Old National Profit Jumps

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Evansville-based Old National Bancorp (Nasdaq: ONB) is reporting a third quarter profit of $29.1 million, compared to $23.9 million for the same period last year. Chief Executive Officer Bob Jones says "strong organic loan growth and a strong loan pipeline" contributed to the increase. October 27, 2014

News Release

EVANSVILLE, Ind. - Today Old National Bancorp (the "Company" or "Old National") (Nasdaq:ONB) reported 3rd quarter 2014 net income of $29.1 million, or $.26 per share. Benefitting current quarter results was $34.3 million of accretion income which was partially offset by a $19.1 million adjustment to our FDIC indemnification asset. Accretion income was particularly high during the third quarter due to the successful resolution of two large loans that had been acquired in the Company's FDIC-assisted acquisition of Integra Bank. Also included in the current quarter were $3.6 million of pre-tax merger and integration expenses. These quarterly results represent an increase of 44.4% over the earnings per share of $.18 recorded in the 2nd quarter of 2014 and a 13.0% increase over the earnings per share of $.23 in the 3rd quarter of 2013. Included in 2nd quarter 2014 results were $6.3 million of merger and integration expenses, a $10.5 million unfavorable change in the indemnification asset and $17.6 million in accretion income. Included in 3rd quarter 2013 results were $2.4 million of merger and integration expenses, a $2.1 million unfavorable change in the indemnification asset and $13.1 million in accretion income.

Old National Bancorp's Board of Directors also declared a quarterly cash dividend of $.11 per share on the Company's outstanding shares. This dividend is payable December 15, 2014, to shareholders of record on December 1, 2014. For purposes of broker trading, the ex-date of the cash dividend is November 26, 2014.

"For the second consecutive quarter, strong organic loan growth and a strong loan pipeline served as the catalyst for Old National's earnings success," said Old National President & CEO Bob Jones. "It's also worth noting that our earnings of $29.1 million exceeded analysts' consensus estimates despite integration expenses and an anticipated unfavorable change in our indemnification asset. Coupled with our continued strong credit quality and capital position, and the completion of our United Bancorp partnership, these results demonstrate the ongoing success of our growth strategy."

Committed to our Strategic Imperatives and 2014 Initiatives

Old National's continued steady performance and 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 September 30, 2014, increased $705.0 million to $6.255 billion from $5.550 billion at June 30, 2014. The acquisition of United Bancorp, Inc. ("United") added $631.0 million to September 30 balances while $86.9 million of the increase (excluding covered loans) resulted from organic loan growth occurring across all of Old National's major loan segments.

On average, total loans increased $603.2 million to $5.983 billion in the 3rd quarter of 2014 compared to $5.380 billion in the 2nd quarter of 2014. The acquisition of United added $418.4 million to quarterly average balances in the 3rd quarter. Partially offsetting this increase was a $20.9 million decrease in average covered loan balances during the 3rd quarter of 2014.

Excluding covered loans acquired in the 2011 FDIC-assisted acquisition of Integra Bank, total loans increased $717.8 million to $6.097 billion at September 30, 2014, from $5.379 billion at June 30, 2014. The acquisition of United added $631.0 million to September 30, 2014, balances. The Terre Haute, Indiana market, Louisville, Kentucky market, and the Michigan/Northern Indiana branches acquired last year contributed $33.3 million, $19.4 million and $19.3 million, respectively, to this increase in loan volume.

At September 30, 2014, total core deposits, including demand and interest-bearing deposits, increased $650.3 million to $8.168 billion, compared to the $7.517 billion at June 30, 2014. The acquisition of United added $721.5 million to September 30, 2014, period-end core deposit balances. On average, total core deposits increased $472.0 million to $7.945 billion during the 3rd quarter of 2014 compared to $7.473 billion during the 2nd quarter of 2014. The acquisition of United added $483.4 million in average core deposits to 3rd quarter 2014 balances.

Total investments, including money market accounts, decreased $22.8 million to $3.434 billion from $3.456 billion at June 30, 2014. On average, total investments, including money market accounts, increased $111.6 million, to $3.462 billion at September 30, 2014, from $3.350 billion at June 30, 2014. The primary driver of the increase in quarterly averages can be attributed to the acquisition of United in the 3rd quarter of the current year.

Old National reported net interest income of $108.4 million in the 3rd quarter of 2014 compared to $84.5 million in the 2nd quarter of 2014, and $78.0 million in the 3rd quarter of 2013. Net interest income on a fully taxable equivalent basis was $112.9 million for the 3rd quarter of 2014 and represented a net interest margin on total average earning assets of 4.78%. These results compare to net interest income on a fully taxable equivalent basis of $88.7 million and a margin of 4.07% in the 2nd quarter of 2014 and net interest income on a fully taxable equivalent basis of $82.4 million and a margin of 3.96% for the 3rd quarter of 2013.

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 $31.7 million for the 3rd quarter of 2014. This compares to $37.9 million in the 2nd quarter of 2014 and $47.5 million in the 3rd quarter of 2013. The decline is attributable to a $19.1 million unfavorable change in the indemnification asset relating to the 2011 FDIC-assisted acquisition of Integra Bank reported in the 3rd quarter of 2014, compared to unfavorable changes of $10.5 million and $2.1 million recorded in the 2nd quarter of 2014 and the 3rd quarter of 2013, respectively.

"I am particularly pleased with the significant progress our workout officers made this quarter in resolving several large impaired loans acquired in our FDIC-assisted transaction," noted Old National CFO Chris Wolking. "Of course the successful resolution of these loans resulted in high amortization expense of the indemnification asset ("IA") during the quarter; but the lower covered loan and IA balances should reduce the volatility in both our accretion income and IA amortization expense going forward. It is also worth noting, that at September 30, 2014, the balance of the FDIC loss sharing asset was down to $28 million; $13.4 million of which we expect will be amortized and reported as a reduction of noninterest income over the next 24 months, while the remainder should be collected from the FDIC."

The United acquisition contributed an additional $1.8 million in fees, service charges and other revenue during the current quarter. Old National's fee-based businesses of insurance and wealth management saw year-over-year increases from the 3rd quarter of 2013 (exclusive of the contributions from the recent United and Tower acquisitions) of $.9 million and $.8 million, respectively, while the investm