Old National Bancorp

Welcome to the Old National Bancorp fourth quarter and full year 2025 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 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, which management believes provide more appropriate comparisons. These non-GAAP measures are intended to assist investors' understanding of performance trends. Reconciliations for those numbers are contained within the appendix of the presentation. I'd now like to turn the call over to Old Nationals Chairman and CEO Jim Ryan for opening remarks. Mr. Ryan.

Good morning. Before we get started, I want to congratulate the Indiana Hoosiers for a perfect season and winning the National College Football Championship. You've made our state incredibly proud. Earlier today, Old National announced strong fourth quarter earnings, marking an exceptional year that set new organizational records for adjusted earnings per share, net income, and the efficiency ratio. Our 2025 results were driven by a focus on the fundamentals, core deposit growth to support loan expansion, positive operating leverage, disciplined credit management, and healthy liquidity and capital ratios. Once again, we showed our unwavering commitment to shareholders, clients, team members, and communities. Our peer-leading fourth quarter profitability was highlighted by an adjusted return on average damage of common equity of nearly 20% and an adjusted ROA of 1.37% and an adjusted efficiency ratio of 46%. These outstanding quarterly results further reinforce the momentum behind our 2025 record performance that John will discuss later in the call. In the fourth quarter of 2025, we successfully completed the systems conversion and integration related to our Bremer Bank partnership. This was a major effort executed exceptionally well, and I want to thank our team members once again for the relentless focus and hard work throughout this process. The conversion reaffirmed the strength of our discipline integration framework, which truly sets Old National apart. As we have stated, driving tangible book value per share growth is a key priority. This past year, we grew tangible book value per share by 15% despite the impact of closing our Bremer partnership, the associated one-time charges, and repurchasing 2.2 million shares in the back half of the year. We remain committed to strengthening tangible book value per share while continuing to drive peer-leading profitability. Looking ahead to 2026, we will maintain the right balance between building capital organically and returning capital through share repurchases supported by our peer-leading return on average tangible common equity. As I mentioned last quarter, the best investment we can make is in ourselves. Our focus remains on organic growth and disciplined capital returns to maximize shareholder value. We started 2026 with strong momentum, and we will continue to strengthen our core fundamentals by investing in talent, technology, and client-facing capabilities. These efforts will ensure we remain strong, scalable, and positioned for long-term success. Thank you. I will now hand the call over to John to read the financial results in more detail.

Thanks. On slide five, as Jim mentioned, Fourth quarter 2025 was a strong finish to a highly successful year marked by records in adjusted EPS and efficiency with peer-leading profitability, improvement in already durable credit metrics, and significant capital generation despite closing Bremer, which solidified our position in Minnesota while adding attractive funding in North Dakota. Speaking of our latest partnership, I'd be remiss if I didn't mention that the conversion of Bremer was one of our smoothest and most successful integrations ever. For the quarterly details on slide six, we reported GAAP 4Q earnings per share of $0.55, excluding $0.07 of merger-related expenses, Bremer pension plan termination charges, and the reduction in our FDIC special assessment accrual. Adjusted earnings per share were $0.62, a 5% increase over the prior quarter and a 27% increase year-over-year. Results were driven by stable margin, better-than-expected growth in fee income, and well-controlled expenses. Importantly, credit improved with an 8% reduction in total criticized and classified loans and low levels of non-PCD charge-offs. Our profitability profile, as measured by return on assets and on tangible common equity, remained top decile against our peers. Lastly, our capital position has rebuilt quickly with CET1 over 11%, and we grew tangible book value per share over 17% annualized. On slide seven, you can see our quarterly balance sheet trends, highlighting our strong liquidity and capital. Our deposit growth over the last year has continued to keep pace with asset growth, and the loan to deposit ratio is now 89%. We grew tangible value per share by 4% from 3Q and 15% over the last year, even with the impact of the Bremer close and absorbing approximately $140 million of merger charges year to date, while repurchasing 2.2 million shares since we restarted the buyback in the third quarter of 2025. These liquidity and capital levels continue to provide a strong foundation as we head into 2026. On slide eight, we show trends in earning assets. Total loans grew 6.4% annualized from last quarter. Production was up 25% and was strong throughout our commercial book. Despite strong production, our pipeline is up nearly 15% from the prior quarter. higher production levels were again partly offset by strategic portfolio management as evidenced by our lower criticized and classified levels due to payoffs. The investment portfolio was essentially unchanged from the prior quarter with portfolio purchases offset by changes in fair values. We expect approximately $2.9 billion in cash flow over the next 12 months. Today, new money yields are running about 94 basis points above back book yields on securities. The repricing dynamics for both loans and securities combined with loan growth continue to support stable to improving net interest income and net interest margin over the course of 2026, with the first quarter impacted by two fewer days. Moving to slide nine, we show trends in deposits. Total deposits increased 0.6% annualized, and core deposits ex-brokered decreased about 3% annualized, primarily driven by seasonally lower public funds balances. Non-interest bearing deposits grew to 26% of core deposits from 24% in the prior quarter. Our use of brokered deposits increased in alignment with the aforementioned public funds seasonality. Even with that increase, our brokered levels remain below peer levels at 6.7% of total deposits. The 17 basis point link quarter decrease in our cost of total deposits played out as we expected with Fed cuts and our offensive posture with respect to client acquisitions. We achieved an approximate 87% beta on rates in our exception price book in conjunction with the Fed cuts in the quarter. These actions resulted in a spot rate of 1.68% on total deposits at December 31st. Overall, we remain confident in the execution of our deposit strategy, and we are prepared to proactively respond to the evolving rate environment. Slide 10 shows our quarterly income statement trends. As I mentioned earlier, adjusted earnings per share or 62 cents for the quarter with all key line items in line or better than our prior guidance. Moving on to slide 11, we present details of our net interest income and margin, both of which increased as we had expected and guided. Modest margin expansion was supported by deposit repricing. Slide 12 shows trends in adjusted non-interest income, which was $126 million for the quarter, exceeding our guidance. While most of our fee businesses performed in line with our expectations, we again saw better than expected performance within mortgage and capital markets. In both cases, this was driven by a somewhat more favorable rate backdrop for these businesses. Continuing to slide 13, we show the trended adjusted non-interest expenses of $365 million for the quarter. Run rate expenses remain well controlled, and we generated positive operating leverage on an adjusted basis year over year with a record low of 46% adjusted Efficiency ratio, we realized approximately 28% of the anticipated Bremer classes in the 4th quarter. And as a reminder, the saves from Bremer are expected to be fully realized in the 1st quarter. This is reflected in our 2026 guidance, which I'll get to in a few slides. On slide 14, we present our credit trends. Total net charge offs for 27 basis points and we're 16 basis points, excluding charge us on loans. Criticized and classified loans decreased $278 million, or approximately 8%, and non-accrual loans decreased $70 million, or approximately 12%. This improvement is reflective of the continued focus on active portfolio management. Notably, in our commercial real estate portfolios, we saw upgrades and payoffs exceed downgrades by a 2 to 1 ratio. The fourth quarter allowance for credit losses to total loans, including the reserve for unfunded commitments, was 124 basis points. down two basis points from the prior quarter, primarily driven by the decrease in criticizing classified loans. Consistent with third quarter, our qualitative reserves incorporate a 100% 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, as we did last quarter, that our exposure is de minimis. Slide 15 presents key credit metrics relative to peers. As discussed in past calls, we have historically experienced a lower conversion rate of NPLs to NCOs as compared to our peers, driven by our approach to credit and client selection. That continues to be the case, and we remain comfortable around the credit outlook. On slide 16, we review our capital position at the end of the quarter. All regulatory ratios increase link quarter due to strong retained earnings, partly offset by robust quarterly loan growth, and Bremer merger related charges. On the GAAP capital front, TCE was up about 20 basis points and tangible book value per share was up 4% in quarter and 15% year over year. We expect AOCI to improve approximately 11% or $55 million by year end. Our strong profitability profile continues to generate significant capital, which opened the door for capital return earlier this year. As previously mentioned, late in the quarter, we repurchased an additional 1.1 million shares of common stock, taking our total to 2.2 million shares for the year. We don't view growing capital and returning capital as mutually exclusive in 2026. Slide 17 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 as we do each quarter, we would highlight a few of the primary drivers. First, we assume two additional rate cuts of 25 basis points each in 2026, which aligns with the current forward curve. Second, we assume the five-year treasury rate at 375 basis points. Third, we anticipate our total downrate deposit beta to be approximately 40%, which is in line with our terminal uprate betas and our 4Q experience. And fourth, we expect non-interest bearing deposits to remain relatively stable. 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 in the shape of the yield curve, the absolute level of the belly of the curve, and continued deposit data management more than the absolute level of short-term rates. Slide 18 includes our outlook for the first quarter and full year 2026. We believe our current pipeline supports 1Q growth of 3% to 5% and full year long growth of 4% to 6%. We anticipate continued success in the execution of our deposit strategy and expect to meet or exceed industry growth in 2026 and generally in line with our asset growth. We expect fee income to remain strong given a supportive rate backdrop for mortgage and capital markets, as well as continued progress in wealth management and brokerage. Expense guidance incorporates a full quarter run rate on Bremer cost savings, and typical seasonal factors in the first quarter. Other key line items are highlighted on the slide. You'll note that we expect full year results that yield significant growth in earnings per share and again feature positive operating leverage with a peer leading return profile, good growth in fees, controlled expenses, and normalized credit. In summary, echoing Jim's opening comments, 2025 was exceptionally strong. We completed the core systems conversion and integration associated with our Bremer partnership. That partnership created a leading bank franchise in Minnesota and added valuable funding with good market share in several markets in North Dakota. We compounded tangible book value per share despite closing that deal and advanced our peer leading return on tangible common equity and efficiency. And we funded our loan growth with deposit growth while improving our already resilient credit metrics. In 2026, we remain focused on organic growth and returning capital shareholders, investing in ourselves to drive excellence in talent, operations, sales execution, and client-facing capabilities. This will ensure that we remain strong, scalable, and positioned for long-term success. With those comments, I'd like to open the call for your questions.