New York, February 16, 2022 -- Moody's Investors Service (Moody's) has confirmed the long-term
ratings of Old National Bancorp (Old National, long-term
senior unsecured debt A3) as well as the long-term ratings and
assessments, including the a2 standalone Baseline Credit Assessment
(BCA) of its banking subsidiary, Old National Bank (long-term
deposits Aa3). Old National Bank's short-term Prime-1
Counterparty Risk Rating was also confirmed. The rating outlook
for Old National Bancorp and Old National Bank is stable.
In the same action, Moody's upgraded all long-term ratings
and assessments of First Midwest Bancorp, Inc. (First Midwest)
and its bank subsidiary, First Midwest Bank to the same level as
Old National. The holding company subordinated debt was upgraded
to A3 from Baa2 and its non-cumulative preferred stock was upgraded
to Baa2(hyb) from Ba1(hyb). First Midwest Bank's BCA was
upgraded to a2 from baa1, and its long-term deposit rating
was upgraded to Aa3 from A2. Following this ratings upgrade,
Moody's will withdraw all outstanding First Midwest ratings, except
for ratings on debt or preferred stock that remain outstanding,
because these entities have been merged into Old National.
This rating action concludes the reviews on the ratings for Old National
Bancorp and First Midwest Bancorp, Inc. that began on 2 June
2021, following the announcement of their merger between.
A complete list of affected ratings and entities within both banking groups
can be found at the end of this press release.
RATINGS RATIONALE
The confirmation of the BCA and long-term ratings of Old National
reflects Moody's view that its risk profile is broadly unchanged
as a result of the merger with First Midwest and that the combined bank
should continue to outperform its US regional bank peers, whose
median BCA is a3, over the long-term.
The all-stock merger between two banks of about equal size creates
a midwestern US regional bank with approximately $46 billion of
total assets, which will operate under the Old National brand.
Old National's shareholders have an ownership stake of approximately 56%
of the combined company. The combined company's branch footprint
covers seven midwestern states with most deposits coming from Illinois
and Indiana. The larger balance sheet and geographic footprint
enhances diversity and scale, which will also allow continued investments
in technology and digitization. The combination also modestly reduces
Old National's concentration in commercial real estate (CRE) as
a percentage of loans, though this is partially offset by lower
capitalization. The liquidity profile of the combined company is
strong, reflecting the ample and low-cost deposit funding
at each company and their sizeable holdings of liquid assets.
Moody's noted the strength of Old National's credit risk management
framework, which has resulted in better than peer performance through
economic cycles, and a long history of successful acquisitions.
These factors will support Old National's ability to align First
Midwest, which has a higher credit loss history, with its
more conservative credit stance, in Moody's view. Additionally,
the CRE concentration of the combined entity will be slightly lower,
equaling an estimated 2.3 times tangible common equity (TCE),
lower than the 2.5 times TCE of Old National prior to the merger.
Moody's has assessed that credit marks, equal to approximately
1.6% of First Midwest's loans, are conservative
and a source of creditor protection against higher losses that might arise
from the First Midwest loan portfolio.
Regarding profitability, Old National expects to realize cost savings
equal to 11% of combined noninterest expense, which along
with the greater geographic and business diversity, will strengthen
core earnings. Capitalization will be weaker for the combined company
as indicated by the management forecast of a Common Equity Tier 1 (CET1)
capital ratio of 10.5%, following the close,
which is significantly less than Old National's reported CET1 ratio of
12.04% and 11.75% as of 31 December 2021 and
2020, respectively. As such, Moody's expects
that its measure of TCE as a percentage of risk-weighted assets
(RWA) will remain below 11%.
The upgrade of the BCA and ratings of First Midwest reflects the benefit
to creditors from the increased scale and diversification of the merger.
The subordinated debt and preferred stock originally issued by First Midwest
Bancorp have been assumed by Old National. Moody's will withdraw
the other ratings of First Midwest Bancorp, Inc. and First
Midwest Bank following the upgrade because these entities have been merged
into Old National and no longer exist.
The stable outlook on Old National's ratings reflects Moody's expectation
of little change in the bank's credit profile over the next 12-18
months, as it proceeds with the merger integration.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Since Old National has a higher BCA than the median US regional bank and
is in the middle of a major integration and transformation, an upgrade
of the BCA is unlikely over the next 12 to 18 months. However,
the BCA could be upgraded if the bank increased its capitalization materially,
reduced its CRE concentration, and achieved higher profitability
levels. A higher BCA would likely lead to higher ratings.
A downgrade of the BCA and ratings could occur if capitalization declines
below Moody's TCE/RWA of 10% or if the bank's asset
quality or core deposit funding of its loan portfolio weakens.
Missteps in the integration process, which Moody's does not
expect, would also be negative for the ratings.
LIST OF AFFECTED RATINGS:
Confirmations:
..Issuer: Old National Bancorp
....LT Issuer Rating, Confirmed at A3,
Stable From Ratings Under Review
....Senior Unsec. Shelf (Local Currency),
Confirmed at (P)A3
....Subordinate Shelf (Local Currency),
Confirmed at (P)A3
....Pref. Shelf (Local Currency),
Confirmed at (P)Baa1
....Pref. Shelf Non-cumulative
(Local Currency), Confirmed at (P)Baa2
....Senior Unsecured Regular Bond/Debenture
(Local Currency), Confirmed at A3, Stable From Ratings Under
Review
..Issuer: Old National Bank
.... Adjusted Baseline Credit Assessment,
Confirmed at a2
.... Baseline Credit Assessment, Confirmed
at a2
.... LT Counterparty Risk Assessment,
Confirmed at A1(cr)
.... LT Counterparty Risk Rating (Foreign
Currency), Confirmed at A2
.... LT Counterparty Risk Rating (Local Currency),
Confirmed at A2
.... ST Counterparty Risk Rating (Foreign
Currency), Confirmed at P-1
.... ST Counterparty Risk Rating (Local Currency),
Confirmed at P-1
.... LT Issuer Rating, Confirmed at
A3, Stable From Ratings Under Review
.... LT Deposit Rating (Local Currency),
Confirmed at Aa3, Stable From Ratings Under Review
Upgrades:
..Issuer: First Midwest Bancorp, Inc.
....LT Issuer Rating (Local Currency),
Upgraded to A3 from Baa2, Stable From Ratings Under Review
....Pref. shelf Non-cumulative
(Local Currency), Upgraded to (P)Baa2 from (P)Ba1
....Pref. Stock Non-cumulative
Preferred Stock (Local Currency), Upgraded to Baa2(hyb) from Ba1(hyb)
....Subordinate Regular Bond/Debenture (Local
Currency), Upgraded to A3 from Baa2
..Issuer: First Midwest Bank
.... Adjusted Baseline Credit Assessment,
Upgraded to a2 from baa1
.... Baseline Credit Assessment, Upgraded
to a2 from baa1
.... LT Counterparty Risk Assessment,
Upgraded to A1(cr) from A3(cr)
.... ST Counterparty Risk Assessment,
Upgraded to P-1(cr) from P-2(cr)
.... LT Counterparty Risk Rating (Foreign
Currency), Upgraded to A2 from Baa1
.... ST Counterparty Risk Rating (Foreign
Currency), Upgraded to P-1 from P-2
.... LT Counterparty Risk Rating (Local Currency),
Upgraded to A2 from Baa1
.... ST Counterparty Risk Rating (Local Currency),
Upgraded to P-1 from P-2
.... LT Issuer Rating (Local Currency),
Upgraded to A3 from Baa2, Stable From Ratings Under Review
.... LT Deposit Rating (Local Currency),
Upgraded to Aa3 from A2, Stable From Ratings Under Review
..Issuer: First Midwest Capital Trust I
....Preferred Stock (Local Currency),
Upgraded to Baa1(hyb) from Baa3(hyb)
Affirmations:
..Issuer: Old National Bank
.... ST Counterparty Risk Assessment,
Affirmed P-1(cr)
.... ST Deposit Rating (Local Currency),
Affirmed P-1
..Issuer: First Midwest Bank
.... ST Deposit Rating (Local Currency),
Affirmed P-1
Outlook Actions:
..Issuer: Old National Bancorp
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Old National Bank
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: First Midwest Bancorp, Inc.
....Outlook, Changed To No Outlook From
Rating Under Review
..Issuer: First Midwest Bank
....Outlook, Changed To No Outlook From
Rating Under Review
..Issuer: First Midwest Capital Trust I
....Outlook, Changed To No Outlook From
Rating Under Review
The principal methodology used in these ratings was Banks Methodology
published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625.
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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
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.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
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
Andrea Usai
Associate Managing Director
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
