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:


	Balance Sheet Line Item		Portfolio Segment Reclassifications		After Reclassifications

(dollars in thousands)
March 31, 2023
Loans:
Commercial	$	9,751,875	$	(213,187)	$	9,538,688
Commercial real estate	12,908,380		(160,041)		12,748,339
BBCC	N/A		373,228		373,228
Residential real estate	6,568,666		—		6,568,666
Consumer	2,593,453		(2,593,453)		N/A
Indirect	N/A		1,003,287		1,003,287
Direct	N/A		580,726		580,726
Home equity	N/A		1,009,440		1,009,440
Total	$	31,822,374	$	—	$	31,822,374

December 31, 2022
Loans:
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


(dollars in thousands)	March 31, 2023		December 31, 2022
Commercial (1)	$	9,538,688	$	9,298,624
Commercial real estate	12,748,339		12,298,748
BBCC	373,228		368,602
Residential real estate	6,568,666		6,460,441
Indirect	1,003,287		1,034,257
Direct	580,726		629,186
Home equity	1,009,440		1,033,783
Total loans	31,822,374		31,123,641
Allowance for credit losses on loans	(298,711)		(303,671)
Net loans	$	31,523,663	$	30,819,970

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.

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 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 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 $144.1 million at March 31, 2023 and $137.7 million at December 31, 2022.

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

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, recent instability in the banking sector, 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		Charge-offs		Recoveries		Provision for Loan Losses		Balance at End of Period
Three Months Ended March 31, 2023
Commercial	$	120,612	$	—	$	(12,423)	$	283	$	17,296	$	125,768
Commercial real estate	138,244		—		(1,189)		263		(1,970)		135,348
BBCC	2,431		—		(28)		73		(160)		2,316
Residential real estate	21,916		—		(23)		72		(1,758)		20,207
Indirect	1,532		—		(1,197)		412		687		1,434
Direct	12,116		—		(3,238)		581		(2,693)		6,766
Home equity	6,820		—		(82)		67		67		6,872
Total	$	303,671	$	—	$	(18,180)	$	1,751	$	11,469	$	298,711

Three Months Ended March 31, 2022
Commercial	$	27,232	$	35,040	$	(1,880)	$	325	$	38,754	$	99,471
Commercial real estate	64,004		42,601		(507)		182		34,210		140,490
BBCC	2,458		—		(28)		57		(418)		2,069
Residential real estate	9,347		136		(185)		440		7,514		17,252
Indirect	1,743		—		(483)		222		166		1,648
Direct	528		31		(1,530)		582		14,839		14,450
Home equity	2,029		723		(51)		82		2,344		5,127
Total	$	107,341	$	78,531	$	(4,664)	$	1,890	$	97,409	$	280,507

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:

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.


	Origination Year														Revolving to Term
(dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving				Total
March 31, 2023
Commercial:
Risk Rating:
Pass	$	673,613	$	2,299,378	$	1,517,883	$	712,011	$	629,196	$	694,970	$	2,041,109	$	433,838	$	9,001,998
Criticized	24,476		38,369		26,289		52,907		31,378		6,538		56,784		10,792		247,533
Classified:
Substandard	5,879		16,596		75,646		15,505		21,896		3,401		40,883		47,187		226,993
Nonaccrual	—		—		1,462		2,049		1,468		—		6,436		5,172		16,587
Doubtful	—		20,828		11,687		3,633		73		9,356		—		—		45,577
Total	$	703,968	$	2,375,171	$	1,632,967	$	786,105	$	684,011	$	714,265	$	2,145,212	$	496,989	$	9,538,688
Gross charge-offs	$	—	$	—	$	5,230	$	—	$	6,789	$	239	$	165	$	—	$	12,423

Commercial real estate:
Risk Rating:
Pass	$	600,890	$	3,129,239	$	2,833,471	$	1,942,417	$	1,171,555	$	1,560,183	$	74,982	$	643,987	$	11,956,724
Criticized	217		56,997		40,407		22,202		70,931		105,130		—		42,466		338,350
Classified:
Substandard	8,653		89,716		22,101		20,207		98,147		82,928		—		18,138		339,890
Nonaccrual	—		648		9,785		4,879		—		21,708		—		3,151		40,171
Doubtful	—		2,627		35,723		9,919		4,507		20,428		—		—		73,204
Total	$	609,760	$	3,279,227	$	2,941,487	$	1,999,624	$	1,345,140	$	1,790,377	$	74,982	$	707,742	$	12,748,339
Gross charge-offs	$	—	$	54	$	735	$	400	$	—	$	—	$	—	$	—	$	1,189

BBCC:
Risk Rating:
Pass	$	25,194	$	86,881	$	59,220	$	48,866	$	35,291	$	27,217	$	59,846	$	17,644	$	360,159
Criticized	50		1,843		479		265		1,023		57		2,047		1,660		7,424
Classified:
Substandard	10		986		641		33		415		—		603		658		3,346
Nonaccrual	—		39		36		130		—		626		—		836		1,667
Doubtful	—		39		73		276		108		136		—		—		632
Total	$	25,254	$	89,788	$	60,449	$	49,570	$	36,837	$	28,036	$	62,496	$	20,798	$	373,228
Gross charge-offs	$	—	$	—	$	28	$	—	$	—	$	—	$	—	$	—	$	28

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)	2023		2022		2021		2020		2019		Prior		Revolving				Total
March 31, 2023
Residential real estate:
Risk Rating:
Performing	$	92,032	$	1,419,736	$	1,975,809	$	1,749,348	$	472,547	$	823,622	$	—	$	84	$	6,533,178
Nonperforming	—		1,272		2,373		2,421		2,796		26,620		—		6		35,488
Total	$	92,032	$	1,421,008	$	1,978,182	$	1,751,769	$	475,343	$	850,242	$	—	$	90	$	6,568,666
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	23	$	—	$	—	$	23

Indirect:
Risk Rating:
Performing	$	74,980	$	465,805	$	225,377	$	126,788	$	69,147	$	37,704	$	—	$	58	$	999,859
Nonperforming	—		505		1,286		627		467		543		—		—		3,428
Total	$	74,980	$	466,310	$	226,663	$	127,415	$	69,614	$	38,247	$	—	$	58	$	1,003,287
Gross charge-offs	$	—	$	514	$	430	$	93	$	111	$	49	$	—	$	—	$	1,197

Direct:
Risk Rating:
Performing	$	27,097	$	121,525	$	141,746	$	68,407	$	48,981	$	92,285	$	74,520	$	2,118	$	576,679
Nonperforming	—		401		554		580		636		1,863		7		6		4,047
Total	$	27,097	$	121,926	$	142,300	$	68,987	$	49,617	$	94,148	$	74,527	$	2,124	$	580,726
Gross charge-offs	$	—	$	471	$	794	$	286	$	327	$	195	$	1,165	$	—	$	3,238

Home equity:
Risk Rating:
Performing	$	—	$	1,273	$	876	$	1,382	$	1,068	$	7,938	$	962,911	$	20,456	$	995,904
Nonperforming	—		162		133		161		930		5,470		1,924		4,756		13,536
Total	$	—	$	1,435	$	1,009	$	1,543	$	1,998	$	13,408	$	964,835	$	25,212	$	1,009,440
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	82	$	—	$	—	$	82


	Origination Year														Revolving to Term
	2022		2021		2020		2019		2018		Prior		Revolving				Total
December 31, 2022
Residential real estate:
Risk Rating:
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:
Risk Rating:
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:
Risk Rating:
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:
Risk Rating:
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

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
March 31, 2023
Commercial	$	8,463	$	3,397	$	9,333	$	21,193	$	9,517,495	$	9,538,688
Commercial real estate	14,648		256		26,659		41,563		12,706,776		12,748,339
BBCC	1,618		552		430		2,600		370,628		373,228
Residential	19,495		310		9,725		29,530		6,539,136		6,568,666
Indirect	4,229		1,141		511		5,881		997,406		1,003,287
Direct	3,759		955		1,511		6,225		574,501		580,726
Home equity	6,279		1,923		4,802		13,004		996,436		1,009,440
Total	$	58,491	$	8,534	$	52,971	$	119,996	$	31,702,378	$	31,822,374

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


	March 31, 2023						December 31, 2022
(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	$	62,164	$	14,695	$	—	$	60,372	$	7,873	$	152
Commercial real estate	113,375		36,495		—		122,290		33,445		—
BBCC	2,299		—		—		2,429		—		—
Residential	35,488		—		1,070		34,660		—		1,808
Indirect	3,428		—		—		3,230		—		28
Direct	4,047		—		119		3,997		—		133
Home equity	13,536		—		42		11,200		—		529
Total	$	234,337	$	51,190	$	1,231	$	238,178	$	41,318	$	2,650

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
March 31, 2023
Commercial	$	13,899	$	41,674	$	2,219	$	1,103	$	124
Commercial real estate	100,490		—		1,661		—		6,334
BBCC	1,823		464		—		12		—
Residential	35,488		—		—		—		—
Indirect	—		—		—		3,428		—
Direct	2,961		2		—		253		34
Home equity	13,536		—		—				—
Total loans	$	168,197	$	42,140	$	3,880	$	4,796	$	6,492

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 loans	$	168,623	$	43,245	$	4,408	$	5,085	$	7,414

Old National has loan participations, which qualify as participating interests, with other financial institutions. At March 31, 2023, these loans totaled $2.6 billion, of which $1.2 billion had been sold to other financial institutions and $1.4 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.

Occasionally, Old National modifies loans to borrowers experiencing financial difficulty in the form of principal forgiveness, term extension, an other-than-insignificant payment delay, or interest rate reduction (or a combination thereof). When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses on loans.