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 March 31, 1998 [ ] 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 27.8 million shares outstanding at March 31, 1998. OLD NATIONAL BANCORP FORM 10-Q INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Page No. Consolidated Balance Sheet March 31, 1998 and 1997, and December 31, 1997. . . . . 3 Consolidated Statement of Income Three months ended March 31, 1998 and 1997. . . . . . . 4 Consolidated Statement of Cash Flows Three months ended March 31, 1998 and 1997. . . . . . . 5 Notes to Consolidated Financial Statements. . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . 9 PART II OTHER INFORMATION . . . . . . . . . . . . . . . . . . . 12 SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . 15 2 <TABLE> <CAPTION> OLD NATIONAL BANCORP CONSOLIDATED BALANCE SHEET March 31, March 31, December 31, ($ in thousands) (unaudited) 1998 1997 1997 Assets <S> <C> <C> <C> Cash and due from banks. . . . . . . . . . $137,708 $162,616 $160,813 Money market investments . . . . . . . . . 3,686 3,878 7,868 Investment Securities: U.S. Treasury . . . . . . . . . . . . . . 105,894 146,148 117,188 U.S. Government agencies and corporations. . . . . . . . . . . . 936,990 923,583 951,444 Obligations of states and political subdivisions. . . . . . . . . . . . . . 450,035 450,786 452,933 Other . . . . . . . . . . . . . . . . . . 48,954 42,348 45,411 --------- --------- --------- Total Investment Securities . . . . . . 1,541,873 1,562,865 1,566,976 --------- --------- --------- Loans Commercial. . . . . . . . . . . . . . . . 874,939 794,281 878,690 Commercial real estate. . . . . . . . . . 777,927 679,772 762,505 Residential real estate . . . . . . . . . 1,435,189 1,309,474 1,416,963 Consumer credit, net of unearned income . 739,525 752,016 746,533 Financial . . . . . . . . . . . . . . . . 20,000 -- -- --------- --------- --------- Total Loans . . . . . . . . . . . . . . 3,847,580 3,535,543 3,804,691 Allowance for loan losses . . . . . . . (49,287) (45,914) (48,655) --------- --------- --------- Net Loans . . . . . . . . . . . . . . . 3,798,293 3,489,629 3,756,036 Other assets . . . . . . . . . . . . . . . 281,370 190,240 194,705 --------- --------- --------- Total Assets. . . . . . . . . . . . . . $5,762,930 $5,409,228 $5,686,398 ========= ========= ========= Liabilities Deposits Noninterest bearing demand. . . . . . . . $468,294 $465,019 $502,276 Interest bearing: NOW accounts. . . . . . . . . . . . . . 446,020 452,697 450,381 Savings accounts. . . . . . . . . . . . 468,507 478,855 469,589 Money market accounts . . . . . . . . . 636,270 660,449 660,240 Certificates of deposit $100,000 and over . . . . . . . . . . . 376,477 287,823 359,695 Other time. . . . . . . . . . . . . . . 1,894,901 1,863,186 1,856,549 --------- --------- --------- Total Deposits. . . . . . . . . . . . . 4,290,469 4,208,029 4,298,730 --------- --------- --------- Short-term borrowings. . . . . . . . . . . 388,952 410,656 442,686 Other borrowings . . . . . . . . . . . . . 502,863 274,726 388,832 Accrued expenses and other liabilities . . 87,903 62,462 78,947 --------- --------- --------- Total Liabilities . . . . . . . . . . . . 5,270,187 4,955,873 5,209,195 Shareholders' Equity Common stock. . . . . . . . . . . . . . . 27,796 26,560 27,457 Capital surplus . . . . . . . . . . . . . 308,055 257,501 299,988 Retained earnings . . . . . . . . . . . . 139,461 168,199 133,218 Accumulated other comprehensive income, net of tax . . . . . . . . . . 17,431 1,095 16,540 --------- --------- --------- Total Shareholders' Equity. . . . . . . . 492,743 453,355 477,203 --------- --------- --------- Total Liabilities and Shareholders' Equity. . . . . . . . . . . . . . . . . $5,762,930 $5,409,228 $5,686,398 ========= ========= ========= The accompanying notes are an integral part of this statement. </TABLE> 3 <TABLE> <CAPTION> OLD NATIONAL BANCORP CONSOLIDATED STATEMENT OF INCOME Three Months Ended ($ in thousands except share March 31, and per share data) (Unaudited) 1998 1997 Interest income <S> <C> <C> Loans including fees: Taxable . . . . . . . . . . . . . . $84,670 $77,676 Non-taxable. . . . . . . . . . . . . 1,244 970 Investment securities: Taxable. . . . . . . . . . . . . . . 18,449 17,902 Non-taxable. . . . . . . . . . . . . 5,660 5,996 Money market investments . . . . . . . 469 176 ------- ------- Total Interest Income. . . . . . . . 110,492 102,720 ------- ------- Interest Expense Savings, NOW and money market accounts. . . . . . . . 10,816 11,144 Certificates of deposit of $100,000 and over . . . . . . . . . . . . . . 5,349 3,776 Other time deposits. . . . . . . . . . 25,961 25,207 Short-term borrowings. . . . . . . . . 5,185 4,875 Other borrowings . . . . . . . . . . . 7,171 4,142 ------- ------- Total Interest Expense . . . . . . . 54,482 49,144 ------- ------- Net Interest Income. . . . . . . . . 56,010 53,576 Provision for loan losses. . . . . . . 5,412 3,756 ------- ------- Net Interest Income After Provision For Loan Losses . . . . . . . . . . 50,598 49,820 ------- ------- Noninterest Income Trust fees . . . . . . . . . . . . . . 3,173 2,800 Service charges on deposit accounts. . 3,849 3,922 Loan servicing fees. . . . . . . . . . 1,424 1,405 Securities gains (losses), net . . . . 19 (6) Other income . . . . . . . . . . . . . 4,144 3,312 ------- ------- Total Noninterest Income. . . . . . . 12,609 11,433 ------- ------- Noninterest Expense Salaries and employee benefits . . . . 23,326 22,053 Occupancy expense. . . . . . . . . . . 2,320 2,382 Equipment expense. . . . . . . . . . . 3,124 3,039 FDIC insurance expense . . . . . . . . 179 150 Data processing expense. . . . . . . . 1,286 1,288 Supplies expense . . . . . . . . . . . 1,021 1,086 Communication and transportation expense 1,888 1,739 Other expenses . . . . . . . . . . . . 6,641 6,418 ------- ------- Total Noninterest Expense . . . . . . 39,785 38,155 ------- ------- Income before income taxes . . . . . . 23,422 23,098 Provision for income taxes . . . . . . 6,968 7,040 ------- ------- Net Income. . . . . . . . . . . . . . $16,454 $16,058 ======= ======= Net Income Per Common Share Basic . . . . . . . . . . . . . . . . $ 0.60 $ 0.57 ======= ======= Diluted . . . . . . . . . . . . . . . $ 0.58 $ 0.56 ======= ======= Weighted average common shares outstanding: Basic . . . . . . . . . . . . . . . . 27,442,040 27,996,001 ========== ========== Diluted . . . . . . . . . . . . . . . 28,988,691 29,590,164 ========== ========== The accompanying notes are an integral part of this statement </TABLE> 4 <TABLE> <CAPTION> OLD NATIONAL BANCORP CONSOLIDATED STATEMENT OF CASH FLOWS Three Months Ended March 31, ($ in thousands) (unaudited) 1998 1997 <S> <C> <C> Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . $ 16,454 $ 16,058 -------- -------- Adjustments to reconcile net income to cash provided from operating activities: Depreciation. . . . . . . . . . . . . . 2,378 2,257 Amortization of intangible assets . . . 342 318 Net premium amortization on investment securities. 498 421 Provision for loan losses . . . . . . . 5,412 3,757 Loss (gain) on sale of investment securities . . . (19) 6 Gain on sale of assets (235) (76) (Increase)decrease in interest receivable. . . . . 644 (267) Increase in other assets. (87,294) (5,779) Increase in accrued expenses and other liabilities. . . . . . . . . . 8,348 1,184 -------- -------- Total adjustments . . . . . . . . . . (69,926) 1,821 -------- -------- Net cash flows provided (used) by operating activities. . . . (53,472) 17,879 -------- -------- Cash flows from investing activities: Purchase of investment securities available-for-sale (121,371) (134,216) Proceeds from maturities and paydowns of investment securities available-for-sale . . . . . 98,304 68,916 Proceeds from sales of investment securities available- for-sale. . . . . . . . . . . . . . . . 49,190 5,339 Net principal collected from (loans made to) customers: Commercial and financial . . . . . . . (16,216) 2,178 Mortgage. . . . . . . . . . . . . (55,658) (25,381) Consumer . . . . . . . . . . . . . . . 2,223 1,007 Proceeds from sale of mortgage loans . . 22,139 8,130 Proceeds from sale of premises and equipment. . . . 278 19 Purchase of premises and equipment . . . (3,024) (1,193) ------- -------- Net cash flows used in investing activities. . . . (24,135) (75,201) -------- -------- Cash flows from financing activities: Net increase (decrease) in deposits and short-term borrowings: Noninterest bearing demand. . . . . . . (33,982) (47,262) NOW Accounts. . . . . . . . . . . . . . . (4,361) 3,211 Savings accounts. . . . . . . . . . . . . (1,082) (1,448) Money market accounts . . . . . . . . . . (23,970) (53,812) Certificates of deposit $100,000 and over 16,782 29,835 Other time deposits . . . . . . . . . . . 38,352 9,481 Short-term borrowings . . . . . . . . . . (53,734) 74,671 Other borrowings. . . . . . . . . . . . . 122,420 36,564 Cash dividends paid. . . . . . . . . . . . (6,287) (5,844) Common stock repurchased . . . . . . . . . (10,507) (10,645) Common stock reissued, net of shares used to convert subordinated debentures. . . . . . . . . 6,689 1,962 -------- -------- Net cash flows provided by financing activities. 50,320 36,713 -------- -------- Net decrease in cash and cash equivalents. (27,287) (20,609) Cash and cash equivalents at beginning of period. . 168,681 187,103 -------- -------- Cash and cash equivalents at end of period . . $141,394 $166,494 ======== ======== Total interest paid. . $ 54,904 $ 45,273 ======== ======== Total taxes paid. . $ 800 $ 2,041 ======== ======== The accompanying notes are an integral part of this statement. </TABLE> 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 March 31, 1998 and 1997 and December 31, 1997, and the results of its operations, and cash flows for the three months ended March 31, 1998 and 1997. All prior period information has been restated for the effects of business combinations accounted for as pooling-of-interests. 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 29, 1998 to shareholders of record on January 8, 1998. All share and per share data presented herein have been restated for the effects of this stock dividend. Net income on a diluted basis is computed as above and assumes the conversion of ONB's 8% convertible subordinated debentures (Note 4). For the diluted computation, net income is adjusted for the assumed reduction in interest expense, net of income tax effect, and an additional 1.5 million common shares are assumed to be issued in connection with the conversion of the remaining outstanding debentures. <TABLE> <CAPTION> Earnings Per Share Reconciliation ($ and shares in thousands except per share data): For the Three For the Three months ended months ended March 31, 1998 March 31, 1997 Per-Share Per-Share Income Shares Amount Income Shares Amount <S> <C> <C> <C> <C> <C> <C> Basic EPS Income available to common stockholders $16,454 27,442 $0.60 $16,058 27,996 $0.57 ===== ===== Effect of Dilutive securities: Stock options 89 94 8% convertible debentures 348 1,458 368 1,500 ------- ------ ------- ------ Diluted EPS Income available to Common stockholders + assumed conversions $16,802 28,989 $0.58 $16,426 29,590 $0.56 ======= ====== ===== ======= ====== ===== </TABLE> 6 3.Investments The market value and amortized cost of investment securities as of March 31, 1998 are set forth below ($ in thousands): Market Value Amortized Cost Available for Sale, at market value $1,541,873 $1,512,811 ========== ========== 4. Borrowings ONB's 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 49.218 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 a premium to par value. Beginning September 15, 1998, debenture holders are entitled to an annual sinking fund of $2.5 million principal amount of debentures annually less conversions and redemptions. The debentures are subordinated in right of payment to all senior indebtedness of ONB. As of March 31, 1998, 1.1 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 March 31, 1998, a total of $34 million of the notes were outstanding, with maturities ranging from one to five years and fixed interest rates of 6.1% to 7.0%. At March 31, 1997, ONB had outstanding $44 million of medium term notes. These notes bear interest at a weighted average rate of 6.73% and mature between 1998 and 2003. 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 March 31, 1998, a total of $64.3 million of the notes were outstanding, with maturities ranging from four to nine years and fixed interest rates from 6.4% to 7.0%. As of March 31, 1998, 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 unaffiliated banks. As of March 31, 1998, $19.0 million was outstanding under these lines bearing interest rates that averaged 6.34%. As of March 31, 1997, $65.0 million was outstanding. 5. 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 March 31, 1998, ONB has an interest rate swap with a notional value of $20 million. The contract is an exchange of interest payments with no affect on the principle amounts of the underlying hedged liability. The fair value of the swap contract was ($0.3) million as of March 31, 1998. ONB pays the counterparty a variable rate based on three-month LIBOR and receives a fixed rate of 6.50%. The contract terminates on or prior to March 13, 2008. 7 At March 31, 1998, ONB has interest rate cap agreements (caps) with notional amounts of $11 million with a fair value of $0.1 million. These caps are indexed to LIBOR with a strike price of 5.00% and mature prior to 2000. The carrying value at March 31, 1998 was $0.1 million. ONB is exposed to losses if a counterparty fails to make its payments under a contract in which the ONB is in the receiving position. Although collateral or other security is not obtained, ONB minimizes its credit risk by monitoring the credit standing of the counterparties and anticipates that the counterparties will be able to fully satisfy their obligation under the agreements. 6. Impact of Accounting Changes Effective January 1, 1998, ONB adopted Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income" which establishes standards for reporting and display of comprehensive income and its components. The new rule requires reporting of comprehensive income, which includes net income and all other nonowner changes in equity during the period. Three Months Ended March 31, March 31, 1998 1997 ($ in Thousands) Net income $16,454 $16,058 Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period, net of tax 902 (6,789) Less: reclassification adjustment for (gains) losses realized in net income, net of tax (11) 4 ------- ------- Net unrealized gains (losses) 891 (6,785) ------- ------- Comprehensive income $17,345 $ 9,273 ======= ======= ONB also adopted SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" which establishes standards for reporting information on operating segments. Segment data will be disclosed starting December 31, 1998, including interim periods. The adoption of the above statement did not have a material impact on ONB's disclosures. 8 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 March 31, 1998, as compared to March 31, 1997 and December 31, 1997, and the results of operations for the three months ended March 31, 1998 and 1997. Financial Condition ONB's total assets at March 31, 1998 were $5.763 billion, a 6.5% increase since March 1997 and a 1.3% increase since December 1997. Earning assets, which consist primarily of money market investments, investment securities and loans, grew 5.7% over the prior year. During the past year, the mix of earning assets reflected loan growth of 8.8% while money market investments and investment securities decreased 1.4%. Since December 1997, earning assets increased slightly 0.3% with loans growing 1.1% and investment securities and money market investments decreasing 1.9%. At March 31, 1998, total risk assets (defined as loans 90 days or more past due, nonaccrual and restructured loans and foreclosed properties) declined slightly to $21.9 million from $23.1 million as of December 31, 1997. As of these dates, risk assets in total were 0.57% and 0.61%, respectively, of total loans and forclosed properties. March 31, December 31, 1998 1997 Nonaccrual loans $14,303 $14,283 Restructured loans 238 248 Foreclosed Properties 3,730 4,124 ------- ------- Total Non-Performing Assets 18,271 18,655 Past Due 90 Days or more 3,660 4,405 ------- ------- Total Risk Assets $21,931 $23,060 ======= ======= Risk assets as a % of total loans and foreclosed properties 0.57% 0.61% ==== ==== As of March 31, 1998, the recorded investment in loans for which impairment has been recognized in accordance with SFAS No. 114 and 118 was $4.4 million with no related allowance and $43.2 million with $10.3 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 three months ended March 31, 1998, the average balance of impaired loans was $49.7 million and $0.8 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. 9 Total deposits at March 31, 1998, increased $82.4 million or 2.0% compared to March 1997. Certificates of deposit $100,000 and over increased $88.7 million and comprised the largest dollar increase. Since December 1997, total deposits decreased $8.3 million or 0.2% with the decline in all categories, except certificates of deposit $100,000 and over and other time. Seasonality contributed to the first quarter deposit decrease. Short-term borrowings, comprised of Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings, decreased $21.7 million since March 1997 as additional medium term notes were issued and short-term borrowings were reduced. Since December 1997, ONB's short-term borrowings decreased $53.7 million and shifted to Federal Home Loan Bank borrowings included in other borrowings. Capital Total shareholders' equity increased $39.4 million since March 1997 and has increased $15.5 million since December 1997. During the first quarter of 1998, accumulated other comprehensive income, primarily net unrealized gain on investment securities, increased $0.9 million and $8.3 million of subordinated debentures converted to common stock. ONB's consolidated capital position remains strong as evidenced by the following comparisons of key industry ratios: <TABLE> <CAPTION> Regulatory Guidelines March 31, March 31, December 31, Minimum Well-Capitalized 1998 1997 1997 <S> <C> <C> <C> <C> <C> Risk based Capital: Tier 1 capital to total avg assets (leverage ratio). . . 4.00% 5.00% 8.13% 8.24% 7.95% Tier 1 capital to risk-adjusted total assets . . . . . . . . 4.00 6.00 12.18 12.71 12.16 Total capital to risk-adjusted total assets . . . . . . . 8.00 10.00 14.01 14.84 14.24 Shareholders' equity to total assets N/A N/A 8.55 8.38 8.39 Each of ONB's affiliate banks have capital ratios which exceed regulatory minimum and well-capitalized guidelines. </TABLE> 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 allows 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 March 31, 1998 the model's fluctuation has not materially changed from December 31, 1997. Using static gap, ONB's rate-sensitive assets at March 31, 1998 were 76% of rate-sensitive liabilities in the 1-180 day maturity category and 85% in the 181-365 day category. These figures compared to 79% and 89% on December 31, 1997 and 84% and 92% on March 31, 1997. ONB's funds management committee meets bi-monthly to closely monitor and effect changes as needed in the consolidated rate-sensitivity position. 10 Results of Operations Net Income Net income for the three months ended March 31, 1998 was $16.5 million, a 2.5% increase over the same period in 1997. Basic net income per common share for the first quarter of 1998 was $0.60, compared to $0.57 for the first quarter of 1997, a 5.3% increase. ONB's return on average assets (ROA) for the first quarter of 1998 was 1.16%. This compared to 1.21% for the same period in 1997. The decline in ROA is due to the increase in assets combined with small net income growth. Net Interest Income Net interest income on a taxable equivalent basis for the first quarter of 1998 was $59.4 million or 4.2% higher than the same period for the prior year. Higher levels of earning assets contributed to the net interest income growth. The tax-equivalent net interest margin was 4.39% in the first quarter of 1998 versus 4.51% in 1997's first quarter. The lower and flatter yield curve combined with higher deposit rates which have increased since the first quarter of 1997 have compressed the net interest margin. Provision for Loan Losses The provision for loan losses was $5.4 million in the first quarter of 1998 compared to $3.8 million in the first quarter of 1997. Much of this increase was due to the performance of purchased loans at ONB's finance subsidiary. The activities of this subsidiary have been significantly curtailed and exit strategies are being evaluated. ONB's net charge offs were 0.57% of average loans for the quarter versus 0.30% in the first quarter of 1997. The allowance for loan losses is continually monitored and evaluated both within each affiliate bank and at the holding company level so as to provide adequate coverage for potential losses. The allowance for loan losses to end-of- period loans of 1.28% at March 31, 1998 compared to 1.28% at year-end in 1997 and 1.30% at March 31, 1997. The allowance for loan losses covers all underperforming assets by 2.25 times at March 31, 1998 compared to 2.11 times at December 31, 1997. Noninterest Income Total noninterest income increased 10.3% in the three months ended March 31, 1998 as compared to the same period in 1997. In both years security gains comprised an insignificant portion of noninterest income. All categories, except service charges experienced increases over 1997. Trust fees increased 13.3%, loan servicing fees increased 1.4%, and other income rose 25.1%. The growth in other income was mainly from increases in insurance commissions and investment product fees. Noninterest Expense Noninterest expense increased 4.3% in the first quarter of 1998 over the same period in 1997. Salaries and benefits, together the largest individual component of noninterest expense, increased 5.8% in the first quarter of 1998 compared to 1997. Approximately 43% of the personnel expense increase related to ONB's start-up finance subsidiary which grew throughout 1997. 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, declined slightly in the first quarter to 29.7% compared to 30.5% in 1997. 11 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 At the April 16, 1998 Annual Meeting of Shareholders, the following matters were submitted to a vote of the shareholders. Election of Directors - The following directors were elected for a term of one year. Vote Count - ----------------------------------------------------------------------- For Against Abstained Unvoted David L. Barning 20,591,431 100,345 -- -- Richard J. Bond 20,598,338 93,278 -- -- Alan W. Braun 20,591,192 100,424 -- -- Wayne A. Davidson 20,590,788 100,828 -- -- Larry E. Dunigan 20,602,880 88,742 -- -- David E. Eckerle 20,601,726 89,889 -- -- Thomas B. Florida 20,602,306 89,310 -- -- Phelps L. Lambert 20,598,473 94,205 -- -- Ronald B. Lankford 20,602,862 88,763 -- -- Lucien H. Meis 20,602,520 89,216 -- -- Louis L. Mervis 20,592,877 103,701 -- -- Lawrence Prybil 20,555,164 141,734 -- -- James Risinger 20,591,408 100,217 -- -- John N. Royse 20,579,469 112,156 -- -- Marjorie Z. Soyugenc 20,579,189 116,772 -- -- Charles D. Storms 20,573,975 117,650 -- -- Selection of Independent Public Accountants - Arthur Andersen LLP, Indianapolis, Indiana Votes For - 20,546,888, Votes Against - 44,508, Votes Abstained - 108,740, Unvoted - 0. ITEM 5. Other Information NONE 12 ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits as required by Item 601 of Regulation S-K. (10) AT&T Credit Corporation Master Equipment Lease. (27) Financial Data Schedule (b) ONB did not file a current report on Form 8-K during the quarter ended March 31, 1998. 13 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 Ronald W. Seib Ronald W. Seib Vice President Corporate Controller Date: May 15, 1998 14 INDEX OF EXHIBITS Regulation S-K Reference (Item 601) 10 AT&T Credit Corporation Master Equipment Lease 27 Financial Data Schedule 15