Old National Bancorp Stock price
Compare with Peer Group
📊 Peer Group
📈 What is it?
The peer group consists of the companies with the most similar business model. They serve as a benchmark for putting a stock into context.
🧮 How is it selected?
Based on similarity of business model, meaning companies from the same industry with comparable products and a similar customer base. That's the only way to compare apples to apples.
🏛️ Why does it matter?
Whether a stock is cheap or expensive is best judged by comparison. A P/E of 18 or an EV/FCF of 20 can look cheap or expensive depending on the yardstick. The peer group gives you the most accurate one: companies with a similar business model that operate under the same conditions.
🎯 What does it mean for investors?
When a metric sits below the peer average, the stock is valued more cheaply relative to its competitors, and above the average more expensively. A discount to the peer group can be an opportunity, but it can also have a reason (for example lower growth). The comparison is a starting point, not a verdict.
Is Old National Bancorp a Top Scorer Stock based on the Dividend, High-Growth-Investing or Leverman Strategy?
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Key metrics
📘 Market Capitalization
📈 What is it?
Market capitalization shows how much a company is currently worth on the stock market.
🧮 How is it calculated?
🏛️ Why is it important?
It helps classify companies by size (Large, Mid, Small Cap) and indicates their market presence and relative stability.
🧮 Calculation
🎯 What does this mean for investors?
- Large-cap companies tend to be more stable, often pay dividends, but may grow more slowly.
- Smaller firms may offer higher growth potential but come with more volatility.
- Market capitalization is a useful indicator of company size — but not a measure of whether a stock is undervalued or overvalued.
📘 Enterprise Value (EV)
📈 What is it?
Enterprise Value represents the total cost to acquire a company — including its debt and excluding its cash reserves.
🧮 How is it calculated?
(= Market Cap + Net Debt)
🏛️ Why is it important?
EV gives a more complete picture of a company's value than market cap alone and is used in key valuation ratios like EV/FCF or EV/Sales.
🧮 Calculation
🎯 What does this mean for investors?
- Enterprise Value shows the true cost of buying a company, including all financial obligations.
- It is more accurate than just looking at market cap, especially when comparing companies with different levels of debt or cash.
- Professional investors prefer EV-based multiples because they better reflect the company’s full financial footprint.
📘 Net Debt
📈 What is it?
Net Debt shows how much debt remains after subtracting a company’s available cash reserves.
🧮 How is it calculated?
🏛️ Why is it important?
It indicates how dependent a company is on borrowed money and how easily it can service its debt in the short term.
🎯 What does this mean for investors?
- Low or negative net debt signals financial strength and flexibility.
- Companies with strong cash positions are better positioned in crises.
- High net debt increases financial risk — especially in environments with rising interest rates or economic downturns.
📘 Cash
📈 What is it?
Cash represents all liquid assets a company can access immediately — including cash, bank deposits, and short-term investments.
🧮 How is it calculated?
🏛️ Why is it important?
It reflects a company’s financial flexibility and resilience — enabling investments, buybacks, or buffer in downturns.
🧮 Calculation
🎯 What does this mean for investors?
- A strong cash position means greater room for maneuver and crisis resistance.
- Cash-rich companies can invest, pay down debt, or repurchase shares.
- But excess idle cash might indicate a lack of growth opportunities.
📘 Shares Outstanding
📈 What is it?
Shares outstanding represent the total number of a company’s shares currently held by investors — excluding treasury stock.
🧮 How is it calculated?
🏛️ Why is it important?
It’s the basis for key metrics like Earnings Per Share (EPS), Market Capitalization, or the Price/Earnings ratio (P/E).
🧮 Calculation
🎯 What does this mean for investors?
- Fewer shares in circulation typically increase earnings per share — making each share more valuable.
- Share buybacks reduce the number of shares and boost per-share metrics.
- Issuing new shares does the opposite — diluting shareholder value and lowering per-share figures.
📘 Price-to-Earnings Ratio (P/E)
📈 What is it?
The P/E ratio shows how many times a company's earnings per share are reflected in its current share price — in other words, how "expensive" the stock appears relative to its profits.
🧮 How is it calculated?
🏛️ Why is it important?
The P/E ratio is one of the most widely used valuation metrics. It helps investors assess whether a stock appears cheap or expensive compared to its earnings power.
🧮 Calculation
📊 P/E (TTM) = Based on earnings from the last 12 months (Trailing Twelve Months):🎯 What does this mean for investors?
- A low P/E may indicate undervaluation — or signal underlying issues.
- A high P/E may reflect strong growth expectations — or an overvalued stock.
📘 Price-to-Sales Ratio (P/S)
📈 What is it?
The P/S ratio shows how much investors are paying for $1 of the company’s revenue – regardless of profitability.
🧮 How is it calculated?
🏛️ Why is it important?
P/S is especially useful for evaluating growth companies or businesses not yet profitable. It reflects how the market values the company’s sales.
🧮 Calculation
Market Cap = $9.41b | Revenue (TTM) = $2.82b
Market Cap = $9.41b | Estimated Revenue = $2.94b
🎯 What does this mean for investors?
- A low P/S may indicate undervaluation — or low profitability.
- A high P/S can reflect strong growth expectations — or excessive optimism.
- Especially helpful when evaluating companies where profits are low, volatile, or negative.
📘 Enterprise Value to Sales (EV/Sales)
📈 What is it?
EV/Sales shows how much investors are paying for $1 of revenue — considering not just equity, but also debt and cash. It’s the capital structure–adjusted version of the P/S ratio.
🧮 How is it calculated?
🏛️ Why is it important?
It’s ideal for comparing companies with different levels of debt. It reflects a company's true cost relative to its revenue.
🧮 Calculation
Enterprise Value = $11.31b | Revenue (TTM) = $2.82b
Enterprise Value = $11.31b | Forward Revenue = $2.94b
🎯 What does this mean for investors?
- EV/Sales allows for capital structure–neutral company comparisons.
- A lower ratio may indicate undervaluation; a higher one may signal strong growth expectations or overvaluation.
- Especially helpful when evaluating high-growth companies with low or negative earnings.
📘 Enterprise Value to Free Cash Flow (EV/FCF) | ex SBC
📈 What is it?
EV/FCF compares a company’s enterprise value with its free cash flow. The metric therefore shows the multiple of current free cash flow at which a company is valued. EV/FCF ex SBC additionally accounts for stock-based compensation (SBC). While SBC does not represent a direct cash outflow, issuing shares as compensation can dilute existing shareholders. Therefore, SBC is deducted from free cash flow in this adjusted version.
🧮 How is it calculated?
EV/FCF ex SBC = Enterprise Value ÷ (Free Cash Flow (TTM) − SBC)
🏛️ Why is it important?
EV/FCF provides a valuation based on free cash flow and therefore complements earnings-based valuation metrics such as the P/E ratio. The ex SBC version additionally accounts for the economic impact of stock-based compensation and provides a more conservative view from a shareholder perspective.
🧮 Calculation
🎯 What does this mean for investors?
- A low EV/FCF means that enterprise value is low relative to current free cash flow. The reasons should always be considered in the context of the company and its industry.
- A high EV/FCF means that enterprise value is high relative to current free cash flow. This can, for example, reflect high growth expectations or temporarily weak cash generation.
- When SBC is positive and adjusted free cash flow remains positive, EV/FCF ex SBC is generally higher than the standard EV/FCF.
- The metric is particularly useful for companies with relatively stable and predictable cash flows.
- If free cash flow is negative or very low, EV/FCF has limited usefulness and should not be interpreted like a standard valuation multiple.
📘 Price-to-Book Ratio (P/B)
📈 What is it?
The P/B ratio compares a company’s market value to its book value — showing how much investors are paying for each dollar of net assets.
🧮 How is it calculated?
🏛️ Why is it important?
P/B is commonly used for asset-heavy industries like banks or industrials. It helps assess whether a stock is trading above or below its net asset value.
🧮 Calculation
🎯 What does this mean for investors?
- A P/B below 1 may signal undervaluation — or weak profitability.
- A P/B above 1 implies the market expects future value creation (e.g., brand, IP, growth).
- Best used for companies with tangible assets and strong balance sheets.
📘 Dividend per Share (DPS)
📈 What is it?
Dividend per Share shows how much cash a company pays out to shareholders for each share they own – usually on an annual or quarterly basis.
🧮 How is it calculated?
🏛️ Why is it important?
DPS is the absolute value of the payout per share – crucial for income-focused investors and dividend strategies.
🧮 Calculation
🎯 What does this mean for investors?
- A stable or growing DPS often signals a strong, shareholder-friendly business.
- DPS alone doesn’t tell you how attractive the payout is – the stock price also matters (→ see Dividend Yield).
- Long-term dividend growth is often a hallmark of high-quality companies – like the dividend aristocrats.
📘 Dividend Yield
📈 What is it?
Dividend yield shows how large a company’s dividend is in relation to its current share price.
🧮 How is it calculated?
🏛️ Why is it important?
It allows investors to compare dividend payouts across stocks, regardless of price or payout size.
🧮 Calculation
🎯 What does this mean for investors?
- A stable yield can reflect reliable distributions.
- Comparing 1Y and 5Y yield shows whether dividend growth keeps pace with stock price appreciation.
- A low yield isn’t always negative – it can signal strong past performance or growth focus.
📘 Dividend Growth
📈 What is it?
Dividend growth shows how much a company has increased its dividend per share over time.
🧮 How is it calculated?
5Y: Compound Annual Growth Rate (CAGR)
🏛️ Why is it important?
Consistently rising dividends are often a sign of financial strength and shareholder orientation – especially relevant for long-term investors.
🧮 Calculation
🎯 What does this mean for investors?
- Stable dividend growth is a sign of sustainable earning power.
- High dividend growth can significantly boost your total return:
- If a company pays $1 in dividends and increases it by 15% annually over 5 years, you’ll receive $2 per share in year 5 – twice as much as at the start!
📘 Payout Ratio
📈 What is it?
The payout ratio shows what percentage of a company’s earnings (per share) is distributed to shareholders as dividends.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess whether the dividend is sustainable – especially in relation to the company’s profitability.
🧮 Calculation
🎯 What does this mean for investors?
- A low payout ratio means the company retains more earnings for reinvestment – typical for growth companies.
- A moderate payout (e.g. 25–50%) indicates a healthy balance between returns and reinvestment.
- High payout ratios may seem attractive but can carry risk if earnings decline.
📘 Consecutive Dividend Increases
📈 What is it?
This metric shows how many consecutive years a company has raised its dividend per share – without any cuts or pauses.
🧮 How is it calculated?
(Special dividends are not considered.)
🏛️ Why is it important?
A long track record of increases reflects financial strength, consistency, and shareholder commitment.
🎯 What does this mean for investors?
- A long dividend increase streak builds confidence – especially in volatile markets.
- Such companies are seen as reliable and income-friendly investments.
- The longer the streak, the stronger the company’s dividend discipline.
📘 Revenue
📈 What is it?
Revenue shows how much a company earns in total from selling its products and services – the gross income before any costs are deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Revenue is one of the key figures to assess a company’s size, market position, and growth potential.
🧮 Calculation
🎯 What does this mean for investors?
- Growing revenue indicates rising demand and can be an early signal of future earnings growth.
- Comparing actual and expected revenue reveals trends in the market environment and analyst sentiment.
- Note: Strong revenue alone isn’t enough – margins and profitability matter just as much.
📘 EBITDA
📈 What is it?
EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.” It reflects a company’s operating profit before the effects of financing, taxes, and accounting depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
EBITDA is widely used to evaluate a company’s operating performance – especially across capital-intensive sectors or international comparisons.
🎯 What does this mean for investors?
- A high or growing EBITDA indicates strong operational profitability – independent of taxes, interest, or accounting methods.
- It’s especially useful for comparing companies across sectors or geographies.
- Important: EBITDA is not a net income figure – it excludes key costs like depreciation and interest.
📘 EBIT
📈 What is it?
EBIT stands for “Earnings Before Interest and Taxes.” It reflects a company’s operating profit after depreciation, but before interest and tax expenses.
🧮 How is it calculated?
🏛️ Why is it important?
EBIT is a core profitability metric that shows how well the company performs in its main business operations – independent of capital structure and tax environment.
🎯 What does this mean for investors?
- A high EBIT indicates strong profitability from the company’s core business – before financial and tax effects.
- It allows better comparison between companies with different debt levels or tax structures.
- Compared to EBITDA, EBIT already accounts for depreciation and reflects capital intensity more clearly.
📘 Net Income
📈 What is it?
Net income is the company’s total profit – the amount left after all expenses, taxes, interest, and depreciation have been deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Net income is the most comprehensive measure of a company’s profitability – showing how much actual profit remains after all business and financing costs.
🧮 Calculation
🎯 What does this mean for investors?
- Growing net income indicates that the company is managing all of its costs efficiently.
- It directly influences valuation metrics like P/E ratio and the company’s dividend capacity.
- Over time, net income trends reveal how resilient and profitable the business model really is.
📘 Free Cash Flow (FCF) | ex SBC
📈 What is it?
Free cash flow shows how much cash remains after a company has covered its operating and capital expenditures. FCF ex SBC additionally deducts stock-based compensation (SBC) to adjust the cash flow for the effect of non-cash SBC.
🧮 How is it calculated?
Free Cash Flow ex SBC = Operating Cash Flow − SBC − Capital Expenditures (CAPEX)
🏛️ Why is it important?
FCF reflects a company’s actual financial strength – independent of reported accounting earnings. It shows how much flexibility a company has for dividends, share buybacks, or debt reduction. FCF ex SBC also deducts stock-based compensation and shows how much cash generation remains after SBC.
🧮 Calculation
🎯 What does this mean for investors?
- High free cash flow indicates that a company has strong financial strength – independent of reported earnings.
- It is often a solid basis for sustainable dividends and share buybacks.
- Declining FCF can be a warning sign, even if reported earnings remain stable.
📘 Revenue Growth
📈 What is it?
Revenue growth shows how much a company’s sales have changed compared to the previous year – both on a trailing basis (TTM) and based on forward projections.
🧮 How is it calculated?
Forward = (Expected revenue ÷ Revenue in prior year − 1) × 100
Forward growth is based on analyst estimates for the current fiscal year.
🏛️ Why is it important?
Rising revenue signals growing demand, business expansion, and market share gains – especially important for growth-oriented companies.
🧮 Calculation
🎯 What does this mean for investors?
- Growth is the engine of long-term value creation – especially in tech and growth sectors.
- What matters is not just current growth, but its sustainability.
- Forward projections reflect whether analysts expect continued momentum – or a slowdown.
📘 EBITDA Growth
📈 What is it?
EBITDA growth shows how much a company’s operating profit (before interest, taxes, depreciation, and amortization) has increased or decreased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBITDA ÷ EBITDA from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
Growing EBITDA indicates improving operational profitability – regardless of financing or accounting effects.
🎯 What does this mean for investors?
- Strong EBITDA growth signals operational efficiency and scalability – especially during growth phases.
- EBITDA growth can be an early indicator of margin and earnings expansion – but should be assessed alongside revenue and EBIT.
📘 EBIT Growth
📈 What is it?
EBIT growth shows how much a company’s operating profit (after depreciation, but before interest and taxes) has increased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBIT ÷ EBIT from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
EBIT growth is a direct indicator of a company’s business performance – taking into account capital intensity through depreciation.
🎯 What does this mean for investors?
- Rising EBIT signals improving operating profitability – even after accounting for depreciation.
- It’s especially important for evaluating companies with significant capital expenditures.
- Combined with revenue and EBITDA growth, EBIT growth provides a well-rounded view of operational progress.
📘 Net Income Growth
📈 What is it?
Net income growth shows how much a company’s bottom-line profit has increased or decreased compared to the previous year – both on a trailing basis (TTM) and based on analyst projections.
🧮 How is it calculated?
Forward = (Expected net income ÷ Net income from prior year − 1) × 100
The forward estimate reflects analysts’ expectations for the current fiscal year.
🏛️ Why is it important?
Net income is the ultimate measure of profitability. Growing net income signals stronger efficiency, cost control, and sustainable earnings power.
🧮 Calculation
🎯 What does this mean for investors?
- Stronger net income boosts valuation, dividend potential, and investor confidence.
- If profits stall while revenue grows, it may signal margin pressure.
📘 Free Cash Flow Growth
📈 What is it?
Free cash flow (FCF) growth shows how a company’s available cash – after covering operating expenses and capital expenditures – has changed compared to the previous year.
🧮 How is it calculated?
🏛️ Why is it important?
Free cash flow reflects real financial strength. Growing FCF indicates more flexibility for dividends, share buybacks, and reinvestment.
🧮 Calculation
🎯 What does this mean for investors?
- Declining FCF may point to rising investments, increasing costs, or weaker operating performance.
- Especially for dividend investors, FCF growth is critical – since dividends are paid from actual available cash.
- A negative trend isn't always bad, but it deserves closer attention.
📘 Gross Margin
📈 What is it?
Gross margin shows how much of a company’s revenue remains after deducting the direct costs of goods sold (like materials and production). It represents the company’s “raw profit” before fixed costs, taxes, and interest.
🧮 How is it calculated?
Or simply: Gross Margin = Gross Profit ÷ Revenue × 100
🏛️ Why is it important?
Gross margin indicates how efficiently a company can produce or procure what it sells. It is a key measure of product-level profitability and pricing power.
🎯 What does this mean for investors?
- A high gross margin suggests strong pricing power and efficient production.
- Falling margins may signal rising input costs or competitive pressure.
- Compared to peers, gross margin offers insights into the quality of a business model.
📘 EBITDA Margin
📈 What is it?
The EBITDA margin shows how much of a company’s revenue remains as operating profit before interest, taxes, depreciation, and amortization.It reflects operating efficiency without being distorted by financing or accounting factors.
🧮 How is it calculated?
🏛️ Why is it important?
The EBITDA margin reveals how much operating income a company generates per dollar of revenue – independent of capital structure and tax effects.
🎯 What does this mean for investors?
- A high EBITDA margin reflects strong core profitability – before accounting distortions.
- It allows for effective comparisons across companies and sectors.
- A stable or growing margin signals efficient cost control and business scalability.
📘 EBIT Margin
📈 What is it?
The EBIT margin shows what percentage of revenue remains as operating profit after depreciation but before interest and taxes.
🧮 How is it calculated?
🏛️ Why is it important?
The EBIT margin reflects a company’s core profitability while accounting for capital intensity (e.g. machinery, infrastructure). It’s especially useful for comparing businesses with different levels of depreciation.
🎯 What does this mean for investors?
- A high EBIT margin shows that the company remains efficient even after factoring in depreciation.
- It’s especially relevant for capital-intensive industries.
- Stable or rising EBIT margins over time are a strong indicator of pricing power and business quality.
📘 Net Margin
📈 What is it?
Net margin shows how much of a company’s revenue remains as bottom-line profit after deducting all costs, interest, taxes, and depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
Net margin reflects a company’s overall efficiency – across operations, financing, and taxation. It shows how much actual profit is generated from each dollar of revenue.
🧮 Calculation
🎯 What does this mean for investors?
- A high net margin means the company is not only strong operationally but also manages financing and taxes efficiently.
- Peer comparisons reveal business quality and competitiveness.
- Declining margins despite revenue growth can be a red flag for rising costs or inefficiencies.
📘 Free Cash Flow Margin | ex SBC
📈 What is it?
The Free Cash Flow Margin shows how much free cash flow a company generates relative to its revenue. In simplified terms, free cash flow is calculated as operating cash flow minus capital expenditures. The Free Cash Flow Margin ex SBC additionally accounts for stock-based compensation (SBC). While SBC does not represent a direct cash outflow, issuing shares as compensation can dilute existing shareholders. Therefore, SBC is deducted from free cash flow in this adjusted metric.
🧮 How is it calculated?
Free Cash Flow Margin ex SBC = (Free Cash Flow − SBC) ÷ Revenue × 100
🏛️ Why is it important?
The Free Cash Flow Margin shows how efficiently a company converts its revenue into free cash flow. Strong free cash flow can provide financial flexibility for dividends, share buybacks, debt repayment, or further investments. The ex SBC version additionally accounts for the economic impact of stock-based compensation and therefore provides a more conservative view of cash generation from a shareholder perspective.
🧮 Calculation
🎯 What does this mean for investors?
- A high Free Cash Flow Margin shows that a company converts a high proportion of its revenue into free cash flow.
- This can provide greater financial flexibility for dividends, share buybacks, debt repayment, or investments.
- The Free Cash Flow Margin ex SBC additionally accounts for potential shareholder dilution from stock-based compensation.
- The long-term trend is particularly important. Declining margins can, for example, result from higher investments, changes in working capital, or weaker operating performance.
📘 Equity Ratio
📈 What is it?
The equity ratio indicates what portion of a company’s total assets is financed by shareholders’ equity – in other words, how much it relies on its own capital.
🧮 How is it calculated?
🏛️ Why is it important?
A high equity ratio reflects financial strength and stability, especially during downturns. It’s a key indicator of a company’s solvency and long-term risk profile.
🧮 Calculation
🎯 What does this mean for investors?
- Companies with high equity ratios are generally more resilient and less dependent on external debt.
- Low equity ratios can signal higher risk or aggressive financial strategies.
- Important: Always assess the equity ratio in combination with the return on equity (ROE). This shows not just how stable the company is – but also how efficiently it uses shareholder capital.
📘 Return on Equity (ROE)
📈 What is it?
Return on equity (ROE) shows how efficiently a company uses its shareholders’ equity to generate profit. In other words: how much net income is earned per dollar of equity.
🧮 How is it calculated?
🏛️ Why is it important?
ROE is a core profitability metric. It helps investors understand whether a company delivers attractive returns on the capital provided by its shareholders.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROE indicates that the company is using its capital efficiently and profitably.
- It’s especially meaningful for capital-intensive businesses or firms with high equity bases.
- Important: A very high ROE can also result from high debt levels – always interpret it alongside the equity ratio to assess financial health.
📘 Return on Capital Employed (ROCE)
📈 What is it?
ROCE measures how efficiently a company generates profits from its total capital – including both equity and interest-bearing debt.
🧮 How is it calculated?
It evaluates the return on all capital employed, regardless of how it’s financed.
🏛️ Why is it important?
ROCE is ideal for comparing companies with different financing structures. It shows how well management uses capital to create value for both shareholders and creditors.
🎯 What does this mean for investors?
- A high ROCE means the company uses its capital efficiently – regardless of whether it's funded by debt or equity.
- The higher the ROCE compared to peers, the more value the company creates with its invested capital.
- Especially relevant for capital-intensive sectors like industrials, energy, or infrastructure.
📘 Return on Invested Capital (ROIC)
📈 What is it?
ROIC measures how efficiently a company generates returns from the capital invested in its core operations – regardless of whether the capital comes from equity or debt.
🧮 How is it calculated?
- NOPAT = Net Operating Profit After Taxes
- Invested Capital = Operating assets minus non-interest-bearing liabilities
🏛️ Why is it important?
ROIC is one of the most accurate indicators of capital efficiency. Unlike return on equity, it is not distorted by leverage and shows how much value is created for all capital providers.
🎯 What does this mean for investors?
- A high ROIC shows how effectively a company uses the capital that is truly invested in its core operations.
- Unlike ROCE, ROIC focuses only on the capital that is actively used to run the business – and that requires a return (i.e. interest-bearing).
- Especially useful when comparing companies with large amounts of excess cash or non-interest-bearing liabilities – giving a more realistic picture of capital efficiency.
📘 Leverage Ratio (Debt-to-Equity)
📈 What is it?
The leverage ratio indicates how much a company relies on interest-bearing debt (such as loans and bonds) relative to its shareholders’ equity.
🧮 How is it calculated?
🏛️ Why is it important?
This ratio helps assess a company’s financial structure and risk profile. High leverage can enhance returns – but also increases exposure to interest rate changes and financial stress.
🧮 Calculation
🎯 What does this mean for investors?
- A low leverage ratio signals financial strength and independence.
- A higher ratio can improve returns in good times but increases risk during downturns or rising interest rate periods.
- 👉 Always interpret in the context of industry, capital intensity, and interest rate environment.
📘 SBC | in % Revenue
📈 What is it?
SBC (Stock-Based Compensation) refers to equity-based compensation granted by a company to its employees and executives. The percentage shows SBC relative to revenue.
🧮 How is it calculated?
SBC as % of Revenue = (SBC ÷ Revenue) × 100
🏛️ Why is it important?
Stock-based compensation is a real cost factor for shareholders. It can increase the number of shares outstanding and therefore dilute existing shareholders. The percentage of revenue shows how heavily a company relies on equity-based compensation and how significant this form of compensation is relative to the size of the business.
🧮 Calculation
🎯 What does this mean for investors?
- A lower figure is generally positive: Stock-based compensation is relatively small compared with the company's revenue.
- A high figure can indicate greater reliance on stock-based compensation and a higher potential risk of dilution. However, it is also important to consider whether the company offsets dilution through share buybacks.
- The trend over time should also be considered. A high but declining percentage presents a different picture from a persistently high or increasing percentage.
- A single-digit SBC-to-revenue ratio is not unusual among many growth-oriented and technology companies.
📘 SBC as % of FCF
📈 What is it?
SBC (Stock-Based Compensation) refers to equity-based compensation granted by a company to its employees and executives. The percentage shows SBC relative to free cash flow (FCF).
🧮 How is it calculated?
SBC as % of FCF = (SBC ÷ Free Cash Flow) × 100
🏛️ Why is it important?
Stock-based compensation is a real cost factor for shareholders. It can increase the number of shares outstanding and therefore dilute existing shareholders. The percentage of free cash flow shows how significant SBC is relative to the cash generated by the company. Since SBC is non-cash compensation, it is typically not deducted as a cash outflow when calculating FCF.
🧮 Calculation
🎯 What does this mean for investors?
- A lower value is generally favorable. Stock-based compensation is relatively small compared with the company's cash generation.
- A high value means that SBC represents a significant portion of the company's reported free cash flow, even though SBC itself is non-cash.
- The higher the value, the more significant SBC can be as an economic cost to shareholders, particularly when it results in share dilution.
📘 SBC Growth 1Y
📈 What is it?
SBC Growth 1Y shows how much a company's stock-based compensation has changed compared to the previous year.
🧮 How is it calculated?
🏛️ Why is it important?
SBC Growth shows whether stock-based compensation is becoming more or less significant for shareholders. If SBC increases significantly, it can lead to greater shareholder dilution over time. At the same time, SBC is a non-cash expense that reduces earnings on the income statement but is added back in the cash flow statement.
🧮 Calculation
🎯 What does this mean for investors?
- A high positive value is generally negative, as rising SBC can increase the burden on shareholders, particularly through potential dilution.
- What matters is whether the development of SBC is sustainable over the long term. Some level of SBC is common among many growth and technology companies.
📘 Share Count Growth 1Y
📈 What is it?
Share Count Growth 1Y shows how much the number of shares outstanding has increased or decreased over a one-year period.
🧮 How is it calculated?
🏛️ Why is it important?
The number of shares determines how many shares the company's earnings and assets are distributed across. If the share count decreases, existing shareholders' relative ownership increases. If it increases, existing shareholders are diluted. The metric therefore makes dilution and share buybacks directly visible.
🧮 Calculation
🎯 What does this mean for investors?
- A negative value is generally positive, as the number of shares outstanding is decreasing.
- A positive value indicates dilution of existing shareholders.
- A declining share count is not automatically positive: It also matters at what price the shares are repurchased and how the buybacks are financed.
📘 Shareholder Yield
📈 What is it?
Shareholder Yield measures how much capital a company returns to shareholders or uses to reduce debt relative to its market capitalization. It goes beyond dividend yield by also including share buybacks and debt reduction.
🧮 How is it calculated?
🏛️ Why is it important?
Dividend yield only tells part of the story. Companies can also return capital through share buybacks, while reducing debt can strengthen the balance sheet. Shareholder Yield combines all three components into one metric, giving investors a broader view of how a company uses its capital.
🧮 Calculation
🎯 What does this mean for investors?
- A higher Shareholder Yield generally indicates more capital being returned to shareholders or used to reduce debt.
- The mix matters: dividends, buybacks, and debt reduction can affect shareholders in different ways.
- Share buybacks are most beneficial when shares are repurchased at attractive valuations.
- Investors should also consider whether dividends, buybacks, and debt reduction are sustainable over time.
📘 Earnings per share (EPS)
📈 What is it?
Earnings per Share (EPS) shows how much profit is attributable to a single share – and is one of the most important metrics for evaluating a company's performance.
🧮 How is it calculated?
The diluted share count reflects potential new shares that could be issued through options, convertible bonds, or other rights.
🏛️ Why is it important?
EPS is the basis for many key valuation metrics like P/E ratio, PEG ratio, or payout ratio. It enables comparisons of profitability across companies, regardless of their size.
🧮 Calculation
🎯 What does this mean for investors?
- EPS captures per-share profitability and is especially useful for comparisons over time or with analyst estimates.
- Rising EPS may signal consistent growth or share buybacks.
- Important: Always use diluted EPS for more realistic valuations – especially in companies with stock-based compensation.
📘 Free cash flow per share (FCF per share)
📈 What is it?
Free Cash Flow per Share shows how much free cash flow a company generates per outstanding share – after investments, but before dividends or debt repayments.
🧮 How is it calculated?
Free cash flow is calculated as operating cash flow minus capital expenditures (CapEx).
🏛️ Why is it important?
FCF per Share reveals how much real cash is available per share – useful for dividends, buybacks, or reducing debt. Unlike net income, free cash flow is harder to manipulate and often seen as a more reliable metric.
🧮 Calculation
🎯 What does this mean for investors?
- High FCF per share signals strong financial flexibility.
- It shows how much capital the company can effectively reinvest or return to shareholders.
- Particularly relevant for dividend payers and capital-efficient businesses.
📘 Short interest
📈 What is it?
Short interest indicates how many shares of a company are currently sold short – that is, borrowed and sold by investors who expect the price to decline.
🧮 How is it calculated?
It reflects the percentage of a company’s shares that are being shorted relative to the total shares available.
🏛️ Why is it important?
Short interest serves as a sentiment indicator: A high value may signal skepticism or bearish expectations – but also increases the potential for a short squeeze if prices rise unexpectedly.
🧮 Calculation
🎯 What does this mean for investors?
- Low short interest usually indicates market confidence in the company.
- High short interest can be a warning sign – or an opportunity if sentiment shifts.
- Especially relevant in volatile markets or ahead of key earnings releases.
📘 Employees
📈 What is it?
The employee count shows how many people a company employs worldwide – offering insights into its size, structure, and business model.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess operational scale, labor intensity, and cost structure. Combined with revenue and profit, it enables key metrics like revenue per employee or productivity.
🧮 Calculation
🎯 What does this mean for investors?
- A high headcount can signal operational complexity – but also significant growth capacity.
- Revenue per employee is a key indicator of efficiency.
- Especially useful for comparing tech, industrial, or service-heavy companies.
📘 Revenue per employee
📈 What is it?
Revenue per employee indicates how much revenue a company generates on average per employee – a key measure of efficiency and productivity.
🧮 How is it calculated?
The employee count is typically taken from the most recent annual report.
🏛️ Why is it important?
This metric helps compare business models – especially between labor-intensive and technology-driven companies. A high value suggests automation, operational efficiency, or strong value creation per head.
🧮 Calculation
🎯 What does this mean for investors?
- A high revenue per employee indicates a scalable and margin-strong business model.
- A low figure may reflect labor-intensive operations or lower value-add.
- Especially helpful when comparing tech companies to industrial or service sectors.
Old National Bancorp Stock Analysis
Analyst Opinions
15 Analysts have issued a Old National Bancorp forecast:
Analyst Opinions
15 Analysts have issued a Old National Bancorp forecast:
Old National Bancorp Events
Past Events
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OCT
21
Q3 2026 Earnings Call
about 17 hours ago
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SEP
15
Barclays 24th Annual Global Financial Services Conference
about one month ago
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JUL
22
Q2 2026 Earnings Call
3 months ago
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APR
22
Q1 2026 Earnings Call
6 months ago
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MAR
10
RBC Capital Markets Global Financial Institutions Conference 2026
8 months ago
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JAN
21
Q4 2025 Earnings Call
9 months ago
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OCT
22
Q3 2025 Earnings Call
12 months ago
|
StocksGuide Free
Old National Bancorp — Q3 2026 Earnings Call
1. Management Discussion
Welcome to the Old National Bancorp Third Quarter Earnings Conference Call. This call is being recorded and has been made accessible to the public in accordance with the SEC's Regulation FD. The audio webcast and 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 may be forward-looking in nature and are subject to certain risks, uncertainties and other factors that could cause actual results or outcomes to differ from those discussed.
The company refers you to its forward-looking statement legend in the earnings release and presentation slides. The company's risk factors are fully disclosed and discussed within its SEC filings. In addition, certain slides contain non-GAAP measures, which management believes provide more appropriate comparisons. These non-GAAP measures are intended to assist investors' understanding of performance trends. Reconciliations for these numbers are contained within the appendix of this presentation.
I'd now like to turn the call over to Old National's Chairman and CEO, Jim Ryan for opening remarks. Mr. Ryan?
Good morning. Earlier today, Old NAS 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 in both C&I and CRE lending. Active portfolio management moderated reported loan growth during the quarter. Despite the increased competition, we remain disciplined in pursuit 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 continue to invest in technology, AI, process improvements and talent. This balance supports strong current returns and durable shareholder value. Credit quality remained 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 continued to serve us well.
Our capital position remained 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 4 proven performers in Ohio, 2 in Cleveland and 2 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 1 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 of 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 continue 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 return.
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. Noninterest-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 30. 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 noninterest 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 noninterest 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 a 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. Nonaccrual 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 1 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.
Slide 15 includes our outlook for the full year 2026. Our overall expectations remain unchanged from the guidance that we first provided in January of this year. We continue to expect positive operating leverage, growth in tangible book value and EPS growth exceeding 15%. We expect to achieve these results even as we have navigated a markedly different operating environment over the course of the year, and our 2026 estimates prove to be durable. As you can see, we believe our year-to-date results and current pipeline continue to support full year loan growth of 6% to 8%. You'll recall that we increased this range last quarter given the strong performance in the first half of the year, with 3Q results and a focus on striking the right balance between growth of full relationships that come with sensible pricing and credit discipline, we now expect mid-single-digit growth for the fourth quarter, which would bring us to the lower end of the annual range.
Our NII guidance is unchanged. Obviously, the exact path of NIM and NII in the fourth quarter will be dependent on balance sheet growth dynamics, the shape of the yield curve, the production mix and the deposit landscape. However, we believe our balance sheet is well positioned to the forward curve. And as previously mentioned, our spot margin is up slightly from 3Q levels. That said, given the year-to-date results, mathematically, we expect full year NII to come in on the lower end of the stated range with 4Q NII dollars expected to show continued growth from 3Q levels.
Our fee income guidance, which had also been increased earlier in the year, remains unchanged. We expect our core fee businesses to continue to perform well with mortgage fees softness likely to continue in 4Q amid the rising rate environment and seasonal factors. Our outlook for expenses is likewise unchanged. And given year-to-date results is now expected to fall near the lower end of the annual range.
Robust hiring at the end of the third quarter is expected to run rate into 4Q and next year. The outlook for credit and tax rates are also unchanged. Finally, we expect to fully utilize the remaining buyback plan opportunistically over the course of the current authorization, which runs through the end of February 2027. In aggregate, we continue to expect 15% plus EPS growth, positive operating leverage, peer-leading profitability, normalized credit and sustained growth in tangible book value per share.
Importantly, the durability of that outlook has now been tested across 3 consecutive quarters of volatility in the operating environment. It has held and it is expected to result in record EPS for 2026. To close, this was a strong quarter for Old National, record earnings, record efficiency, very robust deposit growth, improving credit trends and continued capital return. These are not onetime results. They are the direct output of the franchise we have built. A franchise with peer-leading profitability, sustainable growth, a diversified and growing fee income platform and a capital base that gives us the flexibility to invest in talent and technology while returning meaningful capital to shareholders. We are not just performing well today. We are investing to ensure Old National as an even stronger company in 2027 and beyond.
With those comments, I'd like to open the call for your questions.
[Operator Instructions] Your first question is from Daniel Tamayo with Raymond James.
2. Question Answer
Maybe just starting on the margin, John. The guidance, I think you said up 2 basis points is your thoughts for the fourth quarter, if I'm not mistaken. And then I think I saw in the slide deck that the spot rate was up 2 basis points at the end of the quarter, so implying kind of stable in the fourth quarter.
Just trying to think through where the trend goes from here. I mean, you've been talking about that continuing to move up. Is that still the overall thought that the margin would be kind of moving higher from here? Is the fourth quarter just kind of some impact from rising deposit costs following the hike in September and anticipation for 1 in December? Maybe you could just talk through the margin dynamics.
Yes, for sure. The 2 basis point spot that we talked about is what it would look like right here right now today, not factoring in anything else for what might come later this year, of course, is based on sort of fund futures and forward curve, probably we're going to get a little bit more help, and that will be modestly beneficial, I think, to the quarter.
So I think in general, for 4Q, we could expect to see NII dollars continue to move up I think that will have as opposed to the [ $592 ] level that we were at in 3Q, probably has a 6 in front for 4Q and then a margin that will expand a couple of basis points from here.
From the 3Q average level correct, the 352?
Yes, correct. The 352 today would be 354 and if we get a little bit more help would be even better than that. And so I think the expectation of a modest improvement in margin is probably the right way to be thinking about 4Q.
Got it. Okay. And then maybe just digging into the deposit pricing, if I can, for a second. Was this a little bit -- I mean the margin was down a bit in the quarter. Was the deposit pricing or the rise in deposit costs more than you guys expected? And then just looking and zeroing in on the money market and checking account, it looked like you had a decent increase there. If you could just kind of give us a little color on what drove that, that would be helpful.
Yes. So 8 basis points in the quarter, 4 basis points of that was just the growth that we put on, and that growth is coming on a little bit more expensive than probably what we would have thought earlier this year. But we've been talking all year about it. It's a competitive environment for deposits. We're staying on our front foot. We're very interested in continuing to grow deposits in line with our earning asset growth.
The other factor in this quarter is a little bit usually 3Q seasonal strength in the public fund side of things, and those can be a touch price year that had a couple of basis points impact on the quarter's deposit cost. But I think overall, we're in really good shape, continuing to fight it out in a competitive environment and interest in growing core client deposit.
And I think -- look, when you look year-on-year, C&I up 12%. Those don't all show up on day 1. And Tim and team are really actively getting after in terms of getting to us in the bank.
So the increase in the money market and checking was not so much repricing as it was or maybe some repricing, but it was more incremental. Is that what you're saying?
Yes, I think a lot more incremental back book, we continue to work hard.
Your next question is from David Chiaverini with Jefferies.
So on the loan side, can you talk about the pipeline. It sounds like up nicely versus a year ago 6%. I guess to the extent you can talk about how much higher rates in this backdrop is impacting loan demand of your clients?
Sure, David. Yes, we talk to our clients every day, and we continue to be impressed with their ability to navigate the uncertainty in the rate environment. And we don't see a change in demand right now for commercial lending. We continue to be optimistic about the pipelines. We see good growth in the pipelines and feel good about where they're at and where they're trending.
And would you say it looks like C&I has a bit more momentum than CRE. Is that the expectation for the next few quarters as well?
Yes, I think that's a fair way of saying it. We've got really strong C&I results, John mentioned, were up 12% year-over-year. Our pipelines in C&I continue to look good. We're investing in talent and capabilities there that I think have us well positioned in the market. I think when you think about the interest rate environment going forward, you'll see that impact CRE, I think, as an industry, but we feel like we're very good in the CRE space. We're consistent in that space. The market knows that we consistently execute there. So we'll continue to see growth in CRE, but I think C&I will continue to outpace it.
And relatedly, the 19 commercial relationship managers that you brought on, are they focused more on C&I than CRE? Or do they kind of offer kind of both products?
Yes. The majority of those bankers that we hired are going to be primarily focused on C&I bankers. We have a great CRE team that we continue to increase and improve. But -- for the most part, the majority of those 19 bankers are going to be C&I focused in our metro markets.
Your next question is from Brendan Nosal from Hovde Group.
Maybe to shift gears here to capital. Just kind of curious if this quarter's fair TCE position, just following the AOCI drag, lessens the enthusiasm for how you think about share repurchase going forward?
No, not at all, Brendan. I think we have plenty of both RedCap and GapTap. We feel good about where we are, especially against the risk that we take on the balance sheet. I think no change to plans continue to expect to execute the $177 million that's left on the repurchase authorization. Maybe a little bit more opportunistically over the balance of this, but we would expect to exhaust that.
Okay. Perfect. Maybe shifting gears to this quarter's commercial hires. I haven't heard you folks talk about hire in a long time, but now you've got 4 new people on the ground there. Maybe just talk about the opportunity that Old National has kind of in those markets and what you ultimately want to accomplish there.
Thank you, and well, just personally speaking, I spent 30 years in Northeast Ohio personally and professionally. So I feel like I have a good understanding of the market, the talent. And when you think about Cleveland and Columbus, they're very similar to our other large Midwestern cities, strong C&I, middle market, manufacturing, the types of business banking clients that we think we are very well positioned to continue to grow. So there are markets we know well. We know the talent that we hired. We think there's opportunities in those markets to expand, and we feel our story resonates very well there. So we're excited about the opportunity.
Your next question is from Brandon Rud with Stephens, Inc.
I guess if I could start, and you kind of mentioned new loan originations are focused more on the floating rate side of things. I'm just kind of curious what that blended new origination yield is compared to the roll-off rate of about 5.1% on Page 10.
Yes, compared to the back book, fixed repricing, so fixed to fixed is going to be well north of 100 basis points, but fixed into what we've been putting on is kind of 100 basis points against the back book. We've got, again, to remind you, $4.6 billion of fixed rate coming out of the loan portfolio.
And then on the securities side, you didn't ask about securities, but I'll give it to you anyway 1.8 there, and that's 80 basis points or better in terms of what we're putting on there. In terms of yields themselves, was up 5 basis points linked quarter, it's up closer to 10 basis points on a spot basis.
And again, I think if we get the forward curve and Fed moving the way that the market expects it to, we would see a lift starting in November on that book, just the full mix on the balance sheet has shifted a little bit over the last year. And so we'll get a little bit of a helper there.
Got you. Okay. And I think you mentioned the increase in deposit costs is more related to new growth rather than back book repricing I guess when you -- and I know your guy doesn't include additional rate hike, but when you think about this hiking cycle, kind of what are your initial expectations for interest-bearing or total deposit betas as you work through these hikes?
Yes. I think look, interest-bearing showed pretty good growth this quarter, up $182 million we're pleased with that. Absolutely. I think the more C&I business that we're doing, the more shots on goal we have with companies were operating accounts, and we intend to grow that bucket. I think in terms of cash sorting, everybody that's going to sort has sorted. We've been in a cash sorting environment for the last 3-plus years at this point. So I wouldn't expect too much to change on that.
The other thing that's kind of interesting about us, the median balance for our total deposits are $3,800. If you rip out the CDs, it's closer to $3,000 like there's just not a lot to do with sorting. And so I think where we are in terms of mix is probably going to be pretty stable.
Okay. Sorry. And I guess I was asking more about the betas on incremental rate hikes from here, your expectations there?
Nothing that we see in our book today that changes our expectation. Like we were 40% up, we were 40% down. We're -- I think based on what we see in our back book today, our expectation would be that we would be about in line with what the historical average has been. The interesting thing out of that exception book though is that our turn in the book and our retention there has been way better than what we thought. And so maybe there's a little bit more opportunity to kind of test and learn in that.
But again, we want to stay focused on growth of deposits.
Your next question is from Brian Foran with Truist.
I've got a bunch of investor inbound questions just on the deposit growth. So hopefully, I can just hit through them real quick. I mean, obviously, the 11% annualized is a great result. But first, do you happen to have the broker balance at the end of 3Q? Did that contribute at all to the growth?
Broker was actually down in the quarter. It was a really strong organic quarter for us. I would say $1 billion was kind of organic. And then we had a win in the public side. It was a little bit of a larger deposit relationship. And then the normal seasonal strength in public funds added probably $450 million or so to the quarter's balance.
Perfect. That was my second question on, then back to the question about the money market growth. I see on the website, there's a 385 promo. I'm not sure when that started, any chance you've got a breakdown of how much of the growth was from that promo offer?
That 1 we might have to follow up with you, after -- I'm not sure that I have that number, handy.
Got it. And then the last one, just on the legacy Bremmer footprint. I mean I've never loved the FDIC market share reports and I'm very cognizant that things like rehousing commercial deposits can move things a lot. But some people pointed to this year at [indiscernible], I believe, at a 2.9% share for Old National, at least in the Minneapolis MSA and last year, it was 3.5%. Can you kind of walk through how you think about how the Bremer footprint is doing, do you think there's been any share erosion or maybe is it things like moving some corporate relationships to the Old National headquarters or something like that?
Yes. Yes, that is exactly what's going on. That summary deposits report is I would describe that thing as directionally correct, but specifically wrong and how you households, municipal deposits, broker deposits, large corporate deposits, can sort of swing that around in any given year. And yes, so I think underneath the surface, the core Bremer franchise, I would describe as very stable. And we've seen a pickup in the pipelines from our legacy ever footprint that lead us to believe strongly that the results going forward will continue to be stable, and we'll be able to build and grow those markets as well.
Got it. I'm not sure you'll answer this one, but I'll try. Some people have pointed to the margin and consensus reaching 3.65% or so by second half next year. Any thoughts on what you think a normalized or achievable margin over time is? Or maybe I'll just leave it like that and let you decide.
I think that the curve should it play out will be helpful for us modestly helpful. And so I think that we can see improvement in 4Q and then maybe sustained improvement into '27, but we'll come back in January and refresh you on that set of assumptions.
Your next question is from Nathan Race with Piper Sandler.
I was hoping just to walk through some of the takes from a loan growth perspective in the quarter. I think you're coming off a record loan pipeline coming out of June. Yet I think Jim alluded to some portfolio optimization in the quarter. So just curious kind of what you saw in terms of kind of a payoff in production -- I'm sorry, from a payoff perspective in the quarter? And just any thoughts on why the pipeline in 4Q was down from a commercial perspective, 20% or so.
Thanks for the question. Yes, we feel very good about where we landed the quarter. When you think about navigating the competitive landscape, having strong pricing discipline, which allowed us, as John mentioned, to increased loan pricing by 5 basis points and 10 basis points in our spot rates. That said, we delivered 3% loan growth for the quarter, and we feel good about our ability to hit our increased loan growth range for year-end.
Speaking on payoffs, we had a couple of payoffs on the CRE side. I think when you have projects you see rates going up, there's going to be some payoffs and pay downs there. We had a couple of those that happened right near quarter end. But like I said, we feel good about the pipelines, our conversion rates and our ability to continue to grow loans at a clip that we've provided guidance on. So feel good about where we're at and good about where we're going.
Okay. That's helpful. And John, I appreciate you speaking to kind of the lower end of the NII guide for the quarter, but maybe just looking to expenses as maybe an offset relative to maybe more conservative thoughts from a top line perspective there. But is it fair that maybe expenses come in at kind of the low end of the expense guide for the year, obviously, really good cost controls in the quarter, but just curious on kind of how you see the expense run rate trend into 4Q.
Yes, I think you've got it read correctly there. I think when you look at that range, $1,435 to $1,455 on the year, our expectation would be at the low end of that range. I think we do tick up as compared to 3Q. And again, a lot of the hiring that we did was kind of back-end loaded in this quarter. So 4Q will run higher than 3Q. But absolutely, we think for the year, we're going to end up at the low end of that prior annual guide.
And one thing I would share back on the loan growth. Our loan utilization for the quarter was slightly down, so we think there's some embedded demand that we'll see that pick up as C&I companies are looking to build inventory and other items. So we think that's also could be a tailwind for us going forward.
Okay. Great. And then just going back to some of the commercial hires in the quarter. Lastly, it seems like good momentum there. Just curious to what extent, if any, you're having some attrition with some of your commercial bankers maybe seeing some competitors pay up more for talent these days? Or do you kind of expect kind of continued net growth in kind of your commercial bank or producer head count as we begin into next year? Or are you seeing kind of increased competition for kind of some of the high-quality producers being days.
Yes. I mean the market is -- the market is very aggressive right now for talent. From a timing perspective, as we're sitting here in October, I would expect that to wane for year-end and Q1 until bonuses are paid out, but it's very competitive. And we feel we're doing a very good job of being proactive to keep our top bankers and continue to give them a platform to succeed. As far as adding new bankers on a net basis, yes, that will continue to be the plan to invest in top talent and continue to grow our banker base. We see an opportunity that for our story to resonate in the market very well.
The conversations we're having the talent that we're talking to, I think, are excited about the opportunity. We'll continue to have those conversations and look to grow net bankers up as we move forward.
Your next question is from Janet Lee with TD Cowen.
Given the seasonality of public deposits in the third quarter? It seems like they may come down in the fourth quarter. What is the implication on the deposit cost? Because if I -- on the slide, it says spot rate of 187, which is a bit of an increase versus the average. But if deposit the growth on the public side moderates a bit, like -- could that help on the magnitude of the deposit increase in the fourth quarter being a little bit less than the third quarter? And maybe this rate could it be below the spot rate of 187 or is that too optimistic?
I would say that, that's probably optimistic. I do think those [ muni ] flowing out could help deposit costs by a couple of basis points, call it 2 basis points, 3 basis points, something like that. And that's, again, kind of normal seasonal flows. So those are still sitting there at the early part of this quarter, but they flow out.
Got it. And the 40% beta you mentioned that's on the interest-bearing deposits?
No, total.
Total. Got it. I heard your message around your intent to use up all of the remaining buyback authorization. I go forward, is there a good target payout ratio that you keep on buying the 62% on a combined basis. Is that a good level on a go forward?
We haven't really targeted a combined payout ratio. But I think, look, the fact is we're putting up returns on tangible common equity in the high teens. Those are sort of peer-leading sort of profitability. So we stack capital up very, very quickly. And we would continue -- our plan certainly would be to continue to return that capital to shareholders. So I think that's been running 60-ish percent plus/minus the last couple of quarters, and we'll rerack things and come up with a new authorization in February.
Your next question is from Timur Braziler with UBS.
On the CD side or on the time deposit side, I'm just wondering some of the growth there, if you're able to lock in duration and maybe capture some of the albeit higher cost, lock that in for a little bit longer here if the customer appetite is maybe changing? And then maybe more broadly in terms of how you're thinking about deposits, I mean, what matters more, just being in a higher for longer environment in terms of where deposit costs might go? Or do you still ultimately think that thinking of a beta is the right way to think about ultimately where deposit costs can end up.
Yes. Thanks. The -- absolutely, we put on some CDs this quarter, and I think that's going to look really smart in a quarter or 2 or 3 or 4. Our thoughts in this quarter was that the funding curve was probably in front of the Fed, and leading in was probably a good thing to do in 3Q, so we did. And I think we'll get benefit from that in 1Q, 2Q of next year. I think in terms of higher for longer, on balance, it's modestly helpful as we spelled out, and that's kind of a function of balance sheet mix and ALCO, so we've sort of pivoted average to slightly asset sensitive here over the last couple of quarters.
The impact on deposit costs, I think, higher for longer, suggest that it's going to stay competitive for longer. And again, we -- our stated objective is grow deposits in line with earning assets. And so we'll stay competitive.
Okay. And then maybe a follow-up on the expense question from before. So your unchanged guide, to your point, does imply a step-up in expenses in 4Q. But thinking kind of low point versus mid versus high. Is there -- is there any kind of granularity or any kind of insight you can give on where within that range we can end up on expenses in the fourth quarter? And what could take it away from kind of the lower end of the range into something more middle or upper end?
Yes. I think middle or upper end is very unlikely. I mean, if I were going to -- you were going to force me to kind of pick a number, I would say, take the 355 million in the 3Q and add ish to it for 4Q just on the hiring and the normal kind of year-end factors. And that would probably be as good a place as any to kind of land.
Your next question is from Jon Arfstrom with RBC Capital Markets.
A question for you guys on the competitive environment and lending in the pipelines. How competitive is it out there? And then, on the pipeline numbers, would you describe the pipeline right now is full or healthy? Or do you think -- does your gut tell you that pipeline goes higher or lower over time based on what you're seeing?
Sure. Thanks, John. Yes, I would say it's certainly competitive out there. And I don't think that's going to change anytime soon. I feel pipelines are solid. I never feel they're full. They can always get better. But I think what we're hearing from our clients is that demand is going to continue. And I think, as I said earlier, I think they're navigating, our clients are navigating uncertainty better than ever. I think people are used now to a high degree of uncertainty and people are continuing to invest through that.
As we continue to add new bankers, those bankers, it takes a quarter or 2 to ramp up pipelines, very pleased with the pipelines we already have. In fact, we have a couple of signed term sheets already from new hires that we just made this quarter. So I feel very good about the pipelines where they're at today, but I feel like there is upside going forward to continue to grow those pipelines as we continue to add bankers and grow and build capabilities on the corporate banking and specialty banking side.
John, I would just add, Tim and the leadership team done a really good job making sure that the pipeline is really clean and -- to the extent that we don't believe there's a full relationship available to us or it's going to be harder to come by. We're cleaning those out of the pipeline. We're not looking at those opportunities to the extent we don't think it's going to meet our pricing hurdles and there's just too much competition we're clean those out of our pipeline. So I feel really good about the work that Tim and the entire commercial leadership team have done to have a really even better pipeline going into the year-end, that's high quality, more so than even in the past.
Okay. Okay. Good. And then, of course, Jim, since you have the mic, the 1 question that hasn't been asked, what are your thoughts on M&A from here I know that people talk about Bremer, but I'm looking at a 19.5% ROTCE and 15% EPS growth. It seems like it's worked what kind of an appetite do you have and any interest at all? .
Yes. Thanks, Sean. We appreciate that we do believe it's worked. And we have a lot of empirical evidence suggests that we've created real shareholder value over the multiple deals we've done in the organization. You know us as good as anybody or better than most. And you can see that. But having said that, I think there's a time in place, and I don't think this is the time we place for us to thinking about more M&A. Obviously, the market is a little bit difficult, too, with rising rates and everybody is really focused in on day 1 tangible dilution.
And quite frankly, we don't need it to support the kinds of returns we're putting up. We don't need it for the growth we're putting up, I think, growing organically and going out and being very active in the hiring and talent front, I think, has allowed us to stay really front-footed. That's where we're going to spend our time and effort, and there may be a time where M&A might make sense, but I don't see it in the foreseeable future here. I think it's just sticking to our knitting and doing the things we know really well. And honestly, as we talked about, the investment in ourselves, the returns that John will put back through the buyback program are really strong, and that makes a lot of sense.
And I think investors obviously are supportive of that. But I also just think taking the time to invest back in ourselves and continuing to build the foundation to be a larger organization will put us in a really good position. And if that makes sense in a couple of years to think about M&A again, but it's not something we spend any time on today.
Your next question is from Chris McGratty with KBW.
John, for you on the deposits, listening to the call, it reminds me of kind of what you did during the last cycle where you kind of got the bad news out of the way with the deposit repricing and everyone caught up. Obviously, every cycle is different. Is there an element of that repeating itself?
I would I don't know that I would say that there's an element of that repeating itself. I think the quarter was a great growth quarter for deposits. Half of that deposit cost increase was on that growth. And it's a competitive environment out there, right. Maybe to the extent that we're seeing deposit costs increase I don't think we're wildly out of line with what I've seen from other reporters. And I think if people are interested in growing deposits, they're going to be paying more, right?
Okay. Worth a shot. And then for kind of putting the pieces together, is operating leverage based on the cross currents right now, is that something that's in the cards over the -- beyond the quarter into next year?
It's -- as you know, and again, you know us for a long time. right? It's a philosophical approach to every budget that we cut. We're trying to drive positive operating leverage. And I think we've got -- look, obviously, this quarter's results were a little bit softer on top line. We've got some pressure in the mortgage business. We've got some pressure on NII. But I think when you look at the forward curve, we've got more tailwinds and headwinds there. And so that should set up a better revenue environment, and we're working hard on expenses.
As you know, Chris, I mean, this is a real focus of ours. We've been really disciplined between John, Tim and I, we have regular arm wrestling matches over how much we can afford to invest versus how much we need to let drop to the bottom line. I think we're striking the right balance between investing in the future which means investing in growth and also driving positive operating leverage. We've said we can't be holding to this really low operating efficiency level forever. Like we're going to have to continue to invest in ourselves. Obviously, to the extent that as John has pointed out, to the extent that we get benefits from rates and that allows us a little bit more flexibility, but we're striking the right tension to deliver the right strong shareholder returns, but also delivered in a really efficient way.
But I never want to sacrifice our future for lack of investment -- and especially when we have such an awesome opportunity to continue to tell our story. And there is actually nobody better at telling our story to relationship managers, but Tim has been -- so we need to take advantage of that while we can and continue to grow the business and make the right long-term decisions.
Your next question is from Jared Shaw with Barclays.
I guess maybe just on the capital side, you continue to see really strong CET1 capital with the growth, even with the buyback. How should we think about a target capital ratio, especially sort of given the potential tailwinds coming out of the regulatory side as we go forward.
No target has been set, but super comfortable with where we are, right? [indiscernible] feels like a ton of capital for the risk that we take on the balance sheet. If those changes in Basel III become go in as written. I think we get probably a rough top 100 basis points of additional CET1 and that may allow us to reconsider the size of the repurchase authorization when we get to that in February.
Okay. And then on the fee income side, any new initiatives? Or how should we think about sort of the trajectory of fee income growth as we exit the year?
Feel great about where we are in the core banking fees, wealth management and capital markets. Mortgage obviously, a little bit of softness just given the rate environment. And then we've got normal seasonality in 4Q. I don't think mortgage is going to be a big grower for us next year. The good news there is that there's an obvious and easy expense offset because everybody that works in mortgages variable comp in terms of production. And if it's soft enough, we've got some other levers that we can pull in terms of the fixed cost piece of that business.
Jim, I don't know if you wanted to add some color on some of the initiatives that we've got in other parts of the bank.
Yes, we continue to invest in our noninterest income businesses. I think about Specialty Banking, I think about corporate banking, we've made investments, FX, fintech, syndications, wealth management, really across the board, either in people and/or the platform, and are continuing to do that as we look at '27. So I think you'll continue to see investments in the businesses, and we feel good about where the pipelines are today and where we see them going short of the rate environment as it relates to mortgage.
Your next question is from Anthony Elian with JPMorgan.
On expense, you're pointing us to the lower end of the range. You called out earlier, your efficiency ratio was a record low 45%, how do you think about maintaining that efficiency ratio at that level while you keep investing in some of the areas you call out on Slide 12.
We have, for a really long time, been good about driving expense out of the bank in the back and middle office, and just kind of how we move things around. And we take those dollars and recycle them into revenue generation and some client-facing technology. And so this is a path that we've been on for 10 years maybe more than that. And I think what you're seeing in the efficiency ratio is really the result of the scale that we tacked on with Bremer in realizing those onetime saves, or not onetime saves. Those expected saves dropping to the bottom line of the run rate, right? So I think that's what's allowed us to sort of drive efficiency ratio sub-50. We'll continue to work at it real hard. We work out it every year.
And then your adjusted ROTCE has been around 20% for several quarters now. Does this feel like the right level where the company should be operating at? Or do you see upside from here given your earlier comments on the levers the company has to rising rates?
I would like, we feel really good about where we're at from a profitability perspective. And to the extent that we get a little help on the revenue side, there's possibility to be higher here. But I think we're leading most of our peer group with those kinds of numbers, and we feel like this is a great spot to be in and run at. And we're obviously working every day to continue to improve our overall profitability. But we won't let -- we won't stop investing in our business to continue to have it grow. So that's just, again, the tension we find ourselves in every single day is the ability to invest and maintain that high degree of operating efficiency and have long-term growth in our business. .
Your next question is from Terry McEvoy with Wells Fargo.
If I think about 19 bankers or RMs, they could eventually, in theory, support a multibillion-dollar bank. And I think CapStar was -- I hadn't a chance to look, but call it $3 billion. So -- my question is, how do you think about an earn back on new hires? And then just as a follow-up, were any of those new hires, maybe upgrades, where there is a cost savings or some cost savings component to it.
Terry, I can take the earnback question, and then Tim will clean this up. For commercial talent, our earnbacks tend to be very quick. And very quick, I mean, like inside a year, 1.5 years. On the wealth side, when we hire new wealth people, that can be a little bit extended because it's harder for them to move relationships. But the right commercial talent we have said for a long time, pays for itself very, very quickly.
Yes. On that 26, 19 of those bankers were net new 7 replacements for the total to 26 new just to give you that breakdown. Yes, as far as expectations, what I will tell you is we are very disciplined in who we are hiring, and we're looking to hire bankers that we know are top performers in markets that we know our story resonates very well. And I think if you've seen the expansion markets in our history and our track record of going into new markets, because we have that approach, we've been very successful. And I think we've been successful quickly and I expect that to continue.
As we look at the pipelines that are already growing and building from the new bankers we've hired, we feel very good about them to be able to pay for themselves and then some. And when you think about the business they're bringing on that core C&I business that are coming with primacy and good core operating noninterest-bearing deposits, that is sticky business that provides recurring revenue that helps build that top line, and we feel very good about the trajectory of that growth as well as the bankers that we've hired and their ability to pay for themselves very quickly.
I think we've done a really good job focusing in on quality over quantity. That quality, though, comes at a price. As Tim said, these are top performers in the marketplaces. I think the also interesting fact is many of those folks are going to sit across from Tim and I and John and others right here at headquarters. We're very hands-on in this process, both from a recruiting perspective and telling our story perspective, but making sure these are going to be really great fits for us, from a cultural perspective.
And I think that's helped us make sure that the people we hire stick around last long and are really productive right out of the gate. And I'm not sure how other banks approach it, but we want to make sure we get the best of the best to come work for us.
And just building on that point, the discipline we have. We are hiring bankers that for the most part, 1 of our leaders, usually me or 1 of my direct have worked with them directly. So we know not just what they're producing, we know how they're producing it. And we know the types of clients that they're going after with privacy in mind and sustainable recurring revenue from delivering the entire bank and a collaboration perspective as well. So we feel good about what they'll do not just in C&I, but driving our wealth business and driving other areas of the bank based on client need.
There are no further questions at this time. I'd like to turn the call back to Jim Ryan for closing remarks.
Well, thank you all for having so much interest. This may be a record duration for a long time -- high level of interest and detailed questions. Of course, we're going to be around all day to take any follow-up questions. And Joel, thank you for all your hard work to make sure we had a successful call. Have a great day, everyone. .
Thank you so much, Jim. This concludes Old National's call. Once again, a replay, along with the presentation slides, will be available for 12 months on the Investor Relations page of Old National's website, oldnational.com. If anyone has any additional questions, please contact Lynell Durchholz (812) 464-1366. Thank you for your participation in today's conference call.
Old National Bancorp — Barclays 24th Annual Global Financial Services Conference
1. Question Answer
All right. Good afternoon, everybody. Thanks for sticking with us. We're pleased to have Old National Bancorp joining us next. Jim Ryan, the Chairman and CEO on stage and John and Mike in the audience. Thanks a lot, everybody.
Jim, I guess starting off, it's been a little over a year since Bremer closed. Looking back, what do you learn from that integration process and what worked particularly well? And how would you describe the focus of Old National today versus what it was when the merger first closed?
Yes. Great question. At the end of the day, we still believe this is a people business. As much as we want to focus in on technology and ways we support our clients digitally, where we think we are best is when there is a relationship involved, and that's a people-driven business. So paying attention during any kind of integration to the people is the most important thing we can do.
My predecessor, Bob Jones, used to say, people are the most important asset, and we fully embrace that. So culture, culture, culture. I was telling the last group, we were talking about being on the road. And last year, I made 52 market visits during our Bremer integration. Much of that was centered in on the legacy Bremer footprint, bringing our 2 teams together, obviously in front of clients, still spend a lot of time in Chicago. But that's the most important thing we can do, I think, as CEOs is to be a culture champion. And when we do our engagement surveys, that's the feedback we get from our team members. They love our culture. And so my job is to be able to be there and support our team.
I still spend a lot of time, too. I think about we've been interviewing a lot of people lately. And I personally still spend time interviewing a lot of folks that want to join the organization, and that could be a relationship manager in an existing market, maybe a new market. It could be a leader we're trying to hire that's several layers down from myself, but I still spend a lot of time. And I'm not there to test them for their technical knowledge. I'm there to test them for the culture part. They're going to be additive to our culture. They're going to make our organization even better. And so while that has been our focus historically, it continues to remain our focus despite investments in technology and the new AI world, I think for the longest time, and honestly, as I think about -- I know we'll get the kind of the AI questions here in a little bit, but that is the moat around our clients is that relationship. As long as we have that, we have the ability and the right to win.
Yes. As you grow, become a bigger, more diversified franchise, how resilient do you think that culture can be? And how big can you sort of bring that model? What's sort of the natural limit on that?
Yes, that's a really great question. We think about that an awful lot. As we become bigger, is there that tipping point where necessarily so you become -- you have more layers and you have maybe a little more bureaucracy in the organization. I'd like to believe as long as I'm CEO, whether that's today at roughly $75 billion or tomorrow at some bigger size, that people focus and that culture focus won't change. It's who we are in our DNA. It's what makes us special and unique place to work. It's what attracts talent to us.
So I think we all have to guard against that. I joke about hiring Tim Burke, who's our President and COO, a little over a year ago. And I made him come to Evansville 6 times, and I made his wife come twice. Both -- all 8 of those times were interviews, including his wife. And we want to make sure that we bring people to the organization who share our similar values, but also make our culture better. And Tim was sitting in Cleveland. I think all things being equal, he would have rather stayed in Cleveland, but it was important for him to be at the headquarters, so we could spend awful lot of time together and focus on culture. So I think those are the things we're going to continue to do in order to be successful.
Shifting over to growth. Loan growth guidance was raised this quarter. What's giving you the confidence to raise that outlook? And what are you seeing so far in the third quarter that reinforces that view?
Yes. I would just start with, we still feel really good about the guidance we gave at the last quarterly earnings conference call. We started out believing the year was kind of a mid-single-digit year. And we believe that is the normal run rate for our business. If you think about GDP plus 2 to 3 points, we think that is the right place for us to run. We're going to grow as fast as the markets, and then we're going to steal a little bit of share, and we continue to steal a little bit of share away from everybody.
The first half of the year ran a little bit faster than we would have anticipated. And I think let's chalk it up to, again, having great people in the right place at the right time to go off and execute and pretty vibrant markets. We surprise ourselves. We're still sitting at record pipelines when we ended the quarter. And I know there's lots of questions around the macro environment today that we can talk about. But despite that, I think we feel really good in our guidance. Now we did project out the back half of the year to be more normal like somewhere mid-single digit. But overall for the year, we'd run ahead of where we originally anticipated when we were thinking about 2026 at the end of last year.
Yes. As you said, commercial pipelines reached another record quarter this quarter beyond just the economy, what's driving the momentum on the commercial side?
Yes. It's really interesting. We have had a generational succession in our commercial business. We had a number of senior level officers retire in the last year, a natural planned succession that we had lots of insight into including Mark Sander, who is the President and COO, who joined us out of the First Midwest partnership. And so we were able to bring Tim Burke. He was able to think about what staff we needed as a $75-plus billion organization.
So we were able to promote a bunch of people internally. We also brought some fresh faces in. One of the things that I asked Tim to think about, as we become a bigger organization, we need to make sure we have the systems and the accountability in place to run a bigger geography, more people. And so Tim has done that himself. He's brought in a leadership team that's capable of doing that, that's been there and done it before, coming out of some super regionals and some national organizations. And so I think that kind of fresh energy into our business.
I joke a little bit. You have more energy at the middle part of your career than you do at the end of your career. And so we had, again, a handful of retirements in our commercial business. We've replaced them all. We're stronger today. And that's nothing to take away from the folks that retired. They're all amazing folks. They remain my dear friends, but we have this incredibly strong new leadership team in our commercial business. And I think they're doing a really good job of going out and hiring and attracting talent. They're doing a really good job of ensuring that we bring the best of Old National to our existing clients and new clients. And I think that's allowing us to go off and actually do better than we would have maybe anticipated at the start of the year. So the economy is good.
Obviously, there's some uncertainty around kind of that macro backdrop, and we have rates now and we talk about energy prices and we could talk about trade uncertainty. But that's been there for the last couple of years, right? I think it's just we're executing better today than we had been. And I give a lot of credit to our leadership team, but I give more credit to the team we brought in to continue to go off and be in front of our clients.
Great. Great. Competition remains intense across most of the industry. How would you characterize the competitive environment today on both the lending and deposit side? And where do you think you have the clearest advantage?
It's a great question. It's as competitive as it has been, both on the deposit and the lending side. I think -- let's start with the deposit side. That gets a lot of talk track, right? And what I would suggest is we really have not seen much change in the competitiveness. It was competitive 2 years ago. It was competitive 3 years ago. It remains competitive. I think the difference may be kind of our expectations heading the year, we expected a couple of rate cuts. And so we expected at the end of -- at the end of last year, a couple of rate cuts. We didn't expect as much balance sheet growth coming out of that.
So I think coupled with everybody thought maybe rates were going to be a little bit lower, maybe not as much balance sheet growth. I think those 2 things have really caused maybe a difference in what was perceived to be a different part of the cycle. And so today, now we're talking about rate hikes. We're talking about strong balance sheet growth, which means every dollar matters on the deposit side. But I would call it rational and pretty much unchanged from what we've seen in the last few years. We're out still competing for deposits.
Our goal is to match fund our loan growth with strong low-cost core deposits. And so far, we're able to do that and feel good about -- none of that's changed from what we thought about at the end of last quarter and when we talked about earnings. The lending side, again, I think that the spectrum we're playing, which is that small and medium-sized business, I think, gives us a little bit of an advantage. We have a lot of national and super regionals in our space, and they tend to focus in on a larger client than we typically are after. I think because of that, it doesn't mean that there aren't a plethora of smaller banks and some other like-sized banks in our marketplace, but we compete very effectively. We're after full relationships.
We're not trying to be the fourth or fifth bank on a large syndication. We're trying to have full relationships. Sometimes those -- sometimes we partner up with each other, which is really great. I mean we have like-sized banks that we partner up and we go against some of the larger banks, but we're trying to earn those full relationships, even if that means giving up a point or 2 of growth. I'd much more have a full deep relationship and less growth than otherwise a less profitable just...
Have you noticed any meaningful change in customer behavior due to the broader macro uncertainty around rates, tariff or economic policy or commercial customers just continuing to move forward in this environment?
Yes. I think this last round of higher for longer, the tariff story changes by the day, as we know. It's too early to tell on what this last round. Is there a tipping point coming. We're not seeing it today. We're not feeling it today. But I think our borrowers are getting used to -- our clients, excuse me, are getting used to the noise. And they seem to be able to navigate through a lot of noise. And to the extent that so far, it really hasn't affected their businesses in dramatic ways to to maybe want to change how they see the future.
So I think for the rest -- this year is going to shape up to be a good year, I believe, knock on wood. This year is going to be shaped up to be a good year for our industry. And so I just -- I don't see this last little bit of news. We're so sensitive every little bit of news in our business, right? And I think everybody is always looking -- bank analysts are some of the most pessimistic people I've ever met and are always looking for the shoe to drop. And you know what I'm talking about in the audience and online here. So I feel like our borrowers or our clients are accustomed to dealing with an ever-changing landscape, and they're really resilient.
A lot more optimism on the ground versus in the room.
Correct.
Yes. I think one of the interesting things from the quarter was that your NII guidance remained constructive despite some near-term margin the path forward, how do fixed rate loan growth, deposit pricing opportunities work together with growth?
Yes. I think that's the right. We were just heading into the room here. We were looking at that higher for longer, and we're looking at the reinvestment rates today are higher today. The fixed to fixed is stronger. We do have, I don't know, $8 billion of kind of fixed asset repricing. Yes, around that number. And we feel like there's plenty of upside just in terms of what that means for reinvestment opportunities, both on the loans and the securities side. And then we think about -- naturally, our balance sheet is asset sensitive.
And every day, it gets a little bit more asset sensitive. So to the extent that we see 1, 2, 3 hikes here in our future, we think that means generally good things for our ability to continue to reprice. Most of our production, if you look at our commercial production in the front half of the year is variable rate. I mean, like 90% of our production is on the variable rate side. So -- which has caused a little bit of consternation just from investors looking at coupons coming on. They're seeing the lower coupons because they're all coming out at variable rate. So we like that profile heading into probably this higher for longer and potentially a rate hike cycle.
I guess how -- what's the durability of that fixed rate asset repricing tailwind?
I think some of the original expectations we laid out there were like 100 basis points on the security side, 60 on the loan side. I think that's all gotten better. If we look at the fixed to fixed, that's all gotten better since then. So we think it holds up pretty well just given where we've seen the 5-year move pretty strongly in the last little bit here.
Yes. This time last year, we were talking about lower rates. Now we're talking about higher rates. You talked about the front half of the year, seeing good production on variable rate loans. How are you thinking about balance sheet changes and expectations going forward here now in terms of where you want to be putting on product in terms of fixed and float?
We really let our clients dictate in terms of what rate risk management they want to choose. Many of our clients that are doing these variable rate loans are utilizing our hedging services, and that's what we've seen really strong capital markets fees in the first half of the year. So it really doesn't matter for us whether they want to do fixed or whether they want to do a floating rate. Anything large side, we really want to keep that to the floating size and then use the hedge to offset their risk.
And then we'll manage any rate risk on the back end. So for us, I think, again, just being naturally asset sensitive, I think it sets up well for this kind of environment. And that's without any management actions. We have some strings we can pull. I think that even makes it better.
Yes. Maybe shifting to the fee income side. Fee income has been one of the strongest parts of the quarter and you raised full year guidance. What gives you confidence that, that momentum is sustainable rather than cyclical here?
Yes. John wants to remind everybody in the room and everybody listening that the 2Q print was the print you should be using for your fee income going forward. First quarter ran -- I'm sorry, 1Q. He said correct me real time here. It's 1Q. I stand corrected. Thanks for having our CFO and Treasurer in the room. The 1Q is the right number. 2Q ran a little bit stronger.
Capital markets was really nice throughout the entire year. I think that just bodes well. When we have a strong commercial pipeline, strong commercial closings, we're going to run better in the capital markets fee income side. Treasury management and wealth management continue to be a source of strength. We continue to invest in both those businesses. Both those businesses are important to our future. We really love our mortgage business. But obviously, with rates where they're at, it's just a softer expectation for the business. [indiscernible] And so that is I've been really happy with the [indiscernible] we've seen in treasury markets and wealth. Those are areas we want to continue to invest in and think about how do we need to continue to grow and expand.
John and Tim Burke and I were recently talking about ways we want to strengthen our fee income businesses. And that's an area of focus for the next handful of years, is continue to drive a higher percentage of our total revenue coming out of our fee businesses. Much of that will come out of the existing businesses and ways we can accelerate growth there. And then to the extent that it makes sense to augment those businesses, and I'm not here to announce anything new today, just other than we know we need to drive higher fee income, and that will be a focus of ours going forward.
When you look at that investment, that future investment in fee income, is that getting a bigger wallet share from your existing customers? Or is that an opportunity to expand the customer base leading with fee income and then maybe backfilling with.
Yes, I think it's both. I think it's both. I think the good news is we see plenty of opportunity in our commercial book to cross-sell wealth management. It's shockingly low how much cross-sell we have there. So again, with the really quality people we have in place and the quality leadership, we think there's plenty of opportunity in that. We're trying to build out more sophisticated treasury management product set as we have increasingly opportunities with larger sized clients.
So I think that's a real growth opportunity for us. The capital markets product set, there's probably 1 or 2 products we could add in there to kind of strengthen our capabilities there. Again, as we have the opportunity increasingly to serve a more middle market client opportunity set. And to the extent that there are other fee income businesses that we're not in today, I think we continue to explore what those look like and what makes sense to invest. Again, nothing to announce today other than this is an area that we know we need to concentrate on.
Yes. When you look at the expenses, the efficiency ratio continues to improve despite some of the investments you've been making. How should we think about balancing operating leverage with the opportunities that you just mentioned to make hires and bring in systems and products to expand the long-term revenue opportunity?
Yes, it's a great question. We start every budget cycle. We're in the middle of our current budget cycle for next year, and we start every budget cycle thinking that our expenses should grow no more than kind of GDP, so call that low single digits and drive revenue growth on top of that. They'll have that positive operating leverage contribution.
And so for us, to the extent that we want to spend more money than that kind of low single-digit kind of natural inflationary growth, we have to find ways to fund it. And that just becomes more efficient, more effective. We do a really good job of being really disciplined. I know maybe every bank thinks they do the same good job. But I can tell you from just my firsthand experience, sometimes our CFO is not seen as the nice guy around the organization. Sometimes we've seen as a bad guy in the organization because he's holding the line. He holds the line with me on expenses. And it's always a healthy tension between wanting to invest in growing the business and the need to drive positive operating leverage. And I think we find the right tension there. We have been -- we made no secret that we're really active in terms of bringing new people in the organization, we continue to do that.
So we continue to find ways to invest in people, both I think in the client-facing side, which we've done a lot of here lately, but also in the support side, just becoming a bigger, more sophisticated organization. So we're not shortchanging that as well and find ways to drive efficiency. Every single day, we're looking for ways to drive efficiency. I meet regularly with our Head of Operations about initiatives that he has underway to drive more efficiency and effectiveness. And so we just try to plow that back into the business so the expense line doesn't need to grow any more than that mid-single digit.
Component of that spend, I'm sure, is going to be AI. How AI has become really a focus across, obviously, the industry and all industries. Where are you seeing any tangible use cases today inside the bank? And how do you think AI can help improve that productivity and efficiency and profitability over time?
Well, let's just start with you have to wade through a lot of information coming at you about AI. You're trying to figure out what's real, what's not real. We recently had somebody in the office, and we were going through a couple of pitches they had for us relative to new initiatives. And in those pitches, there was one thing I was able to call out kind of immediately like it didn't feel like there was going to be an opportunity to be a better bank or a more efficient bank because of it. And they had just implemented something similar at a larger organization. And I said, well, what savings did they drive?
Well, they didn't drive any savings out of it. So -- and then we recently just completed -- we're in the middle of a pilot phase where we were looking at something in our risk management area by using AI, and we thought we were going to have access to this proprietary database. And it turns out they weren't as far along as they thought they were. So we're constantly driving like what's real, what's not real, what can we implement versus others. Having said that, we're doing some pretty amazing things today. We're developing internal tools today using internal people that are really driving some great outcomes.
Nobody is seeing, I don't think, dramatic efficiencies yet, at least in our space, seeing dramatic efficiencies, but we're accessing information like we've never accessed it before. And you know there's productivity gains. It's just hard to monetize those productivity gains. The data -- the use cases we're having in our data world, we're driving some great access to data that we haven't had as easily as we're able to achieve those things today. We're -- obviously, we look at our credit world and how do we go to market with the commercial world and how do we get more effective there. I think that's a combination of using really great partners who have some of these tools in front of them, but also implementing the tools ourselves.
So as I go out and talk to other CEOs, and we compare notes, I'm the Chairman of the Mid-Size Bank coalition I'm on the Board and Vice Chair at the ABA, I have a lot of access to a lot of other organizations. And as I go out and benchmark ourselves, I feel like we're at or better than most of the organizations that we're speaking with regularly. I think we're all waiting for that revolution to happen. And it's coming. I think you can kind of feel it, whether some of the predictions are true that we heard over the weekend or not. This is an area that we continue to invest in and believe long term that our industry is going to have to drive efficiency gains. And those gains will ultimately, I think, be plowed back into our client relationships. So we can't stop investing in that space. But I don't think it also takes away from -- I think those are the self-funding aspects that will allow us to keep expenses very manageable and drive ultimately positive operating leverage.
Great. On credit, you continue to express confidence in the credit outlook and metrics improved again in second quarter. What trends are you seeing across the portfolio today? And are there any sectors or borrower groups that you're spending more time monitoring?
I don't think our guidance has changed at all. I think we've had that same level of the same feeling we had as we ended last quarter as we do today. We're not seeing broad-based demonstrated weakness. We are still -- we feel really good about our ability to continue to work out any criticized or classified loans. We're not seeing anything in any geography that gives us any kind of pause. And overall, I think the credit book is just getting stronger. Again, that's a knock on wood moment. But yes, we feel as good as we did as we ended last quarter.
Historically, Old National's experienced a lower conversion of nonperformers into charge-offs than I think a lot of peers. What do you think differentiates your approach? And why do you believe the credit outlook remains favorable with that?
Yes, it's a great question. We continue to have loans that we put in that criticized classified bucket refinanced out at par and by other banks, sometimes the government, interestingly enough in some of their programs. But we have this philosophy of calling it early. And so I use this analogy and it may be somewhat of a morbid analogy. But when our clients are maybe getting a little sniffle, we want to treat them first.
We want to treat them early and put them in the hospital and make sure they come out healthy on the other side. And we're not waiting for that to get materially worse before we put them in the hospital. And that's -- I think that's where banks wait sometimes too long. A majority of our nonaccrual loans are paying as agreed. That's just a historical philosophy we have, and we think it serves us well to call it early. And that allows us to -- sometimes our criticized and class, sometimes they generally run higher than our peers. But if you go back and look at relative to charge-off rates, we usually have less volatility and less total charge-offs relative to what that leading indicator might suggest. But that's just a historical philosophy that I think has served us incredibly well.
Yes. On capital, you remain active on buybacks while supporting strong organic growth. How are you thinking about optimal capital levels over the longer term, particularly if we get some of the benefits from Basel III revisions that could create some more capital flexibility?
Yes. So we obviously want to use capital today to support our organic growth. And the good news is that very high teens ROATCE levels, we have plenty of capital generation to support organic growth and continue to optimize our capital through buybacks and dividends. As we publicly stated, acquisitions aren't a part of our current thinking and don't anticipate them that changing anytime here in the future. We're really focused in on that. And we can -- a lot of investors talk to us today about acquisitions, and we can talk about that at some point. But for us, that capital generation is significant. So it's more of a challenge about like just manage the buyback program.
And investor feedback was like if you're accruing capital, that could be a signal that you may be interested in M&A, and we didn't want to give that signal. So we wanted to make sure we manage through that. So the share repurchase program will be a continued active part of that. Basel III, once we have clarity around that, could allow us to even think a little bit more about a stronger buyback program. One of our binding constraints typically tends to be our tangible common equity ratio, which today we have, we believe, plenty of tangible common equity ratio. The problem becomes in environments of stress, people look at that TCE number. Today, they're not paying that much attention to it. They're paying attention to obviously CET1 and everybody believes we've got enough CET1 plus more than enough, plus if we get some relief from Basel III, which could be 100 basis points more to us, that even gives us more flexibility. But ultimately, at the end of the day, we got to make sure that we both look at what our regulatory capital requirements are, but also our real tangible equity that we need to -- in a different kind of environment, a more stressed environment. So -- both those things are ways we have a healthy tension, but I think it generally supports just given our higher earnings rate, more buybacks in the future for us.
If we're able to have you join us a year from now and investors view Old National differently than they are today, maybe higher stock price, what do you think is going to be the biggest driver of that change?
We strive for consistency every single day. We don't want to wake up and surprise you as an analyst, our investor base, our team members, our clients, our communities, right? We strive for that consistency. This is old-fashioned basic banking concept, right? And so for us, the highest compliment we can get is you delivered what you said you were going to deliver and you did a little bit better. That is the ultimate compliment for us is we said we achieved what we said we're going to do. and we did it the right way.
We believe in no easy shortcut ways to growth. It's old-fashioned basic banking, a really granular deposit base, a really granular loan base, not taking outsized risk in footprint business by and large. And so the highest comment we give is -- and if people go back and look, I think, at our history here, they would say whether it was -- there was coming off a partnership or coming off of a period of organic growth, you did what you said and you did it slightly better.
Great. I think that's probably a good spot to end it on. Thanks very much for joining us. Hope you have a great rest.
Well, Jared, I just want to thank you all. I was just leaning in before our meeting here to let them know that I was really pleased with the meetings we're having here today, and thanks for your support. We appreciate the opportunity to be here today.
Great. Thanks. Thanks.
Old National Bancorp — Q2 2026 Earnings Call
1. Management Discussion
Welcome to the Old National Bancorp Second Quarter Earnings Conference Call. This call is being recorded and has been made accessible to the public in accordance with the SEC's Regulation FD. The audio webcast and 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 may be forward-looking in nature and are subject to certain risks, uncertainties and other factors that could cause actual results or outcomes to differ from those discussed. The company refers you to its forward-looking statement legend in the earnings release and presentation slides. The company's risk factors are fully disclosed and discussed within its SEC filings.
In addition, certain slides contain non-GAAP measures, which management believes provide more appropriate comparisons. These non-GAAP measures are intended to assist investors' understanding of performance trends. Reconciliations for these numbers are contained within the appendix of the presentation.
I'd now like to turn the call over to Old National's Chairman and CEO, Jim Ryan, for opening remarks. Mr. Ryan?
Good morning. Earlier today, Old National reported record second quarter results for 2026. In short, this was an exceptional quarter for Old National. We achieved record adjusted EPS along with record net income and a record efficiency ratio. We also generated approximately a 20% adjusted return on average tangible common equity and adjusted ROA of 1.39% and continue to produce strong profitable growth across our company.
These results show what happens when we stay focused on the fundamentals, growing high-quality relationships, maintaining disciplined credit and expense management, investing in talent and technology and building tangible book value over time.
The strength of our franchise was clear throughout the quarter. End-of-period loans increased by $1 billion or 8% annualized, driven by robust high-quality commercial production. Commercial production reached $3.5 billion, and our period-end commercial pipeline hit a new record of $5.6 billion. We remain actively focused on winning new business where we can develop full relationships, meet our return expectations and maintain the strong credit profile that has long been a hallmark of Old National.
Fee income was another bright spot. We experienced broad-based strength across all fee businesses. This diversification is intentional. As we grow, we are building a stronger, more balanced earnings engine that is less reliant on net interest income.
We also continue to demonstrate strong operational discipline. We delivered record GAAP and adjusted efficiency ratios with the adjusted ratio at 45.2%, marking our seventh straight quarter of positive year-over-year operating leverage. We are investing in technology, AI and process improvements to make Old National more scalable while remaining disciplined with expenses. That balance is key. We are investing for growth while maintaining operational efficiency.
Credit quality remains a key strength. Nonaccruals decreased by $50 million or 10% from the prior quarter and net charge-offs were consistent with our expectations. We stay diligent and proactive in managing credit. Our loan portfolio is well diversified. Our underwriting standards remain rigorous, and we believe our straightforward community banking model positions us well through economic cycles.
Our capital position continues to be strong. Tangible book value per share increased 14% year-over-year. Our CET1 ratio was 11.09%, and we returned $163 million of capital to shareholders through dividends and buybacks. We will continue to approach capital allocation carefully, supporting organic growth, investing in the business, maintaining strong capital levels and returning capital to shareholders.
In summary, this was a record-breaking quarter and another clear example of Old National successfully executing its organic growth strategy. We delivered strong loan growth, broad-based fee income, record efficiency, solid credit metrics and returned significant capital back to our shareholders. We do not need to rely on acquisitions to meet our goals. Our focus stays the same: growing organically, deepening client relationships, investing in our people and platform, managing risk carefully and creating long-term value for our shareholders.
With that, I'll turn the call over to John to discuss this quarter's financial results in more detail.
Thanks. As Jim mentioned and as summarized on Slide 4, we delivered a record quarter, driven by strong organic loan growth, disciplined expense management, stable credit performance and increased capital return.
Beginning on Slide 5, we reported GAAP 2Q earnings per share of $0.65. Excluding $12.1 million in merger-related expenses and a $13.2 million valuation gain on the settlement of the Bremer pension plan, adjusted earnings per share were also $0.65. Results were driven by better-than-expected loan growth and strong fee income, along with well-controlled expenses.
Credit remained stable with 22 basis points of non-PCD charge-offs. Our profitability profile as measured by return on assets and on tangible common equity remained top decile versus our peers. Capital finished the quarter with CET1 over 11%, and we grew tangible book value per share 11% annualized from the prior quarter and 14% year-over-year. We delivered this growth even as we absorbed Bremer onetime charges, generated better-than-expected balance sheet growth in the first half of the year and returned capital. Specifically, during the second quarter, we returned a total of $163 million to shareholders in the form of increased cash dividends and share repurchases.
On Slide 6, you can see our quarterly balance sheet trends, underscoring continued strength in our liquidity and capital positions. Our loan-to-deposit ratio increased modestly to 91%, and the CET1 ratio remains above 11%. Again, we compounded tangible book value per share year-over-year despite the impact of the Bremer merger charges over the past year and the increased pace of capital return. We repurchased $107 million or 4.4 million shares during the current quarter and 10.5 million shares over the last year. With dividends and repurchases, our combined payout ratio was 65% of 2Q net income to common. As we've stated in the last several quarters, the best investment we can make today continues to be in ourselves.
On Slide 7, we show trends in earning assets. Total loans grew 8.3% annualized from last quarter, led by balanced growth in both our CRE and our C&I portfolios. Production was also diversified across our commercial book and predominantly floating rate. The next few quarters should be supported by a record high pipeline of $5.6 billion, up 17% from a year ago. The investment portfolio grew modestly with purchases coming on at higher yields. We expect approximately $2.3 billion in cash flow over the next 12 months.
Today, new money yields are running about 100 basis points above back book yields on securities. Strong loan growth, ongoing repricing across both loans and securities and continued deposit pricing discipline supports net interest income growth over the course of 2026. On the NIM, I would point out that 2Q margin was impacted 2 basis points by the full quarter effect of our sub debt issuance in late January and lower SOFR rates during the quarter, without which margin would have been up slightly.
Moving to Slide 8, we show trends in deposits. Total deposits increased 3.4% annualized, primarily driven by commercial and public fund growth, partly offset by seasonal tax outflows in retail deposits. Noninterest-bearing deposits remained 23% of total deposits, consistent with the prior quarter. And like our loan pipelines, deposit pipelines remain very healthy. We were able to decrease total deposit costs by 1 basis point and lowered interest-bearing deposits a similar 1 basis point linked quarter, all while remaining on offense with respect to client acquisition in a competitive deposit environment. Overall, our deposit pricing strategy continues to perform as we expected.
Slide 9 shows our quarterly income statement trends. As I mentioned earlier, adjusted earnings per share were a record $0.65 for the quarter, and our profitability remains peer-leading.
Moving on to Slide 10, we present details of our net interest income and margin, both of which reflect my prior comments around the full quarter impact of our sub debt issuance and lower SOFR rates in the quarter. We anticipate growth in NII dollars to be supported by strong asset generation, stable funding costs and fixed asset repricing. Also, the combination of our higher floating rate production and earning asset remix opportunities positions us well.
Slide 11 shows trends in adjusted noninterest income, which was $140 million for the quarter, exceeding our guidance. We saw better-than-expected performance within all our fee businesses. The other income line was elevated this quarter by approximately $10 million due to market value adjustments, higher BOLI income and an asset recovery. While these items are core, we would expect this line to run rate closer to 1Q levels for the balance of the year.
Continuing to Slide 12, adjusted noninterest expense was $360 million for the quarter. Run rate expenses remained well controlled, driving positive operating leverage both quarter-over-quarter and year-over-year, while delivering a record low 45% efficiency ratio.
On Slide 13, we present our credit trends. Total net charge-offs were 26 basis points or 22 basis points, excluding charge-offs on PCD loans. Criticized and classified loans declined $109 million this quarter, while nonaccrual loans decreased to 91 basis points of total loans, marking several quarters of improving performance driven by active portfolio management.
The second quarter's allowance for credit losses to total loans, including the reserve for unfunded commitments, was 121 basis points, down 1 basis point from the prior quarter, primarily driven by charge-offs on PCD loans and improved credit quality. Our qualitative reserves continue to incorporate a 100% weighting on the Moody's S2 scenario with additional qualitative factors to capture global economic uncertainty.
Slide 14 presents key credit metrics relative to peers. We have continued to experience a lower conversion rate of NPLs to NCOs as compared to our peers, which is driven by our approach to client selection on the front end and credit workouts on the back end. We remain comfortable around the credit outlook.
On Slide 15, you can see our strong capital position at the end of the quarter. Tangible book value per share was up 11% annualized linked quarter and 14% year-over-year. Regulatory ratios and TCE remained stable linked quarter with strong earnings absorbed by quarterly loan growth and continued share repurchases. As previously mentioned, we repurchased $107 million of common stock during the second quarter, and we have $277 million remaining under our program. We continue to believe we would see approximately 100 basis points of capital benefit under the proposed Basel III capital rule changes. These changes, if finalized, would obviously increase capital flexibility.
Slide 16 includes our outlook for the full year 2026. While our overall expectations remain largely unchanged, we have increased our loan growth and noninterest income guidance from the prior outlook provided. We believe our year-to-date results and current pipeline support full year loan growth of 6% to 8%. Our NII guidance is unchanged but updated for the impact of our sub debt issuance. The exact path of NIM and NII in the back half of the year will obviously be dependent on growth dynamics, the shape of the yield curve, the absolute level of rates in the middle of the curve and the competitive deposit landscape. Our base case outlook assumes no Fed rate actions this year and a stable 5-year treasury.
Given our strong loan growth outlook, our ability to effectively manage our funding costs, ongoing fixed asset repricing and earning asset remix opportunities, we believe our balance sheet is well positioned, and we see more opportunities and challenges in the back half of the year. We have increased our noninterest income guidance to reflect 2Q's outperformance and expect our core fee businesses to continue to perform well. Our outlook for expenses, credit and tax rates are all unchanged.
In addition, we expect to fully utilize the remaining buyback authorization opportunistically over the course of the current plan period, which runs through the end of February 2027. In aggregate, you'll note that we continue to expect full year results that yield 15% plus growth in earnings per share and again feature positive operating leverage with peer-leading profitability, good growth in fees, controlled expenses and normalized credit.
To close, our first half performance underscores the strength of our franchise, the consistency of our execution and the durability of our business model. Organic loan growth remains strong. Pipelines are at record levels and credit performance continues to be stable. Our fee businesses are performing well, and our continued focus on efficiency and profitability gives us the flexibility to invest in the franchise while returning capital to shareholders. As Jim said at the top of the call, Old National enters the second half of 2026 with strong momentum and increased conviction in our ability to execute.
With those comments, I'd like to open the call for your questions.
[Operator Instructions] Your first question comes from the line of Brendan Nosal from Hovde Group.
2. Question Answer
Just starting off here, maybe on capital. Really strong organic loan growth, not only this quarter, but expected for the full year, plans to use the full buyback authorization. Is the overarching message on capital today that you like your current levels and more or less want to tread water here?
Yes, I think you got that right. We feel really comfortable with where we are. Obviously, we've got strong capital ratios, plenty of capital to support organic growth and continue to lean into a return of capital to shareholders. So that's sort of plan A, organic and capital return.
I think that still allows us to grow tangible book value per share at a nice clip as well given the high earnings rate.
Perfect. Maybe turning to the NII outlook and kind of the changes in the complexion of how you get to the number you put out there. Kind of feels like it implies there's a fair bit of margin expansion in the back half of the year, just given the balance sheet growth you're now expecting. Kind of walk us through the puts and takes if that is indeed the right interpretation of kind of how you get there?
Yes. I think you're reading that one right as well. There's a lot of puts and takes, but candidly, we see more opportunities than challenges heading into the back half of this year. And there's really -- we tried to spell some of those out in prepared remarks, but just to underscore them, strong organic growth in the first half, which sets us up with higher average earning assets than we had expected. Still got a great opportunity on fixed to fixed asset repricing. That's 100 basis points on securities, 60 basis points on loans.
The SOFR headwind that we saw in the second quarter is not likely to repeat and in fact, could become a tailwind later this year. And then we believe we've got meaningful earning asset remix opportunities in front of us. And then just a reminder, we do make up an extra day in both the third quarter and the fourth quarter. And so that will be helpful, too. So when you add all that up, we think NIM and NII should be improving in the back half of this year, all else equal.
Your next question comes from the line of Janet Lee with TD Cowen.
On fee income, outside -- I mean, obviously, a very strong performance on the fee line. Outside of the other income that will normalize back to the first quarter level, should we expect other core fee line items to grow off from here? What is driving such a strong growth in those line items?
Yes. We feel really good about our core fee businesses are performing really well, and we continue to expect them to do well in the back half of this year. Wealth management has been terrific. Investments has been good. Obviously, that's an area that we've been investing in over the last several years, and we're starting to see the fruits of that.
The mortgage business was very solid for us in the second quarter. Pipeline there is down a little bit, but we continue to be maybe a little bit more enthusiastic than the average bank on the mortgage side. And part of that is really just the team that we picked up down in the Nashville market, which has been really additive to what was already a good mortgage platform here. And then cap markets has been strong. And that sort of follows pipeline and production. And with pipeline sitting where they are, we're reasonably bullish on our ability to continue to grow that line, too.
And just to make sure that I'm understanding this correctly, your expectation for NIM expansion in the second half of 2026, do you largely expect your deposit cost to stay relatively stable from the 23% that you reported in the second quarter? Could you maybe comment on the spot rate and what you're seeing in terms of the new deposits that are coming in on the rate front?
Yes, for sure. So we -- look, the deposit environment continues to be competitive. We have said that it's been competitive for the last 3, 4 years. I mean I don't view it as any more competitive than it has been. Stock rate was pretty much right on top of where we were on the quarter.
And we -- I'm sure you noticed, we pulled down total cost basis point. So we believe that we're demonstrating that we can keep our funding costs pretty stable even while staying on offense with respect to new client acquisition. So certainly very pleased with how the deposit strategy has performed and all signs point to continued success there in the back half of this year.
Your next question comes from Brandon Rud with Stephens Inc.
My first one, just on the NII guide. Thanks for your comments on the NIM. Just on the earning asset side, should we kind of anticipate the earning assets track with loan growth? Or should we think of that as kind of lagging a bit as some securities and cash are remixed into fund loans?
I think that's right. That's part of what we're trying to say by earning asset remix opportunities, right? I think we've got some inside of loans, probably some optimization to do and then also a little bit of earning asset optimization around the liquidity book. So I think earning assets would probably lag slightly what we're able to do in terms of asset generation on the loan side.
Got you. Okay. And then with your ability to maintain deposit costs inclusive of new growth and loan is coming on in the high 5% range, does that kind of imply that the incremental growth you're bringing on the balance sheet is actually still accretive to the overall margin?
I think we're -- in terms of new versus runoff, we would see -- our expectation would be that we -- the asset churn that we've seen in the last, call it, 2, 3 quarters improves somewhat from here. And part of that was we were working out of some classified criticized that had pretty high coupons on the loan side, right? So I think that, that headwind abates and we've got some earning asset remix opportunity that is margin accretive. But in terms of like absolute dollars of incremental new coming on funded with incremental new, probably neutral-ish. I think the better opportunity for us is the remix.
Your next question is from Daniel Tamayo with Raymond James.
Maybe just starting on -- yes, on the loan growth side. It's been a nice year, and you guys are taking the guidance up. I'm just curious, is -- are you making -- are you starting to make larger loans within the middle market space in C&I? It seems like the plan is to start to do that to shift into some larger loans as you get larger. But just curious how much of that's already happening? How much of a difference it's making? And how much of a difference it can make in your growth plans going forward?
Daniel, this is Tim. Yes, we are starting to see that come to fruition in second quarter production. And certainly, as we look at the pipelines in Q3 and beyond, we are seeing those skew larger, specifically in our growth markets where the opportunities tend to be larger to begin with. So that is a focus of ours, and we continue to see pipelines grow in that regard.
But we continue to do a lot of really granular core C&I middle market, lower middle market business that's driving production and driving our pipelines forward. So it's a good mix of leaning into the opportunities that come to us in our smaller core markets as well as larger expansion markets.
Just a couple of stats. The average C&I loan in the bank is still under $1 million. So that will give you a sense of there is a lot of small tickets that are running through Old National Bank, a little bit different than most $75 billion banks.
That's great. Understood. Maybe on the -- just on the funding of that -- this incremental loan growth in the guide. Do you think -- I guess, will it be more expensive at least on the margin from that mid- to mid- to high? Do you think it could impact the margin as we move to the back half of the year into '27?
Yes. I would say when you look at what's driving the pipelines, it's core C&I business, and we feel really bullish about the investments we're making in that business and the growth we're seeing in the pipelines. Half of all the loan production we had in Q2 was from C&I. We continue to see those pipelines grow. And as you know, with those types of relationships, we're getting the whole relationship. So you're getting -- you're seeing deposit pipelines grow in line with that C&I loan pipeline growing. So we see that as a continual opportunity for us to drive good deposit growth.
Your next question is from Chris McGratty with KBW.
On loan spreads, some of your peers have talked about growth coming at perhaps a little bit tighter spreads. Are you seeing any evidence of that in your markets?
Our spreads have been pretty consistent the last couple of quarters. Obviously, first quarter's production was skewed, remember, decidedly investment grade and floating rate, and that had a little bit of an impact. But last couple of quarters, we've been pretty steady in terms of kind of core balance commercial activity, down a little bit from where it was a year ago, but pretty steady over the last couple of quarters.
And then on the other side, John, the -- obviously, you've got legacy markets and newer markets. Any, I guess, notable pricing differences on deposits within those markets? And then maybe stack rank where Old National prices relative to some of your peers?
Yes. Look, we're competitive. We're not the top of the market in most of the markets that we operate in. But we are absolutely competitive in every market that we're in today. We are in some of our newer markets where we don't have back book to cannibalize, running some specials that are -- I think we would describe them as a little bit seeing where we're trying to be a pain in the neck for somebody else that has a bigger presence in some of those markets. But I think Southeast for us, Nashville is probably an example of where things are a little bit hotter. But most of the rest of our markets have been stable and competitive.
And Jim, I don't want to leave you out. You mentioned, I think, in your prepared remarks, the 65% payout -- total payout in the quarter. Anything magical about that range? I mean, obviously, you're being consistent with the buyback, but anything magic about payout ratios?
No. I think we're just obviously trying to balance all the tension, right, which is how do we continue to build tangible book value, at the same time, invest in our business, invest in the organic growth that we have and return the leftover back to our shareholders, right? And I think we kind of threaded that needle this quarter and plan to kind of thread the needle for the rest of the year.
Obviously, as John said, depending on what happens with Basel, that could give us even more flexibility going forward. But we do have, as you know, a very high earnings rate. And so we have to return capital back to our shareholders because even after all those other things that we're investing in, we'll have excess.
And that Basel III that you mentioned, Jim, I mean, is it just more of the same, greater magnitude? Or is it perhaps you open up the -- maybe look at the dividend more closely? How does Basel III really play into the thoughts?
Well, I do -- obviously it gives us a lot more flexibility on capital return. And I do think we'll continue to look at the dividend, but we do like the flexibility that the buyback program gives us.
Your next question is from Timur Braziler from UBS.
Another one on fee income. I appreciate the strong quarter and the fact that it will be stepping down a little bit here in the back end of the year. Maybe looking out a little bit further ahead, just the trajectory, as you're thinking about fees, is this closer to like high single-digit growth rate, double-digit growth rate? How are you thinking longer term just in terms of momentum on the fee income side?
Yes. I think on a blended basis, it's probably a mid- to high single-digit line item in terms of growth for us in aggregate. When you peel that back, though, I think there are pieces of that business that will continue to grow double digit, right? I think we would all be -- we're really enthusiastic about what we see going on, on the wealth side of things.
And again, that's an area that we've invested pretty heavily in over the last couple of years. And I think that we're starting to realize some real good momentum in that business. And then the cap markets line as we continue to build additional capability and sophistication, go up cap a little bit in terms of our C&I client base. I think there's tremendous opportunity in that line item for us as we look forward a couple of years.
Okay. And then as a follow-up, you called out some changes to the executive leadership structure within this quarter's earnings and the creation of an operating group. I guess, what was some of the rationale behind these actions? I know you called out enterprise strategy alignment and growth opportunities, other critical initiatives. But was there any driving force in creating or making some of these leadership changes? And I guess what's ultimately -- what are you ultimately trying to accomplish here?
The leadership changes we announced were more a reflection of the growth of our organization, the growth of our markets. We've had some succession -- we've gone through, I would say, generational succession in our commercial business. And so we put some new leaders in place and wanted to recognize their contributions and their leadership for the organization.
And then the operating group was more a recognition of kind of informally how we operate today and more closely aligned to my direct reports. So really, the day-to-day organization how it's led is really unchanged with just adding a couple of new folks that have assumed new positions here recently. So no big changes there.
Your next question comes from David Chiaverini with Jefferies.
I wanted to ask about the noninterest-bearing deposit mix. How should we think about that going forward? You mentioned about decent pipelines for deposits overall. Can you talk about the NIB mix?
Yes. Look, certainly, we would hope 23% of total deposits, it's stable. There's a little bit inter-quarter sort of seasonal factors at play in 2Q if you're looking at kind of point-to-point balances. But clearly, we want to grow households in the community bank. We want to grow primacy and operating accounts in the commercial bank. And I think if we can take care of that, we should be able to grow noninterest-bearing and operating accounts at a pace that's in line with our overall deposit growth.
And then in terms of rate sensitivity, no Fed actions are assumed in the guide. If we do get a hike, can you talk about the impact that could have on Old National?
Sure. Yes. Look, we're still relatively neutral in terms of our positioning. If the forward curve played out exactly as the forward curve sits today, I think we get that hike at the very end of the year, kind of late October. It would be a de minimis impact to 2026, but probably a modest helper because we have -- presumably SOFR would start to run in front of that rate, and that would help out on the adjustable rate piece of the loan book, and we'd be able to hold back some of the funding cost increase, we believe.
Your next question is from Ben Gerlinger with Citibank.
In terms of the NIM, it's clear that margin higher and there's an opportunity for loan growth. It seems like deposits is pretty well managed in addition to growing them, which is good. So like there's an average earning asset mix opportunity like you implied. When you think about just like the longer-term margin, I mean it's not like a guide for '26 or '27, but like just because we're in the first time in a normal curve, all else equal, in like, I don't know, 20 years, do you think this is like a 3.65%, 3.7% NIM type company? How do you just think holistically when you think through the future of the NIM?
It's a good question. It's sort of like the long-term structural margin of a bank. And to your point, it's like the first time in a long time that we've had a pretty normal-looking curve or more normal anyway than what we've operated with for 5 years, 10 years, maybe, I don't know. It's been a long time.
And I feel like you're probably in the right ZIP code, right, when we think about it. Again, we tried to give you the puts and takes, definitely seeing more opportunities in the back half of this year than there are challenges. And so I think where we are plus some is probably the right place to think about a long-term structural margin for a company like Old National in a normal environment.
Got you. And then you said your best acquisition is yourself. So I agree, share repurchase here should be a priority, and it sounds like it is. Why not get more aggressive considering CET1 continues to go up even with the buybacks you have and Basel is going to give you a little bit more in 1.5 years?
Yes. We bring it in every February. We'll talk about it again with the Board early part of next year. I think for now, we're going to stay the course. And look, it's a double-digit risk-free rate of return for every share that Mike and I can put away, and we like that. That's not a return that's available to us anywhere else in the bank today.
Ben, I would just add, it's a balance between obviously having enough organic growth, which we do, balancing that investment. But also, I'm sensitive to having strong capital ratios, maintaining those strong capital ratios because while maybe people are more comfortable with being lower today, that's not always the case.
And then obviously, we want to grow tangible book value. So I feel like we're striking the right balance for today. Now if Basel does get finalized, then obviously, there's an opportunity to relook at that. We want to make sure we remain a competitive dividend and probably have some opportunities down the road to look at that dividend a little bit closer. So I hear you. But I think we're striking the right balance for today. And when tomorrow comes, we'll definitely take a look at it.
Your next question is from Jared Shaw with Barclays.
We've hit a lot of stuff this morning. But I guess just looking at the floating rate loans that you called out, it was like 90% of production over the last few quarters. Has pricing on those loans changed as sort of the broader market expectations for rates have grown?
Not materially, at least not for us in where we are kind of playing. I think, again, we saw this a little bit in the first quarter, like bigger stuff that's closer to investment grade, there's probably some compression there. But this quarter's production was more balanced and sort of traditional for us.
Okay. And then thanks for the color on the back book pricing on the loans and securities. But when we look at loan yields and asset yields sort of underpinning the NII guide, what's your expectations on loan yields and asset yields for the rest of the year?
I think they improve on a little bit of remix. And again, I think the -- I don't want to say goofiness, but the idiosyncratic nature of what happened with SOFR in the second quarter is unlikely to repeat and in fact, it could become a little bit of a tailwind in third quarter and fourth quarter.
Your next question is from John Arfstrom with RBC Capital Markets.
John, you there? John, can you hear us?
Joel, I think we may have lost John.
Yes, it seems that way. Just one moment. John, if you're on the other end, can you just unmute your line locally?
All right. Sorry about that. Yes, kind of dramatic there. The biggest drama I thought on the call was going to be [indiscernible] the pole position, I mean, my God.
Just a couple of questions, follow-ups. John, maybe for you. On the commercial deposit trends, the growth in the quarter, you guys flagged public funds and business checking. How material was the business checking growth?
I think a really good quarter. And I think we see sustained momentum in both the pipelines. And Tim brings with him some increased rigor in that sector that I think is going to start to pay dividends also. And so we feel really good about our outlook there.
And public funds, that was the other piece of the strength in the quarter. And again, as you know, that's a little bit seasonal for us. So 2Q, 3Q is pretty good, and we expect 3Q to be even a little bit better than 2Q on that piece of the business and then seasonally softer in 4Q and 1Q there. But yes, I feel good about our ability to continue to grow deposits.
And that's back to our C&I strategy of really leaning into the full relationship that a C&I strategy brings. And we continue to see the production and pipelines grow, and we feel bullish about that going forward.
Yes. Okay. Good. And maybe Jim or Tim, Jim, you talked about diversifying the fee businesses -- what are you working on there? And do you guys have what you need for the commercial businesses, particularly as maybe the average loan size trends up?
Obviously, we've been on a path for -- ever since I became CEO to really spend time building out our treasury management business. And I still feel like we have a number of innings to go there, and we're working really diligently on continuing to build that. And so I just see -- I'm long-term bullish on our ability to continue to do that.
And we've grown -- as you know, we've grown dramatically. So our clients have changed a little bit, particularly we've gotten bigger in places like Chicago and Minneapolis, and the demands are different than our historical kind of core legacy markets. So that's an area we'll continue to invest in. I am a big believer in the wealth management business. And so we'll continue to invest in there. I think we've got great opportunities to continue to grow there.
And then the mortgage business. I think that's a core business of ours. It's a footprint business. And while it can be seasonal, obviously, we're just a long-term believer that, that's a good complement to our wealth management business, it's a good complement to our community banking business. So there's nothing that we're looking at if we just had this new fee income business, we'd be better. It doesn't mean we won't continue to augment those existing businesses and look for new opportunities to add services and products in there.
But yes, we've got to find ways to grow our fee income businesses and try to find more balance in our NII versus fees long term. And so it's just -- it's nothing particularly sexy about it. We're just getting up every day and grinding on it and getting better.
And I would just add on the capital markets side, there's some opportunities, as John mentioned earlier, that we're looking at to develop new fee products that we think will augment our ability to continue to go up market. But as Jim said in the past, we feel very confident about the product set that we have today and being able to service all the clients and prospects that we're looking at.
There are no further questions at this time. I'd like to turn the call back to Jim Ryan for closing remarks.
Thanks, Joel. Really appreciate everybody's support today. The team will be available all day long for any follow-ups and questions. Thanks, and have a great day.
This concludes Old National's call. Once again, a replay, along with the presentation slides will be available for 12 months on the Investor Relations page of Old National's website, oldnational.com. If anyone has additional questions, please contact Lynell Durchholz at (812) 464-1366.
Thank you for your participation in today's conference call.
Old National Bancorp — Q2 2026 Earnings Call
Old National Bancorp — Q1 2026 Earnings Call
1. Management Discussion
Ladies and gentlemen, welcome to the Old National Bancorp First Quarter 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 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 may be forward-looking in nature and are subject to certain risks, uncertainties and other factors that could cause actual results or outcomes to differ from those discussed. The company refers you to its forward-looking statement legend in the earnings release and presentation slides.
The company's risk factors are fully disclosed and discussed within its SEC filings. In addition, certain slides containing non-GAAP measures, which management believes provide more appropriate comparisons. These non-GAAP measures are intended to assist investors' understanding of performance trends. Reconciliations for these numbers are contained within the appendix of the presentation.
I'd now like to turn the call over to Old National's Chairman and CEO, Jim Ryan for opening remarks. Mr. Ryan?
Good morning. Earlier today, Old National reported first quarter 2026 earnings that exceeded our internal expectations and analyst estimates. We carried strong momentum into the year and our performance in the first quarter reinforces our confidence in the full year plan.
This quarter demonstrates disciplined execution as we have reliably delivered quarter after quarter. We delivered robust loan growth, powered by continued strength in our core deposit franchise and disciplined funding management in a highly competitive market. We controlled expenses and generated strong fee income, which helped offset net interest income pressure from typical seasonality and the recent sub-debt issuance.
Credit performance remains solid, supported by healthy liquidity and capital levels. We also acted decisively on capital returns, repurchasing shares during the quarter, including reducing auto Bremer's trust position in Old National, and we intend to deploy the remaining authorization over the course of the program. Bottom line, we are executing and we expect to keep building from here. Our priorities remain clear: drive organic growth and return capital to shareholders.
Organic growth starts with talent, and we are investing accordingly. We recently announced a strengthened commercial leadership team, promoting proven internal leaders and adding experienced bankers from several super regional institutions. Our team is focused every day on winning new clients and deepening existing relationships and building the next generation of bankers.
Our commercial pipelines are at record levels, and our talent pipeline is as strong as it has ever been. We are also accelerating efficiency and scalability through technology and AI investments supporting positive operating leverage. As a result, we delivered a record adjusted efficiency ratio that remains in the top decile of our industry.
On the operating environment, the quarter brought higher for longer rate outlook and continued industry uncertainty. Old National is built for this backdrop. Our balance sheet remains neutral to the short end of the curve, our granular low-cost deposit base helps contain funding costs and our strong underwriting and straightforward community banking model positions us to perform through volatility.
Importantly, nothing we are seeing changes our outlook. Loan pipelines are at record levels. Momentum is building, and we remain confident in our full year expectations. To close, we're off to a great start in 2026, and we're executing against our commitments.
Our focus remains on organic growth and disciplined capital return. This is not a time where we need acquisitions to achieve our objectives. I want to thank our team for delivering a strong quarter and for staying relentlessly focused on our clients. With that, I'll turn the call over to John to walk through the quarter's financial results in more detail.
Thanks. As Jim mentioned and as summarized on Slide 4, we delivered another strong quarter and a solid start to the year, reflecting continued momentum in organic growth, disciplined expense management stable credit performance and increased capital return with robust capital levels. .
Beginning on Slide 5, we reported GAAP 1Q earnings per share of $0.59. Excluding $0.02 of merger-related expenses and a noncash expense associated with the final distribution of a legacy First Midwest pension plan, adjusted earnings per share were $0.61. Results were driven by better-than-expected loan growth and fee income along with well-controlled expenses.
Credit remained stable with less than 20 basis points of non-PCD charge-offs. Our profitability profile as measured by return on assets and on tangible common equity remain top decile versus our peers. Capital finished the quarter with CET1 over 11% and we grew tangible book value per share, 6% annualized and 11% year-over-year despite absorbing the majority of Bremer onetime charges, better-than-expected balance sheet growth and returning capital to shareholders in dividends and share repurchases.
Specifically, during the first quarter, we returned $151 million to shareholders. On Slide 6, you can see our quarterly balance sheet trends, underscoring strength in our liquidity and capital positions. Our loan-to-deposit ratio remained 89% and the CET1 ratio is comfortably north of 11%.
Again, we compounded tangible book value per share year-over-year despite the impact of the Bremer close merger charges over the past year and the increased pace of capital return. We repurchased 3.9 million shares during the current quarter and 6.1 million shares over the last year.
With dividends and repurchases, our combined payout ratio was 64% of 1Q adjusted net income to common. As we've stated in the last several quarters, the best investment we can make today is ourselves. On Slide 7, we show trends in earning assets. Total loans grew 8% annualized from the last quarter, led by 16.9% annualized growth in C&I.
Production was diversified across our commercial book and the next few quarters should be supported by record high pipelines of $5.5 billion, up nearly 14% from year-end levels. The investment portfolio was essentially unchanged from the prior quarter with portfolio purchases offset by changes in fair values.
We expect approximately $2.4 billion in cash flow over the next 12 months. Today, new money yields are running about 83 basis points above back book yields on securities. Strong loan growth, ongoing repricing across both loans and securities and continued deposit pricing discipline supports stable to improving net interest income and net interest margin over the course of 2026.
I would point out that the first quarter was impacted by 2 fewer days, our sub debt issuance in late January and the spread dynamics inherent in this quarter's loan production, which was skewed decidedly toward near investment-grade floating rate C&I.
Moving to Slide 8, we show trends in deposits. Total deposits increased 4.2% annualized, primarily driven by commercial and retail growth and partially offset by seasonally lower public funds balances.
As a reminder, 1Q is the low point for our public funds deposits with those balances typically rebuilding over the second and third quarters. Noninterest-bearing deposits declined slightly to 23% of total deposits from 24% in the prior quarter, partly reflecting the seasonal factors I just mentioned. Despite remaining on offense with respect to client acquisition in a competitive deposit environment, we were able to decrease total deposit costs by 8 basis points and lowered interest-bearing deposits and even better 14 basis points linked quarter.
We achieved an approximate 93% beta in our exception priced book in conjunction with the Fed cuts in the fourth quarter. These actions resulted in a spot rate of 170 basis points on total deposits at March 31. Overall, our deposit strategy performed as we expected, and we successfully achieved the down rate beta that we had targeted for this rate cycle.
Slide 9 shows our quarterly income statement trends. As I mentioned earlier, adjusted earnings per share were $0.61 for the quarter, and our profitability remains peer leading. Moving on to Slide 10, we present details of our net interest income and margin, both of which reflect my prior comments around day count, the nature of this quarter's loan production and the impact of our sub debt issuance.
You'll note that we remain neutral to short-term interest rates, and we have a total of nearly $8 billion in fixed rate loans and securities expected to reprice over the next 12 months. Slide 11 shows trends in adjusted noninterest income, which was $122 million for the quarter, exceeding our guidance.
While most of our fee businesses performed in line with our expectations, we again saw better-than-expected performance within mortgage despite typical seasonal patterns in that business and within capital markets. In both cases, this was driven by the mid-quarter dip in rates.
Continuing to Slide 12. Adjusted noninterest expense was $354 million for the quarter. Run rate expenses remained well controlled, and we generated positive operating leverage, both quarter-over-quarter and year-over-year. We reported a record low 46% adjusted efficiency ratio, and we have now realized 100% of the $111 million of annual run rate cost saves that were anticipated with Bremer.
On Slide 13, we present our credit trends. Total net charge-offs were 26 basis points or 19 basis points, excluding charge-offs on PCD loans. Criticized and classified loans increased $113 million this quarter as Bremer loans transitioned to Old National's asset quality framework consistent with our due diligence expectations.
Legacy Old National upgrades partly offset this increase. Nonaccrual loans to total loans decreased modestly, the fourth consecutive quarter of improving performance trends due to active portfolio management. The first quarter allowance for credit losses to total loans, including the reserve for unfunded commitments was 122 basis points, down 2 basis points from the prior quarter, primarily driven by charge-offs on PCD loans and loan growth in lower risk portfolios.
Consistent with the fourth quarter, our qualitative reserves incorporate a 100% weighting on the Moody's S2 scenario with additional qualitative factors to capture global economic uncertainty. Lastly, given the continued focus on loans to nondepository financial institutions, we'd again like to emphasize that our exposure is de minimis.
All said, MDFIs are approximately 1% of total loans all are performing and like other businesses that we bank most are long-standing client relationships. Slide 14 presents key credit metrics relative to peers. As discussed in past calls, we've historically experienced a lower conversion rate of NPLs to NCOs as compared to our peers, driven by our approach to credit and client selection.
That continues to be the case, and we remain comfortable around the credit outlook. On Slide 15, you can see our capital position at the end of the quarter. Regulatory ratios in TCE were stable linked quarter as strong retained earnings were offset by the robust quarterly loan growth, share repurchases and merger-related charges. Still, tangible book value per share was up 6% linked quarter annualized and 11% year-over-year.
Our peer-leading profitability profile continues to generate significant capital, which opened the door for capital return late last year. As previously mentioned, we repurchased 3.9 million shares of common stock during the first quarter and have $383 million remaining under our program. Lastly, of note, while not yet finalized, we would clearly expect a capital benefit under the proposed capital rule changes.
This would mainly come from reductions in RWA treatment within our mortgage book and changes to the treatment of unfunded commitments over 1 year. Obviously, these changes, if finalized, could present meaningful capital optionality. In any case, we feel confident in our plans to continue to execute on our buyback plan, which runs through the end of February.
Slide 16 includes our outlook for the full year 2026, which is unchanged from our prior guidance. We believe our current pipeline supports full year loan growth of 4% to 6% and based on the results of the first quarter, we suspect we may trend to the higher end of this range. We anticipate continued success in the execution of our deposit strategy and expect to meet or exceed industry growth in 2026, generally in line with our asset growth.
Our NII guidance remains unchanged, and our balance sheet remains neutrally positioned to short-term interest rates. Obviously, the exact path of NIM and NII in 2026 will depend on growth dynamics the shape of the yield curve, the absolute level of rates in the belly of the curve and the competitive landscape, but our base case outlook assumes the Fed has done for the balance of this year and that the 5-year, which has been volatile year-to-date, stabilizes at about current levels.
We expect our fee businesses to perform well, supported by a robust loan pipeline that is driving capital markets activity, along with continued momentum in our wealth management and brokerage businesses.
To that end, we believe we would trend towards the higher end of our full year fee income guide. Expense guidance is unchanged despite a lower-than-expected outcome in the first quarter. but this is due to a robust talent pipeline and our expectation of continued investment in operational excellence.
As a reminder, second quarter includes normal seasonal factors such as merit increases. Our expectations for credit and income tax rates are unchanged. In aggregate, you'll note that we expect full year results that yield 15% plus growth in earnings per share and again, feature positive operating leverage with peer-leading profitability good growth in fees, controlled expenses and normalized credit.
To close, the first quarter sets the tone for the rest of 2026, and we are on the front foot. We intend to stay there. Organic loan growth was strong and pipelines are healthy. we maintain a granular low-cost deposit franchise and our credit book remains stable. That gives us the flexibility to invest in ourselves in talent and in capabilities while continuing to return capital to shareholders.
As Jim said at the top of the call, Old National enters the balance of 2026 with good momentum and added conviction in our ability to execute. With those comments, I'd like to open the call for your questions.
[Operator Instructions] And our first question comes from the line of Scott Siefers with Piper Sandler.
2. Question Answer
John, I was hoping you could please walk through sort of the major drivers of NII momentum going forward. I know you touched on the seasonality in the first quarter and the impact of the sub debt issuance.
But just that because I think the year started a little weaker than at least the market had expected those idiosyncratic factors notwithstanding. But you kept the guide, I think the quarterly NII will need to average about 5% higher through the remainder of the year to get to the midpoint. So just sort of what gives you confidence in the guide and what are the major puts and takes you see.
Yes. So obviously, I think, first and foremost, we've got a more cooperative yield curve today than what we had on average for the first quarter. So that will be a helper -- and then we've got $5.5 billion sitting in the pipeline, up 14% year-over-year, and we feel really good about the growth outlook.
And what's driving that is a little bit more balanced in terms of CRE versus C&I than what we saw in the first quarter. So I think the spread implications of that are favorable to us as we look forward into 2Q, 3Q.
Okay. Perfect. And then -- so that sort of touches on the second one, which was sort of the margin specifically. So presumably, that beneficial mix shift in the loan portfolio should be helpful. But just when we think about the sort of launching point of the 355 margin, any other factors that would cause it to sort of jump up from here.
I think in your prep remarks, you sort of suggested stable to improving for both NII and the margin.
Yes. I think stable to improving is the right way to think about it. Recall, we will get 4 basis points back on dates and so that will kind of the launch point there. And yes, I think stable to improve is the name of the game for this year. .
And our next question comes from the line of Ben Gerlinger with Citi.
I just want to double check to run through the numbers a little quick. You said a higher end of the range, the higher end of the range. You're building out a bigger team and hiring you guys say the higher end of the range on expenses? Or is it still within that despite the lower core on 1Q.
I'm just going to -- I'm going to walk it back on 1 thing that you said. So we said loans high end of range, NII guidance is unchanged, fees, high end of range and expenses is unchanged despite a better-than-expected outcome in the first quarter.
And that piece of the guide, Ben, on the operating expense side is really not the talent pipeline that Tim and Jim are building I think we're having more conversations today than at any other time that I can remember since I've been at Old National, and we're really excited about that pipeline.
Yes. I apologize. It was on higher -- but you retire still good. Just wanted to kind of push you a little bit here. So like things are looking good and you're hiring and you're setting up -- the hires today are obviously not impacting much for growth on '26, call it more of a '27 and the '28 story. Both looks good. Why not be more aggressive on the shareholder buyback or return?
Well, I think -- look, I think we feel really good about where capital is. We fully intend -- we've got $383 million left on this existing authorization. We would fully intend to use that through the end of that authorization in February. Look, a combined payout ratio that's close to 2/3 of what we generated in the first quarter and still being able to support loan growth, I think is a pretty good place to be.
And so we feel comfortable with where we are. And obviously, we'll if those capital rules become final, we'll have some additional optionality and clearly, think about what we're going to do with that, and that would be...
Incremental to everything we're doing today.
Exactly. .
Our next question comes from the line of Brendan Nosal with Hovde Group.
Starting off on loan growth here. I know you've been kind of working towards these numbers for years and years in terms of the bank's growth capacity, but it really feels like something clicked this quarter and will continue to click for you through the balance of the year. Has anything changed environmentally in your favor? Or is this just kind of the culmination of a lot of effort.
Yes. Thanks for the question. It's certainly -- we're leaning into go-to-market strategies. We're really focusing on sales excellence and just being tighter in who we're targeting, how we're targeting and leveraging the full plethora of products and our platform that we have to offer.
And we've seen that really come together nicely this quarter, and we like the trends that we see in the record pipelines that we have. We think that will continue to come to fruition. And as we add more bankers and more talent, we like the opportunity to continue to drive that growth going forward.
Okay. Okay. Great. Maybe pivoting to capital. I heard the commentary on the proposed capital rules and the benefits that would drive for you for others, and I think you mentioned that opens up the option set down the road. I mean can you walk through that? I think at the near-term buyback commentary and lack of interest in M&A at present. But like longer term, if you and others are sitting with more capital, what does that allow you to do longer term?
Yes. Look, for us, I think you'd see a reduction in RWA roughly in line with what other sort of estimated for midsized banks. Again, on our balance sheet, the 2 biggest drivers of that are the LTVs in our wonderful family book and the line utilization is greater than 1 year.
There were some banks that played a lot of games in the risk-weighted asset diet years kind of shrinking the commitments down to 1 year minus a day. Old National never did that. So the capital treatment on that piece of our book will be favorable. I think in total, it could be up to 100 basis points, give or take, on CET1, and that is not a level that we're going to run the bank at.
And so I think it would be and foremost, supporting continued organic growth; and then secondly, return to capital. I think it's also just getting comfortable with where the industry settles at. Where is the right CET1 ratio, where the right TCE ratios to run the organization long term.
I think the industry is still trying to find that target level. Clearly, we believe we have a lower risk model and should be at the peer average or lower, but there's a lot of work to kind of get there to define what those normalized levels should be.
And our next question comes from the line of Chris McGratty with KBW.
On the Basel discussion, the 100 basis points that John referenced, ballpark. We've heard a lot of banks. Kind of in our follow-up calls talk about the importance of balancing CET1 and TCE. One going as far as saying 8% might be the right number for TCE. How do you -- I know the rating agencies care, how do you view the interplay between the two?
Yes. Look, I think those are the 2, and we have long been sensitive to those as you know, right? So I would say that we feel really good about where we are in TCE as evidenced by the fact that we're returning a pretty significant chunk of capital in the quarter and 64% combined payout ratio on the quarter's kind of core net income. .
While still supporting organic growth. So as Jim said, I think we still got to kind of figure out what the right long-term numbers are as an industry and then what's appropriate for Old National Bank, but we feel really good about where we are.
The challenge Chris becomes from a stress testing perspective, we feel really good about our capital levels and now we could push it harder. But there becomes a point in time when under periods of stress, our industry goes back to the higher capital levels are the ones that maybe feel a little less pain.
So I think we're just trying to figure out what's the right long-term view and not get caught up in today's whatever short-term window might be. And how do we balance all the other stakeholders like you suggested.
Yes, you want to stay off the screens when things get a to get it. On deposit pricing, as we stay -- if the forward curve is right, there's no more cuts, or read that 170 spot are we flatlined basically until the Fed moves again?
Look, I think we still got some opportunity in the back book. We've definitely got some opportunity as brokered roles but I think the material decreases in spot rate are probably behind us if the Fed is done for the year, which is our base case expectation. And I would tell you, the deposit competition it's intense, but rational. And the environment around specials has stayed a little bit frothy longer than what we would have probably hoped for as an industry.
And our next question comes from the line of Janet Lee with TD Cowen.
When I look at the Slide 10 on the impact of net interest margin that 19 basis point negative impact from rate and volume mix. Relative to 5.88% total loan yields for the quarter, should we expect that loan yields to increase in the second quarter as the -- obviously, the rate impact is decreasing or basically gone. And then maybe the first quarter had a overly high concentration of higher-quality C&I loans, which carry lower spreads. I guess that's not a bad thing at all, but I just want to get a sense of what a good loan yields is to start off as we head into the second quarter.
Yes. I think you've got the moving parts of that, right, Janet. It's the on loan yields, like margin overall, 10 basis points of that was day count for us. The balance of it was sort of sober down and most of that was offset by funding costs.
And then there was a de minimis amount, just on churn in the book, so sort of, call it, 5 basis points, 4 or 5 basis points on loan yields, just regular churn. And I think going forward, much like margin, I think it's kind of stable to improving and will depend a little bit on business mix of production.
Yes. When I look in the pipeline, just a couple of factors on the loan side. One, a greater portion of our pipeline is being driven in community markets, where we see a little less competition, and we see that segments and some of our strong community markets, where we have great market share and good brand picking up. .
And then secondly, a larger part of our pipeline for the second quarter is in kind of core middle market, which third, fourth generational companies where you can tend to get a little more spread on that as well. also can get good core operating deposits with those loans as well.
So as we look at the mix second quarter compared to first quarter from a timing standpoint, just had some of the higher quality loans that have slightly lower interest rates. In the second quarter, we see that mix shifting.
Got it. That's very helpful. And I would also love to hear a little bit more about what you're doing on the AI front that you mentioned earlier that's helping on the efficiency and expense enterprise-wise?
Yes. So like others, we are investing in AI. We've got an AI center of excellence stood up within our technology and data teams. I would describe our progress to date is a lot of -- it's a lot of singles and doubles. And a really good example of that, that we shared with people is we had some like old Power BI legacy code that we lifted and shifted into a new data environment. It was kind of clunky.
We threw AI at it and had what would have taken some of our best programmers month cleanup was done in a week. And so that would be a real life example of sort of -- I would describe that as a single and I think we've got some really interesting use cases that we're looking at.
Probably the first 1 for us that we're going to dive deeper into is in risk management. If you think about everything that needs to be built to embed risk into the first line. Almost all of those jobs, which the big banks just through bodies at are checkers of checkers. And that is a perfect AI use case and I think something that, look, 100. That threshold is probably moving anyways, but it doesn't mean that we're not at work on thinking about things that we need to do as a bigger bank.
And I think that the cost of that going to be a fraction of what it would have been even just 3 years ago because of some of the advancements in AI. So we're excited about it. And there's a lot of stuff watt the bank that we think help drive frees up dollars for us to go and invest in the more exciting stuff, which is the revenue-facing talent pipeline that Tim is building.
And our next question comes from the line of Brian Foran with Truist Securities.
So the loan growth momentum, I mean, if we think about scenarios where it continues to be at the high end or above the guide, do you think earning assets will be growing at the same level? Or is there some point where if loan growth if we're start to pencil in 7% or 8% loan growth, we should moderate securities and cash a little bit.
Yes. I think it's probably fair to think about everything sort of growing about lockstep. So I think as loan growth goes, the liquidity book would grow with it.
Got it. And then on the Basel discussion, I know it's very early, the proposals could change, so maybe it's too early for this question, but you referenced how some specific areas get much better treatment. Do you think this is big enough where from a strategic standpoint, you might do more hiring or focus in certain types of lending or you might deemphasize others.
Is this a big enough move that you'll actually start remixing the business a little bit to optimize around it?
It's probably a little early to say for sure on that. The one place where I think when you think about our WA treatment and 1-4 family. It seems clear that the regulators are trying to encourage banks to be back in that business in a somewhat more meaningful way.
And so there's interesting implications to that, that we would think through, I think, if it became a permanent role.
And our next question comes from the line of Brandon Rudd with Stephens.
My first question, if I could drill in on loan yields a bit. I know it's primarily rate mark related now, but do you have the purchase accounting accretion for the quarter?
Not handy. It was roughly unchanged, though. I think the net-net of sort of purchase accounting accretion and interest collected on nonaccrual was a wash, like no impact on overall margin.
Got you. Okay. And then for the other side of the balance sheet, I heard your earlier comments about deposit cost competition. Superregional Bank last week said the Midwest is a bit more competitive than other regions around the nation. Since your footprint kind of stretches across the Midwest, are there markets in particular that you're seeing more competition than less than others?
In the Midwest, no, not really. I would say that our most competitive market is probably Nashville. And that does -- we don't really have a back book in Nashville to worry about or certainly not the size back book that we have in other markets. But yes, I think most of our markets are competitive but rational.
Yes. I think the other interesting thing is that some of the large national players are hanging some pretty steamy rates out there. So that's primarily competing with our wealth and private client businesses, which can be a little bit challenging at times.
And our next question comes from the line of David Chiaverini with Jefferies.
On expenses, can you talk about areas of investment and how we should think about positive operating leverage, the extent to which it should come through based on the guide we're modeling pretty decent operating leverage. But can you talk about those 2 things?
We are likewise modeling pretty decent positive operating leverage on the year, David. I think, in fact, when we stack it up against our executive peers, we were either #1 or #2 on that metric for this year. And look, our expectation is that we'll continue to drive quarter-over-quarter and year-over-year positive operating leverage, and we walk into every single budget cycle.
With that as a guiding sort of principle. So we know that, that's a metric that's important. It's something that we're focused on, and it's something that I think will deliver in 2016 for sure.
Great. And then shifting over to your comment about pipelines on the loan side being up 14%, great to hear. Any particular industries that are driving that?
David, they're pretty balanced, no real industry concentration. And I would say we've seen a really nice pickup in CRE pipelines. So across the board, C&I remains strong. CRE is building -- and we've seen markets like Minnesota, where our momentum there is building pipelines there are higher than they've been in the last 18 months. So we feel very good overall about the pipelines, and it's a good mix of CRE and C&I, but with no concentration from an industry standpoint.
And our next question comes from the line of Jared Shaw with Barclays.
This is Jon Rau on for Jared. Just looking at some of the components of deposit pricing, it seems like the exception book has been driving most of the downward pressure on deposit costs and the non exception book might be even going up a little bit in terms of average cost. Can you just talk about the dynamics there? And is if there's any emphasis being placed on moving to more weighting towards exception pricing?
Yes. So the exception book is where we saw all of our uprate beta, and that's kind of how we've always managed deposit costs at Old National. So it is where we've experienced all of the down rate beta as well. we're really pleased with how that's performed.
I would say if you're looking at quarterly sort of puts and takes on deposits, don't forget that there's some seasonal factors in our first quarter. Our public funds balances are at a low point in 1Q, those rebuild in 2Q and 3Q, and there's some seasonality in our noninterest-bearing on both the commercial and the public side of things as well in the first quarter. So that might explain what you're kind of scratching out there on the quarter's deposit costs.
Okay. Great. That's good color. And then maybe just a little more on the leadership changes in commercial banking bring in Chris. I guess, is there any specific areas of expertise in terms of lending verticals or anywhere else that he brings that would kind of alter the pace or areas that you're hiring in?
Yes. Chris' background is diverse, and we're very excited about what he can bring. But primarily on the C&I side, when you think about asset-based lending and core C&I middle market banking, the old school banking that we're very known for and very proud of. I think Chris will do an exceptional job of helping to drive that growth.
At the same time, John Thurston on the -- on the corporate banking side, as our leader and President of that, we're looking at different ways to grow there, and we're excited about the depth he brings of a 30-plus year career across business banking, commercial banking and corporate banking. So excited about what each of them can bring to our growth going forward.
And our next question comes from the line of John Arfstrom with RBC Capital Markets.
We were just in Minneapolis yesterday. I didn't see you in the Skyway.
No, I had a seatbelt on my office chair. Can't leave my desk. A few follow-ups. John, you said the yield curve maybe is a little bit more cooperative now. what changed, what makes it more cooperative and what's more ideal for you guys? .
Well, the 5-year came back to $390-ish , which is definitely helpful and there's some -- there's better -- there's a little bit better steepness finally. Now it may have gotten there for the wrong reasons, but we'll take it, right? So a little bit of steepness and a better belly is certainly helpful for us.
Yes. Okay. And then just following up on the positive operating leverage question. You flagged a record adjusted efficiency ratio this quarter of 45.7%, which is great for your company. Are you saying that could go lower, John? Is that the message?
I think we're going to try to keep it where it is or maybe grind it lower...
I think the tension, John, from my perspective, is that we don't want that to be an inhibitor to investing in our future, investing in growth, investing in talent. I think that's just the dynamics. We inherently know like if we're able to successfully convert this talent pipeline, that's an 18-month kind of breakeven scenario.
And inevitably, the people that we're looking at hiring are kind of top decile performers, so they just come at a much higher cost on average. And so I don't want that number of 45% to be a number that stops us from investing in our future or the growth of the organization.
So that will be the tension that we'll just have -- as I've said publicly a few times like, hey, nothing would make me happier if I have to come and apologize to you all that our expense guide is going up because we just had that much success in recruiting and attracting great talent to join the organization.
Yes, fair. I don't want to say it's good enough. We want to keep pushing, but that's pretty good for you guys.
I agree. I mean you know our history. That's remarkable if you go back and look at our history .
Yes. Okay. And then the last one on the buyback. You flagged that you took a piece of the buyback from you bought from the Bremer Trust, how much is left there? Are those negotiated transactions? And kind of what's the plan? Is it more of a -- I guess it's maybe more of a bummer question, but what do you think the plan is and how much did you get from the trust?
Let me just -- we actually flagged that transaction when we did it. It was around $50 million of stock. And so we just wanted to repoint that out. We did put a filing out on that. And the whole point is honestly, they see great value in long-term ownership.
We expect them to have long-term ownership -- we're obviously sensitive to the concentration that they bring. So no material change to the current ownership other than the $50 million we reduced and I just don't see them wanting to do anything different in the near future. Obviously, they're in control.
The lockup expires really quickly here. But after the lockup expires, I don't see them doing any changes based on our conversations but anything after that, they have to decide. The good news is we have the right of first refusal. So to the extent that they want to come to the market, we'll be there to support that. But I don't anticipate that based on our most recent conversations.
Okay.
And there are no further questions at this time. I'd like to turn the call back to Jim Ryan for closing remarks.
We appreciate everybody's support. And as usual, we'll be here all day to answer any follow-up questions. Thanks so much.
And ladies and gentlemen, this concludes Old National's call. Once again, a replay, along with the presentation slides, will be available for 12 months on the Investor Relations page of Old National's website, oldnational.com.
A replay of the call will also be available by dialing (800) 770-2030 access code 9394540 and this replay will be available through May 6. If anyone has additional questions, please contact Lynell Durkol at (812) 464-1366.
Thank you for your participation in today's conference call, and you may now disconnect.
Old National Bancorp — Q1 2026 Earnings Call
Old National Bancorp — RBC Capital Markets Global Financial Institutions Conference 2026
1. Question Answer
Thank you for being here this afternoon. We have our last fireside chat of the day. We have Jim Ryan and John Moran from Old National. We were just talking about your schedule today. I think these guys are worn out.
Well, compliments to the whole team, Jon, and 25 individual companies and 29 investors showed up. So really full day. So thank you for a great schedule.
That's a full day. I won't ask you anything you haven't been asked of. Just for the benefit of generalists, we have a lot more generalists here, and we have a lot more people listening online. Give us an overview of Old National.
Yes. Obviously, coming off really a record-setting and transformational year in 2025, record earnings. And coming off our Bremer partnership, which may have been one of the most important partnerships we've done in my tenure at the company, which is now 25 years and really solidified our position in Minnesota and the Twin Cities specifically, taking the #3 market share and I just feel like obviously, a lot of energy and effort goes into any kind of partnership. And this one in Twin Cities was particularly large and had an interesting history and background, but that really set us up for some significant success, I think, in 2026.
Despite having record years in 2025 with all of the momentum heading into '26, I think we expect -- I think the Street estimates are somewhere around 15% earnings growth estimates year-over-year with high teens return on average tangible common equity, a sub 50% efficiency ratio. And I'm going to get these numbers directionally correct, about a 1.4% return on average assets. So we feel really good about where we stand.
At the same time, it's a lot of work still every single day. You got to go out there. I just did this as a part of our annual review for our Board of Directors. I made 52 market visits last year. So I was out a lot in addition to meeting with investors, in addition to working with the industry trade association that I work with. And -- but it was a super energizing year, and I expect a year 2026 to be much the same. I think one of the highlights and advantages that we have is that we're really connected to our team members and markets. And when I show up and make that phone call or text stack client, or stay connected to a team member when something happens in their lives. I think that differentiates ourselves, and that's a really attractive value proposition.
The other thing that happened last year that's significant to us is we -- our President, Mark Sander, retired, and we brought in a new President and COO in Tim Burke, who joined us from a super regional in the Midwest, and he is off to a really strong start, 7 months into the role, really strong start. And the reason why I highlight that is that I really think that he's been focused incredibly on our organic growth opportunities that are in front of us. And when you're integrating a large institution like Bremer, you're pretty distracted, right? A lot of those 52 market visits I made were in the Minnesota and North Dakota footprint. And Tim is coming in now and being able to really stay focused in on the organic growth opportunities, both in terms of hiring new people, but also client relationships. And I think that's really going to differentiate ourselves.
We have a number of succession that's going to happen in our commercial business in the coming years. Our CEO of Commercial is retiring April 1. Tim is really good about rethinking how do we continue to grow our own people, but also he brings some fresh talent into the organization to be a better bank.
So I think we're entering 2026 in a really strong position. I think we're going to exit 2026 in an even better position, particularly around -- we think around our commercial growth opportunities, which none of that's contemplated in the outlook that we provided for 2026. So I can't be more excited about where we stand this year. And it won't always be a straight line to success. And you wake up one morning, and we've got a military action that's taken place and you got oil going one direction and -- so you have these things that happen.
But I would say that our clients and our company is really resilient, and they're able to navigate a lot of these different challenges have been thrown at us in the last handful of years. So I'm pretty bullish that we'll figure this one out, too. And it looks like maybe oil is a little bit better behaved today than it has been. So that's a good sign, too.
We'll get to that. I just want to make one comment. People say that Cassidy and I tour as much as Taylor Swift, but I'm going to have to change it to travel as much as Jim Ryan.
There you go.
It's an amazing -- I know you've always been a road warrior. I know that.
Well, again, I think that's what differentiated a bank like Old National, where the senior management is going to be there to back our team members, but they're also going to be out there visiting with clients, and that makes a real difference, as you know, at the end of the day. This business is built on relationships. When banks forget that this is a people business and those people drive relationships, that's when we mess it up. That's the most important thing we can do as an organization is focus on the people and those relationships they bring.
What do you think of the economy today? How do you feel about the economic activity in your markets? Maybe touch on some of the volatility, if that has an impact at all in terms of your clients?
Yes. I would just say, heading into the year, we thought it was going to be a solid year. I think we put loan growth targets out there about 4% to 6% for the year. I don't think that's heroic. I think we're on pace as an industry to hit those type of numbers. We're not in the habit of providing mid-quarter guidance. But I think as an industry, if you follow the HA data, I think our industry is going to be in that space. I think the economy is doing well. I mean it's too early to tell how much of what happened last Sunday, a week ago, Sunday, has on the economy. Certainly, oil prices, if they stay elevated for a long period of time, will have some impact. But I think our clients are really good at navigating challenges that come ahead of them. And -- so I don't think -- as I see it today, I'm not expecting a dramatic impact. And certainly, I think our clients are adept at navigating these things. What else would you add to that, John?
I think things are good and maybe tracking even a little bit better than what we would have thought. Pipelines are good. Activity is good. And to Jim's point, I mean, probably a little bit too soon to figure out if the last 10 days changes that, but the year is off to a good start.
Yes. Okay. How about the competitive environment? You're in a lot of different markets, and I know it's hard to generalize, but just lending competition, and we'll talk about funding in a couple of minutes.
But I'll kick it off. We really pride ourselves in having really consistent credit standards. And so when times are good, we have the same standards than when times are really difficult. And I think that consistency with our clients really matters, that approach really matters with our relationship managers. And so there were times -- and Jon, I know you can appreciate this when there were a lot of banks that were on those risk-weighted asset diets and had sworn off certain asset classes, particularly commercial real estate. And we were able to make a lot of inroads with just that consistency of kind of always being in the market. And we tend to have a fairly tight box. And if it fits a box, we're going to continue to do that despite what the environment looks like. And I think that allowed us to enjoy some maybe outsized growth during those periods of times.
Today, it's clear everybody is back in the market. Everybody is competing for I think one of the banks mentioned that today and at the conference here, everybody is back competing for that same type of business. So it's competitive. We're still winning our fair share. But nonetheless, I think it's as consistently competitive market as I've seen probably in the last handful of years.
Any particular categories of loans?
I think it's across the board. I think everybody is fighting for every single relationship. There were discussions today in some of our one-on-one meetings about -- is it areas where there's disruption? Is it areas where there's large banks? Is there areas where there are small banks? It's all of the above. Like every single place, we see competitive dynamics just tightening up a little bit. But again, I think a testament to our team and some of the markets, we're continuing to win our fair share.
Okay. On Bremer, you touched on it, and we don't have to spend a lot of time on it, but it was a big deal. Transformational, I would say. Makes you a much larger bank. What is left to do, integration conversion, things like that? Where are you at? And what are you the most positive on as you look forward in terms of the footprint there?
Yes. I would suggest we're in the late innings. The systems integration went exceptionally well and lots of proof points around that. I think we're still in the late innings of any time you're integrating 2 teams, 2 cultures, particularly -- it's one thing when you have no existing team members that are there, and that adds a set of complexity, but it adds a different set of complexity when you have 2 different teams you're trying to meld together and bring the best of those teams together. In some ways, it's easier. In some ways, it's maybe more challenging. But I'd say we're in the late innings. And it takes a couple of years for everybody to feel like they're hitting their strides. There's an awful lot of change that happens. There's a lot of change for clients you got to help navigate. There's a lot of change for team members you got to navigate. And change is difficult. It doesn't matter whether it's positive change or negative change. Change is difficult for most people.
So I think we're doing really well. We're really pleased with how it's all come together. John always reminds investors that we bought it at the right price. And so that's super helpful and allows for things not to go exactly perfectly all the time.
I guess the other thing I'd mention, the thing that I'm really pleased about is when we look at some of the areas outside the Twin Cities and often North Dakota and parts of Wisconsin, we're really pleased with those markets. Not every, I think, potential partner would have had the same view of some of those markets. I -- there's a little bit of a joke in our company that I've been to Fargo in February now a few times. And that's a fun trip for me to do. I just got done speaking at the Fargo Economic Summit, and I really enjoy that opportunity. And John and I laughed because you could drop yourself off in the middle of Indiana or Fargo, North Dakota, and they'd really look like the same kind of markets. And so we think those are some of the really surprising parts and the parts that I think we're really going to be able to take advantage of as an organization.
I think I mentioned my 90-year-old father has his Bremer baseball hat that he wears periodically.
We got to give him an old national hat.
No, I might have to disclose it. Gift. I'll make sure I do that if you give me one. John, talk a little bit about deposit competition, how you're thinking about the margin trajectory from here? And the puts and takes in terms of the outlook.
Yes. Look, I think deposits are -- continue to be very, very competitive, but I think rational everywhere that we are. So there's not a promo rate out there that I look at and say, I don't understand what they're thinking. But I think it continues to be a competitive environment for funding. And I think that that's probably a good sign that people see decent asset growth out there, right? And -- so I would characterize it as sustained competition, highly competitive, but still very rational.
In terms of trajectory on margin, look, I've joked around a couple of times today. It was -- I think Ben Franklin has said death and taxes. John Moran is going to add a third one. The forward curve will be wrong. And so that has not played out the way that we would have hoped in terms of steepness in the belly of the curve. Things are still pretty flat there. And I think some help on that, some steepness in the curve would be beneficial for -- not just for Old National Bank, but for the banking industry.
Do you have a preference at the short end, what you'd like to see happen?
We're pretty neutral to short in terms of how it goes but steepness in belly would be good.
While John points out, we're relatively neutral on the short end of the curve, I think one of the challenges we see to the extent that there are less Fed cuts than maybe originally anticipated, I think that's keeping those promo rates up there a little higher than longer. If we saw more rate cut expectations, I think some of the promos would have come down a little bit faster. I think that's creating a little bit of tough competition for the marginal dollar of deposits.
Okay. It's interesting. It seems like it's a little more competitive in the Southeast and some of the other markets versus more rational where you're at. what it seems like.
And there are some markets that John points out where we're being -- we're leading the market in some of those instances where we have small market share and don't have to worry about repricing our back book. So we can be the thorn in the side of some organizations too.
Yes. Okay. Okay. Also on the revenue topic, the fee income guide suggests some decent momentum, confidence level in achieving those targets? And what are the kind of the key drivers of that?
We feel really good about what's going on the fee side. I think one thing that we've talked a little bit about is just capital markets in the back half of last year was really, really strong. I don't think that, that's going to run rate forever, but certainly feel good about where we are on the fee side. I think we're seeing good growth in wealth. We're going to see mortgage being -- continue to be a pretty good business for us, and we're investing a lot in treasury management, which I think could be a longer-term upside for us. So feel really good about where we are on fees.
Anything you need to do differently as a $70 billion bank on the fee side? Maybe it is treasury and capital markets, but how do you think about that?
Yes, I think building out both those businesses in more robust ways. One of the things that I think is an incremental opportunity for us is we've been slowly building out kind of the mid-corp space that historically, as you know, our footprint was this business banking, small commercial market. And we don't have any national businesses, as you know. So I think with Tim's leadership and thinking about how we can build that out, I think that necessitates us building out more robust treasury management services for the larger corporate clients, but also some probably broader capital markets capabilities, too.
Are you getting looks at larger clients now with a larger balance sheet?
Absolutely. Absolutely. And I think it's -- we'll continue to take those opportunities. Obviously, we want to be smart. We want to make sure that we can earn a full relationship. It just doesn't want to be a credit-only facility. And -- but -- so we want to make sure we have the products and services to earn that full relationship as well. But I think it's also incumbent upon us to continue to hire relationship managers and the credit teams to be able to support those types of clients.
Okay. Pre-Bremer, we used to talk a lot more about wealth as a driver of the outlook. What's the strategy today? And how important is that to the outlook?
No, I think it's much the same. I really do. There was a period of time where most of our business would be branch-driven type of business and traditional fiduciary type business. Today, increasingly, we have the opportunity regularly to earn the investment management business, the high net worth individuals. That's a bigger part of our business than it ever has been. And I think that's really a function of putting the right people in place, putting some extra products and services in that can serve that constituency. But I've been really pleased with that. And that business is growing, I think, mid- to upper single digits kind of consistently year in, year out, which I don't think is necessarily a trend for everybody in our business where some people have maybe given up on that. I really see that as a continued area of growth for us an important driver.
I would just also add, as we're on the fee income line, the mortgage business. I mean that's a business I'm a big believer in. Again, we're in footprint origination. We're not afraid to use our balance sheet where it makes sense and we can drive private banking type relationships with it. And obviously, each year continues to build. There were periods of time we thought we might give up on the mortgage business, but the reality is it's been a nice fee income source for us. it's growing each year, and hopefully, it will be even better this year.
Okay. We can -- we'll get to M&A in a minute here, but I want to go back to some of the opportunities you've had to hire talent across the footprint. What's the strategy? Where are you hiring? How big is this opportunity for you?
There was a period of time coming off of COVID that I think we were leading some of our peer set in terms of the numbers of people we were hiring. We had a great story to tell then. We still have that great story to tell today. But after a CapStar integration and a Bremer integration, it takes a lot of management time and distraction, having some natural succession that happens. I think we got a little bit less focused on that in the last year or so. So Tim's new energy and my continuous push towards talent. This is a talent business, as we said earlier, Talent will always win the day. So for us to go off and tell our story, that story is a bank that it's a growing bank. It's an entrepreneurial bank. We've got young leadership. We've got high performance to support you, a really consistent credit policy.
All of those things, I think, are attractive in places where we're trying to hire out of the super regionals and the national banks who can bring a client set with them. Maybe it's a little bit more sophisticated client set on average for us to go off. We want to make sure we're there to support them. But the difference is that we're in this place that we're a little bit easier to do business with. We're a little bit more nimble. We're a lot more consistent, both in terms of leadership at the top, but also just our approach to being in certain assets or being in the pricing mechanisms right. We haven't had some of the issues that some of our peers have faced over the years. And so I think that's a really great story to go off and tell. Tim does an exceptional job telling it. John and I reinforce that.
If we hire 50 new people this year, 40 of them will sit across from me before they come through those doors and we hire them. I am super involved in that process. I think that's a critical part. Not every CEO wants to take that kind of time to do that, but I think that hands-on approach makes sure 2 things: a, we make sure we get the right people in the door; and then b, they have the support from the top of the house all the way down. I think that's our value proposition for those individual relationship managers, but also their clients that they bring.
Okay. John is the CFO that has to say no on things. Talk a little bit about balancing all of this, remind us of your expense expectations, kind of where you're spending money, where you're funding places to save money?
Yes. So let me back up and just kind of say every year, when we walk into a cut of budget, positive operating leverage is sort of a guiding philosophical principle, right? And I think clearly, '26 versus '25 will put up a lot of positive operating leverage. We've got a great efficiency ratio. I think that we can self-fund a portion of what Jim and Tim are looking to do for sure, by -- we've got several higher ticket kind of retirement opportunities in front of us and then better management and accountability out of kind of folks that might be a little bit less productive or toward the end of their careers, right? And so I think we've got an opportunity to self-fund a portion of that growth. And then, look, frankly, the right -- particularly in commercial lending, the right RMs pay for themselves very, very quickly.
And as I told everybody, I hope I have to come to you, Jon, and you -- some of our investors in the back half of the year and say, "Hey, sorry, we missed some of our expense guidance because we're really successful in hiring people." That's a good story to tell. Everybody I've told that story to this. I absolutely will take that all day long, focused on organic growth. And that is the core strategy for us. And I think I will gladly make that ask if we get there.
Yes. Okay. Just last couple of things on expenses. Is AI scary? Is it an opportunity? I mean you play it forward and people think that it's a threat to like suburban office. But on the other hand, that would suggest greater operating efficiencies in the bank. How do you think about it broadly?
I think we're all trying to figure that out. The Board recently asked me, so how do you see AI affecting the bank in 2 to 3 years? And that's a really hard question to have an honest assessment over that. I think there are a lot of positive things that are going to come from that. There are probably some things that we're not going to like they're going to come out of that. It's really too hard to tell. I mean, like every other institution, we're deploying AI as fast as possible. And I think that -- I think we're trying to figure out how to exactly monetize that. How do we take those savings? If I can create 10% or 20% more savings out of your day, are you just a more productive, happy employee? Or is there a way for us to monetize that? I think we're still trying to figure out can we truly drive revenue off of AI investments.
I do think -- John said this really well. As we think about the opportunities to be a bigger bank and being a bigger bank means we have more sophisticated risk management infrastructure, I think AI will lessen the cost for us. And whether that threshold is $100 billion or some other number north of that, nonetheless, we need to continue to make investments in ourselves and AI will help us do it faster and probably cheaper than maybe some of our peers had it when they had to cross some of those regulatory thresholds. So I think it is both an opportunity and a potential risk to our industry. It's hard to tell how they exactly weigh each other out. But I think I'm more bullish on the long-term opportunities for banks like Old National because I think it allows us to maybe win or at least get up to speed faster than some of our largest peers had to do in terms of the investments they had to make in technology.
Okay. You mentioned $100 billion. I was going to skip over it. But anything to note on that? I mean you're not close. It feels like it's going to get raised. But...
Yes, I think like everybody else, we're waiting to see. And I feel like that's coming relatively soon.
Yes. Okay. Okay. Credit, any updates on credit quality and how you're feeling about the portfolio?
No, we feel really good about credit. Look, as you know, we've moved $750 million of classified and criticized over the last 18 months. Charge-offs didn't really even blip at all. I think we know where our potential problems are. We don't feel like there's anything that's keeping us up at night.
Okay. Not a big deal for you, but give us an update on NDFI exposure and how you're thinking about it.
D minimis, less than 1%. The handful of credits that we do have been in the bank forever. They're all performing. Long-term relationships to a couple of equipment finance businesses. But yes, nothing to see here.
The interesting little thing is for our industry, that's been a catch-all bucket. And I think everybody has something different in that bucket than each other.
Yes. No, it's hard to categorize, I would say. M&A I know what the answer is in the near term, but you've obviously -- you kind of grew up in it throughout your career, and you've turned this into a pretty incredible company with a lot of momentum. But what's your thinking on M&A today? What's your kind of medium- to longer-term thinking on M&A for the company?
Yes. I think today, I've been very clear, the best investment we can make is in ourselves. I think we're trading at something less than 9x current earnings. And until that -- until -- I wouldn't even think about M&A until it's something well north of that. But the reality is we don't -- we use M&A to solve some challenges for us. We needed more diversity in our markets. We needed higher growth potential. We needed better scalability in the organization. And we've been able to achieve that. Again, I think if the Street is true, we're going to see high teens ROTCE, the sub-50% efficiency ratio. We're not trying to solve a succession problem. We're not trying to solve a growth problem. We're not trying to solve a balance sheet problem.
So I think the good news is we don't have to do any M&A to continue to be successful. And quite frankly, I don't think a majority of our shareholders want us to do M&A in this environment, particularly given where we're trading at. So what we try to do, and I'm sure this is next on your list, but we tried to thread that needle between the capital return story and the M&A story. If M&A is not going to be a use of capital, how do we do that? And we can talk about that in a minute. I think long term, I mean, objectively, Old National, to your point, is a better, more profitable company because of M&A.
Having said that, the boxes are really tight today. And I don't see it -- as the CEO, obviously, I try to have a relatively long horizon, but I don't see it in the near term. And quite frankly, I'm not seeing a lot of activity in our marketplace. I'm just not seeing a lot of things that are being -- I mean, I think there's things that have been for sale for a long time, and those continue to be for sale, but I'm not seeing a big wave coming, at least in the Greater Midwest today that even want to participate that we had. But again, we're not trying to solve any problems. And I think the organic growth story for Old National will provide the -- coupled with again, I'm sure you're going to get to this topic, the capital return story.
Let's talk about that. Obviously, you have increased authorization out there and you've moved the dividend. And what's -- philosophically, what are you thinking there? And how aggressive would you like to be?
Yes. So last year was a year of rebuilding our capital coming off the Bremer purchase accounting marks and things like that. And so this year, it's about organic growth. We were trying to thread the needle in terms of growing our capital back to levels that we were really comfortable with. And I think we've achieved those type of levels. And so John and I discussed about how do we make it crystal clear. We got some feedback from some investors about if you're growing your capital base, one could assume that maybe you want to use that for future M&A. And we were trying to suggest we didn't need to do that. So we obviously increased our authorization from $200 million to $400 million.
One thing we're also able to accomplish is that Auto Bremer Trust is a large shareholder of ours. We're able to work with them. We have the right of first refusal and they do with us as well. But we did a small transaction on behalf of them to solidify the fact that they don't intend to sell big parts of their position with us. And so I think that was another part of the important story about a potential overhang from them. But we feel really good about our ability to both grow capital, albeit maybe it's slightly lower than we had been, but also return capital back much quicker pace than we had in the prior years and then use the rest for organic growth.
Yes. Okay. Okay. Anything else that comes up frequently in investor meetings that we haven't touched on? I think it's been pretty exhaustive, but anything else you want to comment is a very positive message, very optimistic message.
Yes, one thing we're super excited about is this stablecoins have been a big topic. Old National Bank with 4 other regional banks, super regional banks are participating. In fact, First Horizon, I'll mention them because they were just on stage ahead of us, is working on this thing called the carry network, which is going to be a tokenized deposit network as an opportunity to compete in the payment innovation space. We're super excited about the potential what that could bring to us. And just we want to -- I think it's great that a bank like Old National even at $70 billion can potentially compete in some of this really higher-end innovation.
Yes. You should pull it all together. That's good. Smart. Well, thank you for being here.
Great.
Great message. Appreciate you guys being at the end of the day and at the end of a very long day for you.
Thanks, John. Thanks to RBC, too.
Thank you.
Old National Bancorp — Q4 2025 Earnings Call
1. Management Discussion
Welcome to the Old National Bancorp Fourth Quarter and Full Year 2025 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 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 may be forward-looking in nature and are subject to certain risks, uncertainties and other factors that could cause actual results or outcomes to differ from those discussed. The company refers you to its forward-looking statement legend in the earnings release and presentation slides. The company's risk factors are fully disclosed and discussed within its SEC filings.
In addition, certain slides contain non-GAAP measures, which management believes provide more appropriate comparisons. These non-GAAP measures are intended to assist investors' understanding of performance trends. Reconciliations for those numbers are contained within the appendix of the presentation.
I'd now like to turn the call over to Old National's Chairman and CEO, Jim Ryan for opening remarks. Mr. Ryan?
Good morning. Before we get started, I want to congratulate the Indiana Hoosiers for a perfect season and winning the National College Football Championship. You've made our state incredibly proud. Earlier today, Old National announced strong fourth quarter earnings, marking an exceptional year that set new organizational records for adjusted earnings per share, net income and the efficiency ratio.
Our 2025 results were driven by a focus on the fundamentals, core deposit growth to support loan expansion, positive operating leverage, disciplined credit management and healthy liquidity and capital ratios. Once again, we showed our unwavering commitment to shareholders, clients, team members and communities. Our peer-leading fourth quarter profitability was highlighted by an adjusted return on average tangible common equity of nearly 20% and an adjusted ROA of 1.37% and an adjusted efficiency ratio of 46%.
These outstanding quarterly results further reinforce the momentum behind our 2025 record performance that John will discuss later in the call. In the fourth quarter of 2025, we successfully completed the systems conversion and integration related to our Bremer Bank partnership. This was a major effort executed exceptionally well, and I want to thank our team members once again for their relentless focus and hard work throughout this process. The conversion reaffirmed the strength of our disciplined integration framework, which truly sets Old National apart.
As we have stated, driving tangible book value per share growth is a key priority. This past year, we grew tangible book value per share by 15% despite the impact of closing our Bremer partnership, the associated onetime charges and repurchasing 2.2 million shares in the back half of the year. We remain committed to strengthening tangible book value per share while continuing to drive peer-leading profitability.
Looking ahead to 2026, we will maintain the right balance between building capital organically and returning capital through share repurchases, supported by our peer-leading return on average tangible common equity. As I mentioned last quarter, the best investment we can make is in ourselves. Our focus remains on organic growth and disciplined capital returns to maximize shareholder value. We started 2026 with strong momentum, and we will continue to strengthen our core fundamentals by investing in talent, technology and client-facing capabilities. These efforts will ensure we remain strong, scalable and positioned for long-term success. Thank you.
I will now hand the call over to John to review the financial results in more detail.
Thanks. On Slide 5, as Jim mentioned, fourth quarter 2025 was a strong finish to a highly successful year, marked by records in adjusted EPS and efficiency with peer-leading profitability, improvement in already durable credit metrics and significant capital generation despite closing Bremer, which solidified our position in Minnesota while adding attractive funding in North Dakota. Speaking of our latest partnership, I'd be remiss if I didn't mention that the conversion of Bremer was one of our smoothest and most successful integrations ever.
For the quarterly details on Slide 6, we reported GAAP 4Q earnings per share of $0.55. Excluding $0.07 of merger-related expenses, Bremer pension plan termination charges and the reduction in our FDIC special assessment accrual, adjusted earnings per share were $0.62, a 5% increase over the prior quarter and a 27% increase year-over-year.
Results were driven by stable margin, better-than-expected growth in fee income and well-controlled expenses. Importantly, credit improved with an 8% reduction in total criticized and classified loans and low levels of non-PCD charge-offs. Our profitability profile, as measured by return on assets and on tangible common equity remained top decile against our peers. Lastly, our capital position has rebuilt quickly with CET1 over 11%, and we grew tangible book value per share over 17% annualized.
On Slide 7, you can see our quarterly balance sheet trends, highlighting our strong liquidity and capital. Our deposit growth over the last year has continued to keep pace with asset growth, and the loan-to-deposit ratio is now 89%. We grew tangible book value per share by 4% from 3Q and 15% over the last year, even with the impact of the Bremer close and absorbing approximately $140 million of merger charges year-to-date while repurchasing 2.2 million shares since we restarted the buyback in the third quarter of 2025. These liquidity and capital levels continue to provide a strong foundation as we head into 2026.
On Slide 8, we show trends in earning assets. Total loans grew 6.4% annualized from last quarter. Production was up 25% and was strong throughout our commercial book. Despite strong production, our pipeline is up nearly 15% from the prior quarter. Higher production levels were again partly offset by strategic portfolio management as evidenced by our lower criticized and classified levels due to payoffs. The investment portfolio was essentially unchanged from the prior quarter with portfolio purchases offset by changes in fair values.
We expect approximately $2.9 billion in cash flow over the next 12 months. Today, new money yields are running about 94 basis points above back book yields on securities. The repricing dynamics for both loans and securities combined with loan growth continue to support stable to improving net interest income and net interest margin over the course of 2026 with the first quarter impacted by 2 fewer days.
Moving to Slide 9, we show trends in deposits. Total deposits increased 0.6% annualized and core deposits ex-brokered decreased about 3% annualized, primarily driven by seasonally lower public funds balances. Noninterest-bearing deposits grew to 26% of core deposits from 24% in the prior quarter. Our use of brokered deposits increased in alignment with the aforementioned public funds seasonality. Even with that increase, our brokered levels remain below peer levels at 6.7% of total deposits.
The 17 basis point linked quarter decrease in our cost of total deposits played out as we expected with Fed cuts and our offensive posture with respect to client acquisition. We achieved an approximate 87% beta on rates in our exception price book in conjunction with the Fed cuts in the quarter. These actions resulted in a spot rate of 1.68% on total deposits at December 31. Overall, we remain confident in the execution of our deposit strategy, and we are prepared to proactively respond to the evolving rate environment.
Slide 10 shows our quarterly income statement trends. As I mentioned earlier, adjusted earnings per share were $0.62 for the quarter with all key line items in line or better than our prior guidance.
Moving on to Slide 11, we present details of our net interest income and margin, both of which increased as we had expected and guided. Modest margin expansion was supported by deposit repricing.
Slide 12 shows trends in adjusted noninterest income, which was $126 million for the quarter, exceeding our guidance. While most of our fee businesses performed in line with our expectations, we again saw better-than-expected performance within mortgage and capital markets. In both cases, this was driven by a somewhat more favorable rate backdrop for these businesses.
Continuing to Slide 13, we show the trend in adjusted noninterest expenses of $365 million for the quarter. Run rate expenses remain well controlled, and we generated positive operating leverage on an adjusted basis year-over-year with a record low 46% adjusted efficiency ratio. We realized approximately 28% of the anticipated Bremer cost saves in the fourth quarter. And as a reminder, the saves from Bremer are expected to be fully realized in the first quarter. This is reflected in our 2026 guidance, which I'll get to in a few slides.
On Slide 14, we present our credit trends. Total net charge-offs were 27 basis points and were 16 basis points, excluding charge-offs on PCD loans. Criticized and classified loans decreased $278 million or approximately 8% and nonaccrual loans decreased $70 million or approximately 12%. This improvement is reflective of the continued focus on active portfolio management. Notably, in our commercial real estate portfolios, we saw upgrades and payoffs exceed downgrades by a 2:1 ratio.
The fourth quarter allowance for credit losses to total loans, including the reserve for unfunded commitments, was 124 basis points, down 2 basis points from the prior quarter, primarily driven by the decrease in criticized and classified loans. Consistent with the third quarter, our qualitative reserves incorporate a 100% weighting on the Moody's S2 scenario with additional qualitative factors to capture global economic uncertainty. Lastly, given the increased focus on loans to nondepository financial institutions, we'd like to emphasize as we did last quarter, that our exposure is de minimis.
Slide 15 presents key credit metrics relative to peers. As discussed in past calls, we have historically experienced a lower conversion rate of NPLs to NCOs as compared to our peers, driven by our approach to credit and client selection. That continues to be the case, and we remain comfortable around the credit outlook.
On Slide 16, we review our capital position at the end of the quarter. All regulatory ratios increased linked quarter due to strong retained earnings, partly offset by robust quarterly loan growth and Bremer merger-related charges. On the GAAP capital front, TCE was up about 20 basis points and tangible book value per share was up 4% linked quarter and 15% year-over-year. We expect AOCI to improve approximately 11% or $55 million by year-end. Our strong profitability profile continues to generate significant capital, which opened the door for capital return earlier this year. As previously mentioned, late in the quarter, we repurchased an additional 1.1 million shares of common stock, taking our total to 2.2 million shares for the year. We don't view growing capital and returning capital as mutually exclusive in 2026.
Slide 17 includes updated details on our rate risk position and net interest income guidance. NII is expected to increase with the benefit of fixed asset repricing and continued growth. Our assumptions are listed on the slide, but as we do each quarter, we would highlight a few of the primary drivers. First, we assume 2 additional rate cuts of 25 basis points each in 2026, which aligns with the current forward curve. Second, we assume the 5-year treasury rate of 375 basis points. Third, we anticipate our total down rate deposit beta to be approximately 40%, which is in line with our terminal up rate betas and our 4Q experience. And fourth, we expect noninterest-bearing deposits to remain relatively stable.
Importantly, our balance sheet remains neutrally positioned to short-term interest rates. As such, the path of NIM and NII in 2026 will depend on growth dynamics in the shape of the yield curve, the absolute level of the belly of the curve and continued deposit beta management more than the absolute level of short-term rates.
Slide 18 includes our outlook for the first quarter and full year 2026. We believe our current pipeline supports 1Q growth of 3% to 5% and full year loan growth of 4% to 6%. We anticipate continued success in the execution of our deposit strategy and expect to meet or exceed industry growth in 2026 and generally in line with our asset growth. We expect fee income to remain strong given a supportive rate backdrop for mortgage and capital markets as well as continued progress in wealth management and brokerage.
Expense guidance incorporates a full quarter run rate on Bremer cost savings and typical seasonal factors in the first quarter. Other key line items are highlighted on the slide. You'll note that we expect full year results that yield significant growth in earnings per share and again feature positive operating leverage with a peer-leading return profile, good growth in fees, controlled expenses and normalized credit.
In summary, echoing Jim's opening comments, 2025 was exceptionally strong. We completed the core systems conversion and integration associated with our Bremer partnership. That partnership created a leading bank franchise in Minnesota and added valuable funding with good market share in several markets in North Dakota. We compounded tangible book value per share despite closing that deal and advanced our peer-leading return on tangible common equity and efficiency. And we funded our loan growth with deposit growth while improving our already resilient credit metrics. In 2026, we remain focused on organic growth and returning capital to shareholders, investing in ourselves to drive excellence in talent, operations, sales execution and client-facing capabilities. This will ensure that we remain strong, scalable and positioned for long-term success.
With those comments, I'd like to open the call for your questions.
[Operator Instructions] Your first question today comes from the line of Scott Siefers with Piper Sandler.
2. Question Answer
Let's see. I guess, John, maybe first question for you. I was hoping you can maybe help with how you see the margin trajecting through the year. Just noticed on the sort of the NII walk on Slide 17, you've got a much bigger step-up in NII in the second half versus what we should see here in the next couple of quarters. Is that a function of sort of timing of asset repricing or your expectation for rate cuts? Just curious as to the nuance in there.
Yes. I think the bigger factor there, Scott, is actually day count, right? So just remember, the first 2 quarters of next year, we got a couple less days in each of those quarters. I think when we think about the trajectory of margin in 2026, it's really 4 big factors on that. I think it's -- growth is number one. So we're sort of guiding 4% to 6% on that side. The second would be steepness of the curve and how that plays out. So knock on wood, the forwards actually come true. Number three would be belly of curve on fixed asset repricing. And then number four would be our continued ability to manage beta on the downside, which so far has gone really, really well. And so I think those are the big swings on the margin.
Okay. Perfect. Perfect. And then great to see the strong kind of end to the year just in terms of proactiveness of capital management. Maybe just sort of thoughts on pace of share repurchase throughout the year vis-a-vis the 1.1 million that you did in the -- kind of late in the fourth quarter.
Yes, Scott, I would say this year, we plan to be more active than we were last year. We obviously want to make sure we have enough capital to support growth. And then I think our next priority is making sure that we return it back to our shareholders. So we're going to see how the year plays out a little bit, but it would be definitely a more active year in 2026 versus last.
Your next question comes from the line of Brendan Nosal with Hovde Group.
Maybe just to circle back to the margin, John, totally get your comments on day count. I mean if we strip out day count factors from margin, because I think you guys use a simple multiply by 4 to get to your margin presentation. Is it fair to say that like a day count adjusted margin is stable, if not a bit grinding higher as we move through the year?
Very fair. I think you captured it.
Okay. Okay. Then maybe moving to the credit side of things. I think if I interpolate the kind of the various pieces on the guide for loan growth, charge-offs and provision, I think it implies a bit of a reduction in your reserve coverage ratio versus loans. So I guess just what are you seeing either in your own portfolio or the macro inputs that would let you slightly underprovide for both growth plus loss content?
Yes. It's really the migration in the criticized and classified book and improvement on those measures, 2 or 3 now quarters of really, really solid improvement there, close to $70 million lower on NPLs in this quarter. And when you've got that kind of fundamental improvement, it's just -- the model just spits out, but it spits out kind of math, math, maths, right? And so clearly, I think we're through the peak in that -- in those categories of classification.
Your next question comes from the line of Jared Shaw with Barclays.
Just circling back on the capital and hearing what you're saying about the buyback, how should we think about sort of a good core target CET1 for you as we move through '26 with sort of all those assumptions behind it?
Yes. Jared, very comfortable with where we are on CET1 today. And Jim said it well, first priority is to ensure we've got powder for organic growth, right? But left unchecked, this is going to grow quickly, arguably too quickly, and we're not going to let it go unchecked.
But not -- we shouldn't assume that you're trying to target back down to like a 10.5% from where we are right now.
No. I don't think so, not at this time. And again, I think we said we don't view it as mutually exclusive to grow a little bit of capital and return capital in 2026.
Okay. And then I guess, shifting to deposits. You had really good growth in DDA on average and end of period, but then you call out sort of a relatively stable balance for '26. How should we think about sort of seasonality? And is that stable as a percentage of deposits? Or is that stable as sort of dollars of deposits from here?
Yes, I'm thinking that it's stable as a percentage. We've got some seasonality, obviously, in the public funds book, but other than that, nothing to really talk about on the deposit side in terms of seasonality.
Your next question comes from the line of Ben Gerlinger with Citi.
I was wondering if you could talk to the growth a little bit. I know that some of your larger competitors in the area of acquisitions pending and maybe they're taking their eye off the ball or different markets? Or is it just hiring or potentially just kind of deepening relationships with kind of the new Bremer customers? I was just kind of curious where is the growth coming from like existing or new areas? Just kind of unpack that a little bit would be helpful.
Sure. Ben, this is Tim. We're seeing broad-based growth from the C&I middle market standpoint. We're also seeing enhancements from CRE demand drivers. And we're going to continue to be opportunistic and aggressive from a talent perspective. So we think as the year unfolds and we continue to add talent that will also help drive consumer sentiment is showing that demand is growing.
Got you. That's helpful. And then if you could think about just kind of the pricing of that? Is there any areas where it's become a little bit more overly competitive or any geographies where it's just like you're not getting the ROATCE adjusted to rather not play? Or do you think -- I mean, it's always competitive. So I'm just kind of layering that in. Any thoughts on just pricing within the loan categories or geographies?
Yes. We continue to be very disciplined in our pricing model. Obviously, where you see disruption, I think there is opportunity as banks are playing defense with the disruption. But we're being opportunistic in certain high-growth markets, but across the board, a very disciplined approach to pricing as we look to grow loans.
Ben, I just -- I reiterate the point that Tim made earlier, and we tried to highlight that in our remarks. Our plan is to invest heavily in talent. Tim has been around about 6 months now, got his feet wet, thinking about how do we best organize for success and really get after it. And I think this I think will be like some of our past years where we're going to highlight some real growth in talent. And so we're excited about what that might bring for us.
Your next question comes from the line of Terry McEvoy with Stephens.
Maybe start with just a question on fees. If I annualize the fourth quarter, it's kind of at the high end of your 2026 outlook. And I'm wondering, is there a bit of conservatism built into your outlook or maybe mortgage returns to more normal levels? I was hoping to get your thoughts there.
Yes. I think -- Terry, there's a little bit of seasonality, obviously, in first quarter on the mortgage line. Mortgage was good last year. I wouldn't say great, but good. We've got a constructive or more constructive anyway, rate backdrop on that line of business. So I'd say we're cautiously optimistic on mortgage for '26. But what you see in the guide is if I were going to pick on 2 places where maybe we've got some upside, it would be mortgage and cap markets, both of which have been really good in the back half of 2025.
Yes. Agreed. And then as a follow-up, new production yields were 6% last quarter, I think, in the presentation. Could you just run through what's the incremental kind of repricing benefit that you're seeing? And John, can you run through the securities repricing as well? I couldn't get all those. I couldn't write everything down as you were going through your prepared remarks.
Yes, no problem. In total, there's -- on the loan side, 70 basis points in terms of spread to new yields against the portfolio, about $5 billion of that over the next 12 months. And then on the investment portfolio, $2.9 billion of cash flow over the next 12 months, and those new money yields are 94 basis points above the back book yield.
Your next question comes from the line of Janet Lee with TD Cowen.
For your securities portfolio, the new money yields of 5%, it seems pretty solid. What's underlying -- what's the underlying drivers behind the securities yields that you're earning? And is it fair to assume the securities investment portfolio stays around this level or running down as your expectation for deposit growth appears to be in line with your loan growth for 2026?
Yes. I think securities as a percentage of earning assets or the way that we kind of look at it is cash and securities as a percentage of total assets. And I think that's going to be pretty stable over 2026. So we don't really intend to grow it nor shrink it. I think we'll just continue to invest cash flow. And in terms of where we're going, it's really plain vanilla stuff. I mean we're targeting kind of a duration, and Mike and his team do a good job managing that for us. So I don't think there's going to be big changes in our securities book.
Got it. And just a follow-up on deposit costs. In your expectation for your NIM of stable to moving higher throughout 2026. So the spot rate of 1.68%, that seems -- I mean, given the strength of your deposit franchise, it seems lower than peers, and it looks lower on an absolute basis. Is your expectation that the total deposit cost could creep down more from the current levels given the amount of exception pricing deposits that you have on your balance sheet? Or is more of the benefit coming from the fixed rate asset repricing?
I think it's both. Look, where we managed all of our beta in the deposit book was via that exception price book. That book today is 36% of total deposits. It's about 45% of our transactional accounts. And that price, we think we still have room to pull down. And look, we're continuing to work that book really hard. We've realized almost a 90% beta on that one kind of point-to-point, and we're ready to move proactively with rates.
Your next question comes from the line of Chris McGratty with KBW.
Jim or John, one of your peers made a comment recently that the deposit pricing in particularly Chicago was actually pretty reasonable, which is something I haven't really heard in my career. Any comments on deposit repricing by your markets, which span the Midwest?
Yes. Look, I would suggest that it's still competitive. But I think almost everywhere, it is -- it has been very, very rational. There are a handful of markets out there that are a little bit spicier, but I think for the vast majority of our footprint and certainly any place where we've got meaningful deposits and meaningful share, things have been very rational.
Okay. And then just quickly on the expenses. Technology spend has gotten a lot of attention this quarter. I'm not sure if I've seen a number from you of what piece of the expenses are going into tech investments. But any color there, either a percent of revenues, rate of growth, any kind of color to kind of give us some context there?
Maybe just let me give you a 50,000-foot view. I think we're spending as much [Technical Difficulty] at this point in time. We are not underfunding new investments. We're thinking about innovation in the payment space, innovation in the client-facing capabilities. And we're really good at self-funding a lot of that. Even though we keep grinding on the efficiency ratio, we're really good about self-funding those new investments. If there's anything that I think we're going to continue to put pressure on, it's probably that salaries line item.
As I said earlier, I want to make John uncomfortable with the amount of people that we plan to hire to really grow the front line. So I'm very comfortable with our technology spend, and I'm even more comfortable that we couldn't spend any more really and handle the organizational change that comes out of that. So I think we're at the right level, and we're certainly not underfunding any opportunities that are in front of us.
Your next question comes from the line of David Chiaverini from Jefferies.
So I wanted to circle back to loan growth, the 4% to 6% guide. Can you talk about what could lead to the high end versus the low end and also talk about borrower sentiment on the commercial side?
Sure thing. David, this is Tim. I'll start with the sentiment side. We think customers are feeling more optimistic about 2026 than the prior few years. Part of the contributing factors would be lower rates, more experience dealing with tariffs, clarity on the tax bill and certainly M&A heating up. So we think from a demand perspective, things are -- sentiment is driving that higher.
As far as some of the factors that could drive the higher end of that, we're seeing middle market C&I picking up. We think our message of being a community bank, very client-centric is one that plays very well in that space. To continue to build on Jim's comment, talent is a big factor here and continuing to add bankers strategically in high-growth markets will help drive that. And I think our expansion markets continue to show really good loan growth and opportunity as we continue to build out those teams.
Great. And then on the outlook for M&A, so the Bremer integration has gone well. Can you give us your latest thoughts on your appetite for M&A going forward?
Yes. I think it's like we said last quarter, we're really focused in on investing in ourselves, being a better version of ourselves. I think that's the best return we can provide for our shareholders today is continue to work on ourselves and grow organically. And it's just not -- it's not a focus. It's not something we're spending a lot of time on today. And nothing would make me happier if we finish the year just by being a better version of ourselves.
Your next question comes from the line of Jon Arfstrom from RBC.
John, the strategic portfolio management that you referenced earlier, how much is left to do there?
I think it's kind of constant and ongoing, Jon. It's just like, look, the inflow into the classified buckets that we saw starting kind of 18 months ago. We really feel like we've got our arms around that. Obviously, the loss content there has been de minimis. And I think we're through the worst of it. But ongoing active portfolio management like we always do.
Yes. Okay. Maybe, Jim, can you talk a little bit more about the wealth strategy and outlook and what kind of expectations you have for that business?
Yes, I think we're doing really well there. But again, I also -- I would reiterate my comments around the talent. That's really a talent play. Tim is spending a lot of time with our wealth teams. In fact, he's meeting with the sales team here next week, really trying to ramp up expectations around ongoing hiring in that space. We've been successful and probably more successful than many of our peers have been in that space, but I think we can do even better.
I really see great opportunities for us there. So I think we've built the product capabilities to be successful. We've got the right business model. I think we're organized for success. But really what we can do is I think we're underpenetrated in some of our biggest markets with talent. And I think if we can pull that part off, which I believe we can, I think we can even see higher growth coming out of that business line.
And one thing I would add, this is Tim. I think our partnership and collaboration with the commercial bank, there continues to be opportunities to more fully deliver the entire bank into our wealth clients and into our commercial clients, and we're seeing partnerships and those referral activities really drive good results there.
Okay. Fair enough. And Jim, congratulations to the Hoosiers. I know you're pushing Moran on expenses, but hopefully, there's room for some Hoosier Gameday Lager in the budget.
I like it. I like it. We're very excited, and we're so proud of them. What a great story and can't wait for the movie Hoosiers 2 to come out soon.
And there are no further questions at this time. I'd like to turn the call back over to Jim Ryan for closing remarks.
Thank you all for your support and participation. The team will be available for calls all day today. Thanks so much. Go Hoosiers.
This concludes Old National's call. Once again, a replay, along with the presentation slides will be available for 12 months on the Investor Relations page of Old National's website, oldnational.com.
A replay of the call will also be available by dialing (800) 770-2030, access code 9394540. This replay will be available through February 4. If anyone has any additional questions, please contact Lynell Durchholz at (812) 464-1366. Thank you for your participation in today's conference call.
Old National Bancorp — Q4 2025 Earnings Call
Old National Bancorp — Q3 2025 Earnings Call
1. Management Discussion
Welcome to the Old National Bancorp Third Quarter 2025 Earnings Conference Call. This line 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 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 may be forward-looking in nature and are subject to certain risks, uncertainties and other factors that could cause actual results or outcomes to differ from those discussed. The company refers you to its forward-looking statement legend in the earnings release and presentation slides. The company's risk factors are fully disclosed and discussed within its SEC filings.
In addition, certain slides contain non-GAAP measures with management's beliefs provide more appropriate comparisons. These non-GAAP measures are intended to assist investors' understanding of performance trends. Reconciliations for these numbers are contained in the appendix of the presentation.
I would now like to turn the call over to Old Nation's (sic) [ Old National's ] Chairman and CEO, Jim Ryan, for opening remarks. Mr. Ryan?
Good morning. Earlier today, Old National reported outstanding third quarter 2025 results that reflect our strong financial performance and our continued commitment to being a better version of ourselves quarter after quarter.
We delivered third quarter performance at or above our guidance across all major income statement line items. We beat earnings expectations, delivered an adjusted 20% return on average tangible common equity 1.3% plus ROA and a sub-50% efficiency ratio with improved credit metrics. Provision and charge-offs aligned with expectations, and we saw a meaningful decline in both the 30-plus day delinquencies and criticized and classified loans.
There has been discussions this earnings season about some potential credit cracks within our industry. From my perspective, these are not indicative of something larger yet to come in future quarters. In fact, many of the credit items reported by other banks are quite manageable and within normal long-term operating conditions. In my conversation with the peers, there does not seem to be a plague of "cockroaches" on the horizon. Our industry, including Old National, is well reserved, well capitalized and has robust operating results, which serve as a strong buffer for potential credit changes.
Meanwhile, at Old National, we continue to build a stronger franchise by leveraging our leading market position, investing in ourselves and strategically recruiting top-tier talent. We are taking advantage of market disruptions and have accelerated talent conversations across our footprint. This has been one of the catalysts behind our momentum.
At the same time, we're actively pursuing opportunities to enhance efficiency and effectiveness. Our efficiency ratio is below 50% and improving, but we are still investing in our future to enhance growth opportunities. We also continue to exceed expectations by growing core deposits and managing our deposit costs. Our franchise is built to perform in any environment, and this quarter was no exception.
Capital management remains a top priority. Our high return profile drives significant capital generation and open the door for additional capital returns. CET1 increased 28 basis points this quarter despite merger-related charges and while repurchasing 1.1 million shares late in the quarter. We are threading the needle between growing capital coming off our Bremer partnership and returning capital to our shareholders.
And let me be clear, the best acquisition we can make in the next 12 months is ourselves. We are not chasing new partnerships. We are focused on organically growing our balance sheet and capital and delivering the best return for our shareholders. Last weekend, our team successfully completed the systems conversion and branding for our Bremer Bank partnership. We are now operating as Old National in all former Bremer locations and are excited about future growth opportunities.
Thank you to all of our team members for their collaboration, hard work and dedication to the integration. We believe our quarterly results speak for themselves with strong and increasing profitability, better efficiency, improved credit and the recognition of our focus on being a better bank and rewarding our shareholders. If you step back a bit from the quarterly results, our core EPS has grown 7.6% on a compounded annual growth rate since 2018 with even stronger momentum heading into 2026. Objectively, we have become a better bank each year, and there has never been a better time to invest in us.
Thank you. I will now turn the call over to John, who will provide more detailed quarterly insights.
Thanks. As Jim mentioned, our third quarter was highly successful.
Beginning on Slide 5, we reported GAAP 3Q earnings per share of $0.46. Excluding $0.13 of net merger-related expenses, adjusted earnings per share were $0.59, an 11% increase over the prior quarter and a 28% increase year-over-year. Results were driven by the full quarter impact of Bremer operations, margin expansion, better-than-expected growth in fee income and well-controlled expenses. Importantly, credit remained benign with a 6% reduction in total criticized and classified loans and normalized levels of charge-offs. Our profitability profile, as measured by return on assets and on tangible common equity remained in the top decile among our peers.
Lastly, our capital position has rebuilt quickly with CET1 over 11%, 28 basis points higher linked quarter, and we grew tangible book value per share over 17% annualized.
On Slide 6, you can see our quarterly balance sheet trends, highlighting improvement in our liquidity and our strong capital position. Our deposit growth over the last year has continued to allow us to fund our loan growth, and our loan-to-deposit ratio is now 87%. We grew tangible book value per share by 4% from 2Q and 10% over the last year, even with the impact of the Bremer close and absorbing approximately $70 million of merger charges while repurchasing 1.1 million shares this quarter.
These liquidity and capital levels continue to provide a strong foundation, which strengthens our position as we end 2025 and look forward to 2026.
On Slide 7, we show trends in our earning assets. Excluding Bremer, total loans grew 3.1% annualized from last quarter. Production was up 20% from the prior quarter and was strong throughout our commercial book, while the legacy Old National pipeline is up nearly 40% year-over-year. Higher production levels were partly offset by late quarter payoffs, and it is worth noting that our average loan balances exceeded second quarter's end-of-period balances by nearly $300 million. These payoffs were mostly due to strategic portfolio management as evidenced by our lower criticized and classified levels as well as by increased transactional velocity in commercial real estate and lower line utilization.
Bremer balances declined due to payoffs, largely due to strategic portfolio management. The investment portfolio increased approximately $430 million from the prior quarter given favorable rates and changes in fair values. We expect approximately $2.8 billion in cash flow over the next 12 months. Today, new money yields are running about 70 basis points above back book yields on securities as the repositioning of the Bremer book lifted the yield on our back book. The repricing dynamics for both loans and securities, combined with loan growth in the Bremer partnership support our expectation that net interest income and net interest margin should be stable to improving in the fourth quarter of 2025.
Moving to Slide 8, we show trends in total deposits. Total deposits increased 4.8% annualized and core deposits ex brokered increased an even better 5.8% annualized, primarily driven by growth from both existing and new commercial clients. Noninterest-bearing deposits remained 24% of core deposits. Our brokered deposits decreased modestly and at 5.8% of total deposits, our use of brokered remains below peer levels.
With respect to deposit costs, the 4 basis point linked quarter increase in our cost of total deposits played out as we expected due to the full quarter impact of Bremer's cost of deposits and our offensive posture with respect to client acquisition. We achieved an approximate 85% beta on our exception price book spot rate in conjunction with the Fed rate cut in September. These actions resulted in a spot rate of 1.86% on total deposits at September 30.
Overall, we remain confident in the execution of our deposit strategy, and we are prepared to proactively respond to the potentially evolving rate environment. As has been the case for the last several years, we are proactively driving above peer deposit growth at reasonable costs.
Slide 9 shows our quarterly income statement trends. As I mentioned earlier, adjusted earnings per share were $0.59 for the quarter with all key line items in line or better than our guidance.
Moving to Slide 10. We present details of our net interest income and margin, both of which increased as we had expected and guided, driven by the full quarter impact of Bremer as well as asset repricing and organic growth.
Slide 11 shows trends in adjusted noninterest income, which was $130 million for the quarter, exceeding our guidance. All line items showed increases, reflecting Bremer and organic growth in our primary fee businesses with outsized performance within capital markets, driven by a handful of larger swap fees. While we are very pleased with our performance in fee income this quarter, we do expect trends to normalize somewhat in the fourth quarter.
Continue to Slide 12, we show the trend in adjusted noninterest expenses of $376 million for the quarter, reflective of a full quarter impact of Bremer operations. Run rate expenses remain well controlled, and we generated positive operating leverage on an adjusted basis year-over-year with a low 48% efficiency ratio. As a reminder, the full run rate cost saves from Bremer will materialize later in the fourth quarter and will be more evident in the first quarter's reported results.
On Slide 13, we present our credit trends. Total net charge-offs were 25 basis points or 17 basis points, excluding charge-offs on PCD loans. Our nonaccrual loans and 30-plus day DQs as a percentage of total loans declined 1 basis point and 12 basis points, respectively, during the quarter. Importantly and positively, criticized and classified loans decreased $223 million or 6%, reflective of the continued focus on active portfolio management.
The third quarter allowance for credit losses to total loans, including the reserve for unfunded commitments, was 126 basis points, up 2 basis points from the prior quarter, primarily driven by Bremer-related PCD reserves. Consistent with the second quarter, our qualitative reserves incorporate a 100% weighting on the Moody's S2 scenario with additional qualitative factors to capture global economic uncertainty.
Lastly, given the increased focus on loans to nondepository financial institutions, we'd like to emphasize that our exposure is de minimis. All said, NDFIs are less than 50 basis points of total loans, all are performing. And like other businesses that we bank, most are long-term relationships.
Slide 14 presents key credit metrics relative to peers. As discussed in past calls, we have historically experienced a lower conversion rate of NPLs to NCOs as compared to our peers, driven by our approach to credit and client selection. We remain comfortable around the credit outlook. It is also worth noting that roughly 60% of our nonaccruals are from acquired books with appropriate reserves and/or marks. In addition, roughly 50% of our NPLs are paying principal and interest or interest only and approximately 40% of our classified and criticized assets are in investor CRE, where we continue to have confidence in collateral values and the quality of our sponsors.
On Slide 15, we review our capital position at the end of the quarter. All regulatory ratios increased linked quarter due to strong retained earnings. Tangible book value was up 4% linked quarter and 10% year-over-year, and we expect AOCI to improve approximately 20% or $105 million by year-end 2026. Our strong profitability profile continues to generate significant capital, which opened the door for capital return this quarter. As previously mentioned, late in the quarter, we repurchased 1.1 million shares of common stock.
Slide 16 includes updated details on our rate risk position and net interest income guidance. NII is expected to increase with the benefit of fixed asset repricing and continued growth. Our assumptions are listed on the slide, but I would highlight a few of the primary drivers.
First, we assume 2 additional rate cuts of 25 basis points each in 2025, which aligns with the current forward curve. Second, we assume a 5-year treasury rate that stabilizes at 3.55%. Third, we anticipate our total down rate deposit beta to be approximately 40%, in line with our uprate terminal betas. And fourth, we expect the noninterest-bearing mix to remain relatively stable as a percentage of core deposits.
Importantly, our balance sheet remains neutrally positioned to short-term interest rates. As such, the path of NIM and NII in 2026 will depend on growth dynamics and the shape of the yield curve more than the absolute level of short-term rates.
Slide 17 includes our outlook for the fourth quarter and full year 2025. With the exception of full year 2025 loan growth, all guidance includes Bremer. We believe our current pipelines support full year loan growth, excluding the impact of Bremer of 4% to 5%. We anticipate continued success in the execution of our deposit strategy and expect to meet or exceed industry growth in 2025. Other key line items are highlighted on the slide.
Note that we have increased fee income guidance to reflect our strong third quarter performance with other lines unchanged. Importantly, our full year outlook once again proved durable as compared to the initial guidance that we provided in January of this year. As we always have, we do our absolute best to transparently tell you what we know, when we know it and then deliver against the plan.
At the midpoint of the ranges, you'll note that we expect full year results that yield earnings per share in line with current analyst consensus estimates and again feature positive operating leverage and a peer-leading return profile with good growth in fees, controlled expenses and normalized credit.
In summary, echoing Jim's opening comments, year-to-date 2025 has been exceptionally strong. We have successfully completed the core systems conversion for Bremer Bank. We delivered 3Q '25 and year-to-date performance at or above plan while demonstrating improvement in our credit, capital and liquidity profile. We are focused on organic growth and returning capital to shareholders while investing in ourselves, strategically recruiting talent and maintaining our peer-leading profitability.
With those comments, I'd like to open the call for your questions.
[Operator Instructions] Your first question comes from the line of Scott Siefers with Piper Sandler.
2. Question Answer
Let's see. Maybe, John, first one is for you. So really strong third quarter for NII, but a little bit of reduction in the expectation for the fourth quarter. So maybe if you can sort of walk us through the puts and takes of what drove the anticipation for the -- I guess, I mean, we'll still grow, but $5 million less than had been the case sort of previously.
Yes. Scott, thanks. Look, $5 million down on what had been $590 million is now squiglyined $585 million. We're talking about a balance sheet of close to $65 billion in earning assets. We're slicing the cheese pretty dang thin there, if you ask me. Look, I would tell you, I view that as very stable. And we're just doing our best to kind of tell you exactly what we think it's going to be. I think the dynamics are, look, 5-year came in a little bit and the launch point for the quarter is a little bit lower than where we had thought it was going to be when we set the guide 90 days ago. But again, 1% of NII on a $65 billion earning asset base, I'd say that's pretty damn good.
Yes. All right. Fair enough. Fair enough. And then let's see, Jim, next one is for you. So it sounds like M&A is off the table for now. But by contrast, I was glad to see the -- just a little over 1 million shares of repurchase there late in the quarter. Maybe just if you could spend a bit more time kind of discussing your preferred uses for capital? And then is that 1.1 million shares representative of what we should expect going forward? Or could we see that pace get bumped up just given the strong and improving capital levels?
Yes. Let me start with M&A. And again, we think the best acquisition we can make is in ourselves. And so that's the most important thing we can do. Given where we're trading at, we think it's a particularly great investment. That's why I encourage you all to continue to buy more shares. For us, I think we're going to be opportunistic on the buyback. We're trying to thread that needle between building some capital back coming off our Bremer partnership but also recognizing that we are accreting capital back very quickly.
And so we're going to continue to do that in the fourth quarter. Once we get through the fourth quarter, then I think we'll have a better perspective on what the full year will look like in terms of returning capital. But I'd say the first use is organic growth. But even with the organic growth, given that high relative return, we still have an opportunity to return capital back to you all via buybacks.
Your next question comes from the line of Jared Shaw with Barclays.
Just looking at the dynamic of acquired Bremer or loans acquired through Bremer, were they -- did you have loan sales this quarter bringing that down? You talked about running balances off. Was that just organic? Or were you able to sell any of those? And what's sort of the expectation for additional flow from acquired loans in fourth quarter?
Yes, Jared, I'll just start. Any time we partner with another institution, there are books of businesses, particularly anything national related that we're just not going to continue on here. And I think you saw that in this quarter, you saw it at CapStar and you saw it at First Midwest. I mean it's just a normal part of that. We don't anticipate large swings. So this is just kind of normal attrition in those lines of businesses that we don't plan to continue to operate. So I don't expect it to be dramatic, but it puts a little bit of pressure in that transition period where you just kind of stop doing business. So -- but I wouldn't plan anything material and certainly don't have any loan sales teed up to run that portfolio off any faster than it would just happen naturally.
Okay. And then when we look at the provision on the PCD loans and then the charge-offs on PCD, what was driving, I guess, that incremental weakness. Was that just you're in there and get to see it? Or was that just that exit, there were exit costs?
Yes, pretty normal sort of first quarter, second quarter, third quarter post acquisition, you get your arms around credit. And for as long as that mark stays open, those will run PCD.
Okay. And then just finally, any update on how the systems conversion went? And when we look at the sort of accelerated merger charge this quarter, is that just pulling forward from being able to bring everything online on systems?
Yes. I think it's just normal merger charges. There'll be some pluses and minuses along the way. I would say, knock on wood, I don't want -- this has been our best systems conversion to date. We've got a lot of monitoring places. The client sentiment is high. The branch locations have been busy. There have been a lot of calls to the contact center, but we monitor all the statistics. And look, I've been doing these integrations now for more than 20 years at Old National. And I can tell you this is the best one we've ever done. I think that's a reflection of the client base that Bremer had. I think it's a reflection of the hard work for our teams and the fact that we try to get better at this every single time.
So I'm really pleased with where we stand. I don't want to knock that there -- with any transition, there's always a little minor bumps in the roads for our clients as they navigate new systems and new passwords and new login IDs and all that, but it's gone very, very well from my perspective.
Jared, in terms of charges, $70 million this quarter was about right in line with where we thought they were going to land. There'll be some more coming in fourth quarter, about $50 million in the fourth quarter. And then it really trails off front half of next year, will have a couple of little stragglers.
And as John said, we start to realize the cost savings really 30 days post conversion. And so the full run rate, you should assume would be impacting us in 1Q next year.
Okay. All right. Appreciate that. And then just finally, I guess, Jim, talking about the optimism for organic growth in your markets. Do you anticipate increasing hiring to take advantage of that? Or do you think you have the team on the field that you need to take advantage of that?
Well, let me start with we've got a great team on the field, and we've got great market opportunities in front of us, and there's a little bit of help with just disruption wins out there. So all of that's kind of net positive.
And Tim and I talk weekly about hiring new team members. We've met with a bunch of new folks. We're looking at the organization to make sure we got the right people in the right seats, and we're absolutely going to be out hiring folks. It's a little bit of arm wrestling between our CFO and myself about how much money we're going to spend on talent. But I know you all will be supportive of hiring talent that quickly adds to the revenue outlook. So we're definitely going to plan on doing that for -- we might get a little bit done yet this year, but we'll definitely be doing it all of next year.
Your next question comes from the line of Ben Gerlinger with Citi.
Your fourth quarter loan growth guide implies a step-up. It's not by no means heroic. And I mean, you wouldn't give that guide unless -- I mean we're a quarter of the way through the fourth quarter here. So I would imagine it's probably pretty accurate. Can you give a little color on like where it's coming from? Is it relationships deepening quickly with a bigger balance sheet? Is it across the footprint? Is there anything specific you would highlight?
Ben, this is Tim. Our legacy year-over-year pipelines are up close to 40%. So we feel very well positioned to achieve that fourth quarter guidance. So we're seeing a good healthy mix on the legacy Old National Bank pipelines and feel very good about achieving that.
All right. That was great color. When you think about the savings and opportunity, I know that 1Q next year is probably the clean quarter. But when you think about opportunities for reinvestment across the board, should we assume that there's reinvestment already baked in 1Q? Or could you theoretically be kind of over-earning a little bit because it just doesn't hit in the first 90 days of the year?
No, I think we're in a really good place in terms of operating expense and investment. Jim is kind of teasing me a little bit. It is an arm wrestle, right? And I get it. Good talent will pay for themselves very, very quickly on the revenue line, particularly in commercial bank, right? On wealth, that earnback can be a little bit of a longer period of time. Those relationships take longer to move over. It's a longer sales cycle. But I think we're going to be on offense with respect to investment. And there's clearly -- look, there's disruption across our footprint. There's a lot of opportunities out there, and we're getting a lot of looks. We've got a great story to tell. We're out there telling it.
I would also say, and you all know us well enough, I mean, becoming a better bank, being more efficient, more effective is what we do day in, day out. So we will also look for ways to continue to just be more efficient and to pay for those investments -- and net-net, I mean, we're driving just amazing efficiencies of this organization, but it's a part of the culture and our DNA here. So is investing in our future, and that's what we absolutely plan to do.
And as John said it well, I don't think anything materially changes how we're thinking about the year out of the gate. I would love it, quite frankly, if we could do that, right? That means we've hired many more people. That would be fantastic. We can do that. And that would be my goal, but nothing to give you any guidance on at this point in time.
Your next question comes from the line of Brendan Nosal with Hovde Group.
Just to start off here, could you unpack this quarter's increase in loan yields a little bit and just kind of dig into the various pieces, whether it's back book loan repricing, new origination yields or maybe some pull-through of the fair value mark that you took on the Bremer book?
No. The fair value mark was relatively unchanged. There was a little bit of an impact on a full quarter of Bremer and the credit component of that added about 1 basis point to the total margin. In terms of production yields, pretty steady. It was really sort of fixed asset repricing, I think, drove the bulk of the loan yield improvement.
Okay. Okay. That's helpful. And then kind of maybe turning to deposit growth and liquidity. Really nice core deposit growth this quarter. To the extent that going forward, funding inflows outpace loan growth, just talk about how you think about liquidity deployment and plans for the overall size of the securities book.
Yes. Look, we'll wave in new deposits every single quarter, quarter in, quarter out. That is -- we made up t-shirts around here that says I heart deposits. And Jim has become famous for running around the footprint, pounding on things saying we're all deposit gatherers. So we'll take deposits in excess of earning asset growth all day every day. We're on offense there. That's client acquisition. In terms of if it were to, in any given quarter, sort of have loan growth that didn't keep up with deposit growth. In my mind, that might be a high-quality problem to have, and we would just deploy it in short liquidity.
Your next question comes from the line of Terry McEvoy with Stephens.
John, just to follow up on that last question when you talked about pull forward, I just want to make sure the proactive portfolio actions, how did that impact accretion or NII in the third quarter? I know Slide 10 has that 1 basis point impact from credit accretion. I just want to make sure I'm clear on your last response.
Yes, it didn't. The total accretable was relatively unchanged.
Okay. And I guess I'll call this a softball question, but I think it's important this quarter. Virtually no NDFI loans, that's where all the focus is. Just when you take a step back, others were chasing after that growth because it sounds like it was easy. You guys were not. So Jim, could you just maybe talk about how that's reflective of Old National and how you run a business? And I think it's a good example of how you're different than many of your peers or at least some of your peers.
Thank you, Terry. It's a great question. No, Terry, you've known us a long time. We call this old-fashioned basic banking, right? We're not trying to -- it's banking the hard way. We call it the Old National way. I mean this is just bread and butter. And I will tell you, since Tim has been here for the last 90 days, we've had a lot of fun talking about doubling down on those issues, building more small business -- small business banking capabilities, building the business banking capabilities, doubling down on C&I, putting more talent in all of that space. That's what we will continue to do. We're not going to build big, large specialty teams that go after national businesses. This is banking, by and large, in our footprint for clients that we know and trust and will continue to bank for a long, long time.
Somebody pointed out in some commentary to us about one of our peers growing by multiple billions of dollars during the quarter. And I said, if we ever do that, you ought to be asking us really hard questions about what we're doing to get there. So that's just not our style. This is old-fashioned bread-and-butter banking.
So thanks for the question, but that's our plan. We're -- with Tim coming on board, we're doubly committed to doing this, and I think that's going to serve our shareholders over the long term. And to John's comment around deposit growth, we are always going to be out in the market running and looking for good long-term deposit relationships. And as long as we can continue to fund that bread-and-butter loans, those business banking loans with retail, commercial retail deposits, that's a good trade, and we'll do that every day.
Your next question comes from Brian Foran with Truist.
Maybe to come back and ask the Bremer loan question a different way. Certainly appreciate your comments that there's always going to be some trimming you want to do as you take in the business. But as we look to 2026, would you think we should be -- whatever we think Old National loan growth is, consolidated loan growth should be a similar number? Or would...
Absolute 2026. Right. Same organization, same objectives, same goals, absolutely. And in fact, I mean, if you look at how we would think about that internally, we would expect based on the Bremer footprint, Minnesota, where we've been for a long time now to actually generate more on average than our total company would do. So absolutely, we think about it. It's just some quarterly changes due to the newness of the portfolios. And as John said, we're going through all the portfolios reviewing those, looking at those national businesses that we just don't do. And it had a small impact this quarter, and it will continue to have a small impact, but absolutely, the growth should be more like our total average loan growth.
And maybe to ask about the same dynamic on the deposit side, is Bremer already contributing to deposit growth in the current quarter? And do you think it will have a similar trajectory as the Old National legacy going forward?
Yes. I mean, overall, the total balance sheet should have a similar mix. Total fee income line should have a similar mix. We -- in fact, again, I would suggest just everything, just given the relative size of that market, the opportunities for growth, on average, it's going to lead our organization. So I don't expect any kind of outlying differences as we head into '26.
Your next question comes from the line of Chris McGratty with KBW.
Jim or John, the capital buyback comment on -- that you made in your prepared remarks, and I kind of want to square it up with your comments about being sensitive to CET1 growing versus returning capital. So you're 11% today, if you grow the balance sheet low single digit, keep the dividend and continue to buy back stock, you're still going to build 50 basis points of capital per year. I mean I guess the question is, is 11% the right number? It feels like a lot of your peers are moving 10.5% or even 10%.
Yes. It is just -- there's a healthy tension between making sure that we're looking at all of the constituencies. Obviously, our shareholders have a view, the ratings agencies have a view. We're looking at forward at the economic conditions. And I do think there is opportunities to let that come down over time and not build as quickly as it would build just organically given our high profitability. We're just not ready to make that commitment quite yet, but it's something we're actively looking at. And you're right, we could have substantially more buyback and still keep capital unchanged.
And so I would suspect, though, as you look forward, we might see a little bit of capital build here just as we get more optics with all this and -- but we're very sensitive. And I think that is the best use of our capital is to return it back to our shareholders. And I think we could do substantially more than that in future periods once we just kind of get a view of those competing factors.
Okay. Perfect. And then, John, one for you on the NII comments. I think you said irrespective of the short end, you talked about the NII guide with the cuts. Jumping off point of $585 in the fourth quarter, if you kind of say to Brian's question about 3% to 5% Old National type of growth next year, does NII grow from here into '26?
Yes. I think NII will absolutely grow. I think margin will be stable-ish or depending. It will depend a little bit on yield curve dynamics. And look, the point of the curve that matters to us is still inverted and projected to be inverted for the first half of next year. That's no different than it's been for a long time. But if we got some steepening in -- take your pick, whether it's 3-month, 5-year effective Fed funds against 5-year, if there were steepening in that in the back half of the year, I think that would be really -- this is not unique to Old National, but it would be good for Old National, and I think it would be good for our industry.
Okay. The growth off of the fourth quarter is definitely a base case.
Your next question comes from the line of Janet Lee with TD Cowen.
Going back to Bremer, could you size up how much of a runoff that you saw from Bremer? And when you say -- in terms of the loan growth guidance, when you say excluding the Bremer, is it also excluding the impact of Bremer runoffs or just the -- whatever the loan amount that was added initially in the second quarter?
Yes, Janet, the third quarter runoff was about $200 million. The loan growth guidance for the fourth quarter is inclusive of everything. So that's Old National plus Bremer. The reason that we're still guiding full year, excluding Bremer, is that Bremer wasn't there for the first 4 months of the year. The fourth quarter, that 3% to 5% that's there on the guide for 4Q, that is inclusive of everything.
Okay. And the expectation is that the runoffs from the Bremer impact will be reduced in the coming quarters versus the $200 million. Is that the right way to think?
I think Jim said it well. There's a handful of lines of business that Bremer was in that are unlikely to continue here. And there'll be a little bit of runoff out of those portfolios, but that's totally normal course for any M&A transaction that Old National has been involved in, certainly for the last 5-plus years.
Got it. That's helpful. And just on fee income, that came in nicely above. It looks like it's -- a lot of it is just organic growth. The jump in capital markets, other fee and bank fees, did you -- like are these the organic trends that you're seeing? Or is there any unusual trend that was embedded in it? Is that the good run rate that we could grow off of?
Yes. I think the right level to be thinking about total fee income is probably in the $120 million sort of ZIP code. This quarter was really exceptionally good, particularly in capital markets. So some rate volatility is good for that line of business. But I would expect that, that probably comes back down to earth. They're doing great. We're really pleased with those results, but I don't think $13 million in a quarter is going to run rate on that business. And then obviously, mortgage is seasonally strong in 3Q, and that will come down in the fourth quarter, and that's totally normal.
Your next question comes from the line of John Arfstrom with RBC Capital Markets.
A couple of follow-ups here. Just on expenses and efficiency, maybe John or Jim, can you remind us on the Bremer-related efficiencies, what you expect in the fourth quarter and rolling into the first quarter? And then are there -- do you have any type of broader efficiency objectives? Or does this current efficiency ratio feel kind of like the right range for the company?
Yes. So fourth quarter, we'll start to see some, John. But it really -- as Jim said, it happens sort of 30 days post conversion, which puts us into the middle or later part of November. So you'll get a little bit here in the fourth quarter, but I wouldn't count on a ton of cost saves showing up in 4Q. Really, the number that you'll see a cleaner quarter on will be first quarter of next year. At that point, we'd be fully realized and fully realized is a touch over $115 million on an annualized basis.
Yes. So the efficiency ratio has some room to get a little bit better from here. And we are planning for growth and investments within our budget set there. But John, as you know, this is not a program. This is not a onetime thing. This is just an ongoing effort to constantly find ways to be a better organization to be more efficient, more effective and serve our clients in a little bit better ways. And we've got -- a lot of the investments we make each and every day are self-funded, and that's what we're going to obviously try to do. And I hope I have to come to you and tell you that I spent more money on talent and to take your expense guidance up. That means we're hiring a lot more people.
So that would be a good thing. So we're not there yet. We're not saying that's going to happen, but that would be a good thing if I had to come ask for a little bit of forgiveness.
Yes. Okay. A follow-up on credit. I see your numbers, they look fine, and I understand your comments on nonperforming loans. But would you guys describe credit as stable mixed bag, no change getting a little tougher? Or how would you, big picture, describe the credit environment?
Yes. I would say, from a credit perspective, very stable in our outlook. We feel comfortable with the guidance we've provided and the trends we're seeing in the portfolio, we feel good about.
John, I think stable to improving. I mean the decline in classified criticized assets was a good guide for the quarter. I continue to feel really comfortable with where we are.
We had this conversation too in our preparation here. And Cary said, hey, we work really hard every single day to scrub our books to make sure there's nothing unusual in there, nothing we don't know about. We're going through the portfolios constantly. We're trying not to surprise anybody. And so that's just -- our ongoing monitoring is tough and aggressive. We want to call it as early as possible, and we continue to do that. But we feel really good about what we saw this quarter.
And we've seen the delinquencies really improve, which was also a good factor.
Okay. Good. Yes, it obviously looks fine, but just it's a hot button issue.
We can appreciate that. Hopefully everybody takes it off the table for Old National.
Yes, for sure. And then just curious on ticky-tacky, but the timing of the repurchase late in the quarter, any reason behind that? Is that just more confidence in capital in Bremer? Why was it later in the quarter?
Yes. I think there was a lot of questions around our desire to return capital back, and we got more confidence that we saw the trajectory. And we also felt good about -- we were able to sell the Bremer insurance agency too, which continue to bolster the capital ratios. And so I think all that just gave us a lot more confidence in our ability to start returning capital, probably a little bit sooner than we had planned as we talked about on this last quarter's call. But I think that gives us an ability to continue to be more active here as we head into the fourth quarter and into next year.
There are no further questions at this time. I'd like to turn the call back over to Jim Ryan for closing remarks.
Well, thank you all for joining us. We appreciate your support. As usual, the whole team will be available to answer any follow-up questions you have. Hope you have a great day.
This concludes Old National's call. Once again, a replay, along with the presentation slides will be available for 12 months on the Investor Relations page of Old National's website, oldnational.com. A replay of the call will also be available by dialing (800) 770-2030 access code 9394540. This replay will be available through November 5. If anyone has additional questions, please contact Lynell Durchholz at (812) 464-1366.
Thank you for your participation in today's conference call. You may now disconnect.
Old National Bancorp — Q3 2025 Earnings Call
Financial data from Old National Bancorp
Revenue
Revenue is the sum of all sales generated by a company, e.g. for its products or services.
Revenue (TTM) metric explainedDirect Costs
Direct costs are the costs incurred directly in connection with the manufacture of the product or service.
Gross Profit
Gross Profit indicates how much of the revenue remains in the company after deducting direct production costs. If the percentage share of sales is calculated, this is referred to as the gross margin.
Gross Profit metric explainedSelling and Administrative Expenses
Selling, general and administrative expenses (SG&A) include all expenses for marketing and sales as well as the general administration of the company.
Research and Development Expense
Research and development costs (R&D) provide information on how much the company invests in the research and development of its products. The costs are particularly interesting as a percentage of revenue and in comparison to direct competitors.
EBITDA
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is the company's earnings before interest, taxes, depreciation and amortization. The EBITDA margin is calculated as a percentage of sales.
Depreciation and Amortization
Depreciation represents reductions in the value of the company's assets (e.g. due to wear and tear on machinery).
EBIT (Operating Income)
EBIT (Earnings Before Interest and Taxes) is the company's profit before interest and taxes, also known as the operating income. The EBIT Margin is calculated as a percentage of sales at
.
Net Profit
Net Profit represents the profit or loss after deduction of all costs.
Net Profit metric explainedStocksGuide Premium
| Jun '26 |
+/-
%
|
||
| Revenue | 2,823 2,823 |
34%
34%
100%
|
|
| - Interest Income | 2,307 2,307 |
37%
37%
82%
|
|
| - Non-Interest Income | 516 516 |
24%
24%
18%
|
|
| Interest Expense | 1,279 1,279 |
15%
15%
45%
|
|
| Non-Interest Expense | -1,569 -1,569 |
30%
30%
-56%
|
|
| Loan Loss Provisions | 131 131 |
33%
33%
5%
|
|
| Net Profit | 870 870 |
58%
58%
31%
|
|
In millions USD.
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Old National Bancorp Stock News
Company Profile
Old National Bancorp is financial holding company, which engages in the provision of financial and banking solutions. The Community Banking segment provides a range of services products and services as commercial, real estate and consumer loans, time deposits, checking and savings accounts, cash management, brokerage, trust, and investment advisory services. The company was founded in 1982 and is headquartered in Evansville, IN.
StocksGuide Premium
| Head office | United States |
| CEO | Mr. Ryan |
| Employees | 4,948 |
| Founded | 1982 |
| Website | ir.oldnational.com |


