Welcome to the Old National Bancorp First Quarter Earnings Conference Call. [Operator Instructions]. At this time the call will be turned over to Lynell Walton for opening remarks. Ms. Walton?

Thank you, Holly and good morning, everyone. And welcome to Old National Bancorp's first quarter 2016 earnings conference call. Joining me are Jim Sandgren, Chris Wolking, Daryl Moore, Bob Jones, Jim Ryan and Joan Kissel. Some comments today may contain forward looking statements that are subject to certain risks and uncertainties that could cause the Company's actual future results to materially differ from those discussed. Please refer to the forward-looking statement disclosure contained on slide 3, as well as our SEC filings, for a full discussion of the Company's risk factors. Additionally, as you review slide 4, certain non-GAAP financial measures will be discussed on this call. References to non-GAAP measures are only provided to assist you in understanding Old National's results and performance trends and should not be relied upon as a financial measure of actual results. Reconciliations for such non-GAAP measures are appropriately referenced and included within the presentation. Moving to slide 5, our net income of $27 million and earnings per share of $0.24 in the first quarter of 2016 represented nice increases over the first quarter of 2015. Excluding merger and integration charges, our adjusted earnings were $28.1 million or $0.25 per share. As it relates to our 2016 initiatives, our first quarter saw gains in every area. Organic loan growth, year-over-year improvement in operational expenses and an increase in our tangible book value per share. Each of these areas will be discussed in more detail later in the call. In addition to earnings, as noted on slide 6, are two additional strategic announcements we made today. The first is that we have entered into an agreement to sell our insurance subsidiary to Prime Risk Partners. The second is that we have closed on our AnchorBank partnership and officially entered the state of Wisconsin. This acquisition boosts our total assets to over $14 billion and adds 46 banking centers to our franchise. Both of these strategic actions should have meaningful positive impact on the growth dynamics of the franchise and improvement in both our operating leverage and capital position. Bob will go into more detail on these actions later in his prepared remarks. With that brief overview, I will now turn the call over to Jim Sandgren.

Thank you, Lynell and good morning everyone. As Lynell noted, the first quarter saw Old National continue our positive momentum, with regard to organic loan growth. In fact, this was the first time since pre-crisis that we experienced organic commercial loan growth in the first quarter, a fact that I believe bodes well for the remainder of 2016. I'll begin my detailed comments on slide 8 which depicts our 4.6% annualized organic loan growth for the quarter. The $79.6 million in loan growth was largely driven by a combination of commercial and indirect lending. Indirect led the way, with balance sheet growth of $61.2 million, while our commercial portfolio increased by nearly $40 million. The commercial loan growth we experienced in the first quarter was even more meaningful, given our line utilization dropped from 36.6% in the fourth quarter to 33.9% in the first quarter which equated to $35.6 million less in line balances. Now these lines remain in place and we would expect balances and utilization to increase going forward, supporting future balance sheet growth. These strong commercial results were fueled by gains compared to December 31, 2015 balances in several of our markets, Louisville and Lexington continue to lead the way, with growth of $28 million, followed by Kalamazoo with $14.2 million and South Bend-Elkhart with $13.9 million in commercial loan growth. We were also pleased to see commercial growth in our newer Michigan markets of Ann Arbor, $10.3 million and Grand Rapids, $9.4 million. Moving to slide 9, I will begin by drawing your attention to the graph at the left which depicts a 38% year-over-year increase in new quarterly commercial and commercial real estate loan production. A closer examination of our commercial loan mix for the quarter shows that more than half of our new production…

Thank you, Jim. I'll begin on slide 12, with the graph of our total revenue. Net interest income was $85.6 million in the first quarter, down $300,000 from last quarter. As Jim noted, loans were higher in the first quarter compared to the fourth quarter, but largely because of low interest rates in the quarter, we purposely reduced the investment portfolio by $112.8 million on average in Q1. Accretion income was $11.2 million in the quarter, down from $12.3 million in the fourth quarter. Non-interest revenue was unchanged in the quarter from the fourth quarter. Mortgage and insurance revenue were higher than Q4, while deposit service charges and investment brokerage revenue were lower. Insurance revenue for the first quarter included $2.7 million in contingency revenue. Debit card interchange revenue was up $139,000 from Q4, but down $2.9 million from Q1 2015, due primarily to the impact of the Durbin Amendment which impacted ONB beginning in the third quarter of 2015. Amortization of the FDIC indemnification asset cost us $700,000 in the first quarter, compared to income of $100,000 in Q4. Turning to slide 13, you'll see that reported net interest margin increased to 3.52% from 3.5% in the fourth quarter. Accretion income contributed 44 basis points to net interest margin. Core margin was up 6 basis points to 3.08% in the quarter. We're still evaluating the impact of the contractual loan and deposit rates of the Anchor partnership, but we expect core margin to be in the range of 3.08% to 3.11% for the remainder of 2016, including the Anchor contractual interest rates. This core margin assumes no further federal fund rate increases in 2016. Continued loan growth should help core net interest margin, but the margin may be pressured by lower yielding investment portfolio purchases, due to the flat…

Thank you, Chris. Slide 18 provides a summary of trends in net charge-offs and provision expense. The first quarter brought with it charge-offs at levels a little higher than what we have seen over the last several quarters, although still well within our performance expectations. With net charge-offs of $1.6 million, annualized losses stood at 9 basis points of end-of-period loans at quarter's end. The primary drivers of the higher net losses in the period were write-offs of roughly $0.5 million each on two relationships acquired through our Central Michigan partnership and a lower level of loan loss recoveries in the quarter, relative to prior periods. Provision expense for the quarter was approximately $100,000. Benefits from improved asset quality rating migration results, lower retail loss rates and resolution of problem loans in the quarter helped offset provision needs generated by higher loan loss outstandings and the relatively higher level of net charge-offs. Moving to slide 19, while there were no significant net changes in special mention or substandard accruing loan categories, we did see a roughly $14.5 million reduction in non-accrual and doubtful loans. There were no relationships in excess of $2 million that exited this category in the quarter, so we were very pleased that this improvement appeared to be somewhat more broadly based than we may have seen in certain prior quarters. We very pleased to report improved asset quality results from AnchorBank in the quarter. As demonstrated by the results shown on slide 20, the Anchor management team has continued to be very engaged in moving down non-performing assets in both this most recent quarter, as well as over the last 12 months. You should expect, however, to see somewhat higher Anchor-related nonperforming levels on day one of the partnership, as the downgrades identified by Old National…

Great. Thank you, Daryl and good morning, everyone. We appreciate you joining us. My remarks will begin on slide 22, with the overview of the sale of our insurance operations to Prime Risk. As noted on the slide, the purchase price of $93 million represents more than 2.2 times the revenue of our insurance operations and over 24 times their after-tax earnings. This price is reflective of one of the most robust environments for insurance agency acquisitions in some time, as well as the quality of our leadership team and their operations. Our insurance leadership has done a great job of integrating their operations into the culture of the bank, so I can assure you this was not a decision that we arrived at lightly. But ultimately, as we looked at the returns of this business, as compared to our cost to capital and the amount of investment in technology and people necessary to keep us competitive, the decision was made to search for the right partner to sell the business. The process began late last year and we had a number of interested parties. Our goal was to maximize the value for our owners and at the same time, find a partner with whom we could maintain a strong, ongoing relationship. Someone who will serve as a strong referral partner for future business, as well as provide excellent service and products to the existing book of business, many of which are Old National customers. I might add that we will also remain a significant client of ONI. Prime Risk is exactly that partner. Backed by Thomas H Lee Partners, they envision using our Indianapolis market as the base for their operation and as a platform to grow throughout the midwest. They have plans in place to retain the current…

[Operator Instructions]. Our first question will come from the line of Chris McGratty with KBW.

Bob, a question on capital. You're swapping this lower term business for some efficiency gains, but you're giving up some earnings with the sale. I'm interested in the derivative of this. Do you feel, now with Anchor closed, you do have a presence in Wisconsin? You did comment that some of the other potential acquirers might be sidelined. Does this create a window for you to be a little bit more aggressive with M&A?

Yes. It takes a buyer and a seller to be aggressive. Honestly, Chris, we're just not seeing the books. I think more importantly, I go back to the comments I made which is we're going to be very selective in any potential future deals. I think we have built the franchise we want to build. We clearly think there are still opportunities in Wisconsin, the northern part of Indiana and clearly Louisville and Lexington. But we also know that many of our investors and analysts view our tangible book as an area that, as I said, the highest we've been since 2003. We'd like to continue that trend of building that tangible book at the same time.

Okay. And on the buyback, can you remind us what might be authorized at this point and whether you might consider it?

Easy statement. Zero. Our Board, we have no authorized buyback at this time.

Okay. Maybe the last question, Chris for you. On 37, you talk about the expected accretable. I think in your prepared remarks, you talked about just a step down from just the natural maturing of the book. Given that the mark on Anchor is still being finalized, is the right way to think about that $11 million that produced in the first quarter, will that step down irrespective of Anchor inclusion or will it get a pop and then moderate from there?

Yes. Consistent with what we've seen over past years, we expect it to step down. We're pretty clear on that slide as to what's left. I think, importantly though, with the Anchor transaction, it's got a large loan portfolio, so the original marks that we talked about were 2.6 on the credit side and 2.8 on the market side. That obviously is going to contribute some degree of accretion going forward, as well.

And your next question will come from the line of Jon Arfstrom with RBC Capital Markets.

Just a question on Anchor. Maybe it's following up on what Chris is asking, but how much of that loan portfolio do you think needs to run off over time?

In terms of credit quality -- I'm not sure, Jon, I follow the question. In terms of--

I guess what I'm getting at is your plan for lending for the Company. But I guess initially, are there any areas you feel you need to move out or be more aggressive with the runoff, in terms of the loan bucket?

That's a great question now that I understand it. Thank you. I would suggest that probably one of the areas that Anchor has had a lot of success at is commercial real estate. A lot of their growth has come from that. Part of that is reflective of the Madison market and the Milwaukee market which are seeing significant growth. We believe they have done an outstanding job of underwriting those credits, but I think everybody else will understand our appetite for commercial real estate. So I think 12.5% in the first quarter of growth is probably a high level, but I don't see it moderating a great deal as we continue to implement our credit standards. I would tell you that the level of cooperation amongst their credit team and Daryl's is as good as I've seen it in all our partnerships. Secondarily, I think what we have found with Anchor is a lot of their senior lenders and senior credit folks have come from larger banks in understand the culture that Daryl is trying to create throughout the franchise.

And then in terms of Len and Kevin, they are moving to Madison and Milwaukee, is that right?

They are there. Len has actually closed and moved in to his new house. If anybody wants to buy a house on Plaza Drive in Evansville, we do have one for sale. Or Len has one for sale. Kevin and his wife are up in Milwaukee now, as well. They've been extremely well accepted.

Okay. How do you measure their progress, Bob? What things do you expect them to do first and longer term, how are you going to measure their progress?

First is really attrition. Both associate and client attrition, because you're walking a fine balancing act. While the cultures are similar, there is change. Just simply on the credit side, you are going to see a little more of our credit culture which, again, similar, but there is still a difference. The first measurement for both of them will be, can we retain the performance we want to retain? Can we retain the clients we want to retain? And then you begin to look at growth after that. I'm afraid, if I put them towards growth in the beginning, you lose sight of what your base is and they spent a lot of time building that. So I think John, over time, if we can grow that book slightly less than we did in the first quarter, retain all of our RMs. And the other thing they're going to be challenged with is taking those areas that we don't have up in the market today. So, trust and wealth management are clearly opportunities to grow. Our small business group out of Michigan will go into the market and really deal with the lower end of those markets which we think we have great opportunity. But I think first and foremost, next quarter you ought to ask me if we retained all the RMs and clients that we wanted to.

And Jim, just a quick one for you. You singled out construction as a growth driver for the quarter. Maybe give us an idea of where and what is driving that?

Yes. And I'd say primarily, that's really over the last 12 months, so when I talked about the future advances on these construction loans, those are construction loans that have been booked over the last 12 months. And I would say a majority of those deals have been up in Michigan, down in Louisville, Lexington and smattered around our legacy markets. It's been a mix of a little bit of multi-family, some credit tenant industrial-type construction. Pretty diverse type of projects, but with strong metrics, strong principles and guarantees. We feel real good about them. And now that the weather is starting to cooperate, we're looking forward to seeing those loans fund up a little quicker.

Your next question will come from the line of David Long with Raymond James.

Bob, you mentioned in your comments that with the sale of the insurance business, the impact on earnings was going to be either no impact or very little impact. But yet, we're looking at a pretax number of $6.3 million last year. How do we get to that no or little impact to earnings, when I'm looking at this $0.035 or so impact last year?

If you take the first quarter with contingency fees, a large portion of that net income is going to come there, because you don't pay commissions on contingencies. So a large portion of what we made last year will come from that. And over time, as you reduce costs, $2 million to $3 million coming from the abatement or the termination of our defined benefit plan, you almost begin to cover that net income there. I'm absolutely convinced, David, that the growth parameter we're on, the ability to reallocate resources, we're going to be able to cover that cost. For 2016, clearly no impact. And I think 2017, as we've built the balance sheet further, will more than cover that in a much more efficient manner.

Okay. And the other question that I still have is regarding the Anchor transaction, seeing that closed here. When does that actually get integrated and when do most of those cost saves then kick in?

Toward the latter part of the third quarter would be the integration and a good portion of the costs come out. Some of them are starting to come out now, but I would say, you'll begin to see to them in the fourth quarter. David, one more point on the insurance. Remember that does not include the allocation of any overhead either and some of that overhead will go away, as we think forward.

And your next question will come from the line of Terry McEvoy with Stephens.

First question on insurance, how important was that business, in terms of referrals, whether it was wealth management, just traditional banking and how do you make sure, I know you said you're going to continue to work with the buyer closely, but how do you make sure you don't lose any referrals that you've had in the past?

I'm going to try to be politically correct as I can. They were a net receiver of referrals. We did a great job of integrating them into the bank, but for the most part, I'd say 90% of the benefits were referrals to that business, less so out of the business. So I just don't see much impact. Again, remember, all your sales people in insurance are commission-based. So they're going to try to drive what's good for them and again, that's not meant as a negative, but they're not going to spend a lot of time referring business back. They're going to really focus on their book to business.

And moving over to the NIM. It looks like you feel the core NIM has a little bit of upside for the rest of 2016. If I look at the quarter, the production yields were down which you had talked about and I saw a small increase in just the deposit cost and cost of funds. So is it really loan growth it's going to drive that upside to NIM this year?

I think so, that mix is very important for us, particularly when you look at what's coming out of the investment portfolio. It's our very shortest investments and those things are, at best, yielding 1%, probably in some cases less than that. So that's our best opportunity and deposits ebb and flow and we continue to have a pretty strong targets for our non-interest DDA going forward. I think that deposit mix is going to be pretty important for us, too, in 2016.

And one last question. The $2 million increase in seasonal cost, does that normally or should we expect that to trail off and come down in Q2?

Yes. It will continue to have a little bit of lift in costs due to salary increases and that kind of thing, so first and second quarter are always our biggest quarters. With the work that we have got in progress, we continue to expect those costs to move lower there in the third and fourth quarters.

I think as you're doing your modeling, as you think about expenses, absent the insurance, you can get to a model or run rate of somewhere in the $88 million to $90 million range per quarter.

[Operator Instructions]. Your next question will come from the line of Andy Stapp with Hilliard Lyons.

Most of my questions have been asked. I just had a housekeeping question, with regard to the merger-related expenses. Which line items did they impact?

Largely professional services, going into the early stages of the integration. I think most of them were in that line item, Andy.

And our final question will come from the line of John Moran with Macquarie Capital.

I just want to go back to the insurance sale real quick. I hear you on the 2016 zero impact, because most of the pre-tax earnings from that business would be derived in the first quarter. If we look into 2017, if I'm hearing you right, you have got $6.3 million round numbers or not round numbers, I guess exact numbers in pretax. And then you're saying $2 million to $3 million in OpEx, that you expect to have a benefit on the termination of the defined benefit plan. If I've got that right, at the midpoint, it's not even $4 million in pretax, so like $0.02 to consensus in 2017. Am I thinking about that correctly?

You are spot on. Again, that doesn't ensure anything for allocation of corporate overhead and other areas that will change. Again, we're comfortable that in 2017, we'll have no impact on your models.

Okay. And on the capital piece of terminating the plan. Is there any capital impact from that in 4Q, when you flip the switch on that?

No, capital impact, just cash expense.

We do have another question and that will come from the line of John Rodis with FIG Partners.

Bob, I just wanted to follow up on that comment you just made on operating expenses going forward. You said $88 million to $90 million a quarter. What does that include and what doesn't that include?

It includes Old National, no insurance without Anchor.

Okay. And when you say no insurance, you're saying that reflects insurance going away?

Yes. We have sold it. It's our expectation at this stage that the sale should be complete very, very early in the month of June.

Okay. And that would also reflect the $2 million $3 million you said from the termination of the defined benefits plan?

No. That will come on additional savings in the fourth quarter, on top of that. So that's an annualized number of $2 million to $3 million, probably early in the fourth quarter. So for your modeling, it would be one quarter of $2 million to $3 million and then the full benefit in 2017.

At this time we have no further questions. I'll turn the conference back over to management for closing remarks.

Great. As always, any further questions please contact Lynell. We know we give you a lot this quarter, but we're happy to answer any questions. Thank you.

This concludes Old National's call. Once again, a replay, along with the presentation slides, will be available for 12 months on the Investor Relations page of Old National's website, oldnational.com. A replay of the call will also be available by dialing 1-855-859-2056, Conference ID Code 86208935. This replay will be available through May 17th. If anyone has any additional questions, please contact Lynell Walton at 812-464-1366. Thank you for your participation on today's conference call.