Old National Bancorp

Welcome to the Old National Bancorp third quarter 2025 earnings conference call. This line 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 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 statement legend in the earnings release and presentation slides. The company's risk factors are fully disclosed and discussed within its SEC filings. In addition, certain slides contain Non-GAAP measures with management's beliefs provide more appropriate comparisons. These non-GAAP measures are intended to assist investors' understanding of performance trends. Reconciliations for these numbers are contained in the appendix of the presentation. I would now like to turn the call over to Oath Nation's Chairman and CEO, Jim Ryan, for opening remarks. Mr. Ryan?

Good morning. Earlier today, Old Nash reported outstanding third quarter 2025 results that reflect our strong financial performance and our continued commitment to being a better version of ourselves quarter after quarter. We delivered third quarter performance at or above our guidance across all major income statement line items. We beat earnings expectations, delivered an adjusted 20% of return on average tangible common equity, a 1.3% plus ROA and a sub 50% efficiency ratio with improved credit metrics. Provision and charge offs aligned with expectations and we saw a meaningful decline in both the 30 plus day delinquencies and criticizing classified loans. There has been discussions this earnings season about some potential credit cracks within our industry. From my perspective, these are not indicative of something larger yet to come in future quarters. In fact, Many of the credit items reported by other banks are quite manageable and within normal long-term operating conditions. In my conversation with peers, there does not seem to be a plague of, quote, cockroaches on the horizon. Our industry, including Old National, is well-reserved, well-capitalized, and has robust operating results, which serve as a strong buffer for potential credit changes. Meanwhile, at Old National, we continue to build a stronger franchise by leveraging our leading market position, investing ourselves, and strategically recruiting top-tier talent. We are taking advantage of market disruptions and have accelerated talent conversations across our footprint. This has been one of the catalysts behind our momentum. At the same time, we're actively pursuing opportunities to enhance efficiency and effectiveness. Our efficiency ratio is below 50% and improving. but we are still investing in our future to enhance growth opportunities. We also continue to exceed expectations by growing core deposits and managing our deposit costs. Our franchise is built to perform in any environment, and this quarter was no exception. Capital management raises a top priority. Our high return profile drives significant capital generation and opens the door for additional capital returns. CET1 increased 28 basis points this quarter despite merger-related charges and while we're purchasing 1.1 million shares late in the quarter. We are threading the needle between growing capital coming off our Bremer partnership and returning capital to our shareholders. And let me be clear, the best acquisition we can make in the next 12 months is ourselves. We are not chasing new partnerships. We are focused on organically growing our balance sheet and capital and delivering the best return for our shareholders. Last weekend, our team successfully completed the systems conversion and branding for our Bremer Bank partnership. We are now operating as old national all former Bremer locations and are excited about future growth opportunities. Thank you to all of our team members for their collaboration, hard work, and dedication to the integration. We believe our quarterly results speak for themselves with strong and increasing profitability better efficiency, improved credit, and the recognition of our focus on being a better bank and rewarding our shareholders. If you step back a bit from the quarterly results, our core EPS has grown 7.6% on a compounded annual growth rate since 2018, with even stronger momentum heading into 2026. Objectively, we have become a better bank each year, and there has never been a better time to invest in us. Thank you. I will now turn the call over to John, who will provide more detailed quarterly insights.

Thanks. As Jim mentioned, our third quarter was highly successful. Beginning on slide five, we reported GAAP 3Q earnings per share of 46 cents. Excluding 13 cents of net merger related expenses, adjusted earnings per share were 59 cents, an 11% increase over the prior quarter, and a 28% increase year over year. Results were driven by the full quarter impact of Bremer operations, margin expansion, better than expected growth in fee income, and well-controlled expenses. Importantly, credit remained benign with a 6% reduction in total criticized and classified loans and normalized levels of charge-offs. Our profitability profile, as measured by return on assets and on tangible common equity, remained in the top decile among our peers. Lastly, our capital position has rebuilt quickly with CET1 over 11%, 28 basis points higher linked quarter, and we grew tangible book value per share over 17% annualized. On slide six, you can see our quarterly balance sheet trends, highlighting improvement in our liquidity and our strong capital position. Our deposit growth over the last year has continued to allow us to fund our loan growth, and our loan to deposit ratio is now 87%. We grew tangible book value per share by 4% from 2Q and 10% over the last year, even with the impact of the Bremer close, and absorbing approximately $70 million of merger charges while repurchasing 1.1 million shares this quarter. These liquidity and capital levels continue to provide a strong foundation which strengthens our position as we end 2025 and look forward to 2026. On slide seven, we show trends in our earning assets. Excluding Bremer, total loans grew 3.1% annualized from last quarter. Production was up 20% from the prior quarter and was strong throughout our commercial bulk while the legacy old national pipeline is up nearly 40% year over year. Higher production levels were partly offset by late quarter payoffs, and it is worth noting that our average loan balances exceeded second quarter's end of period balances by nearly $300 million. These payoffs were mostly due to strategic portfolio management, as evidenced by our lower criticized and classified levels, as well as by increased transactional velocity in commercial real estate and lower line utilization. Bremer balances declined due to payoffs, largely due to strategic portfolio management. The investment portfolio increased approximately $430 million from the prior quarter, given favorable rates and changes in fair values. We expect approximately $2.8 billion in cash flow over the next 12 months. Today, new money yields are running about 70 basis points above back book yields on securities, as the repositioning of the Bremer book lifted the yield on our back book. The repricing dynamics for both loans and securities combined with loan growth in the Bremer partnership support our expectation that net interest income and net interest margin should be stable to improving in the fourth quarter of 2025. Moving to slide eight, we show trends in total deposits. Total deposits increased 4.8% annualized, and core deposits ex-brokered increased an even better 5.8% annualized, primarily driven by growth from both existing and new commercial clients. Noninterest-bearing deposits remained 24% of core deposits. Our brokered deposits decreased modestly, and at 5.8% of total deposits, our use of brokered remains below peer levels. With respect to deposit costs, the four basis point link quarter increase in our cost of total deposits played out as we expected due to the full quarter impact of Bremer's cost of deposits and our offensive posture with respect to client acquisition. We achieved an approximate 85% beta on our exception price, both spot rate in conjunction with the Fed rate cut in September. These actions resulted in a spot rate of 1.86% on total deposits at September 30th. Overall, we remain confident in the execution of our deposit strategy, and we are prepared to proactively respond to the potentially evolving rate environment. As has been the case for the last several years, we are proactively driving above pure deposit growth at reasonable costs. Slide nine shows our quarterly income statement trends. As I mentioned earlier, adjusted earnings per share were 59 cents for the quarter with all key line items in line or better than our guidance. Moving to slide 10, we present details of our net interest income and margin, both of which increased as we had expected and guided, driven by the full quarter impact of Bremer, as well as asset repricing and organic growth. Slide 11 shows trends in adjusted non-interest income which was $130 million for the quarter, exceeding our guidance. All line items showed increases reflecting grammar and organic growth in our primary fee businesses with outsized performance within capital markets driven by a handful of larger swap fees. While we are very pleased with our performance in fee income this quarter, we do expect trends to normalize somewhat in the fourth quarter. Continuing to slide 12, we show the trend in adjusted non-interest expenses of $376 million for the quarter, reflective of a full quarter impact of Bremer operations. Run rate expenses remain well controlled, and we generated positive operating leverage on an adjusted basis year over year with a low 48% efficiency ratio. As a reminder, the full run rate cost saves from Bremer will materialize later in the fourth quarter and will be more evident in the first quarter's reported results. On slide 13, we present our credit trends. Total net charge-offs were 25 basis points, or 17 basis points, excluding charge-offs on PCD loans. Our non-accrual loans and 30-plus day DQs as a percentage of total loans declined 1 basis point and 12 basis points, respectively, during the quarter. Importantly, and positively, criticized and classified loans decreased $223 million, or 6%, reflective of the continued focus on active portfolio management. third quarter allowance for credit losses to total loans including the reserve for unfunded commitments was 126 basis points up two basis points from the prior quarter primarily driven by bremer related pcb reserves consistent with the second quarter our qualitative reserves incorporate a 100 percent weighting on the moody's s2 scenario with additional qualitative factors to capture global economic uncertainty lastly given the increased focus on loans to non-depository financial institutions We'd like to emphasize that our exposure is de minimis. All said, NDFIs are less than 50 basis points of total loans. All are performing, and like other businesses that we bank, most are long-term relationships. Slide 14 presents key credit metrics relative to peers. As discussed in past calls, we have historically experienced a lower conversion rate of NTLs to NCOs as compared to our peers, driven by our approach to credit and client selection. We remain comfortable around the credit outlook. It is also worth noting that roughly 60% of our non-accruals are from acquired books with appropriate reserves and or marks. In addition, roughly 50% of our NPLs are paying principal and interest or interest only, and approximately 40% of our classified and criticized assets are in investor CRE, where we continue to have confidence in collateral values and the quality of our sponsors. On slide 15, we review our capital position at the end of the quarter. All regulatory ratios increased link quarter due to strong retained earnings. Tangible book value was up 4% link quarter and 10% year-over-year, and we expect AOCI to improve approximately 20% or $105 million by year-end 2026. Our strong profitability profile continues to generate significant capital, which opened the door for capital return this quarter. As previously mentioned, late in the quarter, we repurchased 1.1 million shares of Common Stock. Slide 16 includes updated details on our rate risk position and net interest income guidance. NII is expected to increase with the benefit of fixed asset repricing and continued growth. Our assumptions are listed on the slide, but I would highlight a few of the primary drivers. First, we assume two additional rate cuts of 25 basis points each in 2025, which aligns with the current forward curve. Second, we assume a five-year treasury rate that stabilizes at 3.55%. Third, we anticipate our total down rate deposit data to be approximately 40% in line with our operate terminal betas. And fourth, we expect the non-interest bearing mix to remain relatively stable as a percentage of core deposits. Importantly, our balance sheet remains neutrally positioned to short-term interest rates. As such, the path of NIM and NII in 2026 will depend on growth dynamics and the shape of the yield curve more than the absolute level of short-term rates. Slide 17 includes our outlook for the fourth quarter and full year 2025. With the exception of full year 2025 loan growth, all guidance includes BRMA. We believe our current pipeline support full year loan growth excluding the impact of BRMA of 4 to 5%. We anticipate continued success in the execution of our deposit strategy and expect to meet or exceed industry growth in 2025. Other key line items are highlighted on the slide. Note that we have increased the income guidance to reflect our strong third quarter performance with other lines unchanged. Importantly, our full year outlook once again proved durable as compared to the initial guidance that we provided in January of this year. As we always have, we do our absolute best to transparently tell you what we know, when we know it, and then deliver against plan. At the midpoint of the ranges, You'll note that we expect full-year results that yield earnings per share in line with current analyst consensus estimates and, again, feature positive operating leverage and a peer-leading return profile with good growth in fees, controlled expenses, and normalized credit. In summary, echoing Jim's opening comments, year-to-date 2025 has been exceptionally strong. We have successfully completed the core systems conversion for Bremer Bank. We delivered 3Q25 in year-to-date performance at or above plan while demonstrating improvement in our credit, capital, and liquidity profile. We are focused on organic growth and returning capital shareholders while investing in ourselves, strategically recruiting talent, and maintaining our peer-leading profitability. With those comments, I'd like to open the call for your questions.

At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Scott Severs with Piper Sandler.

Good morning, Scott. Thanks for taking the question. Hey, let's see, maybe, John, first one's for you. So, you know, really strong third quarter for NII, but a little bit of reduction in the expectation for the fourth quarter. So, maybe if you can sort of walk us through the puts and takes of what drove the anticipation for the, you know, I guess, I mean, we'll still grow, but, you know, 5 million less than had been the case sort of previously.

Yeah. Hey, Scott. Thanks. Yeah. Hey, look, 5 million bucks down on what had been 590 is now squiggly line 585. We're talking about a balance sheet of close to $65 billion in earning assets. I mean, we're slicing the cheese pretty dang thin there, if you ask me. Look, I would tell you, I view that as very stable. And we're just doing our best to kind of tell you exactly what we think it's going to be. I think the dynamics are you know, the five-year came in a little bit. And the launch point for the quarter is a little bit lower than where we had thought it was going to be when we set the guide 90 days ago. But again, you know, 1% of NII on a $65 billion earning asset base. I'd say that's pretty dang good.

Yeah. All right. Fair enough. Fair enough. And then let's see, Jim, next one is for you. So it sounds like M&A is off the table for now, but by contrast, I was glad to see just a little over a million shares of repurchase there late in the quarter. Maybe just if you could spend a bit more time kind of discussing your preferred uses for capital, and then is that 1.1 million shares representative of what we should expect going forward, or could we see that pace get bumped up just given the strong and improving capital levels?

Yeah, let me start with M&A. And again, we think the best acquisition we can make is in ourselves. And so that's the most important thing we can do. You know, given where we're trading at, we think it's a particularly great investment. That's why I've encouraged you all to continue to buy more shares. You know, for us, I think we're going to be opportunistic on the buyback. You know, we're trying to thread that needle between building some capital back, coming off our Bremer partnership, but also recognizing that we are creating capital back very quickly and And so we're going to continue to do that in the fourth quarter. Once we get through the fourth quarter, then I think we'll have a better perspective on what the full year will look like in terms of returning capital. But I'd say the first use is organic growth. But even with the organic growth, given that high relative return, we still have an opportunity to return capital back to you all via buybacks.

Perfect.

All right.

Terrific. Thank you guys very much.

Thanks, Scott. Appreciate your support.

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

Hey, everybody. Good morning.

Good morning.

Just looking at the dynamic of acquired Bremer or loans acquired through Bremer, did you have loan sales this quarter? Bringing that down, you talked about running balances off. Is that just... you know, organic or were you able to sell any of those? And what's sort of the expectation for additional flow from acquired loans in fourth quarter?

Yeah, Jared, I'll just start. Anytime we, you know, partner with another institution, there are books of businesses, particularly anything national related, that we're just not going to continue on here. And I think if you saw that in this quarter, you saw it at the Capstar and you saw it at at First Midwest. I mean, just a normal part of that. We don't anticipate large swings. So this is just kind of normal attrition in those lines of businesses that we don't plan to continue to operate. So I don't expect it to be dramatic, but it puts a little bit of pressure in that transition period where you just kind of stop doing business. But I wouldn't plan anything material and certainly don't have any loan sales teed up to run that portfolio off any faster than it would just happen naturally.

Okay. And then when we look at the provision on the PCD loans and then the charge-offs on PCD, what was driving, I guess, that incremental weakness? Was that just, you know, you're in there and get to see it, or was that just at exit? There were exit costs.

Yeah, pretty normal sort of first quarter, second quarter, third quarter post-acquisition, you get your arms around credit. And for as long as that mark stays open, those will run PCD.

Okay. And then just finally, any update on how the systems conversion went? And when we look at the sort of accelerated merger charge this quarter, is that just pulling forward from being able to bring everything online on systems?

Yeah, I think it's just normal merger charges. There'll be some pluses and minuses along the way. I would say, knock on wood, this has been our best systems conversion to date. We've got a lot of monitoring places. The client sentiment is high. The branch locations have been busy. There have been a lot of calls to the contact center, but we monitor all the statistics. Look, I've been doing... These integrations now for more than 20 years at Old National, I can tell you this is the best one we've ever done. I think that's a reflection of the client base that Bremer had. I think it's a reflection of the hard work for our teams and the fact that we try to get better at this every single time. So I'm really pleased with where we stand. I don't want to knock that they're, you know, with any transition, there's always, you know, little minor bumps in the roads for our clients as they navigate. you know, new systems and new passwords and new login IDs and all that, but it's gone very, very well from my perspective.

Jared, in terms of charges, $70 million this quarter was about right in line with where we thought they were going to land. There'll be some more coming in fourth quarter, about $50 million in the fourth quarter. And then it really trails off. Front half of next year, I'll have a couple little stragglers.

And as John said, you know, we start to realize the cost savings really 30 days post-conversion. And so the full run rate, you know, you should assume would be, you know, impacting us in one queue next year.

Okay. Okay. All right. Appreciate that. And then just finally, I guess, you know, Jim talking about the optimism for organic growth in your markets. Do you anticipate increasing hiring to take advantage of that? Or do you think you have, you know, you have the team on the field that, that you need to, to take advantage of that?

Well, let me start with, we got a great team on the field and we've got great market opportunities in front of us. And there's a little bit of help with just disruption winds out there. So, so all of that's kind of net positive. And again, Tim and I talk weekly about hiring new team members. We've met with a bunch of new folks. You know, we're looking at the organization to make sure we've got the right people in the right seats. And we're absolutely going to be out hiring, you know, folks. It's a little bit of arm wrestling between our CFO and myself about how much money we're going to spend on talent. But I know you all will be supportive of hiring talent that quickly adds to the revenue outlook. So we're definitely going to plan on doing that for, you know, We might get a little bit done yet this year, but we'll definitely be doing it all of next year.

Great. Thank you.

Thank you.

Your next question comes from the line of Ben Gerlinger with Citi.

Hi. Good morning. Good morning, Ben. Your fourth quarter loan growth guide implies a step up. It's by no means heroic, and I mean... You wouldn't give that guide unless, I mean, we're a quarter of the way through the fourth quarter here. So I imagine it's probably pretty accurate. Can you give a little color on like where it's coming from? Is it some Bremer relationships deepening quickly with a bigger balance sheet? Is it across the footprint? Is there anything specific you would highlight?

Good morning, Ben. This is Tim. You know, our legacy year over year pipelines are up close to 40%. So we feel very well positioned to achieve that fourth quarter guidance. So, we're seeing a good, healthy mix on the legacy on national bank pipelines and feel very good about achieving that.

All right.

That was great color. When you think about the savings and opportunity, I know that the one cued next year is probably the clean quarter. But when you think about opportunities for reinvestment across the board, Should we assume that there's reinvestment already baked in one queue, or could you theoretically be kind of over-earning a little bit because it just doesn't hit in the first 90 days of the year?

No, I think we're in a really good place in terms of operating expense and investment. You know, Jim's kind of teasing me a little bit. It is an arm wrestle, right? And I get it. Good talent will pay for themselves. very very quickly on the revenue line particularly in commercial bank right um on wealth that that that earn back can be a little bit of a longer uh period of time those relationships take longer to move over it's a longer sell cycle um but uh but i think we're going to be on offense with respect to investment and there's clearly look there's disruption across our footprint there's a lot of opportunities out there uh and uh we're getting a lot of looks we've got a great story to tell we're out there telling it but i would also say and you all know us well enough i mean

becoming a better bank, being more efficient, more effective is what we do day in, day out. So we will also look for ways to continue to just be more efficient and to pay for those investments. And, and, you know, net, net, I mean, we're driving just amazing efficiency as this organization, but it's a part of the culture and our DNA here. So is, so is investing in our future. And that's what we absolutely plan to do. And, and, As John said it well, I don't think anything, you know, materially changes, you know, how we're thinking about the year out of the gate. I would love it, quite frankly, if we could do that, right? That means we've hired that many more people. That would be fantastic if we could do that. And that would be my goal, but nothing to give you any guidance on at the moment.

Gotcha. Okay.

Thanks, guys.

Your next question comes from the line of Brandon Nozzle with Hovde Group.

Good morning. Thanks for taking the question. Hi. Just to start off here, could you unpack this quarter's increase in loan yields a little bit and just kind of dig into the various pieces, whether it's back book loan repricing, new origination yields, or maybe some pull through of the fair value mark that you took on the Bremer book?

TAB, Mark McIntyre, Now the the fair value mark was was relatively unchanged, there was a little bit of an impact on a on a full quarter of grammar and the. TAB, Mark McIntyre, Credit component of that added about a basis point to the to the total margin in terms of production yields pretty steady it was really sort of fixed asset repricing I think drove the drove the bulk of the loan yield improvement.

that's helpful um and then kind of maybe turning to um deposit growth and liquidity um you know really nice core deposit growth this quarter um to the extent that you know going forward funding inflows outpaced loan growth just talk about how you think about liquidity deployment uh and plans for the overall size of the securities book yeah we look we'll wave in new deposits every single quarter quarter in quarter out that is um

You know, we made up T-shirts around here that says, I heart deposits. And, you know, Jim has become famous for running around the footprint, pounding on things, saying we're all deposit gatherers. So we'll take deposits in excess of earning asset growth all day, every day. We're on offense there. That's client acquisition in terms of, you know, if it were to, you know, in any given quarter. sort of have loan growth that didn't keep up with deposit growth. In my mind, that might be a high-quality problem to have, and we would just deploy it in short liquidity.

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

Your next question comes from the line of Terry McEvoy with Stevens.

Hi, thanks. Good morning, everybody. John, just to follow up on That last question, when you talked about pull forward, I just want to make sure the proactive portfolio actions, how did that impact accretion or NII in the third quarter? I know slide 10 has that one basis point impact from credit accretion. I just want to make sure I'm clear on your last response.

Yeah, it didn't. The total accretable was relatively unchanged.

Okay. Okay. And I guess I'll call this a softball question, but I think it's important this quarter. You know, virtually no NDFI loans. That's where all the focus is. Just when you take a step back, others were chasing after that growth because it sounds like it was easy. You guys were not. So, Jim, could you just maybe talk about how that's reflective of Old National, how you run a business? And I think it's a good example of how you're different than many of your peers, or at least some of your peers.

Thank you, Terry. It's a great question. No, you know, Terry, you've known us a long time. We call this old-fashioned basic banking, right? We're not trying to – it's banking the hard way. You know, we call it the old national way. I mean, this is just bread and butter. And I will tell you, since Tim's been here for the last 90 days, we've had a lot of fun talking about doubling down on those issues, you know, building more small business capability. small business banking capabilities, building the business banking capabilities, doubling down on CNI, putting more talent in all of that space. That's what we will continue to do. We're not going to build big, large specialty teams that go after national businesses. This is banking, by and large, in our footprint for clients that we know and trust and will continue to bank for a long, long time. Somebody pointed out in some commentary to us about one of our peers growing by multiple billions of dollars during the quarter. And I said, if we ever do that, you ought to be asking us really hard questions about what we're doing to get there. So that's just not our style. This is old-fashioned bread and butter banking. So thanks for the question. But, you know, that's our plan. You know, with Tim coming on board, we're doubly committed to doing this. And I think that's going to serve our shareholders over the long term. And to John's comment around deposit growth, we are always going to be out in the markets. running and looking for good long-term deposit relationships. And as long as we can continue to fund, you know, that bread and butter loans, those business banking loans with, you know, retail, commercial, retail deposits, that's a good trade. We'll do that every day.

Perfect. Thanks for taking my questions.

Thanks, Terry.

Your next question comes from Brian Foran with Truce.

Good morning. Good morning. Maybe to come back and ask the Bremer loan question a different way. Certainly appreciate your comments that there's always going to be some trimming you want to do as you take in the business. But as we look to 2026, would you think we should be, you know, whatever we think old national loan growth is, consolidated loan growth should be a similar number? Or would you think 2026... Okay.

Same organization, same objectives, same goals, you know, absolutely. And in fact, you know, I mean, if you look at how we would think about that internally, we would expect, you know, based on the Bremer footprint, Minnesota, where we've been for a long time now, to actually generate more, you know, on average than our total company would do. So absolutely, we think about it. It's just, you know, some quarterly changes, you know, due to the newness of the portfolios and As John said, we're going through all the portfolios, reviewing those, looking at those national businesses that we just don't do. It had a small impact this quarter, and it will continue to have a small impact, but absolutely, the growth should be more like our total average loan growth.

And maybe to ask about the same dynamic on the deposit side, is Bremer already contributing to deposit growth in the current quarter? And do you think it'll have a similar trajectory as the old national legacy going forward?

Yeah, I mean, overall, the total balance sheet should have a similar mix. Total fee income line should have a similar mix. In fact, again, I would suggest just everything, just given the relative size of that. market, the opportunities for growth, you know, on average, it's going to lead our organization. Uh, so don't, I don't expect any kind of outlying differences as we head into 26.

Okay. Thank you for that. That's great. Thank you.

Your next question comes from the line of Chris McGrady with KBW.

Hey, good morning, Chris. Um, good morning, everybody. Uh, Jim or John, the capital buyback comment that you made in your prepared remarks, and I kind of want to square it up with your comments about being sensitive to CET1 growing versus returning capital. So you're 11% today. If you grow the balance sheet low single digit, keep the dividend, and continue to buy back stock, you're still going to build 50 basis points of capital per year? I mean, I guess the question is, is 11 the right number? It feels like a lot of your peers are moving 10.5 or even 10%.

Yeah, it is. There's a healthy tension between making sure that we're looking at all the constituencies. Obviously, our shareholders have a view. The ratings agencies have a view. We're looking forward at the economic conditions. And I do think there is opportunities to let that come down over time and not build as quickly as it would build just organically given our high profitability. We're just not ready to make that commitment quite yet. But It's something we're actively looking at. And you're right. We could have substantially more buyback and still keep capital unchanged. And so I would suspect, though, as you look forward, we might see a little bit of capital build here just as we get more optics and all this. But we're very sensitive. And I think that is the best use of our capitals to return it back to our shareholders. And I think we could do substantially more than that. you know, in future periods once we just kind of get a view of those competing factors.

Okay, perfect. And then, John, one for you on the NII comments. I think you said irrespective of the short end, you know, you talked about the NII guide with the cuts. Jumping off point of 585 in the fourth quarter, if you kind of say to Brian's question about, you know, 3% to 5% old national type of growth next year, Does NII grow from here into 26?

Yes, I think NII will absolutely grow. I think margin would be stable-ish or depending. It'll depend a little bit on yield curve dynamics. And look, the point of the curve that matters to us is still inverted and projected to be inverted for the first half of next year. That's no different than it's been for a long time. But if we got some steepening in Take your pick, whether it's three-month, five-year, or effective Fed funds against five-year. If there was steepening in that in the back half of the year, I think that would be really – this is not unique to Old National, but it would be good for Old National, and I think it would be good for our industry.

Okay, but growth off the fourth quarter is definitely a base case. Okay, thank you.

Yep. Thanks, Chris.

Your next question comes from the line of Jeanette Lee with TD Cohen. Good morning.

Morning. um going back to bremer could you could you size up how much of a runoff that you saw from bremer and when you say when in terms of the loan growth guidance when you say excluding the bremer is it also include excluding the impact of femur runoffs or just the whatever the loan amount that was added initially in the second quarter

Yeah, Janet, the third quarter runoff was about $200 million. The loan growth guidance for the fourth quarter is inclusive of everything. So that's Old National plus Bremer. The reason that we're still guiding full year excluding Bremer is that Bremer wasn't there for the first four months of the year. The fourth quarter, that 3% to 5% that's there on the guide for 4Q, that is inclusive of everything.

Okay. And the expectation is that the runoffs from the Bremer impact will be reduced in the coming quarters versus the $200 million. Is that the right way to think?

I think Jim said it well. There's a handful of lines of business that Bremer was in that are unlikely to continue here. And there'll be a little bit of runoff out of those portfolios. But that's totally normal course for any M&A transaction that Old National has been involved in, certainly for the last five years. plus years.

Got it. That's helpful. And just on fee income, that came in nicely above. It looks like a lot of it is just organic growth. The jump in capital markets, other fee and bank fees, are these the organic trends that you're seeing, or is there any unusual trend that was embedded in it? Is that the good run rate that we could grow off of?

Yeah, I think the right level to be thinking about total fee income is probably in the $120 million sort of zip code. This quarter was really exceptionally good, particularly in capital markets. So some rate volatility is good for that line of business. But I would expect that that probably comes back down to earth. You know, they're doing great. You know, we're really pleased with those results, but I don't think $13 million in a quarter is going to run right on that business. And then, obviously, mortgage is seasonally strong in 3Q, and that'll come down in the fourth quarter, and that's totally normal.

Got it. All right. Thank you.

Sure. Thank you.

Your next question comes from the line of John Arstrom with RBC Capital Markets.

Good morning, John.

Good morning. A couple of follow-ups here. Just on expenses and efficiency, maybe John or Jim, can you remind us on the Bremer-related efficiencies, what you expect in the fourth quarter and rolling into the first quarter? Do you have any type of broader efficiency objectives, or does this current efficiency ratio feel kind of like the right range for the company?

Yeah, so fourth quarter, we'll start to see some, John. But it really, Jim said, you know, it happens sort of 30 days post-conversion, which puts us into, you know, the middle or later part of November. So, you know, you'll get a little bit here in the fourth quarter, but I wouldn't count on a ton of cost saves showing up in 4Q. Really, the number that you'll see a cleaner quarter on will be first quarter of next year. At that point, we'd be fully realized. and fully realized is a touch over $115 million on an annualized basis.

Yeah. So, so the efficiency ratio has some room to get a little bit better from here. Um, and, uh, you know, we are planning for growth and investments within our, our budget set there, but John, as you know, this is not a program. This is not a one-time thing. This is just an ongoing effort to constantly find ways to be a better organization, to be more efficient, more effective to serve our clients in a little bit better ways. Um, and we, we've got, you know, a lot of the investments we make each and every day are self-funded and that's what we're going to obviously try to do. Um, and, uh, I hope I have to come to you and tell you that I spent more money on talent, uh, and, uh, take your expense guys up. That means we're, that means we're hiring a lot more people. So that's, that would be a good thing. Um, so we're not there yet. Uh, we're not saying that's going to happen, but, uh, that would be a good thing if I had to come, uh, ask for a

A follow-up on credit, I see your numbers, they look fine, and I understand your comments on non-performing loans, but would you guys describe credit as stable, mixed bag, no change, getting a little tougher? How would you, big picture, describe the credit environment?

Yeah, I would say from a credit perspective, very stable in our outlook. We feel comfortable with The guidance we've provided and the trends we're seeing in the portfolio, we feel good about.

Yeah, John, I think it's able to improving. I mean, the decline in classified criticized assets was a good guy for the quarter. Continue to feel really comfortable with where we are.

Yeah, we had this conversation, too, in our preparation here. And, you know, Kerry said, hey, we work really hard every single day to scrub our books to make sure there's nothing unusual in there and nothing we don't know about. We're going through the portfolios constantly. You know, we're trying not to surprise anybody. And so that's just our ongoing monitoring is tough and aggressive. We want to call it as early as possible. And we continue to do that. But we feel really good about what we saw this quarter.

And we've seen that delinquencies really improved, which was also a good factor.

Okay, good. Yeah, it obviously looks fine, but just it's a hot button issue.

We can appreciate that. Hopefully everybody takes it off the table for Old National.

Yep, for sure. And then just curious on the ticky-tacky, but the timing of the repurchase late in the quarter, any reason behind that? Is that just more confidence in Capital and Bremer? Why was it later in the quarter? Thanks.

Yeah, I think there were a lot of questions around our desire to return Capital back, and we got more confidence that we saw the trajectory and And, you know, we also felt good about, you know, we were able to sell the Bremer Insurance Agency, too, which, you know, continued to bolster the capital ratios. And so I think all that just gave us a lot more confidence in our ability to start returning capital, probably a little bit sooner than we had planned, as we talked about on this last quarter's call. But I think that gives us, you know, an ability to continue to be more active here, you know, as we head into the fourth quarter and into next year.

Okay. Thanks a lot. I appreciate it.

Thanks, John.

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

Well, thank you all for joining us. We appreciate your support. As usual, the whole team will be available to answer any follow-up questions you have. Hope you have a great day.

This concludes O'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 9394540. This replay will be available through November the 5th. If anyone has additional questions, please contact Lynelle Durkholz at 812-464-1366. Thank you for your participation in today's conference call. You may now disconnect.