EXHIBIT 13
FINANCIAL HIGHLIGHTS
Years Ended December 31,
(dollars in thousands, except per share data) 2000 1999
- --------------------------------------------------------------------------------
Income Data(1)
Net interest income $ 289,510 $ 299,165
Noninterest income 101,713 83,150
Total revenue 391,223 382,315
Provision for loan losses(2) 26,002 14,798
Noninterest expense 228,034 223,897
Income taxes 49,766 50,363
Operating earnings(2) 87,421 93,257
Merger and restructuring costs (after-tax) (25,725) --
Discontinued operations -- 4,101
Net income $ 61,696 $ 97,358
Per Share Data (diluted)(3)
Operating earnings $ 1.45 $ 1.51
Operating earnings (cash basis)(4) 1.52 1.55
Net income 1.03 1.58
Cash dividends paid 0.65 0.60
Book value per share 10.39 9.86
Stock price at year end 28.51 29.42
Balance Sheet Data (at December 31)
Total assets $ 8,767,748 $ 8,086,012
Loans 6,348,313 5,714,688
Deposits 6,583,906 5,962,069
Shareholders' equity 626,341 584,995
Performance Ratios (based on operating earnings)
Return on average assets 1.03% 1.20%
Return on average shareholders' equity(5) 14.33 15.13
Net interest margin(1) 3.65 4.09
Efficiency ratio(1) 58.29 58.56
Net charge-offs to average loans 0.39 0.17
Allowance for loan losses to ending loans 1.16 1.15
Non-performing loans to ending loans 0.42 0.41
Other Data
Number of full-time equivalent employees 2,873 2,942
Number of shareholders 25,008 20,946
Number of shares traded (in thousands) 21,943 14,131
================================================================================
(1) Tax equivalent basis.
(2) Excludes portion related to merger and restructuring.
(3) Restated for all stock dividends, including a 5% stock dividend paid to
shareholders on January 30, 2001. Assumes the conversion of subordinated
debentures.
(4) Excludes after-tax impact of intangible asset amortization.
(5) Excludes unrealized gains (losses) on investment securities.
Page 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Selected Financial Data
Five-Year
(dollars in thousands, Growth
except per share data) 2000 1999 1998 1997 1996 1995 Rate
- ------------------------------------------------------------------------------------------------------------------------------------
Results of Operations(1)
Net interest income $ 289,510 $ 299,165 $ 277,892 $ 267,206 $ 255,529 $ 240,605 3.8%
Noninterest income 101,713 83,150 72,898 62,505 59,487 51,465 14.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenue 391,223 382,315 350,790 329,711 315,016 292,070 6.0
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses(2) 26,002 14,798 14,987 15,265 12,723 9,009 23.6
Noninterest expense(2) 228,034 223,897 199,088 186,345 184,288 177,636 5.1
Income taxes 49,766 50,363 51,272 49,675 46,143 40,568 4.2
- ------------------------------------------------------------------------------------------------------------------------------------
Operating earnings(2) 87,421 93,257 85,443 78,426 71,862 64,857 6.2
Merger and restructuring
costs (after-tax) (25,725) -- -- -- -- -- N/M
Discontinued operations -- 4,101 (9,854) (5,005) 494 -- N/M
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 61,696 $ 97,358 $ 75,589 $ 73,421 $ 72,356 $ 64,857 (1.0)%
====================================================================================================================================
Per Share Data (diluted)(3)
Operating earnings $ 1.45 $ 1.51 $ 1.38 $ 1.26 $ 1.13 $ 1.02 7.3%
Operating earnings (cash basis)(4) 1.52 1.55 1.42 1.28 1.15 1.05 7.7
Net income 1.03 1.58 1.23 1.26 1.13 1.02 0.2
Cash dividends paid 0.65 0.60 0.53 0.50 0.48 0.46 7.2
Book value at year-end 10.39 9.86 10.15 9.66 9.06 8.72 3.6
Balance Sheet Data (at December 31)
Total assets $8,767,748 $8,086,012 $7,334,271 $6,715,787 $6,320,187 $5,966,574 8.0%
Loans 6,348,313 5,714,688 5,058,460 4,526,521 4,171,851 3,862,799 10.4
Deposits 6,583,906 5,962,069 5,436,381 5,147,271 5,080,775 4,932,296 5.9
Shareholders' equity 626,341 584,995 605,849 579,599 552,403 549,239 2.7
Performance Ratios
Based on operating earnings:
Return on average assets 1.03% 1.20% 1.23% 1.21% 1.19% 1.12%
Return on average
shareholders' equity(5) 14.33 15.13 14.75 14.26 13.26 12.23
Equity to assets 6.92 7.90 8.57 8.64 9.09 9.13
Primary capital to average assets 7.76 8.73 9.41 9.45 9.91 9.97
Net charge-offs to average loans 0.39 0.17 0.24 0.21 0.28 0.24
Allowance for loan losses
to average loans 1.21 1.21 1.25 1.29 1.24 1.28
Based on net income:
Return on average assets 0.73% 1.25% 1.08% 1.13% 1.20% 1.12%
Return on average
shareholders' equity(5) 10.11 15.79 13.05 13.35 13.35 12.23
Dividend payout 62.84 36.52 40.38
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Tax equivalent basis.
(2) Excludes portion related to merger and restructuring.
(3) Restated for all stock dividends, including a 5% stock dividend paid to
shareholders on January 30, 2001. Assumes the conversion of subordinated
debentures.
(4) Excludes after-tax impact of intangible asset amortization.
(5) Excludes unrealized gains (losses) on investment securities.
N/M = Not meaningful
Page 14
Introduction
Formed in 1983, Old National Bancorp ("Old National")
is a bank holding company headquartered in Evansville, Indiana, with banking
activity in Indiana, Illinois, Kentucky, Tennessee, and Ohio. Old National's
banking operations date back over 160 years. With 148 community banking
locations, Old National serves customers in both urban and rural markets. These
banking centers provide a wide range of financial services, such as:
- - making commercial and consumer loans;
- - originating and servicing mortgage loans;
- - leasing;
- - offering various deposit products;
- - issuing letters of credit;
- - selling credit life, accident and health insurance;
- - providing safe deposit facilities; and
- - offering alternative investments and brokerage services.
Old National's non-bank affiliates provide additional financial or support
services incidental to its operations, including:
- - issuance and reinsurance of credit life, accident, health, life, property,
and casualty insurance;
- - investment services;
- - fiduciary and trust services;
- - and property ownership.
Financial Basis
The following discussion is an analysis of Old National's
operating results for the years 1998 through 2000 and financial condition as of
December 31, 2000 and 1999, and will assist readers of the accompanying
consolidated financial statements and related notes beginning on page 28.
Management's forward-looking statements are intended to benefit the reader, but
are subject to various risks and uncertainties which may cause actual results to
differ materially, including but not limited to: (1)economic conditions
generally and in the market areas of the company; (2)increased competition in
the financial services industry; (3)actions by the Federal Reserve Board and
changes in interest rates; and (4)governmental legislation and regulation.
The financial information has been restated to reflect mergers accounted for as
pooling-of-interests as if they had occurred at the beginning of the first year
presented. Purchases have been included in reported results from the date of the
transaction.
During 1998, Old National sold the operations and related auto loans of its
consumer finance subsidiary headquartered in Indianapolis. The sale and the
operations prior to the sale resulted in a $9.9 million loss on discontinued
operations, net of tax. In 1999 certain contingencies related to this sale were
successfully resolved, resulting in a $4.1 million gain on discontinued
operations. The discontinued operations' financial results in prior periods are
similarly broken out from Old National's continuing operations. The subsidiary's
net assets are included in other assets on the consolidated balance sheet for
periods prior to the sale. For further details regarding the discontinued
operations, see the consolidated financial statements and Note 2.
The following discussion and analysis of Old National's financial condition and
results of operations relates to its continuing operations. References to
operating earnings within this analysis represent net income from continuing
operations excluding the impact of merger-related and restructuring expenses as
discussed within this document.
Tax-exempt interest income in the following information has been increased to an
amount comparable to interest subject to income taxes using a 35% federal
statutory rate in effect for all periods. An offsetting increase of the same
amount is made in the income tax section of the Selected Financial Data.
Net income is unaffected by these tax equivalent adjustments.
Competition And Economic Conditions
The banking industry and related financial service providers are highly
competitive, especially as the industry continues to change. Within its
geographic markets Old National's competition includes numerous local and
regional banking institutions, thrifts, finance companies, credit unions, money
market mutual funds, investment brokers, finance companies, and insurance
companies. The competitive factors center around issues such as interest rates
on loans and deposits, convenient locations and hours, types of services, and
quality of service.
The economy in the United States and the Midwest which has experienced
relatively low inflation and unemployment plus steady growth started to show
signs of deterioration in 2000. Interest rates continued to increase during most
of 2000. The Federal funds target rate established by the Federal Open Market
Committee increased from 5.50% in January 2000 to 6.50% in June. The national
prime lending rate similarly increased, rising from 8.50% to 9.50% in 2000.
Although long-term treasury rates began to decrease in 2000, this was due
primarily to the U.S. Department of Treasury decision to reduce outstanding
government debt.
Short- and long-term interest rates increased during the second half of 1999,
reversing the declines of 1998. The Federal funds target rate increased from
4.75% in June of 1999 to 5.50% by December 1999. The national prime lending rate
moved in tandem with the Federal funds target rate, increasing from 7.75% to
8.50%. Long-term U.S. Treasury rates increased throughout 1999. The 30-year U.S.
Treasury bond yield finished the year at 6.60%, approximately 150 basis points
higher than in January 1999. The yield curve, as measured by the difference
between rates on 6-month U.S. Treasury bills and 30-year Treasury bonds,
steepened during 1999 from a fairly flat curve in 1998, reflecting continuing
concern within the financial markets that interest rates would increase further.
Page 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION (CONTINUED)
Merger And Consolidation Activity
In the first quarter of 2000 Old National completed the acquisitions of ANB
Corporation, Muncie, Indiana, with $880 million in total assets and Heritage
Financial Services, Inc., Clarksville, Tennessee, with $246 million of total
assets. These mergers were accounted for as pooling-of-interests. The financial
statements have been restated accordingly. In the third quarter Old National
purchased Permanent Bancorp, Inc. ("Permanent"), Evansville, Indiana, with $497
million in total assets. The assets and liabilities acquired from Permanent were
adjusted to current market values. Goodwill and other intangibles from this
acquisition totaled $60.5 million.
During 1999, Old National merged with Southern Bancshares Ltd. ("Southern"),
Carbondale, Illinois, with $255 million in assets, and Dulaney Bancorp, Inc.
("Dulaney"), Marshall, Illinois, a $39 million asset banking company. Both
mergers were consummated in the first quarter of 1999 and accounted for as
pooling-of-interests. These financial statements have been restated to reflect
the Southern merger. The Dulaney merger was not considered material.
In 1999 Old National implemented its charter consolidation project named One
Bank and by December 31, 1999, consolidated its banking charters down to three
banks. After completing the three major bank mergers in 2000, banking charters
were down to two with the completion of the project scheduled for early 2001.
The goals of One Bank included a single brand image, common products offered
throughout the banking locations, and improved back-office efficiency.
Results Of Operations
Net Income
In 2000 Old National operations generated net income of $61.7 million and
diluted income per share of $1.03, both lower than 1999. Operating earnings (net
income from continuing operations, excluding the impact of merger-related and
restructuring expenses of $41.3 million pretax, $25.7 million after tax, or
$0.42 per share) were $87.4 million, a 6.3% decrease from 1999. The provision
for loan losses increase contributed to the lower earnings, despite the revenue
growth exceeding the growth in operating expenses. The specific effects of these
factors are discussed in the following paragraphs.
In 1999 earnings rose 9.1% to reach $93.2 million, a $7.8 million increase.
Diluted earnings per share totaled $1.51, a 9.4% increase over 1998. Strong
revenue growth (tax equivalized net interest income plus noninterest income) of
$31.5 million, a 9.0% increase, generated the earnings growth in 1999.
Net Interest Income
Over 70% of Old National's revenue arises from the interest and fee income
received on earning assets, such as loans and investments, and the interest paid
on deposits and borrowed funds. The difference between the income earned and the
interest paid is net interest income. Net interest margin is net interest
income, on a tax equivalent basis, expressed as a percentage of average earning
assets. Incorporating the tax savings on certain assets permits effective yield
comparability.
The net interest margin is influenced by a number of factors, such as the volume
and mix of earning assets and funding sources, the interest rate environment,
income tax rates, and the level of earning assets funded by interest-free
funding sources (primarily noninterest-bearing demand deposits and equity
capital). Old National can influence the effect of these factors through its
management of credit extension and interest rate sensitivity, both of which are
discussed in detail later in this report. External factors, such as the overall
condition of the economy, credit demand strength, Federal Reserve Board monetary
policy, competitive pressures, and changes in tax laws, can also exert
significant influence on changes in net interest income from one period to
another.
Tax equivalized net interest income declined 3.2% in 2000, a $9.6 million
decrease from 1999. The sharp increase in interest rates initiated by the
Federal Reserve Bank during late 1999 and experienced throughout most of 2000
raised Old National's interest expense on its funding sources faster than its
interest income on earning assets. Earning assets grew 8.4% or $617.7 million
during 2000, and the yield on those assets rose 32 basis points. Goodwill from
recent acquisitions produced the growth in nonearning assets. In 2000 low cost
or free funding sources, such as NOW and savings deposits, equity, demand
deposits, and other liabilities declined slightly. Old National funded the 8.6%
growth in average assets primarily with borrowed funds and time deposits. The
cost of interest-bearing deposits rose 65 basis points to 4.82% while the total
cost of all interest-bearing liabilities increased 75 basis points to 5.16%.
This significant shift in market interest rates and funding mix combined to
lower Old National's net interest margin from 4.09% in 1999 to 3.65% in 2000.
In 1999 net interest income grew 7.7%, a $21.3 million increase over 1998.
Average earning assets grew 12.2% or $796.6 million during 1999. Nonearning
assets rose $24.6 million, in part due to increased cash in late 1999 as a
precaution for the Year 2000 or Y2K issue. Much of the asset growth was funded
by interest-bearing liabilities that increased $747.2 million or 13.1%.
Noninterest-bearing deposits increased $46.6 million or 8.2%. Other liabilities
and equity provided an additional $21.6 million in funding. Old National's net
interest margin declined 17 basis points to 4.09%. Earning asset yield declined
30 basis points to 7.98%. The full year impact of declining interest rates in
1998 and competitive market pressures resulted in a 44 basis point decrease in
loan yields, despite the Federal Reserve Bank raising interest rates throughout
the last half of 1999. The cost of interest-bearing liabilities declined 17
basis points to 4.41%. Growth in higher-rate time deposits and borrowings
contributed to the net interest margin compression, particularly during the last
half of 1999.
Table 1 on page 17 details the changes in the components of net interest income.
Table 2 on page 17 attributes Table 1 fluctuations to the impact of changes in
the average balances of assets and liabilities and the yields earned or rates
paid. Table 3 on page 18 presents a three-year average balance sheet and for
each major asset and liability category, its related interest income and yield
or its expense and rate.
Page 16
NET INTEREST INCOME CHANGES (TABLE 1)
% Change From
Prior Year
(tax equivalent basis, 2000 1999 1998 2000 1999
dollars in thousands)
- ------------------------------------------------------------------------------
Interest Income
Money market investments $ 1,619 $ 1,859 $ 1,963 (12.9)% (5.3)%
Investment securities 128,577 125,378 117,826 2.6 6.4
Loans 527,718 456,499 419,800 15.6 8.7
- ------------------------------------------------------------------------------
Total interest income 657,914 583,736 539,589 12.7 8.2
- ------------------------------------------------------------------------------
Interest Expense
NOW deposits 13,135 10,700 12,196 22.8 (12.3)
Savings deposits 12,086 11,211 11,803 7.8 (5.0)
Money market deposits 34,735 27,458 26,747 26.5 2.7
Time deposits 207,656 163,341 156,366 27.1 4.5
Short-term borrowings 42,446 28,550 19,252 48.7 48.3
Other borrowings 58,346 43,311 35,333 34.7 22.6
- ------------------------------------------------------------------------------
Total interest expense 368,404 284,571 261,697 29.5 8.7
- ------------------------------------------------------------------------------
Net interest income $289,510 $299,165 $277,892 (3.2)% 7.7%
===============================================================================
Net interest margin 3.65% 4.09% 4.26%
============================================================
NET INTEREST INCOME - RATE/VOLUME ANALYSIS (TABLE 2)
2000 vs. 1999 1999 vs. 1998
--------------------------------- ----------------------------------
Attributed to Attributed to
Total --------------------- Total ----------------------
(tax equivalent basis, Change Volume Rate Change Volume Rate
dollars in thousands)
- ------------------------------------------------------------------------------------------------
Interest Income
Money market investments $ (240) $ (655) $ 415 $ (104) $ (97) $ (7)
Investment securities 3,199 (2,359) 5,558 7,552 7,956 (404)
Loans 71,219 56,605 14,614 36,699 58,788 (22,089)
- ------------------------------------------------------------------------------------------------
Total interest income 74,178 53,591 20,587 44,147 66,647 (22,500)
- ------------------------------------------------------------------------------------------------
Interest Expense
NOW deposits 2,435 215 2,220 (1,496) 656 (2,152)
Savings deposits 875 (128) 1,003 (592) 668 (1,260)
Money market deposits 7,277 (8) 7,285 711 1,864 (1,153)
Time deposits 44,315 24,655 19,660 6,975 15,397 (8,422)
Short-term borrowings 13,896 6,836 7,060 9,298 8,119 1,179
Other borrowings 15,035 6,540 8,495 7,978 9,989 (2,011)
- ------------------------------------------------------------------------------------------------
Total interest expense 83,833 38,110 45,723 22,874 36,693 (13,819)
- ------------------------------------------------------------------------------------------------
Net interest income $ (9,655) $ 15,481 $(25,136) $ 21,273 $ 29,954 $ (8,681)
=================================================================================================
The variance not solely due to rate or volume is allocated equally between the
rate and volume variances.
Page 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION (CONTINUED)
THREE-YEAR AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS (TABLE 3)
2000 1999 1998
------------------------------ --------------------------------- ------------------------------
(Tax equivalent basis, Average Interest Yield/ Average Interest Yield/ Average Interest Yield/
dollars in thousands) Balance & Fees Rate Balance & Fees Rate Balance & Fees Rate
- -----------------------------------------------------------------------------------------------------------------------------------
Earning Assets
Money market investments $ 24,130 $ 1,619 6.71% $ 35,046 $ 1,859 5.30% $ 36,892 $ 1,963 5.32%
Investment securities:
U.S. Treasury and
Government agencies(1) 1,178,365 80,414 6.82 1,232,856 79,265 6.43 1,155,673 73,855 6.39
State and political
subdivisions 542,469 40,636 7.49 551,189 41,178 7.47 519,166 39,534 7.61
Other securities 97,522 7,527 7.72 68,408 4,935 7.21 60,251 4,437 7.36
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 1,818,356 128,577 7.07 1,852,453 125,378 6.77 1,735,090 117,826 6.79
- -----------------------------------------------------------------------------------------------------------------------------------
Loans:(2)
Commercial 1,476,135 136,941 9.28 1,277,572 111,604 8.74 1,120,020 102,445 9.15
Commercial real estate 1,537,810 132,776 8.63 1,211,022 98,746 8.15 972,820 83,248 8.56
Residential real estate 2,087,834 165,554 7.93 2,080,569 164,229 7.89 1,855,636 154,902 8.35
Consumer, net of
unearned income 969,279 90,389 9.33 825,113 77,174 9.35 765,317 74,515 9.74
Credit card 16,811 2,058 12.24 30,872 4,746 15.37 30,298 4,690 15.48
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans 6,087,869 527,718 8.67 5,425,148 456,499 8.41 4,744,091 419,800 8.85
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 7,930,355 $657,914 8.30% 7,312,647 $583,736 7.98% 6,516,073 $539,589 8.28%
================== =================== ==================
Less: Allowance for loan losses (71,089) (64,051) (58,328)
Non-Earning Assets
Cash and due from banks 174,801 174,916 157,180
Other assets 417,006 361,836 354,972
- --------------------------------------------- ------------- ------------
Total assets $8,451,073 $7,785,348 $6,969,897
============================================= ============= ============
Interest-Bearing Liabilities
NOW deposits $ 820,067 $ 13,135 1.60% $ 805,371 $ 10,700 1.33% $ 760,607 $ 12,196 1.60%
Savings deposits 479,314 12,086 2.52 484,645 11,211 2.31 457,345 11,803 2.58
Money market deposits 712,215 34,735 4.88 712,401 27,458 3.85 665,078 26,747 4.02
Time deposits 3,542,215 207,656 5.86 3,099,269 163,341 5.27 2,814,812 156,366 5.56
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 5,553,811 267,612 4.82 5,101,686 212,710 4.17 4,697,842 207,112 4.41
Short-term borrowings 708,840 42,446 5.99 583,209 28,550 4.90 413,230 19,252 4.66
Other borrowings 878,262 58,346 6.64 771,552 43,311 5.61 598,136 35,333 5.91
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 7,140,913 $368,404 5.16% 6,456,447 $284,571 4.41% 5,709,208 $261,697 4.58%
================== =================== ==================
Noninterest-Bearing
Demand deposits 636,636 613,366 566,757
Other liabilities 88,933 100,114 96,492
Shareholders' equity 584,591 615,421 597,440
- --------------------------------------------- ------------- ------------
Total liabilities and
shareholders' equity $8,451,073 $7,785,348 $6,969,897
============================================= ============= ============
Interest Margin Recap
Interest income/average
earning assets $657,914 8.30% $583,736 7.98% $539,589 8.28%
Interest expense/average
earning assets 368,404 4.65 284,571 3.89 261,697 4.02
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest margin $289,510 3.65% $299,165 4.09% $277,892 4.26%
===================================================================================================================================
(1) Includes Government agency mortgage-backed securities.
(2) Includes principal balances of nonaccrual loans. Interest income relating
to nonaccrual loans is included only if received. Loan fees included above
were $10.5 million in 2000, $11.3 million in 1999, and $11.2 million in
1998.
Page 18
Asset/Liability Management- Interest Rate Sensitivity And Liquidity
Customer preferences for loans and deposits generate certain levels of interest
rate risk, which is the impact changing interest rates have on net interest
income. The goal of asset/liability management is to maximize and maintain
adequate growth of net interest income within certain interest rate sensitivity
and liquidity guidelines established by Old National's Funds Management and
Balance Sheet Management Committees. These committees, comprised of Old National
directors and senior managers, establish asset/liability guidelines and monitor
balance sheet risk positions.
Old National uses income simulation methods to measure
the impact of interest rate changes on its net interest income. Net interest
income simulation modeling is used to 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 risk.
Old National simulates both an immediate interest rate shock up and down 200
basis points and a gradual change in rates of 200 basis points up or down over
12 months and sustained for an additional 12 months. Key model assumptions
include asset prepayment speeds; changes in market conditions, loan volumes, and
pricing; deposit sensitivity; and customer preferences. Due to the inherent
assumption uncertainty, the model cannot precisely estimate net interest income
or the impact of interest rate changes. Actual results will differ from the
simulated results due to timing, magnitude and frequency of interest rate
changes, changes in market conditions and management strategies, among other
factors. Old National's policy limit using the immediate rate change for the
maximum negative impact on net interest income over 24 months is 5%. The
following table shows Old National's estimated earnings sensitivity profile at
December 31, 2000.
Change in Percentage change in
Interest rates Net Interest Income
(Basis points) 12 months 24 months
------------------------------------------------
+200 (2.13)% (1.85)%
-200 (1.04) (3.20)
During the third quarter of 2000, Old National sold $600 million of seasoned,
fixed-rate residential mortgage loans and securities as part of a balance sheet
restructuring to improve its interest rate risk and liquidity positions. This
resulted in a pre-tax loss of $18.3 million. On an ongoing basis, Old National
sells much of the long-term, fixed-rate residential loans which conform to
Federal Home Loan Mortgage Corporation or Federal National Mortgage Association
guidelines in order to reduce interest rate fluctuation exposure.
Liquidity Management
In addition to interest rate sensitivity, the Balance Sheet Management Committee
monitors Old National's liquidity position. The objective is to ensure the
ability to meet cash flow needs of customers, such as new loan demand and
unexpected deposit withdrawals, while at the same time maximizing lending and
investment opportunities. Core deposits, selling or pledging available assets
and wholesale funding from the capital and money markets provide liquidity. At
December 31, 2000, Old National Bank's short-term debt and deposits carried the
following ratings: P2 by Moody's Investor Services ("Moody's"), A2 by Standard
and Poor's ("S&P"), and F1 by Fitch IBCA, Inc. ("Fitch").
The parent company's sources of liquidity include: bank lines of credit, capital
markets, and affiliate banks' dividends which are subject to regulatory limits
and in some cases require regulatory approval. Notes 10 and 13 of the
consolidated financial statements address this further. At year-end 2000 Old
National had $25 million in an available line of credit from an unaffiliated
bank. Old National has capacity to issue up to $85.7 million of a $150 million
medium term note program and $150 million of trust preferred securities for
future liquidity needs. Old National senior long-term debt was rated BAA1 by
Moody's, BBB+ by S&P, and A- by Fitch while its trust preferred securities were
rated bAA1 by Moody's and BBB- by S&P.
Noninterest Income
Besides net interest income, Old National generates additional revenue,
noninterest income, through fees and sales commissions from its core banking
franchise and other related businesses, such as investment products and
insurance. This source of revenue has grown as a percentage of total revenue,
excluding securities transactions, from 20.5% in 1998 to 26.0% in 2000.
Noninterest income, excluding securities transactions, grew 26.5% in 2000
compared to 12.1% in 1999.
The trust fee income grew 3.9% in 2000 and 10.7% in 1999. The poor 2000 equity
market negatively impacted trust fees. Service charges on deposit accounts rose
37.2% in 2000 compared to 22.2% in 1999. As part of One Bank, Worry Free
checking was introduced in 1999 and produced higher levels of collectible
overdraft fees. Loan fees declined 22.7% in 2000 after a 0.7% decrease in 1999.
In 2000 Old National sold much of its credit card portfolio and the related fee
income declined $2.3 million compared to 1999. This was partially offset by
growth in mortgage banking revenue and other loan related fees. Insurance sales
grew 73.9% or $4.9 million in 2000 after an 11.0% increase in 1999. Old National
purchased agencies in December 1999 and in November 2000 that significantly
contributed to insurance revenue in 2000. Investment and brokerage business
increased 11.1% in 2000 with revenue exceeding $7.1 million despite the weaker
investment markets after 19.6% growth in 1999. Bank-owned life insurance
revenue, a new initiative in 1998 representing income on officers' life
insurance coverage, grew 2.1% compared to 1999, the first full year for this
revenue. The remaining other income category rose $7.0 million primarily due to
the sale of the credit card portfolio and merchant processing business in 2000.
In 1999 Old National realized $2.6 million in net securities gains as management
restructured the investment portfolio and used these one-time gains to partially
offset the one-time charter consolidation expenses.
Page 19
Table 4 below presents changes in the components of noninterest income for the
years 1998 through 2000.
NONINTEREST INCOME (TABLE 4)
% Change From
Prior Year
(dollars in thousands) 2000 1999 1998 2000 1999
- --------------------------------------------------------------------------------------------------
Trust fees $ 22,566 $ 21,722 $ 19,621 3.9% 10.7%
Service charges on deposit accounts 34,337 25,022 20,480 37.2 22.2
Loan fees 5,124 6,630 6,679 (22.7) (0.7)
Insurance premiums and commissions 11,502 6,615 5,960 73.9 11.0
Investment product fees 7,125 6,416 5,363 11.1 19.6
Bank-owned life insurance 4,350 4,260 3,860 2.1 10.4
Other income 16,828 9,848 9,845 70.9 --
- --------------------------------------------------------------------------------------------------
Subtotal 101,832 80,513 71,808 26.5 12.1
Net securities gains (losses) (119) 2,637 1,090 (104.5) 141.9
- --------------------------------------------------------------------------------------------------
Total noninterest income $ 101,713 $ 83,150 $ 72,898 22.3% 14.1%
==================================================================================================
Noninterest income to total revenue (1) 26.0% 21.2% 20.5%
- ------------------------------------------------------------------------------
(1) Excludes securities gains (losses) and uses tax equivalent revenue.
Noninterest Expense
Old National continues to strive to improve its efficiency through mergers,
consolidation, cost control efforts, and technology advancements while still
providing quality customer service. One key ratio used to evaluate performance
is the efficiency ratio, with lower percentages representing positive trends.
Old National's efficiency ratio using operating earnings, (noninterest expense
divided by net interest income, tax equivalized, plus noninterest income,
excluding securities gains) was 58.29% in 2000, 58.56% in 1999, and 56.75% in
1998.
Salaries and benefits, which comprised approximately 50% of total noninterest
expense, grew 0.6% in 2000 and 14.5% in 1999. During the charter consolidation
in 1999, Old National had duplicate expenses as centralized operations were
staffed up to take over certain functions consolidated in late 1999. Salary
incentives tied to financial results declined in 2000 by $4.0 million after
increasing by $3.2 million in 1999. Equipment expense grew less than 2% in both
2000 and 1999. Marketing expense declined 1.2% in 2000 after a 14.1% increase in
1999 due to additional advertising for Worry Free checking, Y2K advertising, and
charter consolidation. FDIC insurance premiums rose during 2000 and 1999 due to
general rate increases. After the sale of the credit card portfolio in 2000,
processing expense returned to 1998 levels after an 11.5% increase in 1999 when
Old National outsourced credit card processing. In addition, Old National
experienced higher expenses related to Y2K in 1999. Communications and
transportation expense increased 9.5% in 2000 and 11.2% in 1999. Higher courier
and dataline charges resulted from the consolidation process, in some cases due
to duplicate costs in the short term. Postage costs rose in 1999 and
subsequently declined due to Y2K and restructuring activities. Professional fees
declined 39.6% in 2000 after a 67.5% increase in 1999 impacted by consolidation
consulting services. Goodwill amortization rose in 2000 due to the Permanent and
insurance agency acquisitions. Other expense rose 17.4% in 2000 after a 1.4%
decline in 1999. Losses on deposit accounts rose $2.0 million in 2000 primarily
due to a full year of Worry Free checking. Higher deposit service charge income
exceeded these additional losses.
Table 5 below presents changes in the components of noninterest expense for the
years 1998 through 2000.
NONINTEREST EXPENSE (TABLE 5)
% Change From
Prior Year
(dollars in thousands) 2000 1999 1998 2000 1999
- --------------------------------------------------------------------------------
Salaries and employee benefits $130,236 $129,419 $113,012 0.6% 14.5%
Occupancy 14,198 13,396 11,903 6.0 12.5
Equipment 17,378 17,081 16,864 1.7 1.3
Marketing 7,958 8,056 7,061 (1.2) 14.1
FDIC insurance premiums 1,255 928 699 35.2 32.8
Processing 10,070 11,391 10,213 (11.6) 11.5
Communications and transportation 10,236 9,346 8,402 9.5 11.2
Professional fees 5,294 8,761 5,229 (39.6) 67.5
Intangible amortization 4,546 2,645 2,632 71.9 0.5
Other expense 26,863 22,874 23,073 17.4 (0.9)
- --------------------------------------------------------------------------------
Subtotal 228,034 223,897 199,088 1.8 12.5
Merger and restructuring costs 37,503 -- -- N/M N/M
- --------------------------------------------------------------------------------
Total noninterest expense $265,537 $223,897 $199,088 18.6% 12.5%
================================================================================
N/M = Not meaningful
Page 20
Provision For Income Taxes
Old National records a provision for income taxes currently payable and for
income taxes payable in the future which arise due to timing differences in the
recognition of certain items for financial statement and income tax purposes.
The major differences between the effective tax rate applied to Old National's
financial statement income and the federal statutory rate are caused by interest
on tax-exempt securities and loans and state income taxes. Old National's
effective tax rate was 19.1% in 2000, 25.8% in 1999, and 29.3% in 1998. The
lower levels of overall income due to restructuring charges combined with higher
tax-exempt income decreased the effective tax rate in 2000. The drop in rate in
1999 was due to a change in state tax laws and the implementation of certain tax
saving strategies. See Note 7 to the consolidated financial statements for
additional details on Old National's income tax provision.
Interim Financial Data
Table 6 below provides a detailed summary of quarterly results of operations for
the years ended December 31, 2000 and 1999. These results contain all normal and
recurring adjustments of a material nature necessary for a fair and consistent
presentation.
INTERIM FINANCIAL DATA (TABLE 6)
- -----------------------------------------------------------------------------------------------------------------------
Quarter Ended 2000 Quarter Ended 1999
(unaudited, dollars and shares December September June March December September June March
in thousands, except per share data) 31 30 30 31 31 30 30 31
- -----------------------------------------------------------------------------------------------------------------------
Interest income $168,220 $166,407 $154,889 $148,759 $147,357 $145,253 $139,207 $133,996
Interest expense 101,235 98,686 87,392 81,091 76,517 73,447 68,690 65,917
- -----------------------------------------------------------------------------------------------------------------------
Net interest income 66,985 67,721 67,497 67,668 70,840 71,806 70,517 68,079
Provision for loan losses 12,965 4,968 4,437 7,433 4,192 3,515 3,699 3,392
Noninterest income 26,549 25,589 26,124 23,451 21,506 21,053 20,994 19,597
Noninterest expense 62,445 73,159 56,113 73,820 61,670 55,019 54,723 52,485
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes 18,124 15,183 33,071 9,866 26,484 34,325 33,089 31,799
Income taxes 2,500 1,960 9,214 874 4,606 9,528 9,206 9,100
- -----------------------------------------------------------------------------------------------------------------------
Net income from
continuing operations 15,624 13,223 23,857 8,992 21,878 24,797 23,883 22,699
Discontinued operations -- -- -- -- 618 -- 3,483 --
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 15,624 $ 13,223 $ 23,857 $ 8,992 $ 22,496 $ 24,797 $ 27,366 $ 22,699
=======================================================================================================================
Net income from continuing
operations per share:
Basic $ 0.26 $ 0.22 $ 0.40 $ 0.15 $ 0.37 $ 0.41 $ 0.39 $ 0.38
Diluted 0.26 0.22 0.40 0.15 0.36 0.40 0.39 0.36
=======================================================================================================================
Net income per share:
Basic $ 0.26 $ 0.22 $ 0.40 $ 0.15 $ 0.38 $ 0.41 $ 0.45 $ 0.38
Diluted 0.26 0.22 0.40 0.15 0.37 0.40 0.45 0.36
=======================================================================================================================
Weighted average shares:
Basic 60,576 60,403 58,415 59,072 59,535 60,286 60,416 60,260
Diluted 60,692 60,568 59,045 60,463 61,220 62,415 62,626 62,523
=======================================================================================================================
Page 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION (Continued)
Financial Condition
Overview
Total assets reached $8.8 billion at December 31, 2000, 8.4% higher than the
prior year-end. Loans increased $633.6 million or 11.1%. Total liabilities grew
$640.4 million or 8.5% over 1999.
Investment Securities
Investment securities continued to decline as a percentage of total assets and
stood at 20.7% at December 31, 2000, down from 22.5% in 1999. Investment
securities declined $9.9 million, 0.5% from 1999, as Old National continued to
emphasize loan growth to generate higher levels of interest income.
While it does not actively trade its investment securities, Old National has
classified all securities as available-for-sale to maximize flexibility to adapt
to interest rate changes. The principal and interest payments along with the
ability to pledge or liquidate, if necessary, available-for-sale securities
provide funding to help meet unforeseen liquidity needs. The entire portfolio
has an effective duration of 2.89 years.
At December 31, 2000, Old National held investment securities issued by the
certain states and their political subdivisions with the following aggregate
market value: $107.5 million by Illinois and $95.0 million by Indiana. There
were no other concentrations of investment securities issued by an individual
state and its political subdivisions that were greater than 10% of shareholders'
equity.
Average yields on the investment securities portfolio are calculated on a tax
equivalent basis. Yields are based on the amortized cost and are weighted for
the scheduled maturity of each investment. At year-end, average yields for the
entire portfolio were 7.13% in 2000, 6.97% in 1999, and 6.95% in 1998. The yield
rose in 2000 due to the change in the mix of securities within the portfolio. As
part of the third quarter restructuring, Old National sold $300 million of
long-duration, low-yielding mortgage-backed securities and replaced them with
shorter-duration but higher-yielding agency securities.
Table 7 below presents the maturity distribution of the investment portfolio,
along with weighted average yields thereon.
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES (TABLE 7)
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 2000 December 31,
Within 1 - 5 5 - 10 Beyond
(dollars in thousands) 1 Year Years Years Years 10 Years Total 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Fair Value
U.S. Treasury $ 30 $ 2,016 $ 2,367 $ 894 $ 5,307 $ 39,266 $ 107,513
U.S. Government agencies
and corporations 466,321 162,991 300 210 629,822 352,087 314,420
Mortgage-backed securities 18,546 24,032 373,434 65,342 481,354 801,051 739,741
States and political subdivisions 37,990 197,748 266,204 44,102 546,044 549,18 536,158
Other securities 690 28,188 661 119,497 149,036 79,854 63,728
- ----------------------------------------------------------------------------------------------------------------------------------
Total $ 523,577 $ 414,975 $ 642,966 $ 230,045 $1,811,563 $1,821,438 $1,761,560
==================================================================================================================================
Amortized Cost
U.S. Treasury $ 30 $ 2,016 $ 2,342 $ 882 $ 5,270 $ 39,830 $ 105,683
U.S. Government agencies
and corporations 467,760 160,946 300 210 629,216 363,901 309,009
Mortgage-backed securities 18,691 24,193 378,796 65,005 486,685 833,148 733,821
States and political subdivisions 37,836 195,175 262,816 42,468 538,295 553,253 516,007
Other securities 673 27,797 654 119,914 149,038 80,038 63,845
- ----------------------------------------------------------------------------------------------------------------------------------
Total $ 524,990 $ 410,127 $ 644,908 $ 228,479 $1,808,504 $1,870,170 $1,728,365
==================================================================================================================================
Weighted average yield, based
on amortized cost
(tax equivalent basis) 6.83% 7.47% 7.00% 7.53% 7.13% 6.97% 6.95%
- ----------------------------------------------------------------------------------------------------------------------------------
Lending And Loan Administration
The key to Old National's success has long been its credit culture that features
decision-making near the customer with corporate oversight. Community loan
personnel have the authority to extend credit under guidelines established and
administered by Old National's Credit Policy Committee. This committee, which
meets quarterly, includes members from both the holding company and the
community banks. The committee monitors credit quality through its review of
information such as delinquencies, problem loans, and charge-offs. The committee
regularly reviews the loan policy to assure it remains appropriate for the
current lending environment. Executive and credit committees at the local level
provide additional knowledge, judgment, and experience to Old National's lending
administration.
Old National maintains an independent corporate loan review program. Its loan
review system evaluates loan administration, credit quality, compliance with
corporate loan standards, and the adequacy of the allowance for loan losses.
This program includes periodic on-site visits as well as regular off-site
reviews of problem loan reports, delinquencies, and charge-offs.
Page 22
Old National lends to commercial customers in various industries including
manufacturing, agribusiness, transportation, mining, wholesaling, and retailing.
Old National's policy is to concentrate its lending activity in the geographic
market areas it serves, primarily Indiana, Illinois, Kentucky, Tennessee, and
Ohio. Old National has no concentration of loans in any single industry
exceeding 10% of its portfolio nor does its portfolio contain any loans to
finance highly leveraged buyout transactions or loans to foreign countries.
The 11.1% loan growth in 2000 followed 13.0% growth in 1999. Commercial real
estate led all loan types with a 38.6% increase in 2000 after 18.7% growth in
1999. Commercial loans also experienced significant growth with 20.0% in 2000
compared to 13.2% in 1999. The $60.7 million commercial loan made in 1998 to
finance the sale of Old National's consumer finance subsidiary paid off in 1999.
Residential real estate loans declined 12.0% in 2000 after growing 8.2% in 1999.
In 2000 Old National sold much of its fixed-rate loans originated during the
year and sold $250.1 million of residential mortgage loans as part of its
balance sheet restructuring. Consumer loans rose 12.6% in 2000 and 15.6% in
1999.
The portfolio is well diversified with 25% in commercial loans, 28% in
commercial real estate, 30% in residential real estate, and 16% in consumer
credit. Over the past five years commercial and commercial real estate loans
have grown faster relative to the other categories. With much of the
originations being sold, the residential real estate loan balances should
continue to decrease in dollars and as a percentage of the portfolio.
Old National's commercial lending is primarily to small- to medium-sized
businesses in various industries in its region. Commercial real estate loans are
generally made to similar companies in Old National's geographic area. These
industries have been historically stable in Old National's market area and
provide opportunities for growth. A significant percentage of commercial loans
matures within one year, reflecting the short-term nature of a large portion of
these loans. Table 8 below presents the maturity distribution and rate
sensitivity of commercial loans and an analysis of these loans that have
predetermined and floating interest rates.
DISTRIBUTION OF COMMERCIAL LOAN MATURITIES AT DECEMBER 31, 2000 (TABLE 8)
- --------------------------------------------------------------------------------
Within 1-5 Beyond
(dollars in thousands) 1 Year Years 5 years Total
- --------------------------------------------------------------------------------
Interest rates:
Predetermined $203,857 $303,571 $192,447 $ 699,875
Floating 605,007 198,952 102,675 906,634
- --------------------------------------------------------------------------------
Total $808,864 $502,523 $295,122 $1,606,509
================================================================================
The significance of the residential real estate loans, primarily
1-4 family properties, to the loan portfolio has declined since 1998. The loan
sales in 2000 contributed to the decrease during the year. Old National's
portfolio includes both adjustable rate and fixed rate loans.
Consumer loans include automobile loans, personal and home equity loans and
lines of credit, and student loans. Old National sold the bulk of its credit
card loans in 2000.
In the past four years commercial loans increased an average
of 14.3% per year while commercial real estate grew 21.6%. Consumer and
residential real estate loans both increased approximately 5.0% over the same
period. Table 9 below presents the composition of the loan portfolio for each of
the last five years.
LOAN PORTFOLIO (TABLE 9)
- ------------------------------------------------------------------------------------------------------------------------
December 31, Four Year
(dollars in thousands) 2000 1999 1998 1997 1996 Growth Rate
- ------------------------------------------------------------------------------------------------------------------------
Commercial $1,606,509 $1,338,255 $1,181,678 $1,042,656 $ 939,686 14.3%
Commercial real estate 1,810,805 1,306,312 1,100,825 946,299 828,024 21.6
Residential real estate 1,890,872 2,148,974 1,986,195 1,735,557 1,575,060 4.7
Consumer credit 1,042,629 926,345 801,036 816,082 850,179 5.2
- ------------------------------------------------------------------------------------------------------------------------
Subtotal 6,350,815 5,719,886 5,069,734 4,540,594 4,192,949 10.9%
============
Less: Unearned income 2,502 5,198 11,274 14,073 21,098
- ------------------------------------------------------------------------------------------------------------
Total loans 6,348,313 5,714,688 5,058,460 4,526,521 4,171,851
Less: Allowance for loan losses 73,833 65,685 59,371 55,567 49,580
- ------------------------------------------------------------------------------------------------------------
Net loans $6,274,480 $5,649,003 $4,999,089 $4,470,954 $4,122,271
============================================================================================================
Composition Of Loan Portfolio By Type
Commercial 25.3% 23.4% 23.4% 23.0% 22.5%
Commercial real estate 28.5 22.9 21.8 20.9 19.8
Residential real estate 29.8 37.6 39.3 38.3 37.8
Consumer credit 16.4 16.1 15.5 17.8 19.9
- ------------------------------------------------------------------------------------------------------------
Page 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION (Continued)
The adequacy of the allowance for loan losses is evaluated on a quarterly basis.
This evaluation is based on reviews of specific loans, changes in the loan type
and volume of the portfolio given current and anticipated economic conditions,
and historical loss experience. Loans are charged off when they are deemed
uncollectible.
Charge-offs, net of recoveries, totaled $23.9 million in 2000 compared to $9.5
million in 1999 and $11.2 million in 1998. In 2000 commercial loan charge-offs
accounted for the bulk of the increase and were focused in a limited number of
credits. The 1999 improvement in net charge-offs occurred primarily within the
consumer portfolio. Net charge-offs to average loans ranged from 0.17% to 0.39%
over the last five years.
Old National makes monthly provisions at levels deemed necessary to provide
assurance that the allowance for loan losses is sufficient to absorb estimated
losses inherent in the loan portfolio. For homogeneous loans, such as
residential mortgage and consumer, provision levels are determined using
historic loss factors. For non-homogeneous loans, management allocates specific
losses to loans in the highest risk categories and provides for the remainder of
the portfolio using historical loss factors. In addition, provisions reflect
other risks affecting the loan portfolio, such as economic conditions in the
geographic area, specific industry financial conditions, and experience of
lending staff. The provision for loan losses in 2000 totaled $29.8 million,
including a $3.8 million provision related to mergers, compared to $14.8 million
in 1999 and $15.0 million in 1998. The higher 2000 provision levels reflected
continued strong loan growth and the deterioration and subsequent charge-off of
a few large credits.
Table 10 below summarizes activity in the allowance for loan losses for the
years 1996 through 2000, along with an allocation of the year-end balances and
related statistics for the allowance and net charge-offs.
ALLOWANCE FOR LOAN LOSSES (TABLE 10)
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
Analysis
Balance, January 1 $ 65,685 $ 59,371 $ 55,567 $ 49,580 $ 48,120
Loans charged off:
Commercial 19,561 6,977 4,938 3,825 4,756
Commercial and residential real estate 1,500 1,524 1,312 736 852
Consumer credit 8,284 8,358 8,772 9,523 10,227
- -------------------------------------------------------------------------------------------------------------
Total charge-offs 29,345 16,859 15,022 14,084 15,835
- -------------------------------------------------------------------------------------------------------------
Recoveries on charged-off loans:
Commercial 2,402 2,975 1,374 1,652 2,327
Commercial and residential real estate 510 443 376 1,209 350
Consumer credit 2,546 3,957 2,089 1,945 1,895
- -------------------------------------------------------------------------------------------------------------
Total recoveries 5,458 7,375 3,839 4,806 4,572
- -------------------------------------------------------------------------------------------------------------
Net charge-offs 23,887 9,484 11,183 9,278 11,263
Provision charged to expense 29,803 14,798 14,987 15,265 12,723
Acquired from acquisition 2,232 1,000 -- -- --
- -------------------------------------------------------------------------------------------------------------
Balance, December 31 $ 73,833 $ 65,685 $ 59,371 $ 55,567 $ 49,580
=============================================================================================================
Average loans for the year $6,087,869 $5,425,148 $4,744,091 $4,318,362 $3,994,795
Allowance/year-end loans 1.16% 1.15% 1.17% 1.23% 1.19%
Allowance/average loans 1.21 1.21 1.25 1.29 1.24
Net charge-offs/average loans 0.39 0.17 0.24 0.21 0.28
Allocation At December 31
Commercial $ 30,372 $ 28,386 $ 26,277 $ 26,211 $ 23,131
Commercial and residential real estate 32,578 26,474 15,513 15,210 14,594
Consumer credit 10,883 10,825 17,581 14,146 11,855
- -------------------------------------------------------------------------------------------------------------
Total $ 73,833 $ 65,685 $ 59,371 $ 55,567 $ 49,580
=============================================================================================================
Page 24
Assets determined by the various evaluation processes to be under-performing
receive special attention by Old National management. Under-performing assets
consist of: 1) nonaccrual loans where the ultimate collectibility of interest is
uncertain, but the principal is considered collectible; 2) loans which have been
renegotiated to provide for a reduction or deferral of interest or principal
because the borrower's financial condition deteriorated; 3) loans with principal
or interest past due ninety (90) days or more; and 4) foreclosed properties.
Each month, problem loan reports are prepared and reviewed at both the community
and holding company levels. These reports include loans that show indications of
being unable to meet debt obligations in the normal course of business, carry
other characteristics deemed by bank management to warrant special attention, or
have been criticized by regulators in the examination process. Besides the loans
classified as under-performing, management closely monitors loans totaling
$211.1 million at December 31, 2000, for the borrowers' ability to comply with
present repayment terms. For these loans the existing conditions do not warrant
either a partial charge-off or classification as nonaccrual. Management believes
it has taken a conservative approach in its evaluation of under-performing
credits and the loan portfolio in general, both in acknowledging the portfolio's
general condition and in establishing the allowance for loan losses. Interest
income of approximately $3.0 million would have been recorded in 2000 on
nonaccrual and restructured loans if such loans had been accruing interest
throughout the year in accordance with their original terms. The amount of
interest income actually recorded in 2000 on nonaccrual and restructured loans
was $2.7 million.
Under-performing assets as of year-end totaled $33.1 million in 2000 and $28.6
million in 1999. As a percent of total loans and foreclosed properties,
under-performing assets at December 31 ranged between 0.50% and 0.61%. While the
under - performing assets rose $4.5 million in 2000, the total under-performing
asset ratio increased only 2 basis points to 0.52%. The growth in nonaccruals in
1998 reflected a conservative change to the nonaccrual policy and not a general
deterioration of the portfolio. At December 31, 2000, the allowance for loan
losses to under-performing assets ratio stood at 223% compared to 229% in 1999
and 191% in 1998. Said in another way, at December 31, 2000, Old National had
set aside $2.23 for every dollar of under-performing assets.
Table 11 below presents the components of under-performing assets for the last
five years.
UNDER-PERFORMING ASSETS (TABLE 11)
- --------------------------------------------------------------------------------------------------------
December 31,
(dollars in thousands) 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
Nonaccrual loans $22,690 $19,286 $19,074 $12,626 $14,680
Renegotiated loans 227 450 458 920 895
Past due loans (90 days or more):
Commercial 2,269 1,797 1,113 1,787 1,356
Commercial and residential real estate 2,795 2,462 5,802 3,077 2,835
Consumer 1,524 947 1,388 1,288 963
- --------------------------------------------------------------------------------------------------------
Total past due loans 6,588 5,206 8,303 6,152 5,154
- --------------------------------------------------------------------------------------------------------
Foreclosed properties 3,616 3,700 3,184 3,987 3,332
- --------------------------------------------------------------------------------------------------------
Total under-performing assets $33,121 $28,642 $31,019 $23,685 $24,061
========================================================================================================
Under-performing assets/total loans and
foreclosed properties 0.52% 0.50% 0.61% 0.52% 0.58%
Allowance for loan losses/under-performing assets 222.92 229.33 191.40 234.61 206.06
- --------------------------------------------------------------------------------------------------------
Deposits And Other Funding
Customer deposits include noninterest-bearing demand, regular savings and NOW
accounts, money market accounts, and time deposits. Average deposits increased
8.3% in 2000 compared to 8.6% in 1999. Deposit growth in 2000 was concentrated
in time deposits after strong 1999 growth in all deposit categories. Other time
deposits increased 14.3% in 2000 and 10.1% in 1999 and included brokered
certificates of deposit of $829.4 million in 2000, $489.2 million in 1999, and
$235.9 million in 1998.
Table 12 below presents changes in the average balances of all funding sources
for the years 1998 through 2000.
FUNDING SOURCES - AVERAGE BALANCE (TABLE 12)
- ------------------------------------------------------------------------------------
% Change From
Prior Year
(dollars in thousands) 2000 1999 1998 2000 1999
- ------------------------------------------------------------------------------------
Demand deposits $ 636,636 $ 613,366 $ 566,757 3.8% 8.2%
NOW deposits 820,067 805,371 760,607 1.8 5.9
Savings deposits 479,314 484,645 457,345 (1.1) 6.0
Money market deposits 712,215 712,401 665,078 -- 7.1
Time deposits 3,542,215 3,099,269 2,814,812 14.3 10.1
- ------------------------------------------------------------------------------------
Total deposits 6,190,447 5,715,052 5,264,599 8.3 8.6
Short-term borrowings 708,840 583,209 413,230 21.5 41.1
Other borrowings 878,262 771,552 598,136 13.8 29.0
- ------------------------------------------------------------------------------------
Total funding sources $7,777,549 $7,069,813 $6,275,965 10.0% 12.6%
====================================================================================
Page 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION (Continued)
Table 13 below presents a maturity distribution for certificates of deposit with
denominations of $100,000 and over.
CERTIFICATES OF DEPOSIT, $100,000 AND OVER (TABLE 13)
- ---------------------------------------------------------------------------
Maturity Distribution
----------------------------------------
Year-End 1-90 91-180 181-365 Beyond
(dollars in thousands) Balance Days Days Days 1 Year
- ---------------------------------------------------------------------------
2000 $845,637 $431,275 $253,691 $76,107 $84,564
1999 524,511 248,264 111,960 97,515 66,772
1998 482,393 205,644 107,255 89,980 79,514
- ---------------------------------------------------------------------------
Borrowings
Other short-term sources of funds include overnight borrowings from other
financial institutions, securities sold under agreements to repurchase which
generally mature within 30 days, and borrowings under U.S. Treasury demand
notes. Collectively, the average short-term borrowings rose $125.6 million in
2000 and $170.0 million in 1999.
Table 14 below presents the distribution of Old National's short-term borrowings
and related weighted average interest rates for each of the last three years.
SHORT-TERM BORROWINGS (TABLE 14)
- ------------------------------------------------------------------------
Other
Funds Repurchase Short-term
(dollars in thousands) Purchased Agreements Borrowings
- ------------------------------------------------------------------------
2000
Outstanding at year-end $248,844 $239,064 $ 71,915
Average amount
outstanding 355,140 268,505 85,195
Maximum amount
outstanding at any
month-end 568,998 288,347 233,197
Weighted average interest rate:
During year 6.47% 5.26% 6.30%
End of year 6.49 5.18 6.46
- ------------------------------------------------------------------------
1999
Outstanding at year-end $379,611 $234,088 $ 65,760
Average amount outstanding 172,227 302,137 108,845
Maximum amount
outstanding at any
month-end 379,611 355,961 234,447
Weighted average interest rate:
During year 5.21% 4.65% 5.08%
End of year 4.90 5.62 4.36
- ------------------------------------------------------------------------
1998
Outstanding at year-end $298,250 $197,189 $ 20,397
Average amount outstanding 86,020 217,301 109,909
Maximum amount
outstanding at any
month-end 298,250 236,324 183,577
Weighted average interest rate:
During year 5.37% 4.90% 5.95%
End of year 5.34 4.52 5.03
- ------------------------------------------------------------------------
Other borrowings generally provide longer term funding and include both short-
and long-term debt from the Federal Home Loan Bank ("FHLB"), medium term notes,
convertible subordinated debentures, and trust preferred securities, if not
separately listed.
In 1997 Old National registered a $150 million medium term note program and
issued $10 million in 1998 and $54.3 million in 1997. These borrowings, combined
with prior issuances, totaled $83.8 million at December 31, 2000, and have a
weighted average effective interest rate of 6.81% with maturities between 2001
and 2007. The funds were used to reduce Old National's lines of credit.
Holders of Old National's 8% convertible debentures converted to common stock
the remaining $12.8 million in 2000 and $9.3 million in 1999. These conversions
resulted in the issuance of common stock shares totaling 1,034,000 in 2000 and
749,000 in 1999 with a corresponding increase in shareholders' equity.
In March 2000, Old National issued through a subsidiary
$50 million of trust preferred securities which mature in 2030 and have a 9.50%
annual distribution rate. These securities may be redeemed on or after March 15,
2005, and qualify as Tier 1 capital for regulatory purposes.
CAPITAL RESOURCES
Shareholders' equity totaled $626.3 million or 7.1% of total assets at December
31, 2000, and $585.0 million or 7.2% at December 31, 1999. Old National paid
$0.65 cash dividends per share in 2000 which totaled $38.8 million (restated for
the 5% stock dividend paid in January 2001).
Treasury shares were repurchased to provide shares for reissuance under Old
National's dividend reinvestment and stock purchase plan and for stock
dividends. Treasury shares repurchased reduced shareholders' equity by $131.9
million in 2000 and $78.5 million in 1999. Shares reissued pursuant to the above
programs and in connection with conversions of Old National's subordinated
debentures added to shareholders' equity $28.2 million in 2000 and $27.4 million
in 1999. Stock issued for purchase transactions, such as the Permanent
acquisition and insurance agencies, totaled $90.8 million in 2000 and $18.1
million in 1999.
Page 26
The accumulated other comprehensive income component of equity is primarily
comprised of unrealized security gains (losses), net of tax. The rising rate
environment during late 1999 produced a negative or loss of $29.3 million. In
late 2000 rates fell and generated a positive or gain of $2.0 million by
December 31, 2000. This basically represents the estimated unrealized gain or
loss, net of tax, on Old National's available-for-sale investment security
portfolio at year-end.
Old National and the banking industry are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can elicit certain mandatory actions by regulators
that, if undertaken, could have a direct material effect on Old National's
financial statements. Capital adequacy in the banking industry is evaluated
primarily by the use of ratios that measure capital against assets and certain
off-balance-sheet items. Certain ratios weight these assets based on risk
characteristics according to regulatory accounting practices. At December 31,
2000, Old National and its bank subsidiaries exceeded the regulatory minimums
and met the regulatory definition of well-capitalized. Capital ratios for Old
National and its significant bank subsidiary and the regulatory guidelines are
presented in Table 15 below.
CAPITAL STRUCTURE AND REGULATORY GUIDELINES (TABLE 15)
- --------------------------------------------------------------------------------------------------------------------------------
December 31, Regulatory Guidelines
(dollars in thousands) 2000 1999 1998 MinimumWell-Capitalized
- --------------------------------------------------------------------------------------------------------------------------------
OLD NATIONAL BANCORP
Tier 1 Capital
Shareholders' equity(1) $ 624,387 $ 614,316 $ 585,718
Plus: guaranteed preferred beneficial interests in
subordinated debentures 50,000 -- --
Less: intangibles (93,337) (33,531) (27,393)
- ----------------------------------------------------------------------------------------------------------
Tier 1 capital 581,050 580,785 558,325
Tier 2 Capital
Subordinated debentures -- 12,782 21,963
Qualifying allowance for loan losses 73,833 65,255 58,652
- ----------------------------------------------------------------------------------------------------------
Total capital $ 654,883 $ 658,822 $ 638,940
==========================================================================================================
Risk adjusted assets $ 6,291,155 $ 5,457,624 $ 4,894,768
Tier 1 capital to risk-adjusted assets 9.24% 10.64% 11.41% 4.00% N/A
Total capital to risk-adjusted assets 10.41 12.07 13.05 8.00 N/A
Tier 1 capital to quarterly average assets (leverage ratio) 6.68 7.46 8.01 4.00 N/A
- --------------------------------------------------------------------------------------------------------------------------------
OLD NATIONAL BANK
Tier 1 Capital
Shareholders' equity(1) $ 679,691 $ 501,390 $ 487,653
Less: intangibles (75,072) (3,801) (4,849)
- ----------------------------------------------------------------------------------------------------------
Tier 1 capital 604,619 497,589 482,804
Tier 2 Capital
Qualifying allowance for loan losses 71,159 52,125 47,885
- ----------------------------------------------------------------------------------------------------------
Total capital $ 675,778 $ 549,714 $ 530,689
Risk adjusted assets $ 6,263,810 $ 4,322,406 $ 3,959,096
==========================================================================================================
Tier 1 capital to risk-adjusted assets 9.65% 11.51% 12.19% 4.00% 6.00%
Total capital to risk-adjusted assets 10.79 12.72 13.40 8.00 10.00
Tier 1 capital to quarterly average assets (leverage ratio) 6.94 7.63 8.13 3.00 5.00
- --------------------------------------------------------------------------------------------------------------------------------
(1) Excludes unrealized gains (losses) on investment securities.
N/A = Not Applicable
Page 27
CONSOLIDATED BALANCE SHEET
- ------------------------------------------------------------------------------------------------------
December 31,
(dollars and shares in thousands) 2000 1999
- ------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks $ 202,600 $ 210,255
Money market investments 13,549 16,686
- ------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 216,149 226,941
Investment securities - available-for-sale, at fair value 1,811,563 1,821,438
Loans, net of unearned income 6,348,313 5,714,688
Allowance for loan losses (73,833) (65,685)
- ------------------------------------------------------------------------------------------------------
Net loans 6,274,480 5,649,003
- ------------------------------------------------------------------------------------------------------
Premises and equipment, net 131,793 117,501
Accrued interest receivable 71,490 61,442
Other assets 262,273 209,687
- ------------------------------------------------------------------------------------------------------
Total assets $ 8,767,748 $ 8,086,012
======================================================================================================
Liabilities
Deposits:
Noninterest-bearing demand $ 711,413 $ 643,553
Interest-bearing:
NOW 841,935 831,589
Savings 478,400 496,247
Money market 761,179 680,953
Time 3,790,979 3,309,727
- ------------------------------------------------------------------------------------------------------
Total deposits 6,583,906 5,962,069
- ------------------------------------------------------------------------------------------------------
Short-term borrowings 559,823 679,459
Accrued expenses and other liabilities 84,513 91,434
Guaranteed preferred beneficial interests in subordinated debentures 50,000 --
Other borrowings 863,165 768,055
- ------------------------------------------------------------------------------------------------------
Total liabilities 8,141,407 7,501,017
- ------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 12)
Shareholders' Equity
Preferred stock, 2,000 shares authorized, no shares issued or outstanding -- --
Common stock, $1 stated value, 150,000 shares authorized, 60,311 and
56,518 shares issued and outstanding, respectively 60,311 56,518
Capital surplus 457,267 395,414
Retained earnings 106,809 162,384
Accumulated other comprehensive income, net of tax 1,954 (29,321)
- ------------------------------------------------------------------------------------------------------
Total shareholders' equity 626,341 584,995
- ------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 8,767,748 $ 8,086,012
======================================================================================================
The accompanying notes to consolidated financial statements are an integral part
of this statement.
Page 28
CONSOLIDATED STATEMENT OF INCOME
- ---------------------------------------------------------------------------------------------
Years Ended December 31,
(dollars and shares in thousands, except per share data) 2000 1999 1998
- ---------------------------------------------------------------------------------------------
Interest Income
Loans including fees:
Taxable $ 508,886 $ 443,211 $ 410,774
Nontaxable 12,606 8,894 6,066
Investment securities:
Taxable 88,009 84,341 78,493
Nontaxable 27,155 27,508 26,423
Money market investments 1,619 1,859 1,963
- ---------------------------------------------------------------------------------------------
Total interest income 638,275 565,813 523,719
- ---------------------------------------------------------------------------------------------
Interest Expense
Deposits 267,612 212,710 207,112
Short-term borrowings 42,446 28,550 19,252
Other borrowings 58,346 43,311 35,333
- ---------------------------------------------------------------------------------------------
Total interest expense 368,404 284,571 261,697
- ---------------------------------------------------------------------------------------------
Net interest income 269,871 281,242 262,022
Provision for loan losses 29,803 14,798 14,987
- ---------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 240,068 266,444 247,035
- ---------------------------------------------------------------------------------------------
Noninterest Income
Trust fees 22,566 21,722 19,621
Service charges on deposit accounts 34,337 25,022 20,480
Loan fees 5,124 6,630 6,679
Insurance premiums and commissions 11,502 6,615 5,960
Investment product fees 7,125 6,416 5,363
Bank-owned life insurance 4,350 4,260 3,860
Net securities gains (losses) (119) 2,637 1,090
Other income 16,828 9,848 9,845
- ---------------------------------------------------------------------------------------------
Total noninterest income 101,713 83,150 72,898
- ---------------------------------------------------------------------------------------------
Noninterest Expense
Salaries and employee benefits 130,236 129,419 113,012
Occupancy 14,198 13,396 11,903
Equipment 17,378 17,081 16,864
Marketing 7,958 8,056 7,061
FDIC insurance premiums 1,255 928 699
Processing 10,070 11,391 10,213
Communication and transportation 10,236 9,346 8,402
Professional fees 5,294 8,761 5,229
Intangible amortization 4,546 2,645 2,632
Other 26,863 22,874 23,073
- ---------------------------------------------------------------------------------------------
Subtotal 228,034 223,897 199,088
Merger and restructuring costs 37,503 -- --
- ---------------------------------------------------------------------------------------------
Total noninterest expense 265,537 223,897 199,088
- ---------------------------------------------------------------------------------------------
Income before income taxes 76,244 125,697 120,845
Income taxes 14,548 32,440 35,402
- ---------------------------------------------------------------------------------------------
Net income from continuing operations 61,696 93,257 85,443
Discontinued operations -- 4,101 (9,854)
- ---------------------------------------------------------------------------------------------
Net income $ 61,696 $ 97,358 $ 75,589
=============================================================================================
Net Income From Continuing Operations Per Common Share
Basic $ 1.03 $ 1.55 $ 1.42
Diluted 1.03 1.51 1.38
=============================================================================================
Net Income Per Common Share
Basic $ 1.03 $ 1.62 $ 1.26
Diluted 1.03 1.58 1.23
=============================================================================================
Weighted Average Number Of Common Shares Outstanding
Basic 59,621 60,124 60,020
Diluted 60,200 62,175 62,598
=============================================================================================
The accompanying notes to consolidated financial statements are an integral part
of this statement.
Page 29
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulated
Other Total
Common Stock Capital Retained Comprehensive Shareholders' Comprehensive
(dollars and shares in thousands) Shares Amount Surplus Earnings Income Equity Income
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 38,079 $ 38,079 $ 314,488 $ 208,844 $ 18,188 $ 579,599
Net income -- -- -- 75,589 -- 75,589 $ 75,589
Unrealized net security gain and
reclassification adjustment,
net of $1,724 tax -- -- -- -- 1,943 1,943 1,943
Cash dividends -- -- -- (30,526) -- (30,526)
5% stock dividend 1,366 1,366 71,552 (72,918) -- --
Stock repurchased (975) (975) (45,776) (379) -- (47,130)
Stock reissued under dividend
reinvestment, stock options, and
stock purchase plans 507 507 17,605 (182) -- 17,930
Stock reissued due to conversion of
subordinated debentures 415 415 8,029 -- -- 8,444
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 39,392 39,392 365,898 180,428 20,131 605,849 $ 77,532
===========
Net income -- -- -- 97,358 -- 97,358 $ 97,358
Unrealized net security loss and
reclassification adjustment,
net of $32,566 tax -- -- -- -- (49,698) (49,698) (49,698)
Mergers 648 648 10,538 6,715 246 18,147
Cash dividends -- -- -- (35,557) -- (35,557)
3 for 2 stock split and 5%
stock dividend 17,600 17,600 68,851 (86,451) -- --
Stock repurchased (2,582) (2,582) (75,917) -- -- (78,499)
Stock reissued under dividend
reinvestment, stock options, and
stock purchase plans 749 749 17,487 (109) -- 18,127
Stock reissued due to conversion of
subordinated debentures 711 711 8,557 -- -- 9,268
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 56,518 56,518 395,414 162,384 (29,321) 584,995 $ 47,660
===========
Net income -- -- -- 61,696 -- 61,696 $ 61,696
Unrealized net security gain and
reclassification adjustment, net
of $20,515 tax -- -- -- -- 31,275 31,275 31,275
Mergers 3,412 3,412 87,399 -- -- 90,811
Cash dividends -- -- -- (38,768) -- (38,768)
5% stock dividend 2,872 2,872 75,631 (78,503) -- --
Stock repurchased (4,336) (4,336) (127,572) -- -- (131,908)
Stock reissued under dividend
reinvestment, stock options, and
stock purchase plans 811 811 14,770 -- -- 15,581
Stock reissued due to conversion of
subordinated debentures 1,034 1,034 11,625 -- -- 12,659
- -------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2000 60,311 $ 60,311 $ 457,267 $ 106,809 $ 1,954 $ 626,341 $ 92,971
===============================================================================================================================
The accompanying notes to consolidated financial statements are an integral part
of this statement.
Page 30
CONSOLIDATED STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
(dollars in thousands) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income $ 61,696 $ 97,358 $ 75,589
- -------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation 13,746 13,473 13,548
Amortization of intangible assets 4,546 2,645 2,632
Net premium amortization on investment securities (2,098) 1,194 2,627
Provision for loan losses 29,803 14,798 14,987
Net securities gains (losses) 15,396 (2,637) (1,090)
(Gain) loss on sale of other assets 6,452 (2,792) (1,780)
Residential real estate loans originated for sale (332,855) (66,318) (143,715)
Proceeds from sale of mortgage loans 324,988 69,061 142,457
Increase in interest receivable (10,048) (3,682) (1,885)
(Increase) decrease in other assets 12,759 (22,181) (16,649)
Increase (decrease) in accrued expenses and other liabilities (19,977) 19,605 11,461
- -------------------------------------------------------------------------------------------------------------------------
Total adjustments 42,712 23,166 22,593
- -------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by operating activities 104,408 120,524 98,182
- -------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Cash and cash equivalents of subsidiaries acquired 13,397 8,070 82,252
Purchase of investment securities available-for-sale (758,464) (1,159,107) (681,522)
Proceeds from maturities of investment securities available-for-sale 285,045 616,035 506,209
Proceeds from sales of investment securities available-for-sale 636,706 421,903 133,519
Net loans made to customers (339,608) (646,564) (540,414)
Proceeds from sale of premises and equipment 4,561 2,028 684
Purchase of premises and equipment (27,060) (24,153) (18,401)
- -------------------------------------------------------------------------------------------------------------------------
Net cash flows used in investing activities (185,423) (781,788) (517,673)
- -------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Net increase (decrease) in deposits, short-term and other borrowings:
Noninterest-bearing demand deposits 63,081 (19,670) 60,118
Savings, NOW and money market deposits (30,930) 23,672 60,788
Time deposits 270,005 485,904 78,064
Short-term borrowings (119,636) 163,623 51,280
Other borrowings 5,298 101,578 246,956
Net payments on medium term notes (12,500) -- --
Proceeds from guaranteed preferred beneficial interests in
subordinated debentures 50,000 -- --
Cash dividends paid (38,768) (35,557) (30,526)
Common stock repurchased (131,908) (78,499) (46,661)
Common stock reissued, net of shares used to convert subordinated debentures 15,581 18,127 17,462
- -------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by financing activities 70,223 659,178 437,481
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (10,792) (2,086) 17,990
Cash and cash equivalents at beginning of period 226,941 229,027 211,037
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 216,149 $ 226,941 $ 229,027
=========================================================================================================================
The accompanying notes to consolidated financial statements are an integral part
of this statement.
Page 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis Of Presentation
The accompanying consolidated financial statements include
the accounts of Old National Bancorp ("Old National") and its wholly owned
affiliates and have been prepared in conformity with generally accepted
accounting principles and prevailing practices within the banking industry. Such
principles require management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, and the disclosures of contingent
assets and liabilities at the date of the financial statements and amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
All significant intercompany transactions and balances have been eliminated. The
statements have been restated to reflect mergers accounted for by the
pooling-of-interests method of accounting. A summary of the more significant
accounting and reporting policies used in preparing the statements is presented
below.
Nature Of Operations
Old National, a bank holding company headquartered in Evansville, Indiana,
operates in Indiana, Illinois, Kentucky, Tennessee, and Ohio. Through its bank
and non-bank affiliates, Old National provides to its customers an array of
financial services including loan, deposit, trust, investment, and insurance
products.
Investment Securities
Old National has classified all investments as available-for-sale. Accordingly,
these securities are recorded at fair value with the unrealized gains and
losses, net of tax effect, recorded as a separate component of shareholders'
equity. Realized gains and losses affect income and the prior fair value
adjustments are reclassed.
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity. Gains and losses on the sale of
available-for-sale securities are determined using the specific-identification
method.
Loans
Loans are stated at the principal amount outstanding. Interest income is accrued
on the principal balances of loans outstanding, except on discounted loans which
are recognized using other methods that generally approximate the interest
method. A loan is generally placed on nonaccrual status when principal or
interest becomes 90 days past due unless it is well secured and in the process
of collection, or earlier when concern exists as to the ultimate collectibility
of principal or interest. Interest accrued during the current year on such loans
is reversed against earnings. Interest accrued in the prior year, if any, is
charged to the allowance for loan losses.
Allowance For Loan Losses
The allowance for loan losses is maintained at a level believed adequate by
management to absorb probable losses in the consolidated loan portfolio.
Management's evaluation of the adequacy of the allowance is an estimate based on
reviews of individual loans, the risk characteristics of the various categories
of loans given current economic conditions and other factors such as historical
loss experience, the financial condition of the borrower, fair market value of
the collateral, and growth of the loan portfolio. The allowance is increased
through a provision charged to operating expense. Loans deemed to be
uncollectible are charged to the allowance. Recoveries of loans previously
charged off are added to the allowance.
A loan is considered impaired when it is probable that contractual interest or
principal payments will not be collected either for the amounts or by the dates
as scheduled in the loan agreement. Old National's policy for recognizing income
on impaired loans is to accrue interest unless a loan is placed on nonaccrual
status.
Premises And Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is charged to operating expense over the useful lives of the
assets, principally on the straight-line method. Maintenance and repairs are
expensed as incurred while major additions and improvements are capitalized.
Other Assets
Real estate properties acquired as a result of foreclosure are valued at the
lower of the recorded investment in the related loan or fair value of the
property less estimated cost to sell. The recorded investment is the sum of the
outstanding principal loan balance, any accrued interest which has not been
received, and acquisition cost associated with the loan. Any excess recorded
investment over the fair value of the property received is charged to the
allowance for loan losses. Any subsequent write-downs are charged to expense, as
are the costs of operating the properties. Such costs are not material to Old
National's results of operation.
Total acquisition costs over the fair value of net assets acquired was $96.9
million at December 31, 2000, and is being amortized on the straight-line basis
over original periods ranging from 20 to 25 years. The recoverability of such
assets and their carrying value are periodically evaluated.
Net Income Per Share
Basic net income per share is computed by dividing net income
by the weighted average number of common shares outstanding during each year,
adjusted to reflect all stock dividends (Note 9) and all mergers accounted for
as pooling-of-interests as if they had occurred at the beginning of the earliest
year presented. Diluted net income per share is computed as above and assumes
the conversion of outstanding subordinated debentures (Note 10). On the next
page is a table reconciling basic and diluted earnings per share ("EPS") for the
years ended 2000, 1999 and 1998:
Page 32
EARNINGS PER SHARE RECONCILIATION
Years Ended December 31,
2000 1999 1998
(dollars and shares in thousands,----------------------- -------------------------- ---------------------------
except per share data) Income Shares Amount Income Shares Amount Income Shares Amount
- ---------------------------------------------------------------------------------------------------------------------
Basic EPS
Income from continuing
operations $61,696 59,621 $1.03 $93,257 60,124 $1.55 $85,443 60,020 $1.42
===== ===== =====
Effect Of Dilutive Securities
Stock options -- 202 -- 349 -- 524
8% convertible debentures 130 377 834 1,703 1,138 2,054
- ------------------------------------------------- ----------------- -----------------
Diluted EPS
Income from continuing
operations and assumed
conversions $61,826 60,200 $1.03 $94,091 62,176 $1.51 $86,581 62,598 $1.38
====================================================================================================================
Income Taxes
Deferred tax assets and liabilities are recorded based on differences between
the financial statement and tax bases of assets and liabilities at income tax
rates currently in effect. For Old National, this results in a net deferred tax
asset which relates principally to differences in the recognition of loan losses
for book and tax purposes.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, Old National's affiliate banks have entered
into off-balance-sheet financial instruments consisting of commitments to extend
credit, commitments under credit card arrangements, commercial letters of
credit, and standby letters of credit. Such financial instruments are recorded
in the financial statements when they become payable.
Statement Of Cash Flows Data
For the purpose of presentation in the accompanying Statement of Cash Flows,
cash and cash equivalents are defined as cash, due from banks, and money market
investments, which have maturities less than 90 days. Cash paid during the years
ended December 31, 2000, 1999, and 1998, for interest was $363.8 million, $274.5
million, and $256.6 million, respectively. Total income tax payments during
2000, 1999, and 1998, were $26.4 million, $32.3 million, and $30.3 million,
respectively.
Impact Of Accounting Changes
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("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. As issued, the
Statement was effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133." The statement was effective upon issuance and it
amends SFAS No. 133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000 (January 1, 2001 for Old National). On June 15,
2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an Amendment of FASB Statement No.
133." The Statement addresses a limited number of issues causing implementation
difficulties for numerous entities that are required to implement SFAS No. 133.
SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, continues to be
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. SFAS No. 133 expanded the derivative definition. Old National adopted SFAS
No. 133 on January 1, 2001. A $35 thousand reduction to other comprehensive
income was recorded as a transition adjustment.
In September 2000, FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing Financial Assets and Extinguishment of Liabilities" that replaced SFAS
No. 125. While much of SFAS No. 125 was incorporated into SFAS No. 140, certain
standards for accounting for securitizations and other transfers of financial
assets and disclosures were revised. This statement is effective for transfers
made after March 31, 2001, and certain disclosures are effective for years
ending after December 15, 2000. Old National does not believe the impact of this
statement to be material to its financial conditions and results of operations.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 2000
presentation. Such reclassifications had no effect on net income.
Page 3
NOTE 2 - BUSINESS COMBINATIONS AND DISCONTINUED OPERATIONS
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 financial 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 financial statements for the period ended March 10, 2000,
was $1.3 million.
On July 27, 2000, Old National and Permanent Bancorp ("Permanent") of
Evansville, Indiana, consummated a merger in which Old National issued 3,301,047
common shares in exchange for all of the outstanding common shares of Permanent.
The transaction was accounted for as a purchase. Intangible assets of $60.5
million were recorded from this purchase and are being amortized no longer than
20 years. As part of the regulatory approval process for the transaction, the
Department of Justice required two Permanent branches in Evansville to be sold
to another banking company. These two branches had total deposits of
approximately $41 million, and were divested on November 17, 2000.
The following table presents a restatement of net interest income, net income,
and basic net income from continuing operations per share to reflect these
pooling-of-interests transactions (dollars in thousands, except per share data):
- --------------------------------------------------------------------------------------------------
As Restated
Original Southern Heritage ANB Herein
- --------------------------------------------------------------------------------------------------
1999
Net interest income $238,387 $ -- $ 10,871 $ 31,984 $281,242
Net income from continuing operations 82,694 -- 2,851 7,712 93,257
Basic net income per share, as restated
for stock dividends 1.64 1.55
1998
Net interest income $214,850 $ 10,071 $ 9,557 $ 27,544 $262,022
Net income from continuing operations 71,718 2,417 2,852 8,456 85,443
Basic net income per share, as restated
for stock dividends 1.50 1.42
- --------------------------------------------------------------------------------------------------
Discontinued Operations
In April 1998, Old National announced it would develop exit strategies from its
sub-prime lending affiliate, Consumer Acceptance Corporation ("CAC"). During
June 1998, the sale of CAC's sub-prime auto loans was finalized, which closed in
July 1998 and was treated as discontinued operations on the consolidated
financial statements. The loss on discontinued operations included interest
expense of $2.6 million in 1998. Interest expense was directly attributable to
the debt associated with this business unit. During 1999, contingencies related
to the sale were favorably resolved. Income (loss) from discontinued operations
for the years ended December 31, 1999, and 1998 were as follows (dollars in
thousands):
DISCONTINUED OPERATIONS
- ---------------------------------------------------------------
Years Ended December 31,
1999 1998
- ---------------------------------------------------------------
Loss before taxes $ -- $(7,943)
Income tax benefit -- (3,183)
- ---------------------------------------------------------------
Loss from discontinued operations -- (4,760)
- ---------------------------------------------------------------
Gain (loss) before taxes from disposal 6,835 (8,489)
Income tax expense (benefit) 2,734 (3,395)
- ---------------------------------------------------------------
Gain (loss) from disposal 4,101 (5,094)
- ---------------------------------------------------------------
Income (loss) from
discontinued operations $ 4,101 $(9,854)
===============================================================
Income (loss) from discontinued
operations per common share:
Basic $ 0.07 $ (0.16)
Diluted 0.07 (0.15)
===============================================================
Page 34
NOTE 3 - INVESTMENT SECURITIES
The following tables summarize the amortized cost and fair value of the
available-for-sale investment securities portfolio at December 31, 2000 and
1999, and the corresponding amounts of unrealized gains and losses therein
(dollars in thousands):
- ----------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------
December 31, 2000
U.S. Treasury $ 5,270 $ 37 $ -- $ 5,307
U.S. Government agencies and corporations 629,216 3,617 (3,011) 629,822
Mortgage-backed securities 486,685 2,413 (7,744) 481,354
State and political subdivisions 538,295 9,071 (1,322) 546,044
Other securities 149,038 621 (623) 149,036
- ----------------------------------------------------------------------------------------------
Total $1,808,504 $ 15,759 $ (12,700) $1,811,563
==============================================================================================
December 31, 1999
U.S. Treasury $ 39,830 $ 48 $ (612) $ 39,266
U.S. Government agencies and corporations 363,901 17 (11,831) 352,087
Mortgage-backed securities 833,148 409 (32,506) 801,051
State and political subdivisions 553,253 4,409 (8,482) 549,180
Other securities 80,038 34 (218) 79,854
- ----------------------------------------------------------------------------------------------
Total $1,870,170 $ 4,917 $ (53,649) $1,821,438
==============================================================================================
Proceeds from sales of investment securities available-for-sale were $636.7
million in 2000 and $421.9 million in 1999. In 2000 realized gains were $0.1
million and losses were $15.5 million. Losses of $15.3 million were related to
restructuring. In 1999 realized gains and losses were $3.3 million and $0.7
million, respectively.
At December 31, investment securities were pledged to secure public and other
funds with a carrying value of $1,031 million in 2000 and $944 million in 1999.
The amortized cost and fair value of the investment securities portfolio at
December 31, 2000 and 1999, are shown below by expected maturity. Expected
maturities may differ from contractual maturities if borrowers have the right to
call or prepay obligations with or without call or prepayment penalties.
- -----------------------------------------------------------------------
2000 1999
Amortized Fair Amortized Fair
(dollars in thousands) Cost Value Cost Value
- -----------------------------------------------------------------------
Maturity
Within one year $ 524,990 $ 523,577 $ 203,428 $ 200,167
One to five years 410,127 414,975 528,125 522,828
Five to ten years 644,908 642,966 738,773 712,338
Beyond ten years 228,479 230,045 399,844 386,105
- -----------------------------------------------------------------------
Total $1,808,504 $1,811,563 $1,870,170 $1,821,438
=======================================================================
NOTE 4 - LOANS
The composition of loans at December 31, 2000 and 1999, by lending
classification was as follows (dollars in thousands):
- ----------------------------------------------------
December 31,
2000 1999
- ----------------------------------------------------
Commercial $1,606,509 $1,338,255
Commercial real estate 1,810,805 1,306,312
Residential real estate 1,890,872 2,148,974
Consumer credit, net 1,040,127 921,147
- ----------------------------------------------------
Total loans $6,348,313 $5,714,688
====================================================
Through its affiliates, Old National makes loans to customers in various
industries including manufacturing, agribusiness, transportation, mining,
wholesaling, and retailing, predominantly in its five-state region. The loan
portfolio is diversified with no single industry exceeding 10% of the total.
Page 35
Executive officers and directors of Old National and significant subsidiaries
and their related interests are loan customers of Old National's affiliate banks
in the normal course of business. These loans are made on substantially the same
terms, including interest rates and collateral, as those prevailing at the same
time for comparable transactions with unrelated parties and involve no unusual
risk of collectibility. An analysis of the 2000 activity of these loans is as
follows (dollars in thousands):
- --------------------------------------------------------------
2000
- --------------------------------------------------------------
Balance, January 1 $107,632
New loans 342,464
Repayments (375,583)
Officer and director changes (172)
- --------------------------------------------------------------
Balance, December 31 $ 74,341
==============================================================
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses during the years 2000, 1999, and 1998
was as follows (dollars in thousands):
- ----------------------------------------------------------------------
December 31,
2000 1999 1998
- ----------------------------------------------------------------------
Balance at beginning of year $ 65,685 $ 59,371 $ 55,567
Additions:
Provision charged to expense 29,803 14,798 14,987
Acquired from acquisition 2,232 1,000 --
Deductions:
Loans charged off 29,345 16,859 15,022
Recoveries (5,458) (7,375) (3,839)
- ----------------------------------------------------------------------
Net charge-offs 23,887 9,484 11,183
- ----------------------------------------------------------------------
Balance at end of year $ 73,833 $ 65,685 $ 59,371
======================================================================
At December 31, 2000, the recorded investment in loans for which impairment has
been recognized was $13.9 million with no related allowance and $126.8 million
with $28.8 million of related allowance. At December 31, 1999, the recorded
investment in loans for which impairment has been recognized was $9.1 million
with no related allowance and $65.5 million with $15.3 million of related
allowance.
For the year ended December 31, 2000, the average balance of impaired loans was
$100.6 million, for which $10.9 million of interest was recorded. For the year
ended December 31, 1999, the average balance of impaired loans was $62.6
million, for which $5.0 million of interest was recorded.
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of certain financial instruments, both assets and liabilities
recognized and not recognized in the consolidated balance sheet, are required to
be disclosed when it is practicable to estimate fair value. The following
methods and assumptions were used to estimate the fair value of each type of
financial instrument.
Cash, Due From Banks And Money Market Investments
For these instruments, the carrying amount is a reasonable estimate of fair
value.
Investment Securities
For investment securities, fair values are based on quoted market prices, if
available. For securities where quoted prices are not available, fair value is
estimated based on market prices of similar securities.
Loans
The fair value of loans is estimated by discounting future cash flows using
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
Deposits
The fair value of noninterest-bearing demand deposits and savings, NOW, and
money market deposits is the amount payable as of the reporting date. The fair
value of fixed-maturity certificates of deposit is estimated using rates
currently offered for deposits with similar remaining maturities.
Short-Term Borrowings
Federal funds purchased and securities sold under agreements to repurchase
generally have an original term to maturity of 30 days or less and, therefore,
their carrying amount is a reasonable estimate of fair value.
Other Borrowings
The fair value of Federal Home Loan Bank ("FHLB") borrowings and medium term
notes is estimated using rates currently offered for obligations with similar
remaining maturities. The fair value of trust preferred securities is estimated
using rates currently available to Old National for debt with similar terms and
remaining maturities.
Off-Balance-Sheet Financial Instruments
Loan commitments and standby letters of credit are generally short-term and,
therefore, their carrying amount is a reasonable estimate of their fair value.
The estimated carrying and fair values of Old National's financial instruments
as of December 31, 2000, are as follows (dollars in thousands):
- ----------------------------------------------------------------------
Carrying Fair
Value Value
- ----------------------------------------------------------------------
Financial Assets
Cash, due from banks and
money market investments $ 216,149 $ 216,149
Investment securities 1,811,563 1,811,563
Loans, net 6,348,313 6,361,238
Financial Liabilities
Deposits $6,583,906 $6,601,873
Short-term borrowings 559,823 559,823
Other borrowings 913,165 923,176
Off-Balance Sheet Financial Instruments
Commitments to extend credit $1,152,835
Letters of credit 36,216
Interest rate swaps 1,560
- ----------------------------------------------------------------------
Page 36
NOTE 7 - INCOME TAXES
Following is a summary of the major items comprising the difference in taxes
computed at the federal statutory rate and as recorded for continuing operations
in the consolidated statement of income for the years ended December 31:
- ----------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------
Provision at statutory rate 35.0% 35.0% 35.0%
Tax exempt income (17.3) (9.8) (9.1)
State income taxes 0.4 2.7 3.7
State apportionment changes -- (1.1) --
Other, net 1.0 (1.0) (0.3)
- ----------------------------------------------------------
Actual tax rate 19.1% 25.8% 29.3%
==========================================================
The provision for income taxes consists of the following components for the
years ended December 31 (dollars in thousands):
- -----------------------------------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------
Income taxes currently payable:
Federal $ 21,068 $ 28,446 $ 25,970
State 758 5,565 6,727
Deferred income taxes related to:
Provision for loan losses (2,915) (1,831) (2,456)
Other, net (4,363) 2,994 (1,417)
- -----------------------------------------------------------------------
Deferred income tax expense
(benefit) (7,278) 1,163 (3,873)
- -----------------------------------------------------------------------
Provision for income taxes $ 14,548 $ 35,174 $ 28,824
=======================================================================
Provision Detail:
Continuing operations $ 14,548 $ 32,440 $ 35,402
Discontinued operations -- 2,734 (6,578)
- -----------------------------------------------------------------------
Total $ 14,548 $ 35,174 $ 28,824
=======================================================================
Significant components of net deferred tax assets at December 31 are as follows
(dollars in thousands):
- -----------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------
Deferred Tax Assets
Allowance for loan losses,
net of recapture $ 27,269 $ 24,106
Benefit plan accruals 7,978 6,846
Unrealized loss on available-
for-sale investment securities -- 19,411
AMT credit 6,000 --
Purchase accounting 3,034 650
- -----------------------------------------------------------------
Total deferred tax assets 44,281 51,013
- -----------------------------------------------------------------
Deferred Tax Liabilities
Premises and equipment (2,427) (2,942)
Accretion on investment securities (1,114) (664)
Unrealized gain on available-
for-sale investment securities (1,104) --
Lease receivable, net (7,546) (5,620)
Mortgage servicing rights (1,421) (294)
Other, net (3,267) (1,130)
- -----------------------------------------------------------------
Total deferred tax liabilities (16,879) (10,650)
- -----------------------------------------------------------------
Net deferred tax assets $ 27,402 $ 40,363
=================================================================
NOTE 8 - EMPLOYEE BENEFIT PLANS
Retirement Plan
Old National has a noncontributory defined benefit retirement plan covering
substantially all full-time employees. Retirement benefits are based on years of
service and compensation during the highest paid five years of employment. Old
National's policy is to contribute at least the minimum funding requirement
determined by the plan's actuary.
The following table sets forth the plan's funded status and the amount
recognized in the consolidated balance sheet at December 31, 2000, 1999, and
1998 and includes the impact of acquisitions when they are added to the plan
(dollars in thousands):
- ------------------------------------------------------------------------
2000 1999 1998
- ------------------------------------------------------------------------
Change In Benefit Obligations
Balance at January 1 $ 30,811 $ 32,233 $ 27,746
Service cost 2,998 2,813 2,353
Interest cost 2,694 2,155 2,070
Acquisitions 9,192 -- --
Benefits paid (4,096) (3,182) (4,022)
Actuarial (gain) loss 2,234 (3,208) 4,086
- ------------------------------------------------------------------------
Balance at December 31 43,833 30,811 32,233
- ------------------------------------------------------------------------
Change In Plan Assets
Fair value at January 1 30,152 28,694 24,138
Actual return on plan assets 315 3,450 5,359
Employer contributions 133 1,269 3,305
Transfers 13,662 80 84
Benefits paid (4,096) (3,182) (4,022)
Administrative expenses (219) (159) (170)
- ------------------------------------------------------------------------
Fair value at December 31 39,947 30,152 28,694
- ------------------------------------------------------------------------
Funded status (3,886) (659) (3,539)
Unrecognized:
Net actuarial (gain) loss (2,670) (3,430) 1,106
Transition asset (1,724) (1,765) (2,127)
Prior service cost 31 329 388
- ------------------------------------------------------------------------
Accrued benefit cost $ (8,249) $ (5,525) $ (4,172)
========================================================================
Assumptions as of December 31:
Discount rate 7.75% 7.75% 7.25%
Expected return on plan assets 8.00 8.00 8.00
Rate of compensation increase 5.00 5.00 5.00
- ------------------------------------------------------------------------
The net pension expense and its components for the years ended December 31 were
as follows (dollars in thousands):
- ------------------------------------------------------------------------
2000 1999 1998
- ------------------------------------------------------------------------
Service cost $ 2,998 $ 2,813 $ 2,353
Interest cost 2,694 2,155 2,070
Expected return on plan assets (2,851) (2,131) (1,866)
Amortization of prior service cost (23) 58 58
Amortization of transitional asset (396) (361) (362)
Recognized actuarial loss (gain) (89) 88 18
- ------------------------------------------------------------------------
Net pension expense $ 2,333 $ 2,622 $ 2,271
========================================================================
Page 37
Profit Sharing Plan
Old National has a profit sharing plan for all employees who meet eligibility
requirements. Contributions to the plan are made when certain consolidated
profit conditions are met. Employees may participate by contributing a
percentage of their salary, a portion of which is matched by Old National.
The profit sharing expense was $5.7 million in 2000, $4.7 million in 1999, and
$4.5 million in 1998.
Restricted Stock Plan
Old National has a restricted stock plan which covers certain officers. Shares
are earned each year based on the achievement of net income targets. Shares vest
over a four-year period. Unvested shares are subject to certain restrictions and
risk of forfeiture by the participants. Shares vesting totaled 53,754 in 2000;
85,704 in 1999; and 54,818 in 1998. Expense recorded in 2000, 1999, and 1998 was
$1.5 million, $2.3 million, and $1.9 million, respectively.
NOTE 9 - SHAREHOLDERS' EQUITY
Stock Dividend
A 5% stock dividend was declared on December 7, 2000, and distributed on January
30, 2001. All average share and per share amounts have been retroactively
adjusted to reflect this stock dividend.
Dividend Reinvestment And Stock Purchase Plan
Old National has a dividend reinvestment and stock purchase plan under which
common shares issued may be either repurchased shares or authorized and
previously unissued shares. As of December 31, 2000, 500 thousand authorized and
unissued common shares were reserved for issuance under the plan.
Shareholder Rights Plan
Old National has adopted a Shareholder Rights Plan whereby one right was
distributed for each outstanding share of Old National's common stock. The
rights become exercisable on the tenth day following a public announcement that
a person has acquired or intends to acquire beneficial ownership of 20% or more
of Old National's outstanding common stock. Upon exercising the rights, the
holder is entitled to buy 1/100 of a share of Junior Preferred Stock at $60 for
every right held. Upon the occurrence of certain events, the rights may be
redeemed by Old National at a price of $.01 per right.
In the event an acquiring party becomes the beneficial owner of 20% or more of
Old National's outstanding shares, rights holders (other than the acquiring
person) may purchase two shares of Old National common stock for the price of
one share at the then market price. If Old National is acquired and is not the
surviving corporation, or if Old National survives a merger but has all or part
of its common stock exchanged, each rights holder will be entitled to acquire
shares of the acquiring company with a value of two times the then exercise
price of the rights for each right held.
NOTE 10 - FINANCING ACTIVITIES
Short-Term Borrowings
At December 31, 2000, Old National had $25.0 million in an unsecured line of
credit with an unaffiliated bank, which
was unused. This line bears interest at the lender's federal funds rate plus 50
basis points. During the years 2000, 1999, and 1998, the average interest rates
on various lines of credit were 7.32%, 5.93%, and 6.25%, respectively. The lines
of credit included various arrangements to maintain compensating balances or pay
fees.
For additional details concerning short-term borrowings, see Table 14 on page 26
in Management's Discussion and Analysis.
Federal Home Loan Bank
At December 31, 2000, Old National had borrowed
$779.4 million from various FHLB's. Floating-rate borrowings totaled $185.6
million and will mature between 2001 and 2013. The remaining borrowings had a
fixed interest rate and will mature between 2001 and 2019. The weighted average
rates were 6.35% and 5.71% at December 31, 2000 and 1999, respectively. These
borrowings are secured by investment securities and mortgage loans up to 150% of
outstanding debt. At December 31, 1999, the outstanding balance was $658.9
million.
Medium Term Notes
At December 31, Old National had medium term notes outstanding of $83.8 million
in 2000 and $96.3 million in 1999 with remaining maturities ranging from one to
seven years and fixed interest rates ranging from 6.40% to 7.03%.
Convertible Subordinated Debentures
Old National called for redemption its 8% convertible subordinated debentures on
May 14, 2000. Shares totaling 1,034,000 were issued during 2000 from conversions
of the remaining debentures. At December 31, 1999, Old National had $12.8
million outstanding. During 1999, $9.3 million principal amount of debentures
was converted into 749,000 common stock shares.
Guaranteed Preferred Beneficial Interests
In Subordinated Debentures
During March 2000, Old National authorized $200 million
of trust preferred securities and issued $50 million 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 9.50%, 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.
Page 38
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.
NOTE 11 - INTEREST RATE CONTRACTS
Old National uses interest rate contracts such as interest rate swaps to manage
its interest rate risk. These contracts are designated as hedges of specific
assets and liabilities. The net interest receivable or payable on swaps is
accrued and recognized as an adjustment to the interest income or expense of the
hedged asset or liability. The premium paid for an interest rate cap is included
in the basis of the hedged item and is amortized as an adjustment to the
interest income or expense on the related asset or liability.
At December 31, 2000, Old National had interest rate swaps with notional value
of $175 million. The contract is an exchange of interest payments with no effect
on the principal amount of the underlying hedged liability. The fair value of
the swap contracts were $1.6 million at December 31, 2000. Old National pays the
counterparty a variable rate based on three-month LIBOR and receives a fixed
rate ranging from 5.50% to 7.23%. The contracts terminate on or prior to May 3,
2009.
At December 31, 1999, Old National had interest rate swaps with notional value
of $75 million. The fair value of the swap contracts was ($3.7) million at
December 31, 1999. Old National pays the counterparty a variable rate based on
three-month LIBOR and receives a fixed rate ranging from 5.375% to 7.00%. The
contracts terminate on or prior to May 3, 2009.
Old National is exposed to losses if it is in the receiving position and a
counterparty fails to make payments under the contract. Old National anticipates
that the counterparties will be able to fully satisfy their obligations under
the agreements. Old National minimizes its credit risk by obtaining collateral
if the exposure exceeds $1 million on certain contracts and by monitoring the
credit standing of the counterparties.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Leases
Old National rents certain premises and equipment under operating leases which
expire at various dates. Many of these leases require the payment of property
taxes, insurance premiums, maintenance, and other costs. In some cases, rentals
are subject to increase in relation to a cost-of-living index. Total rental
expense was $5.6 million in 2000, $5.1 million in 1999, and $4.7 million in
1998.
Following is a summary of future minimum lease commitments at December 31, 2000
(dollars in thousands):
2001 $3,298
2002 2,980
2003 2,636
2004 1,248
2005 999
2006 and after 7,694
Letters And Lines Of Credit
In the normal course of business, Old National's banking affiliates have entered
into various agreements to extend credit, such as loan commitments of $1,153
million, and letters of credit of $36 million at December 31, 2000. These
commitments are not reflected in the consolidated financial statements. No
material losses are expected to result from these transactions.
Litigation
At December 31, 2000, various legal actions and proceedings were pending against
Old National and its affiliate banks. These actions and proceedings are
incidental to the banking business and are not expected to have a material
adverse effect upon the consolidated financial position or results of operations
of Old National or its affiliates.
NOTE 13 - REGULATORY RESTRICTIONS
Restrictions On Cash And Due From Banks
Old National's affiliate bank is required to maintain reserve balances on hand
and with the Federal Reserve Bank which are noninterest bearing and unavailable
for investment purposes. The reserve balances at December 31 were $49.5 million
in 2000 and $21.7 million in 1999.
Restrictions On Transfers From Affiliate Banks
Regulations limit the amount of dividends an affiliate bank can declare in any
year without obtaining prior regulatory approval. At December 31, 2000, prior
regulatory approval would be required for all affiliate banks. Such approval has
been regularly provided since all affiliate banks exceed the regulatory
definition of well-capitalized.
Capital Adequacy
For additional information on capital adequacy see Table 15 in Management's
Discussion and Analysis on page 27.
Page 39
NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS
The following are the condensed parent company only financial statements of Old
National Bancorp (dollars in thousands):
OLD NATIONAL BANCORP (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEET
- --------------------------------------------------------------
December 31,
2000 1999
- --------------------------------------------------------------
Assets
Deposits in affiliate banks $ 102 $ 2,151
Investment in affiliates:
Banks, including purchase
accounting intangible assets of
$5,661 in 2000 and $6,221 in 1999 720,764 614,912
Non-banks 5,617 15,802
Advances to affiliates 11,153 43,089
Other assets 33,046 34,262
- --------------------------------------------------------------
Total assets $770,682 $710,216
==============================================================
Liabilities And Shareholders' Equity
Short-term borrowings $ -- $ 5,000
Other liabilities 10,541 11,139
Convertible subordinated debentures -- 12,782
Medium term notes 83,800 96,300
Guaranteed preferred
beneficial interests in
subordinated debentures 50,000 --
Shareholders' equity 626,341 584,995
- --------------------------------------------------------------
Total liabilities and
shareholders' equity $770,682 $710,216
==============================================================
OLD NATIONAL BANCORP (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF INCOME
- ------------------------------------------------------------------------
Years Ended December 31,
2000 1999 1998
- ------------------------------------------------------------------------
Income
Dividends from affiliates $ 108,737 $ 97,681 $ 94,727
Other income 577 5,905 2,860
Other income from affiliates 21,212 10,730 11,763
- ------------------------------------------------------------------------
Total income 130,526 114,316 109,350
- ------------------------------------------------------------------------
Expense
Interest on borrowings 10,136 8,440 9,653
Amortization of intangibles 560 587 715
Other expenses 25,497 25,345 17,328
- ------------------------------------------------------------------------
Total expense 36,193 34,372 27,696
- ------------------------------------------------------------------------
Income before income taxes
and equity in undistributed
earnings of affiliates 94,333 79,944 81,654
Income tax benefit (5,248) (9,182) (5,299)
- ------------------------------------------------------------------------
Income before equity in
undistributed earnings
of affiliates 99,581 89,126 86,953
Equity in undistributed
earnings of affiliates (37,885) 8,232 (11,364)
- ------------------------------------------------------------------------
Net income $ 61,696 $ 97,358 $ 75,589
========================================================================
OLD NATIONAL BANCORP (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF CASH FLOWS
- ----------------------------------------------------------------------------
Years Ended December 31,
2000 1999 1998
- ----------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income $ 61,696 $ 97,358 $ 75,589
Adjustments to reconcile net
income to cash provided
by operating activities:
Depreciation 888 947 896
Amortization of
intangible assets 560 587 715
(Increase) decrease in
other assets 651 60,178 (78,632)
Increase (decrease) in
other liabilities (598) (1,760) 2,756
Equity in undistributed
earnings of affiliates 37,885 (8,232) 11,364
- ----------------------------------------------------------------------------
Total adjustments 39,386 51,720 (62,901)
- ----------------------------------------------------------------------------
Net cash flows provided by
operating activities 101,082 149,078 12,688
- ----------------------------------------------------------------------------
Cash Flows From Investing Activities
Net advances to affiliates 19,910 (50,014) 59,825
Purchase of premises
and equipment (446) (725) (736)
- ----------------------------------------------------------------------------
Net cash flows provided by
(used in) investing activities 19,464 (50,739) 59,089
- ----------------------------------------------------------------------------
Cash Flows From Financing Activities
Net payments on
short-term borrowings (5,000) (2,250) (9,758)
Net payments on
medium term notes (12,500) -- (2,000)
Proceeds from
guaranteed preferred
beneficial interest in
subordinated debentures 50,000 -- --
Cash dividends paid (38,768) (35,557) (30,526)
Common stock repurchased (131,908) (78,499) (46,661)
Common stock reissued,
net of shares used to convert
subordinated debentures 15,581 18,127 17,462
- ----------------------------------------------------------------------------
Net cash flows used in
financing activities (122,595) (98,178) (71,483)
- ----------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents (2,049) 161 294
Cash and cash equivalents at
beginning of period 2,151 1,990 1,696
- ----------------------------------------------------------------------------
Cash and cash equivalents
at end of period $ 102 $ 2,151 $ 1,990
============================================================================
Page 40
NOTE 15 - SEGMENT INFORMATION
Old National has been divided into two reportable segments: community banking
and treasury. Our community banks provide a wide range of financial services as
discussed on page 15 of Management's Discussion and Analysis. Treasury manages
investments and obtains non-deposit funding. The accounting policies of the
segments are the same as those described in Note 1. Intersegment sales and
transfers are not significant. The charter consolidation during 1999 impacted
the internal reporting and makes prior years' financial data not comparable to
the new format.
Summarized financial information concerning segments is
shown in the following table, based on continuing operations. The other column
includes insignificant non-bank affiliates and intercompany eliminations.
- ------------------------------------------------------------------------
Community
Banking Treasury Other Total
(dollars in thousands)
- ------------------------------------------------------------------------
2000
Net interest
income $ 293,873 $ (21,440) $ (2,562) $ 269,871
Income
tax expense
(benefit) 32,279 (2,860) (14,871) 14,548
Segment
profit (loss) 68,893 24,129 (31,326) 61,696
Total assets 6,738,249 1,950,280 79,219 8,767,748
========================================================================
1999
Net interest
income $ 259,677 N/A $ 21,565 $ 281,242
Income
tax expense 21,595 N/A 10,845 32,440
Segment profit 67,568 N/A 25,689 93,257
Total assets 6,573,016 N/A 1,512,996 8,086,012
========================================================================
1998
Net interest
income $ 265,144 N/A $ (3,122) $ 262,022
Income
tax expense
(benefit) 40,813 N/A (5,411) 35,402
Segment
profit (loss) 93,641 N/A (8,198) 85,443
Total assets 7,263,232 N/A 71,039 7,334,271
========================================================================
N/A Not Available
NOTE 16 - MERGER AND RESTRUCTURING COSTS
During the first quarter of 2000, 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. During
the third quarter, Old National completed an asset sale and reinvestment program
designed to shorten the duration of its investment and fixed-rate mortgage loan
portfolios. Approximately $600 million of mortgage-backed securities and
residential mortgage loans were sold during the quarter with $500 million of the
proceeds reinvested in shorter duration investments and the remainder of the net
proceeds used to reduce borrowings and fund commercial loan growth. The
components of the charges are shown below (dollars in thousands):
- -------------------------------------------------------------------
Year Ended
December 31, 2000
- -------------------------------------------------------------------
Professional fees $ 5,744
Severance and related costs 4,501
Fixed asset write-downs 3,687
Losses on sale of securities 15,277
Losses on sale of loans 6,407
Other 1,887
- -------------------------------------------------------------------
Included in noninterest expense 37,503
- -------------------------------------------------------------------
Provision for loan losses 3,801
- -------------------------------------------------------------------
Total $41,304
===================================================================
Page 41
To The Shareholders And The Board Of Directors
Of Old National Bancorp:
In our opinion, based on our audits and the reports of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of income, of changes in shareholders' equity and of cash flows present fairly,
in all material respects, the financial position of Old National Bancorp and
affiliates (the "Company") at December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. The consolidated financial
statements give retroactive effect to the merger of Old National Bancorp and
Heritage Financial Services, Inc. on March 1, 2000, and the merger of Old
National Bancorp and ANB Corporation and subsidiaries on March 10, 2000, in
transactions accounted for as poolings of interests, as described in Note 2 to
the consolidated financial statements. We did not audit the financial
statements of Heritage Financial Services, Inc. or ANB Corporation and
subsidiaries, which statements reflect total assets of $246,352,205 and
$880,001,000, respectively, as of December 31, 1999 and net income of $2,850,723
and $7,712,000, respectively, for the year then ended. Those statements were
audited by other auditors whose reports thereon have been furnished to us, and
our opinion expressed herein, insofar as it relates to the amounts included for
Heritage Financial Services, Inc. and ANB Corporation and subsidiaries, is
based solely on the reports of the other auditors. We conducted our audits of
these statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits and the reports of other auditors provide a reasonable
basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
January 24, 2001
To The Shareholders And The Board Of Directors
Of Old National Bancorp:
We have audited the consolidated balance sheet of Old National Bancorp (an
Indiana Corporation) and affiliates as of December 31, 1998, and the related
accompanying consolidated statement of income, change in shareholders' equity
and cash flow for the year ended December 31, 1998. These consolidated financial
statements are the responsibility of the Old National Bancorp's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We did not audit the financial statements of ANB Corporation or Heritage
Financial Services, Inc. included in the consolidated financial statements of
Old National Bancorp, which statements reflect total assets constituting 9.7
percent and 2.8 percent, respectively, and net income from continuing operations
constituting 9.9 percent and 3.3 percent, respectively, of the related
consolidated totals in 1998. These statements were audited by other auditors
whose reports thereon have been furnished to us, and our opinion expressed
herein, insofar as it relates to the amounts included for ANB Corporation and
Heritage Financial Services, Inc. is based solely upon the reports of other
auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit and the reports of other auditors
provide a reasonable basis for our opinion.
In our opinion, based upon our audit and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Old National Bancorp and
affiliates as of December 31, 1998 and the results of their operations and their
cash flow for the year ended December 31, 1998, after giving retroactive effect
to the merger with ANB Corporation and Heritage Financial Services, Inc. as
described in Note 2, all in conformity with accounting principles generally
accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
January 27, 1999 (except with respect to the Southern Bancshares LTD, ANB
Corporation and Heritage Financial Services, Inc. business combinations
discussed in Note 2, as to which the dates are January 29, 1999, March 10, 2000
and March 1, 2000, respectively).
Page 42
REPORT OF MANAGEMENT
MANAGEMENT'S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
Management is responsible for the preparation of the financial statements and
related financial information appearing in this annual report. The financial
statements and notes have been prepared in conformity with generally accepted
accounting principles and include some amounts which are estimates based upon
currently available information and management's judgment of current conditions
and circumstances. Financial information throughout this annual report is
consistent with that in the financial statements.
System Of Internal Accounting Controls
Management maintains a system of internal accounting
controls which is believed to provide, in all material respects, reasonable
assurance that assets are safeguarded against loss from unauthorized use or
disposition, transactions are properly authorized and recorded, and the
financial records are reliable for preparing financial statements and
maintaining accountability for assets. In addition, Old National has a corporate
code of conduct under which employees are to maintain high levels of ethical
business standards. All systems of internal accounting controls are based on
management's judgment that the cost of controls should not exceed the benefits
to be achieved and that no system can provide absolute assurance that control
objectives are achieved. Management believes Old National's system provides the
appropriate balance between costs of controls and the related benefits.
In order to monitor compliance with this system of controls, Old National
maintains an extensive internal audit program. Internal audit reports are issued
to appropriate officers and significant audit exceptions, if any, are reviewed
with management and the Audit Committee of the Board of Directors.
Audit Committee Of The Board
The Board of Directors, through an Audit Committee comprised solely of outside
directors, oversees management's discharge of its financial reporting
responsibilities. The Audit Committee meets regularly with the Company's
independent public accountants, PricewaterhouseCoopers LLP and the managers of
internal auditing and loan review. During these meetings, the committee has the
opportunity to meet privately with the independent public accountants as well as
with internal audit and loan review personnel to review accounting, auditing,
loan, and financial reporting matters. The appointment of the independent public
accountants is made by the Board of Directors upon the recommendation of the
Audit Committee.
Independent Accountants
The financial statements in this annual report have been audited by
PricewaterhouseCoopers LLP for the purpose of determining that the financial
statements are presented fairly in all material respects. PricewaterhouseCoopers
LLP's report on the financial statements appears on page 42. Their audit
included a consideration of Old National's system of internal accounting
controls, for the purpose of setting the scope and timing of their auditing
procedures.
Page 43
OLD NATIONAL DIRECTORS AND EXECUTIVE MANAGEMENT
OLD NATIONAL BANCORP
Board of Directors
James A. Risinger, Phelps L. Lambert
Chairman, President & CEO Ronald B. Lankford
David L. Barning Lucien H. Meis
Richard J. Bond Louis L. Mervis
Alan W. Braun John N. Royse
Wayne A. Davidson Marjorie Z. Soyugenc
Larry E. Dunigan Kelly N. Stanley
David E. Eckerle Charles D. Storms
Andrew E. Goebel
OLD NATIONAL BANK
Board of Directors
James A. Risinger, Phelps L. Lambert
Chairman, President & CEO Judd C. Peck
Alan W. Braun George S. Ridgway
W. Curtis Brighton J. Steven Rudolph
Steven E. Chancellor James R. Schrecongost
Michael V. Crouch Kathryn J. Simonds
Larry E. Dunigan Marjorie Z. Soyugenc
John M. Dunn Kelly N. Stanley
Andrew E. Goebel Charles D. Storms
Harold A. Harrell John A. Stovall
EXECUTIVE MANAGEMENT
James A. Risinger, Chairman,
President and CEO
Thomas F. Clayton, Executive
Vice President
Michael R. Hinton, Executive
Vice President
Daryl D. Moore, Executive
Vice President and Chief
Credit Officer
John S. Poelker, Executive
Vice President and Chief
Financial Officer
James R. Schrecongost,
Chairman of Old National
Trust Company and
American National
Trust and Investment
Management Company
Regional Executives
David E. Eckerle,
Central Region
Jerome J. Gassen,
Eastern Region
John W. Stanley,
Evansville Region
William R. Britt,
Northern Region
Sanford L. Peyton,
Southern Region
Joe R. Kesler,
Southern Illinois Region
Bank Presidents
Central Region Eastern Region
Jasper, Indiana Marion, Indiana
Paul R. Nolting Larry A. Myers
Lawrenceville, Illinois Muncie, Indiana
Bradley P. Wolfe Jerome J. Gassen
Paoli, Indiana Union City, Ohio
John W. Key James C. Gower
Vincennes, Indiana Winchester, Indiana
P. R. Sweeney Chris L. Talley
Washington, Indiana
Eric J. Lane
Evansville Region Northern Region
Carmi, Illinois Bloomington, Indiana
James L. Whetstone Dan L. Doan
Evansville, Indiana Clinton, Indiana
John W. Stanley Robert J. Rendaci
Henderson, Kentucky Covington, Indiana
Keith A. Utley Robert D. Smith
Mt. Carmel, Illinois Danville, Illinois
Robert A. Reasor Richard T. Pittelkow
Mt. Vernon, Indiana Greencastle, Indiana
Steven A. Bennett Terry M. Osborne
Tell City, Indiana Oblong, Illinois
Jonathan Hartz Steven H. Holliday
Rockville, Indiana
Gregory A. Harbison
Terre Haute, Indiana
William R. Britt
Southern Region Southern Illinois Region
Clarksville, Tennessee Carbondale, Illinois
Earl O. Bradley, III Joe R. Kesler
Fulton, Kentucky Harrisburg, Illinois
Robert K. Burrow Ronald W. Gibbons
Greenville, Kentucky Mt. Vernon, Illinois
Peggy M. Williams Randall L. Forby
Madisonville, Kentucky
R. Steven Cox
Morganfield, Kentucky
Jerry R. Ruark
Owensboro, Kentucky
Sanford L. Peyton
Other Subsidiary Presidents
American National Trust
and Investment Management Company
Kim T. Stacey
Old National Service Division
Annette W. Hudgions
Old National Trust Company
John S. Staser
ONB Insurance Group, Inc.
Don W. Scott
ONB Investments
Kenneth J. Ellsperman
[MAP OF COMMUNITIES WITH OLD NATIONAL BANKING CENTERS APPEARS HERE]
Page 44
Shareholder information Market Makers
The following firms make a market
Annual Meeting in Old National Bancorp's stock:
The annual meeting of shareholders Herzog, Heine, Geduld, Inc.
will be held Thursday, April 19, 2001, J.J.B. Hilliard, W.L. Lyons
at 10:30 a.m. Central Daylight Time, Keefe, Bruyette & Woods, Inc.
at The Centre, Evansville, Indiana. Knight Securities L.P.
Lehman Brothers, Inc.
Corporate Office McDonald & Company Sec., Inc.
420 Main Street NatCity Investments, Inc.
Evansville, Indiana 47708 Salomon Smith Barney
812-464-1434 Sandler O'Neill & Partners
Web site: www.oldnational.com Sherwood Securities Corp.
Spear, Leeds & Kellogg
Stock Information
The stock of the company is traded Stock Purchase And Dividend
over-the-counter on the NASDAQ Reinvestment Plan
National Market System under the The company offers a direct stock
ticker symbol OLDB. purchase and dividend reinvestment
plan to all interested investors.
The Stock Transfer Agent is: For information concerning this
Old National Bancorp convenient method of purchasing
Post Office Box 718 shares of stock contact:
Evansville, Indiana 47705-0718 Shareholder Services Department
Old National Bancorp
In December 2000, a 5% stock Post Office Box 718
dividend was declared to shareholders Evansville, Indiana 47705-0718
of record on January 9, 2001. There 812-464-1296
were 25,008 shareholders of record 1-800-677-1749
as of December 31, 2000.
Additional Information
Shareholders and interested investors
may obtain information about the
company upon written request or
by calling:
Lynell J. Walton, CPA
Old National Bancorp
Post Office Box 718
Evansville, Indiana 47705-0718
812-464-1366
Equal Opportunity Employer
The company maintains its commitment
to equal opportunity and affirmative
action in employment and promotion
policies and pledges to recruit, hire,
train, and promote persons in all job
classifications without regard to race,
color, religion, sex, age, or handicap.
The table below lists the NASDAQ price quotes and dividend data for Old National
Bancorp stock over the last two years.*
- ---------------------------------------------------------------------------
Price Per Share Share Dividend
High Low Volume Declared
- ---------------------------------------------------------------------------
2000
First Quarter $31.84 $21.96 6,912,700 $0.16
Second Quarter 33.33 27.14 6,356,600 0.16
Third Quarter 30.06 24.97 4,781,900 0.16
Fourth Quarter 29.41 27.20 3,891,500 0.17
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
1999
- ---------------------------------------------------------------------------
First Quarter $33.41 $27.06 2,171,200 $0.14
Second Quarter 32.96 27.21 2,883,700 0.15
Third Quarter 28.97 24.60 5,694,900 0.15
Fourth Quarter 30.61 26.13 3,380,900 0.16
- ---------------------------------------------------------------------------
*Data adjusted for all stock dividends, including a 5% stock dividend to
shareholders of record on January 9, 2001, distributed on January 30, 2001.