NOTE 16 – INCOME TAXES

Following is a summary of the major items comprising the differences in taxes from continuing operations computed at the federal statutory rate and as recorded in the consolidated statement of income for the three and six months ended June 30:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(dollars in thousands)	2014			2013			2014			2013
Provision at statutory rate of 35%	$	9,251		$	14,774		$	21,764		$	26,792
Tax-exempt income		(3,422	)		(3,092	)		(6,559	)		(5,989	)
State income taxes		182			1,156			825			2,372
State statutory rate change		(218	)		1,257			904			1,257
Interim period effective rate adjustment		2,149			(358	)		124			(223	)
Other, net		(284	)		(3	)		(158	)		(83	)

Income tax expense	$	7,658		$	13,734		$	16,900		$	24,126

Effective tax rate		29.0	%		32.5	%		27.2	%		31.5	%

In accordance with ASC 740-270, Accounting for Interim Reporting, the provision for income taxes was recorded at June 30, 2014 and 2013 based on the current estimate of the effective annual rate.

For the six months ended June 30, 2014, the effective tax rate was lower than the six months ended June 30, 2013. The lower tax rate in the first six months of 2014 is the result of higher tax exempt income in relation to pre-tax book income for 2014 as compared to prior year, as well as lower projected state taxes due to reduced statutory rates.

No valuation allowance was recorded at June 30, 2014 and 2013 because, based on our current expectations, Old National believes that it will generate sufficient income in the future years to realize deferred tax assets.

Unrecognized Tax Benefits

The Company and its subsidiaries file a consolidated U.S. federal income tax return, as well as filing various state returns. Unrecognized state income tax benefits are reported net of their related deferred federal income tax benefit.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


(dollars in thousands)	2014		2013
Balance at January 1	$	3,847	$	3,953
Additions (reductions) based on tax positions related to the current year		21		8

Balance at June 30	$	3,868	$	3,961

Approximately $.07 million of unrecognized tax benefits, net of interest, if recognized, would favorably affect the effective income tax rate in future periods. The Company expects the total amount of unrecognized tax benefits to decrease by approximately $3.8 million in the next six months.