What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-02-22 · 241 added, 280 removed, 987 unchanged (35% of the section changed)

10 unchanged sentences

Critical Accounting Estimates

The following discussion is an analysis of our results of operations for the fiscal years ended December 31, 2022, 2021, and 2020, and financial condition as of December 31, 2022 and 2021.

The following is an analysis generally discussing our results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022, and financial condition as of December 31, 2023 and 2022.

This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes.

3 unchanged sentences

The discussion in Item 1A, “Risk Factors,” lists some of the factors that could cause our actual results to vary materially from those expressed or implied by any forward-looking statements, and such discussion is incorporated into this discussion by reference.

For a discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022.

GENERAL OVERVIEW

Old National is the largest financial holding company headquartered in the state of Indiana and the sixth largest Midwestern bank by asset size.

Old National is incorporated in the state of Indiana and is the sixth largest commercial bank headquartered in the Midwest by asset size and ranks among the top 30 banking companies headquartered in the United States.

The Company’s corporate headquarters and principal executive office are located in Evansville, Indiana with commercial and consumer banking operations headquartered in Chicago, Illinois.

Old National, through Old National Bank, provides a wide range of banking services throughout the Midwest region, including commercial and consumer loan and depository services, and other traditional banking services.

Old National also provides services to supplement its traditional banking business including fiduciary and wealth management services, investment and brokerage services, investment consulting, and other financial services.

Through our wholly-owned banking subsidiary and non-bank affiliates, we provide a wide range of services primarily throughout the Midwest region and elsewhere, including commercial and consumer loan and depository services, as well as other traditional banking services, private banking, capital markets, brokerage, wealth management, trust, investment advisory, and other traditional banking services.

CORPORATE DEVELOPMENTS IN FISCAL 2023

Old National had a transformational year in 2022, evidenced by our merger with First Midwest, successful completion of all related systems conversions, solid client growth, and strong talent retention and attraction.

Key performance indicators experienced in 2022 included:

During 2023, Old National successfully navigated a challenging interest rate environment, as well as industry-wide liquidity pressures to end the year with record full-year results.

Our peer-leading deposit franchise, disciplined loan growth, strong credit quality, well-managed expenses, and dedicated team members who are committed to our clients and communities drove these outstanding results.

Highlights experienced in 2023 included:

• net income applicable to common shareholders of $565.9 million, or $1.94 per diluted common share;

• net interest margin expansion of 58 basis points, reflective of strong loan growth and the higher rate environment;

• robust, broad-based loan growth of 12%;

• maintenance of a stable, low-cost deposit base along with a loan to deposit ratio of 89%;

• disciplined expense management;

• excellent credit and capital metrics including net charge-offs to average loans of 0.06%.

Our net interest income increased to $1.3 billion during 2022, compared to $596.4 million in 2021 driven by the First Midwest merger, loan growth, and the higher rate environment.

Noninterest income increased from $214.2 million in 2021 to $399.8 million in 2022 reflecting the First Midwest merger and a $90.7 million gain on the sale of health savings accounts in the fourth quarter of 2022, partially offset by lower mortgage banking revenue, which was impacted by the higher rate environment, and, accordingly, lower production and gain on sale margins.

Our noninterest expenses increased from $501.4 million in 2021 to $1.0 billion in 2022 reflective of the additional operating costs associated with the First Midwest merger, as well as $120.9 million of merger-related expenses and $26.8 million for property optimization.

In addition, higher incentive accruals resulting from strong performance contributed to the increase.

On February 15, 2022, Old National completed its previously announced merger of equals transaction with First Midwest.

At closing, Old National acquired $21.9 billion of assets, including $14.3 billion of loans, and assumed $17.2 billion of deposits.

Old National completed branding and all systems conversions in the third quarter of 2022.

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 the transaction 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.

In early December of 2022, Old National implemented several enhancements to its overdraft protection programs to provide clients with more flexibility.

The changes included the elimination of the non-sufficient fund (“NSF”) fee when an item is returned, among other modifications that benefit consumers that will impact service charges on deposit accounts.

Pandemic Update

As previously disclosed, the COVID-19 pandemic has created economic and financial disruptions that continued to adversely affect our operations during 2022.

Our historically disciplined underwriting practices, diverse and granular portfolios, and Midwest-based footprint have helped minimize the adverse impact to Old National.

The pandemic has become less disruptive to the Company’s business, financial condition, results of operations, and its clients as of December 31, 2022 than in prior periods.

• growth in deposits of 6%;

• net interest income increase of $175.2 million, reflective of the higher rate environment and loan growth;

• disciplined loan growth of 6%;

• granular, low-cost deposit franchise;

loan to deposit ratio of 89%;

• well-managed expenses;

• stable credit metrics, including net charge-offs to average loans of 0.17%.

Our net interest income increased to $1.5 billion during 2023, compared to $1.3 billion in 2022 driven by the higher interest rate environment and loan growth.

Provision for credit losses decreased compared to 2022, reflective of provision expense associated with the First Midwest merger in 2022.

In addition, provision for credit losses for 2023 was impacted by higher net charge-offs, loan growth and macroeconomic factors.

Noninterest income decreased

from $399.8 million in 2022 to $333.3 million in 2023 primarily due to a $90.7 gain on the sale of health savings accounts in the fourth quarter of 2022, partially offset by a gain on sale of Visa Class B restricted shares totaling $21.6 million in the fourth quarter of 2023 and the full-period 2023 impact of the First Midwest merger which occurred in February of 2022.

Noninterest expense decreased $11.9 million in 2023 compared to 2022.

Noninterest expense in 2023 included $28.7 million of merger-related expenses, a $19.1 million FDIC special assessment, $4.4 million of contract termination charges, $3.4 million of expenses related to the Louisville tragedy, and $1.6 million for property optimization.

Noninterest expense in 2022 included $120.9 million of merger-related expenses and $26.8 million for property optimization.

Excluding these expenses, noninterest expense in 2023 increased $78.8 million, reflective of the additional operating costs associated with the full-period 2023 impact of the First Midwest merger, higher FDIC assessment expense, and marketing campaigns.

On October 26, 2023, Old National announced that it entered into a definitive merger agreement pursuant to which Old National will acquire CapStar and its wholly-owned subsidiary, CapStar Bank, in an all-stock transaction.

As of September 30, 2023, CapStar had approximately $3.3 billion of total assets, $2.3 billion of total loans, and $2.8 billion of deposits.

The definitive merger agreement has been approved by the Board of Directors of each company.

The transaction is anticipated to close in the second quarter of 2024 subject to the approval of CapStar shareholders.

BUSINESS OUTLOOK

In 2022, Old National benefited from the tailwinds of the Federal Reserve’s target interest rate increases in general, and we enter 2023 proactively managing our balance sheet for a potential downshift in interest rates.

Old National’s peer leading deposit franchise adds value in any economic cycle as deposits typically cost less than other types of funding.

Our healthy commercial loan pipeline heading into 2023 bodes well for future organic growth, which remains a top priority for the Company.

Our transformational merger with First Midwest accelerated our evolution into a commercially-oriented regional bank that expects to consistently deliver top quartile performance.

The accomplishment of merger-related cost saves and our enduring focus on the fundamentals of basic banking, including loan growth, expansion of revenue-generating businesses, prudent capital deployment, and expense management, will help us to deliver meaningful, positive operating leverage.

Organic loan growth continues to be our priority.

As we enter into 2023, our commercial loan production and pipeline are at robust levels, yet we continue to adhere to our disciplined underwriting process.

We believe our approach to downgrading troubled credits early and a patient approach to resolving issues results in better outcomes for our clients and ultimately lower costs for Old National.

Old National credit quality remains strong, and we have not experienced any specific sector credit related weaknesses, yet we will remain diligent in adhering to our risk profile and underwriting standards.

As we look ahead to 2023, we believe our increased scale, relationship banking approach, skilled team members, geographic reach, strong balance sheet, including our peer leading deposit franchise, and operating efficiency will allow us to continue to create value for our shareholders and drive positive operating leverage.

We enter 2024 cautiously optimistic as we believe we have positioned the balance sheet well approaching the end of this rate cycle with most of the work to achieve a neutral rate risk position behind us.

Old National’s peer-leading deposit franchise adds value in any economic cycle, and we anticipate continued success in the execution of our deposit strategy, which allows us to compete for clients in the markets we serve.

Deposit and organic loan growth remain top priorities for the Company as we continue to focus on full client relationships that align with our risk-adjusted return requirements.

Old National’s credit quality remains strong as we continue to adhere to our disciplined underwriting process.

Our pending merger with CapStar is expected to expand our business to the highly dynamic markets of Nashville and broader Tennessee, as well as Asheville, North Carolina.

This partnership will expand on our opportunities to acquire new clients and build on existing relationships associated within this footprint.

As we opportunistically execute on this partnership in 2024, we continue to focus on the fundamentals of basic banking, including loan and deposit growth, expansion of revenue-generating businesses, prudent capital deployment, and expense management to produce positive operating leverage and allow us to continue to create value for our shareholders and communities.

FINANCIAL HIGHLIGHTS

9 unchanged sentences

Net interest income – taxable equivalent basis (3)

Provision for credit losses (2)

370,508 380,923 387,996 387,154 396,468

Provision (release) for credit losses 11,595 19,068 14,787 13,437 11,408

Noninterest income 100,094 80,938 81,629 70,681 165,037

Noninterest expense 284,235 244,776 246,584 250,711 282,675

282,675 262,444 277,475 215,589 131,355

Net income (loss) available to common shareholders $ 196,701 $ 136,119 $ 110,952 $ (29,603) $ 56,188

Net income available to common shareholders 128,446 143,842 151,003 142,566 196,701

Per Common Share Data:

Weighted average diluted common shares 292,029 291,717 291,266 292,756 293,131

Net income (loss) (diluted) $ 0.67 $ 0.47 $ 0.38 $ (0.13) $ 0.34

Net income (diluted) $ 0.44 $ 0.49 $ 0.52 $ 0.49 $ 0.67

Cash dividends 0.14 0.14 0.14 $ 0.14 $ 0.14

8 unchanged sentences

Return on average common equity 10.20 11.39 12.01 11.58 16.77

Return on tangible common equity (4)

29.25 22.07 17.21 (3.61) 11.98

Return on average tangible common equity (3)

4 unchanged sentences

59.05 51.66 51.22 52.81 49.12

Efficiency ratio (prior presentation) (5)

N/A 56.17 62.70 76.15 64.27

Net charge-offs (recoveries) to average loans 0.05 0.10 0.02 0.05 (0.04)

Net charge-offs to average loans 0.12 0.24 0.13 0.21 0.05

Allowance for credit losses on loans to ending loans 0.93 0.93 0.93 0.94 0.98

21 unchanged sentences

(1) Calculated using the federal statutory tax rate in effect of 21% for all periods.

(2) Provision for unfunded loan commitments is included in the provision for credit losses.

The reclassification of the provision for unfunded loan commitments out of other expense as a component of noninterest expense was made to prior period amounts to conform to the current period presentation.

(2) Cash dividends per share divided by net income per share (basic).

1 unchanged sentence

Refer to the “Non-GAAP Financial Measures” section for reconciliations to GAAP financial measures.

(5) Presented as calculated prior to December 31, 2022, which included the provision for unfunded loan commitments in noninterest expense.

Management believes that removing the provision for unfunded loan commitments from this metric enhances comparability for peer comparison purposes.

(4) Includes the allowance for credit losses on loans and unfunded loan commitments.

7 unchanged sentences

Net interest income – taxable equivalent basis (3)

Provision for credit losses (2)

1,526,581 1,346,350

Provision (release) for credit losses 58,887 144,799

Noninterest income 333,342 399,779

Noninterest expense 1,026,306 1,038,183

1,038,183 501,379

Net income available to common shareholders 565,857 414,169

10 unchanged sentences

Return on average common equity 11.29 8.92

Return on tangible common equity (4)

Return on average tangible common equity (3)

1 unchanged sentence

Efficiency ratio (3)

Efficiency ratio (prior presentation) (5)

Net charge-offs (recoveries) to average loans 0.06 (0.03)

Net charge-offs to average loans 0.17 0.06

Allowance for credit losses on loans to ending loans 0.93 0.98

19 unchanged sentences

(1) Calculated using the federal statutory tax rate in effect of 21% for all periods.

(2) Provision for unfunded loan commitments is included in the provision for credit losses.

(2) Cash dividends per share divided by net income per share (basic).

1 unchanged sentence

Refer to the “Non-GAAP Financial Measures” section for reconciliations to GAAP financial measures.

(5) Presented as calculated prior to December 31, 2022, which included the provision for unfunded loan commitments in noninterest expense.

Management believes that removing the provision for unfunded loan commitments from this metric enhances comparability for peer comparison purposes.

(4) Includes the allowance for credit losses on loans and unfunded loan commitments.

1 unchanged sentence

The Company’s accounting and reporting policies conform to GAAP and general practices within the banking industry.

As a supplement to GAAP, the Company provides non-GAAP performance results, which the Company believes are useful because they assist investors in assessing the Company’s operating performance.

As a supplement to GAAP, the Company provides non-GAAP performance results, which the Company believes are useful because they assist users of the financial statements in assessing the Company’s operating performance.

Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the following table.

2 unchanged sentences

Management believes that it is standard practice in the banking industry to present net interest income and net interest margin on a fully tax-equivalent basis and that it may enhance comparability for peer comparison purposes.

In management’s view, tangible common equity measures are capital adequacy metrics that may be meaningful to the Company, as well as analysts and investors, in assessing the Company’s use of equity and in facilitating comparisons with peers.

In management’s view, tangible common equity measures are capital adequacy metrics that may be meaningful to the Company, as well as users of the financial statements, in assessing the Company’s use of equity and in facilitating comparisons with peers.

These non-GAAP measures are valuable indicators of a financial institution’s capital strength since they eliminate intangible assets from shareholders’ equity and retain the effect of AOCI in shareholders’ equity.

Although intended to enhance investors’ understanding of the Company’s business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP.

Although intended to enhance understanding of the Company’s business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP.

In addition, these non-GAAP financial measures may differ from those used by other financial institutions to assess their business and performance.

13 unchanged sentences

11.00 9.87 10.03 9.98 9.42

Return on tangible common equity:

Net income (loss) applicable to common shares $ 196,701 $ 136,119 $ 110,952 $ (29,603) $ 56,188

Return on average tangible common equity:

Net income applicable to common shares $ 128,446 $ 143,842 $ 151,003 $ 142,566 $ 196,701

Intangible amortization (net of tax) (2)

4,402 4,530 4,545 4,639 5,090

Tangible net income (loss) (1)

$ 201,791 $ 141,436 $ 116,330 $ (25,669) $ 58,118

Tangible shareholders' common equity (1)

$ 2,759,755 $ 2,563,872 $ 2,703,249 $ 2,843,786 $ 1,940,346

Return on tangible common equity (1)

29.25 % 22.07 % 17.21 % (3.61) % 11.98 %

Return on average tangible common equity:

Tangible net income (loss) (1) (see above)

Tangible net income (1)

$ 132,848 $ 148,372 $ 155,548 $ 147,205 $ 201,791

29 unchanged sentences

Assets $ 49,089,836 $ 49,059,448 $ 48,496,755 $ 47,842,644 $ 46,763,372

Trust overdrafts — — — 1 —

Goodwill and intangible assets 2,100,966 2,106,835 2,112,875 2,118,935 2,125,121

15 unchanged sentences

Tangible common book value (1)

Return on tangible common equity:

Net income (loss) applicable to common shares $ 414,169 $ 277,538

Return on average tangible common equity:

Net income applicable to common shares $ 565,857 $ 414,169

Intangible amortization (net of tax) (2)

Tangible net income (loss) (1)

18,116 19,718

Tangible shareholders' common equity (1) (see above)

$ 2,759,755 $ 1,940,346

Return on tangible common equity (1)

15.72 % 14.74 %

Return on average tangible common equity:

Tangible net income (loss) (1) (see above)

Tangible net income (1)

$ 583,973 $ 433,887

42 unchanged sentences

Net interest income $ 1,503,153 $ 1,327,936 $ 596,400

Provision for credit losses 144,799 (29,622) 42,879

Provision (release) for credit losses 58,887 144,799 (29,622)

Noninterest income 333,342 399,779 214,219

3 unchanged sentences

Return on average common equity 11.29 % 8.92 % 9.26 %

Return on tangible common equity (1)

15.72 % 14.74 % 12.54 %

Return on average tangible common equity (1)

3 unchanged sentences

Efficiency ratio (prior presentation) (2)

N/A 59.65 % 62.91 %

N/A N/A 59.65 %

Tier 1 leverage ratio 8.83 % 8.52 % 8.59 %

4 unchanged sentences

Management believes that removing the provision for unfunded loan commitments from this metric enhances comparability for peer comparison purposes.

Comparison of Fiscal Years 2022 and 2021

Net Interest Income

2 unchanged sentences

Other factors include the level of accretion income on purchased loans, prepayment risk on mortgage and investment-related assets, and the composition and maturity of interest-earning assets and interest-bearing liabilities.

Interest rates increased significantly during 2022.

The Federal Reserve’s Federal Funds range is currently in a target range of 4.25% to 4.50%, with the Effective Federal Funds Rate at 4.33% at December 31, 2022.

The Federal Reserve is expected to continue to increase the Federal Funds Rate into 2023.

Interest rates increased during 2023.

The Federal Reserve’s Federal Funds range is currently in a target range of 5.25% to 5.50%, with the Effective Federal Funds Rate at 5.33% at December 31, 2023, and 4.33% at December 31, 2022.

Management actively takes balance sheet restructuring, derivative, and deposit pricing actions to help mitigate interest rate risk.

See the section of this Item 7 titled “Market Risk” for additional information regarding this risk.

See the section of this Item 7 titled “Risk Management — Market Risk” for additional information regarding this risk.

Loans typically generate more interest income than investment securities with similar maturities.

3 unchanged sentences

For analytical purposes, net interest income is presented in the table that follows, adjusted to a taxable equivalent basis to reflect what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset.

We used the federal statutory tax rate in effect of 21% for all periods.

We used the current federal statutory tax rate in effect of 21% for all periods.

This analysis portrays the income tax benefits related to tax-exempt assets and helps to facilitate a comparison between taxable and tax-exempt assets.

Management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully taxable equivalent basis.

Therefore, management believes these measures provide useful information for both management and investors by allowing them to make better peer comparisons.

Management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully taxable equivalent basis and that it may enhance comparability for peer comparison purposes for both management and investors.

The following table presents a three-year average balance sheet and for each major asset and liability category, its related interest income and yield, or its expense and rate for the years ended December 31.

31 unchanged sentences

Money market accounts 7,249,497 206,634 2.85 4,961,159 11,882 0.24 2,080,332 1,750 0.08

Time deposits 2,358,731 12,523 0.53 1,020,359 5,115 0.50 1,421,216 14,978 1.05

Time deposits, excluding brokered

deposits 3,875,984 123,428 3.18 2,312,935 10,801 0.47 1,020,359 5,105 0.50

Brokered deposits 913,349 45,094 4.94 45,796 1,722 3.76 41,371 31 0.08

Total interest-bearing deposits 25,341,779 484,360 1.91 21,767,431 49,093 0.23 11,735,516 10,954 0.09

36 unchanged sentences

Money market deposits 194,752 35,379 159,373 10,132 4,560 5,572

Time deposits 7,408 6,897 511 (9,863) (3,127) (6,736)

Time deposits, excluding brokered

deposits 112,627 28,646 83,981 5,696 1,028 4,668

Brokered deposits 43,372 37,726 5,646 1,691 87 1,604

Federal funds purchased and interbank

7 unchanged sentences

(1) The variance not solely due to rate or volume is allocated equally between the rate and volume variance.

(2) Interest on investment securities and loans includes the effect of taxable equivalent adjustments of $11.5 million and $6.9 million, respectively, in 2022;

$9.9 million and $4.0 million, respectively, in 2021;

and $8.9 million and $4.7 million, respectively, in 2020;

(2) Interest on investment securities includes the effect of taxable equivalent adjustments of $11.5 million in 2023, $11.5 million in 2022, and $9.9 million in 2021;

using the federal statutory tax rate in effect of 21%.

The increase in net interest income in 2022 when compared to 2021 was primarily due to higher average earning assets as a result of the merger, loan growth, higher rates, and higher accretion income.

Partially offsetting these increases were higher average interest-bearing liabilities as a result of the merger, lower interest and fees related to PPP loans, and higher costs of average interest-bearing liabilities.

(3) Interest on loans includes the effect of taxable equivalent adjustments of $11.9 million in 2023, $6.9 million in 2022, and $4.0 million, in 2021;

using the federal statutory tax rate in effect of 21%.

Net interest income in 2023 increased compared to 2022 primarily due to higher rates on loans and investment securities, as well as loan growth, partially offset by higher balances and costs of average interest-bearing liabilities and lower accretion income.

Accretion income associated with acquired loans and borrowings totaled $28.3 million in 2023, compared to $86.4 million in 2022.

Net interest income in 2022 included $6.9 million of interest and net fees on PPP loans, compared to $44.4 million in 2021.

There were no unamortized fees on remaining PPP loans at December 31, 2022.

The increase in the net interest margin on a fully taxable equivalent basis in 2022 when compared to 2021 was primarily due to higher yields on interest earning assets, partially offset by higher costs of interest-bearing liabilities.

The increase in the net interest margin on a fully taxable equivalent basis in 2023 when compared to 2022 was primarily due to higher yields on interest earning assets, substantially offset by higher costs of interest-bearing liabilities.

The yield on average earning assets increased 138 basis points from 3.80% in 2022 to 5.18% in 2023 and the cost of interest-bearing liabilities increased 176 basis points from 0.49% in 2022 to 2.25% in 2023.

Average earning assets increased by $17.6 billion, or 83%.

The increase in average earning assets consisted of a $3.4 billion increase in investment securities, a $13.8 billion increase in loans, and a $362.1 million increase in money market and other interest-earning investments.

Average interest-bearing liabilities increased $11.7 billion, or 82%.

The increase in average interest-bearing liabilities consisted of an $10.0 billion increase in interest-bearing deposits, a $150.1 million increase in federal funds purchased and interbank borrowings, a $47.8 million increase in securities sold under agreements to repurchase, a $1.1 billion increase in FHLB advances, and a $350.2 million increase in other borrowings.

Average noninterest-bearing deposits increased by $5.6 billion.

The increase in average earning assets in 2022 compared to 2021 was primarily due to the merger with First Midwest and strong loan growth.

Average earning assets increased by $4.3 billion, or 11%, primarily due to a $4.6 billion increase in loans.

Average interest-bearing liabilities increased $5.3 billion, or 21%, primarily due to a $3.6 billion increase in interest-bearing deposits and a $1.6 billion increase in FHLB advances.

Average noninterest-bearing deposits decreased by $1.1 billion.

The increase in average earning assets in 2023 compared to 2022 was primarily due to the full-year impact of the merger with First Midwest and strong loan growth.

The loan portfolio, including loans held-for-sale, which generally has an average yield higher than the investment portfolio, was 75% of average interest earning assets in 2023, compared to 71% in 2022.

Average loans including loans held for sale increased $13.8 billion in 2022 compared to 2021 primarily due to the First Midwest merger and strong organic loan growth.

Average investments increased $3.4 billion in 2022 compared to 2021 reflecting the First Midwest merger.

Average non-interest-bearing deposits increased $5.6 billion in 2022 compared to 2021 primarily due to the First Midwest merger.

Average interest-bearing deposits increased $10.0 billion in 2022 compared to 2021 driven by the First Midwest merger.

Average borrowed funds increased $1.6 billion in 2022 compared to 2021 primarily due to the First Midwest merger.

Provision for Credit Losses

Old National recorded a provision for credit losses of $144.8 million in 2022, compared to a recapture of $29.6 million in 2021.

Net charge-offs totaled $16.1 million in 2022, which included $11.2 million of net charge-offs on PCD loans, compared to net recoveries of $4.8 million in 2021.

The provision for credit losses on loans in 2022 included $96.3 million to establish an allowance for credit losses on non-PCD loans acquired in the First Midwest merger.

Provision for credit losses on unfunded loan commitments totaled $21.3 million in 2022, including $11.0 million for unfunded loan commitments acquired in the First Midwest merger.

Recapture of credit losses on unfunded loan commitments totaled $0.8 million in 2021.

Average loans, including loans held-for-sale, increased $4.6 billion in 2023 compared to 2022 primarily due to the full-year impact of the First Midwest merger and strong organic loan growth.

Average investments decreased $318.1 million in 2023 compared to 2022 reflecting the utilization of cash flows from securities to fund loan growth.

Average non-interest-bearing deposits decreased $1.1 billion in 2023 compared to 2022 while average interest-bearing deposits increased $3.6 billion primarily due to the full-year impact of the First Midwest merger, a mix shift as a result of the current rate environment, and organic growth.

Average borrowed funds increased $1.8 billion in 2023 compared to 2022 primarily due to a $1.6 billion increase in FHLB advances.

Provision (Release) for Credit Losses

The following table details the components of provision (release) for credit losses:

Years Ended December 31, % Change From

(dollars in thousands) 2023 2022 2021 2023 2022

Provision (release) for credit losses on loans $ 59,849 $ 123,340 $ (28,812) (51.5) % (528.1) %

Provision (release) for credit losses on

unfunded loan commitments (962) 21,309 (810) (104.5) N/M

Provision for credit losses on held-to-

maturity securities — 150 — (100.0) N/A

Total provision (release) for credit losses $ 58,887 $ 144,799 $ (29,622) (59.3) % (588.8) %

Net (charge-offs) recoveries on non-PCD

loans $ (31,432) $ (4,911) $ 4,765 540.0 % (203.1) %

Net (charge-offs) recoveries on PCD

loans (24,478) (11,188) — 118.8 N/A

Total net (charge-offs) recoveries on

loans $ (55,910) $ (16,099) $ 4,765 247.3 % (437.9) %

Net charge-offs (recoveries) to average loans 0.17 % 0.06 % (0.03) % 183.3 % (300.0) %

Total provision for credit losses decreased $85.9 million in 2023 compared to 2022.

The decrease was primarily due to $96.3 million to establish an allowance for credit losses on non-PCD loans acquired as well as $11.0 million for unfunded loan commitments acquired in the First Midwest merger in 2022.

The decrease was partially offset by higher net charge-offs, loan growth, and macroeconomic factors.

Continued loan growth in future periods, a decline in our current level of recoveries, or an increase in charge-offs could result in an increase in provision expense.

7 unchanged sentences

(dollars in thousands) 2023 2022 2021 2023 2022

Wealth management fees $ 69,102 $ 40,409 $ 36,806 71.0 % 9.8 %

Wealth and investment services fees $ 107,784 $ 100,851 $ 65,048 6.9 % 55.0 %

Service charges on deposit accounts 71,945 72,501 31,658 (0.8) 129.0

1 unchanged sentence

Mortgage banking revenue 16,319 23,015 42,558 (29.1) (45.9)

Investment product fees 31,749 24,639 21,614 28.9 14.0

Capital markets income 24,419 25,986 21,997 (6.0) 18.1

Company-owned life insurance 15,397 14,564 10,589 5.7 37.5

Debt securities gains (losses), net (88) 4,327 10,767 (102.0) (59.8)

Gain on sale of health savings accounts 90,673 — — N/A N/A

Debt securities gains (losses), net (6,265) (88) 4,327 N/M (102.0)

Gain on sale of Visa Class B restricted shares 21,635 — — N/A N/A

Gain on sale of health savings accounts — 90,673 — (100.0) N/A

Other income 39,955 32,050 14,276 24.7 124.5

Total noninterest income $ 333,342 $ 399,779 $ 214,219 (16.6) % 86.6 %

Noninterest income to total revenue (1)

22.9 % 26.0 % 28.2 %

(1) Total revenue includes the effect of a taxable equivalent adjustment of $18.4 million in 2022, $13.9 million in 2021, and $13.6 million in 2020.

The increase in noninterest income in 2022 compared to 2021 was primarily due to the First Midwest merger in February of 2022 and a $90.7 million gain on the sale of health savings accounts in the fourth quarter of 2022.

The increase in noninterest income was partially offset by lower mortgage banking revenue, which was impacted by the higher rate environment, and, accordingly, lower production and gain on sale margins.

In addition, wealth management fees were negatively impacted by current market conditions.

The decrease in noninterest income in 2023 compared to 2022 was primarily due to a $90.7 gain on the sale of health savings accounts in the fourth quarter of 2022, partially offset by a gain on sale of Visa Class B restricted shares totaling $21.6 million in the fourth quarter of 2023 and the full-period 2023 impact of the First Midwest merger which occurred in February of 2022.

Wealth and investment services fees increased $6.9 million in 2023 compared to 2022 primarily due to higher wealth management fees as a result of continued sales to new and existing customers as well as favorable market conditions.

In addition, wealth and investment services fees increased due to the full-period 2023 impact of the First Midwest merger.

Service charges on deposit accounts decreased modestly in 2023 as a result of several enhancements to overdraft protection programs implemented in late 2022 to provide clients with more flexibility.

The changes included the elimination of the non-sufficient fund (“NSF”) fee when an item is returned, among other modifications that benefit consumers.

The impact of these enhancements was substantially offset by increased service charges on deposit accounts due to the full-period 2023 impact of the First Midwest merger.

Mortgage banking revenue decreased $6.7 million in 2023 compared to 2022 primarily due to the higher rate environment and lower gain on sale margins.

During the fourth quarter of 2023, the Company recognized a $21.6 million pre-tax gain on sale of Visa Class B restricted shares in noninterest income.

Prior to the sale, the shares were carried at zero cost basis due to uncertainty surrounding the ability of the Company to transfer or otherwise liquidate the shares.

At December 31, 2023, the Company does not hold any remaining Visa Class B restricted shares.

See Note 20 to the consolidated financial statements for additional details on the Visa Class B restricted shares.

On November 18, 2022, Old National completed the sale of 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 the transaction resulted in a $90.7 million pre-tax gain.

At closing, the health savings accounts held in deposit accounts that were transferred totaled approximately $382 million and the transaction resulted in a $90.7 million pre-tax gain in 2022.

Other income increased $7.9 million in 2023 compared to 2022 primarily due to lower losses on equity securities reflecting improved market conditions, higher commercial loan fees, and higher card incentives.

Noninterest Expense

6 unchanged sentences

Marketing 39,511 32,264 12,684 22.5 154.4

Data processing 84,865 47,047 41,086 80.4 14.5

Technology 80,343 84,865 47,047 (5.3) 80.4

Communication 16,980 18,846 10,073 (9.9) 87.1

6 unchanged sentences

Total noninterest expense $ 1,026,306 $ 1,038,183 $ 501,379 (1.1) % 107.1 %

Noninterest expense increased $536.8 million in 2022 compared to 2021 reflective of the additional operating costs associated with the First Midwest merger, as well as $120.9 million of merger-related expenses and $26.8 million for property optimization.

In addition, higher incentive accruals resulting from strong performance contributed to the increase.

Noninterest expense for 2021 included $14.6 million of merger-related expenses.

These actions resulted in expenses totaling $26.8 million that are associated with valuation adjustments related to these locations.

Noninterest expense decreased $11.9 million in 2023 compared to 2022.

Noninterest expense in 2022 included $120.9 million of merger-related expenses and $26.8 million for property optimization.

Excluding these expenses, noninterest expense in 2023 increased $78.8 million, reflective of the additional operating costs associated with the full-period 2023 impact of the First Midwest merger which occurred in February of 2022, higher FDIC assessment expense, and marketing campaigns.

FDIC assessment expense increased $37.4 million in 2023 compared to 2022 due to a $19.1 million FDIC special assessment, as well as higher assessment rates and deposit balances.

On November 16, 2023, the FDIC finalized a rule that imposes special assessments to recover the losses to the DIF resulting from the FDIC’s use, in March 2023, of the systemic risk exception to the least-cost resolution test under the Federal Deposit Insurance Act in connection with the receiverships of Silicon Valley Bank and Signature Bank.

The FDIC estimated in approving the rule that those assessed losses total approximately $16.3 billion.

The rule provides that this loss estimate will be periodically adjusted, which will affect the amount of the special assessment.

Under the rule, the assessment base is the estimated uninsured deposits that an IDI reported in its December 31, 2022 Call Report, excluding the first $5 billion in estimated uninsured deposits.

The special assessments will be collected at an annual rate of approximately 13.4 basis points per year (3.36 basis points per quarter) over eight quarters in 2024 and 2025, with the first assessment period beginning January 1, 2024.

Because the estimated loss pursuant to the systemic risk determination will be periodically adjusted, the FDIC retains the ability to cease collection early, extend the special assessment collection period and impose a final shortfall special assessment on a one-time basis.

In its December 31, 2022 Call Report, Old National Bank reported estimated uninsured deposits of approximately $12.0 billion.

The total of the special assessments for Old National Bank is estimated at $19.1 million, and such amount was recorded as an expense in the year ending December 31, 2023.

Amortization of tax credit investments increased $4.4 million in 2023 compared to 2022.

2 unchanged sentences

See Note 9 to the consolidated financial statements for additional information on our tax credit investments.

These actions resulted in expenses totaling $26.8 million associated with valuation adjustments related to these locations in 2022.

Provision for Income Taxes

2 unchanged sentences

The effective tax rate was 22.5% in 2023 compared to 21.4% in 2022.

The higher effective tax rate in 2022 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 2023 compared to 2022 reflected increases in pre-tax book income and non-deductible FDIC premiums combined with smaller increases in tax credits and tax-exempt income.

See Note 15 to the consolidated financial statements for additional details on Old National’s income tax provision.

Comparison of Fiscal Years 2021 and 2020

In 2021, we generated net income applicable to common shareholders of $277.5 million and diluted net income per common share of $1.67 compared to $226.4 million and diluted net income per common share of $1.36, respectively, in 2020.

The 2021 earnings included a $0.3 million increase in net interest income, a $35.6 million decrease in noninterest expense, and a $72.5 million decrease in provision for credit losses.

These favorable variances in net income applicable to common shareholders were partially offset by $25.1 million decrease in noninterest income and a $32.2 million increase in income tax expense.

High commercial loan production and mortgage production, consistently strong credit quality metrics, and low cost of total deposits all contributed to favorable 2021 performance when compared to 2020.

Net interest income increased slightly to $596.4 million in 2021, compared to $596.1 million in 2020.

Taxable equivalent net interest income was $610.3 million in 2021, compared to $609.7 million in 2020.

Average earning assets increased by $2.0 billion in 2021 and the yield on average earning assets decreased 44 basis points from 3.53% in 2020 to 3.09% in 2021.

The provision for credit losses was a recapture of $29.6 million in 2021, compared to an expense of $42.9 million in 2020.

Charge-offs remained low during 2021 and we continued to see positive trends in credit quality.

Noninterest income decreased $25.1 million in 2021 compared to 2020 reflecting lower mortgage banking revenue and lower debt securities gains.

Noninterest expense decreased $35.6 million in 2021 compared to 2020 reflecting higher charges related to the ONB Way strategic initiative in 2020 and lower amortization of tax credit investments in 2021.

The provision for income taxes was $61.3 million in 2021 compared to $29.1 million in 2020.

Old National’s effective tax rate was 18.1% in 2021 compared to 11.4% in 2020.

The higher effective tax rate in 2021 compared to 2020 was primarily the result of an increase in pre-tax book income and lower federal tax credits available.

FINANCIAL CONDITION

At December 31, 2023, our assets were $49.1 billion, a $2.3 billion increase compared to $46.8 billion at December 31, 2022.

The increase was driven primarily by the merger with First Midwest in February of 2022, as well as organic loan growth.

The increase was driven by disciplined loan growth and higher cash balances funded through higher deposits.

Earning Assets

Our earning assets are comprised of investment securities, portfolio loans, loans held-for-sale, money market investments, interest earning accounts with the Federal Reserve, and equity securities.

Earning assets were $41.6 billion at December 31, 2022, an increase of $19.8 billion compared to earning assets of $21.9 billion at December 31, 2021.

Earning assets were $43.9 billion at December 31, 2023, an increase of $2.3 billion compared to earning assets of $41.6 billion at December 31, 2022 driven primarily by loan growth.

Investment Securities

We classify the majority of our investment securities as available-for-sale to give management the flexibility to sell the securities prior to maturity if needed, based on fluctuating interest rates or changes in our funding requirements.

We classify the majority of our investment securities as available-for-sale to give management the flexibility to sell the securities prior to maturity based on fluctuating interest rates or changes in our funding requirements.

During 2022, we transferred $3.0 billion of securities available-for-sale to held-to-maturity due to rising interest rates and related effects on the value of our investment securities.

Equity securities are recorded at fair value and totaled $52.5 million at December 31, 2022 compared to $13.2 million at December 31, 2021.

The increase in equity securities was driven by the merger with First Midwest.

At December 31, 2022, the investment securities portfolio, including equity securities, was $10.2 billion compared to $7.6 billion at December 31, 2021, an increase of $2.7 billion driven primarily by the merger with First Midwest.

The investment securities portfolio, including equity securities, was $10.2 billion at both December 31, 2023 and December 31, 2022.

Investment securities represented 23% of earning assets at December 31, 2023, compared to 25% at December 31, 2022.

This decrease was driven by the First Midwest merger and stronger loan demand in 2022.

As of December 31, 2023, we had no intent to sell any securities that were in an unrealized loss position nor is it expected that we would be required to sell the securities prior to their anticipated recovery.

The investment securities available-for-sale portfolio had net unrealized losses of $869.5 million at December 31, 2023, compared to net unrealized losses of $844.4 million at December 31, 2022.

The investment securities held-to-maturity portfolio had net unrealized losses of $445.5 million at December 31, 2022.

Net unrealized losses increased from December 31, 2021 to December 31, 2022 primarily due to an increase in rates impacting market values for mortgage-backed, U.S.

government-sponsored entities and agencies, and tax exempt municipal securities.

The investment securities held-to-maturity portfolio had net unrealized losses of $412.3 million at December 31, 2023, compared to net unrealized losses of $445.5 million at December 31, 2022.

The investment securities available-for-sale portfolio including securities hedges had an effective duration of 4.24 at December 31, 2023, compared to 4.57 at December 31, 2022.

The total investment securities portfolio had an effective duration of 6.45 at December 31, 2022.

The total investment securities portfolio had an effective duration of 5.35 at December 31, 2023, compared to 6.45 at December 31, 2022.

Effective duration represents the percentage change in the fair value of the portfolio in response to a change in interest rates and is used to evaluate the portfolio’s price volatility at a single point in time.

2 unchanged sentences

Loan Portfolio

We lend primarily to consumers and small to medium-sized commercial and commercial real estate clients in many diverse industries including, among others, real estate rental and leasing, manufacturing, healthcare, wholesale trade, construction, and agriculture.

Our policy is to concentrate our lending activity in the geographic market areas we serve, primarily in the Midwest region.

We lend to commercial and commercial real estate clients in many diverse industries including real estate rental and leasing, manufacturing, healthcare, wholesale trade, construction, and agriculture, among others.

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

The following table presents the composition of the loan portfolio at December 31.

2 unchanged sentences

Commercial real estate 14,140,629 12,457,070

Consumer 2,697,226 1,574,114

Total loans excluding residential real estate 24,663,200 11,346,557

Residential real estate 6,699,443 6,460,441

Consumer 2,639,625 2,697,226

Total loans 32,991,927 31,123,641

1 unchanged sentence

Net loans $ 32,684,317 $ 30,819,970

The following table presents the maturity distribution and rate sensitivity of loans at December 31, 2022 and an analysis of these loans that have fixed and floating interest rates.

The following table presents the contractual maturity distribution and rate sensitivity of loans at December 31, 2023 and an analysis of these loans that have fixed and floating interest rates.

The table does not take into account repricing or other forecast assumptions.

(dollars in thousands) Within

22 unchanged sentences

Commercial and commercial real estate loans are the largest classifications within earning assets, representing 54% at December 31, 2023, compared to 53% at December 31, 2022.

At December 31, 2022, commercial and commercial real estate loans were $22.0 billion, an increase of $12.2 billion compared to December 31, 2021 driven by the merger with First Midwest and strong loan production in 2022.

At December 31, 2023, commercial and commercial real estate loans were $23.7 billion, an increase of $1.7 billion compared to December 31, 2022 driven by disciplined loan production that was well balanced across our market footprint and product lines, partially offset by commercial loan sales.

The following table provides detail on commercial loans by industry classification (as defined by the North American Industry Classification System) and by loan size at December 31.

(dollars in thousands) Outstanding Exposure Nonaccrual Outstanding Exposure Nonaccrual

(dollars in thousands) Outstanding Exposure (1)

Nonaccrual Outstanding Exposure (1)

Manufacturing $ 1,589,727 $ 2,734,935 $ 7,408 $ 1,757,907 $ 2,803,883 $ 2,464

2 unchanged sentences

Real estate rental and leasing 686,008 1,035,073 700 642,511 962,549 1,135

Finance and insurance 637,630 966,842 1 484,532 858,391 17

Construction 554,312 1,437,025 2,040 556,913 1,307,582 1,517

1 unchanged sentence

technical services 458,133 821,738 3,825 507,940 832,407 4,735

Finance and insurance 484,532 858,391 17 162,920 232,847 44

Transportation and warehousing 453,630 703,976 1,746 422,643 633,267 3,496

4 unchanged sentences

remediation services 321,018 487,359 347 315,785 446,655 13,860

Educational services 263,539 406,867 7 210,850 378,955 3,750

Agriculture, forestry, fishing,

1 unchanged sentence

Public administration 216,939 285,963 — 231,453 325,834 846

Educational services 210,850 378,955 3,750 216,384 295,065 —

Other services 208,012 400,195 9,328 194,998 356,743 2,656

9 unchanged sentences

Total 100 % 100 % 100 % 100 % 100 % 100 %

(1) Includes unfunded loan commitments.

The following table provides detail on commercial real estate loans classified by property type at December 31.

(dollars in thousands) Outstanding % Outstanding %

(dollars in thousands) Outstanding Exposure (1)

Nonaccrual Outstanding Exposure (1)

By Property Type:

3 unchanged sentences

Retail 1,886,233 1,958,254 29,823 1,808,041 1,895,345 18,155

Commercial development 660,798 5 114,113 2

Single family 450,560 476,946 3,187 515,390 615,216 7,022

1 unchanged sentence

Total $ 14,140,629 $ 17,049,286 $ 160,792 $ 12,457,070 $ 15,611,919 $ 123,721

(1) Other includes agriculture real estate, hotels, self-storage, senior housing, land development, religion, and mixed-use properties.

(1) Includes unfunded loan commitments.

(2) Other includes commercial development, agriculture real estate, hotels, self-storage, senior housing, land development, religion, and mixed-use properties.

The mix of properties securing the loans in our commercial real estate portfolio is balanced between owner-occupied and non-owner-occupied categories and is diverse in terms of type and geographic location, generally within the Company’s primary market area.

Approximately 25% of the commercial real estate portfolio is owner-occupied as of December 31, 2023.

The Company actively reviews its broader loan portfolio in the normal course of business and has performed a targeted review of contractual maturities in its non-owner-occupied commercial real estate portfolio as part of its response to current market conditions to identify exposure to credit risk associated with renewals.

At December 31, 2023, the Company held $435.2 million of non-owner-occupied commercial real estate, or 1.3% of total loans, that mature within 18 months with an interest rate below 4%.

Residential Real Estate Loans

Residential real estate loans held in our portfolio increased $4.2 billion to $6.5 billion at December 31, 2022, compared to December 31, 2021, driven by the merger with First Midwest and organic loan growth.

Residential real estate loans held in our portfolio increased $239.0 million to $6.7 billion at December 31, 2023, compared to December 31, 2022.

Future increases in interest rates could result in a decline in the level of refinancings and new originations of residential real estate loans.

Consumer Loans

Consumer loans, including automobile loans, personal, and home equity loans and lines of credit, increased $1.1 billion to $2.7 billion at December 31, 2022 compared to December 31, 2021, driven by the merger with First Midwest and loan growth.

Consumer loans, including automobile loans, personal, and home equity loans and lines of credit, decreased $57.6 million to $2.6 billion at December 31, 2023 compared to December 31, 2022.

This decrease reflected lower direct loans, partially offset by higher home equity and indirect consumer loans.

Allowance for Credit Losses on Loans and Unfunded Loan Commitments

At December 31, 2023, the allowance for credit losses on loans was $307.6 million, compared to $303.7 million at December 31, 2022.

The increase in the allowance for credit losses on loans reflected $89.1 million of allowance for credit losses on acquired PCD loans established through acquisition accounting adjustments on or after the First Midwest merger date.

In addition, the provision for credit losses expense in 2022 included $96.3 million to establish an allowance for credit losses on non-PCD loans acquired in the First Midwest merger.

Continued loan growth in future periods, a decline in our current level of recoveries, or an increase in charge-offs could result in an increase in provision expense.

4 unchanged sentences

The allowance for credit losses on unfunded loan commitments totaled $31.2 million at December 31, 2023, compared to $32.2 million at December 31, 2022.

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.

Additional information about our Allowance for Credit Losses is included in the “Risk Management – Credit Risk” section of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes 1 and 4 to the consolidated financial statements.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets at December 31, 2022 totaled $2.1 billion, an increase of $1.1 billion compared to December 31, 2021 as a result of goodwill and other intangible assets recorded with the First Midwest merger.

Other assets increased $770.2 million since December 31, 2021 primarily due to higher net deferred tax assets related to the market value adjustments of certain investment securities, higher derivative assets, and deferred tax and other assets related to the First Midwest merger.

The following table summarizes Old National’s total funding, comprised of deposits and wholesale borrowings at December 31:

8 unchanged sentences

Wholesale borrowings:

Federal funds purchased and interbank borrowings 581,489 276 581,213 N/M

Federal funds purchased and interbank borrowings 390 581,489 (581,099) (100) %

Securities sold under agreements to repurchase 285,206 432,804 (147,598) (34) %

3 unchanged sentences

Total funding $ 42,566,327 $ 40,587,144 $ 1,979,183 5 %

The increase in total funding was driven by the merger with First Midwest as well as loan growth.

Noninterest-bearing demand deposits decreased $2.3 billion at December 31, 2023 compared to December 31, 2022 while interest-bearing deposits increased $4.5 billion reflecting a mix shift as a result of the rising rate environment during 2023 and organic growth.

We use wholesale funding to augment deposit funding and to help maintain our desired interest rate risk position.

18 unchanged sentences

Total $ 1,515,957 $ 2,556,911

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities increased $614.8 million from December 31, 2021 primarily due to higher derivative liabilities and accrued expenses and other liabilities associated with the First Midwest merger.

At December 31, 2023, the estimated amount of FDIC uninsured deposits for regulatory purposes was $17.1 billion.

Shareholders’ equity totaled $5.6 billion, or 11% of total assets, at December 31, 2023 and $5.1 billion, or 11% of total assets, at December 31, 2022.

In relation to the merger of equals transaction with First Midwest, 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 change in unrealized gains (losses) on available-for-sale investment securities decreased equity by $639.4 million during 2022.

In addition, available-for-sale investment securities with a fair value of $3.0 billion were transferred from the available-for-sale portfolio to the held-to-maturity portfolio during 2022.

The resulting unrealized holding loss, net of tax, is included in shareholders’ equity and totaled $112.7 million at December 31, 2022.

Old National repurchased 3.5 million shares of Common Stock in 2022 under a stock repurchase plan that was approved by the Company’s Board of Directors, which reduced equity by $63.8 million.

Old National paid cash dividends of $0.56 per common share in 2022, which reduced equity by $163.5 million.

This increase was driven by retained earnings along with changes in unrealized gains (losses) on derivatives.

These increases were partially offset by dividends and the repurchase of 1.8 million shares of Common Stock in 2023 under a stock repurchase plan that was approved by the Company’s Board of Directors, which reduced equity by $29.5 million.

Old National’s Common Stock is traded on the NASDAQ under the symbol “ONB” with 58,178 shareholders of record at December 31, 2023.

14 unchanged sentences

strategic, market, liquidity, credit, operational, talent management, compliance and regulatory, legal, and reputational.

Our Chief Risk Officer is independent of all other management and provides quarterly reports to the Board’s Enterprise Risk Committee.

Our Chief Risk Officer provides quarterly reports to the Board’s Enterprise Risk Committee on various risk topics.

The following discussion addresses certain of these major risks including credit, market, liquidity, operational, compliance and regulatory, and legal.

3 unchanged sentences

Investment Activities

We carry a higher exposure to loss in our pooled trust preferred securities, which are collateralized debt obligations, due to illiquidity in that market and the performance of the underlying collateral.

At December 31, 2022, we had pooled trust preferred securities with a fair value of $10.8 million, or less than 1% of the available-for-sale securities portfolio.

These securities remained classified as available-for-sale and the unrealized loss on our pooled trust preferred securities was $3.0 million at December 31, 2022.

The fair value of these securities is expected to improve as we get closer to maturity but may be adversely impacted by credit deterioration.

All of our mortgage-backed securities are backed by U.S.

6 unchanged sentences

Old National manages exposure to counterparty risk in connection with its derivatives transactions by generally engaging in transactions with counterparties having ratings of at least “A” by Standard & Poor’s Rating Service or “A2” by Moody’s Investors Service.

There are provisions in our agreements with the counterparties that allow for certain unsecured credit exposure up to an agreed threshold.

Exposures in excess of the agreed thresholds are collateralized.

Total credit exposure is monitored by counterparty and managed within limits that management believes to be prudent.

2 unchanged sentences

Commercial and industrial loans are made primarily for the purpose of financing equipment acquisition, expansion, working capital, and other general business purposes.

Lease financing consists of direct financing leases and is used by commercial clients to finance capital purchases ranging from computer equipment to transportation equipment.

Lease financing consists of direct financing leases and is used by commercial clients to finance capital purchases ranging from computer equipment to transportation

The credit decisions for these transactions are based upon an assessment of the overall financial capacity of the applicant.

35 unchanged sentences

This committee, which meets quarterly, is made up of independent outside directors.

The committee monitors credit quality through its review of information such as delinquencies, credit exposures, peer comparisons, problem loans, and charge-offs.

In addition, the committee provides oversight of loan policy changes as recommended by management to assure our policy remains appropriate for the current lending environment.

The committee

monitors credit quality through its general review of information such as delinquencies, credit exposures, peer comparisons, problem loans, and charge-offs.

In addition, the committee provides oversight of loan policy changes as recommended by management with the objective of maintaining an appropriate lending policy for the current lending environment.

We lend to commercial and commercial real estate clients in many diverse industries including, among others, real estate rental and leasing, manufacturing, healthcare, wholesale trade, construction, and agriculture.

4 unchanged sentences

Our policy is to concentrate our lending activity in the geographic market areas we serve, primarily in the Midwest region.

On February 15, 2022, Old National closed on its merger of equals transaction with First Midwest.

As of the closing date of the transaction, First Midwest loans totaled $14.3 billion.

Old National reviewed the acquired loans and determined that as of December 31, 2022, $275.6 million met the definition of criticized and $429.1 million were considered classified (of which $132.8 million are reported with nonaccrual loans).

These loans are included in our summary of under-performing, criticized, and classified assets table below.

The following table presents a summary of under-performing, criticized, and classified assets at December 31:

8 unchanged sentences

Other classified assets (2)

48,930 24,735

Criticized loans 843,920 636,069

8 unchanged sentences

Allowance for credit losses on loans/nonaccrual loans 111.93 127.50

(1) As a result of the adoption of ASU 2022-02 on January 1, 2023, the TDR classification is no longer applicable.

(2) Includes investment securities that fell below investment grade rating.

(3) Loans exclude loans held-for-sale.

(3) Non-performing loans include nonaccrual loans and TDRs still accruing.

Under-performing assets increased to $267.0 million at December 31, 2022, compared to $127.1 million at December 31, 2021 primarily due to the First Midwest merger.

Under-performing assets as a percentage of total loans at December 31, 2022 were 0.86%, a 7 basis point improvement from 0.93% at December 31, 2021.

Nonaccrual loans increased $131.5 million from December 31, 2021 to December 31, 2022 primarily due to the First Midwest merger.

(4) Non-performing loans include nonaccrual loans and TDRs still accruing for periods prior to January 1, 2023.

Under-performing assets increased to $285.2 million at December 31, 2023, compared to $267.0 million at December 31, 2022.

Under-performing assets as a percentage of total loans were 0.86% at both December 31, 2023 and December 31, 2022.

Nonaccrual loans increased $36.6 million from December 31, 2022 to December 31, 2023 reflecting PCD loan migration in the commercial real estate portfolio.

As a percentage of nonaccrual loans, the allowance for credit losses on loans was 111.93% at December 31, 2023, compared to 127.50% at December 31, 2022.

1 unchanged sentence

The amount of interest income actually recorded on nonaccrual and renegotiated loans was $5.0 million in 2023 and $5.1 million in 2022.

Total criticized and classified assets were $1.4 billion at December 31, 2022, an increase of $896.8 million from December 31, 2021.

Criticized and classified assets related to the First Midwest merger totaled $704.8 million at December 31, 2022.

Total criticized and classified assets were $1.8 billion at December 31, 2023, an increase of $361.7 million from December 31, 2022 primarily due to higher criticized commercial and commercial real estate loans.

Other classified assets include investment securities that fell below investment grade rating totaling $48.9 million at December 31, 2023, compared to $24.7 million at December 31, 2022.

Old National may choose to restructure the contractual terms of certain loans.

At December 31, 2022, TDRs totaled $39.3 million, $24.0 million of which were included within nonaccrual loans.

At December 31, 2021, TDRs totaled $30.0 million, $11.7 million of which were included within nonaccrual loans.

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 not committed to lend any additional funds to clients with outstanding loans that are classified as TDRs at December 31, 2022 or December 31, 2021.

See Note 4 to the consolidated financial statements for additional information on TDRs.

Allowance for Credit Losses on Loans and Unfunded Loan Commitments

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.

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.

12 unchanged sentences

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 on loans was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures.

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

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.

3 unchanged sentences

Balance Portfolio

Reclassifications After

Reclassifications Portfolio

Segment After

Reclassifications

24 unchanged sentences

Allowance established for acquired PCD loans — 89,089 —

Impact of adopting ASC 326 — — 41,347

Loans charged-off:

17 unchanged sentences

Net charge-offs (recoveries) 55,910 16,099 (4,765)

Provision for credit losses on loans 123,340 (28,812) 38,395

Provision (release) for credit losses on loans 59,849 123,340 (28,812)

Ending allowance for credit losses on loans $ 307,610 $ 303,671 $ 107,341

2 unchanged sentences

during the period — 11,013 —

Impact of adopting ASC 326 — — 4,549

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

Provision (release) for provision for credit losses on unfunded loan

commitments (962) 10,296 (810)

Ending allowance for credit losses on unfunded loan commitments $ 31,226 $ 32,188 $ 10,879

16 unchanged sentences

Average loans for the year (1)

$ 9,338,940 $ 7,755,895 $ 3,553,527

Net charge-offs (recoveries)/average loans 0.40 % 0.03 % 0.01 %

26 unchanged sentences

The allowance for credit losses on loans was $307.6 million at December 31, 2023, compared to $303.7 million at December 31, 2022.

The increase reflects $89.1 million of allowance for credit losses on acquired PCD loans established through acquisition accounting adjustments as a result of the First Midwest merger.

In addition, the provision for credit losses expense in 2022 included $96.3 million to establish an allowance for credit losses on non-PCD loans acquired in the First Midwest merger.

Continued loan growth in future periods, a decline in our current level of recoveries, or an increase in charge-offs could result in an increase in provision expense.

15 unchanged sentences

The allowance for credit losses on unfunded loan commitments totaled $31.2 million at December 31, 2023, compared to $32.2 million at December 31, 2022.

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.

See the section entitled “Risk Factors” in Item 1A of this Form 10-K for further discussion of our credit risk.

Market risk is the risk that the estimated fair value of our assets, liabilities, and derivative financial instruments will decline as a result of changes in interest rates or financial market volatility, or that our net income will be significantly reduced by interest rate changes.

13 unchanged sentences

The model quantifies the effects of various possible interest rate scenarios on projected net interest income.

The model measures the impact on net interest income relative to a base case scenario.

The model measures the impact on net interest income relative to a base case scenario over a two-year cumulative horizon resulting from an immediate change in interest rates using multiple rate scenarios.

The base case scenario assumes that the balance sheet and interest rates are held at current levels.

The model shows our projected net interest income sensitivity based on interest rate changes only and does not consider other forecast assumptions.

Due to the dynamics of future interest

rate expectations, we also measure and monitor interest rate risk using the forward curve, which may be a more probable scenario of our interest rate exposure.

Presentation of the forward curve model is also included as of December 31, 2023.

The following table illustrates our projected net interest income sensitivity over a two-year cumulative horizon based on the asset/liability model as of December 31, 2023 and 2022:

Rate Decrease Immediate Rate Increase

Immediate Rate Decrease 12/31/2023

Curve Immediate Rate Increase

(dollars in thousands) -300

Basis Points -200

Basis Points -100

Basis Points Base +100

3 unchanged sentences

Projected interest income:

Money market, other interest earning

investments, and investment securities $ 620,880 $ 658,876 $ 698,965 $ 738,776 $ 778,162 $ 817,474

Money market, other

interest earning

investments, and

investment securities $ 697,457 $ 737,468 $ 790,456 $ 787,252 $ 846,761 $ 908,089 $ 968,265 $ 1,028,281

Loans 3,060,287 3,427,292 3,793,581 3,776,274 4,151,614 4,507,231 4,863,048 5,218,843

Total interest income 3,285,208 3,655,846 4,039,193 4,415,069 4,786,149 5,156,949

Total interest

income 3,757,744 4,164,760 4,584,037 4,563,526 4,998,375 5,415,320 5,831,313 6,247,124

Projected interest expense:

1 unchanged sentence

Borrowings 339,574 400,223 482,315 474,785 568,256 648,438 728,744 809,100

Total interest expense 719,090 954,685 1,192,895 1,441,238 1,689,631 1,938,015

Net interest income $ 2,566,118 $ 2,701,161 $ 2,846,298 $ 2,973,831 $ 3,096,518 $ 3,218,934

Total interest

expense 925,434 1,274,031 1,644,038 1,545,557 1,982,190 2,360,295 2,701,759 3,061,653

income $ 2,832,310 $ 2,890,729 $ 2,939,999 $ 3,017,969 $ 3,016,185 $ 3,055,025 $ 3,129,554 $ 3,185,471

Change from base $ (183,875) $ (125,456) $ (76,186) $ 1,784 $ 38,840 $ 113,369 $ 169,286

% change from base (6.10) % (4.16) % (2.53) % 0.06 % 1.29 % 3.76 % 5.61 %

Decrease Immediate Rate Increase

Rate Decrease Immediate Rate Increase

Basis Points -100

Basis Points Base +100

3 unchanged sentences

Projected interest income:

Money market, other interest earning

investments, and investment securities $ 286,047 $ 306,020 $ 343,964 $ 380,103 $ 414,696

Money market, other

interest earning

investments, and

investment securities $ 620,880 $ 658,876 $ 698,965 $ 738,776 $ 778,162 $ 817,474

Loans 2,664,328 2,996,970 3,340,228 3,676,293 4,007,987 4,339,475

Total interest income 1,122,165 1,173,696 1,351,839 1,531,982 1,705,809

Total interest

income 3,285,208 3,655,846 4,039,193 4,415,069 4,786,149 5,156,949

Projected interest expense:

1 unchanged sentence

Borrowings 322,555 399,862 473,953 551,211 628,518 705,816

Total interest expense 85,250 102,696 219,414 339,991 461,259

Net interest income $ 1,036,915 $ 1,071,000 $ 1,132,425 $ 1,191,991 $ 1,244,550

Total interest

expense 719,090 954,685 1,192,895 1,441,238 1,689,631 1,938,015

income $ 2,566,118 $ 2,701,161 $ 2,846,298 $ 2,973,831 $ 3,096,518 $ 3,218,934

Change from base $ (280,180) $ (145,137) $ 127,533 $ 250,220 $ 372,636

% change from base (9.84) % (5.10) % 4.48 % 8.79 % 13.09 %

Our projected net interest income increased year over year due to the First Midwest merger, loan growth, and rising interest rates.

Our projected net interest income increased year over year due to loan growth and rising interest rates.

A key element in the measurement and modeling of interest rate risk is the re-pricing assumptions of our transaction deposit accounts, which have no contractual maturity dates.

Because the models are driven by expected behavior in various interest rate scenarios and many factors besides market interest rates affect our net interest income, we recognize that model outputs are not guarantees of actual results.

For this reason, we model many different combinations of interest rates and balance sheet assumptions to understand our overall sensitivity to market interest rate changes, including shocks, ramps, yield curve flattening, yield curve steepening, as well as forecasts of likely interest rate scenarios tested.

For this reason, we model many different combinations of interest rates and balance sheet assumptions to understand our overall sensitivity to market interest

rate changes, including shocks, ramps, yield curve flattening, yield curve steepening, as well as forecasts of likely interest rate scenarios tested.

We use cash flow and fair value hedges, primarily interest rate swaps, collars, and floors, to mitigate interest rate risk.

Derivatives designated as hedging instruments were in a net liability position with a fair value loss of $36.1 million at December 31, 2022, compared to a net asset position with a fair value gain of $1.3 million at December 31, 2021.

Derivatives designated as hedging instruments were in a net asset position with a fair value gain of $4.5 million at December 31, 2023, compared to a net liability position with a fair value loss of $36.1 million at December 31, 2022.

See Note 19 to the consolidated financial statements for further discussion of derivative financial instruments.

1 unchanged sentence

Liquidity risk arises from the possibility that we may not be able to satisfy current or future financial commitments or may become unduly reliant on alternative funding sources.

We establish liquidity risk guidelines that we review with the Enterprise Risk Committee of our Board of Directors and monitor through our Balance Sheet Management Committee.

We establish liquidity risk guidelines that we review with the Enterprise Risk Committee of our Board of Directors and monitor through our Asset/Liability Executive Management Committee.

The objective of liquidity management is to ensure we have the ability to fund balance sheet growth and meet deposit and debt obligations in a timely and cost-effective manner.

Management monitors liquidity through a regular review of asset and liability maturities, funding sources, and loan and deposit forecasts.

We maintain strategic and contingency liquidity plans to ensure sufficient available funding to satisfy requirements for balance sheet growth, properly manage capital markets’ funding sources and to address unexpected liquidity requirements.

On June 5, 2020, we filed an automatic shelf registration statement with the SEC that permits us to issue an unspecified amount of debt or equity securities.

We maintain strategic and contingency liquidity plans to ensure sufficient available funding to satisfy requirements for balance sheet growth, to properly manage capital markets’ funding sources, and to address unexpected liquidity requirements.

On May 31, 2023, we filed an automatic shelf registration statement with the SEC that permits us to issue an unspecified amount of debt or equity securities.

Loan repayments and maturing investment securities are a relatively predictable source of funds.

However, deposit flows, calls of investment securities, and prepayments of loans and mortgage-related securities are not as predictable as they are strongly influenced by interest rates, the housing market, general and local economic conditions, and competition in the marketplace.

However, deposit flows, calls of investment securities, and prepayments of loans and mortgage-related securities are not as predictable as they are strongly influenced by interest rates, events at other banking organizations, the housing market, general and local economic conditions, and competition in the marketplace.

We continually monitor marketplace trends to identify patterns that might improve the predictability of the timing of deposit flows or asset prepayments.

10 unchanged sentences

Our ability to acquire funding at competitive prices is influenced by rating agencies’ views of our credit quality, liquidity, capital, and earnings.

Moody’s Investors Service places us in an investment grade that indicates a low risk of default.

For both Old National and Old National Bank:

• Moody’s Investors Service affirmed the Long-Term Rating of “A3” for Old National’s senior unsecured/issuer rating on February 16, 2022.

• Moody’s Investors Service affirmed Old National Bank’s long-term deposit rating of “Aa3” on February 16, 2022.

The bank’s short-term deposit rating was affirmed at “P-1” and the bank’s issuer rating was affirmed at “A3.”

Moody’s Investors Service concluded a rating review of Old National Bank on February 16, 2022.

The credit ratings of Old National and Old National Bank at December 31, 2023 are shown in the following table.

1 unchanged sentence

Long-term Short-term

Old National A3 N/A

Old National Bank Aa3 P-1

Old National Baa1 N/A

Old National Bank A1 P-1

Old National Bank maintains relationships in capital markets with brokers and dealers to issue certificates of deposit and short-term and medium-term bank notes as well.

9 unchanged sentences

Amount available from Federal Reserve discount window — 885,714

Amount available from Federal Reserve Bank Term Funding Program (2)

Amount available from Federal Home Loan Bank — 6,912,459

1 unchanged sentence

(1) Based on collateral pledged.

(2) The Federal Reserve Bank will cease making new loans under this program as scheduled on March 11, 2024.

Old National Bancorp has routine funding requirements consisting primarily of operating expenses, dividends to shareholders, debt service, net derivative cash flows, and funds used for acquisitions.

12 unchanged sentences

Metrics and measurements are used by our management team in the management of day-to-day operations to ensure effective client service, minimization of service disruptions, and oversight of cybersecurity risk.

We continually monitor and internally report on weaknesses in the internal control environment, third party risks, privacy and data governance, cyber-attacks, information security or data breaches;

We continually monitor and internally report on weaknesses in the internal control environment;

third party risks;

privacy and data governance;

cyber-attacks;

information security or data breaches;

damage to physical assets;

2 unchanged sentences

external and internal fraud;

and model risk management.

model risk management;

and other risks.

Compliance and Regulatory Risk

Compliance and regulatory risk is the risk that the Company violated or was not in compliance with applicable laws, regulations or practices, industry standards, or ethical standards.

Compliance and regulatory risk is the risk that the Company violated or was not in compliance with applicable laws, rules, regulations, regulatory guidance and policies, industry standards, or ethical standards.

Compliance with applicable regulatory requirements, internal policies and procedures, and ethical standards is not only the right thing to do, but it is embedded within our culture and mission to assist our clients in achieving financial success.

Adherence to this belief is the responsibility of every employee, every day, in everything we do.

It is Old National’s policy to comply with the letter and intent of all applicable regulatory requirements.

Management, the first line of defense, is responsible for ensuring this expectation is met, with oversight from the second and third lines of defense, the risk

and internal audit functions, respectively.

It is Old National’s

policy to comply with the letter and intent of all applicable regulatory requirements.

Management, the first line of defense, is responsible for ensuring this expectation is met, with oversight from the second and third lines of defense, the risk and internal audit functions, respectively.

Recognizing that inadvertent violations may occur, risk management activities are established to promptly identify, analyze, and, if necessary, remediate compliance and regulatory issues to limit compliance risk exposure.

Legal risk generally results from unidentified or unmitigated risks that could result in lawsuits or adverse judgments that negatively affect the operations or condition of the Company.

Business practices must be executed, as well as products and services delivered, in a manner that is compliant with laws, regulatory requirements, and agreements to which we are a party.

Legal risk generally results from unidentified or unmitigated risks that could result in lawsuits or adverse judgments that negatively affect the operations or financial condition of the Company.

Business practices must be executed, as well as products and services delivered, in a manner that is compliant with applicable laws, rules, regulations, and agreements to which we are a party.

Corporate governance practices must be compliant with applicable legal requirements and aligned with market practices.

The Board of Directors expects that we will perform business in a manner compliant with applicable laws and/or regulations and expects issues to be identified, analyzed, and remediated in a timely and complete manner.

The Board of Directors expects that we will perform business in a manner compliant with applicable laws, rules, and regulations and expects issues to be identified, analyzed, and remediated in a timely and complete manner.

MATERIAL CONTRACTUAL OBLIGATIONS, COMMITMENTS, AND CONTINGENT LIABILITIES

7 unchanged sentences

IRAs, consumer deposits, and brokered certificates of deposit 10 5,081,013 498,131 5,579,144

Federal funds purchased and interbank borrowings 581,489 — 581,489

Securities sold under agreements to repurchase 11 285,206 — 285,206

39 unchanged sentences

Changes in these factors, as well as downturns in economic or business conditions, could have a significant adverse impact on the carrying value of assets, including goodwill and liabilities, which could result in impairment losses affecting our financial statements as a whole and our banking subsidiary in which the goodwill resides.

A prolonged COVID-19 pandemic, or any other epidemic that harms the global economy, U.S.

economy, or the economies in which we operate could adversely affect our operations.

Goodwill is especially susceptible to risk of impairment during prolonged periods of economic downturn.

Allowance for Credit Losses on Loans

11 unchanged sentences

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.

The regression models use combinations of variables to

assess systematic and unsystematic risk.

Variables used for unsystematic risk are borrower specific and help to gauge the risk of default from an individual borrower.

52 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 7. Management’s Discussion and Analysis