Income Taxes

The following table shows the composition of income tax expense:



Year Ended December 31 (Dollars in thousands)	2013			2012			2011
Current:
Federal	$	28,634		$	30,041		$	18,985
State	2,298			3,647			2,975
Total current	30,932			33,688			21,960
Deferred:
Federal	(2,337		)	(7,087		)	3,596
State	390			(554		)	38
Total deferred	(1,947		)	(7,641		)	3,634
Total provision	$	28,985		$	26,047		$	25,594

The following table shows the reasons for the difference between income tax expense and the amount computed by applying the statutory federal income tax rate (35%) to income before income taxes:



	2013					2012					2011
Year Ended December 31 (Dollars in thousands)	Amount			Percent of Pretax Income		Amount			Percent of Pretax Income		Amount			Percent of Pretax Income
Statutory federal income tax	$	29,380		35.0	%	$	26,488		35.0	%	$	25,826		35.0	%
(Decrease) increase in income taxes resulting from:
Tax-exempt interest income	(1,219		)	(1.5	)	(1,370		)	(1.8	)	(1,668		)	(2.3	)
State taxes, net of federal income tax benefit	1,747			2.1		2,010			2.7		1,958			2.7
Other	(923		)	(1.1	)	(1,081		)	(1.5	)	(522		)	(0.7	)
Total	$	28,985		34.5	%	$	26,047		34.4	%	$	25,594		34.7	%

The tax expense applicable to securities gains for the years 2013, 2012, and 2011 was $170,000, $222,000, and $530,000, respectively.

The following table shows the composition of deferred tax assets and liabilities as of December 31, 2013 and 2012:



(Dollars in thousands)	2013		2012
Deferred tax assets:
Reserve for loan and lease losses	$	32,545	$	32,979
Accruals for employee benefits	4,153		3,590
Other	2,243		1,831
Total deferred tax assets	38,941		38,400
Deferred tax liabilities:
Differing depreciable bases in premises and leased equipment	22,296		23,795
Net unrealized gains on securities available-for-sale	3,956		12,087
Differing bases in assets related to acquisitions	4,725		4,376
Mortgage servicing	1,588		1,493
Capitalized loan costs	816		1,440
Prepaid expenses	931		826
Other	956		781
Total deferred tax liabilities	35,268		44,798
Net deferred tax asset (liability)	$	3,673	$	(6,398	)

No valuation allowance for deferred tax assets was recorded at December 31, 2013 and 2012 as the Company believes it is more likely than not that all of the deferred tax assets will be realized.

The following table shows a reconciliation of the beginning and ending amounts of unrecognized tax benefits:



(Dollars in thousands)	2013			2012			2011
Balance, beginning of year	$	4,068		$	3,387		$	3,424
Additions based on tax positions related to the current year	484			704			419
Additions for tax positions of prior years	1,118			1,471			1,632
Reductions for tax positions of prior years	—			(49		)	(79		)
Reductions due to lapse in statute of limitations	(1,059		)	(1,445		)	(1,165		)
Settlements	—			—			(844		)
Balance, end of year	$	4,611		$	4,068		$	3,387

The total amount of unrecognized tax benefits that would affect the effective tax rate if recognized was $2.62 million at December 31, 2013, $2.02 million at December 31, 2012 and $1.67 million at December 31, 2011. Interest and penalties are recognized through the income tax provision. For the years 2013, 2012 and 2011, the Company recognized approximately $0.14 million, $(0.02) million and $(0.03) million in interest, net of tax effect, and penalties, respectively. Interest and penalties of approximately $0.69 million, $0.55 million and $0.57 million were accrued at December 31, 2013, 2012 and 2011, respectively.

Tax years that remain open and subject to audit include the federal 2010-2013 years and the Indiana 2009-2013 years. Additionally, during 2011 the Company reached a state tax settlement for the 2008 year and as a result recorded a reduction of unrecognized tax benefits in the amount of $0.84 million that affected the effective tax rate and increased earnings in the amount of $0.47 million. The Company does not anticipate a significant change in the amount of uncertain tax positions within the next 12 months.