ONB - Earnings call transcript Q2 2019

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Welcome to the Old National Bancorp Second 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 Investors Relation page at oldnational.com and will be archived there for 12 months.

Before turning the call over, management would like to remind everyone that as noted on Slide 2 certain statements on today’s call maybe 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 the SEC’s 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 Reconciliations the are numbers presentation. of of contained these appendix within

remarks. the I now to for like turn Mr. would call Ryan? to Jim over Ryan opening

Jim Ryan

as adjusted line million Thank results When with were were merger Net was morning $XX our earnings debt net second Good standard per securities $X.XX. our Maria. $X.XX. million income I would expectations. with you, our charges and was strategy and share share characterize and for all. quarter consistent and in gains, per earnings income $XX.X

are Despite estate handful from quarter in due We stabilized than ago. record more commercial of up to continued loan commercial for credits. the real first elevated loans intentional of EPS of client higher refinances that and flat businesses, pleased levels selling production, their was essentially the year XX% a from commercial market exit a total projects risk secondary adjusted were

I clients am because opportunities losing or aren’t competitive. are we we confident

to our continue and $X.X commercial remains up quarter at strong markets strong it as end. record where optimistic Today, stood our from remain pipeline a by clients our billion fact, production. evidenced In our be

accepted More record quarter that quarterly meaningfully category led loan importantly, above our to production. is today the first

despite a core of XX% also outflows to our deposits and lending we As second deposits right aggressive on footprint. you strong our were essentially the data, disciplined were trend deposit get and in also new too we quarters. are come from seasonal this focus previous in flat first economic Total to remain believe expect bank. cost inconsistent staying on commercial from continued quarter Loans us, to backdrop given the We the the global time funded is low and credit. don’t deposits a to during historical

deposit our cost Exceptional is a efficiency in-house was the company of key loan and interest XXX fund mix XX.X%. with basis the environment ratio success we quality low low believe remains year-over-year operating diversified limits, at long-term granular remain leverage improving a points focused and lower of adjusted a portfolio. on institution. improved to core hallmark of our our the Regardless our We credit rate day, which

average charge-offs recorded $XXX,XXX the of credit commercial Our new on during provision despite was net quarter production. million only $XXX,XXX. record in $X We

timely have we hard-graders weakness As us identify are for appreciate, while are we issues in those followed a work can and we very quick fashion. credits a very through that in to

to classified X.XX% As and saw we in meaningful our a NPAs fell criticized, declines result, and non-accruals.

capital the at Despite assets grew by repurchased price basis was X.XX%. XX average front, book quarter. the X.X% common On we tangible this equity of value million per repurchases, shares to up approximately points tangible $XX.XX to share X.X and an

be We authorization opportunistic have remaining expect with the as to we been year-to-date.

with be told I board, going my During people them that my interview the performance. on was strategy, and focus to

spend our and manage to inevitable for credit to how we we our capital, the one our that invest basics, While the need is cost. change change won’t is soundly what thing industry, need manage

A improved significantly remains well us few years. performance served over basic bank last our strategy combination acquisitions same. has and bank basic Our strategy the with of the disciplined our

continue strategic platform build and a be discussions working can I that leadership have better improving strategy collectively serving while to clients better us ways remains strategic am company’s the into our Just about sharpen I we rewarded. doesn’t need Banks focus. because reexamine to we raise our position team the our to game, execution excited that far will to our distinctive growth it for mean our that same, don’t carry our future. on will performance. a challenge our

looker and buyer. active M&A, our on update quick A a hasn’t remain selective an strategy We changed.

are and to execution. and the while focused integration perfect pitch patient on wait We continue for remained

converted we last Klein Systems smoothly. quarter, As shared

quarter operations cost Minnesota the during key remain market. We realized opportunities savings already We the enthusiastic continue in and line to have that very around our with perform expectations. in

going details. you quarter’s walk through Next, Brendon is this to

Brendon Falconer

Jim. you, Thank

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

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

We also improved points leverage operating by XXX year-over-year. basis

in loans. outstanding Slide trend X shows the

$XXX million increase production our our represents Jim in quarter. prior company’s As of loan history referenced, and over million largest the was $XXX commercial a

into increased end the same did level period we build pipeline and has to line of Loan Despite pre-pay category to X diminish yields production portfolio our yields. and collected loan the The activity. an core as in production quarter. successfully loans accepted accretion the we slightly continued with billion record excluding remained yields have first points refilled Our to levels strong not our on accrual pipeline the record third increased the production, $X.X quarter. quality at in portfolio were basis quarter interest new of due ended and fell

asset mix year-over-year in second the well shows X our loan Slide for mix change as as quarter. earning

higher excluding yield and towards real of basis asset despite indirect environment. The points basis portfolio amortization. unchanged was to productive estate points X portfolio X with commercial of quarter-over-quarter decline premium from continued interest collected Earning and more commercial have loans. the investment remix loans rate loan non-accrual other and accretion yields, the We down were resulting out challenging and the

of X.XX% yield for yields portfolio were to compared money X.XX%. the total the New quarter

QX. the X, were Moving despite declines deposits we in seasonal up average quarter-over-quarter typically Slide experienced to

rates well cost prior Deposit only X this low Our basis has us funding in of market to points costs but begun direction cycle a future through points. prepared reduce path base deposit have of actions. up we of but pressures funding The cost over competition, on fed core served short-term pricing and remarkably moderate. depend were response stable largely costs deposits are will the total XX basis to future quarter, rate costs with of to

net detailed margin. the we in interest X, Slide quarter corresponding first changes our see and on will income Next

pleased with accretion the environment. on points presented quarter. compared are the interest excluding margin last of rate XX from basis Net was an points non-accruals given We to of margin X.X% benefited X defend margin non-accrual Normalizing by in X.XX% for challenging collected The past from over help we the interest the and accretion and challenges interest ahead. increase of curve several basis should income interest than margin and well first have the collected very the done yield balance the to quarter. mitigate has allowed compression. accretion, The sheet on modest higher quarters showed margin the in the the expected dynamics work our us performance

momentum quarter for continued into our this Also our and income. quarter. XX% slide revenues. and categories We business refi capital only relatively of non-interest the third included growth nice wealth Other quarter Purchases is Mortgage prior mortgage Slide mortgage percentage remained increase XX trends shows in recent over the markets quarter in stable. second with ended the in the of heading fee a revenue volume modest purchase largest business. with accounted on uptick line for in refi management banking experienced the in with usual adjusted years activity. the the seasonal pipeline versus

back laser expense the flat increases Next, in heading We Slide to on and the personnel cost the Despite trend to remainder are adjusted savings realized remained be continued the shows capture the track expense the second in of we conversion systems focused some XX in expenses. half and merit XXXX. Klein management. quarter, following partnership non-interest April of on

improvement point is Our to and operating first XXX adjusted of the an leverage. quarter Expense quarter of efficiency for ratio XX.XX%, basis XXXX. from part our the culture generating a second important remain committed positive was we discipline

second net the in against We loan metrics. XXX reserve against our during while cycle charge-offs the positive of loans and loans adequate of have we provision and hover expense believe basis experienced organic during With credit has near marked loans, basis Credit to non-performing migration as acquired $XXX,XXX. and remained XX points benign $X XX recorded continue conditions in the million quarter reserves coverage. quarter underperforming lows. points we posting Slide we

to one CECL. now have and key our analysis impact completed. toward anticipate Before the turn standard range all want with the with activities new report estimated an keep from updated the we quarter our assumptions third technology on we of will on governance implemented to the be complying been day schedule assumptions all validated to completing we sensitivity results. third and credit models when continue toward progress And on you away Progress We the Preliminary platform. in on transition remains finalizing providing credit, on framework. our quarter focused

performance. takeaways our XX Slide quarter some key from provides second

our with execution by against stated our strategy. pleased are good results, We driven

cycle point to approach management, just disciplined net loans. low of a We non-performing in basis continue to near of X have risk resulting credit charge-offs and

are operating increasing leverage, metrics. We positive driving profitability and our ratio improving efficiency

collected loan growth which X produce reached While non-accrual loans. we down ability credit that pleased interest are with our remained quality on our compromising than to loans income And stability was expectation, optimistic accretion the a our record without discipline. high basis lower finally, and and was excluding production on in margin, we points just quarter-over-quarter

thoughts includes ‘XX our outlook and on Slide XXXX points. starting for XX XQ

production loan and the remain pipeline. both of on strong commercial expect to We quality our based size

of core second heading interest half the net margin curve shape some the to of the from under expect year. the be We pressure into yield

but the decrease, to should lower mitigated actions. funding impact and prior be yields by derivative balance expected margin Asset to structuring costs sheet are largely and

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

slightly and originally GAAP at now expected full XX% on is basis. on a to approximately XX% lower year be basis had FTE an rate Our than tax we approximately projected

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

we saves about remain our on-track. and Lastly, cost opportunities optimistic our remain in very Minnesota

Moore of here us, any John we’re may questions you happy and team that, we to With the Jim Sandgren, rest have Moran. the including answer do that and Daryl have and with

Operator

of Our question Scott first O’Neill. from Siefers Instructions] [Operator Sandler comes

Scott Siefers

Good morning, guys.

Jim Ryan

Good morning, Scott.

Scott Siefers

Hey, let’s see. place to margin. Maybe is start on the first

think. for pretty when level like of part X.XX%-ish run some I a most the and adjust PAAs rate estimated non-accrual I the for So, then of a recoveries. kind elevated stable, you

expect that XX for starting cut points point, the quarter. that’s that you we’re by so basis XX indeed is basis what dynamic? if from Fed basis to additional about the a are How first or each down about the guys should thinking then X points that same the points. proxy and good for So, Is

Brendon Falconer

thinking right. We Yes, that experienced over compression in generally cut would QX. to Scott. I Yes, exactly have is that Fed a we margin July result in think QX Brendon. This what you’re think about similar

better the going starting and than QX that might is to upside that see little starting be of one wild-card QX, ‘XX. think to I back costs come into level-off the is maybe might fourth deposit in in half in down, quarter do to we there an able come a down

Scott Siefers

a savings, Okay, guess million that year at you. quarter. equates I I then And be base, build of cost think Should would so down $XXX of think that roughly we to million, million, we’re as that’s natural expenses the anticipate there of per client range into a that in Thank so million we or about $X.X what $XX perfect. half impact? to take would were $X million some on things savings or and I call offset just if a little core come fair $XX.X I million the guess just cost look is the the $XXX.X quarter to that a way I like has average quarter would for the anticipated per the about expense first cost

Brendon Falconer

think of sense. I rationale lots Scott, makes your

the rate pretty QX in run saves close. feels cost client back think in less run QX I the rate half, in that number some

where had you’re We’re generally with landed line. what seems there consensus I pretty outlining comfortable think in and

Scott Siefers

you much. alright. perfect. Okay, Thank guys That’s very

Brendon Falconer

Thanks Scott.

Operator

Our Chris line McGratty KBW. from of question comes the next of

Jim Ryan

Good Chris. morning,

Chris McGratty

release of a drove move how that question decision? the cited some some what credits. intentional much Hey, good out saw in of if could type riskier everybody. Maybe you and you kind morning Daryl, of I’m kind quantify the wondering industry for

Daryl Moore

identified I had had is or some where been million of for get Chris. and it working living these those the that are to The them with largest seen borrowers Yes, sold either Yes, time loans out. about the facilities. are we housing have and move term $XX upgraded actually

just move I and a So so get this this what said quarter, and another of clients it’s quarter is higher working us to to with not it’s work upgraded as just trying do. out, little practice them we them of normal but

Chris McGratty

in concerns the back focus, in Okay. And portfolio elsewhere the that obviously into decisions, of from discussing anything kind or commercial aside these worth of ag half the kind of any is book? year, at

Daryl Moore

I that think banks in you’ve really and estate there you other think it than real really terms of see and we out. Ag hit so stand different isn’t the that would Ag and our commercial about portfolio piece nothing any of that is much

Chris McGratty

go Okay. line Brendon, Jim if to you net interest to to income. top could the or

If thinking of might the and that like because income, Is situation think about in income able if could should you’ll to exclude a NIM little you the you will the growth you and degree, identify? quarters core net accretion you you interest the on payoffs kind we’re grow the maybe maybe offsets core this not, where get we the environment can speak in. downward continue net a to expense seems next how of NII income. It be reversals, interest few from some pressure interest headwind to in like

Brendon Falconer

with our that I earning grow the income, assets. to with start depends I’ll ability interest think on largely Sure.

materializes is obviously be higher. we going feel drive from under percent kind back in margin to expect as We some growing actually NII to funding half. on long-end be to yields will the think of asset of I the think I will earning compression loan would NII largely spoke growth really the by actual as that curve, costs, assets lower offset the but really depended and pressure

Jim Ryan

just And in always other regardless on of driven NII and the fee by be will then leverage line. our income, partially operating or are add, we I expense going improving Chris the direction to focused of

drive to get serving expenses, of efficient, with more to our a culture created effective idea better. more look ways and we as ultimately know, at lower you continue So the clients here

going, on where be margin we too. is focused the to of regardless So going are line in expense items

Chris McGratty

one lack last growth of you’ve capital would Is the but building my be capital The target Jim. left looking opportunistic. of be you said by should guys? about you for kind X.X we million balance great. there math on that is a sheet Thanks ratio the thanks. and itself, buyback, there Great, help at that you’d shares be got Obviously, any is

Brendon Falconer

a have don’t out We number target Yes. PTE there.

You with and end very comfortable an year-end. authorization I can to we would high fully think finish imagine, we’re the today – expect of by we’re at

Chris McGratty

Thanks. Great,

Operator

question of next the line And McEvoy comes from Terry Stephens. of

Jim Ryan

Good morning, Terry.

Terry McEvoy

morning good Hi, everyone.

Let’s I down second And year, half general and just some start that in the I pace guess the slow what’s prepayments. your second quarter? the pace growth looking of at Did hopefully balance thoughts with this loan whether guess slow at provide the within all throughout portfolio? should of sheet the loan

Brendon Falconer

first beyond another the quarter even elevated was and million. quarter No, second approximately by $XXX was that the

know pipeline. we Terry, hard make future All production sure the on is the directional happen our So of that focus to the right can it’s continue that thing we to our and our grow do serve doing to prepayments. and what’s and got to in clients to going pipeline category accepted grow we’re

the what thoughts So half bring we’re that’s year in expect we prepayments. terms to second to what really on. in any give the hard those to of focused It’s as of

Terry McEvoy

presentation, as And up, just scale. reading follow a evolution the franchise then you. increased Thank

that in the of XX.X%. seeing ratio We’re efficiency adjusted

that I where I a you is, So where the forward question that and realize my $XX guess bank, go for benefits go guess of billion scale? going the should as can

Brendon Falconer

we think we good the XX% that came I pretty through through barrier. feel solidly

the to started cross we a was to You for barrier know that. got $XX really as and see to we mark, us that hard billion

guidance future we think go. going to prepared any where give We’re not is as to ratio that to

so ours. turning to year-over-year institutions so a and that XXX focus We’ll Just it’s of drive leverage us. operating basis a don’t the there continue big is think it’s in I many points know focus are the improvement prepared of not any and give industry regardless just I’m but guidance conversation line goes in of kind to walls definitely a where here. the is inside now, it we’re today expense revenue having

Terry McEvoy

everyone. Thanks Great.

Operator

question next Raymond of Our David Instructions] [Operator James. Long from comes

Jim Ryan

Good morning, David.

David Long

a those said, you Good Daryl, those consistency can We these couple mentioned, morning, credits but anything it��s quality you’ve questions haven’t any clean or many across there, quite that time. industry that you’ve probably that you among everyone. in point just had among credit things of some just the seen out? whether got

Daryl Moore

David, it moved was When loan. but about or of I common dollars really that larger really living $XX down the in through trend senior isn’t just a that out. there is industry million, what denominator talked look borrower, no we we

Jim Ryan

just will I David, comment.

believe is from this in we seen what proactive turn it’s or normal charge-offs. portfolio think handful to issues end bit any we always, of little they those This pretty I for elevated is last of into of try right try and us. just proactive quarters, the management it of and to the management before tail a kind as thing get a do to the and cycle losses toward while ahead we’ve is really so

David Long

and Got it, your that second is line that it the okay. expenses? is IT spending grown rest overall operating part of And expenses or of the how in of question, relates to then your versus investing with expense pace space, the

Brendon Falconer

room don’t the past. I are have I what technology self-funding. think pretty about would looks it front of like internal be we a good money but technology than have would for in but improvement in look said we spending as more our Having say whole, math we some processes externally flow, and me, we to clients. how have on that on manage we paper that, We as would our the more be faces to feel we

to improvements there. opportunities would self-fund reduce any of kind expenses So, any

continue line all that on, more lot we to but improve internally. more to So get that the grow how so not continue efficient, effective materially, we technology of a doesn’t line conversations on maybe

David Long

that side you between talk the offense the more out Got to more is side it. and of or side where IT defensive And it about shifted sort has about the trying offensive still toward your on thought can spending of just versus side efficient? become have spending maybe breaking you it,

Jim Ryan

vast really I of today run we versus that don’t in of offense how think majority defense, lights I on, rate mean an we line of kind I to much that really a our ability organization. technology item run the spend think how a quantify regulatory have the is items it improvements. is routine just items is we but vast process keep the of changes, majority stuff to

David Long

Okay, got it. Appreciate it. Thanks guys.

Operator

comes Markets. line Our next of Capital Jon the from Arfstrom question of RBC

Jim Ryan

morning, Good Jon.

Jon Arfstrom

Daryl. we’re Good fun morning, everyone. Daryl, having

Daryl Moore

Jon. morning Good Yes.

Jon Arfstrom

one-off guys getting in a of of are Some say articulate, credit it you seeing put-up things clean others why and environment. a assessment I’m from had this peers obviously here. you what perspective credit any pretty quarter just you worse like you call your quarter to have why terms feel the and issues of a the what overall or of but or your couple curious maybe you think of just would it are? environment, you credit do would Do aren’t hard

Daryl Moore

Yes.

don’t we’re that, I Jon, from moving of First all, think right.

today’s So, environment, have in we bank every one could. of could

you quarters think me would question a I you getting I if that little would harder that were out. tired, things have credits move to ago, ask told it’s two maybe

right going but significant to the portfolios are anything couple in near-term seen I last of those, we’ve over those of a but of out, don’t that little the an bank losses a think couple have it dynamic, I which portfolio, see start move us is or could deterioration. quarters, experiencing interesting we on that a would the probably concern easier has give real kind horizon loans to every yeah, credits now just

Jim Ryan

Jon, you to comments earlier. my back I’d point

We we try weakness and identify are early. hard-graders to

those the to tend problems look classified, we’re see That’s don’t lumpiness of managing some for you numbers. We because in actively arise. you criticized to if portfolio. some think our and I at wait

think you it really to that’s it better we and manage of ultimately results trying We’re translate into hallmark know will company. the I our actively and

Jon Arfstrom

Yes.

borrowers, the Are back bit in that commercial and change any maybe the are the good, in the and borrowers SME good loans Terry’s you new production, looks optimistic? it. Okay, side but sized question to still feeling your have tone of of borrower. still on some little seeing you moderate It production. you a terms loan guys getting of type strength of of more the in Where kind of like like pipelines, the

Jim Sandgren

our Yes, Jim Jon. team. was that By This by driven was in far, second Minnesota XX% in the is by commercial almost say really team. production our I would quarter Minnesota of Sandgren. our production led the quarter,

and Minnesota, So, dinner We see it regions. then very across kind are Indianapolis, across had economy was customers the growth was split things to going recently, estate feels. of felt the in about kind balance very, board. all the well sheet is, a did company, and with they their of Evansville, Milwaukee there so commercial I in really trucking developer where clients’ how good tell got I real you, up manufacturer,

half the we payoffs categories in So, given to be of deals. equity of pipeline our private X chasing just factor It’s going and optimistic and the continued we’re the that money year. accepted where toward second

we relationships. to So, about worry again deepening our control out think need Jim of as and pointed customers earlier, and just I we care taking can what

Jon Arfstrom

Okay, costs. good. on And the one Brendon then maybe you for deposit

that you alluded maybe to some in lower opportunity the kind fact costs year. the You to might have later of an

a had quarter, good I up X you’re mean points. basis only You pretty

costs another point So second of I’m of and the Fed costs? the then at can’t do just just another maybe to and what’s you anymore terms goes a half lower these deposit where and terms XX, get lowering in you XX in in curious point possible what XX if

Brendon Falconer

in Yes. beta but short-term of you means Jon, low Having to cuts. a can generally ranges kind that’s I of point. the up I fair down, tell beta a relevant think X low X a

in quarter we right moving to start be third to able I then if rates some think move would we’ll of out the third down. expect and gate down. to in the happen the pass I of room don’t will have quarter, that deposits level-off but know plenty

Jon Arfstrom

Nice guys. alright Okay, job.

Jim Ryan

Thank you.

Operator

of Davidson. comes next [Operator Kevin Instructions] Reevey from D.A. question Our

Jim Ryan

morning, Good Kevin.

Kevin Reevey

you? Good are morning. How

Jim Ryan

fantastic. are How you? We’re

Kevin Reevey

Excellent. you. Thank

levers the more giving to intend is you curious, you just margin color was you pull you as intend best what order I specifically, one forward, deposit do the can cost as to lever. So protect I rate environment? protect your how us know in give to going as to Can margin.

Brendon Falconer

very the balance really reposition at Brendon. Kevin, time swapping Yes. working our neutral pulled every rate on to interest advances rate lever sheet disposal this last sensitivity fixed our including it and to to some year is started to this We’ve proactively float, we around collars made where we we and they have pull have feel brought levers near interest margin like some neutral pressure will back floors sense and that putting forward. continue that and help can largely rate going to that we sensitivity mitigate some in we to

Kevin Reevey

And Brendon, so now floors? what percent right of your loans have

Brendon Falconer

are Right with now, we at our XX% floors. loans of

Kevin Reevey

you then kind with Klein some And if Great. give size of on color done M&A lastly focus of wise? kind regionally can us your and

Jim Ryan

Yes.

that So, in for patient. will footprint savings. our key That we looking can remain where we really remains It’s opportunities focus. cost generate unchanged,

know rest the billion We said have $X performance. I would my around $X the something last as more would billion it’s are of be bigger billion obviously range working spend we improving than in $X making You inwardly A of say kind generally to sure opportunities. call, quarter to $X are that on the as look and those execution for that desire well, banks also would year Plan in to that I billion. focused, but

my desire around. the definitely – perfect we along, rather I If pitch inwardly more would why look, take be that’s have a comes So absent but we will be focused. colored that it will

Kevin Reevey

you Great. much. very Thank

Operator

additional closing to like There over the back Instructions] for I turn to appears any management remarks. time. to questions be at floor [Operator or further would no this

Jim Ryan

for morning. you attending all this thank Well,

your if talking here have We forward more you is team look to quarter. to the interest usual, and continued next As to you appreciate questions follow-up.

Operator

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

Old National Bancorp (ONB) 22 Jul 192019 Q2 Earnings call transcript