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)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

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

THFF Details

First Financial Corporation (NASDAQ: THFF) is the financial holding company for First Financial Bank N.A. and The Morris Plan Company of Terre Haute, Inc. The company offers a wide range of financial services, including commercial, mortgage, consumer lending, trust account services, depositor services, and insurance services through its subsidiaries. It is the largest bank operating in Vigo County, Indiana, with 81 banking branches in Indiana, Illinois, Kentucky, and Tennessee, along with three loan production offices. THFF generates its revenues through loans and investment services provided to customers and corporations. As of July 07, 2021, the company’s market capitalization stood at USD 539.85 million.

Q1FY21 Results: The company reported a slight decline of 9.77% in total interest income to USD 37.35 million in Q1FY21 (ended March 31, 2021) compared to USD 41.40 million in Q1FY20. However, the net income increased to USD 12.87 million in Q1FY21 compared to USD 12.18 million in Q1FY20. The company’s total deposits increased by 3.97% to USD 3.91 billion vs USD 3.76 billion as of Q4FY20. Net Interest Margin (NIM) declined by 86 bps YoY to 3.27% during the quarter. As of Q1FY21, the company’s Non-Performing loans (NPLs) decreased to USD 21.01 million compared to USD 21.90 million at Q4FY20. THFF declared a semi-annual dividend of USD 0.53 per share, which was paid on July 1, 2021, to shareholders on record as of June 17, 2021. This marked the 33^rd consecutive year of increased regular dividends provided by the company.

Key Risks: The company’s operations are concentrated in west-central Indiana, east-central Illinois, western Kentucky, and middle and western Tennessee markets. Any significant downturn in economic conditions in these areas could impact the liquidity of the borrowers, resulting in an increase in non-performing assets. Moreover, commercial and real estate loans made up about 58% of the bank's loan portfolio as of December 31, 2020. A failure of these loans could result in a major increase in non-performing loans and a decrease in interest income, causing the company's operations to suffer.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

THFF Daily Technical Chart (Source: REFINITIV)                                    

Stock Recommendation: THFF's share price is declined by 14.04% in the past one month and is currently leaning towards the mid-band of the 52-week range of USD 30.02 to USD 47.00. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 27.34. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 46.17. On the technical chart, the next support level is USD 33.50 Considering the correction in the stock price in the past one month, the decline in NPLs, consistent dividend yield, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 39.30, down by 1.45% as of July 07, 2021.

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

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.