Income Tax

12 Months Ended

Dec. 31, 2019

INCOME TAX

The reconciliation between income tax expense expected at the U.S. federal statutory tax rate and the reported income tax expense is summarized in the following table for years ended December 31, 2019, 2018 and 2017:



	2019			2018			2017
Reconciliation of Federal Statutory to Actual Tax Expense:
Federal Statutory Income Tax at 21% for 2019 and 2018 and 35% for 2017	$	40,695		$	39,509		$	46,758
Tax-exempt Interest Income	(10,124		)	(8,347		)	(11,127		)
Stock Compensation	(459		)	(622		)	(893		)
Earnings on Life Insurance	(953		)	(868		)	(2,302		)
Tax Credits	(263		)	(615		)	(811		)
Tax Cuts and Jobs Act - Rate Reform Impact	—			—			5,120
Other	429			(58		)	779
Income Tax Expense	$	29,325		$	28,999		$	37,524

Effective Tax Rate	15.1		%	15.4		%	28.1		%

Income tax expense consists of the following components for the years ended December 31, 2019, 2018, 2017:



	2019		2018			2017
Income Tax Expense for the Year Ended December 31:
Currently Payable:
Federal	$	23,938	$	23,633		$	22,001
State	422		1,842			—
Deferred:
Federal	4,726		6,723			9,969
Tax Cuts and Jobs Act - Rate Reform Impact	—		—			5,120
State	239		(3,199		)	434
Income Tax Expense	$	29,325	$	28,999		$	37,524

Significant components of the net deferred tax assets (liabilities) resulting from temporary differences were as follows at December 31, 2019 and 2018:



	2019		2018
Deferred Tax Asset at December 31:
Assets:
Differences in Accounting for Loan Losses	$	19,717	$	19,785
Differences in Accounting for Loan Fees	442		749
Differences in Accounting for Loans and Securities	—		710
Deferred Compensation	4,436		2,101
Federal & State Income Tax Loss Carryforward and Credits	6,205		6,954
Net Unrealized Loss on Securities Available for Sale	—		1,686
Other	3,499		2,028
Total Assets	34,299		34,013
Liabilities:
Differences in Depreciation Methods	5,240		6,496
Differences in Accounting for Loans and Securities	1,192		—
Difference in Accounting for Pensions and Other Employee Benefits	1,556		566
State Income Tax	778		791
Net Unrealized Gain on Securities Available for Sale	10,333		—
Gain on FDIC Modified Whole Bank Transaction	413		487
Other	6,506		4,271
Total Liabilities	26,018		12,611
Net Deferred Tax Asset Before Valuation Allowance	8,281		21,402
Valuation allowance:
Beginning Balance	—		(6,966		)
Decrease/(Increase) During the Year	—		6,966
Ending Balance	—		—
Net Deferred Tax Asset	$	8,281	$	21,402

The $13,121,000 decrease in the Corporation’s net deferred tax asset was primarily due to an increase in deferred tax liabilities. The largest deferred tax liability increase was associated with the tax effect of the change in unrealized gains and losses on available for sale securities of $12,019,000. Additionally, the net change in deferred taxes associated with accounting for loans increased the net deferred tax liability by $1,902,000. Offsetting the increases to deferred tax liabilities was a deferred tax asset increase associated with deferred compensation of $2,336,000.

As of December 31, 2019, the Corporation has approximately $28,354,000 of state NOL carryforwards available to offset future state taxable income, which will expire beginning in 2022. These NOL carryforwards along with normal timing differences between book and tax result in total state deferred tax assets of $3,719,000. Management believes it is more likely than not that the benefit of these state NOL carryforwards and other state deferred tax assets will be fully realized.

The Corporation has additional paid-in capital that is considered restricted resulting from the acquisitions of CFS and Ameriana of approximately $13,393,000 and $11,883,000, respectively. CFS and Ameriana qualified as banks under provisions of the Internal Revenue Code which permitted them to deduct from taxable income an allowance for bad debts which differed from the provision for losses charged to income. No provision for income taxes had been provided. If in the future this portion of additional paid-in capital is distributed, or the Corporation no longer qualifies as a bank for income tax purposes, income taxes may be imposed at the then applicable tax rates. The unrecorded deferred tax liability at December 31, 2019, would have been approximately $5,308,000.

The Corporation or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Corporation is generally no longer subject to U.S. federal, state and local income tax examinations by tax authorities for tax years before 2016.