Welcome to the Old National Bancorp First Quarter 2013 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 p.m. Central Time today through May 13. To access the replay, dial 1 (855) 859-2056, conference ID code 34133918. 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, Jodie, and good morning, everyone. Joining me today on Old National Bancorp's First Quarter 2013 Earnings Conference Call are Bob Jones, Chris Wolking, Daryl Moore, Joan Kissel and Jim Sandgren. I would like to remind you that our 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 conference 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. At the conclusion of our prepared remarks today, we'll be happy to open the line and take your questions. I'd like to begin our quarterly performance review with Slide 5, as I'm pleased to announce Old National reported first quarter earnings this morning of $23.9 million or $0.24 per share. This net income represents a 10% increase over first quarter 2012 net income of $21.7 million, and is a 4% increase over fourth quarter 2012 earnings. Please note that while our net income has improved, earnings per share was also impacted by the additional shares issued for the Indiana Community acquisition in the third quarter of 2012. There were several positive highlights of the quarter. The first being the 8.3% increase in average core loan balances from the first quarter of 2012. The credit quality of our loan portfolio showed continued improvement with declines in…

Thanks, Lynell. And Lynell noted the FASB guidance, ASU No. 2012-06, related to amortization of the FDIC indemnification asset. On our balance sheet, this receivable is the present value of the FDIC's share of the future losses inherent in the Integra loan portfolio, which we purchased in July 2011. This guidance requires that we amortize this coverage over the shorter of the expected life of individual assets or the life of the loss share. We adopted this accounting method at the time of purchase. As we've seen in our quarterly net income, amortizing the indemnification asset in this fashion can cause some variability in quarterly earnings that should result in the receivable being fully amortized as assets are resolved and recovered. As of March 31, 2013, our FDIC indemnification asset was valued at $109.9 million, down from $168.5 million at September 30, 2011, the first quarter end that included the Integra assets. I'll begin on Slide 8 with our pretax pre-provision income. Without securities gains and merger and integration expenses, pretax pre-provision income increased slightly from the fourth quarter and is up $1.9 million compared to the first quarter of 2012. Income related to the accretion of discounts on purchased loans decreased $4.1 million compared to the fourth quarter. As Lynell noted in our earlier slide, we saw several items in the quarter that we would not expect to see at the same level in future quarters, including the gain on our branch sale of $2.4 million and expenses related to 2012 incentives, our BSA/AML project consulting and early extinguishment of an FHLB advance. Adjusting for these items, our pretax pre-provision income was $35.1 million for the quarter. Included in noninterest income this quarter was a negative $2.3 million in other income, which reflects the expense associated with the indemnification…

Thank you, Chris. Slide 21 is where I will begin my remarks this morning. On this slide we show a trailing 8-quarter summary of net charge-offs for our core portfolio, as well as for our 3 months recently purchased portfolios. Overall, we experienced roughly $2.1 million in net charge-offs in the quarter, representing an annualized net charge-off rate for the period of 17 basis points, which is right in line with our 2012 full year charge-off rate. As you can see from the chart, the Old National Corp. portfolio continues to perform very well, with roughly $600,000 in net losses, representing 6 basis points of net charge-offs in the quarter. With respect to the acquired portfolios as a whole, we posted net losses of approximately $1.5 million, which was slightly higher than the $1.2 million we reported last quarter. While losses in the Monroe portfolio improved to a net recovery position in the first quarter, loss rates in both the Integra, as well as the Indiana Community bank portfolio were higher in the first quarter as compared to the fourth quarter. Slide 22 shows our trends in the allowance for loan losses average of non-covered underperforming assets. On a consolidated basis, we maintained our 29% coverage in the quarter. While this level would typically be of concern, I would remind you that this coverage number does not include the $15.8 million currently outstanding mark on the Monroe portfolio or the $55.8 million mark on the Indiana Community bank portfolio. Excluding the acquired Monroe and Indiana Community bank portfolios, we did improve our coverage in the quarter up to 54%, up 4 basis points from last quarter's levels, mainly as a result of lower underperforming levels in this segment. As we move to Slide 23, you can see that we have…

Great. Thank you, Daryl. Before I review the slides on Pages 30 and 31, I'd like to offer my observations on our first quarter. We continue to be encouraged by the loan production we are seeing, particularly in light of the competitive environment. A 69% increase in Commercial loan production over 1 year ago is a testament to our relationship strategy and our strategic shift to higher-growth markets. Of note is the very strong quarter that we had in our Bloomington market, the former headquarter city of our Monroe acquisition, with first quarter commercial real estate production of approximately $22 million versus production last year at this time of only $608,000. I was also pleased with the mix of our mortgage production between purchase and refinance. Credit remains a strength for us, as we remain diligent in balancing our need for originations and credit quality. Daryl and Barbara have put in place a number of procedures that are ensuring strong communication and cooperation. Noninterest income was a mixed bag. We were very pleased with our insurance revenue. While it'd be natural to look at the strong quarter in contingency revenue, I was more encouraged by what appears to be a hardening in the market for renewals and new sales opportunities. The other side of the noninterest income equation is service charges. As Chris noted, we continue to see a softening in this area, driven by both customer behavior and regulatory changes. But as challenging as this area is for us, as we compare ourselves to peers, our numbers appear to be in line. We will be watching the customer behavior over the next few months to gauge the impact on revenue from our increased fees. While our core net interest margin decreased, a portion of that is related to the…

[Operator Instructions] Your first question comes from the line of Scott Siefers from Sandler O'Neill. R. Scott Siefers - Sandler O'Neill + Partners, L.P., Research Division: Let's see, Chris, I guess first question is for you, just on the margin. You gave a lot of color on sort of the puts and takes on the core margin. But just as I look through things the last several quarters, it looks like the pressure on the core margin has been increasing. What's your sense for order of magnitude of compression here as we look out over the next few quarters?

I think last quarter, we talked 3 to 5 basis points. We continue to see it, driven obviously partly by intentional activities. But as I mentioned, loan pricing and reinvestment opportunities, and rates are still low, so I think it continues at the same kind of overall pace that we've seen. There's a lot of things that can happen to move that around, Scott. R. Scott Siefers - Sandler O'Neill + Partners, L.P., Research Division: Okay. All right, that makes sense. And then just on the reported number. I think, previously, you'd been suggesting that overall purchase accounting benefits for 2013 should be similar to 2012. Is that something you still feel or will there be a little more -- I guess a little more pressure on the reported margin than we might have thought. How are you thinking about that dynamic?

I think, generally, we feel the same. I think in fourth quarter, we had a nice lift from some kind of late quarter items from Integra. But generally, we still expect that the opportunities from ICB are there, and the other 2 are going to continue to decline in a gradual way. R. Scott Siefers - Sandler O'Neill + Partners, L.P., Research Division: Okay, perfect. And then I -- actually, just one sort of ticky-tack question for you. The FTE [ph] tax rate has been kind of bouncing around a little, and I guess the last 2 quarters have been a little higher than I might have anticipated. What do you think a good number is as we look forward?

Yes. I think our number this quarter was in that 30% -- kind of that GAAP rate was in the 30% range. We still feel like we're moving to that 28%. But just given the amount of taxable income and our nontaxable kind of component of that, we're just working to get that back into that 28% range. But yes, first quarter is a little high. R. Scott Siefers - Sandler O'Neill + Partners, L.P., Research Division: Okay, perfect. And then, Bob, you gave a lot of good color on how you're feeling about overall loan dynamics, and then I guess the big headwind is just the continued declines in the purchase credit impaired piece. Do you think as we look forward in the aggregate, from here, you'll be able to grow the total loan portfolio, in other words, the core stuff out or over-loans, I should say, continue to decline in the purchased credit impaired piece?

Scott, that's a tough one to answer. It all depends on Daryl's workout ability. And one of the things we've asked Daryl to do is to really look at workouts and best -- what the best value is for the shareholders. So what I would say is, we remain, for us, optimistic about core loan growth. And a lot of that depends on how quickly we work out of those impaired assets, again, and what's best for the shareholders. So I'm not so sure the first quarter isn't somewhat symbolic of the rest of the year. But again, the pipeline has increased at a fairly nice clip.

Your next question comes from the line of Chris McGratty from KBW. Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division: Chris, on the securities book, I think your comment said you were going to continue to grow it in anticipation of BofA transaction. Should we assume kind of a similar size increase, I think a little over $325 million in the quarter?

I don't think so, Chris. Rates were up a little in the first quarter, so we kind of got ahead. We thought we had some good opportunities. I wouldn't expect it to happen, but it could. We're still talking about $700 million in new deposits and not much in the way of loans in that acquisition. So I'd like to keep my hand kind of free to do that when it happens. And as you can see, kind of from the balance sheet, we have to fund that with borrowed fundings, so it does have an impact on the margin as we anticipate those deposits coming in, so more of a timing kind of issue. I wouldn't plan on it. Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division: The -- one for Daryl. On the criticized increase, maybe I missed it, but can you remind us exactly what happened here? And then was there a provision against it? Was any of it in -- into the -- it doesn't seem like the shared national credit book, but any resolution outlook for that would be great.

Yes. It was, as I said, an ONB legacy credit we moved from past grade to the special mention. Really, this client had anticipated some increased revenue quicker than it came, so they ramped up their expenses. Revenue seems to be coming now. So this is one that we think will get turned back around. It is not a shared national credit.

Chris, I would just add, this is a long-term Old National credit, been with us for a long time, as I said. And I think it's just reflective of, as Daryl said in his closing remarks, our diligence at looking at financial statements and making the right decision, because, again, this is -- it's a strong, good balance sheet, but they just ramped up their expenses a little quicker than their revenue, and we made the appropriate decision to downgrade the credit. Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. Last one for you, Bob. In the -- I believe in the proxy, you gave your targets. I think 70% as net income, but there's also that efficiency piece you guys talk about. I didn't see an actual efficiency ratio. I think in the past it's been 65%. Can you give us an update if that's still the bogey, and then when you guys think you could hit it?

Absolutely, it's the bogey. And actually, a nuance we used to say, it was an aspiration. We now will tell you it's a target. We've moved past thinking about it to, come hell or high quarter, we're going to get there. And I think that's more coming from the board, as well as management. Our incentives have it in the fourth quarter, depending on a lot of things. There -- Chris has a lot of good things going on that we're very encouraged that we're going to get there, at least by the fourth quarter.

Your next question comes from the line of Emlen Harmon from Jefferies. Emlen B. Harmon - Jefferies & Company, Inc., Research Division: Bob, your comments just about the lending environment and structural competition getting more intense. Are you at the point where you're walking away from more loans, more loans this quarter? And just how much of a headwind do you see that to just overall loan growth?

Yes, it has the potential, Emlen. I would tell you we've heard about it more than what we've actually seen it on pure competitive basis, because they tend to be in the larger credits. But as you all know, that's going to kind of transform down into our target market on structural side. Where we have lost a few credits is on pricing. We've seen some of the super regionals be very aggressive. We lost a 10-year deal up in Lafayette, where it was priced at 10 years at 3.25%, hard for Chris and I to look at that and figure out how to make money. So the one-off's on pricing, but we're hearing enough noise in the structure that we just want to watch it. Safe to say that as people get more aggressive, you just have to be careful. And as Daryl said, we've got experienced RMs and credit folks that know when to say when. Emlen B. Harmon - Jefferies & Company, Inc., Research Division: Got you. And then could you talk a little bit about that decision tree on stock repurchases? I know you did a good chunk last quarter. Just how are you thinking of when -- kind of when to take that opportunity and when to use the capital in that manner?

Yes. I think there's a couple of factors. I think one is the M&A pipeline, the books and our belief on are some of these deals going to move through the pipeline. And obviously, that's our first and foremost after balance sheet growth, and we're pleased with that. Secondly, the reason we bought some, it was really actually in the fourth quarter, not the first quarter, was post our third quarter call, our stock got a lot of downward pressure, and we just thought it was a good time to come back in and -- both as a company and many of us as inside shareholders. So I think, Emlen, you balance the need for M&A with whatever pressure we get in that stock price. And hopefully, we will not have that problem after this call. We're counting on you, Emlen.

Your next question comes from the line of John Arfstrom from RBC Capital Markets.

Just -- look, you touched on the Bloomington loan production a bit, Bob. But maybe can you give us a little more broad view of just geography or type or theme of what you're seeing in the pipeline? Because it does seem like it continues to get stronger and stronger each quarter, and just wondered if there's anything else that's worth commenting on.

Really, it's geographically well dispersed. Our -- what we call our central region, which is Terra Haute and Bloomington, Columbus and Muncie, had probably the best quarter of the group in the first quarter. And quite frankly, if you think of those markets, they wouldn't be the ones you'd particularly talk as our growthier markets. But I think it's really a couple of things that we're seeing this broad. It's, one, our folks are out calling a lot more because their not inwardly focused. Secondly, the level of cooperation between our credit folks and our origination is the best as I've seen it, and doesn't mean that Daryl's changed. We worked really hard to get him to make semi-positive comments on his closing remarks. But -- and yes, we're seeing it really, Jon, across broad industry. We're seeing inventory builds. We're starting to see some equipment purchase, a little bit of expansion of real estate. But it's just -- it's healthy. That's, I guess, the best way I would describe it.

Okay. You're getting pretty bullish, too, Bob.

Well, you guys blasted last me so much last year. I mean, Lynell plays Don't Worry, Be Happy songs before we do our calls because -- I would just add to that, Jon, and not to be -- but I have also been spending a lot more time out with clients, a lot more times on calls. And you can read the Wall Street or watch CNBC and come away with one view of the world, but when you're actually talking to clients and listening to them, you get a pretty good perspective. And I'm getting out much more, which makes everybody here happier, but I think you get a pretty good perspective on -- people are just -- they're tired of waiting. I think you're going to see a little more -- maybe even then [ph] what people are predicting.

Good, okay. As long as you just mentioned that, this maybe isn't the right forum for asking the question, but I will anyway. How prevalent is that lack of qualified workers comment? Is that just a couple of comments or is that pretty broad?

It's pretty broad. I'll be honest with you. When I am with a client and I'll say, "What is the biggest challenge you face?" Almost universally, they'll say, "I can't find enough people to hire that are qualified." So whether it's Berry Plastics down here or I was in Lafayette and I was in Columbus, I've been in Bloomington, anybody that has a semi-technical job and that may seem -- but if you're on a production line today, you're really using robotics versus the old day that, when I worked at a fork plant, it was manual labor. Now a lot of it's robotics, and they just can't find the trained workers to get there. It's throughout our footprint.

Interesting comment. And then, Chris, just one question for you, a smaller issue. But on the CD book repricing, what's possible there, and what are the retention goals for the kind of the 3 different quarters that you laid out?

Yes. I think our highest posted rate is 30 basis points or under. So when you look at that relative to the cost of that money as it gets repriced, it's pretty good. We've been largely successful retaining deposits in the form of they'll move into saving accounts or some things of that sort. But generally speaking, when you look at our total deposit portfolio, I've been very, very pleased, even when we're faced with some of these large repricing opportunities.

Jon, I've Jim Sandgren here, who's the market president for our largest markets, and it might be good to get his perspectives on that, because his branches are the ones that are seeing it.

Yes. I think, to Chris's point, we have been able to do -- retain more of these CDs than maybe we had anticipated. I think customers, right now, are just wanting to make sure that their money is safe and secure, and they know that with Old National Bank. Other money, maybe, has moved into savings accounts. We've done a nice job, too, moving some of those dollars to our financial advisors. And as Chris pointed out earlier, we've seen some really nice increases in our brokerage books. So it's been a nice combination.

Jon, I would just add on, the only thing I would caution everybody that we believe strongly that a lot of this is parked money until rates go up, and our modeling really says that when rates start to rise, I think any bank that tells you they're going to retain this amount of core deposits is inaccurate. I think you've got to build in your models the ability to get some of this out of there. So right now, there's just not a lot of opportunities.

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

Just a couple of questions, Chris. On the Bank of America deposits that are coming on in the third quarter, and with the bonds you kind of pre-bought, just help me think through how the balance sheet will look. So will you take some of those -- some of that cash and pay off the debt you used to purchase the bonds in the third quarter when the deal closes?

Absolutely. That's our anticipation. We're still working very hard here internally to do what we can to stay below that $10 billion number, and it's a big deal here. So we're very focused on that, Mac.

Got you. And what was the rate on the munis that you purchased?

I think -- if you go back to that, I think it's 35 or 30, 35. In the deck, you'll see a full breakdown. I think in aggregate, our average was about 2%.

3.94% on the munis.

3.94% on the munis. That was probably a taxable equivalent.

Yes, that's the taxable equivalent of the deal.

And then on the efficiency ratio and the target to 65%, I know you gave the footnote in the press release on the calculation being expenses excluding intangible amortization over FTE's spread income -- fee income x bond gains. What's the intangible amortization? I couldn't find it. I probably didn't look in the right spot. But what does that generally run on a quarterly basis?

Yes. For us, obviously, it's primarily core deposit intangible, and Joan Kissel is here. And if we can put our fingers on that number, I'm not sure that we can this very second, Mac. But we'll get back to you on that number.

Okay. Yes, no problem. Just one last kind of big picture, Bob, question on M&A. You mentioned lots of conversations and books. Just curious from your discussions what the main hurdle is. Is it still price? Is it more kind of the soft cultural issues? Just curious to get your perspective to that.

That's a great question, Mac. It is less about price. And I think what we're seeing a shift, if you'd gone back 3, 4 years ago, it was CEOs that were ready to say, "You know what? This is just extremely difficult, hard for me to get my head around if this can survive." And the board's are saying, "Hey, I think we can get it back." Now we're seeing board's are starting to look at compliance costs, we're looking at growth opportunities. Even if you believe a GDP at 3% or 3.5%, it's hard to get too excited about a growth year economy. So the shift has gone more to the board's being more intrigued, and that's what we're hearing from our bankers. And CEOs are kind of sitting back and saying, "This is not a bad gig. I got a nice salary. I've got a car and a country club and maybe I don't." So it's been a little bit of a shift. But I think we're starting to see a confluence of everybody realizing that, in this rate environment, slower growth economy with the impact of compliance costs, I think that's why we're seeing more and more books. Because I think everybody's starting to realize this is a tough business.

At this time, there are no further questions. I will now turn the conference over to Mr. Bob Jones for closing remarks.

Great. Thank you very much. And as always, we appreciate everybody's interest on the call. Follow-up questions to Lynell or by e-mail, and we'll get right back to you. I appreciate everybody's support. Thank you.

This concludes Old National's call. If anyone has additional question, please contact Lynell Walton at (812) 464-1366. Thank you for your participation in today's conference call.