New York, February 17, 2021 -- Moody's Investors Service (Moody's) has affirmed the long-term
debt and deposit ratings, and assessments of Old National Bancorp
(Old National, long-term senior unsecured debt A3) and its
subsidiaries, including the baseline credit assessment (BCA) of
its bank subsidiary Old National Bank (long-term deposits Aa3,
long-term issuer rating A3, BCA a2). The ratings outlook
remains stable. A complete list of affected ratings and entities
can be found at the end of this press release.
The ratings affirmation resulted from Moody's unchanged assessment of
the bank's credit fundamentals, as expressed by its a2 BCA,
which is one notch above the average for rated US banks.
RATINGS RATIONALE
The affirmation of Old National's ratings and BCA reflects the bank's
solid capitalization, stable preprovision profitability and robust
deposit funding. Moody's views the company's risk appetite
as conservative, though Old National has an above peer average commercial
real estate (CRE) concentration.
Asset quality has been a longstanding credit strength of the company,
underpinned by its conservative credit culture. Its CRE concentration
arose in 2016 through a bank acquisition. Prior to that acquisition,
Old National's CRE loan portfolio was much smaller, whereas
CRE accounted for 32% of loans or 2.5 times its tangible
common equity (TCE) as of 30 September 2020. Additionally,
approximately 22% of Old National's CRE loans are construction,
which Moody's views as higher risk relative to income producing
CRE. Outside of this, Old National has no other large industry
concentrations and maintains granular commercial and CRE loan portfolios,
which has supported credit quality. The rating agency also noted
that loan payment deferrals have declined to a small amount. Problem
loans and net-charge offs are expected to rise from current very
low levels, but should be absorbable with the company's allowance
for credit losses and preprovision profitability.
Profitability is a credit strength of the company. Prior to 2020
and the onset of the coronavirus pandemic in the US, Old National
improved its profitability as a result of integrating bank acquisitions
completed through 2018 and achieving expense savings, and its ongoing
business optimization. Its reported return on average assets was
1.04% for 2020, still a strong performance but lower
than 1.19% for 2019 because of higher credit provisions.
Old National produces a high net interest margin, which was 3.26%
in the fourth quarter of 2020 compared to the 2.53% average
of large US banks for the same period. Mortgage banking income
is likely to decline from the high levels of 2020, but Moody's
expects over the long term, net revenue pressure will be offset
by efficiency gains related to Old National's strategic initiatives.
However, more costs related to these initiatives are likely in 2021.
Old National's capitalization is sound. Moody's estimated its TCE/risk-weighted
asset ratio to be 11.3% as of 31 December 2020, which
is a decline from 12.1% a year ago. The company reported
a common equity tier 1 ratio of 11.75% as of 31 December
2020. The affirmation of the BCA and ratings, and stable
outlook reflect Moody's expectation that capitalization will be maintained
with a Moody's TCE ratio above 11%.
Moody's noted that Old National's funding and liquidity have
improved since 2018 following the weakening that occurred between 2016
and 2018 in the wake of its acquisitions. The bank's average
deposit and loan growth were 16% and 15%, respectively,
in 2020. This led to reduction of its wholesale funding and increased
holdings of liquid assets, continuing the positive trends of 2019.
Moody's expects some of this deposit and liquid asset growth to
reverse when excess market liquidity diminishes, but that a strong
core funded liquidity profile will be maintained.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A lower CRE concentration, higher capitalization and a stronger
liquidity profile are necessary for a higher BCA and ratings.
Downward movement of the BCA and ratings could occur if the bank's capitalization
falls or it shows increased asset risk, for example through a higher
CRE concentration or acquisitions that are viewed as increasing asset
risk. Additional profitability decline, whether from higher
provisions or lower preprovision income relative to 2020, would
also pressure its ratings. Loan growth in excess of deposit growth
would also be negative, though this is not within Moody's
current expectations.
Affirmations:
..Issuer: Old National Bancorp
....LT Issuer Rating, Affirmed A3,
Stable
....Senior Unsecured Regular Bond/Debenture,
Affirmed A3, Stable
....Pref. Shelf, Affirmed (P)Baa1
....Pref. Shelf Non-cumulative,
Affirmed (P)Baa2
....Senior Unsecured Shelf, Affirmed
(P)A3
....Subordinate Shelf, Affirmed (P)A3
..Issuer: Old National Bank
....Adjusted Baseline Credit Assessment,
Affirmed a2
....Baseline Credit Assessment, Affirmed
a2
....LT Counterparty Risk Assessment,
Affirmed A1(cr)
....ST Counterparty Risk Assessment,
Affirmed P-1(cr)
....LT Counterparty Risk Rating (Local Currency),
Affirmed A2
....LT Counterparty Risk Rating (Foreign Currency),
Affirmed A2
....ST Counterparty Risk Rating (Local Currency),
Affirmed P-1
....ST Counterparty Risk Rating (Foreign Currency),
Affirmed P-1
....LT Issuer Rating, Affirmed A3,
Stable
....LT Bank Deposits, Affirmed Aa3,
Stable
....ST Bank Deposits, Affirmed P-1
Outlook Actions:
..Issuer: Old National Bancorp
....Outlook, Remains Stable
..Issuer: Old National Bank
....Outlook, Remains Stable
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
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.
Rita Sahu, CFA
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
