Old National Bancorp

Welcome to the Old National Bancorp fourth quarter and full year 2020 earnings conference call. This call is being recorded. It has been made accessible to the public in accordance with the SEC regulation FD. Corresponding presentation slides can be found on the investor relations page at oldnationals.com and will be archived there for 12 months. Management would like to remind everyone that as noted on slide two, 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 to differ from these discussed. The company's risk factors are fully disclosed and discussed within its SEC filings. In addition, certain slides contain non-GAAP measures, which management believes provide more appropriate comparisons. These non-GAAP measures are intended to assist investors' understanding of performance trends. Reconciliation of these numbers are contained within the appendix of the presentation. I would now like to turn the call over to Jim Ryan for opening remarks. Mr. Ryan.

Good morning and Happy New Year. I hope this call finds all of you and your families safe and healthy. We are really pleased with our fourth quarter and full year 2020 results. Despite all the challenges that came our way this last year, we stayed focused on the health and safety of our team members We successfully executed the OMB way transformation, and we remain dedicated to serving our clients and communities. We also continue to invest in new talent and further strengthen our client experiences and technology. I'm pleased to say that we've delivered on the run rate savings we promised from the OMB way. As a result of the OMB way, FTEs and branches are lower by 16% each, and we were able to reduce other overhead costs. We were also able to achieve better than trend line growth from our commercial segment in 2020, and we plan to execute additional ideas in 2021 to drive higher revenue. Starting on slide three, our 2020 highlights include earnings per share of $1.36. When adjusted for the OMB weight charges, earnings per share were $1.50. Adjusted return on average tangible common equity was 14.6%. Adjusted operating leverage improved by 460 basis points, and our adjusted efficiency ratio was 55.6%. We also set several new records during 2020, including the following, record commercial loan production, record mortgage production, record capital markets revenue, and obviously we had strong efficiency and core deposit growth. Next on slide four, our fourth quarter earnings per share was 44 cents per share. Adjusted EPS was 46 cents. I was particularly pleased with our quarterly loan production of $1.2 billion. End-of-period commercial loans, excluding PPP loans, increased 22% on an annualized basis. The loan growth was split equally between CNI and CRE. Growing our loan portfolio and improving our earning asset mix will help us preserve net interest income. End-of-period core deposits increased by 11%, driven by checking and savings account growth. We did have a small net recovery this quarter, but maintained the overall reserve. We continue to use qualitative factors to offset improvements in the economic data, believing that there's still a fair amount of uncertainty with the economy and the pandemic. Net interest income, excluding PPP, increased because of the loan growth and better mix. Non-interest income was down slightly due to seasonal declines in mortgage, but held up better than previous fourth quarters. Most of our reported credit quality metrics were relatively benign during the quarter, but as we have previously stated, we expect that credit metrics could worsen and losses will ultimately materialize after any stimulus and deferral programs run their course. We continue to proactively downgrade some of the most pandemic-exposed loans into the watch asset quality ratings and are still meeting weekly to review credit quality loan by loan. We continue to believe that our historically strong and consistent underwriting practices, our diverse and granular loan portfolios, and our Midwest footprint should help us weather the impact better than most. I'm really excited about the team members who've hired during 2020. We continue to have a good pipeline of opportunities, too. We have a great story to tell, and we have strong interest from people wanting to join our team. We have hired and expect to hire more in wealth management, private banking, commercial, treasury management, and key support team members. As we disclosed last quarter, these hires will cost us approximately $5 million year over year, but should ultimately lead to higher revenue from these growth initiatives. A quick thought about capital. We plan to maintain our buyback authorization throughout the year. We will balance the benefits of buybacks versus M&A opportunities. I suspect there will be M&A opportunities that will present themselves during the year. We are getting more comfortable that we could put a credit mark on somebody else's loan portfolio, but we will continue to be an active looker and a selective buyer. With those remarks, I'll now turn the call over to Brendan.

Thank you, Jim. Turning to the quarter on slide five, our gap earnings per share was $0.44 and our adjusted earnings per share was $0.46. Adjusted earnings excludes $3.6 million in OMB-Way-related charges. Moving to slide six, we are pleased with our full year adjusted pre-tax, pre-provision net revenue, which was 10% higher year over year. And despite the challenging 2020 operating environment, we generated 460 basis points of positive operating leverage. Slide seven shows the trend in outstanding loans and earning asset mix. End of period loans decreased slightly quarter over quarter, driven by payoffs of $536 million in PPP loans. Excluding the impact of PPP, End-of-period commercial loans increased $473 million, driven by record commercial production of $1.2 billion. The strong commercial growth this quarter was aided by higher-than-average pull-through rates and funding levels. We were also pleased with our loan growth mix this quarter, which was well-balanced between C&I and CRE. Production yields were slightly lower quarter-over-quarter, which was the result of a few larger, high-credit-quality clients with relatively low coupons but strong risk-adjusted returns. The $2.1 billion quarter end pipeline reflects typical seasonal declines, as well as the unusually high pull-through rates of our record third quarter pipeline. We believe the current pipeline, with over $560 million in the accepted category, should lead to another good quarter of production. The investment portfolio also increased in the quarter as deposit growth outpaced loan growth. We are taking a disciplined approach to putting excess liquidity to work, including adding some protection as rates were to rise. Lower rates on new purchases continue to impact our total portfolio yield, which is down 14 basis points to 2.31%. Moving to slide eight, period end and average deposits increased during the quarter by 9% and 13%, respectively. Growth was largely concentrated on our existing personal checking accounts, but we were also continuing to win new deposit relationships in the business and public segments that added meaningfully to this quarter's growth. Turning to pricing, Our total cost of deposits declined from 13 basis points in the fourth quarter to 9 basis points in Q4. Both time deposits and borrowing costs were meaningfully lower in the quarter and will continue to fall, but at a moderated pace. Overall, we are pleased with our deposit repricing efforts that have resulted in a significant reduction in deposit costs while maintaining our core client base. Next, on slide 9, you will see details of our net interest income and margins. Net interest income increased $16 million quarter over quarter, largely due to an increase of $14 million in PPP-related interest and fees from the forgiveness of approximately $500 million in loans. Excluding the impact of PPP, net interest income increased $2 million quarter over quarter due to strong commercial loan growth and active management of our funding costs. The net interest margin also benefited from PPP fees, adding an additional 31 basis points over prior quarter. Core margin excluding accretion and PPP was 2.88% in the fourth quarter compared to 2.96% in Q3. This eight basis point decline was in line with our expectations and was partly the result of the lower new business rates I referenced earlier. However, we also experienced a significant uptick in liquidity and that while neutral to net interest income has put additional pressure on net interest margin. Future PPP payoffs coupled with stable deposit balances could amplify this impact in 2021. Despite these pressures on margin, we expect earning asset growth to help stabilize net interest income. Slide 10 shows trends in adjusted non-interest income. Adjusted non-interest income of $58 million in the fourth quarter was slightly lower than the $60 million we recorded in Q3. The $2 million decline was primarily driven by seasonal factors in our mortgage business. Despite the slight decline, mortgage revenues outperformed our expectations with a record fourth quarter production of $531 million and a record end-of-year pipeline of $361 million that has more than doubled the year-end 2019 level. Our capital markets also had another strong quarter, posting $7 million in revenues, a $2 million increase over prior quarter. Next, slide 11 shows the trend in adjusted non-interest expenses. Adjusting for OMB wave-related charges and tax credit amortization, non-interest expense was $129 million. The increase in expenses was largely driven by incentive accruals that reflect the outstanding 2020 financial performance. Also impacting this quarter's expenses were the timing of miscellaneous professional fees and community investments. Several smaller items make up the remainder of the quarter-over-quarter variance and are not expected to recur. Given the number of moving parts this quarter, we thought it would be helpful to provide additional detail on our Q1 expense expectations. Reductions in incentives and other expenses, along with the typical adjustments for seasonal payroll taxes, should result in non-interest expense of approximately $118 million in the first quarter. Merit increases will go into effect in April and will not impact expenses until Q2. We also want to provide a brief recap on the cost saves we outlined as part of our OMB Way strategic plan. We have delivered on the $36 million in annualized expense saves we promised in 2020, including $26 million in personnel costs and $6 million in branch and facilities expenses. We are also beginning to see the results of our revenue initiatives, particularly in the recent above-trend growth in commercial loans and capital markets revenues. Additional revenue initiatives in our wealth and treasury management segments are well underway, and we look forward to discussing the results of these projects as they progress. As I wrap up my comments, here are some key takeaways. We are very pleased with the results of the quarter and the full year. Record commercial loan production led to significant earning asset growth. Our mortgage and capital markets businesses finished their record-breaking years with a strong fourth quarter, and we delivered on the promised OMB way expense savings. With that, I will turn it over to Daryl to discuss credit.