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Old National Bancorp Reports Operating Results (10-Q)

November 05, 2010 | About:
10qk

10qk

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Old National Bancorp (ONB) filed Quarterly Report for the period ended 2010-09-30.

Old National Bancorp has a market cap of $887.7 million; its shares were traded at around $9.95 with a P/E ratio of 53.6 and P/S ratio of 2.2. The dividend yield of Old National Bancorp stocks is 2.7%.ONB is in the portfolios of Chuck Royce of Royce& Associates, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

Net interest income was $54.2 million and $164.4 million for the three and nine months ended September 30, 2010, down from the $56.4 million and $176.4 million reported for the three and nine months ended September 30, 2009. Taxable equivalent net interest income was $57.3 million and $174.8 million for the three and nine months ended September 30, 2010, down from the $61.7 million and $193.1 million reported for the three and nine months ended September 30, 2009. The net interest margin on a fully taxable equivalent basis was 3.42% and 3.38% for the three and nine months ended September 30, 2010, compared to 3.51% and 3.57% for the three and nine months ended September 30, 2009. The decrease in both net interest income and net interest margin is primarily due to the decrease in the yield on interest earning assets being greater than the decrease in the cost of interest-bearing liabilities, combined with a change in the mix of interest earning assets and interest-bearing liabilities. The yield on average earning assets decreased 52 basis points from 5.03% to 4.51% while the cost of interest-bearing liabilities decreased 37 basis points from 1.81% to 1.44% in the quarterly year-over-year comparison. In the year-to-date comparisons, the yield on average assets decreased 55 basis points from 5.11% to 4.56% while the cost of interest-bearing liabilities decreased 34 basis points from 1.85% to 1.51%.

Average earning assets were $6.700 billion for the three months ended September 30, 2010, compared to $7.021 billion for the three months ended September 30, 2009, a decrease of 4.6%, or $320.4 million. Average earning assets were $6.887 billion for the nine months ended September 30, 2010, compared to $7.205 billion for the nine months ended September 30, 2009, a decrease of 4.4%, or $318.8 million. Significantly affecting average earning assets at September 30, 2010 compared to September 30, 2009, was the increase in the size of the investment portfolio combined with the increase in interest earning cash balances at the Federal Reserve and the reduction of the size of the loan portfolio. During the nine months ended September 30, 2010, $1.130 billion of investment securities were purchased and $882.0 million of investment securities were called by the issuers or sold. During the third quarter of 2009, approximately $258.0 million of leases held for sale were sold. In addition, commercial and commercial real estate loans have been affected by continued weak loan demand in our markets, more stringent loan underwriting standards and our desire to lower future potential credit risk by being cautious towards the real estate market. A $258.8 million decrease in average commercial loans was combined with a $108.6 million decrease in average commercial real estate loans. Year over year, the investment portfolio, which generally has an average yield lower than the loan portfolio, has increased as a percent of interest earning assets.

Salaries and benefits is the largest component of noninterest expense. For the three months ended September 30, 2010, salaries and benefits were $41.7 million compared to $46.5 million for the three months ended September 30, 2009. For the nine months ended September 30, 2010, salaries and benefits were $125.2 million compared to $134.4 million for the nine months ended September 30, 2009. The decrease in salaries and benefits in the quarterly comparison is a result of an 8.6% decline in full time equivalent employees, a $2.4 million decrease in performance-based incentive compensation expense and a $1.1 million decrease in profit sharing expense. Partially offsetting these decreases was $1.3 million of severance expense related to further full time equivalent employee reductions. Included in the first nine months of 2010 is a full nine months of expense associated with the acquisition of the Indiana retail branch banking network of Citizens Financial Group, which occurred in the first quarter of 2009. Offsetting this increase was the effect of the reduction in the number of employees, a $5.7 million decrease in performance-based incentive compensation expense and a $2.1 million decrease in profit sharing expense.

Other expense for the three months ended September 30, 2010, totaled $4.2 million, a decrease of $0.4 million compared to the three months ended September 30, 2009. Other expense for the nine months ended September 30, 2010, totaled $12.5 million, a decrease of $0.2 million compared to the nine months ended September 30, 2009. Included in the third quarter of 2010 is approximately $0.9 million in loss on extinguishment of debt for the prepayment of a long-term repurchase agreement, which was more than offset by a $1.5 million decrease in provision for unfunded commitments. Included in the nine months ended September 30, 2010 is approximately $2.3 million in loss on extinguishment of debt for the prepayment of an FHLB advance and two long-term repurchase agreements. Also included in the nine months ended September 30, 2010 is $0.9 million of expense related to the closing of five branches and associated lease terminations. These were more than offset by a $2.7 million decrease in provision for unfunded commitments and a $0.8 million decrease in travel expenses. The decrease in travel expenses is primarily related to the acquisition of the retail branch banking network of Citizens Financial Group in the first quarter of 2009.

Total funding, comprised of deposits and wholesale borrowings, was $6.385 billion at September 30, 2010, a decrease of 6.5% from $6.829 billion at September 30, 2009, and an annualized decrease of 10.5% from $6.934 billion at December 31, 2009. Included in total funding were deposits of $5.439 billion at September 30, 2010, a decrease of $254.9 million, or 4.5%, compared to September 30, 2009, and a decrease of $464.1 million compared to December 31, 2009. Noninterest-bearing deposits increased 21.2%, or $221.5 million, compared to September 30, 2009. Time deposits decreased 20.6%, or $419.8 million, while money market deposits decreased 17.8%, or $74.5 million, and NOW deposits decreased 4.6%, or $56.6 million, compared to September 30, 2009. Savings deposits increased 7.7%, or $74.6 million compared to September 30, 2009. Year over year, we have experienced an increase in noninterest-bearing demand deposits.

We use wholesale funding to augment deposit funding and to help maintain our desired interest rate risk position. At September 30, 2010, wholesale borrowings, including short-term borrowings and other borrowings, decreased $188.6 million, or 16.6%, from September 30, 2009 and decreased $84.2 million, or 10.9%, annualized, from December 31, 2009, respectively. Wholesale funding as a percentage of total funding was 14.8% at September 30, 2010, compared to 16.6% at September 30, 2009, and 14.9% at December 31, 2009. Short-term borrowings have increased $41.7 million since September 30, 2009 while long-term borrowings have decreased $230.3 million since September 30, 2009. The public offering of common stock, funds received in the Citizens Financial branch acquisition and proceeds from our finance lease sale have all contributed to less reliance on wholesale funding. In the fourth quarter of 2009, $105.0 million of FHLB advances were prepaid. In the second quarter of 2010, a senior unsecured note totaling $50.0 million matured and a $25.0 million FHLB advance and a $24.0 million long-term repurchase agreement were prepaid. In the third quarter of 2010, we prepaid a $25.0 million long-term repurchase agreement.

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10qk
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