-----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, CQlZdGlHegrDBcJzf/hOdLG70V0jMCpiZIbFrLyHIRQr0VEJcFzPzwyDHrpYvTez BWZFUFh7clQ22u1ABB+wIQ== 0000707179-99-000007.txt : 19990816 0000707179-99-000007.hdr.sgml : 19990816 ACCESSION NUMBER: 0000707179-99-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: SEC FILE NUMBER: 333-72117 FILM NUMBER: 99689253 BUSINESS ADDRESS: STREET 1: 420 MAIN ST CITY: EVANSVILLE STATE: IN ZIP: 47708 BUSINESS PHONE: 8124641434 MAIL ADDRESS: STREET 1: 420 MAIN STREET CITY: EVANSVILLE STATE: IN ZIP: 47708 FORMER COMPANY: FORMER CONFORMED NAME: OLD NATIONAL BANCORP DATE OF NAME CHANGE: 19920703 10-Q 1 SECURITIES & EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File Number 0-10888 OLD NATIONAL BANCORP (Exact name of Registrant as specified in its charter) INDIANA 35-1539838 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 420 Main Street, Evansville, Indiana 47708 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code, (812) 464-1200 Former name, former address and former fiscal year, if changed since last reports. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to the filing requirements for at least the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock. The Registrant has one class of common stock (no par value) with approximately 46.2 million shares outstanding at June 30, 1999. OLD NATIONAL BANCORP FORM 10-Q INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Page No. Consolidated Balance Sheet June 30, 1999 and 1998, and December 31, 1998 3 Consolidated Statement of Income Three and Six months ended June 30, 1999 and 1998 4 Consolidated Statement of Cash Flows Six months ended June 30, 1999 and 1998 5 Notes to Consolidated Financial Statements 6 Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II OTHER INFORMATION 15 SIGNATURES 16 INDEX OF EXHIBITS 17 2
OLD NATIONAL BANCORP CONSOLIDATED BALANCE SHEET June 30 December 31, ($ in thousands) (unaudited) 1999 1998 1998 Assets Cash and due from banks ------------- $176,077 $183,837 $165,094 Money market investments------------- 10,035 2,384 16,699 Investment Securities U.S. Treasury ---------------------- 63,585 106,702 92,741 U.S. Government agencies and corporations ----------------- 1,134,842 1,008,414 995,492 Obligations of states and political Subdivisions --------------------- 516,575 471,563 491,139 Other ------------------------------ 63,326 53,301 57,302 --------- --------- --------- Total Investment Securities ------ 1,778,328 1,639,980 1,636,674 --------- --------- --------- Loans Commercial ------------------------- 1,147,404 1,012,746 1,027,792 Commercial real estate ------------- 1,050,763 800,817 944,813 Residential real estate ------------ 1,759,231 1,570,554 1,688,572 Consumer credit, net of unearned income 719,221 706,436 693,079 --------- --------- --------- Total Loans ---------------------- 4,676,619 4,090,553 4,354,256 Allowance for loan losses -------- (56,271) (51,548) (51,847) --------- --------- --------- Net Loans ------------------------ 4,620,348 4,039,005 4,302,409 Other assets ------------------------ 313,632 360,130 295,735 --------- --------- --------- Total Assets --------------------- $6,898,420 $6,225,336 $6,416,611 ========= ========= ========= Liabilities Deposits Noninterest bearing demand --------- $495,816 $509,861 $553,704 Interest bearing: NOW accounts --------------------- 515,735 475,634 539,169 Savings accounts ----------------- 504,796 505,293 501,780 Money market accounts ------------ 735,197 667,806 678,484 Certificates of deposit $100,000 and over ---------------- 402,371 382,021 390,123 Other time ----------------------- 2,150,340 2,082,990 2,005,598 --------- --------- --------- Total Deposits ------------------- 4,804,255 4,623,605 4,668,858 --------- --------- --------- Short-term borrowings --------------- 720,715 489,628 506,320 Other borrowings -------------------- 769,653 520,212 629,868 Accrued expenses and other liabilities 74,511 81,784 91,920 --------- --------- --------- Total Liabilities ------------------ 6,369,134 5,715,229 5,896,966 Shareholders' Equity Common stock ----------------------- 46,159 29,340 30,388 Capital surplus -------------------- 352,285 297,149 350,256 Retained earnings ------------------ 140,888 167,978 119,902 Accumulated other comprehensive Income (loss), net of tax ------- (10,046) 15,640 19,099 --------- --------- --------- Total Shareholders' Equity --------- 529,286 510,107 519,645 --------- --------- --------- Total Liabilities and Shareholders' Equity --------------------------- $6,898,420 $6,225,336 $6,416,611 ========= ========= ========= The accompanying notes are an integral part of this statement.
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OLD NATIONAL BANCORP CONSOLIDATED STATEMENT OF INCOME Three Months Ended Six Months Ended ($ and shares in thousands except June 30, June 30, per share data) (Unaudited) 1999 1998 1999 1998 Interest income Loans including fees: Taxable -----------------------------------$92,018 $87,018 $181,347 $171,722 Non-taxable ------------------------------- 2,082 1,407 3,817 2,665 Investment securities: Taxable ----------------------------------- 19,972 18,493 38,774 37,550 Non-taxable ------------------------------- 6,310 5,857 12,510 11,549 Money market investments -------------------- 308 287 697 891 ------- ------- ------- ------- Total Interest Income ---------------------120,690 113,062 237,145 224,377 ------- ------- ------- ------- Interest Expense Savings, NOW and money market accounts --------------------- 10,473 11,404 20,799 22,931 Certificates of deposit of $100,000 and over ---------------------------------- 5,632 5,849 11,419 11,485 Other time deposits ------------------------- 28,098 28,469 55,353 55,655 Short-term borrowings ----------------------- 6,870 5,252 12,816 10,452 Other borrowings ---------------------------- 9,734 6,326 18,812 12,255 ------- ------- ------- ------- Total Interest Expense -------------------- 60,807 57,300 119,199 112,778 ------- ------- ------- ------- Net Interest Income ----------------------- 59,883 55,762 117,946 111,599 Provision for loan losses ------------------- 2,894 3,174 5,697 6,253 ------- ------- ------- ------- Net Interest Income After Provision For Loan Losses ------------------------- 56,989 52,588 112,249 105,346 ------- ------- ------- ------- Noninterest Income Trust fees ---------------------------------- 3,711 3,145 7,189 6,389 Service charges on deposit accounts---------- 5,448 4,394 9,655 8,526 Loan servicing fees ------------------------- 1,254 1,338 2,527 2,714 Insurance premiums and commissions ---------- 1,469 1,282 2,797 2,639 Investment product fees --------------------- 1,674 1,334 2,987 2,512 Bank-owned life insurance ------------------- 1,152 1,181 2,252 1,334 Securities gains, net ----------------------- 919 171 2,240 216 Other income -------------------------------- 1,749 1,670 3,810 3,817 ------- ------- ------- ------- Total Noninterest Income ------------------ 17,376 14,515 33,457 28,147 ------- ------- ------- ------- Noninterest Expense Salaries and employee benefits -------------- 26,386 23,511 51,635 47,053 Occupancy expense --------------------------- 2,589 2,433 5,180 4,814 Equipment expense --------------------------- 3,347 3,267 6,583 6,511 Marketing expense --------------------------- 1,504 1,586 2,831 2,964 FDIC insurance expense ---------------------- 173 174 360 360 Data processing expense --------------------- 1,773 1,483 3,206 2,880 Supplies expense ---------------------------- 1,157 1,016 2,177 2,051 Communication and transportation expense 1,845 1,721 3,676 3,582 Other expenses ------------------------------ 6,693 5,724 13,457 11,185 ------- ------- ------- ------- Total Noninterest Expense ----------------- 45,467 40,915 89,105 81,400 ------- ------- ------- ------- Income From Continuing Operations Before Income Taxes ----------------------- 28,898 26,188 56,601 52,093 Provision for income taxes ------------------ 7,646 8,012 15,339 15,942 ------- ------- ------- ------- Income from continuing operations ----------- 21,252 18,176 41,262 36,151 Discontinued operations --------------------- 3,483 (9,193) 3,483 (9,854) ------- ------- ------- ------- Net Income ----------------------------------$24,735 $8,983 $44,745 $26,297 ======= ======= ======= ======= Income from continuing operations per common share: Basic ------------------------------------- $0.46 $0.39 $0.89 $0.78 Diluted ----------------------------------- $0.45 $0.38 $0.87 $0.76 Net income per common share: Basic ------------------------------------- $0.54 $0.19 $0.97 $0.57 Diluted ----------------------------------- $0.52 $0.19 $0.94 $0.56 Weighted average common shares outstanding: Basic ------------------------------------- 46,176 46,218 46,126 45,997 Diluted ----------------------------------- 47,960 48,163 47,921 48,236 The accompanying notes are an integral part of this statement.
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OLD NATIONAL BANCORP CONSOLIDATED STATEMENT OF CASH FLOWS Six Months Ended June 30, ($ in thousands) (unaudited) 1999 1998 Cash flows from operating activities: Net income ------------------------------------------------ $ 44,745 $ 26,297 -------- -------- Adjustments to reconcile net income to cash provided by (used in) operating activities: Depreciation --------------------------------------------- 5,016 5,136 Amortization of intangible assets ------------------------ 782 1,273 Net premium amortization on investment securities -------- 903 906 Provision for loan losses -------------------------------- 5,697 6,253 Gain on sale of investment securities -------------------- (2,240) (216) Gain on sale of assets ----------------------------------- (47) (454) Increase in interest receivable -------------------------- (1,911) (998) Increase in other assets --------------------------------- (15,301) (80,457) Increase in accrued expenses and other liabilities -------------------------------------- 1,944 2,294 -------- -------- Total adjustments ------------------------------------- (5,157) (66,263) -------- -------- Net cash flows provided by (used in) operating activities 39,588 (39,966) -------- -------- Cash flows from investing activities: Cash and cash equivalents of subsidiary acquired ----------- 5,914 -- Purchase of investment securities available-for-sale ------- (714,992) (317,151) Proceeds from maturities and paydowns of investment securities available-for-sale ---------------------------- 368,877 219,189 Proceeds from sales of investment securities available- for-sale ------------------------------------------------- 175,190 62,131 Net principal collected from (loans made to) customers: Commercial and financial --------------------------------- (111,998) (110,603) Mortgage ------------------------------------------------- (173,599) (132,894) Consumer ------------------------------------------------- (25,793) 17,432 Proceeds from sale of mortgage loans ----------------------- 5,952 48,030 Proceeds from sale of premises and equipment --------------- 295 410 Purchase of premises and equipment ------------------------- (5,675) (4,837) -------- -------- Net cash flows used in investing activities -------------- (475,829) (218,293) -------- -------- Cash flows from financing activities: Net increase (decrease) in deposits and short-term borrowings: Noninterest bearing demand ------------------------------- (75,032) (16,097) NOW Accounts --------------------------------------------- (23,434) (12,240) Savings accounts ----------------------------------------- (214) 829 Money market accounts ------------------------------------ 56,713 (8,932) Certificates of deposit $100,000 and over ---------------- 10,213 1,767 Other time deposits -------------------------------------- 131,369 137,268 Short-term borrowings ------------------------------------ 214,395 46,943 Other borrowings ----------------------------------------- 139,812 139,794 Cash dividends paid ---------------------------------------- (15,144) (12,908) Common stock repurchased ----------------------------------- (6,598) (20,648) Common stock reissued, net of shares used to convert subordinated debentures ---------------------------------- 8,480 9,461 -------- -------- Net cash flows provided by financing activities ---------- 440,560 265,237 -------- -------- Net increase in cash and cash equivalents ------------------ 4,319 6,978 Cash and cash equivalents at beginning of period ----------- 181,793 179,243 -------- -------- Cash and cash equivalents at end of period ----------------- $186,112 $186,221 ======== ======== Total interest paid -------------------------------------- $120,200 $109,492 ======== ======== Total taxes paid ----------------------------------------- $ 15,306 $ 13,588 ======== ======== The accompanying notes are an integral part of this statement.
5 Old National Bancorp Notes to Consolidated Financial Statements 1. Basis of Presentation The accompanying consolidated financial statements include the accounts of the Old National Bancorp and its affiliate entities (ONB). All significant intercompany transactions and balances have been eliminated. In the opinion of management, the consolidated financial statements contain all the normal and recurring adjustments necessary to present fairly the financial position of ONB as of June 30, 1999 and 1998 and December 31, 1998, and the results of its operations for the three and six months ended June 30, 1999 and 1998 and its cash flows for the six months ended June 30, 1999 and 1998. All prior period information has been restated for the effects of business combinations accounted for as pooling-of-interests as discussed in Note 3. 2. Net Income Per Share Net income per common share computations are based on the weighted average number of common shares outstanding during the periods presented. A 5% stock dividend was paid January 28, 1999 to shareholders of record on January 7, 1999. On April 15, 1999, a three-for-two stock split was declared to shareholders of record on May 3, 1999. The dividend was paid on May 24, 1999. All share and per share data presented herein have been restated for the effects of the stock dividend and stock split. Net income on a diluted basis is computed as above and assumes the conversion of ONB's 8% convertible subordinated debentures (Note 5). For the diluted computation, net income is adjusted for the assumed reduction in interest expense, net of income tax effect, and additional common shares of 1.7 million year-to-date and quarter-to-date, are assumed to be issued in connection with the conversion of the remaining outstanding debentures. Earnings Per Share Reconciliation ($ and shares in thousands except per share data): For the three For the three months ended months ended June 30, 1999 June 30, 1998 --------------------- ------------------- Per-Share Per-Share Income Shares Amount Income Shares Amount Basic EPS Income from continuing operations available to common stockholders $21,252 46,176 $0.46 $18,176 46,218 $0.39 ===== ===== Effect of Dilutive Securities: Stock options 83 240 8% convertible debentures 263 1,701 264 1,705 ------- ------ ------- ----- Diluted EPS Income from continuing operations available to common stockholders + assumed conversions $21,515 47,960 $0.45 $18,440 48,163 $0.38 ======= ====== ===== ======= ====== ===== 6 For the six For the six months ended months ended June 30, 1999 June 30, 1998 --------------------- -------------------- Per-Share Per-Share Income Shares Amount Income Shares Amount Basic EPS Income from continuing operations available to common stockholders $41,262 46,126 $0.89 $36,151 45,997 $0.78 ===== ===== Effect of Dilutive Securities: Stock options 93 240 8% convertible debentures 526 1,702 612 1,999 ------ ------ ------ ----- Diluted EPS Income from continuing operations available to common stockholders + assumed conversions $41,788 47,921 $0.87 $36,763 48,236 $0.76 ======= ====== ===== ======= ====== ===== 3. Merger and Divestiture Activity Completed Mergers On Januray 29, 1999, ONB and Southern Bancshares LTD (Southern) of Carbondale, Illinois, consummated a merger in which ONB issued 2,552,436 common shares in exchange for all of the shares of Southern. This transaction was accounted for as a pooling-of- interests. Net income for Southern prior to merger included in the 1999 statements for the period ended January 29, 1999 was $332 thousand. On February 5,1999 ONB and Dulaney Bancorp (Dulaney) of Marshall, Illinois, consummated a merger in which ONB issued 472,284 common shares in exchange for all the shares of Dulaney. This transaction was accounted for as a pooling-of-interests without restatement of prior years due to immateriality. Discontinued Operations In April 1998, ONB announced it would look at exit strategies from its sub-prime lending affiliate, Consumer Acceptance Corporation (CAC). During June 1998, ONB finalized the sale of CAC's sub-prime auto loans, which closed in July 1998. ONB has accounted for this entity as discontinued operations on the consolidated financial statements. During the second quarter of 1999, contingencies related to the sale were favorably resolved. Net assets of the entity which were included in other assets were $71.1 million at June 30, 1998. Income (loss) from discontinued operations for the three and six months ended June 30, 1999 and 1998 was as follows ($ in thousands): Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 Loss before taxes from operations of discontinued operations $0 $(6,833) $0 $(7,943) Income tax benefit 0 (2,734) 0 (3,183) -- ------- -- -------- Loss from operations of discontinued operations $0 (4,099) $0 (4,760) -- ------- -- -------- 7 Income (loss) before taxes from disposal of discontinued operations 5,805 (8,489) 5,805 (8,489) Income tax expense (benefit) 2,322 (3,395) 2,322 (3,395) ----- ------- ----- -------- Income (loss) from disposal of Discontinued operations 3,483 (5,094) 3,483 (5,094) ----- ------- ----- -------- Income (loss) from discontinued operations $3,483 $(9,193) $3,483 $(9,854) ====== ======= ====== ======= Income (loss) from discontinued operations per common share Basic $0.08 $(0.20) $0.08 $(0.21) ===== ====== ===== ====== Diluted $0.07 $(0.19) $0.07 $(0.20) ===== ====== ===== ====== 4. Investments The market value and amortized cost of investment securities as of June 30, 1999 are set forth below ($ in thousands): Market Value Amortized Cost Available-for-sale, at market value $1,778,328 $1,795,650 ========== ========== 5. Borrowings ONB has outstanding $22.0 million of 8% convertible subordinated debentures which are due September 15, 2012, unless previously converted or redeemed. The debentures are convertible at any time prior to maturity into shares of common stock of ONB at a conversion rate of 77.519 shares for each one thousand dollars principal amount of debentures. Interest on the debentures is payable on March 15 and September 15 of each year. The debentures are redeemable in whole or in part at the option of ONB at par value. Beginning September 15, 1998, debenture holders are entitled to an annual sinking fund contribution of $2.5 million principal amount of debentures less conversions and redemptions. The debentures are subordinated in right of payment to all senior indebtedness of ONB. As of June 30, 1999, 1.7 million authorized and unissued common shares were reserved for conversion of the debentures. ONB has registered Series A Medium Term Notes in the principal amount of $50 million. The series has been fully issued. As of June 30, 1999, a total of $32.0 million of the notes were outstanding, with maturities ranging from one to four years and fixed interest rates of 6.7% to 7.1%. At June 30, 1998, ONB had outstanding $32.0 million of medium term notes. ONB also has registered Medium Term Notes in the principal amount of $150 million. These notes may be issued with maturities of nine months or more and rates may either be fixed or variable. As of June 30, 1999 and 1998, a total of $64.3 million of the notes were outstanding, with maturities ranging from one to nine years and fixed interest rates from 6.4% to 7.0%. As of June 30, 1999, ONB has $80 million in unsecured lines of credit with unaffiliated banks. These lines of credit include various informal arrangements to maintain compensating balances. The compensating balances are maintained for the benefit of the parent company by affiliate banks which normally maintain correspondent balances with these unaffiliated banks. As of June 30, 1999, no balance was outstanding under these lines. As of June 30, 1998, $13.4 million was outstanding. 8 6. Interest Rate Contracts ONB uses interest rate contracts such as interest swaps and caps to manage its interest rate risk. These contracts are designated as hedges of specific assets and liabilities. The net interest receivable or payable on swaps is accrued and recognized as an adjustment to the interest income or expense of the hedged asset or liability. The premium paid for an interest rate cap is included in the basis of the hedged item and is amortized as an adjustment to the interest income or expense on the related asset or liability. At June 30, 1999, ONB has interest rate swaps with a notional value of $65 million. The contracts are an exchange of interest payments with no affect on the principal amounts of the underlying hedged liability. The fair value of the swaps were $(2.1) million as of June 30, 1999. ONB pays the counterparty a variable rate based on three-month LIBOR and receives fixed rates ranging from 5.375% to 7.0%. The contracts terminate on or prior to January 28, 2009. ONB is exposed to losses if a counterparty fails to make its payments under a contract in which ONB is in the receiving position. Although collateral or other security is not obtained, ONB minimizes its credit risk by monitoring the credit standing of the counterparties and anticipates that the counterparties will be able to fully satisfy their obligation under the agreements. 7. Comprehensive Income
Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 1999 1998 1999 1998 ($ in Thousands) Net income $24,735 $8,983 $44,745 $26,297 Unrealized gains (losses) on securities: Unrealized holding losses Arising during period, net of tax (22,377) (1,462) (27,801) (899) Less: reclassification adjustment for gains realized In net income, net of tax (551) (103) ( 1,344) (130) ------- ------ ------- ------ Net unrealized losses (22,928) (1,565) (29,145) (1,029) ------- ------ ------- ------ Comprehensive income $1,807 $7,418 $ 15,600 $25,268 ====== ====== ======== =======
8. Segment Data Community Banking Other Total June 30,1999 Net interest income (loss) $119,507 $(1,561) $117,946 Income tax expense (benefit) 18,168 (2,829) 15,339 Segment profit (loss) 44,214 (2,952) 41,262 Total assets 6,770,881 127,539 6,898,420 9 June 30, 1998 Net interest income (loss) $113,738 $(2,139) 111,599 Income tax expense (benefit) 17,873 (1,931) 15,942 Segment profit (loss) 39,470 (3,319) 36,151 Total assets 6,099,836 125,500 6,225,336 9. Impact of Accounting Changes In June 1998 the Financial Accounting Standards Board (FASB) issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." This statement requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The statement is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for ONB). ONB doesn't expect the impact of this statement will be material to the results of operations or its financial position, due to its limited use of derivative instruments. 10 PART I. FINANCIAL INFORMATION ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following management's discussion and analysis is presented to provide information concerning the financial condition of ONB as of June 30, 1999, as compared to June 30, 1998 and December 31, 1998, and the results of operations from continuing operations for the three and six months ended June 30, 1999 and 1998. Financial Condition ONB's assets at June 30, 1999 were $6.898 billion, a 10.8% increase since June 1998 and a 7.5% increase since December 1998. Earning assets, which consist primarily of money market investments, investment securities and loans, grew 12.8% over the prior year. During the past year, the mix of earning assets reflected loan growth of 14.3% while money market investments and investment securities increased a combined 8.9%. Since December 1998, earning assets increased 7.6% with loans growing 7.4% and investment securities and money market investments increasing 8.2%. At June 30, 1999, total under-performing assets (defined as loans 90 days or more past due, nonaccrual and restructured loans and foreclosed properties) decreased slightly to $22.6 million from $25.1 million as of December 31, 1998. As of these dates, under- performing assets in total were 0.48% and 0.58%, respectively, of total loans and foreclosed properties. June 30, December 31, 1999 1998 Nonaccrual loans $15,259 $17,034 Restructured loans 171 116 Foreclosed properties 2,709 2,542 ------- ------- Total Non-performing Assets 18,139 19,692 Past due 90 days or more 4,418 5,389 ------- ------- Total Under-performing Assets $22,557 $25,081 ======= ======= Unper-performing assets as a % of total loans and foreclosed properties 0.48% 0.58% ==== ==== As of June 30, 1999, the recorded investment in loans for which impairment has been recognized in accordance with SFAS No. 114 and 118 was $5.3 million with no related allowance and $46.3 million with $9.7 million of related allowance. ONB's policy for recognizing income on impaired loans is to accrue earnings unless a loan becomes nonaccrual. When loans are classified as nonaccrual, interest accrued during the current year is reversed against earnings; interest accrued in the prior year, if any, is charged to the allowance for loan losses. Cash received while a loan is classified nonaccrual is recorded to principal. For the six months ended June 30, 1999, the average balance of impaired loans was $50.0 million and $1.6 million of interest was recorded. ONB's consolidated loan portfolio is well diversified and contains no concentrations of credit in any particular industry exceeding 10% of its portfolio. ONB has minimal exposure to construction lending or leveraged buyouts and no exposure in credits to foreign or lesser-developed countries. Total deposits at June 30, 1999, increased $180.6 million or 3.9% compared to June 1998. Brokered CD's, included in other time, increased $85.7 million since June 1998. Since December 1998, 11 total deposits increased $135.4 million or 2.9% with brokered CD's increasing $146.4 million in this same period. Short-term borrowings, comprised of Federal funds purchased, securities sold under agreements to repurchase and other short- term borrowings, increased $231.1 million since June 1998 and $214.4 million since December 1998. Other borrowings, which is primarily debt from Federal Home Loan Banks, rose $249.4 million over June 1998 and $139.8 million over December 1998. Capital Total shareholders' equity increased $19.2 million since June 1998 and $9.6 million since December 1998. Accumulated other comprehensive income (loss), primarily net unrealized gain (loss) on investment securities, decreased $25.7 million since June 1998 and $29.1 million since December 1998. ONB's consolidated capital position remains strong as evidenced by the following comparisons of key industry ratios:
Regulatory Guidelines June 30, December 31, Minimum Well-Capitalized 1999 1998 1998 Risk-based capital: Tier 1 capital to total avg assets (leverage ratio) 4.00% 5.00% 7.78% 7.84% 7.94% Tier 1 capital to risk-adjusted total assets 4.00 6.00 11.47 11.88 11.40 Total capital to risk-adjusted total assets 8.00 10.00 13.17 13.65 13.11 Shareholders' equity to total assets N/A N/A 7.67 8.19 8.10
Each of ONB's affiliate banks have capital ratios which exceed regulatory minimum and well-capitalized guidelines. Liquidity and Asset/Liability Management ONB continually monitors its liquidity and actively manages its asset/liability position. The purpose of liquidity management is to match the sources of funds with anticipated customer borrowings and withdrawals and other obligations. The primary purpose of asset/liability management is to minimize the effect on net income of changes in interest rates and to maintain a prudent match within specified time periods of rate-sensitive assets and rate-sensitive liabilities. ONB also uses net interest income simulation modeling to better quantify the impact of potential interest rate fluctuations on net interest income. With this understanding, management can best determine possible balance sheet changes, pricing strategies, and appropriate levels of capital and liquidity which allow ONB to generate strong net interest income while controlling and monitoring interest rate risk. ONB simulates a gradual change in rates of 200 basis points up or down over 12 months and sustained for an additional 12 months. The policy limit for the maximum negative impact on net interest income over 12 months is 10%. At June 30, 1999 ONB was well within that limit as the model's fluctuation was under 2% for the first 12 months and less than 4% for the total 24 month period. Using static gap, ONB's rate-sensitive assets at June 30, 1999 were 58% of rate-sensitive liabilities in the 1-180 day maturity category and 64% in the 181-365 day category. These figures compared to 78% and 83% on December 31, 1998 and 78% and 83% on June 30, 1998. With strong loan demand and liabilities moving to shorter time horizons, the static gap percentages have decreased since year-end. Subsequent to June 30, ONB lengthened some of its liabilities. ONB's funds management committee meets bi-monthly to closely monitor and effect changes as needed in the consolidated rate-sensitivity position. 12 Year 2000 The national and local press have devoted much coverage to the Year 2000 ("Y2K") issue, also know as the "Millennium Bug". This refers to the possibility that some computers may be unable to recognize the date change at the turn of the century. With the high volume of transactions and electronic data, the banking industry requires extensive computer capabilities to serve its customers. With that in mind, ONB has devoted much attention to its systems to prepare itself for the millennial change. ONB has successfully completed its Y2K compliance testing of its mission-critical computer systems and its core processing systems used to serve its customers. Besides maintaining this status, ONB is managing its third party system relationships, updating disaster and contingency plans, and testing nonmission-critical software. Renovation and testing of software and hardware may not remove all risks related to Y2K. Alternative methods to perform key activities will be addressed through contingency planning. There has been no significant financial impact to ONB as a result of the Year 2000 project. ONB's 1998 Y2K expenses were less than $500 thousand. Much of ONB's software is externally generated with minimal internal software. Much of the software and hardware items have been changed, upgraded, or replaced in preparation for Y2K and have been part of the normal maintenance. While the company will continue testing and implementing secondary systems and replacing certain personal computers through 1999, it does not expect any material impact on earnings associated with these Y2K compliance efforts. Results of Operations Income from Continuing Operations Income from continuing operations for the six months ended June 30, 1999 was $41.3 million, a 14.1% increase from the same period 1998. Income from continuing operations for the second quarter of 1999 was up 16.9% over 1998. Basic net income from continuing operations per common share for the second quarter of 1999 and for the six months ended June 30, 1999 were $0.46 and $0.89, respectively. The company's return on average assets (ROA) for the second quarter of 1999 was 1.26% compared to 1.19% for 1998. Year-to- date ROA percentages were 1.25% in 1999 and 1.21% for 1998. Return on average equity (ROE) for the quarter and the first six months of 1999 were 16.07% and 16.01%, respectively, excluding unrealized security gains (losses). These compared favorably to 1998 ROE results of 14.60% and 14.78% for similar periods. Growth in net interest income and other income combined with a lower effective tax rate generated the net income improvements. Net Interest Income/Net Interest Margin (taxable equivalent basis) Year-to-date net interest income for 1999 was $125,845, a 6.1% increase over 1998. Net interest income for the second quarter of 1999 was $63,928 compared to $59,318 in 1998, a 7.8% increase over the prior year. The net interest margin for the second quarter was 4.03% and 4.20% for 1999 and 1998, respectively. The year-to-date net interest margin percentage in 1999 was 4.06% compared to 4.26% in 1998. The lower net interest margin resulted from the lower and flatter yield curve and our investment in bank-owned life insurance discussed in noninterest income. Increases in earning assets offset the declining yields to contribute to an improved net interest income. 13 Provision and Allowance for Loan Losses The provision for loan losses was $2.9 million in the second quarter of 1999 compared to $3.2 million in the second quarter of 1998. Year-to-date, the provision for loan losses of $5.7 million compared to $6.3 million in 1998. ONB's net charge-offs were 0.10% of average loans for the current quarter, compared to 0.23% in the second quarter of 1998. For the first six months, net charge-offs were 0.10% in 1999 compared to 0.19% in 1998. The allowance for loan losses is continually monitored and evaluated both within each affiliate bank and at the holding company level to provide adequate coverage for potential losses. ONB maintains a comprehensive loan review program to provide independent evaluations of loan administration, credit quality, loan documentation, and adequacy of the allowance for loan losses. The allowance for loan losses to end-of-period loans of 1.20% at June 30, 1999 compares to 1.26% in 1998. The allowance for loan losses covers all under-performing loans by 2.5 times at June 30, 1999 compared to 2.1 times at December 31, 1998. Noninterest Income Excluding securities gains (losses), noninterest income increased 14.7% in the three months ended June 30, 1999 as compared to the same period in 1998. For the first six months, this increase was 11.8%. Both increases were fueled by several factors. Trust fees were up 18.0% for the second quarter and 12.5% for the first six months due to continued development of new and current trust business. Income from bank-owned life insurance (BOLI) policies, purchased in March 1998, generated $1.2 million income in the second quarter and $2.3 million year-to-date. Insurance premiums and commissions increased 14.6% over 1998 for the quarter and 6.0% year-to-date. Investment product fees rose over 1998 in excess of 25% for the second quarter and 18.9% year-to-date. The security gains of $0.9 million for the quarter and $2.2 million year-to-date were taken to offset a similar level of non- recurring charges incurred in connection with the restructuring of ONB's banks into a single charter. Most other categories of noninterest income were comparable to last year's results. Noninterest Expense Noninterest expense increased 11.1% in the first quarter of 1999 compared to 1998 and 9.5% for the first six months. Salaries and benefits, together the largest individual component of noninterest expense, increased 12.2% in the second quarter of 1999 compared to 1998 and 9.7% year-to-date. Most of this increase was due to additional incentive accruals over prior year due to the increase in income. Other expense increased 16.9% over the second quarter of 1998 and 20.3% year-to-date. These increases, primarily professional fees were mainly related to the restructuring discussed previously. Most other categories of noninterest expense experienced relatively small changes between the years. Provision for Income Taxes The provision for income taxes, as a percentage of pre-tax income,decreased in the second quarter to 26.5% compared to 30.6% in 1998. For the first six months, this percentage was 27.1% for 1999 and 30.6% in 1998. Higher levels of BOLI income and other tax exempt income, as well as favorable state taxation developments, helped lower our effective rate in 1999. 14 PART II OTHER INFORMATION ITEM 1. Legal Proceedings NONE ITEM 2. Changes in Securities NONE ITEM 3. Defaults Upon Senior Securities NONE ITEM 4. Submission of Matters to a Vote of Security Holders NONE ITEM 5. Other Information NONE ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits as required by Item 601 of Regulation S-K. (27) Financial Data Schedule (b) ONB did not file a current report on Form 8-K during the quarter ended June 30, 1999. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OLD NATIONAL BANCORP (Registrant) By: s/s John S. Poelker John S. Poelker Senior Vice President Chief Financial Officer Date: August 13, 1999 16 INDEX OF EXHIBITS Regulation S-K Reference (Item 601) 27 Financial Data Schedule 17 EX-27 2
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OLD NATIONAL BANCORP'S JUNE 30, 1999 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 6-MOS DEC-31-1999 JUN-30-1999 176,077 10,035 0 0 1,778,328 0 0 4,676,619 56,271 6,898,420 4,804,255 720,715 74,511 769,653 0 0 46,159 483,127 6,898,420 185,164 51,284 697 237,145 87,571 119,199 117,946 5,697 2,240 13,457 56,601 41,262 3,483 0 44,745 .89 .87 4.06 15,259 4,418 171 129,817 51,847 4,850 2,577 56,271 56,271 0 0 DISCONTINUED OPERATIONS FROM CONTINUING OPERATIONS
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