Fair Value (Tables)

3 Months Ended

Mar. 31, 2015

Schedule of Fair Value Assets and Liabilities Measured on Recurring Basis

Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which we have elected the fair value option, are summarized below:

Fair Value Measurements at March 31, 2015 Using

(dollars in thousands)

Carrying
Value

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Financial Assets

Trading securities

3,964

—

Investment securities available-for-sale:

U.S. Treasury

25,178

—

U.S. government-sponsored entities and agencies

709,379

—

709,379

—

Mortgage-backed securities - Agency

1,090,731

—

1,090,731

—

States and political subdivisions

340,630

—

340,630

—

Pooled trust preferred securities

6,553

—

6,553

Other securities

372,999

31,941

341,058

—

Residential loans held for sale

24,344

—

24,344

—

Derivative assets

21,968

—

21,968

—

Financial Liabilities

Derivative liabilities

31,259

—

31,259

—


			Fair Value Measurements at December 31, 2014 Using
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Financial Assets
Trading securities	$	3,881	$	3,881	$	—	$	—
Investment securities available-for-sale:
U.S. Treasury		15,166		15,166		—		—
U.S. government-sponsored entities and agencies		685,951		—		685,951		—
Mortgage-backed securities - Agency		1,241,662		—		1,241,662		—
States and political subdivisions		314,541		—		314,216		325
Pooled trust preferred securities		6,607		—		—		6,607
Other securities		363,904		31,648		332,256		—
Residential loans held for sale		15,562		—		15,562		—
Derivative assets		18,572		—		18,572		—
Financial Liabilities
Derivative liabilities		23,868		—		23,868		—

Reconciliation of All Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2015:


	Fair Value Measurements using
	Significant Unobservable Inputs
	(Level 3)
	Pooled Trust Preferred			State and
	Securities Available-			Political
(dollars in thousands)	for-Sale			Subdivisions
Balance at January 1, 2015	$	6,607		$	325
Accretion/(amortization) of discount or premium		5			—
Sales/payments received		(264	)		—
Matured securities		—			(325	)
Increase/(decrease) in fair value of securities		205			—

Balance at March 31, 2015	$	6,553		$	—

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2014:


	Fair Value Measurements using Significant Unobservable Inputs (Level 3)
(dollars in thousands)	Pooled Trust Preferred Securities Available- for-Sale			State and Political Subdivisions
Balance at January 1, 2014	$	8,037		$	669
Accretion/(amortization) of discount or premium		4			1
Payments received		(963	)		—
Matured securities		—			(326	)
Increase/(decrease) in fair value of securities		(299	)		—

Balance at March 31, 2014	$	6,779		$	344

Quantitative Information about Significant Unobservable Inputs Used in Fair Value Measurements

The tables below provides quantitative information about significant unobservable inputs used in fair value measurements within Level 3 of the fair value hierarchy as of March 31, 2015 and December 31, 2014:


	Quantitative Information about Level 3 Fair Value Measurements
(dollars in thousands)	Fair Value at March 31, 2015		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Pooled trust preferred securities	$	6,553	Discounted cash flow	Constant prepayment rate (a)	0.00%
				Additional asset defaults (b)	2.3% - 5.3%(3.2%)
				Expected asset recoveries (c)	0.0% - 13.9%(3.7%)

(a)	Assuming no prepayments.

(b)	Each currently performing pool asset is assigned a default probability based on the banking environment, which is adjusted for specific issuer evaluation, of 0%, 50% or 100%.

(c)	Each currently defaulted pool asset is assigned a recovery probability based on specific issuer evaluation of 0%, 25% or 100%.


	Quantitative Information about Level 3 Fair Value Measurements
(dollars in thousands)	Fair Value at Dec. 31, 2014		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Pooled trust preferred securities	$	6,607	Discounted cash flow	Constant prepayment rate (a)	0.00%
				Additional asset defaults (b)	4.4% - 11.2%(8.2%)
				Expected asset recoveries (c)	0.7% - 7.0%(1.8%)
State and political subdivision securities		325	Discounted cash flow	No unobservable inputs	N/A
State and political subdivision securities				Illiquid local municipality issuance
				Old National owns 100%
				Carried at par

(a)	Assuming no prepayments.

(b)	Each currently performing pool asset is assigned a default probability based on the banking environment, which is adjusted for specific issuer evaluation, of 0%, 50% or 100%.

(c)	Each currently defaulted pool asset is assigned a recovery probability based on specific issuer evaluation of 0%, 25% or 100%.

The tables below provides quantitative information about significant unobservable inputs used in fair value measurements within Level 3 of the fair value hierarchy:


	Quantitative Information about Level 3 Fair Value Measurements
(dollars in thousands)	Fair Value at March 31, 2015		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Collateral Dependent Impaired Loans
Commercial loans	$	11,247	Fair value of collateral	Discount for type of property, age of appraisal and current status	0% - 65% (14%)
Commercial real estate loans		6,734	Fair value of collateral	Discount for type of property, age of appraisal and current status	0% - 44% (20%)
Foreclosed Assets
Commercial real estate		5,015	Fair value of collateral	Discount for type of property, age of appraisal and current status	0% - 49% (18%)
Residential		176	Fair value of collateral	Discount for type of property, age of appraisal and current status	8% - 90% (49%)


	Quantitative Information about Level 3 Fair Value Measurements
(dollars in thousands)	Fair Value at Dec. 31, 2014		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Collateral Dependent Impaired Loans
Commercial loans	$	6,816	Fair value of collateral	Discount for type of property, age of appraisal and current status	0% - 94% (24%)
Commercial real estate loans		13,011	Fair value of collateral	Discount for type of property, age of appraisal and current status	0% - 50% (29%)
Foreclosed Assets
Commercial real estate		6,146	Fair value of collateral	Discount for type of property, age of appraisal and current status	2% - 93% (30%)
Residential		254	Fair value of collateral	Discount for type of property, age of appraisal and current status	8% - 81% (45%)

Assets Measured at Fair Value on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis at March 31, 2015 are summarized below:

Fair Value Measurements at March 31, 2015 Using

(dollars in thousands)

Carrying
Value

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Collateral Dependent Impaired Loans

Commercial loans

11,247

—

11,247

Commercial real estate loans

6,734

—

6,734

Foreclosed Assets

Commercial real estate

5,015

—

5,015

Residential

176

—

176

Assets measured at fair value on a non-recurring basis at December 31, 2014 are summarized below:


			Fair Value Measurements at December 31, 2014 Using
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Collateral Dependent Impaired Loans
Commercial loans	$	6,816	$	—	$	—	$	6,816
Commercial real estate loans		13,011						13,011
Foreclosed Assets
Commercial real estate		6,146		—		—		6,146
Residential		254		—		—		254

Schedule of Difference Between the Aggregate Fair Value and the Aggregate Remaining Principal Balance

As of March 31, 2015, the difference between the aggregate fair value and the aggregate remaining principal balance for loans for which the fair value option has been elected is as follows:

(dollars in thousands)

Aggregate
Fair Value

Difference

Contractual
Principal

Residential loans held for sale

24,344

592

23,752

Accrued interest at period end is included in the fair value of the instruments.

The following table presents the amount of gains and losses from fair value changes included in income before income taxes for financial assets carried at fair value for the three months ended March 31, 2015:


Changes in Fair Value for the Three Months ended March 31, 2015, for Items Measured at Fair Value Pursuant to Election of the Fair Value Option
(dollars in thousands)	Other Gains and (Losses)		Interest Income		Interest (Expense)		Total Changes in Fair Values Included in Current Period Earnings
Residential loans held for sale	$	217	$	—	$	—	$	217

As of March 31, 2014, the difference between the aggregate fair value and the aggregate remaining principal balance for loans for which the fair value option has been elected was as follows.


(dollars in thousands)	Aggregate Fair Value		Difference		Contractual Principal
Residential loans held for sale	$	6,169	$	115	$	6,054


Changes in Fair Value for the Three Months ended March 31, 2014, for Items Measured at Fair Value Pursuant to Election of the Fair Value Option
(dollars in thousands)	Other Gains and (Losses)			Interest Income		Interest (Expense)		Total Changes in Fair Values Included in Current Period Earnings
Residential loans held for sale	$	(13	)	$	—	$	—	$	(13	)

Carrying Amounts and Estimated Fair Values of Financial Instruments, Not Previously Presented

The carrying amounts and estimated fair values of financial instruments, not previously presented in this note, at March 31, 2015 and December 31, 2014 are as follows:


			Fair Value Measurements at March 31, 2015 Using
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Financial Assets
Cash, due from banks, federal funds sold and money market investments	$	215,313	$	215,313	$	—	$	—
Investment securities held-to-maturity:
U.S. government-sponsored entities and agencies		166,343		—		172,636		—
Mortgage-backed securities - Agency		21,548		—		22,470		—
State and political subdivisions		648,147		—		704,547		—
Federal Home Loan Bank/Federal Reserve stock		75,068		—		75,068		—
Loans held for sale (a)		186,169		—		186,169		—
Loans, net (including covered loans):
Commercial		1,657,401		—		—		1,708,002
Commercial real estate		1,836,271		—		—		1,938,556
Residential real estate		1,642,683		—		—		1,936,855
Consumer credit		1,467,306		—		—		1,477,229
FDIC indemnification asset		20,024		—		—		10,639
Accrued interest receivable		62,503		50		21,157		41,296

Financial Liabilities
Deposits:
Noninterest-bearing demand deposits	$	2,553,801	$	2,553,801	$	—	$	—
NOW, savings and money market deposits		5,239,678		5,239,678		—		—
Time deposits		1,134,041		—		1,139,301		—
Short-term borrowings:
Federal funds purchased		93,492		93,492		—		—
Repurchase agreements		369,515		369,513		—		—
Other borrowings:
Senior unsecured bank notes		175,000		—		173,378		—
Junior subordinated debentures		45,000		—		32,667		—
Repurchase agreements		50,000		—		52,067		—
Federal Home Loan Bank advances		599,874		—		—		608,756
Capital lease obligation		4,083		—		5,709		—
Accrued interest payable		2,878		—		2,878		—
Standby letters of credit		355		—		—		355

Off-Balance Sheet Financial Instruments
Commitments to extend credit	$	—	$	—	$	—	$	3,292

(a)	Includes loans held for sale associated with branch sales. Excludes $24.3 million of residential loans held for sale measured at fair value on a recurring basis.


			Fair Value Measurements at December 31, 2014 Using
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Financial Assets
Cash, due from banks, federal funds sold and money market investments	$	239,963	$	239,963	$	—	$	—
Investment securities held-to-maturity:
U.S. government-sponsored entities and agencies		167,207		—		173,486		—
Mortgage-backed securities - Agency		23,648		—		24,574		—
State and political subdivisions		653,199		—		705,875		—
Federal Home Loan Bank/Federal Reserve stock		71,175		—		71,175		—
Loans held for sale (a)		197,928		—		197,928		—
Loans, net (including covered loans):
Commercial		1,626,097		—		—		1,646,144
Commercial real estate		1,734,559		—		—		1,744,126
Residential real estate		1,537,448		—		—		1,615,588
Consumer credit		1,372,248		—		—		1,380,835
FDIC indemnification asset		20,603		—		—		11,358
Accrued interest receivable		60,966		29		21,633		39,304

Financial Liabilities
Deposits:
Noninterest-bearing demand deposits	$	2,427,748	$	2,427,748	$	—	$	—
NOW, savings and money market deposits		4,973,898		4,973,898		—		—
Time deposits		1,089,018		—		1,092,969		—
Short-term borrowings:
Federal funds purchased		195,188		195,188		—		—
Repurchase agreements		356,121		356,120		—		—
Other borrowings:
Senior unsecured bank notes		175,000		—		179,792		—
Junior subordinated debentures		45,000		—		32,754		—
Repurchase agreements		50,000		—		51,994		—
Federal Home Loan Bank advances		649,987		—				658,506
Capital lease obligation		4,099		—		5,515		—
Accrued interest payable		4,564		—		4,564		—
Standby letters of credit		358		—		—		358

Off-Balance Sheet Financial Instruments
Commitments to extend credit	$	—	$	—	$	—	$	2,030

(a)	Includes loans held for sale associated with branch sales. Excludes $15.6 million of residential loans held for sale measured at fair value on a recurring basis.

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

+ References+ Details

- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

+ References+ Details

- Definition

Tabular disclosure of the application of the fair value option for measurement and reporting of eligible financial assets and liabilities (as defined), as well as certain other eligible items (as defined) included in the statement of financial position, whether such option is elected for a single eligible item or a group of similar eligible items and is in addition to other disclosures concerning fair value which the company may be required to provide. Such disclosure might be expected to include: (1) for items included in the statement of financial position: (a) for each line item in the statement of financial position that includes an item or items for which the fair value option has been elected, provide the aggregate carrying amount of ineligible items included in each line item in the balance sheet, if any; (b) the difference between the aggregate fair value and the aggregate unpaid principal balance (assuming contractual principal amounts and fair value option elected) of: (i) loans and long-term receivables (other than securities otherwise reported at fair value) and (ii) long-term debt instruments; (c) for loans held as assets for which the fair value option has been elected: (i) the aggregate fair value of loans that are 90 days or more past due, (ii) if the policy is to recognize interest income separately from other changes in fair value, the aggregate fair value of loans in nonaccrual status, and (iii) the difference between the aggregate fair value and the aggregate unpaid principal balance for loans that are 90 days or more past due, in nonaccrual status, or both; (2) for items included in the income statement: (a) the amounts of gains and losses from fair value changes included in earnings and in which line in the income statement those gains and losses are reported whether or not combined with gains and losses from items required to be accounted for at fair value; (b) for loans and other receivables held as assets, the estimated amount of gains or losses included in earnings attributable to changes in instrument-specific credit risk; (c) for liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk, the estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument-specific credit risk; and (3) certain other disclosures as required or determined to be provided.

+ References+ Details