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Income Taxes | 9 Months Ended
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Sep. 30, 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 September 30, |  | Nine Months Ended September 30,
(dollars in thousands) | 2021 |  | 2020 |  | 2021 |  | 2020
Provision at statutory rate of 21% | $ | 18,779 |  |  | $ | 18,920 |  |  | $ | 56,830 |  |  | $ | 37,200 |
Tax-exempt income: |  |  |  |  |  |  |
Tax-exempt interest | (2,786) |  |  | (2,682) |  |  | (8,327) |  |  | (7,985) |
Section 291/265 interest disallowance | 28 |  |  | 36 |  |  | 92 |  |  | 153 |
Company-owned life insurance income | (483) |  |  | (386) |  |  | (1,582) |  |  | (1,657) |
Tax-exempt income | (3,241) |  |  | (3,032) |  |  | (9,817) |  |  | (9,489) |
State income taxes | 2,282 |  |  | 656 |  |  | 7,455 |  |  | 2,367 |
Interim period effective rate adjustment | 1,077 |  |  | (2,501) |  |  | (1,360) |  |  | 840 |
Tax credit investments - federal | (315) |  |  | (2,575) |  |  | (2,838) |  |  | (6,296) |
Other, net | (902) |  |  | 686 |  |  | (1,000) |  |  | 232 |
Income tax expense | $ | 17,680 |  |  | $ | 12,154 |  |  | $ | 49,270 |  |  | $ | 24,854 |
Effective tax rate | 19.8 | % |  | 13.5 | % |  | 18.2 | % |  | 14.0 | %
The provision for income taxes was recorded at September 30, 2021 and 2020 based on the current estimate of the effective annual rate. The higher effective tax rate during the three and nine months ended September 30, 2021 when compared to the three and nine months ended September 30, 2020 is primarily the result of increases in pre-tax book income and lower tax credits. 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) | September 30, 2021 |  | December 31, 2020
Deferred Tax Assets |  |  |
Allowance for credit losses, net of recapture | $ | 28,791 |  |  | $ | 34,971 |
Benefit plan accruals | 15,579 |  |  | 20,076 |
Net operating loss carryforwards | 14,823 |  |  | 18,982 |
Deferred gain on securities | 1,334 |  |  | 2,102 |
Acquired loans | 8,949 |  |  | 11,989 |
Operating lease liabilities | 22,959 |  |  | 24,245 |
Tax credit investments and other partnerships | 494 |  |  | 1,054 |
Other, net | 942 |  |  | 488 |
Total deferred tax assets | 93,871 |  |  | 113,907 |
Deferred Tax Liabilities |  |  |
Purchase accounting | (18,524) |  |  | (18,232) |
Loan servicing rights | (7,179) |  |  | (6,582) |
Premises and equipment | (14,550) |  |  | (14,008) |
Prepaid expenses | (953) |  |  | (955) |
Operating lease right-of-use assets | (21,106) |  |  | (21,569) |
Unrealized gains on available-for-sale investment securities | (14,590) |  |  | (40,756) |
Unrealized gains on hedges | (628) |  |  | (1,080) |
Other, net | (1,561) |  |  | (1,555) |
Total deferred tax liabilities | (79,091) |  |  | (104,737) |
Net deferred tax assets | $ | 14,780 |  |  | $ | 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 September 30, 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 September 30, 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 September 30, 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 recorded state net operating loss carryforwards totaling $116.1 million at September 30, 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.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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