Old National Bancorp Q4 FY2024 earnings call

• Jim Ryan highlighted strong 2024 results, noting successful navigation of a challenging environment with an offensive growth strategy, focus on low cost core deposits (grew ~10% in 2024), and 10% loan growth. Mentioned closing and converting CapStar Bank in 2024, announcing partnership with Bremer Bank, and leadership changes including Mark Sander's retirement and Dan Hermann as lead independent director.
• John Moran discussed fourth quarter results, including GAAP and adjusted earnings per share, deposit growth (core deposits ex-brokered up nearly 2% annualized), loan trends (total loans decreased 1.6% annualized from last quarter but grew 10% full-year excluding CapStar), net interest income and margin, non-interest income (adjusted non-interest income $96 million for the quarter), non-interest expenses, credit trends (total net charge-offs 21 basis points, low 17 basis points excluding PCD loans), capital position (CET1 ratio 11.38% at year-end 2024), and 2025 guidance including loan growth expectations and deposit strategy execution.

In 2024, Old National reported strong results. GAAP earnings per common share for the year were $1.68 with adjusted earnings per common share of $1.86. Adjusted return on average tangible common equity was 16.9%, adjusted return on average assets was 1.14%, and the adjusted efficiency ratio stood at 52%. Net charge-offs were low at 17 basis points, and tangible book value per share grew by 8% year-over-year. For the fourth quarter, GAAP 4Q earnings per share was $0.47, with adjusted earnings per common share of $0.49. Total deposits grew by approximately 10% in 2024, funding a corresponding 10% growth in loans, with total deposits and loans having a compounded annual growth rate of 8% since 2022. The total cost of deposits finished the year at 1.93%.

• Net interest income expected to be relatively stable in first-half of 2025, increasing in back half with fixed asset repricing, growth, and Bremer partnership. Anticipate two rate cuts of 25 basis points each, total deposit beta to accelerate from 28% in 4Q to ~40% in 2025, and non-interest bearing mix to remain stable at 24% of total core deposits. Full-year loan growth expected 4%-6%, anticipate continued success in deposit strategy to meet or exceed industry growth, full-year earnings per share above analyst consensus, positive operating leverage, peer leading return profile, good growth in fees, controlled expenses, and normalized credit. Guidance unchanged for one cut or no cuts as balance sheet neutrally positioned.

• Forward-looking statements subject to risks, uncertainties, and factors causing actual results to differ from discussed. Regulatory changes, potential impact of credit quality, interest rate changes, and integration risks with Bremer Bank (e.g., challenges in successfully integrating the partnership and realizing projected cost savings).

Q: Seems like you guys got a good start to the year. When you think about the guidance that you laid out for expenses, are you backing out any CDI or any sort of non-core other than the merger-related expenses for closing?

A: Yes, Ben, just the merger-related expenses are backed out. Everything else is fully loaded.

Q: When you think about the outlook for ‘25 and ‘26, where do you think the model needs the capital level to be at with the new administration, maybe the new regulatory outlook and better than feared credit?

A: That's a good question. And the reality is I don't think we have the answer to that question yet. I think we need to have some more time, through the year to have better optics into that. Capital is running a little bit ahead of our own internal expectations. So that's a good thing. I think that also gives us some flexibilities. We think about, you know, the Bremer partnership and the balance sheet optimization. Maybe we can end up with more assets in the balance sheet than we originally modeled up just because of capital comes in a touch stronger there. And then obviously we have other stakeholders out there, right? You have the rating agency's view of that and to the extent that that view, you know, changes over time, I think that's something that we'll have to watch for. So we'll try to manage all the stakeholders and importantly, you know, our shareholders and understand that we want to have the right amount of capital, but not too much capital and so that'll be the needle that we'll try to thread as we get just more clarity as the year unfolds here.

Q: Just to circle back to the loan growth guide, I'm just kind of curious if you could unpack that a little bit around how much you need to see paydowns and line utilization pressure ease off to help you get to that guide versus how much is going to be a pickup in originations?

A: I'd say this way Brendan, our production is still solid and strong, and our pipeline at $2.7 billion gives us plenty of ammunition, so to speak, to grow this 4% to 6%. So yes, if we get -- if we see $600 million a quarter of outsized payoffs. That will be a headwind that will be tough to fight. But it would be very unusual for us to see that. There's really outsized this quarter like we haven't seen before. So I think you get any bit of normalcy in paydowns and in line utilization. I think that 4% to 6% is a really good guide.