(13) Income Taxes

An analysis of the difference between the statutory and effective tax rates for the nine months ended September 30, 2013 and 2012 were as follows:

	Nine months ended September 30,
	2013		2012
U.S. federal statutory tax rate	35.0	%	35.0	%
Tax exempt interest income	(2.0	)	(3.2	)
Tax credits	(2.2	)	(2.9	)
Cash surrender value of life insurance	(1.8	)	(1.8	)
State income taxes	0.7		1.0
Non-taxable gain on acquisition	(0.5	)	—
Non-deductible acquisition costs	0.3		—
Other, net	0.3		(0.5	)
Effective tax rate	29.8	%	27.6	%

US GAAP provides guidance on financial statement recognition and measurement of tax positions taken, or expected to be taken, in tax returns. As of September 30, 2013 and December 31, 2012, the gross amount of unrecognized tax benefits was $37,000 and $70,000, respectively. If recognized, the 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 tax year 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 the addition or elimination of uncertain tax positions.

During the third quarter of 2013, Bancorp was notified that the IRS will examine Bancorp’s 2011 income tax return. This examination could result in increased tax payments, interest and penalties. While management believes tax positions are appropriate, the IRS could challenge Bancorp’s positions as a part of this examination. Federal and state income tax returns are subject to examination for the tax return years after 2009.

Bancorp’s policy is to report interest and penalties, if any, related to unrecognized tax benefits in income tax expense. As of September 30, 2013 and December 31, 2012, the amount accrued for the potential payment of interest and penalties was $2,000 and $4,000, respectively.