* Q1 EPS $0.08 vs $0.29 last year
* Slashes dividend by 70 pct
* Cuts 2009 net interest margin outlook
* Q1 loan loss provision falls 21 pct to $17.3 mln
* Shares fall as much as 9 pct
By Anurag Kotoky
BANGALORE, April 27 (Reuters) - Old National Bancorp ONB.N said first-quarter earnings halved from a year ago, hurt by a 9 percent rise in non-interest expenses, and it slashed its quarterly dividend by 70 percent to retain capital.
For the year, the company sees net interest margin of 3.65 percent to 3.80 percent, down from its previous outlook of 3.85 percent to 3.95 percent, a company official said in a conference call with analysts.
Net interest margin is the difference between what the bank earns on loans and pays on deposits.
Old National expects its acquisition of Charter One to hurt by $8 million to $10 million, pretax, in 2009, the official said in the call.
Shares of the company fell as much as 9 percent Monday on the New York Stock Exchange.
Royal Bank of Scotland Group Plc (RBS.L), agreed to sell its 65-branch retail banking network in Indiana, that operates as Charter One in the U.S. Midwest, to Old National last November. [ID:nN25300162]
The company said it incurred one-time expenses of $3 million related to the Charter One acquisition in the first quarter.
Old National also slashed its quarterly dividend to 7 cents a share from 23 cents, a move expected to enable it to retain about $10 million to $11 million in capital during the second quarter.
"The news of the dividend cut was a negative, but was also appropriate given the environment and industry focus on tangible common equity and internal capital generation," R. Scott Siefers, an analyst with Sandler O'Neill, wrote in a note to clients.
Howe Barnes Hoefer & Arnett analyst Jeff Davis said restoration of the past dividend levels looks unlikely as all major companies are trying to retain capital to help them grow when the market stabilizes.
Davis said Old National could consider further cutting its dividend to 3 cents or 4 cents a share in the future.
With improving credit quality, the company is likely to gain core customers from bigger Midwest rivals like Fifth Third Bancorp (FITB.O), Huntington Bancshares Inc (HBAN.O) and National City Corp, which was acquired by PNC Financial Services Group Inc (PNC.N) in December of last year, the analyst said.
For the first quarter, the company earned $9.4 million, or 8 cents a share, compared with $19.3 million, or 29 cents a share, a year earlier.
Excluding an impact of $3.9 million from Troubled Asset Relief Program preferred stock dividends and amortization, the company earned 14 cents a share.
Noninterest expenses stood at $77.5 million for the quarter.
Analysts had expected a profit of 5 cents per share, excluding special items, according to Reuters Estimates.
Shares of the Evansville, Indiana-based company fell $1.26 to $13.89 in afternoon trade Monday on the New York Stock Exchange. The stock, which touched a low of $13.75 earlier, has gained 67 percent since falling to an year-low of $8.91 on March 9. (Editing by Gopakumar Warrier and Deepak Kannan)