(17)

Income Taxes

Components of income tax expense from operations were as follows:

	Three months ended
	March 31,
(in thousands)	2017			2016
Current income tax expense
Federal	$	3,003		$	2,373
State		114			124
Total current income tax expense		3,117			2,497

Deferred income tax (benefit) expense
Federal		(26	)		1,101
State		38			78
Total deferred income tax expense		12			1,179
Change in valuation allowance		13			-
Total income tax expense	$	3,142		$	3,676

An analysis of the difference between statutory and effective income tax rates for the

three

months ended

March

31,

2017

and

2016

follows:

	Three months ended March 31,
	2017			2016
U.S. federal statutory income tax rate		35.0	%		35.0	%
Excess tax benefits from share-based compensation arrangements		(7.1	)		-
Tax credits		(5.5	)		(9.7	)
Tax exempt interest income		(1.1	)		(1.3	)
Increase in cash surrender value of life insurance		(1.3	)		(0.8	)
State income taxes, net of federal benefit		0.7			1.0
Other, net		1.9			3.0
Effective income tax rate		22.6	%		27.2	%

State income tax expense represents tax owed in Indiana. Kentucky and Ohio state bank taxes are based on capital levels, and are recorded as other non-interest expense.

Bancorp’s results for

first

quarter

2017

reflect the implementation of Accounting Standards Update

2016

09,

which provides guidance for the recognition of excess tax benefits and deficiencies related to share-based payment awards. Effective for fiscal years beginning after

December

15,

2016,

ASU

2016

changes the way these benefits and deficiencies are recorded. Prior to

2017

they were recorded in additional paid-in capital, and therefore did not affect earnings. Beginning in

2017,

these amounts are being recorded as tax expense or benefit in the income statement. For the

three

-month period ending

March

31,

2017

Bancorp recorded a benefit of

$1.0

million within the provision for income tax expense for such awards.

US GAAP provides guidance on financial statement recognition and measurement of tax positions taken, or expected to be taken, in tax returns. If recognized, 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 year tax 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 addition or elimination of uncertain tax positions. As of

March

31,

2017

and

December

31,

2016,

the gross amount of unrecognized tax benefits was immaterial to the consolidated financial statements of the Company. Federal and state income tax returns are subject to examination for the years after

2012.