Old National reports 4th quarter earnings, announces dividend increase, stock repurchase plan, and ONB Way strategic update

Net Income
Net income of $49.2 millionEarnings per share of $0.29Net Interest Income/NIMNet interest income on a fully taxable equivalent basis was $152.2 million compared to $156.3 millionNet interest margin on a fully taxable equivalent basis was 3.46% compared to 3.57%Operating PerformancePre-provision net revenue1 (“PPNR”) was $65.2 millionAdjusted PPNR1 was $73.9 million, up 10.3% over fourth quarter of 2018Noninterest expense was $134.7 millionAdjusted noninterest expense1 was $125.6 millionEfficiency ratio1 was 65.57%Adjusted efficiency ratio1 was 60.97%, a 234 basis point improvement from fourth quarter of 2018Loans and Credit QualityEnd-of-period total loans3 were $12,164.4 million compared to $12,075.9 millionFourth-quarter total commercial production was a record $681 million; December 31 pipeline was a record $2.2 billionProvision for loan losses was $1.3 millionNet charge-offs were $3.6 million, or 0.12% annualized, compared to net charge-offs of $0.8 millionNon-performing loans were 1.19% of total loans compared to 1.31%Return Profile & CapitalReturn on average common equity was 6.94%Return on average tangible common equity1 was 12.03%Adjusted return on average tangible common equity1 was 13.44%Repurchased 428 thousand shares of common stock during the current quarterNotable Items$0.01 increase in quarterly cash dividend to $0.14 per share7 million share repurchase authorization effective until January 31, 2021Current quarter contained $8.2 million in ONB Way charges, $0.2 million in merger and integration charges and $0.7 million in tax credit amortization1 Non-GAAP financial measure that Management believes is useful in evaluating the financial results of the Company – please refer to the Non-GAAP reconciliations contained in this release 2 Comparisons are on a linked-quarter basis, unless otherwise noted 3 Includes loans held for saleDIVIDEND AND SHARE REPURCHASEOld National Bancorp’s Board of Directors declared an increase in its quarterly common stock cash dividend to $0.14 per share on the Company’s outstanding shares of common stock. This new dividend level represents a 7.7% increase over the previous cash dividend level of $0.13 per common share. The dividend is payable March 16, 2020, to shareholders of record on March 2, 2020. For purposes of broker trading, the ex-date of the cash dividend is February 28, 2020.The Board of Directors has also approved the adoption of a stock repurchase plan that authorizes up to 7.0 million shares of Old National Bancorp stock to be repurchased, as conditions warrant, through January 31, 2021. These shares may be purchased in either the open market or in privately negotiated transactions, in accordance with SEC regulations.THE ONB WAY: OLD NATIONAL’S NEW STRATEGIC PLANOld National is implementing a new strategic plan – and overall way of doing business – designed to keep our clients at the center of all we do. Known as The ONB Way, it includes:Realigning the organization into clearly defined segments to align leaders and relationship managers with the client segment they can best serve (while not wavering on our commitment to community).Deepening client relationships through integrated Commercial, Community Banking and Wealth teams.Simplifying and improving the end-to-end banking/borrowing journey while adhering to strong risk management principles.Creating a new Wealth Division that combines wealth management, investments and private banking for a simplified, highly consultative client experience firmly rooted in financial planning.Investing in our operational and IT infrastructure to meet our clients “where they are” and ensure that we keep pace with technology and client digital expectations.ADDITIONS TO THE LEADERSHIP TEAMAs part of The ONB Way, Old National is pleased to welcome four new executive leaders:Chady AlAhmar, Wealth Division CEO. Most recently a Senior Executive of Wealth Management at U.S. Bank, Chady is passionate about achieving business growth through driving strategy optimization, team collaboration, sales practices, business development and analytics. Prior to joining U.S. Bank, he held strategy, finance and management consulting positions with GMAC (Ally Bank) and ACG in New York and ran his own management consulting firm for several years. He will be located in Minneapolis.Paul Kilroy, Chief Information Officer. Paul brings a wide and impressive array of IT expertise and leadership experience to his role as ONB CIO, including Cloud, data and application rationalization strategies, and robotics and automation. Most recently, he served as SVP, Segment CIO of Enterprise Shared Services, Data and Architecture for Huntington National Bank, where he created a groundbreaking Robotics Center of Excellence. Prior to that, he spent 13 years in IT leadership roles at JP Morgan Chase. Paul will be located in Evansville.Scott Fecteau, Chief Client Services Officer, Operations. Scott is an Operations, Financial and Risk Management executive with nearly 30 years of industry experience.  He most recently served as Managing Director/Global Delivery Lead BPO for Accenture Credit Services in Charlotte, North Carolina. Prior to that, he was Director of Residential Lending at Associated Bank, in Green Bay for 12 years. We are excited to welcome Scott back to Old National as he served in our Mortgage Division in 2003-04. He will be located in Evansville.Malinda Anthony, Treasury Management (TM) President. Malinda joined ONB from Wells Fargo in Indianapolis, where she most recently served as North Division Sales Manager, overseeing TM sales supporting commercial banking in 10 states. In her role as ONB TM President, she is responsible for the entire Treasury Management business line, including sales, operations and support, product and process innovation, and Merchant Services. She will be located in Indianapolis.BRANCH NETWORK OPTIMIZATIONAnother component of The ONB Way is the optimization of our branch network. This optimization, which includes 31 banking centers scattered throughout the footprint that will be consolidated on April 24, 2020, reflects an ongoing shift among our clients toward digital banking solutions. Many of the facilities to be consolidated are in smaller markets, several of which were added in recent years through partnership activity. By state, these consolidations include 10 banking centers in both Wisconsin and Indiana, five in Michigan, four in Minnesota and two in Kentucky.RESULTS OF OPERATIONSOld National Bancorp reported fourth-quarter 2019 net income of $49.2 million, or $0.29 per diluted share. Included in the fourth quarter were pre-tax charges of $8.2 million for ONB Way and $0.2 million for merger and integration activity. Excluding these charges from the current quarter and netting out debt securities gains, adjusted net income was $55.2 million, or $0.32 per diluted share.LOANS
Commercial activity remains strong with record high commercial loan production.
Period-end total loans were $12,164.4 million at December 31, 2019, compared to $12,075.9 million at September 30, 2019.Commercial and industrial loans decreased $60.3 million to $2,890.3 million; commercial real estate loans increased $54.7 million to $5,166.8 million; consumer loans increased $7.8 million to $1,726.1 million and residential mortgage loans increased $86.3 million to $2,381.2 million.Commercial loan production in the fourth quarter was $681 million; period-end pipeline totaled $2.2 billion.On average, total loans in the fourth quarter were $12,069.2 million, down from $12,073.8 million in the third quarter of 2019.DEPOSITS
A low-cost core deposit franchise continues to be one of Old National’s strengths.
Period-end total deposits were $14,553.4 million at December 31, 2019, an increase of $105.0 million from the third quarter of 2019.On average, total deposits in the fourth quarter were $14,602.9 million, compared to $14,330.5 million in the third quarter of 2019. NET INTEREST INCOME AND MARGIN
Net interest income and margin lower with decline in accretion income and mix shift.
Net interest income decreased to $148.9 million in the fourth quarter of 2019 from $153.1 million in the third quarter of 2019.The net interest margin on a fully taxable equivalent basis decreased 11 basis points to 3.46% compared to 3.57% in the third quarter of 2019.Accretion income was $9.5 million, or 21 basis points of net interest margin, in the fourth quarter of 2019 compared to $13.4 million, or 31 basis points of net interest margin, in the third quarter of 2019.  In the fourth quarter of 2019, accretion income was 4.8% of adjusted total revenue.Interest collected on nonaccrual loans was $2.4 million, or 5 basis points of net interest margin, in the fourth quarter of 2019 compared to $2.0 million, or 5 basis points of net interest margin, in the third quarter of 2019.The cost of total deposits declined 9 basis points to 0.43% in the fourth quarter of 2019 while the cost of total interest-bearing deposits decreased 12 basis points to 0.59%.CREDIT QUALITY AND CECL
Strong credit quality remains a hallmark of the Old National franchise.
Asset quality remained strong with net charge-offs in the fourth quarter of $3.6 million, or 0.12% of total average loans, and 30-89 day delinquencies of 0.25%.Provision expense was $1.3 million in the fourth quarter compared to $1.4 million in the third quarter.Non-performing loans decreased as a percentage of total loans to 1.19%.In accordance with current accounting practices, the loans acquired from recent acquisitions were recorded at fair value with no allowance recorded at the acquisition date.  As of December 31, 2019, the remaining discount on these acquired loans was $77.8 million.The allowance for loan losses was $54.6 million, or 0.45% of total loans at December 31, 2019.Estimated day one increase to the allowance for loan losses and unfunded commitment liability of approximately $35 million to $45 million upon adoption of CECL. NONINTEREST INCOME
Noninterest income decreased due to normal seasonal patterns in mortgage banking and deposit service charges as well as a decline in capital markets income.
Total noninterest income for the fourth quarter of 2019 was $47.7 million, a decrease of $6.2 million from the third quarter of 2019.Mortgage banking revenue decreased $3.2 million, capital markets income decreased $1.5 million and service charges on deposits declined $1.1 million when compared to the third quarter of 2019.NONINTEREST EXPENSE
Fourth quarter results demonstrated continued discipline with respect to expense management, helping to drive positive operating leverage1.
Noninterest expense for the fourth quarter of 2019 was $134.7 million and included $8.2 million in ONB Way charges, $0.2 million in merger & integration charges and $0.7 million in tax credit amortization.Excluding these items, adjusted noninterest expense for the fourth quarter was $125.6 million, compared to the $118.3 million in adjusted noninterest expense in the third quarter of 2019.The fourth quarter of 2019 also included $4.0 million in additional incentive compensation which is included in adjusted noninterest expense defined above.The fourth quarter efficiency ratio was 65.57%, while the adjusted efficiency ratio was 60.97%.For the full-year 2019, the efficiency ratio was 60.35%, while the adjusted efficiency ratio was 57.87%.Adjusted operating leverage1 was +636 basis points for the full-year 2019 as compared to 2018.INCOME TAXESOn a fully taxable-equivalent basis, income tax expense in the fourth quarter was $14.7 million, resulting in a 23.0% FTE tax rate.Income tax expense included $0.7 million in tax credit benefit.CAPITAL
Capital ratios remain strong.
At the end of the fourth quarter, total risk-based capital was 13.0% and regulatory tier 1 capital was 12.1%.Tangible common equity to tangible assets was 9.09% at the end of the fourth quarter compared to 8.95% in the third quarter of 2019.The Company repurchased 428 thousand shares of common stock during the fourth quarter of 2019 at a weighted average price of $16.78, excluding commissions.   NON-GAAP RECONCILIATIONS4 Tax-effect calculations use the current statutory FTE tax rates (federal + state)4 Tax-effect calculations use the current statutory FTE tax rates (federal + state)

5 Year-over-year basis point change in noninterest expenses plus change in total revenue
6 Year-over-year basis point change in adjusted noninterest expense plus change in adjusted total revenue
Tax-effect calculations use the current statutory FTE tax rates (federal + state)CONFERENCE CALL AND WEBCAST
Old National will host a conference call and live webcast at 7:00 a.m. Central Time on Tuesday, January 21, 2020, to review fourth-quarter and full-year 2019 financial results. The live audio web cast of the call, along with the corresponding presentation slides, will be available on the Company’s Investor Relations web page at oldnational.com and will be archived there for 12 months. A replay of the call will also be available from 10:00 a.m. Central Time on January 21 through February 4. To access the replay, dial 1-855-859-2056, Conference ID Code 5278346.
Old National Bancorp (NASDAQ: ONB) is the holding company of Old National Bank. Headquartered in Evansville with $20.4 billion in assets, it is a top 100 U.S. bank, the largest Indiana-based bank and has been recognized as a World’s Most Ethical Company by the Ethisphere Institute for eight consecutive years. For 185 years, Old National has been a community bank committed to building long-term, highly valued relationships with clients. With locations in Indiana, Kentucky, Michigan, Minnesota and Wisconsin, Old National provides retail and commercial banking services along with comprehensive wealth management, investment and capital markets services. For information and financial data, please visit Investor Relations at oldnational.com.
This earnings release contains GAAP financial measures and non-GAAP financial measures where management believes it to be helpful in understanding Old National’s results of operations or financial position.  Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the tables of this release.
This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements include, but are not limited to, descriptions of Old National Bancorp’s (“Old National’s”) financial condition, results of operations, asset and credit quality trends and profitability.  Forward-looking statements can be identified by the use of the words “anticipate,” “believe,” “expect,” “intend,” “could” and “should,” and other words of similar meaning.  These forward-looking statements express management’s current expectations or forecasts of future events and, by their nature, are subject to risks and uncertainties. There are a number of factors that could cause actual results to differ materially from those in such statements.  Factors that might cause such a difference include, but are not limited to: market, economic, operational, liquidity, credit and interest rate risks associated with Old National’s business; competition; government legislation and policies (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and its related regulations); ability of Old National to execute its business plan, including the anticipated impact from the ONB Way strategic plan that may differ from current estimates; changes in the economy which could materially impact credit quality trends and the ability to generate loans and gather deposits; failure or circumvention of our internal controls; failure or disruption of our information systems; significant changes in accounting, tax or regulatory practices or requirements, including the impact of the new CECL standard; new legal obligations or liabilities or unfavorable resolutions of litigations; disruptive technologies in payment systems and other services traditionally provided by banks; computer hacking and other cybersecurity threats; other matters discussed in this press release; and other factors identified in our Annual Report on Form 10-K and other periodic filings with the SEC. These forward-looking statements are made only as of the date of this press release, and Old National does not undertake an obligation to release revisions to these forward-looking statements to reflect events or conditions after the date of this press release.
Media: Kathy A. Schoettlin (812) 465-7269
Investors: Lynell J. Walton (812) 464-1366


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