OLD NATIONAL BANCORP /IN/ - 10-Q Quarterly Report

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UNITED STATES 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, 2003

[ ]	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 incorporation or organization)	(I.R.S. Employer Identification No.)

420 Main Street Evansville, Indiana	47708 (Zip Code)
(Address of principal executive offices)
----------------
(812) 464-1434
(Registrant's telephone number, including area code)


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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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 63,548,000 shares outstanding at October 31, 2003.

OLD NATIONAL BANCORP

FORM 10-Q

INDEX

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	Page No.

	Consolidated Balance Sheet September 30, 2003 and 2002, and December 31, 2002	3

	Consolidated Statement of Income Three and nine months ended September 30, 2003 and 2002	4

	Consolidated Statement of Cash Flows Nine months ended September 30, 2003 and 2002	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	35

PART II	OTHER INFORMATION	36

SIGNATURES		37

INDEX OF EXHIBITS		38




Old National Bancorp
Consolidated Balance Sheet
($ and shares in thousands) (Unaudited)	September 30,		December 31,
	2003	2002	2002
	---------------	---------------	---------------
Assets
Cash and due from banks	$172,962	$218,192	$223,007
Money market investments	97,025	21,819	13,219
	---------------	---------------	---------------
Total cash and cash equivalents	269,987	240,011	236,226
Investment securities - available-for-sale, at fair value	2,812,465	2,781,550	3,077,798
Investment securities - held-to-maturity, at amortized cost
(fair value of $214,813 at September 30, 2003)	217,536	-	-
Residential loans held for sale	16,922	129,690	92,598
Loans:
Commercial	1,684,795	1,677,193	1,696,347
Commercial real estate	1,832,500	1,833,134	1,883,303
Residential real estate	934,175	1,123,577	1,043,816
Consumer credit, net of unearned income	1,134,789	1,062,666	1,053,571
	---------------	---------------	---------------
Total loans	5,586,259	5,696,570	5,677,037
Allowance for loan losses	(99,421)	(86,146)	(87,742)
	---------------	---------------	---------------
NET LOANS	5,486,838	5,610,424	5,589,295
	---------------	---------------	---------------
Goodwill	129,479	95,165	110,648
Other intangible assets	42,714	16,164	27,042
Mortgage servicing rights	14,790	10,879	11,367
Other assets	527,017	442,604	467,582
	---------------	---------------	---------------
TOTAL ASSETS	$9,517,748	$9,326,487	$9,612,556
	=========	=========	=========
Liabilities
Deposits:
Noninterest-bearing demand	$756,367	$724,551	$778,429
Interest-bearing:
Savings, NOW and money market	2,582,420	2,288,539	2,429,866
Time deposits	3,058,250	3,288,828	3,230,985
	---------------	---------------	---------------
TOTAL DEPOSITS	6,397,037	6,301,918	6,439,280

Short-term borrowings	653,953	857,074	918,349
Guaranteed preferred beneficial interests in
subordinated debentures	163,207	161,100	163,843
Other borrowings	1,470,937	1,178,044	1,234,014
Accrued expenses and other liabilities	110,845	100,475	116,360
	---------------	---------------	---------------
TOTAL LIABILITIES	8,795,979	8,598,611	8,871,846
	---------------	---------------	---------------
Shareholders' Equity
Common stock, $1 stated value, 150,000 shares authorized	63,629	60,694	63,856
Capital surplus	523,426	460,507	528,379
Retained earnings	125,483	149,904	96,652
Accumulated other comprehensive income, net of tax	9,231	56,771	51,823
	---------------	---------------	---------------
TOTAL SHAREHOLDERS' EQUITY	721,769	727,876	740,710
	---------------	---------------	---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$9,517,748	$9,326,487	$9,612,556
	=========	=========	=========
The accompanying notes are an integral part of this statement.

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)	2003	2002	2003	2002
	---------------	---------------	---------------	---------------
Interest Income
Loans, including fees:
Taxable	$78,580	$95,909	$245,050	$299,407
Nontaxable	4,314	4,362	12,860	13,139
Investment securities, available-for-sale
Taxable	22,141	28,046	72,336	81,018
Nontaxable	7,496	7,871	23,351	22,490
Investment securities, held-to-maturity, taxable	2,140	-	4,756	-
Money market investments	90	89	219	277
	-----------	-----------	-----------	-----------
TOTAL INTEREST INCOME	114,761	136,277	358,572	416,331
	-----------	-----------	-----------	-----------
Interest Expense
Savings, NOW and money market deposits	4,974	8,193	17,968	23,207
Time deposits	27,685	38,108	89,266	120,224
Short-term borrowings	1,643	3,296	6,225	8,083
Other borrowings	12,987	15,113	39,373	45,439
	-----------	-----------	-----------	-----------
TOTAL INTEREST EXPENSE	47,289	64,710	152,832	196,953
	-----------	-----------	-----------	-----------
NET INTEREST INCOME	67,472	71,567	205,740	219,378
Provision for loan losses	27,500	11,000	59,000	26,000
	-----------	-----------	-----------	-----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	39,972	60,567	146,740	193,378
	-----------	-----------	-----------	-----------
Noninterest Income
Trust and asset management fees	7,604	7,264	22,687	17,337
Service charges on deposit accounts	11,471	10,792	33,830	30,345
ATM fees	1,831	1,783	5,723	5,003
Mortgage banking revenue	8,039	3,946	17,307	10,023
Insurance premiums and commissions	10,056	3,289	27,371	11,673
Investment product fees	2,633	2,526	7,994	6,376
Bank-owned life insurance	1,689	2,190	5,129	6,028
Net securities gains	75	5,813	23,555	8,335
Gain on branch divestitures	-	12,473	-	12,473
Other income	2,375	2,436	8,010	6,550
	-----------	-----------	-----------	-----------
TOTAL NONINTEREST INCOME	45,773	52,512	151,606	114,143
	-----------	-----------	-----------	-----------
Noninterest Expense
Salaries and employee benefits	43,408	38,683	129,203	109,734
Occupancy	4,684	4,159	13,741	11,837
Equipment	3,735	3,681	11,261	11,342
Marketing	2,829	3,174	8,054	7,581
FDIC insurance premiums	248	284	765	860
Processing	4,975	3,979	14,028	9,713
Communication and transportation	2,953	2,957	8,846	8,908
Professional fees	1,964	2,102	6,831	6,351
Loan expenses	2,177	1,368	5,172	4,513
Other intangible amortization	729	350	1,810	823
Other expenses	7,763	5,992	19,879	16,876
	-----------	-----------	-----------	-----------
TOTAL NONINTEREST EXPENSE	75,465	66,729	219,590	188,538
	-----------	-----------	-----------	-----------
Income before income taxes	10,280	46,350	78,756	118,983
Income tax expense (benefit)	(1,530)	11,521	13,619	27,780
	-----------	-----------	-----------	-----------
Net Income	$11,810	$34,829	$65,137	$91,203
	======	======	======	======
Net income per common share:
Basic	$0.18	$0.55	$1.02	$1.42
Diluted	$0.18	$0.55	$1.02	$1.42
Weighted average number of common shares outstanding:
Basic	63,718	63,901	63,631	64,101
Diluted	63,878	64,075	63,695	64,245
Dividends per common share	$0.19	$0.18	$0.57	$0.50
The accompanying notes are an integral part of this statement.

Old National Bancorp
Consolidated Statement of Cash Flows
	($ in thousands) (Unaudited)		Nine Months Ended
			September 30,
				2003	2002
			--------------		--------------
Cash flows from operating activities:
Net income			$65,137		$91,203
			-------------		------------
Adjustments to reconcile net income to cash provided by (used in) operating activities:

		Depreciation	9,793		9,245
		Amortization of other intangible assets	1,810		823
		Net premium amortization on investment securities	10,421		4,591
		Provision for loan losses	59,000		26,000
		Gain on sales of investment securities	(23,555)		(8,335)
		Gain on branch divestitures	-		(12,473)
		Gain on sales of assets	(10,545)		(1,320)
		Mortgage loans originated for sale	(742,230)		(594,628)
		Proceeds from sales of mortgage loans	838,264		494,569
		Proceeds from sale of commercial loans	36,851		-
		Increase in other assets	(29,769)		(40,657)
		Increase (decrease) in accrued expenses and other liabilities	12,856		(14,659)
			------------		------------
		Total adjustments	162,896		(136,844)
			------------		------------
		Net cash flows provided by (used in) operating activities	228,033		(45,641)
			------------		------------
Cash flows from investing activities:
Cash and cash equivalents of subsidiaries acquired			1,497		-
Purchases of investment securities available-for-sale			(2,014,121)		(1,516,028)
Proceeds from maturities, prepayments and calls of investment securities available-for-sale			1,212,310		489,682
Proceeds from sales of investment securities available-for-sale			1,008,711		565,577
Purchases of investment securities held-to-maturity			(237,190)		-
Proceeds from maturities, prepayments and calls of investment securities held-to-maturity			19,020		-
Purchases of subsidiary, net of cash acquired			(14,335)		(26,571)
Payments related to branch divestitures			-		(82,160)
Net principal collected from (loans made to) customers:
		Commercial	(50,908)		34,890
		Mortgage	131,936		278,032
		Consumer	(85,505)		(22,582)
Proceeds from sales of premises and equipment			1,079		1,630
Purchases of premises and equipment			(41,191)		(20,139)
			------------		------------
		Net cash flows used in investing activities	(68,697)		(297,669)
			------------		------------
Cash flows from financing activities:
Net increase (decrease) in deposits and short-term borrowings:
		Noninterest bearing demand deposits	(22,062)		4,862
		Savings, NOW and money market deposits	152,554		151,193
		Time deposits	(172,735)		(268,364)
		Short-term borrowings	(264,396)		254,762
Proceeds from guaranteed preferred beneficial interest in subordinated debentures			-		100,000
Payments for maturities on other borrowings			(137,728)		(123,975)
Proceeds from issuance of other borrowings			381,600		213,278
Cash dividends paid			(36,306)		(32,350)
Common stock repurchased			(32,971)		(18,822)
Common stock reissued under stock option and stock purchase plans			6,469		6,371
			------------		------------
		Net cash flows provided by (used in) financing activities	(125,575)		286,955
			------------		------------
Net increase (decrease) in cash and cash equivalents			33,761		(56,355)
Cash and cash equivalents at beginning of period			236,226		296,366
			------------		------------
Cash and cash equivalents at end of period			$269,987		$240,011
			=======		=======
		Total interest paid	$156,052		$202,693
		Total taxes paid	$22,184		$21,730

The accompanying notes are an integral part of this statement.

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 wholly-owned affiliate entities ("Old National"). All significant intercompany transactions and balances have been eliminated. In addition, certain prior year amounts have been reclassified to conform with the 2003 presentation. Such reclassifications had no effect on net income. 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, 2003 and 2002, and December 31, 2002, and the results of its operations for the three and nine months ended September 30, 2003 and 2002 and its cash flows for the nine months ended September 30, 2003 and 2002. Interim results do not necessarily represent annual results.

2. Impact of Accounting Changes

In May 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS 150 establishes standards for classification and measurement in the statement of financial position of certain financial instruments with characteristics of both liabilities and equity. Old National has determined that it has no such instruments.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This statement clarifies reporting of contracts as either derivatives or hybrid instruments. Old National has determined that all derivatives or hybrid instruments covered under this statement have been properly reported under SFAS No. 149.

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities." FIN 46 provides guidance with respect to variable interest entities and when the assets, liabilities, noncontrolling interest, and results of operations of a variable interest entity need to be included in a company's consolidated financial statements. FIN 46 was expected to be effective for Old National on July 1, 2003; however, the release of the FASB Staff Position FIN 46-6 deferred the date of FIN 46 implementation until December 31, 2003. The effect is not expected to have a material impact on the results of operations or financial position.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-based Compensation - Transition and Disclosure," which provides guidance for transition from the intrinsic value method of accounting for stock-based compensation under Accounting Principles Board ("APB") Opinion No. 25 to SFAS No. 123's fair value method of accounting, if a company so elects. Old National applies APB Opinion No. 25 and related Interpretations in accounting for the stock option plan. Accordingly, no compensation costs have been recognized, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. Had compensation cost for Old National's stock option plan been recorded based on the fair value at the grant dates for awards under the plan consistent with the method prescribed by SFAS No. 123, net income and net income per share would have been adjusted to the proforma amounts indicated below:

	Three Months Ended September 30,		Nine Months Ended September 30,
($ in thousands except per share data)	2003 - --------------	2002 - --------------	2003 - -------------	2002 - -------------
Net income:
As reported Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects Proforma Basic net income per share: As reported Proforma Diluted net income per share: As reported Proforma	$11,810 (1,128) - ------------- $10,682 ======== $0.18 0.17 0.18 0.17	$34,829 (797) - ------------- $34,032 ======== $0.55 0.54 0.55 0.54	$65,137 (3,439) - ------------- $61,698 ======== $1.02 0.97 1.02 0.97	$91,203 (2,224) - ------------- $88,979 ======== $1.42 1.39 1.42 1.39

In November 2002, FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" was issued. FIN 45 elaborates on the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. Old National has determined that its standby letters of credit obligations under this FIN are not material for disclosure.

3. Acquisition and Divestiture Activity

Old National acquired several companies in the non-bank services segment during 2002 and 2003. All acquisitions were accounted for as purchases in accordance with SFAS No. 141, "Business Combinations."

($ in thousands)		Purchase Price
Entity Acquired	Date	Shares Issued	Stock Value	Cash Paid	Total	Goodwill	Other Intangibles
Insurance and Risk Management	08/01/2003	590,411	$13,739	$16,206	$29,945	$14,213	$12,376
Graham and Peat Insurance Agency	06/01/2003	131,992	3,028	73	3,101	2,058	1,797
James L. Will Insurance Agency	05/01/2003	206,852	4,555	92	4,647	2,634	2,667
Terrill Group, Inc.	12/01/2002	656,180	15,373	4,951	20,324	15,383	11,229
Fund Evaluation Group, Inc.	07/01/2002	-	-	26,838	26,838	12,668	11,800	⁽¹⁾

⁽¹⁾ Includes an indefinite-lived intangible asset of $2,800.

Intangible assets related to customer business relationships from these purchases are being amortized over 4 to 40 years. Unaudited financial statements of aggregate companies acquired during 2003 showed assets of $12.2 million on the acquisition dates, revenues from the beginning of the year to acquisition dates were $10.9 million, and net income from the beginning of the year to acquisition dates was $1.5 million. Unaudited financial statements of aggregate companies acquired during 2002 showed assets of $12.5 million on the acquisition dates, revenues from the beginning of the year to acquisition dates were $19.9 million, and net income from the beginning of the year to acquisition dates was $0.6 million. Contingent payments are often made as a result of these acquisitions. These payments, which are not deemed to be material, result in a change to the purchase price and goodwill.

During the third quarter of 2002, Old National finalized the sales of eight branches resulting in a pre-tax gain totaling $12.5 million. The branch sales resulted in a decrease in total loans of $107.3 million and total deposits of $202.9 million.

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 on January 27, 2003, to shareholders of record on January 6, 2003. 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 Months Ended September 30, 2003			Three Months Ended September 30, 2002
	Income - --------------	Share - ----------------	Per Share Amount - -------------	Income - --------------	Shares - -------------	Per Share Amount - --------------


Basic EPS
Net income from operations available to common stockholders	$11,810	63,718	$0.18	$34,829	63,901	$0.55
			====			====
Effect of dilutive securities: Stock options	- --	160		- --	174
	----------	----------		----------	----------
Diluted EPS
Net income from operations available to common stockholders plus assumed conversions	$11,810	63,878	$0.18	$34,829	64,075	$0.55
	======	======	====	======	======	====

	Nine Months Ended September 30, 2003			Nine Months Ended September 30, 2002
	Income - --------------	Share - ----------------	Per Share Amount - -------------	Income - --------------	Shares - -------------	Per Share Amount - --------------


Basic EPS
Net income from operations available to common stockholders	$65,137	63,631	$1.02	$91,203	64,101	$1.42
			====			====
Effect of dilutive securities: Stock options	- --	64		- --	144
	----------	----------		----------	----------
Diluted EPS
Net income from operations available to common stockholders plus assumed conversions	$65,137	63,695	$1.02	$91,203	64,245	$1.42
	======	======	====	======	======	====

5. Investment Securities

Old National has classified all investment securities as available-for-sale or held-to-maturity on the date of purchase. Securities classified as available-for-sale are recorded at fair value with the unrealized gains and losses, net of tax effect, recorded as a separate component of shareholder's equity. Securities classified as held-to-maturity, which management has the intent and ability to hold to maturity, are reported at amortized cost.

The following tables summarize the amortized cost and fair value of the available-for-sale and held-to-maturity investment securities as of September 30, 2003 and 2002.

($ in thousands)

2003	Amortized Cost	Unrealized Gains	Unrealized Losses	Fair Value
Available-for-sale
U.S. Treasury	$13,039	$155	$-	$13,194
U.S. Government agencies and corporations	614,385	2,547	(14,230)	602,702
Mortgage-backed securities	1,438,562	13,172	(24,790)	1,426,944
States and political subdivisions	619,549	34,282	(375)	653,456
Other securities	112,943	3,264	(38)	116,169
	-------------	-------------	-------------	-------------
Total available-for-sale securities	$2,798,478	$53,420	$(39,433)	$2,812,465
	========	========	========	========
Held-to-maturity
Mo