Now it's time for Old National to block and tackle.
"Bob Jones has set forth a plan that makes good, sound fundamental sense. Now it becomes about execution," said Joe Stieven, equity analyst with St. Louis-based Stifel Nicolaus & Co. Inc. "Execution in banking is actually no different than in football. Your line has to do a lot of the work, and a lot of that work appears mundane and boring."
Formerly the CEO of Cleveland-based KeyCorp's McDonald Investments Inc., Robert Jones was named president and CEO of Evansville-based Old National last August. He replaced James Risinger, who retired in March 2004 after Old National's profit dropped $47.5 million, or 40 percent, in just one year.
Founded in 1834, Old National is the largest bank based in the state, with $8.9 billion in assets. It's best known as a leading bank in dozens of rural communities in Indiana, Kentucky and Illinois.
But Old National is substantially smaller now than it was just a few years ago. In 2002, it held assets worth $9.6 billion and earned a company-record profit of $118 million. But in 2003, problem loans forced millions in charge-offs.
Old National appears to have stabilized as a somewhat smaller organization. For 2005's first quarter, it posted revenue of just $138.4 million-its lowest level since the 1990s. But Old National's profits over the last three quarters have all been more than $18 million-far above Old National's $5.8 million profit nadir, which came in the fourth quarter of 2003.
Shortly after he took over, Jones began a cost-cutting initiative. Through it, Old National shed about 10 percent of its employees, bringing the company's head count to 2,549. Jones aims for the costcutting program to be an open-ended campaign to create a continuing culture of expense discipline.
"It's like going on a crash diet. You can [quickly] lose 30 or 40 pounds. I've probably lost 400 pounds in my life and gained 405," Jones said. "If you don't change the culture, you can put all those costs right back on."
Jones also instituted new controls for risk assessment. In one year, he said, the bank has seen non-performing loans drop 77 percent.
"We feel very good about the progress we've made in our credit quality," he said. "But we're not declaring victory. Credit quality is one of the core fundamentals going forward."
New controls weren't the only factor in the risk reduction. Old National shed $405.6 million in residential mortgage loans and $43.1 million in non-performing commercial loans through sales last year. And the sales aren't finished. According to its filings with the Securities and Exchange Commission, Old National is in negotiations to sell the J.W. Terrill Insurance Agency in St. Louis and the Fund Evaluation Group in Cincinnati.
Penetrating major Midwestern city markets, such as St. Louis and Cincinnati, had once been a major part of Risinger's game plan. But instead, Jones wants to shrink Old National's geographic focus and attempt to increase its share of the markets it already knows. In Bloomington, for example, Old National ranks fourth in terms of total deposits. In Muncie, it ranks third.
"I believe the best use of our shareholders' capital is to expand in the markets we service today, rather than in major metros where I can't build brand quickly," Jones said. "I'm a big believer in having hurdle rates on return on equity. If I can't get a 15-percent ROE on an investment, it's not fair to my shareholders."
To that end, Old National is bumping up its presence in Indianapolis. On April 1, it agreed to buy locally based J.W.F. Insurance Co. Inc. for an undisclosed sum. Old National expects the acquisition to add $13 million a year in revenue.
Old National has also added some serious Hoosier seasoning to its advisory team. In January, it named former Bank One Indiana Chairman and CEO Joseph Barnette to the company board of directors. Barnette, who currently serves as president of locally based apartment community manager the Sexton Cos., declined to comment to IBJ. But bank consultant Michael Renninger, principal of Carmel-based Renninger & Associates LLC, considered it a coup.
"That's a very encouraging thing for them. Joe's a well-respected guy," he said. "It's a great opportunity for Old National."
Renninger also praised Old National's J.W.F. deal.
"That seems like a wise strategy, given the size of their organization," he said. "It's pretty hard to be a meaningful player in a lot of major markets. To focus with a more concentrated footprint makes good sense."
"It would seem that things are getting under control," Renninger added. "They're honing their operation down to core competencies, or at least core markets. That seems like a smart move."
But, at least for now, investors haven't responded to Old National's reorganization. At IBJ press time, the bank's stock traded for $18.83 per share, just 18 cents above its one-year low.
"I think the market needs to see it in numbers. They have to see the proof," Renninger said. "I don't think the markets are going to be eager to reward them with improved multiples until they see this is actually improving the bottom line. These changes aren't seen on the bottom line immediately."
With Jones' plans in place, Old National is positioning itself as a leaner bank with a tight focus on its core competencies and markets. Returning to the football analogy, Stieven said, now it's time to move beyond the playbook.
"The coach can only show the linemen how to block. At some point, they have to do it," he said. "Bob is the coach trying to lay out a plan. It's still up to employees to execute."