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Fair Value (Tables)

9 Months Ended

Sep. 30, 2018

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 September 30, 2018 Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Carrying		Identical Assets		Inputs		Inputs
(dollars in thousands)	Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Trading securities	$	5,828	$	5,828	$	-	$	-
Investment securities available-for-sale:
U.S. Treasury		5,237		5,237		-		-
U.S. government-sponsored entities and agencies		611,696		-		611,696		-
Mortgage-backed securities - Agency		1,508,692		-		1,508,692		-
States and political subdivisions		792,666		-		788,687		3,979
Pooled trust preferred securities		9,072		-		-		9,072
Other securities		345,093		30,026		315,067		-
Residential loans held for sale		21,384		-		21,384		-
Derivative assets		16,530		-		16,530		-
Financial Liabilities
Derivative liabilities		24,304		-		24,304		-

			Fair Value Measurements at December 31, 2017 Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Carrying		Identical Assets		Inputs		Inputs
(dollars in thousands)	Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Trading securities	$	5,584	$	5,584	$	-	$	-
Investment securities available-for-sale:
U.S. Treasury		5,551		5,551		-		-
U.S. government-sponsored entities and agencies		664,286		-		664,286		-
Mortgage-backed securities - Agency		1,667,682		-		1,667,682		-
States and political subdivisions		530,193		-		530,193
Pooled trust preferred securities		8,448		-		-		8,448
Other securities		320,047		30,965		289,082		-
Residential loans held for sale		17,930		-		17,930		-
Derivative assets		14,118		-		14,118		-
Financial Liabilities
Derivative liabilities		16,292		-		16,292		-

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):

	Pooled Trust			States and
	Preferred			Political
(dollars in thousands)	Securities			Subdivisions
Three Months Ended September 30, 2018
Balance at beginning of period	$	8,205		$	4,028
Accretion (amortization) of discount		3			(19	)
Sales/payments received		(17	)		-
Increase (decrease) in fair value of securities		881			(30	)
Balance at end of period	$	9,072		$	3,979

Three Months Ended September 30, 2017
Balance at beginning of period	$	8,097		$	-
Accretion of discount		5			-
Sales/payments received		(161	)		-
Increase (decrease) in fair value of securities		329			-
Balance at end of period	$	8,270		$	-

Nine Months Ended September 30, 2018
Balance at beginning of period	$	8,448		$	-
Accretion (amortization) of discount		13			(37	)
Sales/payments received		(322	)		-
Increase (decrease) in fair value of securities		933			(45	)
Transfers into Level 3		-			4,061
Balance at end of period	$	9,072		$	3,979

Nine Months Ended September 30, 2017
Balance at beginning of period	$	8,119		$	-
Accretion of discount		13			-
Sales/payments received		(373	)		-
Increase (decrease) in fair value of securities		511			-
Balance at end of period	$	8,270		$	-

Quantitative Information about Significant Unobservable Inputs Used in Fair Value Measurements

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

Valuation

Unobservable

Range (Weighted

(dollars in thousands)

Fair Value

Techniques

Input

Average)

September 30, 2018

Pooled trust preferred securities

9,072

Discounted cash flow

Constant prepayment rate (a)

0.00%

Additional asset defaults (b)

3.4% - 4.4% (4.1%)

Expected asset recoveries (c)

0.00%

State and political subdivisions

3,979

Discounted cash flow

No observable inputs

N/A

Local municipality issuance

Old National owns 100%

Carried at par

December 31, 2017

Pooled trust preferred securities

8,448

Discounted cash flow

Constant prepayment rate (a)

0.00%

Additional asset defaults (b)

4.2% - 9.6% (7.5%)

Expected asset recoveries (c)

0.0% - 4.1% (0.6%)

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

Valuation

Unobservable

Range (Weighted

(dollars in thousands)

Fair Value

Techniques

Input

Average)

September 30, 2018

Collateral Dependent Impaired

Loans

Commercial loans

8,555

Fair value of

Discount for type of property,

25% - 90% (43%)

collateral

age of appraisal, and current

status

Commercial real estate loans

29,099

Fair value of

Discount for type of property,

0% - 50% (30%)

collateral

age of appraisal and current

status

Foreclosed Assets

Commercial real estate (1)

543

Fair value of

Discount for type of property,

12%

collateral

age of appraisal, and current

status

Residential (1)

151

Fair value of

Discount for type of property,

collateral

age of appraisal, and current status

(1) There was only one commercial real estate asset and one foreclosed residential asset at September 30, 2018, so no range or weighted average rate is reported.

December 31, 2017

Collateral Dependent Impaired

Loans

Commercial loans

2,217

Fair value of

Discount for type of property,

0% - 98% (49%)

collateral

age of appraisal, and current

status

Commercial real estate loans

26,319

Fair value of

Discount for type of property,

10% - 78% (32%)

collateral

age of appraisal and current

status

Foreclosed Assets

Commercial real estate

1,726

Fair value of

Discount for type of property,

7% - 25% (18%)

collateral

age of appraisal, and current

status

Residential (2)

Fair value of

Discount for type of property,

39%

collateral

age of appraisal, and current status

(2)	There was only one foreclosed residential asset at December 31, 2017, so no range or weighted average rate is reported.

Assets Measured at Fair Value on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis at September 30, 2018 are summarized below:

			Fair Value Measurements at September 30, 2018 Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Carrying		Identical Assets		Inputs		Inputs
(dollars in thousands)	Value		(Level 1)		(Level 2)		(Level 3)
Collateral Dependent Impaired Loans:
Commercial loans	$	8,555	$	-	$	-	$	8,555
Commercial real estate loans		29,099		-		-		29,099
Foreclosed Assets:
Commercial real estate		543		-		-		543
Residential		151		-		-		151
Loan servicing rights		110		-		110		-

Assets measured at fair value on a non-recurring basis at December 31, 2017 are summarized below:

			Fair Value Measurements at December 31, 2017 Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Carrying		Identical Assets		Inputs		Inputs
(dollars in thousands)	Value		(Level 1)		(Level 2)		(Level 3)
Collateral Dependent Impaired Loans:
Commercial loans	$	2,217	$	-	$	-	$	2,217
Commercial real estate loans		26,319		-		-		26,319
Foreclosed Assets:
Commercial real estate		1,726		-		-		1,726
Residential		55		-		-		55
Loan servicing rights		2,964		-		2,964		-

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

The difference between the aggregate fair value and the aggregate remaining principal balance for loans for which the fair value option has been elected at September 30, 2018 and December 31, 2017 was as follows:

	Aggregate				Contractual
(dollars in thousands)	Fair Value		Difference		Principal
September 30, 2018
Residential loans held for sale	$	21,384	$	602	$	20,782

December 31, 2017
Residential loans held for sale	$	17,930	$	546	$	17,384

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:

									Total Changes
									in Fair Values
	Other								Included in
	Gains and			Interest		Interest			Current Period
(dollars in thousands)	(Losses)			Income		(Expense)			Earnings
Three Months Ended September 30, 2018
Residential loans held for sale	$	(368	)	$	3	$	-		$	(365	)

Three Months Ended September 30, 2017
Residential loans held for sale	$	58		$	-	$	-		$	58

Nine Months Ended September 30, 2018
Residential loans held for sale	$	54		$	6	$	(4	)	$	56

Nine Months Ended September 30, 2017
Residential loans held for sale	$	755		$	2	$	-		$	757

Carrying Amounts and Estimated Fair Values of Financial Instruments, Not Carried at Fair Value

The carrying amounts and estimated fair values of financial instruments not carried at fair value on the balance sheet at September 30, 2018 and December 31, 2017 were as follows:

			Fair Value Measurements at September 30, 2018 Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
(dollars in thousands)	Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Cash, due from banks, money market, and other interest-earning investments	$	286,761	$	286,761	$	-	$	-
Investment securities held-to-maturity:
U.S. government-sponsored entities and agencies		73,776		-		70,632		-
Mortgage-backed securities - Agency		131,562		-		126,612		-
State and political subdivisions		306,869		-		308,322		-
FHLB/Federal Reserve Bank stock		136,206	N/A		N/A		N/A
Loans, net:
Commercial		2,929,558		-		-		2,871,624
Commercial real estate		4,458,662		-		-		4,374,201
Residential real estate		2,164,283		-		-		2,117,866
Consumer credit		1,687,443		-		-		1,646,883
Accrued interest receivable		78,493		34		21,556		56,903

Financial Liabilities
Deposits:
Noninterest-bearing demand deposits	$	3,588,370	$	3,588,370	$	-	$	-
Checking, NOW, savings, and money market interest-bearing deposits		7,117,695		7,117,695		-		-
Time deposits		1,892,135		-		1,889,488		-
Federal funds purchased and interbank borrowings		450,031		450,031		-		-
Securities sold under agreements to repurchase		319,831		319,831		-		-
FHLB advances		1,554,515		-		-		1,540,755
Other borrowings		251,662		-		248,749		-
Accrued interest payable		6,582		-		6,582		-
Standby letters of credit		445		-		-		445

Off-Balance Sheet Financial
Instruments
Commitments to extend credit	$	-	$	-	$	-	$	3,209
N/A = not applicable

			Fair Value Measurements at December 31, 2017 Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
(dollars in thousands)	Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Cash, due from banks, money market, and other interest-earning investments	$	290,432	$	290,432	$	-	$	-
Investment securities held-to-maturity:
Mortgage-backed securities - Agency		6,903		-		7,056		-
State and political subdivisions		677,160		-		720,647		-
FHLB/Federal Reserve Bank stock		119,686	N/A		N/A		N/A
Loans, net:
Commercial		2,698,023		-		-		2,707,385
Commercial real estate		4,333,116		-		-		4,347,949
Residential real estate		2,165,290		-		-		2,210,951
Consumer credit		1,871,311		-		-		1,998,194
Accrued interest receivable		87,102		16		24,001		63,085

Financial Liabilities
Deposits:
Noninterest-bearing demand deposits	$	3,680,807	$	3,680,807	$	-	$	-
Checking, NOW, savings, and money market interest-bearing deposits		7,290,521		7,290,521		-		-
Time deposits		1,634,436		-		1,620,685		-
Federal funds purchased and interbank borrowings		335,033		335,033		-		-
Securities sold under agreements to repurchase		384,810		359,810		25,133		-
FHLB advances		1,609,579		-		-		1,607,189
Other borrowings		248,782		-		250,443		-
Accrued interest payable		7,029		-		7,029		-
Standby letters of credit		351		-		-		351

Off-Balance Sheet Financial
Instruments
Commitments to extend credit	$	-	$	-	$	-	$	2,449
N/A = not applicable