Share-Based Compensation and Other Employee Benefit Plans

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

Share-Based Compensation and Other Employee Benefit Plans

SHARE-BASED COMPENSATION AND OTHER EMPLOYEE BENEFIT PLANS

Our Amended and Restated 2008 Incentive Compensation Plan (the “ICP”), which was shareholder-approved, permits the grant of share-based awards to its employees. An amendment to increase the number of shares authorized for issuance under the ICP by 9.0 million was approved by our Board of Directors and then by our shareholders on May 18, 2022. At December 31, 2022, 9.1 million shares were available for issuance. The granting of awards to key employees is typically in the form of restricted stock awards or units. We believe that such awards better align the interests of our employees with those of our shareholders. Total compensation cost that has been charged against income for the ICP was $28.7 million in 2022, $7.5 million in 2021, and $7.7 million in 2020. The total income tax benefit was $7.1 million in 2022, $1.8 million in 2021, and $1.9 million in 2020.

Restricted Stock Awards

Restricted stock awards require certain service requirements and shares generally vest, depending on the award terms, annually over a three-year period, cliff vest in three years from the grant date, or vest 50% on the second anniversary of the grant date and 50% on the third anniversary of the grant date. 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.

A summary of changes in our nonvested shares for the year follows:


(shares in thousands)	Shares	Weighted Average Grant-Date Fair Value
Year Ended December 31, 2022
Unvested balance at beginning of period	554	$16.16
Granted during the year (1)	1,916	18.12
Vested during the year	(453)	17.29
Forfeited during the year	(148)	17.88
Unvested balance at end of period	1,869	$17.76

(1)In connection with the First Midwest merger, each restricted stock award of First Midwest common stock that was outstanding, unvested, and unsettled at the merger date was assumed and converted into a number of Old National restricted stock relating to a number of shares of Old National common stock equal to the number of First Midwest restricted stock multiplied by the exchange ratio (rounded up to the nearest whole number) subject to the same vesting terms and conditions, resulting in an issuance of an aggregate 0.9 million restricted stock awards of Old National common stock.

As of December 31, 2022, there was $16.1 million of total unrecognized compensation cost related to unvested restricted stock awards. The cost is expected to be recognized over a weighted-average period of 1.8 years. The total fair value of the shares vested was $7.9 million in 2022, $4.3 million in 2021, and $2.9 million in 2020.

Performance-Based Restricted Stock Units

Restricted stock units require certain performance requirements and shares vest at the end of a 24 or 36 month period based on the achievement of certain targets. If targets are achieved prior to the end of the 24 month performance period, vesting can be accelerated. Compensation expense is recognized on a straight-line basis over the performance period of the award. For certain awards, the level of performance could increase or decrease the number of shares earned. Shares are subject to certain restrictions and risk of forfeiture by the participants.

A summary of changes in our unvested shares for the year follows:


(shares in thousands)	Shares	Weighted Average Grant-Date Fair Value
Year Ended December 31, 2022
Unvested balance at beginning of period	886	$14.80
Granted during the year (1)	1,935	17.66
Vested during the year	(720)	15.41
Forfeited during the year	(73)	16.73
Dividend equivalents adjustment	53	16.82
Unvested balance at end of period	2,081	$17.23

(1)In connection with the First Midwest merger, each performance-based restricted stock unit award of First Midwest that was outstanding, unvested, and unsettled at the merger date was assumed and converted into a time-based restricted stock unit award of Old National common stock subject to the same vesting terms and conditions (other than performance conditions), resulting in an issuance of an aggregate 0.7 million restricted stock units of Old National common stock. The performance components of the First Midwest equity awards were deemed earned at target.

As of December 31, 2022, there was $13.9 million of total unrecognized compensation cost related to unvested restricted stock units. The cost is expected to be recognized over a weighted-average period of 1.3 years.

Stock Options and Appreciation Rights

Option awards are generally granted with an exercise price equal to the market price of our Common Stock at the date of grant; these option awards have vesting periods ranging from 3 to 5 years and have 10-year contractual terms.

Old National has not granted stock options since 2009. However, Old National did acquire stock options and stock appreciation rights through its prior acquisitions. Old National recorded no incremental expense associated with the conversion of these options and stock appreciation rights.

As of December 31, 2022, all options were fully vested and all compensation costs had been expensed. At December 31, 2022, the outstanding shares consisted of stock appreciation rights acquired through prior acquisitions.

A summary of the activity in stock appreciation rights in 2022 follows:


(shares in thousands)	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term in Years	Aggregate Intrinsic Value (in thousands)
Year Ended December 31, 2022
Outstanding at beginning of period	28	$4.30
Exercised	(22)	3.95

Outstanding at end of period	6	$5.67	0.18	$71.2
Options exercisable at end of year	6	$5.67	0.18	$71.2

Information related to stock option and appreciation rights follows:


	Year Ended December 31,
(dollars in thousands)	2022		2021		2020
Intrinsic value of options/appreciation rights exercised	$	331	$	171	$	213

Tax benefit realized from options/appreciation rights exercises	132		68		85

Non-employee Director Stock Compensation

Compensation paid to Old National’s non-employee directors includes a stock component. Compensation shares are earned annually. Any shares awarded to directors are anticipated to be issued from the ICP. In 2022, 19 thousand shares were issued to directors, compared to 25 thousand shares in 2021, and 28 thousand shares in 2020.

Employee Stock Ownership Plan

The Employee Stock Ownership and Savings Plan (the “401(k) Plan”) permits employees to participate the first month following one month of service. Old National matches 100% of employee compensation deferral contributions of the first 5% of compensation. In addition to matching contributions, Old National may make discretionary contributions to the 401(k) Plan in the form of Old National stock or cash. There were no designated discretionary profit sharing contributions in 2022, 2021, or 2020. All contributions vest immediately and plan participants may elect to redirect funds among any of the investment options provided under the 401(k) Plan. The number of Old National shares in the 401(k) Plan were 1.2 million at December 31, 2022 and 0.5 million at December 31, 2021. All shares owned through the 401(k) Plan are included in the calculation of weighted-average shares outstanding for purposes of calculating diluted and basic earnings per share. Contribution expense under the 401(k) Plan was $17.9 million in 2022, $9.8 million in 2021, and $9.5 million in 2020.