Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 16. INCOME TAXES

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law.  The Act provided for the opportunity to carryback certain federal net operating losses up to five years.  Wesbanco’s net operating losses had previously been recorded at the current statutory rate of 21%.  As a result of the CARES Act, Wesbanco recorded an income tax benefit of $0.2 million in recognition of the rate differential between the current statutory rate and the rate in effect for which year the net operating loss will be carried back.  

Reconciliation from the federal statutory income tax rate to the effective tax rate is as follows:

	For the Years Ended December 31,
	2020			2019			2018
Federal statutory tax rate		21.0	%		21.0	%		21.0	%
Net tax-exempt interest income on securities and loans of state and    political subdivisions		(4.2	%)		(3.3	%)		(3.2	%)
State income taxes, net of federal tax effect		1.9	%		1.7	%		1.7	%
Bank-owned life insurance		(1.1	%)		(0.6	%)		(0.8	%)
General business credits		(3.7	%)		(2.2	%)		(1.6	%)
All other—net		2.0	%		1.2	%		0.9	%
Effective tax rate		15.9	%		17.8	%		18.0	%

The provision for income taxes applicable to income before taxes consists of the following:

	For the Years Ended December 31,
(in thousands)	2020			2019		2018
Current:
Federal	$	27,924		$	22,540	$	20,707
State		5,629			3,977		3,542
Deferred:
Federal		(8,418	)		7,736		6,864
State		(2,100	)		88		299
Total	$	23,035		$	34,341	$	31,412

The following income tax amounts were recorded in shareholders’ equity as elements of other comprehensive income:

(in thousands)	2020		2019		2018
Securities and defined benefit pension plan unrecognized items	$	9,730	$	11,570	$	(1,250	)

Deferred tax assets and liabilities consist of the following:

	December 31,
(in thousands)	2020			2019			2018
Deferred tax assets:
Allowance for loan losses	$	44,859		$	12,788		$	11,207
Compensation and benefits		6,894			7,144			5,851
Security gains		2,113			3,031			3,707
Non-accrual interest income		1,135			1,297			1,388
Tax credit carryforwards		—			149			—
Net operating loss carryforwards		5,472			6,923			4,854
Fair value adjustments on securities available-for-sale		—			—			6,345
Lease accrual		13,530			13,787			—
Other		5,441			2,314			2,125
Gross deferred tax assets		79,444			47,433			35,477
Deferred tax liabilities:
Depreciation and amortization		(3,414	)		(4,014	)		(1,020	)
Accretion on securities		(274	)		(339	)		(461	)
Deferred fees and costs		(3,018	)		(2,388	)		(1,641	)
Purchase accounting adjustments		(8,669	)		(2,787	)		(1,003	)
Fair value adjustments on securities available-for-sale		(14,865	)		(5,749	)		—
Partnership adjustments		(555	)		(521	)		(680	)
Lease - right of use assets		(12,438	)		(13,064	)		—
Other		(168	)		(40	)		(367	)
Gross deferred tax liabilities		(43,401	)		(28,902	)		(5,172	)
Net deferred tax assets	$	36,043		$	18,531		$	30,305

No valuation allowance was established for any deferred tax assets, since management believes that deferred tax assets are likely to be realized through future reversals of existing taxable temporary differences and future taxable income.

As a result of the acquisition of YCB in 2016 and OLBK in 2019, Wesbanco has federal net operating loss (“NOL”) carryforwards of $25.7 million, which expire beginning in 2033 and 2036; respectively. Wesbanco has Maryland NOL carryforwards of $18.0 million, which begin expiring in 2035.  The use of the federal NOL and other carryforwards are limited by Internal Revenue Code Section 382, but they are expected to be utilized before their respective expiration dates.

As a result of the previous acquisitions of YCB, ESB Financial Corporation, Fidelity Bancorp, Inc., Western Ohio Financial Corporation, Winton Financial Corporation and Oak Hill Financial, Inc., retained earnings at both December 31, 2020 and 2019 included $45.9 million of qualifying and non-qualifying tax bad debt reserves existing as of December 31, 1987, upon which no provision for income taxes has been recorded. The related amount of unrecognized deferred tax liability is $10.8 million for both 2020 and 2019. If this portion of retained earnings is used in the future for any purpose other than to absorb bad debts, it would be added to future taxable income.

Federal and state income taxes applicable to securities transactions totaled $1.0 million, $1.0 million and $(0.2) million for the years ended December 31, 2020, 2019 and 2018, respectively.

Wesbanco had $0.3 million and $0.4 million of unrecognized tax benefits and interest as of December 31, 2020 and 2019, respectively. As of December 31, 2020, $0.3 million of these tax benefits would affect the effective tax rate if recognized. At December 31, 2020 and December 31, 2019, accrued interest related to uncertain tax positions was immaterial. Wesbanco provides for interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes.

Wesbanco is subject to U.S. federal income tax as well as to tax in various state income tax jurisdictions. Wesbanco and its prior acquired companies are no longer subject to any income tax examinations for years prior to 2017.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and the federal income tax benefit of unrecognized state tax benefits) is as follows:

	For the Years Ended December 31,
(in thousands)	2020			2019			2018
Balance at beginning of year	$	434		$	465		$	467
Additions based on tax positions related to the current year		—			58			68
Reductions for tax positions of prior years		—			—			—
Reductions due to the statute of limitations		(110	)		(89	)		(70	)
Settlements		—			—			—
Balance at end of year	$	324		$	434		$	465