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Loans and Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2018

The composition of loans by lending classification was as follows:

	September 30,			December 31,
(dollars in thousands)	2018			2017
Commercial (1)	$	2,949,277		$	2,717,269
Commercial real estate:
Construction		542,228			374,306
Other		3,939,326			3,980,246
Residential real estate		2,166,203			2,167,053
Consumer credit:
Home equity		498,325			507,507
Auto		1,058,977			1,148,672
Other		138,323			223,068
Total loans		11,292,659			11,118,121
Allowance for loan losses		(52,713	)		(50,381	)
Net loans	$	11,239,946		$	11,067,740

(1)

Includes direct finance leases of $22.1 million at September 30, 2018 and $29.5 million at December 31, 2017.

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, 2018 and 2017 was as follows:

				Commercial
(dollars in thousands)	Commercial			Real Estate			Residential			Consumer			Total
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

Three Months Ended September 30, 2017
Balance at beginning of period	$	20,365		$	20,654		$	1,811		$	8,156		$	50,986
Charge-offs		(70	)		(1,148	)		(227	)		(1,376	)		(2,821	)
Recoveries		255			339			89			1,010			1,693
Provision		(23	)		180			236			(82	)		311
Balance at end of period	$	20,527		$	20,025		$	1,909		$	7,708		$	50,169

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

Nine Months Ended September 30, 2017
Balance at beginning of period	$	21,481		$	18,173		$	1,643		$	8,511		$	49,808
Charge-offs		(951	)		(2,784	)		(954	)		(4,751	)		(9,440	)
Recoveries		1,647			3,086			196			2,859			7,788
Provision		(1,650	)		1,550			1,024			1,089			2,013
Balance at end of period	$	20,527		$	20,025		$	1,909		$	7,708		$	50,169

Schedule of Recorded Investment in Loans

The following table provides Old National’s recorded investment in loans by portfolio segment at September 30, 2018 and December 31, 2017 and other information regarding the allowance:

			Commercial
(dollars in thousands)	Commercial		Real Estate		Residential		Consumer		Total
September 30, 2018
Allowance for loan losses:
Individually evaluated for impairment	$	4,881	$	7,270	$	-	$	-	$	12,151
Collectively evaluated for impairment		14,831		15,478		1,919		8,031		40,259
Loans acquired with deteriorated credit quality		7		144		1		151		303
Total allowance for loan losses	$	19,719	$	22,892	$	1,920	$	8,182	$	52,713
Loans and leases outstanding:
Individually evaluated for impairment	$	35,404	$	86,503	$	-	$	-	$	121,907
Collectively evaluated for impairment		2,909,643		4,377,382		2,156,492		1,691,777		11,135,294

Loans acquired with deteriorated credit quality		4,230		17,669		9,711		3,848		35,458
Total loans and leases outstanding	$	2,949,277	$	4,481,554	$	2,166,203	$	1,695,625	$	11,292,659

December 31, 2017
Allowance for loan losses:
Individually evaluated for impairment	$	3,424	$	6,654	$	-	$	-	$	10,078
Collectively evaluated for impairment		15,790		14,782		1,763		7,802		40,137
Loans acquired with deteriorated credit quality		32		-		-		134		166
Total allowance for loan losses	$	19,246	$	21,436	$	1,763	$	7,936	$	50,381
Loans and leases outstanding:
Individually evaluated for impairment	$	26,270	$	66,061	$	-	$	-	$	92,331
Collectively evaluated for impairment		2,685,847		4,266,665		2,155,750		1,874,002		10,982,264
Loans acquired with deteriorated credit quality		5,152		21,826		11,303		5,245		43,526
Total loans and leases outstanding	$	2,717,269	$	4,354,552	$	2,167,053	$	1,879,247	$	11,118,121

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, 2018 and December 31, 2017 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	2018		2017		2018		2017		2018		2017
Grade:
Pass	$	2,789,061	$	2,577,824	$	505,930	$	357,438	$	3,734,727	$	3,762,896
Criticized		79,866		74,876		22,130		14,758		79,170		98,451
Classified - substandard		43,835		37,367		-		-		58,364		58,584
Classified - nonaccrual		28,151		24,798		14,168		2,110		30,624		30,108
Classified - doubtful		8,364		2,404		-		-		36,441		30,207
Total	$	2,949,277	$	2,717,269	$	542,228	$	374,306	$	3,939,326	$	3,980,246

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, 2018 and December 31, 2017:

			Consumer
			Home
(dollars in thousands)	Residential		Equity		Auto		Other
September 30, 2018
Performing	$	2,142,768	$	494,510	$	1,056,681	$	136,801
Nonperforming		23,435		3,815		2,296		1,522
Total	$	2,166,203	$	498,325	$	1,058,977	$	138,323

December 31, 2017
Performing	$	2,144,882	$	502,322	$	1,145,977	$	217,819
Nonperforming		22,171		5,185		2,695		5,249
Total	$	2,167,053	$	507,507	$	1,148,672	$	223,068

Schedule of Impaired Loans

The following table shows Old National’s impaired loans at September 30, 2018 and December 31, 2017, 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, 2018
With no related allowance recorded:
Commercial	$	20,332	$	21,083	$	-
Commercial Real Estate - Other		45,740		47,168		-
Residential		2,335		2,355		-
Consumer		1,301		1,425		-
With an allowance recorded:
Commercial		15,072		15,125		4,881
Commercial Real Estate - Construction		14,168		14,973		2,474
Commercial Real Estate - Other		26,595		26,727		4,796
Residential		792		792		40
Consumer		1,901		1,901		95
Total	$	128,236	$	131,549	$	12,286

December 31, 2017
With no related allowance recorded:
Commercial	$	20,557	$	21,483	$	-
Commercial Real Estate - Other		38,678		44,564		-
Residential		2,443		2,464		-
Consumer		1,685		2,105		-
With an allowance recorded:
Commercial		5,713		5,713		3,424
Commercial Real Estate - Construction		905		1,371		401
Commercial Real Estate - Other		26,478		26,902		6,253
Residential		870		870		44
Consumer		2,211		2,228		110
Total	$	99,540	$	107,700	$	10,232

Schedule of Average Balance of Impaired Loans

The average balance of impaired loans during the three and nine months ended September 30, 2018 and 2017 are included in the table below.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(dollars in thousands)		2018		2017		2018		2017
Average Recorded Investment
With no related allowance recorded:
Commercial	$	19,960	$	24,234	$	20,445	$	27,197
Commercial Real Estate - Other		45,302		33,268		42,209		31,258
Residential		2,303		2,482		2,289		2,405
Consumer		1,392		1,755		1,617		1,786
With an allowance recorded:
Commercial		14,771		7,792		10,393		8,086
Commercial Real Estate - Construction		11,307		-		7,537		-
Commercial Real Estate - Other		24,305		30,846		26,537		28,580
Residential		863		1,011		887		1,059
Consumer		1,909		2,163		2,013		2,136
Total	$	122,112	$	103,551	$	113,927	$	102,507

Schedule of Past Due Financing Receivables

Old National’s past due financing receivables at September 30, 2018 and December 31, 2017 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, 2018
Commercial	$	588	$	72	$	1	$	36,515	$	37,176	$	2,912,101
Commercial Real Estate:
Construction		354		-		-		14,168		14,522		527,706
Other		1,858		25		-		67,065		68,948		3,870,378
Residential		23,977		3,352		190		23,435		50,954		2,115,249
Consumer:
Home equity		1,449		190		271		3,815		5,725		492,600
Auto		5,319		1,224		441		2,296		9,280		1,049,697
Other		663		561		77		1,522		2,823		135,500
Total loans	$	34,208	$	5,424	$	980	$	148,816	$	189,428	$	11,103,231

December 31, 2017
Commercial	$	986	$	360	$	144	$	27,202	$	28,692	$	2,688,577
Commercial Real Estate:
Construction		-		-		-		2,110		2,110		372,196
Other		2,247		89		-		60,315		62,651		3,917,595
Residential		18,948		3,416		-		22,171		44,535		2,122,518
Consumer:
Home equity		1,467		230		68		5,185		6,950		500,557
Auto		6,487		1,402		532		2,695		11,116		1,137,556
Other		3,967		1,514		150		5,249		10,880		212,188
Total loans	$	34,102	$	7,011	$	894	$	124,927	$	166,934	$	10,951,187

(1)

Includes purchased credit impaired loans of $9.9 million at September 30, 2018 and $12.6 million at December 31, 2017 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, 2018 and 2017:

				Commercial
(dollars in thousands)	Commercial			Real Estate			Residential			Consumer			Total
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

Three Months Ended September 30, 2017
Balance at beginning of period	$	20,064		$	33,059		$	3,640		$	3,644		$	60,407
(Charge-offs)/recoveries		59			6			-			39			104
(Payments)/disbursements		(1,488	)		(361	)		(294	)		(134	)		(2,277	)
Additions		3,157			-			-			644			3,801
Balance at end of period	$	21,792		$	32,704		$	3,346		$	4,193		$	62,035

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

Nine Months Ended September 30, 2017
Balance at beginning of period	$	16,802		$	18,327		$	2,985		$	2,602		$	40,716
(Charge-offs)/recoveries		(5	)		366			-			(58	)		303
(Payments)/disbursements		(7,604	)		(3,418	)		(576	)		(919	)		(12,517	)
Additions		12,599			17,429			937			2,568			33,533
Balance at end of period	$	21,792		$	32,704		$	3,346		$	4,193		$	62,035

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, 2018 and 2017:

		Pre-modification		Post-modification
	Number	Outstanding Recorded		Outstanding Recorded
(dollars in thousands)	of Loans	Investment		Investment
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

Nine Months Ended September 30, 2017
TDR:
Commercial	9	$	12,599	$	12,599
Commercial Real Estate - Other	10		17,429		17,429
Residential	6		937		937
Consumer	7		2,568		2,568
Total	32	$	33,533	$	33,533

Schedule of Activity of Purchased Impaired Loans

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

	September 30,			December 31,
(dollars in thousands)	2018			2017
Commercial	$	4,230		$	5,152
Commercial real estate		17,669			21,826
Residential		9,711			11,303
Consumer		3,848			5,245
Carrying amount		35,458			43,526
Allowance for loan losses		(303	)		(166	)
Carrying amount, net of allowance	$	35,155		$	43,360

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

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(dollars in thousands)	2018			2017			2018			2017
Balance at beginning of period	$	24,249		$	27,050		$	27,835		$	33,603
Accretion of income		(1,854	)		(5,445	)		(8,927	)		(12,775	)
Reclassifications from (to) nonaccretable difference		1,599			5,973			5,065			6,567
Disposals/other adjustments		1			94			22			277
Balance at end of period	$	23,995		$	27,672		$	23,995		$	27,672

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

PCI loans purchased during 2017 for which it was probable at acquisition that all contractually required payments would not be collected were as follows:

(dollars in thousands)	Anchor (MN) (1)
Contractually required payments	$	16,898
Nonaccretable difference		(4,787	)
Cash flows expected to be collected at acquisition		12,111
Accretable yield		(1,556	)
Fair value of acquired loans at acquisition	$	10,555

(1)

Old National acquired Anchor (MN) effective November 1, 2017.