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Loans and Allowance for Credit Losses
 12 Months Ended
Dec. 31, 2021
Receivables [Abstract]  
Loans and Allowance for Credit Losses LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans
Old National’s loans consist primarily of loans made to consumers and commercial clients in many diverse 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, Minnesota, and Wisconsin.  Old National manages concentrations of credit exposure by industry, product, geography, client relationship, and loan size.  While loans to lessors of both residential and non-residential real estate exceed 10% of total loans, no individual sub-segment category within those broader categories reaches the 10% threshold.
The loan categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses for loans. The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. The four loan portfolios are classified into seven segments of loans - commercial, commercial real estate, BBCC, residential real estate, indirect, direct, and home equity. The commercial and commercial real estate loan categories shown on the balance sheet include the same pool of loans as the commercial, commercial real estate, and BBCC portfolio segments. The consumer loan category shown on the balance sheet is comprised of the same loans in the indirect, direct, and home equity portfolio segments. The portfolio segment reclassifications follow:

Segment
StatementPortfolioAfter
(dollars in thousands)BalanceReclassificationsReclassifications
December 31, 2021
Commercial$3,391,769 $(191,557)$3,200,212 
Commercial real estate6,380,674 (159,190)6,221,484 
BBCCN/A350,747 350,747 
Residential real estate2,255,289 — 2,255,289 
Consumer1,574,114 (1,574,114)N/A
IndirectN/A873,139 873,139 
DirectN/A140,385 140,385 
Home equityN/A560,590 560,590 
Total$13,601,846 $— $13,601,846 
December 31, 2020
Commercial$3,956,422 $(198,722)$3,757,700 
Commercial real estate5,946,512 (171,701)5,774,811 
BBCCN/A370,423 370,423 
Residential real estate2,248,422 — 2,248,422 
Consumer1,635,123 (1,635,123)N/A
IndirectN/A913,902 913,902 
DirectN/A164,807 164,807 
Home equityN/A556,414 556,414 
Total$13,786,479 $— $13,786,479 
The composition of loans by portfolio segment follows:
December 31,
(dollars in thousands)20212020
Commercial (1) (2)$3,200,212 $3,757,700 
Commercial real estate6,221,484 5,774,811 
BBCC350,747 370,423 
Residential real estate2,255,289 2,248,422 
Indirect873,139 913,902 
Direct140,385 164,807 
Home equity560,590 556,414 
Total loans13,601,846 13,786,479 
Allowance for credit losses(107,341)(131,388)
Net loans$13,494,505 $13,655,091 
(1)    Includes direct finance leases of $25.1 million at December 31, 2021 and $32.3 million at December 31, 2020.
(2)    Includes remaining PPP loans of $169.0 million at December 31, 2021 and $943.0 million December 31, 2020.

The risk characteristics of each loan portfolio segment are as follows:
Commercial
Commercial loans are classified primarily 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 clients.
Section 1102 of the CARES Act created the PPP, a program administered by the SBA to provide loans to small businesses for payroll and other basic expenses during the COVID-19 pandemic. Old National participated in the PPP as a lender. These loans are eligible to be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA. Additionally, loan payments will also be deferred for the first six months of the loan term. No collateral or personal guarantees were required. Neither the government nor lenders are permitted to charge the recipients any fees. During 2020, Old National originated over 9,700 loans with balances of approximately $1.518 billion to new and existing clients through the PPP.
On December 27, 2020, the CAA was signed into law. The CAA, among other things, extended the life of the PPP, effectively creating a second round of PPP loans for eligible businesses. Old National participated in the CAA’s second round of PPP lending. During 2021, Old National originated approximately 6,200 loans totaling $583.7 million through the second round of the PPP. Additionally, section 541 of the CAA extended the relief provided by the CARES Act for financial institutions to suspend the GAAP accounting treatment for troubled debt restructuring to January 1, 2022.
At December 31, 2021, remaining PPP loans totaled $169.0 million.
Commercial Real Estate
Commercial real estate 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 occupied loans.
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 permanent loans from approved long-term lenders (including Old National), sales of developed property, or an interim loan commitment from Old National until permanent financing is obtained.  These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions, and the availability of long-term financing.
At 230%, 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 December 31, 2021.
BBCC
BBCC loans are typically granted to small businesses with gross revenues of less than $5 million and aggregate debt of less than $1 million. Old National has established minimum debt service coverage ratios, minimum FICO scores for owners and guarantors, and the ability to show relatively stable earnings as criteria to help mitigate risk. Repayment of these loans depends on the personal income of the borrowers and the cash flows of the business. These factors can be affected by changes in economic conditions such as unemployment levels.
Residential
With respect to residential loans that are secured by 1-4 family residences and are generally owner occupied, Old National typically establishes a maximum loan-to-value ratio and generally requires private mortgage insurance if
that ratio is exceeded.  Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels.  Repayment can also be impacted by changes in residential property values.  Portfolio risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.
Indirect
Indirect loans are secured by automobile collateral, generally new and used cars and trucks from auto dealers that operate within our footprint. Old National typically mitigates the risk of indirect loans by establishing minimum FICO scores, maximum loan-to-value ratios, and maximum debt-to-income ratios. Repayment of these loans depends largely on the personal income of the borrowers, which can be affected by changes in economic conditions such as unemployment levels. Portfolio risk is mitigated by the fact that the loans are of smaller amounts spread over many borrowers, conservative credit policies, and ongoing reviews of dealer relationships.
Direct
Direct loans are typically secured by collateral such as auto or real estate or are unsecured. Old National has established conservative underwriting standards such as minimum FICO scores, maximum loan-to-value ratios, and maximum debt-to-income ratios. Repayment of these loans depends largely on the personal income of the borrowers, which can be affected by changes in economic conditions such as unemployment levels. Portfolio risk is mitigated by the fact that the loans are of smaller amounts spread over many borrowers along with conservative credit policies.
Home Equity
Home equity loans are generally secured by 1-4 family residences that are owner occupied. Old National has established conservative underwriting standards such as minimum FICO scores, maximum loan-to-value ratios, and maximum debt-to-income ratios. Repayment of these loans depends largely on the personal income of the borrowers, which can be affected by changes in economic conditions such as unemployment levels. Portfolio risk is mitigated by the fact that the loans are of smaller amounts spread over many borrowers, along with conservative credit policies as well as monitoring of updated borrower credit scores.
Related Party Loans
In the ordinary course of business, Old National grants loans to certain executive officers, directors, and significant subsidiaries (collectively referred to as “related parties”).
Activity in related party loans is presented in the following table:
Years Ended December 31,
(dollars in thousands)202120202019
Balance at beginning of period$2,444 $2,345 $9,310 
New loans41,962 1,848 1,218 
Repayments(20,093)(1,715)(2,063)
Officer and director changes— (34)(6,120)
Balance at end of period$24,313 $2,444 $2,345 
Allowance for Credit Losses
Loans
Credit quality within the loans held for investment portfolio is continuously monitored by management and is reflected within the allowance for credit losses for loans. The allowance for credit losses is an estimate of expected losses inherent within the Company’s loans held for investment portfolio. Credit quality is assessed and monitored by evaluating various attributes and the results of those evaluations are utilized in underwriting new loans and in our process for estimating expected credit losses. Expected credit loss inherent in non-cancelable off-balance-sheet credit exposures is accounted for as a separate liability included in other liabilities on the balance sheet. The allowance for credit losses for loans held for investment is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries. Old National has made a policy election to report accrued interest receivable as a separate line item on the balance sheet. Accrued interest receivable on
loans is excluded from the estimate of credit losses and totaled $47.6 million at December 31, 2021 and $57.3 million at December 31, 2020.
The allowance for credit loss estimation process involves procedures to appropriately consider the unique characteristics of its loan portfolio segments. These segments are further disaggregated into loan classes based on the level at which credit risk is monitored. When computing the level of expected credit losses, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods.
The allowance level is influenced by loan volumes, loan AQR migration or delinquency status, changes in historical loss experience, and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses has two basic components: first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans; and second, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics.
The allowance for credit losses decreased for the year ended December 31, 2021 primarily due to changes in the economic forecast. The forecast scenario includes improved unemployment and house price index. In addition to the quantitative inputs, several qualitative factors were considered. These factors include the risk that unemployment and gross domestic product prove to be more severe and/or prolonged than our baseline forecast, the consumption of the vaccine is less than anticipated, the presence of communicable strains of the virus, and supply chain issues. The mitigating impact of the economy remaining open was also considered. Old National’s activity in the allowance for credit losses for loans by portfolio segment was as follows:
(dollars in thousands)Balance at
Beginning of
Period		Impact of
Adopting
ASC 326		Sub-TotalCharge-offsRecoveriesProvision
for Credit
Losses		Balance at
End of
Period
Year Ended
December 31, 2021
Allowance for credit losses:
Commercial$30,567 $— $30,567 $(1,228)$791 $(2,898)$27,232 
Commercial real estate75,810 — 75,810 (264)4,403 (15,945)64,004 
BBCC6,120 — 6,120 (144)105 (3,623)2,458 
Residential real estate12,608 — 12,608 (346)339 (3,254)9,347 
Indirect3,580 — 3,580 (1,087)1,682 (2,432)1,743 
Direct855 — 855 (1,159)777 55 528 
Home equity1,848 — 1,848 (82)978 (715)2,029 
Total$131,388 $— $131,388 $(4,310)$9,075 $(28,812)$107,341 
Year Ended
December 31, 2020
Allowance for credit losses:
Commercial$21,359 $7,150 $28,509 $(5,593)$3,629 $4,022 $30,567 
Commercial real estate20,535 25,548 46,083 (4,323)4,515 29,535 75,810 
BBCC2,279 3,702 5,981 (95)140 94 6,120 
Residential real estate2,299 6,986 9,285 (824)633 3,514 12,608 
Indirect5,319 (1,669)3,650 (2,754)1,922 762 3,580 
Direct1,863 (1,059)804 (1,763)819 995 855 
Home equity965 689 1,654 (201)922 (527)1,848 
Total$54,619 $41,347 $95,966 $(15,553)$12,580 $38,395 $131,388 
PPP loans were factored in the provision for credit losses for the years ended December 31, 2021 and 2020; however, due to the SBA guaranty and our borrowers’ adherence to the PPP terms, the provision impact was insignificant.
Unfunded Loan Commitments
Old National maintains an allowance for credit losses on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses for loans, modified to take into account the probability of a drawdown on the commitment. The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet. Old National’s activity in the allowance for credit losses on unfunded loan commitments was as follows:
Years Ended December 31,
(dollars in thousands)20212020
Allowance for credit losses on unfunded loan commitments:
Balance at beginning of period$11,689 $2,656 
Impact of adopting ASC 326— 4,549 
Sub-Total11,689 7,205 
Expense (reversal of expense) for credit losses(810)4,484 
Balance at end of period$10,879 $11,689 
Credit Quality
Old National’s management monitors the credit quality of its loans on an ongoing basis with the AQR for commercial loans reviewed annually or at renewal and the performance of its residential and consumer loans based upon the accrual status refreshed at least quarterly.  Internally, management assigns an AQR to each non-homogeneous commercial, commercial real estate, and BBCC loan in the portfolio.  The primary determinants of the AQR are the reliability of the primary source of repayment and the past, present, and projected financial condition of the borrower.  The AQR will also consider current industry conditions.  Major factors used in determining the AQR can vary based on the nature of the loan, but commonly include factors such as debt service coverage, internal cash flow, liquidity, leverage, operating performance, debt burden, FICO scores, occupancy, interest rate sensitivity, and expense burden.  Old National uses the following definitions for risk ratings:
Criticized.  Special mention loans that have a potential weakness that deserves management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Classified – Substandard.  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Classified – Nonaccrual.  Loans classified as nonaccrual have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection in full, on the basis of currently existing facts, conditions, and values, in doubt.
Classified – Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as nonaccrual, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Pass rated loans are those loans that are other than criticized, classified – substandard, classified – nonaccrual, or classified – doubtful.
The following table summarizes the amortized cost of term loans by risk category of commercial, commercial real estate, and BBCC loans by loan portfolio segment and class of loan:
Origination YearRevolving to Term
(dollars in thousands)20212020201920182017PriorRevolvingTotal
December 31, 2021
Commercial:
Risk Rating:
Pass$918,456 $563,869 $271,158 $98,468 $156,136 $235,639 $667,628 $130,470 $3,041,824 
Criticized9,998 7,885 6,660 — 7,809 2,658 14,601 10,076 59,687 
Classified:
Substandard14,773 14,468 10,200 9,849 5,521 945 6,883 10,322 72,961 
Nonaccrual1,069 3,507 1,276 3,721 1,448 — 845 7,796 19,662 
Doubtful— 178 — 288 337 5,275 — — 6,078 
Total$944,296 $589,907 $289,294 $112,326 $171,251 $244,517 $689,957 $158,664 $3,200,212 
Commercial real estate:
Risk Rating:
Pass$1,555,880 $1,474,271 $846,921 $481,508 $462,176 $611,680 $42,609 $451,544 $5,926,589 
Criticized27,622 24,790 39,914 — 21,614 22,157 — 34,387 170,484 
Classified:
Substandard4,706 12,118 9,933 9,058 18,165 11,351 2,291 4,339 71,961 
Nonaccrual1,620 2,997 — 1,627 3,419 8,905 315 871 19,754 
Doubtful6,653 — 1,970 342 11,218 12,513 — — 32,696 
Total$1,596,481 $1,514,176 $898,738 $492,535 $516,592 $666,606 $45,215 $491,141 $6,221,484 
BBCC:
Risk Rating:
Pass$81,710 $69,749 $54,580 $34,461 $25,113 $8,296 $47,571 $18,778 $340,258 
Criticized1,320 1,170 841 160 — — 670 1,578 5,739 
Classified:
Substandard284 24 79 7 187 465 103 239 1,388 
Nonaccrual— 88 — — 66 162 — 1,136 1,452 
Doubtful— 25 284 1,391 — 210 — — 1,910 
Total$83,314 $71,056 $55,784 $36,019 $25,366 $9,133 $48,344 $21,731 $350,747 
Origination YearRevolving to Term
(dollars in thousands)20202019201820172016PriorRevolvingTotal
December 31, 2020
Commercial:
Risk Rating:
Pass$1,675,964 $420,736 $171,228 $227,710 $124,041 $262,538 $549,849 $148,508 $3,580,574 
Criticized23,982 9,603 15,003 9,508 3,383 5,369 10,307 2,685 79,840 
Classified:
Substandard6,501 6,369 10,077 9,836 2,774 8,441 15,344 3,049 62,391 
Nonaccrual2,600 3,754 4,701 6,951 49 4,379 778 7,013 30,225 
Doubtful— — 1,016 2,748 296 610 — — 4,670 
Total$1,709,047 $440,462 $202,025 $256,753 $130,543 $281,337 $576,278 $161,255 $3,757,700 
Commercial real estate:
Risk Rating:
Pass$1,537,226 $1,041,305 $749,102 $677,119 $496,086 $513,658 $28,122 $382,219 $5,424,837 
Criticized6,874 49,271 26,464 46,994 17,648 33,490 — 19,804 200,545 
Classified:
Substandard11,451 4,700 13,565 26,691 5,308 8,665 — 2,911 73,291 
Nonaccrual1,408 2,054 5,393 9,456 1,635 12,564 — 313 32,823 
Doubtful— 1,832 — 18,926 19,283 3,274 — — 43,315 
Total$1,556,959 $1,099,162 $794,524 $779,186 $539,960 $571,651 $28,122 $405,247 $5,774,811 
BBCC:
Risk Rating:
Pass$94,828 $73,913 $49,875 $36,288 $24,946 $5,327 $52,393 $19,353 $356,923 
Criticized1,599 1,403 621 414 643 — 868 1,259 6,807 
Classified:
Substandard233 1,417 195 246 33 — 317 701 3,142 
Nonaccrual161 551 134 200 — — 89 1,466 2,601 
Doubtful— 3 847 70 — 30 — — 950 
Total$96,821 $77,287 $51,672 $37,218 $25,622 $5,357 $53,667 $22,779 $370,423 
For residential real estate and consumer loan classes, Old National evaluates credit quality based on the aging status of the loan and by payment activity.  The performing or nonperforming status is updated on an on-going basis dependent upon improvement and deterioration in credit quality. The following table presents the amortized cost of term residential real estate and consumer loans based on payment activity:
Origination YearRevolving to Term
(dollars in thousands)20212020201920182017PriorRevolvingTotal
December 31, 2021
Residential real estate:
Performing$625,582 $632,705 $272,600 $72,766 $103,866 $529,293 $12 $105 $2,236,929 
Nonperforming96 165 166 350 855 16,728 — — 18,360 
Total$625,678 $632,870 $272,766 $73,116 $104,721 $546,021 $12 $105 $2,255,289 
Indirect:
Performing$361,485 $231,156 $146,978 $68,513 $41,598 $20,819 $— $9 $870,558 
Nonperforming262 524 614 510 430 241 — — 2,581 
Total$361,747 $231,680 $147,592 $69,023 $42,028 $21,060 $— $9 $873,139 
Direct:
Performing$34,058 $16,135 $14,396 $14,579 $7,432 $15,831 $36,812 $192 $139,435 
Nonperforming13 53 130 133 35 536 42 8 950 
Total$34,071 $16,188 $14,526 $14,712 $7,467 $16,367 $36,854 $200 $140,385 
Home equity:
Performing$— $— $633 $349 $535 $— $539,057 $16,768 $557,342 
Nonperforming— — 16 9 41 1 258 2,923 3,248 
Total$— $— $649 $358 $576 $1 $539,315 $19,691 $560,590 
Origination YearRevolving to Term
20202019201820172016PriorRevolvingTotal
December 31, 2020
Residential real estate:
Performing$624,435 $453,132 $132,107 $190,376 $202,457 $620,999 $— $122 $2,223,628 
Nonperforming65 251 680 892 2,131 20,775 — — 24,794 
Total$624,500 $453,383 $132,787 $191,268 $204,588 $641,774 $— $122 $2,248,422 
Indirect:
Performing$352,989 $253,514 $134,893 $96,587 $52,225 $21,088 $— $77 $911,373 
Nonperforming22 443 777 666 429 192 — — 2,529 
Total$353,011 $253,957 $135,670 $97,253 $52,654 $21,280 $— $77 $913,902 
Direct:
Performing$32,499 $29,189 $30,510 $16,182 $8,527 $19,465 $26,028 $1,229 $163,629 
Nonperforming22 141 171 64 247 526 4 3 1,178 
Total$32,521 $29,330 $30,681 $16,246 $8,774 $19,991 $26,032 $1,232 $164,807 
Home equity:
Performing$1 $997 $444 $891 $238 $— $529,275 $20,314 $552,160 
Nonperforming— 37 — — 11 116 94 3,996 4,254 
Total$1 $1,034 $444 $891 $249 $116 $529,369 $24,310 $556,414 
Nonaccrual and Past Due Loans
Old National does not record interest on nonaccrual loans until principal is recovered. 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 collectability of principal or interest. Interest accrued but not received is reversed against earnings. 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.
The following table presents the aging of the amortized cost basis in past due loans by class of loans:
(dollars in thousands)30-59 Days
Past Due		60-89 Days
Past Due		Past Due
90 Days or
More		Total
Past Due		CurrentTotal
Loans
December 31, 2021
Commercial$2,723 $617 $1,603 $4,943 $3,195,269 $3,200,212 
Commercial real estate1,402 280 7,042 8,724 6,212,760 6,221,484 
BBCC747 162 109 1,018 349,729 350,747 
Residential8,273 2,364 4,554 15,191 2,240,098 2,255,289 
Indirect3,888 867 554 5,309 867,830 873,139 
Direct687 159 162 1,008 139,377 140,385 
Home equity693 199 777 1,669 558,921 560,590 
Total$18,413 $4,648 $14,801 $37,862 $13,563,984 $13,601,846 
December 31, 2020
Commercial$2,977 $664 $2,100 $5,741 $3,751,959 $3,757,700 
Commercial real estate887 128 27,272 28,287 5,746,524 5,774,811 
BBCC894 882 61 1,837 368,586 370,423 
Residential11,639 3,296 7,666 22,601 2,225,821 2,248,422 
Indirect5,222 960 492 6,674 907,228 913,902 
Direct753 533 426 1,712 163,095 164,807 
Home equity1,075 377 1,663 3,115 553,299 556,414 
Total$23,447 $6,840 $39,680 $69,967 $13,716,512 $13,786,479 
The following table presents the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing by class of loan:
December 31, 2021December 31, 2020
(dollars in thousands)Nonaccrual
Amortized
Cost		Nonaccrual
With No
Related
Allowance		Past Due
90 Days or
More and
Accruing		Nonaccrual
Amortized
Cost		Nonaccrual
With No
Related
Allowance		Past Due
90 Days or
More and
Accruing
Commercial$25,740 $9,574 $— $34,895 $3,394 $122 
Commercial real estate52,450 25,139 — 76,138 22,152 20 
BBCC3,362 — — 3,551 — — 
Residential18,360 — — 24,794 — — 
Indirect2,581 — 4 2,529 — 12 
Direct950 — 3 1,178 27 13 
Home equity3,248 — — 4,254 45 — 
Total$106,691 $34,713 $7 $147,339 $25,618 $167 
Interest income recognized on nonaccrual loans was insignificant during the years ended December 31, 2021 and 2020.
When management determines that foreclosure is probable, expected credit losses for collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. A loan is considered collateral dependent when the borrower is experiencing financial difficulty and the loan is expected to be repaid substantially through the operation or sale of the collateral. The class of loan represents the primary collateral type associated with the loan. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value. The following table presents the amortized cost basis of collateral dependent loans by class of loan:
Type of Collateral
(dollars in thousands)Real
Estate		Blanket
Lien		Investment
Securities/Cash		AutoOther
December 31, 2021
Commercial$8,100 $13,816 $3,394 $80 $302 
Commercial Real Estate38,657 — 961 — 6,653 
BBCC1,895 1,331 43 93 — 
Residential18,360 — — — — 
Indirect— — — 2,581 — 
Direct724 — 1 152 20 
Home equity3,248 — — — — 
Total$70,984 $15,147 $4,399 $2,906 $6,975 
December 31, 2020
Commercial$8,976 $19,253 $5,379 $394 $893 
Commercial Real Estate60,844 472 1,137 — 13,685 
BBCC1,425 1,929 63 134 — 
Residential24,794 — — — — 
Indirect— — — 2,529 — 
Direct901 — 2 235 29 
Home equity4,254 — — — — 
Total$101,194 $21,654 $6,581 $3,292 $14,607 

Loan Participations
Old National has loan participations, which qualify as participating interests, with other financial institutions.  At December 31, 2021, these loans totaled $1.256 billion, of which $619.6 million had been sold to other financial institutions and $636.1 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 includes 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.  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 credit losses for the difference between the carrying value of the loan and its computed value.  To determine the computed 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, 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:
(dollars in thousands)Beginning Balance(Charge-offs)/ Recoveries(Payments)/ DisbursementsAdditionsEnding Balance
Year Ended December 31, 2021
Commercial$11,090 $— $(4,535)$901 $7,456 
Commercial real estate17,606 24 (2,166)1,694 17,158 
BBCC112 8 (33)— 87 
Residential2,824 (4)(385)— 2,435 
Indirect— 3 (3)— — 
Direct739 2 (101)2,064 2,704 
Home equity282 3 (86)— 199 
Total$32,653 $36 $(7,309)$4,659 $30,039 
Year Ended December 31, 2020
Commercial$12,412 $633 $(4,557)$2,602 $11,090 
Commercial real estate14,277 4,801 (8,502)7,030 17,606 
BBCC578 (19)(447)— 112 
Residential3,107 — (283)— 2,824 
Indirect— 9 (9)— — 
Direct983 23 (267)— 739 
Home equity381 3 (102)— 282 
Total$31,738 $5,450 $(14,167)$9,632 $32,653 
TDRs included within nonaccrual loans totaled $11.7 million at December 31, 2021 and $14.9 million at December 31, 2020.  Old National has allocated specific reserves to clients whose loan terms have been modified as TDRs totaling $0.7 million at December 31, 2021 and $1.6 million at December 31, 2020.  Old National had not committed to lend any additional funds to clients with outstanding loans that were classified as TDRs at December 31, 2021 or December 31, 2020.
The pre-modification and post-modification outstanding recorded investments of loans modified as TDRs during the years ended December 31, 2021, 2020, and 2019 are the same except for when the loan modifications involve the forgiveness of principal. The following table presents loans modified as TDRs that occurred during the years ended December 31, 2021, 2020, and 2019:
(dollars in thousands)Total
Year Ended December 31, 2021
TDR:
Number of loans3 
Pre-modification outstanding recorded investment$4,659 
Post-modification outstanding recorded investment4,659 
Year Ended December 31, 2020
TDR:
Number of loans4 
Pre-modification outstanding recorded investment$9,632 
Post-modification outstanding recorded investment9,632 
Year Ended December 31, 2019
TDR:
Number of loans14 
Pre-modification outstanding recorded investment$21,131 
Post-modification outstanding recorded investment21,131 
The TDRs that occurred during 2021 decreased the allowance for credit losses by $0.9 million and resulted in no charge-offs during 2021.  The TDRs that occurred during 2020 increased the allowance for credit losses by $0.3 million and resulted in no charge-offs during 2020.  The TDRs that occurred during 2019 increased the allowance for loan losses by $2.0 million and resulted in $3.9 million in charge-offs during 2019.
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 during the year were insignificant in 2021, 2020, and 2019.
The terms of certain other loans were modified during 2021 and 2020 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.
In general, once a modified loan is considered a TDR, the loan will always be considered a TDR 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. However, consistent with ASC 310-40-50-2, Troubled Debt Restructurings by Creditors, Creditor Disclosure of Troubled Debt Restructurings, the loan would not be required to be reported in the years following the restructuring if the subsequent restructuring meets both of these criteria: (1) has an interest rate at the time of the subsequent restructuring that is not less than a market interest rate; and (2) is performing in compliance with its modified terms after the subsequent restructuring.
Non-TDR Loan Modifications due to COVID-19
In March 2020, the Interagency Statement was issued by our banking regulators that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act terminates. The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act, as well as setting forth the banking regulators’ views on consumer protection considerations. Additionally, section 541 of the CAA extends the relief provided by the CARES Act for financial institutions to suspend the GAAP accounting treatment for troubled debt restructuring to January 1, 2022. After this date, we will follow the GAAP accounting treatment to determine if new modifications meet the definition of a TDR. In accordance with such guidance, during 2020 and throughout 2021 we offered short-term modifications in response to COVID-19 to borrowers who were current and otherwise not past due. These included short-term (180 days or less) modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that were insignificant. These loan deferrals totaled $6.4 million at December 31, 2021.

Allowance for Loan Losses (Prior to January 1, 2020)
Prior to the adoption of ASC 326 on January 1, 2020, Old National calculated allowance for loan losses using incurred losses methodology. The following tables are disclosures related to the allowance for loan losses in the year ended December 31, 2019.
Old National’s activity in the allowance for loan losses was as follows:
(dollars in thousands)CommercialCommercial Real EstateResidentialConsumerTotal
Year Ended December 31, 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)
Recoveries1,650 3,774 146 3,630 9,200 
Provision3,012 (2,810)537 4,008 4,747 
Balance at end of period$22,585 $21,588 $2,299 $8,147 $54,619 
The following table presents Old National’s average balance of impaired loans. Only purchased loans that had experienced subsequent impairment since the date acquired (excluding loans acquired with deteriorated credit quality) are included in the table below.
(dollars in thousands)Year Ended
December 31, 2019
Average Recorded Investment
With no related allowance recorded:
Commercial$22,629 
Commercial Real Estate - Construction6,465 
Commercial Real Estate - Other39,401 
Residential2,052 
Consumer923 
With an allowance recorded:
Commercial15,816 
Commercial Real Estate - Construction6,912 
Commercial Real Estate - Other20,420 
Residential981 
Consumer1,219 
Total$116,818 
The following table presents activity in TDRs:
(dollars in thousands)Beginning Balance(Charge-offs)/ Recoveries(Payments)/ DisbursementsAdditionsEnding Balance
Year Ended December 31, 2019
Commercial$10,275 $(1,911)$(3,733)$10,231 $14,862 
Commercial real estate27,671 (2,112)(23,182)10,027 12,404 
Residential3,390 — (971)557 2,976 
Consumer2,374 13 (1,207)316 1,496 
Total$43,710 $(4,010)$(29,093)$21,131 $31,738