OLD NATIONAL BANCORP /IN/ 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Report of Management 70 Report of Independent Registered Public Accounting Firm (PCAOB ID: 34 ) 71 Report of Independent Registered Public Accounting Firm (PCAOB ID: 173) 73 Consolidated Balance Sheets 74 Consolidated Statements of Income 75 Consolidated Statements of Comprehensive Income (Loss) 76 Consolidated Statements of Changes in Shareholders’ Equity 77 Consolidated Statements of Cash Flows 78 Notes to Consolidated Financial Statements 79 Note 1. Basis of Presentation and Significant Accounting Policies 79 Note 2. Merger, Acquisition, and Divestiture Activity 87 Note 3. Investment Securities 89 Note 4. Loans and Allowance for Credit Losses 92 Note 5. Premises and Equipment 102 Note 6. Leases 103 Note 7. Goodwill and Other Intangible Assets 104 Note 8. Loan Servicing Rights 105 Note 9. Qualified Affordable Housing Projects and Other Tax Credit Investments 106 Note 10. Deposits 107 Note 11. Securities Sold Under Agreements to Repurchase 108 Note 12. Federal Home Loan Bank Advances 108 Note 13. Other Borrowings 109 Note 14. Accumulated Other Comprehensive Income (Loss) 111 Note 15. Income Taxes 112 Note 16. Share-Based Compensation and Other Employee Benefit Plans 114 Note 17. Shareholders’ Equity 116 Note 18. Fair Value 117 Note 19. Derivative Financial Instruments 122 Note 20. Commitments, Contingencies, and Financial Guarantees 126 Note 21. Regulatory Restrictions 126 Note 22. Parent Company Financial Statements 129 Note 23. Segment Information 130 69 REPORT OF MANAGEMENT MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING Management is responsible for the preparation of the financial statements and related financial information appearing in this annual report on Form 10-K. The financial statements and notes have been prepared in conformity with accounting principles generally accepted in the United States and include some amounts which are estimates based upon currently available information and management’s judgment of current conditions and circumstances. Financial information throughout this annual report on Form 10-K is consistent with that in the financial statements. Management maintains a system of internal accounting controls, which is believed to provide, in all material respects, reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition, transactions are properly authorized and recorded, and the financial records are reliable for preparing financial statements and maintaining accountability for assets. In addition, Old National has a Code of Business Conduct and Ethics, a Senior Financial and Executive Officer Code of Ethics and Corporate Governance Guidelines that outline high levels of ethical business standards. Old National has also appointed a Chief Ethics Officer and had a third party perform an independent validation of our ethics program. In order to monitor compliance with this system of controls, Old National maintains an extensive internal audit program. Internal audit reports are issued to appropriate officers and significant audit exceptions, if any, are reviewed with management and the Audit Committee. The Board of Directors, through an Audit Committee comprised solely of independent directors, oversees management’s discharge of its financial reporting responsibilities. The Audit Committee meets regularly with Old National’s independent registered public accounting firm, Deloitte & Touche LLP, and the managers of financial reporting, internal audit, and risk. During these meetings, the committee meets privately with the independent registered public accounting firm as well as with financial reporting and internal audit personnel to review accounting, auditing, and financial reporting matters. The appointment of the independent registered public accounting firm is made by the Audit Committee. Our consolidated financial statements as of December 31, 2023 and for the year then ended have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, whose report appears in this annual report on Form 10-K. Our consolidated financial statements as of December 31, 2022 and for the years ended December 31, 2022 and 2021 have been audited by Crowe LLP, an independent registered public accounting firm, whose report also appears in this annual report on Form 10-K. MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of Old National is responsible for establishing and maintaining adequate internal control over financial reporting. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Old National’s management assessed the effectiveness of Old National’s internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria established in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework . Based on that assessment, Old National has concluded that, as of December 31, 2023, Old National’s internal control over financial reporting is effective. Old National’s independent registered public accounting firm has audited the effectiveness of Old National’s internal control over financial reporting as of December 31, 2023 as stated in their report, which is included in Part II, Item 9A of this Annual Report on Form 10-K. 70 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Old National Bancorp Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Old National Bancorp and subsidiaries (“Old National") as of December 31, 2023, the related consolidated statements of income, comprehensive income (loss), shareholders' equity, and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of Old National as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), Old National's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2024, expressed an unqualified opinion on Old National's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of Old National's management. Our responsibility is to express an opinion on Old National's financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Old National in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for Credit Losses on Loans (“ACL”) — Qualitative Factors — Refer to Note 1 and Note 4 of the Notes to Consolidated Financial Statements Critical Audit Matter Description Old National maintains the ACL as an estimate of expected credit losses over the expected contractual life of their loan portfolio. The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses 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. Old National utilizes a discounted cash flow (“DCF”) approach with probability of default (“PD”) methodology for pools of loans with similar risk characteristics. The PD 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 71 risk of default from an individual borrower. Variables for systematic risk, risk inherent to all borrowers, come from the use of forward-looking economic forecasts. The LGD is defined as credit loss incurred when an obligor of the bank defaults. Expected cash flows are created for each loan using reasonable and supportable forecasts and discounted using the loan’s effective yield. The discounted sum of expected cash flows is then compared to the amortized cost and any shortfall is recorded as a component of the ACL. The quantitative allowance is adjusted by qualitative factors. Qualitative factors include items such as changes in lending policies or procedures and economic uncertainty in forward-looking forecasts. At December 31, 2023, the key qualitative factors included adjustments to the expected credit losses associated with risks in the current economic environment. These factors include the risk that certain macroeconomic forecasts such as unemployment, gross domestic product, housing product index, and the BBB ratio (BBB spread to the 10-year U.S. Treasury rate) prove to be more severe and/or prolonged than the baseline forecast due to a variety of factors including monetary actions to control inflation, global military conflicts, and global supply chain issues. Considering the estimation and judgment in determining adjustments for such qualitative factors, our audit of the ACL and the related disclosures involved subjective judgments about the qualitative adjustments to the ACL. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the qualitative adjustments to the ACL included the following, among others: • We tested the effectiveness of Old National’s controls over the qualitative adjustments to the ACL • We assessed the reasonableness of, and evaluated support for, key qualitative adjustments based on external market data and loan portfolio performance metrics • We tested the completeness and accuracy and evaluated the relevance of the key data used as inputs to the qualitative adjustment estimation process, including: ◦ Portfolio segment loan balances and other borrower-specific data ◦ Relevant macroeconomic indicators and data • With the assistance of our credit specialists, we tested the mathematical accuracy of the ACL models used as the method for developing the qualitative adjustments /s/ Deloitte & Touche LLP Chicago, Illinois February 22, 2024 We have served as Old National’s auditor since 2023. 72 Crowe LLP Independent Member Crowe Global REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and the Board of Directors of Old National Bancorp Evansville, Indiana Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Old National Bancorp (the “Company") as of December 31, 2022, the related consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Crowe LLP We served as the Company's auditor from 2005, which is the year the engagement letter was signed for the audit of the 2006 financial statements, through the filing of the 2022 Form 10-K, which was filed in February 2023. Louisville, Kentucky February 22, 2024 73 OLD NATIONAL BANCORP CONSOLIDATED BALANCE SHEETS December 31, (dollars and shares in thousands, except per share data) 2023 2022 Assets Cash and due from banks $ 430,866 $ 453,432 Money market and other interest-earning investments 744,192 274,980 Total cash and cash equivalents 1,175,058 728,412 Equity securities, at fair value 80,372 52,507 Investment securities - available-for-sale, at fair value (amortized cost $ 7,684,889 and $ 7,772,603 , respectively) 6,713,055 6,773,712 Investment securities - held-to-maturity, at amortized cost (fair value $ 2,601,188 and $ 2,643,682 , respectively) 3,013,493 3,089,147 Federal Home Loan Bank/Federal Reserve Bank stock, at cost 365,588 314,168 Loans held-for-sale, at fair value 32,006 11,926 Loans: Commercial 9,512,230 9,508,904 Commercial real estate 14,140,629 12,457,070 Residential real estate 6,699,443 6,460,441 Consumer 2,639,625 2,697,226 Total loans, net of unearned income 32,991,927 31,123,641 Allowance for credit losses on loans ( 307,610 ) ( 303,671 ) Net loans 32,684,317 30,819,970 Premises and equipment, net 565,396 557,307 Goodwill 1,998,716 1,998,716 Other intangible assets 102,250 126,405 Company-owned life insurance 767,902 768,552 Accrued interest receivable and other assets 1,591,683 1,522,550 Total assets $ 49,089,836 $ 46,763,372 Liabilities Deposits: Noninterest-bearing demand $ 9,664,247 $ 11,930,798 Interest-bearing: Checking and NOW 7,331,487 8,340,955 Savings 5,099,186 6,326,158 Money market 9,561,116 5,389,139 Time deposits 5,579,144 3,013,780 Total deposits 37,235,180 35,000,830 Federal funds purchased and interbank borrowings 390 581,489 Securities sold under agreements to repurchase 285,206 432,804 Federal Home Loan Bank advances 4,280,681 3,829,018 Other borrowings 764,870 743,003 Accrued expenses and other liabilities 960,609 1,047,633 Total liabilities 43,526,936 41,634,777 Commitments and contingencies (Note 20) Shareholders’ Equity Preferred stock, 2,000 shares authorized, 231 shares issued and outstanding 230,500 230,500 Common stock, no par value, $ 1.00 per share stated value, 600,000 shares authorized, 292,655 and 292,903 shares issued and outstanding, respectively 292,655 292,903 Capital surplus 4,159,924 4,174,265 Retained earnings 1,618,630 1,217,349 Accumulated other comprehensive income (loss), net of tax ( 738,809 ) ( 786,422 ) Total shareholders’ equity 5,562,900 5,128,595 Total liabilities and shareholders’ equity $ 49,089,836 $ 46,763,372 The accompanying notes to consolidated financial statements are an integral part of these statements. 74 OLD NATIONAL BANCORP CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, (dollars and shares in thousands, except per share data) 2023 2022 2021 Interest Income Loans including fees: Taxable $ 1,815,390 $ 1,177,816 $ 490,042 Nontaxable 44,687 25,931 12,392 Investment securities: Taxable 263,210 204,004 98,031 Nontaxable 43,851 43,637 37,595 Money market and other interest-earning investments 39,683 2,814 589 Total interest income 2,206,821 1,454,202 638,649 Interest Expense Deposits 484,360 49,093 10,954 Federal funds purchased and interbank borrowings 11,412 5,021 — Securities sold under agreements to repurchase 3,299 843 397 Federal Home Loan Bank advances 161,860 51,524 21,075 Other borrowings 42,737 19,785 9,823 Total interest expense 703,668 126,266 42,249 Net interest income 1,503,153 1,327,936 596,400 Provision (release) for credit losses 58,887 144,799 ( 29,622 ) Net interest income after provision (release) for credit losses 1,444,266 1,183,137 626,022 Noninterest Income Wealth and investment services fees 107,784 100,851 65,048 Service charges on deposit accounts 71,945 72,501 31,658 Debit card and ATM fees 42,153 40,227 23,766 Mortgage banking revenue 16,319 23,015 42,558 Capital markets income 24,419 25,986 21,997 Company-owned life insurance 15,397 14,564 10,589 Debt securities gains (losses), net ( 6,265 ) ( 88 ) 4,327 Gain on sale of Visa Class B restricted shares 21,635 — — Gain on sale of health savings accounts — 90,673 — Other income 39,955 32,050 14,276 Total noninterest income 333,342 399,779 214,219 Noninterest Expense Salaries and employee benefits 546,364 575,626 284,098 Occupancy 106,676 100,421 54,834 Equipment 32,163 27,637 16,704 Marketing 39,511 32,264 12,684 Technology 80,343 84,865 47,047 Communication 16,980 18,846 10,073 Professional fees 27,335 39,046 20,077 FDIC assessment 56,730 19,332 6,059 Amortization of intangibles 24,155 25,857 11,336 Amortization of tax credit investments 15,367 10,961 6,770 Property optimization 1,559 26,818 — Other expense 79,123 76,510 31,697 Total noninterest expense 1,026,306 1,038,183 501,379 Income before income taxes 751,302 544,733 338,862 Income tax expense 169,310 116,446 61,324 Net income 581,992 428,287 277,538 Preferred dividends ( 16,135 ) ( 14,118 ) — Net income applicable to common shareholders $ 565,857 $ 414,169 $ 277,538 Net income per common share - basic $ 1.95 $ 1.51 $ 1.68 Net income per common share - diluted 1.94 1.50 1.67 Weighted average number of common shares outstanding - basic 290,748 275,179 165,178 Weighted average number of common shares outstanding - diluted 291,855 276,688 165,929 Dividends per common share $ 0.56 $ 0.56 $ 0.56 The accompanying notes to consolidated financial statements are an integral part of these statements. 75 OLD NATIONAL BANCORP CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Years Ended December 31, (dollars in thousands) 2023 2022 2021 Net income $ 581,992 $ 428,287 $ 277,538 Other comprehensive income (loss): Change in debt securities available-for-sale: Unrealized holding gains (losses) for the period ( 31,355 ) ( 1,004,054 ) ( 187,955 ) Reclassification for securities transferred to held-to-maturity — 165,473 — Reclassification adjustment for securities (gains) losses realized in income 6,265 88 ( 4,327 ) Income tax effect 14,918 199,097 43,997 Unrealized gains (losses) on available-for-sale debt securities ( 10,172 ) ( 639,396 ) ( 148,285 ) Change in securities held-to-maturity: Adjustment for securities transferred from available-for-sale — ( 165,473 ) — Amortization of unrealized losses on securities transferred from available-for-sale 21,239 16,612 — Income tax effect ( 4,047 ) 36,197 — Changes from securities held-to-maturity 17,192 ( 112,664 ) — Change in hedges: Net unrealized derivative gains (losses) on hedges 69,276 ( 45,132 ) 1,898 Reclassification adjustment for (gains) losses realized in net income ( 15,067 ) 2,587 ( 4,605 ) Income tax effect ( 13,479 ) 10,453 666 Changes from hedges 40,730 ( 32,092 ) ( 2,041 ) Change in defined benefit pension plans: Amortization of net (gains) losses recognized in income ( 182 ) 139 239 Income tax effect 45 ( 34 ) ( 59 ) Changes from defined benefit pension plans ( 137 ) 105 180 Other comprehensive income (loss), net of tax 47,613 ( 784,047 ) ( 150,146 ) Comprehensive income (loss) $ 629,605 $ ( 355,760 ) $ 127,392 The accompanying notes to consolidated financial statements are an integral part of these statements. 76 OLD NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (dollars in thousands, except per share data) Preferred Stock Common Stock Capital Surplus Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Balance, December 31, 2020 $ — $ 165,367 $ 1,875,626 $ 783,892 $ 147,771 $ 2,972,656 Net income — — — 277,538 — 277,538 Other comprehensive income (loss) — — — — ( 150,146 ) ( 150,146 ) Dividends - common stock ($ 0.56 per share) — — — ( 92,829 ) — ( 92,829 ) Common stock issued — 35 548 — — 583 Common stock repurchased — ( 208 ) ( 3,523 ) — — ( 3,731 ) Share-based compensation expense — — 7,497 — — 7,497 Stock activity under incentive compensation plans — 644 397 ( 591 ) — 450 Balance, December 31, 2021 — 165,838 1,880,545 968,010 ( 2,375 ) 3,012,018 Net income — — — 428,287 — 428,287 Other comprehensive income (loss) — — — — ( 784,047 ) ( 784,047 ) First Midwest Bancorp, Inc. merger: Issuance of common stock — 129,365 2,316,947 — — 2,446,312 Issuance of preferred stock, net of issuance costs 230,500 — 13,219 — — 243,719 Cash dividends: Common ($ 0.56 per share) — — — ( 163,505 ) — ( 163,505 ) Preferred ($ 61.25 per share) — — — ( 14,118 ) — ( 14,118 ) Common stock issued — 52 757 — — 809 Common stock repurchased — ( 3,960 ) ( 67,222 ) — — ( 71,182 ) Share-based compensation expense — — 28,656 — — 28,656 Stock activity under incentive compensation plans — 1,608 1,363 ( 1,325 ) — 1,646 Balance, December 31, 2022 230,500 292,903 4,174,265 1,217,349 ( 786,422 ) 5,128,595 Net income — — — 581,992 — 581,992 Other comprehensive income (loss) — — — — 47,613 47,613 Cash dividends: Common ($ 0.56 per share) — — — ( 163,895 ) — ( 163,895 ) Preferred ($ 70.00 per share) — — — ( 16,135 ) — ( 16,135 ) Common stock issued — 75 1,001 — — 1,076 Common stock repurchased — ( 2,640 ) ( 41,668 ) — — ( 44,308 ) Share-based compensation expense — — 27,910 — — 27,910 Stock activity under incentive compensation plans — 2,317 ( 1,584 ) ( 681 ) — 52 Balance, December 31, 2023 $ 230,500 $ 292,655 $ 4,159,924 $ 1,618,630 $ ( 738,809 ) $ 5,562,900 The accompanying notes to consolidated financial statements are an integral part of these statements. 77 OLD NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, (dollars in thousands) 2023 2022 2021 Cash Flows From Operating Activities Net income $ 581,992 $ 428,287 $ 277,538 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 38,180 36,436 27,276 Amortization of other intangible assets 24,155 25,857 11,336 Amortization of tax credit investments 15,367 10,961 6,770 Net premium amortization on investment securities 7,416 18,684 16,305 Accretion income related to acquired loans ( 22,191 ) ( 72,007 ) ( 16,747 ) Share-based compensation expense 27,910 28,656 7,497 Provision (release) for credit losses 58,887 144,799 ( 29,622 ) Debt securities (gains) losses, net 6,265 88 ( 4,327 ) Gain on sale of Visa Class B restricted shares ( 21,635 ) — — Gain on sale of health savings accounts — ( 90,673 ) — Net (gains) losses on sales of loans and other assets ( 3,074 ) 13,114 ( 36,677 ) Increase in cash surrender value of company-owned life insurance ( 15,397 ) ( 14,564 ) ( 10,589 ) Residential real estate loans originated for sale ( 473,478 ) ( 570,111 ) ( 1,215,015 ) Proceeds from sales of residential real estate loans 472,537 620,958 1,274,812 (Increase) decrease in interest receivable ( 34,637 ) ( 52,911 ) 1,198 (Increase) decrease in other assets ( 66,070 ) ( 40,518 ) 2,641 Increase (decrease) in accrued expenses and other liabilities ( 79,885 ) 327,369 17,984 Net cash flows provided by (used in) operating activities 516,342 814,425 330,380 Cash Flows From Investing Activities Cash received from merger, net — 1,912,629 — Sale of health savings accounts — ( 290,857 ) — Purchases of investment securities available-for-sale ( 1,084,416 ) ( 1,438,572 ) ( 3,321,653 ) Purchases of investment securities held-to-maturity ( 1,941 ) ( 170,675 ) — Purchases of Federal Home Loan Bank/Federal Reserve Bank stock ( 99,158 ) ( 147,394 ) — Purchases of equity securities ( 28,408 ) ( 6,348 ) ( 11,000 ) Proceeds from maturities, prepayments, and calls of investment securities available-for-sale 1,066,266 1,284,814 1,511,510 Proceeds from sales of investment securities available-for-sale 96,506 20,032 198,886 Proceeds from maturities, prepayments, and calls of investment securities held-to-maturity 94,511 83,962 — Proceeds from sales of Federal Home Loan Bank/Federal Reserve Bank stock 47,738 108,698 58 Proceeds from sales of equity securities 24,636 53,029 544 Loan originations and payments, net ( 2,673,593 ) ( 3,071,765 ) 206,145 Proceeds from sales of commercial loans 757,593 — — Proceeds from company-owned life insurance death benefits 16,252 10,361 3,375 Proceeds from sale of premises and equipment and other assets 3,513 4,480 29,244 Purchases of premises and equipment and other assets ( 38,375 ) ( 37,901 ) ( 48,692 ) Net cash flows provided by (used in) investing activities ( 1,818,876 ) ( 1,685,507 ) ( 1,431,583 ) Cash Flows From Financing Activities Net increase (decrease) in: Deposits 2,234,350 ( 435,717 ) 1,531,742 Federal funds purchased and interbank borrowings ( 581,099 ) 581,213 ( 890 ) Securities sold under agreements to repurchase ( 147,598 ) ( 94,665 ) ( 38,891 ) Other borrowings 16,938 177,146 36,187 Payments for maturities of Federal Home Loan Bank advances ( 2,250,149 ) ( 2,102,506 ) ( 146,505 ) Payments for modification of Federal Home Loan Bank advances — — ( 2,156 ) Proceeds from Federal Home Loan Bank advances 2,700,000 2,900,000 50,000 Cash dividends paid ( 180,030 ) ( 177,623 ) ( 92,829 ) Common stock repurchased ( 44,308 ) ( 71,182 ) ( 3,731 ) Common stock issued 1,076 809 583 Net cash flows provided by (used in) financing activities 1,749,180 777,475 1,333,510 Net increase (decrease) in cash and cash equivalents 446,646 ( 93,607 ) 232,307 Cash and cash equivalents at beginning of period 728,412 822,019 589,712 Cash and cash equivalents at end of period $ 1,175,058 $ 728,412 $ 822,019 The accompanying notes to consolidated financial statements are an integral part of these statements. 78 OLD NATIONAL BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NATURE OF OPERATIONS Old National Bancorp, the financial holding company of Old National Bank, our wholly-owned banking subsidiary, is headquartered in Evansville, Indiana with commercial and consumer banking operations headquartered in Chicago, Illinois. Through Old National Bank and non-bank affiliates, Old National Bancorp provides a wide range of services to its clients throughout the Midwest region and elsewhere, including commercial and consumer loan and depository services, private banking, capital markets, brokerage, wealth management, trust, investment advisory, and other traditional banking services. NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements include the accounts of Old National Bancorp and its wholly-owned subsidiaries (hereinafter collectively referred to as “Old National”) and have been prepared in conformity with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. Such principles require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosures of contingent assets and liabilities at the date of the financial statements and amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. All intercompany transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform to the current presentation. Such reclassifications had no effect on prior year net income or shareholders’ equity and were insignificant amounts. Equity Securities Equity securities consist of mutual funds for Community Reinvestment Act qualified investments and diversified investment securities held in a grantor trust for participants in the Company’s nonqualified deferred compensation plan. Equity securities are recorded at fair value with changes in fair value recognized in other income. Investment Securities Old National classifies debt investment securities as available-for-sale or held-to-maturity on the date of purchase. Debt securities classified as available-for-sale are recorded at fair value with the unrealized gains and losses recorded in other comprehensive income (loss), net of tax. Realized gains and losses affect income and the prior fair value adjustments are reclassified within shareholders’ equity. Debt securities classified as held-to-maturity, which management has the intent and ability to hold to maturity, are reported at amortized cost. Interest income includes amortization of purchase premiums or discounts. Premiums and discounts are amortized on the level-yield method. Anticipated prepayments are considered when amortizing premiums and discounts on mortgage-backed securities. Gains and losses on the sale of available-for-sale debt securities are determined using the specific-identification method. Available-for-sale securities in unrealized loss positions are evaluated at least quarterly to determine if a decline in fair value should be recorded through income or other comprehensive income (loss). For available-for-sale securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security, before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for-sale securities that do not meet the criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors. If this assessment indicates that a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Any decline in fair value that has not been recorded 79 through an allowance for credit losses is recognized in other comprehensive income (loss), net of applicable taxes. Accrued interest receivable on the securities portfolio is excluded from the estimate of credit losses. Federal Home Loan Bank/Federal Reserve Bank Stock Old National is a member of the FHLB system and its regional Federal Reserve Bank. Members are required to own a certain amount of stock based on the level of borrowings and other factors. FHLB and Federal Reserve Bank stock are carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. Loans Held-for-Sale Loans that Old National has originated with an intent to sell are classified as loans held-for-sale and are recorded at fair value, determined individually, as of the balance sheet date. The loan’s fair value includes the servicing value of the loans as well as any accrued interest. Conventional mortgage production is sold with servicing rights retained. Certain loans, such as government guaranteed mortgage loans are sold on servicing released basis. Loans Loans that Old National intends to hold are classified as held for investment. Loans held for investment are carried at the principal balance outstanding, net of earned interest, purchase premiums or discounts, deferred loan fees and costs, and an allowance for credit losses. Interest income is accrued on the principal balances of loans outstanding. For all loan classes, a loan is generally placed on nonaccrual status when principal or interest becomes 90 days past due unless it is well secured and in the process of collection, or earlier when concern exists as to the ultimate collectability of principal or interest. Interest accrued but not received is reversed against earnings. Cash interest received on these loans is applied to the principal balance until the principal is recovered or until the loan returns to accrual status. Loans may be returned to accrual status when all the principal and interest amounts contractually due are brought current, remain current for a prescribed period, and future payments are reasonably assured. Old National has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. Evidence of credit deterioration was evaluated using various indicators, such as past due and nonaccrual status, as well as asset quality rating. PCD loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and initial allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is accreted or amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision for credit losses. Any loans that are modified are reviewed by Old National to identify if a financial difficulty modification has occurred, which is when Old National modifies a loan related to a borrower experiencing financial difficulties. 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, a permanent reduction of the recorded investment of the loan, or an other-than-insignificant payment delay. The adoption of Accounting Standards Update (“ASU”) 2022-02 on January 1, 2023 eliminated the recognition and measurement of troubled debt restructurings (“TDRs”) and enhanced disclosures for modifications to loans related to borrowers experiencing financial difficulties. Allowance for Credit Losses on Loans Credit quality within the loans held for investment portfolio is continuously monitored by management and is reflected within the allowance for credit losses on loans. The allowance for credit losses is an estimate of expected losses inherent within the Company’s loans held for investment portfolio. Credit quality is assessed and monitored by evaluating various attributes and the results of those evaluations are utilized in underwriting new loans and in our process for estimating expected credit losses. The allowance for credit losses on loans held for investment is adjusted by a credit loss expense, which is reported in provision for credit losses, and reduced by the charge-off of loan amounts, net of recoveries within the provision for credit losses. Accrued interest receivable is excluded from the estimate of credit losses. Old National has made a policy election to present accrued interest receivable separately on the balance sheet. 80 The allowance for credit loss estimation process involves procedures to appropriately consider the unique characteristics of our loan portfolio segments. These segments are further disaggregated into loan classes based on the level at which credit risk is monitored. When computing the level of expected credit losses, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods. The allowance level is influenced by loan volumes, loan AQR migration or delinquency status, changes in historical loss experience, and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses 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. We utilize a discounted cashflow approach to determine the allowance for credit losses for performing loans and nonperforming loans. Expected cashflows are created for each loan and discounted using the effective yield method. The discounted sum of expected cashflows is then compared to the amortized cost and any shortfall is recorded as an allowance. Expected cashflows are created using a combination of contractual payment schedules, calculated PDs, LGD, and prepayment assumptions as well as qualitative factors. For commercial and commercial real estate loans, the PD is forecasted using a regression model to determine the likelihood of a loan moving into nonaccrual within the time horizon. For residential and consumer loans, the PD is forecasted using a regression model to determine the likelihood of a loan being charged-off within the time horizon. The regression models use combinations of variables to assess systematic and unsystematic risk. Variables used for unsystematic risk are borrower specific and help to gauge the risk of default from an individual borrower. Variables for systematic risk, risk inherent to all borrowers, come from the use of forward-looking economic forecasts and include variables such as unemployment rate, gross domestic product, and house price index. The LGD is defined as credit loss incurred when an obligor of the bank defaults. Qualitative factors include items such as changes in lending policies or procedures and economic uncertainty in forward-looking forecasts. Further information regarding Old National’s policies and methodology used to estimate the allowance for credit losses on loans is presented in Note 4 to the consolidated financial statements. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Land is stated at cost. Depreciation is charged to operating expense over the useful lives of the assets, principally on the straight-line method. Useful lives for premises and equipment are as follows: buildings and building improvements – 10 to 39 years; and furniture and equipment – 3 to 7 years. Leasehold improvements are depreciated over the lesser of their useful lives or the term of the lease. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Interest costs on construction of qualifying assets are capitalized. Premises and equipment are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are adjusted to fair value. Such impairments are included in other expense. Goodwill and Other Intangible Assets Goodwill arises from business combinations and is determined as the excess of the cost of acquired entities over the fair value of identifiable assets acquired less liabilities assumed as of the merger or acquisition date. Amortization of goodwill and indefinite-lived assets is not recorded. However, the recoverability of goodwill and other intangible assets are tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed. Other intangible assets, including core deposits and customer business relationships, are amortized primarily on an accelerated basis over their estimated useful lives, generally over a period of 5 to 15 years. 81 Company-Owned Life Insurance Old National has purchased, as well as obtained through mergers and acquisitions, life insurance policies on certain key executives. Old National records company-owned life insurance at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Loan Servicing Rights When loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gain on sales of loans. Fair value is based on market prices for comparable servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Loan servicing rights are included in other assets on the balance sheet. Loan servicing rights are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type, term, and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If Old National later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. Changes in valuation allowances are reported with mortgage banking revenue on the income statement. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses. Servicing fee income, which is reported on the income statement as mortgage banking revenue, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal, or a fixed amount per loan, and are recorded as income when earned. Derivative Financial Instruments As part of Old National’s overall interest rate risk management, Old National uses derivative instruments, including interest rate swaps, collars, caps, and floors. All derivative instruments are recognized on the balance sheet at their fair value. At the inception of the derivative contract, Old National designates the derivative as (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument with no hedging designation (“stand-alone derivative”). For a fair value hedge, the change in value of the derivative, as well as the offsetting change in value of the hedged item attributable to the hedged risk, are recognized in current earnings during the period of the change in fair values. For a cash flow hedge, the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, in noninterest income. Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in noninterest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged. Old National formally documents all relationships between derivatives and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions. This documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. Old National also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of the hedged items. Old National discontinues hedge accounting prospectively when it is determined that (1) the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item; (2) the derivative expires, is sold, or terminated; (3) the derivative instrument is de-designated as a hedge because the forecasted transaction is no longer probable of occurring; (4) a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management otherwise determines that designation of the derivative as a hedging instrument is no longer appropriate. 82 When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as noninterest income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transaction is still expected to occur, changes in value that were accumulated in other comprehensive income (loss) are amortized or accreted into earnings over the same periods which the hedged transactions will affect earnings. Old National enters into various stand-alone mortgage-banking derivatives in order to hedge the risk associated with the fluctuation of interest rates. Changes in fair value are recorded as mortgage banking revenue. Old National also enters into various stand-alone derivative contracts to provide derivative products to clients, which are carried at fair value with changes in fair value recorded as other noninterest income. Old National is exposed to losses if a counterparty fails to make its payments under a contract in which Old National is in the net receiving position. Old National anticipates that the counterparties will be able to fully satisfy their obligations under the agreements. In addition, Old National obtains collateral above certain thresholds of the fair value of its hedges for each counterparty based upon their credit standing. All of the contracts to which Old National is a party settle monthly, quarterly, or semiannually. Further, Old National has netting agreements with the dealers with which it does business. Credit-Related Financial Instruments In the ordinary course of business, Old National’s bank subsidiary has entered into credit-related financial instruments consisting of commitments to extend credit, commercial letters of credit, and standby letters of credit. The notional amount of these commitments is not reflected in the consolidated financial statements until they are funded. Old National maintains an allowance for credit losses on unfunded loan commitments to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses on loans, modified to take into account the probability of a drawdown on the commitment. The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet and is adjusted as a provision for unfunded loan commitments included in the provision for credit losses. Repossessed Collateral Other real estate owned and repossessed personal property are initially recorded at the fair value of the property less estimated cost to sell and are included in other assets on the balance sheet. Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through the completion of a deed in lieu of foreclosure or through a similar legal agreement. Any excess recorded investment over the fair value of the property received is charged to the allowance for credit losses. Any subsequent write-downs are recorded in noninterest expense, as are the costs of operating the properties. Gains or losses resulting from the sale of collateral are recognized in noninterest expense at the date of sale. Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase We purchase certain securities, generally U.S. government-sponsored entity and agency securities, under agreements to resell. The amounts advanced under these agreements represent short-term secured loans and are reflected as assets in the accompanying consolidated balance sheets. We also sell certain securities under agreements to repurchase. These agreements are treated as collateralized financing transactions. These secured borrowings are reflected as liabilities in the accompanying consolidated balance sheets and are recorded at the amount of cash received in connection with the transaction. Short-term securities sold under agreements to repurchase generally mature within one to four days from the transaction date. Securities, generally U.S. government and federal agency securities, pledged as collateral under these financing arrangements can be repledged by the secured party. Additional collateral may be required based on the fair value of the underlying securities. Share-Based Compensation Compensation cost is recognized for stock options, stock appreciation rights, and restricted stock awards and units issued to employees based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options and appreciation rights, while the market price of our Common Stock at the date of grant is used for restricted stock awards. The market price of our Common Stock at the date of grant less the 83 present value of dividends expected to be paid during the performance period is used for restricted stock units where the performance measure is based on an internal performance measure. A third-party provider is used to value certain restricted stock units where the performance measure is based on total shareholder return. Compensation expense is recognized over the required service period. Forfeitures are recognized as they occur. FDIC Special Assessment On November 16, 2023, the FDIC finalized a rule that imposes special assessments to recover the losses to the Deposit Insurance Fund (“DIF”) resulting from the FDIC’s use, in March 2023, of the systemic risk exception to the least-cost resolution test under the Federal Deposit Insurance Act in connection with the receiverships of Silicon Valley Bank and Signature Bank. The FDIC estimated in approving the rule that those assessed losses total approximately $16.3 billion. The rule provides that this loss estimate will be periodically adjusted, which will affect the amount of the special assessment. Under the rule, the assessment base is the estimated uninsured deposits that an insured depository institution (“IDI”) reported in its December 31, 2022 Call Report, excluding the first $5 billion in estimated uninsured deposits. The special assessments will be collected at an annual rate of approximately 13.4 basis points per year (3.36 basis points per quarter) over eight quarters in 2024 and 2025, with the first assessment period beginning January 1, 2024. Because the estimated loss pursuant to the systemic risk determination will be periodically adjusted, the FDIC retains the ability to cease collection early, extend the special assessment collection period and impose a final shortfall special assessment on a one-time basis. In its December 31, 2022 Call Report, Old National Bank reported estimated uninsured deposits of approximately $12.0 billion. The Company expects the special assessments to be tax deductible. The total of the special assessments for Old National Bank is estimated at $19.1 million, and such amount was recorded within FDIC assessment expense in the year ending December 31, 2023. Income Taxes Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. We recognize a tax position as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. We recognize interest and/or penalties related to income tax matters in income tax expense. Old National is a limited partner in several tax-advantaged limited partnerships whose purpose is to invest in approved qualified affordable housing, renewable energy, or other renovation or community revitalization projects. These investments are included in other assets on the balance sheet, with any unfunded commitments included with other liabilities. Certain of these assets qualify for the proportional amortization method and are amortized over the period that Old National expects to receive the tax credits, with the expense included within income tax expense on the consolidated statements of income. The other investments are accounted for under the equity method, with the expense included within noninterest expense on the consolidated statements of income. All of our tax credit investments are evaluated for impairment at the end of each reporting period. Loss Contingencies Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. See Note 20 to the consolidated financial statements for further disclosure. Cash Equivalents and Cash Flows For the purpose of presentation in the accompanying consolidated statement of cash flows, cash and cash equivalents are defined as cash, due from banks, federal funds sold and resell agreements, and money market investments, which have maturities less than 90 days. Cash flows from loans, either originated or acquired, are classified at that time according to management’s intent to either sell or hold the loan for the foreseeable future. When management’s intent is to sell the loan, the cash flows of that loan are presented as operating cash flows. 84 When management’s intent is to hold the loan for the foreseeable future, the cash flows of that loan are presented as investing cash flows. The following table summarizes supplemental cash flow information: Years Ended December 31, (dollars in thousands) 2023 2022 2021 Cash payments: Interest $ 666,121 $ 118,165 $ 42,196 Income taxes, net of refunds 190,303 66,109 31,875 Noncash Investing and Financing Activities: Securities transferred from available-for-sale to held-to-maturity — 2,986,736 — Transfer of premises and equipment to assets held-for-sale — 7,905 9,539 Operating lease right-of-use assets obtained in exchange for lease obligations 20,260 28,265 776 Finance lease right-of-use assets obtained in exchange for lease obligations 10,019 ( 966 ) 7,477 There were 129.4 million shares of Common Stock issued in conjunction with the merger with First Midwest in February of 2022 totaling $ 2.4 billion in shareholders’ equity . In addition, Old National issued 108,000 shares of Old National Series A Preferred Stock and 122,500 shares of Old National Series C Preferred Stock totaling $ 243.7 million in shareholders’ equity. Business Combinations Old National accounts for business combinations using the acquisition method of accounting. The accounts of an acquired entity are included as of the date of merger or acquisition, and any excess of purchase price over the fair value of the net assets acquired is capitalized as goodwill. Alternatively, a gain is recorded if the fair value of the net assets acquired exceeds the purchase price. Old National typically issues Common Stock and/or pays cash for a merger or acquisition, depending on the terms of the agreement. The value of Common Stock issued is determined based on the market price of the stock as of the closing of the merger or acquisition. Merger and acquisition costs are expensed when incurred. Revenue From Contracts With Customers Old National’s revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest income. A description of the Company’s significant revenue streams accounted for under ASC 606 follows: Wealth and investment services fees : Old National earns wealth management fees based upon asset custody and investment management services provided to individual and institutional customers. Most of these customers receive monthly or quarterly billings for services rendered based upon the market value of assets in custody. Fees that are transaction based are recognized at the point in time that the transaction is executed. Investment product fees are the commissions and fees received from third-party registered broker/dealers and investment advisers that provide those services to Old National customers. Old National acts as an agent in arranging the relationship between the customer and the third-party service provider. These fees are recognized monthly from the third-party broker based upon services already performed, net of the processing fees charged to Old National by the broker. Service charges on deposit accounts : Old National earns fees from deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees and overdraft fees are recognized at a point in time, since the customer generally has a right to cancel the depository arrangement at any time. The arrangement is considered a day-to-day contract with ongoing renewals and optional purchases, so the duration of the contract does not extend beyond the services already performed. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which Old National satisfies its performance obligation. Debit card and ATM fees : Debit card and ATM fees include ATM usage fees and debit card interchange income. As with the transaction-based fees on deposit accounts, the ATM fees are recognized at the point in time that Old National fulfills the customer’s request. Old National earns interchange fees from cardholder transactions processed through card association networks. Interchange rates are generally set by the card associations based upon purchase 85 volumes and other factors. Interchange fees represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Impact of Accounting Changes Accounting Guidance Adopted in 2023 FASB ASC 805 – In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities From Contracts With Customers , to address diversity in practice and inconsistency related to the accounting for revenue contracts with customers acquired in a business combination. The amendments require that the acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The ASU also provides certain practical expedients for acquirers when recognizing and measuring acquired contract assets and liabilities. The amendments in this update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Entities should apply the amendments prospectively to business combinations that occur after the effective date. The adoption of this guidance on January 1, 2023 did not have a material impact on the consolidated financial statements. FASB ASC 815 – In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method , to expand the current single-layer method of electing hedge accounting to allow multiple hedged layers of a single closed portfolio under the method and rename the last-of-layer method the portfolio layer method. The amendments in this update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The adoption of this guidance on January 1, 2023 did not have a material impact on the consolidated financial statements. FASB ASC 326 – In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures , to eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. The amendments require that an entity disclose current-period gross charge-offs by year of origination for financing receivables and net investment in leases within the vintage disclosures required by ASC 326. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of the provision in ASU 2022-02 related to the recognition and measurement of TDRs on a prospective basis on January 1, 2023 did not have a material impact on the consolidated financial statements. FASB ASC 848 – In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides temporary, optional guidance to ease the potential burden in accounting for, or recognizing the effects of, the transition away from LIBOR or other interbank offered rate on financial reporting. The guidance is applicable only to contracts or hedge accounting relationships that reference LIBOR or another reference rate expected to be discontinued. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 , which defers the sunset date of relief provisions within Topic 848 from December 31, 2022 to December 31, 2024. The objective of the guidance in Topic 848 is to provide relief during the transition period. The amendments in this ASU are effective March 12, 2020 through December 31, 2024. As of December 31, 2023, substantially all of the Company’s LIBOR exposure was remediated and remaining LIBOR-based contracts are expected to transition to alternate reference rates at their next index reset dates. Old National believes the adoption of this guidance on activities subsequent to December 31, 2023 will not have a material impact on the consolidated financial statements. Accounting Guidance Pending Adoption FASB ASC 820 – In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions , to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments in this update are effective for fiscal years beginning after 86 December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. Old National does not expect the adoption of this guidance will have a material impact on the consolidated financial statements. FASB ASC 323 – In March 2023, the FASB issued ASU 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method , which allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. This ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for all entities in any interim period. Old National does not expect the adoption of this guidance will have a material impact on the consolidated financial statements. FASB ASC 280 – In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments are intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The purpose of the amendments is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. A public entity should apply the amendments retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. Old National is currently evaluating the impact of adopting the new guidance on the consolidated financial statements. FASB ASC 740 – In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . Among other things, these amendments require that public business entities on an annual basis disclose additional information in specified categories with respect to the reconciliation of the effective tax rate to the statutory rate for federal, state, and foreign income taxes. It also requires greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income (loss) by the applicable statutory income tax rate). In addition, the ASU requires information pertaining to taxes paid (net of refunds received) to be disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts are equal to or greater than 5 percent of total income taxes paid (net of refunds received). The amendments in this ASU are effective for annual periods beginning after December 15, 2024. Early adoption is permitted. Old National is currently evaluating the impact of adopting the new guidance on the consolidated financial statements. NOTE 2 – MERGER, ACQUISITION, AND DIVESTITURE ACTIVITY Merger First Midwest Bancorp, Inc. On February 15, 2022, Old National completed its previously announced merger of equals transaction with First Midwest pursuant to an agreement and plan of merger, dated as of May 30, 2021, to combine in an all-stock transaction. The combined organization has a presence in additional Midwestern markets, strong commercial banking capabilities, a robust retail footprint, a significant wealth management platform, and an enhanced ability to attract talent. The combined organization also creates the scale and profitability to accelerate digital and technology capabilities to drive future investments in consumer and commercial banking, as well as wealth management services. 87 As of December 31, 2022, Old National finalized its valuation of all assets acquired and liabilities assumed. The following table presents a summary of the assets acquired and liabilities assumed, net of the fair value adjustments and the fair value of consideration as of the merger date: (dollars and shares in thousands) February 15, 2022 Assets Cash and cash equivalents $ 1,912,629 Investment securities 3,526,278 FHLB/Federal Reserve Bank stock 106,097 Loans held-for-sale 13,809 Loans, net of allowance for credit losses 14,298,873 Premises and equipment 111,867 Operating lease right-of-use assets 129,698 Accrued interest receivable 53,502 Goodwill 961,722 Other intangible assets 117,584 Company-owned life insurance 301,025 Other assets 317,258 Total assets $ 21,850,342 Liabilities Deposits $ 17,249,404 Securities sold under agreements to repurchase 135,194 Federal Home Loan Bank advances 1,158,623 Other borrowings 274,569 Accrued expenses and other liabilities 342,369 Total liabilities $ 19,160,159 Fair value of consideration Preferred stock $ 243,870 Common stock ( 129,365 shares issued at $ 18.92 per share) 2,446,312 Total consideration $ 2,690,182 Transaction and integrations costs totaling $ 28.7 million associated with the merger have been expensed in 2023, compared to $ 120.9 million of merger-related costs, $ 11.0 million of provision for credit losses on unfunded commitments, and $ 96.3 million of provision for credit losses on non-PCD loans acquired in the transaction in 2022. Additional transaction and integration costs will be expensed in future periods as incurred. As a result of the merger, Old National assumed sponsorship of First Midwest’s defined benefit pension plan (the “Pension Plan”) under which both plan participation and benefit accruals had been previously frozen. The Pension Plan was terminated in November 2022, which included the settlement of benefit obligations associated with the Pension Plan. At December 31, 2023, there were no remaining Pension Plan assets. The fair value of Pension Plan assets was $ 16.6 million at December 31, 2022. Pension costs were not material in 2023 or 2022. Pending Acquisition CapStar Financial Holdings, Inc. On October 26, 2023, Old National announced that it entered into a definitive merger agreement pursuant to which Old National will acquire CapStar Financial Holdings, Inc. (“CapStar”) and its wholly-owned subsidiary, CapStar Bank, in an all-stock transaction. This partnership transaction will strengthen Old National’s recently formed Nashville presence and add several new high-growth markets. As of September 30, 2023, CapStar had approximately $ 3.3 billion of total assets, $ 2.3 billion of total loans, and $ 2.8 billion of deposits. Under the terms of the merger agreement, each outstanding share of CapStar common stock will be converted into the right to receive 1.155 shares of Old National common stock, valuing the transaction at approximately $ 344.4 million, or $ 16.64 per share, based on Old National’s 30-day volume weighted average closing stock price ending October 25, 2023, the day prior to execution of the merger agreement. The transaction value is likely to change until closing due to fluctuations in the price of Old National common stock. The definitive merger agreement has been approved by the 88 Board of Directors of each company. The transaction is anticipated to close in the second quarter of 2024 subject to the approval of CapStar shareholders. Divestitures On November 18, 2022, Old National sold its business of acting as a qualified custodian for, and administering, health savings accounts. Old National served as custodian for health savings accounts comprised of both investment accounts and deposit accounts. At closing, the health savings accounts held in deposit accounts that were transferred totaled approximately $ 382 million and resulted in a $ 90.7 million pre-tax gain. During the fourth quarter of 2022, Old National initiated certain property optimization actions that included the closure and consolidation of certain branches as well as other real estate repositioning across our footprint. These actions resulted in pre-tax charges of $ 26.8 million that are associated with valuation adjustments related to these locations and were recorded in noninterest expense. NOTE 3 – INVESTMENT SECURITIES The following table summarizes the amortized cost and fair value of the available-for-sale and held-to-maturity investment securities portfolios and the corresponding amounts of gross unrealized gains, unrealized losses, and basis adjustments in AOCI and gross unrecognized gains and losses. (dollars in thousands) Amortized Cost Unrealized Gains Unrealized Losses Basis Adjustments (1) Fair Value December 31, 2023 Available-for-Sale U.S. Treasury $ 449,817 $ 154 $ ( 11,941 ) $ ( 41,297 ) $ 396,733 U.S. government-sponsored entities and agencies 1,487,879 33 ( 192,717 ) ( 63,931 ) 1,231,264 Mortgage-backed securities - Agency 4,835,319 3,093 ( 621,852 ) — 4,216,560 States and political subdivisions 554,509 878 ( 23,057 ) 2,930 535,260 Pooled trust preferred securities 13,797 — ( 2,460 ) — 11,337 Other securities 343,568 449 ( 22,116 ) — 321,901 Total available-for-sale securities $ 7,684,889 $ 4,607 $ ( 874,143 ) $ ( 102,298 ) $ 6,713,055 Held-to-Maturity U.S. government-sponsored entities and agencies $ 825,953 $ — $ ( 154,827 ) $ — $ 671,126 Mortgage-backed securities - Agency 1,029,131 — ( 147,137 ) — 881,994 States and political subdivisions 1,158,559 1,800 ( 112,141 ) — 1,048,218 Allowance for securities held-to-maturity ( 150 ) — — — ( 150 ) Total held-to-maturity securities $ 3,013,493 $ 1,800 $ ( 414,105 ) $ — $ 2,601,188 December 31, 2022 Available-for-Sale U.S. Treasury $ 253,148 $ 5 $ ( 5,189 ) $ ( 47,037 ) $ 200,927 U.S. government-sponsored entities and agencies 1,451,736 — ( 169,248 ) ( 107,408 ) 1,175,080 Mortgage-backed securities - Agency 4,986,354 976 ( 617,428 ) — 4,369,902 States and political subdivisions 688,159 1,789 ( 26,096 ) — 663,852 Pooled trust preferred securities 13,783 — ( 2,972 ) — 10,811 Other securities 379,423 258 ( 26,541 ) — 353,140 Total available-for-sale securities $ 7,772,603 $ 3,028 $ ( 847,474 ) $ ( 154,445 ) $ 6,773,712 Held-to-Maturity U.S. government-sponsored entities and agencies $ 819,168 $ — $ ( 162,810 ) $ — $ 656,358 Mortgage-backed securities - Agency 1,106,817 — ( 123,854 ) — 982,963 States and political subdivisions 1,163,312 221 ( 159,022 ) — 1,004,511 Allowance for securities held-to-maturity ( 150 ) — — — ( 150 ) Total held-to-maturity securities $ 3,089,147 $ 221 $ ( 445,686 ) $ — $ 2,643,682 (1) Basis adjustments represent the amount of fair value hedging adjustments included in the carrying amounts of fixed-rate investment securities assets designated in fair value hedging arrangements. See Note 19 to the consolidated financial statements for additional information regarding these derivative financial instruments. 89 Substantially all of the mortgage-backed securities in the investment portfolio are residential mortgage-backed securities. Proceeds from sales or calls of available-for-sale investment securities and the resulting realized gains and realized losses were as follows: Years Ended December 31, (dollars in thousands) 2023 2022 2021 Proceeds $ 154,339 $ 90,840 $ 357,704 Realized gains 1,006 531 4,505 Realized losses ( 7,271 ) ( 619 ) ( 178 ) Investment securities pledged to secure public and other funds had a carrying value of $ 8.4 billion at December 31, 2023 and $ 6.1 billion at December 31, 2022. At December 31, 2023, Old National had a concentration of investment securities issued by Indiana and its political subdivisions. The only aggregate market value of the Company’s investment securities greater than 10% of shareholders’ equity were issued by Indiana and its political subdivisions totaling $ 600.9 million, which represented 10.8 % of shareholders’ equity. Of the bonds issued by Indiana, 99.6 % are rated “BBB+” or better, and the remaining 0.4 % generally represent pre-refunded positions. The table below shows the amortized cost and fair value of the investment securities portfolio by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Weighted average yield is based on amortized cost. At December 31, 2023 (dollars in thousands) Amortized Cost Fair Value Weighted Average Yield Maturity Available-for-Sale Within one year $ 378,992 $ 375,976 4.37 % One to five years 1,875,152 1,736,452 3.14 % Five to ten years 3,944,940 3,408,082 2.39 % Beyond ten years 1,485,805 1,192,545 2.60 % Total $ 7,684,889 $ 6,713,055 2.71 % Held-to-Maturity One to five years $ 161,440 $ 134,333 2.65 % Five to ten years 1,183,893 1,040,925 2.66 % Beyond ten years 1,668,160 1,425,930 2.72 % Total $ 3,013,493 $ 2,601,188 2.69 % 90 The following table summarizes the available-for-sale investment securities with unrealized losses for which an allowance for credit losses has not been recorded by aggregated major security type and length of time in a continuous unrealized loss position: Less than 12 months 12 months or longer Total (dollars in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses December 31, 2023 Available-for-Sale U.S. Treasury $ 8,937 $ ( 42 ) $ 191,027 $ ( 11,899 ) $ 199,964 $ ( 11,941 ) U.S. government-sponsored entities and agencies — — 1,189,314 ( 192,717 ) 1,189,314 ( 192,717 ) Mortgage-backed securities - Agency 90,145 ( 710 ) 3,835,552 ( 621,142 ) 3,925,697 ( 621,852 ) States and political subdivisions 86,865 ( 495 ) 259,767 ( 22,562 ) 346,632 ( 23,057 ) Pooled trust preferred securities — — 11,337 ( 2,460 ) 11,337 ( 2,460 ) Other securities 39,032 ( 229 ) 255,888 ( 21,887 ) 294,920 ( 22,116 ) Total available-for-sale $ 224,979 $ ( 1,476 ) $ 5,742,885 $ ( 872,667 ) $ 5,967,864 $ ( 874,143 ) December 31, 2022 Available-for-Sale U.S. Treasury $ 130,967 $ ( 3,264 ) $ 66,992 $ ( 1,925 ) $ 197,959 $ ( 5,189 ) U.S. government-sponsored entities and agencies 454,854 ( 75,795 ) 720,226 ( 93,453 ) 1,175,080 ( 169,248 ) Mortgage-backed securities - Agency 3,207,319 ( 358,507 ) 1,116,205 ( 258,921 ) 4,323,524 ( 617,428 ) States and political subdivisions 414,813 ( 25,555 ) 2,703 ( 541 ) 417,516 ( 26,096 ) Pooled trust preferred securities — — 10,811 ( 2,972 ) 10,811 ( 2,972 ) Other securities 257,775 ( 17,045 ) 75,309 ( 9,496 ) 333,084 ( 26,541 ) Total available-for-sale $ 4,465,728 $ ( 480,166 ) $ 1,992,246 $ ( 367,308 ) $ 6,457,974 $ ( 847,474 ) The following table summarizes the held-to-maturity investment securities with unrecognized losses aggregated by major security type and length of time in a continuous loss position: Less than 12 months 12 months or longer Total (dollars in thousands) Fair Value Unrecognized Losses Fair Value Unrecognized Losses Fair Value Unrecognized Losses December 31, 2023 Held-to-Maturity U.S. government-sponsored entities and agencies $ — $ — $ 671,126 $ ( 154,827 ) $ 671,126 $ ( 154,827 ) Mortgage-backed securities - Agency — — 881,994 ( 147,137 ) 881,994 ( 147,137 ) States and political subdivisions — — 977,154 ( 112,141 ) 977,154 ( 112,141 ) Total held-to-maturity $ — $ — $ 2,530,274 $ ( 414,105 ) $ 2,530,274 $ ( 414,105 ) December 31, 2022 Held-to-Maturity U.S. government-sponsored entities and agencies $ 354,293 $ ( 110,523 ) $ 302,066 $ ( 52,287 ) $ 656,359 $ ( 162,810 ) Mortgage-backed securities - Agency 367,849 ( 42,438 ) 615,114 ( 81,416 ) 982,963 ( 123,854 ) States and political subdivisions 838,689 ( 127,355 ) 135,573 ( 31,667 ) 974,262 ( 159,022 ) Total held-to-maturity $ 1,560,831 $ ( 280,316 ) $ 1,052,753 $ ( 165,370 ) $ 2,613,584 $ ( 445,686 ) The unrecognized losses on held-to-maturity investment securities presented in the table above do not include unrecognized losses on securities that were transferred from available-for-sale to held-for-maturity totaling $ 127.6 million at December 31, 2023 and $ 148.9 million at December 31, 2022. These unrecognized losses are included as a separate component of shareholders’ equity and are being amortized over the remaining term of the securities. No allowance for credit losses for available-for-sale debt securities was needed at December 31, 2023 or December 31, 2022. 91 An allowance on held-to-maturity debt securities is maintained for certain municipal bonds to account for expected lifetime credit losses. Substantially all of the U.S. government-sponsored entities and agencies and agency mortgage-backed securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major credit rating agencies, and have a long history of no credit losses. Therefore, for those securities, we do not record expected credit losses. The allowance for credit losses on held-to-maturity debt securities was $ 0.2 million at December 31, 2023 and December 31, 2022. Accrued interest receivable on securities portfolio is excluded from the estimate of credit losses and totaled $ 50.3 million at December 31, 2023 and $ 50.9 million at December 31, 2022. At December 31, 2023, Old National’s securities portfolio consisted of 2,920 securities, 2,588 of which were in an unrealized loss position. The unrealized losses attributable to our U.S. Treasury, U.S. government-sponsored entities and agencies, agency mortgage-backed securities, states and political subdivisions, and other securities are the result of fluctuations in interest rates and market movements. Old National’s pooled trust preferred securities are evaluated using collateral-specific assumptions to estimate the expected future interest and principal cash flows. At December 31, 2023, we had no intent to sell any securities that were in an unrealized loss position nor is it expected that we would be required to sell the securities prior to their anticipated recovery. Old National’s pooled trust preferred securities have experienced credit defaults. However, we believe that the value of the instruments lies in the full and timely interest payments that will be received through maturity, the steady amortization that will be experienced until maturity, and the full return of principal by the final maturity of the collateralized debt obligations. Old National did not recognize any losses on these securities for the years ended December 31, 2023 or December 31, 2022. Equity Securities Equity securities consist of mutual funds for Community Reinvestment Act qualified investments and diversified investment securities held in a grantor trust for participants in the Company’s nonqualified deferred compensation plan. Old National’s equity securities with readily determinable fair values totaled $ 80.4 million at December 31, 2023 and $ 52.5 million at December 31, 2022. There were gains on equity securities of $ 21.5 million during 2023, losses on equity securities of $ 4.9 million during 2022, and gains on equity securities of $ 0.2 million during 2021. Alternative Investments Old National has alternative investments without readily determinable fair values that are included in other assets totaling $ 449.3 million at December 31, 2023, consisting of $ 252.2 million of illiquid investments of partnerships, limited liability companies, and other ownership interests that support affordable housing and $ 197.1 million of economic development and community revitalization initiatives in low-to-moderate income neighborhoods. These alternative investments totaled $ 396.8 million at December 31, 2022. There were no impairments or adjustments on equity securities without readily determinable fair values, except for amortization of tax credit investments during 2023, 2022, and 2021. NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES Loans Old National’s loans consist primarily of loans made to consumers and commercial clients in many diverse industries, including real estate rental and leasing, manufacturing, healthcare, wholesale trade, construction, and agriculture, among others. Most of Old National’s lending activity occurs within our principal geographic markets in the Midwest region. Old National manages concentrations of credit exposure by industry, product, geography, client relationship, and loan size. In the ordinary course of business, Old National grants loans to certain executive officers and directors (collectively referred to as “related parties”). The aggregate amount of loans to related parties was not greater than 5 % of the Company’s shareholders’ equity at December 31, 2023 or 2022. Old National has loan participations, which qualify as participating interests, with other financial institutions. At December 31, 2023, these loans totaled $ 2.8 billion, of which $ 1.2 billion had been sold to other financial institutions and $ 1.6 billion was retained by Old National. The loan participations convey proportionate ownership rights with equal priority to each participating interest holder; involve no recourse (other than ordinary representations and warranties) to, or subordination by, any participating interest holder; all cash flows are divided 92 among the participating interest holders in proportion to each holder’s share of ownership; and no holder has the right to pledge the entire financial asset unless all participating interest holders agree. The loan categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses on loans. The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. The four loan portfolios used to monitor and analyze interest income and yields – commercial, commercial real estate, residential real estate, and consumer – are reclassified into seven segments of loans – commercial, commercial real estate, BBCC, residential real estate, indirect, direct, and home equity for purposes of determining the allowance for credit losses on loans. The commercial and commercial real estate loan categories shown on the balance sheet include the same pool of loans as the commercial, commercial real estate, and BBCC portfolio segments. The consumer loan category shown on the balance sheet is comprised of the same loans in the indirect, direct, and home equity portfolio segments. The portfolio segment reclassifications follow: Balance Sheet Line Item Portfolio Segment Reclassifications Portfolio Segment After Reclassifications (dollars in thousands) December 31, 2023 Commercial (1) $ 9,512,230 $ ( 232,764 ) $ 9,279,466 Commercial real estate 14,140,629 ( 169,058 ) 13,971,571 BBCC N/A 401,822 401,822 Residential real estate 6,699,443 — 6,699,443 Consumer 2,639,625 ( 2,639,625 ) N/A Indirect N/A 1,050,982 1,050,982 Direct N/A 523,172 523,172 Home equity N/A 1,065,471 1,065,471 Total loans (2) 32,991,927 — 32,991,927 Allowance for credit losses on loans ( 307,610 ) — ( 307,610 ) Net loans $ 32,684,317 $ — $ 32,684,317 December 31, 2022 Commercial (1) $ 9,508,904 $ ( 210,280 ) $ 9,298,624 Commercial real estate 12,457,070 ( 158,322 ) 12,298,748 BBCC N/A 368,602 368,602 Residential real estate 6,460,441 — 6,460,441 Consumer 2,697,226 ( 2,697,226 ) N/A Indirect N/A 1,034,257 1,034,257 Direct N/A 629,186 629,186 Home equity N/A 1,033,783 1,033,783 Total loans (2) 31,123,641 — 31,123,641 Allowance for credit losses on loans ( 303,671 ) — ( 303,671 ) Net loans $ 30,819,970 $ — $ 30,819,970 (1) Includes direct finance leases of $ 169.7 million at December 31, 2023 and $ 188.1 million at December 31, 2022. (2) Includes unearned income of $ 93.7 million at December 31, 2023 and $ 126.7 million at December 31, 2022. The risk characteristics of each loan portfolio segment are as follows: Commercial Commercial loans are classified primarily on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its clients. 93 Commercial Real Estate Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing Old National’s commercial real estate portfolio are diverse in terms of type and geographic location. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner-occupied loans. Included with commercial real estate are construction loans, which are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates, financial analysis of the developers and property owners, and feasibility studies, if available. Construction loans are generally based on estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders (including Old National), sales of developed property, or an interim loan commitment from Old National until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions, and the availability of long-term financing. At 244 %, Old National Bank’s applicable investor commercial real estate loans as a percentage of its risk-based capital remained below the regulatory guideline limit of 300 % at December 31, 2023. BBCC BBCC loans are typically granted to small businesses with gross revenues of less than $5 million and aggregate debt of less than $1 million. Old National has established minimum debt service coverage ratios, minimum FICO scores for owners and guarantors, and the ability to show relatively stable earnings as criteria to help mitigate risk. Repayment of these loans depends on the personal income of the borrowers and the cash flows of the business. These factors can be affected by factors such as changes in economic conditions and unemployment levels. Residential With respect to residential loans that are secured by 1 - 4 family residences and are generally owner occupied, Old National typically establishes a maximum loan-to-value ratio and generally requires private mortgage insurance if that ratio is exceeded. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in residential property values. Portfolio risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers. Indirect Indirect loans are secured by automobile collateral, generally new and used cars and trucks from auto dealers that operate within our footprint. Old National typically mitigates the risk of indirect loans by establishing minimum FICO scores, maximum loan-to-value ratios, and maximum debt-to-income ratios. Repayment of these loans depends largely on the personal income of the borrowers, which can be affected by changes in economic conditions such as unemployment levels. Portfolio risk is mitigated by the fact that the loans are of smaller amounts spread over many borrowers and ongoing reviews of dealer relationships. Direct Direct loans are typically secured by collateral such as auto or real estate or are unsecured. Old National has established underwriting standards such as minimum FICO scores, maximum loan-to-value ratios, and maximum debt-to-income ratios. Repayment of these loans depends largely on the personal income of the borrowers, which can be affected by changes in economic conditions such as unemployment levels. Portfolio risk is mitigated by the fact that the loans are of smaller amounts spread over many borrowers. 94 Home Equity Home equity loans are generally secured by 1-4 family residences that are owner-occupied. Old National has established underwriting standards such as minimum FICO scores, maximum loan-to-value ratios, and maximum debt-to-income ratios. Repayment of these loans depends largely on the personal income of the borrowers, which can be affected by changes in economic conditions such as unemployment levels. Portfolio risk is mitigated by the fact that the loans are of smaller amounts spread over many borrowers, along with monitoring of updated borrower credit scores. Allowance for Credit Losses Loans Credit loss assumptions used when computing the level of expected credit losses are estimated using a model that categorizes loan pools based on loss history, delinquency status, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. The base forecast scenario considers unemployment, gross domestic product, and the BBB ratio (BBB spread to the 10-year U.S. Treasury rate). In addition to the quantitative inputs, several qualitative factors are considered. These factors include the risk that unemployment, gross domestic product, housing product index, and the BBB ratio prove to be more severe and/or prolonged than our baseline forecast due to a variety of factors including monetary actions to control inflation, recent instability in the banking sector, global military conflicts, and global supply chain issues. Old National’s activity in the allowance for credit losses on loans by portfolio segment was as follows: (dollars in thousands) Balance at Beginning of Period Allowance Established for Acquired PCD Loans Charge-offs Recoveries Provision (Release) for Loan Losses Balance at End of Period Year Ended December 31, 2023 Commercial $ 120,612 $ — $ ( 41,451 ) $ 4,172 $ 35,000 $ 118,333 Commercial real estate 138,244 — ( 11,198 ) 2,417 25,636 155,099 BBCC 2,431 — ( 1,650 ) 275 1,831 2,887 Residential real estate 21,916 — ( 256 ) 1,268 ( 2,091 ) 20,837 Indirect 1,532 — ( 2,948 ) 1,559 1,093 1,236 Direct 12,116 — ( 10,517 ) 2,331 ( 761 ) 3,169 Home equity 6,820 — ( 443 ) 531 ( 859 ) 6,049 Total $ 303,671 $ — $ ( 68,463 ) $ 12,553 $ 59,849 $ 307,610 Year Ended December 31, 2022 Commercial $ 27,232 $ 38,780 $ ( 6,885 ) $ 4,610 $ 56,875 $ 120,612 Commercial real estate 64,004 49,419 ( 6,519 ) 1,095 30,245 138,244 BBCC 2,458 — ( 85 ) 281 ( 223 ) 2,431 Residential real estate 9,347 136 ( 344 ) 760 12,017 21,916 Indirect 1,743 — ( 2,525 ) 1,263 1,051 1,532 Direct 528 31 ( 10,799 ) 2,557 19,799 12,116 Home equity 2,029 723 ( 124 ) 616 3,576 6,820 Total $ 107,341 $ 89,089 $ ( 27,281 ) $ 11,182 $ 123,340 $ 303,671 Year Ended December 31, 2021 Commercial $ 30,567 $ — $ ( 1,228 ) $ 791 $ ( 2,898 ) $ 27,232 Commercial real estate 75,810 — ( 264 ) 4,403 ( 15,945 ) 64,004 BBCC 6,120 — ( 144 ) 105 ( 3,623 ) 2,458 Residential real estate 12,608 — ( 346 ) 339 ( 3,254 ) 9,347 Indirect 3,580 — ( 1,087 ) 1,682 ( 2,432 ) 1,743 Direct 855 — ( 1,159 ) 777 55 528 Home equity 1,848 — ( 82 ) 978 ( 715 ) 2,029 Total $ 131,388 $ — $ ( 4,310 ) $ 9,075 $ ( 28,812 ) $ 107,341 95 Accrued interest receivable on loans is excluded from the estimate of credit losses and totaled $ 169.8 million at December 31, 2023 and $ 137.7 million at December 31, 2022. Unfunded Loan Commitments Old National maintains an allowance for credit losses on unfunded loan commitments to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses on loans, modified to take into account the probability of a drawdown on the commitment. The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet within accrued expenses and other liabilities, while the corresponding provision for unfunded loan commitments is included in the provision for credit losses. Old National’s activity in the allowance for credit losses on unfunded loan commitments was as follows: Years Ended December 31, (dollars in thousands) 2023 2022 2021 Balance at beginning of period $ 32,188 $ 10,879 $ 11,689 Provision for credit losses on unfunded loan commitments acquired during the period — 11,013 — Provision (release) for credit losses on unfunded loan commitments ( 962 ) 10,296 ( 810 ) Balance at end of period $ 31,226 $ 32,188 $ 10,879 Credit Quality Old National’s management monitors the credit quality of its loans on an ongoing basis with the AQR for commercial loans reviewed annually or at renewal and the performance of its residential and consumer loans based upon the accrual status refreshed at least quarterly. Internally, management assigns an AQR to each non-homogeneous commercial, commercial real estate, and BBCC loan in the portfolio. The primary determinants of the AQR are the reliability of the primary source of repayment and the past, present, and projected financial condition of the borrower. The AQR will also consider current industry conditions. Major factors used in determining the AQR can vary based on the nature of the loan, but commonly include factors such as debt service coverage, internal cash flow, liquidity, leverage, operating performance, debt burden, FICO scores, occupancy, interest rate sensitivity, and expense burden. Old National uses the following definitions for risk ratings: Criticized . Special mention loans that have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Classified – Substandard . Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Classified – Nonaccrual . Loans classified as nonaccrual have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection in full, on the basis of currently existing facts, conditions, and values, in doubt. Classified – Doubtful . Loans classified as doubtful have all the weaknesses inherent in those classified as nonaccrual, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Pass rated loans are those loans that are other than criticized, classified – substandard, classified – nonaccrual, or classified – doubtful. 96 The following table summarizes the amortized cost of term loans by risk category of commercial, commercial real estate, and BBCC loans by loan portfolio segment, class of loan, and origination year: Origination Year Revolving to Term (dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Total December 31, 2023 Commercial: Risk Rating: Pass $ 1,826,289 $ 1,573,669 $ 985,964 $ 520,883 $ 450,911 $ 495,979 $ 2,051,985 $ 651,953 $ 8,557,633 Criticized 20,038 90,031 19,953 36,906 25,756 47,357 89,765 44,348 374,154 Classified: Substandard 27,271 41,164 27,990 37,618 10,461 29,981 72,703 56,716 303,904 Nonaccrual 32 7,034 — — 823 3,411 — 5,461 16,761 Doubtful — 7,261 5,925 4,875 1,742 7,211 — — 27,014 Total $ 1,873,630 $ 1,719,159 $ 1,039,832 $ 600,282 $ 489,693 $ 583,939 $ 2,214,453 $ 758,478 $ 9,279,466 Commercial real estate: Risk Rating: Pass $ 2,177,841 $ 3,515,702 $ 2,563,638 $ 1,576,044 $ 1,010,351 $ 1,161,119 $ 103,332 $ 960,386 $ 13,068,413 Criticized 69,648 69,946 68,708 27,059 52,107 95,896 3,893 64,730 451,987 Classified: Substandard 26,638 56,423 21,401 28,983 61,186 49,558 — 48,760 292,949 Nonaccrual — 21,919 10,706 1,975 1,634 8,632 — 1,400 46,266 Doubtful 5,360 429 30,897 2,306 37,777 35,187 — — 111,956 Total $ 2,279,487 $ 3,664,419 $ 2,695,350 $ 1,636,367 $ 1,163,055 $ 1,350,392 $ 107,225 $ 1,075,276 $ 13,971,571 BBCC: Risk Rating: Pass $ 81,102 $ 64,583 $ 44,307 $ 38,086 $ 27,557 $ 19,028 $ 68,807 $ 33,361 $ 376,831 Criticized — — 857 700 1,001 349 2,144 12,728 17,779 Classified: Substandard 436 193 252 — — 604 15 1,006 2,506 Nonaccrual — — 482 — 4 1,105 — 1,402 2,993 Doubtful 302 727 254 286 60 84 — — 1,713 Total $ 81,840 $ 65,503 $ 46,152 $ 39,072 $ 28,622 $ 21,170 $ 70,966 $ 48,497 $ 401,822 97 Origination Year Revolving to Term (dollars in thousands) 2022 2021 2020 2019 2018 Prior Revolving Total December 31, 2022 Commercial: Risk Rating: Pass $ 2,388,618 $ 1,754,364 $ 796,340 $ 738,208 $ 362,986 $ 388,617 $ 1,988,763 $ 329,119 $ 8,747,015 Criticized 40,856 30,661 63,557 33,490 9,195 5,312 61,036 4,327 248,434 Classified: Substandard 37,223 47,522 16,540 22,925 4,844 21,204 67,402 25,143 242,803 Nonaccrual 3,627 1,453 566 — — — 1,634 6,623 13,903 Doubtful 2,821 17,604 3,720 8,005 5,968 8,351 — — 46,469 Total $ 2,473,145 $ 1,851,604 $ 880,723 $ 802,628 $ 382,993 $ 423,484 $ 2,118,835 $ 365,212 $ 9,298,624 Commercial real estate: Risk Rating: Pass $ 3,066,960 $ 2,828,758 $ 1,989,000 $ 1,219,025 $ 675,572 $ 1,018,719 $ 57,818 $ 689,553 $ 11,545,405 Criticized 75,306 34,422 22,569 82,637 86,504 56,864 — 23,282 381,584 Classified: Substandard 46,231 16,928 24,319 78,468 57,824 21,591 — 4,108 249,469 Nonaccrual 3,151 9,541 5,014 — 2,312 22,155 — 3,257 45,430 Doubtful 1,934 38,386 10,011 4,605 1,523 20,401 — — 76,860 Total $ 3,193,582 $ 2,928,035 $ 2,050,913 $ 1,384,735 $ 823,735 $ 1,139,730 $ 57,818 $ 720,200 $ 12,298,748 BBCC: Risk Rating: Pass $ 90,341 $ 64,161 $ 52,304 $ 36,868 $ 23,618 $ 11,333 $ 60,016 $ 18,881 $ 357,522 Criticized 1,504 525 368 692 353 — 1,006 1,603 6,051 Classified: Substandard 811 143 — 421 — — 543 682 2,600 Nonaccrual 42 37 118 — 429 284 — 639 1,549 Doubtful 40 107 439 157 64 73 — — 880 Total $ 92,738 $ 64,973 $ 53,229 $ 38,138 $ 24,464 $ 11,690 $ 61,565 $ 21,805 $ 368,602 98 For residential real estate and consumer loan classes, Old National evaluates credit quality based on the aging status of the loan and by payment activity. The performing or nonperforming status is updated on an on-going basis dependent upon improvement and deterioration in credit quality. The following table presents the amortized cost of term residential real estate and consumer loans based on payment activity and origination year: Origination Year Revolving to Term (dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Total December 31, 2023 Residential real estate: Performing $ 453,743 $ 1,508,671 $ 1,836,078 $ 1,705,131 $ 430,783 $ 722,987 $ — $ 279 $ 6,657,672 Nonperforming 116 4,563 4,004 3,375 4,078 25,635 — — 41,771 Total $ 453,859 $ 1,513,234 $ 1,840,082 $ 1,708,506 $ 434,861 $ 748,622 $ — $ 279 $ 6,699,443 Indirect: Performing $ 393,369 $ 355,822 $ 162,735 $ 82,871 $ 37,967 $ 13,815 $ — $ 196 $ 1,046,775 Nonperforming 372 1,472 1,207 547 318 291 — — 4,207 Total $ 393,741 $ 357,294 $ 163,942 $ 83,418 $ 38,285 $ 14,106 $ — $ 196 $ 1,050,982 Direct: Performing $ 109,372 $ 90,310 $ 92,491 $ 48,387 $ 29,659 $ 67,129 $ 75,080 $ 4,852 $ 517,280 Nonperforming 67 531 517 560 210 3,872 124 11 5,892 Total $ 109,439 $ 90,841 $ 93,008 $ 48,947 $ 29,869 $ 71,001 $ 75,204 $ 4,863 $ 523,172 Home equity: Performing $ 290 $ 164 $ 160 $ 140 $ 679 $ 4,483 $ 1,019,389 $ 23,918 $ 1,049,223 Nonperforming — 310 328 404 741 4,327 2,844 7,294 16,248 Total $ 290 $ 474 $ 488 $ 544 $ 1,420 $ 8,810 $ 1,022,233 $ 31,212 $ 1,065,471 Origination Year Revolving to Term 2022 2021 2020 2019 2018 Prior Revolving Total December 31, 2022 Residential real estate: Performing $ 1,327,168 $ 1,945,792 $ 1,825,762 $ 478,529 $ 136,260 $ 712,175 $ 7 $ 88 $ 6,425,781 Nonperforming 59 529 861 873 1,826 30,512 — — 34,660 Total $ 1,327,227 $ 1,946,321 $ 1,826,623 $ 479,402 $ 138,086 $ 742,687 $ 7 $ 88 $ 6,460,441 Indirect: Performing $ 504,410 $ 249,407 $ 144,265 $ 82,304 $ 31,484 $ 19,095 $ — $ 62 $ 1,031,027 Nonperforming 348 1,074 645 531 304 328 — — 3,230 Total $ 504,758 $ 250,481 $ 144,910 $ 82,835 $ 31,788 $ 19,423 $ — $ 62 $ 1,034,257 Direct: Performing $ 132,934 $ 164,126 $ 77,406 $ 57,919 $ 45,299 $ 59,212 $ 87,622 $ 671 $ 625,189 Nonperforming 115 851 614 205 327 1,526 5 354 3,997 Total $ 133,049 $ 164,977 $ 78,020 $ 58,124 $ 45,626 $ 60,738 $ 87,627 $ 1,025 $ 629,186 Home equity: Performing $ 919 $ 896 $ 1,849 $ 1,497 $ 983 $ 11,646 $ 990,001 $ 14,792 $ 1,022,583 Nonperforming 166 160 166 446 794 4,308 1,698 3,462 11,200 Total $ 1,085 $ 1,056 $ 2,015 $ 1,943 $ 1,777 $ 15,954 $ 991,699 $ 18,254 $ 1,033,783 99 The following table summarizes the gross charge-offs of loans by loan portfolio segment and origination year: Origination Year (dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Total Year Ended December 31, 2023 Commercial $ — $ 6,475 $ 24,022 $ 120 $ 7,245 $ 2,880 $ 709 $ 41,451 Commercial real estate — 54 2,808 2,144 — 6,192 — 11,198 BBCC 670 548 362 70 — — — 1,650 Residential real estate — — — — — 256 — 256 Indirect 271 1,447 787 159 152 132 — 2,948 Direct 173 1,899 2,367 746 1,207 543 3,582 10,517 Home equity — — — 35 — 408 — 443 Total gross charge-offs $ 1,114 $ 10,423 $ 30,346 $ 3,274 $ 8,604 $ 10,411 $ 4,291 $ 68,463 Nonaccrual and Past Due Loans Old National does not record interest on nonaccrual loans until principal is recovered. For all loan classes, a loan is generally placed on nonaccrual status when principal or interest becomes 90 days past due unless it is well secured and in the process of collection, or earlier when concern exists as to the ultimate collectability of principal or interest. Interest accrued but not received is reversed against earnings. Cash interest received on these loans is applied to the principal balance until the principal is recovered or until the loan returns to accrual status. Loans may be returned to accrual status when all the principal and interest amounts contractually due are brought current, remain current for a prescribed period, and future payments are reasonably assured. The following table presents the aging of the amortized cost basis in past due loans by class of loans: (dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due Past Due 90 Days or More Total Past Due Current Total Loans December 31, 2023 Commercial $ 16,128 $ 1,332 $ 4,861 $ 22,321 $ 9,257,145 $ 9,279,466 Commercial real estate 9,081 5,254 30,660 44,995 13,926,576 13,971,571 BBCC 1,368 134 977 2,479 399,343 401,822 Residential 12,358 367 15,249 27,974 6,671,469 6,699,443 Indirect 7,025 1,854 1,342 10,221 1,040,761 1,050,982 Direct 5,436 1,455 1,787 8,678 514,494 523,172 Home equity 7,791 2,347 6,659 16,797 1,048,674 1,065,471 Total $ 59,187 $ 12,743 $ 61,535 $ 133,465 $ 32,858,462 $ 32,991,927 December 31, 2022 Commercial $ 14,147 $ 4,801 $ 11,080 $ 30,028 $ 9,268,596 $ 9,298,624 Commercial real estate 47,240 1,312 32,892 81,444 12,217,304 12,298,748 BBCC 730 365 603 1,698 366,904 368,602 Residential 24,181 5,033 11,753 40,967 6,419,474 6,460,441 Indirect 6,302 2,118 958 9,378 1,024,879 1,034,257 Direct 5,404 2,118 1,928 9,450 619,736 629,186 Home equity 6,585 1,966 4,707 13,258 1,020,525 1,033,783 Total $ 104,589 $ 17,713 $ 63,921 $ 186,223 $ 30,937,418 $ 31,123,641 100 The following table presents the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing by class of loan: December 31, 2023 December 31, 2022 (dollars in thousands) Nonaccrual Amortized Cost Nonaccrual With No Related Allowance Past Due 90 Days or More and Accruing Nonaccrual Amortized Cost Nonaccrual With No Related Allowance Past Due 90 Days or More and Accruing Commercial $ 43,775 $ 13,143 $ 242 $ 60,372 $ 7,873 $ 152 Commercial real estate 158,222 24,507 585 122,290 33,445 — BBCC 4,706 — 95 2,429 — — Residential 41,771 — — 34,660 — 1,808 Indirect 4,207 — 8 3,230 — 28 Direct 5,892 — 31 3,997 — 133 Home equity 16,248 — — 11,200 — 529 Total $ 274,821 $ 37,650 $ 961 $ 238,178 $ 41,318 $ 2,650 Interest income recognized on nonaccrual loans was insignificant during the years ended December 31, 2023 and 2022. When management determines that foreclosure is probable, expected credit losses for collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. A loan is considered collateral dependent when the borrower is experiencing financial difficulty, and the loan is expected to be repaid substantially through the operation or sale of the collateral. The class of loan represents the primary collateral type associated with the loan. Significant quarter-over-quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value. The following table presents the amortized cost basis of collateral dependent loans by class of loan: Type of Collateral (dollars in thousands) Real Estate Blanket Lien Investment Securities/Cash Auto Other December 31, 2023 Commercial $ 14,303 $ 24,729 $ 2,577 $ 280 $ 328 Commercial Real Estate 146,425 — 1,167 — 6,107 BBCC 3,522 794 — 390 — Residential 41,771 — — — — Indirect — — — 4,207 — Direct 4,727 1 3 366 29 Home equity 16,248 — — — — Total $ 226,996 $ 25,524 $ 3,747 $ 5,243 $ 6,464 December 31, 2022 Commercial $ 8,962 $ 42,754 $ 2,690 $ 1,611 $ 980 Commercial Real Estate 108,871 — 1,718 — 6,411 BBCC 1,939 478 — 12 — Residential 34,660 — — — — Indirect — — — 3,230 — Direct 2,991 13 — 232 23 Home equity 11,200 — — — — Total $ 168,623 $ 43,245 $ 4,408 $ 5,085 $ 7,414 Financial Difficulty Modifications Occasionally, Old National modifies loans to borrowers experiencing financial difficulty in the form of principal forgiveness, term extension, an other-than-insignificant payment delay, or interest rate reduction (or a combination thereof). When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses on loans. 101 The following table presents the amortized cost basis of financial difficulty modifications at December 31, 2023 that were modified during the year ended December 31, 2023 by class of loans and type of modification: (dollars in thousands) Term Extension Total Class of Loans Year Ended December 31, 2023 Commercial $ 21,631 0.2 % Commercial real estate 121,529 0.9 % Total $ 143,160 0.4 % Old National monitors the performance of financial difficulty modifications to understand the effectiveness of its efforts. The following table presents the performance of loans identified as financial difficulty modifications at December 31, 2023: (dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due Past Due 90 Days or More Total Past Due Current Total Loans December 31, 2023 Commercial $ — $ — $ — $ — $ 21,631 $ 21,631 Commercial real estate 5,287 — — 5,287 116,242 121,529 Total $ 5,287 $ — $ — $ 5,287 $ 137,873 $ 143,160 The following table summarizes the nature of the financial difficulty modifications during the year ended December 31, 2023 by class of loans: (dollars in thousands) Weighted- Average Term Extension (in months) Year Ended December 31, 2023 Commercial 6.1 Commercial real estate 8.6 Total 8.2 There were no material payment defaults on these loans subsequent to their modifications during the year ended December 31, 2023. At December 31, 2023, Old National had no t committed to lend any material additional funds to the borrowers whose loans were modified due to financial difficulties. NOTE 5 – PREMISES AND EQUIPMENT The composition of premises and equipment was as follows: December 31, (dollars in thousands) 2023 2022 Land $ 91,568 $ 91,568 Buildings 453,234 419,596 Furniture, fixtures, and equipment 148,134 154,719 Leasehold improvements 85,187 69,412 Total 778,123 735,295 Accumulated depreciation ( 212,727 ) ( 177,988 ) Premises and equipment, net $ 565,396 $ 557,307 Depreciation expense was $ 38.2 million in 2023, $ 36.4 million in 2022, and $ 27.3 million in 2021. Finance Leases Old National leases certain banking center buildings and equipment under finance leases that are included in premises and equipment. See Notes 6 and 13 to the consolidated financial statements for detail regarding these leases. 102 NOTE 6 – LEASES Old National determines if an arrangement is or contains a lease at contract inception. Operating leases are included in other assets and other liabilities in our consolidated balance sheets. Finance leases are included in premises and equipment and other borrowings in our consolidated balance sheets. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, we use the implicit lease rate when readily determinable. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date. The incremental borrowing rate is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. Old National has operating and finance leases for land, office space, banking centers, and equipment. These leases are generally for periods of 5 to 20 years with various renewal options. We include certain renewal options in the measurement of our right-of-use assets and lease liabilities if they are reasonably certain to be exercised. Variable lease payments that are dependent on an index or a rate are initially measured using the index or rate at the commencement date and are included in the measurement of the lease liability. Variable lease payments that are not dependent on an index or a rate are excluded from the measurement of the lease liability and are recognized in profit and loss when incurred. Variable lease payments are defined as payments made for the right to use an asset that vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time. Old National has lease agreements with lease and non-lease components, which are generally accounted for separately. For real estate leases, non-lease components and other non-components, such as common area maintenance charges, real estate taxes, and insurance are not included in the measurement of the lease liability since they are generally able to be segregated. For certain equipment leases, Old National accounts for the lease and non-lease components as a single lease component using the practical expedient available for that class of assets. Old National does not have any material sub-lease agreements. The components of lease expense were as follows: Affected Line Item in the Statement of Income Years Ended December 31, (dollars in thousands) 2023 2022 2021 Operating lease cost Occupancy/Equipment expense $ 31,175 $ 29,368 $ 12,336 Finance lease cost: Amortization of right-of-use assets Occupancy expense 2,921 2,672 2,356 Interest on lease liabilities Interest expense 722 415 431 Sub-lease income Occupancy expense ( 387 ) ( 448 ) ( 438 ) Total $ 34,431 $ 32,007 $ 14,685 103 Supplemental balance sheet information related to leases was as follows: December 31, (dollars in thousands) 2023 2022 Operating Leases Operating lease right-of-use assets $ 185,506 $ 189,714 Operating lease liabilities 204,960 211,964 Finance Leases Premises and equipment, net 19,820 10,799 Other borrowings 20,955 13,469 Weighted-Average Remaining Lease Term (in Years) Operating leases 8.5 9.1 Finance leases 10.5 7.2 Weighted-Average Discount Rate Operating leases 3.04 % 2.88 % Finance leases 3.90 % 3.30 % Supplemental cash flow information related to leases was as follows: Years Ended December 31, (dollars in thousands) 2023 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 31,720 $ 30,340 $ 13,823 Operating cash flows from finance leases 722 415 431 Financing cash flows from finance leases 2,533 2,475 2,057 The following table presents a maturity analysis of the Company’s lease liability by lease classification at December 31, 2023: (dollars in thousands) Operating Leases Finance Leases 2024 $ 31,199 $ 3,357 2025 30,703 3,380 2026 29,972 2,154 2027 29,038 2,158 2028 25,392 2,056 Thereafter 87,940 12,752 Total undiscounted lease payments 234,244 25,857 Amounts representing interest ( 29,284 ) ( 4,902 ) Lease liability $ 204,960 $ 20,955 NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS The following table presents the changes in the carrying amount of goodwill: Years Ended December 31, (dollars in thousands) 2023 2022 2021 Balance at beginning of period $ 1,998,716 $ 1,036,994 $ 1,036,994 Acquisitions and adjustments — 961,722 — Balance at end of period $ 1,998,716 $ 1,998,716 $ 1,036,994 104 During 2022, Old National recorded $ 961.7 million of goodwill associated with the First Midwest merger. See Note 2 to the consolidated financial statements for additional detail regarding this transaction. Old National performed the required annual goodwill impairment test as of August 31, 2023 and there was no impairment. No events or circumstances since the August 31, 2023 annual impairment test were noted that would indicate it was more likely than not a goodwill impairment exists. The gross carrying amounts and accumulated amortization of other intangible assets were as follows: (dollars in thousands) Gross Carrying Amount Accumulated Amortization and Impairment Net Carrying Amount December 31, 2023 Core deposit $ 143,511 $ ( 72,940 ) $ 70,571 Customer trust relationships 52,621 ( 20,942 ) 31,679 Total intangible assets $ 196,132 $ ( 93,882 ) $ 102,250 December 31, 2022 Core deposit $ 170,642 $ ( 80,951 ) $ 89,691 Customer trust relationships 56,243 ( 19,529 ) 36,714 Total intangible assets $ 226,885 $ ( 100,480 ) $ 126,405 Other intangible assets consist of core deposit intangibles and customer relationship intangibles and are being amortized primarily on an accelerated basis over their estimated useful lives, generally over a period of 5 to 15 years. During 2022, Old National recorded $ 77.9 million of core deposit intangibles and $ 39.7 million of customer trust relationships intangible associated with the First Midwest merger. Old National reviews other intangible assets for possible impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. No impairment charges were recorded in 2023, 2022, or 2021. Total amortization expense associated with intangible assets was $ 24.2 million in 2023, $ 25.9 million in 2022, and $ 11.3 million in 2021. Estimated amortization expense for future years is as follows: (dollars in thousands) 2024 $ 21,239 2025 18,358 2026 15,555 2027 12,867 2028 10,356 Thereafter 23,875 Total $ 102,250 NOTE 8 – LOAN SERVICING RIGHTS Loan servicing rights are included in other assets on the balance sheet. At December 31, 2023, loan servicing rights derived from mortgage loans sold with servicing retained totaled $ 35.8 million, compared to $ 37.3 million at December 31, 2022. Loans serviced for others are not reported as assets. The principal balance of mortgage loans serviced for others totaled $ 4.3 billion at both December 31, 2023 and December 31, 2022. Custodial escrow balances maintained in connection with serviced loans totaled $ 27.0 million at both December 31, 2023 and December 31, 2022. 105 The following table summarizes the carrying values and activity related to loan servicing rights and the related valuation allowance: Years Ended December 31, (dollars in thousands) 2023 2022 2021 Balance at beginning of period $ 37,267 $ 30,085 $ 28,124 Additions (1) 3,657 13,080 11,759 Amortization ( 5,135 ) ( 5,898 ) ( 9,798 ) Balance before valuation allowance at end of period 35,789 37,267 30,085 Valuation allowance: Balance at beginning of period — ( 46 ) ( 1,407 ) (Additions)/recoveries — 46 1,361 Balance at end of period — — ( 46 ) Loan servicing rights, net $ 35,789 $ 37,267 $ 30,039 (1) Additions in 2022 included loan servicing rights of $ 7.7 million acquired in the First Midwest merger on February 15, 2022. At December 31, 2023, the fair value of servicing rights was $ 47.1 million, which was determined using a discount rate of 9 % and a conditional prepayment rate of 10 %. At December 31, 2022, the fair value of servicing rights was $ 48.4 million, which was determined using a discount rate of 9 % and a conditional prepayment rate of 9 %. NOTE 9 – QUALIFIED AFFORDABLE HOUSING PROJECTS AND OTHER TAX CREDIT INVESTMENTS Old National is a limited partner in several tax-advantaged limited partnerships whose purpose is to invest in approved qualified affordable housing, renewable energy, or other renovation or community revitalization projects. These investments are included in other assets on the balance sheet, with any unfunded commitments included with other liabilities. As of December 31, 2023, Old National expects to recover its remaining investments through the use of the tax credits that are generated by the investments. The following table summarizes Old National’s investments in qualified affordable housing projects and other tax credit investments: (dollars in thousands) December 31, 2023 December 31, 2022 Investment Accounting Method Investment Unfunded Commitment (1) Investment Unfunded Commitment LIHTC Proportional amortization $ 114,991 $ 75,981 $ 84,428 $ 55,754 FHTC Equity 34,220 27,421 19,316 9,588 NMTC Consolidation 47,727 — 51,912 — Renewable Energy Equity 201 — 1,099 — Total $ 197,139 $ 103,402 $ 156,755 $ 65,342 (1) All commitments will be paid by Old National by December 31, 2027. 106 The following table summarizes the amortization expense and tax benefit recognized for Old National’s qualified affordable housing projects and other tax credit investments: (dollars in thousands) Amortization Expense (1) Tax Expense (Benefit) Recognized (2) Year Ended December 31, 2023 LIHTC $ 9,343 $ ( 10,980 ) FHTC 5,487 ( 6,186 ) NMTC 8,982 ( 11,195 ) Renewable Energy 898 — Total $ 24,710 $ ( 28,361 ) Year Ended December 31, 2022 LIHTC $ 4,974 $ ( 6,613 ) FHTC 1,925 ( 2,227 ) NMTC 8,197 ( 10,225 ) Renewable Energy 839 — Total $ 15,935 $ ( 19,065 ) Year Ended December 31, 2021 LIHTC $ 3,450 $ ( 4,543 ) FHTC 2,557 ( 2,884 ) NMTC 2,887 ( 3,625 ) Renewable Energy 1,326 ( 562 ) Total $ 10,220 $ ( 11,614 ) (1) The amortization expense for the LIHTC investments is included in our income tax expense. The amortization expense for the FHTC, NMTC, and Renewable Energy tax credits is included in noninterest expense. (2) All of the tax benefits recognized are included in our income tax expense. The tax benefit recognized for the FHTC, NMTC, and Renewable Energy investments primarily reflects the tax credits generated from the investments and excludes the net tax expense (benefit) and deferred tax liability of the investments’ income (loss). NOTE 10 – DEPOSITS At December 31, 2023, the scheduled maturities of total time deposits were as follows: (dollars in thousands) Due in 2024 $ 5,081,013 Due in 2025 376,189 Due in 2026 66,853 Due in 2027 33,864 Due in 2028 14,416 Thereafter 6,809 Total $ 5,579,144 The aggregate amount of time deposits in denominations that met or exceeded the FDIC insurance limit of $250,000 totaled $ 1.5 billion at December 31, 2023 and $ 793.4 million at December 31, 2022. 107 NOTE 11 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Securities sold under agreements to repurchase are secured borrowings. Old National pledges investment securities to secure these borrowings. The following table presents securities sold under agreements to repurchase and related weighted-average interest rates for each of the years ended December 31: (dollars in thousands) 2023 2022 Outstanding at year-end $ 285,206 $ 432,804 Average amount outstanding 332,853 440,619 Maximum amount outstanding at any month-end 430,537 509,275 Weighted-average interest rate: During year 0.99 % 0.19 % End of year 3.64 1.31 The following table presents the contractual maturity of our secured borrowings and class of collateral pledged: At December 31, 2023 Remaining Contractual Maturity of the Agreements (dollars in thousands) Overnight and Continuous Up to 30 Days 30-90 Days Greater Than 90 days Total Repurchase Agreements: U.S. Treasury and agency securities $ 285,206 $ — $ — $ — $ 285,206 Total $ 285,206 $ — $ — $ — $ 285,206 The fair value of securities pledged to secure repurchase agreements may decline. Old National has pledged securities valued at 115 % of the gross outstanding balance of repurchase agreements at December 31, 2023 to manage this risk. NOTE 12 – FEDERAL HOME LOAN BANK ADVANCES The following table summarizes Old National Bank’s FHLB advances: December 31, (dollars in thousands) 2023 2022 FHLB advances (fixed rates 2.19 % to 5.51 % and variable rates 5.34 % to 5.36 %) maturing January 2024 to December 2043 $ 4,300,528 $ 3,850,677 Fair value hedge basis adjustments and unamortized prepayment fees ( 19,847 ) ( 21,659 ) Total other borrowings $ 4,280,681 $ 3,829,018 FHLB advances had weighted-average rates of 3.45 % at December 31, 2023 and 3.15 % at December 31, 2022. FHLB advances are collateralized by designated assets that may include qualifying commercial real estate loans, residential and multifamily mortgages, home equity loans, and certain investment securities. At December 31, 2023, total unamortized prepayment fees related to all FHLB advance debt modifications completed in prior years totaled $ 14.2 million, compared to $ 20.2 million at December 31, 2022. 108 Contractual maturities of FHLB advances at December 31, 2023 were as follows: (dollars in thousands) Due in 2024 $ 125,243 Due in 2025 550,285 Due in 2026 100,000 Due in 2028 850,000 Thereafter 2,675,000 Fair value hedge basis adjustments and unamortized prepayment fees ( 19,847 ) Total $ 4,280,681 NOTE 13 – OTHER BORROWINGS The following table summarizes Old National’s other borrowings: December 31, (dollars in thousands) 2023 2022 Old National Bancorp: Senior unsecured notes (fixed rate 4.125 %) maturing August 2024 $ 175,000 $ 175,000 Unamortized debt issuance costs related to senior unsecured notes ( 91 ) ( 247 ) Subordinated debentures (fixed rate 5.875 %) maturing September 2026 150,000 150,000 Junior subordinated debentures (rates of 6.95 % to 9.22 %) maturing July 2031 to September 2037 136,643 136,643 Other basis adjustments 18,207 23,363 Old National Bank: Finance lease liabilities 20,955 13,469 Subordinated debentures (3-month SOFR plus 4.618 %; variable rate 10.01 %) maturing October 2025 12,000 12,000 Leveraged loans for NMTC (fixed rates of 1.00 % to 1.43 %) maturing December 2046 to June 2060 154,284 143,187 Other (1) 97,872 89,588 Total other borrowings $ 764,870 $ 743,003 (1) Includes overnight borrowings to collateralize certain derivative positions totaling $ 97.6 million at December 31, 2023 and $ 88.0 million at December 31, 2022. Contractual maturities of other borrowings at December 31, 2023 were as follows: (dollars in thousands) Due in 2024 $ 275,263 Due in 2025 14,740 Due in 2026 151,576 Due in 2027 1,636 Due in 2028 1,594 Thereafter 301,683 Unamortized debt issuance costs and other basis adjustments 18,378 Total $ 764,870 Junior Subordinated Debentures Junior subordinated debentures related to trust preferred securities are classified in “other borrowings.” Junior subordinated debentures qualify as Tier 2 capital for regulatory purposes, subject to certain limitations. Through various mergers and acquisitions, Old National assumed junior subordinated debenture obligations related to various trusts that issued trust preferred securities. Old National guarantees the payment of distributions on the 109 trust preferred securities issued by the trusts. Proceeds from the issuance of each of these securities were used to purchase junior subordinated debentures with the same financial terms as the securities issued by the trusts. Old National, at any time, may redeem the junior subordinated debentures at par and, thereby cause a redemption of the trust preferred securities in whole or in part. The following table summarizes the terms of our outstanding junior subordinated debentures as of December 31, 2023: (dollars in thousands) Name of Trust Issuance Date Issuance Amount Rate Rate at December 31, 2023 Maturity Date Bridgeview Statutory Trust I July 2001 $ 15,464 3-month SOFR plus 3.58 % 9.22 % July 31, 2031 Bridgeview Capital Trust II December 2002 15,464 3-month SOFR plus 3.35 % 9.01 % January 7, 2033 First Midwest Capital Trust I November 2003 37,825 6.95 % fixed 6.95 % December 1, 2033 St. Joseph Capital Trust II March 2005 5,155 3-month SOFR plus 1.75 % 7.39 % March 17, 2035 Northern States Statutory Trust I September 2005 10,310 3-month SOFR plus 1.80 % 7.45 % September 15, 2035 Anchor Capital Trust III August 2005 5,000 3-month SOFR plus 1.55 % 7.14 % September 30, 2035 Great Lakes Statutory Trust II December 2005 6,186 3-month SOFR plus 1.40 % 7.05 % December 15, 2035 Home Federal Statutory Trust I September 2006 15,464 3-month SOFR plus 1.65 % 7.30 % September 15, 2036 Monroe Bancorp Capital Trust I July 2006 3,093 3-month SOFR plus 1.60 % 7.26 % October 7, 2036 Tower Capital Trust 3 December 2006 9,279 3-month SOFR plus 1.69 % 7.33 % March 1, 2037 Monroe Bancorp Statutory Trust II March 2007 5,155 3-month SOFR plus 1.60 % 7.25 % June 15, 2037 Great Lakes Statutory Trust III June 2007 8,248 3-month SOFR plus 1.70 % 7.35 % September 15, 2037 Total $ 136,643 Leveraged Loans The leveraged loans are directly related to the NMTC structure. As part of the transaction structure, Old National has the right to sell its interest in the entity that received the leveraged loans at an agreed upon price to the leveraged lender at the end of the NMTC seven-year compliance period. See Note 9 to the consolidated financial statements for additional information on the Company’s NMTC investments. Finance Lease Liabilities Old National has long-term finance lease liabilities for certain banking centers and equipment totaling $ 21.0 million at December 31, 2023. See Note 6 to the consolidated financial statements for a maturity analysis of the Company’s finance lease liabilities. 110 NOTE 14 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following table summarizes the changes within each classification of AOCI, net of tax: (dollars in thousands) Unrealized Gains and Losses on Available- for-Sale Debt Securities Unrealized Gains and Losses on Held-to- Maturity Securities Gains and Losses on Hedges Defined Benefit Pension Plans Total Year Ended December 31, 2023 Balance at beginning of period $ ( 642,346 ) $ ( 112,664 ) $ ( 31,549 ) $ 137 $ ( 786,422 ) Other comprehensive income (loss) before reclassifications ( 14,817 ) 1,325 51,871 — 38,379 Amounts reclassified from AOCI to income (1) 4,645 15,867 ( 11,141 ) ( 137 ) 9,234 Balance at end of period $ ( 652,518 ) $ ( 95,472 ) $ 9,181 $ — $ ( 738,809 ) Year Ended December 31, 2022 Balance at beginning of period $ ( 2,950 ) $ — $ 543 $ 32 $ ( 2,375 ) Other comprehensive income (loss) before reclassifications ( 639,463 ) ( 125,229 ) ( 34,043 ) — ( 798,735 ) Amounts reclassified from AOCI to income (1) 67 12,565 1,951 105 14,688 Balance at end of period $ ( 642,346 ) $ ( 112,664 ) $ ( 31,549 ) $ 137 $ ( 786,422 ) Year Ended December 31, 2021 Balance at beginning of period $ 145,335 $ — $ 2,584 $ ( 148 ) $ 147,771 Other comprehensive income (loss) before reclassifications ( 144,948 ) — 1,433 — ( 143,515 ) Amounts reclassified from AOCI to income (1) ( 3,337 ) — ( 3,474 ) 180 ( 6,631 ) Balance at end of period $ ( 2,950 ) $ — $ 543 $ 32 $ ( 2,375 ) (1) See table below for details about reclassifications to income. The following table summarizes the significant amounts reclassified out of each component of AOCI: Years Ended December 31, (dollars in thousands) 2023 2022 2021 Details about AOCI Components Amount Reclassified from AOCI Affected Line Item in the Statement of Income Unrealized gains and losses on available-for-sale debt securities $ ( 6,265 ) $ ( 88 ) $ 4,327 Debt securities gains (losses), net 1,620 21 ( 990 ) Income tax (expense) benefit $ ( 4,645 ) $ ( 67 ) $ 3,337 Net income Amortization of unrealized losses on held-to-maturity securities transferred from available-for-sale $ ( 21,239 ) $ ( 16,612 ) $ — Interest income (expense) 5,372 4,047 — Income tax (expense) benefit $ ( 15,867 ) $ ( 12,565 ) $ — Net income Gains and losses on hedges Interest rate contracts $ 15,067 $ ( 2,587 ) $ 4,605 Interest income (expense) ( 3,926 ) 636 ( 1,131 ) Income tax (expense) benefit $ 11,141 $ ( 1,951 ) $ 3,474 Net income Amortization of defined benefit pension items Actuarial gains (losses) $ 182 $ ( 139 ) $ ( 239 ) Salaries and employee benefits ( 45 ) 34 59 Income tax (expense) benefit $ 137 $ ( 105 ) $ ( 180 ) Net income Total reclassifications for the period $ ( 9,234 ) $ ( 14,688 ) $ 6,631 Net income 111 NOTE 15 – INCOME TAXES Following is a summary of the major items comprising the differences in taxes from continuing operations computed at the federal statutory rate and as recorded in the consolidated statement of income: Years Ended December 31, (dollars in thousands) 2023 2022 2021 Provision at statutory rate of 21% $ 157,774 $ 114,394 $ 71,161 Tax-exempt income: Tax-exempt interest ( 18,582 ) ( 14,588 ) ( 11,066 ) Section 291/265 interest disallowance 2,392 363 114 Company-owned life insurance income ( 3,125 ) ( 2,891 ) ( 2,138 ) Tax-exempt income ( 19,315 ) ( 17,116 ) ( 13,090 ) State income taxes 31,164 20,837 9,308 Tax credit investments - federal ( 12,190 ) ( 9,140 ) ( 5,212 ) Officer compensation limitation 4,685 5,903 564 Non-deductible FDIC premiums 7,912 3,805 438 Other, net ( 720 ) ( 2,237 ) ( 1,845 ) Income tax expense $ 169,310 $ 116,446 $ 61,324 Effective tax rate 22.5 % 21.4 % 18.1 % The provision for income taxes consisted of the following components: Years Ended December 31, (dollars in thousands) 2023 2022 2021 Current expense: Federal $ 121,428 $ 106,918 $ 31,943 State 37,331 32,898 8,461 Deferred expense: Federal 7,941 ( 16,216 ) 17,514 State 2,610 ( 7,154 ) 3,406 Deferred income tax expense 10,551 ( 23,370 ) 20,920 Income tax expense $ 169,310 $ 116,446 $ 61,324 112 Net Deferred Tax Assets Net deferred tax assets are included in other assets on the balance sheet. Significant components of net deferred tax assets (liabilities) were as follows: December 31, (dollars in thousands) 2023 2022 Deferred Tax Assets Unrealized losses on available-for-sale investment securities $ 217,018 $ 202,101 Allowance for credit losses on loans, net of recapture 86,224 85,619 Operating lease liabilities 57,996 58,288 Unrealized losses on held-to-maturity investment securities 32,150 36,197 Acquired loans 32,011 40,723 Benefit plan accruals 31,679 38,038 Purchase accounting 22,473 20,063 Net operating loss carryforwards 21,004 25,135 FDIC deductible premiums 4,891 — Unrealized losses on hedges — 10,277 Other, net 4,860 4,962 Total deferred tax assets 510,306 521,403 Deferred Tax Liabilities Operating lease right-of-use assets ( 52,710 ) ( 51,845 ) Premises and equipment ( 12,141 ) ( 14,844 ) Loan servicing rights ( 9,188 ) ( 9,636 ) Prepaid expenses ( 3,856 ) ( 2,774 ) Unrealized gains on hedges ( 3,202 ) — Deferred loan origination fees ( 2,361 ) ( 3,566 ) Other, net ( 3,588 ) ( 2,983 ) Total deferred tax liabilities ( 87,046 ) ( 85,648 ) Net deferred tax assets $ 423,260 $ 435,755 The Company’s retained earnings at December 31, 2023 included an appropriation for acquired thrifts’ tax bad debt allowances totaling $ 58.6 million for which no provision for federal or state income taxes has been made. If in the future, this portion of retained earnings were distributed as a result of the liquidation of the Company or its subsidiaries, federal and state income taxes would be imposed at the then applicable rates. No valuation allowance was required on the Company’s deferred tax assets at December 31, 2023 or 2022. Old National has federal net operating loss carryforwards totaling $ 63.6 million at December 31, 2023 and $ 81.5 million at December 31, 2022. This federal net operating loss was acquired from the acquisition of Anchor BanCorp Wisconsin Inc. in 2016 and First Midwest in 2022. If not used, the federal net operating loss carryforwards will begin expiring in 2030 and later. Old National has recorded state net operating loss carryforwards totaling $ 116.9 million at December 31, 2023 and $ 124.4 million at December 31, 2022. If not used, the state net operating loss carryforwards will expire from 2027 to 2036. The federal and recorded state net operating loss carryforwards are subject to an annual limitation under Internal Revenue Code section 382. Old National believes that all of the federal and recorded state net operating loss carryforwards will be used prior to expiration. 113 Unrecognized Tax Benefits Old National has unrecognized tax benefits due to the merger with First Midwest. The following table presents the changes in the carrying amount of unrecognized tax benefits: Years Ended December 31, (dollars in thousands) 2023 2022 2021 Balance at beginning of period $ 11,007 $ — $ — Additions for acquired uncertain tax positions — 14,897 — Additions based on tax positions related to prior years 60 — — Reductions for tax positions relating to prior years — ( 2,751 ) — Reductions due to statute of limitations expiring ( 1,112 ) ( 1,139 ) — Balance at end of period $ 9,955 $ 11,007 $ — If recognized, approximately $ 8.0 million of unrecognized tax benefits, net of interest, would favorably affect the effective income tax rate in future periods. Old National expects the $ 8.0 million of unrecognized tax benefits to be reduced to $ 5.6 million in the next twelve months. It is our policy to recognize interest and penalties accrued relative to unrecognized tax benefits in their respective federal or state income tax accounts. Interest and penalties recorded and accrued in 2023 and 2022 were immaterial. Old National and its subsidiaries file a consolidated U.S. federal income tax return, as well as filing various state returns. The 2020 through 2023 tax years are open and subject to examination. NOTE 16 – SHARE-BASED COMPENSATION AND OTHER EMPLOYEE BENEFIT PLANS Our Amended and Restated 2008 Incentive Compensation Plan (the “ICP”), which was approved by shareholders, permits the grant of share-based awards to our employees. At December 31, 2023, 7.6 million shares were available for issuance. The granting of awards to key employees is typically in the form of restricted stock awards or units. We believe that such awards better align the interests of our employees with those of our shareholders. Total compensation cost included in salaries and employee benefits for the ICP was $ 27.9 million in 2023, $ 28.7 million in 2022, and $ 7.5 million in 2021. The total income tax benefit was $ 6.9 million in 2023, $ 7.1 million in 2022, and $ 1.8 million in 2021. Restricted Stock Awards Restricted stock awards require certain service requirements and shares generally vest, depending on the award terms, annually over a three-year period, cliff vest in three years from the grant date, or vest 50 % on the second anniversary of the grant date and 50 % on the third anniversary of the grant date. Compensation expense is recognized on a straight-line basis over the vesting period. Shares are subject to certain restrictions and risk of forfeiture by the participants. A summary of changes in our unvested shares follows: Years Ended December 31, 2023 2022 (shares in thousands) Shares Weighted Average Grant-Date Fair Value Shares Weighted Average Grant-Date Fair Value Unvested balance at beginning of period 1,869 $ 17.76 554 $ 16.16 Granted during the year 1,042 15.43 1,916 18.12 Vested during the year ( 924 ) 17.80 ( 453 ) 17.29 Forfeited during the year ( 55 ) 16.84 ( 148 ) 17.88 Unvested balance at end of period 1,932 $ 16.51 1,869 $ 17.76 As of December 31, 2023, there was $ 18.1 million of total unrecognized compensation cost related to unvested restricted stock awards. The cost is expected to be recognized over a weighted-average period of 1.9 years. The total fair value of the shares vested was $ 15.1 million in 2023, $ 7.9 million in 2022, and $ 4.3 million in 2021. 114 Performance-Based Restricted Stock Units Restricted stock units require certain performance goals to be achieved and shares vest at the end of a 36 month period based on the achievement of certain targets. Compensation expense is recognized on a straight-line basis over the performance period of the award. For certain awards, the level of performance could increase or decrease the number of shares earned. Shares are subject to certain restrictions and risk of forfeiture by the participants. A summary of changes in our unvested shares follows: Years Ended December 31, 2023 2022 (shares in thousands) Shares Weighted Average Grant-Date Fair Value Shares Weighted Average Grant-Date Fair Value Unvested balance at beginning of period 2,081 $ 17.23 886 $ 14.80 Granted during the year 355 18.01 1,935 17.66 Vested during the year ( 1,286 ) 16.29 ( 720 ) 15.41 Forfeited during the year ( 8 ) 17.82 ( 73 ) 16.73 Dividend equivalents adjustment 35 17.21 53 16.82 Unvested balance at end of period 1,177 $ 17.50 2,081 $ 17.23 As of December 31, 2023, there was $ 6.2 million of total unrecognized compensation cost related to unvested restricted stock units. The cost is expected to be recognized over a weighted-average period of 1.7 years. Stock Options and Appreciation Rights Old National has not granted stock options since 2009. However, Old National did acquire stock options and stock appreciation rights through its prior acquisitions. Old National recorded no incremental expense associated with the conversion of these options and stock appreciation rights. As of December 31, 2023, all options were fully vested, and all compensation costs had been expensed. At December 31, 2023, no stock appreciation rights were outstanding as the remaining awards were exercised during 2023. Information related to stock option and appreciation rights follows: Year Ended December 31, (dollars in thousands) 2023 2022 2021 Intrinsic value of options/appreciation rights exercised $ 70 $ 331 $ 171 Tax benefit realized from options/appreciation rights exercises 28 132 68 Non-employee Director Stock Compensation Compensation paid to Old National’s non-employee directors includes a stock component. Compensation shares are earned annually. Any shares awarded to directors are anticipated to be issued from the ICP. In 2023, 41 thousand shares were issued to directors, compared to 19 thousand shares in 2022, and 25 thousand shares in 2021. Employee Stock Ownership Plan The Employee Stock Ownership and Savings Plan (the “401(k) Plan”) allows employees to make pre-tax and Roth 401(k) contributions. Subject to the conditions and limitations of the 401(k) Plan, new employees are automatically enrolled in the 401(k) Plan with an automatic deferral of 5 % of eligible compensation, unless participation is changed or declined. All active participants receive a Company match of 100 % of the first 5 % contributed into the 401(k) Plan. In addition to matching contributions, Old National may make discretionary contributions to the 401(k) Plan in the form of Old National stock or cash. There were no designated discretionary profit sharing contributions in 2023, 2022, or 2021. All contributions vest immediately, and plan participants may elect to redirect funds among any of the investment options provided under the 401( k) Plan. The number of Old National shares in the 401(k) Plan were 1.1 million at December 31, 2023 and 1.2 million at December 31, 2022. All shares owned through the 401(k) 115 Plan are included in the calculation of weighted-average shares outstanding for purposes of calculating diluted and basic earnings per share. Contribution expense under the 401(k) Plan was $ 20.3 million in 2023, $ 17.9 million in 2022, and $ 9.8 million in 2021. NOTE 17 – SHAREHOLDERS’ EQUITY Stock Purchase and Dividend Reinvestment Plan Old National has a stock purchase and dividend reinvestment plan under which common shares issued may be either repurchased shares or authorized and previously unissued shares. A new plan became effective on August 12, 2021, with total authorized and unissued common shares reserved for issuance of 3.3 million. At December 31, 2023, 3.3 million authorized and unissued common shares were available for issuance under the plan. Employee Stock Purchase Plan Old National has an employee stock purchase plan under which eligible employees can purchase common shares at a discount to the market price. Currently, the discount under the plan is set at 5 % of the fair value of the common shares on the purchase date (i.e., at a purchase price of 95 %). No participant may purchase common shares with a fair value in excess of $ 25,000 in any calendar year. In 2023, 75,000 shares were issued related to this plan with proceeds of approximately $ 1.1 million. In 2022, 52,000 shares were issued related to this plan with proceeds of approximately $ 0.8 million. Share Repurchase Program In the first quarter of 2023, the Board of Directors approved a stock repurchase program that authorized the Company to repurchase up to $ 200 million of the Company’s outstanding shares of Common Stock, as conditions warrant, through February 29, 2024. During 2023, 1.8 million common shares were repurchased under the plan, which reduced equity by $ 29.5 million. On February 21, 2024, the Board of Directors approved a new stock repurchase program, under which the Company is authorized to repurchase up to $ 200 million of its outstanding common stock through February 28, 2025. This new stock repurchase program replaces the prior $ 200 million program, which was scheduled to expire February 29, 2024. Net Income per Common Share Basic and diluted net income per common share are calculated using the two-class method. Net income applicable to common shares is divided by the weighted-average number of common shares outstanding during the period. Adjustments to the weighted-average number of common shares outstanding are made only when such adjustments will dilute net income per common share. Net income applicable to common shares is then divided by the weighted-average number of common shares and common share equivalents during the period. The following table presents the calculation of basic and diluted net income per common share: (dollars and shares in thousands, except per share data) Years Ended December 31, 2023 2022 2021 Net income $ 581,992 $ 428,287 $ 277,538 Preferred dividends ( 16,135 ) ( 14,118 ) — Net income applicable to common shares $ 565,857 $ 414,169 $ 277,538 Weighted average common shares outstanding: Weighted average common shares outstanding (basic) 290,748 275,179 165,178 Effect of dilutive securities: Restricted stock 1,107 1,502 729 Stock appreciation rights — 7 22 Weighted average diluted shares outstanding 291,855 276,688 165,929 Basic Net Income Per Common Share $ 1.95 $ 1.51 $ 1.68 Diluted Net Income Per Common Share $ 1.94 $ 1.50 $ 1.67 116 NOTE 18 – FAIR VALUE Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values: • Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. • Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. • Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. Old National used the following methods and significant assumptions to estimate the fair value of each type of financial instrument: Investment securities and equity securities : The fair values for investment securities and equity securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Discounted cash flows are calculated using swap and SOFR curves plus spreads that adjust for loss severities, volatility, credit risk, and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations. Loans held-for-sale : The fair value of loans held-for-sale is determined using quoted prices for a similar asset, adjusted for specific attributes of that loan (Level 2). Derivative financial instruments : The fair values of derivative financial instruments are based on market quotes developed using observable inputs as of the valuation date (Level 2). 117 Recurring Basis Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which we have elected the fair value option, are summarized below: Fair Value Measurements at December 31, 2023 Using (dollars in thousands) Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial Assets Equity securities $ 80,372 $ 80,372 $ — $ — Investment securities available-for-sale: U.S. Treasury 396,733 396,733 — — U.S. government-sponsored entities and agencies 1,231,264 — 1,231,264 — Mortgage-backed securities - Agency 4,216,560 — 4,216,560 — States and political subdivisions 535,260 — 535,260 — Pooled trust preferred securities 11,337 — 11,337 — Other securities 321,901 — 321,901 — Loans held-for-sale 32,006 — 32,006 — Derivative assets 166,302 — 166,302 — Financial Liabilities Derivative liabilities 268,916 — 268,916 — Fair Value Measurements at December 31, 2022 Using (dollars in thousands) Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial Assets Equity securities $ 52,507 $ 52,507 $ — $ — Investment securities available-for-sale: U.S. Treasury 200,927 200,927 — — U.S. government-sponsored entities and agencies 1,175,080 — 1,175,080 — Mortgage-backed securities - Agency 4,369,902 — 4,369,902 — States and political subdivisions 663,852 — 663,852 — Pooled trust preferred securities 10,811 — 10,811 — Other securities 353,140 — 353,140 — Loans held-for-sale 11,926 — 11,926 — Derivative assets 169,001 — 169,001 — Financial Liabilities Derivative liabilities 380,704 — 380,704 — Non-Recurring Basis Assets measured at fair value on a non-recurring basis at December 31, 2023 are summarized below: Fair Value Measurements at December 31, 2023 Using (dollars in thousands) Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Collateral Dependent Loans: Commercial loans $ 11,017 $ — $ — $ 11,017 Commercial real estate loans 95,457 — — 95,457 Foreclosed Assets: Commercial real estate 1,669 — — 1,669 118 Commercial and commercial real estate loans that are deemed collateral dependent are valued using the discounted cash flows. The liquidation amounts are based on the fair value of the underlying collateral using the most recently available appraisals with certain adjustments made based on the type of property, age of appraisal, current status of the property, and other related factors to estimate the current value of the collateral. These commercial and commercial real estate loans had a principal amount of $ 134.3 million, with a valuation allowance of $ 27.9 million at December 31, 2023. Old National recorded provision expense associated with commercial and commercial real estate loans that were deemed collateral dependent totaling $ 20.5 million in 2023. Other real estate owned and other repossessed property is measured at fair value less costs to sell on a non-recurring basis. Old National did not have any other real estate owned or repossessed property measured at fair value on a non-recurring basis at December 31, 2023. There were write-downs of other real estate owned of $ 0.1 million in 2023. Assets measured at fair value on a non-recurring basis at December 31, 2022 are summarized below: Fair Value Measurements at December 31, 2022 Using (dollars in thousands) Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Collateral Dependent Loans: Commercial loans $ 22,562 $ — $ — $ 22,562 Commercial real estate loans 48,026 — — 48,026 At December 31, 2022, commercial and commercial real estate loans that were deemed collateral dependent had a principal amount of $ 92.0 million, with a valuation allowance of $ 21.5 million. Old National recorded provision expense associated with these loans totaling $ 20.3 million in 2022. Old National did not have any other real estate owned or repossessed property measured at fair value on a non-recurring basis at December 31, 2022. There were write-downs of other real estate owned of $ 0.6 million in 2022. The table below provides quantitative information about significant unobservable inputs used in fair value measurements within Level 3 of the fair value hierarchy: (dollars in thousands) Fair Value Valuation Techniques Unobservable Input Range (Weighted Average) (1) December 31, 2023 Collateral Dependent Loans Commercial loans $ 11,017 Discounted cash flow Discount for type of property, age of appraisal, and current status 5 % - 37 % ( 27 %) Commercial real estate loans 95,457 Discounted cash flow Discount for type of property, age of appraisal, and current status 2 % - 38 % ( 16 %) Foreclosed Assets Commercial real estate (1) 1,669 Fair value of collateral Discount for type of property, age of appraisal, and current status 4 % - 8 % ( 4 %) December 31, 2022 Collateral Dependent Loans Commercial loans $ 22,562 Discounted cash flow Discount for type of property, age of appraisal, and current status 10 % - 47 % ( 28 %) Commercial real estate loans 48,026 Discounted cash flow Discount for type of property, age of appraisal, and current status 1 % - 26 % ( 11 %) (1) Unobservable inputs were weighted by the relative fair value of the instruments. Fair Value Option Old National may elect to report most financial instruments and certain other items at fair value on an instrument-by-instrument basis with changes in fair value reported in net income. After the initial adoption, the election is made at the acquisition of an eligible financial asset, financial liability, or firm commitment or when certain specified reconsideration events occur. The fair value election may not be revoked once an election is made. 119 Loans Held-For-Sale Old National has elected the fair value option for loans held-for-sale. For these loans, interest income is recorded in the consolidated statements of income based on the contractual amount of interest income earned on the financial assets (except any that are on nonaccrual status). None of these loans are 90 days or more past due, nor are any on nonaccrual status. Included in the income statement is interest income for loans held-for-sale totaling $ 1.2 million in 2023, $ 1.8 million in 2022, and $ 1.5 million in 2021. Newly originated conforming fixed-rate and adjustable-rate first mortgage loans are intended for sale and are hedged with derivative instruments. Old National has elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplification. The fair value option was not elected for loans held for investment. The difference between the aggregate fair value and the aggregate remaining principal balance for loans for which the fair value option has been elected was as follows: (dollars in thousands) Aggregate Fair Value Difference Contractual Principal December 31, 2023 Loans held-for-sale $ 32,006 $ 621 $ 31,385 December 31, 2022 Loans held-for-sale $ 11,926 $ 221 $ 11,705 Accrued interest at period end is included in the fair value of the instruments. The following table presents the amount of gains and losses from fair value changes included in income before income taxes for financial assets carried at fair value: (dollars in thousands) Other Gains and (Losses) Interest Income Interest (Expense) Total Changes in Fair Values Included in Current Period Earnings Year Ended December 31, 2023 Loans held-for-sale $ 402 $ 12 $ ( 14 ) $ 400 Year Ended December 31, 2022 Loans held-for-sale $ ( 1,127 ) $ 10 $ ( 4 ) $ ( 1,121 ) 120 Financial Instruments Not Carried at Fair Value The carrying amounts and estimated fair values of financial instruments not carried at fair value were as follows: Fair Value Measurements at December 31, 2023 Using (dollars in thousands) Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial Assets Cash, due from banks, money market, and other interest-earning investments $ 1,175,058 $ 1,175,058 $ — $ — Investment securities held-to-maturity: U.S. government-sponsored entities and agencies 825,953 — 671,126 — Mortgage-backed securities - Agency 1,029,131 — 881,994 — State and political subdivisions 1,158,409 — 1,048,068 — Loans, net: Commercial 9,392,267 — — 9,258,193 Commercial real estate 13,984,273 — — 13,640,868 Residential real estate 6,678,606 — — 5,579,999 Consumer 2,629,171 — — 2,555,121 Accrued interest receivable 225,159 859 54,465 169,835 Financial Liabilities Deposits: Noninterest-bearing demand deposits $ 9,664,247 $ 9,664,247 $ — $ — Checking, NOW, savings, and money market interest-bearing deposits 21,991,789 21,991,789 — — Time deposits 5,579,144 — 5,552,538 — Federal funds purchased and interbank borrowings 390 390 — — Securities sold under agreements to repurchase 285,206 285,206 — — FHLB advances 4,280,681 — 4,090,954 — Other borrowings 764,870 — 755,592 — Accrued interest payable 57,094 — 57,094 — Standby letters of credit 1,318 — — 1,318 Off-Balance Sheet Financial Instruments Commitments to extend credit $ — $ — $ — $ 3,839 121 Fair Value Measurements at December 31, 2022 Using (dollars in thousands) Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial Assets Cash, due from banks, money market, and other interest-earning investments $ 728,412 $ 728,412 $ — $ — Investment securities held-to-maturity: U.S. government-sponsored entities and agencies 819,168 — 656,358 — Mortgage-backed securities - Agency 1,106,817 — 982,963 — State and political subdivisions 1,163,162 — 1,004,361 — Loans, net: Commercial 9,386,862 — — 9,066,583 Commercial real estate 12,317,825 — — 11,867,851 Residential real estate 6,438,525 — — 5,372,491 Consumer 2,676,758 — — 2,557,115 Accrued interest receivable 190,521 758 52,081 137,682 Financial Liabilities Deposits: Noninterest-bearing demand deposits $ 11,930,798 $ 11,930,798 $ — $ — Checking, NOW, savings, and money market interest-bearing deposits 20,056,252 20,056,252 — — Time deposits 3,013,780 — 2,976,389 — Federal funds purchased and interbank borrowings 581,489 581,489 — — Securities sold under agreements to repurchase 432,804 432,804 — — FHLB advances 3,829,018 — 3,739,780 — Other borrowings 743,003 — 703,156 — Accrued interest payable 19,547 — 19,547 — Standby letters of credit 755 — — 755 Off-Balance Sheet Financial Instruments Commitments to extend credit $ — $ — $ — $ 3,666 The methods utilized to measure the fair value of financial instruments at December 31, 2023 and 2022 represent an approximation of exit price, however, an actual exit price may differ. NOTE 19 – DERIVATIVE FINANCIAL INSTRUMENTS As part of our overall interest rate risk management, Old National uses derivative instruments, including interest rate swaps, collars, caps, and floors. The notional amount does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements. Derivative instruments are recognized on the balance sheet at their fair value and are not reported on a net basis. Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. Old National’s exposure is limited to the termination value of the contracts rather than the notional, principal, or contract amounts. There are provisions in our agreements with the counterparties that allow for certain unsecured credit exposure up to an agreed threshold. Exposures in excess of the agreed thresholds are collateralized. In addition, we minimize credit risk through credit approvals, limits, and monitoring procedures. Derivatives Designated as Hedges Subsequent changes in fair value for a hedging instrument that has been designated and qualifies as part of a hedging relationship are accounted for in the following manner: Cash flow hedges : changes in fair value are recognized as a component in other comprehensive income (loss). Fair value hedges : changes in fair value are recognized concurrently in earnings. As long as a hedging instrument is designated and the results of the effectiveness testing support that the instrument qualifies for hedge accounting treatment, 100 % of the periodic changes in fair value of the hedging instrument are 122 accounted for as outlined above. This is the case whether or not economic mismatches exist in the hedging relationship. As a result, there is no periodic measurement or recognition of ineffectiveness. Rather, the full impact of hedge gains and losses is recognized in the period in which the hedged transactions impact earnings. The change in fair value of the hedging instrument that is included in the assessment of hedge effectiveness is presented in the same income statement line item that is used to present the earnings effect of the hedged item. Cash Flow Hedges Interest rate swaps of certain borrowings were designated as cash flow hedges totaling $ 150.0 million notional amount at both December 31, 2023 and December 31, 2022. Interest rate collars and floors related to variable-rate commercial loan pools were designated as cash flow hedges totaling $ 1.6 billion notional amount at December 31, 2023 and $ 1.9 billion notional amount at December 31, 2022. The hedges were determined to be effective during all periods presented and we expect them to remain effective during the remaining terms. Old National has designated its interest rate collars as cash flow hedges. The structure of these instruments is such that Old National pays the counterparty an incremental amount if the collar index exceeds the cap rate. Conversely, Old National receives an incremental amount if the index falls below the floor rate. No payments are required if the collar index falls between the cap and floor rates. Old National has designated its interest rate floor transactions as cash flow hedges. The structure of these instruments is such that Old National receives an incremental amount if the index falls below the floor strike rate. No payments are required if the index remains above the floor strike rate. Fair Value Hedges Interest rate swaps of certain borrowings were designated as fair value hedges totaling $ 900.0 million notional amount at December 31, 2023 and $ 300.0 million notional amount at December 31, 2022. Interest rate swaps of certain available-for-sale investment securities were designated as fair value hedges totaling $ 998.1 million notional amount at December 31, 2023 and $ 910.0 million notional amount at December 31, 2022. The hedges were determined to be effective during all periods presented and we expect them to remain effective during the remaining terms. The following table summarizes Old National’s derivatives designated as hedges: December 31, 2023 December 31, 2022 Fair Value Fair Value (dollars in thousands) Notional Assets (1) Liabilities (2) Notional Assets (1) Liabilities (2) Cash flow hedges: Interest rate collars and floors on loan pools $ 1,600,000 $ 10,472 $ 6,014 $ 1,900,000 $ 11,764 $ 47,859 Interest rate swaps on borrowings (3) 150,000 — — 150,000 — — Fair value hedges: Interest rate swaps on investment securities (3) 998,107 — — 909,957 — — Interest rate swaps on borrowings (3) 900,000 — — 300,000 — — Total $ 10,472 $ 6,014 $ 11,764 $ 47,859 (1) Derivative assets are included in other assets on the balance sheet. (2) Derivative liabilities are included in other liabilities on the balance sheet. (3) The fair values of certain counterparty interest rate swaps are zero due to the settlement of centrally cleared variation margin rules. 123 The effect of derivative instruments in fair value hedging relationships on the consolidated statements of income were as follows: (dollars in thousands) Gain (Loss) Recognized in Income on Related Hedged Items Derivatives in Fair Value Hedging Relationships Location of Gain or (Loss) Recognized in Income on Derivative Gain (Loss) Recognized in Income on Derivative Hedged Items in Fair Value Hedging Relationships Location of Gain or (Loss) Recognized in in Income on Related Hedged Item Year Ended December 31, 2023 Interest rate contracts Interest income/(expense) $ ( 1,769 ) Fixed-rate debt Interest income/(expense) $ 1,684 Interest rate contracts Interest income/(expense) ( 52,625 ) Fixed-rate investment securities Interest income/(expense) 52,148 Total $ ( 54,394 ) $ 53,832 Year Ended December 31, 2022 Interest rate contracts Interest income/(expense) $ ( 6,245 ) Fixed-rate debt Interest income/(expense) $ 6,585 Interest rate contracts Interest income/(expense) 157,741 Fixed-rate investment securities Interest income/(expense) ( 158,431 ) Total $ 151,496 $ ( 151,846 ) Year Ended December 31, 2021 Interest rate contracts Interest income/(expense) $ ( 6,413 ) Fixed-rate debt Interest income/(expense) $ 6,296 Interest rate contracts Interest income/(expense) ( 4,656 ) Fixed-rate investment securities Interest income/(expense) 4,954 Total $ ( 11,069 ) $ 11,250 The effect of derivative instruments in cash flow hedging relationships on the consolidated statements of income were as follows: Years Ended December 31, Years Ended December 31, 2023 2022 2021 2023 2022 2021 Derivatives in Cash Flow Hedging Relationships Location of Gain or (Loss) Reclassified from AOCI into Income Gain (Loss) Recognized in Other Comprehensive Income on Derivative Gain (Loss) Reclassified from AOCI into Income Interest rate contracts Interest income/(expense) $ 28,029 $ ( 45,132 ) $ 1,898 $ 11,621 $ ( 2,587 ) $ 4,605 Amounts reported in AOCI related to cash flow hedges will be reclassified to interest income or interest expense as interest payments are received or paid on Old National’s derivative instruments. During the next 12 months, we estimate that $ 6.1 million will be reclassified to interest income and $ 20.6 million will be reclassified to interest expense. Derivatives Not Designated as Hedges Commitments to fund certain mortgage loans (interest rate lock commitments) and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. These derivative contracts do not qualify for hedge accounting. At December 31, 2023, the notional amounts of the interest rate lock commitments were $ 25.2 million and forward commitments were $ 39.5 million. At December 31, 2022, the notional amounts of the interest rate lock commitments were $ 21.4 million and forward commitments were $ 30.3 million. It is our practice to enter into forward commitments for the future delivery of residential mortgage loans to third party investors when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from our commitment to fund the loans. Old National also enters into derivative instruments for the benefit of its clients. The notional amounts of these customer derivative instruments and the offsetting counterparty derivative instruments were $ 6.0 billion at December 31, 2023 and $ 5.2 billion at December 31, 2022. These derivative contracts do not qualify for hedge accounting. These instruments include interest rate swaps, caps, and collars. Commonly, Old National will 124 economically hedge significant exposures related to these derivative contracts entered into for the benefit of clients by entering into offsetting contracts with approved, reputable, independent counterparties with substantially matching terms. Old National enters into derivative financial instruments as part of its foreign currency risk management strategies. These derivative instruments consist of foreign currency forward contracts to accommodate the business needs of its clients. Old National does not designate these foreign currency forward contracts for hedge accounting treatment. The following table summarizes Old National’s derivatives not designated as hedges: December 31, 2023 December 31, 2022 Fair Value Fair Value (dollars in thousands) Notional Assets (1) Liabilities (2) Notional Assets (1) Liabilities (2) Interest rate lock commitments $ 25,151 $ 291 $ — $ 21,401 $ 93 $ — Forward mortgage loan contracts 39,529 — 566 30,330 32 — Customer interest rate swaps 5,954,216 33,182 228,750 5,220,363 5,676 326,924 Counterparty interest rate swaps (3) 5,954,216 121,969 33,346 5,220,363 151,111 5,711 Customer foreign currency forward contracts 12,455 320 59 8,341 253 42 Counterparty foreign currency forward contracts 12,308 68 181 8,297 72 168 Total $ 155,830 $ 262,902 $ 157,237 $ 332,845 (1) Derivative assets are included in other assets on the balance sheet. (2) Derivative liabilities are included in other liabilities on the balance sheet. (3) The fair values of certain counterparty interest rate swaps are zero due to the settlement of centrally-cleared variation margin rules. The effect of derivatives not designated as hedging instruments on the consolidated statements of income were as follows: Years Ended December 31, (dollars in thousands) 2023 2022 2021 Derivatives Not Designated as Hedging Instruments Location of Gain or (Loss) Recognized in Income on Derivative Gain (Loss) Recognized in Income on Derivative Interest rate contracts (1) Other income/(expense) $ 457 $ 883 $ 279 Mortgage contracts Mortgage banking revenue ( 401 ) ( 2,468 ) ( 4,446 ) Foreign currency contracts Other income/(expense) ( 45 ) 98 ( 104 ) Total $ 11 $ ( 1,487 ) $ ( 4,271 ) (1) Includes the valuation differences between the customer and offsetting swaps. Fair Value of Offsetting Derivatives Certain derivative instruments are subject to master netting agreements with counterparties that provide rights of setoff. The Company records these transactions at their gross fair values and does not offset derivative assets and liabilities in the Consolidated Balance Sheet. The following table presents the fair value of the Company’s derivatives and offsetting positions: December 31, 2023 2022 (dollars in thousands) Assets Liabilities Assets Liabilities Gross amounts recognized $ 166,302 $ 268,916 $ 169,001 $ 380,704 Less: amounts offset in the Consolidated Balance Sheet — — — — Net amount presented in the Consolidated Balance Sheet 166,302 268,916 169,001 380,704 Gross amounts not offset in the Consolidated Balance Sheet Offsetting derivative positions ( 39,360 ) ( 39,360 ) ( 54,054 ) ( 54,054 ) Cash collateral pledged — ( 97,840 ) ( 418 ) ( 88,860 ) Net credit exposure $ 126,942 $ 131,716 $ 114,529 $ 237,790 125 NOTE 20 – COMMITMENTS, CONTINGENCIES, AND FINANCIAL GUARANTEES Litigation At December 31, 2023, there were certain legal proceedings pending against the Company and its subsidiaries in the ordinary course of business. While the outcome of any legal proceeding is inherently uncertain, based on information currently available, the Company’s management does not expect that any potential liabilities arising from pending legal matters will have a material adverse effect on the Company’s business, financial position, or results of operations. Credit-Related Financial Instruments Old National holds instruments, in the normal course of business with clients, that are considered financial guarantees and are recorded at fair value. Standby letters of credit guarantees are issued in connection with agreements made by clients to counterparties. Standby letters of credit are contingent upon failure of the client to perform the terms of the underlying contract. Credit risk associated with standby letters of credit is essentially the same as that associated with extending loans to clients and is subject to normal credit policies. The term of these standby letters of credit is typically one year or less. These commitments are not recorded in the consolidated financial statements. The following table summarizes Old National Bank’s unfunded loan commitments and standby letters of credit: December 31, (dollars in thousands) 2023 2022 Unfunded loan commitments $ 8,912,587 $ 8,979,334 Standby letters of credit (1) 192,237 174,070 (1) Notional amount, which represents the maximum amount of future funding requirements. The carrying value was $ 1.3 million at December 31, 2023 and $ 0.8 million at December 31, 2022. At December 31, 2023, approximately 4 % of the unfunded loan commitments had fixed rates, with the remainder having floating rates ranging from 2.10 % to 22.49 %. The allowance for unfunded loan commitments totaled $ 31.2 million at December 31, 2023 and $ 32.2 million at December 31, 2022. Old National is a party in risk participation transactions of interest rate swaps, which had total notional amounts of $ 557.8 million at December 31, 2023 and $ 398.9 million at December 31, 2022. Visa Class B Restricted Shares In 2008, Old National received Visa Class B restricted shares as part of Visa’s initial public offering. During the fourth quarter of 2023, Old National sold the 65,466 Class B shares and recognized a $ 21.6 million pre-tax gain. Prior to the sale, the shares were carried at a zero cost basis due to uncertainty surrounding the ability of the Company to transfer or otherwise liquidate the shares. At December 31, 2023, the Company does not hold any remaining Visa Class B restricted shares. NOTE 21 – REGULATORY RESTRICTIONS Restrictions on Cash and Due from Banks Old National had cash and due from banks which was held as collateral for collateralized swap positions totaling $ 0.3 million at December 31, 2023 and $ 0.1 million at December 31, 2022. Restrictions on Transfers from Bank Subsidiary Regulations limit the amount of dividends a bank subsidiary can declare in any calendar year without obtaining prior regulatory approval. Prior regulatory approval is required if dividends to be declared in any calendar year would exceed the total of net income of the current year combined with retained net income for the preceding two years . Prior regulatory approval to pay dividends was not required in 2021, 2022, or 2023 and is not currently required. A bank subsidiary is prohibited from paying a dividend, if, after making the dividend, the bank would be considered “undercapitalized” (as defined by reference to the OCC’s capital regulations). At December 31, 2023, Old National 126 Bank could pay dividends of $ 670.4 million without prior regulatory approval and while maintaining capital levels above regulatory minima and well-capitalized guidelines. Restrictions on the Payment of Dividends Old National has traditionally paid a quarterly dividend to common shareholders. The payment of dividends is subject to legal and regulatory restrictions, as well as approval by our Board of Directors. Any payment of dividends in the future will depend, in large part, on Old National’s earnings, capital requirements, financial condition, and other factors considered relevant by our Board of Directors. Capital Adequacy Old National and Old National Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can elicit certain mandatory actions by regulators that, if undertaken, could have a direct material effect on Old National’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Old National and Old National Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies. Quantitative measures established by regulation to ensure capital adequacy require Old National and Old National Bank to maintain minimum amounts and ratios as set forth in the following tables. At December 31, 2023, Old National and Old National Bank each exceeded the capital ratios required to be considered “well-capitalized” under applicable regulations. 127 The following table summarizes capital ratios for Old National and Old National Bank: Actual Regulatory Minimum (1) Prompt Corrective Action “Well Capitalized” Guidelines (2) (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio December 31, 2023 Total capital to risk-weighted assets Old National Bancorp $ 4,727,216 12.64 % $ 3,927,771 10.50 % $ 3,740,735 10.00 % Old National Bank 4,591,734 12.33 3,911,089 10.50 3,724,847 10.00 Common equity Tier 1 capital to risk-weighted assets Old National Bancorp 4,003,694 10.70 2,618,514 7.00 N/A N/A Old National Bank 4,308,574 11.57 2,607,393 7.00 2,421,150 6.50 Tier 1 capital to risk-weighted assets Old National Bancorp 4,247,413 11.35 3,179,625 8.50 2,244,441 6.00 Old National Bank 4,308,574 11.57 3,166,120 8.50 2,979,878 8.00 Tier 1 capital to average assets Old National Bancorp 4,247,413 8.83 1,923,360 4.00 N/A N/A Old National Bank 4,308,574 8.99 1,916,002 4.00 2,395,003 5.00 December 31, 2022 Total capital to risk-weighted assets Old National Bancorp $ 4,321,716 12.02 % $ 3,774,845 10.50 % $ 3,595,090 10.00 % Old National Bank 4,063,363 11.35 3,759,671 10.50 3,580,639 10.00 Common equity Tier 1 capital to risk-weighted assets Old National Bancorp 3,605,393 10.03 2,516,563 7.00 N/A N/A Old National Bank 3,817,402 10.66 2,506,448 7.00 2,327,416 6.50 Tier 1 capital to risk-weighted assets Old National Bancorp 3,849,112 10.71 3,055,827 8.50 2,157,054 6.00 Old National Bank 3,817,402 10.66 3,043,544 8.50 2,864,512 8.00 Tier 1 capital to average assets Old National Bancorp 3,849,112 8.52 1,808,108 4.00 N/A N/A Old National Bank 3,817,402 8.47 1,803,426 4.00 2,254,282 5.00 (1) “Regulatory Minimum” capital ratios include the 2.5% “capital conservation buffer” required under the Basel III Capital Rules. (2) “Well-capitalized” minimum common equity Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets ratios are not formally defined under applicable banking regulations for bank holding companies. During 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC issued final rules to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The final rules provide banking organizations the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). Old National adopted the capital transition relief over the permissible five-year period. 128 NOTE 22 – PARENT COMPANY FINANCIAL STATEMENTS The following are the condensed parent company only financial statements of Old National: OLD NATIONAL BANCORP (PARENT COMPANY ONLY) CONDENSED BALANCE SHEETS December 31, (dollars in thousands) 2023 2022 Assets Deposits in affiliate bank $ 284,294 $ 418,959 Equity securities 51,241 30,717 Investment securities - available-for-sale 15,886 16,814 Investment in affiliates: Banking subsidiaries 5,530,637 5,000,153 Non-banks 44,395 44,938 Goodwill 59,506 59,506 Other assets 127,540 135,025 Total assets $ 6,113,499 $ 5,706,112 Liabilities and Shareholders’ Equity Other liabilities $ 70,840 $ 92,758 Other borrowings 479,759 484,759 Shareholders’ equity 5,562,900 5,128,595 Total liabilities and shareholders’ equity $ 6,113,499 $ 5,706,112 OLD NATIONAL BANCORP (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF INCOME Years Ended December 31, (dollars in thousands) 2023 2022 2021 Income Dividends from affiliates $ 150,000 $ — $ 125,000 Other income 2,919 1,733 3,364 Other income from affiliates 5 5 5 Total income 152,924 1,738 128,369 Expense Interest on borrowings 20,700 16,662 8,285 Other expenses 43,185 37,629 13,951 Total expense 63,885 54,291 22,236 Income (loss) before income taxes and equity in undistributed earnings of affiliates 89,039 ( 52,553 ) 106,133 Income tax expense (benefit) ( 11,325 ) ( 9,901 ) ( 5,113 ) Income (loss) before equity in undistributed earnings of affiliates 100,364 ( 42,652 ) 111,246 Equity in undistributed earnings of affiliates 481,628 470,939 166,292 Net income 581,992 428,287 277,538 Preferred dividends ( 16,135 ) ( 14,118 ) — Net income applicable to common shareholders $ 565,857 $ 414,169 $ 277,538 129 OLD NATIONAL BANCORP (PARENT COMPANY ONLY) CONDENSED STATEMENT OF CASH FLOWS Years Ended December 31, (dollars in thousands) 2023 2022 2021 Cash Flows From Operating Activities Net income $ 581,992 $ 428,287 $ 277,538 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 18 26 30 Share-based compensation expense 27,910 28,656 7,497 (Increase) decrease in other assets ( 19,353 ) ( 40,620 ) 10,213 Increase (decrease) in other liabilities ( 2,561 ) 10,455 ( 4,918 ) Equity in undistributed earnings of affiliates ( 481,628 ) ( 470,939 ) ( 166,292 ) Net cash flows provided by (used in) operating activities 106,378 ( 44,135 ) 124,068 Cash Flows From Investing Activities Net cash and cash equivalents of acquisitions — 573,099 — Proceeds from sales of investment securities — — 1,000 Proceeds from sales of equity securities — 44,038 540 Purchase of equity securities ( 17,773 ) — — Purchases of investment securities — ( 9,000 ) ( 15 ) Purchases of premises and equipment ( 8 ) — ( 3 ) Net cash flows provided by (used in) investing activities ( 17,781 ) 608,137 1,522 Cash Flows From Financing Activities Cash dividends paid ( 180,030 ) ( 177,623 ) ( 92,829 ) Common stock repurchased ( 44,308 ) ( 71,182 ) ( 3,731 ) Common stock issued 1,076 809 583 Net cash flows provided by (used in) financing activities ( 223,262 ) ( 247,996 ) ( 95,977 ) Net increase (decrease) in cash and cash equivalents ( 134,665 ) 316,006 29,613 Cash and cash equivalents at beginning of period 418,959 102,953 73,340 Cash and cash equivalents at end of period $ 284,294 $ 418,959 $ 102,953 NOTE 23 – SEGMENT INFORMATION Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The chief operating decision maker managed operations and evaluated financial performance on a Company-wide basis. As a result, the Company has determined that it has only one reportable segment. 130 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.