Acquisition and Divestiture Activity

3 Months Ended

Mar. 31, 2019

NOTE 3 – ACQUISITION AND DIVESTITURE ACTIVITY

Acquisition

Klein Financial, Inc.

Effective November 1, 2018, Old National completed the acquisition of Minnesota-based Klein through a 100% stock merger. Klein was a bank holding company with KleinBank as its wholly-owned subsidiary. Founded in 1907 and headquartered in Chaska, Minnesota with 18 full-service branches, KleinBank was the largest family-owned community bank serving the Twin Cities and its western communities. Old National believes that it will be able to achieve cost savings by integrating the two companies and combining accounting, data processing, retail and lending support, and other administrative functions, which will enable Old National to achieve economies of scale in these areas.

Pursuant to the merger agreement, each holder of Klein common stock received 7.92 shares of Old National Common Stock per share of Klein common stock such holder owned. The total fair value of consideration for Klein was $406.5 million, consisting of 22.8 million shares of Old National Common Stock valued at $406.5 million. Through March 31, 2019, transaction and integration costs of $15.5 million associated with this acquisition have been expensed and remaining integration costs will be expensed as incurred.

The following table reflects management’s preliminary valuation of the assets acquired and liabilities assumed (in thousands):

Cash and cash equivalents	$	60,759
Investment securities		697,951
FHLB/Federal Reserve Bank stock		2,637
Loans held for sale		3,371
Loans		1,049,073
Premises and equipment		33,391
Accrued interest receivable		7,896
Company-owned life insurance		36,380
Net deferred tax assets		6,500
Other real estate owned		954
Other assets		10,299
Deposits		(1,713,086	)
Securities sold under agreements to repurchase		(19,481	)
Accrued expenses and other liabilities		(17,506	)
Net tangible assets acquired		159,138
Definite-lived intangible assets acquired		39,017
Loan servicing rights		285
Goodwill		208,034
Total consideration	$	406,474

Certain loans and premises and equipment measurements have not been finalized and are subject to change. As Old National receives the information related to facts and circumstances that existed as of the acquisition date, we will finalize the provisional measurements recorded as of March 31, 2019. Such adjustments will be included in the allocation in the reporting period in which the final amounts are determined, not to exceed one year from the acquisition date.

Goodwill related to this acquisition will not be deductible for tax purposes.

The estimated fair value of the core deposit intangible was $39.0 million and is being amortized over an estimated useful life of 12 years.

Acquired loan data for Klein can be found in the table below:

					Best Estimate at
					Acquisition Date of
	Fair Value		Gross Contractual		Contractual Cash
	of Acquired Loans		Cash Flows at		Flows Not Expected
(in thousands)	at Acquisition Date		Acquisition Date		to be Collected
Acquired receivables subject to ASC 310-30	$	11,663	$	18,568	$	4,521
Acquired receivables not subject to ASC 310-30	$	1,037,410	$	1,252,954	$	76,534