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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 September 30, 2002
[ ] 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,
Evansville, Indiana 47708
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code, (812) 464-1434
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
60,463,619 shares outstanding at October 31, 2002.
OLD NATIONAL BANCORP
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
--------
Consolidated Balance Sheet
September 30, 2002 and 2001, and December 31, 2001 3
Consolidated Statement of Income
Three and nine months ended September 30, 2002 and 2001 4
Consolidated Statement of Cash Flows
Nine months ended September 30, 2002 and 2001 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18
Item 4. Controls and Procedures 18
PART II OTHER INFORMATION 19
SIGNATURES 20
FORM OF SECTION 302 CERTIFICATION 21
INDEX OF EXHIBITS 23
2
Old National Bancorp
Consolidated Balance Sheet
($ in thousands) (Unaudited)
September 30, December 31,
2002 2001 2001
----------- ----------- -----------
Assets
Cash and due from banks $ 218,192 $ 189,096 $ 224,663
Money market investments 21,819 18,004 71,703
Investment securities:
U.S. Treasury 5,383 5,396 5,300
U.S. Government agencies and corporations 1,944,882 1,317,397 1,527,561
Obligations of states and political subdivisions 710,063 594,049 594,557
Other 121,222 163,702 120,967
----------- ----------- -----------
Investment securities - available-for-sale, at fair value 2,781,550 2,080,544 2,248,385
----------- ----------- -----------
Loans:
Commercial 1,677,193 1,751,481 1,742,937
Commercial real estate 1,833,134 1,866,025 1,848,945
Residential real estate 1,253,267 1,584,740 1,477,180
Consumer credit, net of unearned income 1,062,666 1,063,894 1,063,792
----------- ----------- -----------
Total loans 5,826,260 6,266,140 6,132,854
Allowance for loan losses (86,146) (75,380) (74,241)
----------- ----------- -----------
NET LOANS 5,740,114 6,190,760 6,058,613
----------- ----------- -----------
Goodwill 95,165 84,261 82,772
Core deposit-related and other intangible assets 16,164 4,616 4,412
Other assets 453,483 376,485 389,925
----------- ----------- -----------
TOTAL ASSETS $ 9,326,487 $ 8,943,766 $ 9,080,473
=========== =========== ===========
Liabilities
Deposits:
Noninterest-bearing demand $ 724,551 $ 691,254 $ 733,814
Interest-bearing:
Savings, NOW and money market 2,288,539 2,106,145 2,206,161
Time deposits 3,288,828 3,671,946 3,676,465
----------- ----------- -----------
TOTAL DEPOSITS 6,301,918 6,469,345 6,616,440
Short-term borrowings 857,074 734,811 602,312
Guaranteed preferred beneficial interests in
subordinated debentures 150,000 50,000 50,000
Other borrowings 1,189,144 951,396 1,083,046
Accrued expenses and other liabilities 100,475 87,627 89,440
----------- ----------- -----------
TOTAL LIABILITIES 8,598,611 8,293,179 8,441,238
----------- ----------- -----------
Shareholders' Equity
Common stock, $1 stated value, 150,000 shares authorized 60,694 58,560 61,174
Capital surplus 460,507 413,812 472,467
Retained earnings 149,904 144,945 91,062
Accumulated other comprehensive income, net of tax 56,771 33,270 14,532
----------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY 727,876 650,587 639,235
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,326,487 $ 8,943,766 $ 9,080,473
=========== =========== ===========
The accompanying notes are an integral part of this statement.
3
Old National Bancorp
Consolidated Statement of Income Three Months Ended Nine Months Ended
($ and shares in thousands, except per share data) September 30, September 30,
(Unaudited) 2002 2001 2002 2001
-------- -------- -------- --------
Interest Income
Loans, including fees:
Taxable $ 95,909 $122,764 $299,407 $382,323
Nontaxable 4,362 4,207 13,139 11,871
Investment securities:
Taxable 28,046 21,571 81,018 67,083
Nontaxable 7,871 6,997 22,490 20,590
Money market investments 89 201 277 668
-------- -------- -------- --------
TOTAL INTEREST INCOME 136,277 155,740 416,331 482,535
-------- -------- -------- --------
Interest Expense
Savings, NOW and money market deposits 8,193 11,801 23,207 39,689
Time deposits 38,108 50,935 120,224 159,725
Short-term borrowings 3,296 4,559 8,083 19,253
Other borrowings 15,113 15,020 45,439 47,024
-------- -------- -------- --------
TOTAL INTEREST EXPENSE 64,710 82,315 196,953 265,691
-------- -------- -------- --------
NET INTEREST INCOME 71,567 73,425 219,378 216,844
Provision for loan losses 11,000 7,400 26,000 17,400
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 60,567 66,025 193,378 199,444
-------- -------- -------- --------
Noninterest Income
Trust and asset management fees 7,264 4,960 17,337 15,580
Service charges on deposit accounts 10,792 9,918 30,345 30,006
Mortgage banking revenue 3,946 2,704 10,023 6,272
Insurance premiums and commissions 3,289 3,204 11,673 10,043
Investment product fees 2,526 1,524 6,376 5,021
Bank-owned life insurance income 2,190 1,320 6,028 3,871
Net securities gains 5,813 745 8,335 1,758
Gain on branch divestitures 12,473 -- 12,473 --
Other income 4,219 2,950 11,553 9,302
-------- -------- -------- --------
TOTAL NONINTEREST INCOME 52,512 27,325 114,143 81,853
-------- -------- -------- --------
Noninterest Expense
Salaries and employee benefits 38,683 34,041 109,734 104,398
Occupancy 4,159 3,938 11,837 11,839
Equipment 3,681 3,836 11,342 12,300
Marketing 3,174 1,393 7,581 5,858
FDIC insurance premiums 284 295 860 929
Processing 3,979 2,601 9,713 7,818
Communication and transportation 2,957 2,620 8,908 8,156
Professional fees 2,102 1,217 6,351 5,001
Other expenses 7,710 8,699 22,212 26,410
Merger and restructuring costs -- -- -- 9,703
-------- -------- -------- --------
TOTAL NONINTEREST EXPENSE 66,729 58,640 188,538 192,412
-------- -------- -------- --------
Income before income taxes 46,350 34,710 118,983 88,885
Provision for income taxes 11,521 8,577 27,780 20,568
-------- -------- -------- --------
Net Income $ 34,829 $ 26,133 $ 91,203 $ 68,317
======== ======== ======== ========
Net income per common share:
Basic $ 0.57 $ 0.42 $ 1.49 $ 1.09
Diluted $ 0.57 $ 0.42 $ 1.49 $ 1.09
Weighted average number of common shares outstanding:
Basic 60,858 61,729 61,049 62,410
Diluted 61,024 61,819 61,186 62,504
Dividends per common share $ 0.19 $ 0.16 $ 0.53 $ 0.48
The accompanying notes are an integral part of this statement.
4
Old National Bancorp
Consolidated Statement of Cash Flows
($ in thousands) (Unaudited) Nine Months Ended
September 30,
2002 2001
----------- -----------
Cash flows from operating activities:
Net income $ 91,203 $ 68,317
----------- -----------
Adjustments to reconcile net income to cash provided by (used in) operating
activities:
Depreciation 9,245 10,169
Amortization of intangible assets 823 5,243
Net premium amortization on investment securities 4,591 406
Provision for loan losses 26,000 17,400
Gain on sale of investment securities (8,335) (1,758)
Gain on branch divestitures (12,473) --
Loss on sale of assets 175 480
Residential real estate loans originated for sale (481,770) (519,204)
Proceeds from sale of mortgage loans 483,294 519,674
Increase in other assets (58,940) (14,008)
Decrease in accrued expenses and other liabilities (14,659) (16,430)
----------- -----------
Total adjustments (52,049) 1,972
----------- -----------
Net cash flows provided by operating activities 39,154 70,289
----------- -----------
Cash flows from investing activities:
Purchase of investment securities available-for-sale (1,516,028) (1,029,107)
Proceeds from maturities and paydowns of investment securities
available-for-sale 489,682 636,749
Proceeds from sales of investment securities available-for-sale 565,577 177,990
Purchase of subsidiary, net of cash acquired (26,571) --
Payments related to branch divestitures (82,160) --
Net principal collected from (loans made to) customers:
Commercial 34,890 (155,682)
Mortgage 176,442 249,709
Consumer (22,582) (28,775)
Proceeds from sale of premises and equipment 1,630 1,041
Purchase of premises and equipment (20,139) (3,598)
----------- -----------
Net cash flows used in investing activities (399,259) (151,673)
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in:
Noninterest bearing demand 4,862 (20,159)
Savings, NOW and Money Market Accounts 151,193 24,631
Time deposits (268,364) (119,523)
Short-term borrowings 254,762 174,988
Other borrowings 46,098 87,762
Proceeds from the issue of long-term debt 60,000 --
Proceeds from guaranteed preferred beneficial interests in subordinated
debentures 100,000 --
Cash dividends paid (32,350) (30,243)
Common stock repurchased (18,822) (47,225)
Common stock reissued, net of shares used to convert subordinated debentures 6,371 2,104
----------- -----------
Net cash flows provided by financing activities 303,750 72,335
----------- -----------
Net decrease in cash and cash equivalents (56,355) (9,049)
Cash and cash equivalents at beginning of period 296,366 216,149
----------- -----------
Cash and cash equivalents at end of period $ 240,011 $ 207,100
=========== ===========
Total interest paid $ 202,693 $ 267,599
Total taxes paid $ 21,730 $ 19,111
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 unaudited consolidated financial statements include the
accounts of Old National Bancorp and its affiliate entities ("Old National").
All significant intercompany transactions and balances have been eliminated. In
the opinion of management, the consolidated financial statements contain all the
normal and recurring adjustments necessary for a fair statement of the financial
position of Old National as of September 30, 2002 and 2001 and December 31,
2001, and the results of its operations for the three and nine months ended
September 30, 2002 and 2001 and its cash flows for the nine months ended
September 30, 2002 and 2001. Interim results do not necessarily represent annual
results.
2. Impact of Accounting Changes
In June 2001, the Financial Accounting Standards Board issued Statement No. 141,
"Business Combinations" ("Statement 141"), and Statement No. 142, "Goodwill and
Other Intangible Assets" ("Statement 142"). Statement 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Statement 141 also specifies the criteria for intangible
assets acquired in a purchase method business combination to be recognized and
reported apart from goodwill. Statement 142 requires companies to no longer
amortize goodwill and intangible assets with indefinite useful lives, but to
instead test those assets for impairment at least annually in accordance with
the provisions of Statement 142. Under Statement 142, intangible assets with
definite useful lives continue to be amortized over their respective estimated
useful lives to their estimated residual values.
Old National adopted the provisions of Statement 142 effective January 1, 2002.
As of the date of adoption, Old National had unamortized goodwill in the amount
of $82.8 million, and unamortized identifiable intangible assets in the amount
of $4.4 million, all of which were subject to the transition provisions of
Statements 141 and 142. As part of its adoption of Statement 142, Old National
performed a transitional impairment test on its goodwill assets, which indicated
no impairment charge was required. As of the date of transition, Old National
had no indefinite-lived intangible assets recorded in its statement of financial
condition. In addition, no material reclassifications or adjustments to the
useful lives of definite-lived intangible assets were made as a result of
adopting the new guidance. At September 30, 2002, the impact is an increase in
net income of approximately $4.1 million or approximately $0.07 per share as a
result of Old National no longer amortizing goodwill against earnings. The
following table is a reconciliation of net income and earnings per share
excluding goodwill amortization for the three and nine months periods ended
September 30, 2001:
($ in thousands except per share data)
For the Three Months For the Nine Months
Ended September 30, 2001 Ended September 30, 2001
------------------------ ------------------------
Net Earnings Net Earnings
Income Per Share Income Per Share
------ --------- ------ ---------
Basic earnings per common share computation:
Reported net income $26,133 $ 0.42 $68,317 $ 1.09
Add back goodwill amortization 1,343 .03 4,077 .07
------- -------- ------- --------
Adjusted net income/Earnings per share $27,476 $ 0.45 $72,394 $ 1.16
======= ======== ======= ========
Diluted earnings per common share computation:
Reported net income $26,133 $ 0.42 $68,317 $ 1.09
Add back goodwill amortization 1,343 .03 4,077 .07
------- -------- ------- --------
Adjusted net income/Earnings per share $27,476 $ 0.45 $72,394 $ 1.16
======= ======== ======= ========
Refer to note 6 of the notes to consolidated financial statements for additional
information regarding goodwill and intangible assets as of September 30, 2002.
6
3. Acquisition and Divestiture Activity
On July 1, 2002, Old National completed the purchase of Fund Evaluation Group,
Inc. ("FEG"), a Cincinnati, Ohio-based investment consulting firm. The
transaction was accounted for as a purchase in accordance with Statement of
Financial Accounting Standards No. 141. Definite-lived intangible assets of $9.0
million were recorded from this purchase, which are being amortized over ranges
of 4 to 40 years. An indefinite-lived intangible asset of $2.8 million was also
recorded. In addition, goodwill of $12.6 million was recorded from the
acquisition. As of June 30, 2002, FEG's unaudited financial statements reflected
$3.0 million in total assets and net income for the six months then ended of
$440 thousand.
During the quarter ended September 30, 2002, Old National finalized sales of
eight of its branches. The pre-tax gain on the sales totaling $12.5 million is
recorded in continuing operations.
4. Net Income Per Share
Net income per common share computations are based on the weighted average
number of common shares outstanding during the periods presented. A 5% stock
dividend was paid January 25, 2002 to shareholders of record on January 4, 2002.
All share and per share data presented herein have been restated for the effects
of the stock dividend. Diluted earnings per share reflects additional common
shares that would have been outstanding if dilutive potential common shares had
been issued, as well as any adjustment to income that would result from the
assumed issuance.
Earnings Per Share Reconciliation
($ and shares in thousands except per share data)
Three Three
Months Ended Months Ended
September 30, 2002 September 30, 2001
------------------ ------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
--------------------------------------------------------------------------
Basic EPS
- ---------
Net income from continuing
operations available to
common stockholders $34,829 60,858 $ 0.57 $ 26,133 61,729 $ 0.42
======== ========
Effect of dilutive
securities:
Stock options -- 166 -- 90
------- ------- -------- --------
Diluted EPS
- -----------
Net income from continuing
operations available to
common stockholders
+ assumed conversions $34,829 61,024 $ 0.57 $ 26,133 61,819 $ 0.42
======= ======= ======== ======== ======== ========
7
Nine Nine
Months Ended Months Ended
September 30, 2002 September 30, 2001
------------------ ------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
--------------------------------------------------------------------------
Basic EPS
- ---------
Net income from continuing
operations available to
common stockholders $91,203 61,049 $ 1.49 $ 68,317 62,410 $ 1.09
======== ========
Effect of dilutive
securities:
Stock options -- 137 -- 94
------- ------- -------- --------
Diluted EPS
- -----------
Net income from continuing
operations available to
common stockholders
+ assumed conversions $91,203 61,186 $ 1.49 $ 68,317 62,504 $ 1.09
======= ======= ======== ======== ======== ========
5. Investment Securities
The market value and amortized cost of investment securities as of September 30,
2002, are set forth below:
($ in thousands)
Market Value Amortized Cost Unrealized Gain
------------ -------------- ---------------
Available-for-sale $2,781,550 $2,686,794 $ 94,756
========== ========== ========
6. Goodwill and Intangible Assets
At September 30, 2002 and 2001, Old National had goodwill in the amount of $95.2
million and $84.3 million, respectively. Old National is currently in the
process of performing its annual impairment testing. While the work will be
formally completed by year-end, Old National believes that it will have no
impairment adjustments to goodwill and intangible balances. The changes in the
carrying amount of goodwill by segment for the nine month period ended September
30, 2002, are as follows:
($ in thousands)
Community Non-bank
Banking Services Total
------- -------- -----
Balance as of January 1, 2002 $70,944 $11,828 $82,772
Goodwill acquired during the year - 12,643 12,643
Goodwill related to divestitures - (250) (250)
------- ------- -------
Balance as of September 30, 2002 $70,944 $24,221 $95,165
======= ======= =======
Old National continues to amortize core deposit-related and other definite-lived
intangible assets over the estimated remaining life of each respective asset. At
September 30, 2002, Old National had $16.2 million in unamortized identifiable
intangible assets, which included $2.8 million of indefinite-lived assets. At
September 30, 2001, unamortized identifiable intangible assets were $4.6
million. Total amortization expense associated with intangible assets in the
third quarter of 2002 and 2001 was $350 thousand and $208 thousand,
respectively. Below is the estimated amortization expense for the future years:
8
For the years ended:
($ in thousands)
2003 $1,409
2004 1,355
2005 1,293
2006 1,076
2007 633
7. Borrowings
Other borrowings consisted of the following:
($ in thousands)
September 30, September 30,
2002 2001
---- ----
Old National Bancorp:
Medium-term notes, Series A (fixed rate 6.96%) - maturing March 2003 $ 5,000 $ 23,000
Medium-term notes, Series 1997 (fixed rates 6.40% to 7.03%) - maturities
March 2003 to November 2007 53,200 59,300
Old National Bank:
Securities sold under agreements to repurchase (fixed rate 2.36% and
variable rates 2.84% to 3.22%) - maturities September 2003 to May 2008 83,000 83,000
Federal Home Loan Bank advances (fixed rates 3.59% to 7.30% and variable
rates 1.78% to 3.69%) - maturities November 2002 to October 2019 837,944 786,096
Senior unsecured bank notes (variable rates 2.01% to 2.08%) - maturities
June 2004 to June 2006 60,000 -
Subordinated bank notes (fixed rate 6.75%) - maturing October 2011 150,000 -
----------- -----------
Total other borrowings $ 1,189,144 $ 951,396
=========== ===========
Federal Home Loan Bank advances had weighted average rates of 5.46% and 5.98% at
September 30, 2002 and 2001, respectively. These borrowings are secured by
investment securities and mortgage loans up to 150% of outstanding debt.
Subordinated bank notes qualify as Tier II 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.
Old National Bancorp has $25 million in an unsecured line of credit with an
unaffiliated bank. This line of credit includes various arrangements to maintain
compensating balances or pay fees. As of September 30, 2002 and 2001, there were
no borrowings under this line.
The contractual maturities of long-term debt as of September 30, 2002 are as
follows:
($ in thousands)
Guaranteed Preferred
Other Beneficial Interest in
Borrowings Subordinated Debentures Total
---------- ----------------------- -----
Due in 2002 $ 11,000 $ - $ 11,000
Due in 2003 184,230 - 184,230
Due in 2004 256,700 - 256,700
Due in 2005 145,053 - 145,053
Due in 2006 72,442 - 72,442
Thereafter 519,719 150,000 669,719
---------- -------- ----------
Total $1,189,144 $150,000 $1,339,144
========== ======== ==========
9
8. Guaranteed Preferred Beneficial Interests in Subordinated Debentures
During April 2002, Old National issued $100 million of trust preferred
securities through a subsidiary, ONB Capital Trust II. The trust 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. As guarantor, Old National unconditionally guarantees payment of
accrued and unpaid distributions required to be paid on the trust preferred
securities, the redemption price when a trust preferred security is called for
redemption, and amounts due if a trust is liquidated or terminated.
During March 2000, Old National issued $50 million of trust preferred securities
through a subsidiary, ONB Capital Trust I. The trust preferred securities have a
liquidation amount of $25 per share with a cumulative annual distribution rate
of 9.5%, or $2.375 per share, payable quarterly, and maturing on March 15, 2030.
Old National may redeem the subordinated debentures and thereby cause a
redemption of the trust preferred securities in whole (or in part from time to
time) on or after March 15, 2005 (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.
Costs associated with the issuance of the trust preferred securities totaling
$3.3 million in 2002 and $1.8 million in 2000, were capitalized and are being
amortized through the maturity date of the securities. The unamortized balance
is included in other assets in the consolidated balance sheet.
9. Interest Rate Contracts
Old National adopted Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities", as amended
by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an Amendment of FASB Statement No. 133" on January 1, 2001.
A $35 thousand reduction to current income was recorded as a transition
adjustment.
Old National designates its derivatives based upon criteria established by SFAS
No. 133. For a derivative designated as a fair value hedge, the derivative is
recorded at fair value on the consolidated balance sheet. The change in fair
value of the derivative and hedged item (related to the hedged risk) along with
any ineffectiveness of the hedge is recorded in current earnings. For a
derivative designated as a cash flow hedge, the effective portion of the
derivative's gain or loss is initially reported as a component of accumulated
other comprehensive income (loss) and subsequently reclassified into earnings
when the hedged exposure affects earnings. The ineffective portion of the gain
or loss is reported in earnings immediately.
Old National uses interest rate contracts such as interest swaps to manage its
interest rate risk. These contracts are designated as hedges of specific assets
and liabilities. The net interest 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 September 30, 2002, Old National had interest rate swaps with a notional
value of $535 million. The contracts are an exchange of interest payments with
no effect on the principal amounts of the underlying hedged liabilities. The
fair value of the swaps was $25.2 million as of September 30, 2002. Old National
pays the counterparty a variable rate based on LIBOR and receives fixed rates
ranging from 2.73% to 9.50%. The contracts terminate on or prior to April 2032.
During 2001, Old National entered into an interest rate swap with a notional
value of $75 million for a forecasted issuance of debt. The transaction was
designated as a cash flow hedge with the effective portion of the derivative's
loss initially reported as a component of accumulated other comprehensive income
(loss). Upon termination of the derivative, the loss on the interest rate swap
of approximately $1.5 million is being reclassified into earnings as a yield
adjustment over the 10-year term of the $150 million 6.75% fixed-rate
subordinated bank notes issued on October 5, 2001.
10
Old National is exposed to losses if a counterparty fails to make its payments
under a contract in which Old National is in the net receiving position.
Although collateral or other security is not always obtained, Old National
minimizes its credit risk by monitoring the credit standing of the
counterparties and anticipates that the counterparties will be able to fully
satisfy their obligation under the agreements.
10. Comprehensive Income
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
--------- --------- --------- ---------
($ in thousands)
Net income $ 34,829 $ 26,133 $ 91,203 $ 68,317
Unrealized gains (losses)
on securities:
Unrealized holding gains
arising during period, net of tax 22,955 14,379 47,192 33,846
Less: reclassification adjustment
for securities gains
realized in net income, net of tax (3,545) (454) (5,084) (1,072)
Cash flow hedges:
Net derivative gains (losses), net of tax 43 (1,458) 131 (1,458)
--------- --------- --------- ---------
Net unrealized gains 19,453 12,467 42,239 31,316
--------- --------- --------- ---------
Comprehensive income $ 54,282 $ 38,600 $ 133,442 $ 99,633
========= ========= ========= =========
11. Segment Data
Old National has been divided into three reportable segments: community banking,
non-bank services and treasury. Our community banks provide a wide range of
banking services. Our non-bank services segment combines the management and
operations of trust, asset management, insurance brokerage and investment and
annuity sales. Treasury manages investments and interest rate risk and obtains
non-deposit funding. Intersegment sales and transfers are not significant.
Summarized financial information concerning segments is shown in the following
table, based on continuing operations. The "Other" column includes corporate
overhead and intercompany eliminations. The "Other" column also includes segment
noninterest income of $12.5 million pre-tax gain and segment profit of $8.3
million after-tax gain related to the bank divestitures as discussed in footnote
3.
($ in thousands)
Community Non-bank
Nine months ended September 30, 2002 Banking Services Treasury Other Total
- ------------------------------------ ------- -------- -------- ----- -----
Net interest income $ 222,820 $ 1,118 $ (6,285) $ 1,725 $ 219,378
Provision for loan losses 26,000 -- -- -- 26,000
Noninterest income 54,931 30,034 12,976 16,202 114,143
Noninterest expense 159,395 30,106 139 (1,102) 188,538
Income tax expense (benefit) 32,066 363 (5,535) 886 27,780
Segment profit 60,290 683 12,087 18,143 91,203
Total assets $5,985,813 $27,531 $3,157,395 $155,748 $9,326,487
11
($ in thousands)
Community Non-bank
Nine months ended September 30, 2001 Banking Services Treasury Other Total
- ------------------------------------ ------- -------- -------- ----- -----
Net interest income $ 209,264 $ 944 $ 4,657 $ 1,979 $ 216,844
Provision for loan losses 17,400 -- -- -- 17,400
Noninterest income 46,667 24,454 5,717 5,015 81,853
Noninterest expense 160,229 25,503 -- 6,680 192,412
Income tax expense (benefit) 27,186 (36) (2,829) (3,753) 20,568
Segment profit (loss) 51,116 (69) 13,203 4,067 68,317
Total assets $6,534,752 $ 22,137 $2,285,501 $101,376 $8,943,766
12. Merger and Restructuring Charges
During the second quarter of 2001, Old National announced that it would further
restructure its regional banking administrative structure and incur additional
expenses in the consolidation of ANB Corporation, which it acquired in the first
quarter of 2000. The restructuring of the banking operations involved
consolidating the administrative structure of the banking franchise from six
regions into three regions and the closure or sale of up to 10 branches.
Approximately 100 positions were eliminated and the charges associated with
severance, facilities and equipment write-offs were $7.7 million. The operations
and management integration plan was finalized for the ANB acquisition and
additional charges of $2.0 million for personnel costs and costs of
consolidating the operation function of the Trust business were recorded. The
remaining accrual of these restructuring charges was $1.3 million as of
September 30, 2002.
The components of the charges are shown below:
($ in thousands)
Nine months ended
September 30,
2001
-----------------
Severance and related costs $6,477
Fixed asset write-downs 2,047
Professional fees 428
Other 751
------
Included in noninterest expense $9,703
======
13. Stock Options
On January 22, 2002, Old National granted 1.8 million stock options to key
employees at an option price of $23.83, the closing price of Old National's
stock on that date. On June 27, 2001, Old National granted 1.5 million stock
options to key employees at an option price of $25.13, 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 can grant up to 6.6 million shares of
common stock under the 1999 Equity Incentive Plan. Under this plan, active
employees with unvested restricted stock shares could exchange those shares for
stock options by August 27, 2001. On that date, 36,468 restricted stock shares
were converted to stock options. Options have been accounted for in accordance
with APB Opinion No. 25 and related Interpretations. Accordingly, no
compensation costs have been recognized.
12
14. Commitments
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 2004. On October 2, 2002, Old National entered
into an agreement to borrow $60 million in Federal Home Loan Bank advances at a
fixed rate of 4.92% maturing in October 2022 to fund the construction of the
building and related expenses.
15. Reclassifications
Certain prior year amounts have been restated to conform with the 2002
presentation. Such reclassifications had no effect on net income.
13
PART I. FINANCIAL INFORMATION
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following Management's Discussion and Analysis is presented to provide
information concerning the financial condition of Old National as of September
30, 2002, as compared to September 30, 2001 and December 31, 2001, and the
results of operations for the three and nine months ended September 30, 2002 and
2001. Management's forward-looking statements are intended to benefit the
reader, but are subject to various risks and uncertainties which may cause
actual results to differ materially, including but not limited to: (1) economic
conditions generally and in the financial services industry; (2) increased
competition in the financial services industry; (3) actions by the Federal
Reserve Board and changes in interest rates; and (4) governmental legislation
and regulation.
Financial Condition
Old National's assets at September 30, 2002, were $9.3 billion, a 4.3% increase
since September 2001 and a 3.6% increase since December 2001. Earning assets,
which consist primarily of money market investments, investment securities and
loans, grew 3.2% over the prior year. During the past year, the mix of earning
assets reflected a decrease in loans of 7.0% while money market investments and
investment securities increased a combined 33.6%. Since December 2001, earning
assets increased 2.8% with loans decreasing 6.7% and investment securities and
money market investments increasing 27.8%. Commercial real estate loans have
decreased 1.8% over prior year and 1.1% since December 2001. Commercial loans
have decreased 4.2% over prior year and 5.0% since December 2001. Residential
real estate loans have decreased 20.9% from prior year and 20.2% from December
2001 primarily due to sales or securitizations of existing and recently
originated fixed-rate mortgages. These results include the effects of the sale
of eight branches as discussed under the "Results of Operations", which
decreased total loans by $107.3 million.
At September 30, 2002, total under-performing assets (defined as loans 90 days
or more past due, nonaccrual and restructured loans and foreclosed properties)
decreased to $80.5 million from $85.5 million as of December 31, 2001. As of
these dates, under-performing assets in total were 1.38% and 1.39%,
respectively, of total loans and foreclosed properties. While total
under-performing assets showed a slight decrease during this period, the
composition of the under-performing changed.
Nonaccrual loans increased $27.3 million since December 31, 2001. The majority
of this increase came in the third quarter and resulted from two areas. A third
quarter internal policy change of placing into nonaccrual 1-4 family residential
real estate secured loans that are 90 days or more past due has, in part,
contributed to an increase of $7.3 million in nonaccrual loans in this business
line segment. In addition, in the third quarter, one commercial borrowing
relationship of approximately $14 million was moved to nonaccrual status.
With regard to the decrease in restructured loans since December 31, 2001, the
loans removed were loans related to the lodging/accommodation industry where
only payment terms had been modified and, accordingly, were required to be
reported as restructured only in one fiscal year period.
The decrease in 90 days or more past due loans since December 31, 2001, was due,
in part, to the change in policy regarding 1-4 family residential real estate
secured loans referenced above.
($ in thousands) September 30, December 31,
2002 2001
------------- ------------
Nonaccrual loans $65,155 $37,894
Restructured loans -- 25,871
Foreclosed properties 9,023 9,204
------- -------
Total non-performing assets 74,178 72,969
Past due 90 days or more, still accruing 6,344 12,580
------- -------
Total under-performing assets $80,522 $85,549
======= =======
Under-performing assets as a % of total
Loans and foreclosed properties 1.38% 1.39%
======= =======
14
As of September 30, 2002, the recorded investment in loans for which impairment
has been recognized in accordance with SFAS Nos. 114 and 118 was $ 30.1 million
with no related allowance and $247.3 million with $64.2 million of related
allowance.
Old National's policy for recognizing income on impaired loans is to accrue
earnings unless a loan becomes nonaccrual. A loan is generally placed on
nonaccrual status when principal or interest becomes 90 days past due unless it
is well secured and in the process of collection, or earlier when concern exists
as to the ultimate collectibility of principal or interest. 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 nine months ended September 30, 2002, the average balance of impaired
loans was $235.2 million and $10.6 million of interest was recorded.
Old National's consolidated loan portfolio is well diversified. The only
concentration of credit in any particular industry exceeding 10% of its
portfolio was in real estate rental and leasing which comprised 14.3% of total
loans at September 30, 2002. Old National has minimal exposure to construction
lending or leveraged buyouts and no exposure in credits to foreign or
lesser-developed countries.
Total deposits at September 30, 2002 decreased $167.4 million or 2.6% compared
to September 2001. Brokered certificates of deposit, included in time deposits,
decreased $282.7 million since September 2001. Since December 31, 2001, total
deposits decreased $314.5 million or 6.3% with brokered certificates of deposit
decreasing $245.1 million in this same period. These results include the effects
of the sale of eight branches as discussed under the "Results of Operations",
which decreased total deposits by $202.9 million. Excluding this effect, total
deposits increased by 0.5% since prior year and decreased by 1.7% since December
31, 2001.
Short-term borrowings, comprised of federal funds purchased, securities sold
under agreements to repurchase and other short-term borrowings, increased $122.3
million since September 2001 and increased $254.8 million since December 2001.
Other borrowings, which is primarily advances from Federal Home Loan Banks and
subordinated bank notes, increased $237.7 million over September 2001 and
increased $106.1 million over December 2001. The increase in short-term
borrowings and other borrowings since September 2001 and December 2001 was
primarily to finance asset growth and refinance the decline in time deposits,
mostly brokered certificates of deposit. The growth in other borrowings was
primarily in the form of senior and subordinated bank notes issued under Old
National's global note program.
Capital
Total shareholders' equity increased $77.3 million since September 2001 and
$88.6 million since December 2001. Accumulated other comprehensive income,
primarily net unrealized gain on investment securities, increased $23.5 million
since September 2001 and increased $42.2 million since December 2001.
Old National's consolidated capital position remains strong as evidenced by the
following comparisons of key industry ratios:
Regulatory Guidelines September 30, December 31,
---------------------------- ------------------ --------------
Minimum Well-Capitalized 2002 2001 2001
---------- ---------------- ---- ---- ----
Risk-based capital:
Tier 1 capital to total avg assets (leverage ratio) 4.00% 5.00% 7.69% 6.61% 6.58%
Tier 1 capital to risk-adjusted total assets 4.00 6.00 11.27 9.16 9.28
Total capital to risk-adjusted total assets 8.00 10.00 14.91 10.35 12.83
Shareholders' equity to total assets N/A N/A 7.80 7.27 7.04
Asset/Liability Management
Old National uses two modeling techniques to quantify the impact of changing
interest rates on the company, Net Interest Income at Risk and Market 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
Market Value of Equity is more useful for long term interest rate risk.
15
Old National models interest rate risk in many possible interest rate
environments. Old National Bancorp's board of directors, through its Funds
Management Committee, establishes policy guidelines for the allowable change in
cumulative net interest income over a two year period and the change in Market
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. As of September
30, 2002, Old National projects that in a -200 basis point shock to interest
rates net interest income would be down 6.23% cumulative over the next two
years. In a +200 basis point shock to interest rates Old National projects net
interest income would be up 2.61% cumulative over the next two years. The
current guideline for the allowable fluctuation in Market Value of Equity is +/-
12% in a 200 basis point shock to the yield curve. As of September 30, 2002, Old
National projects Market Value of Equity to decrease by 17.5% in a -200 basis
point shock to interest rates and to increase by 2.7% in a +200 basis point
shock.
Several factors contributed to Old National's increased sensitivity to interest
rates during the third quarter of 2002. Significantly lower interest rates,
particularly in the two to ten year segment of the yield curve, shortened the
expected duration of residential mortgage assets in loan and investment
portfolios. Additionally, Old National experienced significant growth in demand
and NOW deposits and savings accounts, its longest duration sources of core
funding. While the current risk position is outside current guidelines in the
- -200 basis point shock, executive management and the Funds Management Committee
believe this is an acceptable interest rate risk position in the current
extraordinarily low interest rate environment.
Results of Operations
Net Income
Net income for the quarter ended September 30, 2002 was $34.8 million, including
a gain on branch divestitures as described below, compared to $26.1 million for
the same quarter last year. Year-to-date net income, was $91.2 million for 2002,
including the gain on branch divestitures, and $68.3 million for 2001, which
includes merger and restructuring costs as discussed below. Diluted earnings per
common share were $0.57 for the quarter compared to $0.42 for the same period of
the prior year. Diluted earnings per share for the nine months ended were $1.49
for 2002 compared to $1.09 for 2001.
During the third quarter of 2002, Old National closed the sales of eight
branches located in markets no longer considered consistent with the company's
strategy. The sold branches had total deposits of $202.9 million and total loans
of $107.3 million. The sales resulted in a pre-tax gain of $12.5 million and an
after-tax gain of $8.3 million.
The 2001 year-to-date results included $9.7 million of merger and restructuring
charges related to the realignment of the banking operations administrative
structure recorded in the second quarter. This includes $6.5 million of
severance and employee-related costs, $2.1 million of fixed asset write downs
and $1.1 million of other costs.
Return on average assets (ROA) for the quarter was 1.49% for 2002 and 1.18% for
2001. Return on equity (ROE) for the quarter was 20.74% for 2002 and 16.88% for
2001. Year-to-date, ROA was 1.32% in 2002 compared to 1.03% in 2001 and ROE was
18.56% for 2002 and 14.62% for 2001.
A portion of the improvement in net income resulted from Old National's
adoption, on January 1, 2002, of Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("Statement 142"). Statement 142
requires companies to no longer amortize goodwill and intangible assets with
indefinite useful lives, but instead test these assets for impairment at least
annually in accordance with the provisions of Statement 142. The impact to third
quarter earnings of adopting Statement 142 and no longer amortizing goodwill
against earnings was an increase in net income of approximately $1.3 million or
$0.03 per share when compared to the same period in 2001. The year-to-date
impact to earnings was $4.1 million or $0.07 per share. The full impact of
adopting Statement 142 is expected to result in an increase in net income of
approximately $5.4 million or $0.09 per share in 2002.
Net Interest Income/Net Interest Margin (taxable equivalent basis)
Third quarter net interest income for 2002 was $78.0 million, a 1.2% decrease
from the same quarter last year. The net interest margin for the third quarter
was 3.60% for 2002 compared to 3.82% for 2001. The decrease in net interest
margin relates to continued weakness in loan demand and the related increase in
the investment portfolio at lower yields than are normally available for
commercial and consumer loans. Year-to-date net interest income for 2002 was
$237.9 million, a 2.3% increase over 2001. The net interest margin for the nine
months ended was 3.70% for 2002 compared to 3.76% for 2001. Net interest margin
is not expected to improve in the near future if the economic conditions
continue to result in weak loan demand and low interest rates.
16
Provision and Allowance for Loan Losses
The provision for loan losses was $11.0 million for the quarter compared to $7.4
million for the same quarter in 2001. The increase in the quarter was primarily
due to recognition of a slowdown in the pace of the current economic recovery in
the geographical areas served by the company. Credit quality continues to be a
significant variable in the earnings of the company. Old National does not see
any indicators of improvement in economic conditions, which would have a
positive impact on the credit portfolio. The year-to-date provision for loan
losses was $26.0 million for 2002 compared to $17.4 million for 2001. Old
National's net charge-offs were 0.39% of average loans for the current quarter,
compared to 0.42% in the same quarter of 2001. Net charge-offs ratio
year-to-date was 0.32% for 2002 and 0.34% for 2001.
The allowance for loan losses is continually monitored and evaluated at the
holding company level to provide adequate coverage for probable losses inherent
in the portfolio at the balance sheet date. Old National maintains a
comprehensive loan review program to provide independent evaluations of loan
administration, credit quality, loan documentation, and adequacy of the
allowance for loan losses. The allowance for loan losses to end-of-period loans
was 1.48% at September 30, 2002 compared to 1.20% in 2001. The allowance for
loan losses covers all under-performing loans by 1.2 times at September 30, 2002
and 1.0 times at December 31, 2001.
Noninterest Income
Excluding the gain on branch divestitures and gains on sales of securities,
noninterest income increased 28.8% over the third quarter of 2001 and
year-to-date 16.5% over the same period in 2001. A major contributor to this
strong performance continues to be mortgage banking revenue, which increased
$1.3 million or 48.4% compared to second quarter of 2002. For the year-to-date,
mortgage-related revenue increased $3.8 million or 59.8%. Bank-owned life
insurance increased $.9 million quarter-to-date and $2.2 million year-to-date
due to increases in underlying assets.
Revenues related to trust, asset management, insurance brokerage and investment
and annuity sales totaled $13.1 million during the third quarter compared to
$9.7 million during the same quarter for 2001. Year-to-date revenues were $35.4
million, an increase of 15.5% over the same period in 2001. A new contributor in
this area was the acquisition on July 1, 2002, of Fund Evaluation Group ("FEG"),
an asset management consulting and advisory firm headquartered in Cincinnati,
Ohio, that contributed $2.7 million of fee income during the quarter.
Noninterest Expense
Noninterest expense increased 13.8% in the third quarter and 3.2% for the nine
months of 2002 compared to 2001, excluding 2001 restructuring charges. These
increases are partially due to the acquisition of FEG, which accounted for an
increase in total noninterest expense of $2.1 million in the third quarter.
Salaries and benefits, together the largest individual component of noninterest
expense, increased 13.6% compared to the same quarter last year and 5.1%
compared to 2001, of which $1.5 million related to FEG. Marketing expenses were
$3.2 million for the quarter compared to $1.4 million for the same quarter in
2001. This increase is due to a new marketing campaign used to better describe
the broadening scope of financial services and markets being served by Old
National. Most of the development costs associated with this program were
incurred during the third quarter. During the quarter, Old National consolidated
its mortgage banking activities into a centralized structure. Origination,
production and servicing functions previously conducted throughout the company
were organized into a single unit and the servicing of mortgages held by Old
National and serviced for others has been subcontracted to an outside company.
Processing expenses increased $1.4 million due to costs associated with the
servicing subcontractor. These increases for the quarter were partially offset
by a decrease in other expense of $1.0 million during the quarter ended
September 30, 2002, due primarily to the decrease of amortization of goodwill
resulting from the implementation of Statement of Financial Accounting Standard
No. 142, "Goodwill and Other Intangible Assets".
Provision for Income Taxes
The provision for income taxes, as a percentage of pre-tax income, was 24.9%
compared to 24.7% in 2001 for the quarter and 23.3% for 2002 and 23.1% for 2001
year-to-date.
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 Form 10-Q, 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 judgments 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 and the valuation of the mortgage servicing
assets. Actual results could differ from those estimates.
17
o Allowance for loan losses. The allowance for loan losses is maintained at a
level believed adequate by management to absorb probable losses in the
consolidated loan portfolio. Management's evaluation of the adequacy of the
allowance is an estimate based on reviews of individual loans, the risk
characteristics of the various categories of loans given current economic
conditions and other factors such as historical loss experience, financial
condition of the borrower, fair market value of the collateral, and growth
of the loan portfolio. The allowance is increased through a provision
charged to operating expense. Loans deemed to be uncollectible are charged
to the allowance. Recoveries of loans previously charged off are added to
the allowance.
A loan is considered impaired when it is probable that contractual interest
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 Assets. Servicing assets are recognized as separate
assets when loans are sold with servicing retained. Capitalized servicing
rights are reported in other assets and are amortized into noninterest
income in proportion to, and over the period of, the estimated future net
servicing income of the underlying financial assets. Servicing assets are
evaluated for impairment based upon the estimated fair value of the rights
as compared to amortized cost. Impairment is determined by stratifying
rights by predominant characteristics, such as interest rates and terms.
Fair value is determined using prices for similar assets with similar
characteristics, when available, or based upon discounted cash flows using
market-based assumptions. Net unrealized losses, if any, are recognized
through a valuation allowance by charges to income.
ITEM 3.
Quantitative and Qualitative Disclosures
About Market Risk
As described in Old National's Form 10-K for the year ended December 31, 2001,
Old National's market risk is composed primarily of interest rate risk. There
have been no material changes in market risk or the manner in which Old National
manages market risk since December 31, 2001.
ITEM 4.
Controls and Procedures
a) 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)), based on their evaluation of such controls and procedures
conducted within 90 days prior to the date hereof, are effective 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.
b) Changes in internal controls. There have been no significant changes in Old
National's internal controls or in other factors that could significantly
affect these controls subsequent to the date of the evaluation referred to
above.
18
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.
The exhibits listed in the Exhibit Index at page 23 of this Form 10-Q are
filed herewith or are incorporated by reference herein.
(b) Reports on Form 8-K filed during the quarter ended September 30, 2002.
The Registrant filed a current report on Form 8-K dated August 14, 2002.
The purpose of this Form 8-K was to report that the registrant filed with
the Securities and Exchange Commission its Quarterly Report on Form 10-Q
for the period ended June 30, 2002 and that the certification by the
registrant's chief executive officer and chief financial officer required
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, accompanied such Quarterly Report.
19
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: November 14, 2002
20
FORM OF SECTION 302 CERTIFICATION
I, James Risinger, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Old National
Bancorp;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures 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
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have been identified for the registrant's auditors any
material weaknesses in internal controls; 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; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ James A. Risinger
----------------- -----------------------------
James A. Risinger
Chairman, President and
Chief Executive Officer
21
FORM OF SECTION 302 CERTIFICATION
I, John Poelker, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Old National
Bancorp;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures 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
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have been identified for the registrant's auditors any
material weaknesses in internal controls; 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; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ John S. Poelker
----------------- -----------------------------
John S. Poelker
Executive Vice President and
Chief Financial Officer
22
INDEX OF EXHIBITS
Regulation S-K
Reference
(Item 601)
- ----------
3 (i) Articles of Incorporation of the Registrant, (incorporated by
reference to Exhibit 3(i) of the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002).
3 (ii) By-Laws of the Registrant, amended and restated effective September
26, 2002 are filed herewith.
4 Instruments defining rights of security holders, including
indentures
Form of Indenture between the Registrant and Bank One Trust
Company, NA, as trustee (incorporated by reference to Exhibit 4.1
to Registrant's Registration Statement on Form S-3, Registration
No. 333-87573, filed with the Securities and Exchange Commission on
September 22, 1999.)
10 Material contracts
(a) Old National Bancorp Employees' Retirement Plan (incorporated by
reference to the Registrant's Quarterly (a) Report on Form 10-Q
for the quarter ended March 31, 1997).*
(b) Employees' Savings and Profit Sharing Plan of Old National
Bancorp (incorporated by reference to the (b) Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997).*
(c) Form of Severance Agreement for James A. Risinger, Thomas F.
Clayton, Michael R. Hinton, Daryl D. Moore, and John S. Poelker,
as amended, (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).*
(d) The Old National Bancorp 1999 Equity Incentive Plan (incorporated
by reference to the Registrant's Form S-8 filed on July 20,
2001).
(e) Stock Purchase and Dividend Reinvestment Plan (incorporated by
reference to the Registrant's Post-Effective Amendment of the
Registration Statement on Form S-3, Registration No. 333-20073,
filed with the Securities and Exchange Commission on August 14,
2000).
(f) Construction Manager Contract, dated as of May 30, 2002, between
Old National Bancorp and Industrial Contractors, Inc.
(g) Owner-Contractor Agreement, dated as of October 11, 2002, between
Old National Bancorp and Industrial Contractors, Inc.
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*Management contract or compensatory plan or arrangement
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