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Shares of Old National Bancorp. (ONB - Snapshot Report) remained almost muted despite the company beat the Zacks Consensus Estimate for the first quarter by a penny. The company came out with earnings of 26 cents per share compared with 24 cents earned in the year-ago quarter.

Lower provisions for loan losses, decline in operating expenses, steady capital and profitability ratios as well as improved credit quality were the positives for the quarter. However, lower-than-expected revenues were on the downside.

Net income for the quarter came in at $26.5 million, up 10.7% year over year.

Performance in Detail

Total revenue (fully taxable equivalent) was $128.0 million, down 1.0% from the prior-year quarter. It also missed the Zacks Consensus Estimate of $129.0 million.

Net interest income (taxable equivalent) came in at $87.4 million, up 5.4% year over year. Moreover, net interest margin (NIM) increased 18 basis points from the prior-year quarter to 4.22%.

Fees, service charges and other revenues (excluding securities gain and derivative gains) were $39.9 million, down 11.9% from $45.3 million in the prior-year quarter.

Total operating expenses were $88.3 million, down 2.1% year over year. Moreover, the figure included merger and integration charge of $2.5 million.

Efficiency ratio decreased to 67.77% from 68.34% in the previous-year quarter. A decline in efficiency ratio indicates increase in profitability.

Credit Quality

Credit quality was strong in the quarter. Net charge-offs were $2.1 million, down from $2.4 million in the year-ago quarter. Excluding covered loans, allowance for loan losses as of Mar 31, 2014, was $41.5 million, down 12.3% year over year.

However, provision for loan losses for the quarter was $0.04 million, marking a significant year-over-year fall.

Capital and Profitability Ratios

Old National Bancorp’s capital ratios were well above the required regulatory requirements. As of Mar 31, 2014, Tier 1 risk-based capital ratio was 14.8%. Total risk-based capital ratio was 15.7% and Tier 1 Leverage Capital Ratio was 9.3%.

The company’s profitability ratios were strong during the quarter. Return on average assets rose to 1.12% from 1.01% in the prior-year quarter. As of Mar 31, 2014, return on average common equity ratio was 9.03%, up from 8.0% in the year-ago quarter.

Acquisitions

On Apr 25, 2014, Old National Bancorp completed the previously announced partnership with Fort Wayne, IN-based Tower Financial Corporation. The deal is valued approximately at $110.3 million.

On Jan 8, 2014, Old National Bancorp entered into a definitive merger agreement with United Bancorp, Inc., the Ann Arbor, MI-based financial service provider. The deal is expected to close by third-quarter 2014.

Our Viewpoint

Old National Bancorp’s consistent capital deployment makes it an attractive pick for yield-seeking investors. Further, we expect the company’s organic and inorganic growth strategies to boost bottom line going forward.

However, a low interest rate environment and tighter regulations will likely restrict the company’s growth in the near term.

Currently, Old National Bancorp has a Zacks Rank #2 (Buy).

Performance of Other Midwest Banks

Commerce Bancshares, Inc.’s (CBSH - Analyst Report) first-quarter 2014 earnings per share of 67 cents missed the Zacks Consensus Estimate by a penny. Lower-than-expected results were mainly due to higher operating expenses, partially offset by a slight rise in revenues.

Wintrust Financial Corporation (WTFC - Snapshot Report) reported earnings per share of 68 cents for first-quarter 2014, which beat the Zacks Consensus Estimate of 66 cents.

Huntington Bancshares Incorporated’s (HBAN - Analyst Report) first-quarter 2014 adjusted earnings per share of 19 cents outperformed the Zacks Consensus Estimate of 17 cents.

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