Income Taxes

The following table shows the composition of income tax expense.



Year Ended December 31 (Dollars in thousands)	2016		2015		2014
Current:
Federal	$	25,479	$	26,092	$	20,999
State	3,005		3,365		1,034
Total current	28,484		29,457		22,033
Deferred:
Federal	2,530		1,577		4,022
State	326		43		319
Total deferred	2,856		1,620		4,341
Total provision	$	31,340	$	31,077	$	26,374

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.



	2016					2015					2014
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	$	31,194		35.0	%	$	30,997		35.0	%	$	29,555		35.0	%
(Decrease) increase in income taxes resulting from:
Tax-exempt interest income	(1,235		)	(1.4	)	(1,152		)	(1.3	)	(1,236		)	(1.5	)
State taxes, net of federal income tax benefit	2,165			2.4		2,215			2.5		2,300			2.7
Reduction in uncertain tax positions	—			—		—			—		(3,300		)	(3.9	)
Other	(784		)	(0.8	)	(983		)	(1.1	)	(945		)	(1.1	)
Total	$	31,340		35.2	%	$	31,077		35.1	%	$	26,374		31.2	%

The tax expense related to gains on investment securities available-for-sale for the years 2016, 2015, and 2014 was approximately $674,000, $2,000, and $361,000, respectively.

The following table shows the composition of deferred tax assets and liabilities as of December 31, 2016 and 2015.



(Dollars in thousands)	2016			2015
Deferred tax assets:
Reserve for loan and lease losses	$	34,663		$	34,410
Accruals for employee benefits	3,948			3,816
Tax advantaged partnerships	1,411			307
Other	477			598
Total deferred tax assets	40,499			39,131
Deferred tax liabilities:
Differing depreciable bases in premises and leased equipment	31,449			27,274
Net unrealized gains on securities available-for-sale	807			3,940
Differing bases in assets related to acquisitions	6,170			5,738
Mortgage servicing	1,540			1,630
Capitalized loan costs	1,463			1,454
Prepaid expenses	646			1,055
Other	419			312
Total deferred tax liabilities	42,494			41,403
Net deferred tax liability	$	(1,995	)	$	(2,272	)

No valuation allowance for deferred tax assets was recorded at December 31, 2016 and 2015 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)	2016		2015		2014
Balance, beginning of year	$	380	$	—	$	4,611
Additions based on tax positions related to the current year	382		380		66
Additions for tax positions of prior years	—		—		592
Reductions for tax positions of prior years	—		—		(553		)
Reductions due to lapse in statute of limitations	—		—		(1,650		)
Settlements	—		—		(3,066		)
Balance, end of year	$	762	$	380	$	—

The total amount of unrecognized tax benefits that would affect the effective tax rate if recognized was $0.50 million at December 31, 2016, $0.25 million at December 31, 2015, and zero at December 31, 2014. Interest and penalties are recognized through the income tax provision. For the years 2016, 2015 and 2014, the Company recognized approximately $0.04 million, zero and $(0.69) million in interest, net of tax effect, and penalties, respectively. There was $0.04 million accrued interest and penalties at December 31, 2016, and no accrued interest and penalties at December 31, 2015 and 2014, respectively.

Tax years that remain open and subject to audit include the federal 2013-2016 years and the Indiana 2013-2016 years. Additionally, during 2014, the Company reached a state tax settlement for the 2010-2013 years and as a result recorded a reduction of unrecognized tax benefits in the amount of $2.93 million that affected the effective tax rate and increased earnings in the amount of $2.12 million. The Company does not anticipate a significant change in the amount of uncertain tax positions within the next 12 months.