At a time when the industry is abuzz with talk about the information superhighway, reengineering, and rapid change, executives at Old National Bancorp in Evansville, Ind., may sound a tad old-fashioned.
Dan W. Mitchell, the chairman and chief executive who will retire at yearend, made the Chinese proverb "Make haste slowly" into the bank's unofficial slogan. John M. Royse, the 61-year-old president and chief operating officer who will take the reins from Mr. Mitchell, calls the bank's conservative lending standards its formula for success. Although the bank has consistently been a strong performer, its balance sheet looks very traditional.
Old National executives also talk convincingly of their commitment to a super community banking strategy, in which affiliate banks retain their original name and a great deal of autonomy. Another measure of the bank's corporate culture: Through 32 acquisitions since the holding company was formed in 1983 - a period that saw it grow from about $600 million of assets to $4.2 billion - Old National has maintained a no-layoffs policy.
"They are very traditional, they are very conservative," said Anat Bird, chief executive of FinExc Group in New York. "They are a crawl-before-they-run kind of a company."
The slow-and-steady formula has clearly been a success. Old National has had strong earnings growth through the years, although in its most recent quarter dipped slightly from last year due to costs associated with the building of a new data center, executives said. Return on assets stood at 1.13% for the nine months ended Sept. 30, compared with 1.19% for the same period in 1993. Return on equity for the period was 12.59%, compared with 13.89% a year earlier.
The bank's steady performance has also been rewarded by the market. Recently, shares have been trading at 17 times earnings. One hundred shares purchased for $4,150 in 1983 would be worth $25,550 today - an admirable 17% annual rate of return.
But while Old National is in many ways old-fashioned, these days it is clearly hastening change, albeit slowly.
"They don't lose their roots, but they are quite aware of future trends," said Ms. Bird.
These days executives - like their counterparts in banks around the country - are talking about building a sales culture, boosting fee income, and gaining efficiencies in the back office.
Toward those ends, the bank is consolidating data processing tasks in a new operations center, has formed a new trust subsidiary, and hopes to achieve further growth in its insurance agency unit.
But Old National executives say they aren't straying from their strengths.
For example, the bank will continue to adhere to its variation on the super community bank strategy, which executives refer to as the "cluster concept." Old National divides its 21 affiliate banks in Indiana, Kentucky, and southern Illinois into five regions, or clusters. Bank presidents in each cluster meet periodically to discuss issues and bounce ideas off one another. One bank president then reports to the holding company level.
"A lot of this is an advisory kind of (role)," said Mr. Royse. "They will get together and plan together on such things as new building space requirements, personnel problems, those sorts of things."
"The cluster concept was designed because it doesn't take as much management at the bancorp level," said Ronald B. Lankford, the executive president in charge of the affiliate banks who is slated to become president and chief operating officer on Jan. 1. "Our goal was to keep the bancorp administrative staff at a minimum and put those responsibilities back at the cluster level."
The aim was also to keep control at a more local level in order to be more responsive to customers.
"We have a very diverse holding company," said Mr. Royse. "We can't make all of these decisions from Evansville. People in Evansville don't really know what's happening in Terre Haute, Ind., or Madisonville, Ky."
Training is also handled at one bank within each cluster, so employees won't have to travel a great distance for sessions.
Dividing the bank into regions will also allow Old National to pursue new businesses more efficiently, without losing the local touch. The bank's newly formed trust company, for example, is deploying sales people to one bank in each cluster.
"They are one of the least centralized super community banks that I know of," said Ms. Bird.
While Old National, like other super community banks, gives local banks a great deal of autonomy, the holding company sets tough lending standards and maintains a stringent loan review policy after loans are made by affiliates.
For the first nine months of 1994, underperforming assets - just 0.5% of total loans - were well below the industry average. The level of asset quality has been a key factor in the bank's profitability.
"This is one of our hallmarks. We have strong emphasis on asset quality. You can't make good money by making bad loans," said Mr. Royse.
For some of the larger credits, bank presidents can receive swift approval at the cluster level.
Mr. Royse said the idea for clusters evolved as the bank grew. "At the time we started (the holding company) with two banks, in Terre Haute and Evansville, they were kind of on their own because of the distance. We added a bank at yearend in Greencastle, Ind., which came under the Terre Haute function."
Since then, Old National has made some 30 acquisitions, which the bank has pursued with its characteristic style.
"People don't like too many changes at once," said Mr. Royse. "We want to make sure that the people know about the merger and feel comfortable with us."
Mr. Royse said on the day a merger is announced, employees of the acquired bank and their spouses are invited to a reception. Old National's top management attends to field questions and calm anxieties. "We've found that this really pays big dividends," he said.
Mr. Royse also said the bank chooses its affiliates very carefully. "Generally, our policy is to buy good, clean banks with capable management and keep that management in place," he said. "The profit improvement is a little slower that way, but we think it pays off big over the long run."
Except when an acquisition is in the same community where Old National has an affiliate, the bank retains its name.
The bank has three other broad criteria when it looks to buy. First, the acquisition must be in one of its markets in Indiana, Illinois, or Kentucky. Said Mr. Royse:"We don't believe, 'Evansville today, tomorrow the world."'
Second, he said, "We like to be number one or two (in market share) in each of our markets. You can just make things happen better that way. I guess this is the reason that we have not gone into larger cities such as Indianapolis and Louisville."
The third, harder to gauge, is timing and the cultural fit. "We have had some long courtships in our acquisition policy. There is one bank we talked to for almost nine years before we got together with them," said Mr. Royse. "We just think the people aspects of mergers are very important."
For its future acquisitions, the bank will continue to rely on Mr. Mitchell, the retiring chairman.
"We'll still call on him to help get us introduced to some possible merger candidates," said Mr. Lankford. "He is really the individual who is best known and has put this whole concept together. He's highly recognized in the Midwest."
Ms. Bird noted that Old National's culture has "made them the acquirer of choice in their markets."
As the bank grew, however, Old National saw a need to gain efficiencies through back-office consolidation. The bank is in the process of centralizing its processing tasks into two locations. Six banks have been converted to core banking software from Fiserv Inc. in a freshly renovated building in Evansville. The remaining affiliates are slated to be converted by yearend 1995.
Currently, the affiliates operate with a hodgepodge of in-house systems and service bureau arrangements, obviously not the most efficient setup.
But don't expect a rapid-fire consolidation, Mr. Royce said. "We're taking our time going about this," he noted. "We learned one lesson early on . . . when we consolidated bookkeeping in one of the banks close to Evansville. It got be a kind of 'we-they' thing."
"We didn't handle it well early on," he continued. "We benefited from the experience."
Old National said the consolidation will reap big cost savings and efficiencies over time.
"Through attrition and retirement we will be able to reduce staffing throughout the organization," said Mr. Lankford.
What is somewhat surprising about Old National is just how efficient it is, given the high cost structure of community banking, the fact it is just now beginning to wring out expenses in the back office, and its steady stream of merger activity.
"They are the proof in the pudding that a super community bank can work and be efficient without all the slash and burn (tactics) and other things that other companies are doing," said Ms. Bird.
The efficiency ratio, or non interest expense per dollar of revenue, stood at 59.59% for the second quarter of 1994. The number has been in the high 50-range since 1990.
And, added Mr. Royse, "We would look for continued improvement in the efficiency ratio," although he declined to cite a specific goal.
While the bank is catching up on consolidating its back office, it is a little wary of some newer technologies. "The Midwest is sometimes a little slower to get some of these things than either coast is," said Mr. Royse.
And about some of the flashier developing technologies, such as home banking via personal computer, he said, "Some of the things, I think, may not work out as well all the press clippings say they will."
Indeed, the approach to technology fits the bank's overall strategy of making haste slowly.
One area where Old National can't afford to do so is in grooming successors for senior management jobs. Mr. Mitchell, who began his banking career at Old National Bank of Evansville in 1950, will soon retire. And Mr. Royse and Mr. Lankford, who is 60, can be expected to retire by the end of the century.
But they say a second generation of managers is poised to take over. "We have a very capable group of younger people coming along who will continue to receive more responsibilities in the next few months," said Mr. Royse. "Management succession is one of our primary responsibilities."
Mr. Lankford noted that several promising managers are in their forties. "They are well tested and doing well in those areas they oversee."
The bank's chief financial officer, Steve Parker, for example, is 43. Observers say the stamp Mr. Mitchell has put on the organization should remain as long as the performance is so strong.
"I think it's worked very well," said Mr. Royse. "Our whole idea was to try to get a good group of banks together, to be dominant in the area we served, to give a lot of autonomy to the banks, but at the same time have certain overall policies that could benefit all the banks."