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 March 31, 2000
[ ] 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 56.0 million shares
outstanding at March 31, 2000.
OLD NATIONAL BANCORP
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements Page No.
Consolidated Balance Sheet
March 31, 2000 and 1999, and December 31, 1999 3
Consolidated Statement of Income
Three months ended March 31, 2000 and 1999 4
Consolidated Statement of Cash Flows
Three months ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II OTHER INFORMATION 15
SIGNATURES 17
INDEX OF EXHIBITS 18
2
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP
CONSOLIDATED BALANCE SHEET
March 31 December 31,
($ in thousands) (Unaudited) 2000 1999 1999
Assets
<S> <C> <C> <C>
Cash and due from banks ---------------------- $192,563 $156,613 $210,255
Money market investments---------------------- 32,884 57,639 16,686
Investment Securities
U.S. Treasury ------------------------------ 34,049 90,347 39,591
U.S. Government agencies
and corporations ------------------------ 1,101,757 1,154,562 1,152,770
Obligations of states and political
Subdivisions ---------------------------- 539,080 551,184 549,228
Other -------------------------------------- 75,556 64,167 79,849
--------- --------- ---------
Total Investment Securities ------------- 1,750,442 1,860,260 1,821,438
--------- --------- ---------
Loans
Commercial --------------------------------- 1,401,395 1,232,843 1,338,255
Commercial real estate --------------------- 1,383,408 1,132,595 1,306,312
Residential real estate -------------------- 2,166,714 2,042,708 2,148,974
Consumer credit, net of unearned income ---- 937,653 811,651 921,147
--------- --------- ---------
Total Loans ----------------------------- 5,889,170 5,219,797 5,714,688
Allowance for loan losses --------------- (70,965) (62,170) (65,685)
--------- --------- ---------
Net Loans ------------------------------- 5,818,205 5,157,627 5,649,003
Other assets -------------------------------- 386,465 350,954 388,630
--------- --------- ---------
Total Assets ---------------------------- $8,180,559 $7,583,093 $8,086,012
========= ========= =========
Liabilities
Deposits
Noninterest bearing demand ----------------- $659,100 $602,214 $643,553
Interest bearing:
Savings, NOW and money market accounts -- 2,004,813 1,986,318 2,008,789
Time deposits --------------------------- 3,375,366 2,985,872 3,309,727
--------- --------- ---------
Total Deposits -------------------------- 6,039,279 5,574,404 5,962,069
--------- --------- ---------
Short-term borrowings ------------------------ 618,697 576,407 679,459
Guaranteed preferred beneficial interests in
Company's subordinated debentures----------- 50,000 -- --
Other borrowings ----------------------------- 829,484 710,863 768,055
Accrued expenses and other liabilities ------- 79,626 98,423 91,434
--------- --------- ---------
Total Liabilities -------------------------- 7,617,086 6,960,097 7,501,017
Shareholders' Equity
Common stock ------------------------------- 56,021 57,082 56,518
Capital surplus ---------------------------- 375,695 366,864 395,414
Retained earnings -------------------------- 162,261 185,507 162,384
Accumulated other comprehensive
income (loss), net of tax ---------------- (30,504) 13,543 (29,321)
--------- --------- ---------
Total Shareholders' Equity ------------------ 563,473 622,996 584,995
--------- --------- ---------
Total Liabilities and Shareholders'
Equity ----------------------------------- $8,180,559 $7,583,093 $8,086,012
========= ========= =========
The accompanying notes are an integral part of this statement.
</TABLE>
3
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended
($ and shares in thousands except March 31,
per share data) (Unaudited) 2000 1999
<S> <C> <C>
Interest income
Loans including fees:
Taxable ----------------------------------- $117,289 $104,921
Non-taxable ------------------------------- 2,817 1,811
Investment securities:
Taxable ----------------------------------- 21,437 19,956
Non-taxable ------------------------------- 6,835 6,743
Money market investments -------------------- 518 564
------- -------
Total Interest Income --------------------- 148,896 133,995
------- -------
Interest Expense
Savings, NOW and
money market accounts --------------------- 13,276 11,970
Time deposits ------------------------------- 46,212 38,175
Short-term borrowings ----------------------- 10,757 7,693
Other borrowings ---------------------------- 10,983 8,079
------- -------
Total Interest Expense -------------------- 81,228 65,917
------- -------
Net Interest Income ----------------------- 67,668 68,078
Provision for loan losses ------------------- 7,433 3,392
------- -------
Net Interest Income After Provision
For Loan Losses ------------------------- 60,235 64,686
------- -------
Noninterest Income
Trust fees ---------------------------------- 5,432 5,139
Service charges on deposit accounts---------- 6,409 4,963
Loan fees ----------------------------------- 1,184 1,549
Insurance premiums and commissions ---------- 2,943 1,589
Investment product fees --------------------- 1,755 1,400
Bank-owned life insurance ------------------- 834 1,100
Securities gains, net ----------------------- 96 1,383
Other income -------------------------------- 4,798 2,637
------- -------
Total Noninterest Income ------------------ 23,451 19,760
------- -------
Noninterest Expense
Salaries and employee benefits -------------- 33,426 30,117
Occupancy expense --------------------------- 3,427 3,237
Equipment expense --------------------------- 4,342 4,177
Marketing expense --------------------------- 1,526 1,659
FDIC insurance expense ---------------------- 307 235
Processing expense -------------------------- 2,406 2,697
Communication and transportation expense----- 2,406 2,212
Professional fees --------------------------- 1,062 2,171
Other expenses ------------------------------ 6,267 6,142
------- -------
55,169 52,647
Merger and restructuring costs--------------- 18,651 --
Total Noninterest Expense ----------------- 73,820 52,647
------- -------
Net Income Before Income Taxes -------------- 9,866 31,799
Provision for income taxes ------------------ 874 9,100
------- -------
Net Income ---------------------------------- 8,992 22,699
======= =======
Net Income per common share:
Basic ------------------------------------ $0.16 $0.40
======= =======
Diluted ---------------------------------- $0.16 $0.39
======= =======
Weighted average common shares outstanding:
Basic ------------------------------------ 56,259 57,390
======= =======
Diluted ---------------------------------- 57,583 59,546
======= =======
The accompanying notes are an integral part of this statement.
</TABLE>
4
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
March 31,
($ in thousands) (Unaudited) 2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income ------------------------------------------------- $ 8,992 $ 22,699
------ -------
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation --------------------------------------------- 3,508 3,115
Amortization of intangible assets ------------------------ 814 660
Net premium amortization on investment securities -------- 126 542
Provision for loan losses -------------------------------- 7,433 3,392
Loss (gain) on sale of investment securities ------------- 3,285 (1,383)
Loss (gain) on sale of assets ---------------------------- 1,753 (76)
Increase in other assets --------------------------------- (1,585) (5,436)
Increase (decrease) in accrued expenses and
other liabilities -------------------------------------- (11,018) 1,713
------- -------
Total adjustments ------------------------------------- 4,316 2,527
------- -------
Net cash flows provided by (used in) operating activities 13,308 25,226
------- -------
Cash flows from investing activities:
Cash and cash equivalents of subsidiary acquired ----------- -- 5,914
Purchase of investment securities available-for-sale ------- (120,437) (422,417)
Proceeds from maturities and paydowns of investment
securities available-for-sale ---------------------------- 80,341 230,505
Proceeds from sales of investment securities available-
for-sale ------------------------------------------------- 105,708 101,664
Net principal collected from (loans made to) customers:
Commercial and financial --------------------------------- (64,113) (43,645)
Mortgage ------------------------------------------------- (94,831) (89,527)
Consumer ------------------------------------------------- (17,691) (21,048)
Proceeds from sale of mortgage loans ----------------------- -- 10,528
Proceeds from sale of premises and equipment --------------- 391 324
Purchase of premises and equipment ------------------------- (2,716) (4,129)
------ -------
Net cash flows used in investing activities ------------- (113,348) (231,831)
------- -------
Cash flows from financing activities:
Net increase (decrease) in deposits and short-term borrowings:
Noninterest bearing demand ------------------------------- 15,547 (61,009)
NOW Accounts --------------------------------------------- (16,435) (49,712)
Savings accounts ----------------------------------------- 592 12,914
Money market accounts ------------------------------------ 11,867 37,999
Time deposits -------------------------------------------- 65,639 162,049
Short-term borrowings ------------------------------------ (60,762) 60,571
Other borrowings ----------------------------------------- 61,536 35,118
Proceeds from Guaranteed preferred beneficial interests in
Company's subordinated debentures------------------------ 50,000 --
Cash dividends paid ---------------------------------------- (9,554) (8,117)
Common stock repurchased ----------------------------------- (29,305) (2,786)
Common stock reissued, net of shares used to convert
subordinated debentures ---------------------------------- 9,421 4,803
------- -------
Net cash flows provided by financing activities ---------- 98,546 191,830
------- -------
Net decrease in cash and cash equivalents ------------------ (1,494) (14,775)
Cash and cash equivalents at beginning of period ----------- 226,941 229,027
------- -------
Cash and cash equivalents at end of period ----------------- $225,447 $214,252
======= =======
Total interest paid -------------------------------------- $83,241 $66,767
====== ======
Total taxes paid ----------------------------------------- $ 487 $7,370
====== =====
The accompanying notes are an integral part of this statement.
</TABLE>
5
Old National Bancorp
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying consolidated financial statements include the
accounts of Old National Bancorp and its affiliate entities ("Old
National"). All significant intercompany transactions and
balances have been eliminated. In the opinion of management, the
consolidated financial statements contain all the normal and
recurring adjustments necessary to present fairly the financial
position of Old National as of March 31, 2000 and 1999 and
December 31, 1999, and the results of its operations for the
three months ended March 31, 2000 and 1999 and its cash flows for
the three months ended March 31, 2000 and 1999. All prior period
information has been restated for the effects of business
combinations accounted for as pooling-of-interests as discussed
in Note 3.
2. Net Income Per Share
Net income per common share computations are based on the
weighted average number of common shares outstanding during the
periods presented. A 5% stock dividend was paid January 28, 2000
to shareholders of record on January 7, 2000. All share and per
share data presented herein have been restated for the effects of
the stock dividend.
Net income on a diluted basis is computed as above and assumes
the conversion of Old National's 8% convertible subordinated
debentures (Note 5). For the diluted computation, net income is
adjusted for the assumed reduction in interest expense, net of
income tax effect, and additional common shares of 1.0 million
year-to-date, are assumed to be issued in connection with the
conversion of the remaining outstanding debentures.
Earnings Per Share Reconciliation
($ and shares in thousands except per share data):
Three Three
Months Ended Months Ended
March 31, 2000 March 31, 1999
Per-Share Per-Share
Income Shares Amount Income Shares Amount
Basic EPS
Income from continuing
operations available to
common stockholders$ 8,992 56,259 $0.16 $22,699 57,390 $0.40
==== ====
Effect of Dilutive
Securities:
Stock options 285 368
8% convertible debentures 155 1,039 265 1,788
----- ------ ------ ------
6
Diluted EPS
Income from continuing
operations available to
common stockholders
+ assumed conversions $9,147 57,583 $0.16 $22,964 59,546 $0.39
====== ====== ===== ======= ====== =====
3. Merger and Divestiture Activity
Pending Mergers
On December 20, 1999, Old National and Permanent Bancorp
("Permanent") of Evansville, Indiana, executed a definitive
merger agreement. Old National will issue common shares in
exchange for all of the outstanding common shares of Permanent.
The transaction will be accounted for as a purchase. The merger
is subject to the approvals of regulators and Permanent's
shareholders. As of March 31, 2000, Permanent's financial
statements reflected $492.0 million in total assets, net loans of
$327.2 million, total deposits of $355.8 million, and net income
for the three months then ended of $755 thousand. This merger is
expected to be consummated in the third quarter of 2000.
Completed Mergers
On March 1, 2000, Old National and Heritage Financial Services,
Inc. ("Heritage") of Clarksville, Tennessee, consummated a merger
in which Old National issued 2,191,322 common shares in exchange
for all of the outstanding common shares of Heritage. The
transaction was accounted for as a pooling-of-interests. Net
income for Heritage prior to merger included in the 2000
statements for the period ended March 1,2000 was $509 thousand.
On March 10, 2000, Old National and ANB Corporation ("ANB") of
Muncie, Indiana, consummated a merger in which Old National
issued 7,316,153 common shares in exchange for all of the
outstanding common shares of ANB. The transaction was accounted
for as a pooling-of-interests. Net income for ANB prior to merger
included in the 2000 statements for the period ended March 10,
2000 was $1.3 million.
4. Investments
The market value and amortized cost of investment securities as
of September 30, 1999 are set forth below ($ in thousands):
Market Value Amortized Cost
Available-for-sale, at market value $1,750,442 $1,801,066
========== ==========
5. Borrowings
Old National has outstanding $12.7 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 Old
National at a conversion rate of 81.395 shares for each one
thousand dollars principal amount of debentures. Interest on the
7
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 Old National 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 Old National. As
of March 31, 2000, 1.0 million authorized and unissued common
shares were reserved for conversion of the debentures.
Old National has registered Series A Medium Term Notes in the
principal amount of $50 million. The series has been fully
issued. As of March 31, 2000, a total of $24.5 million of the
notes were outstanding, with maturities ranging from one to three
years and fixed interest rates of 6.9% to 7.0%. At March 31,
1999, Old National had outstanding $32.0 million of medium term
notes.
Old National also has registered Medium Term Notes in the
principal amount of $150 million. $85.7 million of notes are
available for issuance at March 31, 2000. These notes may be
issued with maturities of nine months or more and rates may
either be fixed or variable. As of March 31, 2000, a total of
$59.3 million of the notes were outstanding, with maturities
ranging from two to seven years and fixed interest rates from
6.4% to 7.0%. At March 31, 1999, Old National had $64.3 million
outstanding.
As of March 31, 2000, Old National has $75 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 March 31, 2000 and 1999, no balance was outstanding under
these lines.
6. Guaranteed Preferred Beneficial Interests in Company's
Subordinated Debentures
During March 2000, Old National issued $50 million of trust
preferred securities through a subsidiary Old National Capital
Trust I. The trust preferred securities have a liquidation
amount of $25 per share with a cumulative annual distribution
rate of 9.5%, or $2.375 per share, payable quarterly, and
maturing on March 15, 2030.
Old National may redeem the subordinated debentures and thereby
cause a redemption of the trust preferred securities in whole (or
in part from time to time) on or after March 15, 2005, or in
whole (but not in part) following the occurrence and continuance
of certain adverse federal income tax or capital treatment
events.
Costs associated with the issuance of the trust preferred
securities totaling $1.8 million were capitalized and are being
amortized through the maturity date of the securities. The
unamortized balance is included in other assets in the
consolidated balance sheet.
7. Interest Rate Contracts
Old National uses interest rate contracts such as interest swaps
to manage its interest rate risk. These contracts are designated
as hedges of specific assets and liabilities. The net interest
8
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 March 31, 2000, Old National 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
$(4.4) million as of March 31, 2000. Old National pays the
counterparty a variable rate based on three-month LIBOR and
receives fixed rates ranging from 5.375% to 7.0%. The contracts
terminate on or prior to May 3, 2009.
Old National is exposed to losses if a counterparty fails to make
its payments under a contract in which Old National is in the
receiving position. Although collateral or other security is not
obtained, Old National minimizes its credit risk by monitoring
the credit standing of the counterparties and anticipates that
the counterparties will be able to fully satisfy their obligation
under the agreements.
8. Comprehensive Income
Three Months Ended
March 31,
2000 1999
($ in Thousands)
Net income $8,992 $22,699
Unrealized gains (losses) on securities:
Unrealized holding losses
arising during period, net of tax (3,154) (4,842)
Less: reclassification adjustment
for losses (gains) realized in net
income,net of tax 1,971 (830)
----- -----
Net unrealized losses (1,183) (5,672)
----- -----
Comprehensive income $7,809 $17,027
===== ======
9. Segment Data
Community
Banking Other Total
March 31, 2000
Net interest income (loss) $70,859 $(3,191) $67,668
Income tax expense (benefit) 9,459 (8,585) 874
Segment profit (loss) 18,548 (9,556) 8,992
Total assets 6,887,377 1,293,182 8,180,559
March 31, 1999
Net interest income (loss) $68,904 $(826) $68,078
Income tax expense (benefit) 10,408 (1,308) 9,100
Segment profit (loss) 23,907 (1,208) 22,699
Total assets 7,453,517 129,576 7,583,093
9
The charter consolidation during 1999 impacted the internal
reporting and makes prior year's financial data not comparable to
the new format.
10. 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
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 Old National). SFAS No.
133 expands the derivative definition which Old National is
currently reviewing to determine its application. Due to its
limited use of traditional derivative instruments, Old National
does not expect the impact of this statement to be material to
the results of operations or its financial position.
11. Merger and restructuring charges
During the first quarter, Old National closed two mergers,
finalized the charter consolidation efforts which began in 1999
and recorded related merger and restructuring charges of $22.5
million. Included in these charges were merger related costs,
system conversion costs, balance sheet restructuring, elimination
of duplicate or unnecessary facilities, centralization of certain
support functions and personnel severance costs related to these
items. The components of the charges are shown below ($ in
thousands).
Three months ended
March 31, 2000
Professional fees $ 5,744
Severance and related costs 4,501
Fixed asset write-downs 3,687
Losses on sale of securities 3,381
Other 1,338
------
Included in noninterest expense 18,651
------
Provision for loan losses 3,801
------
Total $22,452
======
10
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 Old
National as of March 31, 2000, as compared to March 31, 1999 and
December 31, 1999, and the results of operations for the three
months ended March 31, 2000 and 1999.
Financial Condition
Old National's assets at March 31, 2000 were $8.181 billion, a
7.9% increase since March 1999 and a 4.7% increase since December
1999. Earning assets, which consist primarily of money market
investments, investment securities and loans, grew 7.5% over the
prior year. During the past year, the mix of earning assets
reflected loan growth of 12.8% while money market investments and
investment securities decreased a combined 7.0%. Half of the
decrease in investments was due to the decrease in fair market
value of the investment portfolio. Since December 1999, earning
assets increased 6.3% with loans growing 12.2% and investment
securities and money market investments decreasing 3.0%.
At March 31, 2000, total under-performing assets (defined as
loans 90 days or more past due, nonaccrual and restructured loans
and foreclosed properties) increased slightly to $31.7 million
from $28.6 million as of December 31, 1999. As of these dates,
under-performing assets in total were 0.54% and 0.50%,
respectively, of total loans and foreclosed properties.
March 31, December 31,
2000 1999
Nonaccrual loans $21,638 $19,286
Restructured loans 387 450
Foreclosed properties 3,766 3,700
------ ------
Total Non-performing Assets 25,791 23,436
Past due 90 days or more 5,915 5,206
------ ------
Total Under-performing Assets $31,706 $28,642
====== ======
Unper-performing assets as a % of total
loans and foreclosed properties 0.54% 0.50%
==== ====
As of March 31, 2000, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114
and 118 was $11.2 million with no related allowance and $71.1
million with $20.1 million of related allowance.
Old National'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 three months ended March 31, 2000, the average balance of
impaired loans was $78.5 million and $1.4 million of interest was
recorded.
11
Old National's consolidated loan portfolio is well diversified
and contains no concentrations of credit in any particular
industry exceeding 10% of its portfolio. Old National has
minimal exposure to construction lending or leveraged buyouts and
no exposure in credits to foreign or lesser-developed countries.
Total deposits at March 31, 2000, increased $464.9 million or
8.3% compared to March 1999. Brokered certificates of deposit,
included in other time, increased $473.3 million since March
1999. Since December 1999, total deposits increased $77.2
million or 5.2% with brokered certificates of deposit increasing
$83.0 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 $42.3 million since March 1999 and
decreased $60.8 million since December 1999. Other borrowings,
which is primarily debt from Federal Home Loan Banks, rose $118.6
million over March 1999 and $61.4 million over December 1999. In
addition, $50 million of trust preferred securities were issued
by Old National Capital Trust I during March 2000.
Capital
Total shareholders' equity decreased $59.5 million since March
1999 and $21.5 million since December 1999. Accumulated other
comprehensive income (loss), primarily net unrealized gain (loss)
on investment securities, decreased $44.0 million since March
1999 and $1.2 million since December 1999.
Old National's consolidated capital position remains strong as
evidenced by the following comparisons of key industry ratios:
<TABLE>
<CAPTION>
Regulatory Guidelines March 31, December 31,
Minimum Well-Capitalized 2000 1999 1999
Risk-based capital:
<S> <C> <C> <C> <C> <C>
Tier 1 capital to total
avg assets (leverage ratio) 4.00% 5.00% 7.57% 7.84% 7.46%
Tier 1 capital to risk-adjusted
total assets 4.00 6.00 10.88 11.47 10.64
Total capital to risk-adjusted
total assets 8.00 10.00 12.36 13.11 12.07
Shareholders' equity to
total assets N/A N/A 6.89 8.22 7.23
</TABLE>
Each of Old National's affiliate banks have capital ratios which
exceed regulatory minimum and well-capitalized guidelines.
Liquidity and Asset/Liability Management
Old National 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.
Old National 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 Old National to generate strong net
interest income while controlling and monitoring interest rate
12
risk. Old National simulates a gradual change in rates of 200
basis points up or down over 12 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 March
31, 2000 Old National was well within that limit as the model's
fluctuation was under 4% for the first 12 months and less than 4%
for the total 24 month period.
Using static gap, Old National's rate-sensitive assets at March
31, 2000 were 64% of rate-sensitive liabilities in the 1-180 day
maturity category and 70% in the 181-365 day category. These
figures compared to 59% and 64% on December 31, 1999 and 70% and
76% on March 31, 1999. Old National's funds management committee
meets quarterly to closely monitor and effect changes as needed
in the consolidated rate-sensitivity position.
Results of Operations
Net Income
With the inclusion of significant merger and restructuring as
discussed below, net income for the quarter ended March 31, 2000
was $9.0 million compared with $22.9 million in the first quarter
of 1999. Diluted earnings per common share were $0.16 for the
first quarter of 2000, compared to $0.39 for the same period of
the prior year.
Included in the first quarter of 2000 results were $22.5 million
of merger and restructuring charges. Included in this merger and
restructuring charge was $3.4 million in securities losses
related to the Heritage and ANB balance sheet restructuring, $4.5
million of severance and employee related costs, $5.7 million in
professional fees, $3.7 million write-down of fixed assets and
$1.3 million of other merger and restructuring costs. Also
included in the $22.5 million merger and restructuring expense
was a $3.8 million provision for loan losses that was charged to
earnings on the merger date to conform ANB with Old National's
credit policies.
Excluding the above merger and restructuring charges, net income
for the first quarter was $23.4 million, an increase of 3.2% over
the first quarter of 1999. The corresponding adjusted first
quarter 2000 diluted earnings per common share were $.41 or a
5.1% increase over the same quarter of last year. The
corresponding adjusted return on average assets (ROA) was 1.16%
while return on equity (ROE) was 15.41% in the first quarter of
2000. These compared to 1999 results of 1.22% ROA and 15.25% ROE.
Growth in 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 2000 was $72,436, a 0.7%
increase over 1999. The net interest margin for the first quarter
was 3.81% and 4.12% for 2000 and 1999, respectively. The net
interest margin was compressed by the rising interest rate
environment impacting funding costs, maturity extension of
borrowings, and the decline in core deposits which required
additional wholesale borrowings. Earning asset yields increased
14 basis points over 1999. Cost of interest bearing liabilities
increased 41 basis points compared to 1999.
13
Provision and Allowance for Loan Losses
The provision for loan losses was $7.4 million in the first
quarter of 2000 compared to 3.4 million in the first quarter of
1999. Merger-related provision was $3.8 million in the first
quarter of 2000. Old National's net charge-offs were 0.15% of
average loans for the current quarter, compared to 0.12% in the
first quarter of 1999.
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.
Old National 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 March 31, 2000 compares to 1.19% in 1999. The
allowance for loan losses covers all under-performing loans by
2.2 times at March 31, 2000 compared to 2.3 times at December 31,
1999.
Noninterest Income
Excluding securities gains (losses), noninterest income increased
27.1% in the three months ended March 31, 2000 as compared to the
same period in 1999. Trust fees were up 5.7% for the first
quarter compared to prior year. Service charges on deposit
accounts were up 29.1% for the quarter mainly due to additional
overdraft fees generated from a new product, "Worry-free"
checking, started March 1999. Insurance premiums and commissions
increased 85.2% over 1999 for the quarter due to the December 31,
1999, purchase of the Sycamore Agency. Investment product fees
rose over 1999 in excess of 25% for the first quarter. The
security gains of $1.4 million for the quarter in 1999 were taken
to offset a portion of the charges incurred in connection with
the restructuring of Old National's banks into a single charter.
Other income includes a gain of $2.4 million from the sale of Old
National's Merchant credit card in the first quarter of 2000.
This sale also negatively impacted loan fees. Most other
categories of noninterest income were comparable to last year's
results.
Noninterest Expense
Noninterest expense increased 4.8% in the first quarter of 2000
compared to 1999. Salaries and benefits, together the largest
individual component of noninterest expense, increased 11.0% in
the first quarter of 2000 compared to 1999. Professional fees
decreased $1.1 million or 51.1% due to additional expenses in
prior year related to the charter consolidation. Processing
expense decreased 11.0% for the quarter. The largest increase
for the quarter was related to credit card outsource expense in
prior year. Other expense increased 2.0% over the first quarter
of 1999. Most other categories of noninterest expense experienced
relatively small changes between the years.
Provision for Income Taxes
The provision for income taxes, as a percentage of pre-tax
income,decreased in the first quarter to 8.9% compared to 28.6%
in 1999. Excluding merger and restructuring charges, this
percentage would have been 27.5%. Higher levels of tax exempt
income, as well as favorable state taxation developments, helped
lower our effective rate in 2000.
14
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
At the April 20, 2000 Annual Meeting of Shareholders, the
following matters were submitted to a vote of the shareholders.
Election of Directors - The following directors were elected for
a term of one year.
Vote Count
For Against Abstained Unvoted
David L. Barning 33,303,198 320,214 -- 13,219,156
Richard J. Bond 33,333,210 289,001 -- 13,220,357
Alan W. Braun 33,301,833 363,519 -- 13,177,216
Wayne A. Davidson 33,322,151 300,059 -- 13,220,357
Larry E. Dunigan 33,335,883 286,328 -- 13,220,357
David E. Eckerle 33,334,705 287,508 -- 13,220,355
Andrew E. Goebel 33,218,529 405,462 -- 13,218,577
Phelps L. Lambert 33,318,231 303,979 -- 13,220,357
Ronald B. Lankford 33,331,955 291,673 -- 13,218,940
Lucien H. Meis 33,037,444 586,752 -- 13,218,372
Louis L. Mervis 33,221,266 404,986 -- 13,216,316
James Risinger 33,311,140 312,567 -- 13,218,861
John N. Royse 33,315,708 308,520 -- 13,218,340
Marjorie Z. Soyugenc 32,949,995 674,045 -- 13,218,528
Kelly N. Stanley 33,254,513 367,698 -- 13,220,357
Charles D. Storms 33,314,276 307,935 -- 13,220,357
Amendment of the Articles of Incorporation to Increase authorized
shares of common stock to 150,000,000 shares - Votes For -
32,160,758 Votes Against - 1,144,156 Votes Abstained - 317,539
Unvoted - 13,220,114.
15
Selection of Independent Public Accountants -PricewaterhouseCoopers
LLP, Votes For - 33,150,365 Votes Against - 281,406 Votes Abstained
- 190,681 Unvoted - 13,220,115.
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.
(27) Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended March 31,
2000.
Filed 8-K on 3/1/00, amended Rights Agreement.
16
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
Executive Vice President
Chief Financial Officer
Date: May 15, 2000
17
INDEX OF EXHIBITS
Regulation S-K
Reference
(Item 601)
27 Financial Data Schedule
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from Old National
Bancorp's March 31, 2000 Form 10-Q and is qualified in its entirety to reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 192,563
<INT-BEARING-DEPOSITS> 32,884
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,750,442
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 5,889,170
<ALLOWANCE> 70,965
<TOTAL-ASSETS> 8,180,559
<DEPOSITS> 6,039,279
<SHORT-TERM> 618,697
<LIABILITIES-OTHER> 79,626
<LONG-TERM> 879,484
0
0
<COMMON> 56,021
<OTHER-SE> 507,452
<TOTAL-LIABILITIES-AND-EQUITY> 8,180,559
<INTEREST-LOAN> 120,106
<INTEREST-INVEST> 28,272
<INTEREST-OTHER> 518
<INTEREST-TOTAL> 148,896
<INTEREST-DEPOSIT> 59,448
<INTEREST-EXPENSE> 81,228
<INTEREST-INCOME-NET> 67,668
<LOAN-LOSSES> 7,433
<SECURITIES-GAINS> 96
<EXPENSE-OTHER> 6,267
<INCOME-PRETAX> 9,866
<INCOME-PRE-EXTRAORDINARY> 8,992
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,992
<EPS-BASIC> .16
<EPS-DILUTED> .16
<YIELD-ACTUAL> 3.81
<LOANS-NON> 21,638
<LOANS-PAST> 5,915
<LOANS-TROUBLED> 387
<LOANS-PROBLEM> 149,261
<ALLOWANCE-OPEN> 65,685
<CHARGE-OFFS> 3,217
<RECOVERIES> 1,064
<ALLOWANCE-CLOSE> 70,965
<ALLOWANCE-DOMESTIC> 70,965
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
