Many business customers remain skittish about the economy’s direction, Bob Jones, president of Old National Bancorp, said Monday.
That makes officials with the largest bank based in Indiana nervous about whether it can maintain its pace of two consecutive quarters of loan growth, Jones said.
“Overall, you can say the economy is in slow recovery. But after I polled our clients, I found that more than one said the recovery seems to be slowing, and we have to face that reality,” Jones said during a Monday conference call to discuss the Evansville-based bank’s third-quarter earnings.
Meanwhile, progress folding Columbus-based Indiana Community Bancorp (and its roughly $1 billion of assets) into Old National’s operation is moving faster than the typical state bank merger, said Barbara Murphy, Old National’s chief banking officer, “and we feel this new market will provide a nice growth opportunity.”
Murphy said deposit bleed-off after the merger was completed over the weekend of Sept. 15 has mostly been among smaller accounts and has not had a significant impact.
Overall, Old National reported third-quarter earnings of $19.7 million, or 20 cents per share, for the period ended Sept. 30, up 17 percent from third-quarter 2011 results.
The bank also declared a 9-cents-per-share dividend payable Dec. 17 to shareholders of record as of Dec. 3.
Chris Wolking, Old National’s chief financial officer, said a clearer picture will emerge at the end of the year on the Indiana Community situation, but he estimated that costs of the deal should be $6.5 million to $7.5 million less than originally anticipated, and the merger should boost Old National’s earnings per share by a bit more than the 6 to 8 cents per share previously forecast over the next 12 months.
On loan volumes and quality, Old National executives said they were happy with their core loan portfolio, highlighting continued growth in commercial real estate and commercial and industrial loans, in particular.
But Old National’s officers also said there are lingering loan-quality issues to work out with credits inherited from Indiana Community Bancorp, particularly in its residential real estate loans.
Criticized loans (those placed in a special category) were up by more than $32 million in the third quarter, and most of those were Indiana Community loans.
Classified loans and non-accrual loans — separate categories of problem loans that Old National must deal with — also rose in the quarter from mid-year, and a large portion of those are related to Indiana Community customers, bank officers said in the conference call with Wall Street analysts.
One bright spot, though, was the fact that Old National’s net charge-offs (loans deemed a loss) were only 0.03 percent of total loans. That’s about one-third the rate of charge-offs in the third quarter a year ago, chief credit officer Daryl Moore said.
Moore said the bank’s agricultural loan portfolio has some row-crop and livestock borrowers at risk because of drought and high feed costs. He said crop insurance and late rains may rescue some of the crop farmers, although livestock farmers are more at risk and some borrowers face “significant issues.”
The Evansville, Ind.-based bank said its Indiana Community deal added $493.5 million in loans and nearly $785 million in deposits to Old National’s balance sheet as of Sept. 15. Old National has total assets of $9.38 billion.
By Sept. 30, the loss of some small-balance accounts left Old National with a “still solid $740 million” from Indiana Community Bancorp, Murphy said.
The New York Stock Exchange was closed on Monday due to Hurricane Sandy on the East Coast, and as a result Old National’s stock didn’t trade after the earnings announcement. Its stock had closed at $13.22 per share Friday.
Murphy said the Columbus market’s economy is a solid one, despite the recent job-reduction announcement by engine maker Cummins, which plans to reduce its global workforce by up to 1,500 by year’s end.
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