New York, August 09, 2017 -- Moody's Investors Service has affirmed the ratings of Old National Bancorp
and its bank subsidiary Old National Bank and changed the outlook to negative
from stable. Old National Bancorp has long term issuer and senior
unsecured ratings of A3. Old National Bank has long- and
short-term bank deposit ratings of Aa3 and Prime-1,
respectively, and a standalone baseline credit assessment (BCA)
of a2. Its issuer rating is A3 and its counterparty risk assessments
are A1(cr)/Prime-1(cr).
The rating actions follow Old National's announcement that it intends
to acquire St. Paul Minnesota-based Anchor Bancorp,
Inc. (ABI) in a stock and cash transaction expected to close in
the first quarter of 2018.
Issuer: Old National Bancorp
....Long-term Issuer Rating,
Affirmed A3, Outlook Changed to Negative
Senior Unsecured, Affirmed A3, Outlook Changed to
Negative
..Outlook Actions:
....Outlook, Changed To Negative From
Stable
Issuer: Old National Bank
. Long-term Issuer Rating, Affirmed A3, Outlook
Changed to Negative
. Long-term Deposits, Affirmed Aa3, Outlook
Changed to Negative
. Short-term Bank Deposits, Affirmed Prime-1
.... Adjusted Baseline Credit Assessment,
Affirmed a2
.... Baseline Credit Assessment, Affirmed
a2
. Long-term Counterparty Risk Assessment, Affirmed
A1(cr)
. Short-term Counterparty Risk Assessment, Affirmed
P-1(cr)
..Outlook Actions:
....Outlook, Changed To Negative From
Stable
RATINGS RATIONALE
The affirmation reflects Old National's strong asset quality,
which reflects the company's prudent underwriting, and its
sustainable market position in Indiana that supports its solid core deposit
base and earnings generation. Moody's said that the change
in the outlook to negative from stable is in response to Old National's
second significant out-of-market acquisition within the
past two years, which increases both credit and operational risks.
The ABI acquisition may put pressure on the company's capital and
liquid resources, although it will also add low-cost core
deposits and geographic diversification to Old National's earnings
base.
Old National's loan book has grown by more than one third since
2015, and will grow a further 17% with the acquisition of
ABI, said Moody's. Moody's tangible common equity
(TCE) to risk weighted asset ratio for Old National declined to 11%
in 2016, down from 11.9% in 2014, and from 13.4%
in 2013. The capital ratio will be further pressured by the acquisition
as a result of additional goodwill and the expansion of its risk-weighted
assets. Old National's liquid resources have also declined
as the company has grown through acquisitions. Liquid banking assets
accounted for 21.9% of tangible banking assets at year-end
2016, down from 27.6% in 2014.
Moody's noted that Old National's capital and liquidity metrics
remain weak points relative to its a2 BCA, which is above the median
for the rated US banks. These risks are partly mitigated by Old
National's strong track record in credit risk management and in
integrating acquisitions with limited financial impact, added Moody's.
Factors that Could Lead to an Upgrade
Given the negative outlook, there is limited upward rating pressure
on Old National's standalone BCA at this time. To return
the outlook to stable, Old National would need to show signs of
improvement in its capital position and its liquid resources.
Factors that Could Lead to a Downgrade
Downward movement of the BCA could occur if the bank's capital or
liquidity fails to return to prior levels. Downward movement could
also occur if Moody's believes that Old National's underwriting
standards have become more aggressive, leading to a weakening of
the bank's risk profile.
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Jeanne Del Casino
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653