Old National’s loans consist primarily of loans made to consumers and commercial clients in many diverse industries, including real estate rental and leasing, manufacturing, healthcare, wholesale trade, construction, and agriculture, among others. Most of Old National’s lending activity occurs within our principal geographic markets in the Midwest region. Old National manages concentrations of credit exposure by industry, product, geography, client relationship, and loan size.

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 on loans. The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. The four loan portfolios used to monitor and analyze interest income and yields – commercial, commercial real estate, residential real estate, and consumer – are reclassified into seven segments of loans – commercial, commercial real estate, BBCC, residential real estate, indirect, direct, and home equity for purposes of determining the allowance for credit losses on loans. 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:


	Statement Balance		Portfolio Segment Reclassifications		After Reclassifications

(dollars in thousands)
December 31, 2022
Commercial	$	9,508,904	$	(210,280)	$	9,298,624
Commercial real estate	12,457,070		(158,322)		12,298,748
BBCC	N/A		368,602		368,602
Residential real estate	6,460,441		—		6,460,441
Consumer	2,697,226		(2,697,226)		N/A
Indirect	N/A		1,034,257		1,034,257
Direct	N/A		629,186		629,186
Home equity	N/A		1,033,783		1,033,783
Total	$	31,123,641	$	—	$	31,123,641

December 31, 2021
Commercial	$	3,391,769	$	(191,557)	$	3,200,212
Commercial real estate	6,380,674		(159,190)		6,221,484
BBCC	N/A		350,747		350,747
Residential real estate	2,255,289		—		2,255,289
Consumer	1,574,114		(1,574,114)		N/A
Indirect	N/A		873,139		873,139
Direct	N/A		140,385		140,385
Home equity	N/A		560,590		560,590
Total	$	13,601,846	$	—	$	13,601,846

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.

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.

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 factors such as changes in economic conditions and unemployment levels.

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 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

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 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.

Credit quality within the loans held for investment portfolio is continuously monitored by management and is reflected within the allowance for credit losses on 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 on 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 $137.7 million at December 31, 2022 and $47.6 million at December 31, 2021.

The allowance for credit loss estimation process involves procedures to appropriately consider the unique characteristics of our 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 base forecast scenario considers unemployment, gross domestic product, and the BBB ratio (BBB spread to the 10-year U.S. Treasury rate). In addition to the quantitative inputs, several qualitative factors are considered. These factors include the risk that unemployment, gross domestic product, housing product index, and the BBB ratio prove to be more severe and/or prolonged than our baseline forecast due to a variety of factors including monetary actions to control inflation, conflict in Ukraine, and global supply chain issues. Old National’s activity in the allowance for credit losses on loans by portfolio segment was as follows:


(dollars in thousands)	Balance at Beginning of Period		Allowance Established for Acquired PCD Loans		Impact of Adopting ASC 326		Charge-offs		Recoveries		Provision for Loan Losses		Balance at End of Period
Year Ended December 31, 2022
Commercial	$	27,232	$	38,780	$	—	$	(6,885)	$	4,610	$	56,875	$	120,612
Commercial real estate	64,004		49,419		—		(6,519)		1,095		30,245		138,244
BBCC	2,458		—		—		(85)		281		(223)		2,431
Residential real estate	9,347		136		—		(344)		760		12,017		21,916
Indirect	1,743		—		—		(2,525)		1,263		1,051		1,532
Direct	528		31		—		(10,799)		2,557		19,799		12,116
Home equity	2,029		723		—		(124)		616		3,576		6,820
Total	$	107,341	$	89,089	$	—	$	(27,281)	$	11,182	$	123,340	$	303,671

Year Ended December 31, 2021
Commercial	$	30,567	$	—	$	—	$	(1,228)	$	791	$	(2,898)	$	27,232
Commercial real estate	75,810		—		—		(264)		4,403		(15,945)		64,004
BBCC	6,120		—		—		(144)		105		(3,623)		2,458
Residential real estate	12,608		—		—		(346)		339		(3,254)		9,347
Indirect	3,580		—		—		(1,087)		1,682		(2,432)		1,743
Direct	855		—		—		(1,159)		777		55		528
Home equity	1,848		—		—		(82)		978		(715)		2,029
Total	$	131,388	$	—	$	—	$	(4,310)	$	9,075	$	(28,812)	$	107,341

Year Ended December 31, 2020
Commercial	$	21,359	$	—	$	7,150	$	(5,593)	$	3,629	$	4,022	$	30,567
Commercial real estate	20,535		—		25,548		(4,323)		4,515		29,535		75,810
BBCC	2,279		—		3,702		(95)		140		94		6,120
Residential real estate	2,299		—		6,986		(824)		633		3,514		12,608
Indirect	5,319		—		(1,669)		(2,754)		1,922		762		3,580
Direct	1,863		—		(1,059)		(1,763)		819		995		855
Home equity	965		—		689		(201)		922		(527)		1,848
Total	$	54,619	$	—	$	41,347	$	(15,553)	$	12,580	$	38,395	$	131,388

Old National maintains an allowance for credit losses on unfunded loan commitments 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 on 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 within accrued expenses and other liabilities, while the corresponding provision for unfunded loan commitments is included in the provision for credit losses. Old National’s activity in the allowance for credit losses on unfunded loan commitments was as follows:

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:


	Origination Year														Revolving to Term
(dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving				Total
December 31, 2022
Commercial:
Risk Rating:
Pass	$	2,388,618	$	1,754,364	$	796,340	$	738,208	$	362,986	$	388,617	$	1,988,763	$	329,119	$	8,747,015
Criticized	40,856		30,661		63,557		33,490		9,195		5,312		61,036		4,327		248,434
Classified:
Substandard	37,223		47,522		16,540		22,925		4,844		21,204		67,402		25,143		242,803
Nonaccrual	3,627		1,453		566		—		—		—		1,634		6,623		13,903
Doubtful	2,821		17,604		3,720		8,005		5,968		8,351		—		—		46,469
Total	$	2,473,145	$	1,851,604	$	880,723	$	802,628	$	382,993	$	423,484	$	2,118,835	$	365,212	$	9,298,624

Commercial real estate:
Risk Rating:
Pass	$	3,066,960	$	2,828,758	$	1,989,000	$	1,219,025	$	675,572	$	1,018,719	$	57,818	$	689,553	$	11,545,405
Criticized	75,306		34,422		22,569		82,637		86,504		56,864		—		23,282		381,584
Classified:
Substandard	46,231		16,928		24,319		78,468		57,824		21,591		—		4,108		249,469
Nonaccrual	3,151		9,541		5,014		—		2,312		22,155		—		3,257		45,430
Doubtful	1,934		38,386		10,011		4,605		1,523		20,401		—		—		76,860
Total	$	3,193,582	$	2,928,035	$	2,050,913	$	1,384,735	$	823,735	$	1,139,730	$	57,818	$	720,200	$	12,298,748

BBCC:
Risk Rating:
Pass	$	90,341	$	64,161	$	52,304	$	36,868	$	23,618	$	11,333	$	60,016	$	18,881	$	357,522
Criticized	1,504		525		368		692		353		—		1,006		1,603		6,051
Classified:
Substandard	811		143		—		421		—		—		543		682		2,600
Nonaccrual	42		37		118		—		429		284		—		639		1,549
Doubtful	40		107		439		157		64		73		—		—		880
Total	$	92,738	$	64,973	$	53,229	$	38,138	$	24,464	$	11,690	$	61,565	$	21,805	$	368,602

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 and origination year:


	Origination Year														Revolving to Term
(dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving				Total
December 31, 2022
Residential real estate:
Performing	$	1,327,168	$	1,945,792	$	1,825,762	$	478,529	$	136,260	$	712,175	$	7	$	88	$	6,425,781
Nonperforming	59		529		861		873		1,826		30,512		—		—		34,660
Total	$	1,327,227	$	1,946,321	$	1,826,623	$	479,402	$	138,086	$	742,687	$	7	$	88	$	6,460,441

Indirect:
Performing	$	504,410	$	249,407	$	144,265	$	82,304	$	31,484	$	19,095	$	—	$	62	$	1,031,027
Nonperforming	348		1,074		645		531		304		328		—		—		3,230
Total	$	504,758	$	250,481	$	144,910	$	82,835	$	31,788	$	19,423	$	—	$	62	$	1,034,257

Direct:
Performing	$	132,934	$	164,126	$	77,406	$	57,919	$	45,299	$	59,212	$	87,622	$	671	$	625,189
Nonperforming	115		851		614		205		327		1,526		5		354		3,997
Total	$	133,049	$	164,977	$	78,020	$	58,124	$	45,626	$	60,738	$	87,627	$	1,025	$	629,186

Home equity:
Performing	$	919	$	896	$	1,849	$	1,497	$	983	$	11,646	$	990,001	$	14,792	$	1,022,583
Nonperforming	166		160		166		446		794		4,308		1,698		3,462		11,200
Total	$	1,085	$	1,056	$	2,015	$	1,943	$	1,777	$	15,954	$	991,699	$	18,254	$	1,033,783

	Origination Year														Revolving to Term
	2021		2020		2019		2018		2017		Prior		Revolving				Total
December 31, 2021
Residential real estate:
Performing	$	625,582	$	632,705	$	272,600	$	72,766	$	103,866	$	529,293	$	12	$	105	$	2,236,929
Nonperforming	96		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
Nonperforming	262		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
Nonperforming	13		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

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.


(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Past Due 90 Days or More		Total Past Due		Current		Total Loans
December 31, 2022
Commercial	$	14,147	$	4,801	$	11,080	$	30,028	$	9,268,596	$	9,298,624
Commercial real estate	47,240		1,312		32,892		81,444		12,217,304		12,298,748
BBCC	730		365		603		1,698		366,904		368,602
Residential	24,181		5,033		11,753		40,967		6,419,474		6,460,441
Indirect	6,302		2,118		958		9,378		1,024,879		1,034,257
Direct	5,404		2,118		1,928		9,450		619,736		629,186
Home equity	6,585		1,966		4,707		13,258		1,020,525		1,033,783
Total	$	104,589	$	17,713	$	63,921	$	186,223	$	30,937,418	$	31,123,641

December 31, 2021
Commercial	$	2,723	$	617	$	1,603	$	4,943	$	3,195,269	$	3,200,212
Commercial real estate	1,402		280		7,042		8,724		6,212,760		6,221,484
BBCC	747		162		109		1,018		349,729		350,747
Residential	8,273		2,364		4,554		15,191		2,240,098		2,255,289
Indirect	3,888		867		554		5,309		867,830		873,139
Direct	687		159		162		1,008		139,377		140,385
Home equity	693		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, 2022						December 31, 2021
(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	$	60,372	$	7,873	$	152	$	25,740	$	9,574	$	—
Commercial real estate	122,290		33,445		—		52,450		25,139		—
BBCC	2,429		—		—		3,362		—		—
Residential	34,660		—		1,808		18,360		—		—
Indirect	3,230		—		28		2,581		—		4
Direct	3,997		—		133		950		—		3
Home equity	11,200		—		529		3,248		—		—
Total	$	238,178	$	41,318	$	2,650	$	106,691	$	34,713	$	7

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		Auto		Other
December 31, 2022
Commercial	$	8,962	$	42,754	$	2,690	$	1,611	$	980
Commercial Real Estate	108,871		—		1,718		—		6,411
BBCC	1,939		478		—		12		—
Residential	34,660		—		—		—		—
Indirect	—		—		—		3,230		—
Direct	2,991		13		—		232		23
Home equity	11,200		—		—		—		—
Total	$	168,623	$	43,245	$	4,408	$	5,085	$	7,414

December 31, 2021
Commercial	$	8,100	$	13,816	$	3,394	$	80	$	302
Commercial Real Estate	38,657		—		961		—		6,653
BBCC	1,895		1,331		43		93		—
Residential	18,360		—		—		—		—
Indirect	—		—		—		2,581		—
Direct	724		—		1		152		20
Home equity	3,248		—		—		—		—
Total	$	70,984	$	15,147	$	4,399	$	2,906	$	6,975

Old National has loan participations, which qualify as participating interests, with other financial institutions. At December 31, 2022, these loans totaled $2.3 billion, of which $1.1 billion had been sold to other financial institutions and $1.2 billion 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.

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.

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 allocation is established within the allowance for credit losses on loans 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 allocation 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, the allowance allocation is recalculated and adjusted accordingly.


(dollars in thousands)	Beginning Balance		(Charge-offs)/ Recoveries		(Payments)/ Disbursements		Additions		Ending Balance
Year Ended December 31, 2022
Commercial	$	7,456	$	—	$	(6,880)	$	5,194	$	5,770
Commercial real estate	17,158		4		(10,908)		21,982		28,236
BBCC	87		3		(16)		—		74
Residential	2,435		—		(169)		—		2,266
Indirect	—		1		(1)		—		—
Direct	2,704		—		(58)		194		2,840
Home equity	199		1		(84)		—		116
Total	$	30,039	$	9	$	(18,116)	$	27,370	$	39,302

Year Ended December 31, 2021
Commercial	$	11,090	$	—	$	(4,535)	$	901	$	7,456
Commercial real estate	17,606		24		(2,166)		1,694		17,158
BBCC	112		8		(33)		—		87
Residential	2,824		(4)		(385)		—		2,435
Indirect	—		3		(3)		—		—
Direct	739		2		(101)		2,064		2,704
Home equity	282		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 estate	14,277		4,801		(8,502)		7,030		17,606
BBCC	578		(19)		(447)		—		112
Residential	3,107		—		(283)		—		2,824
Indirect	—		9		(9)		—		—
Direct	983		23		(267)		—		739
Home equity	381		3		(102)		—		282
Total	$	31,738	$	5,450	$	(14,167)	$	9,632	$	32,653

TDRs included within nonaccrual loans totaled $24.0 million at December 31, 2022 and $11.7 million at December 31, 2021. Old National has established specific allowances for credit losses for clients whose loan terms have been modified as TDRs totaling $4.5 million at December 31, 2022 and $0.7 million at December 31, 2021. Old National had not committed to lend any additional funds to clients with outstanding loans that were classified as TDRs at December 31, 2022 or December 31, 2021.


(dollars in thousands)	Total
Year Ended December 31, 2022
TDR:
Number of loans	8
Pre-modification outstanding recorded investment	$	27,370
Post-modification outstanding recorded investment	27,370

Year Ended December 31, 2021
TDR:
Number of loans	3
Pre-modification outstanding recorded investment	$	4,659
Post-modification outstanding recorded investment	4,659

Year Ended December 31, 2020
TDR:
Number of loans	4
Pre-modification outstanding recorded investment	$	9,632
Post-modification outstanding recorded investment	9,632

The TDRs that occurred during 2022 increased the allowance for credit losses on loans by $3.8 million and resulted in nominal charge-offs during 2022. The TDRs that occurred during 2021 decreased the allowance for credit losses on loans by $0.9 million and resulted in no charge-offs during 2021. The TDRs that occurred during 2020 increased the allowance for loan losses by $0.3 million and resulted in no charge-offs during 2020.

The terms of certain other loans were modified during 2022 and 2021 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.