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Investment Securities | 9 Months Ended
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Sep. 30, 2021
Investments, Debt and Equity Securities [Abstract] |
Investment Securities | INVESTMENT SECURITIES The following table summarizes the amortized cost and fair value of the available-for-sale investment securities portfolio and the corresponding amounts of unrealized gains, unrealized losses, and basis adjustments recognized in accumulated other comprehensive income (loss):
(dollars in thousands) | Amortized Cost |  | Unrealized Gains |  | Unrealized Losses |  | Basis Adjustments (1) |  | Fair Value
September 30, 2021 |  |  |  |  |  |  |  |  |
Available-for-Sale |  |  |  |  |  |  |  |  |
U.S. Treasury | $ | 237,345 |  |  | $ | — |  |  | $ | (898) |  |  | $ | 4,130 |  |  | $ | 240,577 |
U.S. government-sponsored entities and agencies | 1,582,406 |  |  | 16,714 |  |  | (26,168) |  |  | (10,256) |  |  | 1,562,696 |
Mortgage-backed securities - Agency | 3,349,118 |  |  | 44,243 |  |  | (38,660) |  |  | — |  |  | 3,354,701 |
States and political subdivisions | 1,540,053 |  |  | 72,248 |  |  | (3,018) |  |  | — |  |  | 1,609,283 |
Pooled trust preferred securities | 13,751 |  |  | — |  |  | (4,384) |  |  | — |  |  | 9,367 |
Other securities | 241,893 |  |  | 9,982 |  |  | (549) |  |  | — |  |  | 251,326 |
Total available-for-sale securities | $ | 6,964,566 |  |  | $ | 143,187 |  |  | $ | (73,677) |  |  | $ | (6,126) |  |  | $ | 7,027,950 |
December 31, 2020 |  |  |  |  |  |  |  |  |
Available-for-Sale |  |  |  |  |  |  |  |  |
U.S. Treasury | $ | 9,909 |  |  | $ | 299 |  |  | $ | — |  |  | $ | — |  |  | $ | 10,208 |
U.S. government-sponsored entities and agencies | 841,133 |  |  | 5,744 |  |  | (3,921) |  |  | (968) |  |  | 841,988 |
Mortgage-backed securities - Agency | 3,249,002 |  |  | 91,086 |  |  | (990) |  |  | — |  |  | 3,339,098 |
States and political subdivisions | 1,405,868 |  |  | 86,325 |  |  | (31) |  |  | — |  |  | 1,492,162 |
Pooled trust preferred securities | 13,763 |  |  | — |  |  | (5,850) |  |  | — |  |  | 7,913 |
Other securities | 265,079 |  |  | 14,260 |  |  | (593) |  |  | — |  |  | 278,746 |
Total available-for-sale securities | $ | 5,784,754 |  |  | $ | 197,714 |  |  | $ | (11,385) |  |  | $ | (968) |  |  | $ | 5,970,115 |
(1) Basis adjustments represent the cumulative fair value adjustments included in the carrying amounts of fixed-rate investment securities assets in fair value hedging arrangements. Proceeds from sales or calls of available-for-sale investment securities and the resulting realized gains and realized losses were as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
(dollars in thousands) | 2021 |  | 2020 |  | 2021 |  | 2020
Proceeds from sales of available-for-sale debt securities | $ | 121,376 |  |  | $ | 39,637 |  |  | $ | 189,091 |  |  | $ | 296,075 |
Proceeds from calls of available-for-sale debt securities | 54,966 |  |  | 82,410 |  |  | 111,961 |  |  | 388,145 |
Total | $ | 176,342 |  |  | $ | 122,047 |  |  | $ | 301,052 |  |  | $ | 684,220 |
Realized gains on sales of available-for-sale debt securities | $ | 1,093 |  |  | $ | 4,942 |  |  | $ | 3,829 |  |  | $ | 11,082 |
Realized gains on calls of available-for-sale debt securities | 119 |  |  | 10 |  |  | 180 |  |  | 50 |
Realized losses on sales of available-for-sale debt securities | — |  |  | (30) |  |  | (85) |  |  | (500) |
Realized losses on calls of available-for-sale debt securities | (5) |  |  | (1) |  |  | (32) |  |  | (26) |
Debt securities gains (losses), net | $ | 1,207 |  |  | $ | 4,921 |  |  | $ | 3,892 |  |  | $ | 10,606 |
All of the mortgage-backed securities in the investment portfolio are residential mortgage-backed securities. The amortized cost and fair value of the investment securities portfolio are shown by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Weighted average yield is based on amortized cost.
| September 30, 2021
(dollars in thousands) | Amortized Cost |  | Fair Value |  | Weighted Average Yield
Maturity |  |
Available-for-Sale |  |  |  |  |
Within one year | $ | 148,758 |  |  | $ | 150,704 |  |  | 2.56 | %
One to five years | 2,625,098 |  |  | 2,657,122 |  |  | 2.01 |
Five to ten years | 1,827,081 |  |  | 1,816,752 |  |  | 1.82 |
Beyond ten years | 2,363,629 |  |  | 2,403,372 |  |  | 2.43 |
Total | $ | 6,964,566 |  |  | $ | 7,027,950 |  |  | 2.11 | %
The following table summarizes the available-for-sale investment securities with unrealized losses for which an allowance for credit losses has not been recorded by aggregated major security type and length of time in a continuous unrealized loss position:
| Less than 12 months |  | 12 months or longer |  | Total
(dollars in thousands) | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
September 30, 2021 |  |  |  |  |  |  |  |  |  |  |
Available-for-Sale |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury | $ | — |  |  | $ | — |  |  | $ | 237,577 |  |  | $ | (898) |  |  | $ | 237,577 |  |  | $ | (898) |
U.S. government-sponsored entities and agencies | 1,028,283 |  |  | (24,465) |  |  | 47,296 |  |  | (1,703) |  |  | 1,075,579 |  |  | (26,168) |
Mortgage-backed securities - Agency | 1,809,662 |  |  | (37,027) |  |  | 54,558 |  |  | (1,633) |  |  | 1,864,220 |  |  | (38,660) |
States and political subdivisions | 261,759 |  |  | (2,974) |  |  | 2,725 |  |  | (44) |  |  | 264,484 |  |  | (3,018) |
Pooled trust preferred securities | — |  |  | — |  |  | 9,367 |  |  | (4,384) |  |  | 9,367 |  |  | (4,384) |
Other securities | 28,584 |  |  | (245) |  |  | 26,542 |  |  | (304) |  |  | 55,126 |  |  | (549) |
Total available-for-sale | $ | 3,128,288 |  |  | $ | (64,711) |  |  | $ | 378,065 |  |  | $ | (8,966) |  |  | $ | 3,506,353 |  |  | $ | (73,677) |
December 31, 2020 |  |  |  |  |  |  |  |  |  |  |
Available-for-Sale |  |  |  |  |  |  |  |  |  |  |
U.S. government-sponsored entities and agencies | $ | 355,528 |  |  | $ | (3,921) |  |  | $ | — |  |  | $ | — |  |  | $ | 355,528 |  |  | $ | (3,921) |
Mortgage-backed securities - Agency | 275,833 |  |  | (895) |  |  | 3,572 |  |  | (95) |  |  | 279,405 |  |  | (990) |
States and political subdivisions | 3,497 |  |  | (31) |  |  | — |  |  | — |  |  | 3,497 |  |  | (31) |
Pooled trust preferred securities | — |  | — |  |  | 7,913 |  |  | (5,850) |  |  | 7,913 |  |  | (5,850) |
Other securities | 19,404 |  |  | (70) |  |  | 24,871 |  |  | (523) |  |  | 44,275 |  |  | (593) |
Total available-for-sale | $ | 654,262 |  |  | $ | (4,917) |  |  | $ | 36,356 |  |  | $ | (6,468) |  |  | $ | 690,618 |  |  | $ | (11,385) |
Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. For available-for sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for sale debt securities that do not meet the criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors. If this assessment indicates that a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. No allowance for credit losses for available-for-sale debt securities was needed at September 30, 2021 or December 31, 2020. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses and totaled $25.6 million at September 30, 2021 and $27.0 million at December 31, 2020. The U.S. government sponsored entities and agencies and mortgage-backed securities – agency are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major credit rating agencies, and have a long history of no credit losses. Therefore, for those securities, we do not record expected credit losses. At September 30, 2021, Old National’s securities portfolio consisted of 1,925 securities, 329 of which were in an unrealized loss position. The unrealized losses attributable to our U.S. Treasury, U.S. government-sponsored entities and agencies, agency mortgage-backed securities, states and political subdivisions, and other securities are the result of fluctuations in interest rates. Our pooled trust preferred securities are discussed below. At September 30, 2021, we had no intent to sell any securities that were in an unrealized loss position nor is it expected that we would be required to sell the securities prior to their anticipated recovery. Pooled Trust Preferred Securities At September 30, 2021, our securities portfolio contained two pooled trust preferred securities with a fair value of $9.4 million and unrealized losses of $4.4 million. These securities are evaluated using collateral-specific assumptions to estimate the expected future interest and principal cash flows. For the nine months ended September 30, 2021 and 2020, we did not recognize any losses on these securities. The table below summarizes the relevant characteristics of our pooled trust preferred securities as well as our single issuer trust preferred securities that are included in the “other securities” category in this footnote. Each of the pooled trust preferred securities support a more senior tranche of security holders. Both pooled trust preferred securities have experienced credit defaults. However, we believe that the value of the instruments lies in the full and timely interest payments that will be received through maturity, the steady amortization that will be experienced until maturity, and the full return of principal by the final maturity of the collateralized debt obligations.
(dollars in thousands) | Class | Lowest Credit Rating (1) | Amortized Cost |  | Fair Value |  | Unrealized Gain/ (Loss) | # of Issuers Currently Performing/ Remaining | Actual Deferrals and Defaults as a % of Original Collateral | Expected Defaults as a % of Remaining Performing Collateral | Excess Subordination as a % of Current Performing Collateral
September 30, 2021 |  |  |  |  |  |  |  |  |  |  |
Pooled trust preferred securities: |  |  |  |  |  |  |  |  |  |  |
Pretsl XXVII LTD | B | BB | $ | 4,197 |  |  | $ | 2,920 |  |  | $ | (1,277) |  | 31/40 | 12.3% | 13.5% | 40.8%
Trapeza Ser 13A | A2A | A | 9,554 |  |  | 6,447 |  |  | (3,107) |  | 38/40 | 4.5% | 6.2% | 61.2%
|  |  | 13,751 |  |  | 9,367 |  |  | (4,384) |  |  |  |  |
Single Issuer trust preferred securities: |  |  |  |  |  |  |  |  |  |  |
JP Morgan Chase & Co |  | BBB- | 4,819 |  |  | 4,633 |  |  | (186) |  |  |  |  |
Total |  |  | $ | 18,570 |  |  | $ | 14,000 |  |  | $ | (4,570) |  |  |  |  |
(1)Lowest rating for the security provided by any nationally recognized credit rating agency. Equity Securities Old National’s equity securities with readily determinable fair values totaled $12.4 million at September 30, 2021 and $2.5 million at December 31, 2020. There were gains on equity securities of $0.1 million during the three months ended September 30, 2021 and $0.3 million during the nine months ended September 30, 2021, compared to $0.5 million during the three months ended September 30, 2020 and $1.3 million during the nine months ended September 30, 2020. Old National also has equity securities without readily determinable fair values that are included in other assets that totaled $124.8 million at September 30, 2021 and $105.8 million at December 31, 2020. These equity securities without readily determinable fair values are illiquid investments that consist of partnerships, limited liability companies, and other ownership interests that support affordable housing, economic development, and community revitalization initiatives in low-to-moderate income neighborhoods. There have been no impairments or adjustments on equity securities without readily determinable fair values, except for amortization of tax credit investments in the nine months ended September 30, 2021 or 2020.

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