Investment Securities

3 Months Ended

Mar. 31, 2024

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
March 31, 2024
Available-for-Sale
U.S. Treasury	$	291,538	$	19	$	(9,956)	$	(48,550)	$	233,051
U.S. government-sponsored entities and agencies	1,448,561		—		(184,941)		(80,601)		1,183,019
Mortgage-backed securities - Agency	5,223,119		1,996		(675,092)		—		4,550,023
States and political subdivisions	537,930		404		(24,180)		950		515,104
Pooled trust preferred securities	13,800		—		(2,526)		—		11,274
Other securities	319,134		391		(20,344)		—		299,181
Total available-for-sale securities	$	7,834,082	$	2,810	$	(917,039)	$	(128,201)	$	6,791,652
Held-to-Maturity
U.S. government-sponsored entities and agencies	$	827,684	$	—	$	(164,949)	$	—	$	662,735
Mortgage-backed securities - Agency	1,016,858		—		(159,201)		—		857,657
States and political subdivisions	1,156,957		864		(130,487)		—		1,027,334

Allowance for securities held-to-maturity	(150)		—		—		—		(150)
Total held-to-maturity securities	$	3,001,349	$	864	$	(454,637)	$	—	$	2,547,576

December 31, 2023
Available-for-Sale
U.S. Treasury	$	449,817	$	154	$	(11,941)	$	(41,297)	$	396,733
U.S. government-sponsored entities and agencies	1,487,879		33		(192,717)		(63,931)		1,231,264
Mortgage-backed securities - Agency	4,835,319		3,093		(621,852)		—		4,216,560
States and political subdivisions	554,509		878		(23,057)		2,930		535,260
Pooled trust preferred securities	13,797		—		(2,460)		—		11,337
Other securities	343,568		449		(22,116)		—		321,901
Total available-for-sale securities	$	7,684,889	$	4,607	$	(874,143)	$	(102,298)	$	6,713,055
Held-to-Maturity
U.S. government-sponsored entities and agencies	$	825,953	$	—	$	(154,827)	$	—	$	671,126
Mortgage-backed securities - Agency	1,029,131		—		(147,137)		—		881,994
States and political subdivisions	1,158,559		1,800		(112,141)		—		1,048,218
Allowance for securities held-to-maturity	(150)		—		—		—		(150)
Total held-to-maturity securities	$	3,013,493	$	1,800	$	(414,105)	$	—	$	2,601,188

(1) Basis adjustments represent the 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 March 31,
(dollars in thousands)		2024		2023
Proceeds		$	61,250	$	57,955
Realized gains		3		909
Realized losses		(19)		(6,125)

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.


	March 31, 2024
(dollars in thousands)	Amortized Cost		Fair Value		Weighted Average Yield
Maturity
Available-for-Sale
Within one year	$	177,458	$	174,950	3.39	%
One to five years	1,991,571		1,848,581		3.44
Five to ten years	4,193,417		3,608,726		2.57
Beyond ten years	1,471,636		1,159,395		2.58
Total	$	7,834,082	$	6,791,652	2.81	%
Held-to-Maturity
Within one year	$	157	$	147	2.23	%
One to five years	160,838		132,056		2.63
Five to ten years	1,161,402		1,006,755		2.62
Beyond ten years	1,678,952		1,408,618		2.73
Total	$	3,001,349	$	2,547,576	2.68	%

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
March 31, 2024
Available-for-Sale
U.S. Treasury	$	13,882	$	(77)	$	183,031	$	(9,879)	$	196,913	$	(9,956)
U.S. government-sponsored entities and agencies	3,983		(74)		1,179,036		(184,867)		1,183,019		(184,941)
Mortgage-backed securities - Agency	498,441		(4,781)		3,710,045		(670,311)		4,208,486		(675,092)
States and political subdivisions	132,681		(691)		282,382		(23,489)		415,063		(24,180)
Pooled trust preferred securities	—		—		11,274		(2,526)		11,274		(2,526)
Other securities	36,511		(133)		215,927		(20,211)		252,438		(20,344)
Total available-for-sale	$	685,498	$	(5,756)	$	5,581,695	$	(911,283)	$	6,267,193	$	(917,039)

December 31, 2023
Available-for-Sale
U.S. Treasury	$	8,937	$	(42)	$	191,027	$	(11,899)	$	199,964	$	(11,941)
U.S. government-sponsored entities and agencies	—		—		1,189,314		(192,717)		1,189,314		(192,717)
Mortgage-backed securities - Agency	90,145		(710)		3,835,552		(621,142)		3,925,697		(621,852)
States and political subdivisions	86,865		(495)		259,767		(22,562)		346,632		(23,057)
Pooled trust preferred securities	—		—		11,337		(2,460)		11,337		(2,460)
Other securities	39,032		(229)		255,888		(21,887)		294,920		(22,116)
Total available-for-sale	$	224,979	$	(1,476)	$	5,742,885	$	(872,667)	$	5,967,864	$	(874,143)

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
March 31, 2024
Held-to-Maturity
U.S. government-sponsored entities and agencies	$	—	$	—	$	662,735	$	(164,949)	$	662,735	$	(164,949)
Mortgage-backed securities - Agency	—		—		857,657		(159,201)		857,657		(159,201)
States and political subdivisions	19,953		(100)		957,362		(130,387)		977,315		(130,487)
Total held-to-maturity	$	19,953	$	(100)	$	2,477,754	$	(454,537)	$	2,497,707	$	(454,637)

December 31, 2023
Held-to-Maturity

U.S. government-sponsored entities and agencies	$	—	$	—	$	671,126	$	(154,827)	$	671,126	$	(154,827)
Mortgage-backed securities - Agency	—		—		881,994		(147,137)		881,994		(147,137)
States and political subdivisions	—		—		977,154		(112,141)		977,154		(112,141)


Total held-to-maturity	$	—	$	—	$	2,530,274	$	(414,105)	$	2,530,274	$	(414,105)

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 $123.3 million at March 31, 2024 and $127.6 million at December 31, 2023. 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 March 31, 2024 or December 31, 2023.

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 March 31, 2024 and December 31, 2023. Accrued interest receivable on the securities portfolio is excluded from the estimate of credit losses and totaled $40.3 million at March 31, 2024 and $50.3 million at December 31, 2023.

At March 31, 2024, Old National’s securities portfolio consisted of 2,941 securities, 2,702 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 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 March 31, 2024, 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 three months ended March 31, 2024 or 2023.

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 $85.0 million at March 31, 2024 and $80.4 million at December 31, 2023. There were gains on equity securities of $0.3 million during the three months ended March 31, 2024, compared to losses of $0.8 million during the three months ended March 31, 2023.

Alternative Investments

Old National has alternative investments without readily determinable fair values that are included in other assets totaling $474.7 million at March 31, 2024, consisting of $270.6 million of illiquid investments in partnerships, limited liability companies, and other ownership interests that support affordable housing and $204.1 million of economic development and community revitalization initiatives in low-to-moderate income neighborhoods. These alternative investments totaled $449.3 million at December 31, 2023. There have been no impairments or adjustments on equity securities without readily determinable fair values, except for amortization of tax credit investments in the three months ended March 31, 2024 and 2023. See Note 9 to the consolidated financial statements for detail regarding these investments.