NOTE 13. EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plan—The WesBanco, Inc. Defined Benefit Pension Plan (“the Plan”) established on January 1, 1985, is a non-contributory, defined benefit pension plan. The Plan covers all employees of WesBanco and its subsidiaries who were hired on or before August 1, 2007 who satisfy minimum age and length of service requirements. Benefits of the Plan are generally based on years of service and the employee’s compensation during the last five years of employment. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. WesBanco uses a December 31 measurement date for the Plan.

The benefit obligations and funded status of the Plan are as follows:


	December 31,
*(dollars in thousands)*	2016			2015
Accumulated benefit obligation at end of year	$	104,775		$	99,312

Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	109,400		$	118,261
Service cost		2,799			3,355
Interest cost		5,094			4,870
Actuarial (gain) loss		2,569			(13,413	)
Acquisition		1,392			—
Benefits paid		(5,796	)		(3,673	)

Projected benefit obligation at end of year	$	115,458		$	109,400

Change in fair value of plan assets:
Fair value of plan assets at beginning of year	$	113,292		$	110,037
Actual return on plan assets		7,125			(572	)
Employer contribution		5,750			7,500
Acquisition		1,226			—
Benefits paid		(5,796	)		(3,673	)

Fair value of plan assets at end of year	$	121,597		$	113,292

Amounts recognized in the statement of financial position:
Funded status	$	6,139		$	3,892

Net amounts recognized as receivable pension costs in the consolidated balance sheets	$	6,139		$	3,892

Amounts recognized in accumulated other comprehensive income consist of:
Unrecognized prior service cost	$	130		$	156
Unrecognized net loss		27,857			27,549

Net amounts recognized in accumulated other comprehensive income (before tax)	$	27,987		$	27,705

Weighted average assumptions used to determine benefit obligations:
Discount rate		4.46	%		4.74	%
Rate of compensation increase		3.74	%		3.82	%
Expected long-term return on assets		6.30	%		6.79	%

The components of and weighted-average assumptions used to determine net periodic benefit costs are as follows:


	For the years ended December 31,
*(dollars in thousands)*	2016			2015			2014
Components of net periodic benefit cost:
Service cost—benefits earned during year	$	2,799		$	3,355		$	2,909
Interest cost on projected benefit obligation		5,094			4,870			4,745
Expected return on plan assets		(7,719	)		(7,735	)		(7,229	)
Amortization of prior service cost		26			26			45
Amortization of net loss		3,020			3,179			1,471

Net periodic pension cost	$	3,220		$	3,695		$	1,941

Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net (gain) loss for period	$	3,329		$	(5,106	)	$	24,934
Amortization of prior service cost		(26	)		(26	)		(45	)
Amortization of net loss		(3,020	)		(3,179	)		(1,471	)

Total recognized in other comprehensive income	$	283		$	(8,311	)	$	23,418

Total recognized in net periodic pension cost and other comprehensive income	$	3,503		$	(4,616	)	$	25,359

Weighted-average assumptions used to determine net periodic pension cost:
Discount rate		4.74	%		4.33	%		5.17	%
Rate of compensation increase		3.82	%		3.77	%		3.97	%
Expected long-term return on assets		6.79	%		7.00	%		7.25	%

On December 31, 2016, WesBanco changed the method used to estimate the service and interest components of net periodic benefit cost for pension benefits. This change compared to the previous method will result in a decrease in the service and interest components for pension cost. Historically, WesBanco estimated these service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. WesBanco has elected to utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. The change has been made to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change does not affect the measurement of the plan’s total benefit obligations as the change in the service and interest costs is completely offset in the actuarial (gain) loss reported. Based on current economic conditions, we estimate the service cost and interest cost for the plan will be reduced by approximately $1.0 million in 2017 as a result of this change. WesBanco will account for this change as a change in accounting estimate that is inseparable from a change in accounting principle and accordingly will account for it prospectively.

The estimated net loss and prior service credit for the Plan that will be amortized from accumulated other comprehensive income into the net periodic pension cost over the next fiscal year are $3.1 million and $26 thousand, respectively. Unrecognized prior service cost and unrecognized net losses are amortized on a straight-line basis. All unrecognized net losses are being amortized over the average remaining service period of approximately 9 years.

The expected long-term rate of return for the Plan’s total assets is based on the expected return of each of the Plan asset categories, weighted based on the median of the target allocation for each class.

Pension Plan Investment Policy and Strategy—The investment policy as established by the Retirement Plans Committee, to be followed by the Trustee, which is WesBanco’s Trust and Investment Services department, is to invest assets based on the target allocations shown in the table below. Assets are reallocated periodically by the Trustee based on the ranges set forth by the Retirement Plans Committee to meet the target allocations. The investment policy is also subject to review periodically to determine if the policy should be changed. Plan assets are to be invested with the principal objective of maximizing long-term total return without exposing Plan assets to undue risk, taking into account the Plan’s funding needs and benefit obligations. Assets are to be invested in a balanced portfolio composed primarily of equities, fixed income and cash or cash equivalent money market investments.

A maximum of 5% may be invested in any one stock. Foreign stocks may be included, either through direct investment or by the purchase of mutual funds which invest in foreign stock. WesBanco common stock can represent up to 5% of the total market value. Corporate bonds selected for purchase must be rated Baa1 by Moody’s or BBB+ by Standard and Poor’s or higher. No more than 5% shall be invested in bonds or notes issued by the same corporation with a maximum term of twenty years. There is no limit on the holdings of U.S. Treasury or Federal Agency Securities. At December 31, 2016 and 2015, the Plan’s equity securities included 55,300 shares of WesBanco common stock with a fair market value of $2.4 million and $1.7 million, respectively.

The following table sets forth the Plan’s weighted-average asset allocations by asset category:


	Target Allocation for 2016
				December 31,
				2016			2015
Asset Category:
Equity securities		55-75	%		62	%		61	%
Debt securities		25-55	%		35	%		34	%
Cash and cash equivalents		0-5	%		3	%		5	%

Total					100	%		100	%

The fair values of WesBanco’s pension plan assets at December 31, 2016 and 2015, by asset category are as follows:

December 31, 2016
Fair Value Measurements Using:

(in thousands)

Assets at Fair
Value

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Defined benefit pension plan assets:

Registered investment companies

21,935

—

Equity securities

60,144

—

Corporate debt securities

18,110

—

18,110

—

Municipal obligations

2,998

—

2,998

—

Residential mortgage-backed securities and collateralized mortgage obligations of government agencies

17,176

—

17,176

—

Total defined benefit pension plan assets (1)

120,363

82,079

38,284

—

(1)	The defined benefit pension plan statement of net assets also includes cash, accrued interest and dividends, and due to/from brokers resulting in net assets available for benefits of $121.6 million.


			December 31, 2015 Fair Value Measurements Using:
*(in thousands)*	Assets at Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Defined benefit pension plan assets:
Registered investment companies	$	23,741	$	23,741	$	—	$	—
Equity securities		56,098		56,098		—		—
Corporate debt securities		16,802		—		16,802		—
Municipal obligations		3,034		—		3,034		—
Residential mortgage-backed securities and collateralized mortgage obligations of government agencies		15,386		—		15,386		—

Total defined benefit pension plan assets (1)	$	115,061	$	79,839	$	35,222	$	—

(1)	The defined benefit pension plan statement of net assets also includes cash, accrued interest and dividends, and due to/from brokers resulting in net assets available for benefits of $113.3 million.

Registered investment companies and equity securities: Valued at the closing price reported on the active market on which the individual securities are traded.

Corporate debt securities, municipal obligations, and U.S. government agency securities: Valued at fair value based on models that consider criteria such as dealer quotes, available trade data, issuer creditworthiness, market movements, sector news, and bond and swap yield curves.

Cash Flows—WesBanco has no required minimum contribution to the Plan for 2017 and as of December 31, 2016; however, WesBanco expects to make a voluntary contribution of $5.0 million in 2017. WesBanco contributed $5.8 million, $7.5 million and $7.5 million for the years ended December 31, 2016, 2015 and 2014, respectively.

The following table presents estimated benefits to be paid in each of the next five years and in the aggregate for the five years thereafter (in thousands):


Year	Amount
2017	$	3,903
2018		4,150
2019		4,409
2020		4,748
2021		5,212
2022 to 2026		31,684

On September 9, 2016, WesBanco assumed YCB’s obligation for a predecessor bank’s participation in the Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra Plan”). The participating employer plan has been frozen to new participants since 2002. WesBanco is in the process of spinning off the assets from the Pentegra Plan, contributing approximately $3.3 million to satisfy the estimated final costs to do so. This estimated spin off will have no impact on earnings as the liability was included in YCB’s balance sheet as of the acquisition date. The distributed assets from the Pentegra Plan will be transferred to a plan providing substantially the same benefits to the participants.

WesBanco also assumed YCB’s single employer pension plan that was amended in 1997 such that there could be no new participants or increases to existing participants. This plan was merged into the WesBanco Defined Benefit Pension Plan as of December 31, 2016, with plan assets of $1.2 million and projected benefit obligations of $1.4 million.

Employee Stock Ownership and 401(k) Plan (“KSOP”)—WesBanco sponsors a KSOP plan consisting of a non-contributory leveraged ESOP and a contributory 401(k) profit sharing plan covering substantially all of its employees. Under the provisions of the 401(k) plan, WesBanco matches a portion of eligible employee contributions based on rates established and approved by the Board of Directors. For each of the past three years, WesBanco matched 100% of the first 3% and 50% of the next 2% of eligible employee contributions. No ESOP contribution has been made for any of the past three years.

As of December 31, 2016, the KSOP held 508,066 shares of WesBanco common stock of which all shares were allocated to specific employee accounts. Dividends on shares are either distributed to employee accounts or paid in cash to the participant. Total expense for the KSOP was $2.8 million, $2.5 million, and $2.2 million in 2016, 2015 and 2014, respectively. WesBanco had 445,978 and 484,430 shares registered on Form S-8 remaining for future issuance under the KSOP plan at December 31, 2016 and 2015, respectively.

Incentive Bonus, Option and Restricted Stock Plan—The Incentive Bonus, Option and Restricted Stock Plan (the “Incentive Plan”), is a non-qualified plan that includes the following components: an Annual Bonus, a Long-Term Incentive, including a Total Shareholder Return Plan, a Stock Option component, and a Restricted Stock component. The components allow for payments of cash, a mixture of cash and stock, granting of stock options, or granting of restricted stock, depending upon the component of the Incentive Plan in which the award is earned through the attainment of certain performance goals or on a time-based vesting requirement. Performance goals or service vesting requirements are established by WesBanco’s Compensation Committee. WesBanco had 117,266 and 288,541 shares, registered on Form S-8, remaining for future issuance under equity compensation plans at December 31, 2016 and 2015, respectively.

Annual Bonus

Compensation expense for the Annual Bonus was $1.6 million, $1.3 million and $1.5 million for 2016, 2015, and 2014, respectively. There was no Long-Term Incentive Bonus granted for any of these periods.

Total Shareholder Return Plan

On November 18, 2015, WesBanco’s Compensation Committee adopted Administrative Rules for a Total Shareholder Return Plan (“TSRP”). The TSRP measures the TSR on WesBanco common stock over a three-year measurement period relative to the return of an established peer group of publicly traded companies over the same performance period. The award is determined at the end of the three-year period if the TSR of WesBanco common stock is equal to or greater than the 50^th percentile of the TSR of the peer group. The number of shares to be earned by the participant shall be 200% of the grant-date award if the TSR of WesBanco common stock is equal to or greater than the 75^th percentile of the TSR of the peer group. Upon achieving the market-based metric, shares determined to be earned by the participant become service-based and vest in three equal annual installments. No TSRP shares were granted in 2016. In late 2015, WesBanco granted 12,000 TSRP shares for the performance period beginning January 1, 2016 and ending December 31, 2018 to certain executive officers.

Stock Options

On May 25, 2016, WesBanco granted 96,600 stock options to selected participants, including certain named executive officers at an exercise price of $32.37 per share. The options granted in 2016 are service-based and vest in two equal installments on December 31, 2016 and December 31, 2017, and expire seven years from the date of grant.

Compensation expense for the stock option component of the Incentive Plan was $0.5 million, $0.5 million and $0.4 million for 2016, 2015 and 2014, respectively. At December 31, 2016, the total unrecognized compensation expense related to non-vested stock option grants totaled $0.2 million with an expense recognition period of one year remaining. The maximum term of options granted under WesBanco’s stock option plan is ten years from the original grant date; however, options granted in 2016 had a term of seven years.

The total intrinsic value of options exercised was $1.2 million and $0.6 million for the years ended December 31, 2016 and 2015, respectively. The cash received and related tax benefit realized from stock options exercised was $2.5 million and $0.4 million in 2016 and was $1.4 million and $0.2 million in 2015. Shares issued in connection with options exercised are issued from treasury shares acquired under WesBanco’s share repurchase plans or from issuance of authorized but unissued shares, subject to prior SEC registration.

The fair value of stock options granted is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that might otherwise have a significant effect on the value of stock options granted that are not considered by the model.

The following table sets forth the significant assumptions used in calculating the fair value of the grants:


	For the years ended December 31,
	2016			2015			2014
Weighted-average life		5.1 years			4.9 years			4.8 years
Risk-free interest rate		1.43	%		1.54	%		1.37	%
Dividend yield		2.97	%		2.91	%		3.06	%
Volatility factor		23.92	%		26.27	%		28.82	%
Fair value of the grants	$	5.09		$	5.57		$	5.41

The weighted-average life assumption is an estimate of the length of time that an employee might hold an option before option exercise, option expiration or employment termination. The weighted-average life assumption was developed using historical experience. WesBanco used a weighted historical volatility of its common stock price over the weighted average life prior to each issuance as the volatility factor assumption, adjusted for abnormal volatility during certain periods, and current and future dividend payment expectations for the dividend assumption.

The following table shows the activity for the Stock Option component of the Incentive Plan:


	For the year ended December 31, 2016
	Number of Options			Weighted Average Exercise Price Per Share
Outstanding at beginning of the year		287,500		$	27.02
Granted during the year		96,600			32.37
Exercised during the year		(101,190	)		24.58
Forfeited or expired during the year		(6,788	)		30.09

Outstanding at end of the year		276,122		$	29.71

Exercisable at year end		228,272		$	29.15

The aggregate intrinsic value of the outstanding shares and the shares exercisable at year-end was $3.7 million and $3.2 million, respectively.

The following table shows the average remaining life of the stock options at December 31, 2016:

Year Issued

Exercisable
at
Year End

Exercise
Price Range Per
Share

Options
Outstanding

Weighted
Average
Exercise
Price

Weighted Avg.
Remaining
Contractual
Life in Years

2010

3,234

19.27

3,234

19.27

0.38

2011

6,250

19.76

6,250

19.76

1.38

2012

12,000

20.02

12,000

20.02

2.37

2013

30,750

25.00

30,750

25.00

3.37

2014

49,550

28.79

49,550

28.79

4.39

2015

78,638

31.58

78,638

31.58

5.42

2016

47,850

32.37

95,700

32.37

6.40

Total

228,272

19.27 to $32.37

276,122

29.71

5.06

Restricted Stock

During 2016, WesBanco granted 76,400 shares of restricted stock to certain officers. The restricted shares are service-based and cliff vest 36 months from the date of grant. The weighted average fair value of the restricted stock granted was $32.45 per share. Compensation expense relating to all restricted stock was $1.4 million, $1.2 million, and $1.0 million in 2016, 2015 and 2014, respectively. At December 31, 2016, the total unrecognized compensation expense related to non-vested restricted stock grants totaled $2.7 million with a weighted average expense recognition period of 1.7 years remaining. The restricted stock grant provides the recipient with voting rights from the date of issuance. Dividends paid on the restricted shares during the restriction period are converted into additional shares of restricted stock on the date the cash dividend would have otherwise been paid, but do not vest until the related grant of the restricted shares complete their vesting. The Compensation Committee has discretion to elect to pay such dividends to participants.

The following table shows the activity for the Restricted Stock component of the Incentive Plan:


For the year ended December 31, 2016	Restricted Stock			Weighted Average Grant Date Fair Value Per Share
Non-vested at January 1, 2016		143,456		$	28.92
Granted during the year		76,400			32.45
Vested during the year		(52,485	)		26.35
Forfeited or expired during the year		(1,725	)		30.92
Dividend reinvestment		4,836			33.43

Non-vested at end of the year		170,482		$	31.40