Old National Bancorp Earnings Call Insights: Core Loan Growth and Changes in Movement

Old National Bancorp (NYSE:ONB) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Core Loan Growth

Scott Siefers – Sandler O’Neill & Partners: Bob, I think kind of between you and Chris and Daryl it sounded like the overall loan growth outlook is pretty constructive just I guess in addition to the color that you already gave maybe if you won’t mind kind of venturing, I guess, on how robust the strength of growth would be in 2013, I guess one of the other things that I’m interested in is, you still do have at least some runoff from covered loans that I would anticipate would continue, so I guess, in the aggregate what kind of core loan growth would you be looking for this year?

Robert G. Jones – President and CEO: Scott, hard to put a number on it, just based on the IBT and based on the covered loan portfolio, but I will say that the activity level of the last two to three quarters continues to increase, while you saw a little decline in the pipeline over the last couple of quarters, we’ve had some strong closings. So, I think the easiest way to answer is, the activity levels are slightly better than what we’ve had and again it all depends on our experience at IBT to give you some number, but I can also tell you that from our directors down to everyone in the Company we’re all focused on it. We had actually a Director that referred over $40 million in loans to us over the last couple of weeks. So, we’re encouraged.

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Scott Siefers – Sandler O’Neill & Partners: Then Chris, just want to make sure that I understood your comments correctly. I appreciate the color you’ve given on the actual purchase kind of increasing you’ve had and then the expectations as we look into 2013. So, I think, you guys had right around $57.5 million as you detailed in the release in accretion income in 2012. So, it sounds like pretty similar expectation I had as we look into 2013 just with an anticipated change in the complexion of that?

Christopher A. Wolking – Senior EVP and CFO: Exactly, Scott, I think, we still believe that what we’ve got from the ICB transaction, looking forward will offset what we’ll give up 2013. I think it’s important that we continue to make you all aware of those numbers and the fact that it is kind of transitory and we’d expect that Monroe and Integra accretion to continue to come down.

Scott Siefers – Sandler O’Neill & Partners: Finally, just on the core margin you gave some color on the first quarter expectation, when or will there be a stabilization in the core margin in your estimation at some point seemingly the repricing risk in the securities portfolio will kind of play itself out, do you think that’s something that happens this year or is maybe, a few basis points a quarter out as we look beyond the first quarter in terms of compression for the core margins. Is that a fair assumption?

Christopher A. Wolking – Senior EVP and CFO: I think we’ve talked about the benefit we still expect to see from our liability repricing particularly on our CDs. I think I tried to make clear, that in the fourth quarter, we had a pretty significant increase in earning assets, which may have driven the core margin and it really depends on how the loan growth continues and how much of those cash flows from the investment portfolio we can steer to better quality earning assets. I’m not willing to add duration to the book – the investment portfolio. I just don’t feel like it’s appropriate to take more risk there, even though we could squeeze a few basis points of yield out of the portfolio. So, we’ll just have to play it by ear, but like I said, I think a large part of that fourth quarter compression was due to higher than anticipated growth in earning assets, and some of that did come from the portfolio, albeit a very short-term in duration.

Changes in Movement

Steven Geyen – Stifel Nicolaus: Maybe just a follow on question. The change in the movement I’ve discussed in post loans in the pipeline takes up through over last few quarters. I am just curious if you could talk just a bit about the success you had in moving the loans through the pipeline and how that have changed over the last couple of quarter?

Robert G. Jones – President and CEO: So, in years passed, Steven, our regional CEOs were great folks that kind of postponing closings to make themselves look better the following year and so Barbara and I did a pretty significant push to say you know cut whatever and let’s get them close. I think that’s part of it. And again I go back to the point we’ve got everybody in the company really focused on loan growth and maybe we are not at 8 cylinders, but I’d say we are at 7 pushing towards 8. Conversations then go by when I am not with our regional CEOs or commercial banking managers when you don’t talk about how is loan growth, what can we do. Daryl and I are working on credits just the two of us now he doesn’t like anything I have brought in so far, but I think it is just more of continual effort to make sure we get stuff on the balance sheet before the year-end.

Steven Geyen – Stifel Nicolaus: Maybe just some thoughts on the run-off of the core portfolio. Just kind of curious how you look – how things you kind of work the way out through 2012 and what the impact might be on 2013 and just the fact that credits that you’ve seen leaving the bank has it been because of pricing and mostly because of paydowns what’s been driving the run-offs?

Robert G. Jones – President and CEO: Couple of things. As you look at the third quarter ’12 to fourth quarter ’12 the jump there – the two primary drivers are really Indiana Community any time you acquire a new bank and you change credit standards you are going to have some good core loans that unfortunately somebody is going to come in and make some structural changes that we lose that opportunity. So, as Chris said, we went from an average of (447 to 404) in our ICB so you can see we’ve had some pay downs there. I will say, we’ve got a completely new commercial banking team in there. They’ve built their pipeline. We’re encouraged by what we see, but it’s natural. Actually, if you go back and you look over the Monroe loan trends, they are not dissimilar. And again, I think, we’re in very good shape in Bloomington. The other thing, I guess, Stephen, at the end of the year, as you get some seasonal pay downs, either people flush with cash, they want to pay down or some other things that happen. But if we lose our credit these days, it’s generally going to be too structure more or so than pricing. We’re competitive on the pricing standpoint because of our good core funding, but as Chris or as Daryl alluded to in his comments, people start to reach for growth. Structure is the first thing that’s going to go and we are seeing some markets where people have short memories, but fortunately Daryl has got a very long memory and I sleep pretty well with that.

Steven Geyen – Stifel Nicolaus: You had made comment about $6.5 million to $7.5 million in branch optimization sales in 2013. I just want to make sure, is that off a base of 4Q level?

Robert G. Jones – President and CEO: Would be off of the 4Q level, but that’s an annualized number, so you assume that we closed – the consolidated, the ones in the fourth quarter, the sales will happen late January, early February, so I think for models, I’d give us 10/12s for that, as you’re building your models.

Steven Geyen – Stifel Nicolaus: Last question. On Slide 10, I’m just curious what prompted the change in the non-accretable difference or excuse me – actually one different question, you had mentioned, in one of the slides about the adjustment in the pension, and I was just curious, what exactly prompted that, was the change in the discount rate or was there some other factor?

Christopher A. Wolking – Senior EVP and CFO: I just had asked Joan Kissel to help me with that. We had lump-sum distributions, in that, all those things can come up kind of suddenly from retirements.