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Loans and Allowance for Credit Losses (Tables)

3 Months Ended

Mar. 31, 2020

Schedule of Composition of Loans and Impact of Adoption

The composition of loans by portfolio segment as of December 31, 2019 follows:


(dollars in thousands)	December 31, 2019 Statement Balance		Segment Portfolio Reclassifications		December 31, 2019 After Reclassifications
Loans:
Commercial	$	2,890,296	$	(75,142)	$	2,815,154
Commercial real estate	5,166,792		(277,539)		4,889,253
BBCC	N/A		352,681		352,681
Residential real estate	2,334,289		—		2,334,289
Consumer	1,726,147		(1,726,147)		N/A
Indirect	N/A		935,584		935,584
Direct	N/A		228,524		228,524
Home equity	N/A		562,039		562,039
Total	$	12,117,524	$	—	$	12,117,524
Allowance:
Commercial	$	(22,585)	$	1,226	$	(21,359)
Commercial real estate	(21,588)		1,053		(20,535)
BBCC	N/A		(2,279)		(2,279)
Residential real estate	(2,299)		—		(2,299)
Consumer	(8,147)		8,147		N/A
Indirect	N/A		(5,319)		(5,319)
Direct	N/A		(1,863)		(1,863)
Home equity	N/A		(965)		(965)
Total	$	(54,619)	$	—	$	(54,619)

The following table illustrates the impact of adoption of the ASU:


(dollars in thousands)	December 31, 2019 After Reclassifications		Impact of ASC 326 Adoption		January 1, 2020 Post-ASC 326 Adoption
Assets:
Loans, net of unearned income:
Commercial	$	2,815,154	$	2,679	$	2,817,833
Commercial real estate	4,889,253		1,637		4,890,890
BBCC	352,681		33		352,714
Residential real estate	2,334,289		105		2,334,394
Indirect	935,584		10		935,594
Direct	228,524		2		228,526
Home equity	562,039		12		562,051
Total	12,117,524		4,478		12,122,002
Allowance:
Commercial	(21,359)		(7,150)		(28,509)
Commercial real estate	(20,535)		(25,548)		(46,083)
BBCC	(2,279)		(3,702)		(5,981)
Residential real estate	(2,299)		(6,986)		(9,285)
Indirect	(5,319)		1,669		(3,650)
Direct	(1,863)		1,059		(804)
Home equity	(965)		(689)		(1,654)
Total allowance for credit losses on loans	(54,619)		(41,347)		(95,966)
Net loans	$	12,062,905	$	(36,869)	$	12,026,036
Net deferred tax assets	$	29,705	$	10,268	$	39,973

Liabilities:
Allowance for credit losses on unfunded loan commitments	$	2,656	$	4,549	$	7,205

Shareholders' equity:
Retained earnings	$	682,185	$	(31,150)	$	651,035

The composition of loans by portfolio segment as of December 31, 2019 and January 1, 2020 follows:


	December 31, 2019		Credit		December 31, 2019		Impact of		January 1, 2020
	Statement		Risk		After		ASC 326		Post-ASC 326
(dollars in thousands)	Balance		Reclassifications		Reclassifications		Adoption		Adoption
Loans:
Commercial	$	2,890,296	$	(75,142)	$	2,815,154	$	2,679	$	2,817,833
Commercial real estate	5,166,792		(277,539)		4,889,253		1,637		4,890,890
BBCC	N/A		352,681		352,681		33		352,714
Residential real estate	2,334,289		—		2,334,289		105		2,334,394
Consumer	1,726,147		(1,726,147)		N/A		N/A		N/A
Indirect	N/A		935,584		935,584		10		935,594
Direct	N/A		228,524		228,524		2		228,526
Home equity	N/A		562,039		562,039		12		562,051
Total	$	12,117,524	$	—	$	12,117,524	$	4,478	$	12,122,002
Allowance:
Commercial	$	(22,585)	$	1,226	$	(21,359)	$	(7,150)	$	(28,509)
Commercial real estate	(21,588)		1,053		(20,535)		(25,548)		(46,083)
BBCC	N/A		(2,279)		(2,279)		(3,702)		(5,981)
Residential real estate	(2,299)		—		(2,299)		(6,986)		(9,285)
Consumer	(8,147)		8,147		N/A		N/A		N/A
Indirect	N/A		(5,319)		(5,319)		1,669		(3,650)
Direct	N/A		(1,863)		(1,863)		1,059		(804)
Home equity	N/A		(965)		(965)		(689)		(1,654)
Total	$	(54,619)	$	—	$	(54,619)	$	(41,347)	$	(95,966)

Schedule of Composition of Loans

The composition of loans by portfolio segment follows:


(dollars in thousands)	March 31, 2020		January 1, 2020
Commercial (1)	$	2,844,465	$	2,817,833
Commercial real estate	5,118,439		4,890,890
BBCC	367,139		352,714
Residential real estate	2,327,851		2,334,394
Indirect	953,136		935,594
Direct	211,793		228,526
Home equity	561,789		562,051
Total loans	12,384,612		12,122,002
Allowance for credit losses	(106,380)		(95,966)
Net loans	$	12,278,232	$	12,026,036

(1)Includes direct finance leases of $44.4 million at March 31, 2020 and $47.2 million at December 31, 2019.

Schedule of Activity in Allowance for Loan Losses

Old National’s activity in the allowance for credit losses for loans by portfolio segment for the three months ended March 31, 2020 was as follows:


(dollars in thousands)	Balance at Beginning of Period		Impact of Adopting ASC 326		Sub-Total		Charge-offs		Recoveries		Provision for Credit Losses		Balance at End of Period
Three Months Ended March 31, 2020
Commercial	$	21,359	$	7,150	$	28,509	$	(5,042)	$	357	$	7,301	$	31,125
Commercial real estate	20,535		25,548		46,083		(1,292)		669		8,643		54,103
BBCC	2,279		3,702		5,981		(15)		66		(615)		5,417
Residential real estate	2,299		6,986		9,285		(300)		169		483		9,637
Indirect	5,319		(1,669)		3,650		(1,203)		414		805		3,666
Direct	1,863		(1,059)		804		(475)		152		341		822
Home equity	965		689		1,654		(118)		82		(8)		1,610
Total allowance for credit losses	$	54,619	$	41,347	$	95,966	$	(8,445)	$	1,909	$	16,950	$	106,380

Old National’s activity in the allowance for credit losses on unfunded loan commitments for the three months ended March 31, 2020 was as follows:


(dollars in thousands)	Total
Three months ended March 31, 2020
Allowance for credit losses on unfunded loan commitments:
Balance at beginning of period	$	2,656
Impact of adopting ASC 326	4,549
Sub-Total	7,205
Expense (reversal of expense) for credit losses	1,745
Balance at end of period	$	8,950

Old National's activity in the allowance for loan losses for the three months ended March 31, 2019 was as follows:


(dollars in thousands)	Commercial		Commercial Real Estate		Residential		Consumer		Total






Three Months Ended March 31, 2019
Balance at beginning of period	$	21,742	$	23,470	$	2,277	$	7,972	$	55,461
Charge-offs	(160)		(235)		(178)		(2,319)		(2,892)
Recoveries	375		570		72		930		1,947
Provision	(1,551)		1,364		131		1,099		1,043
Balance at end of period	$	20,406	$	25,169	$	2,302	$	7,682	$	55,559

The following table disaggregates Old National's allowance for credit losses and amortized cost basis in loans by measurement methodology at December 31, 2019:


(dollars in thousands)	Commercial		Commercial Real Estate		Residential		Consumer		Total
December 31, 2019
Allowance for loan losses:
Individually evaluated for impairment	$	7,891	$	1,006	$	—	$	—	$	8,897
Collectively evaluated for impairment	14,692		20,582		2,299		7,954		45,527
Loans acquired with deteriorated credit quality	2		—		—		193		195
Total allowance for loan losses	$	22,585	$	21,588	$	2,299	$	8,147	$	54,619
Loans and leases outstanding:
Individually evaluated for impairment	$	41,479	$	63,288	$	—	$	—	$	104,767
Collectively evaluated for impairment	2,843,536		5,084,737		2,326,907		1,723,715		11,978,895
Loans acquired with deteriorated credit quality	5,281		18,767		7,382		2,432		33,862
Total loans and leases outstanding	$	2,890,296	$	5,166,792	$	2,334,289	$	1,726,147	$	12,117,524

Schedule of Risk Category of Loans and Amortized Cost

The following table summarizes the risk category of commercial, commercial real estate, and BBCC loans by loan portfolio segment and class of loan:


	Risk Rating
(dollars in thousands)	Pass		Criticized		Classified - substandard		Classified - nonaccrual		Classified - doubtful		Total
March 31, 2020
Commercial:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	339,465	$	9,386	$	9,935	$	816	$	3,051	$	362,653
2016	177,397		6,799		4,268		784		803		190,051
2017	342,542		12,704		13,345		2,324		9,838		380,753
2018	312,229		12,995		7,893		5,905		157		339,179
2019	546,484		4,707		5,421		3,274		2,254		562,140
2020	213,893		1,708		751		—		—		216,352
Revolving Loans	581,830		39,157		18,326		3,905		—		643,218
Revolving to Term Loans	138,584		1,356		3,397		6,782		—		150,119
Total	$	2,652,424	$	88,812	$	63,336	$	23,790	$	16,103	$	2,844,465

Commercial real estate:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	793,743	$	22,910	$	12,944	$	15,352	$	3,881	$	848,830
2016	596,312		12,915		17,519		14,368		212		641,326
2017	838,575		69,842		27,025		1,830		4,356		941,628
2018	864,477		7,933		23,741		3,525		3,300		902,976
2019	1,149,445		20,007		2,878		2,177		1,965		1,176,472
2020	280,341		—		39		—		—		280,380
Revolving Loans	25,474		500		212		—		—		26,186
Revolving to Term Loans	282,936		6,522		10,792		391		—		300,641
Total	$	4,831,303	$	140,629	$	95,150	$	37,643	$	13,714	$	5,118,439

BBCC:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	17,943	$	—	$	—	$	—	$	187	$	18,130
2016	30,762		1,024		551		538		53		32,928
2017	45,700		522		1,028		575		—		47,825
2018	61,865		512		—		1,070		61		63,508
2019	90,970		877		1,443		438		—		93,728
2020	26,069		172		—		46		—		26,287
Revolving Loans	58,040		4,044		644		76		—		62,804
Revolving to Term Loans	18,679		1,419		1,008		823		—		21,929
Total	$	350,028	$	8,570	$	4,674	$	3,566	$	301	$	367,139

The following table presents the amortized cost in residential real estate and consumer loans based on payment activity:


	Payment Performance
(dollars in thousands)	Performing		Nonperforming		Total
March 31, 2020
Residential real estate:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	826,831	$	20,629	$	847,460
2016	292,199		1,755		293,954
2017	303,763		661		304,424
2018	219,650		425		220,075
2019	561,322		97		561,419
2020	100,385		—		100,385
Revolving Loans	—		—		—
Revolving to Term Loans	134		—		134
Total	$	2,304,284	$	23,567	$	2,327,851
Indirect:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	53,056	$	277	$	53,333
2016	99,915		685		100,600
2017	152,882		1,113		153,995
2018	199,211		568		199,779
2019	348,865		242		349,107
2020	96,230		—		96,230
Revolving Loans	—		—		—
Revolving to Term Loans	92		—		92
Total	$	950,251	$	2,885	$	953,136
Direct:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	29,807	$	535	$	30,342
2016	15,445		249		15,694
2017	28,370		145		28,515
2018	48,587		214		48,801
2019	46,602		51		46,653
2020	12,485		—		12,485
Revolving Loans	27,834		—		27,834
Revolving to Term Loans	1,468		1		1,469
Total	$	210,598	$	1,195	$	211,793
Home equity:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	—	$	—	$	—
2016	240		326		566
2017	1,002		37		1,039
2018	719		—		719
2019	1,085		31		1,116
2020	—		—		—
Revolving Loans	535,095		189		535,284
Revolving to Term Loans	19,425		3,640		23,065
Total	$	557,566	$	4,223	$	561,789

The risk category or commercial and commercial real estate loans by class of loans at December 31, 2019 was as follows:


(dollars in thousands)	Commercial		Commercial Real Estate - Construction		Commercial Real Estate - Other
Corporate Credit Exposure Credit Risk Profile by Internally Assigned Grade	December 31, 2019		December 31, 2019		December 31, 2019
Grade:
Pass	$	2,702,605	$	665,512	$	4,191,455
Criticized	84,676		34,651		115,514
Classified - substandard	63,979		—		101,693
Classified - nonaccrual	22,240		12,929		38,822
Classified - doubtful	16,796		—		6,216
Total	$	2,890,296	$	713,092	$	4,453,700

The following table presents the recorded investment in residential and consumer loans based on payment activity at December 31, 2019:


			Consumer
(dollars in thousands)	Residential		Home Equity		Auto		Other
December 31, 2019
Performing	$	2,311,670	$	555,025	$	1,013,760	$	147,383
Nonperforming	22,619		3,996		3,527		2,456
Total	$	2,334,289	$	559,021	$	1,017,287	$	149,839

Schedule of Past Due Financing Receivables

The following table presents the aging of the amortized cost basis in past due loans as of March 31, 2020 by class of loans:


(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Past Due 90 Days or More		Total Past Due		Current		Total Loans
March 31, 2020
Commercial	$	3,578	$	1,707	$	9,156	$	14,441	$	2,830,024	$	2,844,465
Commercial Real Estate	6,114		2,200		13,412		21,726		5,096,713		5,118,439
BBCC	419		156		234		809		366,330		367,139
Residential	13,895		4,603		9,255		27,753		2,300,098		2,327,851
Indirect	6,358		963		339		7,660		945,476		953,136
Direct	1,513		183		325		2,021		209,772		211,793
Home equity	1,755		474		1,761		3,990		557,799		561,789
Total	$	33,632	$	10,286	$	34,482	$	78,400	$	12,306,212	$	12,384,612

Schedule of Nonaccrual and Past Due Loans

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing by class of loan:


(dollars in thousands)	Beginning of Period Nonaccrual Amortized Cost		End of Period Nonaccrual Amortized Cost		Nonaccrual With No Related Allowance		Past Due 90 Days or More and Accruing		Interest Income Recognized on Nonaccrual
At or for the Three Months Ended March 31, 2020
Commercial	$	40,103	$	39,893	$	7,040	$	3	$	—
Commercial Real Estate	58,350		51,355		13,281		165		—
BBCC	4,530		3,869		—		—		—
Residential	20,970		23,567		—		112		—
Indirect	3,318		2,885		—		81		—
Direct	1,303		1,195		—		102		—
Home equity	3,857		4,223		34		195		—
Total	$	132,431	$	126,987	$	20,355	$	658	$	—

The following table presents the amortized cost basis of collateral-dependent loans by class of loan:


	Type of Collateral
(dollars in thousands)	Real Estate		Blanket Lien		Investment Securities/Cash		Auto		Other
March 31, 2020
Commercial	$	6,802	$	23,175	$	8,209	$	396	$	1,522
Commercial Real Estate	40,361		150		3,199		—		179
BBCC	1,930		1,614		59		246		—
Residential	23,567		—		—		—		—
Indirect	—		—		—		2,885		—
Direct	863		—		8		265		—
Home equity	4,223		—		—		—		—
Total loans	$	77,746	$	24,939	$	11,475	$	3,792	$	1,701

Schedule of Activity in Trouble Debt Restructurings

The following table presents activity in TDRs for the three months ended March 31, 2020:


(dollars in thousands)	Beginning Balance		(Charge-offs)/ Recoveries		(Payments)/ Disbursements		Additions		Ending Balance
Three months ended March 31, 2020
Commercial	$	12,412	$	(695)	$	(789)	$	—	$	10,928
Commercial Real Estate	14,277		(1,272)		(157)		—		12,848
BBCC	578		—		(16)		—		562
Residential	3,107		—		(67)		—		3,040
Indirect	—		3		(3)		—		—
Direct	983		2		(63)		—		922
Home equity	381		1		(8)		—		374
Total	$	31,738	$	(1,961)	$	(1,103)	$	—	$	28,674

The following table presents activity in TDRs for the three months ended March 31, 2019:


(dollars in thousands)	Beginning Balance		(Charge-offs)/ Recoveries		(Payments)/ Disbursements		Additions		Ending Balance
Commercial	$	10,275	$	(7)	$	(1,029)	$	2,407	$	11,646
Commercial Real Estate	27,671		(75)		(1,562)		3,103		29,137
Residential	3,390		—		(143)		—		3,247
Consumer	2,374		(3)		(58)		—		2,313
Total	$	43,710	$	(85)	$	(2,792)	$	5,510	$	46,343

Schedule of Loans by Class Modified as Troubled Debt Restructuring

The following table presents loans modified as TDRs that occurred during the three months ended March 31, 2020 and 2019:


(dollars in thousands)			Total
Three Months Ended March 31, 2020
TDR:
Number of loans			—
Pre-modification outstanding recorded investment			—
Post-modification outstanding recorded investment			—

Three Months Ended March 31, 2019
TDR:
Number of loans			4
Pre-modification outstanding recorded investment			5,510
Post-modification outstanding recorded investment			5,510

Schedule of Impaired Loans

Only purchased loans that have experienced subsequent impairment since the date acquired (excluding loans acquired with deteriorated credit quality) are included in the table below.


(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
December 31, 2019
With no related allowance recorded:
Commercial	$	23,227	$	23,665	$	—
Commercial Real Estate - Construction	12,929		12,929		—
Commercial Real Estate - Other	37,674		38,112		—
Residential	1,774		1,794		—
Consumer	403		568		—
With an allowance recorded:
Commercial	18,252		18,305		7,891

Commercial Real Estate - Other	12,685		12,685		1,006
Residential	1,201		1,201		39
Consumer	1,094		1,094		55
Total	$	109,239	$	110,353	$	8,991

The average balance of impaired loans during the three months ended March 31, 2019 are included in the table below.


(dollars in thousands)	Three Months Ended March 31, 2019
Average Recorded Investment
With no related allowance recorded:
Commercial	$	23,688
Commercial Real Estate - Construction	5,477
Commercial Real Estate - Other	40,135
Residential	2,289
Consumer	660
With an allowance recorded:
Commercial	11,347
Commercial Real Estate - Construction	8,690
Commercial Real Estate - Other	26,279
Residential	881
Consumer	1,693
Total	$	121,139