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Fair Value
 9 Months Ended
Sep. 30, 2022
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 and equity securities: The fair values for investment securities and equity 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, 2022 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$51,846 $51,846 $— $— 
Investment securities available-for-sale:
U.S. Treasury193,605 193,605 — — 
U.S. government-sponsored entities and agencies1,175,457 — 1,175,457 — 
Mortgage-backed securities - Agency4,459,527 — 4,459,527 — 
States and political subdivisions675,047 — 675,047 — 
Pooled trust preferred securities11,322 — 11,322 — 
Other securities348,022 — 348,022 — 
Residential loans held for sale19,748 — 19,748 — 
Derivative assets148,578 — 148,578 — 
Financial Liabilities
Derivative liabilities399,558 — 399,558 — 
  Fair Value Measurements at December 31, 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$13,211 $13,211 $— $— 
Investment securities available-for-sale:
U.S. Treasury235,584 235,584 — — 
U.S. government-sponsored entities and agencies1,542,773 — 1,542,773 — 
Mortgage-backed securities - Agency3,698,831 — 3,698,831 — 
States and political subdivisions1,654,986 — 1,654,986 — 
Pooled trust preferred securities9,496 — — 9,496 
Other securities240,396 — 240,396 — 
Residential loans held for sale35,458 — 35,458 — 
Derivative assets74,226 — 74,226 — 
Financial Liabilities
Derivative liabilities41,872 — 41,872 — 
The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
(dollars in thousands)Pooled Trust
Preferred Securities
Three Months Ended September 30, 2022 
Balance at beginning of period$— 
Accretion of discount— 
Increase in fair value of securities— 
Balance at end of period$— 
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 
Nine Months Ended September 30, 2022
Balance at beginning of period$9,496 
Accretion of discount12 
Increase in fair value of securities1,593 
Transfers out of Level 3(11,101)
Balance at end of period$— 
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 
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. Old National’s pooled trust preferred securities with a fair value of $11.1 million were transferred out of Level 3 and into Level 2 in the nine months ended September 30, 2022 because of available observable market data for these investments.
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 Input
Range (Weighted Average) (4)
December 31, 2021   
Pooled trust preferred securities$9,496 Discounted cash flow
Constant prepayment rate (1)
0.00%
  
Additional asset defaults (2)
5.7% - 8.5% (6.5%)
  
Expected asset recoveries (3)
0.0% - 46.0% (14.1%)
(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, 2022 on a non-recurring basis are summarized below:
  Fair Value Measurements at September 30, 2022 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$29,500 $— $— $29,500 
Commercial real estate loans44,401 — — 44,401 
Foreclosed Assets:
Commercial278 — — 278 
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 $95.4 million, with a valuation allowance of $21.5 million at September 30, 2022.  Old National recorded provision expense associated with these loans totaling $7.3 million for the three months ended September 30, 2022 and $20.1 million for the nine months ended September 30, 2022.  Old National recorded provision expense associated with commercial and commercial real estate loans that were deemed collateral dependent totaling $0.1 million for the three and nine months ended September 30, 2021.
Other real estate owned and other repossessed property is measured at fair value less costs to sell on a non-recurring basis and had a net carrying amount of $0.3 million at September 30, 2022. There were $0.2 million write-downs of other real estate owned for the three months ended September 30, 2022 and $0.6 million for the nine months ended September 30, 2022. There were no writedowns of other real estate owned for the three months ended September 30, 2021 and $23 thousand for the nine months ended September 30, 2021.
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).  There was no valuation allowance for loan servicing rights with impairments at September 30, 2022 and no impairments or recoveries recorded during the three months ended September 30, 2022. Old National recorded recoveries associated with these loan servicing rights totaling $46 thousand for the nine months ended September 30, 2022. There were recoveries of $5 thousand for the three months ended September 30, 2021 and $1.3 million for the nine months ended September 30, 2021.
Assets measured at fair value at December 31, 2021 on a non-recurring basis are summarized below:
  Fair Value Measurements at December 31, 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)
Collateral Dependent Loans:    
Commercial loans$2,634 $— $— $2,634 
Commercial real estate loans16,308 — — 16,308 
Loan servicing rights140 — 140 — 
At December 31, 2021, commercial and commercial real estate loans that are deemed collateral dependent had a principal amount of $21.0 million, with a valuation allowance of $2.1 million.
The valuation allowance for loan servicing rights with impairments at December 31, 2021 totaled $46 thousand.
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 Input
Range (Weighted Average) (1)
September 30, 2022    
Collateral Dependent Loans    
Commercial loans$29,500 DiscountedDiscount for type of property,
4% - 32% (22%)
 cash flowage of appraisal, and current status
Commercial real estate loans44,401 DiscountedDiscount for type of property,
1% - 28% (15%)
cash flowage of appraisal, and current status
Foreclosed Assets
Commercial real estate (1)
278 Fair value ofDiscount for type of property,46%
collateralage of appraisal, and current status
December 31, 2021  
Collateral Dependent Loans  
Commercial loans$2,634 DiscountedDiscount for type of property,
14% - 15% (14%)
 cash flowage of appraisal, and current status
Commercial real estate loans16,308 DiscountedDiscount for type of property,
6% - 10% (8%)
 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, 2022 and $1.6 million for the nine months ended September 30, 2022, compared to $0.4 million for the three months ended September 30, 2021 and $1.1 million for the nine months ended September 30, 2021.
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, 2022   
Residential loans held for sale$19,748 $(426)$20,174 
December 31, 2021
Residential loans held for sale$35,458 $1,342 $34,116 
Accrued interest at period end is included in the fair value of the instruments.
The following table presents the amount of gains and losses from fair value changes included in income before income taxes for financial assets carried at fair value:
(dollars in thousands)Other
Gains and (Losses)		Interest IncomeInterest (Expense)Total Changes
in Fair Values
Included in
Current Period Earnings
Three Months Ended September 30, 2022    
Residential loans held for sale$(710)$1 $— $(709)
Three Months Ended September 30, 2021
Residential loans held for sale$(453)$— $(2)$(455)
Nine Months Ended September 30, 2022
Residential loans held for sale$(1,775)$7 $— $(1,768)
Nine Months Ended September 30, 2021
Residential loans held for sale$(2,043)$2 $(3)$(2,044)
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, 2022 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		$801,611 $801,611 $— $— 
Investment securities held-to-maturity:
U.S. government-sponsored entities and agencies817,489 — 658,435 — 
Mortgage-backed securities - Agency1,124,714 — 1,001,146 — 
State and political subdivisions1,154,364 — 940,859 — 
Loans, net:
Commercial9,197,495 — — 9,093,210 
Commercial real estate12,082,870 — — 11,933,915 
Residential real estate6,246,050 — — 5,689,328 
Consumer credit2,700,264 — — 2,726,540 
Accrued interest receivable166,699 997 42,119 123,583 
Financial Liabilities
Deposits:
Noninterest-bearing demand deposits$12,400,077 $12,400,077 $— $— 
Checking, NOW, savings, and money market
   interest-bearing deposits		21,182,255 21,182,255 — — 
Time deposits2,471,331 — 2,426,080 — 
Federal funds purchased and interbank borrowings301,031 301,031 — — 
Securities sold under agreements to repurchase438,053 438,053 — — 
FHLB advances2,804,617 — 2,717,824 — 
Other borrowings721,049 — 587,370 — 
Accrued interest payable8,774 — 8,774 — 
Standby letters of credit904 — — 904 
Off-Balance Sheet Financial Instruments
Commitments to extend credit$— $— $— $3,708 
  Fair Value Measurements at December 31, 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		$822,019 $822,019 $— $— 
Loans, net:
Commercial3,363,175 — — 3,335,009 
Commercial real estate6,315,574 — — 6,211,854 
Residential real estate2,245,942 — — 2,216,900 
Consumer credit1,569,814 — — 1,582,600 
Accrued interest receivable84,109 688 35,790 47,631 
Financial Liabilities
Deposits:
Noninterest-bearing demand deposits$6,303,106 $6,303,106 $— $— 
Checking, NOW, savings, and money market
   interest-bearing deposits		11,305,676 11,305,676 — — 
Time deposits960,413 — 968,658 — 
Federal funds purchased and interbank borrowings276 276 — — 
Securities sold under agreements to repurchase392,275 392,275 — — 
FHLB advances1,886,019 — 1,935,140 — 
Other borrowings296,670 — 311,532 — 
Accrued interest payable5,496 — 5,496 — 
Standby letters of credit454 — — 454 
Off-Balance Sheet Financial Instruments
Commitments to extend credit$— $— $— $4,678 
The methods utilized to measure the fair value of financial instruments at September 30, 2022 and December 31, 2021 represent an approximation of exit price, however, an actual exit price may differ.