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INCOME TAXES
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Income tax expense for the years ended December 31, 2023, 2022 and 2021 consisted of the following:
(dollars in thousands)202320222021
Current federal$16,171 $22,825 $21,329 
Deferred federal1,302 (2,327)(1,249)
Current state(131)1,297 1,892 
Deferred state(776)(448)(261)
Total income tax expense$16,566 $21,347 $21,711 
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)202320222021
Income taxes at statutory federal rate of 21%$23,170 $26,284 $24,663 
Increase (decrease) in taxes resulting from:
Tax exempt income(4,226)(4,438)(2,822)
Nondeductible expense269 159 116 
State income tax, net of federal tax effect(716)671 1,288 
Captive insurance premium income(261)(417)(303)
Tax credits(713)(586)(578)
Bank owned life insurance(658)(78)(596)
Long-term incentive plan and deferred compensation(715)(530)(274)
Nondeductible compensation expense784 181 156 
Other(368)101 61 
Total income tax expense$16,566 $21,347 $21,711 
NOTE 12 – INCOME TAXES (continued)
The net deferred tax asset recorded in the consolidated balance sheets at December 31, 2023 and 2022 consisted of the following:
(dollars in thousands)20232022
Deferred tax assets:    
Bad debts$18,384 $18,561 
Pension and deferred compensation liability1,823 2,272 
Nonaccrual loan interest494 256 
Long-term incentive plan2,342 2,894 
Lease liability1,199 1,354 
Deferred loan fees781 572 
Accrued legal reserve635 819 
Net operating loss carryforward913 0 
Other591 1,130 
27,162 27,858 
Deferred tax liabilities:
Depreciation3,645 4,257 
Loan servicing rights570 694 
State taxes949 786 
Intangible assets1,270 1,270 
REIT spillover dividend2,140 1,290 
Prepaid expenses801 988 
Lease right of use1,199 1,354 
Other480 585 
11,054 11,224 
Valuation allowance0 0 
Net deferred tax asset$16,108 $16,634 
At December 31, 2023, the Company has Indiana net operating loss carryforwards of approximately $20.0 million that will expire in 2038 if not used. Management has concluded that the state net operating losses will be fully utilized and therefore no valuation allowance is necessary on the state net operating loss.
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 $41.1 million and $50.0 million for 2023 and 2022, respectively. The deferred income tax asset allocated to the pension plan and SERP included in equity was $243,000 and $255,000 for 2023 and 2022, respectively.
The Company evaluated its deferred tax asset at year end 2023 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, 2023 or 2022. 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, 2023, 2022 and 2021. 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 2019.