Old National Bancorp (ONBPP): A Diversified Midwest Powerhouse Delivering Consistent Results

Published on September 24, 2024 | Ticker: ONBPP

Old National Bancorp (NASDAQ: ONBPP) is a leading regional bank holding company headquartered in Evansville, Indiana, with a strong presence across the Midwest and Southeast regions. The company reported annual net income of $581,992,000 and annual revenue of $1,762,241,000 in its latest fiscal year. Additionally, Old National generated annual operating cash flow of $516,342,000 and annual free cash flow of $477,967,000, showcasing its ability to consistently generate robust cash flows.

In the second quarter of 2024, Old National reported GAAP earnings of $0.37 per common share, with adjusted earnings per share (EPS) of $0.46, exceeding consensus estimates by $0.02 or 5%. The company's adjusted return on average tangible common equity for the quarter was an impressive 17.2%, while its adjusted return on assets (ROA) was 1.12%. Notably, Old National's adjusted efficiency ratio for the quarter was a low 52.6%.

Excluding the impact of the recent CapStar Financial Holdings, Inc. acquisition, Old National's total deposit growth was 2.4% annualized during the quarter, while loan growth was 5.9% annualized. Including the CapStar transaction, deposits increased by a total of $2.3 billion, and loans grew by $2.6 billion in the quarter. The company's total cost of deposits for the quarter remained low at 216 basis points.

Business Overview

Old National Bancorp is a diversified financial services company with a strong presence in the Midwest and Southeast regions. The company operates through its wholly-owned subsidiary, Old National Bank, which provides a wide range of banking, wealth management, and capital markets services to its clients.

The company's commercial and commercial real estate (CRE) loan portfolios account for approximately 55% of its earning assets, with the remaining 45% comprising residential real estate and consumer loans. Old National's CRE portfolio is well-diversified across property types, with multifamily, warehouse/industrial, and retail being the largest segments. The company's average CRE loan size is $1.3 million, and it maintains a conservative underwriting approach, with an average debt service coverage ratio of nearly 1.5 times and a weighted average loan-to-value of 64%.

Old National's residential real estate loan portfolio totaled $6.9 billion as of June 30, 2024, representing 19% of its total loan book. The company's consumer loan portfolio, which includes automobile loans, personal loans, and home equity products, amounted to $2.9 billion, or 8% of total loans.

Geographical Diversification and Expansion

Old National's footprint spans the Midwest and Southeast regions, with a strong presence in Indiana, Illinois, Kentucky, Michigan, and Ohio. The company's recent acquisition of CapStar Financial Holdings, Inc. has expanded its franchise into several high-growth markets in Tennessee and North Carolina, further diversifying its geographic reach.

The CapStar transaction, which closed on April 1, 2024, added approximately $3.1 billion in total assets, $2.1 billion in loans, and $2.6 billion in deposits to Old National's balance sheet. The company successfully completed the integration of CapStar's operations in early July 2024, demonstrating its ability to execute strategic acquisitions and effectively integrate new markets and talent.

Financials

Old National's financial performance has been consistently strong, with the company reporting annual net income of $581,992,000 and annual revenue of $1,762,241,000 in its latest fiscal year. The company's annual operating cash flow was $516,342,000, and its annual free cash flow was $477,967,000, showcasing its ability to generate robust cash flows.

As of June 30, 2024, Old National's total assets stood at $53.1 billion, with a loan portfolio of $36.2 billion and total deposits of $40.0 billion. The company's loan-to-deposit ratio was 90.5%, indicating a well-balanced funding structure.

Old National's capital position remains strong, with a Common Equity Tier 1 (CET1) ratio of 10.73% and a total risk-based capital ratio of 12.71% as of June 30, 2024. These ratios exceed the regulatory "well-capitalized" thresholds, providing the company with ample flexibility to support future growth and navigate potential economic headwinds.

The company's asset quality metrics remain healthy, with a nonperforming loan ratio of 0.94% and a net charge-off ratio of 0.16% as of June 30, 2024. Old National's allowance for credit losses, including the reserve for unfunded commitments, stood at 108 basis points of total loans, reflecting its prudent risk management practices.

Liquidity

Old National's liquidity position is robust, with a diversified funding base and ample access to various sources of liquidity. As of June 30, 2024, the company's cash and cash equivalents totaled $1.2 billion, and it had significant borrowing capacity from the Federal Home Loan Bank and the Federal Reserve discount window.

The company's deposit base is well-diversified, with a healthy mix of noninterest-bearing demand deposits (23% of total deposits) and interest-bearing deposits (77% of total deposits). Old National's reliance on wholesale funding, such as brokered deposits and Federal Home Loan Bank advances, remains low, accounting for only 13% of total funding as of June 30, 2024.

Outlook

In its second quarter 2024 earnings release, Old National provided an updated outlook for the remainder of the year. The company expects net interest income to increase modestly in the third and fourth quarters, driven by higher asset yields and a stable cost of deposits.

The company's provision for credit losses is expected to remain within a range of 15 basis points to 20 basis points of average loans for the full year 2024, reflecting its disciplined underwriting and proactive risk management practices.

Old National's management team remains focused on executing its strategic priorities, which include organic loan and deposit growth, continued expansion of its wealth management and capital markets businesses, and disciplined expense management. The successful integration of CapStar and the company's strong presence in high-growth markets in the Southeast are expected to contribute to its future performance.

Risks and Challenges

While Old National's performance has been consistently strong, the company faces several risks and considerations that investors should be aware of. These include:

1. Interest rate risk: The company's net interest margin and profitability could be impacted by changes in interest rates and the shape of the yield curve.

2. Credit risk: Although Old National's asset quality metrics are currently strong, a deterioration in economic conditions could lead to an increase in nonperforming loans and credit losses.

3. Regulatory and compliance risk: As a financial institution, Old National is subject to extensive regulatory oversight and must navigate a complex and evolving regulatory landscape.

4. Competition: The company operates in a highly competitive banking environment, which could pressure its ability to maintain market share and pricing power.

5. Execution risk: The successful integration of acquisitions, such as the CapStar transaction, is critical to realizing the expected synergies and benefits.

Conclusion

Old National Bancorp is a well-diversified regional banking powerhouse with a strong presence in the Midwest and Southeast regions. The company's consistent financial performance, robust capital position, and disciplined risk management practices position it well to navigate the current economic environment and capitalize on growth opportunities.

The successful integration of CapStar Financial Holdings and the company's focus on expanding its wealth management and capital markets businesses are expected to contribute to its future performance. While the company faces various risks, its experienced management team and proven track record of execution provide confidence in its ability to continue delivering value to shareholders.

You may be interested in...

Old National Bancorp (ONB): A Resilient Midwest Powerhouse Navigating the Evolving Banking Landscape

Business Overview: Old National Bancorp (ONB) is a prominent regional banking institution that has established a strong presence across the Midwest and Southeast regions of the United States. With a history dating back to 1834, the company has evolved into a diversified financial services provider, offering a comprehensive suite of banking, wealth management, and capital markets solutions to its growing customer base.

Old National Bancorp (ONBPP): A Midwest Powerhouse Navigating Growth and Resilience

Business Overview and History Old National Bancorp was founded in 1834 in Evansville, Indiana, initially serving the local community. Over the decades, the bank has undergone strategic expansions and acquisitions, establishing itself as a prominent player in the Midwest and Southeast banking landscape. In its early years, Old National focused on providing basic banking services to its local customers, demonstrating resilience during economic challenges such as the Great Depression. The company's growth trajectory accelerated in the 2000s, with several key acquisitions shaping its current market position. In 2006, Old National acquired Monroe Bancorp, solidifying its presence in central and southern Indiana. This was followed by the acquisitions of Integra Bank Corporation in 2011 and United Commerce Bancorp in 2013, further strengthening the company's market share. Despite facing challenges during the financial crisis of the late 2000s, Old National successfully maintained strong capital levels and credit quality, allowing it to continue its expansion strategy. More recent acquisitions include First Midwest Bancorp in 2022 and CapStar Financial Holdings in 2024, significantly increasing the bank's presence in the Midwest and Southeast regions. As of December 31, 2023, Old National Bancorp had become the sixth largest commercial bank headquartered in the Midwest, with over $54 billion in assets. In 2024, the company made another significant move by acquiring Bremer Financial Corporation, a Minnesota-based bank with $16.2 billion in assets. This transaction bolstered Old National's presence in the attractive Twin Cities market, making it the third-largest bank in the region.

Old National Bancorp (ONBPO): Adapting to Change, Delivering Consistent Results

Old National Bancorp (ONBPO) is a diversified financial services company with a rich history dating back over a century. Headquartered in Evansville, Indiana, the company has grown to become a leading regional bank, serving customers across the Midwest and Southeast regions of the United States.

Old Point Financial Corporation (OPOF) – A Comprehensive Look at this Community Bank’s Long-Term Strategy

Old Point Financial Corporation (OPOF) is a holding company that operates primarily through its two wholly-owned subsidiaries: The Old Point National Bank of Phoebus (the Bank) and Old Point Trust & Financial Services, N.A. (Wealth). The Company has a rich history spanning over a century, having been founded in 1922 as The Old Point National Bank of Phoebus. Over the years, Old Point has evolved into a diversified financial institution serving the Hampton Roads and Richmond regions of Virginia.

Old Second Bancorp (OSBC): A Promising Community Bank Navigating Market Challenges

Old Second Bancorp, Inc. (OSBC) is a bank holding company headquartered in Aurora, Illinois, with a strong presence in the Chicago metropolitan area. Founded in 1871, the company has established itself as a reliable community bank, serving the financial needs of individuals and businesses across its 48 banking centers.