XML 35 R25.htm IDEA: XBRL DOCUMENT v3.22.2.2
Income Taxes
 9 Months Ended
Sep. 30, 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
September 30,		Nine Months Ended
September 30,
(dollars in thousands)2022202120222021
Provision at statutory rate of 21%
$37,598 $18,779 $59,365 $56,830 
Tax-exempt income:
Tax-exempt interest(3,929)(2,786)(10,335)(8,327)
Section 291/265 interest disallowance85 28 150 92 
Company-owned life insurance income(684)(483)(2,340)(1,582)
Tax-exempt income(4,528)(3,241)(12,525)(9,817)
State income taxes7,050 2,282 7,808 7,455 
Interim period effective rate adjustment(31)1,077 3,042 (1,360)
Tax credit investments - federal(2,407)(315)(4,968)(2,838)
Other, net1,205 (902)2,415 (1,000)
Income tax expense (benefit)$38,887 $17,680 $55,137 $49,270 
Effective tax rate21.7 %19.8 %19.5 %18.2 %
The provision for income taxes was recorded at September 30, 2022 and 2021 based on the current estimate of the effective annual rate.
The higher effective tax rate during the three and nine months ended September 30, 2022 compared to the same periods in 2021 reflected the increase in pre-tax book income and higher post-merger estimated state effective tax rates.
Net Deferred Tax Assets
Net deferred tax assets are included in other assets on the balance sheet. At September 30, 2022, net deferred tax assets totaled $426.0 million, compared to $32.9 million at December 31, 2021. The increase in net deferred tax assets was driven by $255.7 million of deferred tax assets related to the market value adjustments of certain investments and $130.3 million related to the merger with First Midwest.
The Company’s retained earnings at September 30, 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 September 30, 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 $85.7 million at September 30, 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 begin expiring in 2030 and later.  Old National has recorded state net operating loss carryforwards totaling $130.1 million at September 30, 2022 and $116.1 million at December 31, 2021.  If not used, the state net operating loss carryforwards will expire from 2027 to 2036.
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.