Old National Bancorp (Nasdaq: ONB) has announced first quarter net income of nearly $21 million, compared to $26.5 million in the same period last year. Chief Executive Officer Bob Jones says the results were affected by one-time charges related to the $88 million acquisition of Founders Financial Corp. in Michigan. April 27, 2015
EVANSVILLE, Ind. – Today Old National Bancorp (the “Company” or “Old National”) (Nasdaq: ONB) reported 1st quarter 2015 net income of $20.9 million, or $.18 per share. These reported quarterly results compare to net income of $29.3 million in the 4th quarter of 2014 and $26.5 million recorded in the 1st quarter of 2014.
Impacting 1st quarter 2015 results were charges relating to several strategic initiatives aimed at improving the long-term operating leverage of the Company. These 1st quarter pre-tax charges include $4.4 million in severance and $2.6 million relating to branch consolidations. Also included in the current quarter were $4.0 million of pre-tax merger and integration expenses. Excluding the impact of these pre-tax charges, Old National would have reported net income of $28.5 million, or $.24 per share.
Also today the Company announced its quarterly cash dividend of $.12 per share. The dividend is payable June 15, 2015, to shareholders of record on June 1, 2015. For purposes of broker trading, the ex-date of the cash dividend is May 28, 2015.
“We were very pleased to report annual core loan growth of 7.0%, record loan origination numbers and very strong credit quality,” said President & CEO Bob Jones. “While our 1st quarter earnings were impacted by anticipated one-time merger and integration costs and costs related to our ongoing franchise optimization plan, we are confident that we remain well positioned for future growth.”
Committed to our Strategic Imperatives and 2015 Initiatives
Old National's continued steady performance and strong credit and capital positions can be attributed to the Company's unwavering commitment to the three strategic imperatives that have guided Old National for 10 years: 1. Strengthen the risk profile; 2. Enhance management discipline; and 3. Achieve consistent quality earnings.
Guided by these three strategic imperatives, Old National's primary initiatives for 2015 are: 1. Continue to grow organic revenue; 2. Improve operating leverage; and 3. Prudent use of capital, all while maintaining a strong credit culture.
Grow Organic Revenue
Balance Sheet and Net Interest Margin
At March 31, 2015, total period-end loans, including loans held for sale, increased $331.3 million to $6.863 billion from $6.532 billion at December 31, 2014. The acquisition of Founders Financial Corporation (“Founders”) added $340.1 million to March 31 period-end balances. Old National experienced a large number of unanticipated commercial real estate loan payoffs during the 1st quarter of 2015 as borrowers took advantage of the low interest environment to refinance their long-term loans in the secondary market. While the majority of the payoffs did not result in loss of client relationships, they did impact current quarter loan growth.
The Louisville, Kentucky market, the Western Michigan market, and the Central Michigan market, were the best producing regions, increasing $22.4 million, $22.0 million and $13.3 million, respectively, over December 31, 2014, loan balances. Excluding covered and purchased loans, total loans at March 31, 2015, increased $341.4 million, or 7.0%, over total loans of $4.884 billion at March 31, 2014.
On average, total loans increased $445.4 million to $6.846 billion in the 1st quarter of 2015 compared to $6.400 billion during the 4th quarter of 2014. Organic loan growth accounted for $57.6 million of the increase in 1st quarter balances. The acquisitions of Founders and Lafayette Savings Bank added approximately $342.1 million and $56.8 million, respectively, to quarterly averages in the 1st quarter. These increases were partially offset by the $11.1 million decline in covered loans during the 1st quarter of 2015.
Total core deposits at March 31, 2015, including demand and interest-bearing deposits, increased $411.5 million to $8.866 billion, compared to the $8.454 billion at December 31, 2014. The acquisition of Founders added $364.1 million to March 31, 2015, period-end core deposit balances. On average, total core deposits increased $405.5 million to $8.786 billion during the 1st quarter of 2015 compared to $8.381 billion during the 4th quarter of 2014. The acquisition of Founders added $372.6 million in average core deposits to 1st quarter 2015 balances.
At March 31, 2015, total investments, including money market accounts, decreased $99.1 million to $3.480 billion from $3.579 billion at December 31, 2014. During the 1st quarter of 2015, Old National sold $168.7 million of securities and $51.5 million of securities were either called or matured, resulting in securities gains of $2.7 million compared to $4.9 million of securities gains in the 4th quarter of 2014 and $.5 million in the 1st quarter of 2014.
Net interest income was $91.0 million in the 1st quarter of 2015 compared to $90.0 million in the 4th quarter of 2014, and $83.5 million in the 1st quarter of 2014. Net interest income on a fully taxable equivalent basis was $95.7 million for the 1st quarter of 2015 and represented a net interest margin on total average earning assets of 3.70%. These results compare to net interest income on a fully taxable equivalent basis of $94.4 million and a margin of 3.83% in the 4th quarter of 2014. In the 1st quarter of 2014, Old National reported net interest income on a fully taxable equivalent basis of $87.4 million and a margin of 4.22%. Refer to Tables A and B for Non-GAAP taxable equivalent reconciliations.
As part of net interest income, Old National recorded $14.6 million, or a 56 basis point contribution to net interest margin, in accretion income in the 1st quarter of 2015 related to purchase accounting discounts from various acquisitions. Of this amount, the contributions from Tower Financial Corporation, United Bancorp, Inc., LSB Financial Corp. and Founders were $2.1 million, $3.3 million, $3.2 million and $1.4 million, respectively. Acquisitions of Tower, United and LSB were closed in the 2nd, 3rd, and 4th quarters of 2014, respectively. Total accretion income in the 4th quarter of 2014 and the 1st quarter of 2014 reported by Old National was $16.6 million, or a 68 basis point net interest margin contribution, and $17.9 million, or an 86 basis point net interest margin contribution, respectively.
Fees, Service Charges and Other Revenue
Total fees, service charges and other revenue represent an important component of Old National's revenue stream and amounted to $52.6 million for the 1st quarter of 2015. This compares to $45.6 million in the 4th quarter of 2014 and $39.9 million in the 1st quarter of 2014. The current quarter contained a $1.0 million unfavorable change in the indemnification asset relating to the 2011 FDIC-assisted acquisition of Integra Bank, compared to unfavorable changes of $6.2 million and $7.3 million recorded in the 4th quarter of 2014 and the 1st quarter of 2014, respectively.
The Founders acquisition contributed an additional $1.7 million in fees, service charges and other revenue during the current quarter. The 1st quarter of 2015 also included $2.1 million of insurance contingency income, compared to none in the 4th quarter of 2014 and $2.4 million in the 1st quarter of 2014.
Improve Operating Leverage
Total noninterest expenses recorded in the 1st quarter of 2015 were $116.2 million compared to $100.1 million in the 4th quarter of 2014 and $88.3 million recorded in the 1st quarter of 2014. Included in 1st quarter 2015 are $3.5 million in operational costs related to the acquisition of Founders as well as $4.0 million in merger and integration charges. Also inc