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Loans and Allowance for Loan Losses (Tables)

3 Months Ended

Mar. 31, 2019

The composition of loans by lending classification was as follows:

	March 31,			December 31,
(dollars in thousands)	2019			2018
Commercial (1)	$	3,042,790		$	3,232,970
Commercial real estate:
Construction		552,825			504,625
Other		4,470,795			4,454,226
Residential real estate		2,243,885			2,248,404
Consumer credit:
Home equity		553,264			589,322
Auto		1,034,347			1,059,633
Other		171,071			154,712
Total loans		12,068,977			12,243,892
Allowance for loan losses		(55,559	)		(55,461	)
Net loans	$	12,013,418		$	12,188,431

(1)

Includes direct finance leases of $57.6 million at March 31, 2019 and $60.0 million at December 31, 2018.

Schedule of Activity in Allowance for Loan Losses

Old National’s activity in the allowance for loan losses for the three months ended March 31, 2019 and 2018 was as follows:

				Commercial
(dollars in thousands)	Commercial			Real Estate			Residential			Consumer			Total
Three Months Ended March 31, 2019
Balance at beginning of period	$	21,742		$	23,470		$	2,277		$	7,972		$	55,461
Charge-offs		(160	)		(235	)		(178	)		(2,319	)		(2,892	)
Recoveries		375			570			72			930			1,947
Provision		(1,551	)		1,364			131			1,099			1,043
Balance at end of period	$	20,406		$	25,169		$	2,302		$	7,682		$	55,559

Three Months Ended March 31, 2018
Balance at beginning of period	$	19,246		$	21,436		$	1,763		$	7,936		$	50,381
Charge-offs		(245	)		(3	)		(362	)		(2,075	)		(2,685	)
Recoveries		511			484			148			1,162			2,305
Provision		79			(1,121	)		214			1,208			380
Balance at end of period	$	19,591		$	20,796		$	1,763		$	8,231		$	50,381

Schedule of Recorded Investment in Loans

The following table provides Old National’s recorded investment in loans by portfolio segment at March 31, 2019 and December 31, 2018 and other information regarding the allowance:

			Commercial
(dollars in thousands)	Commercial		Real Estate		Residential		Consumer		Total
March 31, 2019
Allowance for loan losses:
Individually evaluated for impairment	$	4,534	$	6,336	$	—	$	—	$	10,870
Collectively evaluated for impairment		15,867		18,680		2,301		7,528		44,376
Loans acquired with deteriorated credit quality		5		153		1		154		313
Total allowance for loan losses	$	20,406	$	25,169	$	2,302	$	7,682	$	55,559
Loans and leases outstanding:
Individually evaluated for impairment	$	34,660	$	78,055	$	—	$	—	$	112,715
Collectively evaluated for impairment		3,002,256		4,921,352		2,234,966		1,755,393		11,913,967
Loans acquired with deteriorated credit quality		5,874		24,213		8,919		3,289		42,295
Total loans and leases outstanding	$	3,042,790	$	5,023,620	$	2,243,885	$	1,758,682	$	12,068,977

December 31, 2018
Allowance for loan losses:
Individually evaluated for impairment	$	6,035	$	8,306	$	—	$	—	$	14,341
Collectively evaluated for impairment		15,700		14,845		2,276		7,821		40,642
Loans acquired with deteriorated credit quality		7		319		1		151		478
Total allowance for loan losses	$	21,742	$	23,470	$	2,277	$	7,972	$	55,461
Loans and leases outstanding:
Individually evaluated for impairment	$	35,410	$	83,104	$	—	$	—	$	118,514
Collectively evaluated for impairment		3,191,367		4,850,356		2,239,147		1,800,115		12,080,985
Loans acquired with deteriorated credit quality		6,193		25,391		9,257		3,552		44,393
Total loans and leases outstanding	$	3,232,970	$	4,958,851	$	2,248,404	$	1,803,667	$	12,243,892

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 March 31, 2019 and December 31, 2018 was as follows:

(dollars in thousands)					Commercial				Commercial
					Real Estate -				Real Estate -
Corporate Credit Exposure	Commercial				Construction				Other
Credit Risk Profile by	March 31,		December 31,		March 31,		December 31,		March 31,		December 31,
Internally Assigned Grade	2019		2018		2019		2018		2019		2018
Grade:
Pass	$	2,837,646	$	3,029,130	$	494,410	$	460,158	$	4,140,815	$	4,167,902
Criticized		106,501		98,798		43,161		29,368		119,173		110,586
Classified - substandard		64,597		66,394		746		1,275		141,357		102,961
Classified - nonaccrual		22,982		29,003		14,508		13,824		33,870		37,441
Classified - doubtful		11,064		9,645		—		—		35,580		35,336
Total	$	3,042,790	$	3,232,970	$	552,825	$	504,625	$	4,470,795	$	4,454,226

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 March 31, 2019 and December 31, 2018:

			Consumer
			Home
(dollars in thousands)	Residential		Equity		Auto		Other
March 31, 2019
Performing	$	2,218,094	$	548,501	$	1,031,049	$	170,046
Nonperforming		25,791		4,763		3,298		1,025
Total	$	2,243,885	$	553,264	$	1,034,347	$	171,071

December 31, 2018
Performing	$	2,223,450	$	586,235	$	1,057,038	$	153,113
Nonperforming		24,954		3,087		2,595		1,599
Total	$	2,248,404	$	589,322	$	1,059,633	$	154,712

Schedule of Impaired Loans

The following table shows Old National’s impaired loans at March 31, 2019 and December 31, 2018, 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
March 31, 2019
With no related allowance recorded:
Commercial	$	25,345	$	25,552	$	—
Commercial Real Estate - Construction		10,953		10,953		—
Commercial Real Estate - Other		39,143		40,043		—
Residential		2,302		2,323		—
Consumer		958		1,130		—
With an allowance recorded:
Commercial		9,315		9,368		4,534
Commercial Real Estate - Construction		3,555		3,555		1,634
Commercial Real Estate - Other		24,404		24,404		4,702
Residential		873		873		44
Consumer		1,373		1,373		69
Total	$	118,221	$	119,574	$	10,983

December 31, 2018
With no related allowance recorded:
Commercial	$	22,031	$	22,292	$	—
Commercial Real Estate - Other		41,126		41,914		—
Residential		2,276		2,296		—
Consumer		362		535		—
With an allowance recorded:
Commercial		13,379		13,432		6,035
Commercial Real Estate - Construction		13,824		13,824		1,830
Commercial Real Estate - Other		28,154		28,154		6,476
Residential		889		889		44
Consumer		2,013		2,013		101
Total	$	124,054	$	125,349	$	14,486

Schedule of Average Balance of Impaired Loans

The average balance of impaired loans during the three months ended March 31, 2019 and 2018 are included in the table below.

	Three Months Ended
	March 31,
(dollars in thousands)		2019		2018
Average Recorded Investment
With no related allowance recorded:
Commercial	$	23,688	$	20,714
Commercial Real Estate - Construction		5,477		—
Commercial Real Estate - Other		40,135		40,801
Residential		2,289		2,275
Consumer		660		1,842
With an allowance recorded:
Commercial		11,347		7,468
Commercial Real Estate - Construction		8,690		905
Commercial Real Estate - Other		26,279		23,672
Residential		881		910
Consumer		1,693		2,117
Total	$	121,139	$	100,704

Schedule of Past Due Financing Receivables

Old National’s past due loans at March 31, 2019 and December 31, 2018 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
March 31, 2019
Commercial	$	1,308	$	888	$	98	$	34,046	$	36,340	$	3,006,450
Commercial Real Estate:
Construction		—		—		—		14,508		14,508		538,317
Other		1,656		1,858		140		69,450		73,104		4,397,691
Residential		25,297		855		49		25,791		51,992		2,191,893
Consumer:
Home equity		786		310		158		4,763		6,017		547,247
Auto		4,667		790		89		3,298		8,844		1,025,503
Other		494		110		26		1,025		1,655		169,416
Total loans	$	34,208	$	4,811	$	560	$	152,881	$	192,460	$	11,876,517

December 31, 2018
Commercial	$	3,627	$	279	$	52	$	38,648	$	42,606	$	3,190,364
Commercial Real Estate:
Construction		—		—		—		13,824		13,824		490,801
Other		1,633		500		40		72,777		74,950		4,379,276
Residential		25,947		3,437		258		24,954		54,596		2,193,808
Consumer:
Home equity		1,434		960		456		3,087		5,937		583,385
Auto		7,091		1,903		377		2,595		11,966		1,047,667
Other		711		210		170		1,599		2,690		152,022
Total loans	$	40,443	$	7,289	$	1,353	$	157,484	$	206,569	$	12,037,323

(1)

Includes purchased credit impaired loans of $19.6 million at March 31, 2019 and $20.5 million at December 31, 2018 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 months ended March 31, 2019 and 2018:

				Commercial
(dollars in thousands)	Commercial			Real Estate			Residential			Consumer			Total
Three Months Ended March 31, 2019
Balance at beginning of period	$	10,275		$	27,671		$	3,390		$	2,374		$	43,710
(Charge-offs)/recoveries		(7	)		(75	)		—			(3	)		(85	)
(Payments)/disbursements		(1,029	)		(1,562	)		(143	)		(58	)		(2,792	)
Additions		2,407			3,103			—			—			5,510
Balance at end of period	$	11,646		$	29,137		$	3,247		$	2,313		$	46,343

Three Months Ended March 31, 2018
Balance at beginning of period	$	12,088		$	34,705		$	3,315		$	3,895		$	54,003
(Charge-offs)/recoveries		(129	)		(10	)		23			298			182
(Payments)/disbursements		(580	)		(773	)		(280	)		(605	)		(2,238	)
Additions		539			566			—			432			1,537
Balance at end of period	$	11,918		$	34,488		$	3,058		$	4,020		$	53,484

Schedule of Loans by Class Modified as Troubled Debt Restructuring

The following table presents loans by class modified as TDRs that occurred during the three months ended March 31, 2019 and 2018:

		Pre-modification		Post-modification
		Outstanding		Outstanding
	Number	Recorded		Recorded
(dollars in thousands)	of Loans	Investment		Investment
Three Months Ended March 31, 2019
TDR:
Commercial	3	$	2,407	$	2,407
Commercial Real Estate - Other	1		3,103		3,103
Total	4	$	5,510	$	5,510

Three Months Ended March 31, 2018
TDR:
Commercial	1	$	539	$	539
Commercial Real Estate - Other	1		566		566
Consumer	1		432		432
Total	3	$	1,537	$	1,537

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:

	March 31,			December 31,
(dollars in thousands)	2019			2018
Commercial	$	5,874		$	6,193
Commercial real estate		24,213			25,391
Residential		8,919			9,257
Consumer		3,289			3,552
Carrying amount		42,295			44,393
Allowance for loan losses		(313	)		(478	)
Carrying amount, net of allowance	$	41,982		$	43,915

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

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

	Three Months Ended
	March 31,
(dollars in thousands)	2019			2018
Balance at beginning of period	$	25,051		$	27,835
Accretion of income		(1,968	)		(4,526	)
Reclassifications from (to) nonaccretable difference		1,306			1,379
Disposals/other adjustments		—			4
Balance at end of period	$	24,389		$	24,692

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

PCI loans purchased during 2018 for which it was probable at acquisition that all contractually required payments would not be collected were as follows:

(dollars in thousands)	Klein (1)
Contractually required payments	$	18,568
Nonaccretable difference		(4,521	)
Cash flows expected to be collected at acquisition		14,047
Accretable yield		(2,384	)
Fair value of acquired loans at acquisition	$	11,663

(1)

Old National acquired Klein effective November 1, 2018.