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Income Taxes
 9 Months Ended
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)2021202020212020
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 disallowance28 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 taxes2,282 656 7,455 2,367 
Interim period effective rate adjustment1,077 (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 rate19.8 %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 accruals15,579 20,076 
Net operating loss carryforwards14,823 18,982 
Deferred gain on securities1,334 2,102 
Acquired loans8,949 11,989 
Operating lease liabilities22,959 24,245 
Tax credit investments and other partnerships494 1,054 
Other, net942 488 
Total deferred tax assets93,871 113,907 
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.