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Merger, Acquisition, and Divestiture Activity
 12 Months Ended
Dec. 31, 2022
Business Combination and Asset Acquisition [Abstract]  
Merger, Acquisition, and Divestiture Activity MERGER, ACQUISITION, AND DIVESTITURE ACTIVITY
Merger
First Midwest Bancorp, Inc.
On February 15, 2022, Old National completed its previously announced merger of equals transaction with First Midwest pursuant to an agreement and plan of merger, dated as of May 30, 2021, to combine in an all-stock transaction. Following the merger, the new organization is operating under the Old National Bancorp and Old National Bank names, with the corporate headquarters and principal office located in Evansville, Indiana and commercial and consumer banking operations headquartered in Chicago, Illinois. Old National believes that it will be able to achieve synergies and cost savings by integrating the operations of the two companies. The combined organization has a presence in additional Midwestern markets, strong commercial banking capabilities, a robust retail footprint, a significant wealth platform, and an enhanced ability to attract talent. The combined organization also creates the scale and profitability to accelerate digital and technological capabilities to drive future investments in consumer and commercial banking, as well as wealth management services.
Pursuant to the terms of the merger agreement, each First Midwest common stockholder received 1.1336 shares of Old National common stock for each share of First Midwest common stock such stockholder owned, plus, if applicable, cash in lieu of fractional shares of Old National common stock resulting from the exchange ratio. Each outstanding share of 7.000% fixed-rate non-cumulative perpetual preferred stock, Series A, no par value, and each outstanding share of 7.000% fixed-rate non-cumulative perpetual preferred stock, Series C, no par value, of First Midwest was converted into the right to receive one share of an applicable newly created series of Old National preferred stock, no par value “Old National Series A Preferred Stock” and “Old National Series C Preferred Stock,” and collectively, the “Old National Preferred Stock”. In this regard, Old National issued 108,000 shares of Old National Series A Preferred Stock and 122,500 shares of Old National Series C Preferred Stock. Old National entered into two deposit agreements, each dated as of February 15, 2022, by and among Old National, Continental Stock Transfer & Trust Company, as depository, and the holders from time to time of the depositary receipts in connection with the issuance of the Old National Preferred Stock. Pursuant to the deposit agreements, Old National issued 4,320,000 depositary shares, each representing a 1/40th interest in a share of Old National Series A Preferred Stock, and 4,900,000 depositary shares, each representing a 1/40th interest in a share of Old National Series C Preferred Stock.
The assets acquired and liabilities assumed, both intangible and tangible, in the merger were recorded at their estimated fair values as of the merger date and have been accounted for under the acquisition method of accounting. Subsequent to the initial valuation, Old National increased goodwill by $1.6 million to update the provisional valuation of the fair values of assets acquired and liabilities assumed. These adjustments affected goodwill, loans, premises and equipment, operating lease right-of-use assets, other assets, and accrued expenses and other liabilities. As of December 31, 2022, Old National finalized its valuation of all assets acquired and liabilities assumed. The following table presents a summary of the assets acquired and liabilities assumed, net of the fair value adjustments and the fair value of consideration as of the merger date:
(dollars and shares in thousands)February 15,
2022
Assets
Cash and cash equivalents$1,912,629 
Investment securities3,526,278 
FHLB/Federal Reserve Bank stock106,097 
Loans held for sale13,809 
Loans, net of allowance for credit losses14,298,873 
Premises and equipment111,867 
Operating lease right-of-use assets129,698 
Accrued interest receivable53,502 
Goodwill961,722 
Other intangible assets117,584 
Company-owned life insurance301,025 
Other assets317,258 
Total assets$21,850,342 
Liabilities
Deposits$17,249,404 
Securities sold under agreements to repurchase135,194 
Federal Home Loan Bank advances1,158,623 
Other borrowings274,569 
Accrued expenses and other liabilities342,369 
Total liabilities$19,160,159 
Fair value of consideration
Preferred stock$243,870 
Common stock (129,365 shares issued at $18.92 per share)
2,446,312 
Total consideration$2,690,182 
Goodwill related to this merger will not be deductible for tax purposes.
Other intangible assets acquired included core deposit intangibles and customer trust relationships. The estimated fair value of the core deposit intangible was $77.9 million and is being amortized over an estimated useful life of 10 years. The estimated fair value of customer trust relationships was $39.7 million and is being amortized over an estimated useful life of 13 years.
The fair value of purchased financial assets with credit deterioration was $1.4 billion on the date of the merger. The gross contractual amounts receivable relating to the purchased financial assets with credit deterioration was $1.5 billion. Old National estimates, on the date of the merger, that $89.1 million of the contractual cash flows specific to the purchased financial assets with credit deterioration will not be collected.
Transaction costs totaling $120.9 million associated with the merger have been expensed in 2022 and additional transaction and integration costs will be expensed in future periods as incurred.
As a result of the merger, Old National assumed sponsorship of First Midwest’s defined benefit pension plan (the “Pension Plan”) under which both plan participation and benefit accruals had been previously frozen. The Pension Plan was terminated in November 2022, which included the settlement of benefit obligations associated with the Pension Plan. At December 31, 2022, the fair value of Pension Plan assets was $16.6 million. Pension costs were not material in 2022.
Summary of Unaudited Pro-Forma Financial Information
The following table presents supplemental unaudited pro-forma financial information as if the First Midwest merger had occurred on January 1, 2021. The pro-forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effective as of this assumed date.
Years Ended December 31,
(dollars in thousands)20222021
Total revenues (1)
$1,812,333 $1,564,287 
Income before income taxes749,009 382,102 
(1)    Includes net interest income and total noninterest income.
Supplemental pro-forma earnings for the year ended December 31, 2022 were adjusted to exclude $120.9 million of merger-related costs, $11.0 million of provision for credit losses on unfunded loan commitments, and $96.3 million of provision for credit losses to establish an allowance for credit losses on non-PCD loans acquired in the transaction. Supplemental pro-forma earnings for the year ended December 31, 2021 were adjusted to include these costs.
Divestitures
On November 18, 2022, Old National completed its previously announced transaction with UMB, pursuant to which UMB acquired Old National’s business of acting as a qualified custodian for, and administering, health savings accounts. Old National served as custodian for health savings accounts comprised of both investment accounts and deposit accounts. At closing, the health savings accounts held in deposit accounts that were transferred totaled approximately $382 million and resulted in a $90.7 million pre-tax gain.
During the fourth quarter of 2022, Old National initiated certain property optimization actions that included the closure and consolidation of certain branches as well as other real estate repositioning across our footprint. These actions resulted in pre-tax charges of $26.8 million that are associated with valuation adjustments related to these locations and are recorded in noninterest expense.
During 2020, we consolidated 31 banking centers located throughout our footprint, reflecting an ongoing shift among our clients toward digital banking solutions. Many of the facilities consolidated were in smaller markets, several of which were added in recent years through acquisition and partnership activity. These actions resulted in pre-tax charges of $27.1 million associated with valuation adjustments related to these locations and were recorded in noninterest expense.