Lynell J. Walton - SVP and Director of Investor Relations Robert G. Jones - President and CEO Christopher A. Wolking - SEVP and Chief Financial Officer Daryl D. Moore - EVP, Chief Credit Officer James A. Sandgren - EVP and Chief Banking Officer James C. Ryan III - EVP and Director of Corporate Strategy.

Scott Siefers - Sandler O'Neill Emlen Harmon - Jefferies & Company Chris McGratty - Keefe Bruyette & Woods Inc. Andrew W. Stapp - Hilliard Lyons John Moran - Macquarie Stephen Geyen - DA Davidson Jon Arfstrom - RBC Capital Markets Peyton Green - Sterne Agee.

Welcome to the Old National Bancorp's Fourth Quarter and Full Year 2014 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 1 PM Central Time on February 2nd through February 16th. To access the replay, dial 855-859-2056, conference ID code 69616583. 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 Lynell Walton for opening remarks.

Lynell?.

Thanks Tahalie and good morning everyone. Joining me today on Old National Bancorp's fourth quarter and full year 2014 earnings conference call are Bob Jones, Chris Wolking, Daryl Moore, Jim Sandgren, Jim Ryan 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 three as well as our SEC filings for a full discussion of the company's risk factors. Additionally as you review slide four, certain non-GAAP financial measures will be discussed in this conference call today.

References to non-GAAP measures are only provided to assist you in understanding Old National's result 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.

I'll begin the analysis of our fourth quarter earnings on slide five where you'll find highlights of our performance as they relate to our 2014 initiatives, increasing core revenue, reducing operating expenses and transforming the franchise by moving into higher growth markets.

With our focus on core revenue growth I'm pleased to report our organic loan growth of almost $52 million during the quarter or 3.4% on an annualized basis. Year-over-year we experienced organic loan growth of almost $340 million. This growth net of loans acquired through acquisitions and excludes the change in covered loans.

In addition, we're pleased with the almost 12% increase in revenues. Banking, wealth management and insurance all contributed to the improvement over prior year. We did see a 17 basis point decline in our core net interest margin during the quarter and Chris will provide more clarity on that in his remarks.

We continue our focus on controlling non-interest expenses, specifically operational expense which increased just $24 million over the third quarter of 2014. We also remain keenly aware of the cost saves we announced with our recent acquisitions.

Looking specifically at our Tower and United acquisition, I'm pleased to report that expected cost saves are tracking with what we anticipated at announcement date.

Consistent with our 2014 initiatives of transforming our franchise by moving into higher growth markets the fourth quarter saw the successful closing of our acquisition of LSB Financial in Lafayette, Indiana. The conversion will actually be taking place this coming weekend.

On the first day of 2015 we closed on the acquisition of Founders Financial Corporation and efficiently entered the Grand Rapids, Michigan market. We anticipate converting this acquisition early in the second quarter. Moving to slide six, you'll see we reported quarterly net income this morning of $29.3 million or $0.25 per share.

This level of net income represents a nice increase over that which we reported in the fourth quarter of 2013. As we did last quarter also listed on the slide are items which impacted our fourth quarter earnings that resulted from the accounting of our acquisition activity.

Turning to slide seven you'll see our full year reported net income of $103.7 million or $0.95 per share. This level of net income represents the highest level of earnings by Old National since 2002. With that I'll turn the call over to Chris to provide more details..

Thank you Lynell. The graph on slide nine shows growth in our adjusted income annually since 2011 and the range from third quarter 2014 to fourth quarter 2014. Adjusted income is a pretax number without the amortization of the FDIC indemnification asset, purchase accounting accretion income or merger and integration expenses.

From 2011 to 2014 adjusted income increased 13.5% annually. Strong loan growth, low net charge-offs and well-managed expenses contributed to our income growth during the four year period. Compared to the third quarter of 2014 fourth quarter adjusted income increased 10.3% due primarily to loan growth during the quarter.

Slide 10, shows the company's revenue performance compared to fourth quarter 2013 and third quarter 2014.

If you focus on the dark blue segments of the stacked bar graphs, which reflect revenue not including securities gains, accretion income or the changes in the FDIC indemnification asset, revenue was up 11.9% from the fourth quarter of 2013 and up slightly from third quarter of 2014.

Fourth quarter average loans increased $417.7 million from third quarter in 2014, but we did experience net margin compression in the quarter due to lower loan yields. In the following slides I show the factors that contributed to lower reported and core net interest margin for the fourth quarter.

You should also note in slide 10, the significant decline in indemnification asset amortization expense in the fourth quarter of 2014. As we've discussed in previous calls indemnification asset amortization results from better than anticipated recoveries on loans and other real estate [loans] [ph] that are covered by FDIC loss share.

For the full year 2014 we amortized approximately $43.2 million of the indemnification asset and at close 31/2014 we had $20.6 million of the IA remaining on the balance sheet. We expect to amortize approximately $9.7 million of the remaining IA, the majority of which should be expensed over the next 21 months.

The indemnification asset at the time we purchase the Integra assets in 2011 was $168 million. So we believe we largely have the workout of the Integra loans behind us. The commercial loss share period ends in the third quarter of 2016. I've included a chart in the appendix on slide 36 that shows the change in the IA since 2011.

Slide 11, shows the components of our net interest margin for the quarter. Fully taxed full equivalent net interest margin declined to 3.83% from 4.78% last quarter. Third quarter 2014 included a large Integra loan recovery that contributed to the Integra accretion income. Integra accretion lifted net interest margin 105 basis points in Q3.

The contribution to net interest margin from Integra related loan accretion declined to 29 basis points in the fourth quarter. Our net interest margin benefited from a full year's accretion of acquired United assets and a partial quarter’s accretion of the assets of Lafayette Savings Bank. We closed on LSB on November 1, 2014.

The purchase accounting mark on the Lafayette Savings Bank loans was 8.5% at closing, lower than the 9.5% mark we expected at the time the transaction was announced. Founders Bank closed on January 1, 2015 and we are still finalizing the loan mark. But we expect it to be lower than the 6.1% we estimated when we announced the transaction.

As I noted in last quarters call, third quarter core margin of 3.32% benefited from unusually high collection and recognition into income of interest on non-accrual loans. If you turn to slide 12, you will see a more complete analysis of the changes to core margin in the fourth quarter.

For those of you who may not have values on that slide the numbers are negative 12 basis points negative three basis points and negative two basis points reading left to right. Interest income recognized from non-accrual assets was down in the fourth quarter of 2014 compared to the third quarter.

12 basis points of our decline in core net interest margin was due to lower recognized interest on upgraded or otherwise remediated non-accrual loans. This can be fairly volatile component of net interest margin.

Approximately eight basis points of the margin compression was due to the interest income we recognized in the third quarter and four basis points was due to lower than expected interest recoveries in the fourth quarter.

Also contributing to lower core margin or higher funding cost too are issuance in the third quarter of our 10 year senior holding company debt and the fact we extended the re-pricing of our federal home loan bank borrowings.

Our investment portfolio yield declined from 280 in third quarter to 273 in the fourth quarter and also contributed to decline in core margin as we purchased short maturity and floating rate securities and sold some of our long maturity municipal bonds.

Slide 13, breaks down non-interest expense for the fourth quarter and compares expenses to -- and compares expenses to fourth quarter 2014 and to the third quarter of 2014.

I have broken expenses down into merger and integration expenses, direct operating cost of Tower, United and Lafayette Savings Bank in the total remainder of our operating expenses. I also split out third and fourth quarter reversals of previously accrued expenses.

We saw a full quarter of expenses for United Bank and approximately two months of expenses for LSB in the fourth quarter of 2014.

While the blue segment of this stacked bar graph is primarily operating cost for the legacy institution it also includes increased information technology, branch operations, credit and other expenses that we did not allocate to the acquisition.

Merger and integration expenses were $3.1 million in the fourth quarter of 2014, slightly lower than expected. We expect to incur $4 million to $5 million in merger and integration expenses in the first quarter of 2015.

Lafayette Savings Bank should be converted to our operating platform this week and Founders should be converted early in the second quarter of 2015. Our reported GAAP efficiency ratio for the fourth quarter was approximately 69.5%. Excluding our merger and integration cost for the quarter the efficiency ratio was approximately 67.3%.

Moving to slide 14, I have provided information on our sensitivity to rising interest rates.

The graph on the right hand portion of the slides shows two of our model rate scenarios; the impact on net interest income if interest rates increase 100 basis points all along the yield curve; and the impact on net interest income if rate increased based on the forward rate yield curve.

As you can tell by the progression of the model results during 2014 we have taken action to increase our asset sensitivity and net interest income should increase as rates increase. The bullet points on the left side of the slide reflect several important factors that influence our sensitivity to interest rates.

We believe we use conservatively pricing assumptions for our transaction accounts. 21.6% at our non-interest bearing checking accounts or approximately $513 million are considered rate sensitive and our total interest bearing transaction accounts increase from eight basis points to 39 basis points if rates increase 100 basis points immediately.

We believe our models accurately represent our current sensitivity to interest rates. We will likely maintain our current asset sensitivity but may take actions to sell securities or extend the re-pricing of our funding if opportunities arise. Slide 15 shows our tangible book value per share from 2011 through fourth quarter 2014.

Fourth quarter reflects the tangible book value per share after the closing of the acquisition of LSB and our stock repurchases in the quarter. Each of our acquisitions in 2014 included 20% to 30% cash as a component of purchase price which contributed to the decline of tangible book value.

The Founders Bank transaction included 40% cash component and closed on January 1, 2015. Also likely to impact tangible book value per share in Q1 are the announced increase in our dividend, $0.12 quarterly and our plan to continue buyback of shares.

With a pause in our acquisitions and successful execution our planned sales and consolidations in 2015 the company should begin to see an increase in our tangible book value per share. Slide 16 shows the trend in our key capital ratios during 2014.

While we show our capital beginning to track somewhat lower than our peer group we believe our capital ratios accurately reflect our balance sheet risk and provide us maximum flexibility to deploy capital.

As you see in the bullet point on the slide we repurchased 1.1 million shares under the $6 million share buyback authorization the Board approved in October. Additionally, as I noted the board approved a $0.01 increase to the quarterly dividend in its January meeting raising the quarterly dividend to $0.12 per share.

I'll now turn the call over to Jim Sandgren..

Thank you Chris and good morning everyone. As we plotted the course for 2014 we recognized there were three things we needed to do well in order to experience success.

We needed to move the needle on organic loan growth, continue to build a healthy and growing commercial loan pipeline for future production and we needed to expand on a very strong 2013 for our fee-based businesses. As we look back at 2014, I am pleased to say we were able to accomplish all three.

If you turn to slide 18 I would like to start by focusing on our loan growth excluding covered loans for the fourth quarter and for the year. Similar to the previous two quarters we experienced meaningful growth both quarter-over-quarter and year-over-year which was driven by a combination of partnership activity and good organic growth.

For the year, we experienced $339.6 million in organic loan growth with $51.9 million of that coming in the fourth quarter. Driven by gains in both indirect and C&I lending, our Q4 organic loan growth numbers were impacted by some large unanticipated payoffs and slight reduction in commercial line utilization.

Specifically regarding the payoffs we had couple of large borrowers that sold their company during the quarter and we had a sizable CRE deal that was refinanced by the life insurance company due to non-recourse lending and an aggressive long term fixed rate.

The $339.6 million on organic loan growth that we enjoyed for the year was driven in large part due to the growth in indirect lending of nearly $200 million.

Organic growth was also aided by both commercial lending where we experienced $69.4 million increase year-over-year and commercial real estate category where we enjoyed year-over-year gains of $46.1 million. Moving to slide 19, I am happy to report that our total 2014 loan production exceeded $2 billion which represented a 10.7% increase over 2013.

The large increase was again driven by $909 million in C&I and CRE loan production, a 23.1% increase and $484.7 million in indirect loan production, a 45.6% increase. The graph clearly depicts the positive trend of core [ph] loan production throughout 2014, specifically for commercial, indirect and residential mortgage lending.

Turning to slide 20, I'd like to update you on our progress in some of our newer markets. As you can see we experienced quarter-over-quarter loan growth in our Columbus, Indiana and Michiana markets along with robust commercial loan pipelines in Michiana, Ann Arbor and Fort Wayne.

We also enjoyed a meaningful increase in core deposits in Fort Wayne and growth in Michiana as well. We did however see expected declines in our loan portfolios in Fort Wayne and in Harbor as a result of working through some challenging credits.

Overall I believe these results illustrate that our strategy of moving our franchise in the stronger growth markets is working well and I also think it shows we have the right people in key markets to continue to build.

Moving to slide 21 you can see that we continue to build upon strong Q2 and Q3 momentum in our commercial loan pipeline, $713 million in the pipeline at quarter end compared to the $577 million at the end of Q3 and $423 million in Q4 of 2013.

We have experienced a 68.4% increase in our pipeline since year end 2013 but I believe the steady upward trend we experienced in 2014 bodes well for future growth this year. While our line utilization was down slightly from Q3, 37.7% compared to 39.1%, it did represent a marked increase over Q4 2013.

Similar to the organic loan growth we continue to enjoy I believe the positive momentum we are witnessing in our commercial loan pipeline and line utilizations could be attributed to increased confidence of our commercial customers, directly related to our regional economies.

We believe this will continue to provide us with opportunity in all of our markets and I continue to be extremely confident that we have the right people and products in place to take full advantage of these opportunities. Slide 22 illustrates the continued positive momentum of our fee-based businesses.

As many of you know 2013 was a strong year for us in insurance and a record setting year for our wealth management and investments divisions. I am pleased to report our investments division built on its strong performance in 2013, with a 6.9% increase in the revenue driven entirely by our Tower and United Bank partnerships.

If you remember we had a large portfolio of CDs that matured in mid-2013 and our retail teams did a great job of referring this business to our investment advisors which ultimately helped generate record revenues in 2013. So the fact that core investment revenue remains [indiscernible] year-over-year is something we were pleased with.

Likewise our wealth management division enjoyed another record year with growth in the legacy business and acquisition fueled growth from our Tower and United Bank partnerships. Of the organic growth two-thirds was attributed to new sales and a third to market appreciation.

Finally our insurance division also topped its outstanding 2013 performance with revenue growth of 7.8%. Nearly half of the growth was driven from the legacy book of business with the balance as a result of the Wells Fargo acquisition in our Evansville and Louisville markets.

Similar to the loan growth we experienced in 2014 I believe these revenue gains in our fee-based businesses continue to illustrate that we are executing our plan very well, with strong leadership and experienced motivated producers in place throughout our footprint. I will now turn the call to Daryl Moore..

Thank you, Jim. In the top half of slide 24 we lay out charge-off results not only for the current and prior quarters but also present full year 2013 and 2014 results. Consolidated net charge-offs in the quarter were roughly $1.3 million or eight basis points of average loans.

This compares to charge-offs last quarter of $0.5 million or three basis points. Even at the relatively low level of $1.3 million, charge-offs in the quarter were the highest posted for any quarter in 2014.

While there were no significant charge-offs in the period we did have write-downs in the $0.5 million range at both our Indianapolis and Ann Arbor markets. Consolidated net charge-offs for the full year were $2.4 million or four basis points of average loans. This compares to $5.3 million or 10 basis points in 2013.

In the bottom half of the slide we show provision expense information comparisons for the prior two quarters as well as for the last two full years. Provision expense for the non-covered portfolio was $700,000 in the period lower than the $3 million level posted in the third quarter of this year.

On a consolidated basis, provision expense was $900,000 for the quarter compared to $2.6 million for the third quarter. Full year 2014 consolidated provision for loan losses was $3.1 million compared to a recapture of $2.3 million in allowance since 2013.

On a consolidated basis the allowance for loan loss as a percent of end of period loans stood at 0.76% at December 31st and provision for the full year was slightly higher than net charge-offs. As importantly the combined allowance on loan loss as a percent of full pre-marked loan outstanding stood at 3.04% [ph] at year end.

In slide 25 we show you trends in credit quality class [ph] by loans over the past year.

We have displayed not only information for the consolidated portfolio but also trends reflecting what the portfolio would have look like exclusive of the effect of our three most recent partnerships in Tower and Fort Wayne, United Bank in Ann Arbor and Lafayette Saving Bank in Lafayette.

As you can see at the top of the slide our non-covered special mentioned loans increased $24.3 million in the quarter from $170.5 million to $194.8 million.

As the graph reflects however the growth was due to increases in this category associated with the three most recent mergers as we actually saw a decline in special mentioned exposure in the quarter throughout the remainder of the portfolio.

In fact $22.9 million of the $24.3 million increase in this quarter was associated with the closing on Lafayette Saving Bank transaction. Exclusive of the Tower, United and Lafayette portfolios the special mentioned loans decreased by $0.3 million in the quarter.

Moving to the lower left quadrant we see that some substandard accruing loans rose by $7.2 million in the quarter to a level of $107.8 million. Most of the increase came in the legacy Old National portfolio by the way of the addition of two relatively larger credits.

The remaining chart on the slide shows that non-covered and non-accrual loans remained relatively constant in the quarter at a level of $125.7 million. Excluding the three most recently acquired portfolios we had a nice decline in non-covered non-accrual spreads in the period as they fell $7.2 million from $81.1 million to $73.9 million.

Overall, we're pleased with the spread results for the year, especially in the net charge-off category. Last quarter we saw a rise in non-covered special mention loans and noted that we would be watching this category to see if this was the beginning of a trend.

While the fourth quarter did not reflect outside the addition of the Lafayette Savings Bank's acquisition significant increases in this category and we'll continue to watch this portfolio segment closely. The not-for-profit construction and healthcare industry areas continue to draw significant attention as we assess current portfolio risk.

With respect to the impact of the falling oil prices while many of our clients will benefit from the same in the way of reduced cost we all understand that it does have the potential to create incremental impact on a number of different industry segments.

In that regard we have a [indiscernible] of borrowers that we feel could be negative impacted by the current dynamics of this industry and don't at the present time see any significant exposure loss. We will continue however to watch this area going forward.

As I mentioned last quarter our position [ph] for good quality loans continues to be very stiff and proper structuring of loans in the areas of firm guarantees and covenants remains a challenge in the current environment. With those comments I'll turn the call over to Bob for concluding remarks..

Great, thank you, Daryl and good morning everyone. 2014 was a transformational year for Old National in many ways. We experienced good organic loan growth and as evidence by our pipeline loan originations and the feedback we have received from our clients and prospects we have reason to believe this trend should continue.

Our $103.7 million in earnings represents our strongest year since 2002 and while these earnings were impacted by a number of costs related to our merger activity and the continued balance between accretion income and the amortization of our indemnification asset, what I am most pleased about is that we continue to fight through these headwinds and have posted strong growth in our core earnings.

In 2014, we continue our movement into new markets with stronger demographics and growth potential, with the four bank partnerships that we announced or closed on during the year, as well as the smaller partnerships in our insurance group.

We also have prudently invested in hiring additional talent in key markets like Louisville, Indianapolis and Fort Wayne. Our senior management changes enhanced our focus on organic revenue growth and have positioned us very well for 2015. We also rolled out or enhanced a number of new products.

As an example our new checking product has reduced account accretion by over 50% since we introduced it. Several of these changes were driven by what we felt were better products at our partner banks, with mortgage, health savings accounts and small business being prime examples.

In addition, our debt offering and corresponding capital strategies gave us the flexibility we needed to provide our shareholders with the value they deserve. The graphs on slide 27 are a great summary of the financial results that prior peaks addressed.

Clearly these slides show the progress we have made as an organization in moving towards our aspiration of being one of the top quartile performers in our peer group. They also reflect some of the missed opportunities that came about because of our 2014 focus on partnership integration.

We made a conscious decision that the successful integration of these banks was a higher priority than some of the projects we had identified as keys to improving our operating efficiency.

This decision was based on our core belief that our shareholders are best served when we effectively balance short-term priorities with our commitment to provide long-term value. An unsuccessful bank integration is very difficult to recover from and the negative effect on shareholders can be significant.

Delay in projects which because of prioritization, while frustrating to all of us has a very short-term impact, especially if we are able to move quickly towards implementation of those projects which we believe as we have, as evidenced on slide 28. The headline of slide 28 reflects the theme for Old National in 2015. Execution is indeed key.

We strongly believe that the actions that we have taken in the preceding years have positioned us very well and that we are a very different bank than we were in the past. The time is now to move beyond building a franchise and that our actions and results speak for themselves.

Slide 28 reflects a summary of the actions that we have taken to-date but I can promise you this we will continue to be driven by the mantra that execution is key. I have broken a summary of our actions into the three key strategic focuses our Board has approved for 2015.

These focus areas all revolve around the key elements of our basic bank strategy. Our first initiative is to continue to drive organic revenue. We are blessed with a strong banking platform and three strong fee-based businesses. In the past we have operated very well independently and we had good cross-over referral business.

For 2015 we believe that given the current rate forecast we need to further enhance our cross-sell culture and leverage our fee-based businesses even more. With this in mind our four business leaders have developed a cross-sell referral program that we believe will significantly enhance our culture of team work.

Plus to ensure that we are asking for is in fact happening we have enhanced our balanced forecast to put more focus on this cross-sell effort. We will continue to reinforce the need to work together at every opportunity. We thought a great deal about leveraging the new markets we have entered over the past few years.

We speak about the enhanced demographics and growth but we also have an opportunity to leverage the expertise that we have gained through these partnerships. A great example is our mortgage business where we believe we may see an increase over 100% in originations because of the platform and expertise that United Bank brings to us.

A similar product line is the small business equities that United brought to Old National. Our current pipeline of over $40 million in SPA loans is equally divided among the former UBT markets and the balance of the legacy ONB markets.

Our health savings account platform that we acquired from Tower has seen a 30% increase in total accounts since the completion of our integration. One area of focus for ONB over the years have been on improving our efficiency ratio.

While we have made progress we are not where we want to be and again that is why our focus on execution in 2015 is so important. Our Board has set a target of 63% for our fourth quarter 2015 efficiency ratio.

And in addition we've increased the weighting in our short term incentives from 15% to 25% to reinforce the very importance of achieving the 2015 target. Last week we announced a number of actions that taken together should reduce our annualized expense run rate by $23 million to $27 million.

We estimate that all of these actions will be completed by the middle of the third quarter. To a large extent these announced actions are a continuation of the transformation of our franchise.

The sale of our both our Southern Illinois offices and portions of our Eastern Indiana and our sole Ohio market reinforces our desire to be in locations with better demographics and stronger overall economies.

In addition through our normal branch evaluation process we've determined that the financial returns of 19 of our banking centers did not meet our hurdle rates. So we will consolidate those branches into other facilities within the trade area.

We believe these actions when coupled with the announcement of an early retirement program should allow us to achieve our targeted fourth quarter efficiency ratio. I would mention that a number of these actions have been in the planning process for a while and their implementation was delayed by our merger integration activity.

Our current estimate shows that the gain on the sale of the two markets identified should be sufficient to offset the costs associated with balance of our actions. Finally, our third strategic focus is on the prudent use of capital and providing the best return for our shareholders.

Last week, as Chris mentioned our Board approved a 19% in our dividend, a 9% increase in our dividend and reiterated our stock buyback program. Both of these actions show the Board’s support for returning value to our investors. Tahalie at this time we'll be happy to open the lines and take questions. Thank you very much..

[Operator Instructions]. And our first question will come from the line of Scott Siefers with Sandler O'Neill..

Scott if nothing else, you are consistent..

I try. Hope you guys are doing well.

Let’s see, I guess, the first question was on the cost savings program, Bob, the $23 million to $27 million that you noted in your remarks here, will that all drop to the bottom line or is some portion of that going to be kind of reinvested? How are you thinking about that dynamic?.

Well, right now we just focus on that 63% efficiency ratio and I would say, Scott the majority of that will just come to the bottom line in order for us to achieve this 63%.

As we go through the year and we see opportunities to invest in markets like Louisville, Indy or Fort Wayne as I identified, we will certainly take advantage of that but we are keenly focused on that 63% by the fourth quarter..

Okay, perfect. Thank you and then maybe for you Bob or Jim Sandgren, just the loan growth outlook. So from what you are saying I gather you feel pretty good about the organic growth trends. Yet a little bit of step back in the fourth quarter. But it sounds like it was largely those pay-offs they were kind of unexpected.

So just wanted to get a sense for, I guess a little additional color for how you thinking about things out as we look into 2015.

Can you get back to sort of that mid or even higher single digit sort of an organic annualized growth rate?.

I believe we can. Obviously the stars and the moon and everything has to align. As Jim noted in his remarks we had a couple of businesses as sold. We can't predict that. Those things tend to always happen in the fourth quarter.

And the other example Jim used which was the insurance company on the CRE deal, I think it's a good example of the discipline that we put in place, which is -- been easier to try to compete with the non-recourse, very low rate deals just for the fact of keeping the outstanding. So we chose to walk just saying it just doesn't make sense.

But given the pipeline, given the markets, I'd be disappointed if we didn't get to the levels that you mentioned..

Okay, great. That's perfect. Thank you very much..

Thanks, Scott..

And your next question is going to come from line of Emlen Harmon with Jefferies..

Good morning, Emlen.

How are you doing?.

Good morning. Doing well, thanks..

[indiscernible] storm..

Yeah, this one, not too bad. Everything has pretty much let up at this point but….

Low-50s, and semi-sunny here in Evansville..

Sunny, sunny Evansville, sunny barmy Evansville. Just going back to the branch closures, outside of profitability as we think schematic to those closures it seems like they're kind of scattered about geographically.

Just be curious if there are kind of shifts in strategy or if this is purely a profitability analysis?.

Yeah, it's a little of both. Clearly it's driven by profitability but it's also the market demographics. In a lot of cases these are legacy branches where transactions have moved or we've acquired other branches or other markets.

So you kind of weight that, we actually look at three different components as we look at this, we stack rank our branches on a frequent basis and Jim is always going to take a hard look at that bottom 10% to 15% and again profitability is a large component, market demographics, transactions originations are another large component of it as well.

I think it's just the prudent thing to always not be wed to any particular branch or any particular market, and do what’s right for the long-term..

Got it, okay, thanks.

And then on the -- just on the acquisitions that you've closed, could you actually quantify for us just kind of what's in the run-rate for cost saves and what's still on the come [ph] there?.

Yeah I might reference you back to Lynell’s slide that shows kind of where we are with each of those transactions. Chris, maybe you got some documents or maybe you….

I pass that to you..

That’s called the bump and run, I bumped it to Chris and he bumped it right back to me, so....

And I would add, as Bob’s looking through those numbers, we're on track and we've always been successful to the plus side on some of these expense saves. So our outlook, certainly for 2015 is to see that same kind of expense reduction that we've seen with the other branches both with Founders and LSB and everything’s [factoring] [ph] well.

And I might note that as Bob noted we added a really nice mortgage origination unit with the United Transaction that we expect to contribute in 2015 too..

Thanks for that, Chris. Emlen, Tower we announced 35% cost save, as we close that in April. The vast majority of those are already in our 2014 run-rate. It'll pickup just a little bit in the first quarter but I would say for your purposes of modeling those are all included in our current fourth quarter run-rate. The changes will be negligible.

Closed on United in August, we committed to 32%. I'd say we’re probably three quarters away through those. I got 25% of those yet to come and on the one slide we kind of broke out what's there and again we had a full quarter of United this quarter versus the stub period last year. Obviously both LSB and Founders are yet to be had.

Cost savings come out at Lafayette at 40%, Founders, 30%, we feel very, very comfortable with those..

Got it right. It was really two deals and not four, I missed out there. But thank you, that was very helpful..

Great..

Thanks..

Thank you Emlen..

And your next question is going to come from the line of Chris McGratty with KBW..

Good morning everybody. Bob on the capital, you guys are repurchasing stock. Can you speak to the outlook for buyback and given your comments you are little bit below your levels on tangible. Maybe remind us Chris what the targets are in tangible and how aggressive -- you said we should be thinking about the buyback for next few quarters..

So we've got the announced buyback that we've talked about on the last call 6 million shares and we've got about one -- little over one behind us in that buyback. So and that buyback is authorized by the Board through January of 2016. And like I said we were pretty successful in the first quarter.

I don't expect that we'll see many changes to that going forward into the capital plan.

Of course the dividend increase -- in terms of the targets for these numbers, Chris I really choose to look at, are the risk on our balance sheet, particularly with credit managed, you can really read between the lines from Daryl's presentation that the loan risk has been very well managed and even in the face of some pretty good growth.

And we also think in terms of the stress testing results we are working through our stress testing and using that as an appropriate outlook to help the Board understand what the long term risk is and how our bank would react to the various economic environment scenarios that the fed puts out.

So we are -- so I tend not to have a hard and fast target but it tends to a little bit more fluid on a quarter-to-quarter basis as we look at loan growth and think about the portfolio and those kinds of things. With the new acquisitions and the growth that Jim talked about from loans I think it’s [indiscernible] pretty nimble..

Yeah, I think Chris I would just add I think Chris made a very relevant point which is if you look at our balance sheet from a credit standpoint and look at our history of charge-offs and the granularity of our portfolio, while we may be slightly below peers we would argue that we have a less risky balance sheet than a number of our peers.

And secondly as far as the buyback, obviously a lot of that depends on the stock price because we also look at the performance of the price to whether we are going to buy back stock or not. So [indiscernible] after this call..

My please..

Trust me you have no idea..

Just one follow-up on the last call, on this slide I got to ask about the [indiscernible] being paused [ph], there’s no new comment but how was -- and the thinking of the Board and the management does this mean, under no circumstances would you do a deal or is it kind of -- that’s the base case and if something comes along you consider it?.

Well I think what I have said all along you never say never. I think we have earned the right to be very selective in the markets and the partners that we would look at. I would not anticipate any activity in the next few quarters.

Obviously I think given the platform we have built and our ability to get deals approved -- our last deal got approved in 10 days and our ability to integrate, which is so important, we are going to have opportunities but I think we have earned the right to be selective and we also know, painfully know that we have got to execute, hit the numbers.

That 63% efficiency target in the fourth quarter is very important. So to do a deal that would deviate me from doing -- achieving that isn’t going to happen. Do I want to be larger in certain markets? Sure, but I don’t wake up every day, worry about where I need to be. I worry now more about executing and driving up our share price..

Understood, maybe just a last question Jim. I think if I heard you right in your prepared remarks Jim you talked about, I think the word was challenges in Fort Wayne and Ann Arbor.

I noticed that the loan balances you pointed were kind of flat but is there anything else to read into comment, has there been any talent, either lost or market share gains that you are planning on that didn’t occur, any kind of color from that will be great? Thanks..

Sure, everything in those two markets is going as expected. We have got our full team up in Tower and those guys are doing a great job, working the markets and growing that pipeline as we reflected on that slide.

The Ann Arbor team they are just -- there are some structural challenges there due to the competitive nature and sometimes we can get comfortable with structures, sometimes we can’t. And so we had to walk away from a couple of deals, but we are really pleased with both Fort Wayne and Ann Arbor and expect some great things in 2015..

You know Chris what we don’t do on those markets is we don’t break apart what we would call legacy portfolio with the portfolio -- there is identified credits from day one that we want to exit.

Those are included in those numbers and so we are, I would say on both the growth of our legacy portfolio and the reduction of the exit portfolio we are on track to where we thought we would be. So as good a job as Daryl does sometimes masks the good job that Jim and his team do..

That’s helpful, thanks..

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

Welcome Andy. We are glad to have you..

All right, thanks. Good morning.

Do you have the -- what were you expecting for the effective tax rate in 2015?.

As we move into 2015 and as our mix of taxable income increases through the great loan growth we have had and that kind of thing I’d expect it to march up just a little bit. GAAP tax rate probably over the 27%, maybe 28% and the fully taxable equivalent rate I think in the 36% range.

One thing that we haven't seen is major declines in our tax rate, particularly as we move into a higher percentage of taxable income overall..

Okay and how you're thinking about the possible run off with regard to the branch consolidations?.

I hate to say we're good at but we've had a long history, if you look at our transformation line graph we estimate we'll retain the vast majority of these deposits. The locations are close to, very close, where we think the legacy that we built with these clients and the fact that we've seen where there behavior changes.

So if you're modeling I wouldn't build a whole lot of attrition and in fact given some of the new products we're clearly optimistic we can retain the vast majority..

Okay. Thank you. That's the rest of my questions was asked..

Thanks, Andy, glad to have you..

Sure. Bye..

And your next question will come from the line of John Moran with Macquarie..

Good morning John..

How is it going?.

Good..

A quick question just on the longer term kind of efficiency ratio or operating leverage kind of target. Once we kind of hit the 63% in the 4Q of this year, looking into seeing if we get a little bit of help from rates and assuming everything else kind of stays the same, that pause means pause on the M&A front, everything else.

What kind of operating leverage do you really think you could try of longer term and where do you think the efficiency ratio...?.

That’s a great question, John. And I would say our Board asked me that question, our finance committee in particular is keenly focused. I've often said given the breadth of our franchise we're not a sub-60 but we should be very close to 60.

So I can guarantee that when -- I guess I can't say when, but should we hit our 63% efficiency in the fourth quarter I know our Board will ratchet that number down and we'll agree as possibly, because we think the run rate coming out of the fourth quarter really gets its momentum in to 2016. So we'll be below 63 and then we'll get closer.

We go from there but obviously we've taken a longer approach to this but we think it's a sustainable one..

Okay. That's helpful and then the only other one that I had and you guys gave some of this in the prepared remarks, but just maybe if we could get a little bit help on what's going on with respect to kind of core loan yields. I know I think Chris mentioned 12 basis points last quarter, helped from some NPLs coming back in.

But maybe if you could give us a sense of where new deals are being booked today..

Yeah, so I'll give you by category. Our commercial CRE was about 3.5 to 3.60 in terms of the yield in the fourth quarter production; Commercial was slightly below that at just under 3. The consumer portfolio is about 260, in terms of yields and origination; and the mortgage book, just a little different, our mortgage book is closer to four..

Can I ask a stupid one? Why [indiscernible] mortgage book higher than -- 4% in the quarter would be a little bit higher than I would guess?.

I think driven by a lot by our markets and kind of the competitive area that we're in, in certain places and the fact that we're in certain markets, we are a market leader..

And we don't retain a large....

We don’t retain, you have to remember John, the number I gave you is those ones that we will sell but again we don't retain a lot of that, that's driven there..

Got it. Okay, thanks very much. That's helpful..

Thanks John..

Your next question will come from the line of Stephen Geyen with DA Davidson..

Good morning Stephen..

Hey, good morning. Jim maybe I'll start with you maybe just -- I think I am going to ask this question, a quarter [ph] ago about the pull through of loans in the pipeline. Now that you've a few more quarters into -- you're growing the pipeline, growing loans on the balance sheet, can you kind of talk about the pipeline and the success there..

Yeah, we've actually done some research and we are -- kind of changed the way we deal with the pipeline going forward, just from reporting standpoint. But as we look at 2014 it looks like the pull through rate was between 35% and 40% of deals that actually that hit the pipeline..

Okay, perfect. And that's the -- I didn’t look at the start here, but that is the number -- there is a couple of different buckets in the pipeline and I just want to make sure that we are talking about the same number..

Yeah, that will be the total pipeline. So you’ve got the three categories. The dark blue is those are in the discussion phase, those are at the very beginning stages of the discussion with the borrower but there is a deal there and typically we put a deal on the pipeline, if we think there is a 50-50 chance of getting a deal done.

Obviously a lot of it’s from structure, competitive nature and then credit. So into light blue shade or the proposed stage obviously we have provided a letter of intent or proposed a letter to our customers and the accepted bucket at the peach category there, those deals have been approved by credit and borrower has accepted our terms.

So typically that last bucket the majority of those deals, 90%-95% of those deals get done and then obviously between discussion and proposed, obviously a little lower level but the overall pull room [ph] for the total pipeline is that number I gave you, initially kind of 35% to 40%..

Perfect, okay, thank you. And as far as the seasonality our first quarter is typically a little bit weaker than some other quarters.

Do you kind of expect that to do the same in 2015?.

Yeah, I am encouraged because we are coming out of the gates with just an incredibly strong pipeline. So I am optimistic. Obviously you got a lot of things that do impact that first quarter but based on the direction of the pipeline and the fact that our guys are really out hitting the streets hard I am encouraged by what I see..

Okay.

And Daryl you had mentioned some weakening in terms, just curious how big that is?.

You know Stephen, we are seeing that pressures through limit guarantees and terms, coming not as robust. So I would say probably 50-60% of the deals we are looking at, our borrowers are sophisticated or in tune enough to know the landscape has changed.

So it’s very different then it was four or five years ago and we obviously take a look at the total risk and know that we are going to have to do some of that in the market. But it’s virtually in many of the deals we are running a cross position..

Okay and any thoughts on kind of the derivative [ph] line on the sand.

At what point does it become -- is it in some cases impeding growth?.

Well I will answer that, as kind of the arbitrator between Jim Sandgren and Bill.

Obviously Stephen given our conservative credit culture it does present challenges and that’s one of the biggest issues as we bring on our partner banks but we have always taken a view that you need to do originations based on the long-term and we are just not going to compete with stupidity. So I would prefer to walk than be stupid.

It will slow us down us a little but I think we also dealt with eight basis points of charge-offs..

Yeah, okay, thank you. And Chris, I apologize I missed a couple of different comments on the NIM. If you could go over the number just real quickly again, the impact of the NIM this quarter related to the credit and then -- okay, thank you..

No, no, I am sorry. Stephen I didn’t mean to jump in. There was obviously two impacts. One was driven largely by the success of the difference in the third quarter and fourth quarter impact from recoveries, specifically around the Integra asset.

And if you think about the impact from recoveries on the Integra asset that’s largely offset by an increase in IA amortization but that went from 4.78 to 3.38. So that was the reported margin was largely driven there.

On the core side we had some -- in our core margin we also add back which we recovered for non-accrual assets that had been fixed either remediated or move out of the bank and that was a little bit lower, both in the third quarter and what I had anticipated in the fourth quarter.

But that can move around a lot and especially as we -- as you might see from -- understand from Bill’s comments will come in the stages where some of those credits could be healed or could be moved out given changes in collateral values and things of that sort.

Now the element that probably was more important from my standpoint are the decisions that we actually made in that fourth quarter around rate sensitivity, we did extend some of our wholesale funding and we did make the decision to reinvest cash flows into shorter maturity investments or sell some of our longer duration investments which is typically are meaningful [ph].

So you'll see in the appendix that the duration of our investment portfolio declined quite a bit in the fourth quarter and of course we also increased the length and the refunding of our wholesale funding book. So purposeful transactions to give out some current build with the idea of positioning ourselves a little bit better for rising rates.

So that brought back that core margin down to around 3.15 range..

Okay and just curious when those adjustments in the balance sheet and the mix of the assets changed in the quarter, do you kind of see that fully in as far as what to expect for the first quarter?.

Yeah, spread out for the quarter. I'd expect that if we're just looking at for example the portfolio yield that might have an impact of a couple of basis points on our first quarter margin. But I feel very comfortable with our current rate position sensitivity to rate.

And as Jim mentioned the investment -- or pardon me, the loan portfolios we've got a nice pipeline and as Bob noted the yields on those new assets are coming in pretty nicely. So we could have some offset from some of that portfolio decline, but I'm trying to take a fairly conservative approach to my outlook..

Okay, thank you. And may Bob, just one question, you've mentioned the United mortgage business or platform as being pretty attractive and potentially additive in 2015.

What's different about that platform versus what you'd have previously and how does it help you?.

So when you say pause means pause you've to give your head at corporate development something else to do. So we've actually move the mortgage company under Jim Ryan, I might just have him answer that question..

Okay thank you..

Stephen, I would just add that both United and I would add the Founders team in the same respect. Clearly the origination staff really is really good in this kind of environment by pulling deals out in a more purchase [ph] world where I think we tend to rely on the bank referral relationships historically and have a lot of refinance activity.

So they did well in this kind of period of time. So clearly a more focused sales effort I think which will help us -- we retain the servicing buck from United as well. And so we think a combination of strong origination group and the ability to service those loans I think will make a good combination going forward..

Great, okay. Thanks for your time today..

Thanks Steven..

Stephen since you brought up the net interest margin just for those of you who grabbed the slides from the webcast, so just wanted to remind you and apologize, the values on few of those columns were not there. They are negative 12 basis points, negative three basis points and negative two basis points.

So again I apologize for that posting on our webcast..

And the next question is going to come from the line of Eric Grubelich a private investor [ph]..

Hi good morning. Just had a couple of follow-up questions on the branch sale and the branch consolidation.

And just how -- what's the total deposit size of the 19 centers that you plan on closing? And then with regard to what you're going to sell how do you plan on funding the mismatch between the deposits, liabilities on these loans that are being solid? Is it just going to come out of securities portfolio and maybe just as a third question, is there any kind of optical impact on the net interest margin we should consider in the next couple of quarters?.

Answer to your last question is really no from the sale or the consolidations, we don't see. I think Chris would be able to match that pretty nicely through the investment portfolio and what we give up. Our total deposits are about $360 million from the consolidations, spread out pretty evenly through markets.

It's about 19, we have about $19 million in average size per branch and just through these consolidations we will get very close to $50 million per branch average deposit..

Okay great.

Thanks very much, and so you the funding of the branch sell then?.

This is Chris. And we have so many alternatives, because we get $40 million to $50 million in retirements of the investment portfolio. Plus we tend to have some very short investments out there, kind of in anticipation of needing to make those decisions.

But we'll continue to manage that going forward in a way that makes sense from the current rate environment. And in terms of when we expect these things to happen mid-year we feel like we've got some time and we'll continue to do that but as Bob mentioned at this juncture we then probably anticipate maintaining the balance sheet of the same size.

We've got plenty of funding sources of resources..

Okay. Thanks, very much..

Thanks, Eric..

And your next question is going to come from the line of Jon Arfstrom with RBC Capital Markets..

Good morning, Mr. Arfstrom..

Good morning.

Couple of questions here, in terms of the growth expectation for 2015, how of it do you expect to come from consumer? Do you expect a similar type contribution or is this in a situation where you think the new markets are going pull a little bit more in the coming year?.

Yeah, I think they will, Jon. I'd be disappointed if they didn't, I think with the entry into the markets we've done with Fort Wayne last year at Ann Arbor and others, I think you'll see more commercial. I think the growth was a little bit muted or effected in the fourth quarter by as Jim said some of those unique aspects.

But I think indirect will more than likely stay fairly strong through the balance of the year. But I expect our commercial side to outpace the growth there. In terms of direct consumer that the business is probably it is what it is and then again the mortgage we sell most of those.

So I think you will see a little more increase in the commercial side overall. Well the consumer is obviously going to be effected in a positive way by lower gas prices as well. So that's why the indirect business stays really strong through '15..

Okay, good.

Couple more things, the slide 20 you talk, you show the Michigan Northern Indiana pipeline, is that just the factor, that the BofA [ph], is that just a factor of not having money in the branches and that's coming to the branches, is that the way it looked like?.

I would also tell you we've hired some great commercial lenders up in those markets. Phil Harbert who we hired had been a prior employee with 30 plus years, had a great reputation. We hired three other RMs that have great reputations in those markets and came from banks that had -- so we are seeing some very, very good commercial activity.

In fact I was helping them with a potential client, just in a last couple weeks and the client couldn't say enough great things about our team in the commercial side.

So getting almost to the prior point, I think you'll see consumer do well in those branches but I am very, very optimistic of our commercial side with the leadership we've got up there now.

And quite frankly that might be a market over time that we might invest in much like Grand Rapids or Ann Arbor add some additional RMs because we're seeing some volatility given all the actions going on in Southwest Michigan now..

Okay. Couple more, just LSB and Founders you talked about the marks coming in a little bit better.

Is that a function of time as pass on the credit is little bit better or is it just before you were too aggressive on the marks in the beginning or a combination?.

Remind everybody, the first mark comes from Daryl. And I've always encouraged Daryl to do what Daryl does great, which is to make sure that we are covered. So obviously as you deliver that first message you continue to see economies change and other things happen which improve the mark but that first mark is very accurate based on our credit culture.

You then work through a number of credits over a period of time and the economy helps cure things. But the original market is accurate and over the time we are allow to worked that -- we have the ability to work through some of those..

Okay, good and then Chris just one small one for you, the indemnification asset down to $20 million.

I'm assuming far less excitement in 2015 than 2014 in terms of that, is it simple glide path on that and I mean what we announced or anything else to think about?.

I like your term excitement. Yeah, it's been something obviously we watch very, very closely and we're very pleased with that number where it is today and we wouldn't expect obviously the same kind of volatility that we've had on a quarter-to-quarter basis related to those expenses and this fortunately there is just not that much of it.

We only have $20 million with roughly $9.5 million from that expected to be amortized. So looks pretty good..

Okay..

Jon, only finance people would get excited with indemnification and asset amortization..

Yeah, it's a lot of fun. So, okay, good. Thanks everybody..

The highlight of our controller’s life..

Thank you..

Thanks Jon..

And your next question will come from Peyton Green with Sterne Agee..

Good morning, Peyton, how are you doing?.

Good morning. Doing great. I was wondering maybe if you could talk a little bit to the revenue associated with the branch closures and the divestitures..

Yeah, I think as you are building your models and you are looking at the revenue associated with the closures, I wouldn’t adjust your models much given kind of the size of these branches, the locations I just don’t see much impact.

Relative to the sales given the timing of the sales what I’d tell you for modeling is focused in that 63% in the fourth quarter and I don’t think you will see much change over that period of time..

So as you look at the closures and the divestitures, what was the -- was there massive pretax contribution or was it all a loss?.

Well, it is positive but fully allocated because I wouldn’t say we are great at allocating everything against certain markets. I will say that the trend line in the markets we are selling was not positive..

Okay..

And again one of the key points we looked and just the overall economic growth and quite frankly in Southern Illinois given our focus now in Indiana and Michigan, having them part off with an Illinois bank will be very positive for them in for those markets..

Okay, great, thank you very much. I appreciate the color..

Thanks Peyton..

And currently we have no further questions. I will turn the conference back over to management for closing remarks..

Well, great, as always, we appreciate everybody’s interest and time. We realize we have a lot of information this quarter but again that’s kind of becoming the norm for us. But follow-up questions give Lynell a call, 812-464-1366 and we will get right back to you. But again we thank everybody for their time and attention..

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 website, oldnational.com. A replay of the call will also be available by dialing 855-859-2056, conference ID code 69616583. 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 on today's call..