ONB filing — read by section

Item 7. Management’s Discussion and Analysis

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
 
 Page 
 General Overview 
 36 
 
 Corporate Developments in Fiscal 202 3 
 36 
 
 Business Outlook 
 37 
 
 Financial Highlights 
 38 
 
 Non-GAAP Financial Measures 
 40 
 
 Results of Operations 
 43 
 
 Financial Condition 
 49 
 
 Risk Management 
 54 
 
 Material Contractual Obligations, Commitments, and Contingent Liabilities 
 65 
 
 Critical Accounting Estimates 
 65 
 

 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. This discussion contains forward-looking statements concerning our business. Readers are cautioned that, by their nature, forward-looking statements are based on estimates and assumptions and are subject to risks, uncertainties, and other factors. Actual results may differ materially from our expectations that are expressed or implied by any forward-looking statement. 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 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. 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 
 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; 
 • 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; and 
 • 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 
 36 

 
 

 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 
 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. 
 37 

 
 
 

 FINANCIAL HIGHLIGHTS 
 The following table sets forth certain financial highlights of Old National for the previous five quarters: 
 
 Three Months Ended 
 (dollars and shares in thousands,
except per share data) December 31, September 30, June 30, March 31, December 31, 
 2023 2023 2023 2023 2022 
 Income Statement: 
 Net interest income $ 364,408 $ 375,086 $ 382,171 $ 381,488 $ 391,090 
 Taxable equivalent adjustment (1) (3) 
 6,100 5,837 5,825 5,666 5,378 
 Net interest income – taxable equivalent basis (3) 
 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 
 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 (diluted) $ 0.44 $ 0.49 $ 0.52 $ 0.49 $ 0.67 
 Cash dividends 0.14 0.14 0.14 $ 0.14 $ 0.14 
 Common dividend payout ratio (2) 
 32 % 29 % 27 % 29 % 21 % 
 Book value $ 18.18 $ 17.07 $ 17.25 $ 17.24 $ 16.68 
 Stock price 16.89 14.54 13.94 14.42 17.98 
 Tangible common book value (3) 
 11.00 9.87 10.03 9.98 9.42 
 Performance Ratios: 
 Return on average assets 1.09 % 1.22 % 1.29 % 1.25 % 1.74 % 
 Return on average common equity 10.20 11.39 12.01 11.58 16.77 
 
 Return on average tangible common equity (3) 
 18.11 20.18 21.35 21.03 31.53 
 Net interest margin (3) 
 3.39 3.49 3.60 3.69 3.85 
 Efficiency ratio (3) 
 59.05 51.66 51.22 52.81 49.12 
 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 
 Allowance for credit losses (4) to ending loans 
 1.03 1.03 1.04 1.05 1.08 
 Non-performing loans to ending loans 0.83 0.80 0.91 0.74 0.81 
 Balance Sheet: 
 Total loans $ 32,991,927 $ 32,577,834 $ 32,432,473 $ 31,822,374 $ 31,123,641 
 Total assets 49,089,836 49,059,448 48,496,755 47,842,644 46,763,372 
 Total deposits 37,235,180 37,252,676 36,231,315 34,917,792 35,000,830 
 Total borrowed funds 5,331,147 5,556,010 6,034,008 6,740,454 5,586,314 
 Total shareholders’ equity 5,562,900 5,239,537 5,292,095 5,277,426 5,128,595 
 Capital Ratios: 
 Risk-based capital ratios: 
 Tier 1 common equity 10.70 % 10.41 % 10.14 % 9.98 % 10.03 % 
 Tier 1 11.35 11.06 10.79 10.64 10.71 
 Total 12.64 12.32 12.14 11.96 12.02 
 Leverage ratio (to average assets) 8.83 8.70 8.59 8.53 8.52 
 Total equity to assets (averages) 10.81 10.88 10.96 11.00 10.70 
 Tangible common equity to tangible assets (3) 
 6.85 6.15 6.33 6.37 6.18 
 Nonfinancial Data: 
 Full-time equivalent employees 3,940 3,981 4,021 4,023 3,967 
 Banking centers 258 257 256 256 263 

 (1) Calculated using the federal statutory tax rate in effect of 21% for all periods. 
 (2) Cash dividends per share divided by net income per share (basic). 
 (3) Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for reconciliations to GAAP financial measures. 
 (4) Includes the allowance for credit losses on loans and unfunded loan commitments. 
 38 

 
 

 The following table sets forth certain financial highlights of Old National for the year-to-date periods: 
 
 Years Ended December 31, 
 (dollars and shares in thousands, except per share data) 2023 2022 
 Income Statement: 
 Net interest income $ 1,503,153 $ 1,327,936 
 Taxable equivalent adjustment (1) (3) 
 23,428 18,414 
 Net interest income – taxable equivalent basis (3) 
 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 
 Net income available to common shareholders 565,857 414,169 
 Per Common Share Data: 
 Weighted average diluted common shares 291,855 276,688 
 Net income (diluted) $ 1.94 $ 1.50 
 Cash dividends $ 0.56 $ 0.56 
 Common dividend payout ratio (2) 
 29 % 37 % 
 Book value $ 18.18 $ 16.68 
 Stock price 16.89 17.98 
 Tangible common book value (3) 
 11.00 9.42 
 Performance Ratios: 
 Return on average assets 1.21 % 0.99 % 
 Return on average common equity 11.29 8.92 
 
 Return on average tangible common equity (3) 
 20.15 16.34 
 Net interest margin (3) 
 3.54 3.47 
 Efficiency ratio (3) 
 53.70 57.97 
 Net charge-offs to average loans 0.17 0.06 
 Allowance for credit losses on loans to ending loans 0.93 0.98 
 Allowance for credit losses (4) to ending loans 
 1.03 1.08 
 Non-performing loans to ending loans 0.83 0.81 
 Balance Sheet: 
 Total loans $ 32,991,927 $ 31,123,641 
 Total assets 49,089,836 46,763,372 
 Total deposits 37,235,180 35,000,830 
 Total borrowed funds 5,331,147 5,586,314 
 Total shareholders’ equity 5,562,900 5,128,595 
 Capital Ratios: 
 Risk-based capital ratios: 
 Tier 1 common equity 10.70 % 10.03 % 
 Tier 1 11.35 10.71 
 Total 12.64 12.02 
 Leverage ratio (to average assets) 8.83 8.52 
 Total equity to assets (averages) 10.91 11.23 
 Tangible common equity to tangible assets (3) 
 6.85 6.18 
 Nonfinancial Data: 
 Full-time equivalent employees 3,940 3,967 
 Banking centers 258 263 

 (1) Calculated using the federal statutory tax rate in effect of 21% for all periods. 
 (2) Cash dividends per share divided by net income per share (basic). 
 (3) Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for reconciliations to GAAP financial measures. 
 (4) Includes the allowance for credit losses on loans and unfunded loan commitments. 
 39 

 
 
 

 NON-GAAP FINANCIAL MEASURES 
 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 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. 
 The taxable equivalent adjustment to net interest income and net interest margin recognizes the income tax savings when comparing taxable and tax-exempt assets. Interest income and yields on tax-exempt securities and loans are presented using the current federal income tax rate of 21%. 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 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 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. See the previously provided tables and the following reconciliations in the “Non-GAAP Reconciliations” section for details on the calculation of these measures to the extent presented herein. 
 40 

 
 

 The following table presents GAAP to non-GAAP reconciliations for the previous five quarters: 
 
 Three Months Ended 
 (dollars and shares in thousands,
except per share data) December 31, September 30, June 30, March 31, December 31, 
 2023 2023 2023 2023 2022 
 Tangible common book value: 
 Shareholders’ common equity $ 5,319,181 $ 4,995,818 $ 5,048,376 $ 5,033,707 $ 4,884,876 
 Deduct: Goodwill and intangible assets 2,100,966 2,106,835 2,112,875 2,118,935 2,125,121 
 
 Tangible shareholders’ common equity (1) 
 $ 3,218,215 $ 2,888,983 $ 2,935,501 $ 2,914,772 $ 2,759,755 
 Period end common shares 292,655 292,586 292,597 291,922 292,903 
 Tangible common book value (1) 
 11.00 9.87 10.03 9.98 9.42 
 Return on average tangible common equity: 
 Net income applicable to common shares $ 128,446 $ 143,842 $ 151,003 $ 142,566 $ 196,701 
 Add: Intangible amortization (net of tax) (2) 
 4,402 4,530 4,545 4,639 5,090 
 Tangible net income (1) 
 $ 132,848 $ 148,372 $ 155,548 $ 147,205 $ 201,791 
 
 
 
 
 Average shareholders’ common equity $ 5,037,768 $ 5,050,353 $ 5,030,083 $ 4,922,469 $ 4,692,863 
 Deduct: Average goodwill and intangible assets 2,103,935 2,109,944 2,115,894 2,122,157 2,132,480 
 
 Average tangible shareholders’ common equity (1) 
 $ 2,933,833 $ 2,940,409 $ 2,914,189 $ 2,800,312 $ 2,560,383 
 Return on average tangible common equity (1) 
 18.11 % 20.18 % 21.35 % 21.03 % 31.53 % 
 Net interest margin: 
 Net interest income $ 364,408 $ 375,086 $ 382,171 $ 381,488 $ 391,090 
 Taxable equivalent adjustment 6,100 5,837 5,825 5,666 5,378 
 Net interest income – taxable equivalent basis (1) 
 $ 370,508 $ 380,923 $ 387,996 $ 387,154 $ 396,468 
 Average earning assets $ 43,701,283 $ 43,617,456 $ 43,097,198 $ 41,941,913 $ 41,206,695 
 Net interest margin (1) 
 3.39 % 3.49 % 3.60 % 3.69 % 3.85 % 
 Efficiency ratio: 
 Noninterest expense $ 284,235 $ 244,776 $ 246,584 $ 250,711 $ 282,675 
 Deduct: Intangible amortization expense 5,869 6,040 6,060 6,186 6,787 
 Adjusted noninterest expense (1) 
 $ 278,366 $ 238,736 $ 240,524 $ 244,525 $ 275,888 
 Net interest income – taxable equivalent basis (1) 
 (see above) 
 $ 370,508 $ 380,923 $ 387,996 $ 387,154 $ 396,468 
 Noninterest income 100,094 80,938 81,629 70,681 165,037 
 Deduct: Debt securities gains (losses), net (825) (241) 17 (5,216) (173) 
 Adjusted total revenue (1) 
 $ 471,427 $ 462,102 $ 469,608 $ 463,051 $ 561,678 
 Efficiency ratio 59.05 % 51.66 % 51.22 % 52.81 % 49.12 % 
 Tangible common equity to tangible assets: 
 Tangible shareholders’ equity (1) (see above) 
 $ 3,218,215 $ 2,888,983 $ 2,935,501 $ 2,914,772 $ 2,759,755 
 Assets $ 49,089,836 $ 49,059,448 $ 48,496,755 $ 47,842,644 $ 46,763,372 
 
 Deduct: Goodwill and intangible assets 2,100,966 2,106,835 2,112,875 2,118,935 2,125,121 
 
 Tangible assets (1) 
 $ 46,988,870 $ 46,952,613 $ 46,383,880 $ 45,723,709 $ 44,638,251 
 Tangible common equity to tangible assets (1) 
 6.85 % 6.15 % 6.33 % 6.37 % 6.18 % 

 (1) Represents a non-GAAP financial measure. 
 (2) Calculated using management’s estimate of the annual fully taxable equivalent rates (federal and state). 
 41 

 
 

 The following table presents GAAP to non-GAAP reconciliations for the year-to-date periods: 
 
 Years Ended December 31, 
 (dollars and shares in thousands, except per share data) 2023 2022 
 Tangible common book value: 
 Shareholders’ common equity $ 5,319,181 $ 4,884,876 
 Deduct: Goodwill and intangible assets 2,100,966 2,125,121 
 
 Tangible shareholders’ common equity (1) 
 $ 3,218,215 $ 2,759,755 
 Period end common shares 292,655 292,903 
 Tangible common book value (1) 
 11.00 9.42 
 Return on average tangible common equity: 
 Net income applicable to common shares $ 565,857 $ 414,169 
 Add: Intangible amortization (net of tax) (2) 
 18,116 19,718 
 Tangible net income (1) 
 $ 583,973 $ 433,887 
 
 
 
 
 Average shareholders’ common equity $ 5,010,594 $ 4,644,971 
 Deduct: Average goodwill and intangible assets 2,112,924 1,989,466 
 
 Average tangible shareholders’ common equity (1) 
 $ 2,897,670 $ 2,655,505 
 Return on average tangible common equity (1) 
 20.15 % 16.34 % 
 Net interest margin: 
 Net interest income $ 1,503,153 $ 1,327,936 
 Taxable equivalent adjustment 23,428 18,414 
 Net interest income – taxable equivalent basis (1) 
 $ 1,526,581 $ 1,346,350 
 Average earning assets $ 43,095,730 $ 38,751,786 
 Net interest margin (1) 
 3.54 % 3.47 % 
 Efficiency ratio: 
 Noninterest expense $ 1,026,306 $ 1,038,183 
 Deduct: Intangible amortization expense 24,155 25,857 
 Adjusted noninterest expense (1) 
 $ 1,002,151 $ 1,012,326 
 Net interest income – taxable equivalent basis (1) (see above) 
 $ 1,526,581 $ 1,346,350 
 Noninterest income 333,342 399,779 
 Deduct: Debt securities gains (losses), net (6,265) (88) 
 Adjusted total revenue (1) 
 $ 1,866,188 $ 1,746,217 
 Efficiency ratio 53.70 % 57.97 % 
 Tangible common equity to tangible assets: 
 Tangible shareholders’ equity (1) (see above) 
 $ 3,218,215 $ 2,759,755 
 Assets $ 49,089,836 $ 46,763,372 
 
 Deduct: Goodwill and intangible assets 2,100,966 2,125,121 
 
 Tangible assets (1) 
 $ 46,988,870 $ 44,638,251 
 Tangible common equity to tangible assets (1) 
 6.85 % 6.18 % 

 (1) Represents a non-GAAP financial measure. 
 (2) Calculated using management’s estimate of the annual fully taxable equivalent rates (federal and state). 
 
 
 42 

 
 
 

 RESULTS OF OPERATIONS 
 The following table sets forth certain income statement information of Old National: 
 
 Years Ended December 31, 
 (dollars in thousands, except per share data) 2023 2022 2021 
 Income Statement Summary: 
 Net interest income $ 1,503,153 $ 1,327,936 $ 596,400 
 Provision (release) for credit losses 58,887 144,799 (29,622) 
 Noninterest income 333,342 399,779 214,219 
 Noninterest expense 1,026,306 1,038,183 501,379 
 Net income applicable to common shareholders 565,857 414,169 277,538 
 Net income per common share – diluted 1.94 1.50 1.67 
 Other Data: 
 Return on average common equity 11.29 % 8.92 % 9.26 % 
 
 Return on average tangible common equity (1) 
 20.15 % 16.34 % 14.89 % 
 Efficiency ratio (1) 
 53.70 % 57.97 % 59.75 % 
 Efficiency ratio (prior presentation) (2) 
 N/A N/A 59.65 % 
 Tier 1 leverage ratio 8.83 % 8.52 % 8.59 % 
 Net charge-offs (recoveries) to average loans 0.17 % 0.06 % (0.03) % 

 (1) Represents a non-GAAP financial measure. Refer to “Non-GAAP Financial Measures” section for reconciliations to GAAP financial measures. 
 (2) 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. 
 Net Interest Income 
 
 
 Net interest income is the most significant component of our earnings, comprising 82% of 2023 revenues. Net interest income and net interest margin are influenced by many factors, primarily the volume and mix of earning assets, funding sources, and interest rate fluctuations. 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 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 “Risk Management — Market Risk” for additional information regarding this risk. 
 Loans typically generate more interest income than investment securities with similar maturities. Funding from client deposits generally costs less than wholesale funding sources. Factors such as general economic activity, Federal Reserve monetary policy, and price volatility of competing alternative investments can also exert significant influence on our ability to optimize our mix of assets and funding, net interest income, and net interest margin. 
 Net interest income is the excess of interest received from interest-earning assets over interest paid on interest-bearing liabilities. 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 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 and that it may enhance comparability for peer comparison purposes for both management and investors. 
 43 

 
 

 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. 
 
 2023 2022 2021 
 (Taxable equivalent basis,
dollars in thousands) Average
Balance Income (1) / 
 Expense 
 Yield/
Rate Average
Balance Income (1) / 
 Expense 
 Yield/
Rate Average
Balance Income (1) / 
 Expense 
 Yield/
Rate 
 Earning Assets 
 Money market and other interest-
 earning investments $ 826,453 $ 39,683 4.80 % $ 812,296 $ 2,814 0.35 % $ 450,158 $ 589 0.13 % 
 Investment securities: 
 Treasury and government- sponsored agencies 
 2,322,792 84,771 3.65 2,290,229 47,932 2.09 1,573,855 24,209 1.54 
 Mortgage-backed securities 5,178,940 136,827 2.64 5,562,442 129,411 2.33 3,356,950 60,479 1.80 
 States and political subdivisions 1,749,722 57,847 3.31 1,805,433 57,688 3.20 1,548,939 50,115 3.24 
 Other securities 776,456 39,166 5.04 687,926 24,133 3.51 443,606 10,680 2.41 
 Total investment securities 10,027,910 318,611 3.18 10,346,030 259,164 2.50 6,923,350 145,483 2.10 
 Loans: (2) 
 
 Commercial 9,570,639 639,131 6.68 8,252,237 397,228 4.81 3,763,099 138,063 3.67 
 Commercial real estate 13,405,946 825,053 6.15 11,147,967 489,499 4.39 6,168,146 228,568 3.71 
 Residential real estate loans 6,646,684 243,646 3.67 5,622,901 201,637 3.59 2,269,989 83,578 3.68 
 Consumer 2,618,098 164,125 6.27 2,570,355 122,274 4.76 1,577,467 56,281 3.57 
 Total loans 32,241,367 1,871,955 5.81 27,593,460 1,210,638 4.39 13,778,701 506,490 3.68 
 Total earning assets 43,095,730 $ 2,230,249 5.18 % 38,751,786 $ 1,472,616 3.80 % 21,152,209 $ 652,562 3.09 % 
 Less: Allowance for credit losses
 on loans (302,486) (261,534) (117,436) 
 Non-Earning Assets 
 Cash and due from banks 413,569 355,391 256,860 
 Other assets 4,945,394 4,404,057 2,492,054 
 Total assets $ 48,152,207 $ 43,249,700 $ 23,783,687 
 Interest-Bearing Liabilities 
 Checking and NOW accounts $ 7,664,183 $ 94,263 1.23 % $ 8,104,844 $ 21,321 0.26 % $ 4,945,435 $ 2,065 0.04 % 
 Savings accounts 5,638,766 14,941 0.26 6,342,697 3,367 0.05 3,648,019 2,003 0.05 
 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, 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 
 Federal funds purchased and
 interbank borrowings 229,386 11,412 4.98 151,243 5,021 3.32 1,113 — — 
 Securities sold under agreements
 to repurchase 332,853 3,299 0.99 440,619 843 0.19 392,777 397 0.10 
 FHLB advances 4,568,964 161,860 3.54 2,986,006 51,524 1.73 1,902,407 21,075 1.11 
 Other borrowings 822,471 42,737 5.20 619,659 19,785 3.19 269,484 9,823 3.65 
 Total borrowed funds 5,953,674 219,308 3.68 4,197,527 77,173 1.84 2,565,781 31,295 1.22 
 Total interest-bearing liabilities $ 31,295,453 $ 703,668 2.25 % $ 25,964,958 $ 126,266 0.49 % $ 14,301,297 $ 42,249 0.30 % 
 Noninterest-Bearing Liabilities
 and Shareholders’ Equity 
 Demand deposits 10,633,806 11,750,306 6,163,937 
 Other liabilities 968,635 676,940 320,933 
 Shareholders’ equity 5,254,313 4,857,496 2,997,520 
 Total liabilities and shareholders’
 equity $ 48,152,207 $ 43,249,700 $ 23,783,687 
 
 Net interest income - taxable
 equivalent basis $ 1,526,581 3.54 % $ 1,346,350 3.47 % $ 610,313 2.89 % 
 Taxable equivalent adjustment (23,428) (18,414) (13,913) 
 Net interest income (GAAP) $ 1,503,153 3.49 % $ 1,327,936 3.43 % $ 596,400 2.82 % 

 (1) Interest income is reflected on a fully taxable equivalent basis. 
 (2) Includes loans held-for-sale. 
 
 
 44 

 
 

 The following table presents fluctuations in taxable equivalent net interest income attributable to changes in the average balances of assets and liabilities and the yields earned or rates paid for the years ended December 31. 
 
 From 2022 to 2023 From 2021 to 2022 
 Total Attributed to Total Attributed to 
 (dollars in thousands) Change (1) 
 Volume Rate Change (1) 
 Volume Rate 
 Interest Income 
 Money market and other interest-earning
 investments $ 36,869 $ 386 $ 36,483 $ 2,225 $ 865 $ 1,360 
 Investment securities (2) 
 59,447 (9,039) 68,486 113,681 78,830 34,851 
 Loans (3) 
 661,317 236,892 424,425 704,148 556,963 147,185 
 Total interest income 757,633 228,239 529,394 820,054 636,658 183,396 
 Interest Expense 
 Checking and NOW deposits 72,942 (3,411) 76,353 19,256 4,745 14,511 
 Savings deposits 11,574 (1,049) 12,623 1,364 1,299 65 
 Money market deposits 194,752 35,379 159,373 10,132 4,560 5,572 
 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
 borrowings 6,391 3,237 3,154 5,021 2,492 2,529 
 Securities sold under agreements to
 repurchase 2,456 (637) 3,093 446 70 376 
 Federal Home Loan Bank advances 110,336 41,837 68,499 30,449 15,351 15,098 
 Other borrowings 22,952 8,484 14,468 9,962 11,972 (2,010) 
 Total interest expense 577,402 150,212 427,190 84,017 41,604 42,413 
 Net interest income $ 180,231 $ 78,027 $ 102,204 $ 736,037 $ 595,054 $ 140,983 

 (1) The variance not solely due to rate or volume is allocated equally between the rate and volume variance. 
 (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%. 
 (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. 
 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 $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 $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. 
 45 

 
 

 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
Prior Year 
 (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. Additionally, provision expense may be volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, which drive the allowance for credit losses balance. For additional information about non-performing loans, charge-offs, and additional items impacting the provision, refer to the “Risk Management – Credit Risk” section of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 
 46 

 
 

 Noninterest Income 
 We generate revenues in the form of noninterest income through client fees, sales commissions, and gains and losses from our core banking franchise and other related businesses, such as wealth management, investment consulting, and investment products. This source of revenue as a percentage of total revenue was 18% in 2023 compared to 23% in 2022. 
 The following table details the components of noninterest income: 
 
 Years Ended December 31, % Change From
Prior Year 
 (dollars in thousands) 2023 2022 2021 2023 2022 
 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 
 Debit card and ATM fees 42,153 40,227 23,766 4.8 69.3 
 Mortgage banking revenue 16,319 23,015 42,558 (29.1) (45.9) 
 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 (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 % 
 
 

 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 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. 
 47 

 
 

 Noninterest Expense 
 The following table details the components of noninterest expense: 
 
 Years Ended December 31, % Change From
Prior Year 
 (dollars in thousands) 2023 2022 2021 2023 2022 
 Salaries and employee benefits $ 546,364 $ 575,626 $ 284,098 (5.1) % 102.6 % 
 Occupancy 106,676 100,421 54,834 6.2 83.1 
 Equipment 32,163 27,637 16,704 16.4 65.5 
 Marketing 39,511 32,264 12,684 22.5 154.4 
 Technology 80,343 84,865 47,047 (5.3) 80.4 
 Communication 16,980 18,846 10,073 (9.9) 87.1 
 Professional fees 27,335 39,046 20,077 (30.0) 94.5 
 FDIC assessment 56,730 19,332 6,059 193.5 219.1 
 Amortization of intangibles 24,155 25,857 11,336 (6.6) 128.1 
 Amortization of tax credit investments 15,367 10,961 6,770 40.2 61.9 
 Property optimization 1,559 26,818 — (94.2) N/A 
 Other expense 79,123 76,510 31,697 3.4 141.4 
 Total noninterest expense $ 1,026,306 $ 1,038,183 $ 501,379 (1.1) % 107.1 % 

 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 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. The recognition of tax credit amortization expense is contingent upon the successful completion of the rehabilitation of a historic building or completion of a solar project within the reporting period. Many factors including weather, labor availability, building regulations, inspections, and other unexpected construction delays related to a rehabilitation project can cause a project to exceed its estimated completion date. See Note 9 to the consolidated financial statements for additional information on our tax credit investments. 
 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 expenses totaling $26.8 million associated with valuation adjustments related to these locations in 2022. 
 48 

 
 

 Provision for Income Taxes 
 We record a provision for income taxes currently payable and for income taxes payable or benefits to be received in the future, which arise due to timing differences in the recognition of certain items for financial statement and income tax purposes. The major difference between the effective tax rate applied to our financial statement income and the federal statutory tax rate is caused by a tax benefit from our tax credit investments and interest on tax-exempt securities and loans. The effective tax rate was 22.5% in 2023 compared to 21.4% in 2022. 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. 
 
 FINANCIAL CONDITION 
 Overview 
 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 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 $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 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. 
 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. 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 $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 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. Generally, there is more uncertainty in interest rates over a longer average maturity, resulting in a higher duration percentage. The weighted average yields on investment securities, on a taxable equivalent basis, were 3.18% in 2023 and 2.50% in 2022. 
 Loan Portfolio 
 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. 
 49 

 
 

 The following table presents the composition of the loan portfolio at December 31. 
 
 (dollars in thousands) 2023 2022 
 Commercial $ 9,512,230 $ 9,508,904 
 Commercial real estate 14,140,629 12,457,070 
 Residential real estate 6,699,443 6,460,441 
 Consumer 2,639,625 2,697,226 
 Total loans 32,991,927 31,123,641 
 Allowance for credit losses on loans (307,610) (303,671) 
 Net loans $ 32,684,317 $ 30,819,970 

 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
1 Year After 1 - 5
Years After 5 - 15
Years After
15 Years Total % of
Total 
 Commercial 
 Interest rates: 
 Fixed $ 222,764 $ 1,684,461 $ 1,080,123 $ 120,401 $ 3,107,749 33 % 
 Floating 1,469,667 3,646,232 1,174,865 113,717 6,404,481 67 
 Total $ 1,692,431 $ 5,330,693 $ 2,254,988 $ 234,118 $ 9,512,230 100 % 
 
 Commercial Real Estate 
 Interest rates: 
 Fixed $ 623,725 $ 3,422,934 $ 1,098,770 $ 70,694 $ 5,216,123 37 % 
 Floating 1,538,046 5,216,453 2,065,194 104,813 8,924,506 63 
 Total $ 2,161,771 $ 8,639,387 $ 3,163,964 $ 175,507 $ 14,140,629 100 % 
 
 Residential Real Estate 
 Interest rates: 
 Fixed $ 5,839 $ 1,607,311 $ 628,420 $ 3,619,213 $ 5,860,783 87 % 
 Floating 63 1,452 26,913 810,232 838,660 13 
 Total $ 5,902 $ 1,608,763 $ 655,333 $ 4,429,445 $ 6,699,443 100 % 
 
 Consumer 
 Interest rates: 
 Fixed $ 44,970 $ 963,056 $ 561,087 $ 23,037 $ 1,592,150 60 % 
 Floating 31,335 157,871 73,347 784,922 1,047,475 40 
 Total $ 76,305 $ 1,120,927 $ 634,434 $ 807,959 $ 2,639,625 100 % 

 Commercial and Commercial Real Estate Loans 
 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, 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. 
 50 

 
 

 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. 
 
 2023 2022 
 (dollars in thousands) Outstanding Exposure (1) 
 Nonaccrual Outstanding Exposure (1) 
 Nonaccrual 
 By Industry: 
 Manufacturing $ 1,589,727 $ 2,734,935 $ 7,408 $ 1,757,907 $ 2,803,883 $ 2,464 
 Health care and social assistance 1,567,286 1,949,250 7,390 1,588,392 2,043,105 11,806 
 Wholesale trade 748,058 1,541,951 3,789 857,400 1,552,985 2,895 
 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 
 Professional, scientific, and
 technical services 458,133 821,738 3,825 507,940 832,407 4,735 
 Transportation and warehousing 453,630 703,976 1,746 422,643 633,267 3,496 
 Accommodation and food services 389,591 503,990 705 399,915 512,025 596 
 Retail trade 345,944 620,308 5,273 332,367 538,135 7,386 
 Administrative and support and
 waste management and
 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, 
 and hunting 255,811 392,098 415 261,355 382,376 996 
 Public administration 216,939 285,963 — 231,453 325,834 846 
 Other services 208,012 400,195 9,328 194,998 356,743 2,656 
 
 
 
 
 
 Other 816,592 1,111,030 1,537 743,943 1,122,409 739 
 Total $ 9,512,230 $ 15,398,600 $ 44,511 $ 9,508,904 $ 15,057,301 $ 58,894 
 
 By Loan Size: 
 Less than $200,000 3 % 3 % 5 % 3 % 3 % 3 % 
 $200,000 to $1,000,000 11 10 20 11 11 20 
 $1,000,000 to $5,000,000 24 25 48 25 26 36 
 $5,000,000 to $10,000,000 16 16 7 15 15 24 
 $10,000,000 to $25,000,000 31 28 20 31 27 17 
 Greater than $25,000,000 15 18 — 15 18 — 
 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. 
 
 2023 2022 
 (dollars in thousands) Outstanding Exposure (1) 
 Nonaccrual Outstanding Exposure (1) 
 Nonaccrual 
 By Property Type: 
 Multifamily $ 4,794,605 $ 6,422,311 $ 6,050 $ 4,188,137 $ 5,920,414 $ 13,749 
 Warehouse / Industrial 2,704,656 3,308,273 6,459 1,976,804 2,533,892 9,090 
 Office 1,948,430 2,112,157 58,111 1,813,007 1,979,272 13,728 
 Retail 1,886,233 1,958,254 29,823 1,808,041 1,895,345 18,155 
 
 Single family 450,560 476,946 3,187 515,390 615,216 7,022 
 
 Other (2) 
 2,356,145 2,771,345 57,162 2,155,691 2,667,780 61,977 
 Total $ 14,140,629 $ 17,049,286 $ 160,792 $ 12,457,070 $ 15,611,919 $ 123,721 
 

 (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. 
 51 

 
 

 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 $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, 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. 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. Additionally, provision expense may be volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, which drive the allowance for credit losses balance. 
 We maintain 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 within accrued expenses and other liabilities, while the corresponding provision for unfunded loan commitments is included in the provision for credit losses. 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. 
 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. 
 52 

 
 

 Funding 
 The following table summarizes Old National’s total funding, comprised of deposits and wholesale borrowings at December 31: 
 
 (dollars in thousands) 2023 2022 $ Change % Change 
 Deposits: 
 Noninterest-bearing demand $ 9,664,247 $ 11,930,798 $ (2,266,551) (19) % 
 Interest-bearing: 
 Checking and NOW 7,331,487 8,340,955 (1,009,468) (12) % 
 Savings 5,099,186 6,326,158 (1,226,972) (19) % 
 Money market 9,561,116 5,389,139 4,171,977 77 % 
 Time deposits 5,579,144 3,013,780 2,565,364 85 % 
 Total deposits 37,235,180 35,000,830 2,234,350 6 % 
 Wholesale borrowings: 
 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) % 
 Federal Home Loan Bank advances 4,280,681 3,829,018 451,663 12 % 
 Other borrowings 764,870 743,003 21,867 3 % 
 Total wholesale borrowings 5,331,147 5,586,314 (255,167) (5) % 
 Total funding $ 42,566,327 $ 40,587,144 $ 1,979,183 5 % 

 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. Wholesale funding as a percentage of total funding was 13% at December 31, 2023, compared to 14% at December 31, 2022. See Notes 11, 12, and 13 to the consolidated financial statements for additional details on our financing activities. 
 At December 31, 2023, time deposits in excess of the FDIC insurance limit and estimated time deposits that are otherwise uninsured by maturity were as follows: 
 
 (dollars in thousands) Individual
Instruments in
Denominations that
Meet or Exceed the
FDIC Insurance
Limit Estimated Aggregate
Time Deposits that
Meet or Exceed the
FDIC Insurance
Limit and Otherwise
Uninsured Time
Deposits 
 Three months or less $ 658,589 $ 808,951 
 Over three through six months 455,280 899,880 
 Over six through 12 months 330,429 614,622 
 Over 12 months 71,659 233,458 
 Total $ 1,515,957 $ 2,556,911 

 At December 31, 2023, the estimated amount of FDIC uninsured deposits for regulatory purposes was $17.1 billion. 
 Capital 
 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. 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. 
 53 

 
 

 Capital Adequacy 
 Old National and the banking industry are subject to various regulatory capital requirements administered by the federal banking agencies. Management routinely analyzes Old National’s capital to ensure an optimized capital structure. Accordingly, such evaluations may result in Old National taking a capital action. For additional information on capital adequacy see Note 21 to the consolidated financial statements. 
 Management views stress testing as an integral part of the Company’s risk management and strategic planning activities. Old National performs stress testing periodically throughout the year. The primary objective of the stress test is to ensure that Old National has a robust, forward-looking stress testing process and maintains sufficient capital to continue operations throughout times of economic and financial stress. Management also uses the stress testing framework to evaluate decisions relating to pricing, loan concentrations, capital deployment, and mergers and acquisitions to ensure that strategic decisions align with Old National’s risk appetite statement. Old National’s stress testing process incorporates key risks that include strategic, market, liquidity, credit, operational, regulatory, compliance, legal, and reputational risks. Old National’s stress testing policy outlines steps that will be taken if stress test results do not meet internal thresholds under severely adverse economic scenarios. 
 
 RISK MANAGEMENT 
 Overview 
 Old National has adopted a Risk Appetite Statement to enable our Board of Directors, Executive Leadership Team, and Senior Management to better assess, understand, monitor, and mitigate Old National’s risks. The Risk Appetite Statement addresses the following major risks: strategic, market, liquidity, credit, operational, talent management, compliance and regulatory, legal, and reputational. 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. Discussion of strategic, talent management, and reputational risks is provided in the section entitled “Risk Factors” in Item 1A of this Form 10-K. 
 Credit Risk 
 Credit risk represents the risk of loss arising from an obligor’s inability or failure to meet contractual payment or performance terms. Our primary credit risks result from our investment and lending activities. 
 Investment Activities 
 All of our mortgage-backed securities are backed by U.S. government-sponsored or federal agencies. Municipal bonds, corporate bonds, and other debt securities are evaluated by reviewing the credit-worthiness of the issuer and general market conditions. See Note 3 to the consolidated financial statements for additional details about our investment security portfolio. 
 Counterparty Exposure 
 Counterparty exposure is the risk that the other party in a financial transaction will not fulfill its obligation. We define counterparty exposure as nonperformance risk in transactions involving federal funds sold and purchased, repurchase agreements, correspondent bank relationships, and derivative contracts with companies in the financial services industry. 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. Old National’s net counterparty exposure was an asset of $22.0 million at December 31, 2023. 
 Lending Activities 
 Commercial 
 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 
 54 

 
 

 equipment. The credit decisions for these transactions are based upon an assessment of the overall financial capacity of the applicant. A determination is made as to the applicant’s ability to repay in accordance with the proposed terms as well as an overall assessment of the risks involved. In addition to an evaluation of the applicant’s financial condition, a determination is made of the probable adequacy of the primary and secondary sources of repayment, such as additional collateral or personal guarantees, to be relied upon in the transaction. Credit agency reports of the applicant’s credit history supplement the analysis of the applicant’s creditworthiness. 
 Commercial mortgages and construction loans are offered to real estate investors, developers, and builders primarily domiciled in the geographic Midwest market areas we serve. These loans are secured by first mortgages on real estate at LTV margins deemed appropriate for the property type, quality, location, and sponsorship. Generally, these LTV ratios do not exceed 80%. The commercial properties are predominantly multi-family and non-residential properties such as retail centers, industrial properties as well as, to a lesser extent, more specialized properties. Substantially all of our commercial real estate loans are secured by properties located in our primary market area. 
 In the underwriting of our commercial real estate loans, we obtain appraisals for the underlying properties. Decisions to lend are based on the economic viability of the property and the creditworthiness of the borrower. In evaluating a proposed commercial real estate loan, we primarily emphasize the ratio of the property’s projected net cash flows to the loan’s debt service requirement. The debt service coverage ratio normally is not less than 120% and it is computed after deduction for a vacancy factor and property expenses as appropriate. In addition, a personal guarantee of the loan or a portion thereof is often required from the principal(s) of the borrower. In most cases, we require title insurance insuring the priority of our lien, fire and extended coverage casualty insurance, and flood insurance, if appropriate, in order to protect our security interest in the underlying property. In addition, business interruption insurance or other insurance may be required. 
 Construction loans are underwritten against projected cash flows derived from rental income, business income from an owner-occupant, or the sale of the property to an end-user. We may mitigate the risks associated with these types of loans by requiring fixed-price construction contracts, performance and payment bonding, controlled disbursements, and pre-sale contracts or pre-lease agreements. 
 Consumer 
 
 
 We offer a variety of first mortgage and junior lien loans to consumers within our markets, with residential home mortgages comprising our largest consumer loan category. These loans are secured by a primary residence and are underwritten using traditional underwriting systems to assess the credit risks of the consumer. Decisions are primarily based on LTV ratios, DTI ratios, liquidity, and credit scores. A maximum LTV ratio of 90% is generally required, although higher levels are permitted with mortgage insurance or other mitigating factors. We offer fixed rate mortgages and variable rate mortgages with interest rates that are subject to change every year after the first, third, fifth, or seventh year, depending on the product and are based on indexed rates such as prime. We do not offer payment-option facilities, sub-prime loans, or any product with negative amortization. 
 Home equity loans are secured primarily by second mortgages on residential property of the borrower. The underwriting terms for the home equity product generally permit borrowing availability, in the aggregate, up to 90% of the appraised value of the collateral property at the time of origination. We offer fixed and variable rate home equity loans, with variable rate loans underwritten at fully-indexed rates. Decisions are primarily based on LTV ratios, DTI ratios, and credit scores. We do not offer home equity loan products with reduced documentation. 
 Automobile loans include loans and leases secured by new or used automobiles. We originate automobile loans and leases primarily on an indirect basis through selected dealerships. We require borrowers to maintain collision insurance on automobiles securing consumer loans, with us listed as loss payee. Our procedures for underwriting automobile loans include an assessment of an applicant’s overall financial capacity, including credit history and the ability to meet existing obligations and payments on the proposed loan. Although an applicant’s creditworthiness is the primary consideration, the underwriting process also includes a comparison of the value of the collateral security to the proposed loan amount. 
 Asset Quality 
 Community-based lending personnel, along with region-based independent underwriting and analytic support staff, extend credit under guidelines established and administered by management and overseen by our Enterprise Risk Committee. This committee, which meets quarterly, is made up of independent outside directors. The committee 
 55 

 
 

 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. Old National manages concentrations of credit exposure by industry, product, geography, client relationship, and loan size. At December 31, 2023, our average commercial loan size was approximately $600,000 and our average commercial real estate loan size was approximately $1,400,000. In addition, while loans to lessors of residential and non-residential real estate exceed 10% of total loans, no individual sub-segment category within those broader categories reaches the 10% threshold. At December 31, 2023, we had minimal exposure to foreign borrowers and no sovereign debt. Our policy is to concentrate our lending activity in the geographic market areas we serve, primarily in the Midwest region. 
 The following table presents a summary of under-performing, criticized, and classified assets at December 31: 
 
 (dollars in thousands) 2023 2022 
 Total nonaccrual loans $ 274,821 $ 238,178 
 TDRs still accruing (1) 
 N/A 15,313 
 Total past due loans (90 days or more and still accruing) 961 2,650 
 Foreclosed assets 9,434 10,845 
 Total under-performing assets $ 285,216 $ 266,986 
 Classified loans (includes nonaccrual, TDRs still accruing, 
 past due 90 days, and other problem loans) $ 875,140 $ 745,485 
 Other classified assets (2) 
 48,930 24,735 
 Criticized loans 843,920 636,069 
 Total criticized and classified assets $ 1,767,990 $ 1,406,289 
 Asset Quality Ratios: 
 Nonaccrual loans/total loans (3) 
 0.83 % 0.77 % 
 Non-performing loans/total loans (3) (4) 
 0.83 0.81 
 Under-performing assets/total loans (3) 
 0.86 0.86 
 Under-performing assets/total assets 0.58 0.57 
 Allowance for credit losses on loans/under-performing assets 107.85 113.74 
 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. 
 (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. 
 If nonaccrual and renegotiated loans outstanding at December 31, 2023 and 2022, respectively, had been accruing interest throughout the year in accordance with their original terms, interest income of approximately $13.4 million in 2023 and $7.9 million in 2022 would have been recorded on these loans. 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 $1.8 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. 
 56 

 
 

 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. 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 on loans held for investment and unfunded loan commitments is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries. Accrued interest receivable is excluded from the estimate of credit losses. 
 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 of the loan is monitored. When computing the level of expected credit losses, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. 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. 
 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. The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses on loans has two basic components: first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans; and second, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics. 
 57 

 
 

 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 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. The consumer loan category shown on the balance sheet is comprised of the same loans in the indirect, direct, and home equity portfolio segments. The portfolio segment reclassifications follow: 
 
 Statement
Balance Portfolio
Segment
Reclassifications Portfolio
Segment After
Reclassifications 
 
 (dollars in thousands) 
 December 31, 2023 
 Commercial $ 9,512,230 $ (232,764) $ 9,279,466 
 Commercial real estate 14,140,629 (169,058) 13,971,571 
 BBCC N/A 401,822 401,822 
 Residential real estate 6,699,443 — 6,699,443 
 Consumer 2,639,625 (2,639,625) N/A 
 Indirect N/A 1,050,982 1,050,982 
 Direct N/A 523,172 523,172 
 Home equity N/A 1,065,471 1,065,471 
 Total $ 32,991,927 $ — $ 32,991,927 
 
 December 31, 2022 
 Commercial $ 9,508,904 $ (210,280) $ 9,298,624 
 Commercial real estate 12,457,070 (158,322) 12,298,748 
 BBCC N/A 368,602 368,602 
 Residential real estate 6,460,441 — 6,460,441 
 Consumer 2,697,226 (2,697,226) N/A 
 Indirect N/A 1,034,257 1,034,257 
 Direct N/A 629,186 629,186 
 Home equity N/A 1,033,783 1,033,783 
 Total $ 31,123,641 $ — $ 31,123,641 

 58 

 
 

 The following table details activity in our allowance for credit losses on loans for the years ended December 31: 
 
 (dollars in thousands) 2023 2022 2021 
 Beginning allowance for credit losses on loans $ 303,671 $ 107,341 $ 131,388 
 Allowance established for acquired PCD loans — 89,089 — 
 Loans charged-off: 
 Commercial 41,451 6,885 1,228 
 Commercial real estate 11,198 6,519 264 
 BBCC 1,650 85 144 
 Residential real estate 256 344 346 
 Indirect 2,948 2,525 1,087 
 Direct 10,517 10,799 1,159 
 Home equity 443 124 82 
 Total charge-offs 68,463 27,281 4,310 
 Recoveries on charged-off loans: 
 Commercial 4,172 4,610 791 
 Commercial real estate 2,417 1,095 4,403 
 BBCC 275 281 105 
 Residential real estate 1,268 760 339 
 Indirect 1,559 1,263 1,682 
 Direct 2,331 2,557 777 
 Home equity 531 616 978 
 Total recoveries 12,553 11,182 9,075 
 Net charge-offs (recoveries) 55,910 16,099 (4,765) 
 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 
 Beginning allowance for credit losses on unfunded loan commitments $ 32,188 $ 10,879 $ 11,689 
 Provision for credit losses on unfunded loan commitments acquired
 during the period — 11,013 — 
 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 
 Allowance for credit losses $ 338,836 $ 335,859 $ 118,220 
 Average loans for the year (1) 
 $ 32,233,020 $ 27,582,530 $ 13,766,590 
 Asset Quality Ratios: 
 Allowance for credit losses on loans/year-end loans (1) 
 0.93 % 0.98 % 0.79 % 
 Allowance for credit losses on loans/average loans (1) 
 0.95 1.10 0.78 
 Allowance for credit losses/year-end loans (1) 
 1.03 1.08 0.87 
 Allowance for credit losses/average loans (1) 
 1.05 1.22 0.86 

 (1) Loans exclude loans held-for-sale. 
 59 

 
 

 The following table details net charge-offs to average loans outstanding by loan category for the years ended December 31: 
 
 (dollars in thousands) 2023 2022 2021 
 Commercial: 
 Net charge-offs (recoveries) $ 37,279 $ 2,275 $ 437 
 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 % 
 Commercial real estate: 
 Net charge-offs (recoveries) $ 8,781 $ 5,424 $ (4,139) 
 Average loans for the year $ 13,248,587 $ 11,292,033 $ 6,022,408 
 Net charge-offs (recoveries)/average loans 0.07 % 0.05 % (0.07) % 
 BBCC: 
 Net charge-offs (recoveries) $ 1,375 $ (196) $ 39 
 Average loans for the year $ 385,171 $ 352,276 $ 355,310 
 Net charge-offs (recoveries)/average loans 0.36 % (0.06) % 0.01 % 
 Residential real estate: 
 Net charge-offs (recoveries) $ (1,012) $ (416) $ 7 
 Average loans for the year (1) 
 $ 6,642,224 $ 5,618,883 $ 2,257,878 
 Net charge-offs (recoveries)/average loans (0.02) % (0.01) % — % 
 Indirect: 
 Net charge-offs (recoveries) $ 1,389 $ 1,262 $ (595) 
 Average loans for the year $ 1,013,560 $ 1,089,394 $ 879,525 
 Net charge-offs (recoveries)/average loans 0.14 % 0.12 % (0.07) % 
 Direct: 
 Net charge-offs (recoveries) $ 8,186 $ 8,242 $ 382 
 Average loans for the year $ 568,345 $ 559,943 $ 150,620 
 Net charge-offs (recoveries)/average loans 1.44 % 1.47 % 0.25 % 
 Home equity: 
 Net charge-offs (recoveries) $ (88) $ (492) $ (896) 
 Average loans for the year $ 1,036,193 $ 921,018 $ 547,322 
 Net charge-offs (recoveries)/average loans (0.01) % (0.05) % (0.16) % 
 Total loans: 
 Net charge-offs (recoveries) $ 55,910 $ 16,099 $ (4,765) 
 Average loans for the year (1) 
 $ 32,233,020 $ 27,589,442 $ 13,766,590 
 Net charge-offs (recoveries)/average loans 0.17 % 0.06 % (0.03) % 

 (1) Average loans exclude loans held-for-sale. 
 The allowance for credit losses on loans was $307.6 million at December 31, 2023, compared to $303.7 million at December 31, 2022. 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. Additionally, provision expense may be volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, which drive the allowance for credit losses balance. 
 60 

 
 

 The following table details the allowance for credit losses on loans by loan category and the percent of loans in each category compared to total loans at December 31. 
 
 2023 2022 
 (dollars in thousands) Allowance
Amount % of
Loans
to Total
Loans Allowance
Amount % of
Loans
to Total
Loans 
 Commercial $ 118,333 28.1 % $ 120,612 29.9 % 
 Commercial real estate 155,099 42.4 138,244 39.5 
 BBCC 2,887 1.2 2,431 1.2 
 Residential real estate 20,837 20.3 21,916 20.8 
 Indirect 1,236 3.2 1,532 3.3 
 Direct 3,169 1.6 12,116 2.0 
 Home equity 6,049 3.2 6,820 3.3 
 Total $ 307,610 100.0 % $ 303,671 100.0 % 

 We maintain 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 within accrued expenses and other liabilities, while the corresponding provision for unfunded loan commitments is included in the provision for credit losses. 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. 
 See the section entitled “Risk Factors” in Item 1A of this Form 10-K for further discussion of our credit risk. 
 Market 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. 
 The objective of our interest rate management process is to maximize net interest income while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity. 
 Potential cash flows, sales, or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in the general level of interest rates. This interest rate risk arises primarily from our normal business activities of gathering deposits and extending loans. Many factors affect our exposure to changes in interest rates, such as general economic and financial conditions, client preferences, historical pricing relationships, and re-pricing characteristics of financial instruments. Our earnings can also be affected by the monetary and fiscal policies of the U.S. Government and its agencies, particularly the Federal Reserve. 
 In managing interest rate risk, we establish guidelines for asset and liability management, including measurement of short and long-term sensitivities to changes in interest rates, which are reviewed with the Enterprise Risk Committee of our Board of Directors. Based on the results of our analysis, we may use different techniques to manage changing trends in interest rates including: 
 • adjusting balance sheet mix or altering interest rate characteristics of assets and liabilities; 
 • changing product pricing strategies; 
 • modifying characteristics of the investment securities portfolio; or 
 • using derivative financial instruments, to a limited degree. 
 
 
 A key element in our ongoing process is to measure and monitor interest rate risk using a model to quantify the likely impact of changing interest rates on Old National’s results of operations. 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 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 
 61 

 
 

 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: 
 
 Immediate Rate Decrease 12/31/2023
Forward
Curve Immediate Rate Increase 
 (dollars in thousands) -300
Basis Points -200
Basis Points -100
Basis Points Base +100
Basis Points +200
Basis Points +300
Basis Points 
 December 31, 2023 
 Projected interest income: 
 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 3,757,744 4,164,760 4,584,037 4,563,526 4,998,375 5,415,320 5,831,313 6,247,124 
 Projected interest expense: 
 Deposits 585,860 873,808 1,161,723 1,070,772 1,413,934 1,711,857 1,973,015 2,252,553 
 Borrowings 339,574 400,223 482,315 474,785 568,256 648,438 728,744 809,100 
 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 
 Net interest
 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 % 
 
 Immediate
Rate Decrease Immediate Rate Increase 
 -200
Basis Points -100
Basis Points Base +100
Basis Points +200
Basis Points +300
Basis Points 
 December 31, 2022 
 Projected interest income: 
 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 3,285,208 3,655,846 4,039,193 4,415,069 4,786,149 5,156,949 
 Projected interest expense: 
 Deposits 396,535 554,823 718,942 890,027 1,061,113 1,232,199 
 Borrowings 322,555 399,862 473,953 551,211 628,518 705,816 
 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 
 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 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 
 62 

 
 

 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 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. 
 Liquidity Risk 
 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 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, 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, 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. 
 A maturity schedule for Old National Bank’s time deposits is shown in the following table at December 31, 2023. 
 
 (dollars in thousands) 
 Maturity Bucket Amount Rate 
 2024 $ 5,081,013 4.44 % 
 2025 376,189 3.54 
 2026 66,853 1.05 
 2027 33,864 0.74 
 2028 14,416 1.44 
 2029 and beyond 6,809 1.14 
 Total $ 5,579,144 4.30 % 

 Our ability to acquire funding at competitive prices is influenced by rating agencies’ views of our credit quality, liquidity, capital, and earnings. 
 The credit ratings of Old National and Old National Bank at December 31, 2023 are shown in the following table. 
 
 Moody's Investors Service 
 Long-term Short-term 
 Old National Baa1 N/A 
 Old National Bank A1 P-1 

 63 

 
 

 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. At December 31, 2023, Old National and its subsidiaries had the following availability of liquid funds and borrowings: 
 
 (dollars in thousands) Parent
Company Subsidiaries 
 Available liquid funds: 
 Cash and due from banks $ 284,294 $ 890,764 
 Unencumbered government-issued debt securities — 746,944 
 Unencumbered investment grade municipal securities — 77,866 
 Unencumbered corporate securities — 49,128 
 Availability of borrowings (1) : 
 
 Amount available from Federal Reserve discount window — 885,714 
 Amount available from Federal Reserve Bank Term Funding Program (2) 
 — 1,339,659 
 Amount available from Federal Home Loan Bank — 6,912,459 
 Total available funds $ 284,294 $ 10,902,534 

 (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. Old National Bancorp can obtain funding to meet its obligations from dividends and management fees collected from its subsidiaries, operating line of credit, and through the issuance of debt securities. Additionally, Old National Bancorp has a shelf registration in place with the SEC permitting ready access to the public debt and equity markets. At December 31, 2023, Old National Bancorp’s other borrowings outstanding were $479.8 million. Management believes the Company has the ability to generate and obtain adequate amounts of liquidity to meet its requirements in the short-term and the long-term. 
 Federal banking laws regulate the amount of dividends that may be paid by Old National Bank to Old National Bancorp on an unconsolidated basis 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. Prior regulatory approval to pay dividends was not required in 2022 or 2023 and is not currently required. At December 31, 2023, Old National Bank could pay dividends of $670.4 million without prior regulatory approval and while maintaining capital levels above regulatory minimum and well-capitalized guidelines. 
 Operational Risk 
 Operational risk is the risk that inadequate information systems, operational issues, breaches in internal controls, information security breaches, fraud, or unforeseen catastrophes will result in unexpected losses and other adverse impacts to Old National, such as reputational harm. We maintain frameworks, programs, and internal controls to prevent or minimize financial loss from failure of systems, people, or processes. This includes specific programs and frameworks intended to prevent or limit the effects of cybersecurity risk including, but not limited to, cyber-attacks or other information security breaches that might allow unauthorized transactions or unauthorized access to client, team member, or company sensitive information. 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; damage to physical assets; employee and workplace safety; execution, delivery, and process management; external and internal fraud; 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, 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 
 64 

 
 

 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 
 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, 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 
 The following table presents our material fixed and determinable contractual obligations and significant commitments at December 31, 2023. Further discussion of each obligation or commitment is included in the referenced note to the consolidated financial statements. 
 
 
 Payments Due In 
 (dollars in thousands) Note
Reference One Year
or Less Over
One Year Total 
 Deposits without stated maturity $ 31,656,036 $ — $ 31,656,036 
 IRAs, consumer deposits, and brokered certificates of deposit 10 5,081,013 498,131 5,579,144 
 Securities sold under agreements to repurchase 11 285,206 — 285,206 
 Federal Home Loan Bank advances 12 125,243 4,155,438 4,280,681 
 Other borrowings 13 275,263 489,607 764,870 

 We are party to various derivative contracts as a means to manage the balance sheet and our related exposure to changes in interest rates, to manage our residential real estate loan origination and sale activity, and to provide derivative contracts to our clients. Since the derivative liabilities recorded on the balance sheet change frequently and do not represent the amounts that may ultimately be paid under these contracts, these liabilities are not included in the table of contractual obligations presented above. Further discussion of derivative instruments is included in Note 19 to the consolidated financial statements. 
 In the normal course of business, various legal actions and proceedings are pending against us and our affiliates which are incidental to the business in which they are engaged. Further discussion of contingent liabilities is included in Note 20 to the consolidated financial statements. 
 In addition, liabilities recorded under FASB ASC 740-10 (FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 ) are not included in the table because the amount and timing of any cash payments cannot be reasonably estimated. Further discussion of income taxes and liabilities is included in Note 15 to the consolidated financial statements. 
 
 CRITICAL ACCOUNTING ESTIMATES 
 Our most significant accounting policies are described in Note 1 to the consolidated financial statements. Certain of these accounting policies require management to use significant judgment and estimates, which can have a material impact on the carrying value of certain assets and liabilities. We consider these policies to be our critical accounting estimates. The judgment and assumptions made are based upon historical experience, future forecasts, or other factors that management believes to be reasonable under the circumstances. Because of the nature of the judgment and assumptions, actual results could differ from estimates, which could have a material effect on our financial condition and results of operations. 
 65 

 
 

 The following accounting policies materially affect our reported earnings and financial condition and require significant judgments and estimates. Management has reviewed these critical accounting estimates and related disclosures with our Audit Committee. 
 Business Combinations and Goodwill 
 • Description. For mergers and acquisitions, we are required to record the assets acquired, including identified intangible assets such as core deposit and customer trust relationship intangibles, and the liabilities assumed at their fair value. The difference between consideration and the net fair value of assets acquired is recorded as goodwill. Management uses significant estimates and assumptions to value such items, including projected cash flows, repayment rates, default rates and losses assuming default, discount rates, and realizable collateral values. The allowance for credit losses for PCD loans is recognized within acquisition accounting. The allowance for credit losses for non-PCD assets is recognized as provision for credit losses in the same reporting period as the merger or acquisition. Fair value adjustments are amortized or accreted into the income statement over the estimated life of the acquired assets or assumed liabilities. The purchase date valuations and any subsequent adjustments determine the amount of goodwill recognized in connection with the merger or acquisition. The use of different assumptions could produce significantly different valuation results, which could have material positive or negative effects on our results of operations. The carrying value of goodwill recorded must be reviewed for impairment on an annual basis, as well as on an interim basis if events or changes indicate that the asset might be impaired. An impairment loss must be recognized for any excess of carrying value over fair value of the goodwill. 
 • Judgments and Uncertainties. The determination of fair values is based on valuations using management’s assumptions of future growth rates, future attrition, discount rates, multiples of earnings or other relevant factors. In addition, we engage third party specialists to assist in the development of fair values. Preliminary estimates of fair values may be adjusted for a period of time subsequent to the merger or acquisition date if new information is obtained about facts and circumstances that existed as of the merger or acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Adjustments recorded during this period are recognized in the current reporting period. Management uses various valuation methodologies to estimate the fair value of these assets and liabilities, and often involves a significant degree of judgment, particularly when liquid markets do not exist for the particular item being valued. Examples of such items include loans, deposits, identifiable intangible assets, and certain other assets and liabilities. 
 • Effect if Actual Results Differ From Assumptions. 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. 
 Allowance for Credit Losses on Loans 
 • Description. The allowance for credit losses on loans represents management’s estimate of all expected credit losses over the expected contractual life of our loan portfolio. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods. 
 The allowance for credit losses on loans, as reported in our consolidated statements of financial condition, is adjusted by an expense for credit losses, which is recognized in earnings, and reduced by the charge-off of loan amounts, net of recoveries. 
 • Judgments and Uncertainties. We utilize a discounted cashflow approach to determine the allowance for credit losses for performing loans and nonperforming loans. Expected cashflows are created for each loan and discounted using the effective yield method. 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 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 
 66 

 
 

 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. Variables for systematic risk, risk inherent to all borrowers, come from the use of forward-looking economic forecasts and include variables such as unemployment rate, gross domestic product, and house price index. The LGD is defined as credit loss incurred when an obligor of the bank defaults. Qualitative factors include items such as changes in lending policies or procedures and economic uncertainty in forward-looking forecasts. 
 • Effect if Actual Results Differ From Assumptions. The allowance represents management’s best estimate, but significant downturns in circumstances relating to loan quality and economic conditions could result in a requirement for additional allowance. Likewise, an upturn in loan quality and improved economic conditions may allow a reduction in the required allowance. In either instance, unanticipated changes could have a significant impact on results of operations. 
 One of the most significant judgments used in determining the allowance for credit losses is the macroeconomic forecast provided by a third party. The economic indices sourced from the macroeconomic forecast and used in projecting loss rates include the national unemployment rate, changes in commercial real estate prices, changes in home values, and changes in the United States gross domestic product. The economic index used in the calculation to which the calculation may be most sensitive is the national unemployment rate. Each reporting period, several macroeconomic forecast scenarios are considered by management. Management selects the macroeconomic forecast that is most reflective of expectations at that point in time. Changes in the macroeconomic forecast, especially for the national unemployment rate, could significantly impact the calculated estimated credit losses. 
 The expense for credit loss recorded through earnings is the amount necessary to maintain the allowance for credit losses at the amount of expected credit losses inherent within the loans held for investment portfolio. The amount of expense and the corresponding level of allowance for credit losses on loans are based on our evaluation of the collectability of the loan portfolio based on historical loss experience, reasonable and supportable forecasts, and other significant qualitative and quantitative factors. 
 Derivative Financial Instruments 
 • Description. As part of our overall interest rate risk management, we use derivative instruments to reduce exposure to changes in interest rates and market prices for financial instruments. The application of the hedge accounting policy requires judgment in the assessment of hedge effectiveness, identification of similar hedged item groupings and measurement of changes in the fair value of derivative financial instruments and hedged items. To the extent hedging relationships are found to be effective, changes in fair value of the derivatives are offset by changes in the fair value of the related hedged item or recorded to other comprehensive income (loss). Management believes hedge effectiveness is evaluated properly in preparation of the financial statements. All of the derivative financial instruments we use have an active market and indications of fair value can be readily obtained. We are not using the “short-cut” method of accounting for any fair value derivatives. 
 Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. Old National’s exposure is limited to the termination value of the contracts rather than the notional, principal, or contract amounts. There are provisions in our agreements with the counterparties that allow for certain unsecured credit exposure up to an agreed threshold. Exposures in excess of the agreed thresholds are collateralized. In addition, we minimize credit risk through credit approvals, limits, and monitoring procedures. 
 • Judgments and Uncertainties. The application of the hedge accounting policy requires judgment in the assessment of hedge effectiveness, identification of similar hedged item groupings and measurement of changes in the fair value of derivative financial instruments and hedged items. 
 • Effect if Actual Results Differ From Assumptions. To the extent hedging relationships are found to be effective, changes in fair value of the derivatives are offset by changes in the fair value of the related hedged item or recorded to other comprehensive income (loss). However, if in the future the derivative financial instruments used by us no longer qualify for hedge accounting treatment, all changes in fair value of the derivative would flow through the consolidated statements of income in other noninterest income, resulting in greater volatility in our earnings. 
 67 

 
 

 Income Taxes 
 • Description. We are subject to the income tax laws of the U.S., its states, and the municipalities in which we operate. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. We review income tax expense and the carrying value of deferred tax assets quarterly; and as new information becomes available, the balances are adjusted as appropriate. FASB ASC 740-10 (FIN 48) prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements. See Note 15 to the consolidated financial statements for a further description of our provision and related income tax assets and liabilities. 
 • Judgments and Uncertainties. In establishing a provision for income tax expense, we must make judgments and interpretations about the application of these inherently complex tax laws. We must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions. Disputes over interpretations of the tax laws may be subject to review/adjudication by the court systems of the various tax jurisdictions or may be settled with the taxing authority upon examination or audit. 
 • Effect if Actual Results Differ From Assumptions. Although management believes that the judgments and estimates used are reasonable, actual results could differ and we may be exposed to losses or gains that could be material. To the extent we prevail in matters for which reserves have been established or are required to pay amounts in excess of our reserves, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement would result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement would result in a reduction in our effective income tax rate in the period of resolution. 
 Management has discussed the development and selection of these critical accounting estimates with the Audit Committee and the Audit Committee has reviewed our disclosure relating to it in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
 The information contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk” of this Form 10-K is incorporated herein by reference in response to this item. 
 68
OLD NATIONAL BANCORP /IN/ 10-K

Item 7. Management’s Discussion and Analysis
