Old National Bancorp — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023 unless stated otherwise. Amounts are U.S. dollars; financial statement amounts are rounded to millions. Old National is a Midwest-focused commercial and consumer bank with $49.5 billion in assets.
Financial performance and condition
| Metric | Q1 2024 | Comparison |
|---|---|---|
| Net interest income | $356.5 million | Down 6.6% year over year and $8.0 million from Q4 2023 |
| Net interest margin | 3.28% taxable-equivalent; 3.23% GAAP | Taxable-equivalent margin was 3.69% in Q1 2023 and 3.39% in Q4 2023 |
| Noninterest income | $77.5 million | Up 9.7% year over year, partly because Q1 2023 included securities-sale losses |
| Total revenue | $434.0 million | Net interest income plus noninterest income; down from $452.2 million in Q1 2023 |
| Provision for credit losses | $18.9 million | Up 40.6% year over year; included $23.9 million provision on loans, partly offset by a $5.0 million release for unfunded commitments |
| Noninterest expense | $262.3 million | Up 4.6% year over year; efficiency ratio 58.34% versus 52.81% |
| Net income / common diluted EPS | $120.3 million / $0.40 | Common net income was $116.3 million, down 18.5%; diluted EPS was $0.49 in Q1 2023 and $0.44 in Q4 2023 |
| Adjusted common net income / diluted EPS | $130.8 million / $0.45 | Non-GAAP measures; versus $134.6 million / $0.46 in Q4 2023 |
| Operating cash flow | $104.2 million | Investing cash outflow of $766.1 million and financing inflow of $426.3 million; cash and equivalents fell $235.6 million to $939.5 million |
- Loans and deposits: Total loans grew $631.4 million, or 1.9%, to $33.6 billion, led by commercial real estate growth. Deposits rose $464.2 million, or 1.2%, to $37.7 billion. Noninterest-bearing demand deposits fell $406.5 million, while money-market and time deposits increased.
- Funding and liquidity: Borrowed funds totaled $5.33 billion, essentially unchanged from year-end; wholesale funding was 12% of total funding. The bank reported $13.7 billion of available funds at subsidiaries, including cash, unencumbered securities, and borrowing capacity, based on pledged collateral.
- Capital: Consolidated CET1 was 10.76%, Tier 1 capital 11.40%, total capital 12.74%, and leverage 8.96%. The bank reported that it met the regulatory definition of well-capitalized.
- Credit: Allowance for loan losses was $319.7 million, or 0.95% of loans. Net charge-offs were $11.8 million, 0.14% annualized of average loans, versus $16.4 million and 0.21% a year earlier. Nonaccrual loans rose to $328.6 million from $274.8 million; nonperforming loans were 0.98% of loans versus 0.83% at year-end. Criticized and classified assets increased to $1.84 billion from $1.77 billion.
- Securities and equity: Available-for-sale securities had net unrealized losses of approximately $914 million; held-to-maturity securities had approximately $454 million of net unrealized losses. Management stated it did not intend, and did not expect to be required, to sell securities in unrealized-loss positions before recovery. Shareholders’ equity was $5.60 billion; AOCI loss widened to $779.6 million.
Changes, unusual items, and outlook
- Year-over-year earnings pressure reflected higher funding costs: interest expense increased to $239.5 million from $114.2 million, more than offsetting growth in interest income. Management cited a 130-basis-point rise in the cost of interest-bearing liabilities, versus a 67-basis-point increase in earning-asset yield.
- Q1 results included a $13.3 million noncash pretax expense from distributing excess assets upon resolution of the legacy First Midwest pension plan, a $3.0 million FDIC special assessment, and $2.9 million of merger-related charges. The filing’s adjusted earnings exclude specified items and are non-GAAP.
- Asset-quality deterioration was concentrated in migration of certain commercial credits and higher criticized/classified commercial real estate loans. Office real estate loans were $1.90 billion, with $51.6 million nonaccrual; management said it targeted review of non-owner-occupied CRE maturities. $430.2 million of non-owner-occupied CRE loans, or 1.3% of total loans, mature within 18 months and carry rates below 4%.
- CapStar Financial Holdings acquisition closed April 1, 2024, after the reporting date. The all-stock transaction included $418 million of consideration at closing and brought approximately $3.0 billion of assets, $2.3 billion of loans, and $2.6 billion of deposits. Systems conversion was expected in Q3 2024. Integration costs, execution, and realization of expected benefits are risks.
- No formal earnings or financial guidance is provided in the supplied filing text. Management described disciplined loan growth, deposit gathering, strong credit quality, and expense management, while noting modest net-interest-income compression from funding costs and fewer days in the quarter. Its rate-sensitivity model estimated two-year cumulative NII changes from the base case ranging from -4.47% at an immediate 300-basis-point rate decrease to +2.37% at a 300-basis-point increase; management cautioned that model outputs are not guarantees.
- Other disclosed risks include economic and interest-rate uncertainty, deposit and liquidity dynamics, credit-loss assumptions, CRE conditions, cybersecurity and operational risks, and merger integration. A $175 million senior unsecured note matures in August 2024. Management did not expect pending ordinary-course litigation to have a material adverse effect.
Most important facts for investors to verify
- Whether deposit pricing and mix stabilize enough to support net interest income and margin after the continued rise in funding costs.
- Whether nonaccrual, criticized, and classified commercial and CRE exposures continue to increase, and whether the allowance remains adequate as loans grow.
- CapStar integration progress, costs, systems-conversion timing, and realized strategic or financial benefits.
- Liquidity and funding composition, including deposit retention, wholesale funding access, and repayment or refinancing of the August 2024 senior note.
- Changes in the securities portfolio’s unrealized losses and AOCI, and whether funding needs could require securities sales before recovery.
- Performance underlying reported earnings after the pension-plan, FDIC assessment, merger, and other excluded items; adjusted figures are non-GAAP.