ONB - Earnings call transcript Q1 2019

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Operator

Welcome to the Old National Bancorp First Quarter 2019 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.

Before turning the call over to management, I would like to remind everyone that as noted on Slide 2, 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.

contain which slides more believes certain comparisons. appropriate addition, non-GAAP management measures provide In are assist intended performance measures non-GAAP These to trends. investors’ of understanding the Reconciliation the are numbers presentation. of for contained these appendix within remarks. the I now to for like turn would call to Bob over Jones opening Mr. Jones?

Robert Jones

you, fact, everyone. relationship you thank that we Great. update would were it that all the joining over would of Carmen. you Xnd, Jim had years, many there be months. that has not good as thought few extraordinarily I CEO day me last last you given that morning. you relationship my going this know our value And and short, again. gotten hear or in In even great for morning, giving Thank have obviously many a May an And us probably stronger But from transition. I in well. on for hoping is is and

on if call for turn excited need rounds. me I'm him spending have our Jim. We topics, and, leadership have extraordinarily company ever and spent excitement, transitional of we let good. future is it time associates. in the around clients extraordinarily arises. to that, joint And with the fact, Jim good a energy I company is pledged the meeting Change a and the seen the made be genuine Jim for always great available of very have as with deal proud of With jointly I've time increasing team. his and over that and I'll

James Ryan III

Bob. you, thank and morning, Good

of and first stated results I per going in commercial share share $X.XX. and Net to When with strategy competitive. we line would our clients aren’t aren’t was lower $XX.X as clients calls consistent were and we because were insights characterize levels Total missed I'm businesses. be are million, lower continued utilization, our slightly production seasonally record adjusted their earnings merger Your for a loans on and $X.XX. income expectations. earnings confident charges, due elevated for losing line with these were sure. opportunities quarter per our down to humor or selling

be fact, and In continue to strong remain our optimistic. clients our markets

commercial As stands quarter record pipeline the and our nicely now result, high. at built over a a

importantly, This it in pipeline quarter. should [ph] as [excepted] More the in our nicely up the into loan April. we good is a quarter-over-quarter, to category provide XX% build continued and move tailwind second

would a our have XX%. plan a announced commercial disciplined this leverage, our global the efficiency by stretch million date. and beta I deposits happy shares. up of the price right below XX XX% that for low continue pricing. tangible which value we important increased footprint million economic are we backdrop shares industry also not staying former remains execute points we with to share and in Loans us the focused to KleinBank A and repurchases, to quarter, quarter our minimal an the book assets XX% these given ratio not are credit. already $XX.XX. in systems was on X year-over-year, X.X conversion However, the buying a conversion also The X.XX%. a and data, savings We and on at allowed X%, almost the The XXX M&A. do tangible credits track fully authorized of KleinBank plan, cycle common disruption. almost been client the approximately realized, annualized improved and to to place took window half note time repurchase year. XX%. operating equity adjusted and We to Total improving savings starting are a be quick strong branches the Board for grew from update remain to went first back the but and ago. basis In per during basis to cost by not price well deposits on lending on It's a to realized from our share volatility during to inconsistent Despite perfectly up week that to believe remain the our repurchase incredibly and quarter former focus average was is on points

selective a Our strategy an We looker changed. active hasn't remain buyer. and

investments and Much spend are the now associate have wait I'll I've next Technology However, we will client working working XXXX and my focused the high. With patient still pitch. see our call confident for improve and over transition, that been to on regulatory remain handoff like Bob right Brendon. very through Board scale to to CFO. experiences you'll is perfect with our and working more Brendon was inwardly very choice execution. turn burdens still the a the said that, desire will the told associates and I CFO as absolute and important. introduction, be Brendon I'm Having I've quickly been our of the duties. why that smooth

Brendon Falconer

Thank Jim. you,

share quarter X. GAAP merger-related charges, earnings as per excludes well $X.X debt on Slide per earnings adjusted the losses. share were Adjusted share and $X.XX. our to as million earnings were Turning $X.XX securities per in

higher management. our scale year-over-year. X, increased on was expense by XX% net was deposit recent continued focus our low-cost This a to strong and Slide from base driven partnerships, result adjusted Moving revenue pretax pre-provision maintaining

The primarily partnership. change year-over-year. in levels driven the improved trend influenced operating of The elevated points utilization by quarter business indirect seasonal decline the Slide outstandings due from C&I is the end prepays loans, basis by and also average X We portfolios. in in to lower factors, and shows outstanding XXX line in declines of by benefited commercial of full quarter-over-quarter was loans sales. period which leverage Klein a

a category, prior pull-through XX% rate. in is of As Jim the pipeline shows the the [accepted] highest carried history. over referenced, quarter [ph] Moreover, our period-end an in historically has pipeline current higher the increase company's which

encouraged quarter Loan momentum. importantly, by on and basis level, more portfolio that accretion increased entering our yields, of both excluding pipeline positive collected are feel the and with non-accrual, the quality and the points. X interest we are We second

production exceeded assets. points. by earning New portfolio yields year-over-year our basis the change XX X in yield Slide loan of X.XX% shows

of and a progress continue other commercial of ongoing We and show loans. earning a percentage productive remix have estate yields with compared commercial compared real deliver this That commercial noted, towards indirect in efforts of money quarter, securities to portfolio X.XX%. more loans. generated last new quarter liquidity of balance to out a loans sheet to with continued on to yield our with higher we focus more mix, resulted X.XX% the in optimal and Excess asset

base of Moving our competitive quality of our our we strength built banking in a challenging to the is to a low-cost clear have core this stable, maintain X, and and Slide funding pricing both advantage franchise is a the environment demonstrated with testament the ability to relationships clients.

to key Our the deposit beta cost navigate approach only now of A XX% a focus, deposits rate date cycle remainder will disciplined points. XX with is as to cycle. current basis this of remain a we of pricing total deposit

is relatively Capital stable. Banking and strong the is Mortgage X modest revenue revenue. for and fourth quarter. with the over and non-accruals. our in Accretion while Markets of the margin. volumes, you'll X, Net only ended our quarter full X% positive first growth categories detailed offset see We impact Slide purchase less corresponding and basis interest mix on quarter line the points our the quarter, included earning our and business. the quarter momentum Also asset this pipeline A interest income net in increase Klein largest Next recent mortgage days, fewer quarter fee into showed X.X%. income. accretion changes prior remained activity. in partnership XX from in of heading mortgage nice was accounting shows percentage adjusted on from other of the quarter lower decreased versus recent for refi trends slide interest than with in margin, non-interest first a Slide XX% now excluding change was on by business total the second Purchases of Both refi years

Next, in XX trend expenses. the Slide adjusted shows non-interest

month related first payroll Klein included uptick seasonal quarter well a additional as benefits. of an and in the as taxes The partnership,

with pleased track to Klein for ability anticipated expenses our control of remain savings half continued on cost and are XXXX. from back the our partnership We in the

the quarter XX.XX%, for first basis from a the was ratio efficiency improvement of adjusted quarter XXX point Our XXXX. first

points expense XX has loans control is operating remain metrics. near important said, basis $X.X loans, million that on Credit point the credit Jim quarter, while nonperforming benign, in the net adequate and first against and $X recorded conditions The our XXX marked loans have As basis cycle underperforming with provision committed Slide culture, remained against during lows. of generating our We we million. to reserve reserves organic XX we of charge-offs expense coverage. loan and believe leverage. an positive we acquired of part posting

turn all with both Progress we a credit credit, and we models the on on schedule complying want from Before CECL. brief towards provide update standard to new away is built validated. with

Slide be will our in day third first running takeaways estimated one quarter range some XX the on sensitivity activities We impact of and quarter. assumptions. finalizing concentrated quarter Second the anticipate from an analysis providing provides performance. key

through with strategic with the deposit strong our a We maintained pleased our base We execution against deposit driven XX% objectives. good by our are beta results, cycle. low-cost low

risk credit resulting X to in continue management, We to net basis approach charge-offs points. just a have of disciplined

quality the credit highest and well to about loan produce the that While our expectations, growth compromising we discipline on cycles. loans our has company's with the lower pipeline the remain served prior quarter without us optimistic in was in than history ability ended

XXXX increasing are starting efficiency outlook XQ Lastly, improving metrics. and includes our for 'XX our Slide leverage, driving positive and profitability we points. XX operating ratio

commercial size was of production versus C&I and expect Commercial quality both on pipeline. loan We CRE. increase the our skewed activity based towards to

the for interest both yield classes. to Net We excluding low-cost and shape asset capacity from deposits have asset improving continue But challenges. expected the current ample is curve benefiting accretion yields. presents of margin,

short-term footing the a potential positioned of of balance sheet the interest our view to protection neutral increase to have rate and market's the Given against we gradually shocks. rates, downward past more

fees and suggests, continuing slide expenses remain seasonal the very follow focused positive on and should normal patterns drive leverage. operating As to

be FTE and basis GAAP approximately Our is on to rate an XX% on XX% expected basis. full approximately year a tax

to We continue XXXX. in de credit tax amortization to expect minimis be

our answer conversion remain about may our optimistic including you saves we Daryl any remain With that, Minnesota. team us, Jim Klein, We do with we're happy of completed questions very here rest recently on of Moore. cost track. in opportunities have, with and and the - and we Sandgren our that the have Lastly, to

Operator

Siefers Your line from question [Operator the with Instructions] of first Sandler Scott comes O'Neill.

Scott Siefers

Morning, guys.

Robert Jones

Good morning, Scott.

Scott Siefers

expenses a on I question first. Hey. just quick guess

a the and in little looking might and at of Can achieved. year, sort when were Klein least you than as anticipated. have you then you second anticipated, then think, know, ideally, guess if full the to you the the how update for that I figured mid sort provide I approximation just charges of step half a about you for cost down relative step had the true? I of sort better rate an I was of year second savings what on from the down know, see I of holds in a run been still trend in it, I quarter the as better of exclude sort something came XXXs quarter the And first of thinking kind half first things, merger-related sort the

Robert Jones

of always higher the expenses as in the Well, seasonally year. half first are you know,

You're a right, pretty quarter say the normal. would I first with that - was I don't that. just

in merit from We comments, savings the April, prepared the and starting rate which hit half the fully of my Klein them to already were and have run some realize increases, to as our starting year. said affect we of in second the expect we

So off. that think I you’re far don't

increases First there's quarter heading bump typical and little the second quarter a here. merit was for pretty into

Scott Siefers

would those like Okay. All still like get of continues, but it by you the then And it - side guys that's the sounds paydowns of nagging sort Is trend any quite on And quarters. how impacted sense there perfect. to you growth from overall past are net abating? sounds things, to have on production expect growth optimistic right, that the the net average that out? for few here been

James Sandgren

optimistic very as We're into Sandgren. to. second the alluded Jim Brendon and quarter, Jim is This roll Scott. we as both Yes,

XX% the pay-offs large from we companies, have pipeline some with that But happened We at the to in even billion, importantly, category elevated suffer those maybe first so some to continued are continues. more higher. $X quarter sales and that as the pull-throughs of in or our [ph] highest [excepted] typically growing level, look being again

that. really good feel we So about

I quarter that C&I pipeline the CRE. in did of have of think had piece is than production C&I other encouraging in we a first The is we more percentage higher and is the that

feels construction almost advances of get also us. some obviously So on pretty of construction we Also, some projects million weather to that to about tough lot on first pretty didn't that the much in in still have $XXX markets. good advanced our quarter our commercial in a due

Robert Jones

line that outstandings. Scott, down And, our almost was so utilization has helped really X%,

Scott Siefers

Yeah.

very point. good Now that’s

So, guys much. okay. very That sounds great. you, Thank

Robert Jones

Scott. Thanks,

Operator

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

Robert Jones

Chris. morning, Good

Chris McGratty

Hey. Good in morning, remarks, the about everybody. buybacks talked Jim, the opportunity stock. your you I given think prepared with

of quarter? more actually least Given I grew a levels little take what think, be for is optimism the your buyback, near hearing, or foot on fair comment should off assuming the a the term and that kind capital in since we're on loan still is growth the at level bit this we you

James Ryan III

we're we guess Yeah, levels and and I growth, have in think end opportunistic completely were of at really, year opportunistic. the going volatility capacity capital it. this to year, saw into being our be I March balance we have fine. sheet last think And we When because despite I step we're like of

So optimistic. be we'll just

Chris McGratty

we deposit expectation where core next on margin, peers. we shifting? the quarters the trajectory to the low should pretty with core betas maybe Thanks. on betas And are - compared NIM given remain rate thinking, curve the few Brendon, Okay. and How the be

Brendon Falconer

Sure.

I asset continue production. with to mix loan the think with should earning improve commercial

margin. investments certainly the about loans business our is that the But to side. we of where exceed And I'd should earning be portfolio a that and you new the both So good from will big trajectory on so to rates positive. a go the yield, question be benefit asset mark pointed generally here. feel deposits

Chris McGratty

Okay.

Or the margins after increasing quarter? of may message? not stability this kind So the bit a potentially finding little compression be support is

Brendon Falconer

term, Yes, yeah. I better think stability probably a

Robert Jones

first belly obviously, really tough really, environment. it's great in the quarter. has curve a You know, of the The been just part been

And of so for bit But going here. environment little we're forward. hoping we've relief got a rate

Chris McGratty

Great. Thank it. Got you.

Operator

of Your next Race question the Piper Nathan line Jaffray. from comes with

Robert Jones

Morning, Nathan.

Nathan Race

Hey, guys. noticeably up basis. loans are XX% on absolute Daryl. on think in start the quarter, Good The up morning. Maybe to fairly with I credit an criticized want

And So half perhaps, just on the any color what on towards last well? healthcare there? update you're back as an percolated that of seeing credit the year

Daryl Moore

that little the commercial relate the bit increase well, substandard over special mention in quarters or that tightening relate some vacancy some we're just this We - What The it's seeing and Yes, sure. a past as portfolio. well don't X increase talked our We estate in really on slight how X in real the up. probably as see to about things we rates a in concessions. projects, portfolio. significantly is are of

lapse vacancy until to the loans the in healthcare are those actually loans behind that that approved what we credit credit, and when those a those ticks up slipped stabilized. we quarter, one or And With that projected construction mention those into special category so respect we that that's bit. begin for little stabilizing they fourth

that some to the and one lease was by significant owners, additional up that's put in the equity beginning We of project company. management have the

So credit we're feeling that today. better about

Nathan Race

helpful. a that's follow-up in classes? is of any geography it, or of perhaps, terms market in that Got lack absorption, or particular that asset And

Daryl Moore

one, pick You more loans some so have you say than is asset know, markets that point And particular in the we if other there working more markets. at least it's in a market is had to in time, it's at say multifamily than portfolio. but We've we've of I some me in but seeing - of across got multifamily that this classes, just there There's have the would what concentration I loans our market we're generated market, our dynamic in the no others. other. the fact than worse in no the would -

Nathan Race

just quarter. I if then one it down just the basis utilization And there looks to points Understood. Is more it. it there? fourth like on compared that Got is anything could ticked else ask or XXX seasonal line

Robert Jones

seasonal close was million. quarter. bouncing by I balances a we running that and that but been the bit, $XX think it's the to little back drop - seen, would We've in anticipate up a We than this utilization impacted second No. bigger had

So a little unusual.

Nathan Race

color, Thank Understood. you. guys. I appreciate the

Operator

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

Robert Jones

Hey, Terry…

Terry McEvoy

Hi, morning. low. everybody. really morning, remained beta's The good Good

So do cost? is deposit community I on of see pressure guess upward your Would future where in my you question newer, your metropolitan legacy or more some more be markets? markets

Brendon Falconer

coming acquisition be Brendon, to remain newer low. weather from markets. some the legacy newer This most. and competition to I are is storm continue markets is markets better tough that Legacy really relatively than our the I'd Terry. think out pressure markets. that we exception The pricing high. really Yeah, again, get request But of rates we'll compared the is lower But say of

seen moderates expectations but So in deposit hoping but here, we for from a have yeah. change clients - pricing that major not our rates,

James Ryan III

have imagine can a deposits of to the that us conversation been need absolutely at and process to reprice, discipline company. repricing sure we good lot we're and we for around you only lot Terry, this make process a of here healthy it's

Terry McEvoy

Jim, And a follow-up you. for then,

to talk You us pitch, markets, of mentioned characteristics, to to swing pitch Could prepared see that, in looking size, perfect that for? about but terms you just you're understand, your the bat. help you that in now the remarks what that if focus, inward perfect you're you're going up

James Ryan III

at Great question. And it all. really hasn't changed

time have on you a long here. been that for know based this Bob As side I both and long,

that us, really a market, of. that's like $X cost did we don't so we billion be, skill as bank much and that to saves think sure in we I have we'd to where between $X can And a adds billion out for it's make that good markets,

our an scale today past, important been we have on much where us you know, looking can for we that right market adds and that pretty saves we’ve in to footprint versus growth. for a in revenue cost rely the it's So subscaled

Terry McEvoy

sure make one. an X% production. Thanks. there, just momentum calculate point can I Klein Why And loan in added guessing $XX the analyst, expected quarter, quarterly first that it I'm of better market? the quite last and the that production than not as within to then there's was which, of what just I'm bullet there? million is

James Ryan III

Yeah, in market. have lot that momentum definitely a we of

behind us, added in our the to National team that's really conversion's strong Now up commercial Old legacy team a Minnesota.

market. opportunities that growth feel good us in So the about we for

Robert Jones

couldn't We team our And retail place, earlier has we comments, the have both the be commercial side. in pleased said in more and with incredibly the we conversion that well. the prepared in gone

Terry McEvoy

everyone. Thanks, Great.

Operator

Your comes Scott Boenning from Scattergood. next with & question Beury

Robert Jones

Hi, Scott. How are you?

Scott Beury

good Hi, morning.

Just first geographically? question, guess, any in out have you terms give do of follow-up pipeline, terms color could on, how I in that's you is a spread the us of

Brendon Falconer

sure. big is chunk markets. Yeah, Right now, Michigan our that in Wisconsin, Minnesota, of a

to certainly, markets. continue Kentucky production We of Louisville by market strong of pipeline really then as Minnesota, Michigan Wisconsin, our pockets well. and have led out growth now. right And [ph] our Indiana But

Scott Beury

Okay.

maybe So the the out vast majority is majority, it of bulk but markets? of newer is - coming really some the of not vast the or

Brendon Falconer

have largest still pipelines we as markets well. our out legacy good but in The piece,

Scott Beury

could Okay, seasonal going noticed come paydowns to loan of some was that the that's as of this of just and talk curious, And challenging helpful. And give you asset an moderate, were whether see asset you of have earning little the kind at that's of as end. if factors. then about loans and But kind did the demand, on your you as on securities, I period in I through? some these increase some expectations mix, well the given more loan the in obviously a that mix, earning balances quarter,

Brendon Falconer

Sure. Yeah.

the growth to the to deposits increase, liquidity. investment softer intend mix And So quarter, excess asset as in we'll that needed. had first We loans we it portfolio. We little the were investment was up. earning work improve as put as loan a and portfolio in some flex

James Ryan III

funding loan kind With asset pretty to base pretty growth. of deposits support XX% strong - earning to

Scott Beury

all Absolutely. Thank I you. have. that's That's All right. No, helpful.

Brendon Falconer

Scott. Thanks,

Operator

line question the comes Jon Capital from RBC of And Arfstrom your next with Markets.

Robert Jones

you? How Jon. are morning, Good

Jon Arfstrom

to morning you. all Good good. Hey, of

picked markets Just over. the a driver. you know touch I most think on topics But couple have can of the you capital been ones, big smaller of

bigger than and that quarter, that [ph] what's it happened than there? of - - was had item This to go first expected, well kind a I one just

Robert Jones

Yeah.

swapped it I quick, strong existing quarter, know floating mean, being loans Just I you was a on real fixed. to rate think mostly

opportunistically And really -- business so but nice to business of of our flows, kind option and But the to quarter. a ebbs protect a with the client here fell it in be -- have from rate a driven rates and when – it's that in in gives risk. nice lot to mostly

Jon Arfstrom

Okay.

one not - big in not there? item So

Robert Jones

going business that good continue but the second well. momentum we into quarter as No, see to with

Jon Arfstrom

Okay.

The other one is mortgage.

quarter, record a about quarters? talked over but was quarter decent You it - next what's possible couple what there this pipelines obviously and the of

Robert Jones

he's you Well, pretty well about business. know, giddy the very Chris and Jon

out about So together and mortgage into to as well, had to we former with quarter the former seeing Anchor speaks heading the franchise good to feel pipeline businesses, Minnesota think both but Klein the here really we're really continue grow in better. opportunities lot good I - a nice which and

I so will have going in I the present what continue to the think And Minnesota. pipeline decent we’ll forward in on so themselves seeing some I'm opportunities far. based think quarters And

Jon Arfstrom

related talked costs. the you're would that in what big money playing bit, those just big but What or - and pricing, And that Klein was Is back a pretty the little deposit call guess, had increase quite driver market about is last Okay. I step a defense there? one two? you - the in I that you the checking then to always up

Brendon Falconer

is Hey, Brendon. Jon, competition. this No, not

pricing in been in line running item. we of low specials targeted and some money market been relatively that's markets, in that have and share of the that driving some - some in the We increase select growth have where

Robert Jones

else. I than much but and offensive. really existing in to is characterize to money books, anything get partly higher it's as the door our defensive trying as money the think new be I new it offensive a partly as and really obviously would trying have So we We're cost on

Jon Arfstrom

Okay.

a Thanks lot. Okay.

Robert Jones

Thanks, Jon.

Operator

at time. are questions this there further And no

Robert Jones

to their sense - always, Bob I said thanks analogies. nearly my humor certainly of participation. opening follow-ups. And all for we'll miss the And and have the and call, everybody I as going around in we're the has this he for and But remarks, you be don't on thank for as your Well, attendance. that

Operator

May with does presentation for be A This of of months along Once Relations will will dialing available ID National's has replay the anyone participation slides X-XXX-XXX-XXXX. in Lynell be by Old available Xth. available through be XX today's the conference Old replay the The will at This the conclude call. your Walton call oldnational.com. XXX-XXX-XXXX. on again, If replay again XXXXXXX. additional for website, a Investor questions, please contact you also page National's call. Thank

Old National Bancorp (ONB) 22 Apr 192019 Q1 Earnings call transcript