SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to
____________
Commission File Number 0-10888
OLD NATIONAL BANCORP
(Exact name of Registrant as specified in its charter)
INDIANA 35-1539838
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
420 Main Street,
Evansville, Indiana 47708
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code, (812)
464-1200
Former name, former address and former fiscal year, if changed
since last reports.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to the filing requirements for at least
the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock. The Registrant has one class of common
stock (no par value) with approximately 45.6 million shares
outstanding at September 30, 1999.
OLD NATIONAL BANCORP
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
Consolidated Balance Sheet
September 30, 1999 and 1998, and December 31, 1998 3
Consolidated Statement of Income
Three and Nine months ended September 30, 1999 and 1998 4
Consolidated Statement of Cash Flows
Nine months ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2.Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II OTHER INFORMATION 17
SIGNATURES 18
INDEX OF EXHIBITS 19
2
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP
CONSOLIDATED BALANCE SHEET
September 30 December 31,
($ in thousands) (unaudited) 1999 1998 1998
Assets
<S> <C> <C> <C>
Cash and due from banks ---------------------- $156,439 $136,581 $160,162
Money market investments---------------------- 11,917 19,654 21,632
Investment Securities
U.S. Treasury ------------------------------ 40,685 101,576 92,704
U.S. Government agencies
and corporations ------------------------ 1,093,679 975,375 995,492
Obligations of states and political
Subdivisions ---------------------------- 526,835 480,190 491,140
Other -------------------------------------- 64,179 53,944 57,301
--------- --------- ---------
Total Investment Securities ------------- 1,725,378 1,611,085 1,636,637
--------- --------- ---------
Loans
Commercial --------------------------------- 1,169,189 1,023,893 1,027,990
Commercial real estate --------------------- 1,083,855 878,119 944,615
Residential real estate -------------------- 1,796,079 1,622,753 1,688,621
Consumer credit, net of unearned income ---- 747,433 704,099 693,079
--------- --------- ---------
Total Loans ----------------------------- 4,796,556 4,228,864 4,354,305
Allowance for loan losses --------------- (58,117) (51,836) (51,847)
--------- --------- ---------
Net Loans ------------------------------- 4,738,439 4,177,028 4,302,458
Other assets --------------------------------- 331,134 291,630 295,722
--------- --------- ---------
Total Assets ---------------------------- $6,963,307 $6,235,978 $6,416,611
========= ========= =========
Liabilities
Deposits
Noninterest bearing demand ----------------- $520,560 $501,965 $553,656
Interest bearing:
NOW accounts ---------------------------- 685,986 632,608 710,260
Savings accounts ------------------------ 491,307 409,470 420,296
Money market accounts ------------------- 528,176 582,173 588,876
Certificates of deposit
$100,000 and over --------------------- 359,854 416,503 390,123
Other time ------------------------------ 2,439,447 2,050,273 2,005,647
--------- --------- ---------
Total Deposits -------------------------- 5,025,330 4,592,992 4,668,858
--------- --------- ---------
Short-term borrowings ------------------------ 560,673 407,610 506,320
Other borrowings ----------------------------- 774,259 629,758 629,868
Accrued expenses and other liabilities ------- 88,110 87,535 91,920
--------- --------- ---------
Total Liabilities -------------------------- 6,448,372 5,717,895 5,896,966
Shareholders' Equity
Common stock ------------------------------- 45,635 29,197 30,388
Capital surplus ---------------------------- 331,711 285,580 350,256
Retained earnings -------------------------- 154,632 181,523 119,902
Accumulated other comprehensive
income (loss), net of tax ---------------- (17,043) 21,783 19,099
--------- --------- ---------
Total Shareholders' Equity ------------------ 514,935 518,083 519,645
--------- --------- ---------
Total Liabilities and Shareholders'Equity ---$6,963,307 $6,235,978 $6,416,611
========= ========= =========
The accompanying notes are an integral part of this statement.
3
</TABLE>
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended Nine MonthsEnded
($ and shares in thousands except September 30, September 30,
per share data) (Unaudited) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income
Loans including fees:
Taxable ----------------------------------- $96,105 $90,456 $277,441 $262,154
Non-taxable ------------------------------- 2,276 1,517 6,097 4,195
Investment securities:
Taxable ----------------------------------- 20,183 18,395 58,994 55,954
Non-taxable ------------------------------- 6,467 5,920 18,977 17,469
Money market investments -------------------- 367 164 1,065 1,054
------- ------- ------- -------
Total Interest Income --------------------- 125,398 116,452 362,574 340,826
------- ------- ------- -------
Interest Expense
Savings, NOW and
money market accounts --------------------- 10,399 11,296 31,197 34,227
Certificates of deposit of $100,000
and over ---------------------------------- 5,121 5,895 16,597 17,443
Other time deposits ------------------------- 30,970 28,971 86,266 84,562
Short-term borrowings ----------------------- 7,422 5,675 20,238 13,567
Other borrowings ---------------------------- 10,611 8,316 29,424 23,131
------- ------- ------- -------
Total Interest Expense -------------------- 64,523 60,153 183,722 172,930
------- ------- ------- -------
Net Interest Income ----------------------- 60,875 56,299 178,852 167,896
Provision for loan losses ------------------- 2,740 2,936 8,437 9,189
------- ------- ------- -------
Net Interest Income After Provision
For Loan Losses ------------------------- 58,135 53,363 170,415 158,707
------- ------- ------- -------
Noninterest Income
Trust fees ---------------------------------- 3,619 3,342 10,809 9,731
Service charges on deposit accounts---------- 5,729 4,392 15,384 12,918
Loan fees ----------------------------------- 1,539 1,190 3,711 3,593
Insurance premiums and commissions ---------- 1,525 1,400 4,479 4,063
Investment product fees --------------------- 1,437 1,281 4,424 3,793
Bank-owned life insurance ------------------- 1,155 1,307 3,407 2,640
Securities gains, net ----------------------- 143 56 2,383 271
Other income -------------------------------- 1,778 2,051 5,589 5,870
------- ------- ------- -------
Total Noninterest Income ------------------ 16,925 15,019 50,186 42,879
------- ------- ------- -------
Noninterest Expense
Salaries and employee benefits -------------- 26,966 23,989 78,614 71,050
Occupancy expense --------------------------- 2,660 2,501 7,902 7,378
Equipment expense --------------------------- 3,261 3,265 9,838 9,772
Marketing expense --------------------------- 1,603 1,434 4,512 4,477
FDIC insurance expense ---------------------- 173 156 533 517
Processing expense -------------------------- 2,526 2,338 7,421 6,494
Supplies expense ---------------------------- 1,264 978 3,419 3,019
Communication and transportation expense 1,970 1,750 5,646 5,332
Other expenses ------------------------------ 5,333 4,916 16,811 14,402
------- ------- ------- -------
Total Noninterest Expense ----------------- 45,756 41,327 134,696 122,441
------- ------- ------- -------
Income From Continuing Operations
Before Income Taxes ----------------------- 29,304 27,055 85,905 79,145
Provision for income taxes ------------------ 7,718 7,064 23,057 23,004
------- ------- ------- -------
Income From Continuing Operations ----------- 21,586 19,991 62,848 56,141
Discontinued operations
Gain (loss) from discontinued operations --- 0 0 3,483 (9,854)
------- ------- ------- -------
Income (loss)from discontinued operations -- 0 0 3,483 (9,854)
------- ------- ------- -------
Net Income ---------------------------------- $21,586 $19,991 $66,331 $46,287
Income from continuing operations ======= ======= ======= =======
Per common share:
Basic ------------------------------------ $0.47 $0.44 $1.36 $1.22
===== ===== ===== =====
Diluted ---------------------------------- $0.46 $0.42 $1.33 $1.18
===== ===== ===== =====
Net income per common share:
Basic ------------------------------------ $0.47 $0.44 $1.44 $1.01
===== ===== ===== =====
Diluted ---------------------------------- $0.46 $0.42 $1.40 $0.98
===== ===== ===== =====
Weighted average common shares outstanding:
Basic ------------------------------------ 46,017 45,957 46,089 45,984
====== ====== ====== ======
Diluted ---------------------------------- 47,681 47,872 47,840 48,113
====== ====== ====== ======
The accompanying notes are an integral part of this statement.
4
</TABLE>
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended
September 30,
($ in thousands) (unaudited) 1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income -------------------------------------------------$ 66,331 $ 46,287
-------- --------
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation --------------------------------------------- 7,627 7,404
Amortization of intangible assets ------------------------ 1,188 1,359
Net premium amortization on investment securities -------- 1,073 2,102
Provision for loan losses -------------------------------- 8,437 9,189
Gain on sale of investment securities -------------------- (2,383) (271)
Gain on sale of assets ----------------------------------- (932) (350)
Increase in interest receivable -------------------------- (5,151) (4,121)
Increase in other assets --------------------------------- (369) (10,416)
Increase (decrease) in accrued expenses and
other liabilities -------------------------------------- (4,146) 3,977
-------- --------
Total adjustments ------------------------------------- 5,344 8,873
-------- --------
Net cash flows provided by (used in) operating activities 71,675 55,160
-------- --------
Cash flows from investing activities:
Cash and cash equivalents of subsidiary acquired ----------- 5,914 --
Purchase of investment securities available-for-sale -------(846,700) (443,082)
Proceeds from maturities and paydowns of investment
securities available-for-sale ---------------------------- 476,422 350,153
Proceeds from sales of investment securities available-
for-sale ------------------------------------------------- 241,070 95,374
Net principal collected from (loans made to) customers:
Commercial and financial ---------------------------------(134,043) (122,326)
Mortgage -------------------------------------------------(243,857) (273,726)
Consumer ------------------------------------------------- (54,414) 18,347
Proceeds from sale of mortgage loans ----------------------- 6,094 58,857
Proceeds from sale of premises and equipment --------------- 1,755 438
Purchase of premises and equipment ------------------------- (14,613) (6,199)
-------- --------
Net cash flows used in investing activities -------------- (562,372) (322,164)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits and short-term borrowings:
Noninterest bearing demand ------------------------------- (50,240) (23,983)
NOW Accounts --------------------------------------------- (24,274) (19,885)
Savings accounts ----------------------------------------- 67,781 (10,640)
Money market accounts ------------------------------------ (60,700) (14,300)
Certificates of deposit $100,000 and over ---------------- (32,304) 36,249
Other time deposits -------------------------------------- 420,427 104,541
Short-term borrowings ------------------------------------ 54,353 (35,075)
Other borrowings ----------------------------------------- 148,419 249,370
Cash dividends paid ---------------------------------------- (22,888) (19,360)
Common stock repurchased ----------------------------------- (35,580) (35,610)
Common stock reissued, net of shares used to convert
subordinated debentures ---------------------------------- 12,265 12,688
-------- --------
Net cash flows provided by financing activities ---------- 477,259 243,995
-------- --------
Net increase in cash and cash equivalents ------------------ (13,438) (23,009)
Cash and cash equivalents at beginning of period ----------- 181,794 179,244
-------- --------
Cash and cash equivalents at end of period -----------------$168,356 $156,235
======== ========
Total interest paid -------------------------------------- $180,026 $169,212
======== ========
Total taxes paid ----------------------------------------- $ 19,774 $ 13,588
======== ========
The accompanying notes are an integral part of this statement.
5
</TABLE>
Old National Bancorp
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying consolidated financial statements include the
accounts of the Old National Bancorp and its affiliate entities
(ONB). All significant intercompany transactions and balances
have been eliminated. In the opinion of management, the
consolidated financial statements contain all the normal and
recurring adjustments necessary to present fairly the financial
position of ONB as of September 30, 1999 and 1998 and December
31, 1998, and the results of its operations for the three and
nine months ended September 30, 1999 and 1998 and its cash flows
for the nine months ended September 30, 1999 and 1998. All prior
period information has been restated for the effects of business
combinations accounted for as pooling-of-interests as discussed
in Note 3.
2. Net Income Per Share
Net income per common share computations are based on the
weighted average number of common shares outstanding during the
periods presented. A 5% stock dividend was paid January 28, 1999
to shareholders of record on January 7, 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 share and per share data presented herein have been restated
for the effects of the stock dividend and stock split.
Net income on a diluted basis is computed as above and assumes
the conversion of ONB's 8% convertible subordinated debentures
(Note 5). For the diluted computation, net income is adjusted
for the assumed reduction in interest expense, net of income tax
effect, and additional common shares of 1.7 million year-to-date
and 1.6 million quarter-to-date, are assumed to be issued in
connection with the conversion of the remaining outstanding
debentures.
Earnings Per Share Reconciliation
($ and shares in thousands except per share data):
Three Three
Months Ended Months Ended
September 30, 1999 September 30, 1998
Per-Share Per-Share
Income Shares Amount Income Shares Amount
Basic EPS
Income from continuing
operations available to
common stockholders $21,586 46,017 $0.47 $19,991 45,957 $0.44
===== =====
Effect of Dilutive
Securities:
Stock options 74 210
8% convertible debentures 156 1,590 263 1,705
------- ------ ------- ------
6
Diluted EPS
Income from continuing
operations available to
common stockholders
+ assumed conversions $21,742 47,681 $0.46 $20,254 47,872 $0.42
======= ====== ===== ======= ====== =====
Nine Nine
Months Ended Months Ended
September 30, 1999 September 30, 1998
Per-Share Per-Share
Income Shares Amount Income Shares Amount
Basic EPS
Income from continuing
operations available to
common stockholders $62,848 46,089 $1.36 $56,141 45,984 $1.22
===== =====
Effect of Dilutive
Securities:
Stock options 86 229
8% convertible debentures 682 1,665 875 1,900
------- ------ ------- ------
Diluted EPS
Income from continuing
operations available to
common stockholders
+ assumed conversions $63,530 47,840 $1.33 $57,016 48,113 $1.18
======= ====== ===== ======= ====== =====
3. Merger and Divestiture Activity
Pending Mergers
On July 30, 1999, ONB and ANB Corporation (ANB) of Muncie,
Indiana, executed a definitive merger agreement. ONB will issue
common shares in exchange for all of the outstanding common
shares of ANB. The transaction will be accounted for as a
pooling-of-interests. The merger is subject to the approvals of
ANB's shareholders and regulatory authorities. As of September
30, 1999, ANB's financial statements reflected $833.9 million in
total assets, net loans of $648.1 million, total deposits of
$676.6 million and net income for the nine months then ended of
$6,245 thousand. This merger is expected to be consummated in
the first quarter of 2000.
On September 10, 1999, ONB and Heritage Financial Services, Inc.
(Heritage) of Clarksville, Tennessee, executed a definitive
merger agreement. ONB will issue common shares in exchange for
all of the outstanding common shares of Heritage. The
transaction will be accounted for as a pooling-of-interests. The
merger is subject to the approvals of Heritage's shareholders and
regulatory authorities. As of September 30, 1999, Heritage's
financial statements reflected $234.0 million in total assets,
net loans of $180.1 million, total deposits of $200.5 million and
7
net income for the nine months then ended of $2,288 thousand.
This merger is expected to be consummated in the first quarter of
2000.
Completed Mergers
On January 29, 1999, ONB and Southern Bancshares LTD (Southern)
of Carbondale, Illinois, consummated a merger in which ONB issued
2,552,436 common shares in exchange for all of the shares of
Southern. This transaction was accounted for as a pooling-of-
interests. Net income for Southern prior to merger included in
the 1999 statements for the period ended January 29, 1999 was
$332 thousand.
On February 5,1999 ONB and Dulaney Bancorp (Dulaney) of Marshall,
Illinois, consummated a merger in which ONB issued 472,284 common
shares in exchange for all the shares of Dulaney. This
transaction was accounted for as a pooling-of-interests without
restatement of prior years due to immateriality.
Discontinued Operations
In April 1998, ONB announced it would look at exit strategies
from its sub-prime lending affiliate, Consumer Acceptance
Corporation (CAC). During June 1998, ONB finalized the sale of
CAC's sub-prime auto loans, which closed in July 1998. ONB has
accounted for this entity as discontinued operations on the
consolidated financial statements. During the second quarter of
1999, contingencies related to the sale were favorably resolved.
Income (loss) from discontinued operations for the three and nine
months ended September 30, 1999 and 1998 was as follows ($ in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Loss before taxes
from operations of discontinued
operations $0 $0 $0 $(7,943)
Income tax benefit 0 0 0 (3,183)
-- -- ------ -------
Loss from operations of
discontinued operations 0 0 0 (4,760)
-- -- ------ -------
Income (loss) before taxes from disposal
of discontinued operations 0 0 5,805 (8,489)
Income tax expense (benefit) 0 0 2,322 (3,395)
-- -- ------ -------
Income (loss) from disposal of
discontinued operations 0 0 3,483 (5,094)
-- -- ------ -------
Income (loss) from discontinued
operations $0 $0 $3,483 $(9,854)
== == ====== =======
Income (loss) from discontinued
operations per common share
Basic $0.00 $0.00 $0.08 $(0.21)
===== ===== ===== ======
Diluted $0.00 $0.00 $0.07 $(0.20)
===== ===== ===== ======
8
4. Investments
The market value and amortized cost of investment securities as
of September 30, 1999 are set forth below ($ in thousands):
Market Value Amortized Cost
Available-for-sale, at market value $1,725,378 $1,754,009
========== ==========
5. Borrowings
ONB has outstanding $17.9 million of 8% convertible subordinated
debentures which are due September 15, 2012, unless previously
converted or redeemed. The debentures are convertible at any
time prior to maturity into shares of common stock of ONB at a
conversion rate of 77.519 shares for each one thousand dollars
principal amount of debentures. Interest on the debentures is
payable on March 15 and September 15 of each year. The
debentures are redeemable in whole or in part at the option of
ONB at par value. Beginning September 15, 1998, debenture holders
are entitled to an annual sinking fund contribution of $2.5
million principal amount of debentures less conversions and
redemptions. The debentures are subordinated in right of payment
to all senior indebtedness of ONB. As of September 30, 1999, 1.4
million authorized and unissued common shares were reserved for
conversion of the debentures.
ONB has registered Series A Medium Term Notes in the principal
amount of $50 million. The series has been fully issued. As of
September 30, 1999, a total of $32.0 million of the notes were
outstanding, with maturities ranging from one to four years and
fixed interest rates of 6.7% to 7.1%. At September 30, 1998, ONB
had outstanding $32.0 million of medium term notes.
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.
As of September 30, 1999 and 1998, a total of $64.3 million of
the notes were outstanding, with maturities ranging from one to
nine years and fixed interest rates from 6.4% to 7.0%.
As of September 30, 1999, ONB has $80 million in unsecured lines
of credit with unaffiliated banks. These lines of credit include
various informal arrangements to maintain compensating balances.
The compensating balances are maintained for the benefit of the
parent company by affiliate banks which normally maintain
correspondent balances with these unaffiliated banks. As of
September 30, 1999, no balance was outstanding under these lines.
As of September 30, 1998, $8.1 million was outstanding.
6. 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.
9
At September 30, 1999, ONB has interest rate swaps with a
notional value of $75 million. The contracts are an exchange of
interest payments with no affect on the principal amounts of the
underlying hedged liability. The fair value of the swaps were
$(4.6) million as of September 30, 1999. ONB pays the
counterparty a variable rate based on three-month LIBOR and
receives fixed rates ranging from 5.375% to 7.0%. The contracts
terminate on or prior to May 3, 2009.
ONB is exposed to losses if a counterparty fails to make its
payments under a contract in which ONB is in the receiving
position. Although collateral or other security is not obtained,
ONB minimizes its credit risk by monitoring the credit standing
of the counterparties and anticipates that the counterparties
will be able to fully satisfy their obligation under the
agreements.
7. Comprehensive Income
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
($ in Thousands)
Net income $21,586 $19,991 $66,331 $46,287
Unrealized gains (losses) on securities:
Unrealized holding losses
Arising during period, net of tax (6,911) 6,177 (34,712) 5,277
Less: reclassification adjustment
for gains realized in net income,
net of tax (86) (34) (1,430) (163)
------- ------ ------- -------
Net unrealized losses (6,997) 6,143 (36,142) 5,114
------- ------ ------- -------
Comprehensive income $14,589 $26,134 $30,189 $51,401
======= ======= ======= =======
8. Segment Data
Community
Banking Other Total
September 30,1999
Net interest income (loss) $180,403 $(1,551) $178,852
Income tax expense (benefit) 27,689 (4,632) 23,057
Segment profit (loss) 67,665 (4,817) 62,848
Total assets 6,824,500 138,807 6,963,307
September 30, 1998
Net interest income (loss) $170,297 $(2,401) 167,896
Income tax expense (benefit) 25,933 (2,929) 23,004
Segment profit (loss) 60,299 (4,158) 56,141
Total assets 6,113,059 303,552 6,416,611
9. Impact of Accounting Changes
In June 1998 the Financial Accounting Standards Board issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging
Activities." This statement requires that all derivative
10
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, 2000 (January 1, 2001 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.
11
PART I. FINANCIAL INFORMATION
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following management's discussion and analysis is presented
to provide information concerning the financial condition of ONB
as of September 30, 1999, as compared to September 30, 1998 and
December 31, 1998, and the results of operations from continuing
operations for the three and nine months ended September 30, 1999
and 1998.
Financial Condition
ONB's assets at September 30, 1999 were $6.963 billion, an 11.7%
increase since September 1998 and an 8.5% increase since December
1998. Earning assets, which consist primarily of money market
investments, investment securities and loans, grew 11.5% over the
prior year. During the past year, the mix of earning assets
reflected loan growth of 13.4% while money market investments and
investment securities increased a combined 6.5%. Since December
1998, earning assets increased 8.7% with loans growing 10.2% and
investment securities and money market investments increasing
4.8%.
At September 30, 1999, total under-performing assets (defined as
loans 90 days or more past due, nonaccrual and restructured loans
and foreclosed properties) decreased slightly to $22.9 million
from $25.1 million as of December 31, 1998. As of these dates,
under-performing assets in total were 0.48% and 0.58%,
respectively, of total loans and foreclosed properties.
June 30, December 31,
1999 1998
Nonaccrual loans $16,589 $17,034
Restructured loans 170 116
Foreclosed properties 2,320 2,542
------- -------
Total Non-performing Assets 19,079 19,692
Past due 90 days or more 3,880 5,389
------- -------
Total Under-performing Assets $22,887 $25,081
======= =======
Unper-performing assets as a % of total
loans and foreclosed properties 0.48% 0.58%
==== ====
As of September 30, 1999, the recorded investment in loans for
which impairment has been recognized in accordance with SFAS No.
114 and 118 was $7.8 million with no related allowance and
$50.4 million with $14.3 million of related allowance.
ONB's policy for recognizing income on impaired loans is to
accrue earnings unless a loan becomes nonaccrual. When loans are
classified as nonaccrual, interest accrued during the current
year is reversed against earnings; interest accrued in the prior
year, if any, is charged to the allowance for loan losses. Cash
received while a loan is classified nonaccrual is recorded to
principal.
For the nine months ended September 30, 1999, the average balance
of impaired loans was $52.1 million and $2.9 million of interest
was recorded.
12
ONB's consolidated loan portfolio is well diversified and
contains no concentrations of credit in any particular industry
exceeding 10% of its portfolio. ONB has minimal exposure to
construction lending or leveraged buyouts and no exposure in
credits to foreign or lesser-developed countries.
Total deposits at September 30, 1999, increased $432.3 million or
9.4% compared to September 1998. Brokered CD's, included in
other time, increased $411.6 million since September 1998. Since
December 1998, total deposits increased $356.5 million or 7.6%
with brokered CD's increasing $446.2 million in this same period.
Short-term borrowings, comprised of Federal funds purchased,
securities sold under agreements to repurchase and other short-
term borrowings, increased $153.1 million since September 1998
and $54.4 million since December 1998. Other borrowings, which
is primarily debt from Federal Home Loan Banks, rose $144.5
million over September 1998 and $144.4 million over December
1998.
Capital
Total shareholders' equity decreased $3.1 million since September
1998 and $4.7 million since December 1998. Accumulated other
comprehensive income (loss), primarily net unrealized gain (loss)
on investment securities, decreased $38.8 million since September
1998 and $36.1 million since December 1998.
ONB's consolidated capital position remains strong as evidenced
by the following comparisons of key industry ratios:
<TABLE>
<CAPTION>
Regulatory Guidelines September 30, December 31,
Minimum Well-Capitalized 1999 1998 1998
<S> <C> <C> <C> <C> <C>
Risk-based capital:
Tier 1 capital to total
avg assets (leverage ratio) 4.00% 5.00% 7.51% 7.80% 7.94%
Tier 1 capital to risk-adjusted
total assets 4.00 6.00 11.58 11.58 11.40
Total capital to risk-adjusted
total assets 8.00 10.00 13.23 13.32 13.11
Shareholders' equity to total assets N/A N/A 7.39 8.31 8.10
Each of ONB's affiliate banks have capital ratios which exceed
regulatory minimum and well-capitalized guidelines.
</TABLE>
Liquidity and Asset/Liability Management
ONB continually monitors its liquidity and actively manages its
asset/liability position. The purpose of liquidity management is
to match the sources of funds with anticipated customer
borrowings and withdrawals and other obligations. The primary
purpose of asset/liability management is to minimize the effect
on net income of changes in interest rates and to maintain a
prudent match within specified time periods of rate-sensitive
assets and rate-sensitive liabilities.
ONB also uses net interest income simulation modeling to better
quantify the impact of potential interest rate fluctuations on
net interest income. With this understanding, management can
best determine possible balance sheet changes, pricing
strategies, and appropriate levels of capital and liquidity which
allow ONB to generate strong net interest income while
controlling and monitoring interest rate risk. ONB simulates a
gradual change in rates of 200 basis points up or down over 12
13
months and sustained for an additional 12 months. The policy
limit for the maximum negative impact on net interest income over
12 months is 10%. At September 30, 1999 ONB was well within that
limit as the model's fluctuation was under 2% for the first 12
months and less than 3% for the total 24 month period.
Using static gap, ONB's rate-sensitive assets at September 30,
1999 were 62% of rate-sensitive liabilities in the 1-180 day
maturity category and 67% in the 181-365 day category. These
figures compared to 78% and 83% on December 31, 1998 and 79% and
87% on September 30, 1998. With strong loan demand and
liabilities moving to shorter time horizons, the static gap
percentages have decreased since year-end. ONB's funds management
committee meets bi-monthly to closely monitor and effect changes
as needed in the consolidated rate-sensitivity position.
Year 2000
The national and local press have 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 serve 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 serve 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.
Results of Operations
Income from Continuing Operations
Income from continuing operations for the nine months ended
September 30, 1999 was $62.8 million, an 11.9% increase from the
same period 1998. Income from continuing operations for the
third quarter of 1999 was up 8.0% over 1998. Basic net income
from continuing operations per common share for the third quarter
of 1999 and for the nine months ended September 30, 1999 were
$0.47 and $1.36, respectively.
The company's return on average assets (ROA) for the third
quarter of 1999 was 1.25% compared to 1.29% for 1998. Year-to-
14
date ROA percentages were 1.25% in 1999 and 1.23% for 1998.
Return on average equity (ROE) for the quarter and the first nine
months of 1999 were 15.99% and 15.91%, respectively, excluding
unrealized security gains (losses). These compared to 1998 ROE
results of 16.07% and 15.13% for similar periods. Growth in net
interest income and other income combined with a lower effective
tax rate generated the net income improvements.
Net Interest Income/Net Interest Margin (taxable equivalent
basis)
Year-to-date net interest income for 1999 was $191,183, a 7.1%
increase over 1998. Net interest income for the third quarter of
1999 was $65,307 compared to $59,926 in 1998, a 9.0% increase
over the prior year. The net interest margin for the third
quarter was 4.01% and 4.13% for 1999 and 1998, respectively. The
year-to-date net interest margin percentage in 1999 was 4.02%
compared to 4.19% in 1998. The lower net interest margin
resulted from the lower and flatter yield curve and our
investment in bank-owned life insurance discussed in noninterest
income. Increases in earning assets offset the declining yields
to contribute to an improved net interest income.
Provision and Allowance for Loan Losses
The provision for loan losses was $2.7 million in the third
quarter of 1999 compared to 2.9 million in the third quarter of
1998. Year-to-date, the provision for loan losses of $8.4
million compared to $9.2 million in 1998. ONB's net charge-offs
were 0.08% of average loans for the current quarter, compared to
0.25% in the third quarter of 1998. For the first nine months,
net charge-offs were 0.09% in 1999 compared to 0.21% in 1998.
The improved charge-off results were due to both lower charge-off
levels and increased recoveries.
The allowance for loan losses is continually monitored and
evaluated both within each affiliate bank and at the holding
company level to provide adequate coverage for potential losses.
ONB maintains a comprehensive loan review program to provide
independent evaluations of loan administration, credit quality,
loan documentation, and adequacy of the allowance for loan
losses. The allowance for loan losses to end-of-period loans of
1.21% at September 30, 1999 compares to 1.23% in 1998. The
allowance for loan losses covers all under-performing loans by
2.5 times at September 30, 1999 compared to 2.1 times at December
31, 1998.
Noninterest Income
Excluding securities gains (losses), noninterest income increased
12.2% in the three months ended September 30, 1999 as compared to
the same period in 1998. For the first nine months, this
increase was also 12.2%. Both increases were fueled by several
factors. Trust fees were up 8.3% for the third quarter and 11.1%
for the first nine months due to continued development of new and
current trust business. Service charges on deposit accounts were
up 30.4% for the quarter and 19.1% year-to-date, mainly due to
additional overdraft fees generated from a new product, "Worry-
free" checking. Income from bank-owned life insurance (BOLI)
policies, purchased in March 1998, generated $1.2 million income
in the third quarter and $3.4 million year-to-date. Insurance
premiums and commissions increased 8.9% over 1998 for the quarter
and 10.2% year-to-date. Investment product fees rose over 1998
in excess of 10% for the third quarter and 16.6% year-to-date.
15
The security gains of $0.1 million for the quarter and $2.4
million year-to-date were taken to offset a portion of the non-
recurring charges incurred in connection with the restructuring
of ONB's banks into a single charter. Most other categories of
noninterest income were comparable to last year's results.
Noninterest Expense
Noninterest expense increased 10.7% in the third quarter of 1999
compared to 1998 and 10.0% for the first nine months. Expenses of
$3.1 million year-to-date, and $0.9 million quarter-to-date
related to the conversion of our 22 separate banks into a single
charter. Salaries and benefits, together the largest individual
component of noninterest expense, increased 12.4% in the third
quarter of 1999 compared to 1998 and 9.6% year-to-date. Most of
this increase was due to additional incentive accruals over prior
year due to the increase in income. Processing expense increased
8.0% for the quarter, 14.3% year-to-date. The largest increase
for the year was related to credit card which was outsourced
during the second quarter of 1998. Other expense increased 8.5%
over the third quarter of 1998 and 16.7% year-to-date. This
increase, primarily professional fees was mainly related to the
restructuring discussed previously. Most other categories of
noninterest expense experienced relatively small changes between
the years or the increase was related to the restructuring.
Provision for Income Taxes
The provision for income taxes, as a percentage of pre-tax
income,increased in the third quarter to 26.3% compared to 26.1%
in 1998. For the first nine months, this percentage was 26.8% for
1999 and 29.1% in 1998. Higher levels of BOLI income and other
tax exempt income, as well as favorable state taxation
developments, helped lower our effective rate in 1999.
16
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
NONE
ITEM 2. Changes in Securities
NONE
ITEM 3. Defaults Upon Senior Securities
NONE
ITEM 4. Submission of Matters to a Vote of Security Holders
NONE
ITEM 5. Other Information
NONE
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits as required by Item 601 of Regulation S-K.
3(ii) By-laws of the Registrant, as amended
(27) Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended September
30, 1999.
Filed 8-K on 7/29/99, change in Registrant's certifying
accountants.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
OLD NATIONAL BANCORP
(Registrant)
By: s/s John S. Poelker
John S. Poelker
Senior Vice President
Chief Financial Officer
Date: November 15, 1999
18
INDEX OF EXHIBITS
Regulation S-K
Reference
(Item 601)
3(ii) By-Laws of the Registrant, as amended
27 Financial Data Schedule
19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OLD NATIONAL
BANCORP'S SEPTEMBER 30, 1999 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 156,439
<INT-BEARING-DEPOSITS> 11,917
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,725,378
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 4,796,556
<ALLOWANCE> 58,117
<TOTAL-ASSETS> 6,963,307
<DEPOSITS> 5,025,330
<SHORT-TERM> 560,673
<LIABILITIES-OTHER> 88,110
<LONG-TERM> 774,259
0
0
<COMMON> 45,635
<OTHER-SE> 469,300
<TOTAL-LIABILITIES-AND-EQUITY> 6,963,307
<INTEREST-LOAN> 283,538
<INTEREST-INVEST> 77,971
<INTEREST-OTHER> 1,065
<INTEREST-TOTAL> 362,574
<INTEREST-DEPOSIT> 134,060
<INTEREST-EXPENSE> 183,722
<INTEREST-INCOME-NET> 178,852
<LOAN-LOSSES> 8,437
<SECURITIES-GAINS> 2,383
<EXPENSE-OTHER> 16,811
<INCOME-PRETAX> 85,905
<INCOME-PRE-EXTRAORDINARY> 62,848
<EXTRAORDINARY> 3,483<F1>
<CHANGES> 0
<NET-INCOME> 66,331
<EPS-BASIC> 1.36<F2>
<EPS-DILUTED> 1.33
<YIELD-ACTUAL> 4.02
<LOANS-NON> 16,589
<LOANS-PAST> 3,880
<LOANS-TROUBLED> 170
<LOANS-PROBLEM> 132,591
<ALLOWANCE-OPEN> 51,847
<CHARGE-OFFS> 8,612
<RECOVERIES> 5,445
<ALLOWANCE-CLOSE> 58,117
<ALLOWANCE-DOMESTIC> 58,117
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Discontinued operations
<F2>On continuing operations
</FN>
</TABLE>
EXHIBIT 3(ii)
BY-LAWS
OF
OLD NATIONAL BANCORP
ARTICLE I
Section 1. Name. The name of the corporation is Old
National Bancorp ("Corporation").
Section 2. Registered Office and Registered Agent. The post-
office address of the registered office of the Corporation is 420
Main Street, Evansville, Indiana 47705, and the name of its
Registered Agent at such office is the Corporate Secretary or his
designated representative.
Section 3. Seal. The seal of the Corporation shall be
circular in form and mounted upon a metal die, suitable for
impressing the same upon paper. About the upper periphery of the
seal shall appear the words "Old National Bancorp" and about the
lower periphery thereof the word "Indiana". In the center of the
seal shall appear the word "Seal".
ARTICLE II
The fiscal year of the Corporation shall begin each year on
the first day of January and end on the last day of December of
the same year.
ARTICLE III
Capital Stock
Section 1. Number of Shares and Classes of Capital Stock.
The total number of shares of capital stock which the Corporation
shall have authority to issue shall be as stated in the Articles
of Incorporation.
Section 2. Consideration for No Par Value Shares. The
shares of stock of the Corporation without par value shall be
issued or sold in such manner and for such amount of
consideration as may be fixed from time to time by the Board of
Directors. Upon payment of the consideration fixed by the Board
of Directors, such shares of stock shall be fully paid and
nonassessable.
Section 3. Consideration for Treasury Shares. Treasury
shares may be disposed of by the Corporation for such
consideration as may be determined from time to time by the Board
of Directors.
Section 4. Payment for Shares. The consideration for the
issuance of shares of capital stock of the Corporation may be
paid, in whole or in part, in money, in other property, tangible
or intangible, or in labor actually performed for, or services
actually rendered to the Corporation; provided, however, that the
part of the surplus of the Corporation which is transferred to
stated capital upon the issuance of shares as a share dividend
shall be deemed to be the consideration for the issuance of such
shares. When payment of the consideration for which a share was
authorized to be issued shall have been for which a share was
authorized to be issued shall have been received by the
Corporation, or when surplus shall have been transferred to
stated capital upon the issuance of a share dividend, such share
shall be declared and taken to be fully paid and not liable to
any further call or assessment, and the holder thereof shall not
be liable for any further payments thereon. In the absence of
actual fraud in the transaction, the judgment of the Board of
Directors as to the value of such property, labor or services
received as consideration, or the value placed by the Board of
Directors upon the corporate assets in the event of a share
dividend, shall be conclusive. Promissory notes, uncertified
checks, or future services shall not be accepted in payment or
part payment of the capital stock of the Corporation, except as
permitted by the Indiana Business Corporation Law.
Section 5. Certificate for Shares. Each holder of capital
stock of the Corporation shall be entitled to a stock
certificate, signed by the Chairman of the Board, the President
or a Vice President and the Secretary or any Assistant Secretary
of the Corporation, with the seal of the Corporation thereto
affixed, stating the name of the registered holder, the number of
shares represented by such certificate, the par value of each
share of stock or that such shares of stock are without par
value, and that such shares are fully paid and nonassessable. If
such shares are not fully paid, the certificates shall be legibly
stamped to indicate that percent which has been paid, and as
further payments are made, the certificate shall be stamped
accordingly.
If the Corporation is authorized to issue shares of more
than one class, every certificate shall state the kind and class
of shares represented thereby, and the relative rights,
interests, preferences and restrictions of such class, or a
summary thereof; provided, that such statement may be omitted
from the certificate if it shall be set forth upon the face or
back of the certificate that such statement, in full, will be
furnished by the Corporation to any shareholder upon written
request and without charge.
Section 6. Facsimile Signatures. If a certificate is
countersigned by the written signature of a transfer agent other
than the Corporation or its employee, the signatures of the
officers of the Corporation may be facsimiles. If a certificate
is countersigned by the written signature of a registrar other
than the Corporation or its employee, the signatures of the
transfer agent and the officers of the corporation may be
facsimiles. In case any officer, transfer agent, or registrar
who has signed or whose facsimile signature has been placed upon
a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be
issued by the Corporation with the same effect as if he were such
officer, transfer agent, or registrar at the date of its issue.
Section 7. Transfer of Shares. The shares of capital stock
of the Corporation shall be transferable only on the books of the
Corporation upon surrender of the certificate or certificates
representing the same, properly endorsed by the registered holder
or by his duly authorized attorney or accompanied by proper
evidence of succession, assignment or authority to transfer.
Section 8. Cancellation. Every certificate surrendered to
the Corporation for exchange or transfer shall be cancelled, and
no new certificate or certificates shall be issued in exchange
for any existing certificate until such existing certificate
shall have been so cancelled, except in cases provided for in
Section 10 of this Article III.
Section 9. Transfer Agent and Registrar. The Board of
Directors may appoint a transfer agent and a registrar for each
class of capital stock of the Corporation and may require all
certificates representing such shares to bear the signature of
such transfer agent and registrar. Shareholders shall be
responsible for notifying the transfer agent and registrar for
the class of stock held by such shareholder in writing of any
changes in their addresses from time to time, and failure so to
do shall relieve the Corporation, its shareholders, directors,
officers, transfer agent and registrar of liability for failure
to direct notices, dividends, or other documents or property to
an address other than the one appearing upon the records of the
transfer agent and registrar of the Corporation.
Section 10. Lost, Stolen or Destroyed Certificates. The
Corporation may cause a new certificate or certificates to be
issued in place of any certificate or certificates theretofore
issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or
certificates, the Corporation may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of
such lost, stolen or destroyed certificate or certificates, or
his legal representative, to give the Corporation a bond in such
sum and in such form as it may direct to indemnify against any
claim that may be made against the Corporation with respect to
the certificate alleged to have been lost, stolen or destroyed or
the issuance of such new certificate. The Corporation, in its
discretion, may authorize the issuance of such new certificates
without any bond when in its judgment it is proper to do so.
Section 11. Registered Shareholders. The Corporation shall
be entitled to recognize the exclusive right of a person
registered on its books as the owner of such shares to receive
dividends, to vote as such owner, to hold liable for calls and
assessments, and to treat as owner in all other respects, and
shall not be bound to recognize any equitable or other claims to
or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Indiana.
Section 12. Options to Officers and Employees. The
issuance, including the consideration, of rights or options to
directors, officers or employees of the Corporation, and not to
the shareholders generally, to purchase from the Corporation
shares of its capital stock shall be approved by the shareholders
or shall be authorized by and consistent with a plan approved by
the shareholders.
ARTICLE IV
Meetings of Shareholders
Section 1. Place of Meeting. Meetings of shareholders of
the Corporation shall be held at such place, within or without
the State of Indiana, as may from time to time be designated by
the Board of directors, or as may be specified in the notices or
waivers of notice of such meetings.
Section 2. Annual Meeting. The annual meetings of
shareholders for the election of Directors, and for the
transaction of such other business as the Chairman of the Board
shall determine may properly come before the meeting, shall be
held on such day that is not a holiday, as the Board of Directors
may set by resolution, but not later than the end of the fifth
month following the close of the fiscal year of the Corporation.
Failure to hold the annual meeting at the designated time shall
not work any forfeiture or a dissolution of the Corporation, and
shall not affect otherwise valid corporate acts.
Section 3. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise
prescribed by statute or by the Articles of Incorporation, may be
called by the Board of Directors, the Chairman of the Board, or
the President and shall be called by the Chairman of the Board,
President or Secretary at the request in writing of a majority of
the Board of Directors, or at the request in writing of
shareholders holding of record not less than one-fourth of all
the shares outstanding and entitled by the Articles of
Incorporation to vote on the business for which the meeting is
being called.
Section 4. Notice of Meetings. A written or printed notice,
stating the place, day and hour of the meeting, and in case of a
special meetings, or when required by any other provision of the
Indiana Business Corporation Law, or of the Articles of
Incorporation, or these By-Laws, as now or hereafter amended, the
purpose or purposes for which the meeting is called, shall be
delivered or mailed by the Secretary, or by the officers or
persons calling the meeting, to each shareholder of record
entitled by the Articles of Incorporation, and by the Indiana
Business Corporation Law, as now or hereafter amended, to vote at
such meeting, as such address as appears upon the records of the
Corporation, not less than ten (10) days nor more than sixty (60)
days before the date of the meeting. Notice of any such meetings
may be waived in writing by any shareholder, if the waiver sets
forth in reasonable detail the purpose or purposes for which the
meeting is called, and the time and place thereof. Attendance at
any meeting in person, or by proxy, shall constitute a waiver of
notice of such meeting. Each shareholder, who has in the manner
above provided waived notice of a shareholders' meeting, or who
personally attends a shareholders' meeting, or is represented
thereat by a proxy authorized to appear by an instrument of
proxy, shall be conclusively presumed to have been given due
notice of such meeting. Notice of any adjourned meeting of
stockholders shall not be required to be given if the time and
place thereof are announced at the meeting at which the
adjournment is taken, except as may be expressly required by law.
Section 5. Addresses of Shareholders. The address of any
shareholder appearing upon the records of the Corporation shall
be deemed to be the latest address of such shareholder appearing
on the records maintained by the Transfer Agent for the class of
stock held by such shareholder.
Section 6. Voting at Meetings.
(a) Quorum. The holders of record of a majority of the
issued and outstanding stock of the Corporation entitled to vote
at such meeting, present in person or by proxy, shall constitute
a quorum at all meetings of stockholders for the transaction of
business, except where otherwise provided by law, the Articles of
Incorporation or these By-Laws. In the absence of a quorum, any
officer entitled to preside at, or act as secretary of, such
meetings shall have the power to adjourn the meeting from time to
time until a quorum shall be constituted. At any such adjourned
meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the original
meeting, but only those stockholders entitled to vote at the
original meeting shall be entitled to vote at any adjournment or
adjournments thereof unless a new record date is fixed by the
Board of Directors for the adjourned meeting.
(b) Voting Rights. Except as otherwise provided by law or
by the provisions of the Articles of Incorporation, every
shareholder shall have the right at every shareholders' meeting
to one vote for each share of stock having voting power,
registered in his name on the books of the Corporation on the
date for the determination of shareholders entitled to vote, on
all matters coming before the meeting including the election of
directors. At any meeting of the shareholders, every shareholder
having the right to vote shall be entitled to vote in person, or
by proxy executed in writing by the shareholder or a duly
authorized attorney in fact and bearing a date not more than
eleven months prior to its execution, unless a longer time is
expressly provided therein.
(c) Required Vote. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock
having voting power present in person or represented by proxy
shall decide any question brought before such meeting, unless the
question is one upon which, by express provision of the Indiana
Business Corporation Law or of the Articles of Incorporation or
by these By-Laws, a greater vote is required, in which case such
express provision shall govern and control the decision of such
question.
Section 7. Voting List. The Transfer Agent of the
Corporation shall make, at least five days before each election
of directors, a complete list of the shareholders entitled by the
Articles of Incorporation, as now or hereafter amended, to vote
at such election, arranged in alphabetical order, with the
address and number of shares so entitled to vote held by each,
which list shall be on file at the principal office of the
Corporation and subject to inspection by any shareholder. Such
list shall be produced and kept open at the time and place of
election and subject to the inspection of any shareholder during
the holding of such election. The original stock register or
transfer book, or a duplicate thereof kept in the State of
Indiana, shall be the only evidence as to who are the
shareholders entitled to examine such list or the stock ledger or
transfer book or to vote at any meeting of the shareholders.
Section 8. Fixing of Record Date to Determine Shareholders
Entitled to Vote. The Board of Directors may prescribe a period
not exceeding 70 days prior to meetings of the shareholders
during which no transfer of stock on the books of the corporation
may be made; or, in lieu of prohibiting the transfer of stock,
may fix a day and hour not more than 70 days prior to the holding
of any meeting of shareholders as the time of which shareholders
entitled to notice of, and to vote, at such meeting shall be
determined, and all persons who are holders of record of voting
stock at such time, and no others, shall be entitled to notice
of, and to vote at such meeting. In the absence of such a
determination, such date shall be ten days prior to the date of
such meeting
Section 9. Director Nominations; Nominating Committee.
(a) All nominations for election as Directors of the
Corporation shall be made only by the Board of Directors in
accordance with this Section. The Nominating Committee of the
Board of Directors shall submit to the entire Board of Directors
its recommendation of nominees for election as Directors of the
Corporation not less than sixty (60) days prior to each annual or
special meeting of shareholders at which Directors will be
elected.
(b) The Nominating Committee of the Board of Directors
shall be comprised of five (5) Directors of the Corporation, none
of whom may be an officer or employee of the Corporation.
(c) The Nominating Committee of the Board of Directors
shall consider appropriate candidates for election as Directors
of the Corporation and shall recommend to the entire Board of
Directors nominees for election as Directors in connection with
any annual or special meeting of shareholders. The Nominating
Committee also shall consider appropriate candidates and
recommend to the entire Board of Directors persons to fill
Director vacancies and newly-created directorships. In addition
to the foregoing, and not by way of limitation, the Nominating
Committee will be responsible for recruiting potential Director
candidates, recommending changes to the entire Board of Directors
concerning the size, composition and responsibilities of the
Board of Directors, reviewing proxy documents received from
shareholders relating to the Board of Directors and reviewing
suggestions of shareholders regarding nominees for election as
Directors. All such suggestions of shareholders must be
submitted in writing to the Nominating Committee at the
Corporation's principal executive offices not less than one
hundred twenty (120) days in advance of the date of the annual or
special meeting of shareholders at which Directors shall be
elected. All written suggestions of shareholders must set forth
(i) the name and address of the shareholder making the
suggestion, (ii) the number and class of shares owned by the such
shareholder, (iii) the name, address and age of the nominee for
election as director, (iv) the nominee's principal occupation
during the five (5) preceding the date of the suggestion, (v) all
other information concerning the nominee as would be required to
be included in the proxy statement used to solicit proxies for
the election of the nominee, and (vi) such other information as
the Nomination Committee may reasonably request. A consent of
the nominee to serve as a Director of the Corporation, if
elected, must also be included with the written suggestion.
(d) The Nominating Committee has absolute power and
discretion in carrying out its duties prescribed herein,
including, but not limited to, recommending to the entire Board
of Directors nominees for election as directors at any annual or
special meeting of shareholders and accepting or rejecting
suggestions of shareholders of nominees for election as
Directors.
(e) All nominations and suggestions of shareholders with respect
to nominees for election as Directors of the Corporation must be
made in accordance with the provisions of this Section. Any
suggestions of shareholders not made in accordance with this
Section are not required to be considered by the Nominating
Committee. Any nominations for election as Directors at any
annual or special meeting of shareholders not made in accordance
with this Section may be disregarded by the Chairman of the
meeting, in his discretion, and, upon his instructions, the
tellers or inspectors of shareholder votes may disregard all
votes cast for each such nominees.
Section 10. Order of Business. The order of business and
the items of business being conducted at all meetings of
shareholders shall be as determined by the Chairman of the Board.
ARTICLE V
Board of Directors
Section 1. Election, Number and Term of Office. Directors
shall be elected at the annual meeting of shareholders, or, if
not so elected, at a special meeting of shareholders called for
that purpose, by the holders of the shares of stock entitled by
the Articles of Incorporation to elect Directors.
The number of Directors of the Corporation to be elected by
the holders of the shares of stock entitled by the Articles of
Incorporation to elect Directors shall be established at no less
than twelve and no more than twenty-four, unless changed by
amendment to this section.
All Directors elected by the holders of such shares, except
in the case of earlier resignation, removal or death, shall hold
office until their respective successors are chosen and qualified
Directors need not be shareholders of the Corporation.
Any vacancy on the Board of Directors caused by an increase
in the number of Directors shall be filled by a majority vote of
the members of the Board of Directors, until the next annual or
special meeting of the shareholders or, at the discretion of the
Board of Directors, such vacancy may be filled by vote of the
shareholders at a special meeting called for that purpose. No
decrease in the number of Directors shall have the effect of
shortening the term of any incumbent Director.
Section 2. Vacancies. Any vacancy occurring in the Board
of Directors caused by resignation, death or other incapacity
shall be filled by a majority vote of the remaining members of
the Board of Directors, until the next annual meeting of the
shareholders. If the vote of the remaining members of the Board
shall result in a tie, such vacancy, at the discretion of the
Board of Directors, may be filled by vote of the shareholders at
a special meeting called for that purpose.
Section 3. Regular Meetings. Regular meetings of the Board
of Directors shall be held at such times and places, whether
within or outside the State of Indiana, as may be fixed by the
Directors, or in the absence of any action by the Board of
Directors, by the Chairman of the Board. Such regular meetings
of the Board of Directors may be held without notice or upon such
notice as may be fixed by the Directors.
Section 4. Special Meetings. Special meetings of the Board
of Directors may be called by the Chairman of the Board, the
President, or by not less than a majority of the members of the
Board of Directors. Notice of the time and place, either within
or outside the State of Indiana, of a special meeting shall be
served upon or telephoned or faxed to each Director at least
twenty-four hours, or mailed, telegraphed or cabled to each
Director at his usual place of business or residence at least
forty-eight hours, prior to the time of the meeting. Directors,
in lieu of such notice, may sign a written waiver of notice
either before the time of the meeting, at the meeting or after
the meeting. Attendance by a director in person at any such
special meeting shall constitute a waiver of notice.
Section 5. Quorum. A majority of the actual number of
Directors elected and qualified, from time to time, shall be
necessary to constitute a quorum for the transaction of any
business except the filling of vacancies, and the act of a
majority of the Directors present at the meeting, at which a
quorum is present, shall be the act of the Board of Directors,
unless the act of a greater number is required by the Indiana
Business Corporation Law, by the Articles of Incorporation, or by
these By-Laws. A Director, who is present at a meeting of the
Board of Directors, at which action on any corporate matter is
taken, shall be conclusively presumed to have assented to the
action take, unless (a) his dissent shall be affirmatively stated
by him at and before the adjournment of such meeting (in which
event the fact of such dissent shall be entered by the secretary
of the meeting in the minutes of the meeting), or (b) he shall
forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting.
The right of dissent provided for by either clause (a) or clause
(b) of the immediately preceding sentence shall not be available,
in respect of any matter acted upon at any meeting, to a Director
who voted at the meeting in favor of such matter and did not
change his vote prior to the time that the result of the vote on
such matter was announced by the chairman of such meeting.
Section 6. Consent Action by Directors. Any action
required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a
meeting, if prior to such action a written consent to such action
is signed by all members of the Board of Directors or such
committee, as the case may be, and such written consent is filed
with the minutes of proceedings of the Board of Directors or
committee.
Section 7. Removal of Directors. Any or all member of the
Board of Directors may be removed, with or without cause, at a
meeting of shareholders called expressly for that purpose by a
vote of the holders of not less than a majority of the
outstanding shares of capital stock then entitled to vote at the
election of directors.
Section 8. Dividends. The Board of Directors shall have
power, subject to any restrictions contained in the Indiana
Business Corporation Law or in the Articles of Incorporation and
out of funds legally available therefor, to declare and pay
dividends upon the outstanding capital stock of the Corporation
as and when they deem expedient. Before declaring any dividend,
there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of
Directors from time to time in their absolute discretion deem
proper for working capital, or as a reserve or reserves to meet
contingencies or for such other purposes as the Board of
Directors shall deem conducive to the interests of the
Corporation and the Board of Directors may modify or abolish any
such reserve in the manner in which it was created.
Section 9. Fixing of Record Date to Determine Shareholders
Entitled to Receive Corporate Benefits. The Board of Directors
may fix a day and hour not exceeding 50 days preceding the date
fixed for payment of any dividend or for the delivery of evidence
of rights, or for the distribution of other corporate benefits,
or for a determination of shareholders for any other purpose, as
a record time for the determination of the shareholders entitled
to receive any such dividend, rights or distribution, and in such
case only shareholders of record at the time so fixed shall be
entitled to receive such dividend, rights or distribution. If no
record date is fixed for the determination of shareholders
entitled to receive payment of a dividend, the end of the day on
which the resolution of the Board of Directors declaring such
dividend is adopted shall be the record date for such
determination.
Section 10. Interest of Directors in Contracts. Any
contract or other transaction between the Corporation or any
corporation in which this Corporation owns a majority of the
capital stock shall be valid and binding, notwithstanding that
the directors or officers of this Corporation are identical or
that some or all of the directors or officers, or both, are also
directors or officers of such other corporation.
Any contract or other transaction between the Corporation
and one or more of its directors or members or employees, or
between the Corporation and any firm of which one or more of its
directors are members or employees or in which they are
interested, or between the Corporation and any corporation or
association of which one or more of its directors are
stockholders, members, directors, officers, or employees or in
which they are interested, shall be valid for all purposes,
notwithstanding the presence of such director of directors at the
meeting of the Board of Directors of the Corporation which acts
upon, or in reference to, such contract or transaction and
notwithstanding his or their participation in such action, if the
fact of such interest shall be disclosed or known to the Board of
Directors and the Board of Directors shall authorize, approve and
ratify such contract or transaction by a vote of a majority of
the directors present, such interested director or directors to
be counted in determining whether a quorum is present, but not to
be counted in calculating the majority of such quorum necessary
to carry such vote. This Section shall not be construed to
invalidate any contact or other transaction which would otherwise
be valid under the common and statutory law applicable thereto.
Section 11. Committees. The Board of Directors may, by
resolution adopted by a majority of the actual number of
Directors elected and qualified, from time to time, designate
from among its members an executive committee and one or more
other committees, each of which, to the extent provided in the
resolution, the Articles of Incorporation, or these By-Laws, may
exercise all of the authority of the Board of Directors of the
Corporation, including, but no limited to, the authority to issue
and sell or prove any contract to issue and sell, securities or
shares of the Corporation or designate the terms of a series of a
class of securities or shares of the Corporation. The terms
which may be affixed by each such committee include, but are not
limited to, the price, dividend rate, and provisions of
redemption, a sinking fund, conversion, voting, or preferential
rights or other features of securities or class or series of a
class of shares. Each such committee may have full power to
adopt a final resolution which sets forth those terms and to
authorize a statement of such terms to be filed with the
Secretary of State. However, no such committee has the authority
to declare dividends or distributions, amend the Articles of
incorporation or the By-Laws, approve a plan of merger or
consolidation even if such plan does not require shareholder
approval, reduce earned or capital surplus, authorize or approve
the reacquisition of shares unless pursuant to a general formula
or method specified by the Board of Directors, or recommend to
the shareholders a voluntary dissolution of the Corporation or a
revocation thereof. No member of any such committee shall
continue to be a member thereof after he ceases to be a Director
of the Corporation. The calling and holding of meetings of any
such committee and its method of procedure shall be determined by
the Board of Directors. A member of the Board of Directors shall
not be liable for any action taken by any such committee if he is
not a member of that committee and has acted in good faith and in
a manner he reasonable believes is in the best interest of the
Corporation.
Section 12. Participation in Meetings by Telephone. A
member of the Board or any committee thereof may participate in a
meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and
participation in the meeting pursuant to this section shall
constitute presence in person at such meeting.
ARTICLE VI
Officers
Section 1. Principal Officers. The principal officers of
the Corporation shall be a Chairman of the Board, a President,
one or more vice Presidents, a Treasurer and a Secretary. The
Corporation may also have, at the discretion of the Board of
Directors, such other subordinate officers as may be appointed in
accordance with the provisions of these By-Laws. Any two or more
offices may be held by the same person, except the duties of
President and Secretary shall not be performed by the same
person. No person shall be eligible for the office of Chairman
of the Board or President who is not a director of the
Corporation.
Section 2. Election and Term of Office. The principal
officers of the Corporation shall be chosen annually by the Board
of Directors. Each such officer shall hold office until his
successor shall have been duly chosen and qualified, or until his
death, or until he shall resign, or shall have been removed in
the manner hereinafter provided.
Section 3. Removal. Any principal officer may be removed,
either with or without cause, at any time, by resolution adopted
at any meeting of the Board of Directors by a majority of the
actual number of Directors elected and qualified from time to
time.
Section 4. Subordinate Officers. In addition to the
principal officers enumerated in Section 1 of this Article VI,
the Corporation may have one or more Assistant Treasurers, one or
more Assistant Secretaries and such other officers, agents and
employees as the Chairman of the Board, the President or the
Board of Directors may deem necessary, each of whom shall hold
office for such period, may be removed with or without cause,
have such authority, and perform such duties as the Chairman of
the Board, the President, or the Board of Directors may from time
to time determine. The Chairman of the Board, the President, and
the Board of Directors shall each have the power to appoint and
to remove any such subordinate officers, agents or employees.
Section 5. Resignations. Any officer may resign at any
time by giving written notice to the Chairman of the Board or to
the Board of Directors or to the President or to the Secretary.
Any such resignation shall take effect upon receipt of such
notice or at any later time specified therein, and, unless
otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 6. Vacancies. Any vacancy in any office for any
cause may be filled for the unexpired portion of the term in the
manner prescribed in these By-Laws for election or appointment to
such office for such term.
Section 7. Chairman of the Board. The Chairman of the
Board, who shall be chosen from among the directors, shall be the
Chief Executive Officer of the Corporation and, as such, shall
have general supervision of the overall affairs of the
Corporation, subject to the control of the Board of Directors.
In general, he shall perform all duties and have all the powers
incident to the office of Chief Executive Officer and all such
other duties and powers as, from time to time, may be assigned to
him by the Board of Directors. Subject to the control and
direction of the Board of Directors, the Chairman of the Board
may enter into any agreement and may execute and deliver any
agreement, instrument or document in the name and on behalf of
the Corporation. The Chairman of the Board shall preside at all
meetings of shareholders and at all meetings of the Board of
Directors.
Section 8. President. The President, who shall be chosen
from among the Directors, shall perform all duties and have all
the powers as, from time to time, may be assigned to him by the
Board of Directors or the Chairman of the Board. Subject to the
control and direction of the Board of Directors or the Chairman
of the Board, the President may enter into any agreement and may
execute and deliver any agreement, instrument or document in the
name and on behalf of the Corporation. In the absence or
disability of the Chairman of the Board, the President shall be
the Chief Executive Officer of the Corporation and shall preside
at all meetings of shareholders and at all meetings of the Board
of Directors.
Section 9. Vice Presidents. The Vice President in the order
of their seniority, unless otherwise determined by the Board of
Directors, shall, in the absence or disability of the Chairman,
the President and Executive Vice President, perform the duties
and exercise the powers of the Chairman, the President and the
Executive Vice President. They shall perform such other duties
and have such other powers as the Chairman, the President or the
Board of Directors may from time to time assign.
Section 10. Treasurer. The Treasurer shall have charge and
custody of, and be responsible for, all funds and securities of
the Corporation and shall deposit all such funds in the name of
the Corporation in such banks or other depositories as shall be
selected by the Board of Directors. He shall upon request
exhibit at all reasonable times his books of account and records
to any of the directors of the Corporation during business hours
at the office of the Corporation where such books and records
shall be kept; shall render upon request by the Board of
Directors a statement of the condition of the finances of the
Corporation at any meeting of the Board of Directors or at the
annual meeting of the shareholders; shall receive, and give
receipt for, moneys due and payable for the Corporation from any
source whatsoever; and in general, shall perform all duties
incident to the office of Treasurer and such other duties as from
time to time may be assigned to him by the Chairman, the
President or the Board of Directors. The Treasurer shall give
such bond, if any, for the faithful discharge of his duties as
the Board of Directors may require.
Section 11. Secretary. The Secretary shall keep or cause to
be kept in the books provided for that purpose the minutes of the
meetings of the shareholders and of the Board of Directors; shall
duly give and serve all notices required to be given in
accordance with the provisions of these By-Laws and by the
Indiana Business Corporation Law; shall be custodian of the
records and of the seal of the Corporation and see that the seal
is affixed to all documents, the execution of which on behalf of
the Corporation under its seal is duly authorized in accordance
with the provisions of these By-Laws; and, in general, shall
perform all duties incident to the office of Secretary and such
other duties as may, from time to time, be assigned to him by the
Chairman, the President or the Board of Directors.
Section 12. Salaries. The salaries of the principal
officers shall be fixed from time to time to by the Board of
Directors, and the salaries of any subordinate officers may be
fixed by the Chairman or the President.
Section 13. Voting Corporation's Securities. Unless
otherwise ordered by the Board of Directors, the Chairman of the
Board, the President, any Executive Vice President or Senior Vice
President, or the Secretary, and each of them acting alone, are
appointed attorneys and agents of the Corporation, and shall have
full power and authority in the name and on behalf of the
Corporation, to attend, to act, and to vote all stock, or other
securities entitled to be voted at any meetings of security
holders of corporations, or associations in which the Corporation
may hold securities, in person or by proxy, as a stockholder or
otherwise, and at such meetings shall possess and may exercise
any and all rights and powers incident to the ownership of such
securities, and which as the owner thereof the Corporation might
have possessed and exercised, if present or to consent in writing
to any action by any such other corporation, or association. The
Board of Directors by resolution from time to time may confer
like powers upon any other person or persons.
ARTICLE VII
Indemnification
Section 1. Indemnification of Directors, Officers and
Employees. Every person who is or was a director, officer or
employee of this Corporation or of any other corporation for
which he is or was serving in any capacity at the request of this
Corporation shall be indemnified by this Corporation against any
and all liability and expense that may be incurred by him in
connection with or resulting from or arising out of any claim,
action, suit or proceeding, provided that such person is wholly
successful with respect thereto or acted in good faith in what he
reasonably believed to be in or not opposed to the best interests
of this Corporation or such other corporation, as the case may
be, and, in addition, in any criminal action or proceeding in
which he had no reasonable cause to believe that his conduct was
unlawful. As used herein, "claim, action, suit or proceeding"
shall include any claim, action, suit or proceeding (whether
brought by or in the right of this Corporation or such other
corporation or otherwise), civil, criminal, administrative or
investigative, whether actual or threatened or in connection with
an appeal relating thereto, in which a director, officer or
employee of this Corporation may become involved, as a party or
otherwise,
(i) by reason of his being or having been a
director, officer or employee of this Corporation or
such other corporation or arising out of his status as
such or
(ii) by reason of any past or future action taken or
not taken by him in any such capacity, whether or not
he continues to be such at the time such liability or
expense is incurred.
The terms "liability" and "expense" shall include, but shall
not be limited to, attorneys' fees and disbursements, amounts or
judgments, fines or penalties, and amounts paid in settlement by
or on behalf of a director, officer or employee, but shall not in
any event include any liability or expenses on account of profits
realized by him in the purchase or sale of securities of the
Corporation in violation of the law. The termination of any
claim, action, suit or proceeding, by judgment, settlement
(whether with or without court approval) or conviction or upon a
plea of guilty or of nolo contendere, or its equivalent, shall
not create a presumption that a director, officer or employee did
not meet the standards of conduct set forth in this paragraph.
Any such director, officer or employee who has been wholly
successful with respect to any such claim, action, suit or
proceeding shall be entitled to indemnification as a matter of
right. Except as provided in the preceding sentence, any
indemnification hereunder shall be made only if (i) the Board of
Directors acting by a quorum consisting of Directors who are not
parties to or who have been wholly successful with respect to
such claim, action, suit or proceeding shall find that the
director, officer or employee has met the standard of conduct.
If several claims, issues or matters of action are involved,
any such person may be entitled to indemnification as to some
matters even though he is not entitled as to other matters.
The Corporation may advance expenses to or, where
appropriate, may at its expense undertake the defense of any such
director, officer or employee upon receipt of an undertaking by
or on behalf of such person to repay such expenses if it should
ultimately be determined that he is not entitled to
indemnification hereunder.
The provisions of this Section shall be applicable to
claims, actions, suits or proceedings made or commenced after the
adoption hereof, whether arising from acts or omissions to act
during, before or after the adoption hereof.
The rights of indemnification provided hereunder shall be in
addition to any rights to which any person concerned may
otherwise be entitled by contract or as a matter of law and shall
inure to the benefit of the heirs, executors and administrators
of any such person.
The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee
or agent of the Corporation as a director, officer, employee or
agent of another corporation against any liability asserted
against him and incurred by him in any capacity or arising out of
his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the
provisions of this Section or otherwise.
ARTICLE VIII
Amendments
The power to make, alter, amend, or repeal these By-Laws is
vested in the Board of Directors, but the affirmative vote of a
majority of the actual number of directors elected and qualified,
from time to time, shall be necessary to effect any alteration,
amendment or repeal of these By-Laws.
