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Loans and Allowance for Loan Losses (Tables)

12 Months Ended

Dec. 31, 2019

The composition of loans at December 31 by lending classification was as follows:

	December 31,
(dollars in thousands)	2019			2018
Commercial (1)	$	2,890,296		$	3,232,970
Commercial real estate:
Construction		713,092			504,625
Other		4,453,700			4,454,226
Residential real estate		2,334,289			2,248,404
Consumer credit:
Home equity		559,021			589,322
Auto		1,017,287			1,059,633
Other		149,839			154,712
Total loans		12,117,524			12,243,892
Allowance for loan losses		(54,619	)		(55,461	)
Net loans	$	12,062,905		$	12,188,431

(1)

Includes direct finance leases of $47.2 million at December 31, 2019 and $60.0 million at December 31, 2018.

Schedule of Activity in Related Party Loans

Activity in related party loans for the years ended December 31, 2019, 2018, and 2017 is presented in the following table:

	Years Ended December 31,
(dollars in thousands)	2019			2018			2017
Balance at beginning of period	$	9,310		$	9,481		$	8,494
New loans		1,218			9,152			6,041
Repayments		(2,063	)		(8,721	)		(4,885	)
Officer and director changes		(6,120	)		(602	)		(169	)
Balance at end of period	$	2,345		$	9,310		$	9,481

Schedule of Activity in Allowance for Loan Losses

Old National’s activity in the allowance for loan losses for the years ended December 31, 2019, 2018, and 2017 was as follows:

				Commercial
(dollars in thousands)	Commercial			Real Estate			Residential			Consumer			Total
2019
Allowance for loan losses:
Balance at beginning of period	$	21,742		$	23,470		$	2,277		$	7,972		$	55,461
Charge-offs		(3,819	)		(2,846	)		(661	)		(7,463	)		(14,789	)
Recoveries		1,650			3,774			146			3,630			9,200
Provision		3,012			(2,810	)		537			4,008			4,747
Balance at end of period	$	22,585		$	21,588		$	2,299		$	8,147		$	54,619

2018
Allowance for loan losses:
Balance at beginning of period	$	19,246		$	21,436		$	1,763		$	7,936		$	50,381
Charge-offs		(3,087	)		(879	)		(1,100	)		(7,903	)		(12,969	)
Recoveries		1,519			2,740			2,118			4,706			11,083
Provision		4,064			173			(504	)		3,233			6,966
Balance at end of period	$	21,742		$	23,470		$	2,277		$	7,972		$	55,461

2017
Allowance for loan losses:
Balance at beginning of period	$	21,481		$	18,173		$	1,643		$	8,511		$	49,808
Charge-offs		(1,108	)		(3,700	)		(985	)		(6,924	)		(12,717	)
Recoveries		2,281			3,777			255			3,927			10,240
Provision		(3,408	)		3,186			850			2,422			3,050
Balance at end of period	$	19,246		$	21,436		$	1,763		$	7,936		$	50,381

Schedule of Recorded Investment in Loans

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

			Commercial
(dollars in thousands)	Commercial		Real Estate		Residential		Consumer		Total
December 31, 2019
Allowance for loan losses:
Individually evaluated for impairment	$	7,891	$	1,006	$	—	$	—	$	8,897
Collectively evaluated for impairment		14,692		20,582		2,299		7,954		45,527
Loans acquired with deteriorated credit quality		2		—		—		193		195
Total allowance for loan losses	$	22,585	$	21,588	$	2,299	$	8,147	$	54,619
Loans and leases outstanding:
Individually evaluated for impairment	$	41,479	$	63,288	$	—	$	—	$	104,767
Collectively evaluated for impairment		2,843,536		5,084,737		2,326,907		1,723,715		11,978,895
Loans acquired with deteriorated credit quality		5,281		18,767		7,382		2,432		33,862
Total loans and leases outstanding	$	2,890,296	$	5,166,792	$	2,334,289	$	1,726,147	$	12,117,524

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 December 31, 2019 and 2018 was as follows:

(dollars in thousands)					Commercial				Commercial
Corporate Credit Exposure					Real Estate -				Real Estate -
Credit Risk Profile by	Commercial				Construction				Other
Internally Assigned Grade	2019		2018		2019		2018		2019		2018
Grade:
Pass	$	2,702,605	$	3,029,130	$	665,512	$	460,158	$	4,191,455	$	4,167,902
Criticized		84,676		98,798		34,651		29,368		115,514		110,586
Classified - substandard		63,979		66,394		—		1,275		101,693		102,961
Classified - nonaccrual		22,240		29,003		12,929		13,824		38,822		37,441
Classified - doubtful		16,796		9,645		—		—		6,216		35,336
Total	$	2,890,296	$	3,232,970	$	713,092	$	504,625	$	4,453,700	$	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 December 31, 2019 and 2018

			Consumer
			Home
(dollars in thousands)	Residential		Equity		Auto		Other
December 31, 2019
Performing	$	2,311,670	$	555,025	$	1,013,760	$	147,383
Nonperforming		22,619		3,996		3,527		2,456
Total	$	2,334,289	$	559,021	$	1,017,287	$	149,839

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 December 31, 2019 and 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
December 31, 2019
With no related allowance recorded:
Commercial	$	23,227	$	23,665	$	—
Commercial Real Estate - Construction		12,929		12,929		—
Commercial Real Estate - Other		37,674		38,112		—
Residential		1,774		1,794		—
Consumer		403		568		—
With an allowance recorded:
Commercial		18,252		18,305		7,891
Commercial Real Estate - Construction		-		-		-
Commercial Real Estate - Other		12,685		12,685		1,006
Residential		1,201		1,201		39
Consumer		1,094		1,094		55
Total	$	109,239	$	110,353	$	8,991

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 for the years ended December 31, 2019, 2018, and 2017 are included in the table below.

	Years Ended December 31,
(dollars in thousands)	2019		2018		2017
Average Recorded Investment
With no related allowance recorded:
Commercial	$	22,629	$	21,295	$	24,780
Commercial Real Estate - Construction		6,465		—		—
Commercial Real Estate - Other		39,401		39,902		34,632
Residential		2,052		2,305		2,415
Consumer		923		832		1,761
With an allowance recorded:
Commercial		15,816		9,546		7,002
Commercial Real Estate - Construction		6,912		7,365		453
Commercial Real Estate - Other		20,420		27,317		26,562
Residential		981		840		1,012
Consumer		1,219		1,957		2,155
Total	$	116,818	$	111,359	$	100,772

Schedule of Past Due Financing Receivables

Old National’s past due loans as of December 31 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
December 31, 2019
Commercial	$	1,489	$	498	$	—	$	39,036	$	41,023	$	2,849,273
Commercial Real Estate:
Construction		187		—		—		12,929		13,116		699,976
Other		2,223		665		181		45,038		48,107		4,405,593
Residential		11,054		2,426		20		21,023		34,523		2,299,766
Consumer:
Home equity		1,020		554		107		3,785		5,466		553,555
Auto		7,704		919		154		3,527		12,304		1,004,983
Other		1,372		147		108		1,074		2,701		147,138
Total	$	25,049	$	5,209	$	570	$	126,412	$	157,240	$	11,960,284

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	$	40,443	$	7,289	$	1,353	$	157,484	$	206,569	$	12,037,323

(1)

Includes purchased credit impaired loans of $7.9 million at December 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 years ended December 31, 2019, 2018, and 2017:

				Commercial
(dollars in thousands)	Commercial			Real Estate			Residential			Consumer			Total
2019
Balance at beginning of period	$	10,275		$	27,671		$	3,390		$	2,374		$	43,710
(Charge-offs)/recoveries		(1,911	)		(2,112	)		—			13			(4,010	)
(Payments)/disbursements		(3,733	)		(23,182	)		(971	)		(1,207	)		(29,093	)
Additions		10,231			10,027			557			316			21,131
Balance at end of period	$	14,862		$	12,404		$	2,976		$	1,496		$	31,738

2018
Balance at beginning of period	$	12,088		$	34,705		$	3,315		$	3,895		$	54,003
(Charge-offs)/recoveries		(169	)		561			23			16			431
(Payments)/disbursements		(5,188	)		(8,808	)		(450	)		(1,969	)		(16,415	)
Additions		3,544			1,213			502			432			5,691
Balance at end of period	$	10,275		$	27,671		$	3,390		$	2,374		$	43,710

2017
Balance at beginning of period	$	16,802		$	18,327		$	2,985		$	2,602		$	40,716
(Charge-offs)/recoveries		417			381			—			(294	)		504
(Payments)/disbursements		(18,519	)		(11,752	)		(608	)		(981	)		(31,860	)
Additions		13,388			27,749			938			2,568			44,643
Balance at end of period	$	12,088		$	34,705		$	3,315		$	3,895		$	54,003

Schedule of Loans by Class Modified as Troubled Debt Restructuring

The following table presents loans by class modified as TDRs that occurred during the years ended December 31, 2019, 2018, and 2017:

		Pre-modification		Post-modification
	Number	Outstanding Recorded		Outstanding Recorded
(dollars in thousands)	of Loans	Investment		Investment
2019
Troubled Debt Restructuring:
Commercial	8	$	10,231	$	10,231
Commercial Real Estate - Other	4		10,027		10,027
Residential	1		557		557
Consumer	1		316		316
Total	14	$	21,131	$	21,131

2018
Troubled Debt Restructuring:
Commercial	6	$	3,544	$	3,544
Commercial Real Estate - Other	2		1,213		1,213
Residential	1		502		502
Consumer	1		432		432
Total	10	$	5,691	$	5,691

2017
Troubled Debt Restructuring:
Commercial	11	$	13,388	$	13,388
Commercial Real Estate - Other	12		27,749		27,749
Residential	6		938		938
Consumer	7		2,568		2,568
Total	36	$	44,643	$	44,643

Schedule of Activity of Purchased Impaired Loans

The carrying amount of those loans was as follows:

	December 31,
(dollars in thousands)	2019			2018
Commercial	$	5,281		$	6,193
Commercial real estate		18,767			25,391
Residential		7,382			9,257
Consumer		2,432			3,552
Carrying amount		33,862			44,393
Allowance for loan losses		(195	)		(478	)
Carrying amount, net of allowance	$	33,667		$	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:

	Years Ended December 31,
(dollars in thousands)	2019			2018			2017
Balance at beginning of period	$	25,051		$	27,835		$	33,603
New loans purchased		—			2,384			1,556
Accretion of income		(11,308	)		(12,252	)		(15,217	)
Reclassifications from (to) nonaccretable difference		1,941			6,133			7,614
Disposals/other adjustments		591			951			279
Balance at end of period	$	16,275		$	25,051		$	27,835

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.