-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mg1E/QNwxg3WSMKnaRjb/sx7Ectn40vxdBEMhWK/M9mm4iWolFCPWaHXlV3a11Dt mNfT/EbSP0oBRCMVnXjzmQ== 0000707179-96-000001.txt : 19960401 0000707179-96-000001.hdr.sgml : 19960401 ACCESSION NUMBER: 0000707179-96-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OLD NATIONAL BANCORP /IN/ CENTRAL INDEX KEY: 0000707179 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 351539838 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-10888 FILM NUMBER: 96540829 BUSINESS ADDRESS: STREET 1: 420 MAIN ST CITY: EVANSVILLE STATE: IN ZIP: 47708 BUSINESS PHONE: 8124641434 MAIL ADDRESS: STREET 1: 420 MAIN STREET CITY: EVANSVILLE STATE: IN ZIP: 47708 FORMER COMPANY: FORMER CONFORMED NAME: OLD NATIONAL BANCORP DATE OF NAME CHANGE: 19920703 10-K 1 SECURITIES & EXCHANGE COMMISSION FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended December 31, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from ________________ to ________________ Commission file Number 0-10888 OLD NATIONAL BANCORP (Exact name of the Registrant as specified in its charter) INDIANA 35-1539838 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 420 Main Street, Evansville, Indiana 47708 (Address of principal executive offices) (Zip Code) The Registrant's telephone number, including area code, (812) 464-1434 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value 8% Subordinated Convertible Debentures, due 2012 Medium Term Notes, Series A The Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and has been subject to such filing requirements for the past 90 days. The aggregate market value (bid price) of the Registrant's voting common stock held by non-affiliates of the Registrant as of February 29, 1996 was approximately $820 million. The total number of shares outstanding as of that date was 22,835,361. The Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held April 18, 1996 is incorporated by reference into Parts I and III of this Form 10-K. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. OLD NATIONAL BANCORP 1995 ANNUAL REPORT ON FORM 10-K Table of Contents PART I. PAGE Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 8 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 9 Item 4. Submission of Matters to a Vote of Security Holders. . . . . 9 PART II. Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . 9 Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . 9 Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . 9 Item 8. Financial Statements and Supplementary Data. . . . . . . . . 9 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . 9 PART III. Item 10. Directors and Executive Officers of the Registrant . . . . . 9 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . .10 Item 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . . . . . . .10 Item 13. Certain Relationships and Related Transactions . . . . . . .10 PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . .10 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 INDEX OF EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . .13 2 OLD NATIONAL BANCORP 1995 ANNUAL REPORT ON FORM 10-K PART I Item 1. BUSINESS Old National Bancorp (the "Registrant") is a multibank holding company incorporated in the State of Indiana and maintains its principal executive offices in Evansville, Indiana. As a bank holding company, the Registrant engages in banking and related activities authorized under the federal Bank Holding Company Act of 1956, as amended. Through its nonbank affiliates, the Registrant provides services incidental to banking, such as data processing, reinsurance of credit life, accident and health insurance of consumer borrowers and property ownership. Since its formation, the Registrant has acquired seventeen banks and one thrift located in Indiana; six banks located in Kentucky; and nine banks and one thrift located in Illinois. Banking Affiliates As of December 31, 1995, the Registrant's affiliate banks operated 118 banking offices throughout Indiana, Illinois, and Kentucky. The following chart lists the affiliate banks by state:
Indiana Kentucky Illinois Clinton State Bank First State Bank (Greenville) First National Bank (Harrisburg) Old National Bank (Evansville) Farmers Bank & Trust Co. Peoples National Bank First Citizens Bank & (Madisonville) (Lawrenceville) Trust Company (Greencastle) Morganfield National Bank Security Bank & Trust Co. People's Bank & Trust Co.(Mt. Vernon) Farmers Bank & Trust Co. (Mt. Carmel) Gibson County Bank (Princeton) (Henderson) Palmer-American National Bank Rockville National Bank City National Bank (Fulton) (Danville) Merchants National Bank (Terre Haute) First National Bank (Oblong) Security Bank & Trust Co. (Vincennes) United Southwest Bank (Washington) Dubois County Bank (Jasper) Bank of Western Indiana (Covington) Indiana State Bank (Terre Haute) Orange County Bank (Paoli) Citizens National Bank (Tell City) ONB Bank (Bloomington)
The Registrant also has acquired Southern Indiana Bank and Trust Company (Newburgh, Indiana), which was merged into Old National Bank; Warrick National Bank (Boonville, Indiana), which was merged into Old National Bank; Bank South, Federal Savings Bank and The Bank of Harrisburg which was merged into First National Bank of Harrisburg; City Financial Bancorp and its three banking subsidiaries which were merged with Palmer-American National Bank; Citizens Union Bank (Central City, Kentucky) which was merged with First State Bank and certain assets of Henderson Home Savings and Loan Association, which were combined with Farmers Bank and Trust Company (Henderson, Kentucky). The 3 Registrant anticipates consummating a merger with a bank in Carmi, Illinois during 1996. The Registrant's affiliate banks are engaged in a wide range of commercial and consumer banking activities, including accepting demand, savings and time deposits; making commercial, consumer and real estate loans; performing fiduciary, trust and money management services; and providing other services relating to the general banking business. Certain of the Registrant's affiliated entities also offer electronic data processing, brokerage and correspondent banking services; issue credit cards; originate, market and service mortgage loans; and rent safe deposit facilities. Regulation and Supervision The Registrant is registered as a bank holding company and is subject to the regulations of the Board of Governors of the Federal Reserve System ("Federal Reserve") under the Bank Holding Company Act of 1956, as amended ("BHC Act"). Bank holding companies are required to file periodic reports with and are subject to periodic examination by the Federal Reserve. The Federal Reserve has issued regulations under the BHC Act requiring a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. It is the policy of the Federal Reserve that, pursuant to this requirement, a bank holding company should stand ready to use its resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity. Additionally, under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a bank holding company is required to guarantee the compliance of any insured depository institution subsidiary that may become "undercapitalized" (as defined in the statute) with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal banking agency up to the lesser of (i) an amount equal to 5% of the institution's total assets at the time the institution became undercapitalized, or (ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with such capital restoration plan. Under the BHC Act, the Federal Reserve has the authority to require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserve's determination that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company. The Registrant is prohibited by the BHC Act from acquiring direct or indirect control of more than 5% of the outstanding shares of any class of voting stock or substantially all of the assets of any bank or savings association or merging or consolidating with another bank holding company without prior approval of the Federal Reserve. The BHC Act also prohibits the Registrant from acquiring control of any bank operating outside the State of Indiana unless such action is specifically authorized by the statutes of the state where the bank to be acquired is located. Additionally, the Registrant is prohibited by the BHC Act from engaging in or acquiring ownership or 4 control of more than 5% of the outstanding shares of any class of voting stock of any company engaged in a nonbanking business unless such business is determined by the Federal Reserve to be so closely related to banking as to be a proper incident thereto. The BHC Act does not place territorial restrictions on the activities of such nonbanking-related activities. Bank holding companies are required to comply with the Federal Reserve's risk-based capital guidelines, which require a minimum ratio of total capital to risk-weighted assets (including certain off-balance sheet activities such as standby letters of credit) of 8%. In addition to the risk-based capital guidelines, the Federal Reserve has adopted a Tier 1 (leverage) capital ratio under which the bank holding company must maintain a minimum level of Tier 1 capital to average total consolidated assets of 3% in the case of bank holding companies which have the highest regulatory examination ratings and are not contemplating significant growth or expansion. All other bank holding companies are expected to maintain a ratio of at least 1% to 2% above the stated minimum. The Registrant's affiliate banks which are national banks are supervised, regulated and examined by the Office of the Comptroller of the Currency ("OCC"). The Registrant's affiliate banks which are state banks chartered in Indiana are supervised, regulated and examined by the Indiana Department of Financial Institutions. The Registrant's affiliate banks chartered in Kentucky are supervised, regulated and examined by the Kentucky Commissioner of Financial Institutions and its affiliate banks chartered in Illinois are supervised, regulated and examined by the Illinois Commissioner of Banks and Trust Companies. In addition, the Registrant's affiliate banks which are state banks and members of the Federal Reserve are supervised and regulated by the Federal Reserve, and those which are not members of the Federal Reserve are supervised and regulated by the Federal Deposit Insurance Corporation ("FDIC"). Each regulator has the authority to issue cease-and- desist orders if it determines that activities of a bank represent an unsafe and unsound banking practice or a violation of law. Both federal and state law extensively regulate various aspects of the banking business such as reserve requirements, truth-in-lending and truth-in- savings disclosure, equal credit opportunity, fair credit reporting, trading in securities and other aspects of banking operations. Current federal law also requires banks, among other things, to make deposited funds available within specified time periods. Insured state-chartered banks are prohibited under FDICIA from engaging as principal in activities that are not permitted for national banks, unless (i) the FDIC determines that the activity would pose no significant risk to the appropriate deposit insurance fund, and (ii) the bank is, and continues to be, in compliance with all applicable capital standards. 5 The FDIC and the OCC have adopted risk-based capital ratio guidelines to which state-chartered banks and national banks under their respective supervision are subject. The guidelines establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations. Risk-based capital ratios are determined by allocating assets and specified off-balance sheet commitments to four risk weighted categories, with higher levels of capital being required for the categories perceived as representing greater risk. Like the capital guidelines established by the Federal Reserve, these guidelines divide a bank's capital into two tiers. Banks are required to maintain a total risk-based capital ratio of 8%. The FDIC or OCC may, however, set higher capital requirements when a bank's particular circumstances warrant. Banks experiencing or anticipating significant growth are expected to maintain capital ratios, including tangible capital positions, well above the minimum levels. All of the Registrant's affiliate banks exceeded the risk-based capital guidelines of the FDIC and OCC as of December 31, 1995. Branching by the Registrant's affiliate banks in Indiana, Kentucky and Illinois is subject to the jurisdiction, and requires the prior approval of, the bank's primary federal regulatory authority and, if the branching bank is a state bank, of the Indiana Department of Financial Institutions, Kentucky Department of Financial Institutions or Illinois Commissioner of Banks and Trust Companies, depending upon the location of the principal office of the bank. The Registrant's affiliate banks are subject to the Federal Reserve Act, which restricts financial transactions between banks and affiliated companies. The statute limits credit transactions between a bank and its executive officers and its affiliates, prescribes terms and conditions for bank affiliate transactions deemed to be consistent with safe and sound banking practices, and restricts the types of collateral security permitted in connection with a bank's extension of credit to an affiliate. FDICIA also requires, among other things, federal bank regulatory authorities to take "prompt corrective action" with respect to banks which do not meet minimum capital requirements. For these purposes, FDICIA establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. FDICIA further directs that each federal banking agency prescribe standards for depository institutions and depository institution holding companies relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, management compensation, a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value of publicly traded shares and such other standards as the agency deemed appropriate. The federal banking agencies have issued certain advance notices of proposed rulemakings, soliciting comments on the implementation of these FDICIA provisions. The Registrant cannot predict 6 in what form such rules will eventually be adopted or what effect such rules will have on its affiliate banks. The deposits of Registrant's affiliate banks are insured up to $100,000 per insured account, by the Bank Insurance Fund ("BIF"), except for deposits acquired in connection with affiliations with savings associations, which deposits are insured by the Savings Association Insurance Fund ("SAIF"). Accordingly, deposit insurance premiums are paid to both BIF and SAIF. FDICIA required the FDIC to issue regulations effective January 1, 1994, which establish a system for setting deposit insurance premiums based upon the risks a particular bank or savings association poses to the deposit insurance funds. Effective January 1, 1993, the FDIC adopted a final rule that implements a risk-based assessment system whereby a base insurance premium will be adjusted according to the capital category and subcategory of an institution to one of three capital categories consisting of (1) well capitalized, (2) adequately capitalized, or (3) undercapitalized, and one of three subcategories consisting of (a) health, (b) supervisory concern, or (c) substantial supervisory concern. An institution's assessment rate will depend upon the capital category and supervisory category to which it is assigned. Prior to June 1, 1995 assessment rates ranged from 0.23% for an institution in the highest category (i.e., well capitalized) to 0.31% for an institution in the lowest category (i.e. undercapitalized and substantial supervisory concern) for both BIF and SAIF. As of June 1, 1995 the BIF rates were adjusted to a range of 0.04% to 0.31%, with most of ONB's banks paying 0.04%. On January 1, 1996, this rate was dropped to 0.0% except for a minimum payment. For deposits insured by SAIF, a one-time recapitalization charge of 0.85% or less may be approved by the U.S. Congress sometime in 1996. ONB has less than 6% of its deposits insured by SAIF. The supervisory subgroup to which an institution is assigned by the FDIC is confidential and may not be disclosed. Deposit insurance assessments may increase depending upon the category and subcategory, if any, to which the bank is assigned by the FDIC. Any increase in insurance assessments could have an adverse effect on the earnings of ONB's affiliate banks. The Riegle Community Development and Regulatory Improvement Act of 1994 ("Act") became law in 1994. The Act contains seven titles pertaining to community development and home ownership protection, small business capital formation, paperwork reduction and regulatory improvement, money laundering and flood insurance. The Act grants authority to several federal agencies to promulgate regulations under the Act. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 allows for interstate banking and interstate branching without regard to whether such activity is permissible under state law. Beginning September 29, 1995, bank holding companies may acquire banks anywhere in the United States subject to certain state restrictions. Beginning June 1, 1997, an insured bank may merge with an insured bank in another state without regard to whether such merger is prohibited by state law. Additionally, an out-of-state bank 7 may acquire the branches of an insured bank in another state without acquiring the entire bank; provided, however, that the law of the state where the branch is located permits such an acquisition. States may permit interstate branching earlier than June 1, 1997, where both states involved in the bank merger expressly permit it by statute. Further, bank holding companies may merge existing bank subsidiaries located in different states into one bank. Additionally, an insured bank subsidiary may act as agent for an affiliated bank or thrift in offering limited banking services (receive deposits, renew time deposits, close loans, service loans and receive payments on loans obligations) both within the same state and across state lines. The Registrant cannot predict with certainty the impact of these new laws on the banking industry generally or on its business or future financial performance. In addition to the matters discussed above, the Registrant's affiliate banks are subject to additional regulation of their activities, including a variety of consumer protection regulations affecting their lending, deposit and collection activities and regulations affecting secondary mortgage market activities. The earnings of financial institutions are also affected by general economic conditions and prevailing interest rates, both domestic and foreign and by the monetary and fiscal policies of the United States Government and its various agencies, particularly the Federal Reserve. Additional legislation and administrative actions affecting the banking industry may be considered by the United States Congress, state legislatures and various regulatory agencies, including those referred to above. It cannot be predicted with certainty whether such legislation or administrative action will be enacted or the extent to which the banking industry in general or the Registrant and its affiliate banks in particular would be affected thereby. Item 2. PROPERTIES The principal office of the Registrant is located in leased space in the multi-story Old National Bank building located at 420 Main Street, Evansville, Indiana. The building is owned by a non-affiliated third party. The Registrant's affiliate banks conduct business primarily from facilities owned by the respective affiliate banks. Of the 118 banking offices operated by the Registrant's affiliate banks, 95 are owned by the banks and 23 are leased from non-affiliated third parties. Old National Realty Company, Inc., a bank-related subsidiary of the Registrant, owns certain real properties in downtown Evansville, Indiana, which generally are incidental to banking operations. It does not engage in real estate brokerage services. Old National Service Corporation, the Registrant's data processing subsidiary, has acquired a commercial building in downtown Evansville. Over the next two years, the data processing operations for the Registrant's affiliate banks, as well as for a certain number of non-affiliated third party customers, will be 8 transferred in-house from outside service bureaus. These operations will be performed primarily in this facility. Item 3. LEGAL PROCEEDINGS None. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders of the Registrant during the fourth quarter of 1995. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Page 52 of the Registrant's Annual Report to Shareholders for the year ended December 31, 1995 is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Page 14 of the Registrant's Annual Report to Shareholders for the year ended December 31, 1995 is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Pages 13 through 30 of the Registrant's Annual Report to Shareholders for the year ended December 31, 1995 are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Pages 32 through 47 of the Registrant's Annual Report to Shareholders for the year ended December 31, 1995 are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT This information is omitted from this report pursuant to General Instruction G of Form 10-K as the Registrant intends to file with the Commission its definitive Proxy Statement pursuant to Regulation 14-A of the Securities Exchange Act of 1934, as amended, not later than 120 days after December 31, 1995. 9 ITEM 11. EXECUTIVE COMPENSATION This information is omitted from this report pursuant to General Instruction G of Form 10-K as the Registrant intends to file with the Commission its definitive Proxy Statement pursuant to Regulation 14-A of the Securities Exchange Act of 1934, as amended, not later than 120 days after December 31, 1995. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This information is omitted from this report pursuant to General Instruction G of Form 10-K as the Registrant intends to file with the Commission its definitive Proxy Statement pursuant to Regulation 14-A of the Securities Exchange Act of 1934, as amended, not later than 120 days after December 31, 1995. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This information is omitted from this report pursuant to General Instruction G of Form 10-K as the Registrant intends to file with the Commission its definitive Proxy Statement pursuant to Regulation 14-A of the Securities Exchange Act of 1934, as amended, not later than 120 days after December 31, 1995. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements: Report of Independent Public Accountants Consolidated Balance Sheet - December 31, 1995 and 1994 Consolidated Statement of Income - Years Ended December 31, 1995, 1994 and 1993 Consolidated Statement of Changes in Shareholders' Equity - Years Ended December 31, 1995, 1994 and 1993 Consolidated Statement of Cash Flows - Years Ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements (b) No reports on Form 8-K were filed with the Commission during the fourth quarter of 1995. (c) Exhibits - The following exhibits are filed herewith: Exhibit 11 - Statement re Computation of Per Share Earnings Exhibit 13 - Annual Report to Shareholders for the year ended December 31, 1995 Exhibit 22 - Subsidiaries of the Registrant Exhibit 24 - Consent of Independent Public Accountants (d) Financial Statement Schedules - This information is omitted since the required information is not applicable to the Registrant. 10 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OLD NATIONAL BANCORP By: s/s Ronald B. Lankford Ronald B. Lankford, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By:____________________________ ________ David L. Barning, Director Date By: s/s Richard J. Bond 3/27/96 Richard J. Bond, Director Date By:____________________________ ________ Alan W. Braun, Director Date By:____________________________ ________ John J. Daus, Jr., Director Date By:s/s Wayne A. Davidson 3/27/96 Wayne A. Davidson, Director Date By: s/s Larry E. Dunigan 3/27/96 Larry E. Dunigan, Director Date By:____________________________ ________ David E. Eckerle, Director Date By:____________________________ ________ Thomas B. Florida, Director Date 11 By:s/s Phelps L. Lambert 3/27/96 Phelps L. Lambert, Director Date By: s/s Ronald B. Lankford 3/27/96 Ronald B. Lankford, Date President and Director (Chief Operating Officer) By:____________________________ ________ Lucien H. Meis, Director Date By:s/s Dan W. Mitchell 3/27/96 Dan W. Mitchell, Director Date By:s/s John N. Royse 3/27/96 John N. Royse, Chairman Date of the Board and Director (Chief Executive Officer) By:s/s Marjorie Soyugenc 3/27/96 Marjorie Soyugenc, Director Date By:____________________________ ________ Charles D. Storms, Director Date By:s/s Edward T. Turner, Jr. 3/27/96 Edward T. Turner, Jr., Director Date By:s/s Steve H. Parker 3/27/96 Steve H. Parker, Date Senior Vice President (Chief Financial Officer) By:s/s Ronald W. Seib 3/27/96 Ronald W. Seib, Date Vice President- Corporate Controller (Principal Accounting Officer) 12 INDEX OF EXHIBITS Regulation S-K Reference (Item 601) 3.01 Articles of Incorporation of the Registrant (incorporated by reference to the Registrant's Form S-4 Registration Statement, File No. 33-57502, dated January 22, 1993) 3.02 By-Laws of the Registrant (incorporated by reference to the Registrant is Pre-Effective Amendment No. 1 to Form S-4 Registration Statement, File No. 33-55935, dated September 17, 1990) 10 Material contracts (incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991) 11 Statement re Computation of Per Share Earnings 13 Annual Report to Shareholders for the year ended December 31, 1995 22 Subsidiaries of the Registrant 24 Consent of Arthur Andersen LLP 27 Financial Data Schedule 13 EX-11 2 EXHIBIT 11 PAGE 1 OF 3 OLD NATIONAL BANCORP STATEMENT RE COMPUTATION OF PER SHARE EARNINGS ($ AND SHARES IN THOUSANDS EXCEPT PER SHARE) 1995 Primary Fully Diluted Net income $ 51,694 $ 51,694 Interest expense foregone on assumed conversion of 8% convertible subordinated debentures, net of tax -- 1,523 _________ __________ Adjusted net income $ 51,694 $ 53,217 Weighted average common shares outstanding 25,305 25,305 Additional shares outstanding upon assumed conversion of 8% convertible subordinated debentures -- 1,408 Additional shares outstanding upon assumed exercise of stock options 65 65 ________ ___________ Adjusted weighted average shares outstanding 25,370 26,778 ======== =========== Earnings per share $ 2.04 $ 1.99 ======== =========== 14 EXHIBIT 11 PAGE 2 OF 3 OLD NATIONAL BANCORP STATEMENT RE COMPUTATION OF PER SHARE EARNINGS ($ AND SHARES IN THOUSANDS EXCEPT PER SHARE) 1994 Primary Fully Diluted Net income $ 46,472 $ 46,472 Interest expense foregone on assumed conversion of 8% convertible subordinated debentures, net of tax -- 1,839 _______ _______ Adjusted net income $ 46,472 $ 48,311 Weighted average common shares outstanding 26,031 26,031 Additional shares outstanding upon assumed conversion of 8% convertible subordinated debentures -- 1,699 Additional shares outstanding upon assumed exercise of stock options 65 65 ________ _______ Adjusted weighted average shares outstanding 26,096 27,795 ======== ======= Earnings per share $ 1.78 $ 1.74 ======== ======= 15 EXHIBIT 11 PAGE 3 OF 3 OLD NATIONAL BANCORP STATEMENT RE COMPUTATION OF PER SHARE EARNINGS ($ AND SHARES IN THOUSANDS EXCEPT PER SHARE) 1993 Primary Fully Diluted Net income $ 48,032 $ 48,032 Interest expense foregone on assumed conversion of 8% convertible subordinated debentures, net of tax -- 1,936 _______ _______ Adjusted net income $ 48,032 $ 49,968 Weighted average common shares outstanding 26,029 26,029 Additional shares outstanding upon assumed conversion of 8% convertible subordinated debentures -- 1,789 Additional shares outstanding upon assumed exercise of stock options 65 65 -------- ------- Adjusted weighted average shares outstanding 26,094 27,883 ======== ======= Earnings per share $ 1.84 $ 1.79 ======== ======= 16 EX-13 3 EXHIBIT 13 [Picture of Pocketwatch] OLD NATIONAL BANCORP 1995 ANNUAL REPORT SET YOUR WATCH BY US TABLE OF CONTENTS Financial Highlights. . . . . . . . . . . . . . . 1 Management Letter to Shareholders . . . . . . . 2-3 A Commitment as Constant as Time Itself . . . . 4-9 Affiliate Bank Information and Locations. . . 10-11 Management's Discussion and Analysis. . . . . 12-30 Report of Management. . . . . . . . . . . . . . .31 Report of Independent Public Accountants. . . . .32 Consolidated Financial Statements . . . . . . 33-36 Notes to Consolidated Financial Statements. . 37-47 Directors and Executive Officers. . . . . . . 48-51 Stock Information . . . . . . . . . . . . . . . .52 Old National Bancorp Financial Highlights ($ in thousands except per share data) Graphs Year-End Year-End Net Income Cash Dividends Paid Total Assets Total Loans Per Share Per Share 1991 4,156 2,407 1.53 0.66 1992 4,196 2,431 1.75 0.69 1993 4,487 2,616 1.84 0.72 1994 4,643 2,890 1.78 0.84 1995 4,823 3,038 2.04 0.88 Percent 1995 1994(1) Change Income Statement Summary ---------------------------------- Interest income . . . . . . . . . . . . $355,272 $312,244 13.8% Interest expense. . . . . . . . . . . . 174,078 135,676 28.3 Net interest income . . . . . . . . . . 181,194 176,568 2.6 Net income. . . . . . . . . . . . . . . 51,694 46,472 11.2 Balance Sheet Summary Total assets. . . . . . . . . . . . . . $4,822,628 $4,642,723 3.9% Investment securities and money market investments . . . . . . . 1,476,141 1,452,396 1.6 Loans, net of unearned income . . . . . 3,037,733 2,890,313 5.1 Deposits. . . . . . . . . . . . . . . . 3,973,675 3,669,186 8.3 Shareholders' equity. . . . . . . . . . 428,077 408,612 4.8 Averages Total assets. . . . . . . . . . . . . . $4,693,587 $4,509,671 4.1% Investment securities and money market investments . . . . . 1,443,500 1,509,446 (4.4) Loans, net of unearned income . . . . . 2,968,335 2,725,608 8.9 Deposits. . . . . . . . . . . . . . . . 3,814,650 3,676,012 3.8 Shareholders' equity. . . . . . . . . . 413,297 413,794 (0.1) Per Common Share (2) Net income per share - primary. . . . . $ 2.04 $ 1.78 14.6% Net income per share - fully diluted. . 1.99 1.74 14.4 Cash dividends paid . . . . . . . . . . 0.88 0.84 4.8 Book value per share. . . . . . . . . . 17.15 15.86 8.1 Stock price at year end . . . . . . . . 33 1/8 33 1/8 Selected Ratios Return on average assets. . . . . . . . 1.10% 1.03% Return on average shareholders' equity (3) . . . . . . . . . . . . . . 12.59 11.08 Average shareholders' equity to average assets . . . . . . . . . . . . 8.81 9.18 Total capital to risk-adjusted assets . 15.60 16.34 Net interest margin . . . . . . . . . . 4.41 4.47 Dividend payout . . . . . . . . . . . . 40.84 43.06 Other Data Number of full-time equivalent employees. . . . . . . . . . . . . . . 2,221 2,157 Number of shareholders. . . . . . . . . 12,585 12,571 Number of shares traded . . . . . . . . 3,753,200 2,892,900 (1) Financial information has been restated for mergers accounted for as poolings-of-interests. (2) Restated for all stock dividends, including a 5% stock dividend paid to shareholders on February 20,1996 (3) Excludes unrealized gains (losses) on investment securities. 1 MANAGEMENT LETTER TO SHAREHOLDERS January 1996 Dear Shareholders: Old National Bancorp proved once again to be a stable investment for its shareholders in 1995. An impressive net income fo $51.7 million was posted, an increase of 11% over the previous year. This noteworthy performance reflects the company's commitment to sound, steady growth. Old National Bancorp's assets reached $4.82 billion in 1995, an increase of 16% over $4.15 billion reported in last year's annual report. This increase in assets is a direct result of the company's prudently planned and carefully implemented internal and external expansion efforts. In 1995, we completed acquisitions with five banks, and have announced plans to merge with one other, bringing our total number of banking affiliates to 26. The First National Bank of Oblong, Oblong, Illinois; Citizens National Bank, Tell City, Indiana; First United Savings Bank (name changed to ONB Bank), Greencastle and Bloomington, Indiana; The Bank of Harrisburg, Harrisburg, Illinois (merged into First National Bank, Harrisburg); and City National Bank, Fulton, Kentucky, became our newest affiliates. Additionally, we announced our intent to merge with The National Bank of Carmi, Carmi, Illinois. Our new partners meet Old National Bancorp's stringent criteria established when we began the company's expansion program in 1985 that has since served as its foundation. These partners offer strong earnings potential, capable managment that remains dedicated to the bank and its community, and philosophies that are compatible with our goals. We continue to search for additions to our family of banks who will help us increase the services we can provide to our customers, and the value we can provide to our shareholders. While our expansion comes from our recognition of the strength that lies in numbers, we also appreciate the diversity of the individual geographic areas served. That's why we've realigned our operation, dividing them into four independent regions. One is based in Terre Haute (Northern Region) and is led by Regional Executive Bill Britt; another is based in Jasper (Central Region) and is led by Regional Executive David Eckerle; a third is based in Evansville (Evansville Region) and is led by Regional Executive Jim Risinger; and our fourth is based in Madisonville (Southern Region) and is led by Regional Executive Morris Coffman. One of our philosophies is keeping our decision making as close to the customer as possible. So each of our banks in all of our regions is encouraged to specialize in what it does best - serving its own communities. Throughout our expansion efforts, we're pleased to report that we've produced fine earnings growth, and have maintained sound performance ratios. Old National Bancorp ended 1995 with a return on average equity of 12.59%, while our return on average assets continued to be strong at 1.10%. At year end, Tier 1 capital was 8.37% of total assets. We continue to focus on diversified loan portfolios to maintain our excellent loan quality. Maintaining our strong loan culture remains on of our top priorities. We believe our history of successfuly growing and managing loans effectively positions Old National Bancorp for continued growth throughout the decade, and well into the next century. 2 [Picture of Mr. Royse, Chairman and Mr. Lankford, President] We're pleased that so many shareholders have entrusted their investment to us. Some 12,600 shareholders now hold nearly 25 million shares of Old National Bancorp stock. That's quite an increase from when we first began our expansion program with 1,500 shareholders and 2 million shares outstanding. To us, it's the highest compliment - and challenge- there is. Our goal is continued appreciation of our stock price. Since the creation of Old National Bancorp, we've seen an average annual appreciation of our stock price of more than 15%. In fact, since 1983, Old National's common stock has outperformed the Dow Jones Industrial average by 126%. It's a tough act to follow, but we're committed to making your investment a rewarding one over the long term. Technology is another key to our future success. For instance, we're going on line with our own personal computer banking service, PC Bank ConnectSM, to enable people to use their personal computer and a modem to pay their bills electronically, retrieve account information, such as account balances and statement histories, and transfer funds between accounts. Another home service, Touch Tone BankingSM, will allow people to receive those same services by using a touch tone phone. Now our customers can feel like they have their own ATM, right in their own home or anywhere in the United States, 24 hours a day and seven days a week. While the banking industry is rapidly changing to meet the ever-changing needs of its customers, one thing remains constant...the need for steady direction from knowledgeable management. At Old National Bancorp, members of our senior management team are preparing the company to successfully meet the challenges of this changing industry. Rich in experience and leadership, this team and all of our extremely competent people are working together to strengthen our solid position as the leading financial services company in our area. At Old National Bancorp, we're proud of our efforts that have historically provided a fine return on our shareholders' investments. We're confident that with the continued support of shareholders, customers and employees, we'll be in an excellent position to meet the challenges of 1996 in protecting...and growing...these investments. Sincerely, John N. Royse Chairman Ronald B. Lankford President 3 [Picture of Grandfather Clock] 4 A TIME-HONORED TRADITION OF DEPENDABILITY You treasure your grandfather's antique pocketwatch. You trace its worn, yet still beautifully intricate engravings with your fingertips. You gently open its clasp, marveling how after years of time-keeping, its delicate hands continue to move in precision. When you carry it, you carry a piece of a man who knew what he stood for. A man you could trust to be as dependable and constant as the passing of time itself. In today's chaotic financial world, where bank mega-mergers and acquisitions seem to occur by the minute, it's comforting to know that one constant exists - - Old National Bancorp. Old National bagan in Evansville, Indiana, in 1834...even before Evansville was granted its city charter..and remains one of the region's financial leaders today with over $4.8 billion in assets. There is never any question about what Old National Bancorp stands for - solid performance and service. And its centruy-and-a-half heritage is proof that, when it comes to choosing a bank, characteristics like trust and stability transcend time. [Picture of Old National Bank building in 1916] 5 [Picture of clock gears] 6 SYNCHRONIZED EFFORTS FOR PRECISE RESULTS In age-old clock-making communities of Switzerland, Austria, and Germany, no single craftsman ever created a complete clock. Instead, each dial painter, frame maker, and case carver joined efforts to produce one extraordinary timepiece. Much like the clock-making craftsmen, Old National Bancorp's four regions...based in Evansville, Terre Haute, Jasper, and Madisonville...represents the strength that comes from knowing their markets. Old National Bancorp encourages each of its regions to specialize in what it does best - serving its own communities. Watch the gently spinning pendulum of an anniversary clock and you'll understand why these communities depend on Old National Bancorp to meet their financial needs. You may see only its galss dome, dial, and hands, but inside are its delicate gears and springs...the heart of the timepiece whose efforts must be in exact alignment to keep proper time. An Old National Bank customer may see only his savings account book, or branch lobby. But it's the 2,200 Old National Bancorp employees who are the heart of the company...and whose behind-the-scenes efforts are really what make Old National Bancorp tick. [Picture of Dave Eckerle, Central Regional Executive, Bill Britt, Northern Regional Executive, Jim Risinger, Evansville Regional Executive, and Morris Coffman, Southern Regional Executive] 7 [Picture of Clock] 8 STEADY ADVANCES AND SWEEPING MOVEMENTS While there are many different ways to mark time...from a grandfather clock to a stopwatch to a sundial...there's still no way to stop it. Time marches on. And so does Old National Bancorp. Thousands of families depend on Old National Bancorp to help them prepare financially for the many different times of their lives. Getting married. Buying a home. Welcoming a new baby. Establishing a college education fund. Enjoying a comfortable retirement. Different times demand different strategies. That's why Old National Bancorp continues to develop customized products and services, from home loans to home banking, or from investments to insurance, all desigend to meet the individual needs of each of these families. Old National Bancorp. Like a sweeping second hand, it always moves forward, striving to meet the ever-changin financial needs of the communities it serves. In successfully helping its customers not just keep up with today, but better prepare for tomorrow, it has established itself as a company that is ahead of its time. [Picture of Family on Front Porch] 9 ONB AFFILIATE BANKS ($ in thousands as of December 31, 1995) Year of Name of Affiliate Banking Affiliation Shareholders' (Principal Office) Offices With ONB Assets Equity - ------------------------------------------------------------------------------- Old National Bank (Evansville, Indiana) 15 1983 $1,248,997 $116,861 Merchants National Bank (Terre Haute, Indiana) 9 1985 376,879 35,644 First Citizens Bank & Trust Co. (Greencastle, Indiana) 3 1985 165,957 12,652 People's Bank & Trust Co. (Mt. Vernon, Indiana) 3 1986 118,611 11,543 Rockville National Bank (Rockville, Indiana) 3 1986 54,250 5,305 Clinton State Bank (Clinton, Indiana) 2 1986 61,920 5,866 Gibson County Bank (Princeton, Indiana) 2 1987 77,832 7,404 Security Bank & Trust Co. (Vincennes, Indiana) 6 1987 161,379 15,884 Farmers Bank & Trust Co. (Madisonville, Kentucky) 4 1987 180,275 17,251 Peoples National Bank (Lawrenceville, Illinois) 1 1988 83,900 8,834 First State Bank (Greenville, Kentucky) 5 1989 180,919 17,122 Morganfield National Bank (Morganfield, Kentucky) 5 1989 108,968 10,525 First National Bank (Harrisburg, Illinois) 6 1989 199,508 20,186 Farmers Bank & Trust Co. (Henderson, Kentucky) 3 1990 187,707 16,259 Security Bank & Trust Co. (Mt. Carmel, Illinois) 2 1990 113,944 11,261 United Southwest Bank (Washington, Indiana) 6 1992 189,909 17,834 Palmer-American National Bank (Danville, Illinois) 7 1992 306,464 30,457 Dubois County Bank (Jasper, Indiana) 10 1993 327,509 31,368 Bank of Western Indiana (Covington, Indiana) 7 1994 115,993 11,064 Indiana State Bank* (Terre Haute, Indiana) 4 1994 91,711 9,128 Orange County Bank (Paoli, Indiana) 3 1994 76,981 7,439 First National Bank (Oblong, Illinois) 2 1995 89,884 8,282 Citizens National Bank (Tell City, Indiana) 5 1995 149,349 14,417 ONB Bank (Bloomington, Indiana) 2 1995 107,631 10,314 City National Bank (Fulton, Kentucky) 3 1995 104,969 9,403 Pending Affiliate: The National Bank of Carmi (Carmi, Illinois) 2 66,143 8,317 *Indiana State Bank is expected to be combined into Merchants National Bank, April 1996. 10 [Picture of Map of Illinois, Indiana, and Kentucky and various locations of banks in the states] 11 [Picture of various clocks with the quote, "Hold fast the time! Guard it, watch over it,every hour, every minute! Unregarded it slips away..." THOMAS MANN (1875-1955) THE BELOVED RETURNS(1939), centered on the page.] 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION TO OLD NATIONAL BANCORP Old National Bancorp (ONB) is a multi-bank holding company headquartered in Evansville, Indiana. Its twenty-five affiliate banks conduct business in 118 office locations in southwestern Indiana, southeastern Illinois, and western Kentucky. A complete listing of ONB's affiliate banks, including pending affiliations, is presented on page 10. The banks provide a wide range of financial services, such as making commercial and consumer loans; originating, marketing, and servicing mortgage loans; issuing and servicing credit cards; leasing; offering a wide range of deposit products; issuing letters of credit; issuing credit life, accident and health insurance; providing safe deposit facilities; and providing alternative investments and brokerage services. ONB also has six non-bank affiliates which provide services incidental to ONB's operations, including data processing, issuance and reinsurance of credit life, accident, health, property and casualty insurance, investment services, fiduciary and trust services, and property ownership. The following information is an analysis of the major components of ONB's operations for the years 1993 through 1995 and financial condition as of December 31, 1995 and 1994. This information should be read in conjunction with the accompanying consolidated financial statements and footnotes thereto beginning on page 33. The information has been restated to reflect mergers accounted for as pooling-of-interests as if they had occurred at the beginning of the first year presented. Purchases have been included in reported results from the date of the transaction. Tax-exempt interest income in the following information has been increased to an amount comparable to interest subject to income taxes using federal statutory rates in effect of 34% in 1990-1992 and 35% in 1993-1995. An offsetting increase of the same amount is made in the income tax section of the Selected Financial Data. Net income is unaffected by these taxable equivalent adjustments. MERGER ACTIVITY During 1995, ONB consummated five mergers with banks in Indiana (2), Illinois (2), and Kentucky (1) with total assets over $500 million. All of these were accounted for as pooling-of-interests. Presently, ONB has one pending transaction with The National Bank of Carmi, in Illinois, which has total assets of $66.1 million at December 31, 1995. This transaction is anticipated to close in mid-1996. ONB completed in 1994 mergers adding nearly $300 million in total assets with Citizens Union Bank, Central City, Kentucky; Orange County Bank, Paoli, Indiana; Indiana State Bank, Terre Haute, Indiana; and Bank of Western Indiana, Covington, Indiana. All transactions used pooling-of-interests accounting. Citizens Union Bank was merged into ONB's existing affiliate, First State Bank, Greenville, Kentucky. Bank of Western Indiana was combined with another ONB bank, The Citizens State Bank, Williamsport, Indiana, with Bank of Western Indiana's charter surviving. OVERVIEW OF FINANCIAL RESULTS As a whole, the banking industry reported solid earnings in 1995 aided by continued economic growth and reduced FDIC insurance premiums. While interest rates generally dropped by the end of 1995, many financial institutions faced interest margin pressures as short-term rates declined less quickly than the long-term rates. Additionally, the 1994 rise in interest rates sparked competitive pressures on deposits which carried over to 1995. Strong loan growth and expense control contributed to the industry's earnings. ONB recorded record earnings in 1995 with net income of $51.7 million, an 11.2% increase over restated earnings for 1994. Over the last five years, ONB's earnings have grown at a compounded rate of 8%. A healthy net interest margin, controlled loan losses, and improved fee income contributed to ONB's performance. Expenses benefited from the lower FDIC premiums and by added volume at the company's internal operations center. The remaining sections of this management's discussion will present additional details of ONB's operating results. 13
Selected Financial Data ($ in thousands except per share data) Five Year 1995 1994 1993 1992 1991 1990 Growth ---------------------------------------------------------------------------- Results Of Operations (Taxable equivalent basis) Interest income . . . . . . $368,478 $324,857 $319,285 $332,868 $369,429 $378,518 Interest expense. . . . . . 174,078 135,676 134,484 156,056 205,192 226,875 ---------------------------------------------------------------------------- Net interest income . . . . 194,400 189,181 184,801 176,812 164,237 151,643 5.1% Provision for loan losses . 6,657 7,682 10,189 11,859 11,885 10,114 -8.0 ---------------------------------------------------------------------------- Net interest income after . provision for loan losses. 187,743 181,499 174,612 164,953 152,352 141,529 5.8 Noninterest income . . . . 39,170 34,809 33,598 29,153 26,496 23,986 10.3 Noninterest expense . . . . 142,777 142,842 131,223 119,611 114,102 108,175 5.7 ---------------------------------------------------------------------------- Income before income taxes. 84,136 73,466 76,987 74,495 64,746 57,340 8.0 Income taxes. . . . . . . . 32,442 26,994 28,955 28,519 24,302 21,543 8.5 ---------------------------------------------------------------------------- Net income. . . . . . . . . $ 51,694 $ 46,472 $ 48,032 $ 45,976 $ 40,444 $ 35,797 7.6% ============================================================================ Year-End Balances Total assets. . . . . . . .$4,822,628 $4,642,723 $4,487,232 $4,195,633 $4,156,401 $4,102,015 3.3% Total loans - net of unearned income. . 3,037,733 2,890,313 2,616,046 2,431,357 2,407,090 2,391,696 4.9 Total deposits . . . . . . 3,973,675 3,669,186 3,694,577 3,533,882 3,444,129 3,423,621 3.0 Shareholders' equity. . . . 428,077 408,612 403,955 375,880 352,743 331,851 5.2 Per Share Data (1) Net income - primary. . . . $ 2.04 $ 1.78 $ 1.84 $ 1.75 $ 1.53 $ 1.32 9.1 Net income - fully diluted (2) . . . . 1.99 1.74 1.79 1.70 1.50 1.30 8.9 Cash dividends paid . . . . 0.88 0.84 0.72 0.69 0.66 0.63 6.9 Book value at year-end. . . 17.15 15.86 15.37 14.17 13.31 12.10 7.2 Selected Performance Ratios (based on averages) Return on assets . . . . . 1.10% 1.03% 1.10% 1.11% 1.00% 0.90% Return on equity (3) . . . 12.59 11.08 12.42 12.75 12.00 10.87 Equity to assets . . . . . 8.81 9.18 8.82 8.67 8.31 8.30 Primary capital to assets. 9.70 10.12 9.70 9.53 9.11 9.09 Net charge-offs to average loans . . . . . . 0.28 0.30 0.26 0.33 0.41 0.58 Allowance for loan losses to average loans. . . . . 1.34 1.52 1.67 1.55 1.39 1.39 (1) Restated for all stock dividends and stock splits. (2) Assumes the conversion of ONB's subordinated debentures. (3) Excludes unrealized gains (losses) on investment securities.
14 RESULTS OF OPERATIONS NET INCOME Graph of Net Income ($ in Millions) 1991 40.4 1992 46.0 1993 48.0 1994 46.5 1995 51.7 ONB recorded $51.7 million of net income in 1995, a $5.2 million or 11.2% increase over 1994 results. Primary net income per share for 1995 rose 14.6% to $2.04 compared to $1.78 in 1994. Growth in net interest income and other income combined with lower loan loss provision and noninterest expense generated the improvement. The specific effects of each of these factors are discussed in the following paragraphs. ONB's 1994 net income was $46.5 million which is down 3.2% from 1993. Prior to restating 1994 and 1993 for the 1995 merger activity, ONB showed net income growth of 1.0%. One of the acquisitions made in 1995 experienced a $2.7 million loss in 1994 primarily due to a loss on a real estate investment. Net interest income, other income, and lower loan loss provision positively contributed to net income. Increased personnel, equipment, and data processing expense negatively impacted earnings. NET INTEREST INCOME A major share of ONB's earnings results from net interest income, the difference between interest and fees on earning assets, such as loans and investments, and the interest paid on deposits and other liabilities obtained to fund them. The net interest margin is net interest income, on a taxable equivalent basis, expressed as a percentage of average earning assets. This permits comparability incorporating the tax savings on certain assets. The margin is influenced by a number of factors, such as the volume and mix of earning assets and funding sources, the interest rate environment and income tax rates. The level of earning assets funded by interest free funding sources (primarily noninterest-bearing demand deposits and equity capital) also impacts net interest margin. ONB can control the effect of some of these factors through its management of credit extension and interest rate sensitivity, both of which are discussed in detail later in this report. External factors such as the overall condition of the economy, strength of credit demand, Federal Reserve Board monetary policy and changes in tax laws can also have a significant effect on changes in net interest income from one period to another. On a taxable equivalent basis net interest income increased $5.2 million or 2.8% over the prior year. Average earning assets increased 4.2% or $176.8 million between years while the net interest margin declined slightly from 4.47% to 4.41%. During 1995, the mix of earning assets changed significantly as the average balances of higher yielding loans rose $242.7 million (8.9%) while investments, securities and money market combined, decreased $65.9 million (4.4%). The yield on the assets increased 69 basis points primarily due to the loan yield rising from 8.37% to 9.06%. Interest bearing liabilities grew $151.1 million or 4.2%. ONB experienced a significant shift away from savings and daily interest checking, down 10.7%, to higher paying money market accounts, up 15.1%, and certificates of deposit, up 8.4%. This shift, combined with interest rate pressures in 1995, caused our cost of interest-bearing liabilities to rise to 4.61%, an 87 basis point increase. Graph of Net Interest Income (Taxable Equivalent Basis)($ in Millions) 1991 164.2 1992 176.8 1993 184.8 1994 189.2 1995 194.4 In 1994 net interest income rose 2.4% or $4.4 million and reached $189.2 million. Average earning assets rose 3.2% or $130.1 million. While the yields for most categories dropped, the overall yield dropped only 11 basis points to 7.67% as earning assets shifted toward the higher yielding loan portfolio which grew 8.8%. Many older, higher yielding assets were repaid during 1994. Deposits grew 1.2% while total interest-bearing liabilities grew 2.7%. The rates on liabilites decreased 7 basis points as the cost of deposits trended downward. The overall net interest margin was 4.47%, down 3 basis points from 1993. Table 1 on page 16 details the changes in the components of net interest income. Table 2 on page 16 attributes those fluctuations to the impact of changes in the average balances of assets and liabilities and the yields/rates earned or paid thereon. Table 3 on page 17 presents a three year average balance sheet and for each major asset and liability category its related interest income and yield or its expense and rate. 15
Changes in Net Interest Income (Table 1) (Taxable equivalent basis, $ in thousands) % Change From Prior Year ----------------- 1995 1994 1993 1995 1994 Interest income on: ------------------------------------------------------ Loans. . . . . . . . . . . $269,020 $228,257 $215,085 17.9% 6.1 % Investment securities. . . 95,864 93,871 98,875 2.1 (5.1) Federal funds sold and securities purchased under agreements to resell . . . 3,393 2,391 4,130 41.9 (42.1) Interest-bearing deposits in other banks . . 201 338 1,195 (40.5) (71.7) ------------------------------------------------------ Total interest income . . . 368,478 324,857 319,285 13.4 1.7 ------------------------------------------------------ Interest expense on: Savings and daily interest checking . . . . . . . . . 24,056 25,181 26,656 (4.5) (5.5) Money market deposits. . . 21,620 13,226 12,818 63.5 3.2 Certificates of deposit of $100,000 and over. . . . . 14,472 8,774 9,221 64.9 (4.8) Other time deposits. . . . 89,578 70,373 72,500 27.3 (2.9) Federal funds purchased and ecurities sold under agreements to repurchase . 12,155 9,406 6,545 29.2 43.7 All other borrowings . . . 12,197 8,716 6,744 39.9 29.2 ------------------------------------------------------ Total interest expense . . 174,078 135,676 134,484 28.3 0.9 ------------------------------------------------------ Net interest income. . . . . $194,400 $189,181 $184,801 2.8% 2.4% ====================================================== Net interest margin. . . . . 4.41% 4.47% 4.50% ================================
Net Interest Income - Rate/Volume Analysis (Table 2) (Taxable equivalent basis, $ in thousands) 1995 vs. 1994 1994 vs. 1993 ------------------------- --------------------------- Attributed to Attributed to Total ---------------- Total ---------------- Change Volume Rate Change Volume Rate ------------------------- --------------------------- Interest income on: Loans. . . . . . . . . . . . . . . . $40,763 $21,163 $19,600 $13,172 $18,603 $(5,431) Investment securities. . . . . . . . 1,993 (3,911) 5,904 (5,004) 212 (5,216) Federal funds sold and securities purchased under agreements to resell . . . . . . . . 1,002 (118) 1,120 (1,739) (2,693) 954 Interest-bearing deposits in other banks . . . . . . . . . . (137) (240) 103 (857) (667) (190) ------------------------- --------------------------- Total interest income. . . . . . . 43,621 16,894 26,727 5,572 15,455 (9,883) ------------------------- --------------------------- Interest expense on: Savings and daily interest checking . . . . . . . . . . (1,125) (2,798) 1,673 (1,475) 215 (1,690) Money market deposits. . . . . . . . 8,394 2,412 5,982 408 1,220 (812) Certificates of deposit of $100,000 and over. . . . . . . . . 5,698 1,807 3,891 (447) (543) 96 Other time deposits. . . . . . . . . 19,205 5,486 13,719 (2,127) (129) (1,998) Federal funds purchased and securities sold under agreements to repurchase. . 2,749 (708) 3,457 2,861 1,476 1,385 All other borrowings . . . . . . . . 3,481 3,192 289 1,972 983 989 ------------------------- --------------------------- Total interest expense. . . . . . . 38,402 9,391 29,011 1,192 3,222 (2,030) ------------------------- --------------------------- Net interest income. . . . . . . . . . $ 5,219 $ 7,503 $(2,284) $4,380 $12,233 $(7,853) ========================= =========================== *The variance not solely due to rate or volume is allocated equally between the rate and volume variances.
16
Three-Year Average Balance Sheet And Net Interest Analysis (Table 3) (Taxable equivalent basis, $ in thousands) 1995 1994 1993 ---------------------------------------------------------------------------------------------- Average Interest Yield/ Average Interest Yield/ Average Interest Yield/ Balance & Fees Rate Balance & Fees Rate Balance & Fees Rate ---------------------------------------------------------------------------------------------- Earning Assets: Money market investments: Interest-bearing deposits in other banks . . . . . . . . $ 3,826 $ 201 5.25% $ 9,208 $ 338 3.67% $ 24,957 $ 1,195 4.79% Federal funds sold and securities purchased under agreements to resell . . . . . 57,400 3,393 5.91 59,801 2,391 4.00 136,517 4,130 3.03 Investment securities: U.S. Treasury and Government agencies (1). . . . . . . . . 933,388 58,445 6.26 970,179 55,441 5.71 1,031,108 63,006 6.11 State and political subdivisions 420,189 35,556 8.46 427,686 36,155 8.45 367,394 33,165 9.03 Other securities . . . . . . . 28,697 1,863 6.49 42,572 2,275 5.34 38,769 2,704 6.97 ---------------------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES . 1,382,274 95,864 6.94 1,440,437 93,871 6.52 1,437,271 98,875 6.88 ---------------------------------------------------------------------------------------------- Loans: (2) (3) Commercial and financial. . . 742,942 72,407 9.75 702,921 58,132 8.27 715,428 61,613 8.61 Mortgage . . . . . . . . . . 1,567,980 132,349 8.44 1,430,431 115,842 8.10 1,313,527 103,721 7.90 Consumer, net of unearned income . . . . . . . . . . 630,560 59,667 9.46 566,261 49,686 8.77 452,006 45,316 10.03 Credit card . . . . . . . . . 26,853 4,597 17.12 25,995 4,597 17.68 25,230 4,435 17.58 ---------------------------------------------------------------------------------------------- TOTAL LOANS . . . . . . . . . 2,968,335 269,020 9.06 2,725,608 228,257 8.37 2,506,191 215,085 8.58 ---------------------------------------------------------------------------------------------- TOTAL EARNING ASSETS. . . . . 4,411,835 368,478 8.36% 4,235,054 324,857 7.67% 4,104,936 319,285 7.78% Less: Allowance for loan losses (41,819) ==== (42,617) ==== (38,846) ==== Non-Earning Assets: Cash and due from banks . . . 157,622 159,414 168,022 Other assets. . . . . . . . . 165,949 157,820 151,302 ---------- --------- --------- TOTAL ASSETS. . . . . . . . . . $4,693,587 $4,509,671 $4,385,414 ========== ========= ========= LIABILITIES AND EQUITY Interest-Bearing Liabilities: Savings and daily interest checking. . . . . $ 876,175 $ 24,056 2.75% $ 981,571 $25,181 2.57% $ 973,476 $ 26,656 2.74% Money market deposits . . . . 585,805 21,620 3.69 509,071 13,226 2.60 463,587 12,818 2.76 Certificates of deposit of $100,000 and over . . . . 256,253 14,472 5.65 218,836 8,774 4.01 232,472 9,221 3.97 Other time deposits . . . . . 1,647,172 89,578 5.44 1,537,599 70,373 4.58 1,540,377 72,500 4.71 ---------------------------------------------------------------------------------------------- TOTAL INTEREST BEARING DEPOSITS . . . . . . . . . . . 3,365,405 149,726 4.45 3,247,077 117,554 3.62 3,209,912 121,195 3.78 Federal funds purchased and securities sold under agreements to repurchase . . 230,960 12,155 5.26 246,573 9,406 3.81 204,467 6,545 3.20 All other borrowings. . . . . 182,216 12,197 6.69 133,866 8,716 6.51 117,784 6,744 5.73 ---------------------------------------------------------------------------------------------- TOTAL INTEREST BEARING LIABILITIES. . . . . . . . . 3,778,581 174,078 4.61% 3,627,516 135,676 3.74% 3,532,163 134,484 3.81% Noninterest-Bearing Liabilities: Demand deposits . . . . . . . 449,245 428,935 425,068 Other liabilities . . . . . . . 52,464 39,426 41,431 Shareholders' equity. . . . . 413,297 413,794 386,752 --------- --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. . . . .$4,693,587 $4,509,671 $4,385,414 ========= ========= ========= Interest Margin Recap: Interest income/earning assets . . . . . . . . . . . . $368,478 8.36% $324,857 7.67% $319,285 7.78% Interest expense/earning assets . . . . . . . . . . . . 174,078 3.95 135,676 3.20 134,484 3.28 ------- ---- ------- ---- ------- ---- Net interest margin . . . . . . $194,400 4.41% $189,181 4.47% $184,801 4.50% ======= ==== ======= ==== ======= ==== (1) Includes Government agency mortgage-backed securities. (2) Includes principal balances of nonaccrual loans. Interest income relating to nonaccrual loans is not included. (3) The amount of loan fees is not material in any of the years presented.
17 INTEREST RATE SENSITIVITY AND LIQUIDITY MANAGEMENT Managing the net interest margin is a critical element in optimizing the earnings of a banking organization. A movement in interest rates and the corresponding effect on the net interest margin may significantly affect profitability. The impact of interest rate changes can be mitigated by maintaining a balance between interest-rate sensitive assets and liabilities within given time frames. With the goal of consistent earnings growth with minimal interest rate risk, ONB's Funds Management Committee oversees this process by establishing guidelines for its affiliate banks to manage the sensitivity and repricing of their assets and liabilities. This committee and similar committees at the affiliate banks monitor these guidelines monthly on a consolidated basis and at the bank level. The difference between assets and liabilities within a given repricing period is expressed as a ratio and as a dollar amount known as the "gap," both of which are used as a measure of interest rate risk. A ratio of 100% suggests a balanced position between rate-sensitive assets and liabilities within a given repricing period. While the measurement process and related assessment of risk are somewhat imprecise, ONB believes its asset/liability management program allows adequate reaction time for trends in the market place as they occur, thereby minimizing the potential negative effect of its gap position against the event of interest rate changes. Additionally, ONB has implemented a simulation process whereby the impact of potential interest rate fluctuations and balance sheet changes on net interest income can be quantified and monitored. Table 4 below reflects ONB's interest rate sensitivity position both individually within specified time periods and cumulatively, over various time horizons. In the table, assets and liabilities are placed in categories based on their actual or expected repricing date. As indicated in the table, a significant percentage of ONB's assets and liabilities reprice within 180 days. In the 365 day cumulative time frame, assets and liabilities are closely matched at 96%.
Analysis of Interest Rate Sensitivity at December 31, 1995 (Table 4) ($ in thousands) 1-180 181-365 1-5 Beyond Days Days Years 5 years Total -------------------------------------------------------- Rate sensitive assets: Money market investments . . . . . . . . $ 85,665 $ 100 $ 196 $ 0 $ 85,961 Investment securities . . . . . . . . . 301,131 107,361 581,063 400,625 1,390,180 Loans, net of unearned income. . . . . . 1,211,349 525,435 922,933 378,016 3,037,733 -------------------------------------------------------- Total rate sensitive assets. . . . . . . 1,598,145 632,896 1,504,192 778,641 4,513,874 ----------------------------------------------========== Rate sensitive liabilities: Savings and time deposits. . . . . . . . 1,750,162 308,920 606,130 839,255 3,504,467 Other borrowed funds . . . . . . . . . . 258,713 12,930 26,737 63,416 361,796 -------------------------------------------------------- Total rate sensitive liabilities . . . . 2,008,875 321,850 632,867 902,671 3,866,263 ----------------------------------------------========== Interest sensitivity gap per period . . . . . . . . . . . . . . . $ (410,730) $311,046 $ 871,325 $(124,030) Cumulative gap . . . . . . . . . . . . . $ (410,730) $(99,684) $ 771,641 $ 647,611 Cumulative ratio at December 31, 1995 (1) . . . . . . . . . . 80% 96% 126% 117% Cumulative ratio at ========================================== December 31, 1994 (1). . . . . . . . . . 85% 100% 127% 117% ========================================== (1) Rate sensitive assets/rate sensitive liabilities
In addition to the interest rate sensitivity the Funds Management Committee monitors the company's liquidity requirements. The objective of liquidity management is to ensure the ability to meet cash flow needs of customers, such as borrowings and deposit withdrawals, while at the same time maximizing lending and investment opportunities. Failure to properly manage liquidity requirements can result in the need to satisfy customer withdrawals and other obligations on less than desirable terms. ONB and its affiliates maintain adequate liquidity with sufficient levels of liquid assets, deposit growth, and other funding sources, such as the Federal Home Loan Bank. The Funds Management Committee monitors the quality of the investment portfolio by establishing guidelines for the types and quality of securities acceptable for purchase. ONB has a consistent, conservative investment strategy. Any exceptions to these guidelines must be approved by the committee. The committee reviews on a regular basis the quality of the portfolios, especially the obligations of corporations and state and political subdivisions. 18 NONINTEREST INCOME Besides our focus on net interest income, ONB has looked to expand its ability to generate additional noninterest income from both our core business and newer initiatives, such as brokerage/alternative investments. ONB's banks and nonbank affiliates strive to improve their noninterest income performance every year. Noninterest income, excluding securities transactions, increased 11.5% in 1995. With the formation of ONB's trust companies, an even more concertive effort is being made to develop new sources of revenue in this line of business. In 1995 trust fees increased 17.4% and is becoming a larger portion of noninterest income. This growth is attributable to a growth in assets under management and an increase in the standard fee schedule. Service charges on deposit accounts grew 7.0%. Opportunities to improve such fee income are continuously reviewed and weighed against competitive pressures in each separate market. Loan servicing fees increased 14.6% as long-term interest rates dropped generating higher levels of refinancing activity. Other income rose 11.3% fueled by ONB's alternative investments and brokerage business and credit life insurance sales. During 1994, noninterest income grew 5.4%. This growth was the result of a 19.3% and 6.3% increase in trust fees and deposit service charges, respectively. The base of accounts for both areas rose and the fees charged were reviewed and adjusted where necessary. Loan servicing fees rose 13.7% as mortgage banking activities, while affected by higher interest rates, remained fairly strong. ONB realized net securities gains (losses) of $0.1, ($0.3), and $0.3 million in 1995, 1994, and 1993, respectively. Generally, ONB has had minimal sales of securities. In 1994 certain lower yielding investments were sold in order to reinvest in higher yielding assets. In 1993 ONB sold a portion of its Student Loan Marking Association stock resulting in a gain. Table 5 below presents changes in the components of noninterest income for the years 1993 through 1995.
Noninterest Income (Table 5) ($ in thousands) % Change From Prior Year ------------------ 1995 1994 1993 1995 1994 --------------------------------------------------------- Trust fees. . . . . . . . . . . . . . $ 9,216 $ 7,851 $ 6,580 17.4% 19.3% Service charges on deposit accounts . 14,025 13,110 12,330 7.0 6.3 Loan servicing fees . . . . . . . . . 5,614 4,898 4,306 14.6 13.7 Other income. . . . . . . . . . . . . 10,260 9,215 10,070 11.3 (8.5) --------------------------------------------------------- Subtotal. . . . . . . . . . . . . 39,115 35,074 33,286 11.5 5.4 Net securities gains (losses) . . . . 55 (265) 312 N/M N/M --------------------------------------------------------- Total noninterest income. . . . . $ 39,170 $34,809 $33,598 12.5% 3.6% ========================================================= N/M = Not meaningful
19 NONINTEREST EXPENSE Total noninterest expense has a significant impact on ONB's financial performance. Improving the quality of our service yet controlling such costs can be achieved through improved efficiencies and management attention. In 1995 noninterest expense decreased slightly compared to 1994. Salaries and benefits, which comprise over 50% of total noninterest expense, grew 3.2% in 1995. Marketing expense rose 13.1% from a combination of the newly formed trust companies and new efforts which contributed to the deposit and loan growth. Data processing expense, which includes external processing and software costs for our internal data operations, rose 1.5%. The external component decreased while the internal component increased as our banks prepare to convert. With sixteen ONB's banks processed internally, our data center is better able to support its initial up-front expenses for people and equipment. Equipment expense increased 12.8% primarily as a result of costs at the internal operations and data center and at affiliate banks for banking systems conversions. In 1995 other expenses dropped 5.7%. A newly acquired bank experienced a $2.5 million loss in 1994 on the sale of a real estate investment. These increases were offset when the FDIC lowered its premium on bank deposits as of June 1, 1995. For most of ONB's affiliate banks the cost dropped from 23 basis points to 4 basis points per $100 of deposits. This rate change drove the 42.1% drop in ONB's FDIC insurance premiums in 1995. This premium was dropped further as of January 1, 1996, for at least the first six months of 1996. For deposits insured by the Savings Association Insurance Fund, ("SAIF"), rates did not drop. A one-time recapitalization charge is expected to be approved by the U.S. Congress sometime in 1996. ONB has less than 6% of its deposits insured by SAIF and expects such a charge to have minimal impact on the 1996 results. In 1994 total noninterest expense grew 8.9%. Salaries and benefits increased 8.8% while equipment expense and data processing expense rose 19.2% and 34.8%, respectively. Higher staffing levels, equipment purchases and maintenance, and software costs were incurred in 1994 in preparation for handling higher numbers of affiliate banks at our internal data processing center. Table 6 below presents changes in the components of noninterest expense for the years 1993 through 1995.
Noninterest Expense (Table 6) ($ in thousands) % Change From Prior Year ------------------- 1995 1994 1993 1995 1994 ------------------------------------------------------------- Salaries and employee benefits. . . . . . . $ 75,281 $ 72,962 $ 67,036 3.2% 8.8% Occupancy expense . . . . . . . . . . . . . 8,706 8,661 8,283 0.5 4.6 Equipment expense . . . . . . . . . . . . . 10,816 9,589 8,046 12.8 19.2 Marketing expense . . . . . . . . . . . . . 5,201 4,597 3,943 13.1 16.6 FDIC insurance premiums . . . . . . . . . . 4,884 8,431 7,875 (42.1) 7.1 Data processing expense . . . . . . . . . . 5,881 5,793 4,296 1.5 34.8 Supplies expense. . . . . . . . . . . . . . 4,454 4,211 3,762 5.8 11.9 Communications and transportation expense . 5,756 5,480 4,915 5.0 11.5 Other expenses. . . . . . . . . . . . . . . 21,798 23,118 23,067 (5.7) 0.2 ------------------------------------------------------------- Total noninterest expense . . . . . . . $142,777 $142,842 $131,223 0.0% 8.9% =============================================================
20 PROVISION FOR INCOME TAXES ONB records a provision for income taxes currently payable and for taxes payable in the future because of differences in the timing of recognition of certain items for financial statement and income tax purposes. The major differences between the effective tax rate applied to ONB's financial statement income and the federal statutory rate are caused by interest on tax-exempt securities and loans and state income taxes. See Note 7 to the consolidated financial statements for the additional detail of ONB's income tax provision. ONB's effective tax rate was 27.1%, 23.6%, and 26.7% in 1995, 1994, and 1993, respectively. The fluctuation among the years came primarily from the elimination of a deferred asset valuation allowance in 1994 which reduced 1994's tax expense by $1.6 million. INTERIM FINANCIAL DATA The following table provides a detailed summary of quarterly results of operations for the years ended December 31, 1995 and 1994. These results contain all normal and recurring adjustments of a material nature necessary for a fair and consistent presentation.
Interim Financial Data (Table 7) (Unaudited, $ and shares in thousands except per share data) Quarter Ended ------------------------------------------------- December 31 September 30 June 30 March 31 1995 ------------------------------------------------- Interest income. . . . . . . . $91,912 $90,358 $88,153 $84,849 Interest expense . . . . . . . 45,661 44,808 43,413 40,196 ------------------------------------------------- Net interest income. . . . . 46,251 45,550 44,740 44,653 Provision for loan losses. . . 2,282 1,977 1,298 1,100 Noninterest income . . . . . . 10,118 9,776 9,885 9,391 Noninterest expense. . . . . . 37,341 33,919 35,747 35,770 ------------------------------------------------- Income before income taxes . 16,746 19,430 17,580 17,174 Income taxes . . . . . . . . . 4,558 5,671 4,310 4,697 ------------------------------------------------- Net income . . . . . . . . . $12,188 $13,759 $13,270 $12,477 ================================================= Net income per share: Primary. . . . . . . . . . . $0.49 $0.54 $0.52 $0.49 ================================================= Fully diluted. . . . . . . . $0.47 $0.53 $0.51 $0.48 ================================================= Weighted average shares: Primary. . . . . . . . . . . 25,098 25,273 25,444 25,674 ================================================= Fully diluted. . . . . . . . 26,505 26,682 26,852 27,298 ================================================= 1994 Interest income. . . . . . . . $82,164 $80,125 $75,997 $73,958 Interest expense . . . . . . . 36,721 35,024 32,383 31,548 ------------------------------------------------- Net interest income. 45,443 45,101 43,614 42,410 Provision for loan losses. . . 3,042 1,528 1,686 1,426 Noninterest income . . . . . . 7,880 9,597 8,837 8,495 Noninterest expense. . . . . . 38,216 35,745 35,916 32,965 ------------------------------------------------- Income before income taxes 12,065 17,425 14,849 16,514 Income taxes . . . . . . . . . 1,367 5,005 3,739 4,270 ------------------------------------------------- Net income . . . . . . . . . $10,698 $12,420 $11,110 $12,244 ================================================= Net income per share: Primary. . . . . . . . . . . $0.41 $0.48 $0.43 $0.46 ================================================= Fully diluted. . . . . . . . $0.40 $0.47 $0.42 $0.45 ================================================= Weighted average shares: Primary. . . . . . . . . . . 25,975 26,035 26,128 26,250 ================================================= Fully diluted. . . . . . . . 27,674 27,809 27,905 28,054 =================================================
21 FINANCIAL CONDITION ANALYSIS OF CHANGES IN BALANCE SHEET Total assets increased $179.9 million or 3.9% at December 31, 1995 compared to the prior year end. Loan growth comprised the majority of the increase in total assets as loans grew by $147.4 million or 5.1%. By December 31, 1995, total liabilities had grown $160.4 million or 3.8% over 1994. Total deposits increased $304.5 million or 8.3% as deposit interest rates rose early in 1995 and attracted customer funds. LENDING AND LOAN ADMINISTRATION Graph of Allowance/Average Loans 1991 1.39 1992 1.55 1993 1.67 1994 1.52 1995 1.34 The primary responsibility and accountability for day-to-day lending activities rests with ONB's affiliate banks. Loan personnel at each bank have the authority to extend credit under guidelines established by ONB's Board of Directors and administered by the Credit Policy Committee. This committee meets quarterly and is comprised of members of ONB's executive management and, on a rotating basis, outside members of the Board of Directors and affiliate bank management. The committee monitors credit quality through the review of information such as delinquencies and other problem loans and charge-offs. The committee regularly reviews the status and prospects for specific industries in which the company extends credit and also establishes corporate loan policy and reviews qualifying applications of the affiliate banks. Executive and credit committees at the banks provide further knowledge, judgment and experience to ONB's lending administration. ONB maintains a continuous and comprehensive corporate loan review program. ONB's loan review system provides independent evaluation of loan administration, credit quality, loan documentation, compliance with corporate loan standards, and the adequacy of the allowance for loan losses. This program includes regular reviews of problem loan reports, delinquencies, and charge-offs. Graph of Net Charge-Offs/Average Loans 1991 0.41 1992 0.33 1993 0.26 1994 0.30 1995 0.28 The adequacy of the allowance for loan losses is formally evaluated on a quarterly basis at both the affiliate bank and holding company level. This evaluation is based on reviews of specific loans, changes in the type and volume of the loan portfolios given current and anticipated economic conditions, and historical loss experience. Loans are charged off when they are deemed uncollectible. Charge-offs, net of recoveries, were $8.2 million in 1995, compared to $8.2 million in 1994 and $6.4 million in 1993. ONB's affiliate banks make monthly provisions for possible loan losses in amounts estimated to be sufficient to maintain the allowance for loan losses at a level considered necessary by management to absorb estimated losses in the loan portfolios. The consolidated provision for loan losses was $6.7 million in 1995, down from $7.7 million in 1994 and from $10.2 million in 1993. The continued economic strength of ONB's market area and the adoption of ONB's conservative credit culture by our affiliate banks continues to yield a solid loan portfolio. The provision decrease also reflects continued low levels of under-performing assets and a general improvement in the condition of the loan portfolios at several of ONB's affiliates. Further improvement of these historically low levels of non-performing assets may be difficult. Table 8 on page 23 summarizes activity in the allowance for loan losses for the years 1991 through 1995 and an allocation of the year-end balances, along with related statistics for the allowance and net charge-offs. 22
Allowance for Loan Losses (Table 8) ($ in thousands) 1995 1994 1993 1992 1991 Analysis: ---------------------------------------------------------- Allowance for loan losses, January 1. . . . . . . . . . . . $41,335 $41,833 $37,290 $33,393 $30,369 Loans charged off: ---------------------------------------------------------- Commercial . . . . . . . . . . . 4,910 4,511 5,662 7,126 7,049 Mortgage . . . . . . . . . . . . 960 692 2,667 2,127 2,598 Consumer credit. . . . . . . . . 5,316 5,446 2,806 3,105 3,321 ---------------------------------------------------------- Total charge-offs. . . . . . . 11,186 10,649 11,135 12,358 12,968 ---------------------------------------------------------- Recoveries on charged-off loans: Commercial . . . . . . . . . . . 1,593 1,173 3,504 3,093 1,976 Mortgage . . . . . . . . . . . . 296 176 315 459 369 Consumer credit. . . . . . . . . 1,111 1,120 906 844 854 ---------------------------------------------------------- Total recoveries . . . . . . . 3,000 2,469 4,725 4,396 3,199 ---------------------------------------------------------- Net charge offs. . . . . . . . . . 8,186 8,180 6,410 7,962 9,769 Provision charged to expense . . . 6,657 7,682 10,189 11,859 11,885 Acquisitions under purchase accounting. . . . . . . -- 0 764 0 908 ---------------------------------------------------------- Allowance for loan lossses, December 31, . . . . . . . . . . $39,806 $41,335 $41,833 $37,290 $33,393 ========================================================== Average loans for the year . . . . $2,968,335 $2,725,608 $2,506,191 $2,409,660 $2,396,295 Allowance/year-end loans . . . . . 1.31% 1.43% 1.60% 1.53% 1.39% Allowance/average loans. . . . . . 1.34 1.52 1.67 1.55 1.39 Net charge-offs/average loans. . . 0.28 0.30 0.26 0.33 0.41 Allocation at December 31, Commercial . . . . . . . . . . . . $21,690 $23,008 $22,046 $21,818 $17,767 Mortgage . . . . . . . . . . . . . 11,122 10,824 12,683 10,008 9,762 Consumer credit. . . . . . . . . . 6,994 7,503 7,104 5,464 5,864 ---------------------------------------------------------- Total. . . . . . . . . . . . . . . $39,806 $41,335 $41,833 $37,290 $33,393 ==========================================================
Assets determined by the various evaluation processes to be under-performing receive special attention by ONB and the affiliate banks. Under-performing assets consist of 1) nonaccrual loans where the ultimate collectibility of interest is uncertain, but the principal is considered collectible; 2) loans which have been renegotiated to provide for a reduction or deferral of interest or principal because the borrower's financial condition deteriorated; 3) loans with principal or interest past due ninety (90) days or more; and 4) other real estate owned. Each month, problem and "watch" loans reports are prepared and reviewed at both the affiliate banks and holding company. These reports include loans where the customers' operations or net worth may not be sufficient to repay the loan, the loan has been criticized in a regulatory examination, accrual of interest has been suspended, or for other reasons where either the ultimate collectibility of the loan is in question or the loan has characteristics requiring special monitoring. In addition to the loans classified as under-performing, management closely monitors loans totaling $96.7 million as of December 31, 1995, for the borrowers' ability to comply with present repayment terms. For these loans, the existing conditions do not warrant either a partial charge-off or classification as nonaccrual. Management believes it has taken a conservative approach in its evaluation of under-performing credits and the loan portfolio in general, both in acknowledging the general condition of the portfolio and in establishing the allowance for loan losses. 23 Table 9 below presents the components of under-performing assets as of December 31, 1995, 1994, and 1993. Under-performing assets decreased 15.7% in 1995 after a 9.9% increase in 1994. In 1995 nonaccruals dropped 28.0% after a 1994 increase when a large, monitored loan deteriorated in the fourth quarter. Loans past due over 90 days rose in 1995 by $456 thousand, though as a percent of outstanding loans they are comparable at 0.16% in 1995 and 0.15% in 1994. Under Performing Assets (Table 9) ($ in thousands) 1995 1994 1993 -------------------------- Nonaccrual loans . . . . . . . $ 6,623 $ 9,201 $ 6,473 Renegotiated loans . . . . . . 1,120 1,280 833 Past due loans (90 days or more): -------------------------- Commercial . . . . . . . . . 1,153 995 1,854 Mortgage . . . . . . . . . . 2,578 2,077 2,553 Consumer . . . . . . . . . . 1,050 1,253 856 -------------------------- Total. . . . . . . . . . . 4,781 4,325 5,263 -------------------------- Other real estate owned. . . . 515 669 1,508 -------------------------- Total under-performing assets $13,039 $15,475 $14,077 ========================== Under-performing assets as a % of total loans and other real estate owned. . . . . . 0.43% 0.54% 0.54% ========================== Interest income of approximately $0.9 million would have been recorded in 1995 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 1995 on nonaccrual and restructured loans was $0.3 million. 24 SOURCES OF FUNDS ONB's primary funding source is its base of core customer deposits which consist of noninterest-bearing demand, regular savings and money market accounts and small denomination certificates of deposit. Other short-term sources of funds are large denomination certificates, overnight borrowings from other financial institutions, securities sold under agreements to repurchase, and lines of credit. Longer term funds are provided by medium term notes and subordinated debentures. Table 10 below presents changes between years in the average balances of all funding sources.
Funding Sources - Average Balances (Table 10) ($ in thousands) % Change From Prior Year ----------------------- 1995 1994 1993 1995 1994 Core Deposits: ------------------------------------------------------------------ Demand deposits. . . . . . . $ 449,245 $ 428,935 $ 425,068 4.7% 0.9% Savings and daily interest checking . . . . . . . . . 876,175 981,571 973,476 (10.7) 0.8 Money market deposits. . . . 585,805 509,071 463,587 15.1 9.8 Other time deposits. . . . . 1,647,172 1,537,599 1,540,377 7.1 (0.2) ------------------------------------------------------------------ Total core deposits. . . 3,558,397 3,457,176 3,402,508 2.9 1.6 ------------------------------------------------------------------ Certificates of deposit of $100,000 and over. . . . . 256,253 218,836 232,472 17.1 (5.9) Federal funds purchased and securities sold under agreements to repurchase. . 230,960 246,573 204,467 (6.3) 20.6 Other short-term borrowings. 107,782 61,328 36,512 75.7 68.0 Subordinated debentures. . . 33,918 40,538 49,272 (16.3) (17.7) Medium term notes. . . . . . 40,516 32,000 32,000 26.6 0.0 ------------------------------------------------------------------ Total funding sources. . $4,227,826 $4,056,451 $3,957,231 4.2% 2.5% ==================================================================
CORE DEPOSITS Average core deposits increased 2.9% in 1995 compared to the 1.6% increase in 1994. A major shift occurred in 1995 as funds left savings and daily interest checking and entered money market deposits and certificates of deposit. The combination of a down stock market in 1994, new marketing efforts, and rising interest rates in late 1994 and early 1995 attracted deposits, especially into money market accounts tied to indices. During 1994, core deposits on average grew 1.6%. Most categories changed less than 1%, except for money market deposits which grew 9.8%. Deposit interest rates were fairly low most of the year and customers often placed available funds into money market accounts while they reviewed their investment options. 25 SHORT-TERM BORROWINGS Additional sources of funding for ONB are various short-term borrowings which consist primarily of federal funds purchased from other financial institutions on an overnight basis, secured repurchase agreements which generally mature within 30 days, borrowings under U.S. Treasury demand notes, and lines of credit. Collectively, the average short-term borrowings rose $30.8 million or 10.0% in 1995. At December 31, 1995, short-term borrowings decreased $175.0 million from 1994, as ONB replaced these funds with core deposit growth. Table 11 below presents the distribution of ONB's short-term borrowings and the weighted average interest rates thereon for each of the last three years. Short-Term Borrowings (Table 11) ($ in thousands) Other Funds Repurchase Short-term Purchased Agreements Borrowings 1995: ---------------------------------------- Average amount outstanding . . $ 36,588 $194,372 $107,782 Maximum amount outstanding at any month-end. . . . . . . . 91,820 199,961 131,792 Weighted average interest rate: During year. . . . . . . . . 5.99% 5.13% 6.26% End of year. . . . . . . . . 5.71 5.08 5.65 1994: Average amount outstanding . . $ 55,955 $190,618 $ 61,328 Maximum amount outstanding at any month-end. . . . . . . . 124,475 222,953 107,743 Weighted average interest rate: During year. . . . . . . . . 4.39% 3.65% 4.86% End of year. . . . . . . . . 5.54 3.84 5.78 1993: Average amount outstanding . . $21,351 $183,116 $ 36,512 Maximum amount outstanding at any month-end. . . . . . . . 33,433 198,334 58,407 Weighted average interest rate: During year. . . . . . . . . 2.87% 3.23% 3.48% End of year. . . . . . . . . 2.96 3.23 2.49 OTHER FUNDING SOURCES Other funding sources consist of large denomination certificates of deposit, medium term notes, and convertible subordinated debentures. Large certificates grew $37.4 million or 17.1% in 1995 compared to 1994. The growth resulted from the higher interest rate environment for this type of deposit in 1995. Table 12 below presents a maturity distribution for certificates of deposit with denominations of $100,000 or more. During 1995, holders of ONB's 8% convertible debentures converted principal amounts of $6.5 million. These conversions resulted in the issuance of 278 thousand shares of common stock and an offsetting increase in shareholders' equity. ONB issued the remaining $18 million of a medium term note program started in 1993. The notes for the entire program have a weighted average effective interest rate of 6.58% and mature between 1996 and 2003. The funds were used to reduce ONB's lines of credit.
Certificates of Deposit of $100,000 and Over (Table 12) ($ in thousands) Maturity Distribution ----------------------------------------- Year-End 1-90 91-180 181-365 Beyond Interest Average Balance Days Days Days 1 Year Expense Rate ----------------------------------------------------------------------------- 1995 . . . . . . . . . $276,010 $123,002 $54,881 $37,288 $60,839 $14,472 5.65% 1994 . . . . . . . . . 213,298 90,818 51,944 27,524 43,012 8,774 4.01 1993 . . . . . . . . . 225,545 99,014 52,731 33,227 40,573 9,221 3.97
26 USES OF FUNDS A significant challenge in the financial services industry is to employ available sources of funds as profitably as possible in a changing interest rate environment without incurring an undesirable amount of credit or interest rate risk. Primary uses of available funds are loans to customers, investment securities, and various short-term deposits in other institutions. LOANS ONB's affiliate banks lend to commercial customers in various industries including manufacturing, agribusiness, transportation, mining, wholesaling, and retailing. ONB's policy is to concentrate its lending activity in the geographic market areas it serves, primarily southwestern Indiana, southeastern Illinois, and western Kentucky. ONB has no concentration of loans in any single industry exceeding 10% of its portfolio nor does its portfolio contain any loans to finance speculative transactions, such as large, highly leveraged buyouts. ONB does not engage in lending to foreign countries. Total loans, net of unearned, increased $147.4 million or 5.1% between 1994 and 1995. Growth primarily occurred in commercial loans, mortgage loans and consumer loans, net of unearned, which grew 5.0%, 3.7% and 9.8%, respectively. The portfolio is well diversified with 25% of the portfolio in commercial loans, 52% in mortgage loans, primarily residential, and 23% in consumer credit. In 1994 loans grew 10.5% as mortgage loans increased 10.8% and consumer loans rose 17.8%. ONB's commercial lending is primarily to small to medium-sized businesses in various industries in its region. These industries are generally stable in ONB's market area which provides opportunity for growth. Mortgage loans represent the most significant portion of ONB's loan portfolio, with the majority of these loans being for 1-4 family residential property. While ONB's affiliates do make commercial real estate loans, they do so only on a selective basis in their geographic market areas and these amount to $335.7 million at December 31, 1995. Consumer loans include automobile loans, personal and home equity loans and lines of credit, student loans, and credit card loans and represented the largest area of growth in 1995. Table 13 on page 28 presents the composition of the loan portfolio for each of the last five years. Loans in all categories have grown steadily over the five year period shown. Commercial loans increased an average of 5.6% per year between 1991 and 1995. Mortgage loans and consumer loans increased 5.5% and 11.1%, respectively, during this period. Table 14 on page 28 presents the maturity distribution and rate sensitivity of loans and an analysis of loans with predetermined and floating interest rates. A significant percentage of commercial and financial loans are due within one year, reflecting the demand nature of a large portion of these loans. 27
Loan Portfolio At Year-End (Table 13) ($ in thousands) Four Year 1995 1994 1993 1992 1991 Growth Rate -------------------------------------------------------------------- Commercial. . . . . . . . . . . . . . . . $ 737,743 $ 702,459 $ 665,136 $ 600,130 $ 593,114 5.6% Financial . . . . . . . . . . . . . . . . 5,167 7,546 10,000 24,861 50,032 (43.3) Economic development bonds. . . . . . . . 27,675 30,928 35,094 42,113 48,993 (13.3) Mortgage. . . . . . . . . . . . . . . . . 1,579,596 1,523,215 1,374,355 1,298,812 1,273,465 5.5 Consumer credit . . . . . . . . . . . . . 713,435 655,514 560,035 492,718 468,824 11.1 -------------------------------------------------------------------- Total loans . . . . . . . . . . . . . 3,063,616 2,919,662 2,644,620 2,458,634 2,434,428 5.9% Less: Unearned income . . . . . . . . 25,883 29,349 28,574 27,277 27,338 Allowance for loan losses . . . . . . 39,806 41,335 41,833 37,290 33,393 -------------------------------------------------------- Net loans . . . . . . . . . . . . . . $2,997,927 $2,848,978 $2,574,213 $2,394,067 $2,373,697 ======================================================= Composition of Loan Portfolio by Type Commercial/ financial/ development. . . . 25.4% 25.6% 27.2% 27.4% 28.8% Mortgage. . . . . . . . . . . . . . . . . 52.0 52.7 52.5 53.5 52.8 Consumer credit . . . . . . . . . . . . . 22.6 21.7 20.3 19.1 18.4
Distribution of Loan Maturities at December 31, 1995 (Table 14) ($ in thousands) Within 1-5 Beyond 1 Year Years 5 Years Total ------------------------------------------- Commercial and financial . . . $330,595 $210,986 $201,329 $742,910 Economic development bonds . . 2,823 5,673 19,179 27,675 ------------------------------------------- Total. . . . . . . . . . . $333,418 $216,659 $220,508 $770,585 =========================================== Predetermined interest rates . $ 80,911 $106,341 $ 53,170 $240,422 Floating interest rates. . . . 252,507 110,318 167,338 530,163 ------------------------------------------- Total. . . . . . . . . . . $333,418 $216,659 $220,508 $770,585 =========================================== 28 INVESTMENT SECURITIES Investment securities at December 31, 1995, increased $27.2 million, 2.0% over the prior year. Much of this growth arose from the market value adjustment on the available-for-sale securities which are reported on the balance sheet at fair value. Amortized cost decreased slightly since December 31, 1994. The lower, long-term interest rates increased the available-for-sale portfolio's fair value by $31.0 million. Increases based on amortized cost occurred primarily in agencies and mortgage-backed securities where better yield opportunities existed. In 1994 the growth was in municipal securities with their higher taxable equivalent returns with minimal incremental risk. As discussed in Note 3 to the consolidated financial statements, ONB reclassified at December 31, 1995, the remaining held-to-maturity securities as available-for-sale as permitted by the Financial Accounting Standards Board's guide to implementation of SFAS No. 115. The reclassification has no impact on ONB's earnings, but permits maximum flexibility to adapt to interest rate changes. Investment securities comprise 31% of ONB's earning assets. The cashflow of principal and interest along with the ability to liquidate, if necessary, available-for-sale securities allows ONB to meet unforeseen liquidity needs. The entire portfolio has an approximate weighted average maturity of 4.3 years. At December 31, 1995, ONB held investment securities issued by the states of Indiana and Illinois and their political subdivisions that had an aggregate market value of $79.2 million and $62.3 million, respectively. There were no other concentrations of investments securities issued by an individual state and its political subdivisions which were greater than 10% of shareholders' equity. Average yields of the investment securities portfolio are calculated on a taxable equivalent basis. Yields are based on the amortized cost and are weighted for the scheduled maturity of each investment. Average yields for the entire portfolio were 6.99%, 6.84%, and 6.76% for 1995, 1994, and 1993, respectively. The portfolio yield increased during the year due to resets on adjustable rate securities tied to trailing indices and the maturity of lower yielding investments. Table 15 below presents the maturity distribution of the investment portfolio, along with weighted average yields thereon.
Maturity Distribution of Investment Securities (Table 15) ($ in thousands) December 31, 1995 ---------------------------------------- Within 1 - 5 5 - 10 Beyond Fair Value: 1 Year Years Years 10 Years Total 1994 1993 ----------------------------------------------------------------------------- United States Treasury $ 70,944 $117,323 $ -- $ -- $ 188,267 $ 218,266 $ 243,932 U.S. Government agencies and corporations. . . . . . . . . 107,599 87,244 2,605 -- 197,448 166,477 225,716 Mortgage-backed securities 175,276 258,891 111,807 600 546,574 504,130 565,615 State and political subdivisions . . . . . . . . 21,797 119,256 260,552 34,301 435,906 411,729 438,168 Other securities . . . . . . . 2,551 1,712 76 17,646 21,985 24,706 26,638 ----------------------------------------------------------------------------- Total. . . . . . . . . . . $378,167 $584,426 $375,040 $52,547 $1,390,180 $1,325,308 $1,500,069 ============================================================================= Amortized Cost: United States Treasury . . . . $ 70,835 $115,127 $ -- $ -- $ 185,962 $ 225,246 $ 239,787 U.S. Government agencies and corporations . . . . . . 107,724 86,606 2,558 -- 196,888 172,284 222,085 Mortgage-backed securities . . 175,119 256,549 112,140 556 544,364 532,337 561,563 State and political subdivisions . . . . . . . . 21,550 114,382 255,570 33,401 424,903 423,225 415,246 Other securities . . . . . . . 2,548 1,926 61 16,548 21,083 23,909 26,455 ----------------------------------------------------------------------------- Total. . . . . . . . . . . $377,776 $574,590 $370,329 $50,505 $1,373,200 $1,377,001 $1,465,136 ============================================================================= Weighted average yield, based on amortized cost (taxable equivalent basis) 6.51% 7.04% 7.28% 7.87% 6.99% 6.84% 6.76% =============================================================================
29 CAPITAL RESOURCES Graph of Book Value per Share 1991 13.31 1992 14.17 1993 15.37 1994 15.86 1995 17.15 Shareholders' equity was $428.1 million or 8.9% of total assets at December 31, 1995, and $408.6 million or 8.8% at December 31, 1994. ONB paid cash dividends in 1995 totalling $21.1 million or $0.88 per share (restated for the 5% stock dividend paid in February 1996). Treasury shares are repurchased throughout the year as part of an ongoing program to provide shares for reissuance under ONB's dividend reinvestment and stock purchase plan and for future stock dividends. Treasury shares repurchased during 1995 reduced shareholders' equity by $42.8 million. Shares reissued pursuant to the above programs and in connection with conversions of ONB's subordinated debentures added $12.8 million to shareholders' equity in 1995. Capital adequacy in the banking industry is evaluated primarily by the use of ratios which measure capital against assets that are weighted based on risk characteristics. These risk-based capital ratios are presented in Table 16 below. ONB's consolidated capital ratios substantially exceed regulatory minimums and compare favorably to industry averages. Capital Structure Under Risk-Based Capital Guidelines (Table 16) ($ in thousands) December 31, --------------------------------- 1995 1994 1993 Tier 1 capital: --------------------------------- Shareholders' equity (1) . . . . . . . . . $ 417,742 $ 417,189 403,955 Less intangibles . . . . . . . . . . . . . (13,862) (15,641) (17,167) Tier 1 capital . . . . . . . . . . . . 403,880 401,548 386,788 Tier 2 capital: --------------------------------- Subordinated debentures. . . . . . . . . . 31,515 38,049 44,567 Qualifying allowance for loan losses . . . 34,938 34,524 32,341 Total capital. . . . . . . . . . . . . . 470,333 474,121 463,696 --------------------------------- Risk adjusted assets . . . . . . . . . . . $3,015,712 $2,901,689 $2,760,866 ================================= Tier 1 capital to risk-adjusted assets . . 13.39% 13.84% 14.01% Total capital to risk-adjusted assets. . . 15.60 16.34 16.80 Tier 1 capital to total assets (leverage ratio) . . . . . . . . . . . . 8.37 8.65 8.62 (1) Excludes unrealized gains (losses) on investment securities. 30 REPORT OF MANAGEMENT MANAGEMENT'S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS Management is responsible for the preparation of the financial statements and related financial information appearing in this annual report. The financial statements and notes have been prepared in conformity with generally accepted accounting principles and include some amounts which are estimates based upon currently available information and management's judgment of current conditions and circumstances. Financial information throughout this annual report is consistent with that in the financial statements. SYSTEM OF INTERNAL ACCOUNTING CONTROLS Management maintains a system of internal accounting controls which is believed to provide, in all material respects, reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition, transactions are properly authorized and recorded, and the financial records are reliable for preparing financial statements and maintaining accountability for assets. In addition, ONB has a corporate code of conduct under which employees are to maintain high levels of ethical business standards. All systems of internal accounting controls are based on management's judgment that the cost of controls should not exceed the benefits to be achieved and that no system can provide absolute assurance that control objectives are achieved. Management believes ONB's system provides the appropriate balance between costs of controls and the related benefits. In order to monitor compliance with this system of controls, ONB maintains an extensive internal audit program. Internal audit reports are issued to appropriate officers and significant audit exceptions, if any, are reviewed with management and the Audit Committee of the Board of Directors. AUDIT COMMITTEE OF THE BOARD The Board of Directors, through an Audit Committee comprised solely of outside directors, oversees management's discharge of its financial reporting responsibilities. The Audit Committee meets regularly with the Company's independent public accountants, Arthur Andersen LLP, and the managers of internal auditing and loan review. During these meetings, the committee has the opportunity to meet privately with the independent public accountants as well as with internal audit and loan review personnel to review accounting, auditing, loan, and financial reporting matters. The appointment of the independent public accountants is made by the Board of Directors upon the recommendation of the Audit Committee. INDEPENDENT PUBLIC ACCOUNTANTS The financial statements in this annual report have been audited by Arthur Andersen LLP, for the purpose of determining that the financial statements are presented fairly in all material respects. Arthur Andersen's report on the financial statements appears on page 32. Their audit included a review of ONB's system of internal accounting controls, for the purpose of setting the scope and timing of their auditing procedures. 31 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS OF OLD NATIONAL BANCORP: We have audited the accompanying consolidated balance sheet of Old National Bancorp (an Indiana corporation) and affiliates as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Old National Bancorp and affiliates as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Indianapolis, Indiana January 24, 1996 32
Old National Bancorp Consolidated Balance Sheet ($ and shares in thousands) December 31, ---------------------------- 1995 1994 Assets ---------------------------- Cash and due from banks. . . . . . . . . . . . . . . . . . . . $ 175,116 $ 173,404 Money market investments: Interest-bearing deposits in other banks . . . . . . . . . . 6,501 2,854 Federal funds sold and securities purchased under agreements to resell. . . . . . . . . . . . . . . . . . . . . . . . . 79,460 86,582 ---------------------------- Total money market investments. . . . . . . . . . . . . . 85,961 89,436 ---------------------------- TOTAL CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . 261,077 262,840 Investment securities ---------------------------- Held-to-maturity, at amortized cost (fair value $ 865,596 in 1994) -- 903,248 Available-for-sale, at fair value 1,390,180 459,712 ---------------------------- TOTAL INVESTMENT SECURITIES . . . . . . . . . . . . . . . 1,390,180 1,362,960 Loans, net of unearned income. . . . . . . . . . . . . . . . . 3,037,733 2,890,313 Allowance for loan losses. . . . . . . . . . . . . . . . . . . (39,806) (41,335) ---------------------------- NET LOANS . . . . . . . . . . . . . . . . . . . . . . . . 2,997,927 2,848,978 ---------------------------- Premises and equipment, net. . . . . . . . . . . . . . . . . . 72,398 69,351 Accrued income receivable. . . . . . . . . . . . . . . . . . . 45,113 39,337 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 55,933 59,257 ---------------------------- TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . $4,822,628 $4,642,723 Liabilities ============================ Deposits: Noninterest-bearing demand . . . . . . . . . . . . . . . . . $ 469,208 $ 442,225 Interest-bearing: Savings, daily interest checking and money market . . . . 1,562,320 1,461,882 Certificates of deposit of $100,000 and over . . . . . . . 276,010 213,298 Other time . . . . . . . . . . . . . . . . . . . . . . . . 1,666,137 1,551,781 ---------------------------- TOTAL DEPOSITS. . . . . . . . . . . . . . . . . . . . . . 3,973,675 3,669,186 ---------------------------- Federal funds purchased. . . . . . . . . . . . . . . . . . . . 11,775 124,475 Securities sold under agreements to repurchase . . . . . . . . 164,206 222,953 Other short-term borrowings. . . . . . . . . . . . . . . . . . 104,300 107,843 Accrued expenses and other liabilities . . . . . . . . . . . . 59,080 39,605 Subordinated debentures. . . . . . . . . . . . . . . . . . . . 31,515 38,049 Medium term notes. . . . . . . . . . . . . . . . . . . . . . . 50,000 32,000 ---------------------------- TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . 4,394,551 4,234,111 Commitments and contingencies Shareholders' Equity Preferred Stock, 2 million shares authorized, no shares issued or outstanding. . . . . . . . . . . . . . . . . . . . . -- -- Common stock, $1 stated value, 30 million shares authorized, 24,955 and 24,543 shares issued and outstanding, respectively 24,955 24,543 Capital surplus. . . . . . . . . . . . . . . . . . . . . . . . 245,420 232,278 Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 147,367 160,368 Net unrealized gain(loss) on available-for-sale investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . 10,335 (8,577) ---------------------------- TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . 428,077 408,612 ---------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . $4,822,628 $4,642,723 ============================ The accompanying notes to consolidated financial statements are an integral part of this statement.
33
Old National Bancorp Consolidated Statement of Income ($ and shares in thousands except per share data) Years Ended December 31, ------------------------------------ 1995 1994 1993 Interest Income ------------------------------------ Loans including fees: Taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . $263,609 $223,724 $211,117 Nontaxable . . . . . . . . . . . . . . . . . . . . . . . . . 3,578 2,995 2,858 Investment securities: Taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . 61,273 58,861 66,928 Nontaxable . . . . . . . . . . . . . . . . . . . . . . . . . 23,218 23,935 21,572 Deposits with banks. . . . . . . . . . . . . . . . . . . . . . 201 338 1,195 Federal funds sold and securities purchased under agreements to resell . . 3,393 2,391 4,130 ------------------------------------ TOTAL INTEREST INCOME . . . . . . . . . . . . . . . . . . 355,272 312,244 307,800 Interest Expense ------------------------------------ Savings, daily interest checking and money market deposits . . 45,676 38,407 39,474 Certificates of deposit of $100,000 and over . . . . . . . . . 14,472 8,774 9,221 Other time deposits. . . . . . . . . . . . . . . . . . . . . . 89,578 70,373 72,500 Federal funds purchased. . . . . . . . . . . . . . . . . . . . 2,192 2,456 597 Securities sold under agreements to repurchase . . . . . . . . 9,963 6,950 5,948 Other borrowings . . . . . . . . . . . . . . . . . . . . . . . 12,197 8,716 6,744 ------------------------------------ TOTAL INTEREST EXPENSE. . . . . . . . . . . . . . . . . . 174,078 135,676 134,484 ------------------------------------ NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . 181,194 176,568 173,316 Provision for loan losses. . . . . . . . . . . . . . . . . . . 6,657 7,682 10,189 ------------------------------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES . . . 174,537 168,886 163,127 ------------------------------------ Noninterest Income Trust fees . . . . . . . . . . . . . . . . . . . . . . . . . . 9,216 7,851 6,580 Service charges on deposit accounts. . . . . . . . . . . . . . 14,025 13,110 12,330 Loan servicing fees. . . . . . . . . . . . . . . . . . . . . . 5,614 4,898 4,306 Net securities gains(losses) . . . . . . . . . . . . . . . . . 55 (265) 312 Other income . . . . . . . . . . . . . . . . . . . . . . . . . 10,260 9,215 10,070 ------------------------------------ TOTAL NONINTEREST INCOME. . . . . . . . . . . . . . . . . 39,170 34,809 33,598 Noninterest Expense ------------------------------------ Salaries and employee benefits . . . . . . . . . . . . . . . . 75,281 72,962 67,036 Occupancy expense. . . . . . . . . . . . . . . . . . . . . . . 8,706 8,661 8,283 Equipment expense. . . . . . . . . . . . . . . . . . . . . . . 10,816 9,589 8,046 Marketing expense. . . . . . . . . . . . . . . . . . . . . . . 5,201 4,597 3,943 FDIC insurance premiums. . . . . . . . . . . . . . . . . . . . 4,884 8,431 7,875 Data processing expense . . . . . . . . . . . . . . . . . . . 5,881 5,793 4,296 Supplies expense . . . . . . . . . . . . . . . . . . . . . . . 4,454 4,211 3,762 Communication and transportation expense . . . . . . . . . . . 5,756 5,480 4,915 Other expenses . . . . . . . . . . . . . . . . . . . . . . . . 21,798 23,118 23,067 ------------------------------------ TOTAL NONINTEREST EXPENSE . . . . . . . . . . . . . . . . 142,777 142,842 131,223 ------------------------------------ Income before income taxes . . . . . . . . . . . . . . . . . . 70,930 60,853 65,502 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 19,236 14,381 17,470 ------------------------------------ NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . $ 51,694 $ 46,472 $ 48,032 ==================================== Net income per common share: Primary . . . . . . . . . . . . . . . . . . . . . . . . . $2.04 $1.78 $1.84 ==================================== Fully diluted . . . . . . . . . . . . . . . . . . . . . . $1.99 $1.74 $1.79 ==================================== Weighted average number of common shares outstanding: Primary . . . . . . . . . . . . . . . . . . . . . . . . . 25,370 26,096 26,094 ==================================== Fully diluted . . . . . . . . . . . . . . . . . . . . . . 26,778 27,795 27,883 ==================================== The accompanying notes to consolidated financial statements are an integral part of this statement.
34
Old National Bancorp Consolidated Statement of Changes in Shareholders' Equity ($ and shares in thousands) Net Unrealized Common Stock Loss on Total ------------------- Capital Retained Investment Shareholders' Shares Amount Surplus Earnings Securities Equity ---------------------------------------------------------------------------- Balances, December 31, 1992. . 22,918 $22,918 $179,432 $173,530 $ -- $375,880 Net income . . . . . . . . . . -- -- -- 48,032 -- 48,032 Cash dividends . . . . . . . . -- -- -- (17,278) -- (17,278) 5% stock dividend . . . . . . 930 930 33,215 (34,145) -- -- Stock repurchased. . . . . . . (442) (442) (14,463) -- -- (14,905) Stock reissued under dividend reinvestment and stock purchase plan. . . . . . . 151 151 4,891 -- -- 5,042 Stock reissued due to conversion of subordinated debentures . 277 277 6,907 -- -- 7,184 ---------------------------------------------------------------------------- Balances, December 31, 1993 . 23,834 23,834 209,982 170,139 -- 403,955 Net income. . . . . . . . . . -- -- -- 46,472 -- 46,472 Cash dividends. . . . . . . . -- -- -- (20,009) -- (20,009) 5% stock dividend . . . . . . 1,043 1,043 35,191 (36,234) -- -- Stock repurchased . . . . . . (615) (615) (21,755) -- -- (22,370) Stock reissued under dividend reinvestment and stock purchase plan . . . . . . . . . . . . 200 200 6,929 -- -- 7,129 Stock reissued due to conversion of subordinated debentures . 81 81 1,931 -- -- 2,012 Net unrealized loss on investment securities. . . . . . . . . . -- -- -- -- (8,577) (8,577) ---------------------------------------------------------------------------- Balances, December 31, 1994 . 24,543 24,543 232,278 160,368 (8,577) 408,612 Net income . . . . . . . . . -- -- -- 51,694 -- 51,694 Cash dividends. . . . . . . . -- -- -- (21,110) -- (21,110) 5% stock dividend . . . . . . 1,184 1,184 42,401 (43,585) -- -- Stock repurchased . . . . . . (1,238) (1,238) (41,570) -- -- (42,808) Stock reissued under dividend reinvestment and stock purchase plan. . . . . . . . 188 188 6,055 -- -- 6,243 Stock reissued due to conversion of subordinated debentures . 278 278 6,256 -- -- 6,534 Net unrealized gains on investment securities. . . . -- -- -- -- 18,912 18,912 ---------------------------------------------------------------------------- Balances, December 31, 1995 . 24,955 $24,955 $245,420 $147,367 $10,335 $428,077 ============================================================================ The accompanying notes to consolidated financial statements are an integral part of this statement.
35
Old National Bancorp Consolidated Statement of Cash Flows ($ in thousands) Years Ended December 31, ----------------------------------- 1995 1994 1993 Cash flows from operating activities: ----------------------------------- Net income . . . . . . . . . . . . . . . . . . . . . $ 51,694 $ 46,472 $ 48,032 Adjustments to reconcile net income to cash provided by operating activities: Depreciation . . . . . . . . . . . . . . . . . . . 7,653 7,066 6,367 Amortization of intangible assets. . . . . . . . . 1,231 1,853 1,802 Net premium amortization on investment securities. 1,591 5,008 4,454 Provision for loan losses. . . . . . . . . . . . . 6,657 7,682 10,189 (Gain) loss on sale of investment securities . . . (55) 265 (312) (Gain) loss on sale of equipment . . . . . . . . . (291) (1) 322 Decrease in interest receivable. . . . . . . . . . (5,776) (2,737) 1,970 (Increase) decrease in other assets. . . . . . . . 2,093 (563) (1,289) Increase (decrease) in accrued expenses and other. liabilities . . . . . . . . . . . . . . . . . . 7,832 (1,289) 1,169 ----------------------------------- Total adjustments. . . . . . . . . . . . . . . . 20,935 17,284 24,672 ----------------------------------- Net cash flows provided by operating activities. . 72,629 63,756 72,704 ----------------------------------- Cash flows from investing activities: Purchase of investment securities held-to-maturity . (62,585) (162,873) (687,308) Purchase of investment securities available-for-sale (262,978) (176,676) -- Proceeds from maturities of investment securities held-to-maturity. . . . . . . . . . . . . . . . . 107,340 204,561 546,441 Proceeds from maturities of investment securities available-for-sale. . . . . . . . . . . . . . . . 184,812 170,830 -- Proceeds from sales of investments securities held-to-maturity. . . . . . . . . . . . . . . . . -- -- 70,880 Proceeds from sales of investments securities available-for-sale. . . . . . . . . . . . . . . . . 35,210 51,085 -- Net principal collected from (loans made to) customers: Commercial and financial.. . . . . . . . . . . . . 38,665 (37,487) (51,159) Mortgage, net of loans originated for sale . . . . . (128,679) (133,422) (42,880) Consumer . . . . . . . . . . . . . . . . . . . . . (65,592) (97,671) (54,208) Mortgage loans originated for sale . . . . . . . . . (36,322) (33,872) (98,368) Proceeds from sale of mortgage loans . . . . . . . . 36,541 27,070 96,644 Proceeds from sale of premises and equipment . . . . 1,258 755 2,011 Purchase of premises and equipment . . . . . . . . . (11,886) (12,012) (18,729) Acqusition of affiliate. . . . . . . . . . . . . . . 0 12,591 15,273 ----------------------------------- Net cash flows used in investing activities. . . . (164,216) (187,121) (221,403) ----------------------------------- Cash flows from financing activities: Net increase (decrease) in deposits and short-term borrowings: Noninterest-bearing demand deposits. . . . . . . . 26,983 (9,988) 20,468 Savings, daily interest checking and money market deposits . . . . . . . . . . . . . . . . . . . . 85,501 (31,813) 79,961 Certificates of deposit of $100,000 and over . . . 62,712 (16,623) (34,809) Other time deposits. . . . . . . . . . . . . . . . 129,293 21,135 (3,618) Federal funds purchased and securities sold under agreements to repurchase . . . . . . . . . . . . (171,447) 131,380 (1,192) Other short-term borrowings. . . . . . . . . . . . (3,543) 46,759 (2,837) Net proceeds from medium term notes. . . . . . . . . 18,000 -- 32,000 Redemption of 10% subordinated debentures. . . . . . -- (4,506) -- Cash dividends paid. . . . . . . . . . . . . . . . . (21,110) (20,009) (17,278) Common stock repurchased . . . . . . . . . . . . . . (42,808) (22,370) (14,905) Common stock reissued, net of shares used to convert 8% subordinated debentures. . . . . . . . 6,243 7,129 5,042 ----------------------------------- Net cash flows provided by financing activities. . 89,824 101,094 62,832 ----------------------------------- Net decrease in cash and cash equivalents. . . . . . (1,763) (22,271) (85,867) Cash and cash equivalents at beginning of period . . 262,840 285,111 370,978 ----------------------------------- Cash and cash equivalents at end of period . . . . . $261,077 $262,840 $285,111 =================================== The accompanying notes to consolidated financial statements are an integral part of this statement.
36 OLD NATIONAL BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Old National Bancorp ("ONB") and its wholly-owned affiliates and have been prepared in conformity with generally accepted accounting principles and prevailing practices within the banking industry. Such principles require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosures of contingent assets and liabilities at the date of the financial statements and amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. All significant intercompany transactions and balances have been eliminated. The statements have been restated to reflect mergers accounted for by the pooling-of-interests method of accounting (see Note 2). A summary of the more significant accounting and reporting policies used in preparing the statements is presented below. NATURE OF OPERATIONS ONB, a multi-bank holding company headquartered in Evansville, Indiana, operates in Indiana, Illinois, and Kentucky. Through its bank and non-bank affiliates, ONB provides to its customers an array of financial services including loan, deposit, trust, investment, and insurance products. INVESTMENT SECURITIES According to Statement of Financial Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities", securities are classified into one of three categories as follows: "Held-to-maturity" includes debt securities which ONB has the intent and ability to hold until maturity. They are recorded at amortized cost. "Trading" includes debt and equity securities purchased with the intent to sell in the near-term and are carried at fair value. Unrealized gains and losses are included in income. "Available-for-sale" includes all other securities. These securities are recorded at fair value with the unrealized gains and losses, net of tax effect, recorded as a separate component of shareholders' equity. Realized gains and losses affect income and the prior fair value adjustments are reversed. As discussed in Note 3, all of ONB's investment securities are classified as available-for-sale at December 31, 1995. LOANS Loans are stated at the principal amount outstanding. Interest income on nondiscounted loans is accrued on the principal balances of loans outstanding. Interest income on discounted loans is recognized using other methods that generally approximate the interest method. A loan is generally placed on nonaccrual status when principal or interest becomes 90 days past due, unless it is well secured and in the process of collection or earlier when concern exists as to the ultimate collection of principal or interest. Interest accrued during the current year on such loans is reversed against earnings; interest accrued in the prior year, if any, is charged to the allowance for loan losses. As an element of managing interest rate risk exposure, certain of ONB's affiliate banks pre-sell fixed rate mortgage loans to third parties. As of December 31, 1995, approximately $3.0 million of such mortgage loans were held and carried at cost which approximates market value. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is maintained at a level believed adequate by management to absorb potential losses in the consolidated loan portfolio. Management's evaluation of the adequacy of the allowance is an estimate based on reviews of individual loans, the risk characteristics of the various categories of loans given current economic conditions and other factors such as historical loss experience, the financial condition of the borrower, and fair market value of the collateral and growth of the loan portfolio. The allowance is increased through a provision charged to operating expense. Loans deemed to be uncollectible are charged to the allowance. Recoveries of loans previously charged off are added to the allowance. Effective January 1, 1995, ONB adopted the provisions of the SFAS No. 114 and No. 118, which address the accounting and disclosure requirements by creditors for impairment of loans. Because these statements did not significantly change the method by which ONB has historically analyzed impaired loans, implementation of these statements did not have a material effect on ONB's financial position and results of operation. A loan is considered impaired when it is probable that contractual interest and principal payments will not be collected for either the amounts or the dates as scheduled in the loan agreement. ONB's policy for recognizing income on impaired loans is to accrue earnings unless a loan becomes nonaccrual. 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 for building and leasehold improvements and the declining-balance method for equipment. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. 37 OTHER ASSETS Real estate properties acquired as a result of foreclosure are valued at the lower of the recorded investment in the related loan or fair value of the property less estimated costs to sell. The recorded investment is the sum of the outstanding principal loan balance, any accrued interest which has not been received and acquisition costs associated with the loan. Any excess of the recorded investment over the fair value of the property received is charged to the allowance for loan losses. Any subsequent write-downs are charged to expense, as are the costs of operating the properties. Such costs are not material to ONB's results of operation. Identifiable intangible assets and the excess of total acquisition costs over the fair value of net assets acquired ($1.1 million and $12.8 million, respectively, at December 31, 1995) are being amortized on the straight-line basis over periods ranging from 8 to 25 years. Such assets are periodically evaluated as to the recoverability of their carrying value. NET INCOME PER SHARE Primary net income per share is computed by dividing net income by the weighted average number of common shares outstanding during each year, adjusted to reflect all stock dividends (Note 9) and all mergers accounted for as pooling-of-interests (Note 2) as if they had occurred at the beginning of the earliest year presented. Net income per share, assuming full dilution, is computed as above and assumes the conversion of outstanding subordinated debentures (Note 10). For the fully diluted computation, net income is adjusted for the elimination of interest expense, net of income tax effects, and a total of 1.4 million, 1.7 million, and 1.8 million common shares are assumed to be issued in 1995, 1994, and 1993, respectively, in connection with the conversion of the remaining outstanding debentures. INCOME TAXES Deferred tax assets and liabilities are recorded based on differences between the financial statement and tax bases of assets and liabilities at income tax rates currently in effect. For ONB, this results in a net deferred tax asset which relates principally to differences in the recognition of loan losses for book and tax purposes. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS In the ordinary course of business, ONB's affiliate banks have entered into off-balance-sheet financial instruments consisting of commitments to extend credit, commitments under credit card arrangements, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. STATEMENT OF CASH FLOWS DATA For the purpose of presentation in the accompanying Statement of Cash Flows, cash and cash equivalents are defined as cash, due from banks, and money market investments. Cash paid during the years ended December 31, 1995, 1994, and 1993 for interest was $168.2 million, $133.9 million, and $136.3 million, respectively. Total income tax payments during 1995, 1994 and 1993 were $15.8 million, $21.5 million, and $21.8 million, respectively. IMPACT OF ACCOUNTING CHANGES The Financial Accounting Standards Board has issued SFAS No. 122, "Accounting for Mortgage Servicing Rights", which modifies the accounting for mortgage servicing rights to allow the recognition of a servicing asset whether they are purchased or originated. ONB will adopt the provisions of this statement effective January 1, 1996, and does not expect the adoption of this statement to be material to its financial condition and results of operation. The Financial Accounting Standards Board has issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." ONB will adopt the provisions of this statement effective January 1, 1996. ONB does not expect the impact to be material to its financial condition and results of operation. RECLASSIFICATIONS Certain 1994 and 1993 amounts in the consolidated financial statements have been reclassified to conform with the 1995 presentation. Such reclassifications had no effect on net income. NOTE 2 - BUSINESS COMBINATIONS
MERGERS - CONSUMMATED ONB consummated the following mergers in 1995: Date Company & Subsidiary Shares Issued - -------- -------------------------------------------------------------------- ------------- March 31 Oblong Bancshares, Inc. - First National Bank (Oblong, Illinois) 437,932 April 30 Citizens National Bank Corporation - Citizens National Bank 992,861 (Tell City, Indiana) October 31 City National Bancorp, Inc. - City National Bank (Fulton, Kentucky) 551,573 November 3 First United Savings Bank ("United") (Greencastle, Indiana) 520,353 December 7 Shawnee Bancorp - The Bank of Harrisburg (Illinois) 142,780
38 These transactions were accounted for as pooling-of-interests. Upon consummation, United's branches in Greencastle were merged into an existing ONB affiliate, First Citizens Bank & Trust Co. United's remaining operations are located in Bloomington, Indiana, and it has been renamed ONB Bank. The Bank of Harrisburg was merged into an existing ONB affiliate, First National Bank, Harrisburg, Illinois. Net income earned in 1995 by these companies prior to their respective mergers with ONB totalled $2.7 million. The following table presents a restatement of net interest income, net income, and primary net income per common share to reflect these pooling-of-interests transactions ($ in thousands, except per share data): 1994 1993 As reported in the 1994 Annual Report: -------- -------- Net interest income $159,445 $156,694 Net income 46,043 45,587 Primary net income per share, as restated for stock dividend 1.98 1.96 As restated herein: Net interest income $176,568 $173,316 Net income 46,472 48,032 Primary net income per share 1.78 1.84 MERGERS - PENDING During 1995, ONB entered into an agreement to merge with The National Bank of Carmi, Carmi, Illinois, which has $66.1 million in total assets as of December 31, 1995. Under the agreement, ONB will issue an estimated 388,500 shares. The merger will be accounted for as a pooling-of-interests and is subject to the approvals of the institution's shareholders and the applicable regulatory authorities. The transaction is expected to be consummated in mid-1996. NOTE 3 - INVESTMENT SECURITIES The following tables summarize the amortized cost and fair value of the investment securities portfolio at December 31, 1995 and 1994, and the corresponding amounts of unrealized gains and losses therein ($ in thousands):
Held-to-Maturity Available-for-Sale December 31,1995 ------------------------------------------------ ----------------------------------------------- Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value ------------------------------------------------ ----------------------------------------------- U.S. Treasury... $ -- $ -- $ -- $ -- $ 185,962 $ 2,678 $ (373) $ 188,267 U.S. Government agencies and corporations -- -- -- -- 196,888 1,487 (927) 197,448 Mortgage-backed securities. . -- -- -- -- 539,521 4,465 (2,265) 541,721 State and political subdivisions -- -- -- -- 424,903 12,814 (1,812) 435,905 Other securities . -- -- -- -- 25,926 1,138 (225) 26,839 ------------------------------------------------ ----------------------------------------------- Total. . $ -- $ -- $ -- $ -- $1,373,200 $22,582 $(5,602) $1,390,180 ================================================ =============================================== December 31, 1994: U.S. Treasury.. $ 3,457 $ -- $ (101) $ 3,356 $ 221,789 $ 97 $ (6,976) $ 214,910 U.S. Government agencies and corporations .. 11,952 -- (517) 11,435 160,332 498 (5,788) 155,042 Mortgage-backed securities. 460,701 477 (26,007) 435,171 71,636 75 (2,752) 68,959 State and political subdivisions .. 415,319 5,203 (16,705) 403,817 7,906 125 (119) 7,912 Other securities . 11,819 1 (3) 11,817 12,090 860 (61) 12,889 ------------------------------------------------ ----------------------------------------------- Total. . $903,248 $5,681 $(43,333) $865,596 $ 473,753 $ 1,655 $(15,696) $ 459,712 ================================================ ===============================================
39 In November 1995 the Financial Accounting Standards Board issued a guide to the implementation of SFAS No. 115 which allowed a one-time reclassification of securities between the categories. As of December 31, 1995, ONB reevaluated its portfolio and reclassified its remaining held-to-maturity securities as available-for-sale. The reclassification maximizes flexibility in future interest rate environments by allowing sales, if deemed necessary. The securities transferred had an amortized cost of $886.7 million and unrealized gain of $13.8 million. The amortized cost and fair value of the investment securities portfolio at December 31, 1995 and 1994, are shown below by contractual or expected maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Proceeds from sales of investment securities available-for-sale during 1995 and 1994 were $35.2 million and $51.1 million, respectively. In 1995, gains totalling $0.1 million were realized on these sales. In 1994, realized losses were $0.3 million. Investment securities with a carrying value of $452 million and $382 million at December 31, 1995 and 1994, respectively, were pledged to secure public and other funds as required. ($ in thousands) 1995 1994 --------------------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value Maturity --------------------------------------------- Within one year. . . $ 377,776 $ 378,167 $ 152,146 $ 150,975 One to five years. . 574,590 584,426 612,618 595,761 Five to ten years. . 370,329 375,040 527,273 497,215 Beyond ten years . . 50,505 52,547 84,964 81,357 --------------------------------------------- Total. . . . . . $1,373,200 $1,390,180 $1,377,001 $1,325,308 ============================================= NOTE 4 - LOANS The composition of loans at December 31, 1995 and 1994 by lending classification was as follows ($ in thousands): December 31, --------------------------- 1995 1994 --------------------------- Commercial. . . . . . . . . . $ 737,743 $ 702,459 Financial . . . . . . . . . . 5,167 7,546 Economic development bonds. . . . 27,675 30,928 Mortgage loans. . . . . . . . 1,579,596 1,523,215 Consumer credit, net. . . . . . . 687,552 626,165 --------------------------- Total loans . . . . . . . . $3,037,733 $2,890,313 =========================== ONB's banking affiliates make loans to customers in various industries including manufacturing, agribusiness, transportation, mining, wholesaling, and retailing predominately in its tri-state region. The loan portfolio is diversified with no single industry exceeding 10% of the total. In the normal course of business, the banking affiliates make loans to their officers and directors, and to related companies and individuals. These loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with unrelated parties and they involve no unusual risk of collectibility. An analysis of the 1995 activity of these loans is as follows ($ in thousands): Balance, January 1, 1995 . . . . . . . . . . . . . . $112,732 New loans. . . . . . . . . . . . . . . . . . . . . 66,354 Repayments . . . . . . . . . . . . . . . . . . . . (58,912) Officer and director changes . . . . . . . . . . . 13,274 -------- Balance, December 31, 1995 . . . . . . . . . . . . . $133,448 ======== 40 NOTE 5 - ALLOWANCE FOR LOAN LOSSES Activity in the allowance for loan losses during the years 1995, 1994 and 1993 was as follows ($ in thousands): December 31, -------------------------------------- 1995 1994 1993 -------------------------------------- Balance at beginning of year . . $41,335 $41,833 $37,290 Additions: Provision charged to expense . 6,657 7,682 10,189 Acquisition under purchase accounting. . . . . . . . . -- -- 764 Deductions: Loans charged off. . . . . . . 11,186 10,649 11,135 Recoveries . . . . . . . . . . (3,000) (2,469) (4,725) -------------------------------------- Net charge-offs. . . . . . . 8,186 8,180 6,410 -------------------------------------- Balance at end of year . . . . . $39,806 $41,335 $41,833 ====================================== As of December 31, 1995, the recorded investment in loans for which impairment has been recognized in accordance with SFAS No. 114 and 118 was $5.7 million with no related allowance and $47.5 million with $13.4 million of related allowance. For the year ended December 31, 1995, the average balance of impaired loans was $57.9 million, and $4.3 million of interest was recorded. NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized in the consolidated balance sheet, for which it is practicable to estimate fair value. The following methods and assumptions were used to estimate the fair value of each type of financial instrument. CASH, DUE FROM BANKS AND MONEY MARKET INVESTMENTS For these instruments, the carrying amount is a reasonable estimate of fair value. INVESTMENT SECURITIES For investment securities, fair values are based on quoted market prices, if available. For securities where quoted prices are not available, fair value is estimated based on market prices of similar securities. LOANS The fair value of loans is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. DEPOSITS The fair value of noninterest-bearing demand deposits and savings, daily interest checking, 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 of similar remaining maturities. FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Federal funds purchased and securities sold under agreements to repurchase generally have an original term to maturity of 30 days or less and, therefore, their carrying amount is a reasonable estimate of fair value. MEDIUM TERM NOTES AND SUBORDINATED DEBENTURES The fair value of medium term notes is estimated using rates currently offered for obligations of similar remaining maturities. The fair value of subordinated debentures is estimated using rates currently available to ONB for debt with similar terms and remaining maturities. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS Loan commitments and standby letters of credit are generally short-term and therefore, their carrying amount is a reasonable estimate of their fair value. 41
The estimated carrying and fair values of ONB's financial instruments as of December 31, 1995, are as follows ($ in thousands): Carrying Fair Value Value Financial Assets: ------------------------------- Cash, due from banks and money market investments . . . . . . $261,077 $261,077 Investment securities . . . . . . . . . . . . . . . . . . . . 1,390,180 1,390,180 Loans, net. . . . . . . . . . . . . . . . . . . . . . . . . . 2,997,927 3,007,838 Financial Liabilities: Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,973,675 3,972,170 Short-term borrowings . . . . . . . . . . . . . . . . . . . . 280,281 280,281 Medium term notes. . . . . . . . . . . . . . . . . . . . . . . 50,000 51,485 Subordinated debentures. . . . . . . . . . . . . . . . . . . . 31,515 46,563 Off-Balance-Sheet Financial Instruments: Commitments to extend credit. . . . . . . . . . . . . . . . . 638,042 638,042 Letters of credit . . . . . . . . . . . . . . . . . . . . . . 26,092 26,092
NOTE 7 - INCOME TAXES Following is a summary of the major items comprising the difference in taxes computed at the federal statutory rate and as recorded in the consolidated statement of income: 1995 1994 1993 ------------------------------------- Provision at statutory rate . . . 35.0% 35.0% 35.0% Tax exempt income . . . . . . . . (11.4) (13.8) (11.9) NOL utilization . . . . . . . . . -- -- (0.5) State income taxes. . . . . . . . 3.2 3.4 3.3 Reduction in deferred tax asset valuation allowance. . . . -- (2.6) -- Other, net. . . . . . . . . . . . 0.3 1.6 0.8 -------------------------------------- Actual tax rate . . . . . . . . . 27.1% 23.6% 26.7% ====================================== The provision for income taxes consists of the following components ($ in thousands): 1995 1994 1993 -------------------------------- Income taxes currently payable - federal . . $14,971 $13,081 $14,822 Income taxes currently payable - state . . . 3,533 3,878 3,936 Deferred income taxes related to: Provision for loan losses . . . . . . . . (70) (285) (697) Reduction in deferred tax asset valuation allowance. . . . . . . . . . - (1,599) - Other, net. . . . . . . . . . . . . . . . 802 (694) (591) --------------------------------- Deferred income tax expense (benefit). . . . 732 (2,578) (1,288) --------------------------------- Provision for income taxes . . . . . . . . . $19,236 $14,381 $17,470 ================================= 42 Significant components of ONB's net deferred tax asset as of December 31, are as follows ($ in thousands): 1995 1994 Deferred Tax Assets: ----------------------- Allowance for loan losses, net of recapture. . $14,220 $14,150 Benefit plan accruals. . . . . . . . . . . . . 2,514 2,853 Net operating loss carryforwards . . . . . . . 2,797 3,149 Unrealized loss on available-for-sale investment securities . . . . . . . . . . . . -- 5,448 Purchase accounting adjustments. . . . . . . . 647 -- Other, net . . . . . . . . . . . . . . . . . . -- 141 ---------------------- Total deferred tax assets . . . . . . . . . 20,178 25,741 ---------------------- Deferred Tax Liabilities: Premises and equipment. . . . . . . . . . . . . (2,795) (2,205) Purchase accounting adjustments . . . . . . . . -- (675) Accretion on investment securities. . . . . . . (860) (663) Unrealized gain on available-for-sale investment securities . . . . . . . . . . . . (6,653) --- Lease receivable, net . . . . . . . . . . . . . (1,019) (706) Other, net. . . . . . . . . . . . . . . . . . . (192) -- --------------------- Total deferred tax liabilities . . . . . . . (11,519) (4,249) --------------------- Net deferred tax assets. . . . . . . . . . . . . $8,659 $21,492 ===================== As of December 31, 1995, ONB had $5.5 million Federal net operating loss carryforwards which expire between 2002 and 2009. These net operating loss carryforwards are attributable to several of ONB's affiliate banks. Tax law imposes a limitation on the utilization of net operating loss carryforwards generated by an acquired entity. For ONB, this annual limitation is approximately $1.7 million of taxable income generated by the acquired banks. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. The valuation allowance was reversed in 1994 due to the continued and expected profitability of the affiliate banks to which the allowance related. NOTE 8 - EMPLOYEE BENEFIT PLANS RETIREMENT PLAN ONB has a noncontributory defined benefit retirement plan covering substantially all full-time employees. Retirement benefits are based on years of service and compensation during the highest paid five years of employment. ONB's policy is to contribute at least the minimum funding requirement determined by the plan's actuary.
The table below sets forth the plan's funded status and the amount recognized in the consolidated balance sheet at December 31, 1995, 1994, and 1993. The table includes for all years affiliates that were part of ONB prior to 1993. The affiliates at Indiana State, Covington, and Paoli, were added in 1995. Danville, Williamsport, and Jasper affiliates joined the plan in 1993. The recognition of the affiliates acquired in 1995 will begin in 1996. ($ in thousands): 1995 1994 1993 Actuarial present value of the accumulated benefit --------------------------------- obligation, including vested benefits of $14,086 in 1995, $11,575 in 1994, and $11,142 in 1993. . . . . . . . . . . $15,233 $12,730 $11,995 ================================= Actuarial present value of the projected benefit obligation, for service rendered to date. . . . . . . . . . . . . . . . $21,091 $20,372 $18,817 Plan assets, primarily common stocks, bonds and guaranteed investment contracts . . . . . . . . . . . . . . 19,943 15,284 17,039 --------------------------------- Plan assets less than projected benefit obligation . . . . . (1,148) (5,088) (1,778) Unrecognized net loss during the year. . . . . . . . . . . . 784 3,880 2,716 Unrecognized prior service cost. . . . . . . . . . . . . . . 473 1,318 1,060 Remaining unrecognized overfunding at date of adoption of SFAS Statement No. 87, being recognized over 18.5 years. . (3,058) (3,400) (3,742) --------------------------------- Accrued pension cost included in other liabilities . . . . . $(2,949) $(3,290) $(1,744) =================================
43
The net pension expense and its components were as follows: 1995 1994 1993 ($ in thousands) ----------------------------------- Service cost - benefits earned during period . . . $1,667 $ 1,617 $ 1,349 Interest cost on projected benefit obligation. . . 1,562 1,384 1,328 Actual return on plan assets . . . . . . . . . . . (2,785) 313 (1,264) Net amortization and deferral. . . . . . . . . . . 1,020 (1,769) (398) ----------------------------------- Net pension expense. . . . . . . . . . . . . . . . $ 1,464 $ 1,545 $ 1,015 ===================================
Each year, ONB consults with its actuary to assess the appropriateness of assumptions used in the determination of retirement plan expense and funded status information for the discount rate, the long-term rate of return on assets, and the rate of salary progression. The assumptions reflected in the table above include a discount rate at December 31 of 7.75% in 1995, 8.00% in 1994, and 7.50% in 1993, a long-term rate of return of 8.00% in 1995, and 7.50% in 1994 and 1993, and a rate of salary progression of 5.00% in 1995, 1994, and 1993. The total retirement plan expense for all plans was $1.5 million in 1995, $1.7 million in 1994, and $1.2 million in 1993. PROFIT SHARING PLAN ONB has a profit sharing plan for all employees who have completed one year of service. Contributions to the plan are made when certain consolidated profit conditions are met. Additionally, employees may participate by contributing a percentage of their salary, a portion of which is matched by ONB. ONB's profit sharing expense for the years 1995, 1994, and 1993 was $3.8 million, $3.6 million, and $3.2 million, respectively. RESTRICTED STOCK PLAN ONB has a restricted stock plan which covers certain officers of ONB and its affiliates. Shares are earned each year based on the achievement of return on equity targets. Shares vest over a four year period. Unvested shares are subject to certain restrictions and risk of forfeiture by the participants. Shares vesting in 1995, 1994, and 1993 totalled 22,794, 22,439, and 22,234 shares, respectively. Expense recorded in 1995, 1994, and 1993 was $0.7 million, $0.8 million and $0.8 million, respectively. NOTE 9 - SHAREHOLDERS' EQUITY STOCK DIVIDEND A 5% stock dividend was declared on December 15, 1995, and distributed on February 20, 1996. All average share and per share amounts have been retroactively adjusted to reflect this stock dividend. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN ONB has a dividend reinvestment and stock purchase plan, under which common shares issued may be either repurchased shares or authorized and previously unissued shares. As of December 31, 1995, 1,343,257 authorized and unissued common shares were reserved for issuance under the plan. SHAREHOLDER RIGHTS PLAN ONB has adopted a Shareholder Rights Plan whereby one right was distributed for each outstanding share of ONB's common stock. The rights become exercisable on the tenth day following a public announcement that a person has acquired or intends to acquire beneficial ownership of 20% or more of ONB's outstanding common stock. Upon exercising the rights, the holder is entitled to buy 1/100 of a share of Junior Preferred Stock at $60 for every right held. Upon the occurrence of certain events, the rights may be redeemed by ONB at a price of $.01 per right. In the event an acquiring party becomes the beneficial owner of 20% or more of ONB's outstanding shares, rights holders (other than the acquiring person) may purchase two shares of ONB common stock for the price of one share at the then market price. If ONB is acquired and is not the surviving corporation, or if ONB survives a merger but has all or part of its common stock exchanged, each rights holder will be entitled to acquire shares of the acquiring company with a value of two times the then exercise price of the rights for each right held. 44 NOTE 10 - FINANCING ACTIVITIES SUBORDINATED DEBENTURES ONB has outstanding $31.5 million of 8% convertible subordinated debentures which are due September 15, 2012, unless previously converted or redeemed. The debentures are convertible into shares of ONB common stock at a conversion rate of 44.643 shares per $1,000 principal amount of debentures. During 1995, $6.5 million principal amount of debentures were converted into 277,806 shares of ONB common stock. Interest on the debentures is payable on March 15 and September 15 of each year. The debentures are redeemable, in whole or in part, at the option of ONB at a premium to par value. Debenture holders are entitled to an annual sinking fund beginning September 15, 1998, of $2.5 million principal amount of debentures annually less conversions and redemptions. The debentures are subordinated in right of payment to all senior indebtedness of ONB. As of December 31, 1995, 1.4 million authorized and unissued common shares were reserved for conversion of the remaining debentures. MEDIUM TERM NOTES At December 31, 1995, ONB has outstanding $50 million of medium term notes. These notes bear interest at a weighted average rate of 6.58% and mature between 1996 and 2003. LINES OF CREDIT At December 31, 1995, ONB had $40 million in unsecured lines of credit with unaffiliated banks to support its merger activity. Of this amount, $21.4 million was unused. The lines bear interest at the bank's federal funds rate plus 60 to 80 basis points. During the years 1995, 1994, and 1993, the average interest rates on the lines were 6.71%, 5.52%, and 3.77%, respectively. The lines of credit include various arrangements to maintain compensating balances or pay fees to maintain the line. At December 31, 1995, ONB had $69.6 million borrowed from various Federal Home Loan Banks (FHLB). Of these borrowings, $57.0 million have floating rates and mature in 1996. The remaining borrowings have a fixed interest rate and mature between 1996 and 2013. The weighted average rate of the FHLB borrowings were 5.92% and 6.53% at December 31, 1995 and 1994, respectively. A portion of these borrowings is secured by specific mortgage loans which have a current book value of approximately $73.7 million. FHLB requires collateral market value equal to 170% of the amount borrowed. NOTE 11 - COMMITMENTS AND CONTINGENCIES LEASES ONB rents certain premises and equipment under operating leases which expire at various dates. Many of these leases provide for payment by ONB of property taxes, insurance premiums, maintenance, and other costs. In some cases, rentals are subject to increase in relation to a cost-of-living index. Total rental expense was $3.8 million in 1995, $3.3 million in 1994, and $2.2 million in 1993. Following is a summary of future minimum lease commitments ($ in thousands): 1996 . . $2,832 1999 . . . . . . .$1,511 1997 . . 1,980 2000 . . . . . . . 1,276 1998 . . 1,599 2001 and after . . 6,481 LETTERS AND LINES OF CREDIT In the normal course of business, ONB's banking affiliates have entered into various agreements to extend credit, such as loan commitments of $638 million, including $285 million of short-term commitments with fixed-rates, and letters of credit of $26.1 million at December 31, 1995. These commitments are not reflected in the consolidated financial statements. No material losses are expected to result from these transactions. LITIGATION At December 31, 1995, various legal actions and proceedings were pending against ONB and certain of its affiliate banks. These actions and proceedings are incidental to the banking business and are not expected to have a material adverse effect upon the financial position of ONB or its affiliates. 45 NOTE 12 - REGULATORY RESTRICTIONS RESTRICTIONS ON CASH AND DUE FROM BANKS ONB's affiliate banks are required to maintain reserve balances on hand and with the Federal Reserve Bank which are non-interest bearing and unavailable for investment purposes. The average amount of those reserve balances for the years ended December 31, 1995 and 1994, were $55.7 and $30.7 million, respectively. RESTRICTIONS ON TRANSFERS FROM AFFILIATE BANKS As of December 31, 1995, ONB's affiliate banks could pay cash dividends, without prior approval of regulatory authorities, equal to the amount of net income for 1993, 1994, and 1995, less dividends actually paid during that period of time and minimum capital requirements for each bank. At December 31, 1995, affiliate banks could pay aggregate dividends to ONB of approximately $43.7 million without prior regulatory approval. NOTE 13 - PARENT COMPANY FINANCIAL STATEMENTS The following are the condensed parent company only financial statements of Old National Bancorp ($ in thousands) Old National Bancorp (Parent Company Only) Condensed Balance Sheet December 31, -------------------- 1995 1994 ASSETS -------------------- Deposits in affiliate banks. . . . . . . . . . . . . . $ 664 $ 1,990 Investment in affiliates: Banks, including purchase accounting intangible assets of $9,320 in 1995 and $10,551 in 1994. . . . . . . . 472,651 476,717 Non-Banks. . . . . . . . . . . . . . . . . . . . . . 3,678 4,401 Advances to affiliates . . . . . . . . . . . . . . . . 16,044 13,969 Other assets . . . . . . . . . . . . . . . . . . . . . 41,452 5,081 ---------------------- TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . $534,489 $502,158 ====================== LIABILITIES AND SHAREHOLDERS' EQUITY Short-term borrowings. . . . . . . . . . . . . . . . . $ 18,554 $ 16,995 Other liabilities. . . . . . . . . . . . . . . . . . . 6,343 6,502 8% convertible subordinated debentures, due 2012 . . . 31,515 38,049 Medium term notes. . . . . . . . . . . . . . . . . . . 50,000 32,000 Shareholders' equity . . . . . . . . . . . . . . . . . 428,077 408,612 ----------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . $534,489 $502,158 ======================= Old National Bancorp (Parent Company Only) Condensed Statement of Income Years Ended December 31, --------------------------------- 1995 1994 1993 INCOME --------------------------------- Dividends from affiliates. . . . . . . . $86,000 $31,078 $28,398 Income on other investments. . . . . . . 1,202 1,204 1,014 Other income from affiliates . . . . . . 5,090 4,805 3,873 --------------------------------- TOTAL INCOME . . . . . . . . . . . . . 92,292 37,087 33,285 --------------------------------- EXPENSE Interest on borrowings . . . . . . . . . 7,023 5,886 5,258 Amortization of intangibles. . . . . . . 1,231 1,228 1,199 Other expenses . . . . . . . . . . . . . 7,676 6,806 5,417 --------------------------------- TOTAL EXPENSE. . . . . . . . . . . . . 15,930 13,920 11,874 --------------------------------- Income before income taxes and equity in undistributed earnings of affiliates. . 76,362 23,167 21,411 Income tax benefit . . . . . . . . . . . (3,409) (2,945) (2,188) --------------------------------- Income before equity in undistributed earnings of affiliates . . . .. 79,771 26,112 23,599 Equity in undistributed earnings of affiliates . . . .. (28,077) 20,360 24,433 --------------------------------- NET INCOME . . . . . . . . . . . . . . $51,694 $46,472 $48,032 ================================= 46 Old National Bancorp (Parent Company Only) Condensed Statement of Cash Flows Years Ended December 31, ---------------------------- 1995 1994 1993 Cash flows from operating activities: ---------------------------- Net Income . . . . . . . . . . . . . . . . . . . $51,694 $46,472 $48,032 Adjustments to reconcile net income to cash provided by operating activities: Depreciation . . . . . . . . . . . . . . . . . 204 196 101 Amortization of intangible assets. . . . . . . 1,231 1,228 1,199 Increase in other assets . . . . . . . . . . . (37,608) (1,601) (417) Increase (decrease) in other liabilities . . . (159) 1,055 1,282 Equity in undistributed earnings of affiliates 28,077 (20,360) (24,433) ---------------------------- Total adjustments. . . . . . . . . . . . . . (8,255) (19,482) (22,268) ---------------------------- Net cash flows provided by operating activities 43,439 26,990 25,764 ---------------------------- Cash flows from investing activities: Net advances to affiliates . . . . . . . . . . . (6,451) (8,371) (9,589) Purchase of premises and equipment . . . . . . . (198) (946) (146) Sale acqusition of affiliate . . . . . . . . . . -- 948 (4,773) ---------------------------- Net cash flows used by investing activities. . (6,649) (8,369) (14,508) ---------------------------- Cash flows from financing activities: Net proceeds from short-term borrowings. . . . . 1,559 15,295 (14,387) Net proceeds from medium term notes. . . . . . . 18,000 -- 32,000 Cash dividends paid. . . . . . . . . . . . . . . (21,110) (20,009) (17,278) Common stock repurchased . . . . . . . . . . . . (42,808) (22,370) (14,905) Common stock reissued, net of shares used to convert 8% subordinated debentures. . . . . . . 6,243 7,129 5,042 ---------------------------- Net cash flows used in financing activities. . (38,116) (19,955) (9,528) ---------------------------- Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . . . (1,326) (1,334) 1,728 Cash and cash equivalents at beginning of period 1,990 3,324 1,596 ---------------------------- Cash and cash equivalents at end of period . . . $ 664 $ 1,990 $ 3,324 ============================ 47 Directors and Executive Officers ONB Bank, Bloomington, Indiana Directors John W. Bender Alan B. Chandler Dan L. Doan Clarence Doninger Harold A. Harrell Joyce Poling Executive Officers Dan L. Doan Alan B. Chandler Jack Dickhart Michael Yeager Clinton State Bank, Clinton, Indiana Directors Daniel L. DeBard Norman L. Edris Bernard R. Giacoletto Betty R. Mooney Robert J. Rendaci John W. Scott E. Stanley Shew Herman White, II Executive Officers Robert J. Rendaci B. Earle Nield Milinda J. Wright Bank of Western Indiana, Covington, Indiana Directors Henry K. Bilsland Lloyd E. Chambers Mirriam Newmark Fogel Paul O. Galloway Vincent F. Grogg Edward C. Grubb Eugene A. Grubbs Robert Michael Henderson Harold Lee Hesler Thomas James Leak Thomas A. McGurk Thomas Andrew McGurk, Jr. Carol Myers John A. Rader Ogle Snider Lee Williams Executive Officers Lee Williams Carol Owens Robert D. Smith Old National Bank, Evansville, Indiana Directors Howard S. Abrams David L. Barning Alan W. Braun Steven E. Chancellor John J. Daus, Jr. Peter R. Dolan Larry E. Dunigan John M. Dunn Michael R. Hinton Robert C. Jeffries Robert M. Leich R. Jack Lewis, Jr. Dan W. Mitchell D. Patrick O'Daniel Lawrence D. Prybil James A. Risinger C. A. Robinson J. Steven Rudolph John C. Schroeder Marjorie Z. Soyugenc Charles D. Storms Joseph T. Theby, III John W. Weyerbacher Executive Officers James A. Risinger Michael R. Hinton Wayne F. Henning John W. Stanley F. Gene Smith First Citizens Bank and Trust Company, Greencastle, Indiana Directors Kenneth L. Ames Charles L. Butler Anne K. Clark Earl Eugene Clodfelter Dan L. Doan Kenneth J. Eitel, Jr. Robert W. Evans David G. Jackman William M. Marley Gary R. Pershing Alan Gene Stanley Richard Sunkel Robert A. York, Sr. Executive Officers Dan L. Doan David G. Jackman John N. Kemper R. Joe Ferguson Kenneth R. Heeke Dubois County Bank, Jasper, Indiana Directors Norbert C. Alles John S. Chappell David E. Eckerle Glenn H. Gramelspacher Jerry C. Jackle Andrew B. Krempp Jack E. Newton James J. Sonderman Ed J. Stenftenagel Executive Officers David E. Eckerle Paul R. Nolting Donald E. Routson William R. Hauser People's Bank & Trust Company, Mt. Vernon, Indiana Directors Milford R. Ashworth, Jr. Arthur W. Bayer Steven A. Bennett Stephen A. Dausmann Ronald B. Lankford Paul W. Mauer Richard R. McClish John W. Stephan Gordon A. Vogel, M.D. Joseph T. Weinzapfel Executive Officers Steven A. Bennett Phyllis A. Hawley Eleanor L. Hogan William H. Newman Barbara Tennyson Orange County Bank, Paoli, Indiana Directors R. Russel Bledsoe Dan L. Doan Randall L. Doan Raymond Lewis Farlow Eric Marshall Harmon John W. Key Michael D. McCracken David K. Ross John T. Stout Executive Officers John W. Key Janis K. Main Phillip W. Fortner Gibson County Bank, Princeton, Indiana Directors Raymond Phillip Hofman Burt King Stephen R. Lankford Jerome A. Marx Joseph R. Maxey Ralph G. Welp, DVM Executive Officers Burt King Sharon S. Schmits 48 Rockville National Bank, Rockville, Indiana Directors Warren D. Crooks Norval W. Dixon, Jr. Patricia C. Dixon Gregory A. Harbison Robert W. Hill Kevin B. Jacks Donald C. Swaim Bert M. Wimmer Executive Officers Gregory A. Harbison Donald C. Swaim Dale W. Barnes Citizens National Bank, Tell City, Indiana Directors Jerome W. Fischer Paul J. Koressel John H. Noble Fred Smith, Jr., M.D. Lawrence A. Vogel John R. Werner Executive Officers Paul J. Koressel Jonathan Hartz R. Bruce Knox James R. Schmitt Indiana State Bank*, Terre Haute, Indiana Directors Buena Chaney Daniel L. DeBard Jeremy Einstandig John C. Figg Robert S. Ratcliffe John William Thompson Executive Officers Daniel L. DeBard Darlene W. Zook Merchants National Bank, Terre Haute, Indiana Directors Robert M. Boyer Joseph B. Card Charles S. Combs Daniel L. DeBard John W. Dinkel Thomas L. Francis David H. Goeller Vernon E. Hux Lucien H. Meis Marilyn W. Pendergast John N. Royse Donald W. Scott R. Frank Shelton John A. Templeton, II Edward T. Turner, Jr. Executive Officers Charles S. Combs Daniel L. DeBard Gina L. Stuart Jeffery W. Sims Security Bank & Trust Company, Vincennes, Indiana Directors Robert V. Bierhaus, Jr. Richard J. Bond Louie O. Dayson, M.D. Ronald B. Lankford John D. Miller James R. Milligan George S. Ridgway Robert J. Stryzinski P. R. Sweeney Executive Officers P. R. Sweeney James B. Wyant Richard E. Faulkner Dan T. Harkins Linda J. Laue United Southwest Bank, Washington, Indiana Directors James E. Burch Jack L. Colbert Michael V. Crouch John G. Gilley James E. Gillooly William A. Lannan Flavian E. Myers, Jr. Malcolm Radcliffe, Jr. Joe W. Singleton William E. Summers Donald Joe Traylor Executive Officers Joe W. Singleton Jack L. Colbert William E. Summers Gerald A. Frette Palmer-American National Bank, Danville, Illinois Directors James D. Anderson William R. Britt Samuel P. Cannon Thomas C. Crays David M. Dillman, M.D. Dennis J. Doran Douglas P. Herr Louis L. Mervis Judd C. Peck George E. Richards, DVM Richard W. Whiteman Executive Officers Richard W. Whiteman James D. Anderson First National Bank, Harrisburg, Illinois Directors David H. Clemmons William E. Cook Donald R. DeArmon Fred G. Denny Ronald W. Gibbons Lannie Gribble Olive H. Johnson Rick J. Lane Hieronymus E. Mitchell Larry G. Noah Ruth P. Patton Larry J. Perrotto George R. Rawlinson Charles E. Seten, III, M. D. Denzil C. Simpson Executive Officers Ronald W. Gibbons William E. Cook Robert D. Doty Wayne H. Hale Charles F. Will James H. Humphrey *Indiana State Bank is expected to be combined with Merchants National Bank in Terre Haute, April 1996. 49 Peoples National Bank, Lawrenceville, Illinois Directors Micheal P. Macey John R. McKim M. David Paddock Harry J. Rice Lee D. Smith Ward A. Warner H. Edward Williams Executive Officers M. David Paddock Bradley P. Wolfe Karen A. Caudell Security Bank and Trust Co., Mt. Carmel, Illinois Directors Philip Barnhard J. Roy Dee, III Stephen J. Lovellette Robert E. Mundy, II Craig Newman James D. Price Robert A. Reasor Lawrence R. Tedford Executive Officers Robert A. Reasor Gary F. Mohrman Gary G. Rumsey The First National Bank of Oblong, Oblong, Illinois Directors Ronald K. Bailey Wilfred J. Cross Robert Glezen Jerry J. Harmon William E. Holt Keith A. Riker Jack L. Wade Executive Officers Wilfred J. Cross William E. Holt City National Bank, Fulton, Kentucky Directors R. Ward Bushart Kenneth E. Crews Kent Hutchins Roger Kephart Louis M. McBride Rodney A. Miller Executive Officers Kenneth E. Crews Robert K. Burrow First State Bank, Greenville, Kentucky Directors Joseph R. Boggess, M.D. L. Wayne Cisney, Jr. Richard P. Countzler Larry J. Draper W. Lee Fauntleroy R. Fredric Geibel Elizabeth K. Gentry Curtis C. Hardison Samuel E. Levinson, Jr. Shelby G. Stewart John A. Stovall Ben A. Topmiller, Jr. Joe B. Tucker Joyce M. Waddle-McGraw Peggy M. Williams Executive Officers Peggy M. Williams A. P. Cornette, Jr. Charles E. Dukes Michael H. Mercer Rhonda Beliles Sharon Stovall Farmers Bank & Trust Company, Henderson, Kentucky Directors Herman C. Alles Rodger P. Bird Stephen D. Gray William P. Hazelwood Phelps L. Lambert Steve H. Parker Earl W. Peters H. Charles Shade Lawrence Simon Isaac B. Utley Keith A. Utley Executive Officers Earl W. Peters Keith A. Utley Wanda H. Jett Farmers Bank & Trust Company, Madisonville, Kentucky Directors Thomas F. Clayton C. Morris Coffman Barry T. Eveland Thomas B. Florida William E. Groves Joseph E. Knight Barclay B. McCoy James A. Miner, Jr. H. Lee Owen, Jr. Chesley W. Riddle, Sr. Robert E. Smith Larry E. Wilson Executive Officers C. Morris Coffman H. Lee Owen, Jr. R. Steven Cox M. Robert McElwain Morganfield National Bank, Morganfield, Kentucky Directors Charles Allen William S. Anderson John T. Davis Mike F. Geiger H. T. Shouse Harold M. Smith, DDS Joe Walt Wells Executive Officers H. T. Shouse Jerry R. Ruark David Presser Wayne Hooper 50 Indiana Old National Insurance Company (IONIC) Directors Wayne F. Henning Jeff D. Kniese Ronald B. Lankford Dan W. Mitchell Steve H. Parker John N. Royse James R. Schmitt H. T. Shouse Jeff W. Sims F. Gene Smith Executive Officers Wayne F. Henning Jeff D. Kniese ONB Insurance Directors Jack L. Dye Wayne F. Henning John D. Hodge Steve H. Parker John N. Royse Joe W. Singleton James B. Studwell William E. Summers Executive Officers Jack L. Dye James B. Studwell Old National Service Corporation Directors William R. Britt Thomas F. Clayton Daniel L. DeBard David E. Eckerle Michael R. Hinton Phelps L. Lambert Steve H. Parker J. Steven Rudolph Peggy M. Williams Executive Officers Thomas F. Clayton Gary L. McDowell Mark E. Neidig Old National Trust Company Directors David L. Barning William R. Britt Charles S. Combs David H. Goeller William B. Kelley Ronald B. Lankford Lucien H. Meis Paul R. Nolting H. Lee Owen, Jr. Steve H. Parker Robert A. Reasor James A. Risinger C. A. Robinson John N. Royse Marjorie Z. Soyugenc Isaac B. Utley Executive Officers Thomas F. Clayton William B. Kelley John S. Staser Marvin H. Sunderman Old National Bancorp Directors David L. Barning Richard J. Bond Alan W. Braun John J. Daus, Jr. Wayne A. Davidson Larry E. Dunigan David E. Eckerle Thomas B. Florida Phelps L. Lambert Ronald B. Lankford Lucien H. Meis Dan W. Mitchell John N. Royse Marjorie Z. Soyugenc Charles D. Storms Edward T. Turner, Jr. Executive Officers John N. Royse, Chairman Ronald B. Lankford, President Thomas F. Clayton, Senior Vice President Steve H. Parker, Senior Vice President-Chief Financial Officer Jeffrey L. Knight, Secretary-General Counsel Daryl D. Moore, Vice President-Chief Credit Officer Regional Executives Central Region David E. Eckerle Evansville Region James A. Risinger Northern Region William R. Britt Southern Region C. Morris Coffman 51 Annual Meeting The Annual Meeting of Shareholders will be held Thursday, April 18, 1996, at 10:30 a.m., Central Daylight Time, in the Auditorium at the Vanderburgh Auditorium Convention Center, 715 Locust Street, Evansville, Indiana. Corporate Office 420 Main Street Evansville, Indiana 47708 812-464-1434 Stock Information The stock of the company is traded over-the-counter on the NASDAQ National Market System under Ticker Symbol OLDB. The Stock Transfer Agent is: Old National Bancorp Post Office Box 718 Evansville, Indiana 47705-0718 In December 1995, a one-for-twenty (5%) stock dividend was declared to shareholders of record on February 5, 1996. There were 12,585 shareholders of record as of December 31, 1995. Market Makers The following firms make a market in Old National Bancorp's stock: Herzog, Heine, Geduld J.J.B. Hilliard, W.L. Lyons Keefe, Bruyette & Woods, Inc. McDonald & Company Sec., Inc. NatCity Investments, Inc. Smith Barney Shearson Dividend Reinvestment and Discount Stock Purchase Plan The company offers an automatic Dividend Reinvestment and Discount Stock Purchase Plan to its shareholders. For information concerning this convenient method of purchasing additional shares of stock, contact: Shareholder Services Department Old National Bancorp Post Office Box 718 Evansville, Indiana 47705-0718 812-464-1296 Additional Information Shareholders and interested investors may obtain information about the company upon written request or by calling: John Claybon, CFA Investor Relations Officer Old National Bancorp Post Office Box 718 Evansville,Indiana 47705-0718 812-464-1442 Form 10-K The Annual Report on Form 10-K, as required to be filed with the Securities and Exchange Commission, is available without charge upon written request or by calling: Ronald W. Seib, CPA Vice President-Corporate Controller Old National Bancorp Post Office Box 718 Evansville, Indiana 47705-0718 812-464-1530 Equal Opportunity Employer The company maintains its commitment to equal opportunity and affirmative action in employment and promotion policies and pledges to recruit, hire, train, and promote persons in all job classifications without regard to race, color, religion, sex, age, or handicap. The table below 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 1995 First Quarter $34 1/8 $32 5/8 1,243,300 $ .22 Second Quarter 33 1/8 32 3/8 1,151,600 .22 Third Quarter 32 7/8 32 5/8 663,000 .22 Fourth Quarter 33 1/8 32 1/8 695,300 .22 1994 First Quarter $34 1/8 $32 7/8 795,500 $ .21 Second Quarter 33 1/8 32 5/8 640,700 .21 Third Quarter 33 3/4 32 5/8 685,900 .21 Fourth Quarter 33 5/8 33 1/8 770,800 .21 *Data adjusted for all stock dividends, including a 5% stock dividend to shareholders of record on February 5, 1996, paid on February 20, 1996. 52 EX-22 4 EXHIBIT 22 OLD NATIONAL BANCORP SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 1995
Jurisdiction of Business Name Name of Subsidiary Incorporation of Subsidiary Old National Bank in Evansville United States of America Old National Bank (Evansville, Indiana) Merchants National Bank United States of America Merchants National Bank of Terre Haute (Terre Haute, Indiana) First Citizens Bank and Indiana First Citizens Bank and Trust Company Trust Company (Greencastle, Indiana) People's Bank & Trust Co. Indiana People's Bank & Trust Co. (Mt. Vernon, Indiana) The Rockville National Bank United States of America Rockville National Bank (Rockville, Indiana) Clinton State Bank Indiana Clinton State Bank (Clinton, Indiana) Gibson County Bank Indiana Gibson County Bank (Princeton, Indiana) Security Bank & Trust Co. Indiana Security Bank & Trust Co. (Vincennes, Indiana) Farmers Bank & Trust Co. Kentucky Farmers Bank & Trust Co. (Madisonville, Kentucky) The Peoples National Bank United States of America The Peoples National Bank of Lawrenceville of Lawrenceville (Lawrenceville, Illinois) First State Bank of Kentucky First State Bank Greenville Kentucky, Inc. (Greenville, Kentucky) Morganfield National Bank United States of America Morganfield National Bank (Morganfield, Kentucky) The First National Bank of United States of America First National Bank Harrisburg (Harrisburg, Illinois) Security Bank & Trust Co. Illinois Security Bank & Trust Co. (Mt. Carmel, Illinois) Farmers Bank & Trust Company Kentucky Farmers Bank & Trust (Henderson, Kentucky) Company United Southwest Bank Indiana United Southwest Bank (Washington, Indiana) Palmer-American National Bank United States of America Palmer-American National (Danville, Illinois) Bank Old National Realty Company, Inc. Indiana Old National Realty Company, (Evansville, Indiana) Inc. Indiana Old National Insurance Arizona IONIC Company (Evansville, Indiana) Old National Service Corporation Indiana Old National Service (Evansville, Indiana) Corporation
Jurisdiction of Business Name Name of Subsidiary Incorporation of Subsidiary Dubois County Bank Indiana Dubois County Bank (Jasper, Indiana) Bank of Western Indiana Indiana Bank of Western Indiana (Covington, Indiana) Indiana State Bank Indiana Indiana State Bank (Terre Haute, Indiana) Orange County Bank Indiana Orange County Bank (Paoli, Indiana) First National Bank United States of America First National Bank (Oblong, Illinois) Citizens National Bank United States of America Citizens National Bank (Tell City, Indiana) ONB Bank Indiana ONB Bank (Bloomington, Indiana) City National Bank United States of America City National Bank (Fulton, Kentucky) Old National Trust Company United States of America Old National Trust Company (Evansville, Indiana) Old National Trust Company- Old National Trust Company- United States of America Kentucky Kentucky (Morganfield, Kentucky) Old National Trust Company- United States of America Old National Trust Company- Illinois (Mt. Carmel, Illinois) Illinois
EX-24 5 EXHIBIT 24 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report incorporated by reference in this Form 10-K into the Registrant's previously filed Registration Statement File No. 2-90678. ARTHUR ANDERSEN LLP Indianapolis, Indiana, March 26, 1996 EX-27 6
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OLD NATIONAL BANCORP'S DECEMBER 31, 1995 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR DEC-31-1995 DEC-31-1995 175,116 6,501 79,460 0 1,390,180 1,390,180 1,390,180 3,037,733 39,806 4,822,628 3,973,675 280,281 59,080 81,515 0 0 24,955 403,122 4,822,628 267,187 84,491 3,594 355,272 149,726 174,078 181,194 6,657 55 21,798 70,930 0 0 0 51,694 2.04 1.99 4.41 6,623 4,781 1,120 96,700 41,335 11,186 3,000 39,806 39,806 0 0
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