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)	2019				2018				2017
Provision at statutory rate (1)	$	60,975			$	43,823			$	59,032
Tax-exempt income:
Tax-exempt interest		(10,243	)			(9,021	)			(15,026	)
Section 291/265 interest disallowance		435				321				289
Company-owned life insurance income		(2,423	)			(2,223	)			(3,029	)
Tax-exempt income		(12,231	)			(10,923	)			(17,766	)
State income taxes		6,720				5,621				998
Tax credit investments - federal		(4,411	)			(21,576	)			(8,500	)
Revaluation of deferred tax assets		—				—				39,300
Other, net		1,097				905				(125	)
Income tax expense	$	52,150			$	17,850			$	72,939
Effective tax rate		18.0		%		8.6		%		43.3		%

The higher effective tax rate in 2019 when compared to 2018 was primarily the result of a decrease in federal tax credits available as well as an increase in pre-tax book income.

The lower effective tax rate in 2018 when compared to 2017 was primarily the result of the lowering of the federal corporate tax rate to 21% in 2018 and an increase in federal tax credits available. Old National recorded $39.3 million of additional tax expense in 2017 due to the revaluation of deferred tax assets reflecting the lowering of the federal corporate tax rate to 21%. On December 22, 2017, the Tax Cuts and Jobs Act (“H.R. 1”) was enacted into legislation. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted.

Shortly after the enactment date, the SEC issued SAB 118, which addresses the situations where the accounting for changes in tax laws is complete, incomplete but can be reasonably estimated, and incomplete and cannot be reasonably estimated. SAB 118 also permits a measurement period of up to one year from the date of enactment to refine the provisional accounting. Old National completed its analysis of H.R. 1 during the second quarter of 2018 and there were immaterial adjustments made to the revaluation of Old National’s deferred tax assets.

The provision for income taxes consisted of the following components for the years ended December 31:

	Years Ended December 31,
(dollars in thousands)	2019		2018			2017
Income taxes currently payable:
Federal	$	22,908	$	12,256		$	—
State		4,490		4,601			—
Deferred income taxes related to:
Federal		20,402		(1,513	)		31,915
Revaluation of deferred tax assets		—		—			39,300
State		4,350		2,506			1,724
Deferred income tax expense		24,752		993			72,939
Income tax expense	$	52,150	$	17,850		$	72,939

Significant components of net deferred tax assets (liabilities) were as follows at December 31:

(dollars in thousands)	2019			2018
Deferred Tax Assets
Allowance for loan losses, net of recapture	$	14,179		$	14,514
Benefit plan accruals		19,673			21,754
Alternative minimum tax credit		1,272			2,545
Net operating loss carryforwards		25,336			31,765
Federal tax credits		—			1,779
Deferred gain on securities		3,754			1,976
Acquired loans		16,784			26,956
Operating lease liabilities		26,503			—
Lease exit obligation		—			1,025
Unrealized losses on available-for-sale investment securities		—			11,853
Unrealized losses on held-to-maturity investment securities		—			2,497
Tax credit investments and other partnerships		1,765			3,004
Other real estate owned		141			144
Other, net		591			3,167
Total deferred tax assets		109,998			122,979
Deferred Tax Liabilities
Accretion on investment securities		—			(595	)
Purchase accounting		(17,564	)		(18,100	)
Loan servicing rights		(6,289	)		(6,141	)
Premises and equipment		(12,167	)		(8,507	)
Prepaid expenses		(973	)		(681	)
Operating lease right-of-use assets		(25,448	)		—
Unrealized gains on available-for-sale investment securities		(15,751	)		—
Unrealized gains on hedges		(78	)		(358	)
Other, net		(2,023	)		(1,549	)
Total deferred tax liabilities		(80,293	)		(35,931	)
Net deferred tax assets	$	29,705		$	87,048

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, 2019 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, 2019 or 2018 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 $78.5 million at December 31, 2019 and $104.5 million at December 31, 2018. 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 alternative minimum tax credit carryforwards totaling $1.3 million at December 31, 2019 and $10.1 million at December 31, 2018. The enactment of H.R.1 eliminates the parallel tax system known as the alternative minimum tax and allows any existing alternative minimum tax credits to be used to reduce regular tax or be refunded from 2018 to 2021. ASC 740 allows for the reclassification of the alternative minimum tax credit from a deferred tax asset to a current tax asset, except for the amount limited by section 382. Old National has $1.3 million of alternative minimum tax credit carryforward subject to section 382 limitations, which is included in deferred tax assets. Old National has recorded state net operating loss carryforwards totaling $148.4 million at December 31, 2019 and $165.6 million at December 31, 2018. If not used, the state net operating loss carryforwards will expire from 2024 to 2033. Old National had federal tax credit carryforwards of $1.8 million at December 31, 2018.

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.

Old National has an immaterial amount of unrecognized tax benefits. Old National expects the total amount of unrecognized tax benefits to be reduced to zero after the Internal Revenue Service audit is finalized.

Old National and its subsidiaries file a consolidated U.S. federal income tax return, as well as filing various state returns. The 2016 through 2019 tax years are open and subject to examination. Old National is currently under audit by the Internal Revenue Service for the 2016 and 2017 tax years.