| Loans and Allowance for Loan Losses | NOTE 8 – LOANS AND ALLOWANCE FOR LOAN LOSSES
Old National’s loans 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, Wisconsin, and Minnesota. Old National manages
concentrations of credit exposure by industry, product, geography,
customer relationship, and loan size. While loans to lessors of
both residential and non-residential sub-segment
The composition of loans by lending classification was as
follows:
(dollars in thousands) June 30, 2018 December 31,
Commercial (1) $ 2,962,895 $ 2,717,269
Commercial real estate:
Construction 490,990 374,306
Other 3,960,782 3,980,246
Residential real estate 2,153,973 2,167,053
Consumer credit:
Home equity 488,038 507,507
Auto 1,099,745 1,148,672
Other 139,206 223,068
Total loans 11,295,629 11,118,121
Allowance for loan losses (53,660 ) (50,381 )
Net loans $ 11,241,969 $ 11,067,740
(1) Includes direct finance leases of
$24.8 million at June 30, 2018 and $29.5 million at
December 31, 2017.
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 (MN) on November 1, 2017 added
$864.4 million of commercial real estate loans to our
portfolio. At 208%, 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,
2018.
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, 2018 and 2017 was as
follows:
(dollars in thousands) Commercial Commercial Residential Consumer Total
Three Months Ended June 30, 2018
Balance at beginning of period $ 19,591 $ 20,796 $ 1,763 $ 8,231 $ 50,381
Charge-offs (472 ) (430 ) (295 ) (1,857 ) (3,054 )
Recoveries 249 583 1,697 1,358 3,887
Provision 2,019 1,549 (1,298 ) 176 2,446
Balance at end of period $ 21,387 $ 22,498 $ 1,867 $ 7,908 $ 53,660
Three Months Ended June 30, 2017
Balance at beginning of period $ 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 end of period $ 20,365 $ 20,654 $ 1,811 $ 8,156 $ 50,986
Six Months Ended June 30, 2018
Balance at beginning of period $ 19,246 $ 21,436 $ 1,763 $ 7,936 $ 50,381
Charge-offs (717 ) (433 ) (657 ) (3,932 ) (5,739 )
Recoveries 760 1,067 1,845 2,520 6,192
Provision 2,098 428 (1,084 ) 1,384 2,826
Balance at end of period $ 21,387 $ 22,498 $ 1,867 $ 7,908 $ 53,660
Six Months Ended June 30, 2017
Balance at beginning of period $ 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 end of period $ 20,365 $ 20,654 $ 1,811 $ 8,156 $ 50,986
The following table provides Old National’s recorded
investment in loans by portfolio segment at June 30, 2018 and
December 31, 2017 and other information regarding the
allowance:
(dollars in thousands) Commercial Commercial Residential Consumer Total
June 30, 2018
Allowance for loan losses:
Individually evaluated for impairment $ 5,871 $ 8,162 $
— $
— $ 14,033
Collectively evaluated for impairment 15,409 14,267 1,865 7,760 39,301
Loans acquired with deteriorated credit quality 107 69 2 148 326
Total allowance for loan losses $ 21,387 $ 22,498 $ 1,867 $ 7,908 $ 53,660
Loans and leases outstanding:
Individually evaluated for impairment $ 34,055 $ 75,320 $
— $
— $ 109,375
Collectively evaluated for impairment 2,924,481 4,355,891 2,143,658 1,722,747 11,146,777
Loans acquired with deteriorated credit quality 4,359 20,561 10,315 4,242 39,477
Total loans and leases outstanding $ 2,962,895 $ 4,451,772 $ 2,153,973 $ 1,726,989 $ 11,295,629
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
Credit Quality
Old National’s management monitors the credit quality of its
loans 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, 2018 and December 31, 2017 was
as follows:
(dollars in thousands) Commercial Commercial Real Estate - Construction Commercial Real Estate - Other
Corporate Credit Exposure
Credit Risk Profile by
Internally Assigned Grade June 30, December 31, June 30, December 31, June 30, December 31,
Grade:
Pass $ 2,815,085 $ 2,577,824 $ 467,663 $ 357,438 $ 3,765,884 $ 3,762,896
Criticized 70,168 74,876 14,882 14,758 69,841 98,451
Classified - substandard 41,382 37,367
—
— 62,595 58,584
Classified - nonaccrual 29,390 24,798 8,445 2,110 28,376 30,108
Classified - doubtful 6,870 2,404
—
— 34,086 30,207
Total $ 2,962,895 $ 2,717,269 $ 490,990 $ 374,306 $ 3,960,782 $ 3,980,246
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, 2018 and
December 31, 2017:
Consumer
(dollars in thousands) Residential Home Auto Other
June 30, 2018
Performing $ 2,130,775 $ 483,350 $ 1,097,256 $ 137,666
Nonperforming 23,198 4,688 2,489 1,540
Total $ 2,153,973 $ 488,038 $ 1,099,745 $ 139,206
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
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, 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.
(dollars in thousands) Recorded Unpaid Related
June 30, 2018
With no related allowance recorded:
Commercial $ 19,587 $ 20,337 $
—
Commercial Real Estate - Other 44,862 48,214
—
Residential 2,271 2,292
—
Consumer 1,483 1,601
—
With an allowance recorded:
Commercial 14,468 14,520 5,871
Commercial Real Estate - Construction 8,445 9,249 2,680
Commercial Real Estate - Other 22,013 22,065 5,482
Residential 935 935 47
Consumer 1,917 1,917 96
Total $ 115,981 $ 121,130 $ 14,176
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
The average balance of impaired loans during the three and six
months ended June 30, 2018 and 2017 are included in the table
below.
Three Months
Ended Six Months
Ended
(dollars in thousands) 2018 2017 2018 2017
Average Recorded Investment
With no related allowance recorded:
Commercial $ 20,228 $ 25,817 $ 20,073 $ 26,038
Commercial Real Estate - Other 43,893 34,682 41,771 32,598
Residential 2,189 2,376 2,274 2,121
Consumer 1,741 1,717 1,722 1,420
With an allowance recorded:
Commercial 11,846 8,448 10,091 7,996
Commercial Real Estate - Construction 4,675
— 4,675
—
Commercial Real Estate - Other 21,439 22,916 24,246 28,911
Residential 942 1,147 918 1,125
Consumer 1,970 2,069 2,050 2,021
Total $ 108,923 $ 99,172 $ 107,820 $ 102,230
Old National 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, 2018 and
2017 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, 2018 and December 31, 2017 were as follows:
(dollars in thousands) 30-59 Days 60-89 Days Past Due Nonaccrual (1) Total Current
June 30, 2018
Commercial $ 1,118 $ 3 $ 85 $ 36,260 $ 37,466 $ 2,925,429
Commercial Real Estate:
Construction
—
—
— 8,445 8,445 482,545
Other 378 953
— 62,462 63,793 3,896,989
Residential 21,871 4,563 389 23,198 50,021 2,103,952
Consumer:
Home equity 780 1,043 627 4,688 7,138 480,900
Auto 5,584 1,259 319 2,489 9,651 1,090,094
Other 330 379 155 1,540 2,404 136,802
Total loans $ 30,061 $ 8,200 $ 1,575 $ 139,082 $ 178,918 $ 11,116,711
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 $11.3 million at June 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
Loan Participations
Old National has loan participations, which qualify as
participating interests, with other financial institutions. At
June 30, 2018, these loans totaled $820.2 million, of
which $412.8 million had been sold to other financial
institutions and $407.4 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, Old
National 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 are 90 days or more
delinquent and do not have adequate collateral support. 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, 2018 and 2017:
(dollars in thousands) Commercial Commercial Residential Consumer Total
Six Months Ended June 30, 2018
Balance at beginning of period $ 12,088 $ 34,705 $ 3,315 $ 3,895 $ 54,003
(Charge-offs)/recoveries (151 ) (22 ) 23 (22 ) (172 )
Payments (3,978 ) (969 ) (69 ) (907 ) (5,923 )
Additions 1,084 1,213 502 432 3,231
Balance at end of period $ 9,043 $ 34,927 $ 3,771 $ 3,398 $ 51,139
Six Months Ended June 30, 2017
Balance at beginning of period $ 16,802 $ 18,327 $ 2,985 $ 2,602 $ 40,716
(Charge-offs)/recoveries (64 ) 360
— (97 ) 199
Payments (6,116 ) (3,057 ) (283 ) (785 ) (10,241 )
Additions 9,442 17,429 938 1,924 29,733
Balance at end of period $ 20,064 $ 33,059 $ 3,640 $ 3,644 $ 60,407
TDRs included with nonaccrual loans totaled $34.0 million at
June 30, 2018 and December 31, 2017. Old National has
allocated specific reserves to customers whose loan terms have been
modified in TDRs totaling $4.8 million at June 30, 2018
and $5.7 million at December 31, 2017. At June 30,
2018, Old National had committed to lend an additional
$4.0 million to customers with outstanding loans that are
classified as TDRs.
The pre-modification
(dollars in thousands) Number of Loans Pre-modification Outstanding Recorded Investment Post-modification Outstanding Recorded Investment
Six Months Ended June 30, 2018
TDR:
Commercial 2 $ 1,084 $ 1,084
Commercial Real Estate - Other 2 1,213 1,213
Residential 1 502 502
Consumer 1 432 432
Total 6 $ 3,231 $ 3,231
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
The TDRs that occurred during the six months ended June 30,
2018 did not have a material impact on the allowance for loan
losses and resulted in no charge-offs during the six months ended
June 30, 2018. 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.
A loan is considered to be in payment default once it is 90 days
contractually past due under the modified terms.
TDRs for which there was a payment default within twelve months
following the modification were insignificant during the six months
ended June 30, 2018 and 2017.
The terms of certain other loans were modified during 2018 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, 2018, 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),
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 $ 4,359 $ 5,152
Commercial real estate 20,561 21,826
Residential 4,242 11,303
Consumer 10,315 5,245
Carrying amount 39,477 43,526
Allowance for loan losses (326 ) (166 )
Carrying amount, net of allowance $ 39,151 $ 43,360
The outstanding balance of loans accounted for under ASC
310-30,
The accretable difference on PCI loans 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 $7.1 million during
the six months ended June 30, 2018 and $7.3 million
during the six months ended June 30, 2017. 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:
Six Months
Ended
(dollars in thousands) 2018 2017
Balance at beginning of period $ 27,835 $ 33,603
Accretion of income (7,073 ) (7,330 )
Reclassifications from (to) nonaccretable difference 3,466 594
Disposals/other adjustments 21 183
Balance at end of period $ 24,249 $ 27,050
Included in Old National’s allowance for loan losses is
$0.3 million related to the purchased loans disclosed above at
June 30, 2018 and $0.2 million at December 31,
2017.
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.
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. |
