Acquisition and Divestiture Activity

9 Months Ended

Sep. 30, 2019

NOTE 3 – ACQUISITION AND DIVESTITURE ACTIVITY

Acquisition

Klein Financial, Inc.

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

Pursuant to the merger agreement, each holder of Klein common stock received 7.92 shares of Old National Common Stock per share of Klein common stock such holder owned. The total fair value of consideration for Klein was $406.5 million, consisting of 22.8 million shares of Old National Common Stock valued at $406.5 million. Through September 30, 2019, transaction and integration costs of $20.1 million associated with this acquisition have been expensed and remaining integration costs will be expensed as incurred.

During the three months ended September 30, 2019, immaterial adjustments were made to the provisional valuation of assets acquired and liabilities assumed as Old National finalized the valuation. These adjustments affected goodwill, premises and equipment, and net deferred tax assets. A summary of the fair values of the acquired assets, liabilities assumed, and resulting goodwill follows (in thousands):

Cash and cash equivalents	$	60,759
Investment securities		697,951
FHLB/Federal Reserve Bank stock		2,637
Loans held for sale		3,371
Loans		1,049,073
Premises and equipment		32,408
Accrued interest receivable		7,896
Company-owned life insurance		36,380
Net deferred tax assets		6,746
Other real estate owned		954
Other assets		10,299
Deposits		(1,713,086	)
Securities sold under agreements to repurchase		(19,481	)
Accrued expenses and other liabilities		(17,506	)
Net tangible assets acquired		158,401
Definite-lived intangible assets acquired		39,017
Loan servicing rights		285
Goodwill		208,771
Total consideration	$	406,474

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

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

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

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