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Old National Bancorp Reports Operating Results (10-Q)

October 30, 2009 | About:
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10qk

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Old National Bancorp (ONB) filed Quarterly Report for the period ended 2009-09-30.

Old National Bancorp is a bank holding company that operates banking offices and ATMs throughout Indiana Illinois Ohio Kentucky and Tennessee. Through various subsidiaries Old National provides a broad range of banking services as well as trust and investment management services insurance brokerage services for both individuals and companies and investment products. (Company Press Release) Old National Bancorp has a market cap of $899.7 million; its shares were traded at around $10.65 with a P/E ratio of 18 and P/S ratio of 1.6. The dividend yield of Old National Bancorp stocks is 2.6%. Old National Bancorp had an annual average earning growth of 5.7% over the past 5 years.

Highlight of Business Operations:

Average earning assets were $6.995 billion for the three months ended September 30, 2009, compared to $6.804 billion for the three months ended September 30, 2008, an increase of 2.8%, or $190.5 million. Average earning assets were $7.189 billion for the nine months ended September 30, 2009, compared to $6.878 billion for the nine months ended September 30, 2008, an increase of 4.5%, or $311.5 million. Significantly affecting average earning assets at September 30, 2009 compared to September 30, 2008, was the increase in the size of the investment portfolio combined with the reduction of the size of the loan portfolio. During the nine months ended September 30, 2009, $1.842 billion of investment securities were purchased and $915.8 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. 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.

Also affecting margin was an increase in noninterest-bearing demand deposits and time deposits. Included in deposits at September 30, 2009 are $88.8 million of noninterest-bearing deposits and $126.2 million of time deposits from the Citizens Financial branch acquisition. In the fourth quarter of 2008, $19.3 million of high cost brokered certificates of deposit were called or matured. In addition, $25.0 million of FHLB advances matured in the fourth quarter of 2008 and a revolving credit facility with $55 million outstanding was paid off in the fourth quarter of 2008. During the first nine months of 2009, $81.0 million of high cost brokered certificates of deposit were called and $67.1 million of retail certificates of deposit were called. In addition, $25.0 million of FHLB advances were prepaid in the first nine months of 2009. Year over year, brokered certificates of deposit, which have an average interest rate higher than other types of deposits, have decreased as a percent of interest-bearing liabilities. Year over year, noninterest-bearing demand deposits have increased as a percent of total funding. Funding from client deposits generally cost less than wholesale funding, but not in the current market.

Salaries and benefits is the largest component of noninterest expense. For the three months ended September 30, 2009, salaries and benefits were $46.5 million compared to $40.5 million for the three months ended September 30, 2008. For the nine months ended September 30, 2009, salaries and benefits were $134.4 million compared to $126.0 million for the nine months ended September 30, 2008. Included in the third quarter of 2009 is approximately $4.7 million of personnel expense associated with the acquisition of the Indiana retail branch banking network of Citizens Financial Group. Included in the first nine months of 2009 is approximately $10.0 million of personnel expense associated with the acquisition of the Indiana retail branch banking network of Citizens Financial Group and $2.0 million for higher medical insurance expense. Partially offsetting these increases was a $2.0 million decrease in performance-based incentive compensation expense during the nine months ended September 30, 2009.

Total funding, comprised of deposits and wholesale borrowings, was $6.829 billion at September 30, 2009, an increase of 1.5% from $6.725 billion at September 30, 2008, and an annualized decrease of 1.5% from $6.907 billion at December 31, 2008. Included in total funding were deposits of $5.694 billion at September 30, 2009, an increase of $348.1 million, or 6.5%, compared to September 30, 2008, and an increase of $272.1 million compared to December 31, 2008. Included in total deposits at September 30, 2009 is $342.5 million from the acquisition of the Indiana retail branch banking network of Citizens Financial Group. In the fourth quarter of 2008, $19.3 million of high cost brokered certificates of deposit were called or matured. During the first nine months of 2009, $81.0 million of high cost brokered certificates of deposit were called and $67.1 million of retail certificates of deposit were called. Noninterest-bearing deposits increased 23.7% or $200.2 million compared to September 30, 2008. Time deposits increased 6.9% or $132.2 million compared to September 30, 2008. 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, 2009, wholesale borrowings, including short-term borrowings and other borrowings, decreased $244.3 million, or 17.7%, from September 30, 2008 and decreased $349.8 million, or 31.4%, annualized, from December 31, 2008, respectively. Wholesale funding as a percentage of total funding was 16.6% at September 30, 2009, compared to 20.5% at September 30, 2008, and 21.5% at December 31, 2008. Short-term borrowings have decreased $215.6 million since September 30, 2008 while long-term borrowings have decreased $28.7 million since September 30, 2008. We purchased $25.0 million of low-cost FHLB advances during the fourth quarter of 2008. In addition, $25.0 million of FHLB advances matured in the fourth quarter of 2008 and a revolving credit facility with $55.0 million outstanding was paid off in the fourth quarter of 2008. During the first nine months of 2009, $25.0 million of FHLB advances were prepaid.

During the fourth quarter of 2007, we declared a cash dividend of $0.23 per share to be paid in the first quarter of 2008, which was included in the fourth quarter 2007 financial results. We paid cash dividends of $0.07 and $0.37 per share for the three and nine months ended September 30, 2009, which reduced equity by $24.4 million. We also accrued dividends on the preferred shares for the three months ended March 31, 2009, which reduced equity by $1.2 million. We declared cash dividends of $0.23 and $0.46 for the three and nine months ended September 30, 2008, which reduced equity by $30.5 million. We repurchased shares of our stock, reducing shareholders equity by $0.4 million during the nine months ended September 30, 2009, and $0.4 million during the nine months ended September 30, 2008. The repurchases related to our employee stock based compensation plans. The change in unrealized losses on investment securities increased equity by $37.3 million during the nine months ended September 30, 2009, and decreased equity by $40.6 million during the nine months ended September 30, 2008. Shares issued for stock options, restricted stock and stock compensation plans increased shareholders equity by $3.8 million during the nine months ended September 30, 2009, compared to $2.9 million during the nine months ended September 30, 2008.

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