What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-22 compared with 2022-02-10 · 609 added, 592 removed, 1866 unchanged (39% of the section changed)

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Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statements of Comprehensive Income ( Loss)

Consolidated Statements of Changes in Shareholders’ Equity

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Basis of Presentation and Significant Accounting Policies

Acquisition and Divestiture Activity

Merger , Acquisition , and Divestiture Activity

Investment Securities

Loans and Allowance for Credit Losses

Other Real Estate Owned

Premises and Equipment

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Derivative Financial Instruments

Commitments and Contingencies

Financial Guarantees

Revenue From Contracts With Customers

Commitments , Contingencies , and Finan cial Guarantees

Regulatory Restrictions

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Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Old National Bancorp (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements").

We have audited the accompanying consolidated balance sheets of Old National Bancorp (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").

We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework:

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(2013) issued by COSO.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2020 due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification No.

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

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

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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.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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 and Provision for Credit Losses on Loans

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance and Provision for Credit Losses on Loans – Forecasting and Qualitative Factors, and Model Design for Acquired Loans

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 as described in Notes 1 and 4 of the consolidated financial statements.

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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 utilizes several loss estimation models.

At December 31, 2022, the ACL on the overall loan portfolio was $303.7 million.

As part of the Company’s merger with First Midwest Bancorp, Inc.

(“FMB”), the Company recorded $96.3 million of provision for credit losses to establish an ACL on acquired non-purchased credit deteriorated (PCD) loans and $89.1 million to establish an ACL for acquired PCD loans.

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

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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.

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

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

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.

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

The discounted sum of expected cash flows is then compared to the amortized cost and any shortfall is recorded as a component of the ACL.

The quantitative allowance is adjusted by qualitative factors, including items such as changes in lending policies or procedures and economic uncertainty in forward-looking forecasts.

The same methods and assumptions used to determine the quantitative and qualitative allowance were applied to the FMB acquired loans since the merger date.

A significant amount of management judgment is required to determine the reasonable and supportable forecasts and the qualitative factors for the ACL, and the model design for FMB acquired loans at the merger date.

We identified auditing the reasonable and supportable forecasts and the qualitative factors for the ACL, and the model design for FMB acquired loans used in developing the ACL at the merger date, as a critical audit matter because of the extent of auditor judgment applied and significant audit effort required to evaluate the especially subjective and complex judgments made by management, including the need for specialized skills.

The principal considerations resulting in our determination included the following:

• 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.

• Significant auditor judgment and audit effort required to evaluate the determination of the reasonable and supportable forecast and qualitative factors.

• Significant auditor judgment and audit effort required to evaluate the model design for FMB acquired loans, including the evaluation of the method, significant assumptions, and data used in the model design.

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

• 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.

• Testing the effectiveness of management’s internal controls over the determination of the reasonable and supportable forecast, the qualitative factors, and model design for FMB acquired loans, including controls addressing:

◦ Management’s review of the appropriateness of the reasonable and supportable forecasts and qualitative factors applied in the estimate of ACL, including the review of relevance and reliability of data used in the estimate

◦ Management’s review of the appropriateness of the models and reasonableness of the significant assumptions used to establish the ACL for FMB acquired loans, including the review of relevance and reliability of data used in the estimate

◦ Management’s review of the results of the model validation related to the ACL for FMB acquired loans

• Substantively testing management’s process for the determination of reasonable and supportable forecast, the qualitative factors, and model design for FMB acquired loans, including:

◦ Evaluating management’s judgments in the selection and application of reasonable and supportable forecasts and qualitative factors, including the relevance and reliability of data used in the estimate.

◦ Evaluating the relevance and reliability of data used in the models for the FMB acquired loans

◦ Evaluating, with the assistance of internal valuation specialists, the reasonableness of the conceptual design of the models and the significant assumptions applied in the ACL for FMB acquired loans

Merger - Fair Value of Loans Acquired

As described in Note 2 to the consolidated financial statements, the Company completed the merger transaction with FMB on February 15, 2022.

The merger transaction was accounted for as a business combination and accordingly, the assets acquired and liabilities assumed from FMB were recorded at fair value as of the merger date.

The merger date fair value of loans acquired from FMB was approximately $14.6 billion.

Accounting for the merger date fair value of loans acquired requires management to make significant judgments about the selection and application of assumptions.

We identified auditing the merger date fair value of loans acquired as a critical audit matter because it required especially subjective auditor judgment.

The principal considerations resulting in our determination included the significant auditor judgment and effort required to evaluate the reasonableness of management’s assumptions used, including the need for specialized skills.

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

• Testing the effectiveness of management’s internal controls over the determination of merger date fair value of loans acquired, including controls addressing:

◦ Evaluation of the reasonableness of methods and significant assumptions applied in the estimate of merger date fair value of loans acquired

◦ Evaluation of the relevance and reliability of data used in the valuation of merger date fair value of loans acquired

• Substantively testing management’s process for developing the merger date fair value of loans acquired, which included:

◦ Testing the relevance and reliability of data used as a basis for the valuation

◦ Evaluating, with the assistance of our internal valuation specialists, the reasonableness of the methods and significant assumptions applied in the estimate of the fair value of loans acquired, including the application of the significant assumptions used in the valuation

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.

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Equity securities, at fair value 52,507 13,211

Investment securities - available-for-sale, at fair value:

Treasury 235,584 10,208

government-sponsored entities and agencies 1,542,773 841,988

Mortgage-backed securities 3,698,831 3,339,098

States and political subdivisions 1,654,986 1,492,162

Other securities 249,892 286,659

Total investment securities - available-for-sale 7,382,066 5,970,115

Investment securities - available-for-sale, at fair value (amortized cost

$ 7,772,603 and $ 7,384,033 , respectively)

6,773,712 7,382,066

Investment securities - held-to-maturity, at amortized cost (fair value

$ 2,643,682 and $ 0 , respectively)

Federal Home Loan Bank/Federal Reserve Bank stock, at cost 314,168 169,375

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Total loans, net of unearned income 31,123,641 13,601,846

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

Allowance for credit losses on loans ( 303,671 ) ( 107,341 )

Net loans 30,819,970 13,494,505

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Shareholders' Equity

Preferred stock, series A, 2,000 shares authorized, no shares issued or outstanding

Preferred stock, 2,000 shares authorized, 231 and 0 shares issued and outstanding, respectively

Common stock, $ 1.00 per share stated value, 600,000 shares authorized, 292,903

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Debt securities gains (losses), net ( 88 ) 4,327 10,767

Gain on sale of health savings accounts 90,673 — —

Other income 32,050 14,276 17,542

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Amortization of tax credit investments 10,961 6,770 18,788

Property optimization 26,818 — 27,050

Other expense 76,510 31,697 27,240

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Net income 428,287 277,538 226,409

Preferred dividends ( 14,118 ) — —

Net income applicable to common shareholders $ 414,169 $ 277,538 $ 226,409

Net income per common share - basic $ 1.51 $ 1.68 $ 1.37

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Dividends per common share $ 0.56 $ 0.56 $ 0.56

(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.

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

OLD NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Years Ended December 31,

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Unrealized holding gains (losses) for the period ( 1,004,054 ) ( 187,955 ) 125,214

Reclassification for securities transferred to held-to-maturity 165,473 — —

Reclassification adjustment for securities (gains) losses realized

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Change in securities held-to-maturity:

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

Adjustment for securities transferred from available-for-sale ( 165,473 ) — —

Amortization of unrealized losses on securities transferred

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Change in defined benefit pension plans:

Amortization of net loss recognized in income 239 21 30

Amortization of net (gains) losses recognized in income 139 239 21

Income tax effect ( 34 ) ( 59 ) ( 5 )

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Other comprehensive income (loss), net of tax ( 784,047 ) ( 150,146 ) 91,564

Comprehensive income $ 127,392 $ 317,973 $ 339,363

Comprehensive income (loss) $ ( 355,760 ) $ 127,392 $ 317,973

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

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(dollars in thousands, except per share data) Common

(dollars in thousands, except per

share data) Preferred Stock Common

Stock Capital

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Other comprehensive income (loss) — — — — 91,564 91,564

Dividends - common stock ($ 0.52 per share)

Dividends - common stock

($ 0.56 per share)

— — — ( 92,946 ) — ( 92,946 )

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Share-based compensation expense — — 7,707 — — 7,707

Stock activity under incentive compensation plans 613 465 ( 553 ) — 525

Stock activity under incentive

compensation plans — 823 183 ( 606 ) — 400

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

Cumulative effect of change in accounting principles — — ( 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

Other comprehensive income (loss) — — — — ( 150,146 ) ( 150,146 )

Dividends - common stock ($ 0.56 per share)

Dividends - common stock

($ 0.56 per share)

— — — ( 92,829 ) — ( 92,829 )

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Share-based compensation expense — — 7,497 — — 7,497

Stock activity under incentive compensation plans 823 183 ( 606 ) — 400

Stock activity under incentive

compensation plans — 644 397 ( 591 ) — 450

Balance, December 31, 2021 — 165,838 1,880,545 968,010 ( 2,375 ) 3,012,018

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Other comprehensive income (loss) — — — — ( 784,047 ) ( 784,047 )

Dividends - common stock ($ 0.56 per share)

First Midwest Bancorp, Inc.

Issuance of common stock — 129,365 2,316,947 — — 2,446,312

Issuance of preferred stock, net of

issuance costs 230,500 — 13,219 — — 243,719

Cash dividends:

Common ($ 0.56 per share)

— — — ( 163,505 ) — ( 163,505 )

Preferred dividends — — — ( 14,118 ) — ( 14,118 )

Common stock issued — 52 757 — — 809

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Share-based compensation expense — — 28,656 — — 28,656

Stock activity under incentive compensation plans 644 397 ( 591 ) — 450

Stock activity under incentive

compensation plans — 1,608 1,363 ( 1,325 ) — 1,646

Balance, December 31, 2022 $ 230,500 $ 292,903 $ 4,174,265 $ 1,217,349 $ ( 786,422 ) $ 5,128,595

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Debt securities (gains) losses, net 88 ( 4,327 ) ( 10,767 )

Gain on sale of health savings accounts business ( 90,673 ) — —

Net (gains) losses on sales of loans and other assets 13,114 ( 36,677 ) ( 23,787 )

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Cash Flows From Investing Activities

Cash received (paid) from merger, net 1,912,629 — —

Sale of health savings accounts ( 290,857 ) — —

Purchases of investment securities available-for-sale ( 1,438,572 ) ( 3,321,653 ) ( 2,803,406 )

Purchases of investment securities held-to-maturity ( 170,675 ) — —

Purchases of Federal Home Loan Bank/Federal Reserve Bank stock ( 147,394 ) — ( 10,025 )

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Proceeds from maturities, prepayments, and calls of investment securities held-to-maturity 83,962 — —

Proceeds from sales of investment securities held-to-maturity — — 9,921

Proceeds from sales of Federal Home Loan Bank/Federal Reserve Bank stock 108,698 58 4,691

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Proceeds from Federal Home Loan Bank advances 2,900,000 50,000 950,000

Cash dividends paid on common stock ( 92,829 ) ( 92,946 ) ( 89,474 )

Cash dividends paid ( 177,623 ) ( 92,829 ) ( 92,946 )

Common stock repurchased ( 71,182 ) ( 3,731 ) ( 82,358 )

Proceeds from exercise of stock options — — 280

Common stock issued 809 583 577

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NATURE OF OPERATIONS

Old National Bancorp, a financial holding company headquartered in Evansville, Indiana, operates primarily in Indiana, Kentucky, Michigan, Minnesota, and Wisconsin.

Old National Bancorp, a financial holding company headquartered in Evansville, Indiana with commercial and consumer banking operations headquartered in Chicago, Illinois.

Its principal subsidiary is Old National Bank.

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.

Through its bank and non-bank affiliates, Old National Bancorp provides to its clients a wide range of services throughout the Midwest region, including commercial and consumer loan and depository services, private banking, brokerage, trust, investment advisory, and other traditional banking services.

NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

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Equity Securities

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 consist of mutual funds for Community Reinvestment Act qualified investments and diversified investment securities held in a grantor trust for participants in the Company’s nonqualified deferred compensation plan.

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, 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.

Old National classifies debt investment securities as available-for-sale or held-to-maturity on the date of purchase.

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

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

Prior to the fourth quarter of 2019, Old National also had debt securities classified as held-to-maturity.

Debt securities classified as held-to-maturity, which management had the intent and ability to hold to maturity, were reported at amortized cost.

Interest income included amortization of purchase premiums or discounts.

Premiums and discounts were amortized on the level-yield method.

Anticipated prepayments were considered when amortizing premiums and discounts on mortgage-backed securities.

Debt securities classified as held-to-maturity, which management has the intent and ability to hold to maturity, are reported at amortized cost.

Interest income includes amortization of purchase premiums or discounts.

Premiums and discounts are amortized on the level-yield method.

Anticipated prepayments are considered when amortizing premiums and discounts on mortgage-backed securities.

Gains and losses on the sale of available-for-sale debt securities are determined using the specific-identification method.

Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly.

For available-for sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis.

Available-for-sale securities in unrealized loss positions are evaluated at least quarterly to determine if a decline in fair value should be recorded through income or other comprehensive income (loss).

For available-for sale securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security, before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income.

For available-for-sale debt securities that do not meet the criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors.

For available-for-sale securities that do not meet the criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors.

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If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes.

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

Any decline in fair value that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss), net of

applicable taxes.

Accrued interest receivable on the securities portfolio is excluded from the estimate of credit losses.

Federal Home Loan Bank/Federal Reserve Bank Stock

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

Mortgage loans held for immediate sale in the secondary market were $ 35.5 million at December 31, 2021, compared to $ 63.3 million at December 31, 2020.

Loans that Old National intends to hold for investment purposes are classified as portfolio loans.

Portfolio loans are carried at the principal balance outstanding, net of earned interest, purchase premiums or discounts, deferred loan fees and costs, and an allowance for credit losses.

Loans that Old National intends to hold are classified as held for investment.

Loans held for investment are carried at the principal balance outstanding, net of earned interest, purchase premiums or discounts, deferred loan fees and costs, and an allowance for credit losses.

Interest income is accrued on the principal balances of loans outstanding.

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Old National has purchased loans, some of which have experienced more than insignificant credit deterioration since origination.

Evidence of credit deterioration was evaluated using various indicators, such as past due and nonaccrual status, as well as asset quality rating.

PCD loans are recorded at the amount paid.

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Subsequent changes to the allowance for credit losses are recorded through provision for credit losses.

Allowance for Credit Losses for Loans

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.

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.

Allowance for Credit Losses on Loans

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

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.

Expected credit loss inherent in non-cancelable off-balance-sheet credit exposures is accounted for as a separate liability included in other liabilities on the balance sheet.

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.

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

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.

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

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

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Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain.

In future periods evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods.

Evaluations of the overall loan portfolio in future periods, in light of the factors and

forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods.

The allowance level is influenced by loan volumes, loan AQR migration or delinquency status, changes in historical loss experience, and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions.

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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.

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

Expected cashflows are created using a combination of contractual payment schedules, calculated PDs, LGD, and prepayment assumptions as well as qualitative factors.

For the commercial and commercial real estate loans, the PD is forecast using a regression model to determine the likelihood of a loan moving into nonaccrual within the time horizon.

For residential and consumer loans, the PD is forecast using a regression model to determine the likelihood of a loan being charged-off within the time horizon.

For commercial and commercial real estate loans, the PD is forecasted using a regression model to determine the likelihood of a loan moving into nonaccrual within the time horizon.

For residential and consumer loans, the PD is forecasted using a regression model to determine the likelihood of a loan being charged-off within the time horizon.

The regression models use combinations of variables to assess systematic and unsystematic risk.

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

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.

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

Premises and Equipment

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Goodwill and Other Intangible Assets

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.

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Company-Owned Life Insurance

Old National has purchased, as well as obtained through acquisitions, life insurance policies on certain key executives.

Old National has purchased, as well as obtained through mergers and acquisitions, life insurance policies on certain key executives.

Old National records company-owned life insurance at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

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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.

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.

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Derivative Financial Instruments

As part of Old National’s overall interest rate risk management, Old National uses derivative instruments, including TBA forward agreements and interest rate swaps, collars, caps, and floors.

As part of Old National’s overall interest rate risk management, Old National uses derivative instruments, including agreements that are commonly referred to as TBA (to be announced) forward agreements and interest rate swaps, collars, caps, and floors.

All derivative instruments are recognized on the balance sheet at their fair value.

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For a fair value hedge, the change in value of the derivative, as well as the offsetting change in value of the hedged item attributable to the hedged risk, are recognized in current earnings during the period of the change in fair values.

For a cash flow hedge, the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

For a cash flow hedge, the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, in noninterest income.

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When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability.

When a cash flow hedge is discontinued but the hedged cash flows or forecasted transaction is still expected to occur, changes in value that were accumulated in other comprehensive income are amortized or accreted into earnings over the same periods which the hedged transactions will affect earnings.

When a cash flow hedge is discontinued but the hedged cash flows or forecasted transaction is still expected to occur, changes in value that were accumulated in other comprehensive income (loss) are amortized or accreted into earnings over the same periods which the hedged transactions will affect earnings.

Old National enters into various stand-alone mortgage-banking derivatives in order to hedge the risk associated with the fluctuation of interest rates.

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The notional amount of these commitments is not reflected in the consolidated financial statements until they are funded.

Old National maintains an allowance for credit losses on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements.

The allowance is computed using a methodology similar to that used to determine the allowance for credit losses for loans, modified to take into account the probability of a drawdown on the commitment.

The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet and is adjusted as a provision for credit loss expense included in other expense.

Old National maintains an allowance for credit losses on unfunded loan commitments to provide for the risk of loss inherent in these arrangements.

The allowance is computed using a methodology similar to that used to determine the allowance for credit losses on loans, modified to take into account the probability of a drawdown on the commitment.

The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet and is adjusted as a provision for unfunded loan commitments included in the provision for credit losses.

Repossessed Collateral

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Noncash Investing and Financing Activities:

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

Securities transferred from available-for-sale to held-to-maturity 2,986,736 — —

Transfer of premises and equipment to assets held for sale 7,905 9,539 16,661

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Finance lease right-of-use assets obtained in exchange for lease obligations ( 966 ) 7,477 5,225

There were 129.4 million shares of Common Stock issued in conjunction with the merger with First Midwest in February of 2022 totaling $ 2.4 billion in shareholders’ equity .

In addition, Old National issued 108,000 shares of Old National Series A Preferred Stock and 122,500 shares of Old National Series C Preferred Stock totaling $ 243.7 million in shareholders’ equity.

Business Combinations

Old National accounts for business combinations using the acquisition method of accounting.

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.

The accounts of an acquired entity are included as of the date of merger or 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.

The value of Common Stock issued is determined based on the market price of the stock as of the closing of the acquisition.

Acquisition costs are expensed when incurred.

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

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

The value of Common Stock issued is determined based on the market price of the stock as of the closing of the merger or acquisition.

Merger and acquisition costs are expensed when incurred.

Revenue From Contracts With Customers

Old National’s revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest income.

A description of the Company’s significant revenue streams accounted for under ASC 606 follows:

Wealth management fees :

Old National earns wealth management fees based upon asset custody and investment management services provided to individual and institutional customers.

Most of these customers receive monthly or quarterly billings for services rendered based upon the market value of assets in custody.

Fees that are transaction based are recognized at the point in time that the transaction is executed.

Service charges on deposit accounts :

Old National earns fees from deposit customers for transaction-based, account maintenance, and overdraft services.

Transaction-based fees and overdraft fees are recognized at a point in time, since the customer generally has a right to cancel the depository arrangement at any time.

The arrangement is considered a day-to-day contract with ongoing renewals and optional purchases, so the duration of the contract does not extend beyond the services already performed.

Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which Old National satisfies its performance obligation.

Debit card and ATM fees :

Debit card and ATM fees include ATM usage fees and debit card interchange income.

As with the transaction-based fees on deposit accounts, the ATM fees are recognized at the point in time that Old National fulfills the customer’s request.

Old National earns interchange fees from cardholder transactions processed through card association networks.

Interchange rates are generally set by the card associations based upon purchase volumes and other factors.

Interchange fees represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Investment product fees :

Investment product fees are the commissions and fees received from a registered broker/dealer and investment adviser that provide those services to Old National customers.

Old National acts as an agent in arranging the relationship between the customer and the third-party service provider.

These fees are recognized monthly from the third-party broker based upon services already performed, net of the processing fees charged to Old National by the broker.

Impact of Accounting Changes

Accounting Guidance Adopted in 2022

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

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

Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans .

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 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.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

This ASU removes specific exceptions to the general principles in Topic 740 in GAAP.

It eliminates the need for an organization to analyze whether the following apply in a given period:

(1) exception to the incremental approach for intraperiod tax allocation;

(2) exceptions to accounting for basis differences when there are ownership changes in foreign investments;

and (3) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses.

The ASU also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for:

(1) franchise taxes that are partially based on income;

(2) transactions with a government that result in a step up in the tax basis of goodwill;

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

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.

2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 (a Consensus of the Emerging Issues Task Force).

The ASU clarifies the interaction between ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities and the ASU on equity method investments.

ASU 2016-01 provides companies with an alternative to measure certain equity securities without a readily determinable fair value at cost, minus impairment, if any, unless an observable transaction for an identical or similar security occurs.

ASU 2020-01 clarifies that for purposes of applying the Topic 321 measurement alternative, an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting under Topic 323, immediately before applying or upon discontinuing the equity method.

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 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.

The intent of the rule is to allow for more meaningful conclusions on when an acquired or disposed business is significant as well as to improve the related disclosure requirements.

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 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 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.

2020-09, Debt (Topic 470) Amendments to SEC Paragraphs Pursuant to SEC Release No.

33-10762 , which amends and supersedes various SEC paragraphs to reflect SEC Release No.

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 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.

2020-10, Codification Improvements .

The amendments improve codification by having all disclosure-related guidance available in the disclosure sections of the codification.

Prior to this ASU, various disclosure requirements or options to present information on the face of the financial statements or as a note to the financial statements were not included in the appropriate disclosure sections of the codification.

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 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):

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.

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

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):

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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 adoption of this guidance on January 1, 2022 did not have a material impact 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.

The amendments in this update are effective for fiscal years beginning after December 15,

2021, and interim periods within those fiscal years.

The adoption of this guidance on January 1, 2022 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):

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

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 , which defers the sunset date of relief provisions within Topic 848 from December 31, 2022 to December 31, 2024.

The objective of the guidance in Topic 848 is to provide relief during the transition period.

The amendments in this ASU are effective March 12, 2020 through December 31, 2024.

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

Accounting Guidance Pending Adoption

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

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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 ASU also provides certain practical expedients for acquirers when recognizing and measuring acquired contract assets and liabilities.

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

Early adoption is permitted, including in any interim period.

The new guidance is not expected to have a material impact on the consolidated financial statements.

FASB ASC 815 – In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815):

Fair Value Hedging—Portfolio Layer Method , to expand the current single-layer method of electing hedge accounting to allow multiple hedged layers of a single closed portfolio under the method and renames the last-of-layer method the portfolio layer method.

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

Early adoption is permitted for any entity that has adopted the amendments in ASU No.

2017-12 for the corresponding period.

If an entity adopts the amendments in an interim period, the effect of adopting the amendments related to basis adjustments should be reflected as of the beginning of the fiscal year of adoption (i.e., the initial application date).

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

FASB ASC 326 – In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures , to eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan.

The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

The amendments require that an entity disclose current-period gross charge-offs by year of origination for financing receivables and net investment in leases within the vintage disclosures required by ASC 326.

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

These amendments should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, which an entity has the option to apply a modified retrospective transition method resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.

Early adoption is permitted if an entity has adopted ASU No.

2016-13, including adoption in an interim period.

If an entity elects to early adopt ASU No.

2022-02 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period.

An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures.

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

FASB ASC 820 – In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions , to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

The amendments in this update are effective for fiscal years beginning after December 15, 2023, 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 .

NOTE 2 – MERGER, ACQUISITION, AND DIVESTITURE ACTIVITY

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.

On February 15, 2022, Old National completed its previously announced merger of equals transaction with First Midwest pursuant to an agreement and plan of merger, dated as of May 30, 2021, to combine in an all-stock transaction.

Following the merger, the new organization is operating under the Old National Bancorp and Old National Bank names, with the corporate headquarters and principal office located in Evansville, Indiana and commercial and consumer banking operations headquartered in Chicago, Illinois.

Old National believes that it will be able to achieve synergies and cost savings by integrating the operations of the two companies.

The combined organization has a presence in additional Midwestern markets, strong commercial banking capabilities, a robust retail footprint, a significant wealth platform, and an enhanced ability to attract talent.

The combined organization also creates the scale and profitability to accelerate digital and technological capabilities to drive future investments in consumer and commercial banking, as well as wealth management services.

Pursuant to the terms of the merger agreement, each First Midwest common stockholder received 1.1336 shares of Old National common stock for each share of First Midwest common stock such stockholder owned, plus, if applicable, cash in lieu of fractional shares of Old National common stock resulting from the exchange ratio.

Each outstanding share of 7.000 % fixed-rate non-cumulative perpetual preferred stock, Series A, no par value, and each outstanding share of 7.000 % fixed-rate non-cumulative perpetual preferred stock, Series C, no par value, of First Midwest was converted into the right to receive one share of an applicable newly created series of Old National preferred stock, no par value “Old National Series A Preferred Stock” and “Old National Series C Preferred Stock,” and collectively, the “Old National Preferred Stock”.

In this regard, Old National issued 108,000 shares of Old National Series A Preferred Stock and 122,500 shares of Old National Series C Preferred Stock.

Old National entered into two deposit agreements, each dated as of February 15, 2022, by and among Old National, Continental Stock Transfer & Trust Company, as depository, and the holders from time to time of the depositary receipts in connection with the issuance of the Old National Preferred Stock.

Pursuant to the deposit agreements, Old National issued 4,320,000 depositary shares, each representing a 1/40th interest in a share of Old National Series A Preferred Stock, and 4,900,000 depositary shares, each representing a 1/40th interest in a share of Old National Series C Preferred Stock.

The assets acquired and liabilities assumed, both intangible and tangible, in the merger were recorded at their estimated fair values as of the merger date and have been accounted for under the acquisition method of accounting.

Subsequent to the initial valuation, Old National increased goodwill by $ 1.6 million to update the provisional valuation of the fair values of assets acquired and liabilities assumed.

These adjustments affected goodwill, loans, premises and equipment, operating lease right-of-use assets, other assets, and accrued expenses and other liabilities.

As of December 31, 2022, Old National finalized its valuation of all assets acquired and liabilities assumed.

The following table presents a summary of the assets acquired and liabilities assumed, net of the fair value adjustments and the fair value of consideration as of the merger date:

(dollars and shares in thousands) February 15,

Cash and cash equivalents $ 1,912,629

Investment securities 3,526,278

FHLB/Federal Reserve Bank stock 106,097

Loans held for sale 13,809

Loans, net of allowance for credit losses 14,298,873

Premises and equipment 111,867

Operating lease right-of-use assets 129,698

Accrued interest receivable 53,502

Goodwill 961,722

Other intangible assets 117,584

Company-owned life insurance 301,025

Other assets 317,258

Total assets $ 21,850,342

Deposits $ 17,249,404

Securities sold under agreements to repurchase 135,194

Federal Home Loan Bank advances 1,158,623

Other borrowings 274,569

Accrued expenses and other liabilities 342,369

Total liabilities $ 19,160,159

Fair value of consideration

Preferred stock $ 243,870

Common stock ( 129,365 shares issued at $ 18.92 per share)

Total consideration $ 2,690,182

Goodwill related to this merger will not be deductible for tax purposes.

Other intangible assets acquired included core deposit intangibles and customer trust relationships.

The estimated fair value of the core deposit intangible was $ 77.9 million and is being amortized over an estimated useful life of 10 years.

The estimated fair value of customer trust relationships was $ 39.7 million and is being amortized over an estimated useful life of 13 years.

The fair value of purchased financial assets with credit deterioration was $ 1.4 billion on the date of the merger.

The gross contractual amounts receivable relating to the purchased financial assets with credit deterioration was $ 1.5 billion.

Old National estimates, on the date of the merger, that $ 89.1 million of the contractual cash flows specific to the purchased financial assets with credit deterioration will not be collected.

Transaction costs totaling $ 120.9 million associated with the merger have been expensed in 2022 and additional transaction and integration costs will be expensed in future periods as incurred.

As a result of the merger, Old National assumed sponsorship of First Midwest’s defined benefit pension plan (the “Pension Plan”) under which both plan participation and benefit accruals had been previously frozen.

The Pension Plan was terminated in November 2022, which included the settlement of benefit obligations associated with the Pension Plan.

At December 31, 2022, the fair value of Pension Plan assets was $ 16.6 million.

Pension costs were not material in 2022.

Summary of Unaudited Pro-Forma Financial Information

The following table presents supplemental unaudited pro-forma financial information as if the First Midwest merger had occurred on January 1, 2021.

The pro-forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effective as of this assumed date.

Years Ended December 31,

(dollars in thousands) 2022 2021

Total revenues (1)

$ 1,812,333 $ 1,564,287

Income before income taxes 749,009 382,102

(1) Includes net interest income and total noninterest income .

Supplemental pro-forma earnings for the year ended December 31, 2022 were adjusted to exclude $ 120.9 million of merger-related costs, $ 11.0 million of provision for credit losses on unfunded loan commitments, and $ 96.3 million of provision for credit losses to establish an allowance for credit losses on non-PCD loans acquired in the transaction.

Supplemental pro-forma earnings for the year ended December 31, 2021 were adjusted to include these costs.

On November 18, 2022, Old National completed its previously announced transaction with UMB, pursuant to which UMB acquired Old National’s business of acting as a qualified custodian for, and administering, health savings accounts.

Old National served as custodian for health savings accounts comprised of both investment accounts and deposit accounts.

At closing, the health savings accounts held in deposit accounts that were transferred totaled approximately $ 382 million and resulted in a $ 90.7 million pre-tax gain.

During the fourth quarter of 2022, Old National initiated certain property optimization actions that included the closure and consolidation of certain branches as well as other real estate repositioning across our footprint.

These actions resulted in pre-tax charges of $ 26.8 million that are associated with valuation adjustments related to these locations and are recorded in noninterest expense.

During 2020, we consolidated 31 banking centers located throughout our footprint, reflecting an ongoing shift among our clients toward digital banking solutions.

Many of the facilities consolidated were in smaller markets, several of which were added in recent years through acquisition and partnership activity.

These actions resulted in pre-tax charges of $ 27.1 million associated with valuation adjustments related to these locations and were recorded in noninterest expense.

NOTE 3 – INVESTMENT SECURITIES

The following table summarizes the amortized cost and fair value of the available-for-sale investment securities portfolio and the corresponding amounts of unrealized gains, unrealized losses, and basis adjustments recognized in accumulated other comprehensive income (loss):

The following table summarizes the amortized cost and fair value of the available-for-sale and held-to-maturity investment securities portfolios and the corresponding amounts of gross unrealized gains, unrealized losses, and basis adjustments in AOCI and gross unrecognized gains and losses.

The Company held no securities classified as held-to-maturity as of December 31, 2021.

(dollars in thousands) Amortized

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Gains Unrealized

Adjustments (1) Fair

Adjustments (1)

December 31, 2022

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Total available-for-sale securities $ 7,772,603 $ 3,028 $ ( 847,474 ) $ ( 154,445 ) $ 6,773,712

Held-to-Maturity

government-sponsored entities and agencies $ 819,168 $ — $ ( 162,810 ) $ — $ 656,358

Mortgage-backed securities - Agency 1,106,817 — ( 123,854 ) — 982,963

States and political subdivisions 1,163,312 221 ( 159,022 ) — 1,004,511

Allowance for securities held-to-maturity ( 150 ) — — — ( 150 )

Total held-to-maturity securities $ 3,089,147 $ 221 $ ( 445,686 ) $ — $ 2,643,682

December 31, 2021

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(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 .

During 2022, U.S government-sponsored entity and agency securities, agency mortgage-backed securities, and state and political subdivision securities with a fair value of $ 3.0 billion were transferred from the available-for-sale portfolio to the held-to-maturity portfolio.

The $ 125.2 million unrealized holding loss, net of tax, at the date of transfer will continue to be reported as a separate component of shareholders’ equity and is being amortized over the remaining term of the securities as an adjustment to yield.

The corresponding discount on these securities will offset this adjustment to yield as it is amortized.

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

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Investment securities pledged to secure public and other funds had a carrying value of $ 6.1 billion at December 31, 2022 and $ 2.7 billion at December 31, 2021.

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

The amortized cost and fair value of the investment securities portfolio are shown by contractual maturity.

At December 31, 2022, Old National had a concentration of investment securities issued by Indiana and its political subdivisions.

The only aggregate market value of the Company’s investment securities greater than 10% of shareholders’ equity were issued by Indiana and its political subdivisions totaling $ 628.6 million, which represented 12.3 % of shareholders’ equity.

Of the bonds issued by Indiana, 99.7 % are rated “BBB+” or better, and the remaining 0.3 % generally represent pre-refunded positions.

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

The table below shows the amortized cost and fair value of the investment securities portfolio by contractual maturity.

Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

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Total $ 7,772,603 $ 6,773,712 2.48 %

Held-to-Maturity

One to five years $ 71,144 $ 65,481 3.56 %

Five to ten years 1,211,517 1,079,532 2.73 %

Beyond ten years 1,806,486 1,498,669 2.83 %

Total $ 3,089,147 $ 2,643,682 2.81 %

The following table summarizes the available-for-sale investment securities with unrealized losses for which an allowance for credit losses has not been recorded by aggregated major security type and length of time in a continuous unrealized loss position:

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Available-for-Sale

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

government-sponsored entities

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Total available-for-sale $ 3,775,098 $ ( 90,987 ) $ 509,992 $ ( 27,248 ) $ 4,285,090 $ ( 118,235 )

Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly.

If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income.

For available-for sale debt securities that do not meet the criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors.

If this assessment indicates that a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes.

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

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.

The following table summarizes the held-to-maturity investment securities with unrecognized losses aggregated by major security type and length of time in a continuous loss position:

Less than 12 months 12 months or longer Total

(dollars in thousands) Fair

Value Unrecognized

December 31, 2022

Held-to-Maturity

government-sponsored entities

and agencies $ 354,293 $ ( 110,523 ) $ 302,066 $ ( 52,287 ) $ 656,359 $ ( 162,810 )

Mortgage-backed securities - Agency 367,849 ( 42,438 ) 615,114 ( 81,416 ) 982,963 ( 123,854 )

States and political subdivisions 838,689 ( 127,355 ) 135,573 ( 31,667 ) 974,262 ( 159,022 )

Total held-to-maturity $ 1,560,831 $ ( 280,316 ) $ 1,052,753 $ ( 165,370 ) $ 2,613,584 $ ( 445,686 )

The unrecognized losses on held-to-maturity investment securities presented in the table above do not include unrecognized losses on securities that were transferred from available-for-sale to held-for-maturity totaling $ 148.9 million at December 31, 2022 that are included as a separate component of shareholders’ equity and are being amortized over the remaining term of the securities.

No allowance for credit losses for available-for-sale debt securities was needed at December 31, 2022 or December 31, 2021.

An allowance on held-to-maturity debt securities is maintained for certain municipal bonds to account for expected lifetime credit losses.

Substantially all of the U.S.

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

government, are highly rated by major credit rating agencies, and have a long history of no credit losses.

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

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

The allowance for credit losses on held-to-maturity debt securities was $ 0.2 million at December 31, 2022.

Accrued interest receivable on securities portfolio is excluded from the estimate of credit losses and totaled $ 50.9 million at December 31, 2022 and $ 35.5 million at December 31, 2021.

At December 31, 2022, Old National’s securities portfolio consisted of 3,150 securities, 2,803 of which were in an unrealized loss position.

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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.

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

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

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Old National’s equity securities with readily determinable fair values totaled $ 52.5 million at December 31, 2022 and $ 13.2 million at December 31, 2021.

There were gains on equity securities of $ 0.2 million during 2021, $ 1.4 million during 2020, and $ 0.7 million during 2019.

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 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 losses on equity securities of $ 4.9 million during 2022, gains on equity securities of $ 0.2 million during 2021, and gains on equity securities of $ 1.4 million during 2020.

Alternative Investments

Old National has alternative investments without readily determinable fair values that are included in other assets totaling $ 396.8 million at December 31, 2022, consisting of $ 240.1 million of illiquid investments of partnerships, limited liability companies, and other ownership interests that support affordable housing and $ 156.8 million of economic development and community revitalization initiatives in low-to-moderate income neighborhoods.

These alternative investments totaled $ 186.0 million at December 31, 2021.

There were no impairments or adjustments on equity securities without readily determinable fair values, except for amortization of tax credit investments during 2022 and 2021.

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

There were impairments on these securities totaling $ 0.1 million 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 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’s loans consist primarily of loans made to consumers and commercial clients in many diverse industries, including real estate rental and leasing, manufacturing, healthcare, wholesale trade, construction, and agriculture, among others.

Most of Old National’s lending activity occurs within our principal geographic markets in the Midwest region.

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.

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 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 on 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 four loan portfolios used to monitor and analyze interest income and yields – commercial, commercial real estate, residential real estate, and consumer – are reclassified into seven segments of loans – commercial, commercial real estate, BBCC, residential real estate, indirect, direct, and home equity for purposes of determining the allowance for credit losses on loans.

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.

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The portfolio segment reclassifications follow:

Statement Portfolio After

(dollars in thousands) Balance Reclassifications Reclassifications

Balance Portfolio

Reclassifications After

Reclassifications

(dollars in thousands)

December 31, 2022

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Commercial (1) (2)

$ 9,298,624 $ 3,200,212

Commercial real estate 12,298,748 6,221,484

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Total loans 31,123,641 13,601,846

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

Allowance for credit losses on loans ( 303,671 ) ( 107,341 )

Net loans $ 30,819,970 $ 13,494,505

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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 clients.

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 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.

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 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 .

Commercial Real Estate

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Repayment of these loans depends on the personal income of the borrowers and the cash flows of the business.

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.

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

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.

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Old National typically mitigates the risk of indirect loans by establishing minimum FICO scores, maximum loan-to-value ratios, and maximum debt-to-income ratios.

Repayment of these loans depends largely on the personal income of the borrowers, which can be affected by changes in economic conditions such as unemployment levels.

Repayment of these loans depends largely on the personal income of the borrowers, which can be affected by changes in economic conditions

such as unemployment levels.

Portfolio risk is mitigated by the fact that the loans are of smaller amounts spread over many borrowers, conservative credit policies, and ongoing reviews of dealer relationships.

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In the ordinary course of business, Old National grants loans to certain executive officers, directors, and significant subsidiaries (collectively referred to as “related parties”).

Activity in related party loans is presented in the following table:

Years Ended December 31,

(dollars in thousands) 2021 2020 2019

Balance at beginning of period $ 2,444 $ 2,345 $ 9,310

New loans 41,962 1,848 1,218

Repayments ( 20,093 ) ( 1,715 ) ( 2,063 )

Officer and director changes — ( 34 ) ( 6,120 )

Balance at end of period $ 24,313 $ 2,444 $ 2,345

The aggregate amount of loans to related parties was not greater than 5 % of the Company’s shareholders’ equity at December 31, 2022 or 2021.

Allowance for Credit Losses

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.

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

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

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Expected credit loss inherent in non-cancelable off-balance-sheet credit exposures is accounted for as a separate liability included in other liabilities on the balance sheet.

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.

The allowance for credit losses on 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.

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 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.

Accrued interest receivable on loans is excluded from the estimate of credit losses and totaled $ 137.7 million at December 31, 2022 and $ 47.6 million at December 31, 2021.

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

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

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

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:

The base forecast scenario considers unemployment, gross domestic product, and the BBB ratio (BBB spread to the 10-year U.S.

Treasury rate).

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

These factors include the risk that unemployment, gross domestic product, housing product index, and the BBB ratio prove to be more severe and/or prolonged than our baseline forecast due to a variety of factors including monetary actions to control inflation, conflict in Ukraine, and global supply chain issues.

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

(dollars in thousands) Balance at

Period Impact of

ASC 326 Sub-Total Charge-offs Recoveries Provision

Period Allowance

PCD Loans Impact of

ASC 326 Charge-offs Recoveries Provision

Losses Balance at

December 31, 2022

Allowance for credit losses:

Commercial $ 27,232 $ 38,780 $ — $ ( 6,885 ) $ 4,610 $ 56,875 $ 120,612

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December 31, 2021

Allowance for credit losses:

Commercial $ 30,567 $ — $ — $ ( 1,228 ) $ 791 $ ( 2,898 ) $ 27,232

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

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.

December 31, 2020

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

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

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

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

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

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

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

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

The allowance for credit losses on loans increased for the year ended December 31, 2022 primarily due to $ 89.1 million of allowance for credit losses on acquired PCD loans established through acquisition accounting adjustments on or after the merger date with First Midwest and $ 96.3 million of provision for credit losses to establish an allowance for credit losses on non-PCD loans acquired in the First Midwest merger.

Unfunded Loan Commitments

Old National maintains an allowance for credit losses on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements.

The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet.

Old National maintains an allowance for credit losses on unfunded loan commitments to provide for the risk of loss inherent in these arrangements.

The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet within accrued expenses and other liabilities, while the corresponding provision for unfunded loan commitments is included in the provision for credit losses.

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

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(dollars in thousands) 2022 2021 2020

Allowance for credit losses on unfunded loan commitments:

Balance at beginning of period $ 10,879 $ 11,689 $ 2,656

Provision for credit losses on unfunded loan commitments

acquired during the period 11,013 — —

Impact of adopting ASC 326 — — 4,549

Sub-Total 11,689 7,205

Expense (reversal of expense) for credit losses ( 810 ) 4,484

Provision for unfunded loan commitments 10,296 ( 810 ) 4,484

Balance at end of period $ 32,188 $ 10,879 $ 11,689

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

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:

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, class of loan, and origination year:

Origination Year Revolving to Term

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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 of term residential real estate and consumer loans based on payment activity:

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

Origination Year Revolving to Term

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Old National has loan participations, which qualify as participating interests, with other financial institutions.

At December 31, 2021, these loans totaled $ 1.256 billion, of which $ 619.6 million had been sold to other financial institutions and $ 636.1 million was retained by Old National.

At December 31, 2022, these loans totaled $ 2.3 billion, of which $ 1.1 billion had been sold to other financial institutions and $ 1.2 billion was retained by Old National.

The loan participations convey proportionate ownership rights with equal priority to each participating interest holder;

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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.

For commercial TDRs, an allocation is established within the allowance for credit losses on loans 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:

(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.

The allocated reserve is established as the difference between the carrying value of the loan and the collectable value.

If there are significant changes in the amount or timing of the loan’s expected future cash flows, impairment is recalculated and the valuation allowance is adjusted accordingly.

The allocation is established as the difference between the carrying value of the loan and the collectable value.

If there are significant changes in the amount or timing of the loan’s expected future cash flows, the allowance allocation is recalculated and adjusted accordingly.

When a residential or consumer loan is identified as a TDR, the loan is typically written down to its collateral value less selling costs.

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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 $ 24.0 million at December 31, 2022 and $ 11.7 million at December 31, 2021.

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 has established specific allowances for credit losses for clients whose loan terms have been modified as TDRs totaling $ 4.5 million at December 31, 2022 and $ 0.7 million at December 31, 2021.

Old National had no t committed to lend any additional funds to clients with outstanding loans that were classified as TDRs at December 31, 2022 or December 31, 2021.

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Post-modification outstanding recorded investment 9,632

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 2022 increased the allowance for credit losses on loans by $ 3.8 million and resulted in nominal charge-offs during 2022.

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

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

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

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and (2) is performing in compliance with its modified terms after the subsequent restructuring.

Non-TDR Loan Modifications due to 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.

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.

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.

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 the year ended December 31, 2019.

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

(dollars in thousands) Commercial Commercial Real Estate Residential Consumer Total

Year Ended December 31, 2019

Allowance for loan losses:

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

Charge-offs ( 3,819 ) ( 2,846 ) ( 661 ) ( 7,463 ) ( 14,789 )

Recoveries 1,650 3,774 146 3,630 9,200

Provision 3,012 ( 2,810 ) 537 4,008 4,747

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

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

Average Recorded Investment

With no related allowance recorded:

Commercial $ 22,629

Commercial Real Estate - Construction 6,465

Commercial Real Estate - Other 39,401

Residential 2,052

With an allowance recorded:

Commercial 15,816

Commercial Real Estate - Construction 6,912

Commercial Real Estate - Other 20,420

Residential 981

Consumer 1,219

Total $ 116,818

The following table presents activity in TDRs:

(dollars in thousands) Beginning Balance (Charge-offs)/ Recoveries (Payments)/ Disbursements Additions Ending Balance

Year Ended December 31, 2019

Commercial $ 10,275 $ ( 1,911 ) $ ( 3,733 ) $ 10,231 $ 14,862

Commercial real estate 27,671 ( 2,112 ) ( 23,182 ) 10,027 12,404

Residential 3,390 — ( 971 ) 557 2,976

Consumer 2,374 13 ( 1,207 ) 316 1,496

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

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:

Years Ended December 31,

(dollars in thousands) 2021 2020 2019

Balance at beginning of period $ 1,324 $ 2,169 $ 3,232

Additions (1) 1,955 965 1,192

Sales ( 1,164 ) ( 1,505 ) ( 2,077 )

Impairments ( 85 ) ( 305 ) ( 178 )

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

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

Foreclosed residential real estate property recorded as a result of obtaining physical possession of the property included in the table above totaled $ 0.1 million at December 31, 2021 and $ 0.8 million at December 31, 2020.

Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $ 1.7 million at December 31, 2021 and $ 2.7 million at December 31, 2020.

Purchased Credit Deteriorated Loans

Old National has purchased loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination.

The carrying amount of those loans is as follows:

(dollars in thousands) First Midwest (1)

Purchase price of loans at acquisition $ 1,390,273

Allowance for credit losses at acquisition 89,089

Non-credit discount/(premium) at acquisition 9,003

Par value of acquired loans at acquisition $ 1,488,365

(1) Old National merged with First Midwest effective February 15, 2022.

NOTE 5 – PREMISES AND EQUIPMENT

8 unchanged sentences

Premises and equipment, net $ 557,307 $ 476,186

During 2022, Old National recorded $ 111.9 million of premises and equipment associated with the merger with First Midwest.

See Note 2 to the consolidated financial statements for additional detail regarding this transaction.

Depreciation expense was $ 36.4 million in 2022, $ 27.3 million in 2021, and $ 28.9 million in 2020.

15 unchanged sentences

Variable lease payments that are dependent on an index or a rate are initially measured using the index or rate at the commencement date and are included in the measurement of the lease liability.

Variable lease payments that are not dependent on an index or a rate are excluded from the measurement of the lease liability and are recognized in profit and loss when incurred.

Variable lease payments that are not dependent on an index or a rate are excluded from the measurement of the lease liability and are recognized in profit

and loss when incurred.

Variable lease payments are defined as payments made for the right to use an asset that vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time.

11 unchanged sentences

Interest on lease liabilities Interest expense 415 431 364

Short-term lease cost Occupancy expense — — 6

Sub-lease income Occupancy expense ( 448 ) ( 438 ) ( 512 )

21 unchanged sentences

Financing cash flows from finance leases 2,475 2,057 819

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

The following table presents a maturity analysis of the Company’s lease liability by lease classification at December 31, 2022:

(dollars in thousands) Operating

9 unchanged sentences

Lease liability $ 211,964 $ 13,469

Old National leases certain office space and buildings to unrelated parties in exchange for consideration.

All of these tenant leases are classified as operating leases.

The following table presents a maturity analysis of the Company’s tenant leases at December 31, 2021:

(dollars in thousands) Tenant

Thereafter 2,376

Total undiscounted lease payments $ 9,999

NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS

5 unchanged sentences

Balance at end of period $ 1,998,716 $ 1,036,994 $ 1,036,994

During 2022, Old National recorded $ 961.7 million of goodwill associated with the First Midwest merger.

See Note 2 to the consolidated financial statements for additional detail regarding this transaction.

Old National performed the required annual goodwill impairment test as of August 31, 2022 and there was no impairment.

13 unchanged sentences

Other intangible assets consist of core deposit intangibles and customer relationship intangibles and are being amortized primarily on an accelerated basis over their estimated useful lives, generally over a period of 5 to 15 years.

During 2022, Old National recorded $ 77.9 million of core deposit intangibles and $ 39.7 million of customer trust relationships intangible associated with the First Midwest merger.

Old National reviews other intangible assets for possible impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable.

3 unchanged sentences

(dollars in thousands)

2023 $ 24,214

Thereafter 33,936

11 unchanged sentences

Additions (1)

13,080 11,759 12,810

Amortization ( 5,898 ) ( 9,798 ) ( 10,085 )

5 unchanged sentences

Loan servicing rights, net $ 37,267 $ 30,039 $ 26,717

(1) Additions in 2022 include loan servicing rights of $ 7.7 million acquired in the First Midwest merger on February 15, 2022.

At December 31, 2022, the fair value of servicing rights was $ 48.4 million, which was determined using a discount rate of 9 % and a conditional prepayment rate of 9 %.

9 unchanged sentences

FHTC Equity 19,316 9,588 21,241 15,252

NMTC Proportional amortization 18,727 — 6,120 —

NMTC Consolidation 51,912 — 18,727 —

Renewable Energy Equity 1,099 — 1,985 —

3 unchanged sentences

(dollars in thousands) Amortization

Expense (1) Tax Expense

Recognized (2)

14 unchanged sentences

FHTC 13,237 ( 15,582 )

CReED (3) 13 —

NMTC 900 ( 1,100 )

Renewable Energy 4,651 ( 4,122 )

1 unchanged sentence

(1) The amortization expense for the LIHTC investments is included in our income tax expense.

The amortization expense for the FHTC, NMTC, CReED, and Renewable Energy tax credits is included in noninterest expense.

The amortization expense for the FHTC, NMTC, and Renewable Energy tax credits is included in noninterest expense.

(2) All of the tax benefits recognized are included in our income tax expense.

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 qualified for an Indiana state tax credit.

The tax benefit recognized for the FHTC, NMTC, 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).

NOTE 10 – DEPOSITS

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variable rates 3.90 % to 4.17 %) maturing

October 2022 to January 2041

January 2023 to September 2042

$ 3,850,677 $ 1,902,655

3 unchanged sentences

FHLB advances had weighted-average rates of 3.15 % at December 31, 2022 and 1.30 % at December 31, 2021.

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, 2021, unamortized prepayment fees related to all debt modifications totaled $ 26.2 million, compared to $ 30.0 million at December 31, 2020.

Certain FHLB advances are collateralized with residential real estate loans at 140 %.

At December 31, 2022, total unamortized prepayment fees related to all debt modifications completed in prior years totaled $ 20.2 million, compared to $ 26.2 million at December 31, 2021.

Contractual maturities of FHLB advances at December 31, 2022 were as follows:

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Old National Bancorp:

Senior unsecured notes (fixed rate 4.125 %)

maturing August 2024

Senior unsecured notes (fixed rate 4.125 %) maturing August 2024

$ 175,000 $ 175,000

Unamortized debt issuance costs related

to senior unsecured notes ( 403 ) ( 559 )

Junior subordinated debentures (variable rates

of 1.72 % to 1.97 %) maturing March 2035

Unamortized debt issuance costs related to senior unsecured notes ( 247 ) ( 403 )

Subordinated debentures (fixed rate 5.875 %) maturing September 2026

Junior subordinated debentures (variable rates of

5.68 % to 7.99 %) maturing July 2031 to September 2037

136,643 42,000

2 unchanged sentences

Finance lease liabilities 13,469 17,233

Subordinated debentures (variable rate 4.49 %)

Subordinated debentures (variable rate 8.77 %) maturing October 2025

12,000 12,000

Leveraged loans for NMTC (fixed rates of

1.00 % to 1.43 %) maturing December

2046 to December 2052

Leveraged loans for NMTC (fixed rates of 1.00 % to 1.43 %)

maturing December 2046 to June 2060

143,187 51,045

Other 2,839 428

Total other borrowings $ 743,003 $ 296,670

(1) Includes overnight borrowings to collateralize certain derivative positions totaling $ 88.0 million at December 31, 2022.

Contractual maturities of other borrowings at December 31, 2022 were as follows:

8 unchanged sentences

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.

Through various mergers and acquisitions, Old National assumed junior subordinated debenture obligations related to various trusts that issued trust preferred securities.

Old National guarantees the payment of distributions on the trust preferred securities issued by the trusts.

7 unchanged sentences

Maturity Date

Bridgeview Statutory Trust I July 2001 $ 15,464 3-month LIBOR plus 3.58 %

7.99 % July 31, 2031

Bridgeview Capital Trust II December 2002 15,464 3-month LIBOR plus 3.35 %

7.43 % January 7, 2033

First Midwest Capital Trust I November 2003 37,825 6.95 % fixed

6.95 % December 1, 2033

Joseph Capital Trust II March 2005 5,155 3-month LIBOR plus 1.75 %

6.49 % March 17, 2035

Northern States Statutory Trust I September 2005 10,310 3-month LIBOR plus 1.80 %

6.57 % September 15, 2035

Anchor Capital Trust III August 2005 5,000 3-month LIBOR plus 1.55 %

6.30 % September 30, 2035

Great Lakes Statutory Trust II December 2005 6,186 3-month LIBOR plus 1.40 %

6.17 % December 15, 2035

Home Federal Statutory

9 unchanged sentences

6.37 % June 15, 2037

Great Lakes Statutory Trust III June 2007 8,248 3-month LIBOR plus 1.70 %

6.47 % September 15, 2037

Total $ 136,643

Subordinated Debentures

On November 1, 2017, Old National assumed $ 12.0 million of subordinated fixed-to-floating notes related to the acquisition of Anchor (MN).

On November 1, 2017, Old National assumed $ 12.0 million of subordinated fixed-to-floating notes related to the acquisition of Anchor Bancorp, Inc.

The subordinated debentures had a 5.75 % fixed rate of interest through October 29, 2020.

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 %.

On February 15, 2022, Old National assumed $ 150.0 million of subordinated fixed rate notes related to the First Midwest merger.

The subordinated debentures have a 5.875 % fixed rate of interest through the September 29, 2026 maturity date.

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.

The leveraged loans are directly related to the NMTC structure.

See Note 9 to the consolidated financial statements for additional information on the Company’s NMTC investments.

Finance Lease Liabilities

13 unchanged sentences

Amounts reclassified from AOCI to income (1)

67 12,565 1,951 105 14,688

Balance at end of period $ ( 642,346 ) $ ( 112,664 ) $ ( 31,549 ) $ 137 $ ( 786,422 )

4 unchanged sentences

( 144,948 ) — 1,433 — ( 143,515 )

Amounts reclassified from AOCI (1) ( 8,392 ) — ( 3,886 ) 16 ( 12,262 )

Amounts reclassified from AOCI to income (1)

( 3,337 ) — ( 3,474 ) 180 ( 6,631 )

Balance at end of period $ ( 2,950 ) $ — $ 543 $ 32 $ ( 2,375 )

4 unchanged sentences

97,596 — 6,230 — 103,826

Amounts reclassified from AOCI (1) ( 1,485 ) 2,096 ( 449 ) 22 184

Amounts reclassified from AOCI to income (1)

( 8,392 ) — ( 3,886 ) 16 ( 12,262 )

Balance at end of period $ 145,335 $ — $ 2,584 $ ( 148 ) $ 147,771

37 unchanged sentences

Tax credit investments - federal ( 9,140 ) ( 5,212 ) ( 15,159 )

Officer compensation limitation 5,903 564 598

Other, net 1,568 ( 1,407 ) ( 1,922 )

1 unchanged sentence

Effective tax rate 21.4 % 18.1 % 11.4 %

The higher effective tax rate in 2022 when compared to 2021 reflected the increase in pre-tax book income and higher post-merger estimated state effective tax rates.

An increase in non-deductible officer compensation also contributed to the higher tax rate, the majority of which was merger related.

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 provision for income taxes consisted of the following components:

14 unchanged sentences

Deferred Tax Assets

Allowance for credit losses, net of recapture $ 28,843 $ 34,971

Allowance for credit losses on loans, net of recapture $ 85,619 $ 28,843

Benefit plan accruals 38,038 18,348

Net operating loss carryforwards 25,135 14,823

Deferred gain on securities 1,215 2,102

Acquired loans 40,723 8,039

1 unchanged sentence

Unrealized losses on available-for-sale investment securities 202,101 3,003

Tax credit investments and other partnerships 301 1,054

Unrealized losses on held-to-maturity investment securities 36,197 —

Unrealized losses on hedges 10,277 —

Purchase accounting 20,063 —

Other, net 4,962 3,430

1 unchanged sentence

Deferred Tax Liabilities

Deferred loan origination fees ( 3,566 ) —

Purchase accounting — ( 18,524 )

3 unchanged sentences

Operating lease right-of-use assets ( 51,845 ) ( 21,129 )

Unrealized gains on available-for-sale investment securities — ( 40,756 )

Unrealized gains on hedges — ( 177 )

2 unchanged sentences

Net deferred tax assets $ 435,755 $ 32,906

Through the acquisition of Anchor (WI) in the second quarter of 2016 and Lafayette Savings Bank in the fourth quarter of 2014, both former thrifts, Old National Bank’s retained earnings at December 31, 2021 include base-year bad debt reserves, created for tax purposes prior to 1988, totaling $ 52.8 million.

Of this total, $ 50.9 million was acquired from Anchor (WI), and $ 1.9 million was acquired from Lafayette Savings Bank.

Base-year reserves are subject to recapture in the unlikely event that Old National Bank (1) makes distributions in excess of current and accumulated earnings and profits, as calculated for federal income tax purposes, (2) redeems its stock, or (3) liquidates.

Old National Bank has no intention of making such a nondividend distribution.

Accordingly, under current accounting principles, a related deferred income tax liability of $ 13.0 million has not been recognized.

The increase in net deferred tax assets was driven by $ 238.3 million of deferred tax assets related to the market value adjustments of certain investments and $ 133.9 million related to the merger with First Midwest.

The Company’s retained earnings at December 31, 2022 included an appropriation for acquired thrifts’ tax bad debt allowances totaling $ 58.6 million for which no provision for federal or state income taxes has been made.

If, in the future, this portion of retained earnings were distributed as a result of the liquidation of the Company or its subsidiaries, federal and state income taxes would be imposed at the then applicable rates.

No valuation allowance was recorded at December 31, 2022 or 2021 because, based on current expectations, Old National believes it will generate sufficient income in future years to realize deferred tax assets.

Old National has federal net operating loss carryforwards totaling $ 81.5 million at December 31, 2022 and $ 36.7 million at December 31, 2021.

This federal net operating loss was acquired from the acquisition of Anchor (WI) in 2016.

If not used, the federal net operating loss carryforwards will expire from 2030 to 2033.

This federal net operating loss was acquired from the acquisition of Anchor BanCorp Wisconsin Inc.

in 2016 and First Midwest in 2022.

If not used, the federal net operating loss carryforwards will begin expiring in 2030 and later.

Old National has recorded state net operating loss carryforwards totaling $ 124.4 million at December 31, 2022 and $ 116.1 million at December 31, 2021.

1 unchanged sentence

The federal and recorded state net operating loss carryforwards are subject to an annual limitation under Internal Revenue Code section 382.

Old National believes that all of the recorded net operating loss carryforwards will be used prior to expiration.

Old National believes that all of the federal and recorded state net operating loss carryforwards will be used prior to expiration.

Unrecognized Tax Benefits

Old National reduced an immaterial amount of unrecognized tax benefits to zero in 2020 after an Internal Revenue Service audit was finalized.

Old National has unrecognized tax benefits at December 31, 2022 due to the merger with First Midwest.

The following table presents the changes in the carrying amount of unrecognized tax benefits:

Years Ended December 31,

(dollars in thousands) 2022 2021 2020

Balance at beginning of period $ — $ — $ —

Additions for acquired uncertain tax positions 14,897 — —

Reductions for tax positions relating to prior years ( 2,751 ) — —

Reductions due to statute of limitations expiring ( 1,139 ) — —

Balance at end of period $ 11,007 $ — $ —

If recognized, approximately $ 8.8 million of unrecognized tax benefits, net of interest, would favorably affect the effective income tax rate in future periods.

Old National expects the $ 8.8 million of unrecognized tax benefits to be reduced to $ 7.9 million in the next twelve months.

It is our policy to recognize interest and penalties accrued relative to unrecognized tax benefits in their respective federal or state income tax accounts.

Interest and penalties recorded and accrued in 2022 were immaterial.

Old National reversed $ 3.9 million in 2022 related to uncertain tax positions accounted for under FASB ASC 740-10 (FASB Interpretation No.

48, Accounting for Uncertainty in Income Taxes).

The income tax reversal related to the 2018 statute of limitations expiring in the third quarter of 2022 totaled $ 1.1 million.

The income tax reversal related to reductions for tax positions in prior years totaled $ 2.8 million.

Old National and its subsidiaries file a consolidated U.S.

3 unchanged sentences

Our Amended and Restated 2008 Incentive Compensation Plan (the “ICP”), which was shareholder-approved, permits the grant of share-based awards to its employees.

An amendment to increase the number of shares authorized for issuance under the ICP by 9.0 million was approved by our Board of Directors and then by our shareholders on May 18, 2022.

At December 31, 2022, 9.1 million shares were available for issuance.

4 unchanged sentences

Restricted Stock Awards

Restricted stock awards require certain service requirements and commonly have vesting periods of three years .

Restricted stock awards require certain service requirements and shares generally vest, depending on the award terms, annually over a three-year period, cliff vest in three years from the grant date, or vest 50 % on the second anniversary of the grant date and 50 % on the third anniversary of the grant date.

Compensation expense is recognized on a straight-line basis over the vesting period.

3 unchanged sentences

Year Ended December 31, 2022

Nonvested balance at beginning of period 558 $ 15.51

Unvested balance at beginning of period 554 $ 16.16

Granted during the year (1)

1 unchanged sentence

Forfeited during the year ( 148 ) 17.88

Nonvested balance at end of period 554 $ 16.16

As of December 31, 2021, there was $ 6.0 million of total unrecognized compensation cost related to nonvested restricted stock awards.

Unvested balance at end of period 1,869 $ 17.76

(1) In connection with the First Midwest merger, each restricted stock award of First Midwest common stock that was outstanding, unvested, and unsettled at the merger date was assumed and converted into a number of Old National restricted stock relating to a number of shares of Old National common stock equal to the number of First Midwest restricted stock multiplied by the exchange ratio (rounded up to the nearest whole number) subject to the same vesting terms and conditions, resulting in an issuance of an aggregate 0.9 million restricted stock awards of Old National common stock.

As of December 31, 2022, there was $ 16.1 million of total unrecognized compensation cost related to unvested restricted stock awards.

The cost is expected to be recognized over a weighted-average period of 1.8 years.

The total fair value of the shares vested was $ 7.9 million in 2022, $ 4.3 million in 2021, and $ 2.9 million in 2020.

Restricted Stock Units

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.

Performance-Based Restricted Stock Units

Restricted stock units require certain performance requirements and shares vest at the end of a 24 or 36 month period based on the achievement of certain targets.

If targets are achieved prior to the end of the 24 month performance period, vesting can be accelerated.

Compensation expense is recognized on a straight-line basis over the performance period of the award.

For certain awards, the level of performance could increase or decrease the number of shares earned.

Shares are subject to certain restrictions and risk of forfeiture by the participants.

A summary of changes in our nonvested shares for the year follows:

A summary of changes in our unvested shares for the year follows:

(shares in thousands) Shares Weighted

Year Ended December 31, 2022

Nonvested balance at beginning of period 911 $ 14.18

Unvested balance at beginning of period 886 $ 14.80

Granted during the year (1)

Vested during the year ( 720 ) 15.41

Forfeited during the year ( 73 ) 16.73

Dividend equivalents adjustment 53 16.82

Nonvested balance at end of period 886 $ 14.80

As of December 31, 2021, there was $ 3.8 million of total unrecognized compensation cost related to nonvested restricted stock units.

Unvested balance at end of period 2,081 $ 17.23

(1) In connection with the First Midwest merger, each performance-based restricted stock unit award of First Midwest that was outstanding, unvested, and unsettled at the merger date was assumed and converted into a time-based restricted stock unit award of Old National common stock subject to the same vesting terms and conditions (other than performance conditions), resulting in an issuance of an aggregate 0.7 million restricted stock units of Old National common stock.

The performance components of the First Midwest equity awards were deemed earned at target.

As of December 31, 2022, there was $ 13.9 million of total unrecognized compensation cost related to unvested restricted stock units.

The cost is expected to be recognized over a weighted-average period of 1.3 years.

3 unchanged sentences

Old National has not granted stock options since 2009.

However, Old National did acquire stock options and stock appreciation rights through prior year acquisitions.

However, Old National did acquire stock options and stock appreciation rights through its prior acquisitions.

Old National recorded no incremental expense associated with the conversion of these options and stock appreciation rights.

As of December 31, 2022, all options were fully vested and all compensation costs had been expensed.

At December 31, 2021, the outstanding shares consisted of stock appreciation rights acquired through prior year acquisitions.

At December 31, 2022, the outstanding shares consisted of stock appreciation rights acquired through prior acquisitions.

A summary of the activity in stock appreciation rights in 2022 follows:

12 unchanged sentences

Intrinsic value of options/appreciation rights exercised $ 331 $ 171 $ 213

Cash received from options/appreciation rights exercises — — 280

Tax benefit realized from options/appreciation rights exercises 132 68 85

Outside Director Stock Compensation Program

Old National maintains a director stock compensation program covering all outside directors.

Compensation shares are earned semi-annually.

Beginning in 2017, any shares awarded to directors are anticipated to be issued from the ICP.

Non-employee Director Stock Compensation

Compensation paid to Old National’s non-employee directors includes a stock component.

Compensation shares are earned annually.

Any shares awarded to directors are anticipated to be issued from the ICP.

In 2022, 19 thousand shares were issued to directors, compared to 25 thousand shares in 2021, and 28 thousand shares in 2020.

1 unchanged sentence

The Employee Stock Ownership and Savings Plan (the “401(k) Plan”) permits employees to participate the first month following one month of service.

Old National matches 75 % of employee compensation deferral contributions of the first 4 % of compensation, and 50 % of the next 4 % of compensation.

Old National matches 100 % of employee compensation deferral contributions of the first 5 % of compensation.

In addition to matching contributions, Old National may make discretionary contributions to the 401(k) Plan in the form of Old National stock or cash.

Our Board of Directors designated no discretionary profit sharing contributions in 2021, 2020, or 2019.

There were no designated discretionary profit sharing contributions in 2022, 2021, or 2020.

All contributions vest immediately and plan participants may elect to redirect funds among any of the investment options provided under the 401( k) Plan.

3 unchanged sentences

NOTE 17 – SHAREHOLDERS' EQUITY

Dividend Reinvestment and Stock Purchase Plan

Old National has a dividend reinvestment and stock purchase plan under which common shares issued may be either repurchased shares or authorized and previously unissued shares.

Stock Purchase and Dividend Reinvestment Plan

Old National has a stock purchase and dividend reinvestment plan under which common shares issued may be either repurchased shares or authorized and previously unissued shares.

A new plan became effective on August 12, 2021, with total authorized and unissued common shares reserved for issuance of 3.3 million.

3 unchanged sentences

The amount of common shares purchased cannot exceed 10 % of the employee’s compensation.

The maximum number of shares that may be purchased under this plan is 500,000 shares.

In 2022, 52,000 shares were issued related to this plan with proceeds of approximately $ 809,000 .

1 unchanged sentence

Share Repurchase Plan

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

Basic and diluted net income per share are calculated using the two-class method.

Net income is divided by the weighted-average number of common shares outstanding during the period.

In the first quarter of 2022, the Board of Directors approved a stock repurchase program that authorized the Company to repurchase up to $ 200 million of the Company’s outstanding shares of Common Stock, as conditions warrant, through January 31, 2023.

During 2022 and through January 31, 2023, 3.5 million common shares were repurchased under the plan, which reduced equity by $ 63.8 million.

Net Income per Common Share

Basic and diluted net income per common share are calculated using the two-class method.

Net income applicable to common shares is divided by the weighted-average number of common shares outstanding during the period.

Adjustments to the weighted-average number of common shares outstanding are made only when such adjustments will dilute net income per common share.

Net income is then divided by the weighted-average number of common shares and common share equivalents during the period.

The following table reconciles basic and diluted net income per share.

Net income applicable to common shares is then divided by the weighted-average number of common shares and common share equivalents during the period.

The following table presents the calculation of basic and diluted net income per common share:

(dollars and shares in thousands,

1 unchanged sentence

2022 2021 2020

Basic Net Income Per Share

$ 277,538 $ 226,409 $ 238,206

Weighted average common shares outstanding 165,178 165,509 171,907

Basic Net Income Per Share $ 1.68 $ 1.37 $ 1.39

Diluted Net Income Per Share

$ 277,538 $ 226,409 $ 238,206

Net income $ 428,287 $ 277,538 $ 226,409

Preferred dividends ( 14,118 ) — —

Net income applicable to common shares $ 414,169 $ 277,538 $ 226,409

Weighted average common shares outstanding:

Weighted average common shares outstanding (basic) 275,179 165,178 165,509

Effect of dilutive securities:

Restricted stock 1,502 729 632

Stock options and appreciation rights 22 36 47

Weighted average shares outstanding 165,929 166,177 172,687

Diluted Net Income Per Share $ 1.67 $ 1.36 $ 1.38

Stock appreciation rights 7 22 36

Weighted average diluted shares outstanding 276,688 165,929 166,177

Basic Net Income Per Common Share $ 1.51 $ 1.68 $ 1.37

Diluted Net Income Per Common Share $ 1.50 $ 1.67 $ 1.36

NOTE 18 – FAIR VALUE

65 unchanged sentences

Accretion (amortization) of discount or premium 12 —

Sales/payments received ( 27 ) —

Increase (decrease) in fair value of securities 1,593 —

Transfers out of Level 3 ( 11,101 ) —

Balance at end of period $ — $ —

10 unchanged sentences

Increase (decrease) in fair value of securities ( 260 ) —

Transfers out of Level 3 — ( 4,033 )

Balance at end of period $ 7,913 $ —

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.

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.

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 (loss).

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 AOCI, which is included in shareholders’ equity, and a decrease in other assets related to the tax impact.

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 AOCI, which is included in shareholders’ equity, and an increase in other assets related to the tax impact.

During 2022, Old National’s pooled trust preferred securities with a fair value of $ 11.1 million were transferred out of Level 3 and into Level 2 because of available observable market data for these investments.

The table below provides quantitative information about significant unobservable inputs used in fair value measurements within Level 3 of the fair value hierarchy:

4 unchanged sentences

Additional asset defaults (2)

Expected asset recoveries (3) 0.0 % - 46.0 % ( 14.1 %)

December 31, 2020

Pooled trust preferred securities $ 7,913 Discounted cash flow Constant prepayment rate (1) 0.0 %

Additional asset defaults (2) 6.0 % - 8.7 % ( 6.8 %)

5.7 % - 8.5 % ( 6.5 %)

Expected asset recoveries (3)

0.0 % - 46.0 % ( 14.1 %)

(1) Assuming no prepayments.

4 unchanged sentences

The pooled trust preferred securities Old National owns are subordinate note classes that rely on an ongoing cash flow stream to support their values.

The senior note classes receive the benefit of prepayments to the detriment of subordinate note classes since the ongoing interest cash flow stream is reduced by the early redemption.

The senior note classes receive the benefit of prepayments to the detriment of subordinate note classes since the ongoing interest

cash flow stream is reduced by the early redemption.

Generally, a change in prepayment rates or additional pool asset defaults would have an impact that is directionally opposite from a change in the expected recovery of a defaulted pool asset.

8 unchanged sentences

Commercial real estate loans 48,026 — — 48,026

Loan servicing rights 140 — 140 —

Commercial and commercial real estate loans that are deemed collateral dependent are valued using the discounted cash flows.

1 unchanged sentence

These commercial and commercial real estate loans had a principal amount of $ 92.0 million, with a valuation allowance of $ 21.5 million at December 31, 2022.

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.

Old National recorded provision expense associated with commercial and commercial real estate loans that were deemed collateral dependent totaling $ 20.3 million in 2022.

Other real estate owned and other repossessed property is measured at fair value less costs to sell on a non-recurring basis.

Old National did not have any other real estate owned or repossessed property measured at fair value on a non-recurring basis at December 31, 2022.

There were write-downs of other real estate owned of $ 23 thousand in 2021.

There were write-downs of other real estate owned of $ 0.6 million in 2022.

Loan servicing rights are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount.

2 unchanged sentences

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, 2021 totaled $ 46 thousand.

Old National recorded recoveries associated with these loan servicing rights totaling $ 1.4 million in 2021.

There was no valuation allowance for loan servicing rights with impairments at December 31, 2022.

Old National recorded recoveries associated with these loan servicing rights totaling $ 46 thousand in 2022.

Assets measured at fair value on a non-recurring basis at December 31, 2021 are summarized below:

11 unchanged sentences

At December 31, 2021, commercial and commercial real estate loans that were deemed collateral dependent had a principal amount of $ 21.0 million, with a valuation allowance of $ 2.1 million.

Old National recorded provision expense associated with these loans totaling $ 2.1 million in 2020.

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.

Old National recorded provision recapture associated with these loans totaling $ 0.1 million in 2021.

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.

The table below provides quantitative information about significant unobservable inputs used in fair value measurements within Level 3 of the fair value hierarchy:

29 unchanged sentences

Included in the income statement is interest income for loans held for sale totaling $ 1.8 million in 2022, $ 1.5 million in 2021, and $ 2.0 million in 2020.

Old National has elected the fair value option for newly originated conforming fixed-rate and adjustable-rate first mortgage loans held for sale.

These loans are intended for sale and are hedged with derivative instruments.

Newly originated conforming fixed-rate and adjustable-rate first mortgage loans are intended for sale and are hedged with derivative instruments.

Old National has elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplification.

31 unchanged sentences

and other interest-earning investments $ 728,412 $ 728,412 $ — $ —

Investment securities held-to-maturity:

government-sponsored entities and agencies 819,168 — 656,358 —

Mortgage-backed securities - Agency 1,106,817 — 982,963 —

State and political subdivisions 1,163,162 — 1,004,361 —

Commercial 9,386,862 — — 9,066,583

60 unchanged sentences

Cash flow hedges :

changes in fair value are recognized as a component in other comprehensive income.

changes in fair value are recognized as a component in other comprehensive income (loss).

Fair value hedges :

6 unchanged sentences

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.

Interest rate swaps of certain borrowings were designated as cash flow hedges totaling $ 150.0 million notional amount at both December 31, 2022 and December 31, 2021.

Interest rate collars and floors related to variable-rate commercial loan pools were designated as cash flow hedges totaling $ 1.9 billion notional amount at December 31, 2022 and $ 600.0 million notional amount at December 31, 2021.

The hedges were determined to be effective during all periods presented and we expect them to remain effective during the remaining terms.

8 unchanged sentences

Interest rate swaps of certain borrowings were designated as fair value hedges totaling $ 300.0 million notional amount at December 31, 2022 and $ 377.5 million notional amount at December 31, 2021.

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.

Interest rate swaps of certain available-for-sale investment securities were designated as fair value hedges totaling $ 910.0 million notional amount at both December 31, 2022 and December 31, 2021.

The hedges were determined to be effective during all periods presented and we expect them to remain effective during the remaining terms.

2 unchanged sentences

Fair Value Fair Value

(dollars in thousands) Notional Assets (1) Liabilities (2) Notional Assets (1) Liabilities (2)

(dollars in thousands) Notional Assets (1)

Liabilities (2)

Notional Assets (1)

Liabilities (2)

Cash flow hedges:

1 unchanged sentence

Interest rate swaps on borrowings (3)

150,000 — — 150,000 4,316 —

Fair value hedges:

Interest rate swaps on investment securities (3)

909,957 — — 909,957 10,961 14,643

Interest rate swaps on borrowings (3)

300,000 — — 377,500 2,475 96

Total $ 11,764 $ 47,859 $ 18,211 $ 16,912

1 unchanged sentence

(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 effect of derivative instruments in fair value hedging relationships on the consolidated statements of income were as follows:

22 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 )

The effect of derivative instruments in cash flow hedging relationships on the consolidated statements of income were as follows:

22 unchanged sentences

The notional amounts of these customer derivative instruments and the offsetting counterparty derivative instruments were $ 2.4 billion at December 31, 2021.

These derivative contracts do not qualify for hedge accounting.

These derivative contracts do not qualify for hedge

These instruments include interest rate swaps, caps, and collars.

6 unchanged sentences

Fair Value Fair Value

(dollars in thousands) Notional Assets (1) Liabilities (2) Notional Assets (1) Liabilities (2)

(dollars in thousands) Notional Assets (1)

Liabilities (2)

Notional Assets (1)

Liabilities (2)

Interest rate lock commitments $ 21,401 $ 93 $ — $ 90,731 $ 2,352 $ —

2 unchanged sentences

Counterparty interest rate swaps (3)

5,220,363 151,111 5,711 2,433,177 583 12,956

Customer foreign currency forward contracts 8,341 253 42 10,292 399 —

4 unchanged sentences

(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:

6 unchanged sentences

Recognized in Income on

Interest rate contracts (1) Other income/(expense) $ 279 $ ( 551 ) $ ( 174 )

Interest rate contracts (1)

Other income/(expense) $ 883 $ 279 $ ( 551 )

Mortgage contracts Mortgage banking revenue ( 2,468 ) ( 4,446 ) 5,692

2 unchanged sentences

(1) Includes the valuation differences between the customer and offsetting swaps.

NOTE 21 – COMMITMENTS AND CONTINGENCIES

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 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.

Material adverse impacts may include all or a combination of valuation impairments on Old National’s intangible assets, investments, loans, loan servicing rights, deferred tax assets, or counter-party risk derivatives.

In the normal course of business, Old National Bancorp and its subsidiaries have been named, from time to time, as defendants in various legal actions.

Certain of the actual or threatened legal actions may include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages.

NOTE 20 – COMMITMENTS, CONTINGENCIES, AND FINANCIAL GUARANTEES

In the normal course of business, Old National Bancorp and its subsidiaries are subject to pending and threatened litigation, claims, investigations, and legal and administrative cases and proceedings.

Certain of the actual or threatened legal actions may include claims for compensatory damages or claims for indeterminate amounts of damages.

Old National contests liability and/or the amount of damages as appropriate in each pending matter.

In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages or where investigations and proceedings are in the early stages, Old National cannot predict with certainty the loss or range of loss, if any, related to such matters, how or if such matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, or other relief, if any, might be.

Subject to the foregoing, Old National believes, based on current knowledge and after consultation with counsel, that the outcome of such pending matters will not have a material adverse effect on the consolidated financial condition of Old National, although the outcome of such matters could be material to Old National’s operating results and cash flows for a particular future period, depending on, among other things, the level of Old National’s revenues or income for such period.

In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek indeterminate damages or where investigations and proceedings are in the early stages, Old National cannot predict with certainty the loss or range of loss, if any, related to such matters, how or if such matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, or other relief, if any, might be.

Subject to the foregoing, Old National believes, based on current knowledge and after consultation with counsel, that the outcome of such pending matters are not expected to have a material adverse effect on the consolidated financial condition of Old National, although the outcome of such matters could be material to Old National’s operating results and cash

flows for a particular future period, depending on, among other things, the level of Old National’s revenues or income for such period.

Old National will accrue for a loss contingency if (1) it is probable that a future event will occur and confirm the loss and (2) the amount of the loss can be reasonably estimated.

1 unchanged sentence

Credit-Related Financial Instruments

In the normal course of business, Old National’s banking affiliates have entered into various agreements to extend credit, including loan commitments of $ 4.489 billion and standby letters of credit of $ 75.7 million at December 31, 2021.

At December 31, 2021, approximately $ 4.151 billion of the loan commitments had fixed rates and $ 338.2 million had floating rates, with the floating interest rates ranging from 0 % to 14 %.

At December 31, 2020, loan commitments totaled $ 3.720 billion and standby letters of credit totaled $ 86.9 million.

These commitments are not reflected in the consolidated financial statements.

Old National holds instruments, in the normal course of business with clients, that are considered financial guarantees and are recorded at fair value.

Standby letters of credit guarantees are issued in connection with agreements made by clients to counterparties.

Standby letters of credit are contingent upon failure of the client to perform the terms of the underlying contract.

Credit risk associated with standby letters of credit is essentially the same as that associated with extending loans to clients and is subject to normal credit policies.

The term of these standby letters of credit is typically one year or less.

These commitments are not recorded in the consolidated financial statements.

The following table summarizes Old National Bank’s unfunded loan commitments and standby letters of credit:

(dollars in thousands) 2022 2021

Unfunded loan commitments $ 8,979,334 $ 4,489,238

Standby letters of credit (1)

174,070 75,726

(1) Notional amount, which represents the maximum amount of future funding requirements.

The carrying value was $ 0.8 million at December 31, 2022 and $ 0.5 million at December 31, 2021.

At December 31, 2022, approximately 5 % of the unfunded loan commitments had fixed rates, with the remainder having floating rates ranging from 0 % to 21 %.

The allowance for unfunded loan commitments totaled $ 32.2 million at December 31, 2022 and $ 10.9 million at December 31, 2021.

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.

Old National provided collateral to the unaffiliated banks to secure credit extensions totaling $ 6.5 million at December 31, 2021 and $ 7.5 million December 31, 2020.

Old National did not provide collateral for the remaining credit extensions.

The increase in the allowance for credit losses on unfunded loan commitments was driven by the merger with First Midwest as well as organic loan growth.

Old National is a party in risk participation transactions of interest rate swaps, which had total notional amounts of $ 398.9 million at December 31, 2022 and $ 97.7 million at December 31, 2021.

Visa Class B Restricted Shares

6 unchanged sentences

Based on the existing transfer restriction and the uncertainty of the outcome of the Visa litigation, the 65,466 Class B shares that Old National owns at December 31, 2022 are carried at a zero cost basis and are included in other assets with our equity securities that have no readily determinable fair value.

NOTE 22 – FINANCIAL GUARANTEES

Old National holds instruments, in the normal course of business with clients, that are considered financial guarantees in accordance with FASB ASC 460-10 (FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others ) , which requires Old National to record the instruments at fair value.

Standby letters of credit guarantees are issued in connection with agreements made by clients to counterparties.

Standby letters of credit are contingent upon failure of the client to perform the terms of the underlying contract.

Credit risk associated with standby letters of credit is essentially the same as that associated with extending loans to clients and is subject to normal credit policies.

The term of these standby letters of credit is typically one year or less.

At December 31, 2021, the notional amount of standby letters of credit was $ 75.7 million, which represented the maximum amount of future funding requirements, and the carrying value was $ 0.5 million.

At December 31, 2020, the notional amount of standby letters of credit was $ 86.9 million, which represented the maximum amount of future funding requirements, and the carrying value was $ 0.5 million.

Old National is a party in risk participation transactions of interest rate swaps, which had total notional amount of $ 97.7 million at December 31, 2021.

NOTE 23 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Old National’s revenue from contracts with customers in the scope of Topic 606 is recognized within noninterest income.

The consolidated statements of income include all categories of noninterest income.

The following table reflects only the categories of noninterest income that are within the scope of Topic 606:

Years Ended December 31,

(dollars in thousands) 2021 2020 2019

Wealth management fees $ 40,409 $ 36,806 $ 37,072

Service charges on deposit accounts 34,685 35,081 44,915

Debit card and ATM fees 20,739 20,178 21,652

Investment product fees 24,639 21,614 21,785

Other income:

Merchant processing fees 3,733 3,150 3,105

Gain (loss) on other real estate owned 298 240 254

Safe deposit box fees 999 957 1,206

Insurance premiums and commissions 114 407 815

Total $ 125,616 $ 118,433 $ 130,804

Wealth management fees :

Old National earns wealth management fees based upon asset custody and investment management services provided to individual and institutional customers.

Most of these customers receive monthly or quarterly billings for services rendered based upon the market value of assets in custody.

Fees that are transaction based are recognized at the point in time that the transaction is executed.

Service charges on deposit accounts :

Old National earns fees from deposit customers for transaction-based, account maintenance, and overdraft services.

Transaction-based fees and overdraft fees are recognized at a point in time, since the customer generally has a right to cancel the depository arrangement at any time.

The arrangement is considered a day-to-day contract with ongoing renewals and optional purchases, so the duration of the contract does not extend beyond the services already performed.

Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which Old National satisfies its performance obligation.

Debit card and ATM fees :

Debit card and ATM fees include ATM usage fees and debit card interchange income.

As with the transaction-based fees on deposit accounts, the ATM fees are recognized at the point in time that Old National fulfills the customer’s request.

Old National earns interchange fees from cardholder transactions processed through card association networks.

Interchange rates are generally set by the card associations based upon purchase volumes and other factors.

Interchange fees represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Investment product fees :

Investment product fees are the commissions and fees received from a registered broker/dealer and investment adviser that provide those services to Old National customers.

Old National acts as an agent in arranging the relationship between the customer and the third-party service provider.

These fees are recognized monthly from the third-party broker based upon services already performed, net of the processing fees charged to Old National by the broker.

NOTE 21 – REGULATORY RESTRICTIONS

Restrictions on Cash and Due from Banks

Prior to March of 2020, Old National’s affiliate bank was required to maintain reserve balances on hand and with the Federal Reserve Bank that are interest-bearing and unavailable for investment purposes.

Prior to March 2020, Old National’s subsidiary bank was required to maintain reserve balances on hand and with the Federal Reserve Bank that are interest-bearing and unavailable for investment purposes.

The Federal Reserve Board reduced reserve requirement ratios to 0% effective March 26, 2020.

This action eliminated reserve requirements for all depository institutions.

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

Regulations limit the amount of dividends an affiliate bank can declare in any year without obtaining prior regulatory approval.

Prior regulatory approval is required if dividends to be declared in any year would exceed net earnings of the current year plus retained net profits for the preceding two years .

This action effectively eliminated reserve requirements for all depository institutions.

Old National had no cash and due from banks which was held as collateral for collateralized swap positions at December 31, 2022 and $ 14.6 million at December 31, 2021.

Restrictions on Transfers from Bank Subsidiary

Regulations limit the amount of dividends a bank subsidiary can declare in any calendar year without obtaining prior regulatory approval.

Prior regulatory approval is required if dividends to be declared in any calendar year would

exceed the total of net income of the current year combined with retained net income for the preceding two years .

Prior regulatory approval to pay dividends was not required in 2020, 2021, or 2022 and is not currently required.

A bank subsidiary is prohibited from paying a dividend, if, after making the dividend, the bank would be considered “undercapitalized” (as defined by reference to the OCC’s capital regulations).

Restrictions on the Payment of Dividends

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Quantitative measures established by regulation to ensure capital adequacy require Old National and Old National Bank to maintain minimum amounts and ratios as set forth in the following tables.

At December 31, 2021, Old National and Old National Bank exceeded the regulatory minimums and Old National Bank met the regulatory definition of “well-capitalized” based on the most recent regulatory notification.

There have been no conditions or events since that notification that management believes have changed Old National Bank’s category.

At December 31, 2022, Old National and Old National Bank each exceeded the capital ratios required to be considered “well-capitalized” under applicable regulations.

The following table summarizes capital ratios for Old National and Old National Bank:

Actual Regulatory

Guidelines Minimum (1) Prompt Corrective Action

Actual Regulatory Minimum (1)

Prompt Corrective Action

“Well Capitalized”

Guidelines (2)

(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio

1 unchanged sentence

Total capital to risk-weighted

Old National Bancorp $ 2,119,176 12.77 % $ 1,741,789 10.50 % N/A N/A %

Old National Bancorp $ 4,321,716 12.02 % $ 3,774,845 10.50 % $ 3,595,090 10.00 %

Old National Bank 4,063,363 11.35 3,759,671 10.50 3,580,639 10.00

4 unchanged sentences

Tier 1 capital to risk-weighted

Old National Bancorp 1,998,056 12.04 1,410,020 8.50 N/A N/A

Old National Bancorp 3,849,112 10.71 3,055,827 8.50 2,157,054 6.00

Old National Bank 3,817,402 10.66 3,043,544 8.50 2,864,512 8.00

4 unchanged sentences

Total capital to risk-weighted

Old National Bancorp $ 1,949,757 12.69 % $ 1,613,753 10.50 % N/A N/A %

Old National Bancorp $ 2,119,176 12.77 % $ 1,741,789 10.50 % $ 1,658,847 10.00 %

Old National Bank 2,119,405 12.82 1,735,385 10.50 1,652,748 10.00

4 unchanged sentences

Tier 1 capital to risk-weighted

Old National Bancorp 1,805,194 11.75 1,306,371 8.50 N/A N/A

Old National Bancorp 1,998,056 12.04 1,410,020 8.50 995,308 6.00

Old National Bank 2,040,285 12.34 1,404,835 8.50 1,322,198 8.00

2 unchanged sentences

Old National Bank 2,040,285 8.81 926,821 4.00 1,158,526 5.00

(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”;

a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer;

a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer;

and a minimum ratio of Tier 1 capital to adjusted average consolidated assets of at least 4.0 %.

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.

(1) “Regulatory Minimum” capital ratios include the 2.5% “capital conservation buffer” required under the Basel III Capital Rules.

(2) “Well-capitalized” minimum common equity Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets ratios are not formally defined under applicable banking regulations for bank holding companies.

During 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC issued final rules to delay the estimated impact on regulatory capital stemming from the implementation of CECL.

The final rules provide banking organizations 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 adopted the capital transition relief over the permissible five-year period.

NOTE 22 – PARENT COMPANY FINANCIAL STATEMENTS

9 unchanged sentences

Non-banks 44,938 4,949

Goodwill 59,506 —

Other assets 135,025 83,531

10 unchanged sentences

Dividends from affiliates $ — $ 125,000 $ 230,000

Debt securities gains (losses), net 334 574 631

Other income 1,733 3,364 4,196

4 unchanged sentences

Total expense 54,291 22,236 25,000

Income before income taxes and equity

in undistributed earnings of affiliates

Income (loss) before income taxes and equity in undistributed earnings of affiliates

( 52,553 ) 106,133 209,201

Income tax expense (benefit) ( 9,901 ) ( 5,113 ) ( 5,317 )

Income before equity in undistributed

earnings of affiliates

Income (loss) before equity in undistributed earnings of affiliates

( 42,652 ) 111,246 214,518

1 unchanged sentence

Net income 428,287 277,538 226,409

Preferred dividends ( 14,118 ) — —

Net income applicable to common shareholders $ 414,169 $ 277,538 $ 226,409

OLD NATIONAL BANCORP (PARENT COMPANY ONLY)

7 unchanged sentences

Depreciation 26 30 46

Debt securities (gains) losses, net ( 334 ) ( 574 ) ( 631 )

Share-based compensation expense 28,656 7,497 7,707

4 unchanged sentences

Cash Flows From Investing Activities

Proceeds from dissolution of subsidiary — — 224

Net cash and cash equivalents of acquisitions 573,099 — —

Proceeds from sales of investment securities — 1,000 —

6 unchanged sentences

Payments for maturities/redemptions of other borrowings — — ( 10,310 )

Cash dividends paid on common stock ( 92,829 ) ( 92,946 ) ( 89,474 )

Cash dividends paid ( 177,623 ) ( 92,829 ) ( 92,946 )

Common stock repurchased ( 71,182 ) ( 3,731 ) ( 82,358 )

Proceeds from exercise of stock options — — 280

Common stock issued 809 583 577

6 unchanged sentences

Old National Bank, Old National’s bank subsidiary, is the only significant subsidiary upon which management makes decisions regarding how to allocate resources and assess performance.

Each of the banking centers of Old National Bank provide a group of similar community banking services, including such products and services as commercial, real estate and consumer loans, time deposits, checking and savings accounts, cash management, brokerage, trust, and investment advisory services.

The individual banking centers located throughout our Midwest footprint have similar operating and economic characteristics.

Each of the banking centers of Old National Bank provide a group of similar community banking services, including such products and services as commercial, real estate and consumer loans;

time deposits;

checking and savings accounts;

cash management;

and brokerage, trust, and investment advisory services.

The individual banking centers located throughout our Midwest region footprint have similar operating and economic characteristics.

While the chief decision maker monitors the revenue streams of the various products, services, and regional locations, operations are managed, and financial performance is evaluated on a Company-wide basis.

3 unchanged sentences

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