What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-02-10 compared with 2021-02-10 · 472 added, 829 removed, 1986 unchanged (40% of the section changed)

1 unchanged sentence

Report of Management

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

5 unchanged sentences

Basis of Presentation and Significant Accounting Policies

Acquisition and Divestiture Activity

Investment Securities

Loans and Allowance for Cred it Losses

Loans and Allowance for Credit Losses

Other Real Estate Owned

16 unchanged sentences

Segment Information

Interim Financial Data (Unaudited)

REPORT OF MANAGEMENT

39 unchanged sentences

326, Financial Instruments – Credit Losses (ASC 326).

The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below.

The Company adopted the credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

Basis for Opinions

5 unchanged sentences

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that

respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audits also included evaluating the accounting

principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

12 unchanged sentences

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.

Allowance for Credit Losses and Provision Expense

In accordance with Accounting Standards Update (the “ASU”) 2016-13, Financial Instruments —Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, the Company adopted Accounting Standards Codification (“ASC”) 326 as of January 1, 2020 as described in Notes 1 and 3 of the consolidated financial statements using the modified retrospective method.

See also the explanatory paragraph above.

The allowance for credit losses (the “ACL”) is an accounting estimate of expected credit losses over the contractual life of financial assets carried at amortized cost and off-balance-sheet credit exposures.

The ASU requires a financial asset (or a group of financial assets), including the Company's loan portfolio, measured at amortized cost to be presented at the net amount expected to be collected.

Allowance and Provision for Credit Losses on Loans

A financial asset (or a group of financial assets), including the Company's loan portfolio, is required to be measured at amortized cost to be presented at the net amount expected to be collected.

Estimates of expected credit losses for loans are based on historical experience, current conditions and reasonable and supportable forecasts over the expected life of the loans.

In order to estimate the expected credit losses, the Company implemented several new loss estimation models.

The Company disclosed the impact of adoption of this standard on January 1, 2020 with a $41.3 million increase to the allowance for credit losses, a $4.5 million increase for unfunded loan commitments and a $31.1 million decrease to retained earnings for the cumulative effect adjustment recorded upon adoption.

Provision expense for the year ending December 31, 2020 was $38.4 million and the Allowance for Credit Losses at December 31, 2020 was $131.4 million.

In order to estimate the expected credit losses, the Company utilizes several loss estimation models.

The Company utilizes a discounted cash flow (“DCF”) approach with probability of default (“PD”) methodology.

The PD regression models use combinations of variables to assess risk including unsystematic risk to help gauge the risk of default from an individual borrower and variables for systematic risk applicable to all borrowers.

Other assumptions used to determine the quantitative

allowance include the loss given default (LGD), which is defined as credit loss incurred when an obligor of the bank defaults, and prepayment assumptions.

Other assumptions used to determine the quantitative allowance include the loss given default (LGD), which is defined as credit loss incurred when an obligor of the bank defaults, and prepayment assumptions.

Expected cashflows are created for each loan using reasonable and supportable forecasts and discounted using the loan’s effective yield.

1 unchanged sentence

Qualitative adjustments are applied to the quantitative component to adjust for factors such as current conditions.

The Allowance for Credit Losses was identified by us as a critical audit matter because of the extent of auditor judgment applied and significant audit effort to evaluate the significant subjective and complex judgments made by management throughout the initial adoption and subsequent application processes, including the need to involve our valuation services specialists.

The ACL and related Provision for Credit Losses was identified by us as a critical audit matter because of the extent of auditor judgment applied and significant audit effort to evaluate the significant subjective and complex judgments made by management throughout calculation, including the need to involve our valuation services specialists.

The principal considerations resulting in our determination included the following:

• Significant auditor judgment and audit effort to evaluate the appropriateness of selection of the loss estimation models and PD regression models, appropriateness of loan segmentation, and the reasonableness of PD and LGD assumptions.

• Significant auditor judgment in evaluating the selection and application of the reasonable and supportable forecast of economic variables.

• Significant auditor judgement and effort were used in evaluating the qualitative factors used in the calculation.

• Significant audit effort related to the completeness and accuracy of the high volume of data used to develop assumptions and in the model computation

• Significant auditor judgment in evaluating the selection and application of the reasonable and supportable forecast of economic variables and reasonableness of other model assumptions.

• Significant auditor judgment and effort in evaluating the qualitative factors used in the calculation related to adjustments for economic uncertainty in the forward-looking forecast.

• Significant audit effort related to the completeness and accuracy of the high volume of data used and data flow between systems.

The primary procedures performed to address the critical audit matter included:

• Testing the effectiveness of management’s internal controls over the Company’s significant model assumptions and judgments, loan segmentation, reasonable and supportable forecasts, qualitative factor adjustments, information systems and model validation

• Testing the effectiveness of controls over the completeness and accuracy of historical inputs used in the development of the PD models and LGD assumptions, data imputation, use of third-party data, and loan data used in the computation

• Testing the effectiveness of controls over the Company’s preparation and review of the allowance for credit loss calculation, including data used as the basis for adjustments related to the qualitative factors, the development and reasonableness of qualitative factors and mathematical accuracy and appropriateness of the overall calculation;

• With the assistance of our valuation specialists, evaluating the reasonableness of assumptions and judgments related to the PD, LGD and loan segmentation, the conceptual design of the credit loss estimation models, model assumption sensitivity analysis and the adequacy of the independent model validation

• Evaluating management’s judgments in the selection and application of reasonable and supportable forecast of economic variables

• Substantively testing management’s process for developing the qualitative factors and assessing reasonableness, relevance and reliability of data used to develop factors, including evaluating their judgments and assumptions for reasonableness.

• Substantively testing the mathematical accuracy of the discounted cash flow model at a loan level with the assistance of valuation services, including the completeness and accuracy of loan data used in the model.

• Testing the effectiveness of management’s internal controls over preparation and evaluation of the ACL calculation, significant model assumptions, development and reasonableness of qualitative factors, completeness and accuracy of data used in the calculation, systems used in the development of the estimate, and the appropriateness of the overall calculation.

• With the assistance of our valuation specialists, evaluating the effectiveness of management’s internal controls over PD model monitoring and validation of the assumptions, calculations, and functionality of the PD and DCF models.

• Evaluating management’s judgments in the selection and application of reasonable and supportable forecasts of economic variables.

• Substantively testing management’s process for developing qualitative factors and assessing the reasonableness, relevance, and reliability of data used to develop qualitative factors, including evaluating management’s judgments and assumptions for reasonableness.

• Substantively testing the mathematical accuracy of the DCF model at a loan level, including the completeness and accuracy of loan data used in the model.

• Substantively testing the completeness and accuracy of data used in the calculation and the data flow between the various systems.

We have served as the Company's auditor since 2005, which is the year the engagement letter was signed for the audit of the 2006 financial statements.

22 unchanged sentences

Total loans, net of unearned income 13,601,846 13,786,479

Allowance for loan losses (1) ( 131,388 ) ( 54,619 )

Allowance for credit losses ( 107,341 ) ( 131,388 )

Net loans 13,494,505 13,655,091

12 unchanged sentences

Money market 2,169,160 1,908,118

Other time deposits 1,103,313 1,589,988

Brokered deposits 119,557 92,242

Time deposits 960,413 1,122,870

Total deposits 18,569,195 17,037,453

17 unchanged sentences

Total liabilities and shareholders' equity $ 24,453,564 $ 22,960,622

(1) Beginning January 1, 2020, calculation is based on current expected loss methodology.

Prior to January 1, 2020, calculation was based on incurred loss methodology.

The accompanying notes to consolidated financial statements are an integral part of these statements.

20 unchanged sentences

Net interest income 596,400 596,094 604,273

Provision for loan losses (1) 38,395 4,747 6,966

Net interest income after provision for loan losses 557,699 599,526 530,636

Provision for credit losses (1) ( 28,812 ) 38,395 4,747

Net interest income after provision for credit losses 625,212 557,699 599,526

Noninterest Income

7 unchanged sentences

Debt securities gains (losses), net 4,327 10,767 1,923

Net gain on banking center divestitures — — 13,989

Other income 14,276 17,542 20,539

21 unchanged sentences

Dividends per common share 0.56 0.56 0.52

(1) Beginning January 1, 2020, calculation is based on current expected loss methodology.

(1) Beginning January 1, 2020, with the adoption of CECL, calculation is based on current expected credit loss methodology.

Prior to January 1, 2020, calculation was based on incurred loss methodology.

8 unchanged sentences

Unrealized holding gains (losses) for the period ( 187,955 ) 125,214 123,006

Reclassification for securities transferred to held-to-maturity — — 14,007

Reclassification adjustment for securities (gains) losses realized

4 unchanged sentences

Adjustment for securities transferred to available-for-sale — — 8,200

Adjustment for securities transferred from available-for-sale — — ( 14,007 )

Amortization of unrealized losses on securities transferred

from available-for-sale

— 2,812 2,181

Income tax effect — — ( 2,497 )

Changes from securities held-to-maturity — — 8,515

Cash flow hedges:

Change in cash flow hedges:

Net unrealized derivative gains (losses) on cash flow hedges 1,898 8,261 ( 543 )

2 unchanged sentences

Changes from cash flow hedges ( 2,041 ) 2,344 ( 859 )

Defined benefit pension plans:

Change in defined benefit pension plans:

Amortization of net loss recognized in income 239 21 30

16 unchanged sentences

Balance, January 1, 2019 175,141 2,031,695 534,006 ( 44,950 ) 2,695,892

Reclassification of certain tax effects related

to the Tax Cuts and Jobs Act of 2017 — — 10,751 ( 10,751 ) —

Net income — — 238,206 — 238,206

Other comprehensive income (loss) — — — 101,157 101,157

Acquisition of Klein Financial, Inc.

22,772 383,702 — — 406,474

Dividends - common stock ($ 0.52 per share)

16 unchanged sentences

Balance, December 31, 2020 165,367 1,875,626 783,892 147,771 2,972,656

Cumulative effect of change in accounting

principles (Note 1) — — ( 31,150 ) — ( 31,150 )

Balance, January 1, 2020 169,616 1,944,445 651,035 56,207 2,821,303

Net income — — 277,538 — 277,538

21 unchanged sentences

Share-based compensation expense 7,497 7,707 7,993

Excess tax (benefit) expense on share-based compensation ( 766 ) ( 1,069 ) 401

Provision for loan losses 38,395 4,747 6,966

Provision for credit losses ( 28,812 ) 38,395 4,747

Debt securities (gains) losses, net ( 4,327 ) ( 10,767 ) ( 1,923 )

Net gain on banking center divestitures — — ( 13,989 )

Net (gains) losses on sales of loans and other assets ( 36,677 ) ( 23,787 ) ( 7,370 )

7 unchanged sentences

Cash Flows From Investing Activities

Cash received (paid) from acquisitions, net — — 60,759

Payments related to banking center divestitures — — ( 210,659 )

Purchases of investment securities available-for-sale ( 3,321,653 ) ( 2,803,406 ) ( 2,366,089 )

Purchases of Federal Home Loan Bank/Federal Reserve Bank stock — ( 10,025 ) ( 21,142 )

Purchases of equity securities ( 11,000 ) — —

Proceeds from maturities, prepayments, and calls of investment securities

5 unchanged sentences

Proceeds from sales of equity securities 544 39,296 130

Proceeds from sale of student loan portfolio — — 70,674

Loan originations and payments, net 206,145 ( 1,644,119 ) 163,551

26 unchanged sentences

Its principal subsidiary is Old National Bank.

Through its bank and non-bank affiliates, Old National Bancorp provides to its clients an array of financial services including loan, deposit, wealth management, investment consulting, and investment products.

Through its bank and non-bank affiliates, Old National Bancorp provides to its clients a plethora of financial services including loan, deposit, wealth management, investment consulting, and investment products.

NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Old National Bancorp and its wholly-owned affiliates (hereinafter collectively referred to as “Old National”) and have been prepared in conformity with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry.

The accompanying consolidated financial statements include the accounts of Old National Bancorp and its wholly-owned subsidiaries (hereinafter collectively referred to as “Old National”) and have been prepared in conformity with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry.

Such principles require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosures of contingent assets and liabilities at the date of the financial statements and amounts of revenues and expenses during the reporting period.

4 unchanged sentences

Equity Securities

Equity securities consist of mutual funds held in trusts associated with deferred compensation plans for former directors and executives.

These mutual funds are recorded as equity securities at fair value.

Gains and losses are included in other income in 2020 and 2019 and net securities gains in 2018.

Equity securities consist of mutual funds for Community Reinvestment Act qualified investments and mutual funds held in trusts associated with deferred compensation plans for former directors.

Equity securities are recorded at fair value with changes in fair value recognized in other income.

Investment Securities

Old National classified all of its debt investment securities as available-for-sale at December 31, 2020.

Debt securities classified as available-for-sale are recorded at fair value with the unrealized gains and losses, net of tax effect, recorded in other comprehensive income.

Old National classified all of its debt investment securities as available-for-sale at December 31, 2021 and December 31, 2020.

Debt securities classified as available-for-sale are recorded at fair value with the unrealized gains and losses recorded in other comprehensive income, net of tax.

Realized gains and losses affect income and the prior fair value adjustments are reclassified within shareholders’ equity.

14 unchanged sentences

Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses.

Federal Home Loan Bank Stock

Old National is a member of the FHLB system.

Members are required to own a certain amount of stock based on the level of borrowings and other factors and may invest in additional amounts.

FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value.

Federal Home Loan Bank/Federal Reserve Bank Stock

Old National is a member of the FHLB system and its regional Federal Reserve Bank.

Members are required to own a certain amount of stock based on the level of borrowings and other factors.

FHLB and Federal Reserve Bank stock are carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value.

Both cash and stock dividends are reported as income.

2 unchanged sentences

The loan’s fair value includes the servicing value of the loans as well as any accrued interest.

Conventional mortgage production is sold on a servicing retained basis.

Conventional mortgage production is sold with servicing rights retained.

Certain loans, such as government guaranteed mortgage loans are sold on servicing released basis.

16 unchanged sentences

Credit quality within the loans held for investment portfolio is continuously monitored by management and is reflected within the allowance for credit losses for loans.

The allowance for credit losses is an estimate of expected losses inherent within the Company’s loans held for investment portfolio.

With the adoption of ASC 326 effective January 1, 2020, the allowance for credit losses is an estimate of expected losses inherent within the Company’s loans held for investment portfolio.

Credit quality is assessed and monitored by evaluating various attributes and the results of those evaluations are utilized in underwriting new loans and in our process for estimating expected credit losses.

1 unchanged sentence

The allowance for credit losses for loans held for investment is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries.

We have made a policy election to report accrued interest receivable as a separate line item on the balance sheet.

The allowance for credit loss estimation process involves procedures to appropriately consider the unique characteristics of the loan portfolio segments.

Old National has made a policy election to report accrued interest receivable as a separate line item on the balance sheet.

The allowance for credit loss estimation process involves procedures to appropriately consider the unique characteristics of its loan portfolio segments.

These segments are further disaggregated into loan classes based on the level at which credit risk is monitored.

7 unchanged sentences

We utilize a discounted cashflow approach to determine the allowance for credit losses for performing loans and nonperforming loans.

Expected cashflows are created for each loan and discounted using the effective yield.

Expected cashflows are created for each loan and discounted using the effective yield method.

The discounted sum of expected cashflows is then compared to the amortized cost and any shortfall is recorded as reserve.

7 unchanged sentences

Qualitative factors include items such as changes in lending policies or procedures and economic uncertainty in forward-looking forecasts.

Further information regarding Old National’s policies and methodology used to estimate the allowance for credit losses for loans is presented in Note 3.

Prior to the adoption of ASC 326 on January 1, 2020, Old National calculated allowance for loan losses using incurred losses methodology.

Further information regarding Old National’s policies and methodology used to estimate the allowance for credit losses for loans is presented in Note 4 to the consolidated financial statements.

Premises and Equipment

12 unchanged sentences

Goodwill and Other Intangible Assets

The excess of the cost of acquired entities over the fair value of identifiable assets acquired less liabilities assumed is recorded as goodwill.

Goodwill arises from business combinations and is determined as the excess of the cost of acquired entities over the fair value of identifiable assets acquired less liabilities assumed as of the acquisition date.

Amortization of goodwill and indefinite-lived assets is not recorded.

However, the recoverability of goodwill and other intangible assets are tested annually for impairment.

However, the recoverability of goodwill and other intangible assets are tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed.

Other intangible assets, including core deposits and customer business relationships, are amortized primarily on an accelerated basis over their estimated useful lives, generally over a period of 5 to 15 years.

4 unchanged sentences

When loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gain on sales of loans.

Fair value is based on market prices for comparable servicing contracts, when available or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.

All classes of servicing assets are subsequently measured using the

amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.

Fair value is based on market prices for comparable servicing

contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.

All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.

Loan servicing rights are included in other assets on the balance sheet.

29 unchanged sentences

Changes in fair value are recorded as mortgage banking revenue.

Old National also enters into various stand-alone derivative contracts to provide derivative products to customers which are carried at fair value with changes in fair value recorded as other noninterest income.

Old National also enters into various stand-alone derivative contracts to provide derivative products to clients, which are carried at fair value with changes in fair value recorded as other noninterest income.

Old National is exposed to losses if a counterparty fails to make its payments under a contract in which Old National is in the net receiving position.

29 unchanged sentences

A Black-Scholes model is utilized to estimate the fair value of stock options and appreciation rights, while the market price of our Common Stock at the date of grant is used for restricted stock awards.

The market price of our Common Stock at the date of grant less the present value of dividends expected to be paid during the performance period is used for restricted stock units where the performance measure is based on an internal performance measure.

A third party provider is used to value certain restricted stock units where the performance measure is based on total shareholder return.

5 unchanged sentences

We recognize a tax position as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.

The amount recognized is the largest amount

of tax benefit that is greater than 50 % likely of being realized on examination.

The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.

For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

6 unchanged sentences

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the normal course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

See Note 21 to the consolidated financial statements for further disclosure.

12 unchanged sentences

Securities transferred from held-to-maturity to available-for-sale — — 381,992

Securities transferred from available-for-sale to held-to-maturity — — 323,990

Transfer of premises and equipment to assets held for sale 9,539 16,661 2,689

1 unchanged sentence

Finance lease right-of-use assets obtained in exchange for lease obligations 7,477 5,225 7,871

The following table summarizes the common shares issued and resultant value of total shareholders’ equity associated with acquisitions:

(dollars and shares in thousands) Shares of

Common Stock Total

Shareholders'

Year Ended December 31, 2018

Acquisition of Klein 22,772 $ 406,474

There were no acquisitions during 2020 or 2019.

Business Combinations

1 unchanged sentence

The accounts of an acquired entity are included as of the date of acquisition, and any excess of purchase price over the fair value of the net assets acquired is capitalized as goodwill.

Alternatively, a gain is recorded if the fair value of the net assets acquired exceeds the purchase price.

Old National typically issues Common Stock and/or pays cash for an acquisition, depending on the terms of the acquisition agreement.

1 unchanged sentence

Acquisition costs are expensed when incurred.

There were no acquisitions during 2021, 2020, or 2019.

Impact of Accounting Changes

Accounting Guidance Adopted in 2021

FASB ASC 326 – In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments and all related subsequent amendments thereto (“ASC 326” or “Topic 326”).

The main objective of this amendment is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments within its scope, including loans held for investment purposes and other commitments to extend credit held by a reporting entity at each reporting date.

The amendment requires the measurement of all expected credit losses for the in-scope financial assets at the date of origination or acquisition, and at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

Financial institutions and other organizations will now use forward-looking information to enhance their credit loss estimates.

The amendment requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio.

In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

The current expected credit loss measurement will be used to estimate the allowance for credit losses over the life of the financial assets.

The amendments in this update became effective for annual periods and interim periods within those annual periods beginning after December 15, 2019.

As previously disclosed, Old National formed a cross-functional committee to oversee the adoption of the ASU at the effective date.

A working group was also formed to develop a project plan focused on understanding the ASU, researching issues, identifying data needs for modeling inputs, technology requirements, modeling considerations, and ensuring overarching governance was achieved for each objective and milestone.

The working group identified seven distinct loan portfolios for which a model to estimate credit losses has been developed.

For all seven loan portfolios, the data sets have been identified, populated, and internally validated.

Old National has completed data and model validation testing.

During the last half of 2019, the project plan targeted parallel processing of our existing allowance for loan losses model compared to the CECL model, as well as model sensitivity analysis, determination of qualitative adjustments, supporting analytics, and execution of the governance and approval process.

Internal controls related to the CECL process were finalized prior to adoption on January 1, 2020.

The CECL modeling measurements for estimating the current expected life-time credit losses for loans and debt securities includes the following major items:

• Initial loss forecast – using a forecast period of one year for all allowance portfolio segments and off-balance-sheet credit exposures, using forward-looking economic scenarios of expected losses.

• Historical loss forecast – for a period incorporating the remaining contractual life, adjusted for prepayments, and the changes in various economic variables during representative historical and recessionary periods.

• Reversion period – using two years , which links the initial loss forecast to the historical loss forecast based on economic conditions at the measurement date.

• Discounted cash flow aggregator – using the items above to estimate the life-time credit losses for all portfolios and losses for loans modified as a TDR.

Old National adopted CECL on January 1, 2020 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures.

Results for the reporting periods after January 1, 2020 are presented under Topic 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

As of that date, Old National increased the allowance for credit losses for loans by $ 41.3 million and increased the allowance for credit losses for unfunded loan commitments by $ 4.5 million, since the ASU covers credit losses over the expected life of a loan as well as considering future changes in macroeconomic conditions.

The increase related to the acquired loan portfolio totaled $ 27.1 million.

previously applicable accounting guidance, any remaining unamortized loan discount on an individual loan could be used to offset a charge-off for that loan, so the allowance for loan losses needed for the acquired loans was reduced by the remaining loan discounts.

ASU 2016-13 requires an allowance for credit losses to be recognized in addition to the loan discount.

The impact of adopting the ASU, and at each subsequent reporting period, is highly dependent on credit quality, macroeconomic forecasts and conditions, composition of our loans and available-for-sale securities portfolio, along with other management judgements.

As of January 1, 2020, Old National recorded a cumulative-effect adjustment of $ 31.2 million to decrease retained earnings.

Old National did not record an allowance for credit losses on its available-for-sale debt securities under the newly codified available-for-sale debt security impairment model, as the majority of these securities are government agency-backed securities for which the risk of loss is minimal.

We adopted CECL using the prospective transition approach for financial assets purchased with credit deterioration that were previously classified as purchased credit impaired and accounted for under ASC 310-30.

In accordance with the standard, we did not reassess whether PCI assets met the definition of PCD assets as of the date of adoption.

On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $ 4.5 million to the allowance for credit losses for loans.

The remaining noncredit discount in the amount of $ 11.8 million (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1, 2020.

The loan categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses for loans.

The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures.

The four loan portfolios are classified into seven segments of loans - commercial, commercial real estate, BBCC, residential real estate, indirect, direct, and home equity.

The commercial and commercial real estate loan categories shown on the balance sheet include the same pool of loans as the commercial, commercial real estate, and BBCC portfolio segments.

The consumer loan category shown on the balance sheet is comprised of the same loans in the indirect, direct, and home equity portfolio segments.

The composition of loans by portfolio segment as of December 31, 2019 follows:

(dollars in thousands) December 31, 2019

Balance Segment

Reclassifications December 31, 2019

Reclassifications

Commercial $ 2,890,296 $ ( 75,142 ) $ 2,815,154

Commercial real estate 5,166,792 ( 277,539 ) 4,889,253

BBCC N/A 352,681 352,681

Residential real estate 2,334,289 — 2,334,289

Consumer 1,726,147 ( 1,726,147 ) N/A

Indirect N/A 935,584 935,584

Direct N/A 228,524 228,524

Home equity N/A 562,039 562,039

Total $ 12,117,524 $ — $ 12,117,524

Commercial $ ( 22,585 ) $ 1,226 $ ( 21,359 )

Commercial real estate ( 21,588 ) 1,053 ( 20,535 )

BBCC N/A ( 2,279 ) ( 2,279 )

Residential real estate ( 2,299 ) — ( 2,299 )

Consumer ( 8,147 ) 8,147 N/A

Indirect N/A ( 5,319 ) ( 5,319 )

Direct N/A ( 1,863 ) ( 1,863 )

Home equity N/A ( 965 ) ( 965 )

Total $ ( 54,619 ) $ — $ ( 54,619 )

The following table illustrates the impact of adoption of the ASU:

(dollars in thousands) December 31, 2019

Reclassifications Impact of

Adoption January 1, 2020

Loans, net of unearned income:

Commercial $ 2,815,154 $ 2,679 $ 2,817,833

Commercial real estate 4,889,253 1,637 4,890,890

BBCC 352,681 33 352,714

Residential real estate 2,334,289 105 2,334,394

Indirect 935,584 10 935,594

Direct 228,524 2 228,526

Home equity 562,039 12 562,051

Total 12,117,524 4,478 12,122,002

Commercial ( 21,359 ) ( 7,150 ) ( 28,509 )

Commercial real estate ( 20,535 ) ( 25,548 ) ( 46,083 )

BBCC ( 2,279 ) ( 3,702 ) ( 5,981 )

Residential real estate ( 2,299 ) ( 6,986 ) ( 9,285 )

Indirect ( 5,319 ) 1,669 ( 3,650 )

Direct ( 1,863 ) 1,059 ( 804 )

Home equity ( 965 ) ( 689 ) ( 1,654 )

Total allowance for credit losses on loans ( 54,619 ) ( 41,347 ) ( 95,966 )

Net loans $ 12,062,905 $ ( 36,869 ) $ 12,026,036

Net deferred tax assets $ 29,705 $ 10,268 $ 39,973

Allowance for credit losses on unfunded loan commitments $ 2,656 $ 4,549 $ 7,205

Shareholders' equity:

Retained earnings $ 682,185 $ ( 31,150 ) $ 651,035

In December 2018, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL.

The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard.

In March 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC published an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL.

The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option).

Old National is adopting the capital transition relief over the permissible five-year period.

FASB ASC 350 – In January 2017, the FASB issued ASU No.

2017-04, Intangibles:

Goodwill and Other:

Simplifying the Test for Goodwill Impairment .

To simplify the subsequent measurement of goodwill, the amendments eliminate Step 2 from the goodwill impairment test.

The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount.

An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

In addition, the income tax effects of tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable.

The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test.

An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

The amendments should be applied on a prospective basis.

The nature of and reason for the change in accounting principle should be disclosed upon transition.

The amendments in this update became effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and did not have a material impact on the financial statements.

FASB ASC 715 – In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement .

The updated guidance improves the disclosure requirements on fair value measurements.

The ASU removes certain disclosures required by Topic 820 related to transfers between Level 1 and Level 2 of the fair value hierarchy;

the policy for timing of transfers between levels;

the valuation processes for Level 3 fair value measurements;

and for nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period.

The ASU modifies certain disclosures required by Topic 820 related to disclosure of transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities for nonpublic entities;

the requirement to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly for investments in certain entities that calculate net asset value;

and clarification that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.

The ASU adds certain disclosure requirements related to changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.

The amendments in this update became effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2019 and did not have a material impact on the financial statements.

FASB ASC 350 – In August 2018, the FASB issued ASU No.

2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract .

The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

The amendments in this update became effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years and did not have a material impact on the financial statements.

FASB ASC 842 – In March 2019, the FASB issued ASU No.

2019-01, Leases (Topic 842):

Codification Improvements .

The amendments in ASU No.

2019-01 align the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance.

As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply.

However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value in Topic 820, Fair Value Measurement should be applied.

2019-01 also requires lessors within the scope of Topic 942, Financial Services—Depository and Lending , to present all “principal payments received under leases” within investing activities.

The amendments in this update became effective for annual periods and interim periods within those annual periods beginning after December 15, 2019 and did not have a material impact on the financial statements.

FASB ASC 326, 815, and 825 – In April 2019, the FASB issued ASU No.

2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.

The amendments related to Topic 326 address accrued interest, transfers between classifications or categories for loans and debt securities, recoveries, vintage disclosures, and contractual extensions and renewal options and became effective for annual periods and interim periods within those annual periods beginning after December 15, 2019.

The improvements and clarifications related to Topic 815 address partial-term fair value hedges of interest-rate risk, amortization, and disclosure of fair value hedge basis adjustments and consideration of hedged contractually specified interest rate under the hypothetical method and became effective for the annual reporting period beginning January 1, 2020.

The amendments related to Topic 825 contain various improvements to ASU 2016-01, including scope;

held-to-maturity debt securities fair value disclosures;

and remeasurement of equity securities at historical exchange rates and became effective for fiscal years and interim periods beginning after December 15, 2019.

The amendments in this update did not have a material impact on the financial statements.

FASB ASC 326 – In May 2019, the FASB issued ASU No.

2019-05, Financial Instruments—Credit Losses (Topic 326):

Targeted Transition Relief.

These amendments provide targeted transition relief allowing entities to irrevocably elect the fair value option, on an instrument-by-instrument basis, for certain financial assets (excluding held-to-maturity debt securities) previously measured at amortized cost.

In November 2019, the FASB issued 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses , to make improvements to the credit losses standard.

Most significantly, the standard clarifies

guidance around how to report expected recoveries for PCD assets.

“Expected recoveries” describes a situation in which an organization recognizes a full or partial write-off of the amortized cost basis of a financial asset, but then later determines that the amount written off, or a portion of that amount, will in fact be recovered.

This ASU permits organizations to record expected recoveries on PCD assets.

In addition to other narrow technical improvements, the ASU also reinforces existing guidance that prohibits organizations from recognizing negative allowances for available-for-sale debt securities.

The amendments in these updates became effective for annual periods and interim periods within those annual periods beginning after December 15, 2019 and did not have a material impact on the consolidated financial statements.

FASB ASC 718 – In November 2019, the FASB issued ASU No.

2019-08, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606):

Codification Improvements—Share-Based Consideration Payable to a Customer.

This ASU requires companies to measure and classify (on the balance sheet) share-based payments to customers by applying the guidance in Topic 718, Compensation—Stock Compensation .

As a result, the amount recorded as a reduction in revenue would be measured based on the grant-date fair value of the share-based payment.

The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2019 and did not have a material impact on the consolidated financial statements.

FASB ASC 326 and 842 – In February 2020, the FASB issued ASU No.

2020-02, Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842):

Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No.

2016-02, Leases (Topic 842).

This ASU inserts a paragraph to address the November 2019 issuance of SEC SAB 119, Accounting for Loan Losses by Registrants Engaged in Lending Activities Subject to FASB ASC Topic 326 .

The SAB updates existing staff guidance on developing a systematic methodology for estimating credit losses, and it explains the documentation the staff typically would expect from registrants in support of estimates of current expected credit losses for lending activities, when material.

The amendments in this update became effective upon issuance and did not have a material impact on the consolidated financial statements.

FASB ASC 848 – In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides temporary, optional guidance to ease the potential burden in accounting for, or recognizing the effects of, the transition away from the LIBOR or other interbank offered rate on financial reporting.

To help with the transition to new reference rates, the ASU provides optional expedients and exceptions for applying GAAP to affected contract modifications and hedge accounting relationships.

The main provisions include:

• A change in a contract’s reference interest rate would be accounted for as a continuation of that contract rather than as the creation of a new one for contracts, including loans, debt, leases, and other arrangements, that meet specific criteria.

• When updating its hedging strategies in response to reference rate reform, an entity would be allowed to preserve its hedge accounting.

The guidance is applicable only to contracts or hedge accounting relationships that reference LIBOR or another reference rate expected to be discontinued.

Because the guidance is meant to help entities through the transition period, it will be in effect for a limited time and will not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients that are retained through the end of the hedging relationship.

The amendments in this ASU are effective March 12, 2020 through December 31, 2022.

ASU 2020-04 permits relief solely for reference rate reform actions and permits different elections over the effective date for legacy and new activity.

Accordingly, Old National is evaluating and reassessing the elections on a quarterly basis.

For current elections in effect regarding the assertion of the probability of forecasted transactions, Old National elects the expedient to assert the probability of the hedged interest payments and receipts regardless of any expected modification in terms related to reference rate reform.

Old National believes the adoption of this guidance on activities subsequent to December 31, 2020 through December 31, 2022 will not have a material impact on the consolidated financial statements.

Codification Improvements to Financial Instruments – In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments .

This ASU was issued to clarify and improve various financial instruments Topics.

The amendments include the following improvements:

• Issue 1 – Clarifies that all entities are required to provide fair value option disclosures.

• Issue 2 – Clarifies the applicability of the portfolio exception in measuring fair value for nonfinancial items accounted for as derivatives.

• Issue 3 – Clarifies that disclosure requirements in Topic 320 apply to disclosure requirements in Topic 942 for depository and lending institutions.

• Issue 4 – Added cross-reference of line-of-credit or revolving-debt arrangements guidance to guidance in accounting for fees between debtor and creditor and third-party costs directly related to exchanges or modifications of debt instruments.

• Issue 5 – Clarifies that fair value measurement disclosure requirements do not apply to entities using the net asset value per share practical expedient.

• Issue 6 – Aligns the contractual term to measure expected credit losses for a net investment in a lease under the Credit Loss Standard (Topic 326) with the lease term determined under the Leases Standard (Topic 842).

• Issue 7 – Clarifies that when an entity regains control of financial assets sold, an allowance for credit losses should be recorded in accordance with Topic 326.

For Issue 1, Issue 2, Issue 4, and Issue 5, the amendments are effective upon issuance and did not have a material impact on the consolidated financial statements.

For Issue 3, the amendments to ASU 2016-01 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years and did not have a material impact on the consolidated financial statements.

For Issues 6 and 7, the amendments to ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years and did not have a material impact on the consolidated financial statements.

Guidance on Non-TDR Loan Modifications due to COVID-19 – On March 22, 2020, a statement was issued by our banking regulators and titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” (the “Interagency Statement”) that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19.

Additionally, Section 4013 of the CARES Act that passed on March 27, 2020 further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act terminates.

Section 541 of the CAA extends this relief to the earlier of January 1, 2022 or 60 days after the national emergency termination date.

The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act, as well as setting forth the banking regulators’ views on consumer protection considerations.

In accordance with such guidance, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due.

These include short-term (180 days or less) modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.

See Note 6 for further information on non-TDR loan modifications.

Accounting Guidance Issued But Not Yet Adopted

FASB ASC 715 – In August 2018, the FASB issued ASU No.

2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20):

1 unchanged sentence

The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

The amendments in this update become effective for fiscal years ending after December 15, 2020 and will not have a material impact on the consolidated financial statements.

The amendments in this update became effective for fiscal years ending after December 15, 2020 and did not have a material impact on the financial statements.

FASB ASC 740 – In December 2019, the FASB issued ASU No.

10 unchanged sentences

(3) separate financial statements of legal entities that are not subject to tax;

and (4) enacted changes in tax laws in interim

The amendments in this update become effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

Early adoption is permitted.

Old National is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

and (4) enacted changes in tax laws in interim periods.

The amendments in this update became effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years and did not have a material impact on the financial statements.

FASB ASC 321, 323, and 815 – In January 2020, the FASB issued ASU No.

5 unchanged sentences

In addition, the new ASU provides direction that a company should not consider whether the underlying securities would be accounted for under the equity method or the fair value option when it is determining the accounting for certain forward contracts and purchased options, upon either settlement or exercise.

The amendments in this update become effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

Early adoption is permitted, and the amendments are to be applied prospectively.

Old National is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

FASB ASC 470 and 815 – In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , to clarify the accounting for certain financial instruments with characteristics of liabilities and equity.

The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature model.

Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract.

Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in-capital.

In addition, this ASU improves disclosure requirements for convertible instruments and earnings-per-share guidance.

The ASU also revises the derivative scope exception guidance to reduce form-over-substance-based accounting conclusions driven by remote contingent events.

The amendments in this update are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.

Early adoption will be permitted, but no earlier than for fiscal years beginning after December 15, 2020.

Old National is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

The amendments in this update became effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

The amendments are to be applied prospectively and did not have a material impact on the consolidated financial statements.

Acquisitions and Dispositions of Businesses and Related Pro Forma Information – In May 2020, the SEC issued a final rule that revises the circumstances that require financial statements and related pro forma information for acquisitions and dispositions of businesses.

1 unchanged sentence

The changes are intended to improve the financial information about acquired or disposed businesses, facilitate more timely access to capital, and reduce the complexity and costs to prepare the disclosure.

The final rule is effective January 1, 2021;

however, voluntary early compliance is permitted.

The final rule was effective January 1, 2021.

FASB ASC 310 – In October 2020, the FASB issued ASU No.

2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs , to clarify that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period.

The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, and early application is not permitted.

Old National is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

The ASU was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

The new guidance did not have a material impact on the consolidated financial statements.

FASB ASC 470 – In October 2020, the FASB issued ASU No.

2 unchanged sentences

That release amends the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees.

These changes are intended to both improve the quality of disclosure and increase the likelihood that issuers will conduct debt offerings on a registered basis.

The final rules are effective on January 4, 2021.

Voluntary compliance with the final

amendments in advance of January 4, 2021, will be permitted.

The amendments will not have a material impact on the consolidated financial statements.

These changes are intended to both improve the quality of disclosure and increase the likelihood that issuers will conduct debt offerings

on a registered basis.

The final rules were effective on January 4, 2021.

The amendments did not have a material impact on the consolidated financial statements.

Codification Improvements – In October 2020, the FASB issued ASU No.

3 unchanged sentences

The codification improvements also contain various other minor amendments to codification that are not expected to have a significant effect on current accounting practice.

The amendments are effective for annual periods beginning after December 15, 2020, and early application is permitted.

The amendments became effective for annual periods beginning after December 15, 2020.

FASB ASC 848 – In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

To help with the transition to new reference rates, the ASU provides optional expedients and exceptions for applying GAAP to affected contract modifications and hedge accounting relationships.

The main provisions include:

• When updating its hedging strategies in response to reference rate reform, an entity would be allowed to preserve its hedge accounting.

The guidance is applicable only to contracts or hedge accounting relationships that reference LIBOR or another reference rate expected to be discontinued.

The amendments in this ASU are effective March 12, 2020 through December 31, 2022.

ASU 2020-04 permits relief solely for reference rate reform actions and permits different elections over the effective date for legacy and new activity.

Accordingly, Old National is evaluating and reassessing the elections on a quarterly basis.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848):

Scope , which addresses questions about whether Topic 848 can be applied to derivative instruments that do not reference a rate that is expected to be discontinued but that use an interest rate for margining, discounting, or contract price alignment that is expected to be modified as a result of reference rate reform, commonly referred to as the “discounting transition.” The amendments clarify that certain optional expedients and exceptions in Topic 848 do apply to derivatives that are affected by the discounting transition.

The amendments in ASU 2021-01 are effective immediately.

Old National believes the adoption of this guidance on activities subsequent to December 31, 2021 through December 31, 2022 will not have a material impact on the consolidated financial statements.

Guidance on Non-TDR Loan Modifications due to COVID-19 – The CAA, which was signed into law on December 27, 2020, extends certain provisions of the CARES Act.

Section 4013 of the CARES Act provided temporary relief from TDR accounting and is amended by Division N, Section 540 of the CAA, by extending the end date from December 31, 2020, to the earlier of January 1, 2022, or 60 days after the date on which the COVID-19 national emergency terminates.

In response, the OCC updated its two-page reference guide, “TDR Designation and COVID-19 Loan Modifications,” to conform to the extended TDR provisions.

In accordance with such guidance, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due.

These include short-term (180 days or less) modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.

See Note 4 to the consolidated financial statements for further information on non-TDR loan modifications.

Accounting Guidance Pending Adoption

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , to clarify the accounting for certain financial instruments with characteristics of liabilities and equity.

Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract.

In addition, this ASU improves disclosure requirements for convertible instruments and earnings-per-share guidance.

The ASU also revises the derivative scope exception guidance to reduce form-over-substance-based accounting conclusions driven by remote contingent events.

The amendments in this update are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.

Early adoption will be permitted, but no earlier than for fiscal years beginning after December 15, 2020.

Old National is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

FASB ASC 842 – In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842):

Lessors—Certain Leases with Variable Lease Payments , to amend the lease classification requirements for lessors to align them with practice under ASC Topic 840.

Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met:

(1) The lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in ASC paragraphs 842-10-25-2 through 25-3;

and (2) The lessor would have otherwise recognized a day-one loss.

When a lease is classified as operating, the lessor does not recognize a net investment in the lease, does not derecognize the underlying asset, and, therefore, does not recognize a selling profit or loss.

The amendments in this update are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.

Early adoption is permitted.

Old National is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

FASB ASC 205, 942, and 946 – In August 2021, the FASB issued ASU 2021-06, Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946):

Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No.

33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No.

33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants.

This ASU incorporates recent SEC rule changes into the FASB Codification, including SEC Final Rule Releases No.

33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses , and No.

33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants .

The amendments in this update are effective upon addition to the FASB Codification and will not have a material impact on the consolidated financial statements.

FASB ASC 805 – In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities From Contracts With Customers , to address diversity in practice and inconsistency related to the accounting for revenue contracts with customers acquired in a business combination.

The amendments require that the acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606.

At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts.

The ASU also provides certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination and applies to contract assets and contract liabilities from other contracts to which the provisions of Topic 606 apply.

The amendments in this update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.

Entities should apply the amendments prospectively to business combinations that occur after the effective date.

Early adoption is permitted, including in any interim period, for public business entities for periods for which financial statements have not yet been issued, and for all other entities for periods for which financial statements have not yet been made available for issuance.

The new guidance will not have a material impact on the consolidated financial statements.

NOTE 2 – ACQUISITION AND DIVESTITURE ACTIVITY

Pending Acquisition

First Midwest Bancorp, Inc.

On May 30, 2021, Old National entered into a definitive merger agreement with First Midwest to combine in an all-stock merger of equals transaction.

Under the terms of the merger agreement, which was unanimously approved by the Boards of Directors of both companies, First Midwest stockholders will receive 1.1336 shares of Old National common stock for each share of First Midwest common stock they own.

Holders of First Midwest Common Stock will receive cash in lieu of fractional shares.

Each share of 7.000 % fixed-rate non-cumulative perpetual preferred stock, Series A, no par value, and each share of 7.000 % fixed-rate non-cumulative perpetual preferred stock, Series C, no par value, of First Midwest will be converted into the right to receive one share of a newly created series of preferred stock of Old National having terms that are not materially less favorable than the First Midwest preferred stock.

Following completion of the transaction, former First Midwest stockholders are expected to collectively represent approximately 44 % of the combined company.

The new organization will operate under the Old National Bancorp and Old National Bank names, with headquarters and the main office located in Evansville, Indiana and commercial and consumer banking operations headquartered in Chicago, Illinois.

First Midwest reported loans totaling $ 14.665 billion, assets totaling $ 21.778 billion, and deposits totaling $ 17.191 billion at December 31, 2021.

Based on Old National’s December 31, 2021 closing price of $ 18.12 per share, this represents a total transaction value of approximately $ 2.4 billion.

The transaction value is likely to change until closing due to fluctuations in the price of Old National common stock and is also subject to adjustment under certain circumstances as provided in the merger agreement.

During the third quarter of 2021, we received approval of the merger from the OCC and the shareholders of Old National and First Midwest.

On January 25, 2022, the OCC granted us an extension of 60 days to April 20, 2022 for consummating the bank merger.

On January 27, 2022, we received Federal Reserve approval for the merger.

With all necessary regulatory approvals received, the merger is expected to occur after the close of business and after the end of regular trading hours on the NASDAQ Stock Market on February 15, 2022, subject to customary closing conditions.

Transaction costs totaling $ 11.0 million associated with the merger have been expensed through December 31, 2021 and additional transaction and integration costs will be expensed in future periods as incurred.

Based on an ongoing assessment of our service and delivery network, Old National consolidated 31 banking centers throughout its footprint in 2020:

ten banking centers in each of Wisconsin and Indiana, five in Michigan, four in Minnesota, and two in Kentucky.

NOTE 3 – INVESTMENT SECURITIES

3 unchanged sentences

Gains Unrealized

Losses Basis Adjustments Fair

Adjustments (1) Fair

December 31, 2021

16 unchanged sentences

Total available-for-sale securities $ 5,784,754 $ 197,714 $ ( 11,385 ) $ ( 968 ) $ 5,970,115

During the fourth quarter of 2019, Old National inadvertently sold six held-to-maturity classified municipal bond investment securities valued at $ 9.7 million for a gain of $ 0.3 million.

After the trade settled, Old National determined the sale of the held-to-maturity investment securities was not one of the permissible sale exceptions afforded by the current accounting guidance.

Accordingly, Old National reclassified the entire held-to-maturity portfolio totaling $ 382.0 million into the available-for-sale portfolio, which increased capital by $ 19.4 million.

The increase in capital included $ 13.0 million of unrealized holding gains at the date of transfer, net of tax, which is included on the consolidated statement of comprehensive income in unrealized holding gains (losses) on available-for-sale debt securities of $ 93.5 million for the year ended December 31, 2019.

Management does not expect to use the held-to-maturity category for at least two years from the date of the sale.

Proceeds from sales or calls of available-for-sale investment securities, the resulting realized gains and realized losses, and other securities gains or losses were as follows:

(1) Basis adjustments represent the cumulative fair value adjustments included in the carrying amounts of fixed-rate investment securities assets in fair value hedging arrangements .

Proceeds from sales or calls of available-for-sale investment securities and the resulting realized gains and realized losses were as follows:

Years Ended December 31,

7 unchanged sentences

Realized losses on calls of available-for-sale debt securities ( 33 ) ( 26 ) ( 30 )

Other securities gains (losses) (1) — — 50

Debt securities gains (losses), net $ 4,327 $ 10,767 $ 1,923

(1) Other securities gains (losses) in 2018 included realized gains and losses of equity securities previously classified as trading securities.

For 2020 and 2019, gains (losses) on equity securities are included in other income.

Investment securities pledged to secure public and other funds had a carrying value of $ 2.701 billion at December 31, 2021 and $ 2.427 billion at December 31, 2020.

At December 31, 2020, Old National had a concentration of investment securities issued by certain states and their political subdivisions with the following aggregate market values:

$ 515.6 million issued by Indiana, which represented 17.3 % of shareholders’ equity, and $ 194.3 million issued by Texas, which represented 6.5 % of shareholders’ equity.

At December 31, 2021, Old National had a concentration of investment securities issued by certain states and their political subdivisions.

The aggregate market value issued by Indiana was $ 647.6 million, which represented 21.5 % of shareholders’ equity.

Of the Indiana municipal bonds, 97 % are rated “A” or better, and the remaining 3 % generally represent non-rated local interest bonds where Old National has a market presence.

All of the Texas municipal bonds are rated “A” or better, and the majority of issues are backed by the “AAA” rated State of Texas Permanent School Fund Guarantee Program.

All of the mortgage-backed securities in the investment portfolio are residential mortgage-backed securities.

19 unchanged sentences

Available-for-Sale

Treasury $ 91,063 $ ( 7,751 ) $ — $ — $ 91,063 $ ( 7,751 )

government-sponsored entities

7 unchanged sentences

Available-for-Sale

Treasury $ 999 $ ( 2 ) $ — $ — $ 999 $ ( 2 )

government-sponsored entities

14 unchanged sentences

No allowance for credit losses for available-for-sale debt securities

was needed at December 31, 2020.

Accrued interest receivable on available-for-sale debt securities totaled $ 27.0 million at December 31, 2020 and is excluded from the estimate of credit losses.

was needed at December 31, 2021 or December 31, 2020.

Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses and totaled $ 35.5 million at December 31, 2021 and $ 27.0 million at December 31, 2020.

government sponsored entities and agencies and mortgage-backed securities – agency are either explicitly or implicitly guaranteed by the U.S.

1 unchanged sentence

Therefore, for those securities, we do not record expected credit losses.

Prior to the adoption of ASC 326, we did no t record OTTI in 2019 or 2018.

Prior to the adoption of ASC 326 on January 1, 2020, we did not record OTTI in 2019.

At December 31, 2021, Old National’s securities portfolio consisted of 1,918 securities, 357 of which were in an unrealized loss position.

The unrealized losses attributable to our U.S.

Treasury, U.S.

government-sponsored entities and agencies, agency mortgage-backed securities, states and political subdivisions, and other securities are the result of fluctuations in interest rates.

Our pooled trust preferred securities are discussed below.

Old National’s pooled trust preferred securities are evaluated using collateral-specific assumptions to estimate the expected future interest and principal cash flows.

At December 31, 2021, we had no intent to sell any securities that were in an unrealized loss position nor is it expected that we would be required to sell the securities prior to their anticipated recovery.

Pooled Trust Preferred Securities

At December 31, 2020, our securities portfolio contained two pooled trust preferred securities with a fair value of $ 7.9 million and unrealized losses of $ 5.9 million.

These securities are evaluated using collateral-specific assumptions to estimate the expected future interest and principal cash flows.

For the years ended December 31, 2020 and 2019, we did no t recognize any losses on these securities.

The table below summarizes the relevant characteristics of our pooled trust preferred securities as well as our single issuer trust preferred securities that are included in the “other securities” category in this footnote.

Each of the pooled trust preferred securities support a more senior tranche of security holders.

Both pooled trust preferred securities have experienced credit defaults.

Old National’s pooled trust preferred securities have experienced credit defaults.

However, we believe that the value of the instruments lies in the full and timely interest payments that will be received through maturity, the steady amortization that will be experienced until maturity, and the full return of principal by the final maturity of the collateralized debt obligations.

(dollars in thousands) Class Lowest

Rating (1) Amortized

Value Unrealized

(Loss) # of Issuers

Remaining Actual

Collateral Expected

Collateral Excess

Subordination

December 31, 2020

Pooled trust preferred securities:

Pretsl XXVII LTD B B $ 4,223 $ 2,331 $ ( 1,892 ) 32 / 41

14.4 % 10.8 % 35.1 %

Trapeza Ser 13A A2A BBB 9,540 5,582 ( 3,958 ) 39 / 41

4.5 % 6.4 % 52.0 %

13,763 7,913 ( 5,850 )

Single Issuer trust preferred securities:

JP Morgan Chase & Co BBB- 4,809 4,463 ( 346 )

Total $ 18,572 $ 12,376 $ ( 6,196 )

(1) Lowest rating for the security provided by any nationally recognized credit rating agency.

Old National did not recognize any losses on these securities for the years ended December 31, 2021 or December 31, 2020.

Equity Securities

2 unchanged sentences

Old National also has equity securities without readily determinable fair values that are included in other assets that totaled $ 186.0 million at December 31, 2021 and $ 105.8 million at December 31, 2020.

These are illiquid investments that consist of partnerships, limited liability companies, and other ownership interests that support affordable housing, economic development, and community revitalization initiatives in low-to-moderate income neighborhoods.

There were impairments on these securities totaling $ 117 thousand during 2020 and no impairments or adjustments in 2019 or 2018.

These equity securities without readily determinable fair values are illiquid investments that consist of partnerships, limited liability companies, and other ownership interests that support affordable housing, economic development, and community revitalization initiatives in low-to-moderate income neighborhoods.

There were no impairments or adjustments on equity securities without readily determinable fair values, except for amortization of tax credit investments during 2021 and 2019.

There were impairments on these securities totaling $ 117 thousand in 2020.

NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

Old National’s loans consist primarily of loans made to consumers and commercial clients in various industries including manufacturing, agribusiness, transportation, mining, wholesaling, and retailing.

Old National’s loans consist primarily of loans made to consumers and commercial clients in many diverse industries including manufacturing, agribusiness, transportation, mining, wholesaling, and retailing.

Most of Old National’s lending activity occurs within our principal geographic markets of Indiana, Kentucky, Michigan, Minnesota, and Wisconsin.

Old National manages concentrations of credit exposure by industry, product, geography, customer relationship, and loan size.

Old National manages concentrations of credit exposure by industry, product, geography, client relationship, and loan size.

While loans to lessors of both residential and non-residential real estate exceed 10% of total loans, no individual sub-segment category within those broader categories reaches the 10% threshold.

4 unchanged sentences

The consumer loan category shown on the balance sheet is comprised of the same loans in the indirect, direct, and home equity portfolio segments.

The composition of loans by portfolio segment as of December 31, 2020 follows:

December 31, 2020 Segment December 31, 2020

The portfolio segment reclassifications follow:

Statement Portfolio After

(dollars in thousands) Balance Reclassifications Reclassifications

December 31, 2021

Commercial $ 3,391,769 $ ( 191,557 ) $ 3,200,212

7 unchanged sentences

Total $ 13,601,846 $ — $ 13,601,846

December 31, 2020

Commercial $ 3,956,422 $ ( 198,722 ) $ 3,757,700

Commercial real estate 5,946,512 ( 171,701 ) 5,774,811

BBCC N/A 370,423 370,423

Residential real estate 2,248,422 — 2,248,422

Consumer 1,635,123 ( 1,635,123 ) N/A

Indirect N/A 913,902 913,902

Direct N/A 164,807 164,807

Home equity N/A 556,414 556,414

Total $ 13,786,479 $ — $ 13,786,479

The composition of loans by portfolio segment follows:

(dollars in thousands) December 31,

2020 January 1,

(dollars in thousands) 2021 2020

Commercial (1) (2) $ 3,200,212 $ 3,757,700

8 unchanged sentences

Net loans $ 13,494,505 $ 13,655,091

(1) Includes direct finance leases of $ 32.3 million at December 31, 2020 and $ 47.2 million at January 1, 2020.

(2) Includes remaining PPP loans of $ 943.0 million at December 31, 2020.

(1) Includes direct finance leases of $ 25.1 million at December 31, 2021 and $ 32.3 million at December 31, 2020.

(2) Includes remaining PPP loans of $ 169.0 million at December 31, 2021 and $ 943.0 million December 31, 2020.

The risk characteristics of each loan portfolio segment are as follows:

1 unchanged sentence

The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value.

Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee;

Most commercial loans are secured by the assets being

financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee;

however, some loans may be made on an unsecured basis.

In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Section 1102 of the CARES Act created the PPP, a program administered by the SBA to provide loans to small businesses for payroll and other basic expenses during the COVID-19 pandemic.

Old National has participated in the PPP as a lender.

Old National participated in the PPP as a lender.

These loans are eligible to be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA.

Additionally, loan payments will also be deferred for the first six months of the loan term.

The PPP commenced on April 3, 2020 and was available to qualified borrowers through August 8, 2020.

No collateral or personal guarantees were required.

Neither the government nor lenders are permitted to charge the recipients any fees.

During 2020, Old National originated over 9,700 loans with balances in excess of $ 1.5 billion to new and existing customers through the PPP.

During 2020, Old National originated over 9,700 loans with balances of approximately $ 1.518 billion to new and existing clients through the PPP.

On December 27, 2020, the CAA was signed into law.

The CAA, among other things, extended the life of the PPP, effectively creating a second round of PPP loans for eligible businesses.

Old National participated in the CAA’s second round of PPP lending.

During 2021, Old National originated approximately 6,200 loans totaling $ 583.7 million through the second round of the PPP.

Additionally, section 541 of the CAA extended the relief provided by the CARES Act for financial institutions to suspend the GAAP accounting treatment for troubled debt restructuring to January 1, 2022.

At December 31, 2021, remaining PPP loans totaled $ 169.0 million .

On December 27, 2020, President Trump signed into law the CAA.

The CAA, among other things, extends the life of the PPP, effectively creating a second round of PPP loans for eligible businesses.

Old National is participating in the CAA’s second round of PPP lending.

In mid-January Old National opened its lending portal and began processing PPP loan applications.

Currently, Old National is focused on helping minority-owned business, women-owned business, not-for-profit entities, and existing first round PPP customers with the lending process.

Additionally, section 541 of the CAA extends the relief provided by the CARES Act for financial institutions to suspend the GAAP accounting treatment for troubled debt restructuring to January 1, 2022.

Commercial Real Estate

16 unchanged sentences

These factors can be affected by changes in economic conditions such as unemployment levels.

With respect to residential loans that are secured by 1-4 family residences and are generally owner occupied, Old National typically establishes a maximum loan-to-value ratio and generally requires private mortgage insurance if that ratio is exceeded.

that ratio is exceeded.

Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels.

Repayment can

also be impacted by changes in residential property values.

Repayment can also be impacted by changes in residential property values.

Portfolio risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

28 unchanged sentences

Old National has made a policy election to report accrued interest receivable as a separate line item on the balance sheet.

Accrued interest receivable on loans totaled $ 57.3 million at December 31, 2020 and is excluded from the estimate of credit losses.

Accrued interest receivable on

loans is excluded from the estimate of credit losses and totaled $ 47.6 million at December 31, 2021 and $ 57.3 million at December 31, 2020.

The allowance for credit loss estimation process involves procedures to appropriately consider the unique characteristics of its loan portfolio segments.

7 unchanged sentences

and second, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics.

See Note 1 for more information about CECL for loans and unfunded loan commitments.

The allowance for credit losses increased for the year ended December 31, 2020 primarily due to the implementation of ASC 326 and the macroeconomic factors surrounding the COVID-19 pandemic.

The forecast scenario includes elevated unemployment, which is forecasted to increase slightly through the second quarter of 2021.

The scenario also shows a slight decrease in nominal gross domestic product with a return to growth by the third quarter of 2021.

In addition to these quantitative inputs, several qualitative factors were considered, including the risk that the economic decline, specifically unemployment and gross domestic product, prove to be more severe and/or prolonged than our baseline forecast.

Also, the efficacy, distribution, and consumption of the vaccine along with new variants of the virus pose additional risk.

The mitigating impact of any additional fiscal stimulus, including direct payments to individuals, increased unemployment benefits, as well as the various government sponsored loan programs, was also considered.

The allowance for credit losses decreased for the year ended December 31, 2021 primarily due to changes in the economic forecast.

The forecast scenario includes improved unemployment and house price index.

In addition to the quantitative inputs, several qualitative factors were considered.

These factors include the risk that unemployment and gross domestic product prove to be more severe and/or prolonged than our baseline forecast, the consumption of the vaccine is less than anticipated, the presence of communicable strains of the virus, and supply chain issues.

The mitigating impact of the economy remaining open was also considered.

Old National’s activity in the allowance for credit losses for loans by portfolio segment was as follows:

12 unchanged sentences

Home equity 1,848 — 1,848 ( 82 ) 978 ( 715 ) 2,029

Total allowance for credit losses $ 54,619 $ 41,347 $ 95,966 $ ( 15,553 ) $ 12,580 $ 38,395 $ 131,388

PPP loans were factored in the provision for credit losses for the year ended December 31, 2020;

Total $ 131,388 $ — $ 131,388 $ ( 4,310 ) $ 9,075 $ ( 28,812 ) $ 107,341

December 31, 2020

Allowance for credit losses:

Commercial $ 21,359 $ 7,150 $ 28,509 $ ( 5,593 ) $ 3,629 $ 4,022 $ 30,567

Commercial real estate 20,535 25,548 46,083 ( 4,323 ) 4,515 29,535 75,810

BBCC 2,279 3,702 5,981 ( 95 ) 140 94 6,120

Residential real estate 2,299 6,986 9,285 ( 824 ) 633 3,514 12,608

Indirect 5,319 ( 1,669 ) 3,650 ( 2,754 ) 1,922 762 3,580

Direct 1,863 ( 1,059 ) 804 ( 1,763 ) 819 995 855

Home equity 965 689 1,654 ( 201 ) 922 ( 527 ) 1,848

Total $ 54,619 $ 41,347 $ 95,966 $ ( 15,553 ) $ 12,580 $ 38,395 $ 131,388

PPP loans were factored in the provision for credit losses for the years ended December 31, 2021 and 2020;

however, due to the SBA guaranty and our borrowers’ adherence to the PPP terms, the provision impact was insignificant.

4 unchanged sentences

Old National’s activity in the allowance for credit losses on unfunded loan commitments was as follows:

(dollars in thousands) Year Ended

December 31, 2020

Years Ended December 31,

(dollars in thousands) 2021 2020

Allowance for credit losses on unfunded loan commitments:

22 unchanged sentences

Pass rated loans are those loans that are other than criticized, classified – substandard, classified – nonaccrual, or classified – doubtful.

The following table summarizes the risk category of commercial, commercial real estate, and BBCC loans by loan portfolio segment and class of loan:

(dollars in thousands) Pass Criticized Classified -

Substandard Classified -

Nonaccrual Classified -

Doubtful Total

The following table summarizes the amortized cost of term loans by risk category of commercial, commercial real estate, and BBCC loans by loan portfolio segment and class of loan:

Origination Year Revolving to Term

(dollars in thousands) 2021 2020 2019 2018 2017 Prior Revolving Total

December 31, 2021

Term Loans at Amortized Cost by Origination Year:

Prior to 2016 $ 262,538 $ 5,369 $ 8,441 $ 4,379 $ 610 $ 281,337

2016 124,041 3,383 2,774 49 296 130,543

2017 227,710 9,508 9,836 6,951 2,748 256,753

2018 171,228 15,003 10,077 4,701 1,016 202,025

2019 420,736 9,603 6,369 3,754 — 440,462

2020 1,675,964 23,982 6,501 2,600 — 1,709,047

Revolving Loans 549,849 10,307 15,344 778 — 576,278

Revolving to Term Loans 148,508 2,685 3,049 7,013 — 161,255

Pass $ 918,456 $ 563,869 $ 271,158 $ 98,468 $ 156,136 $ 235,639 $ 667,628 $ 130,470 $ 3,041,824

Criticized 9,998 7,885 6,660 — 7,809 2,658 14,601 10,076 59,687

Substandard 14,773 14,468 10,200 9,849 5,521 945 6,883 10,322 72,961

Nonaccrual 1,069 3,507 1,276 3,721 1,448 — 845 7,796 19,662

Doubtful — 178 — 288 337 5,275 — — 6,078

Total $ 944,296 $ 589,907 $ 289,294 $ 112,326 $ 171,251 $ 244,517 $ 689,957 $ 158,664 $ 3,200,212

Commercial real estate:

Term Loans at Amortized Cost by Origination Year:

Prior to 2016 $ 513,658 $ 33,490 $ 8,665 $ 12,564 $ 3,274 $ 571,651

2016 496,086 17,648 5,308 1,635 19,283 539,960

2017 677,119 46,994 26,691 9,456 18,926 779,186

2018 749,102 26,464 13,565 5,393 — 794,524

2019 1,041,305 49,271 4,700 2,054 1,832 1,099,162

2020 1,537,226 6,874 11,451 1,408 — 1,556,959

Revolving Loans 28,122 — — — — 28,122

Revolving to Term Loans 382,219 19,804 2,911 313 — 405,247

Pass $ 1,555,880 $ 1,474,271 $ 846,921 $ 481,508 $ 462,176 $ 611,680 $ 42,609 $ 451,544 $ 5,926,589

Criticized 27,622 24,790 39,914 — 21,614 22,157 — 34,387 170,484

Substandard 4,706 12,118 9,933 9,058 18,165 11,351 2,291 4,339 71,961

Nonaccrual 1,620 2,997 — 1,627 3,419 8,905 315 871 19,754

Doubtful 6,653 — 1,970 342 11,218 12,513 — — 32,696

Total $ 1,596,481 $ 1,514,176 $ 898,738 $ 492,535 $ 516,592 $ 666,606 $ 45,215 $ 491,141 $ 6,221,484

Term Loans at Amortized Cost by Origination Year:

Prior to 2016 $ 5,327 $ — $ — $ — $ 30 $ 5,357

2016 24,946 643 33 — — 25,622

2017 36,288 414 246 200 70 37,218

2018 49,875 621 195 134 847 51,672

2019 73,913 1,403 1,417 551 3 77,287

2020 94,828 1,599 233 161 — 96,821

Revolving Loans 52,393 868 317 89 — 53,667

Revolving to Term Loans 19,353 1,259 701 1,466 — 22,779

Pass $ 81,710 $ 69,749 $ 54,580 $ 34,461 $ 25,113 $ 8,296 $ 47,571 $ 18,778 $ 340,258

Criticized 1,320 1,170 841 160 — — 670 1,578 5,739

Substandard 284 24 79 7 187 465 103 239 1,388

Nonaccrual — 88 — — 66 162 — 1,136 1,452

Doubtful — 25 284 1,391 — 210 — — 1,910

Total $ 83,314 $ 71,056 $ 55,784 $ 36,019 $ 25,366 $ 9,133 $ 48,344 $ 21,731 $ 350,747

Origination Year Revolving to Term

(dollars in thousands) 2020 2019 2018 2017 2016 Prior Revolving Total

December 31, 2020

Pass $ 1,675,964 $ 420,736 $ 171,228 $ 227,710 $ 124,041 $ 262,538 $ 549,849 $ 148,508 $ 3,580,574

Criticized 23,982 9,603 15,003 9,508 3,383 5,369 10,307 2,685 79,840

Substandard 6,501 6,369 10,077 9,836 2,774 8,441 15,344 3,049 62,391

Nonaccrual 2,600 3,754 4,701 6,951 49 4,379 778 7,013 30,225

Doubtful — — 1,016 2,748 296 610 — — 4,670

Total $ 1,709,047 $ 440,462 $ 202,025 $ 256,753 $ 130,543 $ 281,337 $ 576,278 $ 161,255 $ 3,757,700

Commercial real estate:

Pass $ 1,537,226 $ 1,041,305 $ 749,102 $ 677,119 $ 496,086 $ 513,658 $ 28,122 $ 382,219 $ 5,424,837

Criticized 6,874 49,271 26,464 46,994 17,648 33,490 — 19,804 200,545

Substandard 11,451 4,700 13,565 26,691 5,308 8,665 — 2,911 73,291

Nonaccrual 1,408 2,054 5,393 9,456 1,635 12,564 — 313 32,823

Doubtful — 1,832 — 18,926 19,283 3,274 — — 43,315

Total $ 1,556,959 $ 1,099,162 $ 794,524 $ 779,186 $ 539,960 $ 571,651 $ 28,122 $ 405,247 $ 5,774,811

Pass $ 94,828 $ 73,913 $ 49,875 $ 36,288 $ 24,946 $ 5,327 $ 52,393 $ 19,353 $ 356,923

Criticized 1,599 1,403 621 414 643 — 868 1,259 6,807

Substandard 233 1,417 195 246 33 — 317 701 3,142

Nonaccrual 161 551 134 200 — — 89 1,466 2,601

Doubtful — 3 847 70 — 30 — — 950

Total $ 96,821 $ 77,287 $ 51,672 $ 37,218 $ 25,622 $ 5,357 $ 53,667 $ 22,779 $ 370,423

For residential real estate and consumer loan classes, Old National evaluates credit quality based on the aging status of the loan and by payment activity.

The performing or nonperforming status is updated on an on-going basis dependent upon improvement and deterioration in credit quality.

The following table presents the amortized cost in residential real estate and consumer loans based on payment activity:

Payment Performance

(dollars in thousands) Performing Nonperforming Total

The following table presents the amortized cost of term residential real estate and consumer loans based on payment activity:

Origination Year Revolving to Term

(dollars in thousands) 2021 2020 2019 2018 2017 Prior Revolving Total

December 31, 2021

Residential real estate:

Term Loans at Amortized Cost by Origination Year:

Prior to 2016 $ 620,999 $ 20,775 $ 641,774

2016 202,457 2,131 204,588

2017 190,376 892 191,268

2018 132,107 680 132,787

2019 453,132 251 453,383

2020 624,435 65 624,500

Revolving Loans — — —

Revolving to Term Loans 122 — 122

Performing $ 625,582 $ 632,705 $ 272,600 $ 72,766 $ 103,866 $ 529,293 $ 12 $ 105 $ 2,236,929

Nonperforming 96 165 166 350 855 16,728 — — 18,360

Total $ 625,678 $ 632,870 $ 272,766 $ 73,116 $ 104,721 $ 546,021 $ 12 $ 105 $ 2,255,289

Term Loans at Amortized Cost by Origination Year:

Prior to 2016 $ 21,088 $ 192 $ 21,280

2016 52,225 429 52,654

2017 96,587 666 97,253

2018 134,893 777 135,670

2019 253,514 443 253,957

2020 352,989 22 353,011

Revolving Loans — — —

Revolving to Term Loans 77 — 77

Performing $ 361,485 $ 231,156 $ 146,978 $ 68,513 $ 41,598 $ 20,819 $ — $ 9 $ 870,558

Nonperforming 262 524 614 510 430 241 — — 2,581

Total $ 361,747 $ 231,680 $ 147,592 $ 69,023 $ 42,028 $ 21,060 $ — $ 9 $ 873,139

Term Loans at Amortized Cost by Origination Year:

Prior to 2016 $ 19,465 $ 526 $ 19,991

2016 8,527 247 8,774

2017 16,182 64 16,246

2018 30,510 171 30,681

2019 29,189 141 29,330

2020 32,499 22 32,521

Revolving Loans 26,028 4 26,032

Revolving to Term Loans 1,229 3 1,232

Performing $ 34,058 $ 16,135 $ 14,396 $ 14,579 $ 7,432 $ 15,831 $ 36,812 $ 192 $ 139,435

Nonperforming 13 53 130 133 35 536 42 8 950

Total $ 34,071 $ 16,188 $ 14,526 $ 14,712 $ 7,467 $ 16,367 $ 36,854 $ 200 $ 140,385

Term Loans at Amortized Cost by Origination Year:

Prior to 2016 $ — $ 116 $ 116

2016 238 11 249

2017 891 — 891

2018 444 — 444

2019 997 37 1,034

Revolving Loans 529,275 94 529,369

Revolving to Term Loans 20,314 3,996 24,310

Performing $ — $ — $ 633 $ 349 $ 535 $ — $ 539,057 $ 16,768 $ 557,342

Nonperforming — — 16 9 41 1 258 2,923 3,248

Total $ — $ — $ 649 $ 358 $ 576 $ 1 $ 539,315 $ 19,691 $ 560,590

Origination Year Revolving to Term

2020 2019 2018 2017 2016 Prior Revolving Total

December 31, 2020

Residential real estate:

Performing $ 624,435 $ 453,132 $ 132,107 $ 190,376 $ 202,457 $ 620,999 $ — $ 122 $ 2,223,628

Nonperforming 65 251 680 892 2,131 20,775 — — 24,794

Total $ 624,500 $ 453,383 $ 132,787 $ 191,268 $ 204,588 $ 641,774 $ — $ 122 $ 2,248,422

Performing $ 352,989 $ 253,514 $ 134,893 $ 96,587 $ 52,225 $ 21,088 $ — $ 77 $ 911,373

Nonperforming 22 443 777 666 429 192 — — 2,529

Total $ 353,011 $ 253,957 $ 135,670 $ 97,253 $ 52,654 $ 21,280 $ — $ 77 $ 913,902

Performing $ 32,499 $ 29,189 $ 30,510 $ 16,182 $ 8,527 $ 19,465 $ 26,028 $ 1,229 $ 163,629

Nonperforming 22 141 171 64 247 526 4 3 1,178

Total $ 32,521 $ 29,330 $ 30,681 $ 16,246 $ 8,774 $ 19,991 $ 26,032 $ 1,232 $ 164,807

Performing $ 1 $ 997 $ 444 $ 891 $ 238 $ — $ 529,275 $ 20,314 $ 552,160

Nonperforming — 37 — — 11 116 94 3,996 4,254

Total $ 1 $ 1,034 $ 444 $ 891 $ 249 $ 116 $ 529,369 $ 24,310 $ 556,414

Nonaccrual and Past Due Loans

18 unchanged sentences

Total $ 18,413 $ 4,648 $ 14,801 $ 37,862 $ 13,563,984 $ 13,601,846

December 31, 2020

Commercial $ 2,977 $ 664 $ 2,100 $ 5,741 $ 3,751,959 $ 3,757,700

Commercial real estate 887 128 27,272 28,287 5,746,524 5,774,811

BBCC 894 882 61 1,837 368,586 370,423

Residential 11,639 3,296 7,666 22,601 2,225,821 2,248,422

Indirect 5,222 960 492 6,674 907,228 913,902

Direct 753 533 426 1,712 163,095 164,807

Home equity 1,075 377 1,663 3,115 553,299 556,414

Total $ 23,447 $ 6,840 $ 39,680 $ 69,967 $ 13,716,512 $ 13,786,479

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing by class of loan:

January 1, 2020 September 30, 2020 December 31, 2020

December 31, 2021 December 31, 2020

(dollars in thousands) Nonaccrual

Cost Nonaccrual

Allowance Past Due

Accruing Nonaccrual

Cost Nonaccrual

8 unchanged sentences

Total $ 106,691 $ 34,713 $ 7 $ 147,339 $ 25,618 $ 167

Interest income recognized on nonaccrual loans was insignificant during the year ended December 31, 2020.

Interest income recognized on nonaccrual loans was insignificant during the years ended December 31, 2021 and 2020.

When management determines that foreclosure is probable, expected credit losses for collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

16 unchanged sentences

Home equity 3,248 — — — —

Total loans $ 101,194 $ 21,654 $ 6,581 $ 3,292 $ 14,607

Total $ 70,984 $ 15,147 $ 4,399 $ 2,906 $ 6,975

December 31, 2020

Commercial $ 8,976 $ 19,253 $ 5,379 $ 394 $ 893

Commercial Real Estate 60,844 472 1,137 — 13,685

BBCC 1,425 1,929 63 134 —

Residential 24,794 — — — —

Indirect — — — 2,529 —

Direct 901 — 2 235 29

Home equity 4,254 — — — —

Total $ 101,194 $ 21,654 $ 6,581 $ 3,292 $ 14,607

Loan Participations

10 unchanged sentences

Terms may be modified to fit the ability of the borrower to repay in line with its current financial status.

The modification of the terms of such loans include one or a combination of the following:

The modification of the terms of such loans includes one or a combination of the following:

a reduction of the stated interest rate of the loan, an extension of the maturity date at a stated rate of interest lower than the current market rate of new debt with similar risk, or a permanent reduction of the recorded investment of the loan.

2 unchanged sentences

For large commercial type loans, each relationship is individually analyzed for evidence of apparent loss based on quantitative benchmarks or subjectively based upon certain events or particular circumstances.

Generally, Old National charges off small commercial loans scored through our small business credit center with contractual balances under $250,000 that are 90 days or more delinquent and do not have adequate collateral support.

For residential and consumer loans, a charge off is recorded at the time foreclosure is initiated or when the loan becomes 120 to 180 days past due, whichever is earlier.

For commercial TDRs, an allocated reserve is established within the allowance for credit losses for the difference between the carrying value of the loan and its computed value.

To determine the computed value of the loan, one of

the following methods is selected:

To determine the computed value of the loan, one of the following methods is selected:

(1) the present value of expected cash flows discounted at the loan’s original effective interest rate, (2) the loan’s observable market price, or (3) the fair value of the collateral, if the loan is collateral dependent.

13 unchanged sentences

Total $ 32,653 $ 36 $ ( 7,309 ) $ 4,659 $ 30,039

Year Ended December 31, 2020

Commercial $ 12,412 $ 633 $ ( 4,557 ) $ 2,602 $ 11,090

Commercial real estate 14,277 4,801 ( 8,502 ) 7,030 17,606

BBCC 578 ( 19 ) ( 447 ) — 112

Residential 3,107 — ( 283 ) — 2,824

Indirect — 9 ( 9 ) — —

Direct 983 23 ( 267 ) — 739

Home equity 381 3 ( 102 ) — 282

Total $ 31,738 $ 5,450 $ ( 14,167 ) $ 9,632 $ 32,653

TDRs included within nonaccrual loans totaled $ 11.7 million at December 31, 2021 and $ 14.9 million at December 31, 2020.

Old National has allocated specific reserves to customers whose loan terms have been modified as TDRs totaling $ 1.6 million at December 31, 2020 and $ 0.9 million at December 31, 2019.

At December 31, 2020, Old National had no t committed to lend any additional funds to customers with outstanding loans that are classified as TDRs, compared to $ 2.3 million at December 31, 2019.

Old National has allocated specific reserves to clients whose loan terms have been modified as TDRs totaling $ 0.7 million at December 31, 2021 and $ 1.6 million at December 31, 2020.

Old National had no t committed to lend any additional funds to clients with outstanding loans that were classified as TDRs at December 31, 2021 or December 31, 2020.

The pre-modification and post-modification outstanding recorded investments of loans modified as TDRs during the years ended December 31, 2021, 2020, and 2019 are the same except for when the loan modifications involve the forgiveness of principal.

13 unchanged sentences

Post-modification outstanding recorded investment 21,131

The TDRs that occurred during 2021 decreased the allowance for credit losses by $ 0.9 million and resulted in no charge-offs during 2021.

The TDRs that occurred during 2020 increased the allowance for credit losses by $ 0.3 million and resulted in no charge-offs during 2020.

The TDRs that occurred during 2019 increased the allowance for loan losses by $ 2.0 million and resulted in $ 3.9 million in charge-offs during 2019.

The TDRs that occurred during 2018 did not have a material impact on the allowance for loan losses and resulted in no charge-offs during 2018.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

6 unchanged sentences

We also consider whether the modification was insignificant relative to the other terms of the agreement or the delay in a payment.

In general, once a modified loan is considered a TDR, the loan will always be considered a TDR, and therefore impaired, until it is paid in full, otherwise settled, sold, or charged off.

In general, once a modified loan is considered a TDR, the loan will always be considered a TDR until it is paid in full, otherwise settled, sold, or charged off.

However, guidance also permits for loans to be removed from TDR status when subsequently restructured under these circumstances:

6 unchanged sentences

Non-TDR Loan Modifications due to COVID-19

On March 22, 2020, the Interagency Statement was issued by our banking regulators that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19.

In March 2020, the Interagency Statement was issued by our banking regulators that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19.

Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act terminates.

In accordance with such guidance, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due.

These include short-term (180 days or less) modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.

The table below presents these loan deferrals by loan category:

(dollars in thousands) June 30, 2020

Balance September 30, 2020

Balance December 31, 2020

Balance (1) December 31, 2020

Commercial and commercial real estate $ 1,170,119 $ 125,603 $ 53,823 101

Residential real estate 78,639 1,654 1,855 6

Consumer 54,786 10,315 8,224 348

Total $ 1,303,544 $ 137,572 $ 63,902 455

(1) Includes second deferrals between 90 and 180 days totaling $ 6.3 million of commercial and commercial real estate loans and $ 0.6 million of consumer loans.

After this date, we will follow the GAAP accounting treatment to determine if new modifications meet the definition of a TDR.

In accordance with such guidance, during 2020 and throughout 2021 we offered short-term modifications in response to COVID-19 to borrowers who were current and otherwise not past due.

These included short-term (180 days or less) modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that were insignificant.

These loan deferrals totaled $ 6.4 million at December 31, 2021.

Allowance for Loan Losses (Prior to January 1, 2020)

Prior to the adoption of ASC 326 on January 1, 2020, Old National calculated allowance for loan losses using incurred losses methodology.

The following tables are disclosures related to the allowance for loan losses in prior periods.

The following tables are disclosures related to the allowance for loan losses in the year ended December 31, 2019.

Old National’s activity in the allowance for loan losses was as follows:

7 unchanged sentences

Balance at end of period $ 22,585 $ 21,588 $ 2,299 $ 8,147 $ 54,619

Year Ended December 31, 2018

Allowance for loan losses:

Balance at beginning of period $ 19,246 $ 21,436 $ 1,763 $ 7,936 $ 50,381

Charge-offs ( 3,087 ) ( 879 ) ( 1,100 ) ( 7,903 ) ( 12,969 )

Recoveries 1,519 2,740 2,118 4,706 11,083

Provision 4,064 173 ( 504 ) 3,233 6,966

Balance at end of period $ 21,742 $ 23,470 $ 2,277 $ 7,972 $ 55,461

The following table disaggregates Old National’s allowance for credit losses and amortized cost basis in loans by measurement methodology:

(dollars in thousands) Commercial Commercial

Real Estate Residential Consumer Total

December 31, 2019

Allowance for loan losses:

Individually evaluated for impairment $ 7,891 $ 1,006 $ — $ — $ 8,897

Collectively evaluated for impairment 14,692 20,582 2,299 7,954 45,527

Loans acquired with deteriorated credit quality 2 — — 193 195

Total allowance for loan losses $ 22,585 $ 21,588 $ 2,299 $ 8,147 $ 54,619

Loans and leases outstanding:

Individually evaluated for impairment $ 41,479 $ 63,288 $ — $ — $ 104,767

Collectively evaluated for impairment 2,843,536 5,084,737 2,326,907 1,723,715 11,978,895

Loans acquired with deteriorated credit quality 5,281 18,767 7,382 2,432 33,862

Total loans and leases outstanding $ 2,890,296 $ 5,166,792 $ 2,334,289 $ 1,726,147 $ 12,117,524

The risk category or commercial and commercial real estate loans by class of loans was as follows:

December 31, 2019

(dollars in thousands) Commercial Commercial

Real Estate -

Construction Commercial

Real Estate -

Corporate Credit Exposure Credit Risk Profile by Internally Assigned Grade

Pass $ 2,702,605 $ 665,512 $ 4,191,455

Criticized 84,676 34,651 115,514

Classified - substandard 63,979 — 101,693

Classified - nonaccrual 22,240 12,929 38,822

Classified - doubtful 16,796 — 6,216

Total $ 2,890,296 $ 713,092 $ 4,453,700

The following table presents the recorded investment in residential and consumer loans based on payment activity:

(dollars in thousands) Residential Home Equity Auto Other

December 31, 2019

Performing $ 2,311,670 $ 555,025 $ 1,013,760 $ 147,383

Nonperforming 22,619 3,996 3,527 2,456

Total $ 2,334,289 $ 559,021 $ 1,017,287 $ 149,839

The following table presents Old National’s impaired loans at December 31, 2019.

Only purchased loans that have experienced subsequent impairment since the date acquired (excluding loans acquired with deteriorated credit quality) are included in the table below.

(dollars in thousands) Recorded

Investment Unpaid Principal

Balance Related

The following table presents Old National’s average balance of impaired loans.

Only purchased loans that had experienced subsequent impairment since the date acquired (excluding loans acquired with deteriorated credit quality) are included in the table below.

(dollars in thousands) Year Ended

December 31, 2019

With no related allowance recorded:

Commercial $ 23,227 $ 23,665 $ —

Commercial Real Estate - Construction 12,929 12,929 —

Commercial Real Estate - Other 37,674 38,112 —

Residential 1,774 1,794 —

Consumer 403 568 —

With an allowance recorded:

Commercial 18,252 18,305 7,891

Commercial Real Estate - Other 12,685 12,685 1,006

Residential 1,201 1,201 39

Consumer 1,094 1,094 55

Total $ 109,239 $ 110,353 $ 8,991

The average balance of impaired loans are included in the table below.

Years Ended December 31,

(dollars in thousands) 2019 2018

Average Recorded Investment

4 unchanged sentences

Residential 2,052

Consumer 923 832

With an allowance recorded:

5 unchanged sentences

Total $ 116,818

Old National’s past due loans were as follows:

(dollars in thousands) 30-59 Days

Past Due 60-89 Days

Past Due Past Due

Accruing Nonaccrual Total

Past Due Current

December 31, 2019

Commercial $ 1,489 $ 498 $ — $ 39,036 $ 41,023 $ 2,849,273

Commercial Real Estate:

Construction 187 — — 12,929 13,116 699,976

Other 2,223 665 181 45,038 48,107 4,405,593

Residential 11,054 2,426 20 21,023 34,523 2,299,766

Home equity 1,020 554 107 3,785 5,466 553,555

Auto 7,704 919 154 3,527 12,304 1,004,983

Other 1,372 147 108 1,074 2,701 147,138

Total $ 25,049 $ 5,209 $ 570 $ 126,412 $ 157,240 $ 11,960,284

The following table presents activity in TDRs:

6 unchanged sentences

Total $ 43,710 $ ( 4,010 ) $ ( 29,093 ) $ 21,131 $ 31,738

Year Ended December 31, 2018

Commercial $ 12,088 $ ( 169 ) $ ( 5,188 ) $ 3,544 $ 10,275

Commercial real estate 34,705 561 ( 8,808 ) 1,213 27,671

Residential 3,315 23 ( 450 ) 502 3,390

Consumer 3,895 16 ( 1,969 ) 432 2,374

Total $ 54,003 $ 431 $ ( 16,415 ) $ 5,691 $ 43,710

NOTE 5 – OTHER REAL ESTATE OWNED

Other real estate owned in included in other assets on the balance sheet.

The following table presents activity in other real estate owned:

6 unchanged sentences

Balance at end of period (2) $ 2,030 $ 1,324 $ 2,169

(1) Additions in 2018 included other real estate owned of $ 1.0 million acquired from Klein in November 2018.

(1) Includes repossessed personal property of $ 0.1 million at December 31, 2021 and $ 0.2 million at December 31, 2020.

13 unchanged sentences

Finance Leases

Old National leases certain banking center buildings under finance leases that are included in premises and equipment.

Old National leases certain banking center buildings and equipment under finance leases that are included in premises and equipment.

See Notes 7 and 14 to the consolidated financial statements for detail regarding these leases.

29 unchanged sentences

Total $ 14,685 $ 24,444 $ 17,275

Lease expense for operating leases was $ 17.9 million in 2018.

Supplemental balance sheet information related to leases was as follows:

19 unchanged sentences

Financing cash flows from finance leases 2,057 819 465

The following table presents a maturity analysis of the Company’s lease liability by lease classification at December 31, 2020:

The following table presents future undiscounted lease payments by lease classification at December 31, 2021:

(dollars in thousands) Operating

21 unchanged sentences

Acquisitions and adjustments — — 736

Divestitures — — ( 580 )

Balance at end of period $ 1,036,994 $ 1,036,994 $ 1,036,994

19 unchanged sentences

(dollars in thousands)

2021 $ 11,336

Thereafter 5,071

18 unchanged sentences

Loan servicing rights, net $ 30,039 $ 26,717 $ 25,368

(1) Additions in 2018 include loan servicing rights of $ 0.3 million acquired from Klein in November 2018.

At December 31, 2021, the fair value of servicing rights was $ 33.8 million, which was determined using a discount rate of 9 % and a conditional prepayment rate of 10 %.

12 unchanged sentences

Total $ 110,942 $ 56,607 $ 62,000 $ 30,105

(1) All commitments will be paid by Old National by 2027.

(1) All commitments will be paid by Old National by December 31, 2027.

The following table summarizes the amortization expense and tax benefit recognized for Old National’s qualified affordable housing projects and other tax credit investments:

11 unchanged sentences

FHTC 13,237 ( 15,582 )

CReED (3) 13 —

NMTC 900 ( 1,100 )

Renewable Energy 4,651 ( 4,122 )

10 unchanged sentences

The tax benefit recognized for the FHTC, NMTC, CReED, and Renewable Energy investments primarily reflects the tax credits generated from the investments and excludes the net tax expense (benefit) and deferred tax liability of the investments’ income (loss).

(3) The CReED tax credit investment qualifies for an Indiana state tax credit.

(3) The CReED tax credit investment qualified for an Indiana state tax credit.

NOTE 11 – DEPOSITS

At December 31, 2020, brokered deposits consist of $ 100.0 million of demand deposits and $ 19.6 million of time deposits.

Time deposits that meet or exceed the FDIC insurance limit of $250,000 totaled $ 285.1 million at December 31, 2020 and $ 546.0 million at December 31, 2019.

At December 31, 2021, the scheduled maturities of total time deposits were as follows:

(dollars in thousands)

Due in 2021 $ 825,822

Due in 2022 139,466

Due in 2023 82,288

Due in 2024 37,280

Thereafter 4,521

Total $ 960,413

The aggregate amount of time deposits in denominations that met or exceeded the FDIC insurance limit of $250,000 totaled $ 252.8 million at December 31, 2021 and $ 285.1 million at December 31, 2020.

NOTE 12 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

26 unchanged sentences

variable rates 0.07 % to 0.09 %) maturing

January 2021 to August 2035

October 2022 to January 2041

$ 1,902,655 $ 1,999,160

4 unchanged sentences

Investment securities and residential real estate loans collateralize these borrowings up to 140 % of outstanding debt.

In 2021, Old National modified $ 50.0 million pertaining to two FHLB advances, which lowered their weighted average effective rates from 1.53 % to 0.33 %.

In 2020, Old National modified $ 500.0 million pertaining to four FHLB advances, which lowered their weighted average effective rates from 2.00 % to 1.28 %.

At December 31, 2020, unamortized prepayment fees related to these modifications totaled $ 30.0 million.

At December 31, 2021, unamortized prepayment fees related to all debt modifications totaled $ 26.2 million, compared to $ 30.0 million at December 31, 2020.

Contractual maturities of FHLB advances at December 31, 2021 were as follows:

23 unchanged sentences

2046 to December 2052

51,045 15,300

Other 2,839 428

3 unchanged sentences

Thereafter 110,369

Unamortized debt issuance costs and other

basis adjustments ( 3,326 )

Unamortized debt issuance costs and other basis adjustments ( 608 )

Total $ 296,670

3 unchanged sentences

Junior Subordinated Debentures

Junior subordinated debentures related to trust preferred securities are classified in “other borrowings.” On November 1, 2017, Old National acquired Anchor (MN) and exceeded $15 billion in assets.

As a result, these

securities can only be treated as Tier 2 capital for regulatory purposes, subject to certain limitations.

Prior to the fourth quarter of 2017, these securities qualified as Tier 1 capital for regulatory purposes.

Junior subordinated debentures related to trust preferred securities are classified in “other borrowings.” Junior subordinated debentures qualify as Tier 2 capital for regulatory purposes, subject to certain limitations.

Through various acquisitions, Old National assumed junior subordinated debenture obligations related to various trusts that issued trust preferred securities.

2 unchanged sentences

Old National, at any time, may redeem the junior subordinated debentures at par and, thereby cause a redemption of the trust preferred securities in whole or in part.

In February 2020, Old National redeemed at par $ 4.1 million of junior subordinated debentures issued in October 2002 by Anchor (MN) (as successor to VFSC, Inc.), which was acquired by Old National in 2017.

This subsequently caused the redemption of all of the common and capital (preferred) securities issued by VFSC Capital Trust II by the same amount in aggregate.

At the time of redemption, the rate on this floating rate instrument was 5.36 %.

In March 2020, Old National redeemed at par $ 3.1 million of junior subordinated debentures issued in April 2004 by Anchor (MN) (as successor to VFSC, Inc.), which was acquired by Old National in 2017.

This subsequently caused the redemption of all of the common and capital (preferred) securities issued by VFSC Capital Trust III by the same amount in aggregate.

At the time of redemption, the rate on this floating rate instrument was 4.71 %.

In April 2020, Old National redeemed at par $ 3.1 million of junior subordinated debentures issued in April 2002 by Anchor (MN) (as successor to VFSC, Inc.), which was acquired by Old National in 2017.

This subsequently caused the redemption of all of the common and capital (preferred) securities issued by VFSC Capital Trust I by the same amount in aggregate.

At the time of redemption, the rate on this floating rate instrument was 5.62 %.

The following table summarizes the terms of our outstanding junior subordinated debentures as of December 31, 2021:

24 unchanged sentences

From October 30, 2020 to the October 30, 2025 maturity date, the debentures have a floating rate of interest equal to the three-month LIBOR rate plus 4.356 %.

Leveraged Loans

The leveraged loans are directly related to the New Markets Tax Credit structure.

As part of the transaction structure, Old National has the right to sell its interest in the entity that received the leveraged loans at an agreed upon price to the leveraged lender at the end of the New Markets Tax Credit seven year compliance period.

See Note 10 to the consolidated financial statements for additional information on the Company’s New Markets Tax Credit investments.

Finance Lease Liabilities

Old National has long-term finance lease liabilities for certain banking centers totaling $ 11.8 million.

The economic substance of these leases is that Old National is financing the acquisition of the building through the lease and accordingly, the building is recorded as a right-of-use asset in premises and equipment and the lease is recorded as a liability in other borrowings.

The right-of-use assets and lease liabilities are initially measured at the present value of the lease payments over the lease term using Old National’s incremental borrowing rate based on the information available at the commencement date of the lease.

Old National has long-term finance lease liabilities for certain banking centers and equipment totaling $ 17.2 million at December 31, 2021.

See Note 7 to the consolidated financial statements for a maturity analysis of the Company’s finance lease liabilities.

21 unchanged sentences

Balance at beginning of period $ ( 37,348 ) $ ( 8,515 ) $ 1,099 $ ( 186 ) $ ( 44,950 )

Amount reclassified from AOCI to retained

earnings for cumulative effect of

change in accounting principle

— — ( 52 ) — ( 52 )

Amounts reclassified from AOCI to retained

earnings related to the Tax Cuts and Jobs

( 7,583 ) ( 2,600 ) ( 509 ) ( 59 ) ( 10,751 )

Other comprehensive income (loss) before

5 unchanged sentences

The following table summarizes the significant amounts reclassified out of each component of AOCI:

Years Ended December 31,

(dollars in thousands) 2021 2020 2019

Details about AOCI Components Amount Reclassified

1 unchanged sentence

Statement of Income

Years Ended December 31,

(dollars in thousands) 2020 2019 2018

Unrealized gains and losses on

32 unchanged sentences

Effective tax rate 18.1 % 11.4 % 18.0 %

The higher effective tax rate in 2021 when compared to 2020 was primarily the result of an increase in pre-tax book income and lower tax credits.

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:

1 unchanged sentence

(dollars in thousands) 2021 2020 2019

Income taxes currently payable:

Current expense:

Federal $ 31,943 $ 19,223 $ 22,908

State 8,461 6,498 4,490

Deferred income taxes related to:

Deferred expense:

Federal 17,514 3,188 20,402

7 unchanged sentences

Deferred Tax Assets

Allowance for loan losses, net of recapture $ 34,971 $ 14,179

Allowance for credit losses, net of recapture $ 28,843 $ 34,971

Benefit plan accruals 18,348 20,076

Alternative minimum tax credit — 1,272

Net operating loss carryforwards 14,823 18,982

2 unchanged sentences

Operating lease liabilities 22,961 24,245

Unrealized losses on available-for-sale investment securities 3,003 —

Tax credit investments and other partnerships 301 1,054

Other real estate owned 28 141

Other, net 1,914 488

37 unchanged sentences

Restricted Stock Awards

Restricted stock awards require certain service requirements and commonly have vesting periods of 3 years.

Restricted stock awards require certain service requirements and commonly have vesting periods of three years .

Compensation expense is recognized on a straight-line basis over the vesting period.

8 unchanged sentences

Nonvested balance at end of period 554 $ 16.16

As of December 31, 2020, there was $ 5.7 million of total unrecognized compensation cost related to nonvested shares granted under the ICP.

As of December 31, 2021, there was $ 6.0 million of total unrecognized compensation cost related to nonvested restricted stock awards.

The cost is expected to be recognized over a weighted-average period of 1.8 years.

1 unchanged sentence

Restricted Stock Units

Restricted stock units require certain performance requirements and have vesting periods of 3 years.

Restricted stock units require certain performance requirements and have vesting periods of three years .

The level of performance could increase or decrease the number of shares earned.

Compensation expense is recognized on a straight-line basis over the vesting period.

6 unchanged sentences

Vested during the year ( 242 ) 14.26

Forfeited during the year ( 1 ) 12.62

Dividend equivalents adjustment 33 14.05

Nonvested balance at end of period 886 $ 14.80

As of December 31, 2020, there was $ 3.6 million of total unrecognized compensation cost related to nonvested shares granted under the ICP.

As of December 31, 2021, there was $ 3.8 million of total unrecognized compensation cost related to nonvested restricted stock units.

The cost is expected to be recognized over a weighted-average period of 1.7 years.

34 unchanged sentences

All contributions vest immediately and plan participants may elect to redirect funds among any of the investment options provided under the 401( k) Plan.

The number of Old National shares in the 401(k) Plan were 0.6 million at December 31, 2020 and December 31, 2019.

The number of Old National shares in the 401(k) Plan were 0.5 million at December 31, 2021 and 0.6 million at December 31, 2020.

All shares owned through the 401(k) Plan are included in the calculation of weighted-average shares outstanding for purposes of calculating diluted and basic earnings per share.

12 unchanged sentences

Share Repurchase Plan

In the first quarter of 2020, the Board of Directors approved the repurchase of up to 7.0 million of the Company’s common shares to be repurchased, as conditions warrant, through January 31, 2021.

During 2020, Old National repurchased 4.9 million common shares under the plan, which reduced equity by $ 78.7 million.

The program was suspended in March 2020 given the uncertain economic conditions.

On January 28, 2021, the Board of Directors approved the adoption of a stock repurchase plan that authorizes the repurchase of up to $ 100 million of shares of Common Stock, as conditions warrant, through January 31, 2022.

In the first quarter of 2021, the Board of Directors approved the repurchase of up to $ 100 million of shares of Common Stock, as conditions warrant, through January 31, 2022.

During 2021 and through January 31, 2022, no common shares were repurchased under the plan.

Net Income per Share

28 unchanged sentences

Old National used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Investment securities :

The fair values for investment securities are determined by quoted market prices, if available (Level 1).

Investment securities and equity securities :

The fair values for investment securities and equity securities are determined by quoted market prices, if available (Level 1).

For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).

50 unchanged sentences

(dollars in thousands) Pooled Trust

Securities State and

Securities States and

Year Ended December 31, 2021

Balance at beginning of period $ 7,913 $ —

Accretion (amortization) of discount 15 —

Accretion (amortization) of discount or premium 20 —

Sales/payments received ( 27 ) —

3 unchanged sentences

Balance at beginning of period $ 8,222 $ 40

Accretion (amortization) of discount 12 —

Accretion (amortization) of discount or premium 15 —

Sales/payments received ( 64 ) ( 40 )

Increase (decrease) in fair value of securities ( 260 ) —

Transfers out of Level 3 — ( 4,033 )

Balance at end of period $ 7,913 $ —

1 unchanged sentence

Balance at beginning of period $ 8,495 $ 4,108

Accretion (amortization) of discount 17 ( 56 )

Accretion (amortization) of discount or premium 12 —

Sales/payments received ( 62 ) ( 35 )

Increase (decrease) in fair value of securities ( 223 ) —

Transfers into Level 3 — 4,136

Transfers out of Level 3 — ( 4,033 )

Balance at end of period $ 8,222 $ 40

The accretion or amortization of discounts on securities in the table above is included in interest income.

The increase in the fair value of securities in the table above is included in the unrealized holding gains (losses) for the period in the statement of other comprehensive income.

The accretion of discounts or amortization of premiums on securities in the table above is included in interest income.

The increase or decrease in the fair value of securities in the table above is included in the unrealized holding gains (losses) for the period in the statement of other comprehensive income.

An increase in fair value is reflected in the balance sheet as an increase in the fair value of investment securities available-for-sale, an increase in accumulated other comprehensive income, which is included in shareholders’ equity, and a decrease in other assets related to the tax impact.

The decrease in the fair value of securities in the table above is included in the unrealized holding gains (losses) for the period in the statement of other comprehensive income.

A decrease in fair value is reflected in the balance sheet as a decrease in the fair value of investment securities available-for-sale, a decrease in accumulated other comprehensive income, which is included in shareholders’ equity, and an increase in other assets related to the tax impact.

During 2019, Old National received third party pricing on a $ 4.0 million state and political subdivisions security and transferred it out of Level 3.

Old National transferred $ 4.1 million of state and political subdivisions securities to Level 3 during 2018 because Old National could no longer obtain evidence of observable inputs.

The table below provides quantitative information about significant unobservable inputs used in fair value measurements within Level 3 of the fair value hierarchy:

9 unchanged sentences

Expected asset recoveries (3) 0.0 % - 23.2 % ( 7.3 %)

State and political subdivisions 40 Discounted cash flow No observable inputs N/A

Local municipality issuances

Old National owns 100%

Carried at par

(1) Assuming no prepayments.

19 unchanged sentences

These commercial and commercial real estate loans had a principal amount of $ 21.0 million, with a valuation allowance of $ 2.1 million at December 31, 2021.

Old National recorded provision expense associated with these loans totaling $ 2.1 million in 2020.

Old National recorded provision recapture associated with these loans totaling $ 0.1 million in 2021.

Other real estate owned and other repossessed property is measured at fair value less costs to sell.

2 unchanged sentences

Loan servicing rights are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount.

If the carrying amount of an individual tranche exceeds fair value, impairment is recorded on that

tranche so that the servicing asset is carried at fair value.

If the carrying amount of an individual tranche exceeds fair value, impairment is recorded on that tranche so that the servicing asset is carried at fair value.

Fair value is determined at a tranche level, based on market prices for comparable mortgage servicing contracts when available, or alternatively based on a valuation model that calculates the present value of estimated future net servicing income.

The valuation model utilizes a discount rate, weighted average prepayment speed, and other economic factors that market participants would use in estimating future net servicing income and that can be validated against available market data (Level 2).

The valuation allowance for loan servicing rights with impairments at December 31, 2020 totaled $ 1.4 million.

Old National recorded impairments associated with these loan servicing rights totaling $ 1.4 million in 2020.

The valuation allowance for loan servicing rights with impairments at December 31, 2021 totaled $ 46 thousand.

Old National recorded recoveries associated with these loan servicing rights totaling $ 1.4 million in 2021.

Assets measured at fair value on a non-recurring basis at December 31, 2020 are summarized below:

9 unchanged sentences

Commercial real estate loans 40,653 — — 40,653

Foreclosed Assets:

Commercial real estate 21 — — 21

Residential 22 — — 22

Loan servicing rights 26,717 — 26,717 —

At December 31, 2019, commercial and commercial real estate loans that are deemed collateral dependent had a principal amount of $ 30.9 million, with a valuation allowance of $ 8.9 million.

At December 31, 2020, commercial and commercial real estate loans that were deemed collateral dependent had a principal amount of $ 57.2 million, with a valuation allowance of $ 5.8 million.

Old National recorded provision expense associated with these loans totaling $ 2.1 million in 2020.

Other real estate owned and other repossessed property had a net carrying amount of $ 43 thousand at December 31, 2019.

There were write-downs of other real estate owned of $ 60 thousand in 2019.

The valuation allowance for loan servicing rights with impairments at December 31, 2019 totaled $ 31 thousand.

There were impairments associated with these loan servicing rights totaling $ 16 thousand in 2019.

Old National did not have any other real estate owned or other repossessed property measured at fair value on a non-recurring basis at December 31, 2020.

There were write-downs of other real estate owned of $ 0.2 million in 2020.

The valuation allowance for loan servicing rights with impairments at December 31, 2020 totaled $ 1.4 million.

There were impairments associated with these loan servicing rights totaling $ 1.4 million in 2020.

The table below provides quantitative information about significant unobservable inputs used in fair value measurements within Level 3 of the fair value hierarchy:

13 unchanged sentences

Collateral Dependent Loans

Commercial loans $ 10,361 Fair value of collateral Discount for type of property,

age of appraisal, and current status 0 % - 50 % ( 13 %)

Commercial real estate loans (1) 11,610 Fair value of collateral Discount for type of property,

age of appraisal, and current status 45 %

Foreclosed Assets

Commercial real estate (1) 21 Fair value of collateral Discount for type of property,

Commercial loans $ 10,747 Discounted

cash flow Discount for type of property,

age of appraisal, and current status 0 % - 33 % ( 12 %)

Residential (1) 22 Fair value of collateral Discount for type of property,

Commercial real estate loans 40,653 Discounted

cash flow Discount for type of property,

age of appraisal, and current status 0 % - 18 % ( 7 %)

(1) There was only one collateral dependent commercial real estate loan, one foreclosed commercial real estate asset, and one foreclosed residential asset at December 31, 2019, so no range or weighted average is reported.

(1) Unobservable inputs were weighted by the relative fair value of the instruments.

53 unchanged sentences

11,305,676 11,305,676 — —

Other time deposits 1,103,313 — 1,121,365 —

Brokered deposits 119,557 — 119,514 —

Time deposits 960,413 — 968,658 —

Federal funds purchased and interbank borrowings 276 276 — —

26 unchanged sentences

10,280,911 10,180,911 99,957 —

Other time deposits 1,589,988 — 1,600,214 —

Brokered deposits 92,242 — 92,355 —

Time deposits 1,122,870 — 1,140,922 —

Federal funds purchased and interbank borrowings 1,166 1,166 — —

11 unchanged sentences

The amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements.

The notional amounts of these derivative instruments were $ 1.452 billion at December 31, 2020 and $ 665.5 million at December 31, 2019.

These derivative financial instruments at December 31, 2020 consisted of $ 379.0 million notional amount of receive-fixed, pay-variable interest rate swaps on certain of its borrowings, $ 347.5 million notional amount of pay-fixed, receive-variable interest rate swaps on certain of its available-for-sale investment securities, $ 325.0 million notional amount of pay-fixed, receive-variable interest rate swaps on certain of its borrowings, and $ 400.0 million notional amount interest rate collars and floors related to variable-rate commercial loan pools.

Derivative financial instruments at December 31, 2019 consisted of $ 130.5 million notional amount of receive-fixed, pay-variable interest rate swaps on certain of its borrowings, $ 25.0 million notional amount of pay-fixed, receive-variable interest rate swaps on certain of its borrowings, and $ 510.0 million notional amount interest rate collars and floors related to variable-rate commercial loan pools.

These hedges were entered into to manage interest rate risk.

Derivative instruments are recognized on the balance sheet at their fair value and are not reported on a net basis.

In accordance with ASC 815-20-35-1, subsequent changes in fair value for a hedging instrument that has been designated and qualifies as part of a hedging relationship should be accounted for in the following manner:

Credit risk arises from the possible inability of counterparties to meet the terms of their contracts.

Old National’s exposure is limited to the termination value of the contracts rather than the notional, principal, or contract amounts.

There are provisions in our agreements with the counterparties that allow for certain unsecured credit exposure up to an agreed threshold.

Exposures in excess of the agreed thresholds are collateralized.

In addition, we minimize credit risk through credit approvals, limits, and monitoring procedures.

Derivatives Designated as Hedges

Subsequent changes in fair value for a hedging instrument that has been designated and qualifies as part of a hedging relationship are accounted for in the following manner:

Cash flow hedges :

2 unchanged sentences

changes in fair value are recognized concurrently in earnings.

As long as a hedging instrument is designated and the results of the effectiveness testing support that the instrument qualifies for hedge accounting treatment, 100 % of the periodic changes in fair value of the hedging instrument are

accounted for as outlined above.

This is the case whether or not economic mismatches exist in the hedging relationship.

2 unchanged sentences

The change in fair value of the hedging instrument that is included in the assessment of hedge effectiveness is presented in the same income statement line item that is used to present the earnings effect of the hedged item.

Commitments to fund certain mortgage loans (interest rate lock commitments) and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives.

These derivative contracts do not qualify for hedge accounting.

At December 31, 2020, the notional amounts of the interest rate lock commitments were $ 224.7 million and forward commitments were $ 261.0 million.

At December 31, 2019, the notional amounts of the interest rate lock commitments were $ 65.7 million and forward commitments were $ 101.6 million.

It is our practice to enter into forward commitments for the future delivery of residential mortgage loans to third party investors when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from our commitment to fund the loans.

Old National also enters into derivative instruments for the benefit of its customers.

The notional amounts of these customer derivative instruments and the offsetting counterparty derivative instruments were $ 2.008 billion at December 31, 2020.

The notional amounts of these customer derivative instruments and the offsetting counterparty derivative instruments were $ 1.298 billion at December 31, 2019.

These derivative contracts do not qualify for hedge accounting.

These instruments include interest rate swaps, caps, and collars.

Commonly, Old National will economically hedge significant exposures related to these derivative contracts entered into for the benefit of customers by entering into offsetting contracts with approved, reputable, independent counterparties with substantially matching terms.

Old National enters into derivative financial instruments as part of its foreign currency risk management strategies.

These derivative instruments consist of foreign currency forward contracts to accommodate the business needs of its customers.

Old National does not designate these foreign currency forward contracts for hedge accounting treatment.

The notional amounts of these foreign currency forward contracts and the offsetting counterparty derivative instruments were $ 9.9 million at December 31, 2020 and $ 8.2 million at December 31, 2019.

Credit risk arises from the possible inability of counterparties to meet the terms of their contracts.

Old National’s exposure is limited to the replacement value of the contracts rather than the notional, principal, or contract amounts.

There are provisions in our agreements with the counterparties that allow for certain unsecured credit exposure up to an agreed threshold.

Exposures in excess of the agreed thresholds are collateralized.

In addition, we minimize credit risk through credit approvals, limits, and monitoring procedures.

Amounts reported in AOCI related to cash flow hedges will be reclassified to interest income or interest expense as interest payments are received or paid on Old National’s derivative instruments.

During the next 12 months, we estimate that $ 6.1 million will be reclassified to interest income and $ 1.8 million will be reclassified to interest expense.

The following table summarizes the fair value of derivative financial instruments utilized by Old National:

(dollars in thousands) Balance

Location Fair

Value Balance

Location Fair

December 31, 2020

Derivatives designated as hedging instruments

Interest rate contracts Other assets $ 17,202 Other liabilities $ 1,988

Total derivatives designated as hedging instruments $ 17,202 $ 1,988

Derivatives not designated as hedging instruments

Interest rate contracts (1) Other assets $ 113,300 Other liabilities $ 13,676

Mortgage contracts Other assets 9,375 Other liabilities 2,335

Foreign currency contracts Other assets 324 Other liabilities 188

Total derivatives not designated as hedging instruments $ 122,999 $ 16,199

Total $ 140,201 $ 18,187

December 31, 2019

Derivatives designated as hedging instruments

Interest rate contracts Other assets $ 7,157 Other liabilities $ 1,046

Total derivatives designated as hedging instruments $ 7,157 $ 1,046

Derivatives not designated as hedging instruments

Interest rate contracts (1) Other assets $ 42,224 Other liabilities $ 10,883

Mortgage contracts Other assets 1,702 Other liabilities 354

Foreign currency contracts Other assets 218 Other liabilities 110

Total derivatives not designated as hedging instruments $ 44,144 $ 11,347

Cash Flow Hedges

Interest rate swaps of certain borrowings were designated as cash flow hedges totaling $ 150.0 million notional amount at December 31, 2021 and $ 325.0 million notional amount at December 31, 2020.

Interest rate collars and floors related to variable-rate commercial loan pools were designated as cash flow hedges totaling $ 600.0 million notional amount at December 31, 2021 and $ 400.0 million notional amount at December 31, 2020.

The hedges were determined to be effective during all periods presented and we expect them to remain effective during the remaining terms.

Old National has designated its interest rate collars as cash flow hedges.

The structure of these instruments is such that Old National pays the counterparty an incremental amount if the collar index exceeds the cap rate.

Conversely, Old National receives an incremental amount if the index falls below the floor rate.

No payments are required if the collar index falls between the cap and floor rates.

Old National has designated its interest rate floor transactions as cash flow hedges.

The structure of these instruments is such that Old National receives an incremental amount if the index falls below the floor strike rate.

No payments are required if the index remains above the floor strike rate.

Fair Value Hedges

Interest rate swaps of certain borrowings were designated as fair value hedges totaling $ 377.5 million notional amount at December 31, 2021 and $ 379.0 million notional amount at December 31, 2020.

Interest rate swaps of certain available-for-sale investment securities were designated as fair value hedges totaling $ 910.0 million notional amount at December 31, 2021 and $ 347.5 million notional amount at December 31, 2020.

The hedges were determined to be effective during all periods presented and we expect them to remain effective during the remaining terms.

The following table summarizes Old National’s derivatives designated as hedges:

December 31, 2021 December 31, 2020

Fair Value Fair Value

(dollars in thousands) Notional Assets (1) Liabilities (2) Notional Assets (1) Liabilities (2)

Cash flow hedges:

Interest rate collars and floors on loan pools $ 600,000 $ 459 $ 2,173 $ 400,000 $ 6,636 $ —

Interest rate swaps on borrowings 150,000 4,316 — 325,000 628 1,816

Fair value hedges:

Interest rate swaps on investment securities 909,957 10,961 14,643 347,516 1,145 172

Interest rate swaps on borrowings 377,500 2,475 96 379,000 8,793 —

Total $ 18,211 $ 16,912 $ 17,202 $ 1,988

(1) The fair values of counterparty interest rate swaps are zero due to the settlement of centrally-cleared variation margin rules.

The net adjustment was $ 100.4 million as of December 31, 2020 and $ 31.6 million as of December 31, 2019.

Summary information about the interest rate swaps designated as fair value hedges is as follows:

(dollars in thousands) 2020 2019

Notional amounts $ 726,516 $ 130,500

Weighted average pay rates 0.63 % 1.82 %

Weighted average receive rates 1.23 % 2.20 %

Weighted average maturity (in years) 6.9 2.8

Fair value of swaps $ 9,766 $ 1,555

(1) Derivative assets are included in other assets on the balance sheet.

(2) Derivative liabilities are included in other liabilities on the balance sheet.

The effect of derivative instruments in fair value hedging relationships on the consolidated statements of income were as follows:

4 unchanged sentences

(Loss) Recognized in

Derivative Gain (Loss)

Income on Derivative Gain (Loss)

Derivative Hedged Items

10 unchanged sentences

Interest rate contracts Interest income/(expense) $ 7,238 Fixed-rate debt Interest income/(expense) $ ( 7,283 )

Interest rate contracts Interest income/(expense) 973 Fixed-rate

securities Interest income/(expense) ( 967 )

Total $ 8,211 $ ( 8,250 )

December 31, 2019

Interest rate contracts Interest income/(expense) $ 12,577 Fixed-rate debt Interest income/(expense) $ ( 12,587 )

Summary information about the interest rate swaps designated as cash flow hedges is as follows:

(dollars in thousands) 2020 2019

Notional amounts $ 325,000 $ 25,000

Weighted average pay rates 0.74 % 3.52 %

Weighted average receive rates 0.39 % 1.93 %

Weighted average maturity (in years) 3.5 2.1

Unrealized gains (losses) $ ( 1,188 ) $ ( 954 )

Old National has designated its interest rate collars as cash flow hedges.

The structure of these instruments is such that Old National pays the counterparty an incremental amount if the collar index exceeds the cap rate.

Conversely, Old National receives an incremental amount if the index falls below the floor rate.

No payments are required if the collar index falls between the cap and floor rates.

Summary information about the collars designated as cash flow hedges is as follows:

(dollars in thousands) 2020 2019

Notional amounts $ 300,000 $ 300,000

Weighted average cap rates 3.21 % 3.21 %

Weighted average floor rates 2.21 % 2.21 %

Weighted average rates 0.15 % 1.70 %

Weighted average maturity (in years) 0.8 1.9

Unrealized gains (losses) $ 5,244 $ 3,691

Old National has designated its interest rate floor transactions as cash flow hedges.

The structure of these instruments is such that Old National receives an incremental amount if the index falls below the floor strike rate.

No payments are required if the index remains above the floor strike rate.

Summary information about the interest rate floor transactions designated as cash flow hedges is as follows:

(dollars in thousands) December 31,

Notional amounts $ 100,000

Weighted average floor strike rate 0.75 %

Weighted average rates 0.15 %

Weighted average maturity (in years) 2.3

Unrealized gains (losses) $ 1,392

The structure of Old National’s interest rate floor spread transactions at December 31, 2019 was such that Old National received an incremental amount if the index fell below the purchased floor strike rate.

Old National paid an incremental amount if the index fell below the sold floor rate.

Floor corridor protection was limited to the spread between the purchased floor strike rate and the sold floor rate.

No payments were required if the index remained above the purchased floor strike rate.

Old National terminated these interest rate floor spread transactions during the first quarter of 2020.

Summary information about the floor spread transactions designated as cash flow hedges at December 31, 2019 was as follows:

(dollars in thousands) December 31,

Notional amounts $ 210,000

Weighted average purchased floor strike rate 2.00 %

Weighted average sold floor rate 1.00 %

Weighted average rate 1.70 %

Weighted average maturity (in years) 2.1

Unrealized gains (losses) $ 1,820

The effect of derivative instruments in cash flow hedging relationships on the consolidated statements of income were as follows:

Years Ended December 31, Years Ended December 31,

(dollars in thousands) 2020 2019 2018 2020 2019 2018

2021 2020 2019 2021 2020 2019

Derivatives in

8 unchanged sentences

Interest rate contracts Interest income/(expense) $ 1,898 $ 8,261 $ ( 543 ) $ 4,605 $ 5,153 $ 596

Amounts reported in AOCI related to cash flow hedges will be reclassified to interest income or interest expense as interest payments are received or paid on Old National’s derivative instruments.

During the next 12 months, we estimate that $ 1.5 million will be reclassified to interest income and $ 0.1 million will be reclassified to interest expense.

Derivatives Not Designated as Hedges

Commitments to fund certain mortgage loans (interest rate lock commitments) and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives.

These derivative contracts do not qualify for hedge accounting.

At December 31, 2021, the notional amounts of the interest rate lock commitments were $ 90.7 million and forward commitments were $ 126.1 million.

At December 31, 2020, the notional amounts of the interest rate lock commitments were $ 224.7 million and forward commitments were $ 261.0 million.

Old National also enters into derivative instruments for the benefit of its clients.

The notional amounts of these customer derivative instruments and the offsetting counterparty derivative instruments were $ 2.433 billion at December 31, 2021.

The notional amounts of these customer derivative instruments and the offsetting counterparty derivative instruments were $ 2.008 billion at December 31, 2020.

These derivative contracts do not qualify for hedge accounting.

These instruments include interest rate swaps, caps, and collars.

Commonly, Old National will economically hedge significant exposures related to these derivative contracts entered into for the benefit of clients by entering into offsetting contracts with approved, reputable, independent counterparties with substantially matching terms.

Old National enters into derivative financial instruments as part of its foreign currency risk management strategies.

These derivative instruments consist of foreign currency forward contracts to accommodate the business needs of its clients.

Old National does not designate these foreign currency forward contracts for hedge accounting treatment.

The following table summarizes Old National’s derivatives not designated as hedges:

December 31, 2021 December 31, 2020

Fair Value Fair Value

(dollars in thousands) Notional Assets (1) Liabilities (2) Notional Assets (1) Liabilities (2)

Interest rate lock commitments $ 90,731 $ 2,352 $ — $ 224,719 $ 9,375 $ —

Forward mortgage loan contracts 126,107 242 — 261,027 — 2,335

Customer interest rate swaps 2,433,177 52,439 11,658 2,008,149 113,300 133

Counterparty interest rate swaps (3) 2,433,177 583 12,956 2,008,149 — 13,543

Customer foreign currency forward contracts 10,292 399 — 9,990 324 —

Counterparty foreign currency forward contracts 10,205 — 346 9,854 — 188

Total $ 56,015 $ 24,960 $ 122,999 $ 16,199

(1) Derivative assets are included in other assets on the balance sheet.

(2) Derivative liabilities are included in other liabilities on the balance sheet.

(3) The fair values of certain counterparty interest rate swaps are zero due to the settlement of centrally-cleared variation margin rules.

The net adjustment was $ 28.9 million as of December 31, 2021 and $ 100.4 million as of December 31, 2020.

The effect of derivatives not designated as hedging instruments on the consolidated statements of income were as follows:

12 unchanged sentences

NOTE 21 – COMMITMENTS AND CONTINGENCIES

As previously disclosed, a novel strain of coronavirus, COVID-19, was reported in Wuhan, China and continues to unfold across the U.S.

The spread of the COVID-19 virus had an impact on our operations as of December 31, 2020, and the Company expects that the virus will continue to have an impact on the business, financial condition, and results of operations of the Company and its customers.

The COVID-19 pandemic caused changes in the behavior of customers, businesses, and their employees, including illness, quarantines, social distancing practices, cancellation of events and travel, business and school shutdowns, reduction in commercial activity and financial transactions, supply chain interruptions, increased unemployment, and overall economic and financial market instability.

The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, the business, financial condition, and results of operations of the Company and its clients.

The COVID-19 pandemic caused changes in the behavior of clients, businesses, and their employees, including illness, quarantines, social distancing practices, cancellation of events and travel, business and school shutdowns, reduction in commercial activity and financial transactions, supply chain interruptions, increased unemployment, and overall economic and financial market instability.

Future effects, including additional actions taken by federal, state, and local governments to contain COVID-19 or treat its impact, are unknown.

However, if these actions are sustained, it may adversely impact several industries within our geographic footprint and impair the ability of Old National’s customers to fulfill their contractual obligations to the Company.

However, if these actions are sustained, it may adversely impact several industries within our geographic footprint and impair the ability of Old National’s clients to fulfill their contractual obligations to the Company.

This could cause Old National to experience a material adverse effect on our business operations, asset valuations, financial condition, and results of operations.

13 unchanged sentences

The allowance for unfunded loan commitments totaled $ 10.9 million at December 31, 2021 and $ 11.7 million at December 31, 2020.

The increase in allowance for unfunded loan commitments included a cumulative-effect adjustment of $ 4.5 million effective January 1, 2020 due to the adoption of ASC 326.

See Note 1 for additional information about CECL for unfunded loan commitments.

Old National had credit extensions with various unaffiliated banks related to letter of credit commitments issued on behalf of Old National’s clients totaling $ 21.8 million at December 31, 2021 and $ 7.9 million at December 31, 2020.

3 unchanged sentences

In 2008, Old National received Visa Class B restricted shares as part of Visa’s initial public offering.

These shares are transferable only under limited circumstances until they can be converted into the publicly traded Class A

common shares.

These shares are transferable only under limited circumstances until they can be converted into the publicly traded Class A common shares.

This conversion will not occur until the final settlement of certain litigation for which Visa is indemnified by the holders of Visa’s Class B shares, including Old National.

52 unchanged sentences

This action eliminated reserve requirements for all depository institutions.

The reserve balances were $ 115.3 million at December 31, 2019.

In addition, Old National had cash and due from banks which was held as collateral for collateralized swap positions of $ 7.8 million at December 31, 2020 and $ 6.9 million at December 31, 2019.

Old National had cash and due from banks which was held as collateral for collateralized swap positions of $ 14.6 million at December 31, 2021 and $ 7.8 million at December 31, 2020.

Restrictions on Transfers from Affiliate Bank

3 unchanged sentences

Restrictions on the Payment of Dividends

Old National has traditionally paid a quarterly dividend to common stockholders.

Old National has traditionally paid a quarterly dividend to common shareholders.

The payment of dividends is subject to legal and regulatory restrictions.

1 unchanged sentence

Capital Adequacy

Old National and Old National Bank are subject to various regulatory capital requirements administered by the federal banking agencies.

Old National and Old National Bank are subject to various regulatory capital requirements administered by federal banking agencies.

Failure to meet minimum capital requirements can elicit certain mandatory actions by regulators that, if undertaken, could have a direct material effect on Old National’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Old National and Old National Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.

Prompt corrective action provisions are not applicable to bank holding companies.

3 unchanged sentences

The following table summarizes capital ratios for Old National and Old National Bank:

Actual Fully Phased-In

Actual Regulatory

Guidelines Minimum (1) Prompt Corrective Action

29 unchanged sentences

Old National Bank 1,870,617 8.67 863,087 4.00 1,078,859 5.00

(1) As of January 1, 2019, Basel III Capital Rules required banking organizations to maintain:

(1) Basel III Capital Rules require banking organizations to maintain:

a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer”;

62 unchanged sentences

Cash Flows From Investing Activities

Net cash and cash equivalents of acquisitions — — 8,281

Proceeds from dissolution of subsidiary — — 224

Proceeds from sales of investment securities 1,000 — —

Proceeds from sales of equity securities 540 4,431 130

20 unchanged sentences

Accordingly, all of the community banking services and banking center locations are considered by management to be aggregated into one reportable operating segment, community banking.

NOTE 26 – INTERIM FINANCIAL DATA (UNAUDITED)

The following table details the quarterly results of operations for the years ended December 31, 2020 and 2019.

(unaudited, dollars

and shares in thousands, Three Months Ended Three Months Ended

except per share data) 12/312020 9/302020 6/302020 3/312020 12/312019 9/302019 6/302019 3/312019

Interest income $ 173,249 $ 160,086 $ 161,974 $ 167,999 $ 176,553 $ 185,853 $ 189,063 $ 178,918

Interest expense 12,170 14,513 16,303 24,228 27,654 32,757 33,833 31,870

Net interest income 161,079 145,573 145,671 143,771 148,899 153,096 155,230 147,048

Provision for loan losses (1) ( 1,100 ) — 22,545 16,950 1,264 1,437 1,003 1,043

Noninterest income 58,552 64,759 58,461 57,502 47,726 53,961 51,214 46,416

Noninterest expense (2) 142,318 120,234 120,121 158,744 134,743 122,585 128,118 123,041

Income before income taxes 78,413 90,098 61,466 25,579 60,618 83,035 77,323 69,380

Income tax expense 4,293 12,154 9,761 2,939 11,433 13,254 14,359 13,104

Net income $ 74,120 $ 77,944 $ 51,705 $ 22,640 $ 49,185 $ 69,781 $ 62,964 $ 56,276

Net income per share:

Basic $ 0.45 $ 0.47 $ 0.32 $ 0.13 $ 0.29 $ 0.41 $ 0.37 $ 0.32

Diluted 0.44 0.47 0.32 0.13 0.29 0.41 0.36 0.32

Average shares:

Basic 164,799 164,773 164,732 167,748 169,235 170,746 172,985 174,734

Diluted 165,631 165,419 165,302 168,404 170,186 171,551 173,675 175,368

(1) Beginning January 1, 2020, calculation is based on current expected loss methodology.

Prior to January 1, 2020, calculation was based on incurred loss methodology.

(2) Noninterest expense for the three months ended March 31, 2020 included $ 31.2 million of charges related to The ONB Way strategic initiative.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data