Old National Bancorp to Buy LSB Financial - Analyst Blog

Consistent with its inorganic growth strategy, Evansville, IN-based Old National Bancorp ONB recently entered into a definitive merger agreement with LSB Financial Corp. LSBI. On completion of the deal, Lafayette, IN-based LSB Financial will merge into Old National Bancorp and will cease to exist separately.

As part of the merger, shareholders of LSB Financial will receive $10.63 in cash and 2.269 shares of Old National Bancorp for each share held in LSB Financial. Hence, considering Old National Bancorp's closing price of $13.68 on Jun 3, the cash and stock deal is worth approximately $66.7 million. However, the amount might vary depending upon the company's stock price movement.

Moreover, per the terms of the agreement, the stock exchange ratio can also be modified if the investors' holding in LSB Financial is lower than a stipulated amount. Further, the deal still awaits regulatory approval and the consent of LSB Financial's shareholders and is expected to close by fourth-quarter 2014.

Stock price of Old National Bancorp dipped by 0.4% following the news relaese on Wednesday. This could be due to the prevalent overall subdued market conditions. However, over the time the stock price might show improvement as the deal is beneficial for the acquirer.

The acquisition of LSB Financial with assets worth $366 million and deposits more than $312 million, will more than double the foothold of Old National Bancorp in the lucrative Lafayette market. Moreover, as disclosed by the latter, the deal is expected to be immediately accretive earnings by $7.5 million or 3 cents per share in 2015.

Further, the deal seems to be profitable for the shareholders of LSB Financial. This was reflected by the overwhelming market reaction following the news of acquisition. The stock price of the company shot up by 42.8% and closed at $40.30 on Wednesday.

Old National Bancorp has been growing through acquisitions for quite sometime. In Jan 2014, the company had announced a definitive merger agreement with United Bancorp, Inc. Moreover, in Dec 2013, Old National Insurance – Old National Bancorp's wholly owned subsidiary, acquired the insurance accounts serviced by the Evansville branch of Wells Fargo Insurance, which is a division of Wells Fargo & Company WFC.

Earlier, in Jul 2013, Old National Bancorp completed the integration of 24 branches of Bank of America Corporation BAC located in Northern Indiana and Southwestern Michigan.

Old National Bancorp's capital ratios remain well above the minimum regulatory requirements. As of Mar 31, 2014, Tier 1 risk-based capital ratio was 14.8%. Total risk-based capital ratio was 15.7% and Tier 1 Leverage Capital Ratio was 9.3%.

Moreover the company boasts of an impressive earnings history as well. It has beaten the Zacks Consensus Estimate in the trailing three out of four quarters, while maintaining an average beat of 11.1%. Driven by its earnings power and steady capital position, the company is well positioned to grow through meaningful acquisitions going forward.

Old National Bancorp presently holds a Zacks Rank #3 (Hold).