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Income Taxes | 12 Months Ended
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Dec. 31, 2024
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) | 2024 |  | 2023 |  | 2022
Provision at statutory rate of 21% | $ | 142,892 |  |  | $ | 157,774 |  |  | $ | 114,394 |
Tax-exempt income: |  |  |  |  |
Tax-exempt interest | (19,439) |  |  | (18,582) |  |  | (14,588) |
Section 291/265 interest disallowance | 3,620 |  |  | 2,392 |  |  | 363 |
Company-owned life insurance income | (4,428) |  |  | (3,125) |  |  | (2,891) |
Tax-exempt income | (20,247) |  |  | (19,315) |  |  | (17,116) |
State income taxes | 19,619 |  |  | 31,164 |  |  | 20,837 |
Tax credit investments - federal | (14,829) |  |  | (12,190) |  |  | (9,140) |
Officer compensation limitation | 4,154 |  |  | 4,685 |  |  | 5,903 |
Non-deductible FDIC premiums | 8,754 |  |  | 7,912 |  |  | 3,805 |
Other, net | 907 |  |  | (720) |  |  | (2,237) |
Income tax expense | $ | 141,250 |  |  | $ | 169,310 |  |  | $ | 116,446 |
Effective tax rate | 20.8 | % |  | 22.5 | % |  | 21.4 | %
The provision for income taxes consisted of the following components:
| Years Ended December 31,
(dollars in thousands) | 2024 |  | 2023 |  | 2022
Current expense: |  |  |  |  |
Federal | $ | 99,532 |  |  | $ | 121,428 |  |  | $ | 106,918 |
State | 21,317 |  |  | 37,331 |  |  | 32,898 |
Deferred expense: |  |  |  |  |
Federal | 14,956 |  |  | 7,941 |  |  | (16,216) |
State | 5,445 |  |  | 2,610 |  |  | (7,154) |
Deferred income tax expense | 20,401 |  |  | 10,551 |  |  | (23,370) |
Income tax expense | $ | 141,250 |  |  | $ | 169,310 |  |  | $ | 116,446 |
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) | 2024 |  | 2023
Deferred Tax Assets |  |  |
Unrealized losses on available-for-sale investment securities | $ | 222,467 |  |  | $ | 217,018 |
Allowance for credit losses on loans, net of recapture | 105,475 |  |  | 86,224 |
Operating lease liabilities | 57,495 |  |  | 57,996 |
Acquired loans | 49,093 |  |  | 32,011 |
Benefit plan accruals | 40,089 |  |  | 31,679 |
Unrealized losses on held-to-maturity investment securities | 27,664 |  |  | 32,150 |
Net operating loss carryforwards | 19,601 |  |  | 21,004 |
Purchase accounting | 10,062 |  |  | 22,473 |
FDIC deductible premiums | 3,766 |  |  | 4,891 |
Other, net | 6,658 |  |  | 4,860 |
Total deferred tax assets | 542,370 |  |  | 510,306 |
Deferred Tax Liabilities |  |  |
Operating lease right-of-use assets | (52,441) |  |  | (52,710) |
Premises and equipment | (13,358) |  |  | (12,141) |
Loan servicing rights | (10,012) |  |  | (9,188) |
Prepaid expenses | (3,982) |  |  | (3,856) |
Tax credit investments and other partnerships | (2,310) |  |  | (785) |
Unrealized gains on hedges | (1,505) |  |  | (3,202) |
Deferred loan origination fees | — |  |  | (2,361) |
Other, net | (2,315) |  |  | (2,803) |
Total deferred tax liabilities | (85,923) |  |  | (87,046) |
Net deferred tax assets | $ | 456,447 |  |  | $ | 423,260 |
The Company’s retained earnings at December 31, 2024 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 required on the Company’s deferred tax assets at December 31, 2024 or 2023. Old National has federal net operating loss carryforwards totaling $60.2 million at December 31, 2024 and $63.6 million at December 31, 2023. This federal net operating loss was acquired from the acquisition of Anchor BanCorp Wisconsin Inc. in 2016, First Midwest in 2022, and CapStar in 2024. If not used, the federal net operating loss carryforwards will begin expiring in 2032 and later. Old National has recorded state net operating loss carryforwards totaling $106.0 million at December 31, 2024 and $116.9 million at December 31, 2023. If not used, the state net operating loss carryforwards will expire from 2028 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. Unrecognized Tax Benefits Old National has unrecognized tax benefits due to the merger with First Midwest. The following table presents the changes in the carrying amount of unrecognized tax benefits:
| Years Ended December 31,
(dollars in thousands) | 2024 |  | 2023 |  | 2022
Balance at beginning of period | $ | 9,955 |  |  | $ | 11,007 |  |  | $ | — |
Additions for acquired uncertain tax positions | — |  |  | — |  |  | 14,897 |
Additions based on tax positions related to prior years | — |  |  | 60 |  |  | — |
Reductions for tax positions relating to prior years | — |  |  | — |  |  | (2,751) |
Reductions due to statute of limitations expiring | (2,961) |  |  | (1,112) |  |  | (1,139) |
Balance at end of period | $ | 6,994 |  |  | $ | 9,955 |  |  | $ | 11,007 |
If recognized, approximately $5.6 million of unrecognized tax benefits, net of interest, would favorably affect the effective income tax rate in future periods. Old National expects the $5.6 million of unrecognized tax benefits to be reduced to $5.0 million in the next twelve months. It is our policy to recognize interest and penalties accrued relative to unrecognized tax benefits in their respective federal or state income tax accounts. Interest and penalties recorded and accrued in 2024 and 2023 were immaterial. Old National and its subsidiaries file a consolidated U.S. federal income tax return, as well as filing various state returns. The 2021 through 2024 tax years are open and subject to examination.

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