Q4 2024 Old National Bancorp Earnings Call
Welcome to the Old National Bank Corp 4th Quarter and Full Year 2024 Earnings Conference Call. This call is being recorded and has been made accessible to the public in accordance with the SEC's Regulation FD.
Corresponding presentation slides can be found on the investor relations page at oldnational.com and will be archived there for 12 months.
Management would like to remind everyone that certain statements on today's call may be forward-looking in nature and are subject to certain risks, uncertainties, and other factors that could cause actual results or outcomes to differ from those discussed.
The company refers you to its forward-looking statements legend in the earnings release and presentation slides. The company's risk factors are fully disclosed and discussed within its SEC filings.
In addition, certain slides containing non-GAP measures which management believes will provide more appropriate comparisons.
Speaker Change: These non-GAAP measures are intended to assist investors understanding of performance trends. Reconciliations for these numbers are contained within the appendix of the presentation. I'd now like to turn the call over to Old Nationals Chairman and CEO, Jim Ryan, for opening remarks. Mr. Ryan?
Jim Ryan: Good morning. Old National reported strong results for the fourth quarter and the full year this morning. In 2024, we successfully navigated a challenging environment while maintaining an offensive growth strategy, investing in client-facing and key support talent, and remaining opportunistic for new acquisitions.
Our basic banking strategy has served us well.
Jim Ryan: A hallmark of this strategy is our focus on low-cost core deposits, which grew by approximately 10% in 2024, funding a corresponding 10% growth in loans.
Jim Ryan: Since 2022, total deposits and loans have experienced a compounded annual growth rate of 8%. Our total cost of deposits finished the year at 1.93%, driven by a 93% down beta on our exception price deposits.
Jim Ryan: Our peer-leading deposit franchise, disciplined loan growth, strong credit quality, well-managed expenses, and dedicated team members who are committed to serving our clients and communities enabled us to exceed our expectations that we set as we began 2024.
Jim Ryan: Our full year results can be found on slide 4. Gap earnings per common share for the year were $1.68, with adjusted earnings per common share of $1.86.
Jim Ryan: Our adjusted return on average tangible common equity was 16.9% and our adjusted return on average assets was 1.14%. Notably, the adjusted efficiency ratio stood at 52%.
Jim Ryan: At the same time, our net charge-offs were low at 17 basis points, our tangible book value per share also grew by 8% year-over-year, and our total shareholder returns significantly outperformed the KRX and our Executive Peer Group in 2024.
Jim Ryan: During the first half of 2024, we successfully closed and converted Capstar Bank and Old National Bank, strengthening our presence in Nashville and other high-growth southeastern markets.
Jim Ryan: Later in the year, we announced our partnership with Bremer Bank, enhancing our presence in the Upper Midwest, and expanding our footprint across Minnesota, North Dakota, and Wisconsin.
Jim Ryan: We have recently filed our S-4 with the SEC and our regulatory applications to the OCC and the Federal Reserve in connection with our partnership. A forthcoming community growth plan will accompany this partnership, too.
Jim Ryan: After a recent visit with Bremer team members, I can report there's genuine enthusiasm for our combination, and we are excited to collaborate with the executive team and our new team members as we start the integration process.
Jim Ryan: We still anticipate closing the partnership by mid-year and completing our integration in the latter half of the year, with 100% of the cost savings projected to be realized in 2026.
Speaker Change: In summary, our 2024 EPS results were more resilient than most peers in a challenging year thanks to our relentless focus on fundamentals, growth of core deposits, strong underwriting practices, and disciplined expense management.
Speaker Change: John will provide our official 2025 outlook at the end of his prepared remarks. Looking ahead, I'm confident in our ability to navigate changes in short-term interest rates, shifts in the yield curve, and overall economic conditions as we have for the past 190 years.
Speaker Change: I want to take a moment to discuss two leadership changes announced in this morning's news release.
Speaker Change: As mentioned in the release, our President and COO, Mark Sander, will retire on June 30th.
Speaker Change: Mark has been an invaluable partner over the past few years. Although my time working alongside Mark has been brief compared to his lengthy and distinguished career, his steady leadership has played a significant role in Old National's transformation into a high-performing bank.
Speaker Change: He has helped solidify our position as one of the premier banks in the country. I would also like to acknowledge Mark's lasting impact on the Chicagoland community where he's been a prominent banking leader and a dedicated community advocate.
Speaker Change: On behalf of all of us at Old National, I express our gratitude for his daily embodiment of our organizational values.
Speaker Change: We have begun searching for Mark's successor and will consider internal and external candidates.
Speaker Change: Additionally, we announce today that Dan Herman, a highly respected business leader and a significant contributor to our corporate board for the past five years, has succeeded Becky Skillman as our lead independent director.
Speaker Change: On behalf of our executive leadership team and the board, I want to thank Becky for her invaluable guidance in this role since 2016.
Speaker Change: On a personal note, she has been an exceptional mentor and partner during my tenure as CEO. I'm pleased to share that she will continue to serve as a key member of our corporate board.
Speaker Change: I want to emphasize how fortunate we are to have Dan as our lead independent director. He brings a wealth of leadership experience, and I'm confident that our board will continue to excel under his guidance, providing strong support to our executive leadership team.
Speaker Change: Thank you. With that, I will now turn the call over to John to discuss the core results in more detail.
John: Thanks, Jim. Turning to slide 5, we reported GAAP 4Q earnings per share of $0.47. Excluding $0.02 per share of merger charges, adjusted earnings per share were $0.49. Results were driven by net interest income and margin that were in line with our expectations, strong fee income, and a favorable tax rate partially offset by incentive true-ups.
John: Credit remained benign with normalized levels of charge-offs and a return profile as measured on assets and on tangible common equity remained high.
John: On slide six, you can see our fourth quarter balance sheet, which highlights stability in our liquidity and continued improvement in our capital position.
John: Total deposit growth over the last year has again allowed us to organically fund loan growth while minimizing borrowings. Since 2022, our 8% CAGR in both loans and deposits has exceeded H-8 industry growth. As Jim mentioned, we grew our tangible book value per share by 8% over the last year.
John: We also accreted nearly 70 basis points of CET1 for the year, ending 2024 with a strong CET1 ratio of 11.38%. We continue to expect that we will accrete capital at a faster pace than most.
John: These liquidity and capital levels continue to provide a strong foundation which strengthens our position as we begin 2025.
John: On slide 7, we show trends in our earning assets. Total loans decreased 1.6 percent annualized from last quarter, with strong production in our commercial book offset by $600 million of outsized payoffs and lower line utilization. For the full year, we saw total loans grow 10 percent, or 4 percent, excluding Cap Star.
John: Quarterly new loan production rates are in the 7% range and marginal funding costs are in the high 3% range.
John: The investment portfolio was consistent with the prior quarter and duration is now just over four. We have approximately $1.5 billion in cash flow expected over the next 12 months. Today, new money yields are currently running approximately 180 basis points above back book yields on securities and fixed rate loans.
John: The repricing dynamics in both loans and securities support our expectation that net interest margin will be stable to improving in 2025.
John: Moving to slide 8, we show our trend in total deposits. Core deposits, ex- brokered, continue to grow and were up nearly 2% annualized as we remain focused on growth in this key funding source.
John: Non-interest bearing deposits were 24% of core deposits consistent with third quarter levels. Private banking and community deposits were up during the quarter while public funds saw normal seasonal decreases.
John: Our brokered deposits decreased approximately $200 million and at 3.7% as a percentage of total deposits, our use of brokered remains less than half peer levels.
The total loan-to-deposit ratio was 89% consistent with last quarter.
John: With respect to deposit costs, the 17 basis point decrease in deposit rates compared to the prior quarter played out as we expected, and total deposit costs steadily decreased in the quarter, consistent with Fed actions. Our spot rate on total deposits at December 31st was 193 basis points.
John: Moreover, our exception price deposits have experienced a 93% down beta since we started lowering rates in that book in early 2Q. Our fourth quarter total deposit beta came in at 28%, which was in line with our expectations and accelerated over the course of the quarter.
John: Overall, we are highly confident in the execution of our deposit strategy, and it continues to unfold as expected.
John: We are prepared to proactively respond to future Fed actions in the evolving environment while staying focused on driving above-peer deposit growth at reasonable costs. As we have mentioned in past calls, we remain front-footed with respect to client acquisition.
John: Slide 9 provides our quarter end income statement. We reported gap net income applicable to common shares of 150 million dollars or 47 cents per share. Excluding 2 cents per share of merger related expenses are adjusted earnings per share or 49 cents.
John: A quick note on taxes. This quarter included additional tax credit benefits which were partially offset in the operating expense line and also benefited from the resolution of certain tax matters. Without those items, our FTE tax rate would have been in line with the 25% we had guided.
John: Moving on to slide 10, we present details of our net interest income and margin. Net interest income was relatively stable, as expected, and net interest margin was likewise flattish as lower deposit costs and higher accretion were offset by increased paydowns and lower line utilization.
John: Year over year, we again showed deposit growth that essentially kept pace with asset generation while maintaining a low total cost of funding.
John: Slide 11 shows trends in adjusted non-interest income, which was $96 million for the quarter and above our expectations. Our primary fee businesses performed well with wealth, mortgage, and bank fees ahead of expectations, while capital markets declined as a result of lower CRE production. Slide 12
John: Other income benefited from $8 million of discrete items. As a reminder, looking back to third quarter, other income was also elevated by approximately $3 million, primarily related to market valuation gains.
John: Continuing to slide 12, we show the trend in adjusted non-interest expenses of $269 million to the quarter. This was slightly higher than expectations due to a $5 million year-to-date performance-driven incentive accrual true-up, as well as $1.2 million in higher tax credit amortization that is offset within the tax line that I mentioned earlier.
John: Run rate expenses remain well-controlled, and we again generated positive link quarter operating leverage.
John: On slide 13, we present our credit trends, which reflect the quality of both our commercial and consumer portfolios. Total net charge-offs were 21 basis points and a low 17 basis points, excluding four basis points related to PCD loans.
John: The non-performing loan ratio and delinquency ratios were relatively stable from last quarter.
John: The fourth quarter allowance for credit losses to total loans, including the reserve for unfunded commitments was 114 basis points, up two basis points from the prior quarter.
John: Consistent with third quarter, our qualitative reserves incorporate a 100% weighting on the Moody's S2 scenario with additional qualitative factors to capture the possibility of grade migration.
John: 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.
John: Slide 14 presents key credit metrics relative to peers. We remind you again that our proactive approach to credit monitoring has led to above-peer levels of NPLs, but delinquency and charge-off ratios that are below peer averages over time.
John: We have long practiced conservatism here, and we continue to believe that the results speak for themselves.
John: On slide 15, we review our capital position at the end of the quarter. Again, all regulatory ratios increased, driven by strong retained earnings. The increase in rates at the intermediate points of the yield curve led to a modest decrease in TCE and tangible book value per share, given a $142 million link quarter AOCI headwind.
John: Despite that headwind, tangible book value was up 8% year over year, and we expect AOCI to improve approximately 15% or $110 million over the next 12 months.
John: Slide 16 includes updated details on our rate risk position and net interest income guidance. NII is expected to be relatively stable in the first half of 2025, excluding the impact of two fewer days in the first quarter, and then increasing in the back half of the year with the benefit of fixed asset repricing, growth, and the anticipated closing of our Brammer partnership.
John: Our assumptions are listed on the slide, but I would highlight a few of the primary drivers. First, we assume two rate cuts of 25 basis points each, which is one cut more than the current forward curve.
John: Second, we anticipate our total deposit beta to accelerate from 28% in 4Q to approximately 40% as we move through 2025, in line with our terminal up betas.
John: And third, we expect the non-interest bearing mix to remain stable at 24% of total core deposits.
John: Importantly, our guidance would be unchanged for one cut or no cuts because our balance sheet remains neutrally positioned.
John: On slide 17, we include our outlook for the first quarter and full year 2025. With the exception of loan growth, all guidance includes Bremer and assumes a July 1st close. We believe current pipelines support full year loan growth of 4 to 6 percent, which is expected to ramp up over the course of the year.
John: We anticipate continued success in the execution of our deposit strategy and expect to meet or exceed industry growth in 2025.
Other key line items are highlighted on the slide.
John: At the midpoint of the range on these lines, you'll note that we expect full-year results that yield earnings per share above the current analyst consensus estimates and again feature positive operating leverage, a peer-leading return profile, good growth in fees, controlled expenses, and normalized credit.
John: In summary, 2024 results were excellent, with run rate and fourth quarter results in line with our expectations. We remained on offense, and we continued to demonstrate our ability to execute against strategic priorities.
John: First, we organically grew deposits at a sufficient pace to fund our asset generation. Both deposits and loans were ahead of overall industry growth rates.
John: Second, our adjusted return profile remains top quartile against Peters at 17% on tangible common equity.
John: Third, we remain disciplined on expenses, driving positive operating leverage and an adjusted efficiency ratio in the low 50s.
John: Fourth, our credit remained resilient and we believe we have ample reserve coverage along with a well-diversified and granular loan book. And fifth, we are continuing to compound tangible book value per share, which was up 8% year over year. With those comments, I'd like to open the call for questions.
Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 in your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. Your first question comes from a line of Ben Gerlinger from Citi. Your line is open.
Speaker Change: Good morning, Ben. Good morning. Good morning, Howard. Seems like you guys got a good start to the year.
Speaker Change: When you think about the guidance that you laid out for expenses, this is more of a clarification question than anything. Are you backing out any CDI or any sort of non-core other than the merger-related expenses for closing?
Speaker Change: Yeah, Ben, just the merger-related expenses are backed out. Everything else is fully loaded.
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Speaker Change: Okay, helpful. And then when you think about the outlook for 25 and 26.
Speaker Change: I know you already have kind of the table set in front of you here with the deal closing and then back half a year The game plan is already laid out. When you think about just capital allocation with AOC coming back and the deal priced incredibly well
Speaker Change: Is there anything that you guys can do in the medium term either outside of just core growth, either share repurchase or just anything about allocation over the next 12, 18, 24 months?
Speaker Change: Yeah, I think it's a bit early for us to to make a decision about you know How capital will be allocated clearly you know the first priority is always growth
Speaker Change: But I do think we'll have more capital flexibility if things play out the way we expect things to play out. I think we'll be in a better position probably by mid-year to have better optics into how capital management looks going forward.
The
Speaker Change: Gotcha. Now, if I could sneak one more in. It seems like loan growth across the banking industry is still a little bit muted, but there seems to be some green shoots. Are you guys seeing anything within your book, either geographically or lending? Like, I mean, any subsectors of CNI or CRE, per chance, that could be a little bit more of a leading indicator for improved growth? Not just for you guys, just kind of what you're hearing from commentary on your clients
Speaker Change: Hey Ben, it's Mark. I would say it's cautiously optimistic. It's the best thing we've said and we've guided as such.
Speaker Change: The first quarter, coming off of the quarter where we had outsized payoffs and decreases in line utilization, that has us a little more cautious about our first quarter growth. But we do think the underlying fundamentals are still really solid out there. And so that's why we feel really confident about that 4 to 6 percent we have for the full year.
Gotcha. That's helpful. I appreciate it. Thank you.
Speaker Change: Your next question comes from a line of Scott Cypress from Piper Sandler. Your line is open.
Scott Cypress: Morning, guys. Thanks for taking the question. Good morning. Good to hear from you, Scott.
Scott Cypress: Yeah, likewise. Let's see, maybe, John, first question for you. So, you've got a, you know, good, strong NII outlook for the year. I was hoping you could help us to understand a little more of the nuance of the standalone margin in coming quarters. I mean, certainly see everything on...
Scott Cypress: slide 16 with the broad assumptions, but you know, just when you think about OMB on a standalone basis, I think you said
Scott Cypress: stable to improving this year for the margin? I think you were you're talking standalone but you know sort of big puts and takes as you see them in other in other words what would be sort of the you know potential choke points that you'd worry about and by contrast maybe things where you think things could come in a little better as you look out over the year.
Scott Cypress: So seeing this in the curve and improvement in the belly is certainly something that I think could help us out a little bit, provide a little bit of a tailwind.
Perfect. Okay, great. Thank you very much.
Thanks, Scott.
Speaker Change: Your next question comes from the line of Jared Shaw from Barclays. Your line is open.
Speaker Change: Thanks. Good morning, everybody. Good morning, Jared. Maybe just going back to Ben's discussion around around capital, you know, just looking at CET-1, it's really strong. It continues to grow. You know, you mentioned some of those tailwinds.
Speaker Change: Well, I understand you're going to wait a little while to sort of get into maybe some alternative uses of capital. What capital level do you think the model needs to be at here with the
Speaker Change: The new administration, maybe the new regulatory outlook, and better than feared credit. Do you think that ultimately this model gets back down to 10% or below CET-1?
Speaker Change: Well, you know, that's a good question, and the reality is I don't think we have the answer to that question yet. I think we need to have some more time, you know, through the year to have better optics into that. Capital is running a little bit ahead of our own internal expectations.
Speaker Change: So that's a good thing. I think that also gives us some flexibilities. We think about, you know, the Bremer partnership and the balance sheet optimization. You know, maybe we can end up with more assets in the balance sheet than we originally modeled up, just because if capital comes in a touch stronger there.
Speaker Change: And then obviously we have other stakeholders out there, right? You have the rating agency's view of that and to the extent that that view, you know, changes over time I think that's something that we'll have to watch for. So we'll try to manage all the stakeholders and importantly you know our shareholders and understand that we want to have
Speaker Change: the right amount of capital, but not too much capital. And so that'll be the needle that we'll try to thread as we get just more clarity as the year unfolds here.
Speaker Change: Okay, thanks. And then, you know, on NII and beta, should we be thinking that deposit beta is sort of a linear move through the year, or is there, you know, maybe an expectation that it's not so much linear? And then, you know, I guess within that, how sensitive is your NII expectation to the long end of the curve?
Speaker Change: Yeah, that's a good question. You know, look, I'd love to say that it's going to be linear. I don't know that it plays out exactly that way, but I think, you know, point to point over the course of the year, we fully expect that we're going to we're going to capture what we gave up on upside beta. We will capture on down beta over the course of the year. We're working hard on doing that.
Speaker Change: You know in any given quarter it could come in a little bit better a little bit worse But but I think for modeling purposes linear is probably a pretty good pretty good guesstimate
Speaker Change: And then just the sensitivity to long-end rates with the longer end being up.
Speaker Change: Sorry, there was a second part to that question. Sorry about that, Jared. Yeah, I think, you know, our real sensitivity is really, it's belly of curve for the most part. You know, a couple of portfolios you're going to reprice off in the 10-year, mostly that would be in the consumer side of the house, but our real sensitivity is belly of curve. So, kind of think three-year, five-year point of the curve.
Speaker Change: Okay, thanks. And just finally for me, what's the accretion expectations within that NII guide for 25?
in total. So we had...
Speaker Change: Yeah, accretion ran a little bit heavy in the fourth quarter. That was in part due to the accelerated paydowns that we referenced. You know, we expect that that drops to about ten and a half million bucks in the first and second quarter. And there's a schedule on that in the back, and then we'll update that schedule with the full bremmer.
Speaker Change: piece of it once that becomes clear, but clear, you know, I think for now I would just go back to what we announced with the with the deal announcement in terms of accretion of the back half of 25 on the Bremer piece.
Great. Thanks a lot.
Thanks, Jerry.
Speaker Change: Your next question comes from a line of Brendon Nozzle from Hoag Group. Your line is open.
Hang them on your radar doing well.
Brendon Nozzle: Thank you. Just to circle back to the loan growth guide, I'm just kind of curious if you could unpack that a little bit and around, you know, how much you need to see paydowns and line utilization pressure ease off to help you get to that guide versus how much is going to be a pickup in originations.
I'd say it this way Brendon
Brendon Nozzle: You know, our production is still solid and strong, and our pipeline at 2.7 billion gives us plenty of ammunition, so to speak, to grow this 4 to 6 percent.
Speaker Change: Yeah, if we get if we see $600 million a quarter of outsized payoffs, it'll be that'll be a headwind. That'll be tough to fight. But it'd be very unusual for us to see that, you know, there's really outsized this quarter, like we haven't seen before. So I think you get any bit of normalcy.
Speaker Change: in paydowns and land utilization. I think that four to six percent is a really good guess.
Speaker Change: Yeah, okay, perfect. Maybe one more from me. If I just look at average earning assets outside of the loan piece, I mean average cash and average securities were up a fair bit this quarter, so there was some liquidity build that helped the NII number. I'm just kind of curious in the guise for NII, how much non-loan earning asset growth you have contemplated?
Speaker Change: I think it'll be pretty flat. I don't think we're going to build the securities book and, you know, this quarter was, you know, probably a little bit of liquidity drag, all else equal, because of the paydowns that we referenced.
Yeah, okay, fantastic. Thank you for taking the questions.
Terry Mcevoy: Your next question comes from a line of Terry McEvoy from Stevens. Your line is open.
Terry Mcevoy: Hi, thanks. Good morning. Good morning, Terry. Hopefully you're warmer than we are here in Indiana.
Speaker Change: Not much. First off, just congrats to Mark on news of your retirement. Enjoyed working with you the last few decades.
Speaker Change: And then maybe for Jim, your thoughts on kind of filling that role. I know you talked about it a bit in your prepared remarks, and maybe how important is it to have somebody with kind of a Chicagoland background kind of given the franchise there?
Speaker Change: I would start with, well, it's incredibly important to have leaders sitting right there in Chicago, obviously.
It's the biggest part of our franchise.
Speaker Change: You know, and we're going to have succession that's going to happen over the next handful of years, as you would expect, just kind of normal succession, and we'll make sure that we have our fair share of leaders sitting right there in Chicago. It's important. I'm heading there this afternoon as we speak, so this is a place that we spend an awful lot of time in. We've got an awful lot of resources dedicated.
Speaker Change: and we'll work through all the succession that will ultimately happen across our entire footprint. But I just believe in having leaders in those markets. And I would add Minnesota to that. We've got a number of leaders today in the Twin Cities area and we'll continue to have leaders there.
Speaker Change: It's yet to be determined exactly how this all plays out, but to your point, Mark's been an amazing partner. It's been important for us. It's really helped us execute on our partnership, not only in Chicago, but across our entire company.
Speaker Change: and big shoes to fill and the good news is we think we have some internal candidates.
Speaker Change: And we will go out external to see, just as we're a large organization and the complexities of our organizations continue to change, and see what's available to us.
Speaker Change: out there. And Terry, I'll just add a thank you for your kind comments. I appreciate it. I've enjoyed working with you and so many people on this line, and get a little bit more time. I'm not going anywhere for a bit. More work to do over these next five months.
Thank you. Bye.
Speaker Change: Good to hear. And Jim, you guys are no stranger to M&A with your time at ONB.
Speaker Change: What are your thoughts on just new administration, more buyers at the table? How does that change pricing, which the last couple of deals appear to have worked in your favor? And maybe, are you hearing anything at all about that $100 billion threshold, maybe moving higher under the new administration?
Speaker Change: Yeah, it's so hard to really kind of completely appreciate all of the changes that are going to occur and how that might impact You know the 100 billion dollar regulatory cliff
Speaker Change: You know, the new acting chair of the FDIC put out some new guidance today.
Speaker Change: and what the FDIC is looking at. So we're just trying to absorb it all. Clearly, one of the biggest challenges for the $100 billion mark is the TLAC.
Speaker Change: And I feel like that's gonna be under review. So that could be an interesting opportunity for banks that are gonna cross that. You know, we're nowhere near.
Speaker Change: Crossing that today and have no plans to cross that in the any time in the near future But I think is we just look ahead. That's something that that's on our radar screen
Speaker Change: When it comes to pricing, I don't know, I still think that, you know, as long as we've been doing this, I feel like there's still only, you know, one or two really good buyers for a potential partner.
And I think what we have demonstrated here is that
Speaker Change: If the partners are truly willing to look past the day-one premium,
Speaker Change: and look into the future about, you know, how do we create a really valuable organization? And that's a little bit hard to do sometimes, you know, but I think we have shown that that's the recipe for success.
Speaker Change: to get a partnership that performs incredibly well you know on day two and beyond I think it's going to be important for these things all work together you know I think everybody's hopeful that you know the approval processes will be
Speaker Change: More streamlined, you know for us that hasn't been a challenge, but I think people are hopeful for that So but nonetheless I still think it's going to come down to finding two partners that are willing to make long-term investments in each other and Part of that comes through, you know, how do you price these things that really perform? Well, you know post announcement
Speaker Change: Great. Thanks again, Jim. And a quick modeling question for John. Could you just remind me what percentage of your securities are floating right today?
Speaker Change: Maybe we'll have to get back to you on that one real quick, but I don't think it's a big, it's not a big piece.
We'll come back to you hopefully before the call here.
Speaker Change: Thirteen. Perfect. Thirteen percent, yeah. Thank you. Okay, thanks guys. Thanks, Terry. Bye.
Speaker Change: Your next question comes from a line of John Arpstrom from RBC Capital Markets. Your line is open.
Speaker Change: We know we're warmer than the Twin Cities this morning, so we're grateful for that. Yes, you are.
John Arpstrom: Can you talk a little bit more about the payoff trends? Anything unusual to call out? I know you said it was abnormally large, but anything to call out there?
John Arpstrom: You just had a little bit more capital markets activity and some secondary market refinancings and a couple of outsized ones that won't repeat, I can, I'm quite certain of. So, a little bit more, like I say, secondary market activity and then a couple of...
John Arpstrom: larger ones that skewed it. And I think the thawing of the secondary market, right, is helpful. That's generally a good thing for us. I mean, yes, we might see some increased payoffs as people access the capital markets, but I think generally speaking, you know, we want a good healthy flowing, you know, capital market section. So, so while maybe a little bit of short-term
John Arpstrom: Disappointment in the balance sheet didn't grow exactly like we thought. As we said, Mark said production was still really good. It's just with the line utilization being off and a couple of unique transactions, it just hit us towards year end here. But I think that's generally a favorable thing for all financial institutions.
John Arpstrom: Yeah, I agree. Okay. Anything new on the non-performers and classified and criticized? It looks pretty stable but, you know, curious of your overall assessment on credit from here.
John Arpstrom: Yeah, we feel good about the credit, you know, it's, it's...
John Arpstrom: continues to normalize and you know we our activity was you know kind of equal on both sides we move some things out and continue to see some migration as we get through the end review cycle so kind of a quiet quarter on credit right where we expected it to be.
Okay.
Good.
Speaker Change: And then, Jim, anything more on Bremer? Just curious what kind of feedback you're getting and, you know, updated thoughts.
Speaker Change: Now that you're not, you know, working in the dark at night, keeping it quiet, updated thoughts on what you expect from the combination.
Speaker Change: I've got to tell you, maybe I'm a broken record here, but we spent a couple days there last week and the executive team and all of the leaders we met are incredibly enthusiastic about this partnership.
Speaker Change: I don't say those words lightly. I think they're looking forward to the opportunities to grow and invest in their franchise, take a great organization and continue to build upon that greatness, bringing our two organizations together. We think there is awesome talent there, both on the client-facing side and the support side, just as we become a larger organization and need more talent.
I walked away even more enthusiastic after last week.
Speaker Change: Then we did, you know, kind of heading into the announcement, heading to year-end.
Speaker Change: I continue to be impressed by the depth and breadth of the people and again
as we think about opportunities to not only lead.
Speaker Change: what's happening in Minnesota, North Dakota, Wisconsin, but I really think there's opportunities for folks to lead.
Speaker Change: you know, entire parts of our franchise sitting right there in the Twin Cities. So, I mean, and I'm not saying this for their benefit or anybody else's benefit, but this is an amazing opportunity for us that I think we'll look back on and say, you know, that was a pivot point in our transformation.
Okay, thank you.
Thanks.
Speaker Change: Your next question comes from a line of Chris McGrady from KBW. Your line is open.
Oh, great. Morning. Morning, Chris.
Chris McGrady: First off, Mark, I go to the congrats on the retirement. Thanks. It's been great working with you over the years. John, maybe a question on slide 16, if you could, the quarterly cadence of NII, just to get the weeds for a minute.
Chris McGrady: I think I understand the first quarter down 10 or so because of the accretion that you laid out in your earlier comments. Can you help us with just the ramp in Q2? Is that entirely... you have a lot of resets in BackBook. $15 million is a decent jump in the second quarter.
Chris McGrady: Yeah, don't forget too that there's two less days in one queue, so we get those two days back in two queue, which is a helper, right? And then it's back book repricing, a little bit of growth.
Okay.
Chris McGrady: And then going back to just the closing, the mid-year closing and the CRA loans you've talked about.
Yes, selling or not bringing over
Chris McGrady: Is there a broader evaluation of just the balance sheet at time zero with either the securities you're structuring, you have all the capital to do it, is there a willingness to do something more that you're not quite ready to tell us?
that could unlock some NII.
Chris McGrady: No, I don't think so. I think what's on the table is we will take a hard look at their investment portfolio, take advantage of purchase accounting marks to reposition that likely on day two. And then the CRE sale that we highlighted, to Jim's point, capital came in better this quarter than what we had expected, depending on ultimately where things kind of move around over the next six months. We might be able to do more or less of that, but we'll continue to look at that one closely. Yeah.
Chris McGrady: I would say other than kind of normal balance sheet adjustments that we've done in every single one of our past partnerships, you know, don't expect a big balance sheet, you know, transformation here. We just don't need it, quite frankly, and I think we're sitting in a pretty good spot to deliver the balance sheet we thought we were going to deliver when we started this process.
Chris McGrady: It seems, Jim, that you're going to keep that capital for...
Chris McGrady: growth first and foremost and then you know the buyback would certainly need to come into the narrative either back half of the year early 26.
Chris McGrady: Yeah, I'm not I'm not quite sure you know you ever get really paid back for You know doing big balance sheet transformations, and you know so I just think you know all things being equal Let's deliver the capital balance sheet. We thought we were going to deliver. You know when we started out
All right, great. Thank you. Thanks.
Chris McGrady: And there are no further questions at this time. I'd like to turn the call back over to Jim Ryan for closing remarks.
Chris McGrady: Well, we're all huddled here, cold, with heaters on, trying to navigate this polar vortex. We hope you guys are all staying warm and really appreciate your support. The whole team will be here all day to answer any follow-up questions you have. Have a great day.
Chris McGrady: A replay of the call will also be available by dialing 800-770-2030, access code 9682197.
Chris McGrady: This replay will be available through February 4th. If anyone has additional questions, please contact Lynell Dirkoots at 812-464-1366. Thank you for your participation in today's conference call.