Acquisition And Divestiture Activity

9 Months Ended

Sep. 30, 2011

Acquisition And Divestiture Activity

Acquisition And Divestiture Activity

NOTE 3 – ACQUISITION AND DIVESTITURE ACTIVITY

Acquisitions

Integra Bank N.A.

On July 29, 2011, Old National acquired the banking operations of Integra Bank N.A. ("Integra") in an FDIC assisted transaction. As part of the purchase and assumption agreement, the Company and the FDIC entered into loss sharing agreements (each, a "loss sharing agreement" and collectively, the "loss sharing agreements"), whereby the FDIC will cover a substantial portion of any future losses on loans (and related unfunded commitments), other real estate owned ("OREO") and certain accrued interest on loans for up to 90 days. The acquired loans and OREO subject to the loss sharing agreements are referred to collectively as "covered assets." Under the terms of the loss sharing agreements, the FDIC will reimburse Old National for 80% of losses up to $275.0 million, losses in excess of $275.0 million up to $467.2 million at 0% reimbursement, and 80% of losses in excess of $467.2 million. Old National will reimburse the FDIC for its share of recoveries with respect to losses for which the FDIC has reimbursed the Bank under the loss sharing agreements. The loss sharing provisions of the agreements for commercial and single family residential mortgage loans are in effect for five and ten years, respectively, from the July 29, 2011 acquisition date and the loss recovery provisions for such loans are in effect for eight years and ten years, respectively, from the acquisition date.

Integra was a full service community bank headquartered in Evansville, Indiana that operated 52 branch locations. We entered into this transaction due to the attractiveness in the pricing of the acquired loan portfolio, including the indemnification assets, and the attractiveness of immediate low cost core deposits. We also believed there were opportunities to enhance income and improve efficiencies. We believe participating with the FDIC in this assisted transaction was advantageous to the Company.

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting (formerly the purchase method). The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the July 29, 2011 acquisition date. The application of the acquisition method of accounting resulted in the recognition of $29.7 million of goodwill and $4.3 million of core deposit intangible. The goodwill represents the excess of the estimated fair value of the liabilities assumed over the estimated fair value of the assets acquired and is influenced significantly by the FDIC-assisted transaction process. Goodwill of $29.0 million is deductible for income tax purposes.

Due primarily to the significant amount of fair value adjustments and the FDIC loss sharing agreements put in place, historical results for Integra are not meaningful to the Company's results and thus no pro forma information is presented.

A summary, at fair value, of the assets acquired and liabilities assumed in the Integra transaction, as of the acquisition date, is as follows:

(dollars in thousands)
Assets Acquired
Cash and cash equivalents	$	314,954
Investment securities - available for sale		452,478
Federal Home Loan Bank stock, at cost		15,226
Federal Reserve Bank stock, at cost		1,222
Residential loans held for sale		1,690
Loans - covered		727,330
Loans - non-covered		56,828
Premises and equipment		10,474
Other real estate owned		34,055
Accrued interest receivable		4,751
Goodwill		29,673
Other intangible assets		4,291
FDIC indemnification asset		167,948
Other assets		11,169
Assets acquired	$	1,832,089
Liabilities Assumed
Deposits	$	1,443,209
Short-term borrowings		7,654
Other borrowings		192,895
FDIC settlement payable		161,520
Other liabilities		26,811
Liabilities assumed	$	1,832,089

Trust Business of Integra Bank

On June 1, 2011, Old National Bancorp's wholly owned trust subsidiary, American National Trust and Investment Management Company d/b/a Old National Trust Company ("ONTC"), acquired the trust business of Integra Bank, N.A. in a transaction unrelated to the previously noted FDIC transaction. As of the closing, the trust business had approximately $328 million in assets under management. This transaction brings the total assets under management by Old National's Wealth Management division to approximately $4.4 billion. Old National paid Integra $1.3 million in an all cash transaction and anticipates acquisition-related costs will approximate $150 thousand. Old National recorded $1.3 million of customer relationship intangible assets which will be amortized on an accelerated basis over 12 years and is included in the "Other" segment, as described in Note 20 of the consolidated financial statement footnotes.

Monroe Bancorp

On January 1, 2011, Old National acquired 100 % of Monroe Bancorp ("Monroe") in an all stock transaction. Monroe was headquartered in Bloomington, Indiana and had 15 banking centers. The acquisition increases Old National's market position to number 1 in Bloomington and strengthens its position as the third largest branch network in Indiana. Pursuant to the merger agreement, the shareholders of Monroe received approximately 7.6 million shares of Old National Bancorp stock valued at approximately $90.1 million.

Under the acquisition method of accounting, the total estimated purchase price is allocated to Monroe's net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on management's preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the purchase price for the Monroe acquisition is allocated as follows (in thousands):

Cash and cash equivalents	$	83,604
Investment securities		153,594
Loans		453,366
Premises and equipment		19,738
Accrued interest receivable		1,804
Company-owned life insurance		17,206
Other assets		41,538
Deposits		(653,813	)
Short-term borrowings		(62,529	)
Other borrowings		(37,352	)
Accrued expenses and other liabilities		(6,000	)
Net tangible assets acquired		11,156
Definite-lived intangible assets acquired		10,485
Goodwill		68,429
Purchase price	$	90,070

Prior to the end of the one year measurement period for finalizing the purchase price allocation, if information becomes available which would indicate adjustments are required to the purchase price allocation, such adjustments will be included in the purchase price allocation retrospectively.

Of the total estimated purchase price, an estimate of $11.2 million has been allocated to net tangible assets acquired and $10.5 million has been allocated to definite-lived intangible assets acquired. The remaining purchase price has been allocated to goodwill. The goodwill will not be deductible for tax purposes and is included in the "Community Banking" and "Other" segments, as described in Note 20 of these consolidated financial statement footnotes.

The components of the estimated fair value of the acquired identifiable intangible assets are in the table below. These intangible assets will be amortized on an accelerated basis over their estimated lives and are included in the "Community Banking" and "Other" segments, as described in Note 20 of these consolidated financial statement footnotes.

		Estimated
		Fair Value	Estimated
		(in millions)	Useful Lives (Years)
Core deposit intangible	$	8.2	10
Trust customer relationship intangible	$	2.3	12

Divestiture

On October 13, 2011, Old National announced the signing of an agreement to sell the deposits of four former Integra Bank branches located in the Chicago area to First Midwest Bank. As such, these deposits are considered held for sale as of September 30, 2011. The deposits totaled approximately $185.0 million. First Midwest Bank has agreed to pay Old National 50 basis points, or approximately $0.5 million, on the transaction deposits at these four locations. Old National will retain all of the loans. The transaction is expected to close around December 3, 2011.