WESBANCO INC (WSBC) FY 2021 MD&A

ITEM 7. 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. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto. This section generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of Wesbanco’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the SEC on February 26, 2021.

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-Qs for the prior quarters ended March 31, June 30 and September 30, 2021, respectively, and documents subsequently filed by Wesbanco 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 under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. Such statements are subject to important factors that could cause actual results to differ materially from those contemplated by such statements, including, without limitation, the effects of changing regional and national economic conditions including the effects of the COVID-19 pandemic; changes in interest rates, spreads on earning assets and interest-bearing liabilities, and associated interest rate sensitivity; sources of liquidity available to Wesbanco and its related subsidiary operations; potential future credit losses and the credit risk of commercial, real estate, and consumer loan customers and their borrowing activities; actions of the Federal Reserve, the FDIC, the SEC, FINRA, the Municipal Securities Rulemaking Board, the SIPC, 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.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Wesbanco’s Consolidated Financial Statements are prepared in accordance with U.S. GAAP and follow general practices within the industries in which it operates. Application of these principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.

The most significant accounting policies followed by Wesbanco are included in Note 1, “Summary of Significant Accounting Policies,” of the Consolidated Financial Statements. These policies, along with other Notes to the Consolidated Financial Statements and this MD&A, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Management has identified the allowance for credit losses, the evaluation of goodwill and other intangible assets for impairment and business combinations to be the accounting estimates that require the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.

Allowance for Credit Losses— In September 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2016-13, “Financial Instruments – Credit Losses (Topic 326),” which require entities to use a new forward-looking “expected loss” model, also referred to as the CECL model on trade and other receivables, held-to-maturity debt securities, loans and other instruments that generally will result in the earlier recognition of allowances for credit losses. For available-for-sale debt securities with unrealized losses, entities measure credit losses in a manner similarly to current procedures, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. Entities will have to disclose significantly more information, including information they use to track credit quality by year of origination for most financing receivables. In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging and Topic 825, Financial Instruments” and in May 2019 the FASB issued ASU 2019-05, “Financial Instruments – Credit Losses (Topic 326), Targeted Transition Relief. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which for Wesbanco was effective January 1, 2020. In December 2018, the Federal Reserve Board, the FDIC and the OCC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ adoption of the CECL methodology. The final rule provides banking organizations the option to phase-in, over a three-year period, the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. In response to the COVID-19 pandemic, the joint federal bank regulatory agencies issued an optional extension of the regulatory capital transition, which allows for a two-year delay and then a three-year transition period from January 1, 2022

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through December 31, 2024. Under the interim final rule, the amount of adjustments to regulatory capital deferred until the phase-in period includes both the initial impact of our adoption of CECL at January 1, 2020 and 25% of subsequent changes in our allowance for credit losses during each quarter of the two-year period ended December 31, 2021. Wesbanco has elected to defer the impact of CECL on its regulatory capital for two years and then will phase-in the impact of the adoption of this standard on the regulatory capital calculations over the subsequent three-year period.

Under CECL, acquired loans or pools of loans that have experienced more-than-insignificant credit deterioration are deemed to be purchased credit-deteriorated (“PCD”) loans, and are grossed-up on day 1 by the initial credit estimate through the allowance as opposed to a reduction in the loan’s amortized cost. The credit mark on acquired loans deemed not to be PCD loans are reflected as a reduction in the loan’s amortized cost, with an allowance and corresponding provision for credit losses recorded in the first reporting period after acquisition through current period earnings, while the loan mark will accrete through interest income over the life of such loans. At acquisition, Wesbanco will consider several factors as indicators that an acquired loan or pool of loans has experienced more-than-insignificant credit deterioration. These factors may include, but are not limited to, loans 30 days or more past due, loans with an internal risk grade of below average or lower, loans classified as non-accrual by the acquired institution, materiality of the credit and loans that have been previously modified in a troubled debt restructuring (“TDR”). Upon adoption of this standard, acquired loans from prior acquisitions that met the guidelines under ASC 310-30 (formerly known as “purchased credit-impaired”) were reclassified as PCD loans. The accretable portion of the loan mark as of adoption date continues to accrete into interest income. However, the non-accretable portion of the loan mark was added to the allowance upon adoption, and any reversals of such mark will flow through the allowance in future periods. The loan mark on ASC 310-20 loans (“non-purchased credit-impaired”) from prior acquisitions continues to accrete through interest income over the life of such loans.

The day 1 impact on the allowance for credit losses was $41.4 million, which included a $6.7 million adjustment for PCD loans and a $3.0 million adjustment related to loan commitments. The after-tax effect on retained earnings was $26.6 million as of January 1, 2020. The day 1 CECL calculation was derived from the selected assumption of a one-year reasonable and supportable forecast, which was obtained from a third-party vendor. After the forecast period, Wesbanco reverts back over a one-year period to historical loss rates adjusting for prepayments and curtailments, to estimate losses over the remaining life of loans. The most sensitive assumptions include the length of the forecast and reversion periods, forecast of unemployment and interest rate spreads and prepayment speeds. See Note 5, “Loans and Allowance for Credit Losses” for further detail.

The allowance for credit losses specific to loans reduces the loan portfolio to the net amount expected to be collected, representing the lifetime expected credit losses at the initial origination date. Similarly, an allowance for unfunded loan commitments, which is recorded in other liabilities, represents expected losses on unfunded commitments. Fluctuations in the allowance for credit losses specific to loans, the allowance for unfunded loan commitments, and the allowance for held-to-maturity debt securities are recognized in the provision for credit losses on the consolidated statement of operations. The allowance incorporates forward-looking information and applies a reversion methodology beyond the reasonable and supportable forecast. The allowance is increased by a provision charged to operating expense and reduced by charge-offs, net of recoveries. Management evaluates the appropriateness of the allowance at least quarterly. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change from period to period.

The allowance for credit loss calculation specific to loans is based on the loan’s amortized cost basis, which is comprised of the unpaid principal balance of the loan, deferred loan fees (costs) and acquired premium (discount) minus any write-downs. Wesbanco made an accounting policy election to exclude accrued interest from the measurement of the allowance for credit losses, because the Company has a robust policy in place to reverse or write-off accrued interest when the loan is placed on non-accrual, and also made an accounting policy election to reverse accrued interest deemed uncollectible as a reversal of interest income. However, Wesbanco is reserving, as part of the allowance for credit losses, for accrued interest on loan modifications under the CARES Act due to the nature and timing of these deferrals.

The allowance for credit losses specific to loans reflects the risk of loss in the loan portfolio. To appropriately measure expected credit losses, management disaggregates the loan portfolio into pools of similar risk characteristics. The Company utilizes the PD / LGD approach to calculate the expected loss for each segment, which is then discounted to net present value. PD is the probability the asset will default within a given timeframe and LGD is the percentage of the assets not expected to be collected due to default. The primary macroeconomic drivers of the quantitative model include forecasts of national unemployment and interest rate spreads. Management relies on macroeconomic forecasts obtained from various reputable sources, which may include the Federal Open Market Committee ("FOMC") forecast and other third party forecasts from well recognized, leading economists. These forecasts can range from one to two years, depending upon the facts and circumstances of the current state of the economy, portfolio segment and management’s judgement of what can be reasonably supported. The model reversion period may range from one to three years.

The allowance for credit losses specific to loans is calculated over the loan’s contractual life. For term loans, the contractual life is calculated based on the maturity date. For commercial and industrial (“C&I”) revolving loans with no stated maturity date, the contractual life is calculated based on the internal review date. For all other revolving loans, the contractual life is based on either the estimated maturity date or a default date. The contractual term does not include any expected extensions, renewals or modifications unless management has a reasonable expectation as of the reporting period that Wesbanco will execute a TDR with the borrower. Management assumes a loan will become a TDR if a loan has

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matured, has a principal balance, and has previously been partially charged-off. This assumption extends the maturity of these loans to six months beyond their respective maturity dates.

Contractual terms are adjusted for estimated prepayments to arrive at expected cash flows. Wesbanco models term loans with an annualized “prepayment” rate. When Wesbanco has a specific expectation of differing payment behavior for a given loan, the loan may be evaluated individually. For revolving loans that do not have a principal payment schedule, a curtailment rate is factored into the cash flow.

The evaluation also considers qualitative factors such as economic trends and conditions, which includes levels of regional unemployment, real estate values and the impact on specific industries and geographical markets, changes in lending policies and underwriting standards, delinquency and other credit quality trends, concentrations of credit risk, if any, volume of activity, changes in lending staff, type of collateral and the results of internal loan reviews and examinations by bank regulatory agencies. Management relies on observable data from internal and external sources to the extent it is available to evaluate each of these factors and adjusts the actual historical loss rates to reflect the impact these factors may have on probable losses in the portfolio. Due to the current economic environment caused by the pandemic, management has included COVID-19 pandemic factors related to the transient credit risk not covered by the traditional allowance process, adjusted for Wesbanco’s regional footprint, deferred interest on modified loans, and hospitality industry concentration.

Commercial loans, including commercial real estate (“CRE”) and C&I, are individually-evaluated if they have unique characteristics. Specific reserves are established when appropriate for such loans based on the net present value of expected future cash flows of the loan or the estimated realizable value of the collateral, if any.

On March 27, 2020, the CARES Act was signed into law. Section 4013 of the CARES Act, “Temporary Relief from Troubled Debt Restructurings,” allows financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time during the COVID-19 pandemic. On April 7, 2020, the joint federal regulatory agencies issued a statement, “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised),” which further discusses loan modifications related to COVID-19. Wesbanco has extended loan principal and/or interest payments up to 180 days for customers affected by the COVID-19 pandemic. These customers must meet certain criteria, such as being in good standing and not more than 30 days past due either as of December 31, 2019, or as of the implementation of the modification program under the Interagency Statement, as well as other requirements noted in the regulatory agencies’ revised statement. Based on the CARES Act provision and the guidance noted above, Wesbanco does not classify the COVID-19 loan modifications as TDRs, nor are the customers considered late with regard to their delayed payments to the extent they meet the criteria. Upon exiting the loan modification deferral program, the measurement of loan delinquency will resume where it was determined upon entry into the program.

On August 3, 2020, the joint federal regulatory agencies issued a statement, “Joint Statement on Additional Loan Accommodations Related to COVID-19”. This statement provides financial institutions with considerations for certain customers nearing the end of their COVID-19 loan deferral period noted above. As per this guidance and in accordance with the CARES Act noted above, Wesbanco developed a plan to assist certain customers with additional deferrals of principal and/or interest. This plan, relating primarily to existing commercial loans in the hospitality sector, may provide certain relief to these portfolio loans if they meet certain criteria regarding the borrower, underlying property and potential guarantors / co-borrowers. If a loan meets the criteria, it would be eligible to have twelve months of interest payments deferred or three months of principal and interest payments plus nine months of interest only payments. There are predetermined financial triggers reviewed throughout the deferred period to determine if a borrower should return to a normal amortization schedule prior to the completion of the twelve months.

On December 27, 2020, the Economic Aid Act was enacted, which reauthorized lending under the PPP loan program of the CARES Act through March 31, 2021, and among other things, modified provisions related to making PPP loans and forgiveness of PPP loans, authorized second draw PPP loans for borrowers that previously received a PPP loan and extended allowable modifications until December 31, 2021 avoiding TDR treatment. The passage of the ARP Act in March 2021 further added to the pool of available PPP funds and extended the application deadline to May 31, 2021.

Goodwill and Other Intangible Assets— Wesbanco accounts for business combinations using the acquisition method of accounting. Accordingly, the identifiable assets acquired, the liabilities assumed, and any non-controlling interest of an acquired business are recorded at their estimated fair values as of the date of acquisition with any excess of the cost of the acquisition over the fair value recorded as goodwill. Other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset, or liability.

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Goodwill is not amortized but is evaluated for impairment annually, or more often if events or circumstances indicate it may be impaired. Finite-lived intangible assets, which consist primarily of core deposit and customer list intangibles (long-term customer-relationship intangible assets) are amortized using straight-line and accelerated methods over their weighted-average estimated useful lives, ranging from ten to sixteen years in total, and are tested for impairment whenever events or circumstances indicate that their carrying amount may not be recoverable. Non-compete agreements are recognized in other assets on the balance sheet and are amortized on a straight-line basis over the life of the respective agreements, ranging from one to four years.

Wesbanco evaluates goodwill for impairment by determining if the fair value is greater than the carrying value of its reporting units. Wesbanco uses market capitalization, multiples of tangible book value, a discounted cash flow model, and various other market-based methods to estimate the current fair value of its reporting units. In particular, the discounted cash flow model includes various assumptions regarding an investor’s required rate of return on Wesbanco common stock, future loan loss provisions, future market spreads and net interest margins, along with various growth and economic recovery and stabilization assumptions of the economy as a whole. The resulting fair values of each method are then weighted based on the relevance and reliability of each respective method in light of the current economic environment to arrive at a weighted average fair value. The evaluation also considered macroeconomic conditions such as the general economic outlook, regional and national unemployment rates, and recent trends in equity and credit markets. Additionally, industry and market considerations, such as market-dependent multiples and metrics relative to peers, were evaluated. Wesbanco also considered recent trends in credit quality, overall financial performance, stock price appreciation, internal forecasts and various other market-based methods to estimate the current fair value of its reporting units. Since adopting ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350)”, the impairment charge is based on the excess of a reporting unit’s carrying amount over its fair value.

Intangible assets with finite useful lives are evaluated for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognized when the carrying amount of an intangible asset with a finite useful life is not recoverable from its undiscounted cash flows and is measured as the difference between the carrying amount and the fair value of the asset. Wesbanco does not have any indefinite-lived intangible assets. Intangible assets with finite useful lives as of December 31, 2021 comprised of $53.5 million in core deposit intangibles held at the community banking segment and $1.4 million in trust customer relationship intangibles held at the trust and investment services segment. As of December 31, 2021, there were no indicators of impairment related to intangible assets with finite useful lives.

Business Combinations— Business combinations are accounted for by applying the acquisition method. As of acquisition date, the identifiable assets acquired and liabilities assumed are measured at fair value and recognized separately from goodwill. Results of operations of the acquired entities are included in the consolidated statement of income from the date of acquisition. The calculation of intangible assets including core deposits and the fair value of loans are based on significant judgements. Core deposits intangibles are calculated using a discounted cash flow model based on various factors including discount rate, attrition rate, interest rate, cost of alternative funds and net maintenance costs.

Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value with no carryover of related allowance for credit losses. Any allowance for loan loss on these pools reflect only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that ultimately are not to be received). Determining the fair value of the acquired loans involves estimating the principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considers a number of factors in evaluating the acquisition-date fair value including the remaining life of the acquired loans, delinquency status, estimated prepayments, payment options and other loan features, internal risk grade, estimated value of the underlying collateral and interest rate environment.

EXECUTIVE OVERVIEW

Net income available to common shareholders increased $112.7 million or 94.4% to $232.1 million in 2021 compared to 2020. Net income available to common shareholders excluding after-tax restructuring and merger-related expenses (non-GAAP measure) increased $110.4 million or 86.8% to $237.4 million. These increases were driven by the net benefit in the provision for credit losses in 2021, resulting from improved macroeconomic forecasts and hospitality metrics approaching pre-pandemic levels. Net interest income decreased $21.5 million or 4.5% from 2020, primarily due to the lower interest rate environment, a shift to a higher level of investment securities as a percentage of total assets and a decrease in the net interest margin of 26 basis points. Non-interest income increased $4.6 million or 3.6% in 2021 compared to 2020, driven by a $4.7 million increase in net gain on other real estate owned and other assets. In addition, trust fees increased $3.2 million or 12.1% reflecting a 12.3% year-over-year increase in trust assets to a record $5.6 billion due to market appreciation and organic growth. Excluding restructuring and merger-related expenses, non-interest expense increased $1.3 million or 0.4%, driven by increases in equipment and software costs, legal settlement costs incurred during the third quarter and higher marketing expense.

Total assets as of December 31, 2021 increased $0.5 billion or 3.1% compared to December 31, 2020, primarily due to a $1.3 billion increase in investment securities, as liquidity from increased cash balances resulting from our customers' higher personal savings was invested. Offsetting this increase somewhat, portfolio loans decreased $1.1 billion or 9.8% over the last twelve months, reflecting net forgiveness of PPP loans totaling $563.6 million during 2021, as well as larger than normal commercial loan payoffs. There are currently $162.7 million in PPP

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loans remaining in the loan portfolio as of December 31, 2021. As of December 31, 2021, both non-performing loans and non-performing assets as percentages of the loan portfolio and total assets have remained relatively consistent throughout 2021. Criticized and classified loan balances decreased to 3.75% of total portfolio loans, as compared to 4.59% at December 31, 2020. As a result of improved macroeconomic factors, the provision for credit losses decreased to ($64.3) million for the year 2021 compared to $107.7 million in 2020. Annualized net loan charge-offs to average loans for the full year period were two basis points in 2021 compared to six basis points in 2020. Utilizing the additional liquidity during 2021, Wesbanco reduced FHLB borrowings by $365.1 million or 66.5% and also redeemed $60.0 million in subordinated debt that was acquired in the OLBK and the Your Community Bankshares, Inc. ("YCB") acquisitions.

Wesbanco continues to maintain what we believe are strong regulatory capital ratios, as both consolidated and bank-level regulatory capital ratios are well above the applicable “well-capitalized” standards promulgated by bank regulators and the BASEL III capital standards. At December 31, 2021, Tier I leverage was 10.02%, Tier I risk-based capital was 14.05%, total risk-based capital was 15.91%, and the common equity Tier 1 capital ratio (“CET 1”) was 12.77%. Tangible equity to tangible assets decreased to 9.84% at period-end from 10.52% as of December 31, 2020, due to reduced shareholders' equity balances resulting from stock repurchases occurring throughout 2021.

Strong earnings enabled Wesbanco to increase the quarterly dividend rate 3.1% to $0.33 per share in the first quarter of 2021, the fourteenth increase over the last eleven years, cumulatively representing a 136% increase over that period.

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Selected financial ratios for the years ended December 31, 2021, 2020 and 2019 are presented in the table below:

(1)
See "Non-GAAP Measures" for additional information relating to the calculation of this item.

(2)
Certain items excluded from the calculation consist of after-tax restructuring and merger-related expenses.

(3)
Presented on a fully taxable-equivalent (FTE) and annualized basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 21% for all periods presented. Wesbanco believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

(4)
Trust assets are held by the Bank, in fiduciary or agency capacities for its customers and therefore are not included as assets on Wesbanco’s Consolidated Balance Sheets.

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Non-GAAP Measures

The following non-GAAP financial measures used by Wesbanco provide information that Wesbanco believes is useful to investors in understanding Wesbanco’s operating performance and trends, and facilitates comparisons with the performance of Wesbanco’s peers. The following tables summarize the non-GAAP financial measures derived from amounts reported in Wesbanco’s financial statements.

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(1) Tax effected at 21% for all periods presented.

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RESULTS OF OPERATIONS

EARNINGS SUMMARY

For the twelve months ending December 31, 2021, net income available to common shareholders was $232.1 million, or $3.53 per diluted share, compared to $119.4 million, or $1.77 per diluted share, for 2020. Net income available to common shareholders for the twelve months ended December 31, 2021 increased 94.4% compared to 2020, while per share earnings increased 99.4%.

For the twelve months ending December 31, 2021, net interest income decreased $21.5 million, or 4.5%, reflecting lower loan yields due to the repricing of existing loans and lower new offered rates in the current market environment reducing the net interest margin. The net interest margin decreased 26 basis points to 3.11% due to the overall lower rate environment. Average loan balances decreased 4.5% in 2021, mostly due to PPP loan forgiveness and elevated levels of commercial real estate loans being refinanced in an aggressive secondary market, while average investment securities increased 24.2% over the same period as liquidity from increased customer deposits was invested. Total average deposits increased in 2021 by $1.4 billion or 12.0% compared to 2020, due to CARES Act stimulus deposits and increased personal savings. Certificates of deposit, which have the highest overall interest cost among deposits, decreased by $357.0 million or 19.7% over the same time period.

For 2021, non-interest income increased $4.6 million or 3.6% compared to 2020. Trust fees increased $3.2 million from 2020 to 2021 due to organic growth and record market values of trust assets under management. Net gain on other real estate owned and other assets increased $4.7 million from 2020 to 2021 due primarily to a gain earned in the second quarter of 2021 on an investment made by Wesbanco CDC in a start-up firm more than ten years ago that was recently acquired by a public company. Somewhat offsetting these increases, mortgage banking income decreased $3.2 million or 14.1% from 2020 to 2021 due to a lower margin on sold loans and an increase in mortgage loan officer deferred costs that are recorded in mortgage banking income. In addition, net securities gains decreased $3.2 million or 73.9% from 2020 to 2021 due to a significant decrease in volume of security sales in 2021.

The following comments on non-interest expense exclude restructuring and merger-related expenses in both years. Non-interest expense in 2021 increased just $1.3 million or 0.4% compared to 2020, while the efficiency ratio increased in 2021 to 58.2% from 56.3% in 2020. The primary drivers of this slight increase were a $5.2 million or 21.0% increase in equipment and software costs primarily due to the movement of online banking costs from other operating expenses following the core conversion. Also increasing for the year 2021 were legal settlement costs, which were incurred in the third quarter, as well as marketing expenses from product advertising and brand awareness campaigns that were delayed due to the COVID-19 pandemic. These increases were mostly offset by lower FDIC insurance from a refund received during the second quarter of 2021, lower amortization expense on intangible assets as well as other decreases resulting from the efficiencies derived from the financial center closures during 2021.

The provision for federal and state income taxes increased to $59.6 million in 2021 compared to $23.0 million in 2020, due to higher pretax income in 2021. The effective tax rate was 19.7% and 15.9% for the years ended December 31, 2021 and 2020, respectively. Wesbanco recognized $2.6 million and $2.0 million in New Markets Tax Credits for the years ended December 31, 2021 and 2020, respectively.

TABLE 1. NET INTEREST INCOME

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 $21.5 million or 4.5% in 2021 compared to 2020, due to a 26 basis point decrease in the net interest margin to 3.11% resulting from the lower yield environment, as the yield on earning assets decreased at a faster rate than the rate on interest bearing liabilities. The net interest margin decrease was slightly mitigated by a 3.4% increase in average earning asset balances from 2020, primarily from a 24.2% increase in average securities, which were purchased with liquidity from stimulus-related deposits. Also helping to mitigate the margin decrease, PPP loans contributed a total of $30.8 million in interest and fee accretion income in 2021 as compared to $19.2 million in 2020. This PPP loan income

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positively impacted the 2021 net interest margin by a net 10 basis points. Excluding PPP loans, portfolio loans decreased by 4.9% from December 31, 2020, due to lower new loan demand and high levels of commercial real estate loan payoffs. In addition, purchase accounting accretion decreased in 2021, as approximately 11 basis points of accretion from prior acquisitions was included in the 2021 net interest margin as compared to 19 basis points in the 2020 net interest margin. Total average deposits, excluding CDs, increased in 2021 by $1.8 billion or 17.7% compared to 2020, due to stimulus deposits and higher personal savings balances. The cost of interest bearing deposits decreased by 17 basis points and the cost of total liabilities decreased by 35 basis points from 2020 to 2021. The decrease in the cost is primarily due to aggressive rate decreases for interest bearing demand deposits, which include public funds, and lower rates for certificates of deposit, customer repurchase agreements, term Federal Home Loan Bank borrowings and junior subordinated debentures, in response to the general decrease in overall borrowing rates in the marketplace resulting from lower rates across the yield curve. In addition, the average balance of FHLB borrowings decreased by $792.7 million or 69.8% from 2020, as excess liquidity was used to pay off these borrowings as they matured.

Interest income decreased $56.3 million or 10.4% in 2021 compared to 2020 due to lower yields in every major earning asset category. Earning asset yields were influenced negatively in 2021 compared to 2020 due primarily to decreases in the Federal Reserve’s federal funds rate by 150 basis points in 2020 and the continuation of the low rate environment throughout 2021. Average loan balances decreased $494.2 million or 4.5% in 2021 compared to 2020, due mostly to forgiveness of PPP loans that were originated in 2020 and the first half of 2021. Loan yields decreased by 27 basis points during 2021 to 4.01% due to the previously mentioned lower rate environment and its effect on the repricing of portfolio loans, as well as lower offered rates on new loans. Loans provide the greatest impact on interest income and the yield on earning assets as they have the largest balance and the highest yield within major earning asset categories. In 2021, average loans represented 69.8% of average earning assets, a decrease from 75.6% in 2020. As liquidity from stimulus deposits was invested, average taxable securities balances increased $684.8 million or 30.0% from 2020, and represented 20.0% of total average earning assets in 2021. Taxable securities yields decreased by 65 basis points and tax-exempt securities yields decreased by 25 basis points in 2021 from 2020. The continuing lower rate environment has resulted in the yield decrease for all securities, as calls, prepayments and maturities of legacy higher-rate securities have been replaced with purchases at lower overall market yields. Increased prepayments on mortgage-backed securities in the lower rate environment also further reduced the taxable securities yields due to higher amortization on securities purchased at a premium. The average balance of tax-exempt securities, which have the highest yields within securities, have decreased from 21.3% of total average securities in 2020 to 17.6% of total average securities in 2021.

Commercial loans with floors currently average 3.83% on approximately $2.6 billion or 36% of total commercial loans at December 31, 2021, as compared to $2.3 billion averaging 4.22% or 29% of commercial loans at December 31, 2020. Approximately 63% or $1.6 billion of these loans are currently priced at their floor, as compared to 69% or $1.6 billion at December 31, 2020. These loans typically do not adjust as rapidly from their current floor level as compared to loans without floors, due to the amount of the rate change as compared to the floor rate or next repricing date. In addition, in a declining rate environment, customers may request rates below existing contractual floors, which we may grant for competitive or other reasons.

Interest expense decreased $34.8 million or 56.3% in 2021 as compared to 2020, due to decreases in the cost of all interest bearing liability categories, as management reduced certain deposit rates, and due to a decrease in the balance of outstanding FHLB borrowings. The cost of interest bearing liabilities decreased by 35 basis points from 2020 to 0.28% in 2021. Interest bearing deposits increased $754.6 million or 9.3% from 2020 to 2021, due mostly to customers’ stimulus payments. The rate on interest bearing deposits decreased 17 basis points to 0.16% from 2020 to 2021, primarily from aggressive decreases in rates on interest bearing public funds and certificates of deposit in response to the lower market rates, which are currently near their floors. Average non-interest bearing demand deposit balances increased from 2020 to 2021 by $671.0 million or 17.7%, and were 33.5% of total average deposits at December 31, 2021, compared to 31.9% at December 31, 2020, reflecting the previously mentioned stimulus deposits, higher personal savings balances and ongoing checking account marketing strategies. The average balance of FHLB borrowings decreased by $792.7 million from 2020 to 2021 due to the maturity of legacy higher-rate FHLB borrowings throughout the past twelve months being funded with excess liquidity. These maturities benefited the average rate paid, as it decreased by 37 basis points to 1.80% from 2.17% in 2020. Average repurchase agreements combined with subordinated debt and junior subordinated debt balances decreased $221.1 million or 40.1% from 2020 to 2021, and their average rates paid decreased by 33 and 68 basis points, respectively, over this same time period, due primarily to decreases in LIBOR, the index upon which this variable-rate type of borrowing is priced. In addition, Wesbanco redeemed $60.0 million of subordinated debt balances acquired from previous acquisitions during the second half of 2021. There are no outstanding balances of subordinated debt remaining as of December 31, 2021.

While Wesbanco is currently modeling three federal funds rate increases in 2022, until those potential rate increases begin to provide benefits, the current low rate environment is expected to result in the core net interest margin declining a basis point or two per quarter in 2022 due to lower purchase accounting accretion and lower earning asset yields. The subordinated debt payoffs in the third and fourth quarters of 2021, both of which were acquired in previous acquisitions, will further help to reduce the cost of interest-bearing liabilities into 2022. In addition, Wesbanco’s participation in the PPP loan program is expected to positively contribute to net interest income and somewhat mitigate the decrease in the net interest margin as SBA loan forgiveness occurs for qualifying customers and net deferred fees are accreted into income at the date of loan payoff. At December 31, 2021, there were $6.1 million of remaining net deferred fees from PPP loans that will accrete into interest income as loans pay down or are forgiven by the SBA.

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TABLE 2. AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS

(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 $26.3 million, $16.2 million and $1.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. As part of loan fees, PPP loan fees were $25.3 million and $13.4 million for the years ended December 31, 2021 and 2020, respectively. Additionally, loan accretion included in interest income on loans acquired from prior acquisitions was $13.3 million, $17.0 million and $17.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.

(2)
Average yields on securities available-for-sale have been calculated based on amortized cost.

(3)
Taxable equivalent basis is calculated on tax-exempt securities using a rate of 21% for all periods presented.

(4)
Accretion on interest bearing liabilities acquired from prior acquisitions was $3.1 million, $9.5 million and $2.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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TABLE 3. RATE/VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE (1)

(1)
Changes to rate/volume are allocated to both rate and volume on a proportionate dollar basis.

(2)
The yield on earning assets and the net interest margin are presented on a fully taxable-equivalent (FTE) and annualized basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 21% for all periods presented. Wesbanco believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

PROVISION FOR CREDIT LOSSES - LOANS

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 ($64.3) million in 2021 compared to $107.7 million in 2020 as a result of improvements in the COVID-19 pandemic factors and the macroeconomic forecast resulting in significantly lower unemployment over the reasonable and supportable forecast period of one year, primarily decreasing the allowance for loan losses and allowance for loan commitments. Non-performing loans were 0.41% of total loans as of December 31, 2021, increasing slightly from 0.38% of total loans at the end of 2020. Non-performing assets were 0.41% of total loans and other real estate and repossessed assets as of December 31, 2021, increasing from 0.38% at the end of 2020. Criticized and classified loans were 3.75% of total loans, decreasing from 4.59% as of December 31, 2020, primarily due to improvements in loans categorized as criticized or classified earlier in the pandemic. Past due loans at December 31, 2021 were 0.36% of total loans, compared to 0.37% at December 31, 2020. The provision for credit losses was lower than net charge-offs by $66.0 million in 2021 and was higher than net charge-offs by $100.7 million in 2020. (Please see the Credit Quality and Allowance for Credit Losses – Loans and Loan Commitments section of this MD&A for additional discussion).

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TABLE 4. NON-INTEREST INCOME

NM = Not Meaningful

Non-interest income is a significant source of revenue and an important part of Wesbanco’s results of operations, as it represented 22.5% and 21.1% of total revenue for 2021 and 2020, respectively. 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. Non-interest income increased $4.6 million or 3.6% in 2021 compared to 2020, primarily due to increases in trust fees, electronic banking fees, bank-owned life insurance and net gains on other real estate owned and other assets. The increases were somewhat offset by decreases in mortgage banking income, net securities gains and debit card sponsorship income.

Trust fees increased $3.2 million or 12.1% in 2021 compared to 2020, due to market value appreciation and organic growth. Total trust assets were a record $5.6 billion at December 31, 2021 as compared to $5.0 billion at December 31, 2020. As of December 31, 2021, 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 $1.0 billion as of both December 31, 2021 and December 31, 2020, and are included in managed assets.

Electronic banking fees, which include debit card interchange fees, increased $1.8 million or 10.2% in 2021 compared to 2020 as we transitioned to adjusted settlement processes of a new third-party digital banking service provider. This change occurred as part of the core banking software conversion in the third quarter of 2021. In addition, transaction volume increased in 2021 from the lower levels in 2020 that were affected by the pandemic.

Bank-owned life insurance income increased $1.6 million or 21.4% in 2021 compared to 2020 due to an increase in mortality-related benefits received in the current period as well as an increase in the cash surrender value due to the purchase of an additional $40 million of bank-owned life insurance in the third quarter of 2021. The total cash surrender value of BOLI at December 31, 2021 was $350.4 million compared to $306.0 million at December 31, 2020.

Mortgage banking income decreased $3.2 million or 14.1% in 2021 compared to 2020, due to lower margins on sold loans and an increase in mortgage loan officer deferred costs, which are recorded in mortgage banking income. For 2021, total mortgage production was $1.4 billion, which was an increase of 7.5% from 2020's total production. In 2021, $750.9 million in mortgages were sold into the secondary market at a net margin of 2.6% as compared to $679.7 million at a net margin of 3.3% in 2020. Included in mortgage banking income and the calculation of net margin noted above are gains of $0.4 million and losses of ($5.2) million from the fair value adjustments on mortgage loan commitments and related derivatives for 2021 and 2020, respectively.

Net securities gains include both gains and losses on investment security transactions, including sales and calls, as well as market value adjustments on the deferred compensation plan and other equity securities. In 2021, net securities gains decreased $3.2 million or 73.9% compared to 2020, due to there being no security sales in 2021. Gains on security sales totaled $2.4 million in 2020. In addition, market value adjustments on the deferred compensation plan decreased by $0.5 million from 2020 to 2021. These market adjustments had an offsetting effect in employee benefits expense.

Debit card sponsorship income, a non-essential revenue stream for Wesbanco that was acquired in the OLBK acquisition and generated $0.6 million of gross revenue in the first quarter of 2021, was sold as of March 31, 2021. The all-cash purchase price, which is being paid out

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on a monthly basis over a two-year period up to a maximum of $2.8 million, is based on a 50%-50% split of the monthly gross revenue earned by the purchasing bank. Wesbanco recognized $1.1 million in revenue in 2021 following the sale, which is recorded in net gain (loss) on the sale of other real estate owned and other assets.

Net gain (loss) on other real estate owned and other assets increased $4.7 million in 2021 as compared to 2020, due mostly to a gain recognized on an investment made by Wesbanco’s Community Development Corporation in a start-up firm more than ten years ago that was acquired in 2021 by a public company, as well as the $1.1 million in revenue following the sale of the debit card sponsorship revenue stream.

TABLE 5. NON-INTEREST EXPENSE

Non-interest expense in 2021, excluding restructuring and merger-related expenses, increased $1.3 million or 0.4% compared to 2020. The primary drivers of this increase were higher equipment and software costs, legal settlement costs incurred primarily during the third quarter and marketing expenses. These increases were slightly offset by decreases in FDIC insurance, amortization of intangible assets and franchise and other miscellaneous taxes. Restructuring and merger related expenses of $6.7 million in 2021 were associated with the branch restructuring and core conversion while the restructuring and merger-related expenses in 2020 totaling $9.7 million were related to the OLBK acquisition and branch restructuring.

Salaries and wages increased $1.1 million or 0.7% in 2021 compared to 2020 due primarily to increases in incentive compensation expense. Short term incentive expense increased $2.9 million due to overall higher performance in 2021 as compared to 2020, along with higher incentive stock compensation expense, which is up by $0.7 million from 2020. Commission expense increased due to increased business transactions in commission-earning business lines, such as securities brokerage and mortgage loan originations. These increases were mitigated by a 6.7% reduction in full time equivalent (“FTE”) employees in 2021 from 2020 as a result of the closure of branches at various points in 2021, as the branch optimization strategy was executed, and a temporary hiring freeze earlier in 2021.

Employee benefits expense decreased $0.7 million or 1.7% in 2021 compared to 2020 as reduced pension expense and a reduction in the market adjustment on the underlying investments of the deferred compensation plan mitigated a $3.0 million increase in health insurance expense resulting from an increase in claims in 2021.

Equipment and software costs increased $5.2 million or 21.0% compared to 2020, due to the core conversion, continuous improvements in technology and communication infrastructure, an increase in asset size, increased usage of digital banking services and SBA PPP loan forgiveness fees. Also, since the core conversion in the third quarter of 2021, approximately $1.0 million per quarter in online banking costs have been recorded in equipment and software, while in prior periods these costs were recorded in other operating expenses. Such costs are now part of the monthly core software invoice and cannot be separated as it was with a third party vendor previously.

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Marketing expense increased $2.7 million or 44.9% in 2021 as compared to 2020, due to increased spending on product advertising and brand awareness campaigns that were delayed from 2020 due to the COVID-19 pandemic.

FDIC insurance decreased $3.6 million or 46.3% in 2021 as compared to 2020, due to certain improved large bank assessment rate risk factors, ultimately lowering the assessment rate. In addition, a $1.0 million refund was received in the second quarter of 2021 from prior period call report adjustments, also contributing to the decrease year-over-year.

Restructuring and merger-related expenses in 2021 totaled $6.7 million, a decrease from $9.7 million incurred in 2020. The $6.7 million of expenses in 2021 consisted of $4.8 million in expenses related to the core banking software conversion, including termination fees of existing contracts, and $1.9 million in branch closure and lease termination expenses associated with the closure of 27 branches throughout 2021. The restructuring and merger-related expenses in 2020 totaling $9.7 million were comprised of $6.4 million in final merger-related expenses associated with the OLBK acquisition and $3.3 million in restructuring expenses associated with the branch optimization strategy.

Franchise and other miscellaneous taxes decreased $3.7 million or 25.9% in 2021 as compared to 2020, primarily due to the elimination of Kentucky bank franchise taxes effective on January 1, 2021, as well as various state franchise tax filed return accrual adjustments and associated refunds. Wesbanco is now subject to Kentucky state income taxes, which are reflected within the provision for income taxes on the income statement, and is part of the Company’s effective tax rate calculation.

Other operating expenses increased $2.5 million or 12.6% in 2021 as compared to 2020, due to $4.5 million in legal settlement costs incurred in 2021. This increase was offset somewhat by the reclassification of online banking costs mentioned previously into equipment and software costs.

INCOME TAXES

The provision for income taxes was $59.6 million for 2021, which is a $36.6 million increase as compared to $23.0 million in 2020. The increase in the provision for income taxes is due to an increase in the effective tax rate to 19.7% in 2021 compared to 15.9% in 2020. This increase resulted from higher pre-tax income primarily due to the negative provision for credit losses recorded in 2021, as compared to an increased provision for credit losses in 2020 due to the pandemic. In addition, as mentioned above, Kentucky state income taxes are now reflected within the provision for income taxes and the effective tax rate calculation for 2021 and comprised $1.8 million of the provision for income taxes in 2021.

FINANCIAL CONDITION

Total assets and deposits increased 3.1% and 9.1%, respectively, while shareholders' equity decreased 2.3% compared to December 31, 2020. Total securities increased $1.3 billion or 48.1% from December 31, 2020 to December 31, 2021, primarily driven by the investment of excess liquidity from increased cash balances resulting from customers' higher savings. The securities’ increase was partially offset by a $67.7 million increase in net unrealized losses in the available-for-sale portfolio. Total portfolio loans decreased $1.1 billion or 9.8% as a result of SBA PPP loan forgiveness and elevated commercial real estate loan payoffs. SBA PPP loans remaining totaled $162.7 million at December 31, 2021. Deposits increased $1.1 billion from year-end 2020 resulting from increases of 15.3%, 15.7%, and 3.2% in demand deposits, savings deposits, and money market deposits, respectively, which were partially offset by a 20.1% decrease in certificates of deposit. The growth in transaction-based accounts is primarily attributable to CARES Act stimulus funds previously received, increased personal savings and reduced consumer spending, focused retail and business strategies to obtain more account relationships and customers’ preferences for shorter-term maturities. The transaction-based accounts also increased from business customers obtaining loans through the PPP loan program.

Deposit balances were also somewhat impacted by bonus and royalty payments for Marcellus and Utica shale gas payments from energy companies in Wesbanco’s southwestern Pennsylvania, eastern Ohio, and northern West Virginia markets. The decrease in certificates of deposit is a result of lower overall rates and management periodically offering lower than median competitive rates for maturing certificates of deposit and customer preferences for other deposit types. The decline was also impacted by customer run-off of higher cost certificates of deposit from the OLBK and other prior acquisitions. Total borrowings decreased 53.4% or $524.6 million during 2021, as additional liquidity permitted the paydown of maturing FHLB advances totaling $365.1 million, coupled with the early redemption of $60.0 million of subordinated debt, acquired from YCB and OLBK, and a $100.1 million decrease in repurchase agreements.

Total shareholders’ equity decreased $63.6 million or 2.3%, compared to December 31, 2020, primarily due to the repurchase of common shares, net of restricted stock vesting activity totaling $183.0 million, the declaration of common and preferred shareholder dividends totaling $85.7 million and $10.1 million, respectively, and a $36.5 million other comprehensive income loss. Shareholders' equity was positively impacted by net income of $242.3 million for the year ended December 31, 2021.

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SECURITIES

TABLE 6. COMPOSITION OF SECURITIES

(1)
Total held-to-maturity debt securities are presented on the balance sheet net of their allowance for credit losses totaling $0.3 million at December 31, 2021 and December 31, 2020.

(2)
Weighted average yields have been calculated on a taxable-equivalent basis using the federal statutory tax rate of 21%.

Total investment securities, which are a source of liquidity for Wesbanco as well as a contributor to interest income, increased by $1.3 billion or 48.1% from December 31, 2020 to December 31, 2021. Over the same period, the available-for-sale portfolio increased by $1.0 billion or 52.3% primarily due to excess liquidity from stimulus deposits and increased calls of agency and municipal securities, funding $1.9 billion in purchases of residential mortgage-backed securities and collateralized mortgage obligations. The held-to-maturity portfolio increased by $273.6 million or 37.4% due to $390.0 million in purchases of municipal bonds. The weighted average yield of the portfolio decreased 54 basis points from 2.43% at December 31, 2020 to 1.89% at December 31, 2021, primarily due to increased prepayment speeds on mortgage-backed securities, calls of legacy higher-rate agency and municipal securities, and the previously mentioned purchases at the lower market rates throughout the year.

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Total gross unrealized securities losses increased $38.5 million, from $1.8 million as of December 31, 2020 to $40.3 million at December 31, 2021. The increase in unrealized losses from December 31, 2020, was due to an increase in market rates during the second half of 2021 causing market prices to decrease on the lowest yielding securities, particularly those purchased since the start of the pandemic. Wesbanco believes that none of the unrealized losses on available-for-sale debt securities at December 31, 2021 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.

Net unrealized (losses) gains on available-for-sale securities included in accumulated other comprehensive income, net of tax, as of December 31, 2021 and December 31, 2020 were ($4.7) million and $46.9 million, respectively. These net unrealized pre-tax (losses) gains represent temporary fluctuations resulting from changes in market rates in relation to fixed yields in the available-for-sale portfolio, and on an after-tax basis are accounted for as an adjustment to other comprehensive income in shareholders’ equity. Net unrealized pre-tax gains in the held-to-maturity portfolio, which are not accounted for in other comprehensive income, were $23.6 million at December 31, 2021, compared to $37.0 million as of December 31, 2020. With approximately 25% of the investment portfolio in the held-to-maturity category, compared to 27% one year ago, the recent volatility in interest rates does not have as much impact on other comprehensive income as if the entire portfolio were included in the available-for-sale category.

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

On January 1, 2020, Wesbanco adopted CECL for the held-to-maturity investments. Upon adoption, the Company recognized $0.2 million to opening retained earnings, which represented the CECL allowance for the investment portfolio as of January 1, 2020. The corporate and municipal bonds in Wesbanco’s held-to-maturity debt portfolio are analyzed quarterly to determine if an allowance for current expected credit losses is warranted. Wesbanco uses a database of historical financials of all corporate and municipal issuers and actual historic default and recovery rates on rated and non-rated transactions to estimate expected credit losses on an individual security basis. The expected credit losses are adjusted quarterly and are recorded in an allowance for expected credit losses on the balance sheet, which is deducted from the amortized cost basis of the held-to-maturity portfolio as a contra asset. The losses are recorded on the income statement in the provision for credit losses. Accrued interest receivable on held-to-maturity securities, which was $7.0 million and $5.3 million as of December 31, 2021 and 2020, respectively, is excluded from the estimate of credit losses. Held-to-maturity investments in U.S. Government sponsored entities and agencies as well as mortgage-backed securities and collateralized mortgage obligations, which are all either issued by a direct governmental entity or a government-sponsored entity, have no historical evidence supporting expected credit losses; therefore, Wesbanco has estimated these losses at zero, and will monitor this assumption in the future for any economic or governmental policies that could affect this assumption. Wesbanco recorded an allowance on held-to-maturity debt securities of $0.3 million as of December 31, 2021 and 2020.

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TABLE 7. MATURITY DISTRIBUTION AND YIELD ANALYSIS OF SECURITIES

The following table presents the tax-equivalent yields of held-to-maturity debt securities by contractual maturity at December 31, 2021. In some instances, the issuers may have the right to call or prepay obligations without penalty prior to the contractual maturity date.

(1)
Yields are determined based on the lower of the yield-to-call or yield-to-maturity.

(2)
Certain U.S. Government sponsored agency, mortgage-backed and collateralized mortgage securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds.

(3)
Average yields on obligations of states and political subdivisions have been calculated on a taxable-equivalent basis using the federal statutory tax rate of 21%.

Cost-method investments consist primarily of FHLB of Pittsburgh stock totaling $15.9 million and $34.0 million at December 31, 2021 and 2020, respectively, and are included in other assets in the Consolidated Balance Sheets.

Wesbanco’s municipal portfolio comprises 25.2% of the overall securities portfolio as of December 31, 2021 compared to 26.3% as of December 31, 2020, which carries different risks that are not as prevalent in other security types contained in the portfolio. The following table presents the allocation of the individual bonds in the municipal bond portfolio based on the combined ratings of two major bond credit rating agencies (at fair value):

TABLE 8. MUNICIPAL BOND RATINGS

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

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Wesbanco’s municipal bond portfolio at December 31, 2021, consists of $296.9 million of taxable and $737.4 million of tax-exempt general obligation and revenue bonds. The following table presents additional information regarding the municipal bond type and issuer (at fair value):

TABLE 9. COMPOSITION OF MUNICIPAL SECURITIES

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

TABLE 10. CONCENTRATION OF MUNICIPAL SECURITIES

(1) Wesbanco's municipal bond portfolio contains obligations in the state of West Virginia totaling $34.2 million or 3.3% of the total municipal portfolio.

Wesbanco uses prices from independent pricing services and, to a lesser extent, indicative (non-binding) quotes from independent brokers, to measure the fair value of its securities. Wesbanco validates prices received from pricing services or brokers using a variety of methods, including, but not limited to, comparison to secondary pricing services, corroboration of pricing by reference to other independent market data such as secondary broker quotes and relevant benchmark indices, review of pricing by personnel familiar with market liquidity and other market-related conditions, review of pricing service methodologies, review of independent auditor reports received from the pricing service regarding its internal controls, and through review of inputs and assumptions used in pricing certain securities thinly-traded or with limited observable data points. The procedures in place provide management with a sufficient understanding of the valuation models, assumptions, inputs and pricing to reasonably measure the fair value of Wesbanco’s securities. For additional disclosure relating to fair value measurement, refer to Note 17, “Fair Value Measurement” in the Consolidated Financial Statements.

LOANS AND LOAN COMMITMENTS

Loans represent Wesbanco’s largest balance sheet asset classification and the largest source of interest income. Commercial loans include CRE, which is further differentiated between land and construction, and improved property loans; as well as other C&I loans that are not secured by real estate. Retail loans include residential real estate mortgage loans, home equity lines of credit (“HELOC”), and loans for other consumer purposes.

Loan commitments, which are not reported on the balance sheet, represent available balances on commercial and consumer lines of credit, commercial letters of credit, deposit account overdraft protection limits, certain loan guarantee contracts, and approved commitments to extend

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credit. Approved commitments, which have been accepted by the customer, are included net of any Wesbanco loan balances that are to be refinanced by the new commitment. However, typically not all approved commitments will ultimately be funded.

Loans and loan commitments are summarized in Table 11.

TABLE 11. LOANS AND COMMITMENTS

(1) Includes $162.7 million and $726.3 million of SBA PPP loans at December 31, 2021 and December 31, 2020, respectively.

Total portfolio loans decreased $1.1 billion or 9.8% from December 31, 2020 to December 31, 2021, due primarily to the decrease in SBA PPP loans of $564 million during 2021. Excluding PPP loans, total loans decreased $492 million or 4.9% over the last twelve months as both consumers and businesses received significant fiscal stimulus monies issued under both the CARES Act as well as the American Rescue Plan Act. Commercial real estate loans decreased 2.9% as improved property decreased by 6.6%, offset by an increase of 24.8% for land and construction loans. Commercial and industrial loans decreased $817.1 million or 33.9%, of which $564 million, or 69.0%, was SBA PPP loan reduction. Residential real estate loans increased $0.4 million, while home equity loans decreased $40.7 million or 6.3%. Portfolio loans are presented in the Consolidated Balance Sheets net of deferred loan fees and costs and discounts on purchased loans. The net deferred loan income (costs) were ($3.3) million and $6.2 million as of December 31, 2021 and 2020, respectively. Wesbanco conducts a deferred loan cost study to determine the allowable costs to be deferred over the life of the loan. Excluding the effect of PPP loans, in the most recent study, Wesbanco’s deferred costs have increased at a faster rate than the related customer deferred fee income causing the balance of the deferred loan costs to outweigh the deferred loan fees, primarily from home equity lines of credit, which have little fee income. Purchased loan discounts from acquisitions included in the portfolio loan balances were $25.9 million and $39.4 million as of December 31, 2021 and 2020, respectively. Loan accretion included in interest income on loans acquired from prior acquisitions was $13.3 million and $17.0 million for the years ended December 31, 2021 and 2020, respectively. As part of loan fee income for the year ended December 31, 2021, recognized PPP loan fees were $25.3 million compared to $13.4 million for the year ended December 31, 2020. At December 31, 2021, $6.1 million of unaccreted net deferred fee income remains to be recognized on the PPP loans, as compared to $13.8 million at December 31, 2020.

CRE loans represent a significant component of the loan portfolio at 56.9% of the total portfolio, which was a 2.9% decrease in loan balances for the year. CRE—land and construction loan balances increased $165.6 million or 24.8% from December 31, 2020 to December 31, 2021, while CRE—improved property loans decreased $332.0 million or 6.6% during the same period.

C&I loans decreased $817.1 million or 33.9% from December 31, 2020 to December 31, 2021, primarily due to the $564 million decline in outstanding PPP loans. The available lines of credit within C&I loans decreased slightly from 66.1% at December 31, 2020 to 65.5% of total C&I revolving lines of credit exposure as of December 31, 2021. The higher levels of available credit over the past two years are the result of fiscal stimulus monies issued under both the CARES Act and the American Rescue Plan Act that allowed businesses to pay down their lines of credit.

Residential real estate mortgage loans increased $0.4 million from December 31, 2020 to December 31, 2021. Wesbanco retained approximately 57% of mortgages by dollar volume originated in 2021 for the portfolio compared to 38% in 2020. As mortgage rates change, management adjusts loans sold into the secondary market to obtain immediate fee income recognition from higher gain-on-sale margins, versus retaining balances in the loan portfolio, which is also somewhat dependent upon customer demand for various mortgage products and related terms.

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HELOC loans decreased $40.7 million or 6.3% from December 31, 2020 to December 31, 2021 due to lower demand and customers' refinancing into first mortgage loans at low, fixed rates.

Consumer loans decreased $31.9 million or 10.3% from December 31, 2020 to December 31, 2021 due to a decline in indirect lending, partially due to the supply chain availability issues associated with new automobile production and related financing.

Total loan commitments increased $668.3 million or 20.7% from December 31, 2020 to December 31, 2021. Commitments in the total CRE portfolio increased approximately $108.2 million or 13.5%, C&I commitments increased $189.3 million or 17.3% and HELOC commitments increased $134.4 million or 18.1%. Overdrafts were up $216.1 million or 140.0% due to the implementation of a new overdraft application that provides higher individual customer limits.

Geographic Distribution —Wesbanco extends credit primarily within the market areas where it has branch offices or markets adjacent thereto. Loans outside of these markets are generally only made to established customers that have other business relationships with Wesbanco in its markets. Loans outside of Wesbanco’s markets represented approximately 2% and 1% of total loans at December 31, 2021 and December 31, 2020, respectively. These loans consist primarily of C&I, CRE-improved property loans, residential real estate loans for second residences or vacation homes, consumer purpose lines of credit to wealth management customers, and automobile loans to family members of local customers.

The geographic distribution of the loan portfolio, excluding deposit overdraft limits and loans held for sale, is summarized in Table 12.

TABLE 12. GEOGRAPHIC DISTRIBUTION OF LOANS

(1)
Real estate secured loans are categorized based on the address of the collateral. All other loans are categorized based on the borrower’s address.

The Upper Ohio Valley Metropolitan Statistical Areas (“MSAs”) include the Wheeling, West Virginia and Weirton, West Virginia-Steubenville, Ohio MSAs. Other West Virginia locations include the Fairmont-Clarksburg and Charleston MSAs as well as communities that are not located within an MSA primarily in the northern, central and eastern parts of the state. The western Ohio MSAs include the Dayton-Springfield and the Cincinnati-Middletown MSAs. Other Ohio locations include communities in Ohio that are not located within an MSA, the majority of which are located in southeastern Ohio. Other Indiana locations include communities in Indiana that are not located within an MSA, the majority of which are located in southern Indiana. Other Kentucky locations include the Elizabethtown KY MSA along with other Kentucky locations that are not located within an MSA. Through the acquisition of OLBK, Wesbanco added the Baltimore-Columbia-Towson, MD MSA,

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Frederick-Gaithersburg-Rockville, MD MSA and Washington DC-Arlington-Alexandria, VA MSA as well as other Maryland locations. Adjacent states include parts of Delaware and Tennessee that are within close proximity to Wesbanco’s markets. Outside-of-market loans consist of loans in all other locations not included in any of the other defined areas and have remained relatively unchanged over the past few years.

CREDIT RISK

The risk that borrowers will be unable or unwilling to repay their obligations is inherent in all lending activities. Repayment risk can be impacted by external events such as adverse economic conditions, social and political influences that impact entire industries or major employers, individual loss of employment or other personal calamities and changes in interest rates. This inherent risk may be further exacerbated by the terms and structure of each loan as well as potential concentrations of risk. The primary goal of managing credit risk is to minimize the impact of all of these factors on the quality of the loan portfolio.

Credit risk is managed through the initial underwriting process as well as through ongoing monitoring and administration of the portfolio. 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 focuses on the sufficiency and sustainability of the primary source of repayment, the adequacy of collateral, if any, as a secondary source of repayment, potential for guarantor support, as a tertiary source of repayment and other factors unique to each type of loan that may increase or mitigate their risk. The manner and degree of monitoring and administration of the portfolio varies by type and size of loan.

Credit risk is also managed by closely monitoring delinquency levels and trends and initiating collection efforts at the earliest stage of delinquency. Wesbanco also monitors general economic conditions, including unemployment, housing activity and real estate values in its markets. Underwriting standards are modified when appropriate based on market conditions, the performance of one or more loan categories, and other external factors. An independent loan review function also performs periodic reviews of the portfolio to assess the adequacy and effectiveness of underwriting, loan documentation and portfolio administration.

Each category of loans contains distinct elements of risk that impact the manner in which those loans are underwritten, structured, documented, administered and monitored. Customary terms and underwriting practices, together with specific risks associated with each category of loans and Wesbanco’s processes for managing those risks are discussed in the remainder of this section.

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Commercial Loans —The commercial portfolio consists of loans to a wide range of business enterprises of varying size. Many commercial loans often involve multiple loans to one borrower or a group of related borrowers, therefore the potential for loss on any single transaction can be significantly greater for commercial loans than for retail loans. Commercial loan risk is mitigated by limiting total credit exposure to individual borrowers or groups of borrowers, industries and geographic markets and by requiring appropriate collateral or guarantors.

Commercial loans are monitored for potential concentrations of loans to any one borrower or group of related borrowers. At December 31, 2021 Wesbanco’s legal lending limit to any single borrower or their related interests approximated $242 million. The ten largest commercial relationships combined ranged from $623 million to $689 million during 2021. There were 12 relationships that exceeded $50 million at December 31, 2021. These large relationships generally consist of more than one loan to a borrower or their related entities. The single largest relationship exposure approximated $99 million at December 31, 2021 and consists of multiple loans to a business relationship in the lodging sector.

Commercial loans, including renewals and extensions of maturity, are approved within a framework of individual lending authorities based on the total credit exposure of the borrower. Loans with credit exposure up to $1,000,000 are approved by underwriters that are not responsible for loan origination. Loans with credit exposure greater than $1,000,000 minimally require the approval of a commercial banking executive, and credit exposures greater than $1.5 million require approval of a credit officer that is not responsible for loan origination. In the Mid-Atlantic market, credit exposures greater than $5 million require approval of a credit committee comprised of senior management in the market and credit officers not responsible for loan origination. Credit exposures greater than $15 million require approval of a centralized credit committee comprised of executive management, directors, and certain other non-voting qualified persons that are not responsible for loan origination. Underwriters and credit officers do not receive incentive compensation based on loan origination volume. Commercial banking executives receive incentive compensation based on multiple factors that include loan origination, net growth in outstanding loan balances, fees, credit quality and portfolio administration requirements.

CRE – land and construction consists of loans to finance land for development, investment, use in a commercial business enterprise, agricultural or minerals extraction, construction of residential dwellings for resale, multi-family apartments and other commercial buildings that may be owner-occupied or income-generating investments for the owner. Construction loans generally are made only when Wesbanco also commits to the permanent financing of the project, has a takeout commitment from another lender for the permanent loan or the loan is expected to be repaid from the sale of subdivided property. However, even if Wesbanco has a takeout commitment, construction loans are underwritten as if Wesbanco will retain the loan upon completion of construction. In recent years, due to the low interest rate environment and low property capitalization rates, many construction loans that did not have a takeout commitment when the loan originated have been sold or refinanced in the secondary market immediately upon completion of construction, at times, resulting in significant unscheduled loan payoffs.

CRE – land and construction loans require payment of interest-only during the construction period, with initial terms ranging from six months up to three years for larger, multiple-phase projects, such as residential housing developments and large scale commercial projects. Interest rates are often fully-floating based on an appropriate index, but may be structured in the same manner as the interest rate that will apply to the permanent loan upon completion of construction. Interest during the construction period is typically included in the project costs and therefore is often funded by loan advances. Advances are monitored to ensure that the project is at the appropriate stage of completion with each advance and that interest reserves are not exhausted prior to completion of the project. In the event a project is not completed within the initial term, the loan is re-underwritten at maturity, but interest beyond the initial term must be paid by the borrower and in some instances an additional interest reserve is required as a condition of extending the maturity. Upon completion of construction, the loan is converted to permanent financing and reclassified to CRE—improved property.

CRE – improved property loans consist of loans to purchase or refinance owner-occupied and investment properties. Owner-occupied CRE consists of loans to borrowers in a diverse range of industries and property types. Investment properties include multi-family apartment buildings, 1-to-4 family rental units, lodging and various types of commercial buildings that are rented or leased to unrelated parties of the owner.

CRE – improved property loans generally require monthly principal and interest payments based on amortization periods ranging from ten to twenty-five years depending on the type, age and condition of the property. Loans with amortization periods exceeding twenty years typically also have a maturity date or call option of ten years or less. Interest rates are generally adjustable after a fixed period ranging from one to five years based on an appropriate index of comparable duration. Interest rates may also be fixed for longer than five years and certain loans from acquisitions may have longer initial fixed rate terms. For certain larger loans, the borrower may be required to enter into an interest rate derivative contract that converts Wesbanco’s rate to an adjustable rate.

C&I loans consist of revolving lines of credit to finance accounts receivable, inventory and other general business purposes; term loans to finance fixed assets other than real estate, and letters of credit to support trade, insurance or governmental requirements for a variety of businesses. Most C&I borrowers are privately-held companies with annual sales up to $100 million.

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C&I term loans secured by equipment and other types of collateral generally require monthly principal and interest payments based on amortization periods up to ten years depending on the estimated useful life of the collateral, with interest rates that may be fixed for the term of the loan (potentially via an interest rate derivative contract) or adjustable after a fixed period ranging from one to seven years based on an appropriate index.

Commercial lines and letters of credit are generally categorized as C&I but may also be categorized as CRE—improved property loans or CRE—land and construction if they are secured primarily by real estate. Lines of credit typically require payment of interest-only with principal due on demand or at maturity. Interest rates on lines of credit are generally fully-adjustable based on an appropriate short-term index. Letters of credit typically require a periodic fee with principal and interest due on demand in the event the beneficiary of the letter requests an advance on the commitment. Lines of credit may also include a fee based on the amount of the line that is not advanced. Lines and letters of credit are generally renewable or may be cancelled annually by Wesbanco, but may also be committed for up to three years for certain small business lines and certain letters of credit. Letters of credit may also require Wesbanco to notify the beneficiary within a specified time in the event Wesbanco does not intend to renew or extend the commitment.

Table 13 summarizes the distribution of maturities by rate type for all commercial loans.

TABLE 13. MATURITIES OF COMMERCIAL LOANS

The primary factors considered in underwriting CRE—land and construction loans are the overall viability of each project, the experience and financial capacity of the developer or builder to successfully complete the project, market absorption rates and property values. These loans also have the unique risk that the developer or builder may not complete the project, or not complete it on time or within budget. Risk is generally mitigated by extending credit to developers and builders with established reputations who operate in Wesbanco’s markets and have the liquidity or other resources to absorb unanticipated increases in the cost of a project or longer than anticipated absorption, periodically inspecting construction in progress, and disbursing the loan at specified stages of completion. Certification of completed construction by a licensed architect or engineer and performance and payment bonds may also be required for certain types of projects. Since speculative projects are inherently riskier, Wesbanco may require a specified percentage of pre-sales for land and residential development or pre-lease commitments for investment property before construction can begin.

The primary factors that are considered in underwriting investment real estate are the debt service coverage calculation, the net rental income generated by the property, the composition of the tenants occupying the property, and the terms of leases, all of which may vary depending on the specific type of property. Other factors that are considered include the overall financial capacity of the investors and their experience owning and managing investment property.

Repayment of owner-occupied loans must come from the cash flow generated by the occupant’s commercial business. Therefore, the primary factors that are considered in underwriting owner-occupied CRE and C&I loans are the debt service coverage calculation, the historical and projected earnings, cash flow, capital resources, liquidity and leverage of the business. Other factors that are considered for their potential impact on repayment capacity include the borrower’s industry, competitive advantages and disadvantages, demand for the business’ products and services, business model viability, quality, experience and depth of management, and external influences that may impact the business such as general economic conditions and social or political changes.

The type, age, condition and location of real estate as well as any environmental risks associated with the property are considered for both owner-occupied and investment CRE. Environmental risk is mitigated by requiring assessments performed by qualified inspectors whenever the current or previous uses of the property or any adjacent properties are likely to have resulted in contamination of the property financed. Risk is further mitigated by requiring borrowers to have adequate down payments or cash equity, thereby limiting the loan amount in relation to the lower of the cost or the market value of the property, unless there are sufficient mitigating factors that would reduce the risk of a higher loan-to-value. Market values are determined by obtaining current appraisals or evaluations, whichever is appropriate or required by banking regulations based on the amount financed prior to the loan being made. New appraisals or evaluations may be obtained throughout the life of each loan to

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more accurately assess current market value when the initial term of a loan is being extended, market conditions indicate that the property value may have declined, and/or the primary source of repayment is no longer adequate to repay the loan under its original terms.

CRE loan-to-value (“LTV”) ratios are generally limited to the maximum percentages prescribed by Wesbanco credit policy or banking regulations, which range from 65% for unimproved land to 85% for improved commercial property. Regulatory guidelines also limit the aggregate of CRE loans that exceed prescribed LTV ratios to 30% of the Bank’s total risk-based capital. The aggregate of all CRE loans and loan commitments that exceeded the regulatory guidelines approximated $117 million or 7% of the Bank’s total risk-based capital at December 31, 2021, compared to $96 million or 6% at December 31, 2020. Regardless of credit policy or regulatory guidelines, lower LTV ratios may be required for certain types of properties or when other factors exist that increase the risk of volatility in market values such as single or special-use properties that cannot be easily converted to other uses or may have limited marketability. Conversely, higher LTV ratios may be acceptable when there are other factors to adequately mitigate the risk.

The type and amount of collateral for C&I loans varies depending on the overall financial strength of the borrower, the amount and terms of the loan, and available collateral or guarantors. The level of pledged collateral can vary from unsecured to fully secured with various types of collateral. Unsecured credit is only extended to those borrowers and/or guarantors that exhibit consistently strong repayment capacity and the financial condition to withstand a temporary decline in their operating cash flows. Unsecured loans totaled $393 million and $901 million at December 31, 2021 and December 31, 2020, respectively. Of the unsecured loans at December 31, 2021, $163 million are SBA-guaranteed PPP loans versus $726 million at December 31, 2020. Loans can be secured by bank deposit accounts, marketable securities, working capital assets (accounts receivable and inventory), equipment or owner occupied real estate. Bank deposits and marketable securities represent the lowest risk. Marketable securities are subject to changes in market value and are monitored regularly by the bank to ensure they remain appropriately margined. Collateral other than equipment or real estate that fluctuates with business activity, such as accounts receivable and inventory, may also be subject to regular reporting and certification by the borrower and, in some instances, independent inspection and verification by Wesbanco. Loans secured by equipment or real estate may be subject to receipt of third party appraisals. Although loans can be collateral type-specific, they can also be secured by multiple property types and/or a blanket lien may be placed on all of a borrower’s assets.

Most commercial loans are originated directly by Wesbanco. Participation in loans originated by other financial institutions represents $547 million or 5.9% of total commercial loan exposure at December 31, 2021, compared to $568 million or 5.7% at December 31, 2020. Included in this total are Shared National Credits of $11 million at December 31, 2021 and $15 million at December 31, 2020. Shared National Credits are defined as loans in excess of $100 million that are financed by three or more lending institutions. Wesbanco performs its own customary credit evaluation and underwriting before purchasing loan participations. The credit risk associated with these loans is similar to that of loans originated by Wesbanco, but additional risk may arise from the limited ability to control the actions of the lead, agent or servicing institution.

The commercial portfolio is monitored for potential concentrations of credit risk including by market, CRE property type, C&I industry, loan type and loans affected by similar external factors.

Beginning in 2001 and revised in 2013, banks of a certain size are required to track C&I loan transactions designated as Highly Leveraged Transactions (“HLTs”). Loans that meet the criteria must be of a certain size, for the purpose of a buyout, acquisition or capital distributions and meet certain leverage ratios. As of December 31, 2021, Wesbanco had $39.5 million or 0.4% of total commercial loan exposure designated as HLTs, as compared to $38.5 million or 0.4% as of December 31, 2020.

Due to fluctuations in energy prices, the bank closely monitors its energy portfolio. As of December 31, 2021, total exposure to core energy industries such as drilling, extraction, pipeline construction, mining equipment, investment real estate with energy-related tenants and other related support activities approximated $42 million or 0.6% of the total commercial loan portfolio, as compared to $60 million or 0.7% of the total commercial loan portfolio at December 31, 2020. Exposure to ancillary industries such as utility distribution and transportation, engineering services, manufacturers and retailers of other heavy equipment used in core energy industries, approximates an additional $106 million in exposure or 1.1% of the total loan portfolio, as compared to $113 million or 1.0% of the total loan portfolio at December 31, 2020. Lodging properties located in the shale gas areas that may be impacted by a reduction in shale gas activities represent an additional $121 million of exposure as of December 31, 2021, as compared to $130 million at December 31, 2020. The decrease is due to certain loans being repaid in full during the year.

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TABLE 14. COMMERCIAL EXPOSURE BY INDUSTRY