NOTE 7. FAIR VALUE MEASUREMENT

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

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

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

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

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

Impaired loans: Impaired loans are carried at the lower of cost or the fair value of the collateral for collateral-dependent loans. Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable. The use of independent appraisals, discounted cash flow models and management’s best judgment are significant inputs in arriving at the fair value measure of the underlying collateral and impaired loans are therefore classified within level 3 of the fair value hierarchy.

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

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

The following tables set forth WesBanco’s financial assets and liabilities that were accounted for at fair value on a recurring and nonrecurring basis by level within the fair value hierarchy as of March 31, 2015 and December 31, 2014:


			March 31, 2015
			Fair Value Measurements Using:
*(unaudited, in thousands)*	March 31, 2015		Quoted Prices in Active Markets for Identical Assets (level 1)		Significant Other Observable Inputs (level 2)		Significant Unobservable Inputs (level 3)
Recurring fair value measurements
Securities - available-for-sale
Obligations of government agencies	$	80,768	$	—	$	80,768	$	—
Residential mortgage-backed securities and collateralized mortgage obligations of government agencies		1,283,445		—		1,283,445		—
Obligations of state and political subdivisions		95,653		—		95,653		—
Corporate debt securities		183,090		—		183,090		—
Equity securities		11,308		8,538		2,770		—

Total securities - available-for-sale	$	1,654,264	$	8,538	$	1,645,726	$	—

Total recurring fair value measurements	$	1,654,264	$	8,538	$	1,645,726	$	—


Nonrecurring fair value measurements
Impaired loans	$	4,533	$	—	$	—	$	4,533
Other real estate owned and repossessed assets		6,226		—		—		6,226
Loans held for sale		6,064		—		6,064		—

Total nonrecurring fair value measurements	$	16,823	$	—	$	6,064	$	10,759


			December 31, 2014
			Fair Value Measurements Using:
*(unaudited, in thousands)*	December 31, 2014		Quoted Prices in Active Markets for Identical Assets (level 1)		Significant Other Observable Inputs (level 2)		Significant Unobservable Inputs (level 3)
Recurring fair value measurements
Securities - available-for-sale
Obligations of government agencies	$	87,736	$	—	$	87,736	$	—
Residential mortgage-backed securities and collateralized mortgage obligations of government agencies		701,113		—		701,113		—
Obligations of state and political subdivisions		91,433		—		91,433		—
Corporate debt securities		25,996		—		25,996		—
Equity securities		11,146		8,440		2,706		—

Total securities - available-for-sale	$	917,424	$	8,440	$	908,984	$	—

Total recurring fair value measurements	$	917,424	$	8,440	$	908,984	$	—


Nonrecurring fair value measurements
Impaired loans	$	6,024	$	—	$	—	$	6,024
Other real estate owned and repossessed assets		5,082		—		—		5,082
Loans held for sale		5,865		—		5,865		—

Total nonrecurring fair value measurements	$	16,971	$	—	$	5,865	$	11,106

WesBanco’s policy is to recognize transfers between levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between level 1, 2 or 3 for the three months ended March 31, 2015 or 2014.

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


	Quantitative Information about Level 3 Fair Value Measurements
*(unaudited, in thousands)*	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
March 31, 2015:
Impaired loans	$	4,533	Appraisal of collateral ⁽¹⁾	Appraisal adjustments ⁽²⁾	0% to (38.5%) / (6.9%)
				Liquidation expenses ⁽²⁾	(3.1%) to (8.0%) / (7.4%)
Other real estate owned and repossessed assets		6,226	Appraisal of collateral ^(1), (3)
December 31, 2014:
Impaired loans	$	6,024	Appraisal of collateral ⁽¹⁾	Appraisal adjustments ⁽²⁾	0% to (39.7%) / (6.7%)
				Liquidation expenses ⁽²⁾	(1.2%) to (8.0%) / (6.7%)
Other real estate owned and repossessed assets		5,082	Appraisal of collateral ^(1), (3)

⁽¹⁾	Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.

⁽²⁾	Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of appraisal adjustments and liquidation expenses are presented as a percent of the appraisal.

⁽³⁾	Includes estimated liquidation expenses and numerous dissimilar qualitative adjustments by management which are not identifiable.

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


					Fair Value Measurements at March 31, 2015
*(unaudited, in thousands)*	Carrying Amount		Fair Value Estimate		Quoted Prices in Active Markets for Identical Assets (level 1)		Significant Other Observable Inputs (level 2)		Significant Unobservable Inputs (level 3)
Financial Assets
Cash and due from banks	$	92,974	$	92,974	$	92,974	$	—	$	—
Securities available-for-sale		1,654,264		1,654,264		8,538		1,645,726		—
Securities held-to-maturity		743,925		772,843		—		772,088		755
Net loans		4,829,548		4,820,779		—		—		4,820,779
Loans held for sale		6,064		6,064		—		6,064		—
Accrued interest receivable		25,232		25,232		25,232		—		—
Bank-owned life insurance		153,991		153,991		153,991		—		—

Financial Liabilities
Deposits		6,416,202		6,423,499		4,532,314		1,891,185		—
Federal Home Loan Bank borrowings		432,456		435,089		—		435,089		—
Other borrowings		76,630		76,621		73,589		3,032		—
Junior subordinated debt		142,269		116,070		—		116,070		—
Accrued interest payable		2,297		2,297		2,297		—		—

					Fair Value Measurements at December 31, 2014
*(unaudited, in thousands)*	Carrying Amount		Fair Value Estimate		Quoted Prices in Active Markets for Identical Assets (level 1)		Significant Other Observable Inputs (level 2)		Significant Unobservable Inputs (level 3)
Financial Assets
Cash and due from banks	$	94,002	$	94,002	$	94,002	$	—	$	—
Securities available-for-sale		917,424		917,424		8,440		908,984		—
Securities held-to-maturity		593,670		619,617		—		618,895		722
Net loans		4,042,112		4,047,648		—		—		4,047,648
Loans held for sale		5,865		5,865		—		5,865		—
Accrued interest receivable		18,481		18,481		18,481		—		—
Bank-owned life insurance		123,298		123,298		123,298		—		—

Financial Liabilities
Deposits		5,048,983		5,056,828		3,743,887		1,312,941		—
Federal Home Loan Bank borrowings		223,126		225,456		—		225,456		—
Other borrowings		80,690		80,696		77,534		3,162		—
Junior subordinated debt		106,176		79,212		—		79,212		—
Accrued interest payable		1,620		1,620		1,620		—		—

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

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

Securities held-to-maturity: Fair values for securities held-to-maturity are determined in the same manner as securities available-for-sale which is described above.

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

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

Bank-owned life insurance: The carrying value of bank-owned life insurance represents the net cash surrender value of the underlying insurance policies, should these policies be terminated. Management believes that the carrying value approximates its fair value.

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

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

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

Junior subordinated debt owed to unconsolidated subsidiary trusts: Due to the pooled nature of these instruments, which are not actively traded, estimated fair value is based on recent similar transactions of single-issuer trust preferred securities.

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

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