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INCOME TAXES
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Income tax expense for the years ended December 31, 2022, 2021 and 2020 consisted of the following:
(dollars in thousands)202220212020
Current federal$22,825 $21,329 $20,032 
Deferred federal(2,327)(1,249)(1,688)
Current state1,297 1,892 1,484 
Deferred state(448)(261)(289)
Total income tax expense$21,347 $21,711 $19,539 
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)202220212020
Income taxes at statutory federal rate of 21%$26,284 $24,663 $21,814 
Increase (decrease) in taxes resulting from:
Tax exempt income(4,438)(2,822)(1,925)
Nondeductible expense159 116 117 
State income tax, net of federal tax effect671 1,288 944 
Captive insurance premium income(417)(303)(227)
Tax credits(586)(578)(540)
Bank owned life insurance(78)(596)(595)
Long-term incentive plan and deferred compensation(530)(274)(58)
Nondeductible compensation expense181 156 0 
Other101 61 9 
Total income tax expense$21,347 $21,711 $19,539 
NOTE 12 – INCOME TAXES (continued)
The net deferred tax asset recorded in the consolidated balance sheets at December 31, 2022 and 2021 consisted of the following:
(dollars in thousands)20222021
Deferred tax assets:    
Bad debts$18,561 $17,321 
Pension and deferred compensation liability2,272 2,351 
Nonaccrual loan interest256 600 
Long-term incentive plan2,894 1,896 
Lease liability1,354 1,078 
Deferred loan fees572 771 
Accrued legal reserve819 0 
Other1,130 191 
27,858 24,208 
Deferred tax liabilities:
Depreciation4,257 4,279 
Loan servicing rights694 717 
State taxes786 679 
Intangible assets1,270 1,270 
REIT spillover dividend1,290 1,180 
Prepaid expenses988 952 
Lease right of use1,354 1,078 
Other585 194 
11,224 10,349 
Valuation allowance0 0 
Net deferred tax asset$16,634 $13,859 
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 $50.0 million and ($4.5 million) for 2022 and 2021, respectively. The deferred income tax asset allocated to the pension plan and SERP included in equity was $255,000 and $319,000 for 2022 and 2021, respectively.
The Company evaluated its deferred tax asset at year end 2022 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, 2022 or 2021. 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, 2022, 2021 and 2020. 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 2018.