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Item 7. Management’s Discussion and Analysis

2023-02-22 compared with 2022-02-10 · 537 added, 480 removed, 730 unchanged (58% of the section changed)

8 unchanged sentences

Risk Management

Material C ontractual Obligations, Commitments, and Contingent Liabilities

Material Contractual Obligations, Commitments, and Contingent Liabilities

Critical Accounting Estimates

6 unchanged sentences

GENERAL OVERVIEW

Old National is the largest financial holding company incorporated in the state of Indiana and maintains its principal executive offices in Evansville, Indiana.

Our primary geographic markets are in Indiana, Kentucky, Michigan, Minnesota, and Wisconsin.

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

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

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

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

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

CORPORATE DEVELOPMENTS IN FISCAL 2022

Old National had an outstanding financial year in 2021.

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

Key performance indicators experienced in 2022 included:

• net income of $277.5 million, or $1.67 per diluted share;

• high commercial loan production of $3.9 billion;

• wealth revenue (wealth management fees and investment product fees combined) of $65.0 million;

• net recoveries of $4.8 million;

• strong credit quality metrics including net charge-offs (recoveries) to average loans of (0.03)%;

• low cost of total deposits at 0.06% along with a loan to deposit ratio of 73%;

• efficiency ratio of 59.65%.

Our net interest income increased slightly to $596.4 million during 2021, compared to $596.1 million in 2020.

Noninterest income decreased from $239.3 million in 2020 to $214.2 million in 2021 reflecting lower mortgage banking revenue and lower debt securities gains.

Our noninterest expenses remain well controlled, decreasing from $541.4 million in 2020 to $500.6 million in 2021 reflecting higher charges related to The ONB Way strategic initiative in 2020 and lower amortization of tax credit investments in 2021.

The ONB Way charges totaled $42.6 million in 2020.

These decreases in noninterest expenses were partially offset by $14.6 million of diligence and merger charges in 2021 associated with the anticipated First Midwest merger.

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

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

Following completion of the transaction,

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

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

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

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

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

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

• net income applicable to common shareholders of $414.2 million, or $1.50 per diluted common share;

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

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

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

• disciplined expense management;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Pandemic Update

As previously disclosed, the COVID-19 pandemic has created economic and financial disruptions that have adversely affected our operations during 2020 and 2021.

Our historically careful underwriting practices, diverse and granular portfolios, and Midwest-based footprint has helped minimize any adverse impact to Old National.

In addition, the combination of the vaccine rollout, government stimulus payments, and reduced spending during the pandemic are likely contributing factors mitigating the impact of the pandemic on the Company’s business, financial condition, results of operations, and its clients as of December 31, 2021.

However, there are continuing concerns that indicate a slower return to pre-pandemic routines.

Examples of these concerns relate to increases in new COVID-19 cases, hospitalizations and deaths leading to additional government imposed restrictions;

refusals to receive the vaccine along with new strain concerns;

supply chain issues remaining unresolved longer than anticipated;

unemployment increases while consumer confidence and spending falls;

and rising geopolitical tensions.

Given the ongoing and dynamic nature of the circumstances surrounding the pandemic, it is difficult to predict the future adverse financial impact to Old National.

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

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

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

BUSINESS OUTLOOK

We saw a strong start to a strengthening economic recovery in 2021, which was damaged mid-year by the Delta COVID-19 variant and again late in 2021 by the Omicron variant.

The Moody’s U.S.

macroeconomic outlook predicts the pandemic to slowly recede, with each future wave of the virus expected to be less disruptive than the preceding wave as state and local governments and businesses skillfully mitigate the impact of the virus.

The Conference Board forecasted that GDP growth will approximate 6.0% in the fourth quarter of 2021 (vs.

2.3% growth in the third quarter of 2021), which is a 0.5% downgrade from earlier fourth quarter of 2021 GDP growth forecasts due to the rapid spread of the Omicron variant in December.

The previous Conference Board forecasts had assumed that a new variant would dampen economic growth in the United States, but not until the first quarter of 2022.

Since then, the Omicron variant has spread more rapidly than anticipated and is yielding record high new infections, yet appears to be less severe since hospitalizations and mortality rates have not spiked to the same degree as the initial COVID-19 virus.

However, The Conference Board notes that mass infections are impacting labor supply as workers recover from illness or postpone reentering the workforce.

This supply-side disruption could result in additional shortages and has resulted in an increase in the inflation forecast for early 2022.

As expected, in mid-December the Federal Reserve indicated that it will conclude its large-scale asset purchase program as soon as March 2022 and that three 25 basis point rate hikes would follow in 2022.

Additional Omicron-induced inflationary pressures could result in even more aggressive tightening, which is a downside risk to The Conference Board’s forecast.

This forecast includes spending associated with the bipartisan infrastructure package approved in 2021.

However, it does not incorporate the proposed Build Back Better social and climate package.

The 2021 annual growth is currently estimated to be 5.6% for the year and The Conference Board forecasts that the U.S.

economy will grow by an estimated 3.5% in 2022 and an estimated 2.9% in 2023.

If Omicron and other future variants evolve to be less severe, it could help the U.S.

economy “return to normal” pre-pandemic levels.

While we are cautiously optimistic about 2022 from a U.S.

economic standpoint, risks related to supply chain disruption, slowing job growth, significant and persistent tightening in financial market conditions, inflation, and geopolitical tensions could halt this recovery.

Our strategy evolution continues into a commercially-oriented regional bank that consistently delivers top quartile performance.

This is accomplished by continuing to focus on the fundamentals of basic banking, which are loan growth, noninterest income growth, prudent capital deployment, and expense management.

Execution of these fundamentals will help us deliver meaningful positive operating leverage.

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

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

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

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

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

Organic loan growth continues to be our priority.

As we enter into 2022, our commercial loan production and pipeline are at record high levels, yet we continue to adhere to our disciplined underwriting process.

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

Despite the lingering challenges due to the pandemic in 2021, overall credit quality remains healthy.

Old National has not experienced any specific sector credit related weaknesses, yet we remain watchful for any credits that deserve extra attention as we slowly return to a pre-pandemic economic environment.

As we look ahead to 2022 and our anticipated partnership with First Midwest, we are positioned to close the merger after the close of business and after the end of regular trading hours on the NASDAQ Stock Market on February 15, 2022.

We have established the organizational structure and leadership positions for all client segments and support areas and have communicated those decisions throughout the organization.

Further, we also agreed upon our core processing system and supporting applications.

Finally, we are initiating our recruiting process for talent in Chicago, as we anticipate that the Chicago and Minneapolis markets will be a significant focus in 2022.

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

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

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

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

FINANCIAL HIGHLIGHTS

The following table sets forth certain financial highlights of Old National:

Three Months Ended Years Ended

(dollars and shares in thousands, December 31, September 30, December 31, December 31,

except per share data) 2021 2021 2020 2021 2020

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,

2022 2022 2022 2022 2021

Income Statement:

1 unchanged sentence

Taxable equivalent adjustment (1)

Net interest income - tax equivalent basis 150,223 155,073 164,596 610,313 609,680

5,378 4,950 4,314 3,772 3,442

Net interest income - taxable equivalent basis 396,468 381,539 341,786 226,557 150,223

Provision for credit losses (2)

11,408 15,490 9,165 108,736 (1,332)

Noninterest income 165,037 80,385 89,117 65,240 51,484

Noninterest expense (2)

Net income 56,188 71,746 74,120 277,538 226,409

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

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

Per Common Share Data:

Weighted average diluted shares 166,128 165,939 165,631 165,929 166,177

Weighted average diluted common shares 293,131 292,483 291,881 227,002 166,128

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

Cash dividends 0.14 0.14 0.14 $ 0.14 $ 0.14

Common dividend payout ratio (3)

21 % 30 % 37 % (108) % 41 %

Book value $ 16.68 $ 16.05 $ 16.51 $ 17.03 $ 18.16

Stock price 17.98 16.47 14.79 16.38 18.12

Tangible common book value (4)

9.42 8.75 9.23 9.71 11.70

Performance Ratios:

Return on average assets 1.74 % 1.22 % 1.01 % (0.31) % 0.93 %

Return on average common equity 16.77 11.13 9.08 (2.89) 7.49

Return on tangible common equity (4)

29.25 22.07 17.21 (3.61) 11.98

Return on average tangible common equity (4)

31.53 20.49 16.93 (4.03) 12.07

Net interest margin (4)

3.85 3.71 3.33 2.88 2.77

Efficiency ratio (4)

49.12 55.26 62.72 72.32 63.98

Efficiency ratio (prior presentation) (5)

N/A 56.17 62.70 76.15 64.27

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

Allowance for credit losses on loans to ending loans 0.98 0.99 0.97 0.99 0.79

Allowance for credit losses (6) to ending loans

1.08 1.08 1.05 1.07 0.87

Non-performing loans to ending loans 0.81 0.81 0.78 0.88 0.92

Balance Sheet:

Total loans $ 31,123,641 $ 30,528,933 $ 29,553,648 $ 28,336,244 $ 13,601,846

Total assets 46,763,372 46,215,526 45,748,355 45,834,648 24,453,564

Total deposits 35,000,830 36,053,663 35,538,975 35,607,390 18,569,195

Total borrowed funds 5,586,314 4,264,750 4,384,411 4,347,560 2,575,240

Total shareholders' equity 5,128,595 4,943,383 5,078,783 5,232,114 3,012,018

Capital Ratios:

Risk-based capital ratios:

Tier 1 common equity 10.03 % 9.88 % 9.90 % 10.04 % 12.04 %

Tier 1 10.71 10.58 10.63 10.79 12.04

Total 12.02 11.84 12.03 12.19 12.77

Leverage ratio (to average assets) 8.52 8.26 8.19 10.58 8.59

Total equity to assets (averages) 10.70 11.18 11.22 12.03 12.35

Tangible common equity to tangible assets (4)

6.18 5.82 6.20 6.51 8.30

Nonfinancial Data:

Full-time equivalent employees 3,967 4,008 4,196 4,333 2,374

Banking centers 263 263 266 267 162

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

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

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

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

(4) Represents a non-GAAP financial measure.

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

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

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

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

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) 2022 2021

Income Statement:

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

Taxable equivalent adjustment (1)

18,414 13,913

Net interest income - taxable equivalent basis 1,346,350 610,313

Provision for credit losses (2)

144,799 (29,622)

Noninterest income 399,779 214,219

Noninterest expense (2)

1,038,183 501,379

Net income available to common shareholders $ 414,169 $ 277,538

Per Common Share Data:

Weighted average diluted common shares 276,688 165,929

Net income (diluted) $ 1.50 $ 1.67

11 unchanged sentences

Efficiency ratio (4)

Efficiency ratio (prior presentation) (5)

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

Allowance for credit losses on loans to ending loans 0.98 0.79

Allowance for credit losses (6) to ending loans

1 unchanged sentence

Balance Sheet:

Total loans, excluding loans held for sale $ 13,601,846 $ 13,584,828 $ 13,786,479 $ 13,601,846 $ 13,786,479

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

Total assets 46,763,372 24,453,564

14 unchanged sentences

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

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

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

1 unchanged sentence

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

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

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

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

NON-GAAP FINANCIAL MEASURES

The non-GAAP financial measures presented below are used by our management and our Board of Directors on a regular basis in addition to our GAAP results to facilitate the assessment of our financial performance.

Management believes these non-GAAP financial measures enhance an investor’s understanding of our financial results by providing a meaningful basis for period-to-period comparisons, assisting in operating results analysis, and predicting future performance.

This information supplements our GAAP reported results, and should not be viewed in isolation

from, or as a substitute for, our GAAP results.

Accordingly, this financial information should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2021, included elsewhere in this report.

Non-GAAP financial measures exclude certain items that are included in the financial results presented in accordance with GAAP.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited.

Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.

These non-GAAP measures are not necessarily comparable to similar measures that may be represented by other companies.

The following table presents GAAP to non-GAAP reconciliations.

Three Months Ended Years Ended

(dollars and shares in thousands, December 31, December 31,

except per share data) 2021 2020 2021 2020

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

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

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 analysts and investors, in assessing the Company’s use of equity and in facilitating comparisons with peers.

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

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

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.

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,

2022 2022 2022 2022 2021

Tangible common book value:

Shareholders' equity (GAAP) $ 3,012,018 $ 2,972,656 $ 3,012,018 $ 2,972,656

Goodwill 1,036,994 1,036,994 1,036,994 1,036,994

Intangible assets 34,678 46,014 34,678 46,014

Tangible shareholders' equity (non-GAAP) $ 1,940,346 $ 1,889,648 $ 1,940,346 $ 1,889,648

Shareholders' common equity $ 4,884,876 $ 4,699,664 $ 4,835,064 $ 4,988,395 $ 3,012,018

Goodwill and intangible assets 2,125,121 2,135,792 2,131,815 2,144,609 1,071,672

Tangible shareholders' common equity (1)

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

Period end common shares 292,903 292,880 292,893 292,959 165,838

Tangible common book value (1)

9.42 8.75 9.23 9.71 11.70

Return on tangible common equity:

Net income (GAAP) $ 56,188 $ 74,120 $ 277,538 $ 226,409

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

Intangible amortization (net of tax) (2)

Tangible net income (non-GAAP) $ 58,118 $ 76,553 $ 286,040 $ 236,994

Tangible shareholders' equity (non-GAAP) (see above) $ 1,940,346 $ 1,889,648 $ 1,940,346 $ 1,889,648

5,090 5,317 5,378 3,934 1,930

Tangible net income (loss) (1)

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

Tangible shareholders' common equity (1)

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

Return on tangible common equity (1)

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

Return on average tangible common equity:

Tangible net income (non-GAAP) (see above) $ 58,118 $ 76,553 $ 286,040 $ 236,994

Average shareholders' equity (GAAP) $ 2,998,825 $ 2,932,590 $ 2,997,520 $ 2,875,460

Average goodwill 1,036,994 1,036,994 1,036,994 1,036,994

Average intangible assets 35,992 47,536 40,071 52,740

Average tangible shareholders' equity (non-GAAP) $ 1,925,839 $ 1,848,060 $ 1,920,455 $ 1,785,726

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

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

Average shareholders' common equity $ 4,692,863 $ 4,890,434 $ 4,886,181 $ 4,101,206 $ 2,998,825

Average goodwill and intangible assets 2,132,480 2,129,858 2,136,964 1,550,624 1,072,986

Average tangible shareholders' common equity (1)

$ 2,560,383 $ 2,760,576 $ 2,749,217 $ 2,550,582 $ 1,925,839

Return on average tangible common equity (1)

31.53 % 20.49 % 16.93 % (4.03) % 12.07 %

Net interest margin:

Net interest income (GAAP) $ 146,781 $ 161,079 $ 596,400 $ 596,094

Net interest income $ 391,090 $ 376,589 $ 337,472 $ 222,785 $ 146,781

Taxable equivalent adjustment 5,378 4,950 4,314 3,772 3,442

Net interest income - taxable equivalent basis (non-GAAP) $ 150,223 $ 164,596 $ 610,313 $ 609,680

Net interest income - taxable equivalent basis (1)

$ 396,468 $ 381,539 $ 341,786 $ 226,557 $ 150,223

Average earning assets $ 41,206,695 $ 41,180,026 $ 41,003,338 $ 31,483,553 $ 21,670,723

Net interest margin (1)

3.85 % 3.71 % 3.33 % 2.88 % 2.77 %

Efficiency ratio:

Noninterest expense (GAAP) $ 131,937 $ 142,318 $ 500,569 $ 541,417

Noninterest expense $ 282,675 $ 262,444 $ 277,475 $ 215,589 $ 131,355

Intangible amortization expense 6,787 7,089 7,170 4,811 2,573

Adjusted noninterest expense (non-GAAP) $ 129,364 $ 139,074 $ 489,233 $ 527,326

Net interest income - taxable equivalent basis (non-GAAP)

(see above) $ 150,223 $ 164,596 $ 610,313 $ 609,680

Adjusted noninterest expense (1)

$ 275,888 $ 255,355 $ 270,305 $ 210,778 $ 128,782

Net interest income - taxable equivalent basis (1)

$ 396,468 $ 381,539 $ 341,786 $ 226,557 $ 150,223

Noninterest income 165,037 80,385 89,117 65,240 51,484

Debt securities gains (losses), net (173) (172) (85) 342 435

Adjusted total revenue (non-GAAP) $ 201,272 $ 222,987 $ 820,205 $ 838,187

Adjusted total revenue (1)

$ 561,678 $ 462,096 $ 430,988 $ 291,455 $ 201,272

Efficiency ratio 49.12 % 55.26 % 62.72 % 72.32 % 63.98 %

Tangible common equity to tangible assets:

Tangible shareholders' equity (non-GAAP) (see above) $ 1,940,346 $ 1,889,648 $ 1,940,346 $ 1,889,648

Assets (GAAP) $ 24,453,564 $ 22,960,622 $ 24,453,564 $ 22,960,622

Tangible shareholders' equity (1) (see above)

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

Assets $ 46,763,372 $ 46,215,526 $ 45,748,355 $ 45,834,648 $ 24,453,564

Trust overdrafts — — — 1 —

Goodwill 1,036,994 1,036,994 1,036,994 1,036,994

Intangible assets 34,678 46,014 34,678 46,014

Tangible assets (non-GAAP) $ 23,381,892 $ 21,877,640 $ 23,381,892 $ 21,877,640

Goodwill and intangible assets 2,125,121 2,135,792 2,131,815 2,144,609 1,071,672

Tangible assets (1)

$ 44,638,251 $ 44,079,734 $ 43,616,540 $ 43,690,040 $ 23,381,892

Tangible common equity to tangible assets (1)

6.18 % 5.82 % 6.20 % 6.51 % 8.30 %

(1) Represents a non-GAAP financial measure.

(2) Calculated using management’s estimate of the annual fully taxable equivalent rates (federal and state).

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) 2022 2021

Tangible common book value:

Shareholders' common equity $ 4,884,876 $ 3,012,018

Goodwill and intangible assets 2,125,121 1,071,672

Tangible shareholders' common equity (1)

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

Period end common shares 292,903 165,838

Tangible common book value (1)

Return on tangible common equity:

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

Intangible amortization (net of tax) (2)

Tangible net income (loss) (1)

$ 433,887 $ 286,040

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

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

Return on tangible common equity (1)

15.72 % 14.74 %

Return on average tangible common equity:

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

$ 433,887 $ 286,040

Average shareholders' common equity $ 4,644,971 $ 2,997,520

Average goodwill and intangible assets 1,989,466 1,077,065

Average tangible shareholders' common equity (1)

$ 2,655,505 $ 1,920,455

Return on average tangible common equity (1)

16.34 % 14.89 %

Net interest margin:

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

Taxable equivalent adjustment 18,414 13,913

Net interest income - taxable equivalent basis (1)

$ 1,346,350 $ 610,313

Average earning assets $ 38,751,786 $ 21,152,209

Net interest margin (1)

3.47 % 2.89 %

Efficiency ratio:

Noninterest expense $ 1,038,183 $ 501,379

Intangible amortization expense 25,857 11,336

Adjusted noninterest expense (1)

$ 1,012,326 $ 490,043

Net interest income - taxable equivalent basis (1) (see above)

$ 1,346,350 $ 610,313

Noninterest income 399,779 214,219

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

Adjusted total revenue (1)

$ 1,746,217 $ 820,205

Efficiency ratio 57.97 % 59.75 %

Tangible common equity to tangible assets:

Tangible shareholders' equity (1) (see above)

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

Assets $ 46,763,372 $ 24,453,564

Goodwill and intangible assets 2,125,121 1,071,672

Tangible assets (1)

$ 44,638,251 $ 23,381,892

Tangible common equity to tangible assets (1)

6.18 % 8.30 %

(1) Represents a non-GAAP financial measure.

(2) Calculated using management’s estimate of the annual fully taxable equivalent rates (federal and state).

RESULTS OF OPERATIONS

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Years Ended December 31,

(dollars in thousands) 2021 2020 2019

(dollars in thousands, except per share data) 2022 2021 2020

Income Statement Summary:

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Noninterest expense 1,038,183 501,379 536,933

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

Net income per common share - diluted 1.50 1.67 1.36

Return on average common equity 8.92 % 9.26 % 7.87 %

Return on tangible common equity (1)

15.72 % 14.74 % 12.54 %

Return on average tangible common equity (1)

16.34 % 14.89 % 13.27 %

Efficiency ratio (1)

57.97 % 59.75 % 62.38 %

Efficiency ratio (prior presentation) (2)

N/A 59.65 % 62.91 %

Tier 1 leverage ratio 8.52 % 8.59 % 8.20 %

Net charge-offs (recoveries) to average loans 0.06 % (0.03) % 0.02 %

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

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

(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.

Comparison of Fiscal Years 2022 and 2021

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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.

The path of the economy continues to depend on the course of COVID-19.

Progress on vaccinations and an easing of supply constraints are expected to support continued gains on economic activity.

Risks to the economic outlook remain, including from new variants of the virus.

Interest rates remained at near historic lows during 2021 after declining dramatically in the first half of 2020 due to the COVID-19 pandemic.

The Federal Reserve’s Federal Funds range is currently in a target range of 0.00% to 0.25%, with the Effective Fed Funds Rate in the 0.05% to 0.10% range.

If interest rates decline further, our interest rate spread could decline, which may result in a decrease in our net interest income.

However, management has taken balance sheet restructuring, derivative, and deposit pricing actions to help mitigate this risk.

Interest rates increased significantly during 2022.

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

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

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

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

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

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

Years Ended December 31,

(dollars in thousands) 2021 2020 2019

Net interest income (GAAP) $ 596,400 $ 596,094 $ 604,273

Conversion to fully taxable equivalent 13,913 13,586 12,940

Net interest income - taxable equivalent basis (non-GAAP) $ 610,313 $ 609,680 $ 617,213

Average earning assets $ 21,152,209 $ 19,158,681 $ 17,385,180

Net interest margin 2.82 % 3.11 % 3.48 %

Net interest margin - taxable equivalent basis 2.89 % 3.18 % 3.55 %

Net interest income was $596.4 million in 2021, a $0.3 million increase from $596.1 million in 2020.

Taxable equivalent net interest income was $610.3 million in 2021, a $0.6 million increase from $609.7 million in 2020.

The net interest margin on a fully taxable equivalent basis was 2.89% in 2021, a 29 basis point decrease compared to 3.18% in 2020.

The increase in net interest income in 2021 when compared to 2020 was primarily due to higher average earning assets and lower costs of average interest-bearing liabilities.

Substantially offsetting these increases were lower yields on average earning assets.

Net interest income in both 2021 and 2020 included accretion income (interest income in excess of contractual interest income) associated with acquired loans.

Accretion income totaled $16.7 million in 2021, compared to $23.3 million in 2020.

We expect accretion income on loans to decrease over time, but this may be offset by future acquisitions.

Net interest income in 2021 included $44.4 million of interest and net fees combined on PPP loans, compared to $38.0 million in 2020.

Unamortized fees on remaining PPP loans totaled $6.4 million at December 31, 2021.

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.

2022 2021 2020

(Tax equivalent basis,

(Taxable equivalent basis,

dollars in thousands) Average

Balance Income (1) /

Expense Yield/

Balance Income (1) /

Expense Yield/

Balance Income (1) /

Expense Yield/

Earning Assets

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Allowance for credit losses

on loans (261,534) (117,436) (115,321)

Non-Earning Assets

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equity $ 43,249,700 $ 23,783,687 $ 21,785,015

Net interest rate spread 2.79 % 3.04 % 3.32 %

Net interest margin (4) 2.89 3.18 3.55

Net interest income - taxable

equivalent basis $ 1,346,350 3.47 % $ 610,313 2.89 % $ 609,680 3.18 %

Taxable equivalent adjustment (18,414) (13,913) (13,586)

Net interest income (GAAP) $ 1,327,936 3.43 % $ 596,400 2.82 % $ 596,094 3.11 %

(1) Interest income is reflected on a fully taxable equivalent basis.

(2) Includes loans held for sale.

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

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

(4) Net interest margin is defined as net interest income on a tax equivalent basis as a percentage of average earning assets.

The yield on average earning assets decreased 44 basis points from 3.53% in 2020 to 3.09% in 2021 and the cost of interest-bearing liabilities decreased 19 basis points from 0.49% in 2020 to 0.30% in 2021.

Average earning assets increased by $1.994 billion, or 10%.

The increase in average earning assets consisted of a $1.297 billion increase in

investment securities, a $421.0 million increase in loans, and a $275.7 million increase in money market and other interest-earning investments.

Average interest-bearing liabilities increased $623.3 million, or 5%.

The increase in average interest-bearing liabilities consisted of an $869.5 million increase in interest-bearing deposits, a $16.8 million increase in securities sold under agreements to repurchase, and a $26.8 million increase in other borrowings, partially offset by a $137.1 million decrease in federal funds purchased and interbank borrowings and a $152.7 million decrease in FHLB advances.

Average noninterest-bearing deposits increased by $1.218 billion.

The increase in average earning assets in 2021 compared to 2020 was due to increases in average investment securities, average loans, and average money market and other interest-earning investments.

The loan portfolio, including loans held for sale, which generally has an average yield higher than the investment portfolio, was 65% of average interest earning assets in 2021, compared to 70% in 2020.

Average loans including loans held for sale increased $421.0 million in 2021 compared to 2020 due to higher average commercial real estate loans, partially offset by lower average commercial loans, residential real estate loans, and consumer loans.

Excluding the $258.6 million decrease in average PPP loans, average commercial loans increased reflecting organic growth.

Average investments increased $1.297 billion in 2021 compared to 2020 reflecting excess liquidity.

Average non-interest-bearing deposits increased $1.218 billion in 2021 compared to 2020 primarily due to PPP funds on deposit.

Average interest-bearing deposits increased $869.5 million in 2021 compared to 2020.

Average borrowed funds decreased $246.2 million in 2021 compared to 2020 primarily due to decreases in FHLB advances and federal funds purchased and interbank borrowings, partially offset by increases in other borrowings and securities sold under agreements to repurchase.

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.

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Total Attributed to Total Attributed to

(dollars in thousands) Change (1) Volume Rate Change (1) Volume Rate

(dollars in thousands) Change (1)

Volume Rate Change (1)

Interest Income

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Investment securities (2)

Loans (2) (28,077) 16,163 (44,240) (56,310) 56,052 (112,362)

113,681 78,830 34,851 3,724 29,963 (26,239)

704,148 556,963 147,185 (28,077) 16,163 (44,240)

Total interest income 820,054 636,658 183,396 (24,332) 46,754 (71,086)

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

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

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

Accretion income associated with acquired loans and borrowings totaled $86.4 million in 2022, compared to $16.7 million in 2021.

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

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

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

The yield on average earning assets increased 71 basis points from 3.09% in 2021 to 3.80% in 2022 and the cost of interest-bearing liabilities increased 19 basis points from 0.30% in 2021 to 0.49% in 2022.

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

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

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

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

Average noninterest-bearing deposits increased by $5.6 billion.

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

The loan portfolio, including loans held for sale, which generally has an average yield higher than the investment portfolio, was 71% of average interest earning assets in 2022, compared to 65% in 2021.

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

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

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

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

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

Provision for Credit Losses

Old National recorded a provision for credit losses recapture of $28.8 million in 2021, compared to an expense of $38.4 million in 2020.

Net recoveries totaled $4.8 million in 2021, compared to net charge-offs of $3.0 million in 2020.

The provision for credit losses recapture in 2021 reflected the improved economic forecast.

The provision for credit losses expense in 2020 reflected the implementation of ASC 326 and the macroeconomic factors surrounding the COVID-19 pandemic.

PPP loans were factored in the provision for credit losses in 2021 and 2020;

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

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

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

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

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

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

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, with the adoption of CECL beginning on January 1, 2020, provision expense may become more 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.

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.”

Noninterest Income

We generate revenues in the form of noninterest income through client fees, sales commissions, and other gains and losses from our core banking franchise and other related businesses, such as wealth management, investment consulting, and investment products.

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 23% in 2022 compared to 26% in 2021.

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

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

Other income 32,050 14,276 17,542 124.5 (18.6)

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Noninterest income to total revenue (1)

22.9 % 26.0 % 28.2 %

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

The decrease in noninterest income in 2021 compared to 2020 was primarily due to lower mortgage banking revenue and lower debt securities gains.

Wealth management fees increased $3.6 million in 2021 compared to 2020 primarily due to higher personal trust fees, fiduciary account fees, and corporate trust fees.

Mortgage banking revenue decreased $20.2 million in 2021 compared to 2020 reflecting lower refinance transactions related to higher rates in 2021, which caused pipeline levels to drop and gain on sale margins to partially normalize.

Investment product fees increased $3.0 million in 2021 compared to 2020 reflecting higher investment and advisor fees.

Debt securities gains (losses), net decreased $6.4 million in 2021 compared to 2020 primarily due to lower realized gains on sales of available-for-sale securities in 2021.

Other income decreased $3.3 million in 2021 compared to 2020 primarily due to lower branded card incentives and $1.5 million of swap termination fees in 2021.

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

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

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

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.

Noninterest Expense

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Amortization of tax credit investments 10,961 6,770 18,788 61.9 (64.0)

Property optimization 26,818 — 27,050 N/A (100.0)

Other expense 76,510 31,697 27,240 141.4 16.4

Total noninterest expense $ 1,038,183 $ 501,379 $ 536,933 107.1 % (6.6) %

Noninterest expense decreased $40.8 million in 2021 compared to 2020 reflecting $42.6 million of charges in 2020 related to the ONB Way strategic initiative and lower amortization of tax credit investments in 2021.

These decreases were partially offset by $14.6 million of diligence and merger charges in 2021 associated with the anticipated First Midwest merger.

Salaries and employee benefits is the largest component of noninterest expense.

Salaries and employee benefits decreased $9.5 million in 2021 compared to 2020.

Personnel expenses related to the ONB Way strategic initiative totaling $8.3 million in 2020 were the primary driver of this decline.

Marketing expenses increased $1.8 million in 2021 compared to 2020 primarily due to higher advertising expenses.

Data processing expenses increased $6.0 million in 2021 compared to 2020 related to the modernization of our technology infrastructure.

Professional fees increased $4.3 million in 2021 compared to 2020.

Professional fees in 2021 included $10.0 million related to the First Midwest merger.

Professional fees in 2020 included $2.8 million of consulting fees related to the ONB Way strategic initiative.

Amortization of intangibles decreased $2.8 million in 2021 compared to 2020 primarily due to lower amortization of core deposit intangibles.

Amortization of tax credit investments decreased $12.0 million in 2021 compared to 2020.

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

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

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

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

Amortization of tax credit investments increased $4.2 million in 2022 compared to 2021.

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.

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

Other expense decreased $27.9 million in 2021 compared to 2020 primarily due to lease termination charges and impairments on long-lived assets related to banking center consolidations that were part of the ONB Way strategic initiative totaling $27.1 million in 2020.

Provision for Income Taxes

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The effective tax rate was 21.4% in 2022 compared to 18.1% in 2021.

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

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

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

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

Comparison of Fiscal Years 2021 and 2020

In 2020, we generated net income of $226.4 million and diluted net income per share of $1.36 compared to $238.2 million and diluted net income per share of $1.38, respectively, in 2019.

The 2020 earnings included a $40.0 million increase in noninterest income and a $23.0 million decrease in income tax expense.

These favorable variances in net income were offset by an $8.2 million decrease in net interest income, a $32.9 million increase in noninterest expense, and a $33.6 million increase in provision for credit losses.

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

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

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

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

Net interest income was $596.1 million in 2020, an $8.2 million decrease from $604.3 million in 2019.

Taxable equivalent net interest income was $609.7 million in 2020, a $7.5 million decrease from $617.2 million in 2019.

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

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

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

The provision for credit losses was an expense of $38.4 million in 2020, compared to an expense of $4.7 million in 2019.

The increase in provision for credit losses expense reflected the implementation of ASC 326 and the macroeconomic factors surrounding the COVID-19 pandemic.

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

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

Noninterest income increased $40.0 million in 2020 compared to 2019 primarily due to higher mortgage banking revenue, higher capital markets income, and higher debt securities gains.

These increases were partially offset by lower service charges on deposit accounts.

Noninterest expense increased $32.9 million in 2020 compared to 2019 reflecting higher charges related to the ONB Way and higher commissions and corporate incentives, partially offset by fewer employees at December 31, 2020.

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

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

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

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

The lower effective tax rate in 2020 compared to 2019 was primarily the result of an increase in federal tax credits available.

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

FINANCIAL CONDITION

At December 31, 2021, our assets were $24.454 billion, a 7% increase compared to $22.961 billion at December 31, 2020.

The increase was primarily due to higher investment securities and organic loan growth, excluding the decline in PPP loans.

We have observed signs of an economic recovery in the United States since the onset of COVID-19, with jobs, consumer spending, manufacturing, and other indicators rebounding from their weakest levels.

However, there have been concerns about the emergence of communicable strains of the virus, whether enough people will agree to be vaccinated, supply chain issues, labor supply constraints, and inflation.

Economic uncertainty remains and bouts of elevated volatility are expected to continue.

At December 31, 2022, our assets were $46.8 billion, a $22.3 billion increase compared to $24.5 billion at December 31, 2021.

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

Earning Assets

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Investment Securities

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

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

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

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

The increase in equity securities was primarily due to an increase in mutual funds.

At December 31, 2021, the investment securities portfolio, including equity securities, was $7.565 billion compared to $6.142 billion at December 31, 2020, an increase of $1.423 billion, or 23%.

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

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

Investment securities represented 25% of earning assets at December 31, 2022, compared to 35% at December 31, 2021.

Stronger commercial loan demand in the future could result in management’s decision to reduce the securities portfolio.

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

As of December 31, 2022, 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 $6.0 million at December 31, 2021, compared to net unrealized gains of $186.3 million at December 31, 2020.

The change in net unrealized gains (losses) from December 31, 2020 to December 31, 2021 was primarily due to an increase in long-term interest rates impacting market values for mortgage-backed, U.S.

The investment securities available-for-sale portfolio had net unrealized losses of $844.4 million at December 31, 2022, compared to net unrealized losses of $6.0 million at December 31, 2021.

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

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

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

The investment portfolio had an effective duration of 4.26 at December 31, 2021, compared to 4.08 at December 31, 2020.

Effective duration measures the percentage change in value of the portfolio in response to a change in interest rates.

The investment securities available-for-sale portfolio including securities hedges had an effective duration of 4.57 at December 31, 2022, compared to 4.26 at December 31, 2021.

The total investment securities portfolio had an effective duration of 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.

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Loan Portfolio

We lend primarily to consumers and small to medium-sized commercial and commercial real estate clients in many diverse industries including manufacturing, agribusiness, transportation, mining, wholesaling, and retailing.

Our policy is to concentrate our lending activity in the geographic market areas we serve, primarily Indiana, Kentucky, Michigan, Minnesota, and Wisconsin.

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

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

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

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

Allowance for credit losses 107,341 131,388

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

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

(1) Includes remaining PPP loans of $169.0 million at December 31, 2021, compared to $943.0 million at December 31, 2020.

The following table presents the maturity distribution and rate sensitivity of loans at December 31, 2021 and an analysis of these loans that have predetermined and floating interest rates.

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

(dollars in thousands) Within

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Interest rates:

Predetermined $ 171,531 $ 965,676 $ 546,563 $ 40,131 $ 1,723,901 51 %

Fixed $ 224,963 $ 1,662,958 $ 1,022,213 $ 93,895 $ 3,004,029 32 %

Floating 1,512,295 3,363,694 1,539,509 89,377 6,504,875 68

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Interest rates:

Predetermined $ 122,594 $ 1,483,156 $ 747,289 $ 20,683 $ 2,373,722 37 %

Fixed $ 426,478 $ 3,068,434 $ 1,147,547 $ 44,599 $ 4,687,058 38 %

Floating 917,318 4,604,668 2,129,048 118,978 7,770,012 62

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Interest rates:

Predetermined $ 2,850 $ 67,419 $ 607,554 $ 1,314,485 $ 1,992,308 88 %

Fixed $ 6,523 $ 61,713 $ 2,327,968 $ 2,833,756 $ 5,229,960 81 %

Floating 70 1,232 33,054 1,196,125 1,230,481 19

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Interest rates:

Predetermined $ 17,266 $ 576,701 $ 382,979 $ 5,897 $ 982,843 62 %

Fixed $ 36,099 $ 940,836 $ 679,161 $ 19,006 $ 1,675,102 62 %

Floating 52,403 160,551 147,075 662,095 1,022,124 38

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Commercial and Commercial Real Estate Loans

Commercial and commercial real estate loans are the largest classification within earning assets, representing 45% at December 31, 2021, compared to 49% at December 31, 2020.

At December 31, 2021, commercial and commercial real estate loans were $9.772 billion, a decrease of $130.5 million compared to December 31, 2020 driven by a decline in PPP loans, partially offset by organic loan growth.

As of December 31, 2021, total PPP loans were $169.0 million, compared to $943.0 million at December 31, 2020.

Commercial and commercial real estate loans are the largest classifications within earning assets, representing 53% at December 31, 2022, compared to 45% at December 31, 2021.

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

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.

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Manufacturing $ 1,757,907 $ 2,803,883 $ 2,464 $ 612,873 $ 1,152,774 $ 6,689

Construction 310,649 744,610 1,429 462,140 903,604 1,036

Health care and social assistance 1,588,392 2,043,105 11,806 376,664 550,400 444

Public administration 247,770 357,310 — 299,748 371,846 —

Wholesale trade 857,400 1,552,985 2,895 240,618 438,357 1,598

Educational services 216,384 295,065 — 245,896 418,277 1,428

Other services 121,577 260,413 2,542 194,822 307,205 2,363

Real estate rental and leasing 642,511 962,549 1,135 204,612 347,991 504

Construction 556,913 1,307,582 1,517 310,649 744,610 1,429

Professional, scientific, and

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

Retail trade 131,303 289,478 945 151,869 329,160 1,788

Real estate rental and leasing 204,612 347,991 504 169,935 356,169 759

Transportation and warehousing 422,643 633,267 3,496 134,072 243,086 1,594

Accommodation and food services 399,915 512,025 596 78,689 108,724 2,399

Retail trade 332,367 538,135 7,386 131,303 289,478 945

Administrative and support and

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and hunting 261,355 382,376 996 114,699 164,364 1,521

Accommodation and food services 78,689 108,724 2,399 105,560 118,497 3,239

Utilities 26,322 75,439 — 88,607 98,996 —

Arts, entertainment, and recreation 71,055 110,574 2,189 82,305 111,729 2,590

Information 43,713 78,877 1,809 61,883 95,774 2,286

Mining 30,161 62,231 5 57,142 77,067 19

Management of companies and

enterprises 15,124 36,046 — 13,605 28,276 —

Public administration 231,453 325,834 846 247,770 357,310 —

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

Other services 194,998 356,743 2,656 121,577 260,413 2,542

Other 743,943 1,122,409 739 211,268 388,110 4,003

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Multifamily $ 4,188,137 34 % $ 1,995,803 31 %

Retail 1,037,034 16 1,041,384 17

Office 1,018,973 16 1,001,589 17

Warehouse / Industrial 1,976,804 16 851,956 14

Office 1,813,007 15 1,018,973 16

Retail 1,808,041 14 1,037,034 16

Commercial development 660,798 5 114,113 2

Single family 515,390 4 333,221 5

Other (1) 1,143,687 18 1,142,630 19

1,494,893 12 1,029,574 16

Total $ 12,457,070 100 % $ 6,380,674 100 %

(1) Other includes construction and land development properties, senior housing properties, religion properties, and mixed use properties.

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

Residential Real Estate Loans

Residential real estate loans held in our portfolio, primarily 1-4 family properties, increased $6.9 million at December 31, 2021 compared to December 31, 2020.

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

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 and personal and home equity loans and lines of credit, decreased $61.0 million, at December 31, 2021 compared to December 31, 2020 primarily due to decreases in consumer indirect and consumer direct loans.

Allowance for Credit Losses on Loans and Unfunded Commitments

Beginning January 1, 2020, with the adoption of CECL, we calculated allowance for credit losses using current expected credit losses methodology.

As of January 1, 2020, Old National increased the allowance for credit losses for loans by $41.3 million and increased the allowance for credit losses for unfunded loan commitments by $4.5 million, since the ASU covers credit losses over the expected life of a loan as well as considering future changes in macroeconomic conditions.

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

At December 31, 2021, the allowance for credit losses was $107.3 million, compared to $131.4 million at December 31, 2020.

The decrease in the allowance for credit losses reflected the improved economic forecast.

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

Allowance for Credit Losses on Loans and Unfunded Loan Commitments

At December 31, 2022, the allowance for credit losses on loans was $303.7 million, compared to $107.3 million at December 31, 2021.

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

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

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

Additionally, with the adoption of CECL beginning on January 1, 2020, provision expense may be more 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 commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements.

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

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

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 $32.2 million at December 31, 2022, compared to $10.9 million at December 31, 2021.

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

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

Loans Held for Sale

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

Certain mortgage loans are committed for sale at or prior to

origination at a contracted price to an outside investor.

Other mortgage loans held for immediate sale are hedged with TBA forward agreements and committed for sale when they are ready for delivery and remain on the Company’s balance sheet for a short period of time (typically 30 to 60 days).

These loans are sold without recourse, beyond customary representations and warranties, and Old National has not experienced material losses arising from these sales.

Mortgage originations are subject to volatility due to interest rates and home sales, among other factors.

We have elected the fair value option for residential loans held for sale.

The aggregate fair value exceeded the unpaid principal balance by $1.3 million at December 31, 2021 and $3.5 million at December 31, 2020.

Other assets increased $26.6 million since December 31, 2020 primarily due to higher tax credit investments and net deferred tax assets related to net unrealized gains (losses) on investment securities.

These increases were partially offset by lower derivative assets.

Total funding, comprised of deposits and wholesale borrowings, was $21.144 billion at December 31, 2021, an increase of $1.430 billion from $19.714 billion at December 31, 2020.

Total deposits were $18.569 billion, an increase of $1.532 billion compared to December 31, 2020.

Noninterest-bearing demand deposits increased $669.4 million from December 31, 2020 to December 31, 2021.

Interest-bearing checking and NOW deposits increased $361.0 million from December 31, 2020 to December 31, 2021, while savings deposits increased $402.7 million.

Money market deposits increased $261.0 million from December 31, 2020 to December 31, 2021.

Time deposits decreased $162.5 million.

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

At December 31, 2021, wholesale borrowings, including federal funds purchased and interbank borrowings, securities sold under agreements to repurchase, FHLB advances, and other borrowings, totaled $2.575 billion, a decrease of $101.3 million from December 31, 2020.

The decrease in wholesale funding from December 31, 2020 to December 31, 2021 was due to decreases in FHLB advances, securities sold under agreements to repurchase, and federal funds purchased and interbank borrowings, partially offset by an increase in other borrowings.

Wholesale funding as a percentage of total funding was 12% at December 31, 2021, compared to 14% at December 31, 2020.

See Notes 12, 13, and 14 to the consolidated financial statements for additional details on our financing activities.

The following table details the average balances of all funding sources for the years ended December 31.

% Change From

(dollars in thousands) 2021 2020 2019 2021 2020

Demand deposits $ 6,163,937 $ 4,945,506 $ 3,887,470 24.6 % 27.2 %

Interest-bearing checking and NOW deposits 4,974,477 4,465,120 3,902,765 11.4 14.4

Savings deposits 3,648,019 3,113,435 2,878,135 17.2 8.2

Money market deposits 2,092,661 1,866,197 1,789,065 12.1 4.3

Goodwill and Other Intangible Assets

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

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

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

(dollars in thousands) 2022 2021 $ Change % Change

Noninterest-bearing demand $ 11,930,798 $ 6,303,106 $ 5,627,692 89 %

Interest-bearing:

Checking and NOW 8,340,955 5,338,022 3,002,933 56 %

Savings 6,326,158 3,798,494 2,527,664 67 %

Money market 5,389,139 2,169,160 3,219,979 148 %

Time deposits 3,013,780 960,413 2,053,367 214 %

Total deposits 35,000,830 18,569,195 16,431,635 88 %

Federal funds purchased and interbank borrowings 1,113 138,257 241,618 (99.2) (42.8)

Wholesale borrowings:

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

Securities sold under agreements to repurchase 432,804 392,275 40,529 10 %

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Other borrowings 743,003 296,670 446,333 150 %

Total funding sources $ 20,465,234 $ 18,623,489 $ 16,990,879 9.9 % 9.6 %

Total wholesale borrowings 5,586,314 2,575,240 3,011,074 117 %

Total funding $ 40,587,144 $ 21,144,435 $ 19,442,709 92 %

The increase in total funding was driven by the merger with First Midwest as well as loan 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 14% at December 31, 2022, compared to 12% at December 31, 2021.

See Notes 11, 12, and 13 to the consolidated financial statements for additional details on our financing activities.

At December 31, 2022, time deposits in excess of the FDIC insurance limit and estimated time deposits that are otherwise uninsured by maturity were as follows:

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Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities increased $33.5 million, or 18%, from December 31, 2020 primarily due to increases in unfunded commitments on low income housing tax credit investments and derivative liabilities.

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

Shareholders’ equity totaled $5.1 billion, or 11% of total assets, at December 31, 2022 and $3.0 billion, or 12% of total assets, at December 31, 2021.

In relation to the merger of equals transaction with First Midwest, Old National issued 108,000 shares of Old National Series A Preferred Stock and 122,500 shares of Old National Series C Preferred Stock.

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

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

share of Old National Series C Preferred Stock .

The change in unrealized gains (losses) on available-for-sale investment securities decreased equity by $639.4 million during 2022.

Old National paid cash dividends of $0.56 per share in 2021, which reduced equity by $92.8 million.

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

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

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

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

Old National’s Common Stock is traded on the NASDAQ under the symbol “ONB” with 57,134 shareholders of record at December 31, 2022.

Capital Adequacy

Old National and the banking industry generally are subject to various regulatory capital requirements administered by the federal banking agencies.

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.

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RISK MANAGEMENT

Old National has adopted a Risk Appetite Statement to enable the Board of Directors, Executive Leadership Group, and Senior Management to better assess, understand, and mitigate the risks of Old National.

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/technology/cybersecurity, talent management, regulatory/compliance/legal, and reputational.

Our Chief Risk Officer is independent of management and reports directly to the Chair of the Board’s Enterprise Risk Management Committee.

The following discussion addresses these major risks:

credit, market, liquidity, operational/technology/cybersecurity, and regulatory/compliance/legal.

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

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

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 represents the risk of loss arising from an obligor’s inability or failure to meet contractual payment or performance terms.

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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 market areas we serve:

Indiana, Kentucky, Michigan, Minnesota, and Wisconsin.

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 non-residential properties such as retail centers, industrial properties and, to a lesser extent, more specialized properties.

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.

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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 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.

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Asset Quality

Community-based lending personnel, along with region-based independent underwriting and analytic support staff, extend credit under guidelines established and administered by our Enterprise Risk Committee.

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

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

In addition, the committee reviews and approves recommended loan policy changes to assure our policy remains appropriate for the current lending environment.

We lend to commercial and commercial real estate clients in many diverse industries including manufacturing, agribusiness, transportation, mining, wholesaling, and retailing.

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

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.

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At December 31, 2022, 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 Indiana, Kentucky, Michigan, Minnesota, and Wisconsin.

We have experienced an adverse impact from COVID-19 during 2020 and 2021;

however, the depth of this crisis is ongoing and its effect is very broad-based.

Management believes that trends in under-performing, criticized, and classified loans will be highly dependent on the distribution of vaccinations, as well as the length of time it will take consumers and businesses to return to their pre-pandemic spending routines.

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

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

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

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

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

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

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Total past due loans (90 days or more and still accruing) 2,650 7

Other real estate owned 2,030 1,324

Foreclosed assets 10,845 2,030

Total under-performing assets $ 266,986 $ 127,106

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Nonaccrual loans/total loans (2)

0.77 % 0.78 %

Non-performing loans/total loans (2) (3)

Under-performing assets/total loans and other real

estate owned (2) 0.93 1.21

Under-performing assets/total loans (2)

Under-performing assets/total assets 0.57 0.52

Allowance for credit losses/under-performing assets 84.45 78.87

Allowance for credit losses/nonaccrual loans 100.61 89.17

(1) Includes one pooled trust preferred security and two insurance policies at December 31, 2021.

Allowance for credit losses on loans/under-performing assets 113.74 84.45

Allowance for credit losses on loans/nonaccrual loans 127.50 100.61

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

(2) Loans exclude loans held for sale.

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

Under-performing assets totaled $127.1 million at December 31, 2021, compared to $166.6 million at December 31, 2020.

Under-performing assets as a percentage of total loans and other real estate owned at December 31, 2021 were 0.93%, a 28 basis point improvement from 1.21% at December 31, 2020.

Nonaccrual loans decreased $40.6 million from December 31, 2020 to December 31, 2021 primarily due to lower commercial real estate and commercial nonaccrual loans.

As a percentage of nonaccrual loans, the allowance for credit losses was 100.61% at December 31, 2021, compared to 89.17% at December 31, 2020.

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

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

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

As a percentage of nonaccrual loans, the allowance for credit losses on loans was 127.50% at December 31, 2022, compared to 100.61% at December 31, 2021.

If nonaccrual and renegotiated loans outstanding at December 31, 2022 and 2021, respectively, had been accruing interest throughout the year in accordance with their original terms, interest income of approximately $7.9 million in 2022 and $5.1 million in 2021 would have been recorded on these loans.

The amount of interest income actually recorded on nonaccrual and renegotiated loans was $5.1 million in 2022 and $1.3 million in 2021.

Total criticized and classified assets were $509.5 million at December 31, 2021, a decrease of $86.2 million from December 31, 2020.

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

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

Other classified assets include investment securities that fell below investment grade rating totaling $24.7 million at December 31, 2022, compared to $4.3 million at December 31, 2021.

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

The decision to restructure a loan, versus aggressively enforcing the collection of the loan, may benefit Old National by increasing the ultimate probability of collection.

Any loans that are modified are reviewed by Old National to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, Old National Bank grants a concession to the borrower that it would not otherwise consider.

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

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

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

Loans modified in a TDR are typically placed on nonaccrual status until we determine that the future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate a period of performance according to the restructured terms for six months.

If we are unable to resolve a nonperforming loan issue, the credit will be charged off when it is apparent there will be a loss.

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

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

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

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

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

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

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

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

At December 31, 2021, TDRs consisted of $7.4 million of commercial loans, $17.2 million of commercial real estate loans, $0.1 million of BBCC loans, $2.4 million of residential real estate loans, $2.7 million of direct consumer loans, and $0.2 million of home equity loans, totaling $30.0 million.

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

At December 31, 2020, our TDRs consisted of $11.1 million of commercial loans, $17.6 million of commercial real estate loans, $0.1 million of BBCC loans, $2.8 million of residential real estate loans, $0.8 million of direct consumer loans, and $0.3 million of home equity loans, totaling $32.7 million.

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

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

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

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

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

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

The terms of certain other loans were modified during 2021 and 2020 that did not meet the definition of a TDR.

It is our process to review all classified and criticized loans that, during the period, have been renewed, have entered into a forbearance agreement, have gone from principal and interest to interest only, or have extended the maturity date.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on its debt in the foreseeable future without the modification.

The evaluation is performed under our internal underwriting policy.

We also evaluate whether a concession has been granted or if we were adequately compensated through a market interest rate, additional collateral, or a bona fide guarantee.

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

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

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

(1) at the time of the subsequent restructuring, the borrower is not experiencing financial difficulties, and this is documented by a current credit evaluation at the time of the restructuring, (2) under the terms of the subsequent restructuring agreement, the institution has granted no concession to the borrower;

and (3) the subsequent restructuring agreement includes market terms that are no less favorable than those that would be offered for a comparable new loan.

For loans subsequently restructured that have cumulative principal forgiveness, the loan should continue to be measured in accordance with ASC 310-10, Receivables – Overall .

However, consistent with ASC 310-40-50-2, Troubled Debt Restructurings by Creditors, Creditor Disclosure of Troubled Debt Restructurings , the loan would not be required to be reported in the years following the restructuring if the subsequent restructuring meets both of these criteria:

(1) has an interest rate at the time of the subsequent restructuring that is not less than a market interest rate;

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

We have developed relief programs to assist borrowers in financial need due to the effects of the COVID-19 pandemic.

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

Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning

the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act terminates.

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

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

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

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

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

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

Small Business Administration Paycheck Protection Program

In 2020, Section 1102 of the CARES Act created the PPP, a program administered by the SBA to provide loans to small businesses for payroll and other basic expenses during the COVID-19 pandemic.

Old National participated in the PPP as a lender.

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

As of December 31, 2021, we have received payment from the SBA on 9,502, or 97%, of these loans totaling $1.503 billion.

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

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

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

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

As of December 31, 2021, we have received payment from the SBA on 4,566, or 74%, of these loans totaling $424.1 million.

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

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

Allowance for Credit Losses on Loans and Unfunded Commitments

Beginning January 1, 2020, with the adoption of CECL, we calculated allowance for credit losses using current expected credit losses methodology.

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

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

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

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

Allowance for Credit Losses on Loans and Unfunded Loan Commitments

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

The allowance for credit losses is an estimate of expected

losses inherent within the Company’s loans held for investment portfolio.

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

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

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

The allowance for credit losses on loans held for investment 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 appropriately consider the unique characteristics of our loan portfolio segments.

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

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

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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 has two basic components:

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.

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

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

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

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

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

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

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

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The portfolio segment reclassifications follow:

Statement Portfolio After

(dollars in thousands) Balance Reclassifications Reclassifications

Balance Portfolio

Reclassifications After

Reclassifications

(dollars in thousands)

December 31, 2022

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Total $ 13,601,846 $ — $ 13,601,846

The following table details activity in our allowance for credit losses for loans for the years ended December 31:

The following table details activity in our allowance for credit losses on loans for the years ended December 31:

(dollars in thousands) 2022 2021 2020

Balance at beginning of period $ 131,388 $ 54,619

Beginning allowance for credit losses on loans $ 107,341 $ 131,388 $ 54,619

Allowance established for acquired PCD loans 89,089 — —

Impact of adopting ASC 326 — — 41,347

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Commercial real estate 6,519 264 4,323

BBCC 85 144 95

Residential real estate 344 346 824

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Commercial real estate 1,095 4,403 4,515

BBCC 281 105 140

Residential real estate 760 339 633

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Net charge-offs (recoveries) 16,099 (4,765) 2,973

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

Balance at end of period $ 107,341 $ 131,388

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

Ending allowance for credit losses on loans $ 303,671 $ 107,341 $ 131,388

Beginning allowance for credit losses on unfunded loan commitments $ 10,879 $ 11,689 $ 2,656

Provision for credit losses on unfunded loan commitments acquired

during the period 11,013 — —

Impact of adopting ASC 326 — — 4,549

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

Ending allowance for credit losses on unfunded loan commitments $ 32,188 $ 10,879 $ 11,689

Allowance for credit losses $ 335,859 $ 118,220 $ 143,077

Average loans for the year (1)

$ 27,589,442 $ 13,766,590 $ 13,341,677

Asset Quality Ratios:

Allowance/year-end loans (1) 0.79 % 0.95 %

Allowance/average loans (1) 0.78 0.98

Allowance for credit losses on loans/year-end loans (1)

0.98 % 0.79 % 0.95 %

Allowance for credit losses on loans/average loans (1)

1.10 0.78 0.98

Allowance for credit losses/year-end loans (1)

1.08 0.87 1.04

Allowance for credit losses/average loans (1)

1.22 0.86 1.07

(1) Loans exclude loans held for sale.

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Average loans for the year (1)

$ 5,618,883 $ 2,257,878 $ 2,336,428

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

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Average loans for the year (1)

$ 27,589,442 $ 13,766,590 $ 13,341,677

Net charge-offs (recoveries)/average loans 0.06 % (0.03) % 0.02 %

(1) Average loans exclude loans held for sale.

The allowance for credit losses was $107.3 million at December 31, 2021, compared to $131.4 million at December 31, 2020.

The decrease in the allowance for credit losses reflected the improved economic forecast.

There were no industry segments representing a significant share of total net charge-offs.

The allowance for credit losses on loans was $303.7 million at December 31, 2022, compared to $107.3 million at December 31, 2021.

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

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

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

Prior to January 1, 2020, we calculated allowance for loan losses using incurred losses methodology.

The activity in our allowance for loan losses for the year ended December 31, 2019 was as follows:

(dollars in thousands) 2019

Balance at beginning of period $ 55,461

Loans charged-off:

Commercial 3,819

Commercial real estate 2,846

Residential real estate 661

Consumer credit 7,463

Total charge-offs 14,789

Recoveries on charged-off loans:

Commercial 1,650

Commercial real estate 3,774

Residential real estate 146

Consumer credit 3,630

Total recoveries 9,200

Net charge-offs (recoveries) 5,589

Provision for loan losses 4,747

Balance at end of period $ 54,619

Average loans for the year (1) $ 12,087,429

Asset Quality Ratios:

Allowance/year-end loans (1) 0.45 %

Allowance/average loans (1) 0.45

Net charge-offs (recoveries)/average loans 0.05

(1) Loans exclude loans held for sale.

The following table details the allowance for credit losses for loans by loan category and the percent of loans in each category compared to total loans at December 31.

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.

(dollars in thousands) Allowance

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Total $ 303,671 100.0 % $ 107,341 100.0 %

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

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

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

The allowance for credit losses on unfunded loan commitments totaled $32.2 million at December 31, 2022, compared to $10.9 million at December 31, 2021.

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

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.

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Government and its agencies, particularly the Federal Reserve.

In managing interest rate risk, we, through our Funds Management Committee, a committee of the Board of Directors, establish guidelines, for asset and liability management, including measurement of short and long-term sensitivities to changes in interest rates.

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:

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

Interest rates are floored at 0.00% in the down 50 basis points scenario.

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

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(dollars in thousands) -200

Basis Points -100

Basis Points Base +100

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

$ 286,047 $ 306,020 $ 343,964 $ 380,103 $ 414,696

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

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

Decrease Immediate Rate Increase

Basis Points Base +100

Basis Points +200

Basis Points +300

December 31, 2021

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

$ 262,254 $ 276,027 $ 304,939 $ 325,867 $ 343,376

Loans 836,118 867,676 1,007,875 1,151,879 1,291,113

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% change from base (3.18) % 5.74 % 11.30 % 16.20 %

Our asset sensitivity increased year over year primarily due to deposit growth, higher mix of floating rate loans, and changes in our hedging strategies.

Our projected net interest income increased year over year due to the First Midwest merger, 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.

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

At December 31, 2021, our projected net interest income sensitivity based on the asset/liability models we utilize was within the limits of our interest rate risk policy for the 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 of $1.3 million at December 31, 2021, compared to a net asset position with a fair value of $15.2 million at December 31, 2020.

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

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

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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.

The Funds Management Committee of the Board of Directors establishes liquidity risk guidelines and, along with the Balance Sheet Management Committee, monitors liquidity risk.

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

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.

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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 strongly influenced by interest rates, the housing market, general and local economic conditions, and competition in the marketplace.

However, deposit flows, calls of investment securities, and prepayments of loans and mortgage-related securities are not as predictable as they are strongly influenced by interest rates, 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.

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

The rating outlook from Moody’s Investors Service was moved from “Stable” to “Ratings Under Review” on June 2, 2021 due to the merger announced June 1, 2021.

The credit ratings of Old National and Old National Bank at December 31, 2022 are shown in the following table.

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Amount available from Federal Reserve discount window* — 584,872

Amount available from Federal Home Loan Bank Indianapolis* — 428,863

Amount available from Federal Home Loan Bank* — 507,199

Total available funds $ 297,041 $ 4,845,280

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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 banking subsidiaries without prior approval.

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 2021 or 2022 and is not currently required.

At December 31, 2021, Old National Bank could pay dividends of $268.1 million without prior regulatory approval.

Operational/Technology/Cybersecurity Risk

Operational/technology/cybersecurity risk is the danger that inadequate information systems, operational problems, 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.

At December 31, 2022, Old National Bank could pay dividends of $303.7 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.

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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 report on operational, technology, and cybersecurity risks related to business disruptions and systems failures;

cyber-attacks, information security or data breaches;

clients, products, and business practices;

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;

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execution, delivery, and process management;

and external and internal fraud.

The Enterprise Risk Management Committee of the Board of Directors is responsible for the oversight, guidance, and monitoring of risks, including operational/technology/cybersecurity risks, being taken by the Company.

The monitoring is accomplished through ongoing review of management reports, data on risks and policy limits, and consistent discussion on enterprise risk management strategies, policies, and risk assessments.

Regulatory/Compliance/Legal Risk

Regulatory/compliance/legal risk is the risk that the Company violated or was not in compliance with applicable laws, regulations or practices, industry standards, or ethical standards.

The legal portion assesses the risk that unenforceable contracts, lawsuits, or adverse judgments can disrupt or otherwise negatively impact the

external and internal fraud;

and model risk management.

Compliance and Regulatory Risk

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

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

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

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

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

and internal audit functions, respectively.

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

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

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

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

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

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Deposits without stated maturity $ 31,987,050 $ — $ 31,987,050

IRAs, consumer, and brokered certificates of deposit 11 663,230 297,183 960,413

IRAs, consumer deposits, and brokered certificates of deposit 10 2,099,157 914,623 3,013,780

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

Securities sold under agreements to repurchase 11 432,804 — 432,804

Federal Home Loan Bank advances 12 950,149 2,878,869 3,829,018

Other borrowings 13 90,276 652,727 743,003

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.

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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, and we consider these policies to be our critical accounting estimates.

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.

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Management has reviewed these critical accounting estimates and related disclosures with our Audit Committee.

Business Combinations and Goodwill

• Description.

For acquisitions, we are required to record the assets acquired, including identified intangible assets such as goodwill, and the liabilities assumed at their fair value.

These often involve estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques that may include estimates of attrition, inflation, asset growth rates, or other relevant factors.

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.

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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 goodwill and could result in impairment losses affecting our financial statements as a whole and our banking subsidiary in which the goodwill resides.

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

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

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

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

Based on the required annual impairment test as of August 31, 2021, we have concluded that our goodwill was not impaired.

On a quarterly basis, we will continue to evaluate our qualitative assessment assumptions, which are subject to risks and uncertainties, including:

(1) forecasted revenues, expenses, and cash flows;

(2) current discount rates;

(3) our market capitalization;

(4) observable market transactions and multiples;

(5) changes to the regulatory environment;

and (6) the nature and amount of government support that has been and is expected to be provided in the future.

A prolonged economic downturn or deterioration in the economic outlook may lead management to conclude that an interim quantitative impairment test of our goodwill is required prior to the annual impairment test conducted on August 31.

Allowance for Credit Losses for Loans

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

Allowance for Credit Losses on Loans

• Description.

The allowance for credit losses for loans represents management’s estimate of all expected credit losses over the expected contractual life of our loan portfolio.

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 for 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.

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.

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

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

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

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

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

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

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

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

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

The regression models use combinations

of variables to assess systematic and unsystematic risk.

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

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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

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.

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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 for 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.

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

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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.

Management believes hedge effectiveness is evaluated properly in preparation of the financial statements.

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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.

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• Effect if Actual Results Differ From Assumptions.

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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis