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Income Taxes
 12 Months Ended
Dec. 31, 2020
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)202020192018
Provision at statutory rate of 21%
$53,667 $60,975 $43,823 
Tax-exempt income:
Tax-exempt interest(10,776)(10,243)(9,021)
Section 291/265 interest disallowance189 435 321 
Company-owned life insurance income(2,290)(2,423)(2,223)
Tax-exempt income(12,877)(12,231)(10,923)
State income taxes4,840 6,720 5,621 
Tax credit investments - federal(15,159)(4,411)(21,576)
Other, net(1,324)1,097 905 
Income tax expense$29,147 $52,150 $17,850 
Effective tax rate11.4 %18.0 %8.6 %

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 higher effective tax rate in 2019 when compared to 2018 was primarily the result of a decrease in federal tax credits available in 2019, as well as an increase in pre-tax book income.
The provision for income taxes consisted of the following components:
Years Ended December 31,
(dollars in thousands)202020192018
Income taxes currently payable:
Federal$19,223 $22,908 $12,256 
State6,498 4,490 4,601 
Deferred income taxes related to:
Federal3,188 20,402 (1,513)
State238 4,350 2,506 
Deferred income tax expense3,426 24,752 993 
Income tax expense$29,147 $52,150 $17,850 
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)20202019
Deferred Tax Assets  
Allowance for loan losses, net of recapture$34,971 $14,179 
Benefit plan accruals20,076 19,673 
Alternative minimum tax credit— 1,272 
Net operating loss carryforwards18,982 25,336 
Deferred gain on securities2,102 3,754 
Acquired loans11,989 16,784 
Operating lease liabilities24,245 26,503 
Tax credit investments and other partnerships1,054 1,765 
Other real estate owned28 141 
Other, net460 591 
Total deferred tax assets113,907 109,998 
Deferred Tax Liabilities
Purchase accounting(18,232)(17,564)
Loan servicing rights(6,582)(6,289)
Premises and equipment(14,008)(12,167)
Prepaid expenses(955)(973)
Operating lease right-of-use assets(21,569)(25,448)
Unrealized gains on available-for-sale investment securities(40,756)(15,751)
Unrealized gains on hedges(1,080)(78)
Other, net(1,555)(2,023)
Total deferred tax liabilities(104,737)(80,293)
Net deferred tax assets$9,170 $29,705 
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, 2020 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, 2020 or 2019 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 $52.4 million at December 31, 2020 and $78.5 million at December 31, 2019.  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 2029 to 2033.  Old National has recorded state net operating loss carryforwards totaling $132.2 million at December 31, 2020 and $148.4 million at December 31, 2019.  If not used, the state net operating loss carryforwards will expire from 2024 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 2017 through 2020 tax years are open and subject to examination.