Old National Bancorp

Welcome to the Old National Bancorp Second Quarter 2021 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 Ambassador 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 to differ from those 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. Reconciliations for these numbers are contained within the appendix of the presentation. I now turn the call over to Jim Ryan for opening remarks. Mr. Ryan.

Thank you and good morning. Starting on slide five, we are pleased to share our second quarter results and an update on our recently announced partnership with First Midwest Bank. I would characterize this quarter's results as right on plan. Adjusted earnings per share were $0.41 when adjusted for specific merger charges, O&B way costs, and debt securities gains. During the quarter, commercial loans, excluding PPP loans, grew nicely at 11%. Our net interest margin was stable, capital markets and wealth management revenue were stronger, and mortgage revenue was down but consistent with our expectations with a lower pipeline valuation and a smaller gain on sale margin. Expenses were well-managed and slightly higher, primarily due to merit increases and higher incentive accruals. Credit quality metrics remained benign. Adjusted return on average tangible common equity was a strong 14.6%, and the adjusted efficiency ratio was just under 58%. During the quarter, we worked hard with our clients on the SBA forgiveness process. Eighty-three percent of Round 1 loans have been forgiven by the SBA, and we have already had 18% of round two loans through the forgiveness process. Most of our reported credit quality metrics improved during the quarter. We have reduced reserves consistent with our modeling as a result of the better expected economic forecast and the massive stimulus programs. We still have approximately 30% of our reserves supported by qualitative adjustments given the higher than average level economic uncertainty that exists today. The further we move beyond the pandemic's economic shock, the more confidence we will have in taking our reserve closer to day one CECL. A quick update on hiring. We continue to add significant talent during the quarter. The cost of the increased investment in talent will start impacting our expenses slightly in the back half of the year. Our talent pipeline remains strong, we have a fantastic story to tell, and we have strong interest from new team members wanting to join. Moving to slide six, which contains a quick refresher on some of the more salient details of our merger with First Midwest. I will not bother reading the slide, but I will share that I'm reminded each time that I'm with our First Midwest colleagues how much our cultures are aligned and how strong our strategic fit truly is. Additionally, conversations with investors and sell-side analysts confirm they understand and agree with our strategic rationale. Moving to slide seven, both companies have a tremendous integration history and experience, and our work is off to a good start. We have made the appropriate SEC filings and regulatory applications. Kendra Vanzo and Jeff Newcomb have been appointed to lead the merger integration efforts, and we have assembled a group of over 350 team members from both companies to help with the integration. We have met with client-facing and support team members from both companies, and they're all excited and engaged. Additionally, the management team and outside advisors are deeply involved in making technology selections, which we hope to finalize this summer. We also expect a special meeting of shareholders to be held in the third quarter for each company. And lastly, despite the ongoing distraction from the pandemic and now our transformational merger, we have remained focused on serving our clients and communities, and I think our results illustrate the success of those efforts. I will now turn the call over to Brendan.

Thank you, Jim. I'll turn you to slide eight. Our gap earnings per share is 38 cents, while our adjusted earnings per share is 41 cents. Adjusted earnings exclude $6.5 million in early merger-related charges, $0.7 million in debt securities gains, and the last of our OMB way-related charges of $0.4 million. Slide 9 shows the trend in commercial loans and the related commercial pipeline and production trends, all excluding the impact of PPP loans. Q2 represents our fourth consecutive quarter of organic loan growth And over that year, commercial upstandings have grown more than $1 billion. Q2 commercial production of $1.1 billion was the second highest on record, resulting in a $250 million increase in outstandings over prior quarter. Commercial activity continues to be strong throughout the footprint, and we are heading into Q3 with a very healthy $2.6 billion pipeline. Turning briefly to pricing, Absolute Coupons, a new business, continues to be impacted by the low rate environment and the high percentage of floating rate versus fixed rate production. However, spreads and risk-adjusted returns are strong and have remained consistent throughout this rate cycle. The investment portfolio increased slightly in the quarter as deposit growth once again outpaced total loan growth. We are taking a disciplined approach of putting excess liquidity to work in our investment portfolio with new money yields of 1.53% and a portfolio duration well within five years. Moving to slide 10, average deposits increased 11%, while the growth in period end balances has moderated. Total cost of deposits for the quarter was a low six basis points, a one basis point improvement over Q1. Next, on slide 11, you will see details of our net interest income and margin. Net interest income increased $1.8 million quarter over quarter, largely due to our strong commercial loan growth. Excluding the impact of PPP, Interest income increased $2.4 million, which was slightly better than expectations, as the impact of earning asset growth more than offset the decline in asset yields. Interest margins climbed three basis points to 2.91% for prior quarter, primarily due to the low rate environment's impact on asset yields. Core margin, excluding accretion and PPP, declined just two basis points to 2.72%. Slide 12 shows trends in adjusted non-interest income. adjusted non-interest income of $51 million in Q2, $4 million lower than the $55 million we recorded in the first quarter. The decline was primarily driven by lower mortgage banking revenue that was partially offset by quarter-over-quarter improvements in all of our other major fee categories. The decline in mortgage revenues reflects the macro headwinds impacting the industry today. While mortgage production was largely flat from Q1, A decline in both the size and value of the secondary pipeline resulted in a $5.6 million decrease in revenue. I would also remind you that Q1 was positively impacted by a $1.2 million recapture, a prior year's MSR impairment charge. Next, slide 13 shows the trend in adjusted non-interest expenses. Adjusting for merger charges, OMB-related charges, and tax credit amortization, non-interest expense was $121 million. These results were consistent with their expectations and our Q1 guidance. Turning to PPP loans on slide 14, you will see a roll forward of those balances, which stood at $721 million at quarter end. We continue to assist PPP clients with forgiveness with approximately 83% of round one and 18% of round two loans formally through the SBA forgiveness process. Unamortized fees on the remaining PPP loans total $26 million. We continue to believe that most of the remaining loans will be forgiven and the related fee income recognized in the second half of 2021. With that, I will turn it over to Darrell to discuss credit.