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 statements of income for the three months ended March 31:


	Three Months Ended
	March 31,
(dollars in thousands)	2016			2015
Provision at statutory rate of 35%	$	12,827		$	10,546
Tax-exempt income		(4,168	)		(3,852	)
State income taxes		583			1,277
Interim period effective rate adjustment		(148	)		1,506
Other, net		577			(252	)

Income tax expense	$	9,671		$	9,225

Effective tax rate		26.4	%		30.6	%

In accordance with ASC 740-270, Accounting for Interim Reporting, the provision for income taxes was recorded at March 31, 2016 and 2015 based on the current estimate of the effective annual rate.

The lower effective tax rate during the three months ended March 31, 2016 when compared to the three months ended March 31, 2015 is the result of a decrease in the forecasted effective tax rate for 2016 as compared to 2015. In addition, in the first quarter of 2015, the valuation of the state deferred tax asset was reduced due to a change in state apportionment estimates related to the acquisition of Founders, resulting in a higher state income tax expense in 2015.

No valuation allowance was recorded at March 31, 2016 or 2015 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)	2016		2015
Balance at January 1,	$	124	$	77
Additions based on tax positions related to the current year		14		11

Balance at March 31,	$	138	$	88

If recognized, approximately $0.1 million of unrecognized tax benefits, net of interest, would favorably affect the effective income tax rate in future periods.