| Loans and Allowance for Loan Losses | NOTE 8 – LOANS AND ALLOWANCE FOR LOAN LOSSES
Old National’s finance receivables consist primarily of loans
made to consumers and commercial clients in various industries
including manufacturing, agribusiness, transportation, mining,
wholesaling, and retailing. Most of Old National’s lending
activity occurs within our principal geographic markets of Indiana,
Kentucky, Michigan, and Wisconsin. Old National manages
concentrations of credit exposure by industry, product, geography,
customer relationship, and loan size, with no concentration of
loans exceeding 10% of its portfolio.
The composition of loans by lending classification was as
follows:
(dollars in thousands) June 30, December 31,
Commercial (1) $ 2,001,621 $ 1,917,099
Commercial real estate:
Construction (2) 367,425 357,802
Other (2) 2,892,573 2,773,051
Residential real estate 2,099,374 2,087,530
Consumer credit:
Home equity 472,198 476,439
Auto 1,181,270 1,167,737
Other 217,579 230,854
Total loans 9,232,040 9,010,512
Allowance for loan losses (50,986 ) (49,808 )
Net loans $ 9,181,054 $ 8,960,704
(1) Includes direct finance leases of
$9.4 million at June 30, 2017 and $10.8 million at
December 31, 2016.
(2) Certain commercial real estate
construction loans were reclassified from commercial real
estate—other due to a misclassification at December 31,
2016.
The risk characteristics of each loan portfolio segment are as
follows:
Commercial
Commercial loans are primarily based on the identified cash flows
of the borrower and secondarily on the underlying collateral
provided by the borrower. The cash flows of borrowers, however, may
not be as expected and the collateral securing these loans may
fluctuate in value. Most commercial loans are secured by the assets
being financed or other business assets such as accounts receivable
or inventory and may incorporate a personal guarantee; however,
some loans may be made on an unsecured basis. In the case of loans
secured by accounts receivable, the availability of funds for the
repayment of these loans may be substantially dependent on the
ability of the borrower to collect amounts due from its
customers.
Commercial Real Estate
These loans are viewed primarily as cash flow loans and secondarily
as loans secured by real estate. Commercial real estate lending
typically involves higher loan principal amounts, and the repayment
of these loans is generally dependent on the successful operation
of the property securing the loan or the business conducted on the
property securing the loan. Commercial real estate loans may be
adversely affected by conditions in the real estate markets or in
the general economy. The properties securing Old National’s
commercial real estate portfolio are diverse in terms of type and
geographic location. Management monitors and evaluates commercial
real estate loans based on collateral, geography and risk grade
criteria. In addition, management tracks the level of
owner-occupied commercial real estate loans versus non-owner
Included with commercial real estate are construction loans, which
are underwritten utilizing independent appraisal reviews,
sensitivity analysis of absorption and lease rates, financial
analysis of the developers and property owners, and feasibility
studies, if available. Construction loans are generally based on
estimates of costs and value associated with the complete project.
These estimates may be inaccurate. Construction loans often involve
the disbursement of substantial funds with repayment substantially
dependent on the success of the ultimate project. Sources of
repayment for these types of loans may be pre-committed on-site
The acquisition of Anchor on May 1, 2016 added
$926.2 million of commercial real estate loans to our
portfolio. At 188%, Old National Bank’s commercial real
estate loans as a percentage of its risk-based capital remained
well below the regulatory guideline limit of 300% at June 30,
2017.
Residential
With respect to residential loans that are secured by 1-4 loan-to-value
Consumer
Home equity loans are typically secured by a subordinate interest
in 1-4
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed
adequate by management to absorb probable losses incurred in the
consolidated loan portfolio. Management’s evaluation of the
adequacy of the allowance is an estimate based on reviews of
individual loans, pools of homogeneous loans, assessments of the
impact of current and anticipated economic conditions on the
portfolio, and historical loss experience. The allowance is
increased through a provision charged to operating expense. Loans
deemed to be uncollectible are charged to the allowance. Recoveries
of loans previously charged-off
We utilize a PD and LGD model as a tool to determine the adequacy
of the allowance for loan losses for performing commercial and
commercial real estate loans. The PD is forecast using a transition
matrix to determine the likelihood of a customer’s AQR
migrating from its current AQR to any other status within the time
horizon. Transition rates are measured using Old National’s
own historical experience. The model assumes that recent historical
transition rates will continue into the future. The LGD is defined
as credit loss incurred when an obligor of the bank defaults. The
sum of all net charge-offs for a particular portfolio segment are
divided by all loans that have defaulted over a given period of
time. The expected loss derived from the model considers the PD,
LGD, and exposure at default. Additionally, qualitative factors,
such as changes in lending policies or procedures, and economic
business conditions are also considered.
We use historic loss ratios adjusted for economic conditions to
determine the appropriate level of allowance for residential real
estate and consumer loans.
No allowance was brought forward on any of the acquired loans as
any credit deterioration evident in the loans was included in the
determination of the fair value of the loans at the acquisition
date. An allowance for loan losses will be established for any
subsequent credit deterioration or adverse changes in expected cash
flows.
Old National’s activity in the allowance for loan losses for
the three and six months ended June 30, 2017 and 2016 was as
follows:
Commercial
(dollars in thousands) Commercial Real Estate Residential Consumer Unallocated Total
Three Months Ended June 30, 2017
Balance at April 1, 2017 $ 22,108 $ 17,953 $ 1,736 $ 8,037 $
— $ 49,834
Charge-offs (411 ) (1,068 ) (313 ) (1,588 )
— (3,380 )
Recoveries 789 1,522 28 838
— 3,177
Provision (2,121 ) 2,247 360 869
— 1,355
Balance at June 30, 2017 $ 20,365 $ 20,654 $ 1,811 $ 8,156 $
— $ 50,986
Three Months Ended June 30, 2016
Balance at April 1, 2016 $ 25,121 $ 15,771 $ 1,749 $ 8,059 $
— $ 50,700
Charge-offs (432 ) (783 ) (80 ) (1,382 )
— (2,677 )
Recoveries 876 547 187 852
— 2,462
Provision (1,409 ) 2,673 (397 ) 452
— 1,319
Balance at June 30, 2016 $ 24,156 $ 18,208 $ 1,459 $ 7,981 $
— $ 51,804
Six Months Ended June 30, 2017
Balance at January 1, 2017 $ 21,481 $ 18,173 $ 1,643 $ 8,511 $
— $ 49,808
Charge-offs (881 ) (1,636 ) (727 ) (3,375 )
— (6,619 )
Recoveries 1,392 2,747 107 1,849
— 6,095
Provision (1,627 ) 1,370 788 1,171
— 1,702
Balance at June 30, 2017 $ 20,365 $ 20,654 $ 1,811 $ 8,156 $
— $ 50,986
Six Months Ended June 30, 2016
Balance at January 1, 2016 $ 26,347 $ 15,993 $ 2,051 $ 7,842 $
— $ 52,233
Charge-offs (1,959 ) (1,062 ) (220 ) (3,378 )
— (6,619 )
Recoveries 1,694 1,387 213 1,486
— 4,780
Provision (1,926 ) 1,890 (585 ) 2,031
— 1,410
Balance at June 30, 2016 $ 24,156 $ 18,208 $ 1,459 $ 7,981 $
— $ 51,804
The following table provides Old National’s recorded
investment in financing receivables by portfolio segment at
June 30, 2017 and December 31, 2016 and other information
regarding the allowance:
Commercial
(dollars in thousands) Commercial Real Estate Residential Consumer Unallocated Total
June 30, 2017
Allowance for loan losses:
Individually evaluated for impairment $ 4,423 $ 7,656 $
— $
— $
— $ 12,079
Collectively evaluated for impairment 15,863 12,979 1,811 7,826
— 38,479
Loans acquired with deteriorated credit quality 79 19
— 330
— 428
Total allowance for loan losses $ 20,365 $ 20,654 $ 1,811 $ 8,156 $
— $ 50,986
Loans and leases outstanding:
Individually evaluated for impairment $ 30,776 $ 65,785 $
— $
— $
— $ 96,561
Collectively evaluated for impairment 1,970,223 3,171,926 2,086,796 1,864,502
— 9,093,447
Loans acquired with deteriorated credit quality 622 22,287 12,578 6,545
— 42,032
Total loans and leases outstanding $ 2,001,621 $ 3,259,998 $ 2,099,374 $ 1,871,047 $
— $ 9,232,040
December 31, 2016
Allowance for loan losses:
Individually evaluated for impairment $ 4,561 $ 3,437 $
— $
— $
— $ 7,998
Collectively evaluated for impairment 16,838 14,717 1,643 8,334
— 41,532
Loans acquired with deteriorated credit quality 82 19
— 177
— 278
Total allowance for loan losses $ 21,481 $ 18,173 $ 1,643 $ 8,511 $
— $ 49,808
Loans and leases outstanding:
Individually evaluated for impairment $ 45,960 $ 57,230 $
— $
— $
— $ 103,190
Collectively evaluated for impairment 1,870,289 3,040,849 2,073,950 1,866,815
— 8,851,903
Loans acquired with deteriorated credit quality 850 32,774 13,580 8,215
— 55,419
Total loans and leases outstanding $ 1,917,099 $ 3,130,853 $ 2,087,530 $ 1,875,030 $
— $ 9,010,512
Credit Quality
Old National’s management monitors the credit quality of its
financing receivables in an on-going non-homogeneous
Criticized
Classified – Substandard
Classified – Nonaccrual
Classified – Doubtful
Pass rated loans are those loans that are other than criticized,
classified – substandard, classified – nonaccrual, or
classified – doubtful.
The risk category of commercial and commercial real estate loans by
class of loans at June 30, 2017 and December 31, 2016 was
as follows:
(dollars in thousands)
Corporate Credit Exposure Commercial Commercial Real Estate - Construction Commercial Real Estate - Other
Credit Risk Profile by
June 30,
December 31,
June 30,
December 31,
June 30,
December 31,
Internally Assigned Grade 2017 2016 2017 2016 2017 2016
Grade:
Pass $ 1,896,781 $ 1,750,923 $ 356,426 $ 347,325 $ 2,708,533 $ 2,669,890
Criticized 32,873 45,614 10,999 9,258 55,630 40,590
Classified—substandard 42,111 63,978
— 49 65,359 19,715
Classified—nonaccrual 27,768 53,062
— 1,170 34,704 33,833
Classified—doubtful 2,088 3,522
—
— 28,347 9,023
Total $ 2,001,621 $ 1,917,099 $ 367,425 $ 357,802 $ 2,892,573 $ 2,773,051
Old National considers the performance of the loan portfolio and
its impact on the allowance for loan losses. For residential and
consumer loan classes, Old National also evaluates credit quality
based on the aging status of the loan and by payment activity. The
following table presents the recorded investment in residential and
consumer loans based on payment activity at June 30, 2017 and
December 31, 2016:
(dollars in thousands) Consumer
Residential Home Auto Other
June 30, 2017
Performing $ 2,080,345 $ 466,421 $ 1,178,937 $ 212,106
Nonperforming 19,029 5,777 2,333 5,473
Total $ 2,099,374 $ 472,198 $ 1,181,270 $ 217,579
December 31, 2016
Performing $ 2,069,856 $ 472,008 $ 1,166,114 $ 223,786
Nonperforming 17,674 4,431 1,623 7,068
Total $ 2,087,530 $ 476,439 $ 1,167,737 $ 230,854
Impaired Loans
Large commercial credits are subject to individual evaluation for
impairment. Retail credits and other small balance credits that are
part of a homogeneous group are not tested for individual
impairment unless they are modified as a TDR. A loan is considered
impaired when it is probable that contractual interest and
principal payments will not be collected either for the amounts or
by the dates as scheduled in the loan agreement. If a loan is
impaired, a portion of the allowance is allocated so that the loan
is reported net, at the present value of estimated cash flows using
the loan’s existing rate or at the fair value of collateral
if repayment is expected solely from the collateral. Old
National’s policy, for all but PCI loans, is to recognize
interest income on impaired loans unless the loan is placed on
nonaccrual status.
The following table shows Old National’s impaired loans at
June 30, 2017 and December 31, 2016, respectively. Only
purchased loans that have experienced subsequent impairment since
the date acquired are included in the table below.
(dollars in thousands) Recorded Unpaid Related
June 30, 2017
With no related allowance recorded:
Commercial $ 23,075 $ 23,420 $
—
Commercial Real Estate—Other 34,608 35,913
—
Residential 2,499 2,520
—
Consumer 1,586 1,823
—
With an allowance recorded:
Commercial 7,701 8,191 4,423
Commercial Real Estate—Other 31,177 31,256 7,656
Residential 1,140 1,140 57
Consumer 2,058 2,058 103
Total $ 103,844 $ 106,321 $ 12,239
December 31, 2016
With no related allowance recorded:
Commercial $ 29,001 $ 29,634 $
—
Commercial Real Estate—Other 30,585 32,413
—
Residential 1,610 1,631
—
Consumer 827 946
—
With an allowance recorded:
Commercial 16,959 17,283 4,561
Commercial Real Estate—Other 26,645 27,177 3,437
Residential 1,081 1,081 54
Consumer 1,924 1,924 96
Total $ 108,632 $ 112,089 $ 8,148
The average balance of impaired loans during the three and six
months ended June 30, 2017 and 2016 are included in the table
below.
Three Months
Ended Six Months
Ended
(dollars in thousands) 2017 2016 2017 2016
Average Recorded Investment
With no related allowance recorded:
Commercial $ 25,817 $ 32,951 $ 26,038 $ 38,029
Commercial Real Estate—Other 34,682 34,344 32,598 38,197
Residential 2,376 1,348 2,121 1,359
Consumer 1,717 871 1,420 981
With an allowance recorded:
Commercial 8,448 19,546 7,996 17,641
Commercial Real Estate—Construction
— 116
— 119
Commercial Real Estate—Other 22,916 12,230 28,911 15,016
Residential 1,147 1,060 1,125 1,035
Consumer 2,069 2,781 2,021 2,695
Total $ 99,172 $ 105,247 $ 102,230 $ 115,072
The Company does not record interest on nonaccrual loans until
principal is recovered. Interest income recognized on impaired
loans during the three and six months ended June 30, 2017 and
2016 was immaterial.
For all loan classes, a loan is generally placed on nonaccrual
status when principal or interest becomes 90 days past due unless
it is well secured and in the process of collection, or earlier
when concern exists as to the ultimate collectibility of principal
or interest. Interest accrued during the current year on such loans
is reversed against earnings. Interest accrued in the prior year,
if any, is charged to the allowance for loan losses. Cash interest
received on these loans is applied to the principal balance until
the principal is recovered or until the loan returns to accrual
status. Loans may be returned to accrual status when all the
principal and interest amounts contractually due are brought
current, remain current for a prescribed period, and future
payments are reasonably assured.
Loans accounted for under FASB ASC Topic 310-30 re-estimation
Old National’s past due financing receivables at
June 30, 2017 and December 31, 2016 were as follows:
(dollars in thousands) 30-59 Days 60-89 Days Recorded Nonaccrual Total Past Current
June 30, 2017
Commercial $ 525 $ 4 $ 2 $ 29,856 $ 30,387 $ 1,971,234
Commercial Real Estate:
Construction
—
—
—
—
— 367,425
Other 138 47
— 63,051 63,236 2,829,337
Residential 15,386 2,846 74 19,029 37,335 2,062,039
Consumer:
Home equity 1,070 329
— 5,777 7,176 465,022
Auto 3,660 597 75 2,333 6,665 1,174,605
Other 3,169 1,603 50 5,473 10,295 207,284
Total loans $ 23,948 $ 5,426 $ 201 $ 125,519 $ 155,094 $ 9,076,946
December 31, 2016
Commercial $ 847 $ 279 $ 23 $ 56,585 $ 57,734 $ 1,859,365
Commercial Real Estate:
Construction
—
—
— 1,170 1,170 356,632
Other 1,652 150
— 42,856 44,658 2,728,393
Residential 17,786 3,770 2 17,674 39,232 2,048,298
Consumer:
Home equity 1,511 423
— 4,431 6,365 470,074
Auto 5,903 1,037 242 1,623 8,805 1,158,932
Other 3,561 1,919 61 7,068 12,609 218,245
Total loans $ 31,260 $ 7,578 $ 328 $ 131,407 $ 170,573 $ 8,839,939
Loan Participations
Old National has loan participations, which qualify as
participating interests, with other financial institutions. At
June 30, 2017, these loans totaled $512.8 million, of
which $265.5 million had been sold to other financial
institutions and $247.3 million was retained by Old National.
The loan participations convey proportionate ownership rights with
equal priority to each participating interest holder, involve no
recourse (other than ordinary representations and warranties) to,
or subordination by, any participating interest holder, all cash
flows are divided among the participating interest holders in
proportion to each holder’s share of ownership, and no holder
has the right to pledge the entire financial asset unless all
participating interest holders agree.
Troubled Debt Restructurings
Old National may choose to restructure the contractual terms of
certain loans. The decision to restructure a loan, versus
aggressively enforcing the collection of the loan, may benefit Old
National by increasing the ultimate probability of collection.
Any loans that are modified are reviewed by Old National to
identify if a TDR has occurred, which is when for economic or legal
reasons related to a borrower’s financial difficulties, the
Bank grants a concession to the borrower that it would not
otherwise consider. Terms may be modified to fit the ability of the
borrower to repay in line with its current financial status. The
modification of the terms of such loans include one or a
combination of the following: a reduction of the stated interest
rate of the loan, an extension of the maturity date at a stated
rate of interest lower than the current market rate of new debt
with similar risk, or a permanent reduction of the recorded
investment of the loan.
Loans modified in a TDR are typically placed on nonaccrual status
until we determine the future collection of principal and interest
is reasonably assured, which generally requires that the borrower
demonstrate a period of performance according to the restructured
terms for six months.
If we are unable to resolve a nonperforming loan issue, the credit
will be charged off when it is apparent there will be a loss. For
large commercial type loans, each relationship is individually
analyzed for evidence of apparent loss based on quantitative
benchmarks or subjectively based upon certain events or particular
circumstances. Generally, Old National charges off small commercial
loans scored through our small business credit center with
contractual balances under $250,000 that have been placed on
nonaccrual status or became 90 days or more delinquent, without
regard to the collateral position. For residential and consumer
loans, a charge off is recorded at the time foreclosure is
initiated or when the loan becomes 120 to 180 days past due,
whichever is earlier.
For commercial TDRs, an allocated reserve is established within the
allowance for loan losses for the difference between the carrying
value of the loan and its computed value. To determine the value of
the loan, one of the following methods is selected: (1) the
present value of expected cash flows discounted at the loan’s
original effective interest rate, (2) the loan’s
observable market price, or (3) the fair value of the
collateral value, if the loan is collateral dependent. The
allocated reserve is established as the difference between the
carrying value of the loan and the collectable value. If there are
significant changes in the amount or timing of the loan’s
expected future cash flows, impairment is recalculated and the
valuation allowance is adjusted accordingly.
When a residential or consumer loan is identified as a TDR, the
loan is typically written down to its collateral value less selling
costs.
The following table presents activity in TDRs for the six months
ended June 30, 2017 and 2016:
(dollars in thousands) Commercial Commercial Residential Consumer Total
Six Months Ended June 30, 2017
Balance at January 1, 2017 $ 16,802 $ 18,327 $ 2,985 $ 2,602 $ 40,716
(Charge-offs)/recoveries (64 ) 360
— (97 ) 199
Payments (8,526 ) (3,423 ) (283 ) (801 ) (13,033 )
Additions 9,442 17,429 938 1,924 29,733
Interest collected on nonaccrual loans 2,410 366
— 16 2,792
Balance at June 30, 2017 $ 20,064 $ 33,059 $ 3,640 $ 3,644 $ 60,407
Six Months Ended June 30, 2016
Balance at January 1, 2016 $ 23,354 $ 14,602 $ 2,693 $ 3,602 $ 44,251
(Charge-offs)/recoveries (742 ) 108 42 (23 ) (615 )
Payments (10,819 ) (4,035 ) (462 ) (425 ) (15,741 )
Additions 11,233 10,581 335 385 22,534
Interest collected on nonaccrual loans 1,251 173
—
— 1,424
Balance at June 30, 2016 $ 24,277 $ 21,429 $ 2,608 $ 3,539 $ 51,853
Approximately $46.2 million of the TDRs at June 30, 2017
were included with nonaccrual loans, compared to $26.3 million
at December 31, 2016. Old National has allocated specific
reserves to customers whose loan terms have been modified in TDRs
totaling $7.3 million at June 30, 2017 and
$4.0 million at December 31, 2016. At June 30, 2017,
Old National had committed to lend an additional $1.0 million
to customers with outstanding loans that are classified as
TDRs.
The pre-modification
(dollars in thousands) Number Pre-modification Post-modification
Six Months Ended June 30, 2017
TDR:
Commercial 6 $ 9,442 $ 9,442
Commercial Real Estate—Other 10 17,429 17,429
Residential 6 938 938
Consumer 5 1,924 1,924
Total 27 $ 29,733 $ 29,733
Six Months Ended June 30, 2016
TDR:
Commercial 16 $ 11,233 $ 11,233
Commercial Real Estate—Other 9 10,581 10,581
Residential 3 335 335
Consumer 8 385 385
Total 36 $ 22,534 $ 22,534
The TDRs that occurred during the six months ended June 30,
2017 increased the allowance for loan losses by $3.4 million
and resulted in no charge-offs during the six months ended
June 30, 2017. The TDRs that occurred during the six months
ended June 30, 2016 decreased the allowance for loan losses by
$1.2 million due to an improvement in specific reserves on a
large commercial loan and resulted in $0.6 million of
charge-offs.
A loan is considered to be in payment default once it is 90 days
contractually past due under the modified terms.
There were no loans that were modified as TDRs within the preceding
twelve months, and for which there was a payment default during the
six months ended June 30, 2017.
There were 10 commercial loans and 3 commercial real estate loans
totaling $0.8 million that were modified as TDRs within the
preceding twelve months, and for which there was a payment default
during the six months ended June 30, 2016.
The terms of certain other loans were modified during the six
months ended June 30, 2017 that did not meet the definition of
a TDR. It is our process to review all classified and criticized
loans that, during the period, have been renewed, have entered into
a forbearance agreement, have gone from principal and interest to
interest only, or have extended the maturity date. In order to
determine whether a borrower is experiencing financial difficulty,
an evaluation is performed of the probability that the borrower
will be in payment default on its debt in the foreseeable future
without the modification. The evaluation is performed under our
internal underwriting policy. We also evaluate whether a concession
has been granted or if we were adequately compensated through a
market interest rate, additional collateral or a bona fide
guarantee. We also consider whether the modification was
insignificant relative to the other terms of the agreement or the
delay in a payment.
PCI loans are not considered impaired until after the point at
which there has been a degradation of cash flows below our expected
cash flows at acquisition. If a PCI loan is subsequently modified,
and meets the definition of a TDR, it will be removed from PCI
accounting and accounted for as a TDR only if the PCI loan was
being accounted for individually. If the PCI loan is being
accounted for as part of a pool, it will not be removed from the
pool. As of June 30, 2017, it has not been necessary to remove
any loans from PCI accounting.
In general, once a modified loan is considered a TDR, the loan will
always be considered a TDR, and therefore impaired, until it is
paid in full, otherwise settled, sold or charged off. However,
guidance also permits for loans to be removed from TDR status when
subsequently restructured under these circumstances: (1) at
the time of the subsequent restructuring, the borrower is not
experiencing financial difficulties, and this is documented by a
current credit evaluation at the time of the restructuring,
(2) under the terms of the subsequent restructuring agreement,
the institution has granted no concession to the borrower; and
(3) the subsequent restructuring agreement includes market
terms that are no less favorable than those that would be offered
for a comparable new loan. For loans subsequently restructured that
have cumulative principal forgiveness, the loan should continue to
be measured in accordance with ASC 310-10, Receivables –
Overall 310-40-50-2, Troubled
Debt Restructurings by Creditors, Creditor Disclosure of Troubled
Debt Restructurings
Purchased Credit Impaired Loans
Purchased loans acquired in a business combination are recorded at
estimated fair value on their purchase date with no carryover of
the related allowance for loan and lease losses. In determining the
estimated fair value of purchased loans, management considers a
number of factors including, among others, the remaining life of
the acquired loans, estimated prepayments, estimated loss ratios,
estimated value of the underlying collateral, and net present value
of cash flows expected to be received. Purchased loans are
accounted for in accordance with guidance for certain loans
acquired in a transfer (ASC 310-30), non-accretable
Old National has purchased loans for which there was, at
acquisition, evidence of deterioration of credit quality since
origination and it was probable, at acquisition, that all
contractually required payments would not be collected. For these
loans that meet the criteria of ASC 310-30
(dollars in thousands) June 30, December 31,
Commercial $ 622 $ 850
Commercial real estate 22,287 32,774
Residential 12,578 13,580
Consumer 6,545 8,215
Carrying amount 42,032 55,419
Allowance for loan losses (428 ) (278 )
Carrying amount, net of allowance $ 41,604 $ 55,141
The outstanding balance of loans accounted for under
ASC 310-30,
The accretable difference on purchased loans acquired in a business
combination is the difference between the expected cash flows and
the net present value of expected cash flows with such difference
accreted into earnings using the effective yield method over the
term of the loans. Accretion recorded as loan interest income
totaled $7.3 million during the six months ended June 30,
2017 and $13.0 million during the six months ended
June 30, 2016. Improvement in cash flow expectations has
resulted in a reclassification from nonaccretable difference to
accretable yield as shown in the table below.
Accretable yield of PCI loans, or income expected to be collected,
is as follows:
(dollars in thousands) 2017 2016
Balance at January 1, $ 33,603 $ 45,310
New loans purchased (1)
— 3,217
Accretion of income (7,330 ) (12,990 )
Reclassifications from (to) nonaccretable difference 594 5,619
Disposals/other adjustments 183 530
Balance at June 30, $ 27,050 $ 41,686
(1) Old National acquired Anchor
effective May 1, 2016.
Included in Old National’s allowance for loan losses is
$0.4 million related to the purchased loans disclosed above at
June 30, 2017, compared to $0.3 million at
December 31, 2016.
PCI loans purchased during 2016 for which it was probable at
acquisition that all contractually required payments would not be
collected were as follows:
(dollars in thousands) Anchor (1)
Contractually required payments $ 29,544
Nonaccretable difference (6,153 )
Cash flows expected to be collected at acquisition 23,391
Accretable yield (3,217 )
Fair value of acquired loans at acquisition $ 20,174
(1) Old National acquired Anchor
effective May 1, 2016.
Income would not be recognized on certain purchased loans if Old
National could not reasonably estimate cash flows to be collected.
Old National had no purchased loans for which it could not
reasonably estimate cash flows to be collected. |
