Over the last week, we have begun our earnings season coverage of the many regional bank companies that we follow. The stock of Old National Bancorp (NASDAQ:ONB) is now pulling back to a very buyable level. In fact, we love it under $17, as the yield will be north of 3.3%, and the bank is still in a strong position. In this column, we examine the just-reported Q4 earnings. Let the stock fall, then do some buying here.
The bank's overall operational results were strong. The top line widened from last year for Old National Bancorp. The Q4 revenues were $556.1 million, rising 180.5% in this metric year-over-year, and much of this was again a result of their First Midwest bank merger back in February 2022. That said, there was loan and deposit growth which helped fuel better revenues and earnings.
Revenues were up, but margins were also strong, and widened nicely, helping earnings power. The top line was strong, and margins were solid, though some pressure on non-interest led to a very slight bottom line miss. Net income was solid at $164.3 million, or $0.56 per share, missing consensus by $0.01. Not too bad at all in our opinion. We think 2023 will be strong, better based on the trends we are seeing for banks, especially in this rising rate environment. Margins grew nicely. Net interest margin was 3.85%, up big from just the sequential quarter's 3.71%. That led to serious gains for net interest income, offsetting declines in non-interest income, which were down 6% from the sequential quarter.
New loans are being issued at higher rates, and that helps the yield on loans. Old National Bancorp uses its deposits and lends them out and collects the difference, a model that has worked for centuries. As we mentioned, the net interest margin for the quarter increased and has widened all year. Rising margins are excellent for earnings potential, though banks are starting to pay more on deposits as the environment for attracting customer deposits has gotten much tighter and more competitive.
Old National Bancorp loans continue to grow. Net loans totaled $31.1 billion at the end of the quarter, rising 7.7% annualized from the end of Q3 2022's $30.5 billion. Most of the growth continues to be in commercial loans, but consumer loans were also up 7.5% annualized. We expect further and strong production of both consumer and commercial loans in 2023, despite the risk of a mild recession brewing. Like many of the banks we have covered this earnings, Old National saw a slight decline in deposits. Period-end total deposits were $35.4 billion, down from $36.1 billion to start the quarter. This was a result largely of selling off of health savings accounts, as well as seasonal outflows.
Old National continues to have very healthy assets, and they remained strong in Q4 2022, though we did see some slight weakening. Banks in general are preparing for a mild recession. With such preparations, banks are anticipating that there will be more late payments, more loan delinquencies, and more charge-offs. The provisions for loan losses were higher, much like other banks in Q4 as the bank prepares for borrowers potentially facing issues with paying back their loans.
So in Q4, Old National upped its provision for credit losses to $11.4 million, up from a credit of $1.3 million in Q4 2021. The allowance for credit losses was $335.9 million, or 1.08% of total loans compared to 0.99% to start the quarter. Further, 30-day delinquencies were just 0.19% of loans, which was a decrease from 0.22% coming into the quarter. Net charge-offs were also down from Q3. They fell to $4.0 million, or 0..05% of loans vs 0.10% of loans ($7.6 million) in Q3. That is a surprising trend to see, and quite strong.
The bank continues to have a superb efficiency ratio as well, at 47.5%, improving from 49.8% in Q3. This contributed to a great return on tangible equity of 26.5% in the quarter, up from 22.6% in Q3. Overall, these are very healthy metrics.
The bank's stock is becoming more attractive relative to book value on this decline. At $16.92, Old National Bancorp stock is really getting closer to the book value per share at December 31, 2022. Book value per share was $16.68 at the end of the quarter. Book value has been rising here, and it is quite impressive. The premium-to-book has evaporated here.
That said, things are much more expensive relative to tangible book value. Tangible book value is increasing and is $9.42. With the recent market run-up, it is very rare to find regional banks trading below tangible book. At 1.5X tangible book valuation is less attractive, but with a 3.25% dividend yield, with a comfortable payout ratio of just 21% in the quarter on the $0.14 dividend, we see room for dividend growth. Let Old National Bancorp stock fall, then scoop some shares.
Old National Bancorp stock is pulling back heavily, down 7% at the time of this writing, and under $17. We like buying shares between $15-$16, so Old National Bancorp stock is becoming pretty attractive. If the market sells off further in the coming weeks, you are going to have an excellent chance to get long Old National Bancorp stock.
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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in ONB over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.