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Fair Value
 9 Months Ended
Sep. 30, 2021
Fair Value Disclosures [Abstract]  
Fair Value FAIR VALUE
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  There are three levels of inputs that may be used to measure fair values:
•Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
•Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
•Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Old National used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:
Investment securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1).  For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).  For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).  Discounted cash flows are calculated using swap and LIBOR curves plus spreads that adjust for loss severities, volatility, credit risk, and optionality.  During times when trading is more liquid, broker quotes are used (if available) to validate the model.  Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.
Residential loans held for sale: The fair value of loans held for sale is determined using quoted prices for a similar asset, adjusted for specific attributes of that loan (Level 2).
Derivative financial instruments: The fair values of derivative financial instruments are based on derivative valuation models using market data inputs as of the valuation date (Level 2).
Recurring Basis
Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which we have elected the fair value option, are summarized below: 
Fair Value Measurements at September 30, 2021 Using
(dollars in thousands)Carrying ValueQuoted Prices in
Active Markets for
Identical Assets (Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Financial Assets    
Equity securities$12,427 $12,427 $— $— 
Investment securities available-for-sale:
U.S. Treasury240,577 240,577 — — 
U.S. government-sponsored entities and agencies1,562,696 — 1,562,696 — 
Mortgage-backed securities - Agency3,354,701 — 3,354,701 — 
States and political subdivisions1,609,283 — 1,609,283 — 
Pooled trust preferred securities9,367 — — 9,367 
Other securities251,326 — 251,326 — 
Residential loans held for sale51,306 — 51,306 — 
Derivative assets98,987 — 98,987 — 
Financial Liabilities
Derivative liabilities27,283 — 27,283 — 
  Fair Value Measurements at December 31, 2020 Using
(dollars in thousands)Carrying ValueQuoted Prices in
Active Markets for
Identical Assets (Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Financial Assets    
Equity securities$2,547 $2,547 $— $— 
Investment securities available-for-sale:
U.S. Treasury10,208 10,208 — — 
U.S. government-sponsored entities and agencies841,988 — 841,988 — 
Mortgage-backed securities - Agency3,339,098 — 3,339,098 — 
States and political subdivisions1,492,162 — 1,492,162 — 
Pooled trust preferred securities7,913 — — 7,913 
Other securities278,746 — 278,746 — 
Residential loans held for sale63,250 — 63,250 — 
Derivative assets140,201 — 140,201 — 
Financial Liabilities
Derivative liabilities18,187 — 18,187 — 
The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
(dollars in thousands)Pooled Trust
Preferred Securities		States and
Political Subdivisions
Three Months Ended September 30, 2021  
Balance at beginning of period$9,388 $— 
Accretion of discount4 — 
Decrease in fair value of securities(25)— 
Balance at end of period$9,367 $— 
Three Months Ended September 30, 2020
Balance at beginning of period$7,185 $— 
Accretion of discount4 — 
Sales/payments received(16)— 
Increase in fair value of securities354 — 
Balance at end of period$7,527 $— 
Nine Months Ended September 30, 2021
Balance at beginning of period$7,913 $— 
Accretion of discount14 — 
Sales/payments received(27)— 
Increase in fair value of securities1,467 — 
Balance at end of period$9,367 $— 
Nine Months Ended September 30, 2020
Balance at beginning of period$8,222 $40 
Accretion of discount11 — 
Sales/payments received(49)(40)
Decrease in fair value of securities(657)— 
Balance at end of period$7,527 $— 
The accretion of discounts on securities in the table above is included in interest income.  The increase or decrease in the fair value of securities in the table above is included in the unrealized holding gains (losses) for the period in the statement of other comprehensive income. An increase in fair value is reflected in the balance sheet as an increase in the fair value of investment securities available-for-sale, an increase in accumulated other comprehensive income, which is included in shareholders’ equity, and a decrease in other assets related to the tax impact. A decrease in fair value is reflected in the balance sheet as a decrease in the fair value of investment securities available-for-sale, a decrease in accumulated other comprehensive income, which is included in shareholders’ equity, and an increase in other assets related to the tax impact. 
The table below provides quantitative information about significant unobservable inputs used in fair value measurements within Level 3 of the fair value hierarchy:
(dollars in thousands)Fair ValueValuation TechniquesUnobservable InputRange (Weighted Average) (4)
September 30, 2021    
Pooled trust preferred securities$9,367 Discounted cash flowConstant prepayment rate (1)0.00%
  Additional asset defaults (2)
5.7% - 11.3% (7.5%)
  Expected asset recoveries (3)
0.0% - 23.5% (7.6%)
December 31, 2020   
Pooled trust preferred securities$7,913 Discounted cash flowConstant prepayment rate (1)0.00%
  Additional asset defaults (2)
6.0% - 8.7% (6.8%)
  Expected asset recoveries (3)
0.0% - 23.2% (7.3%)
(1)Assuming no prepayments.
(2)Each currently performing pool asset is assigned a default probability based on the banking environment, which is adjusted for specific issuer evaluation, of 0%, 50%, or 100%.
(3)Each currently defaulted pool asset is assigned a recovery probability based on specific issuer evaluation of 0%, 25%, or 100%.
(4)Unobservable inputs are weighted by the estimated number of defaults and current performing collateral of the instruments.
Significant changes in any of the unobservable inputs used in the fair value measurement in isolation would have resulted in a significant change to the fair value measurement.  The pooled trust preferred securities Old National owns are subordinate note classes that rely on an ongoing cash flow stream to support their values.  The senior note classes receive the benefit of prepayments to the detriment of subordinate note classes since the ongoing interest cash flow stream is reduced by the early redemption.  Generally, a change in prepayment rates or additional pool asset defaults would have an impact that is directionally opposite from a change in the expected recovery of a defaulted pool asset.
Non-Recurring Basis
Assets measured at fair value at September 30, 2021 on a non-recurring basis are summarized below:
  Fair Value Measurements at September 30, 2021 Using
(dollars in thousands)Carrying
Value		Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Collateral Dependent Loans:    
Commercial loans$12,586 $— $— $12,586 
Commercial real estate loans14,957 — — 14,957 
Loan servicing rights270 — 270 — 
Commercial and commercial real estate loans that are deemed collateral dependent are valued using the discounted cash flows.  The liquidation amounts are based on the fair value of the underlying collateral using the most recently available appraisals with certain adjustments made based on the type of property, age of appraisal, current status of the property, and other related factors to estimate the current value of the collateral.  These commercial and commercial real estate loans had a principal amount of $32.0 million, with a valuation allowance of $4.4 million at September 30, 2021.  Old National recorded provision expense associated with these loans totaling $0.1 million for the three months ended September 30, 2021 and for the nine months ended September 30, 2021.  Old National recorded provision recoveries associated with commercial and commercial real estate loans that were deemed collateral dependent totaling $5.0 million for the three months ended September 30, 2020 and provision expense totaling $1.5 million for the nine months ended September 30, 2020.
Other real estate owned and other repossessed property is measured at fair value less costs to sell. Old National did not have any other real estate owned or repossessed property measured at fair value on a non-recurring basis at September 30, 2021. There were no write-downs of other real estate owned for the three months ended September 30, 2021 and $23 thousand for the nine months ended September 30, 2021. There were write-downs of other real estate owned of $63 thousand for the three months ended September 30, 2020 and $161 thousand for the nine months ended September 30, 2020.
Loan servicing rights are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount.  If the carrying amount of an individual tranche exceeds fair value, impairment is recorded on that tranche so that the servicing asset is carried at fair value.  Fair value is determined at a tranche level, based on market prices for comparable mortgage servicing contracts when available, or alternatively based on a valuation model that calculates the present value of estimated future net servicing income.  The valuation model utilizes a discount rate, weighted average prepayment speed, and other economic factors that market participants would use in estimating future net servicing income and that can be validated against available market data (Level 2).  The valuation allowance for loan servicing rights with impairments at September 30, 2021 totaled $0.1 million.  Old National recorded recoveries associated with these loan servicing rights totaling $5 thousand during the three months ended September 30, 2021 and $1.3 million for the nine months ended September 30, 2021. There were impairments of $0.1 million for the three months ended September 30, 2020 and $2.3 million for the nine months ended September 30, 2020.
Assets measured at fair value at December 31, 2020 on a non-recurring basis are summarized below:
  Fair Value Measurements at December 31, 2020 Using
(dollars in thousands)Carrying ValueQuoted Prices in
Active Markets for
Identical Assets (Level 1)		Significant
Other
Observable
Inputs (Level 2)		Significant
Unobservable
Inputs (Level 3)
Collateral Dependent Loans:    
Commercial loans$10,747 $— $— $10,747 
Commercial real estate loans40,653 — — 40,653 
Loan servicing rights26,717 — 26,717 — 
At December 31, 2020, commercial and commercial real estate loans that are deemed collateral dependent had a principal amount of $57.2 million, with a valuation allowance of $5.8 million.
The valuation allowance for loan servicing rights with impairments at December 31, 2020 totaled $1.4 million.
The table below provides quantitative information about significant unobservable inputs used in fair value measurements within Level 3 of the fair value hierarchy:
(dollars in thousands)Fair ValueValuation TechniquesUnobservable InputRange (Weighted Average) (1)
September 30, 2021    
Collateral Dependent Loans    
Commercial loans$12,586 DiscountedDiscount for type of property,
1% - 26% (11%)
 cash flowage of appraisal, and current status
Commercial real estate loans14,957 DiscountedDiscount for type of property,
10% - 19% (16%)
cash flowage of appraisal, and current status
December 31, 2020  
Collateral Dependent Loans  
Commercial loans$10,747 DiscountedDiscount for type of property,
0% - 33% (12%)
 cash flowage of appraisal, and current status
Commercial real estate loans40,653 DiscountedDiscount for type of property,
0% - 18% (7%)
 cash flowage of appraisal, and current status
(1)Unobservable inputs were weighted by the relative fair value of the instruments.
Fair Value Option
Old National may elect to report most financial instruments and certain other items at fair value on an instrument-by instrument basis with changes in fair value reported in net income.  After the initial adoption, the election is made at the acquisition of an eligible financial asset, financial liability, or firm commitment or when certain specified reconsideration events occur.  The fair value election may not be revoked once an election is made.
Residential Loans Held For Sale
Old National has elected the fair value option for residential loans held for sale.  For these loans, interest income is recorded in the consolidated statements of income based on the contractual amount of interest income earned on the
financial assets (except any that are on nonaccrual status).  None of these loans are 90 days or more past due, nor are any on nonaccrual status.  Included in the income statement is interest income for loans held for sale totaling $0.4 million for the three months ended September 30, 2021 and $1.1 million for the nine months ended September 30, 2021, compared to $0.6 million for the three months ended September 30, 2020 and $1.5 million for the nine months ended September 30, 2020.
Old National has elected the fair value option for newly originated conforming fixed-rate and adjustable-rate first mortgage loans held for sale.  These loans are intended for sale and are hedged with derivative instruments.  Old National has elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplification.  The fair value option was not elected for loans held for investment.
The difference between the aggregate fair value and the aggregate remaining principal balance for loans for which the fair value option has been elected was as follows: 
(dollars in thousands)Aggregate Fair ValueDifference Contractual Principal
September 30, 2021   
Residential loans held for sale$51,306 $1,441 $49,865 
December 31, 2020
Residential loans held for sale$63,250 $3,485 $59,765 
Accrued interest at period end is included in the fair value of the instruments.
The following table presents the amount of gains and losses from fair value changes included in income before income taxes for financial assets carried at fair value:
(dollars in thousands)Other
Gains and (Losses)		Interest IncomeInterest (Expense)Total Changes
in Fair Values
Included in
Current Period Earnings
Three Months Ended September 30, 2021    
Residential loans held for sale$(453)$— $(2)$(455)
Three Months Ended September 30, 2020
Residential loans held for sale$(1,360)$16 $— $(1,344)
Nine Months Ended September 30, 2021
Residential loans held for sale$(2,043)$2 $(3)$(2,044)
Nine Months Ended September 30, 2020
Residential loans held for sale$3,658 $18 $(2)$3,674 
Financial Instruments Not Carried at Fair Value
The carrying amounts and estimated fair values of financial instruments not carried at fair value were as follows: 
  Fair Value Measurements at September 30, 2021 Using
(dollars in thousands)Carrying ValueQuoted Prices in
Active Markets
for Identical
Assets (Level 1)		Significant
Other
Observable
Inputs (Level 2)		Significant
Unobservable
Inputs (Level 3)
Financial Assets    
Cash, due from banks, money market,
   and other interest-earning investments		$797,458 $797,458 $— $— 
Loans, net:
Commercial3,477,584 — — 3,464,740 
Commercial real estate6,224,412 — — 6,146,427 
Residential real estate2,215,256 — — 2,209,236 
Consumer credit1,559,708 — — 1,578,912 
Accrued interest receivable74,038 946 25,867 47,225 
Financial Liabilities
Deposits:
Noninterest-bearing demand deposits$6,440,526 $6,440,526 $— $— 
Checking, NOW, savings, and money market
   interest-bearing deposits		10,762,786 10,762,786 — — 
Time deposits992,837 — 1,005,601 — 
Federal funds purchased and interbank borrowings34 34 — — 
Securities sold under agreements to repurchase375,247 375,247 — — 
FHLB advances1,890,054 — 1,954,334 — 
Other borrowings270,968 — 288,496 — 
Accrued interest payable3,635 — 3,635 — 
Standby letters of credit356 — — 356 
Off-Balance Sheet Financial Instruments
Commitments to extend credit$— $— $— $6,824 
  Fair Value Measurements at December 31, 2020 Using
(dollars in thousands)Carrying ValueQuoted Prices in
Active Markets
for Identical
Assets (Level 1)		Significant
Other
Observable
Inputs (Level 2)		Significant
Unobservable
Inputs (Level 3)
Financial Assets    
Cash, due from banks, money market,
   and other interest-earning investments		$589,712 $589,712 $— $— 
Loans, net:
Commercial3,922,642 — — 3,912,948 
Commercial real estate5,867,795 — — 5,797,447 
Residential real estate2,235,814 — — 2,264,274 
Consumer credit1,628,840 — — 1,618,365 
Accrued interest receivable85,306 21 27,977 57,308 
Financial Liabilities
Deposits:
Noninterest-bearing demand deposits$5,633,672 $5,633,672 $— $— 
Checking, NOW, savings, and money market
   interest-bearing deposits		10,280,911 10,180,911 99,957 — 
Time deposits1,122,870 — 1,140,922 — 
Federal funds purchased and interbank borrowings1,166 1,166 — — 
Securities sold under agreements to repurchase431,166 431,166 — — 
FHLB advances1,991,435 — 2,092,033 — 
Other borrowings252,787 — 254,612 — 
Accrued interest payable5,443 — 5,443 — 
Standby letters of credit462 — — 462 
Off-Balance Sheet Financial Instruments
Commitments to extend credit$— $— $— $11,822 
The methods utilized to measure the fair value of financial instruments at September 30, 2021 and December 31, 2020 represent an approximation of exit price, however, an actual exit price may differ.