-----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, GlkYMV3L4Fi/gF96BllF3/Mkv7VGAIN3h7vc2jJK2HfvEp2v1HKWcR9JbXTH1je1 icpmTEggGuegi/GKt8DQ6A== 0000707179-04-000085.txt : 20040510 0000707179-04-000085.hdr.sgml : 20040510 20040510121547 ACCESSION NUMBER: 0000707179-04-000085 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040510 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15817 FILM NUMBER: 04791779 BUSINESS ADDRESS: STREET 1: 420 MAIN ST CITY: EVANSVILLE STATE: IN ZIP: 47708 BUSINESS PHONE: 8124641434 MAIL ADDRESS: STREET 1: 420 MAIN ST CITY: EVANSVILLE STATE: IN ZIP: 47708 FORMER COMPANY: FORMER CONFORMED NAME: O DATE OF NAME CHANGE: 19950822 10-Q 1 onb10q0304.txt OLD NATIONAL BANCORP FROM 10-Q FOR MARCH 31, 2004 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------------------------------- FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File Number 1-15817 ------------------------------ OLD NATIONAL BANCORP (Exact name of Registrant as specified in its charter) INDIANA 35-1539838 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 420 Main Street 47708 Evansville, Indiana (Zip Code) (Address of principal executive offices) ---------------- (812) 464-1434 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to the filing requirements for at least the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock. The Registrant has one class of common stock (no par value) with 66,357,000 shares outstanding at April 30, 2004. OLD NATIONAL BANCORP FORM 10-Q INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Page No. -------- Consolidated Balance Sheet March 31, 2004 and 2003, and December 31, 2003 3 Consolidated Statement of Income Three months ended March 31, 2004 and 2003 4 Consolidated Statement of Changes in Shareholders' Equity Three months ended March 31, 2004 and 2003 5 Consolidated Statement of Cash Flows Three months ended March 31, 2004 and 2003 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk 26 Item 4. Controls and Procedures 29 PART II OTHER INFORMATION 30 SIGNATURES 32 2 OLD NATIONAL BANCORP CONSOLIDATED BALANCE SHEET
- ------------------------------------------------------------------------------------------------------------------------ March 31, December 31, (unaudited) (dollars and shares in thousands) 2004 2003 2003 - ------------------------------------------------------------------------------------------------------------------------ Assets Cash and due from banks $ 176,022 $ 210,980 $ 222,385 Money market investments 15,733 5,916 14,504 - ------------------------------------------------------------------------------------------------------------------------ Total cash and cash equivalents 191,755 216,896 236,889 Investment securities-available-for-sale, at fair value U.S. Treasury 13,117 5,316 26,057 U.S. Government agencies and corporations 552,228 635,434 580,820 Mortgage-backed securities 1,298,932 1,633,788 1,298,881 States and political subdivisions 664,264 683,726 655,068 Other securities 140,579 119,647 145,514 - ------------------------------------------------------------------------------------------------------------------------ Investment securities - available-for-sale 2,669,120 3,077,911 2,706,340 Investment securities - held-to-maturity, at amortized cost (fair value $205,812, $236,825 and $209,316 respectively) 204,406 236,825 210,905 Residential loans held for sale 17,895 52,999 16,338 Loans: Commercial 1,614,516 1,690,403 1,618,095 Commercial real estate 1,830,532 1,871,861 1,849,275 Residential real estate 939,156 974,329 939,422 Consumer credit, net of unearned income 1,175,450 1,050,317 1,163,325 - ------------------------------------------------------------------------------------------------------------------------ Total loans 5,559,654 5,586,910 5,570,117 Allowance for loan losses (108,600) (83,993) (104,571) - ------------------------------------------------------------------------------------------------------------------------ Net loans 5,451,054 5,502,917 5,465,546 - ------------------------------------------------------------------------------------------------------------------------ Premises and equipment, net 194,262 143,433 181,398 Goodwill 129,251 110,648 129,251 Other intangible assets 41,113 27,044 41,912 Mortgage servicing rights 12,319 10,464 14,659 Accrued interest receivable and other assets 348,159 346,039 350,658 - ------------------------------------------------------------------------------------------------------------------------ Total assets $ 9,259,334 $ 9,725,176 $ 9,353,896 ======================================================================================================================== Liabilities Deposits: Noninterest-bearing demand $ 794,502 $ 727,077 $ 823,146 Interest-bearing: NOW 1,587,353 1,397,363 1,612,145 Savings 467,575 514,758 441,427 Money market 593,222 594,104 608,177 Time 2,942,451 3,087,641 3,008,197 - ------------------------------------------------------------------------------------------------------------------------ Total deposits 6,385,103 6,320,943 6,493,092 Short-term borrowings 471,403 974,835 414,588 Other borrowings 1,533,202 1,364,946 1,624,092 Guaranteed preferred beneficial interests in subordinated debentures -- 165,042 -- Accrued expenses and other liabilities 128,765 156,373 106,634 - ------------------------------------------------------------------------------------------------------------------------ Total liabilities 8,518,473 8,982,139 8,638,406 - ------------------------------------------------------------------------------------------------------------------------ Shareholders' Equity Preferred stock, 2,000 shares authorized, no shares issued or outstanding -- -- -- Common stock, $1 stated value, 150,000 shares authorized, 66,449, 63,593 and 66,575 shares issued and outstanding, respectively 66,449 63,593 66,575 Capital surplus 578,650 522,404 581,224 Retained earnings 59,987 110,795 53,107 Accumulated other comprehensive income, net of tax 35,775 46,245 14,584 - ------------------------------------------------------------------------------------------------------------------------ Total shareholders' equity 740,861 743,037 715,490 - ------------------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' equity $ 9,259,334 $ 9,725,176 $ 9,353,896 ========================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of this statement. 3 OLD NATIONAL BANCORP CONSOLIDATED STATEMENT OF INCOME
- ------------------------------------------------------------------------------------ Three Months Ended March 31, (dollars and shares in thousands, except per share data) (unaudited) 2004 2003 - ------------------------------------------------------------------------------------ Interest Income Loans including fees: Taxable $ 74,382 $ 84,955 Nontaxable 4,367 4,264 Investment securities, available-for-sale: Taxable 19,893 25,982 Nontaxable 7,362 8,029 Investment securities, held-to-maturity, taxable 2,097 277 Money market investments 20 71 - ------------------------------------------------------------------------------------ Total interest income 108,121 123,578 - ------------------------------------------------------------------------------------ Interest Expense Deposits 29,365 38,079 Short-term borrowings 990 2,574 Other borrowings 12,655 13,122 - ------------------------------------------------------------------------------------ Total interest expense 43,010 53,775 - ------------------------------------------------------------------------------------ Net interest income 65,111 69,803 Provision for loan losses 7,500 9,000 - ------------------------------------------------------------------------------------ Net interest income after provision for loan losses 57,611 60,803 - ------------------------------------------------------------------------------------ Noninterest Income Trust and asset management fees 7,500 7,360 Service charges on deposit accounts 10,765 10,778 ATM fees 1,965 1,867 Mortgage banking revenue (320) 4,403 Insurance premiums and commissions 14,509 8,247 Investment product fees 3,185 2,678 Bank-owned life insurance 2,053 1,685 Net securities gains 1,985 2,730 Other income 3,986 3,172 - ------------------------------------------------------------------------------------ Total noninterest income 45,628 42,920 - ------------------------------------------------------------------------------------ Noninterest Expense Salaries and employee benefits 49,269 41,660 Occupancy 4,851 4,521 Equipment 3,562 3,698 Marketing 2,358 2,427 Outside processing 4,970 4,192 Communication and transportation 2,969 3,119 Professional fees 3,088 2,416 Loan expense 1,467 1,379 Supplies 1,059 1,262 Other real estate owned expense 1,656 547 Other expense 5,204 4,944 - ------------------------------------------------------------------------------------ Total noninterest expense 80,453 70,165 - ------------------------------------------------------------------------------------ Income before income taxes 22,786 33,558 Income tax expense 3,277 7,298 - ------------------------------------------------------------------------------------ Net income $ 19,509 $ 26,260 ==================================================================================== Net Income Per Common Share Basic $ 0.29 $ 0.39 Diluted 0.29 0.39 - ------------------------------------------------------------------------------------ Weighted Average Number Of Common Shares Outstanding Basic 66,359 66,889 Diluted 66,460 66,945 - ------------------------------------------------------------------------------------ Dividends Per Common Share $ 0.19 $ 0.18
The accompanying notes to consolidated financial statements are an integral part of this statement. 4 OLD NATIONAL BANCORP CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------- Accumulated Other Total (dollars and shares Common Stock Capital Retained Comprehensive Shareholders' in thousands) (unaudited) Shares Amount Surplus Earnings Income Equity - -------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2002 63,856 $ 63,856 $ 528,379 $ 96,652 $ 51,823 $ 740,710 Net income -- -- -- 26,260 -- 26,260 Unrealized net securities losses, net of $(2,659) tax -- -- -- -- (3,849) (3,849) Reclassification adjustment for gains included in net income, net of $(1,116) tax -- -- -- -- (1,614) (1,614) Net unrealized derivative losses on cash flow hedges, net of $(102) tax -- -- -- -- (159) (159) Reclassification adjustment on cash flow hedges, net of $28 tax -- -- -- -- 44 44 Cash dividends -- -- -- (12,117) -- (12,117) Stock repurchased (560) (560) (12,011) -- -- (12,571) Stock reissued under stock option and stock purchase plans 297 297 6,036 -- -- 6,333 - -------------------------------------------------------------------------------------------------------------------- Balance, March 31, 2003 63,593 $ 63,593 $ 522,404 $ 110,795 $ 46,245 $ 743,037 ==================================================================================================================== Balance, December 31, 2003 66,575 $ 66,575 $ 581,224 $ 53,107 $ 14,584 $ 715,490 Net income -- -- -- 19,509 -- 19,509 Unrealized net securities gains, net of $15,922 tax -- -- -- -- 21,929 21,929 Reclassification adjustment for gains included in net income, net of $(835) tax -- -- -- -- (1,150) (1,150) Net unrealized derivative gains on cash flow hedges, net of $235 tax -- -- -- -- 365 365 Reclassification adjustment on cash flow hedges, net of $31 tax -- -- -- -- 47 47 Cash dividends -- -- -- (12,629) -- (12,629) Stock repurchased (468) (468) (9,613) -- -- (10,081) Stock reissued under stock option and stock purchase plans 342 342 7,039 -- -- 7,381 - -------------------------------------------------------------------------------------------------------------------- Balance, March 31, 2004 66,449 $ 66,449 $ 578,650 $ 59,987 $ 35,775 $ 740,861 ====================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of this statement. 5 OLD NATIONAL BANCORP CONSOLIDATED STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------- Three Months Ended March 31, (dollars in thousands) (unaudited) 2004 2003 - -------------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities Net income $ 19,509 $ 26,260 - -------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to cash provided by operating activities: Depreciation 3,229 3,197 Amortization of other intangible assets 799 524 Net premium amortization on investment securities 2,175 2,773 Provision for loan losses 7,500 9,000 Net securities gains (1,985) (2,730) Gains on sale of other assets (1,362) (3,737) Residential real estate loans originated for sale (83,911) (261,559) Proceeds from sale of residential real estate loans 82,857 264,499 (Increase) decrease in other assets 16,864 (11,428) Increase in accrued expenses and other liabilities 6,778 43,862 - -------------------------------------------------------------------------------------------------------- Total adjustments 32,944 44,401 - -------------------------------------------------------------------------------------------------------- Net cash flows provided by operating activities 52,453 70,661 - -------------------------------------------------------------------------------------------------------- Cash Flows From Investing Activities Purchases of investment securities available-for-sale (389,151) (580,903) Proceeds from maturities, prepayments and calls of investment securities available-for-sale 254,910 293,445 Proceeds from sales of investment securities available-for-sale 207,394 278,085 Purchases of investment securities held-to-maturity -- (236,846) Proceeds from maturities, prepayments and calls of investment securities held-to-maturity 6,242 -- Net principal collected from customers 6,992 116,977 Proceeds from sale of premises and equipment 806 249 Purchases of premises and equipment (16,261) (12,083) - -------------------------------------------------------------------------------------------------------- Net cash flows provided by (used in) investing activities 70,932 (141,076) - -------------------------------------------------------------------------------------------------------- Cash Flows From Financing Activities Net increase (decrease) in deposits and short-term borrowings: Noninterest-bearing demand deposits (28,644) (51,352) Savings, NOW and money market deposits (13,599) 76,359 Time deposits (65,746) (143,344) Short-term borrowings 56,815 56,486 Payments for maturities on other borrowings (156,559) (70,309) Proceeds from issuance of other borrowings 54,543 201,600 Cash dividends paid (12,629) (12,117) Common stock repurchased (10,081) (12,571) Common stock reissued under stock option and stock purchase plans 7,381 6,333 - -------------------------------------------------------------------------------------------------------- Net cash flows provided by (used in) financing activities (168,519) 51,085 - -------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (45,134) (19,330) Cash and cash equivalents at beginning of period 236,889 236,226 - -------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 191,755 $ 216,896 ======================================================================================================== Total interest paid $ 42,051 $ 55,490 Total taxes paid $ -- $ 1,735
The accompanying notes to consolidated financial statements are an integral part of this statement. OLD NATIONAL BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements include the accounts of Old National Bancorp and its wholly-owned affiliates ("Old National") 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. Certain prior year amounts have been reclassified to conform with the 2004 presentation. Such reclassifications had no effect on net income. In the opinion of management, the consolidated financial statements contain all the normal and recurring adjustments necessary for a fair statement of the financial position of Old National as of March 31, 2004 and 2003, and December 31, 2003, and the results of its operations for the three months ended March 31, 2004 and 2003. Interim results do not necessarily represent annual results. NOTE 2 - IMPACT OF ACCOUNTING CHANGES In December 2003, the Financial Accounting Standards Board ("FASB") revised SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement requires annual disclosures in addition to those in the original SFAS No. 132, which provides additional information regarding assets, obligations, cash flows and net periodic benefit costs of defined benefit pension plans. In addition, interim disclosure of the components of net periodic benefit costs is required. The revised SFAS No. 132 is effective for financial statements with fiscal years ending after December 15, 2003. Old National adopted this statement as of December 31, 2003, and has included all such required disclosures in Note 9. In December 2003, the FASB revised FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities," which was initially released in January 2003. FIN 46 provides guidance with respect to variable interest entities and when the assets, liabilities, noncontrolling interest and results of operations of a variable interest entity need to be included in a company's consolidated financial statements. FIN 46 was effective for companies with "special-purpose entities" as of December 31, 2003. Old National does not have special-purpose entities. However, under this new guidance, Old National was required to deconsolidate ONB Capital Trust I and ONB Capital Trust II as these trusts no longer meet the definition of a related subsidiary under the terms of FIN 46. This change also resulted in the remaining debt being disclosed in "other borrowings" beginning with the period ending December 31, 2003, compared to the separate disclosure on the balance sheet prior to that date. The effect of this deconsolidation was an increase of $4.6 million to both assets and liabilities with no impact to the results of operations. The effective date for consolidation of all other entities was after March 15, 2004. Old National consolidated various low income housing partnerships on March 31, 2004, for which the impact on the results of operations and financial position was immaterial. Old National applies APB Opinion No. 25 and related Interpretations in accounting for the stock option plan. Accordingly, no compensation costs have been recognized. In accordance with SFAS No. 148, "Accounting for Stock-based Compensation - Transition and Disclosure" and SFAS No. 123, "Accounting for Stock-Based Compensation," Old National has presented in the table below net income and net income per share adjusted to proforma amounts had compensation cost for Old National's stock option plan been recorded based on the fair value at the grant dates for awards under the plan. All per share data has been adjusted for stock dividends, including a 5% stock dividend distributed to shareholders on January 27, 2004. 7
- -------------------------------------------------------------------------------- Three Months Ended March 31, (dollars in thousands, except per share data) 2004 2003 - -------------------------------------------------------------------------------- Net income as reported $19,509 $26,260 Deduct total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (1,663) (1,099) - -------------------------------------------------------------------------------- Proforma net income $17,846 $25,161 ================================================================================ Basic net income per share: As reported $ 0.29 $ 0.39 Proforma 0.27 0.37 Diluted net income per share: As reported $ 0.29 $ 0.39 Proforma 0.27 0.37 - --------------------------------------------------------------------------------
NOTE 3 - NET INCOME PER SHARE Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding during each year, adjusted to reflect all stock dividends. Diluted net income per share is computed as above and assumes the conversion of outstanding stock options. The following table reconciles basic and diluted net income per share for the three months ended March 31:
- ------------------------------------------------------------------------------------------------ Three Months Ended Three Months Ended March 31, 2004 March 31, 2003 (dollars and shares ----------------------------- ----------------------------- in thousands, except per share data) Income Shares Amount Income Shares Amount - ------------------------------------------------------------------------------------------------ Basic Net Income Per Share Income from operations $19,509 66,359 $0.29 $26,260 66,889 $0.39 ======= ======= Effect Of Dilutive Securities Stock options -- 101 -- 56 - --------------------------------------------------- ----------------- Diluted Net Income Per Share Income from operations and assumed conversions $19,509 66,460 $0.29 $26,260 66,945 $0.39 ================================================================================================
NOTE 4 - INVESTMENT SECURITIES The market value and amortized cost of investment securities as of March 31 are set forth below: - ---------------------------------------------------------------------------- Amortized Unrealized Unrealized Fair (dollars in thousands) Cost Gains Losses Value - ---------------------------------------------------------------------------- 2004 Available-for-sale $2,609,506 $68,873 $(9,259) $2,669,120 Held-to-maturity 204,406 1,406 - 205,812 - ---------------------------------------------------------------------------- 2003 Available-for-sale $3,000,957 $80,157 $(3,203) $3,077,911 Held-to-maturity 236,825 - - 236,825 - ---------------------------------------------------------------------------- 8 NOTE 5 - ALLOWANCE FOR LOAN LOSSES Activity in the allowance for loan losses was as follows:
- ------------------------------------------------------------------------ (dollars in thousands) 2004 2003 - ------------------------------------------------------------------------ Balance, January 1 $ 104,571 $ 87,742 Additions: Provision charged to expense 7,500 9,000 Deductions: Loans charged-off 5,652 14,378 Recoveries (2,181) (1,629) - ------------------------------------------------------------------------ Net charge-offs 3,471 12,749 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ Balance, March 31 $ 108,600 $ 83,993 ========================================================================
The following is a summary of information pertaining to impaired loans at March 31:
- ------------------------------------------------------------------------ (dollars in thousands) 2004 2003 - ------------------------------------------------------------------------ Impaired loans without a valuation allowance $ 22,137 $ 45,624 Impaired loans with a valuation allowance 71,913 225,780 - ------------------------------------------------------------------------ Total impaired loans $ 94,050 $ 271,404 ======================================================================== Valuation allowance related to impaired loans $ 27,475 $ 62,003 - ------------------------------------------------------------------------
A loan is considered impaired under SFAS No. 114, "Accounting by Creditors for Impairment of a Loan, an amendment of FASB Statement No. 5 and 15" when based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. An impaired loan does not include larger groups of smaller-balance homogeneous loans that are collectively evaluated for impairment, loans that are measured at fair value or at the lower of cost or fair value, leases and debt securities. For the three months ended March 31, 2004, the average balance of impaired loans was $92.8 million for which $0.1 million of interest was recorded. For the three months ended March 31, 2003, the average balance of impaired loans was $287.3 million for which $10.7 million of interest was recorded. During the third quarter of 2003, Old National revised its interpretation of impaired loans to strictly follow SFAS No. 114. Previous to this change, Old National's interpretation of impaired loans more conservatively included all problem credits with a potential collateral deficiency in the event of default and nonaccrual loans in larger groups of smaller-balance homogeneous loans. Had Old National applied this interpretation in the prior year, impaired loans would have totaled $96.7 million with a valuation allowance of $18.9 million rather than $271.4 million with a valuation allowance of $62.0 million as reported at March 31, 2003. No additional funds are committed to be advanced in connection with impaired loans. Loans deemed impaired are evaluated primarily using the fair value of the underlying collateral. NOTE 6 - GOODWILL AND OTHER INTANGIBLE ASSETS At March 31, 2004 and 2003, Old National had goodwill in the amount of $129.3 million and $110.6 million, respectively. During 2003, Old National performed its annual goodwill impairment testing resulting in no impairment. At March 31, 2004, the community banking segment and the non-bank services segment had goodwill of $70.9 million and $58.3 million, respectively. There was no change in the carrying amount of goodwill by segment for the three month period ended March 31, 2004. Old National continues to amortize definite-lived intangible assets over the estimated remaining life of each respective asset. At March 31, 2004, Old National had $41.1 million in unamortized intangible assets compared with $27.0 million in unamortized identifiable intangible assets at March 31, 2003. Indefinite-lived assets of $2.8 million were included in each year. 9 The following table shows the gross carrying amounts and accumulated amortization for intangible assets as of March 31: - -------------------------------------------------------------------------------- Gross Carrying Accumulated Net Carrying (dollars in thousands) Amount Amortization Amount - -------------------------------------------------------------------------------- 2004 Amortized intangible assets: Core deposit $ 5,574 $(3,198) $ 2,376 Customer business relationships 36,676 (2,544) 34,132 Non-compete agreements 1,100 (96) 1,004 Technology 1,300 (499) 801 - ------------------------------------------------------------------------------- Total amortized intangible assets 44,650 (6,337) 38,313 Unamortized intangible assets: Trade name 2,800 -- 2,800 - ------------------------------------------------------------------------------- Total intangible assets $47,450 $(6,337) $41,113 =============================================================================== 2003 Amortized intangible assets: Core deposit $ 5,574 $(2,556) $ 3,018 Customer business relationships 19,720 (638) 19,082 Non-compete agreements 1,100 (42) 1,058 Technology 1,300 (214) 1,086 - ------------------------------------------------------------------------------- Total amortized intangible assets 27,694 (3,450) 24,244 Unamortized intangible assets: Trade name 2,800 -- 2,800 - ------------------------------------------------------------------------------- Total intangible assets $30,494 $(3,450) $27,044 =============================================================================== Total amortization expense associated with intangible assets for the three months ended was $799 thousand in 2004 and $524 thousand in 2003. The following is the estimated amortization expense for the future years: ------------------------------------------- Estimated (dollars in thousands) Amortization For the years ended: Expense ------------------------------------------- 2004 remaining $2,376 2005 3,065 2006 2,849 2007 2,386 2008 2,213 2009 2,122 Thereafter 23,302 ------------------------------------------- Total $38,313 =========================================== NOTE 7 - MORTGAGE SERVICING RIGHTS Mortgage servicing rights derived from loans sold with servicing retained were $12.3 million and $10.5 million at March 31, 2004 and 2003, respectively. Loans serviced for others are not included in the consolidated balance sheet of Old National. The unpaid principal balance of mortgage loans serviced for others at March 31 was $1.737 billion in 2004 and $1.627 billion in 2003. At March 31, 2004 and 2003, the fair value of capitalized mortgage servicing rights, net of valuation allowance, was $12.4 million and $10.5 million, respectively. Old National's key economic assumptions used in determining the fair value of mortgage servicing rights were a weighted average prepayment rate of 436 PSA and a discount rate of 8.50% at March 31, 2004 and a weighted average prepayment rate of 558 PSA and a discount rate of 8.50% at March 31, 2003. 10 The following summarizes the activities related to mortgage servicing rights and the related valuation allowance at March 31: - ---------------------------------------------------------------------- (dollars in thousands) 2004 2003 - ---------------------------------------------------------------------- Balance before valuation allowance, January 1 $ 15,790 $ 13,423 Rights capitalized 830 2,290 Amortization (1,725) (932) - ---------------------------------------------------------------------- Balance before valuation allowance, March 31 14,895 14,781 - ---------------------------------------------------------------------- Valuation allowance: Balance, January 1 (1,131) (2,056) Additions to valuation allowance (1,940) (2,261) Reductions to valuation allowance 495 -- - ---------------------------------------------------------------------- Balance, March 31 (2,576) (4,317) - ---------------------------------------------------------------------- Mortgage servicing rights, net $ 12,319 $ 10,464 ====================================================================== NOTE 8 - FINANCING ACTIVITIES The following table summarizes Old National's other borrowings at March 31: - -------------------------------------------------------------------------------- (dollars in thousands) 2004 2003 - -------------------------------------------------------------------------------- Old National Bancorp: Medium-term notes, Series 1997 (fixed rates 3.50% to 7.03%) maturities July 2004 to June 2008 $ 113,200 $ 43,200 Junior subordinated debentures (fixed rates 8.00% to 9.50%) maturities March 2030 to April 2032 150,000 -- SFAS 133 hedge and other basis adjustments 11,416 208 Old National Bank: Securities sold under agreements to repurchase (variable rates 1.12% to 2.69%) maturities March 2006 to December 2008 298,000 183,000 Federal Home Loan Bank advances (fixed rates 3.59% to 8.34% and variable rates 1.92% to 2.12%) maturities April 2004 to October 2022 608,788 814,848 Senior unsecured bank notes (fixed rate 3.95% and variable rates 1.32% to 2.12%) maturities June 2004 to February 2008 190,000 160,000 Subordinated bank notes (fixed rate 6.75%) maturing October 2011 150,000 150,000 Capital lease obligation 4,543 -- SFAS 133 hedge and other basis adjustments 7,255 13,690 - -------------------------------------------------------------------------------- Total other borrowings $1,533,202 $1,364,946 ================================================================================ 11 Contractual maturities of other borrowings at March 31, 2004, were as follows: ------------------------------------------------------------ (dollars in thousands) ------------------------------------------------------------ Due in 2004 $ 101,721 Due in 2005 195,082 Due in 2006 252,402 Due in 2007 160,034 Due in 2008 343,037 Thereafter 462,255 SFAS 133 hedge and other basis adjustments 18,671 ------------------------------------------------------------ Total $1,533,202 ============================================================ FEDERAL HOME LOAN BANK Federal Home Loan Bank advances had weighted-average rates of 5.24% and 5.42% at March 31, 2004, and 2003, respectively. These borrowings are secured by investment securities and residential real estate loans up to 150% of outstanding debt. SUBORDINATED BANK NOTES Subordinated bank notes qualify as Tier 2 Capital for regulatory purposes and are in accordance with the senior and subordinated global bank note program in which Old National Bank may issue and sell up to a maximum of $1 billion. Notes issued by Old National Bank under the global note program are not obligations of, or guaranteed by, Old National Bancorp. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S SUBORDINATED DEBENTURES ONB Capital Trust II issued $100 million in preferred securities in April 2002. The preferred securities have a liquidation amount of $25 per share with a cumulative annual distribution rate of 8.0% or $2.00 per share payable quarterly and maturing on April 15, 2032. Proceeds from the issuance of these securities were used to purchase junior subordinated debentures with the same financial terms as the securities issued by ONB Capital Trust II. Old National guarantees the payment of distributions on the preferred securities issued by ONB Capital Trust II. ONB Capital Trust I issued $50 million in preferred securities in March 2000. The preferred securities have a liquidation amount of $25 per share with a cumulative annual distribution rate of 9.5% or $2.375 per share payable quarterly and maturing on March 15, 2030. Proceeds from the issuance of these securities were used to purchase junior subordinated debentures with the same financial terms as the securities issued by ONB Capital Trust I. Old National guarantees the payment of distributions on the preferred securities issued by ONB Capital Trust I. Old National may redeem the junior subordinated debentures and thereby cause a redemption of the trust preferred securities in whole (or in part from time to time) on or after March 15, 2005 (for debentures owned by ONB Capital Trust I) and on or after April 12, 2007 (for debentures owned by ONB Capital Trust II), and in whole (but not in part) following the occurrence and continuance of certain adverse federal income tax or capital treatment events. These securities qualify as Tier 1 capital for regulatory purposes and the SEC registration related to these securities has remaining funding capacity of $50 million. In accordance with FIN 46, the outstanding junior subordinated debentures related to these trust preferred securities were reclassified to "other borrowings" at December 31, 2003, from the separate disclosure on the balance sheet prior to that date. 12 CAPITAL LEASE OBLIGATION On January 1, 2004, Old National entered into a long-term capital lease obligation for a new branch office building in Owensboro, Kentucky, which extends for 25 years with one renewal option for 10 years. The economic substance of this lease is that Old National is financing the acquisition of the building through the lease and accordingly, the building is recorded as an asset and the lease is recorded as a liability. The fair value of the capital lease obligation was estimated using a discounted cash flow analysis based on Old National's current incremental borrowings rate for similar types of borrowing arrangements. At March 31, 2004, the future minimum lease payments under the capital lease were as follows: ------------------------------------------------------------ (dollars in thousands) Minimum Lease For the year ending: Payments ------------------------------------------------------------ 2004 remaining $ 278 2005 371 2006 371 2007 371 2008 371 Thereafter 13,265 ------------------------------------------------------------ Total minimum lease payments 15,027 Less amounts representing interest 10,484 ------------------------------------------------------------ Present value of net minimum lease payments $4,543 ============================================================ NOTE 9 - EMPLOYEE BENEFIT PLANS RETIREMENT PLAN The following table sets forth the components of the net periodic benefit cost for Old National's noncontributory defined benefit retirement plan for the three months ended March 31: -------------------------------------------------------------------- Three Months Ended March 31, (dollars in thousands) 2004 2003 -------------------------------------------------------------------- Service cost $ 537 $ 486 Interest cost 975 846 Expected return on plan assets (851) (504) Amortization of prior service cost 8 8 Amortization of transitional asset (108) (108) Recognized actuarial loss 397 249 -------------------------------------------------------------------- Net periodic benefit cost $ 958 $ 977 ==================================================================== STOCK OPTIONS On February 2, 2004, Old National granted 0.3 million stock options to key employees at an option price of $21.45, the closing price of Old National's stock on that date. The options vest 100% on December 31, 2004, and expire in ten years. On January 31, 2003, Old National granted 2.6 million stock options to key employees at an option price of $21.71, the closing price of Old National's stock on that date. The options vest 25% per year over a four-year period and expire in ten years. If certain financial targets are achieved, vesting is accelerated. Old National was authorized to grant up to 7.3 million shares of common stock under the 1999 Equity Incentive Plan. At March 31, 2004, Old National had 6.3 million of stock options outstanding. Old National applies APB Opinion No. 25 and related Interpretations in accounting for the stock option plan. Accordingly, no compensation costs have been recognized. See Note 2 for proforma net income and net income per share data. 13 NOTE 10 - DERIVATIVE FINANCIAL INSTRUMENTS The following table summarizes the derivative financial instruments utilized by Old National at March 31:
- --------------------------------------------------------------------------------------------------------------------------------- 2004 2003 ----------------------------------------- ----------------------------------------- Estimated Fair Value Estimated Fair Value Notional -------------------------- Notional -------------------------- (dollars in thousands) Amount Gain Loss Amount Gain Loss - --------------------------------------------------------------------------------------------------------------------------------- Fair Value Hedges Received fixed interest rate swaps $1,068,096 $ 22,118 $ (5,877) $ 753,000 $ 26,957 $ (1,277) Interest rate lock commitments 65,535 129 -- 130,813 1,446 -- Forward mortgage loan contracts 72,428 -- (81) 133,050 -- (698) Options on contracts purchased 4,000 -- -- -- -- -- Loans held for sale warehouse 17,895 33 -- 52,999 718 -- Mortgage rate lock derivative 65,535 101 -- 130,813 197 -- Cash Flow Hedges HELOC cash flow 100,000 2,073 -- 100,000 791 (61) Pay fixed interest rate swaps 150,000 109 (468) -- -- -- Customer interest rate swaps 44,523 1,097 (69) 2,916 54 -- Customer interest rate swaps with counterparty 44,523 69 (1,097) 2,916 -- (54) Customer interest rate cap 15,300 -- (53) -- -- -- Customer interest rate cap with counterparty 15,300 53 -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Total $1,663,135 $ 25,782 $ (7,645) $1,306,507 $ 30,163 $ (2,090) =================================================================================================================================
For further information regarding derivative financial instruments, see Note 16 of the notes to the consolidated financial statements of the 2003 annual report. NOTE 11 - INCOME TAXES The following is a summary of the major items comprising the differences in taxes computed at the federal statutory rate and as recorded in the consolidated statement of income for the three months ended March 31: -------------------------------------------------- 2004 2003 -------------------------------------------------- Provision at statutory rate 35.0 % 35.0 % Tax-exempt income (21.1) (13.1) Other, net 0.5 (0.2) -------------------------------------------------- Effective tax rate 14.4 % 21.7 % ================================================== For the three months ended March 31, 2004, the effective tax rate was significantly lower than for the same period of last year. The decrease in the effective tax rate resulted from a higher percentage of tax-exempt income to total income for the quarter ended March 31, 2004, compared to the quarter ended March 31, 2003. 14 NOTE 12 - COMPREHENSIVE INCOME
- -------------------------------------------------------------------------------------------------- Three Months Ended March 31, (dollars in thousands) 2004 2003 - -------------------------------------------------------------------------------------------------- Net income: $19,509 $26,260 Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the period, net of tax 21,929 (3,849) Less: reclassification adjustment for securities gains realized in net income, net of tax (1,150) (1,614) Cash flow hedges: Net unrealized derivative gains (losses) on cash flow hedges, net of tax 365 (159) Less: reclassification adjustment on cash flow hedges, net of tax 47 44 - -------------------------------------------------------------------------------------------------- Net unrealized gains (losses) 21,191 (5,578) - -------------------------------------------------------------------------------------------------- Comprehensive income $40,700 $20,682 ==================================================================================================
NOTE 13 - COMMITMENTS AND CONTINGENCIES LITIGATION In the normal course of business, various legal actions and proceedings, which are being vigorously defended, are pending against Old National and its affiliates. Among these are several lawsuits relating to activities during 1995 of First National Bank & Trust Company, Carbondale, Illinois, ("First National"), which was purchased by Old National in 1999. These lawsuits include one class action brought by alleged third-party creditors of structured settlement trusts. The lawsuits are pending against Old National Bank, as successor to First National, and allege actual damages totaling approximately $31 million, as well as unspecified punitive damages, and other damages and attorneys' fees. The cases are pending against Old National Bank in the City of St. Louis, Missouri; St. Clair County, Madison County and Cook County, Illinois; and U.S. Federal District Court in Southern Illinois. During the fourth quarter of 2003, Old National advanced steps to settle certain litigation arising out of these claims and established a reserve of $10 million for settlement. During the quarter ended March 31, 2004, Old National paid $8 million of this reserve to settle $10 million of the exposure. $16 million of the estimated $31 million exposure has been ruled in favor of Old National at the trial court level and is currently on appeal. The $2 million remaining in the reserve for litigation settlement is deemed to be adequate to cover the remaining $5 million of exposure. It is not expected that any future losses will have a material impact on Old National's results of operations. BUILDING COMMITMENT On October 11, 2002, Old National entered into a $52 million contract awarded to a company controlled by a director for the construction of its Evansville-based main banking center and bank headquarters. Construction began on June 27, 2002, and is expected to be complete in the third quarter of 2004. CREDIT-RELATED FINANCIAL INSTRUMENTS In the normal course of business, Old National's banking affiliates have entered into various agreements to extend credit, including loan commitments of $1.520 billion, commercial letters of credit of $19.5 million and standby letters of credit of $96.1 million at March 31, 2004. At March 31, 2003, loan commitments were $1.362 billion, commercial letters of credit were $73.8 million and standby letters of credit were $56.1 million. These commitments are not reflected in the consolidated financial statements. No material losses are expected to result from these transactions. At March 31, 2004 and 2003, Old National had credit extensions of $72.4 million and $49.1 million, respectively, with various unaffiliated banks related to letter of credit commitments issued on behalf of Old National's customers. At March 31, 2004 and 2003, Old National provided collateral to the unaffiliated banks to secure credit extensions totaling $41.0 million and $12.5 million, respectively. Old National did not provide collateral for the remaining credit extensions. 15 NOTE 14 - FINANCIAL GUARANTEES Old National holds instruments, in the normal course of business with customers, that are considered financial guarantees in accordance with FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." Standby letters of credit guarantees are issued in connection with agreements made by customers to counterparties. Standby letters of credit are contingent upon failure of the customer to perform the terms of the underlying contract. Credit risk associated with standby letters of credit is essentially the same as that associated with extending loans to customers and is subject to normal credit policies. The term of these standby letters of credit is typically one year or less. At March 31, 2004, the notional amount of standby letters of credit was $96.1 million, which represents the maximum amount of future funding requirements, and the carrying value was $0.4 million. Old National also enters into forward contracts for the future delivery of conforming residential real estate loans at a specified interest rate to reduce interest rate risk associated with loans held for sale. These forward contracts are considered derivative instruments accounted for under SFAS No. 133. See additional information in Note 10. NOTE 15 - SEGMENT INFORMATION Old National operates in three reportable segments: community banking, non-bank services and treasury. The community banking segment serves customers in both urban and rural markets providing a wide range of financial services including commercial, real estate and consumer loans; lease financing; checking, savings, time deposits and other depository accounts; cash management services; and debit cards and other electronically accessed banking services and Internet banking. The non-bank services segment combines the management and operations of trust, asset management, insurance, brokerage and investment and annuity sales. Treasury manages investments, wholesale funding, interest rate risk, liquidity and leverage for Old National. Additionally, treasury provides other miscellaneous capital markets products for its corporate banking customers. In order to measure performance for each segment, Old National allocates capital, corporate overhead and income tax provision to each segment. Capital and corporate overhead are allocated to each segment using various methodologies, which are subject to periodic changes by management. Income taxes are allocated using the effective tax rate. Tax-exempt income is primarily within the treasury segment, creating a tax benefit for this segment. Intersegment sales and transfers are not significant. Old National uses a funds transfer pricing ("FTP") system to eliminate the effect of interest rate risk from the community banking and non-bank services segments net interest income. The FTP system is used to credit or charge each segment for the funds the segments create or use. The net FTP credit or charge is reflected in segment net interest income. The financial information for each operating segment is reported on the basis used internally by Old National's management to evaluate performance and is not necessarily comparable with similar information for any other financial institution. 16 Summarized financial information concerning segments is shown in the following table for the three months ended March 31:
- --------------------------------------------------------------------------------------------------------- Community Non-bank (dollars in thousands) Banking Services Treasury Other Total - --------------------------------------------------------------------------------------------------------- 2004 Net interest income $ 70,191 $ 142 $ (1,909) $ (3,313) $ 65,111 Provision for loan losses 7,442 -- 58 -- 7,500 Noninterest income 15,030 23,963 4,099 2,536 45,628 Noninterest expense 59,470 21,161 599 (777) 80,453 Income tax expense (benefit) 4,401 955 (2,079) -- 3,277 Segment profit 13,908 1,989 3,612 -- 19,509 Total assets 5,731,111 121,665 3,276,565 129,993 9,259,334 - --------------------------------------------------------------------------------------------------------- 2003 Net interest income $ 70,212 $ 54 $ (1,460) $ 997 $ 69,803 Provision for loan losses 9,000 -- -- -- 9,000 Noninterest income 20,394 16,953 4,468 1,105 42,920 Noninterest expense 52,464 15,358 241 2,102 70,165 Income tax expense (benefit) 8,516 565 (1,783) -- 7,298 Segment profit 20,626 1,084 4,550 -- 26,260 Total assets 5,908,926 88,330 3,624,637 103,283 9,725,176 - ---------------------------------------------------------------------------------------------------------
NOTE 16 - SUBSEQUENT EVENTS Subsequent to March 31, 2004, Old National entered into a Commitment Letter to execute a Whole Loan Sale and Servicing Agreement to sell approximately $427 million of residential real estate loans with servicing retained. This transaction is expected to be completed by the quarter ended June 30, 2004 and is not expected to have a material impact on Old National's results of operations. 17 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION EXECUTIVE SUMMARY Net income for the quarter ended March 31, 2004, decreased significantly compared to the quarter ended March 31, 2003, driven primarily by declining interest rates and slow loan demand that resulted in significant decreases in both the net interest income and mortgage banking revenue. In addition, noninterest expense included charges for severance payments to three senior executives who left the company during the quarter ended March 31, 2004 and an increase in incentive expense compared to the quarter ended March 31, 2003. As a result of management's balance sheet strategies, Old National's financial condition showed a decrease in assets and liabilities at March 31, 2004, compared to March 31, 2003 and December 31, 2003, reflecting heavy refinancing of residential real estate loans during 2003, a reduction in the investment portfolio, and a reduction of certificates of deposits and borrowed funds. Management uses various indicators such as return on assets, return on equity and asset quality ratios in order to evaluate the performance of the business. These are discussed throughout this "Management's Discussion and Analysis of Financial Condition and Results of Operations." FINANCIAL BASIS AND FORWARD-LOOKING STATEMENTS This discussion analyzes Old National's results of operations for the three months ended March 31, 2004 and 2003, and financial condition as of March 31, 2004, compared to March 31, 2003, and December 31, 2003. This management's discussion and analysis contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include expressions such as "expects," "intends," "believes," "anticipates," and "should," which are statements of belief as to the expected outcomes of future events. Internal and external factors that might cause such a difference include, but are not limited to, market, economic, operational, liquidity, credit and interest rate risks associated with Old National's business, competition, government legislation and policies, ability of Old National to execute its business plan and implement the "Ascend" project initiatives (see "Results of Operations" for further information on the "Ascend" project), credit quality trends and the ability to generate loans, and other matters discussed in this management's discussion and analysis. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Actual results could materially differ from those presented. Old National undertakes no obligation to release revisions to these forward-looking statements or reflect events or conditions after the date on which the forward looking statement is made or to reflect the occurrence of unanticipated events. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as disclosures found elsewhere in this report, are based upon Old National's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires Old National to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of the mortgage servicing rights and the valuation of goodwill and intangibles. Actual results could differ from those estimates. o Allowance for Loan Losses. The allowance for loan losses is maintained at a level believed adequate by management to absorb probable losses inherent in the consolidated loan portfolio. Management's evaluation of the adequacy of the allowance is an estimate based on reviews of individual loans, assessments of the impact of current and anticipated economic conditions on the portfolio and historical loss experience. The allowance represents management's best estimate, but significant downturns in circumstances relating to loan quality and economic conditions could result in a requirement for additional allowance in the near future. Likewise, an upturn in loan quality and improved economic conditions may allow a reduction in the required reserve. In either instance, unanticipated changes could have a significant impact on results of operations. 18 The allowance is increased through a provision charged to operating expense. Uncollectible loans are charged-off through the allowance. Recoveries of loans previously charged-off are added to the allowance. A loan is considered impaired when it is probable that contractual interest and principal payments will not be collected either for the amounts or by the dates as scheduled in the loan agreement. Old National's policy for recognizing income on impaired loans is to accrue interest unless a loan is placed on nonaccrual status. o Mortgage Servicing Rights. Mortgage servicing rights are recognized as separate assets when loans are sold with servicing retained. The total price of loans sold is allocated between the loans sold and the mortgage servicing rights retained based on the relative fair values of each. The fair value of capitalized mortgage servicing rights is estimated by calculating the present value of estimated future net servicing income derived from related cash flows. Amortization of capitalized mortgage servicing rights is determined in proportion to and over the period of estimated net servicing income of the underlying financial assets. Impairment of mortgage servicing rights exists if the book value of the mortgage servicing rights exceed its estimated fair value. In determining impairment, mortgage servicing rights are stratified by interest rates. Critical assumptions used in determining fair value include expected mortgage loan prepayment rates, discount rates and other economic factors, which are determined based on current market conditions. The expected rates of mortgage loan prepayments are the most significant factors driving the value of mortgage servicing rights. Increases in expected mortgage loan prepayments reduce estimated future net servicing cash flows because the life of the underlying loan is reduced. Fair values, using estimated mortgage loan prepayment rates, are derived from a third-party statistical model. Negative adjustments to the value, if any, are recognized through a valuation allowance by charges against mortgage servicing income. The use of a valuation allowance enables the recovery of this value as market conditions become more favorable. o Goodwill and Intangibles. For purchase acquisitions, Old National is required to record the assets acquired, including identified intangible assets, and the liabilities assumed at their fair value, which in many instances involves estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques that may include estimates of attrition, inflation, asset growth rates or other relevant factors. In addition, the determination of the useful lives for which an intangible asset will be amortized is subjective. Under Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets," goodwill and indefinite-lived assets recorded must be reviewed for impairment on an annual basis, as well as on an interim basis if events or changes indicate that the asset might be impaired. An impairment loss must be recognized for any excess of carrying value over fair value of the goodwill or the indefinite-lived intangible with subsequent reversal of the impairment loss being prohibited. The tests for impairment fair values are based on internal valuations using management's assumptions of future growth rates, future attrition, discount rates, multiples of earnings or other relevant factors. Changes is these factors, as well as downturns in economic or business conditions, could have a significant adverse impact on the carrying values of goodwill or intangibles and could result in impairment losses affecting the financials of the company as a whole and the individual lines of business in which the goodwill or intangibles reside. Management believes the accounting estimates related to the allowance for loan losses; the capitalization, amortization and valuations of mortgage servicing rights; and the valuation of goodwill and intangibles are "critical accounting estimates" because: (1) the estimates are highly susceptible to change from period to period because they require company management to make assumptions concerning, among other factors, the changes in the types and volumes of the portfolios, rates of future prepayments, valuation assumptions and anticipated economic conditions, and (2) the impact of recognizing an impairment or loan loss could have a material effect on Old National's assets reported on the balance sheet as well as net income. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of the Board of Directors and the Audit Committee has reviewed the company's disclosure relating to it in this Management's Discussion and Analysis. 19 RESULTS OF OPERATIONS Earnings Summary Old National reported net income of $19.5 million for the three months ended March 31, 2004, a reduction of 25.7% from the $26.3 million recorded for the three months ended March 31, 2003. On a diluted per share basis, net income was $0.29 for the quarter ended March 31, 2004, compared to $0.39 for the quarter ended March 31, 2003. Old National's return on average assets for the three months ended March 31, 2004, was 0.84% and return on shareholders' equity was 10.68%, compared to the three months ended March 31, 2003, ratios of 1.11% and 14.03%, respectively. Earnings for the three months ended March 31, 2004, were impacted primarily by significant decreases in net interest income resulting from continued weak commercial loan demand and declining interest rates, decreases in mortgage banking revenue related to declines in values of mortgage servicing rights as well as reduced new loan originations, increases to salary expense relating primarily to severance payments to three senior executives who left Old National during the quarter and an increase in incentive accruals over the quarter ended March 31, 2003. A company-wide program, "Ascend," was announced in late 2003 and, at March 31, 2004, was nearing the implementation phase. The project was conducted with the assistance of EHS Partners and designed to be an intense evaluation of every aspect of operations for expense reductions and revenue growth ideas. All initiatives arising from the project are scheduled to be fully implemented over the next 18 months and Old National is expecting to realize approximately $55-$60 million in annualized pre-tax earnings, excluding one-time implementation charges which will be recognized in the second quarter of 2004. Approximately 65%-70% of the annualized benefit is expected to come from efficiency improvement/cost reduction initiatives, including position eliminations, with the remainder from revenue enhancement initiatives. Net Interest Income Net interest income is the difference between interest income earned on interest-earning assets, such as loans and investments, and interest expense incurred on interest-bearing liabilities, such as deposits and borrowed funds. Net interest income and margin are influenced by many factors, primarily the volume and mix of earning assets, funding sources and interest rate fluctuations. Other factors include accelerated prepayments of mortgage-related assets and the composition and maturity of earning assets and interest-bearing liabilities. Net interest income and net interest margin in the following discussion is presented on a fully taxable equivalent basis, which adjusts tax-exempt or nontaxable interest income to an amount that would be comparable to interest subject to income taxes using the federal statutory tax rate in effect of 35% for all periods. Net income is unaffected by these taxable equivalent adjustments as the offsetting increase of the same amount is made in the income tax section. Net interest income included taxable equivalent adjustments of $6.1 million and $6.4 million for the three months ended March 31, 2004 and 2003, respectively. Taxable equivalent net interest income was $71.2 million for the three months ended March 31, 2004, a 6.5% decrease from the $76.2 million reported for the same period of 2003. The net interest margin was 3.37% for the three months ended March 31, 2004, compared to 3.46% reported for the three months ended March 31, 2003. The reduction in both net interest income and net interest margin reflects a smaller portfolio of average earning assets and lower levels of interest rates when compared to the three months ended March 31, 2003. Average earning assets were $8.461 billion for the three months ended March 31, 2004, compared to $8.796 billion for the same period of 2003, a decrease of 3.8% or $334.5 million. This decrease resulted primarily from reductions in investment portfolio assets and residential mortgages. The overall decrease in interest rates during 2003 and continuing into 2004 had a significant impact on the mix and yield of earning assets. Driven by lower rates, many of the company's residential real estate loans were refinanced in 2003, with the new loan production being sold into the secondary loan market, shrinking the residential loan portfolio. Additionally, commercial and commercial real estate loans did not grow appreciably during 2003 and the lack of growth continued into the three months ended March 31, 2004, a result of both continued weak loan demand in Old National's markets and more stringent loan underwriting standards. In a continuation of a strategy begun during 2003, the company reduced its investment portfolio assets in recognition of the narrow spreads available on those assets in the current rate environment. 20 Provision for Loan Losses The provision for loan losses is the charge to earnings that management determines necessary to provide an adequate allowance for losses in the loan portfolio. The provision for loan losses was $7.5 million for the three months ended March 31, 2004, compared to $9.0 million for the three months ended March 31, 2003, a result of lower charge-offs during the quarter ended March 31, 2004. Refer to "Allowance for Loan Losses and Asset Quality" section for further discussion of non-performing loans, charge-offs and additional items impacting the provision. Noninterest Income Old National generates revenues in the form of noninterest income through fees and sales commissions from its core banking franchise and other related businesses, such as trust and asset management, investment products and insurance. This source of revenue has grown as a percentage of total revenue to 41.2% in the three months ended March 31, 2004, compared to 38.1% in the three months ended March 31, 2003. Old National will continue to focus on noninterest income revenue growth while carefully managing balance sheet risk positions to ensure that Old National is well-positioned for the anticipated turnaround in market conditions. Noninterest income for the three months ended March 31, 2004, was $45.6 million, an increase of $2.7 million, or 6.3% over the $42.9 million reported for the three months ended March 31, 2003. Total fee and service charge income, excluding gains on sales of securities, for the quarter ended March 31, 2004, was $43.6 million compared to $40.2 million for the quarter ended March 31, 2003. Insurance premiums and commissions, the largest component of this category of revenue, increased to $14.5 million for the three months ended March 31, 2004, compared to $8.2 million for the three months ended March 31, 2003. Acquisitions of various insurance agencies beginning in the second quarter of 2003, accounted for $4.9 million of the increase. These increases were offset by a decrease in mortgage banking revenue totaling $4.7 million. This decrease was mostly attributable to a reduced level of originations for the quarter ended March 31, 2004 compared to the quarter ended March 31, 2003, due to a lower level of loan refinancing. Residential real estate loan originations for the three months ended March 31, 2004, were $145.6 million resulting from 1,493 loans closed compared to $296.5 million resulting from 3,062 loans closed for the three months ended March 31, 2003. Also during the quarter ended March 31, 2004, a net impairment charge was recognized on the mortgage servicing rights asset of $1.4 million. This charge in addition to the reduced level of loan originations resulted in negative mortgage banking revenue for the quarter ended March 31, 2004. Noninterest Expense Noninterest expense for the three months ended March 31, 2004, totaled $80.5 million, an increase of $10.3 million, or 14.7% over the $70.2 million recorded for the same period of 2003. Salaries and benefits, the largest component of noninterest expense, totaled $49.3 million for the three months ended March 31, 2004, compared to $41.7 million for the three months ended March 31, 2003, an increase of $7.6 million. This increase in 2004 resulted from $2.9 million in severance expense related to three senior executives, including the chief executive officer, who left the company during the quarter ended March 31, 2004, $3.0 million directly attributed to acquisitions of insurance agencies that occurred after the first quarter of 2003 and an increase of incentive expenses of $2.0 million over the three months ended March 31, 2003. All other components of noninterest expense totaled $31.2 million for the three months ended March 31, 2004, compared to the $28.5 million for the three months ended March 31, 2003, an increase of $2.7 million or 9.4%. Of this increase, $1.0 million was directly related to the acquisitions of insurance agencies during 2003 and $1.4 million resulted from write-downs of foreclosed real estate during the quarter ended March 31, 2004. As a part of "Ascend," Old National anticipates improvements in noninterest expense at the program's completion by the end of 2005, however it is expected that a significant charge for the initial phase of the implementation will occur in the quarter ending June 30, 2004. Provision for Income Taxes Old National records a provision for income taxes currently payable and for income taxes payable in the future, which arise due to timing differences in the recognition of certain items for financial statement and income tax purposes. The major difference between the effective tax rate applied to Old National's financial statement income and the federal statutory tax rate is caused by interest on tax-exempt securities and loans. The provision for income taxes, as a percentage of pre-tax income, was 14.4% for the three months ended March 31, 2004, compared to 21.7% in the three months ended March 31, 2003. The decreased effective tax rate in 2004 resulted from a higher percentage of tax-exempt income to total income. 21 FINANCIAL CONDITION Overview Old National initiated balance sheet strategies beginning in the second half of 2003 to reduce the assets and liabilities of the company, including a reduction in the investment portfolio and a reduction in certificates of deposits and borrowed funds. Old National's assets at March 31, 2004, were $9.259 billion, a 4.8% decrease compared to March 31, 2003, and a 4.0% decrease compared to December 31, 2003. Investments and loans decreased $441.2 million and $27.3 million, respectively, since March 31, 2003, and decreased $43.7 million and $10.5 million, respectively, since December 31, 2003. Total liabilities declined $463.7 million compared to March 31, 2003, and $119.9 million since December 31, 2003. Total shareholders' equity decreased $2.2 million from March 31, 2003, but showed an increase over December 31, 2003, of $25.4 million due to changes in the unrealized gains on investment securities. Earning Assets Old National's earning assets are comprised of loans and loans held for sale, investment securities and money market investments. Earning assets were $8.467 billion at March 31, 2004, a decrease of 5.5% from March 31, 2003, and a decrease of 2.4% since December 31, 2003. The reduction in earning assets is due to a continuation of balance sheet strategies initiated by management during the second half of 2003. Old National reduced its investment portfolio in light of fewer attractive investment opportunities and the company's desire to reduce its sensitivity to rising interest rates. Total loans decreased only slightly, which can be attributed to continued weakness in commercial lending, partially offset by growth in consumer loans. In addition, the decrease in total loans from March 31, 2004, compared to March 31, 2003, was also affected by the sales of $62.7 million of nonaccrual commercial and residential real estate loans during the second and third quarters of 2003. Money market investments at March 31, 2004, increased by $9.8 million from March 31, 2003, primarily attributable to acquisitions that occurred after the first quarter of 2003. Investment Securities Old National has classified all investment securities as available-for-sale or held-to-maturity on the date of purchase. The majority of Old National's investment securities are classified as available-for-sale, which gives management the flexibility to sell the securities prior to maturity, if needed, based on fluctuating interest rates or changes in the company's funding requirements. At March 31, 2004, the investment securities portfolio was $2.874 billion compared to $3.315 billion at March 31, 2003, a decrease of $441.2 million or 13.3%. Investment securities decreased $43.7 million at March 31, 2004, compared to December 31, 2003, a decrease of 6.0%. Investment securities represented 33.9% of earning assets at March 31, 2004, compared to 37.0% at March 31, 2003, and 34.2% at December 31, 2003. During the first half of 2003, Old National increased the investment portfolio as a short-term alternative source of earning assets to offset declining residential real estate and minimal commercial and consumer loan growth. During the second half of 2003 and continuing into 2004, Old National decreased the size of the investment portfolio and used the cash flows generated by the declining investment portfolio to reduce borrowed funds. Stronger economic activity and stronger commercial loan demand would likely result in increased investments in loans and a reduction in the investment securities portfolio. The investment securities available-for-sale portfolio had net unrealized gains of $59.6 million at March 31, 2004, compared to $77.0 million at March 31, 2003. The decrease of $17.4 million was the result of higher market interest rates and a smaller portfolio of securities available-for-sale at March 31, 2004. Unrealized gains increased by $35.9 million due to somewhat reduced market interest rates resulting in a higher unrealized gain at March 31, 2004, compared to December 31, 2003. The investment portfolio had an average life of 4.30 years at March 31, 2004, compared to 3.59 years at March 31, 2003 and 4.86 years at December 31, 2003. The average yields on investment securities, on a taxable equivalent basis, were 4.62% for the quarter ended March 31, 2004, compared to 4.99% for the quarter ended March 31, 2003 and 4.70% for the quarter ended December 31, 2003. This decrease was primarily due to prepayments of mortgage-backed securities and calls of higher coupon agency securities that left lower coupon securities in the portfolio. 22 Residential Loans Held for Sale Residential loans held for sale were $17.9 million at March 31, 2004, compared to $53.0 million at March 31, 2003, a decrease of 66.2%, and compared to $16.3 million at December 31, 2003. Residential loans held for sale are loans that are closed, but not yet sold on the secondary market. The amount of residential loans held for sale on the balance sheet varies depending on the timing of movement of originations and loan sales to the secondary market. At March 31, 2004, residential real estate loan origination activity was down as compared to March 31, 2003, primarily due to a reduced level of loan refinancing. Commercial and Consumer Loans Commercial and consumer loans are the largest classification within the earning assets of Old National representing 54.6% of earning assets at March 31, 2004, an increase from 51.5% at March 1, 2003, and 54.4% at December 31, 2003. At March 31, 2004, commercial and commercial real estate loans were $3.445 billion, a slight decrease of $117.2 million since March 31, 2003, and a decrease of $22.3 million since December 31, 2003. During the third quarter of 2003, Old National sold $48.2 million of non-performing commercial loans. Weak loan demand in Old National's non-urban markets impacted commercial loan growth in 2003 and continues into 2004. At March 31, 2004, consumer loans, including automobile loans, personal and home equity loans and lines of credit, and student loans, increased $125.1 million or 11.9% compared to March 31, 2003, and increased $12.1 million or 4.2% since December 31, 2003, primarily due to enhancements to marketing and customer contact programs. Residential Real Estate Loans Residential real estate loans, primarily 1-4 family properties, have decreased in significance to the loan portfolio over the past five years due to higher levels of loan sales into the secondary market, primarily to Federal Home Loan Mortgage Corporation and Federal National Mortgage Association. Old National sells the majority of residential real estate loans it originates as a strategy to better manage interest rate risk and liquidity. These loans are sold with loan servicing retained in order to maintain customer relationships and generate noninterest income and fees. By using this strategy, Old National is able to recognize an immediate gain in noninterest income versus a small net interest income spread over a longer period of time. Old National sells the majority of the residential real estate loans without recourse, currently having less than 1% of loans sold with recourse. At March 31, 2004, residential real estate loans were $939.2 million, a decrease of $35.2 million or 3.6% from March 31, 2003. Residential real estate loans liquidated at high levels during 2003 due to the low interest rate environment and the related boom in refinancing. Residential real estate loans were virtually unchanged from December 31, 2003, to March 31, 2004, as new loans originated and held on the balance sheet replaced the maturities and prepayments of existing loans. Old National's residential real estate loan portfolio was also affected by the sales of delinquent loans in the second and third quarters of 2003. These sales were to improve credit quality and reduce the level of non-performing loans and are not a part of Old National's ongoing strategy. Delinquent residential real estate loans of $14.5 million were sold to independent investors resulting in write-downs of $3.4 million recorded against the allowance for loan losses. During 2003, Old National developed additional mortgage products that fit within the company's interest rate risk profile that will be retained by the bank. As a result of this strategy, Old National has begun to see increased stabilization of residential real estate loans on the consolidated balance sheet. Allowance for Loan Losses and Asset Quality Administration Old National monitors the quality of its loan portfolio on an on-going basis and uses a combination of detailed credit assessments by relationship managers and credit officers, historic loss trends, and economic and business environment factors in determining its allowance for loan losses. Old National records provisions for loan losses based on current and projected loans outstanding, grade changes, mix of loans and expected losses. A detailed loan loss evaluation on an individual loan basis for the company's highest risk loans is performed quarterly. Each month, problem loan reports are prepared and reviewed, which include borrowers that show indications of being unable to meet debt obligations in the normal course of business, and loans which have other characteristics deemed by bank management to warrant special attention or have been criticized by regulators in the examination process. Classified loans include non-performing loans, past due 90 days and other problem loans while criticized loans, also known as special mention loans, are loans that have potential weaknesses that deserve management's close attention and require specific quarterly reviews by the bank. 23 Assets determined by the various evaluation processes to be under-performing receive special attention by Old National management. Under-performing assets consist of: 1) nonaccrual loans where the ultimate collectibility of interest or principal is uncertain; 2) loans renegotiated in some manner, primarily to provide for a reduction or deferral of interest or principal payments because the borrower's financial condition deteriorated; 3) loans with principal or interest past due ninety (90) days or more; and 4) foreclosed properties. A loan is generally placed on nonaccrual status when principal or interest become 90 days past due unless it is well secured and in the process of collection, or earlier when concern exists as to the ultimate collectibility of principal or interest. When loans are classified as nonaccrual, interest accrued during the year is reversed against earnings; interest accrued in the prior year, if any, is charged to the allowance for loan losses. Cash received while a loan is classified as nonaccrual is recorded to principal. Old National analyzes on a quarterly basis the composition of the loan portfolio to determine if there is any concentration of loans in any single industry exceeding 10% of its portfolio, and has determined that no such concentration exists as of March 31, 2004, as measured by Old National. In addition, Old National has no exposure to foreign borrowers or lesser-developed countries. Allowance for Loan Losses and Asset Quality At March 31, 2004, the allowance for loan losses was $108.6 million, an increase of $24.6 million compared to $84.0 million at March 31, 2003, and an increase of $4.0 million compared to $104.6 million at December 31, 2003. As a percentage of total loans held for investment, the allowance increased to 1.95% at March 31, 2004, from 1.50% at March 31, 2003, and 1.88% from December 31, 2003. The significantly higher allowance for loan losses at March 31, 2004, compared to March 31, 2003, was due to Old National's increased provision during 2003, reflecting higher than normal losses in 2003. Loan collateral values in the markets served by Old National have deteriorated and recent experience has elevated the rate of expected future losses compared to earlier periods in 2003. For the three months ended March 31, 2004, the provision for loan losses amounted to $7.5 million, a decrease of $1.5 million from the three months ended March 31, 2003. Charge-offs, net of recoveries, totaled $3.5 million for the three months ended March 31, 2004, the lowest level since the second quarter of 2002, and a decrease of $9.3 million from the three months ended March 31, 2003. Net charge-offs to average loans were 0.2% for the three months ended March 31, 2004, as compared to 0.9% for the three months ended March 31, 2003. The net charge-offs were higher for the quarter ended March 31, 2003, primarily due to the charge-off of a single commercial credit of $8.5 million. Under-performing assets totaled $114.8 million at March 31, 2004, remaining relatively unchanged from December 31, 2003, and significantly lower than the $139.7 million at March 31, 2003. As a percent of total loans and foreclosed properties, under-performing assets at March 31, 2004, were 2.06%, a reduction from the December 31, 2003 ratio of 2.12% and the March 31, 2003 ratio of 2.47%. Nonaccrual loans were $107.1 million at March 31, 2004, compared to $104.6 million at December 31, 2003, and $116.5 million at March 31, 2003. Management believes that it has appropriately identified and reserved for loan losses related to nonaccrual loans at March 31, 2004. Approximately $47.2 million of nonaccrual loans less than thirty days delinquent were contractually performing at March 31, 2004. Management will continue its efforts to reduce the level of non-performing loans and may consider the possibility of additional sales of troubled and non-performing loans, which could result in additional write-downs to the allowance for loan losses. While the level of nonaccrual loans has remained relatively unchanged over the last three quarters, the total portfolio of loans identified by Old National as problem credits continues to decline. Total classified and criticized loans were $526.4 million at March 31, 2004, a decrease of $33.2 million from December 31, 2003 and a decrease of $126.0 million from March 31, 2003. While the absolute level of classified and criticized loans at March 31, 2004, decreased, management believes it has taken a prudent approach to the evaluation of under-performing credits and the loan portfolio in general, both in acknowledging the portfolio's general condition and in establishing the allowance for loan losses. 24 Old National has been affected by weakness in the economy of its non-urban markets, which has resulted in minimal growth of commercial loans and tighter credit underwriting standards. Management expects that trends in nonaccrual loans will be influenced by the degree to which the economy strengthens. The longer the significant softness in manufacturing continues, the more stress it puts on Old National's borrowers, increasing the potential for additional nonaccrual loans. The table below shows the various components of under-performing assets:
- ------------------------------------------------------------------------------------------ March 31, December 31, (dollars in thousands) 2004 2003 2003 - ------------------------------------------------------------------------------------------ Nonaccrual loans $107,122 $116,547 $104,627 Renegotiated loans -- -- -- Past due loans (90 days or more) 2,334 14,112 5,120 Foreclosed properties 5,304 8,999 8,763 - ------------------------------------------------------------------------------------------ Total under-performing assets $114,760 $139,658 $118,510 ========================================================================================== Classified loans (includes non-performing loans, past due 90 days and other problem loans) $321,328 $445,151 $343,943 Criticized loans 205,101 207,293 215,700 - ------------------------------------------------------------------------------------------ Total criticized and classified loans $526,429 $652,444 $559,643 ========================================================================================== Asset Quality Ratios: (1) Non-performing loans/total loans (1) (2) 1.92 % 2.07 % 1.87 % Under-performing assets/total loans and foreclosed properties (1) 2.06 2.47 2.12 Under-performing assets/total assets 1.24 1.44 1.27 Allowance for loan losses/under-performing assets 94.63 60.14 88.24 - ------------------------------------------------------------------------------------------
(1) Items referring to loans are net of unearned income and include residential loans held for sale. (2) Non-performing loans include nonaccrual and renegotiated loans. Premises and Equipment Premises and equipment was $194.3 million at March 31, 2004, an increase of $50.8 million or 35.4% since March 31, 2003, and an increase of $12.9 million or 28.4% since December 31, 2003. The increase is primarily due to the construction-in-progress of Old National's Evansville-based corporate headquarters and main banking center. The building is expected to be complete in the third quarter of 2004 at which time depreciation will begin. Goodwill and Other Intangible The non-bank services segment acquired various financial services companies in the second and third quarters of 2003, increasing goodwill to $129.3 million at March 31, 2004, from $110.6 million at March 31, 2003. Also as a result of these acquisitions, other intangible assets related to customer business relationships increased to $41.1 million at March 31, 2004, from $27.0 million at March 31, 2003. Old National performs impairment testing of goodwill and other intangibles on an annual basis. As of March 31, 2004 and 2003, there was no impairment. Funding Total funding, comprised of deposits and wholesale borrowings, was $8.390 billion at March 31, 2004, a decrease of 4.9% from $8.826 billion at March 31, 2003, and a decrease of 6.7% from $8.532 billion at December 31, 2003. Total deposits were $6.385 billion at March 31, 2004, an increase of 1.0% compared to March 31, 2003, and a decrease of 6.7% compared to December 31, 2003. Old National experienced growth in demand deposits and other low cost transaction accounts when comparing March 31, 2004 to March 31, 2003, due to the lower rate environment and customer preference for transaction accounts. When comparing March 31, 2004 to December 31, 2003, Old National's transaction accounts were lower due to seasonal deposit declines. Old National experienced a reduction in time accounts from March 31, 2004, compared to March 31, 2003 and December 31, 2003, due to the maturity of a group of higher interest rate certificates of deposits during the first quarter of 2004. Old National uses wholesale funding to augment deposit funding and to help maintain its desired interest rate risk position. At March 31, 2004, wholesale borrowings, including short-term borrowings and other borrowings, decreased 20.0% and 6.7% from March 31, 2003, and December 31, 2003, respectively. Wholesale funding was increased during the first half of 2003 to finance investment portfolio growth, offset a reduction in certificates of deposits, and take advantages of favorable interest rates. During the second half of 2003 and continuing into 2004, 25 wholesale borrowings decreased as the investment portfolio growth slowed. Wholesale borrowings as a percentage of total funding was 23.9% at March 31, 2004 compared to 28.4% at March 31, 2003 and 23.9% at December 31, 2003. The lower level of earning assets and stable levels of total core deposits during the first quarter of 2004 reduced the company's reliance on wholesale funding. Capital Resources and Regulatory Guidelines Shareholders' equity totaled $740.9 million at March 31, 2004, essentially unchanged from March 31, 2003, and an increase of 14.2% compared to December 31, 2003. A higher unrealized gain on investment securities was the primary contributor to the increase in shareholders' equity from December 31, 2003 to March 31, 2004. Old National paid cash dividends of $0.19 per share for the three months ended March 31, 2004, which decreased equity by $12.6 million, compared to cash dividends of $0.18 per share for the three months ended March 31, 2003, (restated for the 5% stock dividend distributed on January 27, 2004), which decreased equity by $12.1 million. Old National purchased shares of its stock in the open market under an ongoing repurchase program, reducing shareholders' equity by $10.1 million during the first quarter of 2004 and $12.6 million during the first quarter of 2003. Shares reissued for stock options and stock purchase plans increased shareholders' equity by $7.4 million during the first quarter of 2004 compared to $6.3 million during the first quarter of 2003. Old National and the banking industry are subject to various regulatory capital requirements administered by the federal banking agencies. Old National's consolidated capital position remains strong as evidenced by the following comparisons of key industry ratios.
- ------------------------------------------------------------------------------------------------------- Regulatory Guidelines March 31, December 31, Minimum 2004 2003 2003 - ------------------------------------------------------------------------------------------------------- Risk-based capital: Tier 1 capital to total avg assets (leverage ratio) 4.00 % 7.53 % 7.56 % 7.35 % Tier 1 capital to risk-adjusted total assets 4.00 11.08 11.31 10.96 Total capital to risk-adjusted total assets 8.00 14.76 14.95 14.65 Shareholders' equity to assets N/A 8.00 7.64 7.65 - -------------------------------------------------------------------------------------------------------
ITEM 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISK MANAGEMENT Inherent in Old National's balance sheet is market risk, defined as the sensitivity of income, fair market values and capital to changes in interest rates, foreign currency exchange rates, commodity prices and other relevant market rates or prices. The primary market risk to which Old National has exposure is interest rate risk. Interest rate risk arises because assets and liabilities may reprice, mature or prepay at different times or based upon different indices as market interest rates change. Changes in the slope of the yield curve and the pace of changes in interest rates may also impact net interest income and the fair value of the balance sheet. Old National manages interest rate risk within an overall asset and liability management framework that includes attention to credit risk, liquidity risk and capitalization. A principal objective of asset/liability management is to manage the sensitivity of net interest income to changing interest rates. Asset and liability management activity is governed by a policy reviewed and approved annually by the Board of Directors. The Board of Directors has delegated the oversight of the administration of this policy to the Funds Management Committee, a committee of the Board of Directors, which meets quarterly. In addition, a second oversight committee, the Balance Sheet Management Committee comprised of senior executive managers, provides guidance for the execution of the activities. Old National uses two modeling techniques to quantify the impact of changing interest rates on the company, Net Interest Income at Risk and Economic Value of Equity. Net Interest Income at Risk is used by management and the Board of Directors to evaluate the impact of changing rates over a two-year horizon while Economic Value of Equity is more useful for long-term interest rate risk. These models simulate the likely behavior of the company's net interest income and the likely change in the company's market value due to changes in interest rates under various possible interest rate scenarios. Because the models are driven by expected behavior in various interest rate 26 scenarios and many factors besides market interest rates impact the company's net interest income and value, Old National recognizes that model outputs are not guarantees of actual results. For this reason, Old National models many different combinations of interest rates and balance sheet assumptions to best understand its overall sensitivity to market interest rate changes. Old National's Board of Directors, through its Funds Management Committee, monitors the company's interest rate risk. The Funds Management Committee establishes policy guidelines for the allowable change in cumulative net interest income over a two-year period and the change in Economic Value of Equity in an up or down 200 basis point instantaneous parallel change to the yield curve (+/- 200 basis point yield curve shock). The current guideline for Net Interest Income at Risk is +/- 5% of net interest income over a two-year period in a 200 basis point shock to the yield curve. The current guideline for the allowable fluctuation in Economic Value of Equity is +/- 12% in a 200 basis point shock to the yield curve. In addition, Old National has included the output of its rate risk model in up and down 50 and 100 basis point yield curve shocks to provide a better understanding of Old National's sensitivity to market interest rate changes. At March 31, 2004 and 2003, Old National was slightly outside its policy of Economic Value of Equity in a -200 basis point interest rate shock. Management and the Funds Management Committee have determined that this is an acceptable variance given the unusually low interest rates. The following table shows Old National's market risk in various interest rate scenarios.
Interest Rate Risk /Static Balance Sheet Model - --------------------------------------------------------------------------------------- Estimated 24- Month Estimated Change Interest Rate Cumulative Impact On in Economic Change Net Interest Income Value of Equity ---------------------------------- ------------------------------ (basis points) Policy Actual Policy Actual - --------------------------------------------------------------------------------------- 2004 +200 +/- 5.00 % -4.55 % +/- 12.00 % -8.43 % +100 -2.01 -2.94 +50 -0.80 -1.61 -50 0.34 % -1.51 % -100 -0.45 -3.21 -200 +/- 5.00 % -3.87 +/- 12.00 % -13.85 - --------------------------------------------------------------------------------------- 2003 +200 +/- 5.00 % -0.78 % +/- 12.00 % -2.15 % +100 0.39 0.57 +50 0.42 0.44 -50 0.01 % -2.49 % -100 -0.73 -5.04 -200 +/- 5.00 % -3.49 +/- 12.00 % -13.36 - ---------------------------------------------------------------------------------------
The company's rate risk model output depicted in the preceding table is based on a static, or unchanged future balance sheet. Based on management's expected balance sheet, which includes expected changes in the company's asset and funding mix, Old National expects net interest income to be impacted positively by the market's current expectation of gradually increasing interest rates during 2004 and 2005. Old National uses derivatives to manage interest rate risk in the ordinary course of business. See Note 10 to the consolidated financial statements for a discussion of derivative financial instruments. These transactions serve to better balance the repricing of assets and liabilities in various rate change scenarios and protect the company from changes in interest rates. 27 LIQUIDITY MANAGEMENT The Funds Management Committee of the Board of Directors and the Balance Sheet Management Committee establish liquidity risk guidelines and monitor liquidity risk. The objective of liquidity management is to ensure Old National has the ability to fund balance sheet growth and meet deposit and debt obligations in a timely and cost-effective manner. Management monitors liquidity through a regular review of asset and liability maturities, funding sources, and loan and deposit forecasts to minimize funding risk. The company maintains strategic and contingency liquidity plans to ensure sufficient available funding to satisfy requirements for balance sheet growth, properly manage capital markets' funding sources and to address unexpected liquidity requirements. Old National's ability to raise funding at competitive prices is influenced by rating agencies' views of the company's credit quality, liquidity, capital and earnings. The senior debt ratings of Old National Bancorp and Old National Bank at March 31, 2004, are shown in the following table.
SENIOR DEBT RATINGS - ------------------------------------------------------------------------------------------------------------------ Standard and Poor's Moody's Investor Services Fitch, Inc. ---------------------------- ----------------------------- ------------------------- Long-term Short-term Long-term Short-term Long-term Short-term - ------------------------------------------------------------------------------------------------------------------ Old National Bancorp BBB N/A Baa1 N/A BBB F2 Old National Bank BBB+ A2 A3 P-2 BBB F2 - ------------------------------------------------------------------------------------------------------------------ N/A = not applicable
On January 30, 2004, Fitch, Inc. lowered its ratings on Old National Bancorp and Old National Bank to BBB and changed its outlook on Old National from "negative" to "stable." As of March 31, 2004 Old National Bank had the capacity to borrow $1.037 billion from the Federal Reserve Bank's discount window. Old National Bank is also a member of the Federal Home Loan Bank ("FHLB") of Indianapolis, which provides a source of funding through FHLB advances. Old National also maintains relationships in capital markets with brokers and dealers to issue certificates of deposits and short-term and medium-term bank notes. In addition, at March 31, 2004, Old National had $660 million available for issuance under a $1 billion global bank note program for senior and subordinated debt. Old National Bancorp, the parent company, has routine funding requirements consisting primarily of operating expenses, dividends to shareholders, debt service, net derivative cash flows and funds used for acquisitions. Old National Bancorp obtains funding to meet its obligations from dividends and management fees collected from its subsidiaries and the issuance of debt securities. At March 31, 2004 the parent company's other borrowings outstanding was $274.6 million, compared with $43.4 million at March 31, 2003. This increase in other borrowings was driven by the issuance of $100 million of fixed-rate medium-term notes and the reclassification of $161.9 million related to guaranteed preferred beneficial interests in subordinated debentures, which was partially offset by medium-term note maturities of $30 million. See Note 8 to the consolidated financial statements for a discussion of the reclassification. Old National Bancorp's debt scheduled to mature in the next 12-months is $3.2 million. These debt obligations are expected to be met through current cash balances and dividends from subsidiaries. Federal banking laws regulate the amount of dividends that may be paid by banking subsidiaries without prior approval. For further information regarding dividend restrictions, see Note 19 of the notes to the consolidated financial statements of the 2003 annual report. At March 31, 2004, Old National had an SEC shelf registration in place for the issuance of $200 million preferred securities by a series of Trusts. Old National has issued $150 million of these securities, called trust preferred securities, and has the capacity to issue an additional $50 million. 28 ITEM 4. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures. Old National's principal executive officer and principal financial officer have concluded that Old National's disclosure controls and procedures (as defined in Exchange Act Rule 13a-14(c) under the Securities Exchange Act of 1934, as amended), based on their evaluation of these controls and procedures as of the end of the period covered by this Form 10-Q, are effective at the reasonable assurance level as discussed below to ensure that information required to be disclosed by Old National in the reports it files under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to Old National's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Limitations on the Effectiveness of Controls. Management, including the principal executive officer and principal financial officer, does not expect that Old National's disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgements in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be only reasonable assurance that any design will succeed in achieving its stated goals under all potential future conditions, over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 29 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS NONE ITEM 2. CHANGES IN SECURITIES
ISSUER PURCHASES OF EQUITY SECURITIES - ---------------------------------------------------------------------------------------------------- Total Number Maximum Number (or of Shares Approximate Dollar Total Average Purchased as Value) of Shares Number Price Part of Publically that May Yet Be of Shares Paid Per Announced Plans Purchased Under Period Purchased Share or Programs the Plans or Programs - ---------------------------------------------------------------------------------------------------- 01/01/04 - 01/31/04 346,139 $21.31 346,139 2,965,183 02/01/04 - 02/29/04 94,100 21.28 94,100 2,867,307 03/01/04 - 03/31/04 27,500 22.36 27,500 2,854,710 - ---------------------------------------------------------------------------------------------------- Year-to-date 3/31/04 467,739 $21.55 467,739 2,854,710 ==================================================================================================== NOTE: Old National announced on December 4, 2003, that the board of directors approved the continuation of the company's stock repurchase program up to 5% of the company's outstanding stock for 2004.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE ITEM 5. OTHER INFORMATION NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The exhibits filed as part of this report and exhibits incorporated herein by reference to other documents are as follows: Exhibit Number 3 (i) Articles of Incorporation of Old National (incorporated by reference to Exhibit 3(i) of Old National's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002). 3 (ii) By-Laws of Old National, amended and restated effective April 22, 2004, are filed herewith. 4 Instruments defining rights of security holders, including indentures. Form of Indenture between Old National and Bank One Trust Company, NA, as trustee (incorporated by reference to Exhibit 4.1 to Old National's Registration Statement on Form S-3, Registration No. 333-87573, filed with the Securities and Exchange Commission on September 22, 1999). 30 10 Material contracts (a) Form of Severance Agreement for Thomas F. Clayton, Michael R. Hinton, Daryl D. Moore and John S. Poelker, as amended, is filed herewith.* (b) Form of Change of Control Agreement for Thomas F. Clayton, Michael R. Hinton, Daryl D. Moore and John S. Poelker, as amended, is filed herewith.* (c) Severance Agreement, between Old National and James A. Risinger, is filed herewith.* (d) Old National Bancorp 1999 Equity Incentive Plan (incorporated by reference to Old National's Form S-8 filed on July 20, 2001).* (e) Construction Manager Contract, dated as of May 30, 2002, between Old National Bancorp and Industrial Contractors, Inc. (incorporated by reference to Old National's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002). (f) Owner-Contractor Agreement, dated as of October 11, 2002, between Old National Bancorp and Industrial Contractors, Inc. (incorporated by reference to Old National's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002). (g) Summary of Old National Bancorp's Outside Director Compensation Program (incorporated by reference to Old National's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).* 31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. -------------- * Management contract or compensatory plan or arrangement (b) Reports on Form 8-K filed during the quarter ended March 31, 2004. Old National filed a current report on Form 8-K dated February 18, 2004. The purpose of this Form 8-K was to report the retirement of Old National's Chairman and Chief Executive Officer, James A. Risinger. Old National filed a current report on Form 8-K dated January 23, 2004. The purpose of this Form 8-K was to report the transcript of the conference call held by Old National for the fourth quarter 2003. Old National filed a current report on Form 8-K dated January 22, 2004. The purpose of this Form 8-K was to report Old National's results for the fourth quarter 2003. 31 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OLD NATIONAL BANCORP -------------------- (Registrant) By: /s/ John S. Poelker -------------------------------- John S. Poelker Executive Vice President and Chief Financial Officer Duly Authorized Officer and Principal Financial Officer Date: May 10, 2004 32
EX-3.II 2 amendedbylawsonbc1qtr2004.htm BY-LAWS OF OLD NATIONAL BANCORP BY-LAWS

AMENDED AND RESTATED

BY-LAWS

OF

OLD NATIONAL BANCORP

 

ARTICLE I

Section 1. Name. The name of the corporation is Old National Bancorp ("Corporation").

Section 2. Registered Office and Registered Agent. The post-office address of the registered office of the Corporation is 420 Main Street, Evansville, Indiana 47705, and the name of its Registered Agent at such office is the Corporate Secretary or his designated representative.

Section 3. Seal. The seal of the Corporation shall be circular in form and mounted upon a metal die, suitable for impressing the same upon paper. About the upper periphery of the seal shall appear the words "Old National Bancorp" and about the lower periphery thereof the word "Indiana". In the center of the seal shall appear the word "Seal".

 

ARTICLE II

The fiscal year of the Corporation shall begin each year on the first day of January and end on the last day of December of the same year.

 

ARTICLE III

Capital Stock

Section 1. Number of Shares and Classes of Capital Stock. The total number of shares of capital stock which the Corporation shall have authority to issue shall be as stated in the Articles of Incorporation.

Section 2. Consideration for No Par Value Shares. The shares of stock of the Corporation without par value shall be issued or sold in such manner and for such amount of consideration as may be fixed from time to time by the Board of Directors. Upon payment of the consideration fixed by the Board of Directors, such shares of stock shall be fully paid and nonassessable.

Section 3. Consideration for Treasury Shares. Treasury shares may be disposed of by the Corporation for such consideration as may be determined from time to time by the Board of Directors.

Section 4. Payment for Shares. The consideration for the issuance of shares of capital stock of the Corporation may be paid, in whole or in part, in money, in other property, tangible or intangible, or in labor actually performed for, or services actually rendered to the Corporation; provided, however, that the part of the surplus of the Corporation which is transferred to stated capital upon the issuance of shares as a share dividend shall be deemed to be the consideration for the issuance of such shares. When payment of the consideration for which a share was authorized to be issued shall have been for which a share was authorized to be issued shall have been received by the Corporation, or when surplus shall have been transferred to stated capital upon the issuance of a share dividend, such share shall be declared and taken to be fully paid and not liable to any further call or assessment, and the holder thereof shall not be liable for any further payments thereon. In the absence of actua l fraud in the transaction, the judgment of the Board of Directors as to the value of such property, labor or services received as consideration, or the value placed by the Board of Directors upon the corporate assets in the event of a share dividend, shall be conclusive. Promissory notes, uncertified checks, or future services shall not be accepted in payment or part payment of the capital stock of the Corporation, except as permitted by the Indiana Business Corporation Law.

Section 5. Certificate for Shares. Each holder of capital stock of the Corporation shall be entitled to a stock certificate, signed by the Chairman of the Board, the President, the CEO or a Vice President and the Secretary or any Assistant Secretary of the Corporation, with the seal of the Corporation thereto affixed, stating the name of the registered holder, the number of shares represented by such certificate, the par value of each share of stock or that such shares of stock are without par value, and that such shares are fully paid and nonassessable. If such shares are not fully paid, the certificates shall be legibly stamped to indicate that percent which has been paid, and as further payments are made, the certificate shall be stamped accordingly.

If the Corporation is authorized to issue shares of more than one class, every certificate shall state the kind and class of shares represented thereby, and the relative rights, interests, preferences and restrictions of such class, or a summary thereof; provided, that such statement may be omitted from the certificate if it shall be set forth upon the face or back of the certificate that such statement, in full, will be furnished by the Corporation to any shareholder upon written request and without charge.

Section 6. Facsimile Signatures. If a certificate is countersigned by the written signature of a transfer agent other than the Corporation or its employee, the signatures of the officers of the Corporation may be facsimiles. If a certificate is countersigned by the written signature of a registrar other than the Corporation or its employee, the signatures of the transfer agent and the officers of the corporation may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of its issue.

Section 7. Transfer of Shares. The shares of capital stock of the Corporation shall be transferable only on the books of the Corporation upon surrender of the certificate or certificates representing the same, properly endorsed by the registered holder or by his duly authorized attorney or accompanied by proper evidence of succession, assignment or authority to transfer.

Section 8. Cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be cancelled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so cancelled, except in cases provided for in Section 10 of this Article III.

Section 9. Transfer Agent and Registrar. The Board of Directors may appoint a transfer agent and a registrar for each class of capital stock of the Corporation and may require all certificates representing such shares to bear the signature of such transfer agent and registrar. Shareholders shall be responsible for notifying the transfer agent and registrar for the class of stock held by such shareholder in writing of any changes in their addresses from time to time, and failure so to do shall relieve the Corporation, its shareholders, directors, officers, transfer agent and registrar of liability for failure to direct notices, dividends, or other documents or property to an address other than the one appearing upon the records of the transfer agent and registrar of the Corporation.

Section 10. Lost, Stolen or Destroyed Certificates. The Corporation may cause a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Corporation may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond in such sum and in such form as it may direct to indemnify against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate. The Corporation, in its discretion, may authorize the issuance of such new certific ates without any bond when in its judgment it is proper to do so.

Section 11. Registered Shareholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of such shares to receive dividends, to vote as such owner, to hold liable for calls and assessments, and to treat as owner in all other respects, and shall not be bound to recognize any equitable or other claims to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Indiana.

Section 12. Options to Officers and Employees. The issuance, including the consideration, of rights or options to directors, officers or employees of the Corporation, and not to the shareholders generally, to purchase from the Corporation shares of its capital stock shall be approved by the shareholders or shall be authorized by and consistent with a plan approved by the shareholders.

 

ARTICLE IV

Meetings of Shareholders

Section 1. Place of Meeting. Meetings of shareholders of the Corporation shall be held at such place, within or without the State of Indiana, as may from time to time be designated by the Board of directors, or as may be specified in the notices or waivers of notice of such meetings.

Section 2. Annual Meeting. The annual meetings of shareholders for the election of Directors, and for the transaction of such other business as the Chairman of the Board shall determine may properly come before the meeting, shall be held on such day that is not a holiday, as the Board of Directors may set by resolution, but not later than the end of the fifth month following the close of the fiscal year of the Corporation. Failure to hold the annual meeting at the designated time shall not work any forfeiture or dissolution of the Corporation, and shall not affect otherwise valid corporate acts.

Section 3. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Articles of Incorporation, may be called by the Board of Directors, the Chairman of the Board, CEO or the President and shall be called by the Chairman of the Board, CEO, President or Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of shareholders holding of record not less than one-fourth of all the shares outstanding and entitled by the Articles of Incorporation to vote on the business for which the meeting is being called.

Section 4. Notice of Meetings. A written or printed notice, stating the place, day and hour of the meeting, and in case of a special meetings, or when required by any other provision of the Indiana Business Corporation Law, or of the Articles of Incorporation, or these By-Laws, as now or hereafter amended, the purpose or purposes for which the meeting is called, shall be delivered or mailed by the Secretary, or by the officers or persons calling the meeting, to each shareholder of record entitled by the Articles of Incorporation, and by the Indiana Business Corporation Law, as now or hereafter amended, to vote at such meeting, as such address as appears upon the records of the Corporation, not less than ten (10) days nor more than sixty (60) days before the date of the meeting. Notice of any such meetings may be waived in writing by any shareholder, if the waiver sets forth in reasonable detail the purpose or purposes for which the meeting is called, and the time and place thereof . Attendance at any meeting in person, or by proxy, shall constitute a waiver of notice of such meeting. Each shareholder, who has in the manner above provided waived notice of a shareholders' meeting, or who personally attends a shareholders' meeting, or is represented thereat by a proxy authorized to appear by an instrument of proxy, shall be conclusively presumed to have been given due notice of such meeting. Notice of any adjourned meeting of stockholders shall not be required to be given if the time and place thereof are announced at the meeting at which the adjournment is taken, except as may be expressly required by law.

Section 5. Addresses of Shareholders. The address of any shareholder appearing upon the records of the Corporation shall be deemed to be the latest address of such shareholder appearing on the records maintained by the Transfer Agent for the class of stock held by such shareholder.

Section 6. Voting at Meetings.

(a) Quorum. The holders of record of a majority of the issued and outstanding stock of the Corporation entitled to vote at such meeting, present in person or by proxy, shall constitute a quorum at all meetings of stockholders for the transaction of business, except where otherwise provided by law, the Articles of Incorporation or these By-Laws. In the absence of a quorum, any officer entitled to preside at, or act as secretary of, such meetings shall have the power to adjourn the meeting from time to time until a quorum shall be constituted. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the original meeting, but only those stockholders entitled to vote at the original meeting shall be entitled to vote at any adjournment or adjournments thereof unless a new record date is fixed by the Board of Directors for the adjourned meeting.

(b) Voting Rights. Except as otherwise provided by law or by the provisions of the Articles of Incorporation, every shareholder shall have the right at every shareholders' meeting to one vote for each share of stock having voting power, registered in his name on the books of the Corporation on the date for the determination of shareholders entitled to vote, on all matters coming before the meeting including the election of directors. At any meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote in person, or by proxy executed in writing by the shareholder or a duly authorized attorney in fact and bearing a date not more than eleven months prior to its execution, unless a longer time is expressly provided therein.

(c) Required Vote. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the Indiana Business Corporation Law or of the Articles of Incorporation or by these By-Laws, a greater vote is required, in which case such express provision shall govern and control the decision of such question.

Section 7. Voting List. The Transfer Agent of the Corporation shall make, at least five days before each election of directors, a complete list of the shareholders entitled by the Articles of Incorporation, as now or hereafter amended, to vote at such election, arranged in alphabetical order, with the address and number of shares so entitled to vote held by each, which list shall be on file at the principal office of the Corporation and subject to inspection by any shareholder. Such list shall be produced and kept open at the time and place of election and subject to the inspection of any shareholder during the holding of such election. The original stock register or transfer book, or a duplicate thereof kept in the State of Indiana, shall be the only evidence as to who are the shareholders entitled to examine such list or the stock ledger or transfer book or to vote at any meeting of the shareholders.

Section 8. Fixing of Record Date to Determine Shareholders Entitled to Vote. The Board of Directors may prescribe a period not exceeding 70 days prior to meetings of the shareholders during which no transfer of stock on the books of the corporation may be made; or, in lieu of prohibiting the transfer of stock, may fix a day and hour not more than 70 days prior to the holding of any meeting of shareholders as the time of which shareholders entitled to notice of, and to vote, at such meeting shall be determined, and all persons who are holders of record of voting stock at such time, and no others, shall be entitled to notice of, and to vote at such meeting. In the absence of such a determination, such date shall be ten days prior to the date of such meeting

Section 9. Director Nominations; Corporate Governance and Nominating Committee.

(a) All nominations for election as Directors of the Corporation shall be made only by the Board of Directors in accordance with this Section. The Corporate Governance and Nominating Committee of the Board of Directors shall submit to the entire Board of Directors its recommendation of nominees for election as Directors of the Corporation not less than sixty (60) days prior to each annual or special meeting of shareholders at which Directors will be elected.

(b) The Board of Directors, after considering the recommendations of the Corporate Governance and Nominating Committee, shall have the sole authority for nominating persons to stand for election as Directors at any annual or special meeting of shareholders.

(c) The Corporate Governance and Nominating Committee of the Board of Directors shall consider appropriate candidates for election as Directors of the Corporation and shall recommend to the entire Board of Directors nominees for election as Directors in connection with any annual or special meeting of shareholders at which Directors are elected. The Corporate Governance and Nominating Committee also shall consider appropriate candidates and recommend to the entire Board of Directors persons to fill Director vacancies and newly-created directorships. In addition to the foregoing, and not by way of limitation, the Corporate Governance and Nominating Committee will be responsible for recruiting potential Director candidates, recommending changes to the entire Board of Directors concerning the size, composition and responsibilities of the Board of Directors and reviewing suggestions of shareholders regarding nominees for election as Directors. All such suggestions of shareholders must be submitted in writing to the Corporate Governance and Nominating Committee at the Corporation's principal executive offices not less than one hundred twenty (120) days in advance of the date of the annual or special meeting of shareholders at which Directors shall be elected. All written suggestions of shareholders must set forth (i) the name and address of the shareholder making the suggestion, (ii) the number and class of shares owned by the such shareholder, (iii) the name, address and age of the nominee for election as director, (iv) the nominee's principal occupation during the five (5) preceding the date of the suggestion, (v) all other information concerning the nominee as would be required to be included in the proxy statement used to solicit proxies for the election of the nominee, and (vi) such other information as the Corporate Governance and Nominating Committee may reasonably request. A consent of the nominee to serve as a Director of the Corporation, if elected, must also be included with the written suggestion.

(d) The Corporate Governance and Nominating Committee has absolute power and discretion in carrying out its duties prescribed herein, including, but not limited to, recommending to the entire Board of Directors nominees for election as directors at any annual or special meeting of shareholders and accepting or rejecting suggestions of shareholders of nominees for election as Directors.

    1. All nominations and suggestions of shareholders with respect to nominees for election as Directors of the Corporation must be made in accordance with the provisions of this Section. Any suggestions of shareholders not made in accordance with this Section are not required to be considered by the Corporate Governance and Nominating Committee. Any nominations for election as Directors at any annual or special meeting of shareholders not made in accordance with this Section may be disregarded by the Chairman of the meeting, in his discretion, and, upon his instructions, the tellers or inspectors of shareholder votes may disregard all votes cast for each such nominees.

Section 10. Order of Business. The order of business and the items of business being conducted at all meetings of shareholders shall be as determined by the Chairman of the Board.

 

ARTICLE V

Board of Directors

Section 1. Election, Term and Number. The directors of the Corporation shall be elected, divided into classes and hold terms as provided in the Articles of Incorporation of the Corporation in effect from time to time. Except with respect to filling vacancies occurring on the Board of Directors, the number of directors of the Corporation to be elected by the holders of the shares of capital stock entitled by the Articles of Incorporation of the Corporation to elect directors shall be twelve (12), unless changed by amendment of this Section. The Board of Directors shall have the discretion to assign directors to individual classes as nearly equal in number as possible.

Section 2. Vacancies. Any vacancy occurring on the Board of Directors, whether caused by removal, resignation, death, incapacity, increase in the number of directors or otherwise, may be filled by the affirmative vote of not less than a majority of the remaining directors then in office, even though such directors remaining in office may constitute less than a quorum of the Board of Directors. The term of a director chosen to fill a vacancy shall expire at the end of the term for which the director's predecessor was elected or appointed or, in the case of an increase in the number of directors, shall expire at the end of the term of the class of directors in which the vacancy shall occur.

Section 3. Regular Meetings. Regular meetings of the Board of Directors shall be held at such times and places, whether within or outside the State of Indiana, as may be fixed by the Directors, or in the absence of any action by the Board of Directors, by the Chairman of the Board. Such regular meetings of the Board of Directors may be held without notice or upon such notice as may be fixed by the Directors.

Section 4. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, CEO and the President, or by not less than a majority of the members of the Board of Directors. Notice of the time and place, either within or outside the State of Indiana, of a special meeting shall be served upon or telephoned or faxed to each Director at least twenty-four hours, or mailed, telegraphed or cabled to each Director at his usual place of business or residence at least forty-eight hours, prior to the time of the meeting. Directors, in lieu of such notice, may sign a written waiver of notice either before the time of the meeting, at the meeting or after the meeting. Attendance by a director in person at any such special meeting shall constitute a waiver of notice.

Section 5. Quorum. A majority of the actual number of Directors elected and qualified, from time to time, shall be necessary to constitute a quorum for the transaction of any business except the filling of vacancies, and the act of a majority of the Directors present at the meeting, at which a quorum is present, shall be the act of the Board of Directors, unless the act of a greater number is required by the Indiana Business Corporation Law, by the Articles of Incorporation, or by these By-Laws. A Director, who is present at a meeting of the Board of Directors, at which action on any corporate matter is taken, shall be conclusively presumed to have assented to the action take, unless (a) his dissent shall be affirmatively stated by him at and before the adjournment of such meeting (in which event the fact of such dissent shall be entered by the secretary of the meeting in the minutes of the meeting), or (b) he shall forward such dissent by registered mail to the Secretary of the Corporat ion immediately after the adjournment of the meeting. The right of dissent provided for by either clause (a) or clause (b) of the immediately preceding sentence shall not be available, in respect of any matter acted upon at any meeting, to a Director who voted at the meeting in favor of such matter and did not change his vote prior to the time that the result of the vote on such matter was announced by the chairman of such meeting.

Section 6. Consent Action by Directors. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if prior to such action a written consent to such action is signed by all members of the Board of Directors or such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or committee.

Section 7. Removal of Directors. Any or all directors (exclusive of directors who may be elected by the holders of any one or more series of Preferred Stock) may be removed, with or without cause, only by (i) the affirmative vote of the holders of not less than two-thirds (2/3) of the outstanding shares of common stock of the Corporation entitled to vote in the election of directors, at a shareholders' meeting called for that purpose, or (ii) the affirmative vote of not less than two-thirds (2/3) of the actual number of directors elected and qualified and then in office.

Section 8. Dividends. The Board of Directors shall have power, subject to any restrictions contained in the Indiana Business Corporation Law or in the Articles of Incorporation and out of funds legally available therefore, to declare and pay dividends upon the outstanding capital stock of the Corporation as and when they deem expedient. Before declaring any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time in their absolute discretion deem proper for working capital, or as a reserve or reserves to meet contingencies or for such other purposes as the Board of Directors shall deem conducive to the interests of the Corporation and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.

Section 9. Fixing of Record Date to Determine Shareholders Entitled to Receive Corporate Benefits. The Board of Directors may fix a day and hour not exceeding 50 days preceding the date fixed for payment of any dividend or for the delivery of evidence of rights, or for the distribution of other corporate benefits, or for a determination of shareholders for any other purpose, as a record time for the determination of the shareholders entitled to receive any such dividend, rights or distribution, and in such case only shareholders of record at the time so fixed shall be entitled to receive such dividend, rights or distribution. If no record date is fixed for the determination of shareholders entitled to receive payment of a dividend, the end of the day on which the resolution of the Board of Directors declaring such dividend is adopted shall be the record date for such determination.

Section 10. Interest of Directors in Contracts. Any contract or other transaction between the Corporation or any corporation in which this Corporation owns a majority of the capital stock shall be valid and binding, notwithstanding that the directors or officers of this Corporation are identical or that some or all of the directors or officers, or both, are also directors or officers of such other corporation.

Any contract or other transaction between the Corporation and one or more of its directors or members or employees, or between the Corporation and any firm of which one or more of its directors are members or employees or in which they are interested, or between the Corporation and any corporation or association of which one or more of its directors are stockholders, members, directors, officers, or employees or in which they are interested, shall be valid for all purposes, notwithstanding the presence of such director of directors at the meeting of the Board of Directors of the Corporation which acts upon, or in reference to, such contract or transaction and notwithstanding his or their participation in such action, if the fact of such interest shall be disclosed or known to the Board of Directors and the Board of Directors shall authorize, approve and ratify such contract or transaction by a vote of a majority of the directors present, such interested director or directors to be counted in determini ng whether a quorum is present, but not to be counted in calculating the majority of such quorum necessary to carry such vote. This Section shall not be construed to invalidate any contact or other transaction which would otherwise be valid under the common and statutory law applicable thereto.

Section 11. Committees. The Board of Directors may, by resolution adopted by a majority of the actual number of Directors elected and qualified, from time to time, designate from among its members an executive committee and one or more other committees, each of which, to the extent provided in the resolution, the Articles of Incorporation, or these By-Laws, may exercise all of the authority of the Board of Directors of the Corporation, including, but not limited to, the authority to issue and sell or approve any contract to issue and sell, securities or shares of the Corporation or designate the terms of a series of a class of securities or shares of the Corporation. The terms which may be affixed by each such committee include, but are not limited to, the price, dividend rate, and provisions of redemption, a sinking fund, conversion, voting, or preferential rights or other features of securities or class or series of a class of shares. Each such committee may have full power to adopt a final resolution which sets forth those terms and to authorize a statement of such terms to be filed with the Secretary of State. However, no such committee has the authority to declare dividends or distributions, amend the Articles of incorporation or the By-Laws, approve a plan of merger or consolidation even if such plan does not require shareholder approval, reduce earned or capital surplus, authorize or approve the reacquisition of shares unless pursuant to a general formula or method specified by the Board of Directors, or recommend to the shareholders a voluntary dissolution of the Corporation or a revocation thereof. No member of any such committee shall continue to be a member thereof after he ceases to be a Director of the Corporation. The calling and holding of meetings of any such committee and its method of procedure shall be determined by the Board of Directors. A member of the Board of Directors shall not be liable for any action taken by any such committee if he is not a member of that commit tee and has acted in good faith and in a manner he reasonable believes is in the best interest of the Corporation.

Section 12. Participation in Meetings by Telephone. A member of the Board or any committee thereof may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in the meeting pursuant to this section shall constitute presence in person at such meeting.

Section 13. Qualifications.

(a) A director of the Corporation, upon reaching 70 years of age, shall no longer qualify to serve as a director and shall, automatically and without the need for any resignation or other action, be deemed to have resigned from the Board of Directors effective immediately upon reaching such age. Any vacancy occurring in the Board of Directors by virtue of a director reaching 70 years of age shall be filled in accordance with these By-Laws.

(b) The Board of Directors may establish other qualifications for Directors in its Corporate Governance Guidelines.

 

ARTICLE VI

Officers

Section 1. Principal Officers. The principal officers of the Corporation shall be a Chairman of the Board, a CEO, a President, one or more Vice Presidents, a Treasurer and a Secretary. The Corporation may also have, at the discretion of the Board of Directors, such other subordinate officers as may be appointed in accordance with the provisions of these By-Laws. Any two or more offices may be held by the same person, except the duties of President and Secretary shall not be performed by the same person. No person shall be eligible for the office of Chairman of the Board who is not a director of the Corporation.

Section 2. Election and Term of Office. The principal officers of the Corporation shall be chosen annually by the Board of Directors. Each such officer shall hold office until his successor shall have been duly chosen and qualified, or until his death, or until he shall resign, or shall have been removed in the manner hereinafter provided.

Section 3. Removal. Any principal officer may be removed, either with or without cause, at any time, by resolution adopted at any meeting of the Board of Directors by a majority of the actual number of Directors elected and qualified from time to time.

Section 4. Subordinate Officers. In addition to the principal officers enumerated in Section 1 of this Article VI, the Corporation may have one or more Assistant Treasurers, one or more Assistant Secretaries and such other officers, agents and employees as the Chairman of the Board, CEO, President or the Board of Directors may deem necessary, each of whom shall hold office for such period, may be removed with or without cause, have such authority, and perform such duties as the Chairman of the Board, CEO, President, or the Board of Directors may from time to time determine. The Chairman of the Board, CEO, President, and the Board of Directors shall each have the power to appoint and to remove any such subordinate officers, agents or employees.

Section 5. Resignations. Any officer may resign at any time by giving written notice to the Chairman of the Board, Board of Directors, CEO, President, or to the Secretary. Any such resignation shall take effect upon receipt of such notice or at any later time specified therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 6. Vacancies. Any vacancy in any office for any cause may be filled for the unexpired portion of the term in the manner prescribed in these By-Laws for election or appointment to such office for such term.

Section 7. Chairman of the Board. The Chairman of the Board shall be chosen from among the Directors. The Chairman of the Board shall preside at all meetings of shareholders and at all meetings of the Board of Directors.

Section 8. Chief Executive Officer. One of the principal officers of the Corporation shall be designated as the Chief Executive Officer (CEO). The CEO shall have general responsibility for the overall affairs of the Corporation, subject to the control of the Board of Directors. In general, he shall perform all duties and have all the powers incident to the office of CEO and all such other duties and powers as, from time to time, may be assigned to him by the Board of Directors.

Section 9. President. The President shall perform all duties and have all the powers as, from time to time, may be assigned to him by the Board of Directors, Chairman of the Board, or CEO. Subject to the control and direction of the Board of Directors, Chairman of the Board, or CEO, the President may enter into any agreement and may execute and deliver any agreement, instrument or document in the name and on behalf of the Corporation.

Section 10. Vice Presidents. The Corporation shall have such Vice Presidents as the Board of Directors, Chairman of the Board, CEO or President may determine. The Vice Presidents shall perform such duties and have such powers as the Chairman, the CEO, the President or the Board of Directors may from time to time assign.

Section 11. Treasurer. The Treasurer shall perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned by the Chairman, CEO, President, CFO or the Board of Directors.

Section 12. Secretary. The Secretary shall keep or cause to be kept in the books provided for that purpose the minutes of the meetings of the shareholders and of the Board of Directors; shall duly give and serve all notices required to be given in accordance with the provisions of these By-Laws and by the Indiana Business Corporation Law; shall be custodian of the records and of the seal of the Corporation and see that the seal is affixed to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized in accordance with the provisions of these By-Laws; and, in general, shall perform all duties incident to the office of Secretary and such other duties as may, from time to time, be assigned to him by the Chairman, the President or the Board of Directors.

Section 13. Salaries. The salaries of the principal officers shall be fixed from time to time to by the Board of Directors, and the salaries of any subordinate officers may be fixed by the Chairman, CEO or the President.

Section 14. Voting Corporation's Securities. Unless otherwise ordered by the Board of Directors, Chairman of the Board, CEO, President, any Executive Vice President or Senior Vice President, or the Secretary, and each of them acting alone, are appointed attorneys and agents of the Corporation, and shall have full power and authority in the name and on behalf of the Corporation, to attend, to act, and to vote all stock, or other securities entitled to be voted at any meetings of security holders of corporations, or associations in which the Corporation may hold securities, in person or by proxy, as a stockholder or otherwise, and at such meetings shall possess and may exercise any and all rights and powers incident to the ownership of such securities, and which as the owner thereof the Corporation might have possessed and exercised, if present or to consent in writing to any action by any such other corporation, or association. The Board of Directors by resolution from time to t ime may confer like powers upon any other person or persons.

 

ARTICLE VII

Indemnification

Section 1. Indemnification of Directors, Officers and Employees. Every person who is or was a director, officer or employee of this Corporation or of any other corporation for which he is or was serving in any capacity at the request of this Corporation shall be indemnified by this Corporation against any and all liability and expense that may be incurred by him in connection with or resulting from or arising out of any claim, action, suit or proceeding, provided that such person is wholly successful with respect thereto or acted in good faith in what he reasonably believed to be in or not opposed to the best interests of this Corporation or such other corporation, as the case may be, and, in addition, in any criminal action or proceeding in which he had no reasonable cause to believe that his conduct was unlawful. As used herein, "claim, action, suit or proceeding" shall include any claim, action, suit or proceeding (whether brought by or in the right of this Corporation or such oth er corporation or otherwise), civil, criminal, administrative or investigative, whether actual or threatened or in connection with an appeal relating thereto, in which a director, officer or employee of this Corporation may become involved, as a party or otherwise, (i) by reason of his being or having been a director, officer or employee of this Corporation or such other corporation or arising out of his status as such or (ii) by reason of any past or future action taken or not taken by him in any such capacity, whether or not he continues to be such at the time such liability or expense is incurred.

The terms "liability" and "expense" shall include, but shall not be limited to, attorneys' fees and disbursements, amounts or judgments, fines or penalties, and amounts paid in settlement by or on behalf of a director, officer or employee, but shall not in any event include any liability or expenses on account of profits realized by him in the purchase or sale of securities of the Corporation in violation of the law. The termination of any claim, action, suit or proceeding, by judgment, settlement (whether with or without court approval) or conviction or upon a plea of guilty or of nolo contendere, or its equivalent, shall not create a presumption that a director, officer or employee did not meet the standards of conduct set forth in this paragraph.

Any such director, officer or employee who has been wholly successful with respect to any such claim, action, suit or proceeding shall be entitled to indemnification as a matter of right. Except as provided in the preceding sentence, any indemnification hereunder shall be made only if (i) the Board of Directors acting by a quorum consisting of Directors who are not parties to or who have been wholly successful with respect to such claim, action, suit or proceeding shall find that the director, officer or employee has met the standard of conduct.

If several claims, issues or matters of action are involved, any such person may be entitled to indemnification as to some matters even though he is not entitled as to other matters.

The Corporation may advance expenses to or, where appropriate, may at its expense undertake the defense of any such director, officer or employee upon receipt of an undertaking by or on behalf of such person to repay such expenses if it should ultimately be determined that he is not entitled to indemnification hereunder.

The provisions of this Section shall be applicable to claims, actions, suits or proceedings made or commenced after the adoption hereof, whether arising from acts or omissions to act during, before or after the adoption hereof.

The rights of indemnification provided hereunder shall be in addition to any rights to which any person concerned may otherwise be entitled by contract or as a matter of law and shall inure to the benefit of the heirs, executors and administrators of any such person.

The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation as a director, officer, employee or agent of another corporation against any liability asserted against him and incurred by him in any capacity or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Section or otherwise.

 


ARTICLE VIII

Amendments

The power to make, alter, amend, or repeal these By-Laws is vested in the Board of Directors, but the affirmative vote of a majority of the actual number of directors elected and qualified, from time to time, shall be necessary to effect any alteration, amendment or repeal of these By-Laws.

EX-10.A 3 severanceform.txt FORM OF SEVERANCE AGREEMENT Exhibit 10 (a) SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT (the "Agreement") is made and entered into by and between Old National Bancorp (including all subsidiaries and affiliates) (the "Company") and Full Name (the "Executive"). WHEREAS, the Company desires to assure continuity of its management, to enable its executives to devote their full attention to management responsibilities and to help the Board of Directors assess options and advise as to the best interest of the Company and its shareholders without being influenced by the uncertainties of their own situations, and to demonstrate to executives the interests of the Company in their well-being and fair treatment in the event of a termination without cause by the Company; and WHEREAS, to that end, the Company desires to assure the Executive that he will receive certain benefits in the case of the Executive's termination without cause by the Company. NOW, THEREFORE, in consideration of the premises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Executive and the Company agree as follows: 1. Term. The term of this Agreement shall begin on the date hereof and shall continue until terminated (the "Term"). This Agreement shall automatically terminate without notice or payments hereunder if the Executive shall resign, retire, become permanently and totally disabled, or die, or the Company experiences a "Change of Control" as defined in the Change of Control Agreement between the Executive and the Company. Under no circumstance will the Executive be entitled to benefits under this Agreement and the Change of Control Agreement. Additionally, this Agreement shall terminate without further notice or payments hereunder if the Company terminates the Executive for Cause (as defined in Section 3(a)(i) hereof). 2. Termination of Employment; Resignation of Officer and Director Positions. The Executive shall be relieved of any responsibilities with the Company, and his employment relationship with the Company will cease and terminate effective upon the Termination Date. The Executive resigns any and all officer, director and other positions with the Company and its affiliates effective upon the Termination Date. 3. Severance Benefit. (a) Subject to the receipt of the Release contemplated by Section 9 hereof and the expiration of any applicable waiting periods, the Company shall provide the Executive with the benefits set forth in this Section 3 upon any termination of the Executive's employment by the Company which occurs during the Term for any reason except the following: (i) Termination for Cause "Cause" shall be defined as (A) action by the Executive involving willful misconduct or gross negligence materially injurious to the Company, (B) the requirement or direction of a federal or state regulatory agency having jurisdiction over the Company, (C) conviction of the Executive of the commission of any criminal offense involving dishonesty or breach of trust, or (D) any intentional breach by the Executive of a material term, condition or covenant of this Agreement; (ii) Disability of the Executive, as determined under the policies and procedures of the Company as in effect from time to time. Termination pursuant to this Section 3(a)(ii) shall not affect any rights which the Executive may have under any disability policy or program of the Company; (iii) Voluntary retirement of the Executive in accordance with policies and procedures of the Company in effect from time to time; (iv) Resignation or termination of employment by the Executive for a reason other than set forth in Section 3(b) hereof; (v) In connection with or following a Change of Control; provided that the Executive will receive benefits under a change of control agreement or other similar agreement or plan; or (vi) Death of the Executive. (b) Subject to receipt of the Release contemplated by Section 9 hereof and the expiration of any applicable waiting periods, the Company shall also provide the Executive with the benefits set forth in this Section 3 if during the Term the Executive terminates this Agreement after the happening of one or more of the following events: (i) Without the express written consent of the Executive, the assignment of the Executive to any duties materially inconsistent with his positions, duties, responsibilities, or status with the Company as of the date hereof or a substantial reduction of his duties or responsibilities, or any removal of the Executive from, or any failure to reelect the Executive to, any positions held by the Executive as of the date hereof; (ii) A reduction by the Company in the compensation or benefits of the Executive in effect as of the date hereof, or any failure to include the Executive to other similarly situated employees in any incentive, bonus or benefit plans as may be offered by the Company from time to time; or (iii) A requirement that without the consent of the Executive, the Executive be based anywhere other than within fifty (50) miles from his personal residence, except for required travel pertaining to the Company's business in accordance with the Company's management practices in effect from time to time. 2 (c) Lump Sum Payment. Following receipt by the Company of the Release contemplated by Section 9 hereof and the expiration of any applicable waiting periods, the Company shall pay to the Executive a lump sum single payment, in cash or cash equivalent funds, equal to the Executive's Week of Pay multiplied by the greater of (i) fifty-two (52), or (ii) two times his Years of Service. "Week of Pay" means Compensation divided by fifty-two (52). "Compensation" means, as of the date of the notice of termination, the Executive's annual base salary then in effect, plus the targeted cash incentive that the Executive would have been eligible to receive in the year in which the Termination Date occurs. "Years of Service" means the number of years of Service. A partial year will be rounded up to the next year. Payment of accrued vacation at termination does not extend the Executive Employee's Years of Service. Any lump sum payment hereunder is in addition to monies already owed the Executive by the Company and is in consideration for the covenants set forth in this Agreement and the Release hereunder. Any earned but unpaid portion of the Executive's base salary, at his then-effective annual rate, through the Termination Date plus any amounts due to the Executive under the accrued vacation program of the Company due to him through the Termination Date shall be paid to the Executive in the next payroll check regardless of whether the Executive delivers the Release. (d) Other Employee Benefits. Any benefits (other than severance) payable to the Executive due to the termination of his employment shall be paid to the Executive in accordance with the benefit payment provisions of the applicable employee benefit plan. (e) Company Vehicle. If the Executive has an assigned the Company vehicle in accordance with the Company's Vehicle Policy and the Company owns the vehicle, the Executive will be given the opportunity to purchase the Company vehicle assigned to the Executive at a Fair Market Value to be determined by a designated Corporate Accounting Manager. The purchase of the assigned vehicle should be completed within fifteen (15) days following the Termination Date. (f) Country Club and/or Private Club Membership. If the Executive has a Club membership, of which monthly dues are normally paid by the Company, the Company's responsibility for monthly club dues will cease at the end of the month in which the Termination Date occurs. Individual Membership(s) held in the Executive's name shall continue to be held as a private membership in the Executive's name. Corporate Memberships may be assigned or transferred to the Executive, if allowed by the club, at the sole discretion of the Company. If the Company and the Executive agree to transfer a Corporate Membership to the Executive, the Executive agrees to pay any and all transfer fees incurred as a result of the transfer. 3 (g) Notice of Termination. Any termination of the Executive's employment for the reasons set forth in Section 3(a) (except for reason of the Executive's death) or by the Executive for the reasons set forth in Section 3(b) shall be communicated by written "Notice of Termination" to the other party, delivered in a manner provided in Section 12(f) hereof. Any "Notice of Termination" given by the Executive pursuant to Section 3(b), or given by the Company in connection with a termination as to which the Company believes it is not obligated to provide the Executive with the benefits set forth in this Section 3, shall indicate the specific provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination. "Termination Date" for the purposes of this Agreement shall mean the date on which such "Notice of Termination" is given by the Executive or the date set forth as the Termination Date in a Notice of Termination given by the Company. 4. Non-Solicitation. The Executive agrees that during the Term and for a period of one (1) year following the termination of the Executive's employment for any reason, the Executive shall not, directly or indirectly individually or jointly, (i) solicit in any manner, seek to obtain or service, or accept the business of any party which is a customer of the Company as of the date of the Agreement, for banking, trust, insurance and investment services of the type handled by the Company, (ii) solicit in any manner, seek to obtain or service, or accept the business of any party which was a prospective customer of the Company for banking, trust, insurance and investment services of the type handled by the Company, (iii) request or advise any customers or suppliers of the Company to terminate, reduce, limit or change their business or relationship with the Company, or (iv) induce, request or attempt to influence any employee of the Company to terminate his or her employment with the Company. For purposes of this Agreement, the term "customer" shall mean a person or entity who is a customer of the Company at the time of the Executive's termination of employment or with whom the Executive had direct contact on behalf of the Company at any time during the period of the Executive's employment with the Company. The term "prospective customer" shall mean a person or entity who was the direct target of sales or marketing activity by the Executive or whom the Executive knew was a target of the Company during the one (1) year period preceding the Executive's termination of employment or, in the event the Executive has been employed by the Company less than one (1) year at the Executive's termination of employment, during the period of the Executive's employment with the Company. 5. Covenant Not to Compete or be Employed by Competitors. (a) The Executive hereby understands and acknowledges that, by virtue of his position with the Company, he obtained advantageous familiarity and personal contacts with the Company's customers, wherever located, and the business, operations and affairs of the Company. Accordingly, during the term of this Agreement and for a period of one (1) year following the termination of the Executive's employment (A) which results in the payment of severance benefits under this Agreement or (B) by the Company for cause as provided in Section 3(a)(i) hereof, the Executive shall not, directly or indirectly: (i) as owner, officer, director, stockholder, investor, proprietor, organizer, or otherwise, engage in the same trade or business as the Company, or in a trade or business competitive with that of the Company; provided, however that 4 the Executive is not restricted from owning less than five percent (5%) of the outstanding securities of any class of any entity that are listed on a national securities exchange or trade in the over-the-counter market; or (ii) as employee, agent, representative, consultant, independent contractor, or otherwise, perform services for or render assistance to or use or permit the Executive's name to be used in connection with any other business, partnership, proprietorship, firm, or competitive entity, organization, or corporation, which services or assistance are related to, or competitive with, the same trade, business, products, or services as those of the Company; or (iii) offer to provide employment (whether such employment is with the Executive or any other business or enterprise), either on a full-time or part-time or consulting basis, to any person who then currently is, or who within one (1) year prior to such offer or provision of employment has been, an employee of the Company. (b) The restrictions contained in this paragraph upon the activities of the Executive shall be limited to the geographic area which is a fifty (50) mile radius from the principal office of the Executive. (c) As of the date hereof, the Company engages in the business of banking, trust, insurance and investment services. 6. Confidential Information. (a) The Executive agrees (i) that all Confidential Information is confidential and is the property of the Company, (ii) not to disclose or give possession of any Confidential Information to any person except authorized representatives of the Company, (iii) not to directly or indirectly use any Confidential Information (A) to compete against the Company, or (B) for the Executive's own benefit or for the benefit of any person other than the Company, and (iv) to promptly return to the Company following the termination of the Executive's employment, at the Company's main office, all Confidential Information and other property of the Company, including but not limited to, computers, computer disks, electronic data without regard to the means of storage, credit cards, identification cards, badges, keys, and any other physical or personal property belonging to the Company, and any copies, duplicates, reproductions or excerpts of any of the foregoing, even if down loaded or copied to the Executive's personal computer, personal data assistant or other mechanism used for storing information. This Section 6 shall not preclude the Executive from disclosure or use of information known generally in the public domain other than through a breach of this Agreement or from disclosure required by law or court order. (b) The Executive understands, acknowledges and agrees that, during the course of his employment with the Company, he gained and will continue to gain, as a key employee of the Company, substantial information regarding and competitive knowledge of and familiarity with Confidential Information of the Company and that if the Confidential Information were disclosed or the Executive engaged in competition against the Company, the Company would suffer irreparable damage and injury. The Confidential Information derives substantial economic value, among other reasons, from not being known or readily ascertainable by proper means by others who could obtain economic value from its disclosure. The 5 Executive acknowledges and agrees that the Company uses reasonable means to maintain the secrecy of the Confidential Information. (c) For purposes of this Agreement, the term "Confidential Information" means any and all (a) materials, records, data, documents, writings and information (whether printed, computerized, on disk or otherwise) relating or referring in any manner to the business, operations, affairs, policies, strategies, techniques, products, product developments or customers of the Company which are not generally known or available to the business, trade or industry of the Company or individuals who work therein or which are not otherwise in the public domain, in either case not through a breach of this Agreement, and (b) trade secrets of the Company (as defined in Indiana Code 24-2-3-2, as amended, or any successor statute). 7. Remedies. The Executive agrees that the Company will suffer irreparable damage and injury and will not have an adequate remedy at law in the event of any breach by the Executive of any provision of the Restrictive Covenants (as defined below in Section 8 hereof). Accordingly, in the event of a breach or of a threatened or attempted breach by the Executive of the Restrictive Covenants, in addition to all other remedies to which the Company is entitled under law, in equity, or otherwise, the Company shall be entitled to seek injunctive relief and no bond or other security shall be required in that connection. The Executive acknowledges and agrees that in the event of termination of this Agreement for any reason whatsoever, the Executive can obtain other engagements or employment of a kind and nature similar to that performed for the Company and that the issuance of an injunction to enforce the provisions of the Restrictive Covenants will not prevent the Executive from earning a livelihood. The Restrictive Covenants are essential terms and conditions to the Company entering into this Agreement, and shall be construed as independent of any other provision in this Agreement, or any other agreement between the Executive and the Company. The existence of any claim or cause of action the Executive has against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the Restrictive Covenants. 8. Periods of Noncompliance and Reasonableness of Periods. The restrictions and covenants contained in Sections 4 and 5 hereof (the "Restrictive Covenants") shall be deemed not to run during all periods of noncompliance, the intention of the parties hereto being to have such restrictions and covenants apply for the full periods specified in Sections 4 and 5 hereof following the termination of the Executive's employment with the Company. The Company and the Executive acknowledge and agree that the restrictions and covenants contained in Sections 4 and 5 hereof are reasonable in view of the nature of the business in which the Company is engaged and the Executive's advantageous knowledge of and familiarity with the business, operations, affairs and customers of the Company. Notwithstanding anything contained herein to the contrary, if the scope of any restriction or covenant contained in Sections 4 and 5 hereof is found by a court of competent jurisdiction to be too broad to permit enforcement of such restriction or covenant to its full extent, then such restriction or covenant shall be enforced to the maximum extent permitted by law. 9. Release. (a) For and in consideration of the foregoing covenants and promises made by the Company, and the performance of such covenants and promises, the sufficiency of which is hereby acknowledged, the Executive agrees 6 to release the Company prior to the receipt of any benefits under Section 3 hereof by the Executive. Such release to be substantially in the form attached hereto as Exhibit A. (b) The Executive agrees that the fact and the terms of this Agreement shall be strictly confidential and that the Executive shall not divulge, directly or indirectly, explicitly or implicitly, the fact or terms of this Agreement to any person other than the Executive's spouse, attorney(s) and tax advisor(s) or as otherwise required by law. The Executive further agrees that for purposes of this Section 9, the Executive's spouse, attorney(s) and tax advisor(s) are the Executive's agents and that a breach of these terms of confidentiality by them, or any of them, shall constitute a breach by the Executive. (c) The "Company and its agents," as used in this Agreement, means the Company, its subsidiaries, affiliated, or related corporations or associations, their predecessors, successors and assigns, and the directors, officers, managers, supervisors, employees, representatives, servants, agents and attorneys of the entities above described, and all persons acting, through, under or in concert with any of them. 10. No Reliance. The Executive represents and acknowledges that in executing this Agreement, he does not rely and has not relied upon any representation or statement by the Company and its agents, other than the statements which are contained within this Agreement. 11. No Admissions. This Agreement shall not in any way be construed as an admission by the Company and its agents of any acts of discrimination or other improper conduct whatsoever against the Executive or any other person, and the Company specifically disclaims any liability to or discrimination against the Executive or any other person on the part of itself, its employees or its agents. 12. Miscellaneous. (a) Further Assurances. Each of the parties hereto shall do, execute, acknowledge, and deliver or cause to be done, executed, acknowledged, and delivered at any time and from time to time upon the request of any other parties hereto, all such further acts, documents, and instruments as may be reasonably required to effect any of the transactions contemplated by this Agreement. (b) Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that neither party hereto may assign this Agreement without the prior written consent of the other party. Notwithstanding the foregoing, this Agreement may be assigned, without the prior consent of the Executive to a successor of the Company (and the Executive hereby consents to the assignment of the Restrictive Covenants under this Agreement to a purchaser of all or substantially all of the assets of the Company or a transferee, by merger or otherwise, of all or substantially all of the businesses and assets of the Company) and, upon the Executive's death, this Agreement shall inure to the benefit of and be enforceable by the Executive's executors, administrators, representatives, heirs, distributees, devisees, and legatees and all amounts payable hereunder shall be paid to such persons or the estate of the Executive. 7 (c) Waiver; Amendment. No provision or obligation of this Agreement may be waived or discharged unless such waiver or discharge is agreed to in writing and signed by the Company and the Executive. The waiver by any party hereto of a breach of or noncompliance with any provision of this Agreement shall not operate or be construed as a continuing waiver or a waiver of any other or subsequent breach or noncompliance hereunder. Except as expressly provided otherwise herein, this Agreement may be amended, modified, or supplemented only by a written agreement executed by the Company and the Executive. (d) Headings. The headings in this Agreement have been inserted solely for ease of reference and shall not be considered in the interpretation, construction, or enforcement of this Agreement. (e) Severability. All provisions of this Agreement are severable from one another, and the unenforceability or invalidity of any provision of this Agreement shall not affect the validity or enforceability of the remaining provisions of this Agreement; provided, however, that should any judicial body interpreting this Agreement deem any provision to be unreasonably broad in time, territory, scope, or otherwise, the parties intend for the judicial body, to the greatest extent possible, to reduce the breadth of the provision to the maximum legally allowable parameters rather than deeming such provision totally unenforceable or invalid. (f) Notice. Any notice, request, instruction, or other document to be given hereunder to any party shall be in writing and delivered by hand, telegram, facsimile transmission, registered or certified United States mail, return receipt requested, or other form of receipted delivery, with all expenses of delivery prepaid, as follows: If to the Executive: If to the Company: ______________________ Old National Bancorp ______________________ Post Office Box 718 ______________________ Evansville, Indiana 47705 ATTENTION: General Counsel (g) No Counterparts. This Agreement may not be executed in counterparts. (h) Governing Law; Jurisdiction; Venue; Waiver of Jury Trial. This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana, without reference to the choice of law principles or rules thereof. The parties hereto irrevocably consent to the jurisdiction and venue of the state court for the State of Indiana located in Evansville, Indiana, or the Federal District Court for the Southern District of Indiana, Evansville Division, located in Vanderburgh County, Indiana, and agree that all actions, proceedings, litigation, disputes, or claims relating to or arising out of this Agreement shall be brought and tried only in such courts. EACH OF THE PARTIES WAIVES ANY RIGHTS THAT IT MAY HAVE TO BRING A CAUSE OF ACTION IN ANY COURT OR IN ANY PROCEEDING INVOLVING A JURY TO THE MAXIMUM EXTENT PERMITTED BY LAW. (i) Entire Agreement. This Agreement constitutes the entire and sole agreement between the Company and the Executive with respect to the termination 8 of the Executive's employment and there are no other agreements or understanding either written or oral with respect thereto, except that the Change in Control Agreement dated January 1, 2004, by and between the Executive and the Company shall continue in full force and effect, until otherwise terminated in accordance with its terms. (j) Construction. The rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. Whenever in this Agreement a singular word is used, it also shall include the plural wherever required by the context and vice-versa. All reference to the masculine, feminine, or neuter genders shall include any other gender, as the context requires. (k) Attorneys' Fees. The prevailing party shall be entitled to reasonable costs and expenses (including, without limitation, reasonable attorneys' fees and disbursements) in connection with any legal action to interpret or enforce any provision of this Agreement or for any breach of this Agreement. (l) Review and Consultation. The Company and the Executive hereby acknowledge and agree that each (i) has read this Agreement in its entirety prior to executing it, (ii) understands the provisions and effects of this Agreement, (iii) has consulted with such attorneys, accountants, and financial and other advisors as it or he has deemed appropriate in connection with their respective execution of this Agreement, and (iv) has executed this Agreement voluntarily. THE EXECUTIVE HEREBY UNDERSTANDS, ACKNOWLEDGES, AND AGREES THAT THIS AGREEMENT HAS BEEN PREPARED BY COUNSEL TO THE COMPANY AND THAT HE HAS NOT RECEIVED ANY ADVICE, COUNSEL, OR RECOMMENDATION WITH RESPECT TO THIS AGREEMENT FROM THE COMPANY OR ITS COUNSEL. (m) Taxes. All federal, state, local, and other taxes (including, without limitation, interest, fines, and penalties) imposed upon the Executive under applicable law by virtue of or relating to the transactions and the payments to the Executive contemplated by this Agreement and any of plans shall be paid by the Executive. Full Name - --------- BY: ___________________________________ _____________________________ EXECUTIVE'S SIGNATURE DATE Company Name - ------------ BY: __________________________________ ____________________________ DATE PRINTED NAME: ALLEN R. MOUNTS POSITION: SVP, HUMAN RESOURCES 9 Exhibit A --------- NOTICE Various local, state, and federal laws prohibit employment discrimination based on age, sex, race, color, national origin, religion, handicap, or veteran status. These laws are enforced through the Equal Employment Opportunity Commission (EEOC), the U.S. Department of Labor, the Indiana Civil Rights Commission, and/or any other similar state entity, agency or commission. If you feel that your decision to enter into the attached Release of All Claims was coerced or is discriminatory, you are encouraged to speak with Allen Mounts (812-464-1411) or other appropriate Old National Bancorp officials. You should also discuss the language of this Release of All Claims with a lawyer of your own choosing. In any event, you should thoroughly review and understand the effect of this Release of All Claims before acting on it; therefore, please take this Release of All Claims home and review it. You may take up to twenty-one (21) days before signing this Release of All Claims. 10 RELEASE OF ALL CLAIMS --------------------- FOR VALUABLE CONSIDERATION, including the payment to the Executive of certain severance benefits, the Executive hereby makes this Release in favor of Old National Bancorp (including all subsidiaries and affiliates) (the "Company") and its agents as set forth herein. 1. The Executive releases, waives and discharges the Company and its agents (as defined below) from all rights and claims arising out of the Executive's employment relationship with the Company that are known or might be known on the date of the execution of this Release including but not limited to, discrimination claims based on age, race, sex, religion, national origin, disability, veterans status or any other claim of employment discrimination including claims arising under The Civil Rights Act of 1866, 42 U.S.C. Section 1981; Title VII of the Civil Rights Act of 1964; the Americans with Disabilities Act; the Age Discrimination in Employment Act of 1967; the Federal Rehabilitation Act of 1973; the Older Workers' Benefits Protection Act; the Employee Retirement Income Security Act of 1974; the Indiana Civil Rights Act, the Indiana Wage Payment and Wage Claims Acts, any Federal or State wage and hour laws and all other similar Federal or State statutes; and any and all tort or contract claims, including, but not limited to, breach of contract, breach of good faith and fair dealing, infliction of emotional distress, or wrongful termination or discharge. 2. The Executive further acknowledges that the Company has advised the Executive to consult with an attorney of the Executive's own choosing and that he has had ample time and adequate opportunity to thoroughly discuss all aspects of this Release with legal counsel prior to executing this Release. 3. The Executive agrees that the Executive is signing this Release of his own free will and is not signing under duress. 4. In the event the Executive is forty (40) years of age or older, the Executive acknowledges that the Executive has been given a period of twenty-one (21) days to review and consider a draft of this Release in substantially the form of the copy now being executed, and has carefully considered the terms of this Release. The Executive understands that the Executive may use as much or all of the twenty-one (21) day period as the Executive wishes prior to signing, and the Executive has done so. 5. In the event the Executive is forty (40) years of age or older, the Executive has been advised and understands that the Executive may revoke this Release within seven (7) days after acceptance. ANY REVOCATION MUST BE IN WRITING AND HAND-DELIVERED TO: Old National Bancorp Attn: General Counsel 420 Main Street Evansville, Indiana 47708 11 NO LATER THAN BY CLOSE OF BUSINESS ON THE SEVENTH (7TH) DAY FOLLOWING THE DATE OF EXECUTION OF THIS RELEASE. 6. The "Company and its agents," as used in this Release, means the Company, its subsidiaries, affiliated, or related corporations or associations, their predecessors, successors and assigns, and the directors, officers, managers, supervisors, employees, representatives, servants, agents and attorneys of the entities above described, and all persons acting, through, under or in concert with any of them. 7. The Executive agrees to speak well of and refrain from voicing any criticism of the Company and its agents. The Company agrees to refrain from providing any information to third parties other than confirming dates of employment and job title, unless the Executive gives the Company written authorization to release other information or as otherwise required by law. With respect to the Company, this restriction pertains only to official communications made by the Company's directors and/or officers and not to unauthorized communications by the Company's employees or agent. This restriction will not bar the Company from disclosing the Release as a defense or bar to any claim made by the Executive in derogation of this Release. PLEASE READ CAREFULLY BEFORE SIGNING. THIS RELEASE CONTAINS A RELEASE AND DISCHARGE OF ALL KNOWN AND UNKNOWN CLAIMS AGAINST THE COMPANY AND ITS AGENTS EXCEPT THOSE RELATING TO THE ENFORCEMENT OF THIS RELEASE OR THOSE ARISING AFTER THE EFFECTIVE DATE OF THIS RELEASE. 12 EX-10.B 4 changecontrolform.txt FORM OF CHANGE OF CONTROL AGREEMENT Exhibit 10 (b) CHANGE OF CONTROL AGREEMENT THIS CHANGE OF CONTROL AGREEMENT (the "Agreement") is made as of the 1st day of January, 2004, between OLD NATIONAL BANCORP, an Indiana corporation and registered financial holding company under the Bank Holding Company Act of 1956, as amended (the "Company"), and ______________ of the Company (the "Executive"). WITNESSETH: WHEREAS, the Company desires to assure continuity of its management, to enable its executives to devote their full attention to management responsibilities and, when faced with a possible Change in Control (as hereinafter defined), to help the Board of Directors of the Company assess options and advise as to the best interest of the Company and its shareholders without being influenced by the uncertainties of their own situations, and to demonstrate to executives the interests of the Company in their well-being and fair treatment in the event of a Change in Control; WHEREAS, to that end, the Company desires to assure Executive that he will receive certain benefits in the case of the Executive's termination or a significant change in the terms of the Executive's employment as a result of a Change in Control; and WHEREAS, in order to induce the Executive to remain in the employ of the Company, particularly in the event of a threat of or the occurrence of a Change in Control, the Company desires to enter into this Agreement with the Executive. NOW, THEREFORE, in consideration of the premises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Executive and the Company agree as follows: Section 1. Term - ---------- ---- The term of this Agreement shall begin on January 1, 2004, and shall continue until terminated as hereinafter provided. Section 2. Benefits Upon a Change in Control - ---------- --------------------------------- (a) The Company shall provide the Executive with the benefits set forth in Section 2(c) hereof upon any termination of the Executive's employment by the Company during the two (2) year period following the first Change in Control which occurs during the term of this Agreement for any reason except the following: (i) Termination of the Executive for Cause (as hereinafter defined) by the Company. For purposes of the Agreement, "Cause" shall be defined as (A) action by the Executive involving willful misconduct or gross negligence materially injurious to the Company, (B) the requirement or direction of a federal or state regulatory agency having jurisdiction over the Company, (C) conviction of the Executive of the commission of any criminal offense involving dishonesty or breach of trust, (D) any material violation of any portions of the Company's Code of Ethics which continues after written notice to the Executive that the continuation of such conduct will result in the termination of the Executive's employment with the Company for Cause, or (E) any intentional breach by the Executive of a material term, condition or covenant of this Agreement. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause unless there shall have been delivered to the Executive a copy of a notice of termination from the Company accompanied by a resolution duly adopted by a majority of the Directors then in office, finding that in the good faith opinion of the Directors, the termination of the Executive's employment is for Cause, specifying the particulars thereof in detail, and granting an opportunity, following a reasonable period of time, for the Executive, together with the Executive's counsel, to be heard before the Board of Directors; (ii) Disability of the Executive, as determined under the policies and procedures of the Company as in effect immediately prior to the Change in Control. Termination pursuant to this Section 2(a)(ii) shall not affect any rights which the Executive may have under any disability policy or program of the Company; (iii) Voluntary retirement of the Executive in accordance with policies and procedures of the Company in effect immediately prior to the Change in Control; or (iv) Death of the Executive. (b) Except in connection with the termination of the Executive's employment for reasons set forth in Section 2(a)(i)-(iv) hereof, the Company shall also provide the Executive with the benefits set forth in Section 2(c) hereof if a Change in Control occurs during the term of this Agreement and the Executive terminates the Executive's employment during the two (2) year period following the Change in Control after the happening of one or more of the following events: (i) Without the express written consent of the Executive, the assignment of the Executive to any duties materially inconsistent with the Executive's positions, duties, responsibilities (including reporting responsibilities), title, or status with the Company immediately prior to the Change in Control or a substantial reduction of the Executive's duties or responsibilities, or any removal of the Executive from, or any failure to reelect the Executive to, any positions held by the Executive prior to the Change in Control; (ii) A reduction by the Company in the compensation or benefits of the Executive in effect immediately prior to the Change in Control, or any failure to include the Executive in any incentive, bonus or other employee welfare or benefit plans as may be offered by the Company from time to time to other similarly situated executives of the Company; (iii) A requirement the Executive be based at any location other than within a fifty (50) mile radius of the location at which the Executive was based immediately prior to the Change in Control, except for required travel pertaining to the Company's business in accordance with the Company's management practices in effect prior to a Change in Control or with the prior written consent of the Executive; (iv) Any purported termination of the Executive's employment for Cause as defined in Section 2(a)(i) hereof or for disability without grounds; (v) Any failure of the Company to obtain the assumption of the obligation to perform this Agreement by any successor as contemplated in Section 7(b) hereof; or (vi) Any material breach by the Company of any of the provisions of this Agreement or any other material written agreement between the Company and the Executive or any failure by the Company to carry out any of its obligations hereunder or thereunder. (c) Subject to Sections 2(a) and 2(b) hereof, within thirty (30) days of the date of termination under Section 2(a) or 2(b) hereof, the Company shall pay to the Executive the amounts provided in subsections (i) and (ii) below, less any withholding therefrom under applicable federal, state, or local income tax, other tax, or social security laws or similar statutes. (i) A lump sum single payment in cash or cash equivalent funds in an amount equal to the aggregate of the following: (A) The Executive's base salary, at the then-effective annual rate, through the last day of employment of the Executive, to the extent not theretofore paid, plus any amounts due to the Executive under any insurance, health, retirement, profit sharing, or other employee welfare or benefit plan or the accrued vacation program of the Company due to the Executive through the last day of employment of the Executive; plus (B) a lump sum single cash payment equal to 2.999 times (2 times for Daryl D. Moore) the Base Amount (as defined in Section 280G of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder). (ii) To the extent that any payment made to the Executive pursuant to Section 2(a) or 2(b) hereof constitutes an "excess parachute payment," as such term is defined in Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended, or the Executive becomes subject to any excise tax as a result of the acceleration of unvested stock options, the Company shall pay to the Executive a lump sum single payment in cash or cash equivalent funds in an amount equal to (x) the aggregate dollar amount of excise taxes and any surtax the Executive becomes obligated to pay on such "excess parachute payments", divided by (y) one (1) minus the sum of the maximum marginal federal income tax rate (for married individuals filing jointly) plus the maximum marginal state income tax rate plus the maximum marginal local income tax rate plus the excise tax rate applicable for the year in which the Executive receives the payment provided under this Section 2(c)(ii), it being the intent of this Section, that if the Executive incurs any such excise tax or surtax with respect to the payments, such payments to him shall be grossed up in full for such excise tax and surtax, so that the amount he retains, after paying all applicable federal income, surtaxes and excise taxes due with respect to payments to him under this Section is the same as the amount he would have retained if Section 280G of the Code and any applicable surtax had not been applicable. (d) "Change in Control" means the first occurrence of any of the following events: (i) the acquisition by any person, entity or "group" (as defined in Section 13(d) of the Act), other than the Company, a subsidiary, and any employee benefit plan of the Company or a subsidiary, of 25% or more of the combined voting power of the Corporation's then outstanding voting securities; (ii) the persons who were serving as the members of the Board of Directors immediately prior to the commencement of a proxy contest relating to the election of directors or a tender or exchange offer for voting securities of the Company (the "Incumbent Directors") shall cease to constitute at least a majority of the Board of Directors (or the board of directors of any successor to the Company) at any time within one year of the election of directors as a result of such contest or the purchase or exchange of voting securities of the Corporation pursuant to such offer, provided that any director elected to the Board of Directors, or nominated for election, by a majority of the Incumbent Directors then still in office and whose nomination or election was not made at the request or direction of the person(s) initiating such contest or making such offer shall be deemed to be an Incumbent Director for purposes of this clause (ii); (iii) consummation of a merger, reorganization or consolidation of the Company, as a result of which persons who were shareholders of the Company immediately prior to such merger, reorganization or consolidation, do not, immediately thereafter, own, directly or indirectly and in substantially the same proportions as their ownership of the stock of the Corporation immediately prior to the merger, reorganization or consolidation, more than 50% of the combined voting power entitled to vote generally in the election of directors of (x) the merged, reorganized or consolidated company or (y) an entity that, directly or indirectly, owns more than 50% of the combined voting power entitled to vote generally in the election of directors of the company described in subclause (x); (iv) the shareholders of the Company approve a sale, transfer or other disposition of all or substantially all of the assets of the Corporation, which is consummated and immediately following which the persons who were shareholders of the Company immediately prior to such sale, transfer or disposition, do not own, directly or indirectly and in substantially the same proportions as their ownership of the stock of the Company immediately prior to the sale, transfer or disposition, more than 50% of the combined voting power entitled to vote generally in the election of directors of (x) the entity or entities to which such assets are sold or transferred or (y) an entity that, directly or indirectly, owns more than 50% of the combined voting power entitled to vote generally in the election of directors of the entities described in subclause (x);and (v) the shareholders of the Company approve a liquidation of the Company. (e) Any termination of the Executive's employment for the reasons set forth in Section 2(a) hereof (except for reason of the Executive's death) or by the Executive for the reasons set forth in Sections 2(b) hereof shall be communicated by written "Notice of Termination" to the other party, delivered in a manner provided in Section 6(k) hereof. Any "Notice of Termination" given by the Executive pursuant to Section 2(b) hereof, or given by the Company in connection with a termination as to which the Company believes it is not obligated to provide the Executive with the benefits set forth in Section 2(c) hereof, shall indicate the specific provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination. "Date of Termination" for the purposes of this Agreement shall mean the date on which such "Notice of Termination" is given. Section 3. Payment of Certain Costs of the Executive - ---------- ----------------------------------------- If a dispute arises regarding a termination of the Executive's employment subsequent to a Change in Control or the interpretation or enforcement of this Agreement and the Executive obtains a final judgment in favor of the Executive from a court of competent jurisdiction or the claim is settled by the Company prior to the rendering of a judgment by such a court, all legal fees and expenses incurred by the Executive in contesting or disputing any such termination or seeking to obtain or enforce any right or benefit provided for in this Agreement or in otherwise pursuing the claim will be paid by the Company, to the extent permitted by law. Section 4. Covenant of Confidentiality; Surrender of Records - --------- -------------------------------------------------- (a) The Executive shall keep confidential and not improperly divulge for the benefit of another party or use for the benefit of the Executive, the Company's confidential information including, but not limited to, business secrets relating to the Company's finances, operations, and customer lists. All of the Company's confidential information shall be the sole and exclusive property of the Company. The covenants on the part of the Executive contained in this Agreement are essential terms and conditions to the benefits to be received by the Executive in the event of a Change in Control, and shall be construed as independent of any other non-compete and non-solicitation agreement or employment agreement entered into between the Executive and the Company (each a "Prior Agreement"). This Agreement shall not terminate, modify, amend or otherwise change any Prior Agreement and such terms and conditions of any Prior Agreement shall remain in full force and effect. (b) Upon termination of the Executive's employment for any reason, the Executive shall immediately surrender (or purge as it relates to electronic copies) to the Company all Company records, notes, documents, forms, manuals, or other written or printed material (including material in electronic format), and all copies thereof, in the possession or control of the Executive, which pertains to the business of the Company and which would not be available publicly. The Executive agrees that all of the foregoing shall be and remain the sole and exclusive property of the Company. Section 5. Termination - ---------- ----------- This Agreement shall automatically terminate without notice to the Executive upon the termination of the Executive's employment with the Company for any reason prior to any Change in Control. This Agreement shall not create or constitute an agreement, contract, understanding, commitment or arrangement for the employment of the Executive by the Company. Accordingly, the Company understands, acknowledges and agrees that the Executive has the right to terminate the Executive's employment with the Company at any time for any reason. Likewise, the Executive understands, acknowledges and agrees that the Company has the right to terminate the Executive's employment with the Company at any time for any reason. If the Executive's employment is terminated prior to a Change in Control and the Executive reasonably demonstrates that such termination (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control, or (ii) otherwise occurred in connection with or in anticipation of a Change in Control, then for all purposes of this Agreement, the Executive shall be deemed to have been terminated by the Company following a Change in Control and shall be entitled to the benefits set forth in Section 2(c) hereof. Section 6. Miscellaneous - ---------- ------------- (a) Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that neither party hereto may assign this Agreement without the prior written consent of the other party. Upon the Executive's death, this Agreement shall inure to the benefit of and be enforceable by the Executive's executors, administrators, representatives, heirs, distributees, devisees, and legatees and all amounts payable hereunder shall be paid to such persons or the estate of the Executive. Because this Agreement is personal in nature, the Executive's right to receive compensation and benefits hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest, or otherwise and, in the event of any attempted assignment or transfer contrary to this subsection, the Company shall have no liability to pay any amounts so attempted to be assigned or transferred. (b) Waiver; Amendment. No provision or obligation of this Agreement may be waived or discharged unless such waiver or discharge is agreed to in writing and signed by the Company and the Executive. The waiver by any party hereto of a breach of or noncompliance with any provision of this Agreement shall not operate or be construed as a continuing waiver or a waiver of any other or subsequent breach or noncompliance hereunder. Except as expressly provided otherwise herein, this Agreement may be amended, modified, or supplemented only by a written agreement executed by the Company and the Executive. (c) Headings. The headings in this Agreement have been inserted solely for ease of reference and shall not be considered in the interpretation, construction, or enforcement of this Agreement. (d) Severability. All provisions of this Agreement are severable from one another, and the unenforceability or invalidity of any provision of this Agreement shall not affect the validity or enforceability of the remaining provisions of this Agreement; provided, however, that should any judicial body interpreting this Agreement deem any provision to be unreasonably broad in time, territory, scope, or otherwise, the parties intend for the judicial body, to the greatest extent possible, to reduce the breadth of the provision to the maximum legally allowable parameters rather than deeming such provision totally unenforceable or invalid. (e) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute one and the same agreement. (f) Governing Law; Jurisdiction; Venue; Waiver of Jury Trial. This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana, without reference to the choice of law principles or rules thereof. The parties hereto irrevocably consent to the jurisdiction and venue of the state court for the State of Indiana located in Evansville, Indiana, or the Federal District Court for the Southern District of Indiana, Evansville Division, located in Vanderburgh County, Indiana, and agree that all actions, proceedings, litigation, disputes, or claims relating to or arising out of this Agreement shall be brought and tried only in such courts. EACH OF THE PARTIES WAIVES ANY RIGHTS THAT IT MAY HAVE TO BRING A CAUSE OF ACTION IN ANY COURT OR IN ANY PROCEEDING INVOLVING A JURY TO THE MAXIMUM EXTENT PERMITTED BY LAW. (g) Entire Agreement. This Agreement constitutes the entire and sole agreement between the Company and the Executive or any other party or parties with respect to the Executive's employment following a Change in Control, and there are no other agreements or understanding either written or oral with respect thereto. (h) Construction. The rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. Whenever in this Agreement a singular word is used, it also shall include the plural wherever required by the context and vice-versa. All reference to the masculine, feminine, or neuter genders shall include any other gender, as the context requires. (i) Review and Consultation. The Company and the Executive hereby acknowledge and agree that each (i) has read this Agreement in its entirety prior to executing it, (ii) understands the provisions and effects of this Agreement, (iii) has consulted with such attorneys, accountants, and financial and other advisors as it or he has deemed appropriate in connection with their respective execution of this Agreement, and (iv) has executed this Agreement voluntarily. THE EXECUTIVE HEREBY UNDERSTANDS, ACKNOWLEDGES, AND AGREES THAT THIS AGREEMENT HAS BEEN PREPARED BY LEGAL COUNSEL TO THE COMPANY AND THAT HE HAS NOT RECEIVED ANY ADVICE, COUNSEL, OR RECOMMENDATION WITH RESPECT TO THIS AGREEMENT FROM SUCH COUNSEL. (j) Successors. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, share exchange, combination, or otherwise) to all or substantially all of the business, assets, or voting securities of the Company, by written agreement in form and in substance reasonably satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and extent, and upon the same terms and conditions, that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a material intentional breach of this Agreement and shall entitle the Executive to terminate the Executive's employment with the Company pursuant to Section 2(b)(v) hereof. As used in this Agreement, the "Company" shall mean the Company as hereinbefore defined and any successor to its business, assets, or voting securities as aforesaid. The Company as referred to in this Agreement shall also be deemed to include the affiliates of the Company which employ the Executive. (k) Notices. For purposes of this Agreement, notices, and all other communications provided for herein shall be in writing and shall be deemed to have been given (i) if hand delivered, upon delivery to the party, or (ii) if mailed, two (2) days following deposit of the notice or communication with the United States Postal Service by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: If to the Company: Old National Bancorp Attn: General Counsel P. O. Box 718 Evansville, Indiana 47705 or to such other address as either party hereto may have furnished to the other party in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. IN WITNESS WHEREOF, the parties hereto have entered into, executed, and delivered this Agreement as of the day and year first above written. EXECUTIVE _______________________________ OLD NATIONAL BANCORP By:____________________________ EX-10.C 5 severancerisinger.txt SEVERENCE AGREEMENT FOR RISINGER Exhibit 10 (c) RETIREMENT AGREEMENT THIS RETIREMENT AGREEMENT (the "Agreement") is made, entered into and effective as of the 26th day of February, 2004, by and between Old National Bancorp (including all of its subsidiaries and affiliates) (the "Company") and James A. Risinger (the "Executive"). WHEREAS, the Executive has been employed by the Company in various positions since December 18, 1978, most recently in the capacity of Chairman and Chief Executive Officer of the Company; and WHEREAS, the Executive desires to retire from employment with the Company and receive the benefits provided for in this Agreement; and WHEREAS, the Board of Directors of the Company (the "Board") and the Compensation Committee thereof (the "Committee") have approved this Agreement and authorized its execution and delivery by the appropriate officer of the Company; NOW, THEREFORE, in consideration of the premises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Executive and the Company agree as follows: 1. Termination of Employment; Resignation of Officer and Director Positions. The Executive's employment with the Company will terminate by virtue of Executive's retirement on March 31, 2004 (the "Retirement Date"). Effective on the Retirement Date, the Executive will be relieved of all duties for and responsibilities with the Company. The Executive hereby resigns any and all officer, director and other positions with the Company effective on the Retirement Date. 2. Lump Sum Payment. Following receipt by the Company of the Release contemplated by Section 9 hereof (the "Release") and the expiration of any applicable waiting periods provided therein but in no event sooner than March 31, 2004, the Company will pay $2,243,476 to the Executive in a single sum, in cash or cash equivalent funds. Such payment will be in addition to amounts otherwise owed to the Executive by the Company and is in consideration for the covenants set forth in this Agreement and the Release. Any earned but unpaid portion of the Executive's base salary, at his then-effective annual rate, plus any amounts accrued by the Executive under the Company's accrued vacation program through the Retirement Date will be paid to him on the payroll date that coincides with or immediately follows the Retirement Date. 3. Other Employee Benefits. (a) Except as otherwise provided in this Agreement, as of the Retirement Date, the Executive will be treated as having satisfied the requirements for "retirement" under the employee benefit plans and programs (other than the Company's employee pension and welfare benefit plans, as defined in Section 3 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA Plans")) sponsored by the Company and in which the Executive participates on the Retirement Date. Such plans and programs include, without limitation, the 1999 Equity Incentive Plan of Old National Bancorp and the Old National Bancorp Deferred Compensation Plan. (b) ERISA Plans. Except as otherwise provided in this Agreement, the Executive will be entitled to receive such benefits as are provided under the ERISA Plans, subject to and in accordance with the applicable provisions thereof. (c) Grant of Restricted Stock. By and through this Agreement, the Board and Committee hereby grant to the Executive 29,000 shares of restricted stock for the "performance period" beginning January 1, 2004 and ended December 31, 2006. Such grant is (i) made under the Company's 1999 Equity Incentive Plan, and (ii) intended to make up the benefits the Executive would have received under the Company's tax-qualified plans for the plan year ended December 31, 2003 were it not for the limits imposed thereon by the Internal Revenue Code of 1986, as amended. Such grant is subject to the execution and delivery by the Company and the Executive of a restricted stock agreement. Such agreement will (A) be presented by the Company to the Executive as soon as administratively practicable following the establishment by the Committee of the performance goals for the 2004-2006 performance period (which is anticipated by the Company to occur in June, 2004), (B) contain substantially the same terms and conditions as the restricted stock agreements between the Company and other executives with respect to the 2004-2006 performance period, and (C) not require the forfeiture of the shares of restricted stock on the basis of the Executive's retirement or his execution and delivery of this Agreement. (d) Rescission of 2004 Option and Restricted Stock Grants. The Executive understands, acknowledges and agrees that the grants to him of options and restricted shares under the Company's 2004 long-term incentive plan will be rescinded by the Board and/or the Committee and that he will have no rights to receive any benefits in connection therewith. (e) Full Vesting of Stock Options. By virtue of the Executive's retirement, effective as of the Retirement Date the Executive shall become fully vested with respect to all options to acquire stock in the Company heretofore granted to Executive. Such options, which are identified as Options Numbered 00002852, 00003127, 00003302, and 00003624, respectively, entitle the Executive to acquire 574,328 shares of the common capital stock of the Company to and including the expiration dates in respect of such options, at the per share prices established at the time of the grants of such options, as the number of shares and prices in respect thereof may be adjusted from time to time based upon the Company's declaration and payment of stock dividends and/or stock splits. The Company from time to time shall provide the Executive with such summaries pertaining to the Executive's options as the Executive reasonably may request. (f) Retiree Medical Benefits. By virtue of the Executive's retirement, the Executive shall be eligible to participate in the Company's Retiree Medical Insurance Plan, subject to and in accordance with the applicable provisions thereof. The Executive shall make his election to participate in such insurance plan in the manner and at the time or times required by such insurance plan. (g) Company Vehicle. The Executive has been assigned a company-owned vehicle in accordance with the Company's vehicle policy. On the Retirement Date, the Company will transfer legal title to the company vehicle to the Executive for no consideration. 2 (h) Country Club and/or Private Club Membership. If the Executive has a personal Club membership, of which monthly dues are normally paid by the Company, the Company's responsibility for monthly club dues will cease at the end of the month in which the Retirement Date occurs. Individual memberships held in the Executive's name shall continue to be held as private memberships in the Executive's name. Corporate memberships will be retained by the Company. 4. Non-Solicitation. The Executive agrees that for a period of two (2) years following the Retirement Date, the Executive shall not, directly or indirectly individually or jointly, (i) solicit in any manner, seek to obtain or service, or accept the business of any party which is a customer of the Company as of the date of the Agreement, for banking, trust, insurance and investment services of the type handled by the Company, (ii) solicit in any manner, seek to obtain or service, or accept the business of any party which was a prospective customer of the Company for banking, trust, insurance and investment services of the type handled by the Company, (iii) request or advise any customers or suppliers of the Company to terminate, reduce, limit or change their business or relationship with the Company, or (iv) induce, request or attempt to influence any employee of the Company to terminate his or her employment with the Company. For purposes of this Agreement, the term "customer" shall mean a person or entity who is a customer of the Company at the time of the Executive's termination of employment or with whom the Executive had direct contact on behalf of the Company at any time during the period of the Executive's employment with the Company. The term "prospective customer" shall mean a person or entity who was the direct target of sales or marketing activity by the Executive or whom the Executive knew was a target of the Company during the one (1) year period preceding the Retirement Date. 5. Covenant Not to Compete or be Employed by Competitors. The Executive hereby understands and acknowledges that, by virtue of his position with the Company, he obtained advantageous familiarity and personal contacts with the Company's customers, wherever located, and the business operations and affairs of the Company. For a period of two (2) years following the Retirement Date, the Executive shall not, directly or indirectly: (i) as owner, officer, director, stockholder, investor, proprietor, organizer, or otherwise, engage in the same trade or business as the Company, or in a trade or business competitive with that of the Company; provided, however that the Executive is not restricted by this Section 5 from owning less than five percent (5%) of the outstanding securities of any class of any entity that are listed on a national securities exchange or trade in the over-the-counter market; or (ii) as employee, agent, representative, consultant, independent contractor, or otherwise, perform services for or render assistance to or use or permit the Executive's name to be used in connection with any other business, partnership, proprietorship, firm, or competitive entity, organization, or corporation, which services or assistance are related to, or competitive with, the same trade, business, products, or services as those of the Company; or (iii) offer to provide employment (whether such employment is with the Executive or any other business or enterprise), either on a full-time or part-time or consulting basis, to any person 3 who then currently is, or who within one (1) year prior to such offer or provision of employment has been, an employee of the Company. The restrictions contained in this Section 5 on the activities of the Executive are limited to the following geographic areas: a fifty (50) mile radius from the following cities: Evansville, Terre Haute, Indianapolis and Muncie in the State of Indiana; Louisville and Owensboro in the State of Kentucky; Danville and Carbondale in the State of Illinois; St. Louis in the State of Missouri; and Clarksville in the State of Tennessee. As of the date hereof, the Company engages in the business of banking, trust, insurance and investment services. 6. Confidential Information. (a) The Executive agrees (i) that all Confidential Information is confidential and is the property of the Company, (ii) not to disclose or give possession of any Confidential Information to any person except authorized representatives of the Company, (iii) not to directly or indirectly use any Confidential Information (A) to compete against the Company, or (B) for the Executive's own benefit or for the benefit of any person other than the Company, and (iv) to promptly return to the Company at the Company's main office, all Confidential Information and other property of the Company, including but not limited to, computers, computer disks, electronic data without regard to the means of storage, credit cards, identification cards, badges, keys, and any other physical or personal property belonging to the Company, and any copies, duplicates, reproductions or excerpts of any of the foregoing, even if down loaded or copied to the Executive's personal computer, personal data assistant or other mechanism used for storing information. This Section 6 shall not preclude the Executive from disclosure or use of information known generally in the public domain other than through a breach of this Agreement or from disclosure required by law or court order. (b) The Executive understands, acknowledges and agrees that, during the course of his employment with the Company, he gained as a key employee of the Company, substantial information regarding and competitive knowledge of and familiarity with Confidential Information of the Company and that if the Confidential Information were disclosed or the Executive engaged in competition against the Company, the Company would suffer irreparable damage and injury. The Confidential Information derives substantial economic value, among other reasons, from not being known or readily ascertainable by proper means by others who could obtain economic value from its disclosure. The Executive acknowledges and agrees that the Company uses reasonable means to maintain the secrecy of the Confidential Information. (c) For purposes of this Agreement, the term "Confidential Information" means any and all (i) materials, records, data, documents, writings and information (whether printed, computerized, on disk or otherwise) relating or referring in any manner to the business, operations, affairs, policies, strategies, techniques, products, product developments or customers of the Company which are not generally known or available to the business, trade or industry of the Company or individuals who work therein or which are not otherwise in the public domain, in either case not through a breach of this Agreement, and (ii) trade secrets of the Company (as defined in Indiana Code 24-2-3-2, as amended, or any successor statute). 7. Remedies. The Executive agrees that the Company will suffer irreparable damage and injury and will not have an adequate remedy at law in the event of any breach by the Executive of any provision of the Restrictive 4 Covenants (as defined below in Section 8 hereof). Accordingly, in the event of a breach or of a threatened or attempted breach by the Executive of the Restrictive Covenants, in addition to all other remedies to which the Company is entitled under law, in equity, or otherwise, the Company shall be entitled to seek injunctive relief and no bond or other security shall be required in that connection. The Executive acknowledges and agrees that the Executive can obtain other engagements or employment of a kind and nature similar to that performed for the Company and that the issuance of an injunction to enforce the provisions of the Restrictive Covenants will not prevent the Executive from earning a livelihood. The Restrictive Covenants are essential terms and conditions to the Company entering into this Agreement, and shall be construed as independent of any other provision in this Agreement, or any other agreement between the Executive and the Company. The existence of any claim or cause of action the Executive has against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the Restrictive Covenants. 8. Periods of Noncompliance and Reasonableness of Periods. The restrictions and covenants contained in Sections 4 and 5 hereof (the "Restrictive Covenants") shall be deemed not to run during all periods of noncompliance, the intention of the parties hereto being to have such restrictions and covenants apply for the full periods specified in Sections 4 and 5 hereof following the Retirement Date. The Company and the Executive acknowledge and agree that the restrictions and covenants contained in Sections 4 and 5 hereof are reasonable in view of the nature of the business in which the Company is engaged and the Executive's advantageous knowledge of and familiarity with the business, operations, affairs and customers of the Company. Notwithstanding anything contained herein to the contrary, if the scope of any restriction or covenant contained in Sections 4 and 5 hereof is found by a court of competent jurisdiction to be too broad to permit enforcement of such restriction or covenant to its full extent, then such restriction or covenant shall be enforced to the maximum extent permitted by law. 9. Release. (a) For and in consideration of the foregoing covenants, promises and lump sum payment made and to be made by the Company, and the performance of such covenants and promises, and the payment of such lump sum amount, the sufficiency of which is hereby acknowledged, the Executive agrees to provide a release to the Company in the form attached hereto as Exhibit A. (b) The Executive agrees that the fact and the terms of this Agreement shall be strictly confidential and that the Executive shall not divulge, directly or indirectly, explicitly or implicitly, the fact or terms of this Agreement to any person other than the Executive's spouse, attorney(s) and tax advisor(s) or as otherwise required by law. The Executive further agrees that for purposes of this Section 9, the Executive's spouse, attorney(s) and tax advisor(s) are the Executive's agents and that a breach of these terms of confidentiality by them, or any of them, shall constitute a breach by the Executive. (c) The "Company and its agents," as used in this Agreement, means the Company, its subsidiaries, affiliated, or related corporations or associations, their predecessors, successors and assigns, and the directors, officers, managers, supervisors, employees, representatives, servants, agents and 5 attorneys of the entities above described, and all persons acting, through, under or in concert with any of them. 10. No Reliance. The Executive represents and acknowledges that in executing this Agreement, he does not rely and has not relied upon any representation or statement by the Company and its agents, other than the statements which are contained within this Agreement. 11. No Admissions. This Agreement shall not in any way be construed as an admission by the Company and its agents of any acts of discrimination or other improper conduct whatsoever against the Executive or any other person, and the Company specifically disclaims any liability to or discrimination against the Executive or any other person on the part of itself, its employees or its agents. 12. Miscellaneous. (a) Further Assurances. Each of the parties hereto shall do, execute, acknowledge, and deliver or cause to be done, executed, acknowledged, and delivered at any time and from time to time upon the request of any other parties hereto, all such further acts, documents, and instruments as may be reasonably required to effect any of the transactions contemplated by this Agreement. Additionally, the Executive shall make the appropriate Principal Executive Officer certifications in the Company's Form 10-K for the year ended 2003. (b) Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that neither party hereto may assign this Agreement without the prior written consent of the other party. Notwithstanding the foregoing, this Agreement may be assigned, without the prior consent of the Executive to a successor of the Company (and the Executive hereby consents to the assignment of the Restrictive Covenants under this Agreement to a purchaser of all or substantially all of the assets of the Company or a transferee, by merger or otherwise, of all or substantially all of the businesses and assets of the Company) and, upon the Executive's death, this Agreement shall inure to the benefit of and be enforceable by the Executive's executors, administrators, representatives, heirs, distributees, devisees, and legatees and all amounts payable hereunder shall be paid to such persons or the estate of the Executive. (c) Waiver; Amendment. No provision or obligation of this Agreement may be waived or discharged unless such waiver or discharge is agreed to in writing and signed by the Company and the Executive. The waiver by any party hereto of a breach of or noncompliance with any provision of this Agreement shall not operate or be construed as a continuing waiver or a waiver of any other or subsequent breach or noncompliance hereunder. Except as expressly provided otherwise herein, this Agreement may be amended, modified, or supplemented only by a written agreement executed by the Company and the Executive. (d) Headings. The headings in this Agreement have been inserted solely for ease of reference and shall not be considered in the interpretation, construction, or enforcement of this Agreement. (e) Severability. All provisions of this Agreement are severable from one another, and the unenforceability or invalidity of any provision of this Agreement shall not affect the validity or enforceability of the remaining provisions of this Agreement; provided, however, that should any judicial body interpreting this Agreement deem any provision to be unreasonably broad in time, 6 territory, scope, or otherwise, the parties intend for the judicial body, to the greatest extent possible, to reduce the breadth of the provision to the maximum legally allowable parameters rather than deeming such provision totally unenforceable or invalid. (f) Notice. Any notice, request, instruction, or other document to be given hereunder to any party shall be in writing and delivered by hand, telegram, facsimile transmission, registered or certified United States mail, return receipt requested, or other form of receipted delivery, with all expenses of delivery prepaid, as follows: If to the Executive: If to the Company: James A. Risinger Old National Bancorp 411 Sandalwood Drive Post Office Box 718 Evansville, Indiana 47715 Evansville, Indiana 47705 ATTENTION: General Counsel (g) No Counterparts. This Agreement may not be executed in counterparts. (h) Governing Law; Jurisdiction; Venue; Waiver of Jury Trial. This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana, without reference to the choice of law principles or rules thereof. The parties hereto irrevocably consent to the jurisdiction and venue of the state court for the State of Indiana located in Evansville, Indiana, or the Federal District Court for the Southern District of Indiana, Evansville Division, located in Vanderburgh County, Indiana, and agree that all actions, proceedings, litigation, disputes or claims relating to or arising out of this Agreement shall be brought and tried only in such courts. EACH OF THE PARTIES WAIVES ANY RIGHTS IT MAY HAVE TO BRING A CAUSE OF ACTION IN ANY COURT OR IN ANY PROCEEDING INVOLVING A JURY TO THE MAXIMUM EXTENT PERMITTED BY LAW. (i) Entire Agreement. This Agreement constitutes the entire and sole agreement between the Company and the Executive with respect to the Executive's retirement and there are no other agreements or understanding either written or oral with respect thereto. The parties agree that the (i) Change in Control Agreement dated January 1, 2004, by and between the Executive and the Company, together with its predecessor agreement and (ii) the Severance Agreement dated January 1, 1996, by and between the Executive and the Company, will be terminated effective as of the Retirement Date and of no further force or effect. (j) Construction. The rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. Whenever in this Agreement a singular word is used, it also shall include the plural wherever required by the context and vice-versa. All reference to the masculine, feminine, or neuter genders shall include any other gender, as the context requires. (k) Attorneys' Fees. The prevailing party shall be entitled to reasonable costs and expenses (including, without limitation, reasonable attorneys' fees and disbursements) in connection with any legal action to interpret or enforce any provision of this Agreement or for any breach of this Agreement. 7 (l) Review and Consultation. The Company and the Executive hereby acknowledge and agree that each (i) has read this Agreement in its entirety prior to executing it, (ii) understands the provisions and effects of this Agreement, (iii) has consulted with such attorneys, accountants, and financial and other advisors as it or he has deemed appropriate in connection with their respective execution of this Agreement, and (iv) has executed this Agreement voluntarily. THE EXECUTIVE HEREBY UNDERSTANDS, ACKNOWLEDGES, AND AGREES THAT THIS AGREEMENT HAS BEEN PREPARED BY KRIEG DEVAULT LLP, COUNSEL TO THE COMPANY, AND THAT HE HAS NOT RECEIVED ANY ADVICE, COUNSEL, OR RECOMMENDATION WITH RESPECT TO THIS AGREEMENT FROM THE COMPANY OR SUCH COUNSEL. (m) Taxes and Other Amounts. All taxes (other than the Company's portion of employment taxes) on the lump sum payment specified in Section 2 hereof and all other amounts payable to the Executive hereunder and under the Company's ERISA Plans and other benefit plans and programs will be paid by the Executive. The Company will be entitled to withhold from such payments and benefits (i) applicable income, employment and other taxes required to be withheld therefrom; (ii) amounts authorized by the Executive; and (iii) other required or appropriate and customary amounts. IN WITNESS WHEREOF, the Company, by its officer thereunder duly authorized, and the Executive, have entered into, executed and delivered this Agreement as of the day and year first above written. EXECUTIVE /s/ James A. Risinger ------------------------------------------------- James A. Risinger OLD NATIONAL BANCORP By: /s/ Allen R. Mounts -------------------------------------------- Printed: Allen R. Mounts --------------------------------------- Title: SVP - Director of Human Resources ---------------------------------------- 8 EXHIBIT A --------- NOTICE Various local, state, and federal laws prohibit employment discrimination based on age, sex, race, color, national origin, religion, handicap, or veteran status. These laws are enforced through the Equal Employment Opportunity Commission (EEOC), the U.S. Department of Labor, the Indiana Civil Rights Commission, and/or any other similar state entity, agency or commission. If you feel that your decision to enter into the attached Release of All Claims was coerced or is discriminatory, you are encouraged to speak with Allen Mounts (812-464-1411) or other appropriate Old National Bancorp officials. You should also discuss the language of this Release of All Claims with a lawyer of your own choosing. In any event, you should thoroughly review and understand the effect of this Release of All Claims before acting on it; therefore, please take this Release of All Claims home and review it. You may take up to twenty-one (21) days before signing this Release of All Claims. This Release of All Claims was presented to James A. Risinger on _________________, 2004; he has until ___________________, 2004 to consider this Release. Acknowledged by ________________________ ________________ James A. Risinger Date ____________________________________________________________ cc: James A. Risinger - Personnel File Old National Bancorp - c/o Allen Mounts A-1 RELEASE OF ALL CLAIMS --------------------- FOR GOOD AND VALUABLE CONSIDERATION, including the payment to the Executive of certain retirement and retirement-related benefits, the Executive hereby makes this Release of All Claims in favor of Old National Bancorp (including all subsidiaries and affiliates) (the "Company") and its agents, as set forth herein. 1. The Executive releases, waives and discharges the Company and its agents (as defined below) from all rights and claims arising out of the Executive's employment relationship with the Company that are known or might be known on the date of the execution of this Release, including but not limited to, discrimination claims based on age, race, sex, religion, national origin, disability, veterans status or any other claim of employment discrimination including claims arising under The Civil Rights Act of 1866, 42 U.S.C. Section 1981; Title VII of the Civil Rights Act of 1964; the Americans with Disabilities Act; the Age Discrimination in Employment Act of 1967; the Federal Rehabilitation Act of 1973; the Older Workers' Benefits Protection Act; the Employee Retirement Income Security Act of 1974; the Indiana Civil Rights Act, the Indiana Wage Payment and Wage Claims Acts, any Federal or State wage and hour laws and all other similar Federal or State statutes; and any and all tort or contract claims, including, but not limited to, breach of contract, breach of good faith and fair dealing, infliction of emotional distress or wrongful termination or discharge. 2. The Executive further acknowledges that the Company has advised the Executive to consult with an attorney of the Executive's own choosing and that he has had ample time and adequate opportunity to thoroughly discuss all aspects of this Release with legal counsel prior to executing this Release. 3. The Executive agrees that the Executive is signing this Release of his own free will and is not signing under duress or undue influence. 4. The Executive acknowledges that the Executive has been given a period of twenty-one (21) days to review and consider a draft of this Release in substantially the form of the copy now being executed, and has carefully considered the terms of this Release. The Executive understands that the Executive may use as much or all of the twenty-one (21) day period as the Executive wishes prior to signing, and the Executive has done so. 5. The Executive has been advised and understands that the Executive may revoke this Release within seven (7) days after acceptance. ANY REVOCATION MUST BE IN WRITING AND HAND-DELIVERED TO: Old National Bancorp Attn: General Counsel 420 Main Street Evansville, Indiana 47708 NO LATER THAN BY CLOSE OF BUSINESS ON THE SEVENTH (7TH) DAY FOLLOWING THE DATE OF EXECUTION OF THIS RELEASE. A-2 6. The "Company and its agents," as used in this Release, means the Company, its subsidiaries, affiliated, or related corporations or associations, their predecessors, successors and assigns, and the directors, officers, managers, supervisors, employees, representatives, servants, agents and attorneys of the entities above described, and all persons acting, through, under or in concert with any of them. 7. The Executive agrees to speak well of and refrain from voicing any criticism of the Company and its agents. The Company agrees to refrain from providing any information to third parties, other than confirming dates of employment and job title, unless the Executive gives the Company written authorization to release other information or as otherwise required by law. With respect to the Company, this restriction pertains only to official communications made by the Company's directors and/or officers and not to unauthorized communications by the Company's employees or agent. This restriction will not bar the Company from disclosing the Release as a defense or bar to any claim made by the Executive in derogation of this Release. PLEASE READ CAREFULLY BEFORE SIGNING. THIS RELEASE CONTAINS A RELEASE AND DISCHARGE OF ALL KNOWN AND UNKNOWN CLAIMS AGAINST THE COMPANY AND ITS AGENTS EXCEPT THOSE RELATING TO THE ENFORCEMENT OF THIS RELEASE OR THOSE ARISING AFTER THE EFFECTIVE DATE OF THIS RELEASE. EXECUTIVE /s/ James A. Risinger ----------------------------------------- James A. Risinger Date: February 26, 2004 ----------------------------------- OLD NATIONAL BANCORP By: /s/ Allen R. Mounts ----------------------------------------- Printed: Allen R. Mounts ----------------------------------------- Title: SVP - Director of Human Resources ----------------------------------------- Date: February 26, 2004 ----------------------------------------- A-3 EX-31.1 6 ceo302cert.htm OLD NATIONAL BANCORP CEO 302 CERTIFICATION FORM OF SECTION 302 CERTIFICATION

Exhibit 31.1

FORM OF SECTION 302 CERTIFICATION

I, Michael R. Hinton, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Old National Bancorp;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this reported based on such evaluation; and

 

c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date:

May 10, 2004
- -------------------

By:

/s/ Michael R. Hinton
---------------------------
Michael R. Hinton
President and Chief Operating Officer
(Principal Executive Officer)

 

 

EX-31.2 7 cfo302cert.htm OLD NATIONAL BANCORP CFO 302 CERTIFICATION FORM OF SECTION 302 CERTIFICATION

Exhibit 31.2

FORM OF SECTION 302 CERTIFICATION

I, John S. Poelker, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Old National Bancorp;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this reported based on such evaluation; and

 

c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date:

May 10, 2004
- ----------------------

By:

/s/ John S. Poelker       
------------------------
John S. Poelker
Executive Vice President and Chief Financial Officer

EX-32.1 8 ceo906cert.htm OLD NATIONAL BANCORP CEO 906 CERTIFICATION ONB Section 906 Certification CEO

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report of Old National Bancorp (the "Company") on Form 10-Q for the quarter ending March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael R. Hinton, Chief Operating Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that

    1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
    2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.



By: /s/ Michael R. Hinton

Chief Operating Officer
(Principal Executive Officer)
May 10, 2004

EX-32.2 9 cfo906cert.htm OLD NATIONAL BANCORP CFO 906 CERTIFICATION ONB Section 906 Certification CFO

Exhibit 32.2


CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Old National Bancorp (the "Company") on Form 10-Q for the quarter ending March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John S. Poelker, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that

    1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
    2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.



By: /s/ John S. Poelker

Chief Financial Officer
May 10, 2004

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