Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes [Abstract]

Income Taxes

13.  Income Taxes

The components of the provision for income taxes, exclusive of tax effect of unrealized AFS securities gains and losses, are as follows:

(in thousands)	2022		2021		2020
Current federal income tax expense	$	14,882	$	16,160	$	12,884
Current state income tax expense		1,096		4,214		786
Deferred federal income tax expense (benefit)		194		1,138		(2,900	)
Deferred state income tax expense		3,056		1,192		0
Effect of Kentucky tax legislation benefit		0		0		(9	)
Total income tax expense	$	19,228	$	22,704	$	10,761

A reconciliation of income tax expense at the statutory rate to our actual income tax expense is shown below:

(in thousands)	2022					2021					2020
Computed at the statutory rate	$	21,219		21.00	%	$	23,235		21.00	%	$	14,755		21.00	%
Adjustments resulting from:
Tax-exempt interest		(717	)	(0.70	)		(690	)	(0.62	)		(547	)	(0.78	)
Housing and new markets credits		(3,105	)	(3.07	)		(3,939	)	(3.56	)		(4,194	)	(5.97	)
Bank owned life insurance		(367	)	(0.36	)		(382	)	(0.35	)		(277	)	(0.39	)
ESOP dividend deduction		(240	)	(0.24	)		(233	)	(0.21	)		(221	)	(0.32	)
Stock option exercises and restricted stock vesting		(1	)	0.00			25		0.02			(10	)	(0.01	)
Effect of KY tax legislation		0		0.00			0		0.00			(7	)	(0.01	)
State income taxes		3,281		3.25			4,270		3.86			621		0.88
Split dollar life insurance		(184	)	(0.19	)		212		0.19			529		0.75
Other		(658	)	(0.66	)		206		0.19			112		0.16
Total	$	19,228		19.03	%	$	22,704		20.52	%	$	10,761		15.31	%

The components of the net deferred tax asset (liability) as of December 31 are as follows:

(in thousands)	2022			2021
Deferred tax assets:
Allowance for credit losses	$	11,472		$	10,418
Interest on nonaccrual loans		362			547
Accrued expenses		2,969			2,960
Unrealized losses on AFS securities		45,339			1,664
Allowance for other real estate owned		223			268
State net operating loss carryforward		0			2,308
Lease liabilities		4,398			3,245
Other		485			973
Total deferred tax assets		65,248			22,383
Deferred tax liabilities:
Depreciation and amortization		(14,859	)		(14,604	)
FHLB stock dividends		(827	)		(961	)
Loan fee income		(1,136	)		(621	)
Mortgage servicing rights		(2,113	)		(1,690	)
Limited partnership investments		(710	)		(648	)
Right of use assets		(4,259	)		(3,031	)
Other		(1,466	)		(1,374	)
Total deferred tax liabilities		(25,370	)		(22,929	)
Net deferred tax asset (liability)	$	39,878		$	(546	)

CTBI had a deferred tax asset for the Kentucky net operating loss carryforward.  The losses were utilized as CTBI began filing a consolidated Kentucky income tax return with CTB and CTIC beginning with the 2021 tax year.  The loss deduction for 2022 was $58.4 million and for 2021 was $42.2 million. No carryforward remains.

CTBI accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes).  The income tax accounting guidance results in two components of income tax expense:  current and deferred.  Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues.  CTBI determines deferred income taxes using the liability (or balance sheet) method.  Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.  Deferred income tax expense results from changes in deferred tax assets and liabilities between periods.  Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Uncertain tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination.  The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any.  A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.  The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment.

With a few exceptions, CTBI is no longer subject to U.S. federal tax examinations by tax authorities for years before 2019, and state and local income tax examinations by tax authorities for years before 2018.  For federal tax purposes, CTBI recognizes interest and penalties on income taxes as a component of income tax expense. CTBI files consolidated income tax returns with our subsidiaries.