Press Release

Old National’s record 2nd quarter net income increases 43% from a year ago to $63.0 million, or $0.36 per share

Company Release - 7/22/2019 6:30 AM ET

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

Old National Bancorp (NASDAQ: ONB) reports 2Q19 net income of $63.0 million, diluted EPS of $0.36.  Adjusted1 net income of $64.5 million, or $0.37 per diluted share.

CEO COMMENTARY:

“This was a quarter that saw Old National report record net income, strong loan production, good fee income and excellent credit metrics, all of which allowed us to continue to generate positive operating leverage,” said CEO Jim Ryan. “While loan prepayments and planned exits impacted overall balance sheet growth, activity levels were robust, and we successfully converted our KleinBank-Minnesota branches during the quarter.  Our granular loan portfolio and low-risk profile again resulted in very low credit costs, and Old National remains on a high-performance path.”

SECOND QUARTER HIGHLIGHTS2:

Net Income

  • Net income of $63.0 million, an increase of 43.1% from second quarter of 2018
  • Earnings per share of $0.36, an increase of 24.1% from second quarter of 2018

Net Interest Income/NIM

  • Net interest income on a fully taxable equivalent basis was $158.5 million, up 5.5%
  • Net interest margin on a fully taxable equivalent basis was 3.66% compared to 3.51%

Operating Performance

  • Pre-provision net revenue1 (“PPNR”) was $81.6 million
  • Adjusted PPNR1 was $84.2 million, up 28.4% over second quarter of 2018
  • Noninterest expense was $128.1 million
  • Adjusted noninterest expense1 was $124.3 million
  • Efficiency ratio1 was 59.35%
  • Adjusted efficiency ratio1 was 57.52%, a 416 basis point improvement from second quarter of 2018

Loans and Credit Quality

  • End-of-period total loans3 were $12,084.5 million compared to $12,083.1 million
  • Second-quarter total commercial production was a record $628.0 million; June 30 pipeline was $1.7 billion
  • Provision for loan losses was $1.0 million
  • Net charge-offs were $0.3 million, or 0.01% annualized, compared to net charge-offs of $0.9 million
  • Non-performing loans were 1.34% of total loans compared to 1.41%

Return Profile & Capital

  • Return on average common equity was 9.13%
  • Return on average tangible common equity1 was 16.04%
  • Adjusted return on average tangible common equity1 was 16.41%
  • Repurchased 1.8 million shares of common stock during the quarter

Notable Items

  • $3.2 million in merger and integration charges
  • $0.6 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 second-quarter 2019 net income of $63.0 million, or $0.36 per diluted share. 

Included in the second quarter were pre-tax charges of $3.2 million for merger and integration activity.  Excluding these charges from the current quarter and netting out debt securities gains, adjusted net income was $64.5 million, or $0.37 per diluted share.

LOANS
Record high commercial loan production; paydowns continued to impact outstandings.

  • Period-end total loans were $12,084.5 million at June 30, 2019, compared to $12,083.1 million at March 31, 2019.
  • Commercial and industrial loans increased to $3,074.8 million; commercial real estate loans decreased to $4,993.7 million; consumer loans decreased to $1,755.8 million.
  • Record commercial loan production in the second quarter of $628.0 million; period-end pipeline totaled $1.7 billion.
  • On average, total loans in the second quarter were $12,091.0 million, down from $12,152.1 million in the first quarter of 2019.

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

  • Period-end total deposits were $14,363.1 million at June 30, 2019, relatively flat despite normal seasonal patterns.
  • On average, total deposits in the second quarter were $14,369.5 million, compared to $14,211.0 million in the first quarter of 2019. 

NET INTEREST INCOME AND MARGIN
Net interest income and margin benefit from higher accretion and interest collected on nonaccrual loans as well as higher day count.

  • Net interest income increased to $155.2 million in the second quarter of 2019 from $147.0 million in the first quarter of 2019.
  • The net interest margin on a fully taxable equivalent basis increased 15 basis points to 3.66% compared to 3.51% in the first quarter of 2019, with 3 basis points of the increase due to more days offset by a 5 basis points decline from mix change.
  • Accretion income was $11.8 million, or 27 basis points of net interest margin, in the second quarter of 2019 compared to $8.9 million, or 21 basis points of net interest margin, in the first quarter of 2019.  In the second quarter of 2019, accretion income was 5.6% of adjusted total revenue.
  • Interest collected on nonaccrual loans was $5.7 million, or 13 basis points of net interest margin, in the second quarter of 2019 compared to $1.0 million, or 2 basis points of net interest margin, in the first quarter of 2019.
  • Loan yields, excluding accretion income and interest collected on nonaccrual loans, increased 3 basis points to 4.48%.
  • The cost of total deposits rose 6 basis points to 0.52% in the second quarter of 2019 while the cost of total interest-bearing deposits rose 6 basis points to 0.70%.

CREDIT QUALITY
Strong credit quality remains a hallmark of the Old National franchise.

  • Asset quality remained strong with net charge-offs in the second quarter of $0.3 million, or 0.01% of total average loans, and 30-89 day delinquencies of 0.34%.
  • Provision expense was $1.0 million in both the second quarter and first quarter of 2019.
  • Non-performing loans decreased as a percentage of total loans to 1.34%.
  • 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 June 30, 2019, the remaining discount on these acquired loans was $100.5 million.
  • The allowance for loan losses was $56.3 million, or 0.47% of total loans at June 30, 2019.

NONINTEREST INCOME
Noninterest income increased due to wealth management tax preparation fees and increases in mortgage banking revenue and capital markets fees.

  • Total noninterest income for the second quarter of 2019 was $51.2 million, an increase of $4.8 million from the first quarter of 2019.
  • Wealth management fees benefitted from seasonal tax preparation fees of $1.0 million.
  • Mortgage banking revenue increased $2.1 million, service charges on deposit accounts increased $0.7 million, while capital markets income increased $0.6 million.

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

  • Noninterest expense for the second quarter of 2019 was $128.1 million and included $3.2 million in merger & integration charges and $0.6 million in tax credit amortization.
  • Excluding these items, adjusted noninterest expense for the second quarter was $124.3 million, compared to the $121.5 million in adjusted noninterest expense in the first quarter of 2019. 
  • The second quarter efficiency ratio was 59.35%, while the adjusted efficiency ratio was 57.52%.

INCOME TAXES

  • On a fully taxable-equivalent basis, income tax expense in the second quarter was $17.6 million, resulting in a 21.9% FTE tax rate.
  • Income tax expense included the benefit of a $1.0 million state tax refund as well as $0.7 million in tax credit benefit.

CAPITAL
Strong quarterly earnings drove capital ratios higher.

  • At the end of the second quarter, total risk-based capital was 12.8% and regulatory tier 1 capital was 11.9%.
  • Tangible common equity to tangible assets was 8.92% at the end of the second quarter compared to 8.66% in the first quarter of 2019.
  • The Company repurchased 1.8 million shares of common stock during the second quarter with a weighted average price of $16.37 per share, excluding commissions.

NON-GAAP RECONCILIATIONS

($ in millions, except EPS, shares in 000s)2Q19Adjustments4Adjusted 2Q19
Total Revenues (FTE)$209.7 ($1.2) $208.5 
Less: Provision for Loan Losses (1.0)  -  (1.0) 
Less: Noninterest Expenses (128.1)  3.2  (124.9) 
Income before Income Taxes (FTE)$80.6 $2.0 $82.6 
Income Taxes 17.6  0.5  18.1 
Net Income$63.0 $1.5 $64.5 
Average Shares Outstanding 173,675  -  173,675 
Earnings Per Share - Diluted$0.36 $0.01 $0.37 
4 Tax-effect calculations use the current statutory FTE tax rates (federal + state)


($ in millions)2Q191Q19
Net Interest Income$155.2 $147.0 
Add: FTE Adjustment 3.3  3.2 
Net Interest Income (FTE)$158.5 $150.2 
Average Earning Assets$17,302.7 $17,143.6 
Net Interest Margin (FTE) 3.66%  3.51% 


($ in millions)2Q191Q19
Net Interest Income$155.2 $147.0
Add: FTE Adjustment 3.3  3.2
Net Interest Income (FTE)$158.5 $150.2
Add: Total Noninterest Income 51.2  46.4
Less: Noninterest Expense 128.1  123.0
Pre-Provision Net Revenue$81.6 $73.6
Less: Debt Securities Gains/Losses (1.2) 0.1
Add: Merger and Integration Charges 3.2  1.2
Add: Amortization of Tax Credit Investments 0.6  0.3
Adjusted Pre-Provision Net Revenue$84.2 $75.2


($ in millions)2Q191Q192Q18
Noninterest Expense$128.1 $123.0 $130.5 
Less: Merger and Integration Charges (3.2)  (1.2)  (2.5) 
Less: Branch Action Charges & Severance -  -  (1.6) 
Noninterest Expense less Charges$124.9 $121.8 $126.4 
Less: Amortization of Tax Credit Investments (0.6)  (0.3)  (11.9) 
Adjusted Noninterest Expense$124.3 $121.5 $114.5 
Less: Intangible Amortization (4.3)  (4.5)  (3.4) 
Adjusted Noninterest Expense Less Intangible Amortization$120.0 $117.0 $111.1 
Net Interest Income$155.2 $147.0 $132.0 
FTE Adjustment 3.3  3.2  2.8 
Net Interest Income (FTE)$158.5 $150.2 $134.8 
Total Noninterest Income 51.2  46.4  49.3 
Total Revenue (FTE)$209.7 $196.6 $184.1 
Less: Debt Securities Gains/Losses (1.2)  0.1  (1.5) 
Less: Gain on Student Loan Sale -  -  (2.2) 
Less: Gain on Branch Actions -  -  (0.3) 
Adjusted Total Revenue (FTE)$208.5 $196.7 $180.1 
Efficiency Ratio 59.35%  60.26%  69.58% 
Adjusted Efficiency Ratio 57.52%  59.51%  61.68% 
    
Operating Leverage5 (basis points) 1,574   
Adjusted Operating Leverage6 (basis points) 724   
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)2Q191Q19
Net Income$63.0 $56.3 
Add: Intangible Amortization (net of tax7) 3.2  3.4 
Tangible Net Income$66.2 $59.7 
Less: Securities Gains/Losses (net of tax7)  (0.9)   0.1 
Add: Merger & Integration Charges (net of tax7) 2.4  0.9 
Adjusted Tangible Net Income$67.7 $60.7 
Average Total Shareholders’ Equity$2,758.3 $2,714.2 
Less: Average Goodwill (1,036.3)  (1,036.3) 
Less: Average Intangibles (70.3)  (74.8) 
Average Tangible Shareholders’ Equity$1,651.7 $1,603.1 
Return on Average Tangible Common Equity 16.04%  14.88% 
Adjusted Return on Average Tangible Common Equity 16.41%  15.13% 
7Tax-effect calculations use the current 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 Monday, July 22, 2019, to review second quarter 2019 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 July 22 through August 5.  To access the replay, dial 1-855-859-2056, Conference ID Code 4869447.

ABOUT OLD NATIONAL
Old National Bancorp (NASDAQ: ONB) is the holding company of Old National Bank. Headquartered in Evansville with $20.1 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 eight consecutive years. For 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.

Media: Kathy A. Schoettlin (812) 465-7269
Investors: Lynell J. Walton (812) 464-1366


        
Financial Highlights (unaudited) 
($ and shares in thousands, except per share data) 
        
 Three Months Ended Six Months Ended
 June 30,March 31,June 30, June 30,June 30, 
  2019  2019  2018   2019  2018  
Income Statement       
Net interest income$155,230 $147,048 $131,963  $302,278 $260,535  
Provision for loan losses 1,003  1,043  2,446   2,046  2,826  
Noninterest income 51,214  46,416  49,289   97,630  91,194  
Noninterest expense 128,118  123,041  130,460   251,159  247,617  
Net income 62,964  56,276  44,001   119,240  91,984  
        
        
Per Common Share Data       
Net income (diluted)$0.36 $0.32 $0.29  $0.68 $0.60  
Average diluted shares outstanding 173,675  175,368  152,568   174,531  152,483  
Book value 16.28  15.82  14.44   16.28  14.44  
Stock price 16.59  16.40  18.60   16.59  18.60  
Dividend payout ratio 35% 41% 45%  38% 43% 
Tangible common book value (1) 9.86  9.44  8.70   9.86  8.70  
        
        
Performance Ratios       
Return on average assets 1.26% 1.14% 1.01%  1.20% 1.06% 
Return on average common equity 9.13% 8.29% 8.06%  8.72% 8.46% 
Return on average tangible common equity (1) 16.04% 14.88% 14.28%  15.47% 15.04% 
Net interest margin (FTE) 3.66% 3.51% 3.55%  3.59% 3.50% 
Efficiency ratio (2) 59.35% 60.26% 69.58%  59.79% 67.76% 
Net charge-offs (recoveries) to average loans 0.01% 0.03% -0.03%  0.02% -0.01% 
Allowance for loan losses to ending loans 0.47% 0.46% 0.48%  0.47% 0.48% 
Non-performing loans to ending loans 1.34% 1.41% 1.38%  1.34% 1.38% 
        
        
Balance Sheet       
Total loans$12,046,578 $12,068,977 $11,295,629  $12,046,578 $11,295,629  
Total assets 20,145,285  20,084,420  17,482,990   20,145,285  17,482,990  
Total deposits 14,363,101  14,429,270  12,596,376   14,363,101  12,596,376  
Total borrowed funds 2,726,481  2,639,038  2,530,104   2,726,481  2,530,104  
Total shareholders' equity 2,803,139  2,751,872  2,200,215   2,803,139  2,200,215  
        
        
Capital Ratios (1)       
Risk-based capital ratios (EOP):       
Tier 1 common equity 11.9% 11.8% 10.9%  11.9% 10.9% 
Tier 1 11.9% 11.8% 10.9%  11.9% 10.9% 
Total 12.8% 12.7% 11.9%  12.8% 11.9% 
Leverage ratio (to average assets) 8.8% 8.8% 8.3%  8.8% 8.3% 
        
Total equity to assets (averages) 13.82% 13.70% 12.54%  13.76% 12.48% 
Tangible common equity to tangible assets 8.92% 8.66% 7.98%  8.92% 7.98% 
        
        
Nonfinancial Data       
Full-time equivalent employees 2,829  2,908  2,683   2,829  2,683  
Number of branches 192  193  183   192  183  
        
(1) See "Non-GAAP Measures" table.       
(2) Efficiency ratio is defined as noninterest expense before amortization of intangibles as a percent of FTE net interest income and noninterest revenues, excluding net gains from debt securities transactions.  This presentation excludes amortization of intangibles and net debt securities gains, as is common in other company releases, and better aligns with true operating performance. 
FTE - Fully taxable equivalent basis  EOP - End of period actual balances    
        

 

        
 Income Statement (unaudited) 
($ and shares in thousands, except per share data)
        
 Three Months Ended Six Months Ended 
 June 30,March 31,June 30, June 30,June 30, 
  2019  2019  2018  2019  2018 
Interest income$189,063 $178,918 $153,736 $367,981 $301,442 
Less:  interest expense 33,833  31,870  21,773  65,703  40,907 
Net interest income 155,230  147,048  131,963  302,278  260,535 
Provision for loan losses 1,003  1,043  2,446  2,046  2,826 
Net interest income after provision for loan losses 154,227  146,005  129,517  300,232  257,709 
        
Wealth management fees 9,909  8,535  9,746  18,444  18,772 
Service charges on deposit accounts 11,515  10,826  10,765  22,341  21,524 
Debit card and ATM fees 5,419  5,503  5,080  10,922  9,945 
Mortgage banking revenue 7,135  5,011  5,189  12,146  9,381 
Investment product fees 5,591  5,271  5,066  10,862  10,097 
Capital markets income 3,150  2,517  896  5,667  1,394 
Company-owned life insurance 2,711  3,188  2,430  5,899  5,035 
Other income 4,716  5,702  8,586  10,418  12,716 
Gains (losses) on sales of debt securities 1,165  (103) 1,494  1,062  2,282 
Gains (losses) on derivatives (97) (34) 37  (131) 48 
Total noninterest income 51,214  46,416  49,289  97,630  91,194 
        
Salaries and employee benefits 71,566  71,183  66,592  142,749  130,771 
Occupancy 14,559  14,578  12,873  29,137  26,153 
Equipment 4,517  4,474  3,728  8,991  7,293 
Marketing 4,439  3,723  3,962  8,162  7,659 
Data processing 10,207  9,341  9,724  19,548  18,124 
Communication 2,849  3,054  2,772  5,903  5,836 
Professional fees 4,921  2,910  2,923  7,831  5,653 
Loan expenses 1,657  1,912  1,843  3,569  3,587 
FDIC assessment 1,454  2,087  3,161  3,541  5,806 
Amortization of intangibles 4,325  4,472  3,416  8,797  7,025 
Amortization of tax credit investments 568  260  11,858  828  12,574 
Other expense 7,056  5,047  7,608  12,103  17,136 
Total noninterest expense 128,118  123,041  130,460  251,159  247,617 
        
Income before income taxes 77,323  69,380  48,346  146,703  101,286 
Income tax expense 14,359  13,104  4,345  27,463  9,302 
Net income$62,964 $56,276 $44,001 $119,240 $91,984 
        
Diluted Earnings Per Share        
Net income$0.36 $0.32 $0.29 $0.68 $0.60 
        
Average Common Shares Outstanding       
Basic 172,985  174,734  151,878  173,855  151,800 
Diluted 173,675  175,368  152,568  174,531  152,483 
        
Common shares outstanding at end of period 172,231  173,979  152,351  172,231  152,351 
        
        

 

 
Balance Sheet (unaudited)
($ in thousands)
        
  June 30, March 31, June 30, 
   2019   2019   2018  
 Assets      
 Federal Reserve Bank account$40,945  $101,033  $43,889  
 Money market investments 20,210   10,909   10,359  
 Investments:      
 Treasury and government-sponsored agencies 725,327   782,486   647,058  
 Mortgage-backed securities 2,900,235   2,684,330   1,588,120  
 States and political subdivisions 1,186,311   1,252,448   1,110,087  
 Other securities 489,855   498,977   503,920  
 Total investments 5,301,728   5,218,241   3,849,185  
 Loans held for sale, at fair value 37,904   14,082   26,198  
 Loans:      
 Commercial 3,074,849   3,042,790   2,962,895  
 Commercial and agriculture real estate 4,993,693   5,023,620   4,451,772  
 Consumer:      
 Home equity 553,991   553,264   488,038  
 Other consumer loans 1,201,847   1,205,418   1,238,951  
 Subtotal of commercial and consumer loans 9,824,380   9,825,092   9,141,656  
 Residential real estate 2,222,198   2,243,885   2,153,973  
 Total loans 12,046,578   12,068,977   11,295,629  
 Total earning assets 17,447,365   17,413,242   15,225,260  
        
 Allowance for loan losses (56,292)  (55,559)  (53,660) 
 Non-earning Assets:      
 Cash and due from banks 239,831   211,174   219,626  
 Premises and equipment, net 493,481   490,216   449,304  
 Operating lease right-of-use assets 106,222