NOTE 17 - 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 months ended March 31:


	Three Months Ended
	March 31,
(dollars in thousands)	2015			2014
Provision at statutory rate of 35%	$	10,546		$	12,513
Tax-exempt income		(3,852	)		(3,137	)
State income taxes		1,277			643
Interim period effective rate adjustment		1,506			(2,025	)
State statutory rate change		—			1,122
Other, net		(252	)		126

Income tax expense	$	9,225		$	9,242

Effective tax rate		30.6	%		25.9	%

In accordance with ASC 740-270, Accounting for Interim Reporting, the provision for income taxes was recorded at March 31, 2015 and 2014 based on the current estimate of the effective annual rate.

The higher tax rate in the three months ended March 31, 2015 when compared to the three months ended March 31, 2014 is the result of an increase in the forecasted effective tax rate for 2015 as compared to 2014, as well as an increase in state income taxes due to the acquisition of Founders and the Indiana tax rate reductions in the first quarter of 2015.

No valuation allowance was recorded at March 31, 2015 or 2014 because, based on current expectations, Old National believes it will generate sufficient income in 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)	2015		2014
Balance at January 1,	$	77	$	3,847
Additions (reductions) based on tax positions related to the current year		11		12

Balance at March 31,	$	88	$	3,859

Approximately $88 thousand of unrecognized tax benefits, net of interest, if recognized, would favorably affect the effective income tax rate in future periods.