Loans and Allowance for Credit Losses (Tables)

9 Months Ended

Sep. 30, 2013

The composition of loans by lending classification was as follows:


	September 30,			December 31,
(dollars in thousands)	2013			2012
Commercial (1)	$	1,381,216		$	1,336,820
Commercial real estate:
Construction		83,205			99,081
Other		1,082,561			1,156,802
Residential real estate		1,344,350			1,324,703
Consumer credit:
Heloc		249,013			258,114
Auto		585,285			526,085
Other		96,045			122,656
Covered loans		250,801			372,333

Total loans		5,072,476			5,196,594
Allowance for loan losses		(42,306	)		(49,047	)
Allowance for loan losses—covered loans		(5,012	)		(5,716	)

Net loans	$	5,025,158		$	5,141,831

(1)	Includes direct finance leases of $30.1 million at September 30, 2013 and $57.7 million at December 31, 2012.

Schedule of Activity in Allowance for Loan Losses

Old National’s activity in the allowance for loan losses for the three months ended September 30, 2013 and 2012 is as follows:


				Commercial
(dollars in thousands)	Commercial			Real Estate			Consumer			Residential			Unallocated		Total
2013
Allowance for loan losses:
Beginning balance	$	15,084		$	26,595		$	4,844		$	2,795			—	$	49,318
Charge-offs		(750	)		(432	)		(1,822	)		(501	)		—		(3,505	)
Recoveries		472			1,571			1,132			54			—		3,229
Provision		(286	)		(2,864	)		657			769			—		(1,724	)

Ending balance	$	14,520		$	24,870		$	4,811		$	3,117			—	$	47,318


				Commercial
(dollars in thousands)	Commercial			Real Estate			Consumer			Residential			Unallocated		Total
2012
Allowance for loan losses:
Beginning balance	$	17,850		$	28,621		$	4,682		$	3,607			—	$	54,760
Charge-offs		(2,485	)		(771	)		(1,385	)		(545	)		—		(5,186	)
Recoveries		1,647			2,300			565			276			—		4,788
Provision		954			(945	)		663			(272	)		—		400

Ending balance	$	17,966		$	29,205		$	4,525		$	3,066			—	$	54,762

Old National’s activity in the allowance for loan losses for the nine months ended September 30, 2013 and 2012 is as follows:


				Commercial
(dollars in thousands)	Commercial			Real Estate			Consumer			Residential			Unallocated		Total
2013
Allowance for loan losses:
Beginning balance	$	14,642		$	31,289		$	5,155		$	3,677			—	$	54,763
Charge-offs		(2,719	)		(3,233	)		(5,336	)		(1,212	)		—		(12,500	)
Recoveries		2,501			3,309			3,540			277			—		9,627
Provision		96			(6,495	)		1,452			375			—		(4,572	)

Ending balance	$	14,520		$	24,870		$	4,811		$	3,117			—	$	47,318


				Commercial
(dollars in thousands)	Commercial			Real Estate			Consumer			Residential			Unallocated		Total
2012
Allowance for loan losses:
Beginning balance	$	19,964		$	26,993		$	6,954		$	4,149			—	$	58,060
Charge-offs		(5,725	)		(4,864	)		(5,935	)		(1,465	)		—		(17,989	)
Recoveries		3,940			4,421			3,090			391			—		11,842
Provision		(213	)		2,655			416			(9	)		—		2,849

Ending balance	$	17,966		$	29,205		$	4,525		$	3,066			—	$	54,762

Schedule of Recorded Investment in Financing Receivables

The following tables provide Old National’s recorded investment in financing receivables by portfolio segment at September 30, 2013 and December 31, 2012 and other information regarding the allowance:


(dollars in thousands)	Commercial		CRE		Consumer		Residential		Unallocated		Total
September 30, 2013
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	3,959	$	2,572		—		—		—	$	6,531

Ending balance: collectively evaluated for impairment	$	10,359	$	15,073	$	4,158	$	3,050		—	$	32,640

Ending balance: noncovered loans acquired with deteriorated credit quality	$	202	$	2,811	$	86	$	36		—	$	3,135

Ending balance: covered loans acquired with deteriorated credit quality		—	$	4,414	$	567	$	31		—	$	5,012

Total allowance for credit losses	$	14,520	$	24,870	$	4,811	$	3,117		—	$	47,318

Loans and leases outstanding:
Ending balance: individually evaluated for impairment	$	24,945	$	41,568		—		—		—	$	66,513

Ending balance: collectively evaluated for impairment	$	1,376,178	$	1,108,595	$	978,419	$	1,344,331		—	$	4,807,523

Ending balance: loans acquired with deteriorated credit quality	$	579	$	30,613	$	14,262	$	156		—	$	45,610

Ending balance: covered loans acquired with deteriorated credit quality	$	14,818	$	88,526	$	19,477	$	30,009		—	$	152,830

Total loans and leases outstanding	$	1,416,520	$	1,269,302	$	1,012,158	$	1,374,496		—	$	5,072,476


(dollars in thousands)	Commercial		CRE		Consumer		Residential		Unallocated		Total
December 31, 2012
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	4,702	$	2,790		—		—		—	$	7,492

Ending balance: collectively evaluated for impairment	$	9,900	$	19,541	$	4,202	$	3,637		—	$	37,280

Ending balance: noncovered loans acquired with deteriorated credit quality	$	40	$	4,060	$	135	$	40		—	$	4,275

Ending balance: covered loans acquired with deteriorated credit quality		—	$	4,898	$	818		—		—	$	5,716

Total allowance for credit losses	$	14,642	$	31,289	$	5,155	$	3,677		—	$	54,763

Loans and leases outstanding:
Ending balance: individually evaluated for impairment	$	29,980	$	47,257		—		—		—	$	77,237

Ending balance: collectively evaluated for impairment	$	1,330,913	$	1,175,830	$	946,654	$	1,334,813		—	$	4,788,210

Ending balance: loans acquired with deteriorated credit quality	$	7,859	$	52,981	$	22,432	$	123		—	$	83,395

Ending balance: covered loans acquired with deteriorated credit quality	$	23,707	$	162,641	$	35,741	$	25,663		—	$	247,752

Total loans and leases outstanding	$	1,392,459	$	1,438,709	$	1,004,827	$	1,360,599		—	$	5,196,594

Schedule of Risk Category of Loans

As of September 30, 2013 and December 31, 2012, the risk category of loans, excluding covered loans, by class of loans is as follows:


(dollars in thousands)
Corporate Credit Exposure	Commercial				Commercial Real Estate- Construction				Commercial Real Estate- Other
by Internally Assigned Grade	September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012
Grade:
Pass	$	1,238,695	$	1,237,274	$	64,874	$	62,604	$	952,765	$	965,967
Criticized		92,893		38,476		9,383		11,969		27,185		62,819
Classified—substandard		22,591		23,388		2,579		10,204		43,636		38,252
Classified—doubtful		27,037		37,682		6,369		14,304		58,975		89,764

Total	$	1,381,216	$	1,336,820	$	83,205	$	99,081	$	1,082,561	$	1,156,802

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 as of September 30, 2013 and December 31, 2012, excluding covered loans:


September 30, 2013	Consumer						Residential
(dollars in thousands)	Heloc		Auto		Other
Performing	$	247,546	$	583,629	$	94,227	$	1,334,043
Nonperforming		1,467		1,656		1,818		10,307

	$	249,013	$	585,285	$	96,045	$	1,344,350


December 31, 2012	Consumer						Residential
(dollars in thousands)	Heloc		Auto		Other
Performing	$	256,394	$	524,105	$	120,547	$	1,312,717
Nonperforming		1,720		1,980		2,109		11,986

	$	258,114	$	526,085	$	122,656	$	1,324,703

Schedule of Impaired Loans that are Individually Evaluated

The following table shows Old National’s impaired loans, excluding covered loans, that are individually evaluated as of September 30, 2013 and December 31, 2012. Of the loans purchased during 2012 and 2011 without FDIC loss share coverage, only those that have experienced subsequent impairment since the date acquired are included in the table below.


			Unpaid
	Recorded		Principal		Related
(dollars in thousands)	Investment		Balance		Allowance
September 30, 2013
With no related allowance recorded:
Commercial	$	15,439	$	15,795	$	—
Commercial Real Estate—Construction		563		671		—
Commercial Real Estate—Other		14,255		18,089		—
With an allowance recorded:
Commercial		9,506		13,442		3,959
Commercial Real Estate—Construction		3,133		3,133		69
Commercial Real Estate—Other		23,617		25,019		2,503

Total Commercial and CRE	$	66,513	$	76,149	$	6,531

December 31, 2012
With no related allowance recorded:
Commercial	$	6,563	$	9,280	$	—
Commercial Real Estate—Construction		1,179		1,287		—
Commercial Real Estate—Other		16,944		23,162		—
With an allowance recorded:
Commercial		23,417		28,574		4,702
Commercial Real Estate—Construction		3,227		3,227		69
Commercial Real Estate—Other		25,907		28,732		2,721

Total Commercial and CRE	$	77,237	$	94,262	$	7,492

Schedule of Average Balance and Interest Income Recognized on Impaired Loans

The average balance of impaired loans, excluding covered loans, and interest income recognized on impaired loans during the three months ended September 30, 2013 and 2012 are included in the tables below.


	Average		Interest
	Recorded		Income
(dollars in thousands)	Investment		Recognized (1)
September 30, 2013
With no related allowance recorded:
Commercial	$	14,043	$	33
Commercial Real Estate—Construction		583		—
Commercial Real Estate—Other		13,868		44
With an allowance recorded:
Commercial		12,989		19
Commercial Real Estate—Construction		2,989		—
Commercial Real Estate—Other		26,556		4

Total Commercial and CRE	$	71,028	$	100

(1)	The Company does not record interest on nonaccrual loans until principal is recovered.


	Average		Interest
	Recorded		Income
(dollars in thousands)	Investment		Recognized (1)
September 30, 2012
With no related allowance recorded:
Commercial	$	8,514	$	40
Commercial Real Estate—Construction		1,322		2
Commercial Real Estate—Other		13,417		27
With an allowance recorded:
Commercial		19,372		(10	)
Commercial Real Estate—Construction		438		(2	)
Commercial Real Estate—Other		23,246		(1	)

Total Commercial and CRE	$	66,309	$	56

(1)	The Company does not record interest on nonaccrual loans until principal is recovered.

The average balance of impaired loans, excluding covered loans, and interest income recognized on impaired loans during the nine months ended September 30, 2013 and 2012 are included in the tables below.


	Average		Interest
	Recorded		Income
(dollars in thousands)	Investment		Recognized (1)
September 30, 2013
With no related allowance recorded:
Commercial	$	11,002	$	91
Commercial Real Estate—Construction		871		—
Commercial Real Estate—Other		15,600		57
With an allowance recorded:
Commercial		16,462		50
Commercial Real Estate—Construction		3,180		—
Commercial Real Estate—Other		24,763		99

Total Commercial and CRE	$	71,878	$	297

(1)	The Company does not record interest on nonaccrual loans until principal is recovered.


	Average		Interest
	Recorded		Income
(dollars in thousands)	Investment		Recognized (1)
September 30, 2012
With no related allowance recorded:
Commercial	$	10,246	$	40
Commercial Real Estate—Construction		796		2
Commercial Real Estate—Other		16,349		70
With an allowance recorded:
Commercial		23,081		58
Commercial Real Estate—Construction		3,464		—
Commercial Real Estate—Other		22,741		54

Total Commercial and CRE	$	76,677	$	224

(1)	The Company does not record interest on nonaccrual loans until principal is recovered.

Schedule of Past Due Financing Receivables

Old National’s past due financing receivables as of September 30, 2013 and December 31, 2012 are as follows:


(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Recorded Investment > 90 Days and Accruing		Nonaccrual		Total Past Due		Current
September 30, 2013
Commercial	$	2,079	$	823	$	41	$	27,037	$	29,980	$	1,351,236
Commercial Real Estate:
Construction		—		60		—		6,369		6,429		76,776
Other		2,642		653		—		58,975		62,270		1,020,291
Consumer:
Heloc		851		71		125		1,467		2,514		246,499
Auto		3,256		805		145		1,656		5,862		579,423
Other		1,596		372		101		1,818		3,887		92,158
Residential		7,991		2,626		369		10,307		21,293		1,323,057
Covered loans		1,882		613		74		40,688		43,257		207,544

Total loans	$	20,297	$	6,023	$	855	$	148,317	$	175,492	$	4,896,984

December 31, 2012
Commercial	$	2,691	$	515	$	322	$	36,766	$	40,294	$	1,296,526
Commercial Real Estate:
Construction		11		—		—		14,304		14,315		84,766
Other		3,439		665		236		81,525		85,865		1,070,937
Consumer:
Heloc		961		15		—		1,720		2,696		255,418
Auto		4,070		881		328		1,980		7,259		518,826
Other		1,732		403		110		2,109		4,354		118,302
Residential		14,686		1,874		66		11,986		28,612		1,296,091
Covered loans		2,891		941		15		103,946		107,793		264,540

Total loans	$	30,481	$	5,294	$	1,077	$	254,336	$	291,188	$	4,905,406

Schedule of Loans by Class Modified as Troubled Debt Restructuring

The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ended September 30, 2013:


			Pre-modification		Post-modification
	Number of		Outstanding Recorded		Outstanding Recorded
(dollars in thousands)	Loans		Investment		Investment
Troubled Debt Restructuring:
Commercial		28	$	14,272	$	13,238
Commercial Real Estate—construction		—		—		—
Commercial Real Estate—other		28		9,741		8,961
Consumer —other		44		1,964		1,863

Total		100	$	25,977	$	24,062

The troubled debt restructurings described above increased the allowance for loan losses by $2.5 million and resulted in no charge-offs during the nine months ended September 30, 2013.

The following table presents loans by class modified as troubled debt restructurings that occurred during the twelve months ended December 31, 2012:


(dollars in thousands)	Number of Loans		Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
Troubled Debt Restructuring:
Commercial		44	$	9,585	$	9,574
Commercial Real Estate—construction		3		1,392		1,382
Commercial Real Estate—other		35		16,404		16,272
Consumer —other		26		996		994

Total		108	$	28,377	$	28,222

Schedule of Troubled Debt Restructurings for which there was Payment Default

The following table presents loans by class modified as troubled debt restructuring for which there was a payment default within last twelve months following the modification during the nine months ended September 30, 2013. The impact of the defaults was immaterial.


(dollars in thousands)	Number of Contracts		Recorded Investment
Troubled Debt Restructuring
That Subsequently Defaulted:
Commercial		1	$	76
Commercial Real Estate		2		315

Total		3	$	391

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the twelve months ended December 31, 2012:


(dollars in thousands)	Number of Contracts		Recorded Investment
Troubled Debt Restructuring
That Subsequently Defaulted:
Commercial		8	$	500
Commercial Real Estate		7		611

Total		15	$	1,111

Schedule of Activity in Trouble Debt Restructurings

The following table presents activity in troubled debt restructurings for the nine months ended September 30, 2013 and 2012:


(dollars in thousands)	Commercial			Commercial Real Estate			Consumer			Residential			Total
2013
Troubled debt restructuring:
Balance, January 1, 2013	$	12,660		$	18,422		$	473		$	499		$	32,054
(Charge-offs)/recoveries		639			474			(61	)		—			1,052
Payments		(5,122	)		(5,119	)		(408	)		(39	)		(10,688	)
Additions		13,238			8,961			836			1,027			24,062

Balance September 30, 2013	$	21,415		$	22,738		$	840		$	1,487		$	46,480


(dollars in thousands)	Commercial			Commercial Real Estate			Consumer			Residential			Total
2012
Troubled debt restructuring:
Balance, January 1, 2012	$	7,086		$	5,851		$	53		$	—		$	12,990
(Charge-offs)/recoveries		(1,381	)		(796	)		—			—			(2,177	)
Payments		(1,314	)		(3,245	)		(13	)		(32	)		(4,604	)
Additions		5,556			16,426			266			368			22,616

Balance September 30, 2012	$	9,947		$	18,236		$	306		$	336		$	28,825

Schedule of Activity of Purchased Impaired Loans

For these noncovered loans that meet the criteria of ASC 310-30 treatment, the carrying amount is as follows:


(dollars in thousands)	September 30, 2013		December 31, 2012
Commercial	$	579	$	7,859
Commercial real estate		30,613		52,981
Consumer		14,262		22,432
Residential		156		123

Carrying amount	$	45,610	$	83,395

Carrying amount, net of allowance	$	42,475	$	79,120

Allowance for loan losses	$	3,135	$	4,275

Schedule of Accretable Difference on Purchased Loans

Accretable yield of noncovered loans, or income expected to be collected, is as follows:


(dollars in thousands)	Monroe			Integra Noncovered			IBT			Total
Balance at January 1, 2013	$	11,834		$	3,575		$	16,170		$	31,579
New loans purchased		—			—			—			—
Accretion of income		(3,544	)		(1,028	)		(7,337	)		(11,909	)
Reclassifications from (to) nonaccretable difference		208			80			12,050			12,338
Disposals/other adjustments		(268	)		(49	)		(50	)		(367	)

Balance at September 30, 2013	$	8,230		$	2,578		$	20,833		$	31,641

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

Purchased loans, as of the date of acquisition, for which it was probable that all contractually required payments would not be collected are as follows:


(dollars in thousands)	Monroe Bancorp			Integra Bank (1)			IBT
Contractually required payments	$	94,714		$	921,856		$	118,535
Nonaccretable difference		(45,157	)		(226,426	)		(53,165	)

Cash flows expected to be collected at acquisition		49,557			695,430			65,370
Accretable yield		(6,971	)		(98,487	)		(11,945	)

Fair value of acquired loans at acquisition	$	42,586		$	596,943		$	53,425

(1)	Includes covered and noncovered.