UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from ________________ to ________________
Commission file Number 0-10888
OLD NATIONAL BANCORP
(Exact name of the Registrant as specified in its charter)
INDIANA 35-1539838
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
420 Main Street,
Evansville, Indiana 47708
(Address of principal executive offices) (Zip Code)
The Registrant's telephone number, including area code: (812) 464-1434
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Preferred Stock Purchase Rights
The Registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports) and has been subject to such filing requirements for the past 90 days.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value (average bid price) of the Registrant's voting
common stock held by non-affiliates of the Registrant as of February 28, 1997
was approximately $984 million. The total number of shares of Registrant's
common stock outstanding as of that date was 26,596,737.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Proxy Statement for the Annual Meeting of Shareholders to
be held April 17, 1997 is incorporated by reference into Part III of this
Form 10-K.
OLD NATIONAL BANCORP
1996 ANNUAL REPORT ON FORM 10-K
Table of Contents
PART I. PAGE
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . .11
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .11
Item 4. Submission of Matters to a Vote of Security Holders. . . . .11
PART II.
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . .12
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . .12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . .12
Item 8. Financial Statements and Supplementary Data. . . . . . . . .12
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . .12
PART III.
Item 10. Directors and Executive Officers of the Registrant . . . . .12
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . .12
Item 12. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . .13
Item 13. Certain Relationships and Related Transactions . . . . . . .13
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . .13
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
INDEX OF EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . .17
2
OLD NATIONAL BANCORP
1996 ANNUAL REPORT ON FORM 10-K
PART I
Item 1. BUSINESS
Old National Bancorp (the "Registrant") is a multibank
holding company incorporated in the State of Indiana and
maintains its principal executive office in Evansville, Indiana.
As a bank holding company, the Registrant engages in banking and
related activities authorized under the federal Bank Holding
Company Act of 1956, as amended. Through its nonbank affiliates,
the Registrant provides services incidental to the business of
banking, such as data processing, issuance and reinsurance of
credit life, accident, health, property, life, and casualty
insurance, fiduciary and trust services, property ownership, and
consumer financing. Since its formation, the Registrant has
acquired seventeen banks and two thrifts located in Indiana; six
banks located in Kentucky; and ten banks and one thrift located
in Illinois.
Banking Affiliates
As of December 31, 1996, the Registrant's affiliate banks
operated 119 banking offices throughout Indiana, Illinois, and
Kentucky. The following chart lists the affiliate banks by
state:
<TABLE>
<CAPTION>
Indiana Kentucky Illinois
<S> <C> <C>
Clinton State Bank First State Bank(Greenville) First National Bank
Old National Bank (Evansville) City National Bank (Fulton) (Harrisburg)
Bank of Western Indiana (Covington) Farmers Bank & Trust Co. Peoples National Bank
First Citizens Bank & (Madisonville) (Lawrenceville)
Trust Company (Greencastle) Morganfield National Bank Security Bank & Trust Co.
People's Bank & Trust Co.(Mt. Vernon) Farmers Bank & Trust Co. (Mt. Carmel)
Rockville National Bank (Henderson) Palmer-American National Bank
Merchants National Bank (Terre Haute) (Danville)
Security Bank & Trust Co. (Vincennes) First National Bank (Oblong)
United Southwest Bank (Washington) The National Bank of
Dubois County Bank (Jasper) Carmi
Orange County Bank (Paoli)
Citizens National Bank (Tell City)
Workingmens/ONB Bank (Bloomington)
</TABLE>
The Registrant also has acquired Southern Indiana Bank and
Trust Company (Newburgh, Indiana), which was merged into Old
National Bank; Warrick National Bank (Boonville, Indiana), which
was merged into Old National Bank; Gibson County Bank (Princeton,
Indiana), which was merged into Old National Bank; Workingmens
3
Capital Holdings (Bloomington, Indiana), which was merged into
ONB Bank and renamed Workingmens/ONB Bank; Bank South, Federal
Savings Bank and The Bank of Harrisburg, which were merged into
First National Bank of Harrisburg; City Financial Bancorp and its
three banking subsidiaries, which were merged into Palmer-American
National Bank; Citizens Union Bank (Central City,Kentucky), which
was merged with First State Bank; and certain assets of Henderson
Home Savings and Loan Association, which were combined with Farmers
Bank and Trust Company (Henderson, Kentucky).
The Registrant's affiliate banks are engaged in a wide range
of commercial and consumer banking activities, including
accepting demand, savings and time deposits; making commercial,
consumer and real estate loans; money management services; and
providing other services relating to the general banking
business. Certain of the Registrant's affiliated entities also
offer electronic data processing, brokerage and correspondent
banking services; issue credit cards; originate, market and
service mortgage loans; and rent safe deposit facilities.
Regulation and Supervision
The Registrant is registered as a bank holding company and
is subject to the regulations of the Board of Governors of the
Federal Reserve System ("Federal Reserve") under the Bank Holding
Company Act of 1956, as amended ("BHC Act"). Bank holding
companies are required to file periodic reports with and are
subject to periodic examination by the Federal Reserve. The
Federal Reserve has issued regulations under the BHC Act
requiring a bank holding company to serve as a source of
financial and managerial strength to its subsidiary banks. It is
the policy of the Federal Reserve that, pursuant to this
requirement, a bank holding company should stand ready to use its
resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity.
Additionally, under the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), a bank holding company is
required to guarantee the compliance of any insured depository
institution subsidiary that may become "undercapitalized" (as
defined in FDICIA) with the terms of any capital restoration plan
filed by such subsidiary with its appropriate federal banking
agency up to the lesser of (i) an amount equal to 5% of the
institution's total assets at the time the institution became
undercapitalized, or (ii) the amount that is necessary (or would
have been necessary) to bring the institution into compliance
4
with all applicable capital standards as of the time the
institution fails to comply with such capital restoration plan.
Under the BHC Act, the Federal Reserve has the authority to
require a bank holding company to terminate any activity or
relinquish control of a nonbank subsidiary (other than a nonbank
subsidiary of a bank) upon the Federal Reserve's determination
that such activity or control constitutes a serious risk to the
financial soundness and stability of any bank subsidiary of the
bank holding company.
The Registrant is prohibited by the BHC Act from acquiring
direct or indirect control of more than 5% of the outstanding
shares of any class of voting stock or substantially all of the
assets of any bank or savings association or merging or
consolidating with another bank holding company without prior
approval of the Federal Reserve. The BHC Act also prohibits the
Registrant from acquiring control of any bank operating outside
the State of Indiana unless such action is specifically
authorized by the statutes of the state where the bank to be
acquired is located. Additionally, the Registrant is prohibited
by the BHC Act from engaging in or acquiring ownership or control
of more than 5% of the outstanding shares of any class of voting
stock of any company engaged in a nonbanking business unless such
business is determined by the Federal Reserve to be so closely
related to banking as to be a proper incident thereto. The BHC
Act does not place territorial restrictions on the activities of
such nonbanking-related activities.
Bank holding companies with consolidated assets in excess of
$150 million are required to comply with the Federal Reserve's
risk-based capital guidelines, which require a minimum ratio of
total capital to risk-weighted assets (including certain off-balance
sheet activities such as standby letters of credit) of
8%. At least half of the total required capital, or 4% must be
"Tier 1 Capital", and the remainder may consist of "Tier 2
Capital" components. In addition to the risk-based capital
guidelines, the Federal Reserve has adopted a Tier 1 (leverage)
capital ratio under which the bank holding company must maintain
a minimum level of Tier 1 capital to average total consolidated
assets of 3% in the case of bank holding companies which have the
highest regulatory examination ratings and are not contemplating
significant growth or expansion. All other bank holding
companies are expected to maintain a ratio of at least 1% to 2%
above the stated minimum. For the Registrant's regulatory
capital ratios as of December 31, 1996 see the information
incorporated by reference in Part II, Item 7.
5
The Registrant's affiliate banks which are national banks
are supervised, regulated and examined by the Office of the
Comptroller of the Currency ("OCC"). The Registrant's affiliate
banks which are state banks chartered in Indiana are supervised,
regulated and examined by the Indiana Department of Financial
Institutions. The Registrant's affiliate banks chartered in
Kentucky are supervised, regulated and examined by the Kentucky
Commissioner of Financial Institutions, and its affiliate banks
chartered in Illinois are supervised, regulated and examined by
the Illinois Commissioner of Banks and Trust Companies. In
addition, the Registrant's affiliate banks which are state banks
and members of the Federal Reserve are supervised and regulated
by the Federal Reserve, and those which are not members of the
Federal Reserve are supervised and regulated by the Federal
Deposit Insurance Corporation ("FDIC"). Each regulator has the
authority to issue cease-and-desist orders if it determines that
activities of a bank represent an unsafe and unsound banking
practice or a violation of law.
Both federal and state law extensively regulate various
aspects of the banking business, such as reserve requirements,
truth-in-lending and truth-in-savings disclosure, equal credit
opportunity, fair credit reporting, trading in securities and
other aspects of banking operations. Current federal law also
requires banks, among other things, to make deposited funds
available to customers within specified time periods.
Insured state-chartered banks are prohibited under FDICIA
from engaging as principal in activities that are not permitted
for national banks, unless (i) the FDIC determines that the
activity would pose no significant risk to the appropriate
deposit insurance fund, and (ii) the bank is, and continues to
be, in compliance with all applicable capital standards.
The FDIC and the OCC have adopted risk-based capital ratio
guidelines to which depository institutions under their
respective supervision are subject. The guidelines establish a
systematic analytical framework that makes regulatory capital
requirements more sensitive to differences in risk profiles among
banking organizations. Risk-based capital ratios are determined
by allocating assets and specified off-balance sheet commitments
to four risk weighted categories, with higher levels of capital
being required for the categories perceived as representing
greater risk.
Like the capital guidelines established by the Federal
Reserve, these guidelines divide a bank's capital into two tiers.
6
Banks are required to maintain a total risk-based capital ratio
of 8%,of which 4% must be Tier 1 capital. The FDIC or OCC may,
however, set higher capital requirements when a bank's particular
circumstances warrant. Banks experiencing or anticipating
significant growth are expected to maintain capital ratios,
including tangible capital positions, well above the minimum
levels. All of the Registrant's affiliate banks exceeded the
risk-based capital guidelines of the FDIC and OCC as of December
31, 1996.
Branching by the Registrant's affiliate banks in Indiana,
Kentucky and Illinois is subject to the jurisdiction, and
requires the prior approval, of the bank's primary federal
regulatory authority and, if the branching bank is a state bank,
of the Indiana Department of Financial Institutions, Kentucky
Department of Financial Institutions or Illinois Commissioner of
Banks and Trust Companies, depending upon the location of the
principal office of the bank.
The Registrant and its affiliate banks are subject to the
Federal Reserve Act, which restricts financial transactions
between banks and affiliated companies. The statute limits
credit transactions between a bank and its executive officers and
its affiliates, prescribes terms and conditions for bank
affiliate transactions deemed to be consistent with safe and
sound banking practices, and restricts the types of collateral
security permitted in connection with a bank's extension of
credit to an affiliate.
FDICIA accomplished a number of sweeping changes in the
regulation of depository institutions, including the Registrant's
affiliated banks. FDICIA requires, among other things, federal
bank regulatory authorities to take "prompt corrective action"
with respect to banks which do not meet minimum capital
requirements. For these purposes, by regulation implementing
these provisions, the FDIC and OCC have defined the relevant
capital measures for five capital categories: well capitalized,
adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. FDICIA further
directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding
companies relating to internal controls, information systems,
internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth, management compensation, a
maximum ratio of classified assets to capital, minimum earnings
sufficient to absorb losses, a minimum ratio of market value to
7
book value of publicly traded shares and such other standards as
the agency deems appropriate.
The deposits of Registrant's affiliate banks are insured up
to $100,000 per insured account by the Bank Insurance Fund
("BIF"), which is administered by the FDIC, except for deposits
acquired in connection with affiliations with savings
associations, which deposits are insured by the Savings
Association Insurance Fund ("SAIF"). Accordingly, the
Registrant's affiliated banks pay deposit insurance premiums to
both BIF and SAIF.
The FDIC, as required by FDICIA, has adopted a final rule
that implements a risk-based assessment system whereby a base
insurance premium will be adjusted according to the capital
category and subcategory of an institution to one of three
capital categories, consisting of (1) well capitalized, (2)
adequately capitalized, or (3) undercapitalized, and one of three
subcategories, consisting of (a) healthy, (b) supervisory
concern, or (c) substantial supervisory concern. An
institution's deposit insurance assessment rate will depend upon
the capital category and supervisory category to which it is
assigned. As of June 1, 1995 the BIF rates were adjusted to a
range of 0.04% to 0.31%, with most of the Registrant's affiliate
banks paying 0.04%. On January 1, 1996, this rate was dropped to
0.0% except for a minimum annual payment. For deposits insured
by SAIF, a one-time recapitalization charge of 0.657% was
approved by the U.S. Congress on September 30, 1996, and which
was required to be paid November 29, 1996. Effective January 1,
1997, deposits insured by the FDIC's BIF fund will be 1.29 basis
points per $100 of deposits, an increase over the $2,000 annual
charge per bank in 1996. Insurance coverage for SAIF insured
deposits will decrease from approximately 23 basis points per
$100 of deposits to 6.44 basis points per $100 of deposits for
thrift deposits and 2.43 basis points per $100 deposits for
deposits acquired from thrifts. Registrant has less than 6% of
its deposits insured by SAIF. The supervisory subgroup to which
an institution is assigned by the FDIC is confidential and may
not be disclosed. Deposit insurance assessments may increase
depending upon the category and subcategory, if any, to which the
bank is assigned by the FDIC. Any increase in insurance
assessments could have an adverse effect on the earnings of
Registrant's affiliate banks.
The Riegle-Neal Community Development and Regulatory
Improvement Act of 1994 ("Act") contains seven titles pertaining
to community development and home ownership protection, small
8
business capital formation, paperwork reduction and regulatory
improvement, money laundering and flood insurance. The applicable
federal supervisory agencies continue to promulgate regulations
implementing the Act which apply to Registrant's affiliate banks.
The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 allows for interstate banking and interstate
branching without regard to whether such activity is permissible
under state law. Bank holding companies may now acquire banks
anywhere in the United States subject to certain state
restrictions. Beginning June 1, 1997, an insured bank may merge
with an insured bank in another state without regard to whether
such merger is prohibited by state law. Additionally, an out-of-
state bank may acquire the branches of an insured bank in another
state without acquiring the entire bank; provided, however, that
the law of the state where the branch is located permits such an
acquisition. Interstate branching may occur earlier than June 1,
1997 if both states involved in the bank merger expressly permit
it by statute. Further, bank holding companies may merge
existing bank subsidiaries located in different states into one
bank. Indiana enacted law in 1996 which permits interstate
branching and mergers prior to the national effective date of
June 1, 1997.
Additionally, an insured bank subsidiary may act as agent for
an affiliated bank or thrift in offering limited banking services
(receive deposits, renew time deposits, close loans, service
loans and receive payments on loans obligations) both within the
same state and across state lines. The Registrant cannot predict
with certainty the impact of these new laws on the banking
industry generally or on its business or future financial
performance.
The FDIC includes, in its evaluations of a bank's capital
adequacy, an assessment of the bank's exposure to declines in the
economic value of the bank's capital due to changes in interest
rates. On June 26, 1996, the FDIC, along with the Office of the
Comptroller of the Currency and the Federal Reserve, issued a
joint policy statement to provide guidance on sound practices for
managing interest rate risk. The statement sets forth the
factors the federal regulatory examiners will use to determine
the adequacy of a bank's capital for interest rate risk. These
qualitative factors include the adequacy and effectiveness of the
bank's internal interest rate risk management process and the
level of interest rate exposure. Other qualitative factors that
will be considered include the size of the bank, the nature and
complexity of its activities, the adequacy of its capital and
9
earnings in relation to the bank's overall risk profile, and its
earning exposure to interest rate movements.
The interagency supervisory policy statement describes the
responsibilities of a bank's board of directors in implementing a
risk management process and the requirements of the bank's senior
management in ensuring the effective management of interest rate
risk. Further, the statement specifies the elements that a risk
management process must contain.
In August, 1996, the Federal Reserve and the FDIC issued
final regulations further revising their risk-based capital
standards to include a supervisory framework for measuring market
risk. The effect of the new regulations is that any bank holding
company or bank which has significant exposure to market risk
must measure such risk using its own internal model, subject to
the requirements contained in the regulations, and must maintain
adequate capital to support that exposure. The regulations
became effective on January 1, 1997, but compliance with the
regulations is not mandatory until January 1, 1998.
The new regulations apply to any bank holding company or bank
whose trading activity equals 10% or more of its total assets, or
whose trading activity equals $1 billion or more. Examiners may
require a bank holding company or bank that does not meet the
applicability criteria to comply with the capital requirements if
necessary for safety and soundness purposes.
The new regulations contain supplemental rules to determine
qualifying and excess capital, calculate risk-weighted assets,
calculate market risk equivalent assets and calculate risk-based
capital ratios adjusted for market risk.
The OCC has issued revised regulations, effective as of
December 31, 1996, modernizing and clarifying regulations
applicable to national banks. The new regulations address
corporate activities and regulations, operating subsidiaries
activities, branching, capital, and investments.
In addition to the matters discussed above, the Registrant's
affiliate banks are subject to additional regulation of their
activities, including a variety of consumer protection
regulations affecting their lending, deposit and collection
activities and regulations affecting secondary mortgage market
activities. The earnings of financial institutions are also
affected by general economic conditions and prevailing interest
rates, both domestic and foreign and by the monetary and fiscal
10
policies of the United States Government and its various
agencies, particularly the Federal Reserve.
Additional legislation and administrative actions affecting
the banking industry may be considered by the United States
Congress, state legislatures and various regulatory agencies,
including those referred to above. It cannot be predicted with
certainty whether such legislation or administrative action will
be enacted or the extent to which the banking industry in general
or the Registrant and its affiliate banks in particular would be
affected thereby.
Item 2. PROPERTIES
The principal office of the Registrant is located in leased space
in the multi-story Old National Bank Building located at 420 Main
Street, Evansville, Indiana. The building is owned by a non-affiliated
third party.
The Registrant's affiliate banks conduct business primarily from
facilities owned by the respective affiliate banks. Of the 119
banking offices operated by the Registrant's affiliate banks, 94
are owned by the respective banks and 25 are leased from non-affiliated
third parties.
Old National Realty Company, Inc., a wholly-owned non-banking
subsidiary of the Registrant, owns certain real properties in
downtown Evansville, Indiana, which generally are incidental to
Registrant's banking operations. It does not engage in real
estate brokerage services.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the
Registrant during the fourth quarter of 1996.
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Page 52 of the Registrant's Annual Report to Shareholders for the
year ended December 31, 1996 is expressly incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
Page 14 of the Registrant's Annual Report to Shareholders for the
year ended December 31, 1996 is expressly incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pages 13 through 30 of the Registrant's Annual Report to
Shareholders for the year ended December 31, 1996 are
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 31 through 47 of the Registrant's Annual Report to
Shareholders for the year ended December 31, 1996 are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information is omitted from this report pursuant to General
Instruction G.(1) of Form 10-K as the Registrant intends to file
with the Commission its definitive Proxy Statement pursuant to
Regulation 14-A of the Securities Exchange Act of 1934, as
amended, not later than 120 days after December 31, 1996.
ITEM 11. EXECUTIVE COMPENSATION
This information is omitted from this report pursuant to General
Instruction G.(1) of Form 10-K as the Registrant intends to file
with the Commission its definitive Proxy Statement pursuant to
12
Regulation 14-A of the Securities Exchange Act of 1934, as
amended, not later than 120 days after December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
This information is omitted from this report pursuant to General
Instruction G.(1) of Form 10-K as the Registrant intends to file
with the Commission its definitive Proxy Statement pursuant to
Regulation 14-A of the Securities Exchange Act of 1934, as
amended, not later than 120 days after December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is omitted from this report pursuant to General
Instruction G.(1) of Form 10-K as the Registrant intends to file
with the Commission its definitive Proxy Statement pursuant to
Regulation 14-A of the Securities Exchange Act of 1934, as
amended, not later than 120 days after December 31, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheet - December 31, 1996 and 1995
Consolidated Statement of Income -
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statement of Changes in Shareholders' Equity -
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statement of Cash Flows -
Years Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(b) No reports on Form 8-K were filed with the Commission during
the fourth quarter of 1996.
(c) Exhibits - The following exhibits are filed herewith:
Exhibit 10 - Material Contracts
Exhibit 11 - Statement re Computation of Per Share Earnings
Exhibit 13 - Portions of Annual Report to Shareholders for the
year ended December 31,1996
Exhibit 21 - Subsidiaries of the Registrant
Exhibit 23 - Consent of Independent Public Accountants
13
Exhibit 27 - Financial Data Schedulte
(d) Financial Statement Schedules - This information is omitted
since the required information is not applicable to the
Registrant.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
OLD NATIONAL BANCORP
By:s/s Ronald B.Lankford
Ronald B. Lankford, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
By:s/s David L. Barning 3/27/97
David L. Barning, Director Date
By:s/s Richard J. Bond 3/27/97
Richard J. Bond, Director Date
By:s/s Alan W. Braun 3/27/97
Alan W. Braun, Director Date
By:____________________________ ________
John J. Daus, Jr., Director Date
By:s/s Wayne A. Davidson 3/27/97
Wayne A. Davidson, Director Date
By:
Larry E. Dunigan, Director Date
By:David E. Eckerle 3/27/97
David E. Eckerle, Director Date
15
By:s/sThomas B. Florida 3/27/97
Thomas B. Florida, Director Date
By:s/s Phelps L. Lambert 3/27/97
Phelps L. Lambert, Director Date
By:s/s Ronald B. Lankford 3/27/97
Ronald B. Lankford, Date
President and Director
(Chief Operating Officer)
By:s/s Lucien H. Meis 3/27/97
Lucien H. Meis, Director Date
By:s/s Louis L. Mervis 3/27/97
Louis L. Mervis, Director Date
By:s/s Dan W. Mitchell 3/27/97
Dan W. Mitchell, Director Date
By:s/s John N. Royse 3/27/97
John N. Royse, Chairman Date
of the Board and Director
(Chief Executive Officer)
By:s/s Marjorie Soyugenc 3/27/97
Marjorie Soyugenc, Director Date
By:s/s Charles D. Storms 3/27/97
Charles D. Storms, Director Date
By:s/s Steve H. Parker 3/27/97
Steve H. Parker, Date
Senior Vice President
(Chief Financial Officer)
By:s/s Ronald W. Seib 3/27/97
Ronald W. Seib, Date
Vice President-
Corporate Controller
(Principal Accounting Officer)
16
INDEX OF EXHIBITS
Regulation S-K
Reference
(Item 601)
3(i) Articles of Incorporation of the Registrant
(incorporated by reference to Exhibit 3(i) of the
Registrant's Registration Statement on Form S-4, File
No. 333-09967, dated August 12, 1996)
3(ii) By-Laws of the Registrant (incorporated by reference to
Exhibit 3(ii) of Registrant's Registration Statement on
Form S-4, File No. 33-80670, dated June 23, 1994)
10 Material contracts (incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991 and to the Distribution
Agreement set forth in Exhibit 1 of the Registrant's
Registration Statement on Form S-3, File No. 33-55222,
dated December 2, 1992)
11 Statement re Computation of Per Share Earnings
13 Portions of Annual Report to Shareholders for the year
ended December 31, 1996
21 Subsidiaries of the Registrant
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
17
<TABLE>
<CAPTION>
EXHIBIT 11
PAGE 1 OF 3
OLD NATIONAL BANCORP
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
($ AND SHARES IN THOUSANDS EXCEPT PER SHARE)
1996
Primary Fully Diluted
--------- ---------------
<S> <C> <C>
Net income $ 60,179 $ 60,179
Interest expense foregone on assumed
conversion of 8% convertible subordinated
debentures, net of tax -- 1,477
Adjusted net income $ 60,179 $ 61,656
-------- -----------
Weighted average common shares outstanding 27,329 27,329
Additional shares outstanding upon assumed
conversion of 8% convertible subordinated
debentures -- 1,433
Additional shares outstanding upon assumed
exercise of stock options 86 84
--------- -----------
Adjusted weighted average
shares outstanding 27,415 28,846
--------- -----------
Earnings per share $ 2.20 $ 2.14
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 11
PAGE 2 OF 3
OLD NATIONAL BANCORP
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
($ AND SHARES IN THOUSANDS EXCEPT PER SHARE)
1995
Primary Fully Diluted
----------- -------------
<S> <C> <C>
Net income $ 53,939 $ 53,939
Interest expense foregone on assumed
conversion of 8% convertible subordinated
debentures, net of tax -- 1,523
---------- --------
Adjusted net income $ 53,939 $ 55,462
Weighted average common shares outstanding 28,220 28,220
Additional shares outstanding upon assumed
conversion of 8% convertible subordinated
debentures -- 1,477
Additional shares outstanding upon assumed
exercise of stock options 83 84
------- -------
Adjusted weighted average
shares outstanding 28,303 29,781
------- -------
Earnings per share $ 1.91 $ 1.86
======== ========
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 11
PAGE 3 OF 3
OLD NATIONAL BANCORP
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
($ AND SHARES IN THOUSANDS EXCEPT PER SHARE)
1994
Primary Fully Diluted
------- -------------
<S> <C> <C>
Net income $ 49,003 $ 49,003
Interest expense foregone on assumed
conversion of 8% convertible subordinated
debentures, net of tax -- 1,839
------------- -----------
Adjusted net income $ 49,003 $ 50,842
Weighted average common shares outstanding 28,982 28,982
Additional shares outstanding upon assumed
conversion of 8% convertible subordinated
debentures -- 1,783
Additional shares outstanding upon assumed
exercise of stock options 84 84
------ ------
Adjusted weighted average
shares outstanding 29,066 30,849
------ ------
Earnings per share $ 1.69 $ 1.65
========= =========
</TABLE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------
INTRODUCTION TO OLD NATIONAL BANCORP
Old National Bancorp ("ONB") is a multi-bank holding company
headquartered in Evansville, Indiana. Its 24 affiliate banks
conduct business in 119 office locations in southwestern Indiana,
southeastern Illinois, and western Kentucky. A complete listing
of ONB's affiliate banks is presented on page 10. The banks
provide a wide range of financial services, such as making
commercial and consumer loans; originating, marketing, and
servicing mortgage loans; issuing and servicing credit cards;
leasing; offering various deposit products; issuing letters of
credit; issuing credit life, accident and health insurance;
providing safe deposit facilities; and providing alternative
investments and brokerage services. ONB also has eight non-bank
affiliates which provide services incidental to ONB's operations,
including data processing, issuance and reinsurance of credit
life, accident, health, property, life and casualty insurance,
investment services, fiduciary and trust services, property
ownership, and consumer financing. During 1996, ONB opened a
consumer finance subsidiary headquartered in Indianapolis, whose
objective is to originate traditional consumer finance and non-prime
auto loans in the Midwest. Current operations are located only in Indiana.
The following information is an analysis of the major components
of ONB's operations for the years 1994 through 1996 and financial
condition as of December 31, 1996 and 1995. This information
should be read in conjunction with the accompanying consolidated
financial statements and footnotes thereto beginning on page 32.
The information has been restated to reflect mergers accounted
for as pooling-of-interests as if they had occurred at the
beginning of the first year presented. Purchases have been
included in reported results from the date of the transaction.
Tax-exempt interest income in the following information has been
increased to an amount comparable to interest subject to income
taxes using federal statutory rates in effect of 34% in 1991-1992
and 35% in 1993-1996. An offsetting increase of the same amount
is made in the income tax section of the Selected Financial Data.
Net income is unaffected by these taxable equivalent adjustments.
MERGER ACTIVITY
In 1996 ONB completed mergers with two banks with combined total
assets of nearly $300 million. These mergers are discussed
further in Note 2 to the consolidated financial statements.
During 1995, ONB consummated five mergers with banks in Indiana
(2), Illinois (2), and Kentucky (1) with total assets over $500
million. In Indiana, Citizens National Bank Corporation in Tell
City and First United Savings Bank ("United") in Greencastle were
acquired. Illinois acquisitions included Oblong Bancshares, Inc.
and Shawnee Bancorp ("Shawnee") in Harrisburg. In Kentucky, ONB
acquired City National Bancorp, Inc. in Fulton. All of these
were accounted for as pooling-of-interests. United's
Greencastle operations were combined with ONB's existing
Greencastle affiliate, First Citizens Bank & Trust Co. United's
other operations in Bloomington remained a separate affiliate,
ONB Bank. Shawnee's subsidiary, The Bank of Harrisburg, was
combined into ONB's affiliate, First National Bank of Harrisburg.
OVERVIEW OF FINANCIAL RESULTS
The banking industry experienced generally strong earnings in
1996. Continued economic growth and further reduced FDIC
insurance premiums benefited earnings. Rising consumer loan
losses and the one-time recapitalization of the Savings
Association Insurance Fund ("SAIF") of the FDIC caused increased
loan loss provisions and increased expenses in 1996. The
industry generally saw solid loan growth and focused attention on
expense control and operational efficiencies. After rising
sharply in late 1994 and dropping in 1995, interest rates in
general bounced up slightly in 1996, though the prime rate
remained virtually unchanged.
ONB recorded record earnings in 1996 with net income of $60.2
million, an 11.6% increase over restated 1995 earnings. Over the
last five years, ONB's net income per primary share has grown at
a compounded rate of 8.5%. ONB's strong net interest income
combined with controlled loan losses, and improved fee income
were key elements in ONB's performance. Expenses benefited from
continued expense control and lower FDIC premiums, though the
SAIF recapitalization tempered some of the potential savings.
The remaining sections of this management's discussion will
present additional details of ONB's operating results.
13
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
($ in thousands except per share data) Five Year
Growth
1996 1995 1994 1993 1992 1991 Rate
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
(Taxable equivalent basis)
Interest income. . . . . . . $408,070 $389,131 $343,852 $336,890 $351,404 $389,857
Interest expense . . . . . . 190,631 186,500 146,152 144,427 166,991 218,336
-------- -------- -------- -------- -------- --------
Net interest income. . . . . 217,439 202,631 197,700 192,463 184,413 171,521 4.9 %
Provision for loan losses. . 11,012 7,135 7,754 10,359 11,919 11,924 (1.6)
-------- -------- -------- -------- -------- -------- -----
Net interest income after
provision for loan losses . 206,427 195,496 189,946 182,104 172,494 159,597 5.3
Noninterest income . . . . . 44,801 39,594 34,876 33,993 29,485 26,836 10.8
Noninterest expense. . . . . 152,320 147,315 147,295 135,259 123,451 117,816 5.3
-------- -------- ------- -------- -------- -------- ----
Income before income taxes . 98,908 87,775 77,527 80,838 78,528 68,617 7.6
Income taxes . . . . . . . . 38,729 33,836 28,524 30,268 29,913 25,630 8.6
------- -------- ------- -------- -------- -------- ----
Net income . . . . . . . . . $60,179 $53,939 $49,003 $50,570 $48,615 $42,987 7.0 %
======= ======== ======= ======== ======= ======= =====
YEAR-END BALANCES
Total assets . . . . . . . .$5,366,591 $5,103,195 $4,909,804 $4,748,112 $4,434,160 $4,385,680 4.1 %
Total loans, net of
unearned income . . . . . . 3,523,300 3,261,746 3,098,820 2,810,453 2,606,563 2,570,813 6.5
Total deposits . . . . . . . 4,268,024 4,183,082 3,875,752 3,898,967 3,723,039 3,630,037 3.3
Shareholders' equity . . . . 458,526 461,424 440,671 435,406 406,137 381,660 3.7
PER SHARE DATA(1)
Net income - primary . . . . $2.20 $1.91 $1.69 $1.74 $1.67 $1.46 8.5
Net income - fully diluted (2) $2.14 $1.86 $1.65 1.70 1.62 1.43 8.4
Cash dividends paid . . . . 0.88 0.84 0.80 0.69 0.66 0.63 7.0
Book value at year-end . . . 17.12 16.61 15.35 14.85 13.91 12.95 5.8
SELECTED PERFORMANCE RATIOS
(based on averages)
Return on assets . . . . . . 1.17 % 1.09 % 1.03 % 1.09 % 1.11 % 1.03 %
Return on equity (3) . . . . 13.29 12.01 10.92 11.38 12.45 12.01
Equity to assets . . . . . . 8.90 8.99 9.35 9.58 8.89 8.54
Primary capital to assets. . 9.72 9.85 10.25 10.43 9.72 9.30
Net charge-offs to
average loans . . . . . . . 0.33 0.26 0.28 0.25 0.31 0.38
Allowance for loan losses
to average loans. . . . . . 1.31 1.28 1.43 1.57 1.47 1.33
(1) Restated for all stock dividends and stock splits.
(2) Assumes the conversion of ONB's subordinated debentures.
(3) Excludes unrealized gains (losses) on investment securities.
</TABLE>
14
RESULTS OF OPERATIONS
- -------------------------------------------------------------------
NET INCOME
ONB earnings rose $6.2 million to reach $60.2 million in 1996, an
11.6% increase over 1995. Primary net income per share for 1996
was $2.20, up 15.2% over 1995's $1.91. Strong net interest
income fueled ONB's earnings growth and absorbed an increase in
loan loss provision. Healthy growth in noninterest income offset
the increase in noninterest expense. The specific effects of
each of these factors are discussed in the following paragraphs.
Graph
NET INCOME
($ in millions)
1992 48.6
1993 50.6
1994 49.0
1995 53.9
1996 60.2
ONB's 1995 net income was $53.9 million, up 10.1% or $4.9 million
above 1994 earnings. Both net interest income and noninterest
income rose over $4.5 million each. A slightly lower loan loss
provision and a small increase in noninterest expense allowed the
revenue growth to drive 1995 net income growth.
NET INTEREST INCOME
Net interest income provides the major share of ONB's earnings.
This represents the difference between interest income and fees
on earning assets, such as loans and investments, and the
interest paid on deposits and other liabilities obtained to fund
them. The net interest margin is net interest income, on a
taxable equivalent basis, expressed as a percentage of average
earning assets. Incorporating the tax savings on certain assets
permits comparability. The margin is influenced by a number of
factors, such as the volume and mix of earning assets and funding
sources, the interest rate environment and income tax rates. The
level of earning assets funded by interest free funding sources
(primarily noninterest-bearing demand deposits and equity
capital) also impacts net interest margin. ONB can control the
effect of some of these factors through its management of credit
extension and interest rate sensitivity, both of which are
discussed in detail later in this report. External factors such
as the overall condition of the economy, strength of credit
demand, Federal Reserve Board monetary policy and changes in tax
laws can also have significant effect on changes in net interest
income from one period to another.
On a taxable equivalent basis, net interest income in 1996 grew
$14.8 million or 7.3% over 1995. Average earning assets
increased 4.1% or $194.0 million between years, while interest-
bearing liabilities rose $159.4 million or 4.0%. Fewer non-earning
assets, such as cash and due from banks, and higher
levels of noninterest-bearing liabilities and equity funded the
improved deployment of funds into earning assets. ONB's net
interest margin rose 13 basis points from 4.33% to 4.46%.
Earning assets yield increased 5 basis points to 8.37% while the
cost of interest-bearing liabilities decreased 8 basis points to
3.91%. In 1996 the mix of earning assets changed as the average
balances of higher yielding loans rose $180.4 million (5.7%) and
comprised 69.1% of our total earning assets, up from 68.1% in
1995. Overall, loan yields were up 7 basis points and reached
9.06%, partially due to the higher yields on consumer loans.
ONB's new consumer finance company contributed to this increase.
Investment securities grew 1.3% or $19.1 million while the yield
declined to 6.91%. Lower yielding money market investments
decreased $5.5 million in 1996 as ONB more efficiently deployed
funds in higher yielding assets. All of ONB's interest-bearing
liability categories rose as deposits grew $118.3 million or
3.3%, and borrowings increased $41.1 million. While all
categories increased, money market deposits and certificates of
deposits over $100,000 led with increases of 11.9% and 10.5%,
respectively. Borrowed funds also played a significant role in
the funding of asset growth as they rose 9.2%. The cost of all
liability categories decreased 8 basis points due to market
influences and management's efforts to seek alternate funding
sources.
Graph
NET INTEREST INCOME
(Taxable Equivalent Basis)($ in millions)
1992 184.4
1993 192.5
1994 197.7
1995 202.6
1996 217.4
During 1995, net interest income rose 2.5% or $4.9 million and
totaled $202.6 million. Average earning assets grew 4.2% in 1995,
a $188.4 million increase. Interest-bearing liabilities rose
$160.9 million or 4.2%. Net interest margin decreased from 4.40%
to 4.33%. While the yield on earning assets increased 67 basis
points to 8.32%, the cost of interest-bearing liabilities jumped
86 basis points to 4.65%. The mix of earning assets shifted as
loans experienced $258.4 million growth or an 8.8% increase while
investment securities and money market investments decreased
$70.0 million or 4.5%. Interest-bearing liabilities shifted as
customers moved funds from savings and NOW accounts, down 10.7%,
to higher paying money market accounts, up 12.4%, and
certificates of deposits, up 9.0%. This customer shift, combined
with general higher levels of interest rates, increased our
interest-bearing deposit cost 82 basis points to 4.48%. Short-
term rates on borrowed funds also jumped significantly from 1994
low levels.
Table 1 on page 16 details the changes in the components of net
interest income. Table 2 on page 16 attributes those
fluctuations to the impact of changes in the average balances of
assets and liabilities and the yields earned or rate paid. Table
3 on page 17 presents a three year average balance sheet and for
each major asset and liability category its related interest
income and yield or its expense and rate.
15
NET INTEREST INCOME CHANGES (TABLE 1) % Change From
(Taxable equivalent basis, $ in thousands) Prior Year
-------------
1996 1995 1994 1996 1995
----------------------------------------------
INTEREST INCOME:
Loans. . . . . . . . . . . $304,940 $286,523 $243,819 6.4 % 17.5 %
Investment securities. . . . 99,903 98,700 97,097 1.2 1.7
Federal funds sold and
securities purchased under
agreements to resell . . . 2,577 3,479 2,439 (25.9) 42.6
Interest-bearing deposits
in other banks . . . . . . 650 429 497 51.5 (13.7)
------- ------- ------- ---- ------
Total interest income. . .408,070 389,131 343,852 4.9 13.2
------- ------- ------- ---- ------
INTEREST EXPENSE:
Savings and NOW deposits . . 22,657 24,915 26,140 (9.1) (4.7)
Money market deposits . . . 23,843 22,208 13,815 7.4 60.8
Certificates of deposit
$100,000 and over . . . . 14,666 14,472 8,774 1.3 64.9
Other time deposits . . . .102,255 98,409 77,464 3.9 27.0
Short-term borrowings. . . . 21,742 21,035 14,247 3.4 47.6
All other borrowings . . . . 5,468 5,461 5,712 0.1 (4.4)
------- ------- ------- ---- -----
Total interest expense . .190,631 186,500 146,152 2.2 27.6
------- ------- ------- ---- -----
NET INTEREST INCOME . . . . $217,439 $202,631 $197,700 7.3 % 2.5 %
======== ======== ======== ==== =====
NET INTEREST MARGIN . . . . . 4.46 % 4.33 % 4.40 %
======== ======== ========
<TABLE>
<CAPTION>
NET INTEREST INCOME - RATE/VOLUME ANALYSIS (TABLE 2)
(Taxable equivalent basis, $ in thousands)
1996 vs. 1995 1995 vs. 1994
------------------------ ---------------------------
Total Attributed to Total Attributed to
-------------- -----------------
Change Volume Rate Change Volume Rate
-------------------------------------------------------
INTEREST INCOME:
<S> <C> <C> <C> <C> <C> <C>
Loans. . . . . . .. . . . $18,417 $16,281 $2,136 $42,704 $22,372 $20,332
Investment securities . . 1,203 1,322 (119) 1,603 (4,155) 5,758
Federal funds sold and
securities purchased under
agreements to resell. . (902) (522) (380) 1,040 (139) 1,179
Interest-bearing deposits
in other banks . . . . 221 226 (5) (68) (265) 197
------- ------- ------ ------- ------- -------
Total interest income . 18,939 17,307 1,632 45,279 17,813 27,466
------- ------- ------ ------- ------- -------
INTEREST EXPENSE:
Savings and NOW deposits . (2,258) 431 (2,689) (1,225) (2,881) 1,656
Money market deposits. . . 1,635 2,589 (954) 8,393 2,080 6,313
Certificates of deposit
$100,000 and over. . . . 194 1,452 (1,258) 5,698 797 4,901
Other time deposits. . . . 3,846 219 3,627 20,945 7,522 13,423
Short-term borrowings . . 707 2,177 (1,470) 6,788 1,741 5,047
All other borrowings . . . 7 107 (100) (251) 190 (441)
------- ------- ------- ------ ------ ------
Total interest expense . 4,131 6,975 (2,844) 40,348 9,449 30,899
------- ------- ------- ------ ------ ------
NET INTEREST INCOME . . . . $14,808 $10,332 $4,476 $4,931 $8,364 ($3,433)
======= ======= ====== ====== ====== ======
The variance not solely due to rate or volume is allocated equally between the rate and volume variances.
</TABLE>
16
<TABLE>
<CAPTION>
THREE-YEAR AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS (TABLE 3)
(Taxable equivalent basis, $ in thousands)
1996 1995 1994
-------------------------- --------------------------- ---------------------------
Average Interest Yield/ Average Interest Yield/ Average Interest Yield/
Balance & Fees Rate Balance & Fees Rate Balance & Fees Rate
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Money market investments:
Interest-bearing deposits ASSETS
in other banks. . . . . $10,903 $650 5.96 % $7,142 $429 6.01 % $12,465 $497 3.99 %
Federal funds sold and
securities purchased under
agreements to resell. . 48,864 2,577 5.27 58,132 3,479 5.98 60,936 2,439 4.00
Investment securities:
U.S. Treasury and Government
agencies (1) . . . . . 958,417 59,737 6.23 962,872 59,698 6.20 1,000,488 57,061 5.70
State and political
subdivisions. . . . . . 444,127 36,052 8.12 426,281 36,121 8.47 434,378 36,721 8.45
Other securities. . . . . 43,379 4,114 9.48 37,640 2,881 7.65 53,762 3,315 6.17
--------- ------ ---- --------- ------ ---- --------- ------ ----
TOTAL INVESTMENT SECURITIES 1,445,923 99,903 6.91 1,426,793 98,700 6.92 1,488,628 97,097 6.52
--------- ------ ---- --------- ------ ---- --------- ------ ----
Loans: (2) (3)
Commercial and financial. 769,629 72,512 9.42 727,593 71,422 9.82 720,121 59,835 8.31
Commercial real estate . 619,079 54,766 8.85 547,241 47,935 8.76 462,014 35,812 7.75
Residential real estate . 1,257,141 104,775 8.33 1,244,331 102,067 8.20 1,145,300 93,157 8.13
Consumer, net of unearned
income . . . . . . . . 692,864 68,174 9.84 640,706 60,502 9.44 574,904 50,417 8.77
Credit card . . . . . . . 28,441 4,713 16.57 26,860 4,597 17.11 26,008 4,598 17.68
--------- -------- ----- --------- -------- ----- --------- -------- -----
TOTAL LOANS . . . . . . . 3,367,154 304,940 9.06 3,186,731 286,523 8.99 2,928,347 243,819 8.33
--------- -------- ----- --------- -------- ----- --------- ------- -----
TOTAL EARNING ASSETS. . . 4,872,844 $408,070 8.37 % 4,678,798 $389,131 8.32 % 4,490,376 $343,852 7.65 %
======== ===== ======== ===== ======== =====
Less: Allowance for loan losses (42,547) (42,497) (43,194)
NON-EARNING ASSETS:
Cash and due from banks . 134,427 161,103 162,591
Other assets. . . . . . . 181,461 173,017 165,095
---------- ---------- ----------
TOTAL ASSETS . . . . . . . $5,146,185 $4,970,421 $4,774,868
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Savings and NOW deposits . $924,290 $22,657 2.45 % $907,713 $24,915 2.74% $1,016,122 $26,140 2.57 %
Money market deposits. . . 666,462 23,843 3.58 595,583 22,208 3.73 529,906 13,815 2.61
Certificates of deposit
$100,000 and over. . . . 283,323 14,666 5.18 256,480 14,472 5.64 239,336 8,774 3.67
Other time deposits. . . . 1,813,209 102,255 5.64 1,809,240 98,409 5.44 1,660,351 77,464 4.67
--------- ------- ---- ---------- -------- ---- ---------- --------- ----
TOTAL INTEREST-BEARING
DEPOSITS . . . . . . . . 3,687,284 163,421 4.43 3,569,016 160,004 4.48 3,445,715 126,193 3.66
Short-term borrowings. . . 409,829 21,742 5.31 370,192 21,035 5.68 335,121 14,247 4.25
All other borrowings . . . 76,018 5,468 7.19 74,534 5,461 7.33 72,040 5,712 7.93
--------- -------- ---- ---------- -------- ---- ---------- -------- ----
TOTAL INTEREST BEARING
LIABILITIES. . . . . . . 4,173,131 $190,631 4.57 % $4,013,742 $186,500 4.65% 3,852,876 $146,152 3.79 %
======== ==== ======== ==== ======== ====
NONINTEREST-BEARING LIABILITIES:
Demand deposits. . . . . . 450,005 455,991 435,274
Other liabilities. . . . . 65,176 53,673 40,467
SHAREHOLDERS' EQUITY . . . 457,873 447,015 446,251
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY . . . $5,146,185 $4,970,421 $4,774,868
========== ========== ==========
INTEREST MARGIN RECAP:
Interest income/earning assets . $408,070 8.37 % $389,131 8.32% $343,852 7.65 %
Interest expense/earning assets. 190,631 3.91 186,500 3.99 146,152 3.25
-------- ---- -------- ---- -------- ----
Net interest margin. . . . . . . $217,439 4.46 % $202,631 4.33% $197,700 4.40 %
======== ==== ======== ==== ======== ====
(1) Includes Government agency mortgage-backed securities.
(2) Includes principal balances of nonaccrual loans. Interest income relating to nonaccrual loans is
included only if received.
(3) The amount of loan fees is not material in any of the years presented.
</TABLE>
17
INTEREST RATE SENSITIVITY AND LIQUIDITY MANAGEMENT
Managing net interest income is a critical element in optimizing
the earnings of a banking organization. Movements in interest
rates and the corresponding effects on the net interest income
may significantly affect profitability. With the goal of
consistent earnings growth with minimal interest rate risk, ONB's
Funds Management Committee oversees this process by establishing
guidelines for its affiliate banks to manage the sensitivity and
repricing of their assets and liabilities. This committee and
similar committees at the affiliate banks monitor these
guidelines monthly on a consolidated basis and at the bank level.
The impact of interest rate changes can be mitigated by
maintaining a balance between interest rate-sensitive assets and
liabilities within given time frames. The difference between
assets and liabilities within a given repricing period is
expressed as a ratio and as a dollar amount known as the "gap,"
both of which are used as a measure of interest rate risk. A
ratio of 100% suggests a balanced position between rate-sensitive
assets and liabilities within a given repricing period. While
the measurement process and related assessment of risk are
somewhat imprecise, ONB believes its asset/liability management
program allows adequate reaction time for trends in the market
place as they occur, thereby minimizing the potential negative
effect of its gap position against the event of interest rate
changes.
ONB also uses net interest income simulation modeling to better
quantify the impact of potential interest rate fluctuations on
net interest income. With this understanding management can best
determine possible balance sheet changes, pricing strategies, and
appropriate levels of capital and liquidity which allow ONB to
generate strong net interest income while controlling and
monitoring interest rate risk.
Table 4 below reflects ONB's interest rate sensitivity position
both individually within specified time periods and cumulatively
over various time horizons. In the table assets and liabilities
are placed in categories based on their actual or expected
repricing date. As indicated in the table, a significant
percentage of ONB's assets and liabilities reprice within 180
days. In the 365 day cumulative time frame, assets and
liabilities are closely matched at 94%.
<TABLE>
<CAPTION>
ANALYSIS OF INTEREST RATE SENSITIVITY AT DECEMBER 31, 1996 (TABLE 4)($ in thousands)
1-180 181-365 1-5 Beyond
Days Days Years 5 years Total
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATE-SENSITIVE ASSETS:
Money market investments . . . . . $6,501 $ -- $197 $ -- $6,698
Investment securities . . . . . . 288,512 96,939 715,854 413,344 1,514,649
Loans, net of unearned income . . 1,341,631 546,406 1,101,601 533,662 3,523,300
---------- ------- --------- -------- ----------
Total rate sensitive assets. . . 1,636,644 643,345 1,817,652 947,006 $5,044,647
---------- ------- --------- -------- ----------
RATE-SENSITIVE LIABILITIES:
Deposits . . . . . . . . . . . . . 1,541,393 440,585 683,077 1,090,688 3,755,743
Other borrowed funds . . . . . . . 412,374 29,445 69,070 63,341 574,230
---------- ------- --------- --------- ----------
Total rate-sensitive liabilities 1,953,767 470,030 752,147 1,154,029 $4,329,973
---------- ------- --------- --------- ----------
Interest sensitivity gap
per period . . . . . . . . . . . ($317,123) $173,315 $1,065,505 ($207,023)
Cumulative gap . . . . . . . . . . . ($317,123)($143,808) $921,697 $714,674
Cumulative ratio at
December 31, 1996 (1). . . . . . . 84 % 94 % 129 % 117 %
========= ======== ========= ========
Cumulative ratio at
December 31, 1995 (1). . . . . . . 80 % 96 % 126 % 117 %
========= ======== ========= ========
(1) Rate-sensitive assets/rate-sensitive liabilities.
</TABLE>
In addition to the interest rate sensitivity the Funds Management
Committee monitors the company's liquidity position. The
objective of liquidity management is to ensure the ability to
meet cash flow needs of customers, such as new loan demand and
deposit withdrawals, while at the same time maximizing lending
and investment opportunities.
Failure to properly manage liquidity requirements can result in
the need to satisfy customer withdrawals and other obligations
with expensive funding sources. Too much liquidity on the
balance sheet can also be undesirable as earnings will suffer due
to underutilized resources. ONB and its affiliates maintain
adequate liquidity with sufficient levels of liquid assets,
deposit growth, and other alternative funding sources, such as
the Federal Home Loan Bank ("FHLB").
The Funds Management Committee monitors the quality of the
investment portfolio by establishing guidelines for the types and
quality of securities acceptable for purchase. ONB has a
consistent, conservative investment strategy. Any exceptions to
these guidelines must be approved by the committee. The
committee reviews the quality of the portfolios on a regular
basis, especially the obligations of corporations and state and
political subdivisions.
18
NONINTEREST INCOME
Besides the attention to net interest income, ONB focuses on its
ability to generate additional noninterest income from both core
business and newer initiatives, such as brokerage/alternative
investments and insurance. ONB's banks and nonbank affiliates
continuously strive to improve their noninterest income
performance. In 1996 noninterest income, excluding securities
transactions, grew 11.3%. The trust company's attention on
expanding its revenue base of managing customer assets resulted
in a 10.1% increase in trust fees. Service charges on deposit
accounts grew 10.2% and are continuously reviewed and compared
against competition in each separate market and among affiliate
banks. Loan servicing fees were similar to 1995. Other income
jumped 20.3% as ONB's alternative investments and brokerage
business increased 51.5%, nearly $0.9 million, and insurance
sales grew 24.1% or $0.9 million.
During 1995, noninterest income grew 11.6%. Trust fees and
deposit service charges rose 17.4% and 7.1%, respectively. The
base of accounts for both areas rose and the fees charged were
reviewed and adjusted where necessary. Loan servicing fees rose
14.0% as all loan areas experienced fee growth, including
mortgage banking which benefited from customers' refinancing
activities. Other income increased 12.0% over 1994 as insurance
and alternative investment sales were up.
ONB realized net securities gains (losses) of $0.8, $0.1, and
($0.5) million in 1996, 1995, and 1994, respectively. Generally,
ONB has had minimal sales of securities. During 1996, ONB sold a
portion of its Student Loan Marketing Association stock resulting
in a gain. In 1994 certain lower yielding investments were sold
in order to reinvest in higher yielding assets.
Table 5 below presents changes in the components of noninterest
income for the years 1994 through 1996.
NONINTEREST INCOME (TABLE 5) ($ in thousands) % Change From
Prior Year
-------------
1996 1995 1994 1996 1995
----------------------------------------
Trust fees . . . . . . . . . $10,149 $9,216 $7,851 10.1 % 17.4 %
Service charges on deposit
accounts . . . . . . . . . 15,624 14,177 13,233 10.2 7.1
Loan servicing fees. . . . . 5,668 5,691 4,992 (0.4) 14.0
Other income . . . . . . . . 12,579 10,458 9,341 20.3 12.0
------- ------ ------ ---- ----
Subtotal . . . . . . . . 44,020 39,542 35,417 11.3 11.6
Net securities gains (losses) 781 52 (541) N/M N/M
------- ------- ------- ---- ----
Total noninterest income $44,801 $39,594 $34,876 13.2 % 13.5 %
======= ======= ======= ==== ====
N/M = Not meaningful
19
NONINTEREST EXPENSE
Total noninterest expense is significant to the industry and
ONB's financial performance. Within the industry, the continual
challenge is controlling operating costs and improving
efficiencies while still providing higher levels of customer
service. In 1996 noninterest expense increased 3.4% compared to
1995. Salaries and benefits, which comprised over 50% of total
noninterest expense, grew 9.2% in 1996. ONB's strong 1996 net
income resulted in increased incentive expense of approximately
$2.5 million. The new consumer finance subsidiary added $0.8
million of personnel expense plus expansion of our brokerage,
insurance, trust and internal data processing operations added
new compensation dollars. Occupancy expense rose 13.7% which was
primarily due to the write down to fair value of a duplicate
branch after a merger. Data processing expense, which includes
external processing and software costs for our internal data
operations, dropped 15.8% or $1.0 million. The external
component continued to decrease as our banks converted to our
internal data center. With eighteen affiliate banks processed
internally, our data center is now close to supporting its
initial up-front expenses for people and equipment.
Communication and transportation expense increased 13.8%,
primarily due to upgrading the computer networking capabilities
between locations.
During 1996, the FDIC insurance expense dropped $2.3 million as
the FDIC continued to adjust its premiums. The premium on
deposits insured by Bank Insured Fund dropped from 4 basis points
per $100 of deposits in 1995, to a minimum of $2,000 per bank for
most affiliates. For deposits insured by SAIF the FDIC insurance
premium remained at approximately 23 basis points or higher. On
September 30, 1996 the President of the United States signed into
law a bill requiring a one-time recapitalization charge for all
SAIF-insured deposits payable November 29, 1996 which totaled
$2.5 million for ONB affiliate banks. In 1995 FDIC insurance
expense decreased $3.6 million when the FDIC lowered its premium
on bank deposits as of June 1, 1995. For most of ONB's affiliate
banks the cost dropped from 23 basis points to 4 basis points per
$100 of deposits.
Total noninterest expense remained virtually constant between
1994 and 1995. Salaries and benefits increased 3.2% which was
generally merit and inflation adjustments. Equipment expense
grew 11.5% as our internal data processing center and banks
incurred costs for bank system conversions. Marketing expenses
rose 12.4% from a combination of the newly formed trust company
and new efforts which contributed to loan and deposit growth.
Data processing expense dropped 40.3% as our affiliate banks
converted to our internal data operations.
Table 6 below presents changes in the components of noninterest
expense for the years 1994 through 1996.
<TABLE>
<CAPTION>
NONINTEREST EXPENSE (TABLE 6) ($ in thousands) % Change From
Prior Year
-------------
1996 1995 1994 1996 1995
---------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits. . . . . .$84,618 $77,479 $75,076 9.2 % 3.2 %
Occupancy expense . . . . . . . . . . . . 10,236 9,006 8,943 13.7 0.7
Equipment expense . . . . . . . . . . . . 11,446 11,119 9,973 2.9 11.5
Marketing expense . . . . . . . . . . . . 5,288 5,334 4,745 (0.9) 12.4
FDIC insurance premiums . . . . . . . . . 3,041 5,324 8,923 (42.9) (40.3)
Data processing expense . . . . . . . . . 5,076 6,028 5,936 (15.8) 1.5
Supplies expense. . . . . . . . . . . . . 4,396 4,559 4,304 (3.6) 5.9
Communications and transportation expense 6,673 5,863 5,579 13.8 5.1
Other expense . . . . . . . . . . . . . . 21,546 22,603 23,816 (4.7) (5.1)
------- -------- -------- ---- ----
Total noninterest expense . . . . . $152,320 $147,315 $147,295 3.4 % 0.0 %
======== ======== ======== ==== ====
</TABLE>
20
PROVISION FOR INCOME TAXES
ONB records a provision for income taxes currently payable and
for income taxes payable in the future which arise due to timing
differences in the recognition of certain items for financial
statement and income tax purposes. The major differences between
the effective tax rate applied to ONB's financial statement
income and the federal statutory rate are caused by interest on
tax-exempt securities and loans and state income taxes. See Note
7 to the consolidated financial statements for additional details
of ONB's income tax provision.
ONB's effective tax rate was 29.4%, 27.5%, and 24.0% in 1996,
1995, and 1994, respectively. Though interest on nontaxable
investment securities and loans remained fairly flat in dollars,
it dropped as a percentage of total interest income. Earnings
growth has been the result of increased revenue from fully
taxable sources and cost savings. In 1994 the elimination of a
deferred asset valuation allowance reduced tax expense by $1.6
million.
INTERIM FINANCIAL DATA
The following table provides a detailed summary of quarterly
results of operations for the years ended December 31, 1996 and
1995. These results contain all normal and recurring adjustments
of a material nature necessary for a fair and consistent
presentation.
INTERIM FINANCIAL DATA (TABLE 7)
(Unaudited, $ and shares in thousands except per share data)
Quarter Ended
-------------------------------------
December September June March
31 30 30 31
-------------------------------------
1996:
Interest income. . . . . . . $101,583 $100,002 $96,879 $95,949
Interest expense . . . . . . 49,048 47,866 46,402 47,315
-------- -------- ------- -------
Net interest income. . . . 52,535 52,136 50,477 48,634
Provision for loan losses. . 3,678 3,229 2,103 2,002
Noninterest income . . . . . 12,230 11,114 11,195 10,262
Noninterest expense. . . . . 39,981 39,038 37,460 35,841
-------- -------- ------- -------
Income before income taxes 21,106 20,983 22,109 21,053
Income taxes . . . . . . . . 5,652 6,200 6,839 6,381
-------- -------- ------- -------
Net income . . . . . . . . $15,454 $14,783 $15,270 $14,672
======== ======== ======= =======
Net income per share:
Primary. . . . . . . . . . $0.57 $0.54 $0.56 $0.53
======== ======== ======= =======
Fully diluted. . . . . . . $0.56 $0.53 $0.54 $0.51
======== ======== ======= =======
Weighted average shares:
Primary. . . . . . . . . . 26,986 27,314 27,515 27,849
======== ======== ======= =======
Fully diluted. . . . . . . 28,420 28,748 28,951 29,283
======== ======== ======= =======
1995:
Interest income. . . . . . . $96,926 $95,607 $93,317 $89,886
Interest expense . . . . . . 48,903 48,004 46,483 43,110
------- ------- ------- -------
Net interest income. . . . 48,023 47,603 46,834 46,776
Provision for loan losses. . 2,695 2,002 1,319 1,119
Noninterest income . . . . . 10,218 9,892 9,987 9,497
Noninterest expense. . . . . 38,504 35,001 36,878 36,932
------- ------- ------- -------
Income before income taxes 17,042 20,492 18,624 18,222
Income taxes . . . . . . . . 4,695 6,005 4,681 5,060
------- ------- ------- -------
Net income . . . . . . . . $12,347 $14,487 $13,943 $13,162
======= ======= ======= =======
Net income per share:
Primary. . . . . . . . . . $0.44 $0.52 $0.49 $0.46
======= ======= ======= =======
Fully diluted. . . . . . . $0.43 $0.50 $0.48 $0.45
======= ======= ======= =======
Weighted average shares:
Primary. . . . . . . . . . 28,017 28,201 28,380 28,623
======= ======= ======= =======
Fully diluted. . . . . . . 29,495 29,680 29,859 30,327
======= ======= ======= =======
21
FINANCIAL CONDITION
- -------------------------------------------------------------------
ANALYSIS OF BALANCE SHEET CHANGES
Total assets reached $5.4 billion at December 31, 1996, 5.2%
higher than the prior year-end. Loans led the increase with
growth of $261.6 million or 8.0%. Total liabilities grew $266.3
million or 5.7% over 1995 while total deposits rose $84.9 million
or 2.0%. Other funding sources provided the remainder of the
resources.
LENDING AND LOAN ADMINISTRATION
Graph
ALLOWANCE/AVERAGE LOANS
1992 1.47
1993 1.57
1994 1.43
1995 1.28
1996 1.31
The primary responsibility and accountability for day-to-day
lending activities rests with ONB's affiliate banks. Loan
personnel at each bank have the authority to extend credit under
guidelines established by ONB's Board of Directors and
administered by the Credit Policy Committee. This committee
meets quarterly and is comprised of members of ONB's executive
management and, on a rotating basis, outside members of the Board
of Directors and affiliate bank management. The committee
monitors credit quality through the review of information such as
delinquencies and other problem loans and charge-offs. The
committee regularly reviews its loan policy to assure it remains
appropriate for the current lending environment. Executive and
credit committees at the banks provide additional knowledge,
judgment and experience to ONB's lending administration.
ONB maintains a continuous and comprehensive corporate loan
review program. ONB's loan review system provides independent
evaluation of loan administration, credit quality, loan
documentation, compliance with corporate loan standards, and the
adequacy of the allowance for loan losses. This program includes
regular reviews of problem loan reports, delinquencies, and
charge-offs.
Graph
NET CHARGE-OFFS/AVERAGE LOANS
1992 0.31
1993 0.25
1994 0.28
1995 0.26
1996 0.33
The adequacy of the allowance for loan losses is formally
evaluated on a quarterly basis at both the affiliate bank and
holding company level. This evaluation is based on reviews of
specific loans, changes in the loan type and volume of the
portfolios given current and anticipated economic conditions, and
historical loss experience. Loans are charged off when they are
deemed uncollectible. Charge-offs, net of recoveries, were $11.0
million in 1996, $8.2 million in 1995 and $8.2 million in 1994.
The rise in charge-offs was concentrated in the consumer area
which has been seen throughout the banking industry. Even with
the increase, ONB's charge-off levels have been superior to
industry levels.
ONB's affiliate banks make monthly provisions for possible loan
losses in amounts estimated to be sufficient to maintain the
allowance for loan losses at a level considered necessary by
management to absorb estimated losses in the loan portfolios.
The consolidated provision for loan losses was $11.0 million in
1996, up from $7.1 million in 1995, and $7.8 million in 1994.
The loan growth combined with the rise in charge-offs resulted in
higher provision levels. The stability of ONB's market area and
ONB's conservative credit culture adopted by our affiliate banks
provide a solid loan portfolio with manageable risk.
Table 8 on page 23 summarizes activity in the allowance for loan
losses for the years 1992 through 1996, along with an allocation
of the year-end balances and related statistics for the allowance
and net charge-offs.
22
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES (TABLE 8) ($ in thousands)
1996 1995 1994 1993 1992
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ANALYSIS:
Allowance for loan losses,
January 1. . . . . . . . . . . . $40,917 $41,943 $42,425 $37,911 $33,939
------- ------- ------- ------- -------
Loans charged off:
Commercial . . . . . . . . . . . 4,211 4,912 4,594 6,085 7,140
Commercial/residential real estate 670 973 697 2,701 2,141
Consumer credit. . . . . . . . . 10,497 5,335 5,465 2,816 3,127
------- ------- ------- ------- -------
Total charge-offs. . . . . . . 15,378 11,220 10,756 11,602 12,408
------- ------- ------- ------- -------
Recoveries on charged-off loans:
Commercial . . . . . . . . . . . 2,274 1,632 1,191 3,580 3,154
Commercial/residential real estate 320 301 186 318 459
Consumer credit. . . . . . . . . 1,775 1,126 1,143 912 848
------- ------- ------- ------- -------
Total recoveries . . . . . . . 4,369 3,059 2,520 4,810 4,461
------- ------- ------- ------- -------
Net charge offs. . . . . . . . . . 11,009 8,161 8,236 6,792 7,947
Provision charged to expense . . . 11,012 7,135 7,754 10,359 11,919
Acquisitions under
purchase accounting. . . . . . . -- -- -- 947 --
Nonrefundable dealer discounts . . 3,133 -- -- -- --
------- -------- -------- -------- --------
Allowance for loan lossses,
December 31 . . . . . . . . . . $44,053 $40,917 $41,943 $42,425 $37,911
======= ======= ======= ======= =======
Average loans for the year . . .$3,367,154 $3,186,731 $2,928,347 $2,700,408 $2,584,726
Allowance/year-end loans . . . . 1.25 % 1.25 % 1.35 % 1.51 % 1.45 %
Allowance/average loans. . . . . 1.31 1.28 1.43 1.57 1.47
Net charge-offs/average loans. . 0.33 0.26 0.28 0.25 0.31
ALLOCATION AT DECEMBER 31:
Commercial . . . . . . . . . . . $19,657 $22,207 $23,160 $22,276 $22,092
Commercial/residential real estate 11,533 11,633 11,219 12,991 10,292
Consumer credit. . . . . . . . . 12,863 7,077 7,564 7,158 5,527
------- ------- ------- ------- -------
Total. . . . . . . . . . . . . . . $44,053 $40,917 $41,943 $42,425 $37,911
======= ======= ======= ======= =======
</TABLE>
Assets determined by the various evaluation processes to be
under-performing receive special attention by ONB and the
affiliate banks. Under-performing assets consist of: 1)
nonaccrual loans where the ultimate collectibility of interest is
uncertain, but the principal is considered collectible; 2) loans
which have been renegotiated to provide for a reduction or
deferral of interest or principal because the borrower's
financial condition deteriorated; 3) loans with principal or
interest past due ninety (90) days or more; and 4) other real
estate owned. Each month, problem loans reports are prepared and
reviewed at both the affiliate banks and holding company. These
reports include loans which show signs of being unable to meet
debt obligations in the normal course of business, carry other
characteristics deemed by bank management to warrant special
attention, or have been criticized by regulators in the
examination process. Besides the loans classified as under-performing,
management closely monitors loans totaling $104.6 million as
of December 31, 1996, for the borrowers' ability to
comply with present repayment terms. For these loans the
existing conditions do not warrant either a partial charge-off or
classification as nonaccrual. Management believes it has taken a
conservative approach in its evaluation of under-performing
credits and the loan portfolio in general, both in acknowledging
the general condition of the portfolio and in establishing the
allowance for loan losses.
23
Table 9 below presents the components of under-performing assets
as of December 31, for the last five years.
Under-performing assets rose $3.5 million in 1996 from 1995 low
levels after a $2.3 million decrease in 1995. As a percent of
total loans and other real estate owned, under-performing assets
were 0.49%, 0.42%, and 0.52% at 1996, 1995 and 1994,
respectively. In 1996 the growth was in nonaccrual loans and
other real estate owned while past due and renegotiated loans
both decreased. At December 31, 1996, the allowance for loan
loss to under-performing assets ratio was 255.62%, comparable to
261.26% in 1994, but down from 297.79% in 1995. Said in another
way, ONB has set aside $2.56 for every dollar of under-performing
assets.
<TABLE>
<CAPTION>
UNDER-PERFORMING ASSETS (TABLE 9) ($ in thousands)
1996 1995 1994 1993 1992
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans . . . . . . . . . . $12,501 $6,919 $9,330 $6,871 $8,729
Renegotiated loans . . . . . . . . . 746 1,120 1,280 833 6,256
Past due loans (90 days or more):
Commercial . . . . . . . . . . . . 980 1,499 1,169 1,882 2,095
Commercial/residential real estate 1,265 2,602 2,102 2,692 3,218
Consumer . . . . . . . . . . . . . 700 1,059 1,257 893 893
------- ------- ------- ------- -------
Total. . . . . . . . . . . . . . 2,945 5,160 4,528 5,467 6,206
------- ------- ------- ------- -------
Other real estate owned. . . . . . . 1,042 541 916 1,596 4,124
------- ------- ------- ------- -------
Total under-performing assets . . . $17,234 $13,740 $16,054 $14,767 $25,315
======= ======= ======= ======= =======
Under-performing assets as a %
of total loans and other
real estate owned. . . . . . . . . 0.49 % 0.42 % 0.52 % 0.53 % 0.97 %
Allowance for loan loss/
under-performing assets . . . . . . 255.62 % 297.79 % 261.26 % 287.30 % 149.76 %
</TABLE>
Interest income of approximately $1.3 million would have been
recorded in 1996 on nonaccrual and restructured loans if such
loans had been accruing interest throughout the year in
accordance with their original terms. The amount of interest
income actually recorded in 1996 on nonaccrual and restructured
loans was $0.6 million.
24
SOURCES OF FUNDS
- -------------------------------------------------------------------
FUNDING
ONB's primary funding source is its base of core customer
deposits which consist of noninterest-bearing demand, regular
savings and NOW accounts, money market accounts, and small
denomination certificates of deposit. Other short-term sources
of funds are large denomination certificates, overnight
borrowings from other financial institutions, securities sold
under agreements to repurchase, and other short-term borrowings,
such as loans from FHLB. Medium term notes and subordinated
debentures provided longer term funds.
Table 10 below presents changes between years in the average
balances of all funding sources.
FUNDING SOURCES - AVERAGE BALANCE (TABLE 10) ($ in thousands)
% Change From
Prior Year
---------------
1996 1995 1994 1996 1995
Core Deposits: -------------------------------------------------
Demand deposits. . . . . $450,005 $455,991 $435,274 (1.3)% 4.8 %
Savings and NOW deposits 924,290 907,713 1,016,122 1.8 (10.7)
Money market deposits. . 666,462 595,583 529,906 11.9 12.4
Other time deposits. . . 1,813,209 1,809,240 1,660,351 0.2 9.0
---------- ---------- ---------- ---- ----
Total core deposits. . 3,853,966 3,768,527 3,641,653 2.3 3.5
---------- ---------- ---------- ---- ----
Certificates of deposit
$100,000 and over. . . 283,323 256,480 239,336 10.5 7.2
Short-term borrowings. . 409,829 370,192 335,121 10.7 10.5
Subordinated debentures. 30,800 33,918 39,738 (9.2) (14.6)
Medium term notes. . . . 45,218 40,616 32,302 11.3 25.7
--------- ---------- ---------- ---- ----
Total funding sources $4,623,136 $4,469,733 $4,288,150 3.4 % 4.2 %
========== ========== ========== ==== ====
CORE DEPOSITS
Average core deposits increased 2.3% in 1996 compared to the 3.5%
increase in 1995. The major shift was the growth of money market
deposits which grew 11.9% in 1996 and 12.4% in 1995. Other time
deposits rose 9.0% in 1995, but were flat in 1996. Marketing
efforts and interest rate uncertainty attracted deposits into
money market accounts, especially those tied to indices.
In 1995 the surge in time deposits came after rates rose in late
1994 and the stock market experienced a down-turn.
25
SHORT-TERM BORROWINGS
Additional sources of funding for ONB are various short-term
borrowings which consist primarily of federal funds purchased
from other financial institutions on an overnight basis, secured
repurchase agreements which generally mature within 30 days,
borrowings under U.S. Treasury demand notes, and loans from FHLB.
Collectively, the average short-term borrowings rose $39.6
million or 10.7% in 1996 and $35.1 million or 10.5% in 1995. ONB
has used these alternative sources to supplement deposit growth
to help fund additional assets.
Table 11 below presents the distribution of ONB's short-term
borrowings and the weighted average interest rates thereon for
each of the last three years.
<TABLE>
<CAPTION>
SHORT-TERM BORROWINGS (TABLE 11) ($ in thousands)
Other
Funds Repurchase Short-term
Purchased Agreements Borrowings
1996: --------------------------------------
<S> <C> <C> <C>
Outstanding at year-end . . . . . . . . . $57,175 $177,463 $265,028
Average amount outstanding. . . . . . . . 35,056 204,837 169,936
Maximum amount outstanding at
any month-end . . . . . . . . . . . . . 90,875 217,337 265,028
Weighted average interest rate:
During year . . . . . . . . . . . . . . 5.47 % 4.72 % 5.97 %
End of year . . . . . . . . . . . . . . 6.25 4.89 6.14
1995:
Outstanding at year-end . . . . . . . . . $11,775 $164,906 $138,451
Average amount outstanding. . . . . . . . 36,988 195,336 137,868
Maximum amount outstanding at
any month-end . . . . . . . . . . . . . 98,215 200,961 170,068
Weighted average interest rate:
During year . . . . . . . . . . . . . . 5.98 % 5.13 % 6.42 %
End of year . . . . . . . . . . . . . . 5.71 5.08 5.95
1994:
Outstanding at year-end . . . . . . . . . $124,475 $223,953 $132,398
Average amount outstanding . . . . . . . 56,209 191,255 87,657
Maximum amount outstanding at
any month-end . . . . . . . . . . . . . 124,475 223,953 132,398
Weighted average interest rate:
During year . . . . . . . . . . . . . . 4.39 % 3.65 % 5.44 %
End of year . . . . . . . . . . . . . . 5.54 3.85 6.06
</TABLE>
OTHER FUNDING SOURCES
Other funding sources consist of large denomination certificates
of deposit, medium term notes, and convertible subordinated
debentures. The average balance of large certificates grew $26.8
million or 10.5% in 1996 compared to the prior year. Table 12
below presents a maturity distribution for certificates of
deposit with denominations of $100,000 or more.
During 1996, holders of ONB's 8% convertible debentures converted
principal amounts of $1.0 million. These conversions resulted in
the issuance of 42,355 shares of common stock and an offsetting
increase in shareholders' equity.
In 1995 ONB issued the remaining $18 million of a medium term
note program started in 1993. The notes for the entire program
have a weighted average effective interest rate of 6.73% and
mature between 1998 and 2003. The funds were used to reduce ONB's
lines of credit.
CERTIFICATES OF DEPOSIT OF $100,000 AND OVER (TABLE 12) ($ in thousands)
Maturity Distribution
---------------------------------
Year-End 1-90 91-180 181-365 Beyond Interest Average
Balance Days Days Days 1 Year Expense Rate
-----------------------------------------------------------------
1996 . . $257,988 $98,035 $44,632 $65,271 $50,050 $14,666 5.18 %
1995 . . 285,461 125,971 56,128 39,648 63,714 14,472 5.64
1994 . . 220,964 93,145 53,623 28,845 45,351 8,774 3.67
26
USES OF FUNDS
- ----------------------------------------------------------------------
A significant challenge in the financial services industry is to
employ available sources of funds as profitably as possible in a
changing interest rate environment without incurring an
undesirable amount of credit or interest rate risk. Primary uses
of available funds are loans to customers, investment securities,
and various short-term deposits in other institutions.
LOANS
ONB's affiliate banks lend to commercial customers in various
industries including manufacturing, agribusiness, transportation,
mining, wholesaling, and retailing. ONB's policy is to
concentrate its lending activity in the geographic market areas
it serves, primarily southwestern Indiana, southeastern Illinois,
and western Kentucky. ONB has no concentration of loans in any
single industry exceeding 10% of its portfolio nor does its
portfolio contain any loans to finance speculative transactions,
such as large, highly leveraged buyouts. ONB does not engage in
lending to foreign countries.
Total loans, net of unearned income, increased $261.6 million or
8.0% between 1995 and 1996. Strong, balanced growth occurred in
all major categories, led by commercial real estate which was up
16.5%. Commercial, residential real estate, and consumer were up
7.2%, 5.2%, and 7.2% respectively. The portfolio is well
diversified with 23% of the portfolio in commercial loans, 19% in
commercial real estate, 37% in residential real estate, and 21%
in consumer credit. In 1995 loans grew 5.3% as residential real
estate increased 9.5% and consumer loans rose 8.9%
ONB's commercial lending is primarily to small- to medium-sized
businesses in various industries in its region. Commercial real
estate loans are generally to similar companies in ONB's
geographical area. These industries have been stable in ONB's
market area which provide opportunity for growth.
Residential real estate loans, primarily 1-4 family properties,
represent the most significant portion of the loan portfolio.
These loans provide a mix of adjustable rate and higher yielding,
fixed rate loans.
Consumer loans include automobile loans, personal and home equity
loans and lines of credit, student loans, and credit card loans.
This segment has been the fastest growing over the past five
years.
Table 13 on page 28 presents the composition of the loan
portfolio for each of the last five years. Loans in most
categories have grown steadily. Commercial loans increased an
average of 6.0% per year between 1992 and 1996. Commercial and
residential real estate loans and consumer loans increased 10.3%,
6.7%, and 11.6%, respectively, during this period.
Table 14 on page 28 presents the maturity distribution and rate
sensitivity of loans and an analysis of loans with predetermined
and floating interest rates. A significant percentage of
commercial and financial loans are due within one year,
reflecting the short-term nature of a large portion of these
loans.
27
<TABLE>
<CAPTION>
LOAN PORTFOLIO AT YEAR-END (TABLE 13) ($ in thousands)
Four Year
1996 1995 1994 1993 1992 Growth Rate
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial. . . . . . . . . $769,889 $718,288 $761,627 $675,748 $610,940 6.0 %
Financial . . . . . . . . . -- 5,167 2,546 10,000 24,861 (100.0)
Economic development bonds. 26,424 27,675 30,928 35,094 42,113 (11.0)
Commercial real estate. . . 668,671 573,829 536,620 487,039 451,843 10.3
Residential real estate . . 1,303,283 1,238,772 1,131,805 1,064,158 1,004,473 6.7
Consumer credit . . . . . . 776,614 724,305 665,055 567,841 500,423 11.6
---------- ---------- ---------- ---------- ---------- ----
Total loans . . . . . . 3,544,881 3,288,036 3,128,581 2,839,880 2,634,653 7.7 %
====
Less: Unearned income . 21,581 26,290 29,761 29,427 28,090
---------- ---------- ---------- ---------- ----------
Subtotal. . . . . . . . 3,523,300 3,261,746 3,098,820 2,810,453 2,606,563
Less: Allowance for
loan losses . . 44,053 40,917 41,943 42,425 37,911
---------- ---------- ---------- ---------- ----------
Net loans . . . . . . .$3,479,247 $3,220,829 $3,056,877 $2,768,028 $2,568,652
========== ========== ========== ========== ==========
COMPOSITION OF LOAN PORTFOLIO BY TYPE
Commercial/ financial/
development . . . . . . . 22.6 % 23.0 % 25.8 % 25.6 % 26.0 %
Commercial real estate. . . 19.0 17.6 17.3 17.3 17.3
Residential real estate . . 37.0 38.0 36.5 38.0 38.5
Consumer credit . . . . . . 21.4 21.4 20.4 19.1 18.2
</TABLE>
DISTRIBUTION OF LOAN MATURITIES AND RATE SENSITIVITY AT DECEMBER 31, 1996
(TABLE 14) ($ in thousands)
Within 1-5 Beyond
1 Year Years 5 years Total
---------------------------------------
Commercial and financial . . $431,911 $231,971 $106,007 $769,889
Economic development bonds . 6,741 9,822 9,861 26,424
-------- -------- -------- --------
Total. . . . . . . . . . $438,652 $241,793 $115,868 $796,313
======== ======== ======== ========
Predetermined interest rates $91,243 $91,598 $30,851 $213,692
Floating interest rates. . . 347,409 150,195 85,017 582,621
-------- -------- -------- --------
Total. . . . . . . . . . $438,652 $241,793 $115,868 $796,313
======== ======== ======== ========
28
INVESTMENT SECURITIES
Investment securities at December 31, 1996, increased $84.5
million, 5.9% over 1995. The bulk of the increase occurred in
mortgage-backed securities where better yield opportunities
existed more consistently during the year. Selected government
agencies and municipal securities periodically had acceptable
yields and allowed ONB to grow these categories.
As discussed in Note 3 to the consolidated financial statements,
ONB reclassified at December 31, 1995, the remaining held-to-
maturity securities as available-for-sale as permitted by the
Financial Accounting Standards Board's guide to implementation of
SFAS No. 115. The reclassification had no impact on ONB's
earnings, but permitted maximum flexibility to adapt to interest
rate changes.
Investment securities comprised 30.0% of ONB's earning assets at
December 31, 1996. The principal and interest payments along
with the ability to liquidate, if necessary, available-for-sale
securities provide funding to help meet unforeseen liquidity
needs. The entire portfolio has an approximate weighted average
maturity of 5.1 years.
At December 31, 1996, ONB held investment securities issued by
the states of Indiana, Illinois, and Pennsylvania and their
political subdivisions that had an aggregate market value of
$76.9 million, $70.3 million, and $48.8 million, respectively.
There were no other concentrations of investment securities
issued by an individual state and its political subdivisions
which were greater than 10% of shareholders' equity.
Average yields of the investment securities portfolio are
calculated on a taxable equivalent basis. Yields are based on
the amortized cost and are weighted for the scheduled maturity of
each investment. Average yields for the entire portfolio were
7.13%, 6.95%, and 6.80% for 1996, 1995, and 1994, respectively.
The portfolio yield increased during the year due to resets on
adjustable rate securities tied to trailing indices and a higher
interest rate environment while increasing the portfolio.
Table 15 below presents the maturity distribution of the
investment portfolio, along with weighted average yields thereon.
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES (TABLE 15) ($ in thousands)
December 31, 1996
--------------------------------------
Within 1 - 5 5 - 10 Beyond
1 Year Years Years 10 Years Total 1995 1994
FAIR VALUE: ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
United States Treasury . . $52,038 $97,148 $5,337 $ -- $154,523 $191,790 $224,385
U.S. Government agencies
and corporations. . . . . 88,374 133,612 967 40 222,993 203,330 172,766
Mortgage-backed securities 31,934 328,645 251,846 20,845 633,270 564,865 523,533
State and political
subdivisions. . . . . . . 20,970 141,567 250,940 48,900 462,377 442,302 417,787
Other securities. . . . . . 123 260 8,592 32,511 41,486 27,821 30,323
-------- -------- -------- -------- ---------- ---------- ----------
Total . . . . . . . . .$193,439 $701,232 $517,682 $102,296 $1,514,649 $1,430,108 $1,368,794
======== ======== ======== ======== ========== ========== ==========
AMORTIZED COST:
United States Treasury. . $51,966 $96,327 $5,337 $ -- $153,630 $189,506 $231,589
U.S. Government agencies
and corporations. . . . 88,325 132,880 999 40 222,244 202,767 178,693
Mortgage-backed securities 31,719 327,603 251,878 20,866 632,066 562,685 552,943
State and political
subdivisions. . . . . . 20,773 137,418 246,266 48,262 452,719 431,218 429,456
Other securities. . . . . 123 348 8,580 31,805 40,856 27,025 29,725
-------- -------- -------- -------- ---------- ---------- ----------
Total . . . . . . . . $192,906 $694,576 $513,060 $100,973 $1,501,515 $1,413,201 $1,422,406
======== ======== ======== ======== ========== ========== ==========
Weighted average yield,
based on amortized cost
(taxable equivalent basis) 6.63% 7.08% 7.36% 7.39% 7.13% 6.95% 6.80%
======== ======== ======== ======== ========== ========== ==========
</TABLE>
29
CAPITAL RESOURCES
Shareholders' equity was $458.5 million or 8.5% of total assets
at December 31, 1996, and $461.4 million or 9.0% at December 31,
1995. ONB paid cash dividends in 1996 totalling $23.7 million or
$0.88 per share (restated for the 5% stock dividend paid in
January 1997).
Graph
BOOK VALUE PER SHARE
1992 13.91
1993 14.85
1994 15.35
1995 16.61
1996 17.12
Treasury shares are repurchased throughout the year as part of an
ongoing program to provide shares for reissuance under ONB's
dividend reinvestment and stock purchase plan and for future
stock dividends. Treasury shares repurchased during 1996 reduced
shareholders' equity by $44.9 million. Shares reissued pursuant
to the above programs and in connection with conversions of ONB's
subordinated debentures added $7.8 million to shareholders'
equity in 1996.
ONB and the banking industry are subject to various regulatory
capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory actions by regulators that if
undertaken, could have a direct material effect on ONB's
financial statements. Capital adequacy in the banking industry
is evaluated primarily by the use of ratios which measure capital
against assets and certain off-balance-sheet items. Certain
ratios weight these assets based on risk characteristics
according to regulatory accounting practices. At December 31,
1996, ONB and it affiliate banks exceeded the regulatory minimums
and met the regulatory definition of well-capitalized. ONB's
capital ratios and the regulatory guidelines are presented in
Table 16 below.
<TABLE>
<CAPTION>
CAPITAL STRUCTURE AND REGULATORY CAPITAL GUIDELINES (TABLE 16) ($ in thousands)
Regulatory Limits December 31,
--------------------------- ----------------------------------
Minimum Well-Capitalized 1996 1995 1994
--------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
TIER 1 CAPITAL:
Shareholders' equity (1). . . . . . . $450,646 $451,174 $449,650
Less intangibles. . . . . . . . . . . (13,750) (15,185) (16,958)
---------- ---------- ----------
Tier 1 capital . . . . . . . . . . 436,896 435,989 432,692
TIER 2 CAPITAL:
Subordinated debentures . . . . . . . 30,564 31,515 38,049
Qualifying allowance for loan losses. 37,980 35,772 35,133
---------- ---------- ----------
Total capital . . . . . . . . . . . $505,440 $503,276 $505,874
========== ========== ==========
Risk adjusted assets. . . . . . . . . $3,376,237 $3,172,014 $3,057,991
========== ========== ==========
Tier 1 capital to risk-adjusted assets 4.00 % 6.00 % 12.94 % 13.74 % 14.15 %
Total capital to risk-adjusted assets 8.00 10.00 14.97 15.87 16.54
Tier 1 capital to total assets
(leverage ratio) . . . . . . . . . 3.00 5.00 8.16 8.57 8.84
(1) Excludes unrealized gains (losses) on investment securities.
</TABLE>
30
REPORT OF MANAGEMENT
- -------------------------------------------------------------------------
MANAGEMENT'S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
Management is responsible for the preparation of the financial
statements and related financial information appearing in this
annual report. The financial statements and notes have been
prepared in conformity with generally accepted accounting
principles and include some amounts which are estimates based
upon currently available information and management's judgment of
current conditions and circumstances. Financial information
throughout this annual report is consistent with that in the
financial statements.
SYSTEM OF INTERNAL ACCOUNTING CONTROLS
Management maintains a system of internal accounting controls
which is believed to provide, in all material respects,
reasonable assurance that assets are safeguarded against loss
from unauthorized use or disposition, transactions are properly
authorized and recorded, and the financial records are reliable
for preparing financial statements and maintaining accountability
for assets. In addition, ONB has a corporate code of conduct
under which employees are to maintain high levels of ethical
business standards. All systems of internal accounting controls
are based on management's judgment that the cost of controls
should not exceed the benefits to be achieved and that no system
can provide absolute assurance that control objectives are
achieved. Management believes ONB's system provides the
appropriate balance between costs of controls and the related
benefits.
In order to monitor compliance with this system of controls, ONB
maintains an extensive internal audit program. Internal audit
reports are issued to appropriate officers and significant audit
exceptions, if any, are reviewed with management and the Audit
Committee of the Board of Directors.
AUDIT COMMITTEE OF THE BOARD
The Board of Directors, through an Audit Committee comprised
solely of outside directors, oversees management's discharge of
its financial reporting responsibilities. The Audit Committee
meets regularly with the Company's independent public
accountants, Arthur Andersen LLP, and the managers of internal
auditing and loan review. During these meetings, the committee
has the opportunity to meet privately with the independent public
accountants as well as with internal audit and loan review
personnel to review accounting, auditing, loan, and financial
reporting matters. The appointment of the independent public
accountants is made by the Board of Directors upon the
recommendation of the Audit Committee.
INDEPENDENT PUBLIC ACCOUNTANTS
The financial statements in this annual report have been audited
by Arthur Andersen LLP, for the purpose of determining that the
financial statements are presented fairly in all material
respects. Arthur Andersen's report on the financial statements
appears on page 32. Their audit included a review of ONB's
system of internal accounting controls, for the purpose of
setting the scope and timing of their auditing procedures.
31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- -----------------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS OF OLD NATIONAL BANCORP:
We have audited the accompanying consolidated balance sheet of
Old National Bancorp (an Indiana corporation) and affiliates as
of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Old National Bancorp and affiliates as of December
31, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana
January 22, 1997
32
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP
CONSOLIDATED BALANCE SHEET
($ and shares in thousands)
December 31,
------------------------
1996 1995
<S> <C> <C>
ASSETS ------------------------
Cash and due from banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . $180,405 $180,115
Money market investments:
Interest-bearing deposits in other banks . . . . . . . . . . . . . . . . . . 3,140 8,201
Federal funds sold and securities purchased under agreements to resell . . . 3,558 81,661
---------- ----------
Total money market investments. . . . . . . . . . . . . . . . . . . . . . 6,698 89,862
---------- ----------
TOTAL CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . 187,103 269,977
---------- ----------
Investment securities - Available-for-sale, at fair value. . . . . . . . . . . 1,514,649 1,430,108
---------- ----------
Loans, net of unearned income. . . . . . . . . . . . . . . . . . . . . . . . . 3,523,300 3,261,746
Allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . (44,053) (40,917)
---------- ----------
NET LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,479,247 3,220,829
---------- ----------
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . 78,184 74,901
Accrued income receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . 47,058 47,210
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,350 60,170
---------- ----------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,366,591 $5,103,195
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing demand . . . . . . . . . . . . . . . . . . . . . . . . . $512,281 $475,719
Interest-bearing:
Savings, NOW and money market . . . . . . . . . . . . . . . . . . . . . . 1,644,050 1,608,520
Certificates of deposit $100,000 and over . . . . . . . . . . . . . . . . 257,988 285,461
Other time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,853,705 1,813,382
---------- ----------
TOTAL DEPOSITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,268,024 4,183,082
---------- ----------
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499,666 315,132
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . 65,811 62,042
Subordinated debentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,564 31,515
Medium term notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,000 50,000
---------- ----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,908,065 4,641,771
Commitments and contingencies ---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock, 2 million shares authorized, no shares issued or outstanding . -- --
Common stock, $1 stated value, 50 million shares authorized,
26,778 and 26,453 shares issued and outstanding, respectively . . . . . . . . 26,778 26,453
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,584 253,986
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,284 170,735
Net unrealized gain on available-for-sale investment securities . . . . . . . . 7,880 10,250
---------- ----------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . 458,526 461,424
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. . . . . . . . . . . . . . . . $5,366,591 $5,103,195
========== ==========
The accompanying notes to consolidated financial statements are an integral part of this statement.
</TABLE>
33
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF INCOME
($ and shares in thousands except per share data)
Years Ended December 31,
------------------------------------
1996 1995 1994
INTEREST INCOME ------------------------------------
<S> <C> <C> <C>
Loans including fees:
Taxable. . . . . . . . . . . . . . . . . . . . . . . . . $299,130 $281,111 $239,268
Nontaxable . . . . . . . . . . . . . . . . . . . . . . . 3,897 3,578 3,012
Investment securities:
Taxable. . . . . . . . . . . . . . . . . . . . . . . . . 64,465 63,554 61,531
Nontaxable . . . . . . . . . . . . . . . . . . . . . . . 23,694 23,585 24,078
Deposits with banks. . . . . . . . . . . . . . . . . . . . 650 429 497
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . 2,577 3,479 2,439
-------- -------- --------
TOTAL INTEREST INCOME . . . . . . . . . . . . . . . . 394,413 375,736 330,825
-------- -------- --------
INTEREST EXPENSE
Savings, NOW and money market deposits . . . . . . . . . . 46,500 47,123 39,955
Certificates of deposit $100,000 and over . . . . . . . . 14,666 14,472 8,774
Other time deposits. . . . . . . . . . . . . . . . . . . . 102,255 98,409 77,464
Short-term borrowings . . . . . . . . . . . . . . . . . . 21,742 21,035 14,247
Other borrowings . . . . . . . . . . . . . . . . . . . . . 5,468 5,461 5,712
-------- -------- --------
TOTAL INTEREST EXPENSE. . . . . . . . . . . . . . . . 190,631 186,500 146,152
-------- -------- --------
NET INTEREST INCOME . . . . . . . . . . . . . . . . . 203,782 189,236 184,673
Provision for loan losses. . . . . . . . . . . . . . . . . 11,012 7,135 7,754
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 192,770 182,101 176,919
-------- -------- --------
NONINTEREST INCOME
Trust fees . . . . . . . . . . . . . . . . . . . . . . . . 10,149 9,216 7,851
Service charges on deposit accounts. . . . . . . . . . . . 15,624 14,177 13,233
Loan servicing fees. . . . . . . . . . . . . . . . . . . . 5,668 5,691 4,992
Net securities gains(losses) . . . . . . . . . . . . . . . 781 52 (541)
Other income . . . . . . . . . . . . . . . . . . . . . . . 12,579 10,458 9,341
------- ------- -------
TOTAL NONINTEREST INCOME. . . . . . . . . . . . . . . 44,801 39,594 34,876
------- ------- -------
NONINTEREST EXPENSE
Salaries and employee benefits . . . . . . . . . . . . . . 84,618 77,479 75,076
Occupancy expense. . . . . . . . . . . . . . . . . . . . . 10,236 9,006 8,943
Equipment expense. . . . . . . . . . . . . . . . . . . . . 11,446 11,119 9,973
Marketing expense. . . . . . . . . . . . . . . . . . . . . 5,288 5,334 4,745
FDIC insurance premiums. . . . . . . . . . . . . . . . . . 3,041 5,324 8,923
Data processing expense . . . . . . . . . . . . . . . . . 5,076 6,028 5,936
Supplies expense . . . . . . . . . . . . . . . . . . . . . 4,396 4,559 4,304
Communication and transportation expense . . . . . . . . . 6,673 5,863 5,579
Other expense . . . . . . . . . . . . . . . . . . . . . . 21,546 22,603 23,816
-------- -------- --------
TOTAL NONINTEREST EXPENSE . . . . . . . . . . . . . . 152,320 147,315 147,295
-------- -------- --------
Income before income taxes . . . . . . . . . . . . . . . . 85,251 74,380 64,500
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 25,072 20,441 15,497
------- ------- -------
NET INCOME. . . . . . . . . . . . . . . . . . . . . . $60,179 $53,939 $49,003
======= ======= =======
NET INCOME PER COMMON SHARE:
Primary . . . . . . . . . . . . . . . . . . . . . . . $2.20 $1.91 $1.69
======= ======= =======
Fully diluted . . . . . . . . . . . . . . . . . . . . $2.14 $1.86 $1.65
======= ======= =======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Primary . . . . . . . . . . . . . . . . . . . . . . . 27,415 28,303 29,066
======= ======= =======
Fully diluted . . . . . . . . . . . . . . . . . . . . 28,846 29,781 30,849
======= ======= =======
The accompanying notes to consolidated financial statements are an integral part of this statement.
</TABLE>
34
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
($ and shares in thousands) Net
Unrealized Total
Gain(Loss)on Share-
Common Stock Capital Retained Investment holders'
-----------------
Shares Amount Surplus Earnings Securities Equity
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1993 . . . . . . . 25,332 $25,332 $218,600 $191,492 ($18) $435,406
Net income . . . . . . . . . . . . . . . . . -- -- -- 49,003 -- 49,003
Cash dividends . . . . . . . . . . . . . . . -- -- -- (21,247) -- (21,247)
5% stock dividend. . . . . . . . . . . . . . 1,043 1,043 35,191 (36,234) -- --
Stock repurchased. . . . . . . . . . . . . . (615) (615) (21,864) (192) -- (22,671)
Stock reissued under dividend reinvestment
and stock purchase plan. . . . . . . . . . 200 200 6,929 -- -- 7,129
Stock reissued due to conversion of
subordinated debentures. . . . . . . . . . 81 81 1,931 -- -- 2,012
Net unrealized loss on investment securities -- -- -- -- (8,961) (8,961)
------ ------- -------- -------- ------- --------
BALANCES, DECEMBER 31, 1994. . . . . . . . . 26,041 26,041 240,787 182,822 (8,979) 440,671
Net income . . . . . . . . . . . . . . . . . -- -- -- 53,939 -- 53,939
Cash dividends . . . . . . . . . . . . . . . -- -- -- (22,441) -- (22,441)
5% stock dividend. . . . . . . . . . . . . . 1,184 1,184 42,401 (43,585) -- --
Stock repurchased. . . . . . . . . . . . . . (1,238) (1,238) (41,572) -- -- (42,810)
Stock reissued under dividend reinvestment
and stock purchase plan. . . . . . . . . . 188 188 6,114 -- -- 6,302
Stock reissued due to conversion of
subordinated debentures. . . . . . . . . . 278 278 6,256 -- -- 6,534
Net unrealized gain on investment securities -- -- -- -- 19,229 19,229
------ ------- -------- -------- ------- --------
BALANCES, DECEMBER 31, 1995. . . . . . . . . 26,453 26,453 253,986 170,735 10,250 461,424
Net income . . . . . . . . . . . . . . . . . -- -- -- 60,179 -- 60,179
Cash dividends . . . . . . . . . . . . . . . -- -- -- (23,655) -- (23,655)
5% stock dividend. . . . . . . . . . . . . . 1,277 1,277 47,698 (48,975) -- --
Stock repurchased. . . . . . . . . . . . . . (1,255) (1,255) (43,606) -- -- (44,861)
Stock reissued under dividend reinvestment
and stock purchase plan. . . . . . . . . . 262 262 6,596 -- -- 6,858
Stock reissued due to conversion of
subordinated debentures. . . . . . . . . . 41 41 910 -- -- 951
Net unrealized loss on investment securities -- -- -- -- (2,370) (2,370)
------ ------- -------- -------- ------ --------
BALANCES, DECEMBER 31, 1996 . . . . . . . . 26,778 $26,778 $265,584 $158,284 $7,880 $458,526
====== ======= ======== ======== ====== ========
The accompanying notes to consolidated financial statements are an integral part of this statement.
</TABLE>
35
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
Years Ended December 31,
---------------------------
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $60,179 $53,939 $49,003
------- ------- -------
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,298 7,902 7,324
Amortization of intangible assets. . . . . . . . . . . . . . . . . 1,435 1,773 1,947
Net premium amortization on investment securities. . . . . . . . . . . . . 2,200 1,722 5,187
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . 11,012 7,135 7,754
(Gain) loss on sale of investment securities . . . . . . . . . . . . . . . (781) (52) 541
(Gain) loss on sale of other assets . . . . . . . . . . . . . . . . . . . 254 (291) (228)
(Increase) decrease in interest receivable . . . . . . . . . . . . . . . . 152 (6,031) (2,840)
(Increase) decrease in other assets. . . . . . . . . . . . . . . . . . . . (1,615) 1,797 (345)
Increase (decrease) in accrued expenses and other liabilities. . . . . . . 5,172 8,576 (953)
------- ------- -------
Total adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,127 22,531 18,387
------- ------- -------
Net cash flows provided by operating activities. . . . . . . . . . . . . . 86,306 76,470 67,390
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities held-to-maturity . . . . . . . . . . . . . -- (62,585) (164,531)
Purchase of investment securities available-for-sale . . . . . . . . . . . .(453,068) (268,399) (182,802)
Proceeds from maturities of investment securities held-to-maturity. . . . . -- 113,673 215,267
Proceeds from maturities of investment securities available-for-sale . . . . 333,963 189,170 172,420
Proceeds from sales of investments securities available-for-sale . . . . . . 29,372 35,210 52,713
Net principal collected from (loans made to) customers:
Commercial and financial . . . . . . . . . . . . . . . . . . . . . . . . . (47,120) 40,691 (39,124)
Commercial/residential real estate, net of loans originated for sale . . .(159,703) (144,848) (150,099)
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (62,607) (66,930) (99,067)
Residential real estate loans originated for sale . . . . . . . . . . . . . (44,400) (36,322) (33,872)
Proceeds from sale of mortgage loans . . . . . . . . . . . . . . . . . . . 44,734 36,541 27,070
Proceeds from sale of premises and equipment . . . . . . . . . . . . . . . . 1,059 1,258 755
Purchase of premises and equipment . . . . . . . . . . . . . . . . . . . . . (13,228) (12,041) (12,295)
Acquisition of affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 12,574
------- ------- -------
Net cash flows used in investing activities . . . . . . . . . . . . . . .(370,998) (174,582) (200,991)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits and short-term borrowings:
Noninterest-bearing demand deposits. . . . . . . . . . . . . . . . . . . . 36,562 27,161 (10,791)
Savings, NOW and money market deposits . . . . . . . . . . . . . . . . . . 35,530 96,534 (37,393)
Certificates of deposit $100,000 and over. . . . . . . . . . . . . . . . . (27,473) 64,497 (14,579)
Other time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,323 119,139 26,729
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . 184,534 (166,494) 186,439
(Payments on) proceeds from medium term notes. . . . . . . . . . . . . . . . (6,000) 18,000 --
Redemption of 10% subordinated debentures. . . . . . . . . . . . . . . . . . -- -- (4,506)
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,655) (22,441) (21,247)
Common stock repurchased . . . . . . . . . . . . . . . . . . . . . . . . . . (44,861) (42,810) (22,671)
Common stock reissued, net of shares used to convert subordinated debentures 6,858 6,302 7,129
------- ------ -------
Net cash flows provided by financing activities . . . . . . . . . . . . . 201,818 99,888 109,110
------- ------ -------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . (82,874) 1,776 (24,491)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . 269,977 268,201 292,692
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . $187,103 $269,977 $268,201
======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of this statement.
</TABLE>
36
OLD NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of Old National Bancorp ("ONB") and its wholly-owned
affiliates and have been prepared in conformity with generally
accepted accounting principles and prevailing practices within
the banking industry. Such principles require management to make
estimates and assumptions that affect the reported amounts of
assets, liabilities, and the disclosures of contingent assets and
liabilities at the date of the financial statements and amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
All significant intercompany transactions and balances have been
eliminated. The statements have been restated to reflect mergers
accounted for by the pooling-of-interests method of accounting
(see Note 2). A summary of the more significant accounting and
reporting policies used in preparing the statements is presented
below.
NATURE OF OPERATIONS
ONB, a multi-bank holding company headquartered in Evansville,
Indiana, operates in Indiana, Illinois, and Kentucky. Through
its bank and non-bank affiliates, ONB provides to its customers
an array of financial services including loan, deposit, trust,
investment, and insurance products.
INVESTMENT SECURITIES
According to Statement of Financial Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities," securities are classified into one of three
categories as follows: 1) "Held-to-maturity" includes debt
securities which ONB has the intent and ability to hold until
maturity. They are recorded at amortized cost; 2) "Trading"
includes debt and equity securities purchased with the intent to
sell in the near-term and are carried at fair value. Unrealized
gains and losses are included in income; and 3) "Available-for-sale"
includes all other securities. These securities are
recorded at fair value with the unrealized gains and losses, net
of tax effect, recorded as a separate component of shareholders'
equity. Realized gains and losses affect income and the prior
fair value adjustments are reversed.
Premiums and discounts are recognized in interest income using
the interest method over the period to maturity. Gains and
losses on the sale of available-for-sale securities are
determined using the specific-identification method.
LOANS
Loans are stated at the principal amount outstanding. Interest
income on nondiscounted loans is accrued on the principal
balances of loans outstanding. Interest income on discounted
loans is recognized using other methods that generally
approximate the interest method. A loan is generally placed on
nonaccrual status when principal or interest becomes 90 days past
due unless it is well secured and in the process of collection,
or earlier when concern exists as to the ultimate collection of
principal or interest. Interest accrued during the current year
on such loans is reversed against earnings. Interest accrued in
the prior year, if any, is charged to the allowance for loan
losses.
As an element of managing interest rate risk exposure, certain
ONB affiliate banks pre-sell fixed rate mortgage loans to third
parties. As of December 31, 1996, approximately $1.2 million of
such mortgage loans were held and carried at cost which
approximates market value. An additional $32.4 million of
consumer auto loans may be sold and are carried at cost which is
less than market value.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level believed
adequate by management to absorb potential losses in the
consolidated loan portfolio. Management's evaluation of the
adequacy of the allowance is an estimate based on reviews of
individual loans, the risk characteristics of the various
categories of loans given current economic conditions and other
factors such as historical loss experience, the financial
condition of the borrower, and fair market value of the
collateral and growth of the loan portfolio. The allowance is
increased through a provision charged to operating expense.
Loans deemed to be uncollectible are charged to the allowance.
Recoveries of loans previously charged off are added to the
allowance.
A loan is considered impaired when it is probable that
contractual interest and principal payments will not be collected
either for the amounts or by the dates as scheduled in the loan
agreement. ONB's policy for recognizing income on impaired loans
is to accrue earnings unless a loan becomes nonaccrual.
To appropriately reflect credit risks generally associated with
ONB's non-prime automobile finance business, ONB purchases
installment contracts from dealers at a discount from their
principal amount. ONB negotiates the discount amount with
dealers based upon various criteria, one of which is the credit
risk associated with the contracts being purchased. The
nonrefundable discount is allocated to the allowance for loan
losses to further protect ONB from losses associated with such
contracts.
37
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is charged to operating expense over
the useful life of the assets, principally on the straight-line
method for building and leasehold improvements and the declining-
balance method for equipment. Maintenance and repairs are
expensed as incurred while major additions and improvements are
capitalized.
OTHER ASSETS
Real estate properties acquired as a result of foreclosure are
valued at the lower of the recorded investment in the related
loan or fair value of the property less estimated costs to sell.
The recorded investment is the sum of the outstanding principal
loan balance, any accrued interest which has not been received,
and acquisition costs associated with the loan. Any excess
recorded investment over the fair value of the property received
is charged to the allowance for loan losses. Any subsequent
write-downs are charged to expense, as are the costs of operating
the properties. Such costs are not material to ONB's results of
operation.
Identifiable intangible assets and the excess of total
acquisition costs over the fair value of net assets acquired
($0.3 million and $13.5 million, respectively, at December 31,
1996) are being amortized on the straight-line basis over periods
ranging from 8 to 25 years. Such assets are periodically
evaluated as to the recoverability of their carrying value.
NET INCOME PER SHARE
Primary net income per share is computed by dividing net income
by the weighted average number of common shares outstanding
during each year, adjusted to reflect all stock dividends (Note
9) and all mergers accounted for as pooling-of-interests (Note 2)
as if they had occurred at the beginning of the earliest year
presented. Net income per share, assuming full dilution, is
computed as above and assumes the conversion of outstanding
subordinated debentures (Note 10). For the fully diluted
computation, net income is adjusted for the elimination of
interest expense, net of income tax effects, and a total of 1.4
million, 1.5 million, and 1.8 million common shares are assumed
to be issued in 1996, 1995, and 1994, respectively, in connection
with the conversion of the remaining outstanding debentures.
INCOME TAXES
Deferred tax assets and liabilities are recorded based on
differences between the financial statement and tax bases of
assets and liabilities at income tax rates currently in effect.
For ONB, this results in a net deferred tax asset which relates
principally to differences in the recognition of loan losses for
book and tax purposes.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business, ONB's affiliate banks have
entered into off-balance-sheet financial instruments consisting
of commitments to extend credit, commitments under credit card
arrangements, commercial letters of credit, and standby letters
of credit. Such financial instruments are recorded in the
financial statements when they become payable.
STATEMENT OF CASH FLOWS DATA
For the purpose of presentation in the accompanying Statement of
Cash Flows, cash and cash equivalents are defined as cash, due
from banks, and money market investments. Cash paid during the
years ended December 31, 1996, 1995, and 1994 for interest was
$190.2 million, $180.6 million, and $144.2 million, respectively.
Total income tax payments during 1996, 1995, and 1994 were $24.1
million, $17.1 million, and $22.7 million, respectively.
IMPACT OF ACCOUNTING CHANGES
Effective January 1, 1996, ONB adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 122,
"Accounting for Mortgage Servicing Rights." This statement
modifies the accounting for mortgage servicing rights to allow
the recognition of a servicing asset whether they are purchased
or originated.
Effective January 1, 1996, ONB adopted the provisions of SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of."
The adoption of both above statements did not have a material
impact on ONB's financial condition and its results of
operations.
In June 1996, the Financial Accounting Standards Board issued
SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." This
statement provides accounting standards for sales,
securitization, and servicing of receivables, and other financial
assets, secured borrowing and collateral transactions, and the
extinguishment of liabilities. The statement is effective
January 1, 1997, except for certain provisions which are
effective in 1998. ONB doesn't expect the impact to be material
to its financial condition and results of operations.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with
the 1996 presentation. Such reclassifications had no effect on
net income.
38
NOTE 2 - BUSINESS COMBINATIONS
MERGERS - CONSUMMATED
ONB consummated the following mergers in 1996:
Date Company & Subsidiary Shares Issued
- ---------- ------------------------------------------- -------------
May 31 The National Bank of Carmi (Carmi, Illinois) 407,885
October 19 Workingmens Capital Holdings, Inc. -
Workingmens Federal Savings Bank ("WFSB")
(Bloomington, Indiana) 1,165,726
These transactions were accounted for as pooling-of-interests.
Upon consummation, WFSB was merged into an existing ONB
affiliate, ONB Bank, Bloomington, Indiana, and was renamed
Workingmens/ONB Bank.
Net income earned in 1996 by these companies prior to their
respective mergers with ONB totalled $633 thousand. The
following table presents a restatement of net interest income,
net income, and primary net income per common share to reflect
these pooling-of-interests transactions ($ in thousands, except
per share data):
1995 1994
-------- --------
As reported in the 1995 Annual Report:
Net interest income. . . . . . . . . $181,194 $176,568
Net income . . . . . . . . . . . . . 51,694 46,472
Primary net income per share, as
restated for stock dividend. . . . 1.94 1.70
As restated herein:
Net interest income. . . . . . . . . $189,236 $184,673
Net income . . . . . . . . . . . . . 53,939 49,003
Primary net income per share . . . . 1.91 1.69
NOTE 3 - INVESTMENT SECURITIES
The following tables summarize the amortized cost and fair value
of the investment securities portfolio at December 31, 1996 and
1995, and the corresponding amounts of unrealized gains and
losses therein ($ in thousands):
Available-for-Sale
-------------------------------------------
Amortized Unrealized Unrealized Fair
December 31, 1996: Cost Gains Losses Value
-------------------------------------------
U.S. Treasury. . . . . . . . . . $153,630 $1,272 ($378) $154,524
U.S. Government agencies
and corporations . . . . . . . 222,244 1,565 (816) 222,993
Mortgage-backed securities . . . 632,065 4,214 (3,009) 633,270
State and political subdivisions 452,720 11,218 (1,560) 462,378
Other securities . . . . . . . . 40,856 716 (88) 41,484
---------- ------- ------ ----------
Total. . . . . . . . . . . $1,501,515 $18,985 ($5,851) $1,514,649
========== ======= ====== ==========
December 31, 1995:
U.S. Treasury. . . . . . . . . . $189,506 $2,678 ($394) $191,790
U.S. Government agencies
and corporations . . . . . . . 202,767 1,502 (939) 203,330
Mortgage-backed securities . . . 557,842 4,535 (2,365) 560,012
State and political subdivisions 431,218 12,957 (1,874) 442,301
Other securities . . . . . . . . 31,868 1,138 (331) 32,675
---------- ------- ------ ----------
Total. . . . . . . . . . . $1,413,201 $22,810 ($5,903) $1,430,108
========== ======= ====== ==========
39
In November 1995 the Financial Accounting Standards Board issued
a guide to the implementation of SFAS No. 115 which allowed a
one-time reclassification of securities between the categories.
As of December 31, 1995, ONB reevaluated its portfolio and
reclassified its remaining held-to-maturity securities as
available-for-sale. The reclassification maximized flexibility
in future interest rate environments by allowing sales, if deemed
necessary. The securities transferred had an amortized cost of
$886.7 million and a net unrealized gain of $13.8 million.
The amortized cost and fair value of the investment securities
portfolio at December 31, 1996 and 1995, are shown below by
expected maturity. Expected maturities may differ from
contractual maturities if borrowers have the right to call or
prepay obligations with or without call or prepayment penalties.
Proceeds from sales of investment securities available-for-sale
during 1996 and 1995 were $29.4 million and $35.2 million,
respectively. In 1996 realized gains and losses were $0.8
million and $0.1 million, respectively. In 1995 realized gains
were $0.1 million.
Investment securities with a carrying value of $463 million and
$452 million at December 31, 1996 and 1995, respectively, were
pledged to secure public and other funds as required.
1996 1995
----------------------------------------------
($ in thousands) Amortized Fair Amortized Fair
Cost Value Cost Value
Maturity ---------------------- ----------------------
Within one year. . $192,906 $193,439 $379,757 $380,152
One to five years. 694,576 701,232 586,286 596,228
Five to ten years. 513,060 517,682 379,808 384,474
Beyond ten years . 100,973 102,296 67,350 69,254
---------- ---------- ---------- ----------
Total. . . . $1,501,515 $1,514,649 $1,413,201 $1,430,108
========== ========== ========== ==========
NOTE 4 - LOANS
The composition of loans at December 31, 1996 and 1995, by
lending classification was as follows ($ in thousands):
December 31,
----------------------
1996 1995
----------------------
Commercial. . . . . . . . . . $769,889 $718,288
Financial . . . . . . . . . . -- 5,167
Economic development bonds. . 26,424 27,675
Commercial real estate. . . . 668,671 573,829
Residential real estate . . . 1,303,283 1,238,772
Consumer credit, net. . . . . 755,033 698,015
---------- ----------
Total loans . . . . . . $3,523,300 $3,261,746
========== ==========
ONB's banking affiliates make loans to customers in various
industries including manufacturing, agribusiness, transportation,
mining, wholesaling, and retailing, predominately in its tri-state
region. The loan portfolio is diversified with no single
industry exceeding 10% of the total.
Executive officers and directors of ONB and significant
subsidiaries and their related interests are loan customers of
ONB's affiliate banks in the normal course of business. These
loans are made on substantially the same terms, including
interest rates and collateral, as those prevailing at the same
time for comparable transactions with unrelated parties and
involve no unusual risk of collectibility. An analysis of the
1996 activity of these loans is as follows ($ in thousands):
Balance, January 1, 1996 . . . . . . . . . . $85,839
New loans. . . . . . . . . . . . . . . . . 78,776
Repayments . . . . . . . . . . . . . . . . (52,369)
Officer and director changes . . . . . . . (5,181)
--------
Balance, December 31, 1996 . . . . . . . . . $107,065
========
40
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses during the years 1996,
1995, and 1994 was as follows ($ in thousands):
December 31,
---------------------------
1996 1995 1994
---------------------------
Balance at beginning of year . . $40,917 $41,943 $42,425
Additions:
Provision charged to expense . 11,012 7,135 7,754
Nonrefundable dealer discounts 3,133 -- --
Deductions:
Loans charged off. . . . . . . 15,378 11,220 10,756
Recoveries . . . . . . . . . (4,369) (3,059) (2,520)
------- ------- -------
Net charge-offs. . . . . . . 11,009 8,161 8,236
------- ------- -------
Balance at end of year . . . . . $44,053 $40,917 $41,943
======= ======= =======
As of December 31, 1996, the recorded investment in loans for
which impairment has been recognized in accordance with SFAS No.
114 and 118 was $3.9 million with no related allowance and $51.5
million with $12.6 million of related allowance. As of December
31, 1995, the recorded investment in loans for which impairment
has been recognized in accordance with SFAS No. 114 and 118 was
$5.7 million with no related allowance and $47.5 million with
$13.4 million of related allowance.
For the year ended December 31, 1996, the average balance of
impaired loans was $54.8 million, for which $3.8 million of
interest was recorded. For the year ended December 31, 1995, the
average balance of impaired loans was $57.9 million, for which
$4.3 million of interest was recorded.
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," requires entities to disclose the fair value of
financial instruments, both assets and liabilities recognized and
not recognized in the consolidated balance sheet, for which it is
practicable to estimate fair value. The following methods and
assumptions were used to estimate the fair value of each type of
financial instrument.
CASH, DUE FROM BANKS AND MONEY MARKET INVESTMENTS
For these instruments, the carrying amount is a reasonable
estimate of fair value.
INVESTMENT SECURITIES
For investment securities, fair values are based on quoted market
prices, if available. For securities where quoted prices are not
available, fair value is estimated based on market prices of
similar securities.
LOANS
The fair value of loans is estimated by discounting future cash
flows using current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
DEPOSITS
The fair value of noninterest-bearing demand deposits and
savings, NOW, and money market deposits is the amount payable as
of the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated using rates currently
offered for deposits with similar remaining maturities.
SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under agreements to
repurchase generally have an original term to maturity of 30 days
or less and, therefore, their carrying amount is a reasonable
estimate of fair value.
MEDIUM TERM NOTES AND SUBORDINATED DEBENTURES
The fair value of medium term notes is estimated using rates
currently offered for obligations with similar remaining
maturities. The fair value of subordinated debentures is
estimated using rates currently available to ONB for debt with
similar terms and remaining maturities.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Loan commitments and standby letters of credit are generally
short-term and therefore, their carrying amount is a reasonable
estimate of their fair value.
41
The estimated carrying and fair values of ONB's financial
instruments as of December 31, 1996, are as follows ($ in
thousands):
Carrying Fair
Value Value
---------- ----------
Financial Assets:
Cash, due from banks and
money market investments. $ 187,103 $ 187,103
Investment securities. . . . 1,514,649 1,514,649
Loans, net . . . . . . . . . 3,479,247 3,492,613
Financial Liabilities:
Deposits . . . . . . . . . . 4,268,024 4,279,522
Short-term borrowings. . . . 499,666 499,666
Medium term notes . . . . . . 44,000 44,286
Subordinated debentures . . . 30,564 53,563
Off-Balance-Sheet Financial Instruments:
Commitments to extend credit 689,164 689,164
Letters of credit. . . . . . 26,209 26,209
NOTE 7 - INCOME TAXES
Following is a summary of the major items comprising the
difference in taxes computed at the federal statutory rate and as
recorded in the consolidated statement of income:
1996 1995 1994
-----------------------
Provision at statutory rate. . 35.0% 35.0% 35.0%
Tax exempt income. . . . . . . (9.6) (10.9) (13.1)
NOL utilization. . . . . . . . - - (0.5)
State income taxes . . . . . . 3.6 3.2 3.5
Reduction in deferred tax asset
valuation allowance. . . . . - - (2.5)
Other, net . . . . . . . . . . 0.4 0.2 1.6
---- ---- ----
Actual tax rate. . . . . . . . 29.4% 27.5% 24.0%
==== ==== ====
The provision for income taxes consists of the following
components ($ in thousands):
1996 1995 1994
--------------------------
Income taxes currently payable - federal $19,801 $16,048 $14,084
Income taxes currently payable - state. . 4,786 3,790 4,128
Deferred income taxes related to:
Provision for loan losses . . . . . . (996) (117) (200)
Reduction in deferred tax asset
valuation allowance . . . . . . . . - - (1,599)
Other, net . . . . . . . . . . . . . . 1,481 720 (916)
------- ------- -------
Deferred income tax expense (benefit) . . 485 603 (2,715)
------- ------- -------
Provision for income taxes. . . . . . . . $25,072 $20,441 $15,497
======= ======= =======
42
Significant components of ONB's net deferred tax assets as of
December 31 are as follows ($ in thousands):
1996 1995
------------------
Deferred Tax Assets:
Allowance for loan losses,
net of recapture. . . . . . . . $15,006 $14,010
Benefit plan accruals. . . . . . . 3,309 2,562
Net operating loss carryforwards . 1,484 3,000
Purchase accounting adjustments . . 579 647
------- ------
Total deferred tax assets . . . 20,378 20,219
------- ------
Deferred Tax Liabilities:
Premises and equipment. . . . . . . (2,702) (2,774)
Accretion on investment securities. (763) (886)
Unrealized gain on available-
for-sale investment securities . (5,254) (6,623)
Lease receivable, net . . . . . . . (1,352) (1,019)
Other, net. . . . . . . . . . . . . (635) (129)
------- ------
Total deferred tax liabilities . (10,706) (11,431)
------- ------
Net deferred tax assets. . . . . . . $9,672 $8,788
======= ======
As of December 31, 1996, ONB had $3.4 million Federal net
operating loss carryforwards which expire between 2002 and 2009.
These net operating loss carryforwards are attributable to
several of ONB's affiliate banks. Tax law imposes a limitation
on the utilization of net operating loss carryforwards generated
by an acquired entity. For ONB, this annual limitation is
approximately $1.7 million of taxable income generated by the
acquired banks.
A valuation allowance is provided when it is more likely than not
that some portion of the deferred tax asset will not be realized.
The valuation allowance was reversed in 1994 due to the continued
and expected profitability of the affiliate banks to which the
allowance related.
NOTE 8 - EMPLOYEE BENEFIT PLANS
RETIREMENT PLAN
ONB has a noncontributory defined benefit retirement plan covering
substantially all full-time employees. Retirement benefits are
based on years of service and compensation during the highest paid
five years of employment. ONB's policy is to contribute at least
the minimum funding requirement determined by the plan's actuary.
The table below sets forth the plan's funded status and the amount
recognized in the consolidated balance sheet at December 31, 1996,
1995, and 1994. The table includes affiliates that were part of
ONB prior to 1994. The affiliates at Tell City, Oblong and Fulton
were included in 1996. Indiana State, Covington, and Paoli were
added in 1995. The recognition of the affiliates acquired in 1996
will begin in 1997.
1996 1995 1994
-----------------------------
($ in thousands)
Actuarial present value of the accumulated
benefit obligation, including vested
benefits of $16,099 in 1996, $14,086 in
1995, and $11,575 in 1994 . . . . . . . $17,576 $15,233 $12,730
======= ======= =======
Actuarial present value of the
projected benefit obligation,
for service rendered to date . . . . . $23,647 $21,091 $20,372
Plan assets, primarily common stocks,
bonds, and guaranteed investment
contracts . . . . . . . . . . . . . 21,859 19,943 15,284
------- ------- -------
Plan assets less than projected
benefit obligation. . . . . . . . . . (1,788) (1,148) (5,088)
Unrecognized net loss during the year . 990 784 3,880
Unrecognized prior service cost . . . . 421 473 1,318
Remaining unrecognized overfunding
at date of adoption of SFAS
Statement No. 87, being
recognized over 18.5 years. . . . . . (2,850) (3,058) (3,400)
------- ------- -------
Accrued pension cost included in
other liabilities . . . . . . . . . . . $(3,227) $(2,949) $(3,290)
======= ======= =======
43
The net pension expense and its components were as follows ($ in
thousands):
1996 1995 1994
---------------------------
Service cost - benefits earned
during period . . . . . . . . $ 1,867 $ 1,667 $1,617
Interest cost on projected benefit
obligation . . . . . . . . . 1,681 1,562 1,384
Actual return on plan assets. . (1,707) (2,785) 313
Net amortization and deferral . (293) 1,020 (1,769)
------- ------- ------
Net pension expense . . . . . . $ 1,548 $ 1,464 $1,545
======= ======= ======
Each year, ONB consults with its actuary to assess the
appropriateness of assumptions used in the determination of
retirement plan expense and funded status information for the
discount rate, the long-term rate of return on assets, and the
rate of salary progression. The assumptions reflected in the
table above include a discount rate at December 31 of 7.75% in
1996 and 1995 and 8.00% in 1994, a long-term rate of return of
8.00% in 1996 and 1995, and 7.50% in 1994, and a rate of salary
progression of 5.00% in 1996, 1995, and 1994. The total
retirement plan expense for all plans was $1.6 million in 1996,
$1.6 million in 1995, and $1.8 million in 1994.
PROFIT SHARING PLAN
ONB has a profit sharing plan for all employees who have
completed one year of service. Contributions to the plan are
made when certain consolidated profit conditions are met.
Additionally, employees may participate by contributing a
percentage of their salary, a portion of which is matched by ONB.
ONB's profit sharing expense for the years 1996, 1995, and 1994
was $4.0 million, $3.8 million, and $3.6 million, respectively.
RESTRICTED STOCK PLAN
ONB has a restricted stock plan which covers certain officers of
ONB and its affiliates. Shares are earned each year based on the
achievement of net income targets. Shares vest over a four year
period. Unvested shares are subject to certain restrictions and
risk of forfeiture by the participants. In accordance with the
plan, shares vesting were 20,711 in 1996, 23,934 in 1995, and
23,561 in 1994. Expense recorded in 1996, 1995, and 1994 was
$0.8 million, $0.7 million, and $0.8 million, respectively.
NOTE 9 - SHAREHOLDERS' EQUITY
STOCK DIVIDEND
A 5% stock dividend was declared on December 12, 1996, and
distributed on January 29, 1997. All average share and per share
amounts have been retroactively adjusted to reflect this stock
dividend.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
ONB has a dividend reinvestment and stock purchase plan, under
which common shares issued may be either repurchased shares or
authorized and previously unissued shares. As of December 31,
1996, 1.7 million authorized and unissued common shares were
reserved for issuance under the plan.
SHAREHOLDER RIGHTS PLAN
ONB has adopted a Shareholder Rights Plan whereby one right was
distributed for each outstanding share of ONB's common stock.
The rights become exercisable on the tenth day following a public
announcement that a person has acquired or intends to acquire
beneficial ownership of 20% or more of ONB's outstanding common
stock. Upon exercising the rights, the holder is entitled to buy
1/100 of a share of Junior Preferred Stock at $60 for every right
held. Upon the occurrence of certain events, the rights may be
redeemed by ONB at a price of $.01 per right.
In the event an acquiring party becomes the beneficial owner of
20% or more of ONB's outstanding shares, rights holders (other
than the acquiring person) may purchase two shares of ONB common
stock for the price of one share at the then market price. If
ONB is acquired and is not the surviving corporation, or if ONB
survives a merger but has all or part of its common stock
exchanged, each rights holder will be entitled to acquire shares
of the acquiring company with a value of two times the then
exercise price of the rights for each right held.
44
NOTE 10 - FINANCING ACTIVITIES
SUBORDINATED DEBENTURES
ONB has outstanding $30.6 million of 8% convertible subordinated
debentures which are due September 15, 2012, unless previously
converted or redeemed. The debentures are convertible into
shares of ONB common stock at a conversion rate of 46.875 shares
per $1,000 principal amount of debentures. During 1996, $1.0
million principal amount of debentures were converted into 42,355
shares of ONB common stock.
Interest on the debentures is payable on March 15 and September
15 of each year. The debentures are redeemable, in whole or in
part, at the option of ONB at a premium to par value. Debenture
holders are entitled to an annual sinking fund beginning
September 15, 1998, of $2.5 million less conversions and
redemptions. The debentures are subordinated in right of payment
to all senior indebtedness of ONB. As of December 31, 1996, 1.4
million authorized and unissued common shares were reserved for
conversion of the remaining debentures.
MEDIUM TERM NOTES
At December 31, 1996, ONB has outstanding $44 million of medium
term notes. These notes bear interest at a weighted average rate
of 6.73% and mature between 1998 and 2003.
LINES OF CREDIT
At December 31, 1996, ONB had $75 million in unsecured lines of
credit with unaffiliated banks with $7.8 million unused. The
lines bear interest at the bank's federal funds rate plus 60 to
80 basis points. During the years 1996, 1995, and 1994, the
average interest rates on the lines were 6.17%, 6.71%, and 5.52%,
respectively. The lines of credit include various arrangements
to maintain compensating balances or pay fees to maintain the
line.
At December 31, 1996, ONB had $163.7 million borrowed from
various Federal Home Loan Banks (FHLB). Floating-rate borrowings
totaled $92.5 million and will mature between 1997 and 1999. The
remaining borrowings have a fixed interest rate and mature
between 1997 and 2013. The weighted average rates of the FHLB
borrowings were 5.84% and 6.22% at December 31, 1996 and 1995,
respectively. A portion of these borrowings is secured by
specific mortgage loans which have a current book value of
approximately $165.5 million. FHLB requires collateral values up
to 167% of the amount borrowed.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
LEASES
ONB rents certain premises and equipment under operating leases
which expire at various dates. Many of these leases provide for
payment by ONB of property taxes, insurance premiums,
maintenance, and other costs. In some cases, rentals are subject
to increase in relation to a cost-of-living index. Total rental
expense was $3.9 million in 1996, $3.9 million in 1995, and $3.3
million in 1994.
Following is a summary of future minimum lease commitments ($ in
thousands):
1997. . . . . . . $2,820 2000 . . . . . . . $1,411
1998. . . . . . . 2,580 2001 . . . . . . . 1,351
1999. . . . . . . 1,959 2002 and after . . 2,323
LETTERS AND LINES OF CREDIT
In the normal course of business, ONB's banking affiliates have
entered into various agreements to extend credit, such as loan
commitments of $689.2 million, including $225.2 million of short-term
commitments with fixed-rates, and letters of credit of $26.2
million at December 31, 1996. These commitments are not
reflected in the consolidated financial statements. No material
losses are expected to result from these transactions.
LITIGATION
At December 31, 1996, various legal actions and proceedings were
pending against ONB and certain of its affiliate banks. These
actions and proceedings are incidental to the banking business
and are not expected to have a material adverse effect upon the
financial position of ONB or its affiliates.
45
NOTE 12 - REGULATORY RESTRICTIONS
RESTRICTIONS ON CASH AND DUE FROM BANKS
ONB's affiliate banks are required to maintain reserve balances
on hand and with the Federal Reserve Bank which are non-interest
bearing and unavailable for investment purposes. The reserve
balances at December 31, 1996 and 1995, were $32.4 million and
$55.7 million, respectively.
RESTRICTIONS ON TRANSFERS FROM AFFILIATE BANKS
Regulations limit the amount of dividends an affiliate bank can
declare in any year without obtaining prior approval. At
December 31, 1996, affiliate banks could pay aggregate dividends
to ONB of approximately $45.1 million without prior regulatory
approval.
ADEQUACY
For additional information on capital adequacy see Table 16 in
Management's Discussion and Analysis on page 30.
NOTE 13 - PARENT COMPANY FINANCIAL STATEMENTS
The following are the condensed parent company only financial
statements of Old National Bancorp ($ in thousands):
OLD NATIONAL BANCORP (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEET
December 31,
-------------------
1996 1995
-------------------
ASSETS
Deposits in affiliate banks. . . . . . . . . . . . . . . . $1,686 $1,198
Investment in affiliates:
Banks, including purchase accounting intangible assets of
$8,613 in 1996 and $9,320 in 1995. . . . . . . . . . . 528,747 505,460
Non-banks. . . . . . . . . . . . . . . . . . . . . . . . 10,703 3,678
Advances to affiliates . . . . . . . . . . . . . . . . . . 58,492 16,044
Other assets . . . . . . . . . . . . . . . . . . . . . . . 6,682 41,457
-------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . $606,310 $567,837
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings. . . . . . . . . . . . . . . . . . . $67,206 $18,554
Other liabilities. . . . . . . . . . . . . . . . . . . . . 6,014 6,344
8% convertible subordinated debentures, due 2012 . . . . . 30,564 31,515
Medium term notes . . . . . . . . . . . . . . . . . . . . 44,000 50,000
Shareholders' equity . . . . . . . . . . . . . . . . . . . 458,526 461,424
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . $606,310 $567,837
======== ========
OLD NATIONAL BANCORP (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF INCOME
Years Ended December 31,
---------------------------
1996 1995 1994
INCOME ---------------------------
Dividends from affiliates. . . . $49,570 $87,646 $32,703
Income on other investments. . . 2,320 1,202 1,204
Other income from affiliates . . 5,918 5,090 4,805
------- ------- -------
TOTAL INCOME . . . . . . . . . 57,808 93,938 38,712
------- ------- -------
EXPENSE
Interest on borrowings . . . . . 7,014 7,023 5,886
Amortization of intangibles. . . 707 1,231 1,228
Other expenses . . . . . . . . . 9,378 7,816 6,929
------- ------- -------
TOTAL EXPENSE. . . . . . . . . 17,099 16,070 14,043
------- ------- -------
Income before income taxes and
equity in undistributed earnings
of affiliates. . . . . . . . . 40,709 77,868 24,669
Income tax benefit . . . . . . . (3,541) (3,464) (2,997)
------- ------- -------
Income before equity in
undistributed earnings of affiliates 44,250 81,332 27,666
Equity in undistributed earnings of
affiliates . . . . . . . . . . 15,929 (27,393) 21,337
------- ------- -------
NET INCOME . . . . . . . . . . $60,179 $53,939 $49,003
======= ======= =======
46
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF CASH FLOWS
Years Ended December 31,
----------------------------
1996 1995 1994
----------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . $60,179 $53,939 $49,003
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . 201 204 196
Amortization of intangible assets. . . . . . . 707 1,231 1,228
(Increase) decrease in other assets . . . . . 34,857 (37,601) (1,417)
Increase (decrease) in other liabilities . . . (330) (163) 1,055
Equity in undistributed earnings of affiliates (15,929) 27,393 (21,337)
------- ------- -------
Total adjustments. . . . . . . . . . . . . . 19,506 (8,936) (20,275)
------- ------- -------
Net cash flows provided by operating activities 79,685 45,003 28,728
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net advances to affiliates. . . . . . . . . . . . (59,908) (6,451) (8,371)
Purchase of premises and equipment . . . . . . . (283) (198) (946)
Other . . . . . . . .. . . . . . . . . . . . . . -- -- 948
------- ------ ------
Net cash flows used in investing activities . . (60,191) (6,649) (8,369)
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from short-term borrowings . . . . . 48,652 1,559 15,295
(Payments on) proceeds from medium term notes . . (6,000) 18,000 --
Cash dividends paid . . . . . . . . . . . . . . . (23,655) (22,441) (21,247)
Common stock repurchased . . . . . . . . . . . . (44,861) (42,810) (22,671)
Common stock reissued, net of shares used to
convert subordinated debentures . . . . . . . 6,858 6,302 7,129
------- ------- -------
Net cash flows used in financing activities . . (19,006) (39,390) (21,494)
------- ------- -------
Net increase (decrease) in cash and cash equivalents 488 (1,036) (1,135)
Cash and cash equivalents at beginning of period . 1,198 2,234 3,369
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . $1,686 $1,198 $2,234
======= ======= =======
</TABLE>
47
ANNUAL MEETING
The Annual Meeting of Shareholders will be held Thursday, April 17, 1997, at
10:30 a.m. Central Daylight Time, in the Auditorium at the Vanderburgh
Auditorium Convention Center, 715 Locust Street, Evansville, Indiana.
CORPORATE OFFICE
420 Main Street
Evansville, Indiana 47708
812-464-1434
E-mail address:www.oldnational.com
STOCK INFORMATION
The stock of the company is traded over-the-counter on the NASDAQ National
Market System under Ticker Symbol OLDB. The Stock Transfer Agent is:
Old National Bancorp
Post Office Box 718
Evansville, Indiana 47705-0718
In December 1996, a one-for-twenty (5%) stock dividend was declared to
shareholders of record on January 8, 1997. There were 13, 283 shareholders
of record as of December 31, 1996.
MARKET MAKERS
The following firms make a market in Old National Bancorp's stock:
Herzog, Heine, Geduld
J.J.B. Hilliard, W.L. Lyons
Keefe, Bruyette & Woods, Inc.
McDonald & Company Sec., Inc.
NatCity Investments, Inc.
Smith Barney Shearson
DIVIDEND REINVESTMENT AND DISCOUNT STOCK PURCHASE PLAN
The company offers an automatic Dividend Reinvestment and Discount Stock
Purchase Plan to its shareholders. For information concerning this convenient
method of purchasing additional shares of stock, contact:
Shareholder Services Department
Old National Bancorp
Post Office Box 718
Evansville, Indiana 47705-0718
812-464-1296
ADDITIONAL INFORMATION
Shareholders and interested investors may obtain information about the company
upon written request or by calling:
John Claybon, CFA
Investor Relations Officer
Old National Bancorp
Post Office Box 718
Evansville, Indiana 47705-0718
812-464-1442
FORM 10-K
The Annual Report on Form 10-K, as required to be filed with the Securities and
Exchange Commission, is available without charge upon written request or by
calling:
Ronald W. Seib, CPA
Vice President-Corporate Controller
Old National Bancorp
Post Office Box 718
Evansville, Indiana 47705-0718
812-464-1530
EQUAL OPPORTUNITY EMPLOYER
The company maintains its commitment to equal opportunity and affirmative action
in employment and promotion policies and pledges to recruit, hire, train, and
promote persons in all job classifications without regard to race, color,
religion, sex, age, or handicap.
The table below list the NASDAQ price quotes and dividend data for Old National
Bancorp stock over the last two years.*
Price Per Share
--------------- Share Dividend
High Low Volume Declared
- ---------------------------------------------------------------------------
1996
- ---------------------------------------------------------------------------
First Quarter $31 7/8 $31 1/8 879,400 $.22
Second Quarter 35 1/4 31 5/8 1,528,300 .22
Third Quarter 35 3/4 34 1/2 1,080,500 .22
Fourth Quarter 37 3/8 34 3/8 1,552,200 .22
- ---------------------------------------------------------------------------
1995
- ---------------------------------------------------------------------------
First Quarter $32 1/2 $31 3/4 1,305,500 $.21
Second Quarter 31 1/2 30 7/8 1,209,200 .21
Third Quarter 31 1/4 31 1/8 696,200 .21
Fourth Quarter 31 1/2 30 5/8 730,100 .21
*Data adjusted for all stock dividends, including a 5% stock dividend to
shareholders of record on January 8, 1997, paid on January 29,1997.
52
<TABLE>
<CAPTION>
EXHIBIT 21
OLD NATIONAL BANCORP
SUBSIDIARIES OF THE REGISTRANT
AS OF DECEMBER 31, 1996
Jurisdiction of Business Name
Name of Subsidiary Incorporation of Subsidiary
<S> <C> <C>
Old National Bank in Evansville United States of America Old National Bank
(Evansville, Indiana)
Merchants National Bank United States of America Merchants National Bank
of Terre Haute
(Terre Haute, Indiana)
First Citizens Bank and Indiana First Citizens Bank and
Trust Company Trust Company
(Greencastle, Indiana)
People's Bank & Trust Co. Indiana People's Bank & Trust Co.
(Mt. Vernon, Indiana)
The Rockville National Bank United States of America Rockville National Bank
(Rockville, Indiana)
Clinton State Bank Indiana Clinton State Bank
(Clinton, Indiana)
Security Bank & Trust Co. Indiana Security Bank & Trust Co.
(Vincennes, Indiana)
Farmers Bank & Trust Co. Kentucky Farmers Bank & Trust Co.
(Madisonville, Kentucky)
The Peoples National Bank United States of America The Peoples National Bank
of Lawrenceville of Lawrenceville
(Lawrenceville, Illinois)
First State Bank of Kentucky First State Bank
Greenville Kentucky
(Greenville, Kentucky)
Morganfield National Bank United States of America Morganfield National Bank
(Morganfield, Kentucky)
The First National Bank of Harrisburg United States of America First National Bank
(Harrisburg, Illinois)
Security Bank & Trust Co. Illinois Security Bank & Trust Co.
(Mt. Carmel, Illinois)
Farmers Bank & Trust Company Kentucky Farmers Bank & Trust
(Henderson, Kentucky) Company
United Southwest Bank Indiana United Southwest Bank
(Washington, Indiana)
Palmer-American National Bank United States of America Palmer-American National
(Danville, Illinois) Bank
Old National Realty Company, Inc. Indiana Old National Realty Company,
(Evansville, Indiana) Inc.
Indiana Old National Insurance Company Arizona IONIC
(Evansville, Indiana)
Old National Service Corporation Indiana Old National Service
(Evansville, Indiana) Corporation
Jurisdiction of Business Name
Name of Subsidiary Incorporation of Subsidiary
Dubois County Bank Indiana Dubois County Bank
(Jasper, Indiana)
Bank of Western Indiana Indiana Bank of Western Indiana
(Covington, Indiana)
Orange County Bank Indiana Orange County Bank
(Paoli, Indiana)
First National Bank United States of America First National Bank
(Oblong, Illinois)
Citizens National Bank United States of America Citizens National Bank
(Tell City, Indiana)
Workingmens/ONB Bank United States of America Workingmens/ONB Bank
(Bloomington, Indiana)
City National Bank United States of America City National Bank
(Fulton, Kentucky)
The National Bank of Carmi United States of America The National Bank of Carmi
(Carmi, Illinois)
Old National Trust Company United States of America Old National Trust Company
(Evansville, Indiana)
Old National Trust Company-Kentucky United States of America Old National Trust Company-
(Morganfield, Kentucky) Kentucky
Old National Trust Company-Illinois United States of America Old National Trust Company-
(Mt. Carmel, Illinois) Illinois
Consumer Acceptance Corporation Indiana Consumer Acceptance Corporation
(Indianapolis, Indiana)
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report incorporated by reference in this Form 10-K into the Registrant's
previously filed Registration Statement File No. 2-90678.
s/s Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OLD NATIONAL
BANCORP'S DECEMBER 31, 1996 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 180,405
<INT-BEARING-DEPOSITS> 3,140
<FED-FUNDS-SOLD> 3,558
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,514,649
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,523,300
<ALLOWANCE> 44,053
<TOTAL-ASSETS> 5,366,591
<DEPOSITS> 4,268,024
<SHORT-TERM> 499,666
<LIABILITIES-OTHER> 65,811
<LONG-TERM> 74,564
0
0
<COMMON> 26,778
<OTHER-SE> 431,748
<TOTAL-LIABILITIES-AND-EQUITY> 5,366,591
<INTEREST-LOAN> 303,027
<INTEREST-INVEST> 88,159
<INTEREST-OTHER> 3,227
<INTEREST-TOTAL> 394,413
<INTEREST-DEPOSIT> 163,421
<INTEREST-EXPENSE> 190,631
<INTEREST-INCOME-NET> 203,782
<LOAN-LOSSES> 11,012
<SECURITIES-GAINS> 781
<EXPENSE-OTHER> 21,546
<INCOME-PRETAX> 85,251
<INCOME-PRE-EXTRAORDINARY> 60,179
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,179
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 2.14
<YIELD-ACTUAL> 4.46
<LOANS-NON> 12,501
<LOANS-PAST> 2,945
<LOANS-TROUBLED> 746
<LOANS-PROBLEM> 104,600
<ALLOWANCE-OPEN> 40,917
<CHARGE-OFFS> 15,378
<RECOVERIES> 4,369
<ALLOWANCE-CLOSE> 44,053
<ALLOWANCE-DOMESTIC> 44,053
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
