Press Release

Old National reports 4th quarter net income of $47.5 million, or $0.28 earnings per share

Company Release - 1/22/2019 6:30 AM ET

EVANSVILLE, Ind., Jan. 22, 2019 (GLOBE NEWSWIRE) --

Old National Bancorp (NASDAQ: ONB) reports 4Q18 net income of $47.5 million, diluted EPS of $0.28.
Adjusted1 net income of $54.1 million, or $0.32 per diluted share.

2018 annual net income of $190.8 million, diluted EPS of $1.22.
Adjusted1 2018 annual net income of $201.8 million,  diluted EPS of $1.29.

CEO COMMENTARY:

“Old National’s strong 4th quarter – punctuated by the 2nd highest commercial loan production in our history - capped a year of outstanding performance that included $283.2 million in organic commercial loan growth, positive operating leverage and strong credit and capital ratios,” said Old National Chairman & CEO Bob Jones. “The 4th quarter also saw us continue to execute our growth strategy by closing on our KleinBank partnership, which effectively doubles our presence in the state of Minnesota.”

FOURTH-QUARTER HIGHLIGHTS2:

Net Income

  • Net income of $47.5 million
  • Earnings per share of $0.28

Net Interest Income/NIM

  • Net interest income on a fully taxable equivalent basis was $149.3 million, up 11.7%
  • Net interest margin on a fully taxable equivalent basis was 3.64% compared to 3.51%

Operating Performance

  • Pre-provision net revenue1 (“PPNR”) was $57.2 million
  • Adjusted PPNR1 was $67.0 million, up 16.0% over fourth quarter of 2017
  • Noninterest expense was $150.3 million
  • Adjusted noninterest expense1 was $126.9 million
  • Efficiency ratio1 was 70.33%
  • Adjusted efficiency ratio1 was 63.31%, a 27 basis point improvement from fourth quarter of 2017

Loans and Credit Quality

  • End-of-period total loans3 were $12,258.8 million compared to $11,314.0 million
  • End-of-period commercial and industrial loans were $3,233.0 million compared to $2,949.3 million
  • Fourth quarter total commercial production was $594.0 million; December 31 pipeline was $1.5 billion 
  • Provision for loan losses was $3.4 million compared to $0.8 million
  • Net charge-offs were $0.6 million, or 0.02% annualized, compared to net charge-offs of $1.7 million
  • Non-performing loans were 1.43% of total loans compared to 1.47%

Capital Returns

  • Return on average common equity was 7.59%
  • Return on average tangible common equity1 was 13.84%
  • Adjusted return on average tangible common equity1 was 15.62%

Notable Items

  • Closing of Klein partnership on November 1, 2018
  • Sale of 10 Wisconsin branches resulting in a $14.0 million net gain
  • $14.8 million in merger/integration charges and $7.5 million in ONB Foundation funding
  • $7.6 million in incentive compensation annual true-ups and benefit adjustments driven by higher hospitalization costs
  • $1.1 million in tax credit amortization

1 Non-GAAP financial measure that Management believes is useful in evaluating the financial results of the Company – please refer to the Non-GAAP reconciliations contained in this release     2 Comparisons are on a linked-quarter basis, unless otherwise noted    3 Includes loans held for sale

RESULTS OF OPERATIONS

Old National Bancorp reported fourth-quarter 2018 net income of $47.5 million, or $0.28 per diluted share. 

Included in the fourth quarter were pre-tax charges of $14.8 million for merger and integration and $7.5 million in ONB Foundation funding.  The current quarter also included a $14.0 million net gain resulting from the sale of 10 Wisconsin branches.  Excluding these items from the current quarter and netting out securities gains, Old National would have reported net income of $54.1 million, or $0.32 per share. The fourth quarter also included $7.6 million in incentive compensation annual true-ups and benefit adjustments driven by higher hospitalization costs.

As was previously disclosed, Old National closed on its partnership with Minnesota-based Klein Financial, Inc. (Klein) as of November 1, 2018. 

LOANS
Pipeline and production remain strong with paydowns impacting outstandings; quarterly balances benefitted from the Klein partnership.

  • Period-end total loans increased to $12,258.8 million at December 31, 2018 from $11,314.0 million at September 30, 2018.
  • Total loans acquired though the partnership with Klein were $1,049.1 million as of the date of closing.
  • Fourth quarter commercial loan production was $594.0 million, second highest in company history, while period-end pipeline totaled $1.5 billion.
  • On average, total loans in the fourth quarter were $11,972.6 million, up from $11,291.7 million in the third quarter of 2018.
  • For the full-year 2018, total loans grew $1,122.8 million. Excluding the $1,049.1 million in loans acquired from Klein and the $64.9 million in student loans sold in the second quarter, organic loan growth for the full year was $138.6 million. 
  • For the full-year 2018, total commercial loans increased to $8,191.8 million.  Excluding the $836.8 million in commercial loans acquired from Klein, organic commercial loan growth was $283.2 million.

DEPOSITS
A low-cost core deposit franchise continues to be one of Old National’s strengths.

  • Period-end total deposits increased to $14,349.9 million at December 31, 2018, from $12,598.2 million at September 30, 2018.
  • Total deposits assumed from Klein were $1,713.1 million.  Total deposits sold during the fourth quarter (as part of the Wisconsin branch sale) totaled $230.6 million.  Excluding these transactions, organic deposit growth for the quarter was $269.3 million, or 8.5% annualized.
  • On average, total deposits in the fourth quarter were $13,620.6 million, compared to $12,597.8 million in the third quarter of 2018. 
  • For the full-year 2018, total deposits grew $1,744.2 million.  Excluding the deposits assumed and the deposits sold (as noted above), organic deposit growth was $261.7 million, or 2.1%, for the year.

NET INTEREST INCOME AND MARGIN
Controlled deposit costs and the Klein partnership benefited both net interest income and margin in the fourth quarter.

  • Net interest income increased to $146.2 million in the fourth quarter of 2018 from $130.8 million in the third quarter of 2018, benefitting primarily from the Klein partnership.
  • The net interest margin on a fully taxable equivalent basis increased 13 basis points to 3.64% compared to 3.51% in the third quarter of 2018.
  • Accretion income was $11.3 million, or 27 basis points of net interest margin, in the fourth quarter of 2018 compared to $7.3 million, or 19 basis points of net interest margin, in the third quarter of 2018.  In the fourth quarter of 2018, accretion income was 5.8% of adjusted total revenue.
  • Loan yields, excluding accretion income, increased 11 basis points to 4.42%.
  • The cost of total deposits rose 4 basis points to 0.40% in the fourth quarter of 2018 while the cost of total interest-bearing deposits rose 7 basis points to 0.56%.

CREDIT QUALITY
Strong credit quality remains a hallmark of the Old National franchise, with larger quarterly provision driven mostly by two specific reserves.

  • Asset quality remained strong with net charge-offs in the fourth quarter of $0.6 million, or 0.02% of total average loans, and 30-89 day delinquencies of 0.39%.
  • Provision expense for the fourth quarter was $3.4 million, driven primarily by two specific reserves.
  • Non-performing loans as a percentage of total loans was 1.43%. 
  • In accordance with current accounting practices, the loans acquired from recent acquisitions were recorded at fair value with no allowance recorded at the acquisition date.  As of December 31, 2018, the remaining discount on these acquired loans was $121.3 million.
  • The allowance for loan losses was $55.5 million, or 0.45% of total loans at December 31, 2018.

NONINTEREST INCOME
Noninterest income included a gain on sale of Wisconsin branches and demonstrated normal seasonal patterns in several fee income businesses.

  • Total noninterest income for the fourth quarter of 2018 was $58.2 million, an increase of $12.2 million from the third quarter of 2018.
  • Included in noninterest income in the fourth quarter was a net gain of $14.0 million from the sale of 10 Wisconsin branches.
  • Klein contributed $2.8 million to noninterest income during the quarter (for the two months since the closing of the partnership), which was offset by lower capital markets income (down $1.9 million) and the normal seasonal decline in mortgage banking revenue.
  • Securities losses were $0.4 million, compared to securities gains of $0.1 million in the third quarter of 2018.

NONINTEREST EXPENSE
Fourth quarter results demonstrated continued discipline with respect to expense management, helping to drive positive operating leverage1.

  • Noninterest expense for the fourth quarter of 2018 was $150.3 million and included $14.8 million in merger and integration charges, $7.5 million in ONB Foundation funding and $1.1 million in tax credit amortization.
  • Excluding these items, adjusted noninterest expense for the fourth quarter was $126.9 million, compared to the $108.4 million in adjusted noninterest expense in the third quarter of 2018. 
  • Klein noninterest expenses were $7.4 million during the fourth quarter (for the two months since the closing of the partnership).
  • The fourth quarter of 2018 also included $7.6 million in incentive compensation true-ups and benefit adjustments, which is included in adjusted noninterest expense defined above.
  • The fourth quarter efficiency ratio was 70.33%, while the adjusted efficiency ratio was 63.31%.
  • For the full year 2018, the efficiency ratio was 67.74%, while the adjusted efficiency ratio was 61.56%.
  • Adjusted operating leverage1 was +215 basis points in for the full-year 2018 as compared to 2017.

INCOME TAXES

  • On a fully taxable-equivalent basis, income tax expense in the fourth quarter was $6.3 million, resulting in a 11.7% FTE tax rate.

CAPITAL
Strong quarterly earnings drove capital ratios higher.

  • At the end of the fourth quarter, total risk-based capital was 12.3% and regulatory tier 1 capital was 11.4%.
  • Tangible common equity to tangible assets was 8.47% at the end of the fourth quarter compared to 8.08% in the third quarter of 2018.

NON-GAAP RECONCILIATIONS

 ($ in millions, except EPS, shares in 000s)4Q18Adjustments4Adjusted 4Q18
 Total Revenues (FTE)$207.5 $(13.6)$193.9 
 Less: Provision for Loan Losses (3.4) -  (3.4)
 Less: Noninterest Expenses (150.3) 22.3  (128.0)
 Income before Income Taxes (FTE)$53.8 $8.7 $62.5 
 Income Taxes (6.3) (2.1) (8.4)
 Net Income$47.5 $6.6 $54.1 
 Average Shares Outstanding 167,992  -  167,992 
 Earnings Per Share$0.28 $0.04 $0.32 

          4 Tax-effect calculations use the 2018 statutory FTE tax rates (federal + state)

 ($ in millions, except EPS, shares in 000s) 2018 Adjustments4Adjusted 2018
 Total Revenues (FTE)$744.3 $(18.7)$725.6 
 Less: Provision for Loan Losses (7.0) -  (7.0)
 Less: Noninterest Expenses (517.3) 33.3  (484.0)
 Income before Income Taxes (FTE)$220.0 $14.6 $234.6 
 Income Taxes (29.2) (3.6) (32.8)
 Net Income$190.8 $11.0 $201.8 
 Average Shares Outstanding 156,539  -  156,539 
 Earnings Per Share$1.22 $0.07 $1.29 

      4 Tax-effect calculations use the 2018 statutory FTE tax rates (federal + state)

 ($ in millions)4Q183Q18
 Net Interest Income$146.2 $130.8 
 FTE Adjustment 3.1  2.8 
 Net Interest Income (FTE)$149.3 $133.6 
 Average Earning Assets$16,398.3 $15,213.4 
 Net Interest Margin (FTE) 3.64% 3.51%


 ($ in millions)4Q183Q18
 Net Interest Income$146.2 $130.8 
 FTE Adjustment 3.1  2.8 
 Net Interest Income (FTE)$149.3 $133.6 
 Total Noninterest Income$58.2 $46.0 
 Noninterest Expense 150.3  119.4 
 Pre-Provision Net Revenue$57.2 $60.2 
 Less: Securities Gains/Losses 0.4  (0.1)
 Less: Gain on Branch Actions (14.0) (0.2)
 Add: Merger and Integration Charges 14.8  1.7 
 Add: Branch Action Charges and Severance -  0.1 
 Add: ONB Foundation Funding 7.5  - 
 Add: Amortization of Tax Credit Investments 1.1  9.2 
 Adjusted Pre-Provision Net Revenue$67.0 $70.9 


 ($ in millions)4Q183Q184Q17 2018  2017 
 Noninterest Expense$150.3 $119.4 $140.4 $517.3 $448.8 
 Less: Merger and Integration Charges (14.8) (1.7) (11.9) (21.3) (12.3)
 Less: Branch Action Charges, Severance, ONB
 Foundation Funding and Client Experience
 Initiative Charges
 
(7.5


)
 
(0.1
)  
(6.6
) (12.0) (14.0)
 Noninterest Expense less Charges$128.0 $117.6 $121.9 $484.0 $422.5 
 Less: Amortization of Tax Credit Investments (1.1) (9.2) (11.7) (22.9) (11.7)
 Adjusted Noninterest Expense$126.9 $108.4 $110.2 $461.1 $410.8 
 Less: Intangible Amortization (4.1) (3.3) (3.4) (14.4) (11.8)
 Adjusted Noninterest Expense Less Intangible
 Amortization
$122.8 $105.1 $106.8 $446.7 
$
399.0 
 Net Interest Income$146.2 $130.8 $118.6 $537.5 $437.2 
 FTE Adjustment 3.1  2.8  6.1  11.5  23.1 
 Net Interest Income (FTE)$149.3 $133.6 $124.7 $549.0 $460.3 
 Total Noninterest Income$58.2 $46.0 $44.8 $195.3 $183.3 
 Total Revenue (FTE)$207.5 $179.6 $169.5 $744.3 $643.6 
 Less: Securities Gains/Losses 0.4  (0.1) (1.6) (2.0) (9.1)
 Less: Gain on Student Loan Sale -  -  -  (2.2) - 
 Less: Gain on Branch Actions (14.0) (0.2) -  (14.5) (0.2)
 Adjusted Total Revenue (FTE)$193.9 $179.3 $167.9 $725.6 $634.3 
 Efficiency Ratio 70.33% 64.71% 81.60% 67.74% 68.87%
 Adjusted Efficiency Ratio 63.31% 58.67% 63.58% 61.56% 62.90%
      
 Operating Leverage5 (basis points) 1,536    40  
 Adjusted Operating Leverage6 (basis points) 30    215  

                                  5 Year-over-year basis point change in noninterest expenses plus change in total revenue
                                  6 Year-over-year basis point change in adjusted noninterest expense plus change in adjusted total revenue

 ($ in millions)4Q183Q18
 Net Income (Loss)$47.5 $51.3 
 Add: Intangible Amortization (net of tax7) 3.3  2.6 
 Tangible Net Income (Loss)$50.8 $53.9 
 Less: Securities Gains/Losses (net of tax7) 0.3  (0.1)
 Less: Gain on Branch Sale (net of tax7) (10.6) - 
 Add: Merger & Integration Charges (net of tax7) 11.2  1.3 
 Add: Branch Action Charges (net of gains) and Severance
 (net of tax7)
 -  (0.1
)
 Add: ONB Foundation Funding (net of tax7) 5.7  - 
 Adjusted Tangible Net Income (Loss)$57.4 $55.0 
 Average Total Shareholders’ Equity$2,503.8 $2,212.7 
 Less: Average Goodwill (969.4) (828.8)
 Less: Average Intangibles (66.9) (43.7)
 Average Tangible Shareholders’ Equity$1,467.5 $1,340.2 
 Return on Average Tangible Common Equity 13.84% 16.10%
 Adjusted Return on Average Tangible Common Equity 15.62% 16.42%

         7Tax-effect calculations use the 2018 statutory FTE tax rates (federal + state)

CONFERENCE CALL AND WEBCAST

Old National will host a conference call and live webcast at 7:00 a.m. Central Time on Tuesday, January 22, 2019, to review fourth-quarter and full-year 2018 financial results.  The live audio web cast of the call, along with the corresponding presentation slides, will be available on the Company’s Investor Relations web page at oldnational.com and will be archived there for 12 months.  A replay of the call will also be available from 10:00 a.m. Central Time on January 22 through February 5.  To access the replay, dial 1-855-859-2056, Conference ID Code 5499497.

ABOUT OLD NATIONAL
Old National Bancorp (NASDAQ: ONB) is the holding company of Old National Bank. Headquartered in Evansville with $19.7 billion in assets, it is a top 100 U.S. bank, the largest Indiana-based bank and has been recognized as a World’s Most Ethical Company by the Ethisphere Institute for seven consecutive years. For nearly 185 years, Old National has been a community bank committed to building long-term, highly valued relationships with clients. With locations in Indiana, Kentucky, Michigan, Minnesota and Wisconsin, Old National provides retail and commercial banking services along with comprehensive wealth management, investment and capital markets services. For information and financial data, please visit Investor Relations at oldnational.com.

USE OF NON-GAAP FINANCIAL MEASURES
This earnings release contains GAAP financial measures and non-GAAP financial measures where management believes it to be helpful in understanding Old National’s results of operations or financial position.  Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the tables of this release.

FORWARD-LOOKING STATEMENT

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements include, but are not limited to, descriptions of Old National Bancorp’s (“Old National’s”) financial condition, results of operations, asset and credit quality trends and profitability.  Forward-looking statements can be identified by the use of the words “anticipate,” “believe,” “expect,” “intend,” “could” and “should,” and other words of similar meaning.  These forward-looking statements express management’s current expectations or forecasts of future events and, by their nature, are subject to risks and uncertainties. There are a number of factors that could cause actual results to differ materially from those in such statements.  Factors that might cause such a difference include, but are not limited to: expected cost savings, synergies and other financial benefits from the merger with Klein that might not be realized within the expected timeframes and costs or difficulties relating to integration matters might be greater than expected; market, economic, operational, liquidity, credit and interest rate risks associated with Old National’s business; competition; government legislation and policies (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and its related regulations); ability of Old National to execute its business plan; changes in the economy which could materially impact credit quality trends and the ability to generate loans and gather deposits; failure or circumvention of our internal controls; failure or disruption of our information systems; significant changes in accounting, tax or regulatory practices or requirements; new legal obligations or liabilities or unfavorable resolutions of litigations; disruptive technologies in payment systems and other services traditionally provided by banks; computer hacking and other cybersecurity threats; other matters discussed in this press release; and other factors identified in our Annual Report on Form 10-K and other periodic filings with the SEC.  These forward-looking statements are made only as of the date of this press release, and Old National does not undertake an obligation to release revisions to these forward-looking statements to reflect events or conditions after the date of this press release.

        
Financial Highlights (unaudited) 
($ and shares in thousands, except per share data) 
        
 Three Months Ended  Twelve Months Ended 
 December 31,September 30,December 31, December 31,December 31, 
  2018  2018  2017   2018  2017  
Income Statement       
Net interest income$  146,225 $  130,842 $  118,556  $  537,602 $  437,168  
Provision for loan losses 3,390  750  1,037   6,966  3,050  
Noninterest income 58,154  45,957  44,825   195,305  183,382  
Noninterest expense   150,268    119,376    140,432     517,261    448,836  
Net income (loss) 47,498  51,348  (18,493)  190,830  95,725  
        
        
Per Common Share Data (Diluted)       
Net income (loss) available to common shareholders$  0.28 $  0.34 $  (0.13) $  1.22 $  0.69  
Average diluted shares outstanding 167,992  152,784  146,875   156,539  138,513  
Book value 15.36  14.58  14.17   15.36  14.17  
Stock price 15.40  19.30  17.45   15.40  17.45  
Dividend payout ratio 46% 38%N/M  42% 75% 
Tangible common book value (1)   9.00    8.86    8.37     9.00    8.37  
        
        
Performance Ratios       
Return on average assets 1.01% 1.18% -0.45%  1.07% 0.63% 
Return on average common equity 7.59% 9.28% -3.51%  8.42% 4.98% 
Return on average tangible common equity (1) 13.84% 16.10% -5.05%  14.97% 8.59% 
Net interest margin (FTE) 3.64% 3.51% 3.47%  3.54% 3.48% 
Efficiency ratio (2) 70.33% 64.71% 81.60%  67.74% 68.87% 
Net charge-offs (recoveries) to average loans 0.02% 0.06% 0.03%  0.02% 0.03% 
Allowance for loan losses to ending loans 0.45% 0.47% 0.45%  0.45% 0.45% 
Non-performing loans to ending loans 1.43% 1.47% 1.30%  1.43% 1.30% 
        
        
Balance Sheet       
Total loans$  12,243,892 $  11,292,659 $  11,118,121  $  12,243,892 $  11,118,121  
Total assets 19,728,435  17,567,759  17,518,292   19,728,435  17,518,292  
Total deposits 14,349,949  12,598,200  12,605,764   14,349,949  12,605,764  
Total borrowed funds 2,493,793  2,576,039  2,578,204   2,493,793  2,578,204  
Total shareholders' equity 2,689,570  2,220,680  2,154,397   2,689,570  2,154,397  
        
        
Capital Ratios (1)       
Risk-based capital ratios (EOP):       
  Tier 1 common equity 11.4% 11.1% 10.5%  11.4% 10.5% 
  Tier 1 11.4% 11.1% 10.4%  11.4% 10.4% 
  Total 12.3% 12.1% 11.4%  12.3% 11.4% 
Leverage ratio (to average assets) 9.2% 8.6% 8.3%  9.2% 8.3% 
        
Total equity to assets (averages) 13.28% 12.69% 12.69%  12.74% 12.57% 
Tangible common equity to tangible assets 8.47% 8.08% 7.65%  8.47% 7.65% 
        
        
Nonfinancial Data