Old National Bancorp (ONB) Q2 2024 Earnings Call Transcript Highlights: Strong Performance Amid Competitive Landscape

Old National Bancorp (ONB) exceeds EPS expectations and reports robust deposit and loan growth.

Summary
  • GAAP Earnings per Share (EPS): $0.37 per common share.
  • Adjusted EPS: $0.46, exceeding consensus by $0.02 or 5%.
  • Adjusted Return on Average Tangible Common Equity: 17.2%.
  • Adjusted Return on Assets (ROA): 1.12%.
  • Adjusted Efficiency Ratio: 52.6%.
  • Total Deposit Growth (excluding CapStar): 2.4% annualized.
  • Total Loan Growth (excluding CapStar): 5.9% annualized.
  • Total Deposits (including CapStar): Up $2.3 billion.
  • Total Loans (including CapStar): Up $2.6 billion.
  • Total Cost of Deposits: 216 basis points.
  • Tangible Common Book Value per Share: Grew 10% year over year.
  • Net Income Applicable to Common Shares: $117 million or $0.37 per share.
  • Adjusted Noninterest Income: $87 million, with CapStar contributing $7 million.
  • Adjusted Noninterest Expenses: $264 million, with CapStar contributing $18 million.
  • Total Net Charge-offs: 16 basis points (11 basis points excluding PCD loans).
  • Allowance for Credit Losses to Total Loans: 108 basis points.
  • Loan-to-Deposit Ratio: Increased modestly due to planned deposit runoff at CapStar.
  • Investment Portfolio Increase: 3% due to CapStar transaction.
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Release Date: July 23, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Earnings per share exceeded expectations due to better-than-expected revenue growth and lower expenses.
  • Successful integration of CapStar Bank, expanding the franchise to southeastern markets.
  • Strong deposit growth, with total deposits up $2.3 billion including CapStar.
  • Solid credit performance with a low delinquency ratio and decreasing nonperforming loan ratio.
  • Adjusted return on average tangible common equity was 17.2%, indicating strong profitability.

Negative Points

  • Increased competition in deposit rates, leading to a 15 basis point increase in deposit costs.
  • Criticized and classified loans increased by $75 million, primarily from CapStar and multifamily properties.
  • Loan-to-deposit ratio ticked up modestly due to planned deposit runoff at CapStar.
  • Noninterest-bearing deposit mix is expected to fall to 22% by year-end, indicating a shift in deposit composition.
  • Prolonged higher interest rates have impacted some multifamily projects, leading to slower lease-up and tighter cash flow.

Q & A Highlights

Q: Can you explain the 30% down beta assumption and how it might trend into 2025?
A: John Moran, Chief Strategy Officer: The 30% down beta is primarily derived from our exception price book, which is about $12.3 billion. We expect an 85% beta on the way down for this book. The trend into 2025 will depend on short-term rates and the shape of the curve, with more focus on fixed asset repricing.

Q: What are the main drivers of your loan growth, and do you expect this trend to continue?
A: Mark Sander, President and COO: Loan growth was broad across the footprint, split between CRE and C&I. Business banking also saw significant growth. We expect this trend to continue due to our strategic hires and market expansions.

Q: How do you feel about the overall outlook given recent environmental changes?
A: John Moran, Chief Strategy Officer: Our balance sheet is neutral, so short-term rate changes won't significantly impact NII. We see potential upside in wealth management and mortgage sectors, which performed better than expected.

Q: Can you unpack the NII guidance for the rest of the year?
A: John Moran, Chief Strategy Officer: We expect a slight improvement in the fourth quarter. The core margin firmed up this quarter, and we anticipate a couple of basis points movement in the third quarter.

Q: What was the accretion this quarter, and what do you expect for the rest of the year?
A: John Moran, Chief Strategy Officer: Accretion from CapStar was about $5.5 million, adding 3 basis points. We expect this to remain stable for the rest of the year.

Q: Can you provide insights into credit migration within criticized and classified loans?
A: Mark Sander, President and COO: We saw about $75 million in criticized and classified loans from CapStar, mainly in multifamily properties. These properties have strong sponsor support and low loss content.

Q: How do you plan to fund 5% to 7% annualized loan growth?
A: John Moran, Chief Strategy Officer: We aim to fund asset generation with core deposits. If deposits are lighter, we have capacity on brokered and wholesale funding. We remain on the offense to acquire new relationships.

Q: Any thoughts on share repurchase given the current TCE ratio?
A: James Ryan, CEO: We are conscious of the TCE ratio and stock price. While share repurchase is a tool we consider, we don't feel the need to rush into it and will evaluate as the year progresses.

Q: Are there any plans to tweak exposures or consider strategic M&A?
A: James Ryan, CEO: We continually optimize the balance sheet but have no major plans for significant changes. Our focus remains on organic growth and compounding tangible book value.

Q: Is new loan production margin accretive or neutral?
A: John Moran, Chief Strategy Officer: New loan production is margin accretive.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.