Old National Bancorp 2026 Q3 Earnings Call

Mr. Ryan. Good morning. Earlier today, Old National reported another record quarter, with third-quarter EPS of $0.66 and new records in net income, adjusted diluted EPS, and adjusted efficiency ratio.

These results reflect the strength of our franchise and disciplined execution of our strategy. Growing profitable relationships, funding that growth with core deposits, maintaining strong credit standards, and operating efficiently. Growth remained healthy and balanced, with strong deposit growth and continued expansion of both C&I and CRE lending. Active portfolio management moderated reported loan growth during the quarter. Despite the increased competition, we remained disciplined and pursued opportunities that met our pricing, relationship, and credit hurdles. These results reflect our consistent focus on full relationships, sensible pricing, strong underwriting, and core deposit funding. Revenue trends remain constructive, with continued growth in net interest income and broadly stable fee income performance.

As John will discuss, we believe the current rate environment is modestly helpful to net interest margin going forward. Operating discipline remained a clear strength. We delivered record efficiency while reducing adjusted expenses from the prior quarter, even as we continued to invest in technology, AI, process improvements, and talent. This balance supports strong current returns and durable shareholder value. Credit quality remains stable and consistent with our expectations. We continue to manage credit proactively, maintain rigorous underwriting standards, and stay close to our clients. Our diversified portfolio and straightforward banking model continue to serve us well. Our capital position remains strong, supported by continued significant capital generation and tangible book value growth. This strength gives us flexibility to support organic growth, invest in the business, and pursue additional capital returns with discipline.

During the quarter, we added 26 relationship managers across commercial and wealth, expanding client-facing capacity and supporting continued organic growth. Commercial hires included four proven performers in Ohio, two in Cleveland and two in Columbus, important expansion markets where we believe our brand and go-to-market strategy will resonate. We also added leaders in our fintechs, FX, and food and beverage businesses, broadening capabilities that support key strategic priorities. We are pleased with the caliber of talent we attracted and developed during the quarter. We will continue to invest selectively in high-quality bankers and specialized expertise where we see attractive opportunities to drive organic growth, deepen client relationships, and expand fee income. In summary, this was another record quarter with disciplined growth, exceptional efficiency, stable credit, and strong capital.

We remain focused on the fundamentals that create durable shareholder value, profitable organic growth, deeper client relationships, disciplined investment, and strong risk management. I want to thank our team members for their continued commitment to our clients and one another. With that, I'll turn the call over to John to discuss the quarter's financial results in more detail.

As Jim mentioned, we delivered a strong quarter, highlighted by record earnings and efficiency, very strong deposit growth, balanced loan growth, disciplined expense management, stable credit performance, and meaningful capital return to shareholders. Beginning on slide 5, we reported GAAP 3Q earnings per share of $0.66. Less than $1 million of merger-related expenses were offset by a similarly sized valuation gain on the settlement of the legacy Bremer Pension Plan. Excluding these, our adjusted earnings per share were also $0.66. Results were driven by strong deposit and disciplined loan growth, stable fee income, and well-controlled expenses. Credit remained normalized with 24 basis points of non-PCD charge-offs. Our profitability profile remained top decile as compared to our peers, with return on assets of 1.37% and return on tangible common equity of 19.6%.

Capital finished the quarter with CET1 over 11%, and we grew tangible book value per share 5% year-over-year. But for the impact of higher rates on AOCI, tangible book value would have increased an even stronger 13% annualized from the prior quarter. We continued to return capital to shareholders through cash dividends and share repurchases in the third quarter, with a combined payout ratio of 62% of net income to common. On slide 6, you can see our quarterly balance sheet trends underscoring continued strength in our liquidity and capital positions. Driven by strong deposit growth, our loan-to-deposit ratio declined to 89%, and the CET1 ratio remains above 11%. Again, we compounded tangible book value per share year-over-year despite the impact of merger charges and the increased pace of capital returns.

We repurchased $100 million, or 3.9 million shares during the current quarter, and $327 million or 13.4 million shares over the last year. As we've stated in the last several quarters, we continue to believe that the best investment we can make today is in ourselves. On slide 7, we show trends in earning assets. Total loans grew 3% annualized from last quarter and 7% annualized year-over-year. This growth was led by our commercial portfolio with C&I up 12% and CRE up 3% year-over-year. Production this quarter was balanced across our commercial book and remained predominantly floating rate. The next few quarters should be supported by a pipeline of $4.4 billion, up 6% from a year ago. The investment portfolio declined due to rate-driven market valuation, with new purchases coming on at higher yields. We expect $1.8 billion in cash flow over the next 12 months.

Today, new money yields are approximately 6%, which are well above back book yields of 4.2%. Loan growth, ongoing repricing across both loans and securities, and deposit pricing discipline supports continued growth in spread revenue into the fourth quarter. Moving to slide 8, we show trends in deposits. Period-end total deposits increased 11% annualized, primarily driven by $1 billion of organic increases in business accounts and seasonal strength in public funds. Non-interest-bearing deposits grew $182 million and represent 22% of total deposits. Like our loan pipelines, deposit pipelines remain healthy. Both total deposit costs and interest-bearing deposit costs increased 8 basis points linked quarter. We remained on offense with respect to client acquisition in a competitive deposit environment. The spot rate on total deposits was 187 basis points at September 30th. Overall, our deposit strategy outperformed our expectations even after adjusting for normal seasonal strength in public funds.

Slide 9 shows our quarterly income statement trends. As I mentioned earlier, adjusted earnings per share were a record $0.66 for the quarter, and our profitability remains peer leading. Moving on to slide 10, we present details of our net interest income and margin. NII grew 4% annualized from 2Q levels. Total margin was down modestly in the quarter with rate, volume, and day count benefits offset by increased funding costs. We anticipate fourth quarter growth in NII dollars to be supported by continued earning asset generation, disciplined deposit growth, fixed asset repricing, and the slightly higher mix of floating-rate loans. We remain well-positioned to the forward curve and based on current spot rates for loans, deposits and securities, and assuming a static balance sheet, we would expect a 2-basis point positive impact to margin, all else equal.

Slide 11 shows trends in adjusted non-interest income, which was $128 million for the quarter. Core banking, wealth, and capital markets fees continue to perform well while mortgage fees reflect some softness given the rapidly changing rate environment. Continuing to slide 12, adjusted non-interest expense was $355 million for the quarter. Run rate expenses remain well controlled, driving positive operating leverage both quarter-over-quarter and year-over-year while delivering a record low 44.9% adjusted efficiency ratio. As Jim mentioned upfront, we continue to invest in top talent across our footprint in both commercial and wealth. Third quarter saw strong pull-through from the talent pipeline with many of these hires happening late in the quarter. I'll discuss the anticipated expense impact on our outlook slide. On slide 13, we present our credit trends. Total net charge-offs were 27 basis points or 24 basis points, excluding charge-offs on PCD loans.

Criticized and classified loans declined 9% this quarter and are down 16% from a year ago. Non-accrual loans remained relatively stable linked quarter at 92 basis points of total loans, but are likewise down meaningfully from 123 basis points last year. The third quarter allowance for credit losses to total loans, including the reserve for unfunded commitments, was 120 basis points, down one basis point from the prior quarter, primarily driven by charge-offs on PCD loans and improved credit quality. On slide 14, you can see our strong capital position at the end of the quarter. Tangible book value per share was up 5% year over year. Overall regulatory capital ratios were up modestly linked quarter with strong earnings absorbed by loan growth and continued share repurchases. As previously mentioned, we repurchased $100 million of common stock during the third quarter, and we have $177 million remaining under our program.