| OLD NATIONAL BANCORP /IN/ ITEM 1A RISK FACTORS Old National’s business could be harmed by any of the risks noted below |
| In analyzing whether to make or to continue an investment in Old National, investors should consider, among other factors, the following: Risks Related to Old National’s Business Old National operates in an extremely competitive market, and Old National’s business will suffer if Old National is unable to compete effectively |
| In Old National’s market area, the Company encounters significant competition from other commercial banks, savings and loan associations, credit unions, mortgage banking firms, consumer finance companies securities brokerage firms, insurance companies, money market mutual funds and other financial intermediaries |
| The Company’s competitors may have substantially greater resources and lending limits than Old National does and may offer services that Old National does not or cannot provide |
| Old National’s profitability depends upon Old National’s continued ability to compete successfully in Old National’s market area |
| The loss of key members of Old National’s senior management team could adversely affect Old National’s business |
| Old National believes that Old National’s success depends largely on the efforts and abilities of Old National’s senior management |
| Their experience and industry contacts significantly benefit Old National |
| The competition for qualified personnel in the financial services industry is intense, and the loss of any of Old National’s key personnel or an inability to continue to attract, retain and motivate key personnel could adversely affect Old National’s business |
| 9 _________________________________________________________________ [60]Table of Contents Old National’s loan portfolio includes loans with a higher risk of loss |
| The Bank originates commercial real estate loans, commercial loans, agricultural real estate loans, agricultural loans, consumer loans, and residential real estate loans primarily within Old National’s market areas |
| Commercial real estate, commercial, consumer, and agricultural loans may expose a lender to greater credit risk than loans secured by residential real estate because the collateral securing these loans may not be sold as easily as residential real estate |
| These loans also have greater credit risk than residential real estate for the following reasons: • Commercial Real Estate Loans |
| Repayment is dependent upon income being generated in amounts sufficient to cover operating expenses and debt service |
| • Commercial Loans |
| Repayment is dependent upon the successful operation of the borrower’s business |
| • Consumer Loans |
| Consumer loans (such as personal lines of credit) are collateralized, if at all, with assets that may not provide an adequate source of payment of the loan due to depreciation, damage, or loss |
| • Agricultural Loans |
| Repayment is dependent upon the successful operation of the business, which is greatly dependent on many things outside the control of either the Bank or the borrowers |
| These factors include weather, commodity prices, and interest rates |
| If Old National’s actual loan losses exceed Old National’s allowance for loan losses, Old National’s net income will decrease |
| Old National makes various assumptions and judgments about the collectibility of Old National’s loan portfolio, including the creditworthiness of Old National’s borrowers and the value of the real estate and other assets serving as collateral for the repayment of Old National’s loans |
| Despite Old National’s underwriting and monitoring practices, Old National’s borrowers may not repay their loans according to their terms, and the collateral securing the payment of these loans may be insufficient to pay any remaining loan balance |
| As a result, Old National may experience significant loan losses that could have a material adverse effect on Old National’s operating results |
| Since Old National must use assumptions regarding individual loans and the economy, Old National’s current allowance for loan losses may not be sufficient to cover actual loan losses |
| Old National may need to significantly increase Old National’s provision for losses on loans if one or more of Old National’s larger loans or credit relationships becomes delinquent or if Old National expands Old National’s commercial real estate and commercial lending |
| In addition, federal and state regulators periodically review Old National’s allowance for loan losses and may require Old National to increase the provision for loan losses or recognize loan charge-offs |
| Material additions to Old National’s allowance would materially decrease Old National’s net income |
| There can be no assurance that Old National’s monitoring procedures and policies will reduce certain lending risks or that Old National’s allowance for loan losses will be adequate to cover actual losses |
| If Old National forecloses on collateral property, Old National may be subject to the increased costs associated with the ownership of real property, resulting in reduced revenues |
| Old National may have to foreclose on collateral property to protect Old National’s investment and may thereafter own and operate such property, in which case Old National will be exposed to the risks inherent in the ownership of real estate |
| The amount that Old National, as a mortgagee, may realize after a default is dependent upon factors outside of Old National’s control, including, but not limited to: (i) general or local economic conditions; (ii) neighborhood values; (iii) interest rates; (iv) real estate tax rates; (v) operating expenses of the mortgaged properties; (vi) environmental remediation liabilities; (vii) ability to obtain and maintain adequate occupancy of the properties; (viii) zoning laws; (ix) governmental rules, regulations and fiscal policies; and (x) acts of God |
| Certain expenditures associated with the ownership of real estate, principally real estate taxes and maintenance costs, may adversely affect the income from the real estate |
| Therefore, the cost of operating real property may exceed the income earned from such property, and Old National may have to advance funds in order to protect Old National’s investment, or Old National may be required to dispose of the real property at a loss |
| The foregoing expenditures and costs could adversely affect Old National’s ability to generate revenues, resulting in reduced levels of profitability |
| 10 _________________________________________________________________ [61]Table of Contents A breach of information security or compliance breach by one of our agents or vendors could negatively affect Old National’s reputation and business |
| Old National relies upon a variety of computing platforms and networks over the internet for the purposes of data processing, communication and information exchange |
| Despite the safeguards instituted by Old National, such systems are susceptible to a breach of security |
| In addition, Old National relies on the services of a variety of third-party vendors to meet Old National’s data processing and communication needs |
| If confidential information is compromised, financial losses, costs and/or other damages could occur |
| Such costs and/or losses could materially affect Old National’s earnings |
| Fiduciary Activity Risk Factor Old National Is Subject To Claims and Litigation Pertaining To Fiduciary Responsibility From time to time, customers make claims and take legal action pertaining to Old National’s performance of its fiduciary responsibilities |
| If such claims and legal actions are not resolved in a manner favorable to Old National they may result in significant financial liability and/or adversely affect the market perception of Old National and its products and services as well as impact customer demand for those products and services |
| Any financial liability or reputation damage could have a material adverse effect on the Old National’s business, which, in turn, could have a material adverse effect on the Old National’s financial condition and results of operations |
| Risks Related to the Banking Industry Changes in economic and political conditions could adversely affect Old National’s earnings, as Old National’s borrowers’ ability to repay loans and the value of the collateral securing Old National’s loans decline |
| Old National’s success depends, to a certain extent, upon economic and political conditions, local and national, as well as governmental monetary policies |
| Conditions such as inflation, recession, unemployment, changes in interest rates, money supply and other factors beyond Old National’s control may adversely affect its asset quality, deposit levels and loan demand and, therefore, the Old National’s earnings |
| Because Old National has a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral |
| Adverse changes in the economy may also have a negative effect on the ability of Old National’s borrowers to make timely repayments of their loans, which would have an adverse impact on Old National’s earnings |
| In addition, substantially all of Old National’s loans are to individuals and businesses in Old National’s market area |
| Consequently, any economic decline in Old National’s market area which includes Indiana, Kentucky, Illinois, and Ohio could have an adverse impact on Old National’s earnings |
| Changes in interest rates could adversely affect Old National’s results of operations and financial condition |
| Old National’s earnings depend substantially on Old National’s interest rate spread, which is the difference between (i) the rates Old National earns on loans, securities and other earning assets and (ii) the interest rates Old National pays on deposits and other borrowings |
| These rates are highly sensitive to many factors beyond Old National’s control, including general economic conditions and the policies of various governmental and regulatory authorities |
| As market interest rates rise, Old National will have competitive pressures to increase the rates Old National pays on deposits, which may result in a decrease of Old National’s net interest income |
| Old National operates in a highly regulated environment, and changes in laws and regulations to which Old National is subject may adversely affect Old National’s results of operations |
| Old National operates in a highly regulated environment and is subject to extensive regulation, supervision and examination by the Office of Comptroller of the Currency (“OCC”), the Federal Deposit Insurance Corporation (“FDIC”), the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the State of Indiana |
| Applicable laws and regulations may change, and such changes may adversely affect Old National’s business |
| Such regulation and supervision of the activities in which an institution may engage is primarily intended for the protection of the depositors and federal deposit insurance funds |
| Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including but not limited to the imposition of restrictions on the operation of an institution, the classification of 11 _________________________________________________________________ [62]Table of Contents assets by the institution and the adequacy of an institution’s allowance for loan losses |
| Any change in such regulation and oversight, whether in the form of restrictions on activities, regulatory policy, regulations, or legislation, including but not limited to changes in the regulations governing institutions, could have a material impact on Old National and its operations |
| Changes in technology could be costly |
| The banking industry is undergoing technological innovation at a fast pace |
| To keep up with its competition, Old National needs to stay abreast of innovations and evaluate those technologies that will enable it to compete on a cost-effective basis |
| The cost of such technology, including personnel, can be high in both absolute and relative terms |
| There can be no assurance, given the fast pace of change and innovation, that Old National’s technology, either purchased or developed internally, will meet or continue to meet the needs of Old National |
| Risks Related to Old National’s Stock Federal regulations may inhibit a takeover, prevent a transaction that may favor or limit Old National’s growth opportunities, which could cause the market price of Old National’s common stock to decline |
| Certain provisions of Old National’s charter documents and federal regulations could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of Old National |
| In addition, Old National must obtain approval from regulatory authorities before acquiring control of any other company |
| The price of Old National’s common stock may be volatile, which may result in losses for investors |
| General market price declines or market volatility in the future could adversely affect the price of Old National’s common stock |
| The following factors may cause the market price for shares of Old National’s common stock to fluctuate: • announcements of developments related to Old National’s business; • fluctuations in Old National’s results of operations; • sales of substantial amounts of Old National’s securities into the marketplace; • general conditions in Old National’s banking niche or the worldwide economy; • a shortfall in revenues or earnings compared to securities analysts’ expectations; • lack of an active trading market for the common stock; • changes in analysts’ recommendations or projections; and • Old National’s announcement of new acquisitions or other projects |
| We may not be able to pay dividends in the future in accordance with past practice |
| Old National has traditionally paid a quarterly dividend to stockholders |
| The payment of dividends is subject to legal and regulatory restrictions |
| Any payment of dividends in the future will depend, in large part, on Old National’s earnings, capital requirements, financial condition and other factors considered relevant by Old National’s Board of Directors |