Investment Securities

9 Months Ended

Sep. 30, 2023

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.


(dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Basis Adjustments (1)		Fair Value
September 30, 2023
Available-for-Sale
U.S. Treasury	$	616,608	$	98	$	(10,258)	$	(58,322)	$	548,126
U.S. government-sponsored entities and agencies	1,475,307		—		(229,113)		(103,294)		1,142,900
Mortgage-backed securities - Agency	4,686,448		17		(823,760)		—		3,862,705
States and political subdivisions	592,495		7		(47,058)		(500)		544,944
Pooled trust preferred securities	13,794		—		(2,669)		—		11,125
Other securities	335,292		112		(30,443)		—		304,961
Total available-for-sale securities	$	7,719,944	$	234	$	(1,143,301)	$	(162,116)	$	6,414,761
Held-to-Maturity
U.S. government-sponsored entities and agencies	$	824,223	$	—	$	(207,213)	$	—	$	617,010
Mortgage-backed securities - Agency	1,043,585		—		(195,933)		—		847,652
States and political subdivisions	1,160,256		—		(231,147)		—		929,109

Allowance for securities held-to-maturity	(150)		—		—		—		(150)
Total held-to-maturity securities	$	3,027,914	$	—	$	(634,293)	$	—	$	2,393,621

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

(1) Basis adjustments represent the cumulative amount of fair value hedging adjustments included in the carrying amounts of fixed-rate investment securities assets designated in fair value hedging arrangements. See Note 15 to the consolidated financial statements for additional information regarding these derivative financial instruments.

Substantially all of the mortgage-backed securities in the investment portfolio are residential mortgage-backed securities.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2023		2022		2023		2022
Proceeds	$	28,531	$	5,221	$	111,419	$	78,568
Realized gains	54		17		1,002		528
Realized losses	(295)		(189)		(6,442)		(443)

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.


	September 30, 2023
(dollars in thousands)	Amortized Cost		Fair Value		Weighted Average Yield
Maturity
Available-for-Sale
Within one year	$	539,157	$	535,193	4.71	%
One to five years	1,567,565		1,395,867		2.80
Five to ten years	3,987,461		3,285,183		2.37
Beyond ten years	1,625,761		1,198,518		2.46
Total	$	7,719,944	$	6,414,761	2.64	%
Held-to-Maturity

One to five years	$	161,837	$	127,716	2.68	%
Five to ten years	954,756		797,284		2.64
Beyond ten years	1,911,321		1,468,621		2.71
Total	$	3,027,914	$	2,393,621	2.69	%

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
September 30, 2023
Available-for-Sale
U.S. Treasury	$	37,492	$	(144)	$	178,540	$	(10,114)	$	216,032	$	(10,258)
U.S. government-sponsored entities and agencies	32,821		(58)		1,110,079		(229,055)		1,142,900		(229,113)
Mortgage-backed securities - Agency	124,895		(5,798)		3,736,306		(817,962)		3,861,201		(823,760)
States and political subdivisions	258,362		(7,749)		260,563		(39,309)		518,925		(47,058)
Pooled trust preferred securities	—		—		11,125		(2,669)		11,125		(2,669)
Other securities	11,737		(323)		262,912		(30,120)		274,649		(30,443)
Total available-for-sale	$	465,307	$	(14,072)	$	5,559,525	$	(1,129,229)	$	6,024,832	$	(1,143,301)

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)

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
September 30, 2023
Held-to-Maturity
U.S. government-sponsored entities and agencies	$	—	$	—	$	617,010	$	(207,213)	$	617,010	$	(207,213)
Mortgage-backed securities - Agency	—		—		847,652		(195,933)		847,652		(195,933)
States and political subdivisions	64,441		(4,877)		864,668		(226,270)		929,109		(231,147)
Total held-to-maturity	$	64,441	$	(4,877)	$	2,329,330	$	(629,416)	$	2,393,771	$	(634,293)

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-to-maturity totaling $132.3 million at September 30, 2023 and $148.9 million at December 31, 2022. These unrecognized losses 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 on available-for-sale debt securities was needed at September 30, 2023 or December 31, 2022.

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 September 30, 2023 and December 31, 2022.

Accrued interest receivable on the securities portfolio is excluded from the estimate of credit losses and totaled $38.0 million at September 30, 2023 and $50.9 million at December 31, 2022.

At September 30, 2023, Old National’s securities portfolio consisted of 3,007 securities, 2,917 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 September 30, 2023, 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 two pooled trust preferred securities with fair values totaling $11.1 million and unrealized losses totaling $2.7 million 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 nine months ended September 30, 2023 or 2022.

Equity Securities

Equity securities consist of mutual funds for Community Reinvestment Act qualified investments and diversified investment securities held in a grantor trust for participants in the Company’s nonqualified deferred compensation plan. Old National’s equity securities with readily determinable fair values totaled $69.9 million at September 30,

2023 and $52.5 million at December 31, 2022. There were losses on equity securities of $0.8 million during the three months ended September 30, 2023 and losses of $1.4 million during the nine months ended September 30, 2023, compared to losses of $0.7 million and $4.9 million during the three and nine months ended September 30, 2022, respectively.

Alternative Investments

Old National has alternative investments without readily determinable fair values that are included in other assets totaling $418.3 million at September 30, 2023, consisting of $242.3 million of illiquid investments in partnerships, limited liability companies, and other ownership interests that support affordable housing and $176.0 million of economic development and community revitalization initiatives in low-to-moderate income neighborhoods. These alternative investments totaled $396.8 million at December 31, 2022. There have been no impairments or adjustments on equity securities without readily determinable fair values, except for amortization of tax credit investments in the nine months ended September 30, 2023 and 2022. See Note 9 to the consolidated financial statements for detail regarding these investments.