OLD NATIONAL BANCORP IN

RESULTS OF OPERATIONS

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

(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 81% of 2024 revenues. Net interest income and net interest margin are influenced by many factors, primarily the volume and mix of earning assets, funding sources, and interest rate fluctuations. Other factors include the level of accretion income on purchased loans, prepayment risk on mortgage and investment-related assets, and the composition and maturity of interest-earning assets and interest-bearing liabilities.

The Federal Reserve decreased its interest rates during 2024. The Federal Reserve’s Federal Funds range is currently in a target range of 4.25% to 4.50%, with the Effective Federal Funds Rate at 4.33% at December 31, 2024, and 5.33% at December 31, 2023. Management actively takes balance sheet restructuring, derivative, and deposit pricing actions to help mitigate interest rate risk. See the section of this Item 7 titled “Market Risk” for additional information regarding this risk.

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

Net interest income is the excess of interest received from interest-earning assets over interest paid on interest-bearing liabilities. For analytical purposes, net interest income is presented in the table that follows, adjusted to a taxable equivalent basis to reflect what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset. We used the current 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 and that it may enhance comparability for peer comparison purposes for both management and investors.

The following table presents a three-year average balance sheet and for each major asset and liability category, its related interest income and yield, or its expense and rate for the years ended December 31.

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

(2)Includes loans held-for-sale.

The following table presents the dollar amount of changes in taxable equivalent net interest income attributable to changes in the average balances of assets and liabilities and the yields earned or rates paid for the years ended December 31.

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

(2) Interest on investment securities includes the effect of taxable equivalent adjustments of $11.1 million in 2024, $11.5 million in 2023, and $11.5 million in 2022; using the federal statutory tax rate in effect of 21%.

(3) Interest on loans includes the effect of taxable equivalent adjustments of $13.4 million in 2024, $11.9 million in 2023, and $6.9 million, in 2022; using the federal statutory tax rate in effect of 21%.

Net interest income in 2024 increased compared to 2023 primarily due to loans and securities acquired in the CapStar transaction as well as strong loan growth, higher rates on loans and investment securities, and higher accretion income, partially offset by higher balances and costs of average interest-bearing liabilities. Accretion income associated with acquired loans and borrowings totaled $50.8 million in 2024, compared to $28.3 million in 2023.

The decrease in the net interest margin on a fully taxable equivalent basis in 2024 when compared to 2023 was primarily due to higher balances and costs of average interest-bearing liabilities, partially offset by loan growth as well as higher yields on loans. The yield on average earning assets increased 41 basis points from 5.18% in 2023 to 5.59% in 2024 and the cost of interest-bearing liabilities increased 73 basis points from 2.25% in 2023 to 2.98% in 2024. Average earning assets increased by $3.9 billion, or 9%, primarily due to a $3.3 billion increase in average loans. Average interest-bearing liabilities increased $4.6 billion, or 15%, reflecting a $5.0 billion increase in average interest-bearing deposits, partially offset by a reduction in average borrowed funds. Average noninterest-bearing deposits decreased by $1.2 billion.

The increase in average earning assets in 2024 compared to 2023 was primarily due to loans and securities acquired in the CapStar transaction as well as strong loan growth. The loan portfolio, including loans held-for-sale, which generally has an average yield higher than the investment portfolio, was 76% of average interest earning assets in 2024, compared to 75% in 2023.

Average loans, including loans held-for-sale, increased $3.3 billion in 2024 compared to 2023 primarily due to loans acquired in the CapStar transaction as well as strong commercial real estate loan growth. Loans acquired in the CapStar transaction totaled $2.1 billion at transaction close.

Average non-interest-bearing deposits decreased $1.2 billion in 2024 compared to 2023 while average interest-bearing deposits increased $5.0 billion reflecting a mix shift as a result of the current rate environment, deposits assumed in the CapStar transaction, and organic growth. Total deposit growth in 2024 has allowed us to organically fund loan growth. Deposits assumed in the CapStar transaction totaled $2.6 billion at the close of the transaction.

Provision for Credit Losses

The following table details the components of provision for credit losses:

Total provision for credit losses increased $51.7 million in 2024 compared to 2023 primarily due to loan growth, credit migration, net charge-offs, and macroeconomic factors. In addition, the provision for credit losses on loans in 2024 included $15.3 million to establish an allowance for credit losses on non-PCD loans acquired in the CapStar transaction. Continued loan growth in future periods, a decline in our current level of recoveries, or an increase in charge-offs could result in an increase in provision expense. Additionally, provision expense may be volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, which drive the allowance for credit losses balance. For additional information about non-performing loans, charge-offs, and additional items impacting the provision, refer to the “Risk Management – Credit Risk” section of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Noninterest Income

We generate revenues in the form of noninterest income through client fees, sales commissions, and gains and losses from our core banking franchise and other related businesses, such as wealth management, investment consulting, and investment products. This source of revenue as a percentage of total revenue was 19% in 2024 compared to 18% in 2023.

The following table details the components of noninterest income:

Noninterest income increased $21.4 million in 2024 compared to 2023. Noninterest income in 2023 was impacted by a gain on sale of Visa Class B restricted shares totaling $21.6 million as well as $6.3 million of net losses on sales of debt securities. Excluding these items, noninterest income grew $36.9 million primarily due to the acquisition of CapStar, higher wealth and investment services fees, mortgage banking revenue, and other income.

Wealth and investment services fees increased $9.0 million in 2024 compared to 2023 primarily due to higher wealth management fees as a result of continued sales to new and existing customers as well as favorable market conditions and the impact of the acquisition of CapStar.

Mortgage banking revenue increased $9.9 million in 2024 compared to 2023 primarily due to higher mortgage originations and increased loan sales.

During the fourth quarter of 2023, the Company recognized a $21.6 million pre-tax gain on sale of Visa Class B restricted shares in noninterest income. Prior to the sale, the shares were carried at zero cost basis due to uncertainty surrounding the ability of the Company to transfer or otherwise liquidate the shares. After the sale, the Company did not hold any remaining Visa Class B restricted shares. See Note 20 to the consolidated financial statements for additional details on the Visa Class B restricted shares.

Other income increased $9.1 million in 2024 compared to 2023 primarily due to additional other income associated with the acquisition of CapStar, discrete items in 2024, and higher commercial loan fees.

Noninterest Expense

The following table details the components of noninterest expense:

Noninterest expense increased $68.1 million in 2024 compared to 2023. Noninterest expense in 2024 included $37.3 million of merger-related expenses, a $13.3 million non-cash, pre-tax expense associated with the distribution of excess pension assets with the resolution of the legacy First Midwest plan, $3.0 million for the FDIC special assessment, and $2.6 million of separation expense. Noninterest expense in 2023 included $28.7 million of merger-related expenses, a $19.1 million FDIC special assessment, $4.4 million of a contract termination charge, $3.4 million of expenses related to the Louisville tragedy, and $1.6 million for property optimization. Excluding these expenses, noninterest expense in 2024 increased $68.9 million, reflective of the additional operating costs associated with the acquisition of CapStar, as well as higher salary and employee benefits reflective of merit increases.

FDIC assessment expense decreased $12.0 million in 2024 compared to 2023 primarily due to FDIC special assessments totaling $3.0 million and $19.1 million in 2024 and 2023, respectively, partially offset by higher assessment rates and deposit balances. On November 16, 2023, the FDIC finalized a rule that imposes special assessments to recover the losses to the DIF resulting from the FDIC’s use, in March 2023, of the systemic risk exception to the least-cost resolution test under the Federal Deposit Insurance Act in connection with the receiverships of Silicon Valley Bank and Signature Bank. The FDIC estimated in approving the rule that those assessed losses total approximately $16.3 billion. The rule provides that this loss estimate will be periodically adjusted, which will affect the amount of the special assessment. Under the rule, the assessment base is the estimated uninsured deposits that an IDI reported in its December 31, 2022 Call Report, excluding the first $5 billion in estimated uninsured deposits. The special assessments will be collected at an annual rate of approximately 13.4 basis points per year (3.36 basis points per quarter) over eight quarters in 2024 and 2025, with the first assessment period beginning January 1, 2024. Because the estimated loss pursuant to the systemic risk determination will be periodically adjusted, the FDIC retains the ability to cease collection early, extend the special assessment collection period and impose a final shortfall special assessment on a one-time basis. In its December 31, 2022 Call Report, Old National Bank reported estimated uninsured deposits of approximately $12.0 billion. The total of the special assessments for Old National Bank was estimated at $19.1 million, and such amount was recorded as an expense in the year ended December 31, 2023. Old National recorded an additional $3.0 million within FDIC assessment expense for this special assessment in the year ended December 31, 2024.

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 effective tax rate was 20.8% in 2024 compared to 22.5% in 2023. The lower effective tax rate in 2024 compared to 2023 reflected decreases in pre-tax book income and state income taxes combined with increases in tax credits and tax-exempt income. The decrease in state income taxes reflected the recognition of previously unrecognized tax benefits due to the expiration of the statute of limitations. See Note 15 to the consolidated financial statements for additional details on Old National’s income tax provision.