Note 6 - Income Taxes

3 Months Ended

Mar. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

(6) Income Taxes

Components of income tax expense (benefit) from operations follows:

	Three months ended
	March 31,
(in thousands)	2021		2020
Current income tax expense:
Federal	$	3,493	$	1,842
State		522		131
Total current income tax expense		4,015		1,973
Deferred income tax expense (benefit):
Federal		837		652
State		609		(376	)
Total deferred income tax expense (benefit)		1,446		276
Change in valuation allowance		-		1
Total income tax expense	$	5,461	$	2,250

An analysis of the difference between the statutory and ETRs from operations follows:

	Three months ended
	March 31,
	2021			2020
U.S. federal statutory income tax rate		21.0	%		21.0	%
State income taxes, net of federal benefit		3.2			(1.3	)
Tax credits		(0.5	)		(5.9	)
Excess tax benefit from stock-based compensation arrangements		(3.0	)		0.4
Change in cash surrender value of life insurance		(0.4	)		1.2
Tax exempt interest income		(0.1	)		(0.3	)
Other, net		(0.8	)		(0.6	)
Effective tax rate	19.4		%		14.5	%

Current state income tax expense represents tax owed to the states of Kentucky and Indiana. Ohio state bank taxes are currently based on capital levels and are recorded as other non-interest expense.

The state of Kentucky passed legislation in 2019 that required financial institutions to transition from a capital based franchise tax to the Kentucky corporate income tax beginning in 2021 and allows entities filing a combined Kentucky income tax return to share certain tax attributes, including net operating loss carryforwards. These changes served to increase the ETR 3.2% for the first quarter of 2021, while the quarterly re-measurement of deferred tax assets affected by these changes drove the corresponding net reduction of the ETR experienced for the same period of last year.

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 December 31, 2020 and 2019, the gross amount of unrecognized tax benefits was immaterial to Bancorp’s consolidated financial statements. Federal and state income tax returns are subject to examination for the years after 2016.