Q3 2024 Old National Bancorp Earnings Call
Ladies and gentlemen, and welcome to the old National Bancorp third quarter 2024 earnings Conference call.
This call is being recorded and has been made a special to the public in accordance with the S E six regulation SP.
Corresponding presentation slides can be found on the Investor relations page at old National Dot 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 excuse me the appendix of the presentation.
Speaker Change: I'd now like to turn the call over to old National's, Chairman and CEO, Jim Ryan for opening remarks, Mr. Ryan.
Jim Ryan: Good morning earlier today old National reported our third quarter 2024 results with earnings per share in line with expectations.
Jim Ryan: These solid third quarter results were driven by our ability to execute on our organic growth strategy and invest in new markets and talent in our footprint.
Jim Ryan: Our results were also driven by the strong organic deposit growth.
Jim Ryan: Loan growth durable margin management and focused efforts in growing our fee income businesses.
Jim Ryan: Moving to our third quarter highlights on slide four we reported GAAP earnings of 44 per common share and our adjusted EPS was <unk> 46 cents.
Jim Ryan: Our adjusted ROA TCE for the quarter was 16, 8% and our adjusted ROA was 1.13% our adjusted efficiency ratio was a low 51, 2%.
Jim Ryan: Our core deposit growth was strong at 10, 1% annualized with our noninterest bearing deposits growing nearly $100 million during the quarter.
Jim Ryan: Our total cost of deposits for the quarter remains at a low 225 basis points and we were already taking advantage of recent fed actions, which John will touch on later in his comments. Meanwhile, our commercial loans were up 4.1% annualized due to disciplined client selection.
Jim Ryan: Knowing our tangible common book value per share remains a top priority rising 8% since the second quarter of 2024, and 21% year over year.
Jim Ryan: In summary, our third quarter 2024 earnings evidenced of another strong quarter for old National we remain.
Jim Ryan: Focused on the fundamentals continue to fund loan growth with low cost core deposits.
Jim Ryan: Effectively managing credit <unk>.
Jim Ryan: Creating positive operating leverage through disciplined expense management and consistently growing tangible book value per share.
Speaker Change: With that I will now I will turn the call over to John Moran.
John Moran: Thanks, Jim turning to slide five you can see our third quarter balance sheet, which highlights continued improvement in our liquidity and our capital position.
John Moran: Deposit growth over the last year has again allowed us to organically fund loan growth, while reducing our borrowings.
Jim Ryan: As Jim just mentioned, we grew our tangible book value per share by 21% over the last year and by 8% from the prior quarter.
Jim Ryan: We ended the quarter with a strong CET one ratio of 11% and we continue to expect that we will accrete capital at a faster pace than most of.
Jim Ryan: Our liquidity and capital levels continue to provide a strong foundation, which positions us well as we finished 2024.
Jim Ryan: On slide six we show our earning asset trends total loans grew two 7% annualized from last quarter in line with industry performance with strong production in our commercial book in the quarter, partly offset by payoffs.
Jim Ryan: We remain focused on full relationships and structure at prices that meet our risk adjusted return requirements.
Jim Ryan: Orderly new loan production rates in the mid 7% range and marginal funding cost in the low 4% range support our expectation that net interest income will grow modestly in <unk> 'twenty for the.
Jim Ryan: The investment portfolio increased 3% in the quarter due to reinvestment of cash flows and positive changes in fair values with duration decreasing to just under four years, we have approximately $2 billion in cash flow is expected over the next 12 months.
Jim Ryan: New money yields are currently running approximately 110 basis points above back book yields on securities and approximately 175 basis points above back book yields on fixed rate loans.
Jim Ryan: Moving to slide seven we show our trend in total deposits, which grew eight 5% annualized from QQ.
Jim Ryan: Core deposits ex brokered were up an even better 10% annualized and we saw a nearly $100 million increase in noninterest bearing deposits in the quarter.
Jim Ryan: Commercial and community deposits were up in public funds saw normal seasonal increases our broker deposits decreased and at four 2% as a percentage of total deposits our use of brokered remains well below peer levels.
Jim Ryan: We did see a nine basis point increase in deposit rates compared to the prior quarter. As we remained on offense with respect to client acquisition and we drove our loan to deposit ratio below 90%.
Jim Ryan: Total deposit costs decreased in September consistent with fed actions and our spot rate at September 30 was 212 basis points. Moreover, our exception price book has seen a 90% down beta since we started lowering rates in that book in early two Q.
Jim Ryan: This was in line with our expectations.
Jim Ryan: Overall, we are highly confident in the execution of our deposit strategy and it continues to unfold as we expected we are prepared to proactively respond to future fed rate actions and the evolving environment, while staying focused on driving above peer deposit growth at reasonable costs.
Jim Ryan: Slide eight provides our quarter end income statement, we reported GAAP net income applicable to common shares of $140 million for 44 per share.
Jim Ryan: Reported earnings include <unk> <unk> per share of merger related and separation expenses. Excluding these items our adjusted earnings per share was 46.
Moving on to slide nine we present details of our net interest income and margin net interest income grew as expected while net interest margin was essentially unchanged as increases in asset yields and accretion were offset by deposit costs year over year. We again showed deposit growth that essentially kept pace with asset generation, while maintaining a low total cost.
Jim Ryan: Cost of funding.
Jim Ryan: Slide 10 shows trends in adjusted noninterest income, which was $94 million for the quarter and above our expectations. Our primary fee businesses, all performed well with bank fees ahead of expectations mortgage benefiting from seasonality and a modest improvement in production and capital markets benefiting from CRE production.
Jim Ryan: Continuing to slide 11, we show the trend in adjusted noninterest expenses of $263 million for the quarter.
Jim Ryan: <unk> remained well controlled and we generated positive linked quarter operating leverage.
Jim Ryan: On slide 12, we present, our credit trends, which reflect the quality of both our commercial and consumer portfolios.
Jim Ryan: Total net charge offs were 19 basis points in a low 16 basis points, excluding three basis points related to BCD loans the.
Jim Ryan: The nonperforming loan ratio increased eight basis points due mostly to four borrowers and unrelated sectors that we are actively monitoring.
The third quarter allowance for credit losses to total loans, including the reserve for unfunded commitments was 112 basis points up four basis points from the prior quarter.
Jim Ryan: Risk rating migration over the last several quarters has been driven by the effects of higher interest rates and a more conservative posture in our risk rating framework.
Jim Ryan: While the grade migration has resulted in an increase in our quantitative reserves. Our total qualitative reserves are unchanged from the prior quarter.
Jim Ryan: Qualitative reserves now incorporate a 100% weighting on the Moody's <unk> scenario with additional qualitative factors to capture the possibility of further grade migration.
Jim Ryan: This is logical as greater conviction comes into focus that a hard landing scenario is unlikely. Moreover, the S. Two scenario assumes an unemployment rate that is 70% higher than current levels and negative GDP.
Jim Ryan: Also we remind you that our allowance for credit losses, plus the discount remaining on acquired loans. The total loans now stands at nearly 160 basis points.
Jim Ryan: Slide 13 presents key credit metrics relative to peers as you can see our proactive approach to credit monitoring has led to above peer levels of npls, but delinquency and charge off ratios that are well below peer averages over time, we have long practice conservatism and we continue to believe that the results speak for themselves.
Jim Ryan: On Slide 14, we review our capital position at the end of the quarter all ratios increased driven by strong retained earnings. In addition, the rate environment further aided TCE build.
Jim Ryan: Slide 15 includes updated details on our rate risk position and net interest income guidance NII is expected to increase modestly in the fourth quarter. Our assumptions are listed on the slide but I would highlight a few of the primary drivers first we assumed two rate cuts of 25 basis points each consistent with the forward curve.
Jim Ryan: Second we are now anticipating a declining rate total deposit beta of approximately 30% and our noninterest bearing to total deposit mix that remained stable at 24%. We continue to believe that we have positioned the balance sheet, well and we have maintained our neutral rate risk position.
Slide 16 includes our outlook for the fourth quarter and the full year of 2024, you can see the details on the chart, but it is worth pointing out that our full year outlook for pre provision net revenue remains unchanged from the initial expectations. We shared with you in January of this year and our outlook proved more durable than many peers full.
Jim Ryan: <unk> full year loan growth and NII are expected to be right in line with those original expectations, while higher fee income is expected to be partially offset by higher noninterest expenses.
Jim Ryan: Net charge offs are in line with our original range, while provision expense is slightly higher than originally expected as a result of grade migration driven by our proactive approach to credit management.
Jim Ryan: In summary year to date 2024 results have been excellent with third quarter results in line with our expectations and strong performance metrics.
Jim Ryan: More importantly, we continue to demonstrate our ability to execute against our strategic priorities.
Jim Ryan: First we are driving organic deposit growth to fund our asset generation second our adjusted return profile remains top quartile against peers at 17% on tangible common equity third we remain disciplined on expenses driving positive operating leverage and an adjusted efficiency ratio of 51% fourth our borrowers remain resilient.
Jim Ryan: As evidenced by non PCB net charge offs of just 16 basis points and we believe we have ample reserve coverage, along with a well diversified and granular loan book and fifth we are continuing to rapidly compound tangible book value per share, which was up 21% year over year with those comments wed like to open the call for your questions.
Speaker Change: And thank you we will now begin the question and answer session.
Speaker Change: If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue.
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Speaker Change: And your first question comes from the line of Scott <unk> with Piper Sandler Your line is open.
Speaker Change: Good morning, guys. Thanks for taking the question.
Speaker Change: Good morning, and good evening.
Speaker Change: Likewise, you too thank you.
Scott <unk>: So just wondering John I appreciate the comments on the sort of the full year NII I guess, the fourth quarter in particular, the expectation maybe a little lighter than what we had hoped 90 days ago. The fact that it's sort of a just a function of what happened with the belly of the curve. Since then as well as the different timing of the fed moves, but would love to hear in your words any anything that has changed.
Scott <unk>: I know you touched on like the $2 billion of cash flows over the next 12 months. If you could maybe offer any updated thoughts on sort of how powerfully.
Scott <unk>: NII base could advance from the fourth quarter expectation then.
Scott <unk>: Just sort of main levers. Additionally, that you would see allowing it to do so.
Speaker Change: Perfect Yeah, Hey, Scott your suspicion is right on the NII guide really it's a touch on the on the five year point of the curve belly of the curve being a little bit a little bit lower.
Speaker Change: Driving that outlook and then on securities roughly $2 billion in cash flow coming off of that book over the next 12 months.
Speaker Change: Pick up there are about 110 basis points against the against the back book, So certainly that that'll be helpful. And we would anticipate plowing most of that just right back into the Securities book.
Speaker Change: At the margin there could be a touch.
Speaker Change: Loan growth comes in.
Speaker Change: <unk>, maybe we let that come in just that just a little bit, but I think most of that will go back into securities at this point.
Okay, Perfect and then maybe John if you could expand a little on some of the reserving comments just in particular I'm trying to get my arms around.
Speaker Change: Why credit costs, a little higher this quarter and expect it to be so at least relative to what I would've anticipated next quarter. You know is this something that will continue for a little while or is it kind of a transitory catch up how should we think about those sort of dynamics.
Speaker Change: I think I think it's just normalization of credit here.
Speaker Change: I think for the year, we sort of tightened the range on the guidance, but it's still I think at the beginning of the year, we were saying, 15% to 20 basis points on charge offs. We're now at 17% to 20 basis points on charge offs. So I don't think that there is any real difference in our in our expectations around loss content.
Speaker Change: And a provision that you saw in the quarter was kind of covering charge offs and building a little bit of reserve.
Speaker Change: Okay Alright.
Speaker Change: Alright, perfect. Thank you guys very much thanks.
Speaker Change: Thanks Scott.
Speaker Change: And your next question comes from the line of Brendan Nosal with hub Group. Your line is open.
Brendan Nosal: Hey, good morning, folks hope you're doing well.
Thanks Brendan.
Brendan Nosal: I wanted to start off here looking a little further out on kind of the margin and NII dynamics I heard your comments again this quarter on a relatively rate neutral balance sheet positioning I mean.
Brendan Nosal: Let me just offer some thoughts on how you expect the NIM to traject across 2025, if we end up getting the forward curves like lets say 200 basis points or so of cuts by the end of next year. Thanks.
Speaker Change: Yes, Brian I think I think what youre seeing here is kind of bottoming in <unk>, probably up would be that our bias would be up a little bit.
Speaker Change: I think our bias in <unk> was kind of stable to down a little bit and that played out right.
Speaker Change: As we look out into 2025.
Speaker Change: D inverting in the yield curve.
Speaker Change: And continued growth in the underlying franchise are going to be helpful for us.
Brian: Okay, I think thats helpful for us it's helpful for the whole industry right now.
Speaker Change: I think that'll be the key factor next year.
Speaker Change: Okay perfect perfect.
One more from me.
Speaker Change: Just kind of looking at the charge off rate on the <unk>. The kind of core loan book is seeing a little bit higher numbers over the past few quarters. Just wondering how you would characterize that is that still well within the framework of normalization off of a low base or is it indicative of perhaps some gradual weakening.
Speaker Change: No I think.
Speaker Change: <unk> added with your first.
Speaker Change: Option, Brendan which is its normalization of credit or its still well within our guidance as John said, we started the year at 15 to 20, where now 70% to 20 for the full year and so as credit normalizes I think thats, just what youre seeing.
Speaker Change: Alright fantastic. Thank you for taking the questions.
Speaker Change: Thanks Brendan.
Speaker Change: And your next question comes from the line of Ben <unk> with Citi. Your line is open.
Speaker Change: Hey, good morning, guys. Good morning Gordon.
Speaker Change: Can you guys talk through your appetite for kind of hiring and where you might be targeting.
Speaker Change: It's more so obviously, a 25 or even in 'twenty six question.
Speaker Change: Again like from a balance sheet perspective, you seem pretty well situated for the current rate outlook on just kind of appetite on hiring any trends.
Alright.
Speaker Change: Yeah.
Speaker Change: Mark I would answer it this way I think we're open and opportunistic, but we don't need to do anything really.
Speaker Change: Like the team that we have we think we can outgrow industry loan growth.
Speaker Change: I think our deposit performance growth performance has been terrific in.
Speaker Change: All of our teams are focused on that so I don't think we need to do anything but we will continue to look to opportunistically fill in good talent, we say it all the time pays for itself quickly and so if they come along but we're also.
Speaker Change: Watching expenses closely and so we're not looking to add talent and lesser.
Speaker Change: That great opportunity comes along.
Speaker Change: Add on top of that as we think about talent acquisition were particularly paying attention to our fee income businesses think about treasury management.
Speaker Change: Can you think about our wealth management businesses. Those are businesses that again have a little bit longer earn back on the hires but we think are the right long term investments for us, particularly as we just transitioned to saw a larger institution have more opportunities.
Speaker Change: That space and so that's an area as Mark says, we have plenty of balance sheet growth and I don't feel like we need to have more relationship managers there to grow the balance sheet. However, almost fee income businesses there'll be continued opportunities for us to be successful.
Speaker Change: Got you that's helpful and then when you think about it.
Speaker Change: Integration going forward.
Speaker Change: Let's call it the southeast or kind of.
Speaker Change: Is there any.
Speaker Change: Is there any additional cost savings now that you've kind of have the integration in place and kind of as it related to land anything that you would want to potentially call.
Speaker Change: It is incrementally more positive on growth or thoughts on additional expense questions.
Speaker Change: You have to feed hungry out here.
Speaker Change: No no no I think youll see the full run rate reflected in <unk> in terms of the saves that we highlighted for cap start just to remind you those are around $30 million annually and we expect that that will be fully realized in the fourth quarter. I think if anything we're looking to invest in that market is a great market and I don't know.
Speaker Change: Marc would add or Jim Yes, I would just add is we've spent a lot of time down there. It seems like him down there a few times a month and it's unique.
Speaker Change: Our core legacy Midwestern markets.
Speaker Change: Oftentimes, we're part of the economic engines that are making those those communities successful and down in Nashville, Tennessee broadly.
Speaker Change: Really just have to be there, there's just plenty of organic growth opportunities for us and we need to be in a position to take advantage of that and so as John said I think we'll continue to invest there.
Speaker Change: It's unlike any other part of our franchise, where the economic growth is still incredibly strong.
Speaker Change: Got you that's helpful color I appreciate it thanks guys. Thanks.
Speaker Change: Thanks Ben.
Speaker Change: And your next question comes from the line of Terry Mcevoy with Stephens. Your line is open.
Terry Mcevoy: Thanks, Good morning, everyone.
Terry Mcevoy: Maybe John let's start with a question for you did the $400 million guide for NII in the fourth quarter does that assume the $30 million of accretion.
Terry Mcevoy: Then how are you thinking about the deposit beta over the next several quarters I know on the slide you said, 30% total deposit beta by the end of this year, but what's your insight beyond the end of 2024.
John Moran: Yes, so the accretion piece, yes, roughly stable so you've got you've got the right number there for <unk> in terms of beta I think 30%.
John Moran: Probably allows us still some room to play offense and we've been unapologetic about that were on our front foot with respect to client acquisition and we really want to continue to fund organically our loan growth.
John Moran: I think I think we will get the most data and we've been saying this for a couple of quarters now and it's playing out exactly as we had expected it's really in that exception price book.
John Moran: There, we expect to see roughly 85% down beta and we've been able to move that very quickly.
John Moran: Fact, when the when the fed moved 50 basis points, Mike Lloyd and team had program AAM program be one was ready to go for 25 basis points. One was ready to go for 50 basis points. When we got 50 basis points. They press the button and that went in that afternoon, Brian and Sue.
John Moran: So.
John Moran: We're ready to move very very quickly.
John Moran: Agile agile.
Speaker Change: Thanks, and then as a follow up could.
Speaker Change: Could you discuss any common themes among the increase in non accrual loans I think there was for specific borrowers as well as the increase in classified loans and anything to do with the recent shared national credit credit exam that showed up in third quarter results.
Mark: Yes ill take those in reverse Terry it's mark.
Mark: Given the environment, we moved to a more conservative posture in our risk scoring framework this year, which drove that negative migration overall, we're now looking at our primary source of repayment debt service coverage almost.
Mark: Exclusive Lee and our risk ratings and so.
Mark: As borrowers have absorbed the full year of the 500 basis point increase in rates coverage ratios with Titan, particularly in CRE, we still feel good about <unk>.
Mark: Secondary sources of repayment guarantors and collateral. So these sources no longer factor into our risk ratings, but they obviously influence loss content, which.
Mark: Which we still believe is generally low across our special mention and substandard loans.
Mark: Specifically to the non accruals there were four larger credits when I say larger you've got to think about that relatively speaking larger for us. Those four credits were all in the $12 million to $25 million range. So each one is a manageable level each was on our radar screen before they moved into non accrual.
Mark: And then I guess, it's just reflective of our granular portfolio I think one was a downgrade from the snick exam C&I credits out of the caps our portfolio. The other three were different segments of CRE. So no trend no geography.
Mark: Just unique issues to each individual credit.
Mark: And again I will just say like like most of our nonperforming book I think theirs.
Mark: Decent underlying value in the real estate and demand for those properties. So even though our non accruals are up our charge off guidance hasn't moved we think in Q4 will still be in that 20 to 25 basis points.
Speaker Change: Great. Thanks, Marc and thanks for taking my questions.
Speaker Change: Thanks Terry.
Speaker Change: And your next question comes from the line of Jared Shaw with Barclays. Your line is open.
Jared Shaw: Hey, good morning. Thanks.
Jared Shaw: Maybe just looking at the guide for fee income.
Jared Shaw: It looks like it's implying an April $8 million decline versus third quarter.
Jared Shaw: Anything specifically driving that or is that just a little bit of seasonality and how should we be thinking about sort of the jumping off point as we as we look next year on fee income.
Speaker Change: Hey, Jared yes, it was.
I think a little bit seasonality in some of the lines that are subject to that write more mortgage will probably be a little bit softer in the fourth quarter capital markets had a really strong <unk>.
Speaker Change: I don't know that I would that I wouldn't necessarily count on that one run rating and then other other there was a couple of little things that kind of broke our way in <unk> that I don't know necessarily run ratable.
Speaker Change: Okay.
Speaker Change: Okay. Thanks, and then.
Speaker Change: How should we be thinking about.
Speaker Change: Your thoughts and view on capital build here.
Speaker Change: It certainly seems like we're going to continue to see.
Speaker Change: Capital building, especially CET, one plenty of capital for for the organic growth side.
Speaker Change: Is there an opportunity to.
That with buybacks or any other capital actions.
Speaker Change: Yes.
Speaker Change: So 11% CET one we're starting to we're starting to.
Speaker Change: And we're going to rebuild capital very quickly right left Uncheck will tack on a 100 basis points plus minus.
Speaker Change: Year on that on that ratio.
Speaker Change: So I think as we as we get into next year, certainly there is an opportunity to kind of think about buyback.
Speaker Change: We're a little bit sensitive to earn back on that.
Speaker Change: Every quarter, we kind of talk about dividend with the board.
Speaker Change: Okay. Thanks.
Speaker Change: Thanks Darren.
Speaker Change: And your next question comes from the line of Chris Mcgratty with <unk> W. Your line is open.
Speaker Change: Hi, good morning.
Speaker Change: Jim or John positive operating leverage you talk about a lot.
Chris Mcgratty: And you talked about your low 50 efficiency ratio, how do we think about just the cadence of those with the forward curve.
Speaker Change: The investments in our growth any material change.
Speaker Change: As we get into 'twenty.
Chris Mcgratty: No I think we just keep running the playbook.
Speaker Change: And to the extent that we have the ability were obviously sensitive to our expenses.
Speaker Change: And we know ultimately some of that expense base is inside of our control.
Speaker Change: As you know, though Chris we've really been trying to manage for the long term here and we'll continue to invest in ourselves.
Speaker Change: From a risk management governance perspective, but also from our offensive relationship management perspective, and we're going to continue to make those type of investments, but I am sensitive to.
Revenue growth to help offset offset any of those investments we make.
Speaker Change: Sometimes the investments we make as we talked about some of the fee income businesses. The returns are a little bit longer than that.
Speaker Change: Then maybe some of the other businesses like the balance sheet.
Speaker Change: But we've done a pretty good job of managing those tradeoffs and I expect us to continue to make those same types of calls in 'twenty five.
Speaker Change: Thanks for that any any use of capital.
To your fee income initiatives.
Speaker Change: And even a deal go into next year no I don't see anything I don't see anything come in the future that's material in nature.
Speaker Change: But again, we just know that that's an area.
Speaker Change: Think about Treasury management wealth management.
Speaker Change: You have the right to win.
Speaker Change: Clearly mortgage is mortgage.
Speaker Change: There's been some volatility around that and we'd like to like the production, where we're at today and hopefully it will continue to grow I think it's at an inflection point around the 6% kind of 30 year rate.
Speaker Change: But those two other businesses treasury and wealth are ones that we have the right to win we have some long term games, we have high expectations around the growth of those businesses and we're going to continue to build in those businesses specifically.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thanks, Chris.
Speaker Change: And your next question comes from the line of David Long with Raymond James Your line is open.
David Long: Thanks, Good morning, everyone.
David Long: As you are talking about as Youre talking about the positive operating leverage and that being a goal how does that revenue growth impact how quickly you may invest.
David Long: In <unk>, Tennessee, where you see some great growth opportunities do you need to have positive operating leverage or can you. If revenue growth maybe doesn't come in are you still going to put the dollars forward in that market.
Speaker Change: Yes, I think Thats an area, we got to continue to invest and that is again like I said earlier the growth dynamics. There are unlike any other part of our franchise, where we have low share obviously, but there is high growth and other parts of our market, we have low share and maybe the growth in total is not as high so I think we will.
David Long: <unk> investments and that new newer part of our franchise and I would say continue in some of our expansion markets as well.
David Long: Those are going to be key continued investments and I would rather give up a little bit of the expense side.
David Long: For kind of longer term growth and I think we've been able to kind of navigate those tradeoffs.
David Long: Pretty adept basis to continue to deliver earnings and return profile that you all expect.
Speaker Change: Got it thanks, Jim and then my second question is related to loan growth and.
Speaker Change: As far as customer demand.
Speaker Change: What do you think are the biggest catalysts out there in the marketplace to increase commercial customer loan demand.
Speaker Change: Yeah, David It's Marc I think just removal of uncertainty right as the soft landing is becoming a little bit more coming.
Speaker Change: Clearing to focus I guess people I think are the cautiousness that we've seen is starting to abate a little bit and then people just kind of hang on the election stuff and they want to get past.
Speaker Change: The election until they just talk a lot about that and not that they are frozen, but I think it's making people a little a little more hesitant. So I think once we get a little more clarity on those two issues.
Speaker Change: Yes.
Speaker Change: That said youre, starting to see activity and people refinance things out in the CRE markets Youre seeing longer term lenders take things out at pretty aggressive rate. So we're starting to see.
Sure.
Speaker Change: Sources out there.
Speaker Change: Demand needs to catch up a little bit David I would add mark and Jim have done an excellent job kind of leading us through.
Speaker Change: This different environment since the spring of 'twenty three.
Our expectations are definitely risen in terms of what we want full relationships deposit growth. So I think that client selection has played a really important part of maybe.
Speaker Change: Albeit slower quarter for the third quarter that we've seen in the back half of the Earth's first half of the year, but that was quite intentional.
Speaker Change: Wanted to ensure that we get we hit our hurdle rates in terms of the economic pricing and then we bring a full relationship to the table.
Speaker Change: And we are much less willing to bet that it will come.
Speaker Change: We want to make sure it's there.
Speaker Change: Okay.
Speaker Change: Got it thanks, Mark Thanks, Tim I appreciate the insight.
Speaker Change: Thanks, Dave.
Speaker Change: And your next question comes from the line of Jon <unk> with RBC capital markets. Your line is open hey, good.
Good morning, John.
Speaker Change: Just a quick follow up on that is it more competitive do you think you are talking about risk adjusted return hurdles on lending but.
John Moran: Is it more competitive is that what's driving your intentional comment or is it something else.
John Moran: Hey, John This is Jim Sandgren.
I think we're starting to see the competitive pressures just picking up a little bit over the last quarter. So.
Jim Sandgren: We're still fighting and we have the right to win in all the spaces that we do business in because of our relationships. So, but it's picking up both on the on the lending side and the deposit gathering side. So again I like our chances we like our chances to win in.
Just that okay.
Speaker Change: Okay. Okay. Thank you on that.
Speaker Change: John maybe for you.
Speaker Change: I liked that exception pricing chart.
Speaker Change: On slide seven and then and then 'twenty two as well but.
Speaker Change: Would you how quickly is that gap closing and would you say the reasons for the initial.
Speaker Change: The exception pricing.
Speaker Change: Maybe quickly or maybe are no longer there.
Speaker Change: Okay.
Speaker Change: I think I think we can close the gap.
Look clearly we absorbed crested here on both the total deposits and the exception book.
Speaker Change: But again, John I mean, we're going to stay on offense.
Speaker Change: We.
Speaker Change: If somebody else's out there flash and a 50% down beta I view that as old National's opportunity.
Speaker Change: I think we're very much interested in continuing to have deposits keep pace.
Speaker Change: With our loan generation and.
Speaker Change: And so.
Speaker Change: We're still putting on good spread right.
Speaker Change: And as long as that's the case, we'll stay on offense on deposits.
Speaker Change: Alright.
Speaker Change: And then.
Speaker Change: Last one.
Speaker Change: Credit again, maybe hard to answer this but.
When I look at the delinquency nonperforming trends.
Speaker Change: I think theres still obviously manageable, but what's the signal that you want to send US are you expecting the growth to flatten out.
Speaker Change: To continue to go up a little bit over time or are you seeing some of this stuff start to crest as you look forward. Thanks.
Speaker Change: John It's Mark I'll start with the delinquency is that bumped a little bit this quarter based on the caps are conversion.
Speaker Change: Administrative issues. So that I think is a non event honestly and I think that'll come down it's still at a decent level now and it will come back down in Q4 relative to further risk rating migration.
Speaker Change: We could still see some I mean, it's possible, but I think our potential problems are well known and closely monitored.
Speaker Change: So while we could still see some downgrades I think there is a lot of things that will mitigate the downgrade activity.
Speaker Change: Frankly, a conservative and proactive approach in identifying them early.
Speaker Change: This expectation for a soft landing, which we're starting to see manifest itself already and some upgrades as well.
Speaker Change: Interest rate cuts and just our aggressive efforts to reduce that book. So again, we could see some but I think we'll manage it well.
Okay, Alright, thank you very much.
Thanks, Jeff.
Speaker Change: Yes.
Speaker Change: And as a reminder, it is star one if you would like to ask a question.
Speaker Change: And we will take a follow up question from Scott <unk> with Piper Sandler Your line is open.
Speaker Change: Thanks, Matt.
Scott <unk>: Sort of a top level and our strategic question, Jim as you build capital. So quickly just opened and get any updated thoughts on how M&A might fit into the picture last quarter I recall getting an impression that deals were not high on the list of preferences, but you know as you look ahead with the preference be to stay on the path of increasing tangible book value or would we look to deploy some of that into into any.
Speaker Change: Positions, yes.
Jim Ryan: Yes, I think what we've said is you know any future M&A opportunities really have a high hurdle and as we've tried to convey we've got plenty of organic growth opportunities today that we just need to execute on.
Jim Ryan: However to the extent that there are opportunities that come along and exceed those very high hurdles. We have in place I think all of our shareholders would want us to look at those things Opportunistically.
But at the end of the day.
Jim Ryan: We are very focused on long term shareholder value creation and anything we look at has to has to meet those pretty high hurdles we put in place.
Unknown Executive: Perfect. Okay, good, thank you very much.
Jim Ryan: Perfect. Okay. Thank you very much.
Scott: Thank you for the questions, Scott. And there are no further questions at this time.
Speaker Change: Thank you for the question Scott.
Jim Ryan: Okay.
Speaker Change: There are no further questions at this time I would like to turn the call back to Jim Ryan for closing remarks.
James Ryan: I'd like to turn the call back to Jim Ryan for closing remarks. Well, we appreciate your participation, and as usual, the team will be around all day to follow up with any questions. Have a great day.
Jim Ryan: Well, we appreciate your participation and as usual the team will be around all day.
Speaker Change: Follow up with any questions.
Jim Ryan: Have a great day.
Unknown Executive: 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 158-660. This replay will be available through November 5th.
Speaker Change: Ladies and gentlemen, this concludes old nationals call.
Speaker Change: Once again, a replay a long with the presentation slides will be available for 12 months on the <unk>.
Speaker Change: Relations page of old National's website old National Dotcom.
Speaker Change: A replay of the call will also be available by dialing 870 702030 access code 186600.
Speaker Change: This replay will be available through November 5th.
Lonell Durkohl: If anyone has additional questions, please contact Lonell Durkohl's at 812-464-1366. Thank you for your participation in today's conference call.
Speaker Change: Anyone has additional questions. Please contact Lynn now dark holes at eight one Q4 641366. Thank you for your participation in today's conference call.
Speaker Change: Okay.
Speaker Change: [music].
Okay.
Sure.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].