The lead article in the June 2013 issue of Bank Watch is “Old National Repositioning via M&A While Many Others Sit Still,” authored by Jeff Davis, managing director, and originally published on SNL Financial (republished with permission). The article begins …
Sy Jacobs of Jacobs Asset Management was featured in this week’s Barron’s (“Bullish on Community Banks”). He was quoted as having a “slightly bullish bias” on small cap banks, primarily because credit trends are positive and pending M&A. Jacobs also noted the sector’s revenue conundrum due to intensifying pressure on loan yields at a timewhen the country is over-banked and over-branched. Among his picks was Old National Bancorp, of which his fund held 2.0 million shares (2.0%) as of year-end 2012 per the 13F. Jacobs cited Old National as an active, accretive acquirer as the crux of his investment thesis.
I agree with Jacobs on the strategic positioning of Old National. CEO Robert Jones has moved on opportunities while many have sat on their hands; however, the shares, like most, are not a layup given the need to continue to execute on future deals, a liquid balance sheet at a time when loan demand is not robust, and a valuation that is middle of the road rather than inexpensive at 1.6x tangible book value and 13x full-year 2013 consensus EPS. Old National, like other acquirers, has one other hurdle that may limit its shares in the near-term: Street expectations. Old National has a wide gap between its GAAP net interest margin and NIM ex-accretion. I do not think the Street focuses on the issue until the narrowing of the differential is material to earnings. Old National’s NIM in the first quarter was 4.04% compared to 4.20% a year earlier; ex-accretion for three deals it was 3.31% versus 3.52%. To Old National’s credit and stated goal to be as transparent as possible, this is plainly laid-out for investors.
The same issue could be ascribed to many acquisitive banks….
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