Investment Securities

12 Months Ended

Dec. 31, 2022

Investments, Debt and Equity Securities [Abstract]

INVESTMENT SECURITIES

The following table summarizes the amortized cost and fair value of the available-for-sale and held-to-maturity investment securities portfolios and the corresponding amounts of gross unrealized gains, unrealized losses, and basis adjustments in AOCI and gross unrecognized gains and losses. The Company held no securities classified as held-to-maturity as of December 31, 2021.


(dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Basis Adjustments (1)		Fair Value
December 31, 2022
Available-for-Sale
U.S. Treasury	$	253,148	$	5	$	(5,189)	$	(47,037)	$	200,927
U.S. government-sponsored entities and agencies	1,451,736		—		(169,248)		(107,408)		1,175,080
Mortgage-backed securities - Agency	4,986,354		976		(617,428)		—		4,369,902
States and political subdivisions	688,159		1,789		(26,096)		—		663,852
Pooled trust preferred securities	13,783		—		(2,972)		—		10,811
Other securities	379,423		258		(26,541)		—		353,140
Total available-for-sale securities	$	7,772,603	$	3,028	$	(847,474)	$	(154,445)	$	6,773,712

Held-to-Maturity
U.S. government-sponsored entities and agencies	$	819,168	$	—	$	(162,810)	$	—	$	656,358
Mortgage-backed securities - Agency	1,106,817		—		(123,854)		—		982,963
States and political subdivisions	1,163,312		221		(159,022)		—		1,004,511

Allowance for securities held-to-maturity	(150)		—		—		—		(150)
Total held-to-maturity securities	$	3,089,147	$	221	$	(445,686)	$	—	$	2,643,682

December 31, 2021
Available-for-Sale
U.S. Treasury	$	234,555	$	1,233	$	(7,751)	$	7,547	$	235,584
U.S. government-sponsored entities and agencies	1,575,994		7,354		(37,014)		(3,561)		1,542,773
Mortgage-backed securities - Agency	3,737,484		27,421		(66,074)		—		3,698,831
States and political subdivisions	1,587,172		69,696		(1,882)		—		1,654,986
Pooled trust preferred securities	13,756		—		(4,260)		—		9,496
Other securities	235,072		6,578		(1,254)		—		240,396
Total available-for-sale securities	$	7,384,033	$	112,282	$	(118,235)	$	3,986	$	7,382,066

(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.

During 2022, U.S government-sponsored entity and agency securities, agency mortgage-backed securities, and state and political subdivision securities with a fair value of $3.0 billion were transferred from the available-for-sale portfolio to the held-to-maturity portfolio. The $125.2 million unrealized holding loss, net of tax, at the date of transfer will continue to be reported as a separate component of shareholders’ equity and is being amortized over the remaining term of the securities as an adjustment to yield. The corresponding discount on these securities will offset this adjustment to yield as it is amortized.

Proceeds from sales or calls of available-for-sale investment securities and the resulting realized gains and realized losses were as follows:


	Years Ended December 31,
(dollars in thousands)	2022		2021		2020
Proceeds from sales of available-for-sale debt securities	$	20,032	$	198,886	$	299,885
Proceeds from calls of available-for-sale debt securities	70,808		158,818		465,179
Total	$	90,840	$	357,704	$	765,064

Realized gains on sales of available-for-sale debt securities	$	344	$	4,188	$	11,172
Realized gains on calls of available-for-sale debt securities	187		317		121
Realized losses on sales of available-for-sale debt securities	(377)		(145)		(500)
Realized losses on calls of available-for-sale debt securities	(242)		(33)		(26)
Debt securities gains (losses), net	$	(88)	$	4,327	$	10,767

Investment securities pledged to secure public and other funds had a carrying value of $6.1 billion at December 31, 2022 and $2.7 billion at December 31, 2021.

At December 31, 2022, Old National had a concentration of investment securities issued by Indiana and its political subdivisions. The only aggregate market value of the Company’s investment securities greater than 10% of shareholders’ equity were issued by Indiana and its political subdivisions totaling $628.6 million, which represented 12.3% of shareholders’ equity. Of the bonds issued by Indiana, 99.7% are rated “BBB+” or better, and the remaining 0.3% generally represent pre-refunded positions.

Substantially all of the mortgage-backed securities in the investment portfolio are residential mortgage-backed securities. The table below shows the amortized cost and fair value of the investment securities portfolio 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.


	At December 31, 2022
(dollars in thousands)	Amortized Cost		Fair Value		Weighted Average Yield
Maturity
Available-for-Sale
Within one year	$	108,432	$	106,803	2.67	%
One to five years	1,821,584		1,697,506		2.83	%
Five to ten years	4,289,711		3,722,857		2.32	%
Beyond ten years	1,552,876		1,246,546		2.52	%
Total	$	7,772,603	$	6,773,712	2.48	%
Held-to-Maturity

One to five years	$	71,144	$	65,481	3.56	%
Five to ten years	1,211,517		1,079,532		2.73	%
Beyond ten years	1,806,486		1,498,669		2.83	%
Total	$	3,089,147	$	2,643,682	2.81	%

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
December 31, 2022
Available-for-Sale
U.S. Treasury	$	130,967	$	(3,264)	$	66,992	$	(1,925)	$	197,959	$	(5,189)
U.S. government-sponsored entities and agencies	454,854		(75,795)		720,226		(93,453)		1,175,080		(169,248)
Mortgage-backed securities - Agency	3,207,319		(358,507)		1,116,205		(258,921)		4,323,524		(617,428)
States and political subdivisions	414,813		(25,555)		2,703		(541)		417,516		(26,096)
Pooled trust preferred securities	—		—		10,811		(2,972)		10,811		(2,972)
Other securities	257,775		(17,045)		75,309		(9,496)		333,084		(26,541)
Total available-for-sale	$	4,465,728	$	(480,166)	$	1,992,246	$	(367,308)	$	6,457,974	$	(847,474)

December 31, 2021
Available-for-Sale
U.S. Treasury	$	91,063	$	(7,751)	$	—	$	—	$	91,063	$	(7,751)
U.S. government-sponsored entities and agencies	1,032,566		(21,167)		312,949		(15,847)		1,345,515		(37,014)
Mortgage-backed securities - Agency	2,415,923		(59,277)		163,685		(6,797)		2,579,608		(66,074)
States and political subdivisions	178,570		(1,849)		2,729		(33)		181,299		(1,882)
Pooled trust preferred securities	—		—		9,496		(4,260)		9,496		(4,260)
Other securities	56,976		(943)		21,133		(311)		78,109		(1,254)
Total available-for-sale	$	3,775,098	$	(90,987)	$	509,992	$	(27,248)	$	4,285,090	$	(118,235)

The following table summarizes the held-to-maturity investment securities with unrecognized losses aggregated by major security type and length of time in a continuous loss position:


	Less than 12 months				12 months or longer				Total
(dollars in thousands)	Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses
December 31, 2022
Held-to-Maturity
U.S. government-sponsored entities and agencies	$	354,293	$	(110,523)	$	302,066	$	(52,287)	$	656,359	$	(162,810)
Mortgage-backed securities - Agency	367,849		(42,438)		615,114		(81,416)		982,963		(123,854)
States and political subdivisions	838,689		(127,355)		135,573		(31,667)		974,262		(159,022)
Total held-to-maturity	$	1,560,831	$	(280,316)	$	1,052,753	$	(165,370)	$	2,613,584	$	(445,686)

The unrecognized losses on held-to-maturity investment securities presented in the table above do not include unrecognized losses on securities that were transferred from available-for-sale to held-for-maturity totaling $148.9 million at December 31, 2022 that are included as a separate component of shareholders’ equity and are being amortized over the remaining term of the securities.

No allowance for credit losses for available-for-sale debt securities was needed at December 31, 2022 or December 31, 2021.

An allowance on held-to-maturity debt securities is maintained for certain municipal bonds to account for expected lifetime credit losses. Substantially all of the U.S. government-sponsored entities and agencies and agency mortgage-backed securities 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. The allowance for credit losses on held-to-maturity debt securities was $0.2 million at December 31, 2022.

Accrued interest receivable on securities portfolio is excluded from the estimate of credit losses and totaled $50.9 million at December 31, 2022 and $35.5 million at December 31, 2021.

At December 31, 2022, Old National’s securities portfolio consisted of 3,150 securities, 2,803 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 and temporary market movements. Old National’s pooled trust preferred securities are evaluated using collateral-specific assumptions to estimate the expected future interest and principal cash flows. At December 31, 2022, 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.

Old National’s 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. Old National did not recognize any losses on these securities for the years ended December 31, 2022 or December 31, 2021.

Equity Securities

Old National’s equity securities with readily determinable fair values totaled $52.5 million at December 31, 2022 and $13.2 million at December 31, 2021. There were losses on equity securities of $4.9 million during 2022, gains on equity securities of $0.2 million during 2021, and gains on equity securities of $1.4 million during 2020.

Alternative Investments

Old National has alternative investments without readily determinable fair values that are included in other assets totaling $396.8 million at December 31, 2022, consisting of $240.1 million of illiquid investments of partnerships, limited liability companies, and other ownership interests that support affordable housing and $156.8 million of economic development and community revitalization initiatives in low-to-moderate income neighborhoods. These alternative investments totaled $186.0 million at December 31, 2021. There were no impairments or adjustments on equity securities without readily determinable fair values, except for amortization of tax credit investments during 2022 and 2021. There were impairments on these securities totaling $0.1 million in 2020.