Welcome to the Old National Bancorp's Fourth Quarter 2022 Earnings Conference Call. This call is being recorded and has been made accessible to the public in accordance with the SEC's Regulation FD. Corresponding presentation slides can be found on the Investor Relations page at oldnational.com and will be archived there for 12 months. Management would like to remind everyone that certain statements on today's call may be forward-looking in nature and are subject to certain risks, uncertainties, and other factors that could cause actual results or outcomes to differ from those discussed. The company refers you to its forward-looking statement legend in the earnings release and presentation slides. The company's risk factors are fully disclosed and discussed within its SEC filings. In addition, certain slides contain non-GAAP measures, which management believes provide more appropriate comparisons. These non-GAAP measures are intended to assist investors' understanding of performance trends. Reconciliations for these numbers are contained within the appendix of the presentation. I'd now like to turn the call over to Old National's CEO, Jim Ryan, for opening remarks. Mr. Ryan, please go ahead.

Good morning. Earlier this morning, we reported strong fourth quarter earnings, which put an exclamation point on an incredible year for Old National, one that saw the closing of our transformational merger with First Midwest, successful completion of all related systems conversions, tremendous client growth, and strong talent retention and attraction. The strength of our combined franchise is evident in the results outlined on Slide 4. Adjusted EPS was $0.56 per common share, representing a 10% increase quarter-over-quarter with a strong adjusted ROA and ROATCE of 1.46% and 26.5%, respectively. Our efficiency ratio was a record low of 47.5%. I'm pleased to share that we achieved the quarterly expense run rate necessary to fulfill our $109 million of modeled merger expense savings. Moving to Slide 5, we reported GAAP earnings for the entire year of $1.50 per common share. Our adjusted EPS was $1.96 per common share, representing a 13% increase over 2021. These robust quarterly and annual results with peer-leading returns were driven by a focused execution on our successful merger, maintaining our strong low-cost deposit franchise, growing loans with consistent strong credit standards, and disciplined expense management. We were also pleased that the deposit balances remained relatively flat for the year, excluding the recent sale of HSA deposits, while maintaining our deposit pricing discipline with a low 12% deposit beta cycle to date. Another highlight of the year is our continual investment in top revenue-generating talent across our footprint. Our story resonates well with these individuals and our talent pipeline remained robust. You may have seen our recent press release last week with the official launch of our 1834 high net worth wealth management brand. This is a fantastic opportunity to leverage our combined franchises strength and recent talent investments. We are already adding new clients to 1834. As we look forward, we feel good about 2023 and expect loan portfolios to continue to grow, albeit not at 2022 pace. In other areas, it should be more of the same, below peer deposit costs that drive a funding advantage, more organic growth in our wealth management client base, and a continued focus on disciplined expense management. While we don't see anything meaningful on the horizon that gives us cause for concern regarding credit, we know that our granular portfolio, attention to client selection, and consistent underwriting guidelines, as well as our active approach to credit management, will serve us well if the economy turns worse. In other words, we intend to stay on the offense, but we are well positioned to withstand any new challenges that lie ahead. Thank you. I will now turn the call over to Brendon for further details.

Thanks, Jim. Turning to the quarter's results on Slide 6, we reported GAAP net income applicable to common shares of $197 million or $0.67 per share. Reported earnings include a $91 million pre-tax gain from the sale of our HSA business, which was partially offset by $27 million in pre-tax property optimization charges and $20 million in pre-tax merger-related charges. Excluding these items, as well as debt securities losses, our adjusted earnings per share was $0.56. Slide 7 shows the trend in total loan growth excluding PPP loans. Total loans grew $606 million, led by commercial growth of $438 million and consumer growth of $168 million. Both commercial and consumer grew an annualized 8%. The investment portfolio decreased by 1% quarter-over-quarter due to reinvestment of portfolio cash flows in support of loan growth. We expect $1.1 billion in total investment cash flows over the next 12 months. Slide 8 provides further details of our commercial loans and pipeline. The strong fourth quarter growth was well distributed with 8% annualized growth in C&I and 7% in CRE. Q4 production puts some pressure on the pipeline, but loan demand remains healthy and we expect continued organic loan growth in the mid-single-digit range. Turning briefly to pricing, new money yields on C&I increased 92 basis points from Q3 to 6.21%, with new CRE production yields up 131 basis points to 5.86%. We've maintained our pricing discipline throughout the rate cycle and are pleased that our spreads have remained stable. Slide 9 shows details of our Q4 commercial production. The $2.7 billion of production was well balanced across all product lines and major markets. In addition, all of our product segments posted quarter-over-quarter balance sheet growth. We are pleased with the contribution from our newest LPO markets, which contributed almost $200 million in production this quarter. Moving to Slide 10, average deposits excluding the HSA sale were down 1% quarter-over-quarter with the mix of our noninterest-bearing deposits stable at 35%. End of period deposits were impacted by $382 million related to the HSA sale and an additional $400 million in seasonal public fund outflows. End of period deposits also reflect the beginning of the mix shift from interest-bearing transaction accounts into time deposits. Our loan to deposit ratio combined with wholesale funding capacity and asset liquidity in the form of our investment and indirect books provides us flexibility in this competitive deposit market. That said, we are actively defending deposit balances through competitive rates and pricing exceptions. We are also playing offense through various deposit specialists throughout our footprint. We are pleased with our execution of this strategy today as we have been able to generate new deposits sufficient to maintain stable overall balances. Market conditions have put upward pressure on deposit rates with average total deposit costs up 22 basis points quarter-over-quarter to a still very low 34 basis points. Interest-bearing deposit costs increased to 52 basis points, resulting in an industry-leading cycle to date beta of 12%. Our granular low-cost deposit base should continue to give us a funding advantage throughout the remainder of this rate cycle. Next on Slide 11, you will see details of our net interest income and margin. Both metrics exceeded expectations, largely due to the outperformance of our deposit beta assumptions. Net interest margin expanded 14 basis points quarter-over-quarter to 3.85%, with core margin excluding accretion up 30 basis points to 3.75%. Slide 12 provides additional details on our asset liability position and projected margin range. Core margin for Q1 is expected to be in line with Q4, taking into account the 6 basis points of margin decline related to day count. Our outlook assumes deposit betas increasing from 12% today to a cycle-to-date beta in the first quarter of 20%. The assumptions in our outlook also included a Fed funds target rate of 5% and a 4% yield on 10-year treasuries at the end of the first quarter. Specific margin guidance is challenging beyond Q1, but assuming the Fed keeps costs in Q2 and deposit repricing persists, we would expect pressure on margin in the back half of 2023. Also, while we remain well positioned for rising rates, we have been proactively adding downgrade protection, including an additional $400 million of new hedges this quarter with an average floor strike of 4%. Slide 13 shows the trend in adjusted noninterest income, which was $74 million for the quarter. This was generally in line with our expectations as market conditions continue to put pressure on mortgage and wealth revenues. The linked quarter decrease was also impacted by lower capital markets fees, which reflect lower demand for interest rate swap products given the rate environment. Fees were also impacted by one month of service charge enhancements implemented in December that were discussed last quarter. Again, we estimate approximately $5 million annual impact from service charge enhancements. Next, Slide 14 shows the trend in adjusted noninterest expenses. Adjusting for merger charges, property optimization charges, and tax credit amortization, noninterest expense of $230 million and our adjusted efficiency ratio was at historically low 47.5%. Expenses decreased $7 million quarter-over-quarter due to lower salaries and data processing expenses. Expenses were higher than anticipated due to a $5 million quarter-over-quarter increase in incentive accruals given our strong earnings performance for the year. Excluding incentive adjustments, we are pleased to report that we have achieved a quarterly expense run rate consistent with our modeled cost synergies. We thought it would be helpful to provide additional detail on our 2023 expense outlook. We believe $225 million of the current quarterly run rate to build off for your 2023 models. From this $900 million annualized base, we anticipate an annual impact of $14 million in tax credit amortization, $11 million for merit, an incremental increase in FDIC expenses of $9 million, and approximately $10 million in strategic investments in both talent and technology enhancements. These investments will be partially funded with approximately $5 million in expense savings from the real estate optimization actions taken in Q4. Slide 15 shows our credit trends. Credit conditions are stable, and our commercial and consumer portfolios continue to perform exceptionally well. Net charge-offs were a modest 5 basis points. Our special assets team is continuing to work through our PCD loans and expect charge-offs from this portfolio to increase but with variability from quarter-to-quarter. The provision expense impact from this effort should be minimal as we carry $59 million or approximately 5% reserve against the PCD book. On Slide 16, you will see the details of our fourth quarter allowance, including reserves for unfunded commitments, which stands at $336 million, up $8 million over Q3. Note that during the quarter, we reclassified both current and prior quarter allowance for unfunded commitments from noninterest expense to provision. Allowance for credit loss totals and metrics now include the allowance for unfunded commitments providing a more complete view of our allowance levels. This accounting treatment is also more consistent with peers and should aim at comparability. Reserve build was driven primarily by strong loan growth with relatively small increases due to portfolio mix, partly offset by an improvement in our economic forecast. The financial health of our clients remained strong, and while credit metrics are stable, we believe it is prudent to maintain elevated reserves given the uncertainty in our base case economic outlook. Our current reserves reflect a relatively severe economic scenario, including negative GDP of 3.6% and unemployment of 7.2%, which is at the top end of our supportable range. Unless the economic outlook deteriorates materially, 2023 provision expense should be limited to portfolio performance and loan growth. In addition to the $336 million in reserves, we also carry $102 million in acquired loan discount marks. Slide 17 provides details on our capital position at quarter end. Capital ratios improved across the board. Our CET1 ratio grew to a very healthy 10% and our TCE ratio increased 36 basis points to 6.18%. Total OCI was stable quarter-over-quarter, but is still impacting our TCE ratio by 155 basis points. We continue to monitor our balance sheet for economic stress and feel very comfortable with our capital levels. As I wrap up my comments, here are some key takeaways. We ended a transformational year for ONB with fantastic full year results and an even better fourth quarter. Adjusted EPS grew 10% and tangible book value per share grew 8% in the quarter. Key profitability ratios also improved from very strong Q3 results with an adjusted return on tangible common equity of 26.5% and return on average assets of 1.46%. We posted another solid quarter of quality organic loan growth and defended our deposit base well. Net interest income improved $15 million with 30 basis points of core margin expansion and an industry-leading cycle-to-date deposit beta of 12%. We are also pleased to have achieved a quarterly expense run rate consistent with our modeled merger cost synergies, resulting in a record low efficiency ratio of 47.5%. Slide 18 includes thoughts on our outlook for 2023. We believe commercial sentiment and our year-end pipeline support mid-single-digit loan growth in 2023. Net interest income and margin should be consistent with the guidance we outlined earlier, with pressure from deposit repricing in the back half of the year. We expect our fee businesses to continue to perform well despite headwinds with mortgage following industry patterns. While our wealth business will be subject to market volatility, we are beginning to see revenue momentum from the strategic hires we've made over the last 18 months. Capital markets revenue was under pressure and should perform consistent with Q4 levels. Service charge changes implemented in December that are largely consistent with industry best practice will impact full year 2023 by approximately $5 million. Our expense outlook is consistent with guidance we outlined earlier. Turning to taxes, we expect approximately $14 million in tax rate amortization for 2023 with a corresponding full year effective tax rate of 24% on a core FTE basis and 22% on a GAAP basis. With those comments, I'd like to open the call for your questions. We do have the full team available, including Mark Sander, Jim Sandgren, and John Moran.

Thank you. Our first question today comes from Ben Gerlinger with Hovde Group. Ben, please go ahead.

Hey, good morning, everyone.

Good morning, Ben.

I appreciate the guidance that you guys gave on expenses and the waterfall is really helpful. When you think about 2023, I think, obviously, everyone is a little bit more skeptical in economic outlook. When you think about hires, I know that that's kind of a priority longer term and investment in the company, taking decades rather than quarters, but is there any way you would possibly slow because you don't necessarily want to hire lenders going into a recession or any type of lending that you're really looking to lean into?

Ben, I believe there are significant opportunities for us to share our story. When we have those chances and people show interest, we will always welcome top talent. Mark Sander articulated this well: top talent will justify their costs. So, while we will be careful and intentional with our new hires, if we have the chance to attract the very best from each marketplace, we will proceed with hiring them. However, we will remain cautious if the economic outlook shifts significantly from what we currently perceive. We will be prudent about increasing expenses and will actively seek ways to cut costs as well. At this moment, I don’t see any changes to our plan, which is to continue attracting the best possible talent to our organization.

Got you. That's fair. And then obviously, hires just broadly speaking, in front of lenders. So, when you think about the fee income line items, there's a lot of moving parts and a lot of different businesses. I know the recently announced wealth management is a big positive. But obviously, you guys can't project the full year fee income with mortgage as a volatile factor in that. But when you think about it, are we out of floor in mortgage and from here, do you think fee income rebounds holistically?

Let me provide a broad overview before our CFO shares more details. I believe the current state of the mortgage market is likely its lowest point. Much of our current production affects our balance sheet rather than increasing fee income. Regarding our wealth management segment, we are effectively splitting our business into a few distinct units, with 1834 being one of them. The support needed to staff that division is minimal, and we are seeking talent in both commercial banking and wealth management, which will play a significant role in our future direction. Fortunately, we have the necessary talent to launch 1834 successfully without requiring significant investment. We anticipate it will grow beyond our historical averages in this area, regardless of market conditions. Overall, we hold high expectations for our organic growth potential.

And just before I turn it over to Brendon, Ben, I want to add to what Jim said. A number of the hires we made in 2022 were in wealth management. So, as we hire a dozen to 15 each quarter, about half of those were in that area, meaning we are more than sufficiently staffed to grow in wealth. Brendon?

The only thing left to add on that, Ben, to double-click into mortgage, I think we have to remember, year-over-year, 2022, at least in the early part of the year did include some elevated sale margin. So, I would say we're at a lower end in terms of production, gain on sale margins today, but we were aided in the first half of last year by elevated gain on sale margins. So that will impact year-over-year numbers.

I'd also like to think in the capital markets business, right. I mean it was a difficult time with rates rising very quickly. But those businesses find a way to adjust and offer new products or different products, particularly if there's a different set of view of rates emerging. So, I think there'll be opportunities to grow that business. Obviously, the fourth quarter is a tough quarter for that business overall.

Got you. And if I can sneak one more in, any appetite for potential repurchase or capital deployment, I know that you guys were historically looking to kind of support the growth, but if growth is slowing down into a recession, just overall thoughts on that.

Yes. I think it's a little too early to want to jump in that. I think we need to have a clearer picture of the economic outlook, any issues related to credit out there. I think we need to have a much clearer picture before we want to jump into that.

Sounds good. I appreciate the time. I'll step back in the queue and let Scott ask some questions...

Thanks, Ben. I am sure Scott appreciates the time.

Our next question comes from Scott Siefers with Piper Sandler. Please go ahead, Scott.

Good morning, everybody.

Good morning, Scott. Good to hear from you.

Thank you, that seemed unnecessary but I understand. Brendon, I think everyone is curious about the most exciting topic I can think of. You mentioned margin pressure in the second half. Can you provide some insight on the extent of that and possibly a lower limit where the margins might stabilize if conditions begin to worsen?

It's really hard, Scott, to pinpoint something. So much of this depends on what the Fed does. If the Fed kind of keeps their foot on the gas, we could see maybe even marginal margin expansion. If they pause for a while and deposits continue to reprice, loan demand remains relatively strong, I think that would be the worst-case scenario in terms of margin pressure. Just hard to know where those deposit betas fall out. The one thing we continue to talk to ourselves about is whatever that is, we think we have a competitive advantage. Our deposit beta was half the industry last cycle and I expect we can have a significant advantage over the industry in this cycle.

Perfect. And I guess just for reference, when we talk about potential degradation in the second half, I know you're hesitant to offer thoughts beyond the first quarter, but is that 368 the best starting point for the margin or is something in like the low to mid-370s more appropriate, in other words, it goes down in the 1Q due largely to day count, does it go down and stay down or would it bounce back all else equal?

All else equal, right, it would bounce back. And so Q2 would not have the same level of day impact. And then what happens in the back half of the year, I think, is really going to come down to where do deposit costs fall out?

If the market believes the Fed is moving in a certain direction, it could reduce some pressure on deposit rates.

Yeah, perfect. Okay, good. Thank you very much.

Our next question today comes from Terry McEvoy with Stephens. Terry, please go ahead.

Hi, thanks. Good morning, everyone.

Good to hear from you, Terry.

Hi, maybe just a question, Slide 12, you've got the 10-year at 4% by the end of this quarter versus about 350 today. And I'm just kind of wondering how that could impact the outlook if the 10-year does not change? And then maybe as a follow-up since I'm on NII, do you think even with some margin compression in the back half of this year, the loan growth and the balance sheet growth can support growth in net interest income as we progress throughout 2023?

Terry, I don't think it's not a huge impact from the 10-year moving around. It will impact a little bit of our investment book and fixed rate pricing book, but not a huge material impact. I would say the same thing with NII, certainly loan growth, earning asset remix will help support NII, but the total NII dollars again going back to the guidance. It's really going to come down to where deposit costs fall out and what does the Fed do in the back half of the year.

Okay. And then maybe just stick with kind of the hedging strategy, added more swaps in the fourth quarter. Could you maybe talk about kind of the receive rate, duration of the additional hedges, and bigger picture, what's the strategy from here on protecting the margin from lower rates?

Yes, duration on the hedges have been probably around three years. The average strike on that floor today is of the entire $2.2 billion is right around 2.6%. The most recent ones obviously have a strike significantly higher than that. So I think that will provide some meaningful protection. And as you think about it, as deposit costs continue to reprice up if and when the Fed starts to move, we've got a lot of support by being able to reduce deposit costs in the back half. So as we think about positioning the balance sheet towards a more neutral position, I think we're a long way towards that goal already.

Maybe one last small question, if I could, is the tax rate creeping higher, that 24% core FTE, it just seems like I haven't gone back to past presentations, it just seems like it's kind of gotten higher over the last few quarters, am I correct and if so, what's behind that and if I'm not, then we can move on?

No, you're correct. Absolutely. We added, obviously, with the SMB partnership we had a lot of earnings, but our tax credit business has not increased by novel. So we're working on strategies to continue to invest in that business, and we'll look to move that forward. But nothing in the near term that's going to change that. So we feel good about the guidance we gave you.

Okay, thanks for taking my questions. Appreciate it.

Thanks, Terry.

Our next question comes from Chris McGratty with KBW. Chris, please go ahead.

Hey guys, good morning.

Good morning, Chris.

Hey, good morning, Jim. Brendon or Jim, the efficiency ratio you talked about 47.5% just being a great level. How should we be thinking about the trajectory of this metric, I know it's one metric, but balancing both sides of the equation, how do we think about directionally that the efficiency ratio were it kind of settles?

We provided our expense outlook for 2023, and the efficiency ratio will depend largely on our revenue. While I’m not sure we can achieve 47.5% again, I am confident that we will maintain a strong efficiency ratio for the full year, and we are actively exploring ways to manage our expenses effectively.

Yes. I would just suggest that, Chris, we've had a long history of being very disciplined around the expense base here, and it's obviously been nice to have some tailwind from the revenue side to help us out. But having said that, there's no magic bullets, there are no easy wins out there, but it's going to be a continued long-term focus on driving expenses lower. A lot of these come through just long-term enhancements through technology and business process automation, which should help continue to reduce costs. So there's not any quick wins out there that are going to reduce it significantly, but it's just a continued focus by our leadership and management teams to make sure that we're driving our expense dollars as efficiently as we can.

If I could just, I guess, push on that a little bit, Jim, I think in the deck, you say there's $5 million of savings coming from this branch optimization. The one-timers, we'll call it 27, how do I wrestle with that kind of earn-back math, was there something I'm missing in that strategy like I would expect it a little bit more to fall, I guess, to the bottom line?

Most of this was due to real estate repositioning. The reality is that it's likely to take less than five years to earn back that investment, which is longer than we typically expect. However, we believe it was the right decision, especially since these properties were problematic—around 20 in total, with about half being small branches in the branch world. So, while getting back that investment in under five years is a bit longer than we prefer, it is reasonable for us, particularly considering the HSA gain we need to reinvest.

Got it. Great. And then maybe I could on credit. I think I'm getting some questions about what's the pace of reserve build. You guys have, I think, been viewed as very, very good on credit. SMBI's history is a little bit more chunky but overall, you kind of put them together pretty good credit. How do we think about, I guess, two questions, the pace of build based on your economic forecast and also how you view the kind of the normalized charge-offs of this pro forma company?

I think we're in a good spot and that we really never released a lot of the excess reserves we carried in through COVID. We're continuing to put a pretty severe economic scenario through our model. So, it's difficult for us to sit here today and think about a more adverse scenario coming through in reality. So, we think provision is limited to portfolio changes and growth. And in terms of charge-offs, I think we've had a good run. I don't know what normalized charge-offs looks like going into next year or what the economy might provide to us, but I do think we have a significant amount of coverage on the PCD book that came over from FNB to 2% to 5% reserve against that book. So, I think that will also go a long way in offsetting incremental provision expense associated with the merger.

That's helpful. Regarding the reserve at 98 basis points, I can analyze it, but how do you view the fully loaded reserve with the 5% mark on FMBI? What is the real metric you are tracking internally in terms of coverage?

If we consider the total additional discount and credit of $102 million, it represents a 1.4% figure.

Our next question comes from David Long with Raymond James. David, please go ahead.

Good morning, everyone. My first question is about funding loan growth. You have a solid expectation for 2023, but with the possibility of some deposit outflows, how do you plan to fund that growth? It seems like you might gain a little from securities, but that may not completely cover the gap.

We see opportunities in the mortgage and indirect books to improve liquidity, alongside our investment portfolio. Additionally, we have significant wholesale funding capacity. That being said, we are actively working to attract deposits and will strive to maintain those levels. While we acknowledge that the environment may be challenging, we are not backing down and are focused on moving forward. The combination of these factors will support our funding, and we are confident in our liquidity to support the commercial team and foster growth in that area.

Yes, I think we're defending our deposit base quite well. The ones and getting more aggressive where we have to. And you saw some of that repricing happened this quarter, consistent with the rest of the industry. And I feel confident in our ability to raise deposits. Deposit gathering is a large component of the goals in every one of our lines of business, and we're adding net new clients in every business. And so, I feel confident in our ability to raise deposits as we need them, David.

Okay, great. You mentioned the deposit service charges and changes to some of your products. Is the fourth quarter number, just over $18 million, the correct run rate, or is there still more to adjust to reach the right run rate for the first quarter?

Yes, the service charge line includes more than just the NSF fee items. It reflects only one month of the NSF-related changes. However, if you consider a couple of quarters' average, looking back at Q3 would give you a better perspective of more stable business and typical service charges.

Okay, great. And then just to sneak one last one in here. On the operating expense guide, $939 million, I appreciate the color there. But I know you say it depends on the revenue side of the equation, but what are you assuming or can you talk about what you're assuming on the incentive compensation to get to that $939 million level? And how that impacts the revenue side?

So, $939 million, that would include incentives really at target as opposed to above target. Obviously, we benefited from a really great year this year. And so, incentives were significantly higher this year relative to what we're projecting...

It's consistent with the revenue expectations we also laid out, right. So if revenue goes up significantly, then clearly, we'd have some more incentive opportunity but given the revenue outlook we provided you and the expense base, I think those are consistent with each other.

Got it, thanks a lot guys. Appreciate it.

Thanks, David. Good to hear from you.

Our next question comes from Jon Arfstrom with RBC. Please go ahead, Jon.

Hey. Good morning, everyone.

Good morning, Jon.

Question for you guys on loan growth. Brendon, you made a comment, I think I got it right, but some of the fourth quarter production put some pressure on the pipelines, but you still expect decent growth. What are you guys seeing in the pipeline, is it slowing? And what is your view on the cadence of growth you expect continued strong first and second quarter growth and it slows later in the year, just give us your thoughts on that?

I'll begin and Jim Sander can add some insights. We feel positive about the pipeline, which reflects three strong quarters of loan growth. Typically, there is a slight decline in the pipeline during the fourth quarter, which is a normal seasonal trend. We believe the pipeline is positioned to support the mid-single digit growth for the full year 2023 that Brendon mentioned. The short-term outlook remains strong. Despite mixed signals in the economy, our commercial and industrial clients are still performing well. They are slightly more cautious than before, but the business remains solid, with strong liquidity and balance sheets, and they continue to invest. The commercial real estate sector has experienced some slowdown, mainly due to the interest rate environment affecting the pipeline, so we anticipate a less vigorous outlook for 2023 in that area. Jim, do you have anything to add?

I think that's really well said. I think our C&I customers actually feel pretty good about things. They are cautiously optimistic and continuing to invest. So, we'll see how that plays out the rest of the year. And to Mark's comments about CRE, obviously, interest rates are causing some pressure on the pipelines there. But we'll stay close to our borrowers and have opportunities to do the right deals with the right clients.

Okay. You also mentioned deposit pricing exceptions and deposit specials were a couple of comments you made earlier. Can you talk about how prevalent that is and kind of what you're doing there?

So, we have special pricing in about 15%, 16% of our non-time deposit customers right now. So client by client, we're negotiating. We have given our teams tools to price as they need to, to stay market competitive and retain deposits. And as Brendon mentioned, we have a number of promotional specials in every line of business to raise closets from money markets to CDs to new checking account promotion.

Okay, Brendon, you mentioned $1.1 billion in cash flows from the securities portfolio over the next year. What kind of increase do you expect from those repurchases and new purchases? Can you also give us an idea of what you're looking to buy and the duration of those investments?

A lot of the cash flow is actually built reinvested right into the loan book. So, the lift is material. I think about the runoff the yield moving into new loan yields that are north of 6% today. So a meaningful uplift on those cash flows as we think about NII going forward.

Okay. And then Jim, you'll love this one, but do you feel you're done with First Midwest, both sides of the merger, things are tracking well, and any appetite whatsoever to be back in the M&A market? Thanks.

From a systems perspective, the project has officially concluded. However, we are still looking for ways to improve both in the back office and the front office. A lot of our time is dedicated to culture, as the leadership team spent the last year building a strong culture together. We are now focused on deepening that culture within our organization, which will take years to fully realize. I feel very optimistic about our progress. In fact, we jokingly acknowledge that we could not have envisioned a better integration of our two large organizations. We are pleased with the results considering everything that happened this year. Regarding future opportunities, we will continue to have discussions, but we are not currently prioritizing any immediate actions. Nonetheless, these are ongoing relationship-building activities that are crucial for our future. At the same time, we must ensure that whatever we pursue is disciplined and aligns with our shareholders' interests. Therefore, we will concentrate on organic growth and expanding our teams with new talent. If the right partner and timing present themselves, we will consider it, but there are many factors to weigh before pursuing our next partnership.

Okay. Thank you.

Thanks, Jon. Good to hear from you.

Our next question is a follow-up from Scott Siefers with Piper Sandler. Please go ahead, Scott.

Hey everyone, I appreciate the follow-up. I just want to clarify the expenses. The $900 million is a baseline figure, but the $939 million estimate includes around $9 million in items not part of the initial figure, specifically $14 million from tax credit amortization and $5 million from property optimization. So, would a more accurate expectation for 2023 be $930 million? In other words, if you meet this guidance, would you consider the adjusted expenses for 2023 to be $930 million?

We would call it $925 million. We would exclude the entire tax credit amortization. So, $925 million of the asset because I know analysts treat that differently.

Okay. So, $925 million is kind of the underlying projection in there? And then when you talk about the 24% core FTE tax expectation for full year 2023, does that include or exclude the tax credit benefits?

It includes all the tax credit benefits. Yes.

Okay, perfect. Thank you guys very much.

Thanks, Scott.

Our next question is a follow-up from Chris McGratty with KBW. Please go ahead, Chris.

Oh, great, thanks. Brendon, the $1.1 billion that's coming off the bond book, I think you alluded that you probably will shrink the bond portfolio and put it into the loan book. I guess a question on how much of a remix we should think about for this year, ultimately, I'm trying to get at two things: the level of borrowings that you're going to have to do and your ultimate comfort with the loan-to-deposit ratio.

Yes, we're comfortable with allowing the loan deposit ratio to increase from here. We have ample room and significant wholesale funding capacity. The extent to which borrowings are utilized for loan growth will depend on how effectively we maintain stable deposits.

Okay. But the goal is roughly stable deposits, right?

Right.

Thanks, Chris.

There are no further questions at this time. I'd like to turn the call back to Jim Ryan for closing remarks.

Well, thanks for all your attendance. I appreciate all the questions. We will be around all day long to answer any follow-up questions. Thanks and look forward to talking with you soon.

This concludes Old National's call. Once again, a replay along with the presentation slides will be available for 12 months on the Investor Relations page of Old National's website, oldnational.com. A replay of the call will also be available by dialing 866-813-9403 and the access code 104806. This replay will be available through February 7th. If anyone has any additional questions, please contact Lynell Walton at 812-464-1366. Thank you for your participation in today's conference call.