Old National Bancorp (ONB) 2003 Q3 法說會逐字稿

Welcome to the Old National Bancorp third-quarter 2003 financial results 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 will be archived for twelve months on the shareholder relations page at www.OldNational.com.

A replay of the call will also be available beginning at 12:30 PM Central time on October 24th through 12:00 midnight on November 7th.

To access the replay, dial 1-888-203-1112, with confirmation code 788219.

Those participating today will be analysts and members of the financial community. (OPERATOR INSTRUCTIONS).

Over the course of this conference call, the Company will make certain forward-looking statements in an effort to assist you in understanding its financial results and competitive outlook, including a discussion of the Company's future plans.

These and other statements in this conference call that are not statements of current or historical facts constitute forward-looking statements.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to be materially different from the historical results or from any future results expressed or implied by any forward-looking statements.

In addition, the Company may disclose financial data based on operating earnings that is intended to provide comparable data between periods.

For a complete reconciliation of operating earnings dated to comparable net income data, please see the third-quarter earnings release, which can be found at www.OldNational.com.

At this time, the call will be turned over to Old National Bancorp's Chairman of the Board and Chief Executive Officer, Jim Risinger.

Good morning, ladies and gentlemen, and thank you for joining us on the Old National third-quarter conference call.

With me today are Mike Hinton, President and Chief Operating officer, John Poelker, Chief Financial Officer, Tom Clayton, Chief Administrative Officer and Daryl Moore, Chief Credit Officer.

They are available to participate in the question-and-answer part of the call, as usual, but are prepared remarks today will follow a little different format.

Instead of reviewing what effected recent performance in detail, which you can read in our news release and the quarterly analysis posted on the Web site, at www.OldNational.com, this morning we want to focus on three key initiatives aimed at improving our financial performance.

These efforts relate to improving credit quality, growth opportunities and efficiency.

We will start with a brief overview of the environment and why we have such a great sense of urgency about these issues.

The third-quarter earnings declined sharply to $11.8 million, 18 cents a share, which was clearly unacceptable performance.

Primarily because we kept the reserve for loan losses at the same relatively high June 30th level, even though non-performing loans decreased significantly in the last three months.

And there are some very encouraging developments in an overall weak economy in our market.

This year, we stepped up our marketing initiatives aimed at capturing more consumer loan activity.

Consumer lending has indeed improved each of the last two quarters.

Another bright spot in the third quarter was fee income, which was led by mortgage revenue.

We should note, however, that the improvement was mostly due to the reversal of mortgage servicing rights impairment.

With loan rates starting to move up, we expect prepayments to slow.

A third positive in the third quarter was more stable net interest margin, which was within three basis points of the second quarter level.

In the fourth, insurance revenue continues to grow.

We benefited from the acquisitions in this important component of our fee revenue mix.

As much as we appreciate these positive developments, they aren't enough to get Old National back to the performance level that we know this organization can deliver.

Over the last several months, management and the Board of Directors have focused on what we need to do to make some adjustments in our strategies.

Let me emphasize that we are refining, not changing, our strategic direction.

The four pillars of our growth plan are still Community Banking, Metropolitan Banking, Mortgage Banking, and our Signature Group.

Each has made significant progress since we identified them as our growth engines.

But we haven't translated that progress into meaningful growth in core earnings in the past year so, and especially with the continuing slow economy and credit quality issues.

That reality is driving us to accelerate certain aspects of our growth strategy and address structural issues with a high sense of urgency.

First we must improve the credit approval disciplines and continue to reduce the level of non-performing loans in our portfolio.

We restructured commercial lending processes, particularly underwriting practices and commercial credit analysis.

We have not set a specific target for the level of non-performing loans, but we are absolutely committed to bringing those down as fast as possible.

Second, we must accelerate our entry into larger metropolitan markets.

We recently hired key bankers to lead our entry into St. Louis and Louisville, two markets that we previously identified as Metro-strategy opportunities.

We haven't set specific timetables or goals yet.

But we are committed absolutely, to having a meaningful presence in those Metro markets sooner, rather than later.

The third imperative is to improve the operating efficiency in our core franchise, which still accounts for roughly two-thirds of our business.

The revenue outlook for our Community Banking markets in some of our more traditional businesses, such as trust operations, is significantly below historic levels.

We already have the number one or number two market position, so there isn't a tremendous opportunity to grow even with an improving economy.

Instead, our plan for our core franchise must focus on improving efficiency and optimizing profits.

We are absolutely committed to bringing the efficiency ratio down significantly so that we can more closely track our peer performance.

As you can appreciate, there are no quick fix solutions.

And our success depends on a number of factors, not the least of which is a more cooperative economic environment.

But there are some things that we can do.

We need to quickly and successfully enter new markets, and we must identify and execute revenue and expense improvement ideas in our traditional business operations, doing that without interfering with customer service and customer retention.

Management and the Board of Directors clearly recognize that our responsibility is to enhance shareholder value.

The Board will continue to closely monitor and assess the relative performance of the Company, and keep an eye on how well our new initiatives support our commitment to building long-term shareholder value.

We have every confidence that these programs will improve results at Old National.

The first priority I mentioned was to strengthen credit quality.

We have already taken steps to achieve that by reducing non-performing loans and beefing up the reserve.

Let me point out that the economic trends, related issues, and our decisions on credit quality issues were all discussed with banking regulators and Price Waterhouse Coopers during the quarter, and we are all in agreement on this approach.

First, we took steps to bring down the level of non-performing loans.

We sold $52 million of non-performing loans in the quarter.

The bulk sale produced $12.5 million in write-downs which were included as charge-offs.

Next, we decided to keep the reserve at the June 30th level, even though internal loss identification and management systems suggested that the bulk sale also reduced the potential future losses from the total loan portfolio.

Now, several factors played into our decision to maintain the reserve at that level.

First, with the continuing uncertainty about the regional economy generally, and in particularly when and how well Indiana's manufacturing sector will recover.

That segment traditionally has been one of our key markets.

The second argument for maintaining a robust reserve has to do with loss expectations.

We base our outlook for problem loans on our historic experience, and as I indicated, at least some of those expectations may be changing.

In spite of such uncertainties, however, it is worth noting that the losses related to third quarter loan sales were very consistent with our expectations.

Now let's turn to the structural issues. since addressing credit quality issues is our most pressing priority.

We are changing a number of lending and credit administration processes.

Most significantly we have realigned the credit sales and credit analysis functions in commercial lending.

Local lending and customer relationship officers will still have primary responsibility for business development and loan approval.

But we have instituted a system whereby credit analysts, independent of local bank management, will need to concur with individual lenders and credit approvals.

We believe this more formalized process and balance process will ensure absolute consistency and underwriting criteria across the organization.

And just as importantly, will enable our local lending personnel to maintain a very high level of responsiveness to their customers' needs.

Other recently implemented process changes include more use of credit scoring models for small-business lending, more formalized credit analysis systems, and enhanced technology support for lending operations.

In addition to taking steps to improve the credit quality decisions, we continue to aggressively pursue actions to reduce levels of non-performing and substandard credits.

Among these are loan and covenant restructuring, working with customers to move problem credits out of the bank, and continued assessment of opportunities to sell non-performing loans.

In the final analysis, our success in reducing the current credit quality drag on earnings depends in a large part on an improving business environment.

Even so, longer-term earnings growth for Old National requires us to address fundamental revenue and expense structure issues.

In that regard, we are analyzing two restraints to our growth -- limited potential in existing markets and geographic concentration.

If you followed Old National for awhile, you'll know that we take pride in calling ourselves the fortress franchise here in the Midwest.

We have earned that definition by gaining leading market share positions in counties representing 90 percent of our deposits.

Along with leadership comes the benefit of marketing and pricing influence in the local market.

But the situation also has built-in limitations in respect to future earnings.

That and the fact that the markets themselves offer minimum growth opportunities mean that we face an uphill battle to generate respectable earnings growth from many of these locations.

That brings us back to the Metro-Strategy and its focus on larger, faster growing markets.

Our success in Indianapolis convinced us that we can, and should broaden this growth strategy.

Among the steps we have taken are the following.

First, we are expanding our market interests beyond the four we have discussed previously, namely, Indianapolis, Louisville, St. Louis, and Nashville.

A list of potential cities now includes larger markets in a 250-mile radius of Evansville, such as Columbus, Ohio, Lexington, Kentucky, and similar markets in our region.

Second, we are more aggressively expanding our presence in metro markets that we have identified initially.

We opened three branches in Indianapolis, and plan to open three more within the next six months.

We recently hired senior bankers in St. Louis and Louisville to lead the expansion in these markets.

We are looking more aggressively at acquisition opportunities.

I can assure you that we will take a hard look at any deals that may present themselves, and will continue to be cautious in valuing and structuring transactions.

We particularly recognize the importance of improving near-term earnings.

We are also sensitive to the issues of dilution and management requirements in assessing opportunities, as well as our current credit quality situation.

Still, we must consider opportunities to establish a meaningful base from which we grow these markets in the attractive markets.

And though we will be deliberate, you can expect us to be a bit more aggressive in seeking these kinds of transactions.

The bottom line of refining the Metro-Strategy is that we need to generate higher levels of revenue and profit growth than appear available in our current markets.

There is clearly an important role for existing markets in our overall strategy.

Besides improving operating efficiency, we look for revenue opportunities especially from the Signature Group.

Speaking of that line of business, we are encouraged by the growth, since we've restructured and how we manage Financial Services a few years ago.

That combined with the acquisition of FEG (ph) and asset management, and our significant insurance agency acquisitions, have added very nicely to our product offerings and more importantly, to our profitability.

We expect to continue to look for further opportunities to supplement these businesses with new markets as well as products and capabilities.

That brings us to the last major topic for this morning, an extensive effort to improve operating efficiency and ensure that our expense levels are properly aligned with revenue.

Our efficiency ratio has deteriorated in the last year or so.

And so, as net interest revenue fell and expenses increased.

Although a significant portion of the expense growth reflected the impact of acquisitions and other important initiatives, there is little doubt that we must take a hard look at how we operate across all businesses and geographies.

This is especially critical in the operations that have limited near-term growth opportunities.

We need to ensure that they continued profitability, and more importantly, be able to look for them to provide earnings growth.

We've made progress in streamlining our banking operations through consolidation of Charter (ph) and the like, but we must continue our efforts.

In addition, we feel that a comprehensive review of our overall administrative and support functions is warranted at this time.

Old National has gone through significant changes over the last five years.

We need to make sure that our administrative and operations support functions are properly aligned and structured to serve the changing business model.

To that effort, we have engaged EHS (ph), a national consulting firm with a great reputation for helping banking organizations achieve significant short and long-term results.

We appreciate the opportunity to share these thoughts with you today.

A news release summarizing these points was issued this morning, and I have filed a Form 8-K which include these prepared remarks.

As I mentioned at the beginning of my comments, we're all very well aware of the challenges before us. and how sensitive our success is to a number of factors, both external and internal.

We are firmly committed to addressing the issues of credit quality, the growth potential of our markets, and the effectiveness of our operations.

I can assure you of our dedication to the task and the Board's involvement and support of our efforts.

At this time, we will go ahead and take some questions.

I know John, Daryl and Mike are very interested in what you have to say today.

(OPERATOR INSTRUCTIONS).

Our first question today comes from Scott Siefers at Sandler O'Neill.

Can you just conceptually -- talk a little bit about how you weigh the balance between investing in new markets and then pairing back cost in the current market.

In other words, do you think you'll be able to lower expenses on an absolute basis going forward?

And then separately, could you refresh our memories a little on the reserve methodology?

You seem to imply if things do improve, the reserve could come down going forward.

Where could we expect that to go?

And if you could speak more generally on that methodology.

Why don't we go ahead and talk about the reserve methodology.

Daryl can share some information;

I think that would be very helpful when you're assessing that.

And then we will come back and let Mike take a look at how we are going to address the traditional community franchise that we have and how that blends in with the opportunities that we have available in the metro markets.

Scott, this is Daryl.

Our reserve methodology is probably just like we see in many banks.

We take the approach on 114 (ph) on impaired credits and measure the impairment.

We also then use pooling methodology with historic migrating loss rates to determine what our expected loss across each of our graded categories is.

And then we have about a 15 or 16 percent unallocated piece of that methodology.

The big difference that you would see between second quarter and third quarter, when you look at our nonaccrual numbers and the measured impairment and the expected losses, it is significantly reduced at the end of September, given our loan sales and some resolution of some nonaccrual credits.

What we have done, Scott, is moved up significantly within the range of needed reserve.

At the end of June, we were at the lower end of that range.

Given what we did in terms of moving out a lot of those very large nonaccrual credits with the large potential losses, we are now, at the end of September, at the absolute top of our indicated range.

So by keeping roughly the same 98 or $99 million reserve level, but getting rid of a lot of those larger nonaccrual loans, we just moved up significantly within that range.

If we see nonaccrual loans move up over the next three or four quarters, it should give us some significant relief from pressure for continuing material or large provisions going forward.

But a lot of that, obviously, has to do with our ability to move those nonaccruals off the balance sheet.

Let me try to address your question relative to expense levels as we move more into metropolitan markets.

And I guess I would sort of summarize that by saying that while I clearly think that we have got some opportunity for expenses to come down in the short run, the longer view of this is not so much an absolute reduction in total expense levels as much as it is ensuring that those expenses are in locations where we can generate revenue.

So it is the relationship of using that dollar to generate more revenue then we have been able to do in the markets we are in today.

Our next question comes from Fred Cummings of McDonald Investments.

Follow-up question for Daryl.

Can you talk about the geographic mix of the 48 million of loans sold?

Can you give us some indication of some of the larger credits sold in terms of the sizes there?

The credits that were sold were really throughout the Corporation.

And how we identified those credits would be those largest nonaccrual credits in our portfolio that we did not believe that there was an immediate or near-term ability to turn those credits around.

They ranged anywhere from 5 to 6, maybe $7 million was the largest credit, down to credits in the half a million, $0.75 million range.

A total of $48 million; all but 1 million 8 of that were nonaccrual loans.

We did sell an (indiscernible) loan at 1 million 8.

And as we said earlier, we were very close on our identification of loss in those loans versus what the market perceived.

The specifics are, we were within five percent of what we had identified specifically as losses in those loans, as to what we ultimately sold those loans for.

And obviously we don't account on our allocations for a profit motive like the buyers of those loans.

But there wasn't any particular location, Fred, from which we pulled these loans.

They were generally throughout the Company and again based upon how severely impacted we thought those loans were.

As a follow-up, how is the Indianapolis market performing for you from a credit standpoint?

And related to that, not related, is, even excluding the sale of the non-performing loans, you would have had 13.5 million in charge-offs this quarter.

I'm wondering what was the mix between commercial and consumer?

I don't know if that's here in the packet?

In Indianapolis, the loan quality that we have in Indianapolis would be compared to our other districts across the company -- slightly better than what we have across the districts.

That is because we have really a more sophisticated, probably, model there that we are moving to throughout the company.

But also in all honesty, we have not had the long experience of manufacturing concerns in Indianapolis like we have had throughout the balance of our Corporation.

We are not seeing significant problems coming out of Indianapolis over and above what we seeing in the other markets in which we operate.

With regard to the commercial charge-offs, one of the largest, exclusive of the bulk sales, one of the largest pieces of that was a $6.5 million credit that actually was an Indianapolis credit that is fraud.

And it is a case of fraudulent bills of sale coming to the bank.

An individual that was involved with the company crashed his boat into a barge and cannot be located.

So there a lot of details with regard to that loan.

But I guess the short of it is, we have taken the approach on that loan like we do any other loan.

We believe that we will have a recovery over time on that loan from insurance policies and/or guarantors.

But we have chosen to charge off the entire $6.5 million of that loan.

So that is a real anomaly.

It does come out of Indianapolis, but we do expect to have some recovery on that loan.

That was the bulk of the commercial charge-offs, outside the bulk sale in the third quarter.

(OPERATOR INSTRUCTIONS).

Brian Roman at Weiss Peck and Grear.

Watch out for those boats that you put into barges, I guess.

A number question here.

The mortgage banking revenue line was $8 million; how much of that was a he reversal of mortgage servicing rights?

This is John Poelker. 5.1 million of it.

Okay.

And if interest rates stayed where they were, what would that be from that source in the fourth quarter?

Well, we are expecting right now that we would have only modest adjustments to the impairment results this quarter based on where interest rates are sitting today.

Obviously, the biggest impact is with $5.1 million impairment reversal, you can see that sort of core mortgage revenue from just ongoing originations was down pretty significantly from the second quarter.

So we're obviously expecting a reduction in net mortgage revenue in the fourth quarter if rates stay at these levels.

We'll take a follow-up from Scott Siefers at Sandler O'Neill.

Thanks.

In the past, you guys have kind of given an outlook on where you feel NPAs and kind of normalized or charge-offs might be going.

I guess I'm a little unclear as to if you X out the loan sales, where do you think nonperforming might be going then.

What do you consider sort of a normalized charge off number at this point?

Scott, this is Daryl.

It is just so very difficult to determine where we are going to be with nonaccruals going forward.

Generally, we would expect to see small reductions in non-performing over the next two or three or four quarters.

Much of that has to do, not with the fact that we believe -- we don't believe that the economy is going to turn around -- it's just the speed at which that is going to happen.

So we generally would expect, going forward, that those non-performers would be down.

There maybe some quarters where we might have a couple of bumps.

But directionally, it is down.

One thing I want to say with regard to those non-performing.

Again, as we talked in the past about, the fact that roughly 40 percent of our nonaccruing loans are performing loans.

And we define performing loans as loans that are -- payment delinquencies less than ten days.

So we do have a good bulk of those nonaccrual loans that are performing loans.

But we will see some reduction just through payments.

But those are very difficult to move out in a lot of cases, because there are not (ph) defaults on those non-performing loans.

With regard to expected charge-offs going forward, Scott, I've got to tell you that you know I've not been very good at predicting what those charge-offs are going to be.

But as we look at what we have in our portfolio today, we have, I believe flushed through everything that we know to be a loss or close to a loss.

We would hope that going forward, our normalized charge off, all in from all areas of the bank, would not exceed the 6 to $6.5 million range on a quarterly basis going forward.

That can be lumpy too.

Okay.

Unrelated question.

Based on your experience going into metro markets, like Indianapolis, once you enter a new market, typically how long, based on your own methodology, does it take you till you're profitable in that new market?

In other words, if we expand the -- push up the expansion in some new markets -- when could we expect to see that, kind of push the needle, in terms of overall revenue and profitability growth?

Because of the approach that we have (indiscernible) in Indianapolis, where we've concentrated on producing commercial relationships and commercial loans, before we went in and started building infrastructure, our experience there was that we were profitable after one year.

That model, we think, can be replicated in these other markets.

I would add that as happy as we are with all of that, that we probably will need to accelerate the pace of growth as we move into additional markets.

But we think we can be profitable quickly with the strategy that we are employing today.

Okay.

Thank you.

We'll take a follow-up from Brian Roman at Weiss Peck and Grear.

Maybe I ought to get two questions in before he cuts me off.

Go ahead, Brian.

We are with you.

Maybe I'll get three.

I'm looking at Page 5 of the supplement, here.

I want to go back to the issue of credit quality.

I'm seeing $5.655 billion worth of loans.

And you talked about increasing your use of credit scoring, on small-business loans and increasing the use of credit scoring in general.

And obviously, there have been general issues of credit quality within your company.

As you look at that $5.6 billion of loans, how much of those 5.6 are you going to use -- let's say of the last six months, and on a go forward basis, that 5.6 billion -- how much of it is going to have credit scoring that did not have credit scoring in the past?

It's probably a difficult question.

But then as a related -- on the same topic of credit quality, you're at about 90 basis points of coverage of your non-performers.

You obviously used to be higher.

Where would you like to be in future?

This is Daryl.

Let me try to take a stab at both of those.

And Brian, it is very difficult to tell you of those loans.

If you can't tell me, then what categories do you want to have credit scoring on?

Credit scoring, from the business side -- obviously, everything we do from the retail side is credit-scored today.

Brian Roman Was it credit-scored in the past?

Yes.

On the commercial side, what we're doing is we're looking at what you would consider relatively small relationships -- $250,000 loan requests, where the aggregate credit of the borrower doesn't exceed $.05 million.

And you may say well that doesn't seem like a very aggressive move into business credit scoring.

The estimates are that is somewhere between probably 60 and 75 percent of all the numbers of loan requests that we get in this company.

So it is going to have a significant impact on the numbers of loan requests that we have.

Maybe more importantly, it then allows us to take our best and brightest in terms of analysts, and concentrate them on the larger, more complex credits.

So large numbers will go through credit scoring.

They'll use credit scoring and judgmental (ph) to do those.

But we will be able to have a much better coverage than (indiscernible).

If you had applied it to, as I look at the portfolio, I see commercial, commercial and ag/real estate.

What percentage of those portfolios are in the 250 to 500,000?

A vague idea?

You don't have to hit it on the head.

In terms of dollars?

Yes.

We're talking really small-business.

We are not talking small business; we're talking really small-business.

Brian, I just don't know.

Let me augment that with this.

And I think that the better way to look at this is not so much in terms of its relationship to what's on the books today as much as it is what we have an opportunity to do and what we can do without getting into trouble, again, in some of those rural markets.

This is absolutely spot-on what's available in those markets.

And production -- we have got about half of the Company up on this small-business scoring.

Production is running from a low of 5 million a month up to $10 million a month, coming from those markets.

What that also does is keep them from trying to focus on larger commercial lending relationships out of some of those more rural markets that are in the portfolio today.

It keeps them focused on those relationships.

It keeps them focused on those smaller, small-business type customers, rather than to try to grow their portfolios by doing big commercial loans.

Have these smaller relationships been the ones that have been hurting you?

No.

No.

Okay.

This has not been the area of deterioration?

Only to the extent, Brian, that under the old system, we spent a fair amount of analysts' time trying to work through those credits, probably to the detriment of spending that time on the very largest credits.

Had we done that, we may not have, in retrospect, made some of those large loans on which we've taken losses.

So it is a piece of the restructure and the (indiscernible) going forward.

Okay.

Great.

Thank you.

We will take a follow-up from Fred Cummings of McDonald Investments.

Jim, can you speak to the expected timing of the completion of this EHS review that you're going to be undertaking?

Fred, we have had our initial conversations with EHS.

In fact, we met with them this week, and we are all excited about the opportunities that that will present for us.

We believe that the process will be up and going -- I think our kick off is November 18th.

The process will take about five to six months.

And so at the end of that period of time, sometime in April, plus or minus a little bit, we will have identified the opportunities that are available for us.

And we will start to execute on them at that time.

Some of the ideas are easily implemented and can be done so quickly.

Some of the ideas will take a little longer.

So you will start to see a little benefit in 2004 at the end of the year.

However, full year benefit would not be available until 2005.

And then a second question, unrelated.

Maybe, Tom or Jim, you can speak to this.

You talk of looking at acquisitions more aggressively.

What is your appetite for the size of the deal?

Because, obviously, as you enter new markets, that is a pretty small incremental contribution, moving into these new markets just with a few commercial loan officers.

What is your appetite for say buying someone or maybe doing a merger of equals?

Or even doing something up to 50 percent of your asset size (ph)?

Fred, this is Tom Clayton.

I will try to address that.

In looking at the Metropolitan markets that we have targeted, there may be opportunities for mergers of equals.

But we have not considered that.

Or that is not the area that we will be aggressively pursuing.

We will be looking at smaller operations.

If you will look at those and what is available in those markets, there aren't opportunities of 50 percent of our size, etc.

So we are probably going to be looking at banks in the anywhere from 300 million to 1.5 billion range in those particular markets.

Okay.

Thank you.

Currently, we're standing by with no further questions at this time.

Actually, we had a question come in.

Michael Diambrosio (ph) GE Asset Management.

Are you comfortable that there are no more cases of customer fraud?

And as a follow-up, do you think your new credit procedures would have caught this type of fraud that was incurred?

The answer to both of those is, there is no way, in banking today, to be absolutely confident that we don't have fraud going on.

We looked at the systems that were involved in this particular case.

I think we did everything right.

There was a lot of complicity among a number of different parties, we believe.

So I don't think our systems missed this.

Credit scoring would not have picked this up.

This is something that just happened.

It just happened.

I can't assure you that there would not be more out there.

Obviously, we look at our systems when this happens; we don't anticipate that there would be more.

But when you have all your systems working right, and it still happens, you just can't, on a go-forward basis, tell people that it would never happen again.

Okay.

(OPERATOR INSTRUCTIONS).

We have a follow-up from Fred Cummings at McDonald Investments.

Yes.

John, it looks like you had a tax recovery of some kind this quarter.

Can you talk about that?

No, actually the low tax rate, effectively, is a function of the fact that our sort of pre-tax income as a result of the big provision was obviously significantly reduced.

But our tax-exempt revenue continued that sort of historic level.

There is an aberration in effect in terms of the third quarter tax provision -- really is simply a function that our tax-exempt income, as a percentage of total income, was significantly higher than in a normal quarter.

So that effective tax rate, which has been running at sort of 34 to 35 percent range comes down a percent or so just as a result of a big provision that we took in the third quarter.

Currently we're standing by with no further questions.

Mr. Risinger, would you like to make any additional or closing remarks?

I just want to thank everybody for your interest in Old National and for participating in the conference call today.

We have got our work cut out for us.

Quite frankly, we are really excited about the opportunities that are available for us, the intensity with which we are going to address the issues moving forward, and the support that we have from all the management team, the employees and our Board of Directors.

So we are excited about that, and thank you for your interest.

Thank you.

This concludes Old National's call.

Once again, a reply will be available for twelve months on the shareholder relations page of Old National's Website, at www.OldNational.com.

A replay of the call will also be available by dialing 1-888-203-1112, confirmation code 788219.

This replay will be available until 12 midnight Central on November 7th.

If anyone has additional questions, please contact Lynell Walton at the investor relations area at 812-464-1366.

Thank you for your participation in today's conference call.