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Note 10 - Income Taxes | 12 Months Ended
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Dec. 31, 2022
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
(10) | Income Taxes
Components of income tax expense (benefit) from operations follows:
Years Ended December 31, (in thousands) |  | 2022 |  |  | 2021 |  |  | 2020 |
Current income tax expense: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 22,405 |  |  | $ | 13,292 |  |  | $ | 15,474 |
State |  |  | 2,962 |  |  |  | 2,059 |  |  |  | 908 |
Total current income tax expense |  |  | 25,367 |  |  |  | 15,351 |  |  |  | 16,382 |
Deferred income tax expense (benefit): |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (513 | ) |  |  | 3,318 |  |  |  | (5,398 | )
State |  |  | 2,336 |  |  |  | 2,176 |  |  |  | (2,082 | )
Total deferred income tax expense (benefit) |  |  | 1,823 |  |  |  | 5,494 |  |  |  | (7,480 | )
Change in valuation allowance |  |  | - |  |  |  | (93 | ) |  |  | (28 | )
Total income tax expense |  | $ | 27,190 |  |  | $ | 20,752 |  |  | $ | 8,874 |
Components of income tax (benefit) expense recorded directly to stockholders’ equity were as follows:
Years Ended December 31, (in thousands) |  | 2022 |  |  | 2021 |  |  | 2020 |
Unrealized gain (loss) on securities available for sale |  | $ | (35,323 | ) |  | $ | (5,371 | ) |  | $ | 2,607 |
Unrealized gain (loss) on derivatives |  |  | - |  |  |  | 38 |  |  |  | (27 | )
Minimum pension liability adjustment |  |  | 126 |  |  |  | 52 |  |  |  | (25 | )
Total income tax (benefit) expense recorded directly to stockholders' equity |  | $ | (35,197 | ) |  | $ | (5,281 | ) |  | $ | 2,555 |
An analysis of the difference between statutory and ETRs from operations follows:
Years Ended December 31, |  | 2022 |  |  | 2021 |  |  | 2020 |
U.S. federal statutory income tax rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
State income taxes, net of federal benefit |  |  | 3.5 |  |  |  | 3.5 |  |  |  | 0.8 |
Excess tax benefits from stock-based compensation arrangements |  |  | (1.0 | ) |  |  | (1.1 | ) |  |  | (0.7 | )
Change in cash surrender value of life insurance |  |  | 0.2 |  |  |  | (0.8 | ) |  |  | (0.8 | )
Tax credits |  |  | (0.2 | ) |  |  | (0.3 | ) |  |  | (5.5 | )
Kentucky state income tax enactments |  |  | — |  |  |  | — |  |  |  | (2.2 | )
Tax exempt interest income |  |  | (0.6 | ) |  |  | (0.4 | ) |  |  | (0.3 | )
Non-deductible merger expenses |  |  | 0.1 |  |  |  | 0.4 |  |  |  | — |
Insurance captive |  |  | (0.3 | ) |  |  | (0.2 | ) |  |  | — |
Amortization of investment in tax credit partnerships |  |  | 0.1 |  |  |  | 0.1 |  |  |  | 1.0 |
Other, net |  |  | (0.2 | ) |  |  | (0.4 | ) |  |  | (0.2 | )
Effective tax rate |  |  | 22.6 | % |  |  | 21.8 | % |  |  | 13.1 | %
Current state income tax expense for 2022 and 2021 represents tax owed to the state of Kentucky, Indiana and Illinois. Prior to 2021, Kentucky state bank taxes were based on capital levels and were previously recorded as other non-interest expense. Ohio state bank taxes are based on capital levels and are recorded as other non-interest expense. The state of Kentucky passed legislation in 2019 that required financial institutions to transition from a capital based franchise tax to the Kentucky corporate income tax beginning in 2021 and allows entities filing a combined Kentucky income tax return to share certain tax attributes, including net operating loss carryforwards. GAAP provides guidance on financial statement recognition and measurement of tax positions taken, or expected to be taken, in tax returns. If recognized, tax benefits would reduce tax expense and accordingly, increase net income. The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current year tax positions, expiration of open income tax returns due to statutes of limitation, changes in management’s judgment about the level of uncertainty, status of examination, litigation and legislative activity and addition or elimination of uncertain tax positions. As of December 31, 2022 and December 31, 2021, the gross amount of unrecognized tax benefits was immaterial to Bancorp’s consolidated financial statements. Federal income tax returns are subject to examination for the years after 2018 and state income tax returns are subject to examination for the years after 2017. The effects of temporary differences that gave rise to significant portions of DTAs and DTLs follows:
December 31, (in thousands) |  | 2022 |  |  | 2021 |
Deferred tax assets: |  |  |  |  |  |  |  |
Allowance for credit losses |  | $ | 18,099 |  |  | $ | 13,354 |
Deferred compensation |  |  | 6,349 |  |  |  | 6,245 |
Operating lease liability |  |  | 5,066 |  |  |  | 3,951 |
State net operating loss |  |  | 540 |  |  |  | 2,217 |
Deferred PPP loan fees |  |  | 77 |  |  |  | 1,186 |
Accrued expenses |  |  | 4,605 |  |  |  | 3,345 |
Investments in tax credit partnerships |  |  | 215 |  |  |  | 747 |
Interest rate swaps |  |  | 6 |  |  |  | — |
Securities |  |  | 35,935 |  |  |  | 1,171 |
Acquired loan fair value adjustments |  |  | 3,506 |  |  |  | 808 |
Other assets |  |  | — |  |  |  | 343 |
Write-downs and costs associated with other real estate owned |  |  | 21 |  |  |  | 21 |
Total deferred tax assets |  |  | 74,419 |  |  |  | 33,388 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Right-of-use operating lease asset |  |  | 4,848 |  |  |  | 3,706 |
Property and equipment |  |  | 2,395 |  |  |  | 970 |
Loan costs |  |  | 1,272 |  |  |  | 968 |
Mortgage servicing rights |  |  | 3,712 |  |  |  | 1,088 |
Leases |  |  | 170 |  |  |  | 221 |
Core deposit intangibles |  |  | 3,399 |  |  |  | 1,077 |
Customer list intangibles |  |  | 2,469 |  |  |  | — |
Other liabilities |  |  | 2,009 |  |  |  | 1,018 |
Total deferred tax liabilities |  |  | 20,274 |  |  |  | 9,048 |
Net deferred tax asset |  | $ | 54,145 |  |  | $ | 24,340 |
A valuation allowance is recognized for a DTA if, based on the weight of available evidence, it is more likely than not that some portion of the entire DTA will not be realized. Ultimate realization of DTAs is dependent upon generation of future taxable income during periods in which those temporary differences become deductible. Management considers scheduled reversal of DTLs, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projection for future taxable income over periods which the temporary differences resulting in remaining DTAs are deductible, management believes it is more likely than not that Bancorp will realize the benefits of these deductible differences at December 31, 2022. Realization of DTAs associated with investment in tax credit partnerships is dependent upon generating sufficient taxable capital gain income prior to their expiration. No valuation allowance was recorded as of both December 31, 2022 and 2021 based on management’s estimate of the temporary deductible differences that may expire prior to their utilization. In addition, realization of DTAs are evaluated for net operating losses that will not be utilized prior to their expiration. The Kentucky losses began to be utilized in 2021 when Bancorp began filing a combined Kentucky income tax return with the Bank. A valuation allowance was previously maintained for the loss that expired in 2020. The loss carryforward is currently $14 million and expires over varying periods through 2040.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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