Acquisition and Divestiture Activity

9 Months Ended

Sep. 30, 2013

Business Combinations [Abstract]

Acquisition and Divestiture Activity

NOTE 3—ACQUISITION AND DIVESTITURE ACTIVITY

Acquisitions

Indiana Community Bancorp

On September 15, 2012, Old National acquired 100% of Indiana Community Bancorp (“IBT”) in an all stock transaction. IBT was headquartered in Columbus, Indiana and had 17 full-service banking centers serving the South Central Indiana area. The acquisition enhanced Old National’s position as the third largest branch network in Indiana and allowed Old National to enter into the vibrant, growing region of south central Indiana in a rapid and cost effective manner. We also believe there are opportunities to enhance income and improve efficiencies. Pursuant to the merger agreement, the shareholders of IBT received approximately 6.6 million shares of Old National Bancorp stock valued at approximately $88.5 million.

Under the acquisition method of accounting, the total estimated purchase price is allocated to IBT’s net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. The purchase price for the IBT acquisition was allocated as follows (in thousands):

Cash and cash equivalents	$	78,540
Investment securities—available for sale		147,710
Federal Home Loan Bank stock, at cost		7,092
Loans		497,434
Premises and equipment		13,345
Accrued interest receivable		2,165
Other real estate owned		6,111
Company-owned life insurance		15,833
Other assets		49,655
Deposits		(784,589	)
Other borrowings		(15,464	)
Accrued expenses and other liabilities		(18,564	)
Net tangible assets acquired		(732	)
Definite-lived intangible assets acquired		3,024
Goodwill		86,205
Purchase price	$	88,497

Of the total purchase price, $0.7 million has been allocated to net tangible liabilities acquired and $3.0 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	$	1.3		7
Trust customer relationship intangible	$	1.7		12

Bank of America

On January 9, 2013 Old National announced that it had entered into a purchase and assumption agreement to acquire 24 bank branches of Bank of America. Four of the branches are located in northern Indiana and 20 branches are located in southwest Michigan. The Company paid a deposit premium of 2.94%. The acquisition has doubled Old National’s presence in the South Bend/Elkhart area and provided a logical market extension into southwest Michigan. The transaction closed on July 12, 2013.

Under the acquisition method of accounting, the total estimated purchase price is allocated to the 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 assumptions that are subject to change, the purchase price for the Bank of America branch acquisition is allocated as follows (in thousands):

Cash and cash equivalents	$	562,906
Loans		5,638
Premises and equipment		12,559
Accrued interest receivable		15
Other assets		331
Deposits		(565,106	)
Accrued expenses and other liabilities		(246	)
Net tangible assets acquired		16,097
Definite-lived intangible assets acquired		3,462
Goodwill		13,347
Purchase price	$	32,906

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.

The acquired identifiable intangible asset is core deposit intangible and the estimated fair value is approximately $3.5 million. The core deposit intangible asset will be amortized over an estimated useful life of 7 years and is included in the “Community Banking” segment, as described in Note 20 of these consolidated financial statement footnotes. The goodwill recorded in the transaction will be deductible for tax purposes and is included in the “Community Banking” segment.

Pending Acquisition

On September 10, 2013, Old National announced that it had entered into an agreement to acquire Tower Financial Corporation (“Tower”) through a stock and cash merger. Tower Financial Corporation is an Indiana bank holding company with Tower Bank & Trust Company as its wholly-owned subsidiary. Headquartered in Fort Wayne, Indiana, Tower has seven banking centers with approximately $702 million in assets and an additional $719 million in trust assets under management at September 30, 2013. The merger would strengthen Old National’s position as the third largest deposit holder in Indiana. Pursuant to the merger agreement, shareholders of Tower Financial Corporation will receive 1.20 shares of Old National Bancorp common stock and $6.75 in cash for each share of Tower Financial Corporation common stock. As of September 5, 2013, the transaction was valued at approximately $107.7 million. The transaction is expected to close in the first quarter of 2014 subject to approval by federal and state regulatory authorities and Tower Financial Corporation shareholders.

Divestitures

During the first quarter of 2013, Old National sold the deposits of nine banking centers located in southern Illinois and western Kentucky. Deposits at the time of sale were approximately $150 million and the Company received a deposit premium of $2.2 million.

On September 5, 2013, Old National entered into branch purchase and assumption agreements to sell three banking centers with deposits of approximately $31 million. ONB expects the transactions to close in December 2013.

As part of our continuing efforts to provide an efficient and effective branch banking network, Old National has also consolidated 40 banking centers into existing branch locations during the last twelve months. Old National intends to consolidate an additional four banking centers during the fourth quarter of 2013.