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INCOME TAXES
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Income tax expense for the years ended December 31, 2021, 2020 and 2019 consisted of the following:
(dollars in thousands)202120202019
Current federal$21,329 $20,032 $19,430 
Deferred federal(1,249)(1,688)(408)
Current state1,892 1,484 1,394 
Deferred state(261)(289)(78)
Total income tax expense$21,711 $19,539 $20,338 
The differences between financial statement tax expense and amounts computed by applying the statutory federal income tax rate of 21% to income before income taxes were as follows:
(dollars in thousands)202120202019
Income taxes at statutory federal rate of 21%$24,663 $21,814 $22,551 
Increase (decrease) in taxes resulting from:
Tax exempt income(2,822)(1,925)(1,682)
Nondeductible expense116 117 194 
State income tax, net of federal tax effect1,288 944 1,040 
Captive insurance premium income(303)(227)(310)
Tax credits(578)(540)(548)
Bank owned life insurance(596)(595)(573)
Long-term incentive plan(274)(58)(421)
Nondeductible compensation expense156 0 0 
Other61 9 87 
Total income tax expense$21,711 $19,539 $20,338 
NOTE 13 – INCOME TAXES (continued)
The net deferred tax asset recorded in the consolidated balance sheets at December 31, 2021 and 2020 consisted of the following:
(dollars in thousands)20212020
Deferred tax assets:    
Bad debts$17,321 $15,634 
Pension and deferred compensation liability2,351 2,006 
Nonaccrual loan interest600 892 
Long-term incentive plan1,896 1,212 
Lease liability1,078 1,190 
Deferred loan fees771 — 
Other191 745 
24,208 21,679 
Deferred tax liabilities:
Depreciation4,279 4,718 
Loan servicing rights717 1,162 
State taxes679 524 
Intangible assets1,270 1,265 
REIT spillover dividend1,180 1,180 
Prepaid expenses952 948 
Lease right of use1,078 1,190 
Other194 442 
10,349 11,429 
Valuation allowance0 0 
Net deferred tax asset$13,859 $10,250 
In addition to the net deferred tax assets included above, the deferred income tax liability allocated to the unrealized net gain on securities available-for-sale included in equity was ($4.5 million) and ($7.8 million) for 2021 and 2020, respectively. The deferred income tax asset allocated to the pension plan and SERP included in equity was $319,000 and $476,000 for 2021 and 2020, respectively.
The Company evaluated its deferred tax asset at year end 2021 and has concluded that it is more likely than not that it will be realized. The Company expects to have taxable income in the future such that the deferred tax asset will be realized. Therefore, no valuation allowance is required.
Unrecognized Tax Benefits
The Company did not have any unrecognized tax benefits at December 31, 2021 or 2020. 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 periods ending December 31, 2021, 2020 and 2019. 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 2017.