Q4 2023 Old National Bancorp Earnings Call

Welcome to the old National Bancorp fourth quarter and full year 2023 earnings Conference call. This call is being recorded and has been made accessible to the public in accordance with the S. E. C regulation FD corresponding presentation slides can be found on the Investor relations page at old National Dot Com and will be arc.

Speaker Change: Hi, there for 12 months management would like to remind everyone that certain statements on todays call maybe 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.

<unk> slides.

Speaker Change: The company's risk factors are fully disclosed and discussed within its S E SEC filings.

Speaker Change: 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 reconciliation for these numbers are contained within the appendix of the presentation I'd now like to turn the call over to old National's C E O.

Speaker Change: Jim Ryan for opening remarks, Mr. Ryan Goodman.

James C. Ryan: Good morning old National reported strong fourth quarter and record full year results earlier this morning.

James C. Ryan: During 2023, we successfully navigated a challenging interest rate environment, along with industry wide liquidity pressures earlier in the year.

James C. Ryan: At old National executing our basic banking strategy served us well in fact, our 2023 of adjusted EPS return on average tangible common equity and efficiency ratio were the best in our nearly 190 year history.

James C. Ryan: Tangible book value per share also grew by 17% year over year.

James C. Ryan: Combined with our roughly 3.7% average dividend yield gave shareholders a strong return for the year.

James C. Ryan: Our peer leading deposit franchise disciplined loan growth strong credit quality and well managed expenses and dedicated team members, who are committed to our clients and communities drove these outstanding results.

James C. Ryan: While many in our industry spent the year on defense, we remain on the offense by continuing to invest in new client facing in key support talent and being ready and opportunistic for acquisitions as evidenced by our recently announced cap Star Bank partnership, which will expand our franchise to the highly dynamic markets Nashville broader Tennessee in Asheville.

James C. Ryan: North Carolina.

James C. Ryan: I will share more details about our progress with the strategic partnership later in my comments.

James C. Ryan: Starting on slide five.

James C. Ryan: GAAP earnings for the year were $1 94, and adjusted EPS was a record of $2.05 per common share representing a 5% increase year over year.

James C. Ryan: Our adjusted return on average tangible common equity and efficiency ratio were records at 21, 3% and 54% respectively.

James C. Ryan: Adjusted ROA was a strong one point to 8%.

James C. Ryan: Moving to slide six we reported GAAP earnings for the fourth quarter of <unk> 44 cents per common share.

James C. Ryan: Our adjusted EPS was <unk> 46 cents per common share and our adjusted results included higher than run rate cost related to a true up of the accrual for the annual short term incentive plan and additional tax credit amortization for the quarter. When combined resulted in an after tax adjustment of approximately $7 million or two cents of earnings per share impact.

James C. Ryan: Returning to our cap store partnership.

James C. Ryan: We have filed our regulatory applications and announced an additional 1.2 billion dollar investment in Tennessee, as a part of our existing community growth plan.

James C. Ryan: As we spend time with our new team members, we are even more excited about our partnership.

James C. Ryan: Our existing team in Nashville was already off to a great start and we're seeing many new client acquisition opportunities from that team, which will only build as we close on our partnership.

James C. Ryan: We still expect to close in the first half of the year in summary, our 2023 EPS results prove more durable than most peers in a challenging year due to a relentless focus on the basics growing core deposits consistent strong underwriting disciplined expense management and ample capital.

James C. Ryan: Brendan will provide you with our official 2024 outlook at the end of his prepared remarks, but as I look forward, it's difficult to predict what the year will bring predictions range from a few rate cuts to more than a handful from a soft landing to something more severe.

James C. Ryan: Regardless of what transpires, we have entered 2024 in a strong position by continuing to execute on our basic banking strategy and we are set up to be successful in whatever comes our way as we have for the past 190 years.

Speaker Change: I would like to recognize Mike Scudder as plan, Michael retire as executive Chairman of old National Bancorp at the end of January.

Speaker Change: I want to thank Mike for his combined 38 years of outstanding leadership and dedication to first Midwest and old National's his.

Speaker Change: His contributions to the board and me personally we are invaluable as we completed our transformational partnership has successfully navigated the last two years.

Speaker Change: Thank you I'll now turn the call over to Brendan to cover the quarterly results in more detail.

Brendan: Thanks, Tim beginning on slide seven we present, our fourth quarter balance sheet, which highlights improvements in both liquidity and capital positions. Our fourth quarter core deposit growth has allowed us to organically fund loan growth and continued to reduce wholesale borrowings and broker deposits.

Brendan: We ended the year with a strong CET one ratio of 10, 7% and we continue to accrete capital at a faster pace than most through the combination of our better than peer return profile and are at peer payout ratio.

Tangible book value per share grew 11% quarter over quarter, and 17% year over year due to strong earnings and a 24% improvement in a OCI.

Brendan: Overall improvements in our liquidity and capital levels allowed us to stay on the offense in 2023, and our Q4 performance only strengthens our position as we begin 2024.

Brendan: On slide eight we present the trend in total loan growth and portfolio yields.

Brendan: Total loans grew in line with our expectations and we remain focused on full relationships and structure at a price that meets our risk adjusted return requirements.

Brendan: The investment portfolio increased during the quarter largely due to changes in fair values.

Brendan: Please note that we did execute a small loss trade on $41 million of securities with an earn back inside of one year.

Moving to slide nine we show our trend in total deposits, which were stable quarter over quarter, including $340 million of normal seasonal public fund outflows and a $164 million decrease in broker deposits.

Brendan: Our broker deposits as a percentage of total deposits is now, 2.7%, which is well below peers.

Brendan: We experienced strong growth in both personal and business accounts largely through CD and money market promotions, new checking account acquisition was strong and continues to outpace attrition, however, migration to higher yielding products continues to impact the growth in this category.

Brendan: We are still experiencing upward pressure on deposit rates, but we have seen a marked deceleration in deposit costs in the quarter and into January.

Brendan: Total deposit costs for the month of December was 190 basis points, only five basis points higher than our Q4 average.

Brendan: Overall, we are exceptionally pleased with the execution of our deposit strategy that has led to above peer deposit growth at below peer costs.

Brendan: Slide 10 provides our quarter end income statement.

Brendan: We reported GAAP net income applicable to common shares of $128 million or <unk> 44 cents per share.

Brendan: Reported earnings include the following pre tax items, a $21.6 million gain on the sale of visa class B shares as well as a $19 1 million dollar charge for the FDIC Special assessment.

Brendan: $6 million in merger related charges, and a $4 million contract termination charge. Excluding these items our adjusted earnings per share was <unk> 46 cents.

Brendan: Moving onto slide 11, we present details of our net interest income and margin as.

Brendan: As expected deposit repricing led to modest declines in both net interest income and margin new loan production rates of 7.72% and marginal funding cost in the low 4% range support our expectation that net interest income should bottom out in Q1.

Brendan: Slide 12 shows trends in adjusted noninterest income, which was $79 million for the quarter all of our primary fee businesses performed as expected with seasonally lower mortgage revenue.

Brendan: Continuing to slide 13, we show the trend in adjusted noninterest expenses, which were generally in line with our Q3 guidance, excluding $10 million of year to date performance, driven incentive accrual true up and $5 million and higher amortization of tax credit investments. Our 2023 incentive plan was tied to deposit costs and growth.

Brendan: Relative to our mid sized peers, our outperformance in both these categories was critical to a record year and ultimately drove the higher incentives.

Brendan: The tax credit amortization charge was due to timing of project completion with a corresponding offset in tax expense.

Brendan: While both these items are within core earnings, we obviously do not expect them to run right into first quarter.

Brendan: On slide 14, we present, our credit trends, which remained stable, reflecting the quality of both our commercial and consumer portfolios.

Brendan: Delinquency and nonperforming loan ratios are largely unchanged.

Brendan: One P. C D. Net charge offs were a low three basis points with P. C D charge offs of nine basis points.

Brendan: Our fourth quarter allowance, including reserve for unfunded commitments was unchanged at 103 basis points.

Brendan: And there were no material changes to our model assumptions and the waiting on the Moody's at three scenario remains at 100%.

On slide 15, we provide a comprehensive overview of our capital position at the end of the quarter.

Brendan: We observed improvements in all regulatory capital ratios and an 11% increase in our TCE ratio driven by strong earnings and assisted by improvements in a OCI.

Brendan: Following our 24% recovery in Q4, we anticipate an additional 20% of our outstanding a OCI to accrete to capital by the end of 2024.

Brendan: In summary, we are very pleased with our fourth quarter and full year performance in what was a challenging year for our industry Twenty-twenty three proved to be a record year in a number of critical performance metrics, including adjusted EPS return on tangible common equity and efficiency ratio.

Brendan: We've improved the efficiency of our balance sheet with strong core deposit growth, which has led to better funding mix and better than expected net interest income.

Brendan: We continue to demonstrate our ability to expand our customer base, while maintaining peer leading deposit costs.

Brendan: Our strong liquidity also positions us well to take advantage of new lending opportunities. The credit portfolio remained stable and our disciplined approach to managing expenses is evident in our full year adjusted efficiency ratio of 54%.

Slide 16 includes additional detail on our rate risk position and net interest income guidance NII is expected to fall approximately 2% in Q1 remained flat in Q2, and then begin to increase in the back half of the year.

Brendan: The assumptions are all listed on the slide but I would highlight a few of the primary drivers.

Brendan: First we assumed three rate cuts in the back half consistent with the fed guidance second we are anticipating additional late cycle deposit repricing that will give us a terminal beta of 39% by mid year.

And a noninterest bearing deposit mix that falls to 24% by year end <unk>.

Brendan: Lastly, we assumed the closing of our cap star partnership at the end of Q2.

Brendan: We believe we have positioned the balance sheet well as we approach the end of this rate cycle with most of the work to achieve a neutral rate risk position behind us.

Brendan: Also we did run a forward curve scenario, including six rate cuts and the result was not materially different from our three rate cuts scenario.

Brendan: Slide 17 includes thoughts on our outlook for the remaining items for the first quarter and full year 'twenty 'twenty four and all guidance assumes cap star closes at the end of Q2.

Brendan: I believe our current loan pipeline should support first quarter growth in the 1% to 2% range and full year growth of 12% to 13%.

Brendan: We anticipate continued success in the execution of our deposit strategy and expect to meet or exceed the industry growth in 2024.

We expect Q1 noninterest income to be consistent with Q4 with the full year up 6% to 7% with the typical seasonal patterns.

Our expense outlook for the first quarter should be approximately $248 million modestly higher than our Q4 base of $240 million, which excludes the incentive true up and tax credit impact.

Brendan: For the full year, we expect expenses just over $1 billion.

Brendan: Net charge offs are expected to range between 15 to 20 basis points and provision expense should be approximately $80 million to $85 million for the full year of 2024.

Brendan: This excludes the day, one non P C D double count associated with the <unk> acquisition.

Brendan: Turning to taxes, we expect both a first quarter and full year effective tax rate of approximately 25% on a core FTE basis, and 22% on a GAAP basis.

Speaker Change: With those comments I'd like to open up the call for your questions. We do have the full team available, including Mark Sander, Jim Sandgren and John Moran.

Speaker Change: At this time I would like to remind everyone. If you ask a question simply press star followed by the number one on your telephone keypad. We do ask that you. Please limit yourself to one question and one follow up then reenter the queue for any additional questions that you might have our first question will come from the line of Scott Seafarers with Piper Sandler.

Scott Siefers: Go ahead.

Scott Siefers: Good morning, everybody. Thanks for taking the question.

Speaker Change: Morning, Scott good to hear from you.

Speaker Change: You too you too thank you.

Speaker Change: I wanted to ask you about some of the.

Speaker Change: The nuance in the NII, so it looks like at Ash and dropped in the first quarter, which is which is great.

Speaker Change: Was hoping you can discuss some of the puts and takes obviously day count becomes a factor in the first quarter, but maybe sort of the interplay with how the.

Speaker Change: Margin fits in there and then I think you said margin might expand in the second half if I heard that correctly, maybe just some thoughts as we as we go forward.

Speaker Change: Sure Scott, Yes, so we're looking at.

Speaker Change: Approximately 10 basis point decline in net interest margin into Q1 levels off from there and probably grows.

Speaker Change: A little in the back half.

Speaker Change: Obviously as we get three rate cuts since we positioned the balance sheet.

Speaker Change: Accordingly, we don't think we'll get a lot of impact for them.

Speaker Change: Our negative impact for them from rate cuts in the back half and then we get the benefit of all the fixed asset repricing and.

Speaker Change: And the growth both organically and from cap star in the back half of 'twenty four.

Perfect and then I guess, along the lines of sort of underlying loan growth that you know you've got the 4% to 6%.

Speaker Change: Expectation, maybe just some thoughts on how that evolves through the year in industry trends of course been pretty soft, but I think you guys have gotten at.

Speaker Change: At least your fair share if not a little more of the.

Speaker Change: Any opportunities that are out there. So maybe you're just sort of your thoughts on how how things trend, including demand through the year.

Speaker Change: I think you summarized it well Scott I mean as much as loan demand has slowed somewhat customers are still feeling okay. C&I clients are I would say cautiously optimistic for.

Speaker Change: For 24 financials are holding up well.

Employment levels are keeping consumer spending at solid levels, and but again I think that most of the growth is going to slow a little bit in 'twenty, four and CRE activity of course slowed at the end of last year as expected as we got into but it's begun to pick up a little bit competitors are getting more active and as much as that.

Speaker Change: It still has to play out there as well.

Speaker Change: Rents are holding up well in the segments that were active and in multifamily and industrial.

Speaker Change: Perfect. Okay. Good. Thank you guys very much thanks.

Speaker Change: Thanks Scott.

Speaker Change: Your next question comes from the line of Terry Mcevoy with Stephens. Please go ahead.

Terry Mcevoy: Thanks, Good morning, everybody.

Terry Mcevoy: Maybe Terry first question Hi could.

Terry Mcevoy: Could you maybe expand on the $5 billion of time deposits repricing over the next year.

Terry Mcevoy: I'm seeing kind of brokered Cds were over five other times, we're just below four.

Terry Mcevoy: And it looks like the seven month promos about 475, so what are your underlying assumptions there.

Speaker Change: Yes, so a lot of these Cds and Mercedes.

Speaker Change: Most of it exactly at 11% of our tightened thoughtful mature within the next 12 months I think you have the weighted average rate really close in that four handle until we'll have the opportunity to reprice a bulk of these Cds lower throughout the year in fact, the repricing characteristics actually that gives an opportunity to reprice. Those most of those early in the first half of 'twenty.

Speaker Change: And then maybe just stepping out of the model for about Jim We're hearing the word scale more and more from banks with assets call. It over 100 billion or over $250 billion. So my question is how are you thinking about scale as a $50 billion bank and your ability to compete with community banks as well.

Speaker Change: As the larger banks.

Speaker Change: Terry I really think we are in a sweet spot.

Speaker Change: You know, we're big enough to be relevant and compete for almost any client situation in the markets. We serve we're not so big that we get in their own way, sometimes as you get bigger we know that happens we're close to our clients we're nimble for fast.

Speaker Change: We're opportunistic.

Speaker Change: You can reach out and touch our clients that touch our team members on a regular basis I really like the size we're at today.

Speaker Change: You know and given where we're operating on efficiency ratio basis, I think we're operating fairly efficiently.

So I'm really happy with where we're at and don't see any need to do anything dramatically different than where we're at today.

Speaker Change: Great. Thanks for taking my questions.

Speaker Change: Thanks, Barry good to hear from you and hope you stay warm.

Speaker Change: Okay.

Speaker Change: Your next question cash and the line of Chris Mcgratty with <unk>. Please go ahead.

Unknown Executive: Welcome to the Old National Bancorp fourth quarter and full year 2023 earnings conference call.

Operator: Welcome to the Old National Bancorp fourth quarter and full year 2023 earnings conference call. This call is being recorded and has been made accessible to the public in accordance with the SEC's regulation FD.

Christopher McGratty: Oh, great good morning.

Unknown Executive: This call is being recorded and has been made accessible to the public in accordance with the SEC's regulation FB.

Christopher McGratty: Good morning, Chris.

Christopher McGratty: Maybe a question on credit.

We still have a 5% P CD Mark first one west.

Unknown Executive: Corresponding presentation slides can be found on the investor relations paid at oldnational.com and will be archived there for 12 months.

Operator: 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 in 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 in their understanding of performance trends.

Christopher McGratty: How should we be thinking about you know portfolios that youre, maybe watching a little bit more closely going into 2020 for any.

Unknown Executive: Management would like to remind everyone that certain statements on today's call may be for 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.

Christopher McGratty: Any derisking or exit serve tweaking that needs to happen and it's just kind of broader credit commentary.

Christopher McGratty: We feel good about where we are with credit certainly Chris Yes, as Mark Yeah, we saw a little further modest risk rating.

Unknown Executive: The company refers you to its for looking statement legend in the earnings release and presentation slides.

Speaker Change: Great and migration in Q4.

Speaker Change: But consistent with a little bit of a slowdown in more limited growth I mean, we feel good about where our portfolios are suddenly earth.

Unknown Executive: The company's risk factors are fully disclosed and discussed within its SEC filings.

Unknown Executive: In addition, certain slides contain non-gap measures which management believes provide more appropriate comparisons. These non-gap measures are intended to assist investors understanding of performance trends. Reconciliation for these numbers are contained within the appendix of the presentation.

Speaker Change: Areas, we're watching more closely obviously CRE office like everyone and that will remain to be play out senior housing is something that is slowly recovery, but.

Speaker Change: Portfolio quality, there, we feel really good about so no real changes in our underwriting.

Operator: Reconciliations for these numbers are contained within the appendix of the presentation. I'd now like to turn the call over to Old Nationals CEO Jim Ryan for opening remarks. Mr. Ryan?

Speaker Change: And feel real good about where we're at.

James Ryan: I'd now like to turn the call over to Old National's CEO Jim Ryan for opening remarks.

Speaker Change: Great. Thanks, and then maybe Brian a question just on the balance sheet, how do we think about.

James Ryan: Mr. Ryan?

Brian: You know, maybe adding bonds at this point to reduce more recent citizen.

James Ryan: Good morning.

James Ryan: Old National reported strong fourth quarter and record four-year results earlier this morning.

James C. Ryan: Good morning. Old National reported strong fourth-quarter and record full-year results earlier this morning. During 2023, we successfully navigated a challenging interest rate environment, along with industry-wide liquidity pressures earlier in the year. At Old National, executing our basic banking strategy served us well. In fact, our 2023 Adjusted EPS, Return on Average Tangible Common Equity, and Efficiency Ratio were the best in our nearly 190-year history. Tangible book value per share also grew by 17% year-over-year, combined with our roughly 3.7% average dividend yield, giving shareholders a strong return for the year. Our peer-leading deposit franchise, disciplined loan growth, strong credit quality, and well-managed expenses and dedicated team members who are committed to our clients and communities drove these outstanding results. While many in our industry spent the year on defense, we remain on the offense by continuing to invest in new client-facing and key support talent and being ready and opportunistic for acquisitions, as evidenced by our recently announced CapStar Bank partnership, which will expand our franchise to I will share more details about our progress with a strategic partnership later in my comments, starting on slide five. Gap earnings for the year were $1.94, and adjusted EPS was a record $2.05 per common share, representing a 5% increase year-over-year.

Brian: Just overall size of earning assets.

James Ryan: During 2023, we successfully navigated a challenging interest rate environment along with industry-wide liquidity pressures earlier in the year.

Speaker Change: Yeah, Yeah, Yeah, Great question. So I think there are some I think there are some opportunities and work to do on our rate risk position that will include likely some reinvestment of cash flows in the investment portfolio and probably adding some.

James Ryan: At Old National, executing our basic banking strategy served us well.

Speaker Change: Floating rate debt to offset so I think that would enhance our rate risk position.

Speaker Change: That had a negative impact on net interest income.

Speaker Change: Okay, but just beyond the maturing cash flows of the bond book, well, the bond book grow and an absolute basis or not.

Speaker Change: Not expected to grow but I do think we'll start to replace it and hold it at an approximate levels.

Speaker Change: Okay, great. Thank you.

Speaker Change: Your next question comes from the line of Brody Preston with UBS. Please go ahead.

Brody Preston: Hey, good morning, everybody. Thanks, Suraj good morning <unk>.

Brody Preston: Jan I can I guess I'll speak for Terry and say, we're both called up here in May.

Jay will drive that.

Brody Preston: [laughter].

Brody Preston: <unk>.

I just wanted to ask on the rounded on the nuances of the.

Brody Preston: Of the <unk>.

Brody Preston: Deposit beta commentary, so yeah, we're going to peak at 39%.

Is that happening and Q1and then the declining to a total data of the low twenty's by <unk> 24.

Brody Preston: Feels a bit more conservative than what some some of your larger peers have kind of outlined in terms of talking about pretty aggressive down data within their NII guide.

James Ryan: In fact, our 2023 adjusted EPS return on average tangible common equity and efficiency ratio were the best in our nearly 190-year history.

Brody Preston: I guess, what makes you feel more conservative when you talk about.

James C. Ryan: Our adjusted return on average tangible common equity and efficiency ratio were records at 21.3% and 50.4%, respectively. Adjusted ROA was a strong 1.28%. Moving to slide six, we reported GAAP earnings for the fourth quarter of 44 cents per common share. Our adjusted EPS was $0.46 per common share, and our adjusted results included higher than run-rate costs related to a true-up of the accrual for the annual short-term incentive plan and additional tax credit amortization for the quarter, which when combined resulted in an after-tax adjustment of approximately $7 million, or $0.02 of earnings per share impact. Returning to our Capstar partnership, we have filed our regulatory application and announced an additional $1.2 billion investment in Tennessee as a part of our existing community growth plan.

Brody Preston: Youre Beda.

Beda: Yes, sure I'll answer the first part of that or so are we.

Beda: We think our our deposit beta piece on the upcycle Nashville, QQ, although kind of them, a very slight modest kind of quarter over quarter impact on total deposit costs from <unk> and our model on the back half.

Beda: We didn't go up as high.

Beda: 35% of our book is exception price, we think we can drive a really strong data down on that side.

Beda: But I also think you know deposits are still really valuable and we gotta be pay attention to maintaining continuing to grow deposits to continue to take advantage of lending opportunities and I think that probably informs the more conservative guide on the way down.

Speaker Change: Okay got it.

Speaker Change: And I wanted this I also ask on the securities.

Speaker Change: Could you remind us I think you have over 1 billion in securities that are set to mature and reprice in 'twenty 'twenty four would you plan on kind of running those down and using it to fund.

James C. Ryan: As we spend time with our new team members, we are even more excited about our partnership. Our existing team in Nashville was already off to a great start, and we're seeing many new client acquisition opportunities from that team, which will only build as we close on our partnership. We still expect to close in the first half of the year.

Speaker Change: The good loan growth that you talked about in the guidance.

Speaker Change: I think a little bit of a mix Brody certainly we will start to reinvest some of the cash flows of that book and that will come at a positive spread of about 150 basis points.

James C. Ryan: In summary, our 2023 EPS results proved more durable than most peers in a challenging year due to relentless focus on the basics, growing core deposits, consistent and strong underwriting, disciplined expense management, and ample capital. Brendon will provide you with our official 2024 outlook at the end of his prepared remarks, but as I look forward, it's difficult to predict what the year will bring. Predictions range from a few rate cuts to more than a handful, from a soft landing to something more severe. Regardless of what transpires, we have entered 2024 in a strong position by continuing to execute on our basic banking strategy, and we are set up to be successful in whatever comes our way, as we have for the past 190 years. I would like to recognize Mike Scudder.

Speaker Change: And we'll see how we'll see how the rest of the year plays out in a lot of that.

Speaker Change: Depending on our bellies.

Speaker Change: And to grow the top as well and then ultimately the loan demand.

Got it and if I could just sneak one more in the $2 5 billion of balance sheet hedges that you have or can you. Just clarify are those is that just on the loan book and then do you have any maturities swaps occurring in 'twenty four 'twenty five that are meaningful that we need to be aware about.

Speaker Change: Yeah, So it's a.

Speaker Change: It's a mix on both the invest portfolio and are on our loans.

Speaker Change: We don't have a time maturing we actually we actually had the duration is split pretty pretty far out.

Speaker Change: China, we didn't Wanna.

James C. Ryan: As planned, Mike will retire as Executive Chairman of Old National Bank Corp. at the end of January. I want to thank Mike for his combined 38 years of outstanding leadership and dedication to First Midwest and Old National Bank. His contributions to the board, and to me personally, were invaluable as we completed our transformational partnership and successfully navigated the last two years. Thank you. I will now turn the call over to Brendon to cover the quarterly results in more detail. Thanks, Jim.

Speaker Change: To be too precise on the timing of expectations around rate cuts so are.

Speaker Change: We have to pass a no major maturities or anything rolling off of significance, there and probably some more work to do before we're done with the year.

Speaker Change: Okay, great. Thank you very much.

Speaker Change: Thanks, Brian.

Speaker Change: Your next question comes from the line of John Armstrong with RBC capital markets. Please go ahead. Thanks, good morning, everyone.

Speaker Change: John.

John: Couple of follow ups.

Brendon Falconer: Beginning on slide seven, we present our fourth quarter balance sheet, which highlights improvements in both liquidity and capital positions. Our fourth quarter core deposit growth has allowed us to organically fund loan growth and continue to reduce wholesale borrowings and broker deposits. We ended the year with a strong CET1 ratio of 10.7%, and we continue to accrete capital at a faster pace than most through the combination of our better-than-peer-return profile and our at-peer payout ratio. Tangible book value per share grew 11% quarter over quarter and 17% year over year due to strong earnings and a 24% improvement in AOCI.

John: But by the way Slide 16 is really good that's a great slide.

Speaker Change: Terry took one of the questions on CD repricing, but you talk about exception pricing on 30% of your deposits has that eased at all is that just a product of last spring or early summer that is that persistence.

Speaker Change: That's that's been fairly persistent we continue to go out there we've been.

Speaker Change: Unapologetically unapologetically aggressive and gathering new deposits and so that's creeped up a little bit every quarter.

James Ryan: Tangible book value per share also grew by 17% year-over-year.

Speaker Change: And we'll continue to be aggressive, although we can do that at marginally lower rates in this environment than we have over the last couple of quarters. So we think that exception price our module cost will be a little lower than it has been.

James Ryan: Combined with our roughly 3.7% average dividend yield gave shareholders a strong return for the year.

Brendon Falconer: Overall improvements in our liquidity and capital levels allowed us to stay on the offense in 2023, and our Q4 performance only strengthens our position as we begin 2024. On slide eight, we present the trend in total loan growth and portfolio yield. Total loans grew in line with our expectations, and we remain focused on full relationships and structure at a price that meets our risk-adjusted return requirements. The investment portfolio increased during the quarter, largely due to changes in fair values.

Speaker Change: But that yeah, that's been a that's been a big part of our successes here.

Speaker Change: Okay. Okay.

James Ryan: Our peer-leading deposit franchise, discipline, loan growth, strong credit quality, and well-managed expenses and dedicated team members who are committed to our clients and communities drove these outstanding results.

Speaker Change: Slide 19, you talk about your.

Russia real estate maturing inside of 18 months.

Speaker Change: And just a small bit of it as is.

Speaker Change: You talked you've got the 4% demarcation line I understand that but what what is the message here on credit is it that we're going to see some incremental L. P. M. P. L. A is this stuff gets repriced and reworked or or you're just you're not seeing that at this point in time.

Brendon Falconer: Please note that we did execute a small loss trade on $41 million of securities with an earn back inside of one year. Moving to slide nine, we show our trend in total deposits, which were stable quarter over quarter, including $340 million of normal seasonal public fund outflows and a $164 million decrease in broker deposits. Our broker deposits as a percentage of total deposits are now 2.7%, which is well below peers. We experienced strong growth in both personal and business accounts, largely through CD and money market promotions. New checking account acquisition was strong and continues to outpace attrition. However, migration to higher-yielding products continues to impact growth in this category.

Speaker Change: We're not seeing.

Speaker Change: That at this point at this point in time.

Speaker Change: I think again, the CRE office still have some time to play out so could you see some go to criticize and classified could you see that increase a little bit yes, but we don't we think we're.

Speaker Change: Ahead of identifying we like to identify early and aggressively take action I think that's what we continue to do so we're just trying to size up kind of where some of the risks are we think they're very manageable.

Speaker Change: Okay. Good.

Speaker Change: If I can add one more just Jimmy any anything cap store or anything new to report updates and just you put out a date I know that's difficult, but just confidence level and putting that data out for a close thanks.

Brendon Falconer: We are still experiencing upward pressure on deposit rates, but we have seen a marked deceleration in deposit costs in the quarter and into January. Total deposit cost for the month of December was 190 basis points, only 5 basis points higher than our Q4 average. Overall, we are exceptionally pleased with the execution of our deposit strategy that has led to above-peer deposit growth at below-peer cost. Slide 10 provides our quarter-end income statement, which reported GAAP net income applicable to common shares of $128 million or $0.44 per share. Reported earnings include the following pre-tax items, a $21.6 million gain on the sale of Visa Class B shares, as well as a $19.1 million charge for the FDIC special assessment, $6 million in merger-related charges, and a $4 million contract termination. Excluding these items, adjusted earnings per share were 46 cents.

Speaker Change: We feel really good where we stand today, both in terms of the people and the client opportunities.

Speaker Change: Every time, we are with our team members both the existing team members and our new team members. We just feel really good about the opportunities and I do think some of that growth. We're going to experience is going to come out of places like Nashville.

Speaker Change: Roy Kansas City St. Louis We've got new team members that we've hired in the last handful of years just to continue to execute and create new opportunities for us that just weren't available to us in the past with respect to the regulatory applications feel really good about that we are in constant dialogue with our regulators you know, we obviously announced our addendum to our existing community growth plan, which we thought was going to.

Speaker Change: Important step.

Speaker Change: As a part of the process to get to the finish line here. So I mean, you know it's.

Speaker Change: Hard to always predict exactly when you're going to get approval for these things, but nonetheless, we feel really good about where we stand at this point in time and more importantly, I just think Nashville, Tennessee.

Brendon Falconer: Moving on to slide 11, we present details of our net interest income and margin. As expected, deposit repricing led to modest declines in both net interest income and margins. New loan production rates of 7.72% and marginal funding costs in the low 4% range support our expectation that net interest income should bottom out in Q1. Slide 12 shows trends in adjusted non-interest income, which was $79 million for the quarter. All of our primary fee businesses performed as expected, with seasonally lower mortgage revenue.

Speaker Change: Astro location will continue to represent a great opportunity for us to grow and it probably contribute.

Speaker Change: <unk> in the future and a much more meaningful level than even you know what a typical partnership of the size would contribute.

Speaker Change: Yep, Okay, you've got some new investor day potential locations as well.

Speaker Change: Thank you.

Speaker Change: Thanks, John.

There are no further questions at this time I'd like to turn the call back to Jim Ryan for closing remarks.

Brendon Falconer: Continuing to slide 13, we show the trend in adjusted non-interest expenses, which were generally in line with our Q3 guidance, excluding $10 million of year-to-date performance-driven incentive accrual true-up and $5 million in higher amortization of tax credit investment. Our 2023 incentive plan was tied to deposit costs and growth relative to our mid-sized peers. Our outperformance in both these categories was critical to our record year and ultimately drove the higher incentives. The tax credit amortization charge was due to the timing of project completion with the corresponding offset in tax.

James C. Ryan: Well as always we appreciate your support and feedback and the entire team will be available to follow up on any questions. You might have thank you very much.

James C. Ryan: This concludes old nationals 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, <unk> National Dot Com a replay of the call will also be available by dialing 870 702030 access code.

Speaker Change: Five to 583 to five this replay will be available through February six if anyone has additional questions. Please contact will now dark holes at 8124641366. Thank you for your participation in today's conference call you may now disconnect.

Brendon Falconer: While both these items are within core earnings, we obviously do not expect them to run right into the first quarter. On slide 14, we present our credit trends, which remain stable, reflecting the quality of both our commercial and consumer portfolios. Delinquency and non-performing loan ratios are largely unchanged.

[music].

Brendon Falconer: Non-PCD net charge-offs were a low 3 basis points, with PCD charge-offs of 9 basis points. Our fourth quarter allowance, including reserve for unfunded commitments, was unchanged at 103 basis points, and there were no material changes to our model assumptions, and the weighting on the Moody's S3 scenario remains at 100%. On slide 15, we provide a comprehensive overview of our capital position at the end of the quarter. We observed improvements in all regulatory capital ratios and an 11% increase in our TCE ratio driven by strong earnings and assisted by improvements in AOCI. Following our 24% recovery in Q4, we anticipate an additional 20% of our outstanding AOCI to accrete to capital by the end of 2024. In summary, we are very pleased with our fourth quarter and full year performance and in what was a challenging year for our industry. 2023 proved to be a record year for a number of critical performance metrics, including adjusted EPS, return on tangible common equity, and efficiency ratio.

James Ryan: While many in our industry spent the year on defense, we remain on the offense by continuing to invest in new client-facing and key support talent and being ready and opportunistic for acquisitions.

James Ryan: As evidenced by our recently announced cap star bank partnership, which will expand our franchise to the highly dynamic markets of national broader Tennessee and national North Carolina. I will share more details about our progress with the strategic partnership later in my comments.

James Ryan: Starting on slide five, gap earnings for the year were $1.94 and adjusted EPS was a record of $2.05 per common share representing a 5% increase year-over-year.

Brendon Falconer: We've improved the efficiency of our balance sheet with strong core deposit growth, which has led to a better funding mix and better than expected net interest income. We continue to demonstrate our ability to expand our customer base while maintaining peer-leading deposit costs. Our strong liquidity also positions us well to take advantage of new lending opportunities. The credit portfolio remains stable, and our disciplined approach to managing expenses is evident in our full-year adjusted efficiency ratio of 50.4%.

James Ryan: Our adjusted return on average tangible common equity and efficiency ratio were records at 21.3% and 50.4% respectively. Adjusted ROA was a strong 1.28%.

Brendon Falconer: Slide 16 includes additional detail on the rate risk position and net interest income guidance. NII is expected to fall approximately 2% in Q1, remain flat in Q2, and then begin to increase in the back half of the year. The assumptions are all listed on the slide, but I would highlight a few of the primary drivers.

Brendon Falconer: First, we assumed three rate cuts in the back half consistent with the Fed guidance. Second, we are anticipating additional late-cycle deposit repricing that will give us a terminal beta of 39% by mid-year and a non-intersparing deposit mix that falls to 24% by year end. Lastly, we assume the closing of our Capstar partnership at the end of Q2. We believe we have positioned the balance sheet well as we approach the end of this rate cycle with most of the work to achieve a neutral rate risk position behind it. Also, we did run a forward curve scenario including six rate cuts, and the result was not materially different from our three rate cut scenario.

Brendon Falconer: Slide 17 includes thoughts on our outlook for the remaining items for the first quarter and full year 2024, and all guidance assumes CapSTAR closes at the end of Q2. We believe our current loan pipeline should support first quarter growth in the 1% to 2% range and full year growth of 12% to 13%. We anticipate continued success in the execution of our deposit strategy and expect to meet or exceed industry growth in 2024. We expect Q1 non-interest income to be consistent with Q4, with the full year up 6-7% following the typical seasonal pattern. Our expense outlook for the first quarter should be approximately $248 million, modestly higher than our Q4 base of $240 million, which excludes the incentive true-up and tax credit impact. For the full year, we expect expenses of just over $1 billion.

James Ryan: Moving to slide six, we reported gap earnings for the fourth quarter of 44 cents per common share. Our adjusted EPS was 46 cents per common share and our adjusted results included higher than run rate cost related to a true up of the accrual for the annual short-term incentive plan and additional tax credit amortization for the quarter, when combined resulted in after tax adjustment of approximately $7 million or two cents of earnings per share impact.

James Ryan: Act.

James Ryan: Returning to our CAPSAR partnership, we have filed our regulatory application and announced an additional $1.2 billion investment in Tennessee as a part of our existing Community Growth Plan.

James Ryan: As we spend time with our new team members, we are even more excited about our partnership.

Operator: Net charge-offs are expected to range between 15 to 20 basis points, and provision expense should be approximately $80 to $85 million for the full year of 2024. This excludes the day one non-PCD double count associated with the acquisition. Turning to taxes, we expect both a first quarter and full year effective tax rate of approximately 25% on a core FTE basis and 22% on a gap basis. With those comments, I'd like to open up the call to your questions. We do have the full team available, including Mark Sander, Jim Sandgren, and John Moran.

James Ryan: Our existing team in Nashville was already off to a great start, and we're seeing many new client acquisition opportunities from that team which will only build as we close in our partnership.

James Ryan: We still expect to close in the first half of the year.

Operator: At this time, I would like to remind everyone to ask a question. Simply press star followed by the number one on your telephone keypad. We do ask that you please limit yourself to one question and one follow-up, then re-enter the queue for any additional questions that you might have. Our first question will come from the line of Scott Siefers with Piper Sandler. Please go ahead. Good morning, everybody.

Scott Siefers: Thanks for taking the question. Good morning, Scott. Good to hear from you. You, too.

Brendon Falconer: Thank you. Brendon, I wanted to ask you about some of the nuanced details in the NII. So it looks like NII should drop in the first quarter, which is great.

Brendon Falconer: I was hoping you could discuss some of the puts and takes. Obviously, day count becomes a factor in the first quarter, but maybe sort of the interplay with how the margin fits in there. And then I think that you said the margin might expand in the second half, if I heard that correctly. Maybe just some thoughts as we go forward. Sure, Scott. Yeah, so we're looking at approximately a 10 base point decline in integer marge, one levels off from there and probably grows a little in the back half.

James Ryan: In summary, our 2023 EPS results prove more durable than most peers in a challenging year due to relentless focus on the basics, growing core deposits, consistent and strong underwriting, disciplined expense management and ample capital.

James Ryan: Brendan will provide you with our official 2024 outlook at the end of his prepared remarks, but as I look forward, it's difficult to predict what the year will bring. Predictions range from a few rate cuts, to more than a handful, from a soft landing to something more severe.

James Ryan: Regardless of what transpires, we have entered 2024 in a strong position by continuing to execute on our basic banking strategy, and we are set up to be successful in whatever comes our way as we have for the past 190 years.

James Ryan: I would like to recognize Mike Scutter.

Brendon Falconer: You know, obviously, as we get three rate cuts accordingly. We don't think we'll get a lot of impact from, or negative impact from, rate cuts in the back half, and then we get the benefit of all the fixed asset repricing, and the group, both organic and from Capstar in the back. Perfect.

Brendon Falconer: And then, I guess, along the lines of sort of underlying loan growth, you've got the 4% to 6% expectation. Maybe just some thoughts on how that evolves through the year. Industry trends have, of course, been pretty soft, but I think you guys have gotten at least your fair share, if not a little more, of any opportunities that are out there. So, you know, maybe just sort of your thoughts on how things are trending, including demand through the year. I think you summarized it well, Scott. As much as loan demand has slowed somewhat, customers are still feeling okay. CNI clients are, I would say, cautiously optimistic for 24, financials are holding up well, and Keith McCray. Perfect. Okay, good. Thank you guys very much.

James Ryan: As planned, Michael retires executive chairman of Old National Bank Corp at the end of January. I want to thank Mike for his combined 38 years about standing leadership and dedication to First Midwest and Old National. His contributions to the board and me personally were invaluable as we completed our transformational partnership and successfully navigated the last two years.

James Ryan: Thank you.

Brendan Nosal: I will now turn the call over to Brendan to cover the quarterly results in more detail.

Brendan Nosal: Thanks, Jim.

Terry Mcevoy: Thanks, Scott. Your next question comes from the line of Terry McEvoy with Stevens. Please go ahead. Thanks. Good morning, everybody.

Brendan Nosal: Beginning on slide seven, we present our fourth quarter balance sheet, which highlights improvements in both liquidity and capital positions. Our fourth quarter core deposit growth has allowed us to organically fund loan growth and continue to reduce wholesale borrowings and broker deposits.

Terry Mcevoy: Maybe first question. Hi. Could you maybe expand on the $5 billion of time deposits repricing over the next year? I'm seeing some kind of brokered CDs were over five, other times were just below four. And it looks like the seven-month promo is about $475.

Brendan Nosal: We ended the year with a strong CET1 ratio of 10.7% and we continue to accrete capital at a faster pace than most through the combination of our better than peer return profile and our at peer payout ratio. Tangible book value per share grew 11% quarter over quarter and 17% year over year due to strong earnings and a 24% improvement in AOCI.

Brendon Falconer: So what are your underlying assumptions there? Yeah, so a lot of these CDs, almost 87, not almost, but exactly 87% of our time deposits will mature within the next 12, I think you have the weighted average rate really close to that four handle, and so we'll have the opportunity to reprice a bulk of these CDs lower throughout the year. In fact, the repricing characteristics actually— most of those early in the first half.

James C. Ryan: And then maybe just stepping out of the model for a bit, Jim, we're hearing the word scale more and more from banks with assets of over 100 billion or over 250 billion. So my question is, how are you thinking about scale as a $50 billion bank and your ability to compete with community banks as well as larger banks? Terry, I really think we're in a sweet spot, you know; we're big enough to be relevant and compete for almost any client situation in the markets we serve. But we're not so big that we get in our own way sometimes. As you get bigger, we know that happens.

James C. Ryan: We're close to our clients, we're nimble, we're fast, we're opportunistic, you know, we can reach out and touch our clients and touch our team members on a regular basis. I really like the size of RAT today, and given where we're operating on an efficiency ratio basis, I think we're operating fairly efficiently. So I'm really happy with where we are and don't see any need to do anything dramatically different than where we are today. Thanks for taking my questions. Thanks, Terry. Good to hear from you. Hope you're staying warm.

Brendan Nosal: Overall improvements in our liquidity and capital levels allowed us to stay on the offense in 2023 and our Q4 performance only strengthens our position as we begin 2024. On slide eight, we present the trend in total loan growth and portfolio yields.

Brendan Nosal: Total loans grew in line with our expectations and we remain focused on full relationships and structure at a price that meets our risk adjusted return requirements.

Brendan Nosal: The investment portfolio increased during the quarter largely due to changes in fair values. Please note that we did execute a small loss trade on 41 million dollars of securities with an earn back inside of one year.

Christopher McGratty: Your next question comes from the line of Chris McGratty with KBW. Please go ahead. Oh, great. Good morning.

Brendan Nosal: Moving to slide nine, we show our trend in total deposits, which were stable quarter of a quarter, including $340 million of normal seasonal public fund outflows and a $164 million decrease in broker deposits. Our broker deposits as a percentage of total deposits is now 2.7% which is well below peers.

Brendan Nosal: We experience strong growth in both personal and business accounts largely through CD and money market promotions.

Christopher McGratty: Maybe a question on credit. You still have a 5% PCD mark from First and West. How should we be thinking about, you know, portfolios that you're maybe watching a little bit more closely going into 2024? Any, Any de-risking or exits or tweaking that needs to happen, and it's just kind of broader credit commentary. I feel good about where we are with credit, certainly, Chris. You know, this is

Brendan Nosal: New checking account acquisition was strong and continues to outpace attrition, however migration to higher yielding products continues to impact the growth in this category.

Mark G. Sander: You know, we saw a little further modest risk rate of migration in Q4, but consistent with a little bit of a slowdown and more limited growth. I mean, we feel good about where our portfolio is at, areas we're watching more closely, obviously CRE office like everyone else plays out. Senior housing is something that is slowly recovering but the portfolio quality there we feel really good about, so no real changes in our underwriting and feel really good about where we're at. Great, thanks.

Brendan Nosal: We are still experiencing upward pressure on deposit rates, but we have seen a Marx deceleration and deposit costs in the quarter and into January.

Brendon Falconer: And then maybe, Brendon, a question on the balance sheet. How do we think about, you know, maybe adding bonds at this point to reduce more rate sensitivity, just the overall size of earning assets for 2024? Yeah, yeah, yeah. Great question.

Brendan Nosal: Total deposit costs for the month of December was 190 basis points, only 5 basis points higher than our 2-4 average. Overall we are exceptionally pleased with the execution of our deposit strategy that is led to above peer deposit growth at below peer costs.

Brendan Nosal: Slide 10 provides our quarter-end income statement.

Brendan Nosal: We reported gap net income applicable to common shares of 128 million dollars or 44 cents per share. Reported earnings include the following pre-tax items, a $21.6 million gain on the sale of Visa Class B shares, as well as a $19.1 million charge for the FDIC Special Assessment, $6 million in merger related charges, and a $4 million contract termination charge, excluding these items are adjusted earnings per share with 46 cents.

Brendon Falconer: So I think there's some opportunities and work to do on a rate risk position. That will likely include some reinvestment of cash flows in the invest portfolio and probably, you know, adding bonds for floating rate debt to offset, so I think that would enhance. I have a negative.

Brendon Falconer: Okay, but just beyond the maturing cash flows in the bond book, will the bond book grow on an absolute basis, or just No, no, not not expected to grow, but I do think we'll start to replace, and a prox. Okay, great. Thank you. Your next question comes from the line of Brody Preston with UBS. Please go ahead. Hey, good morning, everybody.

Brendan Nosal: Moving on to slide 11, we present details of our net interest income and margin, as expected deposit repricing led to modest declines in both net interest income and margin. New loan production rates of 7.72 percent, and marginal funding costs in the low 4 percent range, supporter expectation that net interest income should bottom out in Q1.

Brendan Nosal: Slide 12 shows trends in adjusted non-interest income which was $79 million for the quarter, all of our primary fee businesses performed as expected, with seasonally lower mortgage revenue.

Brendan Nosal: Continuing to slide 13, we show the trend in adjusted non-interest expenses which were generally in line with our Q3 guidance, excluding $10 million of year-to-date performance-driven incentive accrual true up, and $5 million in higher amortization of tax credit investments.

Brendan Nosal: Our 2023 incentive plan was tied to deposit costs and growth relative to our mid-sized peers. Our outperformance in both these categories was critical to our record year and ultimately drove the higher incentives.

Brody Preston: Thanks for taking the question, uh Jim. I can. I don't know. I guess I'll speak for Terry and say we're both cold up here in Maine. I appreciate it. We'll try to stay warm. Um, I just wanted to ask on the, Brendan, nuances of the, uh, deposit beta commentary. So, you know, we're going to peak at 39%. Is that happening in just one cue?

Brendan Nosal: The tax credit amortization charge was due to timing of project completion with the corresponding offset and tax expense.

Brendan Nosal: While both these items are within core earnings, we obviously do not expect them to run right into first quarter.

Brendan Nosal: On slide 14, we present our credit trend, which remains stable, reflecting the quality of both our commercial and consumer portfolios.

Brendan Nosal: The link with the non-performing loan ratios are largely unchanged.

Brendon Falconer: And then the declining to a total beta of the low 20s by 4Q24 feels a bit more conservative than what some of your larger peers have kind of outlined in terms of talking about pretty aggressive down betas within their NII guide. You know, I guess, what makes you feel more conservative when you talk about your beta? Yeah, sure. I'll answer the first part of that first. So we think our deposit beta peaks on the up cycle, not because although, kind of a very slight, modest, kind of quarter-over-quarter impact, a total positive in our model, drives a really strong beta down on that side. But I also think, you know, deposits are still really valuable. And we got to pay attention to maintaining and continuing to grow deposits to continue to take advantage. I think that probably informs the more conservative guy.

Brendan Nosal: Non-PCD net charge us were a low three basis points with PCD charge us of nine basis points.

Brendan Nosal: Our fourth quarter allowance, including reserve for unfunny commitments, was unchanged to 103 basis points, and there were no material changes to our model assumptions, and the waiting on the Moody's S3 scenario remains at 100%. On slide 15, we provide a comprehensive overview of our capital position at the end of the quarter.

Brendan Nosal: We observed improvements in all regulatory capital ratios, and an 11% increase in our TCE ratio, driven by strong earnings, and assisted by improvement in AOCIS. Following our 24% recovery in Q4, we anticipate an additional 20% of our outstanding AOCI to accrete to capital by the end of 2024.

Brendan Nosal: In summary, we are very pleased with our fourth quarter and full year performance in what was a challenging year for our industry.

Brendan Nosal: 2023 proved to be a record year and a number of critical performance metrics, including adjusted EPS, return on tangible common equity and efficiency ratio.

Brendon Falconer: Okay, got it. And I wanted to also ask about the securities. Could you remind us that you have over a billion in securities that are set to mature and reprice in 2024? Would you plan on kind of running those down and using them to fund the good loan growth that you've talked about in the guidance? I think a little bit of a mix, Brody.

Brendon Falconer: Certainly, we will start to reinvest some of the cash that goes off that book, and that'll come at a, you know, positive spread. And we'll see how the rest of the year plays out. A lot of that's dependent on our ability to make sure that they grow the pots as well. Got it. And if I could just sneak one more in, the two and a half billion balance sheet edges that you have are, just clarify, are those, is that just on the loan book? And then do you have any maturities of swaps occurring in 24 or 25 that are meaningful that we need to be aware of? Yeah, so it's a mix on both the invest portfolio and our loans. We don't have a ton maturing We actually had the duration of these put pretty far out as we were trying to, you know, we didn't want to... be too precise.

Brendan Nosal: We have improved the efficiency of our balance sheet with strong core deposit growth, which has led to better funding mix and better than expected and interest income.

Brendan Nosal: We continue to demonstrate our ability to expand our customer base while maintaining peer leading deposit costs.

Brendan Nosal: Our strong liquidity also positions us well to take advantage of new lending opportunities.

Brendan Nosal: The credit portfolio remains stable and our discipline approach to managing expenses is evident in our full year adjusted efficiency ratio of 50.4%.

Brendon Falconer: We have no major maturities or anything of significance there, and probably some more work to do. Great. Thank you very much. Thanks, Brody.

Brendan Nosal: Flight 16 includes additional detail on our rate risk position and net interest income guidance.

Brendan Nosal: NII is expected to fall approximately 2% in Q1, remained flat in Q2, and then begin to increase in the back half of the year.

Brendan Nosal: The assumptions are all listed on the slide, but it would highlight a few of the primary drivers.

Jon Arfstrom: Your next question comes from the line of Jon Arfstrom with RBC Capital Markets. Please go ahead. Thanks. Good morning, everyone. Good morning, Jon.

Brendan Nosal: First, we assume three rate cuts in the back half to system with the Fed guidance.

Brendan Nosal: Second, we are anticipating additional late cycle deposit repressing that will give us a terminal beta of 39% by mid-year and a non-intersparing deposit mix that falls to 24% by year end.

Jon Arfstrom: A couple of follow-ups. By the way, slide 16 is really good. That's a great slide. Terry answered one of the questions on CD repricing, but you talk about exception pricing on 30% of your deposits. Has that eased at all?

James C. Ryan: Is that just a product of last spring or early summer? Is that... That's been fairly persistent, go out there, unapologetically aggressive in gathering new deposits. And so that's creeped up a little bit every year, and we'll continue to be aggressive, although we can do that at marginally lower rates in this environment. We think that the exception price or marginal cost will be a little lower than... But that, yeah, that's been a big part of our service, talk about your commercial real estate maturing inside of 18 months. And just a small bit of it is, you've got that 4% demarcation line. I understand that. But what is the message here on credit? Is it that we're going to see some incremental NPLs as this stuff gets repriced and reworked, or are you just not seeing that at this point?

Brendan Nosal: Lastly, we assume the closing of our cap star partnership at the end of Q2. We believe we have positioned the balance sheet well as we approach the end of this rate cycle with most of the work to achieve a neutral rate risk position behind us.

Brendan Nosal: Also, we did run a forward curve scenario, including six rate cuts, and the result was not materially different from our three rate cut scenario.

Brendan Nosal: Slide 17 includes thoughts and our outlook for the remaining items for the first quarter and full year 2024, and all guidance assumes cap star closes at the end of Q2.

Brendan Nosal: I believe our current loan pipeline should support first quarter growth in the one to two percent range and full year growth of 12 to 13%.

Brendan Nosal: We anticipate continued success in the execution of our deposit strategy and expected meet or exceed the industry growth in 2024.

Mark G. Sander: We're not seeing this at this point in time. You know, I think, again, the CRE office still has some time to play out, so could you see some go to criticize and classify? Could you see that increase a little bit, yes?

Brendan Nosal: We expect Q1 non-interest income to be consistent with Q4 with the full year of six to seven percent with the typical seasonal patterns.

Brendan Nosal: Our expense outlook for the first quarter should be approximately $248 million, modestly higher than our Q4 base of $240 million, which excludes the incentive through up and tax credit impact. For the full year, we expect expenses just over $1 billion.

Brendan Nosal: Net charge also expected to range between 15 to 20 basis points and provision expense should be approximately $80 to $85 million for the full year of 2024. This excludes the day one non-PCD double count associated with the acquisition.

Mark G. Sander: with ahead of identifying the risks. Identify early and aggressively take action. We're just trying to size up kind of where some of the risks are. We think they're very manageable.

Brendan Nosal: Turning to taxes, we expect both a first quarter and full year effective tax rate of approximately 25% on a core FTE basis and 22% on a gap basis.

Unknown Executive: With those comments, I'd like to open up the call for your questions.

James C. Ryan: And then, if I can add one more, just, Jimmy, anything on Capstar, anything new to report or updates? You put out a date. I know that's difficult, but just increase your confidence level and put that date out for a close. We feel really good where we stand today, both in terms of the people and the client opportunities. I mean, every time we're with our team members, both the existing team members and our new team members, we just feel really good about the opportunities. And I do think some of that growth we're going to experience is going to come out of places like Nashville, Detroit, Kansas City, and St. Louis.

Unknown Executive: We do have the full team available including Mark Sandler, Jim Sandgren, and John Moran.

Unknown Executive: At this time, I would like to remind everyone to ask a question, simply press star followed by the number one on your telephone keypad.

Unknown Executive: We do ask that you please unmute yourself to one question and one follow-up, then re-enter the queue for any additional questions that you might have.

Scott Siefers: Our first question will come from the line of Scott Siefers with Piper Sandler.

Scott Siefers: Please go ahead.

Scott Siefers: Good morning, everybody.

James C. Ryan: We've got new team members that we've hired in the last handful of years just to continue to execute and create new opportunities for us that just weren't available to us in the past. You know, with respect to the regulatory applications, we feel really good about that. We're in constant dialogue with the regulators. We obviously announced our addendum to our existing community growth plan, which we thought was an important step as a part of the process to get to the finish line here. So I mean, you know, it's hard to always predict exactly when you're going to get approval for these things.

Scott Siefers: Thanks for taking the question.

Brendan Nosal: Good morning, Scott.

Brendan Nosal: Good to hear from you.

Brendan Nosal: You too.

Brendan Nosal: Thank you.

Scott Siefers: Brendan wanted to ask you about some of the nuance in the NII.

Scott Siefers: So it looks like NII should drop in the first quarter, which is great.

Scott Siefers: Maybe it was hoping you could discuss some of the puts and takes.

Scott Siefers: Obviously day count becomes a factor in the first quarter, but maybe it's sort of the interplay with how the margin fits in there.

Scott Siefers: And then I think that you said margin might expand in the second half.

James C. Ryan: But nonetheless, we feel really good about where we stand at this point in time. And more importantly, I just think of Nashville. Tennessee, the Asheville location will continue to represent a great opportunity for us to grow and probably contribute in the future at a much more meaningful level than even, you know, a typical partnership of this size would contribute. You've got some new potential locations on Investor Day as well. I like it. I really like it.

Brendan Nosal: If I heard that correctly, maybe just some thoughts as we go forward.

Brendan Nosal: Sure, Scott.

James C. Ryan: All right. Thank you. There are no further questions at this time. I'd like to turn the call back to Jim Ryan for closing remarks. Well, as always, we appreciate your support and feedback, and the entire team will be available to follow up on any questions you might have. Thank you very much. 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 525-8325. This replay will be available through February 6th. If anyone has additional questions, please contact Linnell Durkos at 812-464-1366. Thank you for your participation in today's conference call. You may now disconnect.

Brendan Nosal: Yeah.

Brendan Nosal: So we're looking at approximately at 10, basically, to climb an integer margin into queue one levels off from there and probably grows a little in the back half.

Brendan Nosal: You know, obviously, as we get three ray cuts and we position the balance sheet accordingly, we don't think we'll get a lot of impact from our negative impact from ray cuts in the back half.

Brendan Nosal: And then we get the benefit of all the fixed asset repricing and growth both organic and from cap star in the back half of 24.

Scott Siefers: Perfect.

Scott Siefers: And then I guess along the lines of sort of underlying long growth, you know, you've got the 46% expectation.

Scott Siefers: Maybe just some thoughts on how that evolves through the year in industry trends, of course, and pretty soft.

Scott Siefers: But I think you guys have gotten, you know, at least your fair share.

Scott Siefers: It's not a little more of any opportunities that are out there.

Scott Siefers: So maybe you're just sort of your thoughts on how things trend, including demand through the year.

Brendan Nosal: I think you summarized the wealth, Scott.

Brendan Nosal: I mean, as much as long demand has slowed somewhat.

Brendan Nosal: Customers are still feeling okay.

Brendan Nosal: You know, CNI clients are, I would say cautiously optimistic for 24, you know, financials are holding up well.

Brendan Nosal: Employment levels are keeping consumers spending at solid levels.

Brendan Nosal: And but again, they, I think that most of them think growth is going to slow a little bit in 24.

Brendan Nosal: And CRE activity, of course, you know, slowed in the last year as expected as we got it to.

Brendan Nosal: But it's begun to pick up a little bit.

Brendan Nosal: Competitors are getting more active.

Brendan Nosal: And as much as, you know, that still has to play out, there's a rents are holding up well in the segments that we're active in in multifamily and industrial.

Scott Siefers: Perfect.

Scott Siefers: Okay.

Scott Siefers: Good.

Scott Siefers: Thank you guys very much.

Scott Siefers: Thanks, Scott.

Kerry McAvoy: You're an next question.

Kerry McAvoy: Kamsha, the line of Kerry McAvoy with Stevens.

Kerry McAvoy: Please go ahead.

Kerry McAvoy: Thanks.

Brendan Nosal: Good morning, everybody.

Brendan Nosal: Maybe your first question.

Brendan Nosal: Hi.

Brendan Nosal: Could you maybe expand on the $5 billion of time deposits repricing over the next year?

Brendan Nosal: I'm seeing kind of brokerage CDs.

Brendan Nosal: We're over five other times.

Brendan Nosal: We're just below four.

Brendan Nosal: And it looks like the seven-month promo is about 475.

Brendan Nosal: So what are your underlying assumptions there?

Brendan Nosal: Yeah, so a lot of these CDs.

Brendan Nosal: I'm going to say 87. Not almost, but exactly 87% of our time deposits will mature within the next 12 months.

Brendan Nosal: I think you have the weighted average rate really close in that forehand one.

Brendan Nosal: So what's the opportunity to reprice a bulk of these CDs lower throughout the year?

Brendan Nosal: In fact, they're the repricing characters actually have gifts now, to retain to repress those, most of those early and first half of 24.

Jim Ryan: And then maybe just stepping out of the model for a bit.

Jim Ryan: Jim, we're hearing the word scale more and more from banks with assets, call it over 100 billion or over 250 billion.

Jim Ryan: My question is how are you thinking about scale as a 50 billion dollar bank and your ability to compete with community banks as well as the larger banks?

Jim Ryan: Terry, I really think we're in a sweet spot.

Jim Ryan: You know, we're big enough to be relevant and compete for almost any client situation in the markets we serve.

Jim Ryan: We're not so big that we get in our own way sometimes, as you get bigger, we know that happens.

Jim Ryan: We're close to our clients, we're nimble, we're fast, we're opportunistic.

Jim Ryan: You know, we can reach out and touch our clients and keep touch our team members on a regular basis.

Jim Ryan: I really like the size of RAT today.

Jim Ryan: And you know, and given we're operating on efficiency ratio basis, I think we're operating fairly efficiently.

Jim Ryan: So I'm really happy with the RAT and don't see any need to do anything dramatically different than we're at today.

Kerry McAvoy: Thanks for taking my questions.

Kerry McAvoy: Thanks, Terry.

Kerry McAvoy: Good to hear from you.

Kerry McAvoy: I hope you stay in warm.

Chris McGrady: Your next question comes from the line of Chris McGrady with KBW.

Chris McGrady: Please go ahead.

Chris McGrady: Oh, great.

Chris McGrady: Good morning.

Brendan Nosal: Good morning, Chris.

Chris McGrady: Maybe a question on credit.

Chris McGrady: You still have a 5% PCD mark for first and last.

Chris McGrady: How should we be thinking about portfolios that you're maybe watching a little bit more closely going into 2024?

Chris McGrady: Any any D-Ruskiner or exits or tweaking that needs to happen and just kind of broader credit commentary?

Chris McGrady: Thanks.

Brendan Nosal: We feel good about where we are with credit, certainly Chris, you know, says Mark. You know, we saw a little further modest risk rate of migration in Q4, but consistent with a little bit of a slowdown and more limited growth. I mean, we feel good about where our portfolio is at.

Brendan Nosal: There's certainly areas where we're watching more closely, obviously, the area office, like everyone in that remain to be play out.

Brendan Nosal: Senior housing is something that is slowly recovering, but is a portfolio quality there where we feel really good about.

Brendan Nosal: So no real changes in our underwriting.

Brendan Nosal: I'm going to feel real good about where we're at.

Chris McGrady: Great.

Chris McGrady: Thanks.

Brendan Nosal: And then maybe Brandon a question just on the balance sheet.

Brendan Nosal: How do we think about, you know, maybe adding bonds at this point to reduce more recent activity, this overall size of earning assets for Q4?

Brendan Nosal: Yeah.

Brendan Nosal: Great question.

Brendan Nosal: So I think there's some I think there's some opportunities and work to do on a rate risk position.

Brendan Nosal: That will include likely summary investment of cash flows and the best portfolio and probably, you know, adding some supporting rate debt to all sets.

Brendan Nosal: So I think that would enhance our rate risk position and not have a negative impact on an interest income.

Brendan Nosal: Okay, but just beyond the maturing cash flows in the bond book, will the bond book grow in an absolute basis?

Brendan Nosal: No, no, not expecting to grow, but I do think we'll start to replace and hold it at approximately levels.

Brendan Nosal: Okay.

Brendan Nosal: Great.

Brendan Nosal: Thank you.

Brody Preston: Your next question comes from the line of Brody Preston with DBS.

Brody Preston: Please go ahead.

Brody Preston: Hey, good morning, everybody.

Brody Preston: Thanks for having me.

Jim Ryan: Good morning, Broderick.

Jim Ryan: Jim, I guess I'll speak for Terry and say we're both cold up here in May.

Jim Ryan: I appreciate it.

Jim Ryan: We'll try that.

Brody Preston: I just wanted to ask on the, running on the nuances of the, of the deposit beta commentary.

Brody Preston: So, you know, we're going to peak at 39%.

Brody Preston: Is that happening?

Brody Preston: In one queue, and then the declining to a total beta of the low 20s by 4Q 24 feels a bit more conservative than what some, some of your larger peers have kind of outlined in terms of talking about pretty aggressive down beta's within their NII guide.

Brody Preston: You know, I guess what makes you feel more conservative when you talk about your beta?

Brendan Nosal: Yes, sure.

Brendan Nosal: I'll answer the first part of that first.

Brendan Nosal: So, we think our deposit beta peaks on the upcycle, not so 2Q, although kind of a very slight modest, kind of quarter of a quarter impact and total deposit cost from 1Q to 2Q in our model.

Brendan Nosal: On the back half, you know, we didn't go up as high.

Brendan Nosal: We have 35% of our book is exception price.

Brendan Nosal: We think we can drive a really strong beta down on that side, but I also think, you know, deposits are still really valuable and we've got to pay attention to maintaining and continuing to grow deposits to continue to take advantage of lending opportunities.

Brendan Nosal: And I think that's probably informed the more conservative got on the way down.

Brody Preston: Okay, got it.

Brody Preston: And I wanted to also ask on the securities.

Brody Preston: Could you remind us, I think you have over a billion insecurities that are set to mature and reprise in 2024.

Brody Preston: Would you plan on kind of running those down and using it to fund the good long growth that you've talked about in the guidance?

Brendan Nosal: I think a little bit of a mix, Brody.

Brendan Nosal: Certainly, we will start to reinvest some of the cash was off that book and that'll come at a, you know, positive spread about 150 basis points.

Brendan Nosal: And we'll see how we'll see how the rest of the year plays out.

Brendan Nosal: No, a lot of that is added on our ability to continue to grow deposits well and ultimately will go into demand.

Brendan Nosal: Got it.

Brody Preston: And if I could just sneak one more in the 2.5 billion of balance the edges that you have are just clarifier.

Brody Preston: Is that just on the loan book and then do you have any maturities of swaps occurring in 24 or 25 that are meaningful that we need to be aware about?

Brody Preston: Yeah, so it's a mix on both the invest portfolio and are on our loans.

Brody Preston: We don't have a ton maturing.

Brody Preston: We actually had the duration of these put pretty far out as we were trying to, you know, we didn't want to to be too precise on the timing of the case around rate cuts.

Brody Preston: So we have to have no major maturities or anything rolling off of significance there and probably some more work to do before we're done with the year.

Brody Preston: Okay, great.

Brody Preston: Thank you very much.

Brody Preston: Thanks, Brody.

John Rstrom: Your next question comes from the line of John Rstrom with RBC capital to markets.

John Rstrom: Please go ahead.

John Rstrom: Thanks.

John Rstrom: Good morning, everyone.

Brendan Nosal: Good morning, John.

Brendan Nosal: A couple of follow ups.

John Rstrom: By the way, slide 16 is really good.

John Rstrom: That's a great slide.

John Rstrom: Terry took one of the questions on CD repricing, but you talk about exception pricing on 30% of your deposits.

John Rstrom: Has that eased at all?

John Rstrom: Is that just a product of last spring or early summer or is that for us?

John Rstrom: Assistant.

John Rstrom: That's been fairly persistent.

John Rstrom: We continue to go out there.

John Rstrom: We've been unapologetically aggressive and gathering new deposits.

John Rstrom: And so that's creeped up a little bit every quarter.

John Rstrom: And we'll continue to be aggressive, although we can do that at marginally lower rates in this environment than we have over the last couple of quarters.

John Rstrom: So we think that exception price or marginal cost will be a little lower than it has been.

John Rstrom: But yeah, that's been a big part of our successes here.

John Rstrom: Okay.

John Rstrom: Slide 19, you talk about your commercial real estate maturing inside of 18 months.

John Rstrom: And just, you know, a small bit of it is, you've got that 4% demarcation line.

John Rstrom: I understand that.

John Rstrom: But what is the message here on credit?

John Rstrom: Is it that we're going to see some incremental NPLs?

John Rstrom: Is this stuff gets reprised and reworked or you're just you're not seeing that at this point in time?

Brendan Nosal: We're not seeing this at this point at this point in time.

Brendan Nosal: You know, I think, you know, again, the CRU office still has some time to play out.

Brendan Nosal: So could you see something go to criticizing classified?

Brendan Nosal: Could you see that increase a little bit?

Brendan Nosal: Yes.

Brendan Nosal: But we don't, we think we're ahead of identifying.

Brendan Nosal: You know, we like to identify early and aggressively take action.

Brendan Nosal: I think that's what we continue to do.

Brendan Nosal: So we're just trying to size up kind of where some of the risks are.

Brendan Nosal: We think they're very manageable.

Brendan Nosal: Okay.

Brendan Nosal: Good.

Jim Ryan: And then if I can add one more, just Jimmy, any, anything on cap star, anything new to reporter updates and just you put out a date, I know that's difficult, but just confidence level and putting that date out for a close.

Jim Ryan: Thanks.

Jim Ryan: We feel really good where we stand today, both in terms of the people and the client opportunities. I mean, every time we're with our team members, both the existing team members and our new team members, we just feel really good about the opportunities.

Jim Ryan: And I do think some of that growth we're going to experience is going to come out of places like Nashville, you know, Troy, you know, Kansas, San Luis.

Jim Ryan: We've got new team members that we've hired in the last handful of years.

Jim Ryan: It's a continue to execute and create new opportunities for us that just weren't available to us in the past.

Jim Ryan: You know, the respect of the regulatory applications feel really good about that.

Jim Ryan: We're in constant dialogue with the regulators.

Jim Ryan: You know, we obviously announced our addendum to our existing community growth plan, which we thought was an important step as a part of the, you know, process to get to the finish line here.

Jim Ryan: So, I mean, you know, it's hard to always predict exactly when you're going to get approval for these things, but nonetheless, we feel really good about where we stand at this point in time.

Jim Ryan: And more importantly, I just think Nashville, Tennessee, the Asheville location will continue to represent a great opportunity for us to grow and probably contribute, you know, in the future in a much more meaningful level than even, you know, a typical partnership of the size would contribute.

Jim Ryan: Yep.

Jim Ryan: Okay.

Jim Ryan: You've got some new investor day potential locations as well.

Jim Ryan: I like it.

Jim Ryan: Thank you.

John Rstrom: Thanks, John.

Unknown Executive: There are no further questions at this time.

James Ryan: I'd like to turn the call back to Jim Ryan for closing remarks.

James Ryan: Well, as always, we appreciate your support and feedback and the entire team will be available to follow up any questions you might have.

James Ryan: Thank you very much.

Unknown Executive: This concludes Old National's call.

Unknown Executive: Once again, a replay along with the presentation slides will be available for 12 months on the investor relations page at Old National's website, OldNational.com.

Unknown Executive: A replay of the call will also be available by dialing 800-770-2030, Access Code 525-8325. This replay will be available through February 6th.

Unknown Executive: If anyone has additional questions, please feel free to check out out at 812-464-1366.

Unknown Executive: Thank you for your participation in today's conference call.

Unknown Executive: You may now disconnect.