Earnings Beat Fails to Drive Old National Shares

Zacks

Shares of Old National Bancorp. (ONB) remained almost muted despite the company beat the Zacks Consensus Estimate for the first quarter by a penny. The company came out with earnings of 26 cents per share compared with 24 cents earned in the year-ago quarter.

Lower provisions for loan losses, decline in operating expenses, steady capital and profitability ratios as well as improved credit quality were the positives for the quarter. However, lower-than-expected revenues were on the downside.

Net income for the quarter came in at $26.5 million, up 10.7% year over year.

Performance in Detail

Total revenue (fully taxable equivalent) was $128.0 million, down 1.0% from the prior-year quarter. It also missed the Zacks Consensus Estimate of $129.0 million.

Net interest income (taxable equivalent) came in at $87.4 million, up 5.4% year over year. Moreover, net interest margin (NIM) increased 18 basis points from the prior-year quarter to 4.22%.

Fees, service charges and other revenues (excluding securities gain and derivative gains) were $39.9 million, down 11.9% from $45.3 million in the prior-year quarter.

Total operating expenses were $88.3 million, down 2.1% year over year. Moreover, the figure included merger and integration charge of $2.5 million.

Efficiency ratio decreased to 67.77% from 68.34% in the previous-year quarter. A decline in efficiency ratio indicates increase in profitability.

Credit Quality

Credit quality was strong in the quarter. Net charge-offs were $2.1 million, down from $2.4 million in the year-ago quarter. Excluding covered loans, allowance for loan losses as of Mar 31, 2014, was $41.5 million, down 12.3% year over year.

However, provision for loan losses for the quarter was $0.04 million, marking a significant year-over-year fall.

Capital and Profitability Ratios

Old National Bancorp’s capital ratios were well above the required regulatory requirements. As of Mar 31, 2014, Tier 1 risk-based capital ratio was 14.8%. Total risk-based capital ratio was 15.7% and Tier 1 Leverage Capital Ratio was 9.3%.

The company’s profitability ratios were strong during the quarter. Return on average assets rose to 1.12% from 1.01% in the prior-year quarter. As of Mar 31, 2014, return on average common equity ratio was 9.03%, up from 8.0% in the year-ago quarter.

Acquisitions

On Apr 25, 2014, Old National Bancorp completed the previously announced partnership with Fort Wayne, IN-based Tower Financial Corporation. The deal is valued approximately at $110.3 million.

On Jan 8, 2014, Old National Bancorp entered into a definitive merger agreement with United Bancorp, Inc., the Ann Arbor, MI-based financial service provider. The deal is expected to close by third-quarter 2014.

Our Viewpoint

Old National Bancorp’s consistent capital deployment makes it an attractive pick for yield-seeking investors. Further, we expect the company’s organic and inorganic growth strategies to boost bottom line going forward.

However, a low interest rate environment and tighter regulations will likely restrict the company’s growth in the near term.

Currently, Old National Bancorp has a Zacks Rank #2 (Buy).

Performance of Other Midwest Banks

Commerce Bancshares, Inc.’s (CBSH) first-quarter 2014 earnings per share of 67 cents missed the Zacks Consensus Estimate by a penny. Lower-than-expected results were mainly due to higher operating expenses, partially offset by a slight rise in revenues.

Wintrust Financial Corporation (WTFC) reported earnings per share of 68 cents for first-quarter 2014, which beat the Zacks Consensus Estimate of 66 cents.

Huntington Bancshares Incorporated’s (HBAN) first-quarter 2014 adjusted earnings per share of 19 cents outperformed the Zacks Consensus Estimate of 17 cents.

Read the Full Research Report on HBAN
Read the Full Research Report on CBSH
Read the Full Research Report on WTFC
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