ONB - Earnings call transcript Q2 2021

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Operator

Welcome to the Old National Bancorp Second Quarter 2021 Earnings Conference Call. This call is being recorded and has been made accessible to the public in accordance within 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 maybe forward-looking in nature and are subject to certain risks and 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 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. investor’s of understanding the Reconciliations the are numbers presentation. of for contained these appendix within remarks. the I now to for like turn would call to Jim over Ryan opening Mr. Ryan?

James C. Ryan

and recently Slide we plan. Thank would First Bank. announced to partnership good Way are an and characterize Starting share quarter were for adjusted cost, charges, gains. per results earnings I on second and with Adjusted our results morning. as this update pleased debt securities on you when X, share on right merger quarter’s our Midwest $X.XX specific ONB

commercial XX%. excluding the loans grew loans quarter nicely at During PPP

mortgage due with accruals. interest average with stable, Our remain increases margin revenue adjusted margins. slightly lower wealth merit a capital down was and management just higher and well efficiency were but common ratio equity sale incentive tangible valuation gain our Adjusted primarily on benign. XX.X% and smaller was a consistent was higher and stronger, and managed XX%. strong metrics Expenses a expectations net the to return markets quality was pipeline under and Credit revenue on were

Round credit SBA our worked loans our of hard quarter. of the improved loans During we through quarter XX% Most clients forgiveness on the metrics process. reported of been by X with already during the XX% we have the forgiven process. forgiveness have X Round quality the SBA and

of We approximately of by given level a pandemic’s forecast confidence uncertainty than back the of better the update the more the economic of in supported taking reserves the cost have talent move quarter. to the reduced hiring, and have we qualitative exists CECl. during quick result modeling the we our The on consistent XX% reserve programs. of stimulus higher in expenses start beyond have talent A today. closer half with further the add the year. reserves will Day significant that in The to will adjustments average as impacting we We X our economic our increased shock, investment continued our economic massive expected still slightly

remains and strong fantastic new join. have a pipeline we members talent strong, have wanting tell, team interest to story Our from we to

Slide to Midwest some merger our refresher truly Moving our salient reminded cultures the how I'm with of will much share which are am I contains strategic that First not will I colleagues, Midwest. X the how a our reading is. on quick each details bother but time First aligned our of and I that with fit Slide more strong

confirmed Additionally, and understand investors and with analysts our sell strategic with conversations they rationale. side agree

have tremendous good to to integration a X is Moving Slide start. both experience work a history off our and companies and

and the and from integration appropriate we made merger have integration. the a Vanzo We members Kendra companies with regulatory team have Newcom SEC efforts and have applications. to Jeff group been appointed over filings help XXX the of to both assembled lead

engaged. and the with and excited client support facing both team from they're We companies have members all met

we Additionally, and finalize team selections the technology making summer. this are in advisors which hope management outside involved deeply to

over Brendon. our from have We remained the illustrate our think and will in each despite I on held clients for the now shareholders our call company. also meeting expect communities now those quarter ongoing I the the to merger we And to special results and transformational a turn third of of distraction lastly pandemic success be focused efforts. the serving and

Brendon B. Falconer

Thank you Jim.

charges, in in QX outstanding’s commercial our on the in in chose and related exclude to over healthy Way of a the continues merger loans. gains, strong consecutive last a into X, prior all grown Turning represents activity I and $X.XX. excluding we early to loans and the million. to quarter. $X share Right resulting growth ONB commercial billion per have our Commercial record year in our now debt fourth commercial was related of related PPP production the of $XXX was QX million $X.X be and impact production pipeline $X.X QX billion. of than increase $X.X more million earnings billion pipeline. Slide with charges per quarter throughout earnings $X.X trends loan heading second and footprint, commercial over very outstanding’s are that of are the highest trend $X.XX $X.X while our organic GAAP share earnings adjusted million Adjusted securities

Absolute low rate the floating fixed reduction. to briefly business Coupons pricing, to new continues rate a environment high and rate versus by and Turning of be impacted percentage

However, outpaced total loan spread growth. slightly strong portfolio the throughout cycle. are have this invest consistent adjusted again deposit and remained The in and and returns rate risk growth quarter increased once

We yields of are portfolio to within a well five duration taking a disciplined new our with money approach and X.XX% excess of work investment putting portfolio liquidity years. on

the one deposits Slide to average over QX. of end a in improvement Total basis Moving balances increased point deposits while the was cost low XX% quarter for moderated. basis six growth have period XX, points, a

quarter-over-quarter Slide you interest strong commercial Net largely growth. due increased interest XX our details income on and $X.X will Next net see loan to income of margin. million our

partially categories. the our offset of mortgage fee decline low the million income expectations than environment more excluding from points the quarter-over-quarter due by to decline in rate X.XX%. Net offset major mortgage impacting industry today. yields. quarter, lower non-interest in impact three lower as basis recorded million revenue and macro by QX, in climbed in margin Core the growth revenues was points that non-interest million the impact income. improvements banking interest other $XX Slide was earning The driven in shows The we yields. income accretion $XX all PPP slightly $X PPP X.XX% Adjusted to than declined trends first asset was just two on primarily primarily $X.X prior increased million asset decline impact the to which basis reflects quarter. the XX adjusted better of interest the of asset margin in was headwinds than Excluding

production a mortgage flat and revenue. you positively decline the impairment in largely secondary $X.X was also QX, of pipeline was both MSR prior the that I resulted in QX decrease value would by impacted from million million charge. size remind a year’s $X.X in of While recapture

results for amortization, XX tax adjusted with our million. Slide shows Next consistent was related expectations and charges a were $XXX non-interest QX trend non-interest Adjusting expenses. and in charges, guidance. merger These their credit ONB expense

loans of on Slide PPP $XXX which forward stood see roll balances, a to those Turning million at you XX, quarter end. will at

PPP million. approximately and X XX% through formally the X Round with of PPP XX% assist to continue the forgiveness SBA Unamortized with Round loans process. of We $XX on clients totaled remaining fees loans forgiveness

believe will to With most of discuss be turn loans We related over that, that will continue credit. in and of remaining it the XXXX. forgiven fee I income the Daryl to second half the recognized to

Daryl D. Moore

you thank Brendon. Great,

As recent past trend quarter of we've this trend quarters at consecutive both performance our end. and basis. reflects portfolio, a points for presented in falling nine quarter continued Total the current historical XX a XX loan most quarter’s on their improving Slide the basis fourth to delinquencies the day

the rates past in quarters savings As to low our with commercial the the been X almost HELOC and spending several pandemic the side, been has in lower Government mortgage, portfolios. have and seen due payments retail historic levels the residential to factor historically concentrated family on higher indirect reduced X a during to portfolio certainly delinquency numbers. auto, contributing the of lower over have have been delinquency improvement we retail delinquencies than

quarter. the the child While diminish began things time, of are effect the With our through in long of offs extremely last my low said, credit a benefit tax Net $XXX,XXX levels payments, continued recovery which all at of well-contained least of these will week delinquencies at run. in opinion many and will will end the being from in continue year. posted over with charge the these borrowers that unsustainable minimum the

net the recoveries the the total were level and loans quarter, for than consecutive over lower the last six for Non-performing slightly loans in on reduction led quarter, of quarters, to the the posted dollars, last recovery While charge period. were million gross the non-accrual period. at a second mainly offs which less than fell lowest

see quarters. its peers narrowed National in over can several and you this has metric favorably the Old last As particular gap between the

We offs as peer in charge with perform the the percentage a the last well as non-performing over measurement levels to lower net net being non-performing than continued category charge well six This is time loans you offs X% significantly of and over can see period. years. of south

our a imagined say different XX would might closing that borrowers what months ago. are facing comment, As the have we much I are than challenges currently

of lack clients our facing most and challenges be the On dependable, labor. the shortages of side the are significant adequately C&I seem supply to trained many

input borrowers or may present to we to forward unable at margins Additionally, along on unwilling going impacts with higher customers. are costs the see time who pass

On estate to pandemic all the I'll comments impacts have what the front, long-term might and retail the think see real commercial With Brendon. and those continued back the banks portfolio to on turn we portfolio segments. office call over watch

Brendon B. Falconer

will persists. details QX. decline threat credit trends $XXX related we million allowance, On sectors million, at That which of of Daryl. you, economy have supporting all levels. that reserve modestly in Thank of a our the stands COVID $X.X quality the our positive see and Slide recognize The XX, and economic from disruption outlook not the improving lower said, you recovered of future quarter second

you result, a in prior economic to from we would unamortized remind clarity carry it we As qualitative $XX than believe also on reserves normal until million have portfolios. outlook. maintaining continue I prudent greater to larger to the like we that is mark our

increase will remaining While charge margin any will offs, upon directly offset not your these resolution. marks mark

very for asset should cost pipeline, with historically well-controlled The environment to while in forgiveness clients Round rate the the and that other continue earning expect posted all of quarter-over-quarter will pressure some interest the healthy our loan rate Mortgage comments to valuation continued up put with due loan on Expenses X for the time. related loan growth. we half businesses process mitigated income fundamental thoughts XX which includes PPP key despite low and remained higher at the quarter. and normalizing key I to income, Slide fees of most through interest $XX of This $X.X billion Round in growth. continues occur favorable XXXX and interest unamortized runoff net on recognition commercial continued supports latter X of headwinds. to our our we Round revenues the our outlook X and a occur outlook balances were As are and here be interest credit to million Double-digit which pipeline with margins commercial down XXXX. strong a wrap our growth keep my credit takeaways, quality quarter ended of low. results core are pleased We improvements. net

We fee to perform expect to businesses well. continue our

are in momentum level We by the wealth strong our commercial of business. help encouraged the capital our in high performance and activity should markets maintain the business

will continue While gain year. the to margins should mortgage on the throughout follow current industry consistent revenue of and production trends, with QX sale support remainder quarterly revenue levels

expected other fee near-term. is Our consistent on our are look broad A stable guidance. expenses lines in to be prior the with

efforts the modest expect revenue in half the our up top to attract picks increase talent We of back a year momentum. as

Lastly, taxes. update a brief on

that, tax commitments. continue tax a year With rate worked including for full million Moran. may questions happy expecting the were credit have, have John tax volatility of caused our and in the rate tax to in amortization historical we're we we approximately the answer do a year through effective to and Jim XX%. remaining credits $X with here, of team you Sandgren one-year any full that corresponding total the We last the as expect approximately we reduction In by

Operator

[Operator Instructions].

Our question with Group. Ben first from comes Hovde Gerlinger

Your line is open.

Ben Gerlinger

growth wanted I guys. morning just loan off Good in with to start general.

past, to four pretty out peers, exceed job it National light seem peer pretty or know you if I getting quarters the markets. quarters? kind of both is if the trends doing the let's over you guys also have so. done Old not Midwest beat sustainable guys in consistently You the and was great growth a call have secret on to of sauce, four will, could what past you little shed but to wondering for have growth really a only National I

James A. Sandgren

and I to calling been bank. so prospects. don't last customers any months. Sandgren. XX this new obviously other sauce, Ben, home out banks our Well, the relationship up Jim is many of were opportunity -- working We we're strong sadly us there's secret we're if on in provided really brought We've a serve a clients. know lot for Yeah. that from an

of kind pretty stances. think changed might've opportunistic other I banks we their were as credit

and blocking us. of just being when it's think I So, need customers tackling, they out, kind helping our

has started throughout of And Obviously and helped so first year. that mentality look as the pipelines of has for us this the back year half good half the we've certainly year. carried the

think, there's I if don't know And sauce. so again, I any secret

think think and that's restructured out for that Way ONB just building aligned the and well. I that I opportunistic being of the client we as major are being an I the our and and needs, there think well. as relationships it's new through with we But, managers our relationship skill played those strong fact sets for clients fact the a relationships

James C. Ryan

on on You I'll just days clients. the deck. would know hands in I I'm spend going call it's next Ben to two Indiana, add, all Northern

and primary to company. believe success a -- team. all hands we're all quality doing focus leadership entire it's for health on our of of the relationships it's So deck. We're long-term arms building we our And, and locked continue

Ben Gerlinger

Okay, of bit question. a A great. softball

very your a And have floating. interest low loan little one than net are its little I today. harder margin, they're cost, dilutive that then the wondering every you and be I yields the weigh your you So put base should production was deposit today. would margin even continued a though great new on lower a you interest be net growth how get against

So I to growth NIM? maintaining you manage balance was how sheet wondering relative

Brendon B. Falconer

at Ben, this Yeah, very Brendon. looked the we've Hey closely is pricing.

cycle. very have And this been spreads strict hurdles adjusted for as earlier, held my have said I in strong. return comments of our We loans. in race our throughout risk all They've

reduction. relative that's plus LIBOR, XXX about to rate rate for the over production the think So LIBOR basis floating points today that you that floating

I at that and rate on think, we'll continue so to put about good really load it. feel

Ben Gerlinger

I step queue. great. will Okay, get back the and in

James C. Ryan

Ben. Thanks

Operator

Scott with from comes question Sandler. Siefers next Piper Our

is open. line Your

James C. Ryan

Good morning Scott.

Scott Siefers

How guys. morning you Good doing?

James C. Ryan

you Good. this get hear Maybe, as get you as anyways. morning, some but from didn't up I others to early

Scott Siefers

Oh man.

just you. pass let couldn't could it You

James C. Ryan

Scott. Sorry

Scott Siefers

there time. No so number. worries. I'll right Honestly, I'm -- earlier just the next phone are that dialed get thankful up many I

for taking Let's see, thanks but the question.

you of Just on guys, in well the what lending. they so degree on for down that you if it? sort sort then that market to the capitalized competitive some dynamic your have year. back noticed wanted for there, one? are especially of in commercial kind shutting environment way, you two, bigger larger at how, number And like year feel last impacting the the competitors particular, follow-up of a in number the is I larger of To as see all, guys

James A. Sandgren

Scott, this Jim question no Sandgren. everyone back Yes, is There's that really is now. in the market

are up. very we structure, pressures Again, competitive credit about of certainly but getting as heating staying still back. think disciplined lot it we're So, we're a

think as Our robust we pipeline, pointed remains I out.

and the and that back half from, clients opportunities that feel into stretched cause really successful going their good the But, XXXX. deals good certainly back and still there's in are getting year be about about structures away to we're of there'll think So the I to out there walk that's be some overall okay. half feel

competitive So, thinking so. given I and we model, think chances it's our always there out relationship going like to our be

Scott Siefers

vis-a-vis then Okay, Biden of order? what I on process. discussions any any going, perfect. how out the had thought kind you ago, you approval President question mean so seeing with have on just a are just if a And of lot Thank conversations a executive prior the change impact regulators guess to seen I the curious that weeks to guys you. couple the order put I'm there's left imagination, might've the in order merger, the

James C. Ryan

we're curious, or if there. us brethren our sure our changes, applies it additional any out no of from biggest we're maybe regulators. No feedback Obviously not to

no we So, tell any indications time as ahead. full just difference, process, steam but of really regulatory the approval through go only

Scott Siefers

thank guys Alright, very I much. it. Perfect. appreciate you Okay.

James C. Ryan

Scott. Thanks

Operator

Our next from with Chris question comes KBW. McGratty

James C. Ryan

Chris. morning Good

Chris McGratty

move Jim, doing? lately. about Hey bond how the in are to portfolio, you I down, given ask wanted back rates the down

are You XXX in you what the reinvestment are cautious quarter? the dramatically, bit interested maybe about it but versus if too obviously Thanks. and a gave near-term, not rates growing you're at growing more today that

James C. Ryan

Yeah.

portfolio. in from investment quarter, loan continue to are new have the extent dramatically. to a marginally average not little that fully bit put business we'll to we that So we work can't And for the grow probably liquidity the down excess rates but

so of continue is period we continue to back the we're that point the growing. end at be deposits our pace has And at So loans -- asset have hope can disciplined hope a this as about that the a to better mix drive of we we'll and half that the earning grow continue year. sort of moderate moderated, to that bit, through growth so we talked

Chris McGratty

of was granular. growth, interested if loan the the or any the from it quite origination I'm has quarter that, deviation historically growth on And if Okay. this continued? a been

James C. Ryan

No, to just think a granular little production I Chris. it's grow we're over, continues I loan, million over pretty bit think, new still I still mean, a And still time. average bucks.

that's grown over still but quarters, fairly So that, again, granular. the few last

Chris McGratty

Okay. one appreciating improve we're is day -- but I'm the of -- XX% mean, economy still qualitative, And continues to the CECL just we maybe your your reserve, get trying one year around think trying the at do for reserves last looking pace the reserve on that think where we then slide bottom all at breach out figure I Darryl. improvement, if is? it you this to do to to with one I

Brendon B. Falconer

our comes. pre-pandemic measure when Hey, portfolio around based be down we Brendon. economic model the the is some is you But what portfolio judicious are forward, it. we'll on day than time we possibility reserve a look get that CECL. said, clarity CECL Chris, on we until it's one that outlook. very, We'll this quality bringing as reserve measure credit is the and a better a was take to going one. this I'll actually That tell in Look, very I'll it

Chris McGratty

very you thank much. Great,

Operator

comes question next with Terry from Our Stephens. McEvoy

is line Your open.

James C. Ryan

Terry. morning Good

Terry McEvoy

Hi. question, Good Maybe the expenses. morning, your everyone. outlook for first

if You generating certain new on areas markets of talk you're hiring positions. about you investment could in where talent the just wondering expand revenue the what bank? I'm in talent

James A. Sandgren

Yes, and the good well. talent talent in St. production Sandgren. Terry, there added [indiscernible]. we've commercial, primarily this both some office Louis areas really really wealth region. focusing our Recently talent really loan in added in and is and on added some in We've Minnesota as great We're in some those Jim up

of to do where So couple it's key -- hires recently being and technology here too, we really function going great getting is put also IT areas of our across a of I would that. to talent find us total. to in we're us we them getting the is actually at data continue We're it opportunistic footprint. And needs. team, again adding and which and we're some of bigger, can the part a much smaller better well, the those a

in areas key We some are as well. investing support

Terry McEvoy

in Thanks. And from been Twin to it what the and a then are Michigan, you. or say First about curious is maybe Jim the just expect excited for them perspective, What's all bring given feedback change about Indiana, there's from customers just for or no overlap the worry could Ryan there I'm merger, your may the Cities, where be they table? reason with at question their any to Midwest,

James C. Ryan

more clients table. the products of that by just I more the our to the Yeah, being prospects I about bigger, to services and able would think large, the members table, to being characterize are excited team bring

those but I we kind the obviously genuinely individual think of everybody's sheet bigger and any really impact clients, just as everybody's of generally think a balance I excited be if about know to don't prospects well. having excited, there'd

Terry McEvoy

Great, thank you.

James C. Ryan

Terry. Thanks,

Operator

with Capital Arfstrom comes question RBC next from Markets. Our Jon

Your open. line is

James C. Ryan

morning, Good Jon.

Jon Arfstrom

couple Good the new ups, material maybe morning. the expect the in of of in flagging to later of terms you're an the How you impact? A question headwind as follow hires morning. expense some be and hiring year. bit of good some expense Terry's Hey, that on

James C. Ryan

$X It's into building not pipeline thinking about to to were the said what million range about of $X Yeah, as million material. that I'm with heading year per quarter. consistent $X $X approximately. million we we talent, million pretty

Jon Arfstrom

think a your Okay. little growth Brendon, hold that loan bit ability different Jim on peers or growth NIM peers. potentially optimistic for But the is later you on if little maybe kind you and do a little bit why a bit. different more to question does the of this is continues? the than a year that you than like in a It's you slowing for deposit the make

Brendon B. Falconer

see. we'll Yeah,

focus think the it certainly And has by and investment I excess the after But not I least the I generated rather largely work a that of in deposit, to control, book I portfolio. as the liquidity think able be helpful excess that team outside loan know our driven we ours. to to gathering talked of margin about seems stimulus. liquidity Jim are are think today. earlier, I stimulus at been still as is back do put portfolio and in it'll our be portfolio than moderating, to the in still

Jon Arfstrom

or to this say of down? some Okay. of just through And of you're slow in growth, is that the your it and simple some of seeing loan maybe some too stimulus using are it deposits may their be commercial clients is terms pulled

Brendon B. Falconer

Yeah. still last at did deposits money get deposits actually a are but actually so a core holding that said, not rapid more Like down just deposit we today. deposit PPP to grew bit before. starting lot on pace quarter. the retail grew PPP business than still of quarter-over-quarter, funds this still our drawn our are they grow And I

Jon Arfstrom

And Daryl Okay. for one then you.

on and real You office. retail, commercial estate, touched

information you Just share? can any any changes concerns in terms there, any new or your thinking of

Daryl D. Moore

I they Jon, No think don't are.

think has I play to right. leases out expire, that as

those making and do got retail much rates. the today decision do So these the leases real The buildings, when what those people still payments. expire structures they in paying renegotiate are they vacate and you've lower that comes they in do, office buildings

before plays concerned all the all think it. we XX out of But that still we kind or months probably and XX, I about it watching trends. we're So got see

Jon Arfstrom

questions the or Thanks for answers. Alright. I the appreciate it.

James C. Ryan

Thanks Jon.

Operator

Instructions]. [Operator

with Long Raymond James. Our from next comes David question

open. Your line is

James C. Ryan

Good morning, David.

David Long

Good morning, everyone.

First you free the loan this their and something but at about book. you were I'm their due happen or through of discussions process look as sure process, about ratings after them, with is makeup is diligence constant going the is deal the a related Midwest, loan got with to maybe to credit the question until for more thinking they're lot Are that having closing Daryl closes? won't you how really First and that

Daryl D. Moore

We're only not the risk. because difference extensive Yeah at the having books conversations we banks little David, as two the is very we together, in way their Darryl. approach in there put way look very, loans,

the to so We've two transition And probably this the be banks is partnership, with merger. point going in our as time. easy up as been to done any we've

at you So tweaking we're same. we're arm wrestling getting there's those, looking a doing a doing just It kind about communicating policies right, the of of together, wrong. pretty is you're we're we're but those, this lot are much not this lot

David Long

appreciate and longer-term goes, you about Daryl. how far spending in And the are you, I or once guys you're any Thank that. deal, how IT as to your the adjust does spending thinking you it. close in deal spending spending near-term then then, Got prior the close? strategies as of changes do the

Brendon B. Falconer

David, is Brendon. this Hey

combined I going we going it organization contemplated. make has we technology think change makes IT investment some goes, But in had of complete think call, forward. the of our think as incremental material no the in but spend plenty those continue been to invest really room the about to the rate investments IT that banks I are have meaningful run robust we as roadmaps both sense and in roadmap. to to because talked time We're

James C. Ryan

markets war like We're talent up just would and Milwaukee to continue the places talent down continue especially ramp in our going add, side. for David, and on and Chicago of will I that. all at to our doubling

the continue our and we're story that take great we're and add in convinced now, our that I'll going right invest really success and to lot make invest. going advantage we sure to talent. resonates well that of a So, to just I'm key of to

David Long

Got Thank guys. you, it. Appreciate it.

Operator

at further this no time. are questions There

James C. Ryan

great everyone. we Well, have all support. Have you follow-up day as are answer great. when questions. And we any Again, a here always, questions to appreciate your

Operator

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

Old National Bancorp (ONB) 20 Jul 212021 Q2 Earnings call transcript