Derivatives and Hedging Activities

12 Months Ended

Dec. 31, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging Activities

NOTE 12. DERIVATIVES AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

WesBanco is exposed to certain risks arising from both its business operations and economic conditions. WesBanco principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. WesBanco manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities. WesBanco’s existing interest rate derivatives result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in WesBanco’s assets or liabilities. WesBanco manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions. A matched book is when the Bank’s assets and liabilities are equally distributed but also have similar maturities.

In addition, commitments to fund certain mortgage loans (interest rate lock commitments) and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. WesBanco enters into such contracts in order to control interest rate risk during the period between the interest rate lock commitments and loan funding. The notional amount of the interest rate lock commitments and forward commitments was $19.5 million and $14.5 million at December 31, 2016 and 2015, respectively. The loss related to the fair value was $44 thousand and $20 thousand for the years ended December 31, 2016 and 2015, respectively.

Fair Values of Derivative Instruments on the Balance Sheet

All derivatives are carried on the consolidated balance sheet at fair value. Derivative assets are classified in the consolidated balance sheet under other assets, and derivative liabilities are classified in the consolidated balance sheet under other liabilities. Changes in fair value are recognized in earnings.

The table below presents the fair value of WesBanco’s derivative financial instruments as well as their classification on the Balance Sheet as of December 31, 2016 and December 31, 2015:

	December 31, 2016				December 31, 2015
(in thousands)	Asset Derivatives		Liability Derivatives		Asset Derivatives		Liability Derivatives
Derivatives not designated as hedging instruments
Interest rate product	$	5,596	$	5,199	$	1,893	$	1,991
Total derivatives not designated as hedging instruments	$	5,596	$	5,199	$	1,893	$	1,991

Non-designated Hedges

None of WesBanco’s derivatives are designated in qualifying hedging relationships under FASB ASC 815. Derivatives not designated as hedges are not speculative and result from a service WesBanco provides to certain customers. WesBanco executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that WesBanco executes with a third party, such that WesBanco minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements of FASB ASC 815, changes in the fair value of both the customer swaps and the offsetting third-party swaps are recognized directly in earnings. As of December 31, 2016 and 2015, WesBanco had 24 and 12 interest rate swaps with an aggregate notional amount of $206.9 and $69.6 million, respectively, related to this program. During the years ended December 31, 2016, 2015, and 2014, WesBanco recognized a net gain of $0.5 million and $3 thousand and a net loss of $0.2 million, respectively, related to the changes in fair value of these swaps. Additionally, WesBanco recognized $2.5 million, $0.2 million and $0.6 million income for the related swap fees for the years ended December 31, 2016, 2015, and 2014, respectively.

Effect of Derivative Instruments on the Income Statement

The table below presents the change in the fair value of the Company’s derivative financial instruments reflected within the other non-interest income line item of the consolidated income statement for the years ended December 31, 2016, 2015 and 2014, respectively.

	For the Years Ended December 31,
(in thousands)	2016		2015		2014
Derivatives not designated as hedging instruments
Interest Rate Products	$	495	$	3	$	(162	)
Total	$	495	$	3	$	(162	)

Credit-risk-related Contingent Features

WesBanco has agreements with its derivative counterparties that contain a provision where if WesBanco defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then WesBanco could also be declared in default on its derivative obligations.

WesBanco also has agreements with certain of its derivative counterparties that contain a provision where if WesBanco fails to maintain its status as either a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and WesBanco would be required to settle its obligations under the agreements.

WesBanco has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral with a market value of $7.2 million as of December 31, 2016. If WesBanco had breached any of these provisions at December 31, 2016, it could have been required to settle its obligations under the agreements at the termination value and would have been required to pay any additional amounts due in excess of amounts previously posted as collateral with the respective counterparty.