Loans and Allowance for Credit Losses (Tables)

6 Months Ended

Jun. 30, 2014

The composition of loans by lending classification was as follows:


	June 30,			December 31,
(dollars in thousands)	2014			2013
Commercial (1)	$	1,498,833		$	1,373,415
Commercial real estate:
Construction		135,139			88,630
Other		1,219,561			1,072,260
Residential real estate		1,425,179			1,359,569
Consumer credit:
Heloc		281,823			251,102
Auto		696,009			620,473
Other		111,176			99,683
Covered loans		171,148			217,832

Total loans		5,538,868			5,082,964
Allowance for loan losses		(42,494	)		(41,741	)
Allowance for loan losses - covered loans		(3,658	)		(5,404	)

Net loans	$	5,492,716		$	5,035,819

(1)	Includes direct finance leases of $23.4 million at June 30, 2014 and $27.8 million at December 31, 2013.

Schedule of Activity in Allowance for Loan Losses

Old National’s activity in the allowance for loan losses for the three months ended June 30, 2014 and 2013 is as follows:


				Commercial
(dollars in thousands)	Commercial			Real Estate			Consumer			Residential			Unallocated		Total
2014
Allowance for loan losses:
Beginning balance	$	19,506		$	19,310		$	5,378		$	3,359		$	—	$	47,553
Charge-offs		(926	)		(1,039	)		(958	)		(220	)		—		(3,143	)
Recoveries		794			480			841			27			—		2,142
Provision		(548	)		(987	)		728			407			—		(400	)

Ending balance	$	18,826		$	17,764		$	5,989		$	3,573		$	—	$	46,152


				Commercial
(dollars in thousands)	Commercial			Real Estate			Consumer			Residential			Unallocated		Total
2013
Allowance for loan losses:
Beginning balance	$	16,967		$	28,446		$	4,685		$	3,383		$	—	$	53,481
Charge-offs		(859	)		(1,065	)		(1,612	)		(454	)		—		(3,990	)
Recoveries		1,314			849			1,174			183			—		3,520
Provision		(2,338	)		(1,635	)		597			(317	)		—		(3,693	)

Ending balance	$	15,084		$	26,595		$	4,844		$	2,795		$	—	$	49,318

Old National’s activity in the allowance for loan losses for the six months ended June 30, 2014 and 2013 is as follows:


				Commercial
(dollars in thousands)	Commercial			Real Estate			Consumer			Residential			Unallocated		Total
2014
Allowance for loan losses:
Beginning balance	$	16,565		$	22,401		$	4,940		$	3,239		$	—	$	47,145
Charge-offs		(2,073	)		(1,207	)		(2,083	)		(199	)		—		(5,562	)
Recoveries		1,586			1,575			1,662			109			—		4,932
Provision		2,748			(5,005	)		1,470			424			—		(363	)

Ending balance	$	18,826		$	17,764		$	5,989		$	3,573		$	—	$	46,152


				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		(1,969	)		(2,801	)		(3,514	)		(711	)		—		(8,995	)
Recoveries		2,029			1,738			2,408			223			—		6,398
Provision		382			(3,631	)		795			(394	)		—		(2,848	)

Ending balance	$	15,084		$	26,595		$	4,844		$	2,795		$	—	$	49,318

Schedule of Recorded Investment in Financing Receivables

The following tables provide Old National’s recorded investment in financing receivables by portfolio segment at June 30, 2014 and December 31, 2013 and other information regarding the allowance:


(dollars in thousands)	Commercial		CRE		Consumer		Residential		Unallocated		Total
June 30, 2014
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	6,320	$	2,697	$	—	$	—	$	—	$	9,017

Ending balance: collectively evaluated for impairment	$	11,555	$	13,292	$	5,509	$	3,533	$	—	$	33,889

Ending balance: noncovered loans acquired with deteriorated credit quality	$	252	$	1,255	$	215	$	40	$	—	$	1,762

Ending balance: covered loans acquired with deteriorated credit quality	$	699	$	520	$	265	$	—	$	—	$	1,484

Total allowance for credit losses	$	18,826	$	17,764	$	5,989	$	3,573	$	—	$	46,152

Loans and leases outstanding:
Ending balance: individually evaluated for impairment	$	37,657	$	40,811	$	—	$	—	$	—	$	78,468

Ending balance: collectively evaluated for impairment	$	1,471,425	$	1,289,817	$	1,138,009	$	1,425,175	$	—	$	5,324,426

Ending balance: loans acquired with deteriorated credit quality	$	2,506	$	27,654	$	9,509	$	156	$	—	$	39,825

Ending balance: covered loans acquired with deteriorated credit quality	$	8,889	$	47,432	$	14,988	$	24,840	$	—	$	96,149

Total loans and leases outstanding	$	1,520,477	$	1,405,714	$	1,162,506	$	1,450,171	$	—	$	5,538,868


(dollars in thousands)	Commercial		CRE		Consumer		Residential		Unallocated		Total
December 31, 2013
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	6,156	$	2,190	$	—	$	—	$	—	$	8,346

Ending balance: collectively evaluated for impairment	$	9,980	$	14,816	$	4,494	$	3,088	$	—	$	32,378

Ending balance: noncovered loans acquired with deteriorated credit quality	$	429	$	2,025	$	80	$	35	$	—	$	2,569

Ending balance: covered loans acquired with deteriorated credit quality	$	—	$	3,370	$	366	$	116	$	—	$	3,852

Total allowance for credit losses	$	16,565	$	22,401	$	4,940	$	3,239	$	—	$	47,145

Loans and leases outstanding:
Ending balance: individually evaluated for impairment	$	34,213	$	34,997	$	—	$	—	$	—	$	69,210

Ending balance: collectively evaluated for impairment	$	1,355,608	$	1,106,971	$	1,019,576	$	1,359,564	$	—	$	4,841,719

Ending balance: loans acquired with deteriorated credit quality	$	648	$	23,618	$	12,725	$	154	$	—	$	37,145

Ending balance: covered loans acquired with deteriorated credit quality	$	12,281	$	77,232	$	17,673	$	27,704	$	—	$	134,890

Total loans and leases outstanding	$	1,402,750	$	1,242,818	$	1,049,974	$	1,387,422	$	—	$	5,082,964

Schedule of Risk Category of Loans

As of June 30, 2014 and December 31, 2013, the risk category of loans, excluding covered loans, by class of loans is as follows:


(dollars in thousands)
Corporate Credit					Commercial Real Estate-				Commercial Real Estate-
Exposure	Commercial				Construction				Other
by Internally Assigned Grade	June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013
Grade:
Pass	$	1,354,039	$	1,237,983	$	111,252	$	74,815	$	1,092,301	$	943,781
Criticized		63,339		90,545		14,071		9,383		35,504		35,473
Classified - substandard		51,150		16,252		3,495		2,559		47,433		42,516
Classified - nonaccrual		28,309		27,635		6,321		1,873		41,388		49,406
Classified - doubtful		1,996		1,000		—		—		2,935		1,084

Total	$	1,498,833	$	1,373,415	$	135,139	$	88,630	$	1,219,561	$	1,072,260

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 June 30, 2014 and December 31, 2013, excluding covered loans:

June 30, 2014

Consumer

Residential

(dollars inthousands)

Heloc

Auto

Other

Performing

279,809

694,924

109,917

1,413,778

Nonperforming

2,014

1,085

1,259

11,401

281,823

696,009

111,176

1,425,179


December 31, 2013	Consumer						Residential
(dollars inthousands)	Heloc		Auto		Other
Performing	$	249,152	$	618,911	$	97,877	$	1,349,236
Nonperforming		1,950		1,562		1,806		10,333

	$	251,102	$	620,473	$	99,683	$	1,359,569

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 June 30, 2014 and December 31, 2013. Of the loans purchased 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
June 30, 2014
With no related allowance recorded:
Commercial	$	20,881	$	21,384	$	—
Commercial Real Estate - Construction		1,522		1,630		—
Commercial Real Estate - Other		23,054		27,779		—
Consumer		362		381		—
Residential		98		99		—
With an allowance recorded:
Commercial		10,736		13,742		4,246
Commercial Real Estate - Construction		—		—		—
Commercial Real Estate - Other		16,235		16,940		2,697
Consumer		1,420		1,467		71
Residential		2,375		2,445		119

Total Loans	$	76,683	$	85,867	$	7,133

December 31, 2013
With no related allowance recorded:
Commercial	$	17,066	$	17,417	$	—
Commercial Real Estate - Construction		525		633		—
Commercial Real Estate - Other		15,746		22,550		—
Consumer		324		342		—
Residential		106		106		—
With an allowance recorded:
Commercial		9,282		12,304		4,723
Commercial Real Estate - Construction		—		—		—
Commercial Real Estate - Other		18,726		19,358		2,190
Consumer		835		888		43
Residential		2,239		2,295		112

Total Loans	$	64,849	$	75,893	$	7,068

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 June 30, 2014 and 2013 are included in the tables below.


	Average		Interest
	Recorded		Income
(dollars in thousands)	Investment		Recognized (1)
June 30, 2014
With no related allowance recorded:
Commercial	$	17,040	$	1
Commercial Real Estate - Construction		1,449		15
Commercial Real Estate - Other		19,537		106
Consumer		348		2
Residential		98		—
With an allowance recorded:
Commercial		11,764		54
Commercial Real Estate - Construction		—		—
Commercial Real Estate - Other		18,614		52
Consumer		1,248		14
Residential		2,308		24

Total Loans	$	72,406	$	268

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


	Average		Interest
	Recorded		Income
(dollars in thousands)	Investment		Recognized (1)
June 30, 2013
With no related allowance recorded:
Commercial	$	10,294	$	58
Commercial Real Estate - Construction		854		—
Commercial Real Estate - Other		14,865		9
Consumer		57		—
Residential		35		—
With an allowance recorded:
Commercial		17,815		21
Commercial Real Estate - Construction		2,684		—
Commercial Real Estate - Other		32,356		(14	)
Consumer		381		6
Residential		532		4

Total Loans	$	79,873	$	84

(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 six months ended June 30, 2014 and 2013 are included in the tables below.


	Average		Interest
	Recorded		Income
(dollars in thousands)	Investment		Recognized (1)
June 30, 2014
With no related allowance recorded:
Commercial	$	18,975	$	34
Commercial Real Estate - Construction		1,024		15
Commercial Real Estate - Other		19,402		160
Consumer		343		4
Residential		102		—
With an allowance recorded:
Commercial		10,002		108
Commercial Real Estate - Construction		—		—
Commercial Real Estate - Other		17,490		164
Consumer		1,127		26
Residential		2,307		41

Total Loans	$	70,772	$	552

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


	Average		Interest
	Recorded		Income
(dollars in thousands)	Investment		Recognized (1)
June 30, 2013
With no related allowance recorded:
Commercial	$	9,605	$	58
Commercial Real Estate - Construction		891		—
Commercial Real Estate - Other		15,212		13
Consumer		146		—
Residential		59		—
With an allowance recorded:
Commercial		19,945		31
Commercial Real Estate - Construction		3,036		—
Commercial Real Estate - Other		27,701		95
Consumer		532		6
Residential		1,101		4

Total Loans	$	78,228	$	207

(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 June 30, 2014 and December 31, 2013 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
June 30, 2014
Commercial	$	1,045	$	1,025	$	2	$	30,305	$	32,377	$	1,466,456
Commercial Real Estate:
Construction		80		—		—		6,321		6,401		128,738
Other		229		391		78		44,323		45,021		1,174,540
Consumer:
Heloc		1,136		118		—		2,014		3,268		278,555
Auto		2,958		639		129		1,085		4,811		691,198
Other		960		269		52		1,259		2,540		108,636
Residential		11,987		2,145		26		11,401		25,559		1,399,620
Covered loans		2,459		413		93		21,317		24,282		146,866

Total loans	$	20,854	$	5,000	$	380	$	118,025	$	144,259	$	5,394,609

December 31, 2013
Commercial	$	1,532	$	13	$	—	$	28,635	$	30,180	$	1,343,235
Commercial Real Estate:
Construction		—		139		—		1,873		2,012		86,618
Other		1,017		27		—		50,490		51,534		1,020,726
Consumer:
Heloc		527		119		—		1,950		2,596		248,506
Auto		3,795		716		89		1,562		6,162		614,311
Other		844		317		100		1,806		3,067		96,616
Residential		8,588		2,823		35		10,333		21,779		1,337,790
Covered loans		1,831		730		14		31,793		34,368		183,464

Total loans	$	18,134	$	4,884	$	238	$	128,442	$	151,698	$	4,931,266

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 six months ended June 30, 2014:


			Pre-modification		Post-modification
	Number of		Outstanding Recorded		Outstanding Recorded
(dollars in thousands)	Loans		Investment		Investment
Troubled Debt Restructuring:
Commercial		13	$	10,422	$	8,833
Commercial Real Estate - construction		1		937		484
Commercial Real Estate - other		14		1,667		1,338
Residential		2		194		175
Consumer - other		13		886		831

Total		43	$	14,106	$	11,661

The TDRs described above increased the allowance for loan losses by $0.8 million and resulted in immaterial charge-offs during the six months ended June 30, 2014.

The following table presents loans by class modified as troubled debt restructurings that occurred during the twelve months ended December 31, 2013:


			Pre-modification		Post-modification
	Number of		Outstanding Recorded		Outstanding Recorded
(dollars in thousands)	Loans		Investment		Investment
Troubled Debt Restructuring:
Commercial		35	$	16,196	$	15,155
Commercial Real Estate - construction		1		60		60
Commercial Real Estate - other		36		10,585		9,791
Residential		14		1,936		1,901
Consumer - other		49		1,622		1,484

Total		135	$	30,399	$	28,391

Schedule of Troubled Debt Restructurings for which there was Payment Default

The following table presents loans by class modified as TDRs during the first six months of 2014 for which there was a payment default within the last twelve months. The impact of the defaults was immaterial.


(dollars in thousands)	Number of Contracts		Recorded Investment
Troubled Debt Restructuring
That Subsequently Defaulted:
Commercial		3	$	92
Commercial Real Estate		2		142

Total		5	$	234

The following table presents loans by class modified as TDRs during 2013 for which there was a payment default within the last twelve months.:


(dollars in thousands)	Number of Contracts		Recorded Investment
Troubled Debt Restructuring
That Subsequently Defaulted:
Commercial		3	$	32
Commercial Real Estate		2		85

Total		5	$	117

Schedule of Activity in Trouble Debt Restructurings

The following table presents activity in troubled debt restructurings for the six months ended June 30, 2014 and 2013:


				Commercial
(dollars in thousands)	Commercial			Real Estate			Consumer			Residential			Total
2014
Troubled debt restructuring:
Balance, January 1, 2014	$	22,443		$	22,639		$	1,441		$	2,344		$	48,867
(Charge-offs)/recoveries		(252	)		167			(21	)		1			(105	)
Payments		(12,408	)		(4,220	)		(229	)		(47	)		(16,904	)
Additions		8,833			1,822			831			175			11,661

Balance June 30, 2014	$	18,616		$	20,408		$	2,022		$	2,473		$	43,519


				Commercial
(dollars in thousands)	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		402			(57	)		(62	)		—			283
Payments		(3,894	)		(2,435	)		(351	)		(40	)		(6,720	)
Additions		2,172			3,307			764			226			6,469

Balance June 30, 2013	$	11,340		$	19,237		$	824		$	685		$	32,086

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:


	June 30,		December 31,
(dollars in thousands)	2014		2013
Commercial	$	2,506	$	648
Commercial real estate		27,654		23,618
Consumer		9,509		12,725
Residential		156		154

Carrying amount	$	39,825	$	37,145

Carrying amount, net of allowance	$	38,063	$	34,576

Allowance for loan losses	$	1,762	$	2,569

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

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


				Integra
(dollars in thousands)	Monroe			Noncovered			IBT			Tower			Total
Balance at January 1, 2014	$	6,787		$	2,425		$	19,079		$	—		$	28,291
New loans purchased		—			—			—			4,065			4,065
Accretion of income		(1,792	)		(481	)		(7,252	)		(226	)		(9,751	)
Reclassifications from (to) nonaccretable difference		(1,081	)		(149	)		3,411			—			2,181
Disposals/other adjustments		640			(77	)		—			—			563

Balance at June 30, 2014	$	4,554		$	1,718		$	15,238		$	3,839		$	25,349

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

At acquisition, purchased loans, both covered and noncovered, for which it was probable at acquisition that all contractually required payments would not be collected are as follows:


	Monroe			Integra
(dollars in thousands)	Bancorp			Bank (1)			IBT			Tower
Contractually required payments	$	94,714		$	921,856		$	118,535		$	22,746
Nonaccretable difference		(45,157	)		(226,426	)		(53,165	)		(5,826	)

Cash flows expected to be collected at acquisition		49,557			695,430			65,370			16,920
Accretable yield		(6,971	)		(98,487	)		(11,945	)		(4,065	)

Fair value of acquired loans at acquisition	$	42,586		$	596,943		$	53,425		$	12,855

(1)	Includes covered and noncovered.