Old National Bancorp Exemplifies Careful Growth
For all the guff leveled at the financial industry these days, there are plenty of good banks out there. Companies such as Bank of Hawaii, FirstMerit and US Bancorp.
Another is Old National Bancorp. The Evansville, Ind., midsize bank exhibits many of the same strengths as these other institutions. It lends with discipline and care, manages risks before they burn holes in the bottom line, and watches its costs. The company doesn't dabble in exotic loans. It also limits its exposure to real estate and construction development, while keeping a tight rein on underwriting.
As a result, Old National makes money. The publicly held company has remained profitable throughout even the worst of the economic downturn. In 2008, for instance, while shares of other regional banks were falling 24 percent, Old National's stock price rose more than 21 percent.
The company's executives are also uncommonly sober -- and forthcoming. Here's CEO Robert Jones in an Oct. 26 conference call to discuss Old National's third-quarter results:
It is still our position that we have sometime to go before all of the issues flush through the system. Our hope is that we'll begin to see some positive traction in the latter half of next year. Our position is based on a couple of factors. One, our experience at banking challenges tend to be a lagging indicator, and while we may not still be in a recession, our belief is that the recovery will be slow and it would be long.Yet prudence doesn't mean you have to sit on your hands. Financial companies, even ones that husband their resources, have to grow. To that end, Old National in September raised roughly $196 million in a secondary stock offering. It plans to use the money for targeted acquisitions in its regional market.More importantly, we spent a great deal of time talking with our clients and there does not seem to be much optimism in their minds. Loan demand is very soft, capital expenditures for our clients are down for 2010 and we have not seen our clients doing much hiring as of yet. All of these leads us to believe we have sometime to go before we can declare a bottom to the credit cycle.
Even in striking deals, however, it's likely to remain cautious. Investment bank Sandler O'Neill in a recent research note said Old National will focus on picking up assets from failed banks as part of FDIC-brokered seizures or from institutions pulling out of the Midwest.
This is how banks should be run.