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Income Taxes
 12 Months Ended
Dec. 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 statement of income:
Years Ended December 31,
(dollars in thousands)202120202019
Provision at statutory rate of 21%
$71,161 $53,667 $60,975 
Tax-exempt income:
Tax-exempt interest(11,066)(10,776)(10,243)
Section 291/265 interest disallowance114 189 435 
Company-owned life insurance income(2,138)(2,290)(2,423)
Tax-exempt income(13,090)(12,877)(12,231)
State income taxes9,308 4,840 6,720 
Tax credit investments - federal(5,212)(15,159)(4,411)
Other, net(843)(1,324)1,097 
Income tax expense$61,324 $29,147 $52,150 
Effective tax rate18.1 %11.4 %18.0 %

The higher effective tax rate in 2021 when compared to 2020 was primarily the result of an increase in pre-tax book income and lower tax credits.  

The lower effective tax rate in 2020 when compared to 2019 was primarily the result of an increase in federal tax credits available in 2020.
The provision for income taxes consisted of the following components:
Years Ended December 31,
(dollars in thousands)202120202019
Current expense:
Federal$31,943 $19,223 $22,908 
State8,461 6,498 4,490 
Deferred expense:
Federal17,514 3,188 20,402 
State3,406 238 4,350 
Deferred income tax expense20,920 3,426 24,752 
Income tax expense$61,324 $29,147 $52,150 
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:
December 31,
(dollars in thousands)20212020
Deferred Tax Assets  
Allowance for credit losses, net of recapture$28,843 $34,971 
Benefit plan accruals18,348 20,076 
Net operating loss carryforwards14,823 18,982 
Deferred gain on securities1,215 2,102 
Acquired loans8,039 11,989 
Operating lease liabilities22,961 24,245 
Unrealized losses on available-for-sale investment securities3,003 — 
Tax credit investments and other partnerships301 1,054 
Other, net1,914 488 
Total deferred tax assets99,447 113,907 
Deferred Tax Liabilities
Purchase accounting(18,524)(18,232)
Loan servicing rights(7,379)(6,582)
Premises and equipment(16,972)(14,008)
Prepaid expenses(796)(955)
Operating lease right-of-use assets(21,129)(21,569)
Unrealized gains on available-for-sale investment securities— (40,756)
Unrealized gains on hedges(177)(1,080)
Other, net(1,564)(1,555)
Total deferred tax liabilities(66,541)(104,737)
Net deferred tax assets$32,906 $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 December 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 December 31, 2021 or 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 December 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 recorded state net operating loss carryforwards totaling $116.1 million at December 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.
Unrecognized Tax Benefits
Old National reduced an immaterial amount of unrecognized tax benefits to zero in 2020 after an Internal Revenue Service audit was finalized.
Old National and its subsidiaries file a consolidated U.S. federal income tax return, as well as filing various state returns.  The 2018 through 2021 tax years are open and subject to examination.