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Old National Bancorp Ratings Affirmed by Moody's, Outlook Upped

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Ratings of Old National Bancorp (ONB - Free Report) and its bank subsidiary, Old National Bank, have been affirmed by Moody’s Investors Service, a rating arm of Moody's Corporation (MCO - Free Report) . The parent company has a long-term issuer rating and a senior unsecured rating of A3.

The subsidiary’s a2 standalone baseline credit assessment has also been affirmed. Additionally, it has been rated Aa3/Prime-1 for long- and short-term deposits.

Notably, the rating firm’s outlook for the bank has been upgraded to “stable” from “negative”.

The rating action follows the company’s strengthening of financial metrics on completion of recent acquisitions. Moreover, the ratings’ affirmation reflects reiteration of assessment of the bank's standalone credit profile.

Rationale behind the Upgrade

Significant improvements in key credit metrics in 2019, which weakened following the three big acquisitions by Old National between 2016 and 2018, were the main driving factor for Moody’s move.

Old National’s strong financial profile reflecting low problem loans, strong capitalization and profitability, along with a stable liquidity profile, enhanced Moody’s confidence in affirmation of ratings. Moreover, asset quality has always provided strength to the bank.

Notably, the ratings affirmation and the upgrade follow Moody’s belief in maintenance of such strong financial profile by the bank over the next 12-18 months. Per Moody’s estimation, the tangible common equity/risk-weighted asset ratio should be 12.1% as of Dec 31, 2019.

Despite higher expenses eroding Old National's profitability due to the expansions over the past several years, the bank improved it to a strong return on average assets of 1.2% in 2019. Notably, results in 2019 were impacted by low interest rates and expenses related to the Klein integration and the bank’s ONB Way program.

On liquidity profile, the bank has maintained its market funding consistently with improvement in balance-sheet liquidity following the weakness through 2017. Moreover, per Moody’s, Old Bancorp maintains risk management framework adequate with its risk-taking ability.

Factors That Might Trigger Change in Ratings

An upward ratings change can occur if the company is able to improve capitalization, and displays lower CRE concentration and a stronger funding and liquidity profile.

However, weakening in Old Bancorp's capitalization, together with loan growth higher than deposit growth, might exert downward rating pressure.

Shares of the company have gained 7.9% in the last six months compared with 7% growth recorded by the industry.



Old Bancorp currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

MidWestOne Financial Group, Inc. (MOFG - Free Report) has been witnessing upward estimate revisions for the last 30 days. Additionally, the stock jumped nearly 12%, in the last six months. It currently sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Farmers National Banc Corp. (FMNB - Free Report) has been witnessing upward estimate revisions, for the past month. Over the past six months, the company’s share price has been up more than 14%. It currently flaunts a Zacks Rank of 1.

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