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Loans and Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2019

The composition of loans by lending classification was as follows:

	September 30,			December 31,
(dollars in thousands)	2019			2018
Commercial (1)	$	2,950,559		$	3,232,970
Commercial real estate:
Construction		592,348			504,625
Other		4,519,775			4,454,226
Residential real estate		2,236,623			2,248,404
Consumer credit:
Home equity		555,905			589,322
Auto		1,005,535			1,059,633
Other		156,903			154,712
Total loans		12,017,648			12,243,892
Allowance for loan losses		(56,910	)		(55,461	)
Net loans	$	11,960,738		$	12,188,431

(1)

Includes direct finance leases of $50.0 million at September 30, 2019 and $60.0 million at December 31, 2018.

Schedule of Activity in Allowance for Loan Losses

Old National’s activity in the allowance for loan losses for the three and nine months ended September 30, 2019 and 2018 was as follows:

				Commercial
(dollars in thousands)	Commercial			Real Estate			Residential			Consumer			Total
Three Months Ended September 30, 2019
Balance at beginning of period	$	22,548		$	23,311		$	2,269		$	8,164		$	56,292
Charge-offs		(420	)		(191	)		(384	)		(1,721	)		(2,716	)
Recoveries		374			669			26			828			1,897
Provision		(373	)		465			452			893			1,437
Balance at end of period	$	22,129		$	24,254		$	2,363		$	8,164		$	56,910

Three Months Ended September 30, 2018
Balance at beginning of period	$	21,387		$	22,498		$	1,867		$	7,908		$	53,660
Charge-offs		(1,662	)		(241	)		(284	)		(2,074	)		(4,261	)
Recoveries		467			944			45			1,108			2,564
Provision		(473	)		(309	)		292			1,240			750
Balance at end of period	$	19,719		$	22,892		$	1,920		$	8,182		$	52,713

Nine Months Ended September 30, 2019
Balance at beginning of period	$	21,742		$	23,470		$	2,277		$	7,972		$	55,461
Charge-offs		(1,184	)		(815	)		(702	)		(5,784	)		(8,485	)
Recoveries		1,083			2,444			107			2,817			6,451
Provision		488			(845	)		681			3,159			3,483
Balance at end of period	$	22,129		$	24,254		$	2,363		$	8,164		$	56,910

Nine Months Ended September 30, 2018
Balance at beginning of period	$	19,246		$	21,436		$	1,763		$	7,936		$	50,381
Charge-offs		(2,378	)		(675	)		(941	)		(6,006	)		(10,000	)
Recoveries		1,227			2,011			1,890			3,628			8,756
Provision		1,624			120			(792	)		2,624			3,576
Balance at end of period	$	19,719		$	22,892		$	1,920		$	8,182		$	52,713

Schedule of Recorded Investment in Loans

The following table presents Old National’s recorded investment in loans by portfolio segment at September 30, 2019 and December 31, 2018 and other information regarding the allowance:

			Commercial
(dollars in thousands)	Commercial		Real Estate		Residential		Consumer		Total
September 30, 2019
Allowance for loan losses:
Individually evaluated for impairment	$	7,855	$	4,485	$	—	$	—	$	12,340
Collectively evaluated for impairment		14,273		19,621		2,363		7,968		44,225
Loans acquired with deteriorated credit quality		1		148		—		196		345
Total allowance for loan losses	$	22,129	$	24,254	$	2,363	$	8,164	$	56,910
Loans and leases outstanding:
Individually evaluated for impairment	$	40,270	$	73,627	$	—	$	—	$	113,897
Collectively evaluated for impairment		2,904,851		5,016,357		2,228,965		1,715,701		11,865,874
Loans acquired with deteriorated credit quality		5,438		22,139		7,658		2,642		37,877
Total loans and leases outstanding	$	2,950,559	$	5,112,123	$	2,236,623	$	1,718,343	$	12,017,648

December 31, 2018
Allowance for loan losses:
Individually evaluated for impairment	$	6,035	$	8,306	$	—	$	—	$	14,341
Collectively evaluated for impairment		15,700		14,845		2,276		7,821		40,642
Loans acquired with deteriorated credit quality		7		319		1		151		478
Total allowance for loan losses	$	21,742	$	23,470	$	2,277	$	7,972	$	55,461
Loans and leases outstanding:
Individually evaluated for impairment	$	35,410	$	83,104	$	—	$	—	$	118,514
Collectively evaluated for impairment		3,191,367		4,850,356		2,239,147		1,800,115		12,080,985
Loans acquired with deteriorated credit quality		6,193		25,391		9,257		3,552		44,393
Total loans and leases outstanding	$	3,232,970	$	4,958,851	$	2,248,404	$	1,803,667	$	12,243,892

Schedule of Risk Category of Commercial and Commercial Real Estate Loans

The risk category of commercial and commercial real estate loans by class of loans at September 30, 2019 and December 31, 2018 was as follows:

(dollars in thousands)					Commercial				Commercial
					Real Estate -				Real Estate -
Corporate Credit Exposure	Commercial				Construction				Other
Credit Risk Profile by	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
Internally Assigned Grade	2019		2018		2019		2018		2019		2018
Grade:
Pass	$	2,773,941	$	3,029,130	$	553,854	$	460,158	$	4,251,014	$	4,167,902
Criticized		89,079		98,798		24,839		29,368		119,601		110,586
Classified - substandard		49,659		66,394		—		1,275		92,372		102,961
Classified - nonaccrual		30,067		29,003		13,655		13,824		37,972		37,441
Classified - doubtful		7,813		9,645		—		—		18,816		35,336
Total	$	2,950,559	$	3,232,970	$	592,348	$	504,625	$	4,519,775	$	4,454,226

Schedule of Recorded Investment in Residential and Consumer Loans Based on Payment Activity

The following table presents the recorded investment in residential and consumer loans based on payment activity at September 30, 2019 and December 31, 2018:

			Consumer
			Home
(dollars in thousands)	Residential		Equity		Auto		Other
September 30, 2019
Performing	$	2,215,864	$	551,129	$	1,002,091	$	155,707
Nonperforming		20,759		4,776		3,444		1,196
Total	$	2,236,623	$	555,905	$	1,005,535	$	156,903

December 31, 2018
Performing	$	2,223,450	$	586,235	$	1,057,038	$	153,113
Nonperforming		24,954		3,087		2,595		1,599
Total	$	2,248,404	$	589,322	$	1,059,633	$	154,712

Schedule of Impaired Loans

The following table shows Old National’s impaired loans at September 30, 2019 and December 31, 2018, respectively. 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.

			Unpaid
	Recorded		Principal		Related
(dollars in thousands)	Investment		Balance		Allowance
September 30, 2019
With no related allowance recorded:
Commercial	$	19,154	$	19,462	$	—
Commercial Real Estate - Construction		10,890		10,890		—
Commercial Real Estate - Other		38,517		39,942		—
Residential		1,783		1,803		—
Consumer		1,137		1,303		—
With an allowance recorded:
Commercial		21,116		21,169		7,855
Commercial Real Estate - Construction		2,764		2,764		1,183
Commercial Real Estate - Other		21,456		21,456		3,302
Residential		990		990		39
Consumer		1,065		1,065		53
Total	$	118,872	$	120,844	$	12,432

December 31, 2018
With no related allowance recorded:
Commercial	$	22,031	$	22,292	$	—
Commercial Real Estate - Other		41,126		41,914		—
Residential		2,276		2,296		—
Consumer		362		535		—
With an allowance recorded:
Commercial		13,379		13,432		6,035
Commercial Real Estate - Construction		13,824		13,824		1,830
Commercial Real Estate - Other		28,154		28,154		6,476
Residential		889		889		44
Consumer		2,013		2,013		101
Total	$	124,054	$	125,349	$	14,486

Schedule of Average Balance of Impaired Loans

The average balance of impaired loans during the three and nine months ended September 30, 2019 and 2018 are included in the table below.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(dollars in thousands)		2019		2018		2019		2018
Average Recorded Investment
With no related allowance recorded:
Commercial	$	20,147	$	19,960	$	20,593	$	20,445
Commercial Real Estate - Construction		10,964		—		5,445		—
Commercial Real Estate - Other		34,073		45,302		39,821		42,209
Residential		2,066		2,303		2,145		2,289
Consumer		1,166		1,392		1,096		1,617
With an allowance recorded:
Commercial		19,866		14,771		17,248		10,393
Commercial Real Estate - Construction		2,764		11,307		8,294		7,537
Commercial Real Estate - Other		21,019		24,305		24,806		26,537
Residential		924		863		907		887
Consumer		1,204		1,909		1,260		2,013
Total	$	114,193	$	122,112	$	121,615	$	113,927

Schedule of Past Due Financing Receivables

Old National’s past due loans at September 30, 2019 and December 31, 2018 were as follows:

					Past Due
					90 Days or
	30-59 Days		60-89 Days		More and				Total
(dollars in thousands)	Past Due		Past Due		Accruing		Nonaccrual (1)		Past Due		Current
September 30, 2019
Commercial	$	2,218	$	1,181	$	100	$	37,880	$	41,379	$	2,909,180
Commercial Real Estate:
Construction		—		300		—		13,655		13,955		578,393
Other		549		90		—		56,788		57,427		4,462,348
Residential		8,620		3,546		64		20,759		32,989		2,203,634
Consumer:
Home equity		1,008		118		233		4,776		6,135		549,770
Auto		6,069		769		190		3,444		10,472		995,063
Other		695		105		116		1,196		2,112		154,791
Total loans	$	19,159	$	6,109	$	703	$	138,498	$	164,469	$	11,853,179

December 31, 2018
Commercial	$	3,627	$	279	$	52	$	38,648	$	42,606	$	3,190,364
Commercial Real Estate:
Construction		—		—		—		13,824		13,824		490,801
Other		1,633		500		40		72,777		74,950		4,379,276
Residential		25,947		3,437		258		24,954		54,596		2,193,808
Consumer:
Home equity		1,434		960		456		3,087		5,937		583,385
Auto		7,091		1,903		377		2,595		11,966		1,047,667
Other		711		210		170		1,599		2,690		152,022
Total loans	$	40,443	$	7,289	$	1,353	$	157,484	$	206,569	$	12,037,323

(1)

Includes purchased credit impaired loans of $11.0 million at September 30, 2019 and $20.5 million at December 31, 2018 that are categorized as nonaccrual for credit analysis purposes because the collection of principal or interest is doubtful. However, these loans are accounted for under FASB ASC 310-30 and accordingly treated as performing assets.

Schedule of Activity in Trouble Debt Restructurings

The following table presents activity in TDRs for the three and nine months ended September 30, 2019 and 2018:

				Commercial
(dollars in thousands)	Commercial			Real Estate			Residential			Consumer			Total
Three Months Ended September 30, 2019
Balance at beginning of period	$	18,872		$	19,363		$	3,080		$	2,516		$	43,831
(Charge-offs)/recoveries		12			13			—			7			32
(Payments)/disbursements		(2,303	)		(1,057	)		(865	)		(322	)		(4,547	)
Additions		530			—			557			—			1,087
Balance at end of period	$	17,111		$	18,319		$	2,772		$	2,201		$	40,403

Three Months Ended September 30, 2018
Balance at beginning of period	$	9,043		$	34,927		$	3,771		$	3,398		$	51,139
(Charge-offs)/recoveries		(7	)		753			—			3			749
(Payments)/disbursements		453			(6,601	)		(75	)		(200	)		(6,423	)
Additions		1,954			—			—			—			1,954
Balance at end of period	$	11,443		$	29,079		$	3,696		$	3,201		$	47,419

Nine Months Ended September 30, 2019
Balance at beginning of period	$	10,275		$	27,671		$	3,390		$	2,374		$	43,710
(Charge-offs)/recoveries		(89	)		(58	)		—			8			(139	)
(Payments)/disbursements		(3,307	)		(19,321	)		(1,175	)		(497	)		(24,300	)
Additions		10,232			10,027			557			316			21,132
Balance at end of period	$	17,111		$	18,319		$	2,772		$	2,201		$	40,403

Nine Months Ended September 30, 2018
Balance at beginning of period	$	12,088		$	34,705		$	3,315		$	3,895		$	54,003
(Charge-offs)/recoveries		(158	)		731			23			(19	)		577
(Payments)/disbursements		(3,525	)		(7,570	)		(144	)		(1,107	)		(12,346	)
Additions		3,038			1,213			502			432			5,185
Balance at end of period	$	11,443		$	29,079		$	3,696		$	3,201		$	47,419

Schedule of Loans by Class Modified as Troubled Debt Restructuring

The following table presents loans by class modified as TDRs that occurred during the nine months ended September 30, 2019 and 2018:

		Pre-modification		Post-modification
		Outstanding		Outstanding
	Number	Recorded		Recorded
(dollars in thousands)	of Loans	Investment		Investment
Nine Months Ended September 30, 2019
TDR:
Commercial	8	$	10,232	$	10,232
Commercial Real Estate - Other	4		10,027		10,027
Residential	1		557		557
Consumer	1		316		316
Total	14	$	21,132	$	21,132

Nine Months Ended September 30, 2018
TDR:
Commercial	5	$	3,038	$	3,038
Commercial Real Estate - Other	2		1,213		1,213
Residential	1		502		502
Consumer	1		432		432
Total	9	$	5,185	$	5,185

Schedule of Activity of Purchased Impaired Loans

The carrying amount of those loans was as follows:

	September 30,			December 31,
(dollars in thousands)	2019			2018
Commercial	$	5,438		$	6,193
Commercial real estate		22,139			25,391
Residential		7,658			9,257
Consumer		2,642			3,552
Carrying amount		37,877			44,393
Allowance for loan losses		(345	)		(478	)
Carrying amount, net of allowance	$	37,532		$	43,915

Schedule of Accretable Yield of PCI Loans, or Income Expected to be Collected

Accretable yield of PCI loans, or income expected to be collected, was as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(dollars in thousands)	2019			2018			2019			2018
Balance at beginning of period	$	22,414		$	24,249		$	25,051		$	27,835
Accretion of income		(4,848	)		(1,854	)		(8,988	)		(8,927	)
Reclassifications from (to) nonaccretable difference		620			1,599			2,202			5,065
Disposals/other adjustments		118			1			39			22
Balance at end of period	$	18,304		$	23,995		$	18,304		$	23,995

Schedule of Receivables for which Contractually Required Payments would not be Collected

PCI loans purchased during 2018 for which it was probable at acquisition that all contractually required payments would not be collected were as follows:

(dollars in thousands)	Klein (1)
Contractually required payments	$	18,568
Nonaccretable difference		(4,521	)
Cash flows expected to be collected at acquisition		14,047
Accretable yield		(2,384	)
Fair value of acquired loans at acquisition	$	11,663

(1)

Old National acquired Klein effective November 1, 2018.