10q10k10q10k.net

What changed in OLD NATIONAL BANCORP /IN/'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of OLD NATIONAL BANCORP /IN/'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+373 added−360 removedSource: 10-K (2024-02-22) vs 10-K (2023-02-22)

Top changes in OLD NATIONAL BANCORP /IN/'s 2023 10-K

373 paragraphs added · 360 removed · 255 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

64 edited+37 added−22 removed92 unchanged
Biggest changeUnder this rule, a bank holding company, such as Old National Bancorp, and a national bank, such as Old National Bank, are required to notify the Federal Reserve or OCC, respectively, within 36 hours of incidents that have materially disrupted or degraded, or are reasonably likely to materially disrupt or degrade, the banking organization’s ability to deliver services to a material portion of its customer base, jeopardize the viability of key operations of the banking organization, or pose a threat to the financial stability of the United States. 14 In March 2022, the SEC proposed new rules that would require registrants, including the Company, to (i) report material cybersecurity incidents on Form 8-K; (ii) include updated disclosure in Forms 10-K and 10-Q of previously disclosed cybersecurity incidents, and disclose previously undisclosed, individually immaterial incidents when a determination is made that such incidents have become material on an aggregated basis; (iii) disclose cybersecurity policies and procedures and governance practices, including at the board and management levels, in Form 10-K; and (iv) disclose the board of directors’ cybersecurity expertise.
Biggest changeUnder this rule, a bank holding company, such as Old National Bancorp, and a national bank, such as Old National Bank, are required to notify the Federal Reserve or OCC, respectively, within 36 hours of incidents that have materially disrupted or degraded, or are reasonably likely to materially disrupt or degrade, the banking organization’s ability to deliver services to a material portion of its customer base, jeopardize the viability of key operations of the banking organization, or pose a threat to the financial stability of the United States.
These changes could increase or decrease the cost of doing business, increase the Company’s expenses, decrease the Company’s revenue, limit or expand permissible activities or change the activities in which the Company chooses to engage, or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions in ways that could adversely affect the Company and Old National Bank.
These changes could increase the cost of doing business, increase the Company’s expenses, decrease the Company’s revenue, limit or expand permissible activities or change the activities in which the Company chooses to engage, or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions in ways that could adversely affect the Company and Old National Bank.
In addition, the FDIA generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company if the depository institution would thereafter be “undercapitalized” as described under “—Capital Adequacy—Prompt Corrective Action” above. 12 Transactions with Affiliates.
In addition, the FDIA generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company if the depository institution would thereafter be “undercapitalized” as described under “—Capital Adequacy—Prompt Corrective Action” above. Transactions with Affiliates.
As a bank holding company with less than $100 billion of total consolidated assets, the Dodd Frank Act’s enhanced prudential standards generally are not applicable to the Company. Prior to the passage of EGRRCPA, Federal Reserve rules required publicly traded bank holding companies with $10 billion or more of total consolidated assets to establish risk committees.
As a bank holding company with less than $100 billion of total consolidated assets, the Dodd Frank Act’s enhanced prudential standards generally are not 15 applicable to the Company. Prior to the passage of EGRRCPA, Federal Reserve rules required publicly traded bank holding companies with $10 billion or more of total consolidated assets to establish risk committees.
The regulatory framework is intended primarily for the protection of depositors, federal deposit insurance funds, and the banking system as a whole and not for the protection of shareholders or non-depository creditors. 7 Significant elements of certain laws and regulations applicable to Old National and its subsidiaries are described below.
The regulatory framework is intended primarily for the protection of depositors, federal deposit insurance funds, and the banking system as a whole and not for the protection of shareholders or non-depository creditors. Significant elements of certain laws and regulations applicable to Old National and its subsidiaries are described below.
In order for a financial holding company to commence any new activity permitted by the BHC Act or to acquire a company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of 8 the financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the CRA.
In order for a financial holding company to commence any new activity permitted by the BHC Act or to acquire a company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the CRA.
As a national bank, Old National Bank is subject to primary regulation, supervision, and examination by the Office of the Comptroller of the Currency (“OCC”). Bank Holding Company Regulation. Generally, the BHC Act governs the acquisition and control of banks and non-banking companies by bank holding companies.
As a national bank, Old National Bank is subject to primary regulation, supervision, and examination by the Office of the Comptroller of the Currency (“OCC”). 7 Bank Holding Company Regulation. Generally, the BHC Act governs the acquisition and control of banks and non-banking companies by bank holding companies.
These rules implement the Basel III framework set forth by the Basel Committee on Banking Supervision (the “Basel Committee”) as well as certain provisions of the Dodd-Frank Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).
These rules implement the Basel III framework set forth by the Basel Committee on Banking Supervision (the “Basel Committee”) as well as certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).
In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a bank subsidiary will be assumed by the bankruptcy trustee and entitled to priority of payment. Financial Privacy.
In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to 8 maintain the capital of a bank subsidiary will be assumed by the bankruptcy trustee and entitled to priority of payment. Financial Privacy.
The so-called “Volcker Rule” generally restricts the ability of the Company and its subsidiaries, including Old National Bank, to sponsor or invest in hedge funds and private equity funds or to engage in 15 proprietary trading.
The so-called “Volcker Rule” generally restricts the ability of the Company and its subsidiaries, including Old National Bank, to sponsor or invest in hedge funds and private equity funds or to engage in proprietary trading.
National banks also are prohibited from declaring or paying any dividend if, after making the dividend, the national bank would be considered “undercapitalized” (as defined by reference to other OCC regulations).
National banks also are prohibited from declaring or paying any dividend if, after making the dividend, the national bank would be considered “undercapitalized” (as defined by 12 reference to other OCC regulations).
The U.S. imposes economic sanctions that affect transactions with designated foreign countries, nationals, and others. These sanctions are administered by the U.S. Treasury’s Office 9 of Foreign Assets Control (“OFAC”).
The U.S. imposes economic sanctions that affect transactions with designated foreign countries, nationals, and others. These sanctions are administered by the U.S. Treasury’s Office of Foreign Assets Control (“OFAC”).
In addition, the SEC maintains an internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
In addition, the SEC maintains an internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. 16
Interchange fees, or “swipe” fees, are charges that merchants pay to card-issuing banks, such as Old National Bank, for processing electronic payment transactions. Additional Federal Reserve rules allow a debit card issuer to recover one cent per transaction for fraud prevention purposes if the issuer complies with certain fraud-related requirements. Capital Adequacy. Capital Requirements .
Interchange fees, or “swipe” fees, are charges that merchants pay to card-issuing banks, such as Old National Bank, for processing electronic payment transactions. Additional Federal Reserve rules allow a debit card issuer to recover one cent per transaction for fraud prevention purposes if the issuer complies with certain fraud-related requirements.
A bank’s capital category is determined solely for the purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes. As of December 31, 2022, Old National Bank’s capital ratios were all in excess of the minimum requirements for “well-capitalized” status.
A bank’s capital category is determined solely for the purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes. As of December 31, 2023, Old National Bank’s capital ratios were all in excess of the minimum requirements for “well-capitalized” status.
In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including NASDAQ, to implement listing standards that require all listed companies to adopt policies mandating the recovery or “clawback” of excess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding a required accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period.
In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including NASDAQ, to implement listing standards that require all listed companies to adopt policies mandating the recovery or “clawback” of excess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding a required accounting restatement of financial statements, including to correct an error 14 that would result in a material misstatement if the error were corrected in the current period.
In addition to providing lending and deposit services, we offer comprehensive wealth management, investment, and foreign currency services. For businesses, we provide treasury management, merchant, and capital markets services as well as community development lending and equity investment solutions intended to produce jobs and revitalize our communities.
In addition to providing lending and deposit services, we offer comprehensive wealth management, trust, investment advisory, and foreign currency services. For businesses, we provide treasury management, merchant, and capital markets services as well as community development lending and equity investment solutions intended to produce jobs and revitalize our communities.
Old National competes with financial service providers such as other commercial banks, savings and loan associations, credit unions, mortgage banking firms, Financial Technology, or “FinTech,” companies, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds, and other financial intermediaries.
Old National competes with financial service providers such as other commercial banks, savings and loan associations, credit unions, mortgage banking firms, Financial Technology, or “FinTech,” companies, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds, and other financial services providers.
The proposed rule is intended, among other things, to adapt to changes in the banking industry, including the expanded role of mobile and online banking, and to tailor performance standards to account for differences in bank size and business models.
The final rule is intended, among other things, to adapt to changes in the banking industry, including the expanded role of mobile and online banking, and to tailor performance standards to account for differences in bank size and business models.
The Company and Old National Bank are each required to comply with certain risk-based capital and leverage requirements under capital rules adopted by the Federal Reserve, the OCC, and the FDIC (the “Basel III Capital Rules”).
Old National Bancorp and Old National Bank are each required to comply with certain risk-based capital and leverage requirements under capital rules adopted by the Federal Reserve, the OCC, and the FDIC (the “Basel III Capital Rules”).
In addition, the Consumer Financial Protection Bureau (“CFPB”) has a broad mandate to prohibit unfair, deceptive or abusive acts and practices, is specifically empowered to require certain disclosures to consumers and draft model disclosure forms, and is responsible for making rules and regulations under the federal consumer protection laws relating to financial products and services.
In addition, the CFPB has a broad mandate to prohibit unfair, deceptive or abusive acts and practices, is specifically empowered to require certain disclosures to consumers and draft model disclosure forms and is responsible for making rules and regulations under the federal consumer protection laws relating to financial products and services.
The Company and Old National Bank are subject to laws designed to protect consumers and prohibit unfair or deceptive business practices, including the Equal Credit Opportunity Act, the Fair Housing Act, the Home Ownership Protection Act, the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”), the GLB Act, the Truth in Lending Act, the CRA, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the National Flood Insurance Act and applicable state law counterparts.
Old National Bank is subject to laws designed to protect consumers and prohibit unfair or deceptive business practices, including the Equal Credit Opportunity Act, the Fair Housing Act, the Home Ownership Protection Act, the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions 9 Act of 2003 (“FACT Act”), the GLB Act, the Truth in Lending Act, the CRA, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the National Flood Insurance Act and applicable state law counterparts.
Deposit data as of June 30, 2022. STRATEGIC TRANSACTIONS Since forming our holding company in 1982, we have acquired over 50 financial institutions and other financial services businesses.
Deposit data as of June 30, 2023. STRATEGIC TRANSACTIONS Since forming our holding company in 1982, we have acquired over 50 financial institutions and other financial services businesses.
Prompt Corrective Action . The Federal Deposit Insurance Act (the “FDIA”) requires the federal banking agencies to take “prompt corrective action” for depository institutions that do not meet the minimum capital requirements described above.
The Federal Deposit Insurance Act (the “FDIA”) requires the federal banking agencies to take “prompt corrective action” for depository institutions that do not meet the minimum capital requirements described above.
Violations of applicable consumer protection laws can result in reputational damage and a significant potential liability from litigation brought by customers, including actual damages, restitution, and attorneys’ fees.
Violations of applicable consumer protection laws can result in reputational damage and potential liability from litigation brought by customers, including actual damages, restitution, and attorneys’ fees.
The merger of equals of Old National and First Midwest partners two highly compatible organizations with over 270 combined years of service and a shared relationship banking focus, consistent business models and credit cultures, and an unwavering commitment to community.
The merger of equals of Old National and First Midwest partnered two highly compatible organizations with over 270 combined years of service and a shared relationship banking focus, consistent business models and 6 credit cultures, and an unwavering commitment to community.
In addition, privacy and data protection are areas of increasing state legislative focus, and several states have recently enacted consumer privacy laws that impose significant compliance obligations with respect to personal information. Similar laws may in the future be adopted by states where the Company and Old National Bank do business.
In addition, privacy and data protection are areas of increasing state legislative focus, and a number of states have enacted consumer privacy laws that impose significant compliance obligations with respect to personal information. Similar laws may in the future be adopted by states where the Company and Old National Bank do business.
In addition, the OCC, as the regulator of national banks, has issued guidelines for national banks with more than $50 billion in assets that establish certain standards for the design and implementation of a risk governance framework. These standards will become applicable to Old National Bank once it has $50 billion in assets. Volcker Rule.
In addition, the OCC, as the regulator of national banks, has issued guidelines for national banks with more than $50 billion in assets that establish certain standards for the design and implementation of a risk governance framework. These standards will become applicable to Old National Bank once it has $50 billion in assets. Resolution Planning.
The CFPB may also institute a civil action against an entity in violation of federal consumer financial law in order to impose a civil penalty or injunction. Banking regulators take into account compliance with consumer protection laws when considering approval of a proposed transaction. Interchange Fees.
The CFPB may also institute a civil action against an entity in violation of federal consumer financial laws in order to impose a civil penalty or injunction. Banking regulators take into account compliance with consumer protection laws when considering approval of a proposed acquisition transaction.
The Company is subject to interchange fee limitations that establish a maximum permissible interchange fee for many types of debit interchange transactions that is equal to no more than 21 cents per transaction plus five basis points multiplied by the value of the transaction.
Old National Bank is subject to interchange fee limitations that establish a maximum permissible interchange fee for many types of debit interchange transactions that is equal to no more than 21 cents per transaction plus five basis points multiplied by the value of the transaction.
Each of the banking centers of Old National Bank provides a group of similar community banking services, including such products and services as commercial, real estate, and consumer loans; deposits; and brokerage, trust, and investment advisory services. The individual banking centers located throughout our Midwest footprint have similar operating and economic characteristics.
Each of the banking centers of Old National Bank provides a group of similar community banking services, including such products and services as commercial, real estate, and consumer loans; deposits; and private banking, capital markets, brokerage, wealth management, trust, and investment advisory services. The individual banking centers located throughout our Midwest footprint have similar operating and economic characteristics.
In October 2022, the FDIC finalized a rule to increase the initial base deposit insurance assessment rate schedules for all insured depository institutions by 2 basis points, beginning with the first quarterly assessment period of 2023.
In October 2022, the FDIC finalized a rule that increased the initial base deposit insurance assessment rate schedules for all insured depository institutions by 2 basis points, beginning with the first quarterly assessment period of 2023.
HUMAN CAPITAL RESOURCES At December 31, 2022, we employed 3,967 full-time equivalent team members. Old National respects, values, and welcomes diversity in our team members, clients, suppliers, and marketplace.
HUMAN CAPITAL RESOURCES At December 31, 2023, we employed 3,940 full-time equivalent team members. Old National respects, values, and welcomes diversity in our team members, clients, suppliers, and marketplace.
Through our wholly-owned banking subsidiary, we provide a wide range of services primarily throughout the Midwest region and elsewhere, including commercial and consumer loan and depository services, private banking, brokerage, trust, investment advisory, and other traditional banking services.
Through our wholly-owned banking subsidiary and non-bank affiliates, we provide a wide range of services primarily throughout the Midwest region and elsewhere, including commercial and consumer loan and depository services, private banking, capital markets, brokerage, wealth management, trust, investment advisory, and other traditional banking services.
We anticipate that, as with previous mergers and acquisitions, the consideration paid by us in future mergers and acquisitions may be in the form of cash, debt, or Old National stock, or a combination thereof.
We anticipate that, as with previous mergers and acquisitions, the consideration paid by us in future mergers and acquisitions may be in the form of cash, debt, or Old National stock, or a combination thereof and may reflect a premium to the target’s then-market value.
Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements.
State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements.
Assets and off-balance sheet credit equivalents are assigned a risk weight based primarily on supervisory assessments of relative credit risk. 10 Under the Basel III Capital Rules, the Company and Old National Bank are each required to maintain the following: • A minimum ratio of CET1 to risk-weighted assets of 4.5%, plus a 2.5% “capital conservation buffer” that is composed entirely of CET1 capital (effectively resulting in a minimum ratio of CET1 to risk-weighted assets of 7.0%). • A minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, plus the capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%). • A minimum ratio of total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets of 8.0%, plus the capital conservation buffer (effectively resulting in a minimum total capital ratio of 10.5%). • A minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.
Under the Basel III Capital Rules, the Company and Old National Bank are each required to maintain the following: • A minimum ratio of CET1 to risk-weighted assets of 4.5%, plus a 2.5% “capital conservation buffer” that is composed entirely of CET1 capital (effectively resulting in a minimum ratio of CET1 to risk-weighted assets of 7.0%). • A minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, plus the capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%). • A minimum ratio of total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets of 8.0%, plus the capital conservation buffer (effectively resulting in a minimum total capital ratio of 10.5%). • A minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.
The increased assessment rate is intended to improve the likelihood that the Deposit Insurance Fund reserve ratio would reach the required minimum of 1.35 percent by the statutory deadline of September 30, 2028. 13 Depositor Preference .
The increased assessment rate is intended to improve the likelihood that the DIF reserve ratio would reach the required minimum of 1.35 percent by the statutory deadline of September 30, 2028.
The FDIA includes the following five capital categories: “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” An insured depository institution is considered: • “Well-capitalized” if the institution has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a CET1 capital ratio of 6.5% or greater, and a leverage ratio of 5.0% or greater, and is not subject to any order or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital measure. • “Adequately capitalized” if the institution has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a CET1 capital ratio of 4.5% or greater, and a leverage ratio of 4.0% or greater and is not “well-capitalized.” • “Undercapitalized” if the institution has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a CET1 capital ratio of less than 4.5%, or a leverage ratio of less than 4.0%. • “Significantly undercapitalized” if the institution has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a CET1 capital ratio of less than 3.0% or a leverage ratio of less than 3.0%. • “Critically undercapitalized” if the institution’s tangible equity is equal to or less than 2.0% of average quarterly tangible assets. 11 An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating for certain matters.
The FDIA includes the following five capital categories: “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” An insured depository institution is considered: • “Well-capitalized” if the institution has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a CET1 capital ratio of 6.5% or greater, and a leverage ratio of 5.0% or greater, and is not subject to any order or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital measure. • “Adequately capitalized” if the institution has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a CET1 capital ratio of 4.5% or greater, and a leverage ratio of 4.0% or greater and is not “well-capitalized.” • “Undercapitalized” if the institution has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a CET1 capital ratio of less than 4.5%, or a leverage ratio of less than 4.0%. • “Significantly undercapitalized” if the institution has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a CET1 capital ratio of less than 3.0% or a leverage ratio of less than 3.0%. • “Critically undercapitalized” if the institution’s tangible equity is equal to or less than 2.0% of average quarterly tangible assets.
Old National Bank received a rating of “satisfactory” in its latest CRA examination. In May 2022, the OCC, together with the Federal Reserve and FDIC, issued a joint notice of proposed rulemaking to modernize the CRA regulatory framework.
Old National Bank received a rating of “satisfactory” in its latest CRA examination. In October 2023, the OCC, together with the Federal Reserve and FDIC, issued a joint final rule to modernize the CRA regulatory framework.
The Company generally does not engage in the businesses prohibited by the Volcker Rule; therefore, the Volcker Rule does not have a material effect on the operations of the Company and its subsidiaries. Future Legislation and Regulation.
The Company generally does not engage in the businesses prohibited by the Volcker Rule; therefore, the Volcker Rule does not have a material effect on the operations of the Company and its subsidiaries. Climate-Related and Other ESG Developments.
At December 31, 2022, Old National Bank operated 263 banking centers located primarily throughout the Midwestern United States, including Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, and Wisconsin.
THE BANK Old National Bank traces its roots to 1834 and at December 31, 2023, operated 258 banking centers located primarily throughout the Midwestern United States, including Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, and Wisconsin.
ITEM 1. BUSINESS COMPANY PROFILE Old National Bancorp, the financial holding company of Old National Bank, our wholly-owned banking subsidiary (“Old National Bank”), is incorporated in the state of Indiana and is the sixth largest Midwestern bank by asset size with consolidated assets of $46.8 billion at December 31, 2022.
BUSINESS COMPANY PROFILE Old National Bancorp, the financial holding company of Old National Bank, our wholly-owned banking subsidiary (“Old National Bank”), is incorporated in the state of Indiana, is the sixth largest Midwestern-headquartered bank by asset size with consolidated assets of $49.1 billion at December 31, 2023, and ranks among the top 30 banking companies headquartered in the United States.
Divestitures On November 18, 2022, Old National completed its transaction with UMB, pursuant to which UMB acquired Old National’s business of acting as a qualified custodian for, and administering, health savings accounts. Old National served as custodian for health savings accounts comprised of both investment accounts and deposit accounts.
Divestitures On November 18, 2022, Old National Bank completed the sale of Old National’s business of acting as a qualified custodian for, and administering, health savings accounts. Old National served as custodian for health savings accounts comprised of both investment accounts and deposit accounts.
We seek to maintain an inclusive environment and recognize the unique contribution each individual brings to our company, and we are fully committed to supporting a rich culture of diversity as a cornerstone to our success.
We seek to maintain an inclusive environment and recognize the unique contribution each individual brings to our Company, and we are fully committed to supporting a rich culture of diversity as a cornerstone to our success. At December 31, 2023, our team members were approximately 67% women and approximately 25% people of color.
The Dodd-Frank Act, as amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (“EGRRCPA”), directs the Federal Reserve to monitor emerging risks to financial stability and enact enhanced supervision and prudential standards.
As of December 31, 2023, Old National Bank was in compliance with the minimum stock ownership requirement. Enhanced Prudential Standards. The Dodd-Frank Act, as amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (“EGRRCPA”), directs the Federal Reserve to monitor emerging risks to financial stability and enact enhanced supervision and prudential standards.
The combined organization has a presence in the six largest metro markets in the Midwest, strong commercial banking capabilities, a robust retail footprint, a significant wealth management platform, and an enhanced ability to attract talent.
The combined organization has operations in six of the largest Midwestern metropolitan areas, strong commercial banking capabilities, a robust retail footprint, a significant wealth management platform, and an enhanced ability to attract top talent and deliver superior financial performance.
The amount and structure of such consideration is based on reasonable growth and cost savings assumptions and a thorough analysis of the impact on both long- and short-term financial results. 6 Our ability to engage in certain transactions depends on the bank regulators’ views at the time as to the capital levels, quality of management, and overall condition of Old National, in addition to their assessment of a variety of other factors, including our compliance with law and regulations.
Our ability to engage in certain transactions depends on the bank regulators’ views at the time as to the capital levels, quality of management, and overall condition of Old National, in addition to their assessment of a variety of other factors, including our compliance with law and regulations.
Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches banking organizations, and therefore not to the Company or Old National Bank. The impact of these standards on the Company and Old National Bank will depend on the manner in which they are implemented by the federal bank regulators.
Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches banking organizations, and therefore not to the Company or Old National Bank.
Many of the facilities consolidated were in smaller markets, several of which were added in recent years through acquisition and partnership activity. These actions resulted in pre-tax charges of $27.1 million associated with valuation adjustments related to these locations and were recorded in noninterest expense. COMPETITION The banking industry and related financial service providers operate in a highly competitive market.
These actions resulted in pre-tax charges of $26.8 million in 2022 and $1.6 million in 2023 recorded in noninterest expense that are associated with valuation adjustments related to these locations. COMPETITION The banking industry and related financial service providers operate in a highly competitive market.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution engaged or is engaging in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or violated any applicable law, regulation, rule, order, or condition imposed by the FDIC or written agreement entered into with the FDIC.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution engaged or is engaging in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or violated any applicable law, regulation, rule, order, or condition imposed by the FDIC or written agreement entered into with the FDIC. 13 FDIC assessment rates for large institutions that have more than $10 billion of assets, such as Old National Bank, are calculated based on a “scorecard” methodology, based primarily on the difference between the institution’s average of total assets and average tangible equity.
At closing, the health savings accounts held in deposit accounts that were transferred totaled approximately $382 million and the transaction resulted in a $90.7 million pre-tax gain. During the fourth quarter of 2022, Old National initiated certain property optimization actions that included the closure and consolidation of certain branches as well as other real estate repositioning across our footprint.
During the fourth quarter of 2022, Old National initiated certain property optimization actions that included the closure and consolidation of certain branches as well as other real estate repositioning across our footprint.
The effects of the proposed CRA rules on Old National will depend on the final form of any rulemaking. Deposit Insurance . Substantially all of the deposits of Old National Bank are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) which is administered by the FDIC.
Most provisions of the final rule will become effective on January 1, 2026, and the data reporting requirements will become effective on January 1, 2027. Deposit Insurance . Substantially all of the deposits of Old National Bank are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) which is administered by the FDIC.
Old National team members actively share their talents in their communities through volunteer activities in education, economic development, human and health services, and Community Reinvestment. We have a program that allows each team member to be paid up to 24 hours per year, with supervisory approval, to volunteer for activities in their community during normal work hours.
We have a program that allows each team member to be paid up to 24 hours per year, with supervisory approval, to volunteer for activities in their community during normal work hours. Under that program, team members logged over 57,000 volunteer hours during 2023 in support of 2,400 organizations.
Among other things, the AMLA codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the Treasury to promulgate priorities for anti-money laundering and countering the financing of terrorism policy; requires the development of standards by the Treasury for testing technology and internal processes for BSA compliance; expands enforcement- and investigation-related authority, including a significant expansion in the available sanctions for certain BSA violations; and expands BSA whistleblower incentives and protections.
Department of the Treasury for testing technology and internal processes for BSA compliance; expands enforcement- and investigation-related authority, including a significant expansion in the available sanctions for certain BSA violations; and expands BSA whistleblower incentives and protections.
The following table reflects information on the top markets we currently serve. Metropolitan Statistical Area Deposits as a Percent of Old National Bank Franchise (%) Deposits Per Branch ($M) 2010-2023 Population Change (%) 2023-2028 Projected Population Change (%) 2023 Median Household Income ($) 2023-2028 Projected Household Income Change (%) Chicago-Naperville-Elgin, IL-IN-WI 41.2 161.6 0.5 (0.4) 83,193 11.7 Minneapolis-St.
Metropolitan Statistical Area Deposits as a Percent of Old National Bank Franchise (%) Deposits Per Branch ($M) 2020-2024 Population Change (%) 2024-2029 Projected Population Change (%) 2024 Median Household Income ($) 2024-2029 Projected Household Income Change (%) Chicago-Naperville-Elgin, IL-IN-WI 43.3 177.7 (2.1) 0.1 85,119 8.4 Evansville, IN-KY 10.5 255.3 0.1 1.2 67,796 8.7 Minneapolis-St.
Financial institutions are expected to comply with such guidance and standards and to accordingly develop appropriate security controls and risk management processes. State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations.
The federal banking regulators regularly issue new guidance and standards, and update existing guidance and standards, regarding cybersecurity intended to enhance cyber risk management among financial institutions. Financial institutions are expected to comply with such guidance and standards and to accordingly develop appropriate security controls and risk management processes.
To attract and retain our group of skilled team members, Old National 5 provides a competitive total rewards package, which includes base pay, incentive opportunities, and benefits. Our strong, comprehensive benefits package includes health insurance and wellness coverages, a retirement plan with company matching contributions, other welfare plan coverages, paid time off, and paid leave benefits.
Our strong, comprehensive benefits package includes health insurance and wellness coverages, a retirement plan with company matching contributions, other welfare plan 5 coverages, paid time off, and paid leave benefits. In addition to our standard benefits, our team members have access to dedicated healthcare clinics and alternative work schedules for maternity, paternity, and foster-care leave.
Some of our nonfinancial institution competitors may have fewer regulatory constraints, broader geographic service areas, greater capital, and, in some cases, lower cost structures. In addition, competition for quality clients has intensified as a result of changes in regulation, mergers and acquisitions, advances in technology and product delivery systems, and consolidation among financial service providers.
In addition, competition for quality clients has intensified as a result of changes in regulation, mergers and acquisitions, advances in technology and product delivery systems, and consolidation among financial service providers. SUPERVISION AND REGULATION Old National is subject to extensive and comprehensive regulation under federal and state laws.
MARKET AREA Since our founding, Old National has focused on community and commercial banking by building long-term, highly valued partnerships with clients in our Midwest region. We have continued to expand our footprint through strategic mergers and acquisitions and we are now the sixth largest bank headquartered in the Midwest.
We have continued to expand our footprint through strategic mergers and acquisitions, and we are now the sixth largest bank headquartered in the Midwest by assets. The following table reflects information on the top markets we currently serve.
Paul-Bloomington, MN-WI 10.7 133.3 12.0 3.0 93,724 12.4 Evansville, IN-KY 10.4 234.7 0.7 0.5 64,368 10.6 Indianapolis-Carmel-Anderson, IN 5.2 90.0 14.2 3.6 71,979 15.5 Milwaukee-Waukesha, WI 3.5 181.0 0.6 — 72,553 12.6 Bloomington, IN 2.6 189.2 1.1 — 61,680 16.5 Madison, WI 2.5 81.8 14.4 3.3 85,184 11.8 National average 8.3 2.1 73,503 13.4 Weighted average total Old National Bank 3.0 0.6 76,337 11.9 Source: S&P Global Market Intelligence.
Paul-Bloomington, MN-WI 9.9 125.2 1.3 2.7 94,405 7.4 Indianapolis-Carmel-Anderson, IN 5.3 91.5 2.8 4.0 76,586 12.5 Milwaukee-Waukesha, WI 3.5 210.2 (1.0) 0.3 74,071 9.7 Madison, WI 2.4 79.6 2.4 3.8 84,987 8.3 Bloomington, IN 2.1 150.2 0.2 1.2 57,755 7.4 National average 1.4 2.4 75,874 10.1 Weighted average total Old National Bank (0.7) 1.0 78,604 8.8 Source: S&P Global Market Intelligence.
The excess compensation would be based on the amount the executive officer would have received had the incentive-based compensation been determined using the restated financial statements. The final rule requires the exchanges to propose conforming listing standards by February 26, 2023 and requires the standards to become effective no later than November 23, 2023.
The excess compensation would be based on the amount the executive officer would have received had the incentive-based compensation been determined using the restated financial statements. NASDAQ’s listing standards pursuant to the SEC’s rule became effective October 2, 2023. The Company’s clawback policy adopted in accordance with these listing standards is included as Exhibit 97. Cybersecurity.
The proposed rule would adjust CRA evaluations based on bank size and type, with many of the proposed changes applying only to banks with over $2 billion in assets and several applying only to banks with over $10 billion in assets, such as Old National Bank.
The final rule introduces new tests under which the performance of banks with over $2 billion in assets will be assessed. The new rule also includes data collection and reporting requirements, some of which are applicable only to banks with over $10 billion in assets, such as Old National Bank.
In January 2021, the Anti-Money Laundering Act of 2020 (“AMLA”), which amends the BSA, was enacted.
In January 2021, the Anti-Money Laundering Act of 2020 (“AMLA”), which amends the BSA, was enacted. Among other things, the AMLA codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the U.S. Department of the Treasury to promulgate priorities for anti-money laundering and countering the financing of terrorism policy; requires the development of standards by the U.S.
Removed
The combined organization also creates the scale and profitability to accelerate digital and technological capabilities to drive future investments in consumer and commercial banking, as well as wealth management services. THE BANK Old National Bank traces its roots to 1834 and is the oldest company in Evansville, Indiana.
Added
Our Structured Leadership Development Programs, Associate and Community Engagement Teams, Impact Networks, and the ONUniversity training and development center are among the many programs designed to drive Old National employee development and engagement. To attract and retain our group of skilled team members, Old National provides a competitive total rewards package, which includes base pay, incentive opportunities, and benefits.
Removed
In addition to our standard benefits, our team members have access to dedicated healthcare clinics and alternative work schedules for maternity, paternity, and foster-care leave. Old National team members consistently strive to make a positive difference in the communities we serve.
Added
Old National team members consistently strive to make a positive difference in the communities we serve. Old National team members actively share their talents in their communities through volunteer activities in education, economic development, human and health services, and Community Reinvestment.
Removed
Under that program, team members logged nearly 46,800 volunteer hours during 2022 in support of more than 1,500 organizations. Team member volunteers are recognized for their efforts on our corporate portal. Team members with 25 hours or more of service each year join the “Volunteer Honor Roll” in Old National’s annual communications.
Added
Team member volunteers are recognized for their efforts on our corporate portal. Team members with 25 hours or more of service each year are recognized annually by executive management. MARKET AREAS SERVED Since our founding, Old National has focused on community and commercial banking by building long-term, highly valued partnerships with clients in our Midwest region.
Removed
We believe the merger with First Midwest has enabled the combined entity to build on both organizations’ longstanding history of service, enhanced its ability to champion community initiatives, and driven positive change throughout its footprint.
Added
The amount and structure of such consideration is based on reasonable growth and cost savings assumptions and a thorough analysis of the impact on both long- and short-term financial results.
Removed
From First Midwest’s multiple recognitions as a Best Place to Work to Old National’s 11-year run as one of the World’s Most Ethical companies, the combined institution has remained committed to fostering a strong culture of collaboration and trust, empowering its employees to flourish.
Added
On October 26, 2023, Old National announced that it entered into a definitive merger agreement pursuant to which Old National will acquire CapStar and its wholly-owned subsidiary, CapStar Bank, in an all-stock transaction. As of September 30, 2023, CapStar had approximately $3.3 billion of total assets, $2.3 billion of total loans, and $2.8 billion of deposits.
Removed
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.
Added
Under the terms of the merger agreement, each outstanding share of CapStar common stock will be converted into the right to receive 1.155 shares of Old National common stock, valuing the transaction at approximately $344.4 million, or $16.64 per share, based on Old National’s 30-day volume weighted average closing stock price ending October 25, 2023, the day prior to execution of the merger agreement.
Removed
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.
Added
The transaction value is likely to change until closing due to fluctuations in the price of Old National common stock. The definitive merger agreement has been approved by the Board of Directors of each company. The transaction is anticipated to close in the second quarter of 2024 subject to the approval of CapStar shareholders.
Removed
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.
Added
At closing, the health savings accounts held in deposit accounts that were transferred totaled approximately $382 million and the transaction resulted in a $90.7 million pre-tax gain in 2022.

… 43 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

59 edited+33 added−20 removed152 unchanged
Biggest changeIn addition, mergers and acquisitions may involve the payment of a premium over book and market values and, therefore, some dilution of the Company's tangible book value and net income per common share may occur in connection with any future transaction. 17 Acquisitions and mergers involve a number of other expenses and risks, including: • the time and costs associated with identifying potential new markets, as well as acquisition and merger targets; • the accuracy of the estimates and judgments used to evaluate credit, operations, management, and market risks with respect to the target institution; • the time and costs of evaluating new markets, hiring experienced local management, and opening new offices, and the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion; • our ability to finance an acquisition or merger and possible dilution to our existing shareholders; • the diversion of our management’s attention to the negotiation and execution of a transaction, and the integration of the operations and personnel of the combined businesses; • entry into new markets where we lack experience; • the introduction of new products and services into our business; • the incurrence and possible impairment of goodwill or other intangible assets associated with an acquisition or merger and possible adverse short-term effects on our results of operations; • closing delays and increased expenses related to the resolution of lawsuits filed by shareholders of target institutions; and • the risk of loss of key employees and clients.
Biggest changeAcquisitions and mergers involve a number of other expenses and risks, including: • the time and costs associated with identifying potential new markets, as well as acquisition and merger targets; • the accuracy of the estimates and judgments used to evaluate credit, operations, management, and market risks with respect to the target institution; • the time and costs of evaluating entry into new markets where we lack experience, hiring experienced local management, opening new offices, and the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion; • our ability to finance an acquisition or merger and possible dilution to our existing shareholders; • the diversion of our management’s attention to the negotiation and execution of a transaction, and the integration of the operations and personnel of the combined businesses; • the introduction of new products and services into our business; • the incurrence and possible impairment of goodwill or other intangible assets associated with an acquisition or merger and possible adverse short-term effects on our results of operations; • closing delays and increased expenses related to the resolution of lawsuits filed by shareholders of target institutions; and • the risk of loss of key employees and clients.
In addition, the following factors may cause the market price for shares of Old National’s Common Stock to fluctuate: • announcements of developments related to Old National’s business; • fluctuations in Old National’s results of operations; • sales or purchases of substantial amounts of Old National’s securities in the marketplace; • general conditions in Old National’s banking niche or the global or national economy; • a shortfall or excess in revenues or earnings compared to securities analysts’ expectations; • changes in analysts’ recommendations or projections; • Old National’s announcement of new mergers, acquisitions, or other projects; and • negative news about the Company or the financial services industry generally.
In addition, the following factors may cause the market price for shares of Old National’s Common Stock to fluctuate: • announcements of developments related to Old National’s business; • fluctuations in Old National’s results of operations; • sales or purchases of substantial amounts of Old National’s securities in the marketplace; • general conditions in Old National’s banking niche or the global or national economy; • a shortfall or excess in revenues or earnings compared to securities analysts’ expectations; • changes in analysts’ recommendations or projections; • Old National’s announcement of new mergers, acquisitions, or other projects; and • negative news about the Company, the banking industry generally, or the financial services industry generally.
Old National operates in a highly regulated environment and is subject to extensive regulation, supervision, and examination by, among others, the OCC, the FDIC, the CFPB, and the Federal Reserve, and applicable state laws. Such regulation and supervision is primarily intended for the protection of the depositors and federal deposit insurance funds. In addition, the U.S.
Old National operates in a highly regulated environment and is subject to extensive regulation, supervision, and examination by, among others, the OCC, the Federal Reserve, the FDIC, and the CFPB, and applicable state laws. Such regulation and supervision is primarily intended for the protection of the depositors and federal deposit insurance funds. In addition, the U.S.
Our business is highly regulated and the laws, rules, regulations, and supervisory guidance and policies applicable to us are subject to regular modification and change, and there have been significant revisions to the laws and regulations applicable to banks and bank holding companies that have been enacted or proposed in recent years.
Our business is highly regulated and the laws, rules, regulations, and supervisory guidance and policies applicable to us are subject to regular modification and change, and there have been significant revisions to the laws, rules, regulations, and supervisory guidance and policies applicable to banks and bank holding companies that have been enacted or proposed in recent years.
Some of our nonfinancial institution competitors may have fewer regulatory constraints, broader geographic service areas, and, in some cases, lower cost structures and, as a result, may be able to compete more effectively for business. In particular, the activity of marketplace lenders and 18 other FinTechs has grown significantly over recent years and is expected to continue to grow.
Some of our nonfinancial institution competitors may have fewer regulatory constraints, broader geographic service areas, and, in some cases, lower cost structures and, as a result, may be able to compete more effectively for business. In particular, the activity of marketplace lenders and other FinTechs has grown significantly over recent years and is expected to continue to grow.
Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, or other projected benefits from an acquisition or merger could have a material adverse effect on the Company's financial condition and results of operations. Mergers and acquisitions may be delayed, impeded, or prohibited due to regulatory issues.
Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, or other projected benefits from an acquisition or merger could have a material adverse effect on the Company's financial condition and results of operations. 18 Mergers and acquisitions may be delayed, impeded, or prohibited due to regulatory issues.
In addition, operational errors, information system failures, or interruptions of vendors’ systems, or difficulty communicating with vendors, could expose us to disruption of operations, loss of service or connectivity to customers, reputational damage, and litigation risk that could have a material adverse effect on our business and, in turn, our financial condition and results of operations.
In addition, operational errors, information system failures, or interruptions of vendors’ systems, or difficulty communicating with vendors, could expose us to disruption of operations, loss of service or connectivity to 26 customers, reputational damage, and litigation risk that could have a material adverse effect on our business and, in turn, our financial condition and results of operations.
Our financial flexibility could be constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. Finally, if we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs.
Our financial flexibility could be constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. Finally, if we are required to rely more heavily 24 on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs.
See “Business – Supervision and Regulation – Dividend Limitations” and Note 21 to the consolidated financial statements. 19 Old National may not realize the expected benefits of its strategic imperatives. Old National’s ability to compete depends on a number of factors, including, among others, its ability to develop and successfully execute strategic plans and imperatives.
See “Business – Supervision and Regulation – Dividend Limitations” and Note 21 to the consolidated financial statements. Old National may not realize the expected benefits of its strategic imperatives. Old National’s ability to compete depends on a number of factors, including, among others, its ability to develop and successfully execute strategic plans and imperatives.
In some cases, Old National could be required to retroactively apply a new or revised standard, resulting in changes to previously reported financial results. 29 If Old National fails to meet regulatory capital requirements which may require heightened capital levels, we may be forced to raise capital or sell assets.
In some cases, Old National could be required to retroactively apply a new or revised standard, resulting in changes to previously reported financial results. If Old National fails to meet regulatory capital requirements, which may require heightened capital levels, we may be forced to raise capital or sell assets.
Our current or future approach to in-office and work-from-home arrangements may not meet the needs or expectations of our current or prospective employees or may not be perceived as favorable as compared to the arrangements offered by competitors, which could adversely affect our ability to attract and retain employees.
Our current or future approach to in-office and work-from-home arrangements may not meet the needs or expectations of our current or prospective employees or may not be perceived as favorable as compared to the arrangements offered by competitors, which could adversely affect our ability to attract 19 and retain employees.
Old National’s earnings can also be impacted by the spread between short-term and long-term market interest rates. The monetary, tax and other policies of the government and its agencies, including the Federal Reserve, have a significant impact on interest rates and overall financial market performance.
Old National’s earnings can also be impacted by the spread between short-term and long-term market interest rates. 23 The monetary, tax and other policies of the government and its agencies, including the Federal Reserve, have a significant impact on interest rates and overall financial market performance.
Because 21 payments on loans secured by commercial real estate often depend upon the successful operation and management of the properties and the businesses which operate from within them, repayment of such loans may be affected by factors outside the borrower’s control.
Because payments on loans secured by commercial real estate often depend upon the successful operation and management of the properties and the businesses which operate from within them, repayment of such loans may be affected by factors outside the borrower’s control.
Such reputational damage may result in the loss of customer deposits, the inability to sell or securitize loans or other assets, and downgrades in one or more of 23 the Company’s credit ratings, and may also negatively affect the Company’s ability to access the capital markets.
Such reputational damage may result in the loss of customer deposits, the inability to sell or securitize loans or other assets, and downgrades in one or more of the Company’s credit ratings, and may also negatively affect the Company’s ability to access the capital markets.
In addition, we expect that we will remain subject to extensive regulation and supervision, and that the level of regulatory scrutiny may fluctuate over time, based on numerous factors, including the OCC’s heightened standards, when applicable to us, changes in the U.S. presidential administration or one or both houses of Congress and public sentiment regarding financial institutions (which can be influenced by scandals and other incidents that involve participants in the industry).
In addition, we expect that we will remain subject to extensive regulation and supervision, and that the level of regulatory scrutiny may fluctuate over time, based on numerous factors, including the OCC’s heightened standards, when applicable to us, changes in U.S. presidential administrations or one or both houses of Congress and public sentiment regarding financial institutions (which can be influenced by scandals and other incidents that involve participants in the industry).
Old National’s earnings depend substantially on Old National’s interest rate spread, which is the difference between (i) the rates Old National earns on loans, 22 securities, and other earning assets and (ii) the interest rates Old National pays on deposits and other borrowings.
Old National’s earnings depend substantially on Old National’s interest rate spread, which is the difference between (i) the rates Old National earns on loans, securities, and other earning assets and (ii) the interest rates Old National pays on deposits and other borrowings.
Malicious actors may also attempt to fraudulently induce employees, customers or other users of our systems to disclose sensitive information, including passwords and other identifying information, in order to gain access to data or our systems.
Malicious actors may also attempt to fraudulently induce 25 employees, customers or other users of our systems to disclose sensitive information, including passwords and other identifying information, in order to gain access to data or our systems.
Failure to comply with laws, regulations, policies or supervisory guidance could result in enforcement and other legal actions by federal or state authorities, including criminal and civil penalties, the loss of FDIC insurance, revocation of a banking charter, other sanctions by regulatory agencies, civil money penalties, and/or reputational damage, which could have a material adverse effect on our business, financial condition, and results of operations.
Failure to comply with applicable laws, rules, regulations, and supervisory guidance and policies could result in enforcement and other legal actions by federal or state authorities, including criminal and civil penalties, the loss of FDIC insurance, revocation of a banking charter, other sanctions by regulatory agencies, civil money penalties, and/or reputational damage, which could have a material adverse effect on our business, financial condition, and results of operations.
There have been a number of significant enforcement actions in recent years by regulators, state attorneys general and the Department of Justice against banks and other non-bank financial institutions with respect to anti-money laundering and sanctions laws, and some have resulted in substantial penalties including criminal pleas.
There have been a number of significant enforcement actions in recent years by regulators, state attorneys general and the U.S. Department of Justice against banks and other non-bank financial institutions with respect to anti-money laundering and sanctions laws, and some have resulted in substantial penalties including criminal pleas.
The processes that we use to estimate probable credit losses and to measure the fair value of assets carried on the balance sheet at fair value, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depend upon the use of analytical and forecasting models.
The processes that we use to estimate expected credit losses and to measure the fair value of assets carried on the balance sheet at fair value, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depend upon the use of analytical and forecasting models.
In our market area, Old National encounters significant competition from other commercial banks, savings and loan associations, credit unions, mortgage banking firms, FinTech companies, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds, and other financial intermediaries.
In our market area, Old National encounters significant competition from other commercial banks, savings and loan associations, credit unions, mortgage banking firms, FinTech companies, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds, and other financial services companies.
When market interest rates rise, such as during 2022, Old National faces competitive pressure to increase the rates that Old National pays on deposits, which could result in a decrease of Old National’s net interest income.
When market interest rates rise, such as during 2022 and 2023, Old National faces competitive pressure to increase the rates that Old National pays on deposits, which could result in a decrease of Old National’s net interest income.
Credit ratings are based on a number of factors, including our financial strength and ability to generate earnings, as well as factors not entirely within our control, including conditions affecting the financial services industry generally and the economy and changes in rating methodologies. There can be no assurance that we will maintain our current 24 credit ratings.
Credit ratings are based on a number of factors, including our financial strength and ability to generate earnings, as well as factors not entirely within our control, including conditions affecting the banking industry or financial services industry generally and the economy and changes in rating methodologies. There can be no assurance that we will maintain our current credit ratings.
Expectations of negative market and economic conditions will be reflected in the allowances for credit losses for loans and debt securities to the estimated extent they will impact the credit losses of new and existing loans and debt securities over their remaining lives.
Expectations of negative market and economic conditions will be reflected in the allowances for credit losses for loans and debt securities to the estimated extent they will impact the credit losses of loans and debt securities over their remaining lives.
Changes in tax laws, changes in interpretations, guidance or regulations that may be promulgated, or challenges to judgments or actions that the Company may take with respect to tax laws could negatively impact our current and future financial performance. In addition, our determination of our tax liability is subject to review by applicable tax authorities.
Changes in tax laws, changes in interpretations, guidance or regulations currently in effect or that may be promulgated, or challenges to judgments or actions that the Company may take with respect to tax laws could negatively impact our current and future financial performance. 30 In addition, our determination of our tax liability is subject to review by applicable tax authorities.
The Company’s liquidity and ability to fund and operate its business could be materially adversely affected by a variety of conditions and factors, including financial and credit market disruptions and volatility or a lack of market or customer confidence in financial markets in general, which may result in a loss of customer deposits or outflows of cash or collateral and/or ability to access capital markets on favorable terms.
The Company’s liquidity and ability to fund loan demand and operate its business could be materially adversely affected by a variety of conditions and factors, including financial and credit market disruptions and volatility or a lack of market or customer confidence in banks or other financial intermediaries or financial markets in general, which may result in a loss of customer deposits or outflows of cash or collateral and/or ability to access capital markets on favorable terms.
The financial services industry is subject to significant regulation and scrutiny from bank supervisors in the examination process and aggressive enforcement of federal and state regulations, particularly with respect to mortgage-related practices and other consumer compliance matters, and compliance with anti-money laundering, BSA and OFAC regulations, and economic sanctions against certain foreign countries and nationals.
The financial services industry is subject to significant regulation and scrutiny from bank regulatory authorities in the examination process and aggressive enforcement of federal and state laws, rules, and regulations, particularly with respect to mortgage-related practices and other consumer compliance matters, and compliance with anti-money laundering, BSA and OFAC regulations, and economic sanctions against certain foreign countries and nationals.
Negative news about the Company or the financial services industry generally may reduce market or customer confidence in the Company, which could in turn materially adversely affect the Company’s liquidity and funding.
Negative news about the Company, banks, other financial intermediaries, or the financial services industry generally may reduce market or customer confidence in the Company, which could in turn materially adversely affect the Company’s liquidity and funding.
Regulatory approvals could be delayed, impeded, restrictively conditioned or denied due to existing or new regulatory issues the Company may have with regulatory agencies, including, without limitation, issues related to BSA compliance, CRA issues, fair lending laws, fair housing laws, consumer protection laws, unfair, deceptive, or abusive acts or practices regulations and other laws and regulations.
Regulatory approvals could be delayed, impeded, restrictively conditioned, or denied should the Company have regulatory issues with regulatory agencies, including, without limitation, issues related to BSA compliance, CRA issues, fair lending laws, fair housing laws, consumer protection laws, unfair, deceptive, or abusive acts or practices regulations and other laws and regulations.
At December 31, 2022, commercial real estate loans, including owner occupied, investor, and real estate construction loans, totaled $12.5 billion, or 40%, of our total loan portfolio. Commercial real estate loans generally involve a greater degree of credit risk than residential mortgage loans because they typically have larger balances and are more affected by adverse conditions in the economy.
At December 31, 2023, commercial real estate loans, including owner-occupied, investor, and real estate construction loans, totaled $14.1 billion, or 43%, of our total loan portfolio. Commercial real estate loans generally involve a greater degree of credit risk than residential mortgage loans because they typically have larger balances and are more affected by adverse conditions in the economy.
Depending on the impact of the pandemic and Russia’s invasion of Ukraine on general economic and market conditions, consumer and corporate spending and investment and borrowing patterns, there is a risk that adverse conditions could occur, including supply chain disruptions; higher inflation; decreased demand for the Company’s products and services or those of its borrowers, which could increase credit risk; challenges related to maintaining 27 sufficient qualified personnel due to labor shortages, talent attrition, employee illness, willingness to return to work; disruptions to business operations at the Company and at counterparties, vendors and other service providers.
Depending on the impact of pandemics, global military conflicts, or terrorism and other adverse external events on general economic and market conditions, consumer and corporate spending and investment and borrowing patterns, there is a risk that adverse conditions could occur, including supply chain disruptions; higher inflation; decreased demand for the Company’s products and services or those of its borrowers, which could increase credit risk; challenges related to maintaining sufficient qualified personnel due to labor shortages, talent attrition, employee illness, willingness to return to work; disruptions to business operations at the Company and at counterparties, vendors and other service providers.
Also, due to the impact on rates for short-term funding, the Federal Reserve’s policies influence, to a significant extent, the Company’s cost of such funding, and increases in short-term interest rates have in the past increased, and may in the future increase, the Company’s cost of short-term funding.
Also, due to the impact on rates for short-term funding, the Federal Reserve’s policies influence, to a significant extent, the Company’s cost of such funding, and increases in short-term interest rates have in the past increased, and may in the future increase, the Company’s cost of short-term funding. The Company must maintain adequate sources of funding and liquidity.
The Federal Reserve raised benchmark interest rates throughout 2022 and may continue to raise interest rates in response to economic conditions, particularly inflationary pressures.
The Federal Reserve raised benchmark interest rates throughout 2022 and 2023 and may continue to raise interest rates, or not reduce rates, in response to economic conditions, particularly inflationary pressures.
Economic conditions, financial markets and inflationary pressures may be adversely affected by the impact of current or anticipated geopolitical uncertainties, military conflicts, including Russia’s invasion of Ukraine, pandemics, including the COVID-19 pandemic, and global, national and local responses to such events by governmental authorities and other third parties.
Economic conditions, financial markets and inflationary pressures may be adversely affected by the impact of current or anticipated geopolitical uncertainties, global military conflicts, pandemics, and global, national, and local responses to such events by governmental authorities and other third parties.
An economic downturn, sustained high unemployment levels, stock market volatility, and/or high levels of inflation (such as the market volatility and inflation the United States economy experienced during 2022) has in the past negatively affected, and in the future may negatively affect, our operating results and have had, or may have, a negative effect on the ability of our borrowers to make timely repayments of their loans, increasing the risk of loan defaults and losses.
An economic downturn, sustained high unemployment levels, stock market volatility, and/or high levels of inflation have in the past negatively affected, and in the future may negatively affect, our operating results and have had, or may have, a negative effect on the ability of our borrowers to make timely repayments of their loans, increasing the risk of loan defaults and losses.
Although the Company has adopted policies and procedures designed to comply with these laws, any failure to comply with these laws and other regulations, or to maintain an adequate compliance program, could result in significant fines, penalties, lawsuits, regulatory sanctions, reputational damage, or restrictions on our business.
Although the Company has adopted policies and procedures designed to comply with these laws, rules, and regulations, any failure to comply with these laws, rules, and regulations, or to maintain an adequate compliance program, could result in significant fines, penalties, lawsuits, regulatory sanctions, reputational damage, or restrictions on our business. We have risk related to legal proceedings.
Old National is subject to environmental liability risk associated with lending activities. A significant portion of the Company's loan portfolio is secured by real property. During the ordinary course of business, the Company may foreclose on and take title to properties securing certain loans. There is a risk that hazardous or toxic substances could be found on these properties.
A significant portion of the Company's loan portfolio is secured by real property. During the ordinary course of business, the Company may foreclose on and take title to properties securing certain loans. There is a risk that hazardous or toxic substances could be found on these properties.
When market interest rates decline, Old National has experienced, and could in the future experience, fixed-rate loan prepayments and higher investment portfolio cash flows, resulting in a lower yield on earning assets. Sharp fluctuations in interest rates, such as the significant increases experienced during 2022, could enhance these risks.
When market interest rates decline, Old National has experienced, and could in the future experience, fixed-rate loan prepayments and higher investment portfolio cash flows, resulting in a lower yield on earning assets. Sharp fluctuations in interest rates could exacerbate these risks.
Changes to statutes, regulations, or regulatory policies, including changes in interpretation or implementation of statutes, regulations, or policies, have and could in the future subject us to additional costs, limit the types of financial services and products we may offer, and/or increase the ability of non-banks to offer competing financial services and products, among other things.
Changes to applicable laws, rules, regulations, and supervisory guidance and policies, including changes in interpretation or implementation thereof, have and could in the future subject us to additional costs, limit the types of financial services and products we may offer, and/or increase the ability of non-banks to offer competing financial services and products, among other things.
If our security systems were penetrated or circumvented, it could cause serious negative consequences for us, including significant disruption of our operations, misappropriation of our confidential information or that of our clients, or damage our computers or systems and those of our clients and counterparties, and could result in violations of applicable privacy and other laws, financial loss to us or to our clients, loss of confidence in our security measures, client dissatisfaction, significant litigation exposure, regulatory action, and harm to our reputation, all of which could have a material adverse effect on us. 25 Old National is subject to laws and regulations relating to the privacy of the information of clients, employees or others, and any failure to comply with these laws and regulations could expose the Company to liability and/or reputational damage.
If our security systems were penetrated or circumvented, it could cause serious negative consequences for us, including significant disruption of our operations, misappropriation of our confidential information or that of our clients, or damage our computers or systems and those of our clients and counterparties, and could result in violations of applicable privacy and other laws, financial loss to us or to our clients, loss of confidence in our security measures, client dissatisfaction, significant litigation exposure, regulatory action, and harm to our reputation, all of which could have a material adverse effect on us.
In addition, the transition to increased work-from-home and hybrid work arrangements, which are likely to survive the COVID-19 pandemic for many companies, may exacerbate the challenges of attracting and retaining talented and diverse employees as job markets may be less constrained by physical geography.
In addition, the transition to increased work-from-home and hybrid work arrangements may exacerbate the challenges of attracting and retaining talented and diverse employees as job markets may be less constrained by physical geography.
Pandemics, acts of war or terrorism and other adverse external events could significantly affect Old National’s business. Pandemics, including the COVID-19 pandemic, acts of war, military conflicts, including Russia’s invasion of Ukraine, or terrorism and other adverse external events, including severe weather and other natural disasters, could have a significant impact on the Company’s ability to conduct business.
Pandemics, acts of war, global military conflicts, or terrorism and other adverse external events, including severe weather and other natural disasters, could have a significant impact on the Company’s ability to conduct business.
Damage to the Company’s reputation could also adversely affect its credit ratings and access to the capital markets. 20 In addition, whereas negative public opinion once was primarily driven by adverse news coverage in traditional media, the increased use of social media platforms facilitates the rapid dissemination of information or misinformation, which magnifies the potential harm to the Company’s reputation.
In addition, whereas negative public opinion once was primarily driven by adverse news coverage in traditional media, the increased use of social media platforms facilitates the rapid dissemination of information or misinformation, which magnifies the potential harm to the Company’s reputation.
In particular, a cybersecurity event impacting the Company’s or its customers’ data could have a negative impact on the Company’s reputation and customer confidence in the Company and its cybersecurity.
In particular, a cybersecurity event impacting the Company’s or its customers’ data could have a negative impact on the Company’s reputation and customer confidence in the Company and its cybersecurity. Damage to the Company’s reputation could also adversely affect its credit ratings and access to the capital markets.
For example, emerging and evolving factors such as the shift to work-from-home or hybrid-work arrangements, changing consumer preferences (including for online shopping), COVID-19-related restrictions and resulting changes in occupancy rates as a result of these and other trends have had, and in the future could have, a material effect on our borrowers’ ability to repay their loans.
For example, emerging and evolving factors such as the shift to work-from-home or hybrid-work arrangements, changing consumer preferences (including for online shopping), changes in occupancy rates as a result of these and other trends have had, and in the future could have, a material effect on our borrowers’ ability to repay their loans. 22 If Old National forecloses on real property collateral, Old National may be subject to the increased costs associated with the ownership of real property, resulting in reduced revenues.
Legal, Regulatory, and Compliance Risks We have risk related to legal proceedings. We are involved in judicial, regulatory, and arbitration proceedings concerning matters arising from our business activities and fiduciary responsibilities. We establish reserves for legal claims when payments associated with the 28 claims become probable and the costs can be reasonably estimated.
We are involved in judicial, regulatory, and arbitration proceedings concerning matters arising from our business activities and fiduciary responsibilities. We establish an accrual for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. We may still incur legal costs for a matter even if we have not established an accrual.
Additionally, instruments, systems, and strategies used to hedge or otherwise manage exposure to various types of market compliance, credit, liquidity, operational, and business risks and enterprise-wide risk could be less effective than anticipated. As a result, Old National may not be able to effectively mitigate its risk exposures in particular market environments or against particular types of risk.
Additionally, instruments, systems, and strategies used to hedge or otherwise manage exposure to various types of market compliance, credit, liquidity, operational, and business risks and enterprise-wide risk could be less effective than anticipated.
To the extent that pandemics, including the COVID-19 pandemic, acts of war, including Russia’s invasion of Ukraine, or terrorism and other external events adversely affect Old National’s business, financial, liquidity, capital, or results of operations, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
To the extent that pandemics, acts of war, global military conflicts, or terrorism and other external events adversely affect Old National’s business, financial, liquidity, capital, or results of operations, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section. Old National is subject to environmental liability risk associated with lending activities.
Events that result in damage to the Company’s reputation may also increase our litigation risk, increase regulatory scrutiny of the Company and its business, affect our ability to attract and retain customers and employees and have other consequences that we may not be able to predict.
Events that result in damage to the Company’s reputation may also increase our litigation risk, increase regulatory scrutiny of the Company and its business, affect our ability to attract and retain customers and employees and have other consequences that we may not be able to predict. 21 Credit Risk If Old National’s actual credit losses for loans or debt securities exceed Old National’s allowance for credit losses on loans and debt securities, Old National’s net income will decrease.
We are unable to predict the form or nature of any future changes to statutes or regulation, including the interpretation or implementation thereof.
We are unable to predict the form or nature of any future changes to the laws, rules, regulations, or supervisory guidance and policies, including the interpretation or implementation thereof.
Credit Risk If Old National’s actual credit losses for loans or debt securities exceed Old National’s allowance for credit losses on loans and debt securities, Old National’s net income will decrease. Also, future additions to Old National’s allowance for credit losses will reduce Old National’s future earnings. Old National’s business depends on the creditworthiness of our clients.
Also, future additions to Old National’s allowance for credit losses will reduce Old National’s future earnings. Old National’s business depends on the creditworthiness of our clients.
These unpredictable events could create, increase or prolong economic and financial disruptions and volatility that adversely affect the Company’s business, financial condition, capital and results of operations. Old National’s regional concentrations expose it to adverse economic conditions in the locations in which Old National operates.
These unpredictable events could create, increase or prolong economic and financial disruptions and volatility that adversely affect the Company’s business, financial condition, capital and results of operations.
The provision for credit losses will report the entire increased credit loss expectations over the remaining lives of the loans and debt securities in the period in which the change in expectation arises.
The provision for credit losses will report the entire increased credit loss expectations over the remaining lives of the loans and debt securities in the period in which the change in expectation arises. Further, because of the impact of such increased credit losses on earnings and capital, our ability to make loans and pay dividends may be substantially diminished.
Future system enhancements could have higher than expected costs and/or result in operating inefficiencies, which could increase the costs associated with the implementation as well as ongoing operations. 26 Upgrading the Company’s computer systems, software, and networks subjects the Company to the risk of disruptions, failures, or delays due to the complexity and interconnectedness of the Company’s computer systems, software, and networks.
Future system enhancements could have higher than expected costs and/or result in operating inefficiencies, which could increase the costs associated with the implementation as well as ongoing operations.
A negative public opinion of the Company and its business can result from any number of activities, including the Company’s lending practices, corporate governance and regulatory compliance, mergers and acquisitions, and actions taken by regulators or by community organizations in response to these activities.
A negative public opinion of the Company and its business can result from any number of activities, including the Company’s lending practices, corporate governance and regulatory compliance, mergers and acquisitions, and ESG matters such as, among other things, climate risk, hiring practices, the diversity of our work force, and racial and social justice issues involving our personnel, customers, and third parties with whom we otherwise do business, and actions taken by regulators, community organizations, investors, and other stakeholders in response to these activities.
Further, because of the impact of such increased credit losses on earnings and capital, our ability to make loans and pay dividends may be substantially diminished. 16 Changes in economic or political conditions have adversely affected, and may continue to adversely affect, Old National’s earnings, if the ability of Old National’s borrowers to repay loans, or the value of the collateral securing such loans, declines.
Changes in economic or political conditions have adversely affected, and may continue to adversely affect, Old National’s earnings, if the ability of Old National’s borrowers to repay loans, or the value of the collateral securing such loans, declines. Old National’s success depends, to a certain extent, upon economic or political conditions, local and national, as well as governmental monetary policies.
The ultimate resolution of a pending or future proceeding, depending on the remedy sought and granted, could materially adversely affect our results of operations and financial condition. Old National operates in a highly regulated environment, and changes in laws and regulations to which Old National is subject may adversely affect Old National’s results of operations.
In addition, the actual cost of resolving a legal claim may be substantially higher than any amounts accrued for that matter. The ultimate resolution of a pending or future proceeding, depending on the remedy sought and granted, could materially adversely affect our results of operations and financial condition.
We may incur fines, penalties and other negative consequences from regulatory violations, possibly even inadvertent or unintentional violations.
In addition, as supervisory expectations and industry practices regarding overdraft protection programs change, our continued offering of overdraft protection may result in negative public opinion and increased reputation risk. 29 We may incur fines, penalties and other negative consequences from regulatory violations, possibly even inadvertent or unintentional violations.
Regulatory changes may also make it easier for FinTechs to partner with banks and offer deposit products.
Regulatory changes may also make it easier for FinTechs to partner with banks and offer deposit products. Our ability to originate residential mortgage loans has also been adversely affected by the increased competition resulting from the unprecedented involvement of the U.S. government and government-sponsored entities in the residential mortgage market.
Removed
Old National’s success depends, to a certain extent, upon economic or political conditions, local and national, as well as governmental monetary policies.
Added
Federal budget deficit concerns and the potential for political conflict over legislation to fund U.S. government operations and raise the U.S. government's debt limit may increase the possibility of a default by the U.S. government on its debt obligations, related credit-rating downgrades, or an economic recession in the United States.
Removed
Also as described further in the risk factors above and as set forth below, the COVID-19 pandemic and Russia’s invasion of Ukraine have created economic and financial disruptions that have adversely affected, and may continue to adversely affect, customers. Old National’s loan portfolio includes loans with a higher risk of loss.
Added
Many of our investment securities are issued by the U.S. government and government agencies and sponsored entities.
Removed
If Old National forecloses on real property collateral, Old National may be subject to the increased costs associated with the ownership of real property, resulting in reduced revenues.
Added
As a result of uncertain domestic political conditions, including potential future federal government 17 shutdowns, the possibility of the federal government defaulting on its obligations for a period of time due to debt ceiling limitations or other unresolved political issues, investments in financial instruments issued or guaranteed by the federal government pose liquidity risks.
Removed
Changes in the method pursuant to which the LIBOR and other benchmark rates are determined could adversely impact our business and results of operations.
Added
In connection with prior political disputes over U.S. fiscal and budgetary issues leading to the U.S. government shutdown in 2011, S&P lowered its long-term sovereign credit rating on the U.S. from AAA to AA+.
Removed
Our floating-rate funding, certain hedging transactions and certain of the products that we offer, such as floating-rate loans and mortgages, determine the applicable interest rate or payment amount by reference to a benchmark rate, such as LIBOR, or to an index, currency, basket, or other financial metric.
Added
A further downgrade, or a downgrade by other rating agencies, as well as sovereign debt issues facing the governments of other countries, could have a material adverse impact on financial markets and economic conditions in the U.S. and worldwide. Old National’s regional concentrations expose it to adverse economic conditions in the locations in which Old National operates.
Removed
The administrator of LIBOR has announced that the publication of the most commonly used U.S. Dollar LIBOR settings will cease to be provided or will cease to be representative after June 30, 2023. The publication of all other LIBOR settings ceased to be provided or ceased to be representative as of December 31, 2021.
Added
In addition, mergers and acquisitions may involve the payment of a premium over book and market values and, therefore, some dilution of the Company's tangible book value and net income per common share may occur in connection with any future transaction.
Removed
The U.S. federal banking agencies had also issued guidance strongly encouraging banking organizations to cease using the U.S. Dollar LIBOR as a reference rate in “new” contracts by December 31, 2021 at the latest. In March 2022, the LIBOR Act was signed into law.
Added
The leaders of the federal banking agencies, including the Comptroller of the Currency, have emphasized that climate-related risks are faced by banking organizations of all types and sizes, specifically including physical and transition risks, and are in 20 the process of enhancing supervisory expectations regarding banks’ risk management practices.
Removed
The LIBOR Act and its implementing regulations provide a uniform approach for replacing LIBOR as a reference interest rate in certain contracts as a matter of law.
Added
To that end, in December 2021, the OCC published proposed principles for climate risk management by larger banking organizations.
Removed
See “Business – Supervision and Regulation – LIBOR Act.” Regulators, industry groups, and certain committees (e.g., the Alternative Reference Rates Committee) have, among other things, published recommended fallback language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g., the Secured Overnight Financing Rate as the recommended alternative to U.S.
Added
The OCC also has created an Office of Climate Risk and appointed a Climate Change Risk Officer to oversee that office and has established an internal climate risk implementation committee in order to assist with these initiatives and to support the agency’s efforts to enhance its supervision of climate change risk management.
Removed
Dollar LIBOR), and proposed implementations of the recommended alternatives in floating rate instruments. At this time, it is not possible to predict whether these recommendations and proposals will be broadly accepted, whether they will continue to evolve, and what the effect of their implementation may be on the markets for floating-rate financial instruments.
Added
The OCC stressed in its 2022 Annual Report that climate-related financial risks pose novel challenges that national banks, together with the OCC, are expected to meet; however, the OCC acknowledged that its focus in this area has purposefully been directed at institutions with more than $100 billion in total assets as risks are more complex and material at such institutions.
Removed
The discontinuation of LIBOR, changes in LIBOR, or changes in market perceptions of the acceptability of LIBOR as a benchmark could result in changes to our risk exposures (for example, if the anticipated discontinuation of LIBOR adversely affects the availability or cost of floating-rate funding and, therefore, our exposure to fluctuations in interest rates) or otherwise result in losses on a product or having to pay more or receive less on securities that we own or have issued.

… 32 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeITEM 2. PROPERTIES As of December 31, 2022, Old National and its affiliates operated a total of 263 banking centers located primarily throughout the Midwest region. Of these facilities, 140 were owned and 123 were leased from unaffiliated third parties.
Biggest changeITEM 2. PROPERTIES As of December 31, 2023, Old National and its affiliates operated a total of 258 banking centers located primarily throughout the Midwest region. Of these facilities, 134 were owned and 124 were leased from unaffiliated third parties.
Old National also has several administrative offices located throughout its footprint, including its corporate headquarters located in Evansville, Indiana, which was purchased by Old National in 2016, as well as its leased commercial and consumer banking operations headquartered in Chicago, Illinois. 30
Old National also has several administrative offices located throughout its footprint, including its corporate headquarters located in Evansville, Indiana, which was purchased by Old National in 2016, as well as its leased commercial and consumer banking operations headquartered in Chicago, Illinois.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed0 unchanged
Biggest changeITEM 3. LEGAL PROCEEDINGS See Note 20 Commitments, Contingencies, and Financial Guarantees to the consolidated financial statements included in Item 8 of Part II of this Form 10-K for information regarding certain legal proceedings in which we are involved. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 31 PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS See Note 20 Commitments, Contingencies, and Financial Guarantees to the consolidated financial statements included in Item 8 of Part II of this Form 10-K for information regarding certain legal proceedings in which we are involved. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 33 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+1 added−0 removed1 unchanged
Biggest changeThe following table summarizes the purchases of Common Stock made by Old National during the fourth quarter of 2022: 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) 10/1/22 - 10/31/22 815 $16.90 — $136,093,633 11/1/22 - 11/30/22 3,173 19.54 — 136,093,633 12/1/22 - 12/31/22 11,017 15.96 — 136,093,633 Total 15,005 $16.77 — $136,093,633 (1) Consists of shares acquired pursuant to the Company’s share-based incentive programs.
Biggest changeThe following table summarizes the monthly purchases of Common Stock made by Old National during the fourth quarter of 2023: 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) 10/1/23 - 10/31/23 434 $14.47 — $170,476,849 11/1/23 - 11/30/23 1,921 13.94 — 170,476,849 12/1/23 - 12/31/23 581 15.76 — 170,476,849 Total 2,936 $14.38 — $170,476,849 (1) Consists of shares acquired pursuant to the Company’s share-based incentive programs.
The comparison of shareholder returns (change in December year end stock price plus reinvested dividends) for each of the periods assumes that $100 was invested on December 31, 2017, in each of the common stock of the Company, the S&P 500 Index, the KBW NASDAQ Bank Index, and the KBW NASDAQ Regional Banking Index, with investment weighted on the basis of market capitalization.
The comparison of shareholder returns (change in December year end stock price plus reinvested dividends) for each of the periods assumes that $100 was invested on December 31, 2018, in each of the common stock of the Company, the S&P 500 Index, the KBW NASDAQ Bank Index, and the KBW NASDAQ Regional Banking Index, with investment weighted on the basis of market capitalization.
Old National did not sell any equity securities during 2022 that were not registered under the Securities Act of 1933.
Old National did not sell any equity securities during 2023 that were not registered under the Securities Act of 1933.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Old National’s Common Stock is traded on the NASDAQ under the ticker symbol “ONB.” There were 57,134 shareholders of record as of December 31, 2022.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Old National’s Common Stock is traded on the NASDAQ under the ticker symbol “ONB.” There were 58,178 shareholders of record as of December 31, 2023.
Source: S&P Global Market Intelligence ITEM 6. [RESERVED] 33
Source: S&P Global Market Intelligence ITEM 6. [RESERVED] 35
(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.
(2) On February 22, 2023, the Company issued a press release announcing that its Board of Directors approved a stock repurchase program that authorized the Company to repurchase up to $200 million of the Company’s outstanding shares of common stock, as conditions warrant, through February 29, 2024.
No shares were repurchased during the fourth quarter of 2022 under the Company’s Board-approved stock repurchase program. 32 The table below compares five-year cumulative total returns for our Common Stock to cumulative total returns of a broad-based equity market index and published industry indices.
This new stock repurchase program replaces the prior $200 million program. 34 The table below compares five-year cumulative total returns for our Common Stock to cumulative total returns of a broad-based equity market index and published industry indices.
Added
The Company repurchased $29.5 million of its common stock under this program through December 31, 2023. On February 21, 2024, the Board of Directors approved a new stock repurchase program, under which the Company is authorized to repurchase up to $200 million of its outstanding common stock through February 28, 2025.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

121 edited+47 added−63 removed89 unchanged
Biggest changeAt December 31, 2022, commercial and commercial real estate loans were $22.0 billion, an increase of $12.2 billion compared to December 31, 2021 driven by the merger with First Midwest and strong loan production in 2022. 48 The following table provides detail on commercial loans by industry classification (as defined by the North American Industry Classification System) and by loan size at December 31. 2022 2021 (dollars in thousands) Outstanding Exposure Nonaccrual Outstanding Exposure Nonaccrual By Industry: Manufacturing $ 1,757,907 $ 2,803,883 $ 2,464 $ 612,873 $ 1,152,774 $ 6,689 Health care and social assistance 1,588,392 2,043,105 11,806 376,664 550,400 444 Wholesale trade 857,400 1,552,985 2,895 240,618 438,357 1,598 Real estate rental and leasing 642,511 962,549 1,135 204,612 347,991 504 Construction 556,913 1,307,582 1,517 310,649 744,610 1,429 Professional, scientific, and technical services 507,940 832,407 4,735 141,364 279,185 937 Finance and insurance 484,532 858,391 17 162,920 232,847 44 Transportation and warehousing 422,643 633,267 3,496 134,072 243,086 1,594 Accommodation and food services 399,915 512,025 596 78,689 108,724 2,399 Retail trade 332,367 538,135 7,386 131,303 289,478 945 Administrative and support and waste management and remediation services 315,785 446,655 13,860 86,307 149,417 — Agriculture, forestry, fishing, and hunting 261,355 382,376 996 114,699 164,364 1,521 Public administration 231,453 325,834 846 247,770 357,310 — Educational services 210,850 378,955 3,750 216,384 295,065 — Other services 194,998 356,743 2,656 121,577 260,413 2,542 Other 743,943 1,122,409 739 211,268 388,110 4,003 Total $ 9,508,904 $ 15,057,301 $ 58,894 $ 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 11 11 20 18 16 42 $1,000,000 to $5,000,000 25 26 36 31 29 51 $5,000,000 to $10,000,000 15 15 24 15 16 — $10,000,000 to $25,000,000 31 27 17 18 18 — Greater than $25,000,000 15 18 — 10 15 — Total 100 % 100 % 100 % 100 % 100 % 100 % The following table provides detail on commercial real estate loans classified by property type at December 31. 2022 2021 (dollars in thousands) Outstanding % Outstanding % By Property Type: Multifamily $ 4,188,137 34 % $ 1,995,803 31 % Warehouse / Industrial 1,976,804 16 851,956 14 Office 1,813,007 15 1,018,973 16 Retail 1,808,041 14 1,037,034 16 Commercial development 660,798 5 114,113 2 Single family 515,390 4 333,221 5 Other (1) 1,494,893 12 1,029,574 16 Total $ 12,457,070 100 % $ 6,380,674 100 % (1) Other includes agriculture real estate, hotels, self-storage, senior housing, land development, religion, and mixed-use properties. 49 Residential Real Estate Loans Residential real estate loans held in our portfolio increased $4.2 billion to $6.5 billion at December 31, 2022, compared to December 31, 2021, driven by the merger with First Midwest and organic loan growth.
Biggest changeAt December 31, 2023, commercial and commercial real estate loans were $23.7 billion, an increase of $1.7 billion compared to December 31, 2022 driven by disciplined loan production that was well balanced across our market footprint and product lines, partially offset by commercial loan sales. 50 The following table provides detail on commercial loans by industry classification (as defined by the North American Industry Classification System) and by loan size at December 31. 2023 2022 (dollars in thousands) Outstanding Exposure (1) Nonaccrual Outstanding Exposure (1) Nonaccrual By Industry: Manufacturing $ 1,589,727 $ 2,734,935 $ 7,408 $ 1,757,907 $ 2,803,883 $ 2,464 Health care and social assistance 1,567,286 1,949,250 7,390 1,588,392 2,043,105 11,806 Wholesale trade 748,058 1,541,951 3,789 857,400 1,552,985 2,895 Real estate rental and leasing 686,008 1,035,073 700 642,511 962,549 1,135 Finance and insurance 637,630 966,842 1 484,532 858,391 17 Construction 554,312 1,437,025 2,040 556,913 1,307,582 1,517 Professional, scientific, and technical services 458,133 821,738 3,825 507,940 832,407 4,735 Transportation and warehousing 453,630 703,976 1,746 422,643 633,267 3,496 Accommodation and food services 389,591 503,990 705 399,915 512,025 596 Retail trade 345,944 620,308 5,273 332,367 538,135 7,386 Administrative and support and waste management and remediation services 321,018 487,359 347 315,785 446,655 13,860 Educational services 263,539 406,867 7 210,850 378,955 3,750 Agriculture, forestry, fishing, and hunting 255,811 392,098 415 261,355 382,376 996 Public administration 216,939 285,963 — 231,453 325,834 846 Other services 208,012 400,195 9,328 194,998 356,743 2,656 Other 816,592 1,111,030 1,537 743,943 1,122,409 739 Total $ 9,512,230 $ 15,398,600 $ 44,511 $ 9,508,904 $ 15,057,301 $ 58,894 By Loan Size: Less than $200,000 3 % 3 % 5 % 3 % 3 % 3 % $200,000 to $1,000,000 11 10 20 11 11 20 $1,000,000 to $5,000,000 24 25 48 25 26 36 $5,000,000 to $10,000,000 16 16 7 15 15 24 $10,000,000 to $25,000,000 31 28 20 31 27 17 Greater than $25,000,000 15 18 — 15 18 — Total 100 % 100 % 100 % 100 % 100 % 100 % (1) Includes unfunded loan commitments.
The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet within accrued expenses and other liabilities, while the corresponding provision for unfunded loan commitments is included in the provision for credit losses.
The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet within accrued expenses and other liabilities, while the corresponding provision for unfunded loan commitments is included in the provision for credit losses.
For additional information about non-performing loans, charge-offs, and additional items impacting the provision, refer to the “Risk Management – Credit Risk” section of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Noninterest Income We generate revenues in the form of noninterest income through client fees, sales commissions, and gains and losses from our core banking franchise and other related businesses, such as wealth management, investment consulting, and investment products.
For additional information about non-performing loans, charge-offs, and additional items impacting the provision, refer to the “Risk Management – Credit Risk” section of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 46 Noninterest Income We generate revenues in the form of noninterest income through client fees, sales commissions, and gains and losses from our core banking franchise and other related businesses, such as wealth management, investment consulting, and investment products.
Recognizing that inadvertent violations may occur, risk management activities are established to promptly identify, analyze, and, if necessary, remediate compliance and regulatory issues to limit compliance risk exposure. Legal Risk Legal risk generally results from unidentified or unmitigated risks that could result in lawsuits or adverse judgments that negatively affect the operations or condition of the Company.
Recognizing that inadvertent violations may occur, risk management activities are established to promptly identify, analyze, and, if necessary, remediate compliance and regulatory issues to limit compliance risk exposure. Legal Risk Legal risk generally results from unidentified or unmitigated risks that could result in lawsuits or adverse judgments that negatively affect the operations or financial condition of the Company.
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.
For analytical purposes, net interest income is presented in the table that follows, adjusted to a taxable equivalent basis to reflect what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset. We used the current federal statutory tax rate in effect of 21% for all periods.
These non-GAAP measures are valuable indicators of a financial institution’s capital strength since they eliminate intangible assets from shareholders’ equity and retain the effect of AOCI in shareholders’ equity. Although intended to enhance investors’ understanding of the Company’s business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP.
These non-GAAP measures are valuable indicators of a financial institution’s capital strength since they eliminate intangible assets from shareholders’ equity and retain the effect of AOCI in shareholders’ equity. Although intended to enhance understanding of the Company’s business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP.
We continually monitor and internally report on weaknesses in the internal control environment, third party risks, privacy and data governance, cyber-attacks, information security or data breaches; damage to physical assets; employee and workplace safety; execution, delivery, and process management; external and internal fraud; and model risk management.
We continually monitor and internally report on weaknesses in the internal control environment; third party risks; privacy and data governance; cyber-attacks; information security or data breaches; damage to physical assets; employee and workplace safety; execution, delivery, and process management; external and internal fraud; model risk management; and other risks.
For this reason, we model many different combinations of interest rates and balance sheet assumptions to understand our overall sensitivity to market interest rate changes, including shocks, ramps, yield curve flattening, yield curve steepening, as well as forecasts of likely interest rate scenarios tested.
For this reason, we model many different combinations of interest rates and balance sheet assumptions to understand our overall sensitivity to market interest 62 rate changes, including shocks, ramps, yield curve flattening, yield curve steepening, as well as forecasts of likely interest rate scenarios tested.
Old National served as custodian for health savings accounts comprised of both investment accounts and deposit accounts. At closing, the health savings accounts held in deposit accounts that were transferred totaled approximately $382 million and the transaction resulted in a $90.7 million pre-tax gain.
Old National served as custodian for health savings accounts comprised of both investment accounts and deposit accounts. At closing, the health savings accounts held in deposit accounts that were transferred totaled approximately $382 million and the transaction resulted in a $90.7 million pre-tax gain in 2022.
The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses on loans has two basic components: first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans; and second, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics. 56 The loan categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses on loans.
The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses on loans has two basic components: first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans; and second, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics. 57 The loan categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses on loans.
We use wholesale funding to augment deposit funding and to help maintain our desired interest rate risk position. Wholesale funding as a percentage of total funding was 14% at December 31, 2022, compared to 12% at December 31, 2021. See Notes 11, 12, and 13 to the consolidated financial statements for additional details on our financing activities.
We use wholesale funding to augment deposit funding and to help maintain our desired interest rate risk position. Wholesale funding as a percentage of total funding was 13% at December 31, 2023, compared to 14% at December 31, 2022. See Notes 11, 12, and 13 to the consolidated financial statements for additional details on our financing activities.
For residential and consumer loans, the PD is forecasted using a regression model to determine the likelihood of a loan being charged-off within the time horizon. The regression models use combinations 65 of variables to assess systematic and unsystematic risk. Variables used for unsystematic risk are borrower specific and help to gauge the risk of default from an individual borrower.
For residential and consumer loans, the PD is forecasted using a regression model to determine the likelihood of a loan being charged-off within the time horizon. The regression models use combinations of variables to 66 assess systematic and unsystematic risk. Variables used for unsystematic risk are borrower specific and help to gauge the risk of default from an individual borrower.
However, if in the future the derivative financial instruments used by us no longer qualify for hedge accounting treatment, all changes in fair value of the derivative would flow through the consolidated statements of income in other noninterest income, resulting in greater volatility in our earnings. 66 Income Taxes • Description.
However, if in the future the derivative financial instruments used by us no longer qualify for hedge accounting treatment, all changes in fair value of the derivative would flow through the consolidated statements of income in other noninterest income, resulting in greater volatility in our earnings. 67 Income Taxes • Description.
We continually monitor marketplace trends to identify patterns that might improve the predictability of the timing of deposit flows or asset prepayments. A maturity schedule for Old National Bank’s time deposits is shown in the following table at December 31, 2022.
We continually monitor marketplace trends to identify patterns that might improve the predictability of the timing of deposit flows or asset prepayments. A maturity schedule for Old National Bank’s time deposits is shown in the following table at December 31, 2023.
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 63 and internal audit functions, respectively.
It is Old National’s 64 policy to comply with the letter and intent of all applicable regulatory requirements. Management, the first line of defense, is responsible for ensuring this expectation is met, with oversight from the second and third lines of defense, the risk and internal audit functions, respectively.
(2) Includes loans held for sale. 42 The following table presents fluctuations in taxable equivalent net interest income attributable to changes in the average balances of assets and liabilities and the yields earned or rates paid for the years ended December 31.
(2) Includes loans held-for-sale. 44 The following table presents fluctuations in taxable equivalent net interest income attributable to changes in the average balances of assets and liabilities and the yields earned or rates paid for the years ended December 31.
The allowance for credit losses on loans was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures.
The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures.
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.
Investment Securities We classify the majority of our investment securities as available-for-sale to give management the flexibility to sell the securities prior to maturity based on fluctuating interest rates or changes in our funding requirements.
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. MATERIAL CONTRACTUAL OBLIGATIONS, COMMITMENTS, AND CONTINGENT LIABILITIES The following table presents our material fixed and determinable contractual obligations and significant commitments at December 31, 2022.
The Board of Directors expects that we will perform business in a manner compliant with applicable laws, rules, and regulations and expects issues to be identified, analyzed, and remediated in a timely and complete manner. MATERIAL CONTRACTUAL OBLIGATIONS, COMMITMENTS, AND CONTINGENT LIABILITIES The following table presents our material fixed and determinable contractual obligations and significant commitments at December 31, 2023.
Business practices must be executed, as well as products and services delivered, in a manner that is compliant with laws, regulatory requirements, and agreements to which we are a party. Corporate governance practices must be compliant with applicable legal requirements and aligned with market practices.
Business practices must be executed, as well as products and services delivered, in a manner that is compliant with applicable laws, rules, regulations, and agreements to which we are a party. Corporate governance practices must be compliant with applicable legal requirements and aligned with market practices.
Other factors include the level of accretion income on purchased loans, prepayment risk on mortgage and investment-related assets, and the composition and maturity of interest-earning assets and interest-bearing liabilities. Interest rates increased significantly during 2022.
Other factors include the level of accretion income on purchased loans, prepayment risk on mortgage and investment-related assets, and the composition and maturity of interest-earning assets and interest-bearing liabilities. Interest rates increased during 2023.
See the section of this Item 7 titled “Market Risk” for additional information regarding this risk. Loans typically generate more interest income than investment securities with similar maturities. Funding from client deposits generally costs less than wholesale funding sources.
See the section of this Item 7 titled “Risk Management — Market Risk” for additional information regarding this risk. Loans typically generate more interest income than investment securities with similar maturities. Funding from client deposits generally costs less than wholesale funding sources.
At December 31, 2022, Old National Bancorp’s other borrowings outstanding were $484.8 million. Management believes the Company has the ability to generate and obtain adequate amounts of liquidity to meet its requirements in the short-term and the long-term.
At December 31, 2023, Old National Bancorp’s other borrowings outstanding were $479.8 million. Management believes the Company has the ability to generate and obtain adequate amounts of liquidity to meet its requirements in the short-term and the long-term.
The increase in the net interest margin on a fully taxable equivalent basis in 2022 when compared to 2021 was primarily due to higher yields on interest earning assets, partially offset by higher costs of interest-bearing liabilities.
The increase in the net interest margin on a fully taxable equivalent basis in 2023 when compared to 2022 was primarily due to higher yields on interest earning assets, substantially offset by higher costs of interest-bearing liabilities.
The Federal Reserve’s Federal Funds range is currently in a target range of 4.25% to 4.50%, with the Effective Federal Funds Rate at 4.33% at December 31, 2022. The Federal Reserve is expected to continue to increase the Federal Funds Rate into 2023. Management actively takes balance sheet restructuring, derivative, and deposit pricing actions to help mitigate interest rate risk.
The Federal Reserve’s Federal Funds range is currently in a target range of 5.25% to 5.50%, with the Effective Federal Funds Rate at 5.33% at December 31, 2023, and 4.33% at December 31, 2022. Management actively takes balance sheet restructuring, derivative, and deposit pricing actions to help mitigate interest rate risk.
At December 31, 2022, our average commercial loan size was approximately $560,000 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 December 31, 2023, our average commercial loan size was approximately $600,000 and our average commercial real estate loan size was approximately $1,400,000. In addition, while loans to lessors of residential and non-residential real estate exceed 10% of total loans, no individual sub-segment category within those broader categories reaches the 10% threshold.
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.
Changes in these factors, as well as downturns in economic or business conditions, could have a significant adverse impact on the carrying value of assets, including goodwill and liabilities, which could result in impairment losses affecting our financial statements as a whole and our banking subsidiary in which the goodwill resides. Allowance for Credit Losses on Loans • Description.
The major difference between the effective tax rate applied to our financial statement income and the federal statutory tax rate is caused by a tax benefit from our tax credit investments and interest on tax-exempt securities and loans. The effective tax rate was 21.4% in 2022 compared to 18.1% in 2021.
The major difference between the effective tax rate applied to our financial statement income and the federal statutory tax rate is caused by a tax benefit from our tax credit investments and interest on tax-exempt securities and loans. The effective tax rate was 22.5% in 2023 compared to 21.4% in 2022.
If nonaccrual and renegotiated loans outstanding at December 31, 2022 and 2021, respectively, had been accruing interest throughout the year in accordance with their original terms, interest income of approximately $7.9 million in 2022 and $5.1 million in 2021 would have been recorded on these loans.
If nonaccrual and renegotiated loans outstanding at December 31, 2023 and 2022, respectively, had been accruing interest throughout the year in accordance with their original terms, interest income of approximately $13.4 million in 2023 and $7.9 million in 2022 would have been recorded on these loans.
In management’s view, tangible common equity measures are capital adequacy metrics that may be meaningful to the Company, as well as analysts and investors, in assessing the Company’s use of equity and in facilitating comparisons with peers.
In management’s view, tangible common equity measures are capital adequacy metrics that may be meaningful to the Company, as well as users of the financial statements, in assessing the Company’s use of equity and in facilitating comparisons with peers.
Prior regulatory approval to pay dividends was not required in 2021 or 2022 and is not currently required. At December 31, 2022, Old National Bank could pay dividends of $303.7 million without prior regulatory approval and while maintaining capital levels above regulatory minimum and well-capitalized guidelines.
Prior regulatory approval to pay dividends was not required in 2022 or 2023 and is not currently required. At December 31, 2023, Old National Bank could pay dividends of $670.4 million without prior regulatory approval and while maintaining capital levels above regulatory minimum and well-capitalized guidelines.
The increase in average earning assets in 2022 compared to 2021 was primarily due to the merger with First Midwest and strong loan growth. The loan portfolio, including loans held for sale, which generally has an average yield higher than the investment portfolio, was 71% of average interest earning assets in 2022, compared to 65% in 2021.
The increase in average earning assets in 2023 compared to 2022 was primarily due to the full-year impact of the merger with First Midwest and strong loan growth. The loan portfolio, including loans held-for-sale, which generally has an average yield higher than the investment portfolio, was 75% of average interest earning assets in 2023, compared to 71% in 2022.
Compliance and Regulatory Risk Compliance and regulatory risk is the risk that the Company violated or was not in compliance with applicable laws, regulations or practices, industry standards, or ethical standards.
Compliance and Regulatory Risk Compliance and regulatory risk is the risk that the Company violated or was not in compliance with applicable laws, rules, regulations, regulatory guidance and policies, industry standards, or ethical standards.
The investment securities available-for-sale portfolio including securities hedges had an effective duration of 4.57 at December 31, 2022, compared to 4.26 at December 31, 2021. The total investment securities portfolio had an effective duration of 6.45 at December 31, 2022.
The investment securities available-for-sale portfolio including securities hedges had an effective duration of 4.24 at December 31, 2023, compared to 4.57 at December 31, 2022. The total investment securities portfolio had an effective duration of 5.35 at December 31, 2023, compared to 6.45 at December 31, 2022.
The weighted average yields on investment securities, on a taxable equivalent basis, were 2.50% in 2022 and 2.10% in 2021. Loan Portfolio We lend primarily to consumers and small to medium-sized commercial and commercial real estate clients in many diverse industries including, among others, real estate rental and leasing, manufacturing, healthcare, wholesale trade, construction, and agriculture.
The weighted average yields on investment securities, on a taxable equivalent basis, were 3.18% in 2023 and 2.50% in 2022. Loan Portfolio We lend to commercial and commercial real estate clients in many diverse industries including real estate rental and leasing, manufacturing, healthcare, wholesale trade, construction, and agriculture, among others.
Comparison of Fiscal Years 2022 and 2021 Net Interest Income Net interest income is the most significant component of our earnings, comprising 77% of 2022 revenues. Net interest income and net interest margin are influenced by many factors, primarily the volume and mix of earning assets, funding sources, and interest rate fluctuations.
Net Interest Income Net interest income is the most significant component of our earnings, comprising 82% of 2023 revenues. Net interest income and net interest margin are influenced by many factors, primarily the volume and mix of earning assets, funding sources, and interest rate fluctuations.
The committee monitors credit quality through its review of information such as delinquencies, credit exposures, peer comparisons, problem loans, and charge-offs. In addition, the committee provides oversight of loan policy changes as recommended by management to assure our policy remains appropriate for the current lending environment.
The committee 55 monitors credit quality through its general review of information such as delinquencies, credit exposures, peer comparisons, problem loans, and charge-offs. In addition, the committee provides oversight of loan policy changes as recommended by management with the objective of maintaining an appropriate lending policy for the current lending environment.
This source of revenue as a percentage of total revenue was 23% in 2022 compared to 26% in 2021.
This source of revenue as a percentage of total revenue was 18% in 2023 compared to 23% in 2022.
As a percentage of nonaccrual loans, the allowance for credit losses on loans was 127.50% at December 31, 2022, compared to 100.61% at December 31, 2021.
As a percentage of nonaccrual loans, the allowance for credit losses on loans was 111.93% at December 31, 2023, compared to 127.50% at December 31, 2022.
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 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.
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 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.
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. 59 The following table details the allowance for credit losses on loans by loan category and the percent of loans in each category compared to total loans at December 31. 2022 2021 (dollars in thousands) Allowance Amount % of Loans to Total Loans Allowance Amount % of Loans to Total Loans Commercial $ 120,612 29.9 % $ 27,232 23.5 % Commercial real estate 138,244 39.5 64,004 45.8 BBCC 2,431 1.2 2,458 2.6 Residential real estate 21,916 20.8 9,347 16.6 Indirect 1,532 3.3 1,743 6.4 Direct 12,116 2.0 528 1.0 Home equity 6,820 3.3 2,029 4.1 Total $ 303,671 100.0 % $ 107,341 100.0 % We maintain an allowance for credit losses on unfunded loan commitments to provide for the risk of loss inherent in these arrangements.
Additionally, provision expense may be volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, which drive the allowance for credit losses balance. 60 The following table details the allowance for credit losses on loans by loan category and the percent of loans in each category compared to total loans at December 31. 2023 2022 (dollars in thousands) Allowance Amount % of Loans to Total Loans Allowance Amount % of Loans to Total Loans Commercial $ 118,333 28.1 % $ 120,612 29.9 % Commercial real estate 155,099 42.4 138,244 39.5 BBCC 2,887 1.2 2,431 1.2 Residential real estate 20,837 20.3 21,916 20.8 Indirect 1,236 3.2 1,532 3.3 Direct 3,169 1.6 12,116 2.0 Home equity 6,049 3.2 6,820 3.3 Total $ 307,610 100.0 % $ 303,671 100.0 % We maintain an allowance for credit losses on unfunded loan commitments to provide for the risk of loss inherent in these arrangements.
(2) Calculated using management’s estimate of the annual fully taxable equivalent rates (federal and state). 40 RESULTS OF OPERATIONS The following table sets forth certain income statement information of Old National: Years Ended December 31, (dollars in thousands, except per share data) 2022 2021 2020 Income Statement Summary: Net interest income $ 1,327,936 $ 596,400 $ 596,094 Provision for credit losses 144,799 (29,622) 42,879 Noninterest income 399,779 214,219 239,274 Noninterest expense 1,038,183 501,379 536,933 Net income applicable to common shareholders 414,169 277,538 226,409 Net income per common share - diluted 1.50 1.67 1.36 Other Data: Return on average common equity 8.92 % 9.26 % 7.87 % Return on tangible common equity (1) 15.72 % 14.74 % 12.54 % Return on average tangible common equity (1) 16.34 % 14.89 % 13.27 % Efficiency ratio (1) 57.97 % 59.75 % 62.38 % Efficiency ratio (prior presentation) (2) N/A 59.65 % 62.91 % Tier 1 leverage ratio 8.52 % 8.59 % 8.20 % Net charge-offs (recoveries) to average loans 0.06 % (0.03) % 0.02 % (1) Represents a non-GAAP financial measure.
(2) Calculated using management’s estimate of the annual fully taxable equivalent rates (federal and state). 42 RESULTS OF OPERATIONS The following table sets forth certain income statement information of Old National: Years Ended December 31, (dollars in thousands, except per share data) 2023 2022 2021 Income Statement Summary: Net interest income $ 1,503,153 $ 1,327,936 $ 596,400 Provision (release) for credit losses 58,887 144,799 (29,622) Noninterest income 333,342 399,779 214,219 Noninterest expense 1,026,306 1,038,183 501,379 Net income applicable to common shareholders 565,857 414,169 277,538 Net income per common share – diluted 1.94 1.50 1.67 Other Data: Return on average common equity 11.29 % 8.92 % 9.26 % Return on average tangible common equity (1) 20.15 % 16.34 % 14.89 % Efficiency ratio (1) 53.70 % 57.97 % 59.75 % Efficiency ratio (prior presentation) (2) N/A N/A 59.65 % Tier 1 leverage ratio 8.83 % 8.52 % 8.59 % Net charge-offs (recoveries) to average loans 0.17 % 0.06 % (0.03) % (1) Represents a non-GAAP financial measure.
(2) Interest on investment securities and loans includes the effect of taxable equivalent adjustments of $11.5 million and $6.9 million, respectively, in 2022; $9.9 million and $4.0 million, respectively, in 2021; and $8.9 million and $4.7 million, respectively, in 2020; using the federal statutory tax rate in effect of 21%.
(2) Interest on investment securities includes the effect of taxable equivalent adjustments of $11.5 million in 2023, $11.5 million in 2022, and $9.9 million in 2021; using the federal statutory tax rate in effect of 21%.
In early December of 2022, Old National implemented several enhancements to its overdraft protection programs to provide clients with more flexibility. The changes included the elimination of the non-sufficient fund (“NSF”) fee when an item is returned, among other modifications that benefit consumers that will impact service charges on deposit accounts.
Service charges on deposit accounts decreased modestly in 2023 as a result of several enhancements to overdraft protection programs implemented in late 2022 to provide clients with more flexibility. The changes included the elimination of the non-sufficient fund (“NSF”) fee when an item is returned, among other modifications that benefit consumers.
Earning Assets Our earning assets are comprised of investment securities, portfolio loans, loans held for sale, money market investments, interest earning accounts with the Federal Reserve, and equity securities. Earning assets were $41.6 billion at December 31, 2022, an increase of $19.8 billion compared to earning assets of $21.9 billion at December 31, 2021.
Earning Assets Our earning assets are comprised of investment securities, portfolio loans, loans held-for-sale, money market investments, interest earning accounts with the Federal Reserve, and equity securities. Earning assets were $43.9 billion at December 31, 2023, an increase of $2.3 billion compared to earning assets of $41.6 billion at December 31, 2022 driven primarily by loan growth.
The Risk Appetite Statement addresses the following major risks: strategic, market, liquidity, credit, operational, talent management, compliance and regulatory, legal, and reputational. Our Chief Risk Officer is independent of all other management and provides quarterly reports to the Board’s Enterprise Risk Committee.
The Risk Appetite Statement addresses the following major risks: strategic, market, liquidity, credit, operational, talent management, compliance and regulatory, legal, and reputational. Our Chief Risk Officer provides quarterly reports to the Board’s Enterprise Risk Committee on various risk topics. The following discussion addresses certain of these major risks including credit, market, liquidity, operational, compliance and regulatory, and legal.
However, deposit flows, calls of investment securities, and prepayments of loans and mortgage-related securities are not as predictable as they are strongly influenced by interest rates, the housing market, general and local economic conditions, and competition in the marketplace.
Loan repayments and maturing investment securities are a relatively predictable source of funds. However, deposit flows, calls of investment securities, and prepayments of loans and mortgage-related securities are not as predictable as they are strongly influenced by interest rates, events at other banking organizations, the housing market, general and local economic conditions, and competition in the marketplace.
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.
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.
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.
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.
Average loans including loans held for sale increased $13.8 billion in 2022 compared to 2021 primarily due to the First Midwest merger and strong organic loan growth.
Average loans, including loans held-for-sale, increased $4.6 billion in 2023 compared to 2022 primarily due to the full-year impact of the First Midwest merger and strong organic loan growth.
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.
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.
During 2022, we transferred $3.0 billion of securities available-for-sale to held-to-maturity due to rising interest rates and related effects on the value of our investment securities. Equity securities are recorded at fair value and totaled $52.5 million at December 31, 2022 compared to $13.2 million at December 31, 2021.
During 2022, we transferred $3.0 billion of securities available-for-sale to held-to-maturity due to rising interest rates and related effects on the value of our investment securities. The investment securities portfolio, including equity securities, was $10.2 billion at both December 31, 2023 and December 31, 2022.
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.
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.
Provision for Income Taxes We record a provision for income taxes currently payable and for income taxes payable or benefits to be received in the future, which arise due to timing differences in the recognition of certain items for financial statement and income tax purposes.
These actions resulted in expenses totaling $26.8 million associated with valuation adjustments related to these locations in 2022. 48 Provision for Income Taxes We record a provision for income taxes currently payable and for income taxes payable or benefits to be received in the future, which arise due to timing differences in the recognition of certain items for financial statement and income tax purposes.
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.
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.
At December 31, 2022, we had minimal exposure to foreign borrowers and no sovereign debt. Our policy is to concentrate our lending activity in the geographic market areas we serve, primarily in the Midwest region. On February 15, 2022, Old National closed on its merger of equals transaction with First Midwest.
At December 31, 2023, we had minimal exposure to foreign borrowers and no sovereign debt. Our policy is to concentrate our lending activity in the geographic market areas we serve, primarily in the Midwest region.
The allowance is computed using a methodology similar to that used to determine the allowance for credit losses on loans, modified to take into account the probability of a drawdown on the commitment.
We maintain an allowance for credit losses on unfunded loan commitments to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses on loans, modified to take into account the probability of a drawdown on the commitment.
(6) Includes the allowance for credit losses on loans and unfunded loan commitments. 36 The following table sets forth certain financial highlights of Old National for the year-to-date periods: Years Ended December 31, (dollars and shares in thousands, except per share data) 2022 2021 Income Statement: Net interest income $ 1,327,936 $ 596,400 Taxable equivalent adjustment (1) 18,414 13,913 Net interest income - taxable equivalent basis 1,346,350 610,313 Provision for credit losses (2) 144,799 (29,622) Noninterest income 399,779 214,219 Noninterest expense (2) 1,038,183 501,379 Net income available to common shareholders $ 414,169 $ 277,538 Per Common Share Data: Weighted average diluted common shares 276,688 165,929 Net income (diluted) $ 1.50 $ 1.67 Cash dividends $ 0.56 $ 0.56 Common dividend payout ratio (3) 37 % 33 % Book value $ 16.68 $ 18.16 Stock price 17.98 18.12 Tangible common book value (4) 9.42 11.70 Performance Ratios: Return on average assets 0.99 % 1.17 % Return on average common equity 8.92 9.26 Return on tangible common equity (4) 15.72 14.74 Return on average tangible common equity (4) 16.34 14.89 Net interest margin (4) 3.47 2.89 Efficiency ratio (4) 57.97 59.75 Efficiency ratio (prior presentation) (5) N/A 59.65 Net charge-offs (recoveries) to average loans 0.06 (0.03) Allowance for credit losses on loans to ending loans 0.98 0.79 Allowance for credit losses (6) to ending loans 1.08 0.87 Non-performing loans to ending loans 0.81 0.92 Balance Sheet: Total loans $ 31,123,641 $ 13,601,846 Total assets 46,763,372 24,453,564 Total deposits 35,000,830 18,569,195 Total borrowed funds 5,586,314 2,575,240 Total shareholders' equity 5,128,595 3,012,018 Capital Ratios: Risk-based capital ratios: Tier 1 common equity 10.03 % 12.04 % Tier 1 10.71 12.04 Total 12.02 12.77 Leverage ratio (to average assets) 8.52 8.59 Total equity to assets (averages) 11.23 12.60 Tangible common equity to tangible assets (4) 6.18 8.30 Nonfinancial Data: Full-time equivalent employees 3,967 2,374 Banking centers 263 162 (1) Calculated using the federal statutory tax rate in effect of 21% for all periods.
(4) Includes the allowance for credit losses on loans and unfunded loan commitments. 38 The following table sets forth certain financial highlights of Old National for the year-to-date periods: Years Ended December 31, (dollars and shares in thousands, except per share data) 2023 2022 Income Statement: Net interest income $ 1,503,153 $ 1,327,936 Taxable equivalent adjustment (1) (3) 23,428 18,414 Net interest income – taxable equivalent basis (3) 1,526,581 1,346,350 Provision (release) for credit losses 58,887 144,799 Noninterest income 333,342 399,779 Noninterest expense 1,026,306 1,038,183 Net income available to common shareholders 565,857 414,169 Per Common Share Data: Weighted average diluted common shares 291,855 276,688 Net income (diluted) $ 1.94 $ 1.50 Cash dividends $ 0.56 $ 0.56 Common dividend payout ratio (2) 29 % 37 % Book value $ 18.18 $ 16.68 Stock price 16.89 17.98 Tangible common book value (3) 11.00 9.42 Performance Ratios: Return on average assets 1.21 % 0.99 % Return on average common equity 11.29 8.92 Return on average tangible common equity (3) 20.15 16.34 Net interest margin (3) 3.54 3.47 Efficiency ratio (3) 53.70 57.97 Net charge-offs to average loans 0.17 0.06 Allowance for credit losses on loans to ending loans 0.93 0.98 Allowance for credit losses (4) to ending loans 1.03 1.08 Non-performing loans to ending loans 0.83 0.81 Balance Sheet: Total loans $ 32,991,927 $ 31,123,641 Total assets 49,089,836 46,763,372 Total deposits 37,235,180 35,000,830 Total borrowed funds 5,331,147 5,586,314 Total shareholders’ equity 5,562,900 5,128,595 Capital Ratios: Risk-based capital ratios: Tier 1 common equity 10.70 % 10.03 % Tier 1 11.35 10.71 Total 12.64 12.02 Leverage ratio (to average assets) 8.83 8.52 Total equity to assets (averages) 10.91 11.23 Tangible common equity to tangible assets (3) 6.85 6.18 Nonfinancial Data: Full-time equivalent employees 3,940 3,967 Banking centers 258 263 (1) Calculated using the federal statutory tax rate in effect of 21% for all periods.
As of December 31, 2022, we had no intent to sell any securities that were in an unrealized loss position nor is it expected that we would be required to sell the securities prior to their anticipated recovery. 46 The investment securities available-for-sale portfolio had net unrealized losses of $844.4 million at December 31, 2022, compared to net unrealized losses of $6.0 million at December 31, 2021.
Investment securities represented 23% of earning assets at December 31, 2023, compared to 25% at December 31, 2022. As of December 31, 2023, we had no intent to sell any securities that were in an unrealized loss position nor is it expected that we would be required to sell the securities prior to their anticipated recovery.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page General Overview 34 Corporate Developments in Fiscal 20 2 2 34 Business Outlook 35 Financial Highlights 36 Non-GAAP Financial Measures 38 Results of Operations 41 Financial Condition 46 Risk Management 52 Material Contractual Obligations, Commitments, and Contingent Liabilities 64 Critical Accounting Estimates 64 The following discussion is an analysis of our results of operations for the fiscal years ended December 31, 2022, 2021, and 2020, and financial condition as of December 31, 2022 and 2021.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page General Overview 36 Corporate Developments in Fiscal 202 3 36 Business Outlook 37 Financial Highlights 38 Non-GAAP Financial Measures 40 Results of Operations 43 Financial Condition 49 Risk Management 54 Material Contractual Obligations, Commitments, and Contingent Liabilities 65 Critical Accounting Estimates 65 The following is an analysis generally discussing our results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022, and financial condition as of December 31, 2023 and 2022.
Moody's Investors Service Long-term Short-term Old National A3 N/A Old National Bank Aa3 P-1 62 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.
The credit ratings of Old National and Old National Bank at December 31, 2023 are shown in the following table. Moody's Investors Service Long-term Short-term Old National Baa1 N/A Old National Bank A1 P-1 63 Old National Bank maintains relationships in capital markets with brokers and dealers to issue certificates of deposit and short-term and medium-term bank notes as well.
Therefore, management believes these measures provide useful information for both management and investors by allowing them to make better peer comparisons. 41 The following table presents a three-year average balance sheet and for each major asset and liability category, its related interest income and yield, or its expense and rate for the years ended December 31. 2022 2021 2020 (Taxable equivalent basis, dollars in thousands) Average Balance Income (1) / Expense Yield/ Rate Average Balance Income (1) / Expense Yield/ Rate Average Balance Income (1) / Expense Yield/ Rate Earning Assets Money market and other interest- earning investments $ 812,296 $ 2,814 0.35 % $ 450,158 $ 589 0.13 % $ 174,494 $ 568 0.33 % Investment securities: Treasury and government- sponsored agencies 2,290,229 47,932 2.09 1,573,855 24,209 1.54 547,054 12,124 2.22 Mortgage-backed securities 5,562,442 129,411 2.33 3,356,950 60,479 1.80 3,246,520 70,611 2.17 States and political subdivisions 1,805,433 57,688 3.20 1,548,939 50,115 3.24 1,347,490 47,034 3.49 Other securities 687,926 24,133 3.51 443,606 10,680 2.41 485,430 11,990 2.47 Total investment securities 10,346,030 259,164 2.50 6,923,350 145,483 2.10 5,626,494 141,759 2.52 Loans: (2) Commercial 8,252,237 397,228 4.81 3,763,099 138,063 3.67 3,843,089 140,473 3.66 Commercial real estate 11,147,967 489,499 4.39 6,168,146 228,568 3.71 5,477,562 234,670 4.28 Residential real estate loans 5,622,901 201,637 3.59 2,269,989 83,578 3.68 2,352,444 94,202 4.00 Consumer 2,570,355 122,274 4.76 1,577,467 56,281 3.57 1,684,598 65,222 3.87 Total loans 27,593,460 1,210,638 4.39 13,778,701 506,490 3.68 13,357,693 534,567 4.00 Total earning assets 38,751,786 $ 1,472,616 3.80 % 21,152,209 $ 652,562 3.09 % 19,158,681 $ 676,894 3.53 % Less: Allowance for credit losses on loans (261,534) (117,436) (115,321) Non-Earning Assets Cash and due from banks 355,391 256,860 327,053 Other assets 4,404,057 2,492,054 2,414,602 Total assets $ 43,249,700 $ 23,783,687 $ 21,785,015 Interest-Bearing Liabilities Checking and NOW accounts $ 8,104,844 $ 21,321 0.26 % $ 4,974,477 $ 2,080 0.04 % $ 4,465,120 $ 5,450 0.12 % Savings accounts 6,342,697 3,367 0.05 3,648,019 2,003 0.05 3,113,435 3,156 0.10 Money market accounts 4,961,159 11,882 0.24 2,092,661 1,756 0.08 1,866,197 4,585 0.25 Time deposits 2,358,731 12,523 0.53 1,020,359 5,115 0.50 1,421,216 14,978 1.05 Total interest-bearing deposits 21,767,431 49,093 0.23 11,735,516 10,954 0.09 10,865,968 28,169 0.26 Federal funds purchased and interbank borrowings 151,243 5,021 3.32 1,113 — — 138,257 1,296 0.94 Securities sold under agreements to repurchase 440,619 843 0.19 392,777 397 0.10 375,961 854 0.23 FHLB advances 2,986,006 51,524 1.73 1,902,407 21,075 1.11 2,055,155 27,274 1.33 Other borrowings 619,659 19,785 3.19 269,484 9,823 3.65 242,642 9,621 3.96 Total borrowed funds 4,197,527 77,173 1.84 2,565,781 31,295 1.22 2,812,015 39,045 1.39 Total interest-bearing liabilities $ 25,964,958 $ 126,266 0.49 % $ 14,301,297 $ 42,249 0.30 % $ 13,677,983 $ 67,214 0.49 % Noninterest-Bearing Liabilities and Shareholders' Equity Demand deposits 11,750,306 6,163,937 4,945,506 Other liabilities 676,940 320,933 286,066 Shareholders' equity 4,857,496 2,997,520 2,875,460 Total liabilities and shareholders' equity $ 43,249,700 $ 23,783,687 $ 21,785,015 Net interest income - taxable equivalent basis $ 1,346,350 3.47 % $ 610,313 2.89 % $ 609,680 3.18 % Taxable equivalent adjustment (18,414) (13,913) (13,586) Net interest income (GAAP) $ 1,327,936 3.43 % $ 596,400 2.82 % $ 596,094 3.11 % (1) Interest income is reflected on a fully taxable equivalent basis.
Management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully taxable equivalent basis and that it may enhance comparability for peer comparison purposes for both management and investors. 43 The following table presents a three-year average balance sheet and for each major asset and liability category, its related interest income and yield, or its expense and rate for the years ended December 31. 2023 2022 2021 (Taxable equivalent basis, dollars in thousands) Average Balance Income (1) / Expense Yield/ Rate Average Balance Income (1) / Expense Yield/ Rate Average Balance Income (1) / Expense Yield/ Rate Earning Assets Money market and other interest- earning investments $ 826,453 $ 39,683 4.80 % $ 812,296 $ 2,814 0.35 % $ 450,158 $ 589 0.13 % Investment securities: Treasury and government- sponsored agencies 2,322,792 84,771 3.65 2,290,229 47,932 2.09 1,573,855 24,209 1.54 Mortgage-backed securities 5,178,940 136,827 2.64 5,562,442 129,411 2.33 3,356,950 60,479 1.80 States and political subdivisions 1,749,722 57,847 3.31 1,805,433 57,688 3.20 1,548,939 50,115 3.24 Other securities 776,456 39,166 5.04 687,926 24,133 3.51 443,606 10,680 2.41 Total investment securities 10,027,910 318,611 3.18 10,346,030 259,164 2.50 6,923,350 145,483 2.10 Loans: (2) Commercial 9,570,639 639,131 6.68 8,252,237 397,228 4.81 3,763,099 138,063 3.67 Commercial real estate 13,405,946 825,053 6.15 11,147,967 489,499 4.39 6,168,146 228,568 3.71 Residential real estate loans 6,646,684 243,646 3.67 5,622,901 201,637 3.59 2,269,989 83,578 3.68 Consumer 2,618,098 164,125 6.27 2,570,355 122,274 4.76 1,577,467 56,281 3.57 Total loans 32,241,367 1,871,955 5.81 27,593,460 1,210,638 4.39 13,778,701 506,490 3.68 Total earning assets 43,095,730 $ 2,230,249 5.18 % 38,751,786 $ 1,472,616 3.80 % 21,152,209 $ 652,562 3.09 % Less: Allowance for credit losses on loans (302,486) (261,534) (117,436) Non-Earning Assets Cash and due from banks 413,569 355,391 256,860 Other assets 4,945,394 4,404,057 2,492,054 Total assets $ 48,152,207 $ 43,249,700 $ 23,783,687 Interest-Bearing Liabilities Checking and NOW accounts $ 7,664,183 $ 94,263 1.23 % $ 8,104,844 $ 21,321 0.26 % $ 4,945,435 $ 2,065 0.04 % Savings accounts 5,638,766 14,941 0.26 6,342,697 3,367 0.05 3,648,019 2,003 0.05 Money market accounts 7,249,497 206,634 2.85 4,961,159 11,882 0.24 2,080,332 1,750 0.08 Time deposits, excluding brokered deposits 3,875,984 123,428 3.18 2,312,935 10,801 0.47 1,020,359 5,105 0.50 Brokered deposits 913,349 45,094 4.94 45,796 1,722 3.76 41,371 31 0.08 Total interest-bearing deposits 25,341,779 484,360 1.91 21,767,431 49,093 0.23 11,735,516 10,954 0.09 Federal funds purchased and interbank borrowings 229,386 11,412 4.98 151,243 5,021 3.32 1,113 — — Securities sold under agreements to repurchase 332,853 3,299 0.99 440,619 843 0.19 392,777 397 0.10 FHLB advances 4,568,964 161,860 3.54 2,986,006 51,524 1.73 1,902,407 21,075 1.11 Other borrowings 822,471 42,737 5.20 619,659 19,785 3.19 269,484 9,823 3.65 Total borrowed funds 5,953,674 219,308 3.68 4,197,527 77,173 1.84 2,565,781 31,295 1.22 Total interest-bearing liabilities $ 31,295,453 $ 703,668 2.25 % $ 25,964,958 $ 126,266 0.49 % $ 14,301,297 $ 42,249 0.30 % Noninterest-Bearing Liabilities and Shareholders’ Equity Demand deposits 10,633,806 11,750,306 6,163,937 Other liabilities 968,635 676,940 320,933 Shareholders’ equity 5,254,313 4,857,496 2,997,520 Total liabilities and shareholders’ equity $ 48,152,207 $ 43,249,700 $ 23,783,687 Net interest income - taxable equivalent basis $ 1,526,581 3.54 % $ 1,346,350 3.47 % $ 610,313 2.89 % Taxable equivalent adjustment (23,428) (18,414) (13,913) Net interest income (GAAP) $ 1,503,153 3.49 % $ 1,327,936 3.43 % $ 596,400 2.82 % (1) Interest income is reflected on a fully taxable equivalent basis.
Derivatives designated as hedging instruments were in a net liability position with a fair value loss of $36.1 million at December 31, 2022, compared to a net asset position with a fair value gain of $1.3 million at December 31, 2021.
Derivatives designated as hedging instruments were in a net asset position with a fair value gain of $4.5 million at December 31, 2023, compared to a net liability position with a fair value loss of $36.1 million at December 31, 2022. See Note 19 to the consolidated financial statements for further discussion of derivative financial instruments.
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 measures the impact on net interest income relative to a base case scenario over a two-year cumulative horizon resulting from an immediate change in interest rates using multiple rate scenarios. The base case scenario assumes that the balance sheet and interest rates are held at current levels.
The portfolio segment reclassifications follow: Statement Balance Portfolio Segment Reclassifications After Reclassifications (dollars in thousands) December 31, 2022 Commercial $ 9,508,904 $ (210,280) $ 9,298,624 Commercial real estate 12,457,070 (158,322) 12,298,748 BBCC N/A 368,602 368,602 Residential real estate 6,460,441 — 6,460,441 Consumer 2,697,226 (2,697,226) N/A Indirect N/A 1,034,257 1,034,257 Direct N/A 629,186 629,186 Home equity N/A 1,033,783 1,033,783 Total $ 31,123,641 $ — $ 31,123,641 December 31, 2021 Commercial $ 3,391,769 $ (191,557) $ 3,200,212 Commercial real estate 6,380,674 (159,190) 6,221,484 BBCC N/A 350,747 350,747 Residential real estate 2,255,289 — 2,255,289 Consumer 1,574,114 (1,574,114) N/A Indirect N/A 873,139 873,139 Direct N/A 140,385 140,385 Home equity N/A 560,590 560,590 Total $ 13,601,846 $ — $ 13,601,846 57 The following table details activity in our allowance for credit losses on loans for the years ended December 31: (dollars in thousands) 2022 2021 2020 Beginning allowance for credit losses on loans $ 107,341 $ 131,388 $ 54,619 Allowance established for acquired PCD loans 89,089 — — Impact of adopting ASC 326 — — 41,347 Loans charged-off: Commercial 6,885 1,228 5,593 Commercial real estate 6,519 264 4,323 BBCC 85 144 95 Residential real estate 344 346 824 Indirect 2,525 1,087 2,754 Direct 10,799 1,159 1,763 Home equity 124 82 201 Total charge-offs 27,281 4,310 15,553 Recoveries on charged-off loans: Commercial 4,610 791 3,629 Commercial real estate 1,095 4,403 4,515 BBCC 281 105 140 Residential real estate 760 339 633 Indirect 1,263 1,682 1,922 Direct 2,557 777 819 Home equity 616 978 922 Total recoveries 11,182 9,075 12,580 Net charge-offs (recoveries) 16,099 (4,765) 2,973 Provision for credit losses on loans 123,340 (28,812) 38,395 Ending allowance for credit losses on loans $ 303,671 $ 107,341 $ 131,388 Beginning allowance for credit losses on unfunded loan commitments $ 10,879 $ 11,689 $ 2,656 Provision for credit losses on unfunded loan commitments acquired during the period 11,013 — — Impact of adopting ASC 326 — — 4,549 Provision for credit losses on unfunded loan commitments 10,296 (810) 4,484 Ending allowance for credit losses on unfunded loan commitments $ 32,188 $ 10,879 $ 11,689 Allowance for credit losses $ 335,859 $ 118,220 $ 143,077 Average loans for the year (1) $ 27,589,442 $ 13,766,590 $ 13,341,677 Asset Quality Ratios: Allowance for credit losses on loans/year-end loans (1) 0.98 % 0.79 % 0.95 % Allowance for credit losses on loans/average loans (1) 1.10 0.78 0.98 Allowance for credit losses/year-end loans (1) 1.08 0.87 1.04 Allowance for credit losses/average loans (1) 1.22 0.86 1.07 (1) Loans exclude loans held for sale. 58 The following table details net charge-offs to average loans outstanding by loan category for the years ended December 31: (dollars in thousands) 2022 2021 2020 Commercial: Net charge-offs (recoveries) $ 2,275 $ 437 $ 1,964 Average loans for the year $ 7,755,895 $ 3,553,527 $ 3,520,397 Net charge-offs (recoveries)/average loans 0.03 % 0.01 % 0.06 % Commercial real estate: Net charge-offs (recoveries) $ 5,424 $ (4,139) $ (192) Average loans for the year $ 11,292,033 $ 6,022,408 $ 5,436,791 Net charge-offs (recoveries)/average loans 0.05 % (0.07) % — % BBCC: Net charge-offs (recoveries) $ (196) $ 39 $ (45) Average loans for the year $ 352,276 $ 355,310 $ 363,463 Net charge-offs (recoveries)/average loans (0.06) % 0.01 % (0.01) % Residential real estate: Net charge-offs (recoveries) $ (416) $ 7 $ 191 Average loans for the year (1) $ 5,618,883 $ 2,257,878 $ 2,336,428 Net charge-offs (recoveries)/average loans (0.01) % — % 0.01 % Indirect: Net charge-offs (recoveries) $ 1,262 $ (595) $ 832 Average loans for the year $ 1,089,394 $ 879,525 $ 935,233 Net charge-offs (recoveries)/average loans 0.12 % (0.07) % 0.09 % Direct: Net charge-offs (recoveries) $ 8,242 $ 382 $ 944 Average loans for the year $ 559,943 $ 150,620 $ 195,795 Net charge-offs (recoveries)/average loans 1.47 % 0.25 % 0.48 % Home equity: Net charge-offs (recoveries) $ (492) $ (896) $ (721) Average loans for the year $ 921,018 $ 547,322 $ 553,570 Net charge-offs (recoveries)/average loans (0.05) % (0.16) % (0.13) % Total loans: Net charge-offs (recoveries) $ 16,099 $ (4,765) $ 2,973 Average loans for the year (1) $ 27,589,442 $ 13,766,590 $ 13,341,677 Net charge-offs (recoveries)/average loans 0.06 % (0.03) % 0.02 % (1) Average loans exclude loans held for sale.
The portfolio segment reclassifications follow: Statement Balance Portfolio Segment Reclassifications Portfolio Segment After Reclassifications (dollars in thousands) December 31, 2023 Commercial $ 9,512,230 $ (232,764) $ 9,279,466 Commercial real estate 14,140,629 (169,058) 13,971,571 BBCC N/A 401,822 401,822 Residential real estate 6,699,443 — 6,699,443 Consumer 2,639,625 (2,639,625) N/A Indirect N/A 1,050,982 1,050,982 Direct N/A 523,172 523,172 Home equity N/A 1,065,471 1,065,471 Total $ 32,991,927 $ — $ 32,991,927 December 31, 2022 Commercial $ 9,508,904 $ (210,280) $ 9,298,624 Commercial real estate 12,457,070 (158,322) 12,298,748 BBCC N/A 368,602 368,602 Residential real estate 6,460,441 — 6,460,441 Consumer 2,697,226 (2,697,226) N/A Indirect N/A 1,034,257 1,034,257 Direct N/A 629,186 629,186 Home equity N/A 1,033,783 1,033,783 Total $ 31,123,641 $ — $ 31,123,641 58 The following table details activity in our allowance for credit losses on loans for the years ended December 31: (dollars in thousands) 2023 2022 2021 Beginning allowance for credit losses on loans $ 303,671 $ 107,341 $ 131,388 Allowance established for acquired PCD loans — 89,089 — Loans charged-off: Commercial 41,451 6,885 1,228 Commercial real estate 11,198 6,519 264 BBCC 1,650 85 144 Residential real estate 256 344 346 Indirect 2,948 2,525 1,087 Direct 10,517 10,799 1,159 Home equity 443 124 82 Total charge-offs 68,463 27,281 4,310 Recoveries on charged-off loans: Commercial 4,172 4,610 791 Commercial real estate 2,417 1,095 4,403 BBCC 275 281 105 Residential real estate 1,268 760 339 Indirect 1,559 1,263 1,682 Direct 2,331 2,557 777 Home equity 531 616 978 Total recoveries 12,553 11,182 9,075 Net charge-offs (recoveries) 55,910 16,099 (4,765) Provision (release) for credit losses on loans 59,849 123,340 (28,812) Ending allowance for credit losses on loans $ 307,610 $ 303,671 $ 107,341 Beginning allowance for credit losses on unfunded loan commitments $ 32,188 $ 10,879 $ 11,689 Provision for credit losses on unfunded loan commitments acquired during the period — 11,013 — Provision (release) for provision for credit losses on unfunded loan commitments (962) 10,296 (810) Ending allowance for credit losses on unfunded loan commitments $ 31,226 $ 32,188 $ 10,879 Allowance for credit losses $ 338,836 $ 335,859 $ 118,220 Average loans for the year (1) $ 32,233,020 $ 27,582,530 $ 13,766,590 Asset Quality Ratios: Allowance for credit losses on loans/year-end loans (1) 0.93 % 0.98 % 0.79 % Allowance for credit losses on loans/average loans (1) 0.95 1.10 0.78 Allowance for credit losses/year-end loans (1) 1.03 1.08 0.87 Allowance for credit losses/average loans (1) 1.05 1.22 0.86 (1) Loans exclude loans held-for-sale. 59 The following table details net charge-offs to average loans outstanding by loan category for the years ended December 31: (dollars in thousands) 2023 2022 2021 Commercial: Net charge-offs (recoveries) $ 37,279 $ 2,275 $ 437 Average loans for the year (1) $ 9,338,940 $ 7,755,895 $ 3,553,527 Net charge-offs (recoveries)/average loans 0.40 % 0.03 % 0.01 % Commercial real estate: Net charge-offs (recoveries) $ 8,781 $ 5,424 $ (4,139) Average loans for the year $ 13,248,587 $ 11,292,033 $ 6,022,408 Net charge-offs (recoveries)/average loans 0.07 % 0.05 % (0.07) % BBCC: Net charge-offs (recoveries) $ 1,375 $ (196) $ 39 Average loans for the year $ 385,171 $ 352,276 $ 355,310 Net charge-offs (recoveries)/average loans 0.36 % (0.06) % 0.01 % Residential real estate: Net charge-offs (recoveries) $ (1,012) $ (416) $ 7 Average loans for the year (1) $ 6,642,224 $ 5,618,883 $ 2,257,878 Net charge-offs (recoveries)/average loans (0.02) % (0.01) % — % Indirect: Net charge-offs (recoveries) $ 1,389 $ 1,262 $ (595) Average loans for the year $ 1,013,560 $ 1,089,394 $ 879,525 Net charge-offs (recoveries)/average loans 0.14 % 0.12 % (0.07) % Direct: Net charge-offs (recoveries) $ 8,186 $ 8,242 $ 382 Average loans for the year $ 568,345 $ 559,943 $ 150,620 Net charge-offs (recoveries)/average loans 1.44 % 1.47 % 0.25 % Home equity: Net charge-offs (recoveries) $ (88) $ (492) $ (896) Average loans for the year $ 1,036,193 $ 921,018 $ 547,322 Net charge-offs (recoveries)/average loans (0.01) % (0.05) % (0.16) % Total loans: Net charge-offs (recoveries) $ 55,910 $ 16,099 $ (4,765) Average loans for the year (1) $ 32,233,020 $ 27,589,442 $ 13,766,590 Net charge-offs (recoveries)/average loans 0.17 % 0.06 % (0.03) % (1) Average loans exclude loans held-for-sale.
The amount of interest income actually recorded on nonaccrual and renegotiated loans was $5.1 million in 2022 and $1.3 million in 2021. Total criticized and classified assets were $1.4 billion at December 31, 2022, an increase of $896.8 million from December 31, 2021. Criticized and classified assets related to the First Midwest merger totaled $704.8 million at December 31, 2022.
The amount of interest income actually recorded on nonaccrual and renegotiated loans was $5.0 million in 2023 and $5.1 million in 2022. Total criticized and classified assets were $1.8 billion at December 31, 2023, an increase of $361.7 million from December 31, 2022 primarily due to higher criticized commercial and commercial real estate loans.
Our net interest income increased to $1.3 billion during 2022, compared to $596.4 million in 2021 driven by the First Midwest merger, loan growth, and the higher rate environment.
Our net interest income increased to $1.5 billion during 2023, compared to $1.3 billion in 2022 driven by the higher interest rate environment and loan growth. Provision for credit losses decreased compared to 2022, reflective of provision expense associated with the First Midwest merger in 2022.
In addition, the provision for credit losses expense in 2022 included $96.3 million to establish an allowance for credit losses on non-PCD loans acquired in the First Midwest merger. Continued loan growth in future periods, a decline in our current level of recoveries, or an increase in charge-offs could result in an increase in provision expense.
The allowance for credit losses on loans was $307.6 million at December 31, 2023, compared to $303.7 million at December 31, 2022. Continued loan growth in future periods, a decline in our current level of recoveries, or an increase in charge-offs could result in an increase in provision expense.
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.
Discussion of strategic, talent management, and reputational risks is provided in the section entitled “Risk Factors” in Item 1A of this Form 10-K. Credit Risk Credit risk represents the risk of loss arising from an obligor’s inability or failure to meet contractual payment or performance terms. Our primary credit risks result from our investment and lending activities.
(2) Calculated using management’s estimate of the annual fully taxable equivalent rates (federal and state). 39 The following table presents GAAP to non-GAAP reconciliations for the year-to-date periods: Years Ended December 31, (dollars and shares in thousands, except per share data) 2022 2021 Tangible common book value: Shareholders' common equity $ 4,884,876 $ 3,012,018 Deduct: Goodwill and intangible assets 2,125,121 1,071,672 Tangible shareholders' common equity (1) $ 2,759,755 $ 1,940,346 Period end common shares 292,903 165,838 Tangible common book value (1) 9.42 11.70 Return on tangible common equity: Net income (loss) applicable to common shares $ 414,169 $ 277,538 Add: Intangible amortization (net of tax) (2) 19,718 8,502 Tangible net income (loss) (1) $ 433,887 $ 286,040 Tangible shareholders' common equity (1) (see above) $ 2,759,755 $ 1,940,346 Return on tangible common equity (1) 15.72 % 14.74 % Return on average tangible common equity: Tangible net income (loss) (1) (see above) $ 433,887 $ 286,040 Average shareholders' common equity $ 4,644,971 $ 2,997,520 Deduct: Average goodwill and intangible assets 1,989,466 1,077,065 Average tangible shareholders' common equity (1) $ 2,655,505 $ 1,920,455 Return on average tangible common equity (1) 16.34 % 14.89 % Net interest margin: Net interest income $ 1,327,936 $ 596,400 Taxable equivalent adjustment 18,414 13,913 Net interest income - taxable equivalent basis (1) $ 1,346,350 $ 610,313 Average earning assets $ 38,751,786 $ 21,152,209 Net interest margin (1) 3.47 % 2.89 % Efficiency ratio: Noninterest expense $ 1,038,183 $ 501,379 Deduct: Intangible amortization expense 25,857 11,336 Adjusted noninterest expense (1) $ 1,012,326 $ 490,043 Net interest income - taxable equivalent basis (1) (see above) $ 1,346,350 $ 610,313 Noninterest income 399,779 214,219 Deduct: Debt securities gains (losses), net (88) 4,327 Adjusted total revenue (1) $ 1,746,217 $ 820,205 Efficiency ratio 57.97 % 59.75 % Tangible common equity to tangible assets: Tangible shareholders' equity (1) (see above) $ 2,759,755 $ 1,940,346 Assets $ 46,763,372 $ 24,453,564 Deduct: Goodwill and intangible assets 2,125,121 1,071,672 Tangible assets (1) $ 44,638,251 $ 23,381,892 Tangible common equity to tangible assets (1) 6.18 % 8.30 % (1) Represents a non-GAAP financial measure.
(2) Calculated using management’s estimate of the annual fully taxable equivalent rates (federal and state). 41 The following table presents GAAP to non-GAAP reconciliations for the year-to-date periods: Years Ended December 31, (dollars and shares in thousands, except per share data) 2023 2022 Tangible common book value: Shareholders’ common equity $ 5,319,181 $ 4,884,876 Deduct: Goodwill and intangible assets 2,100,966 2,125,121 Tangible shareholders’ common equity (1) $ 3,218,215 $ 2,759,755 Period end common shares 292,655 292,903 Tangible common book value (1) 11.00 9.42 Return on average tangible common equity: Net income applicable to common shares $ 565,857 $ 414,169 Add: Intangible amortization (net of tax) (2) 18,116 19,718 Tangible net income (1) $ 583,973 $ 433,887 Average shareholders’ common equity $ 5,010,594 $ 4,644,971 Deduct: Average goodwill and intangible assets 2,112,924 1,989,466 Average tangible shareholders’ common equity (1) $ 2,897,670 $ 2,655,505 Return on average tangible common equity (1) 20.15 % 16.34 % Net interest margin: Net interest income $ 1,503,153 $ 1,327,936 Taxable equivalent adjustment 23,428 18,414 Net interest income – taxable equivalent basis (1) $ 1,526,581 $ 1,346,350 Average earning assets $ 43,095,730 $ 38,751,786 Net interest margin (1) 3.54 % 3.47 % Efficiency ratio: Noninterest expense $ 1,026,306 $ 1,038,183 Deduct: Intangible amortization expense 24,155 25,857 Adjusted noninterest expense (1) $ 1,002,151 $ 1,012,326 Net interest income – taxable equivalent basis (1) (see above) $ 1,526,581 $ 1,346,350 Noninterest income 333,342 399,779 Deduct: Debt securities gains (losses), net (6,265) (88) Adjusted total revenue (1) $ 1,866,188 $ 1,746,217 Efficiency ratio 53.70 % 57.97 % Tangible common equity to tangible assets: Tangible shareholders’ equity (1) (see above) $ 3,218,215 $ 2,759,755 Assets $ 49,089,836 $ 46,763,372 Deduct: Goodwill and intangible assets 2,100,966 2,125,121 Tangible assets (1) $ 46,988,870 $ 44,638,251 Tangible common equity to tangible assets (1) 6.85 % 6.18 % (1) Represents a non-GAAP financial measure.
Payments Due In (dollars in thousands) Note Reference One Year or Less Over One Year Total Deposits without stated maturity $ 31,987,050 $ — $ 31,987,050 IRAs, consumer deposits, and brokered certificates of deposit 10 2,099,157 914,623 3,013,780 Federal funds purchased and interbank borrowings 581,489 — 581,489 Securities sold under agreements to repurchase 11 432,804 — 432,804 Federal Home Loan Bank advances 12 950,149 2,878,869 3,829,018 Other borrowings 13 90,276 652,727 743,003 We are party to various derivative contracts as a means to manage the balance sheet and our related exposure to changes in interest rates, to manage our residential real estate loan origination and sale activity, and to provide derivative contracts to our clients.
Payments Due In (dollars in thousands) Note Reference One Year or Less Over One Year Total Deposits without stated maturity $ 31,656,036 $ — $ 31,656,036 IRAs, consumer deposits, and brokered certificates of deposit 10 5,081,013 498,131 5,579,144 Securities sold under agreements to repurchase 11 285,206 — 285,206 Federal Home Loan Bank advances 12 125,243 4,155,438 4,280,681 Other borrowings 13 275,263 489,607 764,870 We are party to various derivative contracts as a means to manage the balance sheet and our related exposure to changes in interest rates, to manage our residential real estate loan origination and sale activity, and to provide derivative contracts to our clients.
Noninterest Expense The following table details the components of noninterest expense: Years Ended December 31, % Change From Prior Year (dollars in thousands) 2022 2021 2020 2022 2021 Salaries and employee benefits $ 575,626 $ 284,098 $ 293,590 102.6 % (3.2) % Occupancy 100,421 54,834 55,316 83.1 (0.9) Equipment 27,637 16,704 16,690 65.5 0.1 Marketing 32,264 12,684 10,874 154.4 16.6 Data processing 84,865 47,047 41,086 80.4 14.5 Communication 18,846 10,073 9,731 87.1 3.5 Professional fees 39,046 20,077 15,755 94.5 27.4 FDIC assessment 19,332 6,059 6,722 219.1 (9.9) Amortization of intangibles 25,857 11,336 14,091 128.1 (19.6) Amortization of tax credit investments 10,961 6,770 18,788 61.9 (64.0) Property optimization 26,818 — 27,050 N/A (100.0) Other expense 76,510 31,697 27,240 141.4 16.4 Total noninterest expense $ 1,038,183 $ 501,379 $ 536,933 107.1 % (6.6) % Noninterest expense increased $536.8 million in 2022 compared to 2021 reflective of the additional operating costs associated with the First Midwest merger, as well as $120.9 million of merger-related expenses and $26.8 million for property optimization.
Other income increased $7.9 million in 2023 compared to 2022 primarily due to lower losses on equity securities reflecting improved market conditions, higher commercial loan fees, and higher card incentives. 47 Noninterest Expense The following table details the components of noninterest expense: Years Ended December 31, % Change From Prior Year (dollars in thousands) 2023 2022 2021 2023 2022 Salaries and employee benefits $ 546,364 $ 575,626 $ 284,098 (5.1) % 102.6 % Occupancy 106,676 100,421 54,834 6.2 83.1 Equipment 32,163 27,637 16,704 16.4 65.5 Marketing 39,511 32,264 12,684 22.5 154.4 Technology 80,343 84,865 47,047 (5.3) 80.4 Communication 16,980 18,846 10,073 (9.9) 87.1 Professional fees 27,335 39,046 20,077 (30.0) 94.5 FDIC assessment 56,730 19,332 6,059 193.5 219.1 Amortization of intangibles 24,155 25,857 11,336 (6.6) 128.1 Amortization of tax credit investments 15,367 10,961 6,770 40.2 61.9 Property optimization 1,559 26,818 — (94.2) N/A Other expense 79,123 76,510 31,697 3.4 141.4 Total noninterest expense $ 1,026,306 $ 1,038,183 $ 501,379 (1.1) % 107.1 % Noninterest expense decreased $11.9 million in 2023 compared to 2022.
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.
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.
Allowance for Credit Losses on Loans and Unfunded Loan Commitments At December 31, 2022, the allowance for credit losses on loans was $303.7 million, compared to $107.3 million at December 31, 2021.
The allowance for credit losses on unfunded loan commitments totaled $31.2 million at December 31, 2023, compared to $32.2 million at December 31, 2022.
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 manages exposure to counterparty risk in connection with its derivatives transactions by generally engaging in transactions with counterparties having ratings of at least “A” by Standard & Poor’s Rating Service or “A2” by Moody’s Investors Service. There are provisions in our agreements with the counterparties that allow for certain unsecured credit exposure up to an agreed threshold.
Municipal bonds, corporate bonds, and other debt securities are evaluated by reviewing the credit-worthiness of the issuer and general market conditions. See Note 3 to the consolidated financial statements for additional details about our investment security portfolio. 52 Counterparty Exposure Counterparty exposure is the risk that the other party in a financial transaction will not fulfill its obligation.
Investment Activities All of our mortgage-backed securities are backed by U.S. government-sponsored or federal agencies. Municipal bonds, corporate bonds, and other debt securities are evaluated by reviewing the credit-worthiness of the issuer and general market conditions. See Note 3 to the consolidated financial statements for additional details about our investment security portfolio.
For mergers and acquisitions, we are required to record the assets acquired, including identified intangible assets such as core deposit and customer trust relationship intangibles, and the liabilities assumed at their fair value. The difference between consideration and the net fair value of assets acquired is recorded as goodwill.
Management has reviewed these critical accounting estimates and related disclosures with our Audit Committee. Business Combinations and Goodwill • Description. For mergers and acquisitions, we are required to record the assets acquired, including identified intangible assets such as core deposit and customer trust relationship intangibles, and the liabilities assumed at their fair value.
The following table details the components of noninterest income: Years Ended December 31, % Change From Prior Year (dollars in thousands) 2022 2021 2020 2022 2021 Wealth management fees $ 69,102 $ 40,409 $ 36,806 71.0 % 9.8 % Service charges on deposit accounts 72,501 31,658 32,557 129.0 (2.8) Debit card and ATM fees 40,227 23,766 22,702 69.3 4.7 Mortgage banking revenue 23,015 42,558 62,775 (45.9) (32.2) Investment product fees 31,749 24,639 21,614 28.9 14.0 Capital markets income 25,986 21,997 22,480 18.1 (2.1) Company-owned life insurance 14,564 10,589 12,031 37.5 (12.0) Debt securities gains (losses), net (88) 4,327 10,767 (102.0) (59.8) Gain on sale of health savings accounts 90,673 — — N/A N/A Other income 32,050 14,276 17,542 124.5 (18.6) Total noninterest income $ 399,779 $ 214,219 $ 239,274 86.6 % (10.5) % Noninterest income to total revenue (1) 22.9 % 26.0 % 28.2 % (1) Total revenue includes the effect of a taxable equivalent adjustment of $18.4 million in 2022, $13.9 million in 2021, and $13.6 million in 2020.
The following table details the components of noninterest income: Years Ended December 31, % Change From Prior Year (dollars in thousands) 2023 2022 2021 2023 2022 Wealth and investment services fees $ 107,784 $ 100,851 $ 65,048 6.9 % 55.0 % Service charges on deposit accounts 71,945 72,501 31,658 (0.8) 129.0 Debit card and ATM fees 42,153 40,227 23,766 4.8 69.3 Mortgage banking revenue 16,319 23,015 42,558 (29.1) (45.9) Capital markets income 24,419 25,986 21,997 (6.0) 18.1 Company-owned life insurance 15,397 14,564 10,589 5.7 37.5 Debt securities gains (losses), net (6,265) (88) 4,327 N/M (102.0) Gain on sale of Visa Class B restricted shares 21,635 — — N/A N/A Gain on sale of health savings accounts — 90,673 — (100.0) N/A Other income 39,955 32,050 14,276 24.7 124.5 Total noninterest income $ 333,342 $ 399,779 $ 214,219 (16.6) % 86.6 % The decrease in noninterest income in 2023 compared to 2022 was primarily due to a $90.7 gain on the sale of health savings accounts in the fourth quarter of 2022, partially offset by a gain on sale of Visa Class B restricted shares totaling $21.6 million in the fourth quarter of 2023 and the full-period 2023 impact of the First Midwest merger which occurred in February of 2022.
(dollars in thousands) 2022 2021 Commercial $ 9,508,904 $ 3,391,769 Commercial real estate 12,457,070 6,380,674 Consumer 2,697,226 1,574,114 Total loans excluding residential real estate 24,663,200 11,346,557 Residential real estate 6,460,441 2,255,289 Total loans 31,123,641 13,601,846 Less: Allowance for credit losses on loans 303,671 107,341 Net loans $ 30,819,970 $ 13,494,505 47 The following table presents the maturity distribution and rate sensitivity of loans at December 31, 2022 and an analysis of these loans that have fixed and floating interest rates.
(dollars in thousands) 2023 2022 Commercial $ 9,512,230 $ 9,508,904 Commercial real estate 14,140,629 12,457,070 Residential real estate 6,699,443 6,460,441 Consumer 2,639,625 2,697,226 Total loans 32,991,927 31,123,641 Allowance for credit losses on loans (307,610) (303,671) Net loans $ 32,684,317 $ 30,819,970 The following table presents the contractual maturity distribution and rate sensitivity of loans at December 31, 2023 and an analysis of these loans that have fixed and floating interest rates.

… 151 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

1 edited+0 added−0 removed0 unchanged
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk” of this Form 10-K is incorporated herein by reference in response to this item. 67
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk” of this Form 10-K is incorporated herein by reference in response to this item. 68

Other ONBPP 10-K year-over-year comparisons