1st Quarter Highlights:
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- Quarterly net income of $23.9 million increases 10.2% over 1st quarter 2012.
- Earnings per share of $.24 includes $1.7 million of BSA/AML project expenses, $.7 million of debt extinguishment charges.and $.6 million of branch optimization expenses along with a $2.4 million gain on the sale of nine banking centers.
- Growth in average core loans of 8.3% over 1st quarter 2012.
- Strong performance from insurance line of business.
- Noninterest expenses well controlled.
- Credit quality and capital positions remain strong.
Committed to our Strategic Imperatives
Old National’s strong performance through the most recent economic downturn, as well as its strong credit and capital positions, can be attributed to its unwavering commitment to the following strategic imperatives:
1. Strengthen the risk profile.
2. Enhance management discipline.
3. Achieve consistent quality earnings.
1. Strengthen the Risk Profile
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By GlobalDataCredit Quality
Overall credit quality performance in the 1st quarter of 2013 was strong, as Old National reported decreases in non-performing and problem loans and net charge-offs remained low compared to peer averages. Provision expense in the 1st quarter of 2013 was $.8 million, compared to $2.2 million in the 4th quarter of 2012 and $2.1 million in the 1st quarter of 2012. Net charge-offs for 1st quarter 2013 were $2.1 million, or .17% of average total loans on an annualized basis, similar to the $2.2 million, or .17% of average total loans in 4th quarter 2012 and well below the $4.2 million, or .36% of average total loans, in 1st quarter 2012.
Provision expense for the 1st quarter of 2013, excluding covered loans, was ($.6) million, compared to $1.8 million in 4th quarter 2012 and $1.0 million in 1st quarter 2012. Old National’s net charges-offs for the 1st quarter, excluding covered loans, were $1.1 million and well below the $3.2 million reported in 4th quarter 2012 and the $3.4 million in net charge-offs reported in 1st quarter 2012.
Old National’s allowance for loan losses at March 31, 2013, excluding covered loans, was $47.3 million, or .99% of total loans, compared to an allowance of $49.0 million, or 1.02% of total loans at December 31, 2012, and $54.7 million, or 1.33% of total loans, at March 31, 2012. The coverage of allowance to non-performing loans, excluding covered loans, stood at 31% at March 31, 2013, compared to the same 31% at December 31, 2012, and 48% at March 31, 2012.
2. Enhance Management Discipline
Expense Management
Old National’s commitment to expense management was exemplified in the 1st quarter of 2013 as the company reported total noninterest expenses of $90.2 million and an efficiency ratio of 68.34%. 1st quarter compares favorably to the $99.4 million and $91.3 million reported in 4th quarter 2012 and 1st quarter 2012, respectively. These results also represent improvements over the efficiency ratios of 72.15% and 70.88% reported in the 4th quarter of 2012 and 1st quarter of 2012, respectively, and represent progress toward Old National’s efficiency ratio target of 65%. These improved results are significant given the inclusion of Indiana Community Bancorp, which was acquired in the 3rd quarter 2012. Included in noninterest expenses in the 1st quarter of 2013 were $.6 million in branch optimization expense, $1.7 million in BSA/AML project expenses, and $.7 million in debt extinguishment charges. Included in the 4th quarter were $2.0 million in integration and conversion charges related to the 2012 Indiana Community Bancorp acquisition, $2.6 million in branch optimization expense, $1.9 million for the extinguishment of debt and a $1.0 million contribution to the ONB Foundation.
Capital Management
Maintaining a strong capital position is a top priority for Old National, as it remained well above industry requirements at March 31, 2013, with regulatory tier 1 and total risk-based capital ratios of 14.1% and 15.1%, respectively, compared to 13.6% and 14.7% at December 31, 2012, and 14.0% and 15.4% at March 31, 2012. Old National did not repurchase any shares of stock in the open market during the 1st quarter of 2013, while the Company did repurchase 250,000 shares in the open market during the 4th quarter.
3. ACHIEVE CONSISTENT QUALITY EARNINGS
Balance Sheet and Net Interest Margin
Old National continued to experience growth in its average core commercial and commercial real estate loan balances (excluding covered and acquired loans) as this segment averaged $2.057 billion for 1st quarter 2013 compared to $ 2.013 billion in 4th quarter 2012. At March 31, 2013, the period-end balance for this segment was $2.064 billion, down slightly from the $2.076 billion at December 31, 2012. Old National’s total period-end loans stood at $5.127 billion at March 31, 2013, compared to $5.209 billion at December 31, 2012, a decline of $82.6 million. Total loans have decreased as Old National continues to work through the purchased credit impaired loans it acquired in its recent acquisitions. This decrease was partially offset by core loan production with the strongest growth in the residential mortgage portfolio.
At March 31, 2013, total investments, including money market accounts, increased $311.5 million to $3.302 billion, from $2.990 billion at December 31, 2012. Average total investments increased $196.6 million to $3.063 billion at March 31, 2013, from $2.866 billion at December 31, 2012. During 1st quarter 2013, Old National sold $11.0 million of securities and had $121.4 million of securities called, resulting in securities gains of $1.0 million (no other-than-temporary impairment was recorded during the quarter). Old National reported 4th quarter 2012 securities gains of $4.2 million (net of $.3 million of other-than-temporary impairment).
Total core deposits, including demand and interest-bearing deposits, declined to $7.066 billion at March 31, 2013, a decrease of $212.6 million from the $7.279 billion at December 31, 2012. On average, total core deposits decreased to $7.067 billion during 1st quarter 2013 compared to $7.187 billion during 4th quarter 2012. As part of its branch optimization project, Old National completed the sale of the deposits of nine banking centers in various Southern Illinois and Western Kentucky markets during 1st quarter 2013. The decline in 1st quarter actual and average balances is largely attributable to these sales, as the sold deposits totaled $150.1 million and averaged $102.6 million during the 1st quarter.
Old National reported net interest income of $79.0 million for 1st quarter 2013 compared to $84.4 million in 4th quarter 2012, and $74.3 million for 1st quarter 2012. Net interest income on a fully taxable equivalent basis was $83.0 million for 1st quarter 2013 and represented a net interest margin on total average earning assets of 4.04%. These results compare to net interest income on a fully taxable equivalent basis of $87.9 million and a margin of 4.34% in 4th quarter 2012 and net interest income on a fully taxable equivalent basis of $77.3 million and a margin of 4.20% for 1st quarter 2012. Refer to Tables A and B for Non-GAAP taxable equivalent reconciliations.
