Old National Bancorp reported a strong performance for the third quarter of 2023, with growth in deposits, controlled funding costs, stable credit quality, and slightly positive loan growth. The company reported earnings per share (EPS) of $0.49 for the quarter, with an adjusted EPS of $0.51 per common share.
Key takeaways from the call include:
- Old National Bancorp achieved significant year-over-year tangible book value growth and maintained an adjusted efficiency ratio below 50%.
- Total and core deposit balances increased by 3% during the quarter.
- The company expects the loan portfolio to grow modestly for the remainder of the year.
- The company is not considering share repurchases or dividend actions at this time.
- Old National Bancorp anticipates fourth-quarter growth in the low-single-digit range and expects fee businesses to remain stable.
The company's focus on deposit acquisitions led to a 3% growth in deposits, resulting in a better funding mix and better-than-expected net interest income. The credit quality remained stable, and they managed expenses with an adjusted efficiency ratio of 49.7%.
Old National Bancorp reported a decline in deposit costs, which will lead to a 3-4% decline in net interest income (NII) in the fourth quarter. However, the company noted that nearly $3.5 billion in fixed-rate loans will be repriced over the next 12 months, providing some offset to the decline in NII.
Regarding the 2024 growth strategy, the company plans to continue hiring selectively and expanding relationships with new clients. The company mentioned that there have been forced downgrades of certain relationships, with about half of the downgrades coming from the shared national credit book. The downgrades were primarily debt service coverage related.
In terms of their investment portfolio, Old National Bancorp stated that no major restructuring is planned. They noted that rate cuts in the second half of 2024 could provide an upside. They also clarified that the loans coming due were underwritten at a higher interest rate and that they have the ability to reprice deposits quickly if rate cuts occur.
During the earnings call, Mark Sander explained that the debt service coverage was the main issue, affecting six different credits across various industries. Looking at the numbers for 2022, he suggested that there may be more to come in 2023. Brendon Falconer clarified that the loans were underwritten at a 7% interest rate and were expected to cash flow given the current market rates.
The call concluded with a closing statement and information on accessing call replays.
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