OLD NATIONAL BANCORP /IN/ (Form: 10-Q, Received: 04/28/2021 10:38:21)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended March 31, 2021


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

For the transition period from ____________ to ____________

Commission File Number 1-15817

OLD NATIONAL BANCORP

(Exact name of Registrant as specified in its charter)


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

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

(800) 731-2265

(Registrant’s telephone number, including area code)

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

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, No Par Value

ONB

The

NASDAQ

Stock Market LLC

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

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

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

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock. The registrant has one class of common stock (no par value) with 165,676,000 shares outstanding at March 31, 2021.

OLD NATIONAL BANCORP

FORM 10-Q

TABLE OF CONTENTS


			Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets		4
	Consolidated Statements of Income (unaudited)		5
	Consolidated Statements of Comprehensive Income (unaudited)		6
	Consolidated Statements of Changes in Shareholders’ Equity (unaudited)		7
	Consolidated Statements of Cash Flows (unaudited)		8
	Notes to Consolidated Financial Statements (unaudited)		9
	Note 1.	Basis of Presentation	9
	Note 2.	Recent Accounting Pronouncements	9
	Note 3.	Net Income Per Share	11
	Note 4.	Investment Securities	12
	Note 5.	Loans and Allowance for Credit Losses	15
	Note 6.	Other Real Estate Owned	29
	Note 7.	Premises and Equipment	29
	Note 8.	Leases	29
	Note 9.	Goodwill and Other Intangible Assets	31
	Note 10.	Loan Servicing Rights	32
	Note 11.	Qualified Affordable Housing Projects and Other Tax Credit Investments	33
	Note 12.	Securities Sold Under Agreements to Repurchase	34
	Note 13.	Federal Home Loan Bank Advances	35
	Note 14.	Other Borrowings	36
	Note 15.	Accumulated Other Comprehensive Income (Loss)	37
	Note 16.	Share-Based Compensation	38
	Note 17.	Income Taxes	39
	Note 18.	Derivative Financial Instruments	41
	Note 19.	Commitments and Contingencies	44
	Note 20.	Financial Guarantees	45
	Note 21.	Segment Information	45
	Note 22.	Fair Value	45
	Note 23.	Revenue from Contracts with Customers	52
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		53
	Forward-Looking Statements		53
	Financial Highlights		55
	Non-GAAP Financial Measures		56
	Executive Summary		58
	Results of Operations		59
	Financial Condition		65
	Risk Management		70
	Off-Balance Sheet Arrangements		80
	Contractual Obligations		80
	Critical Accounting Policies and Estimates		81
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		83
Item 4.	Controls and Procedures		83
PART II.	OTHER INFORMATION		84
Item 1A.	Risk Factors		84
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		84
Item 5.	Other Information		84
Item 6.	Exhibits		85
SIGNATURE			86

GLOSSARY OF ABBREVIATIONS AND ACRONYMS

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

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

Anchor (MN): Anchor Bancorp, Inc.

Anchor (WI): Anchor BanCorp Wisconsin Inc.

AOCI: accumulated other comprehensive income (loss)

AQR: asset quality rating

ASC: Accounting Standards Codification

ASU: Accounting Standards Update

ATM: automated teller machine

BBCC: business banking credit center (small business)

CAA: Consolidated Appropriations Act

CARES Act: Coronavirus Aid, Relief and Economic Security Act

CECL: current expected credit loss

Common Stock: Old National Bancorp common stock, without par value

COVID-19: coronavirus 2019

DTI: debt-to-income

FASB: Financial Accounting Standards Board

FDIC: Federal Deposit Insurance Corporation

FHLB: Federal Home Loan Bank

FHTC: Federal Historic Tax Credit

FICO: Fair Isaac Corporation

GAAP: U.S. generally accepted accounting principles

LGD: loss given default

LIBOR: London Interbank Offered Rate

LIHTC: Low Income Housing Tax Credit

LTV: loan-to-value

N/A: not applicable

N/M: not meaningful

NMTC: New Markets Tax Credit

NOW: negotiable order of withdrawal

OCC: Office of the Comptroller of the Currency

PD: probability of default

PPP: Paycheck Protection Program

Renewable Energy: investment tax credits for solar projects

SBA: Small Business Administration

SEC: Securities and Exchange Commission

TBA: to be announced

TDR: troubled debt restructuring

OLD NATIONAL BANCORP

CONSOLIDATED BALANCE SHEETS


(dollars and shares in thousands, except per share data)	March 31, 2021		December 31, 2020
	(unaudited)
Assets
Cash and due from banks	$	154,330	$	268,208
Money market and other interest-earning investments	303,447		321,504
Total cash and cash equivalents	457,777		589,712
Equity securities, at fair value	2,429		2,547
Investment securities - available-for-sale, at fair value:
U.S. Treasury	228,890		10,208
U.S. government-sponsored entities and agencies	1,373,533		841,988
Mortgage-backed securities	3,385,339		3,339,098
States and political subdivisions	1,467,804		1,492,162
Other securities	268,964		286,659
Total investment securities - available-for-sale	6,724,530		5,970,115
Federal Home Loan Bank/Federal Reserve Bank stock, at cost	169,417		169,433
Loans held for sale, at fair value	50,281		63,250
Loans:
Commercial	4,068,896		3,956,422
Commercial real estate	6,074,135		5,946,512
Residential real estate	2,203,277		2,248,422
Consumer credit, net of unearned income	1,578,953		1,635,123
Total loans	13,925,261		13,786,479
Allowance for credit losses	(114,037)		(131,388)
Net loans	13,811,224		13,655,091
Premises and equipment, net	466,559		464,408
Operating lease right-of-use assets	74,611		76,197
Accrued interest receivable	80,841		85,306
Goodwill	1,036,994		1,036,994
Other intangible assets	42,939		46,014
Company-owned life insurance	456,782		456,110
Other assets	370,067		345,445
Total assets	$	23,744,451	$	22,960,622
Liabilities
Deposits:
Noninterest-bearing demand	$	6,091,054	$	5,633,672
Interest-bearing:
Checking and NOW	4,958,791		4,977,046
Savings	3,631,145		3,395,747
Money market	2,125,862		1,908,118
Time deposits	1,042,903		1,122,870
Total deposits	17,849,755		17,037,453
Federal funds purchased and interbank borrowings	922		1,166
Securities sold under agreements to repurchase	395,242		431,166
Federal Home Loan Bank advances	1,912,541		1,991,435
Other borrowings	266,282		252,787
Operating lease liabilities	84,665		86,598
Accrued expenses and other liabilities	255,597		187,361
Total liabilities	20,765,004		19,987,966
Shareholders' Equity
Preferred stock, 2,000 shares authorized, no shares issued or outstanding	—		—
Common stock, $1.00 per share stated value, 300,000 shares authorized, 165,676 and 165,367 shares issued and outstanding, respectively	165,676		165,367
Capital surplus	1,874,572		1,875,626
Retained earnings	847,290		783,892
Accumulated other comprehensive income (loss), net of tax	91,909		147,771
Total shareholders' equity	2,979,447		2,972,656
Total liabilities and shareholders' equity	$	23,744,451	$	22,960,622

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

OLD NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF INCOME (unaudited)


	Three Months Ended March 31,
(dollars and shares in thousands, except per share data)	2021		2020
Interest Income
Loans including fees:
Taxable	$	122,529	$	128,727
Nontaxable	3,357		3,625
Investment securities:
Taxable	24,131		27,356
Nontaxable	9,132		7,942
Money market and other interest-earning investments	88		349
Total interest income	159,237		167,999
Interest Expense
Deposits	3,159		12,298
Federal funds purchased and interbank borrowings	—		1,240
Securities sold under agreements to repurchase	120		384
Federal Home Loan Bank advances	5,409		7,768
Other borrowings	2,429		2,538
Total interest expense	11,117		24,228
Net interest income	148,120		143,771
Provision for credit losses	(17,356)		16,950
Net interest income after provision for credit losses	165,476		126,821
Noninterest Income
Wealth management fees	9,708		8,884
Service charges on deposit accounts	8,124		10,077
Debit card and ATM fees	5,143		4,998
Mortgage banking revenue	16,525		11,119
Investment product fees	5,864		5,874
Capital markets income	3,715		4,328
Company-owned life insurance	2,714		3,080
Debt securities gains (losses), net	1,993		5,174
Other income	2,926		3,968
Total noninterest income	56,712		57,502
Noninterest Expense
Salaries and employee benefits	68,117		79,173
Occupancy	14,872		15,133
Equipment	3,969		5,305
Marketing	2,062		3,097
Data processing	12,353		9,467
Communication	2,878		2,798
Professional fees	2,724		4,293
FDIC assessment	1,607		1,609
Amortization of intangibles	3,075		3,776
Amortization of tax credit investments	1,202		5,515
Other expense	4,881		28,578
Total noninterest expense	117,740		158,744
Income before income taxes	104,448		25,579
Income tax expense	17,630		2,939
Net income	$	86,818	$	22,640
Net income per common share - basic	$	0.53	$	0.13
Net income per common share - diluted	0.52		0.13
Weighted average number of common shares outstanding - basic	164,997		167,748
Weighted average number of common shares outstanding - diluted	165,707		168,404
Dividends per common share	$	0.14	$	0.14

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

OLD NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)


	Three Months Ended March 31,
(dollars in thousands)	2021		2020
Net income	$	86,818	$	22,640

Other comprehensive income (loss):

Change in debt securities available-for-sale:
Unrealized holding gains (losses) for the period	(73,514)		103,954

Reclassification adjustment for securities (gains) losses realized in income	(1,993)		(5,174)
Income tax effect	16,667		(22,411)
Unrealized gains (losses) on available-for-sale debt securities	(58,840)		76,369

Cash flow hedges:
Net unrealized derivative gains (losses) on cash flow hedges	4,048		7,803
Reclassification adjustment for (gains) losses realized in net income	(149)		(431)
Income tax effect	(958)		(1,811)
Changes from cash flow hedges	2,941		5,561

Defined benefit pension plans:
Amortization of net loss recognized in income	49		27
Income tax effect	(12)		(7)
Changes from defined benefit pension plans	37		20
Other comprehensive income (loss), net of tax	(55,862)		81,950
Comprehensive income	$	30,956	$	104,590

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

OLD NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)


(dollars in thousands, except per share data)	Common Stock		Capital Surplus		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders' Equity
Balance, December 31, 2019	$	169,616	$	1,944,445	$	682,185	$	56,207	$	2,852,453
Cumulative effect of change in accounting principles	—		—		(31,150)		—		(31,150)
Balance, January 1, 2020	169,616		1,944,445		651,035		56,207		2,821,303
Net income	—		—		22,640		—		22,640
Other comprehensive income (loss)	—		—		—		81,950		81,950
Dividends - common stock ($0.14 per share)	—		—		(23,535)		—		(23,535)
Common stock issued	9		142		—		—		151
Common stock repurchased	(5,076)		(76,746)		—		—		(81,822)
Share-based compensation expense	—		2,748		—		—		2,748
Stock activity under incentive compensation plans	560		(329)		(231)		—		—
Balance, March 31, 2020	$	165,109	$	1,870,260	$	649,909	$	138,157	$	2,823,435

















Balance, December 31, 2020	$	165,367	$	1,875,626	$	783,892	$	147,771	$	2,972,656


Net income	—		—		86,818		—		86,818
Other comprehensive income (loss)	—		—		—		(55,862)		(55,862)
Dividends - common stock ($0.14 per share)	—		—		(23,195)		—		(23,195)
Common stock issued	9		130		—		—		139
Common stock repurchased	(160)		(2,696)		—		—		(2,856)
Share-based compensation expense	—		1,747		—		—		1,747
Stock activity under incentive compensation plans	460		(235)		(225)		—		—
Balance, March 31, 2021	$	165,676	$	1,874,572	$	847,290	$	91,909	$	2,979,447

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

OLD NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Three Months Ended March 31,
(dollars in thousands)	2021		2020
Cash Flows From Operating Activities
Net income	$	86,818	$	22,640
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	7,079		8,594
Amortization of other intangible assets	3,075		3,776
Amortization of tax credit investments	1,202		5,515
Net premium amortization on investment securities	3,606		5,146
Accretion income related to acquired loans	(4,695)		(6,649)
Share-based compensation expense	1,747		2,748
Excess tax (benefit) expense on share-based compensation	(915)		(818)
Provision for credit losses	(17,356)		16,950
Debt securities (gains) losses, net	(1,993)		(5,174)
Net (gains) losses on sales of loans and other assets	(10,330)		11,826
Increase in cash surrender value of company-owned life insurance	(2,714)		(3,080)
Residential real estate loans originated for sale	(326,118)		(223,961)
Proceeds from sales of residential real estate loans	349,730		219,626
(Increase) decrease in interest receivable	4,465		7,313
(Increase) decrease in other assets	33,562		(87,826)
Increase (decrease) in accrued expenses and other liabilities	(43,966)		2,242
Net cash flows provided by (used in) operating activities	83,197		(21,132)
Cash Flows From Investing Activities
Purchases of investment securities available-for-sale	(1,245,673)		(446,819)
Purchases of Federal Home Loan Bank/Federal Reserve Bank stock	—		(10,025)
Proceeds from maturities, prepayments, and calls of investment securities available-for-sale	428,614		436,742
Proceeds from sales of investment securities available-for-sale	52,468		236,410

Proceeds from sales of Federal Home Loan Bank/Federal Reserve Bank stock	16		11
Proceeds from sales of equity securities	227		133
Loan originations and payments, net	(134,082)		(262,497)
Proceeds from company-owned life insurance death benefits	2,042		1,899
Proceeds from sales of premises and equipment and other assets	7,632		—
Purchases of premises and equipment and other assets	(12,879)		(7,938)
Net cash flows provided by (used in) investing activities	(901,635)		(52,084)
Cash Flows From Financing Activities
Net increase (decrease) in:
Deposits	812,302		(248,035)
Federal funds purchased and interbank borrowings	(244)		210,356
Securities sold under agreements to repurchase	(35,924)		(9,715)
Other borrowings	13,441		(7,339)
Payments for maturities of Federal Home Loan Bank advances	(125,004)		(200,005)
Payments for modification of Federal Home Loan Bank advances	(2,156)		—
Proceeds from Federal Home Loan Bank advances	50,000		500,000
Cash dividends paid on common stock	(23,195)		(23,535)
Common stock repurchased	(2,856)		(81,822)

Common stock issued	139		151
Net cash flows provided by (used in) financing activities	686,503		140,056
Net increase (decrease) in cash and cash equivalents	(131,935)		66,840
Cash and cash equivalents at beginning of period	589,712		276,337
Cash and cash equivalents at end of period	$	457,777	$	343,177
Supplemental cash flow information:
Total interest paid	$	13,302	$	26,387
Total taxes paid (net of refunds)	$	1,400	$	1,212
Investment securities purchased but not settled	$	112,489	$	102,459


Operating lease right-of-use assets obtained in exchange for lease obligations	$	988	$	(310)

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

OLD NATIONAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include the accounts of Old National Bancorp and its wholly-owned affiliates (hereinafter collectively referred to as “Old National”) and have been prepared in conformity with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. Such principles require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosures of contingent assets and liabilities at the date of the financial statements and amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, the consolidated financial statements contain all the normal and recurring adjustments necessary for a fair statement of the financial position of Old National as of March 31, 2021 and December 31, 2020, and the results of its operations for the three months ended March 31, 2021 and 2020. Interim results do not necessarily represent annual results. These financial statements should be read in conjunction with Old National’s Annual Report on Form 10-K for the year ended December 31, 2020.

All significant intercompany transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform to the current presentation. Such reclassifications had no effect on prior period net income or shareholders’ equity and were insignificant amounts.

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Guidance Adopted in 2021

FASB ASC 715 – In August 2018, the FASB issued ASU No. 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this update became effective for fiscal years ending after December 15, 2020 and did not have a material impact on the financial statements.

FASB ASC 740 – In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU removes specific exceptions to the general principles in Topic 740 in GAAP. It eliminates the need for an organization to analyze whether the following apply in a given period: (1) exception to the incremental approach for intraperiod tax allocation; (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments; and (3) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for: (1) franchise taxes that are partially based on income; (2) transactions with a government that result in a step up in the tax basis of goodwill; (3) separate financial statements of legal entities that are not subject to tax; and (4) enacted changes in tax laws in interim periods. The amendments in this update became effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years and did not have a material impact on the financial statements.

FASB ASC 321, 323, and 815 – In January 2020, the FASB issued ASU No. 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 (a Consensus of the Emerging Issues Task Force). The ASU clarifies the interaction between ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities and the ASU on equity method investments. ASU 2016-01 provides companies with an alternative to measure certain equity securities without a readily determinable fair value at cost, minus impairment, if any, unless an observable transaction for an identical or similar security occurs. ASU 2020-01 clarifies that for purposes of applying the Topic 321 measurement alternative, an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting under Topic 323, immediately before applying or upon discontinuing the equity method. In addition, the new ASU provides direction that a company should not consider whether the underlying securities would be accounted for under the equity method or the fair value option when it is determining the accounting for certain forward contracts and purchased options, upon either settlement or exercise. The amendments in this update became effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The amendments are to be applied prospectively and did not have a material impact on the consolidated financial statements.

Acquisitions and Dispositions of Businesses and Related Pro Forma Information – In May 2020, the SEC issued a final rule that revises the circumstances that require financial statements and related pro forma information for acquisitions and dispositions of businesses. The intent of the rule is to allow for more meaningful conclusions on when an acquired or disposed business is significant as well as to improve the related disclosure requirements. The changes are intended to improve the financial information about acquired or disposed businesses, facilitate more timely access to capital, and reduce the complexity and costs to prepare the disclosure. The final rule was effective January 1, 2021.

FASB ASC 310 – In October 2020, the FASB issued ASU No. 2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs, to clarify that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period. The ASU was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The new guidance did not have a material impact on the consolidated financial statements.

FASB ASC 470 – In October 2020, the FASB issued ASU No. 2020-09, Debt (Topic 470) Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762, which amends and supersedes various SEC paragraphs to reflect SEC Release No. 33-10762. That release amends the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees. These changes are intended to both improve the quality of disclosure and increase the likelihood that issuers will conduct debt offerings on a registered basis. The final rules were effective on January 4, 2021. The amendments did not have a material impact on the consolidated financial statements.

Codification Improvements – In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements. The amendments improve codification by having all disclosure-related guidance available in the disclosure sections of the codification. Prior to this ASU, various disclosure requirements or options to present information on the face of the financial statements or as a note to the financial statements were not included in the appropriate disclosure sections of the codification. The codification improvements also contain various other minor amendments to codification that are not expected to have a significant effect on current accounting practice. The amendments became effective for annual periods beginning after December 15, 2020.

FASB ASC 848 – In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary, optional guidance to ease the potential burden in accounting for, or recognizing the effects of, the transition away from the LIBOR or other interbank offered rate on financial reporting. To help with the transition to new reference rates, the ASU provides optional expedients and exceptions for applying GAAP to affected contract modifications and hedge accounting relationships. The main provisions include:

•A change in a contract’s reference interest rate would be accounted for as a continuation of that contract rather than as the creation of a new one for contracts, including loans, debt, leases, and other arrangements, that meet specific criteria.

•When updating its hedging strategies in response to reference rate reform, an entity would be allowed to preserve its hedge accounting.

The guidance is applicable only to contracts or hedge accounting relationships that reference LIBOR or another reference rate expected to be discontinued. Because the guidance is meant to help entities through the transition period, it will be in effect for a limited time and will not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients that are retained through the end of the hedging relationship. The amendments in this ASU are effective March 12, 2020 through December 31, 2022.

ASU 2020-04 permits relief solely for reference rate reform actions and permits different elections over the effective date for legacy and new activity. Accordingly, Old National is evaluating and reassessing the elections on a quarterly basis. For current elections in effect regarding the assertion of the probability of forecasted transactions, Old National elects the expedient to assert the probability of the hedged interest payments and receipts regardless of any expected modification in terms related to reference rate reform.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which addresses questions about whether Topic 848 can be applied to derivative instruments that do not reference a rate that is expected to be discontinued but that use an interest rate for margining, discounting, or contract price alignment that is expected to be modified as a result of reference rate reform, commonly referred to as the “discounting transition.”

The amendments clarify that certain optional expedients and exceptions in Topic 848 do apply to derivatives that are affected by the discounting transition. The amendments in ASU 2021-01 are effective immediately.

Old National believes the adoption of this guidance on activities subsequent to March 31, 2021 through December 31, 2022 will not have a material impact on the consolidated financial statements.

Guidance on Non-TDR Loan Modifications due to COVID-19 – The CAA, which was signed into law on December 27, 2020, extends certain provisions of the CARES Act. Section 4013 of the CARES Act provided temporary relief from TDR accounting and is amended by Division N, Section 540 of the CAA, by extending the end date from December 31, 2020, to the earlier of January 1, 2022, or 60 days after the date on which the COVID-19 national emergency terminates. In response, the OCC updated its two-page reference guide, “TDR Designation and COVID-19 Loan Modifications,” to conform to the extended TDR provisions. In accordance with such guidance, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term (180 days or less) modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. See Note 5 for further information on non-TDR loan modifications.

Accounting Guidance Issued But Not Yet Adopted

FASB ASC 470 and 815 – In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to clarify the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature model. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in-capital. In addition, this ASU improves disclosure requirements for convertible instruments and earnings-per-share guidance. The ASU also revises the derivative scope exception guidance to reduce form-over-substance-based accounting conclusions driven by remote contingent events. The amendments in this update are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption will be permitted, but no earlier than for fiscal years beginning after December 15, 2020. Old National is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

NOTE 3 – NET INCOME PER SHARE

Basic and diluted net income per share are calculated using the two-class method. Net income is divided by the weighted-average number of common shares outstanding during the period. Adjustments to the weighted average number of common shares outstanding are made only when such adjustments will dilute net income per common share. Net income is then divided by the weighted-average number of common shares and common share equivalents during the period.

The following table reconciles basic and diluted net income per share:


	Three Months Ended March 31,
(dollars and shares in thousands, except per share data)	2021		2020
Basic Net Income Per Share
Net income	$	86,818	$	22,640
Weighted average common shares outstanding	164,997		167,748
Basic Net Income Per Share	$	0.53	$	0.13

Diluted Net Income Per Share
Net income	$	86,818	$	22,640
Weighted average common shares outstanding	164,997		167,748
Effect of dilutive securities:
Restricted stock	687		616
Stock options and appreciation rights	23		40
Weighted average shares outstanding	165,707		168,404
Diluted Net Income Per Share	$	0.52	$	0.13

NOTE 4 – INVESTMENT SECURITIES

The following table summarizes the amortized cost and fair value of the available-for-sale investment securities portfolio and the corresponding amounts of unrealized gains, unrealized losses, and basis adjustments recognized in accumulated other comprehensive income (loss):


(dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Basis Adjustments (1)		Fair Value
March 31, 2021
Available-for-Sale
U.S. Treasury	$	236,427	$	10,910	$	(8,337)	$	(10,110)	$	228,890
U.S. government-sponsored entities and agencies	1,412,926		39,527		(42,518)		(36,402)		1,373,533
Mortgage-backed securities - Agency	3,338,842		66,916		(20,419)		—		3,385,339
States and political subdivisions	1,405,386		66,711		(4,293)		—		1,467,804
Pooled trust preferred securities	13,753		—		(5,543)		—		8,210
Other securities	252,886		9,180		(1,312)		—		260,754
Total available-for-sale securities	$	6,660,220	$	193,244	$	(82,422)	$	(46,512)	$	6,724,530







December 31, 2020
Available-for-Sale
U.S. Treasury	$	9,909	$	299	$	—	$	—	$	10,208
U.S. government-sponsored entities and agencies	841,133		5,744		(3,921)		(968)		841,988
Mortgage-backed securities - Agency	3,249,002		91,086		(990)		—		3,339,098
States and political subdivisions	1,405,868		86,325		(31)		—		1,492,162
Pooled trust preferred securities	13,763		—		(5,850)		—		7,913
Other securities	265,079		14,260		(593)		—		278,746
Total available-for-sale securities	$	5,784,754	$	197,714	$	(11,385)	$	(968)	$	5,970,115

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

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


	Three Months Ended March 31,
(dollars in thousands)	2021		2020
Proceeds from sales of available-for-sale debt securities	$	52,468	$	236,410
Proceeds from calls of available-for-sale debt securities	10,245		163,771
Total	$	62,713	$	400,181

Realized gains on sales of available-for-sale debt securities	$	2,000	$	5,595
Realized gains on calls of available-for-sale debt securities	13		13
Realized losses on sales of available-for-sale debt securities	—		(409)
Realized losses on calls of available-for-sale debt securities	(20)		(25)
Debt securities gains (losses), net	$	1,993	$	5,174

All of the mortgage-backed securities in the investment portfolio are residential mortgage-backed securities. The amortized cost and fair value of the investment securities portfolio are shown by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Weighted average yield is based on amortized cost.


	March 31, 2021
(dollars in thousands)	Amortized Cost		Fair Value		Weighted Average Yield
Maturity
Available-for-Sale
Within one year	$	126,291	$	127,635	2.86	%
One to five years	2,208,550		2,271,071		2.43
Five to ten years	2,015,116		2,005,310		1.77
Beyond ten years	2,310,263		2,320,514		2.45
Total	$	6,660,220	$	6,724,530	2.25	%

The following table summarizes the available-for-sale investment securities with unrealized losses for which an allowance for credit losses has not been recorded by aggregated major security type and length of time in a continuous unrealized loss position:


	Less than 12 months				12 months or longer				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2021
Available-for-Sale
U.S. Treasury	$	131,593	$	(8,337)	$	—	$	—	$	131,593	$	(8,337)
U.S. government-sponsored entities and agencies	1,086,560		(42,518)		—		—		1,086,560		(42,518)
Mortgage-backed securities - Agency	1,203,839		(20,331)		3,918		(88)		1,207,757		(20,419)
States and political subdivisions	186,505		(4,293)		—		—		186,505		(4,293)
Pooled trust preferred securities	—		—		8,210		(5,543)		8,210		(5,543)
Other securities	42,876		(891)		34,658		(421)		77,534		(1,312)
Total available-for-sale	$	2,651,373	$	(76,370)	$	46,786	$	(6,052)	$	2,698,159	$	(82,422)

December 31, 2020
Available-for-Sale

U.S. government-sponsored entities and agencies	$	355,528	$	(3,921)	$	—	$	—	$	355,528	$	(3,921)
Mortgage-backed securities - Agency	275,833		(895)		3,572		(95)		279,405		(990)
States and political subdivisions	3,497		(31)		—		—		3,497		(31)
Pooled trust preferred securities	—		—		7,913		(5,850)		7,913		(5,850)
Other securities	19,404		(70)		24,871		(523)		44,275		(593)
Total available-for-sale	$	654,262	$	(4,917)	$	36,356	$	(6,468)	$	690,618	$	(11,385)

Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. For available-for sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for sale debt securities that do not meet the criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors. If this assessment indicates that a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. No allowance for credit losses for available-for-sale debt securities was needed at March 31, 2021 or December 31, 2020. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses and totaled $26.1 million at March 31, 2021 and $27.0 million at December 31, 2020.

The U.S. government sponsored entities and agencies and mortgage-backed securities – agency are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major credit rating agencies, and have a long history of no credit losses. Therefore, for those securities, we do not record expected credit losses.

At March 31, 2021, Old National’s securities portfolio consisted of 1,892 securities, 280 of which were in an unrealized loss position. The unrealized losses attributable to our U.S. Treasury, U.S. government-sponsored entities and agencies, agency mortgage-backed securities, states and political subdivisions, and other securities are the result of fluctuations in interest rates. Our pooled trust preferred securities are discussed below. At March 31, 2021, 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.

Pooled Trust Preferred Securities

At March 31, 2021, our securities portfolio contained two pooled trust preferred securities with a fair value of $8.2 million and unrealized losses of $5.5 million. These securities are evaluated using collateral-specific assumptions to estimate the expected future interest and principal cash flows. For the three months ended March 31, 2021 and 2020, we did not recognize any losses on these securities.

The table below summarizes the relevant characteristics of our pooled trust preferred securities as well as our single issuer trust preferred securities that are included in the “other securities” category in this footnote. Each of the pooled trust preferred securities support a more senior tranche of security holders. Both pooled trust preferred securities have experienced credit defaults. However, we believe that the value of the instruments lies in the full and timely interest payments that will be received through maturity, the steady amortization that will be experienced until maturity, and the full return of principal by the final maturity of the collateralized debt obligations.


(dollars in thousands)	Class	Lowest Credit Rating (1)	Amortized Cost		Fair Value		Unrealized Gain/ (Loss)		# of Issuers Currently Performing/ Remaining	Actual Deferrals and Defaults as a % of Original Collateral	Expected Defaults as a % of Remaining Performing Collateral	Excess Subordination as a % of Current Performing Collateral
March 31, 2021
Pooled trust preferred securities:
Pretsl XXVII LTD	B	BB	$	4,208	$	2,415	$	(1,793)	32/41	14.4%	10.6%	42.1%
Trapeza Ser 13A	A2A	A	9,545		5,795		(3,750)		39/41	4.5%	6.5%	60.7%
			13,753		8,210		(5,543)
Single Issuer trust preferred securities:
JP Morgan Chase & Co		BBB-	4,813		4,554		(259)

Total			$	18,566	$	12,764	$	(5,802)

(1)Lowest rating for the security provided by any nationally recognized credit rating agency.

Equity Securities

Old National’s equity securities with readily determinable fair values totaled $2.4 million at March 31, 2021 and $2.5 million at December 31, 2020. There were gains on equity securities of $0.1 million during the three months ended March 31, 2021 and 2020. Old National also has equity securities without readily determinable fair values that are included in other assets that totaled $117.2 million at March 31, 2021 and $105.8 million at December 31, 2020. These are illiquid investments that consist of partnerships, limited liability companies, and other ownership interests that support affordable housing, economic development, and community revitalization initiatives in low-to-moderate income neighborhoods. There have been no impairments or adjustments on these securities in the three months ended March 31, 2021 or 2020.

NOTE 5 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans

Old National’s loans consist primarily of loans made to consumers and commercial clients in various industries, including manufacturing, agribusiness, transportation, mining, wholesaling, and retailing. Most of Old National’s lending activity occurs within our principal geographic markets of Indiana, Kentucky, Michigan, Minnesota, and Wisconsin. Old National manages concentrations of credit exposure by industry, product, geography, customer relationship, and loan size. While loans to lessors of both residential and non-residential real estate exceed 10% of total loans, no individual sub-segment category within those broader categories reaches the 10% threshold.

The loan categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses for loans. The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. The four loan portfolios are classified into seven segments of loans - commercial, commercial real estate, BBCC, residential real estate, indirect, direct, and home equity. The commercial and commercial real estate loan categories shown on the balance sheet include the same pool of loans as the commercial, commercial real estate, and BBCC portfolio segments. The consumer loan category shown on the balance sheet is comprised of the same loans in the indirect, direct, and home equity portfolio segments. The composition of loans by portfolio segment as of March 31, 2021 follows:


	March 31, 2021		Segment		March 31, 2021
	Statement		Portfolio		After
(dollars in thousands)	Balance		Reclassifications		Reclassifications
Loans:
Commercial	$	4,068,896	$	(187,967)	$	3,880,929
Commercial real estate	6,074,135		(168,283)		5,905,852
BBCC	N/A		356,250		356,250
Residential real estate	2,203,277		—		2,203,277
Consumer	1,578,953		(1,578,953)		N/A
Indirect	N/A		887,333		887,333
Direct	N/A		150,471		150,471
Home equity	N/A		541,149		541,149
Total	$	13,925,261	$	—	$	13,925,261

The composition of loans by portfolio segment follows:


(dollars in thousands)	March 31, 2021		December 31, 2020
Commercial (1) (2)	$	3,880,929	$	3,757,700
Commercial real estate	5,905,852		5,774,811
BBCC	356,250		370,423
Residential real estate	2,203,277		2,248,422
Indirect	887,333		913,902
Direct	150,471		164,807
Home equity	541,149		556,414
Total loans	13,925,261		13,786,479
Allowance for credit losses	(114,037)		(131,388)
Net loans	$	13,811,224	$	13,655,091

(1)Includes direct finance leases of $29.9 million at March 31, 2021 and $32.3 million at December 31, 2020.

(2)Includes PPP loans of $1.124 billion at March 31, 2021 and $943.0 million at December 31, 2020.

The risk characteristics of each loan portfolio segment are as follows:

Commercial

Commercial loans are classified primarily on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Section 1102 of the CARES Act created the PPP, a program administered by the SBA to provide loans to small businesses for payroll and other basic expenses during the COVID-19 pandemic. Old National has participated in the PPP as a lender. These loans are eligible to be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA. Additionally, loan payments will also be deferred for the first six months of the loan term. The PPP commenced on April 3, 2020 and was available to qualified borrowers through August 8, 2020. No collateral or personal guarantees were required. Neither the government nor lenders are permitted to charge the recipients any

fees. During 2020, Old National originated over 9,700 loans with balances in excess of $1.5 billion to new and existing customers through the PPP.

On December 27, 2020, President Trump signed into law the CAA. The CAA, among other things, extends the life of the PPP, effectively creating a second round of PPP loans for eligible businesses. Old National is participating in the CAA’s second round of PPP lending. In mid-January Old National opened its lending portal and began processing PPP loan applications. Old National initially focused on helping minority-owned business, women-owned business, not-for-profit entities, and existing first round PPP customers with the lending process. During the three months ended March 31, 2021, Old National originated over 4,800 loans with balance of $517.3 million through the second round of the PPP. Additionally, section 541 of the CAA extends the relief provided by the CARES Act for financial institutions to suspend the GAAP accounting treatment for troubled debt restructuring to January 1, 2022.

At March 31, 2021, remaining PPP loans totaled $1.124 billion.

Commercial Real Estate

Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing Old National’s commercial real estate portfolio are diverse in terms of type and geographic location. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans.

Included with commercial real estate are construction loans, which are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates, financial analysis of the developers and property owners, and feasibility studies, if available. Construction loans are generally based on estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders (including Old National), sales of developed property, or an interim loan commitment from Old National until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions, and the availability of long-term financing.

At 226%, Old National Bank’s commercial real estate loans as a percentage of its risk-based capital remained well below the regulatory guideline limit of 300% at March 31, 2021.

BBCC

BBCC loans are typically granted to small businesses with gross revenues of less than $5 million and aggregate debt of less than $1 million. Old National has established minimum debt service coverage ratios, minimum FICO scores for owners and guarantors, and the ability to show relatively stable earnings as criteria to help mitigate risk. Repayment of these loans depends on the personal income of the borrowers and the cash flows of the business. These factors can be affected by changes in economic conditions such as unemployment levels.

Residential

With respect to residential loans that are secured by 1-4 family residences and are generally owner occupied, Old National typically establishes a maximum loan-to-value ratio and generally requires private mortgage insurance if that ratio is exceeded. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in residential property values. Portfolio risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Indirect

Indirect loans are secured by automobile collateral, generally new and used cars and trucks from auto dealers that operate within our footprint. Old National typically mitigates the risk of indirect loans by establishing minimum FICO scores, maximum loan-to-value ratios, and maximum debt-to-income ratios. Repayment of these loans depends largely on the personal income of the borrowers, which can be affected by changes in economic conditions such as unemployment levels. Portfolio risk is mitigated by the fact that the loans are of smaller amounts spread over many borrowers, conservative credit policies, and ongoing reviews of dealer relationships.

Direct

Direct loans are typically secured by collateral such as auto or real estate or are unsecured. Old National has established conservative underwriting standards such as minimum FICO scores, maximum loan-to-value ratios, and maximum debt-to-income ratios. Repayment of these loans depends largely on the personal income of the borrowers, which can be affected by changes in economic conditions such as unemployment levels. Portfolio risk is mitigated by the fact that the loans are of smaller amounts spread over many borrowers along with conservative credit policies.

Home Equity

Home equity loans are generally secured by 1-4 family residences that are owner occupied. Old National has established conservative underwriting standards such as minimum FICO scores, maximum loan-to-value ratios, and maximum debt-to-income ratios. Repayment of these loans depends largely on the personal income of the borrowers, which can be affected by changes in economic conditions such as unemployment levels. Portfolio risk is mitigated by the fact that the loans are of smaller amounts spread over many borrowers, along with conservative credit policies as well as monitoring of updated borrower credit scores.

Allowance for Credit Losses

Loans

Credit quality within the loans held for investment portfolio is continuously monitored by management and is reflected within the allowance for credit losses for loans. The allowance for credit losses is an estimate of expected losses inherent within the Company’s loans held for investment portfolio. Credit quality is assessed and monitored by evaluating various attributes and the results of those evaluations are utilized in underwriting new loans and in our process for estimating expected credit losses. Expected credit loss inherent in non-cancelable off-balance-sheet credit exposures is accounted for as a separate liability included in other liabilities on the balance sheet. The allowance for credit losses for loans held for investment is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries. Old National has made a policy election to report accrued interest receivable as a separate line item on the balance sheet. Accrued interest receivable on loans is excluded from the estimate of credit losses and totaled $53.7 million at March 31, 2021 and $57.3 million at December 31, 2020.

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

The allowance level is influenced by loan volumes, loan AQR migration or delinquency status, changes in historical loss experience, and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses has two basic components: first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans; and second, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics.

The allowance for credit losses decreased for the three months ended March 31, 2021 primarily due to changes in the economic forecast. The forecast scenario includes improved unemployment, gross domestic product, and house price index. In addition to the quantitative inputs, several qualitative factors were considered. These factors include the risk that unemployment and gross domestic product prove to be more severe and/or prolonged than our baseline forecast, the efficacy and consumption of the vaccine, the emergence of resistant strains of the virus, and the reluctance of consumers to spend money. The mitigating impact of fiscal stimulus, including direct payments to individuals, ongoing increased unemployment benefits, as well as the various government sponsored loan programs, was also considered. Old National’s activity in the allowance for credit losses for loans by portfolio segment was as follows:


(dollars in thousands)	Balance at Beginning of Period		Impact of Adopting ASC 326		Sub-Total		Charge-offs		Recoveries		Provision for Credit Losses		Balance at End of Period
Three Months Ended March 31, 2021
Commercial	$	30,567	$	—	$	30,567	$	(407)	$	238	$	(5,268)	$	25,130
Commercial real estate	75,810		—		75,810		(1)		73		(5,321)		70,561
BBCC	6,120		—		6,120		(36)		41		(3,588)		2,537
Residential real estate	12,608		—		12,608		(158)		87		(2,272)		10,265
Indirect	3,580		—		3,580		(584)		537		(1,278)		2,255
Direct	855		—		855		(302)		260		(148)		665
Home equity	1,848		—		1,848		(82)		339		519		2,624
Total	$	131,388	$	—	$	131,388	$	(1,570)	$	1,575	$	(17,356)	$	114,037

Three Months Ended March 31, 2020
Commercial	$	21,359	$	7,150	$	28,509	$	(5,042)	$	357	$	7,301	$	31,125
Commercial real estate	20,535		25,548		46,083		(1,292)		669		8,643		54,103
BBCC	2,279		3,702		5,981		(15)		66		(615)		5,417
Residential real estate	2,299		6,986		9,285		(300)		169		483		9,637
Indirect	5,319		(1,669)		3,650		(1,203)		414		805		3,666
Direct	1,863		(1,059)		804		(475)		152		341		822
Home equity	965		689		1,654		(118)		82		(8)		1,610
Total	$	54,619	$	41,347	$	95,966	$	(8,445)	$	1,909	$	16,950	$	106,380

PPP loans were factored in the provision for credit losses for the three months ended March 31, 2021; however, due to the SBA guaranty and our borrowers’ adherence to the PPP terms, the provision impact was insignificant.

Unfunded Loan Commitments

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


	Three Months Ended March 31,
(dollars in thousands)	2021		2020
Allowance for credit losses on unfunded loan commitments:
Balance at beginning of period	$	11,689	$	2,656
Impact of adopting ASC 326	—		4,549
Sub-Total	11,689		7,205
Expense (reversal of expense) for credit losses	(1,324)		1,745
Balance at end of period	$	10,365	$	8,950

Credit Quality

Old National’s management monitors the credit quality of its loans on an ongoing basis with the AQR for commercial loans reviewed annually or at renewal and the performance of its residential and consumer loans based upon the accrual status refreshed at least quarterly. Internally, management assigns an AQR to each non-homogeneous commercial, commercial real estate, and BBCC loan in the portfolio. The primary determinants of the AQR are the reliability of the primary source of repayment and the past, present, and projected financial condition of the borrower. The AQR will also consider current industry conditions. Major factors used in determining the AQR can vary based on the nature of the loan, but commonly include factors such as debt service coverage, internal cash flow, liquidity, leverage, operating performance, debt burden, FICO scores, occupancy, interest rate sensitivity, and expense burden. Old National uses the following definitions for risk ratings:

Criticized. Special mention loans that have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Classified – Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Classified – Nonaccrual. Loans classified as nonaccrual have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection in full, on the basis of currently existing facts, conditions, and values, in doubt.

Classified – Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as nonaccrual, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Pass rated loans are those loans that are other than criticized, classified – substandard, classified – nonaccrual, or classified – doubtful.

The following table summarizes the risk category of commercial, commercial real estate, and BBCC loans by loan portfolio segment and class of loan:


	Risk Rating
(dollars in thousands)	Pass		Criticized		Classified - Substandard		Classified - Nonaccrual		Classified - Doubtful		Total
March 31, 2021
Commercial:
Term Loans at Amortized Cost by Origination Year:
Prior to 2017	$	352,978	$	5,187	$	10,711	$	1,243	$	2,566	$	372,685
2017	216,956		6,726		9,892		6,674		2,540		242,788
2018	125,661		27,901		11,267		3,600		1,705		170,134
2019	374,639		8,053		8,124		1,695		692		393,203
2020	1,201,910		21,742		4,594		3,519		—		1,231,765
2021	762,646		4,788		502		1,236		—		769,172
Revolving Loans	502,589		4,924		3,926		878		—		512,317
Revolving to Term Loans	175,782		3,226		2,691		7,166		—		188,865
Total	$	3,713,161	$	82,547	$	51,707	$	26,011	$	7,503	$	3,880,929

Commercial real estate:
Term Loans at Amortized Cost by Origination Year:
Prior to 2017	$	882,164	$	38,716	$	18,346	$	13,514	$	21,910	$	974,650
2017	657,154		42,544		23,368		7,980		20,770		751,816
2018	737,708		14,260		12,244		3,857		835		768,904
2019	1,012,914		31,909		7,743		2,049		1,788		1,056,403
2020	1,572,509		4,845		13,432		2,448		—		1,593,234
2021	332,598		2,277		370		—		—		335,245
Revolving Loans	15,838		—		13,157		—		—		28,995
Revolving to Term Loans	371,889		23,851		585		280		—		396,605
Total	$	5,582,774	$	158,402	$	89,245	$	30,128	$	45,303	$	5,905,852

BBCC:
Term Loans at Amortized Cost by Origination Year:
Prior to 2017	$	24,250	$	271	$	—	$	—	$	191	$	24,712
2017	34,384		205		239		245		44		35,117
2018	45,832		469		506		489		491		47,787
2019	67,742		1,334		1,442		490		25		71,033
2020	89,186		1,404		230		37		—		90,857
2021	20,540		—		—		—		—		20,540
Revolving Loans	42,521		530		320		—		—		43,371
Revolving to Term Loans	19,818		1,203		673		1,139		—		22,833
Total	$	344,273	$	5,416	$	3,410	$	2,400	$	751	$	356,250


	Risk Rating
(dollars in thousands)	Pass		Criticized		Classified - substandard		Classified - nonaccrual		Classified - doubtful		Total
December 31, 2020
Commercial:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	262,538	$	5,369	$	8,441	$	4,379	$	610	$	281,337
2016	124,041		3,383		2,774		49		296		130,543
2017	227,710		9,508		9,836		6,951		2,748		256,753
2018	171,228		15,003		10,077		4,701		1,016		202,025
2019	420,736		9,603		6,369		3,754		—		440,462
2020	1,675,964		23,982		6,501		2,600		—		1,709,047
Revolving Loans	549,849		10,307		15,344		778		—		576,278
Revolving to Term Loans	148,508		2,685		3,049		7,013		—		161,255
Total	$	3,580,574	$	79,840	$	62,391	$	30,225	$	4,670	$	3,757,700

Commercial real estate:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	513,658	$	33,490	$	8,665	$	12,564	$	3,274	$	571,651
2016	496,086		17,648		5,308		1,635		19,283		539,960
2017	677,119		46,994		26,691		9,456		18,926		779,186
2018	749,102		26,464		13,565		5,393		—		794,524
2019	1,041,305		49,271		4,700		2,054		1,832		1,099,162
2020	1,537,226		6,874		11,451		1,408		—		1,556,959
Revolving Loans	28,122		—		—		—		—		28,122
Revolving to Term Loans	382,219		19,804		2,911		313		—		405,247
Total	$	5,424,837	$	200,545	$	73,291	$	32,823	$	43,315	$	5,774,811

BBCC:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	5,327	$	—	$	—	$	—	$	30	$	5,357
2016	24,946		643		33		—		—		25,622
2017	36,288		414		246		200		70		37,218
2018	49,875		621		195		134		847		51,672
2019	73,913		1,403		1,417		551		3		77,287
2020	94,828		1,599		233		161		—		96,821
Revolving Loans	52,393		868		317		89		—		53,667
Revolving to Term Loans	19,353		1,259		701		1,466		—		22,779
Total	$	356,923	$	6,807	$	3,142	$	2,601	$	950	$	370,423

For residential real estate and consumer loan classes, Old National evaluates credit quality based on the aging status of the loan and by payment activity. The performing or nonperforming status is updated on an on-going basis dependent upon improvement and deterioration in credit quality. The following table presents the amortized cost in residential real estate and consumer loans based on payment activity:


	Payment Performance
(dollars in thousands)	Performing		Nonperforming		Total
March 31, 2021
Residential real estate:
Term Loans at Amortized Cost by Origination Year:
Prior to 2017	$	709,771	$	19,036	$	728,807
2017	155,099		980		156,079
2018	108,229		597		108,826
2019	380,852		222		381,074
2020	669,921		100		670,021
2021	158,352		—		158,352
Revolving Loans	—		—		—
Revolving to Term Loans	118		—		118
Total	$	2,182,342	$	20,935	$	2,203,277
Indirect:
Term Loans at Amortized Cost by Origination Year:
Prior to 2017	$	54,370	$	533	$	54,903
2017	79,764		639		80,403
2018	115,341		795		116,136
2019	224,114		470		224,584
2020	329,182		349		329,531
2021	81,709		—		81,709
Revolving Loans	—		—		—
Revolving to Term Loans	67		—		67
Total	$	884,547	$	2,786	$	887,333
Direct:
Term Loans at Amortized Cost by Origination Year:
Prior to 2017	$	23,706	$	763	$	24,469
2017	13,194		152		13,346
2018	25,754		163		25,917
2019	25,427		113		25,540
2020	27,595		66		27,661
2021	7,511		—		7,511
Revolving Loans	25,014		5		25,019
Revolving to Term Loans	1,006		2		1,008
Total	$	149,207	$	1,264	$	150,471
Home equity:
Term Loans at Amortized Cost by Origination Year:
Prior to 2017	$	—	$	—	$	—
2017	642		—		642
2018	418		127		545
2019	980		98		1,078
2020	—		—		—
2021	—		—		—
Revolving Loans	515,235		101		515,336
Revolving to Term Loans	18,817		4,731		23,548
Total	$	536,092	$	5,057	$	541,149


	Payment Performance
(dollars in thousands)	Performing		Nonperforming		Total
December 31, 2020
Residential real estate:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	620,999	$	20,775	$	641,774
2016	202,457		2,131		204,588
2017	190,376		892		191,268
2018	132,107		680		132,787
2019	453,132		251		453,383
2020	624,435		65		624,500
Revolving Loans	—		—		—
Revolving to Term Loans	122		—		122
Total	$	2,223,628	$	24,794	$	2,248,422
Indirect:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	21,088	$	192	$	21,280
2016	52,225		429		52,654
2017	96,587		666		97,253
2018	134,893		777		135,670
2019	253,514		443		253,957
2020	352,989		22		353,011
Revolving Loans	—		—		—
Revolving to Term Loans	77		—		77
Total	$	911,373	$	2,529	$	913,902
Direct:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	19,465	$	526	$	19,991
2016	8,527		247		8,774
2017	16,182		64		16,246
2018	30,510		171		30,681
2019	29,189		141		29,330
2020	32,499		22		32,521
Revolving Loans	26,028		4		26,032
Revolving to Term Loans	1,229		3		1,232
Total	$	163,629	$	1,178	$	164,807
Home equity:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	—	$	116	$	116
2016	238		11		249
2017	891		—		891
2018	444		—		444
2019	997		37		1,034
2020	1		—		1
Revolving Loans	529,275		94		529,369
Revolving to Term Loans	20,314		3,996		24,310
Total	$	552,160	$	4,254	$	556,414

Nonaccrual and Past Due Loans

Old National does not record interest on nonaccrual loans until principal is recovered. For all loan classes, a loan is generally placed on nonaccrual status when principal or interest becomes 90 days past due unless it is well secured and in the process of collection, or earlier when concern exists as to the ultimate collectability of principal or interest. Interest accrued but not received is reversed against earnings. Cash interest received on these loans is applied to the principal balance until the principal is recovered or until the loan returns to accrual status. Loans may be returned to accrual status when all the principal and interest amounts contractually due are brought current, remain current for a prescribed period, and future payments are reasonably assured.

The following table presents the aging of the amortized cost basis in past due loans by class of loans:


(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Past Due 90 Days or More		Total Past Due		Current		Total Loans
March 31, 2021
Commercial	$	3,141	$	—	$	3,504	$	6,645	$	3,874,284	$	3,880,929
Commercial real estate	2,586		159		32,955		35,700		5,870,152		5,905,852
BBCC	103		84		86		273		355,977		356,250
Residential	9,067		217		6,724		16,008		2,187,269		2,203,277
Indirect	2,124		475		469		3,068		884,265		887,333
Direct	639		134		314		1,087		149,384		150,471
Home equity	352		347		1,912		2,611		538,538		541,149
Total	$	18,012	$	1,416	$	45,964	$	65,392	$	13,859,869	$	13,925,261

December 31, 2020
Commercial	$	2,977	$	664	$	2,100	$	5,741	$	3,751,959	$	3,757,700
Commercial real estate	887		128		27,272		28,287		5,746,524		5,774,811
BBCC	894		882		61		1,837		368,586		370,423
Residential	11,639		3,296		7,666		22,601		2,225,821		2,248,422
Indirect	5,222		960		492		6,674		907,228		913,902
Direct	753		533		426		1,712		163,095		164,807
Home equity	1,075		377		1,663		3,115		553,299		556,414
Total	$	23,447	$	6,840	$	39,680	$	69,967	$	13,716,512	$	13,786,479

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing by class of loan:


	March 31, 2021						December 31, 2020
(dollars in thousands)	Nonaccrual Amortized Cost		Nonaccrual With No Related Allowance		Past Due 90 Days or More and Accruing		Nonaccrual Amortized Cost		Nonaccrual With No Related Allowance		Past Due 90 Days or More and Accruing
Commercial	$	33,514	$	1,890	$	49	$	34,895	$	3,394	$	122
Commercial real estate	75,431		42,221		—		76,138		22,152		20
BBCC	3,151		—		—		3,551		—		—
Residential	20,935		—		—		24,794		—		—
Indirect	2,786		—		—		2,529		—		12
Direct	1,264		—		—		1,178		27		13
Home equity	5,057		4		—		4,254		45		—
Total	$	142,138	$	44,115	$	49	$	147,339	$	25,618	$	167

Interest income recognized on nonaccrual loans was insignificant during the three months ended March 31, 2021 and 2020.

When management determines that foreclosure is probable, expected credit losses for collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. A loan is considered collateral dependent when the borrower is experiencing financial difficulty and the loan is expected to be repaid substantially through the operation or sale of the collateral. The class of loan represents the primary collateral type associated with the loan. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value. The following table presents the amortized cost basis of collateral dependent loans by class of loan:


	Type of Collateral
(dollars in thousands)	Real Estate		Blanket Lien		Investment Securities/Cash		Auto		Other
March 31, 2021
Commercial	$	7,470	$	20,081	$	5,352	$	165	$	446
Commercial real estate	60,773		381		1,088		—		13,189
BBCC	1,267		1,706		56		122		—
Residential	20,935		—		—		—		—
Indirect	—		—		—		2,786		—
Direct	980		—		2		227		23
Home equity	5,057		—		—		—		—
Total loans	$	96,482	$	22,168	$	6,498	$	3,300	$	13,658

December 31, 2020
Commercial	$	8,976	$	19,253	$	5,379	$	394	$	893
Commercial real estate	60,844		472		1,137		—		13,685
BBCC	1,425		1,929		63		134		—
Residential	24,794		—		—		—		—
Indirect	—		—		—		2,529		—
Direct	901		—		2		235		29
Home equity	4,254		—		—		—		—
Total loans	$	101,194	$	21,654	$	6,581	$	3,292	$	14,607

Loan Participations

Old National has loan participations, which qualify as participating interests, with other financial institutions. At March 31, 2021, these loans totaled $1.108 billion, of which $496.3 million had been sold to other financial institutions and $611.8 million was retained by Old National. The loan participations convey proportionate ownership rights with equal priority to each participating interest holder; involve no recourse (other than ordinary representations and warranties) to, or subordination by, any participating interest holder; all cash flows are divided among the participating interest holders in proportion to each holder’s share of ownership; and no holder has the right to pledge the entire financial asset unless all participating interest holders agree.

Troubled Debt Restructurings

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

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

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

based on quantitative benchmarks or subjectively based upon certain events or particular circumstances. For residential and consumer loans, a charge off is recorded at the time foreclosure is initiated or when the loan becomes 120 to 180 days past due, whichever is earlier.

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

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

The following table presents activity in TDRs:


(dollars in thousands)	Beginning Balance		(Charge-offs)/ Recoveries		(Payments)/ Disbursements		(Removals)/ Additions		Ending Balance
Three Months Ended March 31, 2021
Commercial	$	11,090	$	—	$	(1,448)	$	(1,171)	$	8,471
Commercial real estate	17,606		8		(229)		—		17,385
BBCC	112		3		(10)		—		105
Residential	2,824		—		(221)		—		2,603
Indirect	—		2		(2)		—		—
Direct	739		1		(14)		—		726
Home equity	282		1		(7)		—		276
Total	$	32,653	$	15	$	(1,931)	$	(1,171)	$	29,566

Three Months Ended March 31, 2020
Commercial	$	12,412	$	(695)	$	(789)	$	—	$	10,928
Commercial real estate	14,277		(1,272)		(157)		—		12,848
BBCC	578		—		(16)		—		562
Residential	3,107		—		(67)		—		3,040
Indirect	—		3		(3)		—		—
Direct	983		2		(63)		—		922
Home equity	381		1		(8)		—		374
Total	$	31,738	$	(1,961)	$	(1,103)	$	—	$	28,674

TDRs included within nonaccrual loans totaled $14.3 million at March 31, 2021 and $14.9 million at December 31, 2020. Old National has allocated specific reserves to customers whose loan terms have been modified as TDRs totaling $0.8 million at March 31, 2021 and $1.6 million at December 31, 2020. Old National had not committed to lend any additional funds to customers with outstanding loans that were classified as TDRs at March 31, 2021 or December 31, 2020.

The pre-modification and post-modification outstanding recorded investments of loans modified as TDRs during the three months ended March 31, 2021 and 2020 are the same except for when the loan modifications involve the forgiveness of principal. There were no TDR additions for the three months ended March 31, 2021 and 2020. However, one loan met the qualifications to be removed from TDR status for the three months ended March 31, 2021.

The TDRs that occurred during the three months ended March 31, 2021 and 2020 did not have a material impact on the allowance for credit losses and resulted in no charge-offs.

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

TDRs for which there was a payment default within twelve months following the modification were insignificant during the three months ended March 31, 2021 and 2020.

The terms of certain other loans were modified during 2021 and 2020 that did not meet the definition of a TDR. It is our process to review all classified and criticized loans that, during the period, have been renewed, have entered into a forbearance agreement, have gone from principal and interest to interest only, or have extended the maturity date. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on its debt in the foreseeable future without the modification. The evaluation is performed under our internal underwriting policy. We also evaluate whether a concession has been granted or if we were adequately compensated through a market interest rate, additional collateral, or a bona fide guarantee. We also consider whether the modification was insignificant relative to the other terms of the agreement or the delay in a payment.

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

Non-TDR Loan Modifications due to COVID-19

On March 22, 2020, the Interagency Statement was issued by our banking regulators that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act terminates. The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act, as well as setting forth the banking regulators’ views on consumer protection considerations. Additionally, section 541 of the CAA extends the relief provided by the CARES Act for financial institutions to suspend the GAAP accounting treatment for troubled debt restructuring to January 1, 2022. In accordance with such guidance, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term (180 days or less) modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. The table below presents these loan deferrals by loan category:


	December 31, 2020		March 31, 2021
(dollars in thousands)	Deferrals Balance		Deferrals Balance (1)		Number of Deferrals
Commercial and commercial real estate	$	53,823	$	32,242	47
Residential real estate	1,855		1,763		8
Consumer	8,224		5,280		250
Total	$	63,902	$	39,285	305

(1) Includes second deferrals between 90 and 180 days totaling $2.2 million of commercial and commercial real estate loans, $0.7 million of residential real estate loans, and $0.7 million of consumer loans.

NOTE 6 – OTHER REAL ESTATE OWNED

Other real estate owned is included in other assets. The following table presents activity in other real estate owned:


	Three Months Ended March 31,
(dollars in thousands)	2021		2020
Balance at beginning of period	$	1,324	$	2,169
Additions	130		146
Sales	(632)		(113)
Impairments	(71)		(39)
Balance at end of period (1)	$	751	$	2,163

(1)Includes repossessed personal property of $0.2 million at March 31, 2021 and $0.4 million at March 31, 2020.

Foreclosed residential real estate property recorded as a result of obtaining physical possession of the property included in the table above totaled $0.4 million at March 31, 2021 and $0.8 million at December 31, 2020. Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $3.7 million at March 31, 2021 and $2.7 million at December 31, 2020.

NOTE 7 – PREMISES AND EQUIPMENT

The composition of premises and equipment was as follows:


(dollars in thousands)	March 31, 2021		December 31, 2020
Land	$	72,219	$	72,600
Buildings	375,397		373,660
Furniture, fixtures, and equipment	114,824		110,735
Leasehold improvements	44,747		44,734
Total	607,187		601,729
Accumulated depreciation	(140,628)		(137,321)
Premises and equipment, net	$	466,559	$	464,408

Depreciation expense was $7.1 million for the three months ended March 31, 2021, compared to $8.6 million for the three months ended March 31, 2020.

Finance Leases

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

NOTE 8 – LEASES

Old National has operating and finance leases for land, office space, banking centers, and equipment. These leases are generally for periods of 10 to 20 years with various renewal options. We include certain renewal options in the measurement of our right-of-use assets and lease liabilities if they are reasonably certain to be exercised. Variable lease payments that are dependent on an index or a rate are initially measured using the index or rate at the commencement date and are included in the measurement of the lease liability. Variable lease payments that are not dependent on an index or a rate are excluded from the measurement of the lease liability and are recognized in profit and loss when incurred. Variable lease payments are defined as payments made for the right to use an asset that vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time.

Old National has lease agreements with lease and non-lease components, which are generally accounted for separately. For real estate leases, non-lease components and other non-components, such as common area maintenance charges, real estate taxes, and insurance are not included in the measurement of the lease liability since they are generally able to be segregated. For certain equipment leases, Old National accounts for the lease and non-lease components as a single lease component using the practical expedient available for that class of assets.

Old National does not have any material sub-lease agreements.

The components of lease expense were as follows:


	Affected Line Item in the Statement of Income	Three Months Ended March 31,
(dollars in thousands)		2021		2020
Operating lease cost	occupancy/equipment expense	$	3,301	$	9,181
Finance lease cost:
Amortization of right-of-use assets	occupancy expense	311		166
Interest on lease liabilities	interest expense	95		78
Short-term lease cost	occupancy expense	—		1
Sub-lease income	occupancy expense	(143)		(128)
Total		$	3,564	$	9,298

Supplemental balance sheet information related to leases was as follows:


(dollars in thousands)	March 31, 2021			December 31, 2020
Operating Leases
Operating lease right-of-use assets	$	74,611		$	76,197
Operating lease liabilities	84,665			86,598

Finance Leases
Premises and equipment, net	11,040			11,351
Other borrowings	11,561			11,813

Weighted-Average Remaining Lease Term (in Years)
Operating leases	10.4			10.6
Finance leases	10.1			10.3

Weighted-Average Discount Rate
Operating leases	3.38		%	3.40		%
Finance leases	3.48		%	3.46		%

Supplemental cash flow information related to leases was as follows:


	Three Months Ended March 31,
(dollars in thousands)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,636	$	4,193
Operating cash flows from finance leases	95		78
Financing cash flows from finance leases	251		122

The following table presents a maturity analysis of the Company’s lease liability by lease classification at March 31, 2021:


(dollars in thousands)	Operating Leases		Finance Leases
2021	$	10,706	$	1,048
2022	13,424		1,412
2023	9,721		1,438
2024	8,557		1,444
2025	8,373		1,437
Thereafter	50,549		7,006
Total undiscounted lease payments	101,330		13,785
Amounts representing interest	(16,665)		(2,224)
Lease liability	$	84,665	$	11,561

Old National leases certain office space and buildings to unrelated parties in exchange for consideration. All of these tenant leases are classified as operating leases. The following table presents a maturity analysis of the Company’s tenant leases at March 31, 2021:


(dollars in thousands)	Tenant Leases
2021	$	1,747
2022	1,907
2023	1,526
2024	1,396
2025	1,083
Thereafter	2,922
Total undiscounted lease payments	$	10,581

NOTE 9 – GOODWILL AND OTHER INTANGIBLE ASSETS

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


	Three Months Ended March 31,
(dollars in thousands)	2021		2020
Balance at beginning of period	$	1,036,994	$	1,036,994
Acquisitions and adjustments	—		—
Balance at end of period	$	1,036,994	$	1,036,994

Old National performed the required annual goodwill impairment test as of August 31, 2020 and there was no impairment. No events or circumstances since the August 31, 2020 annual impairment test were noted that would indicate it was more likely than not a goodwill impairment exists.

The gross carrying amounts and accumulated amortization of other intangible assets were as follows:


(dollars in thousands)	Gross Carrying Amount		Accumulated Amortization and Impairment		Net Carrying Amount
March 31, 2021
Core deposit	$	103,264	$	(62,982)	$	40,282
Customer trust relationships	16,547		(13,890)		2,657
Total intangible assets	$	119,811	$	(76,872)	$	42,939

December 31, 2020
Core deposit	$	112,723	$	(69,623)	$	43,100
Customer trust relationships	16,547		(13,633)		2,914
Total intangible assets	$	129,270	$	(83,256)	$	46,014

Other intangible assets consist of core deposit intangibles and customer relationship intangibles and are being amortized primarily on an accelerated basis over their estimated useful lives, generally over a period of 5 to 15 years.

Old National reviews other intangible assets for possible impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. No impairment charges were recorded during the three months ended March 31, 2021 or 2020. Total amortization expense associated with intangible assets was $3.1 million for the three months ended March 31, 2021, compared to $3.8 million for the three months ended March 31, 2020.

Estimated amortization expense for future years is as follows:


(dollars in thousands)
2021 remaining	$	8,261
2022	9,014
2023	7,053
2024	5,645
2025	4,509
Thereafter	8,457
Total	$	42,939

NOTE 10 – LOAN SERVICING RIGHTS

Loan servicing rights are included in other assets on the balance sheet. At March 31, 2021, loan servicing rights derived from mortgage loans sold with servicing retained totaled $28.1 million, compared to $26.7 million at December 31, 2020. Loans serviced for others are not reported as assets. The principal balance of mortgage loans serviced for others was $3.597 billion at March 31, 2021, compared to $3.613 billion at December 31, 2020. Custodial escrow balances maintained in connection with serviced loans were $32.9 million at March 31, 2021 and $16.2 million at December 31, 2020.

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


	Three Months Ended March 31,
(dollars in thousands)	2021		2020
Balance at beginning of period	$	28,124	$	25,399
Additions	3,113		1,731
Amortization	(2,975)		(1,555)
Balance before valuation allowance at end of period	28,262		25,575
Valuation allowance:
Balance at beginning of period	(1,407)		(31)
(Additions)/recoveries	1,261		(1,412)
Balance at end of period	(146)		(1,443)
Loan servicing rights, net	$	28,116	$	24,132

At March 31, 2021, the fair value of servicing rights was $30.7 million, which was determined using a discount rate of 9% and a conditional prepayment rate of 11%. At December 31, 2020, the fair value of servicing rights was $26.8 million, which was determined using a discount rate of 9% and a conditional prepayment rate of 14%.

NOTE 11 – QUALIFIED AFFORDABLE HOUSING PROJECTS AND OTHER TAX CREDIT INVESTMENTS

Old National is a limited partner in several tax-advantaged limited partnerships whose purpose is to invest in approved qualified affordable housing, renewable energy, or other renovation or community revitalization projects. These investments are included in other assets on the balance sheet, with any unfunded commitments included with other liabilities. As of March 31, 2021, Old National expects to recover its remaining investments through the use of the tax credits that are generated by the investments.

The following table summarizes Old National’s investments in qualified affordable housing projects and other tax credit investments:


(dollars in thousands)		March 31, 2021				December 31, 2020
Investment	Accounting Method	Investment		Unfunded Commitment (1)		Investment		Unfunded Commitment
LIHTC	Proportional amortization	$	32,702	$	5,899	$	33,609	$	6,845
FHTC	Equity	18,530		20,672		18,660		22,398
NMTC	Equity	10,425		—		6,120		—
Renewable Energy	Equity	2,714		—		3,611		862
Total		$	64,371	$	26,571	$	62,000	$	30,105

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

The following table summarizes the amortization expense and tax benefit recognized for Old National’s qualified affordable housing projects and other tax credit investments:


(dollars in thousands)	Amortization Expense (1)		Tax Expense (Benefit) Recognized (2)
Three Months Ended March 31, 2021
LIHTC	$	862	$	(1,136)
FHTC	130		(682)
NMTC	375		(463)
Renewable Energy	697		(562)
Total	$	2,064	$	(2,843)

Three Months Ended March 31, 2020
LIHTC	$	776	$	(1,019)
FHTC	5,143		(1,356)

Renewable Energy	372		(400)
Total	$	6,291	$	(2,775)

(1)The amortization expense for the LIHTC investments is included in our income tax expense. The amortization expense for the FHTC, NMTC, and Renewable Energy tax credits is included in noninterest expense.

(2)All of the tax benefits recognized are included in our income tax expense. The tax benefit recognized for the FHTC, NMTC, and Renewable Energy investments primarily reflects the tax credits generated from the investments and excludes the net tax expense (benefit) and deferred tax liability of the investments’ income (loss).

NOTE 12 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase are secured borrowings. Old National pledges investment securities to secure these borrowings. The following table presents securities sold under agreements to repurchase and related weighted-average interest rates:


	At or for the Three Months Ended March 31, 2021			At December 31, 2020			At or for the Three Months Ended March 31, 2020
(dollars in thousands)
Outstanding at period end	$	395,242		$	431,166		$	318,067
Average amount outstanding during the period	398,662			N/A			329,091
Maximum amount outstanding at any month-end during the period	395,242			N/A			318,067
Weighted-average interest rate:
During the period	0.12		%	N/A			0.47		%
At period end	0.12		%	0.12		%	0.22		%

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


	At March 31, 2021
	Remaining Contractual Maturity of the Agreements
(dollars in thousands)	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater Than 90 days		Total
Repurchase Agreements:
U.S. Treasury and agency securities	$	395,242	$	—	$	—	$	—	$	395,242
Total	$	395,242	$	—	$	—	$	—	$	395,242

The fair value of securities pledged to secure repurchase agreements may decline. Old National has pledged securities valued at 106% of the gross outstanding balance of repurchase agreements at March 31, 2021 to manage this risk.

NOTE 13 – FEDERAL HOME LOAN BANK ADVANCES

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


(dollars in thousands)	March 31, 2021		December 31, 2020
FHLB advances (fixed rates 0.45% to 4.96% and variable rates 0.06% to 0.09%) maturing June 2021 to January 2041	$	1,924,155	$	1,999,160
Fair value hedge basis adjustments and unamortized prepayment fees	(11,614)		(7,725)
Total	$	1,912,541	$	1,991,435

FHLB advances had weighted-average rates of 1.32% at March 31, 2021 and December 31, 2020. Investment securities and residential real estate loans collateralize these borrowings up to 140% of outstanding debt.

In the first quarter of 2021, Old National modified $50.0 million pertaining to two FHLB advances, which lowered their weighted average effective rates from 1.53% to 0.33%. At March 31, 2021, total unamortized prepayment fees related to all debt modifications totaled $30.7 million, compared to $30.0 million at December 31, 2020.

Contractual maturities of FHLB advances at March 31, 2021 were as follows:


(dollars in thousands)
Due in 2021	$	20,000
Due in 2022	29,000
Due in 2023	155
Due in 2024	25,000
Due in 2025	550,000
Thereafter	1,300,000
Fair value hedge basis adjustments and unamortized prepayment fees	(11,614)
Total	$	1,912,541

NOTE 14 – OTHER BORROWINGS

The following table summarizes Old National’s other borrowings:


(dollars in thousands)	March 31, 2021		December 31, 2020
Old National Bancorp:
Senior unsecured notes (fixed rate 4.125% maturing August 2024)	$	175,000	$	175,000
Unamortized debt issuance costs related to senior unsecured notes	(520)		(559)
Junior subordinated debentures (variable rates of 1.75% to 1.93%) maturing March 2035 to June 2037	42,000		42,000
Other basis adjustments	(3,157)		(3,195)
Old National Bank:
Finance lease liabilities	11,561		11,813
Subordinated debentures (variable rate 4.56%)	12,000		12,000
Leveraged loans for NMTC (fixed rates of 1.00% to 1.43%) maturing December 2046 to December 2052	25,655		15,300
Other	3,743		428
Total other borrowings	$	266,282	$	252,787

Contractual maturities of other borrowings at March 31, 2021 were as follows:


(dollars in thousands)
Due in 2021	$	774
Due in 2022	1,073
Due in 2023	1,132
Due in 2024	176,170
Due in 2025	1,198
Thereafter	85,869
Unamortized debt issuance costs and other basis adjustments	66
Total	$	266,282

Senior Notes

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

Junior Subordinated Debentures

Junior subordinated debentures related to trust preferred securities are classified in “other borrowings.” On November 1, 2017, Old National acquired Anchor (MN) and exceeded $15 billion in assets. As a result, these securities can only be treated as Tier 2 capital for regulatory purposes, subject to certain limitations. Prior to the fourth quarter of 2017, these securities qualified as Tier 1 capital for regulatory purposes.

Through various acquisitions, Old National assumed junior subordinated debenture obligations related to various trusts that issued trust preferred securities. Old National guarantees the payment of distributions on the trust preferred securities issued by the trusts. Proceeds from the issuance of each of these securities were used to purchase junior subordinated debentures with the same financial terms as the securities issued by the trusts.

Old National, at any time, may redeem the junior subordinated debentures at par and, thereby cause a redemption of the trust preferred securities in whole or in part.

The following table summarizes the terms of our outstanding junior subordinated debentures:

(dollars in thousands)

Rate at

March 31,
2021

Name of Trust

Issuance Date

Issuance
Amount

Rate

Maturity Date

St. Joseph Capital Trust II

March 2005

5,000

3-month LIBOR plus 1.75%

1.93%

March 17, 2035

Anchor Capital Trust III

August 2005

5,000

3-month LIBOR plus 1.55%

1.75%

September 30, 2035

Home Federal Statutory
Trust I

September 2006

15,000

3-month LIBOR plus 1.65%

1.83%

September 15, 2036

Monroe Bancorp Capital
Trust I

July 2006

3,000

3-month LIBOR plus 1.60%

1.82%

October 7, 2036

Tower Capital Trust 3

December 2006

9,000

3-month LIBOR plus 1.69%

1.88%

March 1, 2037

Monroe Bancorp Statutory
Trust II

March 2007

5,000

3-month LIBOR plus 1.60%

1.78%

June 15, 2037

Total

42,000

Subordinated Debentures

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

Finance Lease Liabilities

Old National has long-term finance lease liabilities for certain banking centers totaling $11.6 million. The economic substance of these leases is that Old National is financing the acquisition of the building through the lease and accordingly, the building is recorded as a right-of-use asset in premises and equipment and the lease is recorded as a liability in other borrowings. The right-of-use assets and lease liabilities are initially measured at the present value of the lease payments over the lease term using Old National’s incremental borrowing rate based on the information available at the commencement date of the lease. See Note 8 to the consolidated financial statements for a maturity analysis of the Company’s finance lease liabilities.

NOTE 15 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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


(dollars in thousands)	Unrealized Gains and Losses on Available- for-Sale Debt Securities		Gains and Losses on Cash Flow Hedges		Defined Benefit Pension Plans		Total
Three Months Ended March 31, 2021
Balance at beginning of period	$	145,335	$	2,584	$	(148)	$	147,771
Other comprehensive income (loss) before reclassifications	(57,287)		3,053		—		(54,234)
Amounts reclassified from AOCI to income (1)	(1,553)		(112)		37		(1,628)
Balance at end of period	$	86,495	$	5,525	$	(111)	$	91,909

Three Months Ended March 31, 2020
Balance at beginning of period	$	56,131	$	240	$	(164)	$	56,207
Other comprehensive income (loss) before reclassifications	80,369		5,886		—		86,255
Amounts reclassified from AOCI to income (1)	(4,000)		(325)		20		(4,305)
Balance at end of period	$	132,500	$	5,801	$	(144)	$	138,157

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

The following table summarizes the significant amounts reclassified out of each component of AOCI for the three months ended March 31, 2021 and 2020:


Details about AOCI Components	Amount Reclassified from AOCI				Affected Line Item in the Statement of Income
	Three Months Ended March 31,
(dollars in thousands)	2021		2020
Unrealized gains and losses on available-for-sale debt securities	$	1,993	$	5,174	Debt securities gains (losses), net
	(440)		(1,174)		Income tax (expense) benefit
	$	1,553	$	4,000	Net income



Gains and losses on cash flow hedges Interest rate contracts	$	149	$	431	Interest income (expense)
	(37)		(106)		Income tax (expense) benefit
	$	112	$	325	Net income
Amortization of defined benefit pension items
Actuarial gains (losses)	$	(49)	$	(27)	Salaries and employee benefits
	12		7		Income tax (expense) benefit
	$	(37)	$	(20)	Net income

Total reclassifications for the period	$	1,628	$	4,305	Net income

NOTE 16 – SHARE-BASED COMPENSATION

At March 31, 2021, Old National had 2.5 million shares remaining available for issuance under the Company’s Amended and Restated 2008 Incentive Compensation Plan. The granting of awards to key employees is typically in the form of restricted stock awards or units.

Restricted Stock Awards

Old National granted 0.1 million time-based restricted stock awards to certain key officers during the three months ended March 31, 2021, with shares vesting generally over a 36 month period. At March 31, 2021, nonvested shares totaled 0.5 million. Compensation expense is recognized on a straight-line basis over the vesting period. Shares are subject to certain restrictions and risk of forfeiture by the participants. At March 31, 2021, unrecognized compensation expense for unvested restricted stock awards was $6.2 million. The cost is expected to be recognized over a weighted-average period of 2.1 years.

Old National recorded share-based compensation expense, net of tax, related to restricted stock awards of $0.7 million during the three months ended March 31, 2021 and 2020.

Restricted Stock Units

Old National granted 0.2 million shares of performance based restricted stock units to certain key officers during the three months ended March 31, 2021, with shares vesting at the end of a 36 month period based on the achievement of certain targets. At March 31, 2021, nonvested shares totaled 0.9 million. For certain awards, the level of performance could increase or decrease the number of shares earned. Compensation expense is recognized on a straight-line basis over the vesting period. Shares are subject to certain restrictions and risk of forfeiture by the participants. At March 31, 2021, unrecognized compensation expense was $6.4 million. The cost is expected to be recognized over a weighted-average period of 2.2 years.

Old National recorded share-based compensation expense, net of tax, related to restricted stock units of $0.6 million during the three months ended March 31, 2021, compared to $1.4 million during the three months ended March 31, 2020.

Stock Options and Appreciation Rights

Old National has not granted stock options since 2009. However, Old National did acquire stock options and stock appreciation rights through prior year acquisitions. Old National recorded no incremental expense associated with the conversion of these options and stock appreciation rights. At March 31, 2021, 28 thousand stock appreciation rights remained outstanding.

NOTE 17 – INCOME TAXES

Following is a summary of the major items comprising the differences in taxes from continuing operations computed at the federal statutory rate and as recorded in the consolidated statements of income:


	Three Months Ended March 31,
(dollars in thousands)	2021			2020
Provision at statutory rate of 21%	$	21,934		$	5,372
Tax-exempt income:
Tax-exempt interest	(2,779)			(2,632)
Section 291/265 interest disallowance	33			73
Company-owned life insurance income	(544)			(647)
Tax-exempt income	(3,290)			(3,206)
State income taxes	2,974			(8)
Interim period effective rate adjustment	(1,775)			3,267
Tax credit investments - federal	(1,092)			(1,902)
Other, net	(1,121)			(584)
Income tax expense	$	17,630		$	2,939
Effective tax rate	16.9		%	11.5		%

The provision for income taxes was recorded at March 31, 2021 and 2020 based on the current estimate of the effective annual rate.

The higher effective tax rate during the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 is primarily the result of an increase in pre-tax book income.

Net Deferred Tax Assets

Net deferred tax assets are included in other assets on the balance sheet. Significant components of net deferred tax assets (liabilities) were as follows:


(dollars in thousands)	March 31, 2021		December 31, 2020
Deferred Tax Assets
Allowance for credit losses, net of recapture	$	30,374	$	34,971
Benefit plan accruals	11,136		20,076

Net operating loss carryforwards	15,553		18,982
Federal tax credits	1,332		—
Deferred gain on securities	1,786		2,102
Acquired loans	10,912		11,989
Operating lease liabilities	23,710		24,245



Tax credit investments and other partnerships	968		1,054
Other real estate owned	6		28
Other, net	720		460
Total deferred tax assets	96,497		113,907
Deferred Tax Liabilities

Purchase accounting	(18,365)		(18,232)
Loan servicing rights	(6,928)		(6,582)
Premises and equipment	(13,972)		(14,008)
Prepaid expenses	(956)		(955)
Operating lease right-of-use assets	(21,105)		(21,569)
Unrealized gains on available-for-sale investment securities	(24,327)		(40,756)
Unrealized gains on hedges	(1,800)		(1,080)
Other, net	(1,557)		(1,555)
Total deferred tax liabilities	(89,010)		(104,737)
Net deferred tax assets	$	7,487	$	9,170

Through the acquisition of Anchor (WI) in the second quarter of 2016 and Lafayette Savings Bank in the fourth quarter of 2014, both former thrifts, Old National Bank’s retained earnings at March 31, 2021 include base-year bad debt reserves, created for tax purposes prior to 1988, totaling $52.8 million. Of this total, $50.9 million was acquired from Anchor (WI), and $1.9 million was acquired from Lafayette Savings Bank. Base-year reserves are subject to recapture in the unlikely event that Old National Bank (1) makes distributions in excess of current and accumulated earnings and profits, as calculated for federal income tax purposes, (2) redeems its stock, or (3) liquidates. Old National Bank has no intention of making such a nondividend distribution. Accordingly, under current accounting principles, a related deferred income tax liability of $13.0 million has not been recognized.

No valuation allowance was recorded at March 31, 2021 or December 31, 2020 because, based on current expectations, Old National believes it will generate sufficient income in future years to realize deferred tax assets. Old National has federal net operating loss carryforwards totaling $36.7 million at March 31, 2021 and $52.4 million at December 31, 2020. This federal net operating loss was acquired from the acquisition of Anchor (WI) in 2016. If not used, the federal net operating loss carryforwards will expire from 2030 to 2033. Old National has federal tax credit carryforwards totaling $1.3 million at March 31, 2021. The federal tax credits consist mainly of energy efficient home credits, low-income housing credits, and new market tax credits that, if not used, will expire by 2041. Old National has recorded state net operating loss carryforwards totaling $129.1 million at March 31, 2021 and $132.2 million at December 31, 2020. If not used, the state net operating loss carryforwards will expire from 2027 to 2033.

The federal and recorded state net operating loss carryforwards are subject to an annual limitation under Internal Revenue Code section 382. Old National believes that all of the recorded net operating loss carryforwards will be used prior to expiration.

NOTE 18 – DERIVATIVE FINANCIAL INSTRUMENTS

As part of our overall interest rate risk management, Old National uses derivative instruments, including interest rate swaps, collars, caps, and floors. The notional amount does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements. Derivative instruments are recognized on the balance sheet at their fair value and are not reported on a net basis.

In accordance with ASC 815-20-35-1, subsequent changes in fair value for a hedging instrument that has been designated and qualifies as part of a hedging relationship should be accounted for in the following manner:

Cash flow hedges: changes in fair value are recognized as a component in other comprehensive income.

Fair value hedges: changes in fair value are recognized concurrently in earnings.

As long as a hedging instrument is designated and the results of the effectiveness testing support that the instrument qualifies for hedge accounting treatment, 100% of the periodic changes in fair value of the hedging instrument are accounted for as outlined above. This is the case whether or not economic mismatches exist in the hedging relationship. As a result, there is no periodic measurement or recognition of ineffectiveness. Rather, the full impact of hedge gains and losses is recognized in the period in which the hedged transactions impact earnings.

The change in fair value of the hedging instrument that is included in the assessment of hedge effectiveness is presented in the same income statement line item that is used to present the earnings effect of the hedged item.

Cash Flow Hedges

Interest rate swaps of certain borrowings were designated as cash flow hedges totaling $150.0 million notional amount at March 31, 2021 and $325.0 million notional amount at December 31, 2020. Interest rate collars and floors related to variable-rate commercial loan pools were designated as cash flow hedges totaling $400.0 million notional amount at March 31, 2021 and December 31, 2020. The hedges were determined to be effective during all periods presented and we expect them to remain effective during the remaining terms.

Old National has designated its interest rate collars as cash flow hedges. The structure of these instruments is such that Old National pays the counterparty an incremental amount if the collar index exceeds the cap rate. Conversely, Old National receives an incremental amount if the index falls below the floor rate. No payments are required if the collar index falls between the cap and floor rates.

Old National has designated its interest rate floor transactions as cash flow hedges. The structure of these instruments is such that Old National receives an incremental amount if the index falls below the floor strike rate. No payments are required if the index remains above the floor strike rate.

Fair Value Hedges

Interest rate swaps of certain borrowings were designated as fair value hedges totaling $379.0 million notional amount at March 31, 2021 and December 31, 2020. Interest rate swaps of certain available-for-sale investment securities were designated as fair value hedges totaling $885.0 million notional amount at March 31, 2021 and $347.5 million notional amount at December 31, 2020. The hedges were determined to be effective during all periods presented and we expect them to remain effective during the remaining terms.

Derivatives Designated as Hedges

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


	March 31, 2021						December 31, 2020
			Fair Value						Fair Value
(dollars in thousands)	Notional		Assets (1)		Liabilities (2)		Notional		Assets (1)		Liabilities (2)
Cash flow hedges
Interest rate collars and floors on loan pools	$	400,000	$	4,830	$	—	$	400,000	$	6,636	$	—
Interest rate swaps on borrowings	150,000		4,548		—		325,000		628		1,816
Fair value hedges
Interest rate swaps on investment securities	884,957		46,811		—		347,516		1,145		172
Interest rate swaps on borrowings	379,000		7,218		—		379,000		8,793		—
Total			$	63,407	$	—			$	17,202	$	1,988

(1)Derivative assets are included in other assets on the balance sheet.

(2)Derivative liabilities are included in other liabilities on the balance sheet.

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

(dollars in thousands)

Gain (Loss)
Recognized
in Income on
Related
Hedged
Items

Derivatives in
Fair Value Hedging
Relationships

Location of Gain or
(Loss) Recognized in
income on
Derivative

Gain (Loss)
Recognized
in Income on
Derivative

Hedged Items
in Fair Value
Hedging
Relationships

Location of Gain or
(Loss) Recognized in
in Income on Related
Hedged Item

Three Months Ended
March 31, 2021

Interest rate contracts

Interest income/(expense)

(1,575)

Fixed-rate debt

Interest income/(expense)

1,578

Interest rate contracts

Interest income/(expense)

45,839

Fixed-rate
investment
securities

Interest income/(expense)

(45,544)

Total

44,264

(43,966)

Three Months Ended
March 31, 2020

Interest rate contracts

Interest income/(expense)

9,241

Fixed-rate debt

Interest income/(expense)

(9,228)

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


		Three Months Ended March 31,				Three Months Ended March 31,
(dollars in thousands)		2021		2020		2021		2020
Derivatives in Cash Flow Hedging Relationships	Location of Gain or (Loss) Reclassified from AOCI into Income	Gain (Loss) Recognized in Other Comprehensive Income on Derivative				Gain (Loss) Reclassified from AOCI into Income
Interest rate contracts	Interest income/(expense)	$	4,048	$	7,803	$	149	$	431

Amounts reported in AOCI related to cash flow hedges will be reclassified to interest income or interest expense as interest payments are received or paid on Old National’s derivative instruments. During the next 12 months, we estimate that $4.5 million will be reclassified to interest income and $0.5 million will be reclassified to interest expense.

Commitments to fund certain mortgage loans (interest rate lock commitments) and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. These derivative contracts do not qualify for hedge accounting. At March 31, 2021, the notional amounts of the interest rate lock commitments were $237.4 million and forward commitments were $273.7 million. At December 31, 2020, the notional amounts of the interest rate lock commitments were $224.7 million and forward commitments were $261.0 million. It is our practice to enter into forward commitments for the future delivery of residential mortgage loans to third party

investors when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from our commitment to fund the loans.

Old National also enters into derivative instruments for the benefit of its customers. The notional amounts of these customer derivative instruments and the offsetting counterparty derivative instruments were $2.098 billion at March 31, 2021. The notional amounts of these customer derivative instruments and the offsetting counterparty derivative instruments were $2.008 billion at December 31, 2020. These derivative contracts do not qualify for hedge accounting. These instruments include interest rate swaps, caps, and collars. Commonly, Old National will economically hedge significant exposures related to these derivative contracts entered into for the benefit of customers by entering into offsetting contracts with approved, reputable, independent counterparties with substantially matching terms.

Old National enters into derivative financial instruments as part of its foreign currency risk management strategies. These derivative instruments consist of foreign currency forward contracts to accommodate the business needs of its customers. Old National does not designate these foreign currency forward contracts for hedge accounting treatment.

Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. Old National’s exposure is limited to the replacement value of the contracts rather than the notional, principal, or contract amounts. There are provisions in our agreements with the counterparties that allow for certain unsecured credit exposure up to an agreed threshold. Exposures in excess of the agreed thresholds are collateralized. In addition, we minimize credit risk through credit approvals, limits, and monitoring procedures.

Derivatives Not Designated as Hedges

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


	March 31, 2021						December 31, 2020
			Fair Value						Fair Value
(dollars in thousands)	Notional		Assets (1)		Liabilities (2)		Notional		Assets (1)		Liabilities (2)
Interest rate lock commitments	$	237,439	$	5,454	$	—	$	224,719	$	9,375	$	—
Forward mortgage loan contracts	273,710		4,847		—		261,027		—		2,335
Customer interest rate swaps	2,098,087		63,403		14,715		2,008,149		113,300		133
Counterparty interest rate swaps (3)	2,098,087		778		8,602		2,008,149		—		13,543
Customer foreign currency forward contracts	22,849		555		—		9,990		324		—
Counterparty foreign currency forward contracts	22,644		—		383		9,854		—		188
Total			$	75,037	$	23,700			$	122,999	$	16,199

(1)Derivative assets are included in other assets on the balance sheet.

(2)Derivative liabilities are included in other liabilities on the balance sheet.

(3)The fair values of certain counterparty interest rate swaps are zero due to the settlement of centrally-cleared variation margin rules. The net adjustment was $41.2 million as of March 31, 2021 and $100.4 million as of December 31, 2020.

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


		Three Months Ended March 31,
(dollars in thousands)		2021		2020
Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Gain (Loss) Recognized in Income on Derivative
Interest rate contracts (1)	Other income/(expense)	$	385	$	(466)
Mortgage contracts	Mortgage banking revenue	3,261		4,820
Foreign currency contracts	Other income/(expense)	36		(19)
Total		$	3,682	$	4,335

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

NOTE 19 – COMMITMENTS AND CONTINGENCIES

COVID-19

COVID-19 continues to unfold across the U.S. The spread of the COVID-19 virus had an impact on our operations as of March 31, 2021, and the Company expects that the virus will continue to have an impact on the business, financial condition, and results of operations of the Company and its customers. The COVID-19 pandemic caused changes in the behavior of customers, businesses, and their employees, including illness, quarantines, social distancing practices, cancellation of events and travel, business and school shutdowns, reduction in commercial activity and financial transactions, supply chain interruptions, increased unemployment, and overall economic and financial market instability. Future effects, including additional actions taken by federal, state, and local governments to contain COVID-19 or treat its impact, are unknown. However, if these actions are sustained, it may adversely impact several industries within our geographic footprint and impair the ability of Old National’s customers to fulfill their contractual obligations to the Company. This could cause Old National to experience a material adverse effect on our business operations, asset valuations, financial condition, and results of operations. Material adverse impacts may include all or a combination of valuation impairments on Old National’s intangible assets, investments, loans, loan servicing rights, deferred tax assets, or counter-party risk derivatives.

Litigation

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

Old National contests liability and/or the amount of damages as appropriate in each pending matter. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages or where investigations and proceedings are in the early stages, Old National cannot predict with certainty the loss or range of loss, if any, related to such matters, how or if such matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, or other relief, if any, might be. Subject to the foregoing, Old National believes, based on current knowledge and after consultation with counsel, that the outcome of such pending matters will not have a material adverse effect on the consolidated financial condition of Old National, although the outcome of such matters could be material to Old National’s operating results and cash flows for a particular future period, depending on, among other things, the level of Old National’s revenues or income for such period. Old National will accrue for a loss contingency if (1) it is probable that a future event will occur and confirm the loss and (2) the amount of the loss can be reasonably estimated.

Old National is not currently involved in any material litigation.

Credit-Related Financial Instruments

In the normal course of business, Old National’s banking affiliates have entered into various agreements to extend credit, including loan commitments of $3.851 billion and standby letters of credit of $75.1 million at March 31, 2021. At March 31, 2021, approximately $3.613 billion of the loan commitments had fixed rates and $238.3 million had floating rates, with the floating interest rates ranging from 0% to 14%. At December 31, 2020, loan commitments totaled $3.720 billion and standby letters of credit totaled $86.9 million. These commitments are not reflected in the consolidated financial statements. The allowance for unfunded loan commitments totaled $10.4 million at March 31, 2021 and $11.7 million at December 31, 2020.

Old National had credit extensions with various unaffiliated banks related to letter of credit commitments issued on behalf of Old National’s clients totaling $7.9 million at March 31, 2021 and December 31, 2020. Old National provided collateral to the unaffiliated banks to secure credit extensions totaling $7.5 million at March 31, 2021 and December 31, 2020. Old National did not provide collateral for the remaining credit extensions.

Visa Class B Restricted Shares

In 2008, Old National received Visa Class B restricted shares as part of Visa’s initial public offering. These shares are transferable only under limited circumstances until they can be converted into the publicly traded Class A common shares. This conversion will not occur until the final settlement of certain litigation for which Visa is indemnified by the holders of Visa’s Class B shares, including Old National. Visa funded an escrow account from its initial public offering to settle these litigation claims. Increases in litigation claims requiring Visa to fund the escrow account due to insufficient funds will result in a reduction of the conversion ratio of each Visa Class B share

to unrestricted Class A shares. As of March 31, 2021, the conversion ratio was 1.6228. Based on the existing transfer restriction and the uncertainty of the outcome of the Visa litigation, the 65,466 Class B shares that Old National owns at March 31, 2021 are carried at a zero cost basis and are included in other assets with our equity securities that have no readily determinable fair value.

NOTE 20 – FINANCIAL GUARANTEES

Old National holds instruments, in the normal course of business with clients, that are considered financial guarantees in accordance with FASB ASC 460-10 (FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others), which requires Old National to record the instruments at fair value. Standby letters of credit guarantees are issued in connection with agreements made by clients to counterparties. Standby letters of credit are contingent upon failure of the client to perform the terms of the underlying contract. Credit risk associated with standby letters of credit is essentially the same as that associated with extending loans to clients and is subject to normal credit policies. The term of these standby letters of credit is typically one year or less. At March 31, 2021, the notional amount of standby letters of credit was $75.1 million, which represented the maximum amount of future funding requirements, and the carrying value was $0.5 million. At December 31, 2020, the notional amount of standby letters of credit was $86.9 million, which represented the maximum amount of future funding requirements, and the carrying value was $0.5 million.

Old National is a party in risk participation transactions of interest rate swaps, which had total notional amount of $68.2 million at March 31, 2021.

NOTE 21 – SEGMENT INFORMATION

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Old National Bank, Old National’s bank subsidiary, is the only significant subsidiary upon which management makes decisions regarding how to allocate resources and assess performance. Each of the banking centers of Old National Bank provide a group of similar community banking services, including such products and services as commercial, real estate and consumer loans, time deposits, checking and savings accounts, cash management, brokerage, trust, and investment advisory services. The individual banking centers located throughout our Midwest footprint have similar operating and economic characteristics. While the chief decision maker monitors the revenue streams of the various products, services, and regional locations, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the community banking services and banking center locations are considered by management to be aggregated into one reportable operating segment, community banking.

NOTE 22 – FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

•Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

•Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Old National used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Investment securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Discounted cash flows are calculated using swap and LIBOR curves plus spreads that adjust for loss severities, volatility, credit risk, and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

Residential loans held for sale: The fair value of loans held for sale is determined using quoted prices for a similar asset, adjusted for specific attributes of that loan (Level 2).

Derivative financial instruments: The fair values of derivative financial instruments are based on derivative valuation models using market data inputs as of the valuation date (Level 2).

Recurring Basis

Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which we have elected the fair value option, are summarized below:


			Fair Value Measurements at March 31, 2021 Using
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets
Equity securities	$	2,429	$	2,429	$	—	$	—
Investment securities available-for-sale:
U.S. Treasury	228,890		228,890		—		—
U.S. government-sponsored entities and agencies	1,373,533		—		1,373,533		—
Mortgage-backed securities - Agency	3,385,339		—		3,385,339		—
States and political subdivisions	1,467,804		—		1,467,804		—
Pooled trust preferred securities	8,210		—		—		8,210
Other securities	260,754		—		260,754		—
Residential loans held for sale	50,281		—		50,281		—
Derivative assets	138,444		—		138,444		—
Financial Liabilities
Derivative liabilities	23,700		—		23,700		—


			Fair Value Measurements at December 31, 2020 Using
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets
Equity securities	$	2,547	$	2,547	$	—	$	—
Investment securities available-for-sale:
U.S. Treasury	10,208		10,208		—		—
U.S. government-sponsored entities and agencies	841,988		—		841,988		—
Mortgage-backed securities - Agency	3,339,098		—		3,339,098		—
States and political subdivisions	1,492,162		—		1,492,162		—
Pooled trust preferred securities	7,913		—		—		7,913
Other securities	278,746		—		278,746		—
Residential loans held for sale	63,250		—		63,250		—
Derivative assets	140,201		—		140,201		—
Financial Liabilities
Derivative liabilities	18,187		—		18,187		—

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


(dollars in thousands)	Pooled Trust Preferred Securities		States and Political Subdivisions
Three Months Ended March 31, 2021
Balance at beginning of period	$	7,913	$	—
Accretion of discount	5		—
Sales/payments received	(15)		—
Increase in fair value of securities	307		—
Balance at end of period	$	8,210	$	—

Three Months Ended March 31, 2020
Balance at beginning of period	$	8,222	$	40
Accretion of discount	4		—
Sales/payments received	(17)		(40)
Decrease in fair value of securities	(787)		—

Balance at end of period	$	7,422	$	—

The accretion of discounts on securities in the table above is included in interest income. The increase or decrease in the fair value of securities in the table above is included in the unrealized holding gains (losses) for the period in the statement of other comprehensive income. An increase in fair value is reflected in the balance sheet as an increase in the fair value of investment securities available-for-sale, an increase in accumulated other comprehensive income, which is included in shareholders’ equity, and a decrease in other assets related to the tax impact. A decrease in fair value is reflected in the balance sheet as a decrease in the fair value of investment securities available-for-sale, a decrease in accumulated other comprehensive income, which is included in shareholders’ equity, and an increase in other assets related to the tax impact.

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

(dollars in thousands)

Fair Value

Valuation Techniques

Unobservable Input

Range (Weighted Average) (4)

March 31, 2021

Pooled trust preferred securities

8,210

Discounted cash flow

Constant prepayment rate (1)

0.00%

Additional asset defaults (2)

6.0% - 8.7% (6.9%)

Expected asset recoveries (3)

0.0% - 23.3% (7.4%)

December 31, 2020

Pooled trust preferred securities

7,913

Discounted cash flow

Constant prepayment rate (1)

0.00%

Additional asset defaults (2)

6.0% - 8.7% (6.8%)

Expected asset recoveries (3)

0.0% - 23.2% (7.3%)

(1)Assuming no prepayments.

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

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

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

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

Non-Recurring Basis

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


			Fair Value Measurements at March 31, 2021 Using
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Collateral Dependent Loans:
Commercial loans	$	12,484	$	—	$	—	$	12,484
Commercial real estate loans	18,983		—		—		18,983
Foreclosed Assets:

Residential	15		—		—		15
Loan servicing rights	334		—		334		—

Commercial and commercial real estate loans that are deemed collateral dependent are valued using the discounted cash flows. The liquidation amounts are based on the fair value of the underlying collateral using the most recently available appraisals with certain adjustments made based on the type of property, age of appraisal, current status of the property, and other related factors to estimate the current value of the collateral. These commercial and commercial real estate loans had a principal amount of $35.9 million, with a valuation allowance of $4.5 million at March 31, 2021. Old National recorded provision recoveries associated with these loans totaling $0.2 million for the three months ended March 31, 2021. Old National recorded provision expense associated with commercial and commercial real estate loans that were deemed collateral dependent totaling $6.8 million for the three months ended March 31, 2020.

Other real estate owned and other repossessed property is measured at fair value less costs to sell on a non-recurring basis and had a net carrying amount of $15 thousand at March 31, 2021. There were write-downs of other real estate owned of $23 thousand for the three months ended March 31, 2021. There were write-downs of other real estate owned of $11 thousand for the three months ended March 31, 2020.

Loan servicing rights are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount. If the carrying amount of an individual tranche exceeds fair value, impairment is recorded on that tranche so that the servicing asset is carried at fair value. Fair value is determined at a tranche level, based on market prices for comparable mortgage servicing contracts when available, or alternatively based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model utilizes a discount rate, weighted average prepayment speed, and other economic factors that market participants would use in estimating future net servicing income and that can be validated against available market data (Level 2). The valuation allowance for loan servicing rights with impairments at March 31, 2021 totaled $0.1 million. Old National recorded recoveries associated with these loan servicing rights totaling $1.3 million during the three months ended March 31, 2021. There were impairments of $1.4 million for the three months ended March 31, 2020.

Assets measured at fair value at December 31, 2020 on a non-recurring basis are summarized below:


			Fair Value Measurements at December 31, 2020 Using
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Collateral Dependent Loans:
Commercial loans	$	10,747	$	—	$	—	$	10,747
Commercial real estate loans	40,653		—		—		40,653



Loan servicing rights	26,717		—		26,717		—

At December 31, 2020, commercial and commercial real estate loans that are deemed collateral dependent had a principal amount of $57.2 million, with a valuation allowance of $5.8 million.

The valuation allowance for loan servicing rights with impairments at December 31, 2020 totaled $1.4 million.

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

(dollars in thousands)

Fair Value

Valuation Techniques

Unobservable Input

Range (Weighted Average) (2)

March 31, 2021

Collateral Dependent Loans

Commercial loans

12,484

Discounted

Discount for type of property,

2% - 27% (10%)

cash flow

age of appraisal, and current status

Commercial real estate loans

18,983

Discounted

Discount for type of property,

4% - 20% (12%)

cash flow

age of appraisal, and current status

Foreclosed Assets

Residential (1)

Fair value of

Discount for type of property,

60%

collateral

age of appraisal, and current status

December 31, 2020

Collateral Dependent Loans

Commercial loans

10,747

Discounted

Discount for type of property,

0% - 33% (12%)

cash flow

age of appraisal, and current status

Commercial real estate loans

40,653

Discounted

Discount for type of property,

0% - 18% (7%)

cash flow

age of appraisal, and current status

(1)There was only one foreclosed residential asset at March 31, 2021, so no range or weighted average is reported.

(2)Unobservable inputs were weighted by the relative fair value of the instruments.

Fair Value Option

Old National may elect to report most financial instruments and certain other items at fair value on an instrument-by instrument basis with changes in fair value reported in net income. After the initial adoption, the election is made at the acquisition of an eligible financial asset, financial liability, or firm commitment or when certain specified reconsideration events occur. The fair value election may not be revoked once an election is made.

Residential Loans Held For Sale

Old National has elected the fair value option for residential loans held for sale. For these loans, interest income is recorded in the consolidated statements of income based on the contractual amount of interest income earned on the financial assets (except any that are on nonaccrual status). None of these loans are 90 days or more past due, nor are any on nonaccrual status. Included in the income statement is interest income for loans held for sale totaling $0.4 million for the three months ended March 31, 2021 and 2020.

Old National has elected the fair value option for newly originated conforming fixed-rate and adjustable-rate first mortgage loans held for sale. These loans are intended for sale and are hedged with derivative instruments. Old National has elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplification. The fair value option was not elected for loans held for investment.

The difference between the aggregate fair value and the aggregate remaining principal balance for loans for which the fair value option has been elected was as follows:


(dollars in thousands)	Aggregate Fair Value		Difference		Contractual Principal
March 31, 2021
Residential loans held for sale	$	50,281	$	1,107	$	49,174
December 31, 2020
Residential loans held for sale	$	63,250	$	3,485	$	59,765

Accrued interest at period end is included in the fair value of the instruments.

The following table presents the amount of gains and losses from fair value changes included in income before income taxes for financial assets carried at fair value:


(dollars in thousands)	Other Gains and (Losses)		Interest Income		Interest (Expense)		Total Changes in Fair Values Included in Current Period Earnings
Three Months Ended March 31, 2021
Residential loans held for sale	$	(2,380)	$	2	$	—	$	(2,378)

Three Months Ended March 31, 2020
Residential loans held for sale	$	1,421	$	2	$	—	$	1,423

Financial Instruments Not Carried at Fair Value

The carrying amounts and estimated fair values of financial instruments not carried at fair value were as follows:


			Fair Value Measurements at March 31, 2021 Using
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets
Cash, due from banks, money market, and other interest-earning investments	$	457,777	$	457,777	$	—	$	—




Loans, net:
Commercial	4,042,345		—		—		4,060,059
Commercial real estate	6,002,458		—		—		5,962,329
Residential real estate	2,193,012		—		—		2,201,917
Consumer credit	1,573,409		—		—		1,569,425
Accrued interest receivable	80,841		947		26,169		53,725

Financial Liabilities
Deposits:
Noninterest-bearing demand deposits	$	6,091,054	$	6,091,054	$	—	$	—
Checking, NOW, savings, and money market interest-bearing deposits	10,715,798		10,640,798		74,998		—
Time deposits	1,042,903		—		1,057,644		—
Federal funds purchased and interbank borrowings	922		922		—		—
Securities sold under agreements to repurchase	395,242		395,242		—		—
FHLB advances	1,912,541		—		1,974,389		—
Other borrowings	266,282		—		279,515		—
Accrued interest payable	3,257		—		3,257		—
Standby letters of credit	455		—		—		455

Off-Balance Sheet Financial Instruments
Commitments to extend credit	$	—	$	—	$	—	$	7,873


			Fair Value Measurements at December 31, 2020 Using
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets
Cash, due from banks, money market, and other interest-earning investments	$	589,712	$	589,712	$	—	$	—




Loans, net:
Commercial	3,922,642		—		—		3,912,948
Commercial real estate	5,867,795		—		—		5,797,447
Residential real estate	2,235,814		—		—		2,264,274
Consumer credit	1,628,840		—		—		1,618,365
Accrued interest receivable	85,306		21		27,977		57,308

Financial Liabilities
Deposits:
Noninterest-bearing demand deposits	$	5,633,672	$	5,633,672	$	—	$	—
Checking, NOW, savings, and money market interest-bearing deposits	10,280,911		10,180,911		99,957		—
Time deposits	1,122,870		—		1,140,922		—
Federal funds purchased and interbank borrowings	1,166		1,166		—		—
Securities sold under agreements to repurchase	431,166		431,166		—		—
FHLB advances	1,991,435		—		2,092,033		—
Other borrowings	252,787		—		254,612		—
Accrued interest payable	5,443		—		5,443		—
Standby letters of credit	462		—		—		462

Off-Balance Sheet Financial Instruments
Commitments to extend credit	$	—	$	—	$	—	$	11,822

The methods utilized to measure the fair value of financial instruments at March 31, 2021 and December 31, 2020 represent an approximation of exit price, however, an actual exit price may differ.

NOTE 23 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Old National’s revenue from contracts with customers in the scope of Topic 606 is recognized within noninterest income. The consolidated statements of income include all categories of noninterest income. The following table reflects only the categories of noninterest income that are within the scope of Topic 606:


	Three Months Ended March 31,
(dollars in thousands)	2021		2020
Wealth management fees	$	9,708	$	8,884
Service charges on deposit accounts	8,124		10,077
Debit card and ATM fees	5,143		4,998
Investment product fees	5,864		5,874
Other income:
Merchant processing fees	824		804
Gain (loss) on other real estate owned	110		(56)
Safe deposit box fees	363		310
Insurance premiums and commissions	22		116
Total	$	30,158	$	31,007

Wealth management fees: Old National earns wealth management fees based upon asset custody and investment management services provided to individual and institutional customers. Most of these customers receive monthly or quarterly billings for services rendered based upon the market value of assets in custody. Fees that are transaction based are recognized at the point in time that the transaction is executed.

Service charges on deposit accounts: Old National earns fees from deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees and overdraft fees are recognized at a point in time, since the customer generally has a right to cancel the depository arrangement at any time. The arrangement is considered a day-to-day contract with ongoing renewals and optional purchases, so the duration of the contract does not extend beyond the services already performed. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which Old National satisfies its performance obligation.

Debit card and ATM fees: Debit card and ATM fees include ATM usage fees and debit card interchange income. As with the transaction-based fees on deposit accounts, the ATM fees are recognized at the point in time that Old National fulfills the customer’s request. Old National earns interchange fees from cardholder transactions processed through card association networks. Interchange rates are generally set by the card associations based upon purchase volumes and other factors. Interchange fees represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Investment product fees: Investment product fees are the commissions and fees received from a registered broker/dealer and investment adviser that provide those services to Old National customers. Old National acts as an agent in arranging the relationship between the customer and the third-party service provider. These fees are recognized monthly from the third-party broker based upon services already performed, net of the processing fees charged to Old National by the broker.

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

The following discussion is an analysis of our results of operations for the three months ended March 31, 2021 and 2020, and financial condition as of March 31, 2021, compared to December 31, 2020. This discussion and analysis should be read in conjunction with the consolidated financial statements and related notes.

FORWARD-LOOKING STATEMENTS

In this report, we have made various statements regarding current expectations or forecasts of future events, which speak only as of the date the statements are made. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are also made from time-to-time in press releases and in oral statements made by the officers of Old National Bancorp (“Old National” or the “Company”). Forward-looking statements can be identified by the use of the words “expect,” “may,” “could,” “will,” “intend,” “project,” “estimate,” “believe,” “anticipate,” or the negative of those terms, and other words of similar meaning. Forward-looking statements also include, but are not limited to, statements regarding estimated cost savings, plans and objectives for future operations, the Company’s business and growth strategies, including future acquisitions of banks, regulatory developments, and expectations about performance as well as economic and market conditions and trends.

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

•the length, severity, magnitude, and duration of the COVID-19 pandemic and the direct and indirect impact of such pandemic, including its impact on the Company’s financial conditions and business operations;

•changes in the economy, which could materially impact credit quality trends and the ability to generate loans and gather deposits, including the pace of recovery following the COVID-19 pandemic;

•market, economic, operational, liquidity, credit, and interest rate risks associated with our business;

•competition;

•government legislation and policies, including changes to address the impact of COVID-19 through the CARES Act and other legislative and regulatory responses to the COVID-19 pandemic;

•our ability to execute our business plan, including the anticipated impact from the ONB Way strategic plan that may differ from current estimates;

•unanticipated changes in our liquidity position, including but not limited to changes in our access to sources of liquidity and capital to address our liquidity needs;

•our ability to successfully manage our credit risk and the sufficiency of our allowance for credit losses;

•uncertainty about the discontinued use of LIBOR and the transition to an alternative rate;

•failure or circumvention of our internal controls;

•failure or disruption of our information systems;

•significant changes in accounting, tax, or regulatory practices or requirements, including the impact of the CECL standard;

•new legal obligations or liabilities or unfavorable resolutions of litigations;

•disruptive technologies in payment systems and other services traditionally provided by banks; and

•operational risks or risk management failures by us or critical third parties, including without limitation with respect to data processing, information systems, cyber-security, technological changes, vendor problems, business interruption, and fraud risks.

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

FINANCIAL HIGHLIGHTS

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


	Three Months Ended
(dollars and shares in thousands,	March 31,			December 31,			March 31,
except per share data)	2021			2020			2020
Income Statement:
Net interest income	$	148,120		$	161,079		$	143,771
Taxable equivalent adjustment (1)	3,500			3,517			3,323
Net interest income - tax equivalent basis	151,620			164,596			147,094
Provision for credit losses	(17,356)			(1,100)			16,950
Noninterest income	56,712			58,552			57,502
Noninterest expense	117,740			142,318			158,744
Net income	86,818			74,120			22,640
Per Common Share Data:
Weighted average diluted shares	165,707			165,631			168,404
Net income (diluted)	$	0.52		$	0.44		$	0.13
Cash dividends	0.14			0.14			0.14
Common dividend payout ratio (2)	26		%	31		%	108		%
Book value	$	17.98		$	17.98		$	17.10
Stock price	19.34			16.56			13.19
Tangible common book value (3)	11.47			11.43			10.48
Performance Ratios:
Return on average assets	1.49		%	1.30		%	0.44		%
Return on average common equity	11.69			10.11			3.20
Return on tangible common equity (3)	18.77			16.20			5.89
Return on average tangible common equity (3)	18.88			16.57			5.86
Net interest margin (3)	2.94			3.26			3.31
Efficiency ratio (3)	55.57			62.37			77.71
Net charge-offs (recoveries) to average loans	—			(0.03)			0.21
Allowance for credit losses to ending loans	0.82			0.95			0.86
Non-performing loans to ending loans	1.13			1.20			1.16
Balance Sheet:
Total loans	$	13,925,261		$	13,786,479		$	12,384,612
Total assets	23,744,451			22,960,622			20,741,141
Total deposits	17,849,755			17,037,453			14,305,362
Total borrowed funds	2,574,987			2,676,554			3,245,214
Total shareholders' equity	2,979,447			2,972,656			2,823,435
Capital Ratios:
Risk-based capital ratios:
Tier 1 common equity	12.01		%	11.75		%	11.40		%
Tier 1	12.01			11.75			11.40
Total	12.84			12.69			12.28
Leverage ratio (to average assets)	8.33			8.20			8.46
Total equity to assets (averages)	12.78			12.83			13.91
Tangible common equity to tangible assets (3)	8.38			8.64			8.81
Nonfinancial Data:
Full-time equivalent employees	2,451			2,445			2,736
Banking centers	162			162			192

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

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

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

NON-GAAP FINANCIAL MEASURES

The non-GAAP financial measures presented below are used by our management and our Board of Directors on a regular basis in addition to our GAAP results to facilitate the assessment of our financial performance. Management believes these non-GAAP financial measures enhance an investor’s understanding of our financial results by providing a meaningful basis for period-to-period comparisons, assisting in operating results analysis, and predicting future performance. This information supplements our GAAP reported results, and should not be viewed in isolation from, or as a substitute for, our GAAP results. Accordingly, this financial information should be read in conjunction with our consolidated financial statements and notes thereto for the quarter ended March 31, 2021, included elsewhere in this report, and included in our Annual Report on Form 10-K for the year ended December 31, 2020. Non-GAAP financial measures exclude certain items that are included in the financial results presented in accordance with GAAP.

The following table presents GAAP to non-GAAP reconciliations.


		Three Months Ended March 31,
(dollars and shares in thousands, except per share data)		2021			2020
Tangible common book value:
Shareholders' equity (GAAP)		$	2,979,447		$	2,823,435
Deduct:	Goodwill	1,036,994			1,036,994
	Intangible assets	42,939			56,329
Tangible shareholders' equity (non-GAAP)		$	1,899,514		$	1,730,112
Period end common shares		165,676			165,109
Tangible common book value		11.47			10.48
Return on tangible common equity:
Net income (GAAP)		$	86,818		$	22,640
Add: Intangible amortization (net of tax)		2,306			2,849
Tangible net income (non-GAAP)		$	89,124		$	25,489
Tangible shareholders' equity (non-GAAP) (see above)		$	1,899,514		$	1,730,112
Return on tangible common equity		18.77		%	5.89		%
Return on average tangible common equity:
Tangible net income (non-GAAP) (see above)		$	89,124		$	25,489
Average shareholders' equity (GAAP)		$	2,969,978		$	2,833,523
Deduct:	Average goodwill	1,036,994			1,036,994
	Average intangible assets	44,409			58,127
Average tangible shareholders' equity (non-GAAP)		$	1,888,575		$	1,738,402
Return on average tangible common equity		18.88		%	5.86		%
Net interest margin:
Net interest income (GAAP)		$	148,120		$	143,771
Taxable equivalent adjustment		3,500			3,323
Net interest income - taxable equivalent basis (non-GAAP)		$	151,620		$	147,094
Average earning assets		$	20,601,652		$	17,774,030
Net interest margin		2.94		%	3.31		%
Efficiency ratio:
Noninterest expense (GAAP)		$	117,740		$	158,744
Deduct: Intangible amortization expense		3,075			3,776
Adjusted noninterest expense (non-GAAP)		$	114,665		$	154,968
Net interest income - taxable equivalent basis (non-GAAP) (see above)		$	151,620		$	147,094
Noninterest income		56,712			57,502
Deduct: Debt securities gains (losses), net		1,993			5,174
Adjusted total revenue (non-GAAP)		$	206,339		$	199,422
Efficiency ratio		55.57		%	77.71		%
Tangible common equity to tangible assets:
Tangible shareholders' equity (non-GAAP) (see above)		$	1,899,514		$	1,730,112
Assets (GAAP)		$	23,744,451		$	20,741,141
Add:	Trust overdrafts	24			119
Deduct:	Goodwill	1,036,994			1,036,994
	Intangible assets	42,939			56,329
Tangible assets (non-GAAP)		$	22,664,542		$	19,647,937
Tangible common equity to tangible assets		8.38		%	8.81		%

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. These non-GAAP measures are not necessarily comparable to similar measures that may be represented by other companies.

EXECUTIVE SUMMARY

Old National is devoted to the basic banking principles of organic loan growth, increases in non-interest income, prudent capital deployment, and expense management. We strive to continuously improve our operating leverage by growing our revenue faster than our expenses. In addition, we continue to actively seek new ways to serve our clients better by simplifying processes, offering superior products and services, and embracing new technologies.

During the first quarter of 2021, net income was $86.8 million, or $0.52 per diluted share. Net income was $22.6 million, or $0.13 per diluted share, for the first quarter of 2020.

During the first quarter of 2021, we recorded a provision for credit losses recapture of $17.4 million. This provision recapture was derived from the Moody’s baseline forecast, which included improved unemployment, gross domestic product, and house price index when compared to the forecast used in the prior quarter.

Despite the challenging operating environment, we achieved strong fundamental results during the first quarter of 2021.

Loans: Our loan balances, excluding loans held for sale, increased $138.8 million to $13.925 billion at March 31, 2021 compared to $13.786 billion at December 31, 2020. This was primarily driven by growth in commercial and commercial real estate loans. We reported strong total commercial loan production of $718 million in the first quarter of 2021 and the commercial loan pipeline totaled $2.6 billion at March 31, 2021.

Net Interest Income: For the three months ended March 31, 2021 compared to the three months ended March 31, 2020, our net interest income increased primarily due to higher average loans, PPP related fees, and lower costs of interest-bearing liabilities, partially offset by decreased loan yields. Net interest income decreased in the first quarter of 2021 compared to the fourth quarter of 2020 primarily due to lower PPP related fees from forgiveness of loans and decreased loan yields.

Noninterest Income: Noninterest income decreased $0.8 million to $56.7 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to lower debt securities gains, lower service charges on deposit accounts, and $1.5 million of swap termination fees. These decreases were partially offset by higher mortgage banking revenue. The first quarter of 2021 compared to the fourth quarter of 2020 showed a decrease of $1.8 million reflecting lower capital markets income.

Expenses: Noninterest expenses decreased $41.0 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The decrease was primarily attributable to $31.2 million of charges related to the ONB Way in the three months ended March 31, 2020. The first quarter of 2021 compared to the fourth quarter of 2020 showed a decrease of $24.6 million reflecting lower salaries and amortization of tax credit investments.

Old National’s robust commercial pipeline at March 31, 2021, coupled with excess liquidity from deposit growth along with the momentum build from our ONB Way revenue initiatives bode well for future quarters. However, we are cautious that a peak in new cases of COVID-19 could stall the economy and cause a setback in the progress made during the first quarter of 2021.

Pandemic Update

As previously disclosed, the novel strain of coronavirus, COVID-19, had an impact on our operations during 2020 and the three months ended March 31, 2021. This pandemic impact is being addressed by Old National by continuing our practice of limiting the occupancy of our office buildings and rotating team members every 4 weeks based on geographic location of our facilities. We remain committed and focused on the health and safety of our team members, customers, and communities. Our historically careful underwriting practices, diverse and granular portfolios, and Midwest-based footprint has helped mitigate any adverse impact to Old National. In addition, the combination of the swift vaccine rollout, massive stimulus payments resulting in higher levels of discretionary funds and reduced spending during the pandemic are likely contributing factors mitigating the impact of the pandemic on the Company’s business, financial condition, results of operations, and its customers as of March 31, 2021. While we are fortunate to have apparently escaped a longer and more severe economic downturn than was experienced during 2020, economic uncertainty remains above average and bouts of elevated volatility are expected to continue that may have a future adverse financial impact on Old National.

RESULTS OF OPERATIONS

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


	Three Months Ended March 31,						%
(dollars in thousands)	2021			2020			Change
Income Statement Summary:
Net interest income	$	148,120		$	143,771		3.0	%
Provision for credit losses	(17,356)			16,950			(202.4)
Noninterest income	56,712			57,502			(1.4)
Noninterest expense	117,740			158,744			(25.8)
Other Data:
Return on average common equity	11.69		%	3.20		%
Return on tangible common equity (1)	18.77			5.89
Return on average tangible common equity (1)	18.88			5.86
Efficiency ratio (1)	55.57			77.71
Tier 1 leverage ratio	8.33			8.46
Net charge-offs (recoveries) to average loans	—			0.21

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

Net Interest Income

Net interest income is the most significant component of our earnings, comprising 72% of revenues for the three months ended March 31, 2021. Net interest income and margin are influenced by many factors, primarily the volume and mix of earning assets, funding sources, and interest rate fluctuations. Other factors include the level of accretion income on purchased loans, prepayment risk on mortgage and investment-related assets, and the composition and maturity of interest-earning assets and interest-bearing liabilities. We have observed signs of an economic recovery in the United States, with jobs, consumer spending, manufacturing, and other indicators rebounding from their weakest levels. However, there have been concerns about the speed of widespread vaccine distribution, as well as the emergence of resistant strains of the virus and whether enough people will agree to be vaccinated. Economic uncertainty remains and bouts of elevated volatility are expected to continue.

Interest rates remained at near historic lows during the first quarter of 2021 after declining dramatically in the first half of 2020 due to the COVID-19 pandemic. The Federal Reserve’s Federal Funds range is currently in a target range of 0.00% to 0.25%, with the Effective Fed Funds Rate in the 0.05% to 0.10% range. If interest rates decline further, our interest rate spread could decline, which may result in a decrease in our net interest income. However, management has taken balance sheet restructuring, derivative, and deposit pricing actions to help mitigate this risk.

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

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


	Three Months Ended March 31,
(dollars in thousands)	2021			2020
Net interest income	$	148,120		$	143,771
Conversion to fully taxable equivalent	3,500			3,323
Net interest income - taxable equivalent basis	$	151,620		$	147,094

Average earning assets	$	20,601,652		$	17,774,030

Net interest margin	2.88		%	3.24		%
Net interest margin - taxable equivalent basis	2.94		%	3.31		%

The increase in net interest income for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 was primarily due to higher average earning assets, lower costs of average interest-bearing liabilities, and interest and fees related to PPP loans. Partially offsetting these increases were lower yields on average earning assets and lower accretion income in the three months ended March 31, 2021 when compared to the three months ended March 31, 2020. Net interest income for the three months ended March 31, 2021 and 2020 included accretion income (interest income in excess of contractual interest income) associated with acquired loans. Accretion income totaled $4.7 million in the three months ended March 31, 2021, compared to $6.7 million in the three months ended March 31, 2020. We expect accretion income on loans to decrease over time, but this may be offset by future acquisitions. Net interest income for the three months ended March 31, 2021 included $12.6 million of interest and net fees combined on PPP loans.

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


(Tax equivalent basis, dollars in thousands)	Three Months Ended March 31, 2021						Three Months Ended March 31, 2020
Earning Assets	Average Balance		Income (1)/ Expense		Yield/ Rate		Average Balance		Income (1)/ Expense		Yield/ Rate
Money market and other interest-earning investments	$	370,087	$	88	0.10	%	$	58,406	$	349	2.41	%
Investment securities:
Treasury and government sponsored agencies	1,155,525		4,885		1.69	%	583,971		3,697		2.53	%
Mortgage-backed securities	3,312,311		15,833		1.91	%	3,171,650		19,065		2.40	%
States and political subdivisions	1,478,143		12,200		3.30	%	1,273,156		11,409		3.58	%
Other securities	453,411		2,743		2.42	%	494,500		3,216		2.60	%
Total investment securities	6,399,390		35,661		2.23	%	5,523,277		37,387		2.71	%
Loans: (2)
Commercial	3,974,762		35,568		3.58	%	2,907,297		29,053		3.95	%
Commercial real estate	5,980,774		55,746		3.73	%	5,188,597		62,439		4.76	%
Residential real estate loans	2,273,859		21,347		3.76	%	2,370,295		24,244		4.09	%
Consumer	1,602,780		14,327		3.63	%	1,726,158		17,850		4.16	%
Total loans	13,832,175		126,988		3.68	%	12,192,347		133,586		4.35	%
Total earning assets	20,601,652		$	162,737	3.16	%	17,774,030		$	171,322	3.84	%
Less: Allowance for credit losses	(133,869)						(83,244)
Non-Earning Assets
Cash and due from banks	288,623						287,601
Other assets	2,486,604						2,388,092
Total assets	$	23,243,010					$	20,366,479

Interest-Bearing Liabilities
Checking and NOW accounts	$	4,975,487	$	625	0.05	%	$	4,104,778	$	2,860	0.28	%
Savings accounts	3,495,319		487		0.06	%	2,828,177		1,298		0.18	%
Money market accounts	2,033,460		428		0.09	%	1,784,169		2,507		0.57	%
Time deposits	1,081,248		1,619		0.61	%	1,646,173		5,633		1.38	%
Total interest-bearing deposits	11,585,514		3,159		0.11	%	10,363,297		12,298		0.48	%
Federal funds purchased and interbank borrowings	1,144		—		—	%	392,857		1,240		1.27	%
Securities sold under agreements to repurchase	398,662		120		0.12	%	329,091		384		0.47	%
FHLB advances	1,925,352		5,409		1.14	%	1,965,130		7,768		1.59	%
Other borrowings	263,010		2,429		3.69	%	240,276		2,538		4.23	%
Total borrowed funds	2,588,168		7,958		1.25	%	2,927,354		11,930		1.64	%
Total interest-bearing liabilities	$	14,173,682	$	11,117	0.32	%	$	13,290,651	$	24,228	0.73	%

Noninterest-Bearing Liabilities and Shareholders' Equity
Demand deposits	$	5,756,277					$	3,964,493
Other liabilities	343,073						277,812
Shareholders' equity	2,969,978						2,833,523
Total liabilities and shareholders' equity	$	23,243,010					$	20,366,479

Net interest rate spread					2.84	%					3.11	%
Net interest margin (3)					2.94	%					3.31	%
Taxable equivalent adjustment			$	3,500					$	3,323

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

(2)Includes loans held for sale.

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

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


	From Three Months Ended March 31, 2020 to Three Months Ended March 31, 2021
	Total Change (1)		Attributed to
(dollars in thousands)			Volume		Rate
Interest Income
Money market and other interest-earning investments	$	(261)	$	975	$	(1,236)
Investment securities (2)	(1,726)		5,406		(7,132)
Loans (2)	(6,598)		15,925		(22,523)
Total interest income	(8,585)		22,306		(30,891)
Interest Expense
Checking and NOW deposits	(2,235)		368		(2,603)
Savings deposits	(811)		201		(1,012)
Money market deposits	(2,079)		196		(2,275)
Time deposits	(4,014)		(1,397)		(2,617)
Federal funds purchased and interbank borrowings	(1,240)		(618)		(622)
Securities sold under agreements to repurchase	(264)		52		(316)
FHLB advances	(2,359)		(151)		(2,208)
Other borrowings	(109)		225		(334)
Total interest expense	(13,111)		(1,124)		(11,987)
Net interest income	$	4,526	$	23,430	$	(18,904)

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

(2)Interest on investment securities and loans includes the effect of taxable equivalent adjustments of $2.4 million and $1.1 million, respectively, during the three months ended March 31, 2021 using the federal statutory rate in effect of 21%.

The decrease in the net interest margin on a fully taxable equivalent basis for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 was primarily due to lower yields on interest earning assets and a change in the mix of average interest earning assets and interest-bearing liabilities, partially offset by higher average earning assets and lower costs of interest-bearing liabilities. The yield on interest earning assets decreased 68 basis points and the cost of interest-bearing liabilities decreased 41 basis points in the quarterly year-over-year comparison. The yield on interest earning assets is calculated by dividing annualized taxable equivalent net interest income by average interest earning assets while the cost of interest-bearing liabilities is calculated by dividing annualized interest expense by average interest-bearing liabilities. Accretion income represented 9 basis points of the net interest margin for the three months ended March 31, 2021, compared to 15 basis points for the three months ended March 31, 2020. The continued spread and impact of the COVID-19 pandemic may offset the recent positive economic momentum and government stimulus programs, and could negatively impact net interest margin. Accordingly, there is still much uncertainty regarding the economy.

Average earning assets were $20.602 billion for the three months ended March 31, 2021, compared to $17.774 billion for the three months ended March 31, 2020, an increase of $2.828 billion, or 16%. The increase in average earning assets was due to increases in average loans and average investment securities. The loan portfolio including loans held for sale, which generally has an average yield higher than the investment portfolio, was 67% of average interest earning assets for the three months ended March 31, 2021, compared to 69% for the three months ended March 31, 2020.

Average loans including loans held for sale increased $1.640 billion for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 due to increases in average commercial loans and commercial real estate loans, partially offset by lower average residential real estate loans and consumer loans. The increase in average commercial loans reflected strong PPP loan production, which began in April 2020. As of March 31, 2021, average commercial loans included PPP loans totaling $1.008 billion.

Average investments increased $876.1 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 reflecting excess liquidity.

Average noninterest-bearing deposits increased $1.792 billion for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020. Average interest-bearing deposits increased $1.222 billion for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020. This growth was primarily driven by the increased business and personal savings rates from various government stimulus actions.

Average borrowed funds decreased $339.2 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020.

Provision for Credit Losses

Old National recorded a provision for credit losses recapture of $17.4 million for the three months ended March 31, 2021, compared to $17.0 million provision for credit losses expense for the three months ended March 31, 2020. Net recoveries totaled $5 thousand during the three months ended March 31, 2021, compared to net charge-offs of $6.5 million during the three months ended March 31, 2020. The provision for credit losses recapture in the three months ended March 31, 2021 reflected the improved economic forecast during the quarter. PPP loans were factored in the provision for credit losses for the three months ended March 31, 2021; however, due to the SBA guaranty and our borrowers’ adherence to the PPP terms, the provision impact was insignificant. Continued loan growth in future periods, a decline in our current level of recoveries, or an increase in charge-offs could result in an increase in provision expense. Additionally, with the adoption of CECL beginning on January 1, 2020, provision expense may become more volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, which drive the allowance for credit losses balance.

Noninterest Income

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


	Three Months Ended March 31,				%
(dollars in thousands)	2021		2020		Change
Wealth management fees	$	9,708	$	8,884	9.3	%
Service charges on deposit accounts	8,124		10,077		(19.4)
Debit card and ATM fees	5,143		4,998		2.9
Mortgage banking revenue	16,525		11,119		48.6
Investment product fees	5,864		5,874		(0.2)
Capital markets income	3,715		4,328		(14.2)
Company-owned life insurance	2,714		3,080		(11.9)
Debt securities gains (losses), net	1,993		5,174		(61.5)
Other income	2,926		3,968		(26.3)
Total noninterest income	$	56,712	$	57,502	(1.4)	%

Noninterest income decreased $0.8 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 primarily due to lower debt securities gains, lower service charges on deposit accounts, and $1.5 million of swap termination fees in the three months ended March 31, 2021. These decreases were partially offset by higher mortgage banking revenue.

Wealth management fees increased $0.8 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 primarily due to higher personal and corporate trust fees.

Service charges and overdraft fees decreased $2.0 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 reflecting lower overdraft fees due to the impact of the COVID-19 pandemic.

Mortgage banking revenue increased $5.4 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 reflecting increased mortgage originations and sales in 2021.

Capital markets income is comprised of customer interest rate swap fees, foreign currency exchange fees, net gains (losses) on foreign currency adjustments, and tax credit fee income. Capital markets income decreased $0.6 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 primarily due to lower customer interest rate swap fees.

Debt securities gains (losses), net had an unfavorable variance of $3.2 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 primarily due to lower realized gains on sales of available-for-sale securities in 2021.

Other income decreased $1.0 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 primarily due $1.5 million of swap termination fees in the three months ended March 31, 2021.

Noninterest Expense

The following table details the components in noninterest expense:


	Three Months Ended March 31,				%
(dollars in thousands)	2021		2020		Change
Salaries and employee benefits	$	68,117	$	79,173	(14.0)	%
Occupancy	14,872		15,133		(1.7)
Equipment	3,969		5,305		(25.2)
Marketing	2,062		3,097		(33.4)
Data processing	12,353		9,467		30.5
Communication	2,878		2,798		2.9
Professional fees	2,724		4,293		(36.5)
FDIC assessment	1,607		1,609		(0.1)
Amortization of intangibles	3,075		3,776		(18.6)
Amortization of tax credit investments	1,202		5,515		(78.2)
Other expense	4,881		28,578		(82.9)
Total noninterest expense	$	117,740	$	158,744	(25.8)	%

Noninterest expense decreased $41.0 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 reflecting $31.2 million of charges in the three months ended March 31, 2020 related to The ONB Way strategic initiative and lower amortization of tax credit investments.

Salaries and employee benefits decreased $11.1 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 primarily due to personnel expenses related to the ONB Way totaling $7.0 million in the three months ended March 31, 2020 and fewer employees at March 31, 2021.

Equipment expenses decreased $1.3 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 primarily due to lower accelerated depreciation and maintenance expenses of non-deployed assets related to the optimization of our branch network as part of The ONB Way strategic initiative.

Marketing expenses decreased $1.0 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 primarily due to lower public relations and sales promotion expenses.

Data processing expenses increased $2.9 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 related to the modernization of our technology infrastructure.

Professional fees decreased $1.6 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 reflecting $1.3 million in consulting fees incurred in the first quarter of 2020 related to the ONB Way.

Amortization of intangibles decreased $0.7 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 primarily due to lower amortization of core deposit intangibles.

Amortization of tax credit investments decreased $4.3 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020. The recognition of tax credit amortization expense is contingent upon the successful completion of the rehabilitation of a historic building or completion of a solar project within the reporting period. Many factors including weather, labor availability, building regulations, inspections, and other unexpected construction delays related to a rehabilitation project can cause a project to exceed its estimated completion date. See Note 11 to the consolidated financial statements for additional information on our tax credit investments.

Other expense decreased $23.7 million for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 primarily due to $20.6 million of lease termination charges and impairments on long-lived assets related to branch consolidations that were part of the ONB Way strategic initiative in the three months ended March 31, 2020. The decrease in other expense also reflected a favorable variance in provision for credit losses on unfunded loan commitments totaling $3.1 million.

Provision for Income Taxes

We record a provision for income taxes currently payable and for income taxes payable or benefits to be received in the future, which arise due to timing differences in the recognition of certain items for financial statement and income tax purposes. The major difference between the effective tax rate applied to our financial statement income and the federal statutory tax rate is caused by a tax benefit from our tax credit investments and interest on tax-exempt securities and loans. The provision for income taxes, as a percentage of pre-tax income, was 16.9% for the three months ended March 31, 2021, compared to 11.5% for the three months ended March 31, 2020. In accordance with ASC 740-270, Accounting for Interim Reporting, the provision for income taxes was recorded at March 31, 2021 based on the current estimate of the effective annual rate. The higher effective tax rate during the three months ended March 31, 2021 when compared to the three months ended March 31, 2020 was primarily the result of an increase in pre-tax book income. See Note 17 to the consolidated financial statements for additional information.

FINANCIAL CONDITION

Overview

At March 31, 2021, our assets were $23.744 billion, a $783.8 million increase compared to assets of $22.961 billion at December 31, 2020. The increase was primarily due to higher investment securities.

We have observed signs of an economic recovery in the United States, with jobs, consumer spending, manufacturing, and other indicators rebounding from their weakest levels. However, there have been concerns about the speed of widespread vaccine distribution, as well as the emergence of resistant strains of the virus and whether enough people will agree to be vaccinated. Economic uncertainty remains and bouts of elevated volatility are expected to continue.

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 $21.175 billion at March 31, 2021, an $862.0 million increase compared to earning assets of $20.313 billion at December 31, 2020.

Investment Securities

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

Equity securities are recorded at fair value and totaled $2.4 million at March 31, 2021 compared to $2.5 million at December 31, 2020.

At March 31, 2021, the investment securities portfolio, including equity securities, was $6.896 billion compared to $6.142 billion at December 31, 2020, an increase of $754.3 million. Investment securities represented 33% of earning assets at March 31, 2021, compared to 30% at December 31, 2020. Stronger commercial loan demand in the future could result in management’s decision to reduce the securities portfolio. At March 31, 2021, management does not intend to sell any securities in an unrealized loss position and does not believe we will be required to sell such securities.

The investment securities available-for-sale portfolio had net unrealized gains of $110.8 million at March 31, 2021, compared to net unrealized gains of $186.3 million at December 31, 2020. Net unrealized gains decreased from December 31, 2020 to March 31, 2021 reflecting lower net unrealized gains on mortgage-backed and tax exempt municipal securities due to an increase in long-term interest rates.

The investment portfolio had an effective duration of 4.62 at March 31, 2021, compared to 4.08 at December 31, 2020. Effective duration measures the percentage change in value of the portfolio in response to a change in interest

rates. Generally, there is more uncertainty in interest rates over a longer average maturity, resulting in a higher duration percentage. The annualized average yields on investment securities, on a taxable equivalent basis, were 2.23% for the three months ended March 31, 2021, compared to 2.71% for the three months ended March 31, 2020.

Loans Held for Sale

Mortgage loans held for immediate sale in the secondary market were $50.3 million at March 31, 2021, compared to $63.3 million at December 31, 2020. Certain mortgage loans are committed for sale at or prior to origination at a contracted price to an outside investor. Other mortgage loans held for immediate sale are hedged with TBA forward agreements and committed for sale when they are ready for delivery and remain on the Company’s balance sheet for a short period of time (typically 30 to 60 days). These loans are sold without recourse, beyond customary representations and warranties, and Old National has not experienced material losses arising from these sales. Mortgage originations are subject to volatility due to interest rates and home sales, among other factors.

We have elected the fair value option prospectively for residential loans held for sale. The aggregate fair value exceeded the unpaid principal balance by $1.1 million at March 31, 2021, compared to $3.5 million at December 31, 2020.

Commercial and Commercial Real Estate Loans

Commercial and commercial real estate loans are the largest classification within earning assets, representing 48% of earning assets at March 31, 2021, compared to 49% at December 31, 2020. At March 31, 2021, commercial and commercial real estate loans were $10.143 billion, an increase of $240.1 million compared to December 31, 2020 driven by strong production in the first quarter of 2021. As of March 31, 2021, total PPP loans were $1.124 billion, compared to $943.0 million at December 31, 2020.

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


	March 31, 2021									December 31, 2020
(dollars in thousands)	Outstanding			Exposure			Nonaccrual			Outstanding			Exposure			Nonaccrual
By Industry:
Manufacturing	$	637,310		$	1,066,149		$	10,665		$	586,074		$	1,019,149		$	11,036
Construction	476,717			945,765			980			462,140			903,604			1,036
Health care and social assistance	448,049			643,749			627			412,807			604,493			691
Public administration	286,379			406,199			—			299,748			371,846			—
Wholesale trade	251,701			505,194			3,056			241,432			483,253			3,647
Educational services	245,386			357,665			—			245,896			418,277			1,428
Other services	199,551			308,041			2,699			194,822			307,205			2,363
Professional, scientific, and technical services	201,973			328,628			643			182,228			320,983			864
Finance and insurance	174,601			235,770			55			186,079			246,551			57
Retail trade	142,007			306,706			1,301			151,869			329,160			1,788
Real estate rental and leasing	166,559			330,754			727			169,935			356,169			759
Transportation and warehousing	146,629			222,777			3,019			139,398			216,495			1,397
Administrative and support and waste management and remediation services	130,165			185,602			383			119,220			173,538			383
Agriculture, forestry, fishing, and hunting	115,557			189,135			338			145,624			192,602			358
Accommodation and food services	136,597			150,057			3,138			105,560			118,497			3,239
Utilities	84,943			96,823			—			88,607			98,996			—
Arts, entertainment, and recreation	97,559			133,930			2,534			82,305			111,729			2,590
Information	61,926			92,296			2,173			61,883			95,774			2,286
Mining	54,273			84,747			17			57,142			77,067			19
Management of companies and enterprises	10,923			16,789			—			13,605			28,276			—
Other	91			142			—			10,048			10,086			—
Total	$	4,068,896		$	6,606,918		$	32,355		$	3,956,422		$	6,483,750		$	33,941

By Loan Size:
Less than $200,000	14		%	10		%	17		%	11		%	8		%	10		%
$200,000 to $1,000,000	22			20			43			20			18			40
$1,000,000 to $5,000,000	35			33			40			34			32			50
$5,000,000 to $10,000,000	13			15			—			15			15			—
$10,000,000 to $25,000,000	11			13			—			14			16			—
Greater than $25,000,000	5			9			—			6			11			—
Total	100		%	100		%	100		%	100		%	100		%	100		%

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


	March 31, 2021
(dollars in thousands)	Outstanding		%
By Property Type:
Multifamily	$	1,721,204	28	%
Retail	1,044,349		17
Office	996,246		16
Warehouse / Industrial	855,464		14
Single family	329,949		6
Other (1)	1,126,923		19
Total	$	6,074,135	100	%

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

Residential Real Estate Loans

At March 31, 2021, residential real estate loans held in our loan portfolio were $2.203 billion, a decrease of $45.1 million compared to December 31, 2020. Future increases in interest rates could result in a decline in the level of refinancings and new originations of residential real estate loans.

Consumer Loans

Consumer loans, including automobile loans and personal and home equity loans and lines of credit, decreased $56.2 million at March 31, 2021 compared to December 31, 2020 primarily due to decreases in consumer direct loans and home equity loans.

Other Assets

Other assets increased $24.6 million, or 7%, compared to December 31, 2020 primarily due to an increase in fees receivable on PPP loans.

Funding

Total funding, comprised of deposits and wholesale borrowings, was $20.425 billion at March 31, 2021, an increase of $710.7 million from $19.714 billion at December 31, 2020. Included in total funding were deposits of $17.850 billion at March 31, 2021, an increase of $812.3 million from $17.037 billion at December 31, 2020. Noninterest-bearing deposits increased $457.4 million from December 31, 2020 to March 31, 2021. Interest-bearing checking and NOW deposits decreased $18.3 million from December 31, 2020 to March 31, 2021, while savings deposits increased $235.4 million. Money market deposits increased $217.7 million from December 31, 2020 to March 31, 2021. Time deposits decreased $80.0 million from December 31, 2020 to March 31, 2021.

We use wholesale funding to augment deposit funding and to help maintain our desired interest rate risk position. At March 31, 2021, wholesale borrowings, including federal funds purchased and interbank borrowings, securities sold under agreements to repurchase, FHLB advances, and other borrowings, totaled $2.575 billion, a decrease of $101.6 million from December 31, 2020. Wholesale funding as a percentage of total funding was 13% at March 31, 2021 and 14% at December 31, 2020. The decrease in wholesale funding from December 31, 2020 to March 31, 2021 was due to decreases in federal funds purchased and interbank borrowings, securities sold under agreements to repurchase, and FHLB advances, partially offset by an increase in other borrowings.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities increased $68.2 million, or 36%, from December 31, 2020 to March 31, 2021 primarily due to investment securities purchased but not settled before March 31, 2021. This increase was partially offset by incentive payments in the three months ended March 31, 2021.

Capital

Shareholders’ equity totaled $2.979 billion at March 31, 2021, compared to $2.973 billion at December 31, 2020. Old National paid cash dividends of $0.14 per share in the three months ended March 31, 2021, which reduced equity by $23.2 million. The change in unrealized gains (losses) on available-for-sale investment securities decreased equity by $58.8 million during the three months ended March 31, 2021.

Capital Adequacy

Old National and the banking industry are subject to various regulatory capital requirements administered by the federal banking agencies. At March 31, 2021, Old National and its bank subsidiary exceeded the regulatory minimums and Old National Bank met the regulatory definition of “well-capitalized” based on the most recent regulatory definition.

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


	Regulatory Guidelines Minimum		March 31,				December 31,
			2021		2020		2020
Risk-based capital:
Tier 1 capital to total average assets (leverage ratio)	4.00	%	8.33	%	8.46	%	8.20	%
Common equity Tier 1 capital to risk-adjusted total assets	7.00		12.01		11.40		11.75
Tier 1 capital to risk-adjusted total assets	8.50		12.01		11.40		11.75
Total capital to risk-adjusted total assets	10.50		12.84		12.28		12.69
Shareholders' equity to assets	N/A		12.55		13.61		12.95

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


	Regulatory Guidelines Minimum		Prompt Corrective Action "Well Capitalized" Guidelines		March 31,				December 31,
					2021		2020		2020
Risk-based capital:
Tier 1 capital to total average assets (leverage ratio)	4.00	%	5.00	%	8.74	%	9.23	%	8.67	%
Common equity Tier 1 capital to risk-adjusted total assets	7.00		6.50		12.42		12.29		12.23
Tier 1 capital to risk-adjusted total assets	8.50		8.00		12.42		12.29		12.23
Total capital to risk-adjusted total assets	10.50		10.00		12.98		12.86		12.90

In December 2018, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. In March 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC published an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). Old National is adopting the capital transition relief over the permissible five-year period.

Management views stress testing as an integral part of the Company’s risk management and strategic planning activities. The primary objective of the stress test is to ensure that Old National has a robust, forward-looking stress testing process and maintains sufficient capital to continue operations throughout times of economic and financial stress. Management also uses the stress testing framework to evaluate decisions relating to pricing, loan concentrations, capital deployment, and mergers and acquisitions to ensure that strategic decisions align with Old

National’s risk appetite statement. Old National’s stress testing process incorporates key risks that include strategic, market, liquidity, credit, operational, regulatory, compliance, legal, and reputational risks. Old National’s stress testing policy outlines steps that will be taken if stress test results do not meet internal thresholds under severely adverse economic scenarios.

RISK MANAGEMENT

Overview

Old National has adopted a Risk Appetite Statement to enable the Board of Directors, Executive Leadership Group, and Senior Management to better assess, understand, and mitigate the risks of Old National. The Risk Appetite Statement addresses the following major risks: strategic, market, liquidity, credit, operational/technology/cyber, regulatory/compliance/legal, reputational, and human resources. Our Chief Risk Officer is independent of management and reports directly to the Chair of the Board’s Enterprise Risk Management Committee. The following discussion addresses these major risks: credit, market, liquidity, operational/technology/cyber, and regulatory/compliance/legal.

During the COVID-19 pandemic, we are committed and focused on the health and safety of our team members, clients, and communities. We will continue to evaluate and adjust our banking center hours, lobby usage, and return to work efforts as necessary depending on the path of the virus across our footprint. Our banking centers are still open for business and we continue to lend to qualified businesses for working capital and general business purposes, while our online banking network is continuously available for digital banking transactions.

Credit Risk

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

Investment Activities

We carry a higher exposure to loss in our pooled trust preferred securities, which are collateralized debt obligations, due to illiquidity in that market and the performance of the underlying collateral. At March 31, 2021, we had pooled trust preferred securities with a fair value of $8.2 million, or less than 1% of the available-for-sale securities portfolio. These securities remained classified as available-for-sale and at March 31, 2021, the unrealized loss on our pooled trust preferred securities was $5.5 million. The fair value of these securities is expected to improve as we get closer to maturity, but not in all cases.

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 4 to the consolidated financial statements for additional details about our investment security portfolio.

Counterparty Exposure

Counterparty exposure is the risk that the other party in a financial transaction will not fulfill its obligation. We define counterparty exposure as nonperformance risk in transactions involving federal funds sold and purchased, repurchase agreements, correspondent bank relationships, and derivative contracts with companies in the financial services industry. Old National manages exposure to counterparty risk in connection with its derivatives transactions by generally engaging in transactions with counterparties having ratings of at least “A” by Standard & Poor’s Rating Service or “A2” by Moody’s Investors Service. Total credit exposure is monitored by counterparty and managed within limits that management believes to be prudent. Old National’s net counterparty exposure was an asset of $212.7 million at March 31, 2021.

Lending Activities

Commercial

Commercial and industrial loans are made primarily for the purpose of financing equipment acquisition, expansion, working capital, and other general business purposes. Lease financing consists of direct financing leases and is used by commercial customers to finance capital purchases ranging from computer equipment to transportation equipment. The credit decisions for these transactions are based upon an assessment of the overall financial capacity

of the applicant. A determination is made as to the applicant’s ability to repay in accordance with the proposed terms as well as an overall assessment of the risks involved. In addition to an evaluation of the applicant’s financial condition, a determination is made of the probable adequacy of the primary and secondary sources of repayment, such as additional collateral or personal guarantees, to be relied upon in the transaction. Credit agency reports of the applicant’s credit history supplement the analysis of the applicant’s creditworthiness.

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

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

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

Consumer

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

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

Automobile loans include loans and leases secured by new or used automobiles. We originate automobile loans and leases primarily on an indirect basis through selected dealerships. We require borrowers to maintain collision insurance on automobiles securing consumer loans, with us listed as loss payee. Our procedures for underwriting automobile loans include an assessment of an applicant’s overall financial capacity, including credit history and the ability to meet existing obligations and payments on the proposed loan. Although an applicant’s creditworthiness is the primary consideration, the underwriting process also includes a comparison of the value of the collateral security to the proposed loan amount.

Asset Quality

Community-based lending personnel, along with region-based independent underwriting and analytic support staff, extend credit under guidelines established and administered by our Enterprise Risk Committee. This committee, which meets quarterly, is made up of independent outside directors. The committee monitors credit quality through its review of information such as delinquencies, credit exposures, peer comparisons, problem loans, and charge-

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

We lend to commercial and commercial real estate clients in various industries including manufacturing, agribusiness, transportation, mining, wholesaling, and retailing. Old National manages concentrations of credit exposure by industry, product, geography, customer relationship, and loan size. At March 31, 2021, our average commercial loan size was approximately $260,000 and our average commercial real estate loan size was approximately $850,000. In addition, while loans to lessors of both 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 March 31, 2021, we had minimal exposure to foreign borrowers and no sovereign debt. Our policy is to concentrate our lending activity in the geographic market areas we serve, primarily Indiana, Kentucky, Michigan, Minnesota, and Wisconsin. We have experienced an impact from COVID-19 during 2020 and during the three months ended March 31, 2021; however, the depth of this crisis is ongoing and its effect is anticipated to be very broad-based. Management believes that trends in under-performing, criticized, and classified loans will be highly dependent on both the ability to distribute vaccinations in an efficient and timely manner, as well as the length of time it will take consumers to return to their pre-pandemic spending routines.

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


	March 31,						December 31,
(dollars in thousands)	2021			2020			2020
Total nonaccrual loans	$	142,138		$	126,987		$	147,339
TDRs still accruing	15,226			17,040			17,749
Total past due loans (90 days or more and still accruing)	49			658			167
Other real estate owned	751			2,163			1,324
Total under-performing assets	$	158,164		$	146,848		$	166,579
Classified loans (includes nonaccrual, TDRs still accruing, past due 90 days, and other problem loans)	$	302,501		$	308,802		$	304,782
Other classified assets (1)	3,791			2,616			3,706
Criticized loans	246,365			238,011			287,192
Total criticized and classified assets	$	552,657		$	549,429		$	595,680
Asset Quality Ratios:
Non-performing loans/total loans (2) (3)	1.13		%	1.16		%	1.20		%
Under-performing assets/total loans and other real estate owned	1.14			1.19			1.21
Under-performing assets/total assets	0.67			0.71			0.73
Allowance/under-performing assets	72.10			72.44			78.87
Allowance/nonaccrual loans	80.23			83.77			89.17

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

(2)Loans exclude loans held for sale.

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

Under-performing assets totaled $158.2 million at March 31, 2021, compared to $146.8 million at March 31, 2020 and $166.6 million at December 31, 2020. Under-performing assets as a percentage of total loans and other real estate owned at March 31, 2021 were 1.14%, a 5 basis point improvement from 1.19% at March 31, 2020 and a 7 basis point improvement from 1.21% at December 31, 2020.

Nonaccrual loans increased from March 31, 2020 primarily due to an increase in commercial real estate nonaccrual loans, partially offset by a decrease in commercial nonaccrual loans. As a percentage of nonaccrual loans, the allowance was 80.23% at March 31, 2021, compared to 83.77% at March 31, 2020 and 89.17% at December 31, 2020.

Total criticized and classified assets were $552.7 million at March 31, 2021, an increase of $3.2 million from March 31, 2020, and a decrease of $43.0 million from December 31, 2020. Other classified assets include investment securities that fell below investment grade rating totaling $3.8 million at March 31, 2021, compared to $2.6 million at March 31, 2020 and $3.7 million at December 31, 2020.

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

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

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

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

At March 31, 2021, TDRs consisted of $8.5 million of commercial loans, $17.4 million of commercial real estate loans, $0.1 million of BBCC loans, $2.6 million of residential real estate loans, $0.7 million of direct consumer loans, and $0.3 million of home equity loans totaling $29.6 million. TDRs included within nonaccrual loans totaled $14.3 million at March 31, 2021. At December 31, 2020, TDRs consisted of $11.1 million of commercial loans, $17.6 million of commercial real estate loans, $0.1 million of BBCC loans, $2.8 million of residential real estate loans, $0.8 million of direct consumer loans, and $0.3 million of home equity loans, totaling $32.7 million. TDRs included within nonaccrual loans totaled $14.9 million at December 31, 2020.

Old National has allocated specific reserves to customers whose loan terms have been modified as TDRs totaling $0.8 million at March 31, 2021 and $1.6 million of December 31, 2020. Old National had not committed to lend any additional funds to customers with outstanding loans that were classified as TDRs at March 31, 2021 or December 31, 2020.

credit evaluation at the time of the restructuring, (2) under the terms of the subsequent restructuring agreement, the institution has granted no concession to the borrower; and (3) the subsequent restructuring agreement includes market terms that are no less favorable than those that would be offered for a comparable new loan. For loans subsequently restructured that have cumulative principal forgiveness, the loan should continue to be measured in accordance with ASC 310-10, Receivables – Overall. However, consistent with ASC 310-40-50-2, Troubled Debt Restructurings by Creditors, Creditor Disclosure of Troubled Debt Restructurings, the loan would not be required to be reported in the years following the restructuring if the subsequent restructuring meets both of these criteria: (1) has an interest rate at the time of the subsequent restructuring that is not less than a market interest rate; and (2) is performing in compliance with its modified terms after the subsequent restructuring.

We have developed relief programs to assist borrowers in financial need due to the effects of the COVID-19 pandemic. The Interagency Statement issued by our banking regulators encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act terminates. The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act, as well as setting forth the banking regulators’ views on consumer protection considerations. Additionally, section 541 of the CAA extended the relief provided by the CARES Act for financial institutions to suspend the GAAP accounting treatment for troubled debt restructuring to January 1, 2022. In accordance with such guidance, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term (180 days or less) modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. The table below presents these loan deferrals by loan category:


	December 31, 2020		March 31, 2021
(dollars in thousands)	Deferrals Balance		Deferrals Balance (1)		Number of Deferrals
Commercial and commercial real estate	$	53,823	$	32,242	47
Residential real estate	1,855		1,763		8
Consumer	8,224		5,280		250
Total	$	63,902	$	39,285	305

U.S. Small Business Administration Paycheck Protection Program

Section 1102 of the CARES Act created the PPP, a program administered by the SBA to provide loans to small businesses for payroll and other basic expenses during the COVID-19 pandemic. Old National has participated in the PPP as a lender. These loans are eligible to be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA. Additionally, loan payments will also be deferred for the first six months of the loan term. The PPP commenced on April 3, 2020 and was available to qualified borrowers through August 8, 2020. No collateral or personal guarantees are required. Neither the government nor lenders are permitted to charge the recipients any fees. During 2020, Old National originated over 9,700 loans with balances in excess of $1.5 billion to new and existing customers through the PPP. As of April 15, 2021, we have received payment from the SBA on 7,358, or 75%, of our loans totaling $929 million.

On December 27, 2020, President Trump signed into law the CAA. The CAA, among other things, extends the life of the PPP, effectively creating a second round of PPP loans for eligible businesses. Old National is participating in the CAA’s second round of PPP lending. In mid-January we opened our lending portal and have begun processing PPP loan applications. We initially focused on helping minority-owned business, women-owned business, not-for-profit entities, and existing first round PPP customers with the lending process. During the three months ended March 31, 2021, Old National originated over 4,800 loans with balance of $517.3 million through the second round of the PPP.

At March 31, 2021, remaining PPP loans totaled $1.124 billion.

To the extent the PPP loans are forgiven, this represents outside equity contributions to our borrowers; and, especially with respect to vulnerable industries, we believe these capital injections are going to be instrumental in assisting our borrowers in navigating through the pandemic. This capital injection, along with the level of capital

each borrower had just prior to COVID-19 impacting them, are critical factors in determining the staying power of our borrowers. Upon receipt of interim financial results from our borrowers, we will use that information to update our understanding of the underlying strengths or weaknesses in each individual relationship and take actions, as appropriate.

Allowance for Credit Losses on Loans and Unfunded Commitments

Loan charge-offs, net of recoveries, totaled $5 thousand of net recoveries for the three months ended March 31, 2021, compared to $6.5 million of net charge-offs for the three months ended March 31, 2020. Annualized, net charge-offs (recoveries) to average loans were 0.00% for the three months ended March 31, 2021 compared to 0.21% for the three months ended March 31, 2020. Management will continue its efforts to reduce the level of non-performing loans and may consider the possibility of sales of troubled and non-performing loans, which could result in additional charge-offs to the allowance for credit losses on loans.

Credit quality within the loans held for investment portfolio is continuously monitored by management and is reflected within the allowance for credit losses for loans. The allowance for credit losses is an estimate of expected losses inherent within the Company’s loans held for investment portfolio. Credit quality is assessed and monitored by evaluating various attributes and the results of those evaluations are utilized in underwriting new loans and in our process for estimating expected credit losses. Expected credit loss inherent in non-cancelable off-balance-sheet credit exposures is accounted for as a separate liability included in other liabilities on the balance sheet. The allowance for credit losses for loans held for investment is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries. Accrued interest receivable is excluded from the estimate of credit losses.

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

The allowance for credit losses for loans was $114.0 million at March 31, 2021, compared to $131.4 million at December 31, 2020. Continued loan growth in future periods, a decline in our current level of recoveries, or an increase in charge-offs could result in an increase in provision expense. Additionally, with the adoption of CECL beginning on January 1, 2020, provision expense may become more volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, which drive the allowance for credit losses balance.

We maintain an allowance for credit losses on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses for loans, modified to take into account the probability of a drawdown on the commitment. The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet within accrued expenses and other liabilities, while the corresponding provision for these credit losses is recorded as a component of other expense. The allowance for credit losses on unfunded loan commitments totaled $10.4 million at March 31, 2021, compared to $11.7 million at December 31, 2020.

Market Risk

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

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

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

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

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

•changing product pricing strategies;

•modifying characteristics of the investment securities portfolio; or

•using derivative financial instruments, to a limited degree.

A key element in our ongoing process is to measure and monitor interest rate risk using a model to quantify the likely impact of changing interest rates on Old National’s results of operations. The model quantifies the effects of various possible interest rate scenarios on projected net interest income. The model measures the impact on net interest income relative to a base case scenario. The base case scenario assumes that the balance sheet and interest rates are held at current levels. Interest rates are floored at 0.00% in the down 50 basis points scenario. The model shows our projected net interest income sensitivity based on interest rate changes only and does not consider other forecast assumptions.

The following table illustrates our projected net interest income sensitivity over a two year cumulative horizon based on the asset/liability model at March 31, 2021 and 2020:


	Immediate Rate Decrease					Immediate Rate Increase
(dollars in thousands)	-50 Basis Points			Base		+100 Basis Points			+200 Basis Points			+300 Basis Points
March 31, 2021
Projected interest income:
Money market, other interest earning investments, and investment securities	$	270,193		$	288,545	$	318,888		$	343,019		$	365,408
Loans	844,833			876,653		1,010,509			1,143,990			1,276,637
Total interest income	1,115,026			1,165,198		1,329,397			1,487,009			1,642,045
Projected interest expense:
Deposits	16,722			26,253		106,561			187,088			267,612
Borrowings	57,669			66,383		101,414			136,886			175,013
Total interest expense	74,391			92,636		207,975			323,974			442,625
Net interest income	$	1,040,635		$	1,072,562	$	1,121,422		$	1,163,035		$	1,199,420
Change from base	$	(31,927)				$	48,860		$	90,473		$	126,858
% change from base	(2.98)		%			4.56		%	8.44		%	11.83		%

March 31, 2020
Projected interest income:
Money market, other interest earning investments, and investment securities	$	267,951		$	283,927	$	318,870		$	339,578		$	354,092
Loans	869,090			916,978		1,037,778			1,161,678			1,281,085
Total interest income	1,137,041			1,200,905		1,356,648			1,501,256			1,635,177
Projected interest expense:
Deposits	31,040			45,374		125,648			205,917			286,174
Borrowings	73,648			85,870		122,950			164,338			206,964
Total interest expense	104,688			131,244		248,598			370,255			493,138
Net interest income	$	1,032,353		$	1,069,661	$	1,108,050		$	1,131,001		$	1,142,039
Change from base	$	(37,308)				$	38,389		$	61,340		$	72,378
% change from base	(3.49)		%			3.59		%	5.73		%	6.77		%

Our asset sensitivity increased year over year primarily due to deposit pricing actions and changes in our hedging strategies, balance sheet mix, investment duration, and prepayment speed behavior.

A key element in the measurement and modeling of interest rate risk is the re-pricing assumptions of our transaction deposit accounts, which have no contractual maturity dates. Because the models are driven by expected behavior in various interest rate scenarios and many factors besides market interest rates affect our net interest income, we recognize that model outputs are not guarantees of actual results. For this reason, we model many different combinations of interest rates and balance sheet assumptions to understand our overall sensitivity to market interest rate changes, including shocks, ramps, yield curve flattening, yield curve steepening, as well as forecasts of likely interest rate scenarios tested. At March 31, 2021, our projected net interest income sensitivity based on the asset/liability models we utilize was within the limits of our interest rate risk policy for the scenarios tested.

We use cash flow and fair value hedges, primarily interest rate swaps, collars, and floors, to mitigate interest rate risk. Derivatives designated as hedging instruments were in a net asset position with a fair value of $63.4 million at March 31, 2021, compared to a net asset position with a fair value of $15.2 million at December 31, 2020. See Note 18 to the consolidated financial statements for further discussion of derivative financial instruments.

Liquidity Risk

Liquidity risk arises from the possibility that we may not be able to satisfy current or future financial commitments, or may become unduly reliant on alternative funding sources. The Funds Management Committee of the Board of

Directors establishes liquidity risk guidelines and, along with the Balance Sheet Management Committee, monitors liquidity risk. The objective of liquidity management is to ensure we have the ability to fund balance sheet growth and meet deposit and debt obligations in a timely and cost-effective manner. Management monitors liquidity through a regular review of asset and liability maturities, funding sources, and loan and deposit forecasts. We maintain strategic and contingency liquidity plans to ensure sufficient available funding to satisfy requirements for balance sheet growth, properly manage capital markets’ funding sources and to address unexpected liquidity requirements. On June 5, 2020, we filed an automatic shelf registration statement with the SEC that permits us to issue an unspecified amount of debt or equity securities.

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

A maturity schedule for Old National Bank’s time deposits is shown in the following table at March 31, 2021.


(dollars in thousands)
Maturity Bucket	Amount		Rate
2021	$	641,199	0.35	%
2022	217,287		0.58
2023	94,228		1.10
2024	46,424		1.33
2025	30,315		0.71
2026 and beyond	13,450		0.98
Total	$	1,042,903	0.53	%

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

•Moody’s Investor Service affirmed the Long-Term Rating of “A3” for Old National’s senior unsecured/issuer rating on February 3, 2020.

•Moody’s Investor Service affirmed Old National Bank’s long-term deposit rating of “Aa3” on February 3, 2020. The bank’s short-term deposit rating was affirmed at “P-1” and the bank’s issuer rating was affirmed at “A3.”

The rating outlook from Moody’s Investor Service is stable. Moody’s Investor Service concluded a rating review of Old National Bank on February 3, 2020.

The credit ratings of Old National and Old National Bank at March 31, 2021 are shown in the following table.


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

Old National Bank maintains relationships in capital markets with brokers and dealers to issue certificates of deposit and short-term and medium-term bank notes as well. At March 31, 2021, Old National and its subsidiaries had the following availability of liquid funds and borrowings:


(dollars in thousands)	Parent Company		Subsidiaries
Available liquid funds:
Cash and due from banks	$	73,513	$	384,264
Unencumbered government-issued debt securities	—		3,064,345
Unencumbered investment grade municipal securities	—		872,473
Unencumbered corporate securities	—		156,750
Availability of borrowings:
Amount available from Federal Reserve discount window*	—		454,473
Amount available from Federal Home Loan Bank Indianapolis*	—		309,888
Total available funds	$	73,513	$	5,242,193

* Based on collateral pledged

Old National Bancorp has routine funding requirements consisting primarily of operating expenses, dividends to shareholders, debt service, net derivative cash flows, and funds used for acquisitions. Old National Bancorp can obtain funding to meet its obligations from dividends and management fees collected from its subsidiaries, operating line of credit, and through the issuance of debt securities. Additionally, Old National Bancorp has a shelf registration in place with the SEC permitting ready access to the public debt and equity markets. At March 31, 2021, Old National Bancorp’s other borrowings outstanding were $213.3 million. Management believes the Company has the ability to generate and obtain adequate amounts of liquidity to meet its requirements in the short-term and the long-term.

Federal banking laws regulate the amount of dividends that may be paid by banking subsidiaries without prior approval. Prior regulatory approval is required if dividends to be declared in any year would exceed net earnings of the current year plus retained net profits for the preceding two years. Prior regulatory approval to pay dividends was not required in 2020 and is not currently required.

Operational/Technology/Cyber Risk

Operational/technology/cyber risk is the danger that inadequate information systems, operational problems, breaches in internal controls, information security breaches, fraud, or unforeseen catastrophes will result in unexpected losses and other adverse impacts to Old National, such as reputational harm. We maintain frameworks, programs, and internal controls to prevent or minimize financial loss from failure of systems, people, or processes. This includes specific programs and frameworks intended to prevent or limit the effects of cyber risks including cyber-attacks or other information security breaches that might allow unauthorized transactions or unauthorized access to customer, associate, or company sensitive information. Metrics and measurements are used by our management team in the management of day-to-day operations to ensure effective customer service, minimization of service disruptions, and oversight of operational and cyber risk. We continually monitor and report on operational, technology, and cyber risks related to clients, products, and business practices; external and internal fraud; business disruptions and systems failures; cyber-attacks, information security or data breaches; damage to physical assets; and execution, delivery, and process management.

The Enterprise Risk Management Committee of the Board of Directors is responsible for the oversight, guidance, and monitoring of risks, including operational/technology/cyber risks, being taken by the Company. The monitoring is accomplished through ongoing review of management reports, data on risks and policy limits, and consistent discussion on enterprise risk management strategies, policies, and risk assessments.

Regulatory/Compliance/Legal Risk

Regulatory/compliance/legal risk is the risk that the Company violated or was not in compliance with applicable laws, regulations or practices, industry standards, or ethical standards. The legal portion assesses the risk that unenforceable contracts, lawsuits, or adverse judgments can disrupt or otherwise negatively impact the Company. The Board of Directors expects 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.

OFF-BALANCE SHEET ARRANGEMENTS

Off-balance sheet arrangements include commitments to extend credit and financial guarantees. Commitments to extend credit and financial guarantees are used to meet the financial needs of our customers. Our banking affiliates have entered into various agreements to extend credit, including loan commitments of $3.851 billion and standby letters of credit of $75.1 million at March 31, 2021. At March 31, 2021, approximately $3.613 billion of the loan commitments had fixed rates and $238.3 million had floating rates, with the floating rates ranging from 0% to 14%. At December 31, 2020, loan commitments were $3.720 billion and standby letters of credit were $86.9 million. The term of these off-balance sheet arrangements is typically one year or less.

Old National is a party in risk participation transactions of interest rate swaps, which had total notional amount of $68.2 million at March 31, 2021.

CONTRACTUAL OBLIGATIONS

The following table presents our significant fixed and determinable contractual obligations at March 31, 2021:


	Payments Due In
(dollars in thousands)	One Year or Less (1)		One to Three Years		Three to Five Years		Over Five Years		Total
Deposits without stated maturity	$	16,806,852	$	—	$	—	$	—	$	16,806,852
IRAs, consumer, and brokered certificates of deposit	641,199		311,515		76,739		13,450		1,042,903
Federal funds purchased and interbank borrowings	922		—		—		—		922
Securities sold under agreements to repurchase	395,242		—		—		—		395,242
FHLB advances	20,000		29,155		575,000		1,288,386		1,912,541
Other borrowings	774		2,205		177,368		85,935		266,282
Fixed interest payments (2)	25,957		66,439		54,421		62,787		209,604
Operating leases	10,706		23,145		16,930		50,549		101,330
Other long-term liabilities (3)	23,559		2,963		44		5		26,571

(1)For the remaining nine months of fiscal 2021.

(2)Our senior notes, subordinated notes, certain trust preferred securities, and certain FHLB advances have fixed rates ranging from 0.45% to 4.96%. All of our other long-term debt is at LIBOR based variable rates at March 31, 2021. The projected variable interest assumes no increase in LIBOR rates from March 31, 2021.

(3)Includes unfunded commitments on qualified affordable housing projects and other tax credit investments.

We rent certain premises and equipment under operating leases. See Note 8 to the consolidated financial statements for additional information on long-term lease arrangements.

We are party to various derivative contracts as a means to manage the balance sheet and our related exposure to changes in interest rates, to manage our residential real estate loan origination and sale activity, and to provide derivative contracts to our clients. Since the derivative liabilities recorded on the balance sheet change frequently and do not represent the amounts that may ultimately be paid under these contracts, these liabilities are not included in the table of contractual obligations presented above. Further discussion of derivative instruments is included in Note 18 to the consolidated financial statements.

In the normal course of business, various legal actions and proceedings are pending against us and our affiliates which are incidental to the business in which they are engaged. Further discussion of contingent liabilities is included in Note 19 to the consolidated financial statements.

In addition, liabilities recorded under FASB ASC 740-10 (FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109) are not included in the table because the amount and timing of any cash payments cannot be reasonably estimated. Further discussion of income taxes and liabilities is included in Note 17 to the consolidated financial statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our accounting policies are described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020. Certain accounting policies require management to use significant judgment and estimates, which can have a material impact on the carrying value of certain assets and liabilities. We consider these policies to be critical accounting policies. The judgment and assumptions made are based upon historical experience, future forecasts, or other factors that management believes to be reasonable under the circumstances. Because of the nature of the judgment and assumptions, actual results could differ from estimates, which could have a material effect on our financial condition and results of operations.

The following accounting policies materially affect our reported earnings and financial condition and require significant judgments and estimates. Management has reviewed these critical accounting estimates and related disclosures with our Audit Committee.

Goodwill

•Description. For acquisitions, we are required to record the assets acquired, including identified intangible assets such as goodwill, and the liabilities assumed at their fair value. These often involve estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques that may include estimates of attrition, inflation, asset growth rates, or other relevant factors. The carrying value of goodwill recorded must be reviewed for impairment on an annual basis, as well as on an interim basis if events or changes indicate that the asset might be impaired. An impairment loss must be recognized for any excess of carrying value over fair value of the goodwill.

•Judgments and Uncertainties. The determination of fair values is based on valuations using management’s assumptions of future growth rates, future attrition, discount rates, multiples of earnings or other relevant factors.

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

•Pandemic. A prolonged COVID-19 outbreak, or any other epidemic that harms the global economy, U.S. economy, or the economies in which we operate could adversely affect our operations. Based on the required annual impairment test as of August 31, 2020, we have concluded that our goodwill was not impaired. On a quarterly basis, we will continue to evaluate our qualitative assessment assumptions, which are subject to risks and uncertainties, including: (1) forecasted revenues, expenses, and cash flows; (2) current discount rates; (3) our market capitalization; (4) observable market transactions and multiples; (5) changes to the regulatory environment; and (6) the nature and amount of government support that has been and is expected to be provided in the future. A prolonged economic downturn or deterioration in the economic outlook may lead management to conclude that an interim quantitative impairment test of our goodwill is required prior to the annual impairment test conducted on August 31.

Allowance for Credit Losses for Loans

•Description. The allowance for credit losses for loans represents management’s estimate of all expected credit losses over the expected contractual life of our loan portfolio. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods.

The allowance for credit losses for loans, as reported in our consolidated statements of financial condition, is adjusted by an expense for credit losses, which is recognized in earnings, and reduced by the charge-off of loan amounts, net of recoveries.

•Judgments and Uncertainties. We utilize a discounted cashflow approach to determine the allowance for credit losses for performing loans and nonperforming loans. Expected cashflows are created for each loan and discounted using the effective yield. The discounted sum of expected cashflows is then compared to the amortized cost and any shortfall is recorded as reserve. Expected cashflows are created using a combination

of contractual payment schedules, calculated PDs, LGD and prepayment assumptions as well as qualitative factors. For the commercial and commercial real estate loans, the PD is forecast using a regression model to determine the likelihood of a loan moving into nonaccrual within the time horizon. For residential and consumer loans, the PD is forecast using a regression model to determine the likelihood of a loan being charged-off within the time horizon. The regression models use combinations of variables to assess systematic and unsystematic risk. Variables used for unsystematic risk are borrower specific and help to gauge the risk of default from an individual borrower. Variables for systematic risk, risk inherent to all borrowers, come from the use of forward-looking economic forecasts and include variables such as unemployment rate, gross domestic product, and house price index. The LGD is defined as credit loss incurred when an obligor of the bank defaults. Qualitative factors include items such as changes in lending policies or procedures and economic uncertainty in forward-looking forecasts.

•Effect if Actual Results Differ From Assumptions. The allowance represents management’s best estimate, but significant downturns in circumstances relating to loan quality and economic conditions could result in a requirement for additional allowance. Likewise, an upturn in loan quality and improved economic conditions may allow a reduction in the required allowance. In either instance, unanticipated changes could have a significant impact on results of operations.

The expense for credit loss recorded through earnings is the amount necessary to maintain the allowance for credit losses at the amount of expected credit losses inherent within the loans held for investment portfolio. The amount of expense and the corresponding level of allowance for credit losses for loans are based on our evaluation of the collectability of the loan portfolio based on historical loss experience, reasonable and supportable forecasts, and other significant qualitative and quantitative factors.

Derivative Financial Instruments

•Description. As part of our overall interest rate risk management, we use derivative instruments to reduce exposure to changes in interest rates and market prices for financial instruments. The application of the hedge accounting policy requires judgment in the assessment of hedge effectiveness, identification of similar hedged item groupings and measurement of changes in the fair value of derivative financial instruments and hedged items. To the extent hedging relationships are found to be effective, changes in fair value of the derivatives are offset by changes in the fair value of the related hedged item or recorded to other comprehensive income. Management believes hedge effectiveness is evaluated properly in preparation of the financial statements. All of the derivative financial instruments we use have an active market and indications of fair value can be readily obtained. We are not using the “short-cut” method of accounting for any fair value derivatives.

•Judgments and Uncertainties. The application of the hedge accounting policy requires judgment in the assessment of hedge effectiveness, identification of similar hedged item groupings and measurement of changes in the fair value of derivative financial instruments and hedged items.

•Effect if Actual Results Differ From Assumptions. To the extent hedging relationships are found to be effective, changes in fair value of the derivatives are offset by changes in the fair value of the related hedged item or recorded to other comprehensive income. 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.

Income Taxes

•Description. We are subject to the income tax laws of the U.S., its states, and the municipalities in which we operate. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. We review income tax expense and the carrying value of deferred tax assets quarterly; and as new information becomes available, the balances are adjusted as appropriate. FASB ASC 740-10 (FIN 48) prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements. See Note 17 to the consolidated financial statements for a further description of our provision and related income tax assets and liabilities.

•Judgments and Uncertainties. In establishing a provision for income tax expense, we must make judgments and interpretations about the application of these inherently complex tax laws. We must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions. Disputes over interpretations of the tax laws may be subject to review/adjudication by the court systems of the various tax jurisdictions or may be settled with the taxing authority upon examination or audit.

•Effect if Actual Results Differ From Assumptions. Although management believes that the judgments and estimates used are reasonable, actual results could differ and we may be exposed to losses or gains that could be material. To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our reserves, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement would result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement would result in a reduction in our effective income tax rate in the period of resolution.

Management has discussed the development and selection of these critical accounting estimates with the Audit Committee and the Audit Committee has reviewed our disclosure relating to it in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

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

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

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

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

PART II

OTHER INFORMATION

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors previously disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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

(c)ISSUER PURCHASES OF EQUITY SECURITIES


Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
01/01/21 - 01/31/21	2,468	$	16.56	—	$	100,000,000
02/01/21 - 02/28/21	157,437	$	17.84	—	$	100,000,000
03/01/21 - 03/31/21	403	$	18.57	—	$	100,000,000
Total	160,308	$	17.82	—	$	100,000,000

(1)Reflects the repurchase of shares associated with employee share-based incentive programs. No shares were purchased under the program referred to in note 2 to this table during the first quarter of 2021.

(2)In the first quarter of 2021, the Board of Directors approved the adoption of a stock repurchase plan that authorizes the repurchase of up to $100 million of shares of Common Stock, as conditions warrant, through January 31, 2022.

ITEM 5. OTHER INFORMATION

(a)None

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

ITEM 6. EXHIBITS


Exhibit No.						Description

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

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

4.1						Senior Indenture between Old National and The Bank of New York Trust Company (as successor to J.P. Morgan Trust Company, National Association (as successor to Bank One, N.A.)), as trustee, dated as of July 23, 1997 (incorporated by reference to Exhibit 4.3 to Old National’s Registration Statement on Form S-3, Registration No. 333-118374, filed with the Securities and Exchange Commission on December 2, 2004).

4.2						Second Indenture Supplement, dated as of August 15, 2014, between Old National and The Bank of New York Mellon Trust Company, N.A., as trustee, providing for the issuance of its 4.125% Senior Notes due 2024 (incorporated by reference to Exhibit 4.1 of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 15, 2014).

10.1						Form of 2021 Internal Performance Units Award Agreement between Old National and certain key associates is filed herewith.

10.2						Form of 2021 Relative Performance Units Award Agreement between Old National and certain key associates is filed herewith.

10.3						Form of 2021 Restricted Stock Award Agreement between Old National and certain key associates is filed herewith.

10.4						Form of Employment Agreement dated as of March 10, 2021 between Old National and each of its named executive officers, James C. Ryan III; James A. Sandgren; Brendon B. Falconer; Jeffrey L. Knight; and Kendra L. Vanzo (incorporated by reference to Exhibit 10.1 of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 11, 2021).

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

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

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

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

101						The following materials from Old National’s Form 10-Q Report for the quarterly period ended March 31, 2021, formatted in inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements.

104						The cover page from Old National’s Form 10-Q Report for the quarterly period ended March 31, 2021, formatted in inline XBRL and contained in Exhibit 101.

SIGNATURE

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


						OLD NATIONAL BANCORP
						(Registrant)

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

						Date: April 28, 2021

Exhibit 10.1

OLD NATIONAL BANCORP

AMENDED AND RESTATED 2008 INCENTIVE COMPENSATION

PLAN ROATCE PERFORMANCE UNITS AWARD AGREEMENT

This Award Agreement (“Agreement”) is entered into as of January 28, 2021 ("Grant Date"), by and between Old National Bancorp, an Indiana corporation (“Company”), and [[FIRSTNAME]] [[LASTNAME]] an officer or employee of the Company or one of its Affiliates (“Participant”).

Background

A. The Company adopted the Old National Bancorp Amended and Restated 2008 Incentive Compensation Plan (“Plan”) to further the growth and financial success of the Company and its Affiliates by aligning the interests of participating officers and key employees ("participants") more closely with those of the Company's shareholders, providing participants with an additional incentive for excellent individual performance, and promoting teamwork among participants.

B. The Company believes that the goals of the Plan can be achieved by granting Performance Units to eligible officers and other key employees.

C. The Talent Development and Compensation Committee (“Committee”) of the Board has determined that a grant of Performance Units to the Participant, as provided in this Award Agreement, is in the best interests of the Company and its Affiliates and furthers the purposes of the Plan.

D. The Participant wishes to accept the Company's grant of Performance Units, subject to the terms and conditions of this Award Agreement, the Plan and the Company’s Stock Ownership Guidelines.

Agreement

In consideration of the premises and the mutual covenants herein contained, the Company and the Participant agree as follows:

1. Defined Terms. For purposes of this Agreement, if the first letter of a word (or each word in a term) is capitalized, the term shall have the meaning provided in this Agreement, or if such term is not defined by this Agreement, the meaning specified in the Plan.

(a) "Adjusted Share Distribution" means, with respect to a Performance Unit, a number of whole Shares equal to the sum of the Unadjusted Share Distribution and the Dividend Adjustment.

(b) "Appendix A" means Appendix A to this Agreement, which is hereby incorporated herein and made a part hereof. Appendix A describes the performance factor and goals with respect to the ROATCE Performance Units.

(c) Dividend Adjustment" means, with respect to a Performance Unit, a number of whole units, determined as provided in Section 6, which is added to the Unadjusted Share Distribution to reflect dividend payments during the Performance Period on the units included in the Unadjusted Share Distribution.

(d) “ROATCE Performance Unit” means a contingent right awarded pursuant to this Agreement for distribution of a Share upon attainment of the Performance Goals as set forth in Appendix A.

(e)"Maximum Performance" means the Performance Goal achievement required for the maximum permissible distribution with respect to a ROATCE Performance Unit, as set out in Appendix A.

(f) "Minimum Performance" means the minimum Performance Goal achievement required for any distribution to be made with respect to a ROATCE Performance Unit, as set out in Appendix A.

(g)"Performance Goal" means a financial target on which the distribution with respect to a Performance Unit is based, as set out in Appendix A.

(h) "Performance Period" means the Performance Period specified in Appendix A.

(i) "Performance Unit" means a contingent right awarded pursuant to this Agreement for distribution of a Share upon attainment of the Performance Goals as set forth in Appendix A.

(j) "Section" refers to a Section of this Agreement.

(k) "Target Performance" means the Performance Goal achievement required for the targeted distribution with respect to a ROATCE Performance Unit, as set out in Appendix A. If Target Performance is achieved but not exceeded for all Performance Goals, the Unadjusted Share Distribution with respect to a Performance Unit is one share of the Company's voting common stock ("Share").

(l) "Unadjusted Share Distribution" means, with respect to a Performance Unit, the total number of Shares to be distributed to the Participant, before adding the Dividend Adjustment or subtracting required tax withholding.

2. Incorporation of Plan Terms. All provisions of the Plan, including definitions (to the extent that a different definition is not provided in this Agreement), are incorporated herein and expressly made a part of this Agreement by reference. The Participant hereby acknowledges that he or she has received a copy of the Plan.

3. Award of Performance Units. The Committee has awarded the Participant [[SHARESGRANTED]] ROATCE Performance Units effective as of the Grant Date, subject to the terms and conditions of the Plan and this Agreement. This award is made contingent upon shareholder approval of the Plan and ratification of the award at the 2021 annual meeting of shareholders.

4. Contingent Distribution on Account of Performance Units.

(a) Except as provided in Section 5, no distribution shall be made with respect to any ROATCE Performance Unit, unless (i) the respective Minimum Performance is achieved or exceeded in accordance with the Performance Goal set out in Appendix A, and (ii) the Participant (A) is continually employed by the Company and/or an Affiliate at all times from the award of the Performance Units until the date on which Shares are distributed pursuant to Subsection (c) below; provided, however, the Committee may, in its discretion, waive the continuous employment requirement in this clause (ii), or (B) Terminates Service during the Performance Period on account of his death, Disability, or Retirement.

(b) All distributions on account of a Performance Unit shall be made in the form of Shares. The Unadjusted Share Distribution with respect to a Performance Unit, if any, is dependent on the Company's achievement of the Performance Goals, as specified in Appendix A. By way of example, if Target Performance for the Performance Period is achieved but not exceeded with respect to the Performance Goal, the Unadjusted Share Distribution shall consist of one share of the Company's voting common stock ("Share"). The number of Shares distributed on account of a Performance Unit shall be increased by the Dividend Adjustment to determine the Adjusted Share Distribution and reduced by applicable tax withholding as provided in Section 9. If, after reduction for tax withholding, the Participant is entitled to a fractional Share, the net number of Shares distributed to the Participant shall be rounded down to the next whole number of Shares.

(c) Except as expressly provided in Section 5, the Company shall distribute the Adjusted Share Distribution, reduced to reflect tax withholding, on the date the Company files its Form 10K with the US Securities and Exchange Commission in the calendar year following the year in which the Performance Period ends.

(d) Notwithstanding any other provision of this Agreement, the Committee may, in its sole discretion, reduce the number of Shares that may be distributed as determined pursuant to the Adjusted Share Distribution calculation set forth above. The preceding sentence shall not apply to a distribution made pursuant to Section 5.

(e) If a Participant Terminates Service during the Performance Period on account of Participant’s Disability or Retirement, Participant’s Performance Units shall remain outstanding as if Participant had not Terminated Service, and payments with respect to such Performance Units shall be made at the same time and subject to the same performance requirements as payments that are made to Participants who did not incur a Termination of Service during the applicable Performance Period.

(f) If a Participant Terminates Service due to death during the Performance Period, the performance requirements with respect to the Participant’s Performance Units shall lapse, and the Participant’s Beneficiary shall, on the date of such Termination of Service, be fully entitled to payment under such Performance Units as if targeted performance had been achieved and the Performance Period ended on the date of the Participant’s death, and such payments shall be made within sixty (60) days after the Participant’s death.

(g) If a Participant Terminates Service after the Performance Period due to death, the Participant’s Beneficiary shall be entitled to the greater of the following: (i) the payment under such Performance Units as if targeted performance had been achieved and the Performance Period ended on the date of the Participant’s death, or (ii) the amount represented by the Participant’s Performance Units that remain outstanding as if Participant had not Terminated Service. Such payment shall be made at the same time as payments that are made to Participants who did not incur a Termination of Service during the applicable Performance Period.

5. Change in Control. If a Change in Control occurs during the Performance Period, Article XVI of the Plan shall govern the disposition of Performance Units awarded under this Agreement.

6. Dividend Adjustment. Except as otherwise provided for in this Agreement, a Dividend Adjustment shall be added to the Unadjusted Share Distribution. The Dividend Adjustment shall be a number of Units equal to the number of Units that would have resulted, if each dividend paid during the Performance Period on the Shares included in the Unadjusted Share Distribution had been immediately reinvested in Shares.

7. Performance Goals. The applicable Performance Goals, the weight given to each Performance Goal, and the Minimum Performance, Target Performance, and Maximum Performance are set out in Appendix A.

8. Participant’s Representations. The Participant agrees, upon request by the Company and before the distribution of Shares with respect to the Performance Units, to provide written investment representations as reasonably requested by the Company. The Participant also agrees that, if he or she is subject to the Company’s Stock Ownership guidelines at the time the Shares are distributed, the Participant will continue to hold the Shares received in the Distribution, net of any shares withheld for taxes, until such time as the Participant has satisfied the Company’s Stock Ownership requirement.

9. Income and Employment Tax Withholding. All required federal, state, city, and local income and employment taxes that arise on account of the Performance Units shall be satisfied through the withholding of Shares otherwise distributable pursuant to this Agreement.

Any attempted or purported transfer in contravention of this Section shall be null and void ab initio and of no force or effect whatsoever. Following the execution of this Award Agreement, the Parcipant may expressly designate a death beneficiary (“Beneficiary”) by completing and delivering a designation of beneficiary agreement (“Beneficiary Designation”) and delivering a copy of the Beneficiary Designation to the Company. In the event the Participant does not designate a beneficiary, then the applicable state law shall determine succession .

11. Indemnity. The Participant hereby agrees to indemnify and hold harmless the Company and its Affiliates (and their respective directors, officers and employees), and the Committee, from and against any and all losses, claims, damages, liabilities and expenses based upon or arising out of the incorrectness or alleged incorrectness of any representation made by Participant to the Company or any failure on the part of the Participant to perform any agreements contained herein. The Participant hereby further agrees to release and hold harmless the Company and its Affiliates (and their respective directors, officers and employees) from and against any tax liability, including without limitation, interest and penalties, incurred by the Participant in connection with his or her participation in the Plan.

12. Changes in Shares. In the event of any change in the Shares, as described in Section 4.04 of the Plan, the Committee, consistent with the principles set out in such Section, will make appropriate adjustment or substitution in the number of Performance Units, so that the contingent economic value of a Performance Units remains substantially the same. The Committee’s determination in this respect will be final and binding upon all parties.

13. Effect of Headings. The descriptive headings used in this Agreement are inserted for convenience and identification only and do not constitute a part of this Agreement for purposes of interpretation.

14. Controlling Laws. Except to the extent superseded by the laws of the United States, the laws of the State of Indiana, without reference to the choice of law principles thereof, shall be controlling in all matters relating to this Agreement.

15. Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which will be deemed an original, but all of which collectively will constitute one and the same instrument.

16. Recoupment/Clawback. Any grant of Performance Units under this Agreement or any other award granted or paid to the Participant under the Company’s Amended and Restated 2008 Incentive Compensation Plan, whether in the form of stock options, stock appreciation rights, restricted stock, performance units, performance units, stock or cash, is subject to recoupment or “clawback” by the Company in accordance with the Company’s Bonus Recoupment/Clawback Policy, as may be amended from time to time. This Section, “Recoupment/Clawback,” shall survive termination of this Agreement.

IN WITNESS WHEREOF, the Company, by its officer thereunder duly authorized, and the Participant, have caused this Performance Unit Award Agreement to be executed as of the day and year first above written.

PARTICIPANT

Accepted by: [[SIGNATURE]] Date: [[SIGNATURE_DATE]]

OLD NATIONAL BANCORP

By:

George Lance

Rewards Director

Old National Bancorp

APPENDIX A TO PERFORMANCE AWARD AGREEMENT

(ROATCE Performance Factor)

Grant Date: January 28, 2021

Performance Shares Awarded: See Section 3 of the Agreement

Performance Period: January 1, 2021, through December 31, 2023

Factors for Determining Amount Payable Pursuant to Performance Award

The number of Shares payable on account of a Performance Share (before any Dividend Adjustment or tax withholding) will be based on the results of the following performance factor ("Performance Factor") during the Performance Period, as measured against both defined internal performance standards and the comparator “Peer” group.

•Return on Average Tangible Common Equity (ROATCE)

Definitions Related to ROATCE Performance Factor

Old National’s Return on Average Common Tangible Equity (ROATCE): ROATCE is defined as Adjusted Full Year Net Income divided by Full Year Average Tangible Common Equity.

Old National’s Adjusted Full Year Net Income: Net income as reported in the Company’s Form 10-K for the year ended December 31, 2023 adjusted to add back intangible amortization net of tax at the federal statutory for 2023, exclude all GAAP charges that are non-recurring net of tax at the incremental rate used for Old National’s Executive Short-Term Incentive Plan for 2023, and exclude merger charges, facility termination charges and severance charges net of tax at the incremental rate used for Old National’s Executive Short-Term Incentive Plan for 2023.

Old National’s Full Year Average Tangible Common Equity: Average total equity as reported in the Company’s internal financial performance report for the year ended December 31, 2023 adjusted to subtract back full year average goodwill and average intangibles and to also adjust for the average impact of the adjustment to net income.

Peer’s Return on Average Common Tangible Equity (ROATCE): ROATCE is defined as full year net income from continuing operations as reported for the year ended December 31, 2023, adjusted for tax-affected amortization of intangibles (using the statutory tax rate), as a percent of average common tangible equity.

Peer Group. The "Peer Group" is made up of the following:


Company Name			Company Ticker
Associated Banc-Corp			ASB
BancorpSouth, Inc			BXS
Bank OZK			OZK
Cadence Bancorporation			CADE
Commerce Bancshares, Inc.			CBSH
F.N.B. Corporation			FNB
First Financial Bancorp			FFBC
First Midwest Bancorp, Inc.			FMBI
Fulton Financial Corporation			FULT
Great Western Bancorp, Inc.			GWB
Hancock Whitney Corp			HWC
TCF Financial Corporation			TCF
Trustmark Corporation			TRMK
UMB Financial Corporation			UMBF
Umpqua Holdings Corporation			UMPQ
Valley National Bancorp			VLY
Webster Financial Corp			WBS
Western Alliance Bancorporation			WAL
Wintrust Financial Corporation			WTFC

A Peer Group member may be removed if it is acquired or fails during the Performance Period at the discretion of the Talent Development and Compensation Committee.

Performance Weighting Fraction

“Performance Weighting Fraction” means the relative importance of each performance measure in evaluating performance and determining the number of Shares to be distributed (before any Dividend Adjustment or tax withholding) with respect to each Performance Share. The following weight has been assigned to the performance factor:


ROATCE
100%

Calculation of Performance

For the Performance Factor, the performance level will be calculated by a third party agent (not owned or controlled by the Company) and determined at the end of the Performance Period.

The performance level will then be multiplied by the Performance Weighting Fraction, resulting in the Company's Performance Level.

In order for Shares to be issued with respect to each Performance Share, the Company’s ROATCE performance level for the Performance Period must equal or exceed 8.50%.

If the Company’s ROATCE performance level for the Performance Period is greater than or equal to 8.50% but less than 17.61%, the Company’s ROATCE percentile rank in the Peer Group will be determined by interpolating the Company’s percentile ranking between the peers immediately above and below the Company, based on differences in ROATCE, to determine the percentage, if any, of the Shares earned under the Performance Share award. The Company is excluded from the Peer Group for purposes of the calculation.

If the ROATCE performance level is for the Performance Period is greater than 17.61%, then Maximum Performance is achieved; and 150% of the Shares shall be issued with respect to each Performance Share.

The table below shows the percentage of Shares to be issued with respect to each Performance Share (before any Dividend Adjustment or tax withholding) at various performance levels.


The Company’s ROATCE Percentile Rank vs. Peer Group	% of Shares Earned	Performance Level
25%	25%	Threshold
26%	26%
27%	27%
28%	28%
29%	29%
30%	30%
31%	32%
32%	34%
33%	36%
34%	38%
35%	40%
36%	43%
37%	46%
38%	49%
39%	52%
40%	55%
41%	59%
42%	63%
43%	67%
44%	71%
45%	75%


46%	80%
47%	85%
48%	90%
49%	95%
50%	100%	Target
51%	102.8%
52%	105.6%
53%	108.3%
54%	111.1%
55%	113.9%
56%	116.7%
57%	118.9%
58%	121.1%
59%	123.3%
60%	125.6%
61%	127.8%
62%	130.0%
63%	131.7%
64%	133.3%
65%	135.0%
66%	136.7%
67%	138.3%
68%	140.0%
69%	141.1%
70%	142.2%
71%	143.3%
72%	144.4%
73%	145.6%
74%	146.7%
75%	147.2%
76%	147.8%
77%	148.3%
78%	148.9%
79%	149.4%
80% and above	150.0%	Maximum

Timing of Award Determination and Distribution

Once performance results for the Company are known and approved by the auditors, the Committee will review and approve the final performance results for the Performance Factor. The Committee reserves the right to use negative discretion to reduce the amount of any payment. The Shares will be distributed in accordance with the timing set forth in Section 4(c) of this Agreement.

Exhibit 10.2

OLD NATIONAL BANCORP

AMENDED AND RESTATED 2008 INCENTIVE COMPENSATION

PLAN RELATIVE PERFORMANCE UNITS AWARD AGREEMENT

Background

B. The Company believes that the goals of the Plan can be achieved by granting Performance Units to eligible officers and other key employees.

D. The Participant wishes to accept the Company's grant of Performance Units, subject to the terms and conditions of this Award Agreement, the Plan and the Company’s Stock Ownership Guidelines.

Agreement

In consideration of the premises and the mutual covenants herein contained, the Company and the Participant agree as follows:

(a) "Adjusted Share Distribution" means, with respect to a Performance Unit, a number of whole Shares equal to the sum of the Unadjusted Share Distribution and the Dividend Adjustment.

(c) "Dividend Adjustment" means, with respect to a Performance Unit, a number of whole units, determined as provided in Section 6, which is added to the Unadjusted Share Distribution to reflect dividend payments during the Performance Period on the units included in the Unadjusted Share Distribution.

(d) "Maximum Performance" means the Performance Goal achievement required for the maximum permissible distribution with respect to a Relative Performance Unit, as set out in Appendix A.

(e) "Minimum Performance" means the minimum Performance Goal achievement required for any distribution to be made with respect to a Relative Performance Unit, as set out in Appendix A.

(f) "Performance Goal" means a financial target on which the distribution with respect to a Performance Unit is based, as set out in Appendix A.

(g) "Performance Period" means the Performance Period specified in Appendix A.

(h) "Performance Unit" means a contingent right awarded pursuant to this Agreement for distribution of a Share upon attainment of the Performance Goals as set forth in Appendix A.

(i) “Relative Performance Unit” means a contingent right awarded pursuant to this Agreement for distribution of a Share upon attainment of the Performance Goals as set forth in Appendix A.

(j) "Section" refers to a Section of this Agreement.

(k) "Target Performance" means the Performance Goal achievement required for the targeted distribution with respect to a Relative Performance Unit, as set out in Appendix A. If Target Performance is achieved but not exceeded for all Performance Goals, the Unadjusted Share Distribution with respect to a Performance Unit is one share of the Company's voting common stock ("Share").

3. Award of Performance Units. The Committee has awarded the Participant [[SHARESGRANTED]] Relative Performance Units effective as of the Grant Date, subject to the

terms and conditions of the Plan and this Agreement. This award is made contingent upon shareholder approval of the Plan and ratification of the award at the 2021 annual meeting of shareholders.

4. Contingent Distribution on Account of Performance Units.

(a) Except as provided in Section 5, no distribution shall be made with respect to any Relative Performance Unit, unless (i) the respective Minimum Performance is achieved or exceeded in accordance with the Performance Goal set out in Appendix A, and (ii) the Participant (A) is continually employed by the Company and/or an Affiliate at all times from the award of the Performance Units until the date on which Shares are distributed pursuant to Subsection (c) below; provided, however, the Committee may, in its discretion, waive the continuous employment requirement in this clause (ii), or (B) Terminates Service during the Performance Period on account of his death, Disability, or Retirement.

Performance Period ended on the date of the Participant’s death, and such payments shall be made within sixty (60) days after the Participant’s death.

5. Change in Control. If a Change in Control occurs during the Performance Period, Article XVI of the Plan shall govern the disposition of Performance Units awarded under this Agreement.

7. Performance Goals. The applicable Performance Goals, the weight given to each Performance Goal, and the Minimum Performance, Target Performance, and Maximum Performance are set out in Appendix A.

10. Nontransferability. The Participant's interest in the Performance Units or any distribution with respect to such units may not be (i) sold, transferred, assigned, margined, encumbered, bequeathed, gifted, alienated, hypothecated, pledged, or otherwise disposed of, whether by operation of law, whether voluntarily or involuntarily or otherwise, other than by will or by the laws of descent and distribution, or (ii) subject to execution, attachment, or similar process. Any attempted or purported transfer in contravention of this Section shall be null and void ab initio and of no force or effect whatsoever. Following the execution of this Award Agreement, the Parcipant may expressly designate a death beneficiary (“Beneficiary”) by completing and delivering a designation of beneficiary agreement (“Beneficiary Designation”) and delivering a

copy of the Beneficiary Designation to the Company. In the event the Participant does not designate a beneficiary, then the applicable state law shall determine succession.

15. Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which will be deemed an original, but all of which collectively will constitute one and the same instrument.

PARTICIPANT

Accepted by: [[SIGNATURE]] Date: [[SIGNATURE_DATE]]

OLD NATIONAL BANCORP

By:

George Lance

Rewards Director

Old National Bancorp

APPENDIX A TO PERFORMANCE AWARD AGREEMENT

(Relative Performance Measures)

Grant Date: January 28, 2021

Performance Shares Awarded: See Section 3 of the Agreement

Performance Period: January 1, 2021, through December 31, 2023

Relative Factors for Determining Amount Payable Pursuant to Performance Award

The number of Shares payable on account of a Performance Share (before any Dividend Adjustment or tax withholding) will be based on the results of the following relative performance factor ("Performance Factor") during the Performance Period, as measured against the comparator “Peer” group:

Total Shareholder Return (TSR). Total Shareholder Return means the one month average stock price for the period ending December 31, 2020 (“Calculation Period”) compared to the one-month average stock price for the period ending December 31, 2023 (“Calculation Period”) for the Company and the Peer Group. The one-month average stock price will be determined by averaging the closing stock price of each day during the one month ending on the applicable December 31, including adjustments for cash and stock dividends.

Peer Group. The "Peer Group" is made up of the following:


Company Name			Company Ticker
Associated Banc-Corp			ASB
BancorpSouth, Inc			BXS
Bank OZK			OZK
Cadence Bancorporation			CADE
Commerce Bancshares, Inc.			CBSH
F.N.B. Corporation			FNB
First Financial Bancorp			FFBC
First Midwest Bancorp, Inc.			FMBI
Fulton Financial Corporation			FULT
Great Western Bancorp, Inc.			GWB
Hancock Whitney Corp			HWC
TCF Financial Corporation			TCF
Trustmark Corporation			TRMK
UMB Financial Corporation			UMBF
Umpqua Holdings Corporation			UMPQ
Valley National Bancorp			VLY
Webster Financial Corp			WBS
Western Alliance Bancorporation			WAL
Wintrust Financial Corporation			WTFC

A Peer Group member shall be removed if it is acquired or fails during the Performance Period.

Calculation of Performance

For the Performance Factor: TSR will be calculated for each member of the Peer Group. The Company’s TSR percentile rank in the Peer Group will be determined by interpolating the Company’s percentile ranking between the peers immediately above and below the Company, based on differences in TSR, to determine the percentage, if any, of the Shares earned under the Performance Share award.

The table below shows the percentage of Shares to be issued with respect to each Performance Share (before any Dividend Adjustment or tax withholding) at various performance levels:


Average Percentile Rank vs. Peer Group	% of Shares Earned	Performance Level
< 25%	0%
25%	25%	Threshold
26%	26%
27%	27%
28%	28%
29%	29%
30%	30%
31%	32%
32%	34%
33%	36%
34%	38%
35%	40%
36%	43%
37%	46%
38%	49%
39%	52%
40%	55%
41%	59%
42%	63%
43%	67%
44%	71%
45%	75%
46%	80%
47%	85%
48%	90%
49%	95%
50%	100%	Target
51%	102.8%
52%	105.6%
53%	108.3%
54%	111.1%


55%	113.9%
56%	116.7%
57%	118.9%
58%	121.1%
59%	123.3%
60%	125.6%
61%	127.8%
62%	130.0%
63%	131.7%
64%	133.3%
65%	135.0%
66%	136.7%
67%	138.3%
68%	140.0%
69%	141.1%
70%	142.2%
71%	143.3%
72%	144.4%
73%	145.6%
74%	146.7%
75%	147.2%
76%	147.8%
77%	148.3%
78%	148.9%
79%	149.4%
80% and above	150.0%	Maximum

Award Adjustment

The Committee reserves the right to reduce performance shares (in whole or in part) should the Company’s TSR be negative for the performance period.

Timing of Award Determination and Distribution

Exhibit 10.3

OLD NATIONAL BANCORP

AMENDED AND RESTATED 2008 INCENTIVE COMPENSATION PLAN

RESTRICTED STOCK AWARD AGREEMENT

THIS AWARD AGREEMENT (the “Agreement”), made and executed as of January 28, 2021 (the “Grant Date”), between Old National Bancorp, an Indiana corporation (the “Company”), and [[FIRSTNAME]] [[LASTNAME]] an officer or employee of the Company or one of its Affiliates (the “Participant”).

WITNESSETH:

WHEREAS, the Company has adopted the Old National Bancorp Amended and Restated 2008 Incentive Compensation Plan (the “Plan”) to further the growth and financial success of the Company and its Affiliates by aligning the interests of Participants, through the ownership of Shares and through other incentives, with the interests of the Company’s shareholders, to provide Participants with an incentive for excellence in individual performance and to promote teamwork among Participants; and

WHEREAS, it is the view of the Company that this goal can be achieved by granting Restricted Stock to eligible officers and other key employees; and

WHEREAS, the Participant has been designated by the Talent Development and Compensation Committee as an individual to whom Restricted Stock should be granted as determined from the duties performed, the initiative and industry of the Participant and his or her potential contribution to the future development, growth and prosperity of the Company;

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Participant agree as follows:

1. Award of Restricted Stock

The Company hereby awards to the Participant [[SHARESGRANTED]] Shares of Restricted Stock (hereinafter, the “Restricted Stock”), subject to the terms and conditions of this Agreement, the Plan and the Company’s Stock Ownership Guidelines. All provisions of the Plan, including defined terms, are incorporated herein and expressly made a part of this Agreement by reference. This award is made contingent upon shareholder approval of the Plan and ratification of the award at the 2021 annual meeting of shareholders. The Participant hereby acknowledges that he or she has received a copy of the Plan.

2. Period of Restriction

The Period of Restriction shall begin on the Grant Date and lapse, except as otherwise provided in Sections 3 and 4 of this Agreement, as follows:


Effective Date			Percent of Restricted Stock Awarded
February 1, 2022			33.3%
February 1, 2023			33.3%
February 1, 2024			33.4%

3. Change in Control

If a Change in Control occurs during the Period of Restriction and the Participant is terminated without “cause” or the Participant terminates for “Good Reason” following the Change in Control, then the Period of Restriction set forth in Section 2 shall lapse. However, if a Change in Control occurs during the Period of Restriction and the Participant continues as an employee of the Company or its successor following the Change in Control, then the Period of Restriction shall continue to lapse at the times specified in Section 2 of this Agreement.

4. Termination of Service

Notwithstanding any other provision of this Agreement, in the event of the Participant’s Termination of Service due to death, Disability or Retirement, the following shall apply:

(a) If the Participant’s Termination of Service is due to death, the Period of Restriction shall lapse, effective as of the date of death

(b) If the Participant’s Termination of Service is due to Disability or Retirement, he or she shall continue to be treated as a Participant and the Period of Restriction shall lapse at the time specified in Section 2 of this Agreement; provided, however, that if the Participant dies prior to the end of the Period of Restriction, then the provisions of subsection (a) of this Section 4 shall apply.

Unless otherwise determined by the Committee in its sole discretion, in the event of the Participant’s Termination of Service for any other reason, the Shares of Restricted Stock shall be forfeited effective as of the date of the Participant’s Termination of Service.

5. Dividends on Restricted Stock

During the Period of Restriction, the Participant shall be entitled to receive any cash dividends paid with respect to the Shares of Restricted Stock regardless of whether the Period of Restriction has not lapsed. All stock dividends paid with respect to Shares of Restricted Stock shall be (a) added to the Restricted Stock, and (b) subject to all of the terms and conditions of this Agreement and the Plan.

6. Voting Rights

During the Period of Restriction, the Participant may exercise all voting rights with respect to the Shares of Restricted Stock as if he or she is the owner thereof.

7. Participant’s Representations

The Participant represents to the Company that:

(a) The terms and arrangements relating to the grant of Restricted Stock and the offer thereof have been arrived at or made through direct communication with the Company or person acting in its behalf and the Participant;

(b) The Participant has received a balance sheet and income statement of the Company and as an officer or key employee of the Company:

(i) is thoroughly familiar with the Company’s business affairs and financial condition and

(ii) has been provided with or has access to such information (and has such knowledge and experience in financial and business matters that the Participant is capable of utilizing such information) as is necessary to evaluate the risks, and make an informed investment decision with respect to, the grant of Restricted Stock; and

(c) The Restricted Stock is being acquired in good faith for investment purposes and not with a view to, or for sale in connection with, any distribution thereof.

8. Income and Employment Tax Withholding

All required federal, state, city and local income and employment taxes which arise on the lapse of the Period of Restriction shall be satisfied through the (a) withholding of Shares required to be issued under Section 10, or (b) tendering by the Participant to the Company of Shares which are owned by the Participant, as described in Section 15.02 of the Plan. The Fair Market Value of the Shares to be tendered shall be equal to the dollar amount of the Company’s aggregate withholding tax obligations, calculated on the day the Period of Restriction ends.

9. Nontransferability

Until the end of the Period of Restriction, the Restricted Stock cannot be (i) sold, transferred, assigned, margined, encumbered, bequeathed, gifted, alienated, hypothecated, pledged or otherwise disposed of, whether by operation of law, whether voluntarily or involuntarily or otherwise, other than by will or by the laws of descent and distribution, or (ii) subject to execution, attachment, or similar process. Any attempted or purported transfer of Restricted Stock in contravention of this Section 9 or the Plan shall be null and void ab initio and of no force or effect whatsoever. Following the execution of this Award Agreement, the Participant may expressly designate a death beneficiary (“Beneficiary”) by completing and delivering a designation of beneficiary agreement (“Beneficiary Designation”) and delivering a copy of the Beneficiary Designation to the Company. In the event the Participant does not designate a beneficiary, then the applicable state law shall determine succession.

10. Issuance of Shares

At or within a reasonable period of time (and not more than 30 days) following execution of this Agreement, the Company will issue, in book entry form, the Shares representing the Restricted Stock. As soon as administratively practicable following the date on which the Period of Restriction lapses, the Company will issue to the Participant or his or her Beneficiary the number of Shares of Restricted Stock specified in Section 1. In the event of the Participant’s death before the Shares are issued, such shares will be issued to the Participant’s Beneficiary or estate. Notwithstanding the foregoing provisions of this Section 10, the Company will not be required to issue or deliver any Shares prior to (i) completing any registration or other qualification of the Shares, which the Company deems necessary or advisable under any federal or state law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body; and (ii) obtaining any approval or other clearance from any federal or state governmental agency or body, which the Company determines to be necessary or advisable. The Company has no obligation to obtain the fulfillment of the conditions specified in the preceding sentence. As a further condition to the issuance of the Shares, the Company may require the making of any representation or warranty which the Company deems necessary or advisable under any applicable law or regulation. Under no circumstances shall the Company delay the issuance of shares pursuant to this Section to a date that is later than 2-1/2 months after the end of the calendar year in which the Period of Restriction lapses, unless issuance of the shares would violate federal securities law or other applicable law, in which case the Company

shall issue such shares as soon as administratively feasible (and not more than 30 days) after such issuance would no longer violate such laws.

11. Mitigation of Excise Tax

Except to the extent otherwise provided in a written agreement between the Company and the Participant, the Restricted Stock issued hereunder is subject to reduction by the Committee for the reasons specified in Section 13.01 of the Plan.

12. Participant’s Representations

If the Participant is subject to and has not satisfied the Company’s Stock Ownership guidelines at the time a Period of Restriction lapses, the Participant agrees to continue to hold the Shares received (net of taxes) following the lapse until such time as the Participant has satisfied the Company’s Stock Ownership requirement.

13. Restrictive Covenants

In consideration of this award, Participant shall be subject to the Restrictive Covenants. Participant acknowledges that, in the event that the Participant is subject to an employment contract, the Restrictive Covenants set forth in this Appendix A constitute a supplement to such employment contract. If no such employment contract exists, then Participant acknowledges that the Restrictive Covenants set forth in this Appendix A shall constitute a supplement to any and all prior restrictive covenants included in any award agreement evidencing any prior awards by which the Participant is bound.

14. Indemnity

The Participant hereby agrees to indemnify and hold harmless the Company and its Affiliates (and their respective directors, officers and employees), and the Committee, from and against any and all losses, claims, damages, liabilities and expenses based upon or arising out of the incorrectness or alleged incorrectness of any representation made by Participant to the Company or any failure on the part of the Participant to perform any agreements contained herein. The Participant hereby further agrees to release and hold harmless the Company and its Affiliates (and their respective directors, officers and employees) from and against any tax liability, including without limitation, interest and penalties, incurred by the Participant in connection with his or her participation in the Plan.

15. Financial Information

The Company hereby undertakes to deliver to the Participant, at such time as they become available and so long as the Period of Restriction has not lapsed and the Restricted Stock has not been forfeited, a balance sheet and income statement of the Company with respect to any fiscal year of the Company ending on or after the date of this Agreement.

16. Changes in Shares

In the event of any change in the Shares, as described in Section 4.04 of the Plan, the Committee will make appropriate adjustment or substitution in the Shares of Restricted Stock, all as provided in the Plan. The Committee’s determination in this respect will be final and binding upon all parties.

17. Effect of Headings and Defined Terms

The descriptive headings of the Sections and, where applicable, subsections, of this Agreement are inserted for convenience and identification only and do not constitute a part of this Agreement for purposes of interpretation. Unless otherwise stated, terms used in this Agreement will have the same meaning as specified in the Employment Agreement or Severance and Change in Control Agreement entered into with the Participant.

18. Controlling Laws

Except to the extent superseded by the laws of the United States, the laws of the State of Indiana, without reference to the choice of law principles thereof, shall be controlling in all matters relating to this Agreement.

19. Counterparts

This Agreement may be executed in two (2) or more counterparts, each of which will be deemed an original, but all of which collectively will constitute one and the same instrument.

IN WITNESS WHEREOF, the Company, by its officer thereunder duly authorized, and the Participant, have caused this Restricted Stock Award Agreement to be executed as of the day and year first above written.

PARTICIPANT

Accepted by: [[SIGNATURE]] Date: [[SIGNATURE_DATE]]

OLD NATIONAL BANCORP

By:____

_________________________

George Lance

Rewards Director

Old National Bancorp

APPENDIX A TO RESTRICTED STOCK AWARD AGREEMENT

(Restrictive Covenants)

1.Non-Solicitation of Customers and Employees. The Participant agrees that during the Term and for one (1) year following termination of the Participant’s employment with the Company, the Participant shall not, directly or indirectly, individually or jointly, (i) solicit in any manner, seek to obtain or service, or accept the business of any Customer for any product or service of the type offered by the Company or competitive with the Company's Business, (ii) solicit in any manner, seek to obtain or service, or accept the business of any Prospective Customer for any product or service of the type offered by the Company or otherwise competitive with the Company's Business, (iii) request or advise any Customer, Prospective Customer, or supplier of the Company to terminate, reduce, limit, or change its business or relationship with the Company, or (iv) induce, request, or attempt to influence any employee of the Company with whom Participant maintained a working relationship to terminate Participant’s employment with the Company.

2.Use and Disclosure of Confidential Information.

(a) The Participant acknowledges and agrees that (i) by virtue of Participant’s employment, Participant will be given access to, and will help analyze, formulate or otherwise use, Confidential Information, (ii) the Company has devoted (and will devote) substantial time, money, and effort to develop Confidential Information and maintain the proprietary and confidential nature thereof, and (iii) Confidential Information is proprietary and confidential and, if any Confidential Information were disclosed or became known by persons engaging in a business in any way competitive with the Company's Business, such disclosure would result in hardship, loss, irreparable injury, and damage to the Company, the measurement of which would be difficult, if not impossible, to determine. Accordingly, the Participant agrees that the preservation and protection of Confidential Information is an essential part of Participant’s duties of employment and that, as a result of Participant’s employment with the Employing Companies, Participant has a duty of fidelity, loyalty, and trust to the Employing Companies in safeguarding Confidential Information. The Participant further agrees that Participant will use Participant’s best efforts, exercise utmost diligence, and take all steps necessary to protect and safeguard Confidential Information, whether such information derives from the Participant, other employees of the Company, Customers, Prospective Customers, or vendors or suppliers of the Company, and that Participant will not, directly or indirectly, use, disclose, distribute, or disseminate to any other person or entity or otherwise employ Confidential Information, either for Participant own benefit or for the benefit of another, except as required in the ordinary course of Participant’s employment by the Employing Companies. The Participant shall follow all Employing Company policies and procedures to protect all Confidential Information and shall take any additional precautions necessary under the circumstances to preserve and protect against the prohibited use or disclosure of any Confidential Information.

(b) The confidentiality obligations contained in this Agreement shall continue as long as Confidential Information remains confidential (except that the obligations shall continue, if Confidential Information loses its confidential nature through improper use or disclosure, including but not limited to any breach of this Agreement) and shall survive the termination of this Agreement and/or termination of the Participant's employment with the Employing Companies.

(c) From time to time, the Company may, for its own benefit, choose to place certain Confidential Information in the public domain. The fact that Confidential Information may be made available to the public in a limited form and under limited circumstances does not change the confidential and proprietary nature of such information, and does not release the Participant from Participant’s obligations with respect to such Confidential Information.

(d) Notwithstanding the foregoing, nothing in this Agreement prohibits, limits, or restricts, or shall be construed to prohibit, limit, or restrict, Participant from exercising any legally protected whistleblower rights (including pursuant to Section 21F of the Exchange Act and the rules and regulations thereunder), without notice to or consent from the Company. Moreover, the federal Defend Trade Secrets Act of 2016 immunizes Participant against criminal and civil liability under federal or state trade secret laws - under certain circumstances - if Participant discloses a trade secret for the purpose of reporting a suspected violation of law. Immunity is available if Participant discloses a trade secret in either of these two circumstances: (1) Participant discloses the trade secret (a) in confidence, (b) directly or indirectly to a government official (federal, state or local) or to a lawyer, and (c) solely for the purpose of reporting or investigating a suspected violation of law; or (2) In a legal proceeding, Participant discloses the trade secret in the complaint or other documents filed in the case, so long as the document is filed “under seal” (meaning that it is not accessible to the public).

3.Remedies. The Participant agrees that the Company will suffer irreparable damage and injury and will not have an adequate remedy at law if the Participant breaches any provision of the Restrictive Covenants. Accordingly, if the Participant breaches or threatens or attempts to breach the Restrictive Covenants, in addition to all other available remedies, the Company shall be entitled to seek injunctive relief, and no or minimal bond or other security shall be required in connection therewith. The Participant acknowledges and agrees that in the event of termination of this Agreement for any reason whatsoever, the Participant can obtain employment not competitive with the Company's Business (or, if competitive, outside of the geographic and customer-specific scope described herein) and that the issuance of an injunction to enforce the provisions of the Restrictive Covenants shall not prevent the Participant from earning a livelihood. The Restrictive Covenants are essential terms and conditions to the Company entering into this Agreement, and they shall be construed as independent of any other provision in this Agreement or of any other agreement between the Participant and the Company. The existence of any claim or cause of action that the Participant has against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the Restrictive Covenants.

4.Periods of Noncompliance and Reasonableness of Periods. The Restrictive Covenants shall be deemed not to run during all periods of noncompliance, the intention of the parties being to have such restrictions and covenants apply for the full periods specified following the Participant’s termination of employment with the Company. The Company and the Participant acknowledge and agree that the restrictions and covenants are reasonable in view of the nature of the Company's Business and the Participant's advantageous knowledge of and familiarity with the Company's Business, operations, affairs, and Customers. Notwithstanding anything contained herein to the contrary, if the scope of any restriction or covenant is found by a court of competent jurisdiction to be too broad to permit enforcement of such restriction or covenant to its full extent, then such restriction or covenant shall be enforced to the maximum extent permitted by law. The parties hereby acknowledge and agree that a court of competent jurisdiction shall invoke and exercise the blue pencil doctrine to the fullest extent permitted by law to enforce this Agreement.

5.The Restrictive Covenants shall survive termination or expiration of this Agreement and any termination of the Participant’s employment with the Company.

6.Reimbursement of Certain Costs. If, during the life of the Participant and for a five (5) year period following Participant’s death, a cause of action arises related to the Restrictive Covenants or to recover damages caused by the Participant's breach of the Restrictive Covenants, the substantially prevailing party in such action shall be entitled to reasonable costs and expenses (including, without limitation, reasonable attorneys' fees, expert witness fees, and disbursements) in connection with such action.

Exhibit 31.1

FORM OF SECTION 302 CERTIFICATION

I, James C. Ryan, III, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Old National Bancorp;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:

April 28, 2021

By:

/s/ James C. Ryan, III

James C. Ryan, III

Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

FORM OF SECTION 302 CERTIFICATION

I, Brendon B. Falconer, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Old National Bancorp;

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:

April 28, 2021

By:

/s/ Brendon B. Falconer

Brendon B. Falconer

Chief Financial Officer

(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Old National Bancorp (the “Company”) on Form 10-Q for the quarter ending March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James C. Ryan, III, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.


By:						/s/ James C. Ryan, III
						James C. Ryan, III
						Chief Executive Officer
						(Principal Executive Officer)

						Date: April 28, 2021

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Old National Bancorp (the “Company”) on Form 10-Q for the quarter ending March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brendon B. Falconer, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.


By:						/s/ Brendon B. Falconer
						Brendon B. Falconer
						Chief Financial Officer
						(Principal Financial Officer)

						Date: April 28, 2021