NOTE 14 - 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)		2011			2010			2011			2010
Provision at statutory rate of 35%	$	8,030		$	4,290		$	15,363		$	8,409
Tax-exempt income		(2,370	)		(2,672	)		(4,761	)		(5,333	)
State income taxes		702			162			1,096			247
Interim period effective rate adjustment		(3	)		0			(799	)		0
Other, net		(432	)		(46	)		(454	)		110
Income tax expense	$	5,927		$	1,734		$	10,445		$	3,433
Effective tax rate		25.8	%		14.1	%		23.8	%		14.3		%

In accordance with ASC 740-270, Accounting for Interim Reporting, the provision for income taxes was recorded at June 30, 2011 based on the current estimate of the effective annual rate.

For the three and six months ended June 30, 2011, the effective tax rate was higher than the three and six months ended June 30, 2010. The higher tax rate in the second quarter and six months of 2011 is the result of an increase in pre-tax book income while tax-exempt income remained relatively stable.

No valuation allowance was recorded at June 30, 2011 and 2010 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)		2011		2010
Balance at January 1	$	4,553	$	8,500
Additions (reductions) based on tax positions related to the current year		3		(584	)
Balance at June 30	$	4,556	$	7,916

Approximately $0.76 million of unrecognized tax benefits, if recognized, would favorably affect the effective income tax rate in future periods.