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Old National’s 2nd quarter results highlighted by 11.3% annualized organic loan growth and 5.5% increase in tangible book value(1)

  • Anchor BanCorp Wisconsin Inc. partnership complete
  • Old National Insurance sale closes

2nd Quarter 2016 Highlights:

  • Earnings of $39.1 million, or $0.31 per common share
  • Organic loan growth of 11.3% annualized
  • Tangible book value1 increase of 5.5% even after closing on largest partnership in Company history
  • Current dividend yield of 4.0%
  • Stable Core Net Interest Margin1
  • Early termination of FDIC Loss Share Agreement

1 Non-GAAP measures – refer to Tables 5 & 12 for Non-GAAP reconciliations

EVANSVILLE, Ind., Aug. 01, 2016 (GLOBE NEWSWIRE) -- Today Old National Bancorp (the “Company” or “Old National”) (NASDAQ:ONB) reported 2nd quarter 2016 net income of $39.1 million, or $0.31 per share. These quarterly results compare to net income of $27.0 million in the 1st quarter of 2016 and $26.2 million recorded in the 2nd quarter of 2015.

Old National accomplished several strategic milestones during the 2nd quarter. These include the sale of the ONB Insurance Group, Inc., d/b/a Old National Insurance (May 31); closing on the partnership with Anchor BanCorp Wisconsin Inc. (“Anchor”) (May 1); the early termination of our FDIC loss share agreements; and the continuation of rationalizing our branch franchise. Related to some of these actions, the following items were included in Old National’s 2nd quarter financial results:

Table 1 ($ in millions) After-Tax Impact
Gain on Sale of Insurance Subsidiary$17.6
Merger and Integration Expenses$(4.6)
ONB Foundation/Community Support Expenses$(3.2)
Branch Consolidation Expenses$(0.7)
Severance$(0.4)

Also today, the Company announced its quarterly cash dividend of $0.13 per share. The dividend is payable September 16, 2016, to shareholders of record on September 1, 2016. For purposes of broker trading, the ex-date of the cash dividend is August 30, 2016.

“This was a quarter marked by significant milestones for Old National as we closed on our largest partnership to date, completed the sale of our Insurance group and ended our FDIC loss share agreement,” said Chairman and CEO Bob Jones. “These actions – coupled with solid organic loan growth and a continued focus on expense management – allowed us to continue to grow our business in spite of the economic challenges facing all U.S. financial companies. Our shareholders also benefitted by the increase in tangible book value even after the closing of our Anchor partnership. ”

Committed to our Strategic Imperatives and 2016 Initiatives

Old National’s continued steady performance and strong credit and capital positions can be attributed to the Company’s unwavering commitment to the three strategic imperatives that have guided Old National for 11 years:

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 2016 are: 1. Continue to grow organic revenue; 2. Improve operating leverage; and 3. Prudent use of capital, all while maintaining a strong credit culture.

Grow Organic Revenue

Balance Sheet and Net Interest Margin

At June 30, 2016, total period-end loans, including loans held for sale, increased $1.845 billion to $8.875 billion from $7.030 billion at March 31, 2016. Total loans acquired through the partnership with Anchor totaled $1.646 billion as of the date of closing. Organic loan growth during the 2nd quarter was $199.1 million, or 11.3% on an annualized basis. Old National’s new Wisconsin region experienced the largest increase in loan balances, with $38.9 million, or 14.2% annualized, loan growth during the quarter as compared to their day 1 (May 1) balances. The Louisville, Kentucky market, including the Company’s new Lexington office, the Bloomington, Indiana market and the South Bend, Indiana market also experienced significant loan growth in the Old National franchise, with total loans in these regions increasing $31.8 million (21.4% annualized), $30.4 million (22.9% annualized) and $29.7 million (56.3% annualized), respectively, over March 31, 2016, loan balances.

At June 30, 2016, total period-end core deposits, including demand and interest-bearing deposits, increased $1.851 billion to $10.273 billion, compared to $8.422 billion at March 31, 2016. Total core deposits assumed through the partnership with Anchor were $1.853 billion as of the date of closing.

Net interest income for the 2nd quarter of 2016 totaled $99.3 million compared to $85.6 million in the 1st quarter of 2016, and $92.1 million in the 2nd quarter of 2015. On a fully taxable equivalent basis, net interest income was $104.6 million for the 2nd quarter of 2016 and represented a net interest margin on total average earning assets of 3.57%. These results compare to net interest income on a fully taxable equivalent basis of $90.8 million and a margin of 3.52% in the 1st quarter of 2016. In the 2nd quarter of 2015, Old National reported net interest income on a fully taxable equivalent basis of $96.9 million and a margin of 3.75%. Refer to Table 5 for Non-GAAP taxable equivalent reconciliations.

As part of net interest income, Old National recorded $14.2 million, or a 49 basis point contribution to net interest margin, from accretion income in the 2nd quarter of 2016 related to purchase accounting discounts from various acquisitions. Total accretion income in the 1st quarter of 2016 and the 2nd quarter of 2015 reported by Old National was $11.2 million, or a 44 basis point net interest margin contribution, and $15.6 million, or a 60 basis point net interest margin contribution, respectively. Excluding accretion income, the core net interest margin was 3.08% in the 2nd quarter of 2016, compared to 3.08% in the 1st quarter of 2016 and 3.15% in the 2nd quarter of 2015. Refer to Table 5 for Non-GAAP reconciliations.

Noninterest Income

For the 2nd quarter of 2016, total noninterest income amounted to $93.4 million, and includes the $41.9 million pre-tax gain on the sale of Old National Insurance. Excluding this gain on sale, total noninterest income was $51.5 million. This compares to $49.5 million in the 1st quarter of 2016 and $55.0 million in the 2nd quarter of 2015. Anchor contributed $4.6 million in noninterest income to the 2nd quarter of 2016.

Improve Operating Leverage

Old National’s noninterest expenses for the 2nd quarter of 2016 totaled $121.5 million. Items impacting noninterest expenses for the 2nd quarter are detailed in Table 1. Anchor operational expenses, excluding merger and integration charges, contributed $11.4 million in noninterest expenses during the current quarter. Noninterest expenses for the 1st quarter of 2016 were $98.4 million and for the 2nd quarter of 2015 were $109.7 million. As of June 30, 2016, Old National has 206 branches throughout its franchise.

Prudent Use of Capital

Old National’s capital position remained well above regulatory guideline minimums at June 30, 2016, with regulatory tier 1 and total risk-based capital ratios of 11.8% and 12.4%, respectively, compared to 12.5% and 13.2% at March 31, 2016, and 11.6% and 12.2% at June 30, 2015. Old National did not repurchase any stock in the open market during the 2nd quarter of 2016.

The following table presents Old National’s risk-based and leverage ratios compared to industry requirements:



Table 2
Fully Phased-In
Regulatory
Guidelines Minimum

Consolidated ONB
at June 30, 2016
Tier 1 Risk-Based Capital Ratio> 8.5% 11.8%
Total Risk-Based Capital Ratio> 10.5% 12.4%
Common Equity Tier 1 Capital Ratio> 7.0% 11.6%
Tier 1 Leverage Capital Ratio> 4.0% 8.9%

Old National’s ratio of tangible common equity to tangible assets was 8.10% at June 30, 2016, compared to 7.88% at March 31, 2016, and 7.23% at June 3, 2015. Refer to Table 12 for Non-GAAP reconciliations.

Maintain a Strong Credit Culture

Old National recorded provision expense of $1.3 million and had net charge-offs of $0.2 million in the 2nd quarter of 2016. These results compare to $0.1 million in provision expense and net charge-offs of $1.6 million, and provision expense of $2.3 million and net charge-offs of $1.0 million, in the 1st quarter of 2016 and the 2nd quarter of 2015, respectively. Net charge-offs for the 2nd quarter of 2016 were 0.01% of average total loans on an annualized basis, compared to net charge-offs of 0.09% of average total loans in the 1st quarter of 2016 and net charge-offs of 0.06% of average total loans in the 2nd quarter of 2015.

Delinquencies remained low as Old National reported 30+ day delinquent loans of 0.34% in the 2nd quarter of 2016 compared to 0.30% in the 1st quarter of 2016. Old National’s 90+ day delinquent loans for the 2nd quarter were 0.01% compared to 0.01% in the 1st quarter of 2016.

Old National’s allowance for loan losses at June 30, 2016, was $51.8 million, or 0.59% of total loans, compared to an allowance of $50.7 million, or 0.72% of total loans at March 31, 2016, and $50.2 million, or 0.74% of total loans, at June 30, 2015. The coverage ratio (allowance to non-performing loans) stood at 30% at June 30, 2016, compared to 38% at March 31, 2016, and 28% at June 30, 2015.

“Our ratio of allowance for loan and lease losses to total loans declined quarter to quarter with the addition of Anchor’s $1.6 billion loan portfolio,” noted Daryl Moore, Chief Credit Executive. “In accordance with current accounting practices, these acquired loans are recorded at fair value with no allowance recorded at the acquisition date. When we consider both our allowance for loan losses plus our purchase accounting marks, we believe we remain appropriately reserved, as demonstrated by the table below.”

Table 3 – At June 30, 2016 ($ in millions)
ONB
Excluding
Anchor1



Anchor


ONB
Consolidated
Allowance for Loan Losses (ALLL)$51.8 $0.0 $51.8
Remaining Loan Discount 86.2 73.2 159.4
Total ALLL + Remaining Loan Discount$138.0 $73.2 $211.2
Pre-Discount Loan Balance$7,244.1 $1,745.5 $8,989.6
ALLL/Pre-Discount Loan Balance 0.72% 0.0% 0.58%
Mark/Pre-Discount Loan Balance 1.18% 4.20% 1.77%
Combined ALLL & Discount/Pre-Discount Loan Balance 1.90% 4.20% 2.35%

1 Includes discount on loans acquired through previous partnerships.

The following table presents certain credit quality metrics related to Old National’s loan portfolio:

Table 4 ($ in millions) 2Q16 ONB
Excluding
Anchor

2Q16
Anchor

2Q16 ONB
Consolidated


1Q16


2Q15
Non-Performing Loans (NPLs)$139.2 $35.0 $174.2 $132.0 $181.4
Problem Loans (Including NPLs) 210.9 39.3 250.2 200.3 257.1
Special Mention Loans 97.5 9.4 106.9 132.5 173.9
Net Charge-Off (Recoveries) Ratio 0.04% (0.05)% 0.01% 0.09% 0.06%
Provision for Loan Losses$1.8 $(0.5)$1.3 $0.1 $2.3
Allowance for Loan Losses 51.8 0.0 51.8 50.7 50.2

About Old National

Old National Bancorp (NASDAQ:ONB), the holding company of Old National Bank, is the largest financial services holding company headquartered in Indiana. With $14.4 billion in assets, it ranks among the top 100 banking companies in the U.S. Since its founding in Evansville in 1834, Old National Bank has focused on community banking by building long-term, highly valued partnerships with clients. Today, Old National’s footprint includes Indiana, Kentucky, Michigan and Wisconsin. In addition to providing extensive services in retail and commercial banking, Old National offers comprehensive wealth management, investments and brokerage services. For more information and financial data, please visit Investor Relations at oldnational.com.

Conference Call

Old National will hold a conference call at 10:00 a.m. Central Time on Monday, August 1, 2016, to discuss 2nd quarter 2016 financial results, strategic developments, and the Company’s financial outlook. The live audio web cast of the call, along with the corresponding presentation slides, will be available on the Company’s Investor Relations web page at oldnational.com and will be archived there for 12 months. A replay of the call will also be available from 1:00 p.m. Central Time on August 1 through August 15. To access the replay, dial 1-855-859-2056, Conference ID Code 43576759.

Use of Non-GAAP Financial Measures

This earnings release contains GAAP financial measures and non-GAAP financial measures where management believes it to be helpful in understanding Old National’s results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the tables of this release.

Table 5: non-GAAP Reconciliations-Core Net Interest Margin

($ in millions)2Q161Q162Q15
Net Interest Income$99.3 $85.6 $92.1
Taxable Equivalent Adjustment 5.3 5.2 4.8
Net Interest Income – Taxable Equivalent$104.6 $90.8 $96.9
Less Accretion1 14.2 11.2 15.6
Net Interest Income – Taxable Equivalent Less Accretion$90.4 $79.6 $81.3
Average Earning Assets$11,726.4 $10,331.0 $10,325.9
Core Net Interest Margin – Fully Taxable Equivalent 3.08% 3.08% 3.15%

1 Accretion related to purchase accounting discounts on acquired loan portfolios.

Forward-Looking Statement

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, descriptions of Old National Bancorp’s (“Old National’s”) financial condition, results of operations, asset and credit quality trends and profitability. Forward-looking statements can be identified by the use of the words “anticipate,” “believe,” “expect,” “intend,” “could” and “should,” and other words of similar meaning. These forward-looking statements express management’s current expectations or forecasts of future events and, by their nature, are subject to risks and uncertainties and there are a number of factors that could cause actual results to differ materially from those in such statements. Factors that might cause such a difference include, but are not limited to: expected cost savings, synergies and other financial benefits from the recently completed mergers might not be realized within the expected timeframes and costs or difficulties relating to integration matters might be greater than expected; market, economic, operational, liquidity, credit and interest rate risks associated with Old National’s business; competition; government legislation and policies (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and its related regulations); ability of Old National to execute its business plan (including integrating the recently completed merger with Anchor Bancorp Wisconsin Inc.); changes in the economy which could materially impact credit quality trends and the ability to generate loans and gather deposits; failure or circumvention of our internal controls; failure or disruption of our information systems; significant changes in accounting, tax or regulatory practices or requirements; new legal obligations or liabilities or unfavorable resolutions of litigations; disruptive technologies in payment systems and other services traditionally provided by banks; computer hacking and other cybersecurity threats; other matters discussed in this press release and other factors identified in our Annual Report on Form 10-K and other periodic filings with the SEC. These forward-looking statements are made only as of the date of this press release, and Old National does not undertake an obligation to release revisions to these forward-looking statements to reflect events or conditions after the date of this press release.

TABLE 6
Financial Highlights
($ and shares in thousands, except per share data)
Three Months Ended Six Months Ended
June 30,March 31,June 30, June 30,June 30,
2016 2016 2015 2016 2015
Income Statement
Net interest income$ 99,340 $ 85,643 $ 92,097 $ 184,983 $ 183,090
Provision for loan losses 1,319 91 2,271 1,410 2,272
Noninterest income 93,385 49,451 54,979 142,836 110,274
Noninterest expense 121,472 98,355 109,690 219,827 225,846
Net income 39,122 26,977 26,156 66,099 47,062
Per Common Share Data (Diluted)
Net income available to common shareholders$ 0.31 $ 0.24 $ 0.22 $ 0.55 $ 0.40
Average diluted shares outstanding 127,973 114,563 116,223 121,273 117,634
Book value 13.42 13.19 12.64 13.42 12.64
Stock price 12.53 12.19 14.46 12.53 14.46
Dividend payout ratio 42% 54% 53% 47% 60%
Tangible common book value (1) 8.23 7.80 7.18 8.23 7.18
Performance Ratios
Return on average assets 1.16% 0.91% 0.88% 1.04% 0.79%
Return on average common equity 9.22% 7.18% 7.11% 8.26% 6.33%
Net interest margin (FTE) 3.57% 3.52% 3.75% 3.54% 3.72%
Efficiency ratio (2) 60.22% 68.76% 70.52% 63.76% 73.36%
Net charge-offs (recoveries) to average loans 0.01% 0.09% 0.06% 0.05% 0.00%
Allowance for loan losses to ending loans 0.59% 0.72% 0.74% 0.59% 0.74%
Non-performing loans to ending loans 1.97% 1.88% 2.68% 1.97% 2.68%
Balance Sheet
Total loans$ 8,830,158 $ 7,007,074 $ 6,766,062 $ 8,830,158 $ 6,766,062
Total assets 14,420,262 11,932,326 12,074,404 14,420,262 12,074,404
Total deposits 10,451,602 8,588,895 8,809,570 10,451,602 8,809,570
Total borrowed funds 1,935,555 1,662,191 1,598,370 1,935,555 1,598,370
Total shareholders' equity 1,811,117 1,508,643 1,456,723 1,811,117 1,456,723
Capital Ratios (1)
Risk-based capital ratios (EOP):
Tier 1 common equity 11.6% 12.0% 11.2% 11.6% 11.2%
Tier 1 11.8% 12.5% 11.6% 11.8% 11.6%
Total 12.4% 13.2% 12.2% 12.4% 12.2%
Leverage ratio (to average assets) 8.9% 8.6% 8.2% 9.5% 8.2%
Total equity to assets (averages) 12.56% 12.63% 12.36% 12.59% 12.48%
Tangible common equity to tangible assets 8.10% 7.88% 7.23% 8.10% 7.23%
Nonfinancial Data
Full-time equivalent employees 2,919 2,615 2,865 2,919 2,865
Number of branches 206 160 180 206 180
(1) See non-GAAP measures on Table 12.
(2) Efficiency ratio is defined as noninterest expense before amortization of intangibles as a percent of FTE net interest income and noninterest revenues, excluding net gains from securities transactions. This presentation excludes intangible amortization and net securities gains, as is common in other company releases, and better aligns with true operating performance.
FTE - Fully taxable equivalent basis EOP - End of period actual balances

TABLE 7
Income Statement
($ and shares in thousands, except per share data)
Three Months Ended Six Months Ended
June 30,March 31,June 30, June 30,June 30,
2016 2016 2015 2016 2015
Interest income$ 110,243 $ 95,329 $ 99,964 205,572 $ 198,558
Less: interest expense 10,903 9,686 7,867 20,589 15,468
Net interest income 99,340 85,643 92,097 184,983 183,090
Provision for loan losses 1,319 91 2,271 1,410 2,272
Net interest income after provision for loan losses 98,021 85,552 89,826 183,573 180,818
Wealth management fees 9,355 8,121 9,443 17,476 17,963
Service charges on deposit accounts 10,437 9,639 11,278 20,076 22,323
Debit card and ATM fees 4,471 3,785 7,075 8,256 13,807
Mortgage banking revenue 5,203 2,920 4,262 8,123 7,225
Insurance premiums and commissions 7,122 13,121 10,172 20,243 22,285
Investment product fees 4,724 3,905 4,719 8,629 9,122
Company-owned life insurance 2,080 2,038 2,193 4,118 4,345
Change in Indemnification Asset 888 (655) (1,541) 233 (2,509)
Other income 4,377 4,372 5,356 8,749 9,425
Net gain on sale of ONB Insurance Group, Inc. 41,864 - - 41,864 -
Recognition of deferred gain on sale leaseback transactions 1,038 1,052 1,468 2,090 2,992
Gains (losses) on sales of securities 1,856 1,106 512 2,962 3,195
Gains (losses) on derivatives (30) 47 42 17 101
Total noninterest income 93,385 49,451 54,979 142,836 110,274
Salaries and employee benefits 62,715 56,972 59,248 119,687 128,942
Occupancy 13,568 12,844 14,141 26,412 28,434
Equipment 3,316 2,893 3,446 6,209 7,350
Marketing 5,111 2,486 3,678 7,597 5,914
Data processing 8,676 7,123 8,077 15,799 14,667
Communication 2,535 1,864 2,435 4,399 5,179
Professional fees 5,181 3,368 3,381 8,549 6,513
Loan expenses 2,123 1,333 1,816 3,456 3,142��
Supplies 598 583 581 1,181 1,265
FDIC assessment 2,030 1,919 1,972 3,949 3,857
Other real estate owned expense 2,099 424 476 2,523 1,637
Intangible amortization 3,365 2,647 2,977 6,012 6,058
Other expense 10,155 3,899 7,462 14,054 12,888
Total noninterest expense 121,472 98,355 109,690 219,827 225,846
Income before income taxes 69,934 36,648 35,115 106,582 65,246
Income tax expense 30,812 9,671 8,959 40,483 18,184
Net income$ 39,122 $ 26,977 $ 26,156 $ 66,099 $ 47,062
Diluted Earnings Per Share
Net income$ 0.31 $ 0.24 $ 0.22 $ 0.55 $ 0.40
Average Common Shares Outstanding
Basic 127,508 113,998 115,732 120,753 117,128
Diluted 127,973 114,563 116,223 121,273 117,634
Common shares outstanding at end of period 135,005 114,352 115,205 135,005 115,205

TABLE 8
Balance Sheet
($ in thousands)
June 30, March 31, June 30,
2016 2016 2015
Assets
Federal Reserve Bank account $ 56,433 $ 20,516 $ 11,297
Money market investments 5,514 1,783 4,931
Investments:
Treasury and government sponsored agencies 694,264 757,745 851,746
Mortgage-backed securities 1,349,805 1,005,588 1,123,692
States and political subdivisions 1,128,700 1,112,599 1,047,246
Other securities 437,669 431,368 448,756
Total investments 3,610,438 3,307,300 3,471,440
Loans held for sale 44,422 22,546 217,667
Loans:
Commercial 1,893,700 1,784,970 1,775,954
Commercial and agriculture real estate 2,943,525 1,907,834 1,767,341
Consumer:
Home equity 473,550 347,776 369,961
Other consumer loans 1,419,613 1,236,959 1,094,580
Subtotal of commercial and consumer loans 6,730,388 5,277,539 5,007,836
Residential real estate 2,099,770 1,634,132 1,622,819
Covered loans - 95,403 135,407
Total loans 8,830,158 7,007,074 6,766,062
Total earning assets 12,546,965 10,359,219 10,471,397
Allowance for loan losses (51,804) (50,700) (50,191)
Nonearning Assets:
Cash and due from banks 205,973 153,259 178,985
Premises and equipment 231,656 198,065 131,336
Goodwill and intangible assets 699,760 617,077 629,460
Company-owned life insurance 350,193 342,292 337,802
Net deferred tax assets 179,448 98,712 127,622
Loan servicing rights 25,756 10,534 10,027
FDIC Indemnification Asset - 7,703 16,475
Other real estate owned 24,254 13,522 14,141
Other assets 208,061 182,643 207,350
Total nonearning assets 1,925,101 1,623,807 1,653,198
Total assets $ 14,420,262 $ 11,932,326 $ 12,074,404
Liabilities and Equity
Noninterest-bearing demand deposits $ 2,883,917 $ 2,491,767 $ 2,557,665
NOW accounts 2,456,963 2,178,690 2,213,862
Savings accounts 2,616,365 2,271,341 2,352,916
Money market accounts 1,015,336 561,250 602,287
Other time deposits 1,300,611 919,213 1,036,040
Total core deposits 10,273,192 8,422,261 8,762,770
Brokered CD's 178,410 166,634 46,800
Total deposits 10,451,602 8,588,895 8,809,570
Short-term borrowings 567,659 494,380 530,377
Other borrowings 1,367,896 1,167,811 1,067,993
Total borrowed funds 1,935,555 1,662,191 1,598,370
Accrued expenses and other liabilities 221,988 172,597 209,741
Total liabilities 12,609,145 10,423,683 10,617,681
Common stock, surplus, and retained earnings 1,834,734 1,538,228 1,494,785
Other comprehensive income (23,617) (29,585) (38,062)
Total shareholders' equity 1,811,117 1,508,643 1,456,723
Total liabilities and shareholders' equity $ 14,420,262 $ 11,932,326 $ 12,074,404

TABLE 9
Average Balance Sheet and Interest Rates
($ in thousands)
Three Months Ended Three Months Ended Three Months Ended
June 30, 2016 March 31, 2016 June 30, 2015
AverageIncome (1)/Yield/ AverageIncome (1)/Yield/ AverageIncome (1)/Yield/
Earning Assets:BalanceExpenseRate BalanceExpenseRate BalanceExpenseRate
Fed Funds sold, resell agr, Fed Reserve Bank account, and money market $23,604 $21 0.36% $44,499 $49 0.45% $19,282 $8 0.16%
Investments:
Treasury and gov't sponsored agencies 738,642 3,586 1.94% 730,379 3,477 1.90% 839,453 4,123 1.96%
Mortgage-backed securities 1,209,231 5,562 1.84% 1,050,520 5,078 1.93% 1,138,567 5,060 1.78%
States and political subdivisions 1,117,367 13,207 4.73% 1,103,467 13,009 4.72% 976,034 12,025 4.93%
Other securities 434,089 2,119 1.98% 428,324 2,837 2.66% 452,169 2,674 2.37%
Total investments 3,499,329 24,474 2.80% 3,312,690 24,401 2.95% 3,406,223 23,882 2.81%
Loans:
Commercial (2) 1,825,627 17,709 3.84% 1,781,711 17,161 3.81% 1,759,870 19,919 4.48%
Commercial and agriculture real estate (2) 2,589,342 35,273 5.39% 1,896,951 28,038 5.85% 1,850,428 28,312 6.05%
Consumer:
Home equity (2) 454,581 6,586 5.83% 413,796 4,279 4.16% 447,504 4,451 3.99%
Other consumer loans (2) 1,344,288 11,438 3.42% 1,210,993 9,680 3.22% 1,114,210 9,976 3.59%
Subtotal commercial and consumer loans 6,213,838 71,006 4.60% 5,303,451 59,158 4.49% 5,172,012 62,658 4.86%
Residential real estate loans (2) 1,989,612 20,009 4.03% 1,670,389 16,921 4.06% 1,728,421 18,173 4.21%
Total loans (2) 8,203,450 91,015 4.42% 6,973,840 76,079 4.35% 6,900,433 80,831 4.66%
Total earning assets$11,726,383 $115,510 3.93% $10,331,029 $100,529 3.88% $10,325,938 $104,721 4.03%
Less: Allowance for loan losses (51,269) (52,077) (48,593)
Non-Earning Assets:
Cash and due from banks$187,974 $166,351 $181,326
Other assets 1,655,720 1,458,537 1,451,532
Total assets 13,518,808 $11,903,840 $11,910,203
Interest-Bearing Liabilities:
NOW accounts$2,416,761 $405 0.07% $2,114,798 $237 0.05% $2,271,745 $160 0.03%
Savings accounts 2,492,202 843 0.14% 2,224,151 780 0.14% 2,369,156 808 0.14%
Money market accounts 861,791 282 0.13% 552,475 90 0.07% 616,026 91 0.06%
Other time deposits 1,175,435 2,367 0.81% 913,347 2,115 0.93% 1,049,132 2,414 0.92%
Total interest-bearing deposits 6,946,189 3,897 0.23% 5,804,771 3,222 0.22% 6,306,059 3,473 0.22%
Brokered CD's 174,338 357 0.82% 127,287 272 0.86% 52,484 58 0.44%
Total interest-bearing deposits and CD's 7,120,527 4,254 0.24% 5,932,058 3,494 0.24% 6,358,543 3,531 0.22%
Short-term borrowings 528,437 410 0.31% 446,422 182 0.16% 467,440 112 0.10%
Other borrowings 1,251,712 6,239 2.00% 1,375,011 6,010 1.75% 896,359 4,224 1.87%
Total borrowed funds 1,780,149 6,649 1.50% 1,821,433 6,192 1.37% 1,363,799 4,336 1.28%
Total interest-bearing liabilities$8,900,676 $10,903 0.49% $7,753,491 $9,686 0.50% $7,722,342 $7,867 0.41%
Noninterest-Bearing Liabilities
Demand deposits 2,725,417 2,473,091 2,515,696
Other liabilities 195,091 174,296 200,243
Shareholders' equity 1,697,624 1,502,962 1,471,922
Total liabilities and shareholders' equity$13,518,808 $11,903,840 $11,910,203
Net interest rate spread 3.44% 3.38% 3.62%
Net interest margin (FTE) 3.57% 3.52% 3.75%
FTE adjustment $5,267 $5,200 $4,757
(1) Interest income is reflected on a fully taxable equivalent basis (FTE).
(2) Includes loans held for sale.

TABLE 10
Average Balance Sheet and Interest Rates
($ in Thousands)
Six Months Ended Six Months Ended
June 30, 2016 June 30, 2015
AverageIncome (1)/Yield/ AverageIncome (1)/Yield/
Earning Assets:BalanceExpenseRate BalanceExpenseRate
Fed Funds sold, resell agr, Fed Reserve Bank account, and money market $ 34,051 $ 70 0.41% $ 22,489 $ 14 0.12%
Investments:
Treasury and gov't sponsored agencies 734,511 7,063 1.92% 864,577 8,497 1.97%
Mortgage-backed securities 1,129,876 10,639 1.88% 1,146,159 10,110 1.76%
States and political subdivisions 1,110,417 26,216 4.72% 976,486 23,616 4.84%
Other securities 431,206 4,956 2.34% 453,114 5,494 2.42%
Total investments 3,406,010 48,874 2.87% 3,440,336 47,717 2.77%
Loans:
Commercial (2) 1,803,669 34,871 3.82% 1,738,137 38,933 4.46%
Commercial and agriculture real estate (2) 2,243,147 63,311 5.58% 1,865,125 56,438 6.02%
Consumer:
Home equity (2) 434,189 10,865 5.03% 450,555 9,032 4.04%
Other consumer loans (2) 1,277,640 21,118 3.32% 1,079,369 19,647 3.67%
Subtotal commercial and consumer loans 5,758,645 130,165 4.55% 5,133,186 124,050 4.87%
Residential real estate loans (2) 1,830,000 36,930 4.05% 1,739,986 36,192 4.16%
Total loans (2) 7,588,645 167,095 4.39% 6,873,172 160,242 4.66%
Total earning assets$ 11,028,706 $ 216,039 3.91% $ 10,335,997 $ 207,973 4.02%
Less: Allowance for loan losses (51,673) (49,003)
Non-Earning Assets:
Cash and due from banks$ 177,162 $ 183,518
Other assets 1,557,129 1,449,382
Total assets$ 12,711,324 $ 11,919,894
Interest-bearing Liabilities:
NOW accounts$ 2,265,779 $ 643 0.06% $ 2,239,599 $ 321 0.03%
Savings accounts 2,358,177 1,623 0.14% 2,356,595 1,617 0.14%
Money market accounts 707,133 372 0.11% 636,379 209 0.07%
Other time deposits 1,044,391 4,481 0.86% 1,062,001 4,798 0.91%
Total interest-bearing deposits 6,375,480 7,119 0.22% 6,294,574 6,945 0.22%
Brokered CD's 150,812 628 0.84% 62,620 149 0.48%
Total interest-bearing deposits and CD's 6,526,292 7,747 0.24% 6,357,194 7,094 0.23%
Short-term borrowings 487,430 592 0.24% 460,563 208 0.09%
Other borrowings 1,313,362 12,250 1.87% 907,495 8,166 1.81%
Total borrowed funds 1,800,792 12,842 1.43% 1,368,058 8,374 1.23%
Total interest-bearing liabilities$ 8,327,084 $ 20,589 0.50% $ 7,725,252 $ 15,468 0.40%
Noninterest-Bearing Liabilities
Demand deposits 2,599,253 2,509,423
Other liabilities 184,694 197,982
Shareholders' equity 1,600,293 1,487,237
Total liabilities and shareholders' equity$ 12,711,324 $ 11,919,894
Net interest rate spread 3.41% 3.62%
Net interest margin (FTE) 3.54% 3.72%
FTE adjustment $ 10,467 $ 9,415
(1) Interest income is reflected on a fully taxable equivalent basis (FTE).
(2) Includes loans held for sale.

TABLE 11
Asset Quality (EOP)
($ in thousands)
Three Months Ended Six Months Ended
June 30,March 31,June 30, June 30,June 30,
2016 2016 2015 2016 2015
Beginning allowance for loan losses$ 50,700 $ 52,233 $ 48,878 $ 52,233 $ 47,849
Provision for loan losses 1,319 91 2,271 1,410 2,272
Gross charge-offs (2,677) (3,942) (3,902) (6,619) (6,016)
Gross recoveries 2,462 2,318 2,944 4,780 6,086
Net (charge-offs) recoveries (215) (1,624) (958) (1,839) 70
Ending allowance for loan losses$ 51,804 $ 50,700 $ 50,191 $ 51,804 $ 50,191
Net charge-offs (recoveries) / average loans (1) 0.01% 0.09% 0.06% 0.05% 0.00%
Average loans outstanding (1)$ 8,191,544 $ 6,970,578 $ 6,697,517 $ 7,581,061 $ 6,668,724
EOP loans outstanding (1)$ 8,830,158 $ 7,007,074 $ 6,766,062 $ 8,830,158 $ 6,766,062
Allowance for loan losses / EOP loans (1) 0.59% 0.72% 0.74% 0.59% 0.74%
Underperforming Assets:
Loans 90 Days and over (still accruing)$ 670 $ 357 $ 598 $ 670 $ 598
Non-performing loans:
Nonaccrual loans (2) 160,340 117,866 167,802 160,340 167,802
Renegotiated loans 13,904 14,155 13,563 13,904 13,563
Total non-performing loans 174,244 132,021 181,365 174,244 181,365
Foreclosed properties 24,254 13,522 14,141 24,254 14,141
Total underperforming assets$ 199,168 $ 145,900 $ 196,104 $ 199,168 $ 196,104
Classified loans - "problem loans"$ 250,214 $ 200,297 $ 257,106 $ 250,214 $ 257,106
Other classified assets 6,392 6,566 11,371 6,392 11,371
Criticized loans - "special mention loans" 106,886 132,475 173,921 106,886 173,921
Total classified and criticized assets$ 363,492 $ 339,338 $ 442,398 $ 363,492 $ 442,398
Non-performing loans / EOP loans (1) 1.97% 1.88% 2.68% 1.97% 2.68%
Allowance to non-performing loans (3) 30% 38% 28% 30% 28%
Under-performing assets / EOP loans (1) 2.26% 2.08% 2.90% 2.26% 2.90%
EOP total assets$ 14,420,262 $ 11,932,326 $ 12,074,404 $ 14,420,262 $ 12,074,404
Under-performing assets / EOP assets 1.38% 1.22% 1.62% 1.38% 1.62%
EOP - End of period actual balances
(1) Excludes loans held for sale.
(2) Includes renegotiated loans totaling $38.1 million at June 30, 2016, $35.7 million at March 31, 2016 and $25.5 million at June 30, 2015.
(3) Includes acquired loans that were recorded at fair value in accordance with ASC 805 at the date of acquisition. As such, the credit risk was incorporated in the fair value recorded and no allowance for loan losses was recorded on the acquisition date.

TABLE 12
Non-GAAP Measures
($ in thousands)
Three Months Ended Six Months Ended
June 30,March 31,June 30, June 30,June 30,
2016 2016 2015 2016 2015
Actual End of Period Balances
GAAP shareholders' equity$ 1,811,117 $ 1,508,643 $ 1,456,723 $ 1,811,117 $ 1,456,723
Deduct:
Goodwill 655,523 584,634 588,464 655,523 588,464
Intangibles 44,237 32,443 40,996 44,237 40,996
699,760 617,077 629,460 699,760 629,460
Tangible shareholders' equity$ 1,111,357 $ 891,566 $ 827,263 $ 1,111,357 $ 827,263
Actual End of Period Balances
GAAP assets$ 14,420,262 $ 11,932,326 $ 12,074,404 $ 14,420,262 $ 12,074,404
Add:
Trust overdrafts 337 48 72 337 72
Deduct:
Goodwill 655,523 584,634 588,464 655,523 588,464
Intangibles 44,237 32,443 40,996 44,237 40,996
699,760 617,077 629,460 699,760 629,460
Tangible Assets$ 13,720,839 $ 11,315,297 $ 11,445,016 $ 13,720,839 $ 11,445,016
Risk-weighted assets$ 9,624,966 $ 7,795,646 $ 8,023,881 $ 9,624,966 $ 8,023,881
GAAP net income$ 39,122 $ 26,977 $ 26,156 $ 66,099 $ 47,062
Add:
Intangible amortization (net of tax) 3,171 2,404 2,687 5,575 5,468
Tangible net income$ 42,293 $ 29,381 $ 28,843 $ 71,674 $ 52,530
Tangible Ratios
Return on tangible common equity 15.22% 13.18% 13.95% 12.90% 12.70%
Return on tangible assets 1.23% 1.04% 1.01% 1.04% 0.92%
Tangible common equity to tangible assets 8.10% 7.88% 7.23% 8.10% 7.23%
Tangible common equity to risk-weighted assets 11.55% 11.44% 10.31% 11.55% 10.31%
Tangible common book value (1) 8.23 7.80 7.18 8.23 7.18
Tangible common equity presentation includes other comprehensive income as is common in other company releases.
(1) Tangible common shareholders' equity divided by common shares issued and outstanding at period-end.
Tier 1 capital$ 1,134,978 $ 975,717 $ 927,247 $ 1,134,978 $ 927,247
Deduct:
Trust Preferred Securities 45,000 45,000 45,000 45,000 45,000
Additional Tier 1 capital deductions (30,760) (7,625) (13,232) (30,760) (13,232)
14,240 37,375 31,768 14,240 31,768
Tier 1 common equity$ 1,120,738 $ 938,342 $ 895,479 $ 1,120,738 $ 895,479
Risk-weighted assets 9,624,966 7,795,646 8,023,881 9,624,966 8,023,881
Tier 1 common equity to risk-weighted assets 11.64% 12.04% 11.16% 11.64% 11.16%


Contacts: Media: Kathy A. Schoettlin – (812) 465-7269 Executive Vice President – Communications Financial Community: Lynell J. Walton – (812) 464-1366 Senior Vice President – Investor Relations

Source:Old National Bancorp