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.