Old National Bancorp

ONB Details

Old National Bancorp (NASDAQ: ONB) is a holding company for Old National Bank, operating with 162 banking locations across the United States (as of December 31, 2020). ONB offers a variety of loans, deposit products, and other financial services such as private banking, brokerage, trust, and investment advisory to both individual and business customers. The majority of the loans provided by the bank are in commercial and real estate (both commercial and residential) categories. As of July 07, 2021, the company’s market capitalization stood at USD 2.83 billion.

Asset Mix (Source: Financial Review, Q1FY21)

Merger to Become a Premier Midwestern Bank: Old National Bancorp and First Midwest Bancorp, Inc. announced a merger on June 1, 2021, in an all-stock deal valued at USD 6.5 billion, to create a prominent Midwestern bank with USD 45 billion in combined assets and USD 34 billion in total deposits. The transaction should be completed by the end of FY21 or the beginning of FY22. The merger is intended to benefit both banks' stockholders.

Q1FY21 Results: The company reported a slight decline of 5.21% in total interest income to USD 159.23 million for Q1FY21 (ending March 31, 2021) compared to USD 168 million in Q1FY20. Interest income from loans contributed 79.05% of the total interest income in Q1FY21, with the rest coming from interest income from investment securities. However, ONB reported a 3.83x YoY increase in net income to USD 86.82 million during the quarter due to lease termination charges and impairments on long-lived assets that were part of the ONB Way strategic initiative in Q1FY20. In Q1FY21, the company’s total deposits increased by 24.78% to USD 17,850 million vs USD 17,037 million in Q4FY20. Net Interest Margin (NIM) diminished by 37bps YoY to 2.94%. Non-Performing Loans (NPLs) decreased by 4.67% to USD 157.36 million in Q1FY21 vs USD 165.08 million in Q4FY20.   

Key Risks: As of March 31, 2021, real estate loans (both commercial and residential) accounted for 58.23% of the total loan portfolio. Any decrease in the value of properties securing the company's real estate loans due to changes in zoning rules, increases in unemployment rates, or any environmental events could lower the value of the collateral and the possible proceeds available to borrowers to repay their loans.

Outlook: As of Q1FY21, the company indicated that it has commercial loans in the accepted category for USD 623 million for Q2FY21, showing a robust growth pipeline. With a low loan-to-deposit ratio of 78%, ONB continues to maintain a good liquidity position.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation

 (Analysis by Kalkine Group)

ONB Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: ONB's share price has declined by 11.56% in the past three months and is currently trading in the mid-band of the 52-week range of USD 12.02 to USD 21.28. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 32.31. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 20.00. Considering the company’s growth prospects, expected benefits from the merger, decline in NPL ratio, decent dividend yield, and current valuation, we recommend a “Buy” rating on the stock at the closing price of USD 16.94, down by 0.99% as of July 07, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.

First Financial Corporation