Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

The provision for income taxes consists of the following:	2022		2021		2020
Current Federal	$	13,049	$	13,437	$	14,186
Current State	1,763		2,547		2,265
Deferred Federal	1,868		2,056		(2,765)
Deferred State	671		608		(852)
Total	$	17,351	$	18,648	$	12,834

Effective tax rates differ from the federal statutory rate of 21% for 2022, 2021 and 2020 applied to income before income taxes due to the following:

	2022		2021		2020
Statutory Rate Times Pre-tax Income	$	20,827	$	21,585	$	15,759
Add (Subtract) the Tax Effect of:
Income from Tax-exempt Loans and Investments	(5,223)		(3,872)		(2,681)
Non-deductible Merger Costs	177		—		—
State Income Tax, Net of Federal Tax Effect	1,923		2,492		1,116
General Business Tax Credits	(1,038)		(1,013)		(1,085)
Company Owned Life Insurance	(476)		(321)		(484)
Other Differences	1,161		(223)		209
Total Income Taxes	$	17,351	$	18,648	$	12,834

The net deferred tax asset/(liability) at December 31 consists of the following:

	2022		2021
Deferred Tax Assets:
Allowance for Credit Losses	$	10,478	$	8,470
Lease Liability (Operating Leases)	1,585		1,542
Unrealized Loss on Securities	70,234		—
Deferred Compensation and Employee Benefits	1,162		878
Other-than-temporary Impairment	246		246
Accrued Expenses	1,325		1,288
Business Combination Fair Value Adjustments	205		138
Pension and Postretirement Plans	182		200
Other Real Estate Owned	70		—
Non-Accrual Loan Interest Income	629		567
General Business Tax Credits	198		—
Net Operating Loss Carryforward	828		447
Mortgage Servicing Rights	—		49
Other	1,190		1,860
Total Deferred Tax Assets	88,332		15,685
Deferred Tax Liabilities:
Depreciation	(2,859)		(2,496)
Leasing Activities, Net	(10,983)		(10,878)
Unrealized Gain on Securities	—		(4,366)
FHLB Stock Dividends	(488)		(199)
Prepaid Expenses	(684)		(646)
Intangibles	(3,181)		(1,651)
Deferred Loan Fees	(1,127)		(790)
Mortgage Servicing Rights	(58)		—
Right of Use Asset (Operating Leases)	(1,548)		(1,515)
Other	(924)		(75)
Total Deferred Tax Liabilities	(21,852)		(22,616)
Valuation Allowance	—		—
Net Deferred Tax Asset/(Liability)	$	66,480	$	(6,931)

Under the Internal Revenue Code, through 1996, three acquired banking companies, which are now a part of the Company’s single banking subsidiary, were allowed a special bad debt deduction related to additions to tax bad debt reserves established for the purpose of absorbing losses. The acquired banks were formerly known as River Valley Financial Bank (acquired in March 2016), Peoples Community Bank (acquired in October 2005) and First American Bank (acquired in January 1999). Subject to certain limitations, these banks were permitted to deduct from taxable income an allowance for bad debts based on a percentage of taxable income before such deductions or actual loss experience. Each of the banks generally computed its annual addition to its bad debt reserves using the percentage of taxable income method; however, due to certain limitations in 1996, the banks were only allowed a deduction based on actual loss experience.

Retained earnings at December 31, 2022, include approximately $5,095 for which no provision for federal income taxes has been made. This amount represents allocations of income for allowable bad debt deductions. Reduction of amounts so allocated for purposes other than tax bad debt losses will create taxable income, which will be subject to the then current corporate income tax rate. It is not contemplated that amounts allocated to bad debt deductions will be used in any manner to create taxable income. The unrecorded deferred income tax liability on the above amount at December 31, 2022 was approximately $1,070.

As of December 31, 2022, the Company had Kentucky net operating loss carryforwards of $20,974, which expire in years ranging from 2029 through 2040. These net operating loss carryforwards are expected to be fully utilized before their expiration dates.

 Unrecognized Tax Benefits

The Company had no unrecognized tax benefits as of December 31, 2022, 2021, and 2020, and did not recognize any increase in unrecognized benefits during 2022 relative to any tax positions taken in 2022. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Company’s policy to record such accruals in its income tax expense accounts; no such accruals existed as of December 31, 2022, 2021, and 2020. The Company and its corporate subsidiaries file a consolidated U.S. Federal income tax return, which is subject to examination for all years after 2018. The Company and its corporate subsidiaries file combined/unitary returns in various states, which are subject to examination for all years after 2018.