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INCOME TAXES
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]

NOTE 15 - INCOME TAXES

 

Income tax expense for the years ended December 31, 2012, 2011 and 2010 consisted of the following:

 

    2012     2011     2010  
    (in thousands)  
Current federal   $ 15,181     $ 15,845     $ 16,346  
Deferred federal     988       (1,993 )     (5,351 )
Current state     877       1,413       1,683  
Deferred state     (51 )     (677 )     (798 )
Tax benefit of stock options     187       130       357  
Total income tax expense   $ 17,182     $ 14,718     $ 12,237  

 

Income tax expense included ($150,000), ($67,000) and ($2,000) applicable to security transactions for 2012, 2011 and 2010. The differences between financial statement tax expense and amounts computed by applying the statutory federal income tax rate of 35% for 2012, 2011 and 2010 to income before income taxes were as follows:

 

    2012     2011     2010  
    (in thousands)  
Income taxes at statutory federal rate of 35%   $ 18,402     $ 15,883     $ 12,873  
Increase (decrease) in taxes resulting from:                        
Tax exempt income     (1,122 )     (1,376 )     (958 )
Nondeductible expense     182       213       209  
State income tax, net of federal tax effect     554       490       616  
Net operating loss     0       0       (30 )
Tax credits     (253 )     (153 )     (127 )
Bank owned life insurance     (340 )     (348 )     (408 )
Reserve for unrecognized tax benefits     (45 )     22       22  
Other     (196 )     (13 )     40  
Total income tax expense   $ 17,182     $ 14,718     $ 12,237  

 

The net deferred tax asset recorded in the consolidated balance sheets at December 31, 2012 and 2011 consisted of the following:

 

    2012     2011  
    Federal     State     Federal     State  
    (in thousands)  
Deferred tax assets:                                
Bad debts   $ 18,006     $ 3,804     $ 18,690     $ 3,676  
Pension and deferred compensation liability     756       160       491       97  
Non-qualified stock options     479       102       288       57  
Impairment of investment securities     0       0       125       25  
Nonaccrual loan interest     1,403       297       1,264       249  
Long-term incentive plan     857       181       771       151  
Other     266       36       232       27  
      21,767       4,580       21,861       4,282  
Deferred tax liabilities:                                
Accretion     127       20       122       19  
Depreciation     2,821       254       2,809       215  
Loan servicing rights     1,010       213       825       162  
State taxes     1,229       0       1,197       0  
Leases     0       0       10       2  
Deferred loan fees     38       8       46       9  
Intangible assets     1,655       350       1,462       288  
FHLB stock dividends     76       16       76       15  
REIT spillover dividend     1,219       0       1,168       0  
Prepaid expenses     700       148       266       52  
      8,875       1,009       7,981       762  
Valuation allowance     0       0       0       0  
Net deferred tax asset   $ 12,892     $ 3,571     $ 13,880     $ 3,520  

 

In addition to the net deferred tax assets included above, the deferred income tax asset/liability allocated to the unrealized net gain/(loss) on securities available for sale included in equity was $4.7 million and $4.4 million for 2012 and 2011. The deferred income tax liability allocated to the benefit plan included in equity was $1.2 million and $1.4 million for 2012 and 2011.

 

Unrecognized Tax Benefits

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits:

 

    2012     2011  
    (in thousands)  
Balance January 1,   $ 134     $ 112  
Additions based on tax positions related to the current year     15       22  
Additions for tax positions of prior years     0       0  
Reductions for tax positions of prior years     0       0  
Reductions due to the statute of limitations     (60 )     0  
Settlements     0       0  
Balance at December 31,   $ 89     $ 134  

 

The balance of $89,000 at December 31, 2012 represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months.

 

No interest or penalties were recorded in the income statement and no amount was accrued for interest and penalties for the period ending December 31, 2012 and 2011. 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 taxes accounts.

 

The Company and its subsidiaries file a consolidated U.S. federal tax return and a combined unitary return in the States of Indiana and Michigan. These returns are subject to examinations by authorities for all years after 2008.