5. INCOME TAXES

Catastrophic losses incurred in the third quarter of 2017 resulted in a pretax loss and a 301.2 percent effective tax rate, compared to an effective tax rate of 28.5 percent in the third quarter of 2016. Our effective tax rate for the nine-month period ended September 30, 2017 was 19.9 percent, compared to and 30.5 percent for the same periods in 2016. Effective rates are dependent upon components of pretax earnings and the related tax effects. The pretax loss in the third quarter of 2017 and the significantly lower pretax earnings in the first nine months of 2017 caused the tax favored adjustments to have a larger impact than they did in their respective periods for 2016. Additionally, the adoption of FASB ASU 2016-09 reduced the tax rate in 2017 by requiring the excess tax benefit on share-based compensation to run through income tax expense. Prior to the adoption of FASB ASU 2016-09, excess tax benefits on share-based compensation were recorded directly to shareholders’ equity and had no impact on the effective tax rate.

Income tax expense attributable to income from operations for the three and nine-month periods ended September 30, 2017 and 2016 differed from the amounts computed by applying the U.S. federal tax rate of 35 percent to pretax income as a result of the following:


	For the Three-Month Periods Ended September 30,								For the Nine-Month Periods Ended September 30,
	2017				2016				2017				2016
(in thousands)	Amount		%		Amount		%		Amount		%		Amount		%
Provision for income taxes at the statutory rate of 35%	$	(302)	35.0	%	$	10,900	35.0	%	$	20,866	35.0	%	$	41,677	35.0	%
Increase (reduction) in taxes resulting from:
Excess tax benefit on share-based compensation		(477)	55.3	%		—	0.0	%		(3,711)	(6.2)	%		—	0.0	%
Tax exempt interest income		(1,187)	137.7	%		(1,020)	(3.2)	%		(3,525)	(5.9)	%		(3,149)	(2.6)	%
Dividends received deduction		(553)	64.2	%		(626)	(2.0)	%		(1,488)	(2.5)	%		(1,676)	(1.4)	%
ESOP dividends paid deduction		(240)	27.9	%		(238)	(0.8)	%		(724)	(1.2)	%		(714)	(0.6)	%
Other items, net		163	(18.9)	%		(137)	(0.5)	%		429	0.7	%		205	0.1	%
Total tax expense (benefit)	$	(2,596)	301.2	%	$	8,879	28.5	%	$	11,847	19.9	%	$	36,343	30.5	%