XML 40 R25.htm IDEA: XBRL DOCUMENT v3.21.1
Income Taxes
 3 Months Ended
Mar. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes 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:
Three Months Ended
March 31,
(dollars in thousands)20212020
Provision at statutory rate of 21%
$21,934 $5,372 
Tax-exempt income:
Tax-exempt interest(2,779)(2,632)
Section 291/265 interest disallowance33 73 
Company-owned life insurance income(544)(647)
Tax-exempt income(3,290)(3,206)
State income taxes2,974 (8)
Interim period effective rate adjustment(1,775)3,267 
Tax credit investments - federal(1,092)(1,902)
Other, net(1,121)(584)
Income tax expense$17,630 $2,939 
Effective tax rate16.9 %11.5 %
The provision for income taxes was recorded at March 31, 2021 and 2020 based on the current estimate of the effective annual rate.
The higher effective tax rate during the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 is primarily the result of an increase in pre-tax book income.
Net Deferred Tax Assets
Net deferred tax assets are included in other assets on the balance sheet. Significant components of net deferred tax assets (liabilities) were as follows:
(dollars in thousands)March 31,
2021		December 31,
2020
Deferred Tax Assets  
Allowance for credit losses, net of recapture$30,374 $34,971 
Benefit plan accruals11,136 20,076 
Net operating loss carryforwards15,553 18,982 
Federal tax credits1,332 — 
Deferred gain on securities1,786 2,102 
Acquired loans10,912 11,989 
Operating lease liabilities23,710 24,245 
Tax credit investments and other partnerships968 1,054 
Other real estate owned6 28 
Other, net720 460 
Total deferred tax assets96,497 113,907 
Deferred Tax Liabilities
Purchase accounting(18,365)(18,232)
Loan servicing rights(6,928)(6,582)
Premises and equipment(13,972)(14,008)
Prepaid expenses(956)(955)
Operating lease right-of-use assets(21,105)(21,569)
Unrealized gains on available-for-sale investment securities(24,327)(40,756)
Unrealized gains on hedges(1,800)(1,080)
Other, net(1,557)(1,555)
Total deferred tax liabilities(89,010)(104,737)
Net deferred tax assets$7,487 $9,170 
Through the acquisition of Anchor (WI) in the second quarter of 2016 and Lafayette Savings Bank in the fourth quarter of 2014, both former thrifts, Old National Bank’s retained earnings at March 31, 2021 include base-year bad debt reserves, created for tax purposes prior to 1988, totaling $52.8 million.  Of this total, $50.9 million was acquired from Anchor (WI), and $1.9 million was acquired from Lafayette Savings Bank.  Base-year reserves are subject to recapture in the unlikely event that Old National Bank (1) makes distributions in excess of current and accumulated earnings and profits, as calculated for federal income tax purposes, (2) redeems its stock, or (3) liquidates.  Old National Bank has no intention of making such a nondividend distribution.  Accordingly, under current accounting principles, a related deferred income tax liability of $13.0 million has not been recognized.
No valuation allowance was recorded at March 31, 2021 or December 31, 2020 because, based on current expectations, Old National believes it will generate sufficient income in future years to realize deferred tax assets.  Old National has federal net operating loss carryforwards totaling $36.7 million at March 31, 2021 and $52.4 million at December 31, 2020.  This federal net operating loss was acquired from the acquisition of Anchor (WI) in 2016.  If not used, the federal net operating loss carryforwards will expire from 2030 to 2033.  Old National has federal tax credit carryforwards totaling $1.3 million at March 31, 2021. The federal tax credits consist mainly of energy efficient home credits, low-income housing credits, and new market tax credits that, if not used, will expire by 2041. Old National has recorded state net operating loss carryforwards totaling $129.1 million at March 31, 2021 and $132.2 million at December 31, 2020.  If not used, the state net operating loss carryforwards will expire from 2027 to 2033.
The federal and recorded state net operating loss carryforwards are subject to an annual limitation under Internal Revenue Code section 382.  Old National believes that all of the recorded net operating loss carryforwards will be used prior to expiration.