Old National reports 2nd quarter net income of $44.0 million, a 13.2% increase from a year ago

  • Commercial and industrial loan growth over 21% annualized

EVANSVILLE, Ind., July 23, 2018 (GLOBE NEWSWIRE) —

Old National Bancorp (NASDAQ:ONB) reports 2Q18 net income of $44.0 million, diluted EPS of $0.29.  Adjusted1 net income of $44.1 million, or $0.29 per share.

CEO COMMENTARY:

“Disciplined expense management and a measured increase in deposit costs, together with the benefit of increased rates, resulted in a very successful second quarter for Old National highlighted by positive operating leverage and an almost 20% increase in year-over-year adjusted pre-provision net revenue,” stated Chairman and CEO Bob Jones. “Moreover, we set a new company record for total commercial production while experiencing very strong commercial and industrial loan growth and maintaining a strong period-end pipeline. Coupled with our recently announced KleinBank partnership – which effectively doubles our presence in Minnesota’s Twin Cities – these results illustrate that Old National is well-positioned for continued growth and success in the vibrant markets that now define our franchise.”

SECOND-QUARTER HIGHLIGHTS2:

Net Income

  • Net income of $44.0 million, an increase of 13.2% from second quarter of 2017
  • Earnings per share of $0.29, an increase of 3.6% from second quarter of 2017

Net Interest Income/NIM

  • Net interest income was $132.0 million, up 2.6%
  • Net interest margin on a fully taxable equivalent basis was 3.55% compared to 3.45%

Operating Performance

  • Pre-provision net revenue1 (“PPNR”) was $53.6 million
  • Adjusted PPNR1 was $65.6 million, up 7.4%
  • Noninterest expense was $130.5 million
  • Adjusted noninterest expense1 was $114.5 million, compared to $111.3 million
  • Efficiency ratio1 was 69.58%
  • Adjusted efficiency ratio1 was 61.68%, a 134 basis point improvement from second quarter of 2017

Loans and Credit Quality

  • End-of-period total loans3 were $11,321.8 million compared to $11,256.3 million
    — Excluding $64.9 million in student loans sold during the quarter, organic total loan growth was 4.6% annualized
  • End-of-period commercial and industrial loans were $2,962.9 million compared to $2,811.6 million; 21.5% annualized growth
  • Second quarter record level total commercial production of $598.2 million and June 30 pipeline of $1.7 billion 
  • Provision for loan losses was $2.4 million compared to $0.4 million
  • Net recoveries were $0.8 million, or (0.03%) annualized, compared to net charge-offs of 0.01%
  • Non-performing loans were 1.38% of total loans compared to 1.28%

Capital Returns

  • Return on average equity was 8.06%
  • Return on average tangible common equity1 was 14.28%
  • Adjusted return on average tangible common equity1 was 14.32%

Notable Items

  • $2.5 million in merger/integration charges and $1.3 million in branch action charges (net of $0.3 million gain)
  • $2.2 million gain on the sale of student loans
  • $11.9 million in tax credit amortization
  • Footprint rationalization continues with 9 branch consolidations in the second quarter, 1 pending in the third quarter and the pending sale of 10 branches                                      

1 Non-GAAP financial measure that Management believes is useful in evaluating the financial results of the Company – please refer to the Non-GAAP reconciliations contained in this release  Comparisons are on a linked-quarter basis, unless otherwise noted  3 Includes loans held for sale

RESULTS OF OPERATIONS

Old National Bancorp reported second-quarter 2018 net income of $44.0 million, or $0.29 per diluted share. 

Included in the second quarter was a pre-tax gain of $2.2 million for the sale of a student loan portfolio.  Also included in the second quarter were pre-tax charges of $2.5 million for merger and integration and $1.3 million (net of $0.3 million gain) for branch actions.  Excluding these items from the current quarter and netting out securities gains, Old National would have reported net income of $44.1 million, or $0.29 per share. 

With a continued focus on expense management, 9 branches located throughout the footprint were consolidated in the second quarter with 1 pending consolidation that will take place in the third quarter.  In addition, and as previously disclosed, Old National entered into a branch purchase and assumption agreement for the sale of 10 Old National branches in Wisconsin to Marine Credit Union of La Crosse, Wisconsin.  The branch sale includes the assumption of approximately $261 million in deposits and no loans.

1Q18 amounts reflect the reclassification of $0.5 million of agency costs from data processing expense to investment product fee revenue as a result of the implementation of the revenue recognition accounting standard.

LOANS
The strong commercial loan growth that has defined Old National’s overall growth market strategy over the past several quarters continued in the second quarter.

  • Period-end total loans increased to $11,321.8 million at June 30, 2018, up from $11,256.3 million at March 31, 2018.
  • Student loans totaling $64.9 million were sold during the second quarter of 2018, resulting in a $2.2 million gain.
  • End-of-period total loan growth in the second quarter was $65.5 million.
  • Excluding the sale of the student loan portfolio, total end-of-period organic loan growth was $130.5 million, or 4.6% on an annualized basis. 
  • End-of-period growth in total commercial and industrial loans was $151.2 million, or 21.5% on an annualized basis.
  • Second quarter commercial loan production of $598.2 million was a Company record.  Period-end pipeline totaled $1.7 billion.
  • On average, total loans in the second quarter were $11,262.0 million, up from $11,179.3 million in the first quarter of 2018.
  • Average total loans increased $124.1 million, or 4.5% annualized, net of the student loans sold.    
  • Average total commercial and industrial loan growth was $114.1 million, or 16.5% on an annualized basis.

DEPOSITS
A low-cost core deposit franchise continues to be one of Old National’s strengths; average balances increased while end-of-period balances experienced seasonal declines.

  • Period-end total deposits decreased to $12,596.4 million at June 30, 2018, from $12,788.6 million at March 31, 2018.
  • On average, total deposits in the second quarter were $12,650.8 million, increasing from the $12,579.2 million in the first quarter of 2018. 
  • Average total deposits increased $71.6 million, or 2.3% annualized.

NET INTEREST INCOME AND MARGIN
Well-controlled deposit costs and higher asset yields boosted both net interest income and margin in the second quarter.

  • Net interest income increased to $132.0 million in the second quarter of 2018 from $128.5 million in the first quarter of 2018.
  • The net interest margin (on a fully taxable equivalent basis) increased 10 basis points to 3.55% compared to 3.45% in the first quarter of 2018.
  • The increase in short term rates, strong loan production and accretion income benefitted net interest income and net interest margin during the quarter.  
  • Accretion income increased to $11.5 million, or 30 basis points of net interest margin, in the second quarter of 2018 from $11.0 million, or 28 basis points of net interest margin, in the first quarter of 2018.  In the second quarter of 2018, accretion income was just 6.4% of adjusted total revenue.
  • The cost of total deposits rose 6 basis points to 0.29% in the second quarter of 2018 while the cost of total interest-bearing deposits rose 8 basis points to 0.41%.

CREDIT QUALITY
Exceptional credit quality remains a hallmark of the Old National franchise.

  • Asset quality remained strong with net recoveries in the second quarter of $0.8 million, or (0.03%) of total average loans, and 30-89 day delinquencies of 0.34%.
  • Provision expense for the second quarter was $2.4 million.
  • Non-performing loans as a percentage of total loans was 1.38%. 
  • In accordance with current accounting practices, the loans acquired from recent acquisitions were recorded at fair value with no allowance recorded at the acquisition date.  As of June 30, 2018, the remaining discount on these acquired loans was $110.7 million.
  • The allowance for loan losses was $53.7 million, or 0.48% of total loans at June 30, 2018.

NONINTEREST INCOME
Noninterest income increased due to seasonal factors in several fee income businesses and a gain on the sale of student loans.

  • Total noninterest income for the second quarter of 2018 was $49.3 million, or an increase of $7.4 million from the first quarter of 2018.
  • Included in noninterest income in the second quarter was a gain of $2.2 million from the sale of Old National’s student loan portfolio.
  • Higher mortgage banking revenue (up $1.0 million), seasonal Wealth Management tax preparation fees (up $1.0 million), higher capital markets income (up $0.4 million) and various items included in Other Income were the main drivers of the quarterly increase.
  • Securities gains were $1.5 million, up $0.7 million from the first quarter of 2018.

NONINTEREST EXPENSE
Our second quarter results included disciplined expense management, which helped drive positive operating leverage1.

  • Noninterest expense for the second quarter of 2018 was $130.5 million and included $2.5 million in merger and integration charges, $1.2 million in branch action charges, $0.4 million in severance and $11.9 million in tax credit amortization.
  • Excluding these items, adjusted noninterest expense for the second quarter was $114.5 million, compared to the $111.3 million in adjusted noninterest expense in the first quarter of 2018. 
  • Second quarter included higher salary and benefits expense due to annual merit increases and a year-to-date 401k benefit enhancement as well as higher data processing expense related to tax preparation clients.
  • Adjusted operating leverage1 was +224 basis points in the second quarter compared to a year ago.
  • The second quarter efficiency ratio was 69.58% while the adjusted efficiency ratio was 61.68%.

INCOME TAXES

  • On a fully taxable-equivalent basis, income tax expense in the second quarter was $7.2 million, resulting in a 14.0% FTE tax rate.

CAPITAL
Strong quarterly earnings drove capital ratios higher.

  • At the end of the second quarter, total risk-based capital was 11.9% and regulatory tier 1 capital was 10.9%.
  • Tangible common equity to tangible assets was 8.00% at the end of the second quarter compared to 7.83% in the first quarter of 2018.

             
NON-GAAP RECONCILIATIONS

($ in millions, except EPS, shares in 000s) 2Q18 Adjustments4 Adjusted 2Q18
Total Revenues (FTE) $184.1 ($4.0) $180.1
Less: Provision for Loan Losses (2.4) (2.4)
Less: Noninterest Expenses (130.5) 4.1 (126.4)
Income before Income Taxes (FTE) $51.2 $0.1 $51.3
Income Taxes (7.2) (7.2)
Net Income $44.0 $0.1 $44.1
Average Shares Outstanding 152,568 152,568
Earnings Per Share $0.29 $0.0 $0.29

4 Tax-effect calculations use the 2018 statutory FTE tax rates (federal + state)

     
($ in millions) 2Q18 1Q18
Net Interest Income $132.0 $128.5
FTE Adjustment 2.8 2.8
Net Interest Income (FTE) $134.8 $131.3
Average Earning Assets $15,176.7 $15,205.9
Net Interest Margin (FTE) 3.55% 3.45%

($ in millions) 2Q18 1Q18
Net Interest Income $132.0 $128.5
FTE Adjustment 2.8 2.8
Net Interest Income (FTE) $134.8 $131.3
Total Noninterest Income $49.3 $41.9
Noninterest Expense 130.5 117.1
Pre-Provision Net Revenue $53.6 $56.1
Less: Securities Gains (1.5) (0.8)
Less: Gain on Student Loan Sale (2.2)
Less: Gain on Branch Actions (0.3)
Add: Merger and Integration Charges 2.5 2.3
Add: Branch Action Charges and Severance 1.6 2.8
Add: Amortization of Tax Credit Investments 11.9 0.7
Adjusted Pre-Provision Net Revenue $65.6 $61.1

         
($ in millions) 2Q18 1Q18 4Q17 2Q17
Noninterest Expense $130.5 $117.1 $140.4 $102.8
Less: Merger and Integration Charges (2.5) (2.3) (11.9)
Less: Branch Action Charges, Severance, Foundation Funding and Client Experience Initiative Charges (1.6) (2.8) (6.6) (1.7)
Noninterest Expense less Charges $126.4 $112.0 $121.9 $101.1
Less: Amortization of Tax Credit Investments (11.9) (0.7) (11.7)
Adjusted Noninterest Expense $114.5 $111.3 $110.2 $101.1
Less: Intangible Amortization (3.4) (3.6) (3.4) (2.8)
Adjusted Noninterest Expense Less Intangible Amortization $ 111.1 $ 107.7 $ 106.8 $ 98.3
Net Interest Income $132.0 $128.5 $118.6 $104.3
FTE Adjustment 2.8 2.8 6.1 5.7
Net Interest Income (FTE) $134.8 $131.3 $124.7 $110.0
Total Noninterest Income $49.3 $41.9 $44.8 $49.2
Total Revenue (FTE) $184.1 $173.2 $169.5 $159.2
Less: Securities Gains (1.5) (0.8) (1.6) (3.1)
Less: Gain on Student Loan Sale (2.2)
Less: Gain on Branch Actions (0.3) (0.1)
Adjusted Total Revenue (FTE) $180.1 $172.4 $167.9 $156.0
Efficiency Ratio 69.58% 65.84% 81.60% 64.05%
Adjusted Efficiency Ratio 61.68% 62.50% 63.58% 63.02%
         
Operating Leverage5 (basis points) (1,125)      
Adjusted Operating Leverage6 (basis points) 224      

5 Year-over-year basis point change in noninterest expenses plus change in total revenue
6 Year-over-year basis point change in adjusted noninterest expense plus change in adjusted total revenue

     
($ in millions) 2Q18 1Q18
Net Income (Loss) $44.0 $48.0
Add: Intangible Amortization (net of tax7) 2.7 2.8
Tangible Net Income (Loss) $46.7 $50.8
Less: Securities Gains (net of tax7) (1.1) (0.6)
Less: Gain on Sale of Student Loans (net of tax7) (1.7)
Add: Merger & Integration Charges (net of tax7) 1.9 1.8
Add: Branch Action Charges (net of gains) and Severance (net of tax7) 1.0 2.1
Adjusted Tangible Net Income (Loss) $46.8 $54.1
Average Total Shareholders’ Equity $2,183.6 $2,166.0
Less: Average Goodwill (828.8) (828.1)
Less: Average Intangibles (47.1) (51.1)
Average Tangible Shareholders’ Equity $1,307.7 $1,286.8
Return on Average Tangible Common Equity 14.28% 15.80%
Adjusted Return on Average Tangible Common Equity 14.32% 16.81%

7Tax-effect calculations use the 2018 statutory FTE tax rates (federal + state)

CONFERENCE CALL AND WEBCAST
Old National will host a conference call and live webcast at 7:00 a.m. Central Time on Monday, July 23, 2018, to review second-quarter 2018 financial results.  The live audio web cast of the call, along with the corresponding presentation slides, will be available on the Company’s Investor Relations web page at oldnational.com and will be archived there for 12 months.  A replay of the call will also be available from 6:00 a.m. Central Time on July 24 through August 7.  To access the replay, dial 1-855-859-2056, Conference ID Code 6293046.

ABOUT OLD NATIONAL
Old National Bancorp (NASDAQ:ONB) is the holding company of Old National Bank. Headquartered in Evansville with $17.5 billion in assets, it is a top 100 U.S. bank, the largest Indiana-based bank and has been recognized as a World’s Most Ethical Company by the Ethisphere Institute for seven consecutive years. For nearly 185 years, Old National has been a community bank committed to building long-term, highly valued relationships with clients. With locations in Indiana, Kentucky, Michigan, Minnesota and Wisconsin, Old National provides retail and commercial banking services along with comprehensive wealth management, investment and capital markets services. For information and financial data, please visit Investor Relations at oldnational.com.

USE OF NON-GAAP FINANCIAL MEASURES
This earnings release contains GAAP financial measures and non-GAAP financial measures where management believes it to be helpful in understanding Old National’s results of operations or financial position.  Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the tables of this release.

FORWARD-LOOKING STATEMENT
This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements include, but are not limited to, descriptions of Old National Bancorp’s (“Old National’s”) financial condition, results of operations, asset and credit quality trends and profitability.  Forward-looking statements can be identified by the use of the words “anticipate,” “believe,” “expect,” “intend,” “could” and “should,” and other words of similar meaning.  These forward-looking statements express management’s current expectations or forecasts of future events and, by their nature, are subject to risks and uncertainties. There are a number of factors that could cause actual results to differ materially from those in such statements.  Factors that might cause such a difference include, but are not limited to: expected cost savings, synergies and other financial benefits from the merger with Anchor-Minnesota that might not be realized within the expected timeframes and costs or difficulties relating to integration matters might be greater than expected;  market, economic, operational, liquidity, credit and interest rate risks associated with Old National’s business; competition; government legislation and policies (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and its related regulations); ability of Old National to execute its business plan; changes in the economy which could materially impact credit quality trends and the ability to generate loans and gather deposits; failure or circumvention of our internal controls; failure or disruption of our information systems; significant changes in accounting, tax or regulatory practices or requirements; new legal obligations or liabilities or unfavorable resolutions of litigations; disruptive technologies in payment systems and other services traditionally provided by banks; computer hacking and other cybersecurity threats; other matters discussed in this press release; and other factors identified in our Annual Report on Form 10-K and other periodic filings with the SEC.  These forward-looking statements are made only as of the date of this press release, and Old National does not undertake an obligation to release revisions to these forward-looking statements to reflect events or conditions after the date of this press release.

ADDITIONAL INFORMATION ABOUT THE OLD NATIONAL BANCORP/KLEIN FINANCIAL, INC. TRANSACTION
Communications in this press release do not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. In connection with the proposed merger, Old National will file with the SEC a Registration Statement on Form S-4 that will include a Proxy Statement of Klein and a Prospectus of Old National, as well as other relevant documents concerning the proposed transaction. Shareholders are urged to read the Registration Statement and the Proxy Statement/Prospectus regarding the merger when it becomes available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information. A free copy of the Proxy Statement/Prospectus, as well as other filings containing information about Old National and Klein, may be obtained at the SEC’s Internet site (http://www.sec.gov). You will also be able to obtain these documents, free of charge, from Old National at www.oldnational.com under the tab “Investor Relations” and then under the heading “Financial Information.” Old National and Klein and certain of their directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of Klein in connection with the proposed merger. Information about the directors and executive officers of Old National is set forth in the proxy statement for Old National’s 2018 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 5, 2018.  Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the Proxy Statement/Prospectus regarding the proposed merger when it becomes available. Free copies of this document may be obtained as described in the preceding paragraph.

               
               
Financial Highlights (unaudited)  
($ and shares in thousands, except per share data)  
               
  Three Months Ended    Six Months Ended 
  June 30, March 31, June 30,   June 30, June 30,  
    2018     2018     2017       2018     2017    
Income Statement              
Net interest income $   131,963   $   128,572   $   104,333     $   260,535   $   210,134    
Provision for loan losses   2,446     380     1,355       2,826     1,702    
Noninterest income (1)   49,289     41,905     49,271       91,194     92,191    
Noninterest expense (1)     130,460       117,157       102,811         247,617       204,702    
Net income   44,001     47,983     38,854       91,984     74,846    
               
               
Per Common Share Data (Diluted)              
Net income available to common shareholders $   0.29   $   0.31   $   0.28     $   0.60   $   0.55    
Average diluted shares outstanding   152,568     152,370     135,697       152,483     135,641    
Book value   14.44     14.32     13.92       14.44     13.92    
Stock price   18.60     16.90     17.25       18.60     17.25    
Dividend payout ratio   45 %   41 %   46 %     43 %   47 %  
Tangible common book value (2)     8.70       8.55       8.85         8.70       8.85    
               
               
Performance Ratios              
Return on average assets   1.01 %   1.10 %   1.05 %     1.06 %   1.01 %  
Return on average common equity   8.06 %   8.86 %   8.33 %     8.46 %   8.11 %  
Return on average tangible common equity (2)   14.28 %   15.80 %   13.82 %     15.04 %   13.60 %  
Net interest margin (FTE)   3.55 %   3.45 %   3.42 %     3.50 %   3.46 %  
Efficiency ratio (1,3)   69.58 %   65.84 %   64.05 %     67.76 %   64.35 %  
Net charge-offs (recoveries) to average loans   -0.03 %   0.01 %   0.01 %     -0.01 %   0.01 %  
Allowance for loan losses to ending loans   0.48 %   0.45 %   0.55 %     0.48 %   0.55 %  
Non-performing loans to ending loans   1.38 %   1.28 %   1.51 %     1.38 %   1.51 %  
               
               
Balance Sheet              
Total loans $   11,295,629   $   11,238,682   $   9,232,040     $   11,295,629   $   9,232,040    
Total assets   17,482,990     17,496,287     14,957,281       17,482,990     14,957,281    
Total deposits   12,596,376     12,788,600     10,683,714       12,596,376     10,683,714    
Total borrowed funds   2,530,104     2,371,292     2,259,918       2,530,104     2,259,918    
Total shareholders’ equity   2,200,215     2,179,118     1,886,594       2,200,215     1,886,594    
               
               
Capital Ratios (2)              
Risk-based capital ratios (EOP):              
  Tier 1 common equity   10.9 %   10.7 %   11.5 %     10.9 %   11.5 %  
  Tier 1   10.9 %   10.7 %   11.8 %     10.9 %   11.8 %  
  Total   11.9 %   11.7 %   12.3 %     11.9 %   12.3 %  
Leverage ratio (to average assets)   8.3 %   8.1 %   8.7 %     8.3 %   8.7 %  
               
Total equity to assets (averages)   12.54 %   12.42 %   12.56 %     12.48 %   12.46 %  
Tangible common equity to tangible assets   7.98 %   7.83 %   8.41 %     7.98 %   8.41 %  
               
               
Nonfinancial Data              
Full-time equivalent employees    2,683     2,721     2,652       2,683     2,652    
Number of branches   183     191     188       183     188    
               
(1) For the three months ended March 31, 2018, amounts reflect the reclassification of $0.5 million of agency costs from data processing expense to investment product fee revenue as a result of the implementation of the revenue recognition accounting standard.  
(2) See “Non-GAAP Measures” table.   
(3) Efficiency ratio is defined as noninterest expense before amortization of intangibles as a percent of FTE net interest income and noninterest revenues, excluding net gains from securities transactions.  This presentation excludes amortization of intangibles and net securities gains, as is common in other company releases, and better aligns with true operating performance.   
FTE – Fully taxable equivalent basis  EOP – End of period actual balances         
               

 

               
 Income Statement (unaudited) 
 ($ and shares in thousands, except per share data) 
               
  Three Months Ended    Six Months Ended   
  June 30, March 31, June 30,   June 30, June 30,  
   2018  2018  2017    2018  2017  
Interest income $   153,736 $   147,706 $   118,209   $   301,442 $   236,677  
Less:  interest expense   21,773   19,134   13,876       40,907   26,543  
  Net interest income   131,963   128,572   104,333       260,535   210,134  
Provision for loan losses   2,446   380   1,355       2,826   1,702  
  Net interest income after provision for loan losses   129,517   128,192   102,978       257,709   208,432  
               
Wealth management fees   9,746   9,026   9,679       18,772   18,678  
Service charges on deposit accounts   10,765   10,759   10,040       21,524   19,883  
Debit card and ATM fees   5,080   4,865   4,436       9,945   8,672  
Mortgage banking revenue   5,189   4,192   5,186       9,381   9,412  
Investment product fees (1)   5,066   5,031   5,004       10,097   9,993  
Capital markets income   896   498   2,747       1,394   3,778  
Company-owned life insurance   2,430   2,605   2,117       5,035   4,266  
Other income   8,586   4,130   6,936       12,716   12,837  
Gains (losses) on sales of securities   1,494   788   3,075       2,282   4,575  
Gains (losses) on derivatives   37   11   51       48   97  
  Total noninterest income (1)   49,289   41,905   49,271       91,194   92,191  
               
Salaries and employee benefits   66,592   64,179   57,606       130,771   114,170  
Occupancy   12,873   13,280   10,539       26,153   22,673  
Equipment   3,728   3,565   3,350       7,293   6,577  
Marketing   3,962   3,697   3,673       7,659   6,723  
Data processing (1)   9,724   8,400   8,226       18,124   15,834  
Communication   2,772   3,064   2,288       5,836   4,702  
Professional fees   2,923   2,730   4,077       5,653   6,728  
Loan expenses   1,843   1,744   1,693       3,587   3,324  
Supplies   903   722   594       1,625   1,173  
FDIC assessment   3,161   2,645   2,130       5,806   4,617  
Other real estate owned expense   196   349   1,009       545   2,124  
Amortization of intangibles   3,416   3,609   2,781       7,025   5,801  
Amortization of tax credit investments   11,858     716     –        12,574     –   
Other expense     6,509     8,457     4,845       14,966     10,256  
  Total noninterest expense (1)     130,460     117,157     102,811       247,617     204,702  
               
  Income before income taxes     48,346     52,940     49,438       101,286     95,921  
  Income tax expense   4,345   4,957   10,584       9,302     21,075  
  Net income $   44,001 $   47,983 $   38,854   $   91,984 $   74,846  
               
Diluted Earnings Per Share               
Net income $   0.29 $   0.31 $   0.28   $   0.60 $   0.55  
               
Average Common Shares Outstanding              
  Basic     151,878     151,721     135,085       151,800     134,999  
  Diluted     152,568     152,370     135,697       152,483     135,641  
               
Common shares outstanding at end of period     152,351     152,172     135,516       152,351     135,516  
               
(1) For the three months ended March 31, 2018, amounts reflect the reclassification of $0.5 million of agency costs from data processing expense to investment product fee revenue as a result of the implementation of the revenue recognition accounting standard.
   
               
               

 

   
Balance Sheet (unaudited)  
($ in thousands)  
                 
    June 30,   March 31,   June 30,    
     2018     2018     2017     
  Assets              
    Federal Reserve Bank account $   43,889     $   73,657     $   22,117      
    Money market investments     10,359         12,562         9,815      
    Investments:              
    Treasury and government-sponsored agencies     647,058         655,353         586,258      
    Mortgage-backed securities     1,588,120         1,623,554         1,470,687      
    States and political subdivisions     1,110,087         1,159,614         1,118,437      
    Other securities     503,920         458,270         449,045      
    Total investments     3,849,185         3,896,791         3,624,427      
    Loans held for sale, at fair value     26,198         17,635         27,425      
    Loans:              
    Commercial     2,962,895         2,811,629         2,001,621      
    Commercial and agriculture real estate     4,451,772         4,449,980         3,259,998      
    Consumer:               
    Home equity     491,777         487,237         472,198      
    Other consumer loans     1,235,212         1,331,304         1,398,849      
    Subtotal of commercial and consumer loans     9,141,656         9,080,150         7,132,666      
    Residential real estate     2,153,973         2,158,532         2,099,374      
    Total loans     11,295,629         11,238,682         9,232,040      
    Total earning assets     15,225,260         15,239,327         12,915,824      
                 
  Allowance for loan losses     (53,660 )       (50,381 )       (50,986 )    
  Non-earning Assets:              
    Cash and due from banks     219,626         192,022         230,809      
    Premises and equipment     449,304         453,603         413,933      
    Goodwill and other intangible assets     874,221         877,637         686,894      
    Company-owned life insurance     405,492         404,561         354,875      
    Net deferred tax assets     90,187         88,773         146,780      
    Loan servicing rights     24,303         24,380         25,023      
    Other real estate owned     3,729         6,735         11,071      
    Other assets      244,528         259,630         223,058      
    Total non-earning assets     2,311,390         2,307,341         2,092,443      
    Total assets $   17,482,990     $   17,496,287     $   14,957,281      
                 
  Liabilities and Equity              
    Noninterest-bearing demand deposits $   3,600,793     $   3,655,732     $   3,011,156      
    Interest-bearing:              
    Checking and NOW accounts     3,054,302         3,135,778         2,639,813      
    Savings accounts     3,026,110         3,091,101         2,924,689      
    Money market accounts     1,090,621         1,130,258         672,391      
    Other time deposits     1,648,390         1,573,874         1,313,199      
    Total core deposits     12,420,216         12,586,743         10,561,248      
    Brokered CD’s     176,160         201,857         122,466      
    Total deposits     12,596,376         12,788,600         10,683,714      
                 
    Federal funds purchased and interbank borrowings     175,044         150,026         227,029      
    Securities sold under agreements to repurchase     347,511         308,189         298,094      
    Federal Home Loan Bank advances     1,757,308         1,664,179         1,515,628      
    Other borrowings     250,241         248,898         219,167      
    Total borrowed funds     2,530,104         2,371,292         2,259,918      
  Accrued expenses and other liabilities     156,295         157,277         127,055      
    Total liabilities     15,282,775         15,317,169         13,070,687      
                 
  Common stock, surplus, and retained earnings     2,266,918         2,240,644         1,917,714      
  Accumulated other comprehensive income (loss)     (66,703 )       (61,526 )       (31,120 )    
    Total shareholders’ equity     2,200,215         2,179,118         1,886,594      
    Total liabilities and shareholders’ equity $   17,482,990     $   17,496,287     $   14,957,281      
               
                 

 

                             
Average Balance Sheet and Interest Rates (unaudited)    
($ in thousands)    
                             
                             
    Three Months Ended   Three Months Ended   Three Months Ended    
    June 30, 2018   March 31, 2018   June 30, 2017    
    Average Income (1)/ Yield/   Average Income (1)/ Yield/   Average Income (1)/ Yield/    
Earning Assets:   Balance Expense Rate   Balance Expense Rate   Balance Expense Rate    
  Money market and other interest-earning                          
  investments   $   51,724   $   117 0.91 %   $   66,536   $   90 0.55 %   $   27,222   $   55 0.80 %    
  Investments:                            
  Treasury and government-sponsored agencies     648,778       3,387 2.09 %       663,096       3,424 2.07 %       575,940       2,798 1.94 %    
  Mortgage-backed securities     1,588,140       8,904 2.24 %       1,632,610       9,520 2.33 %       1,485,582       7,590 2.04 %    
  States and political subdivisions     1,118,395       10,591 3.79 %       1,204,855       10,478 3.48 %       1,122,769       13,375 4.76 %    
  Other securities       507,646       3,909 3.08 %       459,458       3,669 3.19 %       446,521       2,866 2.57 %    
  Total investments       3,862,959       26,791 2.77 %       3,960,019       27,091 2.74 %       3,630,812       26,629 2.93 %    
  Loans: (2)                            
  Commercial       2,873,781       32,527 4.48 %       2,759,688       28,205 4.09 %       1,938,751       19,352 3.95 %    
  Commercial and agriculture real estate     4,449,839       57,251 5.09 %       4,394,002       55,787 5.08 %       3,240,318       39,830 4.86 %    
  Consumer:                            
  Home equity       492,151       6,076 4.95 %       502,902       5,688 4.59 %       474,308       4,837 4.09 %    
  Other consumer loans     1,268,670       11,591 3.66 %       1,346,331       12,140 3.66 %       1,405,226       11,881 3.39 %    
  Subtotal commercial and consumer loans     9,084,441       107,445 4.74 %       9,002,923       101,820 4.59 %       7,058,603       75,900 4.31 %    
  Residential real estate loans     2,177,587       22,208 4.08 %       2,176,413       21,472 3.95 %       2,127,867       21,268 4.00 %    
                             
  Total loans       11,262,028       129,653 4.57 %       11,179,336       123,292 4.42 %       9,186,470       97,168 4.21 %    
                             
  Total earning assets   $   15,176,711   $   156,561 4.11 %   $   15,205,891   $   150,473 3.97 %   $   12,844,504   $   123,852 3.84 %    
                             
Less: Allowance for loan losses     (51,493 )           (50,953 )           (50,937 )        
                             
Non-earning Assets:                            
Cash and due from banks $   205,617         $   199,132         $   200,209          
Other assets       2,086,822             2,089,790             1,860,676          
                             
  Total assets   $   17,417,657         $   17,443,860         $   14,854,452          
                             
Interest-Bearing Liabilities:                          
  Checking and NOW accounts $   3,097,635   $   969 0.13 %   $   3,067,437   $   819 0.11 %   $   2,643,123   $   511 0.08 %    
  Savings accounts       3,036,936       1,777 0.23 %       3,052,646       1,343 0.18 %       2,944,314       1,209 0.16 %    
  Money market accounts     1,103,177       702 0.26 %       1,159,010       546 0.19 %       684,911       146 0.09 %    
  Other time deposits       1,615,527       4,813 1.20 %       1,561,945       3,900 1.01 %       1,330,026       2,536 0.76 %    
  Total interest-bearing deposits     8,853,275       8,261 0.37 %       8,841,038       6,608 0.30 %       7,602,374       4,402 0.23 %    
  Brokered CD’s        194,801       878 1.81 %       175,039       647 1.50 %       111,972       322 1.15 %    
  Total interest-bearing deposits and CD’s     9,048,076       9,139 0.41 %       9,016,077       7,255 0.33 %       7,714,346       4,724 0.25 %    
                             
  Federal funds purchased and interbank borrowings     140,471       647 1.85 %       261,353       1,017 1.58 %       166,690       422 1.02 %    
  Securities sold under agreements to repurchase     332,599       434 0.52 %       342,682       359 0.42 %       329,182       334 0.41 %    
  Federal Home Loan Bank advances      1,713,832       8,824 2.07 %       1,675,700       7,780 1.88 %       1,443,453       6,017 1.67 %    
  Other borrowings        249,291       2,729 4.38 %       248,828       2,723 4.38 %       219,085       2,379 4.34 %    
  Total borrowed funds     2,436,193       12,634 2.08 %       2,528,563       11,879 1.91 %       2,158,410       9,152 1.70 %    
                             
  Total interest-bearing liabilities $   11,484,269   $   21,773 0.76 %   $   11,544,640   $   19,134 0.67 %   $   9,872,756   $   13,876 0.56 %    
                             
Noninterest-Bearing Liabilities                          
Demand deposits   $   3,602,732         $   3,563,104         $   2,988,147          
Other liabilities       147,052             170,061             128,231          
Shareholders’ equity       2,183,604             2,166,055             1,865,318          
                             
Total liabilities and shareholders’ equity $   17,417,657         $   17,443,860         $   14,854,452          
                             
Net interest rate spread     3.35 %       3.30 %       3.28 %    
                             
Net interest margin (FTE)     3.55 %       3.45 %       3.42 %    
                             
FTE adjustment     $   2,825       $   2,767       $   5,643      
                             
(1) Interest income is reflected on a fully taxable equivalent basis (FTE).                      
(2) Includes loans held for sale.                          
                             

 

                     
Average Balance Sheet and Interest Rates (unaudited)    
($ in thousands)    
                     
    Six Months Ended   Six Months Ended    
    June 30, 2018   June 30, 2017    
    Average Income (1)/ Yield/   Average Income (1)/ Yield/    
Earning Assets:   Balance Expense Rate   Balance Expense Rate    
  Money market and other interest-earning                  
  investments   $   59,089   $   207 0.71 %   $   27,352   $   86 0.63 %    
  Investments:                    
  Treasury and government-sponsored agencies     655,897       6,811 2.08 %       558,279       5,579 2.00 %    
  Mortgage-backed securities     1,610,252       18,424 2.29 %       1,498,414       15,408 2.06 %    
  States and political subdivisions     1,161,386       21,069 3.63 %       1,128,042       26,981 4.78 %    
  Other securities       483,685       7,578 3.13 %       445,881       5,694 2.55 %    
  Total investments       3,911,220       53,882 2.76 %       3,630,616       53,662 2.96 %    
  Loans: (2)                    
  Commercial       2,817,050       60,733 4.29 %       1,913,480       38,440 4.00 %    
  Commercial and agriculture real estate     4,422,075       113,037 5.08 %       3,205,853       80,154 4.97 %    
  Consumer:                    
  Home equity       496,978       11,765 4.77 %       475,325       9,496 4.03 %    
  Other consumer loans     1,307,805       23,730 3.66 %       1,406,655       23,648 3.39 %    
  Subtotal commercial and consumer loans     9,043,908       209,265 4.67 %       7,001,313       151,738 4.37 %    
  Residential real estate loans     2,177,003       43,680 4.01 %       2,134,681       42,522 3.98 %    
                     
  Total loans       11,220,911       252,945 4.50 %       9,135,994       194,260 4.25 %    
                     
  Total earning assets   $   15,191,220   $   307,034 4.04 %   $   12,793,962   $   248,008 3.87 %    
                     
Less: Allowance for loan losses     (51,225 )           (50,824 )        
                     
Non-earning Assets:                    
Cash and due from banks $   202,392         $   197,927          
Other assets       2,088,299             1,869,215          
                     
  Total assets   $   17,430,686         $   14,810,280          
                     
Interest-Bearing Liabilities:                  
  Checking and NOW accounts $   3,082,619   $   1,788 0.12 %   $   2,614,627   $   967 0.07 %    
  Savings accounts       3,044,748       3,120 0.21 %       2,957,020       2,367 0.16 %    
  Money market accounts     1,130,939       1,248 0.22 %       695,890       295 0.09 %    
  Other time deposits       1,588,884       8,713 1.11 %       1,331,460       4,903 0.74 %    
  Total interest-bearing deposits     8,847,190       14,869 0.34 %       7,598,997       8,532 0.23 %    
  Brokered CD’s        184,975       1,525 1.66 %       109,758       575 1.06 %    
  Total interest-bearing deposits and CD’s     9,032,165       16,394 0.37 %       7,708,755       9,107 0.24 %    
                     
  Federal funds purchased and interbank borrowings     200,578       1,664 1.67 %       177,818       778 0.88 %    
  Securities sold under agreements to repurchase     337,612       793 0.47 %       330,285       590 0.36 %    
  Federal Home Loan Bank advances      1,694,871       16,604 1.98 %       1,436,752       11,329 1.59 %    
  Other borrowings        249,062       5,452 4.38 %       219,025       4,739 4.33 %    
  Total borrowed funds     2,482,123       24,513 1.99 %       2,163,880       17,436 1.62 %    
                     
  Total interest-bearing liabilities $   11,514,288   $   40,907 0.72 %   $   9,872,635   $   26,543 0.54 %    
                     
Noninterest-Bearing Liabilities                  
Demand deposits   $   3,583,027         $   2,952,797          
Other liabilities       158,493             139,250          
Shareholders’ equity       2,174,878             1,845,598          
                     
Total liabilities and shareholders’ equity $   17,430,686         $   14,810,280          
                     
Net interest rate spread     3.32 %       3.33 %    
                     
Net interest margin (FTE)     3.50 %       3.46 %    
                     
FTE adjustment     $   5,592       $   11,331      
                     
(1) Interest income is reflected on a fully taxable equivalent basis (FTE).                
(2) Includes loans held for sale.                  
                     

 

               
Asset Quality (EOP) (unaudited)  
($ in thousands)  
               
  Three Months Ended   Six Months Ended  
  June 30, March 31, June 30,   June 30, June 30,  
   2018   2018   2017     2018   2017   
               
Beginning allowance for loan losses $   50,381   $   50,381   $   49,834     $   50,381   $   49,808    
               
  Provision for loan losses     2,446       380       1,355         2,826       1,702    
               
  Gross charge-offs     (3,054 )     (2,685 )     (3,380 )       (5,739 )     (6,619 )  
  Gross recoveries     3,887       2,305       3,177         6,192       6,095    
  Net (charge-offs) recoveries     833       (380 )     (203 )       453       (524 )  
               
Ending allowance for loan losses $   53,660   $   50,381   $   50,986     $   53,660   $   50,986    
               
Net charge-offs (recoveries) / average loans (1)   -0.03 %   0.01 %   0.01 %     -0.01 %   0.01 %  
               
Average loans outstanding (1) $   11,257,585   $   11,175,329   $   9,180,987     $   11,216,684   $   9,130,112    
               
EOP loans outstanding (1)     11,295,629   $   11,238,682   $   9,232,040     $   11,295,629   $   9,232,040    
               
Allowance for loan losses / EOP loans (1)   0.48 %   0.45 %   0.55 %     0.48 %   0.55 %  
               
Underperforming Assets:              
  Loans 90 Days and over (still accruing) $   1,575   $   328   $   201     $   1,575   $   201    
               
  Non-performing loans:              
  Nonaccrual loans (2)     139,082       127,295       125,519         139,082       125,519    
  Renegotiated loans     17,139       16,802       14,123         17,139       14,123    
  Total non-performing loans     156,221       144,097       139,642         156,221       139,642    
               
  Foreclosed properties     3,729       6,735       11,071         3,729       11,071    
               
Total underperforming assets $   161,525   $   151,160   $   150,914     $   161,525   $   150,914    
               
Classified and Criticized Assets:              
Nonaccrual loans (2)     139,082       127,295       125,519         139,082       125,519    
Substandard accruing loans     109,051       118,123       112,277         109,051       112,277    
Loans 90 days and over (still accruing)     1,575       328       201         1,575       201    
Total classified loans – “problem loans” $   249,708   $   245,746   $   237,997     $   249,708   $   237,997    
               
Other classified assets     3,149       2,987       7,449         3,149       7,449    
Criticized loans – “special mention loans”     154,891       174,873       99,502         154,891       99,502    
               
Total classified and criticized assets $   407,748   $   423,606   $   344,948     $   407,748   $   344,948    
               
Non-performing loans / EOP loans (1)   1.38 %   1.28 %   1.51 %     1.38 %   1.51 %  
               
Allowance to non-performing loans (3)   34 %   35 %   37 %     34 %   37 %  
               
Under-performing assets / EOP loans (1)   1.43 %   1.34 %   1.63 %     1.43 %   1.63 %  
               
EOP total assets $   17,482,990   $   17,496,287   $   14,957,281     $   17,482,990   $   14,957,281    
               
Under-performing assets / EOP assets   0.92 %   0.86 %   1.01 %     0.92 %   1.01 %  
               
 EOP – End of period actual balances               
 (1) Excludes loans held for sale.               
 (2) Includes renegotiated loans totaling $34.0 million at June 30, 2018, $36.9 million at March 31, 2018, and $46.2 million at June 30, 2017.   
 (3) Includes acquired loans that were recorded at fair value in accordance with ASC 805 at the date of acquisition.  As such, the credit risk was incorporated in the fair value recorded and no allowance for loan losses was recorded on the acquisition date.   
               
               

 

                 
Non-GAAP Measures (unaudited)  
($ in thousands)  
                 
    Three Months Ended    Six Months Ended   
    June 30, March 31, June 30,   June 30, June 30,  
     2018   2018   2017     2018   2017   
                 
  Actual End of Period Balances              
  GAAP shareholders’ equity  $   2,200,215   $   2,179,118   $   1,886,594     $   2,200,215   $   1,886,594    
                 
  Deduct:              
  Goodwill      828,804       828,804       655,018         828,804       655,018    
  Intangibles      45,417       48,833       31,876         45,417       31,876    
        874,221       877,637       686,894         874,221       686,894    
                 
  Tangible shareholders’ equity  $   1,325,994   $   1,301,481   $   1,199,700     $   1,325,994   $   1,199,700    
                 
  Average Balances              
  GAAP shareholders’ equity  $   2,183,604   $   2,166,055   $   1,865,318     $   2,174,878   $   1,845,598    
                 
  Deduct:              
  Goodwill      828,804       828,141       655,018         828,474       655,018    
  Intangibles      47,052       51,092       33,189         49,061       34,635    
        875,856       879,233       688,207         877,535       689,653    
                 
  Average tangible shareholders’ equity  $   1,307,748   $   1,286,822   $   1,177,111     $   1,297,343   $   1,155,945    
                 
  Actual End of Period Balances              
  GAAP assets  $   17,482,990   $   17,496,287   $   14,957,281     $   17,482,990   $   14,957,281    
                 
  Add:              
  Trust overdrafts     46       50       31         46       31    
                 
  Deduct:              
  Goodwill      828,804       828,804       655,018         828,804       655,018    
  Intangibles      45,417       48,833       31,876         45,417       31,876    
        874,221       877,637       686,894         874,221       686,894    
                 
  Tangible assets  $   16,608,815   $   16,618,700   $   14,270,418     $   16,608,815   $   14,270,418    
                 
  Risk-weighted assets $   12,648,732   $   12,523,432   $   10,367,804     $   12,648,732   $   10,367,804    
                 
  GAAP net income $   44,001   $   47,983   $   38,854     $   91,984   $   74,846    
                 
  Add:              
  Amortization of intangibles (net of tax)     2,699       2,851       1,807         5,550       3,770    
                 
  Tangible net income $   46,700   $   50,834   $   40,661     $   97,534   $   78,616    
                 
  Tangible Ratios               
  Return on tangible common equity   14.09 %   15.62 %   13.56 %     14.71 %   13.11 %  
  Return on average tangible common equity   14.28 %   15.80 %   13.82 %     15.04 %   13.60 %  
  Return on tangible assets    1.12 %   1.22 %   1.14 %     1.17 %   1.10 %  
  Tangible common equity to tangible assets    7.98 %   7.83 %   8.41 %     7.98 %   8.41 %  
  Tangible common equity to risk-weighted assets    10.48 %   10.39 %   11.57 %     10.48 %   11.57 %  
  Tangible common book value (1)     8.70       8.55       8.85         8.70       8.85    
                 
  Tangible common equity presentation includes other comprehensive income as is common in other company releases.    
  (1) Tangible common shareholders’ equity divided by common shares issued and outstanding at period-end.    
                 
  Tier 1 capital $   1,371,918   $   1,341,261   $   1,222,250     $   1,371,918   $   1,222,250    
                 
  Deduct:              
  Trust Preferred Securities (2)     –        –        45,000         –        45,000    
  Additional Tier 1 capital deductions     –        –        (14,977 )       –        (14,977 )  
        –        –        30,023         –        30,023    
                 
  Tier 1 common equity  $   1,371,918   $   1,341,261   $   1,192,227     $   1,371,918   $   1,192,227    
                 
  Risk-weighted assets     12,648,732       12,523,432       10,367,804         12,648,732       10,367,804    
                 
  Tier 1 common equity to risk-weighted assets    10.85 %   10.71 %   11.50 %     10.85 %   11.50 %  
                 
  (2) Trust Preferred Securities are now included in Tier 2 capital as a result of exceeding the $15 billion asset threshold from the Anchor-Minnesota acquisition.  
                 
                 

Media: Kathy A. Schoettlin (812) 465-7269
Investors: Lynell J. Walton (812) 464-1366