INCOME TAXES

6 Months Ended

Jun. 30, 2020

INCOME TAXES

INCOME TAXES

17. INCOME TAXES

The following table illustrates the difference between the Company’s effective tax rate and the federal rates for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Federal corporate tax rate		21.00	%		21.00	%		21.00	%		21.00	%
Effect of:
State taxes, net of federal benefit		1.66			(2.47)			1.61			(0.51)
General business tax credits		(1.61)			(0.55)			(1.47)			(0.68)
Nontaxable income		(0.71)			(1.27)			(0.71)			(0.89)
Other, net		(0.98)			(1.72)			(0.36)			(0.63)
Effective tax rate		19.36	%		14.99	%		20.07	%		18.29	%

The following matters positively impacted the Company’s effective tax rate for the three and six months ended June 30, 2019:

● As a financial institution doing business in Kentucky, the Bank is subject to a capital-based Kentucky bank franchise tax and exempt from Kentucky corporate income tax. In March 2019, however, Kentucky enacted HB354, which will transition the Bank from the bank franchise tax to a corporate income tax beginning January 1, 2021. The current Kentucky corporate income tax rate is 5%. As of March 31, 2019, the Company recorded a deferred tax asset, net of the federal benefit, of $350,000 due to the enactment of HB354, with the majority of this benefit attributed to the Traditional Bank.

● In April 2019, Kentucky enacted HB458, which allows for combined filing for Republic Bancorp and the Bank.  Republic Bancorp had previously filed a separate company income tax return for Kentucky and generated net operating losses, for which it had maintained a valuation allowance against the related deferred tax asset. HB458 also allows for certain net operating losses to be utilized on a combined return. Republic Bancorp expects to file a combined return beginning in 2021 and to utilize these previously generated net operating losses. The tax benefit to reverse the valuation allowance on the deferred tax asset for these losses was approximately $815,000 as of June 30, 2019. This benefit was recorded in the second quarter of 2019, with 100% of this benefit attributed to the Traditional Bank.

● In addition to the tax benefit recognized during the second quarter associated with passage of HB458, the Company also received $388,000 in income tax benefit during the second quarter of 2019 associated with equity compensation. Substantially all of this benefit was attributed to the Traditional Bank.