Old National Bancorp Q4 2024 Earnings Report

Old National Bancorp EPS Results

• Actual EPS: $0.49
• Consensus EPS: $0.46
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: $0.46

Old National Bancorp Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $485.57 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Old National Bancorp Announcement Details

• Quarter: Q4 2024
• Date: 1/21/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, January 21, 2025
• Conference Call Time: 10:00AM ET

Old National Bancorp (NASDAQ:ONB) operates as the bank holding company for Old National Bank that provides various financial services to individual and commercial customers in the United States. It accepts deposit accounts, including noninterest-bearing demand, interest-bearing checking, negotiable order of withdrawal, savings and money market, and time deposits; and offers loans, such as home equity lines of credit, residential real estate loans, consumer loans, commercial loans, commercial real estate loans, agricultural loans, letters of credit, and lease financing. The company also provides debit and automated teller machine cards, telephone access, online banking, and other electronic and mobile banking services; cash management, private banking, brokerage, trust, investment advisory, and other traditional banking services; wealth management, investment, and foreign currency services; and treasury management, merchant, and capital markets services, as well as community development lending and equity investment solutions. The company was founded in 1834 and is headquartered in Evansville, Indiana.

Old National Bancorp Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Welcome to the Old National Bancorp 4th Quarter and Full Year 20 24 Earnings Conference Call. This call is being recorded and has been made accessible to the public in accordance with the SEC's Regulation FD. Corresponding presentation slides can be found on the Investor Relations page at oldnational.com and will be archived there for 12 months. Management would like to remind everyone that certain statements on today's call may be forward looking in nature and are subject to certain risks, uncertainties and other factors that could cause actual results or outcomes to differ from those discussed. The company refers you to its forward looking statements legend in the earnings release and presentation slides.

[Operator]

The company's risk factors are fully disclosed and discussed within its SEC filings. In addition, certain slides containing non GAAP measures, which management believes will provide more appropriate comparisons. These non GAAP measures are intended to assist investors understanding of performance trends. Reconciliations for these numbers are contained within the appendix of the presentation. I'd now like to turn the call over to Old National's Chairman and CEO, Jim Ryan, for opening remarks.

[Operator]

Mr. Ryan?

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Good morning. Old National reported strong results for the Q4 and the full year this morning. In 2024, we successfully navigated a challenging environment while maintaining an offensive growth strategy, investing in client facing and key support talent and remaining opportunistic for new acquisitions. Our basic banking strategy has served us well. A hallmark of this strategy is our focus on low cost core deposits, which grew by approximately 10% in 2024 funding a corresponding 10% growth in loans.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Since 2022, total deposits and loans have experienced a compounded annual growth rate of 8%. Our total cost of deposits finished the year at 1.93% driven by a 93% down beta on our exception price deposits. Our peer leading deposit franchise, disciplined loan growth, strong credit quality, well managed expenses and dedicated team members who are committed to serving our clients and communities enabled us to exceed our expectations that we set as we began 2024. Our full year results can be found on Slide 4. GAAP earnings per common share for the year were $1.68 with adjusted earnings per common share of $1.86 Our adjusted return on average tangible common equity was 16.9% and our adjusted return on average assets was 1.14%.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Notably, the adjusted efficiency ratio stood at 52%. At the same time, our net charge offs were low at 17 basis points. Our tangible book value per share also grew by 8% year over year and our total shareholder return significantly outperformed the KRX and our executive peer group in 20 24. 24. During the first half of twenty twenty four, we successfully closed and converted CapStar Bank and Old National Bank, strengthening our presence in Nashville and other high growth Southeastern markets.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Later in the year, we announced our partnership with Bremer Bank, enhancing our presence in the upper Midwest and expanding our footprint across Minnesota, North Dakota and Wisconsin. We have recently filed our S-four with the SEC and our regulatory applications to the OCC and the Federal Reserve in connection with our partnership. A forthcoming community growth plan will accompany this partnership too. After a recent visit with Bremer team members, I can report the genuine enthusiasm for our combination and we are excited to collaborate with the executive team and our new team members as we start the integration process. We still anticipate closing the partnership by mid year and completing our integration in the latter half of the year with 100% of the cost savings projected to be realized in 2026.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

In summary, our 2024 EPS results were more resilient than most peers in a challenging year, thanks to our relentless focus on fundamentals, growth of core deposits, strong underwriting practices and disciplined expense management. John will provide our official 2025 outlook at the end of his prepared remarks. Looking ahead, I'm confident in our ability to navigate changes in short term interest rates, shifts in the yield curve and overall economic conditions as we have for the past 190 years. I want to take a moment to discuss 2 leadership changes announced in this morning's news release. As mentioned in the release, our President and COO, Mark Sander will retire on June 30.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Mark has been an invaluable partner over the past few years. Although my time working alongside Mark has been brief compared to his lengthy and distinguished career, his steady leadership has played a significant role in Old National's transformation into a high performing bank. He has helped solidify our position as one of the premier banks in the country. I would also like to acknowledge Mark's lasting impact on the Chicagoland community where he's been a prominent banking leader and a dedicated community advocate. On behalf of all of us at Old National, I express our gratitude for his daily embodiment of our organizational values.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

We have begun searching for Mark's successor and will consider internal and external candidates. Additionally, we announced today that Dan Herman, a highly respected business leader and a significant contributor to our corporate Board for the past 5 years has succeeded Becky Skillman as our Lead Independent Director. On behalf of our executive leadership team and the Board, I want to thank Becky for invaluable guidance in this role since 2016. On a personal note, she has been an exceptional mentor and partner during my tenure as CEO. I'm pleased to share that she will continue to serve as a key member of our corporate board.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

I want to emphasize how fortunate we are to have Dan as our Lead Independent Director. He brings a wealth of leadership experience and I'm confident that our board will continue to excel under his guidance providing strong support to our executive leadership team. Thank you. With that, I will now turn the call over to John to discuss the quarter results in more detail.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Thanks, Jim. Turning to slide 5, we reported GAAP 4Q earnings per share of $0.47 Excluding $0.02 per share of merger charges, adjusted earnings per share were $0.49 Results were driven by net interest income and margin that were in line with our expectations, strong fee income and a favorable tax rate partially offset by incentive true ups. Credit remained benign with normalized levels of charge offs and our return profile as measured on assets and on tangible common equity remained high. On slide 6, you can see our 4th quarter balance sheet, which highlights stability in our liquidity and continued improvement in our capital position. Total deposit growth over the last year has again allowed us to organically fund loan growth while minimizing borrowings.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Since 2022, our 8% CAGR in both loans and deposits has exceeded H8 industry growth. As Jim mentioned, we grew our tangible book value per share by 8% over the last year. We also accreted nearly 70 basis points of CET1 for the year, ending 2024 with a strong CET1 ratio of 11.38%. We continue to expect that we will accrete capital at a faster pace than most. These liquidity and capital levels continue to provide a strong foundation, which strengthens our position as we begin 2025.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

On Slide 7, we show trends in our earning assets. Total loans decreased 1.6% annualized from last quarter with strong production in our commercial book offset by $600,000,000 of outsized payoffs and lower line utilization. For the full year, we saw total loans grow 10% or 4% excluding CapStar. Quarterly new loan production rates are in the 7% range and marginal funding costs are in the high 3% range. The investment portfolio was consistent with the prior quarter and duration is now just over 4.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

We have approximately $1,500,000,000 in cash flow expected over the next 12 months. Today, new money yields are currently running approximately 180 basis points above back book yields on securities and fixed rate loans. The repricing dynamics in both loans and securities support our expectation that net interest margin will be stable to improving in 2025. Moving to slide 8, we show our trend in total deposits. Core deposits ex brokered continued to grow and were up nearly 2% annualized as we remain focused on growth in this key funding source.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Non interest bearing deposits were 24% of core deposits consistent with 3rd quarter levels. Private banking and community deposits were up during the quarter, while public funds saw normal seasonal decreases. Our brokered deposits decreased approximately $200,000,000 and at 3.7% as a percentage of total deposits, our use of brokered remains less than half peer levels. The total loan to deposit ratio was 89%, consistent with last quarter. With respect to deposit costs, the 17 basis point decrease in deposit rates compared to the prior quarter played out as we expected and total deposit costs steadily decreased in the quarter consistent with Fed actions.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Our spot rate on total deposits at December 31 was 193 basis points. Moreover, our exception price deposits have experienced a 93% down beta since we started lowering rates in that book in early 2Q. Our 4th quarter total deposit beta came in at 28%, which was in line with our expectations and accelerated over the course of the quarter. Overall, we are highly confident in the execution of our deposit strategy and it continues to unfold as expected. We are prepared to proactively respond to future Fed actions and the evolving environment while staying focused on driving above peer deposit growth at reasonable costs.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

As we have mentioned in past calls, we remain front footed with respect to client acquisition. Slide 9 provides our quarter end income statement. We reported GAAP net income applicable to common shares of $150,000,000 or $0.47 per share. Excluding $0.02 per share of merger related expenses, our adjusted earnings per share were $0.49 A quick note on taxes. This quarter included additional tax credit benefits, which were partially offset in the operating expense line and also benefited from the resolution of certain tax matters.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Without those items, our FTE tax rate would have been in line with the 25% we had guided. Moving on to slide 10, we present details of our net interest income and margin. Net interest income was relatively stable as expected and net interest margin was likewise flattish as lower deposit costs and higher accretion were offset by increased pay downs and lower line utilization. Year over year, we again showed deposit growth that essentially kept pace with asset generation while maintaining a low total cost of funding. Slide 11 shows trends in adjusted non interest income, which was $96,000,000 for the quarter and above our expectations.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Our primary fee businesses performed well with wealth, mortgage and bank fees ahead of expectations, while capital markets declined as a result of lower CRE production. Other income benefited from $8,000,000 of discrete items. As a reminder, looking back to Q3, other income was also elevated by approximately $3,000,000 primarily related to market valuation gains. Continuing to slide 12, we show the trend in adjusted non interest expenses of $269,000,000 for the quarter. This was slightly higher than expectations due to a $5,000,000 year to date performance driven incentive accrual true up as well as $1,200,000 in higher tax credit amortization that is offset within the tax line that I mentioned earlier.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Run rate expenses remain well controlled and we again generated positive linked quarter operating leverage. On slide 13, we present our credit trends, which reflect the quality of both our commercial and consumer portfolios. Total net charge offs were 21 basis points and a low 17 basis points excluding 4 basis points related to PCD loans. The non performing loan ratio and delinquency ratios were relatively stable from last quarter. The 4th quarter allowance for credit losses to total loans, including the reserve for unfunded commitments, was 114 basis points, up 2 basis points from the prior quarter.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Consistent with Q3, our qualitative reserves incorporate a 100 percent weighting on the Moody's S-two scenario with additional qualitative factors to capture the possibility of grade migration. Also, we remind you that our allowance for credit losses plus the discount remaining on acquired loans to total loans now stands at nearly 160 basis points. Slide 14 presents key credit metrics relative to peers. We remind you again that our proactive approach credit monitoring has led to above peer levels of NPLs, but delinquency and charge off ratios that are below peer averages over time. We have long practice conservatism here and we continue to believe that the results speak for themselves.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

On slide 15, we review our capital position at the end of the quarter. Again, all regulatory ratios increased driven by strong retained earnings. The increase in rates at the intermediate points of the yield curve led to a modest decrease in TCE and tangible book value per share given a $142,000,000 linked quarter AOCI headwind. Despite that headwind, tangible book value was up 8% year over year and we expect AOCI to improve approximately 15% or 100 and $10,000,000 over the next 12 months. Slide 16 includes updated details on our rate risk position and net interest income guidance.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

NII is expected to be relatively stable in the first half of twenty twenty five excluding the impact of 2 fewer days in the Q1 and then increasing in the back half of the year with the benefit of fixed asset repricing, growth and the anticipated closing of our Brammer partnership. Our assumptions are listed on the slide, but I would highlight a few of the primary drivers. First, we assume 2 rate cuts of 25 basis points each, which is one cut more than the current forward curve. 2nd, we anticipate our total deposit beta to accelerate from 28% in 4Q to approximately 40% as we move through 2025, in line with our terminal up betas. And 3rd, we expect the non interest bearing mix to remain stable at 24% of total core deposits.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Importantly, our guidance would be unchanged for one cut or no cuts as our balance sheet remains neutrally positioned. On slide 17, we include our outlook for the Q1 and full year 2025. With the exception of loan growth, all guidance includes Bremer and assumes a July 1 close. We believe current pipeline support full year loan growth of 4% to 6%, which is expected to ramp up over the course of the year. We anticipate continued success in the execution of our deposit strategy and expect to meet or exceed industry growth in 2025.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Other key line items are highlighted on the slide. At the midpoint of the range on these lines, you'll note that we expect full year results that yield earnings per share above the current analyst consensus estimates and again feature positive operating leverage, a peer leading return profile, good growth in fees, controlled expenses and normalized credit. In summary, 2024 results were excellent with run rate 4th quarter results in line with our expectations. We remained on offense and we continue to demonstrate our ability to execute against strategic priorities. First, we organically grew deposits at a sufficient pace to fund our asset generation.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Both deposits and loans were ahead of overall industry growth rates. 2nd, our adjusted return profile remains top quartile against peers at 17% on tangible common equity. 3rd, we remain disciplined on expenses driving positive operating leverage and an adjusted efficiency ratio in the low 50s. 4th, our credit remained resilient and we believe we have ample reserve coverage along with a well diversified and granular loan book. And 5th, we are continuing to compound tangible book value per share, which was up 8% year over year.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

With those comments, I'd like to open the call for questions.

[Operator]

Thank you. We will now begin the question and answer session. Your first question comes from the line of Ben Gurlinger from Citi. Your line is open.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Good morning, Ben.

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

Good morning.

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

Howard, it seems like you guys got a good start to the year. When you think about the guidance that you laid out for expenses, this is more of a clarification question than anything. Are you backing out any CDI or any sort of non core other than the merger related expenses for closing?

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Yes, Ben. Just the merger related expenses are backed out. Everything else is fully loaded.

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

Got you. Okay. Helpful. And then when you think about the outlook for 2025 and 2026, I know you've already had kind of the table set in front of you here with the deal closing and then back half of the year, a game plan that's already laid out. When you think about this capital allocation with AOCI coming back and the deal price incredibly well, Is there anything that you guys can do in the medium term either outside of just core growth, either share repurchase or just trying to think about allocation over the next 12 to 18 to 24 months?

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Yes. I think it's a bit early for us to make a decision about how capital will be allocated. Clearly, the first priority is always growth. But I do think our we'll have more capital flexibility if things play out the way we expect things to play out. I think we'll be in a better position probably by mid year to have better optics into how capital management looks going forward.

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

Got you. And if I can sneak one more in, it seems like loan growth across the banking industry is still a little bit muted, but there seems to be some green shoots. Have you guys seen anything within your book either geographically or lending? Like, I mean, do you any subsectors of C and I or CRE perchance that could be a little bit more of a leading indicator for improved growth, not just for you guys, just kind of what you're hearing from commentary on your clients you serve?

[Mark Sander, President & COO at Old National Bancorp]

Hey, Ben, it's Mark. I would say it's cautiously optimistic, is the best thing we'd say and we've guided as such. I think we think the Q1 coming off of the quarter where we had outsized payoffs and decreases in line utilization that has us a little more cautious about our Q1 growth. But we do think the underlying fundamentals are still really solid out there. And so that's why we have we feel really confident about that 4% to 6% we have for the full year.

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

Got you. That's helpful. Appreciate it. Thank you.

[Operator]

Your next question comes from the line of Scott Siefers from Piper Sandler. Your line is open.

[Scott Siefers, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Good morning, guys. Thanks for taking my questions.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Good morning. Good to hear from you, Scott.

[Scott Siefers, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Yes, likewise. Let's see, maybe John, first question for you. So you've got a good strong NII outlook for the year. I was hoping you could help us to understand a little more of the nuance of the standalone margin in coming quarters. I mean, certainly see everything on Slide 16 with the broad assumptions.

[Scott Siefers, Managing Director & Senior Research Analyst at Piper Sandler Companies]

But just when you think about O and D on a standalone basis, I think you said stable to improving this year for the margin. I think you were talking standalone, but sort of big puts and takes as you see them. In other words, what would be sort of the potential choke points that you'd worry about and by contrast maybe things where you think things could come in a little better, as you look out over the year?

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Yes. Hey, Scott. The yes, you're correct.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

When I said stable to improving, I am talking about OMB kind of core underlying. I think when we look out into this year, what drives that is our ability to continue to grow assets, right? So loan growth will be important there. And then the fixed asset repricing dynamics are favorable to us today. And a little bit of steepness in the curve versus what I mean, heck, we've been living inverted for a long time here, right?

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

So steepness in the curve and improvement in the belly is certainly something that I think could help us out a little bit, provide a little bit of a tailwind.

[Scott Siefers, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Perfect. Okay, great. Thank you very much.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Thanks, Scott.

[Operator]

Your next question comes from the line of Jared Shaw from Barclays. Your line is open.

[Jared Shaw, Managing Director at Barclays Capital]

Thanks. Good morning, everybody.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Good morning, Jared.

[Jared Shaw, Managing Director at Barclays Capital]

Maybe just going back to Ben's discussion around capital, just looking at CET1, it's really strong and continues to grow. You mentioned some of those tailwinds. Well, I understand you're going to wait a little while to sort of get into maybe some alternative uses of capital. Where do you think the model needs what capital level do you think the model needs to be at here with the new administration, maybe the new regulatory outlook and better than feared credit? Do you think that ultimately this model gets back down to 10% or below CET1?

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Well, that's a good question. And the reality is I don't think we have the answer to that question yet. I think we need to have some more time through the year to have better optics into that. Capital is running a little bit ahead of our own internal expectations. So that's a good thing.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

I think that also gives us some flexibility as we think about the Bremer partnership and the balance sheet optimization. Maybe we can end up with more assets in the balance sheet than we originally modeled up just because of capital comes in a touch stronger there. And then obviously we have other stakeholders out there, right? You have the rating agencies view of that. And to the extent that that view changes over time, I think that's something that we'll have to watch for.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

So we'll try to manage all the stakeholders and importantly, our shareholders and understand that we want to have the right amount of capital, but not too much capital. And so that'll be the needle that we'll try to thread as we get this more clarity as the year unfolds here.

[Jared Shaw, Managing Director at Barclays Capital]

Okay. Thanks. And then on NII and beta, should we be thinking that deposit beta is sort of a linear move through the year? Or is there maybe an expectation that it's not so much linear? And then I guess within that, how sensitive is your NII expectation to the long end of the curve?

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Yes, it's a good question. Look, I'd love to say that it's going to be linear. I don't know that it plays out exactly that way. But I think point to point over the course of the year, we fully expect that we're going to capture what we gave up on upside beta. We will capture on down beta over the course of the year, and we're working hard on doing that.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

In any given quarter, it could come in a little bit better, a little bit worse. But I think for modeling purposes, Lydia is probably a pretty good guesstimate.

[Jared Shaw, Managing Director at Barclays Capital]

Okay. And then just the sensitivity to long end rates with the longer end being up over

[Jared Shaw, Managing Director at Barclays Capital]

the next year?

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Yes, sorry,

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

there was

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

a second part to that question. Sorry about that, Jared. Yes, I think our real sensitivity is really it's barely a curve for the most part. A couple of portfolios are

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

going to reprice off of the

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

10 year mostly that would be in the consumer side of the house, but our real sensitivity is barely a curve. So kind of think 3 year, 5 year point of the curve.

[Jared Shaw, Managing Director at Barclays Capital]

Okay. Thanks. And just finally for me, what's the accretion expectations within that NII guide for 2025?

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

In total, so we had

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

accretion ran a little bit heavy

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

in the 4th quarter that was in part due to the accelerated pay downs that we referenced. We expect that that drops to about $10,500,000 in the 1st and second quarter and there's a schedule on that in the back and then we'll update that schedule with the full Brammer piece of it once that becomes clear. But I think for now I would just go back to what we announced with the deal announcement in terms of accretion to the back half of 25 on the Brammer piece.

[Jared Shaw, Managing Director at Barclays Capital]

Great. Thanks a lot.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Thanks, Jared.

[Operator]

Your next question comes from the line of Brendan Nossel from Hough Group. Your line is open.

[Brendan Nosal, Director, Equity Research at Hovde Group]

Hey, good morning.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Hi, Brendan. Hi, Brendan. Hi, Brendan. Hi, Brendan.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Hi, Brendan. Hi, Brendan. Hi, Brendan. Hi, Brendan. Hi, Brendan.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Hi, Brendan. Hi, Brendan.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Hi, Brendan. Hi, Brendan. Hi, Brendan. Hi, Brendan. Hi, Brendan.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Good morning.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Thank you.

[Brendan Nosal, Director, Equity Research at Hovde Group]

Just to circle back to the loan growth guide, just kind of curious if you could unpack that a little bit and around how much you need to see pay downs and line utilization pressure ease off to help you get to that guide versus how much is going to be a pickup in originations?

[Mark Sander, President & COO at Old National Bancorp]

Yes. I'd say it this way, Brendan. Our production is still solid and strong and our pipeline at $2,700,000,000 gives us plenty of ammunition so to speak to grow this 4% to 6%. So yes, if we get if we see $600,000,000 a quarter of outsized payoffs, it will be that will be a headwind that will be tough to fight. But but it will be very unusual for us to see that.

[Mark Sander, President & COO at Old National Bancorp]

Those really outsized this quarter like we haven't seen before. So I think you get any bit of normalcy in paydowns and land utilization. I think that 4% to 6% is a really good guide.

[Brendan Nosal, Director, Equity Research at Hovde Group]

Yes. Okay, perfect. Maybe one more for me. If I just look at average earning assets outside of the loan piece, I mean, average cash and average securities were up a fair bit this quarter. So there was some liquidity build that helped the NII number.

[Brendan Nosal, Director, Equity Research at Hovde Group]

Just kind of curious in the guide for NII, how much non loan earning asset growth you have

[Brendan Nosal, Director, Equity Research at Hovde Group]

contemplated?

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

I think it will be pretty flat. I don't think we're going to build the securities book. And this quarter was probably a little bit of liquidity drag all else equal because of the pay downs that we referenced.

[Brendan Nosal, Director, Equity Research at Hovde Group]

Yes. Okay, fantastic. Thank you for taking the questions.

[Operator]

Your next question comes from the line of Terry McEvoy from Stephens. Your line is open.

[Terry Mcevoy, Managing Director at Stephens Inc]

Hi, thanks. Good morning.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Good morning, Terry. Hopefully, you're warmer than we are here in Indiana.

[Terry Mcevoy, Managing Director at Stephens Inc]

Not much. First off, just congrats to Mark on news of your retirement, enjoyed working with you the last few decades. And then maybe for Jim, your thoughts on kind of filling that role. I know you talked about it a bit in your prepared remarks. And maybe how important is it to have somebody with kind of a Chicagoland background kind of giving, given the franchise there?

[Jim Ryan, Chairman and CEO at Old National Bancorp]

I would start with, well, it's incredibly important to have leaders sitting right there in Chicago. Obviously, it's the biggest part of our franchise. And we're going to have succession that's going to happen over the next handful of years. As you would expect, it's kind of normal succession and we'll make sure that we have our fair share of leaders sitting right there in Chicago. It's important.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

I'm heading there this afternoon as we speak. So this is a place that we spend an awful lot of time in. We've got an awful lot of resources dedicated and we'll work through all the succession that will ultimately happen across our entire footprint. But I just believe in having leaders in those markets. And I would add Minnesota to that.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

We've got a number of leaders today in the Twin Cities area and we'll continue to have leaders there. So it's yes to be determined exactly how this all plays out. But to your point, Mark's been an amazing partner. It's been important for us. It's really helped us execute on our partnership, not only in Chicago, but across our entire company and big shoes to fill.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

And the good news is, we think we have some internal candidates and we will go out external to see just as we're a large organization and the complexities of our organizations continue to change and see what's available to us

[Jim Ryan, Chairman and CEO at Old National Bancorp]

out there.

[Mark Sander, President & COO at Old National Bancorp]

And Terry, I'd

[Mark Sander, President & COO at Old National Bancorp]

just add, thank you for your kind comments. I appreciate it. I've enjoyed working with you and so many people on this line and

[Mark Sander, President & COO at Old National Bancorp]

give a little bit more time.

[Mark Sander, President & COO at Old National Bancorp]

I'm not going anywhere for a bit.

[Mark Sander, President & COO at Old National Bancorp]

So more work to do over these next 5 months.

[Terry Mcevoy, Managing Director at Stephens Inc]

Good to hear. And Jim, you guys are no stranger to M and A with your time in O and B. And what are your thoughts on just new administration, more buyers at the table? How does that change pricing, which the last couple of deals appear to have worked in your favor? And maybe are you hearing anything at all about that $100,000,000,000 threshold maybe moving higher under the new administration?

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Yes. It's so hard to really kind of completely appreciate all of the changes that are going to occur and how that might impact the $100,000,000,000 regulatory cliff. The new acting chair of the FDIC put out some new guidance today and what the FDIC is looking at. So we're just trying to absorb it all. Clearly, one of the biggest challenges for the $100,000,000,000 mark is the TLAC.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

And I feel like that's going to be under review. So that could be an interesting opportunity for banks that are going to cross that. We're nowhere near crossing that today and have no plans to cross that in any time in the near future. But I think as we just look ahead, that's something that's on our radar screen. When it comes to pricing, I don't know.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

I still think that as long as we've been doing this, I feel like there's still only 1 or 2 really good buyers for a potential partner. And I think what we have demonstrated here is that if the partners are truly willing to look past the day one premium and look into the future about how do we create a really valuable organization, and that's a little bit hard to do sometimes. But I think we have shown that that's the recipe for success, To get a partnership that performs incredibly well on day 2 and beyond, I think it's going to be important for these things to all work together. I think everybody's hopeful that the approval processes will be more streamlined. For us that hasn't been a challenge, but people are hopeful for that.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

So but nonetheless, I still think it's going to come down to finding 2 partners that are willing to make long term investments in each other and part of that comes through how do you price these things that really perform well post announcement.

[Terry Mcevoy, Managing Director at Stephens Inc]

Great. Thanks again, Jim. And a quick modeling question for John. Could you just remind me what percentage of your securities are floating rate today?

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Maybe we'll get have to get back to you on that one real quick, but I don't think it's a big it's not a big piece.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

We'll come back to you hoping for the call here

[Jim Ryan, Chairman and CEO at Old National Bancorp]

13%.

[Terry Mcevoy, Managing Director at Stephens Inc]

Perfect.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

13%. Yes. Thank you.

[Terry Mcevoy, Managing Director at Stephens Inc]

13%. Okay. Thanks guys.

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Thanks

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Terry. Thanks Terry.

[Operator]

Your next question comes from the line of Jon Arfstrom from RBC Capital Markets. Your line is open.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Good morning.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

We know we're warmer than the Twin Cities this morning. So we're grateful for that.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Yes, you are.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Yes, you are.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Just can you talk a little bit more about the payoff trends? Just kind of anything unusual to call out? I mean, I know you said it was abnormally large, but anything to call out there?

[Mark Sander, President & COO at Old National Bancorp]

You just had a little bit more capital markets activity and some secondary market refinancings and a couple of outsized ones that won't repeat, I can I'm quite certain of. So a little bit more, like I say, secondary market activity and then a couple of larger ones that skewed it.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

And I think the thawing of the secondary market, right, is helpful. That's generally a good thing for us. Yes, we might see some increased payoffs as people access the capital markets. But I think generally speaking, we want a good healthy flowing capital market section. So while maybe a little bit of short term disappointment in the balance sheet didn't grow exactly like we thought.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

As we said, Mark said production was still really good. It's just with the line utilization being off and a couple of unique transactions that just hit us towards year end here. But I think that's generally a favorable thing for all financial institutions.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Yes, I agree. Okay. Anything new on the non performers and classified and criticize? It looks pretty stable, but curious of your overall assessment on credit from here.

[Mark Sander, President & COO at Old National Bancorp]

Yes. We feel good about credit. It's continued to normalize and we our activity was kind of equal on both sides. We move some things out and continue to see some migration as we get through the end review cycle. So kind of a quiet quarter on credit right where we expected it to be.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Okay. Good. And then Jim, anything more on Brammer? Just curious what kind of feedback you're getting and updated thoughts now that you're not working in the dark and keeping it quiet, updated thoughts on what you expect from the combination?

[Jim Ryan, Chairman and CEO at Old National Bancorp]

I

[Jim Ryan, Chairman and CEO at Old National Bancorp]

got to tell you, and maybe I'm a broken record here, but we spent a couple of days there last week and the executive team and all of the leaders we met are incredibly enthusiastic about this partnership. And I will say those words lightly. I think they're looking forward to the opportunities to grow and invest in their franchise, take a great organization and continue to build upon that greatness, bringing our 2 organizations together. We think there is awesome talent there, both on the client facing side and the support side, just as we become a large organization and need more talent. I walked away even more enthusiastic after last week than we did kind of heading into the announcement, heading to year end.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

I continue to be impressed by the depth and breadth of the people. And again, as we think about opportunities not only lead what's happening in Minnesota, North Dakota, Wisconsin, but I really think there's opportunities for folks to lead entire parts of our franchise sitting right there in the Twin Cities. So I mean and I'm not saying this for their benefit or anybody else's benefit, but this is an amazing opportunity for us that I think we'll look back on and say that was a pivot point in our transformation.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Okay. Thank you.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Thanks.

[Operator]

Your next question comes from the line of Chris McGratty from KBW. Your line is open.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Great. Good morning.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Good morning, Chris.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

First off, Mark, echo the congrats on the retirement.

[Mark Sander, President & COO at Old National Bancorp]

Thanks. Thanks, Chris.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

It's been

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

great working with you over the years. John, maybe a question on Slide 16, if you could, the quarterly cadence of NII, just to get

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

in the weeds for a minute.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

I think I understand the Q1 down 10% or so because of the accretion that you laid out in your earlier comments. Can you help us with just the ramp in Q2? Is that entirely you had a lot of resets in back book, dollars 15,000,000 is a decent jump in the Q2?

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

Yes. Don't forget too that there's 2 less days in 1Q, so we get those 2 days back in 2Q, which is a helper, right? And then it's back book repricing, a little bit of growth.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Okay.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

And then going back to just the closing, the mid year closing and the CRE loans you've talked about, selling or not bringing over. Is there a broader devaluation of just the balance sheet at time 0 with either securities restructuring, you have all the capital to do it? Is there a willingness to do something more that you're not quite ready to tell us that could unlock some NII?

[John Moran, Senior Executive VP, Chief Strategy Officer & CFO at Old National Bancorp]

No, I don't think so. I think what's on the table is we will take a hard look at their investment portfolio and take advantage of purchase accounting marks to reposition that likely on day 2. And then the CRE sale that we highlighted, to Jim's point, capital came in better this quarter than what we had expected depending on ultimately where things kind of move around over the next 6 months. We might be able to do more or less of that, but we'll continue to look at that one closely.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Yes. I would say other than kind of normal balance sheet adjustments that we've done in every single one of our past partnerships, don't expect a big balance sheet transformation here. We just don't need it quite frankly. And I think we're sitting in a pretty good spot to deliver the balance sheet. We thought we were going to deliver when we started this process.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Okay.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

So it seems, Jim, that you're going to keep that capital for growth 1st and foremost and then the buyback would certainly need to come into the narrative either back half of the year or early 2026. Okay.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Yes. I'm not quite sure we ever get really paid back for doing big balance sheet transformations. And so I just think all things being equal, let's deliver the capital balance sheet we thought we were going to deliver when we started out.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

All right, great. Thank you.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Thanks.

[Operator]

And there are no further questions at this time. I'd like to turn the call back over to Jim Ryan for closing remarks.

[Jim Ryan, Chairman and CEO at Old National Bancorp]

Well, we're all huddled here, cold with heaters on, trying to navigate this polar vortex. We hope you guys are all staying warm and really appreciate your support. The whole team will be here all day to answer any follow-up questions you have. Have a great day.

[Operator]

This concludes Old National's call. Once again, a replay along with the presentation slides will be available for 12 months on the Investor Relations page of Old National's website, oldnational.com. A replay of the call will also be available by dialing 800-770-2030, access code 9,682,197. This replay will be available through February 4th. If anyone has additional questions, please contact Lonnel Durcodes at 812-464-1366.

[Operator]

Thank you for your participation in today's conference call.

Participants

Executives

• Jim Ryan, Chairman and CEO
• John Moran, Senior Executive VP, Chief Strategy Officer & CFO
• Mark Sander, President & COO

Analysts

• Ben Gerlinger, Vice President of Equity Research at Citigroup
• Scott Siefers, Managing Director & Senior Research Analyst at Piper Sandler Companies
• Jared Shaw, Managing Director at Barclays Capital
• Brendan Nosal, Director, Equity Research at Hovde Group
• Terry Mcevoy, Managing Director at Stephens Inc
• Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets
• Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)