Old National Bancorp “couldn’t have scripted a better result" for the first full quarter after its
The Evansville, Indiana, company’s results for the quarter were highlighted by strong loan growth, solid credit quality and a record $5.9 billion-asset pipeline of potential credits that signals the loan portfolio will likely continue expanding through the remainder of 2022.
Despite growing economic uncertainty and the likelihood of another hike in interest rates, CEO Jim Ryan said, the $45.7 billion-asset Old National was “cautiously optimistic” about closing the pipeline loans.
“Our clients are very innovative,” Ryan said Tuesday on a conference call with analysts. “They still find ways to get their deals done — but we’re also just cautious like everyone else.”
Indeed, the CFO, Brendon Falconer, disclosed on the conference call that Old National has been hedging its balance sheet for several quarters to protect against a hard economic landing, which could in turn lead to a
For now, Old National is painting a relatively upbeat picture for the remainder of 2022. Net interest margin, which expanded 45 basis points to 3.33% from the first quarter to the second quarter, is expected to continue widening, noninterest expenses to decline and capital growth to accelerate, the result of elevated levels of projected net income.
Old National reported profits totaling $111 million Tuesday. Net charge-offs amounted to a modest two basis points of total loans.
Old National shares closed up nearly 2.3% Tuesday at $16.59. “Solid loan growth trends … should also support the shares going forward,” Hovde analyst Ben Gerlinger wrote Tuesday in a research note.
Bank of America officials say the boost to loan income from rising rates combined with its overhaul of its loan book since the financial crisis will help it weather any potential economic challenges ahead. Analysts had a lot of questions about the bank’s reasoning.
In contrast to the loan book, which grew at an annualized 19% rate on a linked-quarter basis, Old National’s deposits were largely static, totaling $35.5 billion on June 30. Decreases in commercial and retail deposits were largely offset by seasonal increases in municipal and government funds, Falconer said.
“We are prepared to defend deposits through rate action, if necessary, but we have ample funding sources and active liquidity to support future commercial loan growth,” Falconer said.
Old National’s deposit picture largely mirrored that of the $47.7 billion-asset Cadence Bank in Tupelo, Mississippi. Cadence, the product of the October 2021 merger between Bancorp South in Tupelo and Houston-based Cadence Bancorp, reported net income of $124.6 million late Monday.
According to Cadence, deposits grew at a 17.3% annualized clip over the first six months of 2022, but that expansion began to come under pressure during the second quarter. On a linked-quarter basis, Cadence’s deposits shrank $379 million, totaling $40.8 billion on June 30.
The company attributed the second-quarter decline to runoff of public fund balances, which spiked in the first quarter. On a more positive note, non-interest-bearing deposits continued to increase, totaling $14.3 billion on June 30, up 3% from year end 2021.
While deposit costs are expected to increase along with interest rates, the rise is expected to be gradual, with little or no effect on the net interest margin, Chief Financial Officer Valerie Toalson said Tuesday on a conference call with analysts.
Like Old National, Cadence reported strong loan growth, totaling an annualized 17%, during the quarter ending June 30, while nonaccrual loans fell to $89.4 million, down 2% from March 31 amounting to 0.41% of total loans and leases. Cadence also reported a fifth consecutive quarter of net recoveries.
“Credit quality continues to be very strong,” Chairman and CEO Dan Rollins said Tuesday on a conference call with analysts.
Cadence was able to shave nearly $6 million off noninterest expenses during the second quarter. After closing seven branches following the close of its merger with Cadence Bancorp, the company intends to consolidate an additional 17 branches in the fourth quarter, generating $8 million in annual cost savings, Rollins said.
Like Old National, Cadence is monitoring economic conditions closely. For now, it appears comfortable with an asset-sensitive stance and a bias toward continued growth.
“If the economy within the footprint we’re serving is providing loan growth opportunities, we’re going to be in the game,” Rollins said. “I think that is still the case today. … We’re clearly watching and looking at every credit with a new magnifying glass, but there’s a lot of good opportunity out there.”
Cadence Bank shares closed up nearly 3% Tuesday at $25.30.
