0000707179us-gaap:~~FairValueInputsLevel3Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:ResidentialPortfolioSegmentMember2021-12-31~~CommercialPortfolioSegmentMemberus-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2021-12-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number 001-15817

Old National Bancorp

(Exact name of registrant as specified in its charter)


Indiana		35-1539838
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Main Street		47708
Evansville,	Indiana	(Zip Code)
(Address of principal executive offices)

(800) 731-2265

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common stock, no par value

ONB

The

NASDAQ

Stock Market LLC

Depositary Shares, each representing a 1/40th interest in a share of Non-Cumulative Perpetual Preferred Stock, Series A

ONBPP

The

NASDAQ

Stock Market LLC

Depositary Shares, each representing a 1/40th interest in a share of Non-Cumulative Perpetual Preferred Stock, Series C

ONBPO

The

NASDAQ

Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The registrant has one class of common stock (no par value) with ~~292,893,000~~292,890,000 shares outstanding at ~~June 30,~~October 31, 2022.

OLD NATIONAL BANCORP

FORM 10-Q

TABLE OF CONTENTS


			Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets (unaudited)		4
	Consolidated Statements of Income (unaudited)		5
	Consolidated Statements of Comprehensive Income (Loss) (unaudited)		6
	Consolidated Statements of Changes in Shareholders’ Equity (unaudited)		7
	Consolidated Statements of Cash Flows (unaudited)		89
	Notes to Consolidated Financial Statements (unaudited)		1011
	Note 1.	Basis of Presentation	1011
	Note 2.	Recent Accounting Pronouncements	1011
	Note 3.	Acquisition and Divestiture Activity	1113
	Note 4.	Net Income Per Common Share	1415
	Note 5.	Investment Securities	1516
	Note 6.	Loans and Allowance for Credit Losses	1819
	Note 7.	Premises and Equipment	3132
	Note 8.	Leases	3233
	Note 9.	Goodwill and Other Intangible Assets	3435
	Note 10.	Loan Servicing Rights	3536
	Note 11.	Qualified Affordable Housing Projects and Other Tax Credit Investments	3536
	Note 12.	Securities Sold Under Agreements to Repurchase	3738
	Note 13.	Federal Home Loan Bank Advances	3738
	Note 14.	Other Borrowings	3839
	Note 15.	Accumulated Other Comprehensive Income (Loss)	4041
	Note 16.	Share-Based Compensation	4243
	Note 17.	Income Taxes	4344
	Note 18.	Derivative Financial Instruments	4445
	Note 19.	Commitments , Contingencies , and ~~Contingencies~~	47
	~~Note 20.~~	Financial ~~Guarantees~~Guarant ees	48
	Note ~~21.~~20.	Fair Value	4950
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		5758
	Forward-Looking Statements		5758
	Financial Highlights		5859
	Non-GAAP Financial Measures		5960
	Executive Summary		6162
	Results of Operations		6263
	Financial Condition		6869
	Risk Management		7273
	Critical Accounting Estimates		8182
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		8183
Item 4.	Controls and Procedures		8283
PART II.	OTHER INFORMATION		8384
Item 1A.	Risk Factors		8384
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		8384
Item 5.	Other Information		8384
Item 6.	Exhibits		8485
SIGNATURE			8586

GLOSSARY OF ABBREVIATIONS AND ACRONYMS

As used in this report, references to “Old National,” “we,” “our,” “us,” and similar terms refer to the consolidated entity consisting of Old National Bancorp and its wholly-owned affiliates. Old National Bancorp refers solely to the parent holding company, and Old National Bank refers to Old National Bancorp’s bank subsidiary.

The acronyms and abbreviations identified below are used in the Notes to Consolidated Financial Statements (Unaudited) as well as in the Management’s Discussion and Analysis of Financial Condition and Results of Operations. You may find it helpful to refer to this page as you read this report.

Anchor (MN): Anchor Bancorp, Inc.

Anchor (WI): Anchor BanCorp Wisconsin Inc.

AOCI: accumulated other comprehensive income (loss)

AQR: asset quality rating

ASC: Accounting Standards Codification

ASU: Accounting Standards Update

ATM: automated teller machine

BBCC: business banking credit center (small business)

CECL: current expected credit loss

Common Stock: Old National Bancorp common stock, no par value

COVID-19: coronavirus disease 2019

DTI: debt-to-income

FASB: Financial Accounting Standards Board

FDIC: Federal Deposit Insurance Corporation

FHLB: Federal Home Loan Bank

FHTC: Federal Historic Tax Credit

FICO: Fair Isaac Corporation

First Midwest: First Midwest Bancorp, Inc.

GAAP: U.S. generally accepted accounting principles

LGD: loss given default

LIBOR: London Interbank Offered Rate

LIHTC: Low Income Housing Tax Credit

LTV: loan-to-value

N/A: not applicable

NASDAQ: The NASDAQ Stock Market LLC

N/M: not meaningful

NMTC: New Markets Tax Credit

NOW: negotiable order of withdrawal

OCC: Office of the Comptroller of the Currency

PCD: purchased credit deteriorated

PD: probability of default

PPP: Paycheck Protection Program

Renewable Energy: investment tax credits for solar projects

SBA: Small Business Administration

SEC: Securities and Exchange Commission

TBA: to be announced

TDR: troubled debt restructuring

OLD NATIONAL BANCORP

CONSOLIDATED BALANCE SHEETS


(dollars and shares in thousands, except per share data)	(dollars and shares in thousands, except per share data)	June 30, 2022		December 31, 2021		(dollars and shares in thousands, except per share data)	September 30, 2022		December 31, 2021
		(unaudited)					(unaudited)
Assets	Assets					Assets
Cash and due from banks	Cash and due from banks	$	455,620	$	172,663	Cash and due from banks	$	466,846	$	172,663
Money market and other interest-earning investments	Money market and other interest-earning investments	342,344		649,356		Money market and other interest-earning investments	334,765		649,356
Total cash and cash equivalents	Total cash and cash equivalents	797,964		822,019		Total cash and cash equivalents	801,611		822,019
Equity securities, at fair value	Equity securities, at fair value	55,879		13,211		Equity securities, at fair value	51,846		13,211
Investment securities - available-for-sale, at fair value:	Investment securities - available-for-sale, at fair value:					Investment securities - available-for-sale, at fair value:
U.S. Treasury	U.S. Treasury	402,783		235,584		U.S. Treasury	193,605		235,584
U.S. government-sponsored entities and agencies	U.S. government-sponsored entities and agencies	1,242,557		1,542,773		U.S. government-sponsored entities and agencies	1,175,457		1,542,773
Mortgage-backed securities	Mortgage-backed securities	4,827,708		3,698,831		Mortgage-backed securities	4,459,527		3,698,831
States and political subdivisions	States and political subdivisions	720,041		1,654,986		States and political subdivisions	675,047		1,654,986
Other securities	Other securities	374,612		249,892		Other securities	359,344		249,892
Total investment securities - available-for-sale	Total investment securities - available-for-sale	7,567,701		7,382,066		Total investment securities - available-for-sale	6,862,980		7,382,066
Investment securities - held-to-maturity, at amortized cost (fair value $2,779,290 and $0, respectively)		3,084,186		—
Investment securities - held-to-maturity, at amortized cost (fair value $2,600,440 and $0, respectively)						Investment securities - held-to-maturity, at amortized cost (fair value $2,600,440 and $0, respectively)	3,096,567		—
Federal Home Loan Bank/Federal Reserve Bank stock, at cost	Federal Home Loan Bank/Federal Reserve Bank stock, at cost	288,884		169,375		Federal Home Loan Bank/Federal Reserve Bank stock, at cost	282,263		169,375
Loans held for sale, at fair value	Loans held for sale, at fair value	26,217		35,458		Loans held for sale, at fair value	19,748		35,458
Loans:	Loans:					Loans:
Commercial	Commercial	8,923,983		3,391,769		Commercial	9,311,148		3,391,769
Commercial real estate	Commercial real estate	11,796,503		6,380,674		Commercial real estate	12,227,888		6,380,674
Residential real estate	Residential real estate	6,079,057		2,255,289		Residential real estate	6,267,306		2,255,289
Consumer credit, net of unearned income	Consumer credit, net of unearned income	2,754,105		1,574,114		Consumer credit, net of unearned income	2,722,591		1,574,114
Total loans	Total loans	29,553,648		13,601,846		Total loans	30,528,933		13,601,846
Allowance for credit losses	Allowance for credit losses	(288,003)		(107,341)		Allowance for credit losses	(302,254)		(107,341)
Net loans	Net loans	29,265,645		13,494,505		Net loans	30,226,679		13,494,505
Premises and equipment, net	Premises and equipment, net	586,031		476,186		Premises and equipment, net	588,021		476,186
Operating lease right-of-use assets	Operating lease right-of-use assets	192,196		69,560		Operating lease right-of-use assets	187,626		69,560
Accrued interest receivable	Accrued interest receivable	157,079		84,109		Accrued interest receivable	166,699		84,109
Goodwill	Goodwill	1,991,534		1,036,994		Goodwill	2,002,599		1,036,994
Other intangible assets	Other intangible assets	140,281		34,678		Other intangible assets	133,193		34,678
Company-owned life insurance	Company-owned life insurance	769,595		463,324		Company-owned life insurance	767,089		463,324
Other assets	Other assets	825,163		372,079		Other assets	1,028,605		372,079
Total assets	Total assets	$	45,748,355	$	24,453,564	Total assets	$	46,215,526	$	24,453,564
Liabilities	Liabilities					Liabilities
Deposits:	Deposits:					Deposits:
Noninterest-bearing demand	Noninterest-bearing demand	$	12,388,379	$	6,303,106	Noninterest-bearing demand	$	12,400,077	$	6,303,106
Interest-bearing:	Interest-bearing:					Interest-bearing:
Checking and NOW	Checking and NOW	8,473,510		5,338,022		Checking and NOW	8,963,014		5,338,022
Savings	Savings	6,796,152		3,798,494		Savings	6,616,512		3,798,494
Money market	Money market	5,373,318		2,169,160		Money market	5,602,729		2,169,160
Time deposits	Time deposits	2,507,616		960,413		Time deposits	2,471,331		960,413
Total deposits	Total deposits	35,538,975		18,569,195		Total deposits	36,053,663		18,569,195
Federal funds purchased and interbank borrowings	Federal funds purchased and interbank borrowings	1,561		276		Federal funds purchased and interbank borrowings	301,031		276
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	476,173		392,275		Securities sold under agreements to repurchase	438,053		392,275
Federal Home Loan Bank advances	Federal Home Loan Bank advances	3,283,963		1,886,019		Federal Home Loan Bank advances	2,804,617		1,886,019
Other borrowings	Other borrowings	622,714		296,670		Other borrowings	721,049		296,670
Operating lease liabilities	Operating lease liabilities	215,188		76,236		Operating lease liabilities	207,725		76,236
Accrued expenses and other liabilities	Accrued expenses and other liabilities	530,998		220,875		Accrued expenses and other liabilities	746,005		220,875
Total liabilities	Total liabilities	40,669,572		21,441,546		Total liabilities	41,272,143		21,441,546
Shareholders' Equity	Shareholders' Equity					Shareholders' Equity
Preferred stock, 2,000 shares authorized, 231 and 0 shares issued and outstanding, respectively	Preferred stock, 2,000 shares authorized, 231 and 0 shares issued and outstanding, respectively	230,500		—		Preferred stock, 2,000 shares authorized, 231 and 0 shares issued and outstanding, respectively	230,500		—
Common stock, $1.00 per share stated value, 600,000 shares authorized, 292,893 and 165,838 shares issued and outstanding, respectively		292,893		165,838
Common stock, $1.00 per share stated value, 600,000 shares authorized, 292,880 and 165,838 shares issued and outstanding, respectively						Common stock, $1.00 per share stated value, 600,000 shares authorized, 292,880 and 165,838 shares issued and outstanding, respectively	292,880		165,838
Capital surplus	Capital surplus	4,157,543		1,880,545		Capital surplus	4,166,583		1,880,545
Retained earnings	Retained earnings	966,980		968,010		Retained earnings	1,061,870		968,010
Accumulated other comprehensive income (loss), net of tax	Accumulated other comprehensive income (loss), net of tax	(569,133)		(2,375)		Accumulated other comprehensive income (loss), net of tax	(808,450)		(2,375)
Total shareholders' equity	Total shareholders' equity	5,078,783		3,012,018		Total shareholders' equity	4,943,383		3,012,018
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	45,748,355	$	24,453,564	Total liabilities and shareholders' equity	$	46,215,526	$	24,453,564

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

OLD NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF INCOME (unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars and shares in thousands, except per share data)	(dollars and shares in thousands, except per share data)	2022		2021		2022		2021		(dollars and shares in thousands, except per share data)	2022		2021		2022		2021
Interest Income	Interest Income									Interest Income
Loans including fees:	Loans including fees:									Loans including fees:
Taxable	Taxable	$	285,249	$	123,577	$	469,264	$	246,106	Taxable	$	331,271	$	124,488	$	800,535	$	370,594
Nontaxable	Nontaxable	4,802		3,171		8,309		6,528		Nontaxable	6,461		3,119		14,770		9,647
Investment securities:	Investment securities:									Investment securities:
Taxable	Taxable	51,459		24,401		88,868		48,532		Taxable	56,765		24,773		145,633		73,305
Nontaxable	Nontaxable	11,018		9,261		21,284		18,393		Nontaxable	11,086		9,469		32,370		27,862
Money market and other interest-earning investments	Money market and other interest-earning investments	1,830		48		2,138		136		Money market and other interest-earning investments	935		177		3,073		313
Total interest income	Total interest income	354,358		160,458		589,863		319,695		Total interest income	406,518		162,026		996,381		481,721
Interest Expense	Interest Expense									Interest Expense
Deposits	Deposits	5,187		2,732		8,381		5,891		Deposits	10,820		2,578		19,201		8,469
Federal funds purchased and interbank borrowings	Federal funds purchased and interbank borrowings	2		—		2		—		Federal funds purchased and interbank borrowings	720		—		722		—
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	85		95		181		215		Securities sold under agreements to repurchase	106		90		287		305
Federal Home Loan Bank advances	Federal Home Loan Bank advances	6,925		5,218		12,888		10,627		Federal Home Loan Bank advances	13,027		5,326		25,915		15,953
Other borrowings	Other borrowings	4,687		2,486		8,154		4,915		Other borrowings	5,256		2,460		13,410		7,375
Total interest expense	Total interest expense	16,886		10,531		29,606		21,648		Total interest expense	29,929		10,454		59,535		32,102
Net interest income	Net interest income	337,472		149,927		560,257		298,047		Net interest income	376,589		151,572		936,846		449,619
Provision for credit losses	Provision for credit losses	9,245		(4,929)		106,814		(22,285)		Provision for credit losses	11,287		(4,613)		118,101		(26,898)
Net interest income after provision for credit losses	Net interest income after provision for credit losses	328,227		154,856		453,443		320,332		Net interest income after provision for credit losses	365,302		156,185		818,745		476,517
Noninterest Income	Noninterest Income									Noninterest Income
Wealth management fees	Wealth management fees	19,304		10,734		33,934		20,442		Wealth management fees	17,317		10,134		51,251		30,576
Service charges on deposit accounts	Service charges on deposit accounts	21,144		8,514		35,870		16,638		Service charges on deposit accounts	20,042		8,123		54,392		23,270
Debit card and ATM fees	Debit card and ATM fees	10,402		5,583		17,301		10,726		Debit card and ATM fees	10,608		5,745		29,429		17,962
Mortgage banking revenue	Mortgage banking revenue	6,522		7,827		13,767		24,352		Mortgage banking revenue	5,360		10,870		19,127		35,222
Investment product fees	Investment product fees	8,568		6,042		15,890		11,906		Investment product fees	8,042		6,475		23,932		18,381
Capital markets income	Capital markets income	7,261		5,871		11,703		9,586		Capital markets income	8,906		6,017		20,609		15,603
Company-owned life insurance	Company-owned life insurance	4,571		2,783		8,095		5,497		Company-owned life insurance	3,361		2,355		11,456		7,852
Debt securities gains (losses), net	Debt securities gains (losses), net	(85)		692		257		2,685		Debt securities gains (losses), net	(172)		1,207		85		3,892
Other income	Other income	11,430		3,462		17,540		6,388		Other income	6,921		3,589		24,461		9,977
Total noninterest income	Total noninterest income	89,117		51,508		154,357		108,220		Total noninterest income	80,385		54,515		234,742		162,735
Noninterest Expense	Noninterest Expense									Noninterest Expense
Salaries and employee benefits	Salaries and employee benefits	161,817		72,640		285,964		140,757		Salaries and employee benefits	147,203		71,005		433,167		211,762
Occupancy	Occupancy	26,496		14,054		47,515		28,926		Occupancy	26,418		12,757		73,933		41,683
Equipment	Equipment	7,550		4,506		12,718		8,475		Equipment	7,328		3,756		20,046		12,231
Marketing	Marketing	9,119		2,632		13,395		4,694		Marketing	10,361		3,267		23,756		7,961
Data processing	Data processing	25,883		11,697		44,645		24,050		Data processing	20,269		11,508		64,914		35,558
Communication	Communication	5,878		2,411		9,295		5,289		Communication	5,392		2,372		14,687		7,661
Professional fees	Professional fees	6,336		8,528		26,127		11,252		Professional fees	6,559		3,416		32,686		14,668
FDIC assessment	FDIC assessment	4,699		1,226		7,274		2,833		FDIC assessment	6,249		1,628		13,523		4,461
Amortization of intangibles	Amortization of intangibles	7,170		2,909		11,981		5,984		Amortization of intangibles	7,089		2,779		19,070		8,763
Amortization of tax credit investments	Amortization of tax credit investments	1,525		1,813		3,041		3,015		Amortization of tax credit investments	2,662		1,736		5,703		4,751
Other expense	Other expense	20,922		7,202		42,196		12,083		Other expense	27,117		7,050		69,313		19,133
Total noninterest expense	Total noninterest expense	277,395		129,618		504,151		247,358		Total noninterest expense	266,647		121,274		770,798		368,632
Income before income taxes	Income before income taxes	139,949		76,746		103,649		181,194		Income before income taxes	179,040		89,426		282,689		270,620
Income tax expense	Income tax expense	24,964		13,960		16,250		31,590		Income tax expense	38,887		17,680		55,137		49,270
Net income	Net income	114,985		62,786		87,399		149,604		Net income	140,153		71,746		227,552		221,350
Preferred dividends	Preferred dividends	(4,033)		—		(6,050)		—		Preferred dividends	(4,034)		—		(10,084)		—

Net income applicable to common shareholders	Net income applicable to common shareholders	$	110,952	$	62,786	$	81,349	$	149,604	Net income applicable to common shareholders	$	136,119	$	71,746	$	217,468	$	221,350
Net income per common share - basic	Net income per common share - basic	$	0.38	$	0.38	$	0.31	$	0.91	Net income per common share - basic	$	0.47	$	0.43	$	0.81	$	1.34
Net income per common share - diluted	Net income per common share - diluted	0.38		0.38		0.31		0.90		Net income per common share - diluted	0.47		0.43		0.80		1.33
Weighted average number of common shares outstanding - basic	Weighted average number of common shares outstanding - basic	290,862		165,175		259,108		165,086		Weighted average number of common shares outstanding - basic	290,961		165,258		269,843		165,144
Weighted average number of common shares outstanding - diluted	Weighted average number of common shares outstanding - diluted	291,881		165,934		260,253		165,821		Weighted average number of common shares outstanding - diluted	292,483		165,939		271,123		165,862
Dividends per common share	Dividends per common share	$	0.14	$	0.14	$	0.28	$	0.28	Dividends per common share	$	0.14	$	0.14	$	0.42	$	0.42

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

OLD NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2022		2021		2022		2021
Net income	Net income	$	114,985	$	62,786	$	87,399	$	149,604	Net income	$	140,153	$	71,746	$	227,552	$	221,350

Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):

Change in debt securities available-for-sale:	Change in debt securities available-for-sale:									Change in debt securities available-for-sale:
Unrealized holding gains (losses) for the period	Unrealized holding gains (losses) for the period	(304,514)		(35,818)		(733,984)		(109,332)		Unrealized holding gains (losses) for the period	(285,798)		(3,595)		(1,019,782)		(112,927)
Reclassification for securities transferred to held-to-maturity	Reclassification for securities transferred to held-to-maturity	143,310		—		165,473		—		Reclassification for securities transferred to held-to-maturity	—		—		165,473		—
Reclassification adjustment for securities (gains) losses realized in income	Reclassification adjustment for securities (gains) losses realized in income	85		(692)		(257)		(2,685)		Reclassification adjustment for securities (gains) losses realized in income	172		(1,207)		(85)		(3,892)
Income tax effect	Income tax effect	38,408		9,110		134,643		25,777		Income tax effect	68,356		627		202,999		26,404
Unrealized gains (losses) on available-for-sale securities	Unrealized gains (losses) on available-for-sale securities	(122,711)		(27,400)		(434,125)		(86,240)		Unrealized gains (losses) on available-for-sale securities	(217,270)		(4,175)		(651,395)		(90,415)

Change in securities held-to-maturity:	Change in securities held-to-maturity:									Change in securities held-to-maturity:
Adjustment for securities transferred from available-for-sale	Adjustment for securities transferred from available-for-sale	(143,310)		—		(165,473)		—		Adjustment for securities transferred from available-for-sale	—		—		(165,473)		—
Amortization of unrealized losses on securities transferred from available-for-sale	Amortization of unrealized losses on securities transferred from available-for-sale	3,692		—		4,002		—		Amortization of unrealized losses on securities transferred from available-for-sale	6,772		—		10,774		—
Income tax effect	Income tax effect	34,146		—		39,272		—		Income tax effect	(1,651)		—		37,621		—
Changes from securities held-to-maturity	Changes from securities held-to-maturity	(105,472)		—		(122,199)		—		Changes from securities held-to-maturity	5,121		—		(117,078)		—

Change in cash flow hedges:	Change in cash flow hedges:									Change in cash flow hedges:
Net unrealized derivative gains (losses) on cash flow hedges	Net unrealized derivative gains (losses) on cash flow hedges	(3,418)		(1,272)		(12,924)		2,776		Net unrealized derivative gains (losses) on cash flow hedges	(36,755)		(164)		(49,679)		2,612
Reclassification adjustment for (gains) losses realized in net income	Reclassification adjustment for (gains) losses realized in net income	(219)		(1,756)		(888)		(1,905)		Reclassification adjustment for (gains) losses realized in net income	749		(1,578)		(139)		(3,483)
Income tax effect	Income tax effect	894		744		3,394		(214)		Income tax effect	8,846		428		12,240		214
Changes from cash flow hedges	Changes from cash flow hedges	(2,743)		(2,284)		(10,418)		657		Changes from cash flow hedges	(27,160)		(1,314)		(37,578)		(657)

Change in defined benefit pension plans:	Change in defined benefit pension plans:									Change in defined benefit pension plans:
Amortization of net (gains) losses recognized in income	Amortization of net (gains) losses recognized in income	(10)		49		(21)		98		Amortization of net (gains) losses recognized in income	(11)		49		(32)		147
Income tax effect	Income tax effect	2		(12)		5		(24)		Income tax effect	3		(12)		8		(36)
Changes from defined benefit pension plans	Changes from defined benefit pension plans	(8)		37		(16)		74		Changes from defined benefit pension plans	(8)		37		(24)		111
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	(230,934)		(29,647)		(566,758)		(85,509)		Other comprehensive income (loss), net of tax	(239,317)		(5,452)		(806,075)		(90,961)
Comprehensive income (loss)	Comprehensive income (loss)	$	(115,949)	$	33,139	$	(479,359)	$	64,095	Comprehensive income (loss)	$	(99,164)	$	66,294	$	(578,523)	$	130,389

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

OLD NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)


(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	Preferred Stock		Common Stock		Capital Surplus		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total 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	Balance, December 31, 2020	$	—	$	165,367	$	1,875,626	$	783,892	$	147,771	$	2,972,656	Balance, December 31, 2020	$	—	$	165,367	$	1,875,626	$	783,892	$	147,771	$	2,972,656

Net income	Net income	—		—		—		86,818		—		86,818		Net income	—		—		—		86,818		—		86,818
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		—		(55,862)		(55,862)		Other comprehensive income (loss)	—		—		—		—		(55,862)		(55,862)
Dividends - common stock ($0.14 per share)	Dividends - common stock ($0.14 per share)	—		—		—		(23,195)		—		(23,195)		Dividends - common stock ($0.14 per share)	—		—		—		(23,195)		—		(23,195)
Common stock issued	Common stock issued	—		9		130		—		—		139		Common stock issued	—		9		130		—		—		139
Common stock repurchased	Common stock repurchased	—		(160)		(2,696)		—		—		(2,856)		Common stock repurchased	—		(160)		(2,696)		—		—		(2,856)
Share-based compensation expense	Share-based compensation expense	—		—		1,747		—		—		1,747		Share-based compensation expense	—		—		1,747		—		—		1,747
Stock activity under incentive compensation plans	Stock activity under incentive compensation plans	—		460		(235)		(225)		—		—		Stock activity under incentive compensation plans	—		460		(235)		(225)		—		—
Balance, March 31, 2021	Balance, March 31, 2021	—		165,676		1,874,572		847,290		91,909		2,979,447		Balance, March 31, 2021	—		165,676		1,874,572		847,290		91,909		2,979,447
Net income	Net income	—		—		—		62,786		—		62,786		Net income	—		—		—		62,786		—		62,786
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		—		(29,647)		(29,647)		Other comprehensive income (loss)	—		—		—		—		(29,647)		(29,647)
Dividends - common stock ($0.14 per share)	Dividends - common stock ($0.14 per share)	—		—		—		(23,202)		—		(23,202)		Dividends - common stock ($0.14 per share)	—		—		—		(23,202)		—		(23,202)
Common stock issued	Common stock issued	—		7		136		—		—		143		Common stock issued	—		7		136		—		—		143
Common stock repurchased	Common stock repurchased	—		(24)		(425)		—		—		(449)		Common stock repurchased	—		(24)		(425)		—		—		(449)
Share-based compensation expense	Share-based compensation expense	—		—		1,816		—		—		1,816		Share-based compensation expense	—		—		1,816		—		—		1,816
Stock activity under incentive compensation plans	Stock activity under incentive compensation plans	—		73		273		(122)		—		224		Stock activity under incentive compensation plans	—		73		273		(122)		—		224
Balance, June 30, 2021	Balance, June 30, 2021	$	—	$	165,732	$	1,876,372	$	886,752	$	62,262	$	2,991,118	Balance, June 30, 2021	—		165,732		1,876,372		886,752		62,262		2,991,118

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

Net income (loss)		—		—		—		(27,586)		—		(27,586)
Net income														Net income	—		—		—		71,746		—		71,746
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		—		(335,824)		(335,824)		Other comprehensive income (loss)	—		—		—		—		(5,452)		(5,452)
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 ($0.14 per share)		—		—		—		(40,782)		—		(40,782)
Preferred dividends		—		—		—		(2,017)		—		(2,017)
Dividends - common stock ($0.14 per share)														Dividends - common stock ($0.14 per share)	—		—		—		(23,214)		—		(23,214)
Common stock issued	Common stock issued	—		10		155		—		—		165		Common stock issued	—		9		138		—		—		147
Common stock repurchased	Common stock repurchased	—		(3,890)		(66,188)		—		—		(70,078)		Common stock repurchased	—		(23)		(385)		—		—		(408)
Share-based compensation expense	Share-based compensation expense	—		—		6,284		—		—		6,284		Share-based compensation expense	—		—		1,955		—		—		1,955
Stock activity under incentive compensation plans	Stock activity under incentive compensation plans	—		1,636		(1,368)		(365)		—		(97)		Stock activity under incentive compensation plans	—		96		26		(122)		—		—
Balance, March 31, 2022		230,500		292,959		4,149,594		897,260		(338,199)		5,232,114
Net income		—		—		—		114,985		—		114,985
Other comprehensive income (loss)		—		—		—		—		(230,934)		(230,934)
Cash dividends:
Common ($0.14 per share)		—		—		—		(40,901)		—		(40,901)
Preferred dividends		—		—		—		(4,033)		—		(4,033)
Common stock issued		—		10		152		—		—		162
Common stock repurchased		—		(21)		(301)		—		—		(322)
Share-based compensation expense		—		—		7,813		—		—		7,813
Stock activity under incentive compensation plans		—		(55)		285		(331)		—		(101)
Balance, June 30, 2022		$	230,500	$	292,893	$	4,157,543	$	966,980	$	(569,133)	$	5,078,783
Balance, September 30, 2021														Balance, September 30, 2021	$	—	$	165,814	$	1,878,106	$	935,162	$	56,810	$	3,035,892


OLD NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) – (Continued)
(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, 2021	$	—	$	165,838	$	1,880,545	$	968,010	$	(2,375)	$	3,012,018


Net income (loss)	—		—		—		(27,586)		—		(27,586)
Other comprehensive income (loss)	—		—		—		—		(335,824)		(335,824)
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 ($0.14 per share)	—		—		—		(40,782)		—		(40,782)
Preferred dividends	—		—		—		(2,017)		—		(2,017)
Common stock issued	—		10		155		—		—		165
Common stock repurchased	—		(3,890)		(66,188)		—		—		(70,078)
Share-based compensation expense	—		—		6,284		—		—		6,284
Stock activity under incentive compensation plans	—		1,636		(1,368)		(365)		—		(97)
Balance, March 31, 2022	230,500		292,959		4,149,594		897,260		(338,199)		5,232,114
Net income	—		—		—		114,985		—		114,985
Other comprehensive income (loss)	—		—		—		—		(230,934)		(230,934)
Cash dividends:
Common ($0.14 per share)	—		—		—		(40,901)		—		(40,901)
Preferred dividends	—		—		—		(4,033)		—		(4,033)
Common stock issued	—		10		152		—		—		162
Common stock repurchased	—		(21)		(301)		—		—		(322)
Share-based compensation expense	—		—		7,813		—		—		7,813
Stock activity under incentive compensation plans	—		(55)		285		(331)		—		(101)
Balance, June 30, 2022	230,500		292,893		4,157,543		966,980		(569,133)		5,078,783
Net income	—		—		—		140,153		—		140,153
Other comprehensive income (loss)	—		—		—		—		(239,317)		(239,317)
Cash dividends:
Common ($0.14 per share)	—		—		—		(40,907)		—		(40,907)
Preferred dividends	—		—		—		(4,034)		—		(4,034)
Common stock issued	—		17		213		—		—		230
Common stock repurchased	—		(34)		(497)		—		—		(531)
Share-based compensation expense	—		—		7,485		—		—		7,485
Stock activity under incentive compensation plans	—		4		1,839		(322)		—		1,521
Balance, September 30, 2022	$	230,500	$	292,880	$	4,166,583	$	1,061,870	$	(808,450)	$	4,943,383

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

OLD NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


		Six Months Ended June 30,					Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		(dollars in thousands)	2022		2021
Cash Flows From Operating Activities	Cash Flows From Operating Activities					Cash Flows From Operating Activities
Net income	Net income	$	87,399	$	149,604	Net income	$	227,552	$	221,350
Adjustments to reconcile net income to cash provided by operating activities:	Adjustments to reconcile net income to cash provided by operating activities:					Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	Depreciation	17,742		14,068		Depreciation	26,893		20,585
Amortization of other intangible assets	Amortization of other intangible assets	11,981		5,984		Amortization of other intangible assets	19,070		8,763
Amortization of tax credit investments	Amortization of tax credit investments	3,041		3,015		Amortization of tax credit investments	5,703		4,751
Net premium amortization on investment securities	Net premium amortization on investment securities	9,413		7,526		Net premium amortization on investment securities	14,625		11,793
Accretion income related to acquired loans	Accretion income related to acquired loans	(44,083)		(9,781)		Accretion income related to acquired loans	(63,472)		(12,818)
Share-based compensation expense	Share-based compensation expense	14,097		3,563		Share-based compensation expense	21,582		5,518
Provision for credit losses	Provision for credit losses	106,814		(22,285)		Provision for credit losses	118,101		(26,898)
Debt securities (gains) losses, net	Debt securities (gains) losses, net	(257)		(2,685)		Debt securities (gains) losses, net	(85)		(3,892)
Net (gains) losses on sales of loans and other assets	Net (gains) losses on sales of loans and other assets	(4,010)		(18,202)		Net (gains) losses on sales of loans and other assets	(5,911)		(27,433)
Increase in cash surrender value of company-owned life insurance	Increase in cash surrender value of company-owned life insurance	(8,095)		(5,497)		Increase in cash surrender value of company-owned life insurance	(11,456)		(7,852)
Residential real estate loans originated for sale	Residential real estate loans originated for sale	(364,018)		(645,624)		Residential real estate loans originated for sale	(490,288)		(929,943)
Proceeds from sales of residential real estate loans	Proceeds from sales of residential real estate loans	395,829		677,888		Proceeds from sales of residential real estate loans	531,121		967,573
(Increase) decrease in interest receivable	(Increase) decrease in interest receivable	(19,468)		(288)		(Increase) decrease in interest receivable	(29,088)		11,268
(Increase) decrease in other assets	(Increase) decrease in other assets	127,991		40,951		(Increase) decrease in other assets	36,049		46,203
Increase (decrease) in accrued expenses and other liabilities	Increase (decrease) in accrued expenses and other liabilities	104,456		(33,062)		Increase (decrease) in accrued expenses and other liabilities	286,915		(24,295)
Net cash flows provided by (used in) operating activities	Net cash flows provided by (used in) operating activities	438,832		165,175		Net cash flows provided by (used in) operating activities	687,311		264,673
Cash Flows From Investing Activities	Cash Flows From Investing Activities					Cash Flows From Investing Activities
Cash received (paid) from merger, net	Cash received (paid) from merger, net	1,912,629		—		Cash received (paid) from merger, net	1,912,629		—
Purchases of investment securities available-for-sale	Purchases of investment securities available-for-sale	(1,276,205)		(1,801,957)		Purchases of investment securities available-for-sale	(1,367,896)		(2,550,248)
Purchases of investment securities held-to-maturity	Purchases of investment securities held-to-maturity	(117,141)		—		Purchases of investment securities held-to-maturity	(156,378)		—
Purchases of Federal Home Loan Bank/Federal Reserve Bank stock	Purchases of Federal Home Loan Bank/Federal Reserve Bank stock	(97,359)		—		Purchases of Federal Home Loan Bank/Federal Reserve Bank stock	(115,488)		—
Purchases of equity securities	Purchases of equity securities	(1,417)		—		Purchases of equity securities	(5,843)		(10,000)
Proceeds from maturities, prepayments, and calls of investment securities available-for-sale	Proceeds from maturities, prepayments, and calls of investment securities available-for-sale	659,922		820,305		Proceeds from maturities, prepayments, and calls of investment securities available-for-sale	1,117,620		1,174,037
Proceeds from sales of investment securities available-for-sale	Proceeds from sales of investment securities available-for-sale	12,742		67,715		Proceeds from sales of investment securities available-for-sale	13,371		189,091
Proceeds from maturities, prepayments, and calls of investment securities held-to-maturity	Proceeds from maturities, prepayments, and calls of investment securities held-to-maturity	30,744		—		Proceeds from maturities, prepayments, and calls of investment securities held-to-maturity	61,172		—
Proceeds from sales of Federal Home Loan Bank/Federal Reserve Bank stock	Proceeds from sales of Federal Home Loan Bank/Federal Reserve Bank stock	83,947		44		Proceeds from sales of Federal Home Loan Bank/Federal Reserve Bank stock	108,697		50
Proceeds from sales of equity securities	Proceeds from sales of equity securities	49,709		325		Proceeds from sales of equity securities	52,034		437
Loan originations and payments, net	Loan originations and payments, net	(1,524,289)		11,924		Loan originations and payments, net	(2,481,620)		217,847
Proceeds from company-owned life insurance death benefits	Proceeds from company-owned life insurance death benefits	2,849		2,042		Proceeds from company-owned life insurance death benefits	8,716		2,652
Proceeds from sales of premises and equipment and other assets	Proceeds from sales of premises and equipment and other assets	2,751		7,632		Proceeds from sales of premises and equipment and other assets	3,202		16,741
Purchases of premises and equipment and other assets	Purchases of premises and equipment and other assets	(17,459)		(34,411)		Purchases of premises and equipment and other assets	(28,739)		(40,774)
Net cash flows provided by (used in) investing activities	Net cash flows provided by (used in) investing activities	(278,577)		(926,381)		Net cash flows provided by (used in) investing activities	(878,523)		(1,000,167)
Cash Flows From Financing Activities	Cash Flows From Financing Activities					Cash Flows From Financing Activities
Net increase (decrease) in:	Net increase (decrease) in:					Net increase (decrease) in:
Deposits	Deposits	(279,624)		831,458		Deposits	235,064		1,158,696
Federal funds purchased and interbank borrowings	Federal funds purchased and interbank borrowings	1,285		357		Federal funds purchased and interbank borrowings	300,755		(1,132)
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	(51,296)		(35,037)		Securities sold under agreements to repurchase	(89,416)		(55,919)
Other borrowings	Other borrowings	53,136		12,428		Other borrowings	152,324		11,651
Payments for maturities of Federal Home Loan Bank advances	Payments for maturities of Federal Home Loan Bank advances	(1,100,005)		(145,005)		Payments for maturities of Federal Home Loan Bank advances	(1,674,875)		(145,005)
Payments for modification of Federal Home Loan Bank advances	Payments for modification of Federal Home Loan Bank advances	—		(2,156)		Payments for modification of Federal Home Loan Bank advances	—		(2,156)
Proceeds from Federal Home Loan Bank advances	Proceeds from Federal Home Loan Bank advances	1,350,000		50,000		Proceeds from Federal Home Loan Bank advances	1,450,000		50,000

Cash dividends paid	Cash dividends paid	(87,733)		(46,397)		Cash dividends paid	(132,674)		(69,611)
Common stock repurchased	Common stock repurchased	(70,400)		(3,305)		Common stock repurchased	(70,931)		(3,713)

Common stock issued	Common stock issued	327		282		Common stock issued	557		429
Net cash flows provided by (used in) financing activities	Net cash flows provided by (used in) financing activities	(184,310)		662,625		Net cash flows provided by (used in) financing activities	170,804		943,240
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	(24,055)		(98,581)		Net increase (decrease) in cash and cash equivalents	(20,408)		207,746
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	822,019		589,712		Cash and cash equivalents at beginning of period	822,019		589,712
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	797,964	$	491,131	Cash and cash equivalents at end of period	$	801,611	$	797,458

OLD NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) – (Continued)


		Six Months Ended June 30,					Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		(dollars in thousands)	2022		2021
Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Total interest paid	Total interest paid	$	30,904	$	22,368	Total interest paid	$	62,207	$	33,910
Total income taxes paid (net of refunds)	Total income taxes paid (net of refunds)	(183)		3,526		Total income taxes paid (net of refunds)	14,759		15,476
Common stock issued for merger, net	Common stock issued for merger, net	2,446,312		—		Common stock issued for merger, net	2,446,312		—
Preferred stock issued for merger, net	Preferred stock issued for merger, net	243,870		—		Preferred stock issued for merger, net	243,870		—
Investment securities purchased but not settled	Investment securities purchased but not settled	—		8,046		Investment securities purchased but not settled	3,858		594

Securities transferred from available-for-sale to held-to-maturity	Securities transferred from available-for-sale to held-to-maturity	2,986,736		—		Securities transferred from available-for-sale to held-to-maturity	2,986,736		—
Operating lease right-of-use assets obtained in exchange for lease obligations	Operating lease right-of-use assets obtained in exchange for lease obligations	3,141		499		Operating lease right-of-use assets obtained in exchange for lease obligations	17,376		(1,190)
Finance lease right-of-use assets obtained in exchange for lease obligations	Finance lease right-of-use assets obtained in exchange for lease obligations	209		$	4,994	Finance lease right-of-use assets obtained in exchange for lease obligations	629		$	6,367

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

910

OLD NATIONAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited 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. In the opinion of management, the consolidated financial statements contain all the normal and recurring adjustments necessary for a fair statement of the financial position of Old National as of ~~June~~September 30, 2022 and December 31, 2021, and the results of its operations for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. Interim results do not necessarily represent annual results. These financial statements should be read in conjunction with Old National’s Annual Report on Form 10-K for the year ended December 31, 2021.

All significant 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 period net income or shareholders’ equity and were insignificant amounts.

There have been no material changes from the significant accounting policies disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Guidance Adopted in 2022

FASB ASC 470 and 815 – In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to clarify the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature model. In addition, this ASU improves disclosure requirements for convertible instruments and earnings-per-share guidance. The amendments in this update are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The adoption of this guidance on January 1, 2022 did not have a material impact on the consolidated financial statements.

FASB ASC 842 – In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments, to amend the lease classification requirements for lessors to align them with practice under ASC Topic 840. The amendments in this update are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The adoption of this guidance on January 1, 2022 did not have a material impact on the consolidated financial statements.

FASB ASC 848 – In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary, optional guidance to ease the potential burden in accounting for, or recognizing the effects of, the transition away from the LIBOR or other interbank offered rate on financial reporting. The guidance is applicable only to contracts or hedge accounting relationships that reference LIBOR or another reference rate expected to be discontinued. Because the guidance is meant to help entities through the transition period, it will be in effect for a limited time and will not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients that are retained through the end of the hedging relationship. The amendments in this ASU are effective March 12, 2020 through December 31, 2022. Old National believes the adoption of this guidance on activities subsequent to ~~June~~September 30, 2022 through December 31, 2022 will not have a material impact on the consolidated financial statements.

1011

Accounting Guidance Pending Adoption

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. Early adoption is permitted, including in any interim period. The new guidance is not expected to have a material impact on the consolidated financial statements.

FASB ASC 815 – In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method, to expand the current single-layer method of electing hedge accounting to allow multiple hedged layers of a single closed portfolio under the method and renames the last-of-layer method the portfolio layer method. The amendments in this update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted for any entity that has adopted the amendments in ASU No. 2017-12 for the corresponding period. If an entity adopts the amendments in an interim period, the effect of adopting the amendments related to basis adjustments should be reflected as of the beginning of the fiscal year of adoption (i.e., the initial application date). Old National is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

FASB ASC 326 – In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, to eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. The amendments require that an entity disclose current-period gross charge-offs by year of origination for financing receivables and net investment in leases within the vintage disclosures required by ASC 326. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. These amendments should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, which an entity has the option to apply a modified retrospective transition method resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. Early adoption is permitted if an entity has adopted ASU No. 2016-13, including adoption in an interim period. If an entity elects to early adopt ASU No. 2022-02 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. Old National is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

FASB ASC 820 – In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. Old National is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

NOTE 3 – 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. Following the merger, the new organization is operating under the Old National Bancorp and Old National Bank names, with the corporate headquarters and principal office located in Evansville, Indiana and commercial and consumer banking operations headquartered in Chicago, Illinois. Old National believes that it will

be able to achieve synergies and cost savings by integrating the operations of the companies. The combined organization has a presence in additional Midwestern markets, strong commercial banking capabilities, a robust retail footprint, a significant wealth platform, and an enhanced ability to attract talent. The combined organization also creates the scale and profitability to accelerate digital and technology capabilities to drive future investments in consumer and commercial banking, as well as wealth management services.

Pursuant to the terms of the merger agreement, each First Midwest common stockholder received 1.1336 shares of Old National common stock for each share of First Midwest common stock such stockholder owned, plus, if applicable, cash in lieu of fractional shares of Old National common stock resulting from the exchange ratio. Each outstanding share of 7.000% fixed-rate non-cumulative perpetual preferred stock, Series A, no par value, and each outstanding share of 7.000% fixed-rate non-cumulative perpetual preferred stock, Series C, no par value, of First Midwest was converted into the right to receive 1one share of an applicable newly created series of Old National preferred stock, no par value, having terms that are not materially less favorable than the applicable series of outstanding First Midwest preferred stock (respectively, “Old National Series A Preferred Stock” and “Old National Series C Preferred Stock,” and collectively, the “Old National Preferred Stock”). In this regard, Old National issued 108,000 shares of Old National Series A Preferred Stock and 122,500 shares of Old National Series C Preferred Stock. Old National entered into 2two deposit agreements, each dated as of February 15, 2022, by and among Old National, Continental Stock Transfer & Trust Company, as depository, and the holders from time to time of the depositary receipts in connection with the issuance of the Old National Preferred Stock. Pursuant to the deposit agreements, Old National issued 4,320,000 depositary shares, each representing a 1/40th interest in a share of Old National Series A Preferred Stock, and 4,900,000 depositary shares, each representing a 1/40th interest in a share of Old National Series C Preferred Stock.

1213

The assets acquired and liabilities assumed, both intangible and tangible, in the merger were recorded at their estimated fair values as of the merger date and have been accounted for under the acquisition method of accounting. ~~During~~Subsequent to the ~~three months ended June 30, 2022,~~initial valuation, Old National ~~decreased~~increased goodwill totaling ~~$5.6~~$5.4 million to update the provisional valuation of the fair values of assets acquired and liabilities assumed. These adjustments affected goodwill, loans, premises and equipment, operating lease right-of-use assets, other assets, and accrued expenses and other liabilities. The following table presents the preliminary valuation 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	~~14,309,431~~14,298,873
Premises and equipment	~~112,426~~111,867
Operating lease right-of-use assets	129,698
Accrued interest receivable	53,502
Goodwill	~~954,540~~965,605
Other intangible assets	117,584
Company-owned life insurance	301,025
Other assets	~~314,459~~315,241
Total assets	$	~~21,851,478~~21,852,208
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	~~343,506~~344,236
Total liabilities	$	~~19,161,296~~19,162,026
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

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

Other intangible assets acquired included core deposit intangibles and customer trust relationships. The estimated fair value of the core deposit intangible was $77.9 million and is being amortized over an estimated useful life of 10 years. The estimated fair value of customer trust relationships was $39.7 million and is being amortized over an estimated useful life of 13 years.

The fair value of purchased financial assets with credit deterioration was $1.4 billion on the date of the merger. The gross contractual amounts receivable relating to the purchased financial assets with credit deterioration was $1.5 billion. Old National estimates, on the date of the merger, that ~~$78.5~~$89.1 million of the contractual cash flows specific to the purchased financial assets with credit deterioration will not be collected.

Transaction costs totaling ~~$77.9~~$100.6 million associated with the merger have been expensed for the ~~six~~nine months ended ~~June~~September 30, 2022 and additional transaction and integration costs will be expensed in future periods as incurred.

As a result of the merger, Old National assumed sponsorship of First Midwest’s defined benefit pension plan (the “Pension Plan”) under which both plan participation and benefit accruals had been previously frozen. Subsequent to the close of the merger, Old National began taking the steps required to terminate the Pension Plan. At ~~June~~September 30, 2022, the accumulated benefit obligation was ~~$55.9~~$49.7 million, and the fair value of Pension Plan assets was ~~$72.4~~$67.1 million. Pension costs were not material for the ~~six~~nine months ended ~~June~~September 30, 2022.

1314

Summary of Unaudited Pro-Forma Financial Information

The following table presents supplemental unaudited pro-forma financial information as if the First Midwest merger had occurred on January 1, 2021. The pro-forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effective as of this assumed date.


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2022		2021		2022		2021
Total revenues (1)	Total revenues (1)	$	426,589	$	391,993	$	798,935	$	786,304	Total revenues (1)	$	456,974	$	396,463	$	1,255,909	$	1,182,767
Income before income taxes	Income before income taxes	176,549		109,285		264,868		127,879		Income before income taxes	201,783		141,005		466,651		268,884

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

Supplemental pro-forma earnings for the three months ended ~~June~~September 30, 2022 were adjusted to exclude ~~$36.6~~$22.7 million of merger-related costs. Supplemental pro-forma earnings for the three months ended ~~June~~September 30, 2021 were adjusted to include these costs. Supplemental pro-forma earnings for the ~~six~~nine months ended ~~June~~September 30, 2022 were adjusted to exclude ~~$77.9~~$100.6 million of merger-related costs, $11.0 million of provision for credit losses on unfunded loan commitments, and $96.3 million of provision for credit losses to establish an allowance for credit losses on non-PCD loans acquired in the transaction. Supplemental pro-forma earnings for the ~~six~~nine months ended ~~June~~September 30, 2021 were adjusted to include these costs.

Divestiture

On June 27, 2022, Old National entered into a Custodial Transfer and Asset Purchase Agreement with UMB Bank, n.a. (“UMB”), pursuant to which UMB will acquire Old National’s business of acting as a qualified custodian for, and administering, health savings accounts. Old National serves as custodian for health savings accounts comprised of both investment accounts and deposit accounts. Upon completion of the sale, UMB will pay Old National a premium on deposit account balances transferred at closing, or a premium of approximately $95 million based on ~~June~~September 30, 2022 balances. Regulatory approval for the sale has been received. Subject to customary closing conditions, ~~and regulatory approval,~~ the parties anticipate completing the sale in ~~the fourth quarter~~mid-November of 2022.

NOTE 4 – 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:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars and shares in thousands, except per share data)	(dollars and shares in thousands, except per share data)	2022		2021		2022		2021		(dollars and shares in thousands, except per share data)	2022		2021		2022		2021
Net income	Net income	$	114,985	$	62,786	$	87,399	$	149,604	Net income	$	140,153	$	71,746	$	227,552	$	221,350
Preferred dividends	Preferred dividends	(4,033)		—		(6,050)		—		Preferred dividends	(4,034)		—		(10,084)		—

Net income applicable to common shares	Net income applicable to common shares	$	110,952	$	62,786	$	81,349	$	149,604	Net income applicable to common shares	$	136,119	$	71,746	$	217,468	$	221,350

Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Weighted average common shares outstanding (basic)	Weighted average common shares outstanding (basic)	290,862		165,175		259,108		165,086		Weighted average common shares outstanding (basic)	290,961		165,258		269,843		165,144
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Restricted stock	Restricted stock	1,014		737		1,136		713		Restricted stock	1,516		660		1,273		696
Stock appreciation rights	Stock appreciation rights	5		22		9		22		Stock appreciation rights	6		21		7		22
Weighted average diluted shares outstanding	Weighted average diluted shares outstanding	291,881		165,934		260,253		165,821		Weighted average diluted shares outstanding	292,483		165,939		271,123		165,862
Basic Net Income Per Common Share	Basic Net Income Per Common Share	$	0.38	$	0.38	$	0.31	$	0.91	Basic Net Income Per Common Share	$	0.47	$	0.43	$	0.81	$	1.34
Diluted Net Income Per Common Share	Diluted Net Income Per Common Share	$	0.38	$	0.38	$	0.31	$	0.90	Diluted Net Income Per Common Share	$	0.47	$	0.43	$	0.80	$	1.33

1415

NOTE 5 – 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 accumulated other comprehensive income (loss) and gross unrecognized gains and losses. The Company held no securities classified as held-to-maturity as of December 31, 2021.


(dollars in thousands)	(dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Basis Adjustments (1)		Fair Value		(dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Basis Adjustments (1)		Fair Value
June 30, 2022
September 30, 2022												September 30, 2022
Available-for-Sale	Available-for-Sale											Available-for-Sale
U.S. Treasury	U.S. Treasury	$	441,846	$	9	$	(7,739)	$	(31,333)	$	402,783	U.S. Treasury	$	246,987	$	—	$	(7,010)	$	(46,372)	$	193,605
U.S. government-sponsored entities and agencies	U.S. government-sponsored entities and agencies	1,442,261		1		(123,234)		(76,471)		1,242,557		U.S. government-sponsored entities and agencies	1,453,829		—		(168,963)		(109,409)		1,175,457
Mortgage-backed securities - Agency	Mortgage-backed securities - Agency	5,227,908		794		(400,994)		—		4,827,708		Mortgage-backed securities - Agency	5,074,503		56		(615,032)		—		4,459,527
States and political subdivisions	States and political subdivisions	740,026		4,132		(24,117)		—		720,041		States and political subdivisions	713,669		666		(39,288)		—		675,047
Pooled trust preferred securities	Pooled trust preferred securities	13,768		—		(2,667)		—		11,101		Pooled trust preferred securities	13,776		—		(2,454)		—		11,322
Other securities	Other securities	384,417		176		(21,082)		—		363,511		Other securities	376,344		95		(28,417)		—		348,022
Total available-for-sale securities	Total available-for-sale securities	$	8,250,226	$	5,112	$	(579,833)	$	(107,804)	$	7,567,701	Total available-for-sale securities	$	7,879,108	$	817	$	(861,164)	$	(155,781)	$	6,862,980

Held-to-Maturity	Held-to-Maturity											Held-to-Maturity
U.S. government-sponsored entities and agencies	U.S. government-sponsored entities and agencies	$	815,833	$	—	$	(95,398)	$	—	$	720,435	U.S. government-sponsored entities and agencies	$	817,489	$	—	$	(159,054)	$	—	$	658,435
Mortgage-backed securities - Agency	Mortgage-backed securities - Agency	1,149,212		170		(59,940)		—		1,089,442		Mortgage-backed securities - Agency	1,124,714		—		(123,568)		—		1,001,146
States and political subdivisions	States and political subdivisions	1,119,292		69		(149,797)		—		969,564		States and political subdivisions	1,154,514		—		(213,505)		—		941,009

Allowance for securities held-to-maturity	Allowance for securities held-to-maturity	(151)		—		—		—		(151)		Allowance for securities held-to-maturity	(150)		—		—		—		(150)
Total held-to-maturity securities	Total held-to-maturity securities	$	3,084,186	$	239	$	(305,135)	$	—	$	2,779,290	Total held-to-maturity securities	$	3,096,567	$	—	$	(496,127)	$	—	$	2,600,440

December 31, 2021	December 31, 2021											December 31, 2021
Available-for-Sale	Available-for-Sale											Available-for-Sale
U.S. Treasury	U.S. Treasury	$	234,555	$	1,233	$	(7,751)	$	7,547	$	235,584	U.S. Treasury	$	234,555	$	1,233	$	(7,751)	$	7,547	$	235,584
U.S. government-sponsored entities and agencies	U.S. government-sponsored entities and agencies	1,575,994		7,354		(37,014)		(3,561)		1,542,773		U.S. government-sponsored entities and agencies	1,575,994		7,354		(37,014)		(3,561)		1,542,773
Mortgage-backed securities - Agency	Mortgage-backed securities - Agency	3,737,484		27,421		(66,074)		—		3,698,831		Mortgage-backed securities - Agency	3,737,484		27,421		(66,074)		—		3,698,831
States and political subdivisions	States and political subdivisions	1,587,172		69,696		(1,882)		—		1,654,986		States and political subdivisions	1,587,172		69,696		(1,882)		—		1,654,986
Pooled trust preferred securities	Pooled trust preferred securities	13,756		—		(4,260)		—		9,496		Pooled trust preferred securities	13,756		—		(4,260)		—		9,496
Other securities	Other securities	235,072		6,578		(1,254)		—		240,396		Other securities	235,072		6,578		(1,254)		—		240,396
Total available-for-sale securities	Total available-for-sale securities	$	7,384,033	$	112,282	$	(118,235)	$	3,986	$	7,382,066	Total available-for-sale securities	$	7,384,033	$	112,282	$	(118,235)	$	3,986	$	7,382,066

(1) Basis adjustments represent the cumulative fair value adjustments included in the carrying amounts of fixed-rate investment securities assets in fair value hedging arrangements.

During the ~~six~~nine months ended ~~June~~September 30, 2022, U.S government-sponsored entities and agencies, agency mortgage-backed securities, and state and political subdivision securities with a fair value of $3.0 billion were transferred from the available-for-sale portfolio to the held-to-maturity portfolio. The $125.2 million unrealized holding loss, net of tax, at the date of transfer will continue to be reported as a separate component of shareholders’ equity and is being amortized over the remaining term of the securities as an adjustment to yield. The corresponding discount on these securities will offset this adjustment to yield as it is amortized.

1516

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2022		2021		2022		2021
Proceeds from sales of available-for-sale securities	Proceeds from sales of available-for-sale securities	$	1,903	$	15,247	$	12,742	$	67,715	Proceeds from sales of available-for-sale securities	$	629	$	121,376	$	13,371	$	189,091
Proceeds from calls of available-for-sale securities	Proceeds from calls of available-for-sale securities	21,331		46,750		60,605		56,995		Proceeds from calls of available-for-sale securities	4,592		54,966		65,197		111,961
Total	Total	$	23,234	$	61,997	$	73,347	$	124,710	Total	$	5,221	$	176,342	$	78,568	$	301,052

Realized gains on sales of available-for-sale securities	Realized gains on sales of available-for-sale securities	$	5	$	736	$	344	$	2,736	Realized gains on sales of available-for-sale securities	$	—	$	1,093	$	344	$	3,829
Realized gains on calls of available-for-sale securities	Realized gains on calls of available-for-sale securities	43		48		167		61		Realized gains on calls of available-for-sale securities	17		119		184		180
Realized losses on sales of available-for-sale securities	Realized losses on sales of available-for-sale securities	(52)		(85)		(147)		(85)		Realized losses on sales of available-for-sale securities	(58)		—		(205)		(85)
Realized losses on calls of available-for-sale securities	Realized losses on calls of available-for-sale securities	(81)		(7)		(107)		(27)		Realized losses on calls of available-for-sale securities	(131)		(5)		(238)		(32)
Debt securities gains (losses), net	Debt securities gains (losses), net	$	(85)	$	692	$	257	$	2,685	Debt securities gains (losses), net	$	(172)	$	1,207	$	85	$	3,892

Substantially all of the mortgage-backed securities in the investment portfolio are residential mortgage-backed securities. The amortized cost and fair value of the investment securities portfolio are shown by contractual maturity. 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.


		June 30, 2022								September 30, 2022
(dollars in thousands)	(dollars in thousands)	Amortized Cost		Fair Value			Weighted Average Yield		(dollars in thousands)	Amortized Cost			Fair Value		Weighted Average Yield
Maturity	Maturity					Maturity
Available-for-Sale	Available-for-Sale											Available-for-Sale
Within one year	Within one year	$	315,154	$	314,532		1.11	%	Within one year	$	103,486		$	102,344	2.52	%
One to five years	One to five years	1,731,888		1,662,131			2.56		One to five years	1,757,898			1,640,096		2.73
Five to ten years	Five to ten years	4,076,303		3,738,698			2.30		Five to ten years	3,863,056			3,374,078		2.32
Beyond ten years	Beyond ten years	2,126,881		1,852,340			2.43		Beyond ten years	2,154,668			1,746,462		2.40
Total	Total	$	8,250,226	$	7,567,701		2.34	%	Total	$	7,879,108		$	6,862,980	2.44	%
Held-to-Maturity	Held-to-Maturity								Held-to-Maturity
Within one year		$	100	$	100		2.47	%

One to five years	One to five years	70,765		68,860			3.72		One to five years	71,344			66,878		3.63	%
Five to ten years	Five to ten years	987,729		934,946			2.75		Five to ten years	977,435			867,476		2.67
Beyond ten years	Beyond ten years	2,025,592		1,775,384			2.76		Beyond ten years	2,047,788			1,666,086		2.81
Total	Total	$	3,084,186	$	2,779,290		2.78	%	Total	$	3,096,567		$	2,600,440	2.78	%

1617

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					Less than 12 months				12 months or longer				Total
(dollars in thousands)	(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2022
September 30, 2022														September 30, 2022
Available-for-Sale	Available-for-Sale													Available-for-Sale
U.S. Treasury	U.S. Treasury	$	400,802	$	(7,739)	$	—	$	—	$	400,802	$	(7,739)	U.S. Treasury	$	193,605	$	(7,010)	$	—	$	—	$	193,605	$	(7,010)
U.S. government-sponsored entities and agencies	U.S. government-sponsored entities and agencies	803,249		(27,407)		437,307		(95,827)		1,240,556		(123,234)		U.S. government-sponsored entities and agencies	639,031		(18,655)		530,776		(150,308)		1,169,807		(168,963)
Mortgage-backed securities - Agency	Mortgage-backed securities - Agency	4,149,631		(311,841)		509,634		(89,153)		4,659,265		(400,994)		Mortgage-backed securities - Agency	3,784,833		(462,383)		671,031		(152,649)		4,455,864		(615,032)
States and political subdivisions	States and political subdivisions	372,074		(24,117)		—		—		372,074		(24,117)		States and political subdivisions	503,025		(38,724)		1,850		(564)		504,875		(39,288)
Pooled trust preferred securities	Pooled trust preferred securities	—		—		11,102		(2,667)		11,102		(2,667)		Pooled trust preferred securities	—		—		11,322		(2,454)		11,322		(2,454)
Other securities	Other securities	301,443		(18,960)		32,799		(2,122)		334,242		(21,082)		Other securities	285,278		(22,318)		52,322		(6,099)		337,600		(28,417)
Total available-for-sale	Total available-for-sale	$	6,027,199	$	(390,064)	$	990,842	$	(189,769)	$	7,018,041	$	(579,833)	Total available-for-sale	$	5,405,772	$	(549,090)	$	1,267,301	$	(312,074)	$	6,673,073	$	(861,164)

December 31, 2021	December 31, 2021													December 31, 2021
Available-for-Sale	Available-for-Sale													Available-for-Sale
U.S. Treasury	U.S. Treasury	$	91,063	$	(7,751)	$	—	$	—	$	91,063	$	(7,751)	U.S. Treasury	$	91,063	$	(7,751)	$	—	$	—	$	91,063	$	(7,751)
U.S. government-sponsored entities and agencies	U.S. government-sponsored entities and agencies	1,032,566		(21,167)		312,949		(15,847)		1,345,515		(37,014)		U.S. government-sponsored entities and agencies	1,032,566		(21,167)		312,949		(15,847)		1,345,515		(37,014)
Mortgage-backed securities - Agency	Mortgage-backed securities - Agency	2,415,923		(59,277)		163,685		(6,797)		2,579,608		(66,074)		Mortgage-backed securities - Agency	2,415,923		(59,277)		163,685		(6,797)		2,579,608		(66,074)
States and political subdivisions	States and political subdivisions	178,570		(1,849)		2,729		(33)		181,299		(1,882)		States and political subdivisions	178,570		(1,849)		2,729		(33)		181,299		(1,882)
Pooled trust preferred securities	Pooled trust preferred securities	—		—		9,496		(4,260)		9,496		(4,260)		Pooled trust preferred securities	—		—		9,496		(4,260)		9,496		(4,260)
Other securities	Other securities	56,976		(943)		21,133		(311)		78,109		(1,254)		Other securities	56,976		(943)		21,133		(311)		78,109		(1,254)
Total available-for-sale	Total available-for-sale	$	3,775,098	$	(90,987)	$	509,992	$	(27,248)	$	4,285,090	$	(118,235)	Total available-for-sale	$	3,775,098	$	(90,987)	$	509,992	$	(27,248)	$	4,285,090	$	(118,235)

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					Less than 12 months				12 months or longer				Total
(dollars in thousands)	(dollars in thousands)	Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses		(dollars in thousands)	Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses
June 30, 2022
September 30, 2022														September 30, 2022
Held-to-Maturity	Held-to-Maturity													Held-to-Maturity
U.S. government-sponsored entities and agencies	U.S. government-sponsored entities and agencies	$	529,507	$	(69,932)	$	190,927	$	(25,466)	$	720,434	$	(95,398)	U.S. government-sponsored entities and agencies	$	434,505	$	(113,697)	$	223,930	$	(45,357)	$	658,435	$	(159,054)
Mortgage-backed securities - Agency	Mortgage-backed securities - Agency	649,804		(47,157)		419,930		(12,783)		1,069,734		(59,940)		Mortgage-backed securities - Agency	513,470		(53,629)		487,676		(69,939)		1,001,146		(123,568)
States and political subdivisions	States and political subdivisions	929,474		(143,443)		31,684		(6,354)		961,158		(149,797)		States and political subdivisions	820,108		(177,033)		117,043		(36,472)		937,151		(213,505)
Total held-to-maturity	Total held-to-maturity	$	2,108,785	$	(260,532)	$	642,541	$	(44,603)	$	2,751,326	$	(305,135)	Total held-to-maturity	$	1,768,083	$	(344,359)	$	828,649	$	(151,768)	$	2,596,732	$	(496,127)

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 ~~$161.5~~$154.7 million at ~~June~~September 30, ~~2022.~~2022 that are included as a separate component of shareholders’ equity and are being amortized over the remaining term of the securities.

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. 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~~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 through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. No allowance for credit losses for available-for-sale securities was needed at ~~June~~September 30, 2022 or December 31, 2021.

An allowance on held-to-maturity debt securities is maintained for certain municipal bonds to account for expected lifetime credit losses. Substantially all of the U.S. government-sponsored entities and agencies and agency mortgage-backed securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major credit rating agencies, and have a long history of no credit losses. Therefore, for those securities, we do not record expected credit losses. The allowance for credit losses on held-to-maturity debt securities was $0.2 million at ~~June~~September 30, 2022.

Accrued interest receivable on the securities portfolio is excluded from the estimate of credit losses and totaled ~~$50.9~~$39.9 million at ~~June~~September 30, 2022 and $35.5 million at December 31, 2021.

At ~~June~~September 30, 2022, Old National’s securities portfolio consisted of ~~3,232~~3,201 securities, ~~2,679~~2,970 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 temporary market movements. Old National’s pooled trust preferred securities are evaluated using collateral-specific assumptions to estimate the expected future interest and principal cash flows. At ~~June~~September 30, 2022, we had no intent to sell any securities that were in an unrealized loss position nor is it expected that we would be required to sell the securities prior to their anticipated recovery.

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 ~~six~~nine months ended ~~June~~September 30, 2022 or 2021.

Equity Securities

Old National’s equity securities with readily determinable fair values totaled ~~$55.9~~$51.8 million at ~~June~~September 30, 2022 and $13.2 million at December 31, 2021. There were losses on equity securities of ~~$2.4~~$0.7 million during the three months ended ~~June~~September 30, 2022 and losses of ~~$4.2~~$4.9 million during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to gains of ~~$0.2~~$0.1 million during the three months ended ~~June~~September 30, 2021 and gains of ~~$0.7~~$0.3 million during the ~~six~~nine months ended ~~June~~September 30, 2021.

Alternative Investments

Old National has alternative investments without readily determinable fair values that are included in other assets totaling ~~$265.7~~$322.3 million at ~~June~~September 30, 2022, consisting of ~~$143.0~~$185.9 million of illiquid investments of partnerships, limited liability companies, and other ownership interests that support affordable housing and ~~$122.7~~$136.4 million of economic development and community revitalization initiatives in low-to-moderate income neighborhoods. These alternative investments totaled $186.0 million at December 31, 2021. There have been no impairments or adjustments on equity securities without readily determinable fair values, except for amortization of tax credit investments in the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. See Note 11 to the consolidated financial statements for detail regarding these investments.

NOTE 6 – 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 manufacturing, agribusiness, transportation, mining, wholesaling, and retailing, among others. Most of Old National’s lending activity occurs within our principal geographic markets of Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Wisconsin, and Missouri. Old National manages concentrations of credit exposure by industry, product, geography, client relationship, and loan size.

1819

The loan categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses for loans. The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. The 4four loan portfolios – commercial, commercial real estate, residential real estate, and consumer – are classified into 7seven segments of loans – commercial, commercial real estate, BBCC, residential real estate, indirect, direct, and home equity. 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:


				Segment							Segment
		Statement		Portfolio		After			Statement		Portfolio		After
(dollars in thousands)	(dollars in thousands)	Balance		Reclassifications		Reclassifications		(dollars in thousands)	Balance		Reclassifications		Reclassifications
June 30, 2022
September 30, 2022								September 30, 2022
Loans:	Loans:							Loans:
Commercial	Commercial	$	8,923,983	$	(191,996)	$	8,731,987	Commercial	$	9,311,148	$	(197,169)	$	9,113,979
Commercial real estate	Commercial real estate	11,796,503		(154,769)		11,641,734		Commercial real estate	12,227,888		(153,784)		12,074,104
BBCC	BBCC	N/A		346,765		346,765		BBCC	N/A		350,953		350,953
Residential real estate	Residential real estate	6,079,057		—		6,079,057		Residential real estate	6,267,306		—		6,267,306
Consumer	Consumer	2,754,105		(2,754,105)		N/A		Consumer	2,722,591		(2,722,591)		N/A
Indirect	Indirect	N/A		981,741		981,741		Indirect	N/A		1,004,054		1,004,054
Direct	Direct	N/A		674,512		674,512		Direct	N/A		674,943		674,943
Home equity	Home equity	N/A		1,097,852		1,097,852		Home equity	N/A		1,043,594		1,043,594
Total	Total	$	29,553,648	$	—	$	29,553,648	Total	$	30,528,933	$	—	$	30,528,933

December 31, 2021	December 31, 2021							December 31, 2021
Loans:	Loans:							Loans:
Commercial	Commercial	$	3,391,769	$	(191,557)	$	3,200,212	Commercial	$	3,391,769	$	(191,557)	$	3,200,212
Commercial real estate	Commercial real estate	6,380,674		(159,190)		6,221,484		Commercial real estate	6,380,674		(159,190)		6,221,484
BBCC	BBCC	N/A		350,747		350,747		BBCC	N/A		350,747		350,747
Residential real estate	Residential real estate	2,255,289		—		2,255,289		Residential real estate	2,255,289		—		2,255,289
Consumer	Consumer	1,574,114		(1,574,114)		N/A		Consumer	1,574,114		(1,574,114)		N/A
Indirect	Indirect	N/A		873,139		873,139		Indirect	N/A		873,139		873,139
Direct	Direct	N/A		140,385		140,385		Direct	N/A		140,385		140,385
Home equity	Home equity	N/A		560,590		560,590		Home equity	N/A		560,590		560,590
Total	Total	$	13,601,846	$	—	$	13,601,846	Total	$	13,601,846	$	—	$	13,601,846

The composition of loans by portfolio segment follows:


(dollars in thousands)	(dollars in thousands)	June 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2022		December 31, 2021
Commercial (1) (2)	Commercial (1) (2)	$	8,731,987	$	3,200,212	Commercial (1) (2)	$	9,113,979	$	3,200,212
Commercial real estate	Commercial real estate	11,641,734		6,221,484		Commercial real estate	12,074,104		6,221,484
BBCC	BBCC	346,765		350,747		BBCC	350,953		350,747
Residential real estate	Residential real estate	6,079,057		2,255,289		Residential real estate	6,267,306		2,255,289
Indirect	Indirect	981,741		873,139		Indirect	1,004,054		873,139
Direct	Direct	674,512		140,385		Direct	674,943		140,385
Home equity	Home equity	1,097,852		560,590		Home equity	1,043,594		560,590
Total loans	Total loans	29,553,648		13,601,846		Total loans	30,528,933		13,601,846
Allowance for credit losses	Allowance for credit losses	(288,003)		(107,341)		Allowance for credit losses	(302,254)		(107,341)
Net loans	Net loans	$	29,265,645	$	13,494,505	Net loans	$	30,226,679	$	13,494,505

(1)Includes direct finance leases of ~~$66.5~~$196.7 million at ~~June~~September 30, 2022 and $25.1 million at December 31, 2021.

(2)Includes PPP loans of ~~$81.6~~$43.5 million at ~~June~~September 30, 2022 and $169.0 million at December 31, 2021.

1920

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.

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 ~~224%~~223%, Old National Bank’s commercial real estate loans as a percentage of its risk-based capital remained ~~well~~ below the regulatory guideline limit of 300% at ~~June~~September 30, 2022.

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

2021

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

Direct

Direct loans are typically secured by collateral such as auto or real estate or are unsecured. Old National has established conservative 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 conservative credit policies.

Home Equity

Home equity loans are generally secured by 1-4 family residences that are owner occupied. Old National has established conservative 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 conservative credit policies as well as monitoring of updated borrower credit scores.

Allowance for Credit Losses

Loans

Credit quality within the loans held for investment portfolio is continuously monitored by management and is reflected within the allowance for credit losses for loans. The allowance for credit losses is an estimate of expected losses inherent within the Company’s loans held for investment portfolio. Credit quality is assessed and monitored by evaluating various attributes and the results of those evaluations are utilized in underwriting new loans and in our process for estimating expected credit losses. Expected credit loss inherent in non-cancelable off-balance-sheet credit exposures is accounted for as a separate liability included in other liabilities on the balance sheet. The allowance for credit losses for loans held for investment is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries. Old National has made a policy election to report accrued interest receivable as a separate line item on the balance sheet. Accrued interest receivable on loans is excluded from the estimate of credit losses and totaled ~~$104.6~~$123.6 million at ~~June~~September 30, 2022 and $47.6 million at December 31, 2021.

The allowance for credit loss estimation process involves procedures to appropriately consider the unique characteristics of ~~its~~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.

2122

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 were 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 ~~the~~monetary actions to control inflation, conflict in Ukraine, and global supply chain ~~issues, inflation, and the ongoing impact of the COVID-19 pandemic.~~issues. Activity in the allowance for credit losses for loans by portfolio segment was as follows:


(dollars in thousands)	(dollars in thousands)	Balance at Beginning of Period		Allowance Established for Acquired PCD Loans		Charge-offs		Recoveries		Provision for Credit Losses		Balance at End of Period		(dollars in thousands)	Balance at Beginning of Period		Allowance Established for Acquired PCD Loans (1)		Charge-offs		Recoveries		Provision for Credit Losses		Balance at End of Period
Three Months Ended June 30, 2022
Three Months Ended September 30, 2022														Three Months Ended September 30, 2022
Commercial	Commercial	$	99,471	$	—	$	(1,344)	$	781	$	3,911	$	102,819	Commercial	$	102,819	$	3,740	$	(2,696)	$	2,206	$	6,344	$	112,413
Commercial real estate	Commercial real estate	140,490		—		(318)		320		1,310		141,802		Commercial real estate	141,802		6,818		(4,772)		287		(45)		144,090
BBCC	BBCC	2,069		—		(20)		91		(76)		2,064		BBCC	2,064		—		—		108		(4)		2,168
Residential real estate	Residential real estate	17,252		—		(137)		130		2,484		19,729		Residential real estate	19,729		—		(20)		66		1,481		21,256
Indirect	Indirect	1,648		—		(528)		320		201		1,641		Indirect	1,641		—		(624)		379		189		1,585
Direct	Direct	14,450		—		(1,722)		676		1,008		14,412		Direct	14,412		—		(3,299)		442		4,541		16,096
Home equity	Home equity	5,127		—		(27)		20		416		5,536		Home equity	5,536		—		(29)		357		(1,218)		4,646
Total	Total	$	280,507	$	—	$	(4,096)	$	2,338	$	9,254	$	288,003	Total	$	288,003	$	10,558	$	(11,440)	$	3,845	$	11,288	$	302,254

Three Months Ended June 30, 2021
Three Months Ended September 30, 2021														Three Months Ended September 30, 2021
Commercial	Commercial	$	25,130	$	—	$	(178)	$	204	$	575	$	25,731	Commercial	$	25,731	$	—	$	(354)	$	106	$	677	$	26,160
Commercial real estate	Commercial real estate	70,561		—		(178)		111		(5,025)		65,469		Commercial real estate	65,469		—		(86)		3,371		(3,657)		65,097
BBCC	BBCC	2,537		—		(100)		15		346		2,798		BBCC	2,798		—		(8)		31		(259)		2,562
Residential real estate	Residential real estate	10,265		—		(62)		51		165		10,419		Residential real estate	10,419		—		(85)		79		(887)		9,526
Indirect	Indirect	2,255		—		(206)		565		(571)		2,043		Indirect	2,043		—		(113)		294		(363)		1,861
Direct	Direct	665		—		(256)		209		22		640		Direct	640		—		(355)		153		148		586
Home equity	Home equity	2,624		—		—		161		(441)		2,344		Home equity	2,344		—		(214)		218		(272)		2,076
Total	Total	$	114,037	$	—	$	(980)	$	1,316	$	(4,929)	$	109,444	Total	$	109,444	$	—	$	(1,215)	$	4,252	$	(4,613)	$	107,868

Six Months Ended June 30, 2022
Nine Months Ended September 30, 2022														Nine Months Ended September 30, 2022
Commercial	Commercial	$	27,232	$	35,040	$	(3,223)	$	1,013	$	42,757	$	102,819	Commercial	$	27,232	$	38,780	$	(5,919)	$	3,219	$	49,101	$	112,413
Commercial real estate	Commercial real estate	64,004		42,601		(824)		502		35,519		141,802		Commercial real estate	64,004		49,419		(5,596)		789		35,474		144,090
BBCC	BBCC	2,458		—		(48)		148		(494)		2,064		BBCC	2,458		—		(48)		256		(498)		2,168
Residential real estate	Residential real estate	9,347		136		(324)		570		10,000		19,729		Residential real estate	9,347		136		(344)		636		11,481		21,256
Indirect	Indirect	1,743		—		(1,012)		542		368		1,641		Indirect	1,743		—		(1,636)		921		557		1,585
Direct	Direct	528		31		(3,251)		1,270		15,834		14,412		Direct	528		31		(6,550)		1,712		20,375		16,096
Home equity	Home equity	2,029		723		(78)		183		2,679		5,536		Home equity	2,029		723		(107)		540		1,461		4,646
Total	Total	$	107,341	$	78,531	$	(8,760)	$	4,228	$	106,663	$	288,003	Total	$	107,341	$	89,089	$	(20,200)	$	8,073	$	117,951	$	302,254

Six Months Ended June 30, 2021
Nine Months Ended September 30, 2021														Nine Months Ended September 30, 2021
Commercial	Commercial	$	30,567	$	—	$	(586)	$	443	$	(4,693)	$	25,731	Commercial	$	30,567	$	—	$	(940)	$	549	$	(4,016)	$	26,160
Commercial real estate	Commercial real estate	75,810		—		(178)		184		(10,347)		65,469		Commercial real estate	75,810		—		(264)		3,555		(14,004)		65,097
BBCC	BBCC	6,120		—		(136)		56		(3,242)		2,798		BBCC	6,120		—		(144)		87		(3,501)		2,562
Residential real estate	Residential real estate	12,608		—		(220)		138		(2,107)		10,419		Residential real estate	12,608		—		(305)		217		(2,994)		9,526
Indirect	Indirect	3,580		—		(790)		1,101		(1,848)		2,043		Indirect	3,580		—		(903)		1,395		(2,211)		1,861
Direct	Direct	855		—		(558)		469		(126)		640		Direct	855		—		(913)		622		22		586
Home equity	Home equity	1,848		—		(82)		500		78		2,344		Home equity	1,848		—		(296)		718		(194)		2,076
Total	Total	$	131,388	$	—	$	(2,550)	$	2,891	$	(22,285)	$	109,444	Total	$	131,388	$	—	$	(3,765)	$	7,143	$	(26,898)	$	107,868

(1)During the three months ended September 30, 2022, a measurement period adjustment was made on the allowance for credit losses for acquired PCD loans totaling $10.6 million.

The allowance for credit losses increased for the ~~six~~nine months ended ~~June~~September 30, 2022 primarily due to ~~$78.5~~$89.1 million of allowance for credit losses on acquired PCD loans established through acquisition accounting

adjustments on or after the merger date and $96.3 million of provision for credit losses to establish an allowance for credit losses on non-PCD

loans acquired in the First Midwest merger. Loan growth and ~~qualitative factors~~measurement period adjustments for PCD loans contributed to the increase in the allowance for credit losses in the three months ended ~~June~~September 30, 2022.

Unfunded Loan Commitments

Old National maintains an allowance for credit losses on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses for loans, modified to take into account the probability of a drawdown on the commitment. The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet within accrued expenses and other liabilities, while the corresponding provision for these credit losses is recorded as a component of other expense. Old National’s activity in the allowance for credit losses on unfunded loan commitments was as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2022		2021		2022		2021
Allowance for credit losses on unfunded loan commitments:	Allowance for credit losses on unfunded loan commitments:									Allowance for credit losses on unfunded loan commitments:
Balance at beginning of period	Balance at beginning of period	$	22,045	$	10,365	$	10,879	$	11,689	Balance at beginning of period	$	21,966	$	10,429	$	10,879	$	11,689
Provision for credit losses on unfunded commitments for loans acquired during the period	Provision for credit losses on unfunded commitments for loans acquired during the period	—		—		11,013		—		Provision for credit losses on unfunded commitments for loans acquired during the period	—		—		11,013		—
Expense (reversal of expense) for credit losses	Expense (reversal of expense) for credit losses	(79)		64		74		(1,260)		Expense (reversal of expense) for credit losses	4,203		(132)		4,277		(1,392)
Balance at end of period	Balance at end of period	$	21,966	$	10,429	$	21,966	$	10,429	Balance at end of period	$	26,169	$	10,297	$	26,169	$	10,297

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.

2324

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									Origination Year																												Revolving to Term
(dollars in thousands)	(dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving				Total		(dollars in thousands)		2022					2021				2020				2019				2018				Prior				Revolving								Total
June 30, 2022
September 30, 2022																							September 30, 2022
Commercial:	Commercial:																						Commercial:
Risk Rating:	Risk Rating:																						Risk Rating:
Pass	Pass	$	1,085,570	$	1,982,733	$	1,016,391	$	888,392	$	426,282	$	467,789	$	2,313,545			$	132,149				$	8,312,851		Pass	$	1,788,480			$	1,953,811			$	928,908			$	858,442			$	386,870			$	444,404			$	1,981,798			$	277,119			$	8,619,832
Criticized	Criticized	5,285		23,442		17,524		28,488		15,752		10,798		48,442		1,352				151,083			Criticized		42,688				27,736				41,026				44,508				10,165				6,293				61,764				4,397				238,577
Classified:	Classified:																						Classified:
Substandard	Substandard	31,062		33,265		16,647		44,642		25,021		15,349		41,626		18,092				225,704			Substandard		40,035				35,516				20,640				13,877				8,661				21,806				31,913				26,566				199,014
Nonaccrual	Nonaccrual	347		3,640		1,164		1,071		1		—		2,402		3,479				12,104			Nonaccrual		—				2,158				1,356				1,127				—				—				7,892				7,645				20,178
Doubtful	Doubtful	—		299		930		592		4,679		16,004		7,741		—				30,245			Doubtful		4,151				6,658				3,280				7,158				5,851				9,280				—				—				36,378
Total	Total	$	1,122,264	$	2,043,379	$	1,052,656	$	963,185	$	471,735	$	509,940	$	2,413,756	$	155,072			$	8,731,987		Total		$	1,875,354			$	2,025,879			$	995,210			$	925,112			$	411,547			$	481,783			$	2,083,367			$	315,727			$	9,113,979

Commercial real estate:	Commercial real estate:																						Commercial real estate:
Risk Rating:	Risk Rating:																						Risk Rating:
Pass	Pass	$	1,552,841	$	2,787,599	$	2,234,315	$	1,472,777	$	867,430	$	1,446,189	$	163,533	$	443,935			$	10,968,619		Pass		$	2,375,092			$	2,864,028			$	2,141,691			$	1,322,839			$	803,056			$	1,209,592			$	54,548			$	597,665			$	11,368,511
Criticized	Criticized	43,201		31,765		18,257		51,824		66,566		50,919		—		33,801				296,333			Criticized		61,754				28,671				21,462				60,599				68,301				44,349				—				20,431				305,567
Classified:	Classified:																						Classified:
Substandard	Substandard	51,283		36,711		22,940		47,348		55,284		35,047		2,291		4,212				255,116			Substandard		54,427				24,635				26,280				78,029				56,499				31,336				—				4,153				275,359
Nonaccrual	Nonaccrual	918		12,535		3,545		—		2,666		7,285		303		786				28,038			Nonaccrual		2,358				13,949				5,640				1,162				2,188				26,480				297				3,037				55,111
Doubtful	Doubtful	—		37,124		12,041		669		1,171		42,623		—		—				93,628			Doubtful		—				35,581				9,752				218				1,783				22,222				—				—				69,556
Total	Total	$	1,648,243	$	2,905,734	$	2,291,098	$	1,572,618	$	993,117	$	1,582,063	$	166,127	$	482,734			$	11,641,734		Total		$	2,493,631			$	2,966,864			$	2,204,825			$	1,462,847			$	931,827			$	1,333,979			$	54,845			$	625,286			$	12,074,104

BBCC:	BBCC:																						BBCC:
Risk Rating:	Risk Rating:																						Risk Rating:
Pass	Pass	$	44,590	$	73,821	$	60,244	$	45,049	$	28,071	$	20,216	$	46,062	$	19,013			$	337,066		Pass		$	63,023			$	70,355			$	56,446			$	40,627			$	26,382			$	14,995			$	50,146			$	18,477			$	340,451
Criticized	Criticized	669		1,083		667		744		270		—		451		1,535				5,419			Criticized		1,330				633				611				697				263				164				975				1,177				5,850
Classified:	Classified:																						Classified:
Substandard	Substandard	72		274		13		576		—		152		923		313				2,323			Substandard		342				324				3				343				—				—				837				502				2,351
Nonaccrual	Nonaccrual	—		—		276		—		45		—		—		737				1,058			Nonaccrual		61				—				340				294				283				336				—				723				2,037
Doubtful	Doubtful	—		—		25		387		364		123		—		—				899			Doubtful		—				28				16				93				127				—				—				—				264
Total	Total	$	45,331	$	75,178	$	61,225	$	46,756	$	28,750	$	20,491	$	47,436	$	21,598			$	346,765		Total		$	64,756			$	71,340			$	57,416			$	42,054			$	27,055			$	15,495			$	51,958			$	20,879			$	350,953

2425


	Origination Year														Revolving to Term
(dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving				Total
December 31, 2021
Commercial:
Risk Rating:
Pass	$	918,456	$	563,869	$	271,158	$	98,468	$	156,136	$	235,639	$	667,628	$	130,470	$	3,041,824
Criticized	9,998		7,885		6,660		—		7,809		2,658		14,601		10,076		59,687
Classified:
Substandard	14,773		14,468		10,200		9,849		5,521		945		6,883		10,322		72,961
Nonaccrual	1,069		3,507		1,276		3,721		1,448		—		845		7,796		19,662
Doubtful	—		178		—		288		337		5,275		—		—		6,078
Total	$	944,296	$	589,907	$	289,294	$	112,326	$	171,251	$	244,517	$	689,957	$	158,664	$	3,200,212

Commercial real estate:
Risk Rating:
Pass	$	1,555,880	$	1,474,271	$	846,921	$	481,508	$	462,176	$	611,680	$	42,609	$	451,544	$	5,926,589
Criticized	27,622		24,790		39,914		—		21,614		22,157		—		34,387		170,484
Classified:
Substandard	4,706		12,118		9,933		9,058		18,165		11,351		2,291		4,339		71,961
Nonaccrual	1,620		2,997		—		1,627		3,419		8,905		315		871		19,754
Doubtful	6,653		—		1,970		342		11,218		12,513		—		—		32,696
Total	$	1,596,481	$	1,514,176	$	898,738	$	492,535	$	516,592	$	666,606	$	45,215	$	491,141	$	6,221,484

BBCC:
Risk Rating:
Pass	$	81,710	$	69,749	$	54,580	$	34,461	$	25,113	$	8,296	$	47,571	$	18,778	$	340,258
Criticized	1,320		1,170		841		160		—		—		670		1,578		5,739
Classified:
Substandard	284		24		79		7		187		465		103		239		1,388
Nonaccrual	—		88		—		—		66		162		—		1,136		1,452
Doubtful	—		25		284		1,391		—		210		—		—		1,910
Total	$	83,314	$	71,056	$	55,784	$	36,019	$	25,366	$	9,133	$	48,344	$	21,731	$	350,747

2526

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									Origination Year																												Revolving to Term
(dollars in thousands)	(dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving				Total		(dollars in thousands)		2022					2021				2020				2019				2018				Prior				Revolving								Total
June 30, 2022
September 30, 2022																							September 30, 2022
Residential real estate:	Residential real estate:																						Residential real estate:
Risk Rating:	Risk Rating:																						Risk Rating:
Performing	Performing	$	1,316,193	$	1,383,143	$	1,895,059	$	507,638	$	147,478	$	786,725	$	10,863			$	96				$	6,047,195		Performing	$	1,070,939			$	1,920,008			$	1,861,893			$	496,062			$	144,400			$	742,078			$	8			$	92			$	6,235,480
Nonperforming	Nonperforming	—		198		666		587		1,239		29,172		—		—				31,862			Nonperforming		—				423				765				584				717				29,337				—				—				31,826
Total	Total	$	1,316,193	$	1,383,341	$	1,895,725	$	508,225	$	148,717	$	815,897	$	10,863	$	96			$	6,079,057		Total		$	1,070,939			$	1,920,431			$	1,862,658			$	496,646			$	145,117			$	771,415			$	8			$	92			$	6,267,306

Indirect:	Indirect:																						Indirect:
Risk Rating:	Risk Rating:																						Risk Rating:
Performing	Performing	$	305,501	$	302,525	$	180,812	$	109,194	$	46,379	$	35,067	$	—	$	1			$	979,479		Performing		$	404,054			$	274,254			$	162,221			$	95,443			$	39,202			$	25,995			$	—			$	45			$	1,001,214
Nonperforming	Nonperforming	66		414		519		371		349		543		—		—				2,262			Nonperforming		203				756				548				531				360				442				—				—				2,840
Total	Total	$	305,567	$	302,939	$	181,331	$	109,565	$	46,728	$	35,610	$	—	$	1			$	981,741		Total		$	404,257			$	275,010			$	162,769			$	95,974			$	39,562			$	26,437			$	—			$	45			$	1,004,054

Direct:	Direct:																						Direct:
Risk Rating:	Risk Rating:																						Risk Rating:
Performing	Performing	$	91,675	$	188,063	$	100,504	$	78,199	$	58,343	$	50,906	$	103,998	$	38			$	671,726		Performing		$	120,960			$	185,466			$	86,802			$	67,478			$	52,671			$	65,437			$	89,675			$	1,530			$	670,019
Nonperforming	Nonperforming	22		447		143		289		157		1,516		84		128				2,786			Nonperforming		161				620				647				388				301				2,635				40				132				4,924
Total	Total	$	91,697	$	188,510	$	100,647	$	78,488	$	58,500	$	52,422	$	104,082	$	166			$	674,512		Total		$	121,121			$	186,086			$	87,449			$	67,866			$	52,972			$	68,072			$	89,715			$	1,662			$	674,943

Home equity:	Home equity:																						Home equity:
Risk Rating:	Risk Rating:																						Risk Rating:
Performing	Performing	$	11,875	$	11,855	$	8,137	$	14,518	$	13,076	$	36,231	$	975,416	$	14,702			$	1,085,810		Performing		$	741			$	992			$	1,863			$	2,035			$	1,008			$	11,171			$	999,869			$	15,370			$	1,033,049
Nonperforming	Nonperforming	—		—		34		16		593		8,224		212		2,963				12,042			Nonperforming		224				96				231				728				824				4,335				868				3,239				10,545
Total	Total	$	11,875	$	11,855	$	8,171	$	14,534	$	13,669	$	44,455	$	975,628	$	17,665			$	1,097,852		Total		$	965			$	1,088			$	2,094			$	2,763			$	1,832			$	15,506			$	1,000,737			$	18,609			$	1,043,594

		Origination Year														Revolving to Term									Origination Year																												Revolving to Term
		2021		2020		2019		2018		2017		Prior		Revolving				Total				2021					2020				2019				2018				2017				Prior				Revolving								Total
December 31, 2021	December 31, 2021																						December 31, 2021
Residential real estate:	Residential real estate:																						Residential real estate:
Risk Rating:	Risk Rating:																						Risk Rating:
Performing	Performing	$	625,582	$	632,705	$	272,600	$	72,766	$	103,866	$	529,293	$	12			$	105				$	2,236,929		Performing	$	625,582			$	632,705			$	272,600			$	72,766			$	103,866			$	529,293			$	12			$	105			$	2,236,929
Nonperforming	Nonperforming	96		165		166		350		855		16,728		—		—				18,360			Nonperforming		96				165				166				350				855				16,728				—				—				18,360
Total	Total	$	625,678	$	632,870	$	272,766	$	73,116	$	104,721	$	546,021	$	12	$	105			$	2,255,289		Total		$	625,678			$	632,870			$	272,766			$	73,116			$	104,721			$	546,021			$	12			$	105			$	2,255,289

Indirect:	Indirect:																						Indirect:
Risk Rating:	Risk Rating:																						Risk Rating:
Performing	Performing	$	361,485	$	231,156	$	146,978	$	68,513	$	41,598	$	20,819	$	—	$	9			$	870,558		Performing		$	361,485			$	231,156			$	146,978			$	68,513			$	41,598			$	20,819			$	—			$	9			$	870,558
Nonperforming	Nonperforming	262		524		614		510		430		241		—		—				2,581			Nonperforming		262				524				614				510				430				241				—				—				2,581
Total	Total	$	361,747	$	231,680	$	147,592	$	69,023	$	42,028	$	21,060	$	—	$	9			$	873,139		Total		$	361,747			$	231,680			$	147,592			$	69,023			$	42,028			$	21,060			$	—			$	9			$	873,139

Direct:	Direct:																						Direct:
Risk Rating:	Risk Rating:																						Risk Rating:
Performing	Performing	$	34,058	$	16,135	$	14,396	$	14,579	$	7,432	$	15,831	$	36,812	$	192			$	139,435		Performing		$	34,058			$	16,135			$	14,396			$	14,579			$	7,432			$	15,831			$	36,812			$	192			$	139,435
Nonperforming	Nonperforming	13		53		130		133		35		536		42		8				950			Nonperforming		13				53				130				133				35				536				42				8				950
Total	Total	$	34,071	$	16,188	$	14,526	$	14,712	$	7,467	$	16,367	$	36,854	$	200			$	140,385		Total		$	34,071			$	16,188			$	14,526			$	14,712			$	7,467			$	16,367			$	36,854			$	200			$	140,385

Home equity:	Home equity:																						Home equity:
Risk Rating:	Risk Rating:																						Risk Rating:
Performing	Performing	$	—	$	—	$	633	$	349	$	535	$	—	$	539,057	$	16,768			$	557,342		Performing		$	—			$	—			$	633			$	349			$	535			$	—			$	539,057			$	16,768			$	557,342
Nonperforming	Nonperforming	—		—		16		9		41		1		258		2,923				3,248			Nonperforming		—				—				16				9				41				1				258				2,923				3,248
Total	Total	$	—	$	—	$	649	$	358	$	576	$	1	$	539,315	$	19,691			$	560,590		Total		$	—			$	—			$	649			$	358			$	576			$	1			$	539,315			$	19,691			$	560,590

2627

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)	(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		(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
June 30, 2022
September 30, 2022														September 30, 2022
Commercial	Commercial	$	3,364	$	117	$	15,317	$	18,798	$	8,713,189	$	8,731,987	Commercial	$	8,575	$	758	$	11,885	$	21,218	$	9,092,761	$	9,113,979
Commercial real estate	Commercial real estate	7,061		3,320		59,986		70,367		11,571,367		11,641,734		Commercial real estate	23,786		7,235		27,286		58,307		12,015,797		12,074,104
BBCC	BBCC	129		167		370		666		346,099		346,765		BBCC	78		92		84		254		350,699		350,953
Residential	Residential	37,902		4,304		12,611		54,817		6,024,240		6,079,057		Residential	29,394		7,382		8,851		45,627		6,221,679		6,267,306
Indirect	Indirect	4,140		673		362		5,175		976,566		981,741		Indirect	4,929		1,735		850		7,514		996,540		1,004,054
Direct	Direct	6,496		969		2,044		9,509		665,003		674,512		Direct	4,459		2,926		2,503		9,888		665,055		674,943
Home equity	Home equity	4,190		1,030		5,076		10,296		1,087,556		1,097,852		Home equity	4,995		1,078		4,589		10,662		1,032,932		1,043,594
Total	Total	$	63,282	$	10,580	$	95,766	$	169,628	$	29,384,020	$	29,553,648	Total	$	76,216	$	21,206	$	56,048	$	153,470	$	30,375,463	$	30,528,933

December 31, 2021	December 31, 2021													December 31, 2021
Commercial	Commercial	$	2,723	$	617	$	1,603	$	4,943	$	3,195,269	$	3,200,212	Commercial	$	2,723	$	617	$	1,603	$	4,943	$	3,195,269	$	3,200,212
Commercial real estate	Commercial real estate	1,402		280		7,042		8,724		6,212,760		6,221,484		Commercial real estate	1,402		280		7,042		8,724		6,212,760		6,221,484
BBCC	BBCC	747		162		109		1,018		349,729		350,747		BBCC	747		162		109		1,018		349,729		350,747
Residential	Residential	8,273		2,364		4,554		15,191		2,240,098		2,255,289		Residential	8,273		2,364		4,554		15,191		2,240,098		2,255,289
Indirect	Indirect	3,888		867		554		5,309		867,830		873,139		Indirect	3,888		867		554		5,309		867,830		873,139
Direct	Direct	687		159		162		1,008		139,377		140,385		Direct	687		159		162		1,008		139,377		140,385
Home equity	Home equity	693		199		777		1,669		558,921		560,590		Home equity	693		199		777		1,669		558,921		560,590
Total	Total	$	18,413	$	4,648	$	14,801	$	37,862	$	13,563,984	$	13,601,846	Total	$	18,413	$	4,648	$	14,801	$	37,862	$	13,563,984	$	13,601,846

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:


		June 30, 2022						December 31, 2021							September 30, 2022						December 31, 2021
(dollars in thousands)	(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		(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	Commercial	$	42,349	$	13,762	$	474	$	25,740	$	9,574	$	—	Commercial	$	56,556	$	3,836	$	—	$	25,740	$	9,574	$	—
Commercial real estate	Commercial real estate	121,666		9,714		216		52,450		25,139		—		Commercial real estate	124,667		35,989		—		52,450		25,139		—
BBCC	BBCC	1,957		—		—		3,362		—		—		BBCC	2,301		—		—		3,362		—		—
Residential	Residential	31,862		—		—		18,360		—		—		Residential	31,826		—		—		18,360		—		—
Indirect	Indirect	2,262		—		—		2,581		—		4		Indirect	2,840		—		—		2,581		—		4
Direct	Direct	2,786		—		182		950		—		3		Direct	4,924		—		767		950		—		3
Home equity	Home equity	12,042		—		10		3,248		—		—		Home equity	10,545		—		—		3,248		—		—
Total	Total	$	214,924	$	23,476	$	882	$	106,691	$	34,713	$	7	Total	$	233,659	$	39,825	$	767	$	106,691	$	34,713	$	7

Interest income recognized on nonaccrual loans was insignificant during the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.

2728

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											Type of Collateral
(dollars in thousands)	(dollars in thousands)	Real Estate		Blanket Lien		Investment Securities/Cash		Auto		Other		(dollars in thousands)	Real Estate		Blanket Lien		Investment Securities/Cash		Auto		Other
June 30, 2022
September 30, 2022												September 30, 2022
Commercial	Commercial	$	11,766	$	25,147	$	2,545	$	57	$	1,843	Commercial	$	7,417	$	43,620	$	2,301	$	134	$	987
Commercial real estate	Commercial real estate	108,312		—		917		—		6,563		Commercial real estate	112,275		—		590		—		6,487
BBCC	BBCC	1,364		539		26		28		—		BBCC	1,649		560		64		28		—
Residential	Residential	31,862		—		—		—		—		Residential	31,826		—		—		—		—
Indirect	Indirect	—		—		—		2,262		—		Indirect	—		—		—		2,840		—
Direct	Direct	1,810		—		1		272		21		Direct	3,861		2		—		198		16
Home equity	Home equity	11,377		—		—		—		—		Home equity	10,545		—		—		—		—
Total loans	Total loans	$	166,491	$	25,686	$	3,489	$	2,619	$	8,427	Total loans	$	167,573	$	44,182	$	2,955	$	3,200	$	7,490

December 31, 2021	December 31, 2021											December 31, 2021
Commercial	Commercial	$	8,100	$	13,816	$	3,394	$	80	$	302	Commercial	$	8,100	$	13,816	$	3,394	$	80	$	302
Commercial real estate	Commercial real estate	38,657		—		961		—		6,653		Commercial real estate	38,657		—		961		—		6,653
BBCC	BBCC	1,895		1,331		43		93		—		BBCC	1,895		1,331		43		93		—
Residential	Residential	18,360		—		—		—		—		Residential	18,360		—		—		—		—
Indirect	Indirect	—		—		—		2,581		—		Indirect	—		—		—		2,581		—
Direct	Direct	724		—		1		152		20		Direct	724		—		1		152		20
Home equity	Home equity	3,248		—		—		—		—		Home equity	3,248		—		—		—		—
Total loans	Total loans	$	70,984	$	15,147	$	4,399	$	2,906	$	6,975	Total loans	$	70,984	$	15,147	$	4,399	$	2,906	$	6,975

Loan Participations

Old National has loan participations, which qualify as participating interests, with other financial institutions. At ~~June~~September 30, 2022, these loans totaled ~~$2.4~~$2.3 billion, of which ~~$1.2~~$1.1 billion had been sold to other financial institutions and $1.2 billion was retained by Old National. The loan participations convey proportionate ownership rights with equal priority to each participating interest holder; involve no recourse (other than ordinary representations and warranties) to, or subordination by, any participating interest holder; all cash flows are divided 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.

Troubled Debt Restructurings

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

Any loans that are modified are reviewed by Old National to identify if a TDR has occurred, which is when for economic or legal reasons related to a borrower’s financial difficulties, Old National Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status. The modification of the terms of such loans includes one or a combination of the following: a reduction of the stated interest rate of the loan, an extension of the maturity date at a stated rate of interest lower than the current market rate of new debt with similar risk, or a permanent reduction of the recorded investment of the loan.

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

2829

If we are unable to resolve a nonperforming loan issue, the credit will be charged off when it is apparent there will be a loss. For large commercial type loans, each relationship is individually analyzed for evidence of apparent loss based on quantitative benchmarks or subjectively based upon certain events or particular circumstances. For residential and consumer loans, a charge off is recorded at the time foreclosure is initiated or when the loan becomes 120 to 180 days past due, whichever is earlier.

For commercial TDRs, an allocation is established within the allowance for credit losses for the difference between the carrying value of the loan and its computed value. To determine the computed value of the loan, one of the following methods is selected: (1) the present value of expected cash flows discounted at the loan’s original effective interest rate, (2) the loan’s observable market price, or (3) the fair value of the collateral, if the loan is collateral dependent. The allocation is established as the difference between the carrying value of the loan and the collectable value. If there are significant changes in the amount or timing of the loan’s expected future cash flows, the allowance allocation is recalculated and adjusted accordingly.

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

2930

The following table presents activity in TDRs:


(dollars in thousands)	(dollars in thousands)	Beginning Balance		(Charge-offs)/ Recoveries		(Payments)/ Disbursements		(Removals)/ Additions		Ending Balance		(dollars in thousands)	Beginning Balance		(Charge-offs)/ Recoveries		(Payments)/ Disbursements		(Removals)/ Additions		Ending Balance
Three Months Ended June 30, 2022
Three Months Ended September 30, 2022												Three Months Ended September 30, 2022
Commercial												Commercial	$	7,216	$	—	$	(1,620)	$	—	$	5,596
Commercial real estate												Commercial real estate	27,531		—		(891)		—		26,640
BBCC												BBCC	87		—		(13)		—		74
Residential												Residential	2,378		—		(37)		—		2,341

Direct												Direct	2,669		—		(12)		—		2,657
Home equity												Home equity	131		—		(8)		—		123
Total												Total	$	40,012	$	—	$	(2,581)	$	—	$	37,431

Three Months Ended September 30, 2021												Three Months Ended September 30, 2021
Commercial	Commercial	$	7,044	$	—	$	(2,846)	$	3,018	$	7,216	Commercial	$	8,264	$	1	$	(156)	$	2,073	$	10,182
Commercial real estate	Commercial real estate	32,428		—		(8,903)		4,006		27,531		Commercial real estate	15,970		58		(369)		—		15,659
BBCC	BBCC	87		—		—		—		87		BBCC	97		2		(10)		—		89
Residential	Residential	2,405		—		(27)		—		2,378		Residential	2,582		(7)		(108)		—		2,467
Indirect	Indirect	—		—		—		—		—		Indirect	—		1		(1)		—		—
Direct	Direct	2,679		—		(10)		—		2,669		Direct	665		—		(15)		—		650
Home equity	Home equity	180		—		(49)		—		131		Home equity	217		1		(10)		—		208
Total	Total	$	44,823	$	—	$	(11,835)	$	7,024	$	40,012	Total	$	27,795	$	56	$	(669)	$	2,073	$	29,255

Three Months Ended June 30, 2021
Nine Months Ended September 30, 2022												Nine Months Ended September 30, 2022
Commercial	Commercial	$	8,471	$	—	$	(207)	$	—	$	8,264	Commercial	$	7,456	$	—	$	(6,363)	$	4,503	$	5,596
Commercial real estate	Commercial real estate	17,385		5		(1,420)		—		15,970		Commercial real estate	17,158		4		(10,005)		19,483		26,640
BBCC	BBCC	105		3		(11)		—		97		BBCC	87		3		(16)		—		74
Residential	Residential	2,603		(4)		(17)		—		2,582		Residential	2,435		—		(94)		—		2,341
Indirect	Indirect	—		1		(1)		—		—		Indirect	—		1		(1)		—		—
Direct	Direct	726		1		(62)		—		665		Direct	2,704		—		(47)		—		2,657
Home equity	Home equity	276		1		(60)		—		217		Home equity	199		1		(77)		—		123
Total	Total	$	29,566	$	7	$	(1,778)	$	—	$	27,795	Total	$	30,039	$	9	$	(16,603)	$	23,986	$	37,431

Six Months Ended June 30, 2022
Nine Months Ended September 30, 2021												Nine Months Ended September 30, 2021
Commercial	Commercial	$	7,456	$	—	$	(4,743)	$	4,503	$	7,216	Commercial	$	11,090	$	1	$	(1,810)	$	901	$	10,182
Commercial real estate	Commercial real estate	17,158		4		(9,114)		19,483		27,531		Commercial real estate	17,606		72		(2,019)		—		15,659
BBCC	BBCC	87		3		(3)		—		87		BBCC	112		8		(31)		—		89
Residential	Residential	2,435		—		(57)		—		2,378		Residential	2,824		(11)		(346)		—		2,467
Indirect	Indirect	—		1		(1)		—		—		Indirect	—		4		(4)		—		—
Direct	Direct	2,704		—		(35)		—		2,669		Direct	739		3		(92)		—		650
Home equity	Home equity	199		1		(69)		—		131		Home equity	282		2		(76)		—		208
Total	Total	$	30,039	$	9	$	(14,022)	$	23,986	$	40,012	Total	$	32,653	$	79	$	(4,378)	$	901	$	29,255

Six Months Ended June 30, 2021
Commercial		$	11,090	$	—	$	(1,655)	$	(1,171)	$	8,264
Commercial real estate		17,606		15		(1,651)		—		15,970
BBCC		112		5		(20)		—		97
Residential		2,824		(4)		(238)		—		2,582
Indirect		—		3		(3)		—		—
Direct		739		2		(76)		—		665
Home equity		282		1		(66)		—		217
Total		$	32,653	$	22	$	(3,709)	$	(1,171)	$	27,795

TDRs included within nonaccrual loans totaled ~~$24.3~~$23.8 million at ~~June~~September 30, 2022 and $11.7 million at December 31, 2021. Old National has established specific allowances for credit losses for clients whose loan terms have been modified as TDRs totaling ~~$5.8~~$5.2 million at ~~June~~September 30, 2022 and $0.7 million at December 31, 2021. At September 30, 2022, Old National had committed to lend an additional $3.0 million to clients with outstanding loans that were classified as TDRs. At December 31, 2021, Old National had not committed to lend any additional funds to clients with outstanding loans that were classified as ~~TDRs at June 30, 2022 or December 31, 2021.~~TDRs.

The pre-modification and post-modification outstanding recorded investments of loans modified as TDRs during the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 are the same except for when the loan modifications involve the forgiveness of principal. ~~NaN~~One loan met the qualifications to be removed from TDR status for the ~~six~~nine months ended ~~June~~September 30, 2021.

The TDRs that occurred during the ~~six~~nine months ended ~~June~~September 30, 2022 increased the allowance for credit losses by $5.5 million and resulted in no charge-offs. The TDRs that occurred during the ~~six~~nine months ended ~~June~~September 30, 2021 did not have a material impact on the allowance for credit losses and resulted in no charge-offs.

3031

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

TDRs for which there was a payment default within twelve months following the modification were insignificant during the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.

The terms of certain other loans were modified during 2022 and 2021 that did not meet the definition of a TDR. It is our process to review all classified and criticized loans that, during the period, have been renewed, have entered into a forbearance agreement, have gone from principal and interest to interest only, or have extended the maturity date. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on its debt in the foreseeable future without the modification. The evaluation is performed under our internal underwriting policy. We also evaluate whether a concession has been granted or if we were adequately compensated through a market interest rate, additional collateral, or a bona fide guarantee. We also consider whether the modification was insignificant relative to the other terms of the agreement or the delay in a payment.

In general, once a modified loan is considered a TDR, the loan will always be considered a TDR until it is paid in full, otherwise settled, sold, or charged off. However, guidance also permits for loans to be removed from TDR status when subsequently restructured under these circumstances: (1) at the time of the subsequent restructuring, the borrower is not experiencing financial difficulties, and this is documented by a current credit evaluation at the time of the restructuring, (2) under the terms of the subsequent restructuring agreement, the institution has granted no concession to the borrower; and (3) the subsequent restructuring agreement includes market terms that are no less favorable than those that would be offered for a comparable new loan. For loans subsequently restructured that have cumulative principal forgiveness, the loan should continue to be measured in accordance with ASC 310-10, Receivables – Overall. However, consistent with ASC 310-40-50-2, Troubled Debt Restructurings by Creditors, Creditor Disclosure of Troubled Debt Restructurings, the loan would not be required to be reported in the years following the restructuring if the subsequent restructuring meets both of these criteria: (1) has an interest rate at the time of the subsequent restructuring that is not less than a market interest rate; and (2) is performing in compliance with its modified terms after the subsequent restructuring.

Purchased Credit Deteriorated Loans

Old National has purchased loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The carrying amount of those loans is as follows:


(dollars in thousands)	First Midwest (1)
Purchase price of loans at acquisition	$	~~1,400,831~~1,390,273
Allowance for credit losses at acquisition	~~78,531~~89,089
Non-credit discount/(premium) at acquisition	9,003
Par value of acquired loans at acquisition	$	1,488,365

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

NOTE 7 – PREMISES AND EQUIPMENT

The composition of premises and equipment was as follows:


(dollars in thousands)	(dollars in thousands)	June 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2022		December 31, 2021
Land	Land	$	97,194	$	71,014	Land	$	97,194	$	71,014
Buildings	Buildings	450,537		394,400		Buildings	450,957		394,400
Furniture, fixtures, and equipment	Furniture, fixtures, and equipment	143,975		118,124		Furniture, fixtures, and equipment	154,945		118,124
Leasehold improvements	Leasehold improvements	62,400		46,330		Leasehold improvements	62,400		46,330
Total	Total	754,106		629,868		Total	765,496		629,868
Accumulated depreciation	Accumulated depreciation	(168,075)		(153,682)		Accumulated depreciation	(177,475)		(153,682)
Premises and equipment, net	Premises and equipment, net	$	586,031	$	476,186	Premises and equipment, net	$	588,021	$	476,186

The increase in premises and equipment at ~~June~~September 30, 2022 when compared to December 31, 2021 was primarily due to assets acquired in the merger with First Midwest totaling ~~$112.4~~$111.9 million.

3132

Depreciation expense was ~~$10.0~~$9.2 million for the three months ended ~~June~~September 30, 2022 and ~~$17.7~~$26.9 million for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~$7.0~~$6.5 million for the three months ended ~~June~~September 30, 2021 and ~~$14.1~~$20.6 million for the ~~six~~nine months ended ~~June~~September 30, 2021.

Finance Leases

Old National leases certain banking center buildings and equipment under finance leases that are included in premises and equipment. See Notes 8 and 14 to the consolidated financial statements for detail regarding these leases.

NOTE 8 – LEASES

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	Three Months Ended June 30,				Six Months Ended June 30,					Affected Line Item in the Statement of Income	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)		2022		2021		2022		2021		(dollars in thousands)		2022		2021		2022		2021
Operating lease cost	Operating lease cost	Occupancy/Equipment expense	$	8,558	$	3,092	$	13,666	$	6,393	Operating lease cost	Occupancy/Equipment expense	$	7,657	$	2,995	$	21,323	$	9,388
Finance lease cost:	Finance lease cost:										Finance lease cost:
Amortization of right-of-use assets	Amortization of right-of-use assets	Occupancy expense	648		810		1,323		1,121		Amortization of right-of-use assets	Occupancy expense	680		593		2,003		1,714
Interest on lease liabilities	Interest on lease liabilities	Interest expense	103		120		210		215		Interest on lease liabilities	Interest expense	105		108		315		323

Sub-lease income	Sub-lease income	Occupancy expense	(174)		(135)		(302)		(278)		Sub-lease income	Occupancy expense	(87)		(142)		(389)		(420)
Total	Total		$	9,135	$	3,887	$	14,897	$	7,451	Total		$	8,355	$	3,554	$	23,252	$	11,005

3233

Supplemental balance sheet information related to leases was as follows:


(dollars in thousands)	(dollars in thousands)	June 30, 2022			December 31, 2021			(dollars in thousands)	September 30, 2022			December 31, 2021
Operating Leases	Operating Leases							Operating Leases
Operating lease right-of-use assets	Operating lease right-of-use assets	$	192,196		$	69,560		Operating lease right-of-use assets	$	187,626		$	69,560
Operating lease liabilities	Operating lease liabilities	215,188			76,236			Operating lease liabilities	207,725			76,236

Finance Leases	Finance Leases							Finance Leases
Premises and equipment, net	Premises and equipment, net	15,017			16,451			Premises and equipment, net	14,756			16,451
Other borrowings	Other borrowings	15,910			17,233			Other borrowings	15,700			17,233

Weighted-Average Remaining Lease Term (in Years)	Weighted-Average Remaining Lease Term (in Years)							Weighted-Average Remaining Lease Term (in Years)
Operating leases	Operating leases	9.2			10.4			Operating leases	9.2			10.4
Finance leases	Finance leases	7.3			7.6			Finance leases	7.1			7.6

Weighted-Average Discount Rate	Weighted-Average Discount Rate							Weighted-Average Discount Rate
Operating leases	Operating leases	2.89		%	3.34		%	Operating leases	2.91		%	3.34		%
Finance leases	Finance leases	3.10		%	3.02		%	Finance leases	3.14		%	3.02		%

Supplemental cash flow information related to leases was as follows:


		Six Months Ended June 30,					Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		(dollars in thousands)	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	13,705	$	7,166	Operating cash flows from operating leases	$	22,223	$	10,692
Operating cash flows from finance leases	Operating cash flows from finance leases	210		215		Operating cash flows from finance leases	315		323
Financing cash flows from finance leases	Financing cash flows from finance leases	1,210		993		Financing cash flows from finance leases	1,839		1,492

The following table presents a maturity analysis of the Company’s lease liability by lease classification at ~~June~~September 30, 2022:


(dollars in thousands)	(dollars in thousands)	Operating Leases		Finance Leases		(dollars in thousands)	Operating Leases		Finance Leases
2022	2022	$	16,553	$	1,432	2022	$	7,983	$	736
2023	2023	30,296		2,892		2023	30,128		2,968
2024	2024	28,888		2,942		2024	28,717		3,018
2025	2025	27,581		2,952		2025	27,407		3,029
2026	2026	26,582		1,712		2026	26,405		1,790
Thereafter	Thereafter	116,859		5,914		Thereafter	117,486		6,031
Total undiscounted lease payments	Total undiscounted lease payments	246,759		17,844		Total undiscounted lease payments	238,126		17,572
Amounts representing interest	Amounts representing interest	(31,571)		(1,934)		Amounts representing interest	(30,401)		(1,872)
Lease liability	Lease liability	$	215,188	$	15,910	Lease liability	$	207,725	$	15,700

3334

NOTE 9 – GOODWILL AND OTHER INTANGIBLE ASSETS

The following table presents the changes in the carrying amount of goodwill:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2022		2021		2022		2021
Balance at beginning of period	Balance at beginning of period	$	1,997,157	$	1,036,994	$	1,036,994	$	1,036,994	Balance at beginning of period	$	1,991,534	$	1,036,994	$	1,036,994	$	1,036,994
Acquisitions and adjustments	Acquisitions and adjustments	(5,623)		—		954,540		—		Acquisitions and adjustments	11,065		—		965,605		—
Balance at end of period	Balance at end of period	$	1,991,534	$	1,036,994	$	1,991,534	$	1,036,994	Balance at end of period	$	2,002,599	$	1,036,994	$	2,002,599	$	1,036,994

During the ~~six~~nine months ended ~~June~~September 30, 2022, Old National recorded ~~$954.5~~$965.6 million of goodwill associated with the First Midwest merger. The ~~decrease~~increase in goodwill for the three months ended ~~June~~September 30, 2022 resulted from the measurement period adjustments related to updating the fair values of the assets acquired and liabilities assumed in the First Midwest merger. See Note 3 to the consolidated financial statements for additional detail regarding this transaction.

Old National performed the required annual goodwill impairment test as of August 31, ~~2021~~2022 and there was no impairment. No events or circumstances since the August 31, ~~2021~~2022 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)	(dollars in thousands)	Gross Carrying Amount		Accumulated Amortization and Impairment		Net Carrying Amount		(dollars in thousands)	Gross Carrying Amount		Accumulated Amortization and Impairment		Net Carrying Amount
June 30, 2022
September 30, 2022								September 30, 2022
Core deposit	Core deposit	$	170,642	$	(69,819)	$	100,823	Core deposit	$	170,642	$	(75,531)	$	95,111
Customer trust relationships	Customer trust relationships	56,243		(16,785)		39,458		Customer trust relationships	56,243		(18,161)		38,082
Total intangible assets	Total intangible assets	$	226,885	$	(86,604)	$	140,281	Total intangible assets	$	226,885	$	(93,692)	$	133,193

December 31, 2021	December 31, 2021							December 31, 2021
Core deposit	Core deposit	$	92,754	$	(60,036)	$	32,718	Core deposit	$	92,754	$	(60,036)	$	32,718
Customer trust relationships	Customer trust relationships	16,547		(14,587)		1,960		Customer trust relationships	16,547		(14,587)		1,960
Total intangible assets	Total intangible assets	$	109,301	$	(74,623)	$	34,678	Total intangible assets	$	109,301	$	(74,623)	$	34,678

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 the ~~six~~nine months ended ~~June~~September 30, 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 during the ~~six~~nine months ended ~~June~~September 30, 2022 or 2021. Total amortization expense associated with intangible assets was ~~$7.2~~$7.1 million for the three months ended ~~June~~September 30, 2022 and ~~$12.0~~$19.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~$2.9~~$2.8 million for the three months ended ~~June~~September 30, 2021 and ~~$6.0~~$8.8 million for the ~~six~~nine months ended ~~June~~September 30, 2021.

Estimated amortization expense for future years is as follows:

(dollars in thousands)
2022 remaining $ 13,748
2023 24,342
2024 21,298
2025 18,417
2026 15,614
Thereafter 46,862
Total $ 140,281


(dollars in thousands)
2022 remaining	$	6,788
2023	24,214
2024	21,298
2025	18,417
2026	15,614
Thereafter	46,862
Total	$	133,193

NOTE 10 – LOAN SERVICING RIGHTS

Loan servicing rights are included in other assets on the balance sheet. At ~~June~~September 30, 2022, loan servicing rights derived from mortgage loans sold with servicing retained totaled ~~$38.1~~$37.8 million, compared to $30.0 million at December 31, 2021. Loans serviced for others are not reported as assets. The principal balance of mortgage loans serviced for others was $4.4 billion at ~~June~~September 30, 2022, compared to $3.7 billion at December 31, 2021. Custodial escrow balances maintained in connection with serviced loans were ~~$58.1~~$50.1 million at ~~June~~September 30, 2022 and $18.2 million at December 31, 2021.

The following table summarizes the carrying values and activity related to loan servicing rights and the related valuation allowance:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2022		2021		2022		2021
Balance at beginning of period	Balance at beginning of period	$	38,246	$	28,262	$	30,085	$	28,124	Balance at beginning of period	$	38,121	$	28,886	$	30,085	$	28,124
Additions (1)	Additions (1)	1,347		3,058		11,013		6,171		Additions (1)	1,280		2,671		12,293		8,842
Amortization	Amortization	(1,472)		(2,434)		(2,977)		(5,409)		Amortization	(1,569)		(2,236)		(4,546)		(7,645)
Balance before valuation allowance at end of period	Balance before valuation allowance at end of period	38,121		28,886		38,121		28,886		Balance before valuation allowance at end of period	37,832		29,321		37,832		29,321
Valuation allowance:	Valuation allowance:									Valuation allowance:
Balance at beginning of period	Balance at beginning of period	(1)		(146)		(46)		(1,407)		Balance at beginning of period	—		(105)		(46)		(1,407)
(Additions)/recoveries	(Additions)/recoveries	1		41		46		1,302		(Additions)/recoveries	—		5		46		1,307
Balance at end of period	Balance at end of period	—		(105)		—		(105)		Balance at end of period	—		(100)		—		(100)
Loan servicing rights, net	Loan servicing rights, net	$	38,121	$	28,781	$	38,121	$	28,781	Loan servicing rights, net	$	37,832	$	29,221	$	37,832	$	29,221

(1)Additions in the ~~six~~nine months ended ~~June~~September 30, 2022 include loan servicing rights of $7.7 million acquired in the First Midwest merger on February 15, 2022.

At ~~June~~September 30, 2022, the fair value of servicing rights was ~~$46.8~~$48.8 million, which was determined using a discount rate of 9% and a conditional prepayment rate of 9%. At December 31, 2021, the fair value of servicing rights was $33.8 million, which was determined using a discount rate of 9% and a conditional prepayment rate of 10%.

NOTE 11 – 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 ~~June~~September 30, 2022, 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)	(dollars in thousands)		June 30, 2022				December 31, 2021				(dollars in thousands)		September 30, 2022				December 31, 2021
Investment	Investment	Accounting Method	Investment		Unfunded Commitment (1)		Investment		Unfunded Commitment		Investment	Accounting Method	Investment		Unfunded Commitment (1)		Investment		Unfunded Commitment
LIHTC	LIHTC	Proportional amortization	$	71,973	$	44,163	$	68,989	$	41,355	LIHTC	Proportional amortization	$	70,701	$	44,141	$	68,989	$	41,355
FHTC	FHTC	Equity	20,821		11,186		21,241		15,252		FHTC	Equity	20,606		9,589		21,241		15,252
NMTC	NMTC	Consolidation	28,355		—		18,727		—		NMTC	Consolidation	43,813		—		18,727		—
Renewable Energy	Renewable Energy	Equity	1,519		—		1,985		—		Renewable Energy	Equity	1,309		—		1,985		—
Total	Total		$	122,668	$	55,349	$	110,942	$	56,607	Total		$	136,429	$	53,730	$	110,942	$	56,607

(1)All commitments will be paid by Old National by December 31, 2027.

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)	(dollars in thousands)	Amortization Expense (1)		Tax Expense (Benefit) Recognized (2)		(dollars in thousands)	Amortization Expense (1)		Tax Expense (Benefit) Recognized (2)
Three Months Ended June 30, 2022
Three Months Ended September 30, 2022						Three Months Ended September 30, 2022
LIHTC	LIHTC	$	1,240	$	(1,650)	LIHTC	$	1,240	$	(1,650)
FHTC	FHTC	215		(263)		FHTC	215		(262)
NMTC	NMTC	1,100		(1,375)		NMTC	2,237		(2,788)
Renewable Energy	Renewable Energy	210		—		Renewable Energy	210		—
Total	Total	$	2,765	$	(3,288)	Total	$	3,902	$	(4,700)

Three Months Ended June 30, 2021
Three Months Ended September 30, 2021						Three Months Ended September 30, 2021
LIHTC	LIHTC	$	863	$	(1,136)	LIHTC	$	863	$	(1,135)
FHTC	FHTC	1,228		(574)		FHTC	1,151		(1,052)
NMTC	NMTC	375		(462)		NMTC	375		(463)
Renewable Energy	Renewable Energy	210		—		Renewable Energy	210		—
Total	Total	$	2,676	$	(2,172)	Total	$	2,599	$	(2,650)

Six Months Ended June 30, 2022
Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2022
LIHTC	LIHTC	$	2,493	$	(3,300)	LIHTC	$	3,734	$	(4,950)
FHTC	FHTC	420		(514)		FHTC	635		(776)
NMTC	NMTC	2,201		(2,750)		NMTC	4,439		(5,538)
Renewable Energy	Renewable Energy	420		—		Renewable Energy	629		—
Total	Total	$	5,534	$	(6,564)	Total	$	9,437	$	(11,264)

Six Months Ended June 30, 2021
Nine Months Ended September 30, 2021						Nine Months Ended September 30, 2021
LIHTC	LIHTC	$	1,725	$	(2,272)	LIHTC	$	2,588	$	(3,407)
FHTC	FHTC	1,359		(1,256)		FHTC	2,510		(2,308)
NMTC	NMTC	750		(925)		NMTC	1,125		(1,388)
Renewable Energy	Renewable Energy	906		(562)		Renewable Energy	1,116		(562)
Total	Total	$	4,740	$	(5,015)	Total	$	7,339	$	(7,665)

(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).

3637

NOTE 12 – 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:


		At or for the Six Months Ended June 30, 2022			At December 31, 2021				At or for the Six Months Ended June 30, 2021			At or for the Nine Months Ended September 30, 2022				At December 31, 2021			At or for the Nine Months Ended September 30, 2021
(dollars in thousands)	(dollars in thousands)						(dollars in thousands)
Outstanding at period end	Outstanding at period end	$	476,173				$	392,275					$	396,129	Outstanding at period end	$	438,053		$	392,275		$	375,247
Average amount outstanding during the period	Average amount outstanding during the period	458,459			N/A				402,478		Average amount outstanding during the period	450,966				N/A			396,495
Maximum amount outstanding at any month-end during the period	Maximum amount outstanding at any month-end during the period	509,275			N/A				405,278		Maximum amount outstanding at any month-end during the period	509,275				N/A			405,278
Weighted-average interest rate:	Weighted-average interest rate:										Weighted-average interest rate:
During the period	During the period	0.08		%	N/A				0.11	%	During the period	0.09		%		N/A			0.10		%
At period end	At period end	0.08		%	0.10	%			0.09	%	At period end	0.40		%		0.10		%	0.10		%

The following table presents the contractual maturity of our secured borrowings and class of collateral pledged:


		At June 30, 2022											At September 30, 2022
		Remaining Contractual Maturity of the Agreements											Remaining Contractual Maturity of the Agreements
(dollars in thousands)	(dollars in thousands)	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater Than 90 days		Total		(dollars in thousands)	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater Than 90 days		Total
Repurchase Agreements:	Repurchase Agreements:											Repurchase Agreements:
U.S. Treasury and agency securities	U.S. Treasury and agency securities	$	475,992	$	—	$	181	$	—	$	476,173	U.S. Treasury and agency securities	$	438,053	$	—	$	—	$	—	$	438,053
Total	Total	$	475,992	$	—	$	181	$	—	$	476,173	Total	$	438,053	$	—	$	—	$	—	$	438,053

The fair value of securities pledged to secure repurchase agreements may decline. Old National has pledged securities valued at ~~115%~~110% of the gross outstanding balance of repurchase agreements at ~~June~~September 30, 2022 to manage this risk.

NOTE 13 – FEDERAL HOME LOAN BANK ADVANCES

The following table summarizes Old National Bank’s FHLB advances:


(dollars in thousands)	(dollars in thousands)	June 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2022		December 31, 2021
FHLB advances (fixed rates 0.00% to 4.96% and variable rates 0.91% to 1.60%) maturing July 2022 to January 2041		$	3,303,178	$	1,902,655
FHLB advances (fixed rates 0.00% to 4.96% and variable rates 2.57% to 3.05%) maturing October 2022 to September 2042						FHLB advances (fixed rates 0.00% to 4.96% and variable rates 2.57% to 3.05%) maturing October 2022 to September 2042	$	2,828,308	$	1,902,655
Fair value hedge basis adjustments and unamortized prepayment fees	Fair value hedge basis adjustments and unamortized prepayment fees	(19,215)		(16,636)		Fair value hedge basis adjustments and unamortized prepayment fees	(23,691)		(16,636)
Total	Total	$	3,283,963	$	1,886,019	Total	$	2,804,617	$	1,886,019

FHLB advances had weighted-average rates of ~~1.68%~~2.48% at ~~June~~September 30, 2022 and 1.30% at December 31, 2021. Investment securities and residential real estate loans collateralize these borrowings up to 140% of outstanding debt.

At ~~June~~September 30, 2022, total unamortized prepayment fees related to debt modifications completed in prior years totaled ~~$23.2~~$21.7 million, compared to $26.2 million at December 31, 2021.

3738

Contractual maturities of FHLB advances at ~~June~~September 30, 2022 were as follows:


(dollars in thousands)
Due in 2022	$	~~227,500~~127,500
Due in 2023	~~100,150~~100,280
Due in 2024	~~225,243~~25,243
Due in 2025	550,285
Due in 2026	100,000
Thereafter	~~2,100,000~~1,925,000
Fair value hedge basis adjustments and unamortized prepayment fees	~~(19,215)~~(23,691)
Total	$	~~3,283,963~~2,804,617

NOTE 14 – OTHER BORROWINGS

The following table summarizes Old National’s other borrowings:


(dollars in thousands)	(dollars in thousands)	June 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2022		December 31, 2021
Old National Bancorp:	Old National Bancorp:					Old National Bancorp:
Senior unsecured notes (fixed rate 4.125%) maturing August 2024	Senior unsecured notes (fixed rate 4.125%) maturing August 2024	$	175,000	$	175,000	Senior unsecured notes (fixed rate 4.125%) maturing August 2024	$	175,000	$	175,000
Unamortized debt issuance costs related to senior unsecured notes	Unamortized debt issuance costs related to senior unsecured notes	(325)		(403)		Unamortized debt issuance costs related to senior unsecured notes	(286)		(403)
Subordinated debentures (fixed rate 5.875%) maturing September 2026	Subordinated debentures (fixed rate 5.875%) maturing September 2026	150,000		—		Subordinated debentures (fixed rate 5.875%) maturing September 2026	150,000		—
Junior subordinated debentures (variable rates of 2.64% to 6.95%) maturing July 2031 to September 2037		136,643		42,000
Junior subordinated debentures (variable rates of 4.11% to 6.95%) maturing July 2031 to September 2037						Junior subordinated debentures (variable rates of 4.11% to 6.95%) maturing July 2031 to September 2037	136,643		42,000
Other basis adjustments	Other basis adjustments	25,942		(3,044)		Other basis adjustments	24,653		(3,044)
Old National Bank:	Old National Bank:					Old National Bank:
Finance lease liabilities	Finance lease liabilities	15,910		17,233		Finance lease liabilities	15,700		17,233
Subordinated debentures (variable rate 5.64%) maturing October 2025		12,000		12,000
Leveraged loans for NMTC (fixed rates of 1.00% to 1.43%) maturing December 2046 to December 2052		77,550		51,045
Subordinated debentures (variable rate 7.14%) maturing October 2025						Subordinated debentures (variable rate 7.14%) maturing October 2025	12,000		12,000
Leveraged loans for NMTC (fixed rates of 1.00% to 1.43%) maturing December 2046 to June 2058						Leveraged loans for NMTC (fixed rates of 1.00% to 1.43%) maturing December 2046 to June 2058	117,308		51,045
Other(1)	Other(1)	29,994		2,839		Other(1)	90,031		2,839
Total other borrowings	Total other borrowings	$	622,714	$	296,670	Total other borrowings	$	721,049	$	296,670

(1)Includes overnight borrowings to collateralize certain derivative positions totaling $88.2 million at September 30, 2022.

Contractual maturities of other borrowings at ~~June~~September 30, 2022 were as follows:


(dollars in thousands)
Due in 2022	$	~~1,232~~88,786
Due in 2023	~~2,529~~2,593
Due in 2024	~~177,631~~177,697
Due in 2025	~~14,693~~14,763
Due in 2026	~~151,501~~151,574
Thereafter	~~219,517~~259,390
Unamortized debt issuance costs and other basis adjustments	~~55,611~~26,246
Total	$	~~622,714~~721,049

Senior Notes

In August 2014, Old National issued $175.0 million of senior unsecured notes with a 4.125% interest rate. These notes pay interest on February 15 and August 15 and mature on August 15, 2024.

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 acquisitions, Old National assumed junior subordinated debenture obligations related to various trusts that issued trust preferred securities. Old National guarantees the payment of distributions on the trust

preferred securities issued by the trusts. 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 at ~~June~~September 30, 2022:

(dollars in thousands)

Rate at

June 30,
2022

(dollars in thousands)

Rate at

September 30,
2022

Name of Trust

Issuance Date

Issuance
Amount

Rate

Maturity Date

Name of Trust

Issuance Date

Issuance
Amount

Rate

Maturity Date

St. Joseph Capital Trust II

March 2005

5,155

3-month LIBOR plus 1.75%

3.78%

March 17, 2035

St. Joseph Capital Trust II

March 2005

5,155

3-month LIBOR plus 1.75%

5.28%

March 17, 2035

Anchor Capital Trust III

August 2005

5,000

3-month LIBOR plus 1.55%

3.80%

September 30, 2035

Anchor Capital Trust III

August 2005

5,000

3-month LIBOR plus 1.55%

5.22%

September 30, 2035

Home Federal Statutory
Trust I

September 2006

15,464

3-month LIBOR plus 1.65%

3.48%

September 15, 2036

Home Federal Statutory
Trust I

September 2006

15,464

3-month LIBOR plus 1.65%

4.94%

September 15, 2036

Monroe Bancorp Capital
Trust I

July 2006

3,093

3-month LIBOR plus 1.60%

2.64%

October 7, 2036

Monroe Bancorp Capital
Trust I

July 2006

3,093

3-month LIBOR plus 1.60%

4.11%

October 7, 2036

Tower Capital Trust 3

December 2006

9,279

3-month LIBOR plus 1.69%

3.29%

March 1, 2037

Tower Capital Trust 3

December 2006

9,279

3-month LIBOR plus 1.69%

4.77%

March 1, 2037

Monroe Bancorp Statutory
Trust II

March 2007

5,155

3-month LIBOR plus 1.60%

3.43%

June 15, 2037

Monroe Bancorp Statutory
Trust II

March 2007

5,155

3-month LIBOR plus 1.60%

4.89%

June 15, 2037

First Midwest Capital Trust I

November 2003

37,825

6.95% fixed

6.95%

December 1, 2033

First Midwest Capital Trust I

November 2003

37,825

6.95% fixed

6.95%

December 1, 2033

Great Lakes Statutory Trust II

December 2005

6,186

3-month LIBOR plus 1.40%

3.23%

December 15, 2035

Great Lakes Statutory Trust II

December 2005

6,186

3-month LIBOR plus 1.40%

4.69%

December 15, 2035

Great Lakes Statutory Trust III

June 2007

8,248

3-month LIBOR plus 1.70%

3.53%

September 15, 2037

Great Lakes Statutory Trust III

June 2007

8,248

3-month LIBOR plus 1.70%

4.99%

September 15, 2037

Northern States Statutory Trust I

September 2005

10,310

3-month LIBOR plus 1.80%

3.63%

September 15, 2035

Northern States Statutory Trust I

September 2005

10,310

3-month LIBOR plus 1.80%

5.09%

September 15, 2035

Bridgeview Statutory Trust I

July 2001

15,464

3-month LIBOR plus 3.58%

4.87%

July 31, 2031

Bridgeview Statutory Trust I

July 2001

15,464

3-month LIBOR plus 3.58%

6.36%

July 31, 2031

Bridgeview Capital Trust II

December 2002

15,464

3-month LIBOR plus 3.35%

4.39%

January 7, 2033

Bridgeview Capital Trust II

December 2002

15,464

3-month LIBOR plus 3.35%

5.86%

January 7, 2033

Total

136,643

Total

136,643

Subordinated Debentures

On November 1, 2017, Old National assumed $12.0 million of subordinated fixed-to-floating notes related to the acquisition of Anchor (MN). The subordinated debentures had a 5.75% fixed rate of interest through October 29, 2020. From October 30, 2020 to the October 30, 2025 maturity date, the debentures have a floating rate of interest equal to the three-month LIBOR rate plus 4.356%.

On February 15, 2022, Old National assumed $150.0 million of subordinated fixed rate notes related to the First Midwest merger. The subordinated debentures have a 5.875% fixed rate of interest through the September 29, 2026 maturity date.

Leveraged Loans

The leveraged loans are directly related to the New Markets Tax Credit structure. As part of the transaction structure, Old National has the right to sell its interest in the entity that received the leveraged loans at an agreed upon price to the leveraged lender at the end of the New Markets Tax Credit ~~seven year~~seven-year compliance period. See Note 11 to the consolidated financial statements for additional information on the Company’s New Markets Tax Credit investments.

Finance Lease Liabilities

Old National has long-term finance lease liabilities for certain banking centers and equipment totaling ~~$15.9~~$15.7 million at ~~June~~September 30, 2022. See Note 8 to the consolidated financial statements for a maturity analysis of the Company’s finance lease liabilities.

3940

NOTE 15 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes within each classification of AOCI, net of tax:


(dollars in thousands)	(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 Cash Flow Hedges		Defined Benefit Pension Plans		Total		(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 Cash Flow Hedges		Defined Benefit Pension Plans		Total
Three Months Ended June 30, 2022
Three Months Ended September 30, 2022												Three Months Ended September 30, 2022
Balance at beginning of period	Balance at beginning of period	$	(314,364)	$	(16,727)	$	(7,132)	$	24	$	(338,199)	Balance at beginning of period	$	(437,075)	$	(122,199)	$	(9,875)	$	16	$	(569,133)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(122,776)		(108,266)		(2,578)		—		(233,620)		Other comprehensive income (loss) before reclassifications	(217,401)		—		(27,725)		—		(245,126)
Amounts reclassified from AOCI to income (1)	Amounts reclassified from AOCI to income (1)	65		2,794		(165)		(8)		2,686		Amounts reclassified from AOCI to income (1)	131		5,121		565		(8)		5,809
Balance at end of period	Balance at end of period	$	(437,075)	$	(122,199)	$	(9,875)	$	16	$	(569,133)	Balance at end of period	$	(654,345)	$	(117,078)	$	(37,035)	$	8	$	(808,450)

Three Months Ended June 30, 2021
Three Months Ended September 30, 2021												Three Months Ended September 30, 2021
Balance at beginning of period	Balance at beginning of period	$	86,495	$	—	$	5,525	$	(111)	$	91,909	Balance at beginning of period	$	59,095	$	—	$	3,241	$	(74)	$	62,262
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(26,886)		—		(959)		—		(27,845)		Other comprehensive income (loss) before reclassifications	(3,230)		—		(124)		—		(3,354)
Amounts reclassified from AOCI to income (1)	Amounts reclassified from AOCI to income (1)	(514)		—		(1,325)		37		(1,802)		Amounts reclassified from AOCI to income (1)	(945)		—		(1,190)		37		(2,098)
Balance at end of period	Balance at end of period	$	59,095	$	—	$	3,241	$	(74)	$	62,262	Balance at end of period	$	54,920	$	—	$	1,927	$	(37)	$	56,810

Six Months Ended June 30, 2022
Nine Months Ended September 30, 2022												Nine Months Ended September 30, 2022
Balance at beginning of period	Balance at beginning of period	$	(2,950)	$	—	$	543	$	32	$	(2,375)	Balance at beginning of period	$	(2,950)	$	—	$	543	$	32	$	(2,375)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(433,929)		(125,229)		(9,748)		—		(568,906)		Other comprehensive income (loss) before reclassifications	(651,330)		(125,229)		(37,473)		—		(814,032)
Amounts reclassified from AOCI to income (1)	Amounts reclassified from AOCI to income (1)	(196)		3,030		(670)		(16)		2,148		Amounts reclassified from AOCI to income (1)	(65)		8,151		(105)		(24)		7,957
Balance at end of period	Balance at end of period	$	(437,075)	$	(122,199)	$	(9,875)	$	16	$	(569,133)	Balance at end of period	$	(654,345)	$	(117,078)	$	(37,035)	$	8	$	(808,450)

Six Months Ended June 30, 2021
Nine Months Ended September 30, 2021												Nine Months Ended September 30, 2021
Balance at beginning of period	Balance at beginning of period	$	145,335	$	—	$	2,584	$	(148)	$	147,771	Balance at beginning of period	$	145,335	$	—	$	2,584	$	(148)	$	147,771
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(84,173)		—		2,094		—		(82,079)		Other comprehensive income (loss) before reclassifications	(87,403)		—		1,970		—		(85,433)
Amounts reclassified from AOCI to income (1)	Amounts reclassified from AOCI to income (1)	(2,067)		—		(1,437)		74		(3,430)		Amounts reclassified from AOCI to income (1)	(3,012)		—		(2,627)		111		(5,528)
Balance at end of period	Balance at end of period	$	59,095	$	—	$	3,241	$	(74)	$	62,262	Balance at end of period	$	54,920	$	—	$	1,927	$	(37)	$	56,810

(1)See tables below for details about reclassifications to income.

4041

The following table summarizes the significant amounts reclassified out of each component of AOCI for the three months ended ~~June~~September 30, 2022 and 2021:


		Three Months Ended June 30,						Three Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021			(dollars in thousands)	2022		2021
Details about AOCI Components	Details about AOCI Components	Amount Reclassified from AOCI				Affected Line Item in the Statement of Income	Details about AOCI Components	Amount Reclassified from AOCI				Affected Line Item in the Statement of Income
Unrealized gains and losses on available-for-sale securities	Unrealized gains and losses on available-for-sale securities	$	(85)	$	692	Debt securities gains (losses), net	Unrealized gains and losses on available-for-sale securities	$	(172)	$	1,207	Debt securities gains (losses), net
		20		(178)		Income tax (expense) benefit		41		(262)		Income tax (expense) benefit
		$	(65)	$	514	Net income		$	(131)	$	945	Net income
Unrealized gains and losses on held-to-maturity securities	Unrealized gains and losses on held-to-maturity securities	$	(3,692)	$	—	Interest income (expense)	Unrealized gains and losses on held-to-maturity securities	$	(6,772)	$	—	Interest income (expense)
		898		—		Income tax (expense) benefit		1,651		—		Income tax (expense) benefit
		$	(2,794)	$	—	Net income		$	(5,121)	$	—	Net income
Gains and losses on cash flow hedges Interest rate contracts	Gains and losses on cash flow hedges Interest rate contracts	$	219	$	1,756	Interest income (expense)	Gains and losses on cash flow hedges Interest rate contracts	$	(749)	$	1,578	Interest income (expense)
		(54)		(431)		Income tax (expense) benefit		184		(388)		Income tax (expense) benefit
		$	165	$	1,325	Net income		$	(565)	$	1,190	Net income
Amortization of defined benefit pension items	Amortization of defined benefit pension items						Amortization of defined benefit pension items
Actuarial gains (losses)	Actuarial gains (losses)	$	10	$	(49)	Salaries and employee benefits	Actuarial gains (losses)	$	11	$	(49)	Salaries and employee benefits
		(2)		12		Income tax (expense) benefit		(3)		12		Income tax (expense) benefit
		$	8	$	(37)	Net income		$	8	$	(37)	Net income

Total reclassifications for the period	Total reclassifications for the period	$	(2,686)	$	1,802	Net income	Total reclassifications for the period	$	(5,809)	$	2,098	Net income

The following table summarizes the significant amounts reclassified out of each component of AOCI for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


		Six Months Ended June 30,						Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021			(dollars in thousands)	2022		2021
Details about AOCI Components	Details about AOCI Components	Amount Reclassified from AOCI				Affected Line Item in the Statement of Income	Details about AOCI Components	Amount Reclassified from AOCI				Affected Line Item in the Statement of Income
Unrealized gains and losses on available-for-sale securities	Unrealized gains and losses on available-for-sale securities	$	257	$	2,685	Debt securities gains (losses), net	Unrealized gains and losses on available-for-sale securities	$	85	$	3,892	Debt securities gains (losses), net
		(61)		(618)		Income tax (expense) benefit		(20)		(880)		Income tax (expense) benefit
		$	196	$	2,067	Net income		$	65	$	3,012	Net income
Unrealized gains and losses on held-to-maturity securities	Unrealized gains and losses on held-to-maturity securities	$	(4,002)	$	—	Interest income (expense)	Unrealized gains and losses on held-to-maturity securities	$	(10,774)	$	—	Interest income (expense)
		972		—		Income tax (expense) benefit		2,623		—		Income tax (expense) benefit
		$	(3,030)	$	—	Net income		$	(8,151)	$	—	Net income
Gains and losses on cash flow hedges Interest rate contracts	Gains and losses on cash flow hedges Interest rate contracts	$	888	$	1,905	Interest income (expense)	Gains and losses on cash flow hedges Interest rate contracts	$	139	$	3,483	Interest income (expense)
		(218)		(468)		Income tax (expense) benefit		(34)		(856)		Income tax (expense) benefit
		$	670	$	1,437	Net income		$	105	$	2,627	Net income
Amortization of defined benefit pension items	Amortization of defined benefit pension items						Amortization of defined benefit pension items
Actuarial gains (losses)	Actuarial gains (losses)	$	21	$	(98)	Salaries and employee benefits	Actuarial gains (losses)	$	32	$	(147)	Salaries and employee benefits
		(5)		24		Income tax (expense) benefit		(8)		36		Income tax (expense) benefit
		$	16	$	(74)	Net income		$	24	$	(111)	Net income

Total reclassifications for the period	Total reclassifications for the period	$	(2,148)	$	3,430	Net income	Total reclassifications for the period	$	(7,957)	$	5,528	Net income

4142

NOTE 16 – SHARE-BASED COMPENSATION

At ~~June~~September 30, 2022, Old National had 9.1 million shares remaining available for issuance under the Company’s Amended and Restated 2008 Incentive Compensation Plan (the “ICP”). An amendment to increase the number of shares authorized for issuance under the ICP by 9.0 million was approved on May 18, 2022. The granting of awards to key employees is typically in the form of restricted stock awards or units.

Restricted Stock Awards

Old National granted ~~0.9~~1.0 million time-based restricted stock awards to certain key employees during the ~~six~~nine months ended ~~June~~September 30, 2022. Additionally, in connection with the First Midwest merger, each restricted stock award of First Midwest common stock that was outstanding, unvested, and unsettled at the merger date was assumed and ~~equitably~~ converted into a number of Old National restricted stock ~~award~~relating to a number of shares of Old National common stock equal to the number of First Midwest restricted stock multiplied by the exchange ratio (rounded up to the nearest whole number) subject to the same vested terms and conditions, resulting in an issuance of an aggregate 0.9 million restricted stock awards of Old National common stock. Shares generally vest annually over a ~~three year~~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. At ~~June~~September 30, 2022, unvested shares totaled ~~2.0~~1.9 million. Compensation expense is measured as the fair value of the award at grant date recognized over the service period of the award. Shares are subject to certain restrictions and risk of forfeiture by the participants. At ~~June~~September 30, 2022, unrecognized compensation expense for unvested restricted stock awards was ~~$23.6~~$20.1 million.

Old National recorded share-based compensation expense, net of tax, related to restricted stock awards of $2.9 million and $8.3 million during the three and nine months ended ~~June~~September 30, 2022, respectively, compared to $0.8 million and ~~$5.4~~$2.2 million ~~for~~during the ~~six~~three and nine months ended ~~June 30, 2022, compared to $0.7 million for the three months ended June~~September 30, 2021, ~~and $1.4 million for the six months ended June 30, 2021.~~respectively.

Performance-Based Restricted Stock Units

Old National granted 1.2 million shares of ~~performance based~~performance-based restricted stock units to certain key officers during the ~~six~~nine months ended ~~June~~September 30, 2022. Additionally, in connection with the First Midwest merger, each time-based or performance-based restricted stock unit award of First Midwest ~~common stock~~ that was outstanding, unvested, and unsettled at the merger date was assumed and ~~equitably~~ converted into a time-based restricted stock unit award of Old National common stock subject to the same vested terms and conditions (other than performance conditions), resulting in an issuance of an aggregate 0.7 million restricted stock units of Old National common stock. The performance components of the First Midwest equity awards were deemed earned at target. Shares vest at the end of a 24 or 36 month period based on the achievement of certain targets. If targets are achieved prior to the end of the 24 month performance period, vesting can be accelerated. At ~~June~~September 30, 2022, unvested shares totaled 2.1 million. 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. As of ~~June~~September 30, 2022, there was ~~$21.9~~$18.2 million of unrecognized compensation cost related to unvested restricted stock units.

Old National recorded share-based compensation expense, net of tax, related to restricted stock units of ~~$3.0~~$2.8 million and $8.2 million during the three and nine months ended ~~June~~September 30, 2022, ~~and $5.4 million for the six months ended June 30, 2022,~~respectively, compared to $0.7 million and $2.0 million during the three and nine months ended ~~June~~September 30, 2021, ~~and $1.3 million for the six months ended June 30, 2021.~~respectively.

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. At ~~June~~September 30, 2022, 8 thousand stock appreciation rights remained outstanding.

4243

NOTE 17 – 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 statements of income:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022			2021			2022			2021			(dollars in thousands)	2022			2021			2022			2021
Provision at statutory rate of 21%	Provision at statutory rate of 21%	$	29,389		$	16,117		$	21,766		$	38,051		Provision at statutory rate of 21%	$	37,598		$	18,779		$	59,365		$	56,830
Tax-exempt income:	Tax-exempt income:													Tax-exempt income:
Tax-exempt interest	Tax-exempt interest	(3,413)			(2,762)			(6,406)			(5,541)			Tax-exempt interest	(3,929)			(2,786)			(10,335)			(8,327)
Section 291/265 interest disallowance	Section 291/265 interest disallowance	38			30			66			63			Section 291/265 interest disallowance	85			28			150			92
Company-owned life insurance income	Company-owned life insurance income	(938)			(556)			(1,656)			(1,099)			Company-owned life insurance income	(684)			(483)			(2,340)			(1,582)
Tax-exempt income	Tax-exempt income	(4,313)			(3,288)			(7,996)			(6,577)			Tax-exempt income	(4,528)			(3,241)			(12,525)			(9,817)
State income taxes	State income taxes	4,085			2,200			758			5,173			State income taxes	7,050			2,282			7,808			7,455
Interim period effective rate adjustment	Interim period effective rate adjustment	(3,967)			(662)			3,073			(2,437)			Interim period effective rate adjustment	(31)			1,077			3,042			(1,360)
Tax credit investments - federal	Tax credit investments - federal	(1,292)			(1,430)			(2,561)			(2,523)			Tax credit investments - federal	(2,407)			(315)			(4,968)			(2,838)
Other, net	Other, net	1,062			1,023			1,210			(97)			Other, net	1,205			(902)			2,415			(1,000)
Income tax expense (benefit)	Income tax expense (benefit)	$	24,964		$	13,960		$	16,250		$	31,590		Income tax expense (benefit)	$	38,887		$	17,680		$	55,137		$	49,270
Effective tax rate	Effective tax rate	17.8		%	18.2		%	15.7		%	17.4		%	Effective tax rate	21.7		%	19.8		%	19.5		%	18.2		%

The provision for income taxes was recorded at ~~June~~September 30, 2022 and 2021 based on the current estimate of the effective annual rate.

The ~~lower~~higher effective tax rate during the three and ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same periods in 2021 reflected the ~~recognition of $1.7 million of previously unrealized tax benefits~~increase in ~~the three months ended June 30, 2022, partially offset by~~pre-tax book income and higher post-merger estimated state effective tax rates. The six months ended June 30, 2022 also reflected additional one-time benefits of $1.2 million related to share-based payments and $0.9 million related to the remeasurement of the Company’s deferred taxes post-merger.

Net Deferred Tax Assets

Net deferred tax assets are included in other assets on the balance sheet. At ~~June~~September 30, 2022, net deferred tax assets totaled ~~$337.5~~$426.0 million, compared to $32.9 million at December 31, 2021. The increase in net deferred tax assets was driven by ~~$180.1~~$255.7 million of deferred tax assets related to the market value adjustments of certain investments and ~~$126.6~~$130.3 million related to the merger with First Midwest.

The Company’s retained earnings at ~~June~~September 30, 2022 included an appropriation for acquired thrifts’ tax bad debt allowances totaling $58.6 million for which no provision for federal or state income taxes has been made. If, in the future, this portion of retained earnings were distributed as a result of the liquidation of the Company or its subsidiaries, federal and state income taxes would be imposed at the then applicable rates.

No valuation allowance was recorded at ~~June~~September 30, 2022 or December 31, 2021 because, based on current expectations, Old National believes it will generate sufficient income in future years to realize deferred tax assets. Old National has federal net operating loss carryforwards totaling ~~$90.4~~$85.7 million at ~~June~~September 30, 2022 and $36.7 million at December 31, 2021. This federal net operating loss was acquired from the acquisition of Anchor (WI) 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 ~~$133.9~~$130.1 million at ~~June~~September 30, 2022 and $116.1 million at December 31, 2021. 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.

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NOTE 18 – 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.

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 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 ~~June~~September 30, 2022 and December 31, 2021. Interest rate collars and floors related to variable-rate commercial loan pools were designated as cash flow hedges totaling ~~$900.0 million~~$1.5 billion notional amount at ~~June~~September 30, 2022 and $600.0 million notional amount at December 31, 2021. The hedges were determined to be effective during all periods presented and we expect them to remain effective during the remaining terms.

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 ~~$352.5~~$327.5 million notional amount at ~~June~~September 30, 2022 and $377.5 million notional amount at December 31, 2021. Interest rate swaps of certain available-for-sale investment securities were designated as fair value hedges totaling $910.0 million notional amount at both ~~June~~September 30, 2022 and December 31, 2021. The hedges were determined to be effective during all periods presented and we expect them to remain effective during the remaining terms.

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The following table summarizes Old National’s derivatives designated as hedges:


		June 30, 2022						December 31, 2021							September 30, 2022						December 31, 2021
				Fair Value						Fair Value							Fair Value						Fair Value
(dollars in thousands)	(dollars in thousands)	Notional		Assets (1)		Liabilities (2)		Notional		Assets (1)		Liabilities (2)		(dollars in thousands)	Notional		Assets (1)		Liabilities (2)		Notional		Assets (1)		Liabilities (2)
Cash flow hedges	Cash flow hedges													Cash flow hedges
Interest rate collars and floors on loan pools	Interest rate collars and floors on loan pools	$	900,000	$	5,493	$	24,005	$	600,000	$	459	$	2,173	Interest rate collars and floors on loan pools	$	1,500,000	$	3,446	$	52,171	$	600,000	$	459	$	2,173
Interest rate swaps on borrowings (3)	Interest rate swaps on borrowings (3)	150,000		—		—		150,000		4,316		—		Interest rate swaps on borrowings (3)	150,000		—		—		150,000		4,316		—
Fair value hedges	Fair value hedges													Fair value hedges
Interest rate swaps on investment securities (3)	Interest rate swaps on investment securities (3)	909,957		—		—		909,957		10,961		14,643		Interest rate swaps on investment securities (3)	909,957		—		—		909,957		10,961		14,643
Interest rate swaps on borrowings (3)	Interest rate swaps on borrowings (3)	352,500		66		—		377,500		2,475		96		Interest rate swaps on borrowings (3)	327,500		—		—		377,500		2,475		96
Total	Total			$	5,559	$	24,005			$	18,211	$	16,912	Total			$	3,446	$	52,171			$	18,211	$	16,912

(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~~centrally cleared variation margin rules.

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


(dollars in thousands)	(dollars in thousands)						Gain (Loss) Recognized in Income on Related Hedged Items		(dollars in thousands)						Gain (Loss) Recognized in Income on Related Hedged Items
Derivatives in Fair Value Hedging Relationships	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			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
Three Months Ended June 30, 2022
Three Months Ended September 30, 2022									Three Months Ended September 30, 2022
Interest rate contracts	Interest rate contracts	Interest income/(expense)	$	(2,524)	Fixed-rate debt	Interest income/(expense)	$	2,600	Interest rate contracts	Interest income/(expense)	$	(532)	Fixed-rate debt	Interest income/(expense)	$	638
Interest rate contracts	Interest rate contracts	Interest income/(expense)	53,779		Fixed-rate investment securities	Interest income/(expense)	(53,762)		Interest rate contracts	Interest income/(expense)	47,963		Fixed-rate investment securities	Interest income/(expense)	(47,975)
Total	Total		$	51,255			$	(51,162)	Total		$	47,431			$	(47,337)

Three Months Ended June 30, 2021
Three Months Ended September 30, 2021									Three Months Ended September 30, 2021
Interest rate contracts	Interest rate contracts	Interest income/(expense)	$	(1,251)	Fixed-rate debt	Interest income/(expense)	$	1,251	Interest rate contracts	Interest income/(expense)	$	(991)	Fixed-rate debt	Interest income/(expense)	$	943
Interest rate contracts	Interest rate contracts	Interest income/(expense)	(45,829)		Fixed-rate investment securities	Interest income/(expense)	45,481		Interest rate contracts	Interest income/(expense)	5,650		Fixed-rate investment securities	Interest income/(expense)	(5,096)
Total	Total		$	(47,080)			$	46,732	Total		$	4,659			$	(4,153)

Six Months Ended June 30, 2022
Nine Months Ended September 30, 2022									Nine Months Ended September 30, 2022
Interest rate contracts	Interest rate contracts	Interest income/(expense)	$	(7,357)	Fixed-rate debt	Interest income/(expense)	$	7,555	Interest rate contracts	Interest income/(expense)	$	(7,889)	Fixed-rate debt	Interest income/(expense)	$	8,193
Interest rate contracts	Interest rate contracts	Interest income/(expense)	111,433		Fixed-rate investment securities	Interest income/(expense)	(111,791)		Interest rate contracts	Interest income/(expense)	159,397		Fixed-rate investment securities	Interest income/(expense)	(159,767)
Total	Total		$	104,076			$	(104,236)	Total		$	151,508			$	(151,574)

Six Months Ended June 30, 2021
Nine Months Ended September 30, 2021									Nine Months Ended September 30, 2021
Interest rate contracts	Interest rate contracts	Interest income/(expense)	$	(2,826)	Fixed-rate debt	Interest income/(expense)	$	2,829	Interest rate contracts	Interest income/(expense)	$	(3,817)	Fixed-rate debt	Interest income/(expense)	$	3,772
Interest rate contracts	Interest rate contracts	Interest income/(expense)	9		Fixed-rate investment securities	Interest income/(expense)	(64)		Interest rate contracts	Interest income/(expense)	5,659		Fixed-rate investment securities	Interest income/(expense)	(5,158)
Total	Total		$	(2,817)			$	2,765	Total		$	1,842			$	(1,386)

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


			Three Months Ended June 30,										Three Months Ended September 30,
(dollars in thousands)	(dollars in thousands)		2022		2021		2022		2021		(dollars in thousands)		2022		2021		2022		2021
Derivatives in Cash Flow Hedging Relationships	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				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 rate contracts	Interest income/(expense)	$	(3,418)	$	(1,272)	$	219	$	1,756	Interest rate contracts	Interest income/(expense)	$	(36,755)	$	(164)	$	(749)	$	1,578
			Six Months Ended June 30,										Nine Months Ended September 30,
			2022		2021		2022		2021				2022		2021		2022		2021
Derivatives in Cash Flow Hedging Relationships	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				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 rate contracts	Interest income/(expense)	$	(12,924)	$	2,776	$	888	$	1,905	Interest rate contracts	Interest income/(expense)	$	(49,679)	$	2,612	$	139	$	3,483

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 ~~$2.4~~$3.9 million will be reclassified to interest income and ~~$7.2~~$15.7 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 ~~June~~September 30, 2022, the notional amounts of the interest rate lock commitments were ~~$94.7~~$51.2 million and forward commitments were ~~$100.1~~$71.0 million. At December 31, 2021, the notional amounts of the interest rate lock commitments were $90.7 million and forward commitments were $126.1 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 ~~$4.9~~$5.1 billion at ~~June~~September 30, ~~2022. The notional amounts of these customer derivative instruments~~2022 and ~~the offsetting counterparty derivative instruments were~~ $2.4 billion at December 31, 2021. These derivative contracts do not qualify for hedge accounting. These instruments include interest rate swaps, caps, and collars. Commonly, Old National will 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.

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The following table summarizes Old National’s derivatives not designated as hedges:


		June 30, 2022						December 31, 2021							September 30, 2022						December 31, 2021
				Fair Value						Fair Value							Fair Value						Fair Value
(dollars in thousands)	(dollars in thousands)	Notional		Assets (1)		Liabilities (2)		Notional		Assets (1)		Liabilities (2)		(dollars in thousands)	Notional		Assets (1)		Liabilities (2)		Notional		Assets (1)		Liabilities (2)
Interest rate lock commitments	Interest rate lock commitments	$	94,678	$	300	$	—	$	90,731	$	2,352	$	—	Interest rate lock commitments	$	51,177	$	—	$	512	$	90,731	$	2,352	$	—
Forward mortgage loan contracts	Forward mortgage loan contracts	100,089		920		—		126,107		242		—		Forward mortgage loan contracts	71,000		2,370		—		126,107		242		—
Customer interest rate swaps	Customer interest rate swaps	4,931,862		8,821		194,038		2,433,177		52,439		11,658		Customer interest rate swaps	5,062,757		1,506		344,676		2,433,177		52,439		11,658
Counterparty interest rate swaps (3)	Counterparty interest rate swaps (3)	4,931,862		60,108		7,220		2,433,177		583		12,956		Counterparty interest rate swaps (3)	5,062,757		140,440		1,513		2,433,177		583		12,956
Customer foreign currency forward contracts	Customer foreign currency forward contracts	15,406		568		—		10,292		399		—		Customer foreign currency forward contracts	12,533		107		677		10,292		399		—
Counterparty foreign currency forward contracts	Counterparty foreign currency forward contracts	15,328		—		514		10,205		—		346		Counterparty foreign currency forward contracts	13,281		709		9		10,205		—		346
Total	Total			$	70,717	$	201,772			$	56,015	$	24,960	Total			$	145,132	$	347,387			$	56,015	$	24,960

(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~~centrally cleared variation margin rules.

The effect of derivatives not designated as hedging instruments on the consolidated statements of income were as follows:


			Three Months Ended June 30,						Three Months Ended September 30,
(dollars in thousands)	(dollars in thousands)		2022		2021		(dollars in thousands)		2022		2021
Derivatives Not Designated as Hedging Instruments	Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Gain (Loss) Recognized in Income on Derivative				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)	Interest rate contracts (1)	Other income/(expense)	$	449	$	(75)	Interest rate contracts (1)	Other income/(expense)	$	108	$	46
Mortgage contracts	Mortgage contracts	Mortgage banking revenue	(1,503)		(5,578)		Mortgage contracts	Mortgage banking revenue	638		1,054
Foreign currency contracts	Foreign currency contracts	Other income/(expense)	65		(85)		Foreign currency contracts	Other income/(expense)	75		3
Total	Total		$	(989)	$	(5,738)	Total		$	821	$	1,103

			Six Months Ended June 30,						Nine Months Ended September 30,
			2022		2021				2022		2021
Derivatives Not Designated as Hedging Instruments	Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Gain (Loss) Recognized in Income on Derivative				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)	Interest rate contracts (1)	Other income/(expense)	$	950	$	310	Interest rate contracts (1)	Other income/(expense)	$	1,058	$	356
Mortgage contracts	Mortgage contracts	Mortgage banking revenue	(1,374)		(2,317)		Mortgage contracts	Mortgage banking revenue	(735)		(1,262)
Foreign currency contracts	Foreign currency contracts	Other income/(expense)	38		(49)		Foreign currency contracts	Other income/(expense)	113		(46)
Total	Total		$	(386)	$	(2,056)	Total		$	436	$	(952)

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

NOTE 19 – COMMITMENTS, CONTINGENCIES, AND ~~CONTINGENCIES~~FINANCIAL GUARANTEES

Litigation

In the normal course of business, Old National Bancorp and its subsidiaries have been named, from time to time, as defendants in various legal actions. Certain of the actual or threatened legal actions may include claims for compensatory ~~and/or punitive~~ damages or claims for indeterminate amounts of damages.

Old National contests liability and/or the amount of damages as appropriate in each pending matter. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek indeterminate damages or where investigations and proceedings are in the early stages, Old National cannot predict with certainty the loss or range of loss, if any, related to such matters, how or if such matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, or other relief, if any, might be. Subject to the foregoing, Old National believes, based on current knowledge and after consultation with counsel, that the outcome of such pending matters will not have a material adverse effect on the consolidated financial condition of Old

4748

National, although the outcome of such matters could be material to Old National’s operating results and cash flows for a particular future period, depending on, among other things, the level of Old National’s revenues or income for such period. Old National will accrue for a loss contingency if (1) it is probable that a future event will occur and confirm the loss and (2) the amount of the loss can be reasonably estimated.

Old National is not currently involved in any material litigation.

Credit-Related Financial Instruments

InOld 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’s banking affiliates have entered into various agreements to extend credit, including~~National Bank’s unfunded loan commitments ~~of $8.2 billion~~ and standby letters of ~~credit~~credit:


(dollars in thousands)	September 30, 2022		December 31, 2021
Unfunded loan commitments	$	8,124,828	$	4,489,238
Standby letters of credit (1)	173,650		75,726

(1)Notional amount, which represents the maximum amount of ~~$223.0~~future funding requirements. The carrying value was $0.9 million at ~~June~~September 30, ~~2022.~~ 2022 and $0.5 million at December 31, 2021.

At ~~June~~September 30, 2022, approximately ~~10%~~6% of the unfunded loan commitments had fixed rates, with the remainder having floating rates ranging from 0%1% to 21%. ~~At December 31, 2021, loan commitments totaled $4.5 billion and standby letters of credit totaled $75.7 million. These commitments are not reflected in the consolidated financial statements.~~ The allowance for unfunded loan commitments totaled ~~$22.0~~$26.2 million at ~~June~~September 30, 2022 and $10.9 million at December 31, 2021. The increase in the allowance for credit losses on unfunded loan commitments was driven by the merger with First ~~Midwest.~~Midwest as well as organic loan growth.

Old National is a party in risk participation transactions of interest rate swaps, which had ~~credit extensions with various unaffiliated banks related to letter~~total notional amounts of ~~credit commitments issued on behalf of Old National’s clients totaling $6.7~~$297.5 million at ~~June~~September 30, 2022 and ~~$21.8~~$97.7 million at December 31, 2021. Old National provided collateral to the unaffiliated banks to secure credit extensions totaling $6.5 million at June 30, 2022 and December 31, 2021. Old National did not provide collateral for the remaining credit extensions.

Visa Class B Restricted Shares

In 2008, Old National received Visa Class B restricted shares as part of Visa’s initial public offering. These shares are transferable only under limited circumstances until they can be converted into the publicly traded Class A common shares. This conversion will not occur until the final settlement of certain litigation for which Visa is indemnified by the holders of Visa’s Class B shares, including Old National. Visa funded an escrow account from its initial public offering to settle these litigation claims. Increases in litigation claims requiring Visa to fund the escrow account due to insufficient funds will result in a reduction of the conversion ratio of each Visa Class B share to unrestricted Class A shares. As of ~~June~~September 30, 2022, the conversion ratio was 1.6059. Based on the existing transfer restriction and the uncertainty of the outcome of the Visa litigation, the 65,466 Class B shares that Old National owns at ~~June~~September 30, 2022 are carried at a zero cost basis and are included in other assets with our equity securities that have no readily determinable fair value.

~~NOTE 20 – FINANCIAL GUARANTEES~~

~~Old National holds instruments, in the normal course of business with clients, that are considered financial guarantees in accordance with FASB ASC 460-10 (FIN 45,~~ ~~Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others~~), which requires Old National to record the instruments at fair value. Standby letters of credit guarantees are issued in connection with agreements made by clients to counterparties. Standby letters of credit are contingent upon failure of the client to perform the terms of the underlying contract. Credit risk associated with standby letters of credit is essentially the same as that associated with extending loans to clients and is subject to normal credit policies. The term of these standby letters of credit is typically one year or less. At June 30, 2022, the notional amount of standby letters of credit was $223.0 million, which represented the maximum amount of future funding requirements, and the carrying value was $0.5 million. At December 31, 2021, the notional amount of standby letters of credit was $75.7 million, which represented the maximum amount of future funding requirements, and the carrying value was $0.5 million.

~~Old National is a party in risk participation transactions of interest rate swaps, which had total notional amount of $230.5 million at June 30, 2022.~~

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NOTE 2120 – 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 LIBOR 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.

Residential 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 derivative valuation models using market data inputs as of the valuation date (Level 2).

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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 June 30, 2022 Using									Fair Value Measurements at September 30, 2022 Using
(dollars in thousands)	(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)		(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	Financial Assets									Financial Assets
Equity securities	Equity securities	$	55,879	$	55,879	$	—	$	—	Equity securities	$	51,846	$	51,846	$	—	$	—
Investment securities available-for-sale:	Investment securities available-for-sale:									Investment securities available-for-sale:
U.S. Treasury	U.S. Treasury	402,783		402,783		—		—		U.S. Treasury	193,605		193,605		—		—
U.S. government-sponsored entities and agencies	U.S. government-sponsored entities and agencies	1,242,557		—		1,242,557		—		U.S. government-sponsored entities and agencies	1,175,457		—		1,175,457		—
Mortgage-backed securities - Agency	Mortgage-backed securities - Agency	4,827,708		—		4,827,708		—		Mortgage-backed securities - Agency	4,459,527		—		4,459,527		—
States and political subdivisions	States and political subdivisions	720,041		—		720,041		—		States and political subdivisions	675,047		—		675,047		—
Pooled trust preferred securities	Pooled trust preferred securities	11,101		—		11,101		—		Pooled trust preferred securities	11,322		—		11,322		—
Other securities	Other securities	363,511		—		363,511		—		Other securities	348,022		—		348,022		—
Residential loans held for sale	Residential loans held for sale	26,217		—		26,217		—		Residential loans held for sale	19,748		—		19,748		—
Derivative assets	Derivative assets	76,276		—		76,276		—		Derivative assets	148,578		—		148,578		—
Financial Liabilities	Financial Liabilities									Financial Liabilities
Derivative liabilities	Derivative liabilities	225,777		—		225,777		—		Derivative liabilities	399,558		—		399,558		—


			Fair Value Measurements at December 31, 2021 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	$	13,211	$	13,211	$	—	$	—
Investment securities available-for-sale:
U.S. Treasury	235,584		235,584		—		—
U.S. government-sponsored entities and agencies	1,542,773		—		1,542,773		—
Mortgage-backed securities - Agency	3,698,831		—		3,698,831		—
States and political subdivisions	1,654,986		—		1,654,986		—
Pooled trust preferred securities	9,496		—		—		9,496
Other securities	240,396		—		240,396		—
Residential loans held for sale	35,458		—		35,458		—
Derivative assets	74,226		—		74,226		—
Financial Liabilities
Derivative liabilities	41,872		—		41,872		—

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The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

(dollars in thousands)

Pooled Trust
Preferred Securities

Three Months Ended ~~June~~September 30, 2022

Balance at beginning of period

~~9,665~~—

Accretion of discount

7—

Increase in fair value of securities

~~1,429~~—

~~Transfers out of Level 3~~

~~(11,101)~~

Balance at end of period

—

Three Months Ended ~~June~~September 30, 2021

Balance at beginning of period

~~8,210~~9,388

Accretion of discount

~~Sales/payments received~~

~~(12)~~

~~Increase~~Decrease in fair value of securities

~~1,185~~ (25)

Balance at end of period

~~9,388~~9,367

~~Six~~Nine Months Ended ~~June~~September 30, 2022

Balance at beginning of period

9,496

Accretion of discount

Increase in fair value of securities

1,593

Transfers out of Level 3

(11,101)

Balance at end of period

—

~~Six~~Nine Months Ended ~~June~~September 30, 2021

Balance at beginning of period

7,913

Accretion of discount

1014

Sales/payments received

(27)

Increase in fair value of securities

~~1,492~~1,467

Balance at end of period

~~9,388~~9,367

The accretion of discounts on securities in the table above is included in interest income. The increase or decrease in the fair value of securities in the table above is included in the unrealized holding gains (losses) for the period in the statement of other comprehensive income. An increase in fair value is reflected in the balance sheet as an increase in the fair value of investment securities available-for-sale, an increase in accumulated other comprehensive income, which is included in shareholders’ equity, and a decrease in other assets related to the tax impact. A decrease in fair value is reflected in the balance sheet as a decrease in the fair value of investment securities available-for-sale, a decrease in accumulated other comprehensive income, which is included in shareholders’ equity, and an increase in other assets related to the tax impact. Old National’s pooled trust preferred securities with a fair value of $11.1 million were transferred out of Level 3 and into Level 2 in the ~~three and six~~nine months ended ~~June~~September 30, 2022 because of available observable market data for these investments.

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

(dollars in thousands)

Fair Value

Valuation Techniques

Unobservable Input

Range (Weighted Average) (4)

December 31, 2021

Pooled trust preferred securities

9,496

Discounted cash flow

Constant prepayment rate (1)

0.00%

Additional asset defaults (2)

5.7% - 8.5% (6.5%)

Expected asset recoveries (3)

0.0% - 46.0% (14.1%)

(1)Assuming no prepayments.

(2)Each currently performing pool asset is assigned a default probability based on the banking environment, which is adjusted for specific issuer evaluation, of 0%, 50%, or 100%.

(3)Each currently defaulted pool asset is assigned a recovery probability based on specific issuer evaluation of 0%, 25%, or 100%.

(4)Unobservable inputs are weighted by the estimated number of defaults and current performing collateral of the instruments.

Significant changes in any of the unobservable inputs used in the fair value measurement in isolation would have resulted in a significant change to the fair value measurement. The pooled trust preferred securities Old National owns are subordinate note classes that rely on an ongoing cash flow stream to support their values. The senior note classes receive the benefit of prepayments to the detriment of subordinate note classes since the ongoing interest cash flow stream is reduced by the early redemption. Generally, a change in prepayment rates or additional pool asset defaults would have an impact that is directionally opposite from a change in the expected recovery of a defaulted pool asset.

Non-Recurring Basis

Assets measured at fair value at ~~June~~September 30, 2022 on a non-recurring basis are summarized below:


				Fair Value Measurements at June 30, 2022 Using									Fair Value Measurements at September 30, 2022 Using
(dollars in thousands)	(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)		(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:	Collateral Dependent Loans:									Collateral Dependent Loans:
Commercial loans	Commercial loans	$	15,443	$	—	$	—	$	15,443	Commercial loans	$	29,500	$	—	$	—	$	29,500
Commercial real estate loans	Commercial real estate loans	54,248		—		—		54,248		Commercial real estate loans	44,401		—		—		44,401
Foreclosed Assets:	Foreclosed Assets:									Foreclosed Assets:
Commercial	Commercial	520		—		—		520		Commercial	278		—		—		278

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 ~~$84.5~~$95.4 million, with a valuation allowance of ~~$14.8~~$21.5 million at ~~June~~September 30, 2022. Old National recorded provision expense associated with these loans totaling ~~$12.8~~$7.3 million for the three months ended ~~June~~September 30, 2022 and ~~$28.6~~$20.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022. Old National recorded provision expense associated with commercial and commercial real estate loans that were deemed collateral dependent totaling ~~$0.2~~$0.1 million for the three and nine months ended ~~June 30, 2021 and provision recoveries totaling $38 thousand for the six months ended June~~September 30, 2021.

Other real estate owned and other repossessed property is measured at fair value less costs to sell on a non-recurring basis and had a net carrying amount of ~~$0.5~~$0.3 million at ~~June~~September 30, 2022. There were ~~$0.1~~$0.2 million write-downs of other real estate owned for the three months ended ~~June~~September 30, 2022 and ~~$0.3~~$0.6 million for the ~~six~~nine months ended ~~June~~September 30, 2022. There were no writedowns of other real estate owned for the three months ended ~~June~~September 30, 2021 and $23 thousand for the ~~six~~nine months ended ~~June~~September 30, 2021.

Loan servicing rights are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount. If the carrying amount of an individual tranche exceeds fair value, impairment is recorded on that tranche so that the servicing asset is carried at fair value. Fair value is determined at a tranche level, based on market prices for comparable mortgage servicing contracts when available, or alternatively based on a valuation

model that calculates the present value of estimated future net servicing income. The valuation model utilizes a discount rate, weighted average prepayment speed, and other economic factors that market participants would use in estimating future net servicing income and that can be validated against available market data (Level 2). There was no valuation allowance for loan servicing rights with impairments at ~~June~~September 30, ~~2022. Old National~~2022 and no impairments or recoveries recorded ~~immaterial recoveries associated with these loan servicing rights~~ during the three months ended ~~June~~September 30, 2022. Old National recorded recoveries associated with these loan servicing rights totaling $46 thousand for the ~~six~~nine months ended ~~June~~September 30, 2022. There were recoveries of ~~$41~~$5 thousand for the three months ended ~~June~~September 30, 2021 and $1.3 million for the ~~six~~nine months ended ~~June~~September 30, 2021.

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


			Fair Value Measurements at December 31, 2021 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	$	2,634	$	—	$	—	$	2,634
Commercial real estate loans	16,308		—		—		16,308



Loan servicing rights	140		—		140		—

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

The valuation allowance for loan servicing rights with impairments at December 31, 2021 totaled $46 thousand.

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)

(dollars in thousands)

Fair Value

Valuation Techniques

Unobservable Input

Range (Weighted Average) (1)

June 30, 2022

September 30, 2022

Collateral Dependent Loans

Commercial loans

15,443

Discounted

Discount for type of property,

3% - 30% (12%)

Commercial loans

29,500

Discounted

Discount for type of property,

4% - 32% (22%)

cash flow

age of appraisal, and current status

cash flow

age of appraisal, and current status

Commercial real estate loans

54,248

Discounted

Discount for type of property,

2% - 37% (16%)

Commercial real estate loans

44,401

Discounted

Discount for type of property,

1% - 28% (15%)

cash flow

age of appraisal, and current status

cash flow

age of appraisal, and current status

Foreclosed Assets

Commercial real estate (1)

520

Fair value of

Discount for type of property,

19%

Commercial real estate (1)

278

Fair value of

Discount for type of property,

46%

collateral

age of appraisal, and current status

collateral

age of appraisal, and current status

December 31, 2021

Collateral Dependent Loans

Commercial loans

2,634

Discounted

Discount for type of property,

14% - 15% (14%)

Commercial loans

2,634

Discounted

Discount for type of property,

14% - 15% (14%)

cash flow

age of appraisal, and current status

cash flow

age of appraisal, and current status

Commercial real estate loans

16,308

Discounted

Discount for type of property,

6% - 10% (8%)

Commercial real estate loans

16,308

Discounted

Discount for type of property,

6% - 10% (8%)

cash flow

age of appraisal, and current status

cash flow

age of appraisal, and current status

(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~~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.

Residential Loans Held For Sale

Old National has elected the fair value option for residential 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 ~~$0.7~~$0.4 million for the three months ended ~~June~~September 30, 2022 and ~~$1.2~~$1.6 million for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to $0.4 million for the three months ended ~~June~~September 30, 2021 and ~~$0.8~~$1.1 million for the ~~six~~nine months ended ~~June~~September 30, 2021.

Old National has elected the fair value option for newly originated conforming fixed-rate and adjustable-rate first mortgage loans held for sale. These loans are intended for sale and are hedged with derivative instruments. 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)	(dollars in thousands)	Aggregate Fair Value		Difference		Contractual Principal		(dollars in thousands)	Aggregate Fair Value		Difference		Contractual Principal
June 30, 2022
September 30, 2022								September 30, 2022
Residential loans held for sale	Residential loans held for sale	$	26,217	$	283	$	25,934	Residential loans held for sale	$	19,748	$	(426)	$	20,174
December 31, 2021	December 31, 2021							December 31, 2021
Residential loans held for sale	Residential loans held for sale	$	35,458	$	1,342	$	34,116	Residential loans held for sale	$	35,458	$	1,342	$	34,116

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)	(dollars in thousands)	Other Gains and (Losses)		Interest Income		Interest (Expense)		Total Changes in Fair Values Included in Current Period Earnings		(dollars in thousands)	Other Gains and (Losses)		Interest Income		Interest (Expense)		Total Changes in Fair Values Included in Current Period Earnings
Three Months Ended June 30, 2022
Three Months Ended September 30, 2022										Three Months Ended September 30, 2022
Residential loans held for sale	Residential loans held for sale	$	278	$	9	$	—	$	287	Residential loans held for sale	$	(710)	$	1	$	—	$	(709)

Three Months Ended June 30, 2021
Three Months Ended September 30, 2021										Three Months Ended September 30, 2021
Residential loans held for sale	Residential loans held for sale	$	790	$	—	$	(1)	$	789	Residential loans held for sale	$	(453)	$	—	$	(2)	$	(455)

Six Months Ended June 30, 2022
Nine Months Ended September 30, 2022										Nine Months Ended September 30, 2022
Residential loans held for sale	Residential loans held for sale	$	(1,065)	$	9	$	(3)	$	(1,059)	Residential loans held for sale	$	(1,775)	$	7	$	—	$	(1,768)

Six Months Ended June 30, 2021
Nine Months Ended September 30, 2021										Nine Months Ended September 30, 2021
Residential loans held for sale	Residential loans held for sale	$	(1,590)	$	2	$	(1)	$	(1,589)	Residential loans held for sale	$	(2,043)	$	2	$	(3)	$	(2,044)

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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 June 30, 2022 Using									Fair Value Measurements at September 30, 2022 Using
(dollars in thousands)	(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)		(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	Financial Assets									Financial Assets
Cash, due from banks, money market, and other interest-earning investments	Cash, due from banks, money market, and other interest-earning investments	$	797,964	$	797,964	$	—	$	—	Cash, due from banks, money market, and other interest-earning investments	$	801,611	$	801,611	$	—	$	—
Investment securities held-to-maturity:	Investment securities held-to-maturity:									Investment securities held-to-maturity:
U.S. government-sponsored entities and agencies	U.S. government-sponsored entities and agencies	815,833		—		720,435		—		U.S. government-sponsored entities and agencies	817,489		—		658,435		—
Mortgage-backed securities - Agency	Mortgage-backed securities - Agency	1,149,212		—		1,089,442		—		Mortgage-backed securities - Agency	1,124,714		—		1,001,146		—
State and political subdivisions	State and political subdivisions	1,119,141		—		969,413		—		State and political subdivisions	1,154,364		—		940,859		—

Loans, net:	Loans, net:									Loans, net:
Commercial	Commercial	8,819,983		—		—		8,837,714		Commercial	9,197,495		—		—		9,093,210
Commercial real estate	Commercial real estate	11,653,818		—		—		11,711,358		Commercial real estate	12,082,870		—		—		11,933,915
Residential real estate	Residential real estate	6,059,328		—		—		5,740,944		Residential real estate	6,246,050		—		—		5,689,328
Consumer credit	Consumer credit	2,732,516		—		—		2,880,432		Consumer credit	2,700,264		—		—		2,726,540
Accrued interest receivable	Accrued interest receivable	157,079		699		51,770		104,610		Accrued interest receivable	166,699		997		42,119		123,583

Financial Liabilities	Financial Liabilities									Financial Liabilities
Deposits:	Deposits:									Deposits:
Noninterest-bearing demand deposits	Noninterest-bearing demand deposits	$	12,388,379	$	12,388,379	$	—	$	—	Noninterest-bearing demand deposits	$	12,400,077	$	12,400,077	$	—	$	—
Checking, NOW, savings, and money market interest-bearing deposits	Checking, NOW, savings, and money market interest-bearing deposits	20,642,980		20,642,980		—		—		Checking, NOW, savings, and money market interest-bearing deposits	21,182,255		21,182,255		—		—
Time deposits	Time deposits	2,507,616		—		2,476,746		—		Time deposits	2,471,331		—		2,426,080		—
Federal funds purchased and interbank borrowings	Federal funds purchased and interbank borrowings	1,561		1,561		—		—		Federal funds purchased and interbank borrowings	301,031		301,031		—		—
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	476,173		476,173		—		—		Securities sold under agreements to repurchase	438,053		438,053		—		—
FHLB advances	FHLB advances	3,283,963		—		3,257,920		—		FHLB advances	2,804,617		—		2,717,824		—
Other borrowings	Other borrowings	622,714		—		573,849		—		Other borrowings	721,049		—		587,370		—
Accrued interest payable	Accrued interest payable	10,148		—		10,148		—		Accrued interest payable	8,774		—		8,774		—
Standby letters of credit	Standby letters of credit	450		—		—		450		Standby letters of credit	904		—		—		904

Off-Balance Sheet Financial Instruments	Off-Balance Sheet Financial Instruments									Off-Balance Sheet Financial Instruments
Commitments to extend credit	Commitments to extend credit	$	—	$	—	$	—	$	2,610	Commitments to extend credit	$	—	$	—	$	—	$	3,708

5556


			Fair Value Measurements at December 31, 2021 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	$	822,019	$	822,019	$	—	$	—




Loans, net:
Commercial	3,363,175		—		—		3,335,009
Commercial real estate	6,315,574		—		—		6,211,854
Residential real estate	2,245,942		—		—		2,216,900
Consumer credit	1,569,814		—		—		1,582,600
Accrued interest receivable	84,109		688		35,790		47,631

Financial Liabilities
Deposits:
Noninterest-bearing demand deposits	$	6,303,106	$	6,303,106	$	—	$	—
Checking, NOW, savings, and money market interest-bearing deposits	11,305,676		11,305,676		—		—
Time deposits	960,413		—		968,658		—
Federal funds purchased and interbank borrowings	276		276		—		—
Securities sold under agreements to repurchase	392,275		392,275		—		—
FHLB advances	1,886,019		—		1,935,140		—
Other borrowings	296,670		—		311,532		—
Accrued interest payable	5,496		—		5,496		—
Standby letters of credit	454		—		—		454

Off-Balance Sheet Financial Instruments
Commitments to extend credit	$	—	$	—	$	—	$	4,678

The methods utilized to measure the fair value of financial instruments at ~~June~~September 30, 2022 and December 31, 2021 represent an approximation of exit price, however, an actual exit price may differ.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is an analysis of our results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, and financial condition as of ~~June~~September 30, 2022, compared to December 31, 2021. This discussion and analysis should be read in conjunction with the consolidated financial statements and related notes, as well as our 2021 Annual Report on Form 10-K.

FORWARD-LOOKING STATEMENTS

This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, descriptions of Old National’s financial condition, results of operations, asset and credit quality trends, profitability and business plans or opportunities. Forward-looking statements can be identified by the use of the words “anticipate,” “believe,” “contemplate,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “should,” and “will,” and other words of similar meaning. These forward-looking statements express management’s current expectations or forecasts of future events and, by their nature, are subject to risks and uncertainties. There are a number of factors that could cause actual results or outcomes to differ materially from those in such statements. Factors that might cause such a difference include, but are not limited to: the duration, extent, and severity of the COVID-19 pandemic and related variants and mutations, including the continued effects on our business, operations, and employees as well as the business of our customers; competition; government legislation, regulations and policies; ability of Old National to execute its business plan, including the completion of the integration related to the merger between Old National and First Midwest, and the achievement of the synergies and other benefits from the merger; unanticipated changes in our liquidity position, including but not limited to changes in our access to sources of liquidity and capital to address our liquidity needs; changes in economic conditions which could materially impact credit quality trends and the ability to generate loans and gather deposits; market, economic, operational, liquidity, credit, and interest rate risks associated with our business; our ability to successfully manage our credit risk and the sufficiency of our allowance for credit losses; uncertainty about the discontinued use of LIBOR and the transition to an alternative rate; failure or circumvention of our internal controls; operational risks or risk management failures by us or critical third parties, including without limitation with respect to data processing, information systems, cybersecurity, technological changes, vendor issues, business interruption, and fraud risks; significant changes in accounting, tax or regulatory practices or requirements; new legal obligations or liabilities or unfavorable resolutions of litigation; disruptive technologies in payment systems and other services traditionally provided by banks; failure or disruption of our information systems; computer hacking and other cybersecurity threats; other matters discussed in this report; and other factors identified in our Annual Report on Form 10-K for the year ended December 31, 2021 and other filings with the SEC. These forward-looking statements are made only as of the date of this report and are not guarantees of future results or performance.

Such forward-looking statements are based on assumptions and estimates, which although believed to be reasonable, may turn out to be incorrect. Therefore, undue reliance should not be placed upon these estimates and statements. We cannot assure that any of these statements, estimates, or beliefs will be realized and actual results or outcomes may differ from those contemplated in these forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise after the date of this report. You are advised to consult further disclosures we may make on related subjects in our filings with the SEC.

Investors should consider these risks, uncertainties, and other factors in addition to risk factors included in this filing and our other filings with the SEC.

5758

FINANCIAL HIGHLIGHTS

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


		Three Months Ended									Six Months Ended							Three Months Ended									Nine Months Ended
(dollars and shares in thousands,	(dollars and shares in thousands,	June 30,			March 31,			June 30,			June 30,						(dollars and shares in thousands,	September 30,			June 30,			September 30,			September 30,
except per share data)	except per share data)	2022			2022			2021			2022			2021			except per share data)	2022			2022			2021			2022			2021
Income Statement:	Income Statement:																Income Statement:
Net interest income	Net interest income	$	337,472		$	222,785		$	149,927		$	560,257		$	298,047		Net interest income	$	376,589		$	337,472		$	151,572		$	936,846		$	449,619
Taxable equivalent adjustment (1)	Taxable equivalent adjustment (1)	4,314			3,772			3,470			8,086			6,970			Taxable equivalent adjustment (1)	4,950			4,314			3,501			13,036			10,471
Net interest income - tax equivalent basis	Net interest income - tax equivalent basis	341,786			226,557			153,397			568,343			305,017			Net interest income - tax equivalent basis	381,539			341,786			155,073			949,882			460,090
Provision for credit losses	Provision for credit losses	9,245			97,569			(4,929)			106,814			(22,285)			Provision for credit losses	11,287			9,245			(4,613)			118,101			(26,898)
Noninterest income	Noninterest income	89,117			65,240			51,508			154,357			108,220			Noninterest income	80,385			89,117			54,515			234,742			162,735
Noninterest expense	Noninterest expense	277,395			226,756			129,618			504,151			247,358			Noninterest expense	266,647			277,395			121,274			770,798			368,632
Net income (loss) available to common shareholders		110,952			(29,603)			62,786			81,349			149,604
Net income available to common shareholders																	Net income available to common shareholders	136,119			110,952			71,746			217,468			221,350
Per Common Share Data:	Per Common Share Data:																Per Common Share Data:
Weighted average diluted shares		291,881			227,002			165,934			260,253			165,821
Net income (loss) (diluted)		$	0.38		$	(0.13)		$	0.38		$	0.31		$	0.90
Weighted average diluted common shares																	Weighted average diluted common shares	292,483			291,881			165,939			271,123			165,862
Net income (diluted)																	Net income (diluted)	$	0.47		$	0.38		$	0.43		$	0.80		$	1.33
Cash dividends	Cash dividends	0.14			0.14			0.14			0.28			0.28			Cash dividends	0.14			0.14			0.14			0.42			0.42
Common dividend payout ratio (2)	Common dividend payout ratio (2)	37		%	(108)		%	37		%	90		%	31		%	Common dividend payout ratio (2)	30		%	37		%	33		%	53		%	31		%
Book value	Book value	$	16.51		$	17.03		$	18.05		$	16.51		$	18.05		Book value	$	16.05		$	16.51		$	18.31		$	16.05		$	18.31
Stock price	Stock price	14.79			16.38			17.61			14.79			17.61			Stock price	16.47			14.79			16.95			16.47			16.95
Tangible common book value (3)	Tangible common book value (3)	9.23			9.71			11.55			9.23			11.55			Tangible common book value (3)	8.75			9.23			11.83			8.75			11.83
Performance Ratios:	Performance Ratios:																Performance Ratios:
Return on average assets	Return on average assets	1.01		%	(0.31)		%	1.06		%	0.43		%	1.27		%	Return on average assets	1.22		%	1.01		%	1.20		%	0.72		%	1.25		%
Return on average common equity	Return on average common equity	9.08			(2.89)			8.39			3.62			10.04			Return on average common equity	11.13			9.08			9.48			6.26			9.85
Return on tangible common equity (3)	Return on tangible common equity (3)	17.21			(3.61)			13.58			6.71			16.10			Return on tangible common equity (3)	22.07			17.21			15.05			12.05			15.49
Return on average tangible common equity (3)	Return on average tangible common equity (3)	16.93			(4.03)			13.58			6.84			16.21			Return on average tangible common equity (3)	20.49			16.93			15.13			11.50			15.84
Net interest margin (3)	Net interest margin (3)	3.33			2.88			2.91			3.13			2.93			Net interest margin (3)	3.71			3.33			2.92			3.34			2.92
Efficiency ratio (3)	Efficiency ratio (3)	62.70			76.15			62.05			68.13			58.79			Efficiency ratio (3)	56.17			62.70			56.86			63.46			58.14
Net charge-offs (recoveries) to average loans	Net charge-offs (recoveries) to average loans	0.02			0.05			(0.01)			0.04			—			Net charge-offs (recoveries) to average loans	0.10			0.02			(0.09)			0.06			(0.03)
Allowance for credit losses to ending loans	Allowance for credit losses to ending loans	0.97			0.99			0.79			0.97			0.79			Allowance for credit losses to ending loans	0.99			0.97			0.79			0.99			0.79
Non-performing loans to ending loans	Non-performing loans to ending loans	0.78			0.88			1.03			0.78			1.03			Non-performing loans to ending loans	0.81			0.78			0.94			0.81			0.94
Balance Sheet:	Balance Sheet:																Balance Sheet:
Total loans	Total loans	$	29,553,648		$	28,336,244		$	13,784,677		$	29,553,648		$	13,784,677		Total loans	$	30,528,933		$	29,553,648		$	13,584,828		$	30,528,933		$	13,584,828
Total assets	Total assets	45,748,355			45,834,648			23,675,666			45,748,355			23,675,666			Total assets	46,215,526			45,748,355			24,018,733			46,215,526			24,018,733
Total deposits	Total deposits	35,538,975			35,607,390			17,868,911			35,538,975			17,868,911			Total deposits	36,053,663			35,538,975			18,196,149			36,053,663			18,196,149
Total borrowed funds	Total borrowed funds	4,384,411			4,347,560			2,559,113			4,384,411			2,559,113			Total borrowed funds	4,264,750			4,384,411			2,536,303			4,264,750			2,536,303
Total shareholders' equity	Total shareholders' equity	5,078,783			5,232,114			2,991,118			5,078,783			2,991,118			Total shareholders' equity	4,943,383			5,078,783			3,035,892			4,943,383			3,035,892
Capital Ratios:	Capital Ratios:																Capital Ratios:
Risk-based capital ratios:	Risk-based capital ratios:																Risk-based capital ratios:
Tier 1 common equity	Tier 1 common equity	9.90		%	10.04		%	11.95		%	9.90		%	11.95		%	Tier 1 common equity	9.88		%	9.90		%	12.08		%	9.88		%	12.08		%
Tier 1	Tier 1	10.63			10.79			11.95			10.63			11.95			Tier 1	10.58			10.63			12.08			10.58			12.08
Total	Total	12.03			12.19			12.73			12.03			12.73			Total	11.84			12.03			12.84			11.84			12.84
Leverage ratio (to average assets)	Leverage ratio (to average assets)	8.19			10.58			8.38			8.19			8.38			Leverage ratio (to average assets)	8.26			8.19			8.54			8.26			8.54
Total equity to assets (averages)	Total equity to assets (averages)	11.22			12.03			12.61			11.57			12.69			Total equity to assets (averages)	11.18			11.22			12.69			11.43			12.69
Tangible common equity to tangible assets (3)	Tangible common equity to tangible assets (3)	6.20			6.51			8.47			6.20			8.47			Tangible common equity to tangible assets (3)	5.82			6.20			8.55			5.82			8.55
Nonfinancial Data:	Nonfinancial Data:																Nonfinancial Data:
Full-time equivalent employees	Full-time equivalent employees	4,196			4,333			2,465			4,196			2,465			Full-time equivalent employees	4,008			4,196			2,410			4,008			2,410
Banking centers	Banking centers	266			267			162			266			162			Banking centers	263			266			162			263			162

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

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

(3)Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for reconciliations to GAAP financial measures.

5859

NON-GAAP FINANCIAL MEASURES

The Company’s accounting and reporting policies conform to GAAP and general practices within the banking industry. As a supplement to GAAP, the Company provides non-GAAP performance results, which the Company believes are useful because they assist investors in assessing the Company’s operating performance. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the following table.

The tax-equivalent adjustment to net interest income and net interest margin recognizes the income tax savings when comparing taxable and tax-exempt assets. Interest income and yields on tax-exempt securities and loans are presented using the current federal income tax rate of 21%. Management believes that it is standard practice in the banking industry to present net interest income and net interest margin on a fully tax-equivalent basis and that it may enhance comparability for peer comparison purposes.

In management’s view, tangible common equity measures are capital adequacy metrics that may be meaningful to the Company, as well as analysts and investors, in assessing the Company’s use of equity and in facilitating comparisons with peers. These non-GAAP measures are valuable indicators of a financial institution’s capital strength since they eliminate intangible assets from shareholders’ equity and retain the effect of accumulated other comprehensive loss in shareholders’ equity.

Although intended to enhance investors’ understanding of the Company’s business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. In addition, these non-GAAP financial measures may differ from those used by other financial institutions to assess their business and performance. See the previously provided tables and the following reconciliations in the “Non-GAAP Reconciliations” section for details on the calculation of these measures to the extent presented herein.

5960

The following table presents GAAP to non-GAAP reconciliations.

Three Months Ended
June 30, Six Months Ended
June 30,
(dollars and shares in thousands, except per share data) 2022 2021 2022 2021
Tangible common book value:
Shareholders' common equity (GAAP) $ 4,835,064 $ 2,991,118 $ 4,835,064 $ 2,991,118
Deduct: Goodwill 1,991,534 1,036,994 1,991,534 1,036,994
Intangible assets 140,281 40,030 140,281 40,030
Tangible shareholders' common equity (non-GAAP) $ 2,703,249 $ 1,914,094 $ 2,703,249 $ 1,914,094
Period end common shares 292,893 165,732 292,893 165,732
Tangible common book value (non-GAAP) 9.23 11.55 9.23 11.55
Return on tangible common equity:
Net income applicable to common shares (GAAP) $ 110,952 $ 62,786 $ 81,349 $ 149,604
Add: Intangible amortization (net of tax) (1)
5,378 2,182 9,312 4,488
Tangible net income (non-GAAP) $ 116,330 $ 64,968 $ 90,661 $ 154,092
Tangible shareholders' common equity (non-GAAP) (see above) $ 2,703,249 $ 1,914,094 $ 2,703,249 $ 1,914,094
Return on tangible common equity (non-GAAP) 17.21 % 13.58 % 6.71 % 16.10 %
Return on average tangible common equity:
Tangible net income (non-GAAP) (see above) $ 116,330 $ 64,968 $ 90,661 $ 154,092
Average shareholders' common equity (GAAP) $ 4,886,181 $ 2,992,693 $ 4,495,862 $ 2,981,398
Deduct: Average goodwill 1,992,860 1,036,994 1,736,227 1,036,994
Average intangible assets 144,104 41,410 109,195 42,901
Average tangible shareholders' common equity (non-GAAP) $ 2,749,217 $ 1,914,289 $ 2,650,440 $ 1,901,503
Return on average tangible common equity (non-GAAP) 16.93 % 13.58 % 6.84 % 16.21 %
Net interest margin:
Net interest income (GAAP) $ 337,472 $ 149,927 $ 560,257 $ 298,047
Taxable equivalent adjustment 4,314 3,470 8,086 6,970
Net interest income - taxable equivalent basis (non-GAAP) $ 341,786 $ 153,397 $ 568,343 $ 305,017
Average earning assets $ 41,003,338 $ 21,095,280 $ 36,269,744 $ 20,849,829
Net interest margin (non-GAAP) 3.33 % 2.91 % 3.13 % 2.93 %
Efficiency ratio:
Noninterest expense (GAAP) $ 277,395 $ 129,618 $ 504,151 $ 247,358
Deduct: Intangible amortization expense 7,170 2,909 11,981 5,984
Adjusted noninterest expense (non-GAAP) $ 270,225 $ 126,709 $ 492,170 $ 241,374
Net interest income - taxable equivalent basis (non-GAAP) (see
above) $ 341,786 $ 153,397 $ 568,343 $ 305,017
Noninterest income 89,117 51,508 154,357 108,220
Deduct: Debt securities gains (losses), net (85) 692 257 2,685
Adjusted total revenue (non-GAAP) $ 430,988 $ 204,213 $ 722,443 $ 410,552
Efficiency ratio (non-GAAP) 62.70 % 62.05 % 68.13 % 58.79 %
Tangible common equity to tangible assets:
Tangible shareholders' common equity (non-GAAP) (see above) $ 2,703,249 $ 1,914,094 $ 2,703,249 $ 1,914,094
Assets (GAAP) $ 45,748,355 $ 23,675,666 $ 45,748,355 $ 23,675,666
Add: Trust overdrafts — 24 — 24
Deduct: Goodwill 1,991,534 1,036,994 1,991,534 1,036,994
Intangible assets 140,281 40,030 140,281 40,030
Tangible assets (non-GAAP) $ 43,616,540 $ 22,598,666 $ 43,616,540 $ 22,598,666
Tangible common equity to tangible assets (non-GAAP) 6.20 % 8.47 % 6.20 % 8.47 %


		Three Months Ended									Nine Months Ended
(dollars and shares in thousands, except per share data)		September 30, 2022			June 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
Tangible common book value:
Shareholders' common equity		$	4,699,664		$	4,835,064		$	3,035,892		$	4,699,664		$	3,035,892
Deduct: Goodwill and intangible assets		2,135,792			2,131,815			1,074,245			2,135,792			1,074,245

Tangible shareholders' common equity (1)		$	2,563,872		$	2,703,249		$	1,961,647		$	2,563,872		$	1,961,647
Period end common shares		292,880			292,893			165,814			292,880			165,814
Tangible common book value (1)		8.75			9.23			11.83			8.75			11.83
Return on tangible common equity:
Net income applicable to common shares		$	136,119		$	110,952		$	71,746		$	217,468		$	221,350
Add: Intangible amortization (net of tax) (2)		5,317			5,378			2,084			14,302			6,572
Tangible net income (1)		$	141,436		$	116,330		$	73,830		$	231,770		$	227,922
Tangible shareholders' common equity (1) (see above)		$	2,563,872		$	2,703,249		$	1,961,647		$	2,563,872		$	1,961,647
Return on tangible common equity (1)		22.07		%	17.21		%	15.05		%	12.05		%	15.49		%
Return on average tangible common equity:
Tangible net income (1) (see above)		$	141,436		$	116,330		$	73,830		$	231,770		$	227,922
Average shareholders' common equity		$	4,890,434		$	4,886,181		$	3,027,935		$	4,628,831		$	2,997,081
Deduct: Average goodwill and intangible assets		2,129,858			2,136,964			1,075,579			1,941,270			1,078,441

Average tangible shareholders' common equity (1)		$	2,760,576		$	2,749,217		$	1,952,356		$	2,687,561		$	1,918,640
Return on average tangible common equity (1)		20.49		%	16.93		%	15.13		%	11.50		%	15.84		%
Net interest margin:
Net interest income		$	376,589		$	337,472		$	151,572		$	936,846		$	449,619
Taxable equivalent adjustment		4,950			4,314			3,501			13,036			10,471
Net interest income - taxable equivalent basis (1)		$	381,539		$	341,786		$	155,073		$	949,882		$	460,090
Average earning assets		$	41,180,026		$	41,003,338		$	21,228,590		$	37,924,490		$	20,977,471
Net interest margin (1)		3.71		%	3.33		%	2.92		%	3.34		%	2.92		%
Efficiency ratio:
Noninterest expense		$	266,647		$	277,395		$	121,274		$	770,798		$	368,632
Deduct: Intangible amortization expense		7,089			7,170			2,779			19,070			8,763
Adjusted noninterest expense (1)		$	259,558		$	270,225		$	118,495		$	751,728		$	359,869
Net interest income - taxable equivalent basis (1) (see above)		$	381,539		$	341,786		$	155,073		$	949,882		$	460,090
Noninterest income		80,385			89,117			54,515			234,742			162,735
Deduct: Debt securities gains (losses), net		(172)			(85)			1,207			85			3,892
Adjusted total revenue (1)		$	462,096		$	430,988		$	208,381		$	1,184,539		$	618,933
Efficiency ratio (1)		56.17		%	62.70		%	56.86		%	63.46		%	58.14		%
Tangible common equity to tangible assets:
Tangible shareholders' common equity (1) (see above)		$	2,563,872		$	2,703,249		$	1,961,647		$	2,563,872		$	1,961,647
Assets		$	46,215,526		$	45,748,355		$	24,018,733		$	46,215,526		$	24,018,733
Add:	Trust overdrafts	—			—			116			—			116
Deduct:	Goodwill and intangible assets	2,135,792			2,131,815			1,074,245			2,135,792			1,074,245

Tangible assets (1)		$	44,079,734		$	43,616,540		$	22,944,604		$	44,079,734		$	22,944,604
Tangible common equity to tangible assets (1)		5.82		%	6.20		%	8.55		%	5.82		%	8.55		%

(1)Represents a non-GAAP financial measure.

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

6061

EXECUTIVE SUMMARY

Old National is the sixth largest commercial bank headquartered in the ~~Midwest.~~Midwest by assets. With approximately $46 billion of assets and ~~$28~~$27 billion of assets under management, Old National ranks among the top 35 banking companies based in the U.S. by assets and has been recognized as a World’s Most Ethical Company by the Ethisphere Institute for eleven consecutive years. ~~Since its founding in 1834,~~ Old National Bank has focused on community banking by building long-term, highly valued partnerships with clients and in the communities it serves. In addition to providing extensive services in retail and commercial banking, Old National offers comprehensive wealth management, investment, and capital market services.

On February 15, 2022, Old National completed its previously announced merger of equals transaction with First Midwest. At closing, Old National acquired $21.9 billion of assets, including $14.3 billion of loans, and assumed $17.2 billion of deposits. Old National completed branding and ~~the majority of core banking~~all systems conversions in ~~early July~~the third quarter of 2022.

On June 27, 2022, Old National entered into a Custodial Transfer and Asset Purchase Agreement with UMB, pursuant to which UMB will acquire Old National’s business of acting as a qualified custodian for, and administering, health savings accounts. Old National serves as custodian for health savings accounts comprised of both investment accounts and deposit accounts. Upon completion of the sale, UMB will pay Old National a premium on deposit account balances transferred at closing, or a premium of approximately $95 million based on ~~June~~September 30, 2022 balances. Regulatory approval for the sale has been received. Subject to customary closing conditions, ~~and regulatory approval,~~ the parties anticipate completing the sale in ~~the fourth quarter~~mid-November of 2022.

Net income ~~(loss)~~ applicable to common shareholders for the ~~second~~third quarter of 2022 was ~~$111.0~~$136.1 million, or ~~$0.38~~$0.47 per diluted common share, compared to ~~$(29.6) million, or $(0.13) per diluted common share, for the first quarter of 2022 and $62.8~~$111.0 million, or $0.38 per diluted common share, for the second quarter of 2022 and $71.7 million, or $0.43 per diluted common share, for the third quarter of 2021.

Results for the ~~first~~three and ~~second quarters of~~nine months ended September 30, 2022 were impacted by ~~$52.3~~$22.7 million and ~~$36.6~~$111.6 million, respectively, of merger-related expenses. The nine months ended September 30, 2022 merger-related expenses ~~which~~ included $11.0 million in the first quarter of 2022 attributable to the provision for credit losses on unfunded loan commitments. In addition, the first quarter of 2022 provision expense ~~of $97.6 million~~ included $96.3 million of provision for credit losses to establish an allowance for credit losses on non-PCD loans acquired in the First Midwest merger.

We achieved strong ~~fundamental~~ results during the ~~second~~third quarter of ~~2022.~~2022, including robust loan growth and net interest margin expansion.

Loans: Our loan balances, excluding loans held for sale, increased ~~$1.2~~$1.0 billion, or 13% annualized, to ~~$29.6~~$30.5 billion at ~~June~~September 30, 2022 compared to ~~March 31,~~June 30, 2022. This was primarily driven by strong commercial and consumer loan production.

Net Interest Income: Net interest income increased ~~$114.7~~$39.1 million to $376.6 million compared to the ~~first~~second quarter of 2022 driven by ~~the full quarter impact of the merger,~~higher interest rates, loan growth, ~~the higher rate environment, higher accretion,~~ and an additional day in the ~~quarter.~~quarter, partially offset by lower accretion income on loans.

Noninterest Income: Noninterest income ~~increased $23.9~~decreased $8.7 million to $80.4 million compared to the ~~first~~second quarter of ~~2022 driven by the full quarter impact~~2022. Wealth management fees decreased as a result of ~~the merger. Mortgage~~current market conditions and mortgage banking revenue ~~was~~continues to be impacted by the higher rate environment, as well as lower production and gain on sale ~~margins,~~margins. Other income for the second quarter of 2022 was elevated primarily due to equity investment returns and ~~a higher mix of portfolio production.~~recoveries on previously charged-off acquired loans in addition to increased proceeds from company-owned life insurance.

Noninterest ~~Expenses~~Expense: Noninterest ~~expenses increased $50.6~~expense decreased $10.7 million compared to the ~~first~~second quarter of 2022 primarily due to ~~the full quarter impact of operating~~lower merger-related expenses, partially offset by higher incentive accruals and marketing costs, ~~associated with the merger,~~ as well as ~~higher incentive accruals reflective of strong performance.~~$4.2 million in provision for unfunded commitments due to loan growth. Noninterest ~~expenses~~expense included ~~$36.6~~$22.7 million of merger-related expenses, compared to ~~$52.3~~$36.6 million in the ~~first~~second quarter of 2022.

Pandemic Update

As previously disclosed, the COVID-19 pandemic has created economic and financial disruptions that ~~continue~~continued to adversely affect our operations during the ~~six~~three and nine months ended ~~June~~September 30, 2022. Our historically careful underwriting practices, diverse and granular portfolios, and Midwest-based footprint have helped minimize the

adverse impact to Old National. The pandemic has become less disruptive to the Company’s business, financial condition, results of operations, and its clients as of ~~June~~September 30, ~~2022.~~2022 than in prior periods.

RESULTS OF OPERATIONS

The following table sets forth certain income statement information of Old National:


		Three Months Ended June 30,								Six Months Ended June 30,									Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	2022			2021			% Change		2022			2021			% Change		(dollars in thousands, except per share data)	2022			2021			% Change		2022			2021			% Change
Income Statement Summary:	Income Statement Summary:																	Income Statement Summary:
Net interest income	Net interest income	$	337,472		$	149,927		125.1	%	$	560,257		$	298,047		88.0	%	Net interest income	$	376,589		$	151,572		148.5	%	$	936,846		$	449,619		108.4	%
Provision for credit losses	Provision for credit losses	9,245			(4,929)			(287.6)		106,814			(22,285)			(579.3)		Provision for credit losses	11,287			(4,613)			(344.7)		118,101			(26,898)			(539.1)
Noninterest income	Noninterest income	89,117			51,508			73.0		154,357			108,220			42.6		Noninterest income	80,385			54,515			47.5		234,742			162,735			44.2
Noninterest expense	Noninterest expense	277,395			129,618			114.0		504,151			247,358			103.8		Noninterest expense	266,647			121,274			119.9		770,798			368,632			109.1
Net income applicable to common shareholders	Net income applicable to common shareholders	110,952			62,786			76.7		81,349			149,604			(45.6)		Net income applicable to common shareholders	136,119			71,746			89.7		217,468			221,350			(1.8)
Net income per common share - diluted	Net income per common share - diluted	0.38			0.38			—		0.31			0.90			(65.6)		Net income per common share - diluted	0.47			0.43			9.3		0.80			1.33			(39.8)
Other Data:	Other Data:																	Other Data:
Return on average common equity	Return on average common equity	9.08		%	8.39		%			3.62		%	10.04		%			Return on average common equity	11.13		%	9.48		%			6.26		%	9.85		%
Return on tangible common equity (1)	Return on tangible common equity (1)	17.21			13.58					6.71			16.10					Return on tangible common equity (1)	22.07			15.05					12.05			15.49
Return on average tangible common equity (1)	Return on average tangible common equity (1)	16.93			13.58					6.84			16.21					Return on average tangible common equity (1)	20.49			15.13					11.50			15.84
Efficiency ratio (1)	Efficiency ratio (1)	62.70			62.05					68.13			58.79					Efficiency ratio (1)	56.17			56.86					63.46			58.14
Tier 1 leverage ratio	Tier 1 leverage ratio	8.19			8.38					8.19			8.38					Tier 1 leverage ratio	8.26			8.54					8.26			8.54
Net charge-offs (recoveries) to average loans	Net charge-offs (recoveries) to average loans	0.02			(0.01)					0.04			—					Net charge-offs (recoveries) to average loans	0.10			(0.09)					0.06			(0.03)

(1)Represents a non-GAAP financial measure. Refer to “Non-GAAP Financial Measures” section for reconciliations to GAAP financial measures.

Net Interest Income

Net interest income is the most significant component of our earnings, comprising ~~78%~~80% of revenues for the ~~six~~nine months ended ~~June~~September 30, 2022. Net interest income and net interest margin are influenced by many factors, primarily the volume and mix of earning assets, funding sources, and interest rate fluctuations. Other factors include the level of accretion income on purchased loans, prepayment risk on mortgage and investment-related assets, and the composition and maturity of interest-earning assets and interest-bearing liabilities.

Interest rates increased significantly during the ~~second~~third quarter of 2022 with the rate on the 2-Year U.S. Treasury increasing from ~~2.34%~~2.95% to ~~2.95%~~4.28%. The Federal Reserve’s Federal Funds Rate increased ~~125~~150 basis points to a target range of ~~1.50%~~3.00% to ~~1.75%~~3.25%, with the Effective Federal Funds Rate at ~~1.58%~~3.08% at ~~June~~September 30, 2022. The Federal Reserve is expected to continue to increase the Federal Funds Rate throughout 2022 and into 2023. If interest rates increase, our interest rate spread may improve, which may result in an increase in our net interest income. If interest rates decline, our interest rate spread could decline, which may result in a decrease in our net interest income. However, management has taken balance sheet restructuring, derivative, and deposit pricing actions to help mitigate this risk.

Loans typically generate more interest income than investment securities with similar maturities. Funding from client deposits generally costs less than wholesale funding sources. Factors such as general economic activity, Federal Reserve monetary policy, and price volatility of competing alternative investments, can also exert significant influence on our ability to optimize our mix of assets and funding, net interest income, and net interest margin.

Net interest income is the excess of interest received from interest-earning assets over interest paid on interest-bearing liabilities. For analytical purposes, net interest income is presented in the table that follows, adjusted to a taxable equivalent basis to reflect what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset. We used the federal statutory tax rate in effect of 21% for all periods. This analysis portrays the income tax benefits related to tax-exempt assets and helps to facilitate a comparison between taxable and tax-exempt assets. Management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully taxable equivalent basis. Therefore, management believes these

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

The following tables present the average balance sheet for each major asset and liability category, its related interest income and yield, or its expense and rate.

(Tax equivalent basis,
dollars in thousands) Three Months Ended
June 30, 2022 Three Months Ended
June 30, 2021
Earning Assets Average
Balance
Income (1)/
Expense
Yield/
Rate Average
Balance
Income (1)/
Expense
Yield/
Rate
Money market and other interest-earning
   investments $ 1,088,005 $ 1,830 0.67 % $ 232,723 $ 48 0.08 %
Investment securities:
Treasury and government sponsored agencies 2,487,717 11,818 1.90 % 1,637,396 5,967 1.46 %
Mortgage-backed securities 6,008,470 33,534 2.23 % 3,287,254 15,067 1.83 %
States and political subdivisions 1,834,189 14,571 3.18 % 1,503,447 12,364 3.29 %
Other securities 723,279 5,467 3.02 % 439,197 2,690 2.45 %
Total investment securities 11,053,655 65,390 2.37 % 6,867,294 36,088 2.10 %
Loans: (2)
Commercial 8,692,646 95,743 4.36 % 4,019,553 34,715 3.42 %
Commercial real estate 11,547,958 113,545 3.89 % 6,146,057 57,655 3.71 %
Residential real estate loans 5,905,151 51,686 3.50 % 2,256,215 21,474 3.81 %
Consumer 2,715,923 30,478 4.50 % 1,573,438 13,948 3.56 %
Total loans 28,861,678 291,452 4.01 % 13,995,263 127,792 3.62 %
Total earning assets 41,003,338 $ 358,672 3.48 % 21,095,280 $ 163,928 3.09 %
Less: Allowance for credit losses (282,943) (117,020)
Non-Earning Assets
Cash and due from banks 277,283 238,326
Other assets 4,735,701 2,520,937
Total assets $ 45,733,379 $ 23,737,523
Interest-Bearing Liabilities
Checking and NOW accounts $ 8,445,683 $ 1,786 0.08 % $ 4,954,817 $ 514 0.04 %
Savings accounts 6,835,675 673 0.04 % 3,647,952 492 0.05 %
Money market accounts 5,317,300 1,027 0.08 % 2,085,132 433 0.08 %
Time deposits 2,499,445 1,701 0.27 % 1,024,777 1,293 0.51 %
Total interest-bearing deposits 23,098,103 5,187 0.09 % 11,712,678 2,732 0.09 %
Federal funds purchased and interbank
   borrowings 1,222 2 0.47 % 1,460 — 0.02 %
Securities sold under agreements to repurchase 466,885 85 0.07 % 406,251 95 0.09 %
FHLB advances 3,053,423 6,925 0.91 % 1,906,078 5,218 1.10 %
Other borrowings 611,772 4,687 3.06 % 269,259 2,486 3.69 %
Total borrowed funds 4,133,302 11,699 1.14 % 2,583,048 7,799 1.21 %
Total interest-bearing liabilities $ 27,231,405 $ 16,886 0.25 % $ 14,295,726 $ 10,531 0.30 %
Noninterest-Bearing Liabilities and
   Shareholders' Equity
Demand deposits $ 12,714,946 $ 6,140,424
Other liabilities 657,128 308,680
Shareholders' equity 5,129,900 2,992,693
Total liabilities and shareholders' equity $ 45,733,379 $ 23,737,523
Net interest income - taxable equivalent basis $ 341,786 3.33 % $ 153,397 2.91 %
Taxable equivalent adjustment (4,314) (3,470)
Net interest income (GAAP) $ 337,472 3.29 % $ 149,927 2.84 %

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

~~(2)Includes loans held for sale.~~


(Tax equivalent basis, dollars in thousands)	(Tax equivalent basis, dollars in thousands)	Six Months Ended June 30, 2022						Six Months Ended June 30, 2021						(Tax equivalent basis, dollars in thousands)	Three Months Ended September 30, 2022						Three Months Ended September 30, 2021
Earning Assets	Earning Assets	Average Balance		Income (1)/ Expense		Yield/ Rate		Average Balance		Income (1)/ Expense		Yield/ Rate		Earning Assets	Average Balance		Income (1)/ Expense		Yield/ Rate		Average Balance		Income (1)/ Expense		Yield/ Rate
Money market and other interest-earning investments	Money market and other interest-earning investments	$	1,211,518	$	2,138	0.36	%	$	301,025	$	136	0.09	%	Money market and other interest-earning investments	$	514,362	$	935	0.72	%	$	467,572	$	177	0.15	%
Investment securities:	Investment securities:													Investment securities:
Treasury and government sponsored agencies	Treasury and government sponsored agencies	2,342,401		20,038		1.71	%	1,397,791		10,852		1.55	%	Treasury and government sponsored agencies	2,326,070		13,212		2.27	%	1,730,553		6,968		1.61	%
Mortgage-backed securities	Mortgage-backed securities	5,441,902		57,910		2.13	%	3,299,713		30,900		1.87	%	Mortgage-backed securities	5,891,283		36,157		2.45	%	3,313,027		14,509		1.75	%
States and political subdivisions	States and political subdivisions	1,786,684		28,208		3.16	%	1,490,865		24,564		3.30	%	States and political subdivisions	1,829,322		14,631		3.20	%	1,586,743		12,609		3.18	%
Other securities	Other securities	664,741		9,611		2.89	%	446,266		5,433		2.44	%	Other securities	718,735		6,781		3.77	%	443,393		2,638		2.38	%
Total investment securities	Total investment securities	10,235,728		115,767		2.26	%	6,634,635		71,749		2.16	%	Total investment securities	10,765,410		70,781		2.63	%	7,073,716		36,724		2.08	%
Loans: (2)	Loans: (2)													Loans: (2)
Commercial	Commercial	7,301,008		151,026		4.11	%	3,997,281		70,282		3.50	%	Commercial	9,045,009		113,491		5.02	%	3,645,197		36,139		3.88	%
Commercial real estate	Commercial real estate	10,156,292		190,952		3.74	%	6,063,872		113,401		3.72	%	Commercial real estate	11,929,892		136,780		4.59	%	6,200,144		57,820		3.65	%
Residential real estate loans	Residential real estate loans	4,953,222		85,673		3.46	%	2,264,988		42,821		3.78	%	Residential real estate loans	6,189,503		56,432		3.65	%	2,274,347		20,529		3.61	%
Consumer	Consumer	2,411,976		52,393		4.38	%	1,588,028		28,276		3.59	%	Consumer	2,735,850		33,049		4.79	%	1,567,614		14,138		3.58	%
Total loans	Total loans	24,822,498		480,044		3.86	%	13,914,169		254,780		3.65	%	Total loans	29,900,254		339,752		4.54	%	13,687,302		128,626		3.70	%
Total earning assets	Total earning assets	36,269,744		$	597,949	3.29	%	20,849,829		$	326,665	3.13	%	Total earning assets	41,180,026		$	411,468	3.99	%	21,228,590		$	165,527	3.08	%
Less: Allowance for credit losses		(225,876)						(125,398)
Deduct: Allowance for credit losses														Deduct: Allowance for credit losses	(290,215)						(111,216)
Non-Earning Assets	Non-Earning Assets													Non-Earning Assets
Cash and due from banks	Cash and due from banks	273,083						263,336						Cash and due from banks	503,841						272,855
Other assets	Other assets	4,111,637						2,503,865						Other assets	4,522,171						2,479,079
Total assets	Total assets	$	40,428,588					$	23,491,632					Total assets	$	45,915,823					$	23,869,308

Interest-Bearing Liabilities	Interest-Bearing Liabilities													Interest-Bearing Liabilities
Checking and NOW accounts		$	7,619,757	$	2,381	0.06	%	$	4,965,095	$	1,139	0.05	%
Savings accounts		6,073,081		1,262		0.04	%	3,572,057		979		0.06	%
Money market accounts		4,552,241		1,719		0.08	%	2,059,439		861		0.08	%
Checking and NOW														Checking and NOW	$	8,681,392	$	5,751	0.26	%	$	4,873,914	$	484	0.04	%
Savings														Savings	6,733,465		547		0.03	%	3,678,944		500		0.05	%
Money market														Money market	5,344,567		2,072		0.15	%	2,110,981		438		0.08	%
Time deposits	Time deposits	2,124,382		3,019		0.29	%	1,052,856		2,912		0.56	%	Time deposits	2,508,152		2,450		0.39	%	998,060		1,156		0.46	%
Total interest-bearing deposits	Total interest-bearing deposits	20,369,461		8,381		0.08	%	11,649,447		5,891		0.10	%	Total interest-bearing deposits	23,267,576		10,820		0.18	%	11,661,899		2,578		0.09	%
Federal funds purchased and interbank borrowings	Federal funds purchased and interbank borrowings	1,168		2		0.25	%	1,303		—		—	%	Federal funds purchased and interbank borrowings	122,311		720		2.34	%	689		—		—	%
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	458,459		181		0.08	%	402,478		215		0.11	%	Securities sold under agreements to repurchase	436,225		106		0.10	%	384,724		90		0.09	%
FHLB advances	FHLB advances	2,822,984		12,888		0.92	%	1,915,661		10,627		1.12	%	FHLB advances	3,025,844		13,027		1.71	%	1,890,916		5,326		1.12	%
Other borrowings	Other borrowings	522,599		8,154		3.12	%	266,152		4,915		3.69	%	Other borrowings	676,874		5,256		3.08	%	270,597		2,460		3.64	%
Total borrowed funds	Total borrowed funds	3,805,210		21,225		1.12	%	2,585,594		15,757		1.23	%	Total borrowed funds	4,261,254		19,109		1.78	%	2,546,926		7,876		1.23	%
Total interest-bearing liabilities	Total interest-bearing liabilities	$	24,174,671	$	29,606	0.25	%	$	14,235,041	$	21,648	0.31	%	Total interest-bearing liabilities	$	27,528,830	$	29,929	0.43	%	$	14,208,825	$	10,454	0.29	%

Noninterest-Bearing Liabilities and Shareholders' Equity	Noninterest-Bearing Liabilities and Shareholders' Equity													Noninterest-Bearing Liabilities and Shareholders' Equity
Demand deposits	Demand deposits	$	11,014,359					$	5,949,412					Demand deposits	$	12,575,011					$	6,314,100
Other liabilities	Other liabilities	562,882						325,781						Other liabilities	677,829						318,448
Shareholders' equity	Shareholders' equity	4,676,676						2,981,398						Shareholders' equity	5,134,153						3,027,935
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	40,428,588					$	23,491,632					Total liabilities and shareholders' equity	$	45,915,823					$	23,869,308

Net interest income - taxable equivalent basis	Net interest income - taxable equivalent basis			$	568,343	3.13	%			$	305,017	2.93	%	Net interest income - taxable equivalent basis			$	381,539	3.71	%			$	155,073	2.92	%
Taxable equivalent adjustment	Taxable equivalent adjustment			(8,086)						(6,970)				Taxable equivalent adjustment			(4,950)						(3,501)
Net interest income (GAAP)	Net interest income (GAAP)			$	560,257	3.09	%			$	298,047	2.86	%	Net interest income (GAAP)			$	376,589	3.66	%			$	151,572	2.86	%

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

(2)Includes loans held for sale.


(Tax equivalent basis, dollars in thousands)	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
Earning Assets	Average Balance		Income (1)/ Expense		Yield/ Rate		Average Balance		Income (1)/ Expense		Yield/ Rate
Money market and other interest-earning investments	$	976,579	$	3,073	0.42	%	$	357,151	$	313	0.12	%
Investment securities:
Treasury and government sponsored agencies	2,336,897		33,249		1.90	%	1,509,931		17,820		1.57	%
Mortgage-backed securities	5,593,341		94,067		2.24	%	3,304,200		45,408		1.83	%
States and political subdivisions	1,801,053		42,839		3.17	%	1,523,175		37,174		3.25	%
Other securities	682,937		16,392		3.20	%	445,298		8,071		2.42	%
Total investment securities	10,414,228		186,547		2.39	%	6,782,604		108,473		2.13	%
Loans: (2)
Commercial	7,888,730		264,517		4.47	%	3,878,630		106,421		3.62	%
Commercial real estate	10,753,988		327,733		4.06	%	6,109,795		171,221		3.70	%
Residential real estate loans	5,369,844		142,105		3.53	%	2,268,142		63,350		3.72	%
Consumer	2,521,121		85,442		4.53	%	1,581,149		42,414		3.59	%
Total loans	26,533,683		819,797		4.12	%	13,837,716		383,406		3.67	%
Total earning assets	37,924,490		$	1,009,417	3.55	%	20,977,471		$	492,192	3.11	%
Deduct: Allowance for credit losses	(247,558)						(120,619)
Non-Earning Assets
Cash and due from banks	350,848						266,543
Other assets	4,249,986						2,495,512
Total assets	$	42,277,766					$	23,618,907

Interest-Bearing Liabilities
Checking and NOW	$	7,977,524	$	8,133	0.14	%	$	4,934,367	$	1,622	0.04	%
Savings	6,295,628		1,809		0.04	%	3,608,078		1,479		0.05	%
Money market	4,819,252		3,791		0.11	%	2,076,808		1,300		0.08	%
Time deposits	2,253,711		5,468		0.32	%	1,034,390		4,068		0.53	%
Total interest-bearing deposits	21,346,115		19,201		0.12	%	11,653,643		8,469		0.10	%
Federal funds purchased and interbank borrowings	41,993		722		2.30	%	1,096		—		—	%
Securities sold under agreements to repurchase	450,966		287		0.09	%	396,495		305		0.10	%
FHLB advances	2,891,347		25,915		1.20	%	1,907,322		15,953		1.12	%
Other borrowings	574,589		13,410		3.12	%	267,650		7,375		3.67	%
Total borrowed funds	3,958,895		40,334		1.36	%	2,572,563		23,633		1.23	%
Total interest-bearing liabilities	$	25,305,010	$	59,535	0.31	%	$	14,226,206	$	32,102	0.30	%

Noninterest-Bearing Liabilities and Shareholders' Equity
Demand deposits	$	11,540,293					$	6,072,310
Other liabilities	601,619						323,310
Shareholders' equity	4,830,844						2,997,081
Total liabilities and shareholders' equity	$	42,277,766					$	23,618,907

Net interest income - taxable equivalent basis			$	949,882	3.34	%			$	460,090	2.92	%
Taxable equivalent adjustment			(13,036)						(10,471)
Net interest income (GAAP)			$	936,846	3.29	%			$	449,619	2.86	%

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

(2)Includes loans held for sale.

The following table presents the dollar amount of changes in taxable equivalent net interest income attributable to changes in the average balances of assets and liabilities and the yields earned or rates paid.


		From Three Months Ended June 30, 2021 to Three Months Ended June 30, 2022						From Six Months Ended June 30, 2021 to Six Months Ended June 30, 2022												From Three Months Ended September 30, 2021 to Three Months Ended September 30, 2022												From Nine Months Ended September 30, 2021 to Nine Months Ended September 30, 2022
		Total Change (1)		Attributed to				Total Change (1)				Attributed to								Total Change (1)				Attributed to								Total Change (1)				Attributed to
(dollars in thousands)	(dollars in thousands)			Volume		Rate				Volume				Rate		(dollars in thousands)						Volume				Rate								Volume				Rate
Interest Income	Interest Income																	Interest Income
Money market and other interest-earning investments	Money market and other interest-earning investments	$	1,782	$	805	$	977			$	2,002			$	1,003			$	999		Money market and other interest-earning investments	$	758			$	54			$	704			$	2,760			$	1,246			$	1,514
Investment securities (2)	Investment securities (2)	29,302		23,383		5,919		44,018				39,797				4,221		Investment securities (2)		34,057				21,765				12,292				78,074				61,566				16,508
Loans (2)	Loans (2)	163,660		142,491		21,169		225,264				204,866				20,398		Loans (2)		211,126				166,150				44,976				436,391				369,536				66,855
Total interest income	Total interest income	194,744		166,679		28,065		271,284				245,666				25,618		Total interest income		245,941				187,969				57,972				517,225				432,348				84,877
Interest Expense	Interest Expense																	Interest Expense
Checking and NOW deposits		1,272		563		709		1,242				829				413
Savings deposits		181		335		(154)		283				695				(412)
Money market deposits		594		620		(26)		858				927				(69)
Checking and NOW																		Checking and NOW		5,267				1,484				3,783				6,511				1,862				4,649
Savings																		Savings		47				296				(249)				330				825				(495)
Money market																		Money market		1,634				956				678				2,491				1,835				656
Time deposits	Time deposits	408		1,451		(1,043)		107				2,264				(2,157)		Time deposits		1,294				1,603				(309)				1,400				3,938				(2,538)
Federal funds purchased and interbank borrowings	Federal funds purchased and interbank borrowings	2		—		2		2				—				2		Federal funds purchased and interbank borrowings		720				358				362				722				352				370
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	(10)		12		(22)		(34)				28				(62)		Securities sold under agreements to repurchase		16				11				5				(18)				38				(56)
FHLB advances	FHLB advances	1,707		2,883		(1,176)		2,261				4,629				(2,368)		FHLB advances		7,701				4,050				3,651				9,962				8,554				1,408
Other borrowings	Other borrowings	2,201		2,892		(691)		3,239				4,363				(1,124)		Other borrowings		2,796				3,435				(639)				6,035				7,793				(1,758)
Total interest expense	Total interest expense	6,355		8,756		(2,401)		7,958				13,735				(5,777)		Total interest expense		19,475				12,193				7,282				27,433				25,197				2,236
Net interest income	Net interest income	$	188,389	$	157,923	$	30,466	$	263,326			$	231,931			$	31,395	Net interest income		$	226,466			$	175,776			$	50,690			$	489,792			$	407,151			$	82,641

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

(2)Interest on investment securities and loans includes the effect of taxable equivalent adjustments of $2.9 million and ~~$1.4~~$2.0 million, respectively, during the three months ended ~~June~~September 30, 2022; and ~~$5.6~~$8.5 million and ~~$2.5~~$4.5 million, respectively, during the ~~six~~nine months ended ~~June~~September 30, 2022 using the federal statutory rate in effect of 21%.

The increase in net interest income for the three and ~~six~~nine months ended ~~June~~September 30, 2022 when compared to the same periods in 2021 was primarily due to higher average earning assets as a result of the merger, loan growth, higher rates, and higher accretion ~~income, and lower costs of average interest-bearing liabilities.~~income. Partially offsetting these increases were lower interest and fees related to PPP loans, ~~and~~ higher average interest-bearing liabilities as a result of the ~~merger.~~merger, and higher costs of average interest-bearing liabilities. Accretion income associated with acquired loans and borrowings totaled ~~$35.0~~$25.4 million and ~~$50.8~~$76.2 million in the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, compared to ~~$5.1~~$3.0 million and ~~$9.8~~$12.8 million in the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively. Net interest income included interest and net fees on PPP loans totaling ~~$1.7~~$1.5 million and ~~$5.4~~$6.9 million in the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, compared to ~~$11.9~~$12.2 million and ~~$24.5~~$36.7 million in the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively. ~~Unamortized~~There were no unamortized fees on remaining PPP loans ~~totaled $1.4 million~~ at ~~June~~September 30, 2022.

The increase in the net interest margin on a fully taxable equivalent basis for the three and ~~six~~nine months ended ~~June~~September 30, 2022 when compared to the ~~three and six months ended June 30,~~same periods in 2021 was primarily due to higher yields on interest earning assets, ~~and lower~~partially offset by higher costs of interest-bearing liabilities. The yield on interest earning assets increased 3991 basis points and the cost of interest-bearing liabilities ~~decreased 5~~increased 14 basis points in the quarterly year-over-year comparison. The yield on interest earning assets increased 1644 basis points and the cost of interest-bearing liabilities ~~decreased 6~~increased 1 basis ~~points~~point in the ~~six~~nine months ended ~~June~~September 30, 2022 when compared to the ~~six~~nine months ended ~~June~~September 30, 2021. Accretion income represented 3425 basis points and 2827 basis points of the net interest margin in the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, compared to 106 basis points ~~for both~~and 8 basis points in the three and ~~six~~nine months ended ~~June~~September 30, ~~2021.~~2021, respectively.

Average earning assets were ~~$41.0~~$41.2 billion and ~~$21.1~~$21.2 billion for the three months ended ~~June~~September 30, 2022 and 2021, respectively, an increase of ~~$19.9~~$20.0 billion, or 94%. Average earning assets were ~~$36.3~~$37.9 billion and ~~$20.8~~$21.0 billion for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively, an increase of ~~$15.4~~$16.9 billion, or ~~74%~~81%. The increases in average earning assets were primarily due to the merger with First Midwest and strong loan growth.

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Average loans including loans held for sale increased ~~$14.9~~$16.2 billion and ~~$10.9~~$12.7 billion for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, when compared to the same periods in 2021 primarily due to the First Midwest merger and strong loan growth.

Average investments increased ~~$4.2~~$3.7 billion and $3.6 billion for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, when compared to the same periods in 2021 reflecting the First Midwest merger.

Average noninterest-bearing and ~~interest bearing~~interest-bearing deposits increased ~~$6.6~~$6.3 billion and ~~$11.4~~$11.6 billion, respectively, for the three months ended ~~June~~September 30, 2022 when compared to the same period in 2021. Average noninterest-bearing and ~~interest bearing~~interest-bearing deposits increased ~~$5.1~~$5.5 billion and ~~$8.7~~$9.7 billion, respectively, for the ~~six~~nine months ended ~~June~~September 30, 2022 when compared to the same period in 2021. This growth was primarily driven by the First Midwest merger.

Average borrowed funds increased ~~$1.6~~$1.7 billion and ~~$1.2~~$1.4 billion, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2022 when compared to the same periods in 2021, driven by the First Midwest merger.

Provision for Credit Losses

Old National recorded provision for credit losses of ~~$9.2~~$11.3 million for the three months ended ~~June~~September 30, 2022, compared to ~~$4.9~~$4.6 million provision for credit losses recapture for the three months ended ~~June~~September 30, 2021. Net charge-offs on loans totaled ~~$1.8~~$7.6 million during the three months ended ~~June~~September 30, 2022, which included $5.9 million of net charge-offs on PCD loans, compared to net recoveries of ~~$0.3~~$3.0 million for the three months ended ~~June~~September 30, 2021. The provision for credit losses totaled ~~$106.8~~$118.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~$22.3~~$26.9 million provision for credit losses recapture for the ~~six~~nine months ended ~~June~~September 30, 2021. Net charge-offs on loans totaled ~~$4.5~~$12.1 million during the ~~six~~nine months ended ~~June~~September 30, 2022, which included $10.5 million of net charge-offs on PCD loans, compared to net recoveries of ~~$0.3~~$3.4 million during the ~~six~~nine months ended ~~June~~September 30, 2021. The provision for credit losses expense in the ~~six~~nine months ended ~~June~~September 30, 2022 included $96.3 million of provision for credit losses to establish an allowance for credit losses on non-PCD loans acquired in the First Midwest merger. Continued loan growth in future periods, a decline in our current level of recoveries, or an increase in charge-offs could result in an increase in provision expense. Additionally, provision expense may be volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, which drive the allowance for credit losses balance.

Noninterest Income

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


		Three Months Ended June 30,				%		Six Months Ended June 30,				%			Three Months Ended September 30,				%		Nine Months Ended September 30,				%
(dollars in thousands)	(dollars in thousands)	2022		2021		Change		2022		2021		Change		(dollars in thousands)	2022		2021		Change		2022		2021		Change
Wealth management fees	Wealth management fees	$	19,304	$	10,734	79.8	%	$	33,934	$	20,442	66.0	%	Wealth management fees	$	17,317	$	10,134	70.9	%	$	51,251	$	30,576	67.6	%
Service charges on deposit accounts	Service charges on deposit accounts	21,144		8,514		148.3		35,870		16,638		115.6		Service charges on deposit accounts	20,042		8,123		146.7		54,392		23,270		133.7
Debit card and ATM fees	Debit card and ATM fees	10,402		5,583		86.3		17,301		10,726		61.3		Debit card and ATM fees	10,608		5,745		84.6		29,429		17,962		63.8
Mortgage banking revenue	Mortgage banking revenue	6,522		7,827		(16.7)		13,767		24,352		(43.5)		Mortgage banking revenue	5,360		10,870		(50.7)		19,127		35,222		(45.7)
Investment product fees	Investment product fees	8,568		6,042		41.8		15,890		11,906		33.5		Investment product fees	8,042		6,475		24.2		23,932		18,381		30.2
Capital markets income	Capital markets income	7,261		5,871		23.7		11,703		9,586		22.1		Capital markets income	8,906		6,017		48.0		20,609		15,603		32.1
Company-owned life insurance	Company-owned life insurance	4,571		2,783		64.2		8,095		5,497		47.3		Company-owned life insurance	3,361		2,355		42.7		11,456		7,852		45.9
Debt securities gains (losses), net	Debt securities gains (losses), net	(85)		692		(112.3)		257		2,685		(90.4)		Debt securities gains (losses), net	(172)		1,207		(114.3)		85		3,892		(97.8)
Other income	Other income	11,430		3,462		230.2		17,540		6,388		174.6		Other income	6,921		3,589		92.8		24,461		9,977		145.2
Total noninterest income	Total noninterest income	$	89,117	$	51,508	73.0	%	$	154,357	$	108,220	42.6	%	Total noninterest income	$	80,385	$	54,515	47.5	%	$	234,742	$	162,735	44.2	%

Noninterest income increased ~~$37.6~~$25.9 million and ~~$46.1~~$72.0 million, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2022 when compared to the same periods in 2021 primarily due to the First Midwest merger in February of 2022. The increases in noninterest income were partially offset by lower mortgage banking revenue, which was impacted by the higher rate environment, ~~normalizing~~as well as lower production and gain on sale ~~margins, and a higher mix of portfolio production.~~margins. In addition, wealth management fees were negatively impacted by current market conditions.

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Noninterest Expense

The following table details the components in noninterest expense:


		Three Months Ended June 30,				%		Six Months Ended June 30,				%			Three Months Ended September 30,				%		Nine Months Ended September 30,				%
(dollars in thousands)	(dollars in thousands)	2022		2021		Change		2022		2021		Change		(dollars in thousands)	2022		2021		Change		2022		2021		Change
Salaries and employee benefits	Salaries and employee benefits	$	161,817	$	72,640	122.8	%	$	285,964	$	140,757	103.2	%	Salaries and employee benefits	$	147,203	$	71,005	107.3	%	$	433,167	$	211,762	104.6	%
Occupancy	Occupancy	26,496		14,054		88.5		47,515		28,926		64.3		Occupancy	26,418		12,757		107.1		73,933		41,683		77.4
Equipment	Equipment	7,550		4,506		67.6		12,718		8,475		50.1		Equipment	7,328		3,756		95.1		20,046		12,231		63.9
Marketing	Marketing	9,119		2,632		246.5		13,395		4,694		185.4		Marketing	10,361		3,267		217.1		23,756		7,961		198.4
Data processing	Data processing	25,883		11,697		121.3		44,645		24,050		85.6		Data processing	20,269		11,508		76.1		64,914		35,558		82.6
Communication	Communication	5,878		2,411		143.8		9,295		5,289		75.7		Communication	5,392		2,372		127.3		14,687		7,661		91.7
Professional fees	Professional fees	6,336		8,528		(25.7)		26,127		11,252		132.2		Professional fees	6,559		3,416		92.0		32,686		14,668		122.8
FDIC assessment	FDIC assessment	4,699		1,226		283.3		7,274		2,833		156.8		FDIC assessment	6,249		1,628		283.8		13,523		4,461		203.1
Amortization of intangibles	Amortization of intangibles	7,170		2,909		146.5		11,981		5,984		100.2		Amortization of intangibles	7,089		2,779		155.1		19,070		8,763		117.6
Amortization of tax credit investments	Amortization of tax credit investments	1,525		1,813		(15.9)		3,041		3,015		0.9		Amortization of tax credit investments	2,662		1,736		53.3		5,703		4,751		20.0
Other expense	Other expense	20,922		7,202		190.5		42,196		12,083		249.2		Other expense	27,117		7,050		284.6		69,313		19,133		262.3
Total noninterest expense	Total noninterest expense	$	277,395	$	129,618	114.0	%	$	504,151	$	247,358	103.8	%	Total noninterest expense	$	266,647	$	121,274	119.9	%	$	770,798	$	368,632	109.1	%

Noninterest expense increased ~~$147.8~~$145.4 million for the three months ended ~~June~~September 30, 2022 when compared to the same period in 2021 reflective of the additional operating costs associated with the First Midwest merger, as well as ~~$36.6~~$22.7 million of merger-related expenses. In addition, higher incentive accruals resulting from strong performance contributed to the increase. Noninterest expense for the three months ended ~~June~~September 30, 2021 included ~~$6.5~~$1.4 million of merger-related expenses.

Noninterest expense increased ~~$256.8~~$402.2 million for the ~~six~~nine months ended ~~June~~September 30, 2022 when compared to the same period in 2021 reflective of the additional operating costs associated with the First Midwest merger, as well as ~~$88.9~~$111.6 million of merger-related expenses, including $11.0 million of other expenses attributable to the provision for credit losses on unfunded loan commitments. In addition, higher incentive accruals resulting from strong performance contributed to the increase. Noninterest expense for the ~~six~~nine months ended ~~June~~September 30, 2021 included ~~$6.5~~$7.9 million of merger-related expenses.

Amortization of tax credit investments ~~decreased $0.3~~increased $0.9 million and $1.0 million, respectively, for the three and nine months ended ~~June~~September 30, 2022 when compared to the same ~~period in 2021. Amortization of tax credit investments for the six months ended June 30, 2022 were consistent with the same period~~periods in 2021. The recognition of tax credit amortization expense is contingent upon the successful completion of the rehabilitation of a historic building or completion of a solar project within the reporting period. Many factors including weather, labor availability, building regulations, inspections, and other unexpected construction delays related to a rehabilitation project can cause a project to exceed its estimated completion date. See Note 11 to the consolidated financial statements for additional information on our tax credit investments.

Provision for Income Taxes

We record a provision for income taxes currently payable and for income taxes payable or benefits to be received in the future, which arise due to ~~timing~~temporary differences in the recognition of certain items for financial statement and income tax purposes. The major difference between the effective tax rate applied to our financial statement income and the federal statutory tax rate is caused by a tax benefit from our tax credit investments and interest on tax-exempt securities and loans. The provision for income taxes as a percentage of pre-tax income ~~(loss),~~ was ~~17.8%~~21.7% for the three months ended ~~June~~September 30, 2022, compared to ~~18.2%~~19.8% for the same period in 2021. The provision for income taxes as a percentage of pre-tax income ~~(loss),~~ was ~~15.7%~~19.5% for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~17.4%~~18.2% for the same period in 2021. In accordance with ASC 740-270, Accounting for Interim Reporting,, the provision for income taxes was recorded at ~~June~~September 30, 2022 based on the current estimate of the effective annual rate. The ~~lower~~higher effective tax rate during the three and ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same periods in 2021 reflected the ~~recognition of $1.7 million of previously unrealized tax benefits~~increase in ~~the three months ended June 30, 2022, partially offset by~~pre-tax book income and higher post-merger estimated state effective tax rates. The six months ended June 30, 2022 also reflected additional one-time benefits of $1.2 million related to share-based payments and $0.9 million related to the remeasurement of the Company’s deferred taxes post-merger. See Note 17 to the consolidated financial statements for additional information.

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FINANCIAL CONDITION

Overview

At ~~June~~September 30, 2022, our assets were ~~$45.7~~$46.2 billion, a ~~$21.3~~$21.8 billion increase compared to assets of $24.5 billion at December 31, 2021. The increase was driven primarily by the merger with First Midwest in February of ~~2022.~~

We have observed signs of an economic recovery in the United States, with jobs, consumer spending, manufacturing, and other indicators rebounding from their weakest levels. Our historically careful underwriting practices, diverse and granular portfolios, and Midwest-based footprint have helped minimize the adverse impact to Old National. The pandemic has become less disruptive to the Company’s business, financial condition, results of operations, and its clients2022, as ~~of June 30, 2022.~~well as loan growth.

Earning Assets

Our earning assets are comprised of investment securities, portfolio loans, loans held for sale, money market investments, interest earning accounts with the Federal Reserve, and equity securities. Earning assets were ~~$40.9~~$41.2 billion at ~~June~~September 30, 2022, a ~~$19.1~~$19.3 billion increase compared to earning assets of $21.9 billion at December 31, 2021 driven primarily by the merger with First ~~Midwest.~~Midwest, as well as loan growth.

Investment Securities

We classify the majority of our investment securities as available-for-sale to give management the flexibility to sell the securities prior to maturity if needed, based on fluctuating interest rates or changes in our funding requirements. During the ~~six~~nine months ended ~~June~~September 30, 2022, we transferred $3.0 billion of securities available-for-sale to held-to-maturity in light of the rate environment.

Equity securities are recorded at fair value and totaled ~~$55.9~~$51.8 million at ~~June~~September 30, 2022 compared to $13.2 million at December 31, 2021. The increase in equity securities was driven by the merger with First Midwest.

At ~~June~~September 30, 2022, the investment securities portfolio, including equity securities, was ~~$11.0~~$10.3 billion compared to $7.6 billion at December 31, 2021, an increase of ~~$3.4 billion.~~$2.7 billion driven primarily by the merger with First Midwest. Investment securities represented ~~27%~~25% of earning assets at ~~June~~September 30, 2022, compared to 35% at December 31, 2021. Stronger loan demand in the future could result in management’s decision to reduce the securities portfolio. At ~~June~~September 30, 2022, we had no intent to sell any securities that were in an unrealized loss position nor is it expected that we would be required to sell the securities prior to their anticipated recovery.

The investment securities available-for-sale portfolio had net unrealized losses of ~~$574.7~~$860.3 million at ~~June~~September 30, 2022, compared to net unrealized losses of $6.0 million at December 31, 2021. Net unrealized losses increased from December 31, 2021 to ~~June~~September 30, 2022 primarily due to an increase in rates impacting market values for mortgage-backed, U.S. government-sponsored entities and agencies, and tax exempt municipal securities.

The investment securities available-for-sale portfolio including securities hedges had an effective duration of ~~4.41~~4.64 at ~~June~~September 30, 2022, compared to 4.26 at December 31, 2021. Effective duration measures the percentage change in value of the portfolio in response to a change in interest rates. Generally, there is more uncertainty in interest rates over a longer average maturity, resulting in a higher duration percentage. The annualized average yields on investment securities, on a taxable equivalent basis, were ~~2.37%~~2.63% and ~~2.26%~~2.39% for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, compared to ~~2.10%~~2.08% and ~~2.16%~~2.13% for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively.

~~Loans Held for Sale~~

Mortgage loans held for immediate sale in the secondary market were $26.2 million at June 30, 2022, compared to $35.5 million at December 31, 2021. Certain mortgage loans are committed for sale at or prior to origination at a contracted price to an outside investor. Other mortgage loans held for immediate sale are hedged with TBA forward agreements and committed for sale when they are ready for delivery and remain on the Company’s balance sheet for a short period of time (typically 30 to 60 days). These loans are sold without recourse, beyond customary representations and warranties, and Old National has not experienced material losses arising from these sales. Mortgage originations are subject to volatility due to interest rates and home sales, among other factors.

We have elected the fair value option prospectively for residential loans held for sale. The aggregate fair value of residential loans held for sale exceeded the unpaid principal balance by $0.3 million at June 30, 2022. The

~~aggregate fair value of residential loans held for sale exceeded the unpaid principal balance by $1.3 million at December 31, 2021.~~

Commercial and Commercial Real Estate Loans

Commercial and commercial real estate loans are the largest classifications within earning assets, representing ~~51%~~52% of earning assets at ~~June~~September 30, 2022, compared to 45% at December 31, 2021. At ~~June~~September 30, 2022, commercial and commercial real estate loans were ~~$20.7~~$21.5 billion, an increase of ~~$10.9~~$11.8 billion compared to December 31, 2021 driven by the merger with First Midwest and strong loan production in the ~~first half of~~nine months ended September 30, 2022.

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

June 30, 2022 December 31, 2021
(dollars in thousands) Outstanding Exposure Nonaccrual Outstanding Exposure Nonaccrual
By Industry:
Manufacturing $ 1,810,117 $ 2,748,807 $ 5,223 $ 612,873 $ 1,152,774 $ 6,689
Construction 681,550 1,378,937 1,627 310,649 744,610 1,429
Health care and social assistance 1,402,311 1,783,160 4,791 376,664 550,400 444
Public administration 235,481 369,807 921 247,770 357,310 —
Wholesale trade 912,714 1,387,295 2,677 240,618 438,357 1,598
Educational services 231,914 388,165 5,283 216,384 295,065 —
Other services 175,026 366,555 2,343 121,577 260,413 2,542
Professional, scientific, and
  technical services 475,971 788,843 4,004 141,364 279,185 937
Finance and insurance 351,466 613,321 30 162,920 232,847 44
Retail trade 271,126 462,229 1,246 131,303 289,478 945
Real estate rental and leasing 628,454 978,331 1,647 204,612 347,991 504
Transportation and warehousing 334,706 491,703 2,380 134,072 243,086 1,594
Administrative and support and
  waste management and
  remediation services 330,737 502,056 5,434 86,307 149,417 —
Agriculture, forestry, fishing,
  and hunting 219,171 374,560 1,017 114,699 164,364 1,521
Accommodation and food services 441,217 542,930 1,059 78,689 108,724 2,399
Utilities 35,875 94,858 — 26,322 75,439 —
Arts, entertainment, and recreation 142,966 199,291 314 71,055 110,574 2,189
Information 132,197 175,395 1,943 43,713 78,877 1,809
Mining 37,446 53,281 — 30,161 62,231 5
Management of companies and
  enterprises 30,198 56,388 — 15,124 36,046 —
Other 43,340 142,912 — 24,893 24,943 —
Total $ 8,923,983 $ 13,898,824 $ 41,939 $ 3,391,769 $ 6,002,131 $ 24,649
By Loan Size:
Less than $200,000 6 % 5 % 5 % 8 % 6 % 7 %
$200,000 to $1,000,000 14 14 36 18 16 42
$1,000,000 to $5,000,000 27 28 46 31 29 51
$5,000,000 to $10,000,000 16 17 13 15 16 —
$10,000,000 to $25,000,000 30 26 — 18 18 —
Greater than $25,000,000 7 10 — 10 15 —
Total 100 % 100 % 100 % 100 % 100 % 100 %


	September 30, 2022									December 31, 2021
(dollars in thousands)	Outstanding			Exposure			Nonaccrual			Outstanding			Exposure			Nonaccrual
By Industry:
Manufacturing	$	1,763,364		$	2,711,356		$	2,788		$	612,873		$	1,152,774		$	6,689
Construction	593,184			1,321,767			1,739			310,649			744,610			1,429
Health care and social assistance	1,511,547			1,889,178			11,773			376,664			550,400			444
Public administration	226,873			381,541			874			247,770			357,310			—
Wholesale trade	849,340			1,413,972			2,465			240,618			438,357			1,598
Educational services	221,992			386,266			3,953			216,384			295,065			—
Other services	193,737			344,741			2,084			121,577			260,413			2,542
Professional, scientific, and technical services	529,493			808,457			3,761			141,364			279,185			937
Finance and insurance	422,961			763,438			22			162,920			232,847			44
Retail trade	308,901			524,397			6,187			131,303			289,478			945
Real estate rental and leasing	612,723			897,883			1,142			204,612			347,991			504
Transportation and warehousing	318,577			485,990			2,035			134,072			243,086			1,594
Administrative and support and waste management and remediation services	316,467			456,132			15,233			86,307			149,417			—
Agriculture, forestry, fishing, and hunting	230,039			365,527			999			114,699			164,364			1,521
Accommodation and food services	434,010			561,774			842			78,689			108,724			2,399





Other	777,940			1,069,952			937			211,268			388,110			4,003
Total	$	9,311,148		$	14,382,371		$	56,834		$	3,391,769		$	6,002,131		$	24,649

By Loan Size:
Less than $200,000	3		%	3		%	3		%	8		%	6		%	7		%
$200,000 to $1,000,000	12			12			21			18			16			42
$1,000,000 to $5,000,000	25			27			30			31			29			51
$5,000,000 to $10,000,000	16			16			27			15			16			—
$10,000,000 to $25,000,000	31			27			19			18			18			—
Greater than $25,000,000	13			15			—			10			15			—
Total	100		%	100		%	100		%	100		%	100		%	100		%

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


		June 30, 2022				December 31, 2021				September 30, 2022				December 31, 2021
(dollars in thousands)	(dollars in thousands)	Outstanding		%		Outstanding		%			(dollars in thousands)	Outstanding		%		Outstanding		%
By Property Type:	By Property Type:										By Property Type:
Multifamily	Multifamily	$	3,596,449	30	%	$	1,995,803	31	%		Multifamily	$	3,972,918	32	%	$	1,995,803	31	%
Retail	Retail	1,848,075		16		1,037,034		16			Retail	1,850,030		15		1,037,034		16
Office	Office	1,738,934		15		1,018,973		16			Office	1,794,623		15		1,018,973		16
Warehouse / Industrial	Warehouse / Industrial	1,718,735		15		851,956		14			Warehouse / Industrial	1,914,365		16		851,956		14
Single family	Single family	411,811		3		333,221		5			Single family	504,143		4		333,221		5
Other (1)	Other (1)	2,482,499		21		1,143,687		18			Other (1)	2,191,809		18		1,143,687		18
Total	Total	$	11,796,503	100	%	$	6,380,674	100	%		Total	$	12,227,888	100	%	$	6,380,674	100	%

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

Residential Real Estate Loans

At ~~June~~September 30, 2022, residential real estate loans held in our loan portfolio were ~~$6.1~~$6.3 billion, an increase of ~~$3.8~~$4.0 billion compared to December 31, 2021 driven by the merger with First Midwest and loan growth. Future increases in interest rates could result in a decline in the level of refinancings and new originations of residential real estate loans.

Consumer Loans

Consumer loans, including automobile loans and personal and home equity loans and lines of credit, increased ~~$1.2~~$1.1 billion to ~~$2.8~~$2.7 billion at ~~June~~September 30, 2022 compared to December 31, 2021 driven by the merger with First Midwest and loan growth.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets at ~~June~~September 30, 2022 totaled $2.1 billion, an increase of $1.1 billion from December 31, 2021 as a result of goodwill and other intangible assets recorded with the First Midwest merger.

Other Assets

Other assets at ~~June~~September 30, 2022 increased ~~$453.1~~$656.5 million from December 31, 2021 primarily due to higher net deferred tax assets related to ~~net unrealized losses on~~the market value adjustments of certain investment securities and ~~allowance for credit losses on loans and higher miscellaneous investments associated with~~$130.3 million of deferred tax assets related to the First Midwest merger.

Funding

~~Total~~The following table summarizes Old National’s total funding, comprised of deposits and wholesale ~~borrowings,~~borrowings:


(dollars in thousands)	September 30, 2022		December 31, 2021		$ Change		% Change
Deposits:
Noninterest-bearing demand	$	12,400,077	$	6,303,106	$	6,096,971	97	%
Interest-bearing:
Checking and NOW	8,963,014		5,338,022		3,624,992		68	%
Savings	6,616,512		3,798,494		2,818,018		74	%
Money market	5,602,729		2,169,160		3,433,569		158	%
Time deposits	2,471,331		960,413		1,510,918		157	%
Total deposits	36,053,663		18,569,195		17,484,468		94	%
Wholesale borrowings:
Federal funds purchased and interbank borrowings	301,031		276		300,755		N/M
Securities sold under agreements to repurchase	438,053		392,275		45,778		12	%
Federal Home Loan Bank advances	2,804,617		1,886,019		918,598		49	%
Other borrowings	721,049		296,670		424,379		143	%
Total wholesale borrowings	4,264,750		2,575,240		1,689,510		66	%
Total funding	$	40,318,413	$	21,144,435	$	19,173,978	91	%

The increase in total funding was ~~$39.9 billion at June 30, 2022, an increase of $18.8 billion from $21.1 billion at December 31, 2021~~ driven by the merger with First Midwest. Included in total funding were deposits of $35.5 billion at June 30, 2022, an increase of $17.0 billion from $18.6 billion at December 31, 2021. Compared to December 31, 2021, noninterest-bearing deposits increased $6.1 billion, interest-bearing checking and NOW deposits increased $3.1 billion, savings deposits increased $3.0 billion, money market deposits increased $3.2 billion, and time deposits increased $1.5 billion.

We use wholesale funding to augment deposit funding and to help maintain our desired interest rate risk position. At June 30, 2022, wholesale borrowings, including federal funds purchased and interbank borrowings, securities sold under agreements to repurchase, FHLB advances, and other borrowings, totaled $4.4 billion, an increase of $1.8 billion from December 31, 2021 driven by the merger with First Midwest. Wholesale funding as a percentage of total funding was 11% at ~~June~~September 30, 2022 and 12% at December 31, 2021.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities at ~~June~~September 30, 2022 increased ~~$310.1~~$525.1 million from December 31, 2021 primarily due to higher derivative liabilities and accrued expenses and other liabilities associated with the First Midwest merger.

Capital

Shareholders’ equity totaled ~~$5.1~~$4.9 billion at ~~June~~September 30, 2022, compared to $3.0 billion at December 31, 2021. In relation to the merger of equals transaction, Old National issued 108,000 shares of Old National Series A Preferred Stock and 122,500 shares of Old National Series C Preferred Stock. Old National entered into two deposit

agreements, each dated as of February 15, 2022, by and among Old National, Continental Stock Transfer & Trust Company, as depository, and the holders from time to time of the depositary receipts in connection with the issuance of the Old National Preferred Stock. Pursuant to the deposit agreements, Old National issued 4,320,000 depositary shares, each representing a 1/40th interest in a share of Old National Series A Preferred Stock, and 4,900,000 depositary shares, each representing a 1/40th interest in a share of Old National Series C Preferred Stock.

Shareholders’ equity at ~~June~~September 30, 2022 included $2.4 billion from the 129.4 million shares of Common Stock that were issued in conjunction with the merger with First Midwest. The change in unrealized gains (losses) on available-for-sale investment securities decreased equity by ~~$434.1~~$651.4 million during the ~~six~~nine months ended ~~June~~September 30, 2022. In addition, available-for-sale investment securities with a fair value of $3.0 billion were transferred from the available-for-sale portfolio to the held-to-maturity portfolio during the ~~six~~nine months ended ~~June~~September 30, 2022. The resulting unrealized holding loss, net of tax, is included in shareholders’ equity and ~~totals $122.2~~totaled $117.1 million at ~~June~~September 30, 2022. Old National repurchased 3.5 million shares of Common Stock in the ~~six~~nine months ended ~~June~~September 30, 2022 under a stock repurchase plan that was approved by the Company’s Board of Directors, which reduced equity by $63.8 million. Old National also paid cash dividends of ~~$0.28~~$0.42 per common share in the ~~six~~nine months ended ~~June~~September 30, 2022, which reduced equity by ~~$81.7~~$122.6 million.

Capital Adequacy

Old National and the banking industry are subject to various regulatory capital requirements administered by the federal banking agencies. At ~~June~~September 30, 2022, Old National and its bank subsidiary exceeded the regulatory minimums and Old National Bank met the regulatory definition of “well-capitalized” based on the most recent regulatory definition.

Old National’s consolidated capital position remains strong as evidenced by the following comparisons of key industry ratios.


		Regulatory Guidelines Minimum		June 30,				December 31,			Regulatory Guidelines Minimum			September 30,				December 31,
			2022		2021		2021						2022		2021		2021
Risk-based capital:	Risk-based capital:											Risk-based capital:
Tier 1 capital to total average assets (leverage ratio)	Tier 1 capital to total average assets (leverage ratio)	4.00	%	8.19	%	8.38	%	8.59	%	Tier 1 capital to total average assets (leverage ratio)	4.00		%	8.26	%	8.54	%	8.59	%
Common equity Tier 1 capital to risk-adjusted total assets	Common equity Tier 1 capital to risk-adjusted total assets	7.00		9.90		11.95		12.04		Common equity Tier 1 capital to risk-adjusted total assets	7.00			9.88		12.08		12.04
Tier 1 capital to risk-adjusted total assets	Tier 1 capital to risk-adjusted total assets	8.50		10.63		11.95		12.04		Tier 1 capital to risk-adjusted total assets	8.50			10.58		12.08		12.04
Total capital to risk-adjusted total assets	Total capital to risk-adjusted total assets	10.50		12.03		12.73		12.77		Total capital to risk-adjusted total assets	10.50			11.84		12.84		12.77
Shareholders' equity to assets	Shareholders' equity to assets	N/A		11.10		12.63		12.32		Shareholders' equity to assets	N/A			10.70		12.64		12.32

Old National Bank, Old National’s bank subsidiary, maintained a strong capital position as evidenced by the following comparisons of key industry ratios.

Regulatory
Guidelines
Minimum Prompt
Corrective
Action "Well
Capitalized"
Guidelines June 30, December 31,
2022 2021 2021
Risk-based capital:
Tier 1 capital to total average assets (leverage
ratio) 4.00 % 5.00 % 7.81 % 8.65 % 8.81 %
Common equity Tier 1 capital to risk-adjusted
total assets 7.00 6.50 10.28 12.27 12.34
Tier 1 capital to risk-adjusted total assets 8.50 8.00 10.28 12.27 12.34
Total capital to risk-adjusted total assets 10.50 10.00 10.92 12.79 12.82


	Regulatory Guidelines Minimum		Prompt Corrective Action "Well Capitalized" Guidelines		September 30,				December 31,
					2022		2021		2021
Risk-based capital:
Tier 1 capital to total average assets (leverage ratio)	4.00	%	5.00	%	8.09	%	8.80	%	8.81	%
Common equity Tier 1 capital to risk-adjusted total assets	7.00		6.50		10.38		12.34		12.34
Tier 1 capital to risk-adjusted total assets	8.50		8.00		10.38		12.34		12.34
Total capital to risk-adjusted total assets	10.50		10.00		10.99		12.84		12.82

In December 2018, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. In March 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC published an interim final rule

to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). Old National is adopting the capital transition relief over the permissible five-year period.

Management views stress testing as an integral part of the Company’s risk management and strategic planning activities. Old National performs stress testing periodically throughout the year. The primary objective of the stress test is to ensure that Old National has a robust, forward-looking stress testing process and maintains sufficient capital to continue operations throughout times of economic and financial stress. Management also uses the stress testing framework to evaluate decisions relating to pricing, loan concentrations, capital deployment, and mergers and acquisitions to ensure that strategic decisions align with Old National’s risk appetite statement. Old National’s stress testing process incorporates key risks that include strategic, market, liquidity, credit, operational, regulatory, compliance, legal, and reputational risks. Old National’s stress testing policy outlines steps that will be taken if stress test results do not meet internal thresholds under severely adverse economic scenarios.

RISK MANAGEMENT

Overview

Old National has adopted a Risk Appetite Statement to enable ~~the~~our Board of Directors, Executive Leadership Team, and Senior Management to better assess, understand, monitor, and mitigate the risks of Old National. The Risk Appetite Statement addresses the following major risks: strategic, market, liquidity, credit, ~~operational/technology/cybersecurity,~~operational, talent management, ~~regulatory/~~compliance and regulatory, legal, and reputational. Our Chief Risk Officer ~~is independent of management,~~ reports directly to our Chief Executive Officer, is independent of all other management, and provides quarterly reports to the Board’s Enterprise Risk Committee. The following discussion addresses certain of these major risks including credit, market, liquidity, ~~operational/technology/cybersecurity,~~operational, compliance and ~~regulatory/compliance/~~regulatory, and legal. Discussion of strategic, talent management, and reputational risks is provided in the section entitled “Risk Factors” in the Company’s 2021 Annual Report on Form 10-K.

Credit Risk

Credit risk represents the risk of loss arising from an obligor’s inability or failure to meet contractual payment or performance terms. Our primary credit risks result from our investment and lending activities.

Investment Activities

We carry a higher exposure to loss in our pooled trust preferred securities, which are collateralized debt obligations, due to illiquidity in that market and the performance of the underlying collateral. At ~~June~~September 30, 2022, we had pooled trust preferred securities with a fair value of ~~$11.1~~$11.3 million, or less than 1% of the available-for-sale securities portfolio. These securities remained classified as available-for-sale and the unrealized loss on our pooled trust preferred securities was ~~$2.7~~$2.5 million at ~~June~~September 30, 2022. The fair value of these securities is expected to improve as we get closer to maturity but may be adversely impacted by credit deterioration.

All of our mortgage-backed securities are backed by U.S. government-sponsored or federal agencies. Municipal bonds, corporate bonds, and other debt securities are evaluated by reviewing the ~~credit-worthiness~~creditworthiness of the issuer and general market conditions. See Note 5 to the consolidated financial statements for additional details about our investment security portfolio.

Counterparty Exposure

Counterparty exposure is the risk that the other party in a financial transaction will not fulfill its obligation. We define counterparty exposure as nonperformance risk in transactions involving federal funds sold and purchased, repurchase agreements, correspondent bank relationships, and derivative contracts with companies in the financial services industry. Old National manages exposure to counterparty risk in connection with its derivatives transactions by generally engaging in transactions with counterparties having ratings of at least “A” by Standard &

Poor’s Rating Service or “A2” by Moody’s Investors Service. Total credit exposure is monitored by counterparty and managed within limits that management believes to be prudent. Old National’s net counterparty exposure was an asset of ~~$449.9 million~~$1.1 billion at ~~June~~September 30, 2022.

Lending Activities

Commercial

Commercial and industrial loans are made primarily for the purpose of financing equipment acquisition, expansion, working capital, and other general business purposes. Lease financing consists of direct financing leases and is used by commercial clients to finance capital purchases ranging from computer equipment to transportation equipment. The credit decisions for these transactions are based upon an assessment of the overall financial capacity of the applicant. A determination is made as to the applicant’s ability to repay in accordance with the proposed terms as well as an overall assessment of the risks involved. In addition to an evaluation of the applicant’s financial condition, a determination is made of the probable adequacy of the primary and secondary sources of repayment, such as additional collateral or personal guarantees, to be relied upon in the transaction. Credit agency reports of the applicant’s credit history supplement the analysis of the applicant’s creditworthiness.

Commercial mortgages and construction loans are offered to real estate investors, developers, and builders primarily domiciled in the geographic market areas we serve: Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Wisconsin, and Missouri. These loans are secured by first mortgages on real estate at LTV margins deemed appropriate for the property type, quality, location, and sponsorship. Generally, these LTV ratios do not exceed 80%. The commercial properties are predominantly non-residential properties such as retail centers, industrial properties and, to a lesser extent, more specialized properties. Substantially all of our commercial real estate loans are secured by properties located in our primary market area.

In the underwriting of our commercial real estate loans, we obtain appraisals for the underlying properties. Decisions to lend are based on the economic viability of the property and the creditworthiness of the borrower. In evaluating a proposed commercial real estate loan, we primarily emphasize the ratio of the property’s projected net cash flows to the loan’s debt service requirement. The debt service coverage ratio normally is not less than 120% and it is computed after deduction for a vacancy factor and property expenses as appropriate. In addition, a personal guarantee of the loan or a portion thereof is often required from the principal(s) of the borrower. In most cases, we require title insurance insuring the priority of our lien, fire and extended coverage casualty insurance, and flood insurance, if appropriate, in order to protect our security interest in the underlying property. In addition, business interruption insurance or other insurance may be required.

Construction loans are underwritten against projected cash flows derived from rental income, business income from an owner-occupant, or the sale of the property to an end-user. We may mitigate the risks associated with these types of loans by requiring fixed-price construction contracts, performance and payment bonding, controlled disbursements, and pre-sale contracts or pre-lease agreements.

Consumer

We offer a variety of first mortgage and junior lien loans to consumers within our markets, with residential home mortgages comprising our largest consumer loan category. These loans are secured by a primary residence and are underwritten using traditional underwriting systems to assess the credit risks of the consumer. Decisions are primarily based on LTV ratios, DTI ratios, liquidity, and credit scores. A maximum LTV ratio of 80% is generally required, although higher levels are permitted with mortgage insurance or other mitigating factors. We offer fixed rate mortgages and variable rate mortgages with interest rates that are subject to change every year after the first, third, fifth, or seventh year, depending on the product and are based on indexed rates such as prime. We do not offer payment-option facilities, sub-prime loans, or any product with negative amortization.

Home equity loans are secured primarily by second mortgages on residential property of the borrower. The underwriting terms for the home equity product generally permit borrowing availability, in the aggregate, up to 90% of the appraised value of the collateral property at the time of origination. We offer fixed and variable rate home equity loans, with variable rate loans underwritten at fully-indexed rates. Decisions are primarily based on LTV ratios, DTI ratios, and credit scores. We do not offer home equity loan products with reduced documentation.

Automobile loans include loans and leases secured by new or used automobiles. We originate automobile loans and leases primarily on an indirect basis through selected dealerships. We require borrowers to maintain collision

insurance on automobiles securing consumer loans, with us listed as loss payee. Our procedures for underwriting automobile loans include an assessment of an applicant’s overall financial capacity, including credit history and the ability to meet existing obligations and payments on the proposed loan. Although an applicant’s creditworthiness is

the primary consideration, the underwriting process also includes a comparison of the value of the collateral security to the proposed loan amount.

Asset Quality

Community-based lending personnel, along with region-based independent underwriting and analytic support staff, extend credit under guidelines established and administered by management and overseen by our Enterprise Risk Committee. This committee, which meets quarterly, is made up of independent outside directors. The committee monitors credit quality through its review of information such as delinquencies, credit exposures, peer comparisons, problem loans, and charge-offs. In addition, the committee provides oversight of loan policy changes as recommended by management to assure our policy remains appropriate for the current lending environment.

We lend to commercial and commercial real estate clients in many diverse industries including, among others, manufacturing, agribusiness, transportation, mining, wholesaling, and retailing. Old National manages concentrations of credit exposure by industry, product, geography, client relationship, and loan size. At ~~June~~September 30, 2022, our average commercial loan size was approximately ~~$560,000~~$550,000 and our average commercial real estate loan size was approximately $1,200,000. In addition, while loans to lessors of residential and non-residential real estate exceed 10% of total loans, no individual sub-segment category within those broader categories reaches the 10% threshold. At ~~June~~September 30, 2022, we had minimal exposure to foreign borrowers and no sovereign debt. Our policy is to concentrate our lending activity in the geographic market areas we serve, primarily Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Wisconsin, and Missouri.

On February 15, 2022, Old National closed on its merger with First Midwest. As of the closing date of the transaction, First Midwest loans totaled $14.3 billion. Old National reviewed the acquired loans and determined that as of ~~June~~September 30, 2022, ~~$200.3~~$285.0 million met the definition of criticized and ~~$459.5~~$442.7 million were considered classified (of which ~~$122.4~~$157.8 million are reported with nonaccrual loans). These loans are included in our summary of under-performing, criticized, and classified assets table below.

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


		June 30,						December 31,				September 30,						December 31,
(dollars in thousands)	(dollars in thousands)	2022			2021			2021			(dollars in thousands)	2022			2021			2021
Total nonaccrual loans	Total nonaccrual loans	$	214,924		$	128,268		$	106,691		Total nonaccrual loans	$	233,659		$	111,586		$	106,691
TDRs still accruing	TDRs still accruing	15,665			14,222			18,378			TDRs still accruing	13,674			16,420			18,378
Total past due loans (90 days or more and still accruing)	Total past due loans (90 days or more and still accruing)	882			9			7			Total past due loans (90 days or more and still accruing)	767			113			7
Foreclosed assets	Foreclosed assets	12,618			520			2,030			Foreclosed assets	11,967			1,943			2,030
Total under-performing assets	Total under-performing assets	$	244,089		$	143,019		$	127,106		Total under-performing assets	$	260,067		$	130,062		$	127,106
Classified loans (includes nonaccrual, TDRs still accruing, past due 90 days, and other problem loans)	Classified loans (includes nonaccrual, TDRs still accruing, past due 90 days, and other problem loans)	$	706,372		$	289,272		$	269,270		Classified loans (includes nonaccrual, TDRs still accruing, past due 90 days, and other problem loans)	$	711,150		$	275,891		$	269,270
Other classified assets (1)	Other classified assets (1)	25,004			4,305			4,338			Other classified assets (1)	24,773			4,300			4,338
Criticized loans	Criticized loans	452,835			228,264			235,910			Criticized loans	549,994			240,215			235,910
Total criticized and classified assets	Total criticized and classified assets	$	1,184,211		$	521,841		$	509,518		Total criticized and classified assets	$	1,285,917		$	520,406		$	509,518
Asset Quality Ratios:	Asset Quality Ratios:										Asset Quality Ratios:
Nonaccrual loans/total loans (2)	Nonaccrual loans/total loans (2)	0.73		%	0.93		%	0.78		%	Nonaccrual loans/total loans (2)	0.77		%	0.82		%	0.78		%
Non-performing loans/total loans (2) (3)	Non-performing loans/total loans (2) (3)	0.78			1.03			0.92			Non-performing loans/total loans (2) (3)	0.81			0.94			0.92
Under-performing assets/total loans and other real estate owned	Under-performing assets/total loans and other real estate owned	0.83			1.04			0.93			Under-performing assets/total loans and other real estate owned	0.85			0.96			0.93
Under-performing assets/total assets	Under-performing assets/total assets	0.53			0.60			0.52			Under-performing assets/total assets	0.56			0.54			0.52
Allowance/under-performing assets	Allowance/under-performing assets	117.99			76.52			84.45			Allowance/under-performing assets	116.22			82.94			84.45
Allowance/nonaccrual loans	Allowance/nonaccrual loans	134.00			85.32			100.61			Allowance/nonaccrual loans	129.36			96.67			100.61

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

(2)Loans exclude loans held for sale.

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

Under-performing assets increased to ~~$244.1~~$260.1 million at ~~June~~September 30, 2022, compared to ~~$143.0~~$130.1 million at ~~June~~September 30, 2021 and $127.1 million at December 31, 2021 due to the First Midwest merger. Under-performing

assets as a percentage of total loans and other real estate owned at ~~June~~September 30, 2022 were ~~0.83%~~0.85%, ~~a 21~~an 11 basis point decrease from ~~1.04%~~0.96% at ~~June~~September 30, 2021 and ~~a 10~~an 8 basis point decrease from 0.93% at December 31, 2021.

Nonaccrual loans increased from December 31, 2021 to ~~June~~September 30, 2022 primarily due to nonaccrual loans related to the First Midwest merger totaling ~~$122.4~~$157.8 million. As a percentage of nonaccrual loans, the allowance was ~~134.00%~~129.36% at ~~June~~September 30, 2022, compared to ~~85.32%~~96.67% at ~~June~~September 30, 2021 and 100.61% at December 31, 2021.

Total criticized and classified assets were ~~$1.2~~$1.3 billion at ~~June~~September 30, 2022, an increase of ~~$662.4~~$765.5 million and ~~$674.7~~$776.4 million from ~~June~~September 30, 2021 and December 31, 2021, respectively. Criticized and classified assets related to the First Midwest merger totaled ~~$659.8~~$727.7 million at ~~June~~September 30, 2022. Other classified assets include investment securities that fell below investment grade rating totaling ~~$25.0~~$24.8 million at ~~June~~September 30, 2022, compared to $4.3 million at ~~June~~September 30, 2021 and $4.3 million at December 31, 2021.

Any loans that are modified are reviewed by Old National to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, Old National Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status. The modification of the terms of such loans includes one or a combination of the following: a reduction of the stated interest rate of the loan, an extension of the maturity date at a stated rate of interest lower than the current market rate of new debt with similar risk, or a permanent reduction of the recorded investment of the loan.

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

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

At ~~June~~September 30, 2022, TDRs totaled ~~$40.0~~$37.4 million, ~~$24.3~~$23.8 million of which were included within nonaccrual loans. At December 31, 2021, TDRs totaled $30.0 million, $11.7 million of which were included within nonaccrual loans.

Old National has established specific allowances for credit losses for clients whose loan terms have been modified as TDRs totaling ~~$5.8~~$5.2 million at ~~June~~September 30, 2022 and $0.7 million of December 31, 2021. At September 30, 2022, Old National had committed to lend an additional $3.0 million to clients with outstanding loans that were classified as TDRs. At December 31, 2021, Old National had not committed to lend any additional funds to clients with outstanding loans that were classified as ~~TDRs at June 30, 2022 or December 31, 2021.~~TDRs.

modification. The evaluation is performed under our internal underwriting policy. We also evaluate whether a

concession has been granted or if we were adequately compensated through a market interest rate, additional collateral, or a bona fide guarantee. We also consider whether the modification was insignificant relative to the other terms of the agreement or the delay in a payment.

Allowance for Credit Losses on Loans and Unfunded Commitments

Net charge-offs on loans totaled ~~$1.8~~$7.6 million during the three months ended ~~June~~September 30, 2022, which included $5.9 million of net charge-offs on PCD loans, compared to net recoveries of ~~$0.3~~$3.0 million for the same period in 2021. Annualized, net charge-offs (recoveries) to average loans were ~~0.02%~~0.10% for the three months ended ~~June~~September 30, 2022, compared to ~~(0.01)~~(0.09)% for the same period in 2021. Net charge-offs on loans totaled ~~$4.5~~$12.1 million during the ~~six~~nine months ended ~~June~~September 30, 2022, which included $10.5 million of net charge-offs on PCD loans, compared to net recoveries of ~~$0.3~~$3.4 million during the same period in 2021. Annualized, net charge-offs (recoveries) to average loans were ~~0.04%~~0.06% for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~0.00%~~(0.03)% for the same period in 2021. Management will continue its efforts to reduce the level of non-performing loans and may consider the possibility of sales of troubled and non-performing loans, which could result in additional charge-offs to the 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 for loans. The allowance for credit losses is an estimate of expected losses inherent within the Company’s loans held for investment portfolio. Credit quality is assessed and monitored by evaluating various attributes and the results of those evaluations are utilized in underwriting new loans and in our process for estimating expected credit losses. Expected credit loss inherent in non-cancelable off-balance-sheet credit exposures is accounted for as a separate liability included in other liabilities on the balance sheet. The allowance for credit losses for loans held for investment is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries. Accrued interest receivable is excluded from the estimate of credit losses.

The allowance for credit loss estimation process involves procedures to appropriately consider the unique characteristics of our loan portfolio segments. These segments are further disaggregated into loan classes based on the level at which credit risk of the loan is monitored. When computing the level of expected credit losses, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods.

The allowance for credit losses for loans was ~~$288.0~~$302.3 million at ~~June~~September 30, 2022, compared to $107.3 million at December 31, 2021. The increase reflects ~~the initial~~$89.1 million of allowance for credit losses ~~established for~~on acquired PCD loans

~~totaling $78.5 million related to~~ established through acquisition accounting adjustments on or after the First Midwest ~~merger.~~merger date. In addition, the provision for credit losses expense in the ~~six~~nine months ended ~~June~~September 30, 2022 included $96.3 million of provision for credit losses to establish an allowance for credit losses on non-PCD loans acquired in the First Midwest merger. Continued loan growth in future periods, a decline in our current level of recoveries, or an increase in charge-offs could result in an increase in provision expense. Additionally, provision expense may be volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, which drive the allowance for credit losses balance.

We maintain an allowance for credit losses on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses for loans, modified to take into account the probability of a drawdown on the commitment. The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet within accrued expenses and other liabilities, while the corresponding provision for these credit losses is recorded as a component of other expense. The allowance for credit losses on unfunded loan commitments totaled ~~$22.0~~$26.2 million at ~~June~~September 30, 2022, compared to $10.9 million at December 31, 2021. The increase in the allowance for credit losses on unfunded loan commitments was ~~primarily~~ driven by the merger with First ~~Midwest.~~Midwest as well as organic loan growth.

Market Risk

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

The objective of our interest rate management process is to maximize net interest income while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.

Potential cash flows, sales, or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in the general level of interest rates. This interest rate risk arises primarily from our normal business activities of gathering deposits and extending loans. Many factors affect our exposure to changes in interest rates, such as general economic and financial conditions, client preferences, historical pricing relationships, and re-pricing characteristics of financial instruments. Our earnings can also be affected by the monetary and fiscal policies of the U.S. Government and its agencies, particularly the Federal Reserve.

In managing interest rate risk, we establish guidelines for asset and liability management, including measurement of short and long-term sensitivities to changes in interest rates, which is reviewed with the Enterprise Risk Committee of our Board of Directors. Based on the results of our analysis, we may use different techniques to manage changing trends in interest rates including:

•adjusting balance sheet mix or altering interest rate characteristics of assets and liabilities;

•changing product pricing strategies;

•modifying characteristics of the investment securities portfolio; or

•using derivative financial instruments, to a limited degree.

A key element in our ongoing process is to measure and monitor interest rate risk using a model to quantify the likely impact of changing interest rates on Old National’s results of operations. The model quantifies the effects of various possible interest rate scenarios on projected net interest income. The model measures the impact on net interest income relative to a base case scenario. The base case scenario assumes that the balance sheet and interest rates are held at current levels. The model shows our projected net interest income sensitivity based on interest rate changes only and does not consider other forecast assumptions.

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The following table illustrates our projected net interest income sensitivity over a ~~two year~~two-year cumulative horizon based on the asset/liability model at ~~June~~September 30, 2022 and 2021:


		Immediate Rate Decrease					Immediate Rate Increase										Immediate Rate Decrease					Immediate Rate Increase
(dollars in thousands)	(dollars in thousands)	-50 Basis Points			Base		+100 Basis Points			+200 Basis Points			+300 Basis Points			(dollars in thousands)	-50 Basis Points			Base		+100 Basis Points			+200 Basis Points			+300 Basis Points
June 30, 2022
September 30, 2022																September 30, 2022
Projected interest income:	Projected interest income:															Projected interest income:
Money market, other interest earning investments, and investment securities	Money market, other interest earning investments, and investment securities	$	617,680		$	639,428	$	683,561		$	726,946		$	770,079		Money market, other interest earning investments, and investment securities	$	660,169		$	680,882	$	721,850		$	762,793		$	803,703
Loans	Loans	2,151,455			2,308,609		2,618,757			2,931,908			3,242,547			Loans	2,715,952			2,885,275		3,225,849			3,560,475			3,894,295
Total interest income	Total interest income	2,769,135			2,948,037		3,302,318			3,658,854			4,012,626			Total interest income	3,376,121			3,566,157		3,947,699			4,323,268			4,697,998
Projected interest expense:	Projected interest expense:															Projected interest expense:
Deposits	Deposits	44,713			72,114		274,985			484,116			693,243			Deposits	106,667			166,603		372,461			578,311			784,154
Borrowings	Borrowings	210,225			238,638		299,725			360,822			421,923			Borrowings	263,032			286,909		337,834			388,779			439,751
Total interest expense	Total interest expense	254,938			310,752		574,710			844,938			1,115,166			Total interest expense	369,699			453,512		710,295			967,090			1,223,905
Net interest income	Net interest income	$	2,514,197		$	2,637,285	$	2,727,608		$	2,813,916		$	2,897,460		Net interest income	$	3,006,422		$	3,112,645	$	3,237,404		$	3,356,178		$	3,474,093
Change from base	Change from base	$	(123,088)				$	90,323		$	176,631		$	260,175		Change from base	$	(106,223)				$	124,759		$	243,533		$	361,448
% change from base	% change from base	(4.67)		%			3.42		%	6.70		%	9.87		%	% change from base	(3.41)		%			4.01		%	7.82		%	11.61		%

June 30, 2021
September 30, 2021																September 30, 2021
Projected interest income:	Projected interest income:															Projected interest income:
Money market, other interest earning investments, and investment securities	Money market, other interest earning investments, and investment securities	$	266,770		$	283,033	$	314,772		$	339,937		$	362,929		Money market, other interest earning investments, and investment securities	$	272,337		$	290,049	$	326,179		$	357,884		$	387,685
Loans	Loans	838,058			870,225		1,009,602			1,149,951			1,288,437			Loans	845,675			875,583		1,015,477			1,157,274			1,296,748
Total interest income	Total interest income	1,104,828			1,153,258		1,324,374			1,489,888			1,651,366			Total interest income	1,118,012			1,165,632		1,341,656			1,515,158			1,684,433
Projected interest expense:	Projected interest expense:															Projected interest expense:
Deposits	Deposits	15,289			24,627		105,133			185,790			266,444			Deposits	14,597			23,943		104,651			185,529			266,403
Borrowings	Borrowings	60,615			68,546		100,943			134,207			170,592			Borrowings	63,711			71,372		103,309			137,039			174,510
Total interest expense	Total interest expense	75,904			93,173		206,076			319,997			437,036			Total interest expense	78,308			95,315		207,960			322,568			440,913
Net interest income	Net interest income	$	1,028,924		$	1,060,085	$	1,118,298		$	1,169,891		$	1,214,330		Net interest income	$	1,039,704		$	1,070,317	$	1,133,696		$	1,192,590		$	1,243,520
Change from base	Change from base	$	(31,161)				$	58,213		$	109,806		$	154,245		Change from base	$	(30,613)				$	63,379		$	122,273		$	173,203
% change from base	% change from base	(2.94)		%			5.49		%	10.36		%	14.55		%	% change from base	(2.86)		%			5.92		%	11.42		%	16.18		%

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

A key element in the measurement and modeling of interest rate risk is the re-pricing assumptions of our transaction deposit accounts, which have no contractual maturity dates. Because the models are driven by expected behavior in various interest rate scenarios and many factors besides market interest rates affect our net interest income, we recognize that model outputs are not guarantees of actual results. For this reason, we model many different combinations of interest rates and balance sheet assumptions to understand our overall sensitivity to market interest rate changes, including shocks, ramps, yield curve flattening, yield curve steepening, as well as forecasts of likely interest rate scenarios tested. At ~~June~~September 30, 2022, our projected net interest income sensitivity based on the asset/liability models we utilize was within the limits of our interest rate risk policy for the scenarios tested.

We use cash flow and fair value hedges, primarily interest rate swaps, collars, and floors, to mitigate interest rate risk. Derivatives designated as hedging instruments were in a net liability position with a fair value loss of ~~$18.4~~$48.7 million at ~~June~~September 30, 2022, compared to a net asset position with a fair value gain of $1.3 million at December 31, 2021. See Note 18 to the consolidated financial statements for further discussion of derivative financial instruments.

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Liquidity Risk

Liquidity risk arises from the possibility that we may not be able to satisfy current or future financial commitments or may become unduly reliant on alternative funding sources. We establish liquidity risk guidelines that we review with the Enterprise Risk Committee of our Board of Directors and monitor through our Balance Sheet Management Committee. The objective of liquidity management is to ensure we have the ability to fund balance sheet growth and meet deposit and debt obligations in a timely and cost-effective manner. Management monitors liquidity through a regular review of asset and liability maturities, funding sources, and loan and deposit forecasts. We maintain strategic and contingency liquidity plans to ensure sufficient available funding to satisfy requirements for balance sheet growth, properly manage capital markets’ funding sources and to address unexpected liquidity requirements. On June 5, 2020, we filed an automatic shelf registration statement with the SEC that permits us to issue an unspecified amount of debt or equity securities.

Loan repayments and maturing investment securities are a relatively predictable source of funds. However, deposit flows, calls of investment securities and prepayments of loans and mortgage-related securities are strongly influenced by interest rates, the housing market, general and local economic conditions, and competition in the marketplace. We continually monitor marketplace trends to identify patterns that might improve the predictability of the timing of deposit flows or asset prepayments.

A maturity schedule for Old National Bank’s time deposits is shown in the following table at ~~June~~September 30, 2022.


(dollars in thousands)	(dollars in thousands)					(dollars in thousands)
Maturity Bucket	Maturity Bucket	Amount		Rate		Maturity Bucket	Amount		Rate
2022	2022	$	1,397,092	0.29	%	2022	$	796,910	0.34	%
2023	2023	715,540		0.51		2023	1,203,358		0.67
2024	2024	189,250		0.69		2024	241,239		0.90
2025	2025	95,089		0.65		2025	114,953		0.82
2026	2026	70,085		0.49		2026	68,339		0.49
2027 and beyond	2027 and beyond	40,560		0.57		2027 and beyond	46,532		0.56
Total	Total	$	2,507,616	0.41	%	Total	$	2,471,331	0.58	%

Our ability to acquire funding at competitive prices is influenced by rating agencies’ views of our credit quality, liquidity, capital, and earnings. Moody’s Investors Service places us in an investment grade that indicates a low risk of default. For both Old National and Old National Bank:

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

•Moody’s Investors Service affirmed Old National Bank’s long-term deposit rating of “Aa3” on February 16, 2022. The bank’s short-term deposit rating was affirmed at “P-1” and the bank’s issuer rating was affirmed at “A3.”

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

The credit ratings of Old National and Old National Bank at ~~June~~September 30, 2022 are shown in the following table.


	Moody's Investors Service
	Long-term	Short-term
Old National	A3	N/A
Old National Bank	Aa3	P-1

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Old National Bank maintains relationships in capital markets with brokers and dealers to issue certificates of deposit and short-term and medium-term bank notes as well. At ~~June~~September 30, 2022, Old National and its subsidiaries had the following availability of liquid funds and borrowings:


(dollars in thousands)	(dollars in thousands)	Parent Company		Subsidiaries		(dollars in thousands)	Parent Company		Subsidiaries
Available liquid funds:	Available liquid funds:					Available liquid funds:
Cash and due from banks	Cash and due from banks	$	271,788	$	526,176	Cash and due from banks	$	322,234	$	479,377
Unencumbered government-issued debt securities	Unencumbered government-issued debt securities	—		2,232,603		Unencumbered government-issued debt securities	—		1,758,051
Unencumbered investment grade municipal securities	Unencumbered investment grade municipal securities	—		776,659		Unencumbered investment grade municipal securities	—		770,020
Unencumbered corporate securities	Unencumbered corporate securities	—		313,602		Unencumbered corporate securities	—		305,084
Availability of borrowings:	Availability of borrowings:					Availability of borrowings:
Amount available from Federal Reserve discount window*	Amount available from Federal Reserve discount window*	—		614,215		Amount available from Federal Reserve discount window*	—		555,290
Amount available from Federal Home Loan Bank*	Amount available from Federal Home Loan Bank*	—		1,113,553		Amount available from Federal Home Loan Bank*	—		1,255,645
Total available funds	Total available funds	$	271,788	$	5,576,808	Total available funds	$	322,234	$	5,123,467

* Based on collateral pledged

Old National Bancorp has routine funding requirements consisting primarily of operating expenses, dividends to shareholders, debt service, net derivative cash flows, and funds used for acquisitions. Old National Bancorp can obtain funding to meet its obligations from dividends and management fees collected from its subsidiaries, operating line of credit, and through the issuance of debt securities. Additionally, Old National Bancorp has a shelf registration in place with the SEC permitting ready access to the public debt and equity markets. At ~~June~~September 30, 2022, Old National Bancorp’s other borrowings outstanding were ~~$487.3~~$486.0 million. Management believes the Company has the ability to generate and obtain adequate amounts of liquidity to meet its requirements in the short-term and the long-term.

Federal banking laws regulate the amount of dividends that may be paid by banking subsidiaries without prior approval. Prior regulatory approval is required if dividends to be declared in any year would exceed net earnings of the current year plus retained net profits for the preceding two years. Prior regulatory approval to pay dividends was not required in 2021 and is not currently required.

~~Operational/Technology/Cybersecurity~~Operational Risk

~~Operational/technology/cybersecurity~~Operational risk is the ~~danger~~risk that inadequate information systems, operational issues, breaches in internal controls, information security breaches, fraud, or unforeseen catastrophes will result in unexpected losses and other adverse impacts to Old National, such as reputational harm. We maintain frameworks, programs, and internal controls to prevent or minimize financial loss from failure of systems, people, or processes. This includes specific programs and frameworks intended to prevent or limit the effects of cybersecurity risk including, but not limited to, cyber-attacks or other information security breaches that might allow unauthorized transactions or unauthorized access to client, team member, or company sensitive information. Metrics and measurements are used by our management team in the management of day-to-day operations to ensure effective client service, minimization of service disruptions, and oversight of cybersecurity risk. We continually monitor and internally report on ~~operational, technology,~~weaknesses in the internal control environment, third party risks, privacy and ~~cybersecurity risks related to business disruptions and systems failures;~~data governance, cyber-attacks, information security or data breaches; ~~clients, products, and business practices;~~ damage to physical assets; employee and workplace safety; execution, delivery, and process management; ~~and~~ external and internal ~~fraud.~~fraud; and model risk management.

~~Management reports on cybersecurity risk to our Enterprise Risk Committee of the Board of Directors.~~

~~Regulatory/~~Compliance and ~~Legal~~Regulatory Risk

~~Regulatory/compliance/legal~~Compliance and regulatory risk is the risk that the Company violated or was not in compliance with applicable laws, regulations or practices, industry standards, or ethical standards. ~~The legal portion assesses~~Compliance with applicable regulatory requirements, internal policies and procedures, and ethical standards is not only the right thing to do, but it is embedded within our culture and mission to assist our clients in achieving financial success. Adherence to this belief is the responsibility of every employee, every day, in everything we do. It is Old National’s policy to comply with the letter and intent of all applicable regulatory requirements. Management, the first line of defense, is responsible for ensuring this expectation is met, with oversight from the second and third lines of defense, the risk and internal audit functions, respectively. Recognizing that ~~unenforceable contracts,~~inadvertent violations may occur, risk management activities are established to promptly identify, analyze, and if necessary, remediate compliance and regulatory issues to limit compliance risk exposure.

Legal Risk

Legal risk generally results from unidentified or unmitigated risks that could result in lawsuits or adverse judgments ~~can disrupt~~that negatively affect the operations or ~~otherwise negatively impact~~condition of the ~~Company,~~Company. Business practices must be executed, as well as ~~assesses the issues~~products and ~~risks associated~~services delivered, in a manner that is compliant with ~~being~~laws, regulatory requirements, and agreements to which we are a ~~public company.~~party. Corporate governance practices must be compliant with applicable legal requirements and aligned with market practices. The Board of Directors expects that we will perform business in a manner compliant with applicable laws and/or regulations and expects issues to be identified, analyzed, and remediated in a timely and complete manner.

CRITICAL ACCOUNTING ESTIMATES

Our most significant accounting policies are described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. Certain of these accounting policies require management to use significant judgment and estimates, which can have a material impact on the carrying value of certain assets and liabilities. We consider these policies to be our critical accounting estimates. The judgment and assumptions made are based upon historical experience, future forecasts, or other factors that management believes to be reasonable under the circumstances. Because of the nature of the judgment and assumptions, actual results could differ from estimates, which could have a material effect on our financial condition and results of operations.

Business Combinations and Goodwill

•Description. For acquisitions, we are required to record the assets acquired, including identified intangible assets such as core deposit and customer trust relationship intangibles, and the liabilities assumed at their fair value. The difference between consideration and the net fair value of assets acquired is recorded as goodwill. Management uses significant estimates and assumptions to value such items, including projected cash flows, repayment rates, default rates and losses assuming default, discount rates, and realizable collateral values. The allowance for credit losses for PCD loans is recognized within acquisition accounting. The allowance for credit losses for non-PCD assets is recognized as provision for credit losses in the same reporting period as the acquisition. Fair value adjustments are amortized or accreted into the income statement over the estimated life of the acquired assets or assumed liabilities. The purchase date valuations and any subsequent adjustments determine the amount of goodwill recognized in connection with the acquisition. The use of different assumptions could produce significantly different valuation results, which could have material positive or negative effects on our results of operations. The carrying value of goodwill recorded must be reviewed for impairment on an annual basis, as well as on an interim basis if events or changes indicate that the asset might be impaired. An impairment loss must be recognized for any excess of carrying value over fair value of the goodwill.

•Judgments and Uncertainties. The determination of fair values is based on valuations using management’s assumptions of future growth rates, future attrition, discount rates, multiples of earnings or other relevant factors. In addition, we engage third party specialists to assist in the development of fair values. Preliminary estimates of fair values may be adjusted for a period of time subsequent to the acquisition date if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Adjustments recorded during this period are recognized in the current reporting period. Management uses various valuation methodologies to estimate the fair value of these assets and liabilities, and often involves a significant degree of judgment, particularly when liquid markets do not exist for the particular item being valued. Examples of such items include loans, deposits, identifiable intangible assets, and certain other assets and liabilities.

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

•Pandemic. A prolonged COVID-19 pandemic, or any other epidemic that harms the global economy, U.S. economy, or the economies in which we operate could adversely affect our operations. Goodwill is especially susceptible to risk of impairment during prolonged periods of economic downturn.

For additional information regarding critical accounting estimates, see the section titled “Critical Accounting Estimates” included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes in the Company’s application of critical accounting estimates related to allowance for credit losses for loans, derivative financial instruments, or income taxes since December 31, 2021.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk and Liquidity Risk.

ITEM 4. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Old National’s principal executive officer and principal financial officer have concluded that Old National’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended), based on their evaluation of these controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q, are effective at the reasonable assurance level as discussed below to ensure that information required to be disclosed by Old National in the reports it files under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to Old National’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Limitations on the Effectiveness of Controls. Management, including our principal executive officer and principal financial officer, does not expect that Old National’s disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be only reasonable assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, the system of controls may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control over Financial Reporting. There were no changes in Old National’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, Old National’s internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c)ISSUER PURCHASES OF EQUITY SECURITIES

Period
Total
Number
of Shares
Purchased (1)
Average
Price
Paid Per
Share
Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans
or Programs (2)
Maximum
Dollar Value of
Shares that
May Yet
Be Purchased
Under the Plans
or Programs (2)
04/01/22 - 04/30/22 1,568 $ 16.00 — $ 136,093,633
05/01/22 - 05/31/22 17,656 $ 15.18 — $ 136,093,633
06/01/22 - 06/30/22 1,888 $ 15.49 — $ 136,093,633
Total 21,112 $ 15.27 — $ 136,093,633


Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
07/01/22 - 07/31/22	27,944	$	15.32	—	$	136,093,633
08/01/22 - 08/31/22	3,948	$	16.18	—	$	136,093,633
09/01/22 - 09/30/22	2,303	$	16.73	—	$	136,093,633
Total	34,195	$	15.52	—	$	136,093,633

(1)Consists of shares acquired pursuant to the Company’s share-based incentive programs. Under the terms of the Company’s share-based incentive programs, the Company accepts previously owned shares of common stock surrendered to satisfy tax withholding obligations associated with the vesting of restricted stock.

(2)On February 17, 2022, the Company issued a press release announcing that its Board of Directors approved a stock repurchase program that authorizes the Company to repurchase up to $200 million of the Company’s outstanding shares of common stock, as conditions warrant, through January 31, 2023. No shares were repurchased during the quarter under the Company’s Board-approved stock repurchase program.

ITEM 5. OTHER INFORMATION

(a)None

(b)There have been no material changes in the procedure by which security holders recommend nominees to the Company’s board of directors.

8384

ITEM 6. EXHIBITS


Exhibit No.						Description



3.1						Fifth Amended and Restated Articles of Incorporation of Old National, amended April 30, 2020 (incorporated by reference to Exhibit 3.1 of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 18, 2020).

3.2						Articles of Amendment to the Fifth Amended and Restated Articles of Incorporation of Old National authorizing additional shares of Old National capital stock (incorporated by reference to Exhibit 3.2 of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16, 2022).

3.3						Articles of Amendment to the Fifth Amended and Restated Articles of Incorporation of Old National designating the New Old National Series A Preferred Stock (incorporated by reference to Exhibit 3.3 of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16, 2022).

3.4						Articles of Amendment to the Fifth Amended and Restated Articles of Incorporation of Old National designating the New Old National Series C Preferred Stock (incorporated by reference to Exhibit 3.4 of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16, 2022).

3.5						Amended and Restated By-Laws of Old National, amended April 30, 2020 (incorporated by reference to Exhibit 3.2 of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 18, 2020).

3.6						By-Laws Amendment to Amended and Restated By-Laws of Old National (incorporated by reference to Exhibit 3.6 of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16, 2022).





31.1						Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1						Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2						Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101						The following materials from Old National’s Form 10-Q Report for the quarterly period ended ~~June~~September 30, 2022, formatted in inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income (Loss), (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements.

104						The cover page from Old National’s Form 10-Q Report for the quarterly period ended ~~June~~September 30, 2022, formatted in inline XBRL and contained in Exhibit 101.

8485

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						OLD NATIONAL BANCORP
						(Registrant)

By:						/s/ Brendon B. Falconer
						Brendon B. Falconer
						Senior Executive Vice President and Chief Financial Officer
						Duly Authorized Officer and Principal Financial Officer

						Date: ~~August 3,~~November 2, 2022

8586


(dollars in thousands)
2022 remaining	$	13,748
2023	24,342
2024	21,298
2025	18,417
2026	15,614
Thereafter	46,862
Total	$	140,281