco maintains a line of credit with the FHLB as an additional funding source. Available credit with the FHLB approximated $3.7 billion and $3.4 billion at March 31, 2024 and December 31, 2023, 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 unpledged securities. Wesbanco can also use this line of credit for pledging collateral to cover public funds deposits, as an alternative to pledging securities from the investment portfolio. At March 31, 2024, the Bank had unpledged available-for-sale securities with an estimated fair value of $205.1 million, or 9.9% of the total available-for-sale portfolio. A portion of these securities could be sold for additional liquidity, or such securities could be pledged to secure additional FHLB borrowings. Approximately 62% of the portfolio is pledged to public deposit customers, as public deposit balances have increased significantly through the several acquisitions made since 2015. As a result of this growth, Wesbanco is monitoring exposure to public funds deposits in relation to pledging requirements and providing insured cash sweep ("ICS") deposits via IntraFi® as a solution for a portion of new and existing public fund depositors. In addition, at March 31, 2024, the Bank had unpledged held-to-maturity securities with an estimated fair value of $786.5 million. Approximately 96%, or $755.7 million of these securities are municipal securities, which can only be pledged in limited circumstances. Generally, these securities cannot be sold without tainting the remainder of the held-to-maturity portfolio. If tainting occurs, all remaining securities with the held-to-maturity designation would be required to be reclassified as available-for-sale, and the held-to-maturity designation would not be available to Wesbanco for a period of time. Wesbanco participates in the Federal Reserve Bank’s Borrower-in-Custody Program (“BIC”) whereby Wesbanco pledges certain consumer loans as collateral for borrowings. Wesbanco did not have any BIC borrowings outstanding at March 31, 2024. Alternative funding sources may include the utilization of existing overnight lines of credit with third party banks totaling $235.0 million, none of which was outstanding at March 31, 2024, 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. In addition, in March 2023, the Federal Reserve announced that it would make available additional funding to eligible depository institutions through the creation of a new Bank Term Funding Program ("BTFP"). The BTFP would offer loans of up to one year in length to eligible depository institutions that pledge U.S. Treasuries, agency debt and mortgage-backed securities, or other qualifying assets as collateral. As of March 31, 2024, Wesbanco has not utilized the BTFP for funding, but does have $177.1 million in par value of qualifying investment securities that could be used to access funds from the program. 49 Other short-term borrowings of $72.9 million at March 31, 2024 consisted of repurchase agreements or overnight sweep checking accounts for large commercial customers. Other short-term borrowings may also include federal funds purchased using the Federal Reserve's discount window or lines of credit with third party banks noted above. 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 and $234.6 million in cash on hand. 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, 2024, under FDIC and State of West Virginia regulations, Wesbanco could receive, without prior regulatory approval, dividends of approximately $138.7 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 $5.0 billion and $4.7 billion at March 31, 2024 and December 31, 2023, respectively. On a historical basis, only a portion of these commitments will result in an outflow of funds. Please refer to Note 11, “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. 50 ITEM 3. QUANTITATIVE AND QUALITATI VE 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 ALCO with direct oversight from the BOD is to maximize net interest income within established policy parameters. This objective is accomplished through the management of balance sheet composition and duration, market risk exposures arising from changing economic conditions as well as 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 Wesbanco's interest rate risk profile. 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, because variable rate assets and liabilities differ in the timing and/or the magnitude of rate changes, or due to the shape of the yield curve shifting over time. 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 composition and market interest rates change. The key assumptions and strategies employed are analyzed, reviewed and documented at least quarterly by the ALCO as well as provided to the Board. 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 internally-developed models derived from institution specific data, current market rates and economic forecasts, and are internally back-tested and periodically reviewed by an independent 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 (otherwise known as a "static" balance sheet) and also assumes that a particular change in interest rates is reflected immediately and parallel across all tenors of 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, particularly in times of stress. In addition, this analysis does not consider actions that management might employ in the future 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 - 400 basis points across the entire yield curve, as compared to a flat 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% - 20%, 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, 2024 and December 31, 2023, assuming the above-noted interest rate changes, as compared to a base model. 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, 2024 December 31, 2023 Guidelines +200 4.5% 3.3% (10.0%) +100 3.6% 3.0% (7.5%) -100 (3.6%) (3.0%) (7.5%) -200 (8.1%) (7.0%) (10.0%) -300 (13.1%) (11.5%) (15.0%) -400 (18.1%) (16.3%) (20.0%) Net interest income sensitivity changes are due to the impact of the current rate and yield curve environment on base case net interest income and the related calculation of immediate 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 periodic updates of various modeling assumptions. Generally, interest bearing non-maturity deposit betas utilized in modeling have increased to 40% in up shocks and 30% in down shocks as the banking industry continues to remain in a high interest rate environment where funding cost pressures have persisted over the past year. Deposit betas, decay rates and loan prepayment speeds are adjusted periodically, but no less than annually 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, customer requests for negotiated rates, 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 not listed. In addition to the aforementioned parallel rate shock earnings sensitivity simulation model, the ALCO also reviews a “dynamic” forecast scenario to project Wesbanco's "most likely" net interest income over a rolling two-year time period. This forecast is updated at least quarterly, incorporating 51 revisions and updated assumptions into the model for estimated loan and deposit growth, expected balance sheet re-mixing strategies, changes in forecasted interest rates for various indices and yield curves, competitive market spreads for various products and other assumptions not listed. 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, 2024 and December 31, 2023. Changes in EVE sensitivity since year-end 2023 relate to the change in market interest rates and their impact upon the fair values of earning assets and costing liabilities. Immediate Change in Percentage Change in Interest Rates Economic Value of Equity from Base over One Year ALCO (basis points) March 31, 2024 December 31, 2023 Guidelines +200 2.7% 0.3% (20.0%) +100 4.1% 2.6% (10.0%) -100 (3.4%) (2.8%) (10.0%) -200 (8.9%) (8.0%) (20.0%) -300 (17.4%) (16.5%) (30.0%) -400 (29.1%) (28.0%) (40.0%) 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; • adjusting the percentage of sales of longer-term residential mortgage loan production into the secondary market; • managing rates on interest bearing deposits and 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. 52