Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes

Income Taxes

Note 14:     Income Taxes

The Company files a consolidated federal income tax return. As of December 31, 2022 and 2021, 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 $4.3 million and $3.9 million at December 31, 2022 and 2021, respectively.

During the years ended December 31, 2022, 2021 and 2020, the provision for income taxes included these components:

	2022		2021		2020
	(In Thousands)
Taxes currently payable	$	15,769	$	16,025	$	25,259
Deferred income taxes (benefit)		2,485		3,712		(11,480)
Income taxes	$	18,254	$	19,737	$	13,779

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

	December 31,
	2022		2021
	(In Thousands)
Deferred tax assets
Allowance for credit losses	$	15,618	$	13,854
Liability for unfunded commitments		3,153		2,196
Interest on nonperforming loans		66		98
Accrued expenses		1,341		1,227
Write-down of foreclosed assets		—		35
Write-down of fixed assets		67		62
Unrealized loss on available-for-sale securities		15,407		—
Unrealized loss on active cash flow derivatives		7,695		—
Income recognized for tax in excess of book related to terminated cash flow derivatives		5,530		6,978
Deferred income		290		298
Difference in basis for acquired assets and liabilities		686		893
		49,853		25,641
Deferred tax liabilities
Tax depreciation in excess of book depreciation		(8,210)		(5,681)
FHLB stock dividends		(337)		(313)
Partnership tax credits		(668)		(251)
Prepaid expenses		(1,196)		(883)
Unrealized gain on securities transferred to held-to-maturity securities		(29)		—
Unrealized gain on available-for-sale securities		—		(2,698)
Unrealized gain on terminated cash flow derivatives		(5,530)		(6,978)
Other		(235)		(328)
		(16,205)		(17,132)
Net deferred tax asset	$	33,648	$	8,509

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

	2022		2021		2020
Tax at statutory rate	21.0	%	21.0	%	21.0	%
Nontaxable interest and dividends	(0.5)		(0.3)		(0.5)
Tax credits	(1.6)		(1.8)		(3.8)
State taxes	1.8		1.3		1.4
Deferred tax rate change benefit	(0.6)		—		—
Other	(0.7)		0.7		0.8
	19.4	%	20.9	%	18.9	%

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, 2018 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 (MAHC), 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 and additional amounts could be levied for subsequent tax years. The MAHC received documents from each party but no hearings have occurred to date.

The State of Illinois Department of Revenue recently completed a tax examination of the Company’s Illinois Business Income Tax for the 2018 and 2019 tax years. There were no proposed material changes to the returns.