Old National Bancorp. (ONB) reported third-quarter earnings of 23 cents per share, in line with the Zacks Consensus Estimate. Further, this was 15.0% above the year-ago quarter figure of 20 cents.
Results were aided by top-line growth and a benefit from provision. Further, improved credit quality as well as strong capital and profitability ratios were tailwinds. However, higher operating expense was a dampener.
Net income in the quarter came in at $23.9 million, up 21.3% year over year. This included the impact of charges worth $2.3 million related to the integration of 24 Bank of America Corporation (BAC) branches (acquired in July) and $2.7 million related to branch closures.
Performance in Detail
Total revenue (fully taxable equivalent) was $130.1 million, up 9.9% from the prior-year quarter. Moreover, it surpassed the Zacks Consensus Estimate of $128.0 million.
Net interest income (taxable equivalent) came in at $82.4 million, up 6.3% year over year. However, net interest margin (NIM) declined 13 basis points from the prior-year quarter to 3.96%.
Fees, service charges and other revenues (excluding securities gain and derivative gains) were $47.5 million, up 25.2% from $38.0 million in the prior-year quarter.
Total operating expenses were $96.7 million, up 8.6% year over year. However, efficiency ratio fell to 72.96% from 75.26% in the previous-year quarter. Decrease in efficiency ratio indicates rise in profitability.
Credit quality improved in the quarter. Net charge-offs were $0.3 million or 0.02% of average total loans, down from $0.4 million or 0.03% of average total loans in the year-ago quarter. Excluding covered loans, allowance for loan losses as of Sep 30, 2013, was $42.3 million, down 16.1% year over year.
Further, provision for loan losses was a benefit of $1.7 million, compared with the prior-year quarter provision of $0.4 million.
Capital and Profitability Ratios
Old National Bancorp’s capital and profitability ratios improved. As of Sep 30, 2013, Tier 1 capital ratio was 14.2%, up from 12.9% in the year-ago quarter. However, Tier 1 risk-based capital ratio was 15.1%, increasing from 14.1% as of Sep 30, 2012.
Return on average assets improved to 1.00% from 0.91% in the prior-year quarter. As of Sep 30, 2013, tangible common equity ratio was 8.23%, up from 7.17% in the year-ago quarter.
In the reported quarter, Old National Bancorp repurchased 0.3 million shares.
Along with the earnings release, Old National Bancorp declared a quarterly cash dividend of 10 cents per share. The dividend will be paid on Dec 16, 2013, to shareholders of record on Dec 2, 2013.
In Sep 2013, Old National Bancorp announced that it will acquire Tower Financial Corporation (TOFC) in a cash and stock deal for nearly $107.7 million. Under the terms, shareholders of Tower Financial will receive 1.20 shares of Old National Bancorp stock and $6.75 in cash for each share of Tower Financial common stock.
The transaction is expected to close in the first quarter of 2014. The deal is still subject to approval by regulatory authorities and Tower Financial Corporation shareholders.
Performance of Other Midwest Banks
Associated Banc-Corp’s (ASBC) third-quarter 2013 earnings per share beat the Zacks Consensus Estimate by a penny. Better-than-expected results were driven by growth in net interest income and lower operating expenses, partially offset by a fall in non-interest income. Moreover, improvement in asset quality as well as loans and deposits were the other positives.
Old National Bancorp’s consistent capital deployment makes it an attractive option for yield-seeking investors. Further, we expect the company’s organic and inorganic growth strategies to boost performance going forward. However, persistently rising operating expenses, a low rate environment and increased regulations will likely dent the company’s growth in the near term.
Currently, Old National Bancorp carries a Zacks Rank #3 (Hold).