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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20202021
☐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)
Indiana35-1539838
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
  
One Main Street47708
Evansville,Indiana(Zip Code)
(Address of principal executive offices)
(800) 731-2265
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading
Symbol(s)		 Name of each exchange on which registered
Common Stock, No Par Value ONB TheNASDAQStock Market LLC
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  ☑    No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit such files).    Yes   ☑   No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑  Accelerated filer ☐
Non-accelerated filer ☐  Smaller reporting company ☐
Emerging growth company ☐    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☑
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 165,093,000165,732,000 shares outstanding at June 30, 2020.2021.


OLD NATIONAL BANCORP
FORM 10-Q
TABLE OF CONTENTS
  Page
PART I. 
Item 1. 
 
4
 
5
 
6
 
7
 
8
 
9
 Note 1.
9
 Note 2.
9
Note 3.
1611
 Note 4.
1712
 Note 5.
2013
 Note 6.
2016
 Note 7.
3430
 Note 8.
3431
 Note 9.
3531
 Note 10.
3633
 Note 11.
3834
 Note 12.
3834
 Note 13.
3936
 Note 14.
4036
 Note 15.
4137
 Note 16.
4339
 Note 17.
4540
 Note 18.
4641
 Note 19.
4742
 Note 20.
5146
 Note 21.
5247
 Note 22.
5347
 Note 23.
5348
 Note 24.
6155
Item 2.
56
62Forward-Looking Statements
56
 
Financial Highlights
6358
 
Non-GAAP Financial Measures
6459
 
Executive Summary
6661
 
Results of Operations
6762
 
Financial Condition
7470
 
Risk Management
7773
 
Off-Balance Sheet Arrangements
8884
 
Contractual Obligations
8884
 
Critical Accounting Policies and Estimates
88
Forward-Looking Statements
9185
Item 3.
9287
Item 4.
9287
PART II.
9288
Item 1A.
9288
Item 2.
9388
Item 5.
9388
Item 6.
9489
9590

2

GLOSSARY OF ABBREVIATIONS AND ACRONYMS
As used in this report, references to “Old National,” “we,” “our,” “us,” and similar terms refer to the consolidated entity consisting of Old National Bancorp and its wholly-owned affiliates. Old National Bancorp refers solely to the parent holding company, and Old National Bank refers to Old National Bancorp’s bank subsidiary.
The acronyms and abbreviations identified below are used in the Notes to Consolidated Financial Statements (Unaudited) as well as in the Management’s Discussion and Analysis of Financial Condition and Results of Operations. You may find it helpful to refer to this page as you read this report.
Anchor (MN):  Anchor Bancorp, Inc.
Anchor (WI):  Anchor BanCorp Wisconsin Inc.
AOCI:  accumulated other comprehensive income (loss)
AQR:  asset quality rating
ASC:  Accounting Standards Codification
ASU:  Accounting Standards Update
ATM:  automated teller machine
BBCC: business banking credit center (small business)
CAA: Consolidated Appropriations Act
CARES Act: Coronavirus Aid, Relief and Economic Security Act
CECL: current expected credit loss
Common Stock:  Old National Bancorp common stock, without par value
COVID-19: Novel coronavirus originating in Wuhan, China in December 2019
CRA: Community Reinvestment Act
DTI:  debt-to-income
FASB:  Financial Accounting Standards Board
FDIC:  Federal Deposit Insurance Corporation
FHLB:  Federal Home Loan Bank
FHTC:  Federal Historic Tax Credit
FICO:  Fair Isaac Corporation
First Midwest: First Midwest Bancorp, Inc.
GAAP:  U.S. generally accepted accounting principles
LGD:  loss given default
LIBOR:  London Interbank Offered Rate
LIHTC:  Low Income Housing Tax Credit
LTV:  loan-to-value
N/A:  not applicable
N/M:  not meaningful
NASDAQ:  The NASDAQ Stock Market LLCNMTC: New Markets Tax Credit
NOW:  negotiable order of withdrawal
OCC:  Office of the Comptroller of the Currency
OTTI:  other-than-temporary impairment
PCD:purchased with credit deterioration
PCI:  purchased credit impaired
PD:  probability of default
PPP: Paycheck Protection Program
Renewable Energy:  investment tax credits for solar projects
SBA:  Small Business Administration
SEC:  Securities and Exchange Commission
TBA:  to be announced
TDR:  troubled debt restructuring


3

OLD NATIONAL BANCORP
CONSOLIDATED BALANCE SHEETS
(dollars and shares in thousands, except per share data)June 30,
2020		December 31,
2019
 (unaudited) 
Assets  
Cash and due from banks$241,054  $234,766  
Money market and other interest-earning investments69,440  41,571  
Total cash and cash equivalents310,494  276,337  
Equity securities, at fair value40,246  6,842  
Investment securities - available-for-sale, at fair value:
U.S. Treasury35,731  17,682  
U.S. government-sponsored entities and agencies453,501  592,984  
Mortgage-backed securities3,304,054  3,183,861  
States and political subdivisions1,355,959  1,275,643  
Other securities298,026  314,921  
Total investment securities - available-for-sale5,447,271  5,385,091  
Federal Home Loan Bank/Federal Reserve Bank stock, at cost174,103  164,099  
Loans held for sale, at fair value122,507  46,898  
Loans:
Commercial4,307,505  2,890,296  
Commercial real estate5,403,316  5,166,792  
Residential real estate2,229,298  2,334,289  
Consumer credit, net of unearned income1,675,582  1,726,147  
Total loans13,615,701  12,117,524  
Allowance for loan losses (1)(128,394) (54,619) 
Net loans13,487,307  12,062,905  
Premises and equipment, net462,796  490,925  
Operating lease right-of-use assets80,400  95,477  
Accrued interest receivable84,387  85,123  
Goodwill1,036,994  1,036,994  
Other intangible assets52,717  60,105  
Company-owned life insurance453,116  448,967  
Other assets349,850  251,904  
Total assets$22,102,188  $20,411,667  
Liabilities
Deposits:
Noninterest-bearing demand$5,217,678  $4,042,286  
Interest-bearing:
Checking and NOW4,567,046  4,149,639  
Savings3,166,680  2,845,423  
Money market1,895,809  1,833,819  
Other time deposits1,321,499  1,589,988  
Brokered certificates of deposit150,734  92,242  
Total deposits16,319,446  14,553,397  
Federal funds purchased and interbank borrowings801  350,414  
Securities sold under agreements to repurchase367,744  327,782  
Federal Home Loan Bank advances2,035,014  1,822,847  
Other borrowings237,877  243,685  
Operating lease liabilities91,845  99,500  
Accrued expenses and other liabilities185,206  161,589  
Total liabilities19,237,933  17,559,214  
Shareholders' Equity
Preferred stock, 2,000 shares authorized, 0 shares issued or outstanding—  —  
Common stock, $1.00 per share stated value, 300,000 shares authorized,
   165,093 and 169,616 shares issued and outstanding, respectively
165,093  169,616  
Capital surplus1,871,741  1,944,445  
Retained earnings678,378  682,185  
Accumulated other comprehensive income (loss), net of tax149,043  56,207  
Total shareholders' equity2,864,255  2,852,453  
Total liabilities and shareholders' equity$22,102,188  $20,411,667  
(1)Beginning January 1, 2020, calculation is based on current expected loss methodology. Prior to January 1, 2020, calculation was based on incurred loss methodology.
(dollars and shares in thousands, except per share data)June 30,
2021		December 31,
2020
 (unaudited) 
Assets  
Cash and due from banks$188,391 $268,208 
Money market and other interest-earning investments302,740 321,504 
Total cash and cash equivalents491,131 589,712 
Equity securities, at fair value2,464 2,547 
Investment securities - available-for-sale, at fair value:
U.S. Treasury234,792 10,208 
U.S. government-sponsored entities and agencies1,422,287 841,988 
Mortgage-backed securities3,280,983 3,339,098 
States and political subdivisions1,567,931 1,492,162 
Other securities269,184 286,659 
Total investment securities - available-for-sale6,775,177 5,970,115 
Federal Home Loan Bank/Federal Reserve Bank stock, at cost169,389 169,433 
Loans held for sale, at fair value50,121 63,250 
Loans:
Commercial3,802,943 3,956,422 
Commercial real estate6,187,318 5,946,512 
Residential real estate2,215,056 2,248,422 
Consumer credit, net of unearned income1,579,360 1,635,123 
Total loans13,784,677 13,786,479 
Allowance for credit losses(109,444)(131,388)
Net loans13,675,233 13,655,091 
Premises and equipment, net484,879 464,408 
Operating lease right-of-use assets72,207 76,197 
Accrued interest receivable85,594 85,306 
Goodwill1,036,994 1,036,994 
Other intangible assets40,030 46,014 
Company-owned life insurance459,565 456,110 
Other assets332,882 345,445 
Total assets$23,675,666 $22,960,622 
Liabilities
Deposits:
Noninterest-bearing demand$6,142,724 $5,633,672 
Interest-bearing:
Checking and NOW4,921,430 4,977,046 
Savings3,675,701 3,395,747 
Money market2,126,537 1,908,118 
Time deposits1,002,519 1,122,870 
Total deposits17,868,911 17,037,453 
Federal funds purchased and interbank borrowings1,523 1,166 
Securities sold under agreements to repurchase396,129 431,166 
Federal Home Loan Bank advances1,891,143 1,991,435 
Other borrowings270,318 252,787 
Operating lease liabilities81,333 86,598 
Accrued expenses and other liabilities175,191 187,361 
Total liabilities20,684,548 19,987,966 
Shareholders' Equity
Preferred stock, 2,000 shares authorized, 0 shares issued or outstanding0 0 
Common stock, $1.00 per share stated value, 300,000 shares authorized,
   165,732 and 165,367 shares issued and outstanding, respectively
165,732 165,367 
Capital surplus1,876,372 1,875,626 
Retained earnings886,752 783,892 
Accumulated other comprehensive income (loss), net of tax62,262 147,771 
Total shareholders' equity2,991,118 2,972,656 
Total liabilities and shareholders' equity$23,675,666 $22,960,622 
The accompanying notes to consolidated financial statements are an integral part of these statements.
4

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)2020201920202019
Interest Income    
Loans including fees:    
Taxable$124,737  $148,253  $253,464  $287,225  
Nontaxable3,453  3,986  7,078  8,209  
Investment securities:
Taxable25,398  29,241  52,754  57,278  
Nontaxable8,352  7,249  16,294  14,657  
Money market and other interest-earning investments34  334  383  612  
Total interest income161,974  189,063  329,973  367,981  
Interest Expense
Deposits6,798  18,519  19,096  34,963  
Federal funds purchased and interbank borrowings44  1,817  1,284  3,735  
Securities sold under agreements to repurchase185  671  569  1,333  
Federal Home Loan Bank advances6,844  10,039  14,612  19,970  
Other borrowings2,432  2,787  4,970  5,702  
Total interest expense16,303  33,833  40,531  65,703  
Net interest income145,671  155,230  289,442  302,278  
Provision for loan losses (1)22,545  1,003  39,495  2,046  
Net interest income after provision for loan losses123,126  154,227  249,947  300,232  
Noninterest Income
Wealth management fees9,424  9,909  18,308  18,444  
Service charges on deposit accounts7,582  11,515  17,659  22,341  
Debit card and ATM fees4,832  5,419  9,830  10,922  
Mortgage banking revenue17,313  7,135  28,432  12,146  
Investment product fees4,845  5,591  10,719  10,862  
Capital markets income6,179  3,150  10,507  5,667  
Company-owned life insurance2,968  2,711  6,048  5,899  
Debt securities gains (losses), net511  1,165  5,685  1,062  
Other income4,807  4,619  8,775  10,287  
Total noninterest income58,461  51,214  115,963  97,630  
Noninterest Expense
Salaries and employee benefits66,556  71,566  145,729  142,749  
Occupancy13,245  14,559  28,378  29,137  
Equipment3,853  4,517  9,158  8,991  
Marketing2,395  4,439  5,492  8,162  
Data processing9,629  10,207  19,096  19,548  
Communication2,296  2,849  5,094  5,903  
Professional fees3,545  4,921  7,838  7,831  
FDIC assessment2,014  1,454  3,623  3,541  
Amortization of intangibles3,612  4,325  7,388  8,797  
Amortization of tax credit investments287  568  5,802  828  
Other expense12,689  8,713  41,267  15,672  
Total noninterest expense120,121  128,118  278,865  251,159  
Income before income taxes61,466  77,323  87,045  146,703  
Income tax expense9,761  14,359  12,700  27,463  
Net income$51,705  $62,964  $74,345  $119,240  
Net income per common share - basic$0.32  $0.37  $0.45  $0.69  
Net income per common share - diluted0.32  0.36  0.45  0.68  
Weighted average number of common shares outstanding - basic164,732  172,985  166,240  173,855  
Weighted average number of common shares outstanding - diluted165,302  173,675  166,848  174,531  
Dividends per common share$0.14  $0.13  $0.28  $0.26  
(1)Beginning January 1, 2020, calculation is based on current expected loss methodology. Prior to January 1, 2020, calculation was based on incurred loss methodology.
Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars and shares in thousands, except per share data)2021202020212020
Interest Income    
Loans including fees:    
Taxable$123,577 $124,737 $246,106 $253,464 
Nontaxable3,171 3,453 6,528 7,078 
Investment securities:
Taxable24,401 25,398 48,532 52,754 
Nontaxable9,261 8,352 18,393 16,294 
Money market and other interest-earning investments48 34 136 383 
Total interest income160,458 161,974 319,695 329,973 
Interest Expense
Deposits2,732 6,798 5,891 19,096 
Federal funds purchased and interbank borrowings0 44 0 1,284 
Securities sold under agreements to repurchase95 185 215 569 
Federal Home Loan Bank advances5,218 6,844 10,627 14,612 
Other borrowings2,486 2,432 4,915 4,970 
Total interest expense10,531 16,303 21,648 40,531 
Net interest income149,927 145,671 298,047 289,442 
Provision for credit losses(4,929)22,545 (22,285)39,495 
Net interest income after provision for credit losses154,856 123,126 320,332 249,947 
Noninterest Income
Wealth management fees10,734 9,424 20,442 18,308 
Service charges on deposit accounts8,514 7,582 16,638 17,659 
Debit card and ATM fees5,583 4,832 10,726 9,830 
Mortgage banking revenue7,827 17,313 24,352 28,432 
Investment product fees6,042 4,845 11,906 10,719 
Capital markets income5,871 6,179 9,586 10,507 
Company-owned life insurance2,783 2,968 5,497 6,048 
Debt securities gains (losses), net692 511 2,685 5,685 
Other income3,462 4,807 6,388 8,775 
Total noninterest income51,508 58,461 108,220 115,963 
Noninterest Expense
Salaries and employee benefits72,640 66,556 140,757 145,729 
Occupancy14,054 13,245 28,926 28,378 
Equipment4,506 3,853 8,475 9,158 
Marketing2,632 2,395 4,694 5,492 
Data processing11,697 9,629 24,050 19,096 
Communication2,411 2,296 5,289 5,094 
Professional fees8,528 3,545 11,252 7,838 
FDIC assessment1,226 2,014 2,833 3,623 
Amortization of intangibles2,909 3,612 5,984 7,388 
Amortization of tax credit investments1,813 287 3,015 5,802 
Other expense7,202 12,689 12,083 41,267 
Total noninterest expense129,618 120,121 247,358 278,865 
Income before income taxes76,746 61,466 181,194 87,045 
Income tax expense13,960 9,761 31,590 12,700 
Net income$62,786 $51,705 $149,604 $74,345 
Net income per common share - basic$0.38 $0.32 $0.91 $0.45 
Net income per common share - diluted0.38 0.32 0.90 0.45 
Weighted average number of common shares outstanding - basic165,175 164,732 165,086 166,240 
Weighted average number of common shares outstanding - diluted165,934 165,302 165,821 166,848 
Dividends per common share$0.14 $0.14 $0.28 $0.28 
The accompanying notes to consolidated financial statements are an integral part of these statements.
5

OLD NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars in thousands)2020201920202019
Net income$51,705  $62,964  $74,345  $119,240  
Other comprehensive income (loss):
Change in debt securities available-for-sale:
Unrealized holding gains (losses) for the period15,728  51,249  119,682  113,514  
Reclassification adjustment for securities (gains) losses
   realized in income
(511) (1,165) (5,685) (1,062) 
Income tax effect(2,906) (11,825) (25,317) (26,403) 
Unrealized gains (losses) on available-for-sale debt securities12,311  38,259  88,680  86,049  
Change in securities held-to-maturity:
Amortization of unrealized losses on securities transferred
from available-for-sale		—  564  —  1,021  
Income tax effect—  (129) —  (235) 
Changes from securities held-to-maturity—  435  —  786  
Cash flow hedges:
Net unrealized derivative gains (losses) on cash flow hedges(246) 944  7,557  552  
Reclassification adjustment for (gains) losses realized in net
income		(1,670) (6) (2,101) (391) 
Income tax effect470  (231) (1,341) (40) 
Changes from cash flow hedges(1,446) 707  4,115  121  
Defined benefit pension plans:
Amortization of net loss recognized in income27  21  54  41  
Income tax effect(6) (5) (13) (10) 
Changes from defined benefit pension plans21  16  41  31  
Other comprehensive income (loss), net of tax10,886  39,417  92,836  86,987  
Comprehensive income$62,591  $102,381  $167,181  $206,227  
Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars in thousands)2021202020212020
Net income$62,786 $51,705 $149,604 $74,345 
Other comprehensive income (loss):
Change in debt securities available-for-sale:
Unrealized holding gains (losses) for the period(35,818)15,728 (109,332)119,682 
Reclassification adjustment for securities (gains) losses
   realized in income		(692)(511)(2,685)(5,685)
Income tax effect9,110 (2,906)25,777 (25,317)
Unrealized gains (losses) on available-for-sale debt securities(27,400)12,311 (86,240)88,680 
Cash flow hedges:
Net unrealized derivative gains (losses) on cash flow hedges(1,272)(246)2,776 7,557 
Reclassification adjustment for (gains) losses realized in net
   income		(1,756)(1,670)(1,905)(2,101)
Income tax effect744 470 (214)(1,341)
Changes from cash flow hedges(2,284)(1,446)657 4,115 
Defined benefit pension plans:
Amortization of net loss recognized in income49 27 98 54 
Income tax effect(12)(6)(24)(13)
Changes from defined benefit pension plans37 21 74 41 
Other comprehensive income (loss), net of tax(29,647)10,886 (85,509)92,836 
Comprehensive income$33,139 $62,591 $64,095 $167,181 
The accompanying notes to consolidated financial statements are an integral part of these statements.
6

OLD NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
(dollars in thousands, except per share data)Common StockCapital SurplusRetained EarningsAccumulated
Other
Comprehensive Income (Loss)		Total
Shareholders' Equity
Balance, December 31, 2018$175,141  $2,031,695  $527,684  $(44,950) $2,689,570  
Cumulative effect of change in accounting principles—  —  6,322  —  6,322  
Balance, January 1, 2019175,141  2,031,695  534,006  (44,950) 2,695,892  
Net income—  —  56,276  —  56,276  
Other comprehensive income (loss)—  —  —  47,570  47,570  
Dividends - common stock ($0.13 per share)—  —  (22,812) —  (22,812) 
Common stock issued9  121  —  —  130  
Common stock repurchased(1,655) (25,642) —  —  (27,297) 
Share-based compensation expense—  1,800  —  —  1,800  
Stock activity under incentive compensation plans484  (12) (159) —  313  
Balance, March 31, 2019$173,979  $2,007,962  $567,311  $2,620  $2,751,872  
Net income—  —  62,964  —  62,964  
Other comprehensive income (loss)—  —  —  39,417  39,417  
Dividends - common stock ($0.13 per share)—  —  (22,476) —  (22,476) 
Common stock issued10  138  —  —  148  
Common stock repurchased(1,884) (28,961) —  —  (30,845) 
Share-based compensation expense—  1,946  —  —  1,946  
Stock activity under incentive compensation plans126  120  (133) —  113  
Balance, June 30, 2019$172,231  $1,981,205  $607,666  $42,037  $2,803,139  
Balance, December 31, 2019$169,616  $1,944,445  $682,185  $56,207  $2,852,453  
Cumulative effect of change in accounting
   principles (Note 2)		—  —  (31,150) —  (31,150) 
Balance, January 1, 2020169,616  1,944,445  651,035  56,207  2,821,303  
Net income—  —  22,640  —  22,640  
Other comprehensive income (loss)—  —  —  81,950  81,950  
Dividends - common stock ($0.14 per share)—  —  (23,535) —  (23,535) 
Common stock issued9  142  —  —  151  
Common stock repurchased(5,076) (76,746) —  —  (81,822) 
Share-based compensation expense—  2,748  —  —  2,748  
Stock activity under incentive compensation plans560  (329) (231) —  —  
Balance, March 31, 2020$165,109  $1,870,260  $649,909  $138,157  $2,823,435  
Net income—  —  51,705  —  51,705  
Other comprehensive income (loss)—  —  —  10,886  10,886  
Dividends - common stock ($0.14 per share)—  —  (23,113) —  (23,113) 
Common stock issued11  134  —  —  145  
Common stock repurchased(34) (439) —  —  (473) 
Share-based compensation expense—  1,480  —  —  1,480  
Stock activity under incentive compensation plans7  306  (123) —  190  
Balance, June 30, 2020$165,093  $1,871,741  $678,378  $149,043  $2,864,255  
(dollars in thousands, except per share data)Common StockCapital SurplusRetained EarningsAccumulated
Other
Comprehensive Income (Loss)		Total
Shareholders' Equity
Balance, December 31, 2019$169,616 $1,944,445 $682,185 $56,207 $2,852,453 
Cumulative effect of change in accounting principles— — (31,150)— (31,150)
Balance, January 1, 2020169,616 1,944,445 651,035 56,207 2,821,303 
Net income— — 22,640 — 22,640 
Other comprehensive income (loss)— — — 81,950 81,950 
Dividends - common stock ($0.14 per share)— — (23,535)— (23,535)
Common stock issued9 142 — — 151 
Common stock repurchased(5,076)(76,746)— — (81,822)
Share-based compensation expense— 2,748 — — 2,748 
Stock activity under incentive compensation plans560 (329)(231)— 0 
Balance, March 31, 2020165,109 1,870,260 649,909 138,157 2,823,435 
Net income— — 51,705 — 51,705 
Other comprehensive income (loss)— — — 10,886 10,886 
Dividends - common stock ($0.14 per share)— — (23,113)— (23,113)
Common stock issued11 134 — — 145 
Common stock repurchased(34)(439)— — (473)
Share-based compensation expense— 1,480 — — 1,480 
Stock activity under incentive compensation plans7 306 (123)— 190 
Balance, June 30, 2020$165,093 $1,871,741 $678,378 $149,043 $2,864,255 
Balance, December 31, 2020$165,367 $1,875,626 $783,892 $147,771 $2,972,656 
Net income— — 86,818 — 86,818 
Other comprehensive income (loss)— — — (55,862)(55,862)
Dividends - common stock ($0.14 per share)— — (23,195)— (23,195)
Common stock issued9 130 — — 139 
Common stock repurchased(160)(2,696)— — (2,856)
Share-based compensation expense— 1,747 — — 1,747 
Stock activity under incentive compensation plans460 (235)(225)— 0 
Balance, March 31, 2021165,676 1,874,572 847,290 91,909 2,979,447 
Net income— — 62,786 — 62,786 
Other comprehensive income (loss)— — — (29,647)(29,647)
Dividends - common stock ($0.14 per share)— — (23,202)— (23,202)
Common stock issued7 136 — — 143 
Common stock repurchased(24)(425)— — (449)
Share-based compensation expense— 1,816 — — 1,816 
Stock activity under incentive compensation plans73 273 (122)— 224 
Balance, June 30, 2021$165,732 $1,876,372 $886,752 $62,262 $2,991,118 
The accompanying notes to consolidated financial statements are an integral part of these statements.
7

OLD NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended
June 30,
(dollars in thousands)20202019
Cash Flows From Operating Activities  
Net income$74,345  $119,240  
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation15,053  13,171  
Amortization of other intangible assets7,388  8,797  
Amortization of tax credit investments5,802  828  
Net premium amortization on investment securities10,145  6,852  
Accretion income related to acquired loans(12,406) (20,257) 
Share-based compensation expense4,228  3,746  
Excess tax (benefit) expense on share-based compensation(734) (1,053) 
Provision for loan losses39,495  2,046  
Debt securities (gains) losses, net(5,685) (1,062) 
Net (gains) losses on sales of loans and other assets7,760  227  
Increase in cash surrender value of company-owned life insurance(6,048) (5,899) 
Residential real estate loans originated for sale(672,393) (282,134) 
Proceeds from sales of residential real estate loans602,671  263,028  
(Increase) decrease in interest receivable737  (1,079) 
(Increase) decrease in other assets(87,642) 12,344  
Increase (decrease) in accrued expenses and other liabilities(19,284) (45,426) 
Net cash flows provided by (used in) operating activities(36,568) 73,369  
Cash Flows From Investing Activities
Purchases of investment securities available-for-sale(1,154,055) (1,038,437) 
Purchases of Federal Home Loan Bank/Federal Reserve Bank stock(10,025) (14,439) 
Proceeds from maturities, prepayments, and calls of investment securities available-for-sale948,093  335,035  
Proceeds from sales of investment securities available-for-sale256,438  267,632  
Proceeds from maturities, prepayments, and calls of investment securities held-to-maturity—  35,958  
Proceeds from sales of Federal Home Loan Bank/Federal Reserve Bank stock21  19  
Proceeds from sales of equity securities956  130  
Loan originations and payments, net(1,488,360) 216,356  
Proceeds from company-owned life insurance death benefits1,899  4,374  
Proceeds from sales of premises and equipment and other assets6,363  2,534  
Purchases of premises and equipment and other assets(18,714) (24,002) 
Net cash flows provided by (used in) investing activities(1,457,384) (214,840) 
Cash Flows From Financing Activities
Net increase (decrease) in:
Deposits1,766,049  13,152  
Federal funds purchased and interbank borrowings(349,613) 139,901  
Securities sold under agreements to repurchase39,962  (27,754) 
Other borrowings(5,407) 3,864  
Payments for maturities of Federal Home Loan Bank advances(250,005) (325,999) 
Proceeds from Federal Home Loan Bank advances455,770  425,000  
Cash dividends paid on common stock(46,648) (45,288) 
Common stock repurchased(82,295) (58,142) 
Proceeds from exercise of stock options—  280  
Common stock issued296  278  
Net cash flows provided by (used in) financing activities1,528,109  125,292  
Net increase (decrease) in cash and cash equivalents34,157  (16,179) 
Cash and cash equivalents at beginning of period276,337  317,165  
Cash and cash equivalents at end of period$310,494  $300,986  
Supplemental cash flow information:
Total interest paid$42,278  $66,419  
Total taxes paid (net of refunds)$1,999  $1,204  
Investment securities purchased but not settled$36,681  $1,424  
Operating lease right-of-use assets obtained in exchange for lease obligations$(992) $117,751  
Finance lease right-of-use assets obtained in exchange for lease obligations$5,225  $7,871  
Six Months Ended
June 30,
(dollars in thousands)20212020
Cash Flows From Operating Activities  
Net income$149,604 $74,345 
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation14,068 15,053 
Amortization of other intangible assets5,984 7,388 
Amortization of tax credit investments3,015 5,802 
Net premium amortization on investment securities7,526 10,145 
Accretion income related to acquired loans(9,781)(12,406)
Share-based compensation expense3,563 4,228 
Provision for credit losses(22,285)39,495 
Debt securities (gains) losses, net(2,685)(5,685)
Net (gains) losses on sales of loans and other assets(18,202)7,760 
Increase in cash surrender value of company-owned life insurance(5,497)(6,048)
Residential real estate loans originated for sale(645,624)(672,393)
Proceeds from sales of residential real estate loans677,888 602,671 
(Increase) decrease in interest receivable(288)737 
(Increase) decrease in other assets40,951 (88,376)
Increase (decrease) in accrued expenses and other liabilities(33,062)(19,284)
Net cash flows provided by (used in) operating activities165,175 (36,568)
Cash Flows From Investing Activities
Purchases of investment securities available-for-sale(1,801,957)(1,154,055)
Purchases of Federal Home Loan Bank/Federal Reserve Bank stock0 (10,025)
Proceeds from maturities, prepayments, and calls of investment securities available-for-sale820,305 948,093 
Proceeds from sales of investment securities available-for-sale67,715 256,438 
Proceeds from sales of Federal Home Loan Bank/Federal Reserve Bank stock44 21 
Proceeds from sales of equity securities325 956 
Loan originations and payments, net11,924 (1,488,360)
Proceeds from company-owned life insurance death benefits2,042 1,899 
Proceeds from sales of premises and equipment and other assets7,632 6,363 
Purchases of premises and equipment and other assets(34,411)(18,714)
Net cash flows provided by (used in) investing activities(926,381)(1,457,384)
Cash Flows From Financing Activities
Net increase (decrease) in:
Deposits831,458 1,766,049 
Federal funds purchased and interbank borrowings357 (349,613)
Securities sold under agreements to repurchase(35,037)39,962 
Other borrowings12,428 (5,407)
Payments for maturities of Federal Home Loan Bank advances(145,005)(250,005)
Payments for modification of Federal Home Loan Bank advances(2,156)0 
Proceeds from Federal Home Loan Bank advances50,000 455,770 
Cash dividends paid on common stock(46,397)(46,648)
Common stock repurchased(3,305)(82,295)
Common stock issued282 296 
Net cash flows provided by (used in) financing activities662,625 1,528,109 
Net increase (decrease) in cash and cash equivalents(98,581)34,157 
Cash and cash equivalents at beginning of period589,712 276,337 
Cash and cash equivalents at end of period$491,131 $310,494 
Supplemental cash flow information:
Total interest paid$22,368 $42,278 
Total taxes paid (net of refunds)$3,526 $1,999 
Investment securities purchased but not settled$8,046 $36,681 
Operating lease right-of-use assets obtained in exchange for lease obligations$499 $(992)
Finance lease right-of-use assets obtained in exchange for lease obligations$4,994 $5,225 
The accompanying notes to consolidated financial statements are an integral part of these statements.
8

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.  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, 20202021 and December 31, 2019,2020, and the results of its operations for the three and six months ended June 30, 20202021 and 2019.2020.  Interim results do not necessarily represent annual results.  These financial statements should be read in conjunction with Old National’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.
All significant intercompany transactions and balances have been eliminated.  Certain prior year amounts have been reclassified to conform to the current presentation.  Such reclassifications had no effect on prior period net income or shareholders’ equity and were insignificant amounts.
NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Guidance Adopted in 2020
FASB ASC 326 – In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and all related subsequent amendments thereto (“CECL”). The main objective of this amendment is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments within its scope, including loans held for investment purposes and other commitments to extend credit held by a reporting entity at each reporting date.The amendment requires the measurement of all expected credit losses for the in-scope financial assets at the date of origination or acquisition, and at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.Financial institutions and other organizations will now use forward-looking information to enhance their credit loss estimates.The amendment requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio.In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.The current expected credit loss measurement will be used to estimate the allowance for credit losses (“ACL”) over the life of the financial assets.The amendments in this update became effective for annual periods and interim periods within those annual periods beginning after December 15, 2019.

As previously disclosed, Old National formed a cross-functional committee to oversee the adoption of the ASU at the effective date. A working group was also formed to develop a project plan focused on understanding the ASU, researching issues, identifying data needs for modeling inputs, technology requirements, modeling considerations, and ensuring overarching governance was achieved for each objective and milestone.The working group identified 7 distinct loan portfolios for which a model to estimate credit losses has been developed. For all 7 loan portfolios, the data sets have been identified, populated, and internally validated.Old National has completed data and model validation testing.During the last half of 2019, the project plan targeted parallel processing of our existing allowance for loan losses model compared to the CECL model, as well as model sensitivity analysis, determination of qualitative adjustments, supporting analytics, and execution of the governance and approval process. Internal controls related to the CECL process were finalized prior to adoption on January 1, 2020.

9

The CECL modeling measurements for estimating the current expected life-time credit losses for loans and debt securities includes the following major items:
•Initial loss forecast – using a forecast period of one year for all allowance portfolio segments and off-balance-sheet credit exposures, using forward-looking economic scenarios of expected losses.
•Historical loss forecast – for a period incorporating the remaining contractual life, adjusted for prepayments, and the changes in various economic variables during representative historical and recessionary periods.
•Reversion period – using two years, which links the initial loss forecast to the historical loss forecast based on economic conditions at the measurement date.
•Discounted cash flow aggregator – using the items above to estimate the life-time credit losses for all portfolios and losses for loans modified as a TDR.

Old National adopted CECL on January 1, 2020 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Results for the reporting periods after January 1, 2020 are presented under Topic 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. As of that date, Old National increased the allowance for credit losses for loans by $41.3 million and increased the allowance for credit losses for unfunded loan commitments by $4.5 million, since the ASU covers credit losses over the expected life of a loan as well as considering future changes in macroeconomic conditions. The increase related to the acquired loan portfolio totaled $27.1 million. Under the previously applicable accounting guidance, any remaining unamortized loan discount on an individual loan could be used to offset a charge-off for that loan, so the allowance for loan losses needed for the acquired loans was reduced by the remaining loan discounts. ASU 2016-13 requires an allowance for credit losses to be recognized in addition to the loan discount. The impact of adopting the ASU, and at each subsequent reporting period, is highly dependent on credit quality, macroeconomic forecasts and conditions, composition of our loans and available-for-sale securities portfolio, along with other management judgements. As of January 1, 2020, Old National recorded a cumulative-effect adjustment of $31.2 million to decrease retained earnings.

Old National did not record an allowance for credit losses on its available-for-sale debt securities under the newly codified available-for-sale debt security impairment model, as the majority of these securities are government agency-backed securities for which the risk of loss is minimal.

We adopted CECL using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired and accounted for under ASC 310-30. In accordance with the standard, we did not reassess whether PCI assets met the definition of PCD assets as of the date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $4.5 million to the allowance for credit losses for loans. The remaining noncredit discount in the amount of $11.8 million (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1, 2020.

10

The loan categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses for loans. The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. The 4 loan portfolios are classified into 7 segments of loans - commercial, commercial real estate, BBCC, residential real estate, indirect, direct, and home equity. The commercial and commercial real estate loan categories shown on the balance sheet include the same pool of loans as the commercial, commercial real estate, and BBCC portfolio segments. The consumer loan category shown on the balance sheet is comprised of the same loans in the indirect, direct, and home equity portfolio segments. The composition of loans by portfolio segment as of December 31, 2019 follows:

(dollars in thousands)December 31, 2019
Statement
Balance		Segment
Portfolio
Reclassifications		December 31, 2019
After
Reclassifications
Loans:
Commercial$2,890,296  $(75,142) $2,815,154  
Commercial real estate5,166,792  (277,539) 4,889,253  
BBCCN/A352,681  352,681  
Residential real estate2,334,289  —  2,334,289  
Consumer1,726,147  (1,726,147) N/A
IndirectN/A935,584  935,584  
DirectN/A228,524  228,524  
Home equityN/A562,039  562,039  
Total$12,117,524  $—  $12,117,524  
Allowance:
Commercial$(22,585) $1,226  $(21,359) 
Commercial real estate(21,588) 1,053  (20,535) 
BBCCN/A(2,279) (2,279) 
Residential real estate(2,299) —  (2,299) 
Consumer(8,147) 8,147  N/A
IndirectN/A(5,319) (5,319) 
DirectN/A(1,863) (1,863) 
Home equityN/A(965) (965) 
Total$(54,619) $—  $(54,619) 

11

The following table illustrates the impact of adoption of the ASU:
(dollars in thousands)December 31, 2019
After
Reclassifications		Impact of
ASC 326
Adoption		January 1, 2020
Post-ASC 326
Adoption
Assets:
Loans, net of unearned income:
Commercial$2,815,154  $2,679  $2,817,833  
Commercial real estate4,889,253  1,637  4,890,890  
BBCC352,681  33  352,714  
Residential real estate2,334,289  105  2,334,394  
Indirect935,584  10  935,594  
Direct228,524  2  228,526  
Home equity562,039  12  562,051  
Total12,117,524  4,478  12,122,002  
Allowance:
Commercial(21,359) (7,150) (28,509) 
Commercial real estate(20,535) (25,548) (46,083) 
BBCC(2,279) (3,702) (5,981) 
Residential real estate(2,299) (6,986) (9,285) 
Indirect(5,319) 1,669  (3,650) 
Direct(1,863) 1,059  (804) 
Home equity(965) (689) (1,654) 
Total allowance for credit losses on loans(54,619) (41,347) (95,966) 
Net loans$12,062,905  $(36,869) $12,026,036  
Net deferred tax assets$29,705  $10,268  $39,973  
Liabilities:
Allowance for credit losses on unfunded loan commitments$2,656  $4,549  $7,205  
Shareholders' equity:
Retained earnings$682,185  $(31,150) $651,035  
In December 2018, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. In March 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC published an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). Old National is adopting the capital transition relief over the permissible five-year period.

FASB ASC 350 – In January 2017, the FASB issued ASU No. 2017-04, Intangibles: Goodwill and Other: Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, the income tax effects of tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments should be applied on a prospective basis. The nature of and reason for the change in accounting principle should be disclosed upon transition. The amendments in this update became effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and did not have a material impact on the financial statements.

12

FASB ASC 820 – In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The updated guidance improves the disclosure requirements on fair value measurements. The ASU removes certain disclosures required by Topic 820 related to transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; the valuation processes for Level 3 fair value measurements; and for nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period. The ASU modifies certain disclosures required by Topic 820 related to disclosure of transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities for nonpublic entities; the requirement to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly for investments in certain entities that calculate net asset value; and clarification that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The ASU adds certain disclosure requirements related to changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update became effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2019 and did not have a material impact on the financial statements.

FASB ASC 350 – In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this update became effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years and did not have a material impact on the financial statements.

FASB ASC 842 – In March 2019, the FASB issued ASU No. 2019-01, Leases (Topic 842): Codification Improvements. The amendments in ASU No. 2019-01 align the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value in Topic 820, Fair Value Measurement should be applied. ASU No. 2019-01 also requires lessors within the scope of Topic 942, Financial Services—Depository and Lending, to present all “principal payments received under leases” within investing activities. The amendments in this update became effective for annual periods and interim periods within those annual periods beginning after December 15, 2019 and did not have a material impact on the financial statements.

FASB ASC 326, 815, and 825 – In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments related to Topic 326 address accrued interest, transfers between classifications or categories for loans and debt securities, recoveries, vintage disclosures, and contractual extensions and renewal options and became effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. The improvements and clarifications related to Topic 815 address partial-term fair value hedges of interest-rate risk, amortization, and disclosure of fair value hedge basis adjustments and consideration of hedged contractually specified interest rate under the hypothetical method and became effective for the annual reporting period beginning January 1, 2020. The amendments related to Topic 825 contain various improvements to ASU 2016-01, including scope; held-to-maturity debt securities fair value disclosures; and remeasurement of equity securities at historical exchange rates and became effective for fiscal years and interim periods beginning after December 15, 2019. The amendments in this update did not have a material impact on the financial statements.

FASB ASC 326 – In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief. These amendments provide targeted transition relief allowing entities to irrevocably elect the fair value option, on an instrument-by-instrument basis, for certain financial assets (excluding held-to-maturity debt securities) previously measured at amortized cost.

In November 2019, the FASB issued 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, to make improvements to the credit losses standard. Most significantly, the standard clarifies
13

guidance around how to report expected recoveries for PCD assets. “Expected recoveries” describes a situation in which an organization recognizes a full or partial writeoff of the amortized cost basis of a financial asset, but then later determines that the amount written off, or a portion of that amount, will in fact be recovered. This ASU permits organizations to record expected recoveries on PCD assets. In addition to other narrow technical improvements, the ASU also reinforces existing guidance that prohibits organizations from recognizing negative allowances for available-for-sale debt securities.

The amendments in these updates became effective for annual periods and interim periods within those annual periods beginning after December 15, 2019 and did not have a material impact on the consolidated financial statements.

FASB ASC 718 – In November 2019, the FASB issued ASU No. 2019-08, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements—Share-Based Consideration Payable to a Customer. This ASU requires companies to measure and classify (on the balance sheet) share-based payments to customers by applying the guidance in Topic 718, Compensation—Stock Compensation. As a result, the amount recorded as a reduction in revenue would be measured based on the grant-date fair value of the share-based payment. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2019 and did not have a material impact on the consolidated financial statements.

FASB ASC 326 and 842 – In February 2020, the FASB issued ASU No. 2020-02, Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842). This ASU inserts a paragraph to address the November 2019 issuance of SEC Staff Accounting Bulletin (“SAB”) 119, Accounting for Loan Losses by Registrants Engaged in Lending Activities Subject to FASB ASC Topic 326. The SAB updates existing staff guidance on developing a systematic methodology for estimating credit losses, and it explains the documentation the staff typically would expect from registrants in support of estimates of current expected credit losses (“CECL”) for lending activities, when material. The amendments in this update became effective upon issuance and did not have a material impact on the consolidated financial statements.

Guidance on Non-TDR Loan Modifications due to COVID-19
On March 22, 2020, a statement was issued by our banking regulators and titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” (the “Interagency Statement”) that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) that passed on March 27, 2020 further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates. The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act, as well as setting forth the banking regulators’ views on consumer protection considerations.In accordance with such guidance, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term, 180 days or less, modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. See Note 6 for further information on non-TDR loan modifications.
Accounting Guidance Issued But Not Yet Adopted2021
FASB ASC 715 – In August 2018, the FASB issued ASU No. 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this update becomebecame effective for fiscal years ending after December 15, 2020 and willdid not have a material impact on the consolidated financial statements.

FASB ASC 740 – In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU removes specific exceptions to the general principles in Topic 740 in GAAP. It eliminates the need for an organization to analyze whether the following apply in a given period: (1)
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exception to the incremental approach for intraperiod tax allocation; (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments; and (3) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for: (1) franchise taxes that are partially based on income; (2) transactions with a government that result in a step up in the tax basis of goodwill; (3) separate financial statements of legal entities that are not subject to tax; and (4) enacted changes in tax laws in interim periods. The amendments in this update becomebecame effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. Old National is currently evaluating theyears and did not have a material impact of adopting the new guidance on the consolidated financial statements.

FASB ASC 321, 323, and 815 – In January 2020, the FASB issued ASU No. 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 (a Consensus of the Emerging Issues Task Force). The ASU clarifies the interaction between ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities and the ASU on equity method investments. ASU 2016-01 provides companies with an alternative to measure certain equity securities without a readily determinable fair value at cost, minus impairment, if any, unless an observable transaction for an identical or similar security occurs. ASU 2020-01 clarifies that for purposes of applying the Topic 321 measurement alternative, an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting under Topic 323, immediately before applying or upon discontinuing the equity method. In addition, the new ASU provides direction that a company should not consider whether the underlying securities would be accounted for under the equity method or the fair value option when it is determining the accounting for certain forward contracts and purchased options, upon either settlement or exercise. The amendments in this update becomebecame effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, and theThe amendments are to be applied prospectively. Old National is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

Codification Improvements to Financial Instruments – In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments. This ASU was issued to clarify and improve various financial instruments Topics. The amendments include the following improvements:
•Issue 1 – Clarifies that all entities are required to provide fair value option disclosures.
•Issue 2 – Clarifies the applicability of the portfolio exception in measuring fair value for nonfinancial items accounted for as derivatives.
•Issue 3 – Clarifies that disclosure requirements in Topic 320 apply to disclosure requirements in Topic 942 for depository and lending institutions.
•Issue 4 – Added cross-reference of line-of-credit or revolving-debt arrangements guidance to guidance in accounting for fees between debtor and creditor and third-party costs directly related to exchanges or modifications of debt instruments.
•Issue 5 – Clarifies that fair value measurement disclosure requirements do not apply to entities using the net asset value per share practical expedient.
•Issue 6 – Aligns the contractual term to measure expected credit losses for a net investment in a lease under the Credit Loss Standard (Topic 326) with the lease term determined under the Leases Standard (Topic 842).
•Issue 7 – Clarifies that when an entity regains control of financial assets sold, an allowance for credit losses should be recorded in accordance with Topic 326.
For Issue 1, Issue 2, Issue 4, and Issue 5, the amendments are effective upon issuanceprospectively and did not have a material impact on the consolidated financial statements. For Issue 3,
9

Acquisitions and Dispositions of Businesses and Related Pro Forma Information – In May 2020, the amendmentsSEC issued a final rule that revises the circumstances that require financial statements and related pro forma information for acquisitions and dispositions of businesses. The intent of the rule is to allow for more meaningful conclusions on when an acquired or disposed business is significant as well as to improve the related disclosure requirements. The changes are intended to improve the financial information about acquired or disposed businesses, facilitate more timely access to capital, and reduce the complexity and costs to prepare the disclosure. The final rule was effective January 1, 2021.
FASB ASC 310 – In October 2020, the FASB issued ASU 2016-01 areNo. 2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs, to clarify that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period. The ASU was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, including interim periods within those fiscal years and2020. The new guidance did not have a material impact on the consolidated financial statements. For Issues 6
FASB ASC 470 – In October 2020, the FASB issued ASU No. 2020-09, Debt (Topic 470) Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762, which amends and 7,supersedes various SEC paragraphs to reflect SEC Release No. 33-10762. That release amends the amendmentsfinancial disclosure requirements applicable to ASU 2016-13registered debt offerings that include credit enhancements, such as subsidiary guarantees. These changes are intended to both improve the quality of disclosure and increase the likelihood that issuers will conduct debt offerings on a registered basis. The final rules were effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years andon January 4, 2021. The amendments did not have a material impact on the consolidated financial statements.
Codification Improvements – In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements. The amendments improve codification by having all disclosure-related guidance available in the disclosure sections of the codification. Prior to this ASU, various disclosure requirements or options to present information on the face of the financial statements or as a note to the financial statements were not included in the appropriate disclosure sections of the codification. The codification improvements also contain various other minor amendments to codification that are not expected to have a significant effect on current accounting practice. The amendments became effective for annual periods beginning after December 15,

 2020.
FASB ASC 848 – In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary, optional guidance to ease the potential burden in accounting for, or recognizing the effects of, the transition away from the LIBOR or other interbank offered rate on financial reporting. To help with the transition to new reference rates, the ASU provides optional expedients and exceptions for applying GAAP to affected contract modifications and hedge accounting relationships. The main provisions include:
•A change in a contract’s reference interest rate would be accounted for as a continuation of that contract rather than as the creation of a new one for contracts, including loans, debt, leases, and other arrangements, that meet specific criteria.
•When updating its hedging strategies in response to reference rate reform, an entity would be allowed to preserve its hedge accounting.
The guidance is applicable only to contracts or hedge accounting relationships that reference LIBOR or another reference rate expected to be discontinued. Because the guidance is meant to help entities through the transition period, it will be in effect for a limited time and will not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients that are retained through the end of the hedging relationship. The amendments in this ASU are effective March 12, 2020 through December 31, 2022.
ASU 2020-04 permits relief solely for reference rate reform actions and permits different elections over the effective date for legacy and new activity. Accordingly, Old National is evaluating and reassessing the elections on a quarterly basis. For current elections in effect regarding the assertion of the probability of forecasted transactions, Old National elects the expedient to assert the probability of the hedged interest payments and receipts regardless of any expected modification in terms related to reference rate reform.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which addresses questions about whether Topic 848 can be applied to derivative instruments that do not reference a rate that is expected to be discontinued but that use an interest rate for margining, discounting, or contract price alignment that is expected to be modified as a result of reference rate reform, commonly referred to as the “discounting transition.”
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The amendments clarify that certain optional expedients and exceptions in Topic 848 do apply to derivatives that are affected by the discounting transition. The amendments in ASU 2021-01 are effective immediately.
Old National believes the adoption of this guidance on activities subsequent to June 30, 2021 through December 31, 2022 will not have a material impact on the consolidated financial statements.
Guidance on Non-TDR Loan Modifications due to COVID-19 – The CAA, which was signed into law on December 27, 2020, extends certain provisions of the CARES Act. Section 4013 of the CARES Act provided temporary relief from TDR accounting and is amended by Division N, Section 540 of the CAA, by extending the end date from December 31, 2020, to the earlier of January 1, 2022, or 60 days after the date on which the COVID-19 national emergency terminates. In response, the OCC updated its two-page reference guide, “TDR Designation and COVID-19 Loan Modifications,” to conform to the extended TDR provisions. In accordance with such guidance, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term (180 days or less) modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. See Note 6 for further information on non-TDR loan modifications.
Accounting Guidance Pending Adoption
FASB ASC 470 and 815 – In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to clarify the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature model. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in-capital. In addition, this ASU improves disclosure requirements for convertible instruments and earnings-per-share guidance. The ASU also revises the derivative scope exception guidance to reduce form-over-substance-based accounting conclusions driven by remote contingent events. The amendments in this update are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption will be permitted, but no earlier than for fiscal years beginning after December 15, 2020. Old National is currently evaluating the impact of adopting the new guidance on the consolidated financial statements onstatements.
NOTE 3 – ACQUISITION ACTIVITY
Pending Acquisition
First Midwest Bancorp, Inc.
On May 30, 2021, Old National entered into a definitive merger agreement with First Midwest to combine in an ongoing basis with no material expected impact at this time.
Acquisitions and Dispositionsall-stock merger of Businesses and Related Pro Forma Information
In May 2020,equals transaction. Under the SEC issued a final rule that revises the circumstances that require financial statements and related pro forma information for acquisitions and dispositions of businesses. The intentterms of the rulemerger agreement, which has been unanimously approved by the Boards of Directors of both companies, First Midwest stockholders will receive 1.1336 shares of Old National common stock for each share of First Midwest common stock they own. Holders of First Midwest Common Stock will receive cash in lieu of fractional shares. Each share of 7.000% fixed-rate non-cumulative perpetual preferred stock, Series A, no par value, and each share of 7.000% fixed-rate non-cumulative perpetual preferred stock, Series C, no par value, of First Midwest will be converted into the right to receive one share of a newly created series of preferred stock of Old National having terms that are not materially less favorable than the First Midwest preferred stock. Following completion of the transaction, former First Midwest stockholders are expected to collectively represent approximately 44% of the combined company. The new organization will operate under the Old National Bancorp and Old National Bank names, with headquarters and the main office located in Evansville, Indiana and commercial and consumer banking operations headquartered in Chicago, Illinois. Based on Old National’s June 30, 2021 closing price of $17.61 per share, this represents a total transaction value of approximately $2.307 billion. The transaction value is likely to allow for more meaningful conclusions on when an acquiredchange until closing due to fluctuations in the price of Old National common stock and is also subject to adjustment under certain circumstances as provided in the merger agreement. The transaction is expected to close in late 2021 or disposed business is significantearly 2022 subject to customary closing conditions, including regulatory and shareholder approvals.
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Transaction costs totaling $6.5 million associated with the merger have been expensed through June 30, 2021 and additional transaction and integration costs will be expensed in future periods as well as to improve the related disclosure requirements. The changes are intended to improve the financial information about acquired or disposed businesses, facilitate more timely access to capital, and reduce the complexity and costs to prepare the disclosure. The final rule is effective January 1, 2021; however, voluntary early compliance is permitted.incurred.
NOTE 34 – NET INCOME PER SHARE
Basic and diluted net income per share are calculated using the two-class method.  Net income is divided by the weighted-average number of common shares outstanding during the period.  Adjustments to the weighted average number of common shares outstanding are made only when such adjustments will dilute net income per common share.  Net income is then divided by the weighted-average number of common shares and common share equivalents during the period.
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The following table reconciles basic and diluted net income per share:
Three Months Ended
June 30,		Six Months Ended
June 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars and shares in thousands, except per share data)(dollars and shares in thousands, except per share data)2020201920202019(dollars and shares in thousands, except per share data)2021202020212020
Basic Net Income Per ShareBasic Net Income Per Share    Basic Net Income Per Share    
Net incomeNet income$51,705  $62,964  $74,345  $119,240  Net income$62,786 $51,705 $149,604 $74,345 
Weighted average common shares outstandingWeighted average common shares outstanding164,732  172,985  166,240  173,855  Weighted average common shares outstanding165,175 164,732 165,086 166,240 
Basic Net Income Per ShareBasic Net Income Per Share$0.32  $0.37  $0.45  $0.69  Basic Net Income Per Share$0.38 $0.32 $0.91 $0.45 
Diluted Net Income Per ShareDiluted Net Income Per ShareDiluted Net Income Per Share
Net incomeNet income$51,705  $62,964  $74,345  $119,240  Net income$62,786 $51,705 $149,604 $74,345 
Weighted average common shares outstandingWeighted average common shares outstanding164,732  172,985  166,240  173,855  Weighted average common shares outstanding165,175 164,732 165,086 166,240 
Effect of dilutive securities:Effect of dilutive securities:Effect of dilutive securities:
Restricted stockRestricted stock535  643  571  626  Restricted stock737 535 713 571 
Stock options (1)35  47  37  50  
Stock options and appreciation rightsStock options and appreciation rights22 35 22 37 
Weighted average shares outstandingWeighted average shares outstanding165,302  173,675  166,848  174,531  Weighted average shares outstanding165,934 165,302 165,821 166,848 
Diluted Net Income Per ShareDiluted Net Income Per Share$0.32  $0.36  $0.45  $0.68  Diluted Net Income Per Share$0.38 $0.32 $0.90 $0.45 
(1)Options to purchase 14 thousand shares outstanding at June 30, 2020 and 2019 were not included in the computation of net income per diluted share for the three and six months ended June 30, 2020 and 2019 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 45 – INVESTMENT SECURITIES
The following table summarizes the amortized cost and fair value and allowance for credit losses of the available-for-sale investment securities portfolio and the corresponding amounts of unrealized gains, unrealized losses, and lossesbasis adjustments recognized in accumulated other comprehensive income (loss):
(dollars in thousands)(dollars in thousands)Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Allowance for
Credit Losses
for Investments		Fair
Value		(dollars in thousands)Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Basis
Adjustments (1)		Fair
Value
June 30, 2020    
June 30, 2021June 30, 2021    
Available-for-SaleAvailable-for-Sale    Available-for-Sale    
U.S. TreasuryU.S. Treasury$35,388  $343  $—  $—  $35,731  U.S. Treasury$237,135 $1,579 $(9,420)$5,498 $234,792 
U.S. government-sponsored entities and agenciesU.S. government-sponsored entities and agencies449,789  3,906  (194) —  453,501  U.S. government-sponsored entities and agencies1,447,432 10,665 (29,280)(6,530)1,422,287 
Mortgage-backed securities - AgencyMortgage-backed securities - Agency3,199,892  105,353  (1,191) —  3,304,054  Mortgage-backed securities - Agency3,262,520 54,002 (35,539)0 3,280,983 
States and political subdivisionsStates and political subdivisions1,283,874  72,547  (462) —  1,355,959  States and political subdivisions1,491,787 77,383 (1,239)0 1,567,931 
Pooled trust preferred securitiesPooled trust preferred securities13,785  —  (6,600) —  7,185  Pooled trust preferred securities13,746 0 (4,358)0 9,388 
Other securitiesOther securities278,664  13,642  (1,465) —  290,841  Other securities249,277 11,040 (521)0 259,796 
Total available-for-sale securitiesTotal available-for-sale securities$5,261,392  $195,791  $(9,912) $—  $5,447,271  Total available-for-sale securities$6,701,897 $154,669 $(80,357)$(1,032)$6,775,177 
December 31, 2019
December 31, 2020December 31, 2020
Available-for-SaleAvailable-for-SaleAvailable-for-Sale
U.S. TreasuryU.S. Treasury$17,567  $117  $(2) $—  $17,682  U.S. Treasury$9,909 $299 $0 $0 $10,208 
U.S. government-sponsored entities and agenciesU.S. government-sponsored entities and agencies596,595  1,027  (4,638) —  592,984  U.S. government-sponsored entities and agencies841,133 5,744 (3,921)(968)841,988 
Mortgage-backed securities - AgencyMortgage-backed securities - Agency3,151,550  41,363  (9,052) —  3,183,861  Mortgage-backed securities - Agency3,249,002 91,086 (990)0 3,339,098 
States and political subdivisionsStates and political subdivisions1,232,497  44,193  (1,047) —  1,275,643  States and political subdivisions1,405,868 86,325 (31)0 1,492,162 
Pooled trust preferred securitiesPooled trust preferred securities13,811  —  (5,589) —  8,222  Pooled trust preferred securities13,763 0 (5,850)0 7,913 
Other securitiesOther securities301,189  6,842  (1,332) —  306,699  Other securities265,079 14,260 (593)0 278,746 
Total available-for-sale securitiesTotal available-for-sale securities$5,313,209  $93,542  $(21,660) $—  $5,385,091  Total available-for-sale securities$5,784,754 $197,714 $(11,385)$(968)$5,970,115 
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(1)    Basis adjustments represent the cumulative fair value adjustments included in the carrying amounts of fixed-rate investment securities assets in fair value hedging arrangements
.
Proceeds from sales or calls of available-for-sale investment securities and the resulting realized gains and realized losses were as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars in thousands)(dollars in thousands)2020201920202019(dollars in thousands)2021202020212020
Proceeds from sales of available-for-sale debt securitiesProceeds from sales of available-for-sale debt securities$20,028  $258,951  $256,438  $267,632  Proceeds from sales of available-for-sale debt securities$15,247 $20,028 $67,715 $256,438 
Proceeds from calls of available-for-sale debt securitiesProceeds from calls of available-for-sale debt securities141,964  38,430  305,735  62,115  Proceeds from calls of available-for-sale debt securities46,750 141,964 56,995 305,735 
TotalTotal$161,992  $297,381  $562,173  $329,747  Total$61,997 $161,992 $124,710 $562,173 
Realized gains on sales of available-for-sale debt securitiesRealized gains on sales of available-for-sale debt securities$545  $3,032  $6,140  $3,103  Realized gains on sales of available-for-sale debt securities$736 $545 $2,736 $6,140 
Realized gains on calls of available-for-sale debt securitiesRealized gains on calls of available-for-sale debt securities27  —  40  3  Realized gains on calls of available-for-sale debt securities48 27 61 40 
Realized losses on sales of available-for-sale debt securitiesRealized losses on sales of available-for-sale debt securities(61) (1,867) (470) (2,015) Realized losses on sales of available-for-sale debt securities(85)(61)(85)(470)
Realized losses on calls of available-for-sale debt securitiesRealized losses on calls of available-for-sale debt securities—  —  (25) (29) Realized losses on calls of available-for-sale debt securities(7)0 (27)(25)
Debt securities gains (losses), netDebt securities gains (losses), net$511  $1,165  $5,685  $1,062  Debt securities gains (losses), net$692 $511 $2,685 $5,685 
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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 contractual maturity.  Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.  Weighted average yield is based on amortized cost.
 June 30, 2020
(dollars in thousands)Amortized
Cost		Fair
Value		Weighted
Average
Yield
Maturity
Available-for-Sale   
Within one year$445,695  $452,387  2.38 %
One to five years2,906,997  3,011,675  2.56  
Five to ten years601,337  625,807  3.00  
Beyond ten years1,307,363  1,357,402  3.23  
Total$5,261,392  $5,447,271  2.76 %
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 June 30, 2021
(dollars in thousands)Amortized
Cost		Fair
Value		Weighted
Average
Yield
Maturity
Available-for-Sale   
Within one year$155,512 $157,167 2.45 %
One to five years2,510,178 2,563,562 2.17 
Five to ten years1,793,204 1,774,222 1.78 
Beyond ten years2,243,003 2,280,226 2.48 
Total$6,701,897 $6,775,177 2.17 %
The following table summarizes the available-for-sale investment securities with unrealized losses for which an allowance for credit losses has not been recorded by aggregated major security type and length of time in a continuous unrealized loss position:
Less than 12 months12 months or longerTotal Less than 12 months12 months or longerTotal
(dollars in thousands)(dollars in thousands)Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized Losses(dollars in thousands)Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized Losses
June 30, 2020      
June 30, 2021June 30, 2021      
Available-for-SaleAvailable-for-Sale      
U.S. TreasuryU.S. Treasury$133,626 $(9,420)$0 $0 $133,626 $(9,420)
U.S. government-sponsored entities
and agencies		U.S. government-sponsored entities
and agencies		836,281 (29,280)0 0 836,281 (29,280)
Mortgage-backed securities - AgencyMortgage-backed securities - Agency1,453,544 (35,462)3,431 (77)1,456,975 (35,539)
States and political subdivisionsStates and political subdivisions145,415 (1,239)0 0 145,415 (1,239)
Pooled trust preferred securitiesPooled trust preferred securities0 0 9,388 (4,358)9,388 (4,358)
Other securitiesOther securities17,851 (294)27,651 (227)45,502 (521)
Total available-for-saleTotal available-for-sale$2,586,717 $(75,695)$40,470 $(4,662)$2,627,187 $(80,357)
December 31, 2020December 31, 2020
Available-for-SaleAvailable-for-Sale      Available-for-Sale
U.S. government-sponsored entities
and agencies		U.S. government-sponsored entities
and agencies		$30,406  $(194) $—  $—  $30,406  $(194) U.S. government-sponsored entities
and agencies		$355,528 $(3,921)$0 $0 $355,528 $(3,921)
Mortgage-backed securities - AgencyMortgage-backed securities - Agency275,313  (1,068) 7,038  (123) 282,351  (1,191) Mortgage-backed securities - Agency275,833 (895)3,572 (95)279,405 (990)
States and political subdivisionsStates and political subdivisions14,263  (462) —  —  14,263  (462) States and political subdivisions3,497 (31)0 0 3,497 (31)
Pooled trust preferred securitiesPooled trust preferred securities—  —  7,185  (6,600) 7,185  (6,600) Pooled trust preferred securities00 7,913 (5,850)7,913 (5,850)
Other securitiesOther securities25,511  (282) 22,292  (1,183) 47,803  (1,465) Other securities19,404 (70)24,871 (523)44,275 (593)
Total available-for-saleTotal available-for-sale$345,493  $(2,006) $36,515  $(7,906) $382,008  $(9,912) Total available-for-sale$654,262 $(4,917)$36,356 $(6,468)$690,618 $(11,385)
December 31, 2019
Available-for-Sale
U.S. Treasury$999  $(2) $—  $—  $999  $(2) 
U.S. government-sponsored entities
and agencies		357,647  (4,638) —  —  357,647  (4,638) 
Mortgage-backed securities - Agency786,245  (6,122) 212,056  (2,930) 998,301  (9,052) 
States and political subdivisions120,166  (1,016) 7,006  (31) 127,172  (1,047) 
Pooled trust preferred securities—  —  8,222  (5,589) 8,222  (5,589) 
Other securities30,765  (182) 87,066  (1,150) 117,831  (1,332) 
Total available-for-sale$1,295,822  $(11,960) $314,350  $(9,700) $1,610,172  $(21,660) 
Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly.For available-for sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis.If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income.For available-for sale debt securities that do not meet the criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors.In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors.If this assessment indicates that a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis.Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. NoNaN allowance for credit losses for available-for-sale debt securities
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was needed at June 30, 2021 or December 31, 2020.Accrued interest receivable on available-for-sale debt securities totaled $26.4 million at June 30, 2020 and is excluded from the estimate of credit losses.losses and totaled $33.9 million at June 30, 2021 and $27.0 million at December 31, 2020.
The U.S. government sponsored entities and agencies and mortgage-backed securities – agency are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major credit rating agencies, and have a long history of no credit losses.Therefore, for those securities, we do not record expected credit losses.
Prior to the adoption of ASC 326, there was 0 OTTI recorded during the six months ended June 30, 2019.
At June 30, 2020,2021, Old National’s securities portfolio consisted of 1,8421,891 securities, 68213 of which were in an unrealized loss position.  The unrealized losses attributable to our U.S. Treasury, U.S. government-sponsored entities and agencies, agency mortgage-backed securities, states and political subdivisions, and other securities are the result of fluctuations in interest rates.  Our pooled trust preferred securities are discussed below.  At June 30, 2020,2021, we had no intent to sell any securities that were in an unrealized loss position nor is it expected that we would be required to sell the securities prior to their anticipated recovery.
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Pooled Trust Preferred Securities
At June 30, 2020,2021, our securities portfolio contained 2 pooled trust preferred securities with a fair value of $7.2$9.4 million and unrealized losses of $6.6$4.4 million.  These securities are evaluated using collateral-specific assumptions to estimate the expected future interest and principal cash flows.  For the six months ended June 30, 20202021 and 2019,2020, we did 0t recognize any losses on these securities.
The table below summarizes the relevant characteristics of our pooled trust preferred securities as well as our single issuer trust preferred securities that are included in the “other securities” category in this footnote.  Each of the pooled trust preferred securities support a more senior tranche of security holders.  Both pooled trust preferred securities have experienced credit defaults.  However, we believe that the value of the instruments lies in the full and timely interest payments that will be received through maturity, the steady amortization that will be experienced until maturity, and the full return of principal by the final maturity of the collateralized debt obligations.
Trust preferred securities
June 30, 2020
(dollars in thousands)(dollars in thousands)ClassLowest
Credit
Rating (1)		Amortized
Cost		Fair
Value		Unrealized
Gain/
(Loss)		# of Issuers
Currently
Performing/
Remaining		Actual
Deferrals
and Defaults
as a % of
Original
Collateral		Expected
Defaults as
a % of
Remaining
Performing
Collateral		Excess
Subordination
as a % of
Current
Performing
Collateral		(dollars in thousands)ClassLowest
Credit
Rating (1)		Amortized
Cost		Fair
Value		Unrealized
Gain/
(Loss)		# of Issuers
Currently
Performing/
Remaining		Actual
Deferrals
and Defaults
as a % of
Original
Collateral		Expected
Defaults as
a % of
Remaining
Performing
Collateral		Excess
Subordination
as a % of
Current
Performing
Collateral
June 30, 2021June 30, 2021
Pooled trust preferred securities:Pooled trust preferred securities:   Pooled trust preferred securities:   
Pretsl XXVII LTDPretsl XXVII LTDB$4,254  $2,139  $(2,115) 32/4114.4%10.9%33.3%Pretsl XXVII LTDBBB$4,197 $2,926 $(1,271)32/4114.4%10.5%42.3%
Trapeza Ser 13ATrapeza Ser 13AA2ABBB9,531  5,046  (4,485) 39/414.5%6.5%51.8%Trapeza Ser 13AA2AA9,549 6,462 (3,087)38/404.5%6.2%61.0%
13,785  7,185  (6,600)  13,746 9,388 (4,358)
Single Issuer trust preferred securities:Single Issuer trust preferred securities:Single Issuer trust preferred securities:
JP Morgan Chase & CoJP Morgan Chase & CoBBB-4,803  3,937  (866) JP Morgan Chase & CoBBB-4,816 4,645 (171)
TotalTotal$18,588  $11,122  $(7,466) Total$18,562 $14,033 $(4,529)
(1)Lowest rating for the security provided by any nationally recognized credit rating agency.
Equity Securities
Old National'sNational’s equity securities with readily determinable fair values are primarily comprised of CRA Qualified Investment mutual funds and totaled $40.2$2.5 million at June 30, 20202021 and $6.8 million at December 31, 2019.2020.  There were gains on equity securities of $0.2 million during the three months ended June 30, 2021 and $0.7 million during the six months ended June 30, 2021, compared to $0.6 million during the three months ended June 30, 2020 and $0.7 million during the six months ended June 30, 2020, compared to losses of $18 thousand during the three months ended June 30, 2019 and gains of $154 thousand during the six months ended June 30, 2019.2020.  Old National also has equity securities without readily determinable fair values that are included in other assets that totaled $91.9$127.6 million at June 30, 20202021 and $91.4$105.8 million at December 31, 2019.2020.  These equity securities without readily determinable fair values are illiquid investments that consist of partnerships, limited liability companies, and other ownership interests that support affordable housing, economic development, and community revitalization initiatives in low-to-moderate income neighborhoods.  There have been 0 impairments or adjustments on theseequity securities without readily determinable fair values in the six months ended June 30, 20202021 or 2019.2020.
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NOTE 5 – LOANS HELD FOR SALE

Mortgage loans held for immediate sale in the secondary market were $122.5 million at June 30, 2020, compared to $46.9 million at December 31, 2019.  Residential loans that Old National has originated with the intent to sell are recorded at fair value.  Conventional mortgage production is sold on a servicing retained basis.  Certain loans, such as government guaranteed mortgage loans are sold on servicing released basis.
NOTE 6 – LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans
Old National’s loans 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 our principal geographic markets of Indiana, Kentucky, Michigan, Wisconsin,Minnesota, and Minnesota.Wisconsin.  Old National manages concentrations of credit exposure by industry, product, geography, customer
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relationship, and loan size.  While loans to lessors of both residential and non-residential real estate exceed 10% of total loans, no individual sub-segment category within those broader categories reaches the 10% threshold.
The loan categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses for loans. The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. The 4 loan portfolios are classified into 7 segments of loans - commercial, commercial real estate, BBCC, residential real estate, indirect, direct, and home equity. The commercial and commercial real estate loan categories shown on the balance sheet include the same pool of loans as the commercial, commercial real estate, and BBCC portfolio segments. The consumer loan category shown on the balance sheet is comprised of the same loans in the indirect, direct, and home equity portfolio segments. The composition of loans by portfolio segment as of June 30, 20202021 follows:
June 30, 2020SegmentJune 30, 2020June 30, 2021SegmentJune 30, 2021
StatementPortfolioAfterStatementPortfolioAfter
(dollars in thousands)(dollars in thousands)BalanceReclassificationsReclassifications(dollars in thousands)BalanceReclassificationsReclassifications
Loans:Loans:Loans:
CommercialCommercial$4,307,505  $(193,861) $4,113,644  Commercial$3,802,943 $(186,941)$3,616,002 
Commercial real estateCommercial real estate5,403,316  (166,369) 5,236,947  Commercial real estate6,187,318 (161,503)6,025,815 
BBCCBBCCN/A360,230  360,230  BBCCN/A348,444 348,444 
Residential real estateResidential real estate2,229,298  —  2,229,298  Residential real estate2,215,056 0 2,215,056 
ConsumerConsumer1,675,582  (1,675,582) N/AConsumer1,579,360 (1,579,360)N/A
IndirectIndirectN/A933,723  933,723  IndirectN/A881,096 881,096 
DirectDirectN/A194,573  194,573  DirectN/A148,313 148,313 
Home equityHome equityN/A547,286  547,286  Home equityN/A549,951 549,951 
TotalTotal$13,615,701  $—  $13,615,701  Total$13,784,677 $0 $13,784,677 
The composition of loans by portfolio segment follows:
(dollars in thousands)(dollars in thousands)June 30,
2020		January 1,
2020		(dollars in thousands)June 30,
2021		December 31,
2020
Commercial (1) (2)Commercial (1) (2)$4,113,644  $2,817,833  Commercial (1) (2)$3,616,002 $3,757,700 
Commercial real estateCommercial real estate5,236,947  4,890,890  Commercial real estate6,025,815 5,774,811 
BBCCBBCC360,230  352,714  BBCC348,444 370,423 
Residential real estateResidential real estate2,229,298  2,334,394  Residential real estate2,215,056 2,248,422 
IndirectIndirect933,723  935,594  Indirect881,096 913,902 
DirectDirect194,573  228,526  Direct148,313 164,807 
Home equityHome equity547,286  562,051  Home equity549,951 556,414 
Total loansTotal loans13,615,701  12,122,002  Total loans13,784,677 13,786,479 
Allowance for credit lossesAllowance for credit losses(128,394) (95,966) Allowance for credit losses(109,444)(131,388)
Net loansNet loans$13,487,307  $12,026,036  Net loans$13,675,233 $13,655,091 
(1)Includes direct finance leases of $42.1$28.8 million at June 30, 20202021 and $47.2$32.3 million at January 1,December 31, 2020.
(2)Includes PPP loans of $1.463 billion$721.1 million at June 30, 2021 and $943.0 million at December 31, 2020.
The risk characteristics of each loan portfolio segment are as follows:
Commercial
Commercial loans are classified primarily on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower.  The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value.  Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some loans may be made on an unsecured basis.  In the case of loans secured by accounts receivable, the
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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.
Section 1102 of the CARES Act created the Paycheck Protection Program (“PPP”),PPP, a program administered by the Small Business Administration (the “SBA”)SBA to provide loans to small businesses for payroll and other basic expenses during the COVID-19 pandemic. Old National has participated in the PPP as a lender.These loans are eligible to be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA. Additionally, loan
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payments will also be deferred for the first six months of the loan.loan term. The PPP commenced on April 3, 2020 and iswas available to qualified borrowers through August 8, 2020, or as long as the appropriated funding is available.2020. No collateral or personal guarantees arewere required. Neither the government nor lenders are permitted to charge the recipients any fees.
During 2020, Old National began accepting applications from qualified borrowers on April 3, 2020 and asoriginated over 9,700 loans with balances in excess of June 30, 2020 over 9,200 applications have been processed and approved, representing $1.538$1.5 billion in funding to new and existing clientscustomers through the PPP.
On December 27, 2020, President Trump signed into law the CAA. The CAA, among other things, extends the life of the PPP, effectively creating a second round of PPP loans for eligible businesses. Old National has participated in the CAA’s second round of PPP lending. In mid-January Old National opened its lending portal and began processing PPP loan applications. Old National initially focused on helping minority-owned business, women-owned business, not-for-profit entities, and existing first round PPP customers with the lending process. During the six months ended June 30, 2021, Old National originated approximately 6,200 loans totaling $583.7 million through the second round of the PPP. Additionally, section 541 of the CAA extended the relief provided by the CARES Act for financial institutions to suspend the GAAP accounting treatment for troubled debt restructuring to January 1, 2022.
At June 30, 2021, remaining PPP loans totaled $721.1 million.
Commercial Real Estate
Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.  Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan.  Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy.  The properties securing Old National’s commercial real estate portfolio are diverse in terms of type and geographic location.  Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans.
Included with commercial real estate are construction loans, which are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates, financial analysis of the developers and property owners, and feasibility studies, if available.  Construction loans are generally based on estimates of costs and value associated with the complete project.  These estimates may be inaccurate.  Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project.  Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders (including Old National), sales of developed property, or an interim loan commitment from Old National until permanent financing is obtained.  These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions, and the availability of long-term financing.
At 214%231%, Old National Bank’s commercial real estate loans as a percentage of its risk-based capital remained well below the regulatory guideline limit of 300% at June 30, 2020.2021.
BBCC
BBCC loans are typically granted to small businesses with gross revenues of less than $5 million and aggregate debt of less than $1 million. Old National has established minimum debt service coverage ratios, minimum FICO scores for owner(s)owners and guarantor(s),guarantors, and the ability to show relatively stable earnings as criteria to help mitigate risk. Repayment of these loans depends on the personal income of the borrowers and the cash flows of the business.These factors can be affected by changes in economic conditions such as unemployment levels.
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Residential
With respect to residential loans that are secured by 1-4 family residences and are generally owner occupied, Old National typically establishes a maximum loan-to-value ratio and generally requires private mortgage insurance if that ratio is exceeded.  Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels.  Repayment can also be impacted by changes in residential property values.  Portfolio risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.
Indirect
Indirect loans are secured by automobile collateral, generally new and used cars and trucks from auto dealers that operate within our footprint. Old National typically mitigates the risk of indirect loans by establishing minimum FICO scores, maximum loan-to-value ratios, and maximum debt-to-income ratios. Repayment of these loans depends largely on the personal income of the borrowers, which can be affected by changes in economic conditions such as unemployment levels. Portfolio risk is mitigated by the fact that the loans are of smaller amounts spread over many borrowers, conservative credit policies, and ongoing reviews of dealer relationships.
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Direct
Direct loans are typically secured by collateral such as auto or real estate or are unsecured. Old National has established conservative underwriting standards such as minimum FICO scores, maximum loan-to-value ratios, and maximum debt-to-income ratios. Repayment of these loans depends largely on the personal income of the borrowers, which can be affected by changes in economic conditions such as unemployment levels. Portfolio risk is mitigated by the fact that the loans are of smaller amounts spread over many borrowers along with conservative credit policies.
Home Equity
Home Equityequity loans are generally secured by 1-4 family residences that are owner occupied. Old National has established conservative underwriting standards such as minimum FICO scores, maximum loan-to-value ratios, and maximum debt-to-income ratios. Repayment of these loans depends largely on the personal income of the borrowers, which can be affected by changes in economic conditions such as unemployment levels. Portfolio risk is mitigated by the fact that the loans are of smaller amounts spread over many borrowers, along with conservative credit policies as well as monitoring of updated borrower credit scores.
Allowance for Credit Losses
Loans
Credit quality within the loans held for investment portfolio is continuously monitored by management and is reflected within the allowance for credit losses for loans. The allowance for credit losses is an estimate of expected losses inherent within the Company’s loans held for investment portfolio. Credit quality is assessed and monitored by evaluating various attributes and the results of those evaluations are utilized in underwriting new loans and in our process for estimating expected credit losses. Expected credit loss inherent in non-cancelable off-balance-sheet credit exposures is accounted for as a separate liability included in other liabilities on the balance sheet. The allowance for credit losses for loans held for investment is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries. We haveOld National has made a policy election to report accrued interest receivable as a separate line item on the balance sheet. Accrued interest receivable on loans totaled $56.9 million at June 30, 2020 and is excluded from the estimate of credit losses.losses and totaled $51.3 million at June 30, 2021 and $57.3 million at December 31, 2020.
The allowance for credit loss estimation process involves procedures to appropriately consider the unique characteristics of its loan portfolio segments. These segments are further disaggregated into loan classes based on the level at which credit risk is monitored. When computing the level of expected credit losses, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods evaluations of the overall
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loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods.
The allowance level is influenced by loan volumes, loan AQR migration or delinquency status, changes in historical loss experience, and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses has two basic components: first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans; and second, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics. See Note 2 for more information about CECL for loans and unfunded loan commitments.
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The allowance for credit losses increaseddecreased for the three and six months ended June 30, 20202021 primarily due to macroeconomic factors surroundingchanges in the COVID-19 pandemic.economic forecast. The forecast scenario includes elevatedimproved unemployment, which is forecasted to increase slightly through the first quarter of 2021. The scenario also shows a decrease in nominal gross domestic product, with a return to growth by the second quarter of 2021.and house price index. In addition to thesethe quantitative inputs, several qualitative factors were considered, includingconsidered. These factors include the risk that the economic decline, specifically unemployment and gross domestic product prove to be more severe and/or prolonged than our baseline forecast.forecast, the consumption of the vaccine is less than anticipated, the presence of communicable strains of the virus, and the slow return to full employment. The mitigating impactimpacts of the unprecedented fiscal stimulus, including direct payments to individuals,reopening of the economy, ongoing increased unemployment benefits, as well as the various government sponsored loan programs, waswere also considered.
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Old National’s activity in the allowance for credit losses for loans by portfolio segment for the three and six months ended June 30, 2020 was as follows:
(dollars in thousands)(dollars in thousands)Balance at
Beginning of
Period		Impact of
Adopting
ASC 326		Sub-TotalCharge-offsRecoveriesProvision
for Credit
Losses		Balance at End of Period(dollars in thousands)Balance at
Beginning of
Period		Impact of
Adopting
ASC 326		Sub-TotalCharge-offsRecoveriesProvision
for Credit
Losses		Balance at
End of
Period
Three Months Ended
June 30, 2021		Three Months Ended
June 30, 2021		     
CommercialCommercial$25,130 $— $25,130 $(178)$204 $575 $25,731 
Commercial real estateCommercial real estate70,561 — 70,561 (178)111 (5,025)65,469 
BBCCBBCC2,537 — 2,537 (100)15 346 2,798 
Residential real estateResidential real estate10,265 — 10,265 (62)51 165 10,419 
IndirectIndirect2,255 — 2,255 (206)565 (571)2,043 
DirectDirect665 — 665 (256)209 22 640 
Home equityHome equity2,624 — 2,624 0 161 (441)2,344 
TotalTotal$114,037 $— $114,037 $(980)$1,316 $(4,929)$109,444 
Three Months Ended
June 30, 2020		Three Months Ended
June 30, 2020		     Three Months Ended
June 30, 2020
CommercialCommercial$31,125  $—  $31,125  $(136) $553  $(1,924) $29,618  Commercial$31,125 $— $31,125 $(136)$553 $(1,924)$29,618 
Commercial real estateCommercial real estate54,103  —  54,103  (1,160) 246  17,880  71,069  Commercial real estate54,103 — 54,103 (1,160)246 17,880 71,069 
BBCCBBCC5,417  —  5,417  (66) 56  925  6,332  BBCC5,417 — 5,417 (66)56 925 6,332 
Residential real estateResidential real estate9,637  —  9,637  (16) 42  4,581  14,244  Residential real estate9,637 — 9,637 (16)42 4,581 14,244 
IndirectIndirect3,666  —  3,666  (367) 494  660  4,453  Indirect3,666 — 3,666 (367)494 660 4,453 
DirectDirect822  —  822  (405) 231  187  835  Direct822 — 822 (405)231 187 835 
Home equityHome equity1,610  —  1,610  (82) 79  236  1,843  Home equity1,610 — 1,610 (82)79 236 1,843 
Total allowance for credit losses$106,380  $—  $106,380  $(2,232) $1,701  $22,545  $128,394  
TotalTotal$106,380 $— $106,380 $(2,232)$1,701 $22,545 $128,394 
Six Months Ended
June 30, 2021		Six Months Ended
June 30, 2021
CommercialCommercial$30,567 $— $30,567 $(586)$443 $(4,693)$25,731 
Commercial real estateCommercial real estate75,810 — 75,810 (178)184 (10,347)65,469 
BBCCBBCC6,120 — 6,120 (136)56 (3,242)2,798 
Residential real estateResidential real estate12,608 — 12,608 (220)138 (2,107)10,419 
IndirectIndirect3,580 — 3,580 (790)1,101 (1,848)2,043 
DirectDirect855 — 855 (558)469 (126)640 
Home equityHome equity1,848 — 1,848 (82)500 78 2,344 
TotalTotal$131,388 $— $131,388 $(2,550)$2,891 $(22,285)$109,444 
Six Months Ended
June 30, 2020		Six Months Ended
June 30, 2020		Six Months Ended
June 30, 2020
CommercialCommercial$21,359  $7,150  $28,509  $(5,178) $910  $5,377  $29,618  Commercial$21,359 $7,150 $28,509 $(5,178)$910 $5,377 $29,618 
Commercial real estateCommercial real estate20,535  25,548  46,083  (2,452) 915  26,523  71,069  Commercial real estate20,535 25,548 46,083 (2,452)915 26,523 71,069 
BBCCBBCC2,279  3,702  5,981  (81) 122  310  6,332  BBCC2,279 3,702 5,981 (81)122 310 6,332 
Residential real estateResidential real estate2,299  6,986  9,285  (316) 211  5,064  14,244  Residential real estate2,299 6,986 9,285 (316)211 5,064 14,244 
IndirectIndirect5,319  (1,669) 3,650  (1,570) 908  1,465  4,453  Indirect5,319 (1,669)3,650 (1,570)908 1,465 4,453 
DirectDirect1,863  (1,059) 804  (880) 383  528  835  Direct1,863 (1,059)804 (880)383 528 835 
Home equityHome equity965  689  1,654  (200) 161  228  1,843  Home equity965 689 1,654 (200)161 228 1,843 
Total allowance for credit losses$54,619  $41,347  $95,966  $(10,677) $3,610  $39,495  $128,394  
TotalTotal$54,619 $41,347 $95,966 $(10,677)$3,610 $39,495 $128,394 
The provision recapture for the three months ended June 30, 2020 for the commercial portfolio was the result of several offsetting items. The economic forecast resulted in an increase to the provision for credit losses for the quarter, which was more than offset by a decrease in balances in the commercial portfolio (excluding PPP loans) during the quarter. PPP loans were factored in the provision for credit losses for the three and six months ended June 30, 2020;2021; however, due to the SBA guaranty and our borrowers’ adherence to the PPP terms, the provision impact was insignificant.
20

Unfunded Loan Commitments
Old National maintains an allowance for credit losses on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses for loans, modified to take into account the probability of a drawdown on the commitment. The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet. Old National’s activity in the allowance for credit losses on unfunded loan commitments for the three and six months ended June 30, 2020 was as follows:
(dollars in thousands)Three Months Ended
June 30, 2020		Six Months Ended
June 30, 2020
Allowance for credit losses on unfunded loan commitments: 
Balance at beginning of period$8,950  $2,656  
Impact of adopting ASC 326—  4,549  
Sub-Total8,950  7,205  
Expense (reversal of expense) for credit losses2,076  3,821  
Balance at end of period$11,026  $11,026  
24

Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars in thousands)2021202020212020
Allowance for credit losses on unfunded loan commitments: 
Balance at beginning of period$10,365 $8,950 $11,689 $2,656 
Impact of adopting ASC 3260 0 0 4,549 
Sub-Total10,365 8,950 11,689 7,205 
Expense (reversal of expense) for credit losses64 2,076 (1,260)3,821 
Balance at end of period$10,429 $11,026 $10,429 $11,026 
Credit Quality
Old National’s management monitors the credit quality of its loans on an ongoing basis with the AQR for commercial loans reviewed annually or at renewal and the performance of its residential and consumer loans based upon the accrual status refreshed at least quarterly.  Internally, management assigns an AQR to each non-homogeneous commercial, commercial real estate, and BBCC loan in the portfolio.  The primary determinants of the AQR are the reliability of the primary source of repayment and the past, present, and projected financial condition of the borrower.  The AQR will also consider current industry conditions.  Major factors used in determining the AQR can vary based on the nature of the loan, but commonly include factors such as debt service coverage, internal cash flow, liquidity, leverage, operating performance, debt burden, FICO scores, occupancy, interest rate sensitivity, and expense burden.  Old National uses the following definitions for risk ratings:
Criticized.  Special mention loans that have a potential weakness that deserves management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Classified – Substandard.  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Classified – Nonaccrual.  Loans classified as nonaccrual have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection in full, on the basis of currently existing facts, conditions, and values, in doubt.
Classified – Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as nonaccrual, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Pass rated loans are those loans that are other than criticized, classified – substandard, classified – nonaccrual, or classified – doubtful.
2521

The following table summarizes the amortized cost of term loans by risk category of commercial, commercial real estate, and BBCC loans by loan portfolio segment and class of loan:
Risk Rating
(dollars in thousands)PassCriticizedClassified -
Substandard		Classified -
Nonaccrual		Classified -
Doubtful		Total
June 30, 2020
Commercial:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016$315,486  $8,196  $6,818  $2,474  $1,746  $334,720  
2016164,951  4,737  4,641  832  619  175,780  
2017315,876  8,898  16,141  4,139  8,925  353,979  
2018279,110  16,801  11,808  5,219  483  313,421  
2019537,539  8,710  5,960  4,175  —  556,384  
20201,683,849  2,347  1,133  —  —  1,687,329  
Revolving Loans502,947  19,101  13,462  3,067  —  538,577  
Revolving to Term Loans137,905  2,622  6,821  6,106  —  153,454  
Total$3,937,663  $71,412  $66,784  $26,012  $11,773  $4,113,644  
Commercial real estate:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016$696,386  $17,734  $17,006  $15,380  $3,214  $749,720  
2016568,658  7,647  19,770  2,362  9,965  608,402  
2017769,069  53,841  38,710  3,886  4,267  869,773  
2018851,522  12,341  14,757  4,310  3,256  886,186  
20191,030,103  39,620  2,754  2,172  1,920  1,076,569  
2020678,684  2,326  1,326  —  —  682,336  
Revolving Loans27,710  —  244  —  —  27,954  
Revolving to Term Loans318,622  6,370  10,647  368  —  336,007  
Total$4,940,754  $139,879  $105,214  $28,478  $22,622  $5,236,947  
BBCC:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016$12,140  $—  $—  $—  $91  $12,231  
201628,945  765  52  120  —  29,882  
201742,552  639  196  408  72  43,867  
201858,668  768  39  380  464  60,319  
201987,160  1,411  1,199  529  —  90,299  
202044,309  1,061  232  692  —  46,294  
Revolving Loans48,419  2,685  520  75  —  51,699  
Revolving to Term Loans21,631  1,682  1,110  1,216  —  25,639  
Total$343,824  $9,011  $3,348  $3,420  $627  $360,230  
Origination YearRevolving to Term
(dollars in thousands)20212020201920182017PriorRevolvingTotal
June 30, 2021
Commercial:
Risk Rating:
Pass$882,344 $846,644 $352,182 $135,068 $199,148 $319,481 $579,021 $149,663 $3,463,551 
Criticized19,340 16,659 5,872 0 3,246 5,855 7,573 10,474 69,019 
Classified:
Substandard878 10,285 6,806 11,151 11,693 4,302 7,585 1,197 53,897 
Nonaccrual1,126 3,903 1,087 3,168 5,403 0 203 8,667 23,557 
Doubtful0 0 672 1,476 438 3,392 0 0 5,978 
Total$903,688 $877,491 $366,619 $150,863 $219,928 $333,030 $594,382 $170,001 $3,616,002 
Commercial real estate:
Risk Rating:
Pass$735,842 $1,577,143 $975,834 $632,791 $581,992 $802,809 $7,041 $403,743 $5,717,195 
Criticized7,325 3,305 31,140 32,413 21,950 38,101 0 19,213 153,447 
Classified:
Substandard118 10,908 6,923 15,245 22,707 13,239 2,064 17,258 88,462 
Nonaccrual240 2,606 96 1,887 6,713 11,637 327 224 23,730 
Doubtful0 0 1,744 816 17,936 22,485 0 0 42,981 
Total$743,525 $1,593,962 $1,015,737 $683,152 $651,298 $888,271 $9,432 $440,438 $6,025,815 
BBCC:
Risk Rating:
Pass$38,046 $81,716 $62,428 $41,304 $29,864 $18,748 $43,945 $19,103 $335,154 
Criticized820 1,074 1,066 692 0 372 714 1,060 5,798 
Classified:
Substandard291 173 1,175 223 858 0 25 680 3,425 
Nonaccrual0 467 0 598 243 0 0 1,639 2,947 
Doubtful0 0 351 576 0 193 0 0 1,120 
Total$39,157 $83,430 $65,020 $43,393 $30,965 $19,313 $44,684 $22,482 $348,444 
2622

Origination YearRevolving to Term
(dollars in thousands)20202019201820172016PriorRevolvingTotal
December 31, 2020
Commercial:
Risk Rating:
Pass$1,675,964 $420,736 $171,228 $227,710 $124,041 $262,538 $549,849 $148,508 $3,580,574 
Criticized23,982 9,603 15,003 9,508 3,383 5,369 10,307 2,685 79,840 
Classified:
Substandard6,501 6,369 10,077 9,836 2,774 8,441 15,344 3,049 62,391 
Nonaccrual2,600 3,754 4,701 6,951 49 4,379 778 7,013 30,225 
Doubtful0 0 1,016 2,748 296 610 0 0 4,670 
Total$1,709,047 $440,462 $202,025 $256,753 $130,543 $281,337 $576,278 $161,255 $3,757,700 
Commercial real estate:
Risk Rating:
Pass$1,537,226 $1,041,305 $749,102 $677,119 $496,086 $513,658 $28,122 $382,219 $5,424,837 
Criticized6,874 49,271 26,464 46,994 17,648 33,490 0 19,804 200,545 
Classified:
Substandard11,451 4,700 13,565 26,691 5,308 8,665 0 2,911 73,291 
Nonaccrual1,408 2,054 5,393 9,456 1,635 12,564 0 313 32,823 
Doubtful0 1,832 0 18,926 19,283 3,274 0 0 43,315 
Total$1,556,959 $1,099,162 $794,524 $779,186 $539,960 $571,651 $28,122 $405,247 $5,774,811 
BBCC:
Risk Rating:
Pass$94,828 $73,913 $49,875 $36,288 $24,946 $5,327 $52,393 $19,353 $356,923 
Criticized1,599 1,403 621 414 643 0 868 1,259 6,807 
Classified:
Substandard233 1,417 195 246 33 0 317 701 3,142 
Nonaccrual161 551 134 200 0 0 89 1,466 2,601 
Doubtful0 3 847 70 0 30 0 0 950 
Total$96,821 $77,287 $51,672 $37,218 $25,622 $5,357 $53,667 $22,779 $370,423 

23

For residential real estate and consumer loan classes, Old National evaluates credit quality based on the aging status of the loan and by payment activity.  The performing or nonperforming status is updated on an on-going basis dependent upon improvement and deterioration in credit quality. The following table presents the amortized cost inof term residential real estate and consumer loans based on payment activity:
Payment Performance
(dollars in thousands)PerformingNonperformingTotal
June 30, 2020
Residential real estate:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016$783,682  $20,693  $804,375  
2016258,164  2,201  260,365  
2017263,238  628  263,866  
2018182,395  611  183,006  
2019532,392  117  532,509  
2020184,982  65  185,047  
Revolving Loans—  —  —  
Revolving to Term Loans130  —  130  
Total$2,204,983  $24,315  $2,229,298  
Indirect:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016$39,794  $231  $40,025  
201682,247  651  82,898  
2017133,548  1,018  134,566  
2018176,931  629  177,560  
2019317,495  306  317,801  
2020180,779  —  180,779  
Revolving Loans—  —  —  
Revolving to Term Loans94  —  94  
Total$930,888  $2,835  $933,723  
Direct:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016$25,369  $521  $25,890  
201612,951  278  13,229  
201724,025  126  24,151  
201841,987  157  42,144  
201939,424  53  39,477  
202021,258  —  21,258  
Revolving Loans26,350  —  26,350  
Revolving to Term Loans2,072  2  2,074  
Total$193,436  $1,137  $194,573  
Home equity:
Term Loans at Amortized Cost by Origination Year:
Prior to 2016$—  $—  $—  
2016436  225  661  
20171,067  37  1,104  
2018990  —  990  
20191,116  30  1,146  
2020—  —  —  
Revolving Loans519,472  274  519,746  
Revolving to Term Loans19,878  3,761  23,639  
Total$542,959  $4,327  $547,286  
Origination YearRevolving to Term
(dollars in thousands)20212020201920182017PriorRevolvingTotal
June 30, 2021
Residential real estate:
Risk Rating:
Performing$323,691 $675,663 $344,305 $92,770 $131,965 $627,392 $0 $114 $2,195,900 
Nonperforming0 171 123 354 915 17,593 0 0 19,156 
Total$323,691 $675,834 $344,428 $93,124 $132,880 $644,985 $0 $114 $2,215,056 
Indirect:
Risk Rating:
Performing$183,279 $297,803 $195,190 $97,284 $64,671 $40,013 $0 $42 $878,282 
Nonperforming0 362 718 700 614 420 0 0 2,814 
Total$183,279 $298,165 $195,908 $97,984 $65,285 $40,433 $0 $42 $881,096 
Direct:
Risk Rating:
Performing$19,259 $23,280 $20,215 $21,277 $10,652 $20,394 $31,263 $694 $147,034 
Nonperforming3 96 105 152 145 768 2 8 1,279 
Total$19,262 $23,376 $20,320 $21,429 $10,797 $21,162 $31,265 $702 $148,313 
Home equity:
Risk Rating:
Performing$0 $0 $971 $414 $671 $0 $524,229 $18,960 $545,245 
Nonperforming0 0 46 0 9 174 134 4,343 4,706 
Total$0 $0 $1,017 $414 $680 $174 $524,363 $23,303 $549,951 
Origination YearRevolving to Term
20202019201820172016PriorRevolvingTotal
December 31, 2020
Residential real estate:
Risk Rating:
Performing$624,435 $453,132 $132,107 $190,376 $202,457 $620,999 $0 $122 $2,223,628 
Nonperforming65 251 680 892 2,131 20,775 0 0 24,794 
Total$624,500 $453,383 $132,787 $191,268 $204,588 $641,774 $0 $122 $2,248,422 
Indirect:
Risk Rating:
Performing$352,989 $253,514 $134,893 $96,587 $52,225 $21,088 $0 $77 $911,373 
Nonperforming22 443 777 666 429 192 0 0 2,529 
Total$353,011 $253,957 $135,670 $97,253 $52,654 $21,280 $0 $77 $913,902 
Direct:
Risk Rating:
Performing$32,499 $29,189 $30,510 $16,182 $8,527 $19,465 $26,028 $1,229 $163,629 
Nonperforming22 141 171 64 247 526 4 3 1,178 
Total$32,521 $29,330 $30,681 $16,246 $8,774 $19,991 $26,032 $1,232 $164,807 
Home equity:
Risk Rating:
Performing$1 $997 $444 $891 $238 $0 $529,275 $20,314 $552,160 
Nonperforming0 37 0 0 11 116 94 3,996 4,254 
Total$1 $1,034 $444 $891 $249 $116 $529,369 $24,310 $556,414 
2724

Nonaccrual and Past Due Loans
Old National does not record interest on nonaccrual loans until principal is recovered.For all loan classes, a loan is generally placed on nonaccrual status when principal or interest becomes 90 days past due unless it is well secured and in the process of collection, or earlier when concern exists as to the ultimate collectability of principal or interest.Interest accrued but not received is reversed against earnings.Cash interest received on these loans is applied to the principal balance until the principal is recovered or until the loan returns to accrual status.Loans may be returned to accrual status when all the principal and interest amounts contractually due are brought current, remain current for a prescribed period, and future payments are reasonably assured.
The following table presents the aging of the amortized cost basis in past due loans as of June 30, 2020 by class of loans:
(dollars in thousands)(dollars in thousands)30-59 Days
Past Due		60-89 Days
Past Due		Past Due
90 Days or
More		Total
Past Due		CurrentTotal
Loans		(dollars in thousands)30-59 Days
Past Due		60-89 Days
Past Due		Past Due
90 Days or
More		Total
Past Due		CurrentTotal
Loans
June 30, 2020
June 30, 2021June 30, 2021
CommercialCommercial$1,229  $845  $5,489  $7,563  $4,106,081  $4,113,644  Commercial$683 $59 $1,303 $2,045 $3,613,957 $3,616,002 
Commercial Real Estate312  10,728  14,547  25,587  5,211,360  5,236,947  
Commercial real estateCommercial real estate1,072 95 24,306 25,473 6,000,342 6,025,815 
BBCCBBCC828  416  135  1,379  358,851  360,230  BBCC539 218 70 827 347,617 348,444 
ResidentialResidential13,331  4,319  9,696  27,346  2,201,952  2,229,298  Residential6,710 2,602 4,945 14,257 2,200,799 2,215,056 
IndirectIndirect3,187  580  791  4,558  929,165  933,723  Indirect2,083 335 467 2,885 878,211 881,096 
DirectDirect856  260  435  1,551  193,022  194,573  Direct898 167 244 1,309 147,004 148,313 
Home equityHome equity1,234  684  1,758  3,676  543,610  547,286  Home equity537 356 1,774 2,667 547,284 549,951 
TotalTotal$20,977  $17,832  $32,851  $71,660  $13,544,041  $13,615,701  Total$12,522 $3,832 $33,109 $49,463 $13,735,214 $13,784,677 
December 31, 2020December 31, 2020
CommercialCommercial$2,977 $664 $2,100 $5,741 $3,751,959 $3,757,700 
Commercial real estateCommercial real estate887 128 27,272 28,287 5,746,524 5,774,811 
BBCCBBCC894 882 61 1,837 368,586 370,423 
ResidentialResidential11,639 3,296 7,666 22,601 2,225,821 2,248,422 
IndirectIndirect5,222 960 492 6,674 907,228 913,902 
DirectDirect753 533 426 1,712 163,095 164,807 
Home equityHome equity1,075 377 1,663 3,115 553,299 556,414 
TotalTotal$23,447 $6,840 $39,680 $69,967 $13,716,512 $13,786,479 
The following table presents the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing by class of loan:
January 1,
2020		March 31,
2020		June 30, 2020June 30, 2021December 31, 2020
(dollars in thousands)(dollars in thousands)Nonaccrual
Amortized
Cost		Nonaccrual
Amortized
Cost		Nonaccrual
Amortized
Cost		Nonaccrual
With No
Related
Allowance		Past Due
90 Days or
More and
Accruing		(dollars in thousands)Nonaccrual
Amortized
Cost		Nonaccrual
With No
Related
Allowance		Past Due
90 Days or
More and
Accruing		Nonaccrual
Amortized
Cost		Nonaccrual
With No
Related
Allowance		Past Due
90 Days or
More and
Accruing
CommercialCommercial$40,103  $39,893  $37,785  $8,163  $70  Commercial$29,535 $1,630 $0 $34,895 $3,394 $122 
Commercial Real Estate58,350  51,355  51,100  19,412  330  
Commercial real estateCommercial real estate66,711 30,124 0 76,138 22,152 20 
BBCCBBCC4,530  3,869  4,048  —  —  BBCC4,067 0 0 3,551 0 0 
ResidentialResidential20,970  23,567  24,315  —  42  Residential19,156 0 0 24,794 0 0 
IndirectIndirect3,318  2,885  2,835  —  175  Indirect2,814 0 0 2,529 0 12 
DirectDirect1,303  1,195  1,137  59  162  Direct1,279 0 9 1,178 27 13 
Home equityHome equity3,857  4,223  4,326  32  —  Home equity4,706 0 0 4,254 45 0 
TotalTotal$132,431  $126,987  $125,546  $27,666  $779  Total$128,268 $31,754 $9 $147,339 $25,618 $167 
Interest income recognized on nonaccrual loans was insignificant during the three and six months ended June 30, 2021 and 2020.
2825

When management determines that foreclosure is probable, expected credit losses for collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. A loan is considered collateral dependent when the borrower is experiencing financial difficulty and the loan is expected to be repaid substantially through the operation or sale of the collateral. The class of loan represents the primary collateral type associated with the loan. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value. The following table presents the amortized cost basis of collateral dependent loans by class of loan:
Type of CollateralType of Collateral
(dollars in thousands)(dollars in thousands)Real
Estate		Blanket
Lien		Investment
Securities/Cash		AutoOther(dollars in thousands)Real
Estate		Blanket
Lien		Investment
Securities/Cash		AutoOther
June 30, 2020
June 30, 2021June 30, 2021
CommercialCommercial$9,143  $19,503  $7,628  $456  $1,107  Commercial$7,031 $18,159 $3,763 $185 $397 
Commercial Real Estate38,065  2,251  3,156  —  160  
Commercial real estateCommercial real estate52,105 372 1,046 0 13,188 
BBCCBBCC1,836  1,936  80  190  —  BBCC1,940 1,921 51 155 0 
ResidentialResidential24,315  —  —  —  —  Residential19,156 0 0 0 0 
IndirectIndirect—  —  —  2,835  —  Indirect0 0 0 2,814 0 
DirectDirect862  —  8  255  —  Direct1,014 0 1 212 21 
Home equityHome equity4,326  —  —  —  —  Home equity4,706 0 0 0 0 
Total loansTotal loans$78,547  $23,690  $10,872  $3,736  $1,267  Total loans$85,952 $20,452 $4,861 $3,366 $13,606 
December 31, 2020December 31, 2020
CommercialCommercial$8,976 $19,253 $5,379 $394 $893 
Commercial real estateCommercial real estate60,844 472 1,137 0 13,685 
BBCCBBCC1,425 1,929 63 134 0 
ResidentialResidential24,794 0 0 0 0 
IndirectIndirect0 0 0 2,529 0 
DirectDirect901 0 2 235 29 
Home equityHome equity4,254 0 0 0 0 
Total loansTotal loans$101,194 $21,654 $6,581 $3,292 $14,607 
Loan Participations
Old National has loan participations, which qualify as participating interests, with other financial institutions.  At June 30, 2020,2021, these loans totaled $871.4 million,$1.088 billion, of which $376.4$490.5 million had been sold to other financial institutions and $495.0$597.3 million was retained by Old National.  The loan participations convey proportionate ownership rights with equal priority to each participating interest holder; involve no recourse (other than ordinary representations and warranties) to, or subordination by, any participating interest holder; all cash flows are divided among the participating interest holders in proportion to each holder’s share of ownership; and no holder has the right to pledge the entire financial asset unless all participating interest holders agree.
Troubled Debt Restructurings
Old National may choose to restructure the contractual terms of certain loans.  The decision to restructure a loan, versus aggressively enforcing the collection of the loan, may benefit Old National by increasing the ultimate probability of collection.
Any loans that are modified are reviewed by Old National to identify if a TDR has occurred, which is when for economic or legal reasons related to a borrower’s financial difficulties, Old National Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status.  The modification of the terms of such loans includeincludes one or a combination of the following:  a reduction of the stated interest rate of the loan, an extension of the maturity date at a stated rate of interest lower than the current market rate of new debt with similar risk, or a permanent reduction of the recorded investment of the loan.
Loans modified in a TDR are typically placed on nonaccrual status until we determine the future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate a period of performance according to the restructured terms for 6six months.
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If we are unable to resolve a nonperforming loan issue, the credit will be charged off when it is apparent there will be a loss.  For large commercial type loans, each relationship is individually analyzed for evidence of apparent loss based on quantitative benchmarks or subjectively based upon certain events or particular circumstances.  Generally, Old National charges off small commercial loans scored through our small business credit center with contractual balances under $250,000 that are 90 days or more delinquent and do not have adequate collateral support.  For residential and consumer loans, a charge off is recorded at the time foreclosure is initiated or when the loan becomes 120 to 180 days past due, whichever is earlier.
For commercial TDRs, an allocated reserve is established within the allowance for credit losses for the difference between the carrying value of the loan and its computed value.  To determine the computed value of the loan, one of the following methods is selected: (1) the present value of expected cash flows discounted at the loan’s original effective interest rate, (2) the loan’s observable market price, or (3) the fair value of the collateral, if the loan is
29

collateral dependent.  The allocated reserve is established as the difference between the carrying value of the loan and the collectable value.  If there are significant changes in the amount or timing of the loan’s expected future cash flows, impairment is recalculated and the valuation allowance is adjusted accordingly.
When a residential or consumer loan is identified as a TDR, the loan is typically written down to its collateral value less selling costs.
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The following table presents activity in TDRs for the three months ended June 30, 2020:TDRs:
(dollars in thousands)(dollars in thousands)Beginning
Balance		(Charge-offs)/
Recoveries		(Payments)/
Disbursements		AdditionsEnding
Balance		(dollars in thousands)Beginning
Balance		(Charge-offs)/
Recoveries		(Payments)/
Disbursements		(Removals)/
Additions		Ending
Balance
Three Months Ended June 30, 2021Three Months Ended June 30, 2021
CommercialCommercial$8,471 $0 $(207)$0 $8,264 
Commercial real estateCommercial real estate17,385 5 (1,420)0 15,970 
BBCCBBCC105 3 (11)0 97 
ResidentialResidential2,603 (4)(17)0 2,582 
IndirectIndirect0 1 (1)0 0 
DirectDirect726 1 (62)0 665 
Home equityHome equity276 1 (60)0 217 
TotalTotal$29,566 $7 $(1,778)$0 $27,795 
Three Months Ended June 30, 2020Three Months Ended June 30, 2020Three Months Ended June 30, 2020
CommercialCommercial$10,928  $—  $(330) $—  $10,598  Commercial$10,928 $0 $(330)$0 $10,598 
Commercial Real Estate12,848  19  (161) —  12,706  
Commercial real estateCommercial real estate12,848 19 (161)0 12,706 
BBCCBBCC562 31 (446)0 147 
ResidentialResidential3,040 0 (28)0 3,012 
IndirectIndirect0 2 (2)0 0 
DirectDirect922 0 (143)0 779 
Home equityHome equity374 1 (8)0 367 
TotalTotal$28,674 $53 $(1,118)$0 $27,609 
Six Months Ended June 30, 2021Six Months Ended June 30, 2021
CommercialCommercial$11,090 $0 $(1,655)$(1,171)$8,264 
Commercial real estateCommercial real estate17,606 15 (1,651)0 15,970 
BBCCBBCC562  31  (446) —  147  BBCC112 5 (20)0 97 
ResidentialResidential3,040  —  (28) —  3,012  Residential2,824 (4)(238)0 2,582 
IndirectIndirect—  2  (2) —  —  Indirect0 3 (3)0 0 
DirectDirect922  —  (143) —  779  Direct739 2 (76)0 665 
Home equityHome equity374  1  (8) —  367  Home equity282 1 (66)0 217 
TotalTotal$28,674  $53  $(1,118) $—  $27,609  Total$32,653 $22 $(3,709)$(1,171)$27,795 
Six Months Ended June 30, 2020Six Months Ended June 30, 2020Six Months Ended June 30, 2020
CommercialCommercial$12,412  $(694) $(1,120) $—  $10,598  Commercial$12,412 $(694)$(1,120)$0 $10,598 
Commercial Real Estate14,277  (1,253) (318) —  12,706  
Commercial real estateCommercial real estate14,277 (1,253)(318)0 12,706 
BBCCBBCC578  31  (462) —  147  BBCC578 31 (462)0 147 
ResidentialResidential3,107  —  (95) —  3,012  Residential3,107 0 (95)0 3,012 
IndirectIndirect—  5  (5) —  —  Indirect0 5 (5)0 0 
DirectDirect983  2  (206) —  779  Direct983 2 (206)0 779 
Home equityHome equity381  2  (16) —  367  Home equity381 2 (16)0 367 
TotalTotal$31,738  $(1,907) $(2,222) $—  $27,609  Total$31,738 $(1,907)$(2,222)$0 $27,609 
TDRs included within nonaccrual loans totaled $11.3$13.6 million at June 30, 20202021 and $13.8$14.9 million at December 31, 2019.2020.  Old National has allocated specific reserves to customers whose loan terms have been modified inas TDRs totaling $1.4$1.0 million at June 30, 20202021 and $0.9$1.6 million at December 31, 2019.2020.  At June 30, 2020,2021, Old National had committed to lend an additional $0.7$0.9 million to customers with outstanding loans that arewere classified as TDRs, compared to $2.3 million atTDRs. At December 31, 2019.2020, Old National had 0t committed to lend any additional funds to customers with outstanding loans that were classified as TDRs.
The pre-modification and post-modification outstanding recorded investments of loans modified as TDRs during the six months ended June 30, 20202021 and 20192020 are the same except for when the loan modifications involve the
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forgiveness of principal.  The following table presents loans modified as TDRs that occurred duringNaN loan met the qualifications to be removed from TDR status for the six months ended June 30, 2020 and 2019:
(dollars in thousands)Total
Six Months Ended June 30, 2020
TDR:
Number of loans— 
Pre-modification outstanding recorded investment$— 
Post-modification outstanding recorded investment— 
Six Months Ended June 30, 2019
TDR:
Number of loans12 
Pre-modification outstanding recorded investment$20,044 
Post-modification outstanding recorded investment20,044 
2021.
The TDRs that occurred during the six months ended June 30, 2019 decreased2021 and 2020 did 0t have a material impact on the allowance for loancredit losses by $0.8 million and resulted in 0 charge-offs.
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A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.
TDRs for which there was a payment default within twelve months following the modification were insignificant during the six months ended June 30, 20202021 and 2019.2020.
The terms of certain other loans were modified during 20202021 and 20192020 that did not meet the definition of a TDR.  It is our process to review all classified and criticized loans that, during the period, have been renewed, have entered into a forbearance agreement, have gone from principal and interest to interest only, or have extended the maturity date.  In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on its debt in the foreseeable future without the modification.  The evaluation is performed under our internal underwriting policy.  We also evaluate whether a concession has been granted or if we were adequately compensated through a market interest rate, additional collateral, or a bona fide guarantee.  We also consider whether the modification was insignificant relative to the other terms of the agreement or the delay in a payment.
In general, once a modified loan is considered a TDR, the loan will always be considered a TDR, and therefore impaired, until it is paid in full, otherwise settled, sold, or charged off.  However, guidance also permits for loans to be removed from TDR status when subsequently restructured under these circumstances: (1) at the time of the subsequent restructuring, the borrower is not experiencing financial difficulties, and this is documented by a current credit evaluation at the time of the restructuring, (2) under the terms of the subsequent restructuring agreement, the institution has granted no concession to the borrower; and (3) the subsequent restructuring agreement includes market terms that are no less favorable than those that would be offered for a comparable new loan.  For loans subsequently restructured that have cumulative principal forgiveness, the loan should continue to be measured in accordance with ASC 310-10, Receivables – Overall. However, consistent with ASC 310-40-50-2, Troubled Debt Restructurings by Creditors, Creditor Disclosure of Troubled Debt Restructurings, the loan would not be required to be reported in the years following the restructuring if the subsequent restructuring meets both of these criteria: (1) has an interest rate at the time of the subsequent restructuring that is not less than a market interest rate; and (2) is performing in compliance with its modified terms after the subsequent restructuring.
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Non-TDR Loan Modifications due to COVID-19
On March 22, 2020, the Interagency Statement was issued by our banking regulators that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates. The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act, as well as setting forth the banking regulators’ views on consumer protection considerations. Additionally, section 541 of the CAA extends the relief provided by the CARES Act for financial institutions to suspend the GAAP accounting treatment for troubled debt restructuring to January 1, 2022. In accordance with such guidance, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term 180(180 days or less,less) modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. The table below presents the volume ofthese loan deferrals through June 30, 2020 by loan category:
December 31, 2020June 30, 2021
(dollars in thousands)(dollars in thousands)
Number		Booked
Amount		Booked
% of
Portfolio		(dollars in thousands)Deferrals
Balance		Deferrals
Balance (1)		Number of
Deferrals
Commercial1,474  $713,619  25  %
Commercial real estate194  456,500  8  
Commercial and commercial real estateCommercial and commercial real estate$53,823 $17,313 40 
Residential real estateResidential real estate335  78,639  3  Residential real estate1,855 264 4 
ConsumerConsumer2,159  54,786  3  Consumer8,224 4,104 217 
TotalTotal4,162  $1,303,544  11  %Total$63,902 $21,681 261 
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Allowance for Loan Losses (Prior to January 1, 2020)
Prior to the adoption(1)    Includes second deferrals between 90 and 180 days totaling $2.5 million of ASC 326 on January 1, 2020, Old National calculated allowance for loan losses using incurred losses methodology. The following tables are disclosures related to the allowance for loan losses in prior periods.
Old National's activity in the allowance for loan losses for the three and six months ended June 30, 2019 was as follows:
(dollars in thousands)CommercialCommercial
Real Estate		ResidentialConsumerTotal
Three Months Ended June 30, 2019
Balance at beginning of period$20,406  $25,169  $2,302  $7,682  $55,559  
Charge-offs(604) (389) (140) (1,743) (2,876) 
Recoveries334  1,205  9  1,058  2,606  
Provision2,412  (2,674) 98  1,167  1,003  
Balance at end of period$22,548  $23,311  $2,269  $8,164  $56,292  
Six Months Ended June 30, 2019
Balance at beginning of period$21,742  $23,470  $2,277  $7,972  $55,461  
Charge-offs(764) (624) (318) (4,063) (5,769) 
Recoveries709  1,775  81  1,989  4,554  
Provision861  (1,310) 229  2,266  2,046  
Balance at end of period$22,548  $23,311  $2,269  $8,164  $56,292  
The following table disaggregates Old National's allowance for credit losses and amortized cost basis in loans by measurement methodology at December 31, 2019:
(dollars in thousands)CommercialCommercial
Real Estate		ResidentialConsumerTotal
December 31, 2019
Allowance for loan losses:
Individually evaluated for impairment$7,891  $1,006  $—  $—  $8,897  
Collectively evaluated for impairment14,692  20,582  2,299  7,954  45,527  
Loans acquired with deteriorated credit quality2  —  —  193  195  
Total allowance for loan losses$22,585  $21,588  $2,299  $8,147  $54,619  
Loans and leases outstanding:
Individually evaluated for impairment$41,479  $63,288  $—  $—  $104,767  
Collectively evaluated for impairment2,843,536  5,084,737  2,326,907  1,723,715  11,978,895  
Loans acquired with deteriorated credit quality5,281  18,767  7,382  2,432  33,862  
Total loans and leases outstanding$2,890,296  $5,166,792  $2,334,289  $1,726,147  $12,117,524  
The risk category or commercial and commercial real estate loans, by class$0.1 million of residential real estate loans, at December 31, 2019 was as follows:
December 31, 2019
(dollars in thousands)CommercialCommercial
Real Estate -
Construction		Commercial
Real Estate -
Other
Corporate Credit Exposure Credit Risk Profile by
Internally Assigned Grade
Grade:
Pass$2,702,605  $665,512  $4,191,455  
Criticized84,676  34,651  115,514  
Classified - substandard63,979  —  101,693  
Classified - nonaccrual22,240  12,929  38,822  
Classified - doubtful16,796  —  6,216  
Total$2,890,296  $713,092  $4,453,700  
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The following table presents the recorded investment in residential and $0.6 million of consumer loans based on payment activity at December 31, 2019:
Consumer
(dollars in thousands)ResidentialHome EquityAutoOther
December 31, 2019
Performing$2,311,670  $555,025  $1,013,760  $147,383  
Nonperforming22,619  3,996  3,527  2,456  
Total$2,334,289  $559,021  $1,017,287  $149,839  
The following table shows Old National's impaired loans at December 31, 2019. Only purchased loans that have experienced subsequent impairment since the date acquired (excluding loans acquired with deteriorated credit quality) are included in the table below.
(dollars in thousands)Recorded
Investment		Unpaid Principal
Balance		Related
Allowance
December 31, 2019
With no related allowance recorded:
Commercial$23,227  $23,665  $—  
Commercial Real Estate - Construction12,929  12,929  —  
Commercial Real Estate - Other37,674  38,112  —  
Residential1,774  1,794  —  
Consumer403  568  —  
With an allowance recorded:
Commercial18,252  18,305  7,891  
Commercial Real Estate - Other12,685  12,685  1,006  
Residential1,201  1,201  39  
Consumer1,094  1,094  55  
Total$109,239  $110,353  $8,991  
The average balance of impaired loans during the three and six months ended June 30, 2019 are included in the table below.
(dollars in thousands)Three Months Ended
June 30, 2019		Six Months Ended
June 30, 2019
Average Recorded Investment
With no related allowance recorded:
Commercial$23,242  $21,585  
Commercial Real Estate - Construction10,996  5,519  
Commercial Real Estate - Other34,387  35,378  
Residential2,325  2,309  
Consumer1,076  838  
With an allowance recorded:
Commercial13,965  15,997  
Commercial Real Estate - Construction3,160  8,294  
Commercial Real Estate - Other22,493  24,368  
Residential866  874  
Consumer1,358  1,577  
Total$113,868  $116,739  

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The following table presents activity in TDRs for the three and six months ended June 30, 2019:
(dollars in thousands)CommercialCommercial
Real Estate		ResidentialConsumerTotal
Three Months Ended June 30, 2019
Balance at beginning of period$11,646  $29,137  $3,247  $2,313  $46,343  
(Charge-offs)/recoveries(93) 4  —  4  (85) 
(Payments)/disbursements25  (16,702) (167) (117) (16,961) 
Additions7,294  6,924  —  316  14,534  
Balance at end of period$18,872  $19,363  $3,080  $2,516  $43,831  
Six Months Ended June 30, 2019
Balance at beginning of period$10,275  $27,671  $3,390  $2,374  $43,710  
(Charge-offs)/recoveries(100) (71) —  (1) (172) 
(Payments)/disbursements(1,004) (18,264) (310) (173) (19,751) 
Additions9,701  10,027  —  316  20,044  
Balance at end of period$18,872  $19,363  $3,080  $2,516  $43,831  

loans.
NOTE 7 – OTHER REAL ESTATE OWNED
Other real estate owned is included in other assets.  The following table presents activity in other real estate owned:
Three Months Ended
June 30,		Six Months Ended
June 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars in thousands)(dollars in thousands)2020201920202019(dollars in thousands)2021202020212020
Balance at beginning of periodBalance at beginning of period$2,163  $3,279  $2,169  $3,232  Balance at beginning of period$751 $2,163 $1,324 $2,169 
AdditionsAdditions57  279  204  673  Additions25 57 155 204 
SalesSales(309) (705) (423) (977) Sales(243)(309)(874)(423)
ImpairmentsImpairments(125) (34) (164) (109) Impairments(13)(125)(85)(164)
Balance at end of period (1)Balance at end of period (1)$1,786  $2,819  $1,786  $2,819  Balance at end of period (1)$520 $1,786 $520 $1,786 
(1)Includes repossessed personal property of $0.2 million at June 30, 20202021 and June 30, 2019.2020.
Foreclosed residential real estate property recorded as a result of obtaining physical possession of the property included in the table above totaled $0.7$0.3 million at June 30, 20202021 and $0.5$0.8 million at December 31, 2019.2020.  Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $3.9$1.6 million at June 30, 20202021 and $3.7$2.7 million at December 31, 2019.2020.
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NOTE 8 – PREMISES AND EQUIPMENT
The composition of premises and equipment was as follows:
(dollars in thousands)(dollars in thousands)June 30,
2020		December 31,
2019		(dollars in thousands)June 30,
2021		December 31,
2020
LandLand$72,182  $79,569  Land$72,114 $72,600 
BuildingsBuildings367,658  380,925  Buildings384,142 373,660 
Furniture, fixtures, and equipmentFurniture, fixtures, and equipment113,047  112,654  Furniture, fixtures, and equipment129,726 110,735 
Leasehold improvementsLeasehold improvements44,684  44,136  Leasehold improvements44,914 44,734 
TotalTotal597,571  617,284  Total630,896 601,729 
Accumulated depreciationAccumulated depreciation(134,775) (126,359) Accumulated depreciation(146,017)(137,321)
Premises and equipment, netPremises and equipment, net$462,796  $490,925  Premises and equipment, net$484,879 $464,408 
Depreciation expense was $7.0 million for the three months ended June 30, 2021 and $14.1 million for the six months ended June 30, 2021, compared to $6.5 million for the three months ended June 30, 2020 and $15.1 million for the six months ended June 30, 2020, compared to $6.7 million for the three months ended June 30, 2019 and $13.2 million for the six months ended June 30, 2019.
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2020.
Finance Leases
Old National leases certain branchbanking center buildings and equipment under finance leases that are included in premises and equipment.  See Notes 9 and 15 to the consolidated financial statements for detail regarding these leases.
NOTE 9 – LEASES
Old National has operating and finance leases for land, office space, banking centers, and equipment.  These leases are generally for periods of 105 to 20 years with various renewal options.  We include certain renewal options in the measurement of our right-of-use assets and lease liabilities if they are reasonably certain to be exercised.  Variable lease payments that are dependent on an index or a rate are initially measured using the index or rate at the commencement date and are included in the measurement of the lease liability. Variable lease payments that are not dependent on an index or a rate are excluded from the measurement of the lease liability and are recognized in profit and loss when incurred.  Variable lease payments are defined as payments made for the right to use an asset that vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time.
Old National has lease agreements with lease and non-lease components, which are generally accounted for separately.  For real estate leases, non-lease components and other non-components, such as common area maintenance charges, real estate taxes, and insurance are not included in the measurement of the lease liability since they are generally able to be segregated.  For certain equipment leases, Old National accounts for the lease and non-lease components as a single lease component using the practical expedient available for that class of assets.
Old National does not have any material sub-lease agreements.
The components of lease expense were as follows:
Affected Line
Item in the		Three Months Ended
June 30,		Six Months Ended
June 30,		Affected Line
Item in the
Statement of Income		Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars in thousands)(dollars in thousands)Statement of Income2020201920202019(dollars in thousands)Affected Line
Item in the
Statement of Income		202120212020
Operating lease costOperating lease costoccupancy/equipment expense$6,646  $4,291  $15,827  $8,693  Operating lease cost$3,092 $6,646 $6,393 $15,827 
Finance lease cost:Finance lease cost: Finance lease cost: 
Amortization of right-of-use assetsAmortization of right-of-use assetsoccupancy expense256  160  423  318  Amortization of right-of-use assetsoccupancy expense810 256 1,121 423 
Interest on lease liabilitiesInterest on lease liabilitiesinterest expense91  80  169  161  Interest on lease liabilitiesinterest expense120 91 215 169 
Short-term lease costShort-term lease costoccupancy expense1  1  1  2  Short-term lease costoccupancy expense0 1 0 1 
Sub-lease incomeSub-lease incomeoccupancy expense(121) (181) (249) (360) Sub-lease incomeoccupancy expense(135)(121)(278)(249)
TotalTotal $6,873  $4,351  $16,171  $8,814  Total $3,887 $6,873 $7,451 $16,171 
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Supplemental balance sheet information related to leases was as follows:
(dollars in thousands)June 30,
2020		December 31,
2019
Operating Leases 
Operating lease right-of-use assets$80,400  $95,477  
Operating lease liabilities91,845  99,500  
 
Finance Leases
Premises and equipment, net11,973  7,170  
Other borrowings12,310  7,406  
 
Weighted-Average Remaining Lease Term (in Years)
Operating leases10.610.6
Finance leases10.711.3
 
Weighted-Average Discount Rate
Operating leases3.42 %3.45 %
Finance leases3.44 %4.43 %
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(dollars in thousands)June 30,
2021		December 31,
2020
Operating Leases 
Operating lease right-of-use assets$72,207 $76,197 
Operating lease liabilities81,333 86,598 
 
Finance Leases
Premises and equipment, net15,224 11,351 
Other borrowings15,813 11,813 
 
Weighted-Average Remaining Lease Term (in Years)
Operating leases10.410.6
Finance leases8.310.3
 
Weighted-Average Discount Rate
Operating leases3.39 %3.40 %
Finance leases3.14 %3.46 %
Supplemental cash flow information related to leases was as follows:
Six Months Ended
June 30,		Six Months Ended
June 30,
(dollars in thousands)(dollars in thousands)20202019(dollars in thousands)20212020
Cash paid for amounts included in the measurement of lease liabilities:Cash paid for amounts included in the measurement of lease liabilities: Cash paid for amounts included in the measurement of lease liabilities: 
Operating cash flows from operating leasesOperating cash flows from operating leases$8,283  $8,843  Operating cash flows from operating leases$7,166 $8,283 
Operating cash flows from finance leasesOperating cash flows from finance leases169  161  Operating cash flows from finance leases215 169 
Financing cash flows from finance leasesFinancing cash flows from finance leases322  224  Financing cash flows from finance leases993 322 
The following table presents a maturity analysis of the Company’s lease liability by lease classification at June 30, 2020:2021:
(dollars in thousands)(dollars in thousands)Operating
Leases		Finance
Leases		(dollars in thousands)Operating
Leases		Finance
Leases
2020$7,849  $692  
2021202114,916  1,394  2021$7,066 $1,214 
2022202213,712  1,412  202213,233 2,440 
202320239,093  1,438  20239,553 2,466 
202420247,917  1,444  20248,512 2,471 
202520258,373 2,464 
ThereafterThereafter56,991  8,443  Thereafter50,549 7,006 
Total undiscounted lease paymentsTotal undiscounted lease payments110,478  14,823  Total undiscounted lease payments97,286 18,061 
Amounts representing interestAmounts representing interest(18,633) (2,513) Amounts representing interest(15,953)(2,248)
Lease liabilityLease liability$91,845  $12,310  Lease liability$81,333 $15,813 
32

Old National leases certain office space and buildings to unrelated parties in exchange for consideration.  All of these tenant leases are classified as operating leases.  The following table presents a maturity analysis of the Company’s tenant leases at June 30, 2020:2021:
(dollars in thousands)(dollars in thousands)Tenant Leases(dollars in thousands)Tenant
Leases
2020$1,248  
202120212,354  2021$1,207 
202220221,952  20221,984 
202320231,536  20231,591 
202420241,409  20241,420 
202520251,083 
ThereafterThereafter2,520  Thereafter2,922 
Total undiscounted lease paymentsTotal undiscounted lease payments$11,019  Total undiscounted lease payments$10,207 

NOTE 10 – GOODWILL AND OTHER INTANGIBLE ASSETS
The following table showspresents the changes in the carrying amount of goodwill:
Three Months Ended
June 30,		Six Months Ended
June 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars in thousands)(dollars in thousands)2020201920202019(dollars in thousands)2021202020212020
Balance at beginning of periodBalance at beginning of period$1,036,994  $1,036,258  $1,036,994  $1,036,258  Balance at beginning of period$1,036,994 $1,036,994 $1,036,994 $1,036,994 
Acquisitions and adjustmentsAcquisitions and adjustments—  —  —  —  Acquisitions and adjustments0 0 0 0 
Balance at end of periodBalance at end of period$1,036,994  $1,036,258  $1,036,994  $1,036,258  Balance at end of period$1,036,994 $1,036,994 $1,036,994 $1,036,994 
Old National performed the required annual goodwill impairment test as of August 31, 20192020 and there was 0 impairment.  No events or circumstances since the August 31, 20192020 annual impairment test were noted that would indicate it was more likely than not a goodwill impairment exists. However, management did conclude that the current decline in macroeconomic conditions is a triggering event, but other mitigating factors did not warrant an interim quantitative impairment test. We continue to evaluate our qualitative assessment assumptions, which are
36

subject to risks and uncertainties, including: (1) forecasted revenues, expenses, and cash flows; (2) current discount rates; (3) our market capitalization; (4) observable market transactions and multiples; (5) changes to the regulatory environment; and (6) the nature and amount of government support that has been and is expected to be provided in the future. Refer to Note 20, Commitments and Contingencies, for additional information on COVID-19 and its potential impact to Old National.
The gross carrying amountamounts and accumulated amortization of other intangible assets were as follows: 
(dollars in thousands)(dollars in thousands)Gross
Carrying
Amount		Accumulated
Amortization
and Impairment		Net
Carrying
Amount		(dollars in thousands)Gross
Carrying
Amount		Accumulated
Amortization
and Impairment		Net
Carrying
Amount
June 30, 2020   
June 30, 2021June 30, 2021   
Core depositCore deposit$116,185  $(66,935) $49,250  Core deposit$103,264 $(65,644)$37,620 
Customer trust relationshipsCustomer trust relationships16,547  (13,080) 3,467  Customer trust relationships16,547 (14,137)2,410 
Total intangible assetsTotal intangible assets$132,732  $(80,015) $52,717  Total intangible assets$119,811 $(79,781)$40,030 
December 31, 2019
December 31, 2020December 31, 2020
Core depositCore deposit$119,051  $(63,020) $56,031  Core deposit$112,723 $(69,623)$43,100 
Customer trust relationshipsCustomer trust relationships16,547  (12,473) 4,074  Customer trust relationships16,547 (13,633)2,914 
Total intangible assetsTotal intangible assets$135,598  $(75,493) $60,105  Total intangible assets$129,270 $(83,256)$46,014 
Other intangible assets consist of core deposit intangibles and customer relationship intangibles and are being amortized primarily on an accelerated basis over their estimated useful lives, generally over a period of 5 to 15 years.
Old National reviews other intangible assets for possible impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. NaN impairment charges were recorded during the six months ended June 30, 20202021 or 2019.2020.  Total amortization expense associated with intangible assets was $2.9 million for the three months ended June 30, 2021 and $6.0 million for the six months ended June 30, 2021, compared to $3.6 million for the three months ended June 30, 2020 and $7.4 million for the six months ended June 30, 2020, compared to $4.3 million for the three months ended June 30, 2019 and $8.8 million for the six months ended June 30, 2019.2020.
33

Estimated amortization expense for future years is as follows:
(dollars in thousands)(dollars in thousands) (dollars in thousands) 
2020 remaining$6,703  
202111,336  
2021 remaining2021 remaining$5,351 
202220229,014  20229,014 
202320237,053  20237,053 
202420245,645  20245,645 
202520254,509 
ThereafterThereafter12,966  Thereafter8,458 
TotalTotal$52,717  Total$40,030 

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NOTE 11 – LOAN SERVICING RIGHTS
Loan servicing rights are included in other assets on the balance sheet. At June 30, 2020,2021, loan servicing rights derived from mortgage loans sold with servicing retained totaled $24.0$28.8 million, compared to $25.4$26.7 million at December 31, 2019.2020.  Loans serviced for others are not reported as assets.  The principal balance of mortgage loans serviced for others was $3.509$3.614 billion at June 30, 2020,2021, compared to $3.445$3.613 billion at December 31, 2019.  Approximately 99.8% of the loans serviced for others at June 30, 2020 were residential mortgage loans.2020.  Custodial escrow balances maintained in connection with serviced loans were $41.1$42.2 million at June 30, 20202021 and $12.7$16.2 million at December 31, 2019.2020.
The following table summarizes the carrying values and activity related to loan servicing rights and the related valuation allowance: 
Three Months Ended
June 30,		Six Months Ended
June 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars in thousands)(dollars in thousands)2020201920202019(dollars in thousands)2021202020212020
Balance at beginning of periodBalance at beginning of period$25,575  $24,271  $25,399  $24,512  Balance at beginning of period$28,262 $25,575 $28,124 $25,399 
AdditionsAdditions3,672  1,270  5,403  1,929  Additions3,058 3,672 6,171 5,403 
AmortizationAmortization(2,959) (1,177) (4,514) (2,077) Amortization(2,434)(2,959)(5,409)(4,514)
Balance before valuation allowance at end of periodBalance before valuation allowance at end of period26,288  24,364  26,288  24,364  Balance before valuation allowance at end of period28,886 26,288 28,886 26,288 
Valuation allowance:Valuation allowance:Valuation allowance:
Balance at beginning of periodBalance at beginning of period(1,443) (17) (31) (15) Balance at beginning of period(146)(1,443)(1,407)(31)
(Additions)/recoveries(Additions)/recoveries(810) (15) (2,222) (17) (Additions)/recoveries41 (810)1,302 (2,222)
Balance at end of periodBalance at end of period(2,253) (32) (2,253) (32) Balance at end of period(105)(2,253)(105)(2,253)
Loan servicing rights, netLoan servicing rights, net$24,035  $24,332  $24,035  $24,332  Loan servicing rights, net$28,781 $24,035 $28,781 $24,035 
At June 30, 2020,2021, the fair value of servicing rights was $24.0$31.0 million, which was determined using a discount rate of 9% and a conditional prepayment rate of 16%11%.  At December 31, 2019,2020, the fair value of servicing rights was $26.5$26.8 million, which was determined using a discount rate of 12%9% and a conditional prepayment rate of 10%14%.
NOTE 12 – QUALIFIED AFFORDABLE HOUSING PROJECTS AND OTHER TAX CREDIT INVESTMENTS
Old National is a limited partner in several tax-advantaged limited partnerships whose purpose is to invest in approved qualified affordable housing, renewable energy, or other renovation or community revitalization projects.  These investments are included in other assets on the balance sheet, with any unfunded commitments included with other liabilities.As of June 30, 2020,2021, Old National expects to recover its remaining investments through the use of the tax credits that are generated by the investments.
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The following table summarizes Old National’s investments in qualified affordable housing projects and other tax credit investments:
(dollars in thousands)(dollars in thousands) June 30, 2020December 31, 2019(dollars in thousands) June 30, 2021December 31, 2020
InvestmentInvestmentAccounting MethodInvestmentUnfunded Commitment (1)InvestmentUnfunded CommitmentInvestmentAccounting MethodInvestmentUnfunded
Commitment (1)		InvestmentUnfunded
Commitment
LIHTCLIHTCProportional amortization$28,083  $2,646  $29,735  $3,911  LIHTCProportional amortization$41,939 $14,286 $33,609 $6,845 
FHTCFHTCEquity25,760  21,778  22,403  17,886  FHTCEquity22,156 19,817 18,660 22,398 
NMTCNMTCEquity10,050 0 6,120 0 
Renewable EnergyRenewable EnergyEquity7,644  3,090  7,523  4,129  Renewable EnergyEquity2,504 0 3,611 862 
TotalTotal $61,487  $27,514  $59,661  $25,926  Total $76,649 $34,103 $62,000 $30,105 
(1)All commitments will be paid by Old National by December 31, 2027.
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The following table summarizes the amortization expense and tax benefit recognized for Old National’s qualified affordable housing projects and other tax credit investments:
(dollars in thousands)(dollars in thousands)Amortization Expense (1)Tax Expense
(Benefit) Recognized (2)		(dollars in thousands)Amortization
Expense (1)		Tax Expense
(Benefit)
Recognized (2)
Three Months Ended June 30, 2021Three Months Ended June 30, 2021  
LIHTCLIHTC$863 $(1,136)
FHTCFHTC1,228 (574)
NMTCNMTC375 (462)
Renewable EnergyRenewable Energy210 0 
TotalTotal$2,676 $(2,172)
Three Months Ended June 30, 2020Three Months Ended June 30, 2020  Three Months Ended June 30, 2020
LIHTCLIHTC$776  $(1,019) LIHTC$776 $(1,019)
FHTCFHTC—  (1,356) FHTC0 (1,356)
Renewable EnergyRenewable Energy287  (307) Renewable Energy287 (307)
TotalTotal$1,063  $(2,682) Total$1,063 $(2,682)
Three Months Ended June 30, 2019
Six Months Ended June 30, 2021Six Months Ended June 30, 2021
LIHTCLIHTC$791  $(1,042) LIHTC$1,725 $(2,272)
FHTCFHTC1,359 (1,256)
NMTCNMTC750 (925)
Renewable EnergyRenewable Energy568  (533) Renewable Energy906 (562)
TotalTotal$1,359  $(1,575) Total$4,740 $(5,015)
Six Months Ended June 30, 2020Six Months Ended June 30, 2020Six Months Ended June 30, 2020
LIHTCLIHTC$1,553  $(2,038) LIHTC$1,553 $(2,038)
FHTCFHTC5,143  (2,712) FHTC5,143 (2,712)
Renewable EnergyRenewable Energy659  (707) Renewable Energy659 (707)
TotalTotal$7,355  $(5,457) Total$7,355 $(5,457)
Six Months Ended June 30, 2019
LIHTC$1,584  $(2,085) 
Renewable Energy828  (777) 
Total$2,412  $(2,862) 
(1)The amortization expense for the LIHTC investments is included in our income tax expense. The amortization expense for the FHTC, NMTC, and Renewable Energy tax credits is included in noninterest expense.
(2)All of the tax benefits recognized are included in our income tax expense.  The tax benefit recognized for the FHTC, NMTC, and Renewable Energy investments primarily reflects the tax credits generated from the investments and excludes the net tax expense (benefit) and deferred tax liability of the investments’ income (loss).
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NOTE 13 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are secured borrowings.  Old National pledges investment securities to secure these borrowings. The following table presents securities sold under agreements to repurchase and related weighted-average interest rates:
At or for the
Six Months
Ended		AtAt or for the
Six Months
Ended
(dollars in thousands)June 30,
2020		December 31,
2019		June 30,
2019
Outstanding at period end$367,744  $327,782  $334,540  
Average amount outstanding during the period339,818  N/A346,396  
Maximum amount outstanding at any month-end during the period367,744  N/A367,884  
Weighted-average interest rate:
During the period0.34 %N/A0.78 %
At period end0.21 %0.53 %0.86 %
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At or for the
Six Months
Ended
June 30,
2021
At
December 31,
2020
At or for the
Six Months
Ended
June 30,
2020
(dollars in thousands)
Outstanding at period end$396,129 $431,166 $367,744 
Average amount outstanding during the period402,478 N/A339,818 
Maximum amount outstanding at any month-end during the period405,278 N/A367,744 
Weighted-average interest rate:
During the period0.11 %N/A0.34 %
At period end0.09 %0.12 %0.21 %
The following table presents the contractual maturity of our secured borrowings and class of collateral pledged:
At June 30, 2020 At June 30, 2021
Remaining Contractual Maturity of the Agreements Remaining Contractual Maturity of the Agreements
(dollars in thousands)(dollars in thousands)Overnight and ContinuousUp to
30 Days		 30-90 DaysGreater Than 90 daysTotal(dollars in thousands)Overnight and ContinuousUp to
30 Days		 30-90 DaysGreater Than 90 daysTotal
Repurchase Agreements:Repurchase Agreements:     Repurchase Agreements:     
U.S. Treasury and agency securitiesU.S. Treasury and agency securities$367,744  $—  $—  $—  $367,744  U.S. Treasury and agency securities$396,129 $0 $0 $0 $396,129 
TotalTotal$367,744  $—  $—  $—  $367,744  Total$396,129 $0 $0 $0 $396,129 
The fair value of securities pledged to secure repurchase agreements may decline.  Old National has pledged securities valued at 109%116% of the gross outstanding balance of repurchase agreements at June 30, 20202021 to manage this risk.
NOTE 14 – FEDERAL HOME LOAN BANK ADVANCES
The following table summarizes Old National Bank’s FHLB advances:
(dollars in thousands)June 30,
2020		December 31,
2019
FHLB advances (fixed rates 0.34% to 4.96%
   and variable rates 0.16% to 0.18%) maturing
  July 2020 to January 2030
$2,006,430  $1,800,664  
ASC 815 fair value hedge and other basis adjustments28,584  22,183  
Total other borrowings$2,035,014  $1,822,847  
(dollars in thousands)June 30,
2021		December 31,
2020
FHLB advances (fixed rates 0.45% to 4.96%
   and variable rates 0.06% to 0.10%) maturing
   October 2022 to January 2041
$1,904,155 $1,999,160 
Fair value hedge basis adjustments and unamortized
   prepayment fees		(13,012)(7,725)
Total$1,891,143 $1,991,435 
FHLB advances had weighted-average rates of 1.81%1.31% at June 30, 20202021 and 2.19%1.32% at December 31, 2019.2020.  Investment securities and residential real estate loans collateralize these borrowings up to 140% of outstanding debt.
In the first quarter of 2021, Old National modified $50.0 million pertaining to 2 FHLB advances, which lowered their weighted average effective rates from 1.53% to 0.33%. At June 30, 2021, total unamortized prepayment fees related to all debt modifications totaled $29.2 million, compared to $30.0 million at December 31, 2020.
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Contractual maturities of FHLB advances at June 30, 20202021 were as follows:
(dollars in thousands) 
Due in 20202021$80,7700 
Due in 202120,000 
Due in 2022130,50029,000 
Due in 2023160155 
Due in 2024325,00025,000 
Due in 2025550,000 
Thereafter1,450,0001,300,000 
ASC 815 fairFair value hedge and other basis adjustments and unamortized prepayment fees28,584 (13,012)
Total$2,035,0141,891,143 

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NOTE 15 – OTHER BORROWINGS
The following table summarizes Old National’s other borrowings:
(dollars in thousands)(dollars in thousands)June 30,
2020		December 31,
2019		(dollars in thousands)June 30,
2021		December 31,
2020
Old National Bancorp:Old National Bancorp:  Old National Bancorp:  
Senior unsecured notes (fixed rate 4.125% maturing August 2024)Senior unsecured notes (fixed rate 4.125% maturing August 2024)$175,000  $175,000  Senior unsecured notes (fixed rate 4.125% maturing August 2024)$175,000 $175,000 
Unamortized debt issuance costs related to senior unsecured notesUnamortized debt issuance costs related to senior unsecured notes(637) (715) Unamortized debt issuance costs related to senior unsecured notes(481)(559)
Junior subordinated debentures (variable rates of
1.86% to 2.82%) maturing March 2035 to June 2037
42,000  52,310  
Junior subordinated debentures (variable rates of
1.70% to 1.87%) maturing March 2035 to June 2037
Junior subordinated debentures (variable rates of
1.70% to 1.87%) maturing March 2035 to June 2037
42,000 42,000 
Other basis adjustmentsOther basis adjustments(3,268) (2,833) Other basis adjustments(3,120)(3,195)
Old National Bank:Old National Bank:Old National Bank:
Finance lease liabilitiesFinance lease liabilities12,310  7,406  Finance lease liabilities15,813 11,813 
Subordinated debentures (fixed rate 5.75%)12,000  12,000  
Subordinated debentures (variable rate 4.54%)Subordinated debentures (variable rate 4.54%)12,000 12,000 
Leveraged loans for NMTC (fixed rates of 1.00% to 1.43%)
maturing December 2046 to December 2052
Leveraged loans for NMTC (fixed rates of 1.00% to 1.43%)
maturing December 2046 to December 2052
25,655 15,300 
OtherOther472  517  Other3,451 428 
Total other borrowingsTotal other borrowings$237,877  $243,685  Total other borrowings$270,318 $252,787 
Contractual maturities of other borrowings at June 30, 20202021 were as follows:
(dollars in thousands) 
Due in 20202021$4971,006 
Due in 20211,025 
Due in 20221,0732,061 
Due in 20231,1322,131 
Due in 2024176,170177,180 
Due in 20252,220 
Thereafter61,41285,870 
Unamortized debt issuance costs and other basis adjustments(3,432)(150)
Total$237,877270,318 
Senior Notes
In August 2014, Old National issued $175.0 million of senior unsecured notes with a 4.125% interest rate.  These notes pay interest on February 15 and August 15.  The notes15 and mature on August 15, 2024.
Junior Subordinated Debentures
Junior subordinated debentures related to trust preferred securities are classified in “other borrowings.”  On November 1, 2017, Old National acquired Anchor (MN) and exceeded $15 billion in assets.  As a result, these securities can only be treatedJunior subordinated debentures qualify as Tier 2 capital for regulatory purposes, subject to certain limitations.  Prior to the fourth quarter of 2017, these securities qualified as Tier 1 capital for regulatory purposes.
Through various acquisitions, Old National assumed junior subordinated debenture obligations related to various trusts that issued trust preferred securities.  Old National guarantees the payment of distributions on the trust
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preferred securities issued by the trusts.  Proceeds from the issuance of each of these securities were used to purchase junior subordinated debentures with the same financial terms as the securities issued by the trusts.
Old National, at any time, may redeem the junior subordinated debentures at par and, thereby cause a redemption of the trust preferred securities in whole or in part. In February 2020, Old National redeemed at par $4.1 million of junior subordinated debentures issued in October 2002 by Anchor (MN) (as successor to VFSC, Inc.), which was acquired by Old National in 2017.This subsequently caused the redemption of all of the common and capital (preferred) securities issued by VFSC Capital Trust II by the same amount in aggregate.At the time of redemption, the rate on this floating rate instrument was 5.36%. In March 2020, Old National redeemed at par $3.1 million of junior subordinated debentures issued in April 2004 by Anchor (MN) (as successor to VFSC, Inc.), which was acquired by Old National in 2017.This subsequently caused the redemption of all of the common and capital (preferred) securities issued by VFSC Capital Trust III by the same amount in aggregate.At the time of redemption, the rate on this floating rate instrument was 4.71%. In April 2020, Old National redeemed at par $3.1 million of junior subordinated debentures issued in April 2002 by Anchor (MN) (as successor to VFSC, Inc.), which was acquired by Old National in 2017. This subsequently caused the redemption of all of the common and capital
41

(preferred) securities issued by VFSC Capital Trust I by the same amount in aggregate. At the time of redemption, the rate on this floating rate instrument was 5.62%.
The following table summarizes the terms of our outstanding junior subordinated debentures:
(dollars in thousands)(dollars in thousands)   Rate at (dollars in thousands)   
Rate at
June 30,
2021
 
Name of TrustName of TrustIssuance DateIssuance AmountRateJune 30,
2020		Maturity DateName of TrustIssuance DateIssuance
Amount		RateMaturity Date
St. Joseph Capital Trust IISt. Joseph Capital Trust IIMarch 2005$5,000  3-month LIBOR plus 1.75%2.05%March 17, 2035St. Joseph Capital Trust IIMarch 2005$5,000 3-month LIBOR plus 1.75%1.87%March 17, 2035
Anchor Capital Trust IIIAnchor Capital Trust IIIAugust 20055,000  3-month LIBOR plus 1.55%1.86%September 30, 2035Anchor Capital Trust IIIAugust 20055,000 3-month LIBOR plus 1.55%1.70%September 30, 2035
Home Federal Statutory
Trust I		Home Federal Statutory
Trust I		September 200615,000  3-month LIBOR plus 1.65%1.96%September 15, 2036Home Federal Statutory
Trust I		September 200615,000 3-month LIBOR plus 1.65%1.77%September 15, 2036
Monroe Bancorp Capital
Trust I		Monroe Bancorp Capital
Trust I		July 20063,000  3-month LIBOR plus 1.60%2.82%October 7, 2036Monroe Bancorp Capital
Trust I		July 20063,000 3-month LIBOR plus 1.60%1.78%October 7, 2036
Tower Capital Trust 3Tower Capital Trust 3December 20069,000  3-month LIBOR plus 1.69%2.04%March 1, 2037Tower Capital Trust 3December 20069,000 3-month LIBOR plus 1.69%1.82%March 1, 2037
Monroe Bancorp Statutory
Trust II		Monroe Bancorp Statutory
Trust II		March 20075,000  3-month LIBOR plus 1.60%1.91%June 15, 2037Monroe Bancorp Statutory
Trust II		March 20075,000 3-month LIBOR plus 1.60%1.72%June 15, 2037
TotalTotal$42,000  Total$42,000 
Subordinated Debentures
On November 1, 2017, Old National assumed $12.0 million of subordinated fixed-to-floating notes related to the acquisition of Anchor (MN).  The subordinated debentures havehad a 5.75% fixed rate of interest through October 29, 2020.  From October 30, 2020 to the October 30, 2025 maturity date, the debentures have a floating rate of interest equal to the three-month LIBOR rate plus 4.356%.
Finance Lease Liabilities
Old National has long-term finance lease liabilities for certain banking centers totaling $12.3 million.  The economic substance of these leases is that Old National is financing the acquisition of the building through the lease and accordingly, the building is recorded as a right-of-use asset in premises and equipment and the lease is recorded as a liability in other borrowings.  The right-of-use assets and lease liabilities are initially measured at the present value of the lease payments over the lease term using Old National’s incremental borrowing rate based on the information available at the commencement date of the lease.totaling $15.8 million.  See Note 9 to the consolidated financial statements for a maturity analysis of the Company’s finance lease liabilities.
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NOTE 16 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the changes within each classification of AOCI, net of tax:
(dollars in thousands)(dollars in thousands)Unrealized
Gains and
Losses on
Available-
for-Sale
Debt
Securities		Unrealized
Gains and
Losses on
Held-to-
Maturity
Securities		Gains and
Losses on
Cash Flow
Hedges		Defined
Benefit
Pension
Plans		Total(dollars in thousands)Unrealized
Gains and
Losses on
Available-
for-Sale
Debt
Securities		Gains and
Losses on
Cash Flow
Hedges		Defined
Benefit
Pension
Plans		Total
Three Months Ended June 30, 2021Three Months Ended June 30, 2021    
Balance at beginning of periodBalance at beginning of period$86,495 $5,525 $(111)$91,909 
Other comprehensive income (loss) before
reclassifications		Other comprehensive income (loss) before
reclassifications		(26,886)(959)0 (27,845)
Amounts reclassified from AOCI to income (1)Amounts reclassified from AOCI to income (1)(514)(1,325)37 (1,802)
Balance at end of periodBalance at end of period$59,095 $3,241 $(74)$62,262 
Three Months Ended June 30, 2020Three Months Ended June 30, 2020     Three Months Ended June 30, 2020
Balance at beginning of periodBalance at beginning of period$132,500  $—  $5,801  $(144) $138,157  Balance at beginning of period$132,500 $5,801 $(144)$138,157 
Other comprehensive income (loss) before
reclassifications		Other comprehensive income (loss) before
reclassifications		12,733  —  (186) —  12,547  Other comprehensive income (loss) before
reclassifications		12,733 (186)0 12,547 
Amounts reclassified from AOCI to income (1)Amounts reclassified from AOCI to income (1)(422) —  (1,260) 21  (1,661) Amounts reclassified from AOCI to income (1)(422)(1,260)21 (1,661)
Balance at end of periodBalance at end of period$144,811  $—  $4,355  $(123) $149,043  Balance at end of period$144,811 $4,355 $(123)$149,043 
Three Months Ended June 30, 2019
Six Months Ended June 30, 2021Six Months Ended June 30, 2021
Balance at beginning of periodBalance at beginning of period$10,442  $(8,164) $513  $(171) $2,620  Balance at beginning of period$145,335 $2,584 $(148)$147,771 
Other comprehensive income (loss) before
reclassifications		Other comprehensive income (loss) before
reclassifications		39,151  —  711  —  39,862  Other comprehensive income (loss) before
reclassifications		(84,173)2,094 0 (82,079)
Amounts reclassified from AOCI to income (1)Amounts reclassified from AOCI to income (1)(892) 435  (4) 16  (445) Amounts reclassified from AOCI to income (1)(2,067)(1,437)74 (3,430)
Balance at end of periodBalance at end of period$48,701  $(7,729) $1,220  $(155) $42,037  Balance at end of period$59,095 $3,241 $(74)$62,262 
Six Months Ended June 30, 2020Six Months Ended June 30, 2020Six Months Ended June 30, 2020
Balance at beginning of periodBalance at beginning of period$56,131  $—  $240  $(164) $56,207  Balance at beginning of period$56,131 $240 $(164)$56,207 
Other comprehensive income (loss) before
reclassifications		Other comprehensive income (loss) before
reclassifications		93,102  —  5,700  —  98,802  Other comprehensive income (loss) before
reclassifications		93,102 5,700 0 98,802 
Amounts reclassified from AOCI to income (1)Amounts reclassified from AOCI to income (1)(4,422) —  (1,585) 41  (5,966) Amounts reclassified from AOCI to income (1)(4,422)(1,585)41 (5,966)
Balance at end of periodBalance at end of period$144,811  $—  $4,355  $(123) $149,043  Balance at end of period$144,811 $4,355 $(123)$149,043 
Six Months Ended June 30, 2019
Balance at beginning of period$(37,348) $(8,515) $1,099  $(186) $(44,950) 
Other comprehensive income (loss) before
reclassifications		86,862  —  415  —  87,277  
Amounts reclassified from AOCI to income (1)(813) 786  (294) 31  (290) 
Balance at end of period$48,701  $(7,729) $1,220  $(155) $42,037  
(1)See tables below for details about reclassifications to income.
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The following table summarizes the significant amounts reclassified out of each component of AOCI for the three months ended June 30, 20202021 and 2019:2020:
Details about AOCI ComponentsAmount Reclassified
from AOCI		Affected Line Item in the
Statement of Income
Three Months Ended
June 30,		  Three Months Ended
June 30,		 
(dollars in thousands)(dollars in thousands)20202019 (dollars in thousands)20212020 
Details about AOCI ComponentsDetails about AOCI ComponentsAmount Reclassified
from AOCI		Affected Line Item in the
Statement of Income
Unrealized gains and losses on
available-for-sale debt securities		Unrealized gains and losses on
available-for-sale debt securities		$511  $1,165  Debt securities gains (losses), netUnrealized gains and losses on
available-for-sale debt securities		$692 $511 Debt securities gains (losses), net
(89) (273) Income tax (expense) benefit (178)(89)Income tax (expense) benefit
$422  $892  Net income $514 $422 Net income
Unrealized gains and losses on
held-to-maturity securities		$—  $(564) Interest income (expense)
—  129  Income tax (expense) benefit
$—  $(435) Net income
Gains and losses on cash flow hedges
Interest rate contracts		Gains and losses on cash flow hedges
Interest rate contracts		$1,670  $6  Interest income (expense)Gains and losses on cash flow hedges
Interest rate contracts		$1,756 $1,670 Interest income (expense)
(410) (2) Income tax (expense) benefit (431)(410)Income tax (expense) benefit
$1,260  $4  Net income $1,325 $1,260 Net income
Amortization of defined benefit
pension items		Amortization of defined benefit
pension items		 Amortization of defined benefit
pension items		 
Actuarial gains (losses)Actuarial gains (losses)$(27) $(21) Salaries and employee benefitsActuarial gains (losses)$(49)$(27)Salaries and employee benefits
6  5  Income tax (expense) benefit 12 6 Income tax (expense) benefit
$(21) $(16) Net income $(37)$(21)Net income
Total reclassifications for the periodTotal reclassifications for the period$1,661  $445  Net incomeTotal reclassifications for the period$1,802 $1,661 Net income
The following table summarizes the significant amounts reclassified out of each component of AOCI for the six months ended June 30, 20202021 and 2019:2020:
Details about AOCI ComponentsAmount Reclassified
from AOCI		Affected Line Item in the
Statement of Income
Six Months Ended
June 30,		  Six Months Ended
June 30,		 
(dollars in thousands)(dollars in thousands)20202019 (dollars in thousands)20212020 
Details about AOCI ComponentsDetails about AOCI ComponentsAmount Reclassified
from AOCI		Affected Line Item in the
Statement of Income
Unrealized gains and losses on
available-for-sale debt securities		Unrealized gains and losses on
available-for-sale debt securities		$5,685  $1,062  Debt securities gains (losses), netUnrealized gains and losses on
available-for-sale debt securities		$2,685 $5,685 Debt securities gains (losses), net
(1,263) (249) Income tax (expense) benefit (618)(1,263)Income tax (expense) benefit
$4,422  $813  Net income $2,067 $4,422 Net income
Unrealized gains and losses on
held-to-maturity securities		$—  $(1,021) Interest income (expense)
—  235  Income tax (expense) benefit
$—  $(786) Net income
Gains and losses on cash flow hedges
Interest rate contracts		Gains and losses on cash flow hedges
Interest rate contracts		$2,101  $391  Interest income (expense)Gains and losses on cash flow hedges
Interest rate contracts		$1,905 $2,101 Interest income (expense)
(516) (97) Income tax (expense) benefit (468)(516)Income tax (expense) benefit
$1,585  $294  Net income $1,437 $1,585 Net income
Amortization of defined benefit
pension items		Amortization of defined benefit
pension items		 Amortization of defined benefit
pension items		 
Actuarial gains (losses)Actuarial gains (losses)$(54) $(41) Salaries and employee benefitsActuarial gains (losses)$(98)$(54)Salaries and employee benefits
13  10  Income tax (expense) benefit 24 13 Income tax (expense) benefit
$(41) $(31) Net income $(74)$(41)Net income
Total reclassifications for the periodTotal reclassifications for the period$5,966  $290  Net incomeTotal reclassifications for the period$3,430 $5,966 Net income

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NOTE 17 – SHARE-BASED COMPENSATION
At June 30, 2020,2021, Old National had 3.22.4 million shares remaining available for issuance under the Company’s Amended and Restated 2008 Incentive Compensation Plan.  The granting of awards to key employees is typically in the form of restricted stock awards or units.
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Restricted Stock Awards
Old National granted 125 thousand0.2 million time-based restricted stock awards to certain key officers during the six months ended June 30, 2020,2021, with shares vesting generally over a 36 month period.  At June 30, 2021, nonvested shares totaled 0.5 million. Compensation expense is recognized on a straight-line basis over the vesting period.  Shares are subject to certain restrictions and risk of forfeiture by the participants.  At June 30, 2020,2021, unrecognized compensation expense was estimated to be $4.6 million for unvested restricted stock awards.awards was $6.5 million.  The cost is expected to be recognized over a weighted-average period of 2.1 years.
Old National recorded share-based compensation expense, net of tax, related to restricted stock awards of $0.7 million during the three months ended June 30, 2021 and $1.4 million during the six months ended June 30, 2021, compared to $0.5 million duringfor the three months ended June 30, 2020 and $1.2 million duringfor the six months ended June 30, 2020, compared to $0.6 million during the three months ended June 30, 2019 and $1.2 million during the six months ended June 30, 2019.2020.
Restricted Stock Units
Old National granted 210 thousand0.2 million shares of performance based restricted stock units to certain key officers during the six months ended June 30, 2020,2021, with shares vesting at the end of a 36 month period based on the achievement of certain targets.   At June 30, 2021, nonvested shares totaled 0.9 million. For certain awards, the level of performance could increase or decrease the number of shares earned.  Compensation expense is recognized on a straight-line basis over the vesting period.  Shares are subject to certain restrictions and risk of forfeiture by the participants.  At June 30, 2020,2021, unrecognized compensation expense was estimated to be $5.1$5.7 million.  The cost is expected to be recognized over a weighted-average period of 2.0 years.
Old National recorded share-based compensation expense, net of tax, related to restricted stock units of $0.7 million during the three months ended June 30, 2021 and $1.3 million during the six months ended June 30, 2021, compared to $0.6 million during the three months ended June 30, 2020 and $2.0 million duringfor the six months ended June 30, 2020, compared to $0.8 million during the three months ended June 30, 2019 and $1.6 million during the six months ended June 30, 2019.2020.
Stock Options and Appreciation Rights
Old National has not granted stock options since 2009. However, Old National did acquire stock options and stock appreciation rights through prior year acquisitions. Old National recorded 0 incremental expense associated with the conversion of these options and stock appreciation rights.At June 30, 2020, 502021, 28 thousand stock appreciation rights remained outstanding.
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NOTE 18 – INCOME TAXES
Following is a summary of the major items comprising the differences in taxes from continuing operations computed at the federal statutory rate and as recorded in the consolidated statements of income:
Three Months Ended
June 30,		Six Months Ended
June 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars in thousands)(dollars in thousands)2020201920202019(dollars in thousands)2021202020212020
Provision at statutory rate of 21%Provision at statutory rate of 21%$12,908  $16,238  $18,279  $30,808  Provision at statutory rate of 21%$16,117 $12,908 $38,051 $18,279 
Tax-exempt income:Tax-exempt income:Tax-exempt income:
Tax-exempt interestTax-exempt interest(2,671) (2,604) (5,303) (5,135) Tax-exempt interest(2,762)(2,671)(5,541)(5,303)
Section 291/265 interest disallowanceSection 291/265 interest disallowance44  123  116  234  Section 291/265 interest disallowance30 44 63 116 
Company-owned life insurance incomeCompany-owned life insurance income(623) (569) (1,270) (1,239) Company-owned life insurance income(556)(623)(1,099)(1,270)
Tax-exempt incomeTax-exempt income(3,250) (3,050) (6,457) (6,140) Tax-exempt income(3,288)(3,250)(6,577)(6,457)
State income taxesState income taxes1,718  1,558  1,711  3,558  State income taxes2,200 1,718 5,173 1,711 
Interim period effective rate adjustmentInterim period effective rate adjustment75  353  3,341  1,041  Interim period effective rate adjustment(662)75 (2,437)3,341 
Tax credit investments - federalTax credit investments - federal(1,819) (715) (3,720) (1,134) Tax credit investments - federal(1,430)(1,819)(2,523)(3,720)
Other, netOther, net129  (25) (454) (670) Other, net1,023 129 (97)(454)
Income tax expenseIncome tax expense$9,761  $14,359  $12,700  $27,463  Income tax expense$13,960 $9,761 $31,590 $12,700 
Effective tax rateEffective tax rate15.9 %18.6 %14.6 %18.7 %Effective tax rate18.2 %15.9 %17.4 %14.6 %
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In accordance with ASC 740-270,
Accounting for Interim Reporting, the
The provision for income taxes was recorded at June 30, 20202021 and 20192020 based on the current estimate of the effective annual rate.
The lowerhigher effective tax rate during the three and six months ended June 30, 20202021 when compared to the three and six months ended June 30, 20192020 is primarily the result of an increaseincreases in federal tax credits available.
Unrecognized Tax Benefits
Old National has an immaterial amount of unrecognized tax benefits.  Old National is currently under audit by the Internal Revenue Service.  Old National expects the total amount of unrecognized tax benefits to be reduced to 0 after the audit is finalized.
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pre-tax book income.
Net Deferred Tax Assets
Net deferred tax assets are included in other assets on the balance sheet. Significant components of net deferred tax assets (liabilities) were as follows:
(dollars in thousands)(dollars in thousands)June 30,
2020		December 31,
2019		(dollars in thousands)June 30,
2021		December 31,
2020
Deferred Tax AssetsDeferred Tax Assets  Deferred Tax Assets  
Allowance for loan losses, net of recapture$34,576  $14,179  
Allowance for credit losses, net of recaptureAllowance for credit losses, net of recapture$29,259 $34,971 
Benefit plan accrualsBenefit plan accruals13,507  19,673  Benefit plan accruals13,364 20,076 
Alternative minimum tax credit—  1,272  
Net operating loss carryforwardsNet operating loss carryforwards19,238  25,336  Net operating loss carryforwards15,030 18,982 
Deferred gain on securitiesDeferred gain on securities3,027  3,754  Deferred gain on securities1,559 2,102 
Acquired loansAcquired loans13,902  16,784  Acquired loans9,720 11,989 
Operating lease liabilitiesOperating lease liabilities25,845  26,503  Operating lease liabilities23,937 24,245 
Tax credit investments and other partnershipsTax credit investments and other partnerships2,567  1,765  Tax credit investments and other partnerships1,339 1,054 
Other real estate owned138  141  
Other, netOther, net750  591  Other, net654 488 
Total deferred tax assetsTotal deferred tax assets113,550  109,998  Total deferred tax assets94,862 113,907 
Deferred Tax LiabilitiesDeferred Tax LiabilitiesDeferred Tax Liabilities
Purchase accountingPurchase accounting(18,309) (17,564) Purchase accounting(18,358)(18,232)
Loan servicing rightsLoan servicing rights(5,964) (6,289) Loan servicing rights(7,092)(6,582)
Premises and equipmentPremises and equipment(8,097) (12,167) Premises and equipment(13,898)(14,008)
Prepaid expensesPrepaid expenses(973) (973) Prepaid expenses(956)(955)
Operating lease right-of-use assetsOperating lease right-of-use assets(22,922) (25,448) Operating lease right-of-use assets(21,543)(21,569)
Unrealized gains on available-for-sale investment securitiesUnrealized gains on available-for-sale investment securities(41,068) (15,751) Unrealized gains on available-for-sale investment securities(15,217)(40,756)
Unrealized gains on hedgesUnrealized gains on hedges(1,418) (78) Unrealized gains on hedges(1,056)(1,080)
Other, netOther, net(1,752) (2,023) Other, net(1,581)(1,555)
Total deferred tax liabilitiesTotal deferred tax liabilities(100,503) (80,293) Total deferred tax liabilities(79,701)(104,737)
Net deferred tax assetsNet deferred tax assets$13,047  $29,705  Net deferred tax assets$15,161 $9,170 
Through the acquisition of Anchor (WI) in the second quarter of 2016 and Lafayette Savings Bank in the fourth quarter of 2014, both former thrifts, Old National Bank’s retained earnings at June 30, 20202021 include base-year bad debt reserves, created for tax purposes prior to 1988, totaling $52.8 million.  Of this total, $50.9 million was acquired from Anchor (WI), and $1.9 million was acquired from Lafayette Savings Bank.  Base-year reserves are subject to recapture in the unlikely event that Old National Bank (1) makes distributions in excess of current and accumulated earnings and profits, as calculated for federal income tax purposes, (2) redeems its stock, or (3) liquidates.  Old National Bank has no intention of making such a nondividend distribution.  Accordingly, under current accounting principles, a related deferred income tax liability of $13.0 million has not been recognized.
NaN valuation allowance was recorded at June 30, 20202021 or December 31, 20192020 because, based on current expectations, Old National believes it will generate sufficient income in future years to realize deferred tax assets.  Old National has federal net operating loss carryforwards totaling $52.4$36.7 million at June 30, 20202021 and $78.5$52.4 million at December 31, 2019.2020.  This federal net operating loss was acquired from the acquisition of Anchor (WI) in 2016.  If not used, the federal net operating loss carryforwards will expire from 20292030 to 2033.  Old National has recorded state net operating loss carryforwards totaling $136.3$119.4 million at June 30, 20202021 and $148.4$132.2 million at December 31, 2019.2020.  If not used, the state net operating loss carryforwards will expire from 20242027 to 2035.2033.
The federal and recorded state net operating loss carryforwards are subject to an annual limitation under Internal Revenue Code section 382.  Old National believes that all of the recorded net operating loss carryforwards will be used prior to expiration.
NOTE 19 – DERIVATIVE FINANCIAL INSTRUMENTS
As part of our overall interest rate risk management, Old National uses derivative instruments, including interest rate swaps, collars, caps, and floors.  The notional amount does not represent amounts exchanged by the parties.  The
42

amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements. The notional amount of these derivative instruments was $1.106 billion at June 30, 2020 and $665.5 million at December 31, 2019.  These derivative financial instruments at June 30, 2020 consisted of $380.5 million notional amount of receive-fixed, pay-variable interest rate swaps on certain of its borrowings, $325.0 million
47

notional amount of pay-fixed, receive-variable interest rate swaps on certain of its borrowings, and $400.0 million notional amount interest rate collars and floors related to variable-rate commercial loan pools.  Derivative financial instruments at December 31, 2019 consisted of $130.5 million notional amount of receive-fixed, pay-variable interest rate swaps on certain of its borrowings, $25.0 million notional amount of pay-fixed, receive-variable interest rate swaps on certain of its borrowings, and $510.0 million notional amount interest rate collars and floors related to variable-rate commercial loan pools.These hedges were entered into to manage interest rate risk.Derivative instruments are recognized on the balance sheet at their fair value and are not reported on a net basis.
In accordance with ASC 815-20-35-1, subsequent changes in fair value for a hedging instrument that has been designated and qualifies as part of a hedging relationship should be accounted for in the following manner:
Cash flow hedges: changes in fair value are recognized as a component in other comprehensive income.
Fair value hedges: changes in fair value are recognized concurrently in earnings.
Consistent with this guidance, asAs long as a hedging instrument is designated and the results of the effectiveness testing support that the instrument qualifies for hedge accounting treatment, 100% of the periodic changes in fair value of the hedging instrument are accounted for as outlined above. This is the case whether or not economic mismatches exist in the hedging relationship. As a result, there is no periodic measurement or recognition of ineffectiveness. Rather, the full impact of hedge gains and losses is recognized in the period in which the hedged transactions impact earnings.
While separate measurement and presentation of ineffectiveness is eliminated, paragraph 815-20-45-1A requires theThe change in fair value of the hedging instrument that is included in the assessment of hedge effectiveness beis presented in the same income statement line item that is used to present the earnings effect of the hedged item.
Cash Flow Hedges
Interest rate swaps of certain borrowings were designated as cash flow hedges totaling $150.0 million notional amount at June 30, 2021 and $325.0 million notional amount at December 31, 2020. Interest rate collars and floors related to variable-rate commercial loan pools were designated as cash flow hedges totaling $400.0 million notional amount at June 30, 2021 and December 31, 2020. The hedges were determined to be effective during all periods presented and we expect them to remain effective during the remaining terms.
Old National has designated its interest rate collars as cash flow hedges.  The structure of these instruments is such that Old National pays the counterparty an incremental amount if the collar index exceeds the cap rate.  Conversely, Old National receives an incremental amount if the index falls below the floor rate.  No payments are required if the collar index falls between the cap and floor rates. 
Old National has designated its interest rate floor transactions as cash flow hedges.  The structure of these instruments is such that Old National receives an incremental amount if the index falls below the floor strike rate. No payments are required if the index remains above the floor strike rate.
Fair Value Hedges
Interest rate swaps of certain borrowings were designated as fair value hedges totaling $379.0 million notional amount at June 30, 2021 and December 31, 2020. Interest rate swaps of certain available-for-sale investment securities were designated as fair value hedges totaling $910.0 million notional amount at June 30, 2021 and $347.5 million notional amount at December 31, 2020. The hedges were determined to be effective during all periods presented and we expect them to remain effective during the remaining terms.
Derivatives Designated as Hedges
The following table summarizes Old National’s derivatives designated as hedges:
June 30, 2021December 31, 2020
Fair ValueFair Value
(dollars in thousands)NotionalAssets (1)Liabilities (2)NotionalAssets (1)Liabilities (2)
Cash flow hedges
Interest rate collars and floors on loan pools$400,000 $3,110 $0 $400,000 $6,636 $0 
Interest rate swaps on borrowings150,000 3,247 0 325,000 628 1,816 
Fair value hedges
Interest rate swaps on investment securities909,957 14,164 13,181 347,516 1,145 172 
Interest rate swaps on borrowings379,000 5,967 0 379,000 8,793 0 
Total$26,488 $13,181 $17,202 $1,988 
(1)Derivative assets are included in other assets on the balance sheet.
(2)Derivative liabilities are included in other liabilities on the balance sheet.
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The effect of derivative instruments in fair value hedging relationships on the consolidated statements of income were as follows:
(dollars in thousands)Gain (Loss)
Recognized
in Income on
Related
Hedged
Items
Derivatives in
Fair Value Hedging
Relationships		Location of Gain or
(Loss) Recognized in
income on
Derivative		Gain (Loss)
Recognized
in Income on
Derivative		Hedged Items
in Fair Value
Hedging
Relationships		Location of Gain or
(Loss) Recognized in
in Income on Related
Hedged Item
Three Months Ended
June 30, 2021
Interest rate contractsInterest income/(expense)$(1,251)Fixed-rate debtInterest income/(expense)$1,251 
Interest rate contractsInterest income/(expense)(45,829)Fixed-rate
investment
securities		Interest income/(expense)45,481 
Total$(47,080)$46,732 
Three Months Ended
June 30, 2020
Interest rate contractsInterest income/(expense)$730 Fixed-rate debtInterest income/(expense)$(789)
Six Months Ended
June 30, 2021
Interest rate contractsInterest income/(expense)$(2,826)Fixed-rate debtInterest income/(expense)$2,829 
Interest rate contractsInterest income/(expense)9 Fixed-rate
investment
securities		Interest income/(expense)(64)
Total$(2,817)$2,765 
Six Months Ended
June 30, 2020
Interest rate contractsInterest income/(expense)$9,972 Fixed-rate debtInterest income/(expense)$(10,016)
The effect of derivative instruments in cash flow hedging relationships on the consolidated statements of income were as follows:
Three Months Ended
June 30,		Three Months Ended
June 30,
(dollars in thousands) 2021202020212020
Derivatives in
Cash Flow Hedging
Relationships		Location of Gain or
(Loss) Reclassified
from AOCI into Income		Gain (Loss)
Recognized in Other
Comprehensive
Income on Derivative		Gain (Loss)
Reclassified from
AOCI into
Income
Interest rate contractsInterest income/(expense)$(1,272)$(246)$1,756 $1,670 
  Six Months Ended
June 30,		Six Months Ended
June 30,
 2021202020212020
Derivatives in
Cash Flow Hedging
Relationships		Location of Gain or
(Loss) Reclassified
from AOCI into Income		Gain (Loss)
Recognized in Other
Comprehensive
Income on Derivative		Gain (Loss)
Reclassified from
AOCI into
Income
Interest rate contractsInterest income/(expense)$2,776 $7,557 $1,905 $2,101 
Amounts reported in AOCI related to cash flow hedges will be reclassified to interest income or interest expense as interest payments are received or paid on Old National’s derivative instruments.  During the next 12 months, we estimate that $2.9 million will be reclassified to interest income and $0.6 million will be reclassified to interest expense.
Commitments to fund certain mortgage loans (interest rate lock commitments) and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives.  These derivative contracts do not qualify for hedge accounting.  At June 30, 2020,2021, the notional amountamounts of the interest rate lock commitments was $388.0were $157.6 million and forward commitments were $443.2$184.1 million.  At December 31, 2019,2020, the notional amountamounts of the interest rate lock commitments was $65.7were $224.7 million and forward commitments were $101.6$261.0 million.  It is our practice to enter into forward commitments for the future delivery of residential mortgage loans to third party
44

investors when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from our commitment to fund the loans.
Old National also enters into derivative instruments for the benefit of its customers.  The notional amounts of these customer derivative instruments and the offsetting counterparty derivative instruments were $1.586$2.274 billion at June 30, 2020.2021.  The notional amounts of these customer derivative instruments and the offsetting counterparty derivative instruments were $1.298$2.008 billion at December 31, 2019.2020.  These derivative contracts do not qualify for hedge accounting.  These instruments include interest rate swaps, caps, and collars.  Commonly, Old National will economically hedge significant exposures related to these derivative contracts entered into for the benefit of customers by entering into offsetting contracts with approved, reputable, independent counterparties with substantially matching terms.
Old National enters into derivative financial instruments as part of its foreign currency risk management strategies.  These derivative instruments consist of foreign currency forward contracts to accommodate the business needs of its customers.  Old National does not designate these foreign currency forward contracts for hedge accounting treatment.  The notional amounts of these foreign currency forward contracts and the offsetting counterparty derivative instruments were $4.9 million at June 30, 2020 and $8.2 million at December 31, 2019.
Credit risk arises from the possible inability of counterparties to meet the terms of their contracts.  Old National’s exposure is limited to the replacement value of the contracts rather than the notional, principal, or contract amounts.  There are provisions in our agreements with the counterparties that allow for certain unsecured credit exposure up to an agreed threshold.  Exposures in excess of the agreed thresholds are collateralized.  In addition, we minimize credit risk through credit approvals, limits, and monitoring procedures.
Amounts reported in AOCI related to cash flow hedges will be reclassified to interest income or interest expenseDerivatives Not Designated as interest payments are received or paid on Old National’s derivative instruments.  During the next 12 months, we estimate that $7.4 million will be reclassified to interest income and $1.6 million will be reclassified to interest expense.
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Hedges
The following table summarizes the fair value of derivative financial instruments utilized by Old National:National’s derivatives not designated as hedges:
(dollars in thousands)Balance
Sheet
Location		Fair
Value		Balance
Sheet
Location		Fair
Value
June 30, 2020    
Derivatives designated as hedging instruments    
Interest rate contractsOther assets$21,831  Other liabilities$2,680  
Total derivatives designated as hedging instruments $21,831   $2,680  
Derivatives not designated as hedging instruments  
Interest rate contracts (1)Other assets$127,311  Other liabilities$17,009  
Mortgage contractsOther assets15,899  Other liabilities2,496  
Foreign currency contractsOther assets325  Other liabilities240  
Total derivatives not designated as hedging instruments $143,535   $19,745  
Total $165,366   $22,425  
December 31, 2019  
Derivatives designated as hedging instruments  
Interest rate contractsOther assets$7,157  Other liabilities$1,046  
Total derivatives designated as hedging instruments $7,157   $1,046  
Derivatives not designated as hedging instruments  
Interest rate contracts (1)Other assets$42,224  Other liabilities$10,883  
Mortgage contractsOther assets1,702  Other liabilities354  
Foreign currency contractsOther assets218  Other liabilities110  
Total derivatives not designated as hedging instruments $44,144   $11,347  
Total $51,301   $12,393  
June 30, 2021December 31, 2020
Fair ValueFair Value
(dollars in thousands)NotionalAssets (1)Liabilities (2)NotionalAssets (1)Liabilities (2)
Interest rate lock commitments$157,600 $4,668 $0 $224,719 $9,375 $0 
Forward mortgage loan contracts184,139 55 0 261,027 0 2,335 
Customer interest rate swaps2,274,193 73,114 4,977 2,008,149 113,300 133 
Counterparty interest rate swaps (3)2,274,193 367 9,367 2,008,149 0 13,543 
Customer foreign currency forward contracts16,764 408 0 9,990 324 0 
Counterparty foreign currency forward contracts16,688 0 321 9,854 0 188 
Total$78,612 $14,665 $122,999 $16,199 
(1)Derivative assets are included in other assets on the balance sheet.
(2)Derivative liabilities are included in other liabilities on the balance sheet.
(3)The fair values of certain counterparty interest rate swaps are 0zero due to the settlement of centrally-cleared variation margin rules.  The net adjustment was $111.1$59.6 million as of June 30, 20202021 and $31.6$100.4 million as of December 31, 2019.2020.
Summary information about the interest rate swaps designated as fair value hedges is as follows:
(dollars in thousands)June 30,
2020		December 31,
2019
Notional amounts$380,500  $130,500  
Weighted average pay rates0.20 %1.82 %
Weighted average receive rates1.33 %2.20 %
Weighted average maturity (in years)2.72.8
Fair value of swaps$11,527  $1,555  
The effect of derivative instruments in fair value hedging relationships on the consolidated statements of income were as follows:
(dollars in thousands)Location of Gain or
(Loss) Recognized in
in Income on
Derivative		Gain (Loss) Recognized in Income on DerivativeHedged Items
in Fair Value Hedging Relationships		Location of Gain or
(Loss) Recognized in
in Income on Related
Hedged Item		Gain (Loss) Recognized in Income on Related Hedged Items
Derivatives in
Fair Value Hedging Relationships
Three Months Ended
June 30, 2020		     
Interest rate contractsInterest income/(expense)$730  Fixed-rate debtInterest income/(expense)$(789) 
Three Months Ended
June 30, 2019		   
Interest rate contractsInterest income/(expense)$6,361  Fixed-rate debtInterest income/(expense)$(6,352) 
Six Months Ended
June 30, 2020		   
Interest rate contractsInterest income/(expense)$9,972  Fixed-rate debtInterest income/(expense)$(10,016) 
Six Months Ended
June 30, 2019		   
Interest rate contractsInterest income/(expense)$12,914  Fixed-rate debtInterest income/(expense)$(12,900) 
4945

Summary information about the interest rate swaps designated as cash flow hedges is as follows: 
(dollars in thousands)June 30,
2020		December 31,
2019
Notional amounts$325,000  $25,000  
Weighted average pay rates0.74 %3.52 %
Weighted average receive rates0.57 %1.93 %
Weighted average maturity (in years)4.02.1
Unrealized gains (losses)$(2,639) $(954) 
Old National has designated its interest rate collars as cash flow hedges.  The structure of these instruments is such that Old National pays the counterparty an incremental amount if the collar index exceeds the cap rate.  Conversely, Old National receives an incremental amount if the index falls below the floor rate.  No payments are required if the collar index falls between the cap and floor rates.  Summary information about the collars designated as cash flow hedges is as follows:
(dollars in thousands)June 30,
2020		December 31,
2019
Notional amounts$300,000  $300,000  
Weighted average cap rates3.21 %3.21 %
Weighted average floor rates2.21 %2.21 %
Weighted average rates0.18 %1.70 %
Weighted average maturity (in years)1.41.9
Unrealized gains (losses)$8,401  $3,691  
Old National has designated its interest rate floor transactions as cash flow hedges.  The structure of these instruments is such that Old National receives an incremental amount if the index falls below the floor strike rate. No payments are required if the index remains above the floor strike rate. Summary information about the interest rate floor transactions designated as cash flow hedgesis as follows:
(dollars in thousands)June 30,
2020
Notional amounts$100,000 
Weighted average floor strike rate0.75 %
Weighted average rates0.18 %
Weighted average maturity (in years)2.8
Unrealized gains (losses)$1,862 
The structure of Old National's interest rate floor spread transactions at December 31, 2019 was such that Old National received an incremental amount if the index fell below the purchased floor strike rate.  Old National paid an incremental amount if the index fell below the sold floor rate.  Floor corridor protection was limited to the spread between the purchased floor strike rate and the sold floor rate.  No payments were required if the index remained above the purchased floor strike rate.  Old National terminated these interest rate floor spread transactions during the first quarter of 2020. Summary information about the floor spread transactions designated as cash flow hedges at December 31, 2019 was as follows:
(dollars in thousands)December 31,
2019
Notional amounts$210,000 
Weighted average purchased floor strike rate2.00 %
Weighted average sold floor rate1.00 %
Weighted average rate1.70 %
Weighted average maturity (in years)2.1
Unrealized gains (losses)$1,820 
50

The effect of derivative instruments in cash flow hedging relationships on the consolidated statements of income were as follows:
Three Months Ended
June 30,		Three Months Ended
June 30,
(dollars in thousands) 2020201920202019
Derivatives in
Cash Flow Hedging
Relationships		Location of Gain or
(Loss) Reclassified
from AOCI into Income		Gain (Loss)
Recognized in Other
Comprehensive
Income on Derivative		Gain (Loss)
Reclassified from
AOCI into
Income
Interest rate contractsInterest income/(expense)$(246) $944  $1,670  $6  
  Six Months Ended
June 30,		Six Months Ended
June 30,
 2020201920202019
Derivatives in
Cash Flow Hedging
Relationships		Location of Gain or
(Loss) Reclassified
from AOCI into Income		Gain (Loss)
Recognized in Other
Comprehensive
Income on Derivative		Gain (Loss)
Reclassified from
AOCI into
Income
Interest rate contractsInterest income/(expense)$7,557  $552  $2,101  $391  
The effect of derivatives not designated as hedging instruments on the consolidated statements of income were as follows:
Three Months Ended
June 30,		Three Months Ended
June 30,
(dollars in thousands)(dollars in thousands) 20202019(dollars in thousands) 20212020
Derivatives Not Designated as
Hedging Instruments		Derivatives Not Designated as
Hedging Instruments		Location of Gain or (Loss)
Recognized in Income on
Derivative		Gain (Loss)
Recognized in Income on
Derivative		Derivatives Not Designated as
Hedging Instruments		Location of Gain or (Loss)
Recognized in Income on
Derivative		Gain (Loss)
Recognized in Income on
Derivative
Interest rate contracts (1)Interest rate contracts (1)Other income/(expense)$(122) $(94) Interest rate contracts (1)Other income/(expense)$(75)$(122)
Mortgage contractsMortgage contractsMortgage banking revenue7,236  819  Mortgage contractsMortgage banking revenue(5,578)7,236 
Foreign currency contractsForeign currency contractsOther income/(expense)(5) (14) Foreign currency contractsOther income/(expense)(85)(5)
TotalTotal $7,109  $711  Total $(5,738)$7,109 
 Six Months Ended
June 30,		  Six Months Ended
June 30,
 20202019 20212020
Derivatives Not Designated as
Hedging Instruments		Derivatives Not Designated as
Hedging Instruments		Location of Gain or (Loss)
Recognized in Income on
Derivative		Gain (Loss)
Recognized in Income on
Derivative		Derivatives Not Designated as
Hedging Instruments		Location of Gain or (Loss)
Recognized in Income on
Derivative		Gain (Loss)
Recognized in Income on
Derivative
Interest rate contracts (1)Interest rate contracts (1)Other income/(expense)$(588) $(131) Interest rate contracts (1)Other income/(expense)$310 $(588)
Mortgage contractsMortgage contractsMortgage banking revenue12,055  1,841  Mortgage contractsMortgage banking revenue(2,317)12,055 
Foreign currency contractsForeign currency contractsOther income/(expense)(24) (11) Foreign currency contractsOther income/(expense)(49)(24)
TotalTotal $11,443  $1,699  Total $(2,056)$11,443 
(1)Includes the valuation differences between the customer and offsetting swaps.
NOTE 20 – COMMITMENTS AND CONTINGENCIES
COVID-19
As previously disclosed, a novel strain of coronavirus, COVID-19 was reported in Wuhan, China and continues to unfold across the U.S. The spread ofCOVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, the COVID-19 virus had an impact on our operations as of June 30, 2020, but it is too early to know by how much the impact will have on the Company's business, financial condition, and results of operations of the Company and its customers. ChangesThe COVID-19 pandemic caused changes in the behavior of customers, businesses, and their employees, as a result of the COVID-19 pandemic, including illness, quarantines, social distancing practices, cancellation of events and travel, business and school shutdowns, reduction in commercial activity and financial transactions, supply chain interruptions, increased unemployment, and overall economic and financial market instability. Future effects, including additional actions taken by federal, state, and local governments to contain COVID-19 or treat its impact, are also unknown. However, if these actions are sustained, it may adversely impact several industries within our geographic footprint and impair the ability of Old National'sNational’s customers to fulfill their contractual obligations to the Company. This could cause Old National to experience a material adverse effect on our business operations, asset valuations, financial condition, and results of operations. Material adverse impacts may include all or a combination of valuation impairments on Old
51

National's National’s intangible assets, investments, loans, loan servicing rights, deferred tax assets, or counter-party risk derivatives.

Litigation
In the normal course of business, Old National Bancorp and its subsidiaries have been named, from time to time, as defendants in various legal actions.  Certain of the actual or threatened legal actions may include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages.
Old National contests liability and/or the amount of damages as appropriate in each pending matter.  In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages or where investigations and proceedings are in the early stages, Old National cannot predict with certainty the loss or range of loss, if any, related to such matters, how or if such matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, or other relief, if any, might be. Subject to the foregoing, Old National believes, based on current knowledge and after consultation with counsel, that the outcome of such pending matters will not have a material adverse effect on the consolidated financial condition of Old National, although the outcome of such matters could be material to Old National’s operating
46

results and cash flows for a particular future period, depending on, among other things, the level of Old National’s revenues or income for such period.  Old National will accrue for a loss contingency if (1) it is probable that a future event will occur and confirm the loss and (2) the amount of the loss can be reasonably estimated.
Old National is not currently involved in any material litigation.
Credit-Related Financial Instruments
In the normal course of business, Old National’s banking affiliates have entered into various agreements to extend credit, including loan commitments of $2.999$4.151 billion and standby letters of credit of $84.3$72.0 million at June 30, 2020.2021.  At June 30, 2020,2021, approximately $2.758$3.901 billion of the loan commitments had fixed rates and $240.6$250.4 million had floating rates, with the floating interest rates ranging from 0% to 13%14%.  At December 31, 2019,2020, loan commitments totaled $2.779$3.720 billion and standby letters of credit totaled $87.8$86.9 million.  These commitments are not reflected in the consolidated financial statements.  The allowance for unfunded loan commitments totaled $11.0$10.4 million at June 30, 20202021 and $2.7$11.7 million at December 31, 2019. The increase in allowance for unfunded loan commitments included a cumulative-effect adjustment of $4.5 million effective January 1, 2020 due to the adoption of ASC 326. See Note 2 for additional information about CECL for unfunded loan commitments.2020.
Old National had credit extensions with various unaffiliated banks related to letter of credit commitments issued on behalf of Old National’s clients totaling $8.3$7.9 million at June 30, 20202021 and $8.7 million at December 31, 2019.2020.  Old National provided collateral to the unaffiliated banks to secure credit extensions totaling $7.7$7.5 million at June 30, 20202021 and December 31, 2019.2020.  Old National did not provide collateral for the remaining credit extensions.
Visa Class B Restricted Shares
In 2008, Old National received Visa Class B restricted shares as part of Visa’s initial public offering.  These shares are transferable only under limited circumstances until they can be converted into the publicly traded Class A common shares.  This conversion will not occur until the final settlement of certain litigation for which Visa is indemnified by the holders of Visa’s Class B shares, including Old National.  Visa funded an escrow account from its initial public offering to settle these litigation claims.  Increases in litigation claims requiring Visa to fund the escrow account due to insufficient funds will result in a reduction of the conversion ratio of each Visa Class B share to unrestricted Class A shares.  As of June 30, 2020,2021, the conversion ratio was 1.6228.  Based on the existing transfer restriction and the uncertainty of the outcome of the Visa litigation, the 65,466 Class B shares that Old National owns at June 30, 20202021 are carried at a 0 cost basis and are included in other assets with our equity securities that have no readily determinable fair value.
NOTE 21 – FINANCIAL GUARANTEES
Old National holds instruments, in the normal course of business with clients, that are considered financial guarantees in accordance with FASB ASC 460-10 (FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others), which requires Old National to record the instruments at fair value.  Standby letters of credit guarantees are issued in connection with agreements made by clients to counterparties.  Standby letters of credit are contingent upon failure of the client to perform the terms of the underlying contract.  Credit risk associated with standby letters of credit is essentially the same as that associated
52

with extending loans to clients and is subject to normal credit policies.  The term of these standby letters of credit is typically one year or less.  At June 30, 2020,2021, the notional amount of standby letters of credit was $84.3$72.0 million, which represented the maximum amount of future funding requirements, and the carrying value was $0.4 million.  At December 31, 2019,2020, the notional amount of standby letters of credit was $87.8$86.9 million, which represented the maximum amount of future funding requirements, and the carrying value was $0.6$0.5 million.
Old National is a party in risk participation transactions of interest rate swaps, which had total notional amount of $49.0$74.8 million at June 30, 2020.2021.
NOTE 22 – SEGMENT INFORMATION
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.  Old National Bank, Old National’s bank subsidiary, is the only significant subsidiary upon which management makes decisions regarding how to allocate resources and assess performance.  Each of the branchesbanking centers of Old National Bank provide a group of similar community banking services, including such products and services as commercial, real estate and consumer loans, time deposits, checking and savings accounts, cash management, brokerage, trust, and investment advisory services.  The individual bank branchesbanking centers located throughout
47

our Midwest footprint have similar operating and economic characteristics.  While the chief decision maker monitors the revenue streams of the various products, services, and regional locations, operations are managed and financial performance is evaluated on a Company-wide basis.  Accordingly, all of the community banking services and branchbanking center locations are considered by management to be aggregated into 1 reportable operating segment, community banking.
NOTE 23 – FAIR VALUE
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  There are three levels of inputs that may be used to measure fair values:
•Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
•Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
•Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Old National used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:
Investment securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1).  For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).  For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).  Discounted cash flows are calculated using swap and LIBOR curves plus spreads that adjust for loss severities, volatility, credit risk, and optionality.  During times when trading is more liquid, broker quotes are used (if available) to validate the model.  Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.
Residential loans held for sale: The fair value of loans held for sale is determined using quoted prices for a similar asset, adjusted for specific attributes of that loan (Level 2).
Derivative financial instruments: The fair values of derivative financial instruments are based on derivative valuation models using market data inputs as of the valuation date (Level 2).
5348

Recurring Basis
Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which we have elected the fair value option, are summarized below: 
Fair Value Measurements at June 30, 2020 UsingFair Value Measurements at June 30, 2021 Using
(dollars in thousands)(dollars in thousands)Carrying ValueQuoted Prices in
Active Markets for
Identical Assets (Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		(dollars in thousands)Carrying ValueQuoted Prices in
Active Markets for
Identical Assets (Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Financial AssetsFinancial Assets    Financial Assets    
Equity securitiesEquity securities$40,246  $40,246  $—  $—  Equity securities$2,464 $2,464 $0 $0 
Investment securities available-for-sale:Investment securities available-for-sale:Investment securities available-for-sale:
U.S. TreasuryU.S. Treasury35,731  35,731  —  —  U.S. Treasury234,792 234,792 0 0 
U.S. government-sponsored entities and agenciesU.S. government-sponsored entities and agencies453,501  —  453,501  —  U.S. government-sponsored entities and agencies1,422,287 0 1,422,287 0 
Mortgage-backed securities - AgencyMortgage-backed securities - Agency3,304,054  —  3,304,054  —  Mortgage-backed securities - Agency3,280,983 0 3,280,983 0 
States and political subdivisionsStates and political subdivisions1,355,959  —  1,355,959  —  States and political subdivisions1,567,931 0 1,567,931 0 
Pooled trust preferred securitiesPooled trust preferred securities7,185  —  —  7,185  Pooled trust preferred securities9,388 0 0 9,388 
Other securitiesOther securities290,841  —  290,841  —  Other securities259,796 0 259,796 0 
Residential loans held for saleResidential loans held for sale122,507  —  122,507  —  Residential loans held for sale50,121 0 50,121 0 
Derivative assetsDerivative assets165,366  —  165,366  —  Derivative assets105,100 0 105,100 0 
Financial LiabilitiesFinancial LiabilitiesFinancial Liabilities
Derivative liabilitiesDerivative liabilities22,425  —  22,425  —  Derivative liabilities27,846 0 27,846 0 

 Fair Value Measurements at December 31, 2019 Using  Fair Value Measurements at December 31, 2020 Using
(dollars in thousands)(dollars in thousands)Carrying ValueQuoted Prices in
Active Markets for
Identical Assets (Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		(dollars in thousands)Carrying ValueQuoted Prices in
Active Markets for
Identical Assets (Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Financial AssetsFinancial Assets    Financial Assets    
Equity securitiesEquity securities$6,842  $6,842  $—  $—  Equity securities$2,547 $2,547 $0 $0 
Investment securities available-for-sale:Investment securities available-for-sale:Investment securities available-for-sale:
U.S. TreasuryU.S. Treasury17,682  17,682  —  —  U.S. Treasury10,208 10,208 0 0 
U.S. government-sponsored entities and agenciesU.S. government-sponsored entities and agencies592,984  —  592,984  —  U.S. government-sponsored entities and agencies841,988 0 841,988 0 
Mortgage-backed securities - AgencyMortgage-backed securities - Agency3,183,861  —  3,183,861  —  Mortgage-backed securities - Agency3,339,098 0 3,339,098 0 
States and political subdivisionsStates and political subdivisions1,275,643  —  1,275,603  40  States and political subdivisions1,492,162 0 1,492,162 0 
Pooled trust preferred securitiesPooled trust preferred securities8,222  —  —  8,222  Pooled trust preferred securities7,913 0 0 7,913 
Other securitiesOther securities306,699  31,169  275,530  —  Other securities278,746 0 278,746 0 
Residential loans held for saleResidential loans held for sale46,898  —  46,898  —  Residential loans held for sale63,250 0 63,250 0 
Derivative assetsDerivative assets51,301  —  51,301  —  Derivative assets140,201 0 140,201 0 
Financial LiabilitiesFinancial LiabilitiesFinancial Liabilities
Derivative liabilitiesDerivative liabilities12,393  —  12,393  —  Derivative liabilities18,187 0 18,187 0 
5449

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
(dollars in thousands)(dollars in thousands)Pooled Trust
Preferred Securities		States and
Political Subdivisions		(dollars in thousands)Pooled Trust
Preferred Securities		States and
Political Subdivisions
Three Months Ended June 30, 2021Three Months Ended June 30, 2021  
Balance at beginning of periodBalance at beginning of period$8,210 $0 
Accretion of discountAccretion of discount5 0 
Sales/payments receivedSales/payments received(12)0 
Increase in fair value of securitiesIncrease in fair value of securities1,185 0 
Balance at end of periodBalance at end of period$9,388 $0 
Three Months Ended June 30, 2020Three Months Ended June 30, 2020  Three Months Ended June 30, 2020
Balance at beginning of periodBalance at beginning of period$7,422  $—  Balance at beginning of period$7,422 $0 
Accretion of discountAccretion of discount3  —  Accretion of discount3 0 
Sales/payments receivedSales/payments received(16) —  Sales/payments received(16)0 
Decrease in fair value of securitiesDecrease in fair value of securities(224) —  Decrease in fair value of securities(224)0 
Balance at end of periodBalance at end of period$7,185  $—  Balance at end of period$7,185 $0 
Three Months Ended June 30, 2019
Six Months Ended June 30, 2021Six Months Ended June 30, 2021
Balance at beginning of periodBalance at beginning of period$8,123  $40  Balance at beginning of period$7,913 $0 
Accretion of discountAccretion of discount3  —  Accretion of discount10 0 
Sales/payments receivedSales/payments received(17) —  Sales/payments received(27)0 
Decrease in fair value of securities(273) —  
Increase in fair value of securitiesIncrease in fair value of securities1,492 0 
Balance at end of periodBalance at end of period$7,836  $40  Balance at end of period$9,388 $0 
Six Months Ended June 30, 2020Six Months Ended June 30, 2020Six Months Ended June 30, 2020
Balance at beginning of periodBalance at beginning of period$8,222  $40  Balance at beginning of period$8,222 $40 
Accretion of discountAccretion of discount7  —  Accretion of discount7 0 
Sales/payments receivedSales/payments received(33) (40) Sales/payments received(33)(40)
Decrease in fair value of securitiesDecrease in fair value of securities(1,011) —  Decrease in fair value of securities(1,011)0 
Balance at end of periodBalance at end of period$7,185  $—  Balance at end of period$7,185 $0 
Six Months Ended June 30, 2019
Balance at beginning of period$8,495  $4,108  
Accretion of discount7  —  
Sales/payments received(32) (35) 
Decrease in fair value of securities(634) —  
Transfers out of Level 3—  (4,033) 
Balance at end of period$7,836  $40  
The accretion of discounts on securities in the table above is included in interest income.  The increase or decrease in the fair value of securities in the table above is included in the unrealized holding gains (losses) for the period in the statement of other comprehensive income. An increase in fair value is reflected in the balance sheet as an increase in the fair value of investment securities available-for-sale, an increase in accumulated other comprehensive income, which is included in shareholders’ equity, and a decrease in other assets related to the tax impact. A decrease in fair value is reflected in the balance sheet as a decrease in the fair value of investment securities available-for-sale, a decrease in accumulated other comprehensive income, which is included in shareholders’ equity, and an increase in other assets related to the tax impact. During the six months ended June 30, 2019, Old National received third party pricing on a $4.0 million state and political subdivisions security and transferred it out of Level 3. 
5550

The table below provides quantitative information about significant unobservable inputs used in fair value measurements within Level 3 of the fair value hierarchy:
(dollars in thousands)(dollars in thousands)Fair ValueValuation TechniquesUnobservable InputRange (Weighted Average) (4)(dollars in thousands)Fair ValueValuation TechniquesUnobservable InputRange (Weighted Average) (4)
June 30, 2020  
June 30, 2021June 30, 2021  
Pooled trust preferred securitiesPooled trust preferred securities$7,185  Discounted cash flowConstant prepayment rate (1)0.00%Pooled trust preferred securities$9,388 Discounted cash flowConstant prepayment rate (1)0.00%
 Additional asset defaults (2)6.0% - 8.9% (6.9%)  Additional asset defaults (2)5.8% - 8.6% (6.7%)
 Expected asset recoveries (3)0.0% - 18.7% (5.9%)  Expected asset recoveries (3)0.0% - 23.3% (7.4%)
December 31, 2019 
December 31, 2020December 31, 2020 
Pooled trust preferred securitiesPooled trust preferred securities$8,222  Discounted cash flowConstant prepayment rate (1)0.00%Pooled trust preferred securities$7,913 Discounted cash flowConstant prepayment rate (1)0.00%
 Additional asset defaults (2)6.2% - 8.0% (6.8%)  Additional asset defaults (2)6.0% - 8.7% (6.8%)
 Expected asset recoveries (3)0.0% - 19.1% (6.0%)  Expected asset recoveries (3)0.0% - 23.2% (7.3%)
State and political subdivisions40  Discounted cash flowNo observable inputsN/A
 Local municipality issuance 
 Old National owns 100% 
 Carried at par 
(1)Assuming no prepayments.
(2)Each currently performing pool asset is assigned a default probability based on the banking environment, which is adjusted for specific issuer evaluation, of 0%, 50%, or 100%.
(3)Each currently defaulted pool asset is assigned a recovery probability based on specific issuer evaluation of 0%, 25%, or 100%.
(4)Unobservable inputs are weighted by the estimated number of defaults and current performing collateral of the instruments.
Significant changes in any of the unobservable inputs used in the fair value measurement in isolation would have resulted in a significant change to the fair value measurement.  The pooled trust preferred securities Old National owns are subordinate note classes that rely on an ongoing cash flow stream to support their values.  The senior note classes receive the benefit of prepayments to the detriment of subordinate note classes since the ongoing interest cash flow stream is reduced by the early redemption.  Generally, a change in prepayment rates or additional pool asset defaults would have an impact that is directionally opposite from a change in the expected recovery of a defaulted pool asset.
Non-Recurring Basis
Assets measured at fair value at June 30, 2021 on a non-recurring basis are summarized below:
 Fair Value Measurements at June 30, 2020 Using  Fair Value Measurements at June 30, 2021 Using
(dollars in thousands)(dollars in thousands)Carrying
Value		Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		(dollars in thousands)Carrying
Value		Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Collateral Dependent Impaired Loans:    
Collateral Dependent Loans:Collateral Dependent Loans:    
Commercial loansCommercial loans$13,676  $—  $—  $13,676  Commercial loans$12,443 $0 $0 $12,443 
Commercial real estate loansCommercial real estate loans21,880  —  —  21,880  Commercial real estate loans23,825 0 0 23,825 
Foreclosed Assets:
Residential47  —  —  47  
Loan servicing rightsLoan servicing rights24,034  —  24,034  —  Loan servicing rights277 0 277 0 
Impaired commercialCommercial and commercial real estate loans that are deemed collateral dependent are valued using the discounted cash flows.  The liquidation amounts are based on the fair value of the underlying collateral.  These estimates are based oncollateral using the most recently available appraisals with certain adjustments made based on the type of property, age of appraisal, current status of the property, and other related factors to estimate the current value of the collateral.  These impaired commercial and commercial real estate loans had a principal amount of $44.3$40.6 million, with a valuation allowance of $8.8$4.3 million at June 30, 2020.2021.  Old National recorded provision expense associated with these loans totaling $0.2 million for the three months ended June 30, 2021 and provision recoveries totaling $38 thousand for the six months ended June 30, 2021.  Old National recorded provision recoveries associated with thesecommercial and commercial real estate loans that were deemed collateral dependent totaling $0.3 million for the three months ended June 30, 2020 and provision expense totaling $6.5 million for the six months ended June 30, 2020.  Old National recorded provision expense associated with impaired commercial and commercial real estate loans that were deemed collateral dependent totaling $1.1 million for the three months ended June 30, 2019 and $2.3 million for the six months ended June 30, 2019.
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Other real estate owned and other repossessed property is measured at fair value less costs to sellsell. Old National did not have any other real estate owned or repossessed property measured at fair value on a non-recurring basis and had a net carrying amount of $47 thousand at June 30, 2020.2021. There were 0 write-downs of other real estate owned for the three months ended June 30, 2021 and $23 thousand for the six months ended June 30, 2021. There were write-downs of other real estate owned of $87 thousand for the three months ended June 30, 2020 and $98 thousand for the six months ended June 30, 2020. Old National did not record any write-downs for the three or six months ended June 30, 2019.
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Loan servicing rights are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount.  If the carrying amount of an individual tranche exceeds fair value, impairment is recorded on that tranche so that the servicing asset is carried at fair value.  Fair value is determined at a tranche level, based on market prices for comparable mortgage servicing contracts when available, or alternatively based on a valuation model that calculates the present value of estimated future net servicing income.  The valuation model utilizes a discount rate, weighted average prepayment speed, and other economic factors that market participants would use in estimating future net servicing income and that can be validated against available market data (Level 2).  The valuation allowance for loan servicing rights with impairments at June 30, 20202021 totaled $2.3$0.1 million.  Old National recorded impairmentsrecoveries associated with these loan servicing rights totaling $41 thousand during the three months ended June 30, 2021 and $1.3 million for the six months ended June 30, 2021. There were impairments of $0.8 million duringfor the three months ended June 30, 2020 and $2.2 million duringfor the six months ended June 30, 2020. There were impairments of $15 thousand for the three months ended June 30, 2019 and $17 thousand for the six months ended June 30, 2019.
Assets measured at fair value at December 31, 2020 on a non-recurring basis are summarized below:
 Fair Value Measurements at December 31, 2019 Using  Fair Value Measurements at December 31, 2020 Using
(dollars in thousands)(dollars in thousands)Carrying ValueQuoted Prices in
Active Markets for
Identical Assets (Level 1)		Significant
Other
Observable
Inputs (Level 2)		Significant
Unobservable
Inputs (Level 3)		(dollars in thousands)Carrying ValueQuoted Prices in
Active Markets for
Identical Assets (Level 1)		Significant
Other
Observable
Inputs (Level 2)		Significant
Unobservable
Inputs (Level 3)
Collateral Dependent Impaired Loans:    
Collateral Dependent Loans:Collateral Dependent Loans:    
Commercial loansCommercial loans$10,361  $—  $—  $10,361  Commercial loans$10,747 $0 $0 $10,747 
Commercial real estate loansCommercial real estate loans11,610  —  —  11,610  Commercial real estate loans40,653 0 0 40,653 
Foreclosed Assets:
Commercial real estate21  —  —  21  
Residential22  —  —  22  
Loan servicing rightsLoan servicing rights4,662  —  4,662  —  Loan servicing rights26,717 0 26,717 0 
At December 31, 2019, impaired2020, commercial and commercial real estate loans that are deemed collateral dependent had a principal amount of $30.9$57.2 million, with a valuation allowance of $8.9$5.8 million.
Other real estate owned and other repossessed property had a net carrying amount of $43 thousand at December 31, 2019.
The valuation allowance for loan servicing rights with impairments at December 31, 20192020 totaled $31 thousand.
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$1.4 million.
The table below provides quantitative information about significant unobservable inputs used in fair value measurements within Level 3 of the fair value hierarchy:
(dollars in thousands)Fair ValueValuation TechniquesUnobservable InputRange (Weighted Average) (2)
June 30, 2020    
Collateral Dependent Impaired Loans    
Commercial loans$13,676  Fair value ofDiscount for type of property,0% - 80% (48%)
 collateralage of appraisal, and current status
Commercial real estate loans21,880  Fair value ofDiscount for type of property,25% - 35% (30%)
 collateralage of appraisal, and current status
Foreclosed Assets
Residential47  Fair value ofDiscount for type of property,47% - 98% (73%)
collateralage of appraisal, and current status
December 31, 2019  
Collateral Dependent Impaired Loans  
Commercial loans$10,361  Fair value ofDiscount for type of property,0% - 50% (13%)
 collateralage of appraisal, and current status
Commercial real estate loans (1)11,610  Fair value ofDiscount for type of property,45%
 collateralage of appraisal, and current status
Foreclosed Assets  
Commercial real estate (1)21  Fair value ofDiscount for type of property,43%
collateralage of appraisal, and current status
Residential (1)22  Fair value ofDiscount for type of property,21%
  collateralage of appraisal, and current status 
(dollars in thousands)Fair ValueValuation TechniquesUnobservable InputRange (Weighted Average) (1)
June 30, 2021
Collateral Dependent Loans
Commercial loans$12,443DiscountedDiscount for type of property,1% - 27% (10%)
cash flowage of appraisal, and current status
Commercial real estate loans23,825DiscountedDiscount for type of property,0% - 19% (11%)
cash flowage of appraisal, and current status
December 31, 2020
Collateral Dependent Loans
Commercial loans$10,747 DiscountedDiscount for type of property,0% - 33% (12%)
cash flowage of appraisal, and current status
Commercial real estate loans40,653 DiscountedDiscount for type of property,0% - 18% (7%)
cash flowage of appraisal, and current status
(1)There was only one collateral dependent impaired commercial real estate loan, one foreclosed commercial real estate asset, and one foreclosed residential asset at December 31, 2019, so no range or weighted average is reported.
(2)Unobservable inputs were weighted by the relative fair value of the instruments.
Fair Value Option
Old National may elect to report most financial instruments and certain other items at fair value on an instrument-by instrument basis with changes in fair value reported in net income.  After the initial adoption, the election is made at the acquisition of an eligible financial asset, financial liability, or firm commitment or when certain specified reconsideration events occur.  The fair value election may not be revoked once an election is made.
Residential Loans Held For Sale
Old National has elected the fair value option for residential loans held for sale.  For these loans, interest income is recorded in the consolidated statements of income based on the contractual amount of interest income earned on the financial assets (except any that are on nonaccrual status).  None of these loans are 90 days or more past due, nor are
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any on nonaccrual status.  Included in the income statement is interest income for loans held for sale totaling $0.4 million for the three months ended June 30, 2021 and $0.8 million for the six months ended June 30, 2021, compared to $0.5 million for the three months ended June 30, 2020 and $0.9 million for the six months ended June 30, 2020, compared to $0.3 million for the three months ended June 30, 2019 and $0.5 million for the six months ended June 30, 2019.2020.
Old National has elected the fair value option for newly originated conforming fixed-rate and adjustable-rate first mortgage loans held for sale.  These loans are intended for sale and are hedged with derivative instruments.  Old National has elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplification.  The fair value option was not elected for loans held for investment.
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The difference between the aggregate fair value and the aggregate remaining principal balance for loans for which the fair value option has been elected was as follows: 
(dollars in thousands)(dollars in thousands)Aggregate Fair ValueDifference Contractual Principal(dollars in thousands)Aggregate Fair ValueDifference Contractual Principal
June 30, 2020   
June 30, 2021June 30, 2021   
Residential loans held for saleResidential loans held for sale$122,507  $6,547  $115,960  Residential loans held for sale$50,121 $1,896 $48,225 
December 31, 2019
December 31, 2020December 31, 2020
Residential loans held for saleResidential loans held for sale$46,898  $1,529  $45,369  Residential loans held for sale$63,250 $3,485 $59,765 
Accrued interest at period end is included in the fair value of the instruments.
The following table presents the amount of gains and losses from fair value changes included in income before income taxes for financial assets carried at fair value:
(dollars in thousands)(dollars in thousands)Other
Gains and (Losses)		Interest IncomeInterest (Expense)Total Changes
in Fair Values
Included in
Current Period Earnings		(dollars in thousands)Other
Gains and (Losses)		Interest IncomeInterest (Expense)Total Changes
in Fair Values
Included in
Current Period Earnings
Three Months Ended June 30, 2021Three Months Ended June 30, 2021    
Residential loans held for saleResidential loans held for sale$790 $0 $(1)$789 
Three Months Ended June 30, 2020Three Months Ended June 30, 2020    Three Months Ended June 30, 2020
Residential loans held for saleResidential loans held for sale$3,597  $—  $(2) $3,595  Residential loans held for sale$3,597 $0 $(2)$3,595 
Three Months Ended June 30, 2019
Six Months Ended June 30, 2021Six Months Ended June 30, 2021
Residential loans held for saleResidential loans held for sale$1,085  $5  $—  $1,090  Residential loans held for sale$(1,590)$2 $(1)$(1,589)
Six Months Ended June 30, 2020Six Months Ended June 30, 2020Six Months Ended June 30, 2020
Residential loans held for saleResidential loans held for sale$5,018  $2  $(2) $5,018  Residential loans held for sale$5,018 $2 $(2)$5,018 
Six Months Ended June 30, 2019
Residential loans held for sale$1,175  $10  $—  $1,185  
5953

Financial Instruments Not Carried at Fair Value
The carrying amounts and estimated fair values of financial instruments not carried at fair value were as follows: 
  Fair Value Measurements at June 30, 2020 Using
(dollars in thousands)Carrying ValueQuoted Prices in
Active Markets
for Identical
Assets (Level 1)		Significant
Other
Observable
Inputs (Level 2)		Significant
Unobservable
Inputs (Level 3)
Financial Assets    
Cash, due from banks, money market,
   and other interest-earning investments		$310,494  $310,494  $—  $—  
Loans, net:
Commercial4,274,472  —  —  4,249,446  
Commercial real estate5,329,330  —  —  5,255,805  
Residential real estate2,215,054  —  —  2,194,379  
Consumer credit1,668,451  —  —  1,668,203  
Accrued interest receivable84,387  20  27,456  56,911  
Financial Liabilities
Deposits:
Noninterest-bearing demand deposits$5,217,678  $5,217,678  $—  $—  
Checking, NOW, savings, and money market
   interest-bearing deposits		9,629,535  9,629,535  —  —  
Other time deposits1,321,499  —  1,344,700  —  
Brokered certificates of deposit150,734  —  150,203  —  
Federal funds purchased and interbank borrowings801  801  —  —  
Securities sold under agreements to repurchase367,744  367,744  —  —  
FHLB advances2,035,014  —  2,194,482  —  
Other borrowings237,877  —  256,697  —  
Accrued interest payable6,525  —  6,525  —  
Standby letters of credit420  —  —  420  
Off-Balance Sheet Financial Instruments
Commitments to extend credit$—  $—  $—  $18,402  

  Fair Value Measurements at June 30, 2021 Using
(dollars in thousands)Carrying ValueQuoted Prices in
Active Markets
for Identical
Assets (Level 1)		Significant
Other
Observable
Inputs (Level 2)		Significant
Unobservable
Inputs (Level 3)
Financial Assets    
Cash, due from banks, money market,
   and other interest-earning investments		$491,131 $491,131 $0 $0 
Loans, net:
Commercial3,775,602 0 0 3,773,238 
Commercial real estate6,120,661 0 0 6,105,998 
Residential real estate2,204,637 0 0 2,206,836 
Consumer credit1,574,333 0 0 1,576,753 
Accrued interest receivable85,594 679 33,568 51,347 
Financial Liabilities
Deposits:
Noninterest-bearing demand deposits$6,142,724 $6,142,724 $0 $0 
Checking, NOW, savings, and money market
   interest-bearing deposits		10,723,668 10,723,668 0 0 
Time deposits1,002,519 0 1,016,578 0 
Federal funds purchased and interbank borrowings1,523 1,523 0 0 
Securities sold under agreements to repurchase396,129 396,129 0 0 
FHLB advances1,891,143 0 1,960,496 0 
Other borrowings270,318 0 289,240 0 
Accrued interest payable4,722 0 4,722 0 
Standby letters of credit400 0 0 400 
Off-Balance Sheet Financial Instruments
Commitments to extend credit$0 $0 $0 $7,047 
6054

 Fair Value Measurements at December 31, 2019 Using  Fair Value Measurements at December 31, 2020 Using
(dollars in thousands)(dollars in thousands)Carrying ValueQuoted Prices in
Active Markets
for Identical
Assets (Level 1)		Significant
Other
Observable
Inputs (Level 2)		Significant
Unobservable
Inputs (Level 3)		(dollars in thousands)Carrying ValueQuoted Prices in
Active Markets
for Identical
Assets (Level 1)		Significant
Other
Observable
Inputs (Level 2)		Significant
Unobservable
Inputs (Level 3)
Financial AssetsFinancial Assets    Financial Assets    
Cash, due from banks, money market,
and other interest-earning investments		Cash, due from banks, money market,
and other interest-earning investments		$276,337  $276,337  $—  $—  Cash, due from banks, money market,
and other interest-earning investments		$589,712 $589,712 $0 $0 
Loans, net:Loans, net:Loans, net:
CommercialCommercial2,867,711  —  —  2,831,298  Commercial3,922,642 0 0 3,912,948 
Commercial real estateCommercial real estate5,145,204  —  —  5,130,848  Commercial real estate5,867,795 0 0 5,797,447 
Residential real estateResidential real estate2,331,990  —  —  2,357,341  Residential real estate2,235,814 0 0 2,264,274 
Consumer creditConsumer credit1,718,000  —  —  1,676,253  Consumer credit1,628,840 0 0 1,618,365 
Accrued interest receivableAccrued interest receivable85,123  15  28,185  56,923  Accrued interest receivable85,306 21 27,977 57,308 
Financial LiabilitiesFinancial LiabilitiesFinancial Liabilities
Deposits:Deposits:Deposits:
Noninterest-bearing demand depositsNoninterest-bearing demand deposits$4,042,286  $4,042,286  $—  $—  Noninterest-bearing demand deposits$5,633,672 $5,633,672 $0 $0 
Checking, NOW, savings, and money market
interest-bearing deposits		Checking, NOW, savings, and money market
interest-bearing deposits		8,828,881  8,828,881  —  —  Checking, NOW, savings, and money market
interest-bearing deposits		10,280,911 10,180,911 99,957 0 
Other time deposits1,589,988  —  1,600,214  —  
Brokered certificates of deposit92,242  —  92,355  —  
Time depositsTime deposits1,122,870 0 1,140,922 0 
Federal funds purchased and interbank borrowingsFederal funds purchased and interbank borrowings350,414  350,414  —  —  Federal funds purchased and interbank borrowings1,166 1,166 0 0 
Securities sold under agreements to repurchaseSecurities sold under agreements to repurchase327,782  327,782  —  —  Securities sold under agreements to repurchase431,166 431,166 0 0 
FHLB advancesFHLB advances1,822,847  —  1,875,089  —  FHLB advances1,991,435 0 2,092,033 0 
Other borrowingsOther borrowings243,685  —  254,519  —  Other borrowings252,787 0 254,612 0 
Accrued interest payableAccrued interest payable8,272  —  8,272  —  Accrued interest payable5,443 0 5,443 0 
Standby letters of creditStandby letters of credit573  —  —  573  Standby letters of credit462 0 0 462 
Off-Balance Sheet Financial InstrumentsOff-Balance Sheet Financial InstrumentsOff-Balance Sheet Financial Instruments
Commitments to extend creditCommitments to extend credit$—  $—  $—  $4,302  Commitments to extend credit$0 $0 $0 $11,822 
The methods utilized to measure the fair value of financial instruments at June 30, 20202021 and December 31, 20192020 represent an approximation of exit price, however, an actual exit price may differ.
NOTE 24 – REVENUE FROM CONTRACTS WITH CUSTOMERS
Old National’s revenue from contracts with customers in the scope of Topic 606 is recognized within noninterest income.  The consolidated statements of income include all categories of noninterest income.  The following table reflects only the categories of noninterest income that are within the scope of Topic 606:
Three Months Ended
June 30,		Six Months Ended
June 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars in thousands)(dollars in thousands)2020201920202019(dollars in thousands)2021202020212020
Wealth management feesWealth management fees$9,424  $9,909  $18,308  $18,444  Wealth management fees$10,734 $9,424 $20,442 $18,308 
Service charges on deposit accountsService charges on deposit accounts7,582  11,515  17,659  22,341  Service charges on deposit accounts8,514 7,582 16,638 17,659 
Debit card and ATM feesDebit card and ATM fees4,832  5,419  9,830  10,922  Debit card and ATM fees5,583 4,832 10,726 9,830 
Investment product feesInvestment product fees4,845  5,591  10,719  10,862  Investment product fees6,042 4,845 11,906 10,719 
Other income:Other income:Other income:
Merchant processing feesMerchant processing fees707  821  1,511  1,528  Merchant processing fees970 707 1,794 1,511 
Gain (loss) on other real estate ownedGain (loss) on other real estate owned34  125  (22) 165  Gain (loss) on other real estate owned120 34 230 (22)
Safe deposit box feesSafe deposit box fees208  258  518  669  Safe deposit box fees205 208 568 518 
Insurance premiums and commissionsInsurance premiums and commissions196  175  312  375  Insurance premiums and commissions16 196 38 312 
TotalTotal$27,828  $33,813  $58,835  $65,306  Total$32,184 $27,828 $62,342 $58,835 
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Wealth management fees: Old National earns wealth management fees based upon asset custody and investment management services provided to individual and institutional customers.  Most of these customers receive monthly
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or quarterly billings for services rendered based upon the market value of assets in custody.  Fees that are transaction based are recognized at the point in time that the transaction is executed.
Service charges on deposit accounts: Old National earns fees from deposit customers for transaction-based, account maintenance, and overdraft services.  Transaction-based fees and overdraft fees are recognized at a point in time, since the customer generally has a right to cancel the depository arrangement at any time.  The arrangement is considered a day-to-day contract with ongoing renewals and optional purchases, so the duration of the contract does not extend beyond the services already performed.  Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which Old National satisfies its performance obligation.
Debit card and ATM fees: Debit card and ATM fees include ATM usage fees and debit card interchange income.  As with the transaction-based fees on deposit accounts, the ATM fees are recognized at the point in time that Old National fulfills the customer’s request.  Old National earns interchange fees from cardholder transactions processed through card association networks.  Interchange rates are generally set by the card associations based upon purchase volumes and other factors.  Interchange fees represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.
Investment product fees: Investment product fees are the commissions and fees received from a registered broker/dealer and investment adviser that provide those services to Old National customers.  Old National acts as an agent in arranging the relationship between the customer and the third-party service provider.  These fees are recognized monthly from the third-party broker based upon services already performed, net of the processing fees charged to Old National by the broker.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is an analysis of our results of operations for the three and six months ended June 30, 20202021 and 2019,2020, and financial condition as of June 30, 2020,2021, compared to December 31, 2019.2020.  This discussion and analysis should be read in conjunction with the consolidated financial statements and related notes.  This discussion contains
FORWARD-LOOKING STATEMENTS
In this report, we have made various statements regarding current expectations or forecasts of future events, which speak only as of the date the statements are made.  These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are also made from time-to-time in press releases and in oral statements made by the officers of Old National Bancorp (“Old National” or the “Company”).  Forward-looking statements can be identified by the use of the words “expect,” “may,” “could,” “will,” “intend,” “project,” “estimate,” “believe,” “anticipate,” or the negative of those terms, and other words of similar meaning.  Forward-looking statements also include, but are not limited to, statements regarding estimated cost savings, plans and objectives for future operations, the Company’s business and growth strategies, including future acquisitions of banks, regulatory developments, and expectations about performance as well as economic and market conditions and trends.  
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Such forward-looking statements concerning our business that are based on assumptions and estimates, which although believed to be reasonable, may turn out to be incorrect.  Therefore, undue reliance should not be placed upon these estimates and involves certain risksstatements.  We cannot assure that any of these statements, estimates, or beliefs will be realized and uncertainties.  Therefore,actual results may differ from those contemplated in these forward-looking statements.  We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.  You are advised to consult further disclosures we may make on related subjects in our filings with the SEC.  In addition to other factors discussed in this report, some of the important factors that could cause actual results to differ materially from those discussed in the forward-looking statements include the following:
•the possibility that the merger between Old National and First Midwest will not close when expected or at all because required regulatory, shareholder, or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all, or are obtained subject to conditions that are not anticipated (and the risk that required regulatory approvals may result in the imposition of conditions that could differ significantly from our current expectationsadversely affect the combined company or the expected benefits of the proposed transaction);
•the occurrence of any event, change, or other circumstances that could give rise to the right of one or both of the parties to terminate the definitive merger agreement between First Midwest and Old National;
•the risk that any announcements relating to the merger could have adverse effects on the market price of the common stock of either or both parties to the transaction;
•the possibility that the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events;
•the length, severity, magnitude, and duration of the COVID-19 pandemic and the related forward-looking statements.direct and indirect impact of such pandemic, including its impact on the Company’s financial conditions and business operations;
•changes in the economy, which could materially impact credit quality trends and the ability to generate loans and gather deposits, including the pace of recovery following the COVID-19 pandemic;
•market, economic, operational, liquidity, credit, and interest rate risks associated with our business;
•competition;
•government legislation and policies, including changes to address the impact of COVID-19 through the CARES Act and other legislative and regulatory responses to the COVID-19 pandemic;
•our ability to execute our business plan, including the anticipated impact from the ONB Way strategic plan that may differ from current estimates;
•unanticipated changes in our liquidity position, including but not limited to changes in our access to sources of liquidity and capital to address our liquidity needs;
•our ability to successfully manage our credit risk and the sufficiency of our allowance for credit losses;
•uncertainty about the discontinued use of LIBOR and the transition to an alternative rate;
•failure or circumvention of our internal controls;
•failure or disruption of our information systems;
•significant changes in accounting, tax, or regulatory practices or requirements, including the impact of the CECL standard;
•new legal obligations or liabilities or unfavorable resolutions of litigations;
•disruptive technologies in payment systems and other services traditionally provided by banks; and
•operational risks or risk management failures by us or critical third parties, including without limitation with respect to data processing, information systems, cyber-security, technological changes, vendor problems, business interruption, and fraud risks.
Investors should consider these risks, uncertainties, and other factors in addition to risk factors included in this filing and our other filings with the SEC.
6257

FINANCIAL HIGHLIGHTS
The following table sets forth certain financial highlights of Old National:
Three Months EndedSix Months EndedThree Months EndedSix Months Ended
(dollars and shares in thousands,(dollars and shares in thousands,June 30,March 31,June 30,June 30,(dollars and shares in thousands,June 30,March 31,June 30,June 30,
except per share data)except per share data)20202020201920202019except per share data)20212021202020212020
Income Statement:Income Statement:Income Statement:
Net interest incomeNet interest income$145,671  $143,771  $155,230  $289,442  $302,278  Net interest income$149,927 $148,120 $145,671 $298,047 $289,442 
Taxable equivalent adjustment (1)Taxable equivalent adjustment (1)3,367  3,323  3,289  6,690  6,487  Taxable equivalent adjustment (1)3,470 3,500 3,367 6,970 6,690 
Net interest income - tax equivalent basisNet interest income - tax equivalent basis149,038  147,094  158,519  296,132  308,765  Net interest income - tax equivalent basis153,397 151,620 149,038 305,017 296,132 
Provision for loan losses (4)22,545  16,950  1,003  39,495  2,046  
Provision for credit lossesProvision for credit losses(4,929)(17,356)22,545 (22,285)39,495 
Noninterest incomeNoninterest income58,461  57,502  51,214  115,963  97,630  Noninterest income51,508 56,712 58,461 108,220 115,963 
Noninterest expenseNoninterest expense120,121  158,744  128,118  278,865  251,159  Noninterest expense129,618 117,740 120,121 247,358 278,865 
Net incomeNet income51,705  22,640  62,964  74,345  119,240  Net income62,786 86,818 51,705 149,604 74,345 
Per Common Share Data:Per Common Share Data:Per Common Share Data:
Weighted average diluted sharesWeighted average diluted shares165,302  168,404  173,675  166,848  174,531  Weighted average diluted shares165,934 165,707 165,302 165,821 166,848 
Net income (diluted)Net income (diluted)$0.32  $0.13  $0.36  $0.45  $0.68  Net income (diluted)$0.38 $0.52 $0.32 $0.90 $0.45 
Cash dividendsCash dividends0.14  0.14  0.13  0.28  0.26  Cash dividends0.14 0.14 0.14 0.28 0.28 
Common dividend payout ratio (2)Common dividend payout ratio (2)44 %108 %35 %62 %38 %Common dividend payout ratio (2)37 %26 %44 %31 %62 %
Book valueBook value$17.35  $17.10  $16.28  $17.35  $16.28  Book value$18.05 $17.98 $17.35 $18.05 $17.35 
Stock priceStock price13.76  13.19  16.59  13.76  16.59  Stock price17.61 19.34 13.76 17.61 13.76 
Tangible common book value (3)Tangible common book value (3)10.75  10.48  9.86  10.75  9.86  Tangible common book value (3)11.55 11.47 10.75 11.55 10.75 
Performance Ratios:Performance Ratios:Performance Ratios:
Return on average assetsReturn on average assets0.96 %0.44 %1.26 %0.71 %1.20 %Return on average assets1.06 %1.49 %0.96 %1.27 %0.71 %
Return on average common equityReturn on average common equity7.27  3.20  9.13  5.24  8.72  Return on average common equity8.39 11.69 7.27 10.04 5.24 
Return on tangible common equity (3)Return on tangible common equity (3)12.27  5.89  15.59  9.01  14.82  Return on tangible common equity (3)13.58 18.77 12.27 16.10 9.01 
Return on average tangible common equity (3)Return on average tangible common equity (3)12.41  5.86  16.04  9.15  15.47  Return on average tangible common equity (3)13.58 18.88 12.41 16.21 9.15 
Net interest margin (3)Net interest margin (3)3.14  3.31  3.66  3.22  3.59  Net interest margin (3)2.91 2.94 3.14 2.93 3.22 
Efficiency ratio (3)Efficiency ratio (3)56.29  77.71  59.35  66.80  59.79  Efficiency ratio (3)62.05 55.57 56.29 58.79 66.80 
Net charge-offs (recoveries) to average loansNet charge-offs (recoveries) to average loans0.02  0.21  0.01  0.11  0.02  Net charge-offs (recoveries) to average loans(0.01)— 0.02 — 0.11 
Allowance for loan losses to ending loans (4)0.94  0.86  0.47  0.94  0.47  
Allowance for credit losses to ending loansAllowance for credit losses to ending loans0.79 0.82 0.94 0.79 0.94 
Non-performing loans to ending loansNon-performing loans to ending loans1.04  1.16  1.34  1.04  1.34  Non-performing loans to ending loans1.03 1.13 1.04 1.03 1.04 
Balance Sheet:Balance Sheet:Balance Sheet:
Total loansTotal loans$13,615,701  $12,384,612  $12,046,578  $13,615,701  $12,046,578  Total loans$13,784,677 $13,925,261 $13,615,701 $13,784,677 $13,615,701 
Total assetsTotal assets22,102,188  20,741,141  20,145,285  22,102,188  20,145,285  Total assets23,675,666 23,744,451 22,102,188 23,675,666 22,102,188 
Total depositsTotal deposits16,319,446  14,305,362  14,363,101  16,319,446  14,363,101  Total deposits17,868,911 17,849,755 16,319,446 17,868,911 16,319,446 
Total borrowed fundsTotal borrowed funds2,641,436  3,245,214  2,726,481  2,641,436  2,726,481  Total borrowed funds2,559,113 2,574,987 2,641,436 2,559,113 2,641,436 
Total shareholders' equityTotal shareholders' equity2,864,255  2,823,435  2,803,139  2,864,255  2,803,139  Total shareholders' equity2,991,118 2,979,447 2,864,255 2,991,118 2,864,255 
Capital Ratios:Capital Ratios:Capital Ratios:
Risk-based capital ratios:Risk-based capital ratios:Risk-based capital ratios:
Tier 1 common equityTier 1 common equity11.70 %11.40 %11.89 %11.70 %11.89 %Tier 1 common equity11.95 %12.01 %11.70 %11.95 %11.70 %
Tier 1Tier 111.70  11.40  11.89  11.70  11.89  Tier 111.95 12.01 11.70 11.95 11.70 
TotalTotal12.68  12.28  12.82  12.68  12.82  Total12.73 12.84 12.68 12.73 12.68 
Leverage ratio (to average assets)Leverage ratio (to average assets)8.12  8.46  8.82  8.12  8.82  Leverage ratio (to average assets)8.38 8.33 8.12 8.38 8.12 
Total equity to assets (averages)Total equity to assets (averages)13.16  13.91  13.82  13.53  13.76  Total equity to assets (averages)12.61 12.78 13.16 12.69 13.53 
Tangible common equity to tangible assets (3)Tangible common equity to tangible assets (3)8.45  8.81  8.92  8.45  8.92  Tangible common equity to tangible assets (3)8.47 8.38 8.45 8.47 8.45 
Nonfinancial Data:Nonfinancial Data:Nonfinancial Data:
Full-time equivalent employeesFull-time equivalent employees2,530  2,736  2,829  2,530  2,829  Full-time equivalent employees2,465 2,451 2,530 2,465 2,530 
Banking centersBanking centers162  192  192  162  192  Banking centers162 162 162 162 162 
(1)Calculated using the federal statutory tax rate in effect of 21% for all periods.
(2)Cash dividends per share divided by net income per share (basic).
(3)Represents a non-GAAP financial measure.  Refer to the “Non-GAAP Financial Measures” section for reconciliations to GAAP financial measures.
(4)Beginning January 1, 2020, calculation is based on current expected loss methodology. Prior to January 1, 2020, calculation is based on incurred loss methodology.
6358

NON-GAAP FINANCIAL MEASURES
The non-GAAP financial measures presented below are used by our management and our Board of Directors on a regular basis in addition to our GAAP results to facilitate the assessment of our financial performance.Management believes these non-GAAP financial measures enhance an investor’s understanding of our financial results by providing a meaningful basis for period-to-period comparisons, assisting in operating results analysis, and predicting future performance.This information supplements our GAAP reported results, and should not be viewed in isolation from, or as a substitute for, our GAAP results.Accordingly, this financial information should be read in conjunction with our consolidated financial statements and notes thereto for the quarter ended June 30, 2020,2021, included elsewhere in this report, and included in our Annual Report on Form 10-K for the year ended December 31, 2019.2020. Non-GAAP financial measures exclude certain items that are included in the financial results presented in accordance with GAAP.
6459

The following table presents GAAP to non-GAAP reconciliations.
Three Months Ended
June 30,		Six Months Ended
June 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars and shares in thousands, except per share data)(dollars and shares in thousands, except per share data)2020201920202019(dollars and shares in thousands, except per share data)2021202020212020
Tangible common book value:Tangible common book value:Tangible common book value:
Shareholders' equity (GAAP)Shareholders' equity (GAAP)$2,864,255  $2,803,139  $2,864,255  $2,803,139  Shareholders' equity (GAAP)$2,991,118 $2,864,255 $2,991,118 $2,864,255 
Deduct:Deduct:Goodwill1,036,994  1,036,258  1,036,994  1,036,258  Deduct:Goodwill1,036,994 1,036,994 1,036,994 1,036,994 
Intangible assets52,717  68,220  52,717  68,220  Intangible assets40,030 52,717 40,030 52,717 
Tangible shareholders' equity (non-GAAP)Tangible shareholders' equity (non-GAAP)$1,774,544  $1,698,661  $1,774,544  $1,698,661  Tangible shareholders' equity (non-GAAP)$1,914,094 $1,774,544 $1,914,094 $1,774,544 
Period end common sharesPeriod end common shares165,093  172,231  165,093  172,231  Period end common shares165,732 165,093 165,732 165,093 
Tangible common book valueTangible common book value10.75  9.86  10.75  9.86  Tangible common book value11.55 10.75 11.55 10.75 
Return on tangible common equity:Return on tangible common equity:Return on tangible common equity:
Net income (GAAP)Net income (GAAP)$51,705  $62,964  $74,345  $119,240  Net income (GAAP)$62,786 $51,705 $149,604 $74,345 
Add: Intangible amortization (net of tax)Add: Intangible amortization (net of tax)2,708  3,262  5,557  6,635  Add: Intangible amortization (net of tax)2,182 2,708 4,488 5,557 
Tangible net income (non-GAAP)Tangible net income (non-GAAP)$54,413  $66,226  $79,902  $125,875  Tangible net income (non-GAAP)$64,968 $54,413 $154,092 $79,902 
Tangible shareholders' equity (non-GAAP) (see above)Tangible shareholders' equity (non-GAAP) (see above)$1,774,544  $1,698,661  $1,774,544  $1,698,661  Tangible shareholders' equity (non-GAAP) (see above)$1,914,094 $1,774,544 $1,914,094 $1,774,544 
Return on tangible common equityReturn on tangible common equity12.27 %15.59 %9.01 %14.82 %Return on tangible common equity13.58 %12.27 %16.10 %9.01 %
Return on average tangible common equity:Return on average tangible common equity:Return on average tangible common equity:
Tangible net income (non-GAAP) (see above)Tangible net income (non-GAAP) (see above)$54,413  $66,226  $79,902  $125,875  Tangible net income (non-GAAP) (see above)$64,968 $54,413 $154,092 $79,902 
Average shareholders' equity (GAAP)Average shareholders' equity (GAAP)$2,845,398  $2,758,246  $2,839,460  $2,736,338  Average shareholders' equity (GAAP)$2,992,693 $2,845,398 $2,981,398 $2,839,460 
Deduct:Deduct:Average goodwill1,036,994  1,036,258  1,036,994  1,036,258  Deduct:Average goodwill1,036,994 1,036,994 1,036,994 1,036,994 
Average intangible assets54,449  70,282  56,288  72,554  Average intangible assets41,410 54,449 42,901 56,288 
Average tangible shareholders' equity (non-GAAP)Average tangible shareholders' equity (non-GAAP)$1,753,955  $1,651,706  $1,746,178  $1,627,526  Average tangible shareholders' equity (non-GAAP)$1,914,289 $1,753,955 $1,901,503 $1,746,178 
Return on average tangible common equityReturn on average tangible common equity12.41 %16.04 %9.15 %15.47 %Return on average tangible common equity13.58 %12.41 %16.21 %9.15 %
Net interest margin:Net interest margin:Net interest margin:
Net interest income (GAAP)Net interest income (GAAP)$145,671  $155,230  $289,442  $302,278  Net interest income (GAAP)$149,927 $145,671 $298,047 $289,442 
Taxable equivalent adjustmentTaxable equivalent adjustment3,367  3,289  6,690  6,487  Taxable equivalent adjustment3,470 3,367 6,970 6,690 
Net interest income - taxable equivalent basis (non-GAAP)Net interest income - taxable equivalent basis (non-GAAP)$149,038  $158,519  $296,132  $308,765  Net interest income - taxable equivalent basis (non-GAAP)$153,397 $149,038 $305,017 $296,132 
Average earning assetsAverage earning assets$19,007,719  $17,302,688  $18,390,875  $17,223,571  Average earning assets$21,095,280 $19,007,719 $20,849,829 $18,390,875 
Net interest marginNet interest margin3.14 %3.66 %3.22 %3.59 %Net interest margin2.91 %3.14 %2.93 %3.22 %
Efficiency ratio:Efficiency ratio:Efficiency ratio:
Noninterest expense (GAAP)Noninterest expense (GAAP)$120,121  $128,118  $278,865  $251,159  Noninterest expense (GAAP)$129,618 $120,121 $247,358 $278,865 
Deduct: Intangible amortization expenseDeduct: Intangible amortization expense3,612  4,325  7,388  8,797  Deduct: Intangible amortization expense2,909 3,612 5,984 7,388 
Adjusted noninterest expense (non-GAAP)Adjusted noninterest expense (non-GAAP)$116,509  $123,793  $271,477  $242,362  Adjusted noninterest expense (non-GAAP)$126,709 $116,509 $241,374 $271,477 
Net interest income - taxable equivalent basis (non-GAAP)
(see above)		Net interest income - taxable equivalent basis (non-GAAP)
(see above)		$149,038  $158,519  $296,132  $308,765  Net interest income - taxable equivalent basis (non-GAAP)
(see above)		$153,397 $149,038 $305,017 $296,132 
Noninterest incomeNoninterest income58,461  51,214  115,963  97,630  Noninterest income51,508 58,461 108,220 115,963 
Deduct: Debt securities gains (losses), netDeduct: Debt securities gains (losses), net511  1,165  5,685  1,062  Deduct: Debt securities gains (losses), net692 511 2,685 5,685 
Adjusted total revenue (non-GAAP)Adjusted total revenue (non-GAAP)$206,988  $208,568  $406,410  $405,333  Adjusted total revenue (non-GAAP)$204,213 $206,988 $410,552 $406,410 
Efficiency ratioEfficiency ratio56.29 %59.35 %66.80 %59.79 %Efficiency ratio62.05 %56.29 %58.79 %66.80 %
Tangible common equity to tangible assets:Tangible common equity to tangible assets:Tangible common equity to tangible assets:
Tangible shareholders' equity (non-GAAP) (see above)Tangible shareholders' equity (non-GAAP) (see above)$1,774,544  $1,698,661  $1,774,544  $1,698,661  Tangible shareholders' equity (non-GAAP) (see above)$1,914,094 $1,774,544 $1,914,094 $1,774,544 
Assets (GAAP)Assets (GAAP)$22,102,188  $20,145,285  $22,102,188  $20,145,285  Assets (GAAP)$23,675,666 $22,102,188 $23,675,666 $22,102,188 
Add:Add:Trust overdrafts15  29  15  29  Add:Trust overdrafts24 15 24 15 
Deduct:Deduct:Goodwill1,036,994  1,036,258  1,036,994  1,036,258  Deduct:Goodwill1,036,994 1,036,994 1,036,994 1,036,994 
Intangible assets52,717  68,220  52,717  68,220  Intangible assets40,030 52,717 40,030 52,717 
Tangible assets (non-GAAP)Tangible assets (non-GAAP)$21,012,492  $19,040,836  $21,012,492  $19,040,836  Tangible assets (non-GAAP)$22,598,666 $21,012,492 $22,598,666 $21,012,492 
Tangible common equity to tangible assetsTangible common equity to tangible assets8.45 %8.92 %8.45 %8.92 %Tangible common equity to tangible assets8.47 %8.45 %8.47 %8.45 %
Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited.  Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.  These non-GAAP measures are not necessarily comparable to similar measures that may be represented by other companies.
6560

EXECUTIVE SUMMARY
As previously disclosed, a novel strain of coronavirus, COVID-19, was reported in Wuhan, China and continues to unfold across the U.S. The spread of the COVID-19 virus had an impact on our operations as of June 30, 2020, but itOld National is too early to know by how much the impact will have on the Company's business, financial condition, results of operations of the Company, and its customers. Changes in the behavior of customers, businesses, and their employees as a result of the COVID-19 pandemic, including social distancing practices, additional actions taken by federal, state, and local governments to contain COVID-19 or treat its impact are also unknown.

The fiscal stimulus and relief programs have been an effective mitigant to credit losses in the near term; however, once these programs have run their course, the Company may experience changes in the value of collateral securing outstanding loans, deterioration in the credit quality of borrowers, and the inability of borrowers to repay loans in accordance with their loan terms causing credit losses. The severity of these potential losses is uncertain and depends on numerous factors, future developments, and cannot be predicted with any confidence.

As previously disclosed, our COVID-19 response continues to be focused on consumers, small business and commercial clients, team members, and communities. Among the many actions we have taken in responsedevoted to the COVID-19 pandemic, we have participatedbasic banking principles of organic loan growth, increases in the CARES Act stimulusnon-interest income, prudent capital deployment, and relief programs and have processed over 9,000 PPP applications, representing approximately $1.5 billion in fundingexpense management. We strive to new and existing clients, as well as provided over 4,000 loan payment deferrals representing approximately $1.3 billion. While a significant amount of uncertainty remains regarding the duration of the pandemic and any future government response to mitigate its effects, we believecontinuously improve our historically strong underwriting practices, diverse and granular portfolios, and Midwest based footprint will help to mitigate any adverse impact to Old National.

We are also committed and focused on the health and safety ofoperating leverage by growing our team members, clients, and communities. Accordingly,revenue faster than our expenses. In addition, we continue to evaluateactively seek new ways to serve our clients better by simplifying processes, offering superior products and adjust our branch hours, lobby usage,services, and return to work efforts as necessary depending on developments across our footprint. During the second quarter of 2020, we began to return to the workplace. This included reopening our lobbies and bringing our team members back to the office, but on a much slower pace than initially planned, and in some instances pausing our return in certain markets due to the increasing number of positive COVID-19 cases across our footprint. We continue to lend to qualified businesses for working capital and general business purposes.embracing new technologies.

During the second quarter of 2020,2021, Old National and First Midwest entered into a merger agreement. Both financial institutions are relationship-focused, with compatible cultures and a commitment to helping our clients achieve financial success. We believe this merger will create powerful synergies, additional market coverage, and create financial strength that will drive long-term shareholder value.

During the second quarter of 2021, net income was $62.8 million, or $0.38 per diluted share. Net income was $51.7 million, or $0.32 per diluted share, for the second quarter of 2020.

During the second quarter of 2021, we recorded a provision expense for loancredit losses recapture of $22.5$4.9 million. This provision expenserecapture was derived from the Moody'sMoody’s baseline forecast, which projects higherincluded improved unemployment, and a sharper gross domestic product, decline (driven by COVID-19) thanand house price index when compared to the forecast used in the prior quarter.

As previously disclosed as part of our strategic plan (“The ONB Way”),Despite the challenging operating environment, we have successfully executed the closures of 31 branches in April of 2020 and have entered into a multi-year partnership with Infosys Limited, which will enable us to maximize the benefits from increased investments in technology and talent.

Old National continues to migrate its operational structure from a generalist approach to a specialist approach, based on business segments as part of The ONB Way. This change does not impact the fundamentals of our basic banking model. We are steadfast in our fundamentals of loan growth, non-interest income growth, prudent capital deployment, and expense management.

Duringachieved strong fundamental results during the second quarter of 2020, net income was $51.7 million, or $0.32 per diluted share. Net income was $63.0 million, or $0.36 per diluted share, for the second quarter of 2019.
We have continued to re-mix our earning assets towards more productive commercial and commercial real estate loans and out of indirect and other loans.2021.
Loans:  Our loan balances, excluding loans held for sale, increased $1.231 billiondecreased $140.6 million to $13.616$13.785 billion at June 30, 20202021 compared to $12.385$13.925 billion at March 31, 2020.2021.  This was primarily driven by a decline in PPP loans of $403.0 million, partially offset by growth in other commercial and commercial real estate loans.  CommercialWe reported strong total commercial loan growth was driven by strong PPP loan production of $1.1 billion in the second quarter of 2020. As of June 30, 2020, PPP loans totaled $1.463 billion. We reported2021 and the commercial loan production, excluding PPP loans, of $658.5 million in the second quarter of 2020 and the pipeline totaled $2.7$2.6 billion at June 30, 2020. 2021.
Net Interest Income: For the six months ended June 30, 20202021 compared to the six months ended June 30, 2019,2020, our net interest income decreasedincreased primarily due to decreased loan yields,higher average loans and investment securities, higher PPP related fees from forgiveness of loans, and lower costs of interest-bearing liabilities, partially offset by lower
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costs of interest-bearing liabilitiesdecreased loan and higher average loans.investment securities yields.  Net interest income increased in the second quarter of 20202021 compared to the first quarter of 20202021 primarily due to net PPPhigher average loans and investment securities, partially offset bydecreased loan fees. and investment securities yields. 
Noninterest Income:  Noninterest income increaseddecreased $7.7 million to $116.0$108.2 million in the six months ended June 30, 20202021 compared to the six months ended June 30, 20192020 primarily due to higherlower mortgage banking revenue, higher capital markets income, and higherlower debt securities gains.gains, and $1.5 million of swap termination fees.  These increasesdecreases were partially offset by lower service charges on deposit accounts.higher wealth management fees. The second quarter of 20202021 compared to the first quarter of 2020 showed a slight increase of $1.02021 decreased $5.2 million reflecting higherprimarily due to lower mortgage banking revenue and capital markets income, partially offset by lower service charges on deposit accounts and investment product fees.revenue.
Expenses:  Noninterest expenses increased $27.7decreased $31.5 million in the six months ended June 30, 20202021 compared to the six months ended June 30, 2019.2020.  The increasedecrease was primarily attributable to $36.1 million of charges related to Thethe ONB Way strategic initiative and higher amortization of tax credit investments.in the six months ended June 30, 2020.  The second quarter of 20202021 compared to the first quarter of 2020 decreased $38.62021 increased $11.9 million reflecting lower charges related to Thehigher professional fees and salaries.
Old National’s robust commercial pipeline at June 30, 2021, coupled with excess liquidity from deposit growth along with the momentum build from our ONB Way strategic initiative recordedrevenue initiatives bode well for future quarters. However, we are cautious that a peak in new cases of COVID-19 could stall the economy and cause a setback in the second quarterprogress made during the first half of 2021.
Pandemic Update
As previously disclosed, the COVID-19 pandemic has created economic and financial disruptions that have adversely affected our operations during 2020 and lower amortization of tax credit investments. The decrease in noninterest expenses also reflected the successful executionsix months ended June 30, 2021. Our historically careful underwriting practices, diverse and granular portfolios, and Midwest-based footprint has helped mitigate any adverse impact to Old National. In addition, the combination of the 31 branch closures completedvaccine rollout, government stimulus payments, and reduced spending during the pandemic are likely contributing factors mitigating the impact of the pandemic on the Company’s business, financial condition, results of operations, and its customers as of June 30, 2021. However, there are some concerns that indicate a slower return to pre-pandemic routines. Examples of these concerns relate to more people than anticipated who refuse the vaccines and the emergence of resistant strains, which may cause
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businesses in late April.some parts of the country to be much slower to reopen. Given the ongoing and dynamic nature of the circumstances surrounding the pandemic, it is difficult to predict the future adverse financial impact to Old National.
RESULTS OF OPERATIONS
The following table sets forth certain income statement information of Old National:
Three Months Ended
June 30,		%Six Months Ended
June 30,		%Three Months Ended
June 30,		%Six Months Ended
June 30,		%
(dollars in thousands)(dollars in thousands)20202019Change20202019Change(dollars in thousands)20212020Change20212020Change
Income Statement Summary:Income Statement Summary:Income Statement Summary:
Net interest incomeNet interest income$145,671  $155,230  (6.2) %$289,442  $302,278  (4.2) %Net interest income$149,927 $145,671 2.9 %$298,047 $289,442 3.0 %
Provision for loan losses (1)22,545  1,003  2,147.8  39,495  2,046  1,830.4  
Provision for credit lossesProvision for credit losses(4,929)22,545 (121.9)(22,285)39,495 (156.4)
Noninterest incomeNoninterest income58,461  51,214  14.2  115,963  97,630  18.8  Noninterest income51,508 58,461 (11.9)108,220 115,963 (6.7)
Noninterest expenseNoninterest expense120,121  128,118  (6.2) 278,865  251,159  11.0  Noninterest expense129,618 120,121 7.9 247,358 278,865 (11.3)
Other Data:Other Data:Other Data:
Return on average common equityReturn on average common equity7.27  %9.13  %5.24  %8.72  %Return on average common equity8.39 %7.27 %10.04 %5.24 %
Return on tangible common equity (2)(1)Return on tangible common equity (2)(1)12.27  15.59  9.01  14.82  Return on tangible common equity (2)(1)13.58 12.27 16.10 9.01 
Return on average tangible common
equity (2)		12.41  16.04  9.15  15.47  
Return on average tangible common
equity (1)		Return on average tangible common
equity (1)		13.58 12.41 16.21 9.15 
Efficiency ratio (2)(1)Efficiency ratio (2)(1)56.29  59.35  66.80  59.79  Efficiency ratio (2)(1)62.05 56.29 58.79 66.80 
Tier 1 leverage ratioTier 1 leverage ratio8.12  8.82  8.12  8.82  Tier 1 leverage ratio8.38 8.12 8.38 8.12 
Net charge-offs (recoveries) to
average loans		Net charge-offs (recoveries) to
average loans		0.02  0.01  0.11  0.02  Net charge-offs (recoveries) to
average loans		(0.01)0.02 — 0.11 
(1)Beginning January 1, 2020, calculation is based on current expected loss methodology. Prior to January 1, 2020, calculation is based on incurred loss methodology.
(2)Represents a non-GAAP financial measure.  Refer to “Non-GAAP Financial Measures” section for reconciliations to GAAP financial measures.
Net Interest Income
Net interest income is the most significant component of our earnings, comprising 71%73% of revenues for the six months ended June 30, 2020.2021.  Net interest income and margin are influenced by many factors, primarily the volume and mix of earning assets, funding sources, and interest rate fluctuations.  Other factors include the level of accretion income on purchased loans, prepayment risk on mortgage and investment-related assets, and the composition and maturity of earninginterest-earning assets and interest-bearing liabilities. The current uptickWe have observed signs of an economic recovery in casesthe United States, with jobs, consumer spending, manufacturing, and other indicators rebounding from their weakest levels. However, there have been concerns about the emergence of COVID-19 may offsetcommunicable strains of the recent positive economic momentumvirus and government stimulus programs. Accordingly, there is still muchwhether enough people will agree to be vaccinated. Economic uncertainty regarding the economy.remains and bouts of elevated volatility are expected to continue.

Interest rates stabilizedremained at near historic lows during the second quarter of 20202021 after declining dramatically in Marchthe first half of 2020 due to the COVID-19 pandemic.The Federal Reserve’s Federal Funds range is currently in a target range of 0.00% to 0.25%, with the Effective Fed Funds Rate in the 0.05% to 0.10% range. If interest rates decline further, our interest rate spread could decline, which may result in a decrease in our net interest income. However, management has taken balance sheet restructuring, derivative, and deposit pricing actions to help mitigate this risk.
67

Loans typically generate more interest income than investment securities with similar maturities.  Funding from client deposits generally costs less than wholesale funding sources.  Factors such as general economic activity, Federal Reserve monetary policy, and price volatility of competing alternative investments, can also exert significant influence on our ability to optimize the mix of assets and funding, net interest income, and margin.
62

Net interest income is the excess of interest received from earninginterest-earning assets over interest paid on interest-bearing liabilities.  For analytical purposes, net interest income is also presented in the table that follows, adjusted to a taxable equivalent basis to reflect what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset.  We used the federal statutory tax rate in effect of 21% for all periods.  This analysis portrays the income tax benefits related to tax-exempt assets and helps to facilitate a comparison between taxable and tax-exempt assets.  Management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully taxable equivalent basis.  Therefore, management believes these measures provide useful information for both management and investors by allowing them to make better peer comparisons.
Three Months Ended
June 30,		Six Months Ended
June 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars in thousands)(dollars in thousands)2020201920202019(dollars in thousands)2021202020212020
Net interest incomeNet interest income$145,671  $155,230  $289,442  $302,278  Net interest income$149,927 $145,671 $298,047 $289,442 
Conversion to fully taxable equivalentConversion to fully taxable equivalent3,367  3,289  6,690  6,487  Conversion to fully taxable equivalent3,470 3,367 6,970 6,690 
Net interest income - taxable equivalent basisNet interest income - taxable equivalent basis$149,038  $158,519  $296,132  $308,765  Net interest income - taxable equivalent basis$153,397 $149,038 $305,017 $296,132 
Average earning assetsAverage earning assets$19,007,719  $17,302,688  $18,390,875  $17,223,571  Average earning assets$21,095,280 $19,007,719 $20,849,829 $18,390,875 
Net interest marginNet interest margin3.07  %3.59  %3.15  %3.51  %Net interest margin2.84 %3.07 %2.86 %3.15 %
Net interest margin - taxable equivalent basisNet interest margin - taxable equivalent basis3.14  %3.66  %3.22  %3.59  %Net interest margin - taxable equivalent basis2.91 %3.14 %2.93 %3.22 %
The decreaseincrease in net interest income for the three and six months ended June 30, 20202021 when compared to the three and six months ended June 30, 20192020 was primarily due to lower yields onhigher average earning assets, lower accretion income, and higher average interest-bearing liabilities. Partially offsetting these decreases were lower costs of average interest-bearing liabilities, and higher interest and fees related to PPP loans. Partially offsetting these increases were lower yields on average earning assets and lower accretion income in the three and six months ended June 30, 20202021 when compared to the three and six months ended June 30, 2019.2020. Net interest income for the three and six months ended June 30, 20202021 and 20192020 included accretion income (interest income in excess of contractual interest income) associated with acquired loans. Accretion income totaled $5.1 million in the three months ended June 30, 2021 and $9.8 million for the six months ended June 30, 2021, compared to $5.8 million in the three months ended June 30, 2020 and $12.5 million in the six months ended June 30, 2020, compared to $11.8 million in the three months ended June 30, 2019 and $20.7 million in the six months ended June 30, 2019.2020. We expect accretion income on loans to decrease over time, but this may be offset by future acquisitions. Net interest income included interest and net fees combined on PPP loans totaling $11.9 million for the three months ended June 30, 2021 and $24.5 million for the six months ended June 30, 2021, compared to $6.6 million for the three and six months ended June 30, 2020.
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The following tables present the average balance sheet for each major asset and liability category, its related interest income and yield, or its expense and rate.
(Tax equivalent basis,
dollars in thousands)		(Tax equivalent basis,
dollars in thousands)		Three Months Ended
June 30, 2020		Three Months Ended
June 30, 2019		(Tax equivalent basis,
dollars in thousands)		Three Months Ended
June 30, 2021		Three Months Ended
June 30, 2020
Earning AssetsEarning AssetsAverage
Balance		Income (1)/
Expense		Yield/
Rate		Average
Balance		Income (1)/
Expense		Yield/
Rate		Earning AssetsAverage
Balance		Income (1)/
Expense		Yield/
Rate		Average
Balance		Income (1)/
Expense		Yield/
Rate
Money market and other interest-earning
investments		Money market and other interest-earning
investments		$85,680  $34  0.16 %$58,321  $334  2.29 %Money market and other interest-earning
investments		$232,723 $48 0.08 %$85,680 $34 0.16 %
Investment securities:Investment securities:Investment securities:
Treasury and government sponsored agenciesTreasury and government sponsored agencies501,838  3,033  2.42 %695,775  4,301  2.47 %Treasury and government sponsored agencies1,637,396 5,967 1.46 %501,838 3,033 2.42 %
Mortgage-backed securitiesMortgage-backed securities3,179,165  17,930  2.26 %2,767,791  18,799  2.72 %Mortgage-backed securities3,287,254 15,067 1.83 %3,179,165 17,930 2.26 %
States and political subdivisionsStates and political subdivisions1,293,756  11,757  3.63 %1,193,176  11,235  3.77 %States and political subdivisions1,503,447 12,364 3.29 %1,293,756 11,757 3.63 %
Other securitiesOther securities497,204  3,224  2.59 %496,631  4,063  3.27 %Other securities439,197 2,690 2.45 %497,204 3,224 2.59 %
Total investment securitiesTotal investment securities5,471,963  35,944  2.63 %5,153,373  38,398  2.98 %Total investment securities6,867,294 36,088 2.10 %5,471,963 35,944 2.63 %
Loans: (2)Loans: (2)Loans: (2)
CommercialCommercial4,049,403  31,729  3.10 %3,063,590  37,828  4.88 %Commercial4,019,553 34,715 3.42 %4,049,403 31,729 3.10 %
Commercial real estateCommercial real estate5,340,622  58,007  4.30 %5,019,859  72,214  5.69 %Commercial real estate6,146,057 57,655 3.71 %5,340,622 58,007 4.30 %
Residential real estate loansResidential real estate loans2,369,407  23,884  4.03 %2,247,570  23,780  4.23 %Residential real estate loans2,256,215 21,474 3.81 %2,369,407 23,884 4.03 %
ConsumerConsumer1,690,644  15,743  3.75 %1,759,975  19,798  4.51 %Consumer1,573,438 13,948 3.56 %1,690,644 15,743 3.75 %
Total loansTotal loans13,450,076  129,363  3.82 %12,090,994  153,620  5.05 %Total loans13,995,263 127,792 3.62 %13,450,076 129,363 3.82 %
Total earning assetsTotal earning assets19,007,719  $165,341  3.46 %17,302,688  $192,352  4.43 %Total earning assets21,095,280 $163,928 3.09 %19,007,719 $165,341 3.46 %
Less: Allowance for loan losses (4)(107,619) (56,632) 
Less: Allowance for credit lossesLess: Allowance for credit losses(117,020)(107,619)
Non-Earning AssetsNon-Earning AssetsNon-Earning Assets
Cash and due from banksCash and due from banks332,745  234,337  Cash and due from banks238,326 332,745 
Other assetsOther assets2,384,934  2,473,255  Other assets2,520,937 2,384,934 
Total assetsTotal assets$21,617,779  $19,953,648  Total assets$23,737,523 $21,617,779 
Interest-Bearing LiabilitiesInterest-Bearing LiabilitiesInterest-Bearing Liabilities
Checking and NOW accountsChecking and NOW accounts$4,431,074  $1,075  0.10 %$3,895,881  $4,196  0.43 %Checking and NOW accounts$4,954,817 $514 0.04 %$4,431,074 $1,075 0.10 %
Savings accountsSavings accounts3,060,012  736  0.10 %2,879,704  2,145  0.30 %Savings accounts3,647,952 492 0.05 %3,060,012 736 0.10 %
Money market accountsMoney market accounts1,844,488  910  0.20 %1,789,777  3,729  0.84 %Money market accounts2,085,132 433 0.08 %1,844,488 910 0.20 %
Other time deposits1,378,115  3,786  1.10 %1,779,770  7,181  1.62 %
Brokered certificates of deposit68,149  291  1.72 %212,198  1,268  2.40 %
Time depositsTime deposits1,024,777 1,293 0.51 %1,446,264 4,077 1.13 %
Total interest-bearing depositsTotal interest-bearing deposits10,781,838  6,798  0.25 %10,557,330  18,519  0.70 %Total interest-bearing deposits11,712,678 2,732 0.09 %10,781,838 6,798 0.25 %
Federal funds purchased and interbank
borrowings		Federal funds purchased and interbank
borrowings		143,811  44  0.12 %300,810  1,817  2.42 %Federal funds purchased and interbank
borrowings		1,460 — 0.02 %143,811 44 0.12 %
Securities sold under agreements to repurchaseSecurities sold under agreements to repurchase350,545  185  0.21 %331,695  671  0.81 %Securities sold under agreements to repurchase406,251 95 0.09 %350,545 185 0.21 %
FHLB advancesFHLB advances2,144,497  6,844  1.28 %1,695,681  10,039  2.37 %FHLB advances1,906,078 5,218 1.10 %2,144,497 6,844 1.28 %
Other borrowingsOther borrowings251,738  2,432  3.87 %251,577  2,787  4.43 %Other borrowings269,259 2,486 3.69 %251,738 2,432 3.87 %
Total borrowed fundsTotal borrowed funds2,890,591  9,505  1.32 %2,579,763  15,314  2.38 %Total borrowed funds2,583,048 7,799 1.21 %2,890,591 9,505 1.32 %
Total interest-bearing liabilitiesTotal interest-bearing liabilities$13,672,429  $16,303  0.48 %$13,137,093  $33,833  1.03 %Total interest-bearing liabilities$14,295,726 $10,531 0.30 %$13,672,429 $16,303 0.48 %
Noninterest-Bearing Liabilities and
Shareholders' Equity		Noninterest-Bearing Liabilities and
Shareholders' Equity		Noninterest-Bearing Liabilities and
Shareholders' Equity
Demand depositsDemand deposits$4,871,002  $3,812,175  Demand deposits$6,140,424 $4,871,002 
Other liabilitiesOther liabilities228,950  246,134  Other liabilities308,680 228,950 
Shareholders' equityShareholders' equity2,845,398  2,758,246  Shareholders' equity2,992,693 2,845,398 
Total liabilities and shareholders' equityTotal liabilities and shareholders' equity$21,617,779  $19,953,648  Total liabilities and shareholders' equity$23,737,523 $21,617,779 
Net interest rate spreadNet interest rate spread2.98 %3.40 %Net interest rate spread2.79 %2.98 %
Net interest margin (3)Net interest margin (3)3.14 %3.66 %Net interest margin (3)2.91 %3.14 %
Taxable equivalent adjustmentTaxable equivalent adjustment$3,367  $3,289  Taxable equivalent adjustment$3,470 $3,367 
(1)Interest income is reflected on a fully taxable equivalent basis.
(2)Includes loans held for sale.
(3)Net interest margin is defined as net interest income on a tax equivalent basis as a percentage of average earning assets.
(4)Beginning January 1, 2020, calculation is based on current expected loss methodology. Prior to January 1, 2020, calculation was based on incurred loss model.
6964

(Tax equivalent basis,
dollars in thousands)		(Tax equivalent basis,
dollars in thousands)		Six Months Ended
June 30, 2020		Six Months Ended
June 30, 2019		(Tax equivalent basis,
dollars in thousands)		Six Months Ended
June 30, 2021		Six Months Ended
June 30, 2020
Earning AssetsEarning AssetsAverage
Balance		Income (1)/
Expense		Yield/
Rate		Average
Balance		Income (1)/
Expense		Yield/
Rate		Earning AssetsAverage
Balance		Income (1)/
Expense		Yield/
Rate		Average
Balance		Income (1)/
Expense		Yield/
Rate
Money market and other interest-earning
investments		Money market and other interest-earning
investments		$72,043  $383  1.07 %$58,510  $612  2.11 %Money market and other interest-earning
investments		$301,025 $136 0.09 %$72,043 $383 1.07 %
Investment securities:Investment securities:Investment securities:
Treasury and government sponsored agenciesTreasury and government sponsored agencies542,904  6,730  2.48 %700,569  8,203  2.34 %Treasury and government sponsored agencies1,397,791 10,852 1.55 %542,904 6,730 2.48 %
Mortgage-backed securitiesMortgage-backed securities3,175,408  36,996  2.33 %2,633,326  36,402  2.76 %Mortgage-backed securities3,299,713 30,900 1.87 %3,175,408 36,996 2.33 %
States and political subdivisionsStates and political subdivisions1,283,456  23,165  3.61 %1,212,658  22,688  3.74 %States and political subdivisions1,490,865 24,564 3.30 %1,283,456 23,165 3.61 %
Other securitiesOther securities495,852  6,440  2.60 %497,115  8,503  3.42 %Other securities446,266 5,433 2.44 %495,852 6,440 2.60 %
Total investment securitiesTotal investment securities5,497,620  73,331  2.67 %5,043,668  75,796  3.01 %Total investment securities6,634,635 71,749 2.16 %5,497,620 73,331 2.67 %
Loans: (2)Loans: (2)Loans: (2)
CommercialCommercial3,478,351  60,782  3.46 %3,092,833  73,863  4.75 %Commercial3,997,281 70,282 3.50 %3,478,351 60,782 3.46 %
Commercial real estateCommercial real estate5,264,610  120,446  4.53 %5,004,824  137,290  5.46 %Commercial real estate6,063,872 113,401 3.72 %5,264,610 120,446 4.53 %
Residential real estate loansResidential real estate loans2,369,852  48,128  4.06 %2,253,375  47,712  4.23 %Residential real estate loans2,264,988 42,821 3.78 %2,369,852 48,128 4.06 %
ConsumerConsumer1,708,399  33,593  3.95 %1,770,361  39,195  4.46 %Consumer1,588,028 28,276 3.59 %1,708,399 33,593 3.95 %
Total loansTotal loans12,821,212  262,949  4.07 %12,121,393  298,060  4.91 %Total loans13,914,169 254,780 3.65 %12,821,212 262,949 4.07 %
Total earning assetsTotal earning assets18,390,875  $336,663  3.64 %17,223,571  $374,468  4.34 %Total earning assets20,849,829 $326,665 3.13 %18,390,875 $336,663 3.64 %
Less: Allowance for loan losses (4)(95,432) (56,213) 
Less: Allowance for credit lossesLess: Allowance for credit losses(125,398)(95,432)
Non-Earning AssetsNon-Earning AssetsNon-Earning Assets
Cash and due from banksCash and due from banks310,173  232,159  Cash and due from banks263,336 310,173 
Other assetsOther assets2,386,513  2,481,842  Other assets2,503,865 2,386,513 
Total assetsTotal assets$20,992,129  $19,881,359  Total assets$23,491,632 $20,992,129 
Interest-Bearing LiabilitiesInterest-Bearing LiabilitiesInterest-Bearing Liabilities
Checking and NOW accountsChecking and NOW accounts$4,267,926  $3,934  0.19 %$3,795,441  $7,338  0.39 %Checking and NOW accounts$4,965,095 $1,139 0.05 %$4,267,926 $3,934 0.19 %
Savings accountsSavings accounts2,944,094  2,034  0.14 %2,907,552  4,428  0.31 %Savings accounts3,572,057 979 0.06 %2,944,094 2,034 0.14 %
Money market accountsMoney market accounts1,814,328  3,417  0.38 %1,746,456  6,555  0.76 %Money market accounts2,059,439 861 0.08 %1,814,328 3,417 0.38 %
Other time deposits1,470,094  8,972  1.23 %1,809,975  14,283  1.59 %
Brokered certificates of deposit76,124  739  1.95 %201,878  2,359  2.36 %
Time depositsTime deposits1,052,856 2,912 0.56 %1,546,218 9,711 1.26 %
Total interest-bearing depositsTotal interest-bearing deposits10,572,566  19,096  0.36 %10,461,302  34,963  0.67 %Total interest-bearing deposits11,649,447 5,891 0.10 %10,572,566 19,096 0.36 %
Federal funds purchased and interbank
borrowings		Federal funds purchased and interbank
borrowings		268,334  1,284  0.96 %308,860  3,735  2.44 %Federal funds purchased and interbank
borrowings		1,303 — — %268,334 1,284 0.96 %
Securities sold under agreements to repurchaseSecurities sold under agreements to repurchase339,818  569  0.34 %346,396  1,333  0.78 %Securities sold under agreements to repurchase402,478 215 0.11 %339,818 569 0.34 %
FHLB advancesFHLB advances2,054,814  14,612  1.43 %1,684,093  19,970  2.39 %FHLB advances1,915,661 10,627 1.12 %2,054,814 14,612 1.43 %
Other borrowingsOther borrowings246,007  4,970  4.04 %250,690  5,702  4.55 %Other borrowings266,152 4,915 3.69 %246,007 4,970 4.04 %
Total borrowed fundsTotal borrowed funds2,908,973  21,435  1.48 %2,590,039  30,740  2.39 %Total borrowed funds2,585,594 15,757 1.23 %2,908,973 21,435 1.48 %
Total interest-bearing liabilitiesTotal interest-bearing liabilities$13,481,539  $40,531  0.60 %$13,051,341  $65,703  1.02 %Total interest-bearing liabilities$14,235,041 $21,648 0.31 %$13,481,539 $40,531 0.60 %
Noninterest-Bearing Liabilities and
Shareholders' Equity		Noninterest-Bearing Liabilities and
Shareholders' Equity		Noninterest-Bearing Liabilities and
Shareholders' Equity
Demand depositsDemand deposits$4,417,748  $3,829,406  Demand deposits$5,949,412 $4,417,748 
Other liabilitiesOther liabilities253,382  264,274  Other liabilities325,781 253,382 
Shareholders' equityShareholders' equity2,839,460  2,736,338  Shareholders' equity2,981,398 2,839,460 
Total liabilities and shareholders' equityTotal liabilities and shareholders' equity$20,992,129  $19,881,359  Total liabilities and shareholders' equity$23,491,632 $20,992,129 
Net interest rate spreadNet interest rate spread3.04 %3.32 %Net interest rate spread2.82 %3.04 %
Net interest margin (3)Net interest margin (3)3.22 %3.59 %Net interest margin (3)2.93 %3.22 %
Taxable equivalent adjustmentTaxable equivalent adjustment$6,690  $6,487  Taxable equivalent adjustment$6,970 $6,690 
(1)Interest income is reflected on a fully taxable equivalent basis.
(2)Includes loans held for sale.
(3)Net interest margin is defined as net interest income on a tax equivalent basis as a percentage of average earning assets.
(4)Beginning January 1, 2020, calculation is based on current expected loss methodology. Prior to January 1, 2020, calculation was based on incurred loss model.
7065

The following table presents the dollar amount of changes in taxable equivalent net interest income attributable to changes in the average balances of assets and liabilities and the yields earned or rates paid.
From Three Months EndedFrom Six Months Ended
June 30, 2019 to ThreeJune 30, 2019 to Six
Months Ended June 30, 2020Months Ended June 30, 2020
From Three Months Ended
June 30, 2020 to Three
Months Ended June 30, 2021
From Six Months Ended
June 30, 2020 to Six
Months Ended June 30, 2021
Total
Change (1)		Attributed toTotal
Change (1)		Attributed to Total
Change (1)		Attributed toTotal
Change (1)		Attributed to
(dollars in thousands)(dollars in thousands)VolumeRateVolumeRate(dollars in thousands)Total
Change (1)		RateTotal
Change (1)		Rate
Interest IncomeInterest IncomeInterest Income
Money market and other interest-earning
investments		Money market and other interest-earning
investments		$(300) $84  $(384) $(229) $109  $(338) Money market and other interest-earning
investments		$14 $44 $(30)$(247)$665 $(912)
Investment securities (2)Investment securities (2)(2,454) 2,233  (4,687) (2,465) 6,439  (8,904) Investment securities (2)144 8,249 (8,105)(1,582)13,731 (15,313)
Loans (2)Loans (2)(24,257) 14,982  (39,239) (35,111) 16,231  (51,342) Loans (2)(1,571)5,112 (6,683)(8,169)20,499 (28,668)
Total interest incomeTotal interest income(27,011) 17,299  (44,310) (37,805) 22,779  (60,584) Total interest income(1,413)13,405 (14,818)(9,998)34,895 (44,893)
Interest ExpenseInterest ExpenseInterest Expense
Checking and NOW depositsChecking and NOW deposits(3,121) 357  (3,478) (3,404) 699  (4,103) Checking and NOW deposits(561)102 (663)(2,795)427 (3,222)
Savings depositsSavings deposits(1,409) 90  (1,499) (2,394) 90  (2,484) Savings deposits(244)112 (356)(1,055)281 (1,336)
Money market depositsMoney market deposits(2,819) 73  (2,892) (3,138) 210  (3,348) Money market deposits(477)94 (571)(2,556)316 (2,872)
Other time deposits(3,395) (1,368) (2,027) (5,311) (2,360) (2,951) 
Brokered certificates of deposit(977) (741) (236) (1,620) (1,347) (273) 
Time depositsTime deposits(2,784)(862)(1,922)(6,799)(2,240)(4,559)
Federal funds purchased and interbank
borrowings		Federal funds purchased and interbank
borrowings		(1,773) (497) (1,276) (2,451) (333) (2,118) Federal funds purchased and interbank
borrowings		(44)(26)(18)(1,284)(639)(645)
Securities sold under agreements to
repurchase		Securities sold under agreements to
repurchase		(486) 25  (511) (764) (14) (750) Securities sold under agreements to
repurchase		(90)22 (112)(354)70 (424)
FHLB advancesFHLB advances(3,195) 2,047  (5,242) (5,358) 3,584  (8,942) FHLB advances(1,626)(698)(928)(3,985)(890)(3,095)
Other borrowingsOther borrowings(355) —  (355) (732) (101) (631) Other borrowings54 169 (115)(55)389 (444)
Total interest expenseTotal interest expense(17,530) (14) (17,516) (25,172) 428  (25,600) Total interest expense(5,772)(1,087)(4,685)(18,883)(2,286)(16,597)
Net interest incomeNet interest income$(9,481) $17,313  $(26,794) $(12,633) $22,351  $(34,984) Net interest income$4,359 $14,492 $(10,133)$8,885 $37,181 $(28,296)
(1)The variance not solely due to rate or volume is allocated equally between the rate and volume variances.
(2)Interest on investment securities and loans includes the effect of taxable equivalent adjustments of $2.2$2.4 million and $1.2$1.0 million, respectively, during the three months ended June 30, 2020;2021; and $4.3$4.8 million and $2.4$2.1 million, respectively, during the six months ended June 30, 2020 2021using the federal statutory rate in effect of 21%.
The decrease in the net interest margin on a fully taxable equivalent basis for the three and six months ended June 30, 20202021 when compared to the same periods in 2019three and six months ended June 30, 2020 was primarily due to lower yields on interest earning assets higher average interest-bearing liabilities, and a change in the mix of average interest earning assets and interest-bearing liabilities, partially offset by higher average earning assets and lower costs of interest-bearing liabilities and higher average earning assets.liabilities. The yield on interest earning assets decreased 9737 basis points and the cost of interest-bearing liabilities decreased 5518 basis points in the quarterly year-over-year comparison.  The yield on interest earning assets is calculated by dividing annualized taxable equivalent net interest income by average interest earning assets while the cost of interest-bearing liabilities is calculated by dividing annualized interest expense by average interest-bearing liabilities.  The yield on interest earning assets decreased 7051 basis points and the cost of interest-bearing liabilities decreased 4229 basis points in the six months ended June 30, 20202021 when compared to the six months ended June 30, 2019.2020.  Accretion income represented 1210 basis points of the net interest margin forin both the three months ended June 30, 2020,2021 and the six months ended June 30, 2021, compared to 2712 basis points for the three months ended June 30, 2019. Accretion income represented2020 and 14 basis points of the net interest margin for the six months ended June 30, 2020, compared to 24 basis points for the six months ended June 30, 2019.2020. The current uptick in casescontinued spread and impact of the COVID-19 pandemic may offset the recent positive economic momentum and government stimulus programs, and could negatively impact net interest margin. Accordingly, there is still much uncertainty regarding the economy.economic environment.
Average earning assets were $21.095 billion for the three months ended June 30, 2021, compared to $19.008 billion for the three months ended June 30, 2020, compared to $17.303an increase of $2.087 billion, or 11%. Average earning assets were $20.850 billion for the threesix months ended June 30, 2019, an increase of $1.705 billion, or 10%. Average earning assets were2021, compared to $18.391 billion for the six months ended June 30, 2020, compared to $17.224 billion for the six months ended June 30, 2019, an increase of $1.167$2.459 billion, or 7%13%. The increases in average earning assets were primarily due to increases in average loansinvestment securities and average investment securities.loans. The loan portfolio including loans held for sale, which generally has an average yield higher than the investment portfolio, was 70%67% of average interest earning assets for the six months ended June 30, 2020 and2021, compared to 70% for the six months ended June 30, 2019.
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2020.
Average loans including loans held for sale increased $1.359$545.2 million for the three months ended June 30, 2021 when compared to the three months ended June 30, 2020 due to higher average commercial real estate loans, partially offset by lower average commercial loans, residential real estate loans, and consumer loans. Average loans including
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loans held for sale increased $1.093 billion for the six months ended June 30, 2021 when compared to the six months ended June 30, 2020 due to higher average commercial loans and commercial real estate loans, partially offset by lower average residential real estate loans and consumer loans. The increase in average commercial loans for the six months ended June 30, 2021 when compared to the six months ended June 30, 2020 reflected strong PPP loan production, which began in April 2020. Average commercial loans included PPP loans totaling $1.016 billion for the three months ended June 30, 2021 and $1.012 billion for the six months ended June 30, 2021, compared to $1.125 billion for the three months ended June 30, 2020 and $699.8$562.4 million for the six months ended June 30, 20202020.
Average investments increased $1.395 billion for the three months ended June 30, 2021 and $1.137 billion for the six months ended June 30, 2021 when compared to the same periods in 2019 primarily due to increases in average commercial loans, commercial real estate loans, and residential real estate loans, partially offset by lower average consumer loans. The increases in average commercial loans reflected strong PPP loan production, which began in April 2020. As of2020 reflecting excess liquidity.
Average noninterest-bearing deposits increased $1.269 billion for the three months ended June 30, 2020, PPP loans totaled $1.463 billion.
2021 and $1.532 billion for the six months ended June 30, 2021 when compared to the same periods in 2020. Average investmentsinterest-bearing deposits increased $318.6$930.8 million for the three months ended June 30, 20202021 and $454.0$1.077 billion for the six months ended June 30, 2021 when compared to the same periods in 2020. This growth was primarily driven by the increased business and personal savings rates from various government stimulus actions.
Average borrowed funds decreased $307.5 million for the three months ended June 30, 2021 and $323.4 million for the six months ended June 30, 20202021 when compared to the same periods in 2019 reflecting higher fair values and excess liquidity.2020.
Average noninterest-bearing deposits increased $1.059 billionProvision for the three months ended June 30, 2020 and $588.3 millionCredit Losses
Old National recorded a provision for the six months ended June 30, 2020 when compared to the same periods in 2019 primarily due to PPP funds on deposit.  Average interest-bearing deposits increased $224.5credit losses recapture of $4.9 million for the three months ended June 30, 2020 and $111.3 million for the six months ended June 30, 2020 when2021, compared to the same periods in 2019.
Average borrowed funds increased $310.8$22.5 million provision for credit losses expense for the three months ended June 30, 2020 and $318.92020. Net recoveries on loans totaled $0.3 million for the six months ended June 30, 2020 when compared to the same periods in 2019.
Provision for Loan Losses
The provision for loan losses was $22.5 million forduring the three months ended June 30, 2020,2021, compared to $1.0 million for the three months ended June 30, 2019. Netnet charge-offs totaledof $0.5 million during the three months ended June 30, 2020, compared to net charge-offs2020.  The provision for credit losses was a recapture of $0.3$22.3 million duringfor the threesix months ended June 30, 2019.  The provision for loan losses was2021, compared to expense of $39.5 million for the six months ended June 30, 2020, compared to $2.02020. Net recoveries on loans totaled $0.3 million for the six months ended June 30, 2019. Net2021, compared to net charge-offs totaledof $7.1 million duringfor the six months ended June 30, 2020, compared to net charge-offs of $1.2 million during the six months ended June 30, 2019.2021. The higher provision for loancredit losses recapture in the three and six months ended June 30, 2020 when compared to2021 reflected the same periods in 2019 was driven by implementation of CECL, which uses animproved economic forecast that now includes the impact of the coronavirus pandemic.forecast. PPP loans were factored in the provision for credit losses for the three and six months ended June 30, 2020;2021; however, due to the SBA guaranty and our borrowers’ adherence to the PPP terms, the provision impact was insignificant. Continued loan growth in future periods, a decline in our current level of recoveries, or an increase in charge-offs could result in an increase in provision expense.Additionally, with the adoption of CECL beginning on January 1, 2020, provision expense may become more volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, which drive the allowance for credit losses balance.
Noninterest Income
We generate revenues in the form of noninterest income through client fees, sales commissions, and other gains and losses from our core banking franchise and other related businesses, such as wealth management, investment consulting, and investment products.  The following table details the components in noninterest income:
Three Months Ended
June 30,		%Six Months Ended
June 30,		%Three Months Ended
June 30,		%Six Months Ended
June 30,		%
(dollars in thousands)(dollars in thousands)20202019Change20202019Change(dollars in thousands)20212020Change20212020Change
Wealth management feesWealth management fees$9,424  $9,909  (4.9) %$18,308  $18,444  (0.7) %Wealth management fees$10,734 $9,424 13.9 %$20,442 $18,308 11.7 %
Service charges on deposit accountsService charges on deposit accounts7,582  11,515  (34.2) 17,659  22,341  (21.0) Service charges on deposit accounts8,514 7,582 12.3 16,638 17,659 (5.8)
Debit card and ATM feesDebit card and ATM fees4,832  5,419  (10.8) 9,830  10,922  (10.0) Debit card and ATM fees5,583 4,832 15.5 10,726 9,830 9.1 
Mortgage banking revenueMortgage banking revenue17,313  7,135  142.6  28,432  12,146  134.1  Mortgage banking revenue7,827 17,313 (54.8)24,352 28,432 (14.4)
Investment product feesInvestment product fees4,845  5,591  (13.3) 10,719  10,862  (1.3) Investment product fees6,042 4,845 24.7 11,906 10,719 11.1 
Capital markets incomeCapital markets income6,179  3,150  96.2  10,507  5,667  85.4  Capital markets income5,871 6,179 (5.0)9,586 10,507 (8.8)
Company-owned life insuranceCompany-owned life insurance2,968  2,711  9.5  6,048  5,899  2.5  Company-owned life insurance2,783 2,968 (6.2)5,497 6,048 (9.1)
Debt securities gains (losses), netDebt securities gains (losses), net511  1,165  (56.1) 5,685  1,062  435.3  Debt securities gains (losses), net692 511 35.4 2,685 5,685 (52.8)
Other incomeOther income4,807  4,619  4.1  8,775  10,287  (14.7) Other income3,462 4,807 (28.0)6,388 8,775 (27.2)
Total noninterest incomeTotal noninterest income$58,461  $51,214  14.2  %$115,963  $97,630  18.8  %Total noninterest income$51,508 $58,461 (11.9)%$108,220 $115,963 (6.7)%
Noninterest income increased $7.2decreased $7.0 million for the three months ended June 30, 20202021 when compared to the three months ended June 30, 20192020 primarily due to higherlower mortgage banking revenue and higher capital markets income. These increases were partially offset by lower service charges on deposit accounts.revenue.
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Noninterest income increased $18.3decreased $7.7 million for the six months ended June 30, 20202021 when compared to the six months ended June 30, 20192020 primarily due to higherlower mortgage banking revenue, higher capital markets income, and higherlower debt securities gains.gains, and $1.5 million of swap termination fees in the six months ended June 30, 2021. These increasesdecreases were partially offset by lower service charges on deposit accounts.higher wealth management fees.
Service charges and overdraftWealth management fees decreased $3.9increased $1.3 million for the three months ended June 30, 20202021 and $4.7$2.1 million for the six months ended June 30, 20202021 when compared to the same periods in 2019 reflecting lower2020 primarily due to higher personal and corporate trust fees and fiduciary account fees.
Service charges and overdraft fees due to the impact of the COVID-19 pandemic.
Debit card and ATM fees decreased $0.6increased $0.9 million for the three months ended June 30, 2020 and $1.1 million for the six months ended June 30, 2020 when compared to the same periods in 2019 reflecting lower interchange income due to the impact of the COVID-19 pandemic.
Mortgage banking revenue increased $10.2 million for the three months ended June 30, 2020 and $16.3 million for the six months ended June 30, 2020 when compared to the same periods in 2019 reflecting the change in our pipeline valuation, as well as increased mortgage originations and sales in 2020.
Investment product fees decreased $0.7 million for the three months ended June 30, 20202021 when compared to the three months ended June 30, 2019 primarily2020 reflecting higher overdraft fees and service charges due to lower annuity and mutual fund fees.the impact of the COVID-19 pandemic in the three months ended June 30, 2020.
Capital markets income is comprised of customer interest rate swap fees, foreign currency exchange fees, net gains (losses) on foreign currency adjustments, and tax credit fee income.  Capital markets income increased $3.0Mortgage banking revenue decreased $9.5 million for the three months ended June 30, 20202021 and $4.8$4.1 million for the six months ended June 30, 20202021 when compared to the same periods in 20192020 reflecting lower refinance transactions related to higher rates in 2021, which caused pipeline levels to drop and gain on sale margins to partially normalize.
Investment product fees increased $1.2 million in for the three and six months ended June 30, 2021 when compared to the same periods in 2020 reflecting higher investment and advisor fees in 2021.
Debt securities gains (losses), net had a favorable variance of $0.2 million for the three months ended June 30, 2021 when compared to the three months ended June 30, 2020 primarily due to higher customer interest rate swap fees.
realized gains on sales of available-for-sale securities in 2021. Debt securities gains (losses), net had an unfavorable variance of $0.7$3.0 million for the threesix months ended June 30, 20202021 when compared to the threesix months ended June 30, 20192020 primarily due to lower realized gains on sales of available-for-sale securities in 2021, partially offset by lower realized losses on sales of available-for-sale debt securities in 2020. Debt securities2021.
Other income decreased $1.3 million for the three months ended June 30, 2021 when compared to the three months ended June 30, 2020 primarily due to lower branded card incentives and unfavorable variances in net gains (losses), net had a favorable variance on sales of $4.6premises and other assets. Other income decreased $2.4 million for the six months ended June 30, 2020 and2021 when compared to the six months ended June 30, 20192020 primarily due to higher realized gains on sales of available-for-sale securities and lower realized losses on sales of available-for-sale debt securities in 2020.
Other income decreased $1.5 million forof swap termination fees in the six months ended June 30, 2020 when compared to the six months ended June 30, 2019 primarily due to unfavorable variances in net gains (losses) on derivatives and equity securities2021 and lower fees on commercial loans.branded card incentives.
Noninterest Expense
The following table details the components in noninterest expense:
Three Months Ended
June 30,		%Six Months Ended
June 30,		%Three Months Ended
June 30,		%Six Months Ended
June 30,		%
(dollars in thousands)(dollars in thousands)20202019Change20202019Change(dollars in thousands)20212020Change20212020Change
Salaries and employee benefitsSalaries and employee benefits$66,556  $71,566  (7.0) %$145,729  $142,749  2.1  %Salaries and employee benefits$72,640 $66,556 9.1 %$140,757 $145,729 (3.4)%
OccupancyOccupancy13,245  14,559  (9.0) 28,378  29,137  (2.6) Occupancy14,054 13,245 6.1 28,926 28,378 1.9 
EquipmentEquipment3,853  4,517  (14.7) 9,158  8,991  1.9  Equipment4,506 3,853 16.9 8,475 9,158 (7.5)
MarketingMarketing2,395  4,439  (46.0) 5,492  8,162  (32.7) Marketing2,632 2,395 9.9 4,694 5,492 (14.5)
Data processingData processing9,629  10,207  (5.7) 19,096  19,548  (2.3) Data processing11,697 9,629 21.5 24,050 19,096 25.9 
CommunicationCommunication2,296  2,849  (19.4) 5,094  5,903  (13.7) Communication2,411 2,296 5.0 5,289 5,094 3.8 
Professional feesProfessional fees3,545  4,921  (28.0) 7,838  7,831  0.1  Professional fees8,528 3,545 140.6 11,252 7,838 43.6 
FDIC assessmentFDIC assessment2,014  1,454  38.5  3,623  3,541  2.3  FDIC assessment1,226 2,014 (39.1)2,833 3,623 (21.8)
Amortization of intangiblesAmortization of intangibles3,612  4,325  (16.5) 7,388  8,797  (16.0) Amortization of intangibles2,909 3,612 (19.5)5,984 7,388 (19.0)
Amortization of tax credit investmentsAmortization of tax credit investments287  568  (49.5) 5,802  828  600.7  Amortization of tax credit investments1,813 287 531.7 3,015 5,802 (48.0)
Other expenseOther expense12,689  8,713  45.6  41,267  15,672  163.3  Other expense7,202 12,689 (43.2)12,083 41,267 (70.7)
Total noninterest expenseTotal noninterest expense$120,121  $128,118  (6.2) %$278,865  $251,159  11.0  %Total noninterest expense$129,618 $120,121 7.9 %$247,358 $278,865 (11.3)%
Noninterest expense decreased $8.0increased $9.5 million for the three months ended June 30, 20202021 when compared to the three months ended June 30, 20192020 reflecting lowerhigher salaries and employee benefits.benefits, higher professional fees associated with the anticipated First Midwest merger, higher data processing, and higher amortization of tax credit investments. These increases were partially offset by $4.9 million of charges related to the ONB Way strategic initiative in the three months ended June 30, 2020.
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Noninterest expense increased $27.7decreased $31.5 million for the six months ended June 30, 20202021 when compared to the six months ended June 30, 20192020 reflecting $36.1 million of charges in the six months ended June 30, 2020 related to Thethe ONB Way strategic initiativeinitiative.
Salaries and employee benefits increased $6.1 million for the three months ended June 30, 2021 when compared to the three months ended June 30, 2020 primarily due to higher amortization of tax credit investments.
corporate incentives. Salaries and employee benefits decreased $5.0 million for the six months ended June 30, 2021 when compared to the six months ended June 30, 2020 primarily due to personnel expenses related to the ONB Way totaling $7.0 million in the six months ended June 30, 2020. This decrease was partially offset by higher corporate incentives.
Equipment expenses increased $0.7 million for the three months ended June 30, 20202021 when compared to the three months ended June 30, 20192020 primarily due to fewer employees at June 30, 2020. Salarieshigher accelerated depreciation and employee benefits increased $3.0maintenance expenses of non-deployed assets related to the optimization of our branch network as part of the ONB Way strategic initiative.
Marketing expenses decreased $0.8 million for the six months ended June 30, 20202021 when compared to the six months ended June 30, 20192020 primarily due to personnellower sales promotion expenses.
Data processing expenses related to The ONB Way totaling $7.0 million and higher commissions, partially offset by fewer employees at June 30, 2020.
Marketing expenses decreased $2.0increased $2.1 million for the three months ended June 30, 20202021 and $2.7$5.0 million for the six months ended June 30, 20202021 when compared to the same periods in 2019 primarily due2020 related to lower public relations and advertising expenses.the modernization of our technology infrastructure.
Professional fees decreased $1.4increased $5.0 million for the three months ended June 30, 20202021 and $3.4 million for the six months ended June 30, 2021 when compared to the three months ended June 30, 2019same periods in 2020 reflecting $1.4$6.2 million in consultingof professional fees incurred in the second quarter of 20192021 related to Thethe First Midwest merger, partially offset by consulting fees incurred in 2020 related to the ONB Way.
FDIC assessment decreased $0.8 million for the three and six months ended June 30, 2021 when compared to the same periods in 2020 due to decreased rates.
Amortization of intangibles decreased $0.7 million for the three months ended June 30, 20202021 and $1.4 million for the six months ended June 30, 20202021 when compared to the same periods in 20192020 primarily due to lower amortization of core deposit intangibles.
Amortization of tax credit investments decreased $0.3increased $1.5 million for the three months ended June 30, 20202021 when compared to the three months ended June 30, 2019.2020. Amortization of tax credit investments increased $5.0decreased $2.8 million for the six months ended June 30, 20202021 when compared to the six months ended June 30, 2019.2020. The recognition of tax credit amortization expense is contingent upon the successful completion of the rehabilitation of a historic building or completion of a solar project within the reporting period. Many factors including weather, labor availability, building regulations, inspections, and other unexpected construction delays related to a rehabilitation project can cause a project to exceed its estimated completion date.  See Note 12 to the consolidated financial statements for additional information on our tax credit investments.
Other expense increased $4.0decreased $5.5 million for the three months ended June 30, 20202021 and $25.6$29.2 million for the six months ended June 30, 20202021 when compared to the same periods in 20192020 primarily due to lease termination charges and impairments on long-lived assets related to branch consolidations that were part of Thethe ONB Way strategic initiative totaling $3.9 million in the three months ended June 30, 2020 and $24.6 million in the six months ended June 30, 2020. The decrease in other expense for the three and six months ended June 30, 2021 when compared to the same periods in 2020 also reflected favorable variances in provision for credit losses on unfunded loan commitments totaling $2.0 million and $5.1 million, respectively.
Provision for Income Taxes
We record a provision for income taxes currently payable and for income taxes payable or benefits to be received in the future, which arise due to timing differences in the recognition of certain items for financial statement and income tax purposes.  The major difference between the effective tax rate applied to our financial statement income and the federal statutory tax rate is caused by a tax benefit from our tax credit investments and interest on tax-exempt securities and loans.  The provision for income taxes, as a percentage of pre-tax income, was 18.2% for the three months ended June 30, 2021, compared to 15.9% for the three months ended June 30, 2020, compared to 18.6% for the three months ended June 30, 2019.2020.  The provision for income taxes, as a percentage of pre-tax income, was 17.4% for the six months ended June 30, 2021, compared to 14.6% for the six months ended June 30, 2020, compared to 18.7% for the six months ended June 30, 2019.2020.  In accordance with ASC 740-270, Accounting for Interim Reporting, the provision for income taxes was recorded at June 30, 20202021 based on the current estimate of the
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effective annual rate.  The lowerhigher effective tax rate during the three and six months ended June 30, 20202021 when compared to the same periods in 20192020 was primarily the result of an increaseincreases in federal tax credits available.pre-tax book income.  See Note 18 to the consolidated financial statements for additional information.
FINANCIAL CONDITION
Overview
At June 30, 2020,2021, our assets were $22.102$23.676 billion, a $1.690 billion$715.0 million increase compared to assets of $20.412$22.961 billion at December 31, 2019.2020.  The increase was primarily due to higher commercial loans driven by strong PPP loan productioninvestment securities.
We have observed signs of an economic recovery in the second quarterUnited States, with jobs, consumer spending, manufacturing, and other indicators rebounding from their weakest levels. However, there have been concerns about the emergence of 2020. Ascommunicable strains of June 30, 2020, PPP loans totaled $1.463 billion.
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The current uptick in casesthe virus and whether enough people will agree to be vaccinated. Economic uncertainty remains and bouts of COVID-19 may offset the recent positive economic momentum and government stimulus programs, and could negatively impact our financial condition. Accordingly, there is still much uncertainty regarding the economy.elevated volatility are expected to continue.
Earning Assets
Our earning assets are comprised of investment securities, portfolio loans, loans held for sale, money market investments, interest earning accounts with the Federal Reserve, and equity securities.  Earning assets were $19.469$21.085 billion at June 30, 2020,2021, a $1.707 billion$771.2 million increase compared to earning assets of $17.762$20.313 billion at December 31, 2019.2020.
Investment Securities
We classify the majoritysubstantially all of our investment securities as available-for-sale to give management the flexibility to sell the securities prior to maturity if needed, based on fluctuating interest rates or changes in our funding requirements.
Equity securities are recorded at fair value and totaled $40.2$2.5 million at June 30, 2020 compared to $6.8 million at2021 and December 31, 2019.2020.
At June 30, 2020,2021, the investment securities portfolio, including equity securities, was $5.662$6.947 billion compared to $5.556$6.142 billion at December 31, 2019,2020, an increase of $105.6$804.9 million.  Investment securities represented 29%33% of earning assets at June 30, 2020,2021, compared to 31%30% at December 31, 2019.2020.  Stronger commercial loan demand in the future could result in management’s decision to reduce the securities portfolio.  At June 30, 2020, management does not intend2021, we had no intent to sell any securities that were in an unrealized loss position and does not believenor is it expected that we willwould be required to sell such securities.the securities prior to their anticipated recovery.
The investment securities available-for-sale portfolio had net unrealized gains of $185.9$74.3 million at June 30, 2020,2021, compared to net unrealized gains of $71.9$186.3 million at December 31, 2019.2020.  Net unrealized gains (losses) increaseddecreased from December 31, 20192020 to June 30, 20202021 reflecting higherlower net unrealized gains on mortgage-backed, U.S. government-sponsored entities and agencies, and tax exempt municipal securities due to a declinean increase in long-term interest rates.
The investment portfolio had an effective duration of 3.544.26 at June 30, 2020,2021, compared to 3.864.08 at December 31, 2019.2020.  Effective duration measures the percentage change in value of the portfolio in response to a change in interest rates.  Generally, there is more uncertainty in interest rates over a longer average maturity, resulting in a higher duration percentage.  The annualized average yields on investment securities, on a taxable equivalent basis, were 2.10% for the three months ended June 30, 2021 and 2.16% for the six months ended June 30, 2021, compared to 2.63% for the three months ended June 30, 2020 and 2.67% for the six months ended June 30, 2020, compared to 2.98% for the three months ended June 30, 2019 and 3.01% for the six months ended June 30, 2019.2020.
Loans Held for Sale
Mortgage loans held for immediate sale in the secondary market were $122.5$50.1 million at June 30, 2020,2021, compared to $46.9$63.3 million at December 31, 2019.2020.  Certain mortgage loans are committed for sale at or prior to origination at a contracted price to an outside investor.Other mortgage loans held for immediate sale are hedged with TBA forward agreements and committed for sale when they are ready for delivery and remain on the Company’s balance sheet for a short period of time (typically 30 to 60 days).These loans are sold without recourse, beyond customary representations and warranties, and Old National has not experienced material losses arising from these sales.Mortgage originations are subject to volatility due to interest rates and home sales, among other factors. 
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We have elected the fair value option prospectively for residential loans held for sale.  The aggregate fair value exceeded the unpaid principal balance by $6.5$1.9 million at June 30, 2020,2021, compared to $1.5$3.5 million at December 31, 2019.2020.
Commercial and Commercial Real Estate Loans
Commercial and commercial real estate loans are the largest classification within earning assets, representing 50%47% of earning assets at June 30, 2020,2021, compared to 45%49% at December 31, 2019.2020.  At June 30, 2020,2021, commercial and commercial real estate loans were $9.711$9.990 billion, an increase of $1.654 billion$87.3 million compared to December 31, 20192020 driven by strong PPP loan production in the second quarterfirst half of 2020.2021, partially offset by a decline in PPP loans. As of June 30, 2020,2021, total PPP loans totaled $1.463 billion.were $721.1 million, compared to $943.0 million at December 31, 2020.
The following table provides detail on commercial loans by industry classification (as defined by the North American Industry Classification System) and by loan size.
June 30, 2021December 31, 2020
(dollars in thousands)OutstandingExposureNonaccrualOutstandingExposureNonaccrual
By Industry:
Manufacturing$645,657 $1,099,621 $8,377 $586,074 $1,019,149 $11,036 
Construction438,631 879,062 1,613 462,140 903,604 1,036 
Health care and social assistance446,025 613,734 564 412,807 604,493 691 
Public administration280,769 402,403 — 299,748 371,846 — 
Wholesale trade243,148 498,670 2,036 241,432 483,253 3,647 
Educational services228,046 337,547 — 245,896 418,277 1,428 
Other services173,921 281,666 2,438 194,822 307,205 2,363 
Professional, scientific, and
  technical services		152,542 277,736 462 182,228 320,983 864 
Finance and insurance165,634 228,940 52 186,079 246,551 57 
Retail trade139,807 304,331 1,261 151,869 329,160 1,788 
Real estate rental and leasing167,644 346,034 682 169,935 356,169 759 
Transportation and warehousing137,211 208,591 2,991 139,398 216,495 1,397 
Administrative and support and
  waste management and
  remediation services		104,386 164,911 — 119,220 173,538 383 
Agriculture, forestry, fishing,
  and hunting		110,123 177,522 386 145,624 192,602 358 
Accommodation and food services127,002 146,164 3,779 105,560 118,497 3,239 
Utilities40,699 93,275 — 88,607 98,996 — 
Arts, entertainment, and recreation85,155 120,986 2,229 82,305 111,729 2,590 
Information60,161 93,651 2,065 61,883 95,774 2,286 
Mining41,161 68,867 13 57,142 77,067 19 
Management of companies and
  enterprises		8,163 13,725 — 13,605 28,276 — 
Other7,058 7,116 — 10,048 10,086 — 
Total$3,802,943 $6,364,552 $28,948 $3,956,422 $6,483,750 $33,941 
By Loan Size:
Less than $200,00011 %8 %9 %11 %8 %10 %
$200,000 to $1,000,00020 18 40 20 18 40 
$1,000,000 to $5,000,00030 30 51 34 32 50 
$5,000,000 to $10,000,00014 15 — 15 15 — 
$10,000,000 to $25,000,00017 17 — 14 16 — 
Greater than $25,000,0008 12 — 6 11 — 
Total100 %100 %100 %100 %100 %100 %
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The following table provides detail on commercial real estate loans classified by property type.
June 30, 2021
(dollars in thousands)Outstanding%
By Property Type:
Multifamily$1,868,550 30 %
Retail1,015,174 17 
Office1,003,275 16 
Warehouse / Industrial833,551 14 
Single family334,208 5 
Other (1)1,132,560 18 
Total$6,187,318 100 %
(1)    Other includes construction and land development properties, senior housing properties, religion properties, and mixed use properties.
Residential Real Estate Loans
At June 30, 2020,2021, residential real estate loans held in our loan portfolio were $2.229$2.215 billion, a decrease of $105.0$33.4 million compared to December 31, 2019.2020.  Future increases in interest rates could result in a decline in the level of refinancings and new originations of residential real estate loans.
Consumer Loans
Consumer loans, including automobile loans and personal and home equity loans and lines of credit, decreased $50.6$55.8 million at June 30, 20202021 compared to December 31, 2019 primarily2020 due to decreases in consumer indirect loans, consumer direct loans, and home equity loans.
Other Assets
Other assets increased $97.9 million, or 39%, compared to December 31, 2019 primarily due to an increase in derivative assets. This increase was partially offset by a decrease in net deferred tax assets which reflected an increase in deferred tax liabilities related to net unrealized gains on available-for-sale investment securities.
Funding
Total funding, comprised of deposits and wholesale borrowings, was $18.961$20.428 billion at June 30, 2020,2021, an increase of $1.663 billion$714.0 million from $17.298$19.714 billion at December 31, 2019.2020.  Included in total funding were deposits of $16.319$17.869 billion at June 30, 2020,2021, an increase of $1.766 billion$831.5 million from $14.553$17.037 billion at December 31, 2019.2020.  Noninterest-bearing deposits increased $1.175 billion$509.1 million from December 31, 20192020 to June 30, 2020 reflecting PPP funds on deposit.2021.  Interest-bearing checking and NOW deposits increased $417.4decreased $55.6 million from December 31, 20192020 to June 30, 2020,2021, while savings deposits increased $321.3$280.0 million.  Money market deposits increased $62.0$218.4 million from December 31, 20192020 to June 30, 2020. Other time2021. Time deposits decreased $268.5$120.4 million while brokered certificates of deposit increased $58.5 million.from December 31, 2020 to June 30, 2021.
We use wholesale funding to augment deposit funding and to help maintain our desired interest rate risk position.  At June 30, 2020,2021, wholesale borrowings, including federal funds purchased and interbank borrowings, securities sold under agreements to repurchase, FHLB advances, and other borrowings, totaled $2.641$2.559 billion, a decrease of $103.3$117.4 million from December 31, 2019.2020.  Wholesale funding as a percentage of total funding was 14%13% at June 30, 20202021 and 16%14% at December 31, 2019.2020.  The decrease in wholesale funding from December 31, 20192020 to June 30, 20202021 was primarily due to decreases in federal funds purchased and interbank borrowings and other borrowings, partially offset by increases in FHLB advances and securities sold under agreements to repurchase.
Accrued Expensesrepurchase and Other Liabilities
Accrued expenses and other liabilities increased $23.6 million, or 15%, from December 31, 2019 to June 30, 2020 primarily due to investment securities purchased but not settled before June 30, 2020. This increase wasFHLB advances, partially offset by incentive paymentsan increase in the six months ended June 30, 2020. other borrowings.
Capital 
Shareholders’ equity totaled $2.864$2.991 billion at June 30, 2020,2021, compared to $2.852$2.973 billion at December 31, 2019.2020.  Old National repurchased 4.9 million shares of Common Stock under a stock repurchase program that was approved by the Company’s Board of Directors reducing equity by $78.7 million and 0.2 million shares of Common Stock associated with employee share-based incentive programs reducing equity by $3.6 million in the six months ended June 30, 2020. We have suspended the stock repurchase plan approved by the Company’s Board of Directors in the near term given the uncertain economic conditions. We also paid cash dividends of $0.28 per share in the six months ended June 30, 2020,2021, which reduced equity by $46.6$46.4 million. The change in unrealized gains (losses) on available-for-sale investment securities increaseddecreased equity by $88.7$86.2 million during the six months ended June 30, 2020. The Company’s Common Stock is traded on the NASDAQ under the symbol “ONB” with 33,611 shareholders of record at June 30, 2020.2021.
Capital Adequacy
Old National and the banking industry are subject to various regulatory capital requirements administered by the federal banking agencies. At June 30, 2020,2021, Old National and its bank subsidiary exceeded the regulatory minimums and Old National Bank met the regulatory definition of “well-capitalized” based on the most recent regulatory definition.
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Old National’s consolidated capital position remains strong as evidenced by the following comparisons of key industry ratios. 
Regulatory
Guidelines
Minimum		June 30,December 31,Regulatory
Guidelines
Minimum		June 30,December 31,
202020192019Regulatory
Guidelines
Minimum		202120202020
Risk-based capital:Risk-based capital:Risk-based capital:
Tier 1 capital to total average assets (leverage ratio)Tier 1 capital to total average assets (leverage ratio)4.00  %8.12  %8.82  %8.88  %Tier 1 capital to total average assets (leverage ratio)4.00 %8.38 %8.12 %8.20 %
Common equity Tier 1 capital to risk-adjusted
total assets		Common equity Tier 1 capital to risk-adjusted
total assets		7.00  11.70  11.89  12.13  Common equity Tier 1 capital to risk-adjusted
total assets		7.00 11.95 11.70 11.75 
Tier 1 capital to risk-adjusted total assetsTier 1 capital to risk-adjusted total assets8.50  11.70  11.89  12.13  Tier 1 capital to risk-adjusted total assets8.50 11.95 11.70 11.75 
Total capital to risk-adjusted total assetsTotal capital to risk-adjusted total assets10.50  12.68  12.82  12.99  Total capital to risk-adjusted total assets10.50 12.73 12.68 12.69 
Shareholders' equity to assetsShareholders' equity to assetsN/A12.96  13.91  13.97  Shareholders' equity to assetsN/A12.63 12.96 12.95 
Old National Bank, Old National’s bank subsidiary, maintained a strong capital position as evidenced by the following comparisons of key industry ratios.
Regulatory
Guidelines
Minimum		Prompt
Corrective
Action "Well
Capitalized"
Guidelines		June 30,December 31,Regulatory
Guidelines
Minimum		Prompt
Corrective
Action "Well
Capitalized"
Guidelines		June 30,December 31,
202020192019202120202020
Risk-based capital:Risk-based capital:Risk-based capital:
Tier 1 capital to total average assets (leverage
ratio)		Tier 1 capital to total average assets (leverage
ratio)		4.00  %5.00  %8.73  %9.48  %9.62  %Tier 1 capital to total average assets (leverage
ratio)		4.00 %5.00 %8.65 %8.73 %8.67 %
Common equity Tier 1 capital to risk-adjusted
total assets		Common equity Tier 1 capital to risk-adjusted
total assets		7.00  6.50  12.44  12.76  13.01  Common equity Tier 1 capital to risk-adjusted
total assets		7.00 6.50 12.27 12.44 12.23 
Tier 1 capital to risk-adjusted total assetsTier 1 capital to risk-adjusted total assets8.50  8.00  12.44  12.76  13.01  Tier 1 capital to risk-adjusted total assets8.50 8.00 12.27 12.44 12.23 
Total capital to risk-adjusted total assetsTotal capital to risk-adjusted total assets10.50  10.00  13.14  13.26  13.50  Total capital to risk-adjusted total assets10.50 10.00 12.79 13.14 12.90 
In December 2018, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. In March 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC published an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). Old National is adopting the capital transition relief over the permissible five-year period.
Management views stress testing as an integral part of the Company’s risk management and strategic planning activities. The primary objective of the stress test is to ensure that Old National has a robust, forward-looking stress testing process and maintains sufficient capital to continue operations throughout times of economic and financial stress. Management also uses the stress testing framework to evaluate decisions relating to pricing, loan concentrations, capital deployment, and mergers and acquisitions to ensure that strategic decisions align with Old National’s risk appetite statement. Old National’s stress testing process incorporates key risks that include strategic, market, liquidity, credit, operational, regulatory, compliance, legal, and reputational risks. Old National’s stress testing policy outlines steps that will be taken if stress test results do not meet internal thresholds under severely adverse economic scenarios.
RISK MANAGEMENT
Overview
Old National has adopted a Risk Appetite Statement to enable the Board of Directors, Executive Leadership Group, and Senior Management to better assess, understand, and mitigate the risks of Old National.  The Risk Appetite Statement addresses the following major risks:  strategic, market, liquidity, credit, operational/technology/cyber, regulatory/compliance/legal, reputational, and human resources.  Our Chief Risk Officer is independent of
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management and reports directly to the Chair of the Board’s Enterprise Risk Management Committee.  The following discussion addresses these major risks: credit, market, liquidity, operational/technology/cyber, and regulatory/compliance/legal.
During the COVID-19 pandemic, we are committed and focused on the health and safety of our team members, clients, and communities. Accordingly, weWe will continue to evaluate and adjust our branchbanking center hours and lobby usage and return to work efforts as necessary depending on developmentsthe path of the virus across our footprint. During the second quarter of 2020, we began to return to the workplace. This included reopening our lobbies and bringing our team members back to the office, but on a much slower pace than initially planned, and in some instances pausing our return in certain markets due to the increasing number of positive COVID-19 cases across our footprint. Despite this, Old National is
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Our banking centers are still open for business. Webusiness and we continue to lend to qualified businesses for working capital and general business purposes.purposes, while our online banking network is continuously available for digital banking transactions.
Credit Risk
Credit risk represents the risk of loss arising from an obligor’s inability or failure to meet contractual payment or performance terms.  Our primary credit risks result from our investment and lending activitiesactivities.
Investment Activities
We carry a higher exposure to loss in our pooled trust preferred securities, which are collateralized debt obligations, due to illiquidity in that market and the performance of the underlying collateral.  At June 30, 2020,2021, we had pooled trust preferred securities with a fair value of $7.2$9.4 million, or less than 1% of the available-for-sale securities portfolio.  These securities remained classified as available-for-sale and at June 30, 2020,2021, the unrealized loss on our pooled trust preferred securities was $6.6$4.4 million. The fair value of these securities is expected to improve as we get closer to maturity, but not in all cases.may be adversely impacted by credit deterioration.
All of our mortgage-backed securities are backed by U.S. government-sponsored or federal agencies.  Municipal bonds, corporate bonds, and other debt securities are evaluated by reviewing the credit-worthiness of the issuer and general market conditions.  See Note 45 to the consolidated financial statements for additional details about our investment security portfolio.
Counterparty Exposure
Counterparty exposure is the risk that the other party in a financial transaction will not fulfill its obligation.  We define counterparty exposure as nonperformance risk in transactions involving federal funds sold and purchased, repurchase agreements, correspondent bank relationships, and derivative contracts with companies in the financial services industry.  Old National manages exposure to counterparty risk in connection with its derivatives transactions by generally engaging in transactions with counterparties having ratings of at least A“A” by Standard & Poor’s Rating Service or A2“A2” by Moody’s Investors Service.  Total credit exposure is monitored by counterparty and managed within limits that management believes to be prudent. Old National’s net counterparty exposure was an asset of $557.5$227.6 million at June 30, 2020.2021.
Lending Activities
Commercial
Commercial and industrial loans are made primarily for the purpose of financing equipment acquisition, expansion, working capital, and other general business purposes.  Lease financing consists of direct financing leases and areis used by commercial customers to finance capital purchases ranging from computer equipment to transportation equipment.  The credit decisions for these transactions are based upon an assessment of the overall financial capacity of the applicant.  A determination is made as to the applicant’s ability to repay in accordance with the proposed terms as well as an overall assessment of the risks involved.  In addition to an evaluation of the applicant’s financial condition, a determination is made of the probable adequacy of the primary and secondary sources of repayment, such as additional collateral or personal guarantees, to be relied upon in the transaction.  Credit agency reports of the applicant’s credit history supplement the analysis of the applicant’s creditworthiness.
Commercial mortgages and construction loans are offered to real estate investors, developers, and builders primarily domiciled in the geographic market areas we serve:  Indiana, Kentucky, Michigan, Wisconsin,Minnesota, and Minnesota.Wisconsin.  These loans are secured by first mortgages on real estate at LTV margins deemed appropriate for the property type, quality, location, and sponsorship.  Generally, these LTV ratios do not exceed 80%.  The commercial properties are predominantly non-residential properties such as retail centers, industrial properties and, to a lesser extent, more specialized properties.  Substantially all of our commercial real estate loans are secured by properties located in our primary market area.
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In the underwriting of our commercial real estate loans, we obtain appraisals for the underlying properties. Decisions to lend are based on the economic viability of the property and the creditworthiness of the borrower.  In evaluating a proposed commercial real estate loan, we primarily emphasize the ratio of the property’s projected net cash flows to the loan’s debt service requirement.  The debt service coverage ratio normally is not less than 120% and it is computed after deduction for a vacancy factor and property expenses as appropriate.  In addition, a personal guarantee of the loan or a portion thereof is often required from the principal(s) of the borrower.  In most cases, we
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require title insurance insuring the priority of our lien, fire and extended coverage casualty insurance, and flood insurance, if appropriate, in order to protect our security interest in the underlying property.  In addition, business interruption insurance or other insurance may be required.
Construction loans are underwritten against projected cash flows derived from rental income, business income from an owner-occupant, or the sale of the property to an end-user.  We may mitigate the risks associated with these types of loans by requiring fixed-price construction contracts, performance and payment bonding, controlled disbursements, and pre-sale contracts or pre-lease agreements.
Consumer
We offer a variety of first mortgage and junior lien loans to consumers within our markets, with residential home mortgages comprising our largest consumer loan category.  These loans are secured by a primary residence and are underwritten using traditional underwriting systems to assess the credit risks of the consumer.  Decisions are primarily based on LTV ratios, DTI ratios, liquidity, and credit scores.  A maximum LTV ratio of 80% is generally required, although higher levels are permitted with mortgage insurance or other mitigating factors.  We offer fixed rate mortgages and variable rate mortgages with interest rates that are subject to change every year after the first, third, fifth, or seventh year, depending on the product and are based on fully-indexedindexed rates such as LIBOR.prime.  We do not offer payment-option facilities, sub-prime loans, or any product with negative amortization.
Home equity loans are secured primarily by second mortgages on residential property of the borrower.  The underwriting terms for the home equity product generally permit borrowing availability, in the aggregate, up to 90% of the appraised value of the collateral property at the time of origination.  We offer fixed and variable rate home equity loans, with variable rate loans underwritten at fully-indexed rates.  Decisions are primarily based on LTV ratios, DTI ratios, and credit scores.  We do not offer home equity loan products with reduced documentation.
Automobile loans include loans and leases secured by new or used automobiles.  We originate automobile loans and leases primarily on an indirect basis through selected dealerships.  We require borrowers to maintain collision insurance on automobiles securing consumer loans, with us listed as loss payee.  Our procedures for underwriting automobile loans include an assessment of an applicant’s overall financial capacity, including credit history and the ability to meet existing obligations and payments on the proposed loan.  Although an applicant’s creditworthiness is the primary consideration, the underwriting process also includes a comparison of the value of the collateral security to the proposed loan amount.
Asset Quality
Community-based lending personnel, along with region-based independent underwriting and analytic support staff, extend credit under guidelines established and administered by our Enterprise Risk Committee.  This committee, which meets quarterly, is made up of independent outside directors.  The committee monitors credit quality through its review of information such as delinquencies, credit exposures, peer comparisons, problem loans, and charge-offs.  In addition, the committee reviews and approves recommended loan policy changes to assure itour policy remains appropriate for the current lending environment.
We lend to commercial and commercial real estate clients in various industries including manufacturing, agribusiness, transportation, mining, wholesaling, and retailing.  Old National manages concentrations of credit exposure by industry, product, geography, customer relationship, and loan size.  At June 30, 2020,2021, our average commercial loan size (excluding PPP loans) was under $315,000approximately $260,000 and our average commercial real estate loan size was under $725,000.approximately $890,000. In addition, while loans to lessors of both residential and non-residential real estate exceed 10% of total loans, no individual sub-segment category within those broader categories reaches the 10% threshold. At June 30, 2020,2021, we had minimal exposure to foreign borrowers and no sovereign debt.  Our policy is to concentrate our lending activity in the geographic market areas we serve, primarily Indiana, Kentucky, Michigan, Wisconsin,Minnesota, and Minnesota.Wisconsin. We have experienced an adverse impact from COVID-19 asduring 2020 and during the first half of June 30, 2020;2021; however, the depth of this crisis is ongoing and its effect is anticipated to be very broad-based. Our geographic footprint, the Midwest, has not experienced the same adverse impact as other parts of the country; however, we are seeing a recent uptick in COVID-19 cases. The relief programs we have put in place along governmental stimulus programs, have helped dampen any increases in delinquencies we might have seen absent these programs. It remains to be seen what impact any wind down of these programs will have on delinquency rates going forward. Management believes that trends in under-performing, criticized, and classified loans will be influenced byhighly dependent on the degree to which the economy strengthens or weakens, as well as the ongoing impact of the COVID-19 pandemic in the markets in which we operate.distribution
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Summaryof vaccinations, as well as the length of time it will take consumers to return to their pre-pandemic spending routines.
The following table presents a summary of under-performing, criticized, and classified assets:
June 30,December 31,June 30,December 31,
(dollars in thousands)(dollars in thousands)202020192019(dollars in thousands)202120202020
Total nonaccrual loansTotal nonaccrual loans$125,546  $142,421  $126,412  Total nonaccrual loans$128,268 $125,546 $147,339 
TDRs still accruingTDRs still accruing16,582  19,031  18,338  TDRs still accruing14,222 16,582 17,749 
Total past due loans (90 days or more and still accruing)Total past due loans (90 days or more and still accruing)779  423  570  Total past due loans (90 days or more and still accruing)9 779 167 
Other real estate ownedOther real estate owned1,786  2,819  2,169  Other real estate owned520 1,786 1,324 
Total under-performing assetsTotal under-performing assets$144,693  $164,694  $147,489  Total under-performing assets$143,019 $144,693 $166,579 
Classified loans (includes nonaccrual, TDRs still accruing,
past due 90 days, and other problem loans)		Classified loans (includes nonaccrual, TDRs still accruing,
past due 90 days, and other problem loans)		$318,758  $317,572  $296,671  Classified loans (includes nonaccrual, TDRs still accruing,
past due 90 days, and other problem loans)		$289,272 $318,758 $304,782 
Other classified assets (1)Other classified assets (1)2,565  2,550  2,933  Other classified assets (1)4,305 2,565 3,706 
Criticized loansCriticized loans220,300  220,455  234,841  Criticized loans228,264 220,300 287,192 
Total criticized and classified assetsTotal criticized and classified assets$541,623  $540,577  $534,445  Total criticized and classified assets$521,841 $541,623 $595,680 
Asset Quality Ratios:Asset Quality Ratios:Asset Quality Ratios:
Non-performing loans/total loans (2) (3)Non-performing loans/total loans (2) (3)1.04  %1.34  %1.19  %Non-performing loans/total loans (2) (3)1.03 %1.04 %1.20 %
Under-performing assets/total loans and
other real estate owned (4)		1.06  1.37  1.22  
Under-performing assets/total loans and
other real estate owned		Under-performing assets/total loans and
other real estate owned		1.04 1.06 1.21 
Under-performing assets/total assetsUnder-performing assets/total assets0.65  0.82  0.72  Under-performing assets/total assets0.60 0.65 0.73 
Allowance/under-performing assets (5)Allowance/under-performing assets (5)88.74  34.18  37.03  Allowance/under-performing assets (5)76.52 88.74 78.87 
Allowance/nonaccrual loans (5)Allowance/nonaccrual loans (5)102.27  39.53  43.21  Allowance/nonaccrual loans (5)85.32 102.27 89.17 
(1)Includes one pooled trust preferred security and onetwo insurance policypolicies at June 30, 2020.2021.
(2)Loans exclude loans held for sale.
(3)Non-performing loans include nonaccrual loans and TDRs still accruing.
(4)Includes acquired loans that were recorded at fair value at the date of acquisition. As such, the credit risk was incorporated in the fair value recorded and no allowance for loan losses was recordedUnder-performing assets totaled $143.0 million at June 30, 2019 or December 31, 2019.
(5)Beginning January 1, 2020, the allowance is based on current expected loss methodology. Prior2021, compared to January 1, 2020, the allowance was based on incurred loss methodology.
Under-performing assets totaled $144.7 million at June 30, 2020 compared to $164.7 million at June 30, 2019 and $147.5$166.6 million at December 31, 2019.2020.  Under-performing assets as a percentage of total loans and other real estate owned at June 30, 20202021 were 1.06%1.04%, a 312 basis point improvement from 1.37%1.06% at June 30, 20192020 and a 1617 basis point improvement from 1.22%1.21% at December 31, 2019.2020.
Nonaccrual loans decreased from June 30, 2019December 31, 2020 primarily due to a decreasedecreases in commercial, commercial real estate, and residential real estate nonaccrual loans.  As a percentage of nonaccrual loans, the allowance was 85.32% at June 30, 2021, compared to 102.27% at June 30, 2020 compared to 39.53% at June 30, 2019 and 43.21%89.17% at December 31, 2019. Beginning January 1, 2020, the allowance is based on current expected loss methodology. Prior to January 1, 2020, the allowance was based on incurred loss methodology.2020.
Total criticized and classified assets were $541.6$521.8 million at June 30, 2020, an increase2021, a decrease of $1.0$19.8 million from June 30, 2019,2020, and an increasea decrease of $7.2$73.8 million from December 31, 2019.2020. Other classified assets include investment securities that fell below investment grade rating totaling $2.6$4.3 million at June 30, 2020,2021, compared to $2.6 million at June 30, 20192020 and $2.9$3.7 million at December 31, 2019.2020.
Old National may choose to restructure the contractual terms of certain loans.  The decision to restructure a loan, versus aggressively enforcing the collection of the loan, may benefit Old National by increasing the ultimate probability of collection.
Any loans that are modified are reviewed by Old National to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, Old National Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status.  The modification of the terms of such loans includeincludes one or a combination of the following:  a reduction of the stated interest rate of the loan, an extension of the maturity date at a stated rate of interest lower than the current market rate of new debt with similar risk, or a permanent reduction of the recorded investment of the loan.
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Loans modified in a TDR are typically placed on nonaccrual status until we determine that the future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate a period of performance according to the restructured terms for six months.
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If we are unable to resolve a nonperforming loan issue, the credit will be charged off when it is apparent there will be a loss.  For large commercial type loans, each relationship is individually analyzed for evidence of apparent loss based on quantitative benchmarks or subjectively based upon certain events or particular circumstances.  Generally, Old National charges off small commercial loans scored through our small business credit center with contractual balances under $250,000 that are 90 days or more delinquent and do not have adequate collateral support.  For residential and consumer loans, a charge off is recorded at the time foreclosure is initiated or when the loan becomes 120 to 180 days past due, whichever is earlier.
For commercial TDRs, an allocated reserve is established within the allowance for credit losses for the difference between the carrying value of the loan and its computed value.  To determine the computed value of the loan, one of the following methods is selected: (1) the present value of expected cash flows discounted at the loan’s original effective interest rate, (2) the loan’s observable market price, or (3) the fair value of the collateral, if the loan is collateral dependent.  The allocated reserve is established as the difference between the carrying value of the loan and the collectable value.  If there are significant changes in the amount or timing of the loan’s expected future cash flows, impairment is recalculated and the valuation allowance is adjusted accordingly.
When a residential or consumer loan is identified as a TDR, the loan is typically written down to its collateral value less selling costs.
At June 30, 2020,2021, TDRs consisted of $10.6$8.3 million of commercial loans, $12.7$16.0 million of commercial real estate loans, $0.1 million of BBCC loans, $3.0$2.5 of residential real estate loans, $0.7 million of direct consumer loans, and $0.2 million of home equity loans totaling $27.8 million. TDRs included within nonaccrual loans totaled $13.6 million at June 30, 2021. At December 31, 2020, TDRs consisted of $11.1 million of commercial loans, $17.6 million of commercial real estate loans, $0.1 million of BBCC loans, $2.8 million of residential real estate loans, $0.8 million of direct consumer loans, and $0.4$0.3 million of home equity loans, totaling $27.6$32.7 million. TDRs included within nonaccrual loans totaled $11.3 million at June 30, 2020. At December 31, 2019, TDRs consisted of $12.4 million of commercial loans, $14.2 million of commercial real estate loans, $0.6 million of BBCC loans, $3.1 million of residential real estate loans, $1.0 million of direct consumer loans, and $0.4 million of home equity loans totaling $31.7 million. TDRs included within nonaccrual loans totaled $13.8$14.9 million at December 31, 2019.2020.
Old National has allocated specific reserves to customers whose loan terms have been modified inas TDRs totaling $1.4$1.0 million at June 30, 20202021 and $0.9$1.6 million of December 31, 2019.2020.  At June 30, 2020,2021, Old National had committed to lend an additional $0.7$0.9 million to customers with outstanding loans that arewere classified as TDRs, compared to $2.3 million atTDRs. At December 31, 2019.2020, Old National had not committed to lend any additional funds to customers with outstanding loans that were classified as TDRs.
The terms of certain other loans were modified during 20202021 and 20192020 that did not meet the definition of a TDR.  It is our process to review all classified and criticized loans that, during the period, have been renewed, have entered into a forbearance agreement, have gone from principal and interest to interest only, or have extended the maturity date.  In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on its debt in the foreseeable future without the modification.  The evaluation is performed under our internal underwriting policy.  We also evaluate whether a concession has been granted or if we were adequately compensated through a market interest rate, additional collateral, or a bona fide guarantee.  We also consider whether the modification was insignificant relative to the other terms of the agreement or the delay in a payment.
In general, once a modified loan is considered a TDR, the loan will always be considered a TDR, and therefore impaired, until it is paid in full, otherwise settled, sold, or charged off.  However, guidance also permits for loans to be removed from TDR status when subsequently restructured under these circumstances: (1) at the time of the subsequent restructuring, the borrower is not experiencing financial difficulties, and this is documented by a current credit evaluation at the time of the restructuring, (2) under the terms of the subsequent restructuring agreement, the institution has granted no concession to the borrower; and (3) the subsequent restructuring agreement includes market terms that are no less favorable than those that would be offered for a comparable new loan.  For loans subsequently restructured that have cumulative principal forgiveness, the loan should continue to be measured in accordance with ASC 310-10, Receivables – Overall.  However, consistent with ASC 310-40-50-2, Troubled Debt Restructurings by Creditors, Creditor Disclosure of Troubled Debt Restructurings, the loan would not be required to be reported in the years following the restructuring if the subsequent restructuring meets both of these criteria: (1) has an interest rate at the time of the subsequent restructuring that is not less than a market interest rate; and (2) is performing in compliance with its modified terms after the subsequent restructuring.
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We have developed relief programs to assist borrowers in financial need due to the effects of the COVID-19 pandemic. The Interagency Statement issued by our banking regulators encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates. The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act, as well as setting forth the banking regulators’ views on consumer protection considerations. Additionally, section 541 of the CAA extended the relief provided by the CARES Act for financial institutions to suspend the GAAP accounting treatment for troubled debt restructuring to January 1, 2022. In accordance with such guidance, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term 180(180 days or less,less) modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. First-time deferral requests have slowed and we are beginning to receive requests of extensions from the initial 90-day deferral clients. To the extent that we have borrowers requesting deferral period extensions, we will spend more time analyzing these requests than we did on the first-time request and will compare the most recent financial information to the pre-pandemic baseline financial information on liquidity, capital, debt service ability, and loan structure. The table below presents the volume ofthese loan deferrals through June 30, 2020 by loan category:
December 31, 2020June 30, 2021
(dollars in thousands)(dollars in thousands)NumberBooked AmountBooked
% of
Portfolio		(dollars in thousands)Deferrals
Balance		Deferrals
Balance (1)		Number of
Deferrals
Commercial1,474  $713,619  25  %
Commercial real estate194  456,500  8  
Commercial and commercial real estateCommercial and commercial real estate$53,823 $17,313 40 
Residential real estateResidential real estate335  78,639  3  Residential real estate1,855 264 4 
ConsumerConsumer2,159  54,786  3  Consumer8,224 4,104 217 
TotalTotal4,162  $1,303,544  11  %Total$63,902 $21,681 261 
(1)    Includes second deferrals between 90 and 180 days totaling $2.5 million of commercial and commercial real estate loans, $0.1 million of residential real estate loans, and $0.6 million of consumer loans.
U.S. Small Business Administration Paycheck Protection Program
Section 1102 of the CARES Act created the PPP, a program administered by the SBA to provide loans to small businesses for payroll and other basic expenses during the COVID-19 pandemic. Old National has participated in the PPP as a lender. These loans are eligible to be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA. Additionally, loan payments will also be deferred for the first six months of the loan.loan term. The PPP commenced on April 3, 2020 and iswas available to qualified borrowers through August 8, 2020, or as long as the appropriated funding is available.2020. No collateral or personal guarantees are required. Neither the government nor lenders are permitted to charge the recipients any fees.

During 2020, Old National began accepting applications from qualified borrowers on April 3, 2020 and asoriginated over 9,700 loans with balances in excess of June 30, 2020 over 9,200 applications have been processed and approved, representing $1.538$1.5 billion in funding to new and existing clientscustomers through the PPP. As of June 30, 2021, we have received payment from the SBA on 8,170, or 83%, of these loans totaling $1.3 billion.
On December 27, 2020, President Trump signed into law the CAA. The CAA, among other things, extends the life of the PPP, effectively creating a second round of PPP loans for eligible businesses. Old National has participated in the CAA’s second round of PPP lending. In mid-January we opened our lending portal and began processing PPP loan applications. During the six months ended June 30, 2021, Old National originated approximately 6,200 loans totaling $583.7 million through the second round of the PPP. As of June 30, 2021, we have received payment from the SBA on 1,112, or 18%, of second round PPP loans totaling $64.1 million.

At June 30, 2021, remaining PPP loans totaled $721.1 million.

To the extent the PPP loans are forgiven, this represents outside equity contributions to our borrowers; and, especially with respect to vulnerable industries, we believe these capital injections are going to be instrumental in assisting our borrowers in navigating through the pandemic. This capital injection, along with the level of capital each borrower had just prior to COVID-19 impacting them, are critical factors in determining the staying power of our borrowers. Old National approved just over $203 million in PPP loans to borrowers in various industry segments identified as vulnerable, which represents just shy of 25% of our total pre-PPP outstanding loan balances to these industries. Upon receipt of interim financial results from our borrowers, we will use that information to update our understanding of the underlying strengths or weaknesses in each individual relationship and take actions, as appropriate.

As of July 27, 2020, 712 borrowers have initiated the PPP loan forgiveness application process totaling $139.4 million in loans.
Allowance for Credit Losses on Loans and Unfunded Commitments
Loan charge-offs, net ofNet recoveries on loans totaled $0.5 million for the three months ended June 30, 2020, compared to $0.3 million for the three months ended June 30, 2019.2021, compared to $0.5 million of net charge-offs for the three months ended June 30, 2020. Annualized, net charge-offs (recoveries) to average loans were (0.01)% for the three months ended June 30, 2021, compared to 0.02% for the three months ended June 30, 2020 compared to 0.01% for the three months ended June 30, 2019. Loan charge-offs, net of2020. Net recoveries on loans totaled $7.1$0.3 million for the six months ended June 30, 2020,2021, compared to $1.2 $7.1
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million of net charge-offs for the six months ended June 30, 2019.2020. Annualized, net charge-offs (recoveries) to average loans were 0.00% for the six months ended June 30, 2021, compared to 0.11% for the six months ended June 30, 2020 compared to 0.02% for the six months ended June 30,
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2019.2020. Management will continue its efforts to reduce the level of non-performing loans and may consider the possibility of sales of troubled and non-performing loans, which could result in additional charge-offs to the allowance for credit losses on loans.
Beginning January 1, 2020, we calculated allowance for credit losses using current expected credit losses methodology. As of January 1, 2020, Old National increased the allowance for credit losses for loans by $41.3 million and increased the allowance for credit losses for unfunded loan commitments by $4.5 million, since the ASU covers credit losses over the expected life of a loan as well as considering future changes in macroeconomic conditions. The increase related to the acquired loan portfolio totaled $27.1 million.
Credit quality within the loans held for investment portfolio is continuously monitored by management and is reflected within the allowance for credit losses for loans. The allowance for credit losses is an estimate of expected losses inherent within the Company’s loans held for investment portfolio. Credit quality is assessed and monitored by evaluating various attributes and the results of those evaluations are utilized in underwriting new loans and in our process for estimating expected credit losses. Expected credit loss inherent in non-cancelable off-balance-sheet credit exposures is accounted for as a separate liability included in other liabilities on the consolidated statements of financial condition.balance sheet. The allowance for credit losses for loans held for investment is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries. Accrued interest receivable is excluded from the estimate of credit losses.
The allowance for credit loss estimation process involves procedures to appropriately consider the unique characteristics of itsour loan portfolio segments. These segments are further disaggregated into loan classes based on the level at which credit risk of the loan is monitored. When computing the level of expected credit losses, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods.
The allowance level is influenced by loan volumes, loan AQR migration or delinquency status, changes in historical loss experience, and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses has two basic components: first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans; and second, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics.
At June 30, 2020, theThe allowance for credit losses for loans was $128.4 million.$109.4 million at June 30, 2021, compared to $131.4 million at December 31, 2020. Continued loan growth in future periods, a decline in our current level of recoveries, or an increase in charge-offs could result in an increase in provision expense. Additionally, with the adoption of CECL beginning on January 1, 2020, provision expense may become more volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, which drive the allowance for credit losses balance.
Prior to January 1, 2020, we calculated allowance for loan losses using incurred losses methodology. At December 31, 2019, the allowance for loan losses was $54.6 million.
We maintain an allowance for credit losses on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses for loans, modified to take into account the probability of a drawdown on the commitment.  The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet within accrued expenses and totaled $11.0 million at June 30, 2020.
Prior to January 1, 2020, we calculatedother liabilities, while the corresponding provision for these credit losses is recorded as a component of other expense. The allowance for credit losses on unfunded loan commitments using incurred losses methodology. Attotaled $10.4 million at June 30, 2021, compared to $11.7 million at December 31, 2019, the allowance losses on unfunded commitments was $2.7 million.2020.
Market Risk
Market risk is the risk that the estimated fair value of our assets, liabilities, and derivative financial instruments will decline as a result of changes in interest rates or financial market volatility, or that our net income will be significantly reduced by interest rate changes.
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The objective of our interest rate management process is to maximize net interest income while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.
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Potential cash flows, sales, or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in the general level of interest rates. This interest rate risk arises primarily from our normal business activities of gathering deposits and extending loans. Many factors affect our exposure to changes in interest rates, such as general economic and financial conditions, customer preferences, historical pricing relationships, and re-pricing characteristics of financial instruments. Our earnings can also be affected by the monetary and fiscal policies of the U.S. Government and its agencies, particularly the Federal Reserve.
In managing interest rate risk, we, through theour Funds Management Committee, a committee of the Board of Directors, establish guidelines, for asset and liability management, including measurement of short and long-term sensitivities to changes in interest rates. Based on the results of our analysis, we may use different techniques to manage changing trends in interest rates including:
•adjusting balance sheet mix or altering interest rate characteristics of assets and liabilities;
•changing product pricing strategies;
•modifying characteristics of the investment securities portfolio; or
•using derivative financial instruments, to a limited degree.

A key element in our ongoing process is to measure and monitor interest rate risk using a model to quantify the likely impact of changing interest rates on Old National.National’s results of operations. The model quantifies the effects of various possible interest rate scenarios on projected net interest income. The model measures the impact on net interest income relative to a base case scenario. The base case scenario assumes that the balance sheet and interest rates are held at current levels. Interest rates are floored at 0.00% in the down 50 basis points scenario. The model shows our projected net interest income sensitivity based on interest rate changes only and does not consider other forecast assumptions.
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The following table illustrates our projected net interest income sensitivity over a two year cumulative horizon based on the asset/liability model at June 30, 20202021 and 2019:2020:
Immediate
Rate Decrease		Immediate Rate IncreaseImmediate
Rate Decrease		Immediate Rate Increase
(dollars in thousands)(dollars in thousands)-50
Basis Points		Base+100
Basis Points		+200
Basis Points		+300
Basis Points		(dollars in thousands)-50
Basis Points		Base+100
Basis Points		+200
Basis Points		+300
Basis Points
June 30, 2021June 30, 2021
Projected interest income:Projected interest income:
Money market, other interest earning
investments, and investment
securities		Money market, other interest earning
investments, and investment
securities		$266,770 $283,033 $314,772 $339,937 $362,929 
LoansLoans838,058 870,225 1,009,602 1,149,951 1,288,437 
Total interest incomeTotal interest income1,104,828 1,153,258 1,324,374 1,489,888 1,651,366 
Projected interest expense:Projected interest expense:
DepositsDeposits15,289 24,627 105,133 185,790 266,444 
BorrowingsBorrowings60,615 68,546 100,943 134,207 170,592 
Total interest expenseTotal interest expense75,904 93,173 206,076 319,997 437,036 
Net interest incomeNet interest income$1,028,924 $1,060,085 $1,118,298 $1,169,891 $1,214,330 
Change from baseChange from base$(31,161)$58,213 $109,806 $154,245 
% change from base% change from base(2.94)%5.49 %10.36 %14.55 %
June 30, 2020June 30, 2020June 30, 2020
Projected interest income:Projected interest income:Projected interest income:
Money market, other interest earning
investments, and investment
securities		Money market, other interest earning
investments, and investment
securities		$263,173  $274,827  $306,795  $325,762  $339,578  Money market, other interest earning
investments, and investment
securities		$263,173 $274,827 $306,795 $325,762 $339,578 
LoansLoans871,350  899,020  1,017,761  1,138,823  1,258,638  Loans871,350 899,020 1,017,761 1,138,823 1,258,638 
Total interest incomeTotal interest income1,134,523  1,173,847  1,324,556  1,464,585  1,598,216  Total interest income1,134,523 1,173,847 1,324,556 1,464,585 1,598,216 
Projected interest expense:Projected interest expense:Projected interest expense:
DepositsDeposits29,316  39,521  121,162  202,890  284,608  Deposits29,316 39,521 121,162 202,890 284,608 
BorrowingsBorrowings73,519  75,797  101,468  130,230  163,376  Borrowings73,519 75,797 101,468 130,230 163,376 
Total interest expenseTotal interest expense102,835  115,318  222,630  333,120  447,984  Total interest expense102,835 115,318 222,630 333,120 447,984 
Net interest incomeNet interest income$1,031,688  $1,058,529  $1,101,926  $1,131,465  $1,150,232  Net interest income$1,031,688 $1,058,529 $1,101,926 $1,131,465 $1,150,232 
Change from baseChange from base$(26,841) $43,397  $72,936  $91,703  Change from base$(26,841)$43,397 $72,936 $91,703 
% change from base% change from base(2.54)%4.10 %6.89 %8.66 %% change from base(2.54)%4.10 %6.89 %8.66 %
June 30, 2019
Projected interest income:
Money market, other interest earning
investments, and investment
securities		$312,978  $327,496  $345,783  $360,405  $373,426  
Loans1,061,488  1,120,904  1,240,088  1,353,653  1,466,682  
Total interest income1,374,466  1,448,400  1,585,871  1,714,058  1,840,108  
Projected interest expense:
Deposits107,522  148,369  241,198  334,016  426,834  
Borrowings115,103  129,471  162,572  196,010  229,493  
Total interest expense222,625  277,840  403,770  530,026  656,327  
Net interest income$1,151,841  $1,170,560  $1,182,101  $1,184,032  $1,183,781  
Change from base$(18,719) $11,541  $13,472  $13,221  
% change from base(1.60)%0.99 %1.15 %1.13 %
Our asset sensitivity increased year over year primarily due to deposit pricing actions and changes in our hedging strategies, balance sheet mix, investment duration, and prepayment speed behavior.
A key element in the measurement and modeling of interest rate risk is the re-pricing assumptions of our transaction deposit accounts, which have no contractual maturity dates. Because the models are driven by expected behavior in various interest rate scenarios and many factors besides market interest rates affect our net interest income, we recognize that model outputs are not guarantees of actual results. For this reason, we model many different combinations of interest rates and balance sheet assumptions to understand our overall sensitivity to market interest rate changes, including shocks, ramps, yield curve flattening, yield curve steepening, as well as forecasts of likely interest rate scenarios tested. At June 30, 2020,2021, our projected net interest income sensitivity based on the asset/liability models we utilize was within the limits of our interest rate risk policy for the scenarios tested.

We use cash flow and fair value hedges, primarily interest rate swaps, collars, and floors, to mitigate interest rate risk. Derivatives designated as hedging instruments were in a net asset position with a fair value of $19.2$13.3 million at June 30, 2020,2021, compared to a net asset position with a fair value of $6.1$15.2 million at December 31, 2019.2020.  See Note 19 to the consolidated financial statements for further discussion of derivative financial instruments.
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Liquidity Risk
Liquidity risk arises from the possibility that we may not be able to satisfy current or future financial commitments, or may become unduly reliant on alternative funding sources.  The Funds Management Committee of the Board of
Directors establishes liquidity risk guidelines and, along with the Balance Sheet Management Committee, monitors liquidity risk.  The objective of liquidity management is to ensure we have the ability to fund balance sheet growth and meet deposit and debt obligations in a timely and cost-effective manner.  Management monitors liquidity through a regular review of asset and liability maturities, funding sources, and loan and deposit forecasts.  We maintain strategic and contingency liquidity plans to ensure sufficient available funding to satisfy requirements for balance sheet growth, properly manage capital markets’ funding sources and to address unexpected liquidity requirements. On June 5, 2020, we filed an automatic shelf registration statement with the SEC that permits us to issue an unspecified amount of debt or equity securities.
Loan repayments and maturing investment securities are a relatively predictable source of funds.  However, deposit flows, calls of investment securities and prepayments of loans and mortgage-related securities are strongly influenced by interest rates, the housing market, general and local economic conditions, and competition in the marketplace.  We continually monitor marketplace trends to identify patterns that might improve the predictability of the timing of deposit flows or asset prepayments.
A time deposit maturity schedule for Old National BankBank’s time deposits is shown in the following table at June 30, 2020.2021.
(dollars in thousands)(dollars in thousands)(dollars in thousands)
Maturity BucketMaturity BucketAmountRateMaturity BucketAmountRate
2020$794,671  0.86  %
20212021448,957  0.90  2021$469,563 0.29 %
2022202299,869  1.12  2022327,524 0.45 
2023202366,913  1.48  2023106,511 0.99 
2024202436,536  1.66  202450,083 1.25 
2025 and beyond25,287  1.11  
2025202529,909 0.71 
2026 and beyond2026 and beyond18,929 0.80 
TotalTotal$1,472,233  0.94  %Total$1,002,519 0.49 %
Our ability to acquire funding at competitive prices is influenced by rating agencies’ views of our credit quality, liquidity, capital, and earnings.  Moody’s InvestorInvestors Service places us in an investment grade that indicates a low risk of default.  For both Old National and Old National Bank:
•Moody’s InvestorInvestors Service affirmed the Long-Term Rating of A3 of“A3” for Old National’s senior unsecured/issuer rating on February 3, 2020.17, 2021.
•Moody’s InvestorInvestors Service affirmed Old National Bank’s long-term deposit rating of Aa3“Aa3” on February 3, 2020.17, 2021.  The bank’s short-term deposit rating was affirmed at P-1“P-1” and the bank’s issuer rating was affirmed at A3.“A3.”
The rating outlook from Moody’s Investor Service is stable.  Moody’s InvestorInvestors Service concluded a rating review of Old National Bank on February 3, 2020.17, 2021. The rating outlook from Moody’s Investors Service was moved from “Stable” to “Ratings Under Review” on June 2, 2021 due to the merger announced June 1, 2021.  
The credit ratings of Old National and Old National Bank at June 30, 20202021 are shown in the following table.
 Moody's InvestorInvestors Service
 Long-termShort-term
Old NationalA3N/A
Old National BankAa3P-1
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Old National Bank maintains relationships in capital markets with brokers and dealers to issue certificates of deposit and short-term and medium-term bank notes as well.  At June 30, 2020,2021, Old National and its subsidiaries had the following availability of liquid funds and borrowings:
(dollars in thousands)(dollars in thousands)Parent CompanySubsidiaries(dollars in thousands)Parent CompanySubsidiaries
Available liquid funds:Available liquid funds:Available liquid funds:
Cash and due from banksCash and due from banks$50,737  $259,757  Cash and due from banks$99,185 $391,946 
Unencumbered government-issued debt securitiesUnencumbered government-issued debt securities—  2,065,327  Unencumbered government-issued debt securities— 3,116,059 
Unencumbered investment grade municipal securitiesUnencumbered investment grade municipal securities—  712,331  Unencumbered investment grade municipal securities— 972,511 
Unencumbered corporate securitiesUnencumbered corporate securities—  155,174  Unencumbered corporate securities— 157,084 
Availability of borrowings:Availability of borrowings:Availability of borrowings:
Amount available from Federal Reserve discount window*Amount available from Federal Reserve discount window*—  469,733  Amount available from Federal Reserve discount window*— 452,008 
Amount available from Federal Home Loan Bank Indianapolis*Amount available from Federal Home Loan Bank Indianapolis*—  552,724  Amount available from Federal Home Loan Bank Indianapolis*— 221,836 
Total available fundsTotal available funds$50,737  $4,215,046  Total available funds$99,185 $5,311,444 
* Based on collateral pledged
Old National Bancorp has routine funding requirements consisting primarily of operating expenses, dividends to shareholders, debt service, net derivative cash flows, and funds used for acquisitions.  Old National Bancorp can obtain funding to meet its obligations from dividends and management fees collected from its subsidiaries, operating line of credit, and through the issuance of debt securities.  Additionally, Old National Bancorp has a shelf registration in place with the SEC permitting ready access to the public debt and equity markets.  At June 30, 2020,2021, Old National Bancorp’s other borrowings outstanding were $213.1$213.4 million. Management believes the Company has the ability to generate and obtain adequate amounts of liquidity to meet its requirements in the short-term and the long-term.
Federal banking laws regulate the amount of dividends that may be paid by banking subsidiaries without prior approval.  Prior regulatory approval is required if dividends to be declared in any year would exceed net earnings of the current year plus retained net profits for the preceding two years.  Prior regulatory approval to pay dividends was not required in 20192020 and is not currently required.
Operational/Technology/Cyber Risk
Operational/technology/cyber risk is the potentialdanger that inadequate information systems, operational problems, breaches in internal controls, information security breaches, fraud, or unforeseen catastrophes will result in unexpected losses.losses and other adverse impacts to Old National, such as reputational harm.  We maintain frameworks, programs, and internal controls to prevent or minimize financial loss from failure of systems, people, or processes.  This includes specific programs and frameworks intended to prevent or limit the effects of cyber risks including cyber-attacks or other information security breaches that might allow unauthorized transactions or unauthorized access to customer, associate, or company sensitive information.  Metrics and measurements are used by Executive Leadersour management team in the management of day-to-day operations to ensure effective customer service, minimization of service disruptions, and oversight of operational and cyber risk.  We continually monitor and report on operational, technology, and cyber risks related to clients, products, and business practices; external and internal fraud; business disruptions and systems failures; cyber-attacks, information security or data breaches; damage to physical assets; and execution, delivery, and process management.
The Enterprise Risk Management Committee of the Board of Directors is responsible for the oversight, guidance, and monitoring of risks, including operational/technology/cyber risks, being taken by the Company.  The monitoring is accomplished through ongoing review of management reports, data on risks and policy limits, and consistent discussion on enterprise risk management strategies, policies, and risk assessments.
Regulatory/Compliance/Legal Risk
Regulatory/compliance/legal risk is the risk that the Company violated or was not in compliance with applicable laws, regulations or practices, industry standards, or ethical standards.  The legal portion assesses the risk that unenforceable contracts, lawsuits, or adverse judgments can disrupt or otherwise negatively impact the Company.  The Board of Directors expects we will perform business in a manner compliant with applicable laws and/or regulations and expects issues to be identified, analyzed, and remediated in a timely and complete manner.
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OFF-BALANCE SHEET ARRANGEMENTS
Off-balance sheet arrangements include commitments to extend credit and financial guarantees.  Commitments to extend credit and financial guarantees are used to meet the financial needs of our customers.  Our banking affiliates have entered into various agreements to extend credit, including loan commitments of $2.999$4.151 billion and standby letters of credit of $84.3$72.0 million at June 30, 2020.2021.  At June 30, 2020,2021, approximately $2.758$3.901 billion of the loan commitments had fixed rates and $240.6$250.4 million had floating rates, with the floating rates ranging from 0% to 13%14%.  At December 31, 2019,2020, loan commitments were $2.779$3.720 billion and standby letters of credit were $87.8$86.9 million.  The term of these off-balance sheet arrangements is typically one year or less.
Old National is a party in risk participation transactions of interest rate swaps, which had total notional amount of $49.0$74.8 million at June 30, 2020.2021.
CONTRACTUAL OBLIGATIONS
The following table presents our significant fixed and determinable contractual obligations at June 30, 2020:2021:
Payments Due In  Payments Due In 
(dollars in thousands)(dollars in thousands)One Year
or Less (1)		One to
Three Years		Three to
Five Years		Over
Five Years		Total(dollars in thousands)One Year
or Less (1)		One to
Three Years		Three to
Five Years		Over
Five Years		Total
Deposits without stated maturityDeposits without stated maturity$14,847,213  $—  $—  $—  $14,847,213  Deposits without stated maturity$16,866,392 $— $— $— $16,866,392 
IRAs, consumer, and brokered certificates
of deposit		IRAs, consumer, and brokered certificates
of deposit		794,671  548,826  103,449  25,287  1,472,233  IRAs, consumer, and brokered certificates
of deposit		469,563 434,035 79,992 18,929 1,002,519 
Federal funds purchased and interbank borrowingsFederal funds purchased and interbank borrowings801  —  —  —  801  Federal funds purchased and interbank borrowings1,523 — — — 1,523 
Securities sold under agreements to repurchaseSecurities sold under agreements to repurchase367,744  —  —  —  367,744  Securities sold under agreements to repurchase396,129 — — — 396,129 
FHLB advancesFHLB advances80,770  150,500  325,160  1,478,584  2,035,014  FHLB advances— 29,155 575,000 1,286,988 1,891,143 
Other borrowingsOther borrowings497  2,098  177,302  57,980  237,877  Other borrowings1,006 4,192 179,400 85,720 270,318 
Fixed interest payments (2)Fixed interest payments (2)22,712  87,876  76,214  81,175  267,977  Fixed interest payments (2)17,360 66,670 54,569 62,683 201,282 
Operating leasesOperating leases7,849  28,628  17,010  56,991  110,478  Operating leases7,066 22,786 16,885 50,549 97,286 
Other long-term liabilities (3)Other long-term liabilities (3)18,478  8,974  36  26  27,514  Other long-term liabilities (3)19,857 14,067 157 22 34,103 
(1)For the remaining six months of fiscal 2020.2021.
(2)Our senior notes, subordinated notes, certain trust preferred securities, and certain FHLB advances have fixed rates ranging from 0.34%0.45% to 4.96%.  All of our other long-term debt is at LIBOR based variable rates at June 30, 2020.2021.  The projected variable interest assumes no increase in LIBOR rates from June 30, 2020.2021.
(3)Includes unfunded commitments on qualified affordable housing projects and other tax credit investments.
We rent certain premises and equipment under operating leases.  See Note 9 to the consolidated financial statements for additional information on long-term lease arrangements.
We are party to various derivative contracts as a means to manage the balance sheet and our related exposure to changes in interest rates, to manage our residential real estate loan origination and sale activity, and to provide derivative contracts to our clients.  Since the derivative liabilities recorded on the balance sheet change frequently and do not represent the amounts that may ultimately be paid under these contracts, these liabilities are not included in the table of contractual obligations presented above.  Further discussion of derivative instruments is included in Note 19 to the consolidated financial statements.
In the normal course of business, various legal actions and proceedings are pending against us and our affiliates which are incidental to the business in which they are engaged.  Further discussion of contingent liabilities is included in Note 20 to the consolidated financial statements.
In addition, liabilities recorded under FASB ASC 740-10 (FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109) are not included in the table because the amount and timing of any cash payments cannot be reasonably estimated.  Further discussion of income taxes and liabilities is included in Note 18 to the consolidated financial statements.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our accounting policies are described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.  Certain accounting policies require management to
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use significant judgment and estimates, which can have a material impact on the carrying value of certain assets and liabilities.  We consider these policies to be critical accounting policies.  The judgment and assumptions made are based upon historical experience, future forecasts, or other factors that management believes to be reasonable under the circumstances.  Because of the nature of the judgment and assumptions, actual results could differ from estimates, which could have a material effect on our financial condition and results of operations.
The following accounting policies materially affect our reported earnings and financial condition and require significant judgments and estimates.  Management has reviewed these critical accounting estimates and related disclosures with our Audit Committee.
Goodwill
•Description.  For acquisitions, we are required to record the assets acquired, including identified intangible assets such as goodwill, and the liabilities assumed at their fair value.  These often involve estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques that may include estimates of attrition, inflation, asset growth rates, or other relevant factors.  GoodwillThe carrying value of goodwill recorded must be reviewed for impairment on an annual basis, as well as on an interim basis if events or changes indicate that the asset might be impaired.  An impairment loss must be recognized for any excess of carrying value over fair value of the goodwill.
•Judgments and Uncertainties.  The determination of fair values is based on valuations using management’s assumptions of future growth rates, future attrition, discount rates, multiples of earnings or other relevant factors.
•Effect if Actual Results Differ From Assumptions.  Changes in these factors, as well as downturns in economic or business conditions, could have a significant adverse impact on the carrying value of goodwill and could result in impairment losses affecting our financial statements as a whole and our banking subsidiary in which the goodwill resides.
•Pandemic. A prolonged COVID-19 outbreak, or any other epidemic that harms the global economy, U.S. economy, or the economies in which we operate could adversely affect our operations. WeBased on the required annual impairment test as of August 31, 2020, we have concluded that our goodwill was not impaired. On a quarterly basis, we will continue to evaluate our qualitative assessment assumptions, which are subject to risks and uncertainties, including: (1) forecasted revenues, expenses, and cash flows; (2) current discount rates; (3) our market capitalization; (4) observable market transactions and multiples; (5) changes to the regulatory environment; and (6) the nature and amount of government support that has been and is expected to be provided in the future. Based onA prolonged economic downturn or deterioration in the interim qualitative assessment, we have determined that our goodwill was not impaired as of June 30, 2020. While the spread of the COVID-19 virus had an impact to our operations, sustained disruption to our operations are likely to negatively impact our financial condition and results of operations. In subsequent reporting periods, thiseconomic outlook may lead management to conclude that an interim quantitative impairment test of our goodwill is required prior to the annual impairment test conducted on August 31.
Allowance for Credit Losses for Loans
•Description.  The allowance for credit losses for loans represents management’s estimate of all expected credit losses over the expected contractual life of our loan portfolio.Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods.

The allowance for credit losses for loans, as reported in our consolidated statements of financial condition, is adjusted by an expense for credit losses, which is recognized in earnings, and reduced by the charge-off of loan amounts, net of recoveries.

•Judgments and Uncertainties.  We utilize a discounted cashflow approach to determine the allowance for credit losses for performing loans and nonperforming loans. Expected cashflows are created for each loan and discounted using the effective yield. The discounted sum of expected cashflows is then compared to the amortized cost and any shortfall is recorded as reserve. Expected cashflows are created using a combination
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of contractual payment schedules, calculated PDs, LGD and prepayment assumptions as well as qualitative factors. For the commercial and commercial real estate loans, the PD is forecast using a regression model to determine the likelihood of a loan moving into nonaccrual within the time horizon. For residential and
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consumer loans, the PD is forecast using a regression model to determine the likelihood of a loan being charged-off within the time horizon. The regression models use combinations of variables to assess systematic and unsystematic risk.Variables used for unsystematic risk are borrower specific and help to gauge the risk of default from an individual borrower.Variables for systematic risk, risk inherent to all borrowers, come from the use of forward-looking economic forecasts and include variables such as unemployment rate, gross domestic product, and house price index. The LGD is defined as credit loss incurred when an obligor of the bank defaults. Qualitative factors include items such as changes in lending policies or procedures and economic uncertaintyin forward-looking forecasts.

•Effect if Actual Results Differ From Assumptions.  The allowance represents management’s best estimate, but significant downturns in circumstances relating to loan quality and economic conditions could result in a requirement for additional allowance.Likewise, an upturn in loan quality and improved economic conditions may allow a reduction in the required allowance.In either instance, unanticipated changes could have a significant impact on results of operations.

The expense for credit loss recorded through earnings is the amount necessary to maintain the allowance for credit losses at the amount of expected credit losses inherent within the loans held for investment portfolio.The amount of expense and the corresponding level of allowance for credit losses for loans are based on our evaluation of the collectability of the loan portfolio based on historical loss experience, reasonable and supportable forecasts, and other significant qualitative and quantitative factors.
Derivative Financial Instruments
•Description.  As part of our overall interest rate risk management, we use derivative instruments to reduce exposure to changes in interest rates and market prices for financial instruments.  The application of the hedge accounting policy requires judgment in the assessment of hedge effectiveness, identification of similar hedged item groupings and measurement of changes in the fair value of derivative financial instruments and hedged items.  To the extent hedging relationships are found to be effective, changes in fair value of the derivatives are offset by changes in the fair value of the related hedged item or recorded to other comprehensive income.  Management believes hedge effectiveness is evaluated properly in preparation of the financial statements.  All of the derivative financial instruments we use have an active market and indications of fair value can be readily obtained.  We are not using the “short-cut” method of accounting for any fair value derivatives.
•Judgments and Uncertainties.  The application of the hedge accounting policy requires judgment in the assessment of hedge effectiveness, identification of similar hedged item groupings and measurement of changes in the fair value of derivative financial instruments and hedged items.
•Effect if Actual Results Differ From Assumptions.  To the extent hedging relationships are found to be effective, changes in fair value of the derivatives are offset by changes in the fair value of the related hedged item or recorded to other comprehensive income.  However, if in the future the derivative financial instruments used by us no longer qualify for hedge accounting treatment, all changes in fair value of the derivative would flow through the consolidated statements of income in other noninterest income, resulting in greater volatility in our earnings.
Income Taxes
•Description.  We are subject to the income tax laws of the U.S., its states, and the municipalities in which we operate.  These tax laws are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities.  We review income tax expense and the carrying value of deferred tax assets quarterly; and as new information becomes available, the balances are adjusted as appropriate.  FASB ASC 740-10 (FIN 48) prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements.  See Note 18 to the consolidated financial statements for a further description of our provision and related income tax assets and liabilities.
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•Judgments and Uncertainties. In establishing a provision for income tax expense, we must make judgments and interpretations about the application of these inherently complex tax laws.  We must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions.  Disputes
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over interpretations of the tax laws may be subject to review/adjudication by the court systems of the various tax jurisdictions or may be settled with the taxing authority upon examination or audit.
•Effect if Actual Results Differ From Assumptions.  Although management believes that the judgments and estimates used are reasonable, actual results could differ and we may be exposed to losses or gains that could be material.  To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our reserves, our effective income tax rate in a given financial statement period could be materially affected.  An unfavorable tax settlement would result in an increase in our effective income tax rate in the period of resolution.  A favorable tax settlement would result in a reduction in our effective income tax rate in the period of resolution.
Management has discussed the development and selection of these critical accounting estimates with the Audit Committee and the Audit Committee has reviewed our disclosure relating to it in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
FORWARD-LOOKING STATEMENTS
In this report, we have made various statements regarding current expectations or forecasts of future events, which speak only as of the date the statements are made.  These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are also made from time-to-time in press releases and in oral statements made by the officers of Old National Bancorp (“Old National” or the “Company”).  Forward-looking statements can be identified by the use of the words “expect,” “may,” “could,” “intend,” “project,” “estimate,” “believe,” “anticipate,” and other words of similar meaning.  Forward-looking statements also include, but are not limited to, statements regarding estimated cost savings, plans and objectives for future operations, the Company’s business and growth strategies, including future acquisitions of banks, regulatory developments, and expectations about performance as well as economic and market conditions and trends.  
Such forward-looking statements are based on assumptions and estimates, which although believed to be reasonable, may turn out to be incorrect.  Therefore, undue reliance should not be placed upon these estimates and statements.  We cannot assure that any of these statements, estimates, or beliefs will be realized and actual results may differ from those contemplated in these “forward-looking statements.”  We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.  You are advised to consult further disclosures we may make on related subjects in our filings with the SEC.  In addition to other factors discussed in this report, some of the important factors that could cause actual results to differ materially from those discussed in the forward-looking statements include the following:
•the length and severity of the COVID-19 pandemic, including its impact on the Company’s financial conditions and business operations;
•changes in the economy which could materially impact credit quality trends and the ability to generate loans and gather deposits, including the pace of recovery following the COVID-19 pandemic;
•market, economic, operational, liquidity, credit, and interest rate risks associated with our business;
•competition;
•government legislation and policies, including changes to address the impact of COVID-19 through the CARES Act and other legislative and regulatory responses to the COVID-19 pandemic;
•our ability to execute our business plan, including the anticipated impact from the ONB Way strategic plan that may differ from current estimates;
•failure or circumvention of our internal controls;
•failure or disruption of our information systems;
•significant changes in accounting, tax, or regulatory practices or requirements, including the impact of the new CECL standard;
•new legal obligations or liabilities or unfavorable resolutions of litigations;
•disruptive technologies in payment systems and other services traditionally provided by banks; and
•computer hacking and other cybersecurity threats.
Investors should consider these risks, uncertainties, and other factors in addition to risk factors included in this filing and our other filings with the SEC.
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ITEM 3.  QUANTITIVEQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk and Liquidity Risk.
ITEM 4.  CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Evaluation of disclosure controlsDisclosure Controls and procedures.Procedures.  Old National’s principal executive officer and principal financial officer have concluded that Old National’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended), based on their evaluation of these controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q, are effective at the reasonable assurance level as discussed below to ensure that information required to be disclosed by Old National in the reports it files under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange CommissionSEC and that such information is accumulated and communicated to Old National’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Limitations on the Effectiveness of Controls.  Management, including the principal executive officer and principal financial officer, does not expect that Old National’s disclosure controls and internal controls will prevent all error and all fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be only reasonable assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Over time, controlthe system of controls may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting.  There were no changes in Old National’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, Old National’s internal control over financial reporting.
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PART II
OTHER INFORMATION
ITEM 1A.  RISK FACTORS
There have been no material changes from the risk factors previously disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 and updated in the “Risk Factors” section of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, except as described below.

Old National Bank’s active participation in the PPP, or in other relief programs, may expose us to credit losses as well as litigation and compliance risk.

To support our customers, businesses, and communities, Old National Bank is an active participant in the PPP. Old National Bank began accepting applications from qualified borrowers on April 3, 2020 and as of June 30, 2020 over 9,200 applications have been processed and approved, representing $1.538 billion in funding to new and existing clients through the PPP. Old National Bank’s participation in the PPP, and participation in any other relief programs now or in the future, including those under the CARES Act, exposes us to certain credit, compliance, and other risks.

Among other regulatory requirements, PPP loans are subject to forbearance of loan payments for a six-month period to the extent that loans are not eligible for forgiveness. If PPP borrowers fail to qualify for loan forgiveness, including by failing to use the funds appropriately in order to qualify for forgiveness under the program, Old
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National Bank has a greater risk of holding these loans at unfavorable interest rates. In addition, because of the short time period between the passing of the CARES Act and the implementation of the PPP, there is ambiguity in the laws, rules, and guidance regarding the operation of the PPP, which exposes us to risks relating to noncompliance with the PPP. There is risk that the SBA or another governmental entity could conclude there is a deficiency in the manner in which Old National Bank originated, funded, or serviced PPP loans, which may or may not be related to the ambiguity in the CARES Act or the rules and guidance promulgated by the SBA and the U.S. Department of the Treasury regarding the operation of the PPP. In the event of such deficiency, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already made payment under the guaranty, seek recovery of any loss related to the deficiency from us.

Since the commencement of the PPP, several other banks have been subject to litigation regarding the process and procedures that such banks followed in accepting and processing applications for the PPP. We may be exposed to the risk of similar litigation, from both customers and non-customers that contacted Old National Bank regarding obtaining PPP loans with respect to the processes and procedures we used in processing applications for the PPP. If any such litigation is filed against us and is not resolved in a manner favorable to us, it may result in significant financial liability to us or adversely affect our reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs, or reputational damage caused by PPP-related litigation could have a material adverse impact on our reputation, business, financial condition, and results of operations.

In addition, we may be subject to regulatory scrutiny regarding Old National Bank’s processing of PPP applications or its origination or servicing of PPP loans. While the SBA has said that in many instances, banks may rely on the certifications of borrowers regarding their eligibility for PPP loans, Old National Bank does have several obligations under the PPP, and if the SBA found that Old National Bank did not meet those obligations, the remedies the SBA may seek against Old National Bank are unknown but may include not guarantying the PPP loans resulting in credit exposure to borrowers who may be unable to repay their loans. The PPP program may also attract significant interest from federal and state enforcement authorities, oversight agencies, regulators, and Congressional committees. State Attorneys General and other federal and state agencies may assert that they are not subject to the provisions of the CARES Act and the PPP regulations entitling Old National Bank to rely on borrower certifications, and take more aggressive action against us for alleged violations of the provisions governing Old National Bank’s participation in the PPP.2020.
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c)ISSUER PURCHASES OF EQUITY SECURITIES
PeriodTotal
Number
of Shares
Purchased		Average
Price
Paid Per
Share		Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans
or Programs		Maximum
Number of
Shares that
May Yet
Be Purchased
Under the Plans
or Programs
04/01/20 - 04/30/20369  $12.55  —  2,099,459  
05/01/20 - 05/31/2034,073  $13.51  —  2,099,459  
06/01/20 - 06/30/20657  $13.95  —  2,099,459  
Quarter-to-date 06/30/2035,099  $13.51  —  2,099,459  
PeriodTotal
Number
of Shares
Purchased (1)		Average
Price
Paid Per
Share		Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans
or Programs (2)		Maximum
Dollar Value of
Shares that
May Yet
Be Purchased
Under the Plans
or Programs (2)
04/01/21 - 04/30/21446 $19.42 — $100,000,000 
05/01/21 - 05/31/2123,015 $18.90 — $100,000,000 
06/01/21 - 06/30/21267 $18.73 — $100,000,000 
Total23,728 $18.91 — $100,000,000 
In the first quarter of 2020, the Board of Directors approved(1)Reflects the repurchase of up to 7.0 million shares of the Company’s stock to be repurchased, as conditions warrant, through January 31, 2021.  During the six months ended June 30, 2020, Old National repurchased a limited number of shares associated with employee share-based incentive programs. No shares were purchased under the program referred to in note 2 to this table during the second quarter of 2021.
(2)In the first quarter of 2021, the Board of Directors approved the adoption of a stock repurchase plan that authorizes the repurchase of up to $100 million of shares of Common Stock, as conditions warrant, through January 31, 2022.
ITEM 5.  OTHER INFORMATION
(a)None
(b)There have been no material changes in the procedure by which security holders recommend nominees to the Company’s board of directors.
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ITEM 6.  EXHIBITS
Exhibit No.
 Description
   
2.1 
3.1 
  
3.2  
  
4.1  
  
4.2  
  
10.1 
10.2 
31.1  
   
31.2  
   
32.1  
   
32.2  
   
101  The following materials from Old National’s Form 10-Q Report for the quarterly period ended June 30, 2020,2021, formatted in inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements.
   
104  The cover page from Old National’s Form 10-Q Report for the quarterly period ended June 30, 2020,2021, formatted in inline XBRL and contained in Exhibit 101.

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
  OLD NATIONAL BANCORP
  (Registrant)
   
By: /s/  Brendon B. Falconer
  Brendon B. Falconer
  Senior Executive Vice President and Chief Financial Officer
  Duly Authorized Officer and Principal Financial Officer
   
  Date:  July 29, 2020August 4, 2021

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