Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

Note 14:     Income Taxes

The Company files a consolidated federal income tax return. As of December 31, 2021 and 2020, retained earnings included approximately $17.5 million for which no deferred income tax liability had been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only for tax years prior to 1988. If the Bank were to liquidate, the entire amount would have to be recaptured and would create income for tax purposes only, which would be subject to the then-current corporate income tax rate. The unrecorded deferred income tax liability on the above amount was approximately $3.9 million at both December 31, 2021 and 2020, respectively.

During the years ended December 31, 2021, 2020 and 2019, the provision for income taxes included these components:

	2021		2020		2019
	(In Thousands)
Taxes currently payable	$	16,025	$	25,259	$	15,375
Deferred income taxes (benefit)		3,712		(11,480)		1,074
Income taxes	$	19,737	$	13,779	$	16,449

The tax effects of temporary differences related to deferred taxes shown on the statements of financial condition were:

	December 31,
	2021		2020
	(In Thousands)
Deferred tax assets
Allowance for credit losses	$	13,854	$	12,711
Liability for unfunded commitments		2,196		—
Interest on nonperforming loans		98		142
Accrued expenses		1,227		894
Write-down of foreclosed assets		35		131
Write-down of fixed assets		62		114
Income recognized for tax in excess of book related to terminated cash flow derivatives		6,978		8,830
Partnership tax credits		—		11
Deferred income		298		885
Difference in basis for acquired assets and liabilities		893		1,532
		25,641		25,250
Deferred tax liabilities
Tax depreciation in excess of book depreciation		(5,681)		(5,988)
FHLB stock dividends		(313)		(368)
Partnership tax credits		(251)		—
Prepaid expenses		(883)		(898)
Unrealized gain on available-for-sale securities		(2,698)		(6,869)
Unrealized gain on terminated cash flow derivatives		(6,978)		(8,830)
Other		(328)		(258)
		(17,132)		(23,211)
Net deferred tax asset	$	8,509	$	2,039

Reconciliations of the Company’s effective tax rates from continuing operations to the statutory corporate tax rates were as follows:

	2021		2020		2019
Tax at statutory rate	21.0	%	21.0	%	21.0	%
Nontaxable interest and dividends	(0.3)		(0.5)		(0.5)
Tax credits	(1.8)		(3.8)		(3.6)
State taxes	1.3		1.4		1.3
Other	0.7		0.8		0.1
	20.9	%	18.9	%	18.3	%

The Company and its consolidated subsidiaries have not been audited recently by the Internal Revenue Service (IRS). As a result, federal tax years through December 31, 2017 are now closed.

The Company was previously under State of Missouri income and franchise tax examinations for its 2014 and 2015 tax years. The examinations concluded with one unresolved issue related to the exclusion of certain income in the calculation of Missouri income tax. The Missouri Department of Revenue denied the Company’s administrative protest regarding the 2014 and 2015 tax years’ examinations. In June 2021, the Company filed a formal protest with the Missouri Administrative Hearing Commission, which has special jurisdiction to hear tax matters and is similar to a trial court, to continue defending the Company’s rights and associated tax position. The Company has engaged legal and tax advisors and continues to believe it will ultimately prevail on the issue; however, if the Company does not prevail, the tax obligation to the State of Missouri could be up to a total of $4.0 million for these tax years.

The State of Illinois Department of Revenue recently began a tax examination of the Company’s Illinois Business Income Tax for the 2018 and 2019 tax years.