Welcome to the Old National Bancorp Fourth Quarter 2011 Earnings Conference Call. This call is being recorded and has been made accessible to the public in accordance with the SEC's Regulation FD. The call, along with corresponding presentation slides, will be archived for 12 months on the Investor Relations page at oldnational.com. A replay of the call will also be available beginning at 1 pm Central today through February 13. To access the replay, dial 1 (855) 859-2056, and use conference ID code 42173725. Those participating today will be analysts and members of the financial community. [Operator Instructions] At this time, the call will be turned over to Lynell Walton, Director of Investor Relations, for opening remarks. Ms. Walton?

Thank you, Paula, and good morning, everyone. Joining me today are Old National Bancorp's -- for joining me today on Old National Bancorp's Fourth Quarter 2011 Earnings Conference Call. Joining me on this call are management members Bob Jones, Chris Wolking, Daryl Moore and Joan Kissel. On Slide 3, you will find the standard forward-looking language. Our discussion today will contain forward-looking statements. Such statements are based on information and assumptions that are available at this time and are subject to certain risks and uncertainties that could cause the company's actual future results to materially differ from those discussed. These risks and uncertainties include, but are not limited to, those which are contained in this slide and in Old National's filings with the SEC. Slide 4 contains non-GAAP financial measures language. Various numbers in this presentation have been adjusted for certain items to provide more comparable data between periods and as an aid to you in establishing more realistic trends going forward. We feel that these adjusted metrics to be helpful in understanding Old National's operations and core performance trends. Reconciliations for such non-GAAP data are included within the presentation. As we begin our financial and strategic review of the fourth quarter, please turn to Slide 5, where I've noted specific items we will be discussing today. First, Bob will kick off the discussion of our strong recent financial performance with highlights of both our fourth quarter and full year 2011 earnings performance. He will then provide his thoughts on the current economic environment. Chris will then review our net interest expense performance -- noninterest expense performance, capital metrics and components of our net interest margin and provide our outlook on these metrics. Daryl will then update you on our credit quality and provide his commentary on our outlook in this area. Following these prepared remarks, we'll be happy to open the line and take your questions. With that, I'll turn the call over to Bob.

Thank you, Lynell, and good morning from Indiana, home of Super Bowl XLVI. We hope everyone is excited as we are. We appreciate you joining us today for our fourth quarter 2011 earnings call. Let me begin my portion of the presentation on Slide 7 by highlighting our fourth quarter 2011 performance, and then I'll quickly review our full year 2011 performance on Slide 8. Following my brief overview, I will close my remarks by giving some context around 2012, in an attempt to help you with building your models. Given the complexity of our financials as it relates to both Monroe and Integra's acquisitions, we felt it will be both important and appreciated. I should also mention that during our Q&A session, we will be very happy to answer any further clarifying questions you have on our recent acquisition of Indiana Bank & Trust. So let's begin on Slide 7. Today, we reported net income of $22.2 million or $0.23 per share. These earnings represented a significant increase over the fourth quarter of 2010 and a 27.8% increase in earnings per share as compared to the third quarter of 2011. It's important to note that included in our fourth quarter earnings, were approximately $5.2 million of merger and integration costs related to our Integra and Monroe acquisitions. Chris is going to give you a little more detail, but as you compare our fourth quarter of 2011 to our third quarter of 2011 on a pretax pre-provision basis, you may get a better picture of our performance. Our pretax pre-provision income without security gains and without the merger and integration costs increased 20.3%, with our revenue up 4.8%. As you turn to Slide 8, I'm going to quickly review our full year 2011 performance. We had net income of $72.5…

Thanks, Bob. I'll begin on Slide 10 with a few more highlights of the fourth quarter. Fourth quarter revenue totaled $125.7 million, an increase of $5.8 million compared to third quarter of 2011. Net interest income was $4 million higher than the third quarter, an increase of 5.5%. Fees, service charges and other income, not including securities and derivatives-related revenue, increased 4.1% and totaled $46.1 million in the fourth quarter. We had a full quarter's impact of Integra Bank in the fourth quarter, and this contributed to the increase in both interest and noninterest revenue for the fourth quarter. Noninterest revenue was also helped somewhat in the quarter by our sale of the 4 Chicago-area Integra branches to First Midwest. We recognized $1.1 million in gain on this sale, as well as a $1.3 million gain on an unrelated real estate transaction in the quarter. Last point on Slide 10 notes that pretax pre-provision income, not including securities gains and merger and integration costs, improved 20.3% over third quarter. On Slide 11, I have more detail on pretax pre-provision income. As I noted previously, securities, gains and merger and integration expenses are removed from the calculations. Fourth quarter 2011 pretax pre-provision income increased 20.3% over the third quarter to $34.4 million. For the full year 2011, pretax pre-provision income, not including securities, gains and merger and integration expenses, increased to $117.4 million from $61 million in 2010, an increase of 92.3% year-over-year. Total revenue in the fourth quarter was up 4.8% compared to third quarter 2011 and 30.7% compared to fourth quarter 2010. Noninterest expense for the fourth quarter 2011, not including merger and integration expense, was $88.5 million compared to $83.3 million in the fourth quarter of 2010, an increase of 6.2%. When I look at quarterly revenue growth…

All right. Thank you, Chris, and good morning to everyone. I'd like to begin my remarks on Slide 19, where you can see that we continue to post acceptable results with respect to both our 30-plus-day, as well as in our 90-plus-day delinquency levels. As the top chart reflects, excluding covered loans, 30-plus delinquencies were at 78 basis points at quarter's end, a level that continues to be considerably lower than the average results posted by the banks within our peer group, but up 16 basis points from last quarter's levels. The 16 basis point increase since last quarter is mainly a result of one large commercial mortgage loan that had matured at year end, which added 12 basis points to the delinquency totals. The balance of the growth in delinquencies was mostly associated with the seasonal delinquency increases we typically experience in the fourth quarter in retail area. Removing the effect of the large maturity delinquency, which, since year end, has been remedied, the delinquencies would have been in the 66 basis point range, very similar to the results posted at year end 2010. 90-plus-day non-covered loan delinquencies, as you can see in the chart at the bottom of this slide, remain constant in the quarter at 3 basis points and continue to be at a level considerably lower than that of our peers. At year end, the delinquencies in our business banking and consumer loan portfolios marginally exceeded our internal target levels, while the delinquencies in our commercial real estate portfolio posted a more material negative target variance at the period's end. This more significant negative variance was, however, due entirely to the mature loan I previously mentioned. All of our other portfolios reflect the delinquencies below target rates established for 2011. On Slide 20, you've seen the…

[Operator Instructions] You have a question from the line of Scott Siefers of Sandler O'Neill.

Let's see. Just, I guess the first question I have is you gave a lot of good commentary overall. But as well, Daryl and Bob, you both made comments on kind of the slow recovery and the impact on the credit side of the equation. I wondered, Bob, if you could talk a little bit about overall loan growth expectations on a core basis. I guess you guys have a few different moving parts because you've got pieces of the Integra portfolio running off. So maybe if you could just talk qualitatively about where you'd see the loan portfolio going, and then whether we should expect it to start going up or still a little overall bleed as some of the Integra portfolio continues to roll off.

I think from a global basis, Scott, you'll still see some reduction, particularly in that Integra portfolio, that net-net, I wouldn't anticipate that the balance sheet on the loan side is going to grow very significantly. Saying that, we're beginning to see pipelines kind of increase on a slight basis. We're hearing a little more optimism from our potential borrowers and borrowers. And I'd also say from just an intangible benefit, obviously the good year we've had plus the acquisitions, our RMs are feeling pretty good about going out and calling on clients. So if you remove Integra from the equation, I'd say you might see some growth in that organic balance sheet. But again, I think Integra is going over -- kind of overshadow some of that.

Okay, perfect. And then if I could switch over to the cost side for just a second, it sounded like overall efficiency is going to be a real focus as we look out over the next year. You guys gave some pretty good color on the overall expectation for the cost side. If we kind of try to x out the noise, can you talk a little bit about core expense growth trends or even additional reductions? And then as kind of tangential to that, are all of the Integra cost savings now pretty much baked into the equation?

No. You still got some Integra costs that may come out, depending on some branch actions that we have that are potential. For the most part, they're out though, Scott -- I guess the way I'd answer that is we still have a strong aspiration to get to that 65% efficiency ratio. I think that's why the board felt important enough to put into our short-term incentives. Now obviously, as we get some growth back in the economy, it's a lot easier to get there growing, but I will tell you that the board and myself and others still feel that we need to continue to leverage this operating platform and reduce cost as best as possible. Chris, I don't know if there's any...

[Operator Instructions] You have a question from the line of Chris McGratty of KBW.

Bob, I have a question on the securities. You obviously delevered a little bit this quarter. Should we expect a little bit more deleveraging in the investment book in the early part of '12?

Chris, this is Chris Wolking. I think that's fair, particularly as we would anticipate continued improvement in the mix of our balance sheet. And I think then as you look forward to after the conversion of the Indiana Community Bank, like we did with the other 2 institutions, we try to keep the loans and move the securities off the balance sheets. So that's certainly something we will continue. I'm not a real big believer in loading up the security portfolio in this environment, and that which we do reinvest will continue to be pretty short-term.

Okay. In the context of growth in your comments about the loan portfolio, obviously your credits had been pretty good. Is there a chance we go negative on the provision?

You think I can answer your question and not go to jail? I think Daryl and I, and I think everybody had been pretty consistent. And while we are starting to see some economic recovery, we still are cautious towards our commercial real estate portfolio. We've got -- so I think we still remain cautious.

Okay. Just the last one. The covered book, the run-off was around, I think, $85 million in the quarter. Is that -- should we see assume similar kind of repays over the course of '12 on a quarterly basis?

I would say that -- yes. Chris, this is Daryl. I would say that the first quarter in that portfolio, we were pretty successful in moving some of the -- what I would call lower-hanging fruit off of those problem loans. I would bake a little bit of reduction into that going into 2012 just because I don't think it's going to be as easy to do that.

Okay, great. And then my last question on the tax rate, what should we be using for '12 for an effective rate?

Chris has an answer to that.

On a GAAP basis, Chris, low 20s.

Your next question comes from the line of Emlen Harmon of Jefferies.

Between Chris and I, we're -- me in last week and Chris today, I'm going to do my best not to direct any questions at you here, so maybe a couple for Chris. Chris, just on the liability repricing side, it was great to see the improvement this quarter and just kind of how it helped out the core margin there. Just give us a sense going forward the next few quarters, just in terms of what deposit repricing opportunities are out there and just when you might see that come into the run rate.

Well, as I mentioned in my remarks, that legacy bank margin kind of flat to a little bit lower. And I think a lot of our repricing capacity on a non-acquired deposits probably run its course. We still have a pretty big book of CDs, and we'll be looking forward to see that continue to reprice. But given the growth that we've seen in our transaction accounts -- and it's great, but I think as long as we've had that stuff on the books and seen the benefit of the repricing, I think that for the most part in legacy bank, that's probably run its course, Emlen.

Okay. So you mean the CD book's still yielding around 145 bps or so, that's a reasonable expectation for...

That's where we're focused, yes.That one will to continue to march down a little bit. But again, I think as we talked about with the investment portfolio, we've got to look forward to those cash flows being invested at lower rates too, particularly as we keep the duration pretty short. So...

Emlen, I know you didn't want to hear from me, but if you go to the Appendix on Slide 35, we got a good breakdown of the CD maturity schedule, as well as the rates. So that will give you a little bit of help with building that into your model.

Okay, perfect. And then Chris, just, I guess the other question, and it kind of relates to your comments a minute ago, is about the securities portfolio. Just in terms of liquidity that you guys have maintained on the balance sheet, is that kind of we look at the short-term assets that are on there, are you basically in the range where we would expect that to be going forward?

Oh, yes. I think -- again, the real benefit we get is to redeploy those assets -- to redeploy those cash flows into loan assets. So we don't anticipate taking a lot of risk and increasing the yields on those assets. So they'll stay liquid. They'll be there for deployment into quality assets, and we'll continue to reinvest at relatively short duration.

Your next question comes from the line of Kenneth James of Sterne Agee.

I'm going to see if I can approach the provision question from a legal way. I look back at the first quarter -- or first half of 2011 and I see about 35 basis points of average non-covered loans. To be materially higher than that next year, does the economy have to get worse or can your customers exceed that the way that things they are now -- the way things are now?

I think that's in the range based on the way we look at the economy.

And are you thinking any differently about the buyback that you just renewed? Or given that you've got a deal closing pending, is this one kind of just, I guess, a bullet in your holster but one that you may not use in the next year or two heavily?

Yes, I think that's fair. We clearly -- as we analyze the use of capital, you think about last week, our board really kind of increased the dividend. You make an acquisition, you approve a buyback. I think it kind of speaks to our capital strategy. We would prefer to deploy that where we get the best return for our shareholders. So I think the buyback is there if we start to see things slow down, or if we feel that's the best use of capital. But right now, it's probably just a bullet in the holster -- or in the gun.

[Operator Instructions] You have a follow-up question from the line of Chris McGratty of KBW.

Just to follow up on the fee income guidance, Chris. Did you say there were roughly $2.5 million of onetimers that just showed up in the other line?

Right, right, that's about the number.

Your next question comes from the line of Mac Hodgson of SunTrust Robinson.

Just a couple of questions. One, saw good residential real estate growth this quarter, linked quarter, and I know it's been a good product for you guys. I'm assuming that's the Quick Home Refi.

It is, Mac. And actually, in the appendix, we've got a pretty good breakdown of the quality of that portfolio.

Is that something you guys think will continue to grow at this clip or somewhat unusual given [indiscernible]

I think -- unfortunately, a lot of our markets, we've seen a lot of followers. A lot of the banks have come back with the same product. A lot of the credit unions have come out with it. So I wouldn't anticipate growth at this level because competition's picked up quite a bit.

That's on 39, gives you a good breakdown of that Quick Home Refi product in the Appendix.

Got you. And Chris, on the net interest margin, can you comment at all on what you think the pending acquisition, what sort of effect it might have on the NIM for the back half of this year?

I don't have that kind of analysis at this time. As we move forward, I think we'll continue to try to communicate that, like we've done in the past, once the marks get finalized and things like that. So we got ways to go.

And Bob, I think you answered this question last week on the call. I just wanted to hear it again, the thoughts on additional M&A. You've obviously been very busy. This most recent deal is very obviously fresh, but what's the company's appetite to do another transaction or look for another transaction while this one's still pending? Or is it something you're going to integrate first before you look elsewhere?

Our controller's looking at me with blazing eyes, saying, "Don't do another one." But I think the reality is, Mac, I think the environment is clearly you're seeing more and more institutions of quality like Indiana Community that are saying that we want to look at a partnership. Jim Ryan remains active in building relationships. We'll weigh a lot of factors as we look to enter into any new partnerships, which is the best use of capital, our ability to fully integrate it in a timely fashion. I think as I said on the call last week, we can do 1 to 2 a year. But obviously, I've got a lot of people that have to weigh in on that decision, most importantly our shareholders. But we want to make sure that we do the integrations properly and that we don't overstress our platform.

Your next question comes from the line of Dan Oxman of JAM Asset Management.

My question is related to asset size and what's the impact from the Durbin Amendment should you go over $10 billion assets? And how do you weigh that against making...

That's a great question. The gross impact we estimate is somewhere north of $2 million a quarter. We also believe that we shouldn't -- that shouldn't be a determinant, going above $10 billion. Obviously, we're just under $10 billion. We think that we have some levers we can pull to mitigate some of the damages of the $2 million-plus. And plus, as you do deal, you obviously bring in some income as well, so we're right on the crusp [ph] of that. But it's clearly something we thought about, and we feel we can mitigate it as best as possible. But we also think that creating a bank of relevance in the long term still adds greater value to our shareholders.

Great. And as a follow-up question on acquisitions that you spoke about on your last conference call, what's -- from a geographic standpoint, what's your preference? And specifically, how does Michigan fit into that?

We still clearly love Indiana. Absent Chicagoland, we have 0 interest in the Chicago-area markets. And we still think Kentucky is going to have some opportunity. But we like Southwest Michigan. We think it looks and feels an awful lot like Indiana. We think it's a natural extension from our northern franchise. We also think that there's a potential role for a bank like Old National to play a consolidating factor that southwest portion of the state. But clearly, it's going to have to be the right acquisition and create a nice appendage to our current platform.

And some clarification on the tax rate. Did you say low 20s or high 20s? And how does that compare to your tax rate last quarter, which was 32%?

I'm thinking about GAAP on a 22% -- 22% to 24% kind of range for 2012. I think obviously as we continue to improve our GAAP income, that GAAP number rises a little bit.

Okay. And what's the difference between GAAP and the actual tax rate? Can you help us translate that?

Chris, did you hear the follow-up?

Yes, Dan, I heard the follow-up. I'm going to -- might, perhaps, defer here for a moment or 2 while we dig up some numbers. I want to make sure we're looking at GAAP and not fully taxable equivalent. Yes, I think that, that FTE number is probably closer to that 32%, 35% range for the quarter. And we tend to -- our GAAP number, of course, wouldn't include the gross up from a tax standpoint for our nontaxable assets. Always have to be careful that I clarify FTE rate or GAAP rate.

At this time, there are no further questions.

Great, operator. For all of you, thank you so much. And obviously, as always, if you have any further questions, please give Lynell a call. We guarantee we'll get right back to you. Appreciate everybody's interest.

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 42173725. This replay will be available through February 13. If anyone has additional questions, please contact Lynell Walton at (812) 464-1366. Thank you for your participation in today's conference call. You may now disconnect.