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Income Taxes | 3 Months Ended
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Mar. 31, 2022
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) | 2022 |  | 2021 |  |  |  |
Provision at statutory rate of 21% | $ | (7,623) |  |  | $ | 21,934 |  |  |  |  |
Tax-exempt income: |  |  |  |  |  |  |
Tax-exempt interest | (2,992) |  |  | (2,779) |  |  |  |  |
Section 291/265 interest disallowance | 28 |  |  | 33 |  |  |  |  |
Company-owned life insurance income | (718) |  |  | (544) |  |  |  |  |
Tax-exempt income | (3,682) |  |  | (3,290) |  |  |  |  |
State income taxes | (3,327) |  |  | 2,974 |  |  |  |  |
Interim period effective rate adjustment | 7,040 |  |  | (1,775) |  |  |  |  |
Tax credit investments - federal | (1,270) |  |  | (1,092) |  |  |  |  |
Other, net | 148 |  |  | (1,121) |  |  |  |  |
Income tax expense (benefit) | $ | (8,714) |  |  | $ | 17,630 |  |  |  |  |
Effective tax rate | 24.0 | % |  | 16.9 | % |  |  |  |
The provision for income taxes was recorded at March 31, 2022 and 2021 based on the current estimate of the effective annual rate. Based on the current estimate of the combined entity annual effective rate, the higher effective tax rate during the three months ended March 31, 2022 when compared to the three months ended March 31, 2021 reflected higher post-merger estimated state effective tax rates. An additional benefit of $1.2 million related to share-based payments and a one-time benefit of $0.9 million due to the remeasurement of the Company’s deferred taxes post-merger both increased the effective tax rate for the quarter since the Company reflected a pretax loss, but are expected to reduce the overall full-year tax rate once the Company is in a pretax income position. 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, 2022 |  | December 31, 2021
Deferred Tax Assets |  |  |
Allowance for credit losses, net of recapture | $ | 75,316 |  |  | $ | 28,843 |
Benefit plan accruals | 11,781 |  |  | 18,348 |
Net operating loss carryforwards | 46,649 |  |  | 14,823 |
Deferred gain on securities | 991 |  |  | 1,215 |
Acquired loans | 41,387 |  |  | 8,039 |
Operating lease liabilities | 64,227 |  |  | 22,961 |
Unrealized losses on available-for-sale investment securities | 99,240 |  |  | 3,003 |
Unrealized losses on held-to-maturity investment securities | 5,126 |  |  | — |
Unrealized losses on hedges | 2,323 |  |  | — |
Tax credit investments and other partnerships | 441 |  |  | 301 |
Purchase accounting | 11,414 |  |  | — |
Other, net | 3,424 |  |  | 1,914 |
Total deferred tax assets | 362,319 |  |  | 99,447 |
Deferred Tax Liabilities |  |  |
Purchase accounting | — |  |  | (18,524) |
Loan servicing rights | (9,799) |  |  | (7,379) |
Premises and equipment | (14,254) |  |  | (16,972) |
Prepaid expenses | (835) |  |  | (796) |
Operating lease right-of-use assets | (55,749) |  |  | (21,129) |
Deferred loan origination fees | (5,423) |  |  | — |
Unrealized gains on hedges | — |  |  | (177) |
Other, net | (2,480) |  |  | (1,564) |
Total deferred tax liabilities | (88,540) |  |  | (66,541) |
Net deferred tax assets | $ | 273,779 |  |  | $ | 32,906 |
The Company’s retained earnings at March 31, 2022 included an appropriation for acquired thrifts’ tax bad debt allowances totaling $58.6 million for which no provision for federal or state income taxes has been made. If, in the future, this portion of retained earnings were distributed as a result of the liquidation of the Company or its subsidiaries, federal and state income taxes would be imposed at the then applicable rates. No valuation allowance was recorded at March 31, 2022 or December 31, 2021 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 $153.3 million at March 31, 2022 and $36.7 million at December 31, 2021. This federal net operating loss was acquired from the acquisition of Anchor (WI) in 2016 and First Midwest in 2022. If not used, the federal net operating loss carryforwards will expire from 2029 to 2039. Old National has recorded state net operating loss carryforwards totaling $169.5 million at March 31, 2022 and $116.1 million at December 31, 2021. If not used, the state net operating loss carryforwards will expire from 2027 to 2052. 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 federal and recorded state 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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