Old National Bancorp

ONB Details

Old National Bancorp (NASDAQ: ONB) is a holding company of Old National Bank, which provides various loans, deposit products, and other financial services such as private banking, brokerage, trust, and investment advisory to individuals commercial customers. Most of the loans given by the bank are in commercial and real estate (both commercial and residential) categories. As of June 30, 2021, it operated 162 banking centers in the US. As of August 03, 2021, the company's market capitalization stood at USD 2.64 billion.

Strengthening Wealth Management Franchise: ONB announced on July 27, 2021, that it has engaged Jim Steiner, Joe Colianni, and Eric Holman, all of Abbot Downing, to boost its wealth-management services. The company's aim to strengthen and expand upon the firm basis of its Wealth Management offerings necessitates recruiting these renowned leaders.

Merger to Become a Leading Midwestern Bank: On June 01, 2021, Old National Bancorp announced a merger with First Midwest Bancorp, Inc. in an all-stock deal with a total market value of USD 6.5 billion. The combined entity will operate under Old National Bancorp and Old National Bank names. It will become the sixth-largest bank in the Midwest, with total assets and deposits of USD 45 billion and USD 34 billion, respectively. The transaction is expected to close by FY21 end or early FY22. The merger is expected to be accretive to the shareholders of both banks.      

2QFY21 Results: The company reported a growth of 2.92% in net interest income to USD 149.93 million for Q2FY21 (ended June 30, 2021) compared to USD 145.67 million in Q2FY20. Interest income from loans constituted most of the total interest income in Q2FY21, with the rest coming from interest from investment securities. ONB reported a 21.43% YoY increase in net income to USD 62.79 million during the quarter. Net Interest Margin (NIM) diminished by 23 bps YoY to 2.91%. In Q2FY21, the company's total deposits increased by 9.49% to USD 17.87 billion from USD 16.32 billion in Q2FY20. Non-Performing Assets (NPAs) decreased by 5.58% to USD 521.84 million compared to USD 552.66 million in Q1FY21.  

Total Commercial Loans & Net Interest Income (Source: Investor Presentation, July 20, 2021)

Key Risks: As of June 30, 2021, commercial and agriculture real estate loans accounted for 44.89% of the total loan portfolio. Because the collateral securing these loans may not be sold as easily as residential real estate, they carry a higher risk than residential real estate. As a result, if these loans get impaired for any reason, it may severely impact the company's financials. 

Outlook:

Encouraging Outlook (Source: Investor Presentation, July 20, 2021)

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation

 (Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM 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 stock price has decreased by 16.49% past three months and is currently trading at the mid-point of its 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 at 39.51. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 19.80. Considering the correction in the stock price, accretive merger, decline in NPAs, robust dividend yield, healthy loan pipeline, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 16.20, up 1.63% as of August 03, 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.