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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (s232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, ~~or a~~ smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer” and~~filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

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 Rule12b-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 ~~135,435,000~~152,172,000 shares outstanding at March 31, ~~2017.~~2018.

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’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.


	March 31,			December 31,			March 31,			March 31,			December 31,			March 31,
(dollars and shares in thousands, except per share data)	2017			2016			2016			2018			2017			2017
	(unaudited)						(unaudited)			(unaudited)						(unaudited)
Assets
Cash and due from banks	$	184,974		$	209,381		$	153,259		$	192,022		$	222,753		$	184,974
Money market and other interest-earning investments		32,061			46,138			22,299			86,219			67,679			32,061

Total cash and cash equivalents		217,035			255,519			175,558			278,241			290,432			217,035
Trading securities, at fair value		5,083			4,982			3,699			5,569			5,584			5,083
Investment securities -available-for-sale, at fair value:
U.S. Treasury		12,117			7,103			12,243			9,295			5,551			12,117
U.S. government-sponsored entities and agencies		543,034			493,956			603,457			572,689			664,286			543,034
Mortgage-backed securities		1,474,995			1,525,019			990,984			1,477,896			1,667,682			1,474,995
States and political subdivisions		452,551			436,684			400,236			843,488			530,193			452,551
Other securities		334,246			334,412			341,523			316,495			328,495			334,246

Total investment securities -available-for-sale		2,816,943			2,797,174			2,348,443			3,219,863			3,196,207			2,816,943
Investment securities -held-to-maturity, at amortized cost (fair value $784,906; $784,172; and $932,590, respectively)		741,448			745,090			869,012
Investment securities - held-to-maturity, at amortized cost (fair value $536,143; $727,703; and $784,906, respectively)											535,153			684,063			741,448
Federal Home Loan Bank/Federal Reserve Bank stock, at cost		107,501			101,716			86,146			136,206			119,686			107,501
Loans held for sale, at fair value		17,373			90,682			22,546			17,635			17,930			17,373
Loans:
Commercial		1,910,536			1,917,099			1,792,988			2,811,629			2,717,269			1,910,536
Commercial real estate		3,222,865			3,130,853			1,922,754			4,449,980			4,354,552			3,222,865
Residential real estate		2,112,262			2,087,530			1,649,996			2,158,532			2,167,053			2,112,262
Consumer credit, net of unearned income		1,886,110			1,875,030			1,641,336			1,818,541			1,879,247			1,886,110

Total loans		9,131,773			9,010,512			7,007,074			11,238,682			11,118,121			9,131,773
Allowance for loan losses		(49,834	)		(49,808	)		(50,700	)		(50,381	)		(50,381	)		(49,834	)

Net loans		9,081,939			8,960,704			6,956,374			11,188,301			11,067,740			9,081,939

FDIC indemnification asset		—			—			7,703
Premises and equipment, net		420,866			429,622			198,065			453,603			458,074			420,866
Accrued interest receivable		76,674			81,381			68,641			81,621			87,102			76,674
Goodwill		655,018			655,018			584,634			828,804			828,051			655,018
Other intangible assets		34,657			37,677			32,443			48,833			53,096			34,657
Company-owned life insurance		353,786			352,956			342,292			404,561			403,753			353,786
Net deferred tax assets		165,376			181,863			98,712			88,773			110,857			165,376
Loan servicing rights		25,446			25,561			10,534			24,380			24,661			25,446
Assets held for sale		14,604			5,970			2,038			6,331			7,180			14,604
Other real estate owned and repossessed personal property		12,547			18,546			13,522			6,735			8,810			12,547
Other assets		123,349			115,776			111,964			171,678			155,066			123,349

Total assets	$	14,869,645		$	14,860,237		$	11,932,326		$	17,496,287		$	17,518,292		$	14,869,645

Liabilities
Deposits:
Noninterest-bearing demand	$	3,024,111		$	3,016,093		$	2,491,767		$	3,655,732		$	3,680,807		$	3,024,111
Interest-bearing:
NOW		2,635,317			2,596,595			2,178,690			3,135,778			3,115,822			2,635,317
Savings		2,997,919			2,954,709			2,271,341			3,091,101			3,035,622			2,997,919
Money market		697,287			707,748			561,250			1,130,258			1,139,077			697,287
Time		1,466,718			1,468,108			1,085,847			1,775,731			1,634,436			1,466,718

Total deposits		10,821,352			10,743,253			8,588,895			12,788,600			12,605,764			10,821,352
Federal funds purchased and interbank borrowings		61,016			213,003			165,320			150,026			335,033			61,016
Securities sold under agreements to repurchase		345,550			367,052			379,060	��		308,189			384,810			345,550
Federal Home Loan Bank advances		1,441,030			1,353,092			899,418			1,664,179			1,609,579			1,441,030
Other borrowings		219,021			218,939			218,393			248,898			248,782			219,021
Accrued expenses and other liabilities		135,317			150,481			172,597			157,277			179,927			135,317

Total liabilities		13,023,286			13,045,820			10,423,683			15,317,169			15,363,895			13,023,286

Shareholders’ Equity
Preferred stock, 2,000 shares authorized, no shares issued or outstanding		—			—			—			—			—			—
Common stock, $1.00 per share stated value, 300,000 shares authorized, 135,435; 135,159; and 114,352 shares issued and outstanding, respectively		135,435			135,159			114,352
Common stock, $1.00 per share stated value, 300,000 shares authorized, 152,172; 152,040; and 135,435 shares issued and outstanding, respectively											152,172			152,040			135,435
Capital surplus		1,350,866			1,348,338			1,088,037			1,640,776			1,639,499			1,350,866
Retained earnings		408,623			390,292			335,839			447,696			413,130			408,623
Accumulated other comprehensive income (loss), net of tax		(48,565	)		(59,372	)		(29,585	)		(61,526	)		(50,272	)		(48,565	)

Total shareholders’ equity		1,846,359			1,814,417			1,508,643			2,179,118			2,154,397			1,846,359

Total liabilities and shareholders’ equity	$	14,869,645		$	14,860,237		$	11,932,326		$	17,496,287		$	17,518,292		$	14,869,645

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

CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME~~CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

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

CONSOLIDATED STATEMENTS OF ~~CHANGES IN SHAREHOLDERS’ EQUITY~~CASH FLOWS (unaudited)

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

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

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 March 31, ~~2017~~2018 and ~~2016,~~2017, and December 31, ~~2016,~~2017, and the results of its operations for the three months ended March 31, ~~2017~~2018 and ~~2016.~~2017. Interim results do not necessarily represent annual results. These financial statements should be read in conjunction with Old National’s Annual Report for the year ended December 31, ~~2016.~~2017.

All significant intercompany transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform to the ~~2017~~2018 presentation. Such reclassifications had no effect on net income or shareholders’ equity and were insignificant amounts.

In May 2014, the FASB issued an update (ASU No. 2014-09,Revenue from Contracts with Customers) creating FASB Topic 606,Revenue from Contracts with Customers. The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides steps to follow to achieve the core principle. An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. We finalized our in-depth assessment and identified the revenue line items within the scope of this new guidance. Neither the new standard, nor any of the amendments detailed below, resulted in a material change from our current accounting for revenue because the majority of Old National’s financial instruments are not within the scope of Topic 606, and those that are require no change in the accounting.

In March 2016, the FASB issued ASU No. 2016-08,Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The amendments relate to when another party, along with the entity, is involved in providing a good or service to a customer. Topic 606 requires an entity to determine whether the nature of its promise is to provide that good or service to the customer (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent). This determination is based upon whether the entity controls the good or the service before it is transferred to the customer. Topic 606 includes indicators to assist in this evaluation. The amendments in this update affect the guidance in ASU No. 2014-09 above. The effective date is the same as the effective date of ASU No. 2014-09.

In April 2016, the FASB issued ASU No. 2016-10,Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments clarify the following two aspects of Topic 606: identifying performance obligations, and the licensing implementation guidance. Before an entity can identify its performance obligations in a contract with a customer, the entity first identifies the promised goods or services in the contract. The amendments in this update are expected to reduce the cost and complexity of applying the guidance on identifying promised goods or services. To identify performance obligations in a contract, an entity evaluates whether promised goods and services are distinct. Topic 606 includes two criteria for assessing whether promises to transfer goods or services are distinct. One of those criteria is that the promises are separately identifiable. This update will improve the guidance on assessing that criterion. Topic 606 also includes

implementation guidance on determining whether as entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property, which is satisfied at a point in time, or a right to access the entity’s intellectual property, which is satisfied over time. The amendments in this update are intended to improve the operability and understandability of the licensing implementation guidance. The amendments in this update affect the guidance in ASU No. 2014-09 above. The effective date is the same as the effective date of ASU No. 2014-09.

In May 2016, the FASB issued ASU No. 2016-12,Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments do not change the core revenue recognition principle in Topic 606. The amendments provide clarifying guidance in certain narrow areas and add some practical expedients.

In December 2016, the FASB issued ASU No. 2016-20,Revenue from Contracts with Customers (Topic 606): Technical Corrections and Improvements. The FASB board decided to issue a separate update for technical corrections and improvements to Topic 606 and other Topics amended by ASU No. 2014-09 to increase awareness of the proposals and to expedite improvements to ASU No. 2014-09. The amendment affects narrow aspects of the guidance issued in ASU No. 2014-09.

On January 1, 2018, we adopted ASU 2014-09,Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, “Topic 606”). We elected to implement using the modified retrospective application, with the cumulative effect recorded as an adjustment to opening retained earnings at January 1, 2018. Due to immateriality, we had no cumulative effect to record. Since interest income on loans and securities are both excluded from this topic, a significant majority of our revenues are not subject to the new guidance. Our services that fall within the scope of Topic 606 are presented within noninterest income and are recognized as revenue as we satisfy our obligation to the customer. Services within the scope of Topic 606 include wealth management fees, service charges on deposit accounts, debit card and ATM fees, and investment product fees.

Wealth management fees: We earn wealth management fees based upon asset custody and investment management services provided to individual and institutional customers. Most of these customers receive monthly 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: We earn fees from our 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 we satisfy our 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 we fulfill the customer’s request. We earn 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 our customers. We act 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.

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:

The adoption of Topic 606 did not have a material impact on our consolidated financial position, results of operations, equity, or cash flows as of the adoption date or for the three months ended March 31, 2018.

~~FASB ASC 606 –~~~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued an update (ASUNo. 2014-09,~~ Revenue from Contracts with Customers) creating FASB Topic 606, Revenue from Contracts with Customers. The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides steps to follow to achieve the core principle. An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. We do not expect the new standard, or any of the amendments detailed below, to result in a material change from our current accounting for revenue because the majority of the Company’s financial instruments are not within the scope of Topic 606, but it will result in new disclosure requirements.

~~In March 2016, the FASB issued ASUNo. 2016-08,~~ Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The amendments relate to when another party, along with the entity, is involved in providing a good or service to a customer. Topic 606 requires an entity to determine whether the nature of its promise is to provide that good or service to the customer (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent). This determination is based upon whether the entity controls the good or the service before it is transferred to the customer. Topic 606 includes indicators to assist in this evaluation. The amendments in this update affect the guidance in ASU~~No. 2014-09~~ ~~above, which is not yet effective. The effective date will be the same as the effective date of ASUNo. 2014-09.~~

~~In April 2016, the FASB issued ASUNo. 2016-10,~~ Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments clarify the following two aspects of Topic 606: identifying performance obligations, and the licensing implementation guidance. Before an entity can identify its performance obligations in a contract with a customer, the entity first identifies the promised goods or services in the contract. The amendments in this update are expected to reduce the cost and complexity of applying the guidance on identifying promised goods or services. To identify performance obligations in a contract, an entity evaluates whether promised goods and services are distinct. Topic 606 includes two criteria for assessing whether promises to transfer goods or services are distinct. One of those criteria is that the promises are separately identifiable. This update will improve the guidance on assessing that criterion. Topic 606 also includes

implementation guidance on determining whether as entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property, which is satisfied at a point in time, or a right to access the entity’s intellectual property, which is satisfied over time. The amendments in this update are intended to improve the operability and understandability of the licensing implementation guidance. The amendments in this update affect the guidance in ASU~~No. 2014-09~~ ~~above, which is not yet effective. The effective date will be the same as the effective date of ASUNo. 2014-09.~~

~~In May 2016, the FASB issued ASUNo. 2016-12,~~ Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments do not change the core revenue recognition principle in Topic 606. The amendments provide clarifying guidance in certain narrow areas and add some practical expedients.

~~In December 2016, the FASB issued ASUNo. 2016-20,~~ Revenue from Contracts with Customers (Topic 606): Technical Corrections and Improvements. The FASB board decided to issue a separate update for technical corrections and improvements to Topic 606 and other Topics amended by ASU~~No. 2014-09~~ ~~to increase awareness of the proposals and to expedite improvements to ASUNo. 2014-09.~~ ~~The amendment affects narrow aspects of the guidance issued in ASUNo. 2014-09.~~

~~FASB ASC 944 –~~~~In May 2015, the FASB issued an update (ASUNo. 2015-09,~~ Disclosures about Short-Duration Contracts). This update applies to all insurance entities that issue short-duration contracts as defined in Topic 944, Financial Services – Insurance. The amendment requires insurance entities to disclose for annual reporting periods information about the liability for unpaid claims and claim adjustment expenses, and information about significant changes in methodologies and assumptions used to calculate the liability for unpaid claims and claim adjustment expenses, including reasons for the change and the effects on the financial statements. Additionally, the amendments require insurance entities to disclose for annual and interim reporting periods a roll-forward of the liability for unpaid claims and claim adjustment expenses. The amendments in this update became effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016, and did not have a material impact on the consolidated financial statements.

FASB ASC 825 – In January 2016, the FASB issued an update (ASUNo. 2016-01,Financial Instruments – Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities). The amendments in this update impact public business entities as follows: 1)(1) Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. 2)(2) Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value. 3)(3) Eliminate the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. 4)(4) Require entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. 5)(5) Require an entity to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. 6)(6) Require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. 7)(7) Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related toavailable-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this update ~~become~~became effective for annual periods and interim periods within those annual periods beginning after December 15, ~~2017. We are currently evaluating the~~2017 and did not have a material impact ~~of adopting the new guidance~~ on the consolidated financial ~~statements, but it is not expected to have a material impact.~~statements.

FASB ASC 842 –In February 2016, the FASB issued its new lease accounting guidance in ASUNo. 2016-02,Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases, with the exception of short-term leases, at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) aright-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. Based on leases

outstanding at March 31, ~~2017,~~2018, we do not expect the new standard to have a material impact on our income statement, but anticipate ~~an $80~~a $115 million to ~~$100~~$135 million increase in our assets and liabilities. Decisions to repurchase, modify, or renew leases prior to the implementation date will impact this level of materiality.

FASB ASC ~~405~~815– In ~~March 2016,~~August 2017, the FASB issued ASUNo. ~~2016-04,~~ ~~Liabilities – Extinguishments of Liabilities (Subtopic405-20)~~2017-12,Derivatives and Hedging (Topic 815): ~~Recognition of Breakage~~ Targeted Improvements to Accounting for ~~Certain Prepaid Stored-Value Products.~~ Hedging Activities.The amendments in the update make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The amendments in

this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. This update addresses several limitations that current GAAP places on the risk components, how an entity can designate the hedged item in a fair value hedge of interest rate risk, and how an entity can measure changes in fair value of the hedged item attributable to interest rate risk. In addition to the amendments to the designation and measurement guidance for qualifying hedging relationships, the amendments in this update also align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements to increase the understandability of the results of an entity’s intended hedging strategies. The amendments in this update require an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. Prior to the issuance of this ~~ASU narrowly address breakage,~~update, GAAP provided special hedge accounting only for the portion of the hedge deemed to be “highly effective” and required an entity to separately reflect the amount by which the hedging instrument did not offset the hedged item, which is referred to as the ~~monetary amount~~“ineffective” amount. However, the concept and reporting of hedge ineffectiveness were difficult for financial statement users to understand and, at times, for preparers to explain. The FASB board decided on an approach that no longer separately measures and reports hedge ineffectiveness. This update also includes certain targeted improvements to ease the ~~card~~application of current guidance related to the assessment of hedge effectiveness. Prior to the issuance of this update, GAAP contained specific requirements for initial and ongoing quantitative hedge effectiveness testing and strict requirements for specialized effectiveness testing methods that ~~ultimately is not redeemed by the cardholder~~allowed an entity to forgo quantitative hedge effectiveness assessments for prepaid stored-value products that are redeemable for monetary values of goods or services but may also be redeemable for cash. Examples of prepaid stored-value products included in this amendment are prepaid gift cards issued by specific payment networks and redeemable at network-accepting merchant locations, prepaid telecommunication cards, and traveler’s checks.qualifying relationships. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, ~~2017. We are currently evaluating~~2018. Early adoption is permitted in any interim period. Management has elected to early adopt this update effective January 1, 2018 using the modified retrospective method. The impact of ~~adopting~~ the ~~new guidance on~~adoption resulted in a reduction to Old National’s opening retained earnings of $3.2 million. In addition, as permitted by the ~~consolidated financial statements, but it is not expected~~amendments in the update, Old National reclassified $447.0 million in state and political subdivision securities with unrealized holding gains of $26.1 million from the held-to-maturity portfolio to ~~have a material impact.~~the available-for-sale portfolio.

FASB ASC ~~815~~718– In ~~March 2016,~~May 2017, the FASB issued ASUNo. ~~2016-05,~~ ~~Derivatives and Hedging~~2017-09,Compensation – Stock Compensation (Topic ~~815)~~718): ~~Effect~~Scope of ~~Derivative Contract Novations on Existing Hedge Accounting Relationships.~~ Modification Accounting.The amendments in this update provide guidance about which changes to the terms and conditions of a shared-based payment award require an entity to apply tomodification accounting. An entity should account for the effect of a modification unless all ~~reporting entities for which there~~the following are met: (1) the fair value of the modified award is ~~a change in~~ the ~~counterparty to a derivative instrument that has been designated as a hedging instrument. The amendments clarify that a change in the counterparty to a derivative instrument that has been designated~~same as the ~~hedging instrument~~fair value of the original award immediately before the original award is modified. If the modification does not inaffect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; (2) the vesting conditions of ~~itself, requirede-designation~~the modified award are the same as the vesting conditions of ~~that hedging relationship provided that all other hedge accounting criteria continue to be met.~~the original award immediately before the original award is modified; (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The amendments in this update became effective for annual periods and interim periods within those annual periods beginning after December 15, ~~2016,~~2017 and did not have a material impact on the consolidated financial statements.

~~In March 2016, the FASB issued ASUNo. 2016-06,~~ Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. Topic 815, Derivatives and Hedging, requires that embedded derivatives be separated from the host contract and accounted for separately as derivatives if certain criteria are met. One of those criteria is that the economic characteristics and risks of the embedded derivatives are not clearly and closely related to the economic characteristics and risks of the host contract. The amendments clarify what steps are required when assessing “clearly and closely related”. The amendments in this update became effective for annual periods and interim periods within those annual periods beginning after December 15, 2016, and did not have a material impact on the consolidated financial statements.

~~FASB ASC 323~~ ~~– In March 2016, the FASB issued ASUNo. 2016-07,~~ Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a~~step-by-step~~ basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments also require that an entity that has an~~available-for-sale~~ equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in this update became effective for annual periods and interim periods within those annual periods beginning after December 15, 2016, and did not have a material impact on the consolidated financial statements.

~~FASB ASC 718 –~~~~In March 2016, the FASB issued ASUNo. 2016-09,~~ Compensation – Stock Compensation (Topic 718): Improvements to Employee Shared-Based Payment Accounting. The amendments are intended to improve the accounting for employee shared-based payments and affects all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The amendments in this update became effective on January 1, 2017 and resulted in a $0.3 million expense during the three months ended March 31, 2017.

FASB ASC 326 –In June 2016, the FASB issued ASUNo. 2016-13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial ~~Instruments.~~Instruments. 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 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 financial assets held 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 onavailable-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. Early adoption will be permitted beginning after December 15, 2018. We have formed a cross functional committee that ~~is assessing our~~has overseen the enhancement of existing technology required to source and model data for the

purposes of meeting this standard. The committee has also selected a vendor to assist in generating loan level cash flows and ~~system needs and are evaluating the impact of adopting the new guidance.~~disclosures. We expect to recognize aone-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any suchone-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

FASB ASC 740 –In October 2016, the FASB issued ASUNo. 2016-16,Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than ~~Inventory.~~Inventory. Current guidance prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This prohibition on recognition is an exception to the principle of comprehensive recognition of current and deferred income taxes in generally accepted accounting principles. The exception has led to diversity in practice and is a source of complexity in financial reporting. FASB decided that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendments in this update eliminate the exception for an intra-entity transfer of an asset other than inventory. The amendments in this update do not include new disclosure requirements; however, existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. ~~For public business entities, the~~The amendments in this update ~~are~~became effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. The amendments in this update ~~should be~~were applied on a modified retrospective basis through a cumulative-effect ~~adjustment~~reduction of $1.0 million directly to retained earnings as of the beginning of ~~the period of adoption. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.~~2018.

~~FASB ASC 810~~ ~~– In October 2016, the FASB issued ASUNo. 2016-17,~~ Consolidation (Topic 810): Interests Held through Related Parties that are under Common Control. This update amends the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The primary beneficiary of a VIE is the reporting entity that has a controlling financial interest in a VIE and, therefore, consolidates the VIE. A reporting entity has an indirect interest in a VIE if it has a direct interest in a related party that, in turn, has a direct interest in the VIE. The amendments in this update became effective for annual periods and interim periods within those annual periods beginning after December 15, 2016, and did not have a material impact on the consolidated financial statements.

FASB ASC 805 – In January 2017, the FASB issued ASUNo. 2017-01,Business Combinations (Topic 805): Clarifying the Definition of a ~~Business.~~Business. The amendments in this update provide a more robust framework to use in determining when a set of assets and activities is a business. Because the current definition of a business is interpreted broadly and can be difficult to apply, stakeholders indicated that analyzing transactions is inefficient and costly and that the definition does not permit the use of reasonable judgment. The amendments provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. The amendments in this update ~~become~~became effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. We ~~are currently evaluating the impact~~have completed our evaluation of adopting the new guidance on the consolidated financial statements ~~but it~~and there is ~~not expected~~no impact to ~~have a material impact.~~

FASB ASC 350 –In January 2017, the FASB issued ASUNo. 2017-04,Intangibles: Goodwill and Other: Simplifying the Test for Goodwill ~~Impairment.~~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 qualitative 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 should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted on testing dates after January 1, 2017. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.

FASB ASC 610 –In February 2017, the FASB issued ASUNo. 2017-05,Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial ~~Assets.~~Assets. Subtopic610-20 was originally issued as part of ASUNo. 2014-09 to provide guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. This update was issued to help clarify uncertainties and complexities of ASU2014-09. The amendments in this update define the term in substance nonfinancial asset, in part, as a financial asset promised to a counterparty in a contract if substantially all of its fair value of the assets (recognized and unrecognized) that are promised to the counterparty in the contract is concentrated in nonfinancial assets. If substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets, then all of the financial assets promised to the counterparty are in substance nonfinancial assets. The amendments in this

update also clarify that nonfinancial assets within the scope of Subtopic610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. The ~~amendment~~amendments in this update require an entity to derecognize a distinct nonfinancial asset or distinct in substance nonfinancial asset in a partial sale transaction when it (1) does not have (or ceases to have) a controlling financial interest in the legal entity that holds the asset in accordance with Topic 810 and (2) transfers control of the asset in accordance with Topic 606. Once an entity transfers control of a distinct nonfinancial asset or distinct in substance nonfinancial asset, it is required to measure any noncontrolling interest it receives (or retains) at fair value. The amendments ~~are effective at the same time as the amendments in ASU2014-09.~~ ~~Therefore, the amendments are~~were effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting ~~period. We are currently evaluating the~~period and did not have a material impact ~~of adopting the new guidance~~ on the consolidated financial ~~statements, but it is not expected to have a material impact.~~statements.

FASB ASC 715 - – In March 2017, the FASB issued ASUNo. 2017-07,Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit ~~Cost.~~Cost. The amendments in this update require that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. The amendments in this update improve the consistency, transparency, and usefulness of financial information to users that have communicated that the service cost component generally is analyzed differently from the other components of net benefit cost. The amendments in this update ~~become~~became effective for annual periods and interim periods within those annual periods beginning after December 15, ~~2017. We are currently evaluating the~~2017 and did not have a material impact ~~of adopting the new guidance~~ on the consolidated financial ~~statements, but it is not expected to have a material impact.~~statements.

FASB ASC 310 - – In March 2017, the FASB issued ASUNo. 2017-08,Receivables – Nonrefundable Fees and Other Costs (Subtopic310-20): Premium Amortization on Purchased Callable Debt ~~Securities.~~Securities. This update amends the amortization period for certain purchased callable debt securities held at a premium. FASB is shortening the amortization period for the premium to the earliest call date. Under current ~~generally accepted accounting principles (“GAAP”),~~GAAP, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. Concerns were raised that current GAAP excludes certain callable debt securities from consideration of early repayment of principal even if the holder is certain that the call will be exercised. As a result, upon the exercise of a call on a callable debt security held at a premium, the unamortized premium is recorded as a loss in

earnings. There is diversity in practice (1) in the amortization period for premiums of callable debt securities and (2) in how the potential for exercise of a call is factored into current impairment assessments. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.

FASB ASC 220 – In February 2018, the FASB issued ASU No. 2018-02,Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this ASU help organizations address certain stranded income tax effects in AOCI resulting from the Tax Cuts and Jobs Act. The ASU provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments are effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Management has elected to early adopt this update effective January 1, 2018, which resulted in a reclassification that decreased beginning accumulated other comprehensive income and increased beginning retained earnings by $10.8 million.

FASB ASC 825 – In February 2018, the FASB issued an update (ASU No. 2018-03,Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities). The amendments in this update clarified the guidance in ASU No. 2016-01 specifically for equity securities without a readily determinable fair value and financial liabilities for which the fair value option is elected. The amendments in this update become effective for annual periods beginning after December 15, 2017 and interim periods within those fiscal years beginning after June 15, 2018. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

Effective ~~May~~November 1, ~~2016 (the “Closing Date”),~~2017, Old National completed the acquisition of ~~Madison, Wisconsin-based~~St. Paul, Minnesota-based Anchor ~~BanCorp Wisconsin Inc. (“Anchor”)~~(MN) through a stock and cash merger. Anchor (MN) was a ~~savings and loan~~bank holding company with ~~AnchorBank, fsb (“AnchorBank”)~~Anchor Bank (MN) as its wholly-owned subsidiary. ~~AnchorBank operated 46 banking centers, including 32 banking centers~~Founded in 1967 and with 17 total branches, Anchor Bank (MN) was one of the largest community banks headquartered in the Twin Cities, and also served Mankato, Minnesota. Anchor Bank (MN) has no affiliation with the former AnchorBank (WI) in Madison, ~~Milwaukee and Fox Valley triangle.~~Wisconsin, which Old National acquired in 2016. Old National believes that it will be able to achieve cost savings by integrating the two companies and combining accounting, data processing, retail and lending support, and other administrative functions, ~~after the merger,~~ which will enable Old National to achieve economies of scale in these areas.

Pursuant to the merger agreement, ~~shareholders~~each holder of Anchor ~~could elect to receive either 3.5505~~(MN) common stock received $2.625 in cash and 1.350 shares of Old National ~~common stock or $48.50 in cash for each~~Common Stock per share of Anchor ~~they held, subject to a maximum of 40% of the purchase price in cash.~~(MN) common stock such holder owned. The total fair value of consideration ~~paid~~ for Anchor (MN) was ~~$459.8~~$332.8 million, consisting of ~~$186.2~~$31.9 million of cash and the issuance of ~~20.4~~16.5 million shares of Old National Common Stock valued at ~~$273.6~~$300.8 million. This acquisition was accounted for under the acquisition method of accounting. Accordingly, ~~the Company~~Old National recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values. Through March 31, ~~2017,~~2018, transaction and integration costs of ~~$15.9~~$14.6 million associated with ~~the~~this acquisition have been expensed and remaining integration costs will be expensed in future periods as incurred.

~~Under the acquisition method of accounting, the consideration paid is allocated to net tangible and intangible assets based on their current estimated fair values on the date of acquisition. Based on~~The following table reflects management’s preliminary valuation of the ~~fair value of tangible and intangible~~ assets acquired and liabilities assumed ~~which are based on assumptions that are subject to change, the consideration paid for the Anchor acquisition is allocated as follows~~ (in thousands):


Cash and cash equivalents	$	34,501
Investment securities		302,195
FHLB/Federal Reserve Bank stock		6,585
Loans held for sale		1,407
Loans		1,593,991
Premises and equipment		33,433
Accrued interest receivable		5,872
Other real estate owned		1,058
Company-owned life insurance		44,490
Other assets		30,036
Deposits		(1,777,588	)
Federal funds purchased and interbank borrowings		(45,600	)
Securities sold under agreements to repurchase		(22,965	)
Other borrowings		(49,257	)
Accrued expenses and other liabilities		(25,784	)

Net tangible assets acquired		132,374
Definite-lived intangible assets acquired		26,606
Goodwill		173,785

Total consideration	$	332,765

Prior to the end of the ~~one year~~one-year measurement period for finalizing ~~the consideration paid allocation,~~acquisition-date fair values, if information becomes available which would indicate adjustments are required to the allocation, such adjustments will be included in the allocation in the reporting period in which the adjustment amounts are determined.

~~The portion~~ During the first quarter of 2018, immaterial adjustments were made to the preliminary valuation of the ~~consideration paid allocated~~assets acquired and liabilities assumed. These adjustments affected goodwill, definite lived intangible assets, premises and equipment, other assets, and deposits.

Goodwill related to ~~goodwill~~this acquisition will not be deductible for tax purposes.

The estimated fair value of the core deposit intangible ~~is $21.6~~was $26.6 million and ~~will be~~is being amortized over an estimated useful life of 710 years.

~~On May 31, 2016, the Company sold its insurance operations, ONB Insurance Group, Inc. (“ONI”). The Company received approximately $91.8 million in cash resulting in apre-tax~~ ~~gain of $41.9 million and anafter-tax~~ gain of $17.6 million. Goodwill and intangible assets of approximately $47.5 million were eliminated as part of this transaction. ONI was an ancillary business and did not meet the criteria to be treated as a discontinued operation as defined in Accounting Standards Update~~2014-08~~~~“Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”.~~

Based on an ongoing assessment of our service and delivery network, ~~the Company~~Old National consolidated ~~five~~29 branches during ~~2016~~2017. There are ten branches located throughout the footprint scheduled to be consolidated; nine in the second quarter and ~~an additional fifteen~~one in ~~January 2017.~~the third quarter of this year.

In addition, Old National entered into a branch purchase and assumption agreement for the sale of ten Old National branches in Wisconsin to Marine Credit Union of La Crosse, Wisconsin. The branch sale includes the assumption of approximately $274 million in deposits and no loans. Subject to regulatory approval and other terms and conditions, the sale is expected to close in the third quarter of 2018.

Basic and diluted net income per share are calculated using thetwo-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.

The following table reconciles basic and diluted net income per share for the three months ended March 31, ~~2017~~2018 and ~~2016:~~2017:


	Three Months Ended				Three Months Ended
(dollars and shares in thousands,	March 31,				March 31,
except per share data)	2017		2016		2018		2017
Basic Earnings Per Share
Net income	$	35,992	$	26,977	$	47,983	$	35,992

Weighted average common shares outstanding		134,912		113,998		151,721		134,912

Basic Net Income Per Share	$	0.27	$	0.24	$	0.32	$	0.27

Diluted Earnings Per Share
Net income	$	35,992	$	26,977	$	47,983	$	35,992

Weighted average common shares outstanding		134,912		113,998		151,721		134,912
Effect of dilutive securities:
Restricted stock (1)		445		526
Stock options (2)		74		39
Restricted stock						569		445
Stock options (1)						80		74

Weighted average shares outstanding		135,431		114,563		152,370		135,431

Diluted Net Income Per Share	$	0.27	$	0.24	$	0.31	$	0.27

~~The following table summarizes the changes within each classification of accumulated other comprehensive income (loss) (“AOCI”) net of tax for the three months ended March 31, 2017 and 2016:~~

~~The following table summarizes the significant amounts reclassified out of each component of AOCI for the three months ended March 31, 2017 and 2016:~~

The following table summarizes the amortized cost and fair value of theavailable-for-sale andheld-to-maturity investment securities portfolio at March 31, ~~2017~~2018 and December 31, ~~2016~~2017 and the corresponding amounts of unrealized gains and losses therein:


	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
(dollars in thousands)	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
March 31, 2017
March 31, 2018
Available-for-Sale
U.S. Treasury	$	11,966	$	152	$	(1	)	$	12,117	$	9,292	$	32	$	(29	)	$	9,295
U.S. government-sponsored entities and agencies		553,203		110		(10,279	)		543,034		587,140		1		(14,452	)		572,689
Mortgage-backed securities - Agency		1,496,620		5,866		(27,491	)		1,474,995		1,527,777		648		(50,529	)		1,477,896
States and political subdivisions		457,358		4,948		(9,755	)		452,551		837,946		9,930		(4,388	)		843,488
Pooled trust preferred securities		16,852		—		(8,564	)		8,288		13,899		—		(5,704	)		8,195
Other securities		328,167		1,407		(3,616	)		325,958		312,763		594		(5,057	)		308,300

Totalavailable-for-sale securities	$	2,864,166	$	12,483	$	(59,706	)	$	2,816,943	$	3,288,817	$	11,205	$	(80,159	)	$	3,219,863

Held-to-Maturity
U.S. government-sponsored entities and agencies	$	40,021	$	89	$	—		$	40,110	$	73,369	$	—	$	(1,925	)	$	71,444
Mortgage-backed securities - Agency		9,566		288		—			9,854		145,658		75		(2,966	)		142,767
States and political subdivisions		691,861		43,210		(129	)		734,942		316,126		8,278		(2,472	)		321,932

Totalheld-to-maturity securities	$	741,448	$	43,587	$	(129	)	$	784,906	$	535,153	$	8,353	$	(7,363	)	$	536,143

December 31, 2016
December 31, 2017
Available-for-Sale
U.S. Treasury	$	6,963	$	140	$	—		$	7,103	$	5,473	$	83	$	(5	)	$	5,551
U.S. government-sponsored entities and agencies		506,234		113		(12,391	)		493,956		675,643		3		(11,360	)		664,286
Mortgage-backed securities - Agency		1,551,465		6,923		(33,369	)		1,525,019		1,704,014		1,600		(37,932	)		1,667,682
States and political subdivisions		446,003		4,183		(13,502	)		436,684		529,835		5,085		(4,727	)		530,193
Pooled trust preferred securities		17,011		—		(8,892	)		8,119		16,605		—		(8,157	)		8,448
Other securities		331,001		1,074		(5,782	)		326,293		321,016		1,172		(2,141	)		320,047

Totalavailable-for-sale securities	$	2,858,677	$	12,433	$	(73,936	)	$	2,797,174	$	3,252,586	$	7,943	$	(64,322	)	$	3,196,207

Held-to-Maturity
U.S. government-sponsored entities and agencies	$	40,131	$	427	$	—		$	40,558
Mortgage-backed securities - Agency		10,640		300		—			10,940	$	6,903	$	153	$	—		$	7,056
States and political subdivisions		694,319		38,915		(560	)		732,674		677,160		43,495		(8	)		720,647

Totalheld-to-maturity securities	$	745,090	$	39,642	$	(560	)	$	784,172	$	684,063	$	43,648	$	(8	)	$	727,703

As previously disclosed in Note 3, upon the early adoption of ASU No. 2017-12 on January 1, 2018, Old National reclassified $447.0 million in state and political subdivision securities from the held-to-maturity portfolio to the available-for-sale portfolio. Separately, on January 1, 2018, U.S. government-sponsored entities and agencies, agency mortgage-backed securities, and state and political subdivision securities with a fair value of $324.0 million were transferred from the available-for-sale portfolio to the held-to-maturity portfolio. The $10.8 million unrealized holding loss, net of tax, at the date of transfer shall continue to be reported as a separate component of shareholders’ equity and will be amortized over the remaining life of the securities as an adjustment to yield. The corresponding discount on these securities will offset this adjustment to yield as it is amortized.

Proceeds from sales or calls ofavailable-for-sale investment securities, the resulting realized gains and realized losses, and other securities gains or losses were as follows for the three months ended March 31, ~~2017~~2018 and ~~2016:~~2017:

All of the mortgage-backed securities in the investment portfolio are residential mortgage-backed securities. The amortized cost and fair value of the investment securities portfolio are shown by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Weighted average yield is based on amortized cost.


	At March 31, 2017							At March 31, 2018
(dollars in thousands)					Weighted							Weighted
	Amortized		Fair		Average			Amortized		Fair		Average
Maturity	Cost		Value		Yield			Cost		Value		Yield
Available-for-Sale
Within one year	$	38,790	$	38,870		1.78	%	$	60,568	$	60,503		2.16	%
One to five years		311,574		311,107		2.19			495,123		490,729		2.28
Five to ten years		386,471		388,129		2.78			377,525		374,850		2.83
Beyond ten years		2,127,331		2,078,837		2.45			2,355,601		2,293,781		2.61

Total	$	2,864,166	$	2,816,943		2.46	%	$	3,288,817	$	3,219,863		2.58	%

Held-to-Maturity
Within one year	$	22,670	$	23,140		5.87	%	$	22,368	$	22,563		3.74	%
One to five years		68,261		70,943		4.37			36,340		37,201		4.04
Five to ten years		147,381		154,829		4.83			80,260		82,779		4.35
Beyond ten years		503,136		535,994		5.61			396,185		393,600		4.59

Total	$	741,448	$	784,906		5.35	%	$	535,153	$	536,143		3.74	%

The following table summarizes the investment securities with unrealized losses at March 31, ~~2017~~2018 and December 31, ~~2016~~2017 by aggregated major security type and length of time in a continuous unrealized loss position:


	Less than 12 months					12 months or longer					Total					Less than 12 months					12 months or longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair			Unrealized
(dollars in thousands)	Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value			Losses
March 31, 2017
March 31, 2018
Available-for-Sale
U.S. Treasury																$	5,273	$	(29	)	$	—	$	—		$	5,273		$	(29	)
U.S. government-sponsored entities and agencies																	240,181		(4,428	)		331,504		(10,024	)		571,685			(14,452	)
Mortgage-backed securities - Agency																	753,315		(19,422	)		630,193		(31,107	)		1,383,508			(50,529	)
States and political subdivisions																	294,601		(4,065	)		7,782		(323	)		302,383	��		(4,388	)
Pooled trust preferred securities																	—		—			8,195		(5,704	)		8,195			(5,704	)
Other securities																	110,546		(2,522	)		122,440		(2,535	)		232,986			(5,057	)

Total available-for-sale																$	1,403,916	$	(30,466	)	$	1,100,114	$	(49,693	)	$	2,504,030		$	(80,159	)

Held-to-Maturity
U.S. government-sponsored entities and agencies																$	—	$	—		$	71,444	$	(1,925	)	$	71,444		$	(1,925	)
Mortgage-backed securities - Agency																	37,880		(664	)		103,727		(2,302	)		141,607			(2,966	)
States and political subdivisions																	38,606		(860	)		67,909		(1,612	)		106,515			(2,472	)

Total held-to-maturity																$	76,486	$	(1,524	)	$	243,080	$	(5,839	)	$	319,566		$	(7,363	)

December 31, 2017
Available-for-Sale
U.S. Treasury	$	6,499	$	(1	)	$	—	$	—		$	6,499	$	(1	)	$	1,480	$	(5	)	$	—	$	—		$	1,480		$	(5	)
U.S. government-sponsored entities and agencies		455,813		(10,279	)		—		—			455,813		(10,279	)		201,773		(1,333	)		408,493		(10,027	)		610,266			(11,360	)
Mortgage-backed securities - Agency		1,176,954		(24,778	)		55,246		(2,713	)		1,232,200		(27,491	)		789,804		(8,692	)		774,825		(29,240	)		1,564,629			(37,932	)
States and political subdivisions		227,130		(9,557	)		5,702		(198	)		232,832		(9,755	)		196,024		(1,899	)		90,637		(2,828	)		286,661			(4,727	)
Pooled trust preferred securities		—		—			8,288		(8,564	)		8,288		(8,564	)		—		—			8,448		(8,157	)		8,448			(8,157	)
Other securities		100,136		(1,973	)		102,143		(1,643	)		202,279		(3,616	)		61,260		(429	)		125,517		(1,712	)		186,777			(2,141	)

Totalavailable-for-sale	$	1,966,532	$	(46,588	)	$	171,379	$	(13,118	)	$	2,137,911	$	(59,706	)	$	1,250,341	$	(12,358	)	$	1,407,920	$	(51,964	)	$	2,658,261		$	(64,322	)

Held-to-Maturity
States and political subdivisions	$	30,153	$	(129	)	$	—	$	—		$	30,153	$	(129	)	$	2,309	$	(8	)	$	—	$	—		$	2,309		$	(8	)

Totalheld-to-maturity	$	30,153	$	(129	)	$	—	$	—		$	30,153	$	(129	)	$	2,309	$	(8	)	$	—	$	—		$	2,309		$	(8	)

December 31, 2016
Available-for-Sale
U.S. government-sponsored entities and agencies	$	432,192	$	(12,391	)	$	—	$	—		$	432,192	$	(12,391	)
Mortgage-backed securities - Agency		1,177,093		(30,295	)		57,636		(3,074	)		1,234,729		(33,369	)
States and political subdivisions		286,351		(13,247	)		4,919		(255	)		291,270		(13,502	)
Pooled trust preferred securities		—		—			8,119		(8,892	)		8,119		(8,892	)
Other securities		121,498		(2,734	)		126,539		(3,048	)		248,037		(5,782	)

Totalavailable-for-sale	$	2,017,134	$	(58,667	)	$	197,213	$	(15,269	)	$	2,214,347	$	(73,936	)

Held-to-Maturity
States and political subdivisions	$	59,481	$	(560	)	$	—	$	—		$	59,481	$	(560	)

Totalheld-to-maturity	$	59,481	$	(560	)	$	—	$	—		$	59,481	$	(560	)

In addition to the unrealized losses at March 31, 2018 presented above, there is an additional $14.0 million of unrealized losses on securities that exist due to securities previously transferred from available-for-sale to held-to-maturity.

Management evaluates securities for ~~other-than-temporary impairment (“OTTI”)~~OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. ~~The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model.~~ Investment securities classified asavailable-for-sale orheld-to-maturity are generally evaluated for OTTI under FASB ASC 320, ~~(SFAS No. 115,~~~~Accounting for Certain~~ Investments in– Debt and Equity ~~Securities~~~~). However, certain purchased beneficial interests, includingnon-agency~~ ~~mortgage-backed securities, asset-backed securities, and collateralized debt obligations, that had credit ratings at the time of purchase of below AA are evaluated using the model outlined in FASB ASC325-10~~ ~~(EITF IssueNo. 99-20,~~~~Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transfer in Securitized Financial Assets~~).

Securities. In determining OTTI under ~~the~~ FASB ASC 320, ~~(SFAS No. 115) model,~~ management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time. ~~The second segment of the portfolio uses the~~

When OTTI ~~guidance provided by FASB ASC325-10~~ ~~(EITF99-20)~~ ~~that is specific to purchased beneficial interests that, on the purchase date, were rated below AA. Under the FASB ASC325-10~~ model, we compare the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

~~When other-than-temporary impairment~~ occurs, ~~under either model,~~ the amount of the ~~other-than-temporary impairment~~OTTI recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security

before recovery of its amortized cost basis less any current-period credit loss, the ~~other-than-temporary impairment~~OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. Otherwise, the ~~other-than-temporary impairment~~OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total ~~other-than-temporary impairment~~OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total ~~other-than-temporary impairment~~OTTI related to other factors shall be recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the ~~other-than-temporary impairment~~OTTI recognized in earnings shall become the new amortized cost basis of the investment.

~~We did not record other-than-temporary-impairments~~There was no OTTI recorded during the three months ended March 31, ~~2017~~2018 or ~~2016.~~2017.

At March 31, ~~2017,~~2018, Old National’s securities portfolio consisted of ~~1,660~~1,690 securities, ~~408~~850 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 March 31, 2017, our securities portfolio contained three pooled trust preferred securities with a fair value of $8.3 million and unrealized losses of $8.6 million. One of the pooled trust preferred securities in our portfolio falls within the scope of FASB ASC~~325-10~~ ~~(EITF99-20)~~ and has a fair value of $0.3 million with an unrealized loss of $2.7 million at March 31, 2017. This security was rated A3 at inception, but is rated D at March 31, 2017. The issuers in this security are banks. We use the OTTI evaluation model to compare the present value of expected cash flows to the previous estimate to determine whether an adverse change in cash flows has occurred during the quarter. The OTTI model considers the structure and term of the collateralized debt obligation (“CDO”) and the financial condition of the underlying issuers. Specifically, the model details interest rates, principal balances of note classes and underlying issuers, the timing and amount of interest and principal payments of the underlying issuers, and the allocation of the payments to the note classes. The current estimate of expected cash flows is based on the most recent trustee reports and any other relevant market information including announcements of interest payment deferrals or defaults of underlying trust preferred securities. Assumptions used in the model include expected future default rates and prepayments. We assume no recoveries on defaults and a limited number of recoveries on current or projected interest payment deferrals. In addition, we use the model to “stress” this CDO, or make assumptions more severe than expected activity, to determine the degree to which assumptions could deteriorate before the CDO could no longer fully support repayment of Old National’s note class. For the three months ended March 31, 2017 and 2016, our model indicated no other-than-temporary-impairment losses on this security. At March 31, 2017,2018, 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 any securities.

At March 31, 2018, our securities portfolio contained two pooled trust preferred securities with a fair value of ~~$8.0~~$8.2 million and unrealized losses of ~~$5.9 million at March 31, 2017~~$5.7 million. These securities are not subject to FASB ASC~~325-10.~~ ~~These securities~~ 325-10 and are evaluated using collateral-specific assumptions to estimate the expected future interest and principal cash flows. For the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, our analysis indicated no OTTI on these securities.

During the first quarter of 2018, Old National sold a pooled trust security that fell within the scope of FASB ASC 325-10 (EITF 99-20). Proceeds from the sale were $1.8 million, which resulted in a loss of $0.9 million. Although Old National typically does not sell securities in an unrealized loss position, this security was sold because the final liquidation value was significantly higher than our assessment of value for this position.

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. ~~All three~~Both pooled trust preferred securities have experienced credit defaults. However, ~~two of~~ these securities have excess subordination and are not ~~other-than-temporarily-impaired~~other-than-temporarily impaired as a result of their class hierarchy, which provides more loss protection.


Trust preferred securities																																								Actual			Expected			Excess
March 31, 2018																																								Deferrals			Defaults as			Subordination
(dollars in																																						# of Issuers		and Defaults			a % of			as a % of
thousands)																											Lowest						Unrealized			Realized		Currently		as a % of			Remaining			Current
																											Credit		Amortized		Fair		Gain/			Losses		Performing/		Original			Performing			Performing
															Actual			Expected			Excess				Class		Rating (1)		Cost		Value		(Loss)			2018		Remaining		Collateral			Collateral			Collateral
															Deferrals			Defaults as			Subordination
													# of Issuers		and Defaults			a % of			as a % of
Trust preferred securities			Lowest					Unrealized			Realized		Currently		as a % of			Remaining			Current
March 31, 2017			Credit	Amortized		Fair		Gain/			Losses		Performing/		Original			Performing			Performing
(dollars in thousands)		Class	Rating (1)	Cost		Value		(Loss)			2017		Remaining		Collateral			Collateral			Collateral
Pooled trust preferred securities:	Pooled trust preferred securities:																							Pooled trust preferred securities:
Reg Div Funding 2004		B-2	D	$	2,948	$	263	$	(2,685	)	$	—		22/37		32.1	%		7.5	%		0.0	%
Pretsl XXVII LTD		B	B		4,422		2,381		(2,041	)		—		35/44		16.7	%		4.3	%		46.5	%			B		B	$	4,399	$	2,442	$	(1,957	)	$	—		35/44		16.7	%		4.2	%		46.7	%
Trapeza Ser 13A		A2A	BBB		9,482		5,644		(3,838	)		—		50/55		4.5	%		4.8	%		45.8	%			A2A		BBB		9,500		5,753		(3,747	)		—		48/53		4.5	%		4.5	%		46.2	%

					16,852		8,288		(8,564	)		—
																														13,899		8,195		(5,704	)		—
Single Issuer trust preferred securities:	Single Issuer trust preferred securities:																							Single Issuer trust preferred securities:
Fleet Cap Tr V (BOA)			BB+		3,399		3,211		(188	)		—																BBB-		3,409		3,325		(84	)		—
JP Morgan Chase Cap XIII			BBB-		4,770		4,513		(257	)		—																BBB-		4,780		4,650		(130	)		—
NB-Global			BB+		790		915		125			—																BBB-		808		941		133			—
Chase Cap II			BBB-		826		908		82			—

					9,785		9,547		(238	)		—
																														8,997		8,916		(81	)		—
Total				$	26,637	$	17,835	$	(8,802	)	$	—																	$	22,896	$	17,111	$	(5,785	)	$	—

Mortgage loans held for immediate sale in the secondary market were ~~$17.4~~$17.6 million at March 31, ~~2017,~~2018, compared to ~~$90.7~~$17.9 million at December 31, ~~2016.~~2017. Residential loans that Old National has originated with the intent to sell are recorded at fair value in accordance with FASB ASC825-10, ~~(SFAS No. 159 –~~~~The Fair Value Option for~~ Financial ~~Assets and Financial Liabilities~~Instruments). ~~Beginning with the inception of anin-house~~ ~~servicing unit in the third quarter of 2014, conventional~~Conventional mortgage production is sold on a servicing retained basis. Certain loans, such as government guaranteed mortgage loans are sold on servicing released basis.

Old National’s ~~finance receivables~~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, and ~~Wisconsin.~~Minnesota. Old National manages concentrations of credit exposure by industry, product, geography, customer relationship, and loan ~~size, with no concentration~~size. While loans to lessors of ~~loans exceeding~~both residential and non-residential real estate exceed 10% of ~~its portfolio.~~total loans, no individual sub-segment category within those broader categories reach the 10% threshold.


	March 31,			December 31,			March 31,			December 31,
(dollars in thousands)	2017			2016			2018			2017
Commercial (1)	$	1,910,536		$	1,917,099		$	2,811,629		$	2,717,269
Commercial real estate:
Construction ~~(2)~~		357,055			357,802			351,448			374,306
Other (2)		2,865,810			2,773,051
Other								4,098,532			3,980,246
Residential real estate		2,112,262			2,087,530			2,158,532			2,167,053
Consumer credit:
Home equity		464,911			476,439			487,237			507,507
Auto		1,199,580			1,167,737			1,117,027			1,148,672
Other		221,619			230,854			214,277			223,068

Total loans		9,131,773			9,010,512			11,238,682			11,118,121
Allowance for loan losses		(49,834	)		(49,808	)		(50,381	)		(50,381	)

Net loans	$	9,081,939		$	8,960,704		$	11,188,301		$	11,067,740

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be 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 versusnon-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 bepre-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 byon-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.

The acquisition of Anchor (MN) on ~~May~~November 1, ~~2016~~2017 added ~~$926.2~~$864.4 million of commercial real estate loans to our portfolio. At ~~189%~~208%, 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 March 31, ~~2017.~~2018.

With respect to residential loans that are secured by1-4 family residences and are generally owner occupied, Old National typically establishes a maximumloan-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. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Home equity loans are typically secured by a subordinate interest in1-4 family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. We assumed student loans in the acquisition of Anchor (WI) in May 2016. ~~At March 31, 2017, student~~Student loans ~~totaled $74.6 million and~~ are guaranteed by the government from 97% to 100%. and totaled $66.0 million at March 31, 2018, compared to $68.2 million at December 31, 2017. Some consumer loans are unsecured such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in residential property or other collateral values. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Covered loans totaled $95.4 million at March 31, 2016 and were reclassified to the appropriate loan portfolio segments on the balance sheet for that period. Covered loans were subject to loss share agreements. Old National entered into an agreement with the FDIC on June 22, 2016 to terminate its loss share agreements. Under the early termination agreement, the FDIC made a final payment of $8.7 million to Old National as consideration for the early termination. All future gains and losses associated with covered loans will be recognized entirely by Old National.

The allowance for loan losses is maintained at a level believed adequate by management to absorb probable losses incurred in the consolidated loan portfolio. Management’s evaluation of the adequacy of the allowance is an estimate based on reviews of individual loans, pools of homogeneous loans, assessments of the impact of current and anticipated economic conditions on the portfolio, and historical loss experience. The allowance is increased through a provision charged to operating expense. Loans deemed to be uncollectible are charged to the allowance. Recoveries of loans previouslycharged-off are added to the allowance.

We utilize a ~~probability of default (“PD”)~~PD and ~~loss given default (“LGD”)~~LGD model as a tool to determine the adequacy of the allowance for loan losses for performing commercial and commercial real estate loans. The PD is forecast using a transition matrix to determine the likelihood of a customer’s ~~asset quality rating (“AQR”)~~AQR migrating from its current AQR to any other status within the time horizon. Transition rates are measured using Old National’s own historical experience. The model assumes that recent historical transition rates will continue into the future. The LGD is defined as credit loss incurred when an obligor of the bank defaults. The sum of all net charge-offs for a particular portfolio segment are divided by all loans that have defaulted over a given period of time. The expected loss derived from the model considers the PD, LGD, and exposure at default. Additionally, qualitative factors, such as changes in lending policies or procedures, and economic business conditions are also considered.

We use historic loss ratios adjusted for economic conditions to determine the appropriate level of allowance for residential real estate and consumer loans.

No allowance was brought forward on any of the acquired loans as any credit deterioration evident in the loans was included in the determination of the fair value of the loans at the acquisition date. An allowance for loan losses will be established for any subsequent credit deterioration or adverse changes in expected cash flows.

Old National’s activity in the allowance for loan losses for the three months ended March 31, ~~2017~~2018 and ~~2016~~2017 was as follows:


				Commercial																	Commercial
(dollars in thousands)	Commercial			Real Estate			Residential			Consumer			Unallocated		Total			Commercial			Real Estate			Residential			Consumer			Total
Three Months Ended March 31, 2017
Balance at January 1, 2017	$	21,481		$	18,173		$	1,643		$	8,511		$	—	$	49,808
Three Months Ended March 31, 2018
Balance at beginning of period																		$	19,246		$	21,436		$	1,763		$	7,936		$	50,381
Charge-offs		(470	)		(568	)		(414	)		(1,787	)		—		(3,239	)		(245	)		(3	)		(362	)		(2,075	)		(2,685	)
Recoveries		603			1,225			79			1,011			—		2,918			511			484			148			1,162			2,305
Provision		494			(877	)		428			302			—		347			79			(1,121	)		214			1,208			380

Balance at March 31, 2017	$	22,108		$	17,953		$	1,736		$	8,037		$	—	$	49,834
Balance at end of period																		$	19,591		$	20,796		$	1,763		$	8,231		$	50,381

Three Months Ended March 31, 2016
Balance at January 1, 2016	$	26,347		$	15,993		$	2,051		$	7,842		$	—	$	52,233
Three Months Ended March 31, 2017
Balance at beginning of period																		$	21,481		$	18,173		$	1,643		$	8,511		$	49,808
Charge-offs		(1,527	)		(279	)		(140	)		(1,996	)		—		(3,942	)		(470	)		(568	)		(414	)		(1,787	)		(3,239	)
Recoveries		818			840			26			634			—		2,318			603			1,225			79			1,011			2,918
Provision		(517	)		(783	)		(188	)		1,579			—		91			494			(877	)		428			302			347

Balance at March 31, 2016	$	25,121		$	15,771		$	1,749		$	8,059		$	—	$	50,700
Balance at end of period																		$	22,108		$	17,953		$	1,736		$	8,037		$	49,834

The following table provides Old National’s recorded investment in ~~financing receivables~~loans by portfolio segment at March 31, ~~2017~~2018 and December 31, ~~2016~~2017 and other information regarding the allowance:


			Commercial
(dollars in thousands)	Commercial		Real Estate		Residential		Consumer		Total
March 31, 2018
Allowance for loan losses:
Individually evaluated for impairment	$	4,024	$	6,054	$	—	$	—	$	10,078
Collectively evaluated for impairment		15,557		14,742		1,763		8,069		40,131
Loans acquired with deteriorated credit quality		10		—		—		162		172

Total allowance for loan losses	$	19,591	$	20,796	$	1,763	$	8,231	$	50,381

Loans and leases outstanding:
Individually evaluated for impairment	$	30,092	$	64,693	$	—	$	—	$	94,785
Collectively evaluated for impairment		2,776,738		4,364,309		2,147,693		1,813,910		11,102,650
Loans acquired with deteriorated credit quality		4,799		20,978		10,839		4,631		41,247

Total loans and leases outstanding	$	2,811,629	$	4,449,980	$	2,158,532	$	1,818,541	$	11,238,682

December 31, 2017
Allowance for loan losses:
Individually evaluated for impairment	$	3,424	$	6,654	$	—	$	—	$	10,078
Collectively evaluated for impairment		15,790		14,782		1,763		7,802		40,137
Loans acquired with deteriorated credit quality		32		—		—		134		166

Total allowance for loan losses	$	19,246	$	21,436	$	1,763	$	7,936	$	50,381

Loans and leases outstanding:
Individually evaluated for impairment	$	26,270	$	66,061	$	—	$	—	$	92,331
Collectively evaluated for impairment		2,685,847		4,266,665		2,155,750		1,874,002		10,982,264
Loans acquired with deteriorated credit quality		5,152		21,826		11,303		5,245		43,526

Total loans and leases outstanding	$	2,717,269	$	4,354,552	$	2,167,053	$	1,879,247	$	11,118,121

Old National’s management monitors the credit quality of its ~~financing receivables~~loans in anon-going manner. Internally, management assigns an ~~asset quality rating (“AQR”)~~AQR to eachnon-homogeneous commercial and commercial real estate loan in the portfolio, with the exception of certain FICO-scored small business loans. The primary determinants of the AQR are based upon 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 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.

The risk category of commercial and commercial real estate loans by class of loans at March 31, ~~2017~~2018 and December 31, ~~2016~~2017 was as follows:


(dollars in thousands)					Commercial				Commercial
					Real Estate -				Real Estate -
Corporate Credit Exposure	Commercial				Construction				Other
Credit Risk Profile by	March 31,		December 31,		March 31,		December 31,		March 31,		December 31,
Internally Assigned Grade	2018		2017		2018		2017		2018		2017
Grade:
Pass	$	2,657,943	$	2,577,824	$	335,761	$	357,438	$	3,886,508	$	3,762,896
Criticized		78,612		74,876		14,782		14,758		81,479		98,451
Classified - substandard		41,899		37,367		—		—		71,047		58,584
Classified - nonaccrual		30,823		24,798		905		2,110		31,364		30,108
Classified - doubtful		2,352		2,404		—		—		28,134		30,207

Total	$	2,811,629	$	2,717,269	$	351,448	$	374,306	$	4,098,532	$	3,980,246

Old National considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, Old National also evaluates credit quality based on the aging status of the loan and by payment activity. The following table presents the recorded investment in residential and consumer loans based on payment activity at March 31, ~~2017~~2018 and December 31, ~~2016:~~2017:


											Consumer
(dollars in thousands)			Consumer						Residential		Home Equity		Auto		Other
			Home
	Residential		Equity		Auto		Other
March 31, 2017
March 31, 2018
Performing	$	2,094,446	$	460,295	$	1,197,713	$	215,618	$	2,137,395	$	482,214	$	1,114,511	$	209,235
Nonperforming		17,816		4,616		1,867		6,001		21,137		5,023		2,515		5,043

Total	$	2,112,262	$	464,911	$	1,199,580	$	221,619	$	2,158,532	$	487,237	$	1,117,026	$	214,278

December 31, 2016
December 31, 2017
Performing	$	2,069,856	$	472,008	$	1,166,114	$	223,786	$	2,144,882	$	502,322	$	1,145,977	$	217,819
Nonperforming		17,674		4,431		1,623		7,068		22,171		5,185		2,695		5,249

Total	$	2,087,530	$	476,439	$	1,167,737	$	230,854	$	2,167,053	$	507,507	$	1,148,672	$	223,068

Large commercial credits are subject to individual evaluation for impairment. Retail credits and other small balance credits that are part of a homogeneous group are not tested for individual impairment unless they are modified as a ~~troubled debt restructuring.~~TDR. A loan is considered impaired when it is probable that contractual interest and principal payments will not be collected either for the amounts or by the dates as scheduled in the loan agreement. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported net, at the present value of estimated cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Old National’s policy, for all but ~~purchased credit impaired~~PCI loans, is to recognize interest income on impaired loans unless the loan is placed on nonaccrual status.

The following table shows Old National’s impaired loans at March 31, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. Only purchased loans that have experienced subsequent impairment since the date acquired are included in the table below.


			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
(dollars in thousands)	Investment		Balance		Allowance		Investment		Balance		Allowance
March 31, 2017
March 31, 2018
With no related allowance recorded:
Commercial	$	28,559	$	29,659	$	—	$	20,869	$	21,656	$	—
Commercial Real Estate - Other		34,755		36,272		—		42,923		44,688		—
Residential		2,253		2,274		—		2,107		2,128		—
Consumer		1,847		2,089		—		2,000		2,436		—
With an allowance recorded:
Commercial		9,195		9,214		4,980		9,223		9,276		4,024
Commercial Real Estate - Construction								905		1,371		401
Commercial Real Estate - Other		14,654		15,200		3,793		20,865		21,081		5,653
Residential		1,154		1,154		58		950		950		48
Consumer		2,081		2,081		104		2,022		2,022		101

Total	$	94,498	$	97,943	$	8,935	$	101,864	$	105,608	$	10,227

December 31, 2016
December 31, 2017
With no related allowance recorded:
Commercial	$	29,001	$	29,634	$	—	$	20,557	$	21,483	$	—
Commercial Real Estate - Other		30,585		32,413		—		38,678		44,564		—
Residential		1,610		1,631		—		2,443		2,464		—
Consumer		827		946		—		1,685		2,105		—
With an allowance recorded:
Commercial		16,959		17,283		4,561		5,713		5,713		3,424
Commercial Real Estate - Construction								905		1,371		401
Commercial Real Estate - Other		26,645		27,177		3,437		26,478		26,902		6,253
Residential		1,081		1,081		54		870		870		44
Consumer		1,924		1,924		96		2,211		2,228		110

Total	$	108,632	$	112,089	$	8,148	$	99,540	$	107,700	$	10,232

The average balance of impaired loans during the three months ended March 31, ~~2017~~2018 and ~~2016~~2017 are included in the table below.

~~The Company~~Old National does not record interest on nonaccrual loans until principal is recovered. Interest income recognized on impaired loans during the three months ended March 31, ~~2017~~2018 and ~~2016~~2017 was immaterial.

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 collectibility of principal or interest. Interest accrued during the current year on such loans is reversed against earnings. Interest accrued in the prior year, if any, is charged to the allowance for loan losses. 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.

Loans accounted for under FASB ASC Topic310-30 accrue interest, even though they may be contractually past due, as any nonpayment of contractual principal or interest is considered in the periodicre-estimation of expected cash flows and is included in the resulting recognition of current period loan loss provision or prospective yield adjustments.

Old National’s past due financing receivables at March 31, ~~2017~~2018 and December 31, ~~2016~~2017 were as follows:


					Recorded
					Investment >
	30-59 Days		60-89 Days		90 Days and				Total
(dollars in thousands)	Past Due		Past Due		Accruing		Nonaccrual		Past Due		Current		30-59 Days Past Due		60-89 Days Past Due		Past Due 90 Days or More and Accruing		Nonaccrual		Total Past Due		Current
March 31, 2017
March 31, 2018
Commercial	$	512	$	—	$	—	$	36,686	$	37,198	$	1,873,338	$	1,068	$	195	$	10	$	33,175	$	34,448	$	2,777,181
Commercial Real Estate:
Construction		—		—		—		—		—		357,055		—		—		—		905		905		350,543
Other		899		—		80		48,391		49,370		2,816,440		1,779		932		—		59,498		62,209		4,036,323
Residential		16,351		472		2		17,816		34,641		2,077,621		21,071		909		16		21,137		43,133		2,115,399
Consumer:
Home equity		1,185		544		—		4,616		6,345		458,566		1,965		183		16		5,023		7,187		480,050
Auto		3,379		643		185		1,867		6,074		1,193,506		4,904		1,139		214		2,515		8,772		1,108,255
Other		2,538		2,141		114		6,001		10,794		210,825		2,121		1,014		71		5,043		8,249		206,028

Total loans	$	24,864	$	3,800	$	381	$	115,377	$	144,422	$	8,987,351	$	32,908	$	4,372	$	327	$	127,296	$	164,903	$	11,073,779

December 31, 2016
December 31, 2017
Commercial	$	847	$	279	$	23	$	56,585	$	57,734	$	1,859,365	$	986	$	360	$	144	$	27,202	$	28,692	$	2,688,577
Commercial Real Estate:
Construction		—		—		—		1,170		1,170		356,632		—		—		—		2,110		2,110		372,196
Other		1,652		150		—		42,856		44,658		2,728,393		2,247		89		—		60,315		62,651		3,917,595
Residential		17,786		3,770		2		17,674		39,232		2,048,298		18,948		3,416		—		22,171		44,535		2,122,518
Consumer:
Home equity		1,511		423		—		4,431		6,365		470,074		1,467		230		68		5,185		6,950		500,557
Auto		5,903		1,037		242		1,623		8,805		1,158,932		6,487		1,402		532		2,695		11,116		1,137,556
Other		3,561		1,919		61		7,068		12,609		218,245		3,967		1,514		150		5,249		10,880		212,188

Total loans	$	31,260	$	7,578	$	328	$	131,407	$	170,573	$	8,839,939	$	34,102	$	7,011	$	894	$	124,927	$	166,934	$	10,951,187

Old National has loan participations, which qualify as participating interests, with other financial institutions. At March 31, ~~2017,~~2018, these loans totaled ~~$464.6~~$580.2 million, of which ~~$237.5~~$301.4 million had been sold to other financial institutions and ~~$227.1~~$278.8 million was retained by Old National. The loan participations convey proportionate ownership rights with equal priority to each participating interest ~~holder,~~holder; involve no recourse (other than ordinary representations and warranties) to, or subordination by, any participating interest ~~holder,~~holder; all cash flows are divided among the participating interest holders in proportion to each holder’s share of ~~ownership,~~ownership; and no holder has the right to pledge the entire financial asset unless all participating interest holders agree.

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 ~~troubled debt restructuring (“TDR”)~~TDR has occurred, which is when for economic or legal reasons related to a borrower’s financial difficulties, ~~the~~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 include 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 six months.

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 ~~have been placed on nonaccrual status or became~~are 90 days or more delinquent ~~without regard to the~~and do not have adequate collateral ~~position.~~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 loan losses for the difference between the carrying value of the loan and its computed value. To determine the 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 value, 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 ~~troubled debt restructuring,~~TDR, the loan is typically written down to its collateral value less selling costs.

The following table presents activity in TDRs for the three months ended March 31, ~~2017~~2018 and ~~2016:~~2017:


				Commercial
(dollars in thousands)	Commercial			Real Estate			Residential			Consumer			Total
Three Months Ended March 31, 2018
Balance at beginning of period	$	12,088		$	34,705		$	3,315		$	3,895		$	54,003
(Charge-offs)/recoveries		(129	)		(10	)		23			298			182
Payments		(476	)		(495	)		(276	)		(537	)		(1,784	)
Additions		539			566			—			432			1,537
Interest collected on nonaccrual loans		(104	)		(278	)		(4	)		(68	)		(454	)

Balance at end of period	$	11,918		$	34,488		$	3,058		$	4,020		$	53,484

Three Months Ended March 31, 2017
Balance at beginning of period	$	16,802		$	18,327		$	2,985		$	2,602		$	40,716
(Charge-offs)/recoveries		35			355			—			(100	)		290
Payments		(3,827	)		(1,751	)		(142	)		(508	)		(6,228	)
Additions		9,442			—			564			1,924			11,930
Interest collected on nonaccrual loans		2,170			358			—			11			2,539

Balance at end of period	$	24,622		$	17,289		$	3,407		$	3,929		$	49,247

Approximately ~~$34.2~~$36.9 million of the TDRs at March 31, ~~2017~~2018 were included with nonaccrual loans, compared to ~~$26.3~~$34.0 million of the TDRs at December 31, ~~2016.~~2017. Old National has allocated specific reserves to customers whose loan terms have been modified in TDRs totaling ~~$5.0~~$5.9 million at March 31, ~~2017~~2018 and ~~$4.0~~$5.7 million at December 31, ~~2016.~~2017. At March 31, ~~2017,~~2018, Old National had committed to lend an additional ~~$5.5~~$4.6 million to customers with outstanding loans that are classified as TDRs.

Thepre-modification and post-modification outstanding recorded investments of loans modified as TDRs during the three months ended March 31, ~~2017~~2018 and ~~2016~~2017 are the same except for when the loan modifications involve the forgiveness of principal. The following table presents loans by class modified as TDRs that occurred during the three months ended March 31, ~~2017~~2018 and ~~2016:~~2017:


			Pre-modification		Post-modification				Pre-modification		Post-modification
	Number		Outstanding Recorded		Outstanding Recorded		Number		Outstanding Recorded		Outstanding Recorded
(dollars in thousands)	of Loans		Investment		Investment		of Loans		Investment		Investment
Three Months Ended March 31, 2018
TDR:
Commercial								1	$	539	$	539
Commercial Real Estate - Other								1		566		566
Consumer								1		432		432

Total								3	$	1,537	$	1,537

Three Months Ended March 31, 2017
Troubled Debt Restructuring:
TDR:
Commercial		6	$	9,442	$	9,442		6	$	9,442	$	9,442
Residential		3		564		564		3		564		564
Consumer		5		1,924		1,924		5		1,924		1,924

Total		14	$	11,930	$	11,930		14	$	11,930	$	11,930

Three Months Ended March 31, 2016
Troubled Debt Restructuring:
Commercial		10	$	1,542	$	1,542
Commercial Real Estate - Other		7		9,476		9,476
Residential		1		133		133
Consumer		8		385		385

Total		26	$	11,536	$	11,536

The TDRs that occurred during the three months ended March 31, 2018 did not change the allowance for loan losses and resulted in no charge-offs during the three months ended March 31, 2018. The TDRs that occurred during the three months ended March 31, 2017 decreased the allowance for loan losses by $0.1 million due to a change in collateral position on a large commercial loan and resulted in no charge-offs during the three months ended March 31, 2017. The TDRs that occurred during the three months ended March 31, 2016 increased the allowance for loan losses by $0.2 million and resulted in $0.6 million of charge-offs.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

~~There were no loans that were modified as~~ TDRs ~~within the preceding twelve months, and~~ for which there was a payment default within twelve months following the modification were insignificant during the three months ended March 31, ~~2017.~~

~~There were 4 commercial loans~~2018 and 3 commercial real estate loans totaling $0.6 million that were modified as TDRs within the preceding twelve months, and for which there was a payment default during the three months ended March 31, 2016.2017.

The terms of certain other loans were modified during the three months ended March 31, ~~2017~~2018 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.

~~Purchased credit impaired (“PCI”)~~PCI loans are not considered impaired until after the point at which there has been a degradation of cash flows below our expected cash flows at acquisition. If a PCI loan is subsequently modified, and meets the definition of a TDR, it will be removed from PCI accounting and accounted for as a TDR only if the PCI loan was being accounted for individually. If the ~~purchased credit impaired~~PCI loan is being accounted for as part of a pool, it will not be removed from the pool. As of March 31, ~~2017,~~2018, it has not been necessary to remove any loans from PCI accounting.

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 ASC310-10, ~~“Receivables~~Receivables – ~~Overall”~~Overall. However, consistent with ASC310-40-50-2, ~~“Troubled~~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.

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan and lease losses. In determining the estimated fair value of purchased loans, management considers a number of factors including, among others, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, and net present value of cash flows expected to be received. Purchased loans are accounted for in accordance with guidance for certain loans acquired in a transfer (ASC310-30), when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the acquirer will not collect all contractually required principal and interest payments. The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as thenon-accretable difference. Subsequent decreases to the expected cash flows will generally result in a provision for loan and lease losses. Subsequent increases in expected cash flows will result in a reversal of the provision for loan losses to the extent of prior charges and then an adjustment to accretable yield, which would have a positive impact on interest income.

Old National has purchased loans for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. For these loans that meet the criteria of ASC310-30 treatment, the carrying amount was as follows:


	March 31,			December 31,			March 31,			December 31,
(dollars in thousands)	2017			2016			2018			2017
Commercial	$	715		$	850		$	4,799		$	5,152
Commercial real estate		25,648			32,774			20,978			21,826
Residential		13,148			13,580			10,839			11,303
Consumer		7,341			8,215			4,631			5,245

Carrying amount		46,852			55,419			41,247			43,526
Allowance for loan losses		(430	)		(278	)		(172	)		(166	)

Carrying amount, net of allowance	$	46,422		$	55,141		$	41,075		$	43,360

The outstanding balance of loans accounted for under ASC310-30, including contractual principal, interest, fees and penalties, was ~~$255.8~~$230.5 million at March 31, ~~2017~~2018 and ~~$268.0~~$235.9 million at December 31, ~~2016.~~2017.

The accretable difference on ~~purchased~~PCI loans ~~acquired in a business combination~~ is the difference between the expected cash flows and the net present value of expected cash flows with such difference accreted into earnings using the effective yield method over the term of the loans. Accretion recorded as loan interest income totaled ~~$4.7 million~~

~~during the three months ended March 31, 2017 and $8.7~~$4.5 million during the three months ended March 31, ~~2016.~~2018 and $4.7 million during the three months ended March 31, 2017. Improvement in cash flow expectations has resulted in a reclassification from nonaccretable difference to accretable yield as shown in the table below.

Accretable yield of ~~purchased credit impaired~~PCI loans, or income expected to be collected, is as follows:


							Three Months Ended
							March 31,
(dollars in thousands)	2017			2016			2018			2017
Balance at January 1,	$	33,603		$	45,310
Balance at beginning of period							$	27,835		$	33,603
Accretion of income		(4,685	)		(8,661	)		(4,526	)		(4,685	)
Reclassifications from (to) nonaccretable difference		610			2,870			1,379			610
Disposals/other adjustments		6			367			4			6

Balance at March 31,	$	29,534		$	39,886
Balance at end of period							$	24,692		$	29,534

Included in Old National’s allowance for loan losses is ~~$0.4~~$0.2 million related to the purchased loans disclosed above at March 31, ~~2017, compared to $0.3 million at~~2018 and December 31, ~~2016.~~2017.

PCI loans purchased during ~~2016~~2017 for which it was probable at acquisition that all contractually required payments would not be collected were as follows:


(dollars in thousands)	Anchor (1)			Anchor (MN) (1)
Contractually required payments	$	29,544		$	16,898
Nonaccretable difference		(6,153	)		(4,787	)

Cash flows expected to be collected at acquisition		23,391			12,111
Accretable yield		(3,217	)		(1,556	)

Fair value of acquired loans at acquisition	$	20,174		$	10,555

Income would not be recognized on certain purchased loans if Old National could not reasonably estimate cash flows to be collected. Old National had no purchased loans for which it could not reasonably estimate cash flows to be collected.

The following table presents activity in other real estate owned for the three months ended March 31, ~~2017~~2018 and ~~2016:~~2017:


							Three Months Ended
							March 31,
(dollars in thousands)	2017			2016			2018			2017
Balance at January 1,	$	18,546		$	12,498
Balance at beginning of period							$	8,810		$	18,546
Additions		291			2,566			550			291
Sales		(5,420	)		(1,206	)		(2,351	)		(5,420	)
Impairment		(870	)		(336	)		(274	)		(870	)

Balance (1) at March 31,	$	12,547		$	13,522
Balance at end of period (1)							$	6,735		$	12,547

At March 31, ~~2017,~~2018, foreclosed residential real estate property included in the table above totaled ~~$1.1~~$1.0 million. At March 31, ~~2017,~~2018, consumer mortgage loans collateralized by residential real property that were in the process of foreclosure totaled ~~$3.7~~$6.2 million.

Other real estate owned that was covered by loss share arrangements totaled $6.5 million at March 31, 2016 and was included in other real estate owned in the table above and on the balance sheet for that period. Old National entered into an agreement with the FDIC on June 22, 2016 to terminate its loss share agreements.

The composition of premises and equipment at March 31, ~~2017~~2018 and December 31, ~~2016~~2017 was as follows:


	March 31,			December 31,			March 31,			December 31,
(dollars in thousands)	2017			2016			2018			2017
Land	$	69,484		$	71,769		$	71,618		$	73,046
Buildings		317,582			322,165			342,757			343,833
Furniture, fixtures, and equipment		100,489			102,631			95,729			94,254
Leasehold improvements		27,894			28,555			39,715			38,918

Total		515,449			525,120			549,819			550,051
Accumulated depreciation		(94,583	)		(95,498	)		(96,216	)		(91,977	)

Premises and equipment, net	$	420,866		$	429,622		$	453,603		$	458,074

Depreciation expense was $5.8 million for the three months ended March 31, 2018, compared to $5.2 million for the three months ended March 31, ~~2017, compared to $3.5 million for the three months ended March 31, 2016.~~2017.

Old National rents certain premises and equipment under operating leases, which expire at various dates. Many of these leases require the payment of property taxes, insurance premiums, maintenance, and other costs. In some cases, rentals are subject to increase in relation to acost-of-living index. The leases have original terms ranging from ~~less than one year~~two years and six months to ~~twenty-four~~twenty-five years, and Old National has the right, at its option, to extend the terms of certain leases for four additional successive terms of five years. Old National does not have any materialsub-lease agreements. Rent expense was $4.4 million for the three months ended March 31, 2018, compared to $3.9 million for the three months ended March 31, ~~2017, compared to $6.3 million for the three months ended March 31, 2016.~~2017.

Old National had deferred gains remaining associated with prior sale leaseback transactions totaling ~~$9.7~~$7.7 million at March 31, ~~2017~~2018 and ~~$10.3~~$8.2 million at December 31, ~~2016.~~2017. The gains will be recognized over the remaining term of the leases. The leases had original terms ranging from five to twenty-four years.

Old National leases atwo branch ~~building~~buildings and certain equipment under capital leases. See Note 16 to the consolidated financial statements for detail regarding these leases.

The following table shows the changes in the carrying amount of goodwill for the three months ended March 31, ~~2017~~2018 and ~~2016:~~2017:

Goodwill is reviewed annually for impairment. ~~Old National completed its most recent~~No events or circumstances since the August 31, 2017 annual ~~goodwill~~ impairment test ~~as of August 31, 2016 and concluded~~were noted that ~~based on current events and circumstances,~~would indicate it ~~is not~~was more likely than not ~~that~~a goodwill impairment exists. During the ~~carrying value~~first quarter of 2018, Old National recorded a $0.8 million increase to goodwill ~~exceeds fair value.~~associated with the acquisition of Anchor (MN).

The gross carrying amount and accumulated amortization of other intangible assets at March 31, ~~2017~~2018 and December 31, ~~2016~~2017 were as follows:


	Gross		Accumulated			Net		Gross		Accumulated			Net
	Carrying		Amortization			Carrying		Carrying		Amortization			Carrying
(dollars in thousands)	Amount		and Impairment			Amount		Amount		and Impairment			Amount
March 31, 2017
Amortized intangible assets:
March 31, 2018
Core deposit								$	108,268	$	(66,037	)	$	42,231
Customer trust relationships									16,547		(9,945	)		6,602

Total intangible assets								$	124,815	$	(75,982	)	$	48,833

December 31, 2017
Core deposit	$	81,663	$	(55,671	)	$	25,992	$	108,923	$	(62,874	)	$	46,049
Customer trust relationships		16,547		(8,216	)		8,331		16,547		(9,533	)		7,014
Customer loan relationships		4,413		(4,079	)		334		4,413		(4,380	)		33

Total intangible assets	$	102,623	$	(67,966	)	$	34,657	$	129,883	$	(76,787	)	$	53,096

December 31, 2016
Amortized intangible assets:
Core deposit	$	81,663	$	(53,214	)	$	28,449
Customer trust relationships		16,547		(7,753	)		8,794
Customer loan relationships		4,413		(3,979	)		434

Total intangible assets	$	102,623	$	(64,946	)	$	37,677

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. During the first quarter of 2018, Old National recorded a $0.7 million decrease to core deposit intangibles related to the updated valuation associated with the acquisition of Anchor (MN).

Old National reviews other intangible assets for possible impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. No impairment charges were recorded during the three months ended March 31, ~~2017~~2018 or ~~2016.~~2017. Total amortization expense associated with intangible assets was $3.6 million for the three months ended March 31, 2018 and $3.0 million for the three months ended March 31, ~~2017 and $2.6 million for the three months ended March 31, 2016.~~2017.


(dollars in thousands)
2017 remaining	$	7,995
2018		8,687
2018 remaining			$	9,815
2019		6,737		11,010
2020		4,883		8,672
2021		3,111		6,417
2022				4,595
Thereafter		3,244		8,324

Total	$	34,657	$	48,833

At March 31, ~~2017,~~2018, loan servicing rights derived from loans sold with servicing retained totaled ~~$25.4~~$24.4 million, compared to ~~$25.6~~$24.7 million at December 31, ~~2016.~~2017. Loans serviced for others are not reported as assets. The principal balance of loans serviced for others was ~~$3.375~~$3.305 billion at March 31, ~~2017,~~2018, compared to ~~$3.385~~$3.321 billion at December 31, ~~2016.~~2017. Approximately ~~99%~~99.6% of the loans serviced for others at March 31, ~~2017~~2018 were residential mortgage loans. Custodial escrow balances maintained in connection with serviced loans were ~~$20.8~~$23.9 million at March 31, ~~2017~~2018 and ~~$5.3~~$8.9 million at December 31, ~~2016.~~2017.

The following table summarizes the carrying values and activity related to loan servicing rights and the related valuation allowance for the three months ended March 31, ~~2017~~2018 and ~~2016:~~2017:


							Three Months Ended
							March 31,
(dollars in thousands)	2017			2016			2018			2017
Balance at January 1,	$	25,629		$	10,502
Balance at beginning of period							$	24,690		$	25,629
Additions		1,041			481			770			1,041
Amortization		(1,174	)		(447	)		(1,060	)		(1,174	)

Balance before valuation allowance at March 31,		25,496			10,536
Balance before valuation allowance at end of period								24,400			25,496

Valuation allowance:
Balance at January 1,		(68	)		(34	)
Balance at beginning of period								(29	)		(68	)
(Additions)/recoveries		18			32			9			18

Balance at March 31,		(50	)		(2	)
Balance at end of period								(20	)		(50	)

Loan servicing rights, net	$	25,446		$	10,534		$	24,380		$	25,446

At March 31, ~~2017,~~2018, the fair value of servicing rights was ~~$26.8~~$26.6 million, which was determined using a discount rate of 13% and a weighted average prepayment speed of ~~133%~~121% PSA. At December 31, ~~2016,~~2017, the fair value of servicing rights was ~~$26.8~~$25.8 million, which was determined using a discount rate of 13% and a weighted average prepayment speed of ~~136%~~140% PSA.

NOTE 13 – QUALIFIED AFFORDABLE HOUSING PROJECTS AND OTHER TAX CREDIT INVESTMENTS

~~The Company~~Old National is a limited partner in severaltax-advantaged limited partnerships whose purpose is to invest in approved qualified affordable housing 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. Certain of these assets qualify for the proportional amortization method and are amortized over the period that the Company expects to receive the tax credits, with the expense included within income tax expense on the consolidated statements of income. The other investments are accounted for under the equity method, with the expense included within~~pre-tax~~ ~~income on the consolidated statements of income. All of the Company’s tax credit investments are evaluated for impairment at the end of each reporting period.~~ As of March 31, ~~2017, the Company~~2018, Old National expects to recover its remaining investments ~~through the use of~~using the tax credits that ~~were~~are generated by the investments.

The following table summarizes Old National’s investments in ~~Low Income Housing Tax Credits (“LIHTC”), Federal Historic Tax Credits (“FHTC”),~~qualified affordable housing projects and ~~Indiana Community Revitalization Enhancement District Tax Credits (“CReED”)~~other tax credit investments at March 31, 2018 and December 31, 2017:


(dollars in thousands)						Three Months Ended				Three Months Ended								March 31, 2018				December 31, 2017
						March 31,				March 31,										Unfunded				Unfunded
		At March 31, 2017				2017		2016		2017			2016
	Accounting			Unfunded		Amortization				Tax Benefit
Investment	Method	Investment		Commitment (1)		Expense (2)				Recognized (2)						Accounting Method		Investment		Commitment (1)		Investment		Commitment
LIHTC and other qualifying investments	Proportional amortization	$	27,988	$	14,875	$	941	$	201	$	(1,297	)	$	(281	)
LIHTC																	Proportional amortization	$	30,495	$	11,966	$	31,183	$	15,553
FHTC	Equity		9,835		7,425		—		—		(1,520	)		—			Equity		10,645		12,040		10,645		12,040
CReED	Equity		1,504		1,502		—		—		—			—			Equity		704		1,502		704		1,502
Renewable Energy																	Equity		21,633		19,279		22,364		19,771

Total		$	39,327	$	23,802	$	941	$	201	$	(2,817	)	$	(281	)			$	63,477	$	44,787	$	64,896	$	48,866

The following table summarizes the ~~Company’s~~amortization expense and tax benefit recognized for Old National’s qualified affordable housing projects and other tax credit investments ~~at December~~for the three months ended March 31, ~~2016:~~2018 and 2017:


								Tax Expense
						Amortization		(Benefit)
(dollars in thousands)		At December 31, 2016				Expense (1)		Recognized (2)
	Accounting			Unfunded
Investment	Method	Investment		Commitment
LIHTC and other qualifying investments	Proportional amortization	$	29,110	$	16,210
Three Months Ended March 31, 2018
LIHTC						$	639	$	(831	)
FHTC	Equity		4,434		3,104		—		(1,948	)
CReED	Equity		1,504		1,502
Renewable Energy							716		(3,415	)

Total		$	35,048	$	20,816	$	1,355	$	(6,194	)

Three Months Ended March 31, 2017
LIHTC						$	941	$	(1,297	)
FHTC							—		(1,520	)

Total						$	941	$	(2,817	)

Securities sold under agreements to repurchase are secured borrowings. ~~The Company~~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 three months ended March 31:


(dollars in thousands)	2017			2016			2018			2017
Outstanding at March 31,	$	345,550		$	379,060		$	308,189		$	345,550
Average amount outstanding		331,400			386,044			342,682			331,400
Maximum amount outstanding at anymonth-end		345,550			396,695			336,319			345,550
Weighted average interest rate:
During the three months ended March 31,		0.31	%		0.39	%		0.42	%		0.31	%
At March 31,		0.35			0.39			0.48			0.35

The following table presents the contractual maturity of our secured borrowings and class of collateral pledged:


	At March 31, 2017										At March 31, 2018
	Remaining Contractual Maturity of the Agreements										Remaining Contractual Maturity of the Agreements
	Overnight and		Up to				Greater Than				Overnight and		Up to				Greater Than
(dollars in thousands)	Continuous		30 Days		30-90 Days		90 days		Total		Continuous		30 Days		30-90 Days		90 days		Total
Repurchase Agreements:
U.S. Treasury and agency securities	$	320,550	$	—	$	—	$	25,000	$	345,550	$	308,189	$	—	$	—	$	—	$	308,189

Total	$	320,550	$	—	$	—	$	25,000	$	345,550	$	308,189	$	—	$	—	$	—	$	308,189

The fair value of securities pledged to secure repurchase agreements may decline. ~~The Company~~Old National has pledged securities valued at ~~106%~~130% of the gross outstanding balance of repurchase agreements at March 31, ~~2017~~2018 to manage this risk.

The following table summarizes Old National Bank’s ~~Federal Home Loan Bank (“FHLB”)~~FHLB advances at March 31, ~~2017~~2018 and December 31, ~~2016:~~2017:


	March 31,			December 31,			March 31,		December 31,
(dollars in thousands)	2017			2016			2018		2017
Federal Home Loan Bank advances (fixed rates 0.66% to 6.08% and variable rates 0.95% to 1.32%) maturing April 2017 to January 2025	$	1,441,395		$	1,353,225
FHLB advances (fixed rates 1.49% to 6.08% and variable rates 1.80% to 1.99%) maturing April 2018 to February 2028							$	1,662,603	$	1,610,531
ASC 815 fair value hedge and other basis adjustments		(365	)		(133	)		1,576		(952	)

Total other borrowings	$	1,441,030		$	1,353,092		$	1,664,179	$	1,609,579

FHLB advances had weighted-average rates of ~~1.07%~~1.89% at March 31, ~~2017~~2018 and ~~0.94%~~1.55% at December 31, ~~2016. These borrowings are collateralized by investment~~2017. Investment securities and residential real estate loans collateralize these borrowings up to ~~143%~~140% of outstanding debt.

Contractual maturities of FHLB advances at March 31, ~~2017~~2018 were as follows:


(dollars in thousands)
Due in 2017	$	753,818
Due in 2018		200,046		$	902,032
Due in 2019		202,358			201,902
Due in 2020		50,000			100,000
Due in 2021		—			—
Due in 2022					58,500
Thereafter		235,173			400,169
ASC 815 fair value hedge and other basis adjustments		(365	)		1,576

Total	$	1,441,030		$	1,664,179

The following table summarizes Old ~~National and its subsidiaries’~~National’s other borrowings at March 31, ~~2017~~2018 and December 31, ~~2016:~~2017:


	March 31,			December 31,			March 31,			December 31,
(dollars in thousands)	2017			2016			2018			2017
Old National Bancorp:
Senior unsecured bank notes (fixed rate 4.125%) maturing August 2024	$	175,000		$	175,000
Unamortized debt issuance costs related to Senior unsecured bank notes		(1,143	)		(1,182	)
Junior subordinated debentures (variable rates of 2.49% to 2.90%) maturing March 2035 to September 2037		45,000			45,000
Senior unsecured notes (fixed rate 4.125%) maturing August 2024							$	175,000		$	175,000
Unamortized debt issuance costs related to senior unsecured notes								(988	)		(1,026	)
Junior subordinated debentures (variable rates of 3.30% to 5.29%) maturing April 2032 to September 2037								60,310			60,310
Other basis adjustments		(3,849	)		(3,971	)		(3,454	)		(3,585	)
Old National Bank:
Capital lease obligation		4,013			4,092
Capital lease obligations								5,358			5,389
Subordinated debentures (fixed rate 5.75%)								12,000			12,000
Premium on subordinated debentures								672			694

Total other borrowings	$	219,021		$	218,939		$	248,898		$	248,782

Contractual maturities of other borrowings at March 31, ~~2017~~2018 were as follows:


(dollars in thousands)
Due in 2017	$	117
Due in 2018		79		$	96
Due in 2019		85			137
Due in 2020		91			147
Due in 2021		99			160
Due in 2022					172
Thereafter		223,542			251,956
Unamortized debt issuance costs and other basis adjustments		(4,992	)		(3,770	)

Total	$	219,021		$	248,898

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 notes mature on August 15, 2024.

Junior subordinated debentures related to trust preferred securities are classified in “other ~~borrowings”. These~~borrowings.” With the addition of Anchor (MN) assets, these securities now qualify as Tier 12 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.

~~In 2007,~~Through various acquisitions, Old National ~~acquired St. Joseph Capital Trust II in conjunction with its acquisition of St. Joseph Capital Corporation.~~assumed junior subordinated debenture obligations related to various trusts that issued trust preferred securities. Old National guarantees the payment of distributions on the trust preferred securities issued by ~~St. Joseph Capital Trust II. St. Joseph Capital Trust II issued $5.0 million in preferred securities in March 2005. The preferred securities have a variable rate of interest priced at~~ the ~~three-month London Interbank Offered Rate (“LIBOR”) plus 175 basis points, payable quarterly and maturing on March 17, 2035.~~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 ~~St. Joseph Capital Trust II.~~

~~In 2011, Old National acquired Monroe Bancorp Capital Trust I and Monroe Bancorp Statutory Trust II in conjunction with its acquisition of Monroe Bancorp. Old National guarantees~~ the payment of distributions on the trust preferred securities issued by Monroe Bancorp Capital Trust I and Monroe Bancorp Statutory Trust II. Monroe Bancorp Capital Trust I issued $3.0 million in preferred securities in July 2006. The preferred securities have a variable rate of interest priced at the three-month LIBOR plus 160 basis points. Proceeds from the issuance of these securities were used to purchase junior subordinated debentures with the same financial terms as the securities issued by Monroe Bancorp Capital Trust I. Monroe Bancorp Statutory Trust II issued $5.0 million in preferred securities in March 2007. The preferred securities have a variable rate of interest priced at the three-month LIBOR plus 160 basis points. Proceeds from the issuance of these securities were used to purchase junior subordinated debentures with the same financial terms as the securities issued by Monroe Bancorp Statutory Trust II.

In 2012, Old National acquired Home Federal Statutory Trust I in conjunction with its acquisition of Indiana Community Bancorp. Old National guarantees the payment of distributions on the trust preferred securities issued by Home Federal Statutory Trust I. Home Federal Statutory Trust I issued $15.0 million in preferred securities in September 2006. The preferred securities carry a variable rate of interest priced at the three-month LIBOR plus 165 basis points. Proceeds from the issuance of these securities were used to purchase junior subordinated debentures with the same financial terms as the securities issued by Home Federal Statutory Trust I.

On April 25, 2014, Old National acquired Tower Capital Trust 2 and Tower Capital Trust 3 in conjunction with its acquisition of Tower Financial Corporation. Old National guarantees the payment of distributions on the trust preferred securities issued by Tower Capital Trust 2 and Tower Capital Trust 3. Tower Capital Trust 2 issued $8.0 million in preferred securities in December 2005. The preferred securities carry a variable rate of interest priced at the three-month LIBOR plus 134 basis points. Proceeds from the issuance of these securities were used to purchase junior subordinated debentures with the same financial terms as the securities issued by Tower Capital Trust 2.

Tower Capital Trust 3 issued $9.0 million in preferred securities in December 2006. The preferred securities carry a variable rate of interest priced at the three-month LIBOR plus 169 basis points. Proceeds from the issuance of these securities were used to purchase junior subordinated debentures with the same financial terms as the securities issued by Tower Capital Trust 3.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.

The following table summarizes the terms of our outstanding junior subordinated debentures at March 31, 2018:

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 have 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%.

On January 1, 2004, Old National entered into a long-term capital lease obligation for a branch office building in Owensboro, Kentucky, which extends for 25 years with one renewal option for 10 years. The economic substance of this lease is that Old National is financing the acquisition of the building through the lease and accordingly, the building is recorded as an asset and the lease is recorded as a liability. The fair value of the capital lease obligation was estimated using a discounted cash flow analysis based on Old National’s current incremental borrowing rate for similar types of borrowing arrangements.

On May 1, 2016, Old National acquired Anchor (WI), assuming a ~~five year~~five-year capital lease obligation for equipment.

On November 1, 2017, Old National assumed a capital lease obligation for a banking center in Arden Hills, Minnesota related to the acquisition of Anchor (MN). The remaining base term of the lease is five years with one renewal option of ten years. For purposes of measuring the lease obligation, we determined that we would be “reasonably assured” to exercise the renewal option. The fair value of the capital lease obligation was estimated using a discounted cash flow analysis based on a market rate for similar types of borrowing arrangements. Based on the above assumptions, Old National measured the capital lease obligation at $1.5 million as of the date of acquisition.

At March 31, ~~2017,~~2018, the future minimum lease payments under the capital lease arrangements were as follows:


(dollars in thousands)
2017 remaining	$	369
2018		410		$	426
2019		430			589
2020		430			589
2021		430			589
2022					589
Thereafter		7,976			9,275

Total minimum lease payments		10,045			12,057
Less amounts representing interest		(6,032	)		(6,699	)

Present value of net minimum lease payments	$	4,013		$	5,358

The following table summarizes the changes within each classification of AOCI, net of tax, for the three months ended March 31, 2018 and 2017:

The following table summarizes the significant amounts reclassified out of each component of AOCI for the three months ended March 31, 2018 and 2017:

Old National had a funded noncontributory defined benefit plan (the “Retirement Plan”) that had been frozen since December 31, 2005. During the first quarter of 2016, ~~the Company~~we notified plan participants of ~~its~~our intent to terminate the Retirement Plan effective May 15, 2016. During October 2016, the Retirement Plan settled plan liabilities through either lump sum distributions to plan participants or annuity contracts purchased from a third-party insurance company that provided for the payment of vested benefits to those participants that did not elect the lump sum option. At March 31, ~~2017,~~2018, there were no remaining plan assets.

Old National maintains an unfunded pension restoration plan (the “Restoration Plan”) which provides benefits for eligible employees that are in excess of the limits under Section 415 of the Internal Revenue Code of 1986, as amended, that apply to the Retirement Plan. The Restoration Plan is designed to comply with the requirements of ERISA. The entire cost of the plan, which was also frozen as of December 31, 2005, is supported by contributions from the Company. The Restoration Plan is unfunded.

Old National contributed $0.2 million to cover benefit payments from the Restoration Plan during the three months ended March 31, 2017. Old National expects to contribute an additional $18 thousand to cover benefit payments from the Restoration Plan during the remainder of 2017.

At March 31, ~~2017,~~2018, Old National had ~~4.9~~4.6 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.

~~The Company~~Old National granted 9573 thousand time-based restricted stock awards to certain key officers during the three months ended March 31, ~~2017,~~2018, with shares vesting generally over athirty-six month period. 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 March 31, ~~2017,~~2018, unrecognized compensation expense was estimated to be ~~$4.4~~$4.5 million for unvested restricted stock awards. The cost is expected to be recognized over a weighted-average period of 2.1 years.

Old National recorded stock-based compensation expense, net of tax, related to restricted stock awards of $0.5 million, net of tax, during the three months ended March 31, 2018, compared to $0.4 million, net of tax, during the three months ended March 31, ~~2017, compared to $0.3 million, net of tax, during the three months ended March 31, 2016 related to the vesting of restricted stock awards.~~2017.

~~The Company~~Old National granted ~~277~~288 thousand shares of performance based restricted stock units to certain key officers during the three months ended March 31, ~~2017,~~2018, with shares vesting at the end of athirty-six month period based on the achievement of certain targets. For certain awards, the level of performance could increase or decrease the percentage 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 March 31, ~~2017,~~2018, unrecognized compensation expense was estimated to be ~~$6.4~~$7.3 million. The cost is expected to be recognized over a weighted-average period of 2.3 years.

Old National recorded ~~stock based~~stock-based compensation expense, net of tax, related to restricted stock units of $0.9 million during the three months ended March 31, 2018, compared to $0.4 million during the three months ended March 31, ~~2017, compared to $0.5 million during the three months ended March 31, 2016.~~2017.

Old National has not granted stock options since 2009. However, Old National did acquire stock options through prior year acquisitions. Old National did not record any ~~stock based~~stock-based compensation expense related to these stock options during the three months ended March 31, ~~2017~~2018 or ~~2016.~~2017.

Old National has never granted stock appreciation rights. However, Old National did acquire stock appreciation rights through a prior year acquisition. Old National did not record any incremental expense associated with the conversion of these stock appreciation rights during the three months ended March 31, ~~2017~~2018 or ~~2016.~~2017. At March 31, ~~2017, 0.1 million~~2018, 62 thousand stock appreciation rights remained outstanding.

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						Three Months Ended
	March 31,						March 31,
(dollars in thousands)	2017			2016			2018			2017
Provision at statutory rate of 35%	$	16,269		$	12,827
Provision at statutory rate (1)							$	11,117		$	16,269
Tax-exempt income:
Tax-exempt interest								(2,191	)		(3,702	)
Section 291/265 interest disallowance								62			57
Company-owned life insurance income								(547	)		(752	)

Tax-exempt income		(4,397	)		(4,168	)		(2,676	)		(4,397	)

State income taxes		851			583			1,188			851
Interim period effective rate adjustment		(455	)		(148	)		92			(455	)
Tax credit investments		(1,876	)		(80	)
Tax credit investments - federal								(5,769	)		(1,876	)
Other, net		99			657			1,005			99

Income tax expense	$	10,491		$	9,671		$	4,957		$	10,491

Effective tax rate		22.6	%		26.4	%		9.4	%		22.6	%

In accordance with ASC740-270,Accounting for Interim Reporting, the provision for income taxes was recorded at March 31, ~~2017~~2018 and ~~2016~~2017 based on the current estimate of the effective annual rate.

~~Tax credit investments are included in the Company’s estimate of the effective annual tax rate.~~ The lower effective tax rate during the three months ended March 31, ~~2017~~2018 when compared to the three months ended March 31, ~~2016~~2017 is primarily the result of the lowering of the federal corporate tax rate to 21% and an increase in federal tax credits available. On December 22, 2017, the Tax Cuts and Jobs Act (“H.R. 1”) was enacted into legislation. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. Accordingly, Old National recorded an estimated $39.3 million for the revaluation of Old National’s deferred tax assets in December 2017.

Shortly after the enactment date, the SEC issued SAB 118, which addresses the situations where the accounting for changes in tax laws is complete, incomplete but can be reasonably estimated, and incomplete and cannot be reasonably estimated. SAB 118 also permits a measurement period of up to one year from the date of enactment to refine the provisional accounting. During the three months ended March 31, 2018, the immaterial adjustments made to the preliminary valuation of assets acquired and liabilities assumed in the acquisition of Anchor (MN) impacted our estimated revaluation of Old National’s deferred tax assets. Old National continues to analyze H.R. 1, including the impact on alternative minimum tax credits disclosed further below, as well as the acquisition accounting of Anchor (MN), and expects any refinements to the provisional accounting to be complete in 2018.

~~The Company~~Old National and its subsidiaries file a consolidated U.S. federal income tax return, as well as filing various state returns. Unrecognized state income tax benefits are reported net of their related deferred federal income tax benefit.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits iswas as follows:


					Three Months Ended
					March 31,
(dollars in thousands)	2017		2016		2018		2017
Balance at January 1,	$	777	$	124
Balance at beginning of period					$	874	$	777
Additions based on tax positions related to the current year		32		14		39		32

Balance at March 31,	$	809	$	138
Balance at end of period					$	913	$	809

If recognized, approximately ~~$0.8~~$0.9 million of unrecognized tax benefits, net of interest, would favorably affect the effective income tax rate in future periods. Old National expects the total amount of unrecognized tax benefits to decrease by approximately $0.3 million in the next twelve months.

Significant components of net deferred tax assets (liabilities) were as follows at March 31, ~~2017~~2018 and December 31, ~~2016:~~2017:


	March 31,			December 31,			March 31,			December 31,
(dollars in thousands)	2017			2016			2018			2017
Deferred Tax Assets
Allowance for loan losses, net of recapture	$	19,730		$	19,773		$	13,062		$	12,958
Benefit plan accruals		15,603			23,846			11,173			11,080
Alternative minimum tax credit		19,783			19,523			2,545			25,084
Unrealized losses on benefit plans		194			205			101			108
Net operating loss carryforwards		65,690			66,917			33,463			39,631
Federal tax credits		3,448			35			11,089			5,516
Other-than-temporary impairment		3,606			3,606			36			1,424
Deferred gain on securities								2,118			—
Acquired loans		37,331			40,522			27,207			29,669
Lease exit obligation		2,440			2,060			1,270			1,337
Unrealized losses onavailable-for-sale investment securities		18,088			23,365			16,661			14,011
Unrealized losses onheld-to-maturity investment securities		6,964			7,118			2,865			3,630
Unrealized losses on hedges		3,212			4,116			—			923
Other real estate owned		2,288			3,310			379			369
Other, net		2,405			2,675			3,214			829

Total deferred tax assets		200,782			217,071			125,183			146,569

Deferred Tax Liabilities
Accretion on investment securities		(657	)		(700	)		(499	)		(493	)
Purchase accounting		(16,994	)		(17,552	)		(16,314	)		(16,718	)
Loan servicing rights		(9,584	)		(9,627	)		(5,989	)		(6,058	)
Premises and equipment		(4,937	)		(4,800	)		(9,277	)		(10,052	)
Prepaid expenses								(1,277	)		(1,277	)
Tax credit investments								(1,036	)		(168	)
Unrealized gains on hedges								(367	)		—
Other, net		(3,234	)		(2,529	)		(1,651	)		(946	)

Total deferred tax liabilities		(35,406	)		(35,208	)		(36,410	)		(35,712	)

Net deferred tax assets	$	165,376		$	181,863		$	88,773		$	110,857

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 March 31, ~~2017~~2018 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 ~~$19.8~~$13.0 million has not been recognized.

No valuation allowance was recorded at March 31, ~~2017~~2018 or December 31, ~~2016~~2017 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 ~~$158.8~~$104.5 million at March 31, ~~2017~~2018 and ~~$162.9~~$130.7 million at December 31, ~~2016.~~2017. This federal net operating loss was acquired from the ~~acquisitions~~acquisition of ~~Indiana Community Bancorp in 2012 and~~ Anchor (WI) in 2016. If not used, the federal net operating loss carryforwards will ~~begin~~expire from 2028 to ~~expire in 2027.~~2033. Old National has alternative minimum tax (“AMT”) credit carryforwards totaling ~~$19.8~~$25.1 million at March 31, ~~2017~~2018 and ~~$19.5 million at~~ December 31, ~~2016.~~2017. The ~~alternative minimum~~enactment of H.R.1 eliminates the parallel tax system known as the AMT and allows any existing AMT credits to be used to reduce regular tax or be refunded from 2018 to 2021. ASC 740 allows for the reclassification of the AMT credit from a deferred tax asset to a current tax asset, except for the amount limited by section 382. Old National has $2.5 million of AMT credit carryforward ~~does not expire.~~subject to section 382 limitations. The $2.5 million is maintained in deferred tax assets and the remaining $22.6 million has been reclassified to a current tax asset. Old

National has federal tax credit carryforwards of ~~$3.4~~$11.0 million at March 31, ~~2017~~2018 and ~~$35 thousand~~$5.5 million at December 31, ~~2016.~~2017. The federal tax credits consist mainly of federal historic credits, energy efficient home credits, low income housing credits, and research and development ~~credits, and federal historic~~ credits that, if not used, will expire from ~~2027~~2025 to ~~2037.~~2038. Old National has recorded state net operating loss carryforwards totaling ~~$211.1~~$191.2 million at March 31, ~~2017~~2018 and ~~$206.3~~$203.6 million at December 31, ~~2016.~~2017. If not used, the state net operating loss carryforwards will expire from ~~2023~~2024 to ~~2037.~~2033. Old National has state tax credit carryforwards totaling $1.3 million at March 31, 2018 and $1.3 million at December 31, 2017. The state tax credits will not expire.

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.

As discussed in Note 3, Old National adopted ASU 2017-12 in the first quarter of 2018. This adoption primarily impacted our existing cash flow and fair value hedges related to certain FHLB advances. For cash flow hedges as of the date of adoption, the transition guidance in paragraph 815-20-65-3(d) eliminated the separate measurement of ineffectiveness by means of a cumulative-effect adjustment to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings. For fair value hedges of interest rate risk, the provisions of paragraph 815-25-35-13 permit Old National to elect to modify the measurement methodology to be based on the benchmark rate component of the contractual coupon cash flows without dedesignation of the hedging relationship. The measurement methodology modification shall be applied as of the hedging relationship’s original inception date. The cumulative effect of applying this election shall be recognized as an adjustment to the basis adjustment of the hedged item recognized on the balance sheet with a corresponding adjustment to the opening balance of retained earnings as of the initial application date.

As part of our overall interest rate risk management, Old National uses derivative instruments, including interest rate swaps, caps, and floors. The notional amount of these derivative instruments was ~~$810.0~~$758.5 million at March 31, ~~2017~~2018 and ~~$660.0~~$708.5 million at December 31, ~~2016.~~2017. These derivative financial instruments at March 31, ~~2017 consist~~2018 consisted of ~~$35.0~~$133.5 million notional amount of receive-fixed,pay-variable interest rate swaps on certain of its FHLB advances and ~~$775.0~~$625.0 million notional amount ofpay-fixed, receive-variable interest rate swaps on certain of its FHLB advances. Derivative financial instruments at December 31, ~~2016 consist~~2017 consisted of ~~$35.0~~$33.5 million notional amount of receive-fixed,pay-variable interest rate swaps on certain of its FHLB advances and ~~$625.0~~$675.0 million notional amount ofpay-fixed, receive-variable interest rate swaps on certain of its FHLB advances. 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 ~~addition, commitments~~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 will be recognized as a component in other comprehensive income.

Fair value hedges: changes in fair value will be recognized concurrently in earnings.

Consistent with this guidance, as 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 will be accounted for as outlined above. This is the case whether or not economic mismatches exist in the hedging relationship. As a result, there will be no periodic measurement or recognition of ineffectiveness. Rather, the full impact of hedge gains and losses will be recognized in the period in which the hedged transactions impact earnings.

While separate measurement and presentation of ineffectiveness is being eliminated, paragraph 815-20-45-1A requires the change in fair value of the hedging instrument that is included in the assessment of hedge effectiveness be presented in the same income statement line item that is used to present the earnings effect of the hedged item.

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 March 31, 2018, the notional amount of the interest rate lock commitments

was $61.0 million and forward commitments were $68.3 million. At December 31, 2017, the notional amount of the interest rate lock commitments was ~~$58.3~~$29.9 million and forward commitments were ~~$60.8 million. At December 31, 2016, the notional amount of the interest rate lock commitments was $40.3 million and forward commitments were $86.1~~$41.2 million. It is our practice to enter into forward commitments for the future delivery of residential mortgage loans to third party 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 ~~$642.7~~$839.3 million at March 31, ~~2017.~~2018. The notional amounts of these customer derivative instruments and the offsetting counterparty derivative instruments were ~~$582.7~~$826.6 million at December 31, ~~2016.~~2017. These derivative contracts do not qualify for hedge accounting. These instruments include interest rate swaps, caps, and ~~collars.Commonly,~~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 $1.2 million at March 31, 2018 and $0.8 million at December 31, 2017.

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 expense as interest payments are received or paid on ~~the Company’s~~Old National’s derivative instruments. During the next 12 months, ~~the Company estimates~~we estimate that ~~$0.3~~$2.0 million will be reclassified to interest income and ~~$5.2~~$1.3 million will be reclassified to interest expense.

~~On the balance sheet, asset derivatives are included in other assets, and liability derivatives are included in other liabilities.~~ The following table summarizes the fair value of derivative financial instruments utilized by Old National:


	March 31, 2017				December 31, 2016
(dollars in thousands)	Asset Derivatives		Liability Derivatives		Asset Derivatives		Liability Derivatives		Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
March 31, 2018
Derivatives designated as hedging instruments
Interest rate contracts	$	3,113	$	9,433	$	3,056	$	11,582		Other assets	$	4,720		Other liabilities	$	3,382

Total derivatives designated as hedging instruments	$	3,113	$	9,433	$	3,056	$	11,582			$	4,720			$	3,382

Derivatives not designated as hedging instruments
Interest rate contracts	$	11,913	$	11,994	$	11,903	$	11,992		Other assets	$	8,113		Other liabilities	$	16,256
Mortgage contracts		1,571		322		2,742		—		Other assets		1,475		Other liabilities		90
Foreign currency contracts										Other assets		13		Other liabilities		2

Total derivatives not designated as hedging instruments	$	13,484	$	12,316	$	14,645	$	11,992			$	9,601			$	16,348

Total	$	16,597	$	21,749	$	17,701	$	23,574			$	14,321			$	19,730

December 31, 2017
Derivatives designated as hedging instruments
Interest rate contracts										Other assets	$	3,351		Other liabilities	$	5,351

Total derivatives designated as hedging instruments											$	3,351			$	5,351

Derivatives not designated as hedging instruments
Interest rate contracts										Other assets	$	10,012		Other liabilities	$	10,933
Mortgage contracts										Other assets		747		Other liabilities		—
Foreign currency contracts										Other assets		8		Other liabilities		8

Total derivatives not designated as hedging instruments											$	10,767			$	10,941

Total											$	14,118			$	16,292

The effect of derivative instruments in fair value hedging relationships on the consolidated statements of income for the three months ended March 31, 2018 and 2017 were as follows:

The difference between the gain (loss) recognized in income on derivatives and the gain (loss) recognized in income on the related hedged items represents hedge ineffectiveness. In addition, the net swap settlements that accrue each period are also reported in interest expense.

The effect of derivative instruments in cash flow hedging relationships on the consolidated statements of income for the three months ended March 31, 2018 and 2017 were as follows:

The ineffective portion and amount excluded from effectiveness testing related to derivatives in cash flow hedging relationships was immaterial for the three months ended March 31, 2018 and 2017.

The effect of derivatives not designated as hedging instruments on the consolidated statements of income for the three months ended March 31, 2018 and 2017 ~~and 2016 are~~were as follows:

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 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.

In the normal course of business, Old National’s banking affiliates have entered into various agreements to extend credit, including loan commitments of ~~$2.417~~$3.181 billion and standby letters of credit of ~~$54.0~~$71.9 million at March 31, ~~2017.~~2018. At March 31, ~~2017,~~2018, approximately ~~$2.277~~$2.945 billion of the loan commitments had fixed rates and ~~$140.2~~$236.0 million had floating rates, with the floating interest rates ranging from 0% to ~~21%~~25%. At December 31, ~~2016,~~2017, loan commitments totaled ~~$2.354~~$3.144 billion and standby letters of credit totaled ~~$51.7~~$68.7 million. These commitments are not reflected in the consolidated financial statements. The allowance for unfunded loan commitments totaled ~~$3.0~~$3.4 million at March 31, ~~2017~~2018 and ~~$3.2~~$3.1 million at December 31, ~~2016.~~2017.

Old National had credit extensions with various unaffiliated banks related to letter of credit commitments issued on behalf of Old National’s clients totaling ~~$13.3~~$12.3 million at March 31, ~~2017~~2018 and $12.4 million at December 31, ~~2016.~~2017. Old National provided collateral to the unaffiliated banks to secure credit extensions totaling ~~$12.6~~$11.5 million at March 31, ~~2017~~2018 and December 31, ~~2016.~~2017. Old National did not provide collateral for the remaining credit extensions.

Old National holds instruments, in the normal course of business with clients, that are considered financial guarantees in accordance with FASB ASC460-10 (FIN 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others),which requires ~~the Company~~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 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 March 31, ~~2017,~~2018, the notional amount of standby letters of credit was ~~$54.0~~$71.9 million, which represented the maximum amount of future funding requirements, and the carrying value was ~~$0.3~~$0.4 million. At December 31, ~~2016,~~2017, the notional amount of standby letters of credit was ~~$51.7~~$68.7 million, which represented the maximum amount of future funding requirements, and the carrying value was ~~$0.3~~$0.4 million.

Old National is a party in three separate risk participation transactions of interest rate swaps, which had total notional amount of ~~$20.3~~$17.3 million at March 31, ~~2017.~~2018.

During the second quarter of 2016, Old National sold its insurance operations, ONB Insurance Group, Inc. During the year ended December 31, 2015, the insurance segment’s net income was $2.1 million and its assets totaled $61.8 million at December 31, 2015. In conjunction with the divestiture, Old National~~re-evaluated~~ ~~its business segments.~~

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 branches 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 branches located throughout 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 branch locations are considered by management to be aggregated into one reportable operating segment, community banking.

FASB ASC820-10 defines fair value as 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. FASB ASC820-10 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values:

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).

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 March 31, 2017 Using								Fair Value Measurements at March 31, 2018 Using
(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)		Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets
Trading securities	$	5,083	$	5,083	$	—	$	—	$	5,569	$	5,569	$	—	$	—
Investment securitiesavailable-for-sale:
U.S. Treasury		12,117		12,117		—		—		9,295		9,295		—		—
U.S. government-sponsored entities and agencies		543,034		—		543,034		—		572,689		—		572,689		—
Mortgage-backed securities - Agency		1,474,995		—		1,474,995		—		1,477,896		—		1,477,896		—
States and political subdivisions		452,551		—		452,551				843,488		—		839,427		4,061
Pooled trust preferred securities		8,288		—		—		8,288		8,195		—		—		8,195
Other securities		325,958		30,936		295,022		—		308,300		30,435		277,865		—
Residential loans held for sale		17,373		—		17,373		—		17,635		—		17,635		—
Derivative assets		16,597		—		16,597		—		14,321		—		14,321		—
Financial Liabilities
Derivative liabilities		21,749		—		21,749		—		19,730		—		19,730		—

			Fair Value Measurements at December 31, 2016 Using
											Fair Value Measurements at December 31, 2017 Using
(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)		Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets
Trading securities	$	4,982	$	4,982	$	—	$	—	$	5,584	$	5,584	$	—	$	—
Investment securitiesavailable-for-sale:
U.S. Treasury		7,103		7,103		—		—		5,551		5,551		—		—
U.S. government-sponsored entities and agencies		493,956		—		493,956		—		664,286		—		664,286		—
Mortgage-backed securities - Agency		1,525,019		—		1,525,019		—		1,667,682		—		1,667,682		—
States and political subdivisions		436,684		—		436,684				530,193		—		530,193
Pooled trust preferred securities		8,119		—		—		8,119		8,448		—		—		8,448
Other securities		326,293		30,905		295,388		—		320,047		30,965		289,082		—
Residential loans held for sale		90,682		—		90,682		—		17,930		—		17,930		—
Derivative assets		17,701		—		17,701		—		14,118		—		14,118		—
Financial Liabilities
Derivative liabilities		23,574		—		23,574		—		16,292		—		16,292		—

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):


	Pooled Trust			States and
	Preferred			Political
(dollars in thousands)	Securities			Subdivisions
Three Months Ended March 31, 2018
Balance at beginning of period	$	8,448		$	—
Accretion of discount		5			—
Sales/payments received		(288	)		—
Increase (decrease) in fair value of securities		30			—
Transfers into Level 3		—			4,061

Balance at end of period	$	8,195		$	4,061

Three Months Ended March 31, 2017
Balance at beginning of period	$	8,119		$	—
Accretion of discount		4			—
Sales/payments received		(163	)		—
Increase (decrease) in fair value of securities		328			—

Balance at end of period	$	8,288		$	—

The accretion of discounts on securities in the table above is included in interest income. ~~The~~An increase in fair value is reflected in the balance sheet as an increase in the fair value of investment securitiesavailable-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. Old National transferred a $4.1 million state and political subdivisions security to Level 3 during the three months ended March 31, 2018 because Old National could no longer obtain evidence of observable inputs.

The table below provides quantitative information about significant unobservable inputs used in fair value measurements within Level 3 of the fair value ~~hierarchy at March 31, 2017 and December 31, 2016:~~hierarchy:

Valuation

Unobservable

Range (Weighted

Valuation

Unobservable

Range (Weighted

(dollars in thousands)

Fair Value

Techniques

Input

Average)

Fair Value

Techniques

Input

Average)

March 31, 2017

March 31, 2018

Pooled trust preferred securities

8,288

Discounted cash flow

Constant prepayment rate (a)

0.00%

8,195

Discounted cash flow

Constant prepayment rate (a)

0.00%

Additional asset defaults (b)

3.5% -4.5% (4.2%)

Additional asset defaults (b)

3.4% - 4.3% (4.0%)

Expected asset recoveries (c)

0.0% -4.1% (0.6%)

Expected asset recoveries (c)

0.00%

State and political subdivisions

4,061

Discounted cash flow

No unobservable inputs

N/A

Local municipality issuance

December 31, 2016

Old National owns 100%

Carried at par

December 31, 2017

Pooled trust preferred securities

8,119

Discounted cash flow

Constant prepayment rate (a)

0.00%

8,448

Discounted cash flow

Constant prepayment rate (a)

0.00%

Additional asset defaults (b)

4.5% -10.0% (7.9%)

Additional asset defaults (b)

4.2% - 9.6% (7.5%)

Expected asset recoveries (c)

0.0% -6.1% (0.9%)

Expected asset recoveries (c)

0.0% - 4.1% (0.6%)

Significant changes in any of the unobservable inputs used in the fair value measurement in isolation would result 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 has an impact that is directionally opposite from a change in the expected recovery of a defaulted pool asset.

Assets measured at fair value on anon-recurring basis at March 31, ~~2017~~2018 are summarized below:


			Fair Value Measurements at March 31, 2017 Using								Fair Value Measurements at March 31, 2018 Using
(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)		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 Impaired Loans:
Commercial loans	$	5,461	$	—	$	—	$	5,461	$	2,453	$	—	$	—	$	2,453
Commercial real estate loans		12,751		—		—		12,751		15,267		—		—		15,267
Foreclosed Assets
Foreclosed Assets:
Commercial real estate		3,766		—		—		3,766		671		—		—		671
Residential		367		—		—		367		228		—		—		228
Loan servicing rights										187		—		187		—

Impaired commercial and commercial real estate loans that are deemed collateral dependent are valued based on the fair value of the underlying collateral. These estimates are based on 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 ~~$27.0~~$27.2 million, with a valuation allowance of ~~$8.8~~$9.4 million at March 31, ~~2017.~~2018. Old National recorded provision ~~expense~~recapture associated with these loans totaling ~~$1.1~~$1.6 million for the three months ended March 31, ~~2017.~~2018. Old National recorded provision expense associated with impaired commercial and commercial real estate loans that were deemed collateral dependent totaling ~~$1.4~~$1.1 million for the three months ended March 31, ~~2016.~~2017.

Other real estate owned and other repossessed property is measured at fair value less costs to sell and had a net carrying amount of ~~$4.1~~$0.9 million at March 31, ~~2017.~~2018. The estimates of fair value are based on 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. There were write-downs of other real estate owned of $0.3 million during the three months ended March 31, 2018 and $0.8 million for the three months ended March 31, ~~2017~~2017.

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 ~~$0.4 million~~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 March 31, 2018 totaled $20 thousand. Old National recorded recoveries associated with these loan servicing rights totaling $9 thousand for the three months ended March 31, ~~2016.~~2018 and $18 thousand for the three months ended March 31, 2017.

Assets measured at fair value on anon-recurring basis at December 31, ~~2016~~2017 are summarized below:


			Fair Value Measurements at December 31, 2016 Using								Fair Value Measurements at December 31, 2017 Using
(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)		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 Impaired Loans:
Commercial loans	$	6,771	$	—	$	—	$	6,771	$	2,217	$	—	$	—	$	2,217
Commercial real estate loans		11,632		—		—		11,632		26,319		—		—		26,319
Foreclosed Assets
Foreclosed Assets:
Commercial real estate		1,352		—		—		1,352		1,726		—		—		1,726
Residential		394		—		—		394		55		—		—		55
Loan servicing rights										2,964		—		2,964		—

At December 31, ~~2016,~~2017, impaired commercial and commercial real estate loans had a principal amount of ~~$26.4~~$38.6 million, with a valuation allowance of ~~$8.0~~$10.1 million.

Other real estate owned and other repossessed property ~~is measured at fair value less costs to sell and~~ had a net carrying amount of ~~$1.7~~$1.8 million at December 31, ~~2016.~~2017.

The valuation allowance for loan servicing rights with impairments at December 31, 2017 totaled $29 thousand.

The table below provides quantitative information about significant unobservable inputs used in fair value measurements within Level 3 of the fair value hierarchy:


				Valuation		Unobservable	Range (Weighted					Valuation	Unobservable	Range (Weighted
(dollars in thousands)		Fair Value		Techniques		Input	Average)			Fair Value		Techniques	Input	Average)
March 31, 2017
March 31, 2018
Collateral Dependent Impaired Loans	Collateral Dependent Impaired Loans
Commercial loans		$	5,461		Fair value of collateral	Discount for type of property, age of appraisal, and current status		0% - 96% (48%	)	$	2,453	Fair value of collateral	Discount for type of property, age of appraisal, and current status	25% - 35% (30%)

Commercial real estate loans			12,751		Fair value of collateral	Discount for type of property, age of appraisal and current status		14% - 67% (30%	)		15,267	Fair value of collateral	Discount for type of property, age of appraisal and current status	0% - 20% (10%)

Foreclosed Assets
Commercial real estate			3,766		Fair value of collateral	Discount for type of property, age of appraisal, and current status		9% - 33% (18%	)		671	Fair value of collateral	Discount for type of property, age of appraisal, and current status	14% - 43% (25%)

Residential			367		Fair value of collateral	Discount for type of property, age of appraisal, and current status		17% - 37% (25%	)		228	Fair value of collateral	Discount for type of property, age of appraisal, and current status	18% - 19% (18%)

December 31, 2016
December 31, 2017
Collateral Dependent Impaired Loans	Collateral Dependent Impaired Loans
Commercial loans		$	6,771		Fair value of collateral	Discount for type of property, age of appraisal, and current status		0% - 99% (53%	)	$	2,217	Fair value of collateral	Discount for type of property, age of appraisal, and current status	0% - 98% (49%)

Commercial real estate loans			11,632		Fair value of collateral	Discount for type of property, age of appraisal, and current status		10% - 67% (36%	)		26,319	Fair value of collateral	Discount for type of property, age of appraisal and current status	10% - 78% (32%)

Foreclosed Assets
Commercial real estate			1,352		Fair value of collateral	Discount for type of property, age of appraisal, and current status		4% - 80% (39%	)		1,726	Fair value of collateral	Discount for type of property, age of appraisal, and current status	7% - 25% (18%)

Residential			394		Fair value of collateral	Discount for type of property, age of appraisal, and current status		7% - 60% (30%	)
Residential (1)											55	Fair value of collateral	Discount for type of property, age of appraisal, and current status	39%

Under FASB ASC825-10, we may elect to report most financial instruments and certain other items at fair value on aninstrument-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.

We have 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 any on nonaccrual status. Included in the income statement is interest income for loans held for sale totaling $22 thousand for the three months ended March 31, 2018 and $28 thousand for the three months ended March 31, ~~2017 and $22 thousand for the three months ended March 31, 2016.~~2017.

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.

The difference between the aggregate fair value and the aggregate remaining principal balance for loans for which the fair value option has been elected at March 31, ~~2017~~2018 and December 31, ~~2016~~2017 was as follows:


	Aggregate				Contractual		Aggregate				Contractual
(dollars in thousands)	Fair Value		Difference		Principal		Fair Value		Difference		Principal
March 31, 2017
March 31, 2018
Residential loans held for sale	$	17,373	$	552	$	16,821	$	17,635	$	577	$	17,058

December 31, 2016
December 31, 2017
Residential loans held for sale	$	90,682	$	133	$	90,549	$	17,930	$	546	$	17,384

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:


							Total Changes									Total Changes
							in Fair Values									in Fair Values
	Other						Included in		Other							Included in
	Gains and		Interest		Interest		Current Period		Gains and		Interest		Interest			Current Period
(dollars in thousands)	(Losses)		Income		(Expense)		Earnings		(Losses)		Income		(Expense)			Earnings
Three months ended March 31, 2018
Residential loans held for sale									$	35	$	—	$	(4	)	$	31

Three months ended March 31, 2017
Residential loans held for sale	$	418	$	1	$	—	$	419	$	418	$	1	$	—		$	419

Three months ended March 31, 2016
Residential loans held for sale	$	371	$	1	$	—	$	372

The carrying amounts and estimated fair values of financial instruments not ~~previously presented in this note,~~carried at fair value on the balance sheet at March 31, ~~2017~~2018 and December 31, ~~2016~~2017 were as follows:


			Fair Value Measurements at March 31, 2017 Using								Fair Value Measurements at March 31, 2018 Using
					Significant						Quoted Prices in		Significant
			Quoted Prices in		Other		Significant				Active Markets		Other		Significant
			Active Markets for		Observable		Unobservable				for Identical		Observable		Unobservable
	Carrying		Identical Assets		Inputs		Inputs		Carrying		Assets		Inputs		Inputs
(dollars in thousands)	Value		(Level 1)		(Level 2)		(Level 3)		Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Cash, due from banks, federal funds sold, and money market investments	$	217,035	$	217,035	$	—	$	—
Cash, due from banks, money market, and other interest-earning investments									$	278,241	$	278,241	$	—	$	—
Investment securitiesheld-to-maturity:												—				—
U.S. government-sponsored entities and agencies		40,021		—		40,110		—		73,369		—		71,444		—
Mortgage-backed securities - Agency		9,566		—		9,854		—		145,658		—		142,767		—
State and political subdivisions		691,861		—		734,942		—		316,126		—		321,932		—
Federal Home Loan Bank/Federal Reserve Bank stock		107,501		N/A		N/A		N/A
FHLB/Federal Reserve Bank stock										136,206		N/A		N/A		N/A
Loans, net:
Commercial		1,888,428		—		—		1,967,837		2,792,038		—		—		2,727,325
Commercial real estate		3,204,912		—		—		3,499,147		4,429,184		—		—		4,313,955
Residential real estate		2,110,526		—		—		2,248,048		2,156,769		—		—		2,135,119
Consumer credit		1,878,073		—		—		1,989,675		1,810,310		—		—		1,777,935
Accrued interest receivable		76,674		50		19,916		56,708		81,621		74		20,502		61,045

Financial Liabilities
Deposits:
Noninterest-bearing demand deposits	$	3,024,111	$	3,024,111	$	—	$	—	$	3,655,732	$	3,655,732	$	—	$	—
NOW, savings, and money market deposits		6,330,523		6,330,523		—		—		7,357,137		7,357,137		—		—
Time deposits		1,466,718		—		1,457,966		—		1,775,731		—		1,771,277		—
Federal funds purchased and interbank borrowings		61,016		61,016						150,026		150,026		—		—
Securities sold under agreements to repurchase		345,550		320,550		25,360		—		308,189		308,189		—		—
Federal Home Loan Bank advances		1,441,030		—		—		1,448,233
FHLB advances										1,664,179		—		—		1,658,911
Other borrowings		219,021		—		217,808		—		248,898		—		251,538		—
Accrued interest payable		4,004		—		4,004		—		5,388		—		5,388		—
Standby letters of credit		349		—		—		349		408		—		—		408

Off-Balance Sheet Financial Instruments
Commitments to extend credit	$	—	$	—	$	—	$	3,363	$	—	$	—	$	—	$	3,225


			Fair Value Measurements at December 31, 2016 Using								Fair Value Measurements at December 31, 2017 Using
					Significant						Quoted Prices in		Significant
			Quoted Prices in		Other		Significant				Active Markets		Other		Significant
			Active Markets for		Observable		Unobservable				for Identical		Observable		Unobservable
	Carrying		Identical Assets		Inputs		Inputs		Carrying		Assets		Inputs		Inputs
(dollars in thousands)	Value		(Level 1)		(Level 2)		(Level 3)		Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Cash, due from banks, federal funds sold, and money market investments	$	255,519	$	255,519	$	—	$	—
Cash, due from banks, money market, and other interest-earning investments									$	290,432	$	290,432	$	—	$	—
Investment securitiesheld-to-maturity:
U.S. government-sponsored entities and agencies		40,131		—		40,558		—
Mortgage-backed securities - Agency		10,640		—		10,940		—		6,903		—		7,056		—
State and political subdivisions		694,319		—		732,674		—		677,160		—		720,647		—
Federal Home Loan Bank/Federal Reserve Bank stock		101,716		N/A		N/A		N/A
FHLB/Federal Reserve Bank stock										119,686		N/A		N/A		N/A
Loans, net:
Commercial		1,895,618		—		—		1,971,296		2,698,023		—		—		2,707,385
Commercial real estate		3,112,680		—		—		3,400,365		4,333,116		—		—		4,347,949
Residential real estate		2,085,887		—		—		2,228,542		2,165,290		—		—		2,210,951
Consumer credit		1,866,519		—		—		1,974,180		1,871,311		—		—		1,998,194
Accrued interest receivable		81,381		16		22,880		58,485		87,102		16		24,001		63,085

Financial Liabilities
Deposits:
Noninterest-bearing demand deposits	$	3,016,093	$	3,016,093	$	—	$	—	$	3,680,807	$	3,680,807	$	—	$	—
NOW, savings, and money market deposits		6,259,052		6,259,052		—		—		7,290,521		7,290,521		—		—
Time deposits		1,468,108		—		1,460,778		—		1,634,436		—		1,620,685		—
Federal funds purchased and interbank borrowings		213,003		213,003						335,033		335,033		—		—
Securities sold under agreements to repurchase		367,052		317,052		50,612		—		384,810		359,810		25,133		—
Federal Home Loan Bank advances		1,353,092		—		—		1,360,599
FHLB advances										1,609,579		—		—		1,607,189
Other borrowings		218,939		—		217,647		—		248,782		—		250,443		—
Accrued interest payable		5,979		—		5,979		—		7,029		—		7,029		—
Standby letters of credit		315		—		—		315		351		—		—		351

Off-Balance Sheet Financial Instruments
Commitments to extend credit	$	—	$	—	$	—	$	2,527	$	—	$	—	$	—	$	2,449

The ~~following~~ methods ~~and assumptions were used to estimate the fair value of each type of financial instrument.~~

~~Cash, due from banks, federal funds sold, and money market investments:~~ ~~For these instruments, the carrying amounts approximate fair value (Level 1).~~

~~Investment securities:~~ ~~Fair values for investment securitiesheld-to-maturity~~ ~~are based on quoted market prices, if available. For securities where quoted prices are not available, fair values are estimated based on market prices of similar securities (Level 2).~~

~~Federal Home Loan Bank and Federal Reserve Bank stock:~~ Old National Bank is a member of the FHLB and the Federal Reserve System. The carrying value is our basis because it is not practical to determine the fair value due to restrictions placed on transferability.

~~Loans~~: The fair value of loans is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities (Level 3). The method utilized to estimate the fair value of ~~loans does~~financial instruments at December 31, 2017 did not necessarily represent an exit price.

~~Accrued interest receivable and payable:~~ ~~The carrying amount approximates fair value and is aligned~~ In accordance with our adoption of ASU 2016-01 in 2018, the ~~underlying assets or liabilities (Level 1, Level 2 or Level 3).~~

~~Deposits: The~~methods utilized to measure the fair value of noninterest-bearing demand deposits and savings, NOW, and money market deposits is the amount payable as of the reporting date (Level 1). The fair value of fixed-maturity certificates of deposit is estimated using rates currently offered for deposits with similar remaining maturities (Level 2).

~~Federal funds purchased and interbank borrowings~~: Federal funds purchased and interbank borrowings generally have an original term to maturity of 30 days or less and, therefore, their carrying amount is a reasonable estimate of fair value (Level 1).

~~Securities sold under agreements to repurchase: The fair value of securities sold under agreements to repurchase is determined using end of day market prices (Level 1 or Level 2).~~

~~Federal Home Loan Bank advances: The fair value of FHLB advances is determined using calculated prices for new FHLB advances with similar risk characteristics (Level 3).~~

~~Other borrowings~~: The fair value of medium-term notes, subordinated debt, and senior bank notes is determined using market quotes (Level 2). The fair value of other debt is determined using comparable security market prices or dealer quotes (Level 2).

~~Standby letters of credit~~: Fair values for standby letters of credit are based on fees currently charged to enter into similar agreements. The fair value for standby letters of credit was recorded in “Accrued expenses and other liabilities” on the consolidated balance sheet in accordance with FASB ASC~~460-10~~ ~~(FIN 45) (Level 3).~~

~~Off-balance~~ ~~sheet financial instruments: Fair values foroff-balance~~ ~~sheet credit-related~~ financial instruments ~~are based on fees currently charged to enter into similar agreements (Level 3). For further information regarding the amounts~~at March 31, 2018 represent an approximation of ~~these financial instruments, see Notes 21 and 22.~~exit price, however, an actual exit price may differ.

~~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 months ended March 31, ~~2017~~2018 and ~~2016,~~2017, and financial condition as of March 31, ~~2017,~~2018, compared to March 31, ~~2016~~2017 and December 31, ~~2016.~~2017. This discussion and analysis should be read in conjunction with the consolidated financial statements and related notes. This discussion contains forward-looking statements concerning our business that are based on estimates and involves certain risks and uncertainties. Therefore, future results could differ significantly from our current expectations and the related forward-looking statements.

Non-GAAP financial measures exclude certain items that are included in the financial results presented in accordance with GAAP. Management believes these non-GAAP financial measures enhance an investor’s understanding of the financial results of Old National by providing a meaningful basis for period-to-period comparisons, assisting in operating results analysis, and predicting future performance.

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.

During the first quarter of ~~2017,~~2018, net income was $48.0 million, or $0.31 per diluted share. Net income was $36.0 million, or $0.27 per diluted ~~share. Net income was $27.0 million, or $0.24 per diluted~~ share, for the first quarter of ~~2016.~~2017.

Management’s ~~primary focus remains~~strategy is basic banking – loan growth, fee income, and expense management: This is accomplished by executing our plan of revenue growth driven by strong commercial loan growth, anchored by excellent credit, fueled by low-cost core deposits, and reducing our operating expenses. In addition, we are seeing the results of our efforts to re-mix our earning assets by replacing lower yielding assets, like indirect auto loans, with higher yielding assets, like commercial loans. Our actions demonstrate our commitment to driving and sustaining positive operating leverage.

Loan Growth: Our loan balances, excluding loans held for sale, grew ~~$121.3~~$120.6 million to ~~$9.132~~$11.239 billion at March 31, ~~2017~~2018 compared to ~~$9.011~~$11.118 billion at December 31, ~~2016.~~2017. This ~~higher yielding commercial loan~~ growth was attributable to our commercial loan portfolios, as we continue to focus on organic loan growth ~~during the quarter,~~coupled with ~~our Wisconsin region experiencing the largest increase in loan balances. We are encouraged by the level of~~strong credit performance. Commercial loan demand ~~experienced in the first quarter~~continues to be steady as we execute our strategy of ~~2017, and our sales teams remain energized and committed to~~ building new relationships throughout our entire footprint.

Fee Income: ~~We remain keenly focused on~~Revenue growth in our fee ~~revenue and are pleased to report a 45% increase in mortgage banking revenues~~income components for the three months ended March 31, ~~2017~~2018 when compared to the three months ended March 31, ~~2016. This increase in mortgage banking revenue~~2017 was due to increased sales to the secondary market in 2017 and an increase in production attributable to our new associates in the Wisconsin region. The majority of fee income components increased year over year, driven by the acquisition of ~~Anchor; however, these increases were~~Anchor (MN) in November 2017, partially offset by ~~the decrease in insurance premiums and commissions due to the sale of Old National’s insurance subsidiary in May 2016.~~lower capital markets income.

Expenses: Noninterest expenses ~~remained well controlled, increasing $3.5~~increased $15.8 million, or 4%16%, for the three months ended March 31, ~~2017~~2018 when compared to the three months ended March 31, ~~2016. This~~2017. The increase ~~includes a $1.4 millionpre-tax~~ ~~charge~~was primarily attributable to ~~consolidate fifteen banking centers during~~higher expenses associated with the ~~first~~Anchor (MN) partnership. We are adapting to changing customer behaviors by continually investing in and improving the client experience by enhancing technology and processes. However, as previously disclosed, we have consolidated 148 branches since the beginning of 2011. Additionally, there are ten branches located throughout the footprint scheduled to be consolidated; nine in the second quarter and one in the third quarter of ~~2017.~~this year. In addition, Old National entered into a branch purchase and assumption agreement for the sale of ten Old National branches in Wisconsin to Marine Credit Union of La Crosse, Wisconsin. The branch sale includes the assumption of approximately $274 million in deposits and no loans. Subject to regulatory approval and other terms and conditions, the sale is expected to close in the third quarter of 2018. For the remainder of 2018, we are relentlessly evaluating the Old National franchise for additional consolidation opportunities.

Our thoughts regarding future partnerships is such that we remain an active looker and a selective, disciplined buyer. We ~~are committed~~believe our ability to ~~ongoing assessments of our service~~bring an enhanced product set and ~~delivery network, as part of our efforts~~a larger balance sheet with better capital allows a potential new market partner to~~right-size~~ better serve their clients. However, given the ~~ONB~~quality Old National franchise ~~with the most efficient and effective branch network possible.~~that exists today, we do not feel compelled to enter into a partnership.

The following table sets forth certain income statement information of Old National for the three months ended March 31, ~~2017~~2018 and ~~2016:~~2017:


	Three Months Ended									Three Months Ended
	March 31,						%			March 31,						%
(dollars in thousands)	2017			2016			Change			2018			2017			Change
Income Statement Summary:
Net interest income	$	105,801		$	85,643			23.5	%	$	128,572		$	105,801			21.5	%
Provision for loan losses		347			91			281.3			380			347			9.5
Noninterest income		42,920			49,451			(13.2	)		42,389			42,920			(1.2	)
Noninterest expense		101,891			98,355			3.6			117,641			101,891			15.5
Other Data:
Return on average common equity		7.89	%		7.18	%					8.86	%		7.89	%
Return on tangible common equity (1)											15.62			13.13
Return on average tangible common equity (1)											15.80			13.38
Efficiency ratio (1)		64.66			68.76						65.94			64.66
Tier 1 leverage ratio		8.49			8.63						8.11			8.49
Net charge-offs (recoveries) to average loans		0.01			0.09						0.01			0.01

Net interest income is the most significant component of our earnings, comprising ~~71%~~75% of revenues for the three months ended March 31, ~~2017.~~2018. 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 earning assets and interest-bearing liabilities.

~~Interest rates increased in the first quarter of 2017, driven by improving economic conditions evidenced by the~~The Federal Reserve ~~increasing~~increased the discount rate 25 basis points at their March 2018 meeting. The rate increase was driven by the Federal Reserve’s inflation and wage pressure expectations in conjunction with a moderately expanding economy. The Treasury yield curve flattened as short-term rates rose ~~and intermediate and~~while long-term interest rates ~~declined as the spread between short and longer duration Treasuries contracted.~~remained flat. Collectively, these factors ~~improve~~marginally improved the outlook for our net interest income and margin.

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 ~~Board~~ 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 and the net interest income and margin.

Net interest income is the excess of interest received from 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 ourtax-exempt assets would need to yield in order to achieve the sameafter-tax yield as a taxable asset. We used the federal statutory tax rate in effect of 21% for the three months ended March 31, 2018, compared to 35% for ~~all periods.~~the three months ended March 31, 2017. This analysis portrays the income tax benefits associated intax-exempt assets and helps to facilitate a comparison between taxable andtax-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 peer comparisons.

   Three Months Ended
   March 31,
(dollars in thousands)
   2017 2016
Net interest income
   $ 105,801 $ 85,643
Conversion to fully taxable equivalent
   5,688 5,200


Net interest income - taxable equivalent basis
   $ 111,489 $ 90,843


Average earning assets
   $ 12,742,858 $ 10,331,029
Net interest margin
   3.32 % 3.32 %
Net interest margin - taxable equivalent basis
   3.50 % 3.52 %

The increase in net interest income for the three months ended March 31, 2018 when compared to the three months ended March 31, 2017 was primarily due to higher average earning assets of $2.463 billion. Partially offsetting the higher average earning assets were higher average interest-bearing liabilities of $1.672 billion in the three months ended March 31, 2018 when compared to the three months ended March 31, 2017 and lower fully taxable equivalent interest income resulting from the income tax rate decrease to 21% in 2018. Net interest income for the three months ended March 31, 2018 and 2017 ~~and 2016 includes~~included accretion income (interest income in excess of contractual interest income) associated with acquired loans. ~~Excluding this accretion~~Accretion income ~~net interest income on a fully taxable equivalent basis would have been $98.9~~totaled $11.0 million for the three months ended March 31, 2017, compared to $79.6 million for the three months ended March 31, 2016; and the net interest margin on a fully taxable equivalent basis would have been 3.10% for the three months ended March 31, 2017, compared to 3.08% for the three months ended March 31, 2016.

The increase in net interest income for the three months ended March 31, 2017 when compared to the three months ended March 31, 2016 was primarily due to an increase in average earning assets of $2.412 billion in the three months ended March 31, ~~2017 when~~2018, compared to $12.6 million in the three months ended March 31, ~~2016. Also contributing to the increase in net interest income was higher accretion income of $1.4 million associated with acquired loans reflecting the Anchor acquisition.~~2017. We expect accretion income on our ~~purchased credit impaired~~PCI loans to decrease over time, but this may be offset by future acquisitions.

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 for the three months ended March 31, 2018 and 2017.

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 for the three months ended March 31, 2018 and 2017.

The variance not solely due to rate or volume is allocated equally between the rate and volume variances.

The decrease in the net interest margin on a fully taxable equivalent basis for the three months ended March 31, ~~2017~~2018 when compared to the three months ended March 31, ~~2016~~2017 was primarily due to lower yields associated with accretion income on acquired loans, higher costs of ~~interest bearing~~interest-bearing liabilities, and a change in the mix of average interest earning assets and interest-bearing liabilities. The decrease in the net interest ~~bearing liabilities. These decreases were partially offset by higher~~margin also reflected the change in the federal tax rate and the resulting decrease in our fully taxable equivalent interest ~~rates on interest earning assets.~~income adjustments. Accretion income ~~resulted in a 40~~represented 28 basis ~~point contribution to~~points of the net interest margin for the three months ended March 31, ~~2017,~~2018, compared to ~~a 44~~40 basis ~~point contribution to~~points of the net interest margin for the three months ended March 31, ~~2016.~~2017. The yield on interest earning assets increased 36 basis points and the cost of interest-bearing liabilities increased 215 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.

Average earning assets were $15.206 billion for the three months ended March 31, 2018, compared to $12.743 billion for the three months ended March 31, 2017, ~~compared to $10.331 billion for the three months ended March 31, 2016,~~ an increase of ~~$2.412~~$2.463 billion, or ~~23%~~19%. The increase in average earning assets was primarily due to our acquisition of Anchor (MN) in ~~May 2016.~~November 2017. The loan portfolio including loans held for sale, which generally has an average yield higher than the investment portfolio, was approximately ~~71%~~74% of average interest earning assets for the three months ended March 31, ~~2017,~~2018, compared to ~~68%~~71% for the three months ended March 31, ~~2016.~~2017.

Average loans including loans held for sale increased ~~$2.111~~$2.094 billion for the three months ended March 31, ~~2017~~2018 when compared to the three months ended March 31, ~~2016. The increase in average loans included~~2017 reflecting organic loan growth, as well as an increase attributable to loans acquired from Anchor (MN) in ~~May 2016.~~November 2017. Loans including loans held for sale attributable to the Anchor (MN) acquisition totaled ~~$1.647~~$1.595 billion as of the closing date of the ~~acquisition.~~acquisition, which was November 1, 2017.

Average investments increased ~~$317.7~~$329.6 million for the three months ended March 31, ~~2017~~2018 when compared to the three months ended March 31, ~~2016~~2017 reflecting the Anchor (MN) acquisition.

Average~~non-interest~~ ~~bearing~~ noninterest-bearing deposits increased ~~$444.0~~$646.1 million for the three months ended March 31, ~~2017~~2018 when compared to the three months ended March 31, ~~2016 reflecting $311.9 million of averagenon-interest~~ ~~bearing~~

~~deposits from the Anchor acquisition.~~2017. Average ~~interest bearing~~interest-bearing deposits increased ~~$1.771~~$1.313 billion for the three months ended March 31, ~~2017~~2018 when compared to the three months ended March 31, ~~2016 reflecting $1.373 billion of~~2017. The increases in average ~~interest bearing~~ deposits ~~from~~also reflected the Anchor (MN) acquisition.

Average borrowed funds increased ~~$348.0~~$359.2 million for the three months ended March 31, ~~2017~~2018 when compared to the three months ended March 31, ~~2016~~2017 primarily due to increased funding needed as a result of growth in our ~~investment and~~ loan ~~portfolios~~portfolio that outpaced deposit growth.

The provision for loan losses was $0.4 million for the three months ended March 31, 2018, compared to $0.3 million for the three months ended March 31, ~~2017, compared to $91 thousand for~~2017. Net charge-offs totaled $0.4 million during the three months ended March 31, ~~2016. Net~~2018, compared to net charge-offs ~~totaled~~of $0.3 million during the three months ended March 31, ~~2017, compared to net charge-offs~~2017. The higher provision for loan losses is the result of ~~$1.6 million during the three months ended March 31, 2016.~~loan growth, offset by lower incurred loss rate expectations. Continued loan growth in future periods, or a decline in our current level of recoveries, or an increase in charge-offs could result in an increase in provision expense.

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. ~~Noninterest~~The following table details the components in noninterest income for the three months ended March 31, ~~2017 was $42.9 million, a~~2018 and 2017:

The decrease ~~of $6.5 million, or 13%, compared to $49.5 million~~in noninterest income for the three months ended March 31, ~~2016. The decrease in noninterest income~~2018 when compared to the three months ended March 31, 2017 was primarily due to lower ~~insurance premiums and commissions~~other income resulting from first quarter 2017 recoveries on loans originated by AnchorBank (WI) that had been fully charged-off prior to the ~~sale of ONB Insurance Group, Inc. (“ONI”) in May 2016. The decrease in noninterest income was partially~~acquisition totaling $1.5 million and lower net securities gains. These decreases were substantially offset by higher noninterest income attributable to the Anchor (MN) acquisition.

~~Wealth management~~Service charges and overdraft fees increased $0.9 million for the three months ended March 31, ~~2017~~2018 when compared to the three months ended March 31, ~~2016 reflecting~~2017 primarily due to higher ~~personal trust fees, mutual fund fees, tax preparation fees, corporate trust fees, and fiduciary account fees.~~

~~Service~~service charges and overdraft fees attributable to the Anchor (MN) acquisition.

Debit card and ATM fees increased ~~$0.2~~$0.6 million for the three months ended March 31, ~~2017~~2018 when compared to the three months ended March 31, ~~2016~~2017 primarily due to ~~service charges and overdraft fees~~higher interchange income attributable to the Anchor ~~acquisition, offset by lower overdraft charges.~~(MN) acquisition.

~~Debit card and ATM~~Investment product fees increased $0.5 million for the three months ended March 31, ~~2017~~2018 when compared to the three months ended March 31, ~~2016~~2017 primarily due to the Anchor (MN) acquisition.

~~Mortgage banking revenue~~Capital markets income is comprised of customer interest rate swap fees, foreign currency exchange fees, and net gains (losses) on foreign currency adjustments. Capital markets income decreased $0.5 million for the three months ended March 31, 2018 when compared to the three months ended March 31, 2017 primarily due to lower customer interest rate swap fees.

Net securities gains decreased $0.7 million for the three months ended March 31, 2018 when compared to the three months ended March 31, 2017 primarily due to higher realized losses on available-for-sale securities in 2018, partially offset by higher realized gains on sales of available-for-sale securities in 2018.

Other income decreased $1.7 million for the three months ended March 31, 2018 when compared to the three months ended March 31, 2017 primarily due to lower other income resulting from first quarter 2017 recoveries on loans originated by AnchorBank (WI) that had been fully charged-off prior to the acquisition totaling $1.5 million and lower gains on sales of other real estate owned totaling $0.5 million.

The following table details the components in noninterest expense for the three months ended March 31, 2018 and 2017:

Noninterest expense increased $15.8 million for the three months ended March 31, 2018 when compared to the three months ended March 31, 2017 primarily due to $11.6 million of operating expenses and $2.3 million of acquisition and integration costs associated with Anchor (MN). Also contributing to the increase in noninterest expense were higher impairments of long-lived assets of $2.8 million in the three months ended March 31, 2018 related to branch consolidations.

Salaries and benefits is the largest component of noninterest expense. Salaries and benefits increased $7.6 million for the three months ended March 31, 2018 when compared to the three months ended March 31, 2017 primarily due to $7.1 million of salaries and benefits associated with the Anchor (MN) acquisition. Also contributing to the increase in salaries and benefits was higher stock-based compensation expense of $0.6 million in the three months ended March 31, 2018.

Occupancy expenses increased $1.1 million for the three months ended March 31, 2018 when compared to the three months ended March 31, 2017 primarily due to higher occupancy expenses attributable to the Anchor (MN) acquisition.

Marketing expense increased $0.6 million for the three months ended March 31, 2018 when compared to the three months ended March 31, 2017 primarily due to higher public relations expense.

Data processing expenses increased $1.3 million for the three months ended March 31, ~~2017~~2018 when compared to the three months ended March 31, ~~2016~~2017 primarily due to integration expenses associated with the Anchor (MN) acquisition.

Amortization of intangibles increased ~~sales to the secondary market in 2017 and an increase in production largely attributable to our new associates in the Wisconsin region.~~

~~Insurance premiums and commissions decreased $13.0~~$0.6 million for the three months ended March 31, ~~2017~~2018 when compared to the three months ended March 31, ~~2016 reflecting the sale of ONI in May 2016.~~

~~Investment product fees increased $1.1 million for the three months ended March 31,~~ 2017 ~~when compared to the three months ended March 31, 2016~~ primarily due to amortization of core deposit intangibles related to the Anchor (MN) acquisition.

~~Other income increased $1.9 million for the three months ended March 31, 2017 when compared to the three months ended March 31, 2016. Included in the three months ended March 31, 2017~~Amortization of tax credit investments was ~~$1.5 million of recoveries on Anchor loans that had been fullycharged-off~~ ~~prior to the acquisition. The increase in other income also reflected higher net gains on sales of foreclosed properties of $0.5 million.~~

Noninterest expense for the three months ended March 31, 2017 totaled $101.9 million, an increase of $3.5 million, or 4%, from $98.4 million for the three months ended March 31, 2016. Noninterest expense for the three months ended March 31, 2017 was impacted by our transition into the higher growth markets in Wisconsin and the divestiture of our insurance business.

Salaries and benefits is the largest component of noninterest expense. For the three months ended March 31, 2017, salaries and benefits were $56.6 million, compared to $57.0 million for the three months ended March 31, 2016. Impacting salaries and benefits expense were the acquisition of Anchor and the divestiture described above. Also contributing to the decrease in salaries and benefits were lower pension expenses reflecting the termination of the Company’s Retirement Plan effective May 15, 2016.

~~Occupancy expenses decreased~~ $0.7 million for the three months ended March 31, ~~2017 when compared to~~2018 reflecting the ~~three months ended March 31, 2016 primarily due to branch consolidations in~~completion of an investment tax credit project during the first quarter of ~~2017. The decrease~~2018. There was ~~partially offset by occupancy expenses attributable~~no amortization related to ~~the Anchor acquisition of $1.1 million.~~

~~Professional fees decreased $0.7 million for the three months ended March 31, 2017 when compared to the three months ended March 31, 2016 primarily due additional expenses~~tax credit investments recorded in ~~2016 associated with the Anchor acquisition.~~

~~Other expense was $5.4 million for the three months ended March 31, 2017, compared to $3.9 million for the three months ended March 31, 2016. Included in other~~noninterest expense for the three months ended March 31, ~~2017 were costs associated with January 2017 branch consolidations of $1.3 million.~~2017. We anticipate ~~investment impairment charges related to~~amortization of tax credit investments of ~~$4.4~~approximately $15 million to $18 million in the ~~third~~second quarter of ~~2017~~2018. The recognition of tax credit amortization expense is contingent upon the successful rehabilitation of the historic building or completion of a solar project within the reporting period. Many factors including weather, labor availability, building regulations, inspections, and ~~$5.5 million in the fourth quarter of 2017 to be included in~~ other ~~expense. There were no investment impairment charges~~unexpected construction delays related to ~~tax credit investments for all of 2016 or for the three months ended March 31, 2017.~~a rehabilitation project can cause a project to exceed its estimated completion date. See Note 13 to the consolidated financial statements for additional information on ~~the Company’s~~our tax credit investments.

Other expense increased $3.0 million for the three months ended March 31, 2018 when compared to the three months ended March 31, 2017 primarily due to higher impairments of long-lived assets totaling $2.8 million in the three months ended March 31, 2018 related to branch consolidations.

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 interest ontax-exempt securities and loans. The provision for income taxes, as a percentage ofpre-tax income, was 9.4% for the three months ended March 31, 2018, compared to 22.6% for the three months ended March 31, ~~2017, compared to 26.4% for the three months ended March 31, 2016.~~2017. In accordance with ASC740-270,Accounting for Interim Reporting, the provision for income taxes was recorded at March 31, ~~2017~~2018 based on the current estimate of the effective annual rate. The lower effective tax rate during the three months ended March 31, ~~2017~~2018 when compared to the three months ended March 31, ~~2016 is~~2017 was primarily the result of the lowering of the federal corporate tax rate to 21% and an increase in federal tax credits available. See Note 1920 to the consolidated financial statements for additional information.

At March 31, ~~2017,~~2018, our assets were ~~$14.870~~$17.496 billion, a ~~$2.938~~$2.626 billion increase compared to assets of ~~$11.932~~$14.870 billion at March 31, ~~2016,~~2017, and a ~~$9.4~~$22.0 million ~~increase~~decrease compared to assets of ~~$14.860~~$17.518 billion at December 31, ~~2016.~~2017. The increase from March 31, ~~2016~~2017 to March 31, ~~2017~~2018 was primarily due to the acquisition of Anchor (MN) in ~~May 2016,~~November 2017, which had ~~$2.166~~$2.222 billion in assets as of the closing date of the acquisition. Organic growth in our commercial loan portfolios also contributed to the March 31, 2017 to March 31, 2018 increase in 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 trading securities. Earning assets were ~~$12.852~~$15.239 billion at March 31, ~~2017,~~2018, a ~~$2.493~~$2.387 billion increase compared to earning assets of ~~$10.359~~$12.852 billion at March 31, ~~2016,~~2017, and a ~~$55.9~~$30.1 million increase compared to earning assets of ~~$12.796~~$15.209 billion at December 31, ~~2016.~~2017.

We classify the majority of our investment securities asavailable-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. However, we also have ~~$9.6~~$73.4 million of U.S. government-sponsored entities and agencies securities, $145.7 million of fixed-rate mortgage-backed securities, ~~$40.0 million of U.S. government-sponsored entity~~ and ~~agency securities, and $691.9~~$316.1 million of state and political subdivision securities in ourheld-to-maturity investment portfolio at March 31, ~~2017.~~2018.

Trading securities, which consist of mutual funds held in trusts associated with deferred compensation plans for former directors and executives, are recorded at fair value and totaled $5.6 million at March 31, 2018 compared to $5.1 million at March 31, ~~2017 compared to $3.7 million at March 31, 2016. The increase was primarily due to the acquisition of Anchor, which had $0.9 million in trading securities as of the closing date of the acquisition.~~2017.

At March 31, ~~2017,~~2018, the investment securities portfolio, including trading securities, was ~~$3.671~~$3.897 billion compared to ~~$3.307~~$3.671 billion at March 31, ~~2016,~~2017, an increase of ~~$363.7 million, or 11%.~~$225.8 million. Investment securities attributable to the Anchor (MN) acquisition totaled ~~$239.8~~$308.8 million as of the closing date of the acquisition. Investment securities represented ~~29%~~26% of earning assets at March 31, ~~2017,~~2018, compared to ~~32%~~29% at March 31, ~~2016,~~2017 and ~~29%~~26% at December 31, ~~2016.~~2017. Investment securities ~~also~~ decreased as a percentage of total earning assets at March 31, 2018 when compared to March 31, 2017 due to a proportionately larger increase in loan balances. Stronger commercial loan demand in the future and management’s decision to deleverage the balance sheet could result in a reduction in the securities portfolio. At March 31, ~~2017,~~2018, management does not intend to sell any securities in an unrealized loss position and does not believe we will be required to sell such securities.

The investment securitiesavailable-for-sale portfolio had net unrealized losses of $69.0 million at March 31, 2018, compared to net unrealized losses of $47.2 million at March 31, 2017, ~~compared to net unrealized gains of $10.9 million at March 31, 2016,~~ and net unrealized losses of ~~$61.5~~$56.4 million at December 31, ~~2016.~~2017. Net unrealized losses ~~decreased~~increased from December 31, ~~2016~~2017 to March 31, ~~2017~~2018 reflecting higher net unrealized losses on mortgage-backed securities primarily due to ~~a decrease~~the effect of an increase in long-term interest ~~rates on municipal bonds and mortgage-backed securities.~~rates.

The investment portfolio had an effective duration of 4.30 at March 31, 2018, compared to 4.53 at March 31, 2017, ~~compared to 3.80 at March 31, 2016,~~ and ~~4.61~~4.15 at December 31, ~~2016.~~2017. 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 2.74% for the three months ended March 31, 2018, compared to 2.98% for the three months ended March 31, ~~2017, compared to 2.95% for the three months ended March 31, 2016, and 2.85% for the year ended December 31, 2016.~~2017.

Mortgage loans held for immediate sale in the secondary market were ~~$17.4~~$17.6 million at March 31, ~~2017,~~2018, compared to ~~$90.7~~$17.9 million at December 31, ~~2016.~~2017. 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 ~~To Be Announced (“TBA”)~~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.

We have elected the fair value option under FASB ASC825-10 ~~(SFAS No. 159)~~ prospectively for residential loans held for sale. The aggregate fair value exceeded the unpaid principal balance by $0.6 million at March 31, ~~2017 and March 31, 2016. The aggregate fair value exceeded the unpaid principal balance by $0.1~~2018, compared to $0.5 million at December 31, ~~2016.~~2017.

Commercial and commercial real estate loans are the largest classification within earning assets, representing ~~40%~~48% of earning assets at March 31, ~~2017,~~2018, compared to ~~36%~~40% at March 31, ~~2016~~2017 and ~~39%~~47% at December 31, ~~2016.~~2017. At March 31, ~~2017,~~2018, commercial and commercial real estate loans were ~~$5.133~~$7.262 billion, an increase of ~~$1.418~~$2.128 billion, or ~~38%~~42%, compared to March 31, ~~2016,~~2017, and an increase of ~~$85.4~~$189.8 million, or 2%3%, compared to December 31, ~~2016.~~2017. Commercial and commercial real estate loans attributable to the Anchor (MN) acquisition totaled ~~$968.6 million~~$1.516 billion as of the closing date of the acquisition.

At March 31, ~~2017,~~2018, residential real estate loans held in our loan portfolio were ~~$2.112~~$2.159 billion, an increase of ~~$462.3~~$46.3 million ~~or 28%,~~ compared to March 31, ~~2016,~~2017, and ~~an increase~~a decrease of ~~$24.7~~$8.5 million ~~or 1%,~~ compared to December 31, ~~2016.~~2017. Residential real estate loans attributable to the Anchor (MN) acquisition totaled ~~$456.1~~$34.0 million as of the closing date of the acquisition. Future increases in interest rates could result in a decline in the level of refinancings and new ~~originations.~~originations of residential real estate loans.

Consumer loans, including automobile loans, personal and home equity loans and lines of credit, and student loans, ~~increased $244.8~~decreased $67.6 million ~~or 15%,~~ at March 31, ~~2017~~2018 compared to March 31, ~~2016,~~2017, and ~~increased $11.1~~decreased $60.7 million ~~or 1%,~~ from December 31, ~~2016.~~2017. Consumer loans attributable to the Anchor (MN) acquisition totaled ~~$213.0~~$43.9 million as of the closing date of the acquisition. ~~Management plans~~We continue to ~~slow~~see runoff in our less profitable indirect consumer loan ~~originations, which are least profitable, in 2017.~~

Premises and equipment, net of accumulated depreciation, increased $222.8 million since March 31, 2016. During 2016, the Company purchased certain bank properties that it had previously leased, including its executive offices, for an aggregate purchase price of $196.1 million. Premises and equipment attributable to the Anchor acquisition totaled $35.7 million as of the closing date of the acquisition.portfolio.

Goodwill and other intangible assets at March 31, ~~2017~~2018 totaled ~~$689.7~~$877.6 million, an increase of ~~$72.6~~$187.9 million compared to ~~$617.1~~$689.7 million at March 31, ~~2016. During 2016,~~2017. As of March 31, 2018, we have recorded ~~$132.9~~$200.4 million of goodwill and other intangible assets associated with the acquisition of ~~Anchor. Also during 2016, Old National eliminated $47.7 million of goodwill and intangible assets associated with the sale of its insurance operations.~~Anchor (MN).

Net deferred tax assets ~~increased $66.7~~decreased $76.6 million ~~since~~compared to March 31, ~~2016~~2017 primarily due to a revaluation of our deferred tax assets due to the enactment of the Tax Cuts and Jobs Act (“H.R. 1”), which lowered the federal corporate tax rate to 21%. Shortly after the enactment date, the SEC issued SAB 118, which addresses the situations where the accounting for changes in tax laws is complete, incomplete but can be reasonably estimated, and incomplete and cannot be reasonably estimated. SAB 118 also permits a measurement period of up to one year from the date of enactment to refine the provisional accounting. During the three months ended March 31, 2018, the immaterial adjustments made to the preliminary valuation of assets acquired and liabilities assumed in the acquisition of ~~Anchor. Net~~Anchor (MN) impacted our estimated revaluation of Old National’s deferred tax ~~assets acquired from~~assets. Old National continues to analyze H.R. 1, including the impact on alternative minimum tax credits, as well as the acquisition accounting of Anchor ~~totaled $98.1 million, consisting primarily of deferred tax assets related~~(MN), and expects any refinements to ~~federal and state net operating loss carryforwards and acquired loans.~~the provisional accounting to be complete in 2018. Future ~~decreases~~changes in the corporate tax rate could result in a ~~loss~~change in value of Old National’s deferred tax assets ~~but would reduce~~and future income tax expense. See Note 1920 to the consolidated financial statements for additional information.

Other assets increased ~~$11.4~~$48.3 million, or ~~10%~~39%, since March 31, ~~2016~~2017 primarily due to higher accrued income taxes and an increase in ~~low~~various tax credit investments. Other assets increased $16.6 million, or 11%, since December 31, 2017 primarily due to higher accrued income ~~housing partnership investments. Offsetting~~taxes. Old National reclassified $22.6 million from deferred tax assets related to alternative minimum tax credits to accrued income taxes in the ~~increase were lower deferred rent payments resulting from~~first quarter of 2018 as a result of the ~~purchase~~enactment of ~~certain bank properties that were previously leased and lower derivative assets.~~H.R. 1. See Note 20 to the consolidated financial statements for additional information.

Total funding, comprised of deposits and wholesale borrowings, was $15.160 billion at March 31, 2018, an increase of $2.272 billion from $12.888 billion at March 31, 2017, ~~an increase of $2.637 billion from $10.251 billion at March 31, 2016,~~ and a decrease of ~~$7.4~~$24.1 million from ~~$12.895~~$15.184 billion at December 31, ~~2016.~~2017. Included in total funding were deposits of $12.789 billion at March 31, 2018, an increase of $1.968 billion from $10.821 billion at March 31, 2017, ~~an increase of $2.232 billion from $8.589 billion at March 31, 2016,~~ and an increase of ~~$78.1~~$182.8 million from ~~$10.743~~$12.606 billion at December 31, ~~2016.~~2017. Deposits attributable to the Anchor (MN) acquisition totaled ~~$1.853~~$1.777 billion as of the closing date of the acquisition. Noninterest-bearing deposits increased ~~$532.3~~$631.6 million from March 31, ~~2016~~2017 to March 31, ~~2017.~~2018. NOW deposits increased ~~$456.6~~$500.5 million from March 31, ~~2016~~2017 to March 31, ~~2017,~~2018, while savings deposits increased ~~$726.6~~$93.2 million. Money market deposits increased ~~$136.0~~$433.0 million from March 31, ~~2016~~2017 to March 31, ~~2017,~~2018, while time deposits increased ~~$380.9~~$309.0 million.

We use wholesale funding to augment deposit funding and to help maintain our desired interest rate risk position. At March 31, ~~2017,~~2018, wholesale borrowings, including federal funds purchased and interbank borrowings, securities sold under agreements to repurchase, ~~Federal Home Loan Bank~~FHLB advances, and other borrowings, totaled ~~$2.067~~$2.371 billion, an increase of ~~$404.4~~$304.7 million, or ~~24%~~15%, from March 31, ~~2016,~~2017, and a decrease of ~~$85.5~~$206.9 million, or 4%8%, from December 31, ~~2016.~~2017. Wholesale funding as a percentage of total funding was 16% at March 31, ~~2017,~~2018, 16% at March 31, ~~2016,~~2017, and 17% at December 31, ~~2016.~~2017. The increase in wholesale funding from March 31, ~~2016~~2017 to March 31, ~~2017~~2018 was ~~primarily~~ due to ~~an increase~~increases in ~~Federal Home Loan Bank~~FHLB advances, federal funds purchased and interbank borrowings, and other borrowings, partially offset by a decrease in ~~federal funds purchased and interbank borrowings.~~securities sold under agreements to repurchase.

Accrued expenses and other liabilities ~~decreased $37.3~~increased $22.0 million, or ~~22%~~16%, from March 31, ~~2016~~2017 primarily due to ~~lower deferred gain on sale leaseback transactions, derivative liabilities, and accrued pension expenses. Offsetting the decrease was~~ an increase in unfunded commitments on ~~low income housing partnership~~various tax credit investments. Accrued expenses and other liabilities decreased ~~$15.2~~$22.7 million, or ~~10%~~13%, from December 31, ~~2016~~2017 primarily due to incentive and severance payments in the first quarter of ~~2017.~~2018.

Shareholders’ equity totaled $2.179 billion at March 31, 2018, compared to $1.846 billion at March 31, 2017 ~~compared to $1.509 billion at March 31, 2016~~ and ~~$1.814~~$2.154 billion at December 31, ~~2016.~~2017. Shareholders’ equity at ~~March~~December 31, 2017 included ~~$273.6~~$300.8 million from the ~~20.4~~16.5 million shares of ~~common stock~~Common Stock that were issued in conjunction with the acquisition of ~~Anchor. The change in unrealized gains (losses) on investment securities increased equity by $9.3 million during the three months ended March 31, 2017.~~Anchor (MN). We paid cash dividends of $0.13 per share for the three months ended March 31, ~~2017,~~2018, which reduced equity by ~~$17.6~~$19.8 million. The Company’s Common Stock is traded on the NASDAQ under the symbol “ONB” with 34,547 shareholders of record at March 31, 2018.

Old National and the banking industry are subject to various regulatory capital requirements administered by the federal banking agencies. At March 31, ~~2017,~~2018, 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.

At March 31, ~~2017,~~2018, Old National’s consolidated capital position remains strong as evidenced by the following comparisons of key industry ratios.


	Fully Phased-In Regulatory Guidelines			March 31,						December 31,			Fully Phased-In Regulatory Guidelines			March 31,						December 31,
	Minimum			2017			2016			2016			Minimum			2018			2017			2017
Risk-based capital:
Tier 1 capital to total average assets (leverage ratio)		4.00	%		8.49	%		8.63	%		8.43	%		4.00	%		8.11	%		8.49	%		8.28	%
Common equity Tier 1 capital to risk-adjusted total assets		7.00			11.43			12.04			11.51			7.00			10.71			11.43			10.39
Tier 1 capital to risk-adjusted total assets		8.50			11.72			12.52			11.65			8.50			10.71			11.72			10.39
Total capital to risk-adjusted total assets		10.50			12.24			13.22			12.18			10.50			11.72			12.24			11.40
Shareholders’ equity to assets		N/A			12.42			12.64			12.21			N/A			12.45			12.42			12.30

At March 31, ~~2017,~~2018, Old National Bank, Old National’s bank subsidiary, maintained a strong capital position as evidenced by the following comparisons of key industry ratios.


																Fully Phased-In
	Fully Phased-In Regulatory Guidelines			Well Capitalized			March 31,						December 31,			Regulatory Guidelines			Well Capitalized			March 31,						December 31,
	Minimum			Guidelines			2017			2016			2016			Minimum			Guidelines			2018			2017			2017
Risk-based capital:
Tier 1 capital to total average assets (leverage ratio)		4.00	%		5.00	%		8.73	%		9.34	%		8.55	%		4.00	%		5.00	%		8.78	%		8.73	%		8.93	%
Common equity Tier 1 capital to risk-adjusted total assets		7.00			6.50			12.03			13.54			11.83			7.00			6.50			11.60			12.03			11.21
Tier 1 capital to risk-adjusted total assets		8.50			8.00			12.03			13.54			11.83			8.50			8.00			11.60			12.03			11.21
Total capital to risk-adjusted total assets		10.50			10.00			12.55			14.25			12.35			10.50			10.00			12.13			12.55			11.73

The Dodd-Frank ~~Wall Street Reform and Consumer Protection~~ Act requires bank holding companies and any subsidiary banks with consolidated assets of more than $10 billion and less than $50 billion, including Old National, to complete and publicly disclose annual stress tests. The objective of the stress test is to ensure that the financial institution has capital planning processes that account for its unique risks, and to help ensure that the institution has sufficient capital to continue operations throughout times of economic and financial stress. The stress tests are conducted with baseline, adverse, and severely adverse economic scenarios. Old National completed its annual stress test that covered a nine-quarter planning horizon beginning January 1, ~~2016~~2017 and ending on March 31, ~~2018~~2019 and publicly disclosed a summary of the stress test results on October ~~25, 2016.~~24, 2017. The stress test showed that Old National would maintain capital levels well above the regulatory guideline minimum levels for all periods and under all stress test scenarios.

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 ~~the Company.~~Old National. The Risk Appetite Statement addresses the following major risks: strategic, market, liquidity, credit, operational/~~technology,~~technology/cyber, regulatory/compliance/legal, reputational, and human resources. Our Chief Risk Officer is independent of management and reports directly to the Chair of the Board’s Enterprise Risk Management Committee. The following discussion addresses ~~three of~~ these major risks: credit, market, liquidity, operational/technology/cyber, and ~~liquidity.~~regulatory/compliance/legal.

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 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 March 31, ~~2017,~~2018, we had pooled trust preferred securities with a fair value of ~~$8.3~~$8.2 million, or less than 1% of theavailable-for-sale securities portfolio. These securities remained classified asavailable-for-sale and at March 31, ~~2017,~~2018, the unrealized loss on our pooled trust preferred securities was approximately ~~$8.6~~$5.7 million. The fair value of these securities should improve as we get closer to ~~maturity.~~maturity, but not in all cases. During the first quarter of 2018, Old National sold a pooled trust security for proceeds of $1.8 million, which resulted in a loss of $0.9 million. There was no ~~other-than-temporary-impairment~~OTTI recorded during the three months ended March 31, ~~2017~~2018 or ~~2016.~~2017.

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 6 to the consolidated financial statements for additional details about our investment security portfolio.

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 by Standard & Poor’s Rating Service or 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 ~~$530.3~~$458.7 million at March 31, ~~2017.~~2018.

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 are 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, and ~~Wisconsin.~~Minnesota. These loans are secured by first mortgages on real estate at~~loan-to-value~~ ~~(“LTV”)~~ LTV margins deemed appropriate for the property type, quality, location, and sponsorship. Generally, these LTV ratios do not exceed 80%. The commercial properties are predominantlynon-residential properties such as retail centers, apartments, 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.

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 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 anend-user. We may mitigate the risks associated with these types of loans by requiring fixed-price construction contracts, performance and payment bonding, controlled disbursements, andpre-sale contracts orpre-lease agreements.

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,~~debt-to-income~~ ~~(“DTI”)~~ 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-indexed rates such as ~~the London Interbank Offered Rate (“LIBOR”).~~LIBOR. 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 permits 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.

We assumed student loans in the acquisition of Anchor (WI) in May 2016. ~~At March 31, 2017, student~~Student loans ~~totaled $74.6 million and~~ are guaranteed by the government from 97% to 100%. and totaled $66.0 million at March 31, 2018, compared to $68.2 million at December 31, 2017.

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 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 it remains appropriate for the current lending environment.

We lend ~~primarily~~ to ~~small- andmedium-sized~~ 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, with no concentration~~size. While loans to lessors of ~~loans exceeding~~both residential and non-residential real estate exceed 10% of ~~its portfolio.~~total loans, no individual sub-segment category within those broader categories reach the 10% threshold. At March 31, ~~2017,~~2018, 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, and ~~Wisconsin.~~Minnesota. We are experiencing a slow and gradual improvement in the economy of our principal markets. Management expects that trends in under-performing, criticized, and classified loans will be influenced by the degree to which the economy strengthens or weakens.

On ~~May~~November 1, ~~2016,~~2017, Old National closed on its acquisition of ~~Anchor.~~Anchor (MN). As of the closing date of the acquisition, loans totaled ~~$1.638~~$1.594 billion and other real estate owned totaled ~~$17.3~~$1.1 million. In accordance with accounting for business combinations, there was no allowance brought forward on any of the acquired loans, as the credit losses evident in the loans were included in the determination of the fair value of the loans at the acquisition date. Old National reviewed the acquired loans and determined that atas of March 31, ~~2017, $16.9~~2018, $51.3 million met the definition of criticized and ~~$45.6~~$34.3 million were considered classified (of which ~~$25.1~~$18.4 million are reported with nonaccrual loans). Our current preference would be to work these loans and avoid foreclosure actions unless additional credit deterioration becomes apparent. These acquired impaired loans, along with ~~$6.5~~$0.8 million of other real estate owned, are included in our summary of under-performing, criticized, and classified assets found below.


	March 31,						December 31,			March 31,						December 31,
(dollars in thousands)	2017			2016			2016			2018			2017			2017
Nonaccrual loans:
Commercial	$	36,686		$	49,666		$	56,585		$	33,175		$	36,686		$	27,202
Commercial real estate		48,391			43,690			44,026			60,403			48,391			62,425
Residential real estate		17,816			14,215			17,674			21,137			17,816			22,171
Consumer		12,484			4,431			13,122			12,581			12,484			13,129
Covered loans (1)		—			5,864			—

Total nonaccrual loans (2)		115,377			117,866			131,407
Renegotiated loans not on nonaccrual:
Noncovered loans		14,969			14,022			14,376
Covered loans (1)		—			133			—
Total nonaccrual loans (1)											127,296			115,377			124,927
Renegotiated loans not on nonaccrual											16,802			14,969			19,589
Past due loans (90 days or more and still accruing):
Commercial		—			—			23			10			—			144
Commercial real estate		80			80			—			—			80			—
Residential real estate		2			150			2			16			2			—
Consumer		299			127			303			301			299			750

Total past due loans		381			357			328			327			381			894
Other real estate owned		12,547			7,019			18,546			6,735			12,547			8,810
Other real estate owned, covered (1)		—			6,503			—

Total under-performing assets	$	143,274		$	145,900		$	164,657		$	151,160		$	143,274		$	154,220

Classified loans (includes nonaccrual, renegotiated, past due 90 days, and other problem loans)	$	219,929		$	193,261		$	220,429		$	245,746		$	219,929		$	226,583
Classified loans, covered (1)		—			7,036			—
Other classified assets (3)		7,306			6,566			7,063
Other classified assets (2)											2,987			7,306			4,556
Criticized loans		95,881			130,948			95,462			174,873			95,881			188,085
Criticized loans, covered (1)		—			1,527			—

Total criticized and classified assets	$	323,116		$	339,338		$	322,954		$	423,606		$	323,116		$	419,224

Asset Quality Ratios:
Non-performing loans/total loans (4) (5)		1.43	%		1.88	%		1.62	%
Under-performing assets/total loans and other real estate owned (4)		1.57			2.08			1.82
Non-performing loans/total loans (3) (4)											1.28	%		1.43	%		1.30
Under-performing assets/total loans and other real estate owned (3)											1.34			1.57			1.39
Under-performing assets/total assets		0.96			1.22			1.11			0.86			0.96			0.88
Allowance for loan losses/under-performing assets (6)		34.78			34.75			30.25
Allowance for loan losses/nonaccrual loans (2)		43.19			43.01			37.90
Allowance for loan losses/under-performing assets (5)											33.33			34.78			32.67
Allowance for loan losses/nonaccrual loans (1)											39.58			43.19			40.33

Under-performing assets totaled $151.2 million at March 31, 2018, compared to $143.3 million at March 31, 2017 ~~compared to $145.9 million at March 31, 2016~~ and ~~$164.7~~$154.2 million at December 31, ~~2016.~~2017. Under-performing assets as a percentage of total loans and other real estate owned at March 31, ~~2017~~2018 were ~~1.57%~~1.34%, a decrease of 5123 basis points from ~~2.08%~~1.57% at March 31, ~~2016~~2017 and a decrease of 255 basis points from ~~1.82%~~1.39% at December 31, ~~2016.~~2017.

Nonaccrual loans ~~decreased~~increased from March 31, ~~2016~~2017 primarily due to ~~a decrease in nonaccrual commercial loans, partially offset~~ an increase in nonaccrual commercial real estate ~~residential real estate, and consumer~~ loans. Nonaccrual loans at March 31, ~~2017 included $25.1~~2018 include $18.4 million of loans related to the Anchor (MN) acquisition. As a percentage of nonaccrual loans, the allowance for loan losses was 39.58% at March 31, 2018, compared to 43.19% at March 31, 2017 ~~compared to 43.01% at March 31, 2016~~ and ~~37.90%~~40.33% at December 31, ~~2016. Purchased credit impaired~~2017. PCI loans that were included in the nonaccrual category because the collection of principal or interest is doubtful totaled $11.5 million at March 31, 2018, compared to $9.9 million at March 31, 2017 ~~compared to $11.8 million at March 31, 2016~~ and ~~$16.7~~$12.6 million at December 31, ~~2016.~~2017. However, they are accounted for under FASB ASC310-30 and accordingly treated as performing assets. ~~We would expect our nonaccrual loans to remain at elevated levels until management can work through and resolve these purchased credit impaired loans.~~

Total criticized and classified assets were ~~$323.1~~$423.6 million at March 31, ~~2017, a decrease~~2018, an increase of ~~$16.2~~$100.5 million from March 31, ~~2016,~~2017, and an increase of ~~$0.2~~$4.4 million from December 31, ~~2016.~~2017. Other classified assets include investment securities that fell below investment grade rating totaling $3.0 million at March 31, 2018, compared to $7.3 million at March 31, 2017 ~~compared to $6.6 million at March 31, 2016~~ and ~~$7.1~~$4.6 million at December 31, ~~2016.~~2017.

Any loans that are modified are reviewed by Old National to identify if a ~~troubled debt restructuring (“TDR”)~~TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, ~~the~~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 include 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.

When a residential or consumer loan is identified as a ~~troubled debt restructuring,~~TDR, the loan is typically written down to its collateral value less selling costs.

At March 31, ~~2017,~~2018, our TDRs consisted of ~~$24.6~~$11.9 million of commercial loans, ~~$17.3~~$34.5 million of commercial real estate loans, ~~$3.4~~$3.1 million of residential loans, and $4.0 million of consumer loans totaling $53.5 million. Approximately $36.9 million of the TDRs at March 31, 2018 were included with nonaccrual loans. At December 31, 2017, our TDRs consisted of $12.1 million of commercial loans, $34.7 million of commercial real estate loans, $3.3 million of residential loans, and $3.9 million of consumer loans totaling ~~$49.2~~$54.0 million. Approximately ~~$34.2~~$34.0 million of the TDRs at ~~March~~December 31, 2017 were included with nonaccrual loans. At December 31, 2016, our TDRs consisted of $16.8 million of commercial loans, $18.3 million of commercial real estate loans, $3.0 million of residential loans, and $2.6 million of consumer loans totaling $40.7 million. Approximately $26.3 million of the TDRs at December 31, 2016 were included with nonaccrual loans.

Old National has allocated specific reserves to customers whose loan terms have been modified in TDRs totaling ~~$5.0~~$5.9 million at March 31, ~~2017~~2018 and ~~$4.0~~$5.7 million of December 31, ~~2016.~~2017. At March 31, ~~2017,~~2018, Old National had committed to lend an additional ~~$5.5~~$4.6 million to customers with outstanding loans that are classified as TDRs.

The terms of certain other loans were modified during ~~2017~~the three months ended March 31, 2018 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.

PCI loans are not considered impaired until after the point at which there has been a degradation of cash flows below our expected cash flows at acquisition. If a PCI loan is subsequently modified, and meets the definition of a TDR, it will be removed from PCI accounting and accounted for as a TDR only if the PCI loan was being accounted for individually. If the ~~purchased credit impaired~~PCI loan is being accounted for as part of a pool, it will not be removed from the pool. At March 31, ~~2017,~~2018, it has not been necessary to remove any loans from PCI accounting.

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 ASC310-10, ~~“Receivables~~Receivables – ~~Overall”~~Overall. However, consistent with ASC310-40-50-2, ~~“Troubled~~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.

Loan charge-offs, net of recoveries, totaled $0.4 million for the three months ended March 31, 2018, compared to $0.3 million for the three months ended March 31, ~~2017, compared to $1.6 million for the three months ended March 31, 2016.~~2017. Annualized, net charge-offs (recoveries) to average loans ~~were~~remained the same at 0.01% for the three months ended March 31, ~~2017 compared to 0.09% for the three months ended March 31, 2016.~~2018 and 2017. Management will continue its efforts to reduce the level ofnon-performing loans and may consider the possibility of sales of troubled andnon-performing loans, which could result in additional charge-offs to the allowance for loan losses.

To provide for the risk of loss inherent in extending credit, we maintain an allowance for loan losses. The allowance for loan losses is maintained at a level believed adequate by management to absorb probable losses incurred in the consolidated loan portfolio. Management’s evaluation of the adequacy of the allowance is an estimate based on reviews of individual loans, pools of homogeneous loans, assessments of the impact of current and anticipated economic conditions on the portfolio, and historical loss experience.

At March 31, ~~2017,~~2018, the allowance for loan losses was ~~$49.8~~$50.4 million, an ~~decrease~~increase of ~~$0.9~~$0.6 million compared to ~~$50.7~~$49.8 million at March 31, ~~2016,~~2017, and ~~no change compared to~~unchanged from December 31, ~~2016.~~2017. Continued loan growth in future periods, or a decline in our current level of recoveries, or an increase in charge-offs could result in an increase in provision expense.

As a percentage of total loans excluding loans held for sale, the allowance was 0.45% at March 31, 2018, compared to 0.55% at March 31, 2017 ~~compared to 0.72% at March 31, 2016~~ and ~~0.55%~~0.45% at December 31, ~~2016. Our ratio of allowance for loan losses to total loans declined at March 31, 2017 compared to March 31, 2016 with the addition of Anchor’s $1.638 billion loan portfolio.~~2017.

In accordance with ASC 805, no allowance for loan losses is recorded at the date of acquisition and a reserve is only established to absorb any subsequent credit deterioration or adverse changes in expected cash flows.

The following table provides additional details of the components of the allowance for loan losses, including ~~FAS 5/~~ASC 450, ~~(Accounting~~Contingencies, for ~~Contingencies)~~loans collectively evaluated for impairment, ASC 310-10,Receivables, ~~FAS 114/ASC310-35~~ ~~(Accounting by Creditors~~ for ~~Impairment of a Loan)~~loans individually evaluated for impairment, and ~~SOP03-3/ASC310-30~~ ~~(Accounting for Certain~~ ASC 310-30,Loans orand Debt Securities Acquired ~~in a Transfer):~~with Deteriorated Credit Quality, for loans acquired with deteriorated credit quality:


(dollars in thousands)	FAS 5			FAS 114			SOP03-3			Total			Collectively Evaluated for Impairment			Individually Evaluated for Impairment			Acquired with Deteriorated Credit Quality			Total
Loan balance	$	9,079,572		$	92,135		$	77,126		$	9,248,833		$	11,200,945		$	98,050		$	65,263		$	11,364,258
Remaining purchase discount		(81,814	)		(4,972	)		(30,274	)		(117,060	)		(98,295	)		(3,265	)		(24,016	)		(125,576	)

Loans, net of discount	$	8,997,758		$	87,163		$	46,852		$	9,131,773		$	11,102,650		$	94,785		$	41,247		$	11,238,682

Allowance, January 1, 2017	$	41,532		$	7,998		$	278		$	49,808
Allowance, January 1, 2018													$	40,137		$	10,078		$	166		$	50,381
Charge-offs		(2,178	)		(1,028	)		(33	)		(3,239	)		(2,431	)		(240	)		(14	)		(2,685	)
Recoveries		916			1,815			187			2,918			1,260			984			61			2,305
Provision expense		361			(12	)		(2	)		347			1,165			(744	)		(41	)		380

Allowance, March 31, 2017	$	40,631		$	8,773		$	430		$	49,834
Allowance, March 31, 2018													$	40,131		$	10,078		$	172		$	50,381

We maintain an allowance for 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 loan losses, modified to take into account the probability of a drawdown on the commitment. The reserve for unfunded loan commitments is classified as a liability account on the balance sheet and totaled ~~$3.0~~$3.4 million at March 31, ~~2017,~~2018, compared to ~~$3.2~~$3.1 million at December 31, ~~2016.~~2017.

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.

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.

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, andre-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 Board.~~Reserve.

In managing interest rate risk, we, through the 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:

A key element in our ongoing process is to measure and monitor interest rate risk using a model to quantify the impact of changing interest rates on ~~the Company.~~Old National. 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. The model shows our projected net interest income sensitivity based on interest rate changes only and does not consider other forecast assumptions.

The following table illustrates our projected net interest income sensitivity over a two year cumulative horizon based on the asset/liability model at March 31, ~~2017~~2018 and ~~2016:~~2017:


	Immediate
	Rate Decrease					Immediate Rate Increase									Immediate Rate Decrease					Immediate Rate Increase
	-50					+100			+200			+300			-50					+100			+200			+300
(dollars in thousands)	Basis Points			Base		Basis Points			Basis Points			Basis Points			Basis Points			Base		Basis Points			Basis Points			Basis Points
March 31, 2018
Projected interest income:
Money market, other interest earning investments, and investment securities															$	228,367		$	234,331	$	247,550		$	260,121		$	272,410
Loans																901,486			958,043		1,069,783			1,180,736			1,291,192

Total interest income																1,129,853			1,192,374		1,317,333			1,440,857			1,563,602

Projected interest expense:
Deposits																45,434			73,864		150,906			227,942			304,974
Borrowings																94,407			109,648		140,103			170,531			200,953

Total interest expense																139,841			183,512		291,009			398,473			505,927

Net interest income															$	990,012		$	1,008,862	$	1,026,324		$	1,042,384		$	1,057,675

Change from base															$	(18,850	)			$	17,462		$	33,522		$	48,813
% change from base																-1.87	%				1.73	%		3.32	%		4.84	%

March 31, 2017
Projected interest income:
Money market, other interest earning investments, and investment securities	$	226,433		$	234,507	$	247,095		$	257,031		$	267,559		$	226,433		$	234,507	$	247,095		$	257,031		$	267,559
Loans		650,985			697,478		789,583			880,714			971,491		��	650,985			697,478		789,583			880,714			971,491

Total interest income		877,418			931,985		1,036,678			1,137,745			1,239,050			877,418			931,985		1,036,678			1,137,745			1,239,050

Projected interest expense:
Deposits		19,980			41,174		104,284			167,389			230,487			19,980			41,174		104,284			167,389			230,487
Borrowings		62,746			72,912		95,090			117,242			139,342			62,746			72,912		95,090			117,242			139,342

Total interest expense		82,726			114,086		199,374			284,631			369,829			82,726			114,086		199,374			284,631			369,829

Net interest income	$	794,692		$	817,899	$	837,304		$	853,114		$	869,221		$	794,692		$	817,899	$	837,304		$	853,114		$	869,221

Change from base	$	(23,207	)			$	19,405		$	35,215		$	51,322		$	(23,207	)			$	19,405		$	35,215		$	51,322
% change from base		-2.84	%				2.37	%		4.31	%		6.27	%		-2.84	%				2.37	%		4.31	%		6.27	%

March 31, 2016
Projected interest income:
Money market, other interest earning investments, and investment securities	$	196,212		$	208,192	$	222,453		$	235,244		$	246,844
Loans		476,697			509,871		577,215			642,914			707,455

Total interest income		672,909			718,063		799,668			878,158			954,299

Projected interest expense:
Deposits		15,642			26,937		73,952			120,967			167,983
Borrowings		48,115			55,219		72,957			90,696			108,434

Total interest expense		63,757			82,156		146,909			211,663			276,417

Net interest income	$	609,152		$	635,907	$	652,759		$	666,495		$	677,882

Change from base	$	(26,755	)			$	16,852		$	30,588		$	41,975
% change from base		-4.21	%				2.65	%		4.81	%		6.60	%

Our asset sensitivity decreased slightly year over year primarily due to changes in our balance sheet mix, investment duration, and prepayment speed behavior.

A key element in the measurement and modeling of interest rate risk is there-pricing assumptions of our transaction deposit accounts, which have no contractual maturity dates. We assume this deposit base is comprised of both core and more volatile balances and consists of both~~non-interest~~ ~~bearing~~ noninterest-bearing and ~~interest bearing~~interest-bearing accounts. Core deposit balances are assumed to be less interest rate sensitive and provide longer term funding. Volatile balances are assumed to be more interest rate sensitive and shorter in term. As part of our semi-static balance sheet modeling, we assume interest rates paid on the volatile deposits move in conjunction with changes in interest rates, in order to retain these deposits. This may include current~~non-interest~~ ~~bearing~~ noninterest-bearing accounts.

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, yield curve flattening, yield curve steepening, as well as forecasts of likely interest rate scenarios. At ~~March~~December 31, 2017, our projected net interest income sensitivity based on the asset/liability models we utilize was within the limits of ~~the Company’s~~our interest rate risk policy for the scenarios tested.

We use derivative instruments, primarily interest rate swaps, to mitigate interest rate risk, including certain cash flow hedges on variable-rate debt with a notional amount of ~~$775~~$625 million at March 31, ~~2017.~~2018. Our derivatives had an estimated fair value loss of ~~$5.2~~$5.4 million at March 31, ~~2017,~~2018, compared to an estimated fair value loss of ~~$5.9~~$2.2 million at December 31, ~~2016.~~2017. See Note 2021 to the consolidated financial statements for further discussion of derivative financial instruments.

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.

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 Bank is shown in the following table at March 31, ~~2017.~~2018.


(dollars in thousands)
Maturity Bucket	Amount		Rate
2017	$	696,691		0.61	%
(dollars in thousands) Maturity Bucket						Amount		Rate
2018		440,096		0.82		$	963,001		1.11	%
2019		133,219		1.17			474,050		1.35
2020		96,322		1.64			162,231		1.39
2021		44,778		1.37			77,876		1.46
2022 and beyond		55,612		1.59
2022							46,149		1.42
2023 and beyond							52,424		1.74

Total	$	1,466,718		0.85	%	$	1,775,731		1.24	%

Our ability to acquire funding at competitive prices is influenced by rating agencies’ views of our credit quality, liquidity, capital, and earnings. Moody’s Investor Service places us in an investment grade that indicates a low risk of default. For both Old National and Old National Bank:

The rating outlook from Moody’s Investor Service is ~~stable.~~negative. Moody’s Investor Service concluded a rating review of Old National Bank on ~~May~~February 2, ~~2016.~~2018.

The credit ratings of Old National and Old National Bank at March 31, ~~2017~~2018 are shown in the following table.

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 March 31, ~~2017,~~2018, Old National ~~Bancorp~~ and its subsidiaries had the following availability of liquid funds and borrowings:


	Parent
(dollars in thousands)	Company		Subsidiaries		Parent Company		Subsidiaries
Available liquid funds:
Cash and due from banks	$	76,433	$	140,602	$	54,612	$	223,629
Unencumbered government-issued debt securities		—		1,096,156		—		1,075,809
Unencumbered investment grade municipal securities		—		443,087		—		508,155
Unencumbered corporate securities		—		81,053		—		139,369
Availability of borrowings:
Amount available from Federal Reserve discount window*		—		502,049		—		519,013
Amount available from Federal Home Loan Bank Indianapolis*		—		542,869		—		590,385

Total available funds	$	76,433	$	2,805,816	$	54,612	$	3,056,360

The Parent Company (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. The Parent Company 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, the Parent Company has a shelf registration in place with the ~~Securities and Exchange Commission~~SEC permitting ready access to the public debt and equity markets. At March 31, ~~2017,~~2018, the Parent Company’s other borrowings outstanding were ~~$215.8~~$230.9 million.

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 ~~2016~~2017 and is not currently required.

Operational/technology/cyber risk is the potential that inadequate information systems, operational problems, breaches in internal controls, information security breaches, fraud, or unforeseen catastrophes will result in unexpected losses. 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 Leaders 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 on-going review of management reports, data on risks, policy limits and discussion on enterprise risk management strategies, policies, and risk assessments.

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.

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 ~~$2.417~~$3.181 billion and standby letters of credit of ~~$54.0~~$71.9 million at March 31, ~~2017.~~2018. At March 31, ~~2017,~~2018, approximately ~~$2.277~~$2.945 billion of the loan commitments had fixed rates and ~~$140.2~~$236.0 million had floating rates, with the floating rates ranging from 0% to ~~21%~~25%. At December 31, ~~2016,~~2017, loan commitments were ~~$2.354~~$3.144 billion and standby letters of credit were ~~$51.7~~$68.7 million. The term of theseoff-balance sheet arrangements is typically one year or less.

Old National is a party in three separate risk participation transactions of interest rate swaps, which had total notional amount of ~~$20.3~~$17.3 million at March 31, ~~2017.~~2018.

The following table presents our significant fixed and determinable contractual obligations at March 31, ~~2017:~~2018:


	Payments Due In										Payments Due In
(dollars in thousands)	One Year or Less (1)		One to Three Years		Three to Five Years		Over Five Years		Total		One Year or Less (1)		One to Three Years		Three to Five Years		Over Five Years		Total
Deposits without stated maturity	$	9,354,634	$	—	$	—	$	—	$	9,354,634	$	11,012,869	$	—	$	—	$	—	$	11,012,869
IRAs, consumer, and brokered certificates of deposit		696,691		573,315		141,100		55,612		1,466,718		963,001		636,281		124,025		52,424		1,775,731
Federal funds purchased and interbank borrowings		61,016		—		—		—		61,016		150,026		—		—		—		150,026
Securities sold under agreements to repurchase		320,550		25,000		—		—		345,550		308,189		—		—		—		308,189
Federal Home Loan Bank advances		753,818		402,404		50,000		234,808		1,441,030
FHLB advances												902,032		301,902		58,500		401,745		1,664,179
Other borrowings		117		164		190		218,550		219,021		96		284		332		248,186		248,898
Fixed interest payments (2)		15,062		30,590		26,509		48,372		120,533		21,029		44,431		40,484		73,015		178,959
Operating leases		12,696		31,180		28,840		79,881		152,597		14,516		35,207		30,432		68,476		148,631
Other long-term liabilities (3)		17,979		5,721		44		76		23,820		41,954		2,737		33		63		44,787

We rent certain premises and equipment under operating leases. See Note 10 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 2021 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 2122 to the consolidated financial statements.

In addition, liabilities recorded under FASB ASC740-10 (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 recorded under FASB ASC740-10 is included in Note 1920 to the consolidated financial statements.

Our accounting policies are described in Note 1 to the consolidated financial statements included in our Annual Report on Form10-K for the year ended December 31, ~~2016.~~2017. Certain accounting policies require management to 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 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.

Over the life of the acquired loans, we continue to estimate cash flows expected to be collected on pools of loans sharing common risk characteristics, which are treated in the aggregate when applying various valuation techniques. We evaluate at each balance sheet date whether the present value of our pools of loans determined using the effective interest rates has decreased significantly and if so, recognize a provision for loan loss in our consolidated statement of income. For any significant increases in cash flows expected to be collected, we adjust the amount of accretable yield recognized on a prospective basis over the pool’s remaining life.

The allowance is increased through a provision charged to operating expense. Uncollectible loans arecharged-off through the allowance. Recoveries of loans previouslycharged-off are added to the allowance. A loan is considered impaired when it is probable that contractual interest and principal payments will not be collected either for the amounts or by the dates as scheduled in the loan agreement. Our policy for recognizing income on impaired loans is to accrue interest unless a loan is placed on nonaccrual status. 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 collectibility of principal or interest. We monitor the quality of our loan portfolio on anon-going basis and use a combination of detailed credit assessments by relationship managers and credit officers, historic loss trends, and economic and business environment factors in determining the allowance for loan losses. We record provisions for loan losses based on current loans outstanding, grade changes, mix of loans, and expected losses. A detailed loan loss evaluation on an individual loan basis for our highest risk loans is performed quarterly. Management follows the progress of the economy and how it might affect our borrowers in both the near and the intermediate term. We have a formalized and disciplined independent loan review program to evaluate loan administration, credit quality, and compliance with corporate loan standards. This program includes periodic, regular reviews of problem loan reports, delinquencies and charge-offs.

We use historic loss ratios adjusted for economic conditions to determine the appropriate level of allowance for residential real estate and consumer loans.

Management’s analysis of probable losses in the portfolio at March 31, ~~2017~~2018 resulted in a range for allowance for loan losses of ~~$15.1~~$15.2 million. The range pertains to general (FASB ASC 450, ~~Contingencies/SFAS 5)~~Contingencies) reserves for both retail and performing commercial loans. Specific (FASB ASC 310, ~~Receivables/SFAS 114)~~Receivables) reserves do not have a range of probable loss. Due to the risks and uncertainty associated with the economy and our projection of ~~FAS 5~~ loss rates inherent in the portfolio, we establish a range of probable outcomes (ahigh-end estimate and alow-end estimate) and evaluate our position within this range. The potential effect to net income based on our position in the range relative to the high and low endpoints is a decrease of ~~$1.5~~$1.7 million and an increase of ~~$8.3~~$9.8 million, respectively, after taking into account the tax effects. These sensitivities are hypothetical and may not represent actual results.

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”.~~Operations.”

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 fromtime-to-time in press releases and in oral statements made by the officers of Old National Bancorp (“Old ~~National,”~~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:

Investors should consider these risks, uncertainties, and other factors in addition to risk factors included in our other filings with the SEC.

See Management’s Discussion and Analysis of Financial Condition and Results of Operations - Market Risk and Liquidity Risk.

Evaluation of disclosure controls and 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 Rule13a-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 Form10-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 Commission 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, control 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.

There have been no material changes from the risk factors previously disclosed in the “Risk Factors” section of the Company’s Annual Report on Form10-K for the year ended December 31, ~~2016.~~2017.

The Board of Directors did not authorize a stock repurchase plan for ~~2017.~~2018. During the three months ended March 31, ~~2017,~~2018, Old National repurchased a limited number of shares associated with employee share-based incentive programs.



~~10.8~~		Old National Bancorp Amended and Restated 2008 Incentive Compensation Plan (incorporated by reference to Appendix I of Old National’s Definitive Proxy Statement filed with the Securities and Exchange Commission on March 14, 2012).*

~~10.9~~		~~Form of 2013 Restricted Stock Award Agreement between Old National and certain key associates (incorporated by reference to Exhibit 10(bg) of Old National’s Annual Report on Form10-K~~ for the year ended December 31, 2012).*

~~10.10~~		~~Form of 2014 Performance Units Award Agreement between Old National and certain key associates (incorporated by reference to Exhibit 10(ap) of Old National’s Annual Report on Form10-K~~ for the year ended December 31, 2013).*

~~10.11~~		~~Form of 2014 Restricted Stock Award Agreement between Old National and certain key associates (incorporated by reference to Exhibit 10(aq) of Old National’s Annual Report on Form10-K~~ for the year ended December 31, 2013).*

~~10.12~~		~~Form of 2015 Performance Units Award Agreement between Old National and certain key associates (incorporated by reference to Exhibit 10(au) of Old National’s Annual Report on Form10-K~~ for the year ended December 31, 2014).*

~~10.13~~		~~Form of 2015 Restricted Stock Award Agreement between Old National and certain key associates (incorporated by reference to Exhibit 10(av) of Old National’s Annual Report on Form10-K~~ for the year ended December 31, 2014).*

~~10.14~~		~~Stock Purchase and Dividend Reinvestment Plan (incorporated by reference to Old National’s Registration Statement on FormS-3,~~ ~~RegistrationNo. 333-206352~~ ~~filed with the Securities and Exchange Commission on August 13, 2015).~~

~~10.15~~		~~Form of 2017 Performance Units Award Agreement between Old National and certain key associates (incorporated by reference to Exhibit 10(n) of Old National’s Annual Report on Form10-K~~ for the year ended December 31, 2016).*

~~10.16~~		~~Form of 2017 Restricted Stock Award Agreement between Old National and certain key associates (incorporated by reference to Exhibit 10(o) of Old National’s Annual Report on Form10-K~~ for the year ended December 31, 2016).*

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from Old National’s Form10-Q Report for the quarterly period ended March 31, ~~2017,~~2018, formatted in 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.

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.


INDIANA		35-1539838
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Main Street Evansville, Indiana		47708
(Address of principal executive offices)		(Zip Code)


		~~Page~~		Page
PART I. FINANCIAL INFORMATION					3	4
Item 1.	Financial Statements				3	4
	Consolidated Balance Sheets				3	4
	Consolidated Statements of Income (unaudited)				4	5
	Consolidated Statements of Comprehensive Income (unaudited)				5	6
	Consolidated Statements of Changes in Shareholders’ Equity (unaudited)				6	7
	Consolidated Statements of Cash Flows (unaudited)				7	8
	Notes to Consolidated Financial Statements (unaudited)				8	9
	Note 1.	Basis of Presentation			8	9
	Note 2. ~~Recent Accounting Pronouncements~~		8Revenue Recognition		9
	Note 3. ~~Acquisition and Divestiture Activity~~		13Recent Accounting Pronouncements		11
	Note 4. ~~Net Income Per Share~~		14Acquisition and Divestiture Activity		15
	Note 5. ~~Accumulated Other Comprehensive Income (Loss)~~	Net Income Per Share		16
	Note 6. ~~Investment Securities~~	Investment Securities		18
	Note 7.	Loans Held for Sale			22
	Note 8.	Loans and Allowance for Loan Losses			22
	Note 9.	Other Real Estate Owned			34	33
	Note 10.	Premises and Equipment			35	34
	Note 11.	Goodwill and Other Intangible Assets			35	34
	Note 12.	Loan Servicing Rights			36	35
	Note 13.	Qualified Affordable Housing Projects and Other Tax Credit Investments			37	36
	Note 14.	Securities Sold Under Agreements to Repurchase			38	37
	Note 15.	Federal Home Loan Bank Advances			39	38
	Note 16. ~~Other Borrowings~~		39Other Borrowings		38
	Note 17. ~~Employee Benefit Plans~~	Accumulated Other Comprehensive Income (Loss)		41
	Note 18. ~~Stock-Based Compensation~~	Employee Benefit Plans		42
	Note 19. ~~Income Taxes~~		43Stock-Based Compensation		42
	Note 20. ~~Derivative Financial Instruments~~		45Income Taxes		43
	Note 21. ~~Commitments and Contingencies~~		47Derivative Financial Instruments		46
	Note 22. ~~Financial Guarantees~~		47Commitments and Contingencies		49
	Note 23. ~~Segment Information~~		48Financial Guarantees		50
	Note 24. ~~Fair Value~~		48Segment Information		50
	~~Item 2.~~Note 25.	Fair Value		51
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			60
	Financial Highlights			61
57	Non-GAAP Financial Measures			62
	Executive Summary				57	63
	Results of Operations				58	64
	Financial Condition				61	70
	Risk Management				65	74
	Off-Balance Sheet Arrangements				74	84
	Contractual Obligations				75	84
	Critical Accounting Policies and Estimates				75	85
	Forward-Looking Statements				79	88
Item 3.	Quantitative and Qualitative Disclosures About Market Risk				79	89
Item 4.	Controls and Procedures				79	89
PART II. OTHER INFORMATION					80	89
Item 1A.	Risk Factors				80	89
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds				80	90
Item 5.	Other Information				81	90
Item 6.	Exhibits		81		90
SIGNATURE			83		91


	Three Months Ended
	March 31,
(dollars and shares in thousands, except per share data)	2018		2017
Interest Income
Loans including fees:
Taxable	$	118,389	$	92,201
Nontaxable		3,874		3,179
Investment securities:
Taxable		18,804		15,685
Nontaxable		6,549		7,372
Money market and other interest-earning investments		90		31

Total interest income		147,706		118,468

Interest Expense
Deposits		7,255		4,383
Federal funds purchased and interbank borrowings		1,017		356
Securities sold under agreements to repurchase		359		256
Federal Home Loan Bank advances		7,780		5,312
Other borrowings		2,723		2,360

Total interest expense		19,134		12,667

Net interest income		128,572		105,801
Provision for loan losses		380		347

Net interest income after provision for loan losses		128,192		105,454

Noninterest Income
Wealth management fees		9,026		8,999
Service charges on deposit accounts		10,759		9,843
Debit card and ATM fees		4,865		4,236
Mortgage banking revenue		4,192		4,226
Investment product fees		5,515		4,989
Capital markets income		498		1,031
Company-owned life insurance		2,605		2,149
Net securities gains (losses)		788		1,500
Recognition of deferred gain on sale leaseback transactions		395		537
Other income		3,746		5,410

Total noninterest income		42,389		42,920

Noninterest Expense
Salaries and employee benefits		64,179		56,564
Occupancy		13,280		12,134
Equipment		3,565		3,227
Marketing		3,697		3,050
Data processing		8,884		7,608
Communication		3,064		2,414
Professional fees		2,730		2,651
Loan expense		1,744		1,631
Supplies		722		579
FDIC assessment		2,645		2,487
Other real estate owned expense		349		1,115
Amortization of intangibles		3,609		3,020
Amortization of tax credit investments		716		—
Other expense		8,457		5,411

Total noninterest expense		117,641		101,891

Income before income taxes		52,940		46,483
Income tax expense		4,957		10,491

Net income	$	47,983	$	35,992

Net income per common share - basic	$	0.32	$	0.27
Net income per common share - diluted		0.31		0.27

Weighted average number of common shares outstanding - basic		151,721		134,912
Weighted average number of common shares outstanding - diluted		152,370		135,431

Dividends per common share	$	0.13	$	0.13


	Three Months Ended
	March 31,
(dollars in thousands)	2018			2017
Net income	$	47,983		$	35,992
Other comprehensive income (loss):
Change in securities available-for-sale:
Unrealized holding gains (losses) for the period		(25,794	)		15,780
Reclassification for securities transferred to held-to-maturity		14,007			—
Reclassification adjustment for securities gains realized in income		(788	)		(1,500	)
Income tax effect		3,110			(5,260	)

Unrealized gains (losses) on available-for-sale securities		(9,465	)		9,020
Change in securities held-to-maturity:
Adjustment for securities transferred to available-for-sale		19,412			—
Adjustment for securities transferred from available-for-sale		(14,007	)		—
Amortization of fair value for securities held-to-maturity previously recognized into accumulated other comprehensive income		591			449
Income tax effect		(1,026	)		(154	)

Changes from securities held-to-maturity		4,970			295
Cash flow hedges:
Net unrealized derivative gains (losses) on cash flow hedges		4,563			580
Reclassification adjustment for losses realized in net income		769			1,799
Income tax effect		(1,308	)		(904	)

Changes from cash flow hedges		4,024			1,475
Defined benefit pension plans:
Amortization of net loss recognized in income		51			27
Income tax effect		(31	)		(10	)

Changes from defined benefit pension plans		20			17

Other comprehensive income (loss), net of tax		(451	)		10,807

Comprehensive income	$	47,532		$	46,799


Cash and cash equivalents	$	123,657
Investment securities		235,240
Federal Home Loan Bank stock		4,596
Loans held for sale		9,334
Loans		1,637,806
Premises and equipment		35,721
Accrued interest receivable		7,308
Other real estate owned		17,349
Company-owned life insurance		7,278
Other assets		126,210
Deposits		(1,852,713	)
Securities sold under agreements to repurchase		(3,132	)
Other borrowings		(123	)
Accrued expenses and other liabilities		(36,957	)

Net tangible assets acquired		311,574
Definite-lived intangible assets acquired		21,559
Loan servicing rights		15,274
Goodwill		111,347

Total consideration paid	$	459,754


					Best Estimate at
					Acquisition Date of
	Fair Value		Gross Contractual		Contractual Cash
	of Acquired Loans		Amounts Receivable		Flows Not Expected
(in thousands)	at Acquisition Date		at Acquisition Date		to be Collected
Acquired receivables subject to ASC310-30	$	20,174	$	29,544	$	6,153
Acquired receivables not subject to ASC310-30	$	1,617,632	$	2,143,532	$	274,155


(dollars in thousands)	Unrealized Gains and Losses on Available-for-Sale Securities			Unrealized Gains and Losses on Held-to-Maturity Securities			Gains and Losses on Cash Flow Hedges			Defined Benefit Pension Plans			Total
Three Months Ended March 31, 2017
Balance at January 1, 2017	$	(39,012	)	$	(13,310	)	$	(6,715	)	$	(335	)	$	(59,372	)
Other comprehensive income (loss) before reclassifications		9,967			—			360			—			10,327
Amounts reclassified from accumulated other comprehensive income (loss) (a)		(947	)		295			1,115			17			480

Net other comprehensive income (loss)		9,020			295			1,475			17			10,807

Balance at March 31, 2017	$	(29,992	)	$	(13,015	)	$	(5,240	)	$	(318	)	$	(48,565	)

Three Months Ended March 31, 2016
Balance at January 1, 2016	$	(3,806	)	$	(14,480	)	$	(9,276	)	$	(7,235	)	$	(34,797	)
Other comprehensive income (loss) before reclassifications		11,282			—			(6,900	)		—			4,382
Amounts reclassified from accumulated other comprehensive income (loss) (a)		(699	)		306			789			434			830

Net other comprehensive income (loss)		10,583			306			(6,111	)		434			5,212

Balance at March 31, 2016	$	6,777		$	(14,174	)	$	(15,387	)	$	(6,801	)	$	(29,585	)


	Amount Reclassified						Affected Line Item in the
Details about AOCI Components	from AOCI						Statement of Income
	Three Months Ended
	March 31,
(dollars in thousands)	2017			2016
Unrealized gains and losses onavailable-for-sale securities	$	1,500		$	1,106		Net securities gains
		(553	)		(407	)	Income tax (expense) benefit

	$	947		$	699		Net income

Unrealized gains and losses onheld-to-maturity securities	$	(449	)	$	(465	)	Interest income (expense)
		154			159		Income tax (expense) benefit

	$	(295	)	$	(306	)	Net income

Gains and losses on cash flow hedges Interest rate contracts	$	(1,799	)	$	(1,273	)	Interest income (expense)
		684			484		Income tax (expense) benefit

	$	(1,115	)	$	(789	)	Net income

Amortization of defined benefit pension items Actuarial gains (losses)	$	(27	)	$	(700	)	Salaries and employee benefits
		10			266		Income tax (expense) benefit

	$	(17	)	$	(434	)	Net income

Total reclassifications for the period	$	(480	)	$	(830	)	Net income


(dollars in thousands)						Rate at
			Issuance			March 31,
Name of Trust	Issuance Date		Amount		Rate	2018			Maturity Date
VFSC Capital Trust I		April 2002	$	3,093	3-month LIBOR plus 3.70%		5.06	%		April 22, 2032
VFSC Capital Trust II		October 2002		4,124	3-month LIBOR plus 3.45%		5.29	%		November 7, 2032
VFSC Capital Trust III		April 2004		3,093	3-month LIBOR plus 2.80%		4.81	%		September 8, 2034
St. Joseph Capital Trust II		March 2005		5,000	3-month LIBOR plus 1.75%		3.93	%		March 20, 2035
Anchor Capital Trust III		August 2005		5,000	3-month LIBOR plus 1.55%		3.86	%		August 23, 2035
Tower Capital Trust 2		December 2005		8,000	3-month LIBOR plus 1.34%		3.65	%		December 4, 2035
Home Federal Statutory Trust I		September 2006		15,000	3-month LIBOR plus 1.65%		3.77	%		September 15, 2036
Monroe Bancorp Capital Trust I		July 2006		3,000	3-month LIBOR plus 1.60%		3.30	%		October 7, 2036
Monroe Bancorp Statutory Trust II		March 2007		5,000	3-month LIBOR plus 1.60%		3.72	%		June 15, 2037
Tower Capital Trust 3		December 2006		9,000	3-month LIBOR plus 1.69%		3.70	%		September 15, 2037

Total			$	60,310


	Unrealized Gains			Unrealized Gains			Gains and			Defined
	and Losses on			and Losses on			Losses on			Benefit
	Available-for-Sale			Held-to-Maturity			Cash Flow			Pension
(dollars in thousands)	Securities			Securities			Hedges			Plans			Total
Three Months Ended March 31, 2018
Balance at beginning of period	$	(35,557	)	$	(12,107	)	$	(2,337	)	$	(271	)	$	(50,272	)
Other comprehensive income (loss) before reclassifications		(8,872	)		4,514			3,444			—			(914	)
Amounts reclassified from AOCI to income (a)		(593	)		456			580			20			463
Amount reclassified from AOCI to retained earnings for cumulative effect of change in accounting principle (b)		—			—			(52	)		—			(52	)
Amounts reclassified from AOCI to retained earnings related to the Tax Cuts and Jobs Act of 2017 (c)		(7,583	)		(2,600	)		(509	)		(59	)		(10,751	)

Balance at end of period	$	(52,605	)	$	(9,737	)	$	1,126		$	(310	)	$	(61,526	)

Three Months Ended March 31, 2017
Balance at beginning of period	$	(39,012	)	$	(13,310	)	$	(6,715	)	$	(335	)	$	(59,372	)
Other comprehensive income (loss) before reclassifications		9,967			—			360			—			10,327
Amounts reclassified from AOCI to income (a)		(947	)		295			1,115			17			480

Balance at end of period	$	(29,992	)	$	(13,015	)	$	(5,240	)	$	(318	)	$	(48,565	)


	Amount Reclassified						Affected Line Item in the
Details about AOCI Components	from AOCI						Statement of Income
	Three Months Ended
	March 31,
(dollars in thousands)	2018			2017
Unrealized gains and losses on available-for-sale securities	$	788		$	1,500		Net securities gains
		(195	)		(553	)	Income tax (expense) benefit

	$	593		$	947		Net income

Unrealized gains and losses on held-to-maturity securities	$	(591	)	$	(449	)	Interest income (expense)
		135			154		Income tax (expense) benefit

	$	(456	)	$	(295	)	Net income

Gains and losses on cash flow hedges Interest rate contracts	$	(769	)	$	(1,799	)	Interest income (expense)
		189			684		Income tax (expense) benefit

	$	(580	)	$	(1,115	)	Net income

Amortization of defined benefit pension items
Actuarial gains (losses)	$	(51	)	$	(27	)	Salaries and employee benefits
		31			10		Income tax (expense) benefit

	$	(20	)	$	(17	)	Net income

Total reclassifications for the period	$	(463	)	$	(480	)	Net income


	From Three Months Ended
	March 31, 2017 to Three
	Months Ended March 31, 2018
	Total		Attributed to
(dollars in thousands)	Change		Volume		Rate
Interest Income
Money market and other interest-earning investments	$	59	$	49	$	10
Investment securities (1)		58		2,355		(2,297	)
Loans (1)		26,200		22,797		3,403

Total interest income		26,317		25,201		1,116

Interest Expense
NOW deposits		363		105		258
Savings deposits		186		34		152
Money market deposits		397		153		244
Time deposits		1,926		653		1,273
Federal funds purchased and interbank borrowings		661		206		455
Securities sold under agreements to repurchase		103		10		93
FHLB advances		2,468		1,023		1,445
Other borrowings		363		324		39

Total interest expense		6,467		2,508		3,959

Net interest income	$	19,850	$	22,693	$	(2,843	)


	Moody’s Investor Service
	Long-term		Short-term
Old National ~~Bancorp~~		A3		N/A
Old National Bank		Aa3		P-1


					Total Number
					of Shares
	Total		Average		Purchased as		Maximum Number of
	Number		Price		Part of Publicly		Shares that May Yet
	of Shares		Paid Per		Announced Plans		Be Purchased Under
Period	Purchased		Share		or Programs		the Plans or Programs
01/01/17 - 01/31/17		2,004	$	17.86		—		—
02/01/17 - 02/28/17		51,772		18.20		—		—
03/01/17 - 03/31/17		5,375		17.35		—		—

Quarter-to-date 3/31/17		59,151	$	18.11		—		—


Period	Total 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
01/01/18 - 01/31/18		714	$	17.45		—		—
02/01/18 - 02/28/18		57,025		17.47		—		—
03/01/18 - 03/31/18		6,285		16.96		—		—

Quarter-to-date 3/31/18		64,024	$	17.42		—		—


Exhibit ~~No.~~ No .		Description

2.1		Agreement and Plan of Merger dated as of August 7, 2017 by and between Old National Bancorp and Anchor Bancorp, Inc. (the schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K) (incorporated by reference to Exhibit 2.1 of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 8, 2017).

3.1		Fourth Amended and Restated Articles of Incorporation of Old National, amended May 13, 2016 (incorporated by reference to Exhibit 3.1 of Old National’s Current Report on Form8-K filed with the Securities and Exchange Commission on May 16, 2016).

3.2		Amended and RestatedBy-Laws of Old National, amended July 28, 2016 (incorporated by reference to Exhibit 3.1 of Old National’s Current Report on Form8-K filed with the Securities and Exchange Commission on August 1, 2016).

4.1		Senior Indenture between Old National and The Bank of New York Trust Company (as successor to J.P. Morgan Trust Company, National Association (as successor to Bank One, ~~NA)~~N.A.)), as trustee, dated as of July 23, 1997 (incorporated by reference to Exhibit 4.3 to Old National’s Registration Statement on FormS-3, RegistrationNo. 333-118374, filed with the Securities and Exchange Commission on December 2, 2004).

4.2		Second Indenture Supplement, dated as of August 15, 2014, between Old National and The Bank of New York Mellon Trust Company, N.A., as trustee, providing for the issuance of its 4.125% Senior Notes due 2024 (incorporated by reference to Exhibit 4.1 of Old National’s Current Report on Form8-K filed with the Securities and Exchange Commission on August 15, 2014).

~~10.1~~		~~Form of 2006Non-qualified~~ ~~Stock Option Agreement (incorporated by reference to Exhibit 99.3 of Old National’s Current Report on Form8-K~~ filed with the Securities and Exchange Commission on March 2, 2006).*

~~10.2~~		~~Form of 2007Non-qualified~~ ~~Stock Option Agreement between Old National and certain key associates (incorporated by reference to Exhibit 10(y) of Old National’s Annual Report on Form10-K~~ for the year ended December 31, 2006).*

~~10.3~~		~~Form of 2008Non-qualified~~ ~~Stock Option Award Agreement (incorporated by reference to Exhibit 99.1 of Old National’s Current Report on Form8-K~~ filed with the Securities and Exchange Commission on January 30, 2008).*

~~10.4~~		~~Form of 2009 Executive Stock Option Agreement between Old National and certain key associates (incorporated by reference to Old National’s Current Report on Form8-K/A~~ filed with the Securities and Exchange Commission on February 13, 2009).*

~~10.5~~		~~Form of Employment Agreement for Robert G. Jones (incorporated by reference to Exhibit 10.1 of Old National’s Current Report on Form8-K~~ filed with the Securities and Exchange Commission on January 27, 2011).*

~~10.6~~		~~Form of Employment Agreement for Daryl D. Moore (incorporated by reference to Exhibit 10.2 of Old National’s Current Report on Form8-K~~ with the Securities and Exchange Commission on January 27, 2011).*

~~10.7~~		~~Form of Amended Severance/Change of Control Agreement for Jeffrey L. Knight (incorporated by reference to Exhibit 10(bb) of Old National’s Annual Report on Form10-K~~ for the year ended December 31, 2011).*


		OLD NATIONAL BANCORP (Registrant)

By:		/s/ James C. Ryan, III
		James C. Ryan, III Senior Executive Vice President and Chief Financial Officer Duly Authorized Officer and Principal Financial Officer

		Date: May ~~5, 2017~~2, 2018

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Smaller reporting company

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