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:

Investment securities: The fair value of investment securities 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. 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.

Loans held for sale: Loans held for sale are carried, in aggregate, at fair value as WesBanco has elected the fair value option as of October 1, 2017. 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.

Derivatives: WesBanco enters into interest rate swap agreements with qualifying commercial customers to meet their financing, interest rate and other risk management needs. These agreements provide the customer the ability to convert from variable to fixed interest rates. The credit risk associated with derivatives executed with customers is essentially the same as that involved in extending loans and is subject to normal credit policies and monitoring. Those interest rate swaps are economically hedged by offsetting interest rate swaps that WesBanco executes with derivative counterparties in order to offset its exposure on the fixed components of the customer interest rate swap agreements. The interest rate swap agreement with the loan customer and with the counterparty is reported at fair value in other assets and other liabilities on the consolidated balance sheet with any resulting gain or loss recorded in current period earnings as other income and other expense.

WesBanco enters into forward TBA contracts to manage the interest rate risk between the loan commitments to the customer and the closing of the loan for loans that will be sold on a mandatory basis to secondary market investors. The forward TBA contract is reported at fair value in other assets and other liabilities on the consolidated balance sheet with any resulting gain or loss recorded in current period’s earnings as mortgage banking income.

WesBanco determines the fair value for derivatives using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. WesBanco incorporates credit valuation adjustments to appropriately reflect both its own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements.

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

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.

The fair value amounts presented in the table below are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. 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 June 30, 2019 and December 31, 2018:

			June 30, 2019
			Fair Value Measurements Using:
	June 30,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(unaudited, in thousands)	2019		(level 1)		(level 2)		(level 3)
Recurring fair value measurements
Equity securities	$	11,817	$	11,817	$	—	$	—
Available-for-sale debt securities
U.S. Treasury		29,781		—		29,781		—
U.S. Government sponsored entities and agencies		134,587		—		134,587		—
Residential mortgage-backed securities and collateralized mortgage obligations of government agencies		1,563,042		—		1,563,042		—
Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		178,656		—		178,656		—
Obligations of state and political subdivisions		183,178		—		181,576		1,602
Corporate debt securities		40,040		—		40,040		—
Total available-for-sale debt securities	$	2,129,284	$	—	$	2,127,682	$	1,602
Loans held for sale		18,649		—		18,649		—
Other assets - interest rate derivatives agreements		13,281		—		13,281		—
Total assets recurring fair value measurements	$	2,173,031	$	11,817	$	2,159,612	$	1,602

Other liabilities - interest rate derivatives agreements	$	14,774	$	—	$	14,774	$	—
Total liabilities recurring fair value measurements	$	14,774	$	—	$	14,774	$	—

Nonrecurring fair value measurements
Impaired Loans	$	2,434		—		—	$	2,434
Other real estate owned and repossessed assets		4,973		—		—		4,973
Total nonrecurring fair value measurements	$	7,407	$	—	$	—	$	7,407

			December 31, 2018
			Fair Value Measurements Using:
	December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	2018		(level 1)		(level 2)		(level 3)
Recurring fair value measurements
Equity securities	$	11,737	$	11,737	$	—	$	—
Available-for-sale debt securities
U.S. Treasury		19,878		—		19,878		—
U.S. Government sponsored entities and agencies		141,652		—		141,652		—
Residential mortgage-backed securities and collateralized mortgage obligations of government agencies		1,561,255		—		1,561,255		—
Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies		168,972		—		168,972		—
Obligations of state and political subdivisions		185,114		—		183,611		1,503
Corporate debt securities		37,258		—		37,258		—
Total available-for-sale debt securities	$	2,114,129	$	—	$	2,112,626	$	1,503
Loans held for sale		8,994		—		8,994		—
Other assets - interest rate derivatives agreements		4,650		—		4,650		—
Total assets recurring fair value measurements	$	2,139,510	$	11,737	$	2,126,270	$	1,503

Other liabilities - interest rate derivatives agreements	$	5,081	$	—	$	5,081	$	—
Total liabilities recurring fair value measurements	$	5,081	$	—	$	5,081	$	—

Nonrecurring fair value measurements
Other real estate owned and repossessed assets		7,265		—		—		7,265
Total nonrecurring fair value measurements	$	7,265	$	—	$	—	$	7,265

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 significant transfers between level 1, 2 or 3 for the three and six months ended June 30, 2019 or for the year ended December 31, 2018.

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
	Fair Value		Valuation	Unobservable	Range (Weighted
(unaudited, in thousands)	Estimate		Techniques	Input	Average)
June 30, 2019
Impaired loans	$	2,434	Appraisal of collateral ⁽¹⁾	Appraisal adjustments ⁽²⁾	(30.5%)/((30.5%)
				Liquidation expenses ⁽²⁾	(5.1%)/((5.1%)
Other real estate owned and repossessed assets	$	4,973	Appraisal of collateral ^{(1), (3)}
December 31, 2018
Other real estate owned and repossessed assets	$	7,265	Appraisal of collateral ^{(1), (3)}

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

					Fair Value Measurements at
					June 30, 2019
	Carrying		Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(unaudited, in thousands)	Amount		Estimate		(level 1)		(level 2)		(level 3)
Financial Assets
Cash and due from banks	$	194,355	$	194,355	$	194,355	$	—	$	—
Equity securities		11,817		11,817		11,817		—		—
Available-for-sale debt securities		2,129,284		2,129,284		—		2,127,682		1,602
Held-to-maturity debt securities		900,605		921,534		—		920,989		545
Net loans		7,686,995		7,674,887		—		—		7,674,887
Loans held for sale		18,649		18,649		—		18,649		—
Other assets - interest rate derivatives		13,281		13,281		—		13,281		—
Accrued interest receivable		38,450		38,450		38,450		—		—

Financial Liabilities
Deposits		8,694,928		8,695,779		7,329,812		1,365,967		—
Federal Home Loan Bank borrowings		1,121,283		1,127,210		—		1,127,210		—
Other borrowings		296,148		296,574		293,205		3,369		—
Subordinated debt and junior subordinated debt		156,534		144,410		—		144,410		—
Other liabilities - interest rate derivatives		14,774		14,774		—		14,774		—
Accrued interest payable		6,559		6,559		6,559		—		—

					Fair Value Measurements at
					December 31, 2018
	Carrying		Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Amount		Estimate		(level 1)		(level 2)		(level 3)
Financial Assets
Cash and due from banks	$	169,186	$	169,186	$	169,186	$	—	$	—
Equity securities		11,737		11,737		11,737		—		—
Available-for-sale debt securities		2,114,129		2,114,129		—		2,112,626		1,503
Held-to-maturity debt securities		1,020,934		1,020,743		—		1,020,195		548
Net loans		7,607,333		7,422,825		—		—		7,422,825
Loans held for sale		8,994		8,994		—		8,994		—
Other assets - interest rate derivatives		4,650		4,650		—		4,650		—
Accrued interest receivable		38,853		38,853		38,853		—		—

Financial Liabilities
Deposits		8,831,633		8,836,390		7,376,023		1,460,367		—
Federal Home Loan Bank borrowings		1,054,174		1,051,401		—		1,051,401		—
Other borrowings		290,522		290,854		288,918		1,936		—
Subordinated debt and junior subordinated debt		189,842		174,448		—		174,448		—
Other liabilities - interest rate derivatives		5,081		5,081		—		5,081		—
Accrued interest payable		4,627		4,627		4,627		—		—

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.

Held-to-maturity debt securities: Fair values for debt securities held-to-maturity are determined in the same manner as investment securities, which are 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. WesBanco believes the discount rates are consistent with transactions occurring in the marketplace for both performing and distressed loan types. The carrying value 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.

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.

Subordinated debt and junior subordinated debt: The fair value of subordinated debt is estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements. Due to the pooled nature of junior subordinated debt owed to unconsolidated subsidiary trusts, 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.