Welcome to the Old National Bancorp Fourth Quarter and Full Year 2015 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 the 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 7:00 A.M. Central Time on February 2 through February 16. To access the replay, dial 1-855-859-2056, conference ID code 24105575. Those participating today will be analysts and members of the financial community. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a question-and-answer session. At this time, the call will be turned over to Lynell Walton for opening remarks. Ms. Walton?

Thank you, Victoria. Good morning, and welcome to Old National Bancorp's fourth quarter and full year 2015 Earnings Conference Call. Joining me today are Jim Sandgren; Chris Wolking; Daryl Moore; Bob Jones; 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 4, as well as our SEC filings for a full discussion of the company's risk factors. Additionally, as you review Slide 5, 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. Our strong fourth quarter capped a successful year for Old National and I will begin our discussion with reviewing some of those highlights on Slide 6. Our reported net income of $32 million for the fourth quarter represents over a 9% increase over the fourth quarter of 2014. Our loan balances increased to $102 million or 6% annualized from the third quarter representing a third consecutive quarter of solid loan growth for the company. This growth in outstanding balances continues in both our legacy and newly acquired markets throughout our footprint. We continue to see improvement in our operational expenses as they declined over 5% from the prior quarter. We consolidated four branches in December and executed on various other efficiency initiatives which should result in a continued decline in these expenses going forward. Our capital levels continue to be strong. We did repurchase 306,000 shares during the fourth quarter which completed our current board authorization. Our tangible book value per share increased 2.3% in the quarter and our recent stock dividend increase announced last week -- we also have a very attractive dividend yield at 4.2% as of Friday's closing market. Moving to Slide 7 with annual highlights, this story remains much the same. Our net income of $116.7 million in 2015 surpassed that of 2014 by 12.6% despite a $5.4 million pretax reduction in interchange under the Durbin amendment. Loans grew by over 5% during the year and total revenues increased 12%. We completed many efficiency initiatives during the quarter, the most impactful of those are listed on the Slide which resulted in three consecutive quarters of decline in our operational expenses. And as I previously noted, various initiatives are currently underway that should result in a continuation of that trend. We were active in our stock buyback program in 2015, repurchasing over 6 million shares and were pleased that our tangible book value per share remains stable despite closing on a partnership in the first quarter of the year. With that overview, I will now turn the call over to Jim Sandgren.

Thank you, Lynell and good morning everyone. As most of you know, Old National has been laser focused on execution throughout 2015. This has meant a clear and persistent focus on driving core revenue growth. This was the message that our management team delivered again and again to our frontline associates over the past 12 months. I am happy to report that both our quarterly and annual results confirm that this message was received loud and clear. If you will turn to Slide 9, I will start my comments by focusing on overall low production over the past four years. As you can see, since 2012, we have experienced a compounded annual growth rate of nearly 17% and an increase in loan production over those four years of over $1 billion. In 2015 alone we saw a jump of nearly $800 million compared to 2014, which represented a 39% increase. This was driven by a continued strong growth in commercial indirect and mortgage lending production which ultimately led to our strong balance sheet growth during the year. Moving to Slide 10, you will see a breakdown of our quarterly and annual loan growth. Excluding covered loans, we generated $102 million in organic loan growth during the fourth quarter which represented an annualized growth rate of 6%. Our third consecutive quarter of producing meaningful loan growth. Just over $66 million of the quarterly growth came from commercial and commercial real estate lending with the balance generated by indirect lending. While we enjoyed solid quarterly results in a number of our regions, I would like to call specific attention to our Louisville, Lexington market, where we saw quarterly increase of over $22 million. Indianapolis was equally strong with quarterly gains exceeding $20 million, while our Vincennes and Fort Wayne markets were also…

Thank you, Jim. Turning to Slide 15, I will begin with the graph of total revenue. This graph compares fourth-quarter revenue to last quarter and fourth quarter of 2014. Total revenue in the fourth quarter was $146.5 million, down from the third quarter but higher than fourth-quarter 2014 revenue. Fourth quarter 2015 revenue included $10.8 million from the repurchase of bank properties that were originally sold and leased back in 2007 and 2008. The gain recognized with this transaction was approximately $1.2 million less than the gain we expected when we discussed this transaction in last quarter's call. Fees, service charges and other revenue increased $5.2 million from third quarter 2015 due primarily to lower IA amortization expense. The indemnification asset contributed $57,000 in revenue in the fourth quarter compared to an IA expense of $6.6 million in the third quarter. You will recall that we treat IA amortization as an income item and an IA amortization expense is accounted for as negative income. As of 12-31-2015 we had only $9 million of indemnification asset remaining on our balance sheet. Interchange income declined $241,000 in the quarter from Q3. The third quarter was the first full quarter that we were subject to the Durbin Amendment. Mortgage revenue was down $1 million and deposit service charges declined $1 million from the third quarter. As Jim noted, the decline in mortgage revenue in the quarter was due to lower loan production for several reasons but was in line with our expectation. Fourth-quarter service charges declined due to the sale of our Illinois and Eastern Indiana branches and were also in line with our expectations. Net interest income in the fourth quarter was $11.2 million lower than the third quarter of 2015 due primarily to lower accretion income. Fourth-quarter accretion income was $8.3…

Thank you, Chris. Beginning on Slide 21, we summarize the trends in net charge-offs and provision expense. The fourth quarter was again another good performance period for the bank with respect to net charge-offs. For the third time in 2015, we were able to report net recoveries for the quarter. The net recovery of $523,000 for the current quarter compares with the net recovery of $869,000 last quarter and net losses of $1.3 million for the fourth quarter 2014. The strong performance in 2015 was a result of not only relatively low levels of write-offs but continued strong levels of recoveries. As a result of our strong performance with respect to credit losses, we again had a relatively low provision expense in the quarter at $484,000. This level of provisioning was lower than the $869,000 provision taken in the fourth quarter of 2014 but slightly higher than the $167,000 provision last quarter. With the net recoveries in provision expense, each roughly in the $0.5 million range, we were able to augment our allowance for loan and lease loss balance by $1 million in the current quarter. We are pleased to report that with our net recoveries of $1.5 million and a provision expense of $2.9 million, for the full year 2015 we were able to increase our reserve for loan losses by $4.4 million. For 2014 we had net charge-offs of $2.4 million, a provision of $3.1 and a corresponding increase in our reserve of $700,000. On a consolidated basis the allowance for loan losses as a percent of end of period pre-mark loans stood at 0.74% at December 31, the same level as last quarter. The combined allowance on loan marks as a percent of total pre-marked loan outstandings stood at 2.23% at the end of the current quarter…

Thank you, Daryl and good morning to all of you that have joined us on our call. It sure has been a very interesting week for Midwest banks. One year ago on our fourth quarter 2014 call, I spoke to the continued transformation of our franchise to our partnerships and the need for Old National to focus on execution within our markets. I used the words, now is the time to move beyond building our franchise and to let our actions and results speak for themselves. With the earnings that we announced today, our actions do speak for themselves. A 12.6% increase in reported net income and a full year earnings that were the second best in our company's history. We experienced annual loan growth of over 5% but more impressive is that our total originations were up over 39%. At the same time we maintain our excellent credit quality with a full year of net recoveries and delinquencies that are well below peer average and at the same time we were pleased to build our loan loss reserves. The 5.3% reduction in operating expenses this quarter as compared to the third quarter of 2015, reinforces the strong efforts we have put forth to become more efficient. Our focus on capital saw us complete our authorized share buyback and at the same time provide our owners a dividend with a yield of over 4%. All in all, 2015 was a very good year for Old National and one that we believe further solidified our foundation for future performance. I started the call by commenting on the eventful week we have had in the Midwest with a few of our peer banks making significant announcements. A more accurate statement would have been, it has been an interesting start to the new…

[Operator Instructions] Your first question comes from the line of Michael Perito with KBW.

Mike, Scott Siefers is going to be very upset with you.

It's nothing personal. A couple of questions. Bob, just as you talked about the guidance on Slide 25. Maybe starting just on the net interest margin where you guys say, stable assuming no further rate increases, is that stable from this kind of 1Q '16 guided level, the 3.07% to 3.09%?

Yes. I think as Chris noted, we had some anomalies in the fourth quarter. The guidance for the fourth quarter with the current rate increase. So I would take your modeling off of that and again we believe it will be stable with no further increases from the Fed.

Okay. And then on the expenses, I think Chris said the 3% to 5% decrease, that's operational expenses. So I just want to be clear that that's off of, call it maybe $405 million in 2015?

Yes. You are good.

Okay. And then just maybe a comment around that. So if I am just doing some quick math that's low to high of the range, about $96 million to $98 million per quarter in '16. I know you mentioned in the first quarter, there is going to be some upward pressure from seasonal stuff. But is there anything else that you would note in terms of why the quarterly run rate from the $95 million that would be pushing that upwards?

For the first quarter or for the overall?

Well, first quarter I think you mentioned was seasonal, so I guess more overall.

Yes, seasonal. Then you have got, FICA in the first quarter, then we have merit increases in the second quarter. Those would be the only things that would drive any cost up. But obviously our people have had a great year. They deserve to get merit increases and you have got the normalcy in the first quarter with FICA, HSA contributions et al. So absent that, you should see a continued trend downward.

Okay. And then, sorry, just one more. The same kind of question I guess, on the fee-based businesses. That doesn't say it in the deck, but I just want to make sure I am clear. That's operational as well so that would be off of--

Absolutely.

About $196 million or so in '15 that you guys put up?

Yes. Absolutely. Yes.

Okay. And then maybe just one more comment on the loan growth that you guys kind of saw in the back half of the year. It sounds like all the markets are doing pretty well. Can you maybe just give us a little bit more color on the outlook for kind of the Anchor franchise and the Wisconsin growth? Is that going to be something that is kind of accretive or neutral to what you guys are doing in the other newer markets that you guys have gotten into over the last couple years?

Yes. I would tell you that there is nothing from our early indications in our actions with Chris and his team that would tell us that what we provided you on our accretion would be any different. We are very encouraged. They have just got a very, very good mature team that is very anxious to get out and be proactive and just spending time up in the Wisconsin market we are even more encouraged by what we see there.

Your next question comes from the line of Scott Siefers with Sandler O'Neill.

Chris, just maybe on the fees. If you could go through a little bit of the detail or nuance on service charges came in a little more than I had anticipated. I am just wondering and I think I just missed a little of this in your prepped comments. But I am wondering if Durbin had relatively more of an impact in the fourth quarter than the third or if this was all branch sale related. In other words, what caused that sequential weakness in your guys' view?

Yes, I think you are right on, Scott. I think that the Durbin was right where we expected. Obviously most of that we saw, virtually all of that we saw in the third quarter with a full third quarter impact and then declines on the branch sale a little bit. But about what we expected. I know Jim is very much engaged in increasing the number of accounts and it's a very important part of our 2016 focus on the branch side.

Scott, just for edification. Durbin was almost exactly the same in the fourth quarter as was in the third quarter. So the only weakness might be just a little bit more from the sales of branches.

Okay, all right. That makes sense. Then in terms of, just sort of overall transactional activity. Was that softer than you thought or were there any pricing changes in there or anything specific that made it a little weaker?

No. If anything seasonal. You sometimes get people to get bonuses in that at the end of the year and you get a little behavioral change but no pricing changes. We just don’t feel the market is receptive to many changes at this stage.

Your next question comes from the line of Terry McEvoy with Stephens.

Maybe start with a question for Jim. Just looking at commercial and CRE loan yields. On the average balance sheet you've got the impact of purchase accounting accretion and then you made some comments on the production yields being up but also some benefits in the SBA program. I guess directionally if you exclude all the noise, could you give us a sense for the commercial loan yields within Q4 and just on an organic basis do you expect continued pressure on yields?

Yes. Terry, you are well aware of just the competitive pressures out there. So there will continue to be that pressure going forward. But the fact that we have some other options, specifically our SBA lending program and the expertise that we picked up with our United partnership, it's helping our RMs really find more ways to say yes to our customers. And we are getting a better return on that risk. So we will still see some pressure on yields for sure but I think adding the SBA program has certainly given us a little bit of a boost that we didn’t have really before.

It's safe to say Terry, we are pleased with the yield, production yield was able to stay slightly ahead of where we were last quarter, given those competitive pressures.

And then a question for Daryl. You mentioned just regulators flagging certain parts of the portfolio that you thought you may over time need to build up reserves. Outside of just the loan growth that you mentioned on Slide 25 in terms of the impact on provisions, would you feel comfortable discussing some of those segments that you think the regulators are focused on?

Yes. Terry, I want to make it clear not necessarily an increase in reserves but certainly more kind of management and attention to the areas. So it would be the things that everybody else has talked about. It would be indirect lending, we need to watch that very closely. The commercial real estate. It would be concentrations. It would be this whole kind of discussions about end of draw around HELOCs. And then a lot of emphasis and discussion around underwriting exceptions and how you manage those and track those. So if you think about just the cycles that banks go through, it's all the same stuff that we have been having to brush ourselves off and really refocus on over the last three or four cycles.

And then just to finish up a question for Bob. You mentioned earlier that what is going on in the baking environment in the Midwest, specifically Michigan and Ohio and I know you are focused on the Anchor Bank and making sure the integration there goes perfectly. But how do you turn up your offensive position in some of those markets that are going through disruption and are you willing to hire some additions which would have an impact on expenses in order to capitalize on these opportunities?

Great question, Terry. Much like Michael getting in queue at 4 a.m. I think once we saw the announcement for both transactions on Monday, both Jim and I had shot emails up to the market president and said, now is the time for us to take advantage of some disruption. So we absolutely would love to hire more people in those key markets. We do believe that disruption does present opportunities for us. So I know Todd Clark and the folks I Michigan are anxious to go out and win some more business and we will see where we go from there.

And your next question comes from the line of Andy Stapp with Hilliard Lyons.

All my questions have been answered, most of it in your presentation. So, thanks.

Great. Thank you. If you have follow-on questions give us a call.

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

All my questions have not been asked and answered. On the 2016 guidance on the fee-based businesses, I know that is kind of an initiative that you have is to grow that business. So help us understand kind of the puts and takes of the guidance, the stable to slightly down. I expected it to be a little higher but help me understand that.

Well, if you think about those businesses absent wealth management, you would see growth. Our concern is the equity markets because such a large portion of that book is tied to a fee based on portfolio size and as the equity markets decline, you are going to see a less revenue there. So if you remove wealth from that equation, you would see a stable to a more positive number. We were just being a little more conservative based on our view of what the potential equity markets and you guys are, again as I said, smarter than I am. But the way we started out the year with the decline in the equity markets, obviously as we charge fees, you are going to get more challenge there. But remove that, Jon, you are fair to say that we would be much more positive.

Okay. Good. That's helpful. And then in your prepared comments you talked about the customer mood. Just help us understand the cross currents there because obviously the macro is very, very negative. And just maybe expand a little bit on what you're hearing from your customers. Has it impacted their willingness and ability to undertake new projects? Or is this, from your point of view, all the negative news just noise?

It's noise. I was in Bloomington over the weekend. I was in Indianapolis on Friday. I have been in Michigan, I have been in the northern part of the state. I have been in Louisville. And when I asked the specific question, how do you feel, our clients actually feel very good. They don’t understand this broader concern and they are still looking at projects. They are looking at expansion. They are looking at opportunities. So we all need to remember that election cycles also kind of breed negativity and it's hard to not turn on the TV and tell everybody how you feel is terrible. But ultimately if you are in Louisville, Kentucky, or Paoli, Indiana, our clients feel pretty good.

And you still hearing the skilled labor wage pressure concern?

Huge. It's the biggest issue all our clients -- it's not an issue of capacity from a borrowing standpoint, it's just can we hire the right people and get them to the job. And again it cuts across all our markets.

Chris, one for you. You are going to love this one. But you always provide a lot of detail on the purchase accounting accretion and you have given us the core. You have more information than we do, I guess, but what do you think we should factor in for the glide path and purchase accounting accretion in terms of the margin build up?

You know we still believe that it's gradual subject to those very large prepayments that we get and the volatility in prepayments quarter-to-quarter. About the only thing that I can point to Jon is 2015, where our expectations I think at the end of the first quarter when we first used that Slide was $45 millionish. We finished up with $61 million. Now the point being there is that it's a limited pot of money right. But we still have quite a bit left in amortized, discounted about $105 million. So we do expect some prepayments. The degree of those prepayments is awfully tough to distill and I would say that as we get closer to the end of these, the prepayments probably get less significant because we have worked out a lot of the large credits. So it just kind of glides down to an end. That’s about as much color as I can give you because that’s the color we are subject on our forecast.

Yes. So just take slide 36 and just make some assumptions on prepayments and that's about as close as we are going to get?

Right.

The history also is a great indicator of the future.

Yes. And it seems like your credit is better and you're getting the prepayments as well.

That’s correct.

And you do have a follow up question from the line of Michael Perito with KBW.

Just more of a capital question/longer term outlook. So Anchor is set to close in I believe it's midish 2Q '16. And as we think towards the back half of this year, could you maybe give us a rundown on how you are thinking about capital deployment? Obviously you guys were pretty active with the buyback both in last quarter but also last year. Stock is a bit lower than where your average purchase price was and obviously with the deal pending you guys, it sounds like aren't going to do much. But maybe just a rundown on how you guys are kind of thinking about capital return post Anchor close.

Great question. So our belief is stocks are still trading a portion on tangible book so obviously we won't kind of continue to focus on growing our tangible book because we think that’s important given all of the activity that we have had over the last few years. So saying that is kind of the overhang. Clearly organic growth is our first driver. We also understand the need for the dividend with the recent increase that our directors authorized. You know then we begin to get that balance between the buyback and the potential future but we are really focused on organic growth and really focused on ensuring that we continue to build that tangible book as we go forward.

And Mike, if I might add, recall that the consideration for the Anchor transaction is fairly heavily cash as well. So to Bob's point, we do try to balance every time we make one of these decisions, we try to balance several factors and try to use that capital in the very best way based on current market conditions and opportunities and things of that sort.

Okay. Great. And can you just maybe remind us with how the board kind of thinks about the dividend? Is it kind of a target payout or a yield, or I guess neither or either?

Well, it's a little of both but it really gets towards more towards dividend payout ratio is kind of where they get focused. We don’t have a public stated payout ratio but it's important that we look at capital. And then the board also has the ability to look our forward and see where our capital needs maybe in the future as well.

And there are currently no further questions at this time.

Great. Everyone. Thank you so much for your time and attention and as always please let Lynell know if you have any follow up questions and Chris and I and Jim and Daryl are available to take any. Have a great day everybody.

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 Web site at oldnational.com. A replay of the call will also be available by dialing 1-855-859-2056, conference ID code 24105575. This replay will be available through February 16. If anyone has any additional questions, please contact Lynell Walton at 812-464-1366. Thank you for your participation in today's conference call.