OLD NATIONAL BAN(US:ONBPP)2023-11-01 15:19Part I Financial Statements Old National Bancorp's unaudited consolidated financial statements for the period ended September 30, 2023, are presented, detailing financial position and performance Consolidated Balance Sheets Total assets increased to $49.1 billion by September 30, 2023, driven by loan growth, with deposits and shareholders' equity also rising Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $49,059,448 | $46,763,372 | | Net Loans | $32,273,852 | $30,819,970 | | Goodwill | $1,998,716 | $1,998,716 | | Total Liabilities | $43,819,911 | $41,634,777 | | Total Deposits | $37,252,676 | $35,000,830 | | Federal Home Loan Bank advances | $4,412,576 | $3,829,018 | | Total Shareholders' Equity | $5,239,537 | $5,128,595 | Consolidated Statements of Income Net income applicable to common shareholders increased to $143.8 million for Q3 2023 and $437.4 million for the nine months, driven by higher net interest income and lower credit loss provisions Income Statement Summary (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $375,086 | $376,589 | $1,138,745 | $936,846 | | Provision for Credit Losses | $19,068 | $15,490 | $47,292 | $133,391 | | Noninterest Income | $80,938 | $80,385 | $233,248 | $234,742 | | Noninterest Expense | $244,776 | $262,444 | $742,071 | $755,508 | | Net Income | $147,876 | $140,153 | $449,512 | $227,552 | | Net Income Applicable to Common | $143,842 | $136,119 | $437,411 | $217,468 | | Diluted EPS | $0.49 | $0.47 | $1.50 | $0.80 | Consolidated Statements of Cash Flows Net cash increased by $935.0 million for the nine months ended September 30, 2023, reflecting strong financing activities offsetting investing outflows Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $443,515 | $687,311 | | Net Cash from Investing Activities | ($1,561,607) | ($878,523) | | Net Cash from Financing Activities | $2,053,110 | $170,804 | | Net Increase (Decrease) in Cash | $935,018 | ($20,408) | | Cash at Beginning of Period | $728,412 | $822,019 | | Cash at End of Period | $1,663,430 | $801,611 | Acquisition and Divestiture Activity Old National announced the acquisition of CapStar Financial Holdings for $344.4 million, while incurring $23.2 million in costs from the prior First Midwest merger - On October 26, 2023, Old National agreed to acquire CapStar Financial Holdings, Inc. in an all-stock deal, with CapStar having approximately $3.3 billion in assets, valued at about $344.4 million38 - Transaction costs related to the 2022 First Midwest merger totaled $23.2 million for the nine months ended September 30, 2023, compared to $100.6 million for the same period in 202236 Investment Securities The company held $6.4 billion in AFS and $3.0 billion in HTM securities, with significant unrealized losses primarily due to interest rate fluctuations Investment Securities Summary (Sep 30, 2023, in thousands) | Portfolio | Amortized Cost | Fair Value | Gross Unrealized Losses | | :--- | :--- | :--- | :--- | | Available-for-Sale | $7,719,944 | $6,414,761 | ($1,143,301) | | Held-to-Maturity | $3,027,914 | $2,393,621 | ($634,293) | - The unrealized losses on investment securities are primarily attributed to fluctuations in interest rates and temporary market movements, with no expectation to sell before anticipated recovery51 - No allowance for credit losses was needed for AFS securities, while an allowance of $0.2 million was maintained for HTM securities, specifically for certain municipal bonds4849 Loans and Allowance for Credit Losses Total loans grew to $32.6 billion, primarily in commercial real estate, with the allowance for credit losses at $304.0 million and nonaccrual loans increasing to $261.3 million Loan Portfolio Composition (in thousands) | Loan Category | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Commercial | $9,333,448 | $9,508,904 | | Commercial real estate | $13,916,221 | $12,457,070 | | Residential real estate | $6,696,288 | $6,460,441 | | Consumer credit | $2,631,877 | $2,697,226 | | Total loans | $32,577,834 | $31,123,641 | Allowance for Credit Losses on Loans Activity (Nine Months Ended Sep 30, 2023, in thousands) | Description | Amount | | :--- | :--- | | Balance at Dec 31, 2022 | $303,671 | | Charge-offs | ($55,261) | | Recoveries | $9,052 | | Provision for Loan Losses | $46,520 | | Balance at Sep 30, 2023 | $303,982 | - Nonaccrual loans increased to $261.3 million at Q3 2023 from $238.2 million at year-end 2022, representing 0.80% of total loans83265 - During the nine months ended September 30, 2023, the company made financial difficulty modifications on loans totaling $137.4 million, primarily through term extensions for commercial and commercial real estate borrowers87 Derivative Financial Instruments The company utilizes derivatives for interest rate risk management, with $1.65 billion in cash flow hedges and $1.7 billion in fair value hedges, alongside $5.8 billion in client-related non-hedging instruments - Derivatives designated as hedges were in a net liability position of $25.5 million at September 30, 2023133281 - Customer-related derivative instruments not designated for hedge accounting had a notional value of $5.8 billion, which are economically hedged with offsetting contracts138 Management's Discussion and Analysis (MD&A) Management discusses strong Q3 2023 results, highlighting $143.8 million net income, deposit and loan growth, and stable credit quality despite net interest income compression - Q3 2023 net income was $143.8 million, or $0.49 per diluted share191 - Period-end total deposits increased by $1.0 billion (3%) quarter-over-quarter to $37.3 billion193 - Loan balances grew by $145.4 million quarter-over-quarter to $32.6 billion, despite $389 million in commercial loan sales194 - Net interest income decreased by $7.1 million quarter-over-quarter to $375.1 million, reflecting higher funding costs partially offset by loan growth and higher asset yields195 Results of Operations Nine-month net interest income grew 21.6% to $1.14 billion, while provision for credit losses significantly decreased, and noninterest expenses declined due to lower merger costs Key Performance Indicators (Nine Months Ended Sep 30) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Interest Income | $1,138.7M | $936.8M | | Provision for Credit Losses | $47.3M | $133.4M | | Noninterest Income | $233.2M | $234.7M | | Noninterest Expense | $742.1M | $755.5M | | Diluted EPS | $1.50 | $0.80 | - The net interest margin (tax-equivalent) for Q3 2023 was 3.49%, down from 3.71% in Q3 2022, as the 206 bps increase in cost of funds outpaced the 135 bps increase in earning asset yields205214 - Accretion income from acquired loans contributed $7.5 million (7 bps of NIM) in Q3 2023, a significant decrease from $25.4 million (25 bps of NIM) in Q3 2022213214 - The FDIC has proposed a special assessment to recover DIF losses, which could result in an estimated $17 million expense for Old National, potentially recorded in a single quarter in 2024232233 Financial Condition Total assets increased to $49.1 billion driven by loan and deposit growth, with a shift in deposit composition and strong regulatory capital ratios - Total loans increased by 5% since year-end 2022, driven by a $1.46 billion (12%) increase in commercial real estate loans242 Deposit Composition Change (in thousands) | Deposit Type | Sep 30, 2023 | Dec 31, 2022 | $ Change | | :--- | :--- | :--- | :--- | | Noninterest-bearing demand | $10,091,352 | $11,930,798 | ($1,839,446) | | Money market | $8,793,218 | $5,389,139 | $3,404,079 | | Time deposits | $5,575,704 | $3,013,780 | $2,561,924 | | Total Deposits | $37,252,676 | $35,000,830 | $2,251,846 | Regulatory Capital Ratios | Ratio | Sep 30, 2023 | Well-Capitalized Guideline | | :--- | :--- | :--- | | Common Equity Tier 1 | 10.41% | 7.00% (Minimum) | | Tier 1 Capital | 11.06% | 8.50% (Minimum) | | Total Capital | 12.32% | 10.50% (Minimum) | | Leverage Ratio | 8.70% | 4.00% (Minimum) | Risk Management The company manages credit, market, and liquidity risks, maintaining stable credit quality, an asset-sensitive net interest income, and strong liquidity with $9.5 billion in available funds - Under-performing assets were $272.3 million, or 0.84% of total loans, at September 30, 2023, a slight decrease in percentage terms from 0.86% at year-end 2022263264 - Net charge-offs were 0.24% of average loans in Q3 2023, up from 0.10% in Q3 2022, partly due to a single $12.2 million commercial credit charge-off267 NII Sensitivity Analysis (Two-Year Cumulative Horizon) | Rate Shock | % Change from Base NII | | :--- | :--- | | +300 bps | +6.88% | | +200 bps | +4.60% | | +100 bps | +2.49% | | -100 bps | -3.34% | | -200 bps | -5.56% | - As of September 30, 2023, the company's subsidiaries had total available funds of $9.5 billion, including $5.5 billion from the FHLB and $2.4 billion from the Federal Reserve Bank Term Funding Program288 Controls and Procedures Disclosure controls and procedures were deemed effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - Management has concluded that disclosure controls and procedures are effective at a reasonable assurance level293 - No material changes to internal control over financial reporting occurred during the third quarter of 2023296 Part II Risk Factors No material changes to the company's previously disclosed risk factors were reported for the quarter - No material changes to risk factors were reported for the quarter298 Issuer Purchases of Equity Securities No shares were repurchased under the publicly announced program during Q3 2023, leaving $170.5 million available for future repurchases - The Board of Directors approved a stock repurchase program authorizing up to $200 million in share repurchases through February 29, 2024300 - No shares were repurchased under the publicly announced plan during the third quarter, and the $170.5 million authorization remains largely unused299