Old National Reports 43% EPS Growth from 3Q22, 10% on an Adjusted Basis¹, Driven by Commercial Loan Growth, Net Interest Margin Expansion and Expense Discipline

EVANSVILLE, Ind., Jan. 24, 2023 (GLOBE NEWSWIRE) --

Old National Bancorp (NASDAQ: ONB) reports 4Q22 net income applicable to common shares of $196.7 million, diluted EPS of $0.67; $164.3 million and $0.56 on an adjusted¹ basis, respectively. Full-year net income applicable to common shares of $414.2 million, diluted EPS of $1.50; $540.9 million and $1.96 on an adjusted¹ basis, respectively.

CEO COMMENTARY:

FOURTH QUARTER HIGHLIGHTS²:

¹ Non-GAAP financial measure that management believes is useful in evaluating the financial results of the Company – refer to the Non-GAAP reconciliations contained in this release ² Comparisons are on a linked-quarter basis, unless otherwise noted ³ Includes loans held for sale ⁴ Includes consumer and residential real estate loans ⁵ Includes the provision for unfunded commitments

RESULTS OF OPERATIONS
Old National Bancorp ("Old National") reported fourth quarter 2022 net income applicable to common shares of $196.7 million, or $0.67 per diluted common share.

Included in the fourth quarter was a $90.7 million pre-tax gain on the November 18, 2022 sale of health savings accounts, as well as pre-tax charges of $26.8 million for property optimization and $20.3 million related to the February 15, 2022 merger with First Midwest. Excluding these transactions and realized debt securities losses from the current quarter, adjusted net income was $164.3 million, or $0.56 per diluted common share.

LOANS
Robust broad-based commercial and consumer loan growth.

• Period-end total loans³ were $31.1 billion at December 31, 2022, up 7.7% annualized from $30.5 billion at September 30, 2022, driven by strong commercial loan growth of 7.9%.
• Total commercial loan production in the fourth quarter was $2.7 billion; period-end commercial pipeline totaled $4.6 billion.
• Total consumer loans⁴ were $9.2 billion at December 31, 2022, up 7.5% annualized from September 30, 2022.
  • Consumer loans decreased $25.4 million, or 3.7% annualized, and residential mortgage loans grew $193.1 million, or 12.3% annualized, driven by strong production.
• Average total loans in the fourth quarter were $30.7 billion, an increase of $838.0 million from the third quarter of 2022.

DEPOSITS
Strong deposit franchise impacted by the sale of health savings accounts and seasonal deposit outflows late in the quarter.

• On average, total deposits for the fourth quarter were $35.4 billion, a decrease of 0.9% excluding $382 million of health savings accounts sold in November.
• Period-end total deposits were $35.0 billion at December 31, 2022, compared to $36.1 billion at September 30, 2022, down due to the sale of health savings accounts, client deployment of excess liquidity and seasonal deposit outflows.

NET INTEREST INCOME AND MARGIN
Strong loan growth and the higher rate environment favorably impact net interest income and margin.

• Net interest income on a fully taxable equivalent basis increased to $396.5 million in the fourth quarter of 2022 compared to $381.5 million in the third quarter of 2022, driven by higher interest rates and loan growth, partially offset by lower accretion income on loans.
• Net interest margin on a fully taxable equivalent basis increased 14 bps to 3.85% compared to 3.71% for the third quarter of 2022.
• Accretion income on loans and borrowings was $10.4 million, or 10 bps of net interest margin, in the fourth quarter of 2022 compared to $25.4 million, or 25 bps of net interest margin, in the third quarter of 2022.
• Cost of total deposits was 0.34%, increasing 22 bps and the cost of total interest-bearing deposits increased 34 bps to 0.52% in the fourth quarter of 2022.

CREDIT QUALITY
Strong credit quality continues to be a hallmark of the Old National franchise.

• Provision⁵ expense in the fourth quarter of 2022 was $11.4 million, compared to $15.5 million in the third quarter of 2022, reflecting strong loan and unfunded commitment growth.
• Net charge-offs in the fourth quarter were $4.0 million, or 5 bps of average loans compared to net charge-offs of $7.6 million in the third quarter of 2022, or 10 bps of average loans.
  • Excluding purchased credit deteriorated ("PCD") loans that had an allowance for credit losses established at acquisition, net charge-offs to average loans were 5 bps and 2 bps for the fourth and third quarters of 2022, respectively.
• 30+ day delinquencies were 0.19% at the end of the fourth quarter, compared to 0.22% at the end of the third quarter.
• Non-performing loans as a percentage of total loans were 0.81% consistent with the third quarter of 2022.
• Loans acquired from previous acquisitions were recorded at fair value at the acquisition date. As of December 31, 2022, the remaining discount on these acquired loans was $102 million.
• The allowance for credit losses, including the allowance for credit losses on unfunded commitments, stood at $335.9 million, or 1.08% of total loans at December 31, 2022, consistent with September 30, 2022.

NONINTEREST INCOME
Decrease driven by lower capital markets, mortgage fees and service charges.

• Total noninterest income for the fourth quarter of 2022 was $165.0 million and included a $90.7 million pre-tax gain on the sale of health savings accounts.
• Excluding this item and realized debt securities losses, adjusted noninterest income for the fourth quarter was $74.5 million, compared to $80.6 million for the third quarter of 2022, down due primarily to lower capital markets income, service charge program enhancements and the sale of health savings accounts. In addition, mortgage banking revenue continues to be impacted by the higher rate environment, as well as lower production and gain on sale margins.

NONINTEREST EXPENSE
Disciplined expense management; merger cost savings fully achieved in the fourth quarter of 2022 (annualized).

• Noninterest expense for the fourth quarter of 2022 was $282.7 million and included $26.8 million for property optimization, $20.3 million of merger-related charges, and $5.3 million of tax credit amortization.
• Excluding these items, adjusted noninterest expense for the fourth quarter was $230.3 million, compared to $237.0 million for the third quarter of 2022, down due primarily to fully achieved merger cost saves in the fourth quarter of 2022 annualized, partly offset by performance-driven incentive accrual true-up.
• The fourth quarter efficiency ratio¹ was 49.1%, while the adjusted efficiency ratio¹ was 47.5% for the fourth quarter of 2022 compared to 55.3% and 49.8%, respectively, for the third quarter of 2022.

INCOME TAXES

• Income tax expense in the fourth quarter of 2022 was $61.3 million, resulting in an effective tax rate of 23.4% compared to 21.7% in the third quarter of 2022. On an adjusted fully taxable equivalent ("FTE") basis, the effective tax rate was 24.8% in the fourth quarter compared to 25.3% in the third quarter.
• Income tax expense included $6.1 million of tax credit benefit.

CAPITAL AND LIQUIDITY
Capital ratios remain strong.

• Preliminary total risk-based capital was 12.02% and preliminary regulatory Tier 1 capital was 10.71%, impacted by retained earnings including the $90.7 million pre-tax gain on the sale of health savings accounts, partly offset by strong loan growth. In addition, total risk-based capital was impacted by the phase-out of $2.4 million of Tier 2 subordinated debt.
• Tangible common equity to tangible assets was 6.18% at the end of the fourth quarter compared to 5.82% in the third quarter of 2022, impacted by the $90.7 million pre-tax gain on the sale of health savings accounts.
• The Company did not repurchase any shares of common stock during the quarter.
• A loan to deposit ratio of 89.0%, combined with existing funding sources plus available unencumbered, high-quality collateral, provides strong liquidity.

HEALTH SAVINGS ACCOUNTS SALE
On November 18, 2022, Old National Bank, a wholly-owned subsidiary of Old National Bancorp, completed its previously announced transaction with UMB Bank, n.a. (“UMB”), pursuant to which UMB acquired Old National Bank’s business of acting as a qualified custodian for, and administering, health savings accounts, which totaled $382 million. Upon completion, Old National Bank recorded a pre-tax gain of $90.7 million that is recorded in noninterest income.

PROPERTY OPTIMIZATION
During the fourth quarter of 2022, Old National initiated certain property optimization actions that included the closure and consolidation of certain branches as well as other real estate repositioning across our footprint. These actions resulted in pre-tax charges of $26.8 million for the fourth quarter of 2022 that are associated with valuation adjustments related to these locations and are recorded in noninterest expense.

SERVICE CHARGE PROGRAM ENHANCEMENTS
In early December, Old National implemented several enhancements to its overdraft protection programs to provide clients with more flexibility. The changes included the elimination of the non-sufficient fund ("NSF") fee when an item is returned, among other modifications that benefit consumers.

CONFERENCE CALL AND WEBCAST
Old National will host a conference call and live webcast at 9:00 a.m. Central Time on Tuesday, January 24, 2023, to review fourth quarter and full year 2022 financial results. The live audio webcast link and corresponding presentation slides will be available on the Company’s Investor Relations web page at oldnational.com and will be archived there for 12 months. To listen to the live conference call, dial U.S. (844) 200-6205 or International (929) 526-1599, Access code 379396. A replay of the call will also be available from noon Central Time on January 24, 2023 through February 7, 2023. To access the replay, dial U.S. (866) 813-9403 or international +44 (204) 525-0658, Access code 104806.

ABOUT OLD NATIONAL
Old National Bancorp (NASDAQ: ONB) is the holding company of Old National Bank which is the sixth largest commercial bank headquartered in the Midwest. With approximately $47 billion of assets and $28 billion of assets under management, Old National ranks among the top 35 banking companies headquartered in the U.S. and has been recognized as a World’s Most Ethical Company by the Ethisphere Institute for 11 consecutive years. Since its founding, Old National Bank has focused on community banking by building long-term, highly valued partnerships with clients and in the communities it serves. In addition to providing extensive services in retail and commercial banking, Old National offers comprehensive wealth management, investment, and capital market services. For more information and financial data, please visit Investor Relations at oldnational.com.

USE OF NON-GAAP FINANCIAL MEASURES
The Company's accounting and reporting policies conform to U.S. generally accepted accounting principles ("GAAP") and general practices within the banking industry. As a supplement to GAAP, the Company provides non-GAAP performance results, which the Company believes are useful because they assist investors in assessing the Company's operating performance. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the tables at the end of this release.

The Company presents EPS, the efficiency ratio, return on average common equity, and return on average tangible common equity, all adjusted for certain notable items. These items include the current expected credit loss ("CECL") Day 1 non-PCD provision expense, merger related charges associated with completed acquisitions, gain on sale of health savings accounts, property optimization charges, net securities gains and ONB Way charges. Management believes excluding these items from EPS, the efficiency ratio, return on average common equity, and return on average tangible common equity may be useful in assessing the Company's underlying operational performance since these items do not pertain to its core business operations and their exclusion may facilitate better comparability between periods. Management believes that excluding merger related charges and the CECL Day 1 non-PCD provision expense from these metrics may be useful to the Company, as well as analysts and investors, since these expenses can vary significantly based on the size, type, and structure of each acquisition. Additionally, management believes excluding these items from these metrics may enhance comparability for peer comparison purposes.

Income tax expense, provision for credit losses, and the certain notable items listed above are excluded from the calculation of pre-provision net revenues, adjusted due to the fluctuation in income before income tax and the level of provision for credit losses required. Management believes pre-provision net revenues, adjusted may be useful in assessing the Company's underlying operating performance and their exclusion may facilitate better comparability between periods and for peer comparison purposes.

The Company presents adjusted noninterest expense, which excludes merger related charges, property optimization charges, amortization of tax credit investments and ONB Way charges, as well as adjusted noninterest income, which excludes the gain on sale of health savings accounts and gains/losses on sales of debt securities. Management believes that excluding these items from noninterest expense and noninterest income may be useful in assessing the Company’s underlying operational performance as these items either do not pertain to its core business operations or their exclusion may facilitate better comparability between periods and for peer comparison purposes.

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

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

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

FORWARD-LOOKING STATEMENTS
This communication contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, descriptions of Old National’s financial condition, results of operations, asset and credit quality trends, profitability and business plans or opportunities. Forward-looking statements can be identified by the use of the words "anticipate," "believe," "contemplate," "could," "estimate," "expect," "intend," "may," "outlook," "plan," "should," and "will," and other words of similar meaning. These forward-looking statements express management’s current expectations or forecasts of future events and, by their nature, are subject to risks and uncertainties. There are a number of factors that could cause actual results or outcomes to differ materially from those in such statements. Factors that might cause such a difference include, but are not limited to: the continued impact of the COVID-19 pandemic on our business as well as the business of our customers; competition; government legislation, regulations and policies; the ability of Old National to execute its business plan, including the completion of the integration related to the merger between Old National and First Midwest and the achievement of the synergies and other benefits from the merger; changes in economic conditions which could materially impact credit quality trends and the ability to generate loans and gather deposits; failure or circumvention of our internal controls; significant changes in accounting, tax or regulatory practices or requirements; new legal obligations; disruptive technologies in payment systems and other services traditionally provided by banks; failure or disruption of our information systems; computer hacking and other cybersecurity threats; other matters discussed in this communication; and other factors identified in our Annual Report on Form 10-K for the year ended December 31, 2021 and other filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date of this communication and are not guarantees of future results or performance, and Old National does not undertake an obligation to update these forward-looking statements to reflect events or conditions after the date of this communication.