WESBANCO INC

Previous wording

Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Wesbanco for the three and six months ended June 30, 2024. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto.

Current wording

Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Wesbanco for the three and nine months ended September 30, 2024. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto.

Previous wording

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”) including Wesbanco's Form 10-Q for the quarter ending March 31, 2024, 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 and in Part II, Item 1A of this Form 10-Q. Such statements are subject to important factors that could cause actual results to differ materially from those contemplated by such statements, including, without limitation, that the proposed merger with Premier Financial Corporation (“Premier”) may not close when expected, that the businesses of WesBanco and Premier may not be integrated successfully or such integration may take longer to accomplish than expected; the expected cost savings and any revenue synergies from the merger of WesBanco and Premier may not be fully realized within the expected timeframes; disruption from the proposed merger of WesBanco and Premier may make it more difficult to maintain relationships with clients, associates, or suppliers; the required governmental approvals of the proposed Merger may not be obtained on the expected terms and schedule; Premier’s shareholders and/or the Company’s shareholders may not approve the proposed Merger; the shareholders of the Company may not approve the issuance of shares of the Company’s common stock in connection with the Merger; 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-securi…

Excerpt shortened here; the source contains the full paragraph.

Current wording

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”) including Wesbanco's Form 10-Q for the quarters ending March 31, 2024 and June 30, 2024, 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 and in Part II, Item 1A of this Form 10-Q. Such statements are subject to important factors that could cause actual results to differ materially from those contemplated by such statements, including, without limitation, that the proposed merger with Premier Financial Corporation (“Premier”) may not close when expected, that the businesses of Wesbanco and Premier may not be integrated successfully or such integration may take longer to accomplish than expected; the expected cost savings and any revenue synergies from the merger of Wesbanco and Premier may not be fully realized within the expected timeframes; disruption from the proposed merger of Wesbanco and Premier may make it more difficult to maintain relationships with clients, associates, or suppliers; the required governmental approvals of the proposed Merger may not be obtained on the expected terms and schedule; Premier’s shareholders and/or the Company’s shareholders may not approve the proposed Merger; the shareholders of the Company may not approve the issuance of shares of the Company’s common stock in connection with the Merger; 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 pa…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Wesbanco is a multi-state bank holding company operating through 192 branches and 182 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.

Current wording

Wesbanco is a multi-state bank holding company operating through 192 branches and 186 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.

Previous wording

On July 25, 2024, Wesbanco, Inc., Wesbanco Bank, Inc., Premier Financial Corp. (“Premier Financial”) and Premier Bank entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) providing for, among other things, the merger of Premier Financial with and into Wesbanco, Inc. (the “Merger”) upon the terms and subject to the conditions set forth in the Merger Agreement. For additional information regarding the Merger Agreement and the transactions contemplated thereby, see Note 13, “Subsequent Events” for more information.

Current wording

On July 25, 2024, Wesbanco, Inc., Wesbanco Bank, Inc., Premier Financial Corp. (“Premier”) and Premier Bank entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) providing for, among other things, the merger of Premier Financial with and into Wesbanco, Inc. (the “Merger”) and the merger of Premier Bank with and into Wesbanco Bank, Inc. upon the terms and subject to the conditions set forth in the Merger Agreement. For additional information regarding the Merger Agreement and the transactions contemplated thereby, see Note 2, “Mergers and Acquisitions” for more information.

Previous wording

Net income available to common shareholders for the second quarter of 2024 was $26.4 million, with diluted earnings per share of $0.44, compared to $42.3 million or $0.71 per diluted share, for the second quarter of 2023. For the six months ended June 30, 2024, net income available to common shareholders was $59.5 million, with diluted earnings per share of $1.00, compared to $82.2 million or $1.38 per diluted share, for the six months ended June 30, 2023. As noted in the following table, net income available to common shareholders, excluding after-tax restructuring and merger-related expenses, for the six months ended June 30, 2024, was $62.5 million or $1.05 per diluted share, as compared to $84.7 million or $1.43 per diluted share in the prior year's second quarter (non-GAAP measures).

Current wording

Net income available to common shareholders for the third quarter of 2024 was $34.7 million, with earnings per share of $0.54, compared to $34.3 million or $0.58 per share, for the third quarter of 2023. For the nine months ended September 30, 2024, net income available to common shareholders was $94.3 million, with earnings per share of $1.54, compared to $116.5 million or $1.96 per share, for the nine months ended September 30, 2023. As noted in the following table, net income available to common shareholders, excluding after-tax restructuring and merger-related expenses, for the nine months ended September 30, 2024, was $98.8 million or $1.61 per share, as compared to $119.5 million or $2.01 per share in the prior year's first nine months (non-GAAP measures).

Previous wording

Net interest income decreased $5.0 million or 4.1% in the second 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 23 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 major 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 52 basis points while the cost of interest bearing liabilities increased by 97 basis points from increasing deposit costs and higher cost wholesale borrowings. Average loan balances increased by 9.5% from the second quarter of 2023, mainly attributable to commercial loan demand, while average securities decreased by 9.2% over the same time period as investment maturities and calls were used to partially fund the loan growth. Average deposits increased 4.7% 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 second quarter 2024 net interest margin by two basis points, as compared to three basis points in the prior year period. For the six months ended June 30, 2024, net interest income decreased $15.3 million or 6.2% from the first six months of 2023 for similar reasons.

Current wording

Net interest income increased $3.5 million or 2.9% in the third quarter of 2024 compared to the same quarter of 2023, due to increases in earning asset yields and loan growth slightly outpacing increases in interest bearing liabilities. Over the same time period, the yield on earning assets increased by a total of 47 basis points while the cost of interest bearing liabilities increased by 69 basis points from increasing deposit costs and higher cost wholesale borrowings. Average loan balances increased by 9.6% from the third quarter of 2023, mainly attributable to commercial loan demand, while average securities decreased by 7.0% over the same time period as investment maturities and calls were used to partially fund the loan growth. Average deposits increased 5.0% 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 both the third quarter 2024 and third quarter 2023 net interest margin by two basis points. For the nine months ended September 30, 2024, net interest income decreased $11.9 million or 3.3% from the first nine months of 2023 due to the impact of rising rates on deposit and borrowing costs exceeding that of loan growth and earning asset yields on a year-to-date basis.

Previous wording

Loan growth, higher unemployment assumptions and a specific reserve for an individual C&I loan resulted in a provision for credit losses of $10.5 million in the second quarter of 2024, as compared to a provision of $3.0 million in the second quarter of 2023. Annualized net loan charge-offs, as a percentage of average portfolio loans, were 0.07% and 0.02% for the second quarter of 2024 and 2023, respectively.

Current wording

Loan growth and adjustments in regional macroeconomic factors and loan concentrations resulted in a provision for credit losses of $4.8 million in the third quarter of 2024, as compared to a provision of $6.3 million in the third quarter of 2023. Annualized net loan charge-offs, as a percentage of average portfolio loans, were 0.05% and 0.01% for the third quarters of 2024 and 2023, respectively.

Previous wording

For the second quarter of 2024, non-interest income decreased $0.5 million, or 1.5% compared to the second quarter of 2023, primarily due to decreases in net swap fee and valuation income, bank-owned life insurance and net gains on other real estate owned and other assets. The net swap fee and valuation income of $1.8 million in the second quarter of 2024 reflected $1.8 million of new swap fees and immaterial net fair value adjustments, as compared to $2.4 million in fees and $0.2 million in fair value adjustments, in the prior year second quarter. Net gains on other real estate owned and other assets decreased by $0.8 million compared to the second quarter of 2023 due to a $1.1 million refund received in the prior year quarter on an asset previously written off. Bank-owned life insurance income decreased from the second quarter of 2023 due to a reduction in mortality-related benefits received in the second quarter of 2024. Offsetting these decreases somewhat are increases in trust fees, service charges on deposits and mortgage banking income.

Current wording

For the third quarter of 2024, non-interest income decreased $1.3 million, or 4.1% compared to the third quarter of 2023, due to decreases in net swap fee and valuation income. The net swap fee and valuation loss of $0.6 million in the third quarter of 2024 reflected $1.1 million of new swap fees and ($1.7) million in net fair value adjustments, as compared to $2.5 million in fees and $1.4 million in net fair value adjustments, in the prior year third quarter. Slightly offsetting this decrease, trust fees increased $0.8 million from the third quarter of 2023, reflecting higher assets under management from organic growth and market value appreciation, and service charges on deposits increased $1.2 million from the third quarter of 2023, reflecting fee income from new products and services and increased general consumer spending.

Previous wording

Non-interest expense, excluding restructuring and merger-related expenses, increased in the second quarter of 2024 by $2.2 million, or 2.3%, to $98.6 million, compared to the second quarter of 2023, reflecting increased equipment and software expense, FDIC insurance expense and other operating expenses. Equipment and software expense increased $1.6 million in the second quarter of 2024 compared to the prior year second quarter reflecting the impact of prior year ATM upgrades, which were phased in throughout the prior year. FDIC insurance expense increased in the second quarter of 2024 by $0.7 million due to an increase in the minimum rate for all banks. Other operating expenses increased $1.8 million in the second quarter of 2024 from the second quarter of 2023 primarily due to higher costs and fees in support of loan growth and higher other miscellaneous expenses. Offsetting these increases somewhat are decreases in salaries and wages and employee benefits expense, primarily due to lower staffing levels as a result of efficiency improvements in the mortgage and branch staffing models.

Current wording

Non-interest expense, excluding restructuring and merger-related expenses, increased in the third quarter of 2024 by $1.9 million, or 2.0%, to $99.2 million, compared to the third quarter of 2023, reflecting increased equipment and software expense, FDIC insurance expense and other operating expenses. Equipment and software expense increased $1.0 million in the third quarter of 2024 compared to the prior year third quarter reflecting the impact of prior year ATM upgrades, which were phased in throughout the prior year. FDIC insurance expense increased in the third quarter of 2024 by $0.5 million due to an increase in the minimum rate for all banks. Other operating expenses increased $1.5 million in the third quarter of 2024 from the third quarter of 2023 primarily due to higher costs and fees in support of loan growth and higher other miscellaneous expenses. Offsetting these increases somewhat are decreases in salaries and wages and employee benefits expense, primarily due to lower staffing levels as a result of efficiency improvements in the mortgage and branch staffing models.

Previous wording

For the first half of 2024, the effective tax rate was 17.6% as compared to 17.9% for the first half of 2023, and the provision for income taxes decreased by $5.2 million over the same time period. The decrease in the provision for income taxes is due to the decrease in pre-tax income over the same period.

Current wording

For the first nine months of 2024, the effective tax rate was 17.3% as compared to 17.6% for the first nine months of 2023, and the provision for income taxes decreased by $5.2 million over the same time period. The decrease in the provision for income taxes and effective tax rate is due to the decrease in pre-tax income over the same period.

Previous wording

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 $5.0 million or 4.1% in the second quarter of 2024 compared to the second quarter of 2023 and $15.3 million or 6.2% in the first six months of 2024 as compared to the same period of 2023. This decrease was due to a 23 basis point decrease year over year in the net interest margin to 2.95% for the second quarter of 2024. The decrease in margin is due to higher funding costs and the associated remix from non-interest bearing deposits into higher tier money market and certificate of deposit accounts. Offsetting the net interest margin decrease somewhat, average portfolio loans increased by 9.5% in the second quarter of 2024 as compared to the second quarter of 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 second quarter of 2024 as compared to the second quarter of 2023, as approximately two basis points of accretion from prior acquisitions was included in the second quarter 2024 net interest margin as compared to three basis points in the 2023 second quarter net interest margin. Total average deposits increased by $601.8 million or 4.7% in the second quarter of 2024 as compared to the second quarter of 2023. The cost of interest bearing deposits increased by 117 basis points and the cost of total interest bearing liabilities increased by 97 basis points from the second quarter of 2023 to the second 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.

Current wording

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 increased $3.5 million or 2.9% in the third quarter of 2024 compared to the third quarter of 2023. The increase is due to an increase of average portfolio loans of 9.6% in the third quarter of 2024 as compared to the third quarter of 2023, due to strong new loan growth and strategic loan production office and lender hiring initiatives. Conversely, net interest income decreased $11.9 million or 3.3% in the first nine months of 2024 as compared to the same period of 2023. This decrease was due to a 25 basis point decrease year over year in the net interest margin to 2.94% for the first nine months of 2024. The decrease in margin is due to higher funding costs and the associated remix from non-interest bearing deposits into higher tier money market and certificate of deposit accounts. Total purchase accounting accretion was flat in the third quarter of 2024 as compared to the third quarter of 2023, as approximately two basis points of accretion from prior acquisitions was included in each quarter's net interest margin. Total average deposits increased by $654.4 million or 5.0% in the third quarter of 2024 as compared to the third quarter of 2023. The cost of interest bearing deposits increased by 84 basis points and the cost of total interest bearing liabilities increased by 69 basis points from the third quarter of 2023 to the third 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.

Previous wording

Interest income increased $26.9 million or 15.3% in the second quarter of 2024 compared to the same period of 2023 and $61.7 million or 18.3% in the first six months of 2024 compared to the same period of 2023. Average loan balances increased $1.0 billion or 9.5% in the second quarter of 2024 compared to the second quarter of 2023, while loan yields increased by 54 basis points during this same period to 5.85% 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 second quarter of 2024, average loans represented 75.0% of average earning assets, an increase from 71.1% in the second quarter of 2023. Average total securities balances decreased $368.6 million or 9.2% from the second quarter of 2023, and represented 22.5% of total earning assets in the second quarter of 2024. Taxable securities yields increased by six basis points in the second quarter of 2024 from the second quarter of 2023. Tax-exempt securities yields, which are the highest yields within total securities, increased three basis points from the second quarter of 2023.

Current wording

Interest income increased $30.1 million or 16.4% in the third quarter of 2024 compared to the same period of 2023 and $91.9 million or 17.7% in the first nine months of 2024 compared to the same period of 2023. Average loan balances increased $1.1 billion or 9.6% in the third quarter of 2024 compared to the third quarter of 2023, while loan yields increased by 47 basis points during this same period to 5.93% due to the previously mentioned rising rate environment and its effect on the repricing of portfolio 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 third quarter of 2024, average loans represented 75.1% of average earning assets, an increase from 72.5% in the third quarter of 2023. Average total securities balances decreased $269.9 million or 7.0% from the third quarter of 2023, and represented 21.9% of total earning assets in the third quarter of 2024. Taxable securities yields increased by 14 basis points in the third quarter of 2024 from the third quarter of 2023. Tax-exempt securities yields, which are the highest yields within total securities, increased two basis points from the third quarter of 2023.

Previous wording

Interest expense increased $31.9 million in the second quarter of 2024 and $77.1 million in the first half of 2024 as compared to the same periods in 2023, due to the timing of the prior year federal funds rate increases and their effect on the costs of deposits and borrowings. The cost of interest bearing liabilities increased by 97 basis points from the second quarter of 2023 to 3.12% in the second quarter of 2024. Average interest bearing deposits increased $1.1 billion or 12.5% from the second quarter of 2023. The rate on interest bearing deposits increased 117 basis points to 2.74% from the second 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 second quarter of 2023 to the second quarter of 2024 by $460.7 million or 10.5%, and were 29.1% of total average deposits at June 30, 2024, compared to 34.0% at June 30, 2023, reflecting customers' preferences in the previously mentioned interest rate environment. For the second quarter of 2024, Wesbanco's average loans to average deposits ratio was 89.4%, reflecting additional capacity to lend. The average balance of FHLB borrowings decreased $101.7 million from the second quarter of 2023 to the second quarter of 2024. The average balance of repurchase agreements and subordinated and junior subordinated debt balances remain virtually unchanged from the second quarter of 2023 to the second quarter of 2024.

Current wording

Interest expense increased $26.7 million in the third quarter of 2024 and $103.7 million in the first nine months of 2024 as compared to the same periods in 2023, due to the timing of the prior year federal funds rate increases and their effect on the costs of deposits and borrowings. The cost of interest bearing liabilities increased by 69 basis points from the third quarter of 2023 to 3.21% in the third quarter of 2024. Average interest bearing deposits increased $1.1 billion or 12.1% from the third quarter of 2023. The rate on interest bearing deposits increased 84 basis points to 2.85% from the third 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 third quarter of 2023 to the third quarter of 2024 by $408.3 million or 9.7%, and were 28.0% of total average deposits at September 30, 2024, compared to 32.5% at September 30, 2023, reflecting customers' preferences in the previously mentioned interest rate environment. For the third quarter of 2024, Wesbanco's average loans to average deposits ratio was 90.6%, reflecting additional capacity to lend. The average balance of FHLB borrowings increased $43.7 million from the third quarter of 2023 to the third quarter of 2024. The average balance of repurchase agreements and subordinated and junior subordinated debt balances remain virtually unchanged from the third quarter of 2023 to the third quarter of 2024.

Previous wording

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 $0.9 million and $0.7 million for the three months ended June 30, 2024 and 2023, respectively, and were $1.2 million and $1.1 million for the six months ended June 30, 2024 and 2023, respectively. Additionally, loan accretion included in interest income on loans acquired from prior acquisitions was $0.8 million and $1.2 million for the three months ended June 30, 2024 and 2023, respectively, and $1.5 million and $2.5 million for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Gross of allowance for credit losses, net of unearned income and includes non-accrual loans and loans held for sale. Loan fees included in interest income on loans were $0.5 million and $0.8 million for the three months ended September 30, 2024 and 2023, respectively, and were $1.8 million and $1.9 million for the nine months ended September 30, 2024 and 2023, respectively. Additionally, loan accretion included in interest income on loans acquired from prior acquisitions was $0.8 million and $1.0 million for the three months ended September 30, 2024 and 2023, respectively, and $2.3 million and $3.5 million for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Accretion on interest bearing liabilities acquired from prior acquisitions was $0.1 million for the three months ended June 30, 2024 and 2023, and $0.2 million and $0.3 million for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Accretion on interest bearing liabilities acquired from prior acquisitions was $7 thousand and $35 thousand for the three months ended September 30, 2024 and 2023, and $0.2 million and $0.3 million for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

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 increased to $10.5 million in the second quarter of 2024 compared to a provision of $3.0 million in the second quarter of 2023. The $10.5 million provision in the second quarter of 2024 was a result of continued loan growth and adjustments in regional macroeconomic factors and loan concentrations as well as a specific reserve on one C&I credit and an increase in net charge-offs. The increase was partially offset by a reduction in the criticized & classified qualitative factor. Non-performing loans were 0.29% of total portfolio loans as of June 30, 2024, increasing from 0.28% of total portfolio loans at the end of the second quarter of 2023. Criticized and classified loans were 2.15% of total portfolio loans as of June 30, 2024, increasing from 1.68% as of June 30, 2023, due to downgrades within the loan portfolio. Past due loans at June 30, 2024 were 0.24% of total portfolio loans, compared to 0.21% at June 30, 2023. Annualized net loan charge-offs were 0.14% for the six months ended June 30, 2024, compared to 0.05% for the six months ended June 30, 2023. Please see the Allowance for Credit Losses – Loans and Loan Commitments section of this MD&A for additional discussion.

Current wording

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 to $4.8 million in the third quarter of 2024 compared to a provision of $6.3 million in the third quarter of 2023. The $4.8 million provision in the third 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 and was partially offset by a reduction in the reserve for individually evaluated loans. Non-performing loans were 0.24% of total portfolio loans as of September 30, 2024, decreasing from 0.26% of total portfolio loans at the end of the third quarter of 2023. Criticized and classified loans were 2.36% of total portfolio loans as of September 30, 2024, increasing from 2.22% as of September 30, 2023, due to downgrades within the loan portfolio. Past due loans at September 30, 2024 were 0.44% of total portfolio loans, compared to 0.22% at September 30, 2023. Annualized net loan charge-offs were 0.11% for the nine months ended September 30, 2024, compared to 0.03% for the nine months ended September 30, 2023. Please see the Allowance for Credit Losses – Loans and Loan Commitments section of this MD&A for additional discussion.

Previous wording

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 June 30, 2024. Wesbanco offers its customers a wide range of retail, commercial, investment and digital banking services, which are viewed as a vital component of Wesbanco’s ability to attract and maintain customers, as well as providing additional fee income beyond normal spread-related income to Wesbanco. For the second quarter of 2024, non-interest income decreased $0.5 million or 1.5% compared to the second quarter of 2023, primarily due to a $0.9 million decrease in net gain on other real estate owned and other assets, a $0.8 million decrease in net swap fee and valuation income and a $0.4 million decrease in bank-owned life insurance. These decreases were partially offset by a $0.9 million increase in service charges on deposits, a $0.5 million increase in mortgage banking income and a $0.4 million increase in trust fees.

Current wording

Non-interest income is a significant source of revenue and an important part of Wesbanco’s results of operations, as it represents 19.6% of total revenue for the three months ended September 30, 2024. Wesbanco offers its customers a wide range of retail, commercial, investment and digital 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 third quarter of 2024, non-interest income decreased $1.3 million or 4.1% compared to the third quarter of 2023, primarily due to a $4.5 million decrease in net swap fee and valuation income. This was partially offset by a $1.2 million increase in service charges on deposits, a $1.0 million increase in net securities gains, a $0.8 million increase in trust fees, and a $0.3 million increase in mortgage banking income.

Previous wording

Trust fees increased $0.4 million or 5.6% compared to the second quarter of 2023, due to an increase in the market value of trust assets. Total trust assets were $5.6 billion at June 30, 2024 as compared to $5.1 billion at June 30, 2023. As of June 30, 2024, trust assets include managed assets of $4.6 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 $0.9 billion and $0.8 billion as of June 30, 2024 and June 30, 2023, respectively, and are included in managed assets. Trust fees increased $1.0 million or 6.8% in the first six months of 2024 as compared to the first six months of 2023 for similar reasons.

Current wording

Trust fees increased $0.8 million or 12.1% compared to the third quarter of 2023, due to an increase in the market value of trust assets. Total trust assets were $6.1 billion as of September 30, 2024 as compared to $5.0 billion at September 30, 2023. As of September 30, 2024, trust assets include managed assets of $5.0 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 September 30, 2024 and September 30, 2023, respectively, and are included in managed assets. Trust fees increased $1.8 million or 8.5% in the first nine months of 2024 as compared to the first nine months of 2023 for similar reasons as that for the three months ended.

Previous wording

Service charges on deposits increased $0.9 million or 14.1% in the second quarter of 2024 compared to the second quarter of 2023, due to an increase in transactional fee income and treasury management fee income. Service charges on deposits increased $1.5 million or 12.0% in the first six months of 2024 as compared to the same period in 2023 for similar reasons.

Current wording

Service charges on deposits increased $1.2 million or 18.1% in the third quarter of 2024 compared to the third quarter of 2023, due to an increase in transactional fee income, treasury management fee income and increased general consumer spending. Service charges on deposits increased $2.7 million or 14.2% in the first nine months of 2024 as compared to the same period in 2023 for similar reasons as that for the three months ended.

Previous wording

Net swap fee and valuation income, which includes fair value adjustments, decreased $0.8 million or 32.0% in the second quarter of 2024 compared to the second quarter of 2023, due to a decrease in swap fee income and fair value adjustments on existing swaps. For the three months ended June 30, 2024, new swaps executed totaled $222.7 million in notional principal, resulting in $1.8 million of fee income, compared to new swaps executed of $226.8 million in notional principal resulting in $2.4 million of fee income for the three months ended June 30, 2023. Fair value adjustments on existing swaps for the three months ended June 30, 2024 were immaterial as compared to $0.2 million for the three months ended June 30, 2023. For the first six months of 2024, net swap fee and valuation income decreased by $0.1 million or 2.1% from the first six months of 2023. During this time period, new swap fee income decreased by $1.7 million, but was mostly offset by a $1.6 million increase in fair value adjustments on existing swaps.

Current wording

Net swap fee and valuation income, which includes fair value adjustments, decreased $4.5 million or 116.3% in the third quarter of 2024 compared to the third quarter of 2023, due to a decrease in swap fee income and fair value adjustments on existing swaps. For the three months ended September 30, 2024, new swaps executed of $71.8 million in notional principal resulted in $1.1 million of fee income as compared to new swaps executed of $178.1 million in notional principal, resulting in $2.5 million of fee income for the three months ended September 30, 2023. Fair value adjustments on existing swaps for the three months ended September 30, 2024 were negative $1.7 million as compared to positive $1.4 million for the three months ended September 30, 2023. For the first nine months of 2024, net swap fee and valuation income decreased by $4.5 million or 62.6% from the first nine months of 2023. During this time period, new swap fee income decreased by $3.1 million along with a $1.4 million decrease in fair value adjustments on existing swaps.

Previous wording

Mortgage banking income increased $0.5 million or 77.9% in the second quarter of 2024 compared to the second quarter of 2023, due to an increase in sale margins, partially offset by a decrease in fair value adjustments on mortgage derivatives. For the second quarter of 2024, total mortgage production was $185.1 million, which decreased by 10.9% from the second quarter of 2023. For the three months ended June 30, 2024, $92.1 million in mortgages were sold into the secondary market as compared to $100.7 million in the comparable 2023 period. Included in mortgage banking income above are a loss of $5 thousand and a gain of $78 thousand from the fair value adjustments on mortgage loan commitments and related derivatives for the three months ended June 30, 2024 and 2023, respectively. Mortgage banking income increased by $0.7 million or 71.6% from the first six months of 2023 to the first six months of 2024 for similar reasons.

Current wording

Mortgage banking income increased $0.3 million or 31.3% in the third quarter of 2024 compared to the third quarter of 2023, due to an increase in sale margins, partially offset by a decrease in fair value adjustments on mortgage derivatives. For the third quarter of 2024, total mortgage production was $167.2 million, which increased by 1.0% from the third quarter of 2023. For the three months ended September 30, 2024, $84.9 million in mortgages were sold into the secondary market as compared to $90.3 million in the comparable 2023 period. Included in mortgage banking income above are a loss of $0.6 million and a gain of $0.6 million from the fair value adjustments on mortgage loan commitments and related derivatives for the three months ended September 30, 2024 and 2023, respectively. Mortgage banking income increased by $1.0 million or 52.0% from the first nine months of 2023 to the first nine months of 2024 for similar reasons as that for the three months ended.

Previous wording

Non-interest expense in the second quarter of 2024 increased $6.0 million or 6.2% as compared to the same quarter in 2023, principally from a $3.7 million increase in restructuring and merger-related expenses, a $1.6 million increase in equipment and software expense, and a $1.5 million increase in supplies, postage and other operating expense. These increases were partially offset by a $0.9 million decrease in employee benefits and a $0.5 million decrease in salaries and wages.

Current wording

Non-interest expense in the third quarter of 2024 increased $3.2 million or 3.3% as compared to the same quarter in 2023, principally from a $1.3 million increase in restructuring and merger-related expenses, a $1.0 million increase in supplies, postage and other operating expense, and a $1.0 million increase in equipment and software expense. These increases were partially offset by a $0.5 million decrease in salaries and wages and a $0.4 million decrease in employee benefits.

Previous wording

Salaries and wages decreased $0.5 million or 1.1% in the second quarter of 2024 as compared to the second quarter of 2023 due to lower staffing levels associated with efficiency improvements in the mortgage and branch staffing models, partially offset by normal compensation merit adjustments. Average full time equivalent employees decreased by 6.8% from the second quarter of 2024 to the second quarter of 2023 as a result of these improvements. Salaries and wages increased $0.6 million or 0.7% in the first six months of 2024 as compared to the first six months of 2023 due to higher stock compensation expense as well as a reduction in deferred loan contra costs.

Current wording

Salaries and wages decreased $0.5 million or 1.0% in the third quarter of 2024 as compared to the third quarter of 2023 due to lower staffing levels associated with efficiency improvements in the mortgage and branch staffing models and were partially offset by normal compensation merit adjustments. The average full time equivalent employees decreased by 6.2% from the third quarter of 2023 to the third quarter of 2024 due to the elimination of certain branch staffing, residential lending and related back-office positions. Salaries and wages were flat in the first nine months of 2024 as compared to the first nine months of 2023.

Previous wording

Employee benefits expense decreased by $0.9 million or 8.1% in the second quarter of 2024 as compared to the second quarter of 2023. This decrease was primarily due to a $0.8 million decrease in health insurance contributions driven by lower staffing levels. Similarly, employee benefits expense decreased $0.8 million or 3.4% in the first six months of 2024 as compared to the first six months of 2023.

Current wording

Employee benefits expense decreased by $0.4 million or 3.4% in the third quarter of 2024 as compared to the third quarter of 2023. This decrease was primarily due to a $0.7 million decrease in other benefits expenses and a $0.5 million decrease in health insurance driven by lower staffing levels. This is partially offset by an increase in deferred compensation expense. Similarly, employee benefits expense decreased $1.2 million or 3.4% in the first nine months of 2024 as compared to the first nine months of 2023.

Previous wording

Postage, supplies and other operating expense increased by $1.5 million or 21.1% in the second quarter of 2024 as compared to the second quarter of 2023 primarily due to higher costs and fees in support of loan growth and other miscellaneous expenses, including Reg-E writeoffs. Similarly, postage, supplies and other expense increased $1.8 million or 13.3% in the first six months of 2024 as compared to the same period in 2023.

Current wording

Supplies, postage and other operating expense increased by $1.0 million or 16.8% in the third quarter of 2024 as compared to the third quarter of 2023 primarily due to higher costs and fees in support of loan growth and other miscellaneous expenses. Similarly, supplies, postage and other expense increased $2.9 million or 14.5% in the first nine months of 2024 as compared to the same period in 2023.

Previous wording

The provision for income taxes was $6.1 million for the three months ended June 30, 2024, which is a $3.0 million decrease compared to the provision for the three months ended June 30, 2023. The decrease in the provision for income taxes is due to an $18.9 million decrease in pre-tax income over the same time period. The provision for income taxes was $13.8 million for the six months ended June 30, 2024, which is a $5.2 million decrease compared to the provision for the six months ended June 30, 2023, as pre-tax income decreased by $27.8 million over the same time period.

Current wording

The provision for income taxes was $7.5 million for the three months ended September 30, 2024, which is flat compared to the provision for the three months ended September 30, 2023. The unchanged provision for income taxes is due to a $0.5 million increase in pre-tax income over the same time period, while the effective tax rate decreased slightly from 17.4% to 16.8% for the quarter. The provision for income taxes was $21.3 million for the nine months ended September 30, 2024, which is a $5.2 million decrease compared to the provision for the nine months ended September 30, 2023, as pre-tax income decreased by $27.3 million over the same time period.

Previous wording

Total assets increased 2.3%, while shareholders' equity increased 0.4% at June 30, 2024 as compared to December 31, 2023. Total securities decreased $111.2 million or 3.3% from December 31, 2023 to June 30, 2024, as investment runoff was used to fund loan growth. Total portfolio loans were $12.3 billion, which increased $619.1 million or 5.3% since December 31, 2023 driven by strong performance from our commercial and residential lending teams. Deposits increased $263.7 million, or 2.0% 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 28%, 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 increased $125.0 million or 9.3% during the first six months of 2024, which was primarily due to the increase in loans which required additional liquidity. Shareholders' equity increased $11.2 million or 0.4% from December 31, 2023 to June 30, 2024 as net income exceeded dividends declared for the period.

Current wording

Total assets increased 4.5%, while shareholders' equity increased 10.6% at September 30, 2024 as compared to December 31, 2023. Total securities decreased $1.9 million or 0.1% from December 31, 2023 to September 30, 2024, as investment runoff was reinvested in new securities. Total portfolio loans were $12.5 billion, which increased $0.8 billion or 7.0% since December 31, 2023 driven by strong performance from our commercial and residential lending teams. Deposits increased $0.7 billion, or 5.1% 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; however, total demand deposits continue to represent 54% of total deposits, with the non-interest bearing component representing 27%, which remains 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 FHLB borrowings decreased $175.0 million or 13.0% during the first nine months of 2024, as proceeds were used from the $200 million of common equity raised in the third quarter to pay down borrowings. Shareholders' equity increased $268.5 million or 10.6% from December 31, 2023 to September 30, 2024, primarily due to the capital raise, increases in other comprehensive income, and net income exceeding dividends declared for the period.

Previous wording

Total investment securities, which are a source of liquidity for Wesbanco as well as a contributor to interest income, decreased by $92.2 million or 4.2% from December 31, 2023 to June 30, 2024. Through the first six months of the year, the available-for-sale portfolio decreased by $141.3 million or 6.4%, primarily due to paydowns, calls and maturities exceeding purchases. The held-to-maturity portfolio decreased by $19.8 million or 1.7% due primarily to maturities and calls of municipal securities. The weighted average yield of the portfolio increased 5 basis point from 2.52% at December 31, 2023 to 2.57% at June 30, 2024, primarily due to increases in the indices tied to variable rate securities.

Current wording

Total investment securities, which are a source of liquidity for Wesbanco as well as a contributor to interest income, decreased by $1.9 million or 0.1% from December 31, 2023 to September 30, 2024. Through the first nine months of the year, the available-for-sale portfolio increased by $34.2 million or 1.6%, primarily due to $213.4 million in purchases and a decrease of $58.6 million in unrealized losses, partially offset by $198.0 million in paydowns and $37.0 million in maturities and calls. The held-to-maturity portfolio decreased by $37.2 million or 3.1% due primarily to maturities and calls of municipal securities. The weighted average yield of the portfolio increased 12 basis points from 2.52% at December 31, 2023 to 2.64% at September 30, 2024, primarily due to new investment purchases at higher rates and increases in the indices tied to variable rate securities.

Previous wording

Total gross unrealized securities losses increased $31.8 million from $438.3 million at December 31, 2023 to $470.1 million at June 30, 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 June 30, 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.

Current wording

Total gross unrealized securities losses decreased $78.8 million from $438.3 million at December 31, 2023 to $359.5 million at September 30, 2024. The decrease in unrealized losses from December 31, 2023 was due to a decrease in market rates in 2024 to date, causing market prices to increase. Wesbanco believes that none of the unrealized losses on available-for-sale securities at September 30, 2024 require an allowance for credit losses. Please refer to Note 4, “Securities,” of the Consolidated Financial Statements for additional information. Wesbanco does not have any investments in private mortgage-backed securities or those that are collateralized by sub-prime mortgages, nor does Wesbanco have any exposure to collateralized debt obligations or government-sponsored enterprise preferred stocks.

Previous wording

Net unrealized losses on available-for-sale securities included in accumulated other comprehensive income, net of tax, as of June 30, 2024 and December 31, 2023 were $241.6 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 $151.3 million at June 30, 2024, compared to $130.4 million at December 31, 2023. With approximately 36% 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.

Current wording

Net unrealized losses on available-for-sale securities included in accumulated other comprehensive income, net of tax, as of September 30, 2024 and December 31, 2023 were $188.1 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 $109.6 million at September 30, 2024, compared to $130.4 million at December 31, 2023. With approximately 34% 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.

Previous wording

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 June 30, 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.

Current wording

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 $8.4 million and $8.8 million as of September 30, 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.

Previous wording

Total portfolio loans increased $619.0 million or 5.3% from December 31, 2023, and have increased $1.1 billion or 10.1% over the past twelve months. The increase over the last twelve months was driven by a 27.9% growth in land and construction loans due to increased originations. Originations have outpaced repayments in several loan categories, leading to increases of 13.0% in commercial and industrial loans, 9.8% in home equity loans, 8.6% in improved property loans, and 7.0% in residential real estate. Consumer loans have decreased slightly at 5.0%.

Current wording

Total portfolio loans increased $0.8 billion or 7.0% from December 31, 2023, and have increased $1.1 billion or 10.0% over the past twelve months. The increase over the last twelve months was driven by a 36.8% growth in land and construction loans due to increased originations. Originations have outpaced repayments in several loan categories, leading to increases of 11.4% in home equity loans, 9.0% in improved property loans, 8.2% in commercial and industrial loans, and 5.3% in residential real estate. Consumer loans have decreased somewhat at 9.1%.

Previous wording

Total loan commitments of $5.0 billion, including loans approved but not closed, increased $264.8 million or 5.6% from December 31, 2023 due primarily to increased loans approved but not closed. The average line utilization percentage for the commercial portfolio was 35.7% for the three months ended June 30, 2024 compared to 31.9% for the three months ended December 31, 2023.

Current wording

Total loan commitments of $4.9 billion, including loans approved but not closed, increased $0.2 billion or 3.7% from December 31, 2023 due primarily to increased lines of credit. The average line utilization percentage for the commercial portfolio was 35.6% for the three months ended September 30, 2024 compared to 31.9% for the three months ended December 31, 2023.

Previous wording

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. The breakdown for all CRE – improved property is 26% owner-occupied and 74% investor-owned. The bank has instituted additional monitoring of the office building portfolio, as remote work has put pressure on the need for dedicated office space in certain markets. The office portfolio breakdown within CRE – improved property is 34% owner-occupied and 66% investor-owned. Investor-owned office buildings represent 3.7% of the total loan portfolio.

Current wording

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. The breakdown for all CRE – improved property is 25% owner-occupied and 75% investor-owned. The bank has instituted additional monitoring of the office building portfolio, as remote work has put pressure on the need for dedicated office space in certain markets. The office portfolio breakdown within CRE – improved property is 33% owner-occupied and 67% investor-owned. Investor-owned office buildings represent 3.7% of the total loan portfolio.

Previous wording

Loans held for sale at both June 30, 2024 and December 31, 2023 are originated residential mortgages that are committed to be sold into the secondary market. Loans held for sale increased by $9.1 million or 55.5% from December 31, 2023 due to increased originations in the first half of 2024, particularly in the second quarter, as compared to those in the fourth quarter of 2023.

Current wording

Loans held for sale at both September 30, 2024 and December 31, 2023 are originated residential mortgages that are committed to be sold into the secondary market. Loans held for sale increased by $5.8 million or 35.3% from December 31, 2023 due to increased originations in the second and third quarters of 2024, as compared to those in the fourth quarter of 2023.

Previous wording

As of the adoption of ASU 2022-02, non-performing loans consist only of non-accrual loans. Non-performing loans increased $8.7 million or 32.3% from December 31, 2023. (Please see the Notes to the Consolidated Financial Statements for additional discussion).

Current wording

Non-performing loans consist only of non-accrual loans. Non-performing loans increased $3.6 million or 13.5% from December 31, 2023. (Please see the Notes to the Consolidated Financial Statements for additional discussion).

Previous wording

Loans past due 30 days or more and accruing interest, excluding non-accruals, decreased $3.0 million or 9.3% 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 $0.5 million and represented 0.07% of total portfolio loans at June 30, 2024 and 0.08% at December 31, 2023. Loans 30 to 89 days past due represented 0.17% of total portfolio loans at June 30, 2024 and 0.20% at December 31, 2023.

Current wording

Loans past due 30 days or more and accruing interest, excluding non-accruals, increased $21.7 million or 66.7% 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 increased $10.8 million and represented 0.16% of total portfolio loans at September 30, 2024 and 0.08% at December 31, 2023. Loans 30 to 89 days past due represented 0.27% of total portfolio loans at September 30, 2024 and 0.20% at December 31, 2023.

Previous wording

As of June 30, 2024, the total allowance for credit losses – loans and commitments was $145.7 million, of which $136.5 million related to loans and $9.2 million related to loan commitments. The allowance for credit losses – loans was 1.11% of total portfolio loans as of June 30, 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 0.10% of total portfolio loans at June 30, 2024. The allowance for credit losses – loans individually-evaluated increased $3.0 million from December 31, 2023 to June 30, 2024. The population of individually-evaluated loans consisted of seven loans, with a total outstanding loan balance of $40.4 million. The allowance for loans collectively-evaluated increased from December 31, 2023 to June 30, 2024 by $2.8 million. The allowance for credit losses- loan commitments was $9.2 million at June 30, 2024 as compared to $8.6 million as of December 31, 2023, and is included in other liabilities on the Consolidated Balance Sheets.

Current wording

As of September 30, 2024, the total allowance for credit losses – loans and commitments was $149.1 million, of which $140.9 million related to loans and $8.2 million related to loan commitments. The allowance for credit losses – loans was 1.13% of total portfolio loans as of September 30, 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 0.09% of total portfolio loans at September 30, 2024. The allowance for credit losses – loans individually-evaluated increased $2.2 million from December 31, 2023 to September 30, 2024. The population of individually-evaluated loans consisted of seven loans, with a total outstanding loan balance of $38.5 million. The allowance for loans collectively-evaluated increased from December 31, 2023 to September 30, 2024 by $8.0 million. The allowance for credit losses- loan commitments was $8.2 million at September 30, 2024 as compared to $8.6 million as of December 31, 2023, and is included in other liabilities on the Consolidated Balance Sheets.

Previous wording

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 June 30, 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 4.4%, and subsequently increase to an average of 4.8% over the remainder of the forecast period. Quarterly changes to the economic drivers of the quantitative model, including changes to the portfolio mix as well as a specific reserve on one C&I credit and an increase in net charge-offs caused the allowance for credit losses - loans to increase from December 31, 2023 to June 30, 2024 by $5.8 million.

Current wording

The allowance for credit losses by loan category, presented in Note 5, “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”) divided by the 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 September 30, 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 4.6%, and subsequently increase to an average of 5.0% over the remainder of the forecast period. Quarterly changes to the economic drivers of the quantitative model, including changes to the portfolio mix as well as an increase in the bank’s qualitative adjustments caused the allowance for credit losses - loans to increase from December 31, 2023 to September 30, 2024 by $10.2 million.

Previous wording

Criticized and classified loans were 2.15% of total portfolio loans, or $263.4 million, at June 30, 2024, decreasing from 2.22% of total portfolio loans at December 31, 2023. See Note 4, “Loans and the Allowance for Credit Losses” for more information.

Current wording

Criticized and classified loans were 2.36% of total portfolio loans, or $293.7 million, at September 30, 2024, increasing from 2.22% of total portfolio loans at December 31, 2023. See Note 5, “Loans and the Allowance for Credit Losses” for more information.