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 September 30, 1997 [ ] 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 NOT APPLICABLE 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 26.2 million shares outstanding at September 30, 1997. OLD NATIONAL BANCORP FORM 10-Q INDEX PART I. FINANCIAL INFORMATION Item 1.Financial Statements Page No. Consolidated Balance Sheet September 30, 1997 and 1996, and December 31, 1996 . . . . . 3 Consolidated Statement of Income Three and nine months ended September 30, 1997 and 1996. . . 4 Consolidated Statement of Cash Flows Nine months ended September 30, 1997 and 1996. . . . . . . . 5 Notes to the Consolidated Financial Statements. . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . 8 PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . 12 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 INDEX OF EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . 14 2 <TABLE> <CAPTION> OLD NATIONAL BANCORP CONSOLIDATED BALANCE SHEET Sept.30, Sept.30, December 31, ($ in thousands) (unaudited) 1997 1996 1996 Assets <S> <C> <C> <C> Cash and due from banks. . . . . . . . . . $136,850 $167,549 $180,405 Money market investments . . . . . . . . . 3,003 22,875 6,698 Investment Securities: U.S. Treasury . . . . . . . . . . . . . . 128,069 163,516 154,524 U.S. Government agencies and corporations. . . . . . . . . . . . 982,267 772,561 856,263 Obligations of states and political subdivisions. . . . . . . . . . . . . . 450,562 453,524 462,378 Other . . . . . . . . . . . . . . . . . . 42,663 49,215 41,484 --------- --------- --------- Total Investment Securities . . . . . . 1,603,561 1,438,816 1,514,649 --------- --------- --------- Loans: Commercial. . . . . . . . . . . . . . . . 858,489 791,207 796,313 Commercial Mortgage . . . . . .. . . . . 727,715 644,225 668,671 Residential Mortgage. . . . . . . . . . . 1,379,645 1,284,461 1,303,283 Consumer credit, net of unearned income. . . . . . . . . . . . . . . . . 752,458 744,987 755,033 --------- --------- --------- Total Loans . . . . . . . . . . . . . . 3,718,307 3,464,880 3,523,300 Allowance for loan losses . . . . . . . (47,656) (43,691) (44,053) --------- --------- --------- Net Loans . . . . . . . . . . . . . . . 3,670,651 3,421,189 3,479,247 Other assets . . . . . . . . . . . . . . . 200,513 190,811 185,592 --------- --------- --------- Total Assets. . . . . . . . . . . . . . $5,614,578 $5,241,240 $5,366,591 ========= ========= ========= Liabilities Deposits: Noninterest bearing demand. . . . . . . . $463,076 $474,035 $512,281 Interest bearing: NOW accounts. . . . . . . . . . . . . . 419,870 417,558 449,486 Savings accounts. . . . . . . . . . . . 462,565 481,839 480,303 Money market accounts . . . . . . . . . 658,256 662,649 714,261 Certificates of deposit of $100,000 and over . . . . . . . . . . . 364,007 280,216 257,988 Other time. . . . . . . . . . . . . . . 1,895,907 1,816,718 1,853,705 --------- --------- --------- Total Deposits. . . . . . . . . . . . . 4,263,681 4,133,015 4,268,024 --------- --------- --------- Short-term borrowings. . . . . . . . . . . 678,943 517,324 499,666 Subordinated debentures. . . . . . . . . . 30,427 30,564 30,564 Medium term notes. . . . . . . . . . . . . 93,300 44,000 44,000 Other liabilities. . . . . . . . . . . . . 78,583 60,290 65,811 --------- --------- --------- Total Liabilities . . . . . . . . . . . . 5,144,934 4,785,193 4,908,065 --------- --------- --------- Shareholders' Equity Common stock. . . . . . . . . . . . . . . 26,169 25,926 26,778 Capital surplus . . . . . . . . . . . . . 242,941 231,325 265,584 Retained earnings . . . . . . . . . . . . 187,213 198,787 158,284 Net unrealized gain (loss) on investment securities. . . . . . . . . . . . . . . 13,321 9 7,880 --------- --------- --------- Total Shareholders' Equity. . . . . . . . 469,644 456,047 458,526 --------- --------- --------- Total Liabilities and Shareholders' Equity. . . . . . . . . . . . . . . . . $5,614,578 $5,241,240 $5,366,591 ========= ========= ========= The accompanying notes are an integral part of this statement. 3 </TABLE> <TABLE> <CAPTION> OLD NATIONAL BANCORP CONSOLIDATED STATEMENT OF INCOME Three Months Ended Nine Months Ended ($ in thousands except share September 30, September 30, and per share data) (unaudited) 1997 1996 1997 1996 <S> <C> <C> <C> <C> Interest income Loans including fees: Taxable . . . . . . . . . . . . . $83,514 $76,528 $241,648 $222,024 Non-taxable . . . . . . . . . . . 1,058 1,013 3,102 2,835 Investment securities: Taxable . . . . . . . . . . . . . 19,515 16,246 56,317 47,523 Non-taxable . . . . . . . . . . . 5,814 6,013 17,740 17,708 Federal funds sold and securities purchased under agreement to resell. . . . . . . . . . . . . . 83 100 310 2,230 Deposits with banks. . . . . . . . 99 103 320 512 ------- ------- ------- ------- Total Interest Income . . . . . . 110,083 100,003 319,437 292,832 ------- ------- ------- ------- Interest Expense Savings, daily interest checking and money market accounts . . . . 11,408 11,344 33,831 35,120 Certificates of deposit of $100,000 and over . . . . . . . . 4,837 3,345 12,644 11,115 Other time deposits. . . . . . . . 26,799 25,682 78,280 76,260 Federal funds purchased. . . . . . 1,079 988 2,999 1,510 Securities sold under agreements to repurchase . . . . . . . . . . 2,730 2,424 7,841 7,023 Other borrowings . . . . . . . . . 7,600 4,083 19,725 10,555 ------- ------- ------- ------- Total Interest Expense. . . . . . 54,453 47,866 155,320 141,583 ------- ------- ------- ------- Net Interest Income . . . . . . . 55,630 52,137 164,117 151,249 Provision for loan losses. . . . . 5,901 3,229 13,414 7,334 ------- ------- ------- ------- Net Interest Income After Provision For Loan Losses . . . . . . . . . 49,729 48,908 150,703 143,915 ------- ------- ------- ------- Noninterest Income Trust fees . . . . . . . . . . . . 2,765 2,496 8,318 7,461 Service charges on deposit accounts. . . . . . . . . . . . . 4,138 3,991 12,116 11,526 Loan servicing fees. . . . . . . . 1,428 1,419 4,224 4,111 Securities gains (losses), net . . (2) 2 (12) 49 Other income . . . . . . . . . . . 3,388 3,206 9,794 9,424 ------- ------- ------- ------- Total Noninterest Income. . . . . 11,717 11,114 34,440 32,571 ------- ------- ------- ------- Noninterest Expense Salaries and employee benefits . . 21,985 21,375 66,518 62,201 Occupancy expense. . . . . . . . . 2,384 2,394 7,062 6,996 Equipment expense. . . . . . . . . 2,951 2,820 9,173 8,489 Marketing expense. . . . . . . . . 1,330 1,392 4,042 3,948 FDIC insurance expense . . . . . . 175 2,416 503 2,979 Data processing expense. . . . . . 1,342 1,323 3,960 3,753 Supplies expense . . . . . . . . 987 1,056 3,145 3,271 Communication and transportation expense. . . . . . . . . . . . . 1,737 1,769 5,136 5,051 Other expense. . . . . . . . . . . 5,552 4,492 16,165 15,650 ------- ------- ------- ------- Total Noninterest Expense. . . . . 38,443 39,037 115,704 112,338 ------- ------- ------- ------- Income before income taxes . . . . 23,003 20,985 69,439 64,148 Provision for income taxes . . . . 6,323 6,202 20,429 19,423 ------- ------- ------- ------- Net Income. . . . . . . . . . . . $16,680 $14,783 $49,010 $44,725 ======= ======= ======= ======= Net Income Per Common Share Primary . . . . . . . . . . . . . $ 0.63 $ 0.54 $ 1.84 $ 1.63 ======= ======= ======= ======= Fully Diluted . . . . . . . . . . $ 0.61 $ 0.53 $ 1.79 $ 1.58 ======= ======= ======= ======= Weighted average common shares outstanding: Primary . . . . . . . . . . . . . 26,346 27,316 26,548 27,559 ======= ======= ======= ======= Fully Diluted . . . . . . . . . . 27,773 28,749 27,977 28,994 ======= ======= ======= ======= Dividends Per Common Share . . . . $ 0.23 $ 0.22 $ 0.69 $ 0.66 ======= ======= ======= ======= The accompanying notes are an integral part of this statement 4 </TABLE> <TABLE> <CAPTION> OLD NATIONAL BANCORP CONSOLIDATED STATEMENT OF CASH FLOWS Nine Months Ended September 30, ($ in thousands) (unaudited) 1997 1996 Cash flows from operating activities: <S> <C> <C> Net income . . . . . . . . . . . . . . . . . . . . . $ 49,010 $ 44,725 ------- ------- Adjustments to reconcile net income to cash provided from operating activities: Depreciation. . . . . . . . . . . . . . . . . . . . 7,089 6,348 Amortization of intangible assets . . . . . . . . . 973 834 Net premium amortization (discount accretion) on investment securities . . . . . . . . . . . . . . 1,174 (1,701) Provision for loan losses . . . . . . . . . . . . . 13,414 7,334 (Gain) loss on sale of investment securities. . . . 12 (49) Gain on sale of assets. . . . . . . . . . . . . . . (236) (175) Increase in interest receivable . . . . . . . . . . (5,525) (1,762) Increase in other assets. . . . . . . . . . . . . . (10,620) (4,674) Increase in accrued expenses and other liabilities. . . . . . . . . . . . . . . . 9,163 4,596 ------- ------- Total adjustments . . . . . . . . . . . . . . . . 15,444 10,751 ------- ------- Net cash flows provided by operating activities . . 64,454 55,476 ------- ------- Cash flows from investing activities: Purchase of investment securities available for sale (321,576) (275,448) Proceeds from maturities and paydowns of investment securities available for sale . . . . . . . . . . . 216,247 232,905 Proceeds from sales of investment securities available for sale. . . . . . . . . . . . . . . . . . . . . . 24,281 18,996 Net principal collected from (loans made to) customers: Commercial . . . . . . . . . . . . . . . . . . . . (63,123) (41,141) Commercial real estate. . . . . . . . . . . . . . . (59,044) (70,396) Residential real estate. . . . . . . . . . . . . . (102,511) (82,159) Consumer . . . . . . . . . . . . . . . . . . . . . 4,800 (50,182) Proceeds from sale of mortgage loans . . . . . . . . 15,199 36,457 Proceeds from sale of premises and equipment . . . . 571 527 Purchase of premises and equipment . . . . . . . . . (7,312) (9,901) ------- ------- Net cash flows used in investing activities . . . . (292,468) (240,342) ------- ------- Cash flows from financing activities: Net increase (decrease) in deposits and short-term borrowings: Noninterest bearing demand. . . . . . . . . . . . . (49,205) (1,684) NOW accounts. . . . . . . . . . . . . . . . . . . . (29,616) 75,266 Savings . . . . . . . . . . . . . . . . . . . . . . (17,738) 18,672 Money market accounts . . . . . . . . . . . . . . . (56,005) (140,412) Certificates of deposit of $100,000 and over. . . . 106,019 (5,245) Other time deposits . . . . . . . . . . . . . . . . 42,202 3,336 Short-term borrowings . . . . . . . . . . . . . . . 179,277 202,192 Issuance of medium-term notes. . . . . . . . . . . . 49,300 --- Payment of medium-term notes . . . . . . . . . . . . --- (6,000) Cash dividends paid. . . . . . . . . . . . . . . . . (16,898) (16,115) Common stock repurchased . . . . . . . . . . . . . . (32,059) (27,527) Common stock reissued, net of shares used to convert subordinated debentures. . . . . . . . . . . . . . 5,487 2,830 ------- ------- Net cash flows provided by financing activities . . 180,764 105,313 ------- ------- Net decrease in cash and cash equivalents. . . . . . (47,250) (79,553) Cash and cash equivalents at beginning of period . . 187,103 269,977 ------- ------- Cash and cash equivalents at end of period . . . . . $139,853 $190,424 ======= ======= Total interest paid . . . . . . . . . . . . . . . . $150,065 $143,398 ======= ======= Total taxes paid. . . . . . . . . . . . . . . . . . $ 18,217 $ 20,212 ======= ======= The accompanying notes are an integral part of this statement. 5 </TABLE> 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 September 30, 1997 and 1996 and December 31, 1996, and the results of its operations for the three and nine months ended September 30, 1997 and 1996 and its cash flows for the nine months ended September 30, 1997 and 1996. All prior period information has been restated for the effects of business combinations accounted for as pooling-of-interests. 2. Net Income Per Common 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, 1997 to shareholders of record on January 8, 1997. All share and per share data presented herein have been restated for the effects of this stock dividend. 3. Investments The market value and amortized cost of investment securities as of September 30, 1997 are set forth below ($ in thousands): Market Value Amortized Cost Held-to-maturity, at amortized cost $ -- $ -- Available-for-sale, at market value 1,603,561 1,581,361 ------------ ------------ $ 1,603,561 $ 1,581,361 ============ ============ 4. Borrowings ONB has outstanding $30.4 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 46.875 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 September 30, 1997, 1.4 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 September 30, 1997, a total of $44 million of the notes were outstanding, with maturities ranging from one to six years and fixed interest rates ranging from 6.1% to 7.0%. 6 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 September 30, 1997, a total of $49.3 million of the notes were outstanding, with maturities ranging from five to ten years and fixed interest rates from 6.4% to 7.0%. As of September 30, 1997, 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 September 30, 1997, $25.4 million was outstanding under these lines bearing interest rates that averaged 6.24%. 5. Impact of Accounting Changes Effective January 1, 1997, ONB adopted certain provisions of Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement provides accounting standards for sales, securitization, and servicing of receivables, and other financial assets, secured borrowing and collateral transactions, and the extinguishment of liabilities. Certain other provisions of this statement are not effective until January 1, 1998. The adoption of the above statement did not have a material impact on ONB's financial condition and its results of operations. In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 128, "Earnings per Share" (EPS). This statement establishes standards for computing and presenting EPS. The statement is effective for financial statements issued for periods ending after December 15, 1997. ONB doesn't expect the impact to be material to its EPS calculation. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" which establishes standards for reporting and display of comprehensive income and its components. The FASB also issued SFAS No. 131, " Disclosures about segments of an Enterprise and Related Information" which establishes standards for reporting information on operating segments. These statements are effective for fiscal years beginning after December 15, 1997. ONB doesn't expect the impact of these statements to be material to its disclosures. 7 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 September 30, 1997, as compared to September 30, 1996 and December 31, 1996, and the results of operations for the three and nine month periods ended September 30, 1997 and 1996. Financial Condition ONB's total assets at September 30, 1997 were $5.61 billion, a 7.1% increase over the prior year and a 4.6% increase from December 31, 1996. Earning assets, which consist primarily of money market investments, investment securities and loans, rose 8.1% over the prior year and a 5.6% increase since year-end. During the past year, the mix of earning assets has remained steady with loans growing 7.3% while investment securities and money market investments combined increased 9.9%. Since year-end, loans increased 5.5% compared to a 5.6% increase in investment securities and money market investments. The continued loan growth reflects the generally healthy economies in our tri-state market areas. At September 30, 1997, total risk assets (defined as loans 90 days or more past due, nonaccrual and restructured loans and foreclosed properties) totaled $26.8 million, which compares to $22.3 million as of December 31, 1996. As of these dates, risk assets in total were 0.72% and 0.63%, respectively, of total loans and foreclosed properties. The majority of this increase in the 90 day and over category was consumer loans from ONB's consumer finance company which is in its first full year of operation. September 30, December 31, 1997 1996 Nonaccrual loans $11,398 $12,501 Restructured loans 353 746 Foreclosed Properties 6,634 4,703 ------- ------- Total Non-Performing Assets 18,385 17,950 Past Due 90 Days or more 8,434 4,325 ------- ------- Total Risk Assets $26,819 $22,275 ======= ======= Risk assets as a % of Total loans and Foreclosed Properties 0.72% 0.63% ==== ==== As of September 30, 1997, the recorded investment in loans for which impairment has been recognized in accordance with SFAS No. 114 and 118 was $4.0 million with no related allowance and $43.1 million with $11.2 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. 8 For the nine months ended September 30, 1997, the average balance of impaired loans was $54.7 million and $2.4 million of interest was recorded. ONB's consolidated loan portfolio is well diversified and contains no concentrations of credit in any particular industry. A concentration generally exists when more than 10% of total loans outstanding are to borrowers of the same industry. ONB 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, 1997, grew $130.7 million or 3.2% from September 30, 1996 and decreased $4.3 million or 0.1% since year-end. Short-term borrowings, comprised of Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings, increased $161.6 million since September 1996 and $179.3 million since December 1996. This increase helped fund asset growth and offset the decline in deposits since year-end. Capital Total shareholders' equity increased by $13.6 million since September 1996 and $11.1 million since December 1996. ONB's consolidated capital position remains strong as evidenced by the following comparisons of key industry ratios: <TABLE> <CAPTION> Minimum Regulatory September 30, September 30, December 31, Ratios 1997 1996 1996 <S> <C> <C> <C> <C> Risk Based Capital: Tier 1 Capital to Total Assets 3.00% 7.99% 8.60% 8.16% (Leverage Ratio) Tier 1 Capital to Risk Adjusted 4.00% 12.20% 13.21% 12.94% Total Assets Total Capital to Risk Adjusted 8.00% 14.26% 15.31% 14.97% Total Assets Shareholders' Equity to N/A 8.36% 8.70% 8.54% Total Assets </TABLE> Each of ONB's affiliate banks have capital ratios which exceed regulatory minimums. 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 9 which allows ONB to generate strong net interest income while controlling and monitoring interest rate risk. As of September 30, 1997, ONB's rate-sensitive assets were 78% of rate- sensitive liabilities in the 1-180 day maturity category and 87% in the 181- 365 day category. These figures compared to 85% and 89% on December 31, 1996 and 75% and 90% on September 30, 1996. These positions are within acceptable ranges as determined from time-to-time by management. ONB's funds management committee meets bi-monthly to closely monitor and effect changes as needed in the consolidated rate-sensitivity position. Results of Operations Net Income Net income for the nine months ended September 30, 1997 was $49.0 million, a 9.6% increase from the same period 1996. Net income for the third quarter of 1997 was up 12.8% over 1996. Primary net income per common share for the third quarter of 1997 and for the nine months ended September 30, 1997 were $0.63 and $1.84, respectively. The company's return on average assets (ROA) for the third quarter of 1997 was 1.20%. This was an increase over the 1.15% for the same period in 1996. Year- to-date ROA percentages were 1.20% in 1997 compared to 1.17% for 1996. Return on average equity (ROE) for the quarter and the first nine months of 1997 were 14.70% and 14.45%, respectively, excluding unrealized security gains(losses). These compare favorably to 1996 ROE results of 12.97% and 13.16% for similar periods. Growth in net interest income generated the net income improvements. Net Interest Income/Net Interest Margin (taxable equivalent basis) Year-to-date net interest income for 1997 was $174,351 a 8.0% increase over 1996. Net interest income for the third quarter of 1997 was $59,005 compared to $55,600 in 1996, an 6.1% increase over the prior year. The net interest margin for the third quarter was 4.47% and 4.56% for 1997 and 1996, respectively. The year-to-date net interest margin percentage in 1997 was 4.50% compared to 4.46% in 1996. Year-to-date increases in earning assets contributed to the improved net interest income. Provision and Allowance for Loan Losses The provision for loan losses was $5.9 million in the third quarter of 1997 compared to $3.2 million in the third quarter of 1996. Year-to-date, the provision for loan losses of $13.4 million compares to $7.3 million in 1996. ONB's net charge-offs were 0.67% of average loans for the current quarter, compared to 0.45% in the third quarter of 1996. For the first nine months, net charge-offs as a percent to average loans were 0.45% in 1997 compared to 0.25% in 1996. While ONB's banks have increased their provision in 1997, the consumer finance company is in its first full year of operation and it has experienced chargeoff and provision levels higher than the company's traditional banking operations. The allowance for loan losses is continually monitored and evaluated both within each affiliate bank and at the holding company level to provide 10 adequate coverage for potential losses. ONB maintains a comprehensive loan review program to provide independent evaluations of loan administration, credit quality, loan documentation, and adequacy of the allowance for loan losses. The allowance for loan losses to end-of-period loans of 1.28% at September 30, 1997 compares to 1.26% in 1996. The allowance for loan losses covers all under-performing loans by 2.4 times at September 30, 1997 compared to 2.7 times at December 31, 1996. Noninterest Income Excluding securities gains (losses), noninterest income increased 5.5% in the three months ended September 30, 1997 as compared to the same period in 1996. For the first nine months, this increase was 5.9%. Both increases were fueled by an increase in trust fees which were up 10.8% for the third quarter and 11.5% the first nine months and service charges which increased 3.7% and 5.1% for the quarter and nine months ended. Most other categories of noninterest income were comparable to last year's results. Noninterest Expense Noninterest expense decreased 1.5% in the third quarter of 1997 compared to 1996. For the first nine months noninterest expense increased 3.0% from 1996. Salaries and benefits, together the largest individual component of noninterest expense, increased 2.9% in the third quarter of 1997 compared to 1996. For the first nine months, this percentage increased 6.9%. This increase arose primarily from the combination of a new subsidiary, Consumer Acceptance Corporation, which was formed in the second quarter of 1996 and accelerated incentive accruals in 1997 due to the stronger results during the first nine months. Equipment expense was up 4.6% quarter-to-quarter and 8.1% year-to-year. Additional depreciation has resulted from updating computer systems during installation of a wide-area-network (WAN). The FDIC insurance expense on deposits dropped significantly from 1996 to 1997 for the quarter and year-to-date. During the third quarter in 1996, the FDIC charged a one- time recapitalization premium for SAIF-insured deposits. Most other categories of noninterest expense experienced relatively small changes between the years. Provision for Income Taxes The provision for income taxes, as a percentage of pre-tax income, decreased in the third quarter to 27.5% compared to 29.6% in 1996. For the first nine months, this percentage was 29.4% for 1997 and 30.3% in 1996. 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 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. (11) Statement re computation of per share earnings. (27) Financial Data Schedule (b) Reports on Form 8-K filed during the quarter ended September 30, 1997. Filed 8-K on 8/11/97, distribution agreement with Smith Barney, Inc. Filed 8-K/A on 8/15/97, amendment of distribution agreement with Smith Barney, Inc. 12 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 Steve H. Parker Steve H. Parker Senior Vice President Chief Financial Officer Date: November 14, 1997 13 INDEX OF EXHIBITS Regulation S-K Reference (Item 601) 11 Statement re Computation of Per Share Earnings 27 Financial Data Schedule 14