Old National Completes Tower Deal, Reports Earnings

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Evansville-based Old National Bancorp (Nasdaq: ONB) says the acquisition of Tower Financial Corp. in Fort Wayne is complete and all Tower locations have been converted to Old National banking centers. The company is also reporting a first quarter profit of $26.5 million, compared to $23.9 million in 2013. April 28, 2014

News Release

EVANSVILLE, Ind. - Today Old National Bancorp (Nasdaq:ONB) reported 1st quarter 2014 net income of $26.5 million, or $.26 per share. These results represent an 8.3 percent increase over the earnings per share of $.24 reported in the 1st quarter of 2013 and a 4.0 percent increase over the earnings per share of $.25 in the 4th quarter of 2013.

Old National Bancorp's Board of Directors declared a quarterly cash dividend of $.11 per share on the Company's outstanding shares. This dividend is payable June 16, 2014, to shareholders of record on June 2, 2014. For purposes of broker trading, the ex-date of the cash dividend is May 29, 2014.

In addition, Old National closed on its partnership with Tower Financial Corporation, headquartered in Fort Wayne, Indiana, on Friday, April 25. All Tower banking centers were converted to Old National banking centers over the weekend.

"These strong first quarter results included consumer loan growth across our footprint, overall loan growth in our newest markets in Bloomington (Indiana) and Southwestern Michigan, and continued growth in our Wealth Management, Investments and Insurance divisions," said Old National President & CEO Bob Jones. "As we continue to transform the Old National franchise by expanding into vibrant, growing markets - as evidenced by our Tower Bank & Trust partnership and our pending partnership with Ann Arbor (Michigan)-based United Bancorp - we remain committed to our basic community banking mission in every community we serve."

Committed to our Strategic Imperatives and 2014 Initiatives

Old National's strong, steady performance amid continued economic and political headwinds, as well as its strong credit and capital positions, can be attributed to the Company's unwavering commitment to the following three strategic imperatives: 1. Strengthen the risk profile; 2. Enhance management discipline; and 3. Achieve consistent quality earnings.

Guided by these three strategic imperatives, Old National's primary initiatives for 2014 are: 1. Continue to grow core revenue; 2. Reduce operating expense; and 3. Transform the franchise into higher-growth markets, all while maintaining a strong credit culture and capital position.

Grow Core Revenue

Balance Sheet and Net Interest Margin

Total period-end loans at March 31, 2014, decreased slightly to $5.079 billion from $5.091 billion at December 31, 2013. The consumer loan portfolio increased $26.5 million during the quarter and was offset by a $23.6 million decline in covered loans as well as slight decreases in all other loan categories. On average, total loans were virtually flat, at $5.070 billion in the 1st quarter of 2014 compared to $5.067 billion in the 4th quarter of 2013. Of this slight change, covered loans decreased $25.3 million during the quarter while consumer loans increased $28.0 million in the current quarter.

Excluding covered loans acquired in the 2011 FDIC-assisted acquisition of Integra Bank, total loans increased $11.4 million to $4.884 billion at March 31, 2014, from $4.873 billion at December 31, 2013. Importantly, loans in the recently acquired Michigan and Northern Indiana branches grew $20.6 million to $46.4 million at March 31, 2014, from $25.8 million at the end of 2013. Also significant was the increase of $11.3 million experienced in the Bloomington, Indiana market during the 1st quarter of 2014.

At March 31, 2014, total core deposits, including demand and interest-bearing deposits, increased to $7.258 billion, compared to the $7.211 billion at December 31, 2013. Old National continues to experience a positive shift in the mix of interest-bearing deposits, as noninterest-bearing demand deposits increased $21.2 million and NOW, savings and money market accounts collectively increased $83.4 million while higher-cost time deposits declined $57.2 million. On average, total core deposits decreased to $7.175 billion during the 1st quarter of 2014 compared to $7.260 billion during the 4th quarter of 2013.

Total investments, including money market accounts, increased $14.0 million to $3.210 billion, from $3.196 billion at December 31, 2013. On average, total investments, including money market accounts, decreased $48.7 million, from $3.255 billion at December 31, 2013, to $3.207 billion at March 31, 2014.

Old National reported net interest income of $83.5 million compared to $81.2 million in the 4th quarter of 2013, and $79.0 million in the 1st quarter of 2013. Net interest income on a fully taxable equivalent basis was $87.4 million for the 1st quarter of 2014 and represented a net interest margin on total average earning assets of 4.22 percent. These results compare to net interest income on a fully taxable equivalent basis of $85.5 million and a margin of 4.11 percent in the 4th quarter of 2013 and net interest income on a fully taxable equivalent basis of $83.0 million and a margin of 4.04 percent for the 1st quarter of 2013. Refer to Tables A and B for Non-GAAP taxable equivalent reconciliations.

Fees, Service Charges and Other Revenue

Total fees, service charges and other revenue represent an important component of Old National's revenue stream and amounted to $39.9 million, or 32.2 percent of the company's total revenues, for the 1st quarter of 2014. This compares to $44.1 million in the 4th quarter of 2013 and $45.3 million in the 1st quarter of 2013. The declines are partially attributable to a $7.3 million unfavorable change in the indemnification asset relating to the 2011 FDIC-assisted acquisition of Integra Bank reported in the 1st quarter of 2014, compared to an unfavorable adjustment of $3.4 million and $2.3 million reported in the 4th quarter of 2013 and the 1st quarter of 2013, respectively. The 1st quarter of 2014 also included $2.4 million of insurance contingency income. Old National's fee-based businesses of insurance, wealth management and investments saw year-over-year increases from the 1st quarter of 2013 of $1.1 million, $.1 million and $.3 million, respectively. The 4th quarter of 2013 included no insurance contingency income, a $.6 million gain on the sale of branches and an expense of $3.4 million in the change in indemnification asset.

Reduce Operating Expense

Old National continued to improve efficiency during the 1st quarter of 2014, and reported total noninterest expenses of $88.3 million. This represented an efficiency ratio of 67.77%. Excluding the merger and integration expenses associated with the completed merger of Tower Bank and the pending merger of United Bank of Michigan, as noted below, the efficiency ratio would have been 65.8%. These results compare to the $88.2 million in expenses and an efficiency ratio of 66.56% in the 4th quarter of 2013, and expenses of $90.2 million and an efficiency ratio of 68.34%, reported in the 1th quarter of 2013. Refer to Table 1 for Non-GAAP reconciliations. A lower effective tax rate also contributed to an improvement in Old National's net income for the 1st quarter of 2014.

Included in Old National's 1st quarter 2014 noninterest expenses were $2.5 million of merger and integration charges. Included in Old National's 4th quarter 2013 noninterest expenses were $2.5 million of merger and integration charges as well as a $.5 million BSA/AML penalty.

Transform the Franchise into Higher-Growth Markets

Tower Financial Partnership Complete

On April 25, 2014, Old National Bancorp completed its previously announced partnership with Tower Financial Corporation in Fort Wayne, Indiana. Based on the closing price of $13.96 per share of Old National common stock on April