Note 7 - Income Taxes

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

(7) Income Taxes

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

	Three months ended					Nine months ended
	September 30,					September 30,
(in thousands)	2021		2020			2021		2020
Current income tax expense:
Federal	$	4,730	$	3,369		$	8,202	$	9,574
State		642		198			1,188		538
Total current income tax expense		5,372		3,567			9,390		10,112
Deferred income tax expense (benefit):
Federal		858		(1,507	)		2,375		(2,653	)
State		672		(476	)		1,462		(1,279	)
Total deferred income tax expense (benefit)		1,530		(1,983	)		3,837		(3,932	)
Change in valuation allowance		-		7			-		9
Total income tax expense	$	6,902	$	1,591		$	13,227	$	6,189

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2021			2020			2021			2020
U.S. federal statutory income tax rate		21.0	%		21.0	%		21.0	%		21.0	%
State income taxes, net of federal benefit		3.6			0.6			3.4			0.7
Excess tax benefit from stock-based compensation arrangements		(0.1	)		(2.6	)		(1.7	)		(0.9	)
Change in cash surrender value of life insurance		(0.2	)		(1.1	)		(0.7	)		(0.6	)
Tax credits		(0.3	)		(5.5	)		(0.8	)		(5.8	)
Tax exempt interest income		(0.4	)		(0.3	)		(0.3	)		(0.3	)
Non-deductible merger expenses		0.1			-			0.5			-
Insurance captive		(0.3	)		-			(0.2	)		-
Other, net		(0.4	)		(2.2	)		(0.3	)		(1.0	)
Effective tax rate		23.0	%		9.9	%		20.9	%		13.1	%

Current state income tax expense represents tax owed to the states of Kentucky, Indiana and Illinois. 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.

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, 2021 and December 31, 2020, 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.