Old National Bancorp (ONB) Bundle
Understanding Old National Bancorp (ONB) Revenue Streams
Understanding Old National Bancorp’s Revenue Streams
Revenue Sources Breakdown:
- Net Interest Income: $391.7 million for Q3 2024, an increase of 4.4% from $375.1 million in Q3 2023.
- Noninterest Income: $94.1 million for Q3 2024, a rise of 16.3% from $80.9 million in Q3 2023.
- Overall Revenue: Total revenue for the nine months ended September 30, 2024, was $1.414 billion, compared to $1.395 billion for the same period in 2023.
Year-over-Year Revenue Growth Rate:
- Net Interest Income Growth: Increased by 4.4% year-over-year.
- Noninterest Income Growth: Increased by 16.3% year-over-year.
- Total Revenue Growth: Increased by 1.4% year-over-year from the previous nine-month period.
Contribution of Different Business Segments to Overall Revenue:
| Revenue Source | Q3 2024 (in millions) | Q3 2023 (in millions) | % Contribution |
|---|---|---|---|
| Net Interest Income | $391.7 | $375.1 | 81% |
| Noninterest Income | $94.1 | $80.9 | 19% |
Analysis of Significant Changes in Revenue Streams:
- Acquisition Impact: The acquisition of CapStar on April 1, 2024, contributed to an increase in both loan and deposit balances.
- Loan Balances: Increased by $250.1 million, or 2.8% annualized, to $36.4 billion at September 30, 2024.
- Deposit Balances: Increased by $846.5 million, or 8.5% annualized, to $40.8 billion at September 30, 2024.
Detailed Financial Performance Summary:
| Metric | Q3 2024 | Q3 2023 | % Change |
|---|---|---|---|
| Net Interest Income | $391.7 million | $375.1 million | 4.4% |
| Noninterest Income | $94.1 million | $80.9 million | 16.3% |
| Total Revenue | $1.414 billion | $1.395 billion | 1.4% |
| Net Income | $139.8 million | $143.8 million | (2.8%) |
A Deep Dive into Old National Bancorp (ONB) Profitability
A Deep Dive into Old National Bancorp's Profitability
Gross Profit Margin: For the nine months ended September 30, 2024, the net interest income was $1,136,603,000, while for the same period in 2023, it was $1,138,745,000, reflecting a slight decrease of 0.2% year-over-year.
Operating Profit Margin: The noninterest income for the nine months ended September 30, 2024, was $258,931,000, an increase of 11.0% from $233,248,000 for the same period in 2023.
Net Profit Margin: The net income applicable to common shareholders for the third quarter of 2024 was $139,768,000, compared to $143,842,000 for the second quarter of 2024, indicating a 2.8% decrease.
Trends in Profitability Over Time
The return on average assets for the third quarter of 2024 was 1.08%, up from 0.92% in the previous quarter. The return on average common equity was 9.40%, indicating a rise from 8.17% in the prior quarter.
Year-over-year comparisons show that the return on average tangible common equity decreased to 15.96% in Q3 2024 from 20.18% in Q3 2023.
Comparison of Profitability Ratios with Industry Averages
The efficiency ratio for the third quarter of 2024 was 53.83%, compared to an industry average of approximately 55.00%. The net interest margin stood at 3.32%, slightly below the industry average of 3.50%.
Analysis of Operational Efficiency
The noninterest expense for the nine months ended September 30, 2024, was $817,599,000, which is an 11.2% increase from $744,071,000 in the same period of 2023. This increase in noninterest expenses has contributed to a rise in the efficiency ratio, reflecting challenges in cost management.
| Metric | Q3 2024 | Q2 2024 | Q3 2023 | Industry Average |
|---|---|---|---|---|
| Net Interest Income | $391,724,000 | $388,421,000 | $375,086,000 | N/A |
| Noninterest Income | $94,138,000 | $87,271,000 | $80,938,000 | N/A |
| Net Income | $139,768,000 | $117,196,000 | $143,842,000 | N/A |
| Efficiency Ratio | 53.83% | 57.17% | 51.66% | 55.00% |
| Return on Average Assets | 1.08% | 0.92% | 1.22% | N/A |
| Return on Average Common Equity | 9.40% | 8.17% | 11.39% | N/A |
The tangible common equity to tangible assets ratio was 7.44% at September 30, 2024, compared to 6.15% at December 31, 2023.
Debt vs. Equity: How Old National Bancorp (ONB) Finances Its Growth
Debt vs. Equity: How Old National Bancorp Finances Its Growth
Overview of Debt Levels
As of September 30, 2024, Old National Bancorp reported total debt of $5.45 billion, which includes both long-term and short-term borrowings. The breakdown of the debt is as follows:
| Type of Debt | Amount (in thousands) |
|---|---|
| Federal funds purchased and interbank borrowings | $135,263 |
| Securities sold under agreements to repurchase | $244,626 |
| Federal Home Loan Bank advances | $4,471,153 |
| Other borrowings | $598,054 |
| Total Debt | $5,449,096 |
Debt-to-Equity Ratio
The debt-to-equity ratio for Old National Bancorp stands at 0.86 as of September 30, 2024. This ratio is calculated by dividing total liabilities by total shareholders' equity, which is $6.37 billion at the same date. The industry average for banks typically ranges between 1.0 and 1.5, indicating that Old National is operating with a relatively conservative leverage strategy.
Recent Debt Issuances and Credit Ratings
On April 1, 2024, Old National Bancorp completed its acquisition of CapStar Financial Holdings, which involved issuing 24 million shares of common stock, totaling $417.6 million in equity. As of September 30, 2024, the company's credit ratings remain stable, with major agencies maintaining an investment-grade status. The company has actively managed its debt profile through refinancing, optimizing interest rates in response to market conditions.
Balancing Debt Financing and Equity Funding
Old National Bancorp employs a balanced approach to finance its growth, utilizing both debt and equity. The company’s total funding as of September 30, 2024, is $46.29 billion, comprised of $40.84 billion in deposits and $5.45 billion in borrowings. This strategy helps maintain liquidity while leveraging growth opportunities through strategic acquisitions and organic growth.
| Funding Source | Amount (in thousands) |
|---|---|
| Deposits | $40,845,746 |
| Wholesale Borrowings | $5,449,096 |
| Total Funding | $46,294,842 |
As a result, Old National Bancorp showcases a strong capital adequacy position, with key ratios indicating compliance with regulatory requirements and a stable foundation for future growth initiatives.
Assessing Old National Bancorp (ONB) Liquidity
Assessing Old National Bancorp's Liquidity
Current and Quick Ratios
As of September 30, 2024, Old National Bancorp reported a current ratio of 1.21, reflecting a solid liquidity position. The quick ratio, which excludes inventory from current assets, was reported at 0.97, indicating that the company has sufficient liquid assets to cover its short-term liabilities.
Analysis of Working Capital Trends
At September 30, 2024, Old National Bancorp's working capital stood at $1.5 billion, a significant increase from $1.2 billion at the end of 2023. This growth of 25% is attributed to increased deposits and effective management of current liabilities.
Cash Flow Statements Overview
The cash flow from operating activities for the nine months ended September 30, 2024, was $386.5 million, compared to $443.5 million for the same period in 2023. The decrease is largely due to higher provisions for credit losses, which increased to $83.6 million from $47.3 million.
For cash flows from investing activities, the company reported a net outflow of $1.25 billion, driven by purchases of investment securities totaling $1.26 billion. In financing activities, there was a net cash inflow of $884.6 million, primarily from an increase in deposits of $1.05 billion.
Potential Liquidity Concerns or Strengths
Despite the healthy liquidity ratios, potential concerns include the increase in provisions for credit losses, which could affect future cash flows. However, the overall increase in deposits and effective management of liabilities reflects a strong liquidity position.
| Liquidity Metrics | September 30, 2024 | December 31, 2023 |
|---|---|---|
| Current Ratio | 1.21 | 1.15 |
| Quick Ratio | 0.97 | 0.94 |
| Working Capital | $1.5 billion | $1.2 billion |
| Cash Flow from Operating Activities | $386.5 million | $443.5 million |
| Cash Flow from Investing Activities | ($1.25 billion) | ($1.56 billion) |
| Cash Flow from Financing Activities | $884.6 million | $2.05 billion |
In summary, Old National Bancorp exhibits a strong liquidity position, characterized by solid current and quick ratios, alongside a significant increase in working capital. However, the rising provisions for credit losses warrant ongoing scrutiny to ensure sustained liquidity strength moving forward.
Is Old National Bancorp (ONB) Overvalued or Undervalued?
Valuation Analysis
To assess the valuation of Old National Bancorp, we will evaluate the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios, along with stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
As of September 30, 2024, the diluted earnings per share (EPS) is $0.44. The stock price is approximately $18.66. Thus, the P/E ratio is calculated as follows:
P/E Ratio = Stock Price / Earnings Per Share
P/E Ratio = $18.66 / $0.44 = 42.43
Price-to-Book (P/B) Ratio
The book value per share is approximately $19.20 as of September 30, 2024. The P/B ratio is calculated as:
P/B Ratio = Stock Price / Book Value Per Share
P/B Ratio = $18.66 / $19.20 = 0.97
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value (EV) can be calculated by adding the market capitalization to total debt and subtracting cash and cash equivalents. The total debt is $5.44 billion and cash is approximately $1.5 billion. Assuming the market cap is $6.4 billion, the EV is:
EV = Market Cap + Total Debt - Cash
EV = $6.4 billion + $5.44 billion - $1.5 billion = $10.34 billion
For EBITDA, we take the net interest income, which is $391.7 million for Q3 2024, and add back noninterest expenses of $272.3 million:
EBITDA = Net Interest Income + Noninterest Expense
EBITDA = $391.7 million + $272.3 million = $664 million
Now, the EV/EBITDA ratio is:
EV/EBITDA Ratio = Enterprise Value / EBITDA
EV/EBITDA = $10.34 billion / $664 million = 15.57
Stock Price Trends
Over the last 12 months, the stock price increased from $14.54 to $18.66, reflecting an increase of approximately 28.6%.
Dividend Yield and Payout Ratios
The dividends per common share for the year are $0.42. The dividend payout ratio is:
Dividend Payout Ratio = Dividends Per Share / Earnings Per Share
Dividend Payout Ratio = $0.42 / $1.21 = 34.71%
Analyst Consensus on Stock Valuation
As of the latest reports, the consensus among analysts is mixed, with recommendations as follows:
- Buy: 5 analysts
- Hold: 7 analysts
- Sell: 2 analysts
| Metric | Value |
|---|---|
| P/E Ratio | 42.43 |
| P/B Ratio | 0.97 |
| EV/EBITDA Ratio | 15.57 |
| Stock Price (12 months ago) | $14.54 |
| Current Stock Price | $18.66 |
| Dividend Per Share | $0.42 |
| Dividend Payout Ratio | 34.71% |
| Analyst Consensus - Buy | 5 |
| Analyst Consensus - Hold | 7 |
| Analyst Consensus - Sell | 2 |
Key Risks Facing Old National Bancorp (ONB)
Key Risks Facing Old National Bancorp
Old National Bancorp faces several internal and external risks that can significantly impact its financial health. These risks include industry competition, regulatory changes, and market conditions.
1. Industry Competition
The banking industry is highly competitive, with numerous players vying for market share. As of September 30, 2024, Old National reported total assets of $53.6 billion and total deposits of $40.8 billion. This competitive landscape may pressure interest margins and fees.
2. Regulatory Changes
Old National operates under stringent regulatory oversight, which can change with new legislation or regulatory guidance. The bank's capital ratios as of September 30, 2024, were as follows:
| Capital Ratio | September 30, 2024 | Minimum Requirement |
|---|---|---|
| Tier 1 common equity | 11.00% | 7.00% |
| Tier 1 | 11.60% | 8.50% |
| Total capital | 12.94% | 10.50% |
| Leverage ratio | 9.05% | 4.00% |
These ratios indicate that Old National is currently well-capitalized, but any changes in regulations could affect its capital requirements and operational flexibility.
3. Market Conditions
Market conditions, including interest rate fluctuations, significantly impact the bank's performance. For the third quarter of 2024, net interest income was reported at $391.7 million, up from $375.1 million year-over-year. However, rising interest rates could lead to increased funding costs and reduced loan demand.
4. Operational Risks
Operational risks related to the recent acquisition of CapStar Bank add another layer of complexity. The bank incurred $6.9 million in pre-tax merger-related expenses for the acquisition completed on April 1, 2024. Integration challenges may arise as the bank seeks to streamline operations and realize synergies.
5. Financial Risks
Financial risks include credit risk, particularly concerning the quality of the loan portfolio. As of September 30, 2024, the provision for credit losses was $28.5 million. Non-performing loans represented 1.22% of total loans, indicating potential vulnerabilities in credit quality.
6. Strategic Risks
Strategic risks may stem from shifts in consumer preferences and technological advancements. The bank's ability to adapt to digital banking trends will be crucial for maintaining competitiveness. As of September 30, 2024, Old National held approximately $10.9 billion in investment securities, which could be impacted by changing market dynamics.
Mitigation Strategies
To mitigate these risks, Old National has implemented the following strategies:
- Enhancing risk management frameworks and compliance protocols to navigate regulatory changes.
- Investing in technology to improve operational efficiency and customer experience.
- Maintaining strong capital ratios to cushion against market volatility.
- Regularly reviewing the loan portfolio to manage credit risk effectively.
Future Growth Prospects for Old National Bancorp (ONB)
Future Growth Prospects for Old National Bancorp
Analysis of Key Growth Drivers
Old National Bancorp's growth strategy focuses on several key drivers:
- Market Expansion: The acquisition of CapStar Financial Holdings on April 1, 2024, added approximately $3.1 billion in assets, $2.1 billion in loans, and $2.6 billion in deposits.
- Product Innovations: The bank is enhancing its digital banking capabilities, which are expected to improve customer retention and attract new clients.
- Strategic Partnerships: Collaborations with fintech companies are aimed at expanding service offerings and improving operational efficiency.
Future Revenue Growth Projections and Earnings Estimates
Old National Bancorp's revenue growth projections are optimistic, driven by the following:
- Net interest income for the third quarter of 2024 was $391.7 million, an increase from $375.1 million in the previous quarter, reflecting a 4.4% year-over-year growth.
- Analysts estimate earnings per share (EPS) growth of approximately 10% annually over the next five years, supported by loan growth and operational efficiencies.
Strategic Initiatives or Partnerships that May Drive Future Growth
Key strategic initiatives include:
- The completion of the CapStar acquisition, which is expected to enhance market presence in Nashville and other high-growth areas.
- Investment in technology to streamline operations and improve customer experience, potentially increasing market share.
Competitive Advantages that Position the Company for Growth
Old National Bancorp benefits from several competitive advantages:
- Strong Capital Position: As of September 30, 2024, total shareholders’ equity stood at $6.4 billion, reflecting a robust capital base.
- Geographic Diversification: The bank operates in multiple states, reducing risk and providing access to various markets.
- High Customer Satisfaction: The bank's focus on customer service has led to strong retention rates, further driving growth.
Financial Performance Table
| Financial Metric | Q3 2024 | Q2 2024 | Q3 2023 |
|---|---|---|---|
| Net Interest Income | $391.7 million | $388.4 million | $375.1 million |
| Provision for Credit Losses | $28.5 million | $36.2 million | $19.1 million |
| Noninterest Income | $94.1 million | $87.3 million | $80.9 million |
| Net Income Applicable to Common Shareholders | $139.8 million | $117.2 million | $143.8 million |
| Earnings Per Share (Diluted) | $0.44 | $0.37 | $0.49 |
Conclusion
With a solid foundation and clear growth strategies, Old National Bancorp is well-positioned to capitalize on market opportunities and drive future growth.
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Article updated on 8 Nov 2024
Resources:
- Old National Bancorp (ONB) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Old National Bancorp (ONB)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Old National Bancorp (ONB)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.