ONB

Business Context and Reporting Period

Company: Old National Bancorp (Indiana)

Filing Type: Form 10-Q (Quarterly Report)

Reporting Period: Quarter and nine months ended September 30, 1997

Overview: Old National Bancorp operates as a financial holding company with affiliate banks serving tri-state market areas. The company reported approximately 26.2 million shares of common stock outstanding as of September 30, 1997. The period includes the first full year of operations for its consumer finance subsidiary, Consumer Acceptance Corporation.

Key Financial Metrics

Capital Ratios (Sept 30, 1997): Tier 1 Capital to Risk Adjusted Assets: 12.20%; Total Capital to Risk Adjusted Assets: 14.26%.

Liquidity: Cash and cash equivalents totaled $139,853 at period end. Short-term borrowings increased significantly to $678,943 to fund asset growth.

Material Changes vs. Prior Period

• Asset Growth: Total assets increased 7.1% year-over-year to $5.61 billion. Loans grew 7.3% to $3.72 billion, driven by healthy economic conditions in the tri-state market.
• Profitability: Net income rose 12.8% in Q3 and 9.6% year-to-date compared to 1996. This was primarily driven by growth in net interest income.
• Provision for Loan Losses: The provision increased significantly to $5.9 million in Q3 (from $3.2 million in 1996) and $13.4 million YTD (from $7.3 million in 1996). Management attributes this to the first full year of operations for the consumer finance subsidiary, which has higher charge-off levels than traditional banking operations.
• Expense Management: Noninterest expense decreased 1.5% in Q3 but increased 3.0% YTD. Salaries and benefits rose 6.9% YTD due to the new subsidiary and accelerated incentive accruals. FDIC insurance expense dropped significantly due to the absence of the one-time 1996 recapitalization premium.
• Net Interest Margin: The YTD net interest margin improved slightly to 4.50% from 4.46% in 1996, despite a slight decline in the Q3 margin to 4.47% from 4.56%.

Outlook, Risks, and Management Commentary

• Credit Quality: Total risk assets (loans 90+ days past due, nonaccrual, restructured, and foreclosed properties) totaled $26.8 million, or 0.72% of total loans and foreclosed properties, up from 0.63% at year-end 1996. The increase is largely attributed to consumer loans from the new finance subsidiary.
• Allowance Coverage: The allowance for loan losses was 1.28% of total loans at period end. It covers under-performing loans by 2.4 times.
• Asset/Liability Management: Management actively monitors interest rate risk. Rate-sensitive assets were 78% of rate-sensitive liabilities in the 1-180 day category, within acceptable ranges.
• Accounting Changes: The company adopted SFAS No. 125 effective January 1, 1997, with no material impact. SFAS No. 128 (EPS) and SFAS No. 130/131 are expected to be effective in 1998 with no anticipated material impact.
• Legal Proceedings: No material legal proceedings were reported.

Investor Verification Checklist

• Consumer Finance Impact: Verify the specific charge-off rates and future provisioning needs of the Consumer Acceptance Corporation subsidiary, which drove the increase in loan loss provisions.
• Deposit Stability: Review the composition of deposits, noting the decrease in noninterest-bearing demand accounts and money market accounts since year-end, offset by growth in certificates of deposit.
• Borrowing Costs: Assess the impact of increased short-term borrowings ($678.9 million) on future interest expense, particularly if interest rates rise.
• Capital Adequacy: Confirm that capital ratios remain well above regulatory minimums despite the growth in risk assets.
• Stock Repurchases: Note that the company repurchased $32.1 million of common stock during the nine-month period, impacting cash flow from financing activities.