ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Page
General Overview
Corporate Developments in 202 5
Business Outlook
Financial Highlights
Non-GAAP Financial Measures
Results of Operations
Financial Condition
Risk Management
Material Contractual Obligations, Commitments, and Contingent Liabilities
Critical Accounting Estimates
The following is an analysis generally discussing our results of operations for the year ended December 31, 2025 compared to the year ended December 31, 2024, and financial condition as of December 31, 2025 and 2024. This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes. This discussion contains forward-looking statements concerning our business. Readers are cautioned that, by their nature, forward-looking statements are based on estimates and assumptions and are subject to risks, uncertainties, and other factors. Actual results may differ materially from our expectations that are expressed or implied by any forward-looking statement. The discussion in Item 1A, “Risk Factors,” lists some of the factors that could cause our actual results to vary materially from those expressed or implied by any forward-looking statements, and such discussion is incorporated into this discussion by reference. For a discussion of the year ended December 31, 2024 compared to the year ended December 31, 2023, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024.
GENERAL OVERVIEW
Old National is the sixth largest commercial bank headquartered in the Midwest by asset size and ranks among the top 25 banking companies headquartered in the United States. The Company’s corporate headquarters and principal executive office are located in Evansville, Indiana with commercial and consumer banking operations headquartered in Chicago, Illinois. Through our wholly owned banking subsidiary and non-bank affiliates, we provide a wide range of services primarily throughout the Midwest and Southeast regions of the United States. In addition to providing extensive services in consumer and commercial banking, Old National offers comprehensive wealth management and capital markets services.
CORPORATE DEVELOPMENTS IN 2025
Old National’s 2025 results were driven by the completion and successful integration of Bremer and a focus on fundamentals—core deposit growth to support loan expansion, positive operating leverage, disciplined credit management, and healthy liquidity and capital ratios. We once again showed our unwavering commitment to shareholders, clients, team members, and communities. Our peer-leading deposit franchise, disciplined loan growth, strong credit quality, well-managed expenses, and dedicated team members who are committed to our clients and communities enabled us to exceed our expectations that we set as we began 2025. Highlights experienced in 2025 included:
• completion of our Bremer partnership on May 1, 2025, solidifying our position as a premier mid-size bank;
• net income applicable to common shareholders of $653.1 million, or $1.79 per diluted common share;
• peer-leading, low-cost deposit franchise; loan to deposit ratio of 89%;
• growth in total deposits of 35%, 5% excluding Bremer;
• disciplined loan growth of 34%, 5% excluding Bremer;
• disciplined expense management with an efficiency ratio of 55.10%;
• stable credit metrics, including net charge-offs to average loans of 0.25%; and
• tangible book value per share growth of 15%.
Results for 2025 were impacted by $140.9 million of merger-related expenses, $75.6 million of CECL Day 1 non-PCD provision expense related to the allowance for credit losses established on acquired non-PCD loans, a $5.1 million net gain associated with the freezing of the benefits of the Bremer pension plan and subsequent termination of the plan, and a $3.0 million reduction to previously accrued FDIC special assessment. Excluding these items, net income applicable to common shares for 2025 was $808.6 million, or $2.21 per diluted common share on an adjusted basis. Refer to the “Non-GAAP Financial Measures” section for reconciliations to GAAP financial measures.
Our net interest income increased 34% to $2.1 billion during 2025, driven by loans and securities acquired in the Bremer transaction as well as strong loan growth and lower costs of average interest-bearing liabilities, partially offset by higher balances of average interest-bearing liabilities. Provision for credit losses increased compared to 2024, reflective of provision expense associated with the Bremer acquisition as well as credit migration, higher net charge-offs, and macroeconomic factors. Noninterest income increased from $354.7 million in 2024 to $466.5 million in 2025 primarily due to the impact of the Bremer acquisition, higher mortgage banking revenue, capital markets income, and other income. Noninterest expense increased $390.9 million in 2025 compared to 2024. Noninterest expense in 2025 included $140.9 million of merger-related expenses and a $3.0 million reduction to previously accrued FDIC special assessment. 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 an FDIC special assessment, and $2.6 million of separation expense. Excluding these expenses, noninterest expense in 2025 increased $309.3 million, driven by operating costs and additional amortization of intangibles related to the acquisitions of Bremer and CapStar, as well as higher salary and employee benefits reflective of merit and performance-driven incentive accruals.
On May 1, 2025, Old National completed its acquisition of Bremer, and its wholly owned banking subsidiary, Bremer Bank, National Association. The majority of system conversions related to the Bremer transaction were completed in mid-October 2025. The successful execution of this conversion reinforced the strength of our disciplined integration framework and enhanced our operating platform across the expanded footprint.
BUSINESS OUTLOOK
Driving tangible book value per share growth remains a key priority in 2026 as we build on the 15% growth achieved in 2025 despite the impact of closing our Bremer partnership, the associated merger-related charges, and the repurchase of 2.2 million shares in the second half of the year. We closed 2025 with 5% loan growth excluding our Bremer partnership and move into 2026 with a strong commercial pipeline and a loan-to-deposit ratio of 89%, providing sufficient liquidity to fund growth. We will remain on offense and rely on our ability to navigate changes in short-term interest rates, shifts in the yield curve, and overall economic conditions as we have for the past 190 years.
Looking ahead to 2026, we remain focused on disciplined organic growth, prudent capital deployment, and continued investment in talent, technology, and client‑facing capabilities. Our proven ability to execute on these strategic priorities will support sustainable performance, maintain strong credit quality, and position the Company for long‑term value creation across economic cycles for our shareholders and communities.
FINANCIAL HIGHLIGHTS
The following table sets forth certain financial highlights of Old National for the previous five quarters:
Three Months Ended
(dollars and shares in thousands,
except per share data)
December 31,
September 30,
June 30,
March 31,
December 31,
Income Statement:
Net interest income
Taxable equivalent adjustment (1) (3)
Net interest income – taxable equivalent basis (3)
Provision for credit losses
Noninterest income
Noninterest expense
Net income available to common shareholders
Per Common Share Data:
Weighted average diluted common shares
Net income (diluted)
Cash dividends
Common dividend payout ratio (2)
Book value
Stock price
Tangible common book value (3)
Performance Ratios:
Return on average assets
Return on average common equity
Return on average tangible common equity (3)
Net interest margin (3)
Efficiency ratio (3)
Net charge-offs to average loans
Allowance for credit losses on loans to ending loans
Allowance for credit losses (4) to ending loans
Non-performing loans to ending loans
Balance Sheet:
Total loans
Total assets
Total deposits
Total borrowed funds
Total shareholders’ equity
Capital Ratios:
Risk-based capital ratios:
Tier 1 common equity
Tier 1
Total
Leverage ratio (to average assets)
Total equity to assets (averages)
Tangible common equity to tangible assets (3)
Nonfinancial Data:
Full-time equivalent employees
Banking centers
(1) Calculated using the federal statutory tax rate in effect of 21% for all periods.
(2) Cash dividends per common share divided by net income per common share (basic).
(3) Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for reconciliations to GAAP financial measures.
(4) Includes the allowance for credit losses on loans and unfunded loan commitments.
The following table sets forth certain financial highlights of Old National for the year-to-date periods:
Years Ended December 31,
(dollars and shares in thousands, except per share data)
Income Statement:
Net interest income
Taxable equivalent adjustment (1) (3)
Net interest income – taxable equivalent basis (3)
Provision for credit losses
Noninterest income
Noninterest expense
Net income available to common shareholders
Per Common Share Data:
Weighted average diluted common shares
Net income (diluted)
Cash dividends
Common dividend payout ratio (2)
Book value
Stock price
Tangible common book value (3)
Performance Ratios:
Return on average assets
Return on average common equity
Return on average tangible common equity (3)
Net interest margin (3)
Efficiency ratio (3)
Net charge-offs to average loans
Allowance for credit losses on loans to ending loans
Allowance for credit losses (4) to ending loans
Non-performing loans to ending loans
Balance Sheet:
Total loans
Total assets
Total deposits
Total borrowed funds
Total shareholders’ equity
Capital Ratios:
Risk-based capital ratios:
Tier 1 common equity
Tier 1
Total
Leverage ratio (to average assets)
Total equity to assets (averages)
Tangible common equity to tangible assets (3)
Nonfinancial Data:
Full-time equivalent employees
Banking centers
(1) Calculated using the federal statutory tax rate in effect of 21% for all periods.
(2) Cash dividends per common share divided by net income per common share (basic).
(3) Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for reconciliations to GAAP financial measures.
(4) Includes the allowance for credit losses on loans and unfunded loan commitments.
NON-GAAP FINANCIAL MEASURES
The Company’s accounting and reporting policies conform to 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 users of the financial information 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 following table.
The Company presents net income per common share and net income applicable to common shares, adjusted for certain notable items. These items include merger-related charges associated with completed and pending acquisitions, pension plan gain/loss, FDIC special assessment expense, CECL Day 1 non-PCD provision expense, debt securities gains/losses, distribution of excess pension assets expense, and separation expense. Management believes excluding these items from net income per common share and net income applicable to common shares 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 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 taxable 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 users of the financial information, 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 shareholders’ equity and retain the effect of AOCI in shareholders’ equity.
Although intended to enhance 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.
The following table presents GAAP to non-GAAP reconciliations for the previous five quarters:
Three Months Ended
(dollars and shares in thousands,
except per share data)
December 31,
September 30,
June 30,
March 31,
December 31,
Net income per common share:
Net income applicable to common shares
Adjustments:
Merger-related charges
Pension plan (gain) loss
FDIC special assessment
Debt securities (gains) losses
CECL Day 1 non-PCD provision expense
Less: tax effect on net total adjustments (2)
Net income applicable to common shares, adjusted (1)
Weighted average diluted common shares outstanding
Net income per common share, diluted
Adjusted net income per common share, diluted (1)
Tangible common book value:
Shareholders’ common equity
Deduct: Goodwill and intangible assets
Tangible shareholders’ common equity (1)
Period end common shares
Tangible common book value (1)
Return on average tangible common equity:
Net income applicable to common shares
Add: Intangible amortization (net of tax) (2)
Tangible net income (1)
Average shareholders’ common equity
Deduct: Average goodwill and intangible assets
Average tangible shareholders’ common equity (1)
Return on average tangible common equity (1)
Net interest margin:
Net interest income
Taxable equivalent adjustment
Net interest income – taxable equivalent basis (1)
Average earning assets
Net interest margin (1)
Efficiency ratio:
Noninterest expense
Deduct: Intangible amortization expense
Adjusted noninterest expense (1)
Net interest income – taxable equivalent basis (1)
(see above)
Noninterest income
Deduct: Debt securities gains (losses), net
Adjusted total revenue (1)
Efficiency ratio (1)
Tangible common equity to tangible assets:
Tangible shareholders’ equity (1) (see above)
Assets
Deduct: Goodwill and intangible assets
Tangible assets (1)
Tangible common equity to tangible assets (1)
(1) Represents a non-GAAP financial measure.
(2) Calculated using management’s estimate of the annual fully taxable equivalent rates (federal and state).
The following table presents GAAP to non-GAAP reconciliations for the year-to-date periods:
Years Ended December 31,
(dollars and shares in thousands, except per share data)
Net income per common share:
Net income applicable to common shares
Adjustments:
Merger-related charges
CECL Day 1 non-PCD provision expense
Pension plan (gain) loss
FDIC special assessment
Debt securities (gains) losses
Distribution of excess pension assets expense
Separation expense
Less: tax effect on net total adjustments (2)
Net income applicable to common shares, adjusted (1)
Weighted average diluted common shares outstanding
Net income per common share, diluted
Adjusted net income per common share, diluted (1)
Tangible common book value:
Shareholders’ common equity
Deduct: Goodwill and intangible assets
Tangible shareholders’ common equity (1)
Period end common shares
Tangible common book value (1)
Return on average tangible common equity:
Net income applicable to common shares
Add: Intangible amortization (net of tax) (2)
Tangible net income (1)
Average shareholders’ common equity
Deduct: Average goodwill and intangible assets
Average tangible shareholders’ common equity (1)
Return on average tangible common equity (1)
Net interest margin:
Net interest income
Taxable equivalent adjustment
Net interest income – taxable equivalent basis (1)
Average earning assets
Net interest margin (1)
Efficiency ratio:
Noninterest expense
Deduct: Intangible amortization expense
Adjusted noninterest expense (1)
Net interest income – taxable equivalent basis (1) (see above)
Noninterest income
Deduct: Debt securities gains (losses), net
Adjusted total revenue (1)
Efficiency ratio (1)
Tangible common equity to tangible assets:
Tangible shareholders’ equity (1) (see above)
Assets
Deduct: Goodwill and intangible assets
Tangible assets (1)
Tangible common equity to tangible assets (1)
(1) Represents a non-GAAP financial measure.
(2) Calculated using management’s estimate of the annual fully taxable equivalent rates (federal and state).
RESULTS OF OPERATIONS
The following table sets forth certain income statement information of Old National:
Years Ended December 31,
(dollars in thousands, except per share data)
Income Statement Summary:
Net interest income
Provision for credit losses
Noninterest income
Noninterest expense
Net income applicable to common shareholders
Net income per common share – diluted
Other Data:
Return on average common equity
Return on average tangible common equity (1)
Efficiency ratio (1)
Tier 1 leverage ratio
Net charge-offs to average loans
(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 82% of 2025 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 2025. The Federal Reserve’s Federal Funds range is currently in a target range of 3.50% to 3.75%, with the Effective Federal Funds Rate at 3.64% at December 31, 2025, and 4.33% at December 31, 2024. 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.
(Taxable equivalent basis,
dollars in thousands)
Average
Balance
Income (1) /
Expense
Yield/
Rate
Average
Balance
Income (1) /
Expense
Yield/
Rate
Average
Balance
Income (1) /
Expense
Yield/
Rate
Earning Assets
Money market and other interest-
earning investments
Investment securities:
Treasury and government-
sponsored agencies
Mortgage-backed securities
States and political subdivisions
Other securities
Total investment securities
Loans: (2)
Commercial
Commercial real estate
Residential real estate loans
Consumer
Total loans
Total earning assets
Deduct: Allowance for credit losses
on loans
Non-Earning Assets
Cash and due from banks
Other assets
Total assets
Interest-Bearing Liabilities
Checking and NOW accounts
Savings accounts
Money market accounts
Time deposits, excluding brokered
deposits
Brokered deposits
Total interest-bearing deposits
Federal funds purchased and
interbank borrowings
Securities sold under agreements
to repurchase
FHLB advances
Other borrowings
Total borrowed funds
Total interest-bearing liabilities
Noninterest-Bearing Liabilities
and Shareholders’ Equity
Demand deposits
Other liabilities
Shareholders’ equity
Total liabilities and shareholders’
equity
Net interest income - taxable
equivalent basis
Taxable equivalent adjustment
Net interest income (GAAP)
(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.
From 2024 to 2025
From 2023 to 2024
Total
Attributed to
Total
Attributed to
(dollars in thousands)
Change (1)
Volume
Rate
Change (1)
Volume
Rate
Interest Income
Money market and other interest-earning
investments
Investment securities (2)
Loans (3)
Total interest income
Interest Expense
Checking and NOW deposits
Savings deposits
Money market deposits
Time deposits, excluding brokered
deposits
Brokered deposits
Federal funds purchased and interbank
borrowings
Securities sold under agreements to
repurchase
Federal Home Loan Bank advances
Other borrowings
Total interest expense
Net interest income - taxable equivalent
basis
(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 $10.5 million in 2025, $11.1 million in 2024, and $11.5 million in 2023; using the federal statutory tax rate in effect of 21%.
(3) Interest on loans includes the effect of taxable equivalent adjustments of $17.9 million in 2025, $13.4 million in 2024, and $11.9 million, in 2023; using the federal statutory tax rate in effect of 21%.
Net interest income in 2025 increased compared to 2024 driven by the acquisition of Bremer as well as strong loan growth, and lower costs of average interest-bearing liabilities, partially offset by higher balances of average interest-bearing liabilities.
The increase in the net interest margin on a fully taxable equivalent basis in 2025 when compared to 2024 was primarily due to the impact of Bremer, loan growth, and lower costs of average interest-bearing liabilities, partially offset by higher balances of average interest-bearing liabilities. The yield on average earning assets was 5.59% in both 2024 and 2025 and the cost of interest-bearing liabilities decreased 29 basis points from 2.98% in 2024 to 2.69% in 2025. Average earning assets increased by $12.0 billion, or 26%, reflecting an $8.7 billion increase in average loans and a $3.0 billion increase in average investment securities. Average interest-bearing liabilities increased $9.2 billion, or 26%, reflecting an $8.1 billion increase in average interest-bearing deposits and a $1.1 billion increase in average borrowed funds. Average noninterest-bearing deposits increased by $2.3 billion.
The increase in average earning assets in 2025 compared to 2024 was primarily due to Bremer loans and securities acquired 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 75% of average interest earning assets in 2025, compared to 76% in 2024.
Average loans, including loans held-for-sale, increased $8.7 billion in 2025 compared to 2024 primarily due to Bremer loans acquired as well as strong commercial loan growth. Loans acquired in the Bremer transaction totaled $11.1 billion at transaction close.
Average non-interest-bearing deposits increased $2.3 billion in 2025 compared to 2024 while average interest-bearing deposits increased $8.1 billion reflecting Bremer deposits assumed and organic growth. Deposits assumed in the Bremer transaction totaled $12.9 billion at the close of the transaction.
Provision for Credit Losses
The following table details the components of provision for credit losses:
Years Ended December 31,
% Change From
Prior Year
(dollars in thousands)
Provision for credit losses on loans
Provision (release) for credit losses on
unfunded loan commitments
Total provision for credit losses
Net (charge-offs) recoveries on non-PCD
loans
Net (charge-offs) recoveries on PCD
loans
Total net (charge-offs) recoveries on
loans
Net charge-offs (recoveries) to average loans
Total provision for credit losses increased $87.1 million in 2025 compared to 2024 primarily due to credit migration, net charge-offs, and macroeconomic factors. In addition, the provision for credit losses on loans in 2025 included $75.6 million to establish an allowance for credit losses on non-PCD Bremer loans and unfunded loan commitments acquired. 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 18% in 2025 compared to 19% in 2024.
The following table details the components of noninterest income:
Years Ended December 31,
% Change From
Prior Year
(dollars in thousands)
Wealth and investment services fees
Service charges on deposit accounts
Debit card and ATM fees
Mortgage banking revenue
Capital markets income
Company-owned life insurance
Debt securities gains (losses), net
Gain on sale of Visa Class B restricted shares
Other income
Total noninterest income
Noninterest income in 2025 included a $5.1 million net gain associated with the freezing of the benefits of the Bremer pension plan and subsequent termination of the plan. Excluding this gain, noninterest income increased $106.7 million compared to 2024 driven by the acquisition of Bremer in May 2025, the CapStar acquisition in April 2024, organic growth of fee-based businesses, and higher other income.
Mortgage banking revenue increased $12.2 million in 2025 compared to 2024 primarily due to higher mortgage originations, increased loan sales, and the Bremer partnership.
Capital markets income increased $17.0 million in 2025 compared to 2024 primarily due to higher levels of commercial real estate client interest rate swap fees and the Bremer partnership.
Other income increased $21.3 million in 2025 compared to 2024 primarily due to additional other income associated with the acquisitions of Bremer and CapStar, the $5.1 million net gain associated with the freezing of the benefits of the Bremer pension plan and subsequent termination of the plan, and $4.2 million of net gains on sales of commercial loans.
Noninterest Expense
The following table details the components of noninterest expense:
Years Ended December 31,
% Change From
Prior Year
(dollars in thousands)
Salaries and employee benefits
Occupancy
Equipment
Marketing
Technology
Communication
Professional fees
FDIC assessment
Amortization of intangibles
Amortization of tax credit investments
Other expense
Total noninterest expense
Noninterest expense in 2025 included $140.9 million of merger-related expenses and a $3.0 million reduction to a previously accrued FDIC special assessment. 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 an FDIC special assessment, and $2.6 million of separation expense. Excluding these expenses, noninterest expense increased to $1.3 billion in 2025 compared to $1.0 billion in 2024. This increase was driven by operating costs and additional amortization of intangibles related to the acquisitions of Bremer and CapStar, as well as higher salary and employee benefits reflective of merit and performance-driven incentive accruals.
Amortization of tax credit investments increased $12.8 million in 2025 compared to 2024 primarily due to additional amortization related to the Bremer acquisition. In addition, the recognition of tax credit amortization expense is contingent upon the successful completion of the rehabilitation of a historic building or completion of a solar project within the reporting period. Many factors including weather, labor availability, building regulations, inspections, and other unexpected construction delays related to a rehabilitation project can cause a project to exceed its estimated completion date. See Note 9 to the consolidated financial statements for additional information on our tax credit investments.
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 20.5% in 2025 compared to 20.8% in 2024. See Note 15 to the consolidated financial statements for additional details on Old National’s income tax provision.
FINANCIAL CONDITION
Overview
At December 31, 2025, our assets were $72.2 billion, an $18.6 billion increase compared to $53.6 billion at December 31, 2024. The increase was driven primarily by the acquisition of Bremer and organic growth.
Earning Assets
Our earning assets are comprised of investment securities, portfolio loans, loans held-for-sale, money market investments, interest-earning accounts with the Federal Reserve, and equity securities. End of period earning assets were $65.0 billion at December 31, 2025, an increase of $16.9 billion compared to earning assets of $48.0 billion at December 31, 2024.
Investment Securities
We classify the majority of our investment securities as available-for-sale to give management the flexibility to sell the securities prior to maturity based on fluctuating interest rates or changes in our funding requirements.
The investment securities portfolio, including equity securities, was $14.9 billion at December 31, 2025, compared to $10.9 billion at December 31, 2024. The increase was driven primarily by the acquisition of Bremer. Investment securities represented 23% of end of period earning assets at both December 31, 2025 and December 31, 2024. At December 31, 2025, we had no intent to sell any securities that were in an unrealized loss position nor is it expected that we would be required to sell the securities prior to their anticipated recovery.
The investment securities available-for-sale portfolio had net unrealized losses of $570.4 million and $890.5 million at December 31, 2025 and December 31, 2024, respectively. The investment securities held-to-maturity portfolio had net unrealized losses of $355.3 million and $483.7 million at December 31, 2025 and December 31, 2024, respectively.
The investment securities available-for-sale portfolio including securities hedges had an effective duration of 3.80 at December 31, 2025, compared to 4.11 at December 31, 2024. The total investment securities portfolio had an effective duration of 4.51 at December 31, 2025, compared to 5.09 at December 31, 2024. Effective duration represents the percentage change in the fair value of the portfolio in response to a change in interest rates and is used to evaluate the portfolio’s price volatility at a single point in time. Generally, there is more uncertainty in interest rates over a longer average maturity, resulting in a higher duration percentage. The weighted average yields on investment securities, on a taxable equivalent basis, were 4.01% in 2025 and 3.57% in 2024.
Loan Portfolio
We lend to consumer and commercial clients in many diverse industries including real estate rental and leasing, manufacturing, healthcare, wholesale trade, construction, and agriculture, among others. Old National manages concentrations of credit exposure by industry, product, geography, client relationship, and loan size.
The following table presents the composition of the loan portfolio at December 31.
(dollars in thousands)
$ Change
% Change
Commercial
Commercial real estate
Residential real estate
Consumer
Total loans
Allowance for credit losses on loans
Net loans
The following table presents the contractual maturity distribution and rate sensitivity of loans at December 31, 2025 and an analysis of these loans that have fixed and floating interest rates. The table does not take into account repricing or other forecast assumptions.
(dollars in thousands)
Within
1 Year
After 1 - 5
Years
After 5 - 15
Years
After
15 Years
Total
Total
Commercial
Interest rates:
Fixed
Floating
Total
Commercial Real Estate
Interest rates:
Fixed
Floating
Total
Residential Real Estate
Interest rates:
Fixed
Floating
Total
Consumer
Interest rates:
Fixed
Floating
Total
The following table presents the composition of the loan portfolio by state:
(dollars in thousands)
Commercial
Commercial
Real Estate
Residential
Real Estate
Consumer
Total
Loans
Percent of
Total
December 31, 2025
Minnesota
Illinois
Indiana
Wisconsin
Michigan
Tennessee
North Dakota
Kentucky
Texas
Florida
Ohio
California
Other
Total
Geographic location in the preceding table is determined by collateral location for real estate loans and borrower location for non-real estate loans.
Commercial and Commercial Real Estate Loans
Commercial and commercial real estate loans are the largest classifications within earning assets, representing 57% at December 31, 2025, compared to 55% at December 31, 2024. At December 31, 2025, commercial and commercial real estate loans were $37.0 billion, an increase of $10.4 billion compared to December 31, 2024 driven primarily by the acquisition of Bremer, as well as disciplined commercial loan production that was well balanced across our market footprint and product lines, partly offset by the sale of $71 million of commercial real estate loans in 2025.
The following table provides detail on commercial loans by industry classification (as defined by the North American Industry Classification System) and by loan size at December 31.
(dollars in thousands)
Outstanding
Exposure (1)
Nonaccrual
Outstanding
Exposure (1)
Nonaccrual
By Industry:
Health care and social assistance
Manufacturing
Real estate rental and leasing
Accommodation and food services
Construction
Wholesale trade
Professional, scientific, and
technical services
Agriculture, forestry, fishing,
and hunting
Finance and insurance
Retail trade
Transportation and warehousing
Administrative and support and
waste management and
remediation services
Public administration
Educational services
Other services
Other
Total
By Loan Size:
Less than $200,000
Greater than $25,000,000
Total
(1) Includes unfunded loan commitments.
The following table provides detail on commercial real estate loans classified by property type at December 31.
(dollars in thousands)
Outstanding
Exposure (1)
Nonaccrual
Outstanding
Exposure (1)
Nonaccrual
By Property Type:
Multifamily
Warehouse / Industrial
Retail
Office
Senior housing
Single family
Other (2)
Total
(1) Includes unfunded loan commitments.
(2) Other includes commercial development, agriculture real estate, hotels, self-storage, land development, religion, and mixed-use properties.
The mix of properties securing the loans in our commercial real estate portfolio is comprised of owner-occupied and non-owner-occupied categories and is diverse in terms of type and geographic location, generally within the Company’s primary market area. Approximately 29% of the commercial real estate portfolio is owner-occupied as of December 31, 2025, compared to 27% at December 31, 2024.
The Company actively reviews its broader loan portfolio in the normal course of business and has performed a targeted review of contractual maturities in its non-owner-occupied commercial real estate portfolio as part of its response to current market conditions to identify exposure to credit risk associated with renewals. At December 31, 2025, the Company held $827.6 million of non-owner-occupied commercial real estate, or 2% of total loans, that mature within 18 months with an interest rate below 4%.
Residential Real Estate Loans
Residential real estate loans held in our portfolio increased $1.7 billion to $8.5 billion at December 31, 2025, compared to December 31, 2024 driven primarily by the acquisition of Bremer and organic growth. Changes in interest rates may impact the number of refinancings and new originations of residential real estate loans. If interest rates decrease in the future, there may be an increase in refinancings and new originations of residential real estate loans. Conversely, future increases in interest rates may result in a decline in the level of refinancings and new originations of residential real estate loans.
Consumer Loans
Consumer loans, including automobile loans, personal, and home equity loans and lines of credit, increased $370.5 million to $3.3 billion at December 31, 2025 compared to December 31, 2024 driven primarily by the acquisition of Bremer and organic growth.
Allowance for Credit Losses on Loans and Unfunded Loan Commitments
At December 31, 2025, the allowance for credit losses on loans was $569.5 million, compared to $392.5 million at December 31, 2024. The increase reflects $103.5 million of allowance for credit losses on acquired PCD loans established through acquisition accounting adjustments on or after the Bremer acquisition date. In addition, the provision for credit losses on loans in 2025 included $69.1 million to establish an allowance for credit losses on non-PCD Bremer loans acquired. 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.
We maintain an allowance for credit losses on unfunded loan commitments to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses on loans, modified to take into account the probability of a drawdown on the commitment. The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet within accrued expenses and other liabilities, while the corresponding provision for unfunded loan commitments is included in the provision for credit losses. The allowance for credit losses on unfunded loan commitments totaled $35.6 million at December 31, 2025, compared to $21.7 million at December 31, 2024. We increased the allowance for credit losses on unfunded loan commitments by $6.5 million in 2025 as a result of Bremer loan commitments acquired.
Additional information about our Allowance for Credit Losses is included in the “Risk Management – Credit Risk” section of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes 1 and 4 to the consolidated financial statements.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets at December 31, 2025 totaled $2.9 billion, an increase of $611.9 million compared to December 31, 2024 as a result of goodwill and other intangible assets recorded with the acquisition of Bremer.
Other Assets
Other assets at December 31, 2025 increased $758.5 million compared to December 31, 2024 reflecting Bremer other assets acquired and higher investments in partnerships, limited liability companies, and other ownership interests that support affordable housing.
Funding
The following table summarizes Old National’s total funding, comprised of deposits and wholesale borrowings at December 31:
(dollars in thousands)
$ Change
% Change
Deposits:
Noninterest-bearing demand
Interest-bearing:
Checking and NOW
Savings
Money market
Time deposits
Total deposits
Wholesale borrowings:
Federal funds purchased and interbank borrowings
Securities sold under agreements to repurchase
Federal Home Loan Bank advances
Other borrowings
Total wholesale borrowings
Total funding
The increase in total deposits was due to Bremer deposits assumed and organic growth. We use wholesale funding to augment deposit funding and to help maintain our desired interest rate risk position. Wholesale funding as a percentage of total funding was 12% at both December 31, 2025 and December 31, 2024. See Notes 11, 12, and 13 to the consolidated financial statements for additional details on our financing activities.
At December 31, 2025, time deposits in excess of the FDIC insurance limit and estimated time deposits that are otherwise uninsured by maturity were as follows:
(dollars in thousands)
Individual
Instruments in
Denominations that
Meet or Exceed the
FDIC Insurance
Limit
Estimated Aggregate
Time Deposits that
Meet or Exceed the
FDIC Insurance
Limit and Otherwise
Uninsured Time
Deposits
Three months or less
Over three through six months
Over six through 12 months
Over 12 months
Total
At December 31, 2025, the estimated amount of FDIC uninsured deposits for regulatory purposes was $23.7 billion.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities at December 31, 2025 increased $140.8 million compared to December 31, 2024 primarily due to the Bremer acquisition.
Capital
Shareholders’ equity totaled $8.5 billion, or 12% of total assets, at December 31, 2025 and $6.3 billion, or 12% of total assets, at December 31, 2024. Old National issued 50.2 million shares of Common Stock in conjunction with
the acquisition of Bremer on May 1, 2025 adding $1.0 billion in shareholders’ equity. In addition, Old National issued 21.9 million shares of Common Stock in the settlement of the forward sale agreements adding $443.2 million in shareholders’ equity. Retained earnings and changes in unrealized losses on available-for-sale investment securities also contributed to the increase in shareholders’ equity during 2025. These increases were partially offset by dividends and the repurchase of 2.2 million shares of Common Stock during 2025 under a share repurchase plan that was approved by the Company’s Board of Directors in the first quarter of 2025, which reduced equity by $50.0 million. As of December 31, 2025, Old National had remaining authorization to repurchase up to $150.0 million of its outstanding Common Stock through February 28, 2026 . Old National’s Common Stock is traded on the NASDAQ under the symbol “ONB” with 76,618 shareholders of record at December 31, 2025.
Capital Adequacy
Old National and the banking industry are subject to various regulatory capital requirements administered by the federal banking agencies. Management routinely analyzes Old National’s capital to ensure an optimized capital structure. Accordingly, such evaluations may result in Old National taking a capital action. For additional information on capital adequacy see Note 21 to the consolidated financial statements.
Management views stress testing as an integral part of the Company’s risk management and strategic planning activities. Old National performs stress testing periodically throughout the year. The primary objective of the stress testing is to ensure that Old National has a robust, forward-looking stress testing process and maintains sufficient capital to continue operations throughout times of economic and financial stress. Management also uses the stress testing framework to evaluate decisions relating to pricing, loan concentrations, capital deployment, and mergers and acquisitions to ensure that strategic decisions align with Old National’s risk appetite statement. Old National’s stress testing process incorporates key risks that include strategic, market, liquidity, credit, operational, information security and technology, talent management, and compliance/regulatory/legal risks. Old National’s stress testing policy outlines steps that will be taken if stress test results do not meet internal thresholds under severely economic scenarios.
RISK MANAGEMENT
Overview
Old National has adopted a Risk Appetite Statement to enable our Board of Directors, Enterprise Risk Committee of our Board, Executive Leadership Team, and Senior Management to better assess, understand, monitor, and mitigate Old National’s risks. The Risk Appetite Statement addresses the following major risks: strategic, market, liquidity, credit, operational, information security and technology, talent management, and compliance/regulatory/legal. Our Chief Risk Officer provides quarterly reports to the Board’s Enterprise Risk Committee on various risk topics. The following discussion addresses certain of these major risks including credit, market, and liquidity. Discussion of strategic, talent management, operational, information security and technology, and compliance/regulatory/legal risks is provided in the section entitled “Risk Factors” in Item 1A of this Form 10-K.
Credit Risk
Credit risk represents the risk of loss arising from an obligor’s inability or failure to meet contractual payment or performance terms. Our primary credit risks result from our investment and lending activities.
Investment Activities
All of our mortgage-backed securities are backed by U.S. government-sponsored or federal agencies. Municipal bonds, corporate bonds, and other debt securities are evaluated by reviewing the credit-worthiness of the issuer and general market conditions. See Note 3 to the consolidated financial statements for additional details about our investment security portfolio.
Counterparty Exposure
Counterparty exposure is the risk that the other party in a financial transaction will not fulfill its obligation. We define counterparty exposure as nonperformance risk in transactions involving federal funds sold and purchased, repurchase agreements, correspondent bank relationships, and derivative contracts with companies in the financial services industry. Old National manages exposure to counterparty risk in connection with its derivatives transactions by generally engaging in transactions with counterparties having ratings of at least “A” by Standard & Poor’s Rating Service or “A2” by Moody’s Investors Service. There are provisions in our agreements with the counterparties that
allow for certain unsecured credit exposure up to an agreed threshold. Exposures in excess of the agreed thresholds are collateralized. Total credit exposure is monitored by counterparty and managed within limits that management believes to be prudent. Old National’s net counterparty exposure was an asset of $48.9 million at December 31, 2025.
Lending Activities
Commercial
Commercial and industrial loans are made primarily for the purpose of financing equipment acquisition, borrower expansion, working capital, and other general business purposes. Lease financing consists of direct financing leases and is used by commercial clients to finance capital purchases ranging from computer equipment to transportation equipment. The credit decisions for these transactions are based upon an assessment of the overall financial capacity of the applicant. A determination is made as to the applicant’s ability to repay in accordance with the proposed terms as well as an overall assessment of the risks involved. In addition to an evaluation of the applicant’s financial condition, a determination is made of the probable adequacy of the primary and secondary sources of repayment, such as additional collateral or personal guarantees, to be relied upon in the transaction. Credit agency reports of the applicant’s credit history supplement the analysis of the applicant’s creditworthiness.
Commercial mortgages and construction loans are offered to real estate investors, developers, and builders primarily domiciled in the geographic Midwest and Southeast market areas we serve. These loans are secured by first mortgages on real estate at LTV margins deemed appropriate for the property type, quality, location, and sponsorship. Generally, these LTV ratios do not exceed 80%, although higher levels may be permitted with additional non-real estate collateral, increased guaranties, accelerated amortization, or other mitigating factors. The commercial properties are predominantly multi-family and non-residential properties such as retail centers, industrial properties as well as, to a lesser extent, more specialized properties. Substantially all of our commercial real estate loans are secured by properties located in our primary market area.
In the underwriting of our commercial real estate loans, we obtain appraisals for the underlying properties. Decisions to lend are based on the economic viability of the property and the creditworthiness of the borrower. In evaluating a proposed commercial real estate loan, we primarily emphasize the ratio of the property’s projected net cash flows to the loan’s debt service requirement. The debt service coverage ratio normally is not less than 120% and it is computed after deduction for a vacancy factor and property expenses as appropriate. In addition, a personal guarantee of the loan or a portion thereof is often required from the principal(s) of the borrower. In most cases, we require title insurance insuring the priority of our lien, fire and extended coverage casualty insurance, and flood insurance, if appropriate, in order to protect our security interest in the underlying property. In addition, business interruption insurance or other insurance may be required.
Construction loans are underwritten against projected cash flows derived from rental income, business income from an owner-occupant, or the sale of the property to an end-user. We may mitigate the risks associated with these types of loans by requiring fixed-price construction contracts, performance and payment bonding, controlled disbursements, and pre-sale contracts or pre-lease agreements.
Consumer
We offer a variety of first mortgage and junior lien loans to consumers within our markets, with residential home mortgages comprising our largest consumer loan category. These loans are secured by a primary residence and are underwritten using traditional underwriting systems to assess the credit risks of the consumer. Decisions are primarily based on LTV ratios, DTI ratios, liquidity, and credit scores. A maximum LTV ratio of 90% is generally required, although higher levels may be permitted with mortgage insurance or other mitigating factors. We offer fixed rate mortgages and variable rate mortgages with interest rates that are subject to change every year after the first, third, fifth, or seventh year, depending on the product and are based on indexed rates such as prime. We do not offer payment-option facilities, sub-prime loans, or any product with negative amortization.
Home equity loans are secured primarily by second mortgages on residential property of the borrower. The underwriting terms for the home equity product generally permit borrowing availability, in the aggregate, up to 90% of the appraised value of the collateral property at the time of origination. We offer fixed and variable rate home equity loans, with variable rate loans underwritten at fully-indexed rates. Decisions are primarily based on LTV ratios, DTI ratios, and credit scores. We do not offer home equity loan products with reduced documentation.
Automobile loans include loans and leases secured by new or used automobiles. We originate automobile loans and leases primarily on an indirect basis through selected dealerships. We require borrowers to maintain collision insurance on automobiles securing consumer loans, with us listed as loss payee. Our procedures for underwriting automobile loans include an assessment of an applicant’s overall financial capacity, including credit history and the ability to meet existing obligations and payments on the proposed loan. Although an applicant’s creditworthiness is the primary consideration, the underwriting process also includes a comparison of the value of the collateral security to the proposed loan amount.
Asset Quality
Community-based lending personnel, along with region-based independent underwriting and analytic support staff, extend credit under guidelines established and administered by management and overseen by our Enterprise Risk Committee. This committee, which meets quarterly, is made up of independent outside directors. The committee monitors credit quality through its general review of information such as delinquencies, credit exposures, peer comparisons, problem loans, and charge-offs. In addition, the committee provides oversight of loan policy changes as recommended by management with the objective of maintaining an appropriate lending policy for the current lending environment.
We lend to consumer and commercial clients in many diverse industries including, among others, real estate rental and leasing, manufacturing, healthcare, wholesale trade, construction, and agriculture. Old National manages concentrations of credit exposure by industry, product, geography, client relationship, and loan size. At December 31, 2025, our average commercial loan size was approximately $771,000 and our average commercial real estate loan size was approximately $1,486,000. At December 31, 2025, we had minimal exposure to foreign borrowers and no sovereign debt. Our policy is to concentrate our lending activity in the geographic market areas we serve, primarily in the Midwest and Southeast regions of the United States.
The following table presents a summary of under-performing assets as well as criticized and classified assets at December 31:
(dollars in thousands)
Nonaccrual loans
Past due loans (90 days or more and still accruing)
Foreclosed assets
Total under-performing assets
Classified loans (includes nonaccrual, past due 90 days
or more, and other problem loans)
Other classified assets (1)
Special mention loans
Total criticized and classified assets
Asset Quality Ratios:
Nonaccrual loans/total loans (2)
Under-performing assets/total loans (2)
Under-performing assets/total assets
Allowance for credit losses on loans/under-performing assets
Allowance for credit losses on loans/nonaccrual loans
(1) Includes investment securities that fell below investment grade rating.
(2) Loans exclude loans held-for-sale.
Under-performing assets increased to $530.2 million at December 31, 2025, compared to $456.3 million at December 31, 2024 primarily due to the Bremer acquisition. Under-performing assets as a percentage of total loans were 1.09% at December 31, 2025, compared to 1.26% at December 31, 2024.
Nonaccrual loans increased $73.3 million from December 31, 2024 to December 31, 2025 primarily due to loans acquired in the Bremer acquisition. As a percentage of nonaccrual loans, the allowance for credit losses on loans was 109.26% at December 31, 2025, compared to 87.62% at December 31, 2024.
If nonaccrual and renegotiated loans outstanding at December 31, 2025 and 2024, respectively, had been accruing interest throughout the year in accordance with their original terms, interest income of approximately $31.7 million in 2025 and $20.4 million in 2024 would have been recorded on these loans. The amount of interest income actually recorded on nonaccrual and renegotiated loans was $12.4 million in 2025 and $12.1 million in 2024.
Total criticized and classified assets were $3.1 billion at December 31, 2025, an increase of $616.6 million from December 31, 2024 primarily due to $1.0 billion of criticized and classified loans related to the Bremer acquisition, partially offset by a continued focus on active portfolio management. Other classified assets include investment securities that fell below investment grade rating totaling $20.6 million at December 31, 2025, compared to $59.0 million at December 31, 2024.
Allowance for Credit Losses on Loans and Unfunded Loan Commitments
Credit quality within the loans held for investment portfolio is continuously monitored by management and is reflected within the allowance for credit losses on loans. The allowance for credit losses is an estimate of expected losses inherent within the Company’s loans held for investment portfolio. Credit quality is assessed and monitored by evaluating various attributes and the results of those evaluations are utilized in underwriting new loans and in our process for estimating expected credit losses. Expected credit loss inherent in non-cancelable off-balance-sheet credit exposures (unfunded loan commitments) is accounted for as a separate liability included in other liabilities on the balance sheet. The allowance for credit losses on loans held for investment and unfunded loan commitments is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries. Accrued interest receivable is excluded from the estimate of credit losses.
The allowance for credit loss estimation process involves procedures to consider the unique characteristics of our loan portfolio segments. These segments are further disaggregated into loan classes based on the level at which credit risk of the loan is monitored. When computing the level of expected credit losses, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods.
The allowance level is influenced by loan volumes, loan AQR migration or delinquency status, changes in historical loss experience, and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses on loans has two basic components: first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans; and second, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics.
The loan categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses on loans. The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. The four loan portfolios used to monitor and analyze interest income and yields – commercial, commercial real estate, residential real estate, and consumer – are reclassified into seven segments of loans – commercial, commercial real estate, BBCC, residential real estate, indirect, direct, and home equity for purposes of determining the allowance for credit losses on loans. The commercial and commercial real estate loan categories shown on the balance sheet include the same pool of loans as the commercial, commercial real estate, and BBCC portfolio segments. The consumer loan category shown on the balance sheet is comprised of the same loans in the indirect, direct, and home equity portfolio segments. The portfolio segment reclassifications follow:
Statement
Balance
Portfolio
Segment
Reclassifications
Portfolio
Segment After
Reclassifications
(dollars in thousands)
December 31, 2025
Commercial
Commercial real estate
BBCC
Residential real estate
Consumer
Indirect
Direct
Home equity
Total
December 31, 2024
Commercial
Commercial real estate
BBCC
Residential real estate
Consumer
Indirect
Direct
Home equity
Total
The following table details activity in our allowance for credit losses on loans for the years ended December 31:
(dollars in thousands)
Beginning allowance for credit losses on loans
Allowance established for acquired PCD loans
Loans charged-off:
Commercial
Commercial real estate
BBCC
Residential real estate
Indirect
Direct
Home equity
Total charge-offs
Recoveries on charged-off loans:
Commercial
Commercial real estate
BBCC
Residential real estate
Indirect
Direct
Home equity
Total recoveries
Net charge-offs (recoveries)
Provision for credit losses on loans
Ending allowance for credit losses on loans
Beginning allowance for credit losses on unfunded loan commitments
Provision for credit losses on unfunded loan commitments acquired
during the period
Provision (release) for provision for credit losses on unfunded loan
commitments
Ending allowance for credit losses on unfunded loan commitments
Allowance for credit losses
Average loans for the year (1)
Asset Quality Ratios:
Allowance for credit losses on loans/year-end loans (1)
Allowance for credit losses on loans/average loans (1)
Allowance for credit losses/year-end loans (1)
Allowance for credit losses/average loans (1)
(1) Loans exclude loans held-for-sale.
The following table details net charge-offs to average loans outstanding by loan category for the years ended December 31:
(dollars in thousands)
Commercial:
Net charge-offs (recoveries)
Average loans for the year (1)
Net charge-offs (recoveries)/average loans
Commercial real estate:
Net charge-offs (recoveries)
Average loans for the year
Net charge-offs (recoveries)/average loans
BBCC:
Net charge-offs (recoveries)
Average loans for the year
Net charge-offs (recoveries)/average loans
Residential real estate:
Net charge-offs (recoveries)
Average loans for the year (1)
Net charge-offs (recoveries)/average loans
Indirect:
Net charge-offs (recoveries)
Average loans for the year
Net charge-offs (recoveries)/average loans
Direct:
Net charge-offs (recoveries)
Average loans for the year
Net charge-offs (recoveries)/average loans
Home equity:
Net charge-offs (recoveries)
Average loans for the year
Net charge-offs (recoveries)/average loans
Total loans:
Net charge-offs (recoveries)
Average loans for the year (1)
Net charge-offs (recoveries)/average loans
(1) Average loans exclude loans held-for-sale.
The allowance for credit losses on loans was $569.5 million at December 31, 2025, compared to $392.5 million at December 31, 2024. The increase reflects $103.5 million of allowance for credit losses on acquired PCD loans established through acquisition accounting adjustments on or after the Bremer acquisition date as well as $69.1 million to establish an allowance for credit losses on non-PCD Bremer loans acquired. 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.
The following table details the allowance for credit losses on loans by loan category and the percentage of loans in each category compared to total loans at December 31.
(dollars in thousands)
Allowance
Amount
Loans
to Total
Loans
Allowance
Amount
Loans
to Total
Loans
Commercial
Commercial real estate
BBCC
Residential real estate
Indirect
Direct
Home equity
Total
We maintain an allowance for credit losses on unfunded loan commitments to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses on loans, modified to take into account the probability of a drawdown on the commitment. The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet within accrued expenses and other liabilities, while the corresponding provision for unfunded loan commitments is included in the provision for credit losses. The allowance for credit losses on unfunded loan commitments totaled $35.6 million at December 31, 2025, compared to $21.7 million at December 31, 2024. We increased the allowance for credit losses on unfunded loan commitments by $6.5 million in 2025 as a result of Bremer loan commitments acquired.
See the section entitled “Risk Factors” in Item 1A of this Form 10-K for further discussion of our credit risk.
Market Risk
Market risk is the risk that the estimated fair value of our assets, liabilities, and derivative financial instruments will decline as a result of changes in interest rates or financial market volatility, or that our net income will be significantly reduced by interest rate changes.
The objective of our interest rate management process is to maximize net interest income while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.
Potential cash flows, sales, or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in the general level of interest rates. This interest rate risk arises primarily from our normal business activities of gathering deposits and extending loans. Many factors affect our exposure to changes in interest rates, such as general economic and financial conditions, client preferences, historical pricing relationships, and re-pricing characteristics of financial instruments. Our earnings can also be affected by the monetary and fiscal policies of the U.S. Government and its agencies, particularly the Federal Reserve.
In managing interest rate risk, we establish guidelines for asset and liability management, including measurement of short and long-term sensitivities to changes in interest rates, which are reviewed with the Enterprise Risk Committee of our Board of Directors. Based on the results of our analysis, we may use different techniques to manage changing trends in interest rates including:
• adjusting balance sheet mix or altering interest rate characteristics of assets and liabilities;
• changing product pricing strategies;
• modifying characteristics of the investment securities portfolio; or
• using derivative financial instruments, to a limited degree.
A key element in our ongoing process is to measure and monitor interest rate risk using a model to quantify the likely impact of changing interest rates on Old National’s results of operations. The model quantifies the effects of various possible interest rate scenarios on projected net interest income. The model measures the impact on net interest income relative to a base case scenario over a two-year cumulative horizon resulting from an immediate change in interest rates using multiple rate scenarios. The base case scenario assumes that the balance sheet and
interest rates are held at current levels. The model shows our projected net interest income sensitivity based on interest rate changes only and does not consider other forecast assumptions. The net interest income projections across all interest rate scenarios include the expected impact of purchase accounting accretion due to recent acquisitions. Due to the dynamics of future interest rate expectations, we also measure and monitor interest rate risk using the forward curve, which may be a more probable scenario of our interest rate exposure. The forward curve represents the relationship between the price of forward contracts and the time to maturity of the forward contracts at a point in time.
The following table illustrates our projected net interest income sensitivity over a two-year cumulative horizon based on the asset/liability model as of December 31, 2025 and 2024:
Immediate Rate Decrease
Forward
Curve
Immediate Rate Increase
(dollars in thousands)
Basis Points
Basis Points
Basis Points
Base
Basis Points
Basis Points
Basis Points
December 31, 2025
Projected interest income:
Money market, other
interest earning
investments, and
investment securities
Loans
Total interest
income
Projected interest expense:
Deposits
Borrowings
Total interest
expense
Net interest
income
Change from base
% change from base
Immediate Rate Decrease
Immediate Rate Increase
Basis Points
Basis Points
Basis Points
Forward
Curve
Base
Basis Points
Basis Points
Basis Points
December 31, 2024
Projected interest income:
Money market, other
interest earning
investments, and
investment securities
Loans
Total interest
income
Projected interest expense:
Deposits
Borrowings
Total interest
expense
Net interest
income
Change from base
% change from base
The following table illustrates the upper bound, Federal Funds Rate assumed in the simulation above at December 31, 2025 and 2024:
December 31, 2025
December 31, 2024
Basis Point Change Scenario
Federal Funds
Rate (1)
Month 12 (2)
Federal Funds
Rate (1)
Month 12 (2)
Base
(1) Represents the upper bound, Federal Funds Rate.
(2) Represents the Federal Funds Rate in month 12 given a gradual, parallel “ramp” relative to the base implied forward scenario.
Our projected net interest income increased year over year driven by the Bremer acquisition, loan growth, and asset repricing due to current interest rates and economic conditions. Our overall strategy is consistent period over period, as we continue to manage our balance sheet toward a neutral interest rate risk position in a disciplined manner.
A key element in the measurement and modeling of interest rate risk is the re-pricing assumptions of our transaction deposit accounts, which align with our approach to deposit pricing and are consistent period over period. Because the models are driven by expected behavior in various interest rate scenarios and many factors besides market interest rates affect our net interest income, we recognize that model outputs are not guarantees of actual results. For this reason, we model many different combinations of interest rates and balance sheet assumptions to understand our overall sensitivity to market interest rate changes, including shocks, ramps, yield curve flattening, yield curve steepening, as well as forecasts of likely interest rate scenarios tested.
We use cash flow and fair value hedges, primarily interest rate swaps, collars, and floors, to mitigate interest rate risk. Derivatives designated as hedging instruments were in a net asset position with a fair value gain of $14.8 million at December 31, 2025, compared to a net liability position with a fair value loss of $7.0 million at December 31, 2024. See Note 19 to the consolidated financial statements for further discussion of derivative financial instruments.
Liquidity Risk
Liquidity risk arises from the possibility that we may not be able to satisfy current or future financial commitments or may become unduly reliant on alternative funding sources. We establish liquidity risk guidelines that we review with the Enterprise Risk Committee of our Board of Directors and monitor through our Asset/Liability Executive Management Committee. The objective of liquidity management is to ensure we have the ability to fund balance sheet growth and meet deposit and debt obligations in a timely and cost-effective manner. Management monitors liquidity through a regular review of asset and liability maturities, funding sources, and loan and deposit forecasts. We maintain strategic and contingency liquidity plans to ensure sufficient available funding to satisfy requirements for balance sheet growth, to properly manage capital markets’ funding sources, and to address unexpected liquidity requirements. On June 1, 2023, we filed an automatic shelf registration statement with the SEC that permits us to issue an unspecified amount of debt or equity securities.
Loan repayments and maturing investment securities are a relatively predictable source of funds. However, deposit flows, calls of investment securities, and prepayments of loans and mortgage-related securities are not as predictable as they are strongly influenced by interest rates, events at other banking organizations, the housing market, general and local economic conditions, competition in the marketplace, and other factors. We continually monitor marketplace trends to identify patterns that might improve the predictability of the timing of deposit flows or asset prepayments.
A maturity schedule for Old National Bank’s time deposits is shown in the following table at December 31, 2025.
(dollars in thousands)
Maturity Bucket
Amount
Rate
2031 and beyond
Total
Our ability to acquire funding at competitive prices is influenced by rating agencies’ views of our credit quality, liquidity, capital, and earnings.
The credit ratings of Old National and Old National Bank at December 31, 2025 are shown in the following table.
Moody's Investors Service
Long-term
Short-term
Old National
Baa1
Old National Bank
Old National Bank maintains relationships in capital markets with brokers and dealers to issue certificates of deposit and short-term and medium-term bank notes as well. At December 31, 2025, Old National and its subsidiaries had the following availability of liquid funds and borrowings:
(dollars in thousands)
Parent
Company
Subsidiaries
Available liquid funds:
Cash and due from banks
Unencumbered government-issued debt securities
Unencumbered investment grade municipal securities
Unencumbered corporate securities
Availability of borrowings (1) :
Amount available from Federal Reserve discount window
Amount available from Federal Home Loan Bank
Total available funds
(1) Based on collateral pledged.
Old National Bancorp has routine funding requirements consisting primarily of operating expenses, dividends to shareholders, debt service, net derivative cash flows, and funds used for acquisitions. Old National Bancorp can obtain funding to meet its obligations from dividends and management fees collected from its subsidiaries, operating line of credit, and through the issuance of debt securities. Additionally, Old National Bancorp has a shelf registration in place with the SEC permitting ready access to the public debt and equity markets. At December 31, 2025, Old National Bancorp’s other borrowings outstanding were $356.4 million. Management believes the Company has the ability to generate and obtain adequate amounts of liquidity to meet its requirements in the short-term and the long-term.
Federal banking laws regulate the amount of dividends that may be paid by Old National Bank to Old National Bancorp on an unconsolidated basis without obtaining prior regulatory approval. Prior regulatory approval is required if dividends to be declared in any year would exceed net earnings of the current year plus retained net profits for the preceding two years. Prior regulatory approval to pay dividends was not required in 2024 or 2025 and is not currently required. At December 31, 2025, Old National Bank could pay dividends of $803.3 million without
prior regulatory approval and while maintaining capital levels above regulatory minimum and well-capitalized guidelines.
Operational Risk
Operational risk is the risk that inadequate information systems, operational issues, breaches in internal controls, information security breaches, fraud, or unforeseen catastrophes will result in unexpected losses and other adverse impacts to Old National, such as reputational harm. We maintain frameworks, programs, and internal controls to prevent or minimize financial loss from failure of systems, people, or processes. This includes specific programs and frameworks intended to prevent or limit the effects of cybersecurity risk including, but not limited to, cyberattacks or other information security breaches that might allow unauthorized transactions or unauthorized access to client, team member, or company sensitive information. Metrics and measurements are used by our management team in the management of day-to-day operations to ensure client service, minimization of service , and oversight of cybersecurity risk. We continually monitor and internally report on in the internal control environment; third party risks; privacy and data governance; ; information security or data ; to physical assets; employee and workplace safety; execution, delivery, and process management; external and internal ; model risk management; and other risks.
Compliance and Regulatory Risk
Compliance and regulatory risk is the risk that the Company violated or was not in compliance with applicable laws, rules, regulations, regulatory guidance and policies, industry standards, or ethical standards. Compliance with applicable regulatory requirements, internal policies and procedures, and ethical standards is not only the right thing to do, but it is embedded within our culture and mission to assist our clients in achieving financial success. Adherence to this belief is the responsibility of every employee, every day, in everything we do. It is Old National’s policy to comply with the letter and intent of all applicable regulatory requirements. Management, the first line of defense, is responsible for ensuring this expectation is met, with oversight from the second and third lines of defense, the risk and internal audit functions, respectively, of the Company. Recognizing that inadvertent violations may occur, risk management activities are established to promptly identify, analyze, and, if necessary, remediate compliance and regulatory issues to limit compliance risk exposure.
Legal Risk
Legal risk generally results from unidentified or unmitigated risks that could result in lawsuits or adverse judgments that negatively affect the operations or financial condition of the Company. Business practices must be executed, as well as products and services delivered, in a manner that is compliant with applicable laws, rules, regulations, and agreements to which we are a party. Corporate governance practices must be compliant with applicable legal requirements and aligned with market practices. The Board of Directors expects that we will perform business in a manner compliant with applicable laws, rules, regulations, and agreements and expects issues to be identified, analyzed, and remediated in a timely and complete manner.
MATERIAL CONTRACTUAL OBLIGATIONS, COMMITMENTS, AND CONTINGENT LIABILITIES
The following table presents our material fixed and determinable contractual obligations and significant commitments at December 31, 2025. Further discussion of each obligation or commitment is included in the referenced note to the consolidated financial statements.
Payments Due In
(dollars in thousands)
Note
Reference
One Year
or Less
Over
One Year
Total
Deposits without stated maturity
Time deposits
Securities sold under agreements to repurchase
Federal Home Loan Bank advances
Other borrowings
We are party to various derivative contracts as a means to manage the balance sheet and our related exposure to changes in interest rates, to manage our residential real estate loan origination and sale activity, and to provide derivative contracts to our clients. Since the derivative liabilities recorded on the balance sheet change frequently
and do not represent the amounts that may ultimately be paid under these contracts, these liabilities are not included in the table of contractual obligations presented above. Further discussion of derivative instruments is included in Note 19 to the consolidated financial statements.
In the normal course of business, various legal actions and proceedings are pending against us and our affiliates which are incidental to the business in which they are engaged. Further discussion of contingent liabilities is included in Note 20 to the consolidated financial statements.
In addition, liabilities recorded under FASB ASC 740-10 (FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 ) are not included in the table because the amount and timing of any cash payments cannot be reasonably estimated. Further discussion of income taxes and liabilities is included in Note 15 to the consolidated financial statements.
CRITICAL ACCOUNTING ESTIMATES
Our most significant accounting policies are described in Note 1 to the consolidated financial statements. Certain of these accounting policies require management to use significant judgment and estimates, which can have a material impact on the carrying value of certain assets and liabilities. We consider these policies to be our critical accounting estimates. The judgment and assumptions made are based upon historical experience, future forecasts, or other factors that management believes to be reasonable under the circumstances. Because of the nature of the judgment and assumptions, actual results could differ from estimates, which could have a material effect on our financial condition and results of operations.
The following accounting policies materially affect our reported earnings and financial condition and require significant judgments and estimates. Management has reviewed these critical accounting estimates and related disclosures with our Audit Committee.
Business Combinations and Goodwill
• Description. For mergers and acquisitions, we are required to record the assets acquired, including identified intangible assets such as core deposit and customer trust relationship intangibles, and the liabilities assumed at their fair value. The difference between consideration and the net fair value of assets acquired is recorded as goodwill. Management uses significant estimates and assumptions to value such items, including projected cash flows, repayment rates, default rates and losses assuming default, discount rates, and realizable collateral values. The allowance for credit losses for PCD loans is recognized within acquisition accounting. The allowance for credit losses for non-PCD assets is recognized as provision for credit losses in the same reporting period as the merger or acquisition. Fair value adjustments are amortized or accreted into the income statement over the estimated life of the acquired assets or assumed liabilities. The purchase date valuations and any subsequent adjustments determine the amount of goodwill recognized in connection with the merger or acquisition. The use of different assumptions could produce significantly different valuation results, which could have material positive or effects on our results of operations. The carrying value of goodwill recorded must be reviewed for on an annual basis, as well as on an interim basis if events or changes indicate that the asset might be . An must be recognized for any excess of carrying value over fair value of the goodwill.
• Judgments and Uncertainties. The determination of fair values is based on valuations using management’s assumptions of future growth rates, future attrition, discount rates, multiples of earnings or other relevant factors. In addition, we engage third party specialists to assist in the development of fair values. Preliminary estimates of fair values may be adjusted for a period of time subsequent to the merger or acquisition date if new information is obtained about facts and circumstances that existed as of the merger or acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Adjustments recorded during this period are recognized in the current reporting period. Management uses various valuation methodologies to estimate the fair value of these assets and liabilities, and often involves a significant degree of judgment, particularly when liquid markets do not exist for the particular item being valued. Examples of such items include loans, deposits, identifiable intangible assets, and certain other assets and liabilities.
• Effect if Actual Results Differ From Assumptions. Changes in these factors, as well as downturns in economic or business conditions, could have a significant adverse impact on the carrying value of assets,
including goodwill and liabilities, which could result in impairment losses affecting our financial statements as a whole and our banking subsidiary in which the goodwill resides.
Allowance for Credit Losses on Loans
• Description. The allowance for credit losses on loans represents management’s estimate of all expected credit losses over the expected contractual life of our loan portfolio. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods.
The allowance for credit losses on loans, as reported in our consolidated statements of financial condition, is adjusted by an expense for credit losses, which is recognized in earnings, and reduced by the charge-off of loan amounts, net of recoveries.
• Judgments and Uncertainties. We utilize a discounted cashflow approach to determine the allowance for credit losses for performing loans and nonperforming loans. Expected cashflows are created for each loan and discounted using the effective yield method. The discounted sum of expected cashflows is then compared to the amortized cost and any shortfall is recorded as an allowance. Expected cashflows are created using a combination of contractual payment schedules, calculated PDs, LGD and prepayment assumptions as well as qualitative factors. For commercial and commercial real estate loans, the PD is forecasted using a regression model to determine the likelihood of a loan moving into nonaccrual within the time horizon. For residential and consumer loans, the PD is forecasted using a regression model to determine the likelihood of a loan being charged-off within the time horizon. The regression models use combinations of variables to assess systematic and unsystematic risk. Variables used for unsystematic risk are borrower specific and help to gauge the risk of default from an individual borrower. Variables for systematic risk, risk inherent to all borrowers, come from the use of forward-looking economic forecasts and include variables such as unemployment rate, gross domestic product, home price index, and the BBB ratio. The LGD is defined as credit incurred when an obligor of the bank . Qualitative factors include items such as changes in lending policies or procedures and economic uncertainty in forward-looking forecasts.
• Effect if Actual Results Differ From Assumptions. The allowance represents management’s best estimate, but significant downturns in circumstances relating to loan quality and economic conditions could result in a requirement for additional allowance. Likewise, an upturn in loan quality and improved economic conditions may allow a reduction in the required allowance. In either instance, unanticipated changes could have a significant impact on results of operations.
One of the most significant judgments used in determining the allowance for credit losses is the macroeconomic forecast provided by a third party. The economic indices sourced from the macroeconomic forecast and used in projecting loss rates include the national unemployment rate, changes in home price index, changes in the United States gross domestic product, and changes in the BBB ratio. The economic index used in the calculation to which the calculation may be most sensitive is the national unemployment rate. Each reporting period, several macroeconomic forecast scenarios are considered by management. Management selects the macroeconomic forecast that is most reflective of expectations at that point in time. Changes in the macroeconomic forecast, especially for the national unemployment rate, could significantly impact the calculated estimated credit losses.
The expense for credit loss recorded through earnings is the amount necessary to maintain the allowance for credit losses at the amount of expected credit losses inherent within the loans held for investment portfolio. The amount of expense and the corresponding level of allowance for credit losses on loans are based on our evaluation of the collectability of the loan portfolio based on historical loss experience, reasonable and supportable forecasts, and other significant qualitative and quantitative factors.
Derivative Financial Instruments
• Description. As part of our overall interest rate risk management, we use derivative instruments to reduce exposure to changes in interest rates and market prices for financial instruments. The application of the hedge accounting policy requires judgment in the assessment of hedge effectiveness, identification of similar hedged item groupings and measurement of changes in the fair value of derivative financial instruments and hedged items. To the extent hedging relationships are found to be effective, changes in fair value of the
derivatives are offset by changes in the fair value of the related hedged item or recorded to other comprehensive income (loss). Management believes hedge effectiveness is evaluated properly in preparation of the financial statements. All of the derivative financial instruments we use have an active market and indications of fair value can be readily obtained. We are not using the “short-cut” method of accounting for any fair value derivatives.
Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. Old National’s exposure is limited to the termination value of the contracts rather than the notional, principal, or contract amounts. There are provisions in our agreements with the counterparties that allow for certain unsecured credit exposure up to an agreed threshold. Exposures in excess of the agreed thresholds are collateralized. In addition, we minimize credit risk through credit approvals, limits, and monitoring procedures.
• Judgments and Uncertainties. The application of the hedge accounting policy requires judgment in the assessment of hedge effectiveness, identification of similar hedged item groupings and measurement of changes in the fair value of derivative financial instruments and hedged items.
• Effect if Actual Results Differ From Assumptions. To the extent hedging relationships are found to be effective, changes in fair value of the derivatives are offset by changes in the fair value of the related hedged item or recorded to other comprehensive income (loss). However, if in the future the derivative financial instruments used by us no longer qualify for hedge accounting treatment, all changes in fair value of the derivative would flow through the consolidated statements of income in other noninterest income, resulting in greater volatility in our earnings.
Income Taxes
• Description. We are subject to the income tax laws of the U.S., its states, and the municipalities in which we operate. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. We review income tax expense and the carrying value of deferred tax assets quarterly; and as new information becomes available, the balances are adjusted as appropriate. FASB ASC 740-10 (FIN 48) prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements. See Note 15 to the consolidated financial statements for a further description of our provision and related income tax assets and liabilities.
• Judgments and Uncertainties. In establishing a provision for income tax expense, we must make judgments and interpretations about the application of these inherently complex tax laws. We must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions. Disputes over interpretations of the tax laws may be subject to review/adjudication by the court systems of the various tax jurisdictions or may be settled with the taxing authority upon examination or audit.
• Effect if Actual Results Differ From Assumptions. Although management believes that the judgments and estimates used are reasonable, actual results could differ and we may be exposed to losses or gains that could be material. To the extent we prevail in matters for which reserves have been established or are required to pay amounts in excess of our reserves, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement would result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement would result in a reduction in our effective income tax rate in the period of resolution.
Management has discussed the development and selection of these critical accounting estimates with the Audit Committee and the Audit Committee has reviewed our disclosure relating to it in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
