SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 29, 1999
OLD NATIONAL BANCORP
(Exact name of Registrant as specified in its charter)
Indiana 0-10888 35-1439838
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
420 Main Street, Evansville, IN 47708
(Address of Principal Executive Offices) Zip Code
(812) 464-1434
(Registrant's telephone number, including area code)
Item 5. Other Events
On January 29, 1999, Old National Bancorp (the "Registrant")
completed its pooling of interests acquisition of Southern
Bancshares LTD ("Southern"). As a result of such acquisition,
the Registrant's historical financial statements have been
restated.
Attached as an exhibit is the Registrant's Supplement to the 1998
Annual Report, which sets forth on a restated basis to reflect
the Southern acquisition, Management's discussion and analysis of
financial condition and results of operations, the Registrant's
consolidated balance sheet as of December 31, 1998 and 1997, and
the related consolidated statement of income, changes in
shareholders' equity and cash flows for each of the three years
in the period ended December 31, 1998.
Item 7. Exhibits
(c ) Exhibits.
(27) Financial Data Schedule
(99) Supplement to the 1998 Annual Report
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this Current Report on
Form 8-K to be signed on its behalf by the undersigned hereunto
duly authorized.
OLD NATIONAL BANCORP
(Registrant)
Date: December 1, 1999 By:/s/ RONALD B. LANKFORD
Ronald B. Lankford, President
Exhibit 99
OLD NATIONAL BANCORP
SUPPLEMENT TO THE 1998 ANNUAL REPORT
Restated to reflect the pooling of interests accounting
acquisition of Southern Bancshares, LTD on January 29, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
Old National Bancorp ("ONB") is a multi-bank holding company
headquartered in Evansville, Indiana. Located in Indiana,
Illinois, and Kentucky, its 26 affiliate banks serve customers
through 125 office locations in both urban and rural markets. A
complete listing of ONB's affiliate banks is presented on page
10. These banks provide a wide range of financial services,
such as making commercial and consumer loans; originating 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 additional
financial or support services incidental to ONB's operations,
including data processing; issuance and reinsurance of credit
life, accident, health, life, property, and casualty insurance;
investment services; fiduciary and trust services; and property
ownership.
FINANCIAL BASIS
The following discussion is an analysis of ONB's operating
results for the years 1996 through 1998 and financial condition
as of December 31, 1998 and 1997, and will assist readers of the
accompanying consolidated financial statements and related
footnotes beginning on page 32. Management's forward-looking
statements are intended to benefit the reader, but are subject to
various risks and uncertainties which may cause actual results to
differ materially, including but not limited to:(1)economic
conditions generally and in the market areas of the company;
(2)increased competition in the financial services industry;
(3)actions by the Federal Reserve Board and changes in interest
rates; and (4)governmental legislation and regulation.
The financial 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.
During 1998, ONB sold the operations and related auto loans of
its consumer finance subsidiary headquartered in Indianapolis.
The sale and the operations prior to the sale resulted in a $9.9
million loss on discontinued operations, net of tax, in 1998. The
financial results of the discontinued operations in prior periods
are similarly broken out from ONB's continuing operations. The
net assets of the subsidiary are included in other assets on the
consolidated balance sheet for periods prior to the sale. The
following discussion and analysis of ONB's financial condition
and results of operations relates to its continuing operations.
For further details regarding the discontinued operations, see
the consolidated financial statements and Note 2.
Tax-exempt interest income in the following information has been
increased to an amount comparable to interest subject to income
taxes using the federal statutory rate in effect of 35% for all
periods. 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.
COMPETITION AND ECONOMIC CONDITIONS
The banking industry and related financial service providers are
highly competitive. ONB competes not only against other local
and regional banking institutions, thrifts, finance companies,
and credit unions, but also money market mutual funds, investment
brokers, and insurance companies. This competition takes place
in terms of interest rates on loans and deposits, convenient
locations and hours, types of services, and quality of service.
12
In most of its markets, ONB and its affiliates rank first or
second in volume of loans and deposits.
The economy in the United States and in the Midwest has been
characterized by relatively low inflation and unemployment, and
steady growth. Recent signs of weaknesses include a rise in
consumer delinquency and bankruptcy levels and low commodity
prices in the agricultural sector. While ONB's numerous markets
vary, its major markets have demonstrated economic expansion and
a growing financial base with additions such as the new Toyota
and AK Steel manufacturing complexes.
US Government long-term interest rates which rose in 1996
declined in 1997 and 1998. Short-term rates changed less
dramatically, though the Federal funds rate was lowered three
times in the fall of 1998. Despite this trend, certificate of
deposit rates generally increased during 1997, but began to move
down more in 1998. Prime rate stayed fairly constant with
minimal movement, but followed the Federal funds rate shift
downward in 1998. A flattening of the yield curve occurred
throughout 1998. Normally, the rate on U.S. Government securities
increases as the term lengthens, however by year-end 1998, the
yield on a six month bill was virtually the same as a five year
note. The combination of these factors applied pressure on the
spreads financial institutions earn between their assets, loans
and securities, and their liabilities, deposits and debt. This
is discussed further as it pertains to ONB in the Net Interest
Income section.
MERGER ACTIVITY
In 1997 and 1998 ONB did not complete any banking acquisitions.
During 1998, ONB agreed to merge with Southern Bancshares
Ltd.("Southern"), Carbondale, Illinois and Dulaney
Bancorp,Inc.("Dulaney"), Marshall, Illinois. As of December 31,
1998, Southern had total assets of $255 million and Dulaney's
total assets were $39 million. Both mergers were consummated in
the first quarter of 1999 and accounted for as pooling-of-
interests.
These financial statements have been restated to reflect the
Southern merger. The Dulaney merger was not considered material
and is not reflected in these financial statements.
YEAR 2000
The national and local press has devoted much coverage to the
Year 2000 ("Y2K") issue, also know as the "Millennium Bug". This
refers to the possibility that some computers may be unable to
recognize the date change at the turn of the century. With the
high volume of transactions and electronic data, the banking
industry requires extensive computer capabilities to service its
customers. With that in mind, ONB has devoted much attention to
its systems to prepare itself for the millennial change.
ONB has successfully completed its Y2K compliance testing of its
mission-critical computer systems and its core processing systems
used to service its customers. Besides maintaining this status,
ONB is managing its third party system relationships, updating
disaster and contingency plans, and testing nonmission-critical
software. Renovation and testing of software and hardware may
not remove all risks related to Y2K. Alternative methods to
perform key activities will be addressed through contingency
planning.
There has been no significant financial impact to ONB as a result
of the Year 2000 project. ONB's 1998 Y2K expenses were less than
$500 thousand. Much of ONB's software is externally generated
with minimal internal software. Much of the software and hardware
items have been changed, upgraded, or replaced in preparation for
Y2K and have been part of the normal maintenance. While the
company will continue testing and implementing secondary systems
and replacing certain personal computers through 1999, it does
not expect any material impact on earnings associated with these
Y2K compliance efforts.
13
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
($ in thousands except per share data)
- -----------------------------------------------------------------------------------------------------------------------------------
Five Year
Growth
1998 1997 1996 1995 1994 1993 Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
(Taxable equivalent basis)
Interest income $470,915 $448,875 $419,483 $402,793 $353,983 $346,604
Interest expense 231,613 216,868 196,289 191,835 149,809 147,972
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 239,302 232,007 223,194 210,958 204,174 198,632 3.8 %
Provision for loan losses 12,160 13,562 11,082 7,491 7,886 10,635 2.7
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 227,142 218,445 212,112 203,467 196,288 187,997 3.9
Noninterest income 58,891 51,104 47,402 42,044 36,680 35,642 10.6
Noninterest expense 167,937 158,631 156,720 153,345 152,093 139,579 3.8
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 118,096 110,918 102,794 92,166 80,875 84,060 7.0
Income taxes 43,961 42,835 40,107 35,222 29,550 31,203 7.1
- -----------------------------------------------------------------------------------------------------------------------------------
Net income from continuing operations $74,135 68,083 62,687 56,944 51,325 52,857 7.0
Discontinued operations (9,854) (5,005) 494 -- -- -- N/M
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income $64,281 $63,078 $63,181 $56,944 $51,325 $52,857 4.0 %
===================================================================================================================================
YEAR-END BALANCES
Total assets $6,416,611 $5,933,321 $5,602,460 $5,281,387 $5,081,088 $4,888,709 5.6 %
Loans, net of
unearned income 4,354,256 3,915,841 3,627,592 3,375,915 3,205,097 2,892,750 8.5
Deposits 4,668,858 4,521,010 4,479,357 4,336,406 4,028,932 4,020,643 3.0
Shareholders' equity 519,645 500,609 480,435 481,511 457,971 451,472 2.9
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (on continuing operations)(1)
Net income-basic $1.61 $1.47 $1.31 $1.16 $1.02 $1.04 9.1
Net income-diluted (2) 1.57 1.43 1.28 1.13 0.99 1.02 9.0
Cash dividends paid 0.58 0.56 0.53 0.51 0.48 0.42 6.9
Book value at year-end 11.40 10.93 10.26 9.90 9.15 8.91 13.9
- -----------------------------------------------------------------------------------------------------------------------------------
SELECTED PERFORMANCE RATIOS (on continuing operations)
Return on assets 1.21 % 1.19 % 1.17 % 1.11 % 1.04 % 1.11 %
Return on equity (3) 14.95 14.28 13.23 12.20 11.07 11.50
Equity to assets 8.38 8.46 8.95 9.02 9.36 9.62
Dividend payout 35.15 36.74 38.96 43.90 47.36 40.13
Primary capital to assets 9.22 9.27 9.77 9.88 10.26 10.47
Net charge-offs to
average loans 0.23 0.21 0.30 0.25 0.27 0.24
Allowance for loan losses
to average loans 1.26 1.31 1.25 1.30 1.44 1.56
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Restated for all stock dividends.
(2) Assumes the conversion of ONB's subordinated debentures.
(3) Excludes unrealized gains (losses) on investment securities.
N/M = Not meaningful
14
</TABLE>
RESULTS OF OPERATIONS
NET INCOME
ONB earnings rose 8.9% to reach $74.1 million in 1998, a $6.0 million
increase. Shareholders' basic income per share for 1998 was $1.61, up 9.5%
over 1997, and diluted earnings per share totaled $1.57, a 9.8% increase
over 1997. Strong noninterest income growth and continued net interest
income improvement combined to generate the earnings growth in 1998. The
specific effects of each of these factors are discussed in the following
paragraphs.
ONB's 1997 net income was $68.1 million, up 8.6% or $5.4 million above 1996
earnings. Strong net interest income growth of $8.8 million and excellent
noninterest expense control growth offset a $2.5 million loan loss
provision increase.
NET INTEREST INCOME
As a financial intermediary, ONB pays interest on deposits and other
liabilities and receives interest and fee income on earning assets, such as
loans and investments. The difference between the income earned and the
interest paid is net interest income which provides nearly 80% of ONB's net
revenues (net interest income plus noninterest income). 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 net interest 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, credit demand strength, 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 1998 grew $7.3
million or 3.1% over 1997. Average earning assets grew $355.5 million or
6.6%, during 1998. Much of this growth was funded by interest-bearing
liabilities which increased $340.7 million or 7.2%. Other assets, which
averaged $314.2 million in 1998, included the net assets of the
discontinued finance company's operations discussed earlier and the cash
surrender value of bank-owned life insurance ("BOLI")explained in the
Noninterest Income section. Noninterest-bearing deposits increased $16.6
million or 3.5% and other liabilities and equity provided an additional
$41.7 million of funding. Several factors combined to lower ONB's net
interest margin to 4.17% in 1998. The yield on earning assets decreased 13
basis points to 8.21% which reflected the lower rate environment. The cost
of interest-bearing liabilities declined only 2 basis points to 4.60% as
growth occurred in higher-rate liabilities. Approximately 7 basis points
of the lower net interest margin was due to the purchase of BOLI which
generates tax-free noninterest income, but is not in net interest income.
ONB's mix of earning assets continued the shift to higher yielding loans
which rose $357.9 million (9.6%) and comprised over 70% of our total
earning assets. Overall, loans yielded 8.79%, a 14 basis point decrease,
due to lower rate environment. Investment security balances remained
fairly consistent with 1997 as the yield decreased 24 basis points to 6.76%
due to prepayments and lower reinvestment rates. Money market investments
rose $7.0 million, yet still comprise under 1% of the total earnings
assets. ONB's interest-bearing deposits grew $117.5 million or 3.0%.
Traditional products, such as NOW, savings and money market deposits,
declined 1.0% in 1998. Certificates of deposit over $100,000 and other
time deposits both grew over $65 million to help fund ONB's asset growth.
Borrowed funds also funded the asset growth and increased $223.1 million.
During 1997, net interest income rose 3.9% or $8.8 million and totaled
$232.0 million. Average earning assets grew 6.7%, a $338.8 million
increase. Interest-bearing liabilities rose $367.4 million or 8.5%. The
growth in average other assets represents primarily the net assets of the
discontinued consumer finance subsidiary. Net interest margin declined from
4.42% to 4.31%. The yield on earning assets increased 2 basis points to
8.34% due to loan growth and improved investment yields. The cost of
interest-bearing liabilities rose 9 basis points to 4.62% due to market
influences and an increased usage of longer term deposits and nondeposit
funding.
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 rates 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
<TABLE>
<CAPTION>
NET INTEREST INCOME CHANGES (TABLE 1)
(Taxable equivalent basis, $ in thousands)
- ---------------------------------------------------------------------------------------------------------------------
% Change From
Prior Year
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans $360,504 $334,202 $312,757 7.9 % 6.9 %
Investment securities 109,192 113,758 103,226 (4.0) 10.2
Money market investments 1,219 915 3,500 33.2 (73.9)
- ---------------------------------------------------------------------------------------------------------------------
Total interest income 470,915 448,875 419,483 4.9 7.0
- ---------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
NOW deposits 7,099 7,768 9,196 (8.6) (15.5)
Savings deposits 14,177 15,668 15,501 (9.5) 1.1
Money market deposits 23,487 24,622 24,115 (4.6) 2.1
Certificates of deposit
$100,000 and over 23,297 19,823 15,369 17.5 29.0
Other time deposits 112,664 108,908 105,666 3.4 3.1
Short-term borrowings 21,268 22,549 15,094 (5.7) 49.4
Other borrowings 29,621 17,530 11,348 69.0 54.5
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense 231,613 216,868 196,289 6.8 10.5
- ---------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $239,302 $232,007 $223,194 3.1 % 3.9 %
=====================================================================================================================
NET INTEREST MARGIN 4.17 % 4.31 % 4.42 %
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
NET INTEREST INCOME - RATE/VOLUME ANALYSIS (TABLE 2)
(Taxable equivalent basis, $ in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
1998 vs. 1997 1997 vs. 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Attributed to Attributed to
Total --------------------- Total ---------------------
Change Volume Rate Change Volume Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans $26,302 $31,719 ($5,417) $21,445 $23,389 ($1,944)
Investment securities (4,566) (648) (3,918) 10,532 8,727 1,805
Money market investments 304 382 (78) (2,585) (2,655) 70
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income 22,040 31,453 (9,413) 29,392 29,461 (69)
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
NOW deposits (669) 105 (774) (1,428) 172 (1,600)
Savings deposits (1,491) (406) (1,085) 167 48 119
Money market deposits (1,135) (330) (805) 507 (240) 747
Certificates of deposit
$100,000 and over 3,474 3,941 (467) 4,454 2,452 2,002
Other time deposits 3,756 3,617 139 3,242 4,703 (1,461)
Short-term borrowings (1,281) (496) (785) 7,455 6,198 1,257
Other borrowings 12,091 12,865 (774) 6,182 6,705 (523)
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 14,745 19,296 (4,551) 20,579 20,038 541
- -----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $7,295 $12,157 ($4,862) $8,813 $9,423 ($610)
===================================================================================================================================
The variance not solely due to rate or volume is allocated equally between the rate and volume variances.
16
</TABLE>
<TABLE>
<CAPTION>
THREE-YEAR AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS (TABLE 3)
(Taxable equivalent basis, $ in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
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 $23,257 $1,219 5.24 % $16,245 $915 5.63 % $64,172 $3,500 5.45 %
Investment securities:
U.S. Treasury and Government
agencies (1) 1,094,756 70,418 6.43 1,124,797 74,922 6.66 1,003,943 62,636 6.24
State and political
subdivisions 467,562 35,236 7.54 454,544 35,820 7.88 450,429 36,478 8.10
Other securities 52,910 3,538 6.69 45,299 3,016 6.66 44,572 4,112 9.23
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 1,615,228 109,192 6.76 1,624,640 113,758 7.00 1,498,944 103,226 6.89
- -----------------------------------------------------------------------------------------------------------------------------------
Loans: (2) (3)
Commercial and financial 975,863 88,305 9.05 852,209 80,028 9.39 786,819 73,960 9.40
Commercial real estate 831,401 73,994 8.90 706,332 62,908 8.91 619,395 54,792 8.85
Residential real estate 1,584,127 127,836 8.07 1,440,169 118,195 8.21 1,330,981 110,871 8.33
Consumer, net of unearned
income 680,291 65,945 9.69 714,411 68,315 9.56 714,617 68,343 9.56
Credit card 28,302 4,424 15.63 28,932 4,756 16.44 29,160 4,791 16.43
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans 4,099,984 360,504 8.79 3,742,053 334,202 8.93 3,480,972 312,757 8.98
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 5,738,469 $470,915 8.21 % 5,382,938 $448,875 8.34 % 5,044,088 $419,483 8.32 %
Less: Allowance for loan losses (51,482) =================== (46,284) ================== (43,709)=================
NON-EARNING ASSETS:
Cash and due from banks 132,575 131,856 141,207
Other assets 314,155 266,253 206,638
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $6,133,717 $5,734,763 $5,348,224
===================================================================================================================================
INTEREST-BEARING LIABILITIES:
NOW deposits $495,942 $7,099 1.43 % $488,977 $7,768 1.59 % $479,209 $9,196 1.92 %
Savings deposits 500,305 14,177 2.83 514,100 15,668 3.05 512,487 15,501 3.02
Money market deposits 662,890 23,487 3.54 672,049 24,622 3.66 678,720 24,115 3.55
Certificates of deposit
$100,000 and over 409,282 23,297 5.69 340,787 19,823 5.82 296,216 15,369 5.19
Other time deposits 2,024,491 112,664 5.57 1,959,455 108,908 5.56 1,875,421 105,666 5.63
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 4,092,910 180,724 4.42 3,975,368 176,789 4.45 3,842,053 169,847 4.42
- -----------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 402,796 21,268 5.28 412,007 22,549 5.47 294,938 15,094 5.12
Other borrowings 543,830 29,621 5.45 311,496 17,530 5.63 194,487 11,348 5.83
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 5,039,536 $231,613 4.60 % $4,698,871 $216,868 4.62 % 4,331,478 $196,289 4.53 %
=================== ================== =================
NONINTEREST-BEARING LIABILITIES:
Demand deposits 492,547 475,974 471,364
Other liabilities 87,606 74,794 66,583
Shareholders' equity 514,028 485,124 478,799
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $6,133,717 $5,734,763 $5,348,224
===================================================================================================================================
INTEREST MARGIN RECAP:
Interest income/earning assets $470,915 8.21 % $448,875 8.34 % $419,483 8.32 %
Interest expense/earning assets 231,613 4.04 216,868 4.03 196,289 3.89
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest margin $239,302 4.17 % $232,007 4.31 % $223,194 4.42 %
===================================================================================================================================
(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.
17
</TABLE>
ASSET/LIABILITY MANAGEMENT- INTEREST RATE SENSITIVITY AND LIQUIDITY
Customer preferences for loans and deposits generate certain levels of net
interest income and interest rate risk, which is the impact changing
interest rates have on net interest income. Asset/liability management's
goal is to maximize and maintain adequate growth of net interest income
within certain interest rate sensitivity and liquidity guidelines
established by ONB's Funds Management Committee. This committee and
similar committees at the affiliate banks monitor these guidelines on a
consolidated basis and at the bank level.
ONB uses both static gap and income simulation methods to measure the
impact of interest rate changes on its net interest income. Static gap,
measured at a point in time, measures interest rate risk as the difference
between interest rate-sensitive assets and interest rate-sensitive
liabilities within a given repricing period and is expressed as a ratio and
as a dollar amount known as the "gap." 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.
Table 4 below reflects ONB's interest rate sensitivity position 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. A significant percentage of ONB's
assets and liabilities reprice within 180 days. In the 365 day cumulative
time frame, the assets to liabilities ratio was 83%, down from 86% in 1997.
Asset growth was primarily in time horizons greater than one year while
liability growth was slightly more in periods under one year.
Net interest income simulation modeling is used 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. ONB simulates a gradual
change in rates of 200 basis points up or down over 12 months and sustained
for additional 12 months. Key model assumptions include prepayment speeds;
changes in market conditions, loan volumes, and pricing; deposit
sensitivity; and customer preferences and are inherently uncertain. The
model cannot precisely estimate net interest income or the impact of
interest rate changes. Actual results will differ from the simulated
results due to timing, magnitude and frequency of interest rate changes,
changes in market conditions, management strategies, among other factors.
ONB's policy limit for the maximum negative impact on net interest income
over 12 months is 10%. At December 31, 1998, ONB was well within that
limit as the model's fluctuation was under 1% for the first 12 months and
less than 2% for the total 24 month period.
<TABLE>
<CAPTION>
ANALYSIS OF INTEREST RATE SENSITIVITY AT DECEMBER 31, 1998 (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 $21,533 -- $99 -- $21,632
Investment securities 318,708 $139,728 778,968 $399,270 1,636,674
Loans, net of unearned income 1,442,722 500,250 1,359,543 1,051,741 4,354,256
- -----------------------------------------------------------------------------------------------------------------
Total rate sensitive assets 1,782,963 639,978 2,138,610 1,451,011 $6,012,562
- -----------------------------------------------------------------------------------------------------------------
RATE-SENSITIVE LIABILITIES:
Deposits 1,615,085 457,945 789,679 1,252,445 4,115,154
Other borrowed funds 677,366 174,316 211,659 72,847 1,136,188
- -----------------------------------------------------------------------------------------------------------------
Total rate-sensitive liabilities 2,292,451 632,261 1,001,338 1,325,292 $5,251,342
- -----------------------------------------------------------------------------------------------------------------
Interest sensitivity gap
per period ($509,488) $7,717 $1,137,272 $125,719
Cumulative gap ($509,488) ($501,771) $635,501 $761,220
Cumulative ratio at
December 31, 1998 (1) 78 % 83 % 116 % 114 %
=================================================================================================================
Cumulative ratio at
December 31, 1997 (1) 76 % 86 % 127 % 115 %
=================================================================================================================
(1) Rate-sensitive assets/rate-sensitive liabilities.
18
</TABLE>
LIQUIDITY MANAGEMENT
In addition to the interest rate sensitivity the Funds Management Committee
monitors the company's liquidity position. The objective 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 may 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's affiliates
maintain adequate liquidity with sufficient levels of liquid assets,
unpledged securities, deposit growth, and other alternative funding
sources, such as the Federal Home Loan Bank ("FHLB").
The parent company's sources of liquidity include: lines of credit, capital
markets, and affiliate banks' dividends which are subject to regulatory
limits and in some cases require regulatory approval. Note 10 and 13 of
the consolidated financial statements address this further. At year-end
1998 ONB had $72.8 million in available lines of credit from unaffiliated
banks. ONB has capacity to issue up to $85.7 million of a $150 million
medium term note program available for future liquidity needs. At December
31, 1998, these securities were rated Baa1 by Moody's and BBB+ by Standard
and Poor's.
The Funds Management Committee also 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.
NONINTEREST INCOME
Besides net interest income, ONB's earnings are enhanced by its ability to
generate noninterest income from both core business and newer initiatives,
such as investments products and insurance. ONB continuously strives to
improve its noninterest income performance. Noninterest income, excluding
securities transactions, grew 15.4% in 1998 compared to 9.0% in 1997.
The trust company's fee income grew 11.5% in 1998 and 16.0% in 1997 and
benefited from an expanding revenue base of managed customer assets and
strong financial markets. Service charges on deposit accounts grew 2.3% in
1998 compared to 4.7% in 1997 as previously new pricing structures have
been fully implemented over the past several years. Management regularly
reviews these fees and compares them against competition in each separate
market and among affiliate banks. Loan servicing fees were fairly
consistent between the periods with 5.0% growth in 1998. Bank-owned life
insurance revenue, a new initiative, represents income on officers' life
insurance coverage and totaled $3.9 million in 1998. Insurance sales hit
$5.2 million, up 8.2% in 1998, though down from 16.7% growth in 1997.
Investment and brokerage business increased 6.1% in 1998 with revenue
reaching $5.0 million, compared to 14.3% growth in 1997. The remaining
other income category was up $1.2 million and included loan sale gains.
ONB realized minimal net securities gains during 1998, 1997, and 1996 as
ONB has generally minimal security sales. During 1996, ONB sold a portion
of its Student Loan Marketing Association stock, resulting in a gain.
Table 5 below presents changes in the components of noninterest income for
the years 1996 through 1998.
<TABLE>
<CAPTION>
NONINTEREST INCOME (TABLE 5) ($ in thousands)
- -------------------------------------------------------------------------------------------------------------------
% Change From
Prior Year
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trust fees $13,404 $12,024 $10,369 11.5 % 16.0 %
Service charges on deposit
accounts 17,441 17,044 16,277 2.3 4.7
Loan servicing fees 5,532 5,269 5,066 5.0 4.0
Insurance premiums and commissions 5,213 4,820 4,132 8.2 16.7
Investment product fees 4,976 4,689 4,103 6.1 14.3
Bank-owned life insurance 3,860 -- -- N/M N/M
Other income 8,125 6,879 6,570 18.1 4.7
- -------------------------------------------------------------------------------------------------------------------
Subtotal 58,551 50,725 46,517 15.4 9.0
Net securities gains 340 379 885 (10.3) (57.2)
- -------------------------------------------------------------------------------------------------------------------
Total noninterest income $58,891 $51,104 $47,402 15.2 % 7.8 %
===================================================================================================================
N/M = Not meaningful
19
</TABLE>
NONINTEREST EXPENSE
The banking industry continues to look for efficiency improvements. The
challenge is to achieve cost efficiencies while still providing quality
customer service. Several ratios are used to evaluate performance, with
lower percentages representing positive trends. ONB's efficiency ratio,
which is net interest income tax equivalized plus noninterest income,
excluding securities gains, divided by noninterest expense, was 56.38% in
1998 and 56.11% in 1997 and 57.92% in 1996. The increase in 1998 was mostly
merger costs related to the transactions closed in January, 1999. ONB's
net overhead ratio, noninterest expense less noninterest income divided by
average assets, showed more dramatic improvement with 1.78% in 1998, 1.88%
in 1997 and 2.04% in 1996. Total noninterest expense grew 5.9% in 1998
compared to an 1.2% increase in 1997.
Salaries and benefits, which comprised over 50% of total noninterest
expense, grew 4.6% in 1998 and 4.4% in 1997. Besides normal salary
increases in 1998, incentives rose by $2.2 million. Equipment expense rose
7.6% in 1998 partially due to accelerated depreciation on equipment to be
upgraded. Marketing expense increased 4.9% in 1998 after no increase in
1997. In 1997 FDIC insurance premiums dropped $2.3 million after the one-
time recapitalization charge in 1996 for SAIF-insured deposits which was
$2.5 million for ONB affiliate banks. Other expense grew 15.3% in 1998
after minimal growth in 1997. The increase was primarily in professional
fees which were similar to 1996 levels and outside services due to the
outsourcing of credit card processing in 1998.
Table 6 below presents changes in the components of noninterest expense for
the years 1996 through 1998.
<TABLE>
<CAPTION>
NONINTEREST EXPENSE (TABLE 6) ($ in thousands)
- -------------------------------------------------------------------------------------------------------------------
% Change From
Prior Year
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $95,974 $91,765 $87,938 4.6 % 4.4 %
Occupancy expense 9,770 9,923 10,702 (1.5) (7.3)
Equipment expense 13,424 12,478 11,787 7.6 5.9
Marketing expense 5,737 5,469 5,522 4.9 (1.0)
FDIC insurance premiums 578 707 3,043 (18.2) (76.8)
Data processing expense 6,045 5,918 5,577 2.1 6.1
Communications and transportation expense 7,115 6,968 6,891 2.1 1.1
Other expense 29,294 25,403 25,260 15.3 0.6
- -------------------------------------------------------------------------------------------------------------------
Total noninterest expense $167,937 $158,631 $156,720 5.9 % 1.2 %
===================================================================================================================
</TABLE>
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.
ONB's effective tax rate was 28.5% in 1998, 29.9% in 1997, and 29.6% in
1996. See Note 7 to the consolidated financial statements for additional
details of ONB's income tax provision.
20
INTERIM FINANCIAL DATA
Table 7 below provides a detailed summary of quarterly results of
operations for the years ended December 31, 1998 and 1997. These results
contain all normal and recurring adjustments of a material nature necessary
for a fair and consistent presentation.
<TABLE>
<CAPTION>
INTERIM FINANCIAL DATA (TABLE 7)
(Unaudited, $ and shares in thousands except per share data)
- ---------------------------------------------------------------------------------------------------
Quarter Ended
- ---------------------------------------------------------------------------------------------------
December September June March
31 30 30 31
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998:
Interest income $115,707 $116,450 $113,058 $111,313
Interest expense 58,684 60,154 57,298 55,478
- ---------------------------------------------------------------------------------------------------
Net interest income 57,023 56,296 55,760 55,835
Provision for loan losses 2,971 2,936 3,174 3,079
Noninterest income 15,631 15,400 14,229 13,631
Noninterest expense 45,122 41,705 40,626 40,484
- ---------------------------------------------------------------------------------------------------
Income before income taxes 24,561 27,055 26,189 25,903
Income taxes 6,570 7,064 8,011 7,928
Net income from continuing operations 17,991 19,991 18,178 17,975
Discontinued operations (9,193) (661)
- ---------------------------------------------------------------------------------------------------
Net income $17,991 $19,991 $8,985 $17,314
===================================================================================================
Net income from continuing operations per share:
Basic $0.39 $0.44 $0.39 $0.39
Diluted $0.39 $0.42 $0.38 $0.38
===================================================================================================
Net income per share:
Basic $0.39 $0.44 $0.19 $0.38
Diluted $0.39 $0.42 $0.19 $0.36
===================================================================================================
Weighted average shares:
Basic 45,687 45,958 46,218 45,773
Diluted 47,503 47,872 48,163 48,308
===================================================================================================
1997:
Interest income $111,688 $110,764 $108,285 $104,301
Interest expense 56,524 56,072 53,445 50,827
- ---------------------------------------------------------------------------------------------------
Net interest income 55,164 54,692 54,840 53,474
Provision for loan losses 4,485 3,115 2,932 3,030
Noninterest income 12,805 13,073 12,712 12,514
Noninterest expense 38,700 39,595 40,585 39,751
- ---------------------------------------------------------------------------------------------------
Income before income taxes 24,784 25,055 24,035 23,207
Income taxes 7,596 7,085 7,288 7,029
- ---------------------------------------------------------------------------------------------------
Net income from continuing operations 17,188 17,970 16,747 16,178
Discontinued operations (5,400) (451) 393 453
- ---------------------------------------------------------------------------------------------------
Net income $11,788 $17,519 $17,140 $16,631
===================================================================================================
Net income from continuing operations per share:
Basic $0.37 $0.39 $0.36 $0.35
Diluted $0.36 $0.38 $0.35 $0.34
===================================================================================================
Net income per share:
Basic $0.26 $0.38 $0.37 $0.36
Diluted $0.25 $0.37 $0.36 $0.35
===================================================================================================
Weighted average shares:
Basic 45,791 45,973 46,313 46,646
Diluted 48,359 48,481 48,826 49,157
===================================================================================================
21
</TABLE>
FINANCIAL CONDITION
OVERVIEW
Total assets reached $6.4 billion at December 31, 1998, 8.1% higher
than the prior year-end. Loans increased $438.4 million or 11.2%. Total
liabilities grew $464.3 million or 8.5% over 1997. Deposits rose 3.3% or
$147.8 million while other sources funded the remainder of the asset
growth.
INVESTMENT SECURITIES
Investment securities at December 31, 1998 comprised 25% of total assets
and were up $29.7 million, 1.9% over 1997. The growth occurred chiefly in
U.S. Government agency and municipal securities where better yield and
spread opportunities existed during the year.
While it does not actively trade its investment securities, ONB has
classified all securities as available-for-sale to maximize flexibility to
adapt to interest rate changes. 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 4.2 years.
At December 31, 1998, ONB held investment securities issued by the certain
states and their political subdivisions with the following aggregate market
value: $75.0 million by Indiana and $74.6 million by Illinois. There were
no other concentrations of investment securities issued by an individual
state and its political subdivisions which were greater than 10% of
shareholders' equity.
Average yields on the investment securities portfolio are calculated on a
taxable equivalent basis. Yields are based on the amortized cost and are
weighted for the scheduled maturity of each investment. At year-end,
average yields for the entire portfolio were 6.94% in 1998, 7.18% in 1997,
and 7.11% in 1996. The portfolio yield decline reflected the lower
reinvestment rates experienced in 1998.
Table 8 below presents the maturity distribution of the investment
portfolio, along with weighted average yields thereon.
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES (TABLE 8) ($ in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
December 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Within 1 - 5 5 - 10 Beyond
1 Year Years Years 10 Years Total 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <S> <C> <C> <C> <C>
FAIR VALUE:
U.S. Treasury $41,077 $49,057 -- $2,336 $92,470 $119,177 $155,088
U.S. Government agencies
and corporations 117,643 158,680 -- 276,323 257,666 273,500
Mortgage-backed securities 66,710 451,311 175,460 25,853 719,334 727,415 635,144
States and political
subdivisions 27,264 251,103 158,997 53,762 491,126 455,949 467,327
Other securities -- 5 -- 57,416 57,421 46,723 42,649
- ---------------------------------------------------------------------------------------------------------------------------------
Total $252,694 $910,156 $334,457 $139,367 $1,636,674 $1,606,930 $1,573,708
=================================================================================================================================
AMORTIZED COST:
U.S. Treasury $40,725 $47,643 -- $2,697 $91,065 $118,125 $154,192
U.S. Government agencies
and corporations 116,894 153,853 -- -- 270,747 254,322 272,628
Mortgage-backed securities 66,507 446,112 175,276 25,573 713,468 718,956 633,983
States and political
subdivisions 26,843 242,180 150,769 52,669 472,461 441,030 457,662
Other securities -- 5 -- 57,416 57,421 46,723 42,023
- ---------------------------------------------------------------------------------------------------------------------------------
Total $250,969 $889,793 $326,045 $138,355 $1,605,162 $1,579,156 $1,560,488
=================================================================================================================================
Weighted average yield, based on amortized cost
(taxable equivalent basis) 6.79 % 6.98 % 7.01 % 6.82 % 6.94 % 7.18 % 7.11 %
=================================================================================================================================
22
</TABLE>
LENDING AND LOAN ADMINISTRATION
The key to ONB's success has long been its credit culture which features
decision-making near the customer with corporate oversight. Affiliate loan
personnel have the authority to extend credit under guidelines established
and administered by ONB's Credit Policy Committee. This committee, which
meets quarterly, includes 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 its review
of information such as delinquencies, problem loans, and charge-offs. The
committee regularly reviews the 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 an independent corporate loan review program. Its loan
review system evaluates loan administration, credit quality, loan
documentation, compliance with corporate loan standards, and the adequacy
of the allowance for loan losses. This program includes periodic on-site
visits as well as regular off-site reviews of problem loan reports,
delinquencies, and charge-offs.
ONB's affiliates 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 Indiana, Illinois, and
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
or loans to foreign countries.
The 11.2% loan growth in 1998 was reflected in most major categories.
Commercial real estate led the loan types with a 23.9% increase after 14.0%
growth in 1997. Commercial loans rose 14.5% following 11.1% in 1997. In
1998 commercial loans include a $60.7 million loan on the sale of ONB's
consumer finance subsidiary which will mature April 1999. Residential real
estate loans grew 10.8% in 1998 and 10.0% in 1997. Consumer credit
declined 5.2% in 1998, similar to 1997. The portfolio is well diversified
with 24% of the portfolio in commercial loans, 22% in commercial real
estate, 39% in residential real estate, and 16% in consumer credit.
ONB's commercial lending is primarily to small to medium-sized businesses
in various industries in its region. Commercial real estate loans are
generally made to similar companies in ONB's geographical area. These
industries have been stable in ONB's market area and provide opportunities
for growth. A significant percentage of commercial and financial loans are
due within one year, reflecting the short-term nature of a large portion of
these loans. Table 9 on page 24 presents the maturity distribution and
rate sensitivity of loans and an analysis of loans with predetermined and
floating interest rates.
Residential real estate loans, primarily 1-4 family properties, represent
the most significant portion of the loan portfolio. ONB's portfolio
includes both adjustable rate and higher yielding, fixed rate loans.
Consumer loans include automobile loans, personal and home equity loans and
lines of credit, student loans, and credit card loans.
Loans in most categories have grown steadily over the past four years.
Commercial loans increased an average of 6.1% per year between 1994 and
1998. Commercial real estate grew 15.2% and residential real estate loans
grew 9.0% over the same period. Consumer loans remained relatively
unchanged. Table 10 on page 24 presents the composition of the loan
portfolio for each of the last five years.
23
<TABLE>
<CAPTION>
DISTRIBUTION OF LOAN MATURITIES AT DECEMBER 31, 1998 (TABLE 9) ($ in thousands)
- ---------------------------------------------------------------------------------------------------
Within 1-5 Beyond
1 Year Years 5 years Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $601,857 $287,815 $117,775 $1,007,447
Economic development bonds 3,900 7,510 8,935 20,345
- ---------------------------------------------------------------------------------------------------
Total $605,757 $295,325 $126,710 $1,027,792
===================================================================================================
Predetermined interest rates $223,335 $136,496 $47,301 $407,132
Floating interest rates 382,422 158,829 79,409 620,660
- ---------------------------------------------------------------------------------------------------
Total $605,757 $295,325 $126,710 $1,027,792
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
LOAN PORTFOLIO AT YEAR-END (TABLE 10) ($ in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
Four Year
1998 1997 1996 1995 1994 Growth Rate
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $1,007,447 $879,888 $792,077 $752,867 $794,746 6.1 %
Economic development bonds 20,345 22,953 26,424 27,675 30,928 (9.9)
Commercial real estate 944,813 762,774 668,958 573,829 536,620 15.2
Residential real estate 1,688,572 1,523,425 1,385,113 1,311,271 1,194,797 9.0
Consumer credit 702,293 740,666 776,086 737,362 678,932 0.8
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans 4,363,470 3,929,706 3,648,658 3,403,004 3,236,023 7.8 %
Less: Unearned income 9,214 13,865 21,066 27,089 30,926
- ---------------------------------------------------------------------------------------------------------------------------------
Subtotal 4,354,256 3,915,841 3,627,592 3,375,915 3,205,097
Less: Allowance for
loan losses 51,847 49,053 43,527 42,857 43,513
- ---------------------------------------------------------------------------------------------------------------------------------
Net loans $4,302,409 $3,866,788 $3,584,065 $3,333,058 $3,161,584
=================================================================================================================================
COMPOSITION OF LOAN PORTFOLIO BY TYPE
Commercial and development 23.6 % 23.1 % 22.6 % 23.1 % 25.8 %
Commercial real estate 21.7 19.5 18.4 17.0 16.7
Residential real estate 38.8 38.9 38.2 38.8 37.3
Consumer credit 15.9 18.5 20.8 21.1 20.2
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
24
The adequacy of the allowance for loan losses is evaluated on a quarterly
basis at both the affiliate and holding company levels. 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, totaled $9.4 million in 1998, compared to
$8.0 million in 1997 and $10.4 million in 1996 with elevated consumer
charge-offs in 1996. Recognizing the changing nature and risk of consumer
lending, management reevaluated its underwriting policies in 1997.
Management believes the revised policies more appropriately address the
risk in the consumer area, and the lower subsequent charge-off levels
reflected efforts to manage this risk. Net charge-offs to average loans
have consistently ranged from 0.21% to 0.30% for the last five years.
ONB makes monthly provisions at levels deemed necessary to provide
assurance that the allowance for loan losses is sufficient to absorb
estimated losses in the loan portfolio. For homogeneous loans, such as
residential mortgage, consumer, and credit card, provision levels are
determined using historic loss factors. For non-homogeneous loans,
management allocates specific losses to loans in the highest risk
categories with provisions for the remainder of the portfolio using
historic loss factors. In addition, provisions reflect other risks
affecting the loan portfolio, such as economic conditions in the geographic
area, specific industry financial conditions, experience of lending staff
and borrower risk associated with Year 2000. The provision for loan losses
was $12.2 million in 1998, slightly lower than the $13.6 million in 1997,
but greater than the $11.1 million in 1996.
Table 11 below summarizes activity in the allowance for loan losses for the
years 1994 through 1998, along with an allocation of the year-end balances
and related statistics for the allowance and net charge-offs.
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES (TABLE 11) ($ in thousands)
- -----------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ANALYSIS:
Allowance for loan losses,
January 1 $49,053 $43,527 $42,857 $43,513 $43,863
- -----------------------------------------------------------------------------------------------------------------
Loans charged off:
Commercial 3,802 2,979 4,362 4,918 4,609
Commercial and residential real estate 1,249 639 675 993 785
Consumer credit 7,887 8,976 9,829 5,386 5,511
- -----------------------------------------------------------------------------------------------------------------
Total charge-offs 12,938 12,594 14,866 11,297 10,905
- -----------------------------------------------------------------------------------------------------------------
Recoveries on charged-off loans:
Commercial 1,330 1,561 2,281 1,647 1,216
Commercial and residential real estate 323 1,156 330 320 201
Consumer credit 1,919 1,841 1,843 1,183 1,252
- -----------------------------------------------------------------------------------------------------------------
Total recoveries 3,572 4,558 4,454 3,150 2,669
- -----------------------------------------------------------------------------------------------------------------
Net charge-offs 9,366 8,036 10,412 8,147 8,236
Provision charged to expense 12,160 13,562 11,082 7,491 7,886
- -----------------------------------------------------------------------------------------------------------------
Allowance for loan lossses,
December 31 $51,847 $49,053 $43,527 $42,857 $43,513
=================================================================================================================
Average loans for the year $4,099,984 $3,742,053 $3,480,972 $3,299,737 $3,022,592
Allowance/year-end loans 1.19 % 1.25 % 1.20 % 1.27 % 1.36 %
Allowance/average loans 1.26 1.31 1.25 1.30 1.44
Net charge-offs/average loans 0.23 0.21 0.30 0.25 0.27
- -----------------------------------------------------------------------------------------------------------------
ALLOCATION AT DECEMBER 31:
Commercial $23,500 $23,607 $20,195 $22,547 $23,435
Commercial and residential real estate 12,399 12,695 12,660 12,562 11,971
Consumer credit 15,948 12,751 10,672 7,748 8,107
- -----------------------------------------------------------------------------------------------------------------
Total $51,847 $49,053 $43,527 $42,857 $43,513
=================================================================================================================
</TABLE>
25
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) foreclosed properties. Each month,
problem loan reports are prepared and reviewed at both the affiliate and
holding company levels. 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 $105.0 million at December 31, 1998, 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 portfolio's general
condition and in establishing the allowance for loan losses.
Under-performing assets as of year-end totalled $25.1 million in 1998 and
$20.1 million in 1997. As a percent of total loans and foreclosed
properties, under-performing assets at December 31 were fairly consistent
with 0.58% in 1998, 0.51% in 1997, and 0.56% in 1996. The growth in
nonaccruals in 1998 reflected a conservative nonaccrual policy and not a
general deterioration of the portfolio. At December 31, 1998, the
allowance for loan loss to under-performing assets ratio was 206.72%,
comparable to 244.47% in 1997 and 215.45% in 1996. Said in another way, in
1998 ONB had set aside $2.07 for every dollar of under-performing assets.
Table 12 below presents the components of under-performing assets as of
December 31, for the last five years.
<TABLE>
<CAPTION>
UNDER-PERFORMING ASSETS (TABLE 12) ($ in thousands)
- ------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $17,034 $11,985 $13,162 $6,972 $9,366
Renegotiated loans 116 248 746 1,120 1,280
Past due loans (90 days or more):
Commercial 1,025 1,394 1,227 1,499 1,173
Commercial and residential real estate 3,346 2,289 1,458 2,611 2,102
Consumer 1,018 945 868 1,084 1,290
- ------------------------------------------------------------------------------------------------------------------
Total 5,389 4,628 3,553 5,194 4,565
- ------------------------------------------------------------------------------------------------------------------
Foreclosed properties 2,542 3,204 2,742 1,792 1,702
- ------------------------------------------------------------------------------------------------------------------
Total under-performing assets $25,081 $20,065 $20,203 $15,078 $16,913
==================================================================================================================
Under-performing assets as a %
of total loans and
foreclosed properties 0.58 % 0.51 % 0.56 % 0.45 % 0.53 %
Allowance for loan loss/
under-performing assets 206.72 244.47 215.45 284.24 257.28
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
26
Interest income of approximately $1.5 million would have been recorded in
1998 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 1998 on nonaccrual and
restructured loans was $0.4 million.
DEPOSITS
Customer deposits provide the core funding needs and include noninterest-
bearing demand, regular savings and NOW accounts, money market accounts,
and small denomination certificates of deposit. Average core deposits
increased 1.6% in 1998 compared to the 2.3% in 1997. Other time deposits
increased over 3% in both 1998 and 1997 and demand deposits rose 3.5% in
1998. Money market deposits declined in both 1998 and 1997 after a special
promotion in 1996.
Table 13 below presents changes in the average balances of all funding
sources for the years 1996 through 1998.
<TABLE>
<CAPTION>
FUNDING SOURCES - AVERAGE BALANCE (TABLE 13) ($ in thousands)
- -------------------------------------------------------------------------------------------------------------------
% Change From
Prior Year
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Demand deposits $492,547 $475,974 $471,364 3.5 % 1.0 %
NOW deposits 495,942 488,977 479,209 1.4 2.0
Savings deposits 500,305 514,100 512,487 (2.7) 0.3
Money market deposits 662,890 672,049 678,720 (1.4) (1.0)
Other time deposits 2,024,491 1,959,455 1,875,421 3.3 4.5
- -------------------------------------------------------------------------------------------------------------------
Total core deposits 4,176,175 4,110,555 4,017,201 1.6 2.3
- -------------------------------------------------------------------------------------------------------------------
Certificates of deposit
$100,000 and over 409,282 340,787 296,216 20.1 15.0
Short-term borrowings 402,796 412,007 294,938 (2.2) 39.7
Other Borrowings 543,830 311,496 194,487 74.6 60.2
- -------------------------------------------------------------------------------------------------------------------
Total funding sources $5,532,083 $5,174,845 $4,802,842 6.9 % 7.7 %
===================================================================================================================
</TABLE>
The average balance of large certificates grew $68.5 million or 20.1% in
1998 compared to the prior year. Other borrowings increased $232.3 million
and primarily included FHLB advances. Table 14 below presents a maturity
distribution for certificates of deposit with denominations of $100,000 or
more.
<TABLE>
<CAPTION>
CERTIFICATES OF DEPOSIT, $100,000 AND OVER (TABLE 14) ($ in thousands)
- -----------------------------------------------------------------------------------------------------------------------------
Maturity Distribution
----------------------------------------------------------
Year-End 1-90 91-180 181-365 Beyond Interest Average
Balance Days Days Days 1 Year Expense Rate
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 $390,123 $154,455 $91,566 $77,611 $66,491 $23,297 5.69 %
1997 380,254 170,178 74,268 58,229 77,579 19,823 5.82
1996 273,275 105,808 46,555 67,872 53,040 15,369 5.19
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
BORROWINGS
Other short-term sources of funds include overnight borrowings from other
financial institutions, securities sold under agreements to repurchase
which generally mature within 30 days, and borrowings under U.S. Treasury
demand notes. Borrowings from FHLB include both short- and long-term
maturities. Medium term notes and convertible subordinated debentures
provide longer term funds.
Collectively, the average short-term borrowings decreased $9.2 million or
2.2% in 1998. Short-term rates on borrowings adjusted more slowly than long-
term rates which made long-term funding more attractive.
Table 15 below presents the distribution of ONB's short-term borrowings and
the weighted average interest rates thereon for each of the last three
years.
<TABLE>
<CAPTION>
SHORT-TERM BORROWINGS (TABLE 15) ($ in thousands)
- --------------------------------------------------------------------------------------
Other
Funds Repurchase Short-term
Purchased Agreements Borrowings
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998:
Outstanding at year-end $294,575 $192,868 $18,877
Average amount outstanding 82,061 213,535 107,200
Maximum amount outstanding at
any month-end 294,575 233,308 175,751
Weighted average interest rate:
During year 5.58 % 4.90 % 5.81 %
End of year 5.35 4.53 5.10
- --------------------------------------------------------------------------------------
1997:
Outstanding at year-end $170,675 $215,878 $56,132
Average amount outstanding 73,733 220,074 118,200
Maximum amount outstanding at
any month-end 170,675 244,722 192,048
Weighted average interest rate:
During year 5.57 % 4.98 % 6.33 %
End of year 6.34 5.18 5.87
- --------------------------------------------------------------------------------------
1996:
Outstanding at year-end $57,175 $177,463 $104,397
Average amount outstanding 35,563 204,837 54,538
Maximum amount outstanding at
any month-end 92,100 217,337 121,965
Weighted average interest rate:
During year 5.39 % 4.72 % 6.25 %
End of year 6.25 4.89 6.12
- --------------------------------------------------------------------------------------
</TABLE>
28
In 1997 ONB registered a $150 million medium term note program and issued
$10 million in 1998 and $54.3 million in 1997. These borrowings, combined
with prior issuances, totaled $96.3 million at December 31, 1998 and have a
weighted average effective interest rate of 6.81% with maturities between
2000 and 2007. The funds were used to reduce ONB's lines of credit.
Holders of ONB's 8% convertible debentures converted principal amounts of
$8.4 million in 1998 and $0.2 million in 1997. These conversions resulted
in the issuance of common stock shares totaling 415,597 in 1998 and 7,727
in 1997 with an offsetting increase in shareholders' equity.
CAPITAL RESOURCES
Shareholders' equity reached $519.6 million or 8.1% of total assets at
December 31, 1998, and $500.6 million or 8.4% at December 31, 1997. ONB
paid $0.58 cash dividends per share in 1998 which totaled $26.0 million
(restated for the 5% stock dividend paid in January 1999 and the stock
split paid in May 1999).
Treasury shares were repurchased to provide shares for reissuance under
ONB's dividend reinvestment and stock purchase plan and stock dividends.
Treasury shares repurchased reduced shareholders' equity by $46.7 million
in 1998 and $36.4 million in 1997. Shares reissued pursuant to the above
programs and in connection with conversions of ONB's subordinated
debentures added to shareholders' equity $25.1 million in 1998 and $9.7
million in 1997.
ONB and the banking industry are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can elicit certain mandatory actions by
regulators that, if undertaken, could have a direct material effect on
ONB's financial statements. Capital adequacy in the banking industry is
evaluated primarily by the use of ratios which measure capital against
assets and certain off-balance-sheet items. Certain ratios weight these
assets based on risk characteristics according to regulatory accounting
practices. At December 31, 1998, ONB and it affiliate banks exceeded the
regulatory minimums and met the regulatory definition of well-capitalized.
ONB's capital ratios and the regulatory guidelines are presented in Table
16 below.
<TABLE>
<CAPTION>
CAPITAL STRUCTURE AND REGULATORY GUIDELINES (TABLE 16) ($ in thousands)
- --------------------------------------------------------------------------------------------------------------------------------
Regulatory Guidelines December 31,
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TIER 1 CAPITAL: Minimum Well-Capitalized 1998 1997 1996
Shareholders' equity (1) $500,546 $483,940 $472,499
Less intangibles (15,234) (17,049) (17,862)
- --------------------------------------------------------------------------------------------------------------------------------
Tier 1 capital 485,312 466,891 454,637
TIER 2 CAPITAL:
Subordinated debentures 21,963 30,407 30,564
Qualifying allowance for loan losses 51,847 47,943 43,527
- --------------------------------------------------------------------------------------------------------------------------------
Total capital $559,122 $545,241 $528,728
================================================================================================================================
Risk adjusted assets $4,258,612 $3,835,456 $3,524,468
================================================================================================================================
Tier 1 capital to risk-adjusted assets 4.00 % 6.00 % 11.40 % 12.17 % 12.90 %
Total capital to risk-adjusted assets 8.00 10.00 13.13 14.22 15.00
Tier 1 capital to quarterly average assets
(leverage ratio) 4.00 5.00 7.72 7.95 8.28
-------------------------------------------------------------------------------------------------------------------------------
(1) Excludes unrealized gains (losses) on investment securities.
</TABLE>
29
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 31. Their audit included a consideration of
ONB's system of internal accounting controls, for the purpose of
setting the scope and timing of their auditing procedures.
30
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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Indianapolis, Indiana.
January 27, 1999
(except with respect to the business combination discussed
in Note 2 as to which the date is January 29,1999).
31
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP
CONSOLIDATED BALANCE SHEET
($ and shares in thousands)
- --------------------------------------------------------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $160,161 $155,579
Money market investments:
Interest-bearing deposits in other banks 5,287 12,585
Federal funds sold and securities purchased under agreements to resell 16,345 11,079
- --------------------------------------------------------------------------------------------------------------------------------
Total money market investments 21,632 23,664
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS 181,793 179,243
- --------------------------------------------------------------------------------------------------------------------------------
Investment securities - available-for-sale, at fair value 1,636,674 1,606,930
Loans, net of unearned income 4,354,256 3,915,841
Allowance for loan losses (51,847) (49,053)
- --------------------------------------------------------------------------------------------------------------------------------
NET LOANS 4,302,409 3,866,788
Premises and equipment, net 83,847 83,829
Accrued interest receivable 50,307 48,878
Other assets 161,581 147,653
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $6,416,611 $5,933,321
===============================================================================================================================
LIABILITIES
Deposits:
Noninterest-bearing demand $553,704 $525,958
Interest-bearing:
NOW accounts 539,169 487,874
Savings accounts 501,780 504,464
Money market accounts 678,484 676,738
Certificates of deposit $100,000 and over 390,123 380,254
Other time 2,005,598 1,945,722
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 4,668,858 4,521,010
- -------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 506,320 442,685
Accrued expenses and other liabilities 91,920 80,185
Other borrowings 629,868 388,832
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,896,966 5,432,712
- -------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 12)
SHAREHOLDERS' EQUITY
Preferred stock, 2,000 shares authorized, no shares issued or outstanding -- --
Common stock, $1 stated value, 50,000 shares authorized,
30,388 and 29,159 shares issued and outstanding, respectively 30,388 29,159
Capital surplus 350,255 300,183
Retained earnings 119,903 154,598
Accumulated other comprehensive income, net of tax 19,099 16,669
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 519,645 500,609
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,416,611 $5,933,321
===============================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of this statement.
32
</TABLE>
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF INCOME
($ and shares in thousands except per share data)
- -------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans including fees:
Taxable $351,888 $327,761 $306,855
Nontaxable 5,787 4,314 3,958
Investment securities:
Taxable 74,146 78,316 67,411
Nontaxable 23,488 23,732 23,945
Money market investments 1,219 915 3,500
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 456,528 435,038 405,669
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Savings, NOW and money market deposits 44,763 48,058 48,812
Certificates of deposit $100,000 and over 23,297 19,823 15,369
Other time deposits 112,664 108,908 105,666
Short-term borrowings 21,268 22,549 15,094
Other borrowings 29,622 17,530 11,348
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 231,614 216,868 196,289
- -------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 224,914 218,170 209,380
- -------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 12,160 13,562 11,082
- -------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 212,754 204,608 198,298
- -------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trust fees 13,404 12,024 10,369
Service charges on deposit accounts 17,441 17,044 16,277
Loan servicing fees 5,532 5,269 5,066
Insurance premiums and commissions 5,213 4,820 4,132
Investment product fees 4,976 4,689 4,103
Bank-owned life insurance 3,860 -- --
Net securities gains 340 379 885
Other income 8,125 6,879 6,570
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST INCOME 58,891 51,104 47,402
- -------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 95,974 91,765 87,938
Occupancy expense 9,770 9,923 10,702
Equipment expense 13,424 12,478 11,787
Marketing expense 5,737 5,469 5,522
FDIC insurance premiums 578 707 3,043
Data processing expense 6,045 5,918 5,577
Communication and transportation expense 7,115 6,968 6,891
Other expense 29,294 25,403 25,260
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST EXPENSE 167,937 158,631 156,720
- -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 103,708 97,081 88,980
Income taxes 29,573 28,998 26,293
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME FROM CONTINUING OPERATIONS $74,135 68,083 62,687
- -------------------------------------------------------------------------------------------------------------------------------
Discontinued operations (9,854) (5,005) 494
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME $64,281 $63,078 $63,181
===============================================================================================================================
NET INCOME FROM CONTINUING OPERATIONS PER COMMON SHARE:
Basic $1.61 $1.47 $1.31
Diluted 1.57 1.43 1.28
===============================================================================================================================
NET INCOME PER COMMON SHARE:
Basic $1.40 $1.37 $1.32
Diluted 1.36 1.33 1.29
===============================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic 45,909 46,179 47,747
Diluted 47,974 48,700 50,259
===============================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of this statement.
33
</TABLE>
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
($ and shares in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common Stock Other Total
------------ Capital Retained Comprehensive Comprehensive Shareholders'
Shares Amount Surplus Earnings Income Income Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1995 28,155 $28,155 $254,448 $188,235 $10,673 $481,511
Net income 63,181 63,181 63,181
Unrealized security loss
and reclassification adjustment,
net of $1,592 tax (2,737) (2,737) (2,737)
--------
Comprehensive income 60,444 --
Cash dividends (24,423) ======== (24,423)
5% stock dividend 1,277 1,277 47,698 (48,975) --
Stock repurchased (1,255) (1,255) (43,651) (44,906)
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
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 28,480 28,480 266,001 178,018 7,936 480,435
Net income 63,078 63,078 63,078
Unrealized security gain
and reclassification adjustment,
net of $5,821 tax 8,733 8,733 8,733
--------
Comprehensive income 71,811 --
Cash dividends (25,012) ======== (25,012)
5% stock dividend 1,307 1,307 60,179 (61,486) --
Stock repurchased (877) (877) (35,479) (36,356)
Stock reissued under dividend reinvestment
and stock purchase plan 241 241 9,333 9,574
Stock reissued due to conversion of
subordinated debentures 8 8 149 157
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1997 29,159 29,159 300,183 154,598 16,669 500,609
Net income 64,281 64,281 64,281
Unrealized security gain
and reclassification adjustment,
net of $1,308 tax 2,430 2,430 2,430
-------
Comprehensive income 66,711 --
Cash dividends (26,058) ======= (26,058)
5% stock dividend 1,366 1,366 71,552 (72,918) --
Stock repurchased (954) (954) (45,748) (46,702)
Stock reissued under dividend reinvestment
and stock purchase plan 402 402 16,239 16,641
Stock reissued due to conversion of
subordinated debentures 415 415 8,029 8,444
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1998 30,388 $30,388 $350,255 $119,903 $19,099 $519,645
===================================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of this statement.
34
</TABLE>
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
- -------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $64,281 $63,078 $63,181
- -------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation 10,714 9,718 8,782
Amortization of intangible assets 1,729 1,969 1,637
Net premium amortization on investment securities 2,641 1,638 2,221
Provision for loan losses 12,160 13,562 11,082
Net securities gains (314) (347) (878)
(Gain) loss on sale of other assets (820) (224) 269
(Increase) decrease in interest receivable 3 (1,441) 298
Net (increase) decrease in trading account securities 263 (206)
Increase in other assets (15,934) (31,386) (56,944)
Increase in accrued expenses and other liabilities 9,709 9,567 5,047
- -------------------------------------------------------------------------------------------------------------------------------
Total adjustments 19,888 3,319 (28,692)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by operating activities 84,169 66,397 34,489
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities available-for-sale (616,442) (410,215) (479,585)
Proceeds from maturities of investment securities available-for-sale 471,382 320,075 345,530
Proceeds from sales of investments securities available-for-sale 116,727 69,917 36,150
Net principal collected from (loans made to) customers:
Commercial (127,423) (85,757) (54,717)
Commercial and residential real estate, net of loans originated for sale (348,111) (231,610) (169,317)
Consumer 27,753 21,084 (37,982)
Residential real estate loans originated for sale (67,145) (26,775) (44,400)
Proceeds from sale of mortgage loans 67,752 26,979 44,734
Proceeds from sale of premises and equipment 684 977 1,150
Purchase of premises and equipment (11,408) (10,527) (14,999)
Cash and cash equivalents of acquired institutions, net of cash paid 305
Premium on the acquisition of deposits (3,107)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash flows used in investing activities (486,231) (325,852) (376,238)
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits, short-term and other borrowings:
Noninterest-bearing demand deposits 27,745 (6,908) 36,749
Savings, NOW and money market deposits 50,358 (62,553) 49,459
Certificates of deposit $100,000 and over 9,869 106,979 (22,094)
Other time deposits 59,878 4,034 79,107
Short-term borrowings 63,401 103,884 72,693
Other borrowings 251,480 96,444 111,891
Net (payments on) proceeds from medium term notes (2,000) 54,300 (6,000)
Cash dividends paid (26,058) (25,012) (24,423)
Common stock repurchased (46,702) (36,356) (44,906)
Common stock reissued, net of shares used to convert subordinated debentures 16,641 9,574 6,858
- --------------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by financing activities 404,612 244,386 259,334
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,550 (15,069) (82,415)
Cash and cash equivalents at beginning of period 179,243 194,312 276,727
- --------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $181,793 $179,243 $194,312
================================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of this statement
</TABLE>
35
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.
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
ONB has classified all investments as available-for-sale.
Accordingly, 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 is accrued on the principal balances of loans outstanding,
except on discounted loans which are 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. At December 31, 1998, approximately $2.1 million of
such mortgage loans were held and carried at cost which
approximated 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 interest unless a loan is placed on nonaccrual
status.
36
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. 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 cost to sell.
The recorded investment is the sum of the outstanding principal
loan balance, any accrued interest which has not been received,
and acquisition cost 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.
Total acquisition costs over the fair value of net assets
acquired was $15.2 million at December 31, 1998 and is being
amortized on the straight-line basis over periods ranging from 20
to 25 years. The recoverability of such assets and their
carrying value are periodically evaluated.
NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by
the weighted average number of common shares outstanding during
each year, adjusted to reflect all stock dividends (Note 9) and
all mergers accounted for as pooling-of-interests as if they had
occurred at the beginning of the earliest year presented.
Diluted net income per share is computed as above and assumes the
conversion of outstanding subordinated debentures (Note 10).
Below is a table reconciling basic and diluted earnings per share
("EPS").
<TABLE>
<CAPTION>
Note 1 - Earnings Per Share Reconciliation
($ and shares in thousands except per share data)
- ----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended For the Year Ended For the Year Ended
December 31, 1998 December 31, 1997 December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Per-Share Per-Share Per-Share
Income Shares Amount Income Shares Amount Income Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income from continuing operations
available to common stockholders $74,135 45,909 $1.61 $68,083 46,179 $1.47 $62,687 47,747 $1.31
===== ===== =====
EFFECT OF DILUTIVE SECURITIES
Stock options -- 202 -- 163 -- 142
8% convertible debentures 1,138 1,863 1,469 2,358 1,477 2,370
- ----------------------------------------------------------------------------------------------------------------------------------
DILUTED EPS
Income from continuing operations
available to common stockholders
+ assumed conversions $75,273 47,974 $1.57 $69,552 48,700 $1.43 $64,164 50,259 $1.28
==================================================================================================================================
</TABLE>
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.
37
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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, 1998, 1997, and 1996, for interest was
$227.2 million, $212.5 million, and $196.0 million, respectively.
Total income tax payments during 1998, 1997, and 1996, were $24.2
million, $26.6 million, and $25.8 million, respectively.
IMPACT OF ACCOUNTING CHANGES
Effective January 1, 1998, ONB adopted the provisions of SFAS No.
130 "Reporting Comprehensive Income" which establishes standards
for reporting and display of comprehensive income and its
components.
Effective January 1, 1998, ONB adopted SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information" which
establishes standards for reporting information on operating
segments.
The adoption of both above statements did not have a material
impact on ONB's financial condition or its results of operations.
In June 1998 the Financial Accounting Standards Board (FASB)
issued SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities." This statement requires that all derivative
instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. The statement is
effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999 (January 1, 2000 for ONB). ONB doesn't
expect the impact of this statement will be material to the
results of operations or its financial position, due to its
limited use of derivative instruments.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with
the 1998 presentation. Such reclassifications had no effect on
net income.
NOTE 2 - BUSINESS COMBINATIONS AND DISCONTINUED OPERATIONS
Mergers-Pending
On May 27, 1998, ONB and Southern Bancshares LTD ("Southern") of
Carbondale, Illinois, executed a definitive merger agreement.
ONB will issue common shares in exchange for all of the
outstanding common shares of Southern. The transaction will be
accounted for as a pooling-of-interests. As of December 31,
1998, Southern's financial statements reflected $254.6 million in
total assets, net loans of $190.1 million, total deposits of
$225.5 million and net income for the twelve months then ended of
$2.4 million. This merger was consummated on January 29, 1999
and is included in these financial statements.
On October 29, 1998, ONB and Dulaney Bancorp ("Dulaney") of
Marshall, Illinois, executed a definitive merger agreement. ONB
will issue common shares in exchange for all of the outstanding
common shares of Dulaney. The transaction will be accounted for
as a pooling-of-interests. As of December 31, 1998, Dulaney's
financial statements reflected $38.9 million in total assets, net
loans of $19.5 million, total deposits of $31.8 million and net
income for the twelve months then ended of $339 thousand. This
merger was consummated on February 5,1999 but is not included
in these financial statements due to materiality.
Discontinued Operations
In April 1998, ONB announced it would look at exit strategies
from its sub-prime lending affiliate, Consumer Acceptance
Corporation (CAC). During June 1998, ONB finalized the sale of
CAC's sub-prime auto loans, which closed in July 1998. ONB has
accounted for this entity as discontinued operations on the
consolidated financial statements. Net assets of the entity
which were included in other assets were $79.2 million at
December 31, 1997. The loss on discontinued operations included
interest expense of $2.6 million in 1998, $2.3 million in 1997,
and $1.1 million in 1996. Interest expense was directly
attributable to the debt associated to this business unit.
Income (loss) from discontinued operations for the years ended
December 31, 1998, 1997, and 1996 were as follows ($ in
thousands):
38
- ---------------------------------------------------------------
Years Ended December 31
- ---------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------
Income (loss) before taxes
from operations of discontinued
operations $(7,943) $(8,346) $816
Income tax expense (benefit) (3,183) (3,341) 322
- ---------------------------------------------------------------
Income (loss) from operations of
discontinued operations (4,760) (5,005) 494
- ---------------------------------------------------------------
Loss before taxes from disposal
of discontinued operations (8,489) - -
Income tax benefit (3,395) - -
- ---------------------------------------------------------------
Loss from disposal of discontinued
operations (5,094) - -
- ---------------------------------------------------------------
Income (loss) from discontinued
operations $(9,854) $(5,005) $494
===============================================================
Income (loss) from discontinued
operations per common share
Basic $ (0.21) $(0.10) $0.01
Diluted $ (0.21) $(0.10) $0.01
===============================================================
<TABLE>
<CAPTION>
NOTE 3 - INVESTMENT SECURITIES
The following tables summarize the amortized cost and fair value
of the investment securities portfolio at December 31, 1998 and
1997, and the corresponding amounts of unrealized gains and
losses therein ($ in thousands):
- ---------------------------------------------------------------------------------------------------
Available-for-Sale
- ---------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
December 31, 1998 Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $91,065 $1,682 ($277) $92,470
U.S. Government agencies
and corporations 270,747 5,648 (72) $276,323
Mortgage-backed securities 713,468 6,577 (711) $719,334
State and political subdivisions 472,461 18,890 (225) $491,126
Other securities 57,421 -- -- $57,421
- ---------------------------------------------------------------------------------------------------
Total $1,605,162 $32,797 ($1,285) $1,636,674
===================================================================================================
December 31, 1997
U.S. Treasury $118,125 $1,130 ($77) $119,178
U.S. Government agencies
and corporations 254,322 3,740 (396) $257,666
Mortgage-backed securities 718,956 9,293 (834) $727,415
State and political subdivisions 441,030 15,067 (149) $455,948
Other securities 46,723 -- -- $46,723
- ---------------------------------------------------------------------------------------------------
Total $1,579,156 $29,230 ($1,456) $1,606,930
===================================================================================================
</TABLE>
The amortized cost and fair value of the investment securities
portfolio at December 31, 1998 and 1997, 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
were $116.7 million in 1998 and $69.9 million in 1997. In 1998
realized gains and losses were $0.3 million and $0.0 million,
respectively. In 1997 realized gains and losses were $0.6
million and $0.2 million.
At December 31, investment securities were pledged to secure
public and other funds with a carrying value of $638 million in
1998 and $595 million in 1997.
<TABLE>
<CAPTION>
($ in thousands)
- ---------------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity
Within one year $250,969 $252,694 $199,470 $200,037
One to five years 889,793 910,156 931,698 948,380
Five to ten years 326,045 334,457 363,923 373,079
Beyond ten years 138,355 139,367 84,065 85,434
- ---------------------------------------------------------------------------------------------------
Total $1,605,162 $1,636,674 $1,579,156 $1,606,930
===================================================================================================
</TABLE>
39
NOTE 4 - LOANS
The composition of loans at December 31, 1998 and 1997, by
lending classification was as follows ($ in thousands):
December 31,
- -----------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------
Commercial $1,007,447 $879,888
Economic development bonds 20,345 22,953
Commercial real estate 944,813 762,774
Residential real estate 1,688,572 1,523,425
Consumer credit, net 693,079 726,801
- -----------------------------------------------------------------------
Total loans $4,354,256 $3,915,841
=======================================================================
Through its affiliates, ONB makes loans to customers in various
industries including manufacturing, agribusiness, transportation,
mining, wholesaling, and retailing, predominately in its tri-
state region. The loan portfolio is diversified with no single
industry exceeding 10% of the total.
Executive officers and directors of ONB and significant
subsidiaries and their related interests are loan customers of
ONB's affiliate banks in the normal course of business. These
loans are made on substantially the same terms, including
interest rates and collateral, as those prevailing at the same
time for comparable transactions with unrelated parties and
involve no unusual risk of collectibility. An analysis of the
1998 activity of these loans is as follows ($ in thousands):
- ------------------------------------------------------------------------
Balance, January 1, 1998 $97,697
New loans 225,828
Repayments (208,598)
Officer and director changes 76
- ------------------------------------------------------------------------
Balance, December 31, 1998 $115,003
========================================================================
<TABLE>
<CAPTION>
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses during the years 1998,
1997, and 1996 was as follows ($ in thousands):
- -------------------------------------------------------------------------------------
December 31,
- -------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $49,053 $43,527 $42,857
Additions:
Provision charged to expense 12,160 13,562 11,082
Deductions:
Loans charged off 12,938 12,594 14,866
Recoveries (3,572) (4,558) (4,454)
- -------------------------------------------------------------------------------------
Net charge-offs 9,366 8,036 10,412
- -------------------------------------------------------------------------------------
Balance at end of year $51,847 $49,053 $43,527
=====================================================================================
</TABLE>
At December 31, 1998, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS Nos. 114
and 118 was $7.5 million with no related allowance and $42.0
million with $9.0 million of related allowance. At December 31,
1997, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS Nos. 114 and 118 was $8.2
million with no related allowance and $46.0 million with $11.5
million of related allowance.
For the year ended December 31, 1998, the average balance of
impaired loans was $51.7 million, for which $3.0 million of
interest was recorded. For the year ended December 31, 1997, the
average balance of impaired loans was $56.5 million, for which
$3.8 million of interest was recorded.
40
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.
OTHER BORROWINGS
The fair value of FHLB borrowings and 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.
The estimated carrying and fair values of ONB's financial
instruments at December 31, 1998, are as follows ($ in
thousands):
- -----------------------------------------------------------------
Carrying Fair
Value Value
- -----------------------------------------------------------------
Financial Assets:
Cash, due from banks and
money market investments $ 181,793 181,793
Investment securities 1,636,674 1,636,674
Loans, net 4,302,409 4,344,254
Financial Liabilities:
Deposits 4,668,858 4,692,469
Short-term borrowings 506,320 506,320
Other borrowings 629,868 643,278
Off-Balance-Sheet Financial Instruments:
Commitments to extend credit 1,019,877 1,019,877
Letters of credit 36,557 36,557
- -----------------------------------------------------------------
41
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:
- ----------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------
Provision at statutory rate 35.0% 35.0% 35.0%
Tax exempt income (9.7) (8.5) (9.3)
State income taxes 3.5 3.9 3.5
Other, net (0.3) (0.5) 0.4
- ----------------------------------------------------------------
Actual tax rate 28.5% 29.9% 29.6%
================================================================
The provision for income taxes consists of the following
components ($ in thousands):
- ---------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------
Income taxes currently payable - federal$21,277 $21,909 $21,264
Income taxes currently payable - state 5,469 5,355 4,833
Deferred income taxes related to:
Provision for loan losses (1,889) (2,796) (1,055)
Other, net (1,862) 1,189 1,573
- ---------------------------------------------------------------
Deferred income tax expense (benefit) (3,751) (1,607) 518
- ---------------------------------------------------------------
Provision for income taxes $22,995 $25,657 $26,615
===============================================================
Provision Detail:
Continuing operations $29,573 $28,998 $26,293
Discontinued operations (6,578) (3,341) 322
- ---------------------------------------------------------------
Total $22,995 $25,657 $26,615
===============================================================
Significant components of ONB's net deferred tax assets at
December 31 are as follows ($ in thousands):
- ---------------------------------------------------------
1998 1997
- ---------------------------------------------------------
Deferred Tax Assets:
Allowance for loan losses,
net of recapture $20,144 $18,255
Benefit plan accruals 4,298 4,225
Other, net 2,391 121
- ---------------------------------------------------------
Total deferred tax assets 26,833 22,601
- ---------------------------------------------------------
Deferred Tax Liabilities:
Premises and equipment (2,140) (2,862)
Accretion on investment securities (862) (1,021)
Unrealized gain on available-
for-sale investment securities (12,414) (11,105)
Lease receivable, net (3,439) (2,078)
- ---------------------------------------------------------
Total deferred tax liabilities (18,855) (17,066)
- ---------------------------------------------------------
Net deferred tax assets $7,978 $5,535
=========================================================
NOTE 8 - EMPLOYEE BENEFIT PLANS
RETIREMENT PLAN
ONB has a noncontributory defined benefit retirement plan
covering substantially all full-time employees. Retirement
benefits are based on years of service and compensation during
the highest paid five years of employment. ONB's policy is to
contribute at least the minimum funding requirement determined by
the plan's actuary.
The following table sets forth the plan's funded status and the
amount recognized in the consolidated balance sheet at December
31, 1998, 1997, and 1996 ($ in thousands):
42
- ----------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year $27,747 $24,356 $20,720
Service cost 2,353 2,169 1,900
Interest cost 2,070 1,884 1,720
Acquisitions - 262 641
Benefits paid (4,022) (2,325) (1,907)
Actuarial loss 4,085 1,400 1,282
- ----------------------------------------------------------------
Benefit obligation at end of year 32,233 27,746 24,356
- ----------------------------------------------------------------
Change in plan assets
Fair value of plan assets
at beginning of year 24,138 21,859 19,943
Actual return on plan assets 5,359 4,122 1,707
Employer contributions 3,305 188 946
Transfers 84 447 1,328
Benefits paid (4,022) (2,325) (1,907)
Administrative expenses (170) (153) (158)
- ----------------------------------------------------------------
Fair value of plan assets
at end of year 28,694 24,138 21,859
- ----------------------------------------------------------------
Funded status (3,539) (3,608) (2,497)
Unrecognized net actuarial loss 1,106 446 1,128
Unrecognized transition asset (2,127) (2,488) (2,850)
Unrecognized prior service cost 388 445 887
- ----------------------------------------------------------------
Accrued benefit cost $ (4,172) $(5,205)$(3,332)
================================================================
Weighted-average assumptions as of December 31,
Discount rate 8.00% 7.75%
Expected return on plan assets 8.00% 8.00%
Rate of compensation increase 5.00% 5.00%
The net pension expense and its components were as follows ($ in
thousands):
- -----------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------
Service cost $ 2,353 $ 2,169 $1,900
Interest cost 2,070 1,884 1,720
Expected return on plan assets (1,866) (1,693) (1,691)
Amortization of prior service cost 58 58 86
Amortization of transitional asset (362) (362) (362)
Recognized actuarial loss 18 5 -
- -----------------------------------------------------------------
Net pension expense $ 2,271 $ 2,061 $1,653
=================================================================
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 1998, 1997, and 1996
was $4.5 million, $4.5 million, and $4.0 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 49,722 in 1998, 42,237 in 1997, and
34,251 in 1996. Expense recorded in 1998, 1997, and 1996 was
$1.9 million, $1.2 million, and $0.8 million, respectively.
43
NOTE 9 - SHAREHOLDERS' EQUITY
STOCK DIVIDEND
A 5% stock dividend was declared on December 10, 1998, and
distributed on January 28, 1999. On April 15, 1999,a three-for-
two stock split was declared to shareholders of record on May 3,
1999. The dividend was paid on May 24, 1999. All average share
and per share amounts have been retroactively adjusted to reflect
this stock dividend and stock split.
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,
1998, 500 thousand 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.
NOTE 10 - FINANCING ACTIVITIES
LINES OF CREDIT
At December 31, 1998, ONB had $80.0 million in unsecured lines of
credit with unaffiliated banks with $72.8 million unused. The
lines bear interest at the bank's federal funds rate plus 60 to
80 basis points. During the years 1998, 1997, and 1996, the
average interest rates on the lines were 6.25%, 6.26%, and 6.17%,
respectively. The lines of credit include various arrangements
to maintain compensating balances or pay fees to maintain the
line.
FEDERAL HOME LOAN BANK
At December 31, 1998, ONB had $511.6 million borrowed from
various Federal Home Loan Banks ("FHLB"). Floating-rate
borrowings totaled $53.3 million and will mature in 1999. The
remaining borrowings have a fixed interest rate and mature
between 1999 and 2018. The weighted average rates of the FHLB
borrowings were 5.25% and 5.96% at December 31, 1998 and 1997,
respectively. A portion of these borrowings was secured by
specific mortgage loans and securities which have a current book
values of approximately $465 million and $48 million,
respectively. FHLB requires collateral values up to 167% of the
amount borrowed.
MEDIUM TERM NOTES
ONB has registered Series A Medium Term Notes in the principal
amount of $50 million. The series has been fully issued. At
December 31, 1998, a total of $32 million of the notes were
outstanding with maturities ranging from two to five years and
fixed interest rates ranging from 6.70% to 7.10%.
ONB also has registered Medium Term Notes in the principal amount
of $150 million. These notes may be issued with maturities of
nine months or more and rates may either be fixed or variable.
At December 31, 1998, a total of $64.3 million of the notes were
outstanding, with maturities ranging from four to nine years and
fixed interest rates from 6.40% to 7.03%
SUBORDINATED DEBENTURES
ONB has outstanding $22.0 million of 8% convertible subordinated
debentures outstanding 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 77.519
shares per $1,000 principal amount of debentures. During 1998,
$8.4 million principal amount of debentures was converted into
415,597 shares of ONB common stock.
Interest on the debentures is payable 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. At December 31, 1998, 1.7
million authorized and unissued common shares were reserved for
conversion of the remaining debentures.
44
NOTE 11 - INTEREST RATE CONTRACTS
ONB uses interest rate contracts such as interest swaps and caps
to manage its interest rate risk. These contracts are designated
as hedges of specific assets and liabilities. The net interest
receivable or payable on swaps is accrued and recognized as an
adjustment to the interest income or expense of the hedged asset
or liability. The premium paid for an interest rate cap is
included in the basis of the hedged item and is amortized as an
adjustment to the interest income or expense on the related asset
or liability.
At December 31, 1998, ONB had an interest rate swap with a
notional value of $20 million. The contract is an exchange of
interest payments with no effect on the principal amounts of the
underlying hedged liability. The fair value of the swap contract
was $0.3 million at December 31, 1998. ONB pays the counterparty
a variable rate based on three-month LIBOR and receives a fixed
rate of 6.50%. The contract terminates on or prior to March 13,
2008.
At December 31, 1998, ONB had an interest rate cap agreement
("cap") with a notional amount of $8 million with no fair value.
This cap is indexed to LIBOR with a strike price of 5.00% and
matures in 1999. The carrying value at December 31, 1998, was
$0.1 million.
ONB is exposed to losses if a counterparty fails to make its
payments under a contract in which ONB is in the receiving
position. Although collateral or other security is not obtained,
ONB minimizes its credit risk by monitoring the credit standing
of the couterparties and anticipates that the counterparties will
be able to fully satisfy their obligation under the agreements.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
LEASES
ONB rents certain premises and equipment under operating leases
which expire at various dates. Many of these leases require ONB
to pay 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
$4.0 million in 1998, $3.9 million in 1997, and $3.9 million in
1996.
Following is a summary of future minimum lease commitments ($ in
thousands):
1999 $3,168 2002 $2,179
2000 2,550 2003 1,679
2001 2,363 2004 and after 1,288
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 $1,019.9 million, including $584.0 million of
short-term commitments with fixed-rates, and letters of credit of
$36.6 million at December 31, 1998. These commitments are not
reflected in the consolidated financial statements. No material
losses are expected to result from these transactions.
LITIGATION
At December 31, 1998, various legal actions and proceedings were
pending against ONB and 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 consolidated
financial position or results of operations of ONB or its
affiliates.
NOTE 13 - 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 noninterest
bearing and unavailable for investment purposes. The reserve
balances at December 31, 1998 and 1997, were $24.1 million and
$27.3 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 regulatory approval.
At December 31, 1998, affiliate banks could pay aggregate dividends
to ONB of approximately $7.1 million without prior regulatory
approval. Such approval has been regularly provided as all
affiliate banks exceeded the regulatory definition of
well-capitalized.
CAPITAL ADEQUACY
For additional information on capital adequacy see Table 16 in
Management's Discussion and Analysis on page 29.
45
NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS
The following are the condensed parent company only financial
statements of Old National Bancorp ($ in thousands)
NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEET
- ---------------------------------------------------------------------------------------------------
December 31,
- ---------------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Deposits in affiliate banks $925 $598
Investment in affiliates:
Banks, including purchase accounting intangible assets of
$7,240 in 1998 and $7,927 in 1997 541,103 546,453
Non-banks 15,775 18,778
Advances to affiliates 8,777 76,888
Other assets 90,783 13,078
- ---------------------------------------------------------------------------------------------------
TOTAL ASSETS $657,363 $655,795
===================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings $7,250 $17,008
Other liabilities 12,222 9,471
Convertible subordinated debentures 21,963 30,407
Medium term notes 96,300 98,300
Shareholders' equity 519,628 500,609
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $657,363 $655,795
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF INCOME
- ---------------------------------------------------------------------------------------------------
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Dividends from affiliates $88,593 $83,445 $50,208
Other income 2,851 380 2,378
Other income from affiliates 11,066 12,631 5,918
- ---------------------------------------------------------------------------------------------------
TOTAL INCOME 102,510 96,456 58,504
- ---------------------------------------------------------------------------------------------------
EXPENSE
Interest on borrowings 9,653 10,283 7,014
Amortization of intangibles 687 686 707
Other expenses 14,116 10,296 9,450
- ---------------------------------------------------------------------------------------------------
TOTAL EXPENSE 24,456 21,265 17,171
- ---------------------------------------------------------------------------------------------------
Income before income taxes and equity in
undistributed earnings of affiliates 78,054 75,191 41,333
Income tax benefit (4,290) (3,415) (3,541)
- ---------------------------------------------------------------------------------------------------
Income before equity in
undistributed earnings of affiliates 82,344 78,606 44,874
Equity in undistributed earnings of affiliates (18,063) (15,528) 18,307
- ---------------------------------------------------------------------------------------------------
NET INCOME $64,281 $63,078 $63,181
===================================================================================================
</TABLE>
46
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $64,281 $63,078 $63,181
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation 435 275 201
Amortization of intangible assets 687 686 707
(Increase) decrease in other assets (77,945) (4,406) 35,288
Increase (decrease) in other liabilities 2,751 3,452 (332)
Equity in undistributed earnings of affiliates 18,063 15,528 (18,307)
- ---------------------------------------------------------------------------------------------------
Total adjustments (56,009) 15,535 17,557
- ---------------------------------------------------------------------------------------------------
Net cash flows provided by operating activities 8,272 78,613 80,738
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net advances to affiliates 60,125 (30,295) (59,908)
Purchase of premises and equipment (193) (1,987) (283)
- ---------------------------------------------------------------------------------------------------
Net cash flows provided by (used in) investing activit 59,932 (32,282) (60,191)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (payments on) proceeds from short-term borrowings (9,758) (50,198) 48,652
Net (payments on) proceeds from medium term notes (2,000) 54,300 (6,000)
Cash dividends paid (26,058) (25,012) (24,423)
Common stock repurchased (46,702) (36,356) (44,906)
Common stock reissued, net of shares used to
convert subordinated debentures 16,641 9,574 6,858
- ---------------------------------------------------------------------------------------------------
Net cash flows used in financing activities (67,877) (47,692) (19,819)
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 327 (1,361) 728
Cash and cash equivalents at beginning of period 598 1,959 1,231
- ---------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $925 $598 $1,959
===================================================================================================
</TABLE>
NOTE 15 - SEGMENT INFORMATION
ONB's community banks have been aggregated into one reportable
segment: community banking. Our community banks provide a wide
range of financial services as discussed on page 12 and 13 of
Management's Discussion & Analysis. The accounting policies of
the segment are the same as those described in Note 1.
Intersegment sales and transfers are not significant.
Summarized financial information concerning ONB's segments is
shown in the following table, based on continuing operations.
The other column includes ONB's insignificant non-bank affiliates
and intercompany eliminations.
- ------------------------------------------------------------
Community
Banking Other Total
- ------------------------------------------------------------
1998
Net interest income $228,243 $(3,329) $224,914
Income tax expense(benefit) 34,458 (4,885) 29,573
Segment profit (loss) 81,133 (6,998) 74,135
Total assets 6,329,380 87,231 6,416,611
============================================================
1997
Net interest income $225,642 $(7,472) $218,170
Income tax expense(benefit) 34,060 (5,062) 28,998
Segment profit (loss) 74,824 (6,741) 68,083
Total assets 5,852,756 80,565 5,933,321
============================================================
1996
Net interest income $214,656 $(5,276) $209,380
Income tax expense(benefit) 31,587 (5,294) 26,293
Segment profit (loss) 70,413 (7,726) 62,687
Total assets 5,551,623 50,837 5,602,460
============================================================
47
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OLD NATIONAL
BANCORP'S SUPPLEMENT TO THE 1998 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<CASH> 160,161 155,579 187,614
<INT-BEARING-DEPOSITS> 5,287 12,585 3,140
<FED-FUNDS-SOLD> 16,345 11,079 3,558
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 1,636,674 1,606,930 1,573,708
<INVESTMENTS-CARRYING> 0 0 0
<INVESTMENTS-MARKET> 0 0 0
<LOANS> 4,354,256 3,915,841 3,627,592
<ALLOWANCE> 51,847 49,053 43,527
<TOTAL-ASSETS> 6,416,611 5,933,321 5,602,460
<DEPOSITS> 4,668,858 4,521,010 4,479,357
<SHORT-TERM> 506,320 442,685 339,035
<LIABILITIES-OTHER> 91,920 80,185 65,419
<LONG-TERM> 629,868 388,832 238,245
0 0 0
0 0 0
<COMMON> 30,388 29,159 28,480
<OTHER-SE> 489,257 471,450 451,955
<TOTAL-LIABILITIES-AND-EQUITY> 6,416,611 5,933,321 5,602,460
<INTEREST-LOAN> 357,675 332,075 310,813
<INTEREST-INVEST> 97,634 102,048 91,356
<INTEREST-OTHER> 1,219 915 3,500
<INTEREST-TOTAL> 456,528 435,038 405,669
<INTEREST-DEPOSIT> 180,724 176,789 169,847
<INTEREST-EXPENSE> 231,614 216,868 196,289
<INTEREST-INCOME-NET> 224,914 218,170 209,380
<LOAN-LOSSES> 12,160 13,562 11,082
<SECURITIES-GAINS> 340 379 885
<EXPENSE-OTHER> 29,294 25,403 25,260
<INCOME-PRETAX> 103,708 97,081 88,980
<INCOME-PRE-EXTRAORDINARY> 74,135 68,083 62,687
<EXTRAORDINARY> (9,854) (5,005) 494
<CHANGES> 0 0 0
<NET-INCOME> 64,281 63,078 63,181
<EPS-BASIC> 1.61 1.47 1.31
<EPS-DILUTED> 1.57 1.43 1.28
<YIELD-ACTUAL> 4.17 4.31 4.42
<LOANS-NON> 17,034 11,985 13,162
<LOANS-PAST> 5,389 4,628 3,553
<LOANS-TROUBLED> 116 248 746
<LOANS-PROBLEM> 105,006 113,623 107,100
<ALLOWANCE-OPEN> 49,053 43,527 42,857
<CHARGE-OFFS> 12,938 12,594 14,866
<RECOVERIES> 3,572 4,558 4,454
<ALLOWANCE-CLOSE> 51,847 49,053 43,527
<ALLOWANCE-DOMESTIC> 51,547 49,053 43,527
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
