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INCOME TAXES
 9 Months Ended
Sep. 30, 2026
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Pretax income is entirely related to domestic activities. The Company did not have any foreign operations or foreign tax expense for the period presented below. Income tax expense for the nine months ended September 30, 2026 consisted of the following:
(dollars in thousands)2026
Current federal$17,927 
Deferred federal426 
Current state181 
Deferred state628 
Total income tax expense$19,162 
For the year ended December 31, 2025, the Company adopted ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" on a prospective basis. Differences between financial statement tax expense and amounts computed by applying the statutory federal income tax rate of 21% to income before income taxes for the nine months ended September 30, 2026 were as follows:
(dollars in thousands)2026
Federal statutory rate$21,617 21.0 %
Effect of:
State and local income taxes, net of federal benefits639 0.6 
Tax credits, net of amortization and losses45 0.0 
Nontaxable or nondeductible items:
Tax exempt income(2,616)(2.5)
Bank owned life insurance(808)(0.8)
Long-term incentive plan and deferred compensation0 0.0 
Nondeductible compensation expense100 0.1 
Other nondeductible expenses228 0.2 
Other(43)0.0 
Total income tax expense$19,162 18.6 %
During the nine months ended September 30, 2026, the Company paid $20.5 million in federal income taxes and state income taxes
The net deferred tax asset recorded in the consolidated balance sheet at September 30, 2026 and December 31, 2025 consisted of the following:
(dollars in thousands)September 30, 2026December 31, 2025
Deferred tax assets:
Bad debts$17,531 $17,574 
Pension and deferred compensation liability2,624 2,430 
Nonaccrual loan interest574 1,403 
Long-term incentive plan3,300 2,685 
Lease liability2,872 2,370 
Deferred loan fees655 540 
Net operating loss carryforward1,176 1,900 
Other927 733 
29,659 29,635 
Deferred tax liabilities:
Depreciation5,922 5,333 
Loan servicing rights410 433 
State taxes962 1,096 
Intangible assets1,266 1,266 
REIT spillover dividend1,750 1,750 
Prepaid expenses1,273 1,155 
Lease right of use2,872 2,370 
Other273 247 
14,728 13,650 
Valuation allowance00 
Net deferred tax asset$14,931 $15,985 
The Company has Indiana net operating loss carryforwards of approximately $24.0 million at September 30, 2026 that will expire in 2039 if not used. Management has concluded that the state net operating losses will be fully utilized and therefore no valuation allowance is necessary on the state operating loss.
In addition to the net deferred tax assets included above, the deferred income tax asset (liability) allocated to the unrealized gain (loss) on securities available for sale was $48.2 million and $33.7 million for September 30, 2026 and December 31, 2025, respectively. The deferred income tax asset allocated to the pension plan and SERP included in equity was $163,000 and $175,000 at September 30, 2026 and December 31, 2025, respectively.
The Company evaluated its deferred tax asset at year end 2025 and has concluded that it is more likely than not that it will be realized. The Company expects to have taxable income in the future such that the deferred tax asset will be realized. Therefore, no valuation allowance is required.
Unrecognized Tax Benefits
The Company did not have any unrecognized tax benefits at September 30, 2026 and December 31, 2025.
No interest or penalties were recorded in the income statement and no amount was accrued for interest and penalties for the nine months ended September 30, 2026. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Company's policy to record such accruals in its income taxes accounts.
The Company and its subsidiaries file a consolidated U.S. federal tax return and a combined unitary return in the State of Indiana. These returns are subject to examinations by authorities for all years after 2022.