EVANSVILLE, Ind. - Old National Bancorp has been plagued by credit troubles and lackluster earnings for two years, but its new president and chief executive insists he has not stepped into a turnaround situation.
Robert G. Jones, who joined the $9 billion-asset Old National in September, says the heavy lifting is mostly done and that his job now is to boost employee morale and get the largest Indiana-based banking company growing again.
Since taking the helm Mr. Jones has visited each of Old National's markets in Indiana, Illinois, Ohio, Kentucky, Tennessee, and Missouri, sent a letter to every employee, and had a video made about changes at the 170-year-old company.
"What you want to do as the new guy," he said, "is reassure people that they did the right thing, and secondly give them a positive view of the future so we begin to build momentum towards revenue building."
Old National faces the same challenges as many midsize regional banks, he said - it is too large to be considered a community bank and too small to be viewed as a large bank. Also, though Old National is No. 1 or No. 2 in deposit share in most of its markets, many of those are slow-growth markets.
But like other CEOs of midtier banks, Mr. Jones says his company's size can be a strength. Before it collapsed its charters a few years ago, Old National operated 21 community banks. Mr. Jones says it will try to capitalize on its lenders' deep ties to their communities.
"We fill a niche in between where we have the products and services the superregionals have, but we are driving that local market identity and trying to leverage that as much as possible," he said.
An important part of Mr. Jones' strategy is increasing small-business lending by giving lenders more authority to make credit decisions - though not at the expense of credit quality. He is also committed to beefing up Old National's wealth management offerings, raising its cross-selling ratios, and building in faster-growing markets such as Indianapolis and Louisville.
Mr. Jones brings a wide range of experience to the job. The Cleveland native had spent 25 years at KeyCorp, at one time as the retail bank's president and most recently as the president of McDonald Investments Inc.
In an interview at Old National's new headquarters overlooking the Ohio River, the CEO said it was hard to leave Key, but he did not want to pass up the chance to run a public company with "a bright future and passionate board."
Mr. Jones, 47, succeeded James A. Risinger, who resigned in March after the company struggled despite efforts to improve efficiency and performance. Mr. Risinger had been president since 1998.
In 2000, Mr. Risinger began a two-year program that consolidated Old National's 21 charters into one and cut its administrative regions in half, to three. The company took a $5.9 million charge for this program.
But efficiency wasn't the only problem. Credit quality suffered when a sagging economy hurt some of Old National's largest commercial borrowers.
Old National's net chargeoffs rose from $20.4 million at the end of 2002 to $68.5 million at the end of 2003. That prompted Mr. Risinger to put in new lending procedures in 2003, introducing credit scoring for smaller commercial loans and requiring that credit analysts sign off on local lenders' decisions on business credits.
Still, Old National reported in January that earnings for 2003 fell 40.3%, to $70.4 million, and its loan-loss reserves were up 19.3%, to $104.6 million. In February, Mr. Risinger announced he was stepping down, and its chief operating officer said at the time that Mr. Risinger was resigning because he felt someone else could do a better job of building on the changes he had made.
Even after Mr. Risinger left and the company had no CEO, Old National kept making changes. Consultants that Mr. Risinger had hired, EHS Partners LLC in Chicago, continued to help with cost-cutting and helped Old National kick off the Project Ascend efficiency drive. In the second quarter Old National laid off about 300 employees, and took a $25.5 million charge as a result.
The company is starting to benefit from Mr. Risinger's moves. At the end of the third quarter it had $22.2 million of net chargeoffs, still high compared with earlier years but going in the right direction.
Old National still has a long way to go. Its efficiency ratio at the end of the third quarter was 71.69%, versus 55.88% for all commercial banks with assets of $1 billion to $10 billion, according to the Federal Deposit Insurance Corp. And its returns on assets and equity have fallen well below industry averages in the past two years.
Mr. Jones said Old National needs to be more aggressive about banking business customers that have revenue below $50 million. He said there were more potential customers of this size in Old National's market than there are large corporations.
"The bread and butter is in the historical tradition of this company as a good, strong commercial lender, and we need to get back to that," he said.
To get more small-business loans, Old National will give its lenders in each of its markets more lending-decision autonomy, but sticking to the guidelines set by Mr. Risinger.
"We are trying to maintain local accountability within the parameters set from Evansville," Mr. Jones said. "I'm not willing to sacrifice credit quality for growth."
Fred A. Cummings, an analyst with KeyBanc Capital Markets in Cleveland, said Old National ran into credit trouble because an excess of credits topping $10 million made its portfolio too risky. As the economy softened, several large credits went bad and the company's performance suffered.
"I think Bob Jones is focused on the right things: cost structure, improving underlying risk profile, and becoming a more effective sales organization," Mr. Cummings said.
John Rodis, an analyst with Stifel, Nicolaus & Co. Inc., said better credit quality is crucial for Old National and that its efficiency campaign is on the right track.
He said it has started concentrating more on high-growth markets where it has a toehold, such as Indianapolis and Louisville, "which is what they need to do."
Mr. Jones said the strategy in Indianapolis, for example, is to have banking, trust, and investment departments work together to develop a financial plan for high-net-worth customers. One person acts as a "quarterback," he said, to bring the plan and services to the client.
Mr. Jones said Old National's retail bank has the products and services it needs to compete with larger banks, though he wants to get the cross-sell ratio from 2.8 products per household to 3.5.
This, he said, would be accomplished by teaching employees to profile customers better and close sales. Employees will also be given sales targets.
Troy L. Ward, an analyst with AG Edwards in St. Louis, said that after talking with Mr. Jones' former Key colleagues, he concluded that he is the right one to lead Old National. "The feedback we had gotten is that he is not a turnaround guy, but kind of a Mr. Fix-It."
Mr. Jones will not have much of a direct impact on areas such as cross-selling, but the tone he sets will affect line employees' job performance, Mr. Ward said.
For the immediate future, Mr. Jones said he wants to build where Old National is already established and then consider expanding into new areas. It is doubtful this approach will lead to rapid growth, but it is the best one at this time for the company and its customers and shareholders, he said.
"The goal I have is to be able to provide consistent, quality earnings to our shareholders. I don't want to take huge risks to grow."
