Press Release Details

EVANSVILLE, Ind., April 26, 2022 (GLOBE NEWSWIRE) --

Reflective of the CECL Day 1 provision expense and merger related expenses, all as expected,  Old National Bancorp (NASDAQ: ONB) reports 1Q22 net loss applicable to common shares of $29.6 million,  diluted EPS of $(0.13).  Adjusted net income applicable to common shares ¹ of $91.6 million, or $0.40 per diluted common share.

CEO COMMENTARY:

FIRST QUARTER HIGHLIGHTS ² :

¹ Non-GAAP financial measure that m anagement believes is useful in evaluating the financial results of the Company – refer to the Non-GAAP reconciliations contained in this release ² Comparisons to legacy prior periods are not meaningful due to merger ³ Includes loans held for sale ⁴  Excludes Paycheck Protection Program ("PPP") loans and acquisition accounting adjustments ("AAAs") for legacy First Midwest and combined Old National - growth annualized for the combined full quarter ⁵  Refers to the ini tial increase in allowance for credit losses required on acquired non-PCD loans through the provision for credit losses

MERGER TRANSACTION

On February 15, 2022, Old National Bancorp ("Old National") completed its transformative merger with First Midwest Bancorp, Inc. ("First Midwest") to create the premier bank in the Midwest. The merger added approximately $22 billion of assets, $14 billion of loans, and $17 billion of deposits. The combined company ranks among the top 35 banking companies based in the United States and creates the sixth largest commercial bank headquartered in the Midwest based on assets, with approximately $46 billion of combined assets, $31 billion of assets under management, strong commercial banking capabilities, a robust retail footprint, and a significant wealth platform.

RESULTS OF OPERATIONS

Old National (NASDAQ: ONB) reported first quarter 2022 net loss applicable to common shares of $29.6 million, or $(0.13) per diluted share.

Included in the first quarter were pre-tax charges of $96.3 million of CECL Day 1 non-PCD provision expense related to the allowance established on acquired non-PCD loans and $52.3 million of expenses related to the merger with First Midwest, including $11.0 million attributable to the provision for unfunded commitments. Excluding these charges and debt securities gains from the current quarter, adjusted net income was $91.6 million, or $0.40 per diluted share.

LOANS
Loan growth and expanding presence driven by the merger, along with strong combined commercial production and growth.

• Period-end total loans³ were $28.4 billion at March 31, 2022, up from $13.6 billion at December 31, 2021, driven by the merger and strong commercial production.
• Paycheck Protection Program ("PPP") loans increased $36.3 million to $205.3 million at March 31, 2022, compared to $169.0 million at December 31, 2021, as a result of the merger.
• On a first full quarter combined basis^1,4, excluding PPP loans and acquisition accounting adjustments, total loans increased 6.2%, annualized, and total commercial loans increased 8.3%, annualized.
• Full first quarter combined total commercial loan production was $1.5 billion; period-end pipeline totaled $5.4 billion.
• Consumer loans increased to $2.7 billion and residential mortgage loans increased to $5.7 billion, driven by the merger and partially offset by acquired transactional portfolio run-off.
• Average total loans in the first quarter were $20.7 billion, an increase of $7.1 billion from the fourth quarter of 2021 and $7.2 billion excluding PPP loans.

DEPOSITS
Strong deposit franchise bolstered by merger, partially offset by normal seasonality.

• Period-end total deposits were $35.6 billion at March 31, 2022, compared to $18.6 billion at December 31, 2021.
• Full first quarter combined total deposits balances were stable as a seasonal decline in commercial and municipal deposits as well as a decrease in time deposits in light of the current market environment was partly offset by growth in retail interest-bearing deposits.
• On average, total deposits in the first quarter increased to $26.9 billion, compared to $18.4 billion for the fourth quarter of 2021.

NET INTEREST INCOME AND MARGIN
Increase in earning assets from the merger favorably impact net interest income and margin, offsetting the continued decline of PPP interest and fees, as well as fewer days in the quarter.

• Net interest income on a fully taxable equivalent basis increased to $226.6 million in the first quarter of 2022 compared to $150.2 million in the fourth quarter of 2021, driven by the merger and loan growth, partially offset by lower PPP interest and fees, as well as fewer days in the quarter.
• Net interest margin on a fully taxable equivalent basis increased 11 bps to 2.88% compared to 2.77% in the fourth quarter of 2021, driven by the mix of interest-earning assets added in the merger, higher accretion and loan growth, partially offset by lower PPP interest and fees, excess liquidity, and fewer days in the quarter.
• PPP interest and net fees combined were $3.7 million, or 3 bps of net interest margin, in the first quarter of 2022 compared to $7.7 million, or 11 bps of net interest margin, in the fourth quarter of 2021.
• Accretion income on loans and borrowings was $15.9 million, or 20 bps of net interest margin, in the first quarter of 2022 compared to $3.9 million, or 7 bps of net interest margin, in the fourth quarter of 2021.
• Interest collected on nonaccrual loans was $1.1 million, or 1 bp of net interest margin, in the first quarter of 2022 compared to $1.4 million, or 3 bps of net interest margin, in the fourth quarter of 2021.
• The cost of total deposits was consistent at 0.05% in the first quarter of 2022 and the cost of total interest-bearing deposits declined 1 bp to 0.07%.

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

• Old National recorded a provision expense in the first quarter of 2022 of $97.6 million, which included $96.3 million of CECL Day 1 non-PCD provision expense related to the allowance for credit losses established on acquired non-PCD loans, compared to $1.9 million of provision recapture recorded in the fourth quarter of 2021.
• Net charge-offs in the first quarter were $2.8 million on PCD loans, or 5 bps of average loans, compared to net recoveries of $1.4 million in the fourth quarter of 2021, or 3 bps of average loans.
• 30+ day delinquencies were 0.34% at the end of the first quarter, up from 0.11% at the end of the fourth quarter due to loans in process of renewal that have subsequently been completed.
• Non-performing loans improved as a percentage of total loans to 0.88% from 0.92% at the end of the fourth quarter due to the merger.
• Loans acquired from previous acquisitions were recorded at fair value at the acquisition date. As of March 31, 2022, the remaining discount on these acquired loans was $162 million, $132 million related to First Midwest.
• The allowance for credit losses stood at $280.5 million, or 0.99% of total loans at March 31, 2022, up from 0.79% at December 31, 2021 due to the merger, which included $96.3 million of CECL Day 1 non-PCD provision expense related to acquired non-PCD loans and $78.5 million of allowance related to acquired PCD loans .

NONINTEREST INCOME
Noninterest income increase driven by merger; mortgage banking revenue seasonally lower and capital markets income declines.

• Total noninterest income for the first quarter of 2022 was $65.2 million, an increase of $13.8 million from the fourth quarter of 2021 driven by the merger.
• Mortgage banking revenue impacted by the rate environment, normalizing gain on sale margins, and a higher mix of portfolio production.

NONINTEREST EXPENSE
Increase in first quarter due to merger; expenses well controlled.

• Noninterest expense for the first quarter of 2022 was $226.7 million and included $52.3 million of merger-related charges, including $11.0 million attributable to the provision for unfunded commitments, as well as $1.5 million of tax credit amortization.
• Excluding these items, adjusted noninterest expense for the first quarter was $172.9 million, compared to the $123.2 million of adjusted noninterest expense in the fourth quarter of 2021.
• The first quarter efficiency ratio was 76.2%, while the adjusted efficiency ratio was 57.7% compared to 59.9% for the fourth quarter of 2021.

INCOME TAXES

• On a fully taxable-equivalent basis, income tax benefit in the first quarter was $4.9 million, resulting in a 15.2% FTE tax rate, compared to 21.6% in the fourth quarter of 2021.
• Income tax expense included $2.1 million of tax benefits related to the vesting of share-based payments and post-merger remeasurement of deferred tax assets.
• Income tax expense included $1.6 million of tax credit benefit.

CAPITAL AND LIQUIDITY
Capital ratios remain strong.

• Preliminary total risk-based capital was 12.19% and preliminary regulatory Tier 1 capital was 10.79%, impacted by the merger and loan growth.
• Tangible common equity to tangible assets was 6.51% at the end of the first quarter compared to 8.30% in the fourth quarter of 2021, impacted by the merger and rate environment's impact on unrealized losses within the investment portfolio.
• The Company repurchased 3.5 million shares of common stock during the quarter.
• A low loan to deposit ratio of 79.7%, combined with existing funding sources plus available unencumbered, high-quality collateral, provides strong liquidity.

NON-GAAP RECONCILIATIONS

⁶ Tax-effect calculations use management's estimate of the full year FTE tax rates (federal + state)
⁷ Provision for Credit Losses adjustment refers to the initial increase in allowance for credit losses required on acquired non-PCD loans through the provision for credit losses as a result of the completed merger

CONFERENCE CALL AND WEBCAST
Old National will host a conference call and live webcast at 9:00 a.m. Central Time on Tuesday, April 26, 2022, to review first quarter 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 656831. A replay of the call will also be available from noon Central Time on April 26 through May 10. To access the replay, dial U.S. (866) 813-9403 or international +44 (204) 525-0658, Access code 729800.

ABOUT OLD NATIONAL
Old National Bancorp (NASDAQ: ONB), the holding company of Old National Bank, recently completed its transformative merger with First Midwest Bancorp, Inc. to create the sixth largest commercial bank headquartered in the Midwest. With approximately $46 billion of assets and $31 billion of assets under management, Old National ranks among the top thirty-five banking companies based in the U.S. and has been recognized as a World’s Most Ethical Company by the Ethisphere Institute for eleven consecutive years.  Since its founding in 1834, Old National Bank has focused on community banking by building long-term, highly valued partnerships with clients and in the communities it serves. In addition to providing extensive services in retail and commercial banking, Old National offers comprehensive wealth management, investment, and capital market services. 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 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 CECL Day 1 non-PCD provision expense, merger related charges associated with completed acquisitions, ONB Way charges, and net securities gains. 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 transactions 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.

The Company presents loans excluding PPP loans on a historical combined basis and excluding acquisition accounting adjustments. Management believes that comparisons of balance sheet balances to legacy periods are not meaningful due to the merger with First Midwest. Additionally, management believes that excluding acquisition accounting adjustments may be useful to the Company, as well as analysts and investors, since these adjustments can vary significantly based on the size, type, and structure of each acquisition.

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 operational 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, ONB Way charges and amortization of tax credit investments. Management believes that excluding these items from noninterest expense 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; ability of Old National to execute its business plan, including the completion of the integration and systems conversion related to the merger between Old National and First Midwest and the achievement of the synergies and other benefits from the merger; changes in the economy 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.