Executives from Old National Bancorp said in an earnings call Tuesday that the bank exceeded both analyst and internal predictions for earnings in its second quarter this year because of positive net interest margin trends and increased revenue from accelerated loan growth, improving asset yields and a lower-cost deposit base.
The Evansville, Indiana-based Old National saw net income rise by 3.33% as the company pushed further into the Southeast market. Net interest income and margin performed better than expected following the acquisition of CapStar Financial Holdings, which closed April 1, James Ryan, chairman and chief executive officer, said in the call.
Net income rose by 22% since last year including gains from the CapStar acquisition, totaling $121 million. Executives said in a statement to investors that income increases exceeded expectations, and they foresee further growth through the rest of the year.
"We achieved these outstanding results while also successfully closing on our CapStar Bank partnership and working to complete the associated systems integration," Ryan said. "Old National has meaningfully increased our presence in Nashville, Tennessee, while expanding our operations into several other vibrant Southeastern markets."
Excluding deposits that came from CapStar, the bank's deposit base grew to $40 billion, up $2.3 billion from last year's second quarter. Annualized loans also grew 5.9% without contributions from CapStar, up $2.6 billion from last quarter for a total of $36.2 billion. Loan growth improved, which saw a 2% year-over-year increase in loans.
"Our second quarter 2024 earnings evidenced another strong, on-plan quarter for Old National. We exceeded analysts' [expectations] due to our strong deposit franchise, disciplined loan growth, solid credit quality and ample capital," Ryan said in the earnings call.
The credit card giant increased its allowance for credit losses by more than $800 million following the termination of a partnership with Walmart.
After acquiring CapStar, Old National paid out over $34 million in merger-related costs. Including the fees associated with the acquisition of CapStar, Old National's diluted earnings per share fell to $0.37. However, excluding these fees, the bank exceeded market expectations by two cents at $0.46 per share. This is a decrease from last year's second quarter, which saw earnings of $0.52 per share prior to the acquisition of CapStar.
"Core numbers look better-than-expected thanks to outperformance on net interest income and fees," analysts from Piper Sandler said in a report.
"We continue to expect that we will continue to increase capital at a faster pace than most, through the combination of a better-than-peer return profile and a 30% dividend payout ratio," said Interim Chief Financial Officer and Chief Strategy Officer John Moran.
The PiperSandler analysts said there was "some noise" due to the closure of the CapStar Deal, but that "core numbers look better-than-expected thanks to outperformance on net-interest income and fees."
When asked how the bank intended to continue funding 5% to 7% annual loan growth for the rest of the year, Moran and Ryan said Old National hoped for continued deposit growth.
"We're going to remain on the offense, to the extent that there are banks that will continue to be aggressive as rates fall," Ryan said. "We just believe this is a good long-term play for us."
Ryan added that Old National will continue to evaluate share buybacks, but doesn't believe it is necessary as of yet to buy back stock. "I think we'll just continue to evaluate each day to see if the tool makes sense to use at this point in time," Ryan said. "I don't think we need to rush into anything and we'll just let the back half of the year play out."
