Despite steady mergers and acquisitions, Old National Bancorp. (ONB) kept expenses under control and came out with fourth-quarter 2013 earnings of 25 cents per share, which were in line with the Zacks Consensus Estimate. However, this was 8.7% above the year-ago quarter figure of 23 cents.
For full year 2013, Old National Bancorp recorded earnings per share of $1.00 versus 95 cents in 2012. Earnings for the year were also in line with the Zacks Consensus Estimate.
After completion of fourth-quarter 2013, the company had announced a dividend hike, which signaled improved earnings and prompted analysts to revise their estimates upward. As a result, the company came out with in line results for the reported quarter.
However, the company delivered solid results compared with the year-ago quarter. This could have given a boost to the stock price following the release, but the overall negative market sentiment more than offset the positives. Finally, shares of Old National Bancorp lost 4.8% on the day.
Decline in operating expenses, steady capital and profitability ratios as well as efficient capital deployment activities were the highlights of the quarter. However lower-than- expected revenue and higher provision for loan losses were the headwinds. Further credit quality was a mixed bag.
Net income in the quarter came in at $24.5 million, up 6.7% year over year. For the full year, net income came in at $100.9 million, increasing 10.1% from $91.7 million in 2012.
Performance in Detail
Total revenue (fully taxable equivalent) was $130.0 million, down 6.6% from the prior-year quarter. However, it beat the Zacks Consensus Estimate of $128.0 million.
For full year 2013, total revenue came in at $519.1 million, up 1.4% from $511.8 million in 2012. Total revenue also beat the Zacks Consensus Estimate of $508.0 million.
Net interest income (taxable equivalent) came in at $85.5 million, down 2.7% year over year. Moreover, net interest margin (NIM) declined 23 basis points from the prior-year quarter to 4.11%.
Fees, service charges and other revenues (excluding securities gain and derivative gains) were $44.1 million, down 6.0% from $46.9 million in the prior-year quarter.
Total operating expenses were $88.2 million, down 11.3% year over year. Moreover, the fourth-quarter figure includes a one-time merger and integration charge of $2.5 million and $0.5 million of Bank Secrecy Act/ Anti-Money Laundering (BSA/AML) penalty.
Efficiency ratio improved to 66.56% from 72.15% in the previous-year quarter. Decrease in efficiency ratio indicates improved profitability.
Credit Quality
Credit quality was mixed in the quarter. Net charge-offs were $1.9 million, down from $3.2 million in the year-ago quarter. Excluding covered loans, allowance for loan losses as of Dec 31, 2013, was $41.7 million, down 14.9% year over year.
However, provision for loan losses was $2.3 million compared with the prior-year quarter provision of $2.2 million.
Capital and Profitability Ratios
Old National Bancorp’s capital ratios were well above the required regulatory requirements. As of Dec 31, 2013, Tier 1 risk based capital ratio was 14.3%. Total risk-based capital ratio was 15.2% and Tier 1 Leverage Capital Ratio was 8.9%.
Return on average assets improved to 1.02% from 0.98% in the prior-year quarter. As of Dec 31, 2013, return on average common equity ratio was 8.40%, up from 7.73% in the year-ago quarter.
Capital Deployment
In the reported quarter, Old National Bancorp repurchased nearly 0.9 million shares while in 2013 the company repurchased 1.6 million shares.
On Jan 23, 2013, the board of directors approved an additional share repurchase of up to 2.0 million shares through Jan 31, 2015. Concurrently, the company announced a cash dividend of 11 cents per share, up 10.0% from the prior payout. The dividend will be paid on Mar 17 to stockholders of record as of Mar 3.
Acquisitions
In Jan 2014, Old National Bancorp entered into a definitive merger agreement with United Bancorp, Inc., the Ann Arbor, Mich.-based financial service provider. The deal is expected to closes by the end of second quarter 2014.
In Dec 2013, Old National Insurance, which is a wholly-owned subsidiary of Old National Bancorp, acquired the insurance accounts serviced by the Evansville branch of Wells Fargo Insurance – a division of Wells Fargo & Company (WFC).
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 performance, going forward.
However, 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).
Performance of Other Midwest Banks
Associated Banc-Corp’s (ASBC) earnings were in line with the Zacks Consensus Estimate. Results benefited from a decline in interest expense and a rise in core fee revenues.
Commerce Bancshares, Inc.’s (CBSH) earnings missed the Zacks Consensus Estimate. Results were negatively impacted by decline in net interest income and higher operating expense, partially offset by lower provision for loan losses and rise in non-interest income.
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