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Loans and Allowance for Credit Losses (Tables)

6 Months Ended

Jun. 30, 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 June 30, 2020 follows:


	June 30, 2020		Segment		June 30, 2020
	Statement		Portfolio		After
(dollars in thousands)	Balance		Reclassifications		Reclassifications
Loans:
Commercial	$	4,307,505	$	(193,861)	$	4,113,644
Commercial real estate	5,403,316		(166,369)		5,236,947
BBCC	N/A		360,230		360,230
Residential real estate	2,229,298		—		2,229,298
Consumer	1,675,582		(1,675,582)		N/A
Indirect	N/A		933,723		933,723
Direct	N/A		194,573		194,573
Home equity	N/A		547,286		547,286
Total	$	13,615,701	$	—	$	13,615,701

Schedule of Composition of Loans

The composition of loans by portfolio segment follows:


(dollars in thousands)	June 30, 2020		January 1, 2020
Commercial (1) (2)	$	4,113,644	$	2,817,833
Commercial real estate	5,236,947		4,890,890
BBCC	360,230		352,714
Residential real estate	2,229,298		2,334,394
Indirect	933,723		935,594
Direct	194,573		228,526
Home equity	547,286		562,051
Total loans	13,615,701		12,122,002
Allowance for credit losses	(128,394)		(95,966)
Net loans	$	13,487,307	$	12,026,036

(1)Includes direct finance leases of $42.1 million at June 30, 2020 and $47.2 million at January 1, 2020.

(2)Includes PPP loans of $1.463 billion at June 30, 2020.

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 and six months ended June 30, 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 June 30, 2020
Commercial	$	31,125	$	—	$	31,125	$	(136)	$	553	$	(1,924)	$	29,618
Commercial real estate	54,103		—		54,103		(1,160)		246		17,880		71,069
BBCC	5,417		—		5,417		(66)		56		925		6,332
Residential real estate	9,637		—		9,637		(16)		42		4,581		14,244
Indirect	3,666		—		3,666		(367)		494		660		4,453
Direct	822		—		822		(405)		231		187		835
Home equity	1,610		—		1,610		(82)		79		236		1,843
Total allowance for credit losses	$	106,380	$	—	$	106,380	$	(2,232)	$	1,701	$	22,545	$	128,394

Six Months Ended June 30, 2020
Commercial	$	21,359	$	7,150	$	28,509	$	(5,178)	$	910	$	5,377	$	29,618
Commercial real estate	20,535		25,548		46,083		(2,452)		915		26,523		71,069
BBCC	2,279		3,702		5,981		(81)		122		310		6,332
Residential real estate	2,299		6,986		9,285		(316)		211		5,064		14,244
Indirect	5,319		(1,669)		3,650		(1,570)		908		1,465		4,453
Direct	1,863		(1,059)		804		(880)		383		528		835
Home equity	965		689		1,654		(200)		161		228		1,843
Total allowance for credit losses	$	54,619	$	41,347	$	95,966	$	(10,677)	$	3,610	$	39,495	$	128,394

Old National’s activity in the allowance for credit losses on unfunded loan commitments for the three and six months ended June 30, 2020 was as follows:


(dollars in thousands)	Three Months Ended June 30, 2020		Six Months Ended June 30, 2020
Allowance for credit losses on unfunded loan commitments:
Balance at beginning of period	$	8,950	$	2,656
Impact of adopting ASC 326	—		4,549
Sub-Total	8,950		7,205
Expense (reversal of expense) for credit losses	2,076		3,821
Balance at end of period	$	11,026	$	11,026

Old National's activity in the allowance for loan losses for the three and six months ended June 30, 2019 was as follows:


(dollars in thousands)	Commercial		Commercial Real Estate		Residential		Consumer		Total
Three Months Ended June 30, 2019
Balance at beginning of period	$	20,406	$	25,169	$	2,302	$	7,682	$	55,559
Charge-offs	(604)		(389)		(140)		(1,743)		(2,876)
Recoveries	334		1,205		9		1,058		2,606
Provision	2,412		(2,674)		98		1,167		1,003
Balance at end of period	$	22,548	$	23,311	$	2,269	$	8,164	$	56,292

Six Months Ended June 30, 2019
Balance at beginning of period	$	21,742	$	23,470	$	2,277	$	7,972	$	55,461
Charge-offs	(764)		(624)		(318)		(4,063)		(5,769)
Recoveries	709		1,775		81		1,989		4,554
Provision	861		(1,310)		229		2,266		2,046
Balance at end of period	$	22,548	$	23,311	$	2,269	$	8,164	$	56,292

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
June 30, 2020
Commercial:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	315,486	$	8,196	$	6,818	$	2,474	$	1,746	$	334,720
2016	164,951		4,737		4,641		832		619		175,780
2017	315,876		8,898		16,141		4,139		8,925		353,979
2018	279,110		16,801		11,808		5,219		483		313,421
2019	537,539		8,710		5,960		4,175		—		556,384
2020	1,683,849		2,347		1,133		—		—		1,687,329
Revolving Loans	502,947		19,101		13,462		3,067		—		538,577
Revolving to Term Loans	137,905		2,622		6,821		6,106		—		153,454
Total	$	3,937,663	$	71,412	$	66,784	$	26,012	$	11,773	$	4,113,644

Commercial real estate:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	696,386	$	17,734	$	17,006	$	15,380	$	3,214	$	749,720
2016	568,658		7,647		19,770		2,362		9,965		608,402
2017	769,069		53,841		38,710		3,886		4,267		869,773
2018	851,522		12,341		14,757		4,310		3,256		886,186
2019	1,030,103		39,620		2,754		2,172		1,920		1,076,569
2020	678,684		2,326		1,326		—		—		682,336
Revolving Loans	27,710		—		244		—		—		27,954
Revolving to Term Loans	318,622		6,370		10,647		368		—		336,007
Total	$	4,940,754	$	139,879	$	105,214	$	28,478	$	22,622	$	5,236,947

BBCC:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	12,140	$	—	$	—	$	—	$	91	$	12,231
2016	28,945		765		52		120		—		29,882
2017	42,552		639		196		408		72		43,867
2018	58,668		768		39		380		464		60,319
2019	87,160		1,411		1,199		529		—		90,299
2020	44,309		1,061		232		692		—		46,294
Revolving Loans	48,419		2,685		520		75		—		51,699
Revolving to Term Loans	21,631		1,682		1,110		1,216		—		25,639
Total	$	343,824	$	9,011	$	3,348	$	3,420	$	627	$	360,230

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
June 30, 2020
Residential real estate:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	783,682	$	20,693	$	804,375
2016	258,164		2,201		260,365
2017	263,238		628		263,866
2018	182,395		611		183,006
2019	532,392		117		532,509
2020	184,982		65		185,047
Revolving Loans	—		—		—
Revolving to Term Loans	130		—		130
Total	$	2,204,983	$	24,315	$	2,229,298
Indirect:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	39,794	$	231	$	40,025
2016	82,247		651		82,898
2017	133,548		1,018		134,566
2018	176,931		629		177,560
2019	317,495		306		317,801
2020	180,779		—		180,779
Revolving Loans	—		—		—
Revolving to Term Loans	94		—		94
Total	$	930,888	$	2,835	$	933,723
Direct:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	25,369	$	521	$	25,890
2016	12,951		278		13,229
2017	24,025		126		24,151
2018	41,987		157		42,144
2019	39,424		53		39,477
2020	21,258		—		21,258
Revolving Loans	26,350		—		26,350
Revolving to Term Loans	2,072		2		2,074
Total	$	193,436	$	1,137	$	194,573
Home equity:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016	$	—	$	—	$	—
2016	436		225		661
2017	1,067		37		1,104
2018	990		—		990
2019	1,116		30		1,146
2020	—		—		—
Revolving Loans	519,472		274		519,746
Revolving to Term Loans	19,878		3,761		23,639
Total	$	542,959	$	4,327	$	547,286

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


	December 31, 2019
(dollars in thousands)	Commercial		Commercial Real Estate - Construction		Commercial Real Estate - Other
Corporate Credit Exposure Credit Risk Profile by Internally Assigned Grade
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 June 30, 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
June 30, 2020
Commercial	$	1,229	$	845	$	5,489	$	7,563	$	4,106,081	$	4,113,644
Commercial Real Estate	312		10,728		14,547		25,587		5,211,360		5,236,947
BBCC	828		416		135		1,379		358,851		360,230
Residential	13,331		4,319		9,696		27,346		2,201,952		2,229,298
Indirect	3,187		580		791		4,558		929,165		933,723
Direct	856		260		435		1,551		193,022		194,573
Home equity	1,234		684		1,758		3,676		543,610		547,286
Total	$	20,977	$	17,832	$	32,851	$	71,660	$	13,544,041	$	13,615,701

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:


	January 1, 2020		March 31, 2020		June 30, 2020
(dollars in thousands)	Nonaccrual Amortized Cost		Nonaccrual Amortized Cost		Nonaccrual Amortized Cost		Nonaccrual With No Related Allowance		Past Due 90 Days or More and Accruing
Commercial	$	40,103	$	39,893	$	37,785	$	8,163	$	70
Commercial Real Estate	58,350		51,355		51,100		19,412		330
BBCC	4,530		3,869		4,048		—		—
Residential	20,970		23,567		24,315		—		42
Indirect	3,318		2,885		2,835		—		175
Direct	1,303		1,195		1,137		59		162
Home equity	3,857		4,223		4,326		32		—
Total	$	132,431	$	126,987	$	125,546	$	27,666	$	779

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
June 30, 2020
Commercial	$	9,143	$	19,503	$	7,628	$	456	$	1,107
Commercial Real Estate	38,065		2,251		3,156		—		160
BBCC	1,836		1,936		80		190		—
Residential	24,315		—		—		—		—
Indirect	—		—		—		2,835		—
Direct	862		—		8		255		—
Home equity	4,326		—		—		—		—
Total loans	$	78,547	$	23,690	$	10,872	$	3,736	$	1,267

Schedule of Activity in Trouble Debt Restructurings

The following table presents activity in TDRs for the three months ended June 30, 2020:


(dollars in thousands)	Beginning Balance		(Charge-offs)/ Recoveries		(Payments)/ Disbursements		Additions		Ending Balance
Three Months Ended June 30, 2020
Commercial	$	10,928	$	—	$	(330)	$	—	$	10,598
Commercial Real Estate	12,848		19		(161)		—		12,706
BBCC	562		31		(446)		—		147
Residential	3,040		—		(28)		—		3,012
Indirect	—		2		(2)		—		—
Direct	922		—		(143)		—		779
Home equity	374		1		(8)		—		367
Total	$	28,674	$	53	$	(1,118)	$	—	$	27,609

Six Months Ended June 30, 2020
Commercial	$	12,412	$	(694)	$	(1,120)	$	—	$	10,598
Commercial Real Estate	14,277		(1,253)		(318)		—		12,706
BBCC	578		31		(462)		—		147
Residential	3,107		—		(95)		—		3,012
Indirect	—		5		(5)		—		—
Direct	983		2		(206)		—		779
Home equity	381		2		(16)		—		367
Total	$	31,738	$	(1,907)	$	(2,222)	$	—	$	27,609

The following table presents activity in TDRs for the three and six months ended June 30, 2019:


(dollars in thousands)	Commercial		Commercial Real Estate		Residential		Consumer		Total
Three Months Ended June 30, 2019
Balance at beginning of period	$	11,646	$	29,137	$	3,247	$	2,313	$	46,343
(Charge-offs)/recoveries	(93)		4		—		4		(85)
(Payments)/disbursements	25		(16,702)		(167)		(117)		(16,961)
Additions	7,294		6,924		—		316		14,534
Balance at end of period	$	18,872	$	19,363	$	3,080	$	2,516	$	43,831

Six Months Ended June 30, 2019
Balance at beginning of period	$	10,275	$	27,671	$	3,390	$	2,374	$	43,710
(Charge-offs)/recoveries	(100)		(71)		—		(1)		(172)
(Payments)/disbursements	(1,004)		(18,264)		(310)		(173)		(19,751)
Additions	9,701		10,027		—		316		20,044
Balance at end of period	$	18,872	$	19,363	$	3,080	$	2,516	$	43,831

Schedule of Volume of Loan Deferrals

The table below presents the volume of loan deferrals through June 30, 2020 by loan category:


(dollars in thousands)	Number	Booked Amount		Booked % of Portfolio
Commercial	1,474	$	713,619	25	%
Commercial real estate	194	456,500		8
Residential real estate	335	78,639		3
Consumer	2,159	54,786		3
Total	4,162	$	1,303,544	11	%

Schedule of Loans by Class Modified as Troubled Debt Restructuring

The following table presents loans modified as TDRs that occurred during the six months ended June 30, 2020 and 2019:


(dollars in thousands)	Total
Six Months Ended June 30, 2020
TDR:
Number of loans	—
Pre-modification outstanding recorded investment	$	—
Post-modification outstanding recorded investment	—

Six Months Ended June 30, 2019
TDR:
Number of loans	12
Pre-modification outstanding recorded investment	$	20,044
Post-modification outstanding recorded investment	20,044

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 and six months ended June 30, 2019 are included in the table below.


(dollars in thousands)	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Average Recorded Investment
With no related allowance recorded:
Commercial	$	23,242	$	21,585
Commercial Real Estate - Construction	10,996		5,519
Commercial Real Estate - Other	34,387		35,378
Residential	2,325		2,309
Consumer	1,076		838
With an allowance recorded:
Commercial	13,965		15,997
Commercial Real Estate - Construction	3,160		8,294
Commercial Real Estate - Other	22,493		24,368
Residential	866		874
Consumer	1,358		1,577
Total	$	113,868	$	116,739