Note 5 - Income Taxes

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

( 5 ) Income Taxes

Components of income tax expense from operations were as follows:

	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands)	2017			2016			2017			2016
Current income tax expense
Federal	$	5,211		$	4,363		$	12,936		$	10,958
State		179			287			472			597
Total current income tax expense		5,390			4,650			13,408			11,555
Deferred income tax (benefit) expense
Federal		(1,583	)		(692	)		(2,240	)		(302	)
State		(44	)		(75	)		(30	)		(18	)
Total deferred income tax expense (benefit)		(1,627	)		(767	)		(2,270	)		(320	)
Change in valuation allowance		333			-			459			-
Total income tax expense	$	4,096		$	3,883		$	11,597		$	11,235

An analysis of the difference between statutory and effective income tax rates for the

nine

months ended

September 30, 2017

and

2016

follows:

	Nine months ended September 30,
	2017			2016
U.S. federal statutory income tax rate		35.0	%		35.0	%
Tax credits		(4.6	)		(9.4	)
Excess tax benefits from share-based compensation arrangements		(3.0	)		-
Increase in cash surrender value of life insurance		(1.4	)		(0.9	)
Tax exempt interest income		(1.1	)		(1.3	)
State income taxes, net of federal benefit		0.7			0.9
Other, net		0.3			2.7
Effective income tax rate		25.9	%		27.0	%

State income tax expense represents tax

es owed in Indiana. State income taxes in Kentucky and Ohio are based on capital levels, and are recorded as other non-interest expense.

Bancorp

’s results for the

first

nine

months of

2017

reflect implementation of Accounting Standards Update

2016

-

09,

which provides guidance for the recognition of excess tax benefits or deficiencies related to share-based payment awards. Effective for fiscal years beginning after

December 15, 2016,

ASU

2016

-

09

changes the way these benefits and deficiencies are recorded. Prior to

2017

they were recorded in additional paid-in capital, and therefore did

not

affect earnings. Beginning in

2017,

these amounts are being recorded as tax expense or benefit in the income statement. For the

three

and

nine

month periods ending

September 30, 2017

Bancorp recorded benefits of

$241

thousand and

$1.4

million, respectively, within the provision for income tax expense for such awards.

US GAAP provides guidance on financial statement recognition and measurement of tax positions taken, or expected to be taken, in tax returns. If recognized, tax benefits would reduce tax expense and accordingly, increase net income. The amount of unrecognized tax benefits

may

increase or decrease in the future for various reasons including adding amounts for current year tax positions, expiration of open income tax returns due to statutes of limitation, changes in management

’s judgment about the level of uncertainty, status of examination, litigation and legislative activity and addition or elimination of uncertain tax positions. As of

September 30, 2017

and

December 31, 2016,

the gross amount of unrecognized tax benefits was immaterial to the consolidated financial statements of the Company. Federal and state income tax returns are subject to examination for the years after

2012.