XNYS:ONB Quarterly Report 10-Q Filing - 6/30/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 1-15817

 

 

OLD NATIONAL BANCORP

(Exact name of Registrant as specified in its charter)

 

 

 

INDIANA   35-1539838

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

One Main Street

Evansville, Indiana

  47708
(Address of principal executive offices)   (Zip Code)

(812) 464-1294

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (s232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).     Yes  x    No  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock. The Registrant has one class of common stock (no par value) with 94,687,000 shares outstanding at June 30, 2012.

 

 

 


Table of Contents

OLD NATIONAL BANCORP

FORM 10-Q

INDEX

 

     Page No.  

PART I. FINANCIAL INFORMATION

  

Item 1. Financial Statements

  

Consolidated Balance Sheets
June 30, 2012 (unaudited), December 31, 2011 and June 30, 2011 (unaudited)

     3   

Consolidated Statements of Income (unaudited)
Three and six months ended June 30, 2012 and 2011

     4   

Consolidated Statements of Comprehensive Income (unaudited)
Three and six months ended June 30, 2012 and 2011

     5   

Consolidated Statements of Changes in Shareholders’ Equity (unaudited)
Six months ended June 30, 2012 and 2011

     6   

Consolidated Statements of Cash Flows (unaudited)
Six months ended June 30, 2012 and 2011

     7   

Notes to Consolidated Financial Statements (unaudited)

     8   

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

     59   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     86   

Item 4. Controls and Procedures

     86   

PART II OTHER INFORMATION

     87   

SIGNATURES

     94   

 

2


Table of Contents

OLD NATIONAL BANCORP

CONSOLIDATED BALANCE SHEETS

 

(dollars and shares in thousands, except per share data)

   June 30,
2012
    December 31,
2011
    June 30,
2011
 
     (unaudited)           (unaudited)  

Assets

      

Cash and due from banks

   $ 165,093      $ 191,626      $ 139,821   

Money market and other interest-earning investments

     97,953        31,246        195,796   
  

 

 

   

 

 

   

 

 

 

Total cash and cash equivalents

     263,046        222,872        335,617   

Trading securities—at fair value

     2,918        2,816        2,916   

Investment securities—available-for-sale, at fair value

      

U.S. Treasury

     15,598        65,769        62,746   

U.S. Government-sponsored entities and agencies

     347,289        173,185        387,211   

Mortgage-backed securities

     1,214,689        1,268,155        1,207,624   

States and political subdivisions

     462,065        402,844        368,421   

Other securities

     168,621        161,323        176,853   
  

 

 

   

 

 

   

 

 

 

Total investment securities—available-for-sale

     2,208,262        2,071,276        2,202,855   

Investment securities—held-to-maturity, at amortized cost (fair value $493,704, $507,699 and $574,174 respectively)

     463,935        484,590        567,708   

Federal Home Loan Bank stock, at cost

     30,835        30,835        19,673   

Residential loans held for sale, at fair value

     4,366        4,528        6,104   

Loans:

      

Commercial

     1,205,532        1,216,654        1,269,607   

Commercial real estate

     1,042,581        1,067,370        1,170,401   

Residential real estate

     1,122,800        995,458        795,442   

Consumer credit, net of unearned income

     855,386        861,361        881,891   

Covered loans, net of discount

     489,331        626,360        —     
  

 

 

   

 

 

   

 

 

 

Total loans

     4,715,630        4,767,203        4,117,341   

Allowance for loan losses

     (50,424     (57,117     (70,189

Allowance for loan losses—covered loans

     (4,336     (943     —     
  

 

 

   

 

 

   

 

 

 

Net loans

     4,660,870        4,709,143        4,047,152   
  

 

 

   

 

 

   

 

 

 

FDIC indemnification asset

     127,717        147,566        —     

Premises and equipment, net

     71,823        71,870        65,915   

Accrued interest receivable

     44,163        44,801        42,600   

Goodwill

     253,177        253,177        236,313   

Other intangible assets

     30,205        33,624        34,114   

Company-owned life insurance

     251,676        248,693        245,841   

Assets held for sale

     12,784        16,861        —     

Other real estate owned and repossessed personal property

     10,765        7,119        9,875   

Other real estate owned—covered

     22,170        30,443        —     

Other assets

     230,844        229,469        202,165   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 8,689,556      $ 8,609,683      $ 8,018,848   
  

 

 

   

 

 

   

 

 

 

Liabilities

      

Deposits:

      

Noninterest-bearing demand

   $ 1,847,904      $ 1,728,546      $ 1,504,632   

Interest-bearing:

      

NOW

     1,603,669        1,569,084        1,332,961   

Savings

     1,683,777        1,570,422        1,304,172   

Money market

     283,092        295,847        315,344   

Time

     1,251,831        1,447,664        1,557,978   
  

 

 

   

 

 

   

 

 

 

Total deposits

     6,670,273        6,611,563        6,015,087   

Short-term borrowings

     346,000        424,849        305,205   

Other borrowings

     273,714        290,774        440,470   

Accrued expenses and other liabilities

     325,842        248,941        249,812   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     7,615,829        7,576,127        7,010,574   
  

 

 

   

 

 

   

 

 

 

Shareholders’ Equity

      

Preferred stock, series A, 1,000 shares authorized, no shares issued or outstanding

     —          —          —     

Common stock, $1 stated value, 150,000 shares authorized, 94,687, 94,654 and 94,752 shares issued and outstanding, respectively

     94,687        94,654        94,752   

Capital surplus

     835,028        834,033        832,942   

Retained earnings

     121,670        89,865        64,178   

Accumulated other comprehensive income, net of tax

     22,342        15,004        16,402   
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     1,073,727        1,033,556        1,008,274   
  

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 8,689,556      $ 8,609,683      $ 8,018,848   
  

 

 

   

 

 

   

 

 

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

3


Table of Contents

OLD NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 

(dollars and shares in thousands, except per share data)

   2012     2011     2012     2011  

Interest Income

        

Loans including fees:

        

Taxable

   $ 62,911      $ 52,047      $ 125,041      $ 102,352   

Nontaxable

     2,228        2,335        4,447        4,657   

Investment securities, available-for-sale:

        

Taxable

     11,316        12,875        22,660        26,533   

Nontaxable

     3,905        3,320        7,485        6,841   

Investment securities, held-to-maturity, taxable

     4,894        6,140        9,869        12,552   

Money market and other interest-earning investments

     10        155        25        254   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     85,264        76,872        169,527        153,189   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest Expense

        

Deposits

     7,044        9,585        14,726        19,588   

Short-term borrowings

     118        114        245        258   

Other borrowings

     2,129        4,854        4,310        9,657   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     9,291        14,553        19,281        29,503   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     75,973        62,319        150,246        123,686   

Provision for loan losses

     393        3,207        2,449        6,519   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     75,580        59,112        147,797        117,167   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest Income

        

Wealth management fees

     5,844        5,327        10,940        10,427   

Service charges on deposit accounts

     12,904        12,464        25,766        24,014   

ATM fees

     5,895        6,079        12,228        11,970   

Mortgage banking revenue

     773        909        1,332        1,861   

Insurance premiums and commissions

     9,311        9,011        18,925        19,581   

Investment product fees

     3,163        2,933        6,094        5,527   

Company-owned life insurance

     1,512        1,298        3,007        2,470   

Net securities gains

     6,992        666        7,611        2,165   

Total other-than-temporary impairment losses

     (780     (1,433     (876     (1,732

Loss recognized in other comprehensive income

     —          1,233        —          1,233   
  

 

 

   

 

 

   

 

 

   

 

 

 

Impairment losses recognized in earnings

     (780     (200     (876     (499

Gain on derivatives

     249        221        431        553   

Gain on sale leaseback transactions

     1,606        1,637        3,213        3,273   

Change in FDIC indemnification asset

     (4,005     —          759        —     

Other income

     5,078        3,244        8,245        5,068   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

     48,542        43,589        97,675        86,410   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest Expense

        

Salaries and employee benefits

     46,751        43,084        92,797        87,605   

Occupancy

     13,256        12,196        25,716        24,498   

Equipment

     2,967        2,845        5,823        5,842   

Marketing

     1,495        1,582        2,937        2,899   

Data processing

     5,934        5,770        11,403        11,835   

Communication

     2,602        2,644        5,426        4,978   

Professional fees

     2,630        2,134        5,354        4,557   

Loan expense

     1,528        1,125        3,136        2,212   

Supplies

     609        932        1,367        1,545   

FDIC assessment

     1,379        1,773        2,774        3,964   

Other real estate owned expense

     1,576        764        11,383        1,102   

Amortization of intangibles

     1,911        1,838        3,932        3,762   

Other expense

     3,389        3,071        5,266        4,884   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

     86,027        79,758        177,314        159,683   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     38,095        22,943        68,158        43,894   

Income tax expense

     10,889        5,927        19,229        10,445   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 27,206      $ 17,016      $ 48,929      $ 33,449   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per common share—basic

   $ 0.29      $ 0.18      $ 0.52      $ 0.35   

Net income per common share—diluted

     0.29        0.18        0.52        0.35   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of common shares outstanding-basic

     94,514        94,479        94,479        94,456   

Weighted average number of common shares outstanding-diluted

     94,871        94,701        94,847        94,674   
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends per common share

   $ 0.09      $ 0.07      $ 0.18      $ 0.14   

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

4


Table of Contents

OLD NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 

(dollars in thousands)

   2012     2011     2012     2011  

Net income

   $ 27,206      $ 17,016      $ 48,929      $ 33,449   

Other comprehensive income

        

Change in securities available-for-sale:

        

Unrealized holding gains for the period

     11,221        22,769        17,461        31,292   

Reclassification adjustment for securities gains realized in income

     (6,992     (666     (7,611     (2,165

Other-than-temporary-impairment on available-for-sale securities recorded in other comprehensive income

     —          (1,233     —          (1,233

Other-than-temporary-impairment on available-for-sale securities associated with credit loss realized in income

     780        200        876        499   

Income tax effect

     (1,859     (8,371     (4,175     (11,053
  

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized gains on available-for-sale securities

     3,150        12,699        6,551        17,340   

Change in securities held-to-maturity:

        

Amortization of fair value for securities held-to-maturity previously recognized into accumulated other comprehensive income

     (231     (474     (461     (967

Income tax effect

     92        190        184        387   
  

 

 

   

 

 

   

 

 

   

 

 

 

Changes from securities held-to-maturity

     (139     (284     (277     (580

Cash flow hedges:

        

Net unrealized derivative gains (losses) on cash flow hedges

     —          (291     (240     (609

Reclassification adjustment on cash flow hedges

     —          72        —          144   

Income tax effect

     —          88        96        187   
  

 

 

   

 

 

   

 

 

   

 

 

 

Changes from cash flow hedges

     —          (131     (144     (278

Defined benefit pension plans:

        

Amortization of net loss recognized in income

     1,007        1,080        2,014        1,983   

Income tax effect

     (403     (432     (806     (794
  

 

 

   

 

 

   

 

 

   

 

 

 

Changes from defined benefit pension plans

     604        648        1,208        1,189   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax

     3,615        12,932        7,338        17,671   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 30,821      $ 29,948      $ 56,267      $ 51,120   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

5


Table of Contents

OLD NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

 

(dollars and shares in thousands)

   Common
Stock
    Capital
Surplus
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Total
Shareholders’
Equity
 

Balance, December 31, 2010

   $ 87,183      $ 748,873      $ 44,018      $ (1,269   $ 878,805   

Comprehensive income

          

Net income

     —          —          33,449        —          33,449   

Other comprehensive income

          

Change in unrealized gain (loss) on securities available for sale, net of reclassification and tax

     —          —          —          17,340        17,340   

Transferred securities, net of tax

     —          —          —          (580     (580

Reclassification adjustment on cash flows hedges, net of tax

     —          —          —          (278     (278

Net loss, settlement cost and amortization of net (gain) loss on defined benefit pension plans, net of tax

     —          —          —          1,189        1,189   

Acquisition—Monroe Bancorp

     7,575        82,495        —          —          90,070   

Dividends—common stock

     —          —          (13,263     —          (13,263

Common stock issued

     10        101        —          —          111   

Common stock repurchased

     (32     (301     —          —          (333

Stock based compensation expense

     —          1,539        —          —          1,539   

Stock activity under incentive comp plans

     16        235        (26     —          225   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2011

   $ 94,752      $ 832,942      $ 64,178      $ 16,402      $ 1,008,274   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2011

   $ 94,654      $ 834,033      $ 89,865      $ 15,004      $ 1,033,556   

Comprehensive income

          

Net income

     —          —          48,929        —          48,929   

Other comprehensive income

          

Change in unrealized gain (loss) on securities available for sale, net of reclassification and tax

     —          —          —          6,551        6,551   

Transferred securities, net of tax

     —          —          —          (277     (277

Reclassification adjustment on cash flows hedges, net of tax

     —          —          —          (144     (144

Net loss, settlement cost and amortization of net (gain) loss on defined benefit pension plans, net of tax

     —          —          —          1,208        1,208   

Dividends—common stock

     —          —          (17,023     —          (17,023

Common stock issued

     10        113        —          —          123   

Common stock repurchased

     (55     (631     —          —          (686

Stock based compensation expense

     —          1,344        —          —          1,344   

Stock activity under incentive comp plans

     78        169        (101     —          146   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2012

   $ 94,687      $ 835,028      $ 121,670      $ 22,342      $ 1,073,727   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

6


Table of Contents

OLD NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 

     Six Months Ended
June 30,
 

(dollars in thousands)

   2012     2011  

Cash Flows From Operating Activities

    

Net income

   $ 48,929      $ 33,449   
  

 

 

   

 

 

 

Adjustments to reconcile net income to cash provided by operating activities:

    

Depreciation

     5,008        5,112   

Amortization and impairment of other intangible assets

     3,932        3,762   

Net premium amortization on investment securities

     7,439        4,242   

Accretion of FDIC indemnification asset

     (759     —     

Stock compensation expense

     1,344        1,539   

Provision for loan losses

     2,449        6,519   

Net securities gains

     (7,611     (2,165

Impairment on available-for-sale securities

     876        499   

Gain on sale leasebacks

     (3,213     (3,273

Gain on derivatives

     (431     (553

Net (gains) losses on sales and write-downs of loans and other assets

     301        (879

Increase in cash surrender value of company owned life insurance

     (2,983     (2,443

Residential real estate loans originated for sale

     (30,118     (51,273

Proceeds from sale of residential real estate loans

     30,654        56,524   

Decrease in interest receivable

     638        2,175   

Decrease in other real estate owned

     4,627        4,705   

(Increase) decrease in other assets

     (17,794     8,263   

Increase in accrued expenses and other liabilities

     81,690        47,072   
  

 

 

   

 

 

 

Total adjustments

     76,049        79,826   
  

 

 

   

 

 

 

Net cash flows provided by operating activities

     124,978        113,275   
  

 

 

   

 

 

 

Cash Flows From Investing Activities

    

Cash and cash equivalents of acquired banks

     —          83,604   

Purchases of investment securities available-for-sale

     (546,146     (446,971

Purchase of trust assets

     —          (1,301

Proceeds from the call/repurchase of FHLB stock

     —          14,587   

Proceeds from maturities, prepayments and calls of investment securities available-for-sale

     340,782        282,800   

Proceeds from sales of investment securities available-for-sale

     80,176        91,372   

Proceeds from maturities, prepayments and calls of investment securities held-to-maturity

     18,541        73,936   

Proceeds from sale of loans

     2,242        4,743   

Reimbursements under FDIC loss share agreements

     32,433        —     

Net principal collected from loan customers

     43,582        59,766   

Proceeds from sale of premises and equipment and other assets

     3,434        342   

Purchases of premises and equipment and other assets

     (5,061     (2,552
  

 

 

   

 

 

 

Net cash flows provided by (used in) investing activities

     (30,017     160,326   
  

 

 

   

 

 

 

Cash Flows From Financing Activities

    

Net increase (decrease) in deposits and short-term borrowings:

    

Deposits

     58,710        (101,899

Short-term borrowings

     (78,849     (55,556

Payments for maturities on other borrowings

     (1,072     (403

Payments related to retirement of debt

     (16,000     (18,333

Cash dividends paid on common stock

     (17,023     (13,263

Common stock repurchased

     (686     (333

Proceeds from exercise of stock options, including tax benefit

     10        140   

Common stock issued

     123        111   
  

 

 

   

 

 

 

Net cash flows used in financing activities

     (54,787     (189,536
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     40,174        84,065   

Cash and cash equivalents at beginning of period

     222,872        251,552   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 263,046      $ 335,617   
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Total interest paid

   $ 20,602      $ 30,007   

Total taxes paid (net of refunds)

   $ 6,369      $ 4,605   

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

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OLD NATIONAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include the accounts of Old National Bancorp and its wholly-owned affiliates (hereinafter collectively referred to as “Old National”) and have been prepared in conformity with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. Such principles require management to make estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The allowance for loan losses, acquired impaired loans, valuation and impairment of securities, goodwill and intangibles, derivative financial instruments, and income taxes are particularly subject to change. In the opinion of management, the consolidated financial statements contain all the normal and recurring adjustments necessary for a fair statement of the financial position of Old National as of June 30, 2012 and 2011, and December 31, 2011, and the results of its operations for the three and six months ended June 30, 2012 and 2011. Interim results do not necessarily represent annual results. These financial statements should be read in conjunction with Old National’s Annual Report for the year ended December 31, 2011.

All significant intercompany transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform with the 2012 presentation. Such reclassifications had no effect on net income or shareholders' equity.

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

FASB ASC 820 – In May 2011, the FASB issued an update (ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs) impacting FASB ASC 820, Fair Value Measurement. The amendments in this update will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (“IFRSs”). Among the many areas affected by this update are the concept of highest and best use, the fair value of an instrument included in shareholders' equity and disclosures about fair value measurement, especially disclosures about fair value measurements categorized within Level 3 of the fair value hierarchy. This update became effective for the Company for interim and annual reporting periods beginning after December 15, 2011 and did not have a material impact on the consolidated financial statements.

FASB ASC 220 – In June 2011, the FASB issued an update (ASU No. 2011-05, Presentation of Comprehensive Income) impacting FASB ASC 220, Comprehensive Income. The amendments in this update eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. An entity will have the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. An entity will be required to present on the face of financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income. This update and ASC No. 2011-12, which defers a portion of this guidance, became effective for the Company for interim and annual reporting periods beginning after December 15, 2011 and did not have a material impact on the consolidated financial statements.

FASB ASC 350 – In September 2011, the FASB issued an update (ASU No. 2011-08, Testing Goodwill for Impairment) impacting FASB ASC 350-20, Intangibles – Goodwill and Other. The amendments in this update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more likely than not threshold is defined as having a likelihood of more than 50 percent. If after assessing the totality of events or circumstances, it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. If an entity concludes that it is more likely than not that the fair value of the reporting unit is less than the carrying amount, the entity is required to perform the first step of the two-step impairment. If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss. This update is effective for the Company for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The Company does not expect this guidance to have a material impact on the consolidated financial statements.

 

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FASB ASC 360 – In December 2011, the FASB issued an update (ASU No. 2011-10, Derecognition of in Substance Real Estate – a Scope Clarification) impacting FASB ASC 360-20, Property, Plant, and Equipment – Real Estate Sales. Under the amendments in this update, when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary's nonrecourse debt, the reporting entity should apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse debt. This update became effective for the Company for interim and annual reporting periods beginning on or after June 15, 2012. The Company does not expect this guidance to have a material impact on the consolidated financial statements.

FASB ASC 210 – In December 2011, the FASB issued an update (ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities) impacting FASB ASC 210-20, Balance Sheet—Offsetting. The amendments in this update require disclosure of both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The disclosure requirements are irrespective of whether they are offset in the financial statements. This update becomes effective for the Company for interim and annual reporting periods beginning on or after January 1, 2013. The Company is currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.

FASB ASC 220 – In December 2011, the FASB issued an update (ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05) impacting FASB ASC 220, Comprehensive Income. This update defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income in both the statement where net income is presented and the statement where other comprehensive income is presented. An entity should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU No. 2011-05. This update became effective for the Company for interim and annual reporting periods beginning after December 15, 2011 and did not have a material impact on the consolidated financial statements.

NOTE 3 – ACQUISITION AND DIVESTITURE ACTIVITY

Integra Bank N.A.

On July 29, 2011, Old National acquired the banking operations of Integra Bank N.A. in an FDIC assisted transaction. As part of the purchase and assumption agreement, the Company and the FDIC entered into loss sharing agreements whereby the FDIC will cover a substantial portion of any future losses on loans (and related unfunded commitments), other real estate owned and up to 90 days of certain accrued interest on loans. The acquired loans and OREO subject to the loss sharing agreements are referred to collectively as “covered assets.” Under the terms of the loss sharing agreements, the FDIC will reimburse Old National for 80% of losses up to $275.0 million, losses in excess of $275.0 million up to $467.2 million at 0% reimbursement, and 80% of losses in excess of $467.2 million. Old National will reimburse the FDIC for its share of recoveries with respect to losses for which the FDIC has reimbursed the Bank under the loss sharing agreements. The loss sharing provisions of the agreements for commercial and single family residential mortgage loans are in effect for five and ten years, respectively, from the July 29, 2011 acquisition date and the loss recovery provisions for such loans are in effect for eight years and ten years, respectively, from the acquisition date.

Integra was a full service community bank headquartered in Evansville, Indiana that operated 52 branch locations. We entered into this transaction due to the attractiveness in the pricing of the acquired loan portfolio, including the indemnification assets, and the attractiveness of immediate low cost core deposits. We also believed there were opportunities to enhance income and improve efficiencies. We believe participating with the FDIC in this assisted transaction was advantageous to the Company.

 

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The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the July 29, 2011 acquisition date. The application of the acquisition method of accounting resulted in the recognition of $16.9 million of goodwill and $4.3 million of core deposit intangible, after tax. The goodwill represents the excess of the estimated fair value of the liabilities assumed over the estimated fair value of the assets acquired and is influenced significantly by the FDIC-assisted transaction process. Goodwill of $29.0 million is deductible for income tax purposes.

Due primarily to the significant amount of fair value adjustments and the FDIC loss sharing agreements put in place, historical results for Integra are not meaningful to the Company's results and thus no pro forma information is presented.

Under the acquisition method of accounting, the total purchase price is allocated to Integra's net tangible and intangible assets based on their current estimated fair values on the date of acquisition. The purchase price of $170.8 million was allocated as follows:

 

(dollars in thousands)

      

Assets Acquired

  

Cash and cash equivalents

   $ 314,954   

Investment securities—available for sale

     453,700   

Federal Home Loan Bank stock, at cost

     15,226   

Residential loans held for sale

     1,690   

Loans—covered

     727,330   

Loans—non-covered

     56,828   

Premises and equipment

     19,713   

Other real estate owned

     34,055   

Accrued interest receivable

     4,751   

Goodwill

     16,864   

Other intangible assets

     4,291   

FDIC indemnification asset

     167,949   

Other assets

     9,999   
  

 

 

 

Assets acquired

   $ 1,827,350   
  

 

 

 

Liabilities Assumed

  

Deposits

   $ 1,443,209   

Short-term borrowings

     7,654   

Other borrowings

     192,895   

FDIC settlement payable

     170,759   

Other liabilities

     12,833   
  

 

 

 

Liabilities assumed

   $ 1,827,350   
  

 

 

 

Divestiture

On December 2, 2011, Old National sold $106.9 million of deposits from four of the former Integra Bank branches located in the Chicago area to First Midwest Bank. Old National recorded a net gain of $0.5 million after recording the $0.4 million deposit premium plus $0.8 million related to the time deposit premium less $0.7 million of accelerated amortization associated with the core deposit intangible. Old National retained all of the loans.

 

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Trust Business of Integra Bank

On June 1, 2011, Old National Bancorp’s wholly owned trust subsidiary, American National Trust and Investment Management Company d/b/a Old National Trust Company (“ONTC”), acquired the trust business of Integra Bank, N.A. in a transaction unrelated to the previously noted FDIC transaction. As of the closing, the trust business had approximately $328 million in assets under management. This transaction brings the total assets under management by Old National's Wealth Management division to approximately $4.4 billion. Old National paid Integra $1.3 million in an all cash transaction and recorded acquisition-related costs of $126 thousand. Old National recorded $1.3 million of customer relationship intangible assets which will be amortized on an accelerated basis over 12 years and is included in the “Other” segment, as described in Note 20 of the consolidated financial statement footnotes.

Monroe Bancorp

On January 1, 2011, Old National acquired 100 % of Monroe Bancorp (“Monroe”) in an all stock transaction. Monroe was headquartered in Bloomington, Indiana and had 15 banking centers. The acquisition increases Old National’s market position to number 1 in Bloomington and strengthens its position as the third largest branch network in Indiana. Pursuant to the merger agreement, the shareholders of Monroe received approximately 7.6 million shares of Old National Bancorp stock valued at approximately $90.1 million.

Under the acquisition method of accounting, the total purchase price is allocated to Monroe’s net tangible and intangible assets based on their current fair values on the date of the acquisition. The purchase price for the Monroe acquisition is allocated as follows (in thousands):

 

Cash and cash equivalents

   $ 83,604   

Trading securities

     3,877   

Investment securities—available for sale

     140,422   

Investment securities—held to maturity

     6,972   

Federal Home Loan Bank stock, at cost

     2,323   

Loans held for sale

     6,328   

Loans

     447,038   

Premises and equipment

     19,738   

Accrued interest receivable

     1,804   

Company-owned life insurance

     17,206   

Other assets

     41,538   

Deposits

     (653,813

Short-term borrowings

     (62,529

Other borrowings

     (37,352

Accrued expenses and other liabilities

     (6,000
  

 

 

 

Net tangible assets acquired

     11,156   

Definite-lived intangible assets acquired

     10,485   

Goodwill

     68,429   
  

 

 

 

Purchase price

   $ 90,070   
  

 

 

 

Of the total purchase price, $11.2 million has been allocated to net tangible assets acquired and $10.5 million has been allocated to definite-lived intangible assets acquired. The remaining purchase price has been allocated to goodwill. The goodwill will not be deductible for tax purposes and is included in the “Community Banking” and “Other” segments, as described in Note 20 of these consolidated financial statement footnotes.

The components of the estimated fair value of the acquired identifiable intangible assets are in the table below. These intangible assets will be amortized on an accelerated basis over their estimated lives and are included in the “Community Banking” and “Other” segments, as described in Note 20 of these consolidated financial statement footnotes.

 

     Estimated
Fair Value
(in millions)
     Estimated
Useful Lives  (Years)
 

Core deposit intangible

   $ 8.2         10   

Trust customer relationship intangible

   $ 2.3         12   

 

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Indiana Community Bancorp

On January 25, 2012, Old National announced its agreement to acquire Indiana Community Bancorp in an all stock transaction. Indiana Community Bancorp is an Indiana bank holding company with Indiana Bank and Trust Company (“IBTC”) as its wholly owned subsidiary. Headquartered in Columbus, Indiana, IBTC has 17 full-service banking centers serving the South Central Indiana area and approximately $985 million in assets. The acquisition increases Old National’s position as the third largest branch network in Indiana. Pursuant to the merger agreement, the shareholders of Indiana Community Bancorp will receive 1.90 shares of Old National Bancorp common stock for each share of Indiana Community Bancorp common stock, subject to certain adjustments. The transaction is valued at approximately $79.2 million. On July 24, 2012, the shareholders of Indiana Community Bancorp approved the merger of the corporation into Old National Bancorp. The transaction is expected to close in the third quarter of 2012 subject to approval by federal and state regulatory authorities.

NOTE 4 – NET INCOME PER SHARE

The following table reconciles basic and diluted net income per share for the three and six months ended June 30:

 

(dollars and shares in thousands,    Three Months Ended      Three Months Ended  

except per share data)

   June 30, 2012      June 30, 2011  

Basic Earnings Per Share

     

Net income

   $ 27,206       $ 17,016   

Weighted average common shares outstanding

     94,514         94,479   

Basic Earnings Per Share

   $ 0.29       $ 0.18   
  

 

 

    

 

 

 

Diluted Earnings Per Share

     

Net income

   $ 27,206       $ 17,016   

Weighted average common shares outstanding

     94,514         94,479   

Effect of dilutive securities:

     

Restricted stock (1)

     339         203   

Stock options (2)

     18         19   
  

 

 

    

 

 

 

Weighted average shares outstanding

     94,871         94,701   

Diluted Earnings Per Share

   $ 0.29       $ 0.18   
  

 

 

    

 

 

 

 

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Table of Contents
(dollars and shares in thousands,    Six Months Ended      Six Months Ended  

except per share data)

   June 30, 2012      June 30, 2011  

Basic Earnings Per Share

     

Net income

   $ 48,929       $ 33,449   

Weighted average common shares outstanding

     94,479         94,456   

Basic Earnings Per Share

   $ 0.52       $ 0.35   
  

 

 

    

 

 

 

Diluted Earnings Per Share

     

Net income

   $ 48,929       $ 33,449   

Weighted average common shares outstanding

     94,479         94,456   

Effect of dilutive securities:

     

Restricted stock (1)

     350         194   

Stock options (2)

     18         24   
  

 

 

    

 

 

 

Weighted average shares outstanding

     94,847         94,674   

Diluted Earnings Per Share

   $ 0.52       $ 0.35   
  

 

 

    

 

 

 

 

(1) 0 and 1 shares of restricted stock and restricted stock units were not included in the computation of net income per diluted share for the second quarter ended June 30, 2012 and 2011, respectively, because the effect would be antidilutive. 1 and 87 shares of restricted stock and restricted stock units were not included in the computation of net income per diluted share for the six months ended June 30, 2012 and 2011, respectively, because the effect would be antidilutive.
(2) Options to purchase 3,113 shares and 4,606 shares outstanding at June 30, 2012 and 2011, respectively, were not included in the computation of net income per diluted share for the second quarter ended June 30, 2012 and 2011, respectively, because the exercise price of these options was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. Options to purchase 3,106 and 4,606 shares outstanding at June 30, 2012 and 2011, respectively, were not included in the computation of net income per diluted share for the six months ended June 30, 2012 and 2011, respectively, because the exercise price of these options was greater than the average market price of the common shares and, therefore, the effect would be antidilutive.

 

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NOTE 5 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The following tables summarize the changes within each classification of accumulated other comprehensive income (“AOCI”) net of tax for the six months ended June 30, 2012 and 2011:

 

     AOCI at     Other     AOCI at  
     December 31,     Comprehensive     June 30,  

(dollars in thousands)

   2011     Income     2012  

Unrealized gains on available-for-sale securities

   $ 53,911      $ 6,551      $ 60,462   

Unrealized losses on securities for which other-than-temporary-impairment has been recognized

     (29,299     —          (29,299

Unrealized gains (losses) on held-to-maturity securities

     4,745        (277     4,468   

Unrecognized gain (loss) on cash flow hedges

     145        (144     1   

Defined benefit pension plans

     (14,498     1,208        (13,290
  

 

 

   

 

 

   

 

 

 

Accumulated other comprehensive income (loss)

   $ 15,004      $ 7,338      $ 22,342   
  

 

 

   

 

 

   

 

 

 

 

     AOCI at     Other     AOCI at  
     December 31,     Comprehensive     June 30,  

(dollars in thousands)

   2010     Income     2011  

Unrealized gains on available-for-sale securities

   $ 31,962      $ 18,093      $ 50,055   

Unrealized losses on securities for which other-than-temporary-impairment has been recognized

     (28,173     (753     (28,926

Unrealized gains (losses) on held-to-maturity securities

     5,667        (580     5,087   

Unrecognized gain on cash flow hedges

     846        (278     568   

Defined benefit pension plans

     (11,571     1,189        (10,382
  

 

 

   

 

 

   

 

 

 

Accumulated other comprehensive income (loss)

   $ (1,269   $ 17,671      $ 16,402   
  

 

 

   

 

 

   

 

 

 

 

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NOTE 6 – INVESTMENT SECURITIES

The following table summarizes the amortized cost and fair value of the available-for-sale and held-to-maturity investment securities portfolio at June 30, 2012 and December 31, 2011 and the corresponding amounts of unrealized gains and losses therein:

 

     Amortized      Unrealized      Unrealized     Fair  

(dollars in thousands)

   Cost      Gains      Losses     Value  

June 30, 2012

          

Available-for-sale

          

U.S. Treasury

   $ 15,166       $ 432       $ —        $ 15,598   

U.S. Government-sponsored entities and agencies

     345,161         2,183         (55     347,289   

Mortgage-backed securities—Agency

     1,109,721         31,384         (163     1,140,942   

Mortgage-backed securities—Non-agency

     76,805         514         (3,572     73,747   

States and political subdivisions

     431,989         30,604         (528     462,065   

Pooled trust preferrred securities

     25,294         —           (16,834     8,460   

Other securities

     151,749         9,942         (1,530     160,161   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

   $ 2,155,885       $ 75,059       $ (22,682   $ 2,208,262   
  

 

 

    

 

 

    

 

 

   

 

 

 

Held-to-maturity

          

U.S. Government-sponsored entities and agencies

   $ 175,568       $ 11,662       $ —        $ 187,230   

Mortgage-backed securities—Agency

     69,537         2,797         —          72,334   

States and political subdivisions

     215,836         15,311         (1     231,146   

Other securities

     2,994         —           —          2,994   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total held-to-maturity securities

   $ 463,935       $ 29,770       $ (1   $ 493,704   
  

 

 

    

 

 

    

 

 

   

 

 

 

December 31, 2011

          

Available-for-sale

          

U.S. Treasury

   $ 65,221       $ 548       $ —        $ 65,769   

U.S. Government-sponsored entities and agencies

     171,629         1,621         (65     173,185   

Mortgage-backed securities—Agency

     1,153,629         28,687         (61     1,182,255   

Mortgage-backed securities—Non-agency

     90,355         418         (4,873     85,900   

States and political subdivisions

     376,609         26,428         (193     402,844   

Pooled trust preferrred securities

     25,461         —           (18,134     7,327   

Other securities

     147,897         8,365         (2,266     153,996   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

   $ 2,030,801       $ 66,067       $ (25,592   $ 2,071,276   
  

 

 

    

 

 

    

 

 

   

 

 

 

Held-to-maturity

          

U.S. Government-sponsored entities and agencies

   $ 177,159       $ 11,434       $ —        $ 188,593   

Mortgage-backed securities—Agency

     84,075         3,305         —          87,380   

States and political subdivisions

     216,345         8,548         (176     224,717   

Other securities

     7,011         —           (2     7,009   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total held-to-maturity securities

   $ 484,590       $ 23,287       $ (178   $ 507,699   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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All of the mortgage-backed securities in the investment portfolio are residential mortgage-backed securities. The amortized cost and fair value of the investment securities portfolio are shown by expected 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.

 

     June 30, 2012      Weighted  
(dollars in thousands)    Amortized      Fair      Average  

Maturity

   Cost      Value      Yield  

Available-for-sale

        

Within one year

   $ 29,958       $ 30,218         3.69

One to five years

     90,576         95,381         3.65   

Five to ten years

     435,110         449,338         3.02   

Beyond ten years

     1,600,241         1,633,325         3.33   
  

 

 

    

 

 

    

 

 

 

Total

   $ 2,155,885       $ 2,208,262         3.29
  

 

 

    

 

 

    

 

 

 

Held-to-maturity

        

Within one year

   $ 3,045       $ 3,045         2.25

One to five years

     2,341         2,415         3.29   

Five to ten years

     145,765         153,132         2.94   

Beyond ten years

     312,784         335,112         4.50   
  

 

 

    

 

 

    

 

 

 

Total

   $ 463,935       $ 493,704         3.99
  

 

 

    

 

 

    

 

 

 

 

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The following table summarizes the investment securities with unrealized losses at June 30, 2012 and December 31, 2011 by aggregated major security type and length of time in a continuous unrealized loss position:

 

     Less than 12 months     12 months or longer     Total  
     Fair      Unrealized     Fair      Unrealized     Fair      Unrealized  

(dollars in thousands)

   Value      Losses     Value      Losses     Value      Losses  

June 30, 2012

               

Available-for-Sale

               

U.S. Government-sponsored entities and agencies

   $ 36,457       $ (55   $ —         $ —        $ 36,457       $ (55

Mortgage-backed securities—Agency

     25,009         (163     —           —          25,009         (163

Mortgage-backed securities—Non-agency

     35,467         (2,996     16,580         (576     52,047         (3,572

States and political subdivisions

     44,944         (528     —           —          44,944         (528

Pooled trust preferrred securities

     —           —          8,460         (16,834     8,460         (16,834

Other securities

     6,837         (41     6,592         (1,489     13,429         (1,530
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total available-for-sale

   $ 148,714       $ (3,783   $ 31,632       $ (18,899   $ 180,346       $ (22,682
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Held-to-Maturity

               

States and political subdivisions

   $ 1,638       $ (1   $ 51       $ —        $ 1,689       $ (1
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total held-to-maturity

   $ 1,638       $ (1   $ 51       $ —        $ 1,689       $ (1
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

December 31, 2011

               

Available-for-Sale

               

U.S. Government-sponsored entities and agencies

   $ 24,935       $ (65   $ —         $ —        $ 24,935       $ (65

Mortgage-backed securities—Agency

     49,016         (61     3         —          49,019         (61

Mortgage-backed securities—Non-agency

     10,053         (353     59,203         (4,520     69,256         (4,873

States and political subdivisions

     9,281         (114     1,345         (79     10,626         (193

Pooled trust preferrred securities

     —           —          7,327         (18,134     7,327         (18,134

Other securities

     4,516         (141     6,218         (2,125     10,734         (2,266
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total available-for-sale

   $ 97,801       $ (734   $ 74,096       $ (24,858   $ 171,897       $ (25,592
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Held-to-Maturity

               

States and political subdivisions

   $ 1,613       $ (1   $ 13,180       $ (175   $ 14,793       $ (176

Other securities

     22         (2     —           —          22         (2
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total held-to-maturity

   $ 1,635       $ (3   $ 13,180       $ (175   $ 14,815       $ (178
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Proceeds from sales and calls of securities available for sale were $197.3 million and $308.7 million for the six months ended June 30, 2012 and 2011, respectively. Gains of $7.6 million and $3.0 million were realized on these sales during 2012 and 2011, respectively, and offsetting losses of $1.0 million were realized on these sales during 2011. Also included in net securities gains for the first six months of 2012 is $45 thousand of gains associated with the trading securities and other-than-temporary impairment charges related to credit loss on five non-agency mortgage-backed securities and one trust preferred security in the amount of $876 thousand, described below. Impacting earnings in the first six months of 2011 was $106 thousand of gains associated with the trading securities and other-than-temporary impairment charges related to credit loss on three non-agency mortgage-backed securities in the amount of $0.5 million.

Trading securities, which consist of mutual funds held in a trust associated with deferred compensation plans for former Monroe Bancorp directors and executives, are recorded at fair value and totaled $2.9 million at June 30, 2012 and $2.8 million at December 31, 2011.

 

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Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities classified as available-for-sale or held-to-maturity are generally evaluated for OTTI under FASB ASC 320 (SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities). However, certain purchased beneficial interests, including non-agency mortgage-backed securities, asset-backed securities, and collateralized debt obligations, that had credit ratings at the time of purchase of below AA are evaluated using the model outlined in FASB ASC 325-10 (EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transfer in Securitized Financial Assets).

In determining OTTI under the FASB ASC 320 (SFAS No. 115) model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time. The second segment of the portfolio uses the OTTI guidance provided by FASB ASC 325-10 (EITF 99-20) that is specific to purchased beneficial interests that, on the purchase date, were rated below AA. Under the FASB ASC 325-10 model, the Company compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

When other-than-temporary-impairment occurs under either model, the amount of the other-than-temporary-impairment recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary-impairment shall be recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date. Otherwise, the other-than-temporary-impairment shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total other-than-temporary-impairment related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total other-than-temporary-impairment related to other factors shall be recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the other-than-temporary-impairment recognized in earnings shall become the new amortized cost basis of the investment.

As of June 30, 2012, Old National’s security portfolio consisted of 1,081 securities, 53 of which were in an unrealized loss position. The majority of unrealized losses are related to the Company’s non-agency mortgage-backed and pooled trust preferred securities, as discussed below:

Non-agency Mortgage-backed Securities

At June 30, 2012, the Company’s securities portfolio contained 10 non-agency collateralized mortgage obligations with a fair value of $73.7 million which had net unrealized losses of approximately $3.1 million. All of these securities are residential mortgage-backed securities. These non-agency mortgage-backed securities were rated AAA at purchase and are not within the scope of FASB ASC 325-10 (EITF 99-20). As of June 30, 2012, eight of these securities were rated below investment grade with grades ranging from B to D. One of the eight securities is rated B and has a fair value of $13.7 million, two of the securities are rated CCC with a fair value of $22.8 million, one of the securities is rated CC with a fair value of $2.3 million, one of the securities is rated C with a fair value of $16.1 million and three of the securities are rated D with a fair value of $9.2 million. These securities were evaluated to determine if the underlying collateral is expected to experience loss, resulting in a principal loss of the notes. As part of the evaluation, a detailed analysis of deal-specific data was obtained from remittance reports provided by the trustee and data from the servicer. The collateral was broken down into several distinct buckets based on loan performance characteristics in order to apply different assumptions to each bucket. The most significant drivers affecting loan performance were examined including original loan-to-value ("LTV"), underlying property location and the loan status. The loans in the current status bucket were further divided based on their original LTV: a high-LTV and a low-LTV group to which different default curves and severity percentages were applied. The high-LTV group was further bifurcated into loans originated in high-risk states and all other states with a higher default-curve and severity percentages being applied to loans originated in the high-risk states. Different default curves and severity rates were applied to the remaining non-current collateral buckets. Using these collateral-specific assumptions, a model was built to project the future performance of the instrument. Based on this analysis of the underlying collateral, Old National recorded $715 thousand of credit losses on five of these securities for the six months ended June 30, 2012. The fair value of these below investment grade non-agency mortgage-backed securities remaining at June 30, 2012 was $64.0 million.

 

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Based on an analysis of the underlying collateral, Old National recorded $0.5 million of credit losses on three non-agency mortgage-backed securities for the six months ended June 30, 2011. The fair value of these non-agency mortgage-backed securities was $84.1 million at June 30, 2011.

Pooled Trust Preferred Securities

At June 30, 2012, the Company's securities portfolio contained eight pooled trust preferred securities with a fair value of $8.5 million and unrealized losses of $16.8 million. Six of the pooled trust preferred securities in our portfolio fall within the scope of FASB ASC 325-10 (EITF 99-20) and have a fair value of $3.9 million with unrealized losses of $7.1 million at June 30, 2012. These securities were rated A2 and A3 at inception, but at June 30, 2012, four securities were rated C and two securities D. The issuers in these securities are primarily banks, but some of the pools do include a limited number of insurance companies. The Company uses the OTTI evaluation model to compare the present value of expected cash flows to the previous estimate to determine whether an adverse change in cash flows has occurred during the quarter. The OTTI model considers the structure and term of the collateralized debt obligation (“CDO”) and the financial condition of the underlying issuers. Specifically, the model details interest rates, principal balances of note classes and underlying issuers, the timing and amount of interest and principal payments of the underlying issuers, and the allocation of the payments to the note classes. The current estimate of expected cash flows is based on the most recent trustee reports and any other relevant market information including announcements of interest payment deferrals or defaults of underlying trust preferred securities. Assumptions used in the model include expected future default rates and prepayments. We assume no recoveries on defaults and a limited number of recoveries on current or projected interest payment deferrals. In addition, we use the model to “stress” each CDO, or make assumptions more severe than expected activity, to determine the degree to which assumptions could deteriorate before the CDO could no longer fully support repayment of Old National’s note class. For the six months ended June 30, 2012, our model indicated other-than-temporary-impairment losses on one security of $161 thousand, all of which was recorded as a credit loss in earnings. At June 30, 2012, the fair value of this security was $475 thousand and it was classified as available for sale.

Two of our pooled trust preferred securities with a fair value of $4.6 million and unrealized losses of $9.7 million at June 30, 2012 are not subject to FASB ASC 325-10. These securities are evaluated using collateral-specific assumptions to estimate the expected future interest and principal cash flows. Our analysis indicated no other-than-temporary-impairment on these securities.

For the six months ended June 30, 2011, the seven securities subject to FASB ASC 325-10 accounted for $7.2 million of the unrealized losses in the pooled trust preferred securities category. Our analysis indicated no other-than-temporary-impairment on these securities.

Two of our pooled trust preferred securities with a fair value of $3.8 million and unrealized losses of $10.4 million at June 30, 2011 were not subject to FASB ASC 325-10. These securities were evaluated using collateral-specific assumptions to estimate the expected future interest and principal cash flows. Our analysis indicated no other-than-temporary-impairment on these securities.

The table below summarizes the relevant characteristics of our eight pooled trust preferred securities as well as four single issuer trust preferred securities which are included with other securities in Note 6 to the consolidated financial statements. Each of the pooled trust preferred securities support a more senior tranche of security holders except for the MM Community Funding II security which, due to payoffs, Old National is now in the most senior class.

 

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Table of Contents

As depicted in the table below, all eight securities have experienced credit defaults. However, two of these securities have excess subordination and are not other-than-temporarily-impaired as a result of their class hierarchy which provides more loss protection.

 

Trust preferred securities

June 30, 2012

(Dollars in Thousands)

   Class      Lowest
Credit
Rating (1)
     Amortized
Cost
     Fair
Value
     Unrealized
Gain/
(Loss)
    Realized
Losses
2012
     # of Issuers
Currently
Performing/
Remaining
     Actual
Deferrals and
Defaults as a
Percent  of
Original
Collateral
    Expected
Defaults as
a % of
Remaining
Performing
Collateral
    Excess
Subordination
as a %
of Current
Performing
Collateral
 

Pooled trust preferred securities:

                          

TROPC 2003-1A

     A4L         C       $ 86       $ 22       $ (64   $ —           14/36         45.2     15.9     0.0

MM Community Funding IX

     B-2         D         2,067         858         (1,209     —           16/31         41.1     8.3     0.0

Reg Div Funding 2004

     B-2         D         4,017         475         (3,542     161         24/45         45.7     6.3     0.0

Pretsl XII

     B-1         C         2,843         1,385         (1,458     —           49/74         27.9     8.0     0.0

Pretsl XV

     B-1         C         1,695         1,115         (580     —           49/71         32.6     6.3     0.0

Reg Div Funding 2005

     B-1         C         311         27         (284     —           18/48         55.9     30.2     0.0

Pretsl XXVII LTD

     B         CC         4,877         1,068         (3,809     —           33/49         28.1     24.9     28.5

Trapeza Ser 13A

     A2A         B         9,398         3,510         (5,888     —           43/54         29.0     19.4     39.6
        

 

 

    

 

 

    

 

 

   

 

 

           
           25,294         8,460         (16,834     161             

Single Issuer trust preferred securities:

                          

First Empire Cap (M&T)

        BB+         956         1,054         98        —               

First Empire Cap (M&T)

        BB+         2,907         3,161         254        —               

Fleet Cap Tr V (BOA)

        BB         3,362         2,816         (546     —               

JP Morgan Chase Cap XIII

        BBB         4,718         3,775         (943     —               
        

 

 

    

 

 

    

 

 

   

 

 

           
           11,943         10,806         (1,137     —               

Total

         $ 37,237       $ 19,266       $ (17,971   $ 161             
        

 

 

    

 

 

    

 

 

   

 

 

           

 

(1) Lowest rating for the security provided by any nationally recognized credit rating agency.

The following table details all securities with other-than-temporary-impairment, their credit rating at June 30, 2012 and the related credit losses recognized in earnings:

 

                          Amount of other-than-temporary  
                          impairment recognized in earnings  
      Vintage      Lowest
Credit
Rating (1)
     Amortized
Cost
     Three months
ended
June 30, 2012
     Six months
ended
June 30, 2012
 

Non-agency mortgage-backed securities:

              

BAFC Ser 4

     2007         CCC       $ 13,176       $ 84       $ 160   

CWALT Ser 73CB

     2005         D         2,772         117         117   

HALO Ser 1R

     2006         B         15,470         129         133   

RAST A9

     2004         CCC         9,567         142         142   

RFMSI Ser S10

     2006         D         3,419         147         163   
        

 

 

    

 

 

    

 

 

 
         $ 44,404         619         715   

Pooled trust preferred securities:

              

Reg Div Funding

     2004         D         4,017         161         161   
        

 

 

    

 

 

    

 

 

 
         $ 4,017         161         161   

Total other-than-temporary-impairment recognized in earnings

            $ 780       $ 876   
           

 

 

    

 

 

 

 

(1) Lowest rating for the security provided by any nationally recognized credit rating agency.

 

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Table of Contents

The following table details all securities with other-than-temporary-impairment, their credit rating at June 30, 2011 and the related credit losses recognized in earnings:

 

                          Amount of other-than-temporary  
                          impairment recognized in earnings  
            Lowest             Three months      Six months  
            Credit      Amortized      ended      ended  
     Vintage      Rating (1)      Cost      June 30, 2011      June 30, 2011  

Non-agency mortgage-backed securities:

              

FHASI Ser 4

     2007         CC       $ 21,098       $ 138       $ 340   

HALO Ser 1R

     2006         B         15,640         16         16   

RFMSI Ser S10

     2006         CC         4,217         46         143   
        

 

 

    

 

 

    

 

 

 
         $ 40,955         200         499   

Total other-than-temporary-impairment recognized in earnings

            $ 200       $ 499   
           

 

 

    

 

 

 

 

(1) Lowest rating for the security provided by any nationally recognized credit rating agency.

The following table details all securities with other-than-temporary-impairment, their credit rating at June 30, 2012, and the related life-to-date credit losses recognized in earnings:

 

                          Amount of other-than-temporary  
                          impairment recognized in earnings  
           

Lowest

Credit

     Amortized     

Six Months

June 30,

     Year ended December 31,      Life-to  
     Vintage      Rating (1)      Cost      2012      2011      2010      2009      date  

Non-agency mortgage-backed securities:

                       

BAFC Ser 4

     2007         CCC       $ 13,176       $ 160       $ —         $ 79       $ 63       $ 302   

CWALT Ser 73CB

     2005         D         2,772         117         —           207         83         407   

CWALT Ser 73CB

     2005         D         3,980         —           —           427         182         609   

CWHL 2006-10 (3)

     2006         —           —           —           —           309         762         1,071   

CWHL 2005-20

     2005         CC         2,168         —           —           39         72         111   

FHASI Ser 4

     2007         C         16,803         —           340         629         223         1,192   

HALO Ser 1R

     2006         B         15,470         133         16         —           —           149   

RFMSI Ser S9 (2)

     2006         —           —           —           —           923         1,880         2,803   

RFMSI Ser S10

     2006         D         3,419         163         165         76         249         653   

RALI QS2 (2)

     2006         —           —           —           —           278         739         1,017   

RAST A9

     2004         CCC         9,567         142         —           —           —           142   

RFMSI S1(4)

     2006         —           —           —           —           30         176         206   
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
           67,355         715         521         2,997         4,429         8,662   

Pooled trust preferred securities:

                       

TROPC

     2003         C         86         —           888         444         3,517         4,849   

MM Community Funding IX

     2003         D         2,067         —           —           165         2,612         2,777   

Reg Div Funding

     2004         D         4,017         161         —           321         5,199         5,681   

Pretsl XII

     2003         C         2,843         —           —           —           1,897         1,897   

Pretsl XV

     2004         C         1,695         —           —           —           3,374         3,374   

Reg Div Funding

     2005         C         311         —           —           —           3,767         3,767   
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
           11,019         161         888         930         20,366         22,345   

Total other-than-temporary-
impairment recognized in earnings

            $ 876       $ 1,409       $ 3,927       $ 24,795       $ 31,007   
           

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Lowest rating for the security provided by any nationally recognized credit rating agency.
(2) Sold during fourth quarter 2010.
(3) Sold during first quarter 2011.
(4) Sold during second quarter 2012.

 

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Table of Contents

NOTE 7 – LOANS HELD FOR SALE

Residential loans that Old National has committed to sell are recorded at fair value in accordance with FASB ASC 825-10 (SFAS No. 159 – The Fair Value Option for Financial Assets and Financial Liabilities). At June 30, 2012 and December 31, 2011, Old National had residential loans held for sale of $4.4 million and $4.5 million, respectively.

During the first six months of 2012, commercial and commercial real estate loans held for investment of $1.6 million, including $1.5 million of purchased impaired loans, were reclassified to loans held for sale at the lower of cost or fair value and sold for $2.2 million, resulting in a charge-off of $0.1 million and a recovery of $0.7 million. At June 30, 2012, there were no loans held for sale under this arrangement.

During the first six months of 2011, commercial and commercial real estate loans held for investment of $4.7 million, including $0.1 million of purchased impaired loans, were reclassified to loans held for sale at the lower of cost or fair value and sold for $4.9 million, resulting in income of $0.2 million. At June 30, 2011, there were no loans held for sale under this arrangement.

NOTE 8 – FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES

Old National’s finance receivables consist primarily of loans made to consumers and commercial clients in various industries including manufacturing, agribusiness, transportation, mining, wholesaling and retailing. Most of Old National's lending activity occurs within the Company's principal geographic markets of Indiana, Illinois and Kentucky. Old National has no concentration of commercial loans in any single industry exceeding 10% of its portfolio.

The composition of loans by lending classification was as follows:

 

     June 30,     December 31,  

(dollars in thousands)

   2012     2011  

Commercial (1)

   $ 1,205,532      $ 1,216,654   

Commercial real estate:

    

Construction

     64,910        46,141   

Other

     977,671        1,021,229   

Residential real estate

     1,122,800        995,458   

Consumer credit:

    

Heloc

     220,565        235,603   

Auto

     511,706        483,575   

Other

     123,115        142,183   

Covered loans

     489,331        626,360   
  

 

 

   

 

 

 

Total loans

     4,715,630        4,767,203   

Allowance for loan losses

     (50,424     (57,117

Allowance for loan losses—covered loans

     (4,336     (943
  

 

 

   

 

 

 

Net loans

   $ 4,660,870      $ 4,709,143   
  

 

 

   

 

 

 

 

(1) Includes direct finance leases of $68.9 million at June 30, 2012 and $79.6 million at December 31, 2011.

The risk characteristics of each loan portfolio segment are as follows:

Commercial

Commercial loans are primarily based 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 short-term 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 customers.

 

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Table of Contents

Commercial real estate

These 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 more 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. As a general rule, Old National avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans.

Included with commercial real estate, construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. 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, 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.

Residential

With respect to residential loans that are secured by 1-4 family residences and are generally owner occupied, Old National generally establishes a maximum loan-to-value ratio and 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. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Portfolio loans, or loans Old National intends to hold for investment purposes, are carried at the principal balance outstanding, net of earned interest, purchase premiums or discounts, deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the principal balances of loans outstanding.

Consumer

Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit. 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. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Portfolio loans, or loans Old National intends to hold for investment purposes, are carried at the principal balance outstanding, net of earned interest, purchase premiums or discounts, deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the principal balances of loans outstanding.

 

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Covered Loans

On July 29, 2011, Old National acquired the banking operations of Integra Bank N.A. (“Integra”) in an FDIC assisted transaction. As part of the purchase and assumption agreement, the Company and the FDIC entered into loss sharing agreements (each, a “loss sharing agreement” and collectively, the “loss sharing agreements”), whereby the FDIC will cover a substantial portion of any future losses on loans (and related unfunded commitments), other real estate owned (“OREO”) and up to 90 days of certain accrued interest on loans. The acquired loans and OREO subject to the loss sharing agreements are referred to collectively as “covered assets.” Under the terms of the loss sharing agreements, the FDIC will reimburse Old National for 80% of losses up to $275.0 million, losses in excess of $275.0 million up to $467.2 million at 0% reimbursement, and 80% of losses in excess of $467.2 million. Old National will reimburse the FDIC for its share of recoveries with respect to losses for which the FDIC has reimbursed the Bank under the loss sharing agreements. The loss sharing provisions of the agreements for commercial and single family residential mortgage loans are in effect for five and ten years, respectively, from the July 29, 2011 acquisition date and the loss recovery provisions for such loans are in effect for eight years and ten years, respectively, from the acquisition date.

Allowance for loan losses

The allowance for loan losses is maintained at a level believed adequate by management to absorb probable losses incurred in the loan portfolio. Management's evaluation of the adequacy of the allowance is an estimate based on reviews of individual loans, pools of homogeneous loans, historical loss experience, and assessments of the impact of current economic conditions on the portfolio.

The allowance is increased through a provision charged to operating expense. Loans deemed to be uncollectible are charged to the allowance. Recoveries of loans previously charged-off are added to the allowance.

No allowance is brought forward on any of the acquired loans as any credit deterioration evident in the loans was included in the determination of the fair value of the loans at the acquisition date. Purchased credit impaired (“PCI”) loans would not be considered impaired until after the point at which there has been a degradation of cash flows below our expected cash flows at acquisition. Impairment on PCI loans would be recognized in the current period as provision expense.

Old National’s activity in the allowance for loan losses for the three months ended June 30, 2012 and 2011 is as follows:

 

           Commercial                           

(dollars in thousands)

   Commercial     Real Estate     Consumer     Residential     Unallocated      Total  

2012

             

Allowance for loan losses:

             

Beginning balance

   $ 18,094      $ 27,818      $ 5,646      $ 4,358        —         $ 55,916   

Charge-offs

     (1,972     (718     (2,125     (360     —           (5,175

Recoveries

     849        1,553        1,188        36        —           3,626   

Provision

     879        (32     (27     (427     —           393   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance

   $ 17,850      $ 28,621      $ 4,682      $ 3,607        —         $ 54,760   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

(dollars in thousands)

   Commercial     Commercial
Real Estate
    Consumer     Residential     Unallocated      Total  

2011

             

Allowance for loan losses:

             

Beginning balance

   $ 27,190      $ 32,550      $ 10,280      $ 2,729        —         $ 72,749   

Charge-offs

     (3,838     (2,274     (2,465     (325     —           (8,902

Recoveries

     1,302        316        1,468        49        —           3,135   

Provision

     1,375        1,898        (725     659        —           3,207   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance

   $ 26,029      $ 32,490      $ 8,558      $ 3,112        —         $ 70,189   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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Old National’s activity in the allowance for loan losses for the six months ended June 30, 2012 and 2011 is as follows:

 

           Commercial                           

(dollars in thousands)

   Commercial     Real Estate     Consumer     Residential     Unallocated      Total  

2012

             

Allowance for loan losses:

             

Beginning balance

   $ 19,964      $ 26,993      $ 6,954      $ 4,149        —         $ 58,060   

Charge-offs

     (3,240     (4,093     (4,550     (920     —           (12,803

Recoveries

     2,293        2,121        2,525        115        —           7,054   

Provision

     (1,167     3,600        (247     263        —           2,449   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance

   $ 17,850      $ 28,621      $ 4,682      $ 3,607        —         $ 54,760   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

(dollars in thousands)

   Commercial     Commercial
Real Estate
    Consumer     Residential     Unallocated      Total  

2011

             

Allowance for loan losses:

             

Beginning balance

   $ 26,204      $ 32,654      $ 11,142      $ 2,309        —         $ 72,309   

Charge-offs

     (5,169     (2,981     (5,853     (1,173     —           (15,176

Recoveries

     2,135        984        3,326        92        —           6,537   

Provision

     2,859        1,833        (57     1,884        —           6,519   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance

   $ 26,029      $ 32,490      $ 8,558      $ 3,112        —         $ 70,189   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

The following tables provide Old National’s recorded investment in financing receivables by portfolio segment at June 30, 2012 and December 31, 2011 and other information regarding the allowance:

 

            Commercial                              

(dollars in thousands)

   Commercial      Real Estate      Consumer      Residential      Unallocated      Total  

June 30, 2012

                 

Allowance for loan losses:

                 

Ending balance: individually evaluated for impairment

   $ 6,546       $ 4,841       $ 5       $ 3         —         $ 11,395   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 10,495       $ 16,476       $ 3,597       $ 2,703         —         $ 33,271   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: loans acquired with deteriorated credit quality

   $ 453       $ 4,250         224       $ 831         —         $ 5,758   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: covered loans acquired with deteriorated credit quality

   $ 356       $ 3,054       $ 856       $ 70         —         $ 4,336   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for credit losses

   $ 17,850       $ 28,621       $ 4,682       $ 3,607         —         $ 54,760   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans and leases outstanding:

                 

Ending balance: individually evaluated for impairment

   $ 28,840       $ 34,422         —           —           —         $ 63,262   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 1,176,229       $ 992,534       $ 855,386       $ 1,122,800         —         $ 4,146,949   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: loans acquired with deteriorated credit quality

   $ 463       $ 15,625         —           —           —         $ 16,088   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: covered loans acquired with deteriorated credit quality

   $ 75,925       $ 261,720       $ 111,285       $ 40,401         —         $ 489,331   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans and leases outstanding

   $ 1,281,457       $ 1,304,301       $ 966,671       $ 1,163,201         —         $ 4,715,630   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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            Commercial                              

(dollars in thousands)

   Commercial      Real Estate      Consumer      Residential      Unallocated      Total  

December 31, 2011

                 

Allowance for loan losses:

                 

Ending balance: individually evaluated for impairment

   $ 7,015       $ 4,177         —           —           —         $ 11,192   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 12,816       $ 21,397       $ 6,335       $ 2,752         —         $ 43,300   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: loans acquired with deteriorated credit quality

   $ 128       $ 1,288       $ 445       $ 764         —         $ 2,625   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: covered loans acquired with deteriorated credit quality

   $ 5       $ 131       $ 174       $ 633         —         $ 943   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for credit losses

   $ 19,964       $ 26,993       $ 6,954       $ 4,149         —         $ 58,060   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans and leases outstanding:

                 

Ending balance: individually evaluated for impairment

   $ 31,838       $ 43,225         —           —           —         $ 75,063   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 1,183,675       $ 1,002,105       $ 861,361       $ 995,458         —         $ 4,042,599   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: loans acquired with deteriorated credit quality

   $ 1,141       $ 22,040         —           —           —         $ 23,181   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: covered loans acquired with deteriorated credit quality

   $ 124,755       $ 325,934       $ 128,700       $ 46,971         —         $ 626,360   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans and leases outstanding

   $ 1,341,409       $ 1,393,304       $ 990,061       $ 1,042,429         —         $ 4,767,203   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Credit Quality